BT 2016 Annual Report Download - page 235

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Overview The Strategic Report Governance Financial statements Additional information
EBITDA
In addition to measuring financial performance of the group and 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 approximate the underlying
operating cash flow 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.
Within the lines of business we may also consider our performance using an underlying EBITDA measure, which additionally excludes the
impact of acquisitions and disposals and foreign exchange.
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 note 4 to the consolidated
financial statements.
Year ended 31 March
2016
£m
2015
£m
2014
£m
Operating profit 3,735 3,480 3,145
Depreciation and amortisation 2,630 2,538 2,695
Reported EBITDA 6,365 6,018 5,840
Specific items 215 253 276
Adjusted EBITDA 6,580 6,271 6,116
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, are as follows:
2016 2015 2014
Year ended 31 March
Pence
per share £m
Pence
per share £m
Pence
per share £m
Basic earnings per share/profita29.9 2,581 26.5 2,135 25.7 2,016
Specific itemsb3.3 278 5.0 406 2.5 196
Adjusted basic earnings per share/profit 33.2 2,859 31.5 2,541 28.2 2,212
a The stated profit is the component of total profit which is attributable to equity shareholders excluding non‑controlling interests.
b Specific items are set out in note 8 to the consolidated financial statements.
We disclose reported earnings per share, both basic and diluted, in note 10 to the consolidated financial statements.
Free cash flow
Normalised free cash flow is one of the group’s key performance indicators by which our financial performance is measured. Normalised
free cash flow is defined as the net increase in cash and cash equivalents less: cash flows from financing activities (except net interest
paid), the acquisition or disposal of group undertakings, the net sale of short‑term investments and excluding: the cash impact of specific
items, purchases oftelecommunications licences, and the cash tax benefit of pension deficit payments. For non‑tax related items the
adjustments are made on a pre-tax basis.
Normalised free cash flow is primarily a liquidity measure. However, we also believe it is an important indicator of our overall operational
performance as it reflects the cash we generate from operations after capital expenditure and financing costs, both of which are significant
ongoing cash outflows associated with investing in our infrastructure and financing our operations. In addition, normalised free cash
flow excludes cash flows that are determined at a corporate level independently of ongoing trading operations such as dividends, share
buybacks, acquisitions and disposals, and repayment and raising of debt. Normalised free cash flow is not a measure of the funds that are
available for distribution to shareholders.