BT 2012 Annual Report Download - page 151

148 Financial statements
Notes to the consolidated financial statements
26. Financial instruments and risk management continued
Capital management policy
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 paying 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 these objectives and processes during 2012 and 2011.
The group’s capital structure consists of net debt and shareholders’ equity. The following analysis summarises the components which the group
manages as capital:
2012 2011
At 31 March £m £m
Net debt 9,082 8,816
Total parent shareholders’ equitya1,297 1,925
10,379 10,741
aSee page 100.
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.
2012 2011
At 31 March £m £m
Loans and other borrowings 10,486 9,856
Less:
Cash and cash equivalents (331) (351)
Current asset investments (513) (19)
9,642 9,486
Adjustments:
To retranslate debt balances at swap rates where hedged by currency swaps (228) (408)
To remove accrued interest applied to reflect the effective interest method and fair value adjustments (332) (262)
Net debt 9,082 8,816
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.
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. The maturity profile of the group’s term debt at 31 March 2012 is disclosed in note 24. The group
has term debt maturities of £1.7bn in 2013.
During 2012 and 2011 the group issued commercial paper and held cash, cash equivalents and current investments in order to manage short-
term liquidity requirements. At 31 March 2012 the group has undrawn committed borrowing facilities of £1.5bn (2011: £1.5bn) maturing in
March 2016.
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