BT 2010 Annual Report Download - page 55

REVIEW OF THE YEAR FINANCIAL REVIEW
53BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
Net debt
At 31 March 2010 net debt was £9,283m, compared with
£10,361m at 31 March 2009, a reduction of £1,078m. The
components of net debt, which is a non-GAAP measure, together
with a reconciliation to the most directly comparable IFRS measure,
is detailed below. The movement in the group’s net debt position in
2010 was as follows:
Foreign
exchange Acquisitions
At and fair and other At
1 April Cash value non cash 31 March
2009 flow movements movements 2010
Movements in net debt £m £m £m £m £m
Bank overdrafts 185 (177) – – 8
Debt due within 1 year 1,357 (1,006) 377 2,533 3,261
Debt due after 1 year 12,365 509 (817) (2,535) 9,522
Cash at bank and in hand (562) 360 5 – (197)
Cash equivalents (738) (519) 2 – (1,255)
Current asset investments (163) (246) 1 2 (406)
12,444 (1,079) (432) – 10,933
Adjustmentsa(2,083) – 433 – (1,650)
Net debt 10,361 (1,079) 1 – 9,283
aAdjustments to net debt of £1,650m at 31 March 2010 (2009: £2,083m) comprise £1,326m
(2009: £1,766m) arising from the re-translation of currency denominated balances at swapped
rates where hedged and £324m (2009: £317m) to remove fair value adjustments and accrued
interest.
The group has two significant term debt maturities during the
2011 financial year. In December 2010 the group’s US Dollar
8.625% note matures with a principal of $2,883m (£1,742m at
swapped rates) and in February 2011 a Euro 7.375% note matures
with a principal of €1,125m (£758m at swapped rates). The group
has built up significant liquidity in anticipation of these maturities
which, alongside cash flows generated from operations and the
group’s financing strategy, will fund this requirement. In May 2010,
the group entered into a £650m two-year facility arrangement.
There are no term debt maturities in the 2012 financial year. The
maturity profile of the group’s term debt at 31 March 2010 is
shown in the table below.
Additional disclosures relating to these financial assets and
financial liabilities are included in notes 10, 11, 14, 18 and 19 to
the consolidated financial statements and include a debt maturity
profile, currency and interest rate composition and hedging
strategy. Details of the group’s treasury management policies are
included in note 32 to the consolidated financial statements.
Pensions
Funding valuation and future funding obligations
The triennial funding valuation of the BTPS at 31 December 2008
and associated recovery plan has been agreed with the Trustee.
Under this prudent funding valuation basis at 31 December 2008,
the assets of the BTPS had a market value of £31.2bn (2005:
£34.4bn) and were sufficient to cover 77.6% (2005: 90.9%) of the
benefits accrued by that date. This represented a funding deficit of
£9.0bn compared with £3.4bn at 31 December 2005. If the
valuation had used a ‘median estimate’ approach, we estimate that
the deficit would have been about £3bn at December 2008. This
approach reflects how investments might on average be expected to
perform over time and the expected impact of the pensions review
changes implemented on 1 April 2009. In the three years ended
31 December 2008, the decline in the market value of assets,
combined with the longer life expectancy assumptions, significantly
increased the funding deficit, although the impact on the liabilities
was partially offset by an increase in the discount rate and favourable
experience compared to other actuarial assumptions used at
31 December 2005. The key demographic and financial assumptions
are set out in note 29 to the consolidated financial statements. Since
the valuation date the scheme’s assets have increased by £4.1bn and
the Trustee estimates that if the funding valuation was performed at
31 December 2009, the deficit would have been around £7.5bn on
this prudent valuation basis.
Following the agreement of the valuation the ordinary
contributions rate reduced to 13.6% of pensionable salaries
(including employee contributions) from 19.5%, reflecting the
implementation of benefit changes with effect from 1 April 2009,
following the UK pensions review. In addition, the group will make
deficit payments of £525m per annum for the first three years of
the 17 year recovery plan, the first payment of which was made in
December 2009. The payment in the fourth year will be £583m,
then increasing at 3% per annum. The payments in years four to 17
are equivalent to £533m per annum in real terms assuming annual
inflation of 3%. Under the 2005 valuation, deficit contributions
were £280m per annum for 10 years. In 2010 the group made
regular contributions of £384m (2009: £433m) and deficit
contributions of £525m. No deficit contributions were made in
2009 as they were paid in advance during 2008.
Other features of the agreements with the Trustee for BT
providing support to the scheme are:
In the event that cumulative shareholder distributions exceed
Maturity profile of term debta
(£m)
0
500
1,000
1,500
2,000
2,500
3,000
2011 2012 20142013 2015 2016 2017 2018 2019 2020 2026 2027 2028 2029 2030 2031 2038
a Balances reported at swapped rates where hedged.
£ debt $ swapped to £ € swapped to £
Financial year