BT 2015 Annual Report Download - page 153

151
Overview
The Strategic Report
Purpose and strategy Delivering our strategy Group performance Governance Financial statements
Additional information
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evenue fro lon-ter contractual arraneents includin fied price
contracts to design and build software solutions, is recognised based
on the percentage of completion method. The stage of completion is
estimated using an appropriate measure according to the nature of
the contract such as the proportion of costs incurred relative to the
estimated total contract costs, or other measures of completion such
as the achievement of contract milestones and customer acceptance.
In the case of time and materials contracts, revenue is recognised as
the service is rendered.
Costs related to delivering services under long-term contractual
arrangements are expensed as incurred except for an element of
costs incurred in the initial contract set up, transition or transformation
phase, which is deferred and recorded within non-current assets. These
costs are then recognised in the income statement on a straight line
basis over the remaining contract term, unless the pattern of service
deliver indicates a dierent profile is appropriate. hese costs are
directl attributable to specific contracts relate to future activit will
enerate future econoic benefits and are assessed for recoverabilit
on a regular basis.
The percentage of completion method relies on estimates of total
expected contract revenues and costs, as well as reliable measurement
of the proress ade towards copletion. Unless the financial outcoe
of a contract can be estimated with reasonable certainty, no attributable
profit is reconised. n such circustances revenue is reconised
equal to the costs incurred to date, to the extent that such revenue is
expected to be recoverable, or costs are accrued to bring the margin to
nil. econised revenue and profits are subect to revisions durin the
contract if the assumptions regarding the overall contract outcome are
changed. The cumulative impact of a revision in estimates is recorded in
the period in which such revisions become likely and can be estimated.
Where the actual and estimated costs to completion exceed the
estimated revenue for a contract, the full contract life loss is
recognised immediately.
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Where a contractual arrangement consists of two or more separate
elements that have value to a customer on a standalone basis, revenue is
recognised for each element as if it were an individual contract. The total
contract consideration is allocated between the separate elements on
the basis of relative fair value and the appropriate revenue recognition
criteria are applied to each element as described above.
Operating and reportable segments
he roups operatin seents are reported based on financial
information provided to the
Operating Committee , as detailed on
pae26, which is the key management committee and represents
the ‘chief operating decision maker’.
he roups oranisational structure reects the dierent custoer
groups to which it provides communications products and services via
its customer-facing lines of business: BT Global Services, BT Business,
BT Consumer, BT Wholesale and Openreach. The customer-facing lines
of business are supported by an internal service unit: BT Technology,
ervice  perations  .
The customer-facing lines of business are the group’s reportable
segments and generate substantially all the group’s revenue.
The remaining operations of the group are aggregated and included
within the ‘Other’ category to reconcile to the consolidated results
of the group. The ‘Other’ category includes BT TSO and the group’s
centralised functions including procurement, supply chain and
property management.
rovisions for the settleent of sinificant leal coercial and
regulatory disputes, which are negotiated at a group level, are initially
recorded in the ‘Other’ segment. On resolution of the dispute, the full
ipact is reconised in the relevant line of business results and oset
in the group results through the utilisation of the provision previously
charged to the ‘Other’ segment. Settlements which are particularly
sinificant or cover ore than one financial ear a fall within the
definition of specific ites as detailed on pae 149.
The costs incurred by BT TSO are recharged to the customer-facing
lines of business to reect the services it provides to the. epreciation
and amortisation incurred by BT TSO in relation to the networks and
systems it manages and operates on behalf of the customer-facing
lines of business is allocated to the lines of business based on their
respective utilisation. apital ependiture incurred b  for specific
projects undertaken on behalf of the customer-facing lines of business
is allocated based on the value of the directly attributable expenditure
incurred. Where projects are not directly attributable to a particular line
of business, capital expenditure is allocated between them based
on the proportion of estiated future econoic benefits.  
and the group’s centralised functions are not reportable segments as
the did not eet the uantitative thresholds as set out in 
‘Operating Segments’ for any of the years presented.
Performance of each reportable segment is measured based on
adusted  defined as  before specific ites as included
in the internal financial reports reviewed b the
Operating Committee .
 is defined as the operatin profit or loss before depreciation
aortisation net finance epense and taation. dusted  is
considered to be a useful measure of the operating performance of the
lines of business because it approximates to the underlying operating
cash ow b eliinatin depreciation and aortisation. t also provides
a eaninful analsis of tradin perforance b ecludin specific
items, which are disclosed separately by virtue of their size, nature or
incidence. pecific ites are detailed in note and are not allocated to
the reportable seents as this reects how the are reported to the
Operating Committee . Finance expense and income are not allocated to
the reportable segments, as the central treasury function manages this
activity, together with the overall net debt position of the group.
etireent benefits
he roups net obliation in respect of defined benefit pension plans
isthe present value of the defined benefit obliation less the fair value
of the plan assets.
he calculation of the obliation is perfored b a ualified actuar
using the projected unit credit method and key actuarial assumptions
at the balance sheet date.
The income statement expense is allocated between an operating
chare and net finance incoe or epense. he operatin chare reects
the increase in the defined benefit obliation resultin fro the pension
benefit earned b active eploees in the current period the costs
of adinisterin the plans and an past service costscredits such as
those arisin fro curtailents or settleents. he net finance incoe
or epense reects the interest on the retireent benefit obliations
recognised in the group balance sheet, based on the discount rate at
the start of the year. Actuarial gains and losses are recognised in full
in the period in which they occur and are presented in the group
statement of comprehensive income.
he roup also operates defined contribution pension plans and the
income statement expense represents the contributions payable for
theear.
Property, plant and equipment
Property, plant and equipment are included at historical cost, net of
accumulated depreciation, government grants and any impairment
charges. An item of property, plant and equipment is derecognised on
disposal or when no future econoic benefits are epected to arise
fro the continued use of the asset. he dierence between the sale
proceeds and the net book value at the date of disposal is recognised in
operating costs in the income statement.
Included within the cost of network infrastructure and equipment
are direct and indirect labour costs, materials and directly
attributable overheads.
Depreciation is provided on property, plant and equipment on a straight
line basis fro the tie the asset is available for use to write o the
asset’s cost over the estimated useful life taking into account any
expected residual value. Freehold land is not depreciated.
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