BT 2011 Annual Report Download - page 54

51BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
FINANCIAL REVIEW
FINANCIAL REVIEW LIQUIDITY
Cash flow
Cash generated from operations
In 2011 cash generated from operations was £4,775m, an increase
of 7%. This reflects improvements in profitability and working
capital, offset by pension deficit payments of £1,030m (2010:
£525m, 2009: £nil) which included the early payment of the £525m
deficit payment due in December 2011. The level of working capital
improvement is not expected to be repeated in 2012.
Net income taxes (paid) received
In 2011 the group paid tax of £209m. 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,
and a repayment of £210m in respect of overpaid corporation tax
made in 2009. In 2009 the group paid tax of £228m. For further
details see Taxation below.
Net capital expenditure
In 2011 net cash outflow on capital expenditure was £2,630m
(2010: £2,480m, 2009: £3,038m) which comprised a cash outflow
of £2,645m (2010: £2,509m, 2009: £3,082m) offset by cash
proceeds from disposals of £15m (2010: £29m, 2009: £44m).
Further details on capital expenditure are provided on page 55.
Interest
Interest paid in 2011 was £973m, compared with £956m in 2010,
an increase of £17m primarily reflecting higher interest on bonds
with step-up coupons, following a downgrade by Standard & Poor’s
(S&P) in February 2010.
Interest received in 2011 was £29m, compared with £16m in
2010. Excluding interest on tax refunds in both years, interest
received was £5m higher in 2011 as a result of higher cash
balances in anticipation of funding the debt maturities in the
second half of the financial year.
Acquisitions and disposals
There were no significant acquisitions in 2011 or 2010. In 2009,
the net cash outflow principally comprised the acquisitions of Wire
One Holdings Inc, Ufindus Ltd, Ribbit Corporation and Moorhouse
Consulting Ltd.
In 2011 the group disposed of a 6.5% interest in its associate
Tech Mahindra for cash proceeds of £67m.
Net sale (purchase) of current and non-current financial assets
The cash flows in each financial year relate principally to changes in
the amounts held in liquidity funds on a short-term liquidity
management basis.
Net (repayment) receipt of borrowings
During 2011 borrowings amounting to £2,509m matured,
principally consisting of bonds of £2,500m which were funded
through existing cash and investments. This was partly offset by
£340m from bank loans. 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 its European Medium Term
Note programme and received £606m from the net issue of
commercial paper. This was partially offset by the repayment of
maturing borrowings and lease liabilities amounting to £879m.
Net purchase of shares
In 2011 9m shares were issued out of treasury to satisfy obligations
under employee share schemes and executive share awards,
receiving consideration of £8m (2010: £4m, 2009: £125m).
There were no purchases of shares in 2011 and 2010. In 2009
143m shares were repurchased for cash consideration of £334m.
Taxation
Total tax contribution
BT is a significant contributor to the UK Exchequer, collecting and
paying taxes of around £3bn in a typical year. In 2011 we collected
and paid £1,392m of VAT, £1,146m of PAYE and National
Insurance, £175m of UK corporation tax for the current year and
£176m of UK business and UK network rates.
Our total UK Exchequer tax contribution as measured in the
Hundred Group Total Tax Contribution Survey for 2010 ranked BT
the 5th highest contributor.
Tax strategy
Our strategy is to comply with relevant regulations whilst
minimising the tax burden for BT and our customers. We seek to
achieve this through engagement with our stakeholders including
HMRC and other tax authorities, partners and customers.
The Board considers that it has a responsibility to minimise the tax
burden for the group and its customers. In this respect the Board
considers it entirely proper that BT endeavours to structure its
affairs in a tax efficient manner where there is strong commercial
merit, especially in support of customer initiatives, with the aim of
supporting our capital or operational expenditure programmes and
reducing our overall cost of capital. This planning is carried out
within Board defined parameters. The Board regularly reviews the
group’s tax strategy.
We operate in over 170 countries and this comes with additional
complexities in the taxation arena.
The majority of tax issues arise in the UK with a small number of
issues arising in our overseas jurisdictions. In terms of the group’s
UK corporation tax position, all years up to 2008 are agreed. The
UK corporation tax returns for 2010 were all filed prior to the
statutory deadline.
We have an open, honest and positive working relationship with
HMRC. We are committed to prompt disclosure and transparency in
all tax matters with HMRC. We recognise that there will be areas of
differing legal interpretations between ourselves and tax
authorities and where this occurs we will engage in proactive
discussion to bring matters to as rapid a conclusion as possible.
VAT
PAYE and NI
UK Corporation tax
UK business and network rates
2011 Total tax contribution
48%
6%
6%
40%
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