BT 2008 Annual Report Download - page 47

46 BT Group plc Annual Report & Form 20-F
In 2008, specific operating costs included £402 million (2007
and 2006: £nil) in respect of restructuring costs relating to our
transformation activities in the year. The most significant
element of the charge related to manager leaver costs, and also
property exit and transformation programme costs. A charge of
£74 million (2007: £65 million, 2006: £nil) was recognised as a
result of the completion of a review of circuit inventory and
other working capital balances which commenced in 2007. A
charge of £53 million (2007: £30 million, 2006: £70 million)
was recognised in relation to further estimated costs required to
create Openreach and deliver the Undertakings agreed with
Ofcom, particularly with regard to the introduction of
equivalence of input systems, which are due to complete in
2010. In 2007 and 2006 we incurred property rationalisation
costs of £64 million and £68 million, respectively.
In both 2008 and 2007, we recognised losses on disposal of
group undertakings, principally in relation to the disposal of our
satellite broadcast business. In 2008, the net loss on disposal
was £10 million (2007: £5 million, 2006: £nil). In 2008, we
recognised a £9 million profit arising from the receipt of
contingent consideration from the disposal of our interest in an
associate, e-peopleserve. In 2007, we also disposed of 6% of
our equity interest in our associate Tech Mahindra Limited,
resulting in a profit on disposal of £22 million.
In 2008, we agreed an outstanding tax matter relating to a
business demerged in 2001, the impact of which was a tax
credit of £40 million and this closes all open items in relation to
the settlement reached last year. In 2007, we agreed the
settlement of substantially all open UK tax matters relating to
ten tax years up to and including 2004/05 with HM Revenue
and Customs (HMRC). In 2007, the total impact of the
settlement was a net credit of £1,067 million comprising a tax
credit of £938 million representing those elements of the tax
charges previously recognised which were in excess of the final
agreed liability, interest income of £139 million and operating
costs of £10 million, representing the costs associated with
reaching this agreement. A tax credit of £154 million has also
been recognised in 2008 for the re-measurement of deferred
tax balances as a result of the change in the UK statutory
corporation tax rate from 30% to 28%, effective in 2009.
Net finance expense 2008 2007 2006
£m £m £m
................................................................................................................
Interest on borrowings 822 728 916
Loss arising on derivatives not in a
designated hedge relationship 41 48
Interest on pension scheme liabilities 2,028 1,872 1,816
Total finance expense 2,891 2,604 2,740
Income from listed investments –(7) (44)
Other interest and similar income (65) (72) (154)
Expected return on pension scheme
assets (2,448) (2,292) (2,070)
Total finance income (2,513) (2,371) (2,268)
Analysed as:
Net finance expense before specific
items and pensions 798 653 726
Interest associated with pensions (420) (420) (254)
Net finance expense before specific
items 378 233 472
Specific items –(139) –
Net finance expense 378 94 472
In 2008, net finance expense before specific items was
£378 million (2007: £233 million, 2006: £472 million). The net
finance income associated with our defined benefit pension
obligation of £420 million was at the same level as 2007, which
in turn was £166 million higher than 2006 as a result of the
increase in the value of the scheme assets over the period. The
interest on pension scheme liabilities and expected return on
pension scheme assets reflects the IAS 19 assumptions and
valuation as at the start of the financial year.
Interest on borrowings was £822 million in 2008 (2007:
£728 million, 2006: £916 million). The increase in 2008 reflects
higher net debt and higher interest rates on variable rate
borrowings. The reduction in 2007 reflects the reduction in
gross debt through the repayment of bonds on maturity, in
particular the 2005 US dollar bond and 2006 Euro bond. Losses
arising on derivatives not in a designated hedge relationship was
£41 million in 2008 (2007: £4 million, 2006: £8 million). In
2008, losses on derivatives not in a designated hedge
relationship included a charge of £26 million on a low cost
borrowing transaction which was marginally earnings positive
after tax in the year.
Interest income arising from listed investments and other
interest and similar income was £65 million in 2008 (2007: £79
million, 2006: £198 million). The reduction in interest income
mainly reflects the lower level of investment holdings following
their utilisation to fund bond maturities. In 2006, finance
Report of the Directors Financial review
.............................................................................................................................................................
3.6 times
aBefore specic items and net nance income associated with
the group’s dened benet pension scheme
interest covera in 2008