BT 2009 Annual Report Download - page 35

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS
33BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
Introduction to the Financial review
In the Financial review we discuss the results of the group for 2009,
2008 and 2007. We explain the performance of the business using
a variety of measures, some of which are not explicitly defined
under IFRS, and are therefore termed ‘non-GAAP measures’. These
measures are in addition to, and supplement, those prepared in
accordance with IFRS. In particular, in this Financial review, we
principally discuss the group’s results on an adjusted basis. Results
on an adjusted basis are presented before the contract and financial
review charges recorded within BT Global Services and specific
items. Further discussion of the BT Global Services contract and
financial review charges is given on page 10. In our income
statement we separately identify specific items and present our
results both before and after these items. This is consistent with the
way that financial performance is measured by management and
assists in providing a meaningful analysis of our results. The
directors believe that presentation of the group’s trading results in
this way is relevant to an understanding of the group’s performance
as specific items are significant one-off or unusual in nature and
have little predictive value. Specific items are therefore analysed
and discussed separately in this Financial review. The other non-
GAAP measures we use in this Financial review are underlying
revenue, underlying operating costs, free cash flow and net debt.
Each of these measures is discussed in more detail at the end of
this section, on pages 47 and 48.
In the Financial review, references we make to ‘2009’, ‘2008’,
and ‘2007’ are to the financial years ended 31 March 2009, 2008
and 2007, respectively. References to ‘the year’ and ‘the current
year’ are to the year ended 31 March 2009.
Line of business results
The financial performance of the lines of business for 2009, 2008
and 2007 are discussed in the Business review. We measure the
financial performance of BT Retail, BT Wholesale and Openreach
based on EBITDA and operating profit before specific items. For
2009 we measure the results of BT Global Services on an ‘adjusted’
basis, being before the impact of contract and financial review
charges and specific items. For further discussion of these items,
see pages 47 to 48. A reconciliation of adjusted EBITDA to group
operating profit (loss) by line of business, and for the group, is
provided in the table at the foot of pages 34 to 35.
Internal cost recorded by
BT Global BT BT
Services Retail Wholesale Openreach Other Total
£m £m £m £m £m £m
Internal revenue recorded by:
BT Global Services – – – – – –
BT Retail 219 – 51 4 85 359
BT Wholesale – – – 1,228 – 1,228
Openreach – 2,250 85 – 1,918 4,253
Total 219 2,250 136 1,232 2,003 5,840
The table above analyses the trading relationships between each of
the lines of business for 2009. The majority of the internal trading
relates to Openreach and arises on rentals, and any associated
connection or migration charges, of the UK access lines and other
network products to the customer-facing lines of business, both
directly, and also indirectly through BT Operate which is included
within Other in the table above. Internal revenue arising in BT Retail
relates primarily to BT Ireland and Enterprises. Internal revenue
arising in BT Wholesale relates to the sale of line cards and access
electronic services to Openreach.
Group results
Group revenue
Revenue increased by 3% to £21,390m. This compares with growth
of 2% in 2008 and 4% in 2007. Foreign exchange movements and
the impact of acquisitions contributed £653m and £521m,
respectively, to revenue growth in the year. Excluding these,
underlying revenue decreased by 2% in 2009, compared with
group revenue in 2008.
Underlying revenue
2009
£m
Group revenue 21,390
Foreign exchange movements (653)
Acquisitions (521)
Underlying revenuea20,216
aUnderlying revenue is a new ‘non-GAAP measure’ used by the group for the first time in 2009.
This measure is discussed in more detail at the end of this section on page 47.
Product revenue
2009 2008 2007
£m £m £m
Revenue by product
Managed solutions 6,365 5,320 4,825
Broadband and convergence 2,637 2,567 2,310
Calls and lines 6,305 6,818 7,098
Transit, conveyance,
interconnect services, WLR,
global carrier and other
wholesale products 3,301 3,398 3,452
Other 2,782 2,601 2,538
Group total 21,390 20,704 20,223
Managed solutions revenue, including MPLS and networked IT
services, increased by 20% to £6,365m, mainly due to the impact
of foreign exchange movements on networked IT services revenue
and an increase in BT Wholesale managed network solutions
revenue arising from new contracts in 2009. In 2008, managed
solutions revenue increased by 10%, driven by growth in revenue
0
5,000
10,000
15,000
20,000
25,000
2007 2008 2009
Managed solutions
Broadband and
convergence
Calls and lines
Other
Transit, conveyance, interconnect
services, WLR, global carrier and
other wholesale products
Revenue by product – year ended 31 March (£m)