BT 2007 Annual Report Download - page 41

40 BT Group plc Annual Report & Form 20-F
OTHER OPERATING INCOME
Other operating income increased by £6 million to £233 million
in the 2007 financial year and decreased by £324 million to
£227 million in the 2006 financial year due to the one off
impact of the £358 million profit on disposal of non current
asset investments in the 2005 financial year.
OPERATING COSTS
Total operating costs before specific items increased by 4% in
the 2007 financial year to £17,746 million which is in line with
the 4% increase in revenue. Our cost efficiency programmes
achieved savings of over £500 million in the 2007 financial year
which enabled us to invest in further growth of our new wave
activities.
As a percentage of revenue, operating costs, excluding
specific items, were 88% in the 2007 financial year (2006: 88%;
2005: 86%). In all three financial years, net specific item
operating costs were incurred, amounting to £169 million,
£138 million and £59 million in the 2007, 2006 and 2005
financial years, respectively. These specific costs are considered
separately in the discussion which follows.
2007 2006 2005
£m £m £m
Operating costs:
Staff costs 5,223 4,966 4,554
Own work capitalised (718) (674) (620)
Depreciation 2,536 2,634 2,694
Amortisation 384 250 150
Payments to telecommunications
operators 4,162 4,045 3,725
Other operating costs 6,159 5,887 5,426
Total operating costs before
specific items 17,746 17,108 15,929
Specific items 169 138 59
Total operating costs 17,915 17,246 15,988
In the 2007 financial year, the number of staff employed
increased by 1,800 to 106,200, compared with increases of
2,300 and 2,200 in the 2006 and 2005 financial years,
respectively. The increases have been mainly due to the
additional staff required to service networked IT contracts,
increased levels of network activity, and in the 2007 financial
year, the investment in service, and meeting the Undertakings.
Early leaver costs of £147 million were incurred in the 2007
financial year, compared with £133 million and £166 million in
the 2006 and 2005 financial years, respectively. This reflects the
group’s continued focus on improving operational efficiencies.
The group’s pension expense for 2007 was £643 million, an
increase of £40 million from the 2006 financial year, compared
to an increase of £63 million from the 2005 financial year.
The increase in headcount, pay rates and pension costs have
contributed to a 5% increase in staff costs which were £5,223
million in the 2007 financial year, following a 9% increase to
£4,966 million in the 2006 financial year. The increase in
pension costs in the 2007 financial year included the adverse
impact of using longer life expectancy assumptions. The increase
in pension costs in the 2006 financial year included a switch
between wages and salaries and pension costs as a result of the
introduction of Smart Pensions, a salary sacrifice scheme.
The depreciation and amortisation charge increased by 1% in
both the 2007 and 2006 financial years to £2,920 million.
Payments to other telecommunications operators increased by
3% in the 2007 financial year to £4,162 million, due to
increased volumes, after increasing by 9% in the 2006 financial
year.
Other operating costs before specific items increased by 5% in
the 2007 financial year to £6,159 million after increasing by 8%
in the 2006 financial year. This reflects not only the cost of
supporting new networked IT services contracts, but also
increased levels of activity in the network and investment in
service levels. Other operating costs include the maintenance
and support of our networks, accommodation, sales and
marketing costs, research and development and general
overheads.
SPECIFIC ITEMS
Specific items for the 2007, 2006 and 2005 financial years are
shown in the table below.
2007 2006 2005
£m £m £m
Operating costs:
Property rationalisation costs 64 68 59
Write off of circuit inventory and
other working capital balances 65 ––
Creation of Openreach 30 70 –
Costs associated with settlement of
open tax years 10 ––
169 138 59
Other operating income:
Net loss on sale of group
undertakings 5––
Profit on sale of non current asset
investments (2) – (358)
3– (358)
Finance income:
Interest on settlement of open tax
years (139) ––
Associates and joint ventures:
Profit on sale of joint venture –(1) –
Profit on sale of associate (22) ––
Impairment of assets in joint
ventures ––25
Net specific items loss (profit)
before tax 11 137 (274)
Tax credit in respect of settlement of
open tax years (938) ––
Tax credit on specific items (41) (41) (16)
Net specific items loss (profit) after
tax (968) 96 (290)
In the 2007 financial year, specific operating costs included
£64 million of property rationalisation charges in relation to the
group’s provincial property portfolio. A further £30 million was
recognised for the incremental costs associated with the creation
of Openreach and complying with the Undertakings agreed with
Ofcom. A charge of £65 million was recognised as a result of a
review of circuit inventory and other working capital balances.
During the year, the group agreed the settlement of
substantially all open UK tax matters relating to ten tax years up
to and including 2004/05 with HM Revenue and Customs. The
total impact of this settlement was a net credit of £1,067 million
comprising a tax credit of £938 million representing those
Report of the Directors Financial review