BT 2013 Annual Report Download - page 173

Additional information
171
Additional information
Additional information
EBITDA
In addition to measuring financial performance of the group and lines of business based on operating profit, we also measure performance based on
EBITDA and adjusted EBITDA. EBITDA is defined as the group profit before depreciation, amortisation, net finance expense and taxation. Adjusted
EBITDA is defined as EBITDA before specific items. EBITDA is a common measure used by investors and analysts to evaluate the operating financial
performance of companies, particularly in the telecommunications sector.
We consider EBITDA and adjusted EBITDA to be useful measures of our operating performance because they approximate the underlying operating
cash flow by eliminating depreciation and amortisation. EBITDA and adjusted EBITDA are not direct measures of our liquidity, which is shown by our
cash flow statement, and need to be considered in the context of our financial commitments.
A reconciliation from group operating profit, the most directly comparable IFRS measure, to reported and adjusted group EBITDA, is set out below.
A reconciliation between operating profit and adjusted EBITDA for our lines of business is set out in note 4 to the consolidated financial statements.
2013 2012 2011
Year ended 31 March £m £m £m
Operating profit 2,986 2,919 2,578
Depreciation and amortisation 2,843 2,972 2,979
Reported EBITDA 5,829 5,891 5,557
Specific items 352 173 329
Adjusted EBITDA 6,181 6,064 5,886
Earnings per share
We also measure financial performance based on adjusted earnings per share, which excludes specific items. Basic and adjusted earnings per share,
and the per share impact of specific items, are as follows:
2013 2012 2011
Pence Pence Pence
Year ended 31 March per share £m per share £m per share £m
Basic earnings per share/profita26.7 2,089 25.8 2,002 19.4 1,502
Specific itemsb(0.1) (3) (2.1) (166) 1.6 127
Adjusted basic earnings per share/profit 26.6 2,086 23.7 1,836 21.0 1,629
aThe stated profit amounts are the components of the total profit which are attributable to equity shareholders excluding non-controlling interests.
bSpecific items are set out in note 9 to the consolidated financial statements.
Free cash flow
Normalised free cash flow is one of the group’s key performance indicators by which our financial performance is measured. Normalised free cash
flow is defined as the net increase in cash and cash equivalents less: cash flows from financing activities (except net interest paid); the acquisition or
disposal of group undertakings; the net sale of short-term investments and excluding: the cash impact of specific items; purchases of
telecommunications licences; and the cash tax benefit of pension deficit payments. For non-tax related items the adjustments are made on a pre-
tax basis.
Normalised free cash flow is primarily a liquidity measure. However, we also believe it is an important indicator of our overall operational
performance as it reflects the cash we generate from operations after capital expenditure and financing costs, both of which are significant ongoing
cash outflows associated with investing in our infrastructure and financing our operations. In addition, normalised free cash flow excludes cash
flows that are determined at a corporate level independently of ongoing trading operations such as dividends, share buybacks, acquisitions and
disposals and repayment of debt. Normalised free cash flow is not a measure of the funds that are available for distribution to shareholders.
Adjusted free cash flow was a key performance indicator until last year. Certain of our historical incentive awards still use this as one of the
performance criteria for vesting. Adjusted free cash flow does not exclude purchases of telecommunications licences and the cash tax benefit of
pension deficit payments.