BT Group plc Results For The Second Quarter And Half Year To 30
September 2012
LONDON, Nov. 1, 2012 /PRNewswire/ -- BT Group plc
(BT.L) today announced its results for the second quarter and half
year to 30 September 2012.
Ian Livingston, Chief
Executive, commenting on the results, said:
"We have delivered another solid quarter of growth in profit
before tax despite the economic conditions and regulatory impacts.
We continue to make significant investments in the future of our
business and we are again accelerating our fibre roll-out. We now
expect fibre to be available to two-thirds of UK premises during
spring 2014, more than 18 months ahead of our original schedule,
and we are recruiting more than 1,000 engineers in 2012 to help
deliver this.
"Over the summer we helped to deliver the most connected Olympic
and Paralympic Games ever and I am proud of the part that our
people played in its success.
"Our confidence in the future of our business is demonstrated by
the 15% increase in the interim dividend."
Second quarter and half year results:
|
Second quarter
to 30 September 2012
|
Half
year
to 30
September 2012
|
|
£m
|
Change
|
£m
|
Change
|
Revenue1
|
4,474
|
(9)%
|
8,958
|
(7)%
|
Underlying
revenue excluding transit
|
|
(5)%
|
|
(4)%
|
EBITDA1
|
1,497
|
flat
|
2,960
|
1%
|
Profit
before
tax1
|
608
|
7%
|
1,186
|
8%
|
Earnings
per share - adjusted1
|
6.0p
|
7%
|
11.7p
|
8%
|
- reported
|
7.2p
|
13%
|
13.0p
|
15%
|
Interim
dividend
|
|
|
3.0p
|
15%
|
Normalised2 free cash flow
|
316
|
£(247)m
|
192
|
£(572)m
|
Net
debt
|
|
|
9,037
|
£720m
|
Key points:
- More than 12m premises passed by fibre with over 950,000 now
connected and growing strongly
- 47% share of DSL, LLU and fibre broadband market net
additions
- For the 2013 financial year we expect
- underlying revenue excluding transit to show an improved trend
for the second half of the year compared with the first half, but
not for the year as a whole
- to grow adjusted EBITDA and deliver normalised free cash flow
broadly level with 2012
1 Before specific items
2 Before specific items, pension deficit payments and
the cash tax benefit of pension deficit payments
RESULTS FOR THE SECOND QUARTER AND HALF YEAR TO
30 SEPTEMBER 2012
Group
results
|
Second quarter to 30
September
|
Half year to 30
September
|
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
Revenue
|
|
|
|
|
|
|
-
adjusted1
|
4,474
|
4,894
|
(9)
|
8,958
|
9,658
|
(7)
|
- reported
(see Note below)
|
4,389
|
4,484
|
(2)
|
8,873
|
9,248
|
(4)
|
-
underlying excluding transit2
|
|
(5)
|
|
|
(4)
|
EBITDA
|
|
|
|
|
|
|
-
adjusted1
|
1,497
|
1,495
|
flat
|
2,960
|
2,931
|
1
|
- reported
(see Note below)
|
1,362
|
1,428
|
(5)
|
2,823
|
2,798
|
1
|
Operating profit
|
|
|
|
|
|
|
-
adjusted1
|
775
|
742
|
4
|
1,515
|
1,439
|
5
|
-
reported
|
640
|
675
|
(5)
|
1,378
|
1,306
|
6
|
Profit
before tax
|
|
|
|
|
|
|
-
adjusted1
|
608
|
570
|
7
|
1,186
|
1,103
|
8
|
-
reported
|
602
|
552
|
9
|
1,186
|
1,069
|
11
|
Earnings per share
|
|
|
|
|
|
|
-
adjusted1
|
6.0p
|
5.6p
|
7
|
11.7p
|
10.8p
|
8
|
-
reported
|
7.2p
|
6.4p
|
13
|
13.0p
|
11.3p
|
15
|
Interim
dividend
|
|
|
|
3.0p
|
2.6p
|
15
|
Capital
expenditure
|
596
|
652
|
(9)
|
1,218
|
1,234
|
(1)
|
Free
cash flow
|
|
|
|
|
|
|
-
normalised3
|
316
|
563
|
(44)
|
192
|
764
|
(75)
|
-
adjusted1
|
478
|
671
|
(29)
|
516
|
979
|
(47)
|
Net
debt
|
|
|
|
9,037
|
8,317
|
9
|
Note: Reported revenue and EBITDA include a specific item charge
of £85m and £58m, respectively, in both the second quarter and half
year to 30 September 2012 relating to
the retrospective regulatory impact of the Court of Appeal decision
on ladder pricing. In the prior year reported revenue included a
specific item charge of £410m relating to a retrospective
regulatory ruling in Germany,
which had no impact on profits or cash. See Group results –
Specific items for more details.
Line of business results1
|
Revenue
|
EBITDA
|
Operating
cash flow
|
Second quarter to
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
30 September
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
£m
|
£m
|
%
|
BT Global Services
|
1,757
|
2,014
|
(13)
|
130
|
159
|
(18)
|
(171)
|
(55)
|
n/m
|
BT Retail
|
1,791
|
1,853
|
(3)
|
474
|
445
|
7
|
317
|
344
|
(8)
|
BT Wholesale
|
861
|
982
|
(12)
|
280
|
305
|
(8)
|
200
|
222
|
(10)
|
Openreach
|
1,269
|
1,280
|
(1)
|
582
|
567
|
3
|
246
|
350
|
(30)
|
Other and intra-group items
|
(1,204)
|
(1,235)
|
3
|
31
|
19
|
63
|
(114)
|
(190)
|
40
|
Total
|
4,474
|
4,894
|
(9)
|
1,497
|
1,495
|
flat
|
478
|
671
|
(29)
|
1 Before specific items. Specific items are defined
below
2 Underlying revenue excluding transit is defined
below
3 Before specific items, pension deficit payments and
the cash tax benefit of pension deficit payments
n/m = not meaningful
Notes:
1) Unless otherwise stated, any reference to
revenue, operating costs, earnings before interest, tax,
depreciation and amortisation (EBITDA), operating profit, profit
before tax, earnings per share (EPS) and free cash flow are
measured before specific items. The commentary focuses on the
trading results on an adjusted basis being before specific items.
This is consistent with the way that financial performance is
measured by management and is reported to the Board and the
Operating Committee and assists in providing a meaningful analysis
of the trading results of the group. The directors believe that
presentation of the group's results in this way is relevant to the
understanding of the group's financial performance as specific
items are those that in management's judgement need to be disclosed
by virtue of their size, nature or incidence. In determining
whether an event or transaction is specific, management considers
quantitative as well as qualitative factors such as the frequency
or predictability of occurrence. Specific items may not be
comparable to similarly titled measures used by other companies.
Reported revenue, reported EBITDA, reported operating profit,
reported profit before tax, reported EPS and reported free cash
flow are the equivalent unadjusted or statutory measures.
2) Underlying revenue, underlying costs and
underlying EBITDA are measures which seek to reflect the underlying
performance of the group that will contribute to long-term
profitable growth and as such exclude the impact of acquisitions
and disposals, foreign exchange movements and any specific items.
We are focusing on the trends in underlying revenue excluding
transit revenue as transit traffic is low-margin and is
significantly affected by reductions in mobile termination
rates.
3) Unless otherwise stated, the references 2011,
2012, 2013, 2014 and 2015 are the financial years to 31 March 2011, 2012, 2013, 2014 and 2015,
respectively, except in relation to our fibre roll-out plans and
recruitment plans which are based on calendar years.
A presentation for analysts and investors will be held in
London at 9.00am today and a simultaneous webcast will be
available at www.bt.com/results
The third quarter results for 2013 are expected to be announced
on Friday 1 February 2013.
About BT
BT is one of the world's leading providers of communications
services and solutions, serving customers in more than 170
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 and internet products and services
and converged fixed/mobile products and services. BT consists
principally of four lines of business: BT Global Services, BT
Retail, BT Wholesale and Openreach.
In the year ended 31 March 2012,
BT Group's revenue was £18,897m with profit before taxation of
£2,445m.
British Telecommunications plc (BT) 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.
For more information, visit www.btplc.com
BT Group plc
RESULTS FOR THE SECOND QUARTER TO 30
SEPTEMBER 2012
GROUP RESULTS
Operating results overview
This quarter a number of
prior year and/or one-off items have impacted the year on year
revenue trends.
Our key revenue trend measure, underlying revenue excluding
transit, was down 5.5% in the quarter, a larger decline than in
recent quarters due to the negative impact of the accelerated
contract milestones recognised in the second quarter of last year
and the Court of Appeal decision on ladder pricing (see Regulation
below). Together these two items accounted for 1.9 percentage
points of the decline and excluding these, underlying revenue
excluding transit was down 3.6%, which is more in line with recent
quarters. Our underlying revenue continues to be impacted by the
tough conditions in Europe and the
financial services sector, regulatory price reductions and lower
revenue from calls and lines.
Reported revenue of £4,389m was down only 2%, benefitting from
lower specific item charges to revenue compared with the prior year
(see Specific items below). Our adjusted revenue measure, which
excludes specific items, was down 9% at £4,474m, which is a larger
decline than in recent quarters due to the negative impact of the
contract milestones and ladder pricing noted above. The adjusted
revenue trend was also impacted by a £79m decline in transit
revenue (including mobile termination rate reductions of £48m), a
£74m negative impact from foreign exchange movements, and a £14m
impact from disposals.
Underlying operating costs before depreciation and amortisation
were down 10%, a better trend than in recent quarters, partly
due to the costs associated with the accelerated contract
milestones in the prior year. Excluding these costs, underlying
operating costs before depreciation and amortisation were down 9%.
This reflects the impact of our cost efficiency programmes and
reduced cost of sales due to the decline in revenue, including
lower payments to other telecommunications operators. Excluding
transit, underlying operating costs before depreciation and
amortisation were also down 9%. Total operating costs before
depreciation and amortisation and specific items decreased by
£435m, or 12%, to £3,063m.
Adjusted EBITDA was broadly flat at £1,497m. Excluding a £7m
negative impact from foreign exchange movements and a £4m impact
from disposals, underlying EBITDA was up 1%, or 3% excluding the
impact of ladder pricing and accelerated contract milestones
recognised in the prior year.
Depreciation and amortisation of £722m was down 4%, largely due
to the impact of additional depreciation and amortisation
recognised in the prior year relating to some contract-specific
assets and to lower overall capital expenditure over the last three
financial years. Adjusted net finance expense was £169m, down 3%,
and adjusted profit before tax was £608m, up 7%. Reported profit
before tax (after specific items) was £602m, up 9%.
Capital expenditure was £596m, down 9% due to timing, having
been up 7% in the first quarter.
Tax
The effective tax rate on the profit before
specific items was 22.7% (Q2 2012: 24.1%) and is in line with our
outlook of around 23% for the full year.
Regulation
In the quarter the Court of Appeal ruled
that wholesale ladder termination pricing should not be applied for
0800, 0845 and 0870 calls from mobile phones terminating on our
network. This overruled the Competition Appeal Tribunal judgment in
August 2011 that found in favour of
ladder pricing. Ladder pricing links the termination charge to the
retail call prices charged by mobile operators for retail prices
above a certain threshold. We are seeking leave to appeal the Court
of Appeal decision and are supported by a number of other fixed
line operators.
In 2012 we recognised revenue of £56m from ladder pricing, of
which £27m was transit revenue arising from ladder pricing
introduced by other communications providers, and £29m of EBITDA.
However, as a result of the ruling, we are not recognising any
revenue or profit from ladder pricing this year. This means that in
the quarter we have reversed the £24m of revenue, of which £13m was
transit revenue, and £11m of EBITDA which we had recognised in the
first quarter. As revenue and EBITDA from ladder pricing was
recognised last year, the year on year impact in the quarter has
been to reduce revenue by £40m, of which £18m was transit revenue,
and EBITDA by £22m. In addition, we have recognised a specific item
charge of £85m against revenue and £58m against EBITDA, as well as
a specific item cash payment of £63m, relating to amounts
recognised from ladder pricing in the 2011 and 2012 financial
years.
For 2013 we had expected ladder pricing to generate around £110m
of revenue, of which around £50m was transit revenue, and around
£60m of EBITDA and cash. The decision means that we now expect
transit revenue for the group to decline by £250m-£350m this
year.
The charge controls for WLR, LLU and ISDN30 products which
became effective in April 2012
impacted revenue in the quarter. We continue to expect these to
have a negative impact of around £100m-£200m on group external
revenue in 2013 with a further similar year on year impact in
2014.
The above regulatory decisions had a negative year on year
impact of more than £40m on both underlying revenue excluding
transit and EBITDA in the quarter.
We expect Ofcom's final determination on disputes over historic
Ethernet pricing in the next few months. The draft determinations
proposed that we should repay up to £145m to other communications
providers and if the final determination upholds the drafts, in
line with our accounting policy, we would expect this payment to be
treated as a specific item in revenue and free cash flow.
Specific items
Specific items resulted in a net credit
after tax of £95m (Q2 2012: £63m).
One-off charges of £85m and £58m were recognised against revenue
and EBITDA, respectively, following the ladder pricing decision
relating to the 2011 and 2012 financial years. In 2012, a one-off
charge of £410m was recognised against revenue, with an equal
reduction in operating costs, in relation to a retrospective
regulatory ruling in Germany.
During the quarter a profit of £121m was recognised on the
disposal of a 14.1% interest in Tech Mahindra. Our remaining 9.1%
stake will now be accounted for as an investment and recognised at
market value on the balance sheet with changes in market value
being recognised in reserves.
We make provisions for legal or constructive obligations arising
from insurance, litigation and regulatory risks and this quarter we
have increased our provisions by £43m having reassessed potential
claims relating to certain historic matters. An impairment charge
of £17m was recognised to write down our total investment in
OnLive Inc., after it entered into creditor protection status.
Specific operating costs also include BT Global Services
restructuring charges of £17m (Q2 2012: £20m). Net interest income
on pensions was £8m (Q2 2012: £49m).
The UK Finance Bill, under which the UK corporation tax rate
changes from 24% to 23% on 1 April
2013, was enacted in the quarter. As a result, a specific
tax credit of £78m (Q2 2012: £82m) has been recognised for the
re-measurement of deferred tax balances.
Earnings per share
Adjusted EPS was 6.0p, up 7%, and
reported EPS (after specific items) was 7.2p, up 13%. These are
based on a weighted average number of shares in issue of 7,839m (Q2
2012: 7,762m).
Free cash flow
Normalised free cash flow was an inflow
of £316m, a decrease of £247m compared with the prior year,
principally reflecting the timing of customer billing and receipts,
increased tax and the timing of supplier payments.
Adjusted free cash flow, which includes a £162m tax benefit from
pension deficit payments (Q2 2012: £108m), was an inflow of £478m
(Q2 2012: £671m).
The cash cost of specific items was £90m (Q2 2012: £42m). This
comprised cash payments of £63m following the ladder pricing
decision relating to the 2011 and 2012 financial years, BT Global
Services restructuring costs of £16m (Q2 2012: £27m) and property
rationalisation costs of £11m (Q2 2012: £15m).
Net debt and liquidity
Net debt was £9,037m at
30 September 2012, £45m lower than at
31 March 2012. The movement in the
six months reflects the adjusted free cash inflow of £516m, an
inflow of £85m from the exercise of employee share options, and
disposal proceeds of £163m, of which £157m was from the disposal of
our 14.1% interest in Tech Mahindra. These inflows were offset by
dividend payments of £445m, an outflow of £154m for the purchase of
73m shares under our share buyback programme and an outflow of
£123m relating to specific items.
At 30 September 2012 we had cash and current investment
balances of £1.6bn and available facilities of £1.5bn providing us
with a strong liquidity and funding position. During the quarter we
repaid £0.3bn of debt which was funded through cash and
investments. During the second half of 2013 £1.4bn of term debt and
£0.6bn of short-term borrowings, including £0.3bn of commercial
paper, are repayable.
During the quarter we bought back 33m shares for a total
consideration of £72m. This forms part of our £300m share buyback
programme this year to counteract the dilutive effect of employee
share plans. In the second half of the year we expect to execute
the remainder of the buyback of around £150m, which may be through
a combination of continued direct market purchases and market
purchases through an Employee Benefit Trust, which has the same
economic effect. This increases the flexibility in managing our
various share plans.
Fibre and broadband
We have passed more than 12m
premises with our fibre broadband. Take-up is growing strongly and
we achieved around 190,000 connections in the quarter, with over
950,000 premises now connected. We are again accelerating our fibre
roll-out and now expect fibre to be available to two-thirds of UK
premises during spring 2014, more than 18 months ahead of our
original schedule.
We added 81,000 retail broadband customers in the quarter,
representing 47% of the broadband1 market net additions
of 174,000. We added around 160,000 retail fibre broadband
customers and the retail fibre customer base is now more than
875,000.
Pensions
The IAS 19 net pension position at
30 September 2012 was a deficit of
£3.1bn net of tax (£4.0bn gross of tax) compared with a deficit of
£1.9bn at 31 March 2012 (£2.4bn gross
of tax). The higher deficit reflects the impact on liabilities of a
reduction in the discount rate, partially offset by a reduction in
the RPI inflation assumption, and a reduction in the long-term
assumption for the CPI/RPI differential.
The IAS 19 accounting position and key assumptions for the
liability valuation are provided in Note 10.
IAS 19 'Employee Benefits (revised)' will impact our pensions
accounting with effect from 1 April
2013 as explained in 'Accounting standards, interpretations
and amendments not yet effective' in Note 3 to the 2012 Annual
Report & Form 20-F. Had this applied to the half year ended
30 September 2012, operating costs
would have been £18m higher and net finance income on pensions,
which is classified as a specific item, £75m lower.
Dividends
In line with our outlook for 10%-15% annual
growth in dividends per share, the Board has declared an interim
dividend of 3.0p per share (Q2 2012: 2.6p), an increase of 15%. The
interim dividend amounts to £236m (Q2 2012: £202m) and will be paid
on 4 February 2013 to shareholders on
the register on 28 December 2012. The
ex-dividend date is 24 December 2012.
The election date for participation in BT's Dividend Investment
Plan in respect of this dividend is 28
December 2012.
The final dividend for the year to 31
March 2012 of 5.7p per share, amounting to £449m, was
approved at the Annual General Meeting on 11
July 2012 and was recognised in the second quarter.
Outlook
We expect an improved trend in underlying
revenue excluding transit for the second half of the year compared
with the first half, helped by a better trading performance. Due to
the impact of the ladder pricing decision and the tougher than
expected conditions facing BT Global Services we do not expect an
improving trend in underlying revenue excluding transit for the
year as a whole compared with the previous year.
We are making progress on reducing BT Global Services' cost base
but we do not expect its EBITDA to grow this year. Despite this and
the impact of ladder pricing, our cost transformation initiatives
mean that at the group level we continue to expect to grow adjusted
EBITDA for 2013 and to deliver normalised free cash flow that is
broadly level with 2012.
In 2014 we continue to expect an improving trend in underlying
revenue excluding transit, adjusted EBITDA to be broadly level with
2013 and normalised free cash flow to be above £2.2bn. We continue
to expect normalised free cash flow to be around £2.5bn in
2015.
1 DSL, LLU and fibre, excluding
cable
RESULTS FOR THE HALF YEAR TO 30
SEPTEMBER 2012
Operating results overview
Our key revenue trend
measure, underlying revenue excluding transit, was down 4.4% in the
first half. The negative impact of the accelerated contract
milestones recognised in the second quarter of last year and the
Court of Appeal decision on ladder pricing together accounted for
0.9 percentage points of the decline. Excluding these, underlying
revenue excluding transit was down 3.5%. Reported revenue, which
includes specific items, was down 4%. Our adjusted revenue measure,
which excludes specific items, was down 7% at £8,958m partly due to
the negative impact of the contract milestones and ladder pricing.
The adjusted revenue trend was also impacted by a £146m decline in
transit revenue (including mobile termination rate reductions of
£108m), a £130m negative impact from foreign exchange movements,
and a £27m impact from disposals.
Underlying operating costs before depreciation and amortisation
were down 9%, partly due to the costs associated with the
accelerated contract milestones in the prior year. Excluding these
costs, underlying operating costs before depreciation and
amortisation were down 8%. This reflects the impact of our cost
efficiency programmes and reduced cost of sales due to the decline
in revenue, including lower payments to other telecommunications
operators. Excluding transit, underlying operating costs before
depreciation and amortisation were down 7%. Total operating costs
before depreciation and amortisation and specific items decreased
by £752m, or 11%, to £6,172m.
Adjusted EBITDA of £2,960m was up 1%. Excluding a £14m negative
impact from foreign exchange movements and a £7m impact from
disposals, underlying EBITDA was up 2%, or 3% excluding the impact
of ladder pricing and accelerated contract milestones recognised in
the prior year.
Depreciation and amortisation of £1,445m was down 3%, and with
adjusted net finance expense broadly flat at £338m, adjusted profit
before tax increased by 8% to £1,186m. Reported profit before tax
(after specific items) was £1,186m, up 11%. Capital expenditure was
down 1% at £1,218m.
Tax
The effective tax rate on profit before specific
items was 22.7% (HY 2012: 24.1%).
Specific items
Specific items resulted in a net credit
after tax of £99m (HY 2012: £44m). One-off charges of £85m and £58m
were recognised against revenue and EBITDA, respectively, following
the ladder pricing decision. In 2012, a one-off charge of £410m was
recognised against revenue, with an equal reduction in operating
costs, in relation to a retrospective regulatory ruling in
Germany.
A profit of £121m was recognised on the disposal of a 14.1%
interest in Tech Mahindra. We also disposed of a non-core business
in Italy resulting in a profit of
£6m. We have increased our provisions by £43m having reassessed
potential claims relating to certain historic matters. An
impairment charge of £17m was recognised to write down our total
investment in OnLive Inc. and BT Global Services restructuring
charges of £25m (HY 2012: £42m) were incurred. Net interest income
on pensions was £16m (HY 2012: £99m). A specific item tax credit of
£78m (HY 2012: £82m) has also been recognised for the
re-measurement of deferred tax balances.
Earnings per share
Adjusted EPS was 11.7p, up 8%, and
reported EPS (after specific items) was 13.0p, up 15%. These are
based on a weighted average number of shares in issue of 7,813m (HY
2012: 7,759m).
Free cash flow
Normalised free cash flow was an
inflow of £192m, a decrease of £572m compared with the prior year,
principally reflecting the timing of supplier payments and customer
receipts, including contract-related receipts in BT Global
Services, and increased tax.
Adjusted free cash flow, which includes a £324m tax benefit from
pension deficit payments (HY 2012: £215m), was an inflow of £516m
(HY 2012: £979m). The cash cost of specific items was £123m (HY
2012: £103m). This comprised cash payments of £63m following the
ladder pricing decision relating to the 2011 and 2012 financial
years, BT Global Services restructuring costs of £31m (HY 2012:
£73m) and property rationalisation costs of £29m (HY 2012:
£28m).
Related party transactions
Transactions with related
parties during the half year to 30 September
2012 are disclosed in Note 13.
Principal risks and uncertainties
A summary of the
group's principal risks and uncertainties is provided in Note
14.
OPERATING REVIEW
BT Global Services
|
Second
quarter to 30 September
|
Half year to 30
September
|
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|
£m
|
£m
|
£m
|
%
|
£m
|
£m
|
£m
|
%
|
Revenue
|
1,757
|
2,014
|
(257)
|
(13)
|
3,487
|
3,919
|
(432)
|
(11)
|
- underlying excluding
transit
|
|
|
|
(9)
|
|
|
|
(8)
|
Net
operating costs1
|
1,627
|
1,855
|
(228)
|
(12)
|
3,238
|
3,622
|
(384)
|
(11)
|
EBITDA
|
130
|
159
|
(29)
|
(18)
|
249
|
297
|
(48)
|
(16)
|
Depreciation & amortisation
|
153
|
190
|
(37)
|
(19)
|
308
|
365
|
(57)
|
(16)
|
Operating
loss
|
(23)
|
(31)
|
8
|
26
|
(59)
|
(68)
|
9
|
13
|
|
|
|
|
|
|
|
|
|
Capital
expenditure
|
125
|
155
|
(30)
|
(19)
|
253
|
272
|
(19)
|
(7)
|
Operating
cash flow
|
(171)
|
(55)
|
(116)
|
n/m
|
(486)
|
(115)
|
(371)
|
n/m
|
1 Net of other operating income
n/m = not meaningful
Revenue
Underlying revenue excluding transit
decreased by 9%, or 6% excluding the impact of accelerated contract
milestones recognised in the prior year, reflecting the tough
conditions in Europe and the
financial services sector. Revenue was down 13%, including a £67m
negative impact from foreign exchange movements and a £14m impact
from disposals.
Despite the tough conditions and the continued market trend
towards lower contract order values and longer lead times our total
order intake was £1.3bn in the quarter (Q1 2013: £1.1bn; Q2 2012:
£1.4bn). In the quarter we signed contracts with leading
organisations around the world including: British American Tobacco,
for a global managed services agreement valued at more than
$100m, covering its global wide area
network infrastructure across nearly 1,000 sites in 119 countries;
Surrey County Council, to provide communications infrastructure and
cloud services; and the European Commission to provide network and
consultancy services to all major European Commission
institutions.
Operating results
Net operating costs reduced by 12%
reflecting the reduction in revenue, lower contract
milestone-related costs and the impact of our cost transformation
programmes. Underlying operating costs excluding transit costs
declined by 9%, or 6% excluding the accelerated contract milestones
recognised in the prior year.
We are intensifying our efforts to transform our cost base. In
the quarter we completed the closure of a major legacy network and
migrated the last of the 3,500 financial services customer sites to
a new platform which provides improved reliability and service. A
review of our commercial arrangements and processes for managing
overseas access circuits is lowering the cost of contract delivery
and enabling price renegotiations for our circuits globally. We are
also working with suppliers of customer premises equipment to
leverage best practice and improve pricing across some of our major
contracts. In addition, the migration of contract management
back-office functions into shared service centres is leading to
more efficient processes, lower costs and better customer
service.
EBITDA decreased by 18%, or 12% excluding foreign exchange
movements and disposals. Excluding the profit associated with the
accelerated contract milestones recognised in the prior year,
underlying EBITDA was down 5%. Operating losses were 26% lower due
to a 19% reduction in depreciation and amortisation reflecting the
additional depreciation and amortisation recognised in the prior
year relating to some contract-specific assets and lower overall
capital expenditure over the last three financial years.
Capital expenditure reduced by 19% as the prior year included
additional customer contract-related capital expenditure. Operating
cash flow was an outflow of £171m compared with an outflow of £55m
in the prior year. The decline reflects the timing of
contract-related receipts as expected, but also a delay in some
debtor receipts.
BT Retail
|
Second
quarter to 30 September
|
Half
year to 30 September
|
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|
£m
|
£m
|
£m
|
%
|
£m
|
£m
|
£m
|
%
|
Revenue
|
1,791
|
1,853
|
(62)
|
(3)
|
3,567
|
3,683
|
(116)
|
(3)
|
Net
operating costs1
|
1,317
|
1,408
|
(91)
|
(6)
|
2,617
|
2,792
|
(175)
|
(6)
|
EBITDA
|
474
|
445
|
29
|
7
|
950
|
891
|
59
|
7
|
Depreciation & amortisation
|
98
|
102
|
(4)
|
(4)
|
193
|
204
|
(11)
|
(5)
|
Operating
profit
|
376
|
343
|
33
|
10
|
757
|
687
|
70
|
10
|
|
|
|
|
|
|
|
|
|
Capital
expenditure
|
99
|
109
|
(10)
|
(9)
|
194
|
203
|
(9)
|
(4)
|
Operating
cash flow
|
317
|
344
|
(27)
|
(8)
|
564
|
638
|
(74)
|
(12)
|
1 Net of other operating income
Revenue
Revenue declined by 3%, in line with the
previous quarter, including an £8m negative impact from foreign
exchange movements.
Consumer revenue decreased by 3%, with lower calls and lines
revenue partially offset by growth in broadband, driven by an
increasing contribution from fibre. This growth contributed to an
increase in consumer ARPU from £350 to £355 in the quarter.
In the quarter we added 81,000 retail broadband customers,
representing 47% of the DSL, LLU and fibre broadband market net
additions. We added around 160,000 retail fibre broadband customers
with the majority of our new broadband customers in enabled areas
choosing fibre. The retail fibre customer base is now more than
875,000, representing around 14% of our retail broadband customer
base. BT Wi-fi minutes trebled to reach 3bn minutes in the quarter,
helped by the impact of London
2012.
BT Vision added 21,000 customers in the quarter with the
customer base now over 750,000. Building on the Premier League
football broadcast rights secured in June, we have reached
agreements for exclusive live rights with English Premiership Rugby
covering a four-year period and for the Top 14 French rugby
championship. We have also reached agreements to broadcast games
from the top football leagues of Italy, France, Brazil and the USA.
Business revenue showed an improving trend, and was down 3%
largely due to our withdrawal from low-margin IT hardware trade
sales during the second quarter last year. We have seen an improved
revenue trend in voice and IT services, particularly in BT iNet,
our networked IT services division.
BT Enterprises revenue decreased by 2%, reflecting slower growth
in BT Conferencing and BT Expedite and declines in BT
Directories and BT Redcare. We are developing our BT Conferencing
propositions and have entered into a technology partnership with
Dolby Laboratories Inc., which will introduce the next generation
of conferencing services.
BT Ireland revenue increased by 1%, excluding the impact of
foreign exchange movements. In the quarter, we agreed a wholesale
deal to provide Sky with managed voice and broadband services, to
support their launch in the Republic of
Ireland. Our fibre roll-out in Northern Ireland has now reached over 90%
coverage with more than 100,000 premises already using the
service.
Operating results
Net operating costs decreased by 6%
reflecting the impact of our cost transformation initiatives and
reduced cost of sales associated with the lower revenue. EBITDA
increased by 7% and with depreciation and amortisation decreasing
by 4%, operating profit was up 10%.
Capital expenditure decreased by 9%. Operating cash flow
decreased by 8% principally due to movements in working
capital.
BT Wholesale
|
Second quarter to 30
September
|
Half year to 30
September
|
|
2012
|
20112
|
Change
|
2012
|
20112
|
Change
|
|
£m
|
£m
|
£m
|
%
|
£m
|
£m
|
£m
|
%
|
Revenue
|
861
|
982
|
(121)
|
(12)
|
1,784
|
1,986
|
(202)
|
(10)
|
- underlying excluding
transit
|
|
|
|
(5)
|
|
|
|
(3)
|
Net
operating costs1
|
581
|
677
|
(96)
|
(14)
|
1,204
|
1,374
|
(170)
|
(12)
|
EBITDA
|
280
|
305
|
(25)
|
(8)
|
580
|
612
|
(32)
|
(5)
|
Depreciation & amortisation
|
147
|
149
|
(2)
|
(1)
|
295
|
301
|
(6)
|
(2)
|
Operating
profit
|
133
|
156
|
(23)
|
(15)
|
285
|
311
|
(26)
|
(8)
|
|
|
|
|
|
|
|
|
|
Capital
expenditure
|
57
|
89
|
(32)
|
(36)
|
129
|
163
|
(34)
|
(21)
|
Operating
cash flow
|
200
|
222
|
(22)
|
(10)
|
329
|
341
|
(12)
|
(4)
|
1 Net of other operating income
2 Prior year not restated for ladder pricing impact
Revenue
Underlying revenue excluding transit decreased
by 5%, or 2% excluding ladder pricing (see Group results -
Regulation above), primarily due to the ongoing migration of
broadband lines to LLU. Revenue decreased by 12%, or 8% excluding
ladder pricing, including a £79m decline in transit revenue driven
by both mobile termination rate reductions and lower volumes.
Total order intake was around £300m compared with around £120m
last year. In the quarter we also extended our relationship
with EE to provide increased backhaul capacity at key base station
sites to help underpin 4G services and to help EE launch
fibre-to-the-cabinet services to their customers.
Our Mobile Ethernet Access Service is now available at more than
14,000 sites. This coverage and a number of new technological
innovations reinforce our market-leading position. IP Exchange now
has more than 160 wholesale customers and continues to grow rapidly
with voice minutes in the quarter increasing by nearly 90% compared
with last year.
Operating results
Net operating costs decreased by
14%, or 3% excluding transit costs, reflecting lower managed
service contract costs and a reduction in labour costs. EBITDA
decreased by 8%, or 1% excluding ladder pricing, and with
depreciation and amortisation reducing by 1%, operating profit
declined by 15%, or 1% excluding ladder pricing.
Capital expenditure decreased by 36% primarily due to lower
spend on Ethernet as a result of improvements in capacity
management and lower spend on our Wholesale Broadband Connect
network. Operating cash flow decreased by 10% principally due to
movements in working capital.
Openreach
|
Second quarter to 30
September
|
Half year to 30
September
|
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|
£m
|
£m
|
£m
|
%
|
£m
|
£m
|
£m
|
%
|
Revenue
|
1,269
|
1,280
|
(11)
|
(1)
|
2,526
|
2,535
|
(9)
|
0
|
Net
operating costs1
|
687
|
713
|
(26)
|
(4)
|
1,391
|
1,430
|
(39)
|
(3)
|
EBITDA
|
582
|
567
|
15
|
3
|
1,135
|
1,105
|
30
|
3
|
Depreciation & amortisation
|
243
|
232
|
11
|
5
|
487
|
464
|
23
|
5
|
Operating
profit
|
339
|
335
|
4
|
1
|
648
|
641
|
7
|
1
|
|
|
|
|
|
|
|
|
|
Capital
expenditure
|
278
|
251
|
27
|
11
|
564
|
504
|
60
|
12
|
Operating
cash flow
|
246
|
350
|
(104)
|
(30)
|
455
|
527
|
(72)
|
(14)
|
1 Net of other operating income
Revenue
Revenue was down 1%, with growth in Ethernet
and fibre largely offsetting the impact of regulatory price
reductions for WLR, LLU and ISDN30 products.
The physical line base declined by 38,000 in the quarter due to
the prolonged adverse weather conditions which have resulted in
more resources being deployed on repair activity and an increase in
provision lead times.
Our fibre broadband is now available to over 12m
premises. We achieved around 190,000 connections in the quarter,
with over 950,000 premises now connected. We now expect fibre to be
available to two-thirds of UK premises during spring 2014, more
than 18 months ahead of our original schedule. We are recruiting
more than 1,000 engineers in 2012 to help deliver this and reduce
our provision lead times.
In the quarter we won the Broadband Delivery UK regional bids
to deploy fibre broadband in North
Yorkshire and Surrey. We
have already started work in North
Yorkshire where the first customers are expected to be
connected within six months of signing the contract. We were also
awarded preferred bidder status in Cumbria, Suffolk and Norfolk.
Operating results
Net operating costs reduced by 4%,
partly due to lower leaver costs, despite significant additional
costs relating to the adverse weather. EBITDA increased by 3% and
with depreciation and amortisation increasing by 5%, reflecting the
investment in fibre broadband and Ethernet, operating profit was up
1%.
Capital expenditure increased by 11% reflecting investment in
our fibre roll-out programme. Operating cash flow decreased by 30%
due to the timing of debtor receipts and the increased capital
expenditure.
FINANCIAL STATEMENTS
Group income statement
For the second quarter to
30 September 2012
|
|
Before
|
Specific
|
|
|
|
specific items
|
items
|
Total
|
|
Note
|
£m
|
£m
|
£m
|
Revenue
|
2
|
4,474
|
(85)
|
4,389
|
Other
operating income
|
|
86
|
-
|
86
|
Operating
costs
|
3
|
(3,785)
|
(50)
|
(3,835)
|
Operating profit
|
|
775
|
(135)
|
640
|
Finance
expense
|
|
(174)
|
(494)
|
(668)
|
Finance
income
|
|
5
|
502
|
507
|
Net
finance expense
|
|
(169)
|
8
|
(161)
|
Share of
post tax profits of associates and joint ventures
|
|
2
|
-
|
2
|
Profit on
disposal of interest in associate
|
|
-
|
121
|
121
|
Profit
before tax
|
|
608
|
(6)
|
602
|
Tax
|
|
(138)
|
101
|
(37)
|
Profit
for the period
|
|
470
|
95
|
565
|
Attributable to:
|
|
|
|
|
Equity
shareholders
|
|
469
|
95
|
564
|
Non-controlling interests
|
|
1
|
-
|
1
|
Earnings per share
|
|
|
|
|
-
basic
|
9
|
6.0p
|
|
7.2p
|
-
diluted
|
|
5.7p
|
|
6.9p
|
|
For the
second quarter to 30 September 2011
|
|
|
|
Before
|
Specific
|
|
|
|
specific items
|
items
|
Total
|
|
Note
|
£m
|
£m
|
£m
|
Revenue
|
2
|
4,894
|
(410)
|
4,484
|
Other
operating income
|
|
99
|
(19)
|
80
|
Operating
costs
|
3
|
(4,251)
|
362
|
(3,889)
|
Operating profit
|
|
742
|
(67)
|
675
|
Finance
expense
|
|
(175)
|
(523)
|
(698)
|
Finance
income
|
|
1
|
572
|
573
|
Net
finance expense
|
|
(174)
|
49
|
(125)
|
Share of
post tax profits of associates and joint ventures
|
|
2
|
-
|
2
|
Profit
before tax
|
|
570
|
(18)
|
552
|
Tax
|
|
(138)
|
81
|
(57)
|
Profit
for the period
|
|
432
|
63
|
495
|
Attributable to:
|
|
|
|
|
Equity
shareholders
|
|
431
|
63
|
494
|
Non-controlling interests
|
|
1
|
-
|
1
|
Earnings per share
|
|
|
|
|
-
basic
|
9
|
5.6p
|
|
6.4p
|
-
diluted
|
|
5.3p
|
|
6.0p
|
Group income statement
For the half year to
30 September 2012
|
|
Before
|
Specific
|
|
|
|
specific items
|
items
|
Total
|
|
Note
|
£m
|
£m
|
£m
|
Revenue
|
2
|
8,958
|
(85)
|
8,873
|
Other
operating income
|
|
174
|
7
|
181
|
Operating
costs
|
3
|
(7,617)
|
(59)
|
(7,676)
|
Operating profit
|
|
1,515
|
(137)
|
1,378
|
Finance
expense
|
|
(346)
|
(987)
|
(1,333)
|
Finance
income
|
|
8
|
1,003
|
1,011
|
Net
finance expense
|
|
(338)
|
16
|
(322)
|
Share of
post tax profits of associates and joint ventures
|
|
9
|
-
|
9
|
Profit on
disposal of interest in associate
|
|
-
|
121
|
121
|
Profit
before tax
|
|
1,186
|
-
|
1,186
|
Tax
|
|
(269)
|
99
|
(170)
|
Profit
for the period
|
|
917
|
99
|
1,016
|
Attributable to:
|
|
|
|
|
Equity
shareholders
|
|
916
|
99
|
1,015
|
Non-controlling interests
|
|
1
|
-
|
1
|
Earnings per share
|
|
|
|
|
-
basic
|
9
|
11.7p
|
|
13.0p
|
-
diluted
|
|
11.2p
|
|
12.4p
|
Group income statement
For the half year to
30 September 2011
|
|
Before
|
Specific
|
|
|
|
specific items
|
items
|
Total
|
|
Note
|
£m
|
£m
|
£m
|
Revenue
|
2
|
9,658
|
(410)
|
9,248
|
Other
operating income
|
|
197
|
(19)
|
178
|
Operating
costs
|
3
|
(8,416)
|
296
|
(8,120)
|
Operating profit
|
|
1,439
|
(133)
|
1,306
|
Finance
expense
|
|
(346)
|
(1,046)
|
(1,392)
|
Finance
income
|
|
4
|
1,145
|
1,149
|
Net
finance expense
|
|
(342)
|
99
|
(243)
|
Share of
post tax profits of associates and joint ventures
|
|
6
|
-
|
6
|
Profit
before tax
|
|
1,103
|
(34)
|
1,069
|
Tax
|
|
(267)
|
78
|
(189)
|
Profit
for the period
|
|
836
|
44
|
880
|
Attributable to:
|
|
|
|
|
Equity
shareholders
|
|
835
|
44
|
879
|
Non-controlling interests
|
|
1
|
-
|
1
|
Earnings per share
|
|
|
|
|
-
basic
|
9
|
10.8p
|
|
11.3p
|
-
diluted
|
|
10.2p
|
|
10.7p
|
Group statement of comprehensive income
For the
second quarter and half year to 30 September
|
Second quarter
to 30
September
|
Half
year
to
30 September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Profit
for the period
|
565
|
495
|
1,016
|
880
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Actuarial
movements on defined benefit pension schemes
|
(1,507)
|
(1,017)
|
(1,479)
|
(1,550)
|
Exchange
losses on translation of foreign operations
|
(34)
|
(26)
|
(56)
|
(10)
|
Fair value
movements on cash flow hedges
|
|
|
|
|
- fair
value (losses) gains
|
(304)
|
165
|
(246)
|
212
|
- recycled
and reported in net profit
|
157
|
66
|
187
|
32
|
Movement
in available for sale reserve
|
30
|
(10)
|
30
|
(10)
|
Tax on
components of other comprehensive income
|
365
|
196
|
296
|
336
|
Other
comprehensive loss for the period, net of tax
|
(1,293)
|
(626)
|
(1,268)
|
(990)
|
Total
comprehensive loss for the period
|
(728)
|
(131)
|
(252)
|
(110)
|
Attributable to:
|
|
|
|
|
Equity
shareholders
|
(727)
|
(134)
|
(251)
|
(113)
|
Non-controlling interests
|
(1)
|
3
|
(1)
|
3
|
|
(728)
|
(131)
|
(252)
|
(110)
|
Group statement of changes in equity
For the half year
to 30 September 2012
|
Share
capital
|
Reserves
|
Non-
controlling
interests
|
Total
equity
|
|
£m
|
£m
|
£m
|
£m
|
At 1 April
2012
|
408
|
889
|
11
|
1,308
|
Total
comprehensive loss for the period
|
-
|
(251)
|
(1)
|
(252)
|
Share-based payment
|
-
|
39
|
-
|
39
|
Net
movement on treasury shares
|
-
|
(69)
|
-
|
(69)
|
Dividends
on ordinary shares
|
-
|
(449)
|
-
|
(449)
|
At 30
September 2012
|
408
|
159
|
10
|
577
|
|
For the
half year to 30 September 2011
|
|
£m
|
£m
|
£m
|
£m
|
At 1 April
2011
|
408
|
1,517
|
26
|
1,951
|
Total
comprehensive (loss) income for the period
|
-
|
(113)
|
3
|
(110)
|
Share-based payment
|
-
|
40
|
-
|
40
|
Net
movement on treasury shares
|
-
|
8
|
-
|
8
|
Dividends
on ordinary shares
|
-
|
(389)
|
-
|
(389)
|
Transactions with equity holders
|
-
|
-
|
(17)
|
(17)
|
At 30
September 2011
|
408
|
1,063
|
12
|
1,483
|
Group cash flow statement
For the second quarter and
half year to 30 September
|
Second
quarter
to 30 September
|
Half
year
to 30
September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Profit
before tax
|
602
|
552
|
1,186
|
1,069
|
Depreciation and amortisation
|
722
|
753
|
1,445
|
1,492
|
Net
finance expense
|
161
|
125
|
322
|
243
|
Loss
(profit) on disposal of subsidiary
|
-
|
19
|
(7)
|
19
|
Profit on
disposal of associate
|
(121)
|
-
|
(121)
|
-
|
Associates
and joint ventures
|
(2)
|
(2)
|
(9)
|
(6)
|
Share-based payment
|
19
|
19
|
39
|
40
|
Increase
in working capital
|
(247)
|
(77)
|
(855)
|
(462)
|
Provisions, pensions and other non-cash
movements
|
20
|
21
|
41
|
123
|
Cash
generated from operations
|
1,154
|
1,410
|
2,041
|
2,518
|
Tax
paid
|
(19)
|
(36)
|
(28)
|
(65)
|
Net
cash inflow from operating activities
|
1,135
|
1,374
|
2,013
|
2,453
|
Cash
flow from investing activities
|
|
|
|
|
Interest
received
|
3
|
1
|
5
|
2
|
Dividends
received from associates
|
1
|
4
|
1
|
4
|
Proceeds
on disposal of property, plant and equipment
|
5
|
7
|
8
|
10
|
Acquisition of subsidiaries, net of cash
acquired
|
(6)
|
(5)
|
(6)
|
(5)
|
Sale of
subsidiaries, net of bank overdrafts
|
-
|
13
|
17
|
13
|
Acquisition of joint ventures
|
(4)
|
-
|
(5)
|
-
|
Disposal
of associates and joint ventures
|
157
|
-
|
157
|
7
|
Purchases
of property, plant and equipment and software
|
(624)
|
(625)
|
(1,288)
|
(1,246)
|
Sale of
non-current asset investments
|
-
|
-
|
1
|
-
|
Purchase
of current financial assets
|
(2,144)
|
(1,877)
|
(4,707)
|
(3,718)
|
Sale of
current financial assets
|
2,418
|
1,555
|
3,956
|
3,036
|
Net
cash used in investing activities
|
(194)
|
(927)
|
(1,861)
|
(1,897)
|
Cash
flow from financing activities
|
|
|
|
|
Interest
paid
|
(132)
|
(132)
|
(347)
|
(347)
|
Equity
dividends paid
|
(444)
|
(384)
|
(445)
|
(385)
|
New
borrowings
|
1
|
-
|
796
|
-
|
Repayment
of borrowings
|
(303)
|
-
|
(305)
|
(14)
|
Repayment
of finance lease liabilities
|
(6)
|
(2)
|
(11)
|
(2)
|
Cash flows
from derivatives related to net debt
|
(91)
|
216
|
-
|
271
|
Net
proceeds (repayment) of commercial paper
|
6
|
(16)
|
219
|
(69)
|
Proceeds
on issue of treasury shares
|
81
|
8
|
85
|
8
|
Repurchase
of ordinary share capital
|
(72)
|
-
|
(154)
|
-
|
Net
cash used in financing activities
|
(960)
|
(310)
|
(162)
|
(538)
|
Effect of
exchange rate movements
|
(3)
|
(1)
|
(7)
|
1
|
Net
(decrease) increase in cash and cash equivalents
|
(22)
|
136
|
(17)
|
19
|
Cash
and cash equivalents, net of bank overdrafts, at
beginning of period
|
328
|
208
|
323
|
325
|
Cash
and cash equivalents, net of bank overdrafts, at
end of period
|
306
|
344
|
306
|
344
|
Group balance sheet
|
30
September
|
30
September
|
31
March
|
|
2012
|
2011
|
2012
|
|
£m
|
£m
|
£m
|
Non-current assets
|
|
|
|
Intangible
assets
|
2,977
|
3,240
|
3,127
|
Property,
plant and equipment
|
14,235
|
14,475
|
14,388
|
Derivative
financial instruments
|
937
|
1,153
|
886
|
Investments
|
181
|
60
|
68
|
Associates
and joint ventures
|
30
|
158
|
153
|
Trade and
other receivables
|
188
|
223
|
169
|
Deferred
tax assets
|
911
|
862
|
626
|
|
19,459
|
20,171
|
19,417
|
|
|
|
|
Current
assets
|
|
|
|
Inventories
|
110
|
116
|
104
|
Trade and
other receivables
|
3,193
|
3,568
|
3,307
|
Current
tax receivables
|
-
|
-
|
139
|
Derivative
financial instruments
|
82
|
89
|
137
|
Investments
|
1,265
|
692
|
513
|
Cash and
cash equivalents
|
311
|
350
|
331
|
|
4,961
|
4,815
|
4,531
|
|
|
|
|
Current
liabilities
|
|
|
|
Loans and
other borrowings
|
2,700
|
939
|
2,887
|
Derivative
financial instruments
|
125
|
57
|
89
|
Trade and
other payables
|
4,956
|
5,809
|
5,962
|
Current
tax liabilities
|
141
|
419
|
66
|
Provisions
|
263
|
91
|
251
|
|
8,185
|
7,315
|
9,255
|
|
|
|
|
Total
assets less current liabilities
|
16,235
|
17,671
|
14,693
|
|
|
|
|
Non-current liabilities
|
|
|
|
Loans and
other borrowings
|
8,291
|
9,131
|
7,599
|
Derivative
financial instruments
|
948
|
723
|
757
|
Retirement
benefit obligations
|
4,001
|
3,349
|
2,448
|
Other
payables
|
863
|
898
|
875
|
Deferred
tax liabilities
|
1,016
|
1,190
|
1,100
|
Provisions
|
539
|
897
|
606
|
|
15,658
|
16,188
|
13,385
|
|
|
|
|
Equity
|
|
|
|
Ordinary
shares
|
408
|
408
|
408
|
Reserves
|
159
|
1,063
|
889
|
Total
parent shareholders' equity
|
567
|
1,471
|
1,297
|
Non-controlling interests
|
10
|
12
|
11
|
Total
equity
|
577
|
1,483
|
1,308
|
|
16,235
|
17,671
|
14,693
|
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 BT Group
plc for the quarters and half years to 30
September 2012 and 2011 together with the audited balance
sheet at 31 March 2012. The financial
statements for the half year to 30 September
2012 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 and Transparency Rules (DTR) of
the Financial Services 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
financial statements for the year to 31
March 2012.
After making enquiries, the directors have a reasonable
expectation that the group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the half
year financial statements.
Except as described below, 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 2012 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 2012 were approved by the Board of Directors on
9 May 2012, published on 25 May 2012 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.
Government grants
Our policy for the recognition of
government grants was changed from 1 April
2012. Under the new policy, capital expenditure and
operating costs are recognised 'net' of government grants
receivable. The net presentation is considered a more appropriate
policy than the previous 'gross' presentation as it better presents
the incremental costs to the business. The new policy has been
applied prospectively and comparative financial information has not
been restated on the basis of the immaterial impact of grant
funding on prior period financial information.
2 Operating results – by line of
business1
|
External
revenue
|
Internal
revenue
|
Group
revenue
|
EBITDA
|
Operating
profit
(loss)
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
Second
quarter to 30 September 2012
|
|
|
|
|
|
BT Global
Services
|
1,757
|
-
|
1,757
|
130
|
(23)
|
BT
Retail
|
1,657
|
134
|
1,791
|
474
|
376
|
BT
Wholesale
|
616
|
245
|
861
|
280
|
133
|
Openreach
|
433
|
836
|
1,269
|
582
|
339
|
Other and
intra-group items2
|
11
|
(1,215)
|
(1,204)
|
31
|
(50)
|
Total
|
4,474
|
-
|
4,474
|
1,497
|
775
|
|
|
|
|
|
|
Second
quarter to 30 September 2011
|
|
|
|
|
|
BT Global
Services
|
2,014
|
-
|
2,014
|
159
|
(31)
|
BT
Retail
|
1,729
|
124
|
1,853
|
445
|
343
|
BT
Wholesale
|
737
|
245
|
982
|
305
|
156
|
Openreach
|
404
|
876
|
1,280
|
567
|
335
|
Other and
intra-group items2
|
10
|
(1,245)
|
(1,235)
|
19
|
(61)
|
Total
|
4,894
|
-
|
4,894
|
1,495
|
742
|
|
|
|
|
|
|
Half
year to 30 September 2012
|
|
|
|
|
|
BT Global
Services
|
3,487
|
-
|
3,487
|
249
|
(59)
|
BT
Retail
|
3,303
|
264
|
3,567
|
950
|
757
|
BT
Wholesale
|
1,293
|
491
|
1,784
|
580
|
285
|
Openreach
|
848
|
1,678
|
2,526
|
1,135
|
648
|
Other and
intra-group items2
|
27
|
(2,433)
|
(2,406)
|
46
|
(116)
|
Total
|
8,958
|
-
|
8,958
|
2,960
|
1,515
|
|
|
|
|
|
|
Half
year to 30 September 2011
|
|
|
|
|
|
BT Global
Services
|
3,919
|
-
|
3,919
|
297
|
(68)
|
BT
Retail
|
3,437
|
246
|
3,683
|
891
|
687
|
BT
Wholesale
|
1,496
|
490
|
1,986
|
612
|
311
|
Openreach
|
786
|
1,749
|
2,535
|
1,105
|
641
|
Other and
intra-group items2
|
20
|
(2,485)
|
(2,465)
|
26
|
(132)
|
Total
|
9,658
|
-
|
9,658
|
2,931
|
1,439
|
1 Before specific items.
2 Elimination of intra-group revenue, which is included
in the total revenue of the originating business
3 Operating costs
|
Second
quarter
to 30
September
|
Half year
to 30 September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Direct
labour costs
|
1,173
|
1,213
|
2,356
|
2,400
|
Indirect
labour costs
|
214
|
232
|
435
|
474
|
Leaver
costs
|
16
|
29
|
39
|
57
|
Total
labour costs
|
1,403
|
1,474
|
2,830
|
2,931
|
Capitalised labour
|
(243)
|
(242)
|
(480)
|
(483)
|
Net
labour costs
|
1,160
|
1,232
|
2,350
|
2,448
|
Payments
to telecommunications operators
|
653
|
786
|
1,350
|
1,611
|
Property
and energy costs
|
259
|
270
|
520
|
543
|
Network
operating and IT costs
|
156
|
163
|
312
|
333
|
Other
costs
|
835
|
1,047
|
1,640
|
1,989
|
Operating costs before depreciation and specific
items
|
3,063
|
3,498
|
6,172
|
6,924
|
Depreciation and amortisation
|
722
|
753
|
1,445
|
1,492
|
Total
operating costs before specific items
|
3,785
|
4,251
|
7,617
|
8,416
|
Specific
items (Note 4)
|
50
|
(362)
|
59
|
(296)
|
Total
operating costs
|
3,835
|
3,889
|
7,676
|
8,120
|
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.
|
Second
quarter
to 30 September
|
Half
year
to 30
September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Specific revenue
|
|
|
|
|
Retrospective regulatory rulings
|
85
|
410
|
85
|
410
|
Specific other operating income
|
|
|
|
|
Loss
(profit) on disposal of subsidiary
|
-
|
19
|
(7)
|
19
|
Retrospective regulatory rulings
|
(27)
|
(410)
|
(27)
|
(410)
|
BT Global
Services restructuring charges
|
17
|
20
|
25
|
42
|
Property
rationalisation charges
|
-
|
28
|
-
|
72
|
Provision
for claims
|
43
|
-
|
43
|
-
|
Impairment
charge
|
17
|
-
|
18
|
-
|
Specific operating costs
|
50
|
(362)
|
59
|
(296)
|
EBITDA
impact (Note 7)
|
135
|
67
|
137
|
133
|
Net
interest income on pensions
|
(8)
|
(49)
|
(16)
|
(99)
|
Profit on
disposal of interest in associate
|
(121)
|
-
|
(121)
|
-
|
Net
specific items charge before tax
|
6
|
18
|
-
|
34
|
Tax
(credit) charge on specific items before tax
|
(23)
|
1
|
(21)
|
4
|
Tax credit
on re-measurement of deferred tax
|
(78)
|
(82)
|
(78)
|
(82)
|
Net
specific items credit after tax
|
(95)
|
(63)
|
(99)
|
(44)
|
5 Free cash flow
Free cash flow is not a measure defined under IFRS but is a key
indicator used by management to assess operational performance.
|
Second
quarter
to 30
September
|
Half
year
to 30
September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Cash
generated from operations
|
1,154
|
1,410
|
2,041
|
2,518
|
Tax
paid
|
(19)
|
(36)
|
(28)
|
(65)
|
Net
cash inflow from operating activities
|
1,135
|
1,374
|
2,013
|
2,453
|
Included in cash flows from investing
activities
|
|
|
|
|
Net
purchase of property, plant, equipment and software
|
(619)
|
(618)
|
(1,280)
|
(1,236)
|
Dividends
received from associates
|
1
|
4
|
1
|
4
|
Interest
received
|
3
|
1
|
5
|
2
|
Sale of
non-current asset investments
|
-
|
-
|
1
|
-
|
Included in cash flows from financing
activities
|
|
|
|
|
Interest
paid
|
(132)
|
(132)
|
(347)
|
(347)
|
Free
cash flow
|
388
|
629
|
393
|
876
|
Net cash
outflow from specific items
|
90
|
42
|
123
|
103
|
Adjusted free cash flow
|
478
|
671
|
516
|
979
|
Cash tax
benefit of pension deficit payments
|
(162)
|
(108)
|
(324)
|
(215)
|
Normalised free cash flow
|
316
|
563
|
192
|
764
|
6 Net debt
Net debt is not a measure defined under IFRS but is a key
indicator used by management to assess operational performance.
|
30
September
2012
|
30
September
2011
|
31
March
2012
|
|
£m
|
£m
|
£m
|
Loans and
other borrowings1
|
10,991
|
10,070
|
10,486
|
Cash and
cash equivalents
|
(311)
|
(350)
|
(331)
|
Investments
|
(1,265)
|
(692)
|
(513)
|
|
9,415
|
9,028
|
9,642
|
Adjustments:
|
|
|
|
To
re-translate currency denominated balances at
swapped rates where hedged
|
(34)
|
(400)
|
(228)
|
To remove
fair value adjustments and accrued interest
applied to reflect the effective interest
method
|
(344)
|
(311)
|
(332)
|
Net
debt
|
9,037
|
8,317
|
9,082
|
1 Includes overdrafts of £5m at 30 September 2012 (30
September 2011: £6m; 31 March
2012: £8m)
7 Reconciliation of earnings before interest, taxation,
depreciation and amortisation
Earnings before interest, taxation, depreciation and
amortisation (EBITDA) is not a measure defined under IFRS, but is a
key indicator used by management to assess operational performance.
A reconciliation of reported profit before tax to adjusted EBITDA
is provided below.
|
Second
quarter
to 30
September
|
Half
year
to 30
September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Reported
profit before tax
|
602
|
552
|
1,186
|
1,069
|
Share of
post tax profits of associates and joint ventures
|
(2)
|
(2)
|
(9)
|
(6)
|
Profit on
disposal of interest in associate
|
(121)
|
-
|
(121)
|
-
|
Net
finance expense
|
161
|
125
|
322
|
243
|
Operating profit
|
640
|
675
|
1,378
|
1,306
|
Depreciation and amortisation
|
722
|
753
|
1,445
|
1,492
|
Reported EBITDA
|
1,362
|
1,428
|
2,823
|
2,798
|
Specific
items (Note 4)
|
135
|
67
|
137
|
133
|
Adjusted EBITDA
|
1,497
|
1,495
|
2,960
|
2,931
|
8 Reconciliation of adjusted profit before tax
|
Second quarter
to 30
September
|
Half
year
to 30
September
|
|
2012
|
2011
|
2012
|
2011
|
|
£m
|
£m
|
£m
|
£m
|
Reported
profit before tax
|
602
|
552
|
1,186
|
1,069
|
Specific
items (Note 4)
|
6
|
18
|
-
|
34
|
Adjusted profit before tax
|
608
|
570
|
1,186
|
1,103
|
9 Reconciliation of adjusted earnings per share
|
Second quarter
to 30
September
|
Half
year
to 30
September
|
|
2012
|
2011
|
2012
|
2011
|
|
pence per
share
|
pence per
share
|
Reported
basic earnings per share
|
7.2
|
6.4
|
13.0
|
11.3
|
Per share
impact of specific items
|
(1.2)
|
(0.8)
|
(1.3)
|
(0.5)
|
Adjusted earnings per share
|
6.0
|
5.6
|
11.7
|
10.8
|
10 Pensions
|
30
September 2012
|
31 March
2012
|
|
£bn
|
£bn
|
IAS 19
liabilities - BTPS
|
(42.0)
|
(40.6)
|
Assets -
BTPS
|
38.2
|
38.3
|
Other
schemes
|
(0.2)
|
(0.1)
|
IAS 19
deficit, gross of tax
|
(4.0)
|
(2.4)
|
IAS 19
deficit, net of tax
|
(3.1)
|
(1.9)
|
|
|
|
Discount
rate (nominal)
|
4.25%
|
4.95%
|
Discount
rate (real)
|
1.86%
|
1.84%
|
RPI
inflation
|
2.35%
|
3.05%
|
CPI
inflation
|
0.75%
below RPI for three
years and 1.00% below
RPI thereafter
|
0.75%
below RPI for three
years and 1.20% below RPI
thereafter
|
11 Share capital
In the half year to
30 September 2012 164m shares (HY
2012: 11m) were issued from treasury to satisfy obligations under
all-employee and executive share plans at a weighted average cost
of £454m (HY 2012: £38m).
12 Capital commitments
Capital expenditure for
property, plant and equipment and software contracted for at the
balance sheet date but not yet incurred was £386m (31 March 2012: £433m; 30
September 2011: £489m).
13 Related party transactions
During the half
year to 30 September 2012, the group
purchased services in the normal course of business and on an arm's
length basis from its associate, Tech Mahindra Limited. The value
of services purchased was £99m (HY 2012: £127m). As a result of the
disposal of a 14.1% interest in Tech Mahindra during the second
quarter, the group's interest reduced to 9.1% and accordingly
ceased to be accounted for as an associate.
14 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 32 to 37 of the 2012 Annual Report & Form 20-F and are
summarised below. All of them have the potential to impact our
business, revenue, profits, assets, liquidity and capital resources
adversely.
- The risk that there could be a significant failure or
interruption of data transfer as a result of factors outside our
control
- The risks associated with complex and high value customer
contracts
- The risks associated with a significant funding obligation in
relation to a defined benefit pension scheme
- The risks arising from operating in markets which are
characterised by high levels of competition
- The risks associated with some of our activities being subject
to significant price and other regulatory controls
- The risks associated with failing to comply with a wide range
of local and international legislative requirements
- The risk there could be a failure of any of our critical
suppliers upon which we are dependent for the delivery of goods or
services
There have been no significant changes to the principal risks
and uncertainties in the half year to 30September 2012, some or all
of which have the potential to impact our results or financial
position during the remaining six months of the financial year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm, to the best of their knowledge, that this
condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the Interim Management Report includes a fair review of the
information required by Rules 4.2.7 and 4.2.8 of the Disclosure and
Transparency Rules of the United
Kingdom's Financial Services Authority.
The names and functions of the BT Group plc board can be found
at:
http://www.btplc.com/thegroup/ourcompany/theboard/ourboard/index.htm
By order
of the Board
|
|
|
|
Ian
Livingston
|
Tony
Chanmugam
|
Chief
Executive
|
Group
Finance Director
|
|
|
31 October
2012
|
|
Independent review report to BT Group plc on the half year
interim financial information
Introduction
We have been engaged by the company to
review the condensed set of financial statements in the half year
financial report for the six months ended 30
September 2012, which comprises the Group income statement,
the Group statement of comprehensive income, the Group statement of
changes in equity, the Group cash flow statement, the Group balance
sheet and related notes. 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 condensed set of financial
statements.
Directors' responsibilities
The half year financial
report 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 and
Transparency Rules of the United
Kingdom's Financial Services Authority.
As disclosed in Note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half year financial report has been prepared in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to
the company a conclusion on the condensed set of 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 the Disclosure and
Transparency Rules of the Financial Services Authority and for no
other purpose. We do not, in producing this report, 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.
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
United Kingdom. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and
Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Conclusion
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 year financial report for the six
months ended 30 September 2012 is not
prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services
Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
31 October 2012
Notes:
The maintenance and integrity of the group's 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 financial statements since they were
initially presented on the website.
Legislation in the United
Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
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: current and future years'
outlook, including revenue trends, EBITDA and normalised free cash
flow; the impact of regulation; continuing cost transformation in
our BT Global Services business; progressive dividends; our fibre
roll-out programme; effective tax rate; and liquidity and
funding.
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; future regulatory actions and conditions
in BT's operating areas, including competition from others;
selection by BT 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;
developments in the convergence of technologies; the anticipated
benefits and advantages of new technologies, products and services,
and demand for bundled services, not being realised; the timing of
entry and profitability of BT in certain communications 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
aims of the BT Global Services restructuring programme not being
achieved; 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.
SOURCE BT Group plc