SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
Report of Form 6-K dated December 5, 2007
British Telecommunications plc
(Translation of Registrant's Name into English)
BT Centre
81 Newgate Street
London EC1A 7AJ
England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
------------------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
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Enclosure: British Telecommunications plc - Half Year Ended September 30, 2007 -
Interim Results Statement
BRITISH TELECOMMUNICATIONS PLC
HALF YEAR ENDED SEPTEMBER 30, 2007
INTERIM RESULTS STATEMENT
Introduction
The commentary focuses on the results before specific items and leaver costs,
each a non GAAP measure. This is consistent with the way that financial
performance is measured by management and we believe allows a meaningful
analysis to be made of the trading results of the group during the period under
review. Specific items are defined and analysed in note 4 on page 20. Leaver
costs are analysed in note 3 (b) on page 19.
The income statement, cash flow statement and balance sheet are provided on
pages 12 to 15. Earnings before interest, taxation, depreciation and
amortisation (EBITDA) before specific items, free cash flow and net debt are non
GAAP measures since they are not defined in IFRS but they are key indicators
used by management in order to assess operational performance. A reconciliation
of EBITDA before specific items to group operating profit is provided on page
23. Definitions of free cash flow and net debt are provided on pages 21 and 22.
References to "Group" or "group" are to the Company and its subsidiaries.
Revenue
Revenue increased by 3 per cent to GBP10,128 million in the six months ended
September 30, 2007 (2006 - GBP9,805 million). The strong growth in new wave
revenue continued and, at GBP3,729 million, was 10 per cent higher compared to
the prior year, and represented 37 per cent of revenue (2006 - 34 per cent). New
wave revenue is mainly generated from networked IT services, broadband and
mobility. The increase in new wave revenue was driven by growth in networked IT
services, which increased 10 per cent to GBP2,181 million, and broadband which
increased 15 per cent to GBP1,083 million.
Traditional revenue remained broadly flat at GBP6,399 million (2006 - GBP6,428
million), reflecting the group's robust defence of the traditional business and
the success of the strategy to slow the rate of decline in traditional revenue.
The table below analyses revenue by customer segment.
Half year ended September 30
-------------------
Revenue by customer segment 2007 2006
GBPm GBPm
Major corporate 3,615 3,402
Business 1,213 1,181
Consumer 2,520 2,509
Wholesale/Carrier 2,768 2,703
Other 12 10
----------- ----------
10,128 9,805
======== =======
Major corporate (UK and international) revenue grew by 6 per cent driven by
growth in new wave revenue. Migration from traditional voice only services to
networked IT services and broadband continued with new wave revenue at GBP2,211
million now representing 61 per cent of all major corporate revenue (2006 - 59
per cent).
Revenue from Business (smaller and medium sized enterprise) customers grew 3 per
cent. New wave revenue increased by 14 per cent to GBP370 million, reflecting
the continued focus on innovative pricing plans and propositions that deliver
value to our customer base by bringing together IT, broadband and communication
services.
Consumer revenue was broadly flat, at GBP2,520 million (2006 - GBP2,509
million). New wave revenue increased by 21 per cent to GBP479 million, driven
primarily by growth in broadband. Residential broadband connections increased by
834,000 year on year to 4,074,000.
The 12 month rolling average revenue per consumer household increased by GBP9 in
the half year to GBP271. This is a reflection of our customers' desire to use BT
as their supplier of choice in the communications and IT market, with an
increasing number taking multiple services from BT. Increased penetration of
broadband and the growth of value added propositions have more than offset the
lower call revenues.
Wholesale (UK and Global Carrier) revenue increased by 2 per cent driven by
wholesale line rental (WLR) and local loop unbundling (LLU). Wholesale new wave
revenue increased by 2 per cent to GBP669 million, mainly driven by broadband.
New wave revenue accounts for 24 per cent of wholesale revenue.
In the UK, BT had 11.7 million wholesale broadband connections (DSL and LLU) at
September 30, 2007, including 3.2 million local loop unbundled lines, an
increase of 2.4 million connections year on year.
Operating costs
Group operating costs are analysed in note 3 on page 19. Group operating costs
before specific items increased by 3 per cent year on year to GBP8,842 million.
Staff costs before leaver costs increased by 3 per cent to GBP2,596 million, due
to pay inflation as well as the cost of additional staff needed to support
networked IT services contracts, increased network and 21CN activities and
service improvements, the impact of which has been largely offset by savings
from the group's efficiency programmes. We remain focused on financial
discipline and our cost efficiency programmes achieved savings of GBP275 million
in the half year which has enabled us to invest in further growth of our new
wave activities. Leaver costs before specific items were GBP51 million in the
half year (2006 - GBP57 million). Payments to other telecommunication operators
increased by 4 per cent to GBP2,116 million, mainly reflecting the impact of
higher volumes. Other operating costs before specific items of GBP3,056 million
increased by GBP175 million mainly due to increased cost of sales from growth in
networked IT and other new wave services and increased levels of network and
21CN activities, which were partly offset by savings from our efficiency
programmes. Depreciation and amortisation was broadly flat year on year, at
GBP1,402 million (2006 - GBP1,406 million).
Specific items
Specific items are defined and analysed in note 4 on page 20. There was a total
net operating charge before tax of GBP240 million (2006 - GBP23 million)
including restructuring costs of GBP216 million (2006 - GBPnil) and a charge of
GBP24 million (2006 - GBPnil) as a result of a review of circuit inventory and
other working capital balances. Restructuring costs mainly comprised manager
leaver, transformation programme and property exit costs. Refer to page 7 for
further details on the business transformation. The net operating charge was
partly offset by a GBP9 million gain realised on the disposals of associates
(2006 - GBP20 million).
There was a total tax credit of GBP226 million (2006 - GBP1 million) relating to
the tax effect of other specific items of GBP72 million (2006 - GBP1 million)
and a tax credit of GBP154 million (2006 - GBPnil) for the re-measurement of
deferred tax balances for the change in the UK statutory corporation tax rate to
28 per cent, which becomes effective in 2008/9.
Operating profit
Group operating profit before specific items increased by 6 per cent to GBP1,426
million. Group operating profit margin increased to 14.1 per cent compared to
13.7 per cent in the prior year.
Net finance income
Net finance income was GBP402 million, an increase of GBP32 million against last
year. This includes net finance income associated with the group's defined
benefit pension scheme which was flat year on year at GBP210 million. The
increase in net finance income principally reflects an increase in finance
income arising from higher interest rates on variable rate lending with other BT
group companies. This was partly offset by an increase in finance costs
reflecting higher net debt in the period, higher interest rates on variable rate
borrowings and fair value movements on hedges that do not qualify for hedge
accounting under IAS 39.
Taxation
The effective tax rate on the profit before specific items was 26.3 per cent
(2006 - 26.2 per cent) compared to the UK statutory corporation tax rate of 30
per cent, reflecting the continued focus on tax efficiency within the group.
Cash flow and net debt
Net cash inflow from operating activities in the half year amounted to GBP2,110
million compared to GBP2,598 million last year. This was reflected in free cash
flow which was a net inflow of GBP251 million in the half year compared to
GBP726 million last year. The lower free cash flow is primarily the result of
the cash outflow relating to business transformation programme payments of
GBP101 million (2006 - GBPnil) together with the higher net working capital
outflow of GBP696 million (2006 - GBP153 million) most of which is expected to
reverse by the end of the financial year. Pension deficiency payments of GBP320
million were made, being the final payment until the next triennial funding
valuation at December 31, 2008. Free cash flow also includes the final receipt
of GBP504 million in relation to the settlement of open tax years up to 2004/5
agreed with HMRC last year. The cash outflow for the purchase of property, plant
and equipment and software amounted to GBP1,644 million, which is broadly flat
year on year.
The net cash outflow on acquisition of subsidiaries, principally Comsat
International Inc, in the half year was amounted to GBP233 million, compared to
GBP45 million last year. During the half year the group issued debt of GBP3,593
million consisting of long term listed bonds of GBP1,501 million, in aggregate,
maturing in 2014, 2017 and 2037, bank borrowing of GBP300 million maturing in
2012 and short term borrowings of GBP1,792 million (including net commercial
paper issuances of GBP424 million). Debt maturities in the half year amounted of
GBP748 million. Equity dividends paid in the half year were GBP2,300 million
compared to GBP1,608 million in the prior period.
Net debt was GBP10,565 million at September 30, 2007 compared to GBP8,210
million at March 31, 2007. This increase includes the effect of the dividend and
pension deficiency payments, partly offset by cash receipts from HMRC in
relation to the settlement of open tax years. Free cash flow and net debt are
defined and reconciled in notes 7 (b) and 8 (b) on pages 21 and 22.
Contractual obligations and commitments
The following table sets out the group's contractual obligations and commitments
as they fall due for payment, as at September 30, 2007.
Payments due by period
-------------------------------
Total Less than 1 1-3 years 3-5 years More than 5
year years
GBPm GBPm GBPm GBPm GBPm
Loans and
other
borrowings 11,659 3,951 478 2,506 4,724
Finance lease
obligations 574 302 30 31 211
Operating
lease
obligations 9,414 464 868 817 7,265
Pension
deficiency
obligations 1,960 - 280 560 1,120
Capital
commitments 1,028 813 156 38 21
Deferred
consideration
on
acquisitions 64 44 20 - -
-------- -------- -------- -------- --------
Total 24,699 5,574 1,832 3,952 13,341
======== ======== ======== ======== ========
At September 30, 2007 the group had cash, cash equivalents and current asset
investments of GBP1,966 million. At that date, GBP3,944 million of debt fell due
for repayment in the 12 months ended September 30, 2008. The group had unused
short term bank facilities, amounting to approximately GBP1,735 million at
September 30, 2007.
Acquisitions
The total amount invested in acquisitions in the half year ended September 30,
2007, net of cash acquired, was GBP233 million, primarily relating to the
acquisition of Comsat International Inc. Goodwill arising on the acquisitions
made in the half year was GBP195 million.
The acquisition of Comsat International Inc was completed in June 2007, for a
total consideration of GBP130 million. Net of deferred consideration and cash
acquired, the net cash outflow was GBP119 million. The provisional fair value of
Comsat International Inc's net assets at the date of acquisition was GBP49
million giving rise to provisional goodwill of GBP81 million.
Other acquisitions made in the half year included primarily i2i Enterprise
Private Limited, Basilica Group Limited, Brightview plc and Lynx Technologies.
The total consideration in respect of these acquisitions was GBP126 million
(including GBP40 million of deferred contingent consideration) and goodwill of
GBP114 million has been recognised. Net of deferred consideration and cash
acquired, the net cash outflow was GBP84 million
The total amount invested in the half year ended September 30, 2006 was GBP45
million, mainly due to the acquisitions of dabs.com plc and I3IT Limited.
Balance sheet
Net assets at September 30, 2007 amounted to GBP22,740 million, compared to
GBP22,364 million at March 31, 2007. The increase of GBP376 million was mainly
due to the profit for the period of GBP1,336 million and actuarial gains of
GBP2,065 million, offset by dividends paid of GBP2,300 million and tax of
GBP714 million on those items taken directly to equity, including actuarial
gains.
The group's non current assets totalled GBP21,179 million at September 30, 2007,
of which GBP15,157 million related to property, plant and equipment, principally
forming the UK fixed network. At March 31, 2007, non current assets were
GBP18,559 million of which GBP14,997 million related to property, plant and
equipment.
Pensions
The IAS 19 net pension asset at September 30, 2007 was a surplus of GBP1.5
billion, net of tax (GBP2.1 billion gross of tax), compared with a deficit of
GBP0.3 billion at March 31, 2007 (GBP0.4 billion gross of tax), an improvement
of GBP1.8 billion, net of tax (GBP2.5 billion gross of tax). The market value of
pension scheme assets was GBP39.7 billion at September 30, 2007 (GBP38.3 billion
at March 31, 2007).
The improvement in the position compared to March 31, 2007 is the result of a
combination of factors, including the payment of deficiency contributions of
GBP320 million, increases to the market value of scheme investments and an
increase to the AA bond rate used to determine the present value of scheme
liabilities.
Business transformation
During the period BT announced a move to a new organisation structure that will
help deliver faster, more resilient and cost effective services to customers
wherever they are. The move will accelerate BT's transformation to a networked
IT services company, delivering software driven services over broadband and also
accelerate the achievement of cost savings.
On October 1, 2007, BT moved to its new organisational structure with the launch
of BT Design and BT Operate. BT Design is responsible for the design and
development of the platforms, systems and processes which support our services;
BT Operate is responsible for their deployment and operation.
It is estimated that the reorganisation and transformation activities will
result in restructuring costs of around GBP450 million, which is expected to
generate a payback within 2 to 3 years. GBP216 million has been incurred to
September 30, 2007.
Post balance sheet events
On November 22, 2007 the group issued EUR1 billion (GBP716 million) of debt
maturing in 2013. On October 19, 2007 the group paid an interim dividend of
GBP425 million.
LINE OF BUSINESS RESULTS
BT Global Services
Half year ended September 30
2007 2006
GBPm GBPm
Revenue 4,536 4,312
Gross profit 1,294 1,266
SG&A before leaver costs 815 809
EBITDA before leaver costs 479 457
Depreciation and amortisation 339 305
Operating profit before leaver costs 140 152
Capital expenditure 367 325
BT Global Services revenue grew by 5 per cent year on year to GBP4,536 million.
New wave revenue rose by GBP324 million to GBP3,624 million, an increase of 10
per cent, driven primarily by networked IT services contracts. Traditional UK
revenue fell by 10 per cent to GBP912 million. External revenue increased by 15
per cent outside of the UK.
Total orders in the half year amounted to GBP3.3 billion, bringing the value of
total orders achieved over the last twelve months to GBP9.2 billion. Networked
IT services contract orders were GBP1.8 billion in the half year, taking
contract orders for the last twelve months to GBP5.3 billion. An additional 230
new corporate customers outside the UK signed orders with BT in the half year.
Gross profit grew by GBP28 million to GBP1,294 million driven by new wave
revenue but was still impacted by declines in traditional revenue. Selling,
general and administration (SG&A) costs before leaver costs increased by GBP6
million. EBITDA before leaver costs increased year on year by GBP22 million to
GBP479 million, representing growth of 5 per cent. Depreciation and amortisation
charges increased by GBP34 million to GBP339 million, the result of a
combination of customer related capital expenditure in the course of last year
and business acquisitions. Overall, this took operating profit before leavers to
GBP140 million, a reduction of GBP12 million from the previous year.
Capital expenditure in the half year was GBP367 million, an increase of GBP42
million driven principally by customer contracts outside of the UK.
BT Retail
Half year ended September 30
2007 2006
GBPm GBPm
Revenue 4,195 4,145
Gross margin 1,218 1,152
SG&A before leaver costs 763 735
EBITDA before leaver costs 455 417
Depreciation and amortisation 82 79
Operating profit before leaver costs 373 338
Capital expenditure 92 80
BT Retail revenue increased by 1 per cent year on year reflecting the success of
our strategy to grow new wave revenue whilst defending traditional revenue
streams. Gross margin improved by 1 percentage point as a result of better
product mix and cost efficiencies. SG&A before leaver costs increased by 4 per
cent year on year reflecting increased expenditure in marketing and customer
service. EBITDA before leaver costs grew by 9 per cent year on year, with all
business units contributing to the growth.
New wave revenue grew by 17 per cent to GBP916 million, driven mainly by
broadband and networked IT services, partially offset by a decline in
traditional revenue of 3 per cent to GBP3,072 million, driven by a migration to
new wave services and general competitive pressure.
Consumer revenue was broadly flat compared to the prior year, slowing the recent
rate of decline. The consumer market remains highly competitive; despite this BT
has maintained its market leading position by launching further product
enhancements and package reductions.
Broadband is at the centre of BT Retail's strategy. Revenue grew by 21 per cent
and net additions in the half year were 353,000 and BT became the UK's first
broadband supplier with more than four million customers. BT's retail share of
net market additions of DSL and LLU in the half year was 38 per cent. During the
half year the acquisition of Brightview, which operates the ISP brands
Madasafish and Global Internet as well as the Which-award winning Waitrose ISP,
was also completed, further enhancing the broadband capabilities for our
customers.
The SME business achieved revenue growth of 3 per cent and delivered strong
EBITDA growth. More SME customers are choosing our all inclusive call packages
with One Plan, which brings together calls and lines, broadband and mobile, for
small businesses with 33,000 additions in the half year. One third of the SME
customer base now take some form of value package from BT. Our ability to offer
an end to end simple and complete solution has been enhanced through the
acquisitions of Basilica Computing and Lynx Technologies.
The Enterprises division revenues grew by 6 per cent and EBITDA was up 26 per
cent year on year. BT Ireland recorded a strong performance with revenue
increasing by 5 per cent and EBITDA by 4 per cent.
BT Wholesale
Half year ended September 30
2007 2006
GBPm GBPm
Revenue 3,678 3,732
Variable cost of sales 1,852 1,883
Gross variable profit 1,826 1,849
Network and SG&A before leaver costs 874 887
EBITDA before leaver costs 952 962
Depreciation and amortisation 535 576
Operating profit before leaver costs 417 386
Capital expenditure 588 466
BT Wholesale revenue in the half year decreased by GBP54 million to
GBP3,678 million. This was driven primarily by price and volume reductions in
broadband due to LLU migrations, as well as declines in low margin transit,
conveyance traffic and other traditional products.
Gross variable profit decreased by 1 per cent to GBP1,826 million, reflecting
the lower broadband revenues. Network and SG&A costs decreased by 1 per cent
with network costs on the roll-out of 21CN being more than offset by network
consolidation efficiencies and SG&A cost savings.
EBITDA before leaver costs decreased by 1 per cent to GBP952 million.
Depreciation has fallen by 7 per cent year on year due to a reduction in the
depreciation on traditional technologies as assets become fully depreciated
which was only partially offset by higher depreciation on 21CN related assets as
they are brought into use. Operating profit before leaver costs increased by 8
per cent to GBP417 million.
Capital expenditure of GBP588 million was 26 per cent higher than last half year
driven by an increase in 21CN related investment. This is driven by accelerated
investment in exchanges to build, commission and implement the 21CN
infrastructure. This essential work ensures that vendor equipment is ready for
integration into the live networks.
Openreach
Half year ended September 30
2007 2006
GBPm GBPm
Revenue 2,614 2,538
Operating costs before leaver costs 1,675 1,606
EBITDA before leaver costs 939 932
Depreciation and amortisation 351 353
Operating profit before leaver costs 588 579
Capital expenditure 545 550
Openreach revenue increased by 3 per cent to GBP2,614 million, driven by growth
in broadband revenues for LLU and Ethernet products.
At September 30, 2007 Openreach had 3.2 million external LLU lines (with net
additions of 1.3 million in the half year) and 8.5 million lines with other BT
lines of business. Overall broadband revenue has increased by 32 per cent year
on year as exchange rollout continues and the broadband market expands.
Openreach has over 4.4 million external WLR lines and channels and 22.7 million
WLR lines and channels with other BT lines of business. Overall WLR revenues
remained largely flat year on year.
Operating costs before leaver costs increased by GBP69 million to GBP1,675
million. Headcount has increased by 2,500 since September 30, 2006 as Openreach
has invested in service improvements. This investment, as well as inflationary
pressures, higher activity levels and increased maintenance and support costs of
new systems have been partly offset by efficiency programme savings across the
business to keep the overall increase in operating costs before leaver costs to
4 per cent.
Overall this has resulted in a GBP7 million increase in EBITDA before leaver
costs.
Depreciation and amortisation costs of GBP351 million have decreased by GBP2
million with the impact of increased depreciation on the Equivalence Management
Platform and LLU assets from the large capital investment in prior periods being
more than offset by lower amortisation on software. Operating profit before
leaver costs increased by GBP9 million to GBP588 million.
Capital expenditure was 1 per cent lower at GBP545 million. Increased customer
driven spend on network infrastructure and 21CN work have been offset by lower
but continued spend on systems development required under the Undertakings
agreed with Ofcom, focused cost control on capital expenditure and lower levels
of co-mingling activity.
UNAUDITED GROUP INCOME STATEMENT
For the six months ended September 30, 2007
Before Specific items Total
specific items (note 4)
Notes GBPm GBPm GBPm
Revenue 2 10,128 - 10,128
Other operating income 140 (1) 139
Operating costs 3 (8,842) (240) (9,082)
Operating profit 1,426 (241) 1,185
Finance expense (1,424) - (1,424)
Finance income 1,826 - 1,826
Net finance income 5 402 - 402
Share of post tax losses
of associates and joint
ventures (6) - (6)
Profit on disposal of
associate - 9 9
Profit before taxation 1,822 (232) 1,590
Taxation (480) 226 (254)
Profit for the period 1,342 (6) 1,336
Attributable to:
Equity shareholders 1,341 (6) 1,335
Minority interests 1 - 1
For the six months ended September 30, 2006
Before specific Specific items Total
items
(note 4)
Notes GBPm GBPm GBPm
Revenue 2 9,805 - 9,805
Other operating income 102 - 102
Operating costs 3 (8,568) (23) (8,591)
Operating profit 1,339 (23) 1,316
Finance expense (1,298) - (1,298)
Finance income 1,668 - 1,668
Net finance income 5 370 - 370
Share of post tax profits
of associates and joint
ventures 7 - 7
Profit on disposal of
associate - 20 20
Profit before taxation 1,716 (3) 1,713
Taxation (449) 1 (448)
Profit for the period
attributable to equity
shareholders 1,267 (2) 1,265
UNAUDITED GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the six months ended September 30, 2007
Half year ended September 30
2007 2006
GBPm GBPm
Profit for the period 1,336 1,265
Actuarial gains (losses) on defined benefit
pension schemes 2,065 (369)
Exchange differences on translation of foreign
operations (5) 34
Fair value movements on cash flow hedges:
- fair value losses (71) (130)
- reclassified and reported in net profit 84 227
Fair value movements on available-for-sale
assets:
- fair value losses (25) (2)
- reclassified and reported in net profit (5) -
Tax on items taken directly to equity (714) 46
Net gains (losses) recognised directly in
equity 1,329 (194)
Total recognised income and expense for the
period 2,665 1,071
======= =======
Attributable to:
Equity shareholders 2,664 1,071
Minority interests 1 -
========== === === ===========
UNAUDITED GROUP CASH FLOW STATEMENT
For the six months ended September 30, 2007
Half year ended September 30
2007 2006
GBPm GBPm
Cash flow from operating activities
Cash generated from operations (note 7 (a)) 1,726 2,778
Income taxes received (paid) 384 (180)
Net cash inflow from operating activities 2,110 2,598
Cash flow from investing activities
Interest received 86 37
Dividends received from associates and joint
ventures 1 5
Proceeds on disposal of property, plant and
equipment 27 57
Proceeds on disposal of associates and joint
ventures 11 27
Proceeds on disposal of non current financial
assets 1 1
Proceeds on disposal of current financial
assets - 1,881
Acquisition of subsidiaries, net of cash
acquired (233) (45)
Purchases of property, plant and equipment and
computer software (1,644) (1,653)
Investments in associates and joint ventures - (7)
Purchases of non current financial assets (1) (1)
Purchases of current financial assets (435) (2,361)
Net cash used in investing activities (2,187) (2,059)
Cash flows from financing activities
Equity dividends paid (2,300) (1,608)
Dividends paid to minority interests - (3)
Interest paid (329) (318)
Repayments of borrowings (736) (153)
Repayment of finance lease liabilities (12) (9)
New bank loans and bonds 2,253 -
Intragroup funding 916 470
Net proceeds on issue of commercial paper 424 227
-------- ---------
Net cash received (used) in financing
activities 216 (1,394)
Effects of exchange rate changes 3 -
----------- ----------
Net increase (decrease) in cash and cash
equivalents 142 (855)
========= =======
Cash and cash equivalents at beginning of
period 1,007 1,761
Cash and cash equivalents, net of bank
overdrafts, at end of period (note 7 (c)) 1,149 906
======= =========
UNAUDITED GROUP BALANCE SHEET
At September 30, 2007
September 30 March 31
2007 2007
GBPm GBPm
Non current assets
Intangible assets 2,985 2,584
Property, plant and equipment 15,157 14,997
Derivative financial instruments 35 25
Investments 60 246
Associates and joint ventures 73 67
Trade and other receivables 656 523
Retirement benefit assets of the BT Pension Scheme 2,186 -
Deferred tax assets 27 117
---------- ----------
21,179 18,559
-------- --------
Current assets
Inventories 134 133
Trade and other receivables 24,035 22,815
Current tax receivables - 504
Derivative financial instruments 56 27
Investments 441 3
Cash and cash equivalents 1,525 1,058
--------- ---------
26,191 24,540
-------- --------
Total assets 47,370 43,099
Current liabilities
Loans and other borrowings 4,253 2,493
Derivative financial instruments 257 318
Trade and other payables 7,053 6,976
Current tax liabilities 865 582
Provisions 87 100
---------- ---------
12,515 10,469
-------- --------
Total assets less current liabilities 34,855 32,630
======== ========
Non current liabilities
Loans and other borrowings 7,981 6,387
Derivative financial instruments 1,040 992
Other payables 628 590
Deferred tax liabilities 2,153 1,683
Retirement benefit obligations 96 389
Provisions 217 225
--------- ----------
12,115 10,266
-------- --------
Equity
Ordinary shares 2,172 2,172
Share premium 8,000 8,000
Other reserves 758 758
Retained earnings 11,779 11,400
-------- --------
Total equity shareholders' funds 22,709 22,330
Minority interests 31 34
---------- -----------
Total equity 22,740 22,364
-------- --------
34,855 32,630
======== ========
NOTES TO THE UNAUDITED 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 ended September 30, 2007 and 2006, together with the audited balance sheet
at March 31, 2007. The financial statements have been prepared in accordance
with IAS 34 'Interim Financial Reporting'. The financial statements should be
read in conjunction with the annual financial statements for the year ended and
as at March 31, 2007.
The financial statements have also been prepared in accordance with the
accounting policies as set out in the 2007 Annual Report 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 group has adopted the following standards and interpretations with effect
from April 1, 2007. Adoption of these standards and interpretations did not have
a material effect on these financial statements:
- IFRS 7, 'Financial Instruments: Disclosures';
- Amendments to IAS 1, 'Presentation of Financial Statements - Capital
Disclosures';
- IFRIC 8, 'Scope of IFRS 2';
- IFRIC 9, 'Reassessment of embedded derivatives';
- IFRIC 10, 'Financial Reporting and Impairment'; and
- IFRIC 11, 'IFRS 2 -Group and Treasury Share Transactions'.
These interim financial statements reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results for
the interim periods presented. Such financial statements may not be necessarily
indicative of annual results.
Certain new standards, amendments and interpretations to existing standards have
been published that are mandatory for the group's accounting periods beginning
on or after April 1, 2007 or later periods, but which the group has not early
adopted. The new standards which are relevant to the group's operations are as
follows:
- Amendment to IAS 23 'Borrowing Costs' (effective from April 1, 2009)
eliminates the option to expense borrowing costs attributable to the
acquisition, construction or production of a qualifying asset as incurred. As a
result, the group will be required to capitalise such borrowing costs as part of
the cost of that asset. The group is currently assessing the impact of the
amendment on the results and net assets of the group.
- IFRS 8 'Operating Segments' (effective from April 1, 2009) requires
the identification of operating segments based on internal reporting to the
chief operating decision maker and extends the scope and disclosure requirements
of IAS 14 'Segmental Reporting'. The group is currently assessing the impact of
IFRS 8 on its segmental analysis disclosure.
- IFRIC 13 'Customer Loyalty Programmes' (effective from April 1, 2009)
requires companies that grant loyalty award credits to customers who buy other
goods or services to allocate some of the proceeds from the initial sale to the
award credits and recognise these proceeds as revenue only when they have
fulfilled their obligation. A company may fulfil its obligation by supplying
awards themselves or engaging a third party to do so. The group does not expect
adoption of this guidance to have a significant impact on the group's financial
statements.
- IFRIC 14 'Limit on a defined benefit asset minimum funding
requirement and their interaction' (effective from April 1, 2008) clarifies that
a pension plan surplus can be recognised only when a company has the
unconditional right to receive the benefits of it, regardless whether the
surplus is immediately available. The group does not expect adoption of this
guidance to have a significant impact on the group's financial statements.
2 Results of businesses
(a) Operating results
External Internal Group EBITDA Group operating
revenue revenue revenue (ii) profit (loss)
(ii)
GBPm GBPm GBPm GBPm GBPm
Half year ended
September 30, 2007
BT Global Services 3,773 763 4,536 479 140
BT Retail 3,988 207 4,195 455 373
BT Wholesale 1,936 1,742 3,678 952 417
Openreach 419 2,195 2,614 939 588
Other 12 - 12 54 (41)
Intra-group items
(i) - (4,907) (4,907) - -
--- --------- --------- ---
Total 10,128 - 10,128 2,879 1,477
======== === ======== ======= =======
Half year ended
September 30, 2006
BT Global Services 3,517 795 4,312 457 152
BT Retail 3,959 186 4,145 417 338
BT Wholesale 2,027 1,705 3,732 962 386
Openreach 292 2,246 2,538 932 579
Other 10 - 10 34 (59)
Intra-group items
(i) - (4,932) (4,932) - -
--- --------- --------- ---
Total 9,805 - 9,805 2,802 1,396
======= === ======= ======= =======
(i) Elimination of intra-group revenue between businesses, which is included
in the total revenue of the originating business.
(ii) Before specific items of GBP241 million (2006 - GBP23 million) and leaver
costs of GBP51 million (2006 - GBP57 million).
There is extensive trading between BT's lines of business and the line of
business profitability is dependent on the transfer price levels. For regulated
products and services those transfer prices are market based whilst for other
products and services the transfer prices are agreed between the relevant lines
of business on an arm's length basis. These intra-group trading arrangements are
subject to periodic review.
(b) Revenue analysis
Half year ended September 30
2007 2006
GBPm GBPm
Traditional 6,399 6,428
New wave 3,729 3,377
--------- -------
10,128 9,805
======== =======
Major corporate 3,615 3,402
Business 1,213 1,181
Consumer 2,520 2,509
Wholesale/Carrier 2,768 2,703
Other 12 10
----------- ----------
10,128 9,805
======== =======
(c) New wave revenue analysis
Half year ended September 30
2007 2006
GBPm GBPm
Networked IT services 2,181 1,982
Broadband 1,083 940
Mobility 168 143
Other 297 312
--------- ---------
3,729 3,377
======= =======
(d) Capital expenditure on property, plant, equipment, software and motor
vehicles
Half year ended September 30
2007 2006
GBPm GBPm
BT Global Services 367 325
BT Retail 92 80
BT Wholesale 588 466
Openreach 545 550
Other (including fleet vehicles and property) 110 106
-------- -------
1,702 1,527
======= =======
Transmission equipment 568 594
Exchange equipment 55 53
Other network equipment 566 389
Computers and office equipment 55 50
Software 410 382
Motor vehicles and other 25 27
Land and buildings 23 32
---------- --------
1,702 1,527
======= =======
3 (a) Operating costs
Half year ended September 30
2007 2006
GBPm GBPm
Staff costs before leaver costs 2,596 2,530
Leaver costs 51 57
------------ -------------
Staff costs 2,647 2,587
Own work capitalised (379) (346)
-------- --------
Net staff costs 2,268 2,241
Depreciation and amortisation 1,402 1,406
Payments to telecommunication operators 2,116 2,040
Other operating costs 3,056 2,881
------- -------
Total before specific items 8,842 8,568
Specific items (note 4) 240 23
--------- ----------
Total 9,082 8,591
======= =======
(b) Leaver costs
Half year ended September 30
2007 2006
GBPm GBPm
BT Global Services 16 22
BT Retail 5 9
BT Wholesale 19 16
Openreach 8 2
Other 3 8
------ ------
Total 51 57
===== =====
4 Specific items
BT separately identifies and discloses any significant one off or unusual items
(termed "specific items"). This is consistent with the way that financial
performance is measured by management and we believe assists in providing a
meaningful analysis of the trading results of the group. Specific items may not
be comparable to similarly titled measures used by other companies.
Half year ended September 30
2007 2006
GBPm GBPm
Restructuring costs 216 -
Write off of circuit inventory and other
working capital balances 24 -
Property rationalisation costs - 23
--- ----
Specific operating costs 240 23
Loss on sale of investment 1 -
Profit on disposal of associate (9) (20)
----- ------
Net specific items charge before tax 232 3
===
Tax credit on specific items (72) (1)
Tax credit on re-measurement of deferred tax (154) -
------- ---
Net specific items charge after tax 6 2
=== ===
5 Net finance (income) expense
Half year ended September 30
2007 2006
GBPm GBPm
Finance expense1 before pension interest 410 362
Interest on pension scheme liabilities 1,014 936
------------- -------------
Finance expense 1,424 1,298
------- -------
Finance income before pension income (602) (522)
Expected return on pension scheme assets (1,224) (1,146)
--------- ---------
Finance income (1,826) (1,668)
--------- ---------
Net finance income (402) (370)
======== ========
Net finance income before pensions (192) (160)
Interest income associated with pensions (210) (210)
------- -------
Net finance income (402) (370)
======= =======
1Finance expense in the half year ended September 30, 2007 include a
GBP3 million net charge (September 30, 2006 - GBP1 million) arising from the
re-measurement of financial instruments which under IAS 39 are not in hedging
relationships on a fair value basis.
6 Dividends
Half year ended September 30
2007 2006
GBPm GBPm
Interim dividends paid in respect of the
current financial year 1 2,300 1,608
======= =======
1 Interim dividends were paid to the parent company (BT Group Investments
Limited) in the half year ended September 30, 2007 as follows: first interim
dividend of GBP300 million (June 18, 2007) and second interim dividend of
GBP2,000 million (July 24, 2007).
7 (a) Reconciliation of profit before tax to cash generated from operations
Half year ended September 30
2007 2006
GBPm GBPm
Profit before tax 1,590 1,713
Depreciation and amortisation 1,402 1,406
Net finance income (402) (370)
Associates and joint ventures 6 (7)
Employee share scheme costs 36 47
Profit on disposal of associates (8) (20)
Changes in working capital (696) (153)
Provisions, pensions and other movements (202) 162
-------- ------
Cash generated from operations 1,726 2,778
======== ========
(b) Free cash flow
Half year ended September 30
2007 2006
GBPm GBPm
Cash generated from operations 1,726 2,778
Income taxes (paid) received 384 (180)
------- ---------
Net cash inflow from operating activities 2,110 2,598
Included in cash flows from investing activities
Net purchase of property, plant, equipment and
software (1,617) (1,596)
Dividends received from associates 1 5
Interest received 86 37
Included in cash flows from financing activities
Interest paid (329) (318)
-------- -------
Free cash flow 251 726
======= ========
Free cash flow is defined as the net increase in cash and cash equivalents less
cash flows from financing activities (except interest paid), less the
acquisition or disposal of group undertakings and less the net sale of short
term investments. It is not a measure recognised under IFRS but is a key
indicator used by management in order to assess operational performance.
(c) Cash and cash equivalents
At September At March 31,
30, 2007 2007
---------- ----------
GBPm GBPm
Cash at bank and in hand 753 551
Short term deposits 772 507
------- --------
Cash and cash equivalents 1,525 1,058
Bank overdrafts (376) (51)
-------- ----------
1,149 1,007
======= ===============
8 Net debt
Net debt at September 30, 2007 was GBP10,565 million (March 31, 2007 - GBP8,210
million). Net debt consists of loans and other borrowings less current asset
investments and cash and cash equivalents. Loans and other borrowings are
measured at the net proceeds raised, adjusted to amortise any discount over the
term of the debt. For the purpose of this analysis current asset investments,
cash and cash equivalents are measured at the lower of cost and net realisable
value. Currency denominated balances within net debt are translated to sterling
at swapped rates where hedged.
This definition of net debt measures balances at the future cash flows due to
arise on maturity of financial instruments and removes the balance sheet
adjustments made for the re-measurement of hedged risks under fair value hedges
and the use of the amortised cost method as required by IAS 39. In addition, the
gross balances are adjusted to take account of netting arrangements amounting to
GBP374 million. Net debt is a non GAAP measure since it is not defined in IFRS
but it is a key indicator used by management in order to assess operational
performance.
(a) Analysis
At September At March 31,
30, 2007 2007
GBPm GBPm
Loans and other borrowings 12,234 8,880
Cash and cash equivalents (1,525) (1,058)
Investments (441) (3)
---------- -----------
10,268 7,819
Adjustments:
To retranslate currency
denominated balances at swapped
rates where hedged 569 577
To recognise borrowings at net
proceeds and unamortised discount (272) (186)
-------- ---------
Net debt 1 10,565 8,210
======== ========
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at September 30, 2007 was GBP12,154 million (March 31,
2007 - GBP9,222 million).
1 Net debt includes borrowings due to parent companies of GBP1,231 million, and
excludes net external debt of parent companies of GBP284 million. Net debt of BT
Group plc was GBP9,618 million at September 30, 2007
(b) Reconciliation of movement in net debt
Half year ended September 30, 2007
GBPm
Net debt at beginning of period 8,210
Increase in net debt resulting from cash
flows 2,271
Net debt assumed or issued on
acquisitions 31
Currency movements 1
Other non-cash movements 52
----------
Net debt at end of period 10,565
========
During the half year ended September 30, 2007, the group issued debt of GBP3,593
million consisting mainly of long term listed bonds of GBP1,501 million, in
aggregate, maturing in 2014, 2017 and 2037, bank borrowings of GBP300 million
maturing in 2012 and short term borrowings of GBP1,792 million (including net
commercial paper issuances of GBP424 million). Debt maturities amounted to
GBP748 million. The net increase in short term investments, including cash,
resulted in a cash inflow of GBP574 million.
9 Statement of changes in equity
Half year ended
September 30
------------------
2007
GBPm
Shareholders' funds 22,330
Minority interest 34
----------
Equity at beginning of period 22,364
===
Profit for the period 1,336
Share based payment 17
Actuarial gains on pension schemes 2,065
Tax on items taken directly to equity (714)
Net fair value movements on cash flow hedges 13
Net movements on available for sale investments (30)
Exchange differences on translation (6)
Equity dividends on ordinary shares (2,300)
Minority interest (5)
-------------
Net changes in equity for the period 376
Equity at end of period
Shareholders' funds 22,709
Minority interest 31
----------
Total equity 22,740
========
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Half year ended September 30
2007 2006
GBPm GBPm
Operating profit 1,185 1,316
Specific items (note 4) 241 23
Depreciation and amortisation 1,402 1,406
------- -------
EBITDA before specific items 2,828 2,745
======= =======
Earnings before interest, taxation, depreciation and amortisation (EBITDA)
before specific items is not a measure recognised under IFRS, but it is a key
indicator used by management in order to assess operational performance.
11 Business Combinations
Comsat International Inc
On June 14, 2007 the group acquired Comsat International Inc ('Comsat Int'l')
through the purchase of 100 per cent of the issued share capital of its parent
company, CI Holding Corporation, for a total consideration of GBP130 million,
including GBP8 million deferred, contingent consideration. Provisional fair
values for the assets and liabilities acquired and goodwill arising as are
follows:
At date of acquisition Book value Provisional
fair value
GBPm GBPm
----------- -------------
Property, plant and equipment 70 72
Other non current assets 4 4
Trade and other receivables 32 32
Cash and cash equivalents 3 3
Trade and other payables (44) (45)
Non current payables (14) (17)
------ ------
Net assets acquired 51 49
Goodwill 81
------
Total consideration 130
=====
The fair values relating to the acquisition of Comsat Int'l are provisional, due
to the timing of the transaction, and will be finalised in the second half of
the financial year. From the date of acquisition to September 30, 2007, Comsat
Int'l has contributed to the group's results revenue of GBP28 million and profit
of GBP2 million. If the acquisition had occurred on April 1, 2007, the group's
revenue and profit would have been higher by GBP20 million and by GBP1 million,
respectively.
Other
During the half year ended September 30, 2007, the group acquired a number of
other smaller subsidiaries, including principally i2i Enterprise Private
Limited, Basilica Group Limited, Brightview plc and Lynx Technologies for a
total consideration of GBP126 million, including GBP40 million of deferred,
contingent consideration. The provisional fair value of the combined net assets
and goodwill arising in respect of these acquisitions were as follows:
At date of acquisition Book value Provisional
fair value
GBPm GBPm
----------- -------------
Property, plant and equipment 7 3
Trade and other receivables 26 26
Cash and cash equivalents 2 2
Trade and other payables (19) (19)
------ ------
Net assets acquired 16 12
Goodwill 114
--- ------
Total consideration 126
=== ======
The fair value adjustments relating to these acquisitions are provisional due to
the timing of the transactions and will be finalised in the second half of the
financial year. From the date of acquisition, these acquisitions have
contributed to the group's results revenue of GBP22 million and profit of GBP2
million. If the acquisitions had occurred on April 1, 2007, the group's revenue
and profit would have been higher by GBP64 million and GBP3 million,
respectively.
Acquisitions made in the year ended March 31, 2007
During the period, the group has updated the acquisition accounting for
Counterpane, an acquisition made in the year ended March 31, 2007. As a result,
a reclassification has been made between goodwill and other intangible assets to
recognise the fair value of proprietary technology acquired with the business.
Prior year balances have not been restated as the amount of the adjustment is
not significant to the group.
12 Related party transactions
During the half year ended September 30, 2007, the group purchased services in
the normal course of business and on an arm's length basis from its associate,
Tech Mahindra Limited. The value of services purchased was GBP145 million
(September 30, 2006: GBP108 million) and the amounts outstanding and payable for
services at September 30, 2007 was GBP114 million (September 30, 2006: GBP64
million).
13 Post balance sheet events
On November 22, 2007 the group issued EUR1 billion (GBP716 million) of debt
maturing in 2013. On October 19, 2007 the group paid an interim dividend to the
parent company, BT Group Investments Limited of GBP425 million.
Forward-looking statements - caution
This document contains "forward-looking statements" within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995 with respect to BT's
financial condition, results of operations and businesses and certain of BT's
plans and objectives. Forward-looking statements relate to analyses and other
information which are based on forecasts of future results and estimates of
amounts not yet determinable. In particular, such forward-looking statements
include, without limitation, statements concerning BT's transformation strategy
and its ability to achieve it; expected cost savings; anticipated benefits of
BT's business transformation and accelerated costs savings; expected cost
savings and improved shareholder returns; expectations regarding competition,
market shares, prices and growth; expectations regarding convergence of
technologies; continued growth in revenue, EBITDA, earnings per share and
dividends; growth and opportunities in new wave business; BT's network
development and implementation of and plans for the 21st century network; plans
for the launch of new products and services, including the introduction of next
generation services; BT's possible or assumed future results of operations and/
or those of its associates and joint ventures; BT's future dividend policy;
capital expenditure and investment plans; adequacy of capital; financing plans;
demand for and access to broadband and the promotion of broadband by third-party
service providers; and overall market trends and other trend projections.
Forward-looking statements are sometimes, but not always, identified by their
use of a date in the future or such words as "aims", "believes", "expects",
"anticipates", "intends", "will", "should", "could", "may", "plans", "targets"
or similar expressions. By their nature, forward-looking statements are
inherently predictive and speculative, and involve risk and uncertainty because
they relate to evens and depend on circumstances that will occur in the future.
There are number of factors that could cause the actual results and developments
to differ materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to, the following:
material adverse change in economic conditions in the markets served by BT and
its lines of business; future regulatory actions and conditions in its operating
areas, including competition from others; selection by BT and its lines of
business of the appropriate trading and marketing models for its products and
services; technological innovations, including the cost of developing new
products, networks and solutions and the need to increase expenditures for
improving the quality of service; the anticipated benefits and advantages of new
technologies, products and services, including broadband and other new wave
initiatives not being realized; developments in the convergence of technologies,
prolonged adverse weather conditions resulting in a material adverse increase in
overtime, staff or other costs; the timing of entry and profitability of BT and
its lines of business in certain communications markets; significant changes in
the market shares for BT and its principal products and services; fluctuations
in foreign currency exchange rates and interest rates; and general financial
market conditions affecting BT's performance.
No assurances can be given that forward-looking statements in this document will
be realized. Neither the Company nor any of its affiliates intends to update
these forward-looking statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
British Telecommunications plc
By: /s/ Glyn Parry
Name: Glyn Parry
Title: Director and Head of Group Financial Control
Date: December 5, 2007