BT 2010 Annual Report Download - page 43

41BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
REVIEW OF THE YEAR
In the Financial review we discuss the financial results of the group
for 2010, 2009 and 2008. We explain financial performance using
a variety of measures, some of which are not 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. The rationale for
using adjusted measures is explained on page 55. Results on an
adjusted basis are presented before specific items, the contract and
financial review charges recognised within BT Global Services in
2009 and net interest on pensions. Specific items are analysed and
discussed separately in this Financial review on pages 45 and 46.
The other non-GAAP measures we use in this Financial review
are underlying revenue, underlying operating costs, underlying
capital expenditure, free cash flow and net debt. Each of these
measures is discussed in more detail on pages 54 to 56.
In the Financial review, references to ‘2010’, ‘2009’, and ‘2008’
are to the financial years ended 31 March 2010, 2009 and 2008,
respectively. References to ‘the year’ and ‘the current year’ are to
the year ended 31 March 2010.
Principal accounting policies, critical
accounting estimates and key judgements
Our principal accounting policies are set out on pages 87 to 95 of
the consolidated financial statements and conform with IFRS. These
policies, and applicable estimation techniques, have been reviewed
by the directors who have confirmed them to be appropriate for the
preparation of the 2010 consolidated financial statements.
We, in common with virtually all other companies, use estimates
in the preparation of our consolidated financial statements. The
most sensitive estimates affecting our consolidated financial
statements are in the areas of assessing the stage of completion
FINANCIAL REVIEW
Financial review
Principal accounting policies, critical
accounting estimates and key
judgements
Summarised group income
statement
Financial results
Financial position and resources
Liquidity
Funding and capital management
Alternative performance measures
and likely outcome under long-term contracts; assessing the level
of interconnect income with and payments to other
telecommunications operators; making appropriate long-term
assumptions in calculating pension liabilities and costs; establishing
asset lives of property, plant and equipment and software for
depreciation and amortisation purposes; calculating current and
deferred tax assets and liabilities; making appropriate medium-
term assumptions for goodwill impairment reviews; determining
the fair values of certain financial instruments; providing for
doubtful debts; and estimating the value of provisions. Details of
critical accounting estimates and key judgements are provided in
the accounting policies on pages 93 and 94.
Line of business results
The financial performance of each of the customer-facing lines of
business for 2010, 2009 and 2008 is discussed in the Review of the
year. We measure the financial performance of BT Global Services,
BT Retail, BT Wholesale and Openreach on an ‘adjusted’ basis being
revenue, EBITDA and operating profit, all stated before specific
items. For BT Global Services adjusted EBITDA also excludes the
impact of the contract and financial review charges recognised in
2009. For further discussion of these items, see pages 54 to 56. A
reconciliation of adjusted EBITDA to group operating profit (loss) by
customer-facing line of business, and for the group, is provided in
Segment information, note 1 to the consolidated financial
statements on page 102.