BT 2010 Annual Report Download - page 49

REVIEW OF THE YEAR FINANCIAL REVIEW
47BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
The graph below shows the relationship between average gross
debt and interest rates over the three-year period.
Finance income
Interest income arising from listed investments and other interest
and similar income was £12m in 2010 compared with £31m in
2009 and £65m in 2008. The reduction in 2010 is a result of lower
interest rates on deposits held. The reduction in 2009 reflects lower
levels of investments held by the group and lower average interest
rates on deposits.
Net interest on pensions
The net finance expense associated with the group’s defined
benefit pension obligation of £279m in 2010 was £592m higher
compared with net finance income of £313m in 2009, which in
turn was £107m lower than 2008.
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 2010. This is expected to be a net
interest expense of around £70m in 2011 a reduction of around
£210m, principally due to increased asset values at 31 March 2010.
Interest cover
Adjusted operating profit represented 2.9 times net finance
expense before specific items and the interest associated with
pensions, which compares with interest cover of 2.5 times in 2009
and 3.6 times in 2008. The increase in cover was largely due to
higher operating profits in the year and lower net borrowing costs.
Interest cover of reported operating profit and net finance expense
represented 1.8 times net finance expense in 2010 (2009: 0.5
times, 2008: 6.2 times).
Associates and joint ventures
The results of associates and joint ventures before specific items are
shown below:
2010 2009 2008
£m £m £m
Share of post tax profit (loss)
of associates and
joint ventures 25 39 (11)
Average fixed
rate debt
Average floating
rate debt
7.7%
8.0% 7.7%
Average gross debt and interest rates
Average interest
rate
(£bn)
2008 2009 2010
0
2
4
6
8
10
12
14
Our share of the post tax profit or loss from associates and joint
ventures was a profit of £25m in 2010 (2009: £39m profit, 2008:
£11m loss). Our most significant associate is Tech Mahindra, which
contributed £25m of post tax profits in 2010 (2009: £33m profit,
2008: £5m loss).
Profit before taxation
Adjusted profit before taxation was £1,735m in 2010, compared
with £1,454m in 2009 and £2,086m in 2008. The increase in 2010
is due to the improvement in the group’s operating profit, partially
offset by higher net finance expense. The reduction in 2009 was
primarily due to the unacceptable performance in BT Global Services,
partially offset by good performance in the other lines of business.
Reported profit before taxation was £1,007m in 2010, compared
with a loss before taxation of £244m in 2009 and a profit before
taxation of £1,976m in 2008.
Taxation
The tax credit for 2010 was £22m and comprised a tax charge of
£320m on the profit before taxation and specific items of £1,456m
as shown in the Income statement on page 96 and a credit of
£342m on specific items. The effective rate on the profit before
taxation and specific items was 22% compared with the statutory
rate of 28%, reflecting the utilisation of tax losses and the
continued focus on tax efficiency within the group.
The tax credit for 2009 was £53m and comprised a tax credit of
£10m on the profit before taxation and specific items and a credit of
£43m on specific items. The effective rate of the tax credit on the
profit before taxation and specific items was (7.8)%, reflecting the tax
credit arising on the contract and financial review charges of £1,639m
recorded in the year.
The net tax charge in 2008 was £238m and comprised a charge of
£581m on profit before taxation and specific items partially offset by
a tax credit of £343m on certain specific items. The effective rate on
the profit before taxation and specific items was 23.2%.
For further details on taxation, see Taxation section on page 50.
Earnings per share
Adjusted basic earnings per share was 17.3p in 2010, compared
with 14.1p in 2009 and 20.2p in 2008, reflecting the improved
profitability in 2010. In 2010, the reported basic earnings per
share was 13.3p (2009: loss per share 2.5p, 2008: earnings per
share 21.5p).
Reported diluted earnings (loss) per share were not materially
different from reported basic earnings (loss) per share in any year
under review.
Basic and adjusted earnings (loss) per share for the last five
financial years are included in the Selected financial data section
on page 151.
Dividends
The company provides returns to shareholders through dividends.
The company has historically paid dividends semi-annually, with an
interim dividend in respect of the first six months of the year
payable in February and a final dividend payable in September.
The Board recommends a final dividend of 4.6p per share for
2010 (2009: 1.1p per share, 2008: 10.4p per share) to
shareholders, amounting to approximately £356m (2009: £85m,
2008: £805m). This will be paid, subject to shareholder approval,