BT 2010 Annual Report Download - page 56

REVIEW OF THE YEAR FINANCIAL REVIEW
54 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Off-balance sheet arrangements
As disclosed in the consolidated financial statements, there are no
off-balance sheet arrangements that have or are reasonably likely
to have a current or future material effect on the group’s financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditure or capital
resources, with the exception of financial commitments and
contingent liabilities disclosed in note 27.
Quantitative and qualitative disclosures about
interest, foreign exchange, credit and liquidity
risks
A discussion of the group’s financial risk management objectives
and policies and the exposure of the group to interest rate, foreign
exchange, credit and liquidity risk is included in note 32 to the
consolidated financial statements.
Going concern
The Review of the year section on pages 10 to 40 includes
information on the group structure, the performance of each of the
lines of business, the impact of regulation and competition,
principal risks and uncertainties and the group’s outlook. The
Financial review within this section includes information on our
financial position and resources, financial results, liquidity and
funding and capital management. Notes 10, 11, 14, 18, 19 and 32
of the consolidated financial statements include information on the
group’s investments, derivatives, cash and cash equivalents,
borrowings, financial risk management objectives, hedging policies
and exposures to credit, liquidity and market risks.
Alongside the factors noted above, the directors have considered
the group’s cash flow forecast for the period to the end of May
2011. The directors are satisfied that this cash flow forecast, taking
into account reasonably possible risk sensitivities associated with
this forecast and the group’s current funding and facilities,
alongside the group’s funding strategy, shows that the group will
continue to operate for the foreseeable future. The directors
therefore continue to have a reasonable expectation that the group
has adequate resources to continue in operational existence for the
foreseeable future and continue to adopt a going concern basis (in
accordance with the guidance ‘Going Concern and Liquidity Risk:
Guidance for Directors of UK Companies 2009’ issued by the
Financial Reporting Council) in preparing the consolidated financial
statements.
There has been no significant change in the financial or trading
position of the group since 31 March 2010.
Alternative performance measures
We assess the performance of the group using a variety of
measures, some of which are not defined under IFRS, and are
therefore termed ‘non-GAAP measures’. These measures are in
addition to, and supplement, those prepared in accordance with
IFRS. The alternative performance measures we use include
adjusted EBITDA; adjusted operating profit; adjusted profit before
taxation; adjusted earnings per share; underlying revenue;
underlying operating costs and underlying capital expenditure; free
cash flow; and net debt. Free cash flow and adjusted earnings per
share are also the group’s key financial performance indicators as
disclosed in How we measure our progress on page 7.
cumulative total pension contributions over the three-year
period to 31 December 2011, then BT will make additional
matching contributions to the scheme. Total pension
contributions (including regular contributions) are expected to
be approximately £2.4bn over the three years.
In the event that BT generates net cash proceeds greater than
£1bn from disposals and acquisitions in any 12-month period to
31 December 2011, then BT will make additional contributions
to the scheme equal to one third of those net cash proceeds.
A negative pledge that provides comfort to the scheme that
future creditors will not be granted superior security to the
scheme in excess of a £1.5bn threshold.
Whilst the valuation and the recovery plan have been agreed with
the Trustee, they are currently under review by the Pensions
Regulator. However, the Pensions Regulator’s initial view is that they
have substantial concerns with certain features of the agreement.
The Pensions Regulator has indicated it will discuss its position with
us once they have completed their review. Accordingly, as matters
stand, it is uncertain as to whether the Pensions Regulator will take
any further action. This uncertainty is outside of our control.
The number of retired members and other current beneficiaries in
the BTPS has been increasing in recent years. Consequently, our
future pension costs and contributions will principally depend on the
investment returns of the pension fund, mortality of members and
inflation, all of which could fluctuate in the medium to long-term.
To ensure that the scheme remains flexible, fair and sustainable in
the long-term there have been changes to future benefit accruals
under BTPS, as discussed in more detail on page 19.
The BTPS was closed to new entrants on 31 March 2001 and
people joining BT after that date can participate in a defined
contribution pension arrangement which provides benefits based
on the employees’ and the employing company’s contributions.
Contractual obligations and commitments
A summary of the group’s principal contractual financial obligations
and commitments at 31 March 2010 is shown below. Further
details on the items can be found in the notes to the consolidated
financial statements. Details of the group’s contingent liabilities are
included in note 27 to the consolidated financial statements.
Payments due by period
Less Between Between More
than 1 1 and 3 3 and 5 than 5
Contractual obligations Total year years years years
and commitments £m £m £m £m £m
Loans and other borrowingsa12,493 3,253 1,753 1,204 6,283
Finance lease obligations 304 16 28 20 240
Operating lease obligations 7,687 494 891 775 5,527
Capital commitments 383 330 28 23 2
Pension deficit obligations 11,012 525 1,108 1,219 8,160
Total 31,879 4,618 3,808 3,241 20,212
aExcludes fair value adjustments for hedged risks.
At 31 March 2010 the group had cash, cash equivalents and
current asset investments of £1,858m. The group also had unused
committed borrowing facilities amounting to £1,500m. At
31 March 2010, £2,532m of debt principal (at hedged rates) fell
due for repayment in the 2011 financial year. In May 2010 the
group also entered into a £650m two-year facility. These resources
will allow the group to settle its obligations as they fall due.