BT 2010 Annual Report Download - page 54

REVIEW OF THE YEAR FINANCIAL REVIEW
52 BT GROUP PLC ANNUAL REPORT & FORM 20-F
related capital expenditure which has more than offset an increase
in our investment in our fibre roll out.
The reduction of £251m in capital expenditure in 2009 reflected
lower investment on exchange equipment and reduced
provisioning volumes in Openreach due to a lower level of house
moves and reduced LLU volumes from other CPs.
Interest
Interest paid in 2010 was £956m. Interest payments in 2010 have
remained at the same level as 2009 due to the impact of coupon
payments on bond issuance made in 2009 offsetting the lower
debt levels. Interest payments in 2008 included a one-off payment
of £26m on the close out of derivatives associated with a low cost
borrowing transaction. Excluding this payment, interest paid was
£140m higher in 2009 reflecting the impact of increased average
net debt levels.
Interest received was £16m in 2010. The interest receipts in
2010 and 2008 included £11m and £65m respectively from HMRC
on the settlement of open tax years. Excluding these receipts,
interest received was £14m lower in 2010 than in 2009 and £27m
lower in 2009 than in 2008. The reduction in 2010 is a result of
lower average 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.
Acquisitions and disposals
There were no significant acquisitions or disposals in 2010. Net
cash outflow on acquisitions was £68m in 2010 (2009: £227m,
2008: £364m) principally comprising deferred consideration
payments relating to the acquisition of Albacom in a prior period.
The total consideration for acquisitions made in 2009 was
£186m, giving rise to goodwill of £131m. In 2009 the net cash
outflow for BT Retail acquisitions included Wire One Holdings Inc
and Ufindus Ltd (total consideration of £98m; net assets acquired
of £24m; goodwill arising of £74m). The net cash outflow for BT
Innovate & Design acquisitions comprised Ribbit Corporation and
Moorhouse Consulting Ltd (total consideration of £75m; net assets
acquired of £28m; goodwill arising of £47m). BT Global Services
acquired Stemmer GmbH and SND GmbH (total consideration of
£13m; net assets acquired of £3m; goodwill of £10m).
In 2008, net cash outflow on significant new acquisitions
included Comsat International, Frontline Technologies Corporation
Limited and i2i Enterprise Private Limited.
Net (purchase) sale of current and non current financial assets
In 2010 the net cash outflow from the net sale of investments was
£246m, compared with an inflow of £286m in 2009 and an
outflow of £160m in 2008. The cash flows in all financial years
mainly related to changes in amounts held in liquidity funds.
Net (repayment) drawdown of borrowing
During 2010 borrowings amounting to £1,028m matured,
principally consisting of £697m commercial paper and £331m of
other long-term debt. In 2010, the group raised a €600m Euro
bond at 6.125% repayable in 2014 which was swapped into
£520m at a fixed semi-annual rate of 6.8%.
In 2009 the group raised debt of £795m mainly through our
European Medium Term Note programme and received £606m
from the net issue of commercial paper. This was partially offset by
cash outflows on the repayment of maturing borrowings and lease
liabilities amounting to £879m.
In 2008 the group raised debt of £3,939m mainly through its
European Medium Term Note and US Shelf programmes which was
partially offset by cash outflows on the repayment of maturing
borrowings, lease liabilities and the net repayment of commercial
paper amounting to £1,878m.
Dividends
Dividends paid in 2010 were £265m, compared with £1,222m and
£1,236m in 2009 and 2008, respectively.
Net purchase of shares
There were no purchases of shares in 2010. In 2009 we
repurchased 143m shares for cash consideration of £334m. Our
share buy back programme was suspended in July 2008 as a result
of the group’s investment in fibre-based broadband deployment.
During 2008 we repurchased 540m shares for cash consideration of
£1,498m.
In 2010, we also issued 8m shares out of treasury to satisfy
obligations under employee share scheme exercises receiving
consideration of £4m (2009: £125m, 2008: £85m).
Funding and capital management
The objective of the group’s capital management policy is to reduce
net debt over time whilst investing in the business, supporting the
pension scheme and delivering progressive dividends. In order to
meet this objective the group may issue or repay debt, issue new
shares, repurchase shares or adjust the amount of dividends paid to
shareholders. The group manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and
the risk characteristics of the group. The Board regularly reviews the
capital structure. No changes were made to the group’s objectives
and processes during 2010 and 2009.
The general funding policy is to raise and invest funds centrally to
meet anticipated requirements using a combination of capital
market bond issuance, commercial paper borrowing, committed
borrowing facilities and investments. These financial instruments
vary in their maturity in order to meet short, medium and long-
term requirements.
At 31 March 2010 the group had financial assets of £6.5bn
consisting of current and non current investments, derivative
financial assets, trade and other receivables, cash and cash
equivalents. Credit exposures are continually reviewed and
proactive steps have been taken to ensure that the impact of
adverse market conditions on these financial assets is minimised. In
particular, line of business management actively review exposures
arising from trading balances and, in managing investments and
derivative financial instruments, the treasury operation has
continued to monitor the credit quality across treasury
counterparties and is actively managing exposures which arise.
At 31 March 2010 the group’s credit rating with Standard and
Poor’s (S&P) was BBB- with stable outlook (2009: BBB with stable
outlook) following a downgrade in February 2010. The group’s
credit rating with Moody’s was maintained at Baa2 with negative
outlook (2009: Baa2 with negative outlook). Fitch downgraded the
group’s credit rating to BBB with stable outlook in April 2009
(2009: BBB+ with stable outlook).