BTPLC Annual Report 2005 - Consolidated Fianancial Statements

15.

Acquisitions and disposals

Acquisition of subsidiary companies and businesses

	Infonet	Albacom	Other	Total
Year ended 31 March 2005	£m	£m	£m	£m

Consideration:
Cash	315	93	18	426
Deferred	–	38	1	39

Total	315	131	19	465

In the period since acquisition these businesses have contributed £123 million to turnover and an operating loss of £9 million and are therefore not considered material to be shown separately on the face of the profit and loss account.

			Total	^d
Year ended 31 March 2004			£m


Consideration:
Cash			33
Deferred			3

Total			36

	Concert	Other	Total
Year ended 31 March 2003	£m	£m	£m

Consideration:
Cash	–	13	13
Carrying value of Concert global venture	338	–	338

Total	338	13	351

In addition, net cash of £56 million was received in settlement of the unwind of the Concert global venture.

^a	On 25 February 2005 the group acquired Infonet Services Corporation for total consideration of £520 million, including acquisition costs, (£315 million net of cash in the business). This gave rise to goodwill of £264 million.

	Book value £m		Fair value adjustments £m		Fair value £m

Fixed assets	195		(100	)	95
Current assets	93		(19	)	74
Current liabilities	(99	)	4		(95	)
Provisions for liabilities and charges	(4	)	(18	)	(22	)
Minority interest	(1	)	–		(1	)

Group’s share of original book value and fair value of net assets	184		(133	)	51
Goodwill					264

Total cost					315

The fair value adjustments are revaluations of the assets and liabilities to reflect their fair value.
Since the acquisition was made towards the end of the year ended 31 March 2005, the fair values of the identifiable assets and liabilities have been determined on a provisional basis. Goodwill arising on acquisition of Infonet is being amortised over 20 years.
In the period from 1 April 2004 to 24 February 2005 Infonet generated operating losses after tax of US$83 million (year to 31 March 2004 – US$66 million losses).

In December 2004 the group agreed to acquire the 74% interest in Albacom SpA not already held, giving BT full ownership for total consideration of £131 million, including deferred consideration of £38 million. The deferred consideration is dependent upon the financial performance of Albacom in the 2009 financial year and the minimum payable is £38 million. The transaction completed 4 February 2005. This gave rise to goodwill of £9 million.

Prior to becoming a subsidiary undertaking, Albacom SpA was accounted for as a joint venture undertaking. In accordance with FRS 2 ‘Accounting for Subsidiary Undertakings’, and in order to give a true and fair view, purchased goodwill has been calculated as the sum of the goodwill arising on each purchase of shares in Albacom, being the difference at the date of each purchase between the fair value of the consideration given and the fair value of the identifiable assets and liabilities attributable to the interest purchased. This represents a departure from the statutory method, under which goodwill is calculated as the difference between cost and fair value on the date that Albacom became a subsidiary undertaking. The statutory method would not give a true and fair view because it would result in the group’s share of Albacom’s retained reserves, during the period that it was a joint venture undertaking, being recharacterised as goodwill. The effect of this departure is to reduce retained profits by £313 million, and to reduce purchased goodwill by £313 million.

	Book value £m		Fair value adjustments £m		Fair value £m

Fixed assets	378		(11	)	367
Current assets	211		–		211
Current liabilities	(301	)	(14	)	(315	)
Long-term debt	(139	)	–		(139	)
Minority interest	(2	)	–		(2	)

Group’s share of original book value and fair value of net assets	147		(25	)	122
Goodwill					9

Total cost					131

The fair value adjustments include the elimination of goodwill recorded in the books of Albacom and the revaluation of lease obligations to fair value.
Since the acquisition was made towards the end of the year ended 31 March 2005, the fair values of the identifiable assets and liabilities have been determined on a provisional basis. Goodwill arising on the acquisition of Albacom is being amortised over 20 years.
In the period from 1 April 2004 to 3 February 2005 Albacom generated operating losses after tax of €195 million (year to 31 March 2004 – €263 million losses).


^c	During the year ended 31 March 2005, the acquisition of other subsidiary companies and businesses was principally BIC Systems Group Ltd and the consideration given comprised:

	Book value and fair value £m

Fixed assets	1
Current assets	4
Current liabilities	(2	)

Group’s share of original book value and fair value of net assets	3
Goodwill	16

Total cost	19

On 5 January 2004 the group acquired the UK trade and assets of BT Expedite Limited (formerly NSB Retail plc) for consideration of £17 million (£2 million deferred). The net liabilities acquired amounted to £1 million giving rise to goodwill of £18 million which is being amortised over a period of 5 years. On 15 March 2004 the group acquired controlling interest in Transcomm plc for consideration of £15 million. The group’s share of the net assets acquired was £2 million giving rise to goodwill of £13 million which is being amortised over a period of 13 years. On 13 January 2004 the group took full control of Siosistemi SpA for consideration of £4 million including deferred consideration of £1 million. Net assets of £1 million were acquired giving rise to goodwill of £4 million which is being amortised over a period of 10 years.

On completion of the unwind of Concert on 1 April 2002, the former Concert businesses, customer accounts and networks were returned to the two parent companies with BT and AT&T each taking ownership of substantially those parts of the Concert global venture originally contributed by them. As part of the settlement with AT&T for the unwind of the Concert global venture BT received net cash of US$72 million (£56 million). This net settlement included the receipt of US$350 million reflecting the allocation of the businesses and the payment of US$278 million to achieve the equal division of specified working capital and other liability balances. The results of the acquired businesses, both pre and post acquisition, cannot be separately identified and, therefore, cannot be reported.

	Book value and fair value £m

Fixed assets	398
Current assets	301
Current liabilities	(405	)
Provisions for liabilities and charges	(2	)
Long-term debt	(10	)

Group’s share of original book value and fair value of net assets	282
Net receivable from AT&T	56

Total net assets acquired	338
Goodwill	–

Total cost	338

The consideration was satisfied through the unwind of the Concert global venture, the carrying value of which was £338 million. Accordingly there is no further profit or loss on the unwind and no goodwill on the acquisition.


^f	During the year ended 31 March 2003, the acquisition of other subsidiary companies and businesses and the consideration given comprised:

	Book value and fair value £m

Fixed assets	1
Current liabilities	(1	)

Group’s share of original book value and fair value of net assets	–
Goodwill	13

Total cost	13

Acquisition of associates and joint ventures

On 31 July 2003 the group’s effective interest in Albacom SpA increased by 3% to 26%.

Disposal of subsidiaries

In the year ended 31 March 2003, BT disposed of subsidiaries with net assets of £12 million. Consideration amounted to £3 million resulting in a loss on disposal of £9 million.

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