BT 2010 Annual Report Download - page 53

REVIEW OF THE YEAR FINANCIAL REVIEW
51BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
The effective corporation tax rate on our profit before specific items
is expected to increase from 22%, the rate applicable to 2010.
However, we believe that the future years’ tax effective rate will
remain below the statutory rate of 28%.
Liquidity
The major sources of group liquidity for 2010, 2009 and 2008 were
cash generated from operations and borrowing through short-term
and long-term issuances in the capital markets. These, as well as
committed bank facilities, are expected to remain the key sources
of liquidity for the foreseeable future.
Wherever possible, surplus funds in the group are managed by
the centralised treasury operation.
Free cash flow
The components of free cash flow, which is a non-GAAP measure
and a key performance indicator, are presented in the table below
and reconciled to net cash inflow from operating activities, the
most directly comparable IFRS measure. For further discussion of
the definition of free cash flow, refer to pages 55 and 56.
Free cash flow for the last five financial years is included in the
Selected financial data section on page 152.
Summarised cash flow statement
2010 2009 2008
£m £m £m
Cash generated from
operations 4,476 4,934 5,187
Net income taxes
received (paid) 349 (228) 299
Net cash inflow from
operating activities 4,825 4,706 5,486
Add back pension
deficit payment 525 – 320
Net capital expenditure (2,480) (3,038) (3,253)
Net purchase of non current
financial assets – – (1)
Dividends from associates
and joint ventures 3 6 2
Interest paid (956) (956) (842)
Interest received 16 19 111
Free cash flow 1,933 737 1,823
Deduct pension deficit
payment (525) – (320)
Acquisitions and disposals (68) (227) (364)
Net (purchase) sale of
current financial assets (246) 286 (159)
Net (repayment) drawdown
of borrowings (497) 522 2,061
Dividends paid (265) (1,222) (1,236)
Net issue (purchase) of
treasury shares 4 (209) (1,413)
Foreign exchange (7) 54 25
Net increase (decrease) in
cash and cash equivalents 329 (59) 417
Cash and cash equivalents
at the start of the year 1,115 1,174 757
Cash and cash equivalents
at the end of the year 1,444 1,115 1,174
Net cash inflow from operating activities
In 2010 cash generated from operations was £4,476m, a decrease
of 9% compared with 2009 reflecting improvements in profitability
offset by a pension deficit payment of £525m (2009: £nil, 2008:
£320m). In 2010 the group received a net tax repayment of
£349m. This comprised tax payments of £76m offset by a tax
repayment of £215m following the agreement of substantially all
outstanding tax matters with HMRC relating to the 2006 to 2008
tax years and a repayment of £210m in respect of overpaid
corporation tax in 2009. In 2009 the group paid net tax of £228m,
compared with a net tax refund of £299m received in 2008. The
net refund received in 2008 included a receipt of £521m in relation
to the settlement of open tax years up to and including the 2005
tax year, partly offset by current tax paid of £222m.
In 2010 net cash inflow from operating activities was £4,825m
(2009: £4,706m, 2008: £5,486m).
Capital expenditure
Capital expenditure is a key measure of our expenditure on
property, plant and equipment and software and is included in
Financial statistics on page 153. It excludes any assets acquired
through new acquisitions in a year. Capital expenditure, on an
accruals basis, totalled £2,533m in 2010 compared with £3,088m
and £3,339m in 2009 and 2008, respectively. Our original outlook
in May 2009 was for capital expenditure in 2010 to be around
£2.7bn. This was subsequently reduced to an outlook of around
£2.5bn, which was achieved. Capital expenditure is expected to be
around £2.6bn in 2011.
Of the capital expenditure, £280m arose outside of the UK in
2010, compared with £316m in 2009. Contracts placed for
ongoing capital expenditure totalled £383m at 31 March 2010
(2009: £451m).
In 2010 the net cash outflow for capital expenditure was
£2,480m (2009: £3,038m, 2008: £3,253m) which comprised a
cash outflow of £2,509m (2009 £3,082m, 2008: £3,315m) offset
by cash proceeds from disposals of £29m (2009: £44m, 2008:
£62m).
The capital expenditure by major area over the last three years is
shown below.
The reduction of £555m in capital expenditure in 2010 reflects
steps taken to improve procurement and better efficiency and
management of capital expenditure. It also reflects lower levels of
investment in legacy network assets and reductions in customer
Capital expenditure
(£m)
2008 2009 2010
Support
functions
Regulatory &
compliance
Access
Customer
related
Platforms &
networks
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000