BT 2016 Annual Report Download - page 234

240 BT Group plc
Annual Report 2016
Introduction
We assess the performance of the group using a variety of alternative performance measures. We principally discuss the group’s results on
an ‘adjusted’ basis. The rationale for using adjusted measures is explained below. Results on an adjusted basis are presented before specific
items.
We also explain financial performance using measures that are not defined under IFRS and are therefore termed ‘non-GAAP’ measures.
Thenon‑GAAP measures we use are: the trend in underlying revenue excluding transit, and in underlying operating costs excluding transit,
as well as in reported and adjusted EBITDA; reported and normalised free cash flow; and net debt. A reconciliation from these non-GAAP
measures to the nearest measure prepared in accordance with IFRS is presented below. The alternative performance measures we use may
not be directly comparable with similarly titled measures used by other companies.
Specific items
The group’s income statement and segmental analysis separately identify trading results before specific items. The directors believe that
presentation of the group’s results in this way is relevant to an understanding of the group’s financial performance, as specific items are
identified by virtue of their size, nature or incidence. This presentation is consistent with the way that financial performance is measured by
management and reported to the Board and the Operating Committee and assists in providing a meaningful analysis of the trading results
of the group. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors
such as the frequency or predictability of occurrence.
Examples of charges or credits meeting the above definition and which have been presented as specific items in the current and/or prior
years include acquisitions/disposals of businesses and investments, regulatory settlements, historical insurance or litigation claims, business
restructuring programmes, asset impairment charges, property rationalisation programmes, net interest on pensions and the settlement of
multiple tax years. In the event that other items meet the criteria, which are applied consistently from year to year, they are also treated as
specific items.
Specific items are disclosed in note 8 to the consolidated financial statements.
Trends in underlying revenue and operating costs
Underlying revenue and underlying operating costs are measures which seek to reflect the underlying performance of the group that will
contribute to long‑term sustainable profitable growth. As such they exclude the impact of acquisitions or disposals, foreign exchange
movements and specific items. We focus on the trends in underlying revenue and underlying operating costs excluding transit, as transit
traffic is low‑margin and isaffected by reductions in mobile termination rates.
A reconciliation from the increase in reported revenue and in reported operating costs, the most directly comparable IFRS measures, to the
increase in underlying revenue and underlying operating costs excluding transit, is set out below.
Year ended 31 March
2016
%
2015
%
2014
%
Increase (decrease) in reported revenue 5.9 (1.7) 1.0
Specific items –(0.7) (1.3)
Increase (decrease) in adjusted revenue 5.9 (2.4) (0.3)
Transit revenue 1.0 0.6 1.0
Acquisitions and disposals (5.6) –(0.1)
Foreign exchange movements 0.7 1.4 (0.1)
Increase (decrease) in underlying revenue excluding transit 2.0 (0.4) 0.5
Year ended 31 March
2016
%
2015
%
2014
%
Increase (decrease) in reported operating costs 5.6 (4.2) (0.1)
Depreciation and amortisation 0.4 0.3 1.2
Increase (decrease) in reported operating costs before depreciation and amortisation 6.0 (3.9) 1.1
Specific items 0.5 (1.0) (1.3)
Increase (decrease) in adjusted operating costs before depreciation and amortisation 6.5 (4.9) (0.2)
Transit costs 1.0 1.0 1.4
Acquisitions and disposals (6.5) –(0.1)
Foreign exchange movements 1.4 1.5 –
Increase (decrease) in underlying operating costs before depreciation and amortisation excluding transit 2.4 (2.4) 1.1
Alternative performance measures