TIDM72NS
RNS Number : 1317O
British Telecommunications PLC
02 November 2016
BRITISH TELECOMMUNICATIONS PLC
RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2016
About BT
British Telecommunications plc (BT or group) is a wholly-owned
subsidiary of BT Group plc and encompasses virtually all businesses
and assets of the BT Group. BT Group plc is listed on stock
exchanges in London and New York.
BT's purpose is to use the power of communications to make a
better world. It is one of the world's leading providers of
communications services and solutions, serving customers in more
than 180 countries. Its principal activities include the provision
of networked IT services globally; local, national and
international telecommunications services to its customers for use
at home, at work and on the move; broadband, TV and internet
products and services; and converged fixed-mobile products and
services. BT consists of six customer-facing lines of business:
Consumer, EE, Business and Public Sector, Global Services,
Wholesale and Ventures, and Openreach.
In the year ended 31 March 2016, BT's reported revenue was
GBP19,042m with reported profit before taxation of GBP3,363m.
Group results
Half year to 30 September
---------------------------------------------------------- ---- ------------------------------
2016 2015 Change(1)
GBPm GBPm %
---------------------------------------------------------- -------- ------- -----------
Revenue
- reported (see Note 1 below) 11,782 8,819 34
- adjusted(2) 11,828 8,659 37
* change in underlying revenue(3) excluding transit
adjusted for the acquisition of EE 0.8
----------------------------------------------------------- -------- ------- -----------
Operating profit
- reported (see Note 1 below) 1,802 1,629 11
- adjusted(2) 1,984 1,642 21
---------------------------------------------------------------- -------- ------- -----------
Profit before tax
- reported (see Note 1 below) 1,488 1,453 2
- adjusted(2) 1,775 1,579 12
---------------------------------------------------------------- -------- ------- -----------
EBITDA
- reported (see Note 1 below) 3,526 2,880 22
- adjusted(2) 3,708 2,893 28
---------------------------------------------------------------- -------- ------- -----------
Capital expenditure 1,579 1,287 23
---------------------------------------------------------------- -------- ------- -----------
(1) The results for the period include EE which we acquired on
29 January 2016. Unless referred to as underlying adjusted for the
acquisition of EE, comparatives do
not include EE
(2) Before specific items which are defined in Note 5 to the
condensed consolidated financial statements
(3) Excludes specific items, foreign exchange movements and
disposals and is calculated as though EE had been part of the group
from 1 April 2015.
Notes:
1. The commentary focuses on the trading results on an adjusted
basis, which is a non-GAAP measure, being before specific items.
Unless otherwise stated, revenue, operating costs, earnings before
interest, tax, depreciation and amortisation (EBITDA), operating
profit, profit before tax and net finance expense are measured
before specific items. This is consistent with the way that
financial performance is measured by management and reported to the
Board and the Operating Committee of BT Group plc and assists in
providing a meaningful analysis of the trading results of the
group. The directors believe that presentation of the group's
results in this way is relevant to the understanding of the group's
financial performance as specific items are those that in
management's judgement need to be disclosed by virtue of their
size, nature or incidence. In determining whether an event or
transaction is specific, management considers quantitative as well
as qualitative factors such as the frequency or predictability of
occurrence. Specific items may not be comparable to similarly
titled measures used by other companies. Reported revenue, reported
operating costs, reported operating profit, reported profit before
tax and reported net finance expense are the equivalent unadjusted
or statutory measures. Reconciliations of reported to adjusted
revenue, operating costs, operating profit and profit before tax
are set out in the group income statement. Specific items are set
out in Note 5. Reconciliations of EBITDA and underlying revenue
excluding transit adjusted for the acquisition of EE to the nearest
measures prepared in accordance with IFRS are provided in Note 3
and in the Additional Information respectively.
2. Trends in underlying revenue excluding transit adjusted for
the acquisition of EE are non-GAAP measures which seek to reflect
the underlying performance of the group that contribute to
long-term sustainable growth and as such exclude the impact of
acquisitions and disposals, foreign exchange movements and any
specific items. We exclude transit from the trends as transit
traffic is low margin and is affected by reductions in mobile
termination rates. Given the significance of the EE acquisition to
the group, in 2016/17 we are calculating underlying revenue
excluding transit adjusted for the acquisition of EE as though EE
had been part of the group from 1 April 2015. This is different
from how we usually adjust for acquisitions.
3. This historical financial information adjusted for the
acquisition of EE shows EE's historical results adjusted to reflect
BT's accounting policies. In the consolidated group total, we've
eliminated historical transactions between BT and EE as though they
had been intercompany transactions. We've not made any adjustments
to reflect the allocation of the purchase price for EE. And all
deal and acquisition-related costs have been treated as specific
items and therefore don't impact the published information.
GROUP RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2016
Note: The results for the period include EE which we acquired on
29 January 2016. Unless referred to as underlying adjusted for the
acquisition of EE, the comparatives do not include EE as explained
in the notes on page 1.
Line of business results(1)
Revenue EBITDA Capital Expenditure
----------------------- ------------------------ ---------------------- ---------------------------
Half year to 2016 2015(2) Change 2016 2015(2) Change 2016 2015(2) Change
30 September GBPm GBPm % GBPm GBPm % GBPm GBPm %
----------------------- ------- ------- ------ ----- ------- ------ ------- --------- -------
Consumer 2,426 2,205 10 491 463 6 111 108 3
EE 2,520 - n/m 563 - n/m 299 - n/m
Business and Public
Sector 2,346 2,016 16 744 618 20 112 68 65
Global Services 2,659 2,408 10 251 206 22 191 178 7
Wholesale and Ventures 1,040 1,153 (10) 403 360 12 101 109 (7)
Openreach 2,525 2,516 0 1,262 1,284 (2) 694 750 (7)
Other 4 3 33 (6) (38) 84 71 74 (4)
Intra-group items (1,692) (1,642) 3 0 0 n/m 0 0 n/m
----------------------- ------- ------- ------ ----- ------- ------ ------- --------- -------
Total 11,828 8,659 37 3,708 2,893 28 1,579 1,287 23
----------------------- ------- ------- ------ ----- ------- ------ ------- --------- -------
n/m = not meaningful
The UK's exit from the EU
The weakening of Sterling has continued to impact our financial
results. While the future nature of Britain's trading relationship
with the EU and globally is currently uncertain, the Board does not
expect the result of the EU referendum to have a significant impact
on BT in the near term. We continue to monitor the longer term
impact of the UK's decision to exit the EU.
Income statement
Reported revenue was GBP11,782m, up 34%. Adjusted revenue, which
is before specific items, was GBP11,828m, up 37%, mainly as a
result of the contribution of EE. This includes a GBP201m
favourable impact from foreign exchange movements, and a GBP16m
reduction in transit revenue. Underlying revenue(3) excluding
transit adjusted for the acquisition of EE was up 0.8%. This
reflects growth in Consumer and Global Services, which was partly
offset by declines in Business and Public Sector and Wholesale and
Ventures.
Reported operating costs were up 39% and adjusted operating
costs(4) were up 41% at GBP8,120m, due mainly to EE. Net labour
costs of GBP2,446m were up 16%, reflecting the additional EE
employees that joined the group as well as leaver costs of
GBP54m.
Property and energy costs were up 23%, network operating and IT
costs up 52% and payments to telecommunications operators up 29%,
driven primarily by EE. BT Sport programme rights charges were up
54% mainly as a result of UEFA rights charges. Other costs were up
GBP1,326m or 82%, primarily reflecting EE.
Adjusted EBITDA of GBP3,708m was up 28%. Depreciation and
amortisation of GBP1,724m was up 38% largely due to the impact of
EE. Reported net finance expense was GBP307m while adjusted net
finance expense was GBP202m, up GBP135m primarily due to higher
debt as a result of our acquisition of EE.
Reported profit before tax (which includes specific items) was
GBP1,488m, up 2%. Adjusted profit before tax increased 12% to
GBP1,775m. The effective tax rate on profit before specific items
was 18.0% (HY 2015/16: 18.8%).
(1) Before specific items, which are defined on page 1
(2) Certain line of business results have been restated. See
Note 1 to the condensed consolidated financial statements
(3) Excludes specific items, foreign exchange movements and
disposals and is calculated as though EE had been part of the group
from 1 April 2015. This differs
from how we usually adjust for acquisitions as explained on page
1
(4) Before depreciation and amortisation
Specific items
Specific items resulted in a net charge after tax of GBP221m (HY
2015/16: GBP103m). See Note 5 for a breakdown.
BT Italia investigation
Following allegations of inappropriate management behaviour in
our BT Italia operations, we have conducted an initial internal
investigation. This included a review of accounting practices
during which we have identified certain historical accounting
errors and reassessed certain areas of management judgement.
We have written down the value of items on the balance sheet by
GBP145m. This is our current best estimate of the financial impact
based on our internal investigation. The write down relates to
balances that have built up over a number of years and our
assessment is that the errors have not materially impacted the
group's reported earnings over the previous two years. The amount
has been charged as a specific item in our results for the half
year.
A full investigation of these matters is ongoing and we have
appointed external advisers to assist with this. Appropriate action
will be taken as the investigation progresses.
Other specific items
Other specific items reflect EE integration costs of GBP46m (HY
2015/16: EE acquisition-related costs GBP15m), net interest expense
on pensions of GBP105m (HY 2015/16: GBP111m), property
rationalisation costs of GBP5m (HY 2015/16: GBPnil) and a profit on
disposal of a business of GBP14m (HY 2015/16: GBPnil). We also
recognised GBP6m (HY 2015/16: GBP160m) of both transit revenue and
costs, with no EBITDA impact, being the impact of ladder pricing
agreements relating to previous years. The tax credit on specific
items was GBP23m (HY 2015/16: GBP23m). We also recognised a tax
credit of GBP43m for the re-measurement of deferred tax balances
due to the UK corporation tax rate reduction (18% to 17%) effective
from 1 April 2020.
Capital expenditure
Capital expenditure was GBP1,579m (HY 2015/16: GBP1,287m) after
GBP40m (HY 2015/16: GBP65m) of net grant funding mainly relating to
the BDUK programme.
Balance sheet
Total borrowings at 30 September 2016 were GBP16,009m (31 March
2016: GBP15,792m). Debt of GBP0.4bn matured in June and in July we
repaid the GBP181m outstanding on the EE acquisition facility. Term
debt of GBP1.4bn is repayable during the remainder of 2016/17.
Short term borrowings of GBP0.9bn also include the outstanding
portion of the overdraft facility and collateral for open
mark-to-market positions.
At 30 September 2016 the group held cash and current investment
balances of GBP3.0bn. We increased our committed facility to
GBP2.1bn and extended its maturity by one year to September
2021.
On 5 July, S&P upgraded its credit rating on BT from BBB to
BBB+ with a stable outlook. We are now rated BBB+ or equivalent
with all three of the major credit rating agencies.
Pensions
The IAS 19 net pension position at 30 September 2016 was a
deficit of GBP9.5bn net of tax (GBP11.5bn gross of tax), compared
with GBP5.2bn (GBP6.4bn gross of tax) at 31 March 2016. The
increase in the deficit primarily reflects the significant fall in
the real discount rate which during the half year reduced from
0.44% to negative 0.87%, its lowest reported level, and the
reduction in the assumption for the gap between RPI and CPI. This
was partly offset by asset growth.
The planning for the triennial valuation, which takes place as
at 30 June 2017 is currently ongoing. On a similar timeframe as
previous reviews, the valuation would complete in the first half of
calendar year 2018. The IAS 19 accounting position and key
assumptions are provided in Note 6.
Regulation
On 4 October 2016, we and other stakeholders submitted responses
to Ofcom's proposals for strengthening Openreach's strategic and
operational independence. We remain of the view that our own
proposals for significant governance change provide every benefit
that Ofcom is seeking while avoiding extensive, disproportionate
costs. We will continue to engage with Ofcom over the coming
months.
The current charge controls set by Ofcom for the fixed access
markets will expire on 31 March 2017. Ofcom is currently
undertaking a review of these markets, but does not expect this to
be complete by that date. In order to provide certainty to our
customers and the wider industry, on 4 August 2016 we provided
Ofcom with a commitment to maintain a cap on the relevant price
baskets of CPI-CPI until 31 December 2017, or the conclusion of
Ofcom's review if earlier.
Related party transactions
Transactions with related parties during the half year to 30
September 2016 are disclosed in Note 9.
OPERATING REVIEW
Consumer
Half year to 30 September
----------------------------- ----- ----------------------------------
2016 2015(1) Change
GBPm GBPm GBPm %
----------------------------- -------- ---------- ------ ----
Revenue 2,426 2,205 221 10
Operating costs 1,935 1,742 193 11
------------------------------------ -------- ---------- ------ ----
EBITDA 491 463 28 6
Depreciation & amortisation 104 108 (4) (4)
------------------------------------ -------- ---------- ------ ----
Operating profit 387 355 32 9
------------------------------------ -------- ---------- ------ ----
Capital expenditure 111 108 3 3
------------------------------------ -------- ---------- ------ ----
Operating cash flow 388 271 117 43
------------------------------------ -------- ---------- ------ ----
Revenue was up 10% with a 19% increase in broadband and TV
revenue and a 5% increase in calls and lines revenue partly due to
the timing of price changes in the period.
Across BT we added 152,000 retail broadband customers,
representing 71% of the DSL and fibre broadband market net
additions. Superfast fibre broadband growth continued with 397,000
retail net additions, taking our customer base to 4.5m. Of our
broadband customers, 49% are now on fibre. Across BT we added
122,000 TV customers, growing our total TV base to 1.7m.
Operating costs increased 11% due to costs relating to the first
full season of our BT Sport Europe channels and the launch of our
new pay monthly BT Mobile handset contracts. When combined with the
Revenue growth, EBITDA increased 6% in the half year. Depreciation
and amortisation was down 4% and operating profit was up 9%.
Capital expenditure was up 3% and operating cash flow increased
43% as a result of our EBITDA growth and favourable working capital
movements relating to the timing of our BT Sport Europe rights
payments.
(1) Restated, see Note 1 to the condensed consolidated financial
statements
EE
Half year to 30
September(1)
------------------------------------------- -------------------
2016 Change
GBPm %
------------------------------------------- -------- ---------
Revenue 2,520
- underlying adjusted for the acquisition
of EE (1)
Operating costs 1,957
-------------------------------------------- -------- ---------
EBITDA 563
Depreciation & amortisation 396
-------------------------------------------- -------- ---------
Operating profit 167
-------------------------------------------- -------- ---------
Capital expenditure 299
-------------------------------------------- -------- ---------
Operating cash flow 322
-------------------------------------------- -------- ---------
Revenue was GBP2,520m. This consisted of postpaid mobile revenue
of GBP2,056m, prepaid mobile revenue of GBP205m, fixed broadband
revenue of GBP132m and equipment sales of GBP127m. Underlying
revenue(2) adjusted for the acquisition of EE was down 1%.
As at 30 September EE's 4G coverage reached 70% of the UK's
landmass (98% 4G population coverage). EE continues to be
recognised as the UK's leading mobile network by Rootmetrics,
winning its bi-annual Best UK network award for the sixth
consecutive time.
At the end of the half year the total BT mobile base was 30.2m.
We added 524,000 postpaid mobile customers, taking the postpaid
customer base to 16.4m. The number of prepaid customers reduced by
616,000, in line with industry trends, taking the base to 7.6m. The
4G customer base reached 17.6m.
Operating costs were GBP1,957m resulting in EBITDA of GBP563m.
Depreciation and amortisation was GBP396m.
Capital expenditure was GBP299m. Operating cash flow was
GBP322m.
(1) No comparative information is shown as EE was acquired by BT
on 29 January 2016. Note that these are not the results of EE
Limited; see note 1 to the
condensed consolidated financial statements
(2) Excludes specific items, foreign exchange movements and
disposals and is calculated as though EE had been part of the group
from 1 April 2015
Business and Public Sector
Half year to 30 September
----------------------------------------- --------- ----------------------------------
2016 2015(1) Change
GBPm GBPm GBPm %
----------------------------------------- ------ -------- ---------- ------ ----
Revenue 2,346 2,016 330 16
- underlying excluding transit adjusted
for the acquisition of EE (5)
Operating costs 1,602 1,398 204 15
---------------------------------------------------- -------- ---------- ------ ----
EBITDA 744 618 126 20
Depreciation & amortisation 176 135 41 30
---------------------------------------------------- -------- ---------- ------ ----
Operating profit 568 483 85 18
---------------------------------------------------- -------- ---------- ------ ----
Capital expenditure 112 68 44 65
---------------------------------------------------- -------- ---------- ------ ----
Operating cash flow 558 365 193 53
---------------------------------------------------- -------- ---------- ------ ----
Revenue was up 16% mainly reflecting the revenue generated from
the SME and corporate customers acquired with EE. Underlying
revenue(2) excluding transit adjusted for the acquisition of EE was
down 5% due to the ongoing completion of a number of public sector
contracts.
Public Sector and Major Business revenue was down 10%, with the
inclusion of EE revenue more than offset by the decline in public
sector revenue. The public sector remains a challenging
environment, and we still expect to see headwinds from the
completion of contracts in this market for this year and next.
Corporate revenue increased 59% and SME revenue was up 47%, due
to the addition of EE customers. Corporate benefited from continued
growth in calls and lines ARPU, while in SME we saw an increase in
revenue from Internet Protocol (IP) lines, partly offset by a
decline in traditional switch revenue. The higher revenue in each
was also driven by growth in mobile, with strong demand for new
handsets expected to drive higher acquisition costs going
forward.
Foreign exchange movements had a GBP24m positive impact on
Republic of Ireland revenue, where underlying revenue(2) excluding
transit was down 8% mainly due to a large one-off equipment sale in
the prior year.
Operating costs increased 15% as a result of EE and EBITDA
increased by GBP126m. Depreciation and amortisation was up GBP41m
and operating profit grew 18%, driven by the impact of EE.
Capital expenditure increased by GBP44m and operating cash flow
was GBP193m higher, reflecting the GBP126m increase in EBITDA
partly offset by the timing of working capital movements.
(1) Restated, see Note 1 to the condensed consolidated financial
statements
(2) Excludes specific items, foreign exchange movements and
disposals and is calculated as though EE had been part of the group
from 1 April 2015
Global Services
Half year to 30 September
----------------------------------------- ------ ----------------------------------
2016 2015(1) Change
GBPm GBPm GBPm %
----------------------------------------- --- -------- ---------- ------ ----
Revenue 2,659 2,408 251 10
- underlying excluding transit adjusted
for the acquisition of EE 2
Operating costs 2,408 2,202 206 9
------------------------------------------------- -------- ---------- ------ ----
EBITDA 251 206 45 22
Depreciation & amortisation 214 207 7 3
------------------------------------------------- -------- ---------- ------ ----
Operating profit 37 (1) 38 n/m
------------------------------------------------- -------- ---------- ------ ----
Capital expenditure 191 178 13 7
------------------------------------------------- -------- ---------- ------ ----
Operating cash flow (225) (244) 19 (8)
------------------------------------------------- -------- ---------- ------ ----
Revenue was up 10% including a GBP176m positive impact from
foreign exchange movements and a GBP5m increase in transit revenue.
Underlying revenue(2) excluding transit adjusted for the
acquisition of EE was up 2%.
Underlying revenue(2) excluding transit adjusted for the
acquisition of EE was up 6% in the UK driven by large one-off
equipment sales and particularly strong IP Exchange volumes. In
Continental Europe underlying revenue(2) excluding transit was up
2%. In the Americas(3) underlying revenue(2) declined 5% reflecting
the ongoing impact of a major customer insourcing services and in
AMEA(4) underlying revenue(2) was up 3%.
Operating costs increased 9%, mainly reflecting the impact of
foreign exchange movements. EBITDA increased 22%. Depreciation and
amortisation was up 3% and operating profit was GBP37m.
Capital expenditure was up 7% and operating cash flow was an
outflow of GBP225m.
(1) Restated, see Note 1 to the condensed consolidated financial statements
(2) Excludes specific items, foreign exchange movements and
disposals and is calculated as though EE had been part of the group
from 1 April 2015
(3) United States & Canada and Latin America (Americas)
(4) Asia Pacific, the Middle East and Africa (AMEA)
n/m = not meaningful
Wholesale and Ventures
Half year to 30 September
------------------------------------------ ------------------ ----------------------------------
2016 2015(1) Change
GBPm GBPm GBPm %
------------------------------------------ --- --- --- --- ------- --------- ------- -----
Revenue 1,040 1,153 (113) (10)
- underlying excluding transit adjusted
for the acquisition of EE (5)
Operating costs 637 793 (156) (20)
-------------------------------------------------------------- ------- --------- ------- -----
EBITDA 403 360 43 12
Depreciation & amortisation 151 129 22 17
-------------------------------------------------------------- ------- --------- ------- -----
Operating profit 252 231 21 9
-------------------------------------------------------------- ------- --------- ------- -----
Capital expenditure 101 109 (8) (7)
-------------------------------------------------------------- ------- --------- ------- -----
Operating cash flow 289 219 70 32
-------------------------------------------------------------- ------- --------- ------- -----
Revenue was down 10% with underlying revenue(2) excluding
transit adjusted for the acquisition of EE down 5% mainly as a
result of the decline in Partial Private Circuits and call
volumes.
Managed Solutions revenue was down 38% as last year included
revenue from contracts with EE which is no longer recognised, given
the acquisition and reorganisation of EE within the BT Group.
Data and Broadband revenue was down 3%. Again this was largely
as services provided to EE are no longer recognised as revenue. The
decline was also due to Partial Private Circuit customers
continuing to move onto newer IP based technologies. Broadband
revenue grew again as we continue to drive take-up of fibre in the
market. And Ethernet continues to deliver growth with a 17%
increase in the rental base to 41,500.
Voice revenue was down 28%. This reflects ongoing declines in
call volumes and that last year benefited from EE revenue which is
no longer recognised given the acquisition and reorganisation of EE
within the group.
Mobile generated GBP108m of revenue with most of this coming
from EE's MVNO business which is now reported within Wholesale and
Ventures.
Our Ventures business generated GBP151m of revenue, up 10% on
last year, mainly due to the messaging and data analytic services
now included following the acquisition of EE.
Operating costs decreased 20% and EBITDA increased 12%.
Depreciation and amortisation increased 17% and operating profit
increased 9%.
Capital expenditure was GBP101m down 7% and operating cash flow
was GBP289m.
(1) Restated, see Note 1 to the condensed consolidated financial
statements
(2) Excludes specific items, foreign exchange movements and
disposals and is calculated as though EE had been part of the group
from 1 April 2015
Openreach
Half year to 30 September
----------------------------- --------------------------------
2016 2015(1) Change
GBPm GBPm GBPm %
----------------------------- ------- ---------- ----- ----
Revenue 2,525 2,516 9 -
Operating costs 1,263 1,232 31 3
----------------------------- ------- ---------- ----- ----
EBITDA 1,262 1,284 (22) (2)
Depreciation & amortisation 665 664 1 -
----------------------------- ------- ---------- ----- ----
Operating profit 597 620 (23) (4)
----------------------------- ------- ---------- ----- ----
Capital expenditure 694 750 (56) (7)
----------------------------- ------- ---------- ----- ----
Operating cash flow 691 596 95 16
----------------------------- ------- ---------- ----- ----
Revenue was flat, with regulatory price reductions having a
negative impact of around GBP110m, the equivalent of around 4% of
revenue. This impact of regulation was offset by 35% growth in
fibre broadband revenue.
We continue to extend the reach of fibre broadband beyond our
commercial footprint as part of the BDUK programme. We passed
around 680,000 properties in the first half of the year which means
our superfast fibre broadband network is now available to 26m
premises.
The UK broadband(2) market grew by 212,000 connections compared
with 309,000 in the prior year while the physical line base reduced
by 101,000. We achieved 773,000 fibre broadband net connections,
taking the number of homes and businesses connected to our fibre
broadband network to 6.7m, 26% of those passed. Service providers
other than BT added 376,000 or 49% of the total net connections in
the first half of the year, demonstrating the market-wide demand
for fibre.
Operating costs grew 3%. This partly reflects the cost of
starting to clear a long tail of outstanding Ethernet orders,
including the cost of service level guarantee payments, which we
expect to continue into the second half. We also saw higher leaver
costs than in the prior half year. We continue to invest in
customer experience and remain on track to halve missed
appointments by the end of the financial year. We're ahead on all
60 minimum service levels set by Ofcom. EBITDA was down 2% and
depreciation and amortisation was flat resulting in operating
profit down 4%.
Capital expenditure was GBP694m, down GBP56m or 7%. This was
after gross grant funding of GBP73m (H1 2015/16: GBP186m) directly
related to our activity on the Broadband Delivery UK (BDUK)
programme build in the first half of the year. This was offset by
the deferral of GBP33m of the total grant funding (H1 15/16:
GBP126m).
Operating cash flow increased 16% largely due to the timing of
customer receipts.
(1) Restated, see Note 1 to the condensed consolidated financial
statements
(2) DSL and fibre, excluding cable
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Group income statement
For the half year to 30 September 2016 - unaudited
Specific
Before items
specific
items (Note 5) Total
Notes GBPm GBPm GBPm
-------------------------------- ------ --------- --------- --------
Revenue 2 11,828 (46) 11,782
Operating costs 4 (9,844) (136) (9,980)
-------------------------------- ------ --------- --------- --------
Operating profit 1,984 (182) 1,802
Finance expense (320) (105) (425)
Finance income 118 - 118
-------------------------------- ------ --------- --------- --------
Net finance expense (202) (105) (307)
Share of post-tax losses of
associates and joint ventures (7) - (7)
Profit before tax 1,775 (287) 1,488
Tax (320) 66 (254)
-------------------------------- ------ --------- --------- --------
Profit for the period 1,455 (221) 1,234
-------------------------------- ------ --------- --------- --------
Group income statement
For the half year to 30 September 2015 - unaudited
Specific
Before items
specific (Note 5) Total
items
Notes GBPm GBPm GBPm
----------------------------------- ------ --------- --------- --------
Revenue 2 8,659 160 8,819
Operating costs 4 (7,017) (173) (7,190)
----------------------------------- ------ --------- --------- --------
Operating profit 1,642 (13) 1,629
Finance expense (263) (113) (376)
Finance income 196 - 196
----------------------------------- ------ --------- --------- --------
Net finance expense (67) (113) (180)
Share of post-tax profits
of associates and joint ventures 4 - 4
Profit before tax 1,579 (126) 1,453
Tax (297) 23 (274)
----------------------------------- ------ --------- --------- --------
Profit for the period 1,282 (103) 1,179
----------------------------------- ------ --------- --------- --------
Group statement of comprehensive income
For the half year to 30 September 2016 - unaudited
Six months
to 30 September
2016 2015
GBPm GBPm
---------------------------------------------------- ------------- -------------
Profit for the period 1,234 1,179
---------------------------------------------------- ------------- -------------
Other comprehensive income (loss)
Items that will not be reclassified to the income
statement
Actuarial (losses) gains relating to retirement
benefit obligations (4,985) 157
Tax on actuarial losses and gains 815 (32)
Items that may be reclassified subsequently to
the income statement
Exchange differences on translation of foreign
operations 229 (60)
Fair value movements on available-for-sale assets (7) 6
Fair value movements on cash flow hedges
* net fair value gains (losses) 936 (76)
* recognised in income and expense (825) 121
Tax on components of other comprehensive income
that may be reclassified 1 (8)
---------------------------------------------------- ------------- -------------
Other comprehensive (loss) income for the period,
net of tax (3,836) 108
---------------------------------------------------- ------------- -------------
Total comprehensive (loss) income for the period (2,602) 1,287
---------------------------------------------------- ------------- -------------
Group statement of changes in equity
For the half year to 30 September 2016 - unaudited
Share Total
capital Share premium Reserves equity
GBPm GBPm GBPm GBPm
------------------------------ --------- -------------- --------- --------
At 1 April 2016 2,172 8,000 11,421 21,593
------------------------------ --------- -------------- --------- --------
Total comprehensive loss for
the period - - (2,602) (2,602)
Share-based payments - - 33 33
Dividends to parent company - - (2,350) (2,350)
Other movements - - 1 1
------------------------------ --------- -------------- --------- --------
At 30 September 2016 2,172 8,000 6,503 16,675
------------------------------ --------- -------------- --------- --------
For the half year to 30 September 2015 - unaudited
GBPm GBPm GBPm GBPm
----------------------------- ------ ------ -------- --------
At 1 April 2015 2,172 8,000 9,232 19,404
----------------------------- ------ ------ -------- --------
Total comprehensive income
for the period - - 1,287 1,287
Share-based payments - - 32 32
Dividends to parent company - - (1,450) (1,450)
At 30 September 2015 2,172 8,000 9,101 19,273
----------------------------- ------ ------ -------- --------
Group cash flow statement
For the half year to 30 September 2016 - unaudited
Half year to 30 September
----------------------------------------
2016 2015
GBPm GBPm
Cash flow from operating activities
Profit before tax 1,488 1,453
Share-based payments 33 32
Profit on disposal of subsidiaries and interest (14) -
in associates
Share of post-tax losses (profits) of associates
and joint ventures 7 (4)
Net finance expense 307 180
Depreciation and amortisation 1,724 1,251
Increase in working capital (200) (687)
Provisions, pensions and other non-cash
movements(1) (49) (627)
-------------------------------------------------- --------------------- -----------------
Cash inflow from operating activities(2) 3,296 1,598
Tax paid (218) (64)
-------------------------------------------------- --------------------- -----------------
Net cash inflow from operating activities 3,078 1,534
-------------------------------------------------- --------------------- -----------------
Cash flow from investing activities
Interest received 5 5
Dividends received from associates and joint
ventures - 17
Acquisition of subsidiaries(3) and joint
ventures 11 (2)
Proceeds on disposal of subsidiaries(3) 46 -
, associates and joint ventures
Purchase of non-current asset investments (21) -
Purchases of property, plant and equipment
and software (1,463) (1,225)
Proceeds on disposal of property, plant
and equipment 1 4
Outflow on non-current amounts owed to ultimate
parent company(4) (1,100) (877)
Purchases of current financial assets (4,565) (3,625)
Proceeds on disposal of current financial
assets 5,139 5,819
-------------------------------------------------- --------------------- -----------------
Net cash (outflow) inflow generated from
investing activities (1,947) 116
-------------------------------------------------- --------------------- -----------------
Cash flow from financing activities
Interest paid (287) (253)
Proceeds from bank loans and bonds 2 1
Repayment of borrowings(4,5) (392) (1,271)
Cash flows from derivatives related to net
debt 197 (66)
Net repayment on facility loans (619) -
Net cash outflow from financing activities (1,099) (1,589)
-------------------------------------------------- --------------------- -----------------
Net increase in cash and cash equivalents 32 61
-------------------------------------------------- --------------------- -----------------
Opening cash and cash equivalents 452 402
Net increase in cash and cash equivalents 32 61
Effect of exchange rate changes 30 (5)
-------------------------------------------------- --------------------- -----------------
Closing cash and cash equivalents(6) 514 458
-------------------------------------------------- --------------------- -----------------
(1) Includes pension deficit payments of GBP13m for the half
year to 30 September 2016 (HY 2015/16: GBP625m)
(2) Includes cash flows relating to TV programme rights
(3) Acquisitions and disposals of subsidiaries are shown net of
cash acquired or disposed of and includes true up of consideration
following the finalisation of the
completion balance sheet relating to the acquisition of EE
(4) In addition, there are non-cash movements in this
inter-group loan arrangement which principally relate to settlement
of dividends with the parent company
and amounts the ultimate parent company was owed by the parent
company which were settled through their loan accounts with
British
Telecommunications plc. For further details see Note 9
(5) Repayment of borrowings includes the impact of hedging and
repayment of lease liabilities
(6) Net of bank overdrafts of GBP59m at 30 September 2016 (30
September 2015: GBP527m; 31 March 2016: GBP537m)
Group balance sheet
30 September 30 September 31 March
2016 - 2015(1) 2016(1)
unaudited - -
unaudited audited
GBPm GBPm GBPm
--------------------------------------- --------------- --------------- -----------
Non-current assets
Intangible assets 15,242 3,084 15,444
Property, plant and equipment 16,251 13,607 16,010
Derivative financial instruments 2,352 1,124 1,462
Investments 11,667 19,093 11,965
Associates and joint venture 24 15 24
Trade and other receivables 257 179 233
Deferred tax assets 2,061 1,420 1,247
47,854 38,522 46,385
--------------------------------------- --------------- --------------- -----------
Current assets
Programme rights 624 541 225
Inventories 270 112 189
Trade and other receivables 4,012 3,331 4,072
Current tax receivable 65 65 65
Derivative financial instruments 280 77 177
Investments 2,489 1,523 3,271
Cash and cash equivalents 573 985 989
8,313 6,634 8,988
--------------------------------------- --------------- --------------- -----------
Current liabilities
Loans and other borrowings 3,721 1,504 3,756
Derivative financial instruments 42 62 48
Trade and other payables 7,504 5,305 7,334
Current tax liabilities 291 289 271
Provisions 182 137 171
11,740 7,297 11,580
--------------------------------------- --------------- --------------- -----------
Total assets less current liabilities 44,427 37,859 43,793
--------------------------------------- --------------- --------------- -----------
Non-current liabilities
Loans and other borrowings 12,288 8,411 12,036
Derivative financial instruments 1,004 851 863
Retirement benefit obligations 11,491 6,958 6,382
Other payables 1,202 1,032 1,105
Deferred tax liabilities 1,234 955 1,262
Provisions 533 379 552
27,752 18,586 22,200
--------------------------------------- --------------- --------------- -----------
Equity
Ordinary shares 2,172 2,172 2,172
Share premium 8,000 8,000 8,000
Other reserves 1,752 1,191 1,410
Retained earnings 4,751 7,910 10,011
Total equity 16,675 19,273 21,593
--------------------------------------- --------------- --------------- -----------
44,427 37,859 43,793
--------------------------------------- --------------- --------------- -----------
(1) Restated to reflect gross position for cash pooling
arrangements, see Note 1 to the condensed consolidated financial
statements
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation and accounting policies
These condensed consolidated financial statements ('the
financial statements') comprise the financial results of British
Telecommunications plc for the half years to 30 September 2016 and
2015 together with the audited balance sheet at 31 March 2016 and
the unaudited balance sheet at 30 September 2015. The financial
statements have been prepared in accordance with the Disclosure and
Transparency Rules (DTR) of the Financial Conduct Authority and
with IAS 34 Interim Financial Reporting as adopted by the European
Union and as issued by the International Accounting Standards
Board. The financial statements should be read in conjunction with
the annual financial statements for the year to 31 March 2016.
Having reassessed the principal risks, the directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
Except as described below, and other than income taxes which are
accrued using the tax rate that is expected to be applicable for
the full financial year, the financial statements have been
prepared in accordance with the accounting policies as set out in
the annual financial statements for the year to 31 March 2016 and
have been prepared under the historical cost convention as modified
by the revaluation of financial assets and liabilities (including
derivative financial instruments) at fair value. These financial
statements do not constitute statutory accounts within the meaning
of Section 434 of the Companies Act 2006. Statutory accounts for
the year to 31 March 2016 were approved by the Board of Directors
on 12 May 2016, published on 26 May 2016, and delivered to the
Registrar of Companies. The report of the auditors on those
accounts was unqualified and did not contain any statement under
Section 498 of the Companies Act 2006. The EE line of business
results do not constitute the entirety of EE Limited.
Restatement of segment results
From 1 April 2016, the group has reorganised and the reporting
segments have changed. The group now has six customer-facing lines
of business:
-- BT Consumer remains a separate segment, renamed Consumer;
-- EE's consumer division is a separate segment;
-- BT Business has become Business and Public Sector and
includes the UK corporate and public sector operations from BT
Global Services as well as EE's business division;
-- BT Global Services has been renamed Global Services and is
focused on multinational customers;
-- BT Wholesale has become Wholesale and Ventures and includes
EE's MVNO operations and certain specialist businesses that were
previously in the BT Business segment; and
-- Openreach.
In addition, EE's technology team is now the mobile technology
unit of our internal service unit, Technology, Service and
Operations.
Comparative results for all six customer facing lines of
business have been restated to be presented on a consistent basis.
There is no impact on the total group results.
Restatement of cash pooling arrangements
An IFRIC clarification on IAS 32 Financial Instruments
Presentation - Offsetting and cash pooling arrangements was
released in April 2016. This clarifies a requirement to gross up
cash and overdraft balances associated with notional cash pooling
arrangements on the group balance sheet.
As a result the group has restated the comparative balance
sheets as at 31 March 2016 and 30 September 2015. The impact is to
increase cash and cash equivalents and short term loans and other
borrowings by GBP511m at 30 September 2015 and GBP499m at 31 March
2016.
2 Operating results - by line of business(1)
External Internal Group EBITDA Operating
Revenue Revenue Revenue Profit
(loss)
GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- --------- ------- ------------
Half year to 30 September
2016
Consumer 2,394 32 2,426 491 387
EE 2,501 19 2,520 563 167
Business and Public Sector 2,285 61 2,346 744 568
Global Services 2,659 - 2,659 251 37
Wholesale and Ventures 974 66 1,040 403 252
Openreach 1,011 1,514 2,525 1,262 597
Other 4 - 4 (6) (24)
Intra group items(2) - (1,692) (1,692) - -
---------------------------- --------- --------- --------- ------- ------------
Total 11,828 - 11,828 3,708 1,984
---------------------------- --------- --------- --------- ------- ------------
Half year to 30 September
2015(3)
Consumer 2,174 31 2,205 463 355
EE - - - - -
Business and Public Sector 1,967 49 2,016 618 483
Global Services 2,408 - 2,408 206 (1)
Wholesale and Ventures 1,112 41 1,153 360 231
Openreach 995 1,521 2,516 1,284 620
Other 3 - 3 (38) (46)
Intra group items(2) - (1,642) (1,642) - -
Total 8,659 - 8,659 2,893 1,642
---------------------------- --------- --------- --------- ------- ------------
3 Reconciliation of earnings before interest, taxation, depreciation and amortisation
Earnings before interest, taxation, depreciation and
amortisation (EBITDA) is not a measure defined under IFRS, but is a
key indicator used by management to assess operational performance.
A reconciliation of reported profit before tax to adjusted EBITDA
is provided below.
Half year
to 30 September
-------------------
2016 2015
GBPm GBPm
------------------------------------------- ------------ -------- --------- --------
Reported profit before tax 1,488 1,453
Share of post-tax losses (profits) of associates
& joint ventures 7 (4)
Net finance expense 307 180
------------------------------------------------------------------- --------- --------
Operating profit 1,802 1,629
Depreciation and amortisation 1,724 1,251
------------------------------------------------------------------- --------- --------
Reported EBITDA 3,526 2,880
Specific items (Note 5) 182 13
------------------------------------------------------------------- --------- --------
Adjusted EBITDA 3,708 2,893
------------------------------------------------------------------- --------- --------
(1) Before specific items
(2) Elimination of intra-group revenue, which is included in the
total revenue of the originating business.
(3) Restated, see Note 1 to the condensed consolidated financial statements
4 Operating costs
Half year
to 30 September
---------------------------------
2016 2015
GBPm GBPm
------------------------------------------- ------------------ ----------------- ----------------
Direct labour costs 2,578 2,280
Indirect labour costs 402 370
Leaver costs 54 36
------------------------------------------------------------------- ----------------- ----------------
Total labour costs 3,034 2,686
Capitalised labour (588) (581)
------------------------------------------------------------------- ----------------- ----------------
Net labour costs 2,446 2,105
Payments to telecommunications
operators 1,327 1,029
Property and energy costs 600 486
Network operating and IT costs 455 299
Programme rights charges 340 221
Other costs 2,952 1,626
------------------------------------------------------------------- ----------------- ----------------
Operating costs before depreciation, amortisation
and specific items 8,120 5,766
Depreciation and amortisation 1,724 1,251
------------------------------------------------------------------- ----------------- ----------------
Total operating costs before specific
items 9,844 7,017
Specific items (Note 5) 136 173
------------------------------------------------------------------- ----------------- ----------------
Total operating costs 9,980 7,190
------------------------------------------------------------------- ----------------- ----------------
5 Specific items
The group separately identifies and discloses those items that
in management's judgement need to be disclosed by virtue of their
size, nature or incidence (termed 'specific items'). This is
consistent with the way that financial performance is measured by
management and assists in providing a meaningful analysis of the
trading results of the group. Specific items may not be comparable
to similarly titled measures used by other companies.
Half year
to 30 September
----------------------
2016 2015
GBPm GBPm
----------------------------------- ----------- ------------ -------- --------
Specific revenue
BT Italia investigation (see 52 -
page 3)
Retrospective regulatory matters (6) (160)
-------------------------------------------------------------- -------- --------
Specific revenue 46 (160)
-------------------------------------------------------------- -------- --------
Specific operating costs
BT Italia investigation (see
page 3) 93 -
Profit on disposal of business (14) -
Property rationalisation costs 5 -
Retrospective regulatory matters 6 160
EE integration costs 46 -
EE acquisition-related costs - 13
Specific operating costs 136 173
-------------------------------------------------------------- -------- --------
EBITDA impact (Note 3) 182 13
-------------------------------------------------------------- -------- --------
Net interest expense on pensions 105 111
EE acquisition-related finance
costs - 2
-------------------------------------------------------------- -------- --------
Net specific items charge before
tax 287 126
Tax credit on specific items before
tax (23) (23)
Tax credit on re-measurement of (43) -
deferred tax
Net specific items charge after
tax 221 103
---------------------------------------- ---------- -------- -------- --------
6 Pensions
30 September 2016 31 March 2016
---------------------- ----------------------
GBPbn GBPbn
------------------------- ---------------------- ----------------------
IAS 19 liabilities
- BTPS (59.9) (49.1)
Assets - BTPS 49.1 43.1
Other schemes (0.7) (0.4)
-------------------------- ---------------------- ----------------------
Total IAS 19 deficit,
gross of tax (11.5) (6.4)
-------------------------- ---------------------- ----------------------
Total IAS 19 deficit,
net of tax (9.5) (5.2)
-------------------------- ---------------------- ----------------------
Discount rate (nominal) 2.20% 3.30%
Discount rate (real) (0.87)% 0.44%
RPI inflation 3.10% 2.85%
CPI inflation 0.7% below RPI 1.0% below RPI
until 31 March until 31 March
2019 and 1.2% 2017 and 1.2%
below RPI thereafter below RPI thereafter
-------------------------- ---------------------- ----------------------
The IAS 19 net pension position at 30 September 2016 was a
deficit of GBP9.5bn net of tax (GBP11.5bn gross of tax), compared
with GBP5.2bn (GBP6.4bn gross of tax) at 31 March 2016. The
increase in the deficit primarily reflects the significant fall in
the real discount rate which during the half year reduced from
0.44% to negative 0.87% and the reduction in the assumption for the
gap between RPI and CPI. This was partly offset by asset
growth.
7 Financial instruments and risk management
Fair value of financial assets and liabilities measured at
amortised cost
At 30 September 2016, the fair value of loans and borrowings was
GBP18,736m (31 March 2016: GBP17,531m) and the carrying value was
GBP16,009m (31 March 2016: GBP15,792m).(1)
The fair value of the following financial assets and liabilities
approximate their carrying amount:
-- Cash and cash equivalents
-- Trade and other receivables
-- Trade and other payables
-- Provisions
-- Investments classified as loans and receivables
The group's activities expose it to a variety of financial
risks: market risk (including interest rate risk and foreign
exchange risk); credit risk; and liquidity risk. There have been no
changes in our risk management policies which cover these risks
since 31 March 2016.
Fair value estimation
Financial instruments measured at fair value consist of
derivative financial instruments and investments classified as
available-for-sale or designated at fair value through profit and
loss. These instruments are further analysed by three levels of
valuation methodology which are:
-- Level 1 - uses quoted prices in active markets for identical assets or liabilities
-- Level 2 - uses inputs for the asset or liability other than
quoted prices, that are observable either directly or
indirectly
-- Level 3 - uses inputs for the asset or liability that are not
based on observable market data, such as internal models or other
valuation methods.
The fair value of the group's outstanding derivative financial
assets and liabilities were estimated using discounted cash flow
models and market rates of interest and foreign exchange at the
balance sheet date.
(1) Restated to reflect gross position for cash pooling
arrangements, see Note 1 to the condensed consolidated financial
statements
7 Financial instruments and risk management (continued)
Total held
Level Level Level Total held at amortised
30 September 2016 1 2 3 at fair value cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- -------- -------- ---------------- --------------- --------
Investments
Available-for-sale 17 2,202 16 2,235 - 2,235
Fair value through
profit and loss 7 - - 7 - 7
Loans and receivables(1) - - - - 11,914 11,914
Derivative assets
Designated in
a hedge - 2,225 - 2,225 - 2,225
Fair value through
profit and loss - 407 - 407 - 407
-------------------------- -------- -------- -------- ---------------- --------------- --------
Total assets 24 4,834 16 4,874 11,914 16,788
-------------------------- -------- -------- -------- ---------------- --------------- --------
Derivative liabilities
Designated in
a hedge - 712 - 712 - 712
Fair value through
profit and loss - 334 - 334 - 334
-------------------------- -------- -------- -------- ---------------- --------------- --------
Total liabilities - 1,046 - 1,046 - 1,046
-------------------------- -------- -------- -------- ---------------- --------------- --------
Total held
Level Level Level Total held at amortised
1 2 3 at fair value cost Total
31 March 2016 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- -------- -------- ---------------- --------------- --------
Investments
Available-for-sale 24 2,878 15 2,917 - 2,917
Fair value through
profit and loss 7 - - 7 - 7
Loans and receivables(1) - - - - 12,312 12,312
Derivative assets
Designated in
a hedge - 1,324 - 1,324 - 1,324
Fair value through
profit and loss - 315 - 315 - 315
-------------------------- -------- -------- -------- ---------------- --------------- --------
Total assets 31 4,517 15 4,563 12,312 16,875
-------------------------- -------- -------- -------- ---------------- --------------- --------
Derivative liabilities
Designated in
a hedge - 658 - 658 - 658
Fair value through
profit and loss - 253 - 253 - 253
-------------------------- -------- -------- -------- ---------------- --------------- --------
Total liabilities - 911 - 911 - 911
-------------------------- -------- -------- -------- ---------------- --------------- --------
(1) Loans and receivables include investments in term deposits
of GBP177m (31 March 2016: GBP40m)
No gains or losses have been recognised in the income statement
in respect of Level 3 assets in the half year to 30 September 2016
(HY 2015/16: GBPnil). There were no changes to the valuation
methods or transfers between levels 1, 2 and 3 during the half
year.
8 Financial commitments
Capital expenditure for property, plant and equipment and
software contracted for at the balance sheet date but not yet
incurred was GBP957m (30 September 2015: GBP498m; 31 March 2016:
GBP922m). Programme rights commitments, mainly relating to football
broadcast rights for which the licence period has not yet started,
were GBP1,449m (30 September 2015: GBP1,989m; 31 March 2016:
GBP2,026m).
9 Related party transactions
British Telecommunications plc and certain of its subsidiaries
act as a funder and deposit taker for cash related transactions for
both its parent (BT Group Investments Limited) and ultimate parent
company (BT Group plc). The loan arrangements described below with
these companies reflect this. Cash transactions normally arise
where the parent and ultimate parent company are required to meet
their external payment obligations or receive amounts from third
parties. These principally relate to the payment of dividends, the
buyback of shares, the exercise of share options and the issuance
of ordinary shares. Transactions between the ultimate parent
company, parent company and the group are settled on both a cash
and non-cash basis through these loan accounts depending on the
nature of the transaction.
In 2001/02 the group demerged its former mobile phone business
and as a result BT Group plc became the listed ultimate parent
company of the group. The demerger steps resulted in the formation
of an intermediary holding company, BT Group Investments Limited,
between BT Group plc and British Telecommunications plc. This
intermediary company held an investment of GBP18.5bn in British
Telecommunications plc which was funded by an intercompany loan
facility with British Telecommunications plc.
On 29 January 2016 BT Group plc completed the acquisition of EE,
funded by a loan from British Telecommunications plc. Immediately
following the completion of the transaction BT Group plc sold its
investment in EE to British Telecommunications plc, funded through
intercompany loans. The net impact of the overall EE transaction
resulted in a reduction in the non-current loan receivable from the
immediate parent company to GBP10.5bn.
As at 30 September 2016 the loan facilities with both the parent
company and ultimate parent company accrue interest at a rate of 12
month LIBOR plus 102.5 basis points and are subject to an overall
maximum of GBP25bn and GBP10bn respectively. The parent company
currently finances its obligations on the loan as they fall due
through dividends from the company.
A dividend of GBP2,350m (HY 2015/16: GBP1,450m) was settled on
12 May 2016 with the parent company in relation to the year ended
31 March 2016. On 15 August 2016, the parent company used GBP1,775m
of this dividend to repay part of a loan payable to the ultimate
parent company. British Telecommunications plc settled this through
intercompany loan accounts with the ultimate parent company on
behalf of the parent company. The ultimate parent company has
subsequently drawn down GBP1,100m from this deposit to fund its
share buyback programme and payments of external dividends this
financial year.
A summary of the balances with the parent and ultimate parent
companies and the finance income or expense arising in respect of
these balances is shown below:
Asset (liability) Finance income (expense)
------------------------ -----------------------------
30 September 31 March 30 September 30 September
2016 2016 2016 2015
GBPm GBPm GBPm GBPm
------------------------------- ------------- --------- -------------- -------------
Amounts owed by (to) parent
company
Loan facility - non-current
asset investments 10,261 10,510 95 172
Loan facility - current asset
investments 95 327 n/a n/a
Trade and other payables (70) (70) n/a n/a
------------------------------- ------------- --------- -------------- -------------
Amounts owed by (to) ultimate
parent company
Non-current asset investments 1,366 1,409 15 13
Non-current liabilities(1) (1,024) (1,004) (12) (10)
Trade and other receivables 11 9 n/a n/a
Current asset investments 15 26 n/a n/a
Current liabilities (628) (20) n/a n/a
Trade and other payables (20) - n/a n/a
------------------------------- ------------- --------- -------------- -------------
(1) In February 2015 the ultimate parent company raised GBP1.0bn
from an equity placing and entered into an additional intercompany
loan agreement with BT plc
for this amount. This amount was raised to support BT Group's
planned acquisition of EE.
10 Principal risks and uncertainties
We have processes for identifying, evaluating and managing our
risks. Details of our principal risks and uncertainties can be
found on pages 19 to 29 of the Annual Report & Form 20-F 2016
and are summarised below. All of them have the potential to have an
adverse impact on our business, revenue, profits, assets, liquidity
and capital resources.
-- The risks arising from operating in markets which are
characterised by: high levels of change; strong and new
competition; declining prices and in some markets declining
revenue; technology substitution; market and product convergence;
customer churn; and regulatory intervention to promote competition
and reduce wholesale prices
-- The risks that could impact the security of our data or the
resilience of our operations and services
-- The risks associated with complex and high value national and
multinational customer contracts
-- The risks associated with a significant funding obligation in
relation to our defined benefit pension scheme
-- The risks associated with some of our activities being
subject to significant price and other regulatory controls,
including the risks that could arise from the outcome of Ofcom's
strategic review of the digital communications market
-- The risks associated with operating under a wide range of
local and international anti-corruption and bribery laws, trade
sanctions and import and export controls
-- The risk there could be a failure of any of our critical
third-party suppliers to meet their obligations
-- The risks arising from operating as a major data controller
and processor of customer information around the world
-- The risks arising from our operational activities, and in
particular the work of our engineers, that are subject to health
and safety regulation and enforcement by national authorities
-- The risks associated with the transmission of radio waves
from mobile telephones, transmitters and associated equipment -
although according to the World Health Organisation there are no
known adverse effects on health from emissions at levels below
internationally recognised health and safety standards
There have been no significant changes to the principal risks
and uncertainties in the half year to 30 September 2016. These
principal risks and uncertainties continue to have the potential to
impact our results or financial position during the remaining six
months of the financial year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm, to the best of their knowledge, that this
condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the Interim Management Report includes a fair review of the
information required by Rules 4.2.7 and 4.2.8 of the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
By order of the Board
Glyn Parry
Director
1 November 2016
Independent review report to British Telecommunications plc
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed British Telecommunications plc's condensed
consolidated financial statements (the "interim financial
statements") in the half year financial report of British
Telecommunications plc for the 6 month period ended 30 September
2016. Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Group balance sheet as at 30 September 2016;
-- the Group income statement and Group statement of
comprehensive income for the period then ended;
-- the Group cash flow statement for the period then ended;
-- the Group statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half year
financial report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRS) as adopted by the European Union and IFRS as issued by the
International Accounting Standards Board.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half year financial report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half
year financial report in accordance with the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half year financial report based on our
review. This report, including the conclusion, has been prepared
for and only for the company for the purpose of complying with the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half year
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
1 November 2016
a) The maintenance and integrity of the British
Telecommunications plc website is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the interim financial statements since they were initially
presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Additional information
This additional information does not form part of the financial
statements.
Reconciliation of trends in underlying revenue excluding transit
adjusted for the acquisition of EE
Trends in underlying revenue excluding transit adjusted for the
acquisition of EE are non-GAAP measures which seek to reflect the
underlying performance that will contribute to long-term profitable
growth. A reconciliation from the trend in reported revenue, the
most directly comparable IFRS measure, to the trend in underlying
revenue excluding transit adjusted for the acquisition of EE, is
set out below.
2016
Half year to 30 September %
----------------------------------------------------------- -------
Increase in reported revenue 33.6
Specific items 3.0
Increase in adjusted revenue 36.6
Adjusted for the acquisition of EE(1) (34.2)
----------------------------------------------------------- -------
Increase in adjusted revenue adjusted for the acquisition
of EE(1) 2.4
Transit revenue 0.2
Foreign exchange movements (1.8)
----------------------------------------------------------- -------
Increase in underlying revenue excluding transit adjusted
for the acquisition of EE 0.8
----------------------------------------------------------- -------
Forward-looking statements - caution advised
Certain statements in these financial statements are
forward-looking and are made in reliance on the safe harbour
provisions of the US Private Securities Litigation Reform Act of
1995.
Although BT believes that the expectations reflected in these
forward-looking statements are reasonable, it can give no assurance
that these expectations will prove to have been correct. Because
these statements involve risks and uncertainties, actual results
may differ materially from those expressed or implied by these
forward-looking statements.
Factors that could cause differences between actual results and
those implied by the forward-looking statements include, but are
not limited to: material adverse changes in economic conditions in
the markets served by BT whether as a result of the uncertainties
arising from the UK's exit from the EU or otherwise; future
regulatory and legal actions, decisions, outcomes of appeal and
conditions or requirements in BT's operating areas, including the
outcome of OFCOM's strategic review of digital communications in
the UK, as well as competition from others; selection by BT and its
lines of business of the appropriate trading and marketing models
for its products and services; fluctuations in foreign currency
exchange rates and interest rates; technological innovations,
including the cost of developing new products, networks and
solutions and the need to increase expenditures for improving the
quality of service; prolonged adverse weather conditions resulting
in a material increase in overtime, staff or other costs, or impact
on customer service; developments in the convergence of
technologies; external threats to cyber security, data or
resilience; political and geo-political risks; the anticipated
benefits and advantages of new technologies, products and services
not being realised; the timing of entry and profitability of BT in
certain markets; significant changes in market shares for BT and
its principal products and services; the underlying assumptions and
estimates made in respect of major customer contracts proving
unreliable; the anticipated benefits and synergies of the EE
integration not being delivered; and general financial market
conditions affecting BT's performance and ability to raise finance.
BT undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
(1) Includes EE's historical financial information as though it
had been part of the group from 1 April 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KLLBBQFFXFBD
(END) Dow Jones Newswires
November 02, 2016 06:15 ET (10:15 GMT)
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