TIDM72NS
RNS Number : 0421S
British Telecommunications PLC
01 November 2019
British Telecommunications plc
Results for the half year to 30 September 2019
1 November 2019
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's purpose is to use the power of communications to make a
better world. It is one of the world's leading providers of
communications services and solutions, serving customers in 180
countries. Its principal activities include the provision of
networked IT services globally; local, national and international
telecommunications services to its customers for use at home, at
work and on the move; broadband, TV and internet products and
services; and converged fixed-mobile products and services. BT
consists of four customer facing units: Consumer, Enterprise,
Global and Openreach.
Simon Lowth, Neil Harris and Ulrica Fearn served as directors
throughout the period.
Half year to 30 September 2019 2018 2018 Change(1)
2019
(IFRS 16) (IAS 17) (IFRS 16
pro forma(2)
)
=== =========== ========== ===============
GBPm GBPm GBPm %
=========================== === =========== ========== =============== ==========
Reported measures
Revenue 11,467 11,588 (1)
Profit before tax 1,451 1,454 n/m
Profit after tax 1,164 1,144 n/m
Capital Expenditure 1,882 1,833 3
==========
Adjusted measures
Adjusted(2) Revenue 11,413 11,624 11,624 (2)
Adjusted(2) EBITDA 3,925 3,676 4,039 (3)
================================ =========== ========== =============== ==========
Customer facing unit results for the half year to 30 September
2019
Adjusted(2) revenue Adjusted(2) EBITDA
================================= ================================
Half year to 2019 2018(3) Change 2019 2018(3) Change
30 September (IFRS (IFRS (IFRS (IFRS
16) 16 16) 16
pro forma(2) pro forma(2)
) )
GBPm GBPm % GBPm GBPm %
=================== ======== ============== ======= ======= ============== =======
Consumer 5,194 5,224 (1) 1,180 1,237 (5)
Enterprise 3,055 3,221 (5) 968 1,003 (3)
Global 2,196 2,332 (6) 304 255 19
Openreach 2,536 2,548 - 1,417 1,478 (4)
Other - 2 n/m 56 66 (15)
Intra-group items (1,568) (1,703) 8 - - -
------------------- -------- -------------- ------- ------- -------------- -------
Total 11,413 11,624 (2) 3,925 4,039 (3)
------------------- -------- -------------- ------- ------- -------------- -------
(1) Changes on prior year are presented on an IAS 17 basis where
meaningful except for adjusted EBITDA, which is presented on an
IFRS 16 pro forma basis
(2) See Glossary below
(3) Segmental results have been restated to reflect the bringing
together of our Business and Public Sector and Wholesale and
Ventures customer-facing units ('CFU') into a single CFU,
Enterprise, on 1 October 2018; the transfer of our Northern Ireland
Networks business from Enterprise to Openreach; reclassification of
certain internal revenues generated by our Ventures businesses as
segmental revenue rather than internal recovery of cost; the change
in the allocation of group overhead costs and the transfer of the
Emergency Services Network contract from Consumer to Enterprise
n/m = not meaningful
Glossary of alternative performance measures
Adjusted Before specific items
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.
Further information is provided in note 6 on page 17
IFRS 16 pro On 1 April 2019, BT adopted IFRS 16 Leases, which replaced
forma IAS 17 Leases. To aid comparability, pro forma financial
information for 2018/19 has been presented to reflect
what the results would have looked like if the accounting
standard had been adopted last year. See page 3 for more
details.
We assess the performance of the group using a variety of
alternative performance measures. The rationale for using adjusted
measures is explained on page 25. Results on an adjusted basis are
presented before specific items. Reconciliations from the most
directly comparable IFRS measures are on page 25.
British Telecommunications plc
Group results for the half year to 30 September 2019
Revenue and EBITDA
Reported revenue was GBP11,467m, down 1%, and adjusted(1)
revenue was down 2% mainly reflecting the impact of regulation,
declines in legacy products, and strategically reducing low margin
business.
Reported operating costs were GBP9,703m, down 2%, and
adjusted(1) operating costs were down 1% mainly driven by savings
from our ongoing transformation programmes, offset by increased
spectrum licence fees and content costs, and investment to improve
our competitive positioning. Adjusted(1) EBITDA of GBP3,925m was
down 3%(2) .
Reported profit before tax was GBP1,451m and adjusted(1) profit
before tax was GBP1,563m, impacted by the higher upfront interest
expense associated with IFRS 16 lease liabilities recognised on 1
April 2019.
Specific items (Note 6 to the condensed consolidated financial
statements)
Specific items resulted in a net charge after tax of GBP88m (H1
2018/19: GBP265m). The main components are restructuring costs of
GBP144m (H1 2018/19: GBP206m), loss on disposal of BT Fleet
Solutions of GBP67m which includes an allocation of goodwill, and
interest expense on pensions of GBP72m (H1 2018/19: GBP69m). These
charges were offset by the gain on disposal of BT Centre of
GBP115m; release of regulatory provisions of GBP55m (H1 2018/19:
GBP41m charge); and tax credit on specific items of GBP24m (H1
2018/19: GBP52m).
Tax
The effective tax rate was 19.8% on reported profit and 19.9% on
adjusted(1) profit, based on our current estimate of the full year
effective tax rate.
Cash flow
Net cash inflow from operating activities was up GBP1,415m to
GBP2,171m mainly driven by GBP751m lower contributions to the BT
Pension Scheme in the current year and significant one-off cash
flows.
Balance Sheet
At 30 September 2019 the group held cash and current investment
balances of GBP4.3bn. The current portion of loans and other
borrowings of GBP3.1bn include term debt of GBP0.3bn repayable
during 2019/20. We issued bonds of GBP1.3bn in September 2019 and
repaid bonds of GBP0.9bn maturing in June 2019.
Capital expenditure
Capital expenditure was GBP1,882m (H1 2018/19: GBP1,833m). This
includes grant funding deferral under the Broadband Delivery UK
(BDUK) programme. Excluding BDUK gainshare, capital expenditure was
GBP1,863m (H1 2018/19: GBP1,638m).
Network investment (excluding BDUK gainshare) was GBP936m, up
18%. This reflects higher investment in 5G and our Fibre Cities
programme, partially offset by lower spend on the Emergency
Services Network (ESN) and non-5G mobile network. Other capital
expenditure components were up 10% with GBP494m spent on
customer-driven investments, GBP357m on systems and IT, and GBP76m
spent on non-network infrastructure. Our BDUK grant funding
deferral at the half year was GBP622m.
Pension (Note 7 to the condensed consolidated financial
statements)
The IAS 19 pension position at 30 September 2019 was a deficit
of GBP5.1bn net of tax (GBP6.1bn gross of tax), compared with
GBP6.0bn net of tax (GBP7.2bn gross of tax) at 31 March 2019. The
decrease in the gross deficit of GBP1.1bn since 31 March 2019
mainly reflects deficit contributions paid over the period, with
changes to financial assumptions used to value the liabilities
broadly offsetting asset returns.
In September 2019, the Government and the UK Statistics
Authority announced potential changes to the calculation of the
Retail Prices Index (RPI). The announcements create uncertainty
around future expectations of RPI and CPI and therefore the
measurement of the pension liabilities at 30 September. We have
amended the inflation assumptions to reflect our future
expectations but note that additional developments could lead to
further changes to our inflation assumptions at future reporting
dates. In accordance with our normal policy we will perform our
next review of all assumptions, including those for inflation, at
31 March 2020.
BT has been refused permission by the Supreme Court to appeal
the Court of Appeal's decision concerning the index for calculating
pension increases for Section C members of the BT Pension
Scheme.
1 See Glossary on page 1
2 Measured against IFRS 16 pro forma comparative period in the
prior year
Principal risks and uncertainties
A summary of the Group's principal risks and uncertainties is
provided in note 12.
IFRS 16 pro forma restated historical financial information
On 1 April 2019 BT adopted IFRS 16 Leases, the new accounting
standard for leases, recognising right-of-use assets and lease
liabilities for arrangements that meet the IFRS 16 lease
definition. EBITDA has increased because operating lease expense
has been replaced by interest expense and depreciation. The
standard was adopted on a modified retrospective basis, without
restating comparative periods.
Unaudited pro forma results for BT Group plc for the year ended
31 March 2019 have been prepared and published, showing selected
2018/19 comparatives under IFRS 16. The impact of IFRS 16 on BT plc
and BT Group plc is the same. These are available online:
https://www.btplc.com/Sharesandperformance/Financialreportingandnews/Quarterlyresults/index.htm
While BT believes the pro forma information contained in this
document to be reliable, BT does not warrant the accuracy,
completeness or validity of the information, figures or
calculations and shall not be liable in any way for loss or damage
arising out of the use of the information, or any errors or
omissions in its content.
Operating review
Consumer
Half year to 30 September
2019 2018(3) Change
(IFRS (IFRS 16
16) pro forma
except
where noted(4)
)
GBPm GBPm GBPm %
================================= ======= ================= ===== ===========
Revenue(1) 5,194 5,224 (30) (1)
Operating costs(1) 4,014 3,987 27 1
================================= ======= ================= ===== ===========
EBITDA(2) 1,180 1,237 (57) (5)
Depreciation & amortisation 631 515(4) n/m n/m
=======
Operating profit(1) 549 608(4) n/m n/m
================================= ======= ================= ===== ===========
Capital expenditure 455 373 82 22
================================= ======= ================= ===== ===========
Revenue(1) declined in the half year, predominantly due to known
regulatory headwinds from international calling and mobile spend
caps. Excluding the impact of regulation, revenue grew year on
year.
EBITDA(2) for the half year was down 5%, driven by revenue
decline and increased spectrum licence fees and content costs.
Excluding regulation and spectrum, EBITDA(2) was broadly flat year
on year.
The movement in depreciation and amortisation was primarily due
to the adoption of IFRS 16. Operating profit fell to GBP549m(4)
.
Capital expenditure was up 22%, due to continued investment in
the core broadband network along with spend on the 5G network.
As previously announced we will be ramping up investment in a
number of initiatives to improve our competitive position. From
January 2020 we will answer all customer calls in the UK and
Ireland, a year ahead of the original schedule, and we have
accelerated the managed migration of copper customers to fibre
enabled products. With the launch of Smart Plans and unlimited
data, and our unprecedented distribution capability on a market
leading range of devices, we continue to deliver against our
more-for-more strategy.
(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 2018/19
results release have been restated for the changes detailed on
footnote 3 on page 1
(4) Following BT's adoption of IFRS 16 on 1 April 2019, prior
year comparatives have been re-presented where possible to reflect
what the results would have looked like if the accounting standard
had been adopted last year (see press release 3 July 2019).
Depreciation & amortisation and operating profit have not been
re-presented and are shown under IAS 17 (n/m = not meaningful)
Enterprise
Half year to 30 September
2019 2018(3) Change
(IFRS (IFRS 16
16) pro forma
except
where noted(4)
)
GBPm GBPm GBPm %
============================= ======= ================= ====== ====
Revenue(1) 3,055 3,221 (166) (5)
Operating costs(1) 2,087 2,218 (131) (6)
============================= ======= ================= ====== ====
EBITDA(2) 968 1,003 (35) (3)
Depreciation & amortisation 355 333(4) n/m n/m
=======
Operating profit(1) 613 608(4) n/m n/m
============================= ======= ================= ====== ====
Capital expenditure 233 246 (13) (5)
============================= ======= ================= ====== ====
Revenue(1) decreased in the half year mainly due to declines in
traditional fixed voice usage, with total fixed voice revenue down
GBP74m, along with lower managed service revenue and a reduction in
low margin equipment sales.
These declines were partly offset by growth in mobile revenue,
despite tough market conditions, alongside growth in VoIP revenue,
and in WAN and Ethernet revenue. While our reported retail mobile
customer base declined by 4k in the quarter, this was after we
disconnected 26k low-ARPU SIMs after a corporate customer ceased
trading. In the half year we saw continued good growth in VoIP
seats and our overall broadband subscriber base returned to growth.
Demand for our 4G Assure product continues to be strong, accounting
for over 50% of SME broadband sales.
EBITDA(2) declined 3% in the half year, as the lower revenue was
partly offset by lower labour costs from our ongoing restructuring
programmes. Operating costs(1) were down 6% in the half year.
Capital expenditure decreased 5%. Depreciation and amortisation
and operating profit movements primarily reflect the impact of IFRS
16(4) .
On 30 September we completed the divestment of BT Fleet
Solutions, reflecting our focus on investing in the best fixed and
mobile networks in the UK.
(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 2018/19
results release have been restated for the changes detailed on
footnote 3 on page 1
(4) Following BT's adoption of IFRS 16 on 1 April 2019, prior
year comparatives have been re-presented where possible to reflect
what the results would have looked like if the accounting standard
had been adopted last year (see press release 3 July 2019).
Depreciation & amortisation and operating profit have not been
re-presented and are shown under IAS 17 (n/m = not meaningful)
Global
Half year to 30 September
2019 2018(3) Change
(IFRS (IFRS 16
16) pro forma
except
where noted(4)
)
GBPm GBPm GBPm %
============================= ======= ================= ====== ====
Revenue(1) 2,196 2,332 (136) (6)
Operating costs(1) 1,892 2,077 (185) (9)
============================= ======= ================= ====== ====
EBITDA(2) 304 255 49 19
Depreciation & amortisation 247 190(4) n/m n/m
=======
Operating profit(1) 57 (12)(4) n/m n/m
============================= ======= ================= ====== ====
Capital expenditure 96 99 (3) (3)
============================= ======= ================= ====== ====
Revenue(1) for the half year was down 6% reflecting our
strategic decisions to reduce low margin business, divestments and
legacy portfolio declines, partially offset by growth in Security
and a GBP34m positive impact from foreign exchange movements.
EBITDA(2) for the half year was up GBP49m as lower revenue was
more than offset by certain one-offs, a GBP7m positive impact from
foreign exchange movements and a reduction in operating costs(1)
reflecting ongoing transformation.
Depreciation and amortisation and operating profit(1) movements
primarily reflect the impact of IFRS 16(4) .
Capital expenditure was down slightly due to lower project spend
and timing of spend in the year.
(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 2018/19
results release have been restated for the changes detailed on
footnote 3 on page 1
(4) Following BT's adoption of IFRS 16 on 1 April 2019, prior
year comparatives have been re-presented where possible to reflect
what the results would have looked like if the accounting standard
had been adopted last year (see press release 3 July 2019).
Depreciation & amortisation and operating profit have not been
re-presented and are shown under IAS 17 (n/m = not meaningful)
Openreach
Half year to 30 September
2019 2018(3) Change
(IFRS (IFRS 16
16) pro forma
except
where noted(4)
)
GBPm GBPm GBPm %
============================= ======= ================= ===== ====
Revenue(1) 2,536 2,548 (12) -
Operating costs(1) 1,119 1,070 49 5
============================= ======= ================= ===== ====
EBITDA(2) 1,417 1,478 (61) (4)
Depreciation & amortisation 838 664(4) n/m n/m
=======
Operating profit(1) 579 721(4) n/m n/m
============================= ======= ================= ===== ====
Capital expenditure 1,015 1,055 (40) (4)
============================= ======= ================= ===== ====
Revenue(1) decline in the half year was driven by price
reductions (both the impact of Openreach's commercial offer of
volume discounts for fibre enabled products and regulated price
reductions), and higher service level compensation due to the
implementation of auto-compensation. This was partly offset by
underlying growth of 23% in our fibre enabled rental base (enabled
by the commercial offer of volume discounts), and 9% in our
Ethernet rental base.
Operating costs(1) were 5% higher primarily driven by higher
business rates, pay inflation and higher pay costs due to
investment in more colleagues to deliver better service and
investment plans. These drivers were partly offset by efficiency
savings and certain one off items. EBITDA(2) was down reflecting
the decreased revenue and increase in costs.
Depreciation and amortisation was GBP838m. Excluding IFRS 16
depreciation on right-of-use assets, it was GBP737m, which
represents an increase of GBP73m compared to last year, driven by
increased asset base. Operating profit(1) was GBP579m.
Excluding BDUK gainshare, capital expenditure was up GBP135m, or
16%, driven by investments in the network, predominantly fibre
enabled infrastructure, partially offset by efficiency savings.
(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 2018/19
results release have been restated for the changes detailed on
footnote 3 on page 1
(4) Following BT's adoption of IFRS 16 on 1 April 2019, prior
year comparatives have been re-presented where possible to reflect
what the results would have looked like if the accounting standard
had been adopted last year (see press release 3 July 2019).
Depreciation & amortisation and operating profit have not been
re-presented and are shown under IAS 17 (n/m = not meaningful)
Financial statements
Group income statement
For the half year to 30 September 2019 (IFRS 16 basis)
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 income statement
For the half year to 30 September 2018 (IAS 17 basis)
Note Before Specific Total
specific items (Reported)
items (note 6)
('Adjusted')
===== ============== ==========
GBPm GBPm GBPm
================================ ===== ============== ========== ============
Revenue 3,4 11,624 (36) 11,588
Operating costs 5 (9,684) (212) (9,896)
================================ ===== ============== ========== ============
Operating profit 1,940 (248) 1,692
Finance expense (317) (69) (386)
Finance income 147 - 147
================================ ===== ============== ========== ============
Net finance expense (170) (69) (239)
Share of post tax profit of
associates and joint ventures 1 - 1
================================ ===== ============== ========== ============
Profit before tax 1,771 (317) 1,454
Tax (362) 52 (310)
================================ ===== ============== ========== ============
Profit for the period 1,409 (265) 1,144
================================ ===== ============== ========== ============
Group statement of comprehensive income
Half year
to 30 September
2019 2018
(IFRS 16) (IAS 17)
GBPm GBPm
========================================================== ================ ===============
Profit for the period 1,164 1,144
========================================================== ================ ===============
Other comprehensive income (loss)
Items that will not be reclassified to the income
statement:
Remeasurements of the net pension obligation (83) (292)
Tax on pension remeasurements 14 58
Items that have been or may be reclassified subsequently
to the income statement:
Exchange differences on translation of foreign
operations 88 74
Fair value movements on available-for-sale assets (12) 5
Fair value movements on cash flow hedges:
- net fair value (losses) gains(1) 659 461
- recognised in income and expense(1) (381) (286)
Transfer to cost of hedging reserve on adoption
of IFRS 9(1) - (81)
Tax on components of other comprehensive income
that have been or may be reclassified (50) (30)
========================================================== ================ ===============
Other comprehensive profit (loss) for the period,
net of tax 235 (91)
========================================================== ================ ===============
Total comprehensive income for the period 1,399 1,053
========================================================== ================ ===============
(1) 2018 comparatives have been re-presented to split out the
transfer to cost of hedging reserve on adoption of IFRS 9 from
movements in relation to cash flow hedges.
Group balance sheet
30 September 31 March
2019 2019
(IFRS 16) (IAS 17)
=============
GBPm GBPm
======================================= ============= ===========
Non-current assets
Intangible assets 14,157 14,393
Property, plant and equipment 18,129 17,835
Right-of-use assets(1) 4,942 -
Derivative financial instruments 2,092 1,481
Investments 13,857 13,519
Associates and joint ventures 52 47
Trade and other receivables 409 445
Contract assets 260 249
Deferred tax assets 1,134 1,347
======================================= ============= ===========
55,032 49,316
======================================= ============= ===========
Current assets
Programme rights 715 310
Inventories 315 369
Trade and other receivables 3,224 3,238
Contract assets 1,420 1,353
Assets held for sale - 89
Current tax receivable 164 110
Derivative financial instruments 124 111
Investments 3,863 3,486
Cash and cash equivalents 479 1,664
======================================= ============= ===========
10,304 10,730
======================================= ============= ===========
Current liabilities
Loans and other borrowings(2) 3,074 3,140
Derivative financial instruments 61 48
Trade and other payables 5,771 5,827
Contract liabilities 1,244 1,225
Lease liabilities(1) 776 -
Current tax liabilities - 15
Provisions 394 424
======================================= ============= ===========
11,320 10,679
======================================= ============= ===========
Total assets less current liabilities 54,016 49,367
======================================= ============= ===========
Non-current liabilities
Loans and other borrowings 17,272 15,837
Derivative financial instruments 908 892
Contract liabilities 251 200
Lease liabilities(1) 5,336 -
Retirement benefit obligations 6,091 7,182
Other payables 707 1,479
Deferred tax liabilities 1,452 1,407
Provisions 424 582
======================================= ============= ===========
32,441 27,579
======================================= ============= ===========
Equity
Share capital 2,172 2,172
Share premium 8,000 8,000
Other reserves 1,728 1,425
Retained earnings 9,675 10,191
======================================= ============= ===========
Total equity 21,575 21,788
======================================= ============= ===========
54,016 49,367
======================================= ============= ===========
1 Right-of-use assets and lease liabilities arise following the
adoption of IFRS 16 on 1 April 2019. See note 1 to the condensed
consolidated financial statements.
2 Bank overdrafts of GBP78m at 30 September 2019 (31 March 2019:
GBP72m) are included within loans and other borrowings
Group statement of changes in equity
For the half year to 30 September 2019 (IFRS 16 basis)
Note Share Share Other Retained Total
Capital Premium Reserves Earnings Equity
===== ========= ========= ========== ==========
GBPm GBPm GBPm GBPm GBPm
==================================== ===== ========= ========= ========== ========== ========
At 31 March 2019 2,172 8,000 1,425 10,191 21,788
IFRS opening balance adjustment(1) - - - (87) (87)
Tax on IFRS opening balance
adjustment(1) - - - 16 16
==================================== ===== ========= ========= ========== ========== ========
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
Movements on cost of hedging - - - - -
reserve
Tax on other comprehensive
(loss) income - - (50) 14 (36)
Transferred to the income
statement - - (381) - (381)
==================================== ===== ========= ========= ========== ========== ========
Comprehensive income - - 303 1,095 1,398
Dividends 11 - - - (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
==================================== ===== ========= ========= ========== ========== ========
(1) This reflects the opening balance sheet adjustment for
adoption of IFRS 16 on 1 April 2019. See notes 1 and 2 to the
condensed consolidated financial statements
For the half year to 30 September 2018 (IAS 17 basis)
At 1 April 2018 2,172 8,000 1,241 11,994 23,407
===================================== ====== ====== ====== ======== ========
Profit for the period - - - 1,144 1,144
Other comprehensive loss before
tax - - 459 (292) 167
Tax on other comprehensive
(loss) income (30) 58 28
Transferred to the income statement - - (286) - (286)
===================================== ====== ====== ====== ======== ========
Comprehensive income - - 143 910 1,053
Dividends - (2,500) (2,500)
Share-based payments - - - 36 36
Unclaimed dividends over 10
years - 5 5
Other movements - - - (2) (2)
===================================== ====== ====== ====== ======== ========
At 30 September 2018 2,172 8,000 1,384 10,443 21,999
===================================== ====== ====== ====== ======== ========
Group cash flow statement
Half year
to 30 September
2019 2018
(IFRS 16) (IAS 17)
GBPm GBPm
====================================================== =========== ==========
Cash flow from operating activities
Profit before taxation 1,451 1,454
Share of post tax loss (profit) of associates
and joint ventures (2) (1)
Net finance expense 315 239
====================================================== =========== ==========
Operating profit 1,764 1,692
Other non-cash charges 115 9
Interest on lease liabilities(1) (70) -
Loss on disposal of business 67 -
Profit on disposal of property, plant and equipment (115) -
Depreciation and amortisation 2,121 1,736
(Increase) decrease in inventories 53 (65)
(Increase) decrease in programme rights 31 60
(Increase) decrease in trade and other receivables (25) (268)
(Increase) decrease in contract assets (75) 54
(Decrease) increase in trade and other payables (545) (208)
(Decrease) increase in contract liabilities 104 (29)
Decrease in other liabilities(2) (1,173) (1,972)
(Decrease) increase in provisions 2 (43)
====================================================== ===========
Cash generated from operations 2,254 966
Income taxes paid (83) (210)
====================================================== =========== ==========
Net cash inflow (outflow) from operating activities 2,171 756
====================================================== =========== ==========
Cash flow from investing activities
Interest received 16 8
Dividends received from associates and joint -
ventures (1)
Net outflow on non current amounts owned by
ultimate parent company(5) (1,149) (1,052)
Proceeds on disposal of subsidiaries, associates -
and joint ventures 7
Acquisition of joint ventures (4) (6)
Proceeds on disposal of current financial assets 6,216 6,395
Purchases of current financial assets (6,717) (6,721)
Proceeds on disposal of property, plant and
equipment 214 3
Purchases of property, plant and equipment and
software (2,067) (1,739)
====================================================== =========== ==========
Net cash inflow (outflow) from investing activities (3,485) (3,112)
====================================================== =========== ==========
Cash flow from financing activities
Interest paid (300) (236)
Repayment of borrowings(3) (811) (480)
Proceeds from bank loans and bonds 1,257 2,896
Payment of lease liabilities(1) (311) -
Net movement on commercial paper 277 -
Cash flows from derivatives related to net debt - 59
====================================================== =========== ==========
Net cash inflow (outflow) from financing activities 112 2,239
====================================================== =========== ==========
Net increase (decrease) in cash and cash equivalents (1,202) (117)
====================================================== =========== ==========
Opening cash and cash equivalents 1,592 492
Net (decrease) increase in cash and cash equivalents (1,202) (117)
Effect of exchange rate changes 11 7
====================================================== =========== ==========
Closing cash and cash equivalents(4) 401 382
====================================================== =========== ==========
1 Interest on lease liabilities and payment of lease liabilities
relate to the interest and principal elements of lease liabilities
recognised following adoption of IFRS 16 on 1 April 2019. See note
1 to the condensed consolidated financial statements
2 Includes pension deficit payments of GBP1,261m for the half
year to 30 September 2019 (H1 2018/19: GBP2,012m)
3 Repayment of borrowings includes the impact of hedging
4 Net of bank overdrafts of GBP78m at 30 September 2019 (30
September 2018: GBP39m; 31 March 2019: GBP72m)
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 Telecommunications 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 2019 and
30 September 2018 together with the balance sheet at 31 March 2019.
The financial statements for the half year to 30 September 2019
have been reviewed by the auditors and their review opinion is on
page 24. The financial statements have been prepared in accordance
with the Disclosure Guidance and Transparency Rules sourcebook
(DTR) of the Financial Conduct Authority and with IAS 34 Interim
Financial Reporting as adopted by the European Union. The financial
statements should be read in conjunction with the Annual Report
2019 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).
Having assessed the principal risks, the directors consider it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
Except for the impact of IFRS 16 as described below and other
than income taxes which are accrued using the tax rate that is
expected to be applicable for the full financial year, the
financial statements have been prepared in accordance with the
accounting policies as set out in the financial statements for the
year to 31 March 2019 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
2019 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
IFRS 16 Leases is effective for BT Group from 1 April 2019.
Background
IFRS 16 replaces IAS 17 'Leases' and related interpretations.
The standard requires lessees to recognise right-of-use assets and
lease liabilities for all leases meeting the lease definition set
out by the standard unless certain exemptions are available.
Accounting for lessors is largely unchanged.
Arrangements previously disclosed as operating lease commitments
at 31 March 2019 have been recognised on the balance sheet. The key
driver is the group's portfolio of leased land and buildings, the
majority of which were previously recognised off balance sheet
following a sale and operating leaseback transaction in 2001. Cell
and switch site leases represent another material element, due to
the long lease terms associated with these arrangements. Lease
liabilities have also been recognised in respect of certain
arrangements that were previously accounted for as service
contracts because they did not meet the IAS 17 lease definition.
These predominantly relate to dark fibre and data centre
capacity.
Transition
The group adopted IFRS 16 on a modified retrospective basis. On
transition, lease liabilities were recognised by discounting
remaining payments payable under lease arrangements using an
appropriate incremental borrowing rate. Right-of-use assets were
recognised equivalent to the corresponding lease liabilities,
adjusted for pre-existing prepaid lease payments, accrued lease
expenses, and related onerous lease and decommissioning
provisions.
The cumulative effect of initially applying the standard has
been recognised as an adjustment to the opening balance of retained
earnings at 1 April 2019, i.e. the date of initial application.
Prior year comparatives have not been restated for the effect of
IFRS 16 and continue to be reported under IAS 17.
Practical expedients and exemptions
The group has elected to make use of the following practical
expedients and exemptions available under IFRS 16:
-- where appropriate, onerous lease provisions in existence at
the date of initial adoption have been derecognised and applied
against the corresponding right-of-use assets as a proxy for
impairment
-- initial direct costs have been excluded when measuring the
right-of-use assets recognised on initial adoption of the
standard
-- hindsight has been used in assessing the lease term on initial adoption of the standard
-- low-value leases and short-term leases have been excluded
from the IFRS 16 accounting model, i.e. they will be accounted for
in the same manner as operating leases previously were under IAS
17
-- intangible assets such as software licences continue to be
accounted for under IAS 38 'Intangible Assets', regardless of
whether the arrangement would otherwise meet the IFRS 16 lease
definition
-- where practicable, and by class of underlying asset,
arrangements containing both lease components and non-lease
components will be accounted for as though they comprise a single
lease component.
Financial impact
BT as lessee
In the prior year Annual Report, we estimated that bringing
operating lease commitments onto the balance sheet on transition at
1 April 2019 would result in recognition of lease liabilities of
between GBP5.6bn and GBP6.6bn. The actual liabilities recognised
were GBP6.1bn (GBP6.3bn including pre-existing finance leases).
When measuring these liabilities, lease payments were discounted
using the group's incremental borrowing rate. The weighted-average
rate applied was 2.2%.
The corresponding right-of-use assets recognised were GBP5.2bn.
The difference to lease liabilities predominantly relates to
accruals for rent inflation associated with operating leases which
were previously classified as trade and other payables, but which
have been reclassified to the corresponding right-of-use assets on
transition to IFRS 16.
The reconciliation of operating lease commitments disclosed at
31 March 2019 to lease liabilities recognised at 1 April 2019 is as
follows:
GBPm
Operating lease commitments disclosed as at
31 March 2019(1) 6,619
======
Arrangements not considered to be a lease under
IAS 17 & IFRIC 4 74
Adjustments as a result of different treatment
of extension & termination options 437
Short-term & low value leases recognised as
an expense on a straight-line basis (8)
Effect of discounting under the group's incremental
borrowing rate (901)
Other(2) (158)
Additional lease liabilities recognised as a
result of IFRS 16 6,063
======
Reclassification of existing finance leases 206
===================================================== ======
Total lease liabilities recognised as at 1 April
2019 6,269
===================================================== ======
(1) BT plc Annual Report 2019, note 29 (page 123)
(2) Other primarily represents leases between BT Group plc and
MBNL, of which BT share's is eliminated for consolidation purposes,
but which had been shown gross in operating lease commitments
disclosed as at 31 March 2019
BT as lessor
Lessor accounting is substantially unchanged under IFRS 16 and
standard has not had a material impact on the accounting for
arrangements currently identified as leases. However, "last mile"
and Ethernet arrangements provided by Openreach now meet the IFRS
16 lease definition, with Openreach as lessor. These arrangements
were previously accounted for as service contracts, with upfront
connections fees deferred over the contractual period.
Under IFRS 16 these fees are now deferred over the lease term.
For last mile arrangements, this is longer than the current
contractual deferral period as it also covers the duration that we
are 'reasonably certain' that communications providers will retain
the use of the line beyond the initial contractual period. This has
been assessed as 6 months for all last mile arrangements except for
FTTP, which is 12 months. Additional deferred income has been
recognised in respect of active arrangements at the transition
date, and a corresponding adjustment has been made to retained
earnings. This has not had a material impact on the balance sheet
or income statement. For Ethernet arrangements, there difference
between the contractual term and the lease term has not had a
material impact on the accounting for connection fees.
Note 2 sets out the adjustments to the opening balance sheet
resulting from initial application of IFRS 16.
Disclosures
We have presented right-of-use assets and the current and
non-current elements of lease liabilities on the face of the
consolidated balance sheet. To support the additional disclosure
requirements introduced by IFRS 16, the financial statements for
the year ended 31 March 2020 will include a dedicated leasing
note.
The cash flow statement has been revised to present the element
of cash lease payments attributable to lease interest expense
within cash flows from operating activities, and the element
attributable to repayment of lease liabilities within cash flows
from financing activities.
There are no other new or amended standards or interpretations
adopted during the year that have 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 and are not yet effective to have a significant
impact on the group.
2. Restatement of prior period financial statements and opening balance adjustments
Revision of segment results
From 1 October 2018 we combined our Business and Public Sector
and Wholesale and Ventures customer-facing units into a single
customer-facing unit, Enterprise. At the same time we transferred
our Northern Ireland Networks business (now 'Openreach Northern
Ireland') from Business and Public Sector to Openreach, and
reclassified certain internal revenues generated by our Ventures
businesses within Enterprise as segmental revenue rather than
internal recovery of cost.
From 1 April 2019 we changed the allocation of group overhead
costs and transferred the Emergency Services Network contract from
Consumer to Enterprise.
The comparative results in the segment information note have
been revised to be presented on a consistent basis. See note 3.
IFRS 16 opening balance adjustments
The transition method we have chosen in applying IFRS 16 means
we do not restate comparative information for the impact of the
standard. We have instead adjusted the 1 April 2019 balance sheet
to reflect the impact on opening retained earnings. Set out below
is the impact on the balance sheet and statement of changes in
equity of the transition to IFRS 16.
Group balance sheet
At 31 March IFRS 16 At 1 April
2019 opening 2019
balance
adjustment
GBPm GBPm GBPm
============================= ============ ============ ===========
Non-current assets
Right-of-use assets - 5,155 5,155
Intangible assets 14,393 (70) 14,323
Property, plant and
equipment 17,835 (34) 17,801
Deferred tax assets 1,347 2 1,349
Other non-current
assets 15,741 - 15,741
============================= ============ ============ ===========
49,316 5,053 54,369
============================= ============ ============ ===========
Current assets
Trade and other receivables 3,238 (50) 3,188
Other current assets 7,492 - 7,492
============================= ============ ============ ===========
10,730 (50) 10,680
============================= ============ ============ ===========
Current liabilities
Lease liabilities - 725 725
Loans and other borrowings 3,140 (16) 3,124
Trade and other payables 5,827 91 5,918
Contract liabilities 1,225 (34) 1,191
Provisions 424 (17) 407
Other current liabilities 63 - 63
============================= ============ ============ ===========
10,679 749 11,428
============================= ============ ============ ===========
Total assets less
current liabilities 49,367 4,254 53,621
============================= ============ ============ ===========
Non-current liabilities
Lease liabilities - 5,544 5,544
Loans and other borrowings 15,837 (190) 15,647
Contract liabilities 200 (12) 188
Other payables 1,479 (825) 654
Provisions 582 (192) 390
Other non-current
liabilities 9,481 - 9,481
============================= ============ ============ ===========
27,579 4,325 31,904
============================= ============ ============ ===========
Equity
Retained earnings 10,191 (71) 10,120
All other reserves 11,597 - 11,597
Total equity 21,788 (71) 21,717
===========
49,367 4,254 53,621
============================= ============ ============ ===========
Group statement of changes in equity
Share Share Other Retained Total
Capital Premium Reserves Earnings Equity
========= ========= ========== ==========
GBPm GBPm GBPm GBPm GBPm
======================================== ========= ========= ========== ========== ========
At 31 March 2019 2,172 8,000 1,425 10,191 21,788
IFRS opening balance adjustment(1) - - - (87) (87)
Tax on IFRS opening balance adjustment - - - 16 16
======================================== ========= ========= ========== ========== ========
At 1 April 2019 2,172 8,000 1,425 10,120 21,717
======================================== ========= ========= ========== ========== ========
(1) This reflects the opening balance sheet adjustment for
adoption of IFRS 16 on 1 April 2019. See notes 1 and 2 to the
condensed consolidated financial statements
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
2019
=========================== ========= ========= ============== =========== ==========
Consumer 5,144 50 5,194 1,180 549
Enterprise 2,909 146 3,055 968 613
Global 2,196 - 2,196 304 57
Openreach 1,164 1,372 2,536 1,417 579
Other - - - 56 6
Intra-group items - (1,568) (1,568) - -
=========================== ========= ========= ============== =========== ==========
Total adjusted(3) 11,413 - 11,413 3,925 1,804
=========================== ========= ========= ===========
Specific items (note
6) 54 (40)
=========================== ============== ==========
Total 11,467 1,764
=========================== ============== ==========
Half year to 30 September
2018 (restated)(2)
=========================== ========= ========= ============== =========== ==========
Consumer 5,172 52 5,224 1,123 608
Enterprise 3,033 188 3,221 941 608
Global 2,332 - 2,332 178 (12)
Openreach 1,085 1,463 2,548 1,385 721
Other 2 - 2 49 15
Intra-group items - (1,703) (1,703) - -
=========================== ========= ========= ============== =========== ==========
Total adjusted(3) 11,624 - 11,624 3,676 1,940
=========================== ========= ========= ===========
Specific items (note
6) (36) (248)
=========================== ============== ==========
Total 11,588 1,692
=========================== ============== ==========
(1) For the reconciliation of adjusted EBITDA see additional
information on page 25
(2) 2018 results have been restated to reflect the bringing
together of our Business and Public Sector and Wholesale and
Ventures customer-facing units into a single customer-facing unit,
Enterprise, on 1 October 2018; the transfer of our Northern Ireland
Networks business from Enterprise to Openreach and reclassification
of certain internal revenues generated by our Ventures businesses
as segmental revenue rather than internal recovery of cost; and the
change in the allocation of group overhead costs and the transfer
of the Emergency Services Network contract from Consumer to
Enterprise
(3) See Glossary on page 1
4. Operating result - by type of revenue
Half year to 30 September Consumer Enterprise Global Openreach Total
2019
GBPm GBPm GBPm GBPm GBPm
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 995 211 816 30 2,052
============================== ========= =========== ======= ========== =======
Total adjusted(1) 5,144 2,909 2,196 1,164 11,413
========= =========== ======= ========== =======
Specific items (note 6) 54
============================== ========= =========== ======= ========== =======
Total 11,467
============================== ========= =========== ======= ========== =======
1 See Glossary on page 1
Half year to 30 September Total
2018
GBPm
ICT and managed networks 2,203
Fixed access subscription
revenue 4,641
Mobile subscription revenue 2,659
Equipment and other services 2,121
============================== =======
Total adjusted(1) 11,624
Specific items (note 6) (36)
============================== =======
Total revenue 11,588
============================== =======
1 See Glossary on page 1
5. Operating costs
Half year
to 30 September
2019 2018
(IFRS 16(1) (IAS 17)
)
GBPm GBPm
=================================================== ============= ==========
Direct labour costs 2,636 2,663
Indirect labour costs 500 472
Leaver costs 8 8
=================================================== ============= ==========
Total labour costs 3,144 3,143
Capitalised labour (751) (729)
=================================================== ============= ==========
Net labour costs 2,393 2,414
Product costs and sales commissions(1) 2,154 2,172
Payments to telecommunications operators 927 1,073
Property and energy costs 493 661
Network operating and IT costs 440 508
Programme rights charges 437 403
Other operating costs(1) 644 717
=================================================== ============= ==========
Operating costs before depreciation, amortisation
and specific items 7,488 7,948
Depreciation and amortisation 2,121 1,736
=================================================== ============= ==========
Total operating costs before specific items 9,609 9,684
Specific items (Note 6) 94 212
=============
Total operating costs 9,703 9,896
============= ==========
(1) Other operating costs have been disaggregated and
re-presented for the half year to 30 September 2019
6. 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'). Specific items
are used to derive the adjusted results as presented in the
accompanying consolidated income statement. Adjusted results are
consistent with the way that financial performance is measured by
management and assists in providing an additional analysis of the
reporting trading results of the group. Specific items may not be
comparable to similarly titled measures used by other companies. In
determining whether an event or transaction is specific, management
considers quantitative as well as qualitative factors. 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,
retrospective regulatory matters, 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 items meet the criteria, which are applied
consistently from year to year, they are treated as specific
items.
Half year to 30 September
2019 2018
GBPm GBPm
========================================= =============== ===========
Specific revenue
Retrospective regulatory matters (54) 36
===============
Specific revenue (54) 36
========================================= =============== ===========
Specific operating costs
Restructuring charges 144 206
Retrospective regulatory matters (1) 5
Italian business investigation - 1
Property rationalisation (111) -
Provisions for claims (5) -
Loss on disposal of business 67 -
===============
Specific operating costs 94 212
========================================= =============== ===========
Specific operating loss 40 248
Net interest expense on pensions 72 69
===============
Net specific items charge before tax 112 317
Tax credit on specific items before tax (24) (52)
===============
Net specific items charge after tax 88 265
========================================= =============== ===========
Restructuring charges
During the first half of the year we incurred charges of GBP144m
(H1 2018/19: GBP206m), primarily relating to leaver costs. These
costs reflect projects within our group-wide cost transformation
programme and include GBP5m (H1 2018/19: GBP17m) costs related to
the remaining integration of EE.
Retrospective regulatory matters
We have recognised a net credit of GBP55m (H1 2018/19: charge of
GBP41m) in relation to regulatory matters. This reflects the
settlement of various matters during the quarter. Of this, GBP54m
is recognised in revenue and GBP1m in operating costs.
Property rationalisation
We have recognised a credit of GBP111m (H1 2018/19: GBPnil)
relating to the gain on sale of BT Centre of GBP115m, slightly
offset by costs associated with our Better Workplace Programme.
Provisions for claims
We have recognised a credit of GBP5m (H1 2018/19: GBPnil) in
relation to release of provisions for claims created through
specific items in 2012/13 which have now been fully settled.
Loss on disposal of business
We have recognised a loss on disposal of GBP67m (H1 2018/19:
GBPnil) relating to the divestment of BT Fleet Solutions. This
includes an allocation of goodwill of GBP24m.
Interest expense on retirement benefit obligation
During the year we incurred GBP72m (H1 2018/19: GBP69m) of
interest costs in relation to our defined benefit pension
obligations.
Tax on specific items
A tax credit of GBP24m (H1 2018/19: GBP52m) was recognised in
relation to the above specific items.
7. Pensions
30 September 31 March 2019
2019
======================
GBPbn GBPbn
============================= ====================== ======================
IAS 19 liabilities - BTPS (63.0) (58.9)
Assets - BTPS 57.5 52.2
Other schemes (0.6) (0.5)
============================= ====================== ======================
Total IAS 19 deficit, gross
of tax (6.1) (7.2)
============================= ====================== ======================
Total IAS 19 deficit, net
of tax (5.1) (6.0)
============================= ====================== ======================
Discount rate (nominal) 1.80% 2.35%
Discount rate (real) (1.26%) (0.87%)
RPI inflation 3.10% 3.25%
CPI inflation 1.0% below RPI 1.1% below RPI
until 31 March until 31 March
2030 and 0.85% 2023 and 1.0%
below RPI thereafter below RPI thereafter
In September 2019, the Government and the UK Statistics
Authority announced potential changes to the calculation of the
Retail Price Index (RPI). The announcements create uncertainty
around future expectations of RPI and CPI and therefore the
measurement of the pension liabilities at 30 September. We have
amended the inflation assumptions to reflect our future
expectations but note that additional developments could lead to
further changes to our inflation assumptions at future reporting
dates. In accordance with our normal policy we will perform our
next review of all assumptions, including those for inflation, at
31 March 2020.
8. Financial instruments and risk management
Fair value of financial assets and liabilities measured at
amortised cost
At 30 September 2019, the fair value of listed bonds and other
long-term borrowings was GBP20,403m (31 March 2019: GBP17,785m) and
the carrying value was GBP17,714m (31 March 2019: GBP16,670m).
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 2019.
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
Level Level 2 Level 3 at fair value
1
======== ========== ==========
30 September 2019 GBPm GBPm GBPm GBPm
=========================== ======== ========== ========== ===============
Investments
Fair value through other
comprehensive income 27 - 9 36
Fair value through profit
and loss 6 - - 6
Derivative assets
Designated in a hedge - 1,896 - 1,896
Fair value through profit
and loss - 320 - 320
=========================== ======== ========== ========== ===============
Total assets 33 2,216 9 2,258
=========================== ======== ========== ========== ===============
Derivative liabilities
Designated in a hedge - 709 - 709
Fair value through profit
and loss - 260 - 260
===========================
Total liabilities - 969 - 969
=========================== ===============
Total held
Level Level 2 Level 3 at fair value
1
======== ========== ==========
31 March 2019 GBPm GBPm GBPm GBPm
======================================= ======== ========== ========== ===============
Investments
Fair value though other comprehensive
income 38 - 10 48
Fair value through profit
and loss 6 - - 6
Derivative assets
Designated in a hedge - 1,330 - 1,330
Fair value through profit
and loss - 262 - 262
======================================= ======== ========== ========== ===============
Total assets 44 1,592 10 1,646
======================================= ======== ========== ========== ===============
Derivative liabilities
Designated in a hedge - 729 - 729
Fair value through profit
and loss - 211 - 211
Total liabilities - 940 - 940
===============
No gains or losses have been recognised in the income statement
in respect of Level 3 assets held at 30 September 2019. 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 GBP1,581m (30 September 2018: GBP1,293m; 31 March
2019: GBP1,432m). Programme rights commitments, mainly relating to
football broadcast rights for which the licence period has not yet
started, were GBP2,165m (30 September 2018: GBP2,866m; 31 March
2019: GBP2,113m).
10. Contingent liabilities
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 2019.
Legal proceedings
Italian Business
US class action: The US Federal Court permitted the Plaintiffs
to file a fourth amended complaint, which was filed on Friday 16
August 2019. Our Motion to Dismiss that complaint was filed on 4
October 2019. The plaintiff's opposition to the motion is due on 22
November 2019 and our reply to that opposition is due on 23
December 2019.
MPP prosecutions: We have now been served with a Request for
Indictment from the Milan Public Prosecutor to the Court in Milan,
requesting that BT Italia and 23 named individuals be committed to
trial.
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. Currently we have 35 ICMS
cases with an updated potential value of GBP207.4m. This is the
assessed amount for all cases spanning the period from 1998 to 2012
(plus one outlier case for the period 2013 to 2016 in the state of
Minas Gerais; one case for the period 2014 to 2015 in the state of
Amazonas and one from June, 2014 up to December, 2015 in São Paulo
for BT LATAM).
There are currently 59 FUST/FUNTTEL cases with a known overall
liability of GBP28m.
There are nine ICMS cases worth approximately GBP69m which are
at an advanced stage. These are currently pending before the Sao
Paulo Court of Appeal. We are waiting for the Reporting Judge to
schedule the trial hearing.
Phones 4U
Since 2015 the administrators of Phones 4U Limited have made
allegations that a number of mobile network operators including EE
colluded to procure Phones 4U's insolvency. During the year
proceedings were issued for an unquantified amount by the
administrators and we submitted our defence to this claim, and in
October 2019 received the administrator's reply to our defence. We
continue to dispute these allegations vigorously.
Regulatory matters
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. Ofcom has indicated it will decide on next steps in its
investigation in Q3 2019/20. We are cooperating with Ofcom's
investigation.
Spectrum annual licence fees
Annual fees for 1800MHz spectrum increased from 31 January 2019
following Ofcom's final statement and introduction of new fees
regulations in December 2018. Four mobile network operators
including EE sought, through legal proceedings, repayment of
overpaid fees that were charged during the period 2015-2017 under
the previous 2015 fees regulation that was quashed by the Court of
Appeal in 2017. On 17 May 2019, the Commercial Court handed down
its judgment in the favour of the four mobile network operators and
we received a payment of GBP87m on 21 May 2019. Ofcom has obtained
permission to appeal the judgment to the Court of Appeal, and the
hearing will take place in late January 2020. We have not
recognised this receipt as income in the quarter pending our
assessment of the likely outcome of the appeal. This amount is
included within provisions in the 30 September 2019 balance
sheet.
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 Limited) and ultimate parent
company (BT Group plc). The loan arrangements described below with
these companies reflect this. Cash transactions normally arise
where the parent and ultimate parent company are required to meet
their external payment obligations or receive amounts from third
parties. These principally relate to the payment of dividends, the
buyback of shares 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 Limited,
between BT Group plc and British Telecommunications plc. This
intermediary company held an investment of GBP18.5bn in British
Telecommunications plc which was funded by an intercompany loan
facility with British Telecommunications plc.
A dividend of GBP1,575m (2018: GBP2,500) was declared and
settled with the parent company in relation to the year ended 31
March 2019 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
2019 2019 2019 2018
GBPm GBPm GBPm GBPm
------------------------------- ------------- --------- -------------- -------------
Amounts owed by (to) parent
company
Loan facility - non-current
asset investments 10,648 10,436 104 105
Loan facility - current asset
investments 103 211 n/a n/a
Trade and other payables - (55) n/a n/a
------------------------------- ------------- --------- -------------- -------------
Amounts owed by (to) ultimate
parent company
Non-current asset investments 3,167 3,029 32 30
Non-current liabilities loans (1,083) (1,061) (20) (22)
Trade and other receivables 2 16 n/a n/a
Current asset investments 33 61 n/a n/a
Current liabilities loans (1,549) (1,040) - -
Trade and other payables (19) (1) n/a n/a
------------------------------- ------------- --------- -------------- -------------
12. Principal risks and uncertainties
We have processes for identifying, evaluating and managing our
risks. Details of our principal risks and uncertainties can be
found on pages 38 to 45 of the Annual Report 2019 and are
summarised below. All of them have the potential to have an adverse
impact on our business, revenue, profits, assets, liquidity and
capital resources.
-- The risks associated with operating under a wide range of
local and international laws, trade sanctions and import and export
controls; coupled with the risk of inappropriate and unethical
behaviour by our people or associates
-- The risks arising from operating as a major data controller
and processor of customer information around the world
-- The risks arising from our operational activities, and in
particular the work of our engineers, that are subject to health
and safety regulation and enforcement by national authorities. This
also extends to the risks associated with the transmission of radio
waves from mobile telephones, transmitters and associated equipment
- although according to the World Health Organisation there are no
known adverse effects on health from emissions at levels below
internationally recognised health and safety standards
-- The risks arising from significant and complex transformation
programmes that may not deliver the expected benefits and may
divert attention away from providing services to customers
-- The risks arising from operating in markets which are
characterised by: high levels of change; strong and new
competition; declining prices and in some markets declining
revenue; technology substitution; market and product convergence;
customer churn; and regulatory intervention to promote competition
and reduce wholesale prices
-- The risks associated with some of our activities being
subject to significant price and other regulatory controls
-- The risks associated with a significant funding obligation in
relation to our defined benefit pension schemes, and in particular
the BT Pension Scheme
-- The risks associated with political and geopolitical trends
and incidents, including the uncertainty caused by the UK voting to
leave the European Union
-- The financial risks common to other major international
businesses, including market, credit, liquidity and tax risks
-- The risks that could impact the security of our data or the
resilience of our operations and services
-- The risks associated with complex and high value national and
multinational customer contracts
-- The risk there could be a failure of any of our critical
third-party suppliers to meet their obligations
-- The risks associated with not being able to secure sufficient
employee engagement to support delivery of our strategic aims
There have been no other significant changes to the principal
risks and uncertainties in the half year to 30 September 2019.
These principal risks and uncertainties continue to have the
potential to impact our results or financial position during the
remaining six months of the financial year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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
1 November 2019
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 2019 which comprises the condensed
consolidated income statement, statement of comprehensive income,
balance sheet, statement of changes in equity, cash flow statement
and 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 2019 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.
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.
Antony Cates
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London E14 5GL
1 November 2019
Additional Information
Notes
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 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 before tax to adjusted EBITDA is
provided below.
Half year to
30 September
2019 2018
(IFRS 16(1) (IAS 17(1)
) )
GBPm GBPm
================================================== ============== =============
Reported profit for the period 1,164 1,144
Tax 287 310
================================================== ============== =============
Reported profit before tax 1,451 1,454
Net interest related finance expense 243 163
Depreciation and amortisation 2,121 1,736
================================================== ============== =============
EBITDA 3,815 3,353
EBITDA specific items 40 248
Net other finance expense 72 76
Share of post tax losses (profits) of associates
and joint ventures (2) (1)
================================================== ============== =============
Adjusted(2) EBITDA 3,925 3,676
================================================== ============== =============
(1) Following adoption of IFRS 16 on 1 April 2019, operating
lease charges previously included within EBITDA and adjusted EBITDA
have been replaced with depreciation on right-of-use assets and
interest expense on lease liabilities. See note 1 to the condensed
consolidated financial statements.
(2) See Glossary on page 1
Reconciliation of year on year trends in adjusted earnings
before interest, tax, depreciation and amortisation
Earnings before interest, tax, depreciation and amortisation
(EBITDA) is not a measure defined under IFRS, but is a key
indicator used by management to assess operational performance. A
reconciliation of the trends in EBITDA is provided below.
Half year to
30 September
2019
%
Increase (decrease) in EBITDA 13.8%
Specific items (6.7%)
Other finance expense (0.3%)
IFRS 16 adjustment (9.6%)
================================ ==============
Increase in adjusted(1) EBITDA (2.8%)
================================ ==============
(1) See Glossary on page 1
Forward-looking statements - caution advised
Certain statements in this results release are forward-looking
and are made in reliance on the safe harbour provisions of the US
Private Securities Litigation Reform Act of 1995. These statements
include, without limitation, those concerning: our outlook for
2019/20 including revenue, adjusted EBITDA and free cash flow; our
roll out of FTTP; and launch of 5G.
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: market disruptions caused by technological change
and/or intensifying competition from established players or new
market entrants; unfavourable changes to our business where Ofcom
raises competition concerns around market power; unfavourable
regulatory changes; disruption to our business caused by an
uncertain or adversarial political environment; geopolitical risks;
adverse developments in respect of our defined benefit pension
schemes; adverse changes in economic conditions in the markets
served by BT, including interest rate risk, foreign exchange risk,
credit risk, liquidity risk and tax risk; 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; failures in the
protection of the health, safety and wellbeing of our people or
members of the public or breaches of health and safety law and
regulations; controls and procedures that could fail to detect
unethical or inappropriate behaviour by our people or associates;
customer experiences that are not brand enhancing nor drive
sustainable profitable revenue growth; failure to deliver, and
other operational failures, with regard to our complex and
high-value national and multinational customer contracts; changes
to our customers' needs or businesses that adversely affect our
ability meet contractual commitments or realise expected revenues,
profitability or cash flow; termination of customer contracts;
natural perils, network and system faults or malicious acts that
could cause disruptions or otherwise damage our network; supply
chain failure, software changes, equipment faults, fire, flood,
infrastructure outages or sabotage that could interrupt our
services; attacks on our infrastructure and assets by people inside
BT or by external sources like hacktivists, criminals, terrorists
or nation states; disruptions to the integrity and continuity of
our supply chain (including any impact of global political
developments with respect to Huawei); insufficient engagement from
our people; and risks relating to our BT transformation plan.
BT undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EFLFBKFFZFBF
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