BT 2011 Annual Report Download - page 52

49BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
FINANCIAL REVIEW
FINANCIAL REVIEW FINANCIAL PERFORMANCE
Operating profit
In 2011 adjusted operating profit was £2,907m, an increase of
12% (2010: 11%) reflecting the improved EBITDA and lower
depreciation and amortisation. Reported operating profit was
£2,578m in 2011, compared with £2,123m in 2010 and £301m
in 2009.
Net finance expense
Net finance expense before specific items, (principally comprising
net pension interest) is shown below. Net pension interest is
discussed in note 23 to the consolidated financial statements.
2011 2010 2009
£m £m £m
Interest on borrowings 852 886 935
Fair value movements on
derivatives 34 19 29
Finance expense 886 905 964
Less: capitalised interest (6) (3) –
Total finance expense 880 902 964
Interest income (35) (12) (31)
Total finance income (35) (12) (31
)
Net finance expense 845 890 933
Finance expense
Interest on borrowings in 2011 was £852m, a decrease of 4%
(2010: 5%) reflecting reductions in net debt and the repayment of
higher coupon debt in the year. In 2011 the fair value movement
on derivatives of £34m (2010: £19m) includes £28m (2010: £9m)
of swap restructuring costs on certain derivatives and £6m (2010:
£10m) of fair value movements on derivatives not in a designated
hedge relationship.
The graph below shows the relationship between average gross
debt and interest rates over the three-year period.
Finance income
Interest income arising from listed investments and other interest
and similar income was £35m in 2011, an increase of £23m (2010:
£12m, a decrease of £19m). The increase in 2011 includes £19m of
interest in respect of a tax refund. Excluding the refund, interest in
2011 was £4m higher than in 2010 as a result of higher cash
balances in anticipation of funding the debt maturities in the
second half of the financial year. The reduction in 2010 was
principally due to lower market interest rates on deposits held.
Average gross debt and interest rates
£m
2009 2010 2011
7.7%
12,000
11,000
10,000
9,000
8,000
7,000
5,000
6,000
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
7.7%
7.8%
Average floating rate debt
Average fixed rate debt
Average interest rate
Associates and joint ventures
Our share of the post tax profit from associates and joint ventures
was £21m in 2011 (2010: £25m, 2009: £39m). Our most significant
associate is Tech Mahindra, which contributed £22m of post tax
profits in 2011 (2010: £25m, 2009: £33m). The decrease in 2011 is
primarily due to the disposal of a 6.5% interest in Tech Mahindra in
2011, taking our holding to 23.5%.
Profit before taxation
Adjusted profit before taxation was £2,083m in 2011, an increase
of 20% (2010: 19% increase). The increase in 2011 and 2010
reflects the improvement in the group’s operating profit and the
reduction in net finance expense.
Reported profit before taxation was £1,717m in 2011, compared
with a profit before taxation of £1,007m in 2010 and a loss before
taxation of £244m in 2009.
Taxation
The tax charge for 2011 was £213m and comprised a tax charge of
£452m on the profit before taxation and specific items of £2,083m,
and a credit of £239m on specific items. The effective rate on the
profit before taxation and specific items was 21.7% compared with
the statutory rate of 28%, reflecting the utilisation of tax losses and
the continued focus on tax efficiency within the group.
The tax credit for 2010 was £22m (2009: £53m) and comprised a
tax charge of £398m (2009: £361m) on the profit before taxation
and specific items of £1,735m (2009: £1,454m) and a credit of
£420m (2009: £414m) on specific items. The effective rate on the
profit before taxation and specific items was 22.9% (2009: 24.8%)
compared with the statutory rate of 28%, reflecting the utilisation
of tax losses and the continued focus on tax efficiency within the
group.
For further details on taxation, see Taxation on page 51.
Adjusted earnings per share
Adjusted earnings per share is one of the group’s key performance
indicators, as detailed in Our strategy – Key performance
indicators on page 6. It is an important measure of the overall
profitability of our business.
Adjusted earnings per share was 21.0p in 2011, an increase of 21%
(2010: 23% increase). The graph below shows the drivers of
adjusted earnings per share growth over the last two years.
aAdjusted earnings per share is stated before specific items. See page 57 for further details.
bOther includes interest, tax and share of post tax profits of associates and joint ventures.
Adjusted earnings (loss) per share for last five financial years are
included in Selected financial data on page 158.
12.5
14.5
16.5
18.5
20.5
22.5
Adjusted earnings per sharea
pence
2009 EBITDA 2010
OtherbEBITDA Otherb
Depreciation
and
amortisation
Depreciation
and
amortisation
2011
0.1
17.3
3.2 21.0
0.8
0.3
14.1
5.2 1.9
21.0p 21%
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