BT 2016 Annual Report Download - page 169

175
Overview The Strategic Report Governance Financial statements Additional information
Operating and reportable segments
The group’s operating segments are reported based on financial
information provided to the Operating Committee , as detailed on
page26, which is the key management committee and represents
the ‘chief operating decision maker’.
The group’s organisational structure reflects the different customer
groups to which it provides communications products and services
via its customer-facing lines of business: BT Global Services, BT
Business, BT Consumer, EE, BT Wholesale and Openreach. The
customer-facing lines of business are supported by an internal
service unit: BT Technology, Service & Operations (BT TSO).
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.
Provisions for the settlement of significant legal, commercial
and regulatory disputes, which are negotiated at a group level,
are initially recorded in the ‘Other’ segment. On resolution of
the dispute, the full impact is recognised in the results of the
relevant line of business and offset in the group results through
the utilisation of the provision previously charged to the ‘Other’
segment. Settlements which are particularly significant or cover
more than one financial year may fall within the definition of
specific items as detailed on page 240.
The costs incurred by BT TSO are recharged to the customer-
facing lines of business to reflect the services it provides to them.
Depreciation 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. Capital expenditure
incurred by BTTSO 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 estimated future economic benefits. BT TSO and
the group’s centralised functions are not reportable segments as
they did not meet the quantitative thresholds as set out in IFRS8
‘Operating Segments’ for any of the years presented.
Performance of each reportable segment is measured based
on adjusted EBITDA, defined as EBITDA before specific items,
as included in the internal financial reports reviewed by the
Operating Committee . EBITDA is defined as the operating profit
or loss before depreciation, amortisation, net finance expense and
taxation. Adjusted EBITDA is considered to be a useful measure
of the operating performance of the lines of business because it
approximates the underlying operating cash flow by eliminating
depreciation and amortisation and also provides a meaningful
analysis of trading performance by excluding specific items, which
are disclosed separately by virtue of their size, nature or incidence.
Specific items are detailed in note8 and are not allocated to the
reportable segments as this reflects how they 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.
3. Signicant accounting policies continued