TIDM72NS
RNS Number : 6504G
British Telecommunications PLC
16 November 2022
British Telecommunications Plc
Results for the half year to 30 September 2022
16 November 2022
About BT
British Telecommunications Plc (BT or group) is a wholly-owned
subsidiary of BT Group Investments Ltd, which encompasses virtually
all businesses and assets of the BT Group. The ultimate parent
company is BT Group plc, which is listed on the London Stock
Exchange.
BT is the UK's leading provider of fixed and mobile
telecommunications and related secure digital products, solutions
and services. We also provide managed telecommunications, security
and network and IT infrastructure services to customers across 180
countries.
BT consists of four customer-facing units: Consumer serves
individuals and families in the UK; Enterprise and Global are our
UK and international business-focused units respectively; Openreach
is an independently governed, wholly owned subsidiary, which
wholesales fixed access infrastructure services to its customers -
over 650 communication providers across the UK.
The directors at 30 September 2022 were Simon Lowth, Neil
Harris, Martin Smith, Edward Heaton and Daniel Rider, all of whom
served as directors throughout the period.
Half year to 30
September 2022 2021 Change
----------------------------- -----------------------------
Reported measures GBPm GBPm %
Revenue 10,366 10,305 1
Profit before tax 968 1,072 (10)
Profit after tax 1,030 494 109
Capital expenditure 2,613 2,563 2
---------------------- ----------------------------- ----------------------------- --------------------------------
Adjusted measures
Adjusted Revenue 10,368 10,308 1
Adjusted EBITDA 3,874 3,750 3
Capital expenditure
excluding
spectrum 2,613 2,067 26
---------------------- ----------------------------- ----------------------------- --------------------------------
Customer-facing unit updates
Adjusted revenue Adjusted EBITDA
--------------------------------------------------------------
Half year to
30
September 2022 2021 Change 2022 2021 Change
------------
GBPm GBPm % GBPm GBPm%
------------ ------------------- ------------------- -------------------- ------------------- ------------------- -------------------
Consumer 4,992 4,857 3 1,295 1,077 20
Enterprise 2,439 2,572 (5) 660 852 (23)
Global 1,617 1,654 (2) 197 207 (5)
Openreach 2,836 2,707 5 1,711 1,561 10
Other 14 14 - 11 53 (79)
Intra-group
items (1,530) (1,496) (2) - - -
------------ ------------------- ------------------- -------------------- ------------------- ------------------- --------------------
Total 10,368 10,308 1 3,874 3,750 3
------------ ------------------- ------------------- -------------------- ------------------- ------------------- --------------------
Glossary
Adjusted Before specific items. Adjusted results are consistent
with the way that financial performance is measured
by management and assist in providing an additional
analysis of the reporting trading results of the group.
EBITDA Earnings before interest, tax, depreciation and amortisation.
Adjusted EBITDA EBITDA before specific items, share of post tax profits/losses
of associates and joint ventures and net non-interest
related finance expense.
Capital expenditure Additions to property, plant and equipment and intangible
assets in the period.
Specific items Items that in management's judgement need to be disclosed
separately by virtue of their size, nature or incidence.
In the current period these relate to the BT Sport
disposal, changes to our assessment of our provision
for historic regulatory matters, restructuring charges,
divestment-related items and net interest expense
on pensions.
------------------- --------------------------------------------------------------
We assess the performance of the group using a variety of
alternative performance measures. Reconciliations from the most
directly comparable IFRS measures are in Additional Information on
page [25].
British Telecommunications plc
Group results for the half year to 30 September 2022
Income statement
-- Reported revenue was GBP10,366m, up 1%, driven by growth in
Consumer and Openreach, partially offset by declines in Enterprise
and Global; growth was primarily due to inflation-related price
increases in Consumer and Openreach, increased sales of
fibre-enabled products and Ethernet and positive forex movements,
partially offset by legacy base decline, the loss of an MVNO
customer, impact of the BT Sport disposal and lower kit sales
-- Reported operating costs were GBP9,135m, up 3%, primarily due
to increased energy costs and cost inflation, increased
depreciation from network build and higher specific costs,
partially offset by the impact of the BT Sports disposal, some one
off items, our ongoing modernisation programmes and tight cost
management
-- Adjusted(1) EBITDA of GBP3,874m, up 3%, primarily due to
revenue growth, reduced costs from our ongoing modernisation
programmes and tight cost management and some one-off items,
partially offset by increased energy costs and cost inflation
-- Reported profit before tax of GBP968m, down 10%, primarily
due to increased depreciation from network build and higher
specific costs
Specific items (Note 5 to the condensed consolidated financial
statements)
-- Specific items resulted in a net charge after tax of GBP87m (H1 FY22: GBP583m)
-- The main components were restructuring charges of GBP122m (H1
FY22: GBP135m) and net charges associated with the disposal of BT
Sport of GBP188m, offset by tax credit on specific items of GBP220m
(H1 FY22: charge of GBP395m)
-- The net profit on disposal of BT Sport recognised in specific
items was GBP3m, representing the GBP188m charges and GBP191m of
the tax credit
Tax
-- The effective tax rate on reported profit was negative 6.4%
(H1 FY22: positive 53.9%) reflecting a tax credit recorded against
an accounting profit, primarily driven by the impact of the super
deduction and the fact that the gain on disposal of BT Sport is
exempt from UK tax
-- The rate was higher in the prior year due to a one-off tax
charge arising on remeasurement of deferred tax balances following
the enactment of the revised 25% corporate tax rate
-- The effective tax rate on adjusted(1) profit was 12.4% (H1
FY22: 14.5%) as we expect a larger proportion of our capital spend
on fibre roll out to qualify for the Government's super deduction
scheme this year, which continues to allow for enhanced tax relief
for qualifying capital expenditure in FY23; these enhanced
deductions continue to drive a taxable loss in the year with around
GBP6bn of tax losses expected to be carried forward from FY23
-- A net UK deferred tax charge has been recorded, reflecting
the deferred tax liability arising on qualifying capital
expenditure, offset in part by a deferred tax asset on the current
period tax loss
Capital expenditure
-- Reported capital expenditure was GBP2,613m, up 2% , mainly
driven by increased Openreach investments in fixed network build
and connections
Cash flow
-- Net cash inflow from operating activities was GBP2,914m, up
22%, mainly as a result of working capital movements
Balance sheet
-- The group holds cash and current investment balances of
GBP3.3bn; the current portion of loans and other borrowings is
GBP1.4bn
-- We have no term debt maturities in FY23
-- Our GBP2.1bn revolving credit facility, which matures in
March 2027, remains undrawn at 30 September 2022
Pensions (Note 7 to the condensed consolidated financial
statements)
-- Gross IAS 19 deficit was GBP1.7bn (31 March 2022: GBP1.1bn);
deficit net of deferred tax was GBP1.4bn (31 March 2022:
GBP1.0bn)
Increase in the gross deficit of GBP0.6bn mainly due to the
impact of higher real gilt yields partly offset by deficit
contributions
(1) See Glossary on page 1
Operating review
Measures discussed in the operating review are on an adjusted
basis.
Consumer: Continued strong financial performance; completion of
joint venture with Warner Bros. Discovery Inc. in September
Half year to 30 September
2022 2021 Change
GBPm GBPm GBPm %
---------------------------- -------- -------- ----- ----
Revenue(1) 4,992 4,857 135 3
Operating costs(1) 3,697 3,780 (83) (2)
---------------------------- -------- -------- ----- ----
EBITDA(1) 1,295 1,077 218 20
Depreciation & amortisation 701 701 - -
---------------------------- -------- -------- ----- ----
Operating profit(1) 594 376 218 58
---------------------------- -------- -------- ----- ----
Capital expenditure 583 518 65 13
---------------------------- -------- -------- ----- ----
-- Revenue growth with improved fixed and mobile service
revenues, helped by the annual contractual price rise and higher
roaming revenues partially offset by the exclusion of one month of
Sport revenue due to the impact of the BT Sport disposal
-- EBITDA and operating profit growth was driven by higher
revenue, tight cost management including lower indirect mobile
commissions and also benefited from a number of one-off items
-- Capital expenditure was up due to digital and network investment
-- Annual contractual price rises (CPI +3.9%) support the
continued investment in our industry leading network providing
customers the best and most reliable connection ever; we continue
to support nearly 1 million vulnerable customers on a range of
subsidised or discounted tariffs including Home Essentials, which
was introduced to follow on from the previous service, BT Basic
-- NPS of BT brands have moved broadly in line with competitors,
with EE again having the equal lowest complaint rate for mobile and
both EE and BT maintaining complaint rates below industry average
for landline and broadband; churn remains low despite cost of
living challenges
-- Highest ever quarterly growth in FTTP base with increase of
121k in Q2; FTTP base now 1.4m, 5G ready base now 8.2m
-- In September, BT Group and Warner Bros. Discovery, Inc.
completed their transaction to form a 50:50 JV that combines the
assets of BT Sport and Eurosport UK
-- Launched EE Security, powered by Verisure and Norton,
highlighting EE's commitment to introduce new products and services
to evolve its offering to Consumer customers; EE also launched a
new gaming offering in a drive to become the UK's number one
network for gaming
-- EE are the first network globally to exclusively offer 'Apple
One', a bundle of four Apple services: Music, TV+, Arcade and
iCloud+ and in August we simplified our mobile plans, enhanced our
smart benefits and with 'Stay Connected Data' we're giving
customers more reasons to count on us
(1) Financials and commentary are based on adjusted measures;
see Glossary on page 1
Enterprise: Major corporate legacy declines and migration of
MVNO customer last year offsetting growth in SME and SoHo
Half year to 30 September
2022 2021 Change
GBPm GBPm GBPm %
------------- ------------------------ ------------------------ ------------------------- ---------------------------
Revenue(1) 2,439 2,572 (133) (5)
Operating
costs(1) 1,779 1,720 59 3
------------- ------------------------ ------------------------ ------------------------- ---------------------------
EBITDA(1) 660 852 (192) (23)
Depreciation
&
amortisation 437 356 81 23
------------- ------------------------ ------------------------ ------------------------- ---------------------------
Operating
profit(1) 223 496 (273) (55)
------------- ------------------------ ------------------------ ------------------------- ---------------------------
Capital
expenditure 311 254 57 22
------------- ------------------------ ------------------------ ------------------------- ---------------------------
-- Revenue decline was driven by legacy product declines and the
migration of an MVNO customer, partially offset by growth in SME
and SoHo
-- EBITDA decline was driven by lower revenue, with the mix of revenue driving further downside
-- The overall revenue and EBITDA trend improved during H1,
reflecting continued growth in both the SME and SoHo segments and
timing of contract revenue recognition within Wholesale
-- Operating profit decline reflected the decline in EBITDA and
higher depreciation from timing of asset recognition
-- Capital expenditure was up due to increased investment in
product development as well as in our modernisation programme
-- Despite the challenging market conditions, we have seen
steady growth in both mobile and Voice over IP (VoIP) in the half
year, adding 86k connections to our mobile base and 39k connections
to our VoIP base
-- Retail order intake was GBP2.7bn on a 12-month rolling basis,
up 1% with growth in new business offset by decline in contract
re-signs; wholesale order intake was GBP0.8bn, down 14%
-- Enterprise NPS has improved, driven by better results in SoHo, SME and Wholesale segments
-- During the half year BT signed a contract with ScottishPower
to strengthen the connectivity throughout their network of wind
farms and offices
-- We continue to build out our distribution network in SoHo;
following the partnerships announced earlier this year, which
includes Barclaycard Payments, we have added Checkatrade and Just
Eat to our network
-- We supported the broadcast coverage of the Birmingham 2022
Commonwealth Games, using a 5G private network, the first time the
cutting-edge technology has been deployed in Europe for an event on
this scale
(1) Financials and commentary are based on adjusted measures;
see Glossary on page 1
Global: I mproved growth portfolio performance and strong cost
transformation offset by lower year on year equipment sales and
inflationary pressures stabilises revenue and EBITDA
Half year to 30 September
2022 2021 Change
GBPm GBPm GBPm %
------------- ------------------------- ------------------------- ------------------------- ---------------------------
Revenue(1) 1,617 1,654 (37) (2)
Operating
costs(1) 1,420 1,447 (27) (2)
------------- ------------------------- ------------------------- ------------------------- ---------------------------
EBITDA(1) 197 207 (10) (5)
Depreciation
&
amortisation 155 185 (30) (16)
------------- ------------------------- ------------------------- ------------------------- ---------------------------
Operating
profit(1) 42 22 20 91
------------- ------------------------- ------------------------- ------------------------- ---------------------------
Capital
expenditure 125 86 39 45
------------- ------------------------- ------------------------- ------------------------- ---------------------------
-- Revenue decline mainly due to lower year on year strategic
equipment sales and the impact of prior year divestments, partly
offset by a GBP58m positive foreign exchange movement; revenue
excluding divestments, one-offs and foreign exchange was down
5%
-- EBITDA decline reflected lower revenues and inflationary
pressures, partly offset by lower operating costs from ongoing
modernisation, cost control and one-offs; EBITDA excluding
divestments, one-offs and foreign exchange was down 6%
-- Depreciation and amortisation was down mainly due to actions
taken to reduce capital intensity over the last few years,
resulting in growth in operating profit
-- Capital expenditure was up mainly due to customer project
spend and investment in digital platforms
-- On a rolling 12-month basis order intake was GBP3.4bn, down
7% however the proportion of our growth product portfolio continues
to increase, representing 57% of total orders won in the half
year
-- During the half year we signed a contract with QBE Insurance
to connect their sites across 22 countries and to provide them with
voice services globally including their contact centres in North
America
-- In October we launched a new circularity service to help BT's
business customers return end-of-life network equipment to Cisco
for responsible re-use or recycling, reducing the amount of
e-waste
(1) Financials and commentary are based on adjusted measures;
see Glossary on page 1
Openreach: Revenue and EBITDA growth; FTTP build and connections
continue to accelerate
Half year to 30 September
2022 2021 Change
GBPm GBPm GBPm %
------------- ------------------------- --------------------------- ------------------------- ---------------------------
Revenue(1) 2,836 2,707 129 5
Operating
costs(1) 1,125 1,146 (21) (2)
------------- ------------------------- --------------------------- ------------------------- ---------------------------
EBITDA(1) 1,711 1,561 150 10
Depreciation
&
amortisation 987 892 95 11
------------- ------------------------- --------------------------- ------------------------- ---------------------------
Operating
profit(1) 724 669 55 8
------------- ------------------------- --------------------------- ------------------------- ---------------------------
Capital
expenditure 1,490 1,094 396 36
------------- ------------------------- --------------------------- ------------------------- ---------------------------
Normalised
free cash
flow(1) 53 8 45 n/m
------------- ------------------------- --------------------------- ------------------------- ---------------------------
n/m = not meaningful
-- Revenue growth was driven by price increases and increased
sales of fibre-enabled products and Ethernet, offset by decline in
physical lines and decrease in chargeable repairs due to lower
repair volumes; in FY22 price increases started in the second
quarter
-- EBITDA growth was due to revenue flow through and lower
operating costs driven by lower repair and efficiency programmes,
partially offset by higher FTTP provisioning activity and pay
inflation
-- Depreciation and amortisation was up, driven by increased network build
-- Capital expenditure growth was driven by FTTP, with more
customers connected and higher network build, including work in
progress for future year FTTP enablement, and inflation, partially
offset by lower non FTTP provisioning and efficiency savings;
capital expenditure related to copper products was down 26% year on
year
-- Openreach broadband base down 89k in Q2 (Q2 FY22: net adds of
29k) due to reduced broadband market growth and c.40k impact on
provisioning activity due to industrial action, with competitor
churn in line with our expectations; average monthly rental ARPU
grew by c.GBP1 year on year due to continued increase in
fibre-enabled broadband
-- Industrial action in Q2 also impacted our Quality of Service
standards (QoS); our Ofcom copper QoS measures are now tracking at
19/30 for H1 with on-time copper and FTTP provision of 94% and
repair of 84%
-- Record FTTP build of 805k premises passed in Q2 at an average
build rate of 62k per week; we are around 35% of the way through
our 25m build
-- FTTP footprint of 8.8m with initial build on a further 6m
underway; now passed 2.8m premises in rural locations
-- Record growth in FTTP take up with base of c.2.4m, weekly net
adds of 25k and take up rate of 27%
-- Our end customer satisfaction remains high; over 91% of
customers survey responses score us between 8 to 10
(1) Financials and commentary are based on adjusted measures;
see Glossary on page 1
Condensed consolidated financial statements
Group income statement
Half year to 30 September 2022 Note Before Specific Total
specific items (Reported)
items (note 5)
(Adjusted)
---- ------------------------- -------------------------
GBPm GBPm GBPm
------------------------------- ---- ------------------------- ------------------------- -------------------------
Revenue 2,3 10,368 (2) 10,366
Operating costs 4 (8,826) (309) (9,135)
------------------------------- ---- ------------------------- ------------------------- -------------------------
Operating profit (loss) 1,542 (311) 1,231
Finance expense (422) 4 (418)
Finance income 153 - 153
------------------------------- ---- ------------------------- ------------------------- -------------------------
Net finance expense (269) 4 (265)
Share of post tax profit (loss)
of associates and joint
ventures 2 - 2
------------------------------- ---- ------------------------- ------------------------- -------------------------
Profit (loss) before tax 1,275 (307) 968
Taxation (158) 220 62
------------------------------- ---- ------------------------- ------------------------- -------------------------
Profit (loss) for the period 1,117 (87) 1,030
------------------------------- ---- ------------------------- ------------------------- -------------------------
Half year to 30 September 2021 Note Before Specific Total
specific items (Reported)
items (note 5)
(Adjusted)
---- ------------------------ -------------------------
GBPm GBPm GBPm
--------------------------------- ---- ------------------------ ------------------------- ------------------------
Revenue 2,3 10,308 (3) 10,305
Operating costs 4 (8,727) (138) (8,865)
--------------------------------- ---- ------------------------ ------------------------- ------------------------
Operating profit (loss) 1,581 (141) 1,440
Finance expense (388) (47) (435)
Finance income 67 - 67
--------------------------------- ---- ------------------------ ------------------------- ------------------------
Net finance expense (321) (47) (368)
Share of post tax profit (loss) - - -
of associates and joint ventures
--------------------------------- ---- ------------------------ ------------------------- ------------------------
Profit (loss) before tax 1,260 (188) 1,072
Taxation (183) (395) (578)
--------------------------------- ---- ------------------------ ------------------------- ------------------------
Profit (loss) for the period 1,077 (583) 494
--------------------------------- ---- ------------------------ ------------------------- ------------------------
Group statement of comprehensive income
Half year to 30
September
2022 2021
GBPm GBPm
--------------------------------------------------------- ----------------------- -----------------------
Profit for the period 1,030 494
--------------------------------------------------------- ----------------------- -----------------------
Other comprehensive income (loss)
Items that will not be reclassified to the income
statement
Remeasurements of the net pension obligation (1,137) (700)
Tax on pension remeasurements 283 475
Items that have been or may be reclassified subsequently
to the income statement
Exchange differences on translation of foreign
operations 249 36
Fair value movements on assets at fair value through
other comprehensive income (4) 7
Movements in relation to cash flow hedges:
* net fair value gains (losses) 2,377 (128)
* recognised in income and expense (1,179) 465
Tax on components of other comprehensive income
that have been or may be reclassified (303) (78)
--------------------------------------------------------- ----------------------- -----------------------
Other comprehensive income (loss) for the period,
net of tax 286 77
--------------------------------------------------------- ----------------------- -----------------------
Total comprehensive income (loss) for the period 1,316 571
--------------------------------------------------------- ----------------------- -----------------------
Group balance sheet
Note 30 September 31 March 2022
2022
---- ----------------------------------
GBPm GBPm
-------------------------------------- ---- ---------------------------------- -----------------------------------
Non-current assets
Intangible assets 13,896 13,817
Property, plant and equipment 21,214 20,599
Right-of-use assets 4,250 4,429
Derivative financial instruments 8 2,625 1,003
Investments(1) 10,405 11,113
Associates and joint ventures 11 421 5
Trade and other receivables(2) 467 337
Contract assets 329 361
Preference shares in joint venture 11 589 -
Retirement benefit obligations 161 -
Deferred tax assets 789 289
-------------------------------------- ---- ---------------------------------- -----------------------------------
55,146 51,953
-------------------------------------- ---- ---------------------------------- -----------------------------------
Current assets
Programme rights(3) - 310
Inventories 358 300
Trade and other receivables(2) 2,941 2,651
Contract assets 1,550 1,554
Assets classified as held for sale - 80
Current tax receivable 497 496
Derivative financial instruments 210 88
Investments 2,885 2,679
Cash and cash equivalents 406 772
-------------------------------------- ---- ---------------------------------- -----------------------------------
8,847 8,930
-------------------------------------- ---- ---------------------------------- -----------------------------------
Current liabilities
Loans and other borrowings 1,415 873
Derivative financial instruments 76 51
Trade and other payables(4) 6,513 6,137
Contract liabilities 845 833
Lease liabilities 807 795
Liabilities held for sale - 40
Current tax liabilities 52 90
Provisions 153 222
-------------------------------------- ---- ---------------------------------- -----------------------------------
9,861 9,041
-------------------------------------- ---- ---------------------------------- -----------------------------------
Total assets less current liabilities 54,132 51,842
-------------------------------------- ---- ---------------------------------- -----------------------------------
Non-current liabilities
Loans and other borrowings 16,906 15,897
Derivative financial instruments 200 819
Contract liabilities 191 170
Lease liabilities 4,750 4,965
Retirement benefit obligations 1,888 1,143
Other payables(4) 988 598
Deferred tax liabilities 2,411 1,960
Provisions 452 439
-------------------------------------- ---- ---------------------------------- -----------------------------------
27,786 25,991
-------------------------------------- ---- ---------------------------------- -----------------------------------
Equity
Share capital 2,172 2,172
Share premium 8,000 8,000
Other reserves 2,466 1,326
Retained earnings 13,708 14,353
-------------------------------------- ---- ---------------------------------- -----------------------------------
Total equity 26,346 25,851
-------------------------------------- ---- ---------------------------------- -----------------------------------
54,132 51,842
-------------------------------------- ---- ---------------------------------- -----------------------------------
(1) GBP10,369m of the non-current investments relates to amounts
owed by the Parent company. Refer to note 12.
(2) Trade and other receivables at 30 September 2022 includes
deferred consideration resulting from the Sports JV transaction.
GBP20m has been recognised as current and GBP50m as non-current.
See note 6 for more details.
(3) Decrease relates to the derecognition of the sports rights
as part of the disposal of BT Sport, see note 6.
(4) Trade and other payables at 30 September 2022 includes the
financial liability recognised in relation to the minimum guarantee
resulting from the Sports JV transaction. GBP196m has been
recognised within current trade and other payables and GBP533m
within non-current other payables. See note 6 for more details.
Group statement of changes in equity
Share Share Other Retained Total
Capital Premium Reserves earnings Equity
----------------- ----------------- ----------------- -----------------
GBPm GBPm GBPm GBPm GBPm
----------------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 March 2022 2,172 8,000 1,326 14,353 25,851
Change in accounting
policy - - - (12) (12)
At 1 April 2022 2,172 8,000 1,326 14,341 25,839
----------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Profit for the period - - - 1,030 1,030
Other comprehensive
income
(loss) before tax - - 2,622 (1,137) 1,485
Tax on other
comprehensive
(loss) income - - (303) 283 (20)
Transferred to the
income statement - - (1,179) - (1,179)
----------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total comprehensive
income
(loss) for the period - - 1,140 176 1,316
Dividends to
shareholders - - - (850) (850)
Share-based payments - - - 41 41
Other movements - - - - -
----------------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 30 September 2022 2,172 8,000 2,466 13,708 26,346
----------------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 1 April 2021 2,172 8,000 1,143 10,378 21,693
Profit for the period - - - 494 494
Other comprehensive
income
(loss) before tax - - (85) (700) (785)
Tax on other
comprehensive
(loss) income - - (78) 475 397
Transferred to the
income statement - - 465 - 465
--------------------- ----------------- ----------------- ------------------ ------------------ -----------------
Total comprehensive
income
(loss) for the
period - - 302 269 571
Dividends to - - - - -
shareholders
Share-based payments - - - 49 49
Other movements - - 1 (1) -
--------------------- ----------------- ----------------- ------------------ ------------------ -----------------
At 30 September 2021 2,172 8,000 1,446 10,695 22,313
--------------------- ----------------- ----------------- ------------------ ------------------ -----------------
Group cash flow statement
Half year to 30 September
2022 2021 (Restated)(1)
GBPm GBPm
---------------------------------------------------- ------------------------------ ---------------------------
Cash flow from operating activities
Profit before taxation 968 1,072
Share of post tax (profit) loss of associates (2) -
and joint ventures
Net finance expense 265 368
---------------------------------------------------- ------------------------------ ---------------------------
Operating profit 1,231 1,440
Other non-cash charges 37 67
(Profit) loss on disposal of businesses 188 7
Depreciation and amortisation 2,332 2,169
(Increase) decrease in inventories (54) 33
Decrease (increase) in programme rights 7 (4)
(Increase) decrease in trade and other receivables (393) (158)
Decrease (increase) in contract assets 37 (30)
Increase (decrease) in trade and other payables 124 (410)
Increase (decrease) in contract liabilities 19 (99)
(Decrease) increase in other liabilities(2) (546) (586)
(Decrease) increase in provisions (35) (17)
---------------------------------------------------- ------------------------------ ---------------------------
Cash generated from operations 2,947 2,412
Income taxes paid (33) (20)
---------------------------------------------------- ------------------------------ ---------------------------
Net cash inflow from operating activities 2,914 2,392
---------------------------------------------------- ------------------------------ ---------------------------
Cash flow from investing activities
Interest received 11 -
Dividends received from associates and joint
ventures 1 1
Proceeds on disposal of subsidiaries, associates
and joint ventures(1) 29 22
Net outflow on non-current amounts owed by
ultimate parent company (664) (151)
Proceeds on disposal of current financial assets(3) 5,897 4,478
Purchases of current financial assets(3) (5,994) (4,494)
Net (purchase) disposal of non-current asset
investments - (1)
Purchases of property, plant and equipment
and intangible assets (2,756) (2,051)
---------------------------------------------------- ------------------------------ ---------------------------
Net cash outflow from investing activities (3,476) (2,196)
---------------------------------------------------- ------------------------------ ---------------------------
Cash flow from financing activities
Interest paid (391) (396)
Repayment of borrowings - (1)
Proceeds from bank loans and bonds 848 -
Payment of lease liabilities (370) (319)
Cash flows from derivatives related to net
debt 155 26
Changes in ownership interests in subsidiaries(1) - (86)
---------------------------------------------------- ------------------------------ ---------------------------
Net cash outflow from financing activities 242 (776)
---------------------------------------------------- ------------------------------ ---------------------------
Net decrease in cash and cash equivalents (320) (580)
---------------------------------------------------- ------------------------------ ---------------------------
Opening cash and cash equivalents(4) 687 893
Net decrease in cash and cash equivalents (320) (580)
Effect of exchange rate changes 19 3
---------------------------------------------------- ------------------------------ ---------------------------
Closing cash and cash equivalents(4) 386 316
---------------------------------------------------- ------------------------------ ---------------------------
(1) Changes in ownership interest in subsidiaries of GBP(86)m in
the half year to September 2021 relate to the acquisition of the
remaining 30% of the share capital of BT OnePhone Limited. This was
presented within cash flow from investing activities in the FY22
interim financial statements (GBP(96)m acquisition of non-current
interest in subsidiaries and GBP10m proceeds on disposal of
subsidiaries, associates and joint ventures). The full year cash
flow statement presented in Annual Report 2022 reflects these cash
flows as relating to financing activities in line with IAS 7
requirements on cash payments to owners to acquire an entity's
shares. Prior year comparatives presented above have been restated
for consistency, with corresponding impacts on net cash outflows
from investing and financing activities.
(2) Includes pension deficit payments of GBP594m for the half
year to 30 September 2022 (H1 FY22: GBP600m).
(3) Primarily consists of investment in and redemption of
amounts held in liquidity funds.
(4) Net of bank overdrafts of GBP20m (H1 FY22: GBP73m).
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 2022 and
2021 together with the balance sheet at 31 March 2022. The
financial statements for the half year to 30 September 2022 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 UK-adopted IAS 34 'Interim
Financial Reporting'. The financial statements should be read in
conjunction with the Annual Report 2022 which was prepared in
accordance with UK-adopted International Financial Reporting
Standards (IFRS).
The directors are satisfied that the group has adequate
resources to continue in operation for a period of at least sixteen
months from the date of approval of this report, notwithstanding
the net current liabilities position of GBP1.0bn at 30 September
2022 (GBP0.1bn net current liabilities at 31 March 2022).
Consequently, the directors consider it appropriate to adopt the
going concern basis of accounting in preparing the condensed
consolidated financial statements for the half year to 30 September
2022. When reaching this conclusion, the directors took into
account:
-- The group's overall financial position (including trading
during the year and ability to repay term debt as it matures
without recourse to refinancing); and
-- Exposure to principal risks (including severe but plausible downsides).
At 30 September 2022, the group had cash and cash equivalents of
GBP0.4bn and current asset investments of GBP2.9bn. The group also
had access to committed borrowing facilities of GBP2.1bn. These
facilities were undrawn at period-end and are not subject to
renewal until March 2027.
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 2022 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 information for the year ended 31 March 2022 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditor has
reported on those accounts; their report (i) was unqualified, (ii)
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006 in respect of the accounts for the year
to 31 March 2022.
A reference to a year expressed as FY23 is to the financial year
ended 31 March 2023.
New and amended accounting standards effective during the
year
The following new or amended standards and interpretations are
applicable in the current period:
Amendments to IAS 37 for onerous contracts
The group adopted Onerous Contracts - Costs of Fulfilling a
Contract (Amendments to IAS 37) from 1 April 2022. This resulted in
a change in accounting policy for performing an onerous contracts
assessment. Previously, only incremental costs to fulfil a contract
were included when determining whether that contract was onerous.
The revised policy is to include both incremental costs and an
allocation of other costs directly attributable to the fulfilment
of a contract.
The amendments apply prospectively to contracts existing at the
date when the amendments are first applied. We analysed contracts
existing at 1 April 2022 and identified the cumulative effect of
applying the revised policy to be a GBP12m increase in the onerous
contract provision. This has been recorded as an opening balance
adjustment to retained earnings. Comparative figures have not been
restated.
New and amended accounting standards that have been issued but
are not yet effective
The following new or amended standards and interpretations are
applicable in future periods:
IFRS 17 'Insurance Contracts'
We are in the process of assessing the impact of adopting this
standard which is effective for BT from 1 April 2023. This will be
disclosed in the FY23 financial statements.
Other
We do not expect any other standards or interpretations that
have been issued but are not yet effective to have a significant
impact on the group.
IFRS Interpretations Committee agenda decisions
The IFRS Interpretations Committee (IFRIC) periodically issues
agenda decisions which explain and clarify how to apply the
principles and requirements of IFRS standards. Agenda decisions are
authoritative and may require the group to revise accounting
policies or practice to align with the interpretations set out in
the decision.
We regularly review IFRIC updates and assess the impact of
agenda decisions. The following were identified as being
potentially significant to the group:
Demand Deposits with Restrictions on Use arising from a Contract
with a Third Party
In its agenda decision, the IFRIC concluded that restrictions on
the use of demand deposits arising from a contract with a third
party do not result in the deposits no longer being classified as
cash and cash equivalents, unless those restrictions change the
nature of the deposit in a way such that it would no longer meet
the definition of cash in IAS 7.
Application of this agenda decision to deposits held by the
group identified one bank account with restrictions on use that
nonetheless meets the IAS 7 definition of cash. This bank account
was subsequently recognised on the group balance sheet and is now
reflected in the cash and cash equivalents balance presented
throughout the financial statements. An equal and opposite amount
was recognised in trade payables.
The balance on this account was GBP101m at 30 September 2022,
GBP148m at 31 March 2022 and GBP89m at 30 September 2021. Prior
period comparatives have not been restated as the impact is not
considered material, having regard to the fact that a corresponding
liability is recognised within trade payables and therefore has no
bearing on the group's net assets.
The impact on the cash flow statement is not considered to be
material and recognition of the balance is presented as an increase
in trade and other payables.
2. Operating results - by customer-facing unit
External Internal Group revenue Adjusted Operating
Revenue revenue EBITDA(1) profit
---------------------- ---------------------- ----------------------- ----------------------
Half year to GBPm GBPm GBPm GBPm GBPm
30 September
2022
------------ ---------------------- ---------------------- ----------------------- ---------------------- ----------------------
Consumer 4,962 30 4,992 1,295 594
Enterprise 2,382 57 2,439 660 223
Global 1,617 - 1,617 197 42
Openreach 1,393 1,443 2,836 1,711 724
Other 14 - 14 11 (41)
Intra-group
items - (1,530) (1,530) - -
------------ ---------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total
adjusted(2) 10,368 - 10,368 3,874 1,542
------------ ---------------------- ---------------------- ----------------------
Specific
items (note
5) (2) (311)
------------ ----------------------- ----------------------
Total 10,366 1,231
------------ ----------------------- ----------------------
Half year to
30 September
2021
------------ ---------------------- ---------------------- ----------------------- ---------------------- ----------------------
Consumer 4,816 41 4,857 1,077 376
Enterprise 2,519 53 2,572 852 496
Global 1,654 - 1,654 207 22
Openreach 1,305 1,402 2,707 1,561 669
Other 14 - 14 53 16
Intra-group
items - (1,496) (1,496) - -
------------ ---------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total
adjusted(2) 10,308 - 10,308 3,750 1,579
------------ ---------------------- ---------------------- ----------------------
Specific
items (note
5) (3) (141)
------------ ----------------------- ----------------------
Total 10,305 1,438
------------ ----------------------- ----------------------
(1) For the reconciliation of adjusted EBITDA, see additional
information on page 25.
(2) See Glossary on page 1.
3. Operating results - disaggregation of external revenue
Half year to Consumer Enterprise Global Openreach Other Total
30 September
2022
----------------- ---------------- ----------------- ----------------- -------------------
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------------- ---------------- ----------------- ----------------- ------------------- -------------------
ICT and
managed
networks - 839 826 - - 1,665
Fixed access
subscription
revenue 2,096 839 139 1,361 - 4,435
Mobile
subscription
revenue 1,702 522 40 - - 2,264
Equipment and
other
services 1,164 182 612 32 14 2,004
------------- ----------------- ---------------- ----------------- ----------------- ------------------- -------------------
Total
adjusted(1)
revenue 4,962 2,382 1,617 1,393 14 10,368
------------- ----------------- ---------------- ----------------- ----------------- -------------------
Specific
items (note
5) (2)
------------- -------------------
Total revenue 10,366
------------- -------------------
Half year to
30 September
2021
------------- ----------------- ---------------- ----------------- ----------------- ------------------- -------------------
ICT and
managed
networks - 880 860 - - 1,740
Fixed access
subscription
revenue 1,990 823 135 1,270 - 4,218
Mobile
subscription
revenue 1,647 633 37 - 1 2,318
Equipment and
other
services 1,179 183 622 35 13 2,032
------------- ----------------- ---------------- ----------------- ----------------- ------------------- -------------------
Total
adjusted(1)
revenue 4,816 2,519 1,654 1,305 14 10,308
------------- ----------------- ---------------- ----------------- ----------------- -------------------
Specific
items (note
5) (3)
------------- -------------------
Total revenue 10,305
------------- -------------------
(1) See Glossary on page 1.
4. Operating costs
Half year to 30
September
2022 2021
GBPm GBPm
----------------------------------------------- ---------------------- ----------------------
Operating costs by nature
Wages and salaries 1,920 1,919
Social security costs 213 193
Other pension costs 303 303
Share-based payment expense 41 49
----------------------------------------------- ---------------------- ----------------------
Total staff costs 2,477 2,464
Own work capitalised (641) (451)
----------------------------------------------- ---------------------- ----------------------
Net staff costs 1,836 2,013
Net indirect labour costs 188 135
----------------------------------------------- ---------------------- ----------------------
Net labour costs 2,024 2,148
Product costs 1,510 1,535
Sales commissions 313 318
Payments to telecommunications operators 605 654
Property and energy costs 630 513
Network operating and IT costs 480 450
TV programme rights charges 354 452
Provision and installation 330 243
Marketing and sales 190 116
Net impairment losses on trade receivables and
contract assets 68 54
Other operating costs 102 191
Other operating income (112) (116)
Depreciation of property, plant and equipment 1,417 1,309
Depreciation of Right-of-use assets 338 349
Amortisation of intangible assets 577 511
----------------------------------------------- ---------------------- ----------------------
Total operating costs before specific items 8,826 8,727
----------------------------------------------- ---------------------- ----------------------
Specific items (note 5) 309 138
----------------------------------------------- ---------------------- ----------------------
Total operating costs 9,135 8,865
----------------------------------------------- ---------------------- ----------------------
During FY22 we implemented a new accounting system along with a
new chart of accounts that provided improved visibility of the
group's cost base. As a result we refined the classification of
costs within the operating costs disclosure. Improved data allowed
us to better allocate subcontractor costs to indirect labour costs,
and allocate more costs to specific cost categories as opposed to
within other operating costs. Following detailed analysis of the
underlying causes of reallocations we concluded they were not
indicative of material errors in previously published financial
data including the FY22 comparatives.
5. Specific items
Our income statement and segmental analysis separately identify
trading results on an adjusted basis, 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 presentation 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 an additional
analysis of our reporting trading results. 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 business restructuring programmes, acquisitions
and disposals of businesses and investments, charges or credits
relating to retrospective regulatory matters, property
rationalisation programmes, significant out of period contract
settlements, net interest on our pension obligation, and the impact
of remeasuring deferred tax balances. In the event that items meet
the criteria, which are applied consistently from year to year,
they are treated as specific items. Any releases to provisions
originally booked as a specific item are also classified as
specific.
Half year to 30
September
2022 2021
GBPm GBPm
-------------------------------------------------- ----------------------- -----------------------
Specific revenue
Retrospective regulatory matters 2 3
-------------------------------------------------- ----------------------- -----------------------
Specific revenue 2 3
-------------------------------------------------- ----------------------- -----------------------
Specific operating costs
Restructuring charges 122 135
BT Sport disposal 188 -
Other divestment-related items (1) 5
Covid-19 - (2)
-------------------------------------------------- ----------------------- -----------------------
Specific operating costs 309 138
-------------------------------------------------- ----------------------- -----------------------
Specific operating loss 311 141
Finance costs associated with BT Sport disposal (13) -
Interest expense on retirement benefit obligation 9 47
-------------------------------------------------- ----------------------- -----------------------
Net specific items charge before tax 307 188
Tax charge (credit) on specific items (220) 395
-------------------------------------------------- ----------------------- -----------------------
Net specific items charge after tax 87 583
-------------------------------------------------- ----------------------- -----------------------
Retrospective regulatory matters
We recognised a charge of GBP2m (H1 FY22: GBP3m) in relation to
historical regulatory matters, recognised in revenue. This reflects
the movement in provisions relating to various matters.
Restructuring charges
In the year we incurred charges of GBP122m (H1 FY22: GBP135m)
relating to projects associated with our group-wide modernisation
programme, first announced in May 2020. Costs primarily relate to
leaver costs, consultancy costs and staff costs associated with
colleagues working exclusively on transformation activity. We have
now announced that we will target gross annualised cost benefits of
GBP3.0bn by FY25, at an expected cost of GBP1.6bn. GBP0.9bn costs
have been incurred to date.
BT Sport disposal
During the half year we completed the disposal of BT Sport
operations. We recognised a profit on disposal of GBP3m in specific
items, made up of GBP188m charges recognised within operating costs
net of GBP191m tax credit. We also recognised a GBP13m credit
within finance costs as specific, relating to a hedge for sports
rights payments that became ineffective due to the divestment.
Further details on the BT Sport disposal can be found in note
6.
Other divestment-related items
We recognised a net credit of GBP1m (H1 FY22: charge of GBP5m)
relating to small true-up charges on previous transactions and
costs relating to ongoing divestment projects.
Covid-19
In FY20, we recognised one-off charges of GBP95m relating to the
impact of Covid-19 on various balance sheet items. Any releases of
these provisions have also been booked as a specific item. At 31
March 2022 we retained GBP12m (31 March 2021: GBP55m) of provisions
related to Covid-19. In H1 FY23, we utilised GBP7m of this
provision. At 30 September 2022, we retain a provision of
GBP5m.
Interest expense on retirement benefit obligation
We incurred GBP9m (H1 FY22: GBP47m) of interest costs in
relation to our defined benefit pension obligations.
Tax on specific items
A tax credit of GBP220m (H1 FY22: charge of GBP395m) was
recognised in relation to specific items. Of this, GBP191m relates
to the disposal of BT Sport.
6. BT Sport disposal
In August 2022 we formed a sports joint venture ('JV') with
Warner Bros. Discovery ('WBD') combining BT Sport and WBD's
Eurosport UK business. As part of the transaction, BT and WBD has
each contributed, sub-licensed or delivered the benefit of their
respective sports rights and distribution businesses for the UK
& Ireland to the JV. Both parties each hold a 50% interest and
equal voting rights in the JV.
BT Sport's distribution agreement with Virgin Media has
transferred to the JV, and the JV has also entered into a new
agreement with Sky extending beyond 2030 to provide for its
distribution of the JV's combined sports content.
The production and operational assets of BT Sport have
transferred to WBD who will manage and operate the production of
the JV's sport content.
BT has entered into a distribution agreement with the JV to
procure the sport content required to continue to supply our
broadband, TV and mobile customers. BT's agreement with the JV will
extend beyond 2030 and for the first four years includes a minimum
revenue guarantee of approximately GBP500m per annum, after which
the agreement will change to a fully variable arrangement.
At completion of the transaction, BT no longer has control of
the BT Sport operations based on the assessment of ownership and
joint control over the key decisions of the JV (50/50 with WBD)
established through the JV agreement. The group's retained interest
in the combined business has been classified as a joint venture
under IFRS 11.
WBD will have the option to acquire BT's 50% interest in the JV
at specified points during the first four years of the JV ('Call
Option'). The price payable under the Call Option will be 50% of
the fair market value of the JV to be determined at the time of the
exercise, plus any unpaid fixed consideration and remaining
earn-out as described below. If the Call Option is not exercised,
BT will have the ability to exit its shareholding in the JV either
through a sale or IPO after the initial four-year period.
BT Sport has not been reclassified as a discontinued operation
as it does not meet our definition of a separate major line of
business.
The consideration recognised on completion of the transaction
was as follows:
FY23
---------------------------------
GBPm
----------------------------------------------------------- ---------------------------------
Intangible assets(1) 88
Property, plant and equipment 13
Right-of-use assets 1
Other assets(2) 760
Liabilities(2) (357)
----------------------------------------------------------- ---------------------------------
Net assets of operations over which control has been
lost 505
Net financial liabilities recognised(3) 559
----------------------------------------------------------- ---------------------------------
Net impact on the consolidated balance sheet 1,064
Profit on disposal after tax(4) 3
----------------------------------------------------------- ---------------------------------
Total consideration 1,067
----------------------------------------------------------- ---------------------------------
Satisfied by
Cash consideration received in the year 29
Deferred cash consideration(5) 70
Contingent consideration (investment in A preference
shares, note 11) 428
Deferred consideration (investment in C preference shares,
note 11) 161
Equity interest in JV (50%) 414
Transaction costs (35)
----------------------------------------------------------- ---------------------------------
Total consideration 1,067
----------------------------------------------------------- ---------------------------------
(1) Includes allocated goodwill of GBP83m.
(2) Includes capitalised programme rights of GBP736m of which
GBP351m has yet to be paid to broadcast rights holders and is
included within Liabilities.
(3) Fair value of BT's obligation under the minimum revenue
commitment of GBP745m less deferred tax credit of GBP186m.
(4) Profit on disposal after tax has been recognised as a
specific item, refer to note 5.
(5) Discounted cash flows due to BT from fixed consideration
payable by WBD in instalments over the next three years.
Significant accounting estimates, judgements and assumptions
The following judgements apply to the BT Sport disposal:
Assessment of whether BT has joint control over the JV
The JV is classified as a joint venture and hence has been
deconsolidated from the group based on an assessment under IFRS 10
and 11 of the ownership, voting power and joint control established
through the JV agreement between BT and WBD.
Factors relevant to our assessment:
-- Equal voting rights over the activities that most
significantly impact the returns of the JV, namely decisions around
new or existing sports rights and distribution arrangements.
-- Unequal cash distribution during the first four years due to
the earn out mechanism and relative size of businesses contributed
into the JV.
-- WBD's call option to acquire BT's 50% interest in the JV is
not exercisable before key decisions over material activities of
the JV are made such that joint control still applies at the
outset.
The assessment whether joint control remains in place is
reviewed at each reporting period.
Valuation of contingent consideration (investment in A
preference shares, see note 11)
BT will receive approximately GBP428m (discounted) by way of an
earn-out from the JV during the earn-out period, subject to
liquidity and usual UK company law requirements. The earn-out
period will end at the earliest of:
i. four years post completion of the transaction;
ii. the exercise by WBD of the Call Option; and
iii. if the earn-out reaches an agreed cap.
This earn-out consideration is contingent on the cash profit
generation of the JV over the earn out period and has therefore
been recognised as contingent consideration, initially recorded at
fair value and then remeasured at each reporting date in accordance
with IFRS 9. The valuation of the earn-out consideration is
supported by a jointly-agreed business plan and internal valuation
model.
The key assumptions within the jointly-agreed business plan and
internal valuation model are:
-- approximately 50% of revenues and 80% of costs during the
four years of the jointly-agreed business plan are contractually
committed;
-- material contractual renewals (wholesale agreements and
rights renewals) over the earn-out period are renewed at similar
terms;
-- the total premium sports subscriber base does not materially
grow or decline over the earn out period; and
-- revenue growth and production costs are driven by contractual pricing.
We have applied the sensitivities to the valuation including
non-renewal of material contracts and a decline in the market base
impacting revenues. Given the level of contractual revenues and
costs, limited growth assumptions within the jointly-agreed
business plan, changes that would apply to the minimum revenue
guarantee (see below) on non-renewal of sports rights, and the
earnings cap that applies to the earn-out consideration, we
consider there is no reasonable variation of these sensitivities
that would have a material impact on the financial statements.
We have also assumed that the earn-out period ends at four years
post completion of the transaction however given the mechanics of
the deal arrangements if there is an earlier exercise by WBD of
their Call Option this would also not materially impact the amounts
disclosed in the financial statements.
Valuation of the minimum revenue guarantee in BT's distribution
agreement with the JV
BT's obligation under the minimum revenue guarantee of GBP2bn
over the next four years is higher than the fair value of the
related revenue streams, and therefore the delta between our
committed expenditure and the value that we currently expect to
generate represents a financial liability that has been recorded as
a financial liability within trade and other payables on the
balance sheet. This liability will unwind through payments made to
the JV over the next 4 years on the minimum revenue guarantee. The
liability will be held at amortised cost and adjusted each
reporting period to reflect actual cash flows or any revised
estimated future cash flows in accordance with IFRS 9, for example
due to a material loss of the JV's sports rights portfolio.
The valuation of this financial liability, and what a fair
cost-per-subscriber would be, is sensitive to a number of
assumptions on volumes and price, and there is a range of outcomes
which we could have arrived at. The range of scenarios considered,
based on the different prices and terms used with other market
participants, resulted in a liability of between GBP619m and
GBP1,085m. We have recognised a financial liability of GBP745m.
The key assumptions in calculating the financial liability are
in estimating what is a market wholesale price and what are the
forecast volumes for the related revenue streams. The volumes used
are consistent with those included in the jointly-agreed business
plan as described above. Estimates of market price are based on
recent and historic contractual negotiations with third party
market participants. We note that the bottom of the range disclosed
above is based on the price that we will pay after 4 years when the
minimum revenue guarantee has ended, however we do not believe that
is an appropriate rate from the outset due to existing volume
commitments.
Valuation of BT's equity interest in the JV
WBD will have the option to acquire BT's 50% interest in the JV
at specified points during the first four years of the JV. If the
Call Option is not exercised, BT will have the ability to exit its
shareholding in the JV either through a sale or IPO.
The group has valued its interest in the JV based on the
estimated fair value at exit and using the following key
assumptions:
-- BT expect to realise its interest in the JV through exit rather than ongoing value in use;
-- BT expect WBD to exercise its option to acquire BT's 50%
interest in the JV at the end of the first four years of the JV;
and
-- An earnings multiple has been applied to the expected year 5
EBITDA based on the jointly-agreed business plan, this is based on
comparable peers in the premium sports subscriber and comparable
transactions in the premium sports subscriber. In applying the
multiples we have used the lower end of the ranges identified from
comparable peers and transactions.
As the group's interest is recorded on a point in time
valuation, based on forecast earnings and current market returns on
similar investments, it carries both upside and downside risk from
changes in micro and macro-economic factors affecting the sports
content subscription market and risk appetite of investors in that
market.
We have applied the following sensitivities on these risk
factors:
-- EBITDA impact from loss of material sports rights or a
significant decline in the JV's revenues from ongoing cost of
living pressures;
-- An increase or decrease in the valuation multiple achieved; and
-- An increase or decrease in the discount rate applied.
None of these sensitivities individually resulted in a material
change to the investment value. All factors in combination could
lead to a material change but, in our view, this is not a
reasonable scenario given the financial and commercial levers
available to both the JV and BT to mitigate the impact.
The investment will be subsequently accounted for using the
equity method (see note 11) and will be subject to impairment
testing at each reporting period, with any impairment losses
recognised through Specific Items.
Discounting of cash flows
All cash flows expected to be received or paid over time have
been discounted at a rate applicable to the risks associated with
the cash flows:
-- Deferred payments due to BT from WBD have been discounted at
an appropriate post-tax cost of debt (3.3%);
-- BT's earn-out from the JV has been discounted at the weighted
average cost of capital for the JV at completion date (6.7%);
and
-- BT's commitments under the minimum guarantee have been
discounted at the group's post-tax cost of debt (2.8%).
We do not consider the net present value of the transaction
would be materially affected by a reasonable change in the discount
rate.
7. Pensions
30 September 31 March 2022
2022
---------------------------------
GBPbn GBPbn
-------------------------------------- --------------------------------- ---------------------------------
IAS 19 liabilities - BTPS (40.6) (54.3)
Assets - BTPS 39.0 53.5
Other schemes (0.1) (0.3)
-------------------------------------- --------------------------------- ---------------------------------
Total IAS 19 deficit, gross of tax(1) (1.7) (1.1)
-------------------------------------- --------------------------------- ---------------------------------
Total IAS 19 deficit, net of tax (1.4) (1.0)
-------------------------------------- --------------------------------- ---------------------------------
Discount rate (nominal) 5.35 % 2.75 %
Discount rate (real)(2) 1.49 % (0.92) %
Future inflation - average increase
in RPI (p.a.) 3.80 % 3.70 %
Future inflation - average increase
in CPI (p.a.) 3.30 % 3.25 %
(1) Of which GBP(1.9)bn relates to schemes in deficit (31 March
2022: GBP(1.1)bn) and GBP0.2bn relates to schemes in surplus (31
March 2022: GBPnil).
(2) The real rate is calculated relative to RPI inflation.
The IAS 19 deficit has increased from GBP1.1bn at 31 March 2022
to GBP1.7bn at 30 September 2022. Net of deferred tax, the deficit
has increased from GBP1.0bn to GBP1.4bn.
Mechanically applying our year-end assumptions methodology to
reflect 30 September market conditions increased the BTPS real
discount rate from (0.92)% pa to 1.49% pa, and reduced the
liabilities by GBP14bn. The BTPS assets are well hedged to
movements in interest rates and inflation, through holdings of
bonds and derivatives. The assets fell by GBP15bn mainly due to the
substantial increase in real gilt yields, partially offset by
deficit contributions of GBP0.6bn.
8. Financial instruments and risk management
Fair value of financial assets and liabilities measured at
amortised cost
At 30 September 2022, the fair value of listed bonds was
GBP16,134m (31 March 2022: GBP16,750m) and the carrying value was
GBP17,570m (31 March 2022: GBP15,545m).
The fair value of the following financial assets and liabilities
approximate to their carrying amount:
-- Preference shares in joint venture (C preference shares), see note 11
-- 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 2022.
The current trade and other payables balance of GBP6,513m
includes GBP191m (31 March 2022: GBP89m) of trade payables that
have been factored by suppliers in a supply chain financing
programme. These programmes are used with a limited number of
suppliers with short payment terms to extend them to a more typical
payment term.
Fair value estimation
Fair values of financial instruments are analysed by three
levels of valuation methodology which are:
1. Level 1 - uses quoted prices in active markets for identical assets or liabilities.
2. Level 2 - uses inputs for the asset or liability other than
quoted prices, that are observable either directly or
indirectly.
3. Level 3 - uses inputs for the asset or liability that are not
based on observable market data, such as internal models or other
valuation methods.
Level 2 balances are the fair values of the group's outstanding
derivative financial assets and liabilities which were estimated
using discounted cash flow models and market rates of interest and
foreign exchange at the balance sheet date.
Level 3 balances comprise the following financial instruments
classified as fair value through profit and loss and fair value
through other comprehensive income:
-- Preference shares in joint venture (A preference shares)
recognised in relation to the Sports JV transaction, see note 11
for more details.
-- Investments in a number of private companies. In the absence
of specific market data, these investments are held at cost,
adjusted as necessary for impairments, which approximates to fair
value.
-- Derivative energy contracts, estimated using discounted cash
flow models and the latest forward energy curves at the balance
sheet date.
Level 1 Level 2 Level 3 Total held
at fair
value
---------------------- --------------------- -----------------------
30 September 2022 GBPm GBPm GBPm GBPm
--------------------- ---------------------- --------------------- ----------------------- -----------------------
Preference shares in
joint venture
Fair value through
profit and
loss - - 428 428
Investments
Fair value through
other comprehensive
income - - 31 31
Fair value through
profit and
loss - - 5 5
Derivative assets
Designated in a hedge - 2,364 313 2,677
Fair value through
profit and
loss - 158 - 158
--------------------- ---------------------- --------------------- ----------------------- -----------------------
Total assets - 2,522 777 3,299
--------------------- ---------------------- --------------------- ----------------------- -----------------------
Derivative
liabilities
Designated in a hedge - 128 - 128
Fair value through
profit and
loss - 148 - 148
--------------------- ---------------------- --------------------- ----------------------- -----------------------
Total liabilities - 276 - 276
--------------------- ---------------------- --------------------- ----------------------- -----------------------
Level 1 Level 2 Level 3 Total held
at fair
value
---------------------- ----------------------- --------------------- ----------------------- ---------------------
31 March 2022 GBPm GBPm GBPm GBPm
---------------------- ----------------------- --------------------- ----------------------- ---------------------
Investments
Fair value through
other comprehensive
income 4 - 30 34
Fair value through - - - -
profit and
loss
Derivative assets
Designated in a hedge - 924 31 955
Fair value through
profit and
loss - 136 - 136
---------------------- ----------------------- --------------------- ----------------------- ---------------------
Total assets 4 1,060 61 1,125
---------------------- ----------------------- --------------------- ----------------------- ---------------------
Derivative liabilities
Designated in a hedge - 734 3 737
Fair value through
profit and
loss - 133 - 133
---------------------- ----------------------- --------------------- ----------------------- ---------------------
Total liabilities - 867 3 870
---------------------- ----------------------- --------------------- ----------------------- ---------------------
GBP1m gain has been recognised in the income statement in
respect of Level 3 instruments held at 30 September 2022. 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 GBP1,727m (31 March 2022: GBP1,596m). Programme rights
commitments, mainly relating to football broadcast rights for which
the licence period has not yet started, were GBPnil (31 March 2022:
GBP997m) due to the BT Sport disposal (see note 6).
10. Contingent liabilities
Legal proceedings
The group is involved in various proceedings, including actual
or threatened litigation, and government or regulatory
investigations. However, save as disclosed below, the group does
not currently believe that there are any legal proceedings, or
government or regulatory investigations that may have a material
adverse impact on the operations or financial condition of the
group. In respect of each of the claims below, the nature and
progression of such proceedings and investigations make it
difficult to make a reliable estimate of the potential outflow of
funds that might be required to settle the claims where there is a
more than remote possibility of there being an outflow. There are
many reasons why we cannot make these assessments with certainty,
including, among others, that they are in early stages, no damages
or remedies have been specified, and/or the often slow pace of
litigation.
Class action claim
In January 2021, law firm Mishcon de Reya applied to the
Competition Appeal Tribunal to bring a proposed class action claim
for damages they estimated at GBP608m (inclusive of compound
interest) or GBP589m (inclusive of simple interest) on behalf of
our landline customers alleging anti-competitive behaviour through
excessive pricing by BT to customers with certain residential
landline services. Ofcom considered this topic more than four years
ago. At that time, Ofcom's final statement made no finding of
excessive pricing or breach of competition law more generally. The
claim seeks to hold against us the fact that we implemented a
voluntary commitment to reduce prices for customers that have a BT
landline only and not to increase those prices beyond inflation
(CPI). At the reporting date we are not aware of any evidence to
indicate that a present obligation exists such that any amount
should be provided for. In September 2021 the Competition Appeal
Tribunal certified the claim to proceed to a substantive trial on
an opt-out basis (class members are automatically included in the
claim unless they choose to opt-out). We appealed the opt-out
nature of that decision and in May 2022 the Court of Appeal
determined that the claim should proceed on an opt-out basis. A
hearing window has been set for January - April 2024. BT intends to
defend itself vigorously.
Italian business
Milan Public Prosecutor prosecutions: In February 2019 the Milan
Public Prosecutor served BT Italia S.P.A. (BT Italia) with a notice
(which named BT Italia, as well as various individuals) to record
the Prosecutor's view that there is a basis for proceeding with its
case against BT Italia for certain potential offences, namely the
charge of having adopted, from 2011 to 2016, an inadequate
management and control organisation model for the purposes of
Articles 5 and 25 of Legislative Decree 231/2001. BT Italia
disputes this and maintains in a defence brief filed in April 2019
that: (a) BT Italia did not gain any interest or benefit from the
conduct in question; and (b) in any event, it had a sufficient
organisational, management and audit model that was
circumvented/overridden by individuals acting in their own
self-interest. However, following a series of committal hearings in
Autumn 2020, on 10 November 2020, the Italian court agreed (as is
the normal process unless there are limitation or other fundamental
issues with the claim) that BT Italia, and all but one of the
individuals, should be committed to a full trial. The trial
commenced on 26 January 2021 and is expected to last at least two
years. On 23 April 2021, the Italian court allowed some parties to
be joined to the criminal proceedings as civil parties ('parte
civile') - a procedural feature of the Italian criminal law system.
These claims are directed at certain individual defendants (which
include former BT/ BT Italia employees). Those parties have now
applied to join BT Italia as a respondent to their civil claims
('responsabile civile') on the basis that it is vicariously
responsible for the individuals' wrongdoing. If successful, the
quantum of those claims is not anticipated to be material.
Phones 4U
Since 2015 the administrators of Phones 4U Limited have made
allegations that EE and other mobile network operators colluded to
procure Phones 4U's insolvency. Legal proceedings for an
unquantified amount were issued in December 2018 by the
administrators. The trial on the question of liability/breach ran
from May to July 2022. The parties are now awaiting judgment, and
the court has not yet indicated when it will be delivered. A second
trial on quantum would be required in the event of a finding for
the claimant. We continue to dispute these allegations
vigorously.
UK Competition and Markets Authority (CMA) investigation
On 12 July 2022 the CMA opened a competition law investigation
into BT and other companies involved in the purchase of freelance
services for the production and broadcasting of sports content in
the UK. The investigation is focused on BT Sport. The CMA's initial
information gathering will continue until January 2023. The CMA has
said no assumption should be made at this stage that competition
law has been infringed. BT is cooperating with the
investigation.
Regulatory matters
In the ordinary course of business, we are periodically notified
of regulatory and compliance matters and investigations. We provide
for anticipated costs where an outflow of resources is considered
probable and a reasonable estimate can be made of the likely
outcome. Provisions reflect management's estimates of regulatory
and compliance risks across a range of issues, including price and
service issues.
The precise outcome of each matter depends on whether it becomes
an active issue, and the extent to which negotiation or regulatory
and compliance decisions will result in financial settlement. The
ultimate liability may vary from the amounts provided and will be
dependent upon the eventual outcome of any settlement.
11. Joint ventures and associates
30 September 31 March 2022
2022
-------------------------------------
GBPm GBPm
Interest in joint ventures 417 2
Interest in associates 4 3
--------------------------- ------------------------------------- -------------------------------------
Closing balance 421 5
--------------------------- ------------------------------------- -------------------------------------
The movement in joint ventures relates to the disposal of BT
Sport and the creation of a new sports joint venture with Warner
Bros. Discovery.
Sports JV
In August 2022 we formed a sports joint venture ('JV') with
Warner Bros. Discovery ('WBD') combining BT Sport and WBD's
Eurosport UK business - refer to note 6 for further
information.
On completion of the transaction, the group recorded an
investment in joint venture at fair value of GBP414m relating to
our retained 50% interest in the JV entity, in accordance with IFRS
10 and IAS 28. The group has valued this interest in the JV at the
estimated fair value at exit - see note 6. Consistent with our
accounting policy on associates and joint ventures, we will
recognise our share of the results of the JV under the equity
method of accounting.
The opening net assets of the JV at formation are equal to the
fair value of the BT Sport and Eurosport UK businesses contributed
to the JV by the group and WBD respectively; the movement in net
assets is equal to the trading profits generated by the JV in the
one month since formation, of which we have recognised 50% at the
half year. The closing carrying value of the groups interest in the
JV is GBP415m.
In addition to BT's 50% ordinary shareholding in the JV, at 30
September BT hold the following financial instruments in the JV
that have not been included within the equity-accounted interest
above.
Preference shares
30 September 31 March 2022
2022
----------------------------------
GBPm GBPm
Investment in A preference shares 428 -
Investment in C preference shares 161 -
--------------------------------- ---------------------------------- -----------------------------------
Closing balance 589 -
--------------------------------- ---------------------------------- -----------------------------------
BT holds two different class of preference shares in the JV:
-- A preference shares - we expect these shares to be redeemed
by the JV over the 4-year earn-out period in order to effect the
distribution of cash to BT under our earn-out entitlement. The fair
value of the shares is driven by the underlying cash profit
generation of the JV and therefore have been classified as a fair
value through profit of loss ('FVTPL') financial asset under IFRS
9. The fair value of GBP428m on initial recognition has been
included as contingent consideration within the profit on disposal
recognised on the JV transaction (see note 6) and any changes in
fair value in subsequent periods will be recognised through
Specific Items.
-- C preference shares - these shares will to be sold to WBD at
the end of BT's earn-out entitlement in consideration for any
sports rights funded by BT at that point and have been recognised
as a financial asset held at amortised cost under IFRS 9. In our
view, the cash flows due to BT from these shares represents
deferred consideration and therefore, the fair value of GBP161m on
initial recognition has been included as deferred consideration
within the profit on disposal recognised on the JV transaction (see
note 6).
Revolving Credit Facility
As part of the transaction, the group has committed to providing
the JV with a sterling Revolving Credit Facility ('RCF'), up to a
maximum of GBP200m, for short-term liquidity required by the JV to
fund its working capital and commitments to sports rights holders.
Amounts drawn down by the JV under the RCF accrue interest at a
market reference rate, consistent with group's external short-term
borrowings. Any outstanding balance under the RCF will be treated
as a loan receivable held at amortised cost, and disclosed as a
related party transaction, see note 12.
Foreign currency forward contracts
On completion of the transaction, the JV entered into a hedging
arrangement with the group to secure Euros required to meet its
commitments to certain sports rights holders; the group has
external forward contracts in place to purchase the Euros at an
agreed sterling rate in order to mitigate its exposure to exchange
risk.
Trade receivables and payables
The group will hold trade receivables and payables with the JV
generated from our ongoing commercial arrangements with the JV,
which will be settled periodically in line with usual payments
terms of similar trading balances. Amounts receivable from or
payable to the JV will be disclosed as related party transactions,
see note 12.
12. Related party transactions
British Telecommunications plc and certain of its subsidiaries
act as a funder and deposit taker for cash-related transactions for
both its parent (BT Group Investments Ltd) and ultimate parent
company (BT Group plc). The loan arrangements described below with
these companies reflect this. Cash transactions normally arise
where the parent and ultimate parent company are required to meet
their external payment obligations or receive amounts from third
parties. These principally relate to the payment of dividends, the
buyback of shares and the exercise of share options. Transactions
between the ultimate parent company, the parent company and the
group are settled on both a cash and non-cash basis through these
loan accounts depending on the nature of the transaction.
In FY02 the group demerged its former mobile phone business and
as a result BT Group plc became the listed ultimate parent company
of the group. The demerger steps resulted in the formation of an
intermediary holding company, BT Group Investments Ltd, between BT
Group plc and British Telecommunications plc. This intermediary
company held an investment of GBP18.5bn in British
Telecommunications plc which was funded by an intercompany loan
facility with British Telecommunications plc.
A dividend of GBP850m was declared and settled with the parent
compan y (FY22: nil).
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
2022 2022 2022 2021
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
GBPm GBPm GBPm GBPm
---------------------- ---------------------- ---------------------- ----------------------
Amounts owed by (to)
parent
company
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Loan facility -
non-current
asset investments 10,369 11,079 139 63
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Amounts owed by (to)
ultimate
parent company
Current asset 74 - - -
investments
Non-current
liabilities loans - (585) - (2)
Trade and other
receivables 28 27 n/a n/a
Trade and other
payables (11) (11) n/a n/a
Current liabilities - - n/a n/a
loans
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Sales of services to and purchases from the Sports JV formed
with Warner Bros. Discovery in August 2022 (see note 6) were not
material in the six months ended 30 September 2022 as this was a
joint venture for only one month of the period. The amount
receivable from the Sports JV as at 30 September 2022 was GBP12m
and the amount payable to the Sports JV was GBP55m. GBP9m of the
amount receivable represents the drawn down amount of the GBP200m
rolling credit facility provided to the JV, refer to note 11 to
details.
The group also holds a GBP73m derivative liability in respect of
forward contracts provided to the Sports JV.
Apart from the Sports JV, in the six months ended 30 September
2022 there have been no material changes in sales of services to
and purchases from associates and joint ventures.
Amounts receivable from and payable to associates and joint
ventures are disclosed below:
30 September 31 March 2022
2022
------------------------------------
GBPm GBPm
Amounts receivable from associates and
joint ventures 12 2
Amounts payable to associates and joint
ventures 56 1
13. 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 16 to 23 of the Annual Report 2022 and are
summarised below. These have not materially changed since then.
They have the potential to have an adverse impact on our profit,
assets, liquidity, capital resources and reputation.
Strategic
Strategy, technology and competition - We could fail to properly
respond to an uncertain economic outlook, intensifying competition,
rapid technological change, or fail to develop products and
services that match market dynamics or customer expectations.
Stakeholder management - Ineffective management of stakeholders'
expectations or failure to anticipate potential impacts upon them
and the communities we serve might damage their trust in us.
Particularly sensitive topics considered include network plans,
customer fairness, net neutrality, responsible use of technology,
environment, social and governance factors, human rights and
industrial relations.
Financial
Financing - Financing is the risk that we cannot fund our
business cash flows or meet our payment commitments. This could be
caused by not generating enough cash, inability to refinance
existing debt, being unable to access capital markets or a big
increase in our pension scheme obligations.
Financial control - We have in place financial controls to
prevent fraud (including misappropriation of assets) and to report
accurately; failure to do this could result in material financial
losses or cause us to misrepresent our financial position,
undermining trust and damaging our reputation.
Compliance
Communications regulation - Areas of non-compliance or weak
controls could result in increased regulatory challenge and formal
investigations which could lead to reputational damage, fines
and/or loss of licences. Key areas that could result in regulatory
scrutiny include billing accuracy, major system resilience,
customer complaints, support for vulnerable customers, migration
from legacy services and effectiveness in dealing with major
incidents.
Data - Failing to comply with global data protection laws or
regulations that apply to us could damage our reputation, affect
our stakeholders' trust in us and harm our colleagues, customers
and suppliers.
Legal compliance - Serious breaches of legal compliance can take
place in many forms and can arise anywhere including but not
limited to higher risk regions, countries and transactions as well
as on complex matters and those where there is high pressure to
deliver.
Financial services - Operating outside Financial Conduct
Authority (FCA) rules, requirements or permissions could lead to
customer harm, fines, loss of FCA permissions, poor adoption of new
services and reputational damage.
Operational
Service interruption - Service interruptions may be caused by
various external factors such as, but not limited to, adverse
weather conditions and accidental or intentional damage to our
assets. The impact of poorly planned or executed maintenance and
upgrade changes on our networks and IT can also contribute to
service interruptions.
Cyber security - A poorly managed cyber event could lead to
financial loss and reputational harm followed by a sustained loss
of market share and could prompt intervention by a regulator who
could impose fines or penalties. As a provider of critical national
infrastructure, a cyber attack could also lead to disruption for
our customers and the country and data could be compromised.
Transformation delivery - Failing to deliver our externally
communicated transformation ambitions will adversely impact our
efficiency, financial performance, and customer experience while
impacting reputation.
People - Failure to engage the workforce, ensure their health
and wellbeing, manage industrial relations and create a diverse and
inclusive workplace could impact our performance, customer service
and transformation ambitions.
Health, safety and environment - Not promoting and embedding
suitable safety management and environmental management systems
incorporating continual improvement will impact our ability to
establish and maintain a safe and compliant business, protecting
our colleagues at work. Key areas of risk include occupational road
risk, working with high voltage electricity, electro-magnetic
fields, lasers, aerial rigging, civil engineering works (road works
and construction), highway and railway operations, high pressure
pipelines, manual handling and hazardous substances.
Major customer contracts - Customer contractual terms can be
onerous and unfavourable if they are challenging to meet, and could
lead to delays, penalties and disputes. Delivery and service
failures against obligations could damage our brand and reputation,
particularly if they affected critical infrastructure contracts or
security services. Failure to effectively manage contract exits,
migrations, renewals and disputes can erode profit margins and
affect future customer relationships.
Customer service - Failing to continuously digitise and improve
our customer experience could negatively affect customer
satisfaction and retention, colleague pride and advocacy, our group
revenues and brand value.
Supply management - This risk includes in-life management of
complex contracts, performance and obligation delivery, compliance,
payments, supplier records and relationship management.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with UK-adopted IAS 34 'Interim Financial
Reporting';
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R (the indication of important
events and their impact during the first six months and description
of principal risks and uncertainties for the remaining six month of
the year); and
-- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Simon Lowth
Director
15 November 2022
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 2022 which comprises Group income
statement, Group statement of comprehensive income, Group balance
sheet, Group statement of changes in equity, Group cash flow
statement and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2022 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of conclusion
section of this report, nothing has come to our attention that
causes us to believe that the directors have inappropriately
adopted the going concern basis of accounting, or that the
directors have identified material uncertainties relating to going
concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK-adopted international
accounting standards.
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 for use in the UK.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
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. Our conclusion, including our
conclusions relating to going concern, are based on procedures that
are less extensive than audit procedures, as described in the Basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
John Luke
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London, E14 5GL
15 November 2022
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, reported net finance
expense and reported EPS are the equivalent unadjusted or statutory
measures. Reconciliations of reported to adjusted revenue,
operating costs, operating profit, profit before tax and EPS are
set out in the group income statement. Reconciliations of adjusted
earnings before interest, tax, depreciation and amortisation, net
debt and free cash flow from the nearest measures prepared in
accordance with IFRS are provided in this Additional
Information.
Reconciliation of 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. We
consider EBITDA and adjusted(1) EBITDA to be useful measures of our
operating performance because they approximate the underlying
operating cash flow by eliminating depreciation and amortisation. A
reconciliation of reported profit for the period to EBITDA and
adjusted(1) EBITDA is provided below.
Half year to 30
September
-------------------------------------------------
2022 2021
GBPm GBPm
------------------------------------------------- ----------------------- ----------------------
Reported profit for the period 1,030 494
Tax (62) 578
------------------------------------------------- ----------------------- ----------------------
Reported profit before tax 968 1,072
Net interest related finance expense 262 321
Depreciation and amortisation 2,332 2,169
------------------------------------------------- ----------------------- ----------------------
EBITDA 3,562 3,562
------------------------------------------------- ----------------------- ----------------------
EBITDA specific items 311 141
Net other finance expense 3 47
Share of post tax (profits) losses of associates (2) -
and joint ventures
------------------------------------------------- ----------------------- ----------------------
Adjusted(1) EBITDA 3,874 3,750
------------------------------------------------- ----------------------- ----------------------
(1) See Glossary on page 1.
Forward-looking statements - caution advised
Certain information included in this announcement is forward
looking and involves risks, assumptions and uncertainties that
could cause actual results to differ materially from those
expressed or implied by forward looking statements. Forward looking
statements cover all matters which are not historical facts and
include, without limitation, projections relating to results of
operations and financial conditions and the Company's plans and
objectives for future operations. Forward looking statements can be
identified by the use of forward looking terminology, including
terms such as 'believes', 'estimates', 'anticipates', 'expects',
'forecasts', 'intends', 'plans', 'projects', 'goal', 'target',
'aim', 'may', 'will', 'would', 'could' or 'should' or, in each
case, their negative or other variations or comparable terminology.
Forward looking statements in this announcement are not guarantees
of future performance. All forward looking statements in this
announcement are based upon information known to the Company on the
date of this announcement. Accordingly, no assurance can be given
that any particular expectation will be met and readers are
cautioned not to place undue reliance on forward looking
statements, which speak only at their respective dates.
Additionally, forward looking statements regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. Other than in accordance
with its legal or regulatory obligations (including under the UK
Listing Rules and the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority), the Company undertakes no
obligation to publicly update or revise any forward looking
statement, whether as a result of new information, future events or
otherwise. Nothing in this announcement shall exclude any liability
under applicable laws that cannot be excluded in accordance with
such laws.
This information is provided by RNS, the news service of the
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END
IR FQLFFLFLZFBD
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