BT 2011 Annual Report Download - page 147

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FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Financial instruments and risk management continued
The group’s capital structure consists of net debt and shareholders’ equity. The following analysis summarises the components which the
group manages as capital:
2011 2010
At 31 March £m £m
Net debt 8,816 9,283
Total parent shareholders’ equity (deficit)a1,925 (2,650)
10,741 6,633
aSee page 104.
Net debt
Net debt consists of loans and other borrowings (both current and non-current), less current asset investments and cash and cash
equivalents. Loans and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the
debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net
realisable value. Currency denominated balances within net debt are translated to Sterling at swapped rates where hedged. Net debt is
considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the
aggregate of loans and other borrowings (current and non-current), current asset investments and cash and cash equivalents. A
reconciliation from this measure, the most directly comparable IFRS measure, to net debt is given below.
2011 2010
At 31 March £m £m
Loans and other borrowings 9,856 12,791
Less:
Cash and cash equivalents (351) (1,452)
Current asset investments (19) (406)
9,486 10,933
Adjustments:
To retranslate currency denominated balances at swapped rates where hedged (408) (1,326)
To remove fair value adjustments and accrued interest applied to reflect the effective interest method (262) (324)
Net debt 8,816 9,283
Liquidity risk management
Management policy
The group ensures its liquidity is maintained by entering into short, medium and long-term financial instruments to support operational and
other funding requirements. The group determines its liquidity requirements by the use of both short and long-term cash forecasts. These
forecasts are supplemented by a financial headroom analysis which is used to assess funding adequacy for at least a 12-month period. On at
least an annual basis the Board reviews and approves the maximum long-term funding of the group and on an ongoing basis considers any
related matters. Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters
of the policies set by the Board.
During 2011 and 2010 the group issued commercial paper and held cash, cash equivalents and current investments in order to manage
short-term liquidity requirements. In March 2011 the group signed a committed borrowing facility of £1.5bn, available for the period to
March 2016. The committed facility replaces the £1.5bn January 2013 and £650m May 2012 facilities.
Refinancing risk is managed by limiting the amount of borrowing that matures within any specified period and having appropriate strategies
in place to manage refinancing needs as they arise. In December 2010 the group’s US Dollar 9.375% bond matured with a principal of
$2.88bn (£1.74bn at swapped rates) and in February 2011 a Euro 7.87% bond matured with a principal of €1.12bn (£0.76bn at swapped
rates). Both bond maturities were financed through existing cash equivalents and investments which had been built up in anticipation of
these maturities. The maturity profile of the group’s term debt at 31 March 2011 is disclosed in note 20. The group has no term debt
maturities until the 2013 financial year.
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