TIDM72NS
RNS Number : 3118W
British Telecommunications PLC
13 November 2017
British Telecommunications plc
RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2017
13 November 2017
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 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: BT Consumer, EE,
Business and Public Sector, Global Services, Wholesale and
Ventures, and Openreach. In the year ended 31 March 2017, BT's
reported revenue was GBP24,062m with reported profit before
taxation of GBP2,551m.
Following the resignation of Sean Williams as a director of BT
with effect from 29 September 2017, Simon Lowth, Neil Harris and
Patrick Bradley were appointed directors of BT with effect from 17
October 2017. Glyn Parry remains a director of BT.
Group results for the half year to 30 September 2017
Half year
to 30 September
============================================= ==========================
2017 2016 Change
GBPm GBPm %
============================================= ======== ======= =======
Revenue
- reported 11,786 11,782 -
- adjusted(1) 11,800 11,828 -
- change in underlying(1) revenue excluding
transit (0.7)
============================================= ======== ======= =======
EBITDA
- reported 3,211 3,526 (9)
- adjusted(1) 3,598 3,708 (3)
Operating profit
- reported 1,454 1,802 (19)
- adjusted(1) 1,841 1,984 (7)
============================================= ======== ======= =======
Profit before tax
- reported 1,174 1,488 (21)
- adjusted(1) 1,670 1,775 (6)
============================================= ======== ======= =======
Capital expenditure 1,693 1,580 7
============================================= ======== ======= =======
Line of business results
Adjusted(1) revenue Adjusted(1) EBITDA Capital expenditure
======================== =========================== ========================== ===========================
Half year to 2017 2016 Change 2017 2016 Change 2017 2016 Change
30 September GBPm GBPm % GBPm GBPm % GBPm GBPm %
======================== ======== ======== ======= ======= ======= ======== ======== ======= ========
BT Consumer 2,516 2,426 4 478 491 (3) 133 111 20
EE 2,617 2,520 4 661 563 17 328 299 10
Business and Public
Sector 2,281 2,346 (3) 694 744 (7) 152 112 36
Global Services 2,506 2,659 (6) 154 251 (39) 128 191 (33)
Wholesale and Ventures 997 1,040 (4) 361 403 (10) 106 101 5
Openreach 2,548 2,525 1 1,238 1,262 (2) 787 694 13
Other 7 4 n/m 12 (6) n/m 59 72 (18)
Intra-group items (1,672) (1,692) (1) - - - - - -
======================== ======== ======== ======= ======= ======= ======== ======== ======= ========
Total 11,800 11,828 - 3,598 3,708 (3) 1,693 1,580 7
======================== ======== ======== ======= ======= ======= ======== ======== ======= ========
(1) See Glossary
n/m = not meaningful
Glossary of alternative performance measures
Adjusted Before specific items
Specific items Items that in management's judgement need to be disclosed
separately by virtue of their size, nature or incidence.
Further information is provided in note 4 on page
18
Underlying Excludes specific items, foreign exchange movements
and the effect of acquisitions and disposals. Further
information is provided in note 1 on page 15
=============== ==========================================================
Reconciliations to the most directly comparable IFRS measures
are in Additional Information on page 26. Our commentary focuses on
the trading results on an adjusted basis. Unless otherwise stated
in the commentary, 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. Further information is provided in note 1 on
page 15.
British Telecommunications plc
Group results for the half year to 30 September 2017
Income statement
Reported revenue was flat at GBP11,786m. This includes a GBP136m
favourable impact from foreign exchange movements and a GBP67m
reduction in transit revenue. Underlying revenue(1) excluding
transit was down 0.7% driven mainly by challenges in our enterprise
businesses, in particular Global Services, partially offset by the
strong performance in EE.
Reported operating costs of GBP10,332m were up 4%. Adjusted(1)
operating costs, before depreciation and amortisation, of GBP8,202m
were up 1% reflecting the increased pension costs, business rates,
sports rights and increased customer investment partly offset by
reduced payments to other telecoms operators and cost savings. This
includes a GBP120m adverse impact from foreign exchange movements
and a GBP66m decrease in transit costs.
Adjusted(1) EBITDA of GBP3,598m was down 3%. Depreciation and
amortisation of GBP1,757m was up 2%. Reported net finance expense
was GBP280m while adjusted(1) net finance expense was GBP171m.
Specific items(1) resulted in a net charge before tax of GBP496m
(HY 2016/17: GBP287m) and after tax of GBP450m (HY 2016/17:
GBP221m). The main components include the settlement of warranty
claims arising under the 2015 EE acquisition agreement of GBP225m
(HY 2016/17: GBPnil), restructuring costs of GBP104m (HY 2016/17:
GBPnil) and the net interest expense on pensions of GBP109m (HY
2016/17: GBP105m). Further detail on specific items is set out in
note 4 to the condensed consolidated financial statements.
Reported profit before tax was down 21% at GBP1,174m, due
principally to the GBP496m specific item charge in the half year.
Adjusted(1) profit before tax decreased 6% to GBP1,670m. The
effective tax rate on profit before specific items was 20.3% (HY
2016/17: 18.0%), with the rate being higher than the standard UK
corporation tax rate (19%) principally due to higher overseas tax
rates and adjustments for share based payments. The Finance (No.2)
Act 2017, published in September 2017, was substantively enacted on
31 October 2017. This Act contains provisions that defer relief for
brought forward losses. If this Act had been substantively enacted
as at 30 September 2017, the effect would have been a decrease to
the deferred tax liability of GBP33m and an equal and opposite
increase to the corporation tax creditor.
Capital expenditure
Capital expenditure was GBP1,693m (HY 2016/17: GBP1,580m). This
consists of gross expenditure of GBP1,739m (HY 2016/17: GBP1,620m)
which has been reduced by net grant funding of GBP46m (HY 2016/17:
GBP40m) mainly relating to our activity on the Broadband Delivery
UK (BDUK) programme. The capital expenditure increase of GBP113m
was primarily a result of increased investment in our fixed and
mobile networks which was up GBP99m at GBP740m. Other capital
expenditure components were up GBP14m with GBP627m spent on
customer driven investments and GBP292m on systems and IT.
Our base-case assumption for take-up in BDUK areas remains at
39% of total homes passed. Under the terms of the BDUK programme,
we have a potential obligation to either re-invest or repay grant
funding depending on factors including the level of customer
take-up achieved. While we have recognised gross grant funding of
GBP78m (Q2 2016/17: GBP74m) in line with network build in the
quarter, we have also deferred GBP32m (Q2 2016/17: GBP34m) of the
total grant funding to reflect higher take-up levels on a number of
contracts. To date we have deferred GBP477m (Q2 2016/17:
GBP292m).
Balance sheet
Total borrowings as at 30 September 2017 were GBP15,117m (31
March 2017: GBP13,896m). We repaid a GBP0.5bn bond on 23 June 2017.
Short term borrowings of GBP1.6bn include term debt of GBP0.9bn
repayable during the remainder of 2017/18 and GBP0.6bn comprising
both collateral for open mark to market positions and overdrafts.
On 23 June 2017 we issued term debt of GBP2,025m (EUR2,300m) on the
medium-term Euro market. The effective Sterling interest rates on
these 5, 7 and 10 year bonds was 1.66%, 2.01% and 2.50%,
respectively.
Net cash inflow from operating activities was down GBP512m at
GBP2,566m. At 30 September 2017 the group held cash and current
investment balances of GBP3.0bn. During the period we cancelled our
GBP1.5bn committed facility. This facility provided us with a
bridge to capital market issuance and was cancelled in June 2017
when we issued the new Euro bonds. Our GBP2.1bn facility with 14
high quality syndicate banks (GBP150m each) remains undrawn at 30
September 2017. This facility matures in September 2021.
(1) See Glossary on page 1
Pensions (note 5 to the condensed consolidated financial
statements)
The IAS 19 net pension position at 30 September 2017 was a
deficit of GBP7.7bn net of tax (GBP9.3bn gross of tax), compared
with GBP7.6bn net of tax (GBP9.1bn gross of tax) at 31 March 2017.
This is broadly unchanged as a fall in the assets is partially
offset by a fall in the liabilities (driven by an increase in the
discount rate).
The triennial valuation is proceeding and constructive
discussions continue with the BT Pension Scheme (BTPS) Trustee. We
are considering a number of funding options to address the deficit,
including arrangements that would give the BTPS a prior claim over
certain BT assets. We still expect to complete the triennial
valuation in the first half of the 2018 calendar year.
Principal risks and uncertainties
A summary of the Group's principal risks and uncertainties is
provided in note 10.
Related party transactions
Transactions with related parties during the half year to 30
September 2017 are disclosed in note 9.
OTHER DEVELOPMENTS
Our Italian business
In 2016/17 we reported that we had identified inappropriate
behaviour and improper accounting practices in our Italian
business. We commenced a programme of remediation activities some
of which were completed during 2016/17 with others running into the
current year and beyond. During the half year we continued to take
steps to improve the control environment in our Italian business
but recognise that we have further activities to complete during
the second half of the year including the assessment of our
internal controls over financial reporting as of 31 March 2018 for
the purposes of the US Sarbanes-Oxley Act 2002. We are also working
to complete the local statutory accounts of BT Italia for
2016/17.
Regulation
Deemed Consent
We have settled GBP130m in compensation payments to other CPs in
the half year. Compensation payments to the remaining CPs are
currently being finalised. We continue to estimate the total
compensation payments will amount to GBP300m.
Digital Communications Review (DCR)
In March 2017 we announced we had reached agreement with Ofcom
in respect of its strategic review of the digital communications
industry. This agreement will see Openreach become a distinct,
legally separate company within the BT plc group.
In July 2017 Ofcom confirmed its decision to release BT from the
Undertakings once the new Commitments are fully in place. We have
already refreshed the Openreach brand and made progress on
implementing the Openreach governance framework, and the new
Openreach board under Mike McTighe is providing strong, independent
leadership. Completing the reforms will depend on satisfaction of a
number of conditions, including those relating to the Government
amending the Crown Guarantee for the BT Pension Scheme and
transferring employees to a distinct company, Openreach
Limited.
Wholesale Local Access (WLA) Market Review
On 14 September 2017 Ofcom issued a further consultation on the
WLA charge control in the light of stakeholder comments on the
first consultation published in March 2017. Ofcom's new proposals
include slight changes to the charge control for 40/10 generic
Ethernet access (GEA) service and for the metallic path facility
(MPF) service. It also contains revised proposals on quality of
service. In a separate consultation issued on 9 August 2017, Ofcom
proposed a mechanism to spread the cost of our universal broadband
commitment across all broadband lines, should Government accept our
offer. We continue to engage with Ofcom, building on our response
to the initial consultation, to ensure that modelling assumptions
and methodologies used to set any controls over the prices we
charge in the WLA markets allow our investments to earn a fair
return and reflect the costs of improved service delivery. We
expect Ofcom to issue a final statement containing its proposals in
early 2018, with those proposals to take effect from April 2018,
and remain in place until March 2021.
Operating review
BT Consumer
Half year to 30 September
============================= ===== ==================================
2017 2016 Change
GBPm GBPm GBPm %
============================= ======== ======= ======= ======
Revenue 2,516 2,426 90 4
Operating costs 2,038 1,935 103 5
==================================== ======== ======= ======= ======
EBITDA 478 491 (13) (3)
Depreciation & amortisation 107 104 3 3
==================================== ======== ======= ======= ======
Operating profit 371 387 (16) (4)
==================================== ======== ======= ======= ======
Capital expenditure 133 111 22 20
==================================== ======== ======= ======= ======
Free cash flow 278 388 (110) (28)
==================================== ======== ======= ======= ======
Revenue was up 4% with a 5% increase in broadband and TV revenue
and a 3% increase in calls and lines revenue partly due to the
timing of price changes in the period.
Across BT we added 41,000 retail broadband customers,
representing 41% of the DSL and fibre broadband market net
additions. Superfast fibre broadband growth continued with 350,000
retail net additions, taking our customer base to 5.3m. Of our
broadband customers, 57% are now on fibre. Across BT we added
15,000 TV customers, growing our total TV base to 1.8m.
Operating costs increased 5% due to the investment in new UK
customer service roles and additional sports rights costs from
Premier League, Box Nation and the Ashes uplift in our Cricket
Australia deal. As a result EBITDA was down 3% in the half year.
Depreciation and amortisation was up 3% and operating profit was
down 4%.
Free cash flow reduced 28% driven by a 20% increase in capital
expenditure as we continue to invest in our broadband capabilities
and adverse working capital timing movements.
EE
Half year to 30 September
============================= ========= ==================================
2017 2016 Change
GBPm GBPm GBPm %
============================= ====== ========= ======== ====== =====
Revenue 2,617 2,520 97 4
Operating costs 1,956 1,957 (1) -
======================================== ========= ======== ====== =====
EBITDA 661 563 98 17
Depreciation & amortisation 378 396 (18) (5)
======================================== ========= ======== ====== =====
Operating profit 283 167 116 69
======================================== ========= ======== ====== =====
Capital expenditure 328 299 29 10
======================================== ========= ======== ====== =====
Free cash flow 390 322 68 21
======================================== ========= ======== ====== =====
Revenue was up 4% with a 5% increase in postpaid revenue and a
15% increase in fixed broadband revenues, partially offset by a 10%
reduction in prepaid revenues. We have reported four consecutive
quarters of revenue growth, mainly due to our 'more for more'
pricing strategy.
At the end of the half year, the total BT mobile base was 29.7m.
We added 489,000 postpaid mobile customers, taking the postpaid
base to 17.3m. Our prepaid customers fell by 645,000, in line with
industry trends, taking the base to 6.3m.
In September we delivered the Home Office requirements to
achieve the latest major milestone in the Emergency Services
Network (ESN) contract. Our 4G geographic coverage now reaches 86%
of the UK's landmass and we continue to work towards 95% coverage
by the end of December 2020.
Operating costs were GBP1,956m. EBITDA was up 17%, driven by
revenue growth and reduced indirect costs, partially offset by
increased customer investment costs. Depreciation and amortisation
was GBP378m and operating profit was GBP283m.
Capital expenditure was GBP328m, up 10% as network investment
increased. Free cash flow was GBP390m, up 21% reflecting the
increase in EBITDA.
Business and Public Sector
Half year to 30 September
============================= ========= ===================================
2017 2016 Change
GBPm GBPm GBPm %
============================= ====== ======== ======== ======= ======
Revenue 2,281 2,346 (65) (3)
- underlying excluding
transit (2)
Operating costs 1,587 1,602 (15) (1)
======================================== ======== ======== ======= ======
EBITDA 694 744 (50) (7)
Depreciation & amortisation 185 176 9 5
======================================== ======== ======== ======= ======
Operating profit 509 568 (59) (10)
======================================== ======== ======== ======= ======
Capital expenditure 152 112 40 36
======================================== ======== ======== ======= ======
Free cash flow 479 558 (79) (14)
======================================== ======== ======== ======= ======
Revenue was down 3% reflecting lower public sector revenue due
to the completion of a number of large contracts and the decline in
traditional lines as the market shifts to data and IP.
SME revenue was up 1%, with growth in mobile, VoIP and
networking offsetting the decline in lines. Corporate revenue was
down 3% with growth in mobile more than offset by lower equipment
sales and the decline in lines. Public Sector and Major Business
revenue was down 7%, with growth in mobile more than offset by
lower equipment sales.
Republic of Ireland revenue was down 4% due to the impact of
churn on traditional lines and lower equipment sales, where foreign
exchange movements had a GBP13m positive impact on revenue.
Operating costs decreased 1% and EBITDA decreased by 7% driven
by the reduction in revenue. Depreciation and amortisation was up
5% and operating profit was 10% lower.
Capital expenditure increased by GBP40m largely due to higher
spend in customer contracts and free cash flow was GBP79m lower,
reflecting the increase in capital expenditure and decline in
EBITDA partly offset by the timing of working capital
movements.
Global Services
Half year to 30 September
============================= ====== ==================================
2017 2016 Change
GBPm GBPm GBPm %
============================= === ======= ======= ======= =======
Revenue 2,506 2,659 (153) (6)
- underlying excluding
transit (9)
Operating costs 2,352 2,408 (56) (2)
===================================== ======= ======= ======= =======
EBITDA 154 251 (97) (39)
Depreciation & amortisation 221 214 7 3
===================================== ======= ======= ======= =======
Operating (loss) profit (67) 37 (104) (281)
===================================== ======= ======= ======= =======
Capital expenditure 128 191 (63) (33)
===================================== ======= ======= ======= =======
Free cash flow (132) (225) 93 41
===================================== ======= ======= ======= =======
Revenue was down 6% including a GBP123m positive impact from
foreign exchange movements, whilst transit revenue was down GBP50m.
Underlying revenue excluding transit was down 9%, and excluding the
revenue of our Italian business was down 6%. This underlying
revenue decline reflects lower IP Exchange volumes and equipment
sales in the UK, in line with our strategy to reduce low margin
business, the ongoing impact of a major customer insourcing
services in the US, a large contract in Brazil that has now
completed and lower general trading across all of our regions.
In the UK underlying revenue excluding transit was down 3%. In
Continental Europe underlying revenue excluding transit was down
13%, and excluding the revenue of our Italian business was down 2%.
In the Americas(1) underlying revenue excluding transit was down
13% while in AMEA(2) underlying revenue excluding transit was down
5%.
Operating costs were down 2% mainly reflecting the impact of
lower revenue partially offset by the impact of foreign exchange
movements. EBITDA was down 39%, and excluding the results of our
Italian business was down 29% due to a combination of trading and
increased pension and leaver costs. Depreciation and amortisation
was up 3% and operating loss was GBP67m.
Capital expenditure was down 33% primarily due to the timing of
project-related expenditure which we expect to partially reverse in
the second half of the year. Free cash flow was an outflow of
GBP132m.
(1) United States & Canada and Latin America (Americas)
(2) Asia Pacific, the Middle East and Africa (AMEA)
Wholesale and Ventures
Half year to 30 September
============================= ======= ==================================
2017 2016 Change
GBPm GBPm GBPm %
============================= ==== ======= ========= ====== ======
Revenue 997 1,040 (43) (4)
- underlying excluding
transit (3)
Operating costs 636 637 (1) -
====================================== ======= ========= ====== ======
EBITDA 361 403 (42) (10)
Depreciation & amortisation 154 151 3 2
====================================== ======= ========= ====== ======
Operating profit 207 252 (45) (18)
====================================== ======= ========= ====== ======
Capital expenditure 106 101 5 5
====================================== ======= ========= ====== ======
Free cash flow 220 289 (69) (24)
====================================== ======= ========= ====== ======
Revenue was down 4% with underlying revenue excluding transit
down 3%. Managed solutions revenue was down 10% primarily due to
continued lower revenue from our Mobile Ethernet Access Services
contracts, reflecting the maturity of mobile network operator 4G
build out programmes.
Data and Broadband revenue was down 7% due to the continuing
decline in legacy Partial Private Circuits as customers continue to
move onto newer IP based technologies.
Voice revenue was down 5% due to the ongoing market decline in
call volumes, partially offset by growth in Hosted
Communications.
Our Ventures business generated revenue of GBP148m, down 1%
mainly due to decline in our Phonebook business. Mobile generated
revenue of GBP117m, up 8% helped by increased data usage by MVNO
customers.
Operating costs were broadly in line with last year and EBITDA
decreased 10% reflecting the revenue decline, particularly in
higher margin legacy services. Depreciation and amortisation
increased 2%, and operating profit decreased 18%.
Capital expenditure of GBP106m was up 5%. Operating cash flow
was GBP220m, down 24% as a result of the EBITDA decline and timing
on working capital.
Openreach
Half year to 30 September
============================= ====== ==================================
2017 2016 Change
GBPm GBPm GBPm %
============================= === ======== ======= ======= ======
Revenue 2,548 2,525 23 1
Operating costs 1,310 1,263 47 4
===================================== ======== ======= ======= ======
EBITDA 1,238 1,262 (24) (2)
Depreciation & amortisation 690 665 25 4
===================================== ======== ======= ======= ======
Operating profit 548 597 (49) (8)
===================================== ======== ======= ======= ======
Capital expenditure 787 694 93 13
===================================== ======== ======= ======= ======
Free cash flow 487 691 (204) (30)
===================================== ======== ======= ======= ======
Revenue was up 1% driven by continued strong growth in fibre
broadband revenue, which was up 26%. This growth includes
regulatory price changes which had a negative impact of around
GBP37m and commercial price changes which had a negative impact of
around GBP22m.
We have extended the reach of fibre broadband which is now
available to more than 27.1m premises of which around 770,000 can
order an ultrafast (100Mbps+) service via our FTTP or G.fast
technologies. We now have around 8.6m customers connected to fibre
which is around 32% of those passed.
We continue to focus on improving the experience of our
customers. Year to date we are ahead on all 60 copper minimum
service levels set by Ofcom and have seen a 2% reduction in our
faults compared to the first half of last year.
Openreach's consultation with Communication Providers on the
investment case for a large-scale FTTP broadband network across the
UK indicated broad support for this proposition. However, for the
investment to be economically viable, a number of key enablers will
need to be put in place through close co-operation between
Openreach, CPs, Ofcom and Government. The enablers include: a
supportive policy and regulatory environment that encourages
investment; FTTP switchover; agreeing how investment costs can be
fairly recovered; and Openreach demonstrating that it can build
FTTP at scale for a competitive cost. We plan to invite views from
CPs on a more specific set of proposals that cover potential
pricing, footprint and a plan for FTTP switchover, by the end of
the year. Further details can be found in our press release dated
31 October 2017.
Operating costs were 4% higher mainly driven by an increase in
business rates charged on network assets and higher pension
charges. EBITDA was down 2% and depreciation and amortisation was
up 4% with operating profit down 8%.
Capital expenditure was GBP787m, up GBP93m or 13%, reflecting
our ongoing investment in fibre broadband coverage and speed, and
delivering a higher volume of Ethernet connections. Capital
expenditure includes gross grant funding of GBP75m (H1 2016/17:
GBP73m) directly related to our activity on the BDUK programme
build which was partly offset by the deferral of GBP29m of grant
funding (H1 2016/17: GBP33m). Under the terms of the BDUK programme
we have a potential obligation to either re-invest or repay grant
funding depending on factors including the level of customer
take-up achieved.
Free cash flow was down 30% due to timing of a customer cash
receipt and higher capital investment.
Financial statements
Group income statement
For the half year to 30 September 2017
Note Before Specific Total
specific items
items
============================= ===== ========== ========= =========
GBPm GBPm GBPm
============================= ===== ========== ========= =========
Revenue 2 11,800 (14) 11,786
Operating costs 3 (9,959) (373) (10,332)
============================= ===== ========== ========= =========
Operating profit 1,841 (387) 1,454
Finance expense (272) (109) (381)
Finance income 101 - 101
============================= ===== ========== ========= =========
Net finance expense (171) (109) (280)
Share of post tax profits - - -
(losses) of associates and
joint ventures
============================= ===== ========== ========= =========
Profit before tax 1,670 (496) 1,174
Tax (339) 46 (293)
============================= ===== ========== ========= =========
Profit for the period 1,331 (450) 881
============================= ===== ========== ========= =========
Group income statement
For the half year to 30 September 2016
Note Before Specific Total
specific items
items
================================ ===== ========== ========= ========
GBPm GBPm GBPm
================================ ===== ========== ========= ========
Revenue 2 11,828 (46) 11,782
Operating costs 3 (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 statement of comprehensive income
For the half year to 30 September
Half year
to 30 September
============================================ ============== ===============================
2017 2016
GBPm GBPm
============================================ ============= ============= ================
Profit for the period 881 1,234
============================================================ ============= ================
Other comprehensive income
(loss)
Items that will not be reclassified
to the income statement:
Remeasurements of the net pension
obligation (4) (4,985)
Tax on pension remeasurements 17 815
Items that have been or may
be reclassified subsequently
to the income statement:
Exchange differences on translation
of foreign operations(1) (115) 204
Fair value movements on available-for-sale
assets 4 (7)
Fair value movements on cash
flow hedges:
- net fair value (losses)
gains (49) 936
- recognised in income and
expense 78 (825)
Tax on components of other
comprehensive income that have
been or may be reclassified (9) 1
============================================================ ============= ================
Other comprehensive loss for
the period, net of tax (78) (3,861)
============================================================ ============= ================
Total comprehensive income
(loss) for the period 803 (2,627)
============================================================ ============= ================
(1) Revised. See note 1 to the condensed consolidated financial
statements
Group balance sheet
30 September 30 September 31 March
2017 2016(1) 2017
======================================= ============= ============= =========
GBPm GBPm GBPm
======================================= ============= ============= =========
Non-current assets
Intangible assets 14,707 15,276 15,037
Property, plant and equipment 16,718 16,208 16,498
Derivative financial instruments 1,673 2,352 1,818
Investments 12,934 11,667 11,606
Associates and joint ventures 36 24 31
Trade and other receivables 257 241 360
Deferred tax assets 1,756 2,061 1,717
======================================= ============= ============= =========
48,081 47,829 47,067
======================================= ============= ============= =========
Current assets
Programme rights 640 624 264
Inventories 243 270 227
Trade and other receivables 3,853 3,899 3,860
Current tax receivable 57 65 73
Derivative financial instruments 440 280 428
Investments 2,669 2,489 1,740
Cash and cash equivalents 344 573 526
======================================= ============= ============= =========
8,246 8,200 7,118
======================================= ============= ============= =========
Current liabilities
Loans and other borrowings 2,552 3,721 2,791
Derivative financial instruments 67 42 34
Trade and other payables 7,367 7,646 7,476
Current tax liabilities 189 291 197
Provisions 485 189 625
======================================= ============= ============= =========
10,660 11,889 11,123
======================================= ============= ============= =========
Total assets less current liabilities 45,667 44,140 43,062
======================================= ============= ============= =========
Non-current liabilities
Loans and other borrowings 12,565 12,281 11,105
Derivative financial instruments 766 1,004 869
Retirement benefit obligations 9,335 11,491 9,088
Other payables 1,372 1,202 1,298
Deferred tax liabilities 1,355 1,234 1,240
Provisions 502 546 536
======================================= ============= ============= =========
25,895 27,758 24,136
======================================= ============= ============= =========
Equity
Ordinary shares 2,172 2,172 2,172
Share premium 8,000 8,000 8,000
Other reserves 1,500 1,691 1,591
Retained earnings 8,100 4,519 7,163
======================================= ============= ============= =========
Total equity 19,772 16,382 18,926
======================================= ============= ============= =========
45,667 44,140 43,062
======================================= ============= ============= =========
(1) Revised. See note 1 to the condensed consolidated financial
statements
Group statement of changes in equity
For the half year to 30 September 2017
Share Capital Share Premium Other Reserves Retained Total Equity
Earnings
============================= ============== ============== =============== ========== =============
GBPm GBPm GBPm GBPm GBPm
============================= ============== ============== =============== ========== =============
At 1 April 2017 2,172 8,000 1,591 7,163 18,926
============================= ============== ============== =============== ========== =============
Profit for the period - - - 881 881
Other comprehensive loss
before tax - - (160) (4) (164)
Tax on other comprehensive
loss - - (9) 17 8
Transferred to the income
statement - - 78 - 78
============================= ============== ============== =============== ========== =============
Comprehensive (loss) income - - (91) 894 803
Share-based payments - - - 40 40
Other movements - - - 3 3
============================= ============== ============== =============== ========== =============
At 30 September 2017 2,172 8,000 1,500 8,100 19,772
============================= ============== ============== =============== ========== =============
For the half year to 30 September 2016
At 1 April 2016(1) 2,172 8,000 1,392 9,761 21,325
============================= ====== ====== ====== ======== ========
Profit for the period - - - 1,234 1,234
Other comprehensive income
(loss) before tax(1) - - 1,123 (4,975) (3,852)
Tax on other comprehensive
income (loss) - - 1 815 816
Transferred to the income
statement - - (825) - (825)
============================= ====== ====== ====== ======== ========
Comprehensive income (loss) - - 299 (2,926) (2,627)
Dividends to shareholders - - - (2,350) (2,350)
Share-based payments - - - 33 33
Other movements - - - 1 1
============================= ====== ====== ====== ======== ========
At 30 September 2016 2,172 8,000 1,691 4,519 16,382
============================= ====== ====== ====== ======== ========
(1) Revised. See note 1 to the condensed consolidated financial
statements
Group cash flow statement
Half year
to 30 September
======================================================= ===============================
2017 2016
GBPm GBPm
======================================================= =============== ==============
Cash flow from operating activities
Profit before tax 1,174 1,488
Share-based payments 40 33
Profit on disposal of subsidiaries and interest
in associates (1) (14)
Share of post-tax losses of associates and joint
ventures - 7
Net finance expense 280 307
Depreciation and amortisation 1,757 1,724
Increase in working capital (431) (200)
Provisions, pensions and other non-cash movements(1) (72) (49)
======================================================= =============== ==============
Cash inflow from operating activities(2) 2,747 3,296
Tax paid (181) (218)
======================================================= =============== ==============
Net cash inflow from operating activities 2,566 3,078
======================================================= =============== ==============
Cash flow from investing activities
Interest received 2 5
Acquisition of subsidiaries(3) , associates and
joint ventures (20) 11
Purchase of non-current asset investments - (21)
Proceeds on disposal of subsidiaries 2 46
Purchases of property, plant and equipment and
software (1,665) (1,463)
Proceeds on disposal of property, plant and equipment 11 1
Outflow on non-current amounts to ultimate parent
company (1,200) (1,100)
Purchases of current financial assets (5,892) (4,565)
Proceeds on disposal of current financial assets 4,853 5,139
======================================================= =============== ==============
Net cash outflow from investing activities (3,909) (1,947)
======================================================= =============== ==============
Cash flow from financing activities
Interest paid (259) (287)
Proceeds from bank loans and bonds 2,029 2
Repayment of borrowings(4) (502) (392)
Cash flows from derivatives related to net debt (132) 197
Net repayment on facility loans - (619)
Net cash inflow (outflow) from financing activities 1,136 (1,099)
======================================================= =============== ==============
Net (decrease) increase in cash and cash equivalents (207) 32
======================================================= =============== ==============
Opening cash and cash equivalents 509 452
Net (decrease) increase in cash and cash equivalents (207) 32
Effect of exchange rate changes (19) 30
======================================================= =============== ==============
Closing cash and cash equivalents(5) 283 514
======================================================= =============== ==============
(1) Includes pension deficit payments of GBP10m for the half
year to 30 September 2017 (HY 2016/17: GBP13m)
(2) Includes cash flows relating to TV programme rights
(3) Prior year includes a true up of consideration following the
audit of the completion balance sheet relating to the acquisition
of EE
(4) Repayment of borrowings includes the impact of hedging and repayment of lease liabilities
(5) Net of bank overdrafts of GBP61m at 30 September 2017 (30 September 2016: GBP59m)
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 2017 and
30 September 2016 together with the audited balance sheet as at 31
March 2017 and the unaudited balance sheet as at 30 September 2016.
The financial statements for the half year to 30 September 2017
have been reviewed by the auditors and their review opinion is on
page 24. The financial statements have been prepared in accordance
with the Disclosure Guidance and Transparency Rules sourcebook
(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 Report
& Form 20-F 2017 which was prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union and as issued by the International Accounting
Standards Board.
Having assessed the principal risks, the directors consider 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 financial statements for the year to 31 March 2017 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 2017 were approved by
the Board of Directors on 17 May 2017, published on 25 May 2017,
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.
New and amended accounting standards
IFRS 15 'Revenue from Contracts with Customers'
We will report our financial statements under IFRS 15 from the
first quarter of 2018/19. We now expect to adopt IFRS 15 on a
modified retrospective basis in our 2018/19 financial statements.
Accordingly we will not restate prior year comparatives for the
effect of IFRS 15 but will instead restate our 1 April 2018 opening
reserves for the full cumulative impact of adopting this standard.
We will provide a reconciliation of our primary financial
statements under IAS 18 to our primary financial statements under
IFRS 15 in our Annual Report & Form 20-F 2019.
Amendments to IAS 7 'Statement of Cash Flows'
The amendments to IAS 7 'Statement of Cash Flows' require
entities to provide disclosures about changes in liabilities
arising from financing activities. On initial application, we are
not required to provide comparative information for preceding
periods. These amendments are effective from 1 April 2017. However
we are not required to provide additional disclosures in these
financial statements, but we will disclose additional information
in our Annual Report & Form 20-F 2018.
There are no other new or amended standards or interpretations
adopted during the year that have a significant impact on the
group.
Revisions on prior year financial statements
We have made several revisions to our prior year financial
information as set out below. The effect of the prior year
revisions on the balance sheet as at 30 September 2016 is set out
below.
Investigation into our Italian business
In 2016/17 our investigations into our Italian business revealed
inappropriate behaviour and improper accounting practices. The
improper practices included a complex set of improper sales,
purchase, factoring and leasing transactions. Errors we identified
which related to 2015/16 and prior periods amounted to a GBP293m
reduction in total equity in our 30 September 2016 balance sheet.
The effect of the prior year errors on the balance sheet as at 30
September 2016 is set out overleaf and replicates the adjustments
recorded on the balance sheet as at 31 March 2016.
Acquisition of EE
IFRS 3 'Business Combinations' requires us to recognise
provisional fair values if the initial accounting for the business
combination is incomplete. In the period ended 31 March 2016, we
reported that the fair values recognised for our 29 January 2016
acquisition of EE were provisional. During 2016/17, we finalised
this assessment and also received a purchase consideration refund
from the previous owners of GBP20m following the finalisation of
the audit of the completion balance sheet. This resulted in a
revision to previously recognised brand and customer relationship
which decreased by GBP15m. Our reassessment also led to a GBP14m
decrease in receivables and an increase in provisions related to
unfavourable contracts in the amount of GBP20m. The net impact of
the adjustments including the deferred tax effect resulted in an
increase in goodwill of GBP29m as of 30 September 2016. These had
no material impact on the income statement.
Revision of prior period statements
Group balance sheet
At 30 September 2016
As published EE purchase Italian business Revised
price accounting adjustment(1)
finalisation
adjustment(1,2)
=============================== ============= ================== ========================= ========
GBPm GBPm GBPm GBPm
Non-current assets
Intangible assets 15,242 34 - 15,276
Property, plant and
equipment 16,251 - (43) 16,208
Trade and other receivables 257 - (16) 241
Other non-current assets 16,104 - - 16,104
=============================== ============= ================== ========================= ========
47,854 34 (59) 47,829
=============================== ============= ================== ========================= ========
Current assets
Trade and other receivables 4,012 (14) (99) 3,899
Cash and cash equivalents 573 - - 573
Other current assets 3,728 - - 3,728
=============================== ============= ================== ========================= ========
8,313 (14) (99) 8,200
=============================== ============= ================== ========================= ========
Current liabilities
Loans and other borrowings 3,721 - - 3,721
Trade and other payables 7,504 - 142 7,646
Other current liabilities 515 7 - 522
=============================== ============= ================== ========================= ========
11,740 7 142 11,889
=============================== ============= ================== ========================= ========
Total assets less current
liabilities 44,427 13 (300) 44,140
=============================== ============= ================== ========================= ========
Non-current liabilities
Loans and other borrowings 12,288 - (7) 12,281
Retirement benefit
obligations 11,491 - - 11,491
Other non-current liabilities 3,973 13 - 3,986
=============================== ============= ================== ========================= ========
27,752 13 (7) 27,758
=============================== ============= ================== ========================= ========
Equity
Ordinary shares 2,172 - - 2,172
Share premium 8,000 - - 8,000
Other reserves 6,503 - (293) 6,210
Total equity 16,675 - (293) 16,382
=============================== ============= ================== ========================= ========
44,427 13 (300) 44,140
=============================== ============= ================== ========================= ========
(1) Revised to reflect EE PPA finalisation and the outcome of
our investigation into our Italian business
(2) The above adjustments differ from those disclosed in the
Annual Report & Form 20-F 2017 to reflect the true up of
consideration initially recorded in the 30 September
2016 balance sheet and subsequently reflected in our purchase
price accounting in Q4 2016/17
2 Operating results - by line of business
External Internal Group revenue EBITDA Operating
Revenue revenue profit
=========================== ========= ========= ============== ======= ==========
Half year to 30 September GBPm GBPm GBPm GBPm GBPm
2017
=========================== ========= ========= ============== ======= ==========
BT Consumer 2,484 32 2,516 478 371
EE 2,599 18 2,617 661 283
Business and Public
Sector 2,224 57 2,281 694 509
Global Services 2,506 - 2,506 154 (67)
Wholesale and Ventures 926 71 997 361 207
Openreach 1,054 1,494 2,548 1,238 548
Other 7 - 7 12 (10)
Intra-group items - (1,672) (1,672) - -
=========================== ========= ========= ============== ======= ==========
Total 11,800 - 11,800 3,598 1,841
=========================== ========= ========= ============== ======= ==========
Half year to 30 September
2016
=========================== ========= ========= ============== ======= ==========
BT 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 - (1,692) (1,692) - -
=========================== ========= ========= ============== ======= ==========
Total 11,828 - 11,828 3,708 1,984
=========================== ========= ========= ============== ======= ==========
3 Operating costs
Half year
to 30 September
====================================== === ===================
2017 2016
GBPm GBPm
====================================== ========== =======
Direct labour costs 2,688 2,578
Indirect labour costs 451 402
Leaver costs 30 54
=========================================== ========== =======
Total labour costs 3,169 3,034
Capitalised Labour (668) (588)
=========================================== ========== =======
Net labour costs 2,501 2,446
Payments to telecommunications
operators 1,207 1,327
Property and energy costs 649 600
Network operating and IT costs 476 455
Programme rights charges 377 340
Other operating costs 2,992 2,952
=========================================== ========== =======
Operating costs before depreciation,
amortisation and specific
items 8,202 8,120
Depreciation and amortisation 1,757 1,724
=========================================== ========== =======
Total operating costs before
specific items 9,959 9,844
Specific items (note 4) 373 136
==========
Total operating costs 10,332 9,980
=========================================== ========== =======
4 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
===================================== === ===================
2017 2016
GBPm GBPm
===================================== ========= ========
Specific revenue
Italian business investigation - 52
Retrospective regulatory matters 14 (6)
Specific revenue 14 46
========================================== ========= ========
Specific operating costs
EE acquisition warranty claims 225 -
Restructuring charge 104 -
EE integration costs 26 51
Retrospective regulatory matters 13 6
Italian business investigation 6 93
Profit on disposal of business (1) (14)
Specific operating costs 373 136
========================================== ========= ========
Specific operating loss 387 182
Net interest expense on pensions 109 105
Net specific items charge before
tax 496 287
Tax credit on specific items before
tax (46) (23)
Tax credit on re-measurement of
deferred tax - (43)
========================================== ========= ========
Net specific items charge after
tax 450 221
========================================== ========= ========
EE acquisition warranty claims
In the half year we reached settlements with Deutsche Telekom
and Orange in respect of any warranty claims under the 2015 EE
acquisition agreement, arising from the issues previously announced
regarding our operations in Italy. This represents a full and final
settlement of these issues and results in a specific item charge of
GBP225m (HY 2016/17: GBPnil).
Restructuring charge
Costs of GBP104m (HY 2016/17: GBPnil) have been incurred in the
first half of 2017/18 as we undertake our restructuring
programme.
Italian business investigation
On page 15 we discussed our prior year investigation into our
Italian business. In the prior year, as part of this investigation
we reviewed the carrying value of the assets and liabilities on the
balance sheet of our Italian business. We took into account any
changes in fact or circumstances since 31 March 2016 in determining
whether there was a need to change an estimate and whether
additional exposures had arisen. We recognised a charge of GBP145m
in respect of this in the second quarter of 2016/17, with a further
charge of GBP100m in the third quarter of 2016/17 bringing the
total impact to GBP245m. In the first half of 2017/18, we have
incurred investigation costs of GBP6m.
5 Pensions
30 September 31 March 2017
2017
==================================== ====================== =====================
GBPbn GBPbn
==================================== ====================== =====================
IAS 19 liabilities - BTPS (57.5) (58.6)
Assets - BTPS 48.7 50.0
Other schemes (0.5) (0.5)
==================================== ====================== =====================
Total IAS 19 deficit, gross of tax (9.3) (9.1)
==================================== ====================== =====================
Total IAS 19 deficit, net of tax (7.7) (7.6)
==================================== ====================== =====================
Discount rate (nominal) 2.50% 2.40%
Discount rate (real) (0.68)% (0.78)%
RPI inflation 3.20% 3.20%
CPI inflation 0.7% below RPI 0.7% below RPI
until 31 March until 31 March
2019 and 1.2% 2019 and 1.2% below
below RPI thereafter RPI thereafter
6 Financial instruments and risk management
Fair value of financial assets and liabilities measured at
amortised cost
At 30 September 2017, the fair value of listed bonds and other
long-term borrowings was GBP16,745m (31 March 2017: GBP15,679m) and
the carrying value was GBP15,117m (31 March 2017: GBP13,896m).
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
-- Investments classified as loans and recei
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 to the risk management policies which cover these risks
since 31 March 2017.
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:
1. Level 1 - uses quoted prices in active markets for identical assets or liabilities
2. Level 2 - uses inputs for the asset or liability other than
quoted prices, that are observable either directly or
indirectly
3. 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.
Level Level Level Total
1 2 3
==================================== ======== ======== ======== ========
30 September 2017 GBPm GBPm GBPm GBPm
==================================== ======== ======== ======== ========
Investments
Available for sale 26 2,503 15 2,544
Fair value through profit and loss 6 - - 6
Derivative assets
Designated in a hedge - 1,811 - 1,811
Fair value through profit and loss - 302 - 302
==================================== ======== ======== ======== ========
Total assets 32 4,616 15 4,663
==================================== ======== ======== ======== ========
Derivative liabilities
Designated in a hedge - 595 - 595
Fair value through profit and loss - 238 - 238
====================================
Total liabilities - 833 - 833
==================================== ======== ======== ======== ========
Level 1 Level Level Total
2 3
======================== ========== ======== ======== ========
31 March 2017 GBPm GBPm GBPm GBPm
======================== ========== ======== ======== ========
Investments
Available for sale 21 1,437 16 1,474
Fair value through
profit and loss 7 - - 7
Derivative assets
Designated in a hedge - 1,925 - 1,925
Fair value through
profit and loss - 321 - 321
======================== ========== ======== ======== ========
Total assets 28 3,683 16 3,727
======================== ========== ======== ======== ========
Derivative liabilities
Designated in a hedge - 641 - 641
Fair value through
profit and loss - 262 - 262
======================== ========== ======== ======== ========
Total liabilities - 903 - 903
======================== ========== ======== ======== ========
No gains or losses have been recognised in the income statement
for the half year ended 30 September 2017 in respect of Level 3
assets held at 30 September 2017. There were no changes to the
valuation methods or transfers between levels 1, 2 and 3 during the
six months to 30 September 2017.
7 Financial commitments
Capital expenditure for property, plant and equipment and
software contracted for at the balance sheet date but not yet
incurred was GBP875m (30 September 2016: GBP957m; 31 March 2017:
GBP889m). Programme rights commitments, mainly relating to football
broadcast rights for which the licence period has not yet started,
were GBP1,955m (30 September 2016: GBP1,449m; 31 March 2017:
GBP2,644m).
8 Contingent liabilities
Legal Proceedings: there have been no material updates relating
to the Legal Proceedings as disclosed in the Annual Report &
Form 20-F 2017.
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, the 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 2017 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.
No dividend was settled with the parent company in relation to
the year ended 31 March 2017 (2016/17: GBP2,350m).
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
2017 2017 2017 2016
GBPm GBPm GBPm GBPm
========================== ================================ ================ ============================ =========================
Amounts owed by (to)
parent
company
Loan facility -
non-current
asset investments 10,383 10,191 84 95
Loan facility - current
asset
investments 84 192 n/a n/a
Trade and other payables (80) (63) n/a n/a
Amounts owed by (to)
ultimate
parent company
Non-current asset
investments(1) 2,504 1,371 13 15
Non-current liabilities (1,044) (1,024) (9) (12)
Trade and other
receivables 47 25 n/a n/a
Current asset investments 13 28 n/a n/a
Current liabilities(1) (9) (159) n/a n/a
========================== ================================ ================ ============================ =========================
Trade and other payables (45) - n/a n/a
========================== ================================ ================ ============================ =========================
(1) During the half year we made cash payments of GBP1,245m to
BT Group plc offset by the receipt of GBP45m from BT Group plc. In
addition there are non cash movements
of GBP83m on non current asset investments relating to
interest.
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 38 to 52 of the Annual Report & Form 20-F 2017
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 associated with operating under a wide range of
local and international laws, trade sanctions and import and export
controls; coupled with the risk of inappropriate and unethical
behaviour by our people or associates
-- 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. This
also extends to 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
-- 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 associated with some of our activities being
subject to significant price and other regulatory controls
-- The risks associated with a significant funding obligation in
relation to our defined benefit pension schemes, and in particular
the BT Pension Scheme
-- The risks associated with political and geopolitical trends
and incidents, including the uncertainty caused by the UK voting to
leave the European Union
-- The financial risks common to other major international
businesses, including market, credit, liquidity and tax risks
-- 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 risk there could be a failure of any of our critical
third-party suppliers to meet their obligations
-- The risks associated with not being able to secure sufficient
employee engagement to support delivery of our strategic aims
There have been no significant changes to the principal risks
and uncertainties in the half year to 30 September 2017. 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
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
By order of the Board
Simon Lowth
Director
13 November 2017
INDEPENT REVIEW REPORT TO BT PLC
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed British Telecommunications plc's 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 2017. 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 Guidance and Transparency Rules sourcebook 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 2017;
-- 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
Guidance and Transparency Rules sourcebook 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
(IFRSs) as adopted by the European Union.
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 Guidance
and Transparency Rules sourcebook 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 Guidance and Transparency Rules sourcebook 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,
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
13 November 2017
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
Notes
1) Our 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. 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. Reconciliations of underlying revenue
excluding transit and adjusted EBITDA to the nearest measures
prepared in accordance with IFRS are provided in this Additional
Information.
2) Trend in underlying revenue excluding transit is a non-GAAP
measure which seeks to reflect the underlying performance of the
group that will contribute to long-term sustainable growth and as
such excludes the impact of acquisitions and disposals, foreign
exchange movements and any specific items. We exclude transit from
the trend as transit traffic is low-margin and is affected by
reductions in mobile termination rates.
Reconciliation of earnings before interest, tax, depreciation
and amortisation
Earnings before interest, tax, 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
================================================== ================
2017 2016
GBPm GBPm
================================================== ======= =======
Reported profit before tax 1,174 1,488
Share of post tax losses (profits) of associates
and joint ventures - 7
Net finance expense 280 307
================================================== ======= =======
Operating profit 1,454 1,802
Depreciation and amortisation 1,757 1,724
================================================== ======= =======
EBITDA 3,211 3,526
EBITDA specific items 387 182
================================================== ======= =======
Adjusted(1) EBITDA 3,598 3,708
================================================== ======= =======
Reconciliation of year on year trends in underlying revenue
excluding transit
Year on year trends in underlying revenue excluding transit seek
to reflect the underlying performance that will contribute to
long-term profitable growth. A reconciliation from the trends in
reported revenue, the most directly comparable IFRS measure, to the
trends in underlying revenue, are set out below.
Half year to
30 September 2017
=================================== ===================
%
=================================== ===================
Decrease in reported revenue -
Specific items (0.2)
==================================== ===================
Decrease in adjusted(1) revenue (0.2)
Transit revenue 0.5
Acquisitions and disposals 0.2
Foreign exchange movements (1.2)
==================================== ===================
Decrease in underlying(1) revenue
excluding transit (0.7)
==================================== ===================
(1) See Glossary on page 1
Forward-looking statements - caution advised
Certain statements in this results release are forward-looking
and are made in reliance on the safe harbour provisions of the US
Private Securities Litigation Reform Act of 1995. These statements
include, without limitation, those concerning: our outlook for
2017/18 including revenue, EBITDA, free cash flow and progressive
dividends; our deployment of ultrafast broadband and roll out of
G.fast technology; and our investment in the roll out of 4G and
FTTP and our move to all-IP.
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, and the implementation of the DCR commitments, as well as
competition from others; consultations and market reviews including
the outcome of Ofcom's consultations on the Wholesale Local Access
market and forthcoming spectrum auctions; 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, including the proposed investment in our FTTP
broadband network; 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, synergies and cost savings of
the EE integration not being delivered; the improvements to the
control environment proposed following the investigations into BT's
Italian business not being implemented successfully, effectively or
timeously across the Group; the outcome of the BTPS triennial
valuation and discussions on the pensions review; 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BXLFFDFFFFBE
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November 13, 2017 06:44 ET (11:44 GMT)
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