TIDM72NS
RNS Number : 8809E
British Telecommunications PLC
10 November 2020
British Telecommunications plc
Results for the half year to 30 September 2020
November 2020
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 the London
stock exchange.
BT is the UK's leading telecommunications and network provider
and a leading provider of global communications services and
solutions, serving customers in 180 countries. Its principal
activities in the UK include the provision of fixed voice, mobile,
broadband and TV (including Sport) and a range of products and
services over converged fixed and mobile networks to consumer,
business and public sector customers. For its global customers, BT
provides managed services, security and network and IT
infrastructure services to support their operations all over the
world. BT consists of four customer-facing units: Consumer,
Enterprise, Global and its wholly-owned subsidiary, Openreach,
which provides access network services to over 650 communications
provider customers who sell phone, broadband and Ethernet services
to homes and businesses across the UK.
The directors at 30 September 2020 were Simon Lowth, Neil
Harris, Ulrica Fearn, Edward Heaton and Keighly Droy-Whelan, all of
whom served as directors throughout the period.
Half year to 30 September 2020 2019 Change
====== ======
GBPm GBPm %
========================== ====== ====== ========
Reported measures
Revenue 10,590 11,467 (8)
Profit before tax 1,161 1,451 (20)
Profit after tax 936 1,164 (20)
Capital expenditure 1,969 1,882 5
========================== ====== ====== ======
Adjusted measures
Adjusted(1) Revenue 10,607 11,413 (7)
Adjusted(1) EBITDA 3,723 3,925 (5)
========================== ====== ====== ======
Customer-facing unit results for the half year to 30 September
2020
Adjusted(1) revenue Adjusted(1) EBITDA
Half year 2020 2019(2) Change 2020 2019(2) Change
to
30 September GBPm GBPm % GBPm GBPm %
============= ========= ========= ====== ======== ======== ========
Consumer 4,873 5,194 (6) 1,075 1,180 (9)
Enterprise 2,710 2,987 (9) 833 955 (13)
Global 1,916 2,196 (13) 289 304 (5)
Openreach 2,585 2,536 2 1,453 1,417 3
Other 12 14 (14) 73 69 6
Intra-group
items (1,489) (1,514) 2 - - -
============= ========= ========= ====== ======== ======== ======
Total 10,607 11,413 (7) 3,723 3,925 (5)
============= ========= ========= ====== ======== ======== ======
(1) See Glossary below
(2) On 1 April 2020, Supply Chain and Pelipod, which serve
several parts of BT, were transferred from Enterprise to the
central procurement team and as a result are now reported in Group
'Other' financial results. The prior year comparative for the
Enterprise and Other CFU results has been restated to reflect this.
Refer to the announcement on 29 June 2020 for further
information
Glossary of alternative performance measures
Adjusted Before specific items. Adjusted results are consistent
with the way that financial performance is measured
by management and assist in providing an additional
analysis of the reporting trading results of the group.
EBITDA Earnings before interest, tax, depreciation and amortisation.
Adjusted EBITDA EBITDA before specific items, share of post tax profits/losses
of associates and joint ventures and net non-interest
related finance expense.
Capital expenditure Additions to property, plant and equipment and intangible
assets in the period.
Specific items Items that in management's judgement need to be disclosed
separately by virtue of their size, nature or incidence.
In the current period these relate predominantly to
retrospective regulatory charges, restructuring charges
linked with our modernisation programme and other cost
initiatives, and divestment related items. Further
information is provided in note 6 on page 16.
We assess the performance of the group using a variety of
alternative performance measures. Reconciliations from the most
directly comparable IFRS measures are in Additional Information on
page 24.
British Telecommunications plc
Group results for the half year to 30 September 2020
Income statement
Reported revenue was GBP10,590m, down 8%, due primarily to the
impact of Covid-19 including reduced BT Sport revenue and a
reduction in business activity in our enterprise units. The decline
in revenue was also driven by ongoing legacy product declines in
our enterprise businesses and a later than normal iPhone product
launch, but was partially offset by higher rental bases of fibre
enabled products and Ethernet in Openreach.
Reported operating costs were GBP9,134m, down 6%, mainly driven
by lower product costs and commissions, sports rights rebates,
savings from our modernisation programme and other cost initiatives
including Covid-19 mitigating actions such as short-term reductions
in discretionary spend. This was partly offset by continued
investment in customer experience and higher operating costs in
Openreach. Adjusted(1) EBITDA of GBP3,723m was down 5%, or
GBP202m.
Reported profit before tax of GBP1,161m was down 20%, or
GBP290m, primarily reflecting the decline in adjusted EBITDA,
higher depreciation and amortisation, and higher non-specific
finance expense.
Specific items (Note 6 to the condensed consolidated financial
statements)
Specific items resulted in a net charge after tax of GBP94m (H1
2019/20: GBP88m). The main components are restructuring costs of
GBP155m (H1 2019/20: GBP144m), property rationalisation costs of
GBP8m (H1 2019/20: gains of GBP111m reflecting the gain on sale of
BT Centre), regulatory charge of GBP18m (H1 2019/20: release of
GBP55m), and interest expense on pensions of GBP9m (H1 2019/20:
GBP72m); offset by a net divestment-related items credit of GBP66m
including profit on disposal of our Spanish operations (H1 2019/20:
loss of GBP67m) and a tax credit on specific items of GBP30m (H1
2019/20: GBP24m).
Tax
The effective tax rate was 19.4% on reported profit and 19.8% on
adjusted(1) profit, based on our current estimate of the full year
effective tax rate.
Capital expenditure
Capital expenditure was GBP1,969m (H1 2019/20: GBP1,882m).
Network investment was GBP1,098m, up 9%(2) . This was driven by
higher fixed network and mobile network spend, reflecting continued
investment in FTTP deployment and the mobile network; offset by a
decrease in core network spend. Other capital expenditure
components were down 1%(2) with GBP455m spent on customer-driven
investments, GBP364m on systems and IT, and GBP52m spent on
non-network infrastructure.
Cash flow
Net cash inflow from operating activities was up GBP540m to
GBP2,711m, mainly driven by reduced pension deficit payments
compared to last year offset by the reduced operating profit.
Balance sheet
At 30 September 2020 the group held cash and current investment
balances of GBP6.6bn. The current portion of loans and other
borrowings of GBP2.7bn include term debt of GBP1.4bn repayable
during 2020/21. Our GBP2.1bn facility, which matures in March 2025,
remains undrawn at 30 September 2020.
Pensions (Note 7 to the condensed consolidated financial
statements)
The IAS 19 pension position at 30 September 2020 was a deficit
of GBP4.0bn net of tax (GBP4.9bn gross of tax), compared with
GBP1.0bn net of tax (GBP1.1bn gross of tax) at 31 March 2020. The
increase in the gross deficit of GBP3.8bn since 31 March 2020
mainly reflects a fall in the real discount rate, partially offset
by higher than expected asset returns, deficit contributions over
the period, and a change of methodology used in the discount rate
model.
At 30 September 2020, the discount rate model has been updated
to use a wider universe of corporate bonds to derive the yield
curve. A key difference is the inclusion of certain special purpose
vehicle (SPV) corporate bonds that remain consistent with the
requirements of IAS 19. The revised model is a standard approach
developed by our external actuary. The impact of this change is a
GBP0.9bn reduction in the BT Pension Scheme (BTPS) IAS 19
liabilities.
In August 2020 a consultation on reforming RPI closed. As no new
information has been released and no change in market behaviour has
been observed, there is no change proposed to our judgement in
setting inflation assumptions. The result of the consultation is
expected by the end of the calendar year.
(1) See Glossary on page 1
(2) Capital expenditure by spend type reported in Q2 2019/20 has
been re-presented between categories to reflect an improved mapping
process
In October 2020 a consultation was launched regarding future
public sector pension increases, which may have a knock-on impact
on the BTPS (the consultation will provide further clarity to
information provided in our Q3 2019/20 results on this subject).
Various options are proposed in the consultation which are likely
to lead to extra pension liability (estimated to be a maximum
increase of low hundreds of millions GBP). The extent of the impact
will be known when the results of the consultation are
released.
The BTPS funding valuation as at 30 June 2020 is currently in
progress and we are considering a number of options for funding the
deficit. These options include considering whether there are
alternative approaches to only making cash payments, including
arrangements that would give the BTPS a prior claim over certain BT
assets. We are aiming to complete discussions in the first half of
calendar year 2021.
Operating review
Consumer
Half year to 30 September
2020 2019 Change
GBPm GBPm GBPm %
==================== ======= ======= ====== =======
Revenue(1) 4,873 5,194 (321) (6)
Operating costs(1) 3,798 4,014 (216) (5)
==================== ======= ======= ====== =====
EBITDA(2) 1,075 1,180 (105) (9)
Depreciation &
amortisation 635 631 4 1
==================== ======= ======= ====== =====
Operating profit(1) 440 549 (109) (20)
==================== ======= ======= ====== =====
Capital expenditure 505 455 50 11
==================== ======= ======= ====== =====
Revenue declined in the half year, predominately due to the
continued impact of Covid-19 with sport, including pubs &
clubs, and roaming revenue significantly down, and the loss of
retail store sales in Q1. A declining base of voice only customers
and a later iPhone product launch has also impacted revenues.
EBITDA for the half year declined driven by lower revenues,
continued investment in the fairness commitments made to Ofcom and
increased bad debt. This has been partially offset by sports rights
rebates and tight management of costs, including reduced headcount.
No further material sports rights rebates are expected in the
second half of the year.
Capital expenditure was up 11%, due to higher network and
equipment investment.
Covid-19 will continue to affect Consumer with further impacts
from lower sport revenue from pubs & clubs, more
price-conscious customers, reduced roaming activity and increased
costs from major handset launches. Q2 broadband and mobile churn
both landed at 1.1%, each improving 0.1ppt year on year, linked to
our focus on pricing, market competitiveness, fairness and also
aided by lower market activity.
Our 5G ready customer base has increased to over 1m and 5G is
now live in 112 UK towns and cities, more than any other operator,
leaving the business well positioned for any new 5G device launches
including the recent iPhone 12. During Q2 EE launched the exclusive
'Full Works Plan for iPhone' where customers receive inclusive
access to Apple Music, Apple TV+ and Apple Arcade, in one mobile
plan.
In Q2 our FTTP customer base grew by 86k to 598k, our largest
quarterly increase to date. Nearly 40% of BT broadband customers
are on our converged BT Halo product. Online live streams (web and
app-based) for BT Sport were at their highest ever level in August
2020 during a busy month for BT Sport driven by the UEFA Champions
League Finals.
(1) Adjusted (being before specific items). See glossary on page
1
(2) Adjusted (being before specific items, share of post tax
profits/losses of associates and joint ventures and net
non-interest related finance expense). See glossary on page 1
Enterprise
Half year to 30 September
2020 2019(3) Change
GBPm GBPm GBPm %
==================== ======= ======= ====== =======
Revenue(1) 2,710 2,987 (277) (9)
Operating costs(1) 1,877 2,032 (155) (8)
==================== ======= ======= ====== =====
EBITDA(2) 833 955 (122) (13)
Depreciation &
amortisation 367 352 15 4
==================== ======= ======= ====== =====
Operating profit(1) 466 603 (137) (23)
==================== ======= ======= ====== =====
Capital expenditure 229 229 - -
==================== ======= ======= ====== =====
Revenue decreased mainly due to reduced business activity across
Enterprise as a result of Covid-19, as well as ongoing declines in
our legacy products. Excluding the divestments of BT Fleet
Solutions and Tikit in the prior year our revenue for the half year
was down 7%.
Total fixed revenue was down 7% due to declines in legacy calls
and lines, partially offset by growth in new products. Retail
mobile revenue was down 13%, reflecting ongoing intense mobile
competition and the impact of Covid-19, which affected both
domestic and international call volumes, and led to a lower level
of sales and upgrades. This was partially offset by an increase in
Wholesale mobile revenue of 16%.
We expect to see further impacts of Covid-19 from business
insolvencies, particularly among our SME customers, although the
size of the impact will depend on the level and length of
Government support. This also affects Wholesale which indirectly
serves SMEs.
Operating costs were lower mainly due to the declines in revenue
as well as cost transformation. We continue to focus our efforts on
reducing our cost base through supplier and product
rationalisation. We have over 500 individual cost reduction
initiatives, and during the quarter introduced a number of measures
to further tighten our third party costs.
EBITDA was down 13%. Excluding the divestments of BT Fleet
Solutions and Tikit in the prior year our EBITDA for the half year
was down 12%.
Capital expenditure was flat.
Retail order intake increased 3% to GBP3.2bn and Wholesale order
intake decreased 1% to GBP1.1bn on a 12-month rolling basis. This
includes a five year extension to our MVNO agreement with utilities
service provider Utility Warehouse.
We continue to support small businesses across the UK through
BT's Small Business Support Scheme. We recently announced a
partnership with Square to help EE's small business customers
securely accept contactless mobile payments and launched a bursary
scheme to give UK start-ups six months' free fibre broadband,
digital phone line and mobile bundles. The bursary includes Halo
for Business and will be made available to 1,000 eligible companies
initially.
We have extended our 5G development programme for our enterprise
customers and have agreed a new landmark partnership with Belfast
Harbour to deploy a 5G Private Network. We have also partnered with
Stirling University on its 'Living Laboratory' project which sees
BT helping to create a state of the art environmental monitoring
system using 5G and complementary tech.
(1) Adjusted (being before specific items). See glossary on page
1
(2) Adjusted (being before specific items, share of post tax
profits/losses of associates and joint ventures and net
non-interest related finance expense). See glossary on page 1
(3) All prior year comparatives as reported in the Q2 2019/20
results release have been restated for the changes detailed on
footnote 2 on page 1
Global
Half year to 30 September
2020 2019 Change
GBPm GBPm GBPm %
==================== ======= ======= ====== =======
Revenue(1) 1,916 2,196 (280) (13)
Operating costs(1) 1,627 1,892 (265) (14)
==================== ======= ======= ====== =====
EBITDA(2) 289 304 (15) (5)
Depreciation &
amortisation 195 247 (52) (21)
==================== ======= ======= ====== =====
Operating profit(1) 94 57 37 65
==================== ======= ======= ====== =====
Capital expenditure 81 96 (15) (16)
==================== ======= ======= ====== =====
Covid-19 negatively impacted revenue in the half year but did
not materially impact EBITDA as lower non-contracted business and
milestone slippage were offset by higher conferencing volumes and
cost mitigation. Looking forward, we are seeing a reduction in
spending and a more cautious approach from our multinational
customers resulting in cancellations and delays to purchasing
cycles which will negatively impact revenue and EBITDA in the
second half of the year.
Revenue for the half year was down 13% reflecting the impact of
Covid-19, divestments, legacy portfolio declines and a GBP16m
negative impact from foreign exchange movements. Revenue excluding
divestments and foreign exchange was down 10%.
EBITDA for the half year was down 5% reflecting the impact of
divestments, prior year favourable one-offs and a GBP4m negative
impact from foreign exchange movements. EBITDA, excluding
divestments, one-offs and foreign exchange was up 6%. The negative
impact of Covid-19 on revenue was more than offset by lower
operating costs reflecting ongoing transformation and Covid-19
mitigation actions.
Depreciation and amortisation was down 21% due to the impact of
divestments and declines in capital investment over the last few
years in line with our strategy to become an asset light business.
Operating profit was up GBP37m.
Capital expenditure was down due to lower project spend and the
impact of divestments.
Order intake in the quarter was GBP0.8bn, down 43% due to a
number of large renewals in the prior year and the impact of
Covid-19. On a rolling 12-month basis it was GBP4.1bn, up 10% year
on year.
On 1 October we completed the sale of selected domestic
operations and infrastructure in Latin America.
(1) Adjusted (being before specific items). See glossary on page
1
(2) Adjusted (being before specific items, share of post tax
profits/losses of associates and joint ventures and net
non-interest related finance expense). See glossary on page 1
Openreach
Half year to 30 September
2020 2019 Change
GBPm GBPm GBPm %
==================== ======== ======== ===== ======
Revenue(1) 2,585 2,536 49 2
Operating costs(1) 1,132 1,119 13 1
==================== ======== ======== ===== ====
EBITDA(2) 1,453 1,417 36 3
Depreciation &
amortisation 832 838 (6) (1)
==================== ======== ======== ===== ====
Operating profit(1) 621 579 42 7
==================== ======== ======== ===== ====
Capital expenditure 1,072 1,015 57 6
==================== ======== ======== ===== ====
Revenue growth for the half year was driven by higher rental
bases in fibre(3) , up 18% and Ethernet, up 9%. This was partially
offset by decline in legacy copper products. The first quarter in
particular was impacted by Covid-19 driving lower provision and
upgrade activity, partly offset by lower churn.
EBITDA grew 3% year on year with revenue growth partially offset
by higher operating costs. The increase in operating costs was
primarily driven by investment in people to deliver better service,
partially offset by ongoing efficiency programmes and reductions in
discretionary spend.
Depreciation and amortisation was broadly flat. Operating profit
grew by 7% to GBP621m.
Capital expenditure was up 6% due to investments in the network,
predominantly fibre enabled infrastructure, partially offset by
efficiency savings.
Delivering a standout service for Openreach's customers was a
challenge in the first half of the year, impacted by Covid-19, bad
weather and increased home working. Despite this Openreach
delivered record levels of engineering work in support of a nation
working from home during the pandemic.
Openreach continues to build FTTP at pace with an average of 40k
premises passed per week in the second quarter. To support
accelerating build we have concluded one of the biggest tender
processes in Openreach's history, with nine engineering partners
contracted in the quarter to support our build. These tenders are
key to the commitment to build to 20m premises by the mid-to-late
2020s, subject to enablers.
(1) Adjusted (being before specific items). See glossary on page
1
(2) Adjusted (being before specific items, share of post tax
profits/losses of associates and joint ventures and net
non-interest related finance expense). See glossary on page 1
(3) FTTP, FTTC and Gfast (including Single Order migrations)
Financial statements
Group income statement
For the half year to 30 September 2020
Note Before Specific Total
specific items (Reported)
items (note 6)
('Adjusted')
==== ============= =========
GBPm GBPm GBPm
======================================= ==== ============= ========= =============
Revenue 3,4 10,607 (17) 10,590
Operating costs 5 (9,036) (98) (9,134)
======================================= ==== ============= ========= ===========
Operating profit 1,571 (115) 1,456
Finance expense (398) (9) (407)
Finance income 111 - 111
======================================= ==== ============= ========= ===========
Net finance expense (287) (9) (296)
Share of post tax profit of associates
and joint ventures 1 - 1
======================================= ==== ============= ========= ===========
Profit before tax 1,285 (124) 1,161
Tax (255) 30 (225)
======================================= ==== ============= ========= ===========
Profit for the period 1,030 (94) 936
======================================= ==== ============= ========= ===========
For the half year to 30 September 2019
Note Before Specific Total
specific items (Reported)
items (note 6)
('Adjusted')
==== ============= =========
GBPm GBPm GBPm
======================================= ==== ============= ========= =============
Revenue 3,4 11,413 54 11,467
Operating costs 5 (9,609) (94) (9,703)
======================================= ==== ============= ========= ===========
Operating profit 1,804 (40) 1,764
Finance expense (399) (72) (471)
Finance income 156 - 156
======================================= ==== ============= ========= ===========
Net finance expense (243) (72) (315)
Share of post tax profit of associates
and joint ventures 2 - 2
======================================= ==== ============= ========= ===========
Profit before tax 1,563 (112) 1,451
Tax (311) 24 (287)
======================================= ==== ============= ========= ===========
Profit for the period 1,252 (88) 1,164
======================================= ==== ============= ========= ===========
Group statement of comprehensive income
Half year to 30 September
2020 2019
GBPm GBPm
========================================================= =============== ============
Profit for the period 936 1,164
========================================================= =============== ==========
Other comprehensive income (loss)
Items that will not be reclassified to the income
statement:
Remeasurements of the net pension obligation (4,089) (83)
Tax on pension remeasurements 777 14
Items that have been or may be reclassified subsequently
to the income statement:
Exchange differences on translation of foreign
operations (9) 88
Fair value movements on assets at fair value through
other comprehensive income - (12)
Movements in relation to cash flow hedges:
* net fair value gains (losses) (30) 659
* recognised in income and expense (247) (381)
Tax on components of other comprehensive income
that have been or may be reclassified 55 (50)
========================================================= =============== ==========
Other comprehensive profit (loss) for the period,
net of tax (3,543) 235
========================================================= =============== ==========
Total comprehensive income for the period (2,607) 1,399
========================================================= =============== ==========
Group balance sheet
30 September 31 March 2020
2020
============
GBPm GBPm
====================================== ============ ===============
Non-current assets
Intangible assets 13,668 13,897
Property, plant and equipment 18,840 18,474
Right-of-use assets 5,113 5,391
Derivative financial instruments 1,926 2,229
Investments 10,867 13,789
Associates and joint ventures 10 12
Trade and other receivables 353 481
Contract assets 284 279
Deferred tax assets 999 300
====================================== ============ =============
52,060 54,852
====================================== ============ =============
Current assets
Programme rights 697 310
Inventories 235 300
Trade and other receivables 2,995 2,730
Contract assets 1,450 1,442
Assets held for sale(1) 112 268
Current tax receivable 67 67
Derivative financial instruments 311 260
Investments 5,770 5,372
Cash and cash equivalents(2) 797 1,545
====================================== ============ =============
12,434 12,294
====================================== ============ =============
Current liabilities
Loans and other borrowings(2) 2,651 3,957
Derivative financial instruments 75 46
Trade and other payables 5,778 5,829
Contract liabilities 952 972
Lease liabilities 838 812
Liabilities held for sale(1) 112 211
Current tax liabilities 168 23
Provisions 298 288
====================================== ============ =============
10,872 12,138
====================================== ============ =============
Total assets less current liabilities 53,622 55,008
====================================== ============ =============
Non-current liabilities
Loans and other borrowings 17,511 17,575
Derivative financial instruments 917 966
Contract liabilities 180 179
Lease liabilities 5,425 5,748
Retirement benefit obligations 4,856 1,140
Other payables 763 754
Deferred tax liabilities 1,521 1,608
Provisions 456 431
====================================== ============ =============
31,629 28,401
====================================== ============ =============
Equity
Share capital 2,172 2,172
Share premium 8,000 8,000
Other reserves 1,595 1,826
Retained earnings 10,226 14,609
====================================== ============ =============
Total equity 21,993 26,607
====================================== ============ =============
53,622 55,008
====================================== ============ =============
(1) Assets and liabilities held for sale at 30 September 2020
relate to our domestic operations in France, and selected domestic
operations and infrastructure in 16 countries in Latin America
(2) Bank overdrafts of GBP116m at 30 September 2020 (31 March
2020: GBP183m) are included within loans and other borrowings
Group statement of changes in equity
For the half year to 30 September 2020
Share Share Other Retained Total
Capital Premium Reserves earnings Equity
======== ======== ========= =========
GBPm GBPm GBPm GBPm GBPm
=========================== ======== ======== ========= ========= =========
At 1 April 2020 2,172 8,000 1,826 14,609 26,607
Profit for the period - - 936 936
Other comprehensive
income (loss) before
tax - - (39) (4,089) (4,128)
Tax on other comprehensive
(loss) income - - 55 777 832
Transferred to the
income statement - - (247) - (247)
=========================== ======== ======== ========= ========= =======
Comprehensive income - - (231) (2,376) (2,607)
Dividends - - - (2,000) (2,000)
Share-based payments - - - (8) (8)
Other Movements - - - 1 1
=========================== ======== ======== ========= ========= =======
At 30 September2020 2,172 8,000 1,595 10,226 21,993
=========================== ======== ======== ========= ========= =======
For the half year to 30 September 2019
At 1 April 2019 2,172 8,000 1,425 10,120 21,717
=========================== ===== ===== ===== ======= =======
Profit for the period - - - 1,164 1,164
Other comprehensive
income (loss) before
tax - - 734 (83) 651
Tax on other comprehensive
(loss) income - - (50) 14 (36)
Transferred to the
income statement - - (381) - (381)
=========================== ===== ===== ===== ======= =======
Comprehensive income - - 303 1,095 1,398
Dividends - - - (1,575) (1,575)
Share-based payments - - - 33 33
Other movements - - - 2 2
=========================== ===== ===== ===== ======= =======
At 30 September 2019 2,172 8,000 1,728 9,675 21,575
=========================== ===== ===== ===== ======= =======
Group cash flow statement
For the half year to 30 September
Half year
to 30 September
2020 2019
GBPm GBPm
======================================================= ======== ==========
Cash flow from operating activities
Profit before taxation 1,161 1,451
Share of post tax loss (profit) of associates
and joint ventures (1) (2)
Net finance expense 296 315
======================================================= ======== ========
Operating profit 1,456 1,764
Other non-cash charges(1) 25 45
Loss (profit) on disposal of business (75) 67
Profit on disposal of property, plant and equipment - (115)
Depreciation and amortisation 2,152 2,121
(Increase) decrease in inventories 65 53
(Increase) decrease in programme rights (85) 31
(Increase) decrease in trade and other receivables (108) (25)
(Increase) decrease in contract assets (13) (75)
Increase (decrease) in trade and other payables(1) (271) (475)
Increase (decrease) in contract liabilities (21) 104
Decrease in other liabilities(2) (370) (1,173)
Increase in provisions 33 2
======================================================= ======== ========
Cash generated from operations(1) 2,788 2,324
Income taxes paid (77) (83)
======================================================= ======== ========
Net cash inflow (outflow) from operating activities(1) 2,711 2,241
======================================================= ======== ========
Cash flow from investing activities
Interest received 6 16
Dividends received from associates and joint
ventures 4 (1)
Net outflow on non current amounts owned by
ultimate parent company(5) (2) (1,149)
Proceeds on disposal of subsidiaries, associates
and joint ventures 166 7
Acquisition of associates and joint ventures - (4)
Proceeds on disposal of current financial assets 5,973 6,216
Purchases of current financial assets (6,532) (6,717)
Proceeds on disposal of non-current asset investments - -
Proceeds on disposal of property, plant and
equipment 1 214
Purchases of property, plant and equipment
and software (2,086) (2,067)
======================================================= ======== ========
Net cash inflow (outflow) from investing activities (2,470) (3,485)
======================================================= ======== ========
Cash flow from financing activities
Interest paid(1) (409) (370)
Repayment of borrowings(3) - (811)
Proceeds from bank loans and bonds - 1,257
Payment of lease liabilities (363) (311)
Cash flows from derivatives related to net
debt (147) 277
======================================================= ======== ========
Net cash inflow (outflow) from financing activities(1) (919) 42
======================================================= ======== ========
Net increase (decrease) in cash and cash equivalents (678) (1,202)
======================================================= ======== ========
Opening cash and cash equivalents(4) 1,405 1,592
Net (decrease) increase in cash and cash equivalents (678) (1,202)
Effect of exchange rate changes (3) 11
======================================================= ======== ========
Closing cash and cash equivalents(4) 724 401
======================================================= ======== ========
(1) Consistent with the full year results, interest on lease
liabilities is now included within interest paid, and the notional
interest charge reclassified from other non-cash charges to
movement in trade and other payables. Interest on lease liabilities
of GBP70m was previously presented as a separate line item within
cash generated from operations in the Q2 2019/2020 results
release.
(2) Includes pension deficit payments of GBP425m for the half
year to 30 September 2020 (H1 2019/20: GBP1,261m)
(3) Repayment of borrowings includes the impact of hedging
(4) Net of bank overdrafts of GBP116m at 30 September 2020 (31
March 2020: GBP183m, 30 September 2019: GBP78m, 31 March 2019:
GBP72m), and including GBP43m cash and cash equivalents classified
as held for sale (31 March 2020: GBP43m, 30 September 2019: GBPnil,
31 March 2019: GBPnil)
(5) There are non-cash movements in this intra-group loan
arrangement which principally relate to the 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 Telecommunicatio ns plc
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 2020 and
2019 together with the balance sheet at 31 March 2020. The
financial statements for the half year to 30 September 2020 have
been reviewed by the auditors and their review opinion is on page
23. 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. The financial
statements should be read in conjunction with the Annual Report
2020 which was prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union. In
preparing the group financial statements, the directors have also
elected to comply with IFRS, issued by the International Accounting
Standards Board (IASB).
The directors are satisfied that the group has adequate
resources to continue in operation for a period of at least twelve
months from the date of this report. Consequently, the directors
consider it appropriate to adopt the going concern basis of
accounting in preparing the condensed consolidated financial
statements for the half year to 30 September 2020. When reaching
this conclusion, the directors took into account:
-- The group's overall financial position (including trading
during the half year and ability to repay term debt as it matures
without recourse to refinancing);
-- Exposure to principal risks (including severe but plausible downsides); and
-- The ongoing impact of Covid-19 (which has affected trading
but has not had a significant impact on the group's ability to
generate cash).
At 30 September 2020, the group had cash and cash equivalents of
GBP0.8bn and current asset investments of GBP5.8bn. The group also
had access to committed borrowing facilities of GBP2.1bn. These
facilities were undrawn at period-end and are not subject to
renewal until March 2025.
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 2020 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.
The comparative figures for the financial year ended 31 March
2020 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was unqualified, did not include a reference to any matters
to which the auditor drew attention by way of emphasis without
qualifying their report, and did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
New and amended accounting standards effective during the
year
No new or amended accounting standards that became effective
during the year have had a significant impact on the group.
New and amended accounting standards that have been issued but
are not yet effective
We do not expect any other standards or interpretations that
have been issued but are not yet effective to have a significant
impact on the group.
2. Restatement of prior period financial statements
On 1 April 2020, Supply Chain and Pelipod, which serve several
parts of BT, were transferred from Enterprise to the central
procurement team and as a result are now reported in Group 'Other'
financial results. The comparative results in the operating results
notes have been revised to be presented on a consistent basis. See
notes 3 and 4.
3. Operating results - by customer facing unit
External Internal Group revenue Adjusted Operating
Revenue revenue EBITDA(1) profit
======== ======== ============= ==========
Half year to 30 September GBPm GBPm GBPm GBPm GBPm
2020
============================ ======== ======== ============= ========== ===========
Consumer 4,824 49 4,873 1,075 440
Enterprise 2,649 61 2,710 833 466
Global 1,916 - 1,916 289 94
Openreach 1,206 1,379 2,585 1,453 621
Other 12 - 12 73 (50)
Intra-group items - (1,489) (1,489) - -
============================ ======== ======== ============= ========== =========
Total adjusted(2) 10,607 - 10,607 3,723 1,571
============================ ======== ======== ==========
Specific items (note
6) (17) (115)
============================ ============= =========
Total 10,590 1,456
============================ ============= =========
Half year to 30 September 2019(3)
======== ============= ========== ===========
Consumer 5,144 50 5,194 1,180 549
Enterprise 2,895 92 2,987 955 603
Global 2,196 - 2,196 304 57
Openreach 1,164 1,372 2,536 1,417 579
Other 14 - 14 69 16
Intra-group items - (1,514) (1,514) - -
============================ ======== ======== ============= ========== =========
Total adjusted(2) 11,413 - 11,413 3,925 1,804
============================ ======== ======== ==========
Specific items (note
6) 54 (40)
============================ ============= =========
Total 11,467 1,764
============================ ============= =========
(1) For the reconciliation of adjusted EBITDA see additional
information on page 24
(2) See Glossary on page 1
(3) 2019 results have been restated to reflect the transfer of
Supply Chain and Pelipod from Enterprise to Other
4. Operating results - by type of revenue
Half year to 30 September
2020 Consumer Enterprise Global Openreach Other Total
======== ========== ====== ========= =====
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ======== ========== ====== ========= ===== ========
ICT and managed networks - 1,029 1,040 - - 2,069
Fixed access subscription
revenue 2,075 900 173 1,187 - 4,335
Mobile subscription
revenue 1,790 577 43 - - 2,410
Equipment and other
services 959 143 660 19 12 1,793
========================== ======== ========== ====== ========= ===== ======
Total adjusted(1) revenue 4,824 2,649 1,916 1,206 12 10,607
Specific items (note
6) (17)
========================== ======== ========== ====== ========= ===== ======
Total revenue 10,590
========================== ======== ========== ====== ========= ===== ======
Half year to 30 September
2019(2)
========================== ===== ===== ===== ===== ========
ICT and managed networks - 1,073 1,149 - - 2,222
Fixed access subscription
revenue 2,225 1,024 181 1,134 - 4,564
Mobile subscription
revenue 1,924 601 50 - - 2,575
Equipment and other
services 995 197 816 30 14 2,052
========================== ===== ===== ===== ===== ======
Total adjusted(1) revenue 5,144 2,895 2,196 1,164 14 11,413
Specific items (note
6) 54
========================== ===== ===== ===== ===== ======
Total revenue 11,467
========================== ===== ===== ===== ===== ======
(1) See Glossary on page 1
(2) 2019 results have been restated to reflect the transfer of
Supply Chain and Pelipod from Enterprise to Other
5. Operating costs
Half year to
30 September
==================================================
2020 2019
GBPm GBPm
================================================== ====== ========
Direct labour costs 2,566 2,636
Indirect labour costs 509 500
Leaver costs 5 8
================================================== ====== ======
Total labour costs 3,080 3,144
Capitalised labour (797) (751)
================================================== ====== ======
Net labour costs 2,283 2,393
Product costs and sales commissions 1,977 2,154
Payments to telecommunications operators 793 927
Property and energy costs 505 493
Network operating and IT costs 453 440
Programme rights charges 335 437
Other operating costs 538 644
================================================== ====== ======
Operating costs before depreciation, amortisation
and specific items 6,884 7,488
Depreciation and amortisation 2,152 2,121
================================================== ====== ======
Total operating costs before specific items 9,036 9,609
Specific items (Note 6) 98 94
================================================== ====== ======
Total operating costs 9,134 9,703
================================================== ====== ======
6. Specific items
Specific items are used to derive the adjusted results as
presented in the accompanying consolidated income statement. The
directors believe that presentation of our results in this way is
relevant to an understanding of our financial performance, as
specific items are identified by virtue of their size, nature or
incidence.
This presentation is consistent with the way that financial
performance is measured by management and reported to the BT Group
plc Board and the Executive Committee and assists in providing a
meaningful analysis of our trading results. 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. Examples of charges or credits
meeting the above definition and which have been presented as
specific items in the current and/or prior years include
acquisitions/disposals of businesses and investments, regulatory
settlements, historical insurance or litigation claims, business
restructuring programmes, asset impairment charges, property
rationalisation programmes, net interest on pensions and the
settlement of multiple tax years. In the event that other items
meet the criteria, which are applied consistently from year to
year, they are also treated as specific items.
Half year to
30 September
==================================================
2020 2019
GBPm GBPm
================================================== ====== ========
Specific revenue
Retrospective regulatory matters 17 (54)
================================================== ====== ======
Specific revenue 17 (54)
================================================== ====== ======
Specific operating costs
Restructuring charges 155 144
Property rationalisation 8 (111)
Retrospective regulatory matters 1 (1)
Provisions for claims - (5)
Divestment related items (66) 67
================================================== ====== ======
Specific operating costs 98 94
================================================== ====== ======
Specific operating loss 115 40
Interest expense on retirement benefit obligation 9 72
================================================== ====== ======
Net specific items charge before tax 124 112
Tax charge (credit) on specific items (30) (24)
================================================== ====== ======
Net specific items charge after tax 94 88
================================================== ====== ======
Restructuring charges
During the year we incurred charges of GBP155m (H1 2019/20:
GBP144m), primarily relating to leaver costs associated with our
group-wide modernisation programme and other cost initiatives.
Property rationalisation
We have recognised costs of GBP8m relating to rationalisation of
our property portfolio under our Better Workplace Programme (H1
2019/20: net credit of GBP111m primarily relating to the GBP115m
gain on sale of BT Centre).
Retrospective regulatory matters
We have recognised a regulatory charge of GBP18m (H1 2019/20:
credit of GBP55m) in relation to regulatory matters. Of this
charge, GBP17m is recognised in revenue and GBP1m in operating
costs.
Divestment related items
We have recognised a net credit in relation to divestment
related items of GBP66m (H1 2019/20: loss on disposal of GBP67m
relating to the divestment of BT Fleet Solutions).
The credit in the current period includes GBP81m gain on
disposal of our Spanish operations which completed in Q1. Net
consideration was GBP152m and disposal costs of GBP10m were
incurred. Total net assets disposed of were GBP61m, including an
allocation of goodwill. This was partially offset by GBP6m
impairment charges in respect of the disposal of selected
operations and infrastructure in 16 countries in Latin America
which completed on 1 October 2020, and GBP9m of divestment related
costs.
Provisions for claims
In H1 2019/20 we recognised a credit of GBP5m in relation to
release of provisions for claims created through specific items in
2012/13 which have now been fully settled.
Interest expense on retirement benefit obligation
During the year we incurred GBP9m (H1 2019/20: GBP72m) of
interest costs in relation to our defined benefit pension
obligations. This is lower than the prior year reflecting the lower
IAS 19 pension deficit at 31 March 2020.
Tax on specific items
A net tax credit of GBP30m (H1 2019/20: credit of GBP24m) was
recognised in relation to specific items.
7. Pensions
30 September 31 March 2020
2020
=======================
GBPbn GBPbn
=================================== ======================= =======================
IAS 19 liabilities - BTPS (60.8) (53.0)
Assets - BTPS 56.5 52.2
Other schemes (0.6) (0.3)
=================================== ================ ===== ================ =====
Total IAS 19 deficit, gross of tax (4.9) (1.1)
=================================== ================ ===== ================ =====
Total IAS 19 deficit, net of tax (4.0) (1.0)
=================================== ================ ===== ================ =====
Discount rate (nominal) 1.60% 2.45%
Discount rate (real) (1.26)% (0.15)%
RPI inflation 2.90% 2.60%
CPI inflation 0.9% below RPI 0.9% below RPI
until 31 March until 31 March
2030 and 0.5% 2030 and 0.5%
below RPI thereafter below RPI thereafter
The IAS 19 deficit has increased from GBP1.1bn at 31 March 2020
to GBP4.9bn at 30 September 2020. Net of deferred tax, the deficit
has increased from GBP1.0bn to GBP4.0bn.
At 30 September 2020, the discount rate model has been updated
to use a wider universe of corporate bonds to derive the yield
curve. A key difference is the inclusion of certain special purpose
vehicle (SPV) corporate bonds that remain consistent with the
requirements of IAS 19. The revised model is a standard approach
developed by our external actuary. The impact of this change is a
GBP0.9bn reduction in the BT Pension Scheme IAS 19 liabilities.
8. Financial instruments and risk management
Fair value of financial assets and liabilities measured at
amortised cost
At 30 September 2020, the fair value of listed bonds was
GBP21,142m (31 March 2020: GBP20,088m) and the carrying value was
GBP18,083m (31 March 2020: GBP18,044m).
The fair value of the following financial assets and liabilities
approximate to their carrying amount:
-- Cash and cash equivalents
-- Lease liabilities
-- Trade and other receivables
-- Trade and other payables
-- Provisions
-- Investments held at amortised cost
-- Other short term borrowings
-- Contract assets
-- Contract liabilities
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 2020.
The current trade and other payables balance of GBP5,778m
includes GBP106m (30 September 2019: GBPnil) of trade payables that
have been factored by suppliers in a supply chain financing
programme. These programmes are used with a limited number of
suppliers with short payment terms to extend them to a more typical
payment term.
Fair value estimation
Fair values of financial instruments are 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 values 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.
Total held
at fair
Level 1 Level 2 Level 3 value
======= ======= =======
30 September 2020 GBPm GBPm GBPm GBPm
======================================= ======= ======= ======= ============
Investments
Fair value through other comprehensive
income - - 9 9
Fair value through profit and
loss 10 - - 10
Derivative assets
Designated in a hedge - 1,925 - 1,925
Fair value through profit and
loss - 312 - 312
======================================= ======= ======= ======= ==========
Total assets 10 2,237 9 2,256
======================================= ======= ======= ======= ==========
Derivative liabilities
Designated in a hedge - 723 - 723
Fair value through profit and
loss - 269 - 269
======================================= ======= ======= ======= ==========
Total liabilities - 992 - 992
======================================= ======= ======= ======= ==========
Total held
at fair
Level 1 Level 2 Level 3 value
======= ======= =======
31 March 2020 GBPm GBPm GBPm GBPm
======================================= ======= ======= ======= ============
Investments
Fair value through other comprehensive
income - - 9 9
Fair value through profit and
loss 11 - - 11
Derivative assets
Designated in a hedge - 2,204 - 2,204
Fair value through profit and
loss - 285 - 285
======================================= ======= ======= ======= ==========
Total assets 11 2,489 9 2,509
======================================= ======= ======= ======= ==========
Derivative liabilities
Designated in a hedge - 776 - 776
Fair value through profit and
loss - 236 - 236
======================================= ======= ======= ======= ==========
Total liabilities - 1,012 - 1,012
======================================= ======= ======= ======= ==========
No gains or losses have been recognised in the income statement
in respect of Level 3 assets held at 30 September 2020. There were
no changes to the valuation methods or transfers between levels 1,
2 and 3 during the half year.
9. Financial commitments
Capital expenditure for property, plant and equipment and
software contracted for at the balance sheet date but not yet
incurred was GBP1,164m (31 March 2020: GBP1,234m). Programme rights
commitments, mainly relating to football broadcast rights for which
the licence period has not yet started, were GBP1,911m (31 March
2020: GBP2,434m).
10. Contingent liabilities
Legal proceedings
The group is involved in various proceedings, including actual
or threatened litigation, and government or regulatory
investigations. Save for the updates provided below, there have
been no material updates relating to the legal proceedings and
regulatory matters as disclosed in the Annual Report 2020.
In respect of each of the claims below, the nature and
progression of such proceedings and investigations can make it
difficult to predict the impact they will have on the group. There
are many reasons why we cannot make these assessments with
certainty, including, among others, that they are in early stages,
no damages or remedies have been specified, and/or the often slow
pace of litigation.
Italian Business
Milan Public Prosecutor prosecutions: In February 2019 the Milan
Public Prosecutor served BT Italia S.P.A. with a notice (which
named BT Italia, as well as various individuals) that records the
prosecutor's view that there is a basis for proceeding with its
case against BT Italia for certain potential offences. BT Italia
disputes this and maintains in a defence brief filed in April 2019
that it should not be prosecuted. BT Italia is not presently the
subject of any formal charge (nor are any of the individuals named
in the prosecutor's notice).
Preliminary Hearings in Milan to determine whether or not BT
Italia and the 23 named Defendants should be committed to trial
which were adjourned due the Covid-19 pandemic have now
recommenced.
US securities class action complaints: In April 2020 the US
Federal Court Judge granted our motion to dismiss all claims
against BT and the named individual defendants. The plaintiffs have
appealed that judgment. The appeal is estimated to take 12 to 18
months.
Brazilian tax claims
The Brazilian state tax authorities have made tax demands on the
exchange of goods and services (ICMS) and regulatory assessments
(FUST/FUNTTEL) against certain Brazilian subsidiaries. These are
indirect taxes imposed on the provision of telecommunications
services in Brazil. The state tax and regulatory authorities are
seeking to impose ICMS and FUST/FUNTTEL on revenue earned on
activities that the company does not consider as being part of the
provision of telecommunications services, such as equipment rental
and managed services. The judicial process is likely to take many
years.
We have disputed the basis on which ICMS and FUST/FUNTTEL are
imposed and, in the case of ICMS, have challenged the rate which
the tax authorities are seeking to apply.
As of the close of the second quarter we had 31 pending ICMS
cases with an updated potential value of GBP130m, and 62 pending
FUST FUNTTEL cases with an updated potential value of GBP22m.
On 1 October, the sale of BT Latam Inc. and its subsidiaries to
CIH Telecommunications Americas LLC was completed. As a result of
the sale the entities liable for the majority of all ICMS and
FUST/FUNTTEL matters are no longer a part of British
Telecommunications plc and it will have no ongoing exposure with
respect to those matters.
The retained business will continue to be responsible for 2 ICMS
cases with a current estimated potential value of GBP11m, and 17
FUST FUNTELL cases with a current estimated potential value of
GBP4m. Other than these British Telecommunications plc retains no
material direct exposures.
Phones 4U
Since 2015 the administrators of Phones 4U Limited have made
allegations that EE and other mobile network operators colluded to
procure Phones 4U's insolvency. Legal proceedings for an
unquantified amount were issued in December 2018 by the
administrators and in April 2019 we submitted our defence to this
claim. We continue to dispute these allegations vigorously.
Regulatory matters
In respect of regulatory risks, the group provides for
anticipated costs where an outflow of resources is considered
probable and a reasonable estimate can be made of the likely
outcome. Estimates are used in assessing the likely value of the
regulatory risk. The ultimate liability may vary from the amounts
provided and will be dependent upon the eventual outcome of any
settlement.
Northern Ireland Public Sector Shared Network contract
On 4 April 2019 Ofcom opened an investigation into whether the
award of the Public Sector Shared Network contract for Northern
Ireland to BT complied with relevant significant market power
conditions. We are cooperating with Ofcom's investigation.
Other regulatory matters
In the ordinary course of business, we are periodically notified
of regulatory matters and investigations. We hold provisions
reflecting management's estimates of regulatory risks across a
range of issues, including price and service issues. The precise
outcome of each matter depends on whether it becomes an active
issue, and the extent to which negotiation or regulatory decisions
will result in financial settlement.
11. 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 Ltd) 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 and the exercise of share options. 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 Ltd,
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.
A dividend of GBP2,000m (2019: GBP1,575m) was declared and
settled with the parent company in relation to the year ended 31
March 2020 during the first half.
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
2020 2020 2020 2019
============================== ============ ======== ============
GBPm GBPm GBPm GBPm
============================== ============ ======== ============ ==============
Amounts owed by (to) parent
company
mounts owed by (to) parent
company
Loan facility - non-current
asset investments 10,848 10,592 97 104
Loan facility - current asset
investments 98 214 n/a n/a
Trade and other payables - (55) n/a n/a
============================== ============ ======== ============ ==============
Amounts owed by (to) ultimate
parent company
Non current asset investments - 3,177 5 32
Non-current liabilities loans - (1,083) - (20)
Trade and other receivables 32 26 n/a n/a
Current asset investments 5 66 n/a n/a
Current liabilities loans (999) (1,115) (5) -
Trade and other payables (1) (1) n/a n/a
============================== ============ ======== ============ ==============
12. Post balance sheet events
On 1 October 2020 the group completed the disposal of selected
operations and infrastructure in 16 countries in Latin America.
These operations and infrastructure had been classified as held for
sale at 31 March 2020 with a charge of GBP90m recognised as an
impairment. Further impairment charges of GBP6m have been
recognised as specific items in the half year to 30 September 2020.
The impact of the divestment on the legal proceedings in relation
to Brazilian tax claims is discussed in note 10.
On 2 November 2020 we completed the disposal of our domestic
operations in France. These operations had been classified as held
for sale at 31 March 2020 with a charge of GBP37m recognised as an
impairment. No further impairment charges have been recognised in
the half year to 30 September 2020 in relation to this
divestment.
13. Principal risks and uncertainties (extracted from the
British Telecommunications plc Annual Report 2020)
We have processes for identifying, evaluating and managing our
risks. Details of our principal risks and uncertainties can be
found on pages 14 to 21 of the Annual Report 2020 and are
summarised below. They have the potential to have an adverse impact
on our profit, assets, liquidity, capital resources and
reputation.
Strategic risks
-- Competition - Failure to respond effectively to intensifying
competition and technology developments, and develop product
propositions in line with changing market dynamics and
expectations.
-- Political - Risks associated with Brexit, geopolitical
trends, and the perceived issues in deployment and connectivity of
broadband and mobile coverage.
-- Communications industry regulation - Failure to comply with
existing regulations or material regulatory change could impact the
way we operate and compete in terms of our pricing, the standards
we must meet and the services we provide.
Operational risks
-- Cyber security - Cyber security risks could arise from
colleagues inside BT or from external sources, with any failure to
effectively manage these exposures presenting a material threat to
data integrity, service availability and our reputation as a leader
in cyber security.
-- Third party management - A failure in the supplier selection
and/or in-life third party management process, as well as external
factors that could generate risk in our supply chain such as
restrictions in our ability to engage with perceived high risk
vendors, Brexit and Covid-19.
-- Change management - Failure to realise the benefits of our
transformation programme could negatively impact customer
experience and our operational efficiency, as well as our ability
to make future investments.
-- Major contracts - Failure to successfully manage our large,
complex and high-value national and multinational customer
contracts (including the Emergency Services Network and the
Building Digital UK Programme) and deliver the anticipated
benefits.
-- Customer experience - Failure to transform the customer
experience so that it is brand enhancing and drives sustainable
profitable revenue growth.
-- Service interruption - Any major or repeated failure to
maintain the continuity of our end-to-end customer services (e.g.
network connectively and performance, and IT systems and service
platforms).
-- Colleague engagement - A negative reaction to change or poor
consultation could adversely impact colleague engagement and
subsequent ability to achieve our strategic objectives.
Financial risks
-- Pension scheme - Our defined benefit pension schemes, in
particular the BT Pension Scheme (BTPS), could become more of a
financial burden as a result of future low investment returns,
changes in inflation expectations, longer life expectancies, a more
prudent approach being taken (e.g. if BT's financial strength is
viewed as having worsened) or regulatory changes). A review of our
contributions for the BTPS is underway.
-- Financing - Exposure to funding and liquidity risks,
including those arising from our underling business operations, and
also to financial risks such as interest rate, foreign exchange and
counterparty risks.
Compliance risks
-- Health, safety and wellbeing - Failure to look after the
health, safety and wellbeing of our colleagues and/or members of
the public, especially in the light of Covid-19 related exposures,
with potential breaches of health and safety laws and regulations
and disruption to our operations.
-- Significant control failure - Failure of our financial
controls to prevent and/or detect fraud, financial misstatement or
other financial loss.
-- Privacy and data protection - Breach of data privacy laws
through misuse, or failure to secure and protect, customer and
employee data.
-- Ethics culture - Failure to promptly recognise and respond to
wrongdoing by our colleagues or those working on our behalf, which
could include a breach of our internal policies and procedures or
applicable laws (e.g. anti-bribery and corruption, trade sanctions
and human rights).
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. Since the publication
of the 2020 Annual Report, the risks landscape has developed,
particularly in relation to Covid-19, Brexit and the Government's
review of high risk vendors.
Despite a successful operational response to date, Covid-19
continues to impact our colleagues, operations, suppliers and
customers. Our Covid-19 trading risks relate to reduced consumer
spending, financial distress and insolvency of our corporate
customers, reduced public-sector budgets, reduced mobile roaming
and the possibility of further suspension of sport. This is
partially offset by reduced customer churn and an increasing use of
connectivity products. The future prevalence of the virus and the
long-term economic impacts are uncertain. We continue to monitor
emerging exposures and our ability to manage them, defining and
agreeing actions as required.
Our Brexit SteerCo continues to stress test scenarios related to
a disorderly Brexit, assessing our level of preparedness and
agreeing any further contingency actions where required. This
includes ensuring appropriate stock piling is in place and
implementing preventative and contingency controls to deal with
potential supply chain, customs, data, mobile roaming, people and
regulatory related risks.
In July 2020, the UK Government announced a revised set of
proposals to remove Huawei equipment from 5G communication networks
in the UK by the end of 2027. Compliance with this requirement
creates additional network development and resilience risks that
need to be carefully managed. There is a risk that further
restrictions resulting from the Government's review of high risk
vendors (including Huawei) could exacerbate the risks and lead to
additional costs. We will continue to work with relevant
authorities as they consult on the future procurement strategy for
fixed and mobile networks.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Simon Lowth
Director
9 November 2020
INDEPENT REVIEW REPORT TO BRITISH TELECOMMUNICATIONS PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2020 which comprises Consolidated
Income Statement, Consolidated Balance Sheet, Consolidated
Statement of Changes in Equity, Consolidated Cash Flow Statement
and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2020 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
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
UK. 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. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
John Luke
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London, E14 5GL
9 November 2020
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.
The directors believe that presentation of the group's results in
this way is relevant to an 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. This is consistent with the way that financial
performance is measured by management and reported to the BT Group
plc Board and the Executive Committee and assists in providing a
meaningful analysis of the trading results of the group. 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. Reported revenue,
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.
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. We
consider EBITDA and adjusted EBITDA to be useful measures of our
operating performance because they approximate the underlying
operating cash flow by eliminating depreciation and amortisation.
EBITDA and adjusted EBITDA are not direct measures of our
liquidity, which is shown by our cash flow statement, and need to
be considered in the context of our financial commitments. A
reconciliation of reported profit for the period to EBITDA and
adjusted EBITDA is provided below.
Half year to
30 September
=================================================
2020 2019
GBPm GBPm
================================================= ====== ======
Reported profit for the period 936 1,164
Tax 225 287
================================================= ====== ======
Reported profit before tax 1,161 1,451
Net interest related finance expense 287 243
Depreciation and amortisation 2,152 2,121
================================================= ====== ======
EBITDA 3,600 3,815
================================================= ====== ======
EBITDA specific items 115 40
Net other finance expense 9 72
Share of post tax losses (profits) of associates
and joint ventures (1) (2)
================================================= ====== ======
Adjusted(1) EBITDA 3,723 3,925
================================================= ====== ======
(1) See Glossary on page 1
Reconciliation of year on year trends in adjusted earnings
before interest, tax, depreciation and amortisation
Adjusted 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.
Adjusted EBITDA is defined as EBITDA before specific items, share
of post tax profits/losses of associates and joint ventures and net
non-interest related finance expense.
A reconciliation of the trends in EBITDA to adjusted EBITDA is
provided below.
Half year to
30 September
2020
===================================================== ==============
%
===================================================== ==============
Increase (decrease) in reported EBITDA (5.6)
EBITDA specific items 2.0
Other finance expense (1.6)
Share of post tax losses (profits) of associates and
joint ventures 0.1
===================================================== ============
Increase (decrease) in adjusted(1) EBITDA (5.1)
===================================================== ============
(1) See Glossary on page 1
Forward-looking statements - caution advised
This results release contains certain forward-looking statements
which are made in reliance on the safe harbour provisions of the US
Private Securities Litigation Reform Act of 1995. These statements
relate to analyses and other information which are based on
forecasts of future results and estimates of amounts not yet
determinable. These statements include, without limitation, those
concerning: the potential impact of Covid-19 on our people,
operations, suppliers and customers; current and future years'
outlook; revenue and revenue trends; EBITDA and profitability; free
cash flow; capital expenditure and costs; return on capital
employed; return on investment; shareholder returns including
dividends and share buyback; net debt; credit ratings; our
group-wide transformation and restructuring programme, cost
transformation plans and restructuring costs; investment in and
roll out of our fibre network and its reach, innovations, increased
speeds and speed availability; our broadband-based service and
strategy; investment in and rollout of 5G; the investment in
converged network; improvements to the customer experience and
customer perceptions; our investment in TV, enhancing our TV
service and BT Sport; the recovery plan, operating charge, regular
cash contributions and interest expense for our defined benefit
pension schemes; effective tax rate; growth opportunities in
networked IT services, the pay-TV services market, broadband,
artificial intelligence and mobility and future voice; growth of,
and opportunities available in, the communications industry and
BT's positioning to take advantage of those opportunities;
expectations regarding competition, market shares, prices and
growth; expectations regarding the convergence of technologies;
plans for the launch of new products and services; retail and
marketing initiatives; network performance and quality; the impact
of regulatory initiatives, decisions and outcomes on operations;
BT's possible or assumed future results of operations and/or those
of its associates and joint ventures; investment plans; adequacy of
capital; financing plans and refinancing requirements; demand for
and access to broadband and the promotion of broadband by
third-party service providers; improvements to the control
environment; and those statements preceded by, followed by, or that
include the words 'aims', 'believes', 'expects', 'anticipates',
'intends', 'will', 'should', 'plans', 'strategy', 'future',
'likely', 'seeks', 'projects', 'estimates' or similar
expressions.
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: the duration and
severity of Covid-19 impacts on our people, operations, suppliers
and customers; failure to respond effectively to intensifying
competition and technology developments; failure to address the
lingering perception of slow pace and connectivity in broadband and
mobile coverage, which continues to be raised at a UK parliamentary
level; undermining of our strategy and investor confidence caused
by an adversarial political environment; challenges presented by
Covid-19 around network resilience, support for staff and
customers, data sharing and cyber security defence; unfavourable
regulatory changes; attacks on our infrastructure and assets by
people inside BT or by external sources like hacktivists,
criminals, terrorists or nation states; a failure in the supplier
selection process or in the ongoing management of a third-party
supplier in our supply chain, including failures arising as a
result of Covid-19; risks relating to our BT transformation plan;
failure to successfully manage our large, complex and high-value
national and multinational customer contracts (including the
Emergency Services Network and the Building Digital UK (BDUK)
programme) and deliver the anticipated benefits; changes to our
customers' needs, budgets or strategies that adversely affect our
ability to meet contractual commitments or realise expected
revenues, profitability or cash generation; customer experiences
that are not brand enhancing nor drive sustainable profitable
revenue growth; pandemics, natural perils, network and system
faults, malicious acts, supply chain failure, software changes or
infrastructure outages that could cause disruptions or otherwise
damage the continuity of end to end customer services including
network connectivity, network performance, IT systems and service
platforms; insufficient engagement from our people; adverse
developments in respect of our defined benefit pension schemes;
risks related to funding and liquidity, interest rates, foreign
exchange, counterparties and tax; failures in the protection of the
health, safety and wellbeing of our employees or members of the
public or breaches of health and safety law and regulations;
financial controls that may not prevent or detect fraud, financial
misstatement or other financial loss; security breaches relating to
our customers' and employees' data or breaches of data privacy
laws; failure to recognise or promptly report wrongdoing by our
people or those working for us or on our behalf (including a
failure to comply with our internal policies and procedures or the
laws to which we are subject); and the potential impacts of climate
change on our business.
BT undertakes no obligation to update any forward-looking
statements whether written or oral that may be made from time to
time, whether as a result of new information, future events or
otherwise.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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END
IR ZBLFFBFLEFBL
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