Financial results
29 October 2015
BT GROUP PLC
RESULTS FOR THE SECOND QUARTER AND HALF YEAR TO 30 SEPTEMBER 2015
BT Group plc (BT.L) today announced its results for the second quarter and half year to 30 September 2015.
Second quarter to
30 September 2015
Revenue1
Change in underlying revenue2 excluding transit
EBITDA1
Profit before tax
- adjusted1
- reported
Earnings per share
- adjusted1
- reported
Interim dividend
Normalised free cash flow3
Net debt
Half year to
30 September 2015
£m
Change
£m
Change
4,381
8,659
1,442
706
642
6.9p
6.3p
0%
2.0%
(1)%
2%
14%
0%
13%
569
£36m
(1)%
1.0%
0%
5%
15%
2%
11%
13%
£20m
£(1,144)m
2,891
1,400
1,274
13.6p
12.4p
4.4p
675
5,919
Gavin Patterson, Chief Executive, commenting on the results, said:
“We’ve delivered a good financial performance with revenue4 up 2% this quarter.
“Fibre broadband is a success story and we continue to invest heavily to help the UK remain a broadband leader among major
European nations. Our open access fibre network now passes 24 million premises and we are not stopping there. We want to
get fibre broadband to as many people as possible and we are also pushing ahead with our plans to get ultrafast broadband to
ten million premises by the end of 2020. Market-wide demand for fibre remains strong with fibre net additions up 21% as we
hit the five million milestone for homes and businesses connected.
“We’ve seen good demand for BT Sport Europe and this has helped us add a record number of BT TV customers in the quarter.
Its contribution has been better than we expected, helping drive a 7% increase in BT Consumer revenue. Mobile is another
growth area and I am pleased our consumer customer base now stands at more than 200,000. And I am also pleased that
yesterday, the Competition and Markets Authority provisionally approved our planned acquisition of EE, unconditionally
without remedies.
“We are making step changes to improve customer service, as part of our group-wide programme. Openreach’s recently
launched ‘View my Engineer’ service is going down well. The 3,000 engineers we hired in the last 18 months are helping us fix
faults faster and provide new services sooner. We have also created more than 1,000 new contact centre jobs in the UK, with
hundreds more to come, to meet our 2016 commitment for more than 80% of consumer customer calls to be answered in the
UK. And we have plans to go even further in years to come.
“Our strategy is delivering and our results show we’re on track to achieve our outlook for the year.”
Key points for the second quarter:





Growth in underlying revenue excluding transit, up 2.0%
EBITDA1 down 1% reflecting our investment in BT Sport Europe
106,000 BT TV net additions, our best ever performance
Strong order book across the group
Interim dividend of 4.4p, up 13%
1 Before
specific items. Specific items are defined on page 3
specific items, foreign exchange movements and the effect of acquisitions and disposals
3 Before specific items, pension deficit payments and the cash tax benefit of pension deficit payments
4 Change in underlying revenue excluding transit
2 Excludes
BT Group Communications
BT Centre
81 Newgate Street
London
EC1A 7AJ
BT Group plc
Registered Office:
81 Newgate Street London EC1A 7AJ
Registered in England and Wales no. 4190816
www.btplc.com
GROUP RESULTS FOR THE SECOND QUARTER AND HALF YEAR TO 30 SEPTEMBER 2015
Second quarter
to 30 September
Half year
to 30 September
2015
2014
Change
2015
2014
Change
£m
£m
%
£m
£m
%
- adjusted1
4,381
4,383
0
8,659
8,737
(1)
- reported
4,459
4,441
0
8,819
8,795
0
Revenue
- change in underlying
revenue2
excluding transit
2.0
1.0
EBITDA
- adjusted1
1,442
1,450
(1)
2,891
2,885
0
- reported
1,436
1,396
3
2,878
2,787
3
- adjusted1
819
832
(2)
1,640
1,615
2
- reported
813
778
4
1,627
1,517
7
- adjusted1
706
690
2
1,400
1,328
5
- reported
642
563
14
1,274
1,109
15
- adjusted1
6.9p
6.9p
0
13.6
13.4p
2
- reported
6.3p
5.6p
13
Operating profit
Profit before tax
Earnings per share
Interim dividend
12.4
11.2p
11
4.4p
3.9p
13
Capital expenditure
629
533
18
1,287
1,049
23
Normalised free cash flow3
569
533
7
675
655
3
5,919
7,063
Net debt
£(1,144)m
Line of business results1
Revenue
Second quarter to
30 September
BT Global Services
BT Business
BT Consumer
BT Wholesale
Openreach
Other and intra-group items
Total
2015
2014
Free cash flow3
EBITDA
Change
2015
2014
Change
2015
2014
Change
£m
£m
%
£m
£m
%
£m
£m
%
1,559
1,649
(5)
216
226
(4)
113
35
223
781
789
(1)
261
258
1
215
231
(7)
1,127
1,056
7
202
225
(10)
53
105
(50)
(2)
127
125
2
63
60
5
2
648
627
3
329
339
(3)
1
(12)
(11)
(9)
(204)
(237)
14
(1)
569
533
7
520
529
1,267
1,245
(873)
4,381
(885)
4,383
0
1,442
1,450
1
Before specific items
Excludes specific items, foreign exchange movements and the effect of acquisitions and disposals
3 Before specific items, pension deficit payments and the cash tax benefit of pension deficit payments
2
2
Notes:
1.
The commentary focuses on the trading results on an adjusted basis, which is a non-GAAP measure, being before specific items. Unless otherwise stated, revenue,
operating costs, earnings before interest, tax, depreciation and amortisation (EBITDA), operating profit, profit before tax, net finance expense, earnings per share
(EPS) and normalised free cash flow are measured before specific items. This is consistent with the way that financial performance is measured by management and
reported to the Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. The directors believe that
presentation of the group’s results in this way is relevant to the understanding of the group’s financial performance as specific items are those that in management’s
judgement need to be disclosed by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers
quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Specific items may not be comparable to similarly titled measures
used by other companies. Reported revenue, reported operating costs, reported EBITDA, reported operating profit, reported profit before tax, reported net finance
expense, reported EPS and reported free cash flow are the equivalent unadjusted or statutory measures.
2.
Trends in underlying revenue, trends in underlying operating costs, and underlying EBITDA are non-GAAP measures which seek to reflect the underlying performance
of the group that will contribute to long-term sustainable growth and as such exclude the impact of acquisitions and disposals, foreign exchange movements and any
specific items. We focus on the trends in underlying revenue and underlying operating costs excluding transit as transit traffic is low-margin and is significantly
affected by reductions in mobile termination rates.
Enquiries
Press office:
Ross Cook
Tel: 020 7356 5369
Investor relations:
Damien Maltarp
Tel: 020 7356 4909
We will hold the second quarter and half year 2015/16 results presentation for analysts and investors at 9.00am today in
London and a simultaneous webcast will be available at www.bt.com/results
We are scheduled to announce the third quarter results for 2015/16 on Friday 29 January 2016.
About BT
BT’s purpose is to use the power of communications to make a better world. It is one of the world’s leading providers of
communications services and solutions, serving customers in more than 170 countries. Its principal activities include the
provision of networked IT services globally; local, national and international telecommunications services to its customers for
use at home, at work and on the move; broadband, TV and internet products and services and converged fixed/mobile products
and services. BT consists principally of five customer-facing lines of business: BT Global Services, BT Business, BT Consumer,
BT Wholesale and Openreach.
For the year ended 31 March 2015, BT Group’s reported revenue was £17,979m with reported profit before taxation of
£2,645m.
British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group plc and encompasses virtually all businesses and
assets of the BT Group. BT Group plc is listed on stock exchanges in London and New York.
For more information, visit www.btplc.com
3
BT Group plc
GROUP RESULTS FOR THE SECOND QUARTER TO 30 SEPTEMBER 2015
Overview
Our key measure of the group’s revenue trend, underlying revenue excluding transit, was up 2.0%. This growth was driven by
BT Consumer where broadband and TV revenue was up 17% helped by strong demand for fibre broadband and the launch of
BT Sport Europe, where the contribution has been better than we expected. Openreach revenue was up 2% with growth in
fibre broadband partly offset by regulatory price changes, and BT Wholesale grew its underlying revenue excluding transit
again. Within our business divisions, BT Business underlying revenue excluding transit was flat while in BT Global Services a
strong performance in Continental Europe helped offset the ongoing declines in the UK.
Underlying operating costs1 excluding transit were up 3%. As we highlighted in our fourth quarter results, EBITDA this year will
no longer benefit from the sale of redundant copper and will be impacted by higher leaver costs (as last year most were
included within specific items), a higher pensions operating charge and our investment in BT Sport Europe. Without these
effects, underlying operating costs1 excluding transit would have been down 1%. Adjusted EBITDA was down 1% with our
investment in UEFA Champions League and UEFA Europa League rights largely offset by the benefit of our cost transformation
activities. Excluding foreign exchange movements and the effect of acquisitions and disposals, our underlying EBITDA was flat.
We added 106,000 BT TV customers, our best performance ever. With the first UEFA Champions League group stage matches
starting at the end of the quarter, initial viewing figures are encouraging. We were also pleased with the launch of the new
AMC channel, which is exclusive to BT.
Order intakes were good across the group. On a rolling twelve-month basis, order intake was up 16% to £7.1bn in BT Global
Services and up 39% to £2.1bn in BT Wholesale, reflecting some large contract wins. It was also up 1% to £2.1bn in BT Business.
On 28 October the Competition and Markets Authority (CMA) provisionally approved our £12.5bn acquisition of EE,
unconditionally without remedies. The CMA has provisionally decided that the acquisition is not expected to result in a
substantial lessening of competition. The CMA has said that it will publish its final decision by 18 January 2016. We welcome
the provisional approval; the combined BT and EE will be good for the UK, providing investment and making sure consumers
and businesses can benefit from more innovation in a highly competitive market. It also brings us a step closer to creating a
true digital champion to serve the UK. The planned acquisition will accelerate our existing mobility strategy, where more than
200,000 consumer customers have joined us to date.
In September we set out our vision for the UK’s digital future and the contribution BT can make, subject to regulatory
support and the right policy framework. We have four objectives:
1.
2.
3.
4.
To deliver minimum broadband speeds of between 5Mbps and 10Mbps, as needed for every home to enjoy the most
popular internet services, if Ofcom and the government take the action necessary to make this commercially viable.
To expand the reach of fibre broadband in the UK beyond the government’s current target of 95%. Should the current
public funding model be continued, we are willing to support the government to make sure homes and businesses in
the most difficult and commercially-inaccessible areas are connected.
To provide ultrafast broadband speeds of 300Mbps to 500Mbps to 10m premises by the end of 2020, plus a service
offering up to 1Gbps for those who want even faster speeds.
To deliver a higher service quality to our customers – businesses, households and other Communications Providers
(CPs) – to match their growing expectations.
Alongside these ambitions, Openreach announced the Openreach Charter which sets out its specific commitments. As well as
investing in coverage and speed, Openreach will raise its service standards, offering quicker installations and faster fixes. For
business customers, Openreach: will increase the number of new Ethernet circuit connections by over 30% this year; will
continue to significantly increase speed of service delivery and improve the number of on-time installations; and is committed
to introducing new Ethernet minimum service levels, working closely with industry and Ofcom. Openreach has launched a new
‘View my Engineer’ service, which provides text progress updates, as well as the engineer’s name and phone number ahead of
an appointment. Openreach aims to achieve 95% on-time installations by 2017, which is ahead of Ofcom’s minimum service
level.
We have passed 24m premises with our fibre broadband network, over 80% of the UK. We achieved 415,000 fibre broadband
net connections, an increase of 21%. This brings the number of homes and businesses connected to 5m, 21% of those passed.
We have 3.4m retail fibre broadband customers, having added 212,000 this quarter. And the UK broadband market 2 grew by
160,000, of which our share was 82,000 or 51%.
1
2
Excludes specific items, foreign exchange movements and the effect of acquisitions and disposals, and is before depreciation and amortisation
DSL and fibre
4
We are making good progress with our trials of ultrafast fibre broadband, with homes and businesses participating in the trial
getting speeds of up to 330Mbps using G.fast technology. And we see the potential to go faster still – a future variant of the
technology, XG-FAST, achieved a speed of 5.6Gbps over a typical 35 metre copper cable in tests carried out at our research
campus in Suffolk.
Income statement
Reported revenue of £4,459m was flat. This included ladder pricing transit revenue of £78m relating to previous years which
we have treated as a specific item. Last year reported revenue included a specific item benefit of £58m relating to ladder
pricing agreements. Adjusted revenue, which excludes specific items, was also flat at £4,381m. We had a £53m negative
impact from foreign exchange movements, a £33m reduction in transit revenue and a £2m impact from disposals. Excluding
these, underlying revenue excluding transit was up 2.0%.
Adjusted operating costs1 were flat. Net labour costs decreased 3%, or 1% excluding foreign exchange movements and the
effect of acquisitions and disposals. This decrease was despite £20m (Q2 2014/15: £1m) of leaver costs and an £8m increase
in the pensions operating charge. Excluding these, net labour costs were down 4% due to further efficiencies achieved by our
cost transformation programmes.
Payments to telecommunications operators were down 3% and Other costs were down 1%. These reductions were offset by
higher programme rights charges which increased by £52m to £135m, primarily reflecting the launch of BT Sport Europe.
Network operating and IT costs were up 7% and property and energy costs were flat.
Adjusted EBITDA of £1,442m was down 1%. Depreciation and amortisation of £623m was up 1% and adjusted net finance
expense was £112m, down £31m primarily due to lower net debt. As a result, adjusted profit before tax was £706m, up 2%.
Reported profit before tax (which includes specific items) was £642m, up 14%. The effective tax rate on the profit before
specific items was 18.3% (Q2 2014/15: 19.9%).
Adjusted EPS of 6.9p was flat. Reported EPS (which includes specific items) was 6.3p, up 13%. Our EPS measures are based on
a weighted average number of shares in issue of 8,339m (Q2 2014/15: 8,027m). The average number of shares in issue is 4%
higher than a year ago reflecting employee share schemes having matured and the equity placing in February to part fund our
planned acquisition of EE.
Specific items
Specific items resulted in a net charge after tax of £52m (Q2 2014/15: £107m). This mainly reflects net interest expense on
pensions of £56m (Q2 2014/15: £73m) and £8m of costs relating to the planned acquisition of EE. We also recognised £78m
of both transit revenue and costs, being the impact of ladder pricing agreements relating to prior years following a Supreme
Court judgment last year. The tax credit on specific items was £12m (Q2 2014/15: £20m). Last year, specific items included
restructuring charges of £60m and a net EBITDA credit of £5m relating to ladder pricing and regulatory risks.
Capital expenditure
Capital expenditure was £629m (Q2 2014/15: £533m) after £62m (Q2 2014/15: £95m) of net grant funding mainly relating to
the Broadband Delivery UK (BDUK) programme. The higher capital expenditure was mainly due to our fibre rollout, connecting
new homes, and higher volumes of Ethernet provision. To date, we have deferred a total of £157m of grant funding reflecting
the strong fibre take-up in BDUK areas. This will potentially be reinvested or repaid in future financial years.
Free cash flow
Normalised free cash flow2 was an inflow of £569m, an increase of £36m compared with last year. The net cash cost of specific
items was £30m (Q2 2014/15: £75m) mainly comprising prior year restructuring costs of £14m, EE acquisition-related costs of
£8m, property rationalisation costs of £4m and payments relating to historical Ethernet pricing of £3m (following a 2012 Ofcom
determination). After specific items and a £46m (Q2 2014/15: £19m) cash tax benefit from pension deficit payments, reported
free cash flow was an inflow of £585m (Q2 2014/15: £477m).
Net debt and liquidity
Net debt was £5,919m at 30 September 2015, an increase of £100m since 30 June 2015 and £800m higher than at 31 March
2015. In the quarter, reported free cash flow of £585m and proceeds of £81m from the exercise of employee share options
were offset by payments of £704m on dividends and a cash cost of £61m on our share buyback programme for the purchase
of 13m shares. So far this year we have spent £250m on our share buyback programme and we continue to expect to spend
around £300m on the programme for the year as a whole.
1
Before depreciation and amortisation
specific items, pension deficit payments and the cash tax benefit of pension deficit payments
2 Before
5
Debt of £0.8bn matured in July and a further £0.4bn is repayable during the remainder of 2015/16. At 30 September 2015 the
group held cash and current investment balances of £1.8bn. We also have a £1.5bn committed facility and a £3.6bn committed
acquisition facility to be used for the planned EE transaction, both of which are undrawn. We have extended our £1.5bn
committed facility by one year to September 2020.
Pensions
The IAS 19 net pension position at 30 September 2015 was a deficit of £5.6bn net of tax (£7.0bn gross of tax) compared with
£5.8bn net of tax (£7.2bn gross of tax) at 30 June 2015. The reduction primarily reflects a decrease in the liabilities due to
lower future inflation expectations largely offset by a decline in asset values due to market conditions. The IAS 19 accounting
position and key assumptions are provided in Note 10.
Regulation
In August, Ofcom issued supplementary guidance on how the ‘minimum margin’ test in respect of fibre broadband would be
impacted by a material change in circumstances (which would include the launch of our UEFA Champions League and UEFA
Europa League content). Whilst we welcome this new guidance, it still does not provide enough flexibility around how we
recover our sport costs, and we believe does not address the concerns raised by the European Commission about the test.
In August, the Court of Appeal granted us permission to appeal the August 2014 decision of the Competition Appeal Tribunal
relating to a dispute on historical Ethernet pricing that was originally determined by Ofcom in 2012. Our appeal was granted
on three legal grounds, including whether Ofcom had the power to require us to make the payments it determined in the
dispute and if it has the power to award interest charges on these payments. Ofcom has therefore deferred its final
determination on the amount of interest payable on claims under this dispute until the Court hears the appeal, which we
expect to take place during 2016/17.
In October, we and other parties responded to Ofcom’s discussion document in its Strategic Review of Digital Communications.
We believe regulation should make sure customers’ needs are met by ensuring efficient investment and delivering effective
competition across the whole of industry, including pay-TV as well as communications. Ofcom has a key role to play by
modernising the regulatory framework in the following key areas:






Long-term commitment – Ofcom should make long-term commitments in regulation to secure the long-term
investments necessary to meet future customers’ needs;
Support for investment – Ofcom should not price regulate services that depend on new investments before payback
has been achieved. Britain has gained, and will continue to gain, from Openreach being part of BT – benefiting from
more investment, coverage and speed. We have called on Ofcom to reject at the earliest opportunity the calls from
some other CPs for structural separation;
Consolidation – Ofcom should support consolidation that promotes investment and competition;
Balance between service quality and price – Ofcom should take customers’ service needs into account when setting
price controls;
Level playing field – Ofcom needs to ensure a level playing field of competition across the whole industry and should
focus its efforts on the competition problems in pay-TV; and
Regulate only where necessary – Ofcom should apply the minimum regulation necessary to ensure markets work for
customers without distortion.
Dividends
In line with our full year outlook for 10%-15% growth in dividends per share, the Board has declared an interim dividend of
4.4p per share, up 13%, and totalling £368m (Q2 2014/15: £316m). It will be paid on 8 February 2016 to shareholders on the
register on 29 December 2015. The ex-dividend date is 24 December 2015. The election date for participation in BT’s Dividend
Investment Plan in respect of this dividend is also 29 December 2015. The final dividend for the year to 31 March 2015 of 8.5p,
amounting to £710m, was approved at the Annual General Meeting on 15 July 2015.
2015/16 outlook
Our outlook is unchanged. We continue to expect growth in underlying revenue excluding transit in 2015/16 with modest
growth in adjusted EBITDA. Normalised free cash flow is expected to be around £2.8bn. We continue to expect to grow our
dividend per share by 10%-15% and to complete a share buyback of around £300m to help offset the dilutive effect of maturing
all-employee share plans. We are targeting a BBB+/Baa1 credit rating over the medium term.
6
GROUP RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2015
Income statement
Reported revenue of £8,819m was flat. Adjusted revenue of £8,659m was down 1% with a £101m negative impact from foreign
exchange movements, a £57m reduction in transit revenue and a £6m impact from disposals.
Underlying revenue excluding transit was up 1.0% in the first half reflecting growth in BT Consumer, BT Wholesale and
Openreach, which was partly offset by revenue declines elsewhere, including lower UK revenue in BT Global Services.
Adjusted operating costs1 were down 1%. Net labour costs decreased 4%, or 3% excluding foreign exchange movements and
the effect of acquisitions and disposals. Excluding the impact of higher leaver costs and higher pensions operating charges, net
labour costs were down 5% due to further efficiencies achieved by our cost transformation programmes. Payments to
telecommunications operators were down 5%, largely benefiting from foreign exchange movements. Network operating and
IT costs were down 4%. These reductions were offset by higher programme rights charges which increased by £60m to £221m
primarily reflecting the launch of BT Sport Europe. Other costs were up 1% and property and energy costs were flat.
Adjusted EBITDA was flat at £2,891m. Excluding foreign exchange movements and the effect of acquisitions and disposals,
underlying EBITDA was up 1%.
Depreciation and amortisation of £1,251m was down 1%. Adjusted net finance expense was £244m, a decrease of £44m
primarily due to lower net debt.
Adjusted profit before tax of £1,400m was up 5% reflecting the lower net finance expense and higher operating profit.
Reported profit before tax (which includes specific items) was £1,274m, up 15%. The effective tax rate on the profit before
specific items was 18.6% (HY 2014/15: 19.9%).
Adjusted EPS was 13.6p, up 2%, and reported EPS (which includes specific items) was 12.4p, up 11%. These are based on a
weighted average number of shares in issue of 8,334m (HY 2014/15: 7,942m).
Specific items
Specific items resulted in a net charge after tax of £103m (HY 2014/15: £177m). This reflects net interest expense on pensions
of £111m (HY 2014/15: £146m) and £15m of costs relating to the planned acquisition of EE. We recognised £160m of both
transit revenue and costs, being the impact of ladder pricing agreements relating to prior years following a Supreme Court
judgment last year. The tax credit on specific items was £23m (HY 2014/15: £42m). Last year, specific items included
restructuring charges of £104m, a net EBITDA credit of £5m in relation to ladder pricing and regulatory risks and a profit of
£25m on the disposal of our interest in an associate.
Capital expenditure
Capital expenditure was £1,287m (HY 2014/15: £1,049m) after £65m (HY 2014/15: £173m) of net grant funding mainly relating
to the BDUK programme. The higher capital expenditure was mainly due to our fibre rollout, the expansion of our network to
new homes, and higher volumes of Ethernet provision.
Free cash flow
Normalised free cash flow2 was an inflow of £675m, an increase of £20m compared with last year.
The net cash cost of specific items was £82m (HY 2014/15: £155m). Payments relating to prior year restructuring costs of
£65m, EE acquisition-related costs of £24m and historical Ethernet pricing of £19m (following a 2012 Ofcom determination),
were partly offset by receipts of £40m relating to ladder pricing revenue. After specific items and a £115m (HY 2014/15: £38m)
cash tax benefit from pension deficit payments, reported free cash flow was an inflow of £708m (HY 2014/15: £538m).
Free cash flow excludes the £625m pension deficit payment made in April 2015.
Principal risks and uncertainties
A summary of the group’s principal risks and uncertainties is provided in Note 15.
1 Before
2 Before
depreciation and amortisation
specific items, pension deficit payments and the cash tax benefit of pension deficit payments
7
OPERATING REVIEW
BT Global Services
Second quarter to 30 September
Revenue
2015
2014
£m
£m
1,559
1,649
Change
£m
%
(90)
(5)
- underlying excluding transit
Operating costs
Half year to 30 September
2015
2014
£m
£m
3,102
3,296
Change
£m
%
(194)
(6)
(2)
(3)
1,343
1,423
(80)
(6)
2,696
2,857
(161)
(6)
EBITDA
216
226
(10)
(4)
406
439
(33)
(8)
Depreciation & amortisation
130
124
6
5
257
264
(7)
(3)
86
102
(16)
(16)
149
175
(26)
(15)
Capital expenditure
107
116
(9)
(8)
193
222
(29)
(13)
Operating cash flow
113
35
78
(179)
(302)
123
41
Operating profit
223
Revenue declined 5% including a £45m negative impact from foreign exchange movements and a £9m decline in transit
revenue. Underlying revenue excluding transit decreased 2% primarily reflecting lower revenue in the UK and in the US and
Canada.
UK revenue was down 8%. This was an improvement on recent quarters but continues to reflect the decline in public sector
revenue. In the US and Canada underlying revenue excluding transit declined 11% as a major customer has started to insource
some services. In the high-growth regions1 underlying revenue excluding transit declined 2%. Growth in AMEA was more than
offset by declines in some Latin American countries which continue to reflect our change in portfolio focus, given currency
uncertainty. Underlying revenue excluding transit grew by 12% in Continental Europe. This was better than recent quarters
reflecting higher IP Exchange volumes in the quarter and the delivery of some major customer contracts.
Total order intake in the quarter was £1.8bn, up 36%, and £7.1bn on a rolling twelve-month basis, up 16%. We renewed our
contract with Caixa Econômica Federal by a further five years, increasing the number of lottery outlets that we will serve in
Brazil from 14,000 to 18,000 during the term of the contract. We have become an international IT partner for Walgreens Boots
Alliance under a new five-year contract, upgrading and expanding their IT network in around 20 countries across Europe, Latin
America, the Middle East and Asia. We also signed a new five-year contract with Alstom Transport to provide a complete
managed network services solution at 350 locations across all continents.
As part of our ‘Cloud of Clouds’ strategy, we launched cloud-based communications and collaboration services which make it
easier for our customers to integrate video, conferencing and messaging platforms delivered by different providers. We
introduced cloud-based DDoS mitigation services that will improve security for our customers globally. We launched a solution
that allows our customers to access Microsoft’s cloud-based Office 365 suite across the globe, delivering speed, security and
reliability. We also extended our ethical hacking service to help financial sector organisations test their resilience to cyberattacks and secure their data.
Operating costs declined 6% with underlying operating costs excluding transit down 2%. EBITDA was 4% lower, or down 3%
excluding foreign exchange movements. As in the first quarter, the decline mainly reflects the impact of our major health
programmes moving into their service and maintenance phase and the impact of leaver costs, with these partially offset by the
benefit of our cost transformation programmes. Included in EBITDA were leaver costs of £5m (Q2 2014/15: £nil). While we
expect to incur further leaver costs during the remainder of the year, we expect EBITDA in the second half to grow year on
year.
Depreciation and amortisation was up 5% due to the timing of recognition on certain contracts. Operating profit of £86m was
down 16%.
Capital expenditure was down 8% due to the timing of project related expenditure. Operating cash inflow was £113m, an
increase of £78m as a result of improved collections and the timing of contract-specific cash flows.
1
Asia Pacific, the Middle East and Africa (AMEA) and Latin America
8
BT Business
Second quarter to 30 September
Revenue
2015
2014
£m
£m
781
789
Change
£m
(8)
- underlying excluding transit
%
(1)
520
531
(11)
(2)
EBITDA
261
258
3
49
45
212
Capital expenditure
Operating cash flow
Operating profit
2015
2014
£m
£m
1,530
1,551
Change
£m
%
(21)
(1)
0
Operating costs
Depreciation & amortisation
Half year to 30 September
0
1,029
1,053
(24)
(2)
1
501
498
3
1
4
9
99
88
11
13
213
(1)
0
402
410
(8)
(2)
37
32
5
16
72
56
16
29
215
231
(16)
(7)
331
421
(90)
(21)
Revenue was down 1% with underlying revenue excluding transit flat.
SME & Corporate voice revenue decreased 1% with higher average revenue per user partly mitigating the continued fall in
business line volumes, as customers move to data and VoIP services. The number of traditional lines declined 7% but this was
partly offset by a 49% increase in the number of IP lines.
SME & Corporate data and networking revenue increased 3% with continued growth in our networking products and fibre
broadband. Business fibre broadband net additions were up 38%. IT services revenue decreased 4% due to lower hardware
sales as we continue to focus our strategy more towards providing higher margin managed services. BT Ireland had another
good quarter, with its underlying revenue excluding transit up 14%, helped by some ICT equipment sales in the Republic of
Ireland and fibre broadband growth in Northern Ireland. Foreign exchange movements had an £8m negative impact on BT
Ireland revenue.
Order intake in the quarter increased 16% to £538m and was up 1% to £2,121m on a rolling twelve-month basis. BT Ireland
signed a deal with Sky Ireland to transport all of its IP core internet traffic, and with the Department of Finance and Personnel
to provide secure data centre facilities. We also signed a deal with ICON for data centre services.
BT Cloud Voice (our business-grade IP voice service) and BT Cloud Phone (a 'plug and play' IP phone system), which we launched
last financial year, continue to perform well. Since the start of this quarter, the number of BT Cloud Voice users has increased
48% and the number of BT Cloud Phone subscriptions has more than doubled.
In May we launched Call Essentials, aimed at small UK businesses with up to 50 phone lines. Customers can enjoy unlimited
calls to UK landlines and mobiles for £10 a month, or with our international package they can make up to 2,500 minutes of
calls to almost any international destination, also for £10 a month. We have signed up around 30,000 customers since launch.
Operating costs were down 2%. Underlying operating costs excluding transit were down 1% reflecting the benefit of our cost
transformation programmes including a 3% reduction in total labour costs. As a result, EBITDA grew 1%. Depreciation and
amortisation was up £4m and operating profit was flat.
Capital expenditure increased by £5m and operating cash flow was 7% lower mainly reflecting the timing of working capital
movements.
9
BT Consumer
Second quarter to 30 September
2015
2014
£m
£m
£m
1,127
1,056
Operating costs
925
EBITDA
Half year to 30 September
2015
2014
%
£m
£m
£m
%
71
7
2,201
2,102
99
5
831
94
11
1,745
1,639
106
6
202
225
(23)
(10)
456
463
(7)
(2)
58
54
4
7
108
109
(1)
(1)
144
171
(27)
(16)
348
354
(6)
(2)
Capital expenditure
56
52
4
8
108
91
17
19
Operating cash flow
53
105
(52)
(50)
264
332
(68)
(20)
Revenue
Depreciation & amortisation
Operating profit
Change
Change
Revenue was up 7% with a 17% increase in broadband and TV revenue and a 1% increase in calls and lines. Consumer ARPU
increased 6% to £427 driven by broadband and customers taking our new BT Sport Europe channels.
BT added 82,000 retail broadband customers, representing 51% of the DSL and fibre broadband market net additions. Fibre
broadband growth continued with 212,000 retail net additions, taking our customer base to 3.4m. Of our broadband
customers, 44% are now on fibre.
Our consumer line losses of 52,000 were the second lowest in over five years. We continued to grow our BT Mobile business,
which launched in March, with our customer base now over 200,000.
On 1 August, we launched our new BT Sport Pack, including the new home of European football, BT Sport Europe. This pack is
free for customers taking BT TV, £5 a month for BT broadband customers and is available via the satellite platform. Its
contribution in the quarter was ahead of our expectations and it has proved popular amongst our sport customers with the
majority now enjoying our entire range of channels. BT Sport average daily audience figures increased 47% in the quarter, with
encouraging viewing figures from the UEFA Champions League so far. In August, we announced that BT Sport had won the UK
rights to show all Australian home cricket internationals, including the 2017/18 Ashes. The five-year rights deal starts in 2016
and includes all Australian Test Matches, One Day Internationals and T20 Internationals played in Australia.
We added 106,000 BT TV customers, taking our customer base to 1.3m. This is our best ever quarter reflecting the
improvements we have made to our TV offering including the launch of BT Sport Europe and our new AMC TV channel. In the
quarter we launched our BT TV Ultra HD package, which includes Europe’s very first live sports Ultra HD (4K) channel and our
new BT TV Ultra HD set top box. Also this quarter we announced a deal to make UKTV’s full portfolio of channels available to
BT customers for the very first time, with Eden, Good Food and Home joining the seven UKTV channels already on BT TV. This
means we now offer a total of 182 channels, including our BT Sport and AMC channels.
In the quarter, we launched our new online security product, BT Protect, which is free for all BT broadband customers and
helps protect them from viruses, scams and phishing attacks by warning them if they are about to visit a potentially harmful
website. It protects devices such as laptops, tablets, mobiles and games consoles, connected both inside the customer’s home
and when using our BT Wi-fi hotspots around the UK. BT Protect is proving to be very popular, with over 100,000 customers
signing up in the first three weeks.
We also launched the new My BT service app that means customers can check their latest bill, view their services, track a BT
order and change an engineer appointment, and includes tools to help optimise a customer’s broadband. BT is the only
broadband provider to offer these tools via an app. It is also possible to contact BT directly through the app if a customer
wants to email, live chat or speak to an advisor.
Operating costs increased 11% as a result of the launch of BT Sport Europe and AMC, leading to a 10% reduction in EBITDA.
Depreciation and amortisation increased 7% and operating profit was down 16%.
Capital expenditure was up £4m in the quarter. Operating cash flow decreased £52m as a result of the lower EBITDA and the
phasing of rights payments for BT Sport Europe content, which were partially offset by favourable other working capital
movements.
10
BT Wholesale
Second quarter to 30 September
Revenue
2015
2014
£m
£m
520
529
Half year to 30 September
Change
£m
(9)
- underlying excluding transit
2015
2014
£m
£m
1,050
1,054
%
(2)
Change
£m
(4)
3
%
0
4
Operating costs
393
404
(11)
(3)
783
803
(20)
(2)
EBITDA
127
125
2
2
267
251
16
6
Depreciation & amortisation
55
55
0
0
113
114
(1)
(1)
Operating profit
72
70
2
3
154
137
17
12
Capital expenditure
46
53
(7)
(13)
90
106
(16)
(15)
Operating cash flow
63
60
3
5
180
71
109
154
Revenue decreased 2% driven by a £25m decline in transit revenue. Underlying revenue excluding transit was up 3% reflecting
ongoing growth in IP services, where revenue was up 22%.
This partly reflects a 23% increase in IP Exchange voice minutes, a platform that now carries over two billion minutes a month.
Ethernet continues to grow strongly with a 26% increase in the rental base, helped by network deals we have won. We continue
to invest in our data product set and in July we launched our new Wholesale Optical product which allows CPs to respond
rapidly to their customers’ changing bandwidth needs.
Managed solutions revenue was up 1%. Calls, lines and circuits revenue was flat, with some specific work for some major
customers offsetting declining volumes.
Broadband revenue declined 12%, an improvement on last quarter’s decline of 21% helped by lower migration to LLU this
quarter. While migration to LLU continues to reduce the total size of our wholesale broadband base, fibre broadband has seen
a pick-up in growth, reflecting demand across the market.
Order intake in the quarter was £349m, up 40% reflecting some key wins across IP Exchange and private circuits. On a rolling
twelve-month basis, our order intake was £2,095m, up 39%.
Operating costs decreased 3%. Underlying operating costs excluding transit increased 4% reflecting the increased volumes in
IP services, partially offset by a 15% reduction in selling and general administration costs as we continue to focus on our cost
transformation activities.
EBITDA grew 2%. Depreciation and amortisation was in line with the prior year and operating profit was up 3%.
Capital expenditure was £7m lower contributing to operating cash flow growing £3m.
11
Openreach
Second quarter to 30 September
2015
2014
£m
£m
£m
1,267
1,245
Operating costs
619
EBITDA
Half year to 30 September
2015
2014
%
£m
£m
£m
%
22
2
2,516
2,490
26
1
618
1
0
1,229
1,239
(10)
(1)
648
627
21
3
1,287
1,251
36
3
Depreciation & amortisation
330
335
(5)
(1)
665
684
(19)
(3)
Operating profit
318
292
26
9
622
567
55
10
Capital expenditure
348
246
102
41
750
504
246
49
Operating cash flow
329
339
(10)
(3)
599
637
(38)
(6)
Revenue
Change
Change
Revenue increased 2% driven by continued strong growth in fibre broadband revenue, which was up 38%. This growth was
partly offset by regulatory price changes which had a negative impact of around £30m, the equivalent of around 2% of our
revenue.
We continue to extend the reach of fibre broadband beyond our commercial footprint as part of the BDUK programme. We
passed around 700,000 properties in the quarter which means our fibre broadband network is available to 24m premises, over
80% of the UK.
We achieved 415,000 fibre broadband net connections, an increase of 21%. This brings the number of homes and businesses
connected to 5m, 21% of those passed. External CP customers added a record 203,000, or 49%, of the net connections in the
quarter demonstrating the market-wide demand for fibre.
The UK broadband market1 increased by 160,000 connections in the quarter compared with 182,000 in the prior year. The
physical line base increased by 7,000 in the quarter and has increased by 188,000 over the past 12 months.
Our ultrafast fibre broadband trials in Huntingdon and Gosforth are progressing well with homes and businesses participating
in the trial now able to receive speeds of up to 330Mbps using G.fast technology. We plan to run the trials for six to nine
months allowing Openreach, and its eight CP trialists, to assess the technical performance of the technology across a large
footprint.
Operating costs were flat year on year with our cost transformation activities offset by the additional costs to deliver revenue
growth and by the investments we are making to improve customer service. There was no benefit this quarter from the sale
of redundant copper (Q2 2014/15: £6m). EBITDA grew 3% and depreciation and amortisation was 1% lower with operating
profit up 9%.
Capital expenditure of £348m, which is after net grant funding of £61m (Q2 2014/15: £94m), was up 41%. This was mainly due
to our fibre broadband rollout, connecting new homes, and higher volumes of Ethernet provision. For the year as a whole, we
expect capital expenditure in Openreach to be above 2014/15 as we continue to invest in these areas.
Operating cash flow decreased 3% with the growth in EBITDA and favourable working capital movements more than offset by
higher capital expenditure.
1
DSL and fibre
12
FINANCIAL STATEMENTS
Group income statement
For the second quarter to 30 September 2015
Revenue
Operating costs
Note
2
3
Before
specific
items
£m
4,381
Specific
items
(Note 4)
£m
78
(3,562)
(84)
Total
£m
4,459
(3,646)
Operating profit
819
(6)
813
Finance expense
(115)
(58)
(173)
Finance income
Net finance expense
3
(112)
(58)
3
(170)
Share of post-tax losses of associates and joint
ventures
Profit before tax
(1)
706
(64)
(1)
642
Tax
(129)
12
(117)
Profit for the period
577
(52)
525
Earnings per share
- basic
9
- diluted
6.9p
6.3p
6.8p
6.2p
Group income statement
For the second quarter to 30 September 2014
Revenue
Operating costs
Note
2
3
Before
specific
items
£m
4,383
Specific
items
(Note 4)
£m
58
(3,551)
(112)
Total
£m
4,441
(3,663)
Operating profit
832
(54)
778
Finance expense
(147)
(73)
(220)
Finance income
Net finance expense
4
(143)
(73)
4
(216)
Share of post-tax profits of associates and joint
ventures
Profit before tax
1
690
(127)
1
563
Tax
(137)
20
(117)
Profit for the period
553
(107)
446
Earnings per share
- basic
- diluted
9
6.9p
5.6p
6.8p
5.5p
13
Group income statement
For the half year to 30 September 2015
Revenue
Operating costs
Note
2
3
Before
specific
items
£m
8,659
(7,019)
1,640
Operating profit
Finance expense
(253)
Finance income
Net finance expense
(244)
9
Share of post-tax profits of associates and joint
ventures
Profit before tax
4
1,400
(261)
Tax
1,139
Profit for the period
Specific
items
(Note 4)
£m
160
(173)
(13)
(113)
(113)
(126)
23
(103)
Total
£m
8,819
(7,192)
1,627
(366)
9
(357)
4
1,274
(238)
1,036
Earnings per share
- basic
9
- diluted
13.6p
12.4p
13.5p
12.3p
Group income statement
For the half year to 30 September 2014
Revenue
Operating costs
Note
2
3
Operating profit
Before
specific
items
£m
8,737
Specific
items
(Note 4)
£m
58
(7,122)
(156)
(7,278)
1,615
(98)
1,517
Total
£m
8,795
Finance expense
(295)
(146)
(441)
Finance income
Net finance expense
7
(288)
(146)
7
(434)
1
-
25
1
25
Share of post-tax profits of associates and joint
ventures
Profit on disposal of interest in associate
Profit before tax
1,328
Tax
(264)
Profit for the period
1,064
(219)
1,109
42
(222)
(177)
887
Earnings per share
- basic
- diluted
9
13.4p
11.2p
13.2p
11.0p
14
Group statement of comprehensive income
For the second quarter and half year to 30 September
Profit for the period
Other comprehensive income (loss)
Items that will not be reclassified to the income
statement
Actuarial gains (losses) relating to retirement benefit
obligations
Tax on actuarial gains and losses
Items that may be reclassified subsequently to the
income statement
Exchange differences on translation of foreign
operations
Fair value movements on available-for-sale assets
Second quarter
to 30 September
2015
2014
£m
£m
525
446
Half year
to 30 September
2015
2014
£m
£m
1,036
887
275
(55)
(5)
1
157
(31)
(41)
8
45
36
(59)
(27)
1
-
6
2
Fair value movements on cash flow hedges:
- net fair value gains (losses)
- recognised in income and expense
Tax on components of other comprehensive income
that may be reclassified
Other comprehensive income (loss) for the period, net
of tax
Total comprehensive income for the period
307
104
(76)
(50)
(165)
(148)
121
26
(18)
10
390
(2)
915
444
(8)
110
1,146
(82)
805
15
Group statement of changes in equity
For the half year to 30 September 2015
Share
capital
£m
419
Share
premium
£m
1,051
-
-
-
-
-
-
(129)
-
-
-
(8)
Comprehensive (loss) income
-
-
-
121
(16)
Dividends to shareholders
-
-
-
-
(710)
(710)
Share-based payments
-
-
-
-
32
32
Net buyback of own shares
-
-
98
-
(265)
(167)
Other movements
-
-
-
-
(3)
(3)
419
1,051
(67)
1,469
(1,766)
(829)
1,447
(1,680)
At 1 April 2015
Profit for the period
Other comprehensive (loss) income
before tax
Tax on other comprehensive (loss)
income
Transferred to the income statement
At 30 September 2015
Own
shares
£m
(165)
Other
reserves
£m
1,485
-
Retained
earnings
£m
(1,982)
Total
equity
£m
808
1,036
1,036
157
28
(31)
(39)
1,162
121
1,146
1,106
For the half year to 30 September 2014
At 1 April 2014
408
62
Profit for the period
-
-
-
Other comprehensive loss before tax
-
-
-
Tax on other comprehensive loss
-
-
-
Transferred to the income statement
Comprehensive (loss) income
-
-
-
Dividends to shareholders
-
-
-
Share-based payments
-
-
Net buyback of own shares
-
-
408
62
At 30 September 2014
(73)
887
(43)
(116)
8
8
852
26
805
-
(609)
(609)
-
-
36
36
746
-
(751)
(5)
1,400
(2,152)
(365)
(83)
-
(592)
887
26
(47)
16
Group cash flow statement
For the second quarter and half year to 30 September
Second quarter
to 30 September
2015
2014
Half year
to 30 September
2015
2014
£m
£m
£m
£m
642
563
1,274
1,109
13
18
32
36
Cash flow from operating activities
Profit before tax
Share-based payments
Profit on disposal of subsidiaries and interest in associates
Share of post-tax losses (profits) of associates and joint
ventures
Net finance expense
-
(1)
1
170
(1)
216
Depreciation and amortisation
623
618
(150)
(254)
(684)
(806)
43
(627)
98
Increase in working capital
Provisions, pensions and other non-cash movements1
Cash generated from operating
activities2
Tax paid
(9)
1,290
(45)
Net cash inflow from operating activities
1,202
(117)
(4)
357
1,251
1,599
(64)
(26)
(1)
434
1,270
2,114
(231)
1,245
1,085
1,535
1,883
Interest received
2
2
5
4
Dividends received from associates and joint ventures
-
-
17
-
(1)
(4)
(2)
(6)
(597)
3
(521)
(1,225)
28
(1,054)
Cash flow from investing activities
subsidiaries3
Acquisition of
and joint ventures
Proceeds on disposal of subsidiaries3, associates and joint
ventures
Purchases of property, plant and equipment and software
Proceeds on disposal of property, plant and equipment
Net purchase of non-current asset investments
Purchases of current asset investments
Sale of current asset investments
Net cash (used in) generated from investing activities
2
-
-
4
-
3
(2)
(2,146)
(1,697)
(3,625)
(4,112)
2,665
2,180
5,819
4,734
(75)
(37)
993
(405)
(67)
(89)
(253)
(296)
(704)
(603)
(705)
(604)
Cash flow from financing activities
Interest paid
Equity dividends paid
New borrowings
1
Repayment of borrowings4
Cash flows from derivatives related to net debt
Net repayment of commercial paper
Proceeds on issue of own shares
-
(794)
(520)
78
59
-
-
1
(1,271)
(66)
-
812
(1,151)
50
(338)
81
188
83
192
Repurchase of ordinary share capital
(61)
(56)
(250)
(197)
Net cash used in financing activities
(1,466)
(1,021)
(2,461)
(1,532)
Net (decrease) increase in cash and cash equivalents
Opening cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Effect of exchange rate changes
Closing cash and cash
equivalents5
(296)
27
67
(54)
761
598
407
684
(296)
27
67
(54)
4
6
(5)
1
469
631
469
631
1
Includes pension deficit payments of £nil for the quarter (Q2 2014/15: £nil) and £625m for the half year to 30 September 2015 (HY 2014/15: £nil).
Includes cash flows relating to programme rights
3 Acquisitions and disposals of subsidiaries are shown net of cash acquired or disposed of
4 Repayment of borrowings includes the impact of hedging and repayment of lease liabilities
5 Net of bank overdrafts of £16m (30 September 2014: £17m)
2
17
Group balance sheet
Non-current assets
Intangible assets
Property, plant and equipment
Derivative financial instruments
Investments
Associates and joint ventures
Trade and other receivables
Deferred tax assets
Current assets
Programme rights
Inventories
Trade and other receivables
Current tax receivable
Derivative financial instruments
Investments
Cash and cash equivalents
Current liabilities
Loans and other borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Total assets less current liabilities
Non-current liabilities
Loans and other borrowings
Derivative financial instruments
Retirement benefit obligations
Other payables
Deferred tax liabilities
Provisions
Equity
Ordinary shares
Share premium
Own shares
Other reserves
Retained loss
Total equity (deficit)
30 September
2015
£m
30 September
2014
£m
31 March
2015
£m
3,076
13,607
1,124
48
15
180
1,420
19,470
3,051
13,627
657
38
22
148
1,468
19,011
3,170
13,505
1,232
44
26
184
1,559
19,720
541
112
3,327
65
77
1,336
485
5,943
280
116
3,249
23
61
1,152
648
5,529
118
94
3,140
65
97
3,523
434
7,471
983
62
5,254
289
137
6,725
1,677
115
4,974
163
123
7,052
1,900
168
5,276
222
142
7,708
18,688
17,488
19,483
7,407
851
6,958
1,032
955
379
17,582
7,564
709
7,296
901
961
422
17,853
7,868
927
7,583
927
948
422
18,675
419
1,051
(67)
1,469
(1,766)
1,106
18,688
408
62
(83)
1,400
(2,152)
(365)
17,488
419
1,051
(165)
1,485
(1,982)
808
19,483
18
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation and accounting policies
These condensed consolidated financial statements (‘the financial statements’) comprise the financial results of BT Group plc
for the quarters and half years to 30 September 2015 and 2014 together with the audited balance sheet at 31 March 2015.
The financial statements for the half year to 30 September 2015 have been reviewed by the auditors and their review opinion
is on page 27. The financial statements have been prepared in accordance with the Disclosure and Transparency Rules (DTR)
of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union. The financial
statements should be read in conjunction with the annual financial statements for the year to 31 March 2015.
Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
Except as described below and other than income taxes which are accrued using the tax rate that is expected to be applicable
for the full financial year, the financial statements have been prepared in accordance with the accounting policies as set out in
the financial statements for the year to 31 March 2015 and have been prepared under the historical cost convention as
modified by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value. These
financial statements do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year to 31 March 2015 were approved by the Board of Directors on 6 May 2015, published on 21
May 2015, and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did
not contain any statement under Section 498 of the Companies Act 2006.
19
2 Operating results – by line of business1
External
revenue
Internal
revenue
Group
revenue
EBITDA
Operating
profit (loss)
£m
£m
£m
£m
£m
1,551
8
1,559
216
86
693
88
781
261
212
BT Consumer
1,111
16
1,127
202
144
BT Wholesale
520
-
520
127
72
501
766
1,267
648
318
(12)
(13)
Second quarter to 30 September 2015
BT Global Services
BT Business
Openreach
Other and intra-group items
2
Total
5
(878)
(873)
4,381
-
4,381
1,442
819
1,643
6
1,649
226
102
686
103
789
258
213
BT Consumer
1,041
15
1,056
225
171
BT Wholesale
529
-
529
125
70
481
764
1,245
627
292
(11)
(16)
Second quarter to 30 September 2014
BT Global Services
BT Business
Openreach
Other and intra-group items
2
Total
3
(888)
(885)
4,383
-
4,383
1,450
832
BT Global Services
3,087
15
3,102
406
149
BT Business
1,349
181
1,530
501
402
BT Consumer
2,170
31
2,201
456
348
BT Wholesale
1,050
-
1,050
267
154
995
1,521
2,516
1,287
622
(1,748)
(1,740)
Half year to 30 September 2015
Openreach
Other and intra-group items
2
Total
8
(26)
(35)
8,659
-
8,659
2,891
1,640
BT Global Services
3,282
14
3,296
439
175
BT Business
1,360
191
1,551
498
410
BT Consumer
2,073
29
2,102
463
354
BT Wholesale
1,054
-
1,054
251
137
957
1,533
2,490
1,251
567
11
(1,767)
(1,756)
Half year to 30 September 2014
Openreach
Other and intra-group items
Total
1
2
2
8,737
-
8,737
(17)
2,885
(28)
1,615
Before specific items
Elimination of intra-group revenue, which is included in the total revenue of the originating business
20
3 Operating costs
Direct labour costs
Indirect labour costs
Leaver costs
Total labour costs
Capitalised labour
Second quarter
to 30 September
2015
2014
£m
£m
1,141
1,154
Half year
to 30 September
2015
2014
£m
£m
2,283
2,331
186
190
370
390
20
1
36
3
1,347
1,345
2,689
2,724
(291)
(260)
(581)
(521)
1,056
1,085
2,108
2,203
Payments to telecommunications operators
533
552
1,029
1,082
Property and energy costs
241
241
486
485
Network operating and IT costs
163
153
299
312
Programme rights charges
135
83
221
161
Other costs
Operating costs before depreciation and specific items
811
819
1,625
1,609
Depreciation and amortisation
2,939
623
2,933
618
5,768
1,251
5,852
1,270
Total operating costs before specific items
3,562
3,551
7,019
7,122
84
112
173
156
3,646
3,663
7,192
7,278
Net labour costs
Specific items (Note 4)
Total operating costs
4 Specific items
The group separately identifies and discloses those items that in management’s judgement need to be disclosed by virtue of
their size, nature or incidence (termed ‘specific items’). This is consistent with the way that financial performance is measured
by management and assists in providing a meaningful analysis of the trading results of the group. Specific items may not be
comparable to similarly titled measures used by other companies.
Second quarter
to 30 September
2015
2014
£m
£m
Half year
to 30 September
2015
2014
£m
£m
Specific revenue
Retrospective regulatory matters
(78)
(58)
(160)
(58)
Specific operating costs
Profit on disposal of subsidiary
-
(1)
-
Restructuring charges
-
60
-
104
Provision for regulatory risks
-
53
-
53
78
-
160
-
Retrospective regulatory matters
(1)
6
-
13
-
Specific operating costs
84
112
173
156
EBITDA impact (Note 7)
6
54
13
98
56
73
111
146
Profit on disposal of interest in associate
-
-
-
EE acquisition-related finance costs
2
-
2
-
Net specific items charge before tax
64
127
126
219
Tax credit on specific items before tax
(12)
(20)
(23)
(42)
52
107
103
177
EE acquisition-related costs
Net interest expense on pensions
Net specific items charge after tax
(25)
21
5 Free cash flow
Free cash flow is not a measure defined under IFRS but is a key indicator used by management to assess operational
performance.
Second quarter
to 30 September
Cash generated from operations
2015
2014
2015
2014
£m
1,290
£m
1,202
£m
1,599
£m
2,114
(45)
Tax paid
Net cash inflow from operating activities
Add back pension deficit payments
Half year
to 30 September
(117)
(64)
(231)
1,245
1,085
1,535
1,883
-
-
625
-
Included in cash flows from investing activities
Net purchase of property, plant, equipment and software
Interest received
(595)
2
(521)
2
(1,221)
5
Net purchase of non-current asset investments
-
-
-
Dividends received from associates and joint ventures
-
-
17
(1,051)
4
(2)
-
Included in cash flows from financing activities
Interest paid
(67)
(89)
(253)
(296)
Reported free cash flow
585
477
708
538
30
75
82
155
(46)
(19)
(115)
(38)
569
533
675
655
Net cash outflow from specific items
Cash tax benefit of pension deficit payments
Normalised free cash flow
6 Net debt
Net debt is not a measure defined under IFRS but is used by management as a key indicator of the group’s balance sheet
strength.
Loans and other borrowings
1
30 September
30 September
31 March
2015
2014
2015
£m
8,390
£m
9,241
£m
9,768
Cash and cash equivalents
Current investments
Adjustments:
To re-translate currency denominated balances at swapped
rates where hedged
To remove fair value adjustments and accrued interest
applied to reflect the effective interest method
Net debt
1
(485)
(648)
(434)
(1,336)
(1,152)
(3,523)
6,569
7,441
5,811
(336)
(104)
(357)
(314)
5,919
(274)
7,063
(335)
5,119
Includes overdrafts of £16m at 30 September 2015 (30 September 2014: £17m; 31 March 2015: £27m)
22
7 Reconciliation of earnings before interest, taxation, depreciation and amortisation
Earnings before interest, taxation, depreciation and amortisation (EBITDA) is not a measure defined under IFRS, but is a key
indicator used by management to assess operational performance. A reconciliation of reported profit before tax to adjusted
EBITDA is provided below.
Second quarter
to 30 September
2015
2014
£m
£m
Reported profit before tax
Share of post-tax losses (profits) of associates
and joint ventures
Profit on disposal of interest in associate
642
1
563
(1)
Half year
to 30 September
2015
2014
£m
£m
1,274
(4)
1,109
(1)
-
-
-
Net finance expense
170
216
357
434
(25)
Operating profit
813
778
1,627
1,517
Depreciation and amortisation
623
618
1,251
1,270
Reported EBITDA
1,436
1,396
2,878
2,787
Specific items (Note 4)
Adjusted EBITDA
6
1,442
54
1,450
13
2,891
98
2,885
8 Reconciliation of adjusted profit before tax
Second quarter
to 30 September
2015
2014
£m
£m
Half year
to 30 September
2015
2014
£m
£m
Reported profit before tax
642
563
1,274
1,109
Specific items (Note 4)
Adjusted profit before tax
64
706
127
690
126
1,400
219
1,328
9 Reconciliation of adjusted earnings per share
Second quarter
to 30 September
2015
2014
pence per share
Half year
to 30 September
2015
2014
pence per share
Reported earnings per share
6.3
5.6
12.4
11.2
Per share impact of specific items
Adjusted earnings per share
0.6
6.9
1.3
6.9
1.2
13.6
2.2
13.4
23
10 Pensions
30 September 2015
£bn
IAS 19 liabilities - BTPS
Assets - BTPS
Other schemes
30 June 2015
£bn
31 March 2015
£bn
(48.2)
(49.7)
(50.7)
41.5
(0.3)
42.8
(0.3)
43.4
(0.3)
Total IAS 19 deficit, gross of tax
(7.0)
(7.2)
(7.6)
Total IAS 19 deficit, net of tax
(5.6)
(5.8)
(6.1)
3.60%
0.68%
2.90%
1.0% below RPI until 31
March 2017 and 1.2%
below RPI thereafter
3.60%
0.44%
3.15%
1.0% below RPI until 31
March 2017 and 1.2%
below RPI thereafter
3.25%
0.39%
2.85%
1.0% below RPI until 31
March 2017 and 1.2%
below RPI thereafter
Discount rate (nominal)
Discount rate (real)
RPI inflation
CPI inflation
The group made a deficit payment of £625m in April 2015 and expects to make additional contributions of around £510m to
the BT Pension Scheme (BTPS) in 2015/16, comprising ordinary contributions of around £260m and deficit contributions of
£250m.
11 Financial instruments and risk management
Fair value of financial assets and liabilities measured at amortised cost
At 30 September 2015, the fair value of loans and borrowings was £9,824m (31 March 2015: £11,658m) and the carrying value
was £8,390m (31 March 2015: £9,768m).
The fair value of the following financial assets and liabilities approximate their carrying amount:
 Cash and cash equivalents
 Trade and other receivables
 Trade and other payables
 Provisions
 Investments classified as loans and receivables
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 2015.
Fair value estimation
Financial instruments measured at fair value consist of derivative financial instruments and investments classified as availablefor-sale or designated at fair value through profit and loss. These instruments are further analysed by three levels of valuation
methodology which are:
1.
2.
3.
Level 1 – uses quoted prices in active markets for identical assets or liabilities
Level 2 – uses inputs for the asset or liability other than quoted prices, that are observable either directly or
indirectly
Level 3 – uses inputs for the asset or liability that are not based on observable market data, such as internal
models or other valuation methods.
The fair value of the group’s outstanding derivative financial assets and liabilities were estimated using discounted cash flow
models and market rates of interest and foreign exchange at the balance sheet date.
24
11 Financial instruments and risk management (continued)
30 September 2015
Investments
Available-for-sale
Fair value through profit and loss
Derivative assets
Designated in a hedge
Fair value through profit and loss
Total assets
Derivative liabilities
Designated in a hedge
Fair value through profit and loss
Total liabilities
31 March 2015
Investments
Available-for-sale
Fair value through profit and loss
Derivative assets
Designated in a hedge
Fair value through profit and loss
Total assets
Derivative liabilities
Designated in a hedge
Fair value through profit and loss
Total liabilities
Level 1
£m
Level 2
£m
Level 3
£m
Total held at
fair value
£m
31
7
1,308
-
10
-
1,349
7
38
900
301
2,509
10
900
301
2,557
-
687
226
913
-
687
226
913
Level 1
£m
Level 2
£m
Level 3
£m
Total held at
fair value
£m
26
8
3,133
-
10
-
3,169
8
34
1,176
153
4,462
10
1,176
153
4,506
-
859
236
1,095
-
859
236
1,095
No gains or losses have been recognised in the income statement in respect of Level 3 assets held at 30 September 2015. There
were no changes to the valuation methods or transfers between levels 1, 2 and 3 during the half year.
12 Share capital
In the half year to 30 September 2015, 81m shares (HY 2014/15: 320m) at a total cost of £348m (HY 2014/15: £941m),
calculated at a weighted average cost per share, were transferred from own shares to satisfy obligations under all-employee
and executive share plans. We received cash proceeds of £83m (HY 2014/15: £192m).
The majority of the shares transferred from own shares were to satisfy all-employee share option maturities.
13 Financial commitments
Capital expenditure for property, plant and equipment and software contracted for at the balance sheet date but not yet
incurred was £498m (30 September 2014: £469m; 31 March 2015: £507m). Programme rights commitments, mainly relating
to football broadcast rights for which the licence period has not yet started, were £1,989m (30 September 2014: £1,400m; 31
March 2015: £2,512m).
14 Related party transactions
Related party transactions in the half year to 30 September 2015 are similar in nature to those disclosed in Note 28 of the
Annual Report & Form 20-F 2015.
25
15 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 41 to 49 of the Annual Report & Form 20-F 2015 and are summarised below. All of them have the potential to
have an adverse impact on our business, revenue, profits, assets, liquidity and capital resources.








The risks that could impact the security of our data or the resilience of our operations and services
The risks associated with complex and high value national and multinational customer contracts
The risks associated with a significant funding obligation in relation to our defined benefit pension scheme
The risks arising from operating in markets which are characterised by: high levels of change; strong and new
competition; declining prices and in some markets declining revenues; technology substitution; market and product
convergence; customer churn; and regulatory intervention to promote competition and reduce wholesale prices
The risks associated with some of our activities being subject to significant price and other regulatory controls
The risks associated with operating under a wide range of local and international anti-corruption and bribery laws,
trade sanctions and import and export controls
The risk there could be a failure of any of our critical third-party suppliers to meet their obligations
The risks arising from operating as a major data controller and processor of customer information around the world
There have been no significant changes to the principal risks and uncertainties in the half year to 30 September 2015, some or
all of which have the potential to impact our results or financial position during the remaining six months of the financial year.
Our proposed acquisition of EE creates additional risks for BT beyond those captured in our principal risks and uncertainties.
These are described on pages 51 and 52 of the Annual Report & Form 20-F 2015.
16 Post balance sheet event
Changes to the UK corporation tax rates were announced in the Chancellor's Budget on 8 July 2015 and substantively enacted
on 26 October 2015. These include reductions in the rate to 19% from 1 April 2017 and to 18% from 1 April 2020. As the
changes had not been substantively enacted at the balance sheet date their effects are not included in these financial
statements.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors confirm, to the best of their knowledge, that this condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that the Interim Management Report includes a fair review of
the information required by Rules 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom’s Financial
Conduct Authority.
The names and functions of the BT Group plc board can be found at:
http://www.btplc.com/thegroup/ourcompany/theboard/ourboard/index.htm
By order of the Board
Gavin Patterson
Chief Executive
Tony Chanmugam
Group Finance Director
28 October 2015
26
INDEPENDENT REVIEW REPORT TO BT GROUP PLC
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed the condensed consolidated financial statements, defined below, in the half year financial report of BT
Group plc for the six months ended 30 September 2015. Based on our review, nothing has come to our attention that causes
us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in the remainder of this report.
What we have reviewed
The condensed consolidated financial statements, which are prepared by BT Group plc, comprise:





the Group balance sheet as at 30 September 2015;
the Group income statement and Group statement of comprehensive income for the six month period then ended;
the Group cash flow statement for the six month period then ended;
the Group statement of changes in equity for the six month period then ended; and
the explanatory notes to the condensed consolidated financial statements.
As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial
statements of the Group is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European
Union.
The condensed consolidated financial statements included in the half year financial report have been prepared in accordance
with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure
and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What a review of condensed consolidated financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review
of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half year financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed consolidated financial statements.
27
Responsibilities for the condensed consolidated financial statements and the review
Our responsibilities and those of the directors
The half year financial report, including the condensed consolidated financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the half year financial report in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on the condensed consolidated financial statements in the half
year financial report based on our review. This report, including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for
no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in
writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 October 2015
Notes:
a) The maintenance and integrity of BT Group plc’s website is the responsibility of the directors; the work carried out by
the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
28
Forward-looking statements – caution advised
Certain statements in this results release are forward-looking and are made in reliance on the safe harbour provisions of the
US Private Securities Litigation Reform Act of 1995. These statements include, without limitation, those concerning: our
2015/16 outlook, including growth in revenue, EBITDA and free cash flow; growing dividends and continued share buyback;
our credit rating; demand for, our investment in and roll out of fibre broadband; our ultrafast broadband trials; and our
investment in, and demand for, our BT TV and BT Sport Europe offerings.
Although BT believes that the expectations reflected in these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties,
actual results may differ materially from those expressed or implied by these forward-looking statements.
Factors that could cause differences between actual results and those implied by the forward-looking statements include, but
are not limited to: material adverse changes in economic conditions in the markets served by BT; future regulatory and legal
actions, decisions, outcomes of appeal and conditions or requirements in BT’s 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;
fluctuations in foreign currency exchange rates and interest rates; technological innovations, including the cost of developing
new products, networks and solutions and the need to increase expenditures for improving the quality of service; prolonged
adverse weather conditions resulting in a material increase in overtime, staff or other costs, or impact on customer service;
developments in the convergence of technologies; the anticipated benefits and advantages of new technologies, products and
services not being realised; the timing of entry and profitability of BT in certain communications markets; significant changes
in market shares for BT and its principal products and services; the underlying assumptions and estimates made in respect of
major customer contracts proving unreliable; uncertainties and assumptions relating to the planned EE acquisition, conditions
of the acquisition not being satisfied and the anticipated synergies, benefits and return on investment not being realised; and
general financial market conditions affecting BT’s performance and ability to raise finance. BT undertakes no obligation to
update any forward-looking statements whether as a result of new information, future events or otherwise.
29