BT 2014 Annual Report Download - page 66

63
The Strategic Report
Group performance
Group performance
Operating costs
We reduced operating costs before depreciation and amortisation by
£25m in the year. Our investment of around £450m in BT Sport was
oset by our focus on cost transformation.
Our total operating costs before depreciation and amortisation were
down £25m at £12,171m (201213 down 9%). Our ability to
maintain costs at this level while investing reects our strong cost
control. Excluding our investment in BT Sport and a £64m non-cash
increase in the pensions operating charge, underlying operating costs
before depreciation and amortisation and excluding transit decreased
3%. In aggregate, operating costs and capital expenditure have reduced
by around £5bn over the last ve years despite signicant investment
across the business.
2014 2013
Net labour costs
POLOs
Property, energy
and network costs
Other
BT Sport (including
programme rights
charges)
£m
11,500
12,000
12,500
Operating costs before depreciation, amortisation and speciƬc itemsa
Year ended 31 March
12,196
c. 450
12,171
205
59
102
109
a 5estated. See note 1 to the consolidated Ƭnancial statements.
Net labour costs decreased 2% as improved productivity and better
systems and processes oset recruitment to support our investment
programmes. Our cost transformation activities have enabled us to
absorb the impact of wage ination, higher pension costs, and the
insourcing of roles into BT. We have insourced around 10,000 jobs
overthe past ve years, improving our processes and reducing our
overall costs.
Payments to telecommunications operators (POLOs) were down 8%
primarily reecting lower transit volumes in BT Wholesale and lower
call volumes in BT Consumer. Property and energy costs were 6% lower
as a rate rebate and a 3% reduction in energy usage more than oset
higher energy prices. BT Sport programme rights charges were £203m
(201213 £nil). Other operating costs, net of other operating income,
increased by 4%, principally reecting our investment in BT Sport.
2013/14 operating costsa
37%
Net labour costs
20%
POLOs
28%
Other
a Before depreciation, amortisation and speciƬc items.
5%
Network operating
& IT costs
2%
Programme rights charges
8%
Property & energy costs
A detailed breakdown of our operating costs is set out in note 5 to the
consolidated nancial statements.
SpeciƬc items
As set out on page 57, our commentary focuses on the results before
specic items. Specic items resulted in a net charge after tax of £196m
(201213 £111m).
Specic items charged against operating costs included £276m
(201213 £204m) relating to the group-wide restructuring
programme that we started last year. These costs consist primarily of
leavers and property and network rationalisation activities. We expect
further restructuring costs of around £200m in 201415.
Net interest on pensions of £235m (201213 £117m), as restated
under IAS 19 (Revised 2011), was charged as a specic item.
Theincrease mainly reects the higher decit at 31March 2013 of
£5.9bn compared with the decit of £2.4bn at 31 March 2012.
Specic items include a tax credit of £111m (201213 £127m)
reecting the tax on specic items charged within prot before
tax, as well as a tax credit of £208m (201213 £103m) on the
re-measurement of deferred tax from 23% to 20% (201213 24% to
23%).
Details of all specic items are provided in note 8 to the consolidated
nancial statements.
EBITDA
Adjusted EBITDA was at (201213 up 2%) at £6,116m, at the upper
end of our outlook of £6.0bn£6.1bn.
This demonstrates the benets of our cost transformation activities,
enabling us to invest whilst maintaining our protability.
An analysis of adjusted EBITDA for each of our customer-facing lines of
business is set out in note 4 to the consolidated nancial statements.
ProƬt before tax
Adjusted prot before tax was up 6% at £2,827m.
As well as our EBITDA performance, this result reects our focus in recent
years on capital expenditure eciencies and debt reduction, resulting in
lower depreciation and amortisation and net nance expense.
Reported prot before tax (which includes specic items) was £2,312m,
broadly level with the prior year.
Depreciation, net nance expense and tax are discussed in later sections
of this performance review.