BT 2011 Annual Report Download - page 60

57BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
FINANCIAL REVIEW ALTERNATIVE PERFORMANCE MEASURES
FINANCIAL REVIEW
Operating costs
Specific operating costs of £329m (2010: £427m; 2009: £1,993m)
comprised:
•BT Global Services restructuring charges of £192m (2010:
£301m; 2009: £280m). This included people and property
charges of £129m (2010: 132m; 2009: £51m) principally
comprising leaver costs and property exit costs and networks,
products and procurement channels rationalisation charges of
£41m (2010: £142m; 2009: £183m) from rationalising legacy
networks, including the associated systems and processes. In
2010, the charge of £142m included a payment of £127m made
to Tech Mahindra for the renegotiation of certain supply
contracts as part of the rationalisation of procurement channels.
In addition intangible asset impairments and other charges of
£22m were recognised (2010: £27m; 2009: £46m). Further BT
Global Services restructuring charges of around £50m are
expected to be incurred in 2012 principally in relation to the
network rationalisation programme.
•Property rationalisation charges of £88m (2010: £121m; 2009:
£nil) in relation to the rationalisation of the group’s UK property
portfolio.
•Intangible assets impairment charges of £49m (2010 and 2009:
£nil) relating to goodwill and brands.
•BT Global Services contract and financial review charges of
£1,598m were recognised in 2009.
•A charge of £65m in respect of the group’s transformation and
reorganisation activities was recognised in 2009.
•A £50m charge was recognised in 2009 comprising £31m of
asset impairments and £19m of associated costs, following the
group’s review of its 21CN programme and associated voice
strategy.
Net finance expense
Net finance expense on pensions was £79m (2010: £279m
expense; 2009: £313m income).
Associates and joint ventures
In 2011 a profit of £42m arose on the disposal of a 6.5% interest in
our associate Tech Mahindra. In 2010 a loss on disposal of £12m
arose on the disposal of an indirect interest in Tech Mahindra. In
2010 the group also recognised a credit of £29m in connection
with the £127m payment to its associate Tech Mahindra, as
described above. In 2009 a credit of £36m was recognised in
respect of a reassessment of the value of the group’s share of the
net assets of an associated undertaking.
Taxation
The specific tax credit of £239m in 2011 (2010: £420m; 2009:
£414m) comprised:
•Tax credit of £72m (2010: £190m; 2009: £414m) on the specific
items detailed above.
•Tax credit of £172m (2010 and 2009: £nil) for the
re-measurement of deferred tax balances as a result of the
change in the UK statutory corporation tax rate from 28% to
26% effective in 2012.
•In 2010 the group agreed substantially all outstanding tax
matters with HMRC relating to the 2008, 2007 and 2006 tax
years resulting in a tax repayment. Specific items in 2010
included a tax credit of £230m, associated interest of £11m on
the repayment and operating costs of £5m representing costs
associated with the settlement.
EBITDA
In addition to measuring financial performance of the lines of
business based on operating profit, we also measure performance
based on EBITDA and adjusted EBITDA. EBITDA is defined as the
group profit or loss 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 reflect the underlying
operating cash costs, 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 Segment
information, note 1 to the consolidated financial statements on
page 106.
2011 2010 2009
£m £m £m
Operating profit 2,578 2,123 301
Depreciation and amortisation 2,979 3,039 2,890
Reported EBITDA 5,557 5,162 3,191
Specific items 329 477 2,047
Adjusted EBITDA 5,886 5,639 5,238
Adjusted 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, is as
follows:
Pence
Year ended 31 March 2011 per share £m
Basic earnings per share/profita19.4 1,502
Specific items 1.6 127
Adjusted basic earnings per share/profit 21.0 1,629
Pence
Year ended 31 March 2010 per share £m
Basic earnings per share/profita13.3 1,028
Specific itemsb4.0 308
Adjusted basic earnings per share/profitb17.3 1,336
Pence
Year ended 31 March 2009bper share £m
Basic loss per share/(loss)a(2.5) (193)
Specific itemsb16.6 1,284
Adjusted basic earnings per share/profitb14.1 1,091
aThe stated profit (loss) amounts are the component of the total profit (loss) which is attributable
to equity shareholders excluding non-controlling interests.
bRe-presented – see page 56.
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