REG - British Telecom PLC - Half-year Report
18/11/2024 15:00
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RNS Number : 6550M British Telecommunications PLC 18 November 2024
British Telecommunications plc
Results for the half year to 30 September 2024
18 November 2024
About BT
British Telecommunications plc ('BT' or 'group)' is a wholly-owned subsidiary
of BT Group Investments Ltd, which encompasses virtually all businesses and
assets of the BT Group. The ultimate parent company is BT Group plc, which is
listed on the London Stock Exchange.
BT is the UK's leading provider of fixed and mobile telecommunications and
related secure digital products, solutions and services. We also provide
managed telecommunications, security and network and IT infrastructure
services to customers across 180 countries.
BT consists of three customer-facing units: Consumer serves individuals and
families in the UK; Business covers companies and public services in the UK
and internationally; Openreach is an independently governed, wholly owned
subsidiary wholesaling fixed access infrastructure services to its customers -
over 700 communications providers across the UK.
The directors at 30 September 2024 were Simon Lowth, Neil Harris, Roger Eyre,
Edward Heaton and Daniel Rider, all of whom served as directors throughout the
period.
Half year to 30 September 2024 2023 Change
Reported measures £m £m %
Revenue 10,117
10,407 (3)
Profit before tax
1,349 1,413 (5)
Profit after tax
1,137 1,181 (4)
Capital expenditure
2,269 2,321 (2)
Adjusted measures £m £m %
Adjusted(1) Revenue 10,138
10,414 (3)
Adjusted(1) EBITDA
4,133 4,095 1
Customer-facing unit updates
Adjusted(1) revenue Adjusted(1) EBITDA
Half year to 30 September 2024 2023 Change 2024 2023 Change
£m £m % £m £m %
Consumer 4,836 4,903 (1) 1,330 1,347 (1)
Business 3,865 4,100 (6) 747 806 (7)
Openreach 3,118 3,053 2 2,059 1,936 6
Other 5 8 n/m (3) 6 n/m
Intra-group items (1,686) (1,650) (2) - - -
Total 10,138 10,414 (3) 4,133 4,095 1
(1 ) See Glossary on page 6.
Group results for the half year to 30 September 2024
Income statement
• Reported revenue was £10,117m, down 3% mainly due to
challenging conditions in Business, principally driven by non-UK trading in
our Global and Portfolio channels. In the rest of the Group, lower CPI benefit
and continued competitive markets in Consumer were broadly offset by growth in
Openreach due to the benefit of price increases, Ethernet base growth and
improving FTTP volume and mix.
• Reported operating costs were £8,598m, down 3% year-on-year
due to tight cost control, partly offset by cost inflation.
• Adjusted(1) EBITDA of £4,133m, up 1% due to revenue flow
through more than offset by cost transformation.
• Reported profit before tax of £1,349m, down 5%, primarily due
to lower revenue and higher specific costs, partly offset by reduction in
reported operating costs.
Specific items (Note 5 to the condensed consolidated financial statements)
• Specific items resulted in a net charge after tax of £288m
(H1 FY24: £167m). The main components were restructuring charges of £187m
(H1 FY24: £170m) , fair value loss on preference shares related to the
prior period BT Sport JV disposal of £44m and interest expense on
retirement benefit obligation of £99m (H1 FY24: £60m); partly offset by a
tax credit on specific items of £77m (H1 FY24: £55m).
Tax
• The effective tax rate on reported profit was 15.7% (H1 FY24:
16.4%) which is lower than the UK corporation tax rate of 25% primarily due to
the UK patent box tax regime and the inclusion of group relief for nil
payment.
• The effective tax rate on adjusted profit was 16.9% (H1 FY24:
17.6%) for the same reasons.
• We received a net income tax refund globally of £72m (H1
FY24: £26m payment) predominately driven by £95m received in the UK
following the closure of prior period tax returns.
• We expect a large proportion of our capital expenditure to be
eligible for full expensing which will eliminate our current year UK tax
liability.
• The charge for the period comprises deferred tax in the UK and
current and deferred tax overseas.
Capital expenditure
• Capital expenditure was £2,269m, down 2%, primarily driven by a
reduction in IT capex and build and non-network infrastructure including
workplace modernisation spend and provision unit efficiencies, partially
offset by increased FTTP provisioning volumes.
• Cash capital expenditure is in line with prior year at
£2,463m, with the difference to reported capital expenditure primarily
representing the timing of capital creditor spend offset by lower government
grant repayments.
Cash flow
• Net cash inflow from operating activities was £2,985m, up 28%
with increased operating profit offset by working capital movements.
Balance Sheet
• The group holds cash and current investment balances of £2.7bn; the
current portion of loans and other borrowings is £2.2bn.
• Our £2.1bn revolving credit facility, which matures in March
2027, remains undrawn at 30 September 2024.
Pensions (Note 6 to the condensed consolidated financial statements)
• The IAS 19 deficit has decreased to £4.3bn at 30 September
2024, net of tax £3.3bn (FY24: £4.8bn, net of tax £3.8bn), mainly due to
scheduled contributions partly offset by lower than assumed asset returns.
• The 2023 BTPS funding valuation included a future funding
commitment for BT to provide additional deficit contributions should the
funding deficit be more than £1bn behind plan at two consecutive semi-annual
assessment dates. At the 30 June 2024 assessment date, the funding position
was within this limit.
Sports JV performance
• Our joint venture with Warner Bros. Discovery ('Sports JV'),
which has been rebranded to TNT Sports since last year, continues to deliver a
compelling sports offering. We recognised a share of loss after tax of £4m
after adjustments made to align with the group's accounting policies. Further
details are provided in note 10 (#Section20) .
Operating review
Measures discussed in the operating review are on an adjusted basis.
Consumer: Trading well through known headwinds, with strong growth in FTTP and
5G
Half year to 30 September
2024 2023 Change
£m £m £m %
Revenue(1) 4,836 4,903 (67)
(1)
Operating costs(1) 3,506 3,556 (50)
(1)
EBITDA(1) 1,330 1,347 (17)
(1)
Depreciation & amortisation(1)
873 840 33 4
Operating profit(1) (50) (10)
457 507
Capital expenditure
570 538 32 6
• Adjusted revenue(1) decline of 1% impacted by the expected
challenging pricing comparator in the first half of the year as well as a
slightly lower broadband base. Postpaid mobile base was down due to the
strategic decision to run down our lower ARPU Plusnet base, which in turn
increased mobile ARPU
• Adjusted EBITDA(1) decline of 1% due to revenue flow through and
higher input costs. This was partially offset by continued strong cost control
and higher equipment margin
• Depreciation and amortisation(1) was up, driven by increased
investment in new EE digital capabilities, including marketplace and EE ID
• Capital expenditure was higher due to increased customer premises
equipment
• Postpaid mobile ARPU £20.1, up 1.0% year-on-year. Base at 13.9m
with net adds of 16k during H1. Churn remains low at 0.9%
• Broadband ARPU £41.8, up 0.5% year-on-year with positive mix
effects offsetting the expected tougher pricing comparative. Broadband base
marginally lower at 8.2m with net losses of 49k during H1; our New EE
broadband and converged product base continues to grow with more than half of
customers now taking a postpaid mobile contract. Churn has increased to 1.3%
due to an increasingly competitive broadband market, particularly in areas
where we do not have FTTP
• Continued growth in the FTTP base with an increase of 347k in H1;
the FTTP base was 2.8m customers, up 33% year-on-year. 5G Connected base was
10.5m customers, up 17% year-on-year
• During the first half of the year EE won the RootMetrics UK's Best
Network award for the 11th year in a row. EE was recognised for providing the
most reliable network for our customers and the best network experience for
video streaming, mobile & gaming. This position was further strengthened
in Q2 with the launch of 5G Stand Alone, and a UK industry first with WiFi 7
• Customer satisfaction improved across all three Consumer brands for
the first time in nearly three years
( )
(1) Financials and commentary are based on adjusted measures; see
Glossary on page 6.
( )
Business: Tough trading conditions, especially non-UK
Half year to 30 September
2024 2023 Change
£m £m £m %
Revenue(1) 3,865 4,100 (235)
(6)
Operating costs(1) 3,118 3,294 (176)
(5)
EBITDA(1) (59)
747 806 (7)
Depreciation & amortisation(1) (13)
477 490 (3)
Operating profit(1) (46) (15)
270 316
Capital expenditure (33)
328 361 (9)
• Adjusted(1) revenue decline of 6% principally driven by non-UK
trading in our Global and Portfolio channels. UK revenues saw a small decline,
around half of which was due to the change in recognition in wholesale managed
broadband revenue(2) of £38m which impacted H1 FY24 comparative figures
• Adjusted(1) EBITDA decline of 7% was driven by flow through of
revenue, offset by cost control
• Depreciation and amortisation(1) decline was driven by fully
amortised software
• Capital expenditure was down due to higher customer project
spend in the prior year
• FTTP base increased 57% year-on-year to 194k. 5G base
increased 86% year-on-year to 2.1m
• Voice over IP now nearly two thirds of total voice base;
mobile base continues to grow
• Retail order intake was £6.2bn on a 12-month rolling basis,
up 1%
• Simplified the product portfolio by 36 products in the past 6
months, on the way to achieve the ambition to halve the number of products
from more than 300 to 150; units on legacy networks decreased by 14%
• In October, BT Business announced the latest milestone in its
delivery of Global Fabric, its transformative networks-as-a-service platform,
with over 45 Points of Presence now installed globally and extensive live
testing underway ahead of the customer launch in early 2025
• NPS maintained while managing customer migrations to new
platforms
( )
(1) Financials and commentary are based on adjusted measures; see
Glossary on page 6.
(2) As communicated in the Q3 FY24 results, £38m external wholesale
revenue was incorrectly recognised by Business in H1 FY24. H1 FY24 results
have not been restated; the correction was booked within Q3 FY24 to ensure the
results for the nine months to 31 December 2023 were correctly stated. The
impact on H1 FY24 is immaterial.
Openreach: Revenue and EBITDA growth; FTTP build on track and service levels
maintained
Half year to 30 September
2024 2023 Change
£m £m £m %
Revenue(1) 3,118 3,053
65 2
Operating costs(1) 1,059 1,117 (58)
(5)
EBITDA(1) 2,059 1,936
123 6
Depreciation & amortisation(1) (18)
974 992 (2)
Operating profit(1) 1,085
944 141 15
Capital expenditure 1,329 1,390 (61)
(4)
( )
• Adjusted revenue(1) growth of 2% was driven by CPI linked
price increases, improving mix of FTTP in the broadband base and growth in the
Ethernet base, partially offset by declines in the base of broadband and voice
only lines
• Adjusted EBITDA(1) growth of 6% was driven by revenue flow
through, continued cost transformation including lower total labour resource,
partially offset by pay inflation
• Depreciation and amortisation(1) was slightly down driven by
the timing of certain copper assets becoming fully depreciated which more than
offsets growth in fibre depreciation
• Capital expenditure reduction was driven by lower unit costs
for both FTTP build and FTTP provision partially offset by higher FTTP build
and provision volumes
• Q2 was the third consecutive quarter of over 1m premises
passed with FTTP, at an average build rate of 81k per week in the quarter. In
the last 12 months we have built FTTP to over 4m premises
• Increased FY25 FTTP build target by 200k premises to 4.2m,
while continuing to expect a year-on-year reduction in capex driven by build
cost efficiencies
• Current FTTP footprint of over 16m with over 4.3m premises
passed in rural locations
• FTTP customer base surpassed 5.5m during the quarter; strong
FTTP demand with orders up 26% year-on-year ; take up rate grew to 35% with
record net adds of 446k
• Openreach broadband ARPU grew by 6% year-on-year, ahead of the
CPI price increases, driven by the increased proportion of FTTP in the base
and improving speed mix of FTTP
• Broadband line losses of 181k (Q1: 196k); H1 year-on-year we
continue to see moderately higher competitor losses combined with a weaker
overall broadband and new homes market. Over 80% of our line losses occur
where we have not built FTTP
• Maintained 30/30 Ofcom Copper Quality of Service measures and
5/5 Ethernet Ofcom Quality of Service measures
• Openreach delivered a solid performance for on time FTTP
provision of 93% in Q2
• End customer satisfaction remains high with Openreach
maintaining an Excellent Trustpilot rating based on c.110k reviews and 93% of
customers survey responses scoring us between 8 to 10 in Q2
( )
( )
( )
(1) Financials and commentary are based on adjusted measures; see Glossary on
page 6.
Glossary
Adjusted Adjusted measures (including adjusted revenue, adjusted operating costs and
adjusted operating profit) are before specific items. Adjusted results are
consistent with the way that financial performance is measured by management
and assist in providing an additional analysis of the reporting trading
results of the group.
Adjusted EBITDA Earnings before interest, tax, depreciation and amortisation, before specific
items, share of post tax profits/losses of associates and joint ventures and
net finance expense.
Capital expenditure Additions to property, plant and equipment and intangible assets in the
period.
Specific items Items that in management's judgement need to be disclosed separately by virtue
of their size, nature or incidence. In the current period these relate to our
assessment of our provision for historic regulatory matters, restructuring
charges, divestment-related items, Sports JV-related items and net interest
expense on pensions. 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.
We assess the performance of the group using a variety of alternative
performance measures. Reconciliations from the most directly comparable IFRS
measures are in Additional Information on page 29.
Condensed consolidated financial statements
Group income statement
Half year to 30 September 2024 Note Before Specific Total
specific items (Reported)
items (note 5)
(Adjusted)
£m £m £m
Revenue 2,3 10,138 (21) 10,117
Operating costs 4 (8,353) (245) (8,598)
Of which net impairment losses on trade receivables and contract assets (75) - (75)
Operating profit (loss) 1,785 (266) 1,519
Finance expense (538) (99) (637)
Finance income 470 - 470
Net finance expense (68) (99) (167)
Share of post tax profit (loss) of associates and joint ventures (3) - (3)
Profit (loss) before tax 1,714 (365) 1,349
Taxation (289) (212)
77
Profit (loss) for the period 1,425 (288) 1,137
( )
( )
( )
Half year ended 30 September 2023 Note Before Specific Total
specific items (Reported)
items (note 5)
(Adjusted)
£m £m £m
Revenue 2,3 10,414 (7) 10,407
Operating costs 4 (8,673) (155) (8,828)
Of which net impairment losses on trade receivables and contract assets (72) - (72)
Operating profit (loss) 1,741 (162) 1,579
Finance expense (526) (60) (586)
Finance income 427 - 427
Net finance expense (99) (60) (159)
Share of post tax profit (loss) of associates and joint ventures (7) - (7)
Profit (loss) before tax 1,635 (222) 1,413
Taxation (287) 55 (232)
Profit (loss) for the period 1,348 (167) 1,181
Group statement of comprehensive income
Half year ended 30 September
2024 2023
£m £m
Profit for the period 1,137 1,181
Other comprehensive income (loss)
Items that will not be reclassified to the income statement
Remeasurements of the net pension obligation (224) (1,501)
Tax on pension remeasurements 56 375
Items that have been or may be reclassified subsequently to the income
statement
Exchange differences on translation of foreign operations (97) 2
Fair value movements on assets at fair value through other comprehensive (6) 1
income
Movements in relation to cash flow hedges:
- net fair value (losses) gains (397) (99)
- recognised in income and expense 533 32
Share of post tax other comprehensive income in associates and joint ventures (4) (4)
Tax on components of other comprehensive income that have been or may be (35) 15
reclassified
Other comprehensive income (loss) for the period, net of tax (174) (1,179)
Total comprehensive income (loss) for the period 963 2
( )
Group balance sheet
Note 30 September 2024 31 March 2024
£m £m
Non-current assets
Intangible assets
12,674 12,928
Property, plant and equipment
22,989 22,562
Right-of-use assets
3,469 3,642
Derivative financial instruments
832 1,020
Investments(1)
11,869 11,662
Joint ventures and associates 10
300 307
Trade and other receivables
564 641
Preference shares in joint venture 10
309 451
Contract assets
275 330
Retirement benefit surplus 6
103 70
Deferred tax assets
1,101 1,048
54,485 54,661
Current assets
Inventories
359 409
Trade and other receivables
3,274 3,589
Preference shares in joint ventures 10
180 82
Contract assets
1,275 1,410
Current tax receivable
420 423
Derivative financial instruments
66 50
Investments
2,385 2,366
Cash and cash equivalents
303 409
8,262 8,738
Current liabilities
Loans and other borrowings
2,233 1,395
Derivative financial instruments
140 94
Trade and other payables
5,620 6,323
Contract liabilities
855 906
Lease liabilities
762 766
Current tax liabilities
180 92
Provisions
230 238
10,020 9,814
Total assets less current liabilities
52,727 53,585
Non-current liabilities
Loans and other borrowings
16,669 17,131
Derivative financial instruments
522 445
Contract liabilities
175 175
Lease liabilities
3,963 4,189
Retirement benefit obligations 6
4,428 4,882
Other payables
442 637
Deferred tax liabilities
1,739 1,533
Provisions
391 411
28,329 29,403
Equity
Share capital
2,172 2,172
Share premium
8,000 8,000
Other reserves
1,421 1,423
Retained earnings
12,805 12,587
Total equity
24,398 24,182
52,727 53,585
(1) £11,843m (31 March 2024: £11,633m) of the non-current investments
relates to amounts owed by the parent and ultimate company (see note (11
(#Section21) )).
Group statement of changes in equity
Share Capital Share Premium Other Reserves Retained earnings Total Equity
£m £m £m £m £m
At 1 April 2024 2,172 8,000 1,423 12,587 24,182
Profit for the period - - - 1,137 1,137
Other comprehensive income (loss) before tax - - (500) (228) (728)
Tax on other comprehensive (loss) income - - (35) 56 21
Transferred to the income statement - - 533 - 533
Total comprehensive income (loss) for the period - - (2) 965 963
Dividends to shareholders - - - (780) (780)
Share-based payments - - - 29 29
Other movements - - - 4 4
At 30 September 2024 2,172 8,000 1,421 12,805 24,398
( )
At 1 April 2023 2,172 8,000 1,664 13,703 25,539
Profit for the period - - - 1,181 1,181
Other comprehensive income (loss) before tax - - (96) (1,505) (1,601)
Tax on other comprehensive (loss) income - - 15 375 390
Transferred to the income statement - - 32 - 32
Total comprehensive income (loss) for the period - - (49) 51 2
Dividends to shareholders - - - (850) (850)
Share-based payments - - - 36 36
Transfer to realised profit - 20 (20) -
Other movements - - 1 - 1
At 30 September 2023 2,172 8,000 1,636 12,920 24,728
Group cash flow statement
Half year to 30 September
2024 2023
£m £m
Cash flow from operating activities
Profit before taxation 1,349 1,413
Share of post tax loss (profit) of associates and joint ventures 3 7
Net finance expense 167 159
Operating profit 1,519 1,579
Other non-cash charges 58 49
(Profit) loss on disposal of businesses - (38)
(Profit) loss on disposal of property, plant and equipment and intangible (4) 3
assets
Depreciation and amortisation, including impairment charges 2,348 2,356
Decrease (increase) in inventories 49 (54)
Decrease (increase) in trade and other receivables 228 (690)
Decrease (increase) in contract assets 190 124
(Decrease) increase in trade and other payables (573) (263)
(Decrease) increase in contract liabilities (48) 18
(Decrease) increase in other liabilities(1) (824) (699)
(Decrease) increase in provisions (30) (35)
Cash generated from operations 2,913 2,350
Income taxes refunded (paid) 72 (26)
Net cash inflow from operating activities 2,985 2,324
Cash flow from investing activities
Interest received 64 66
Dividends received from joint ventures, associates and investments - 13
Proceeds on disposal of businesses 25 74
Net outflow on non-current amounts owed by ultimate parent company (609) (550)
Proceeds on disposal of current financial assets(2) 7,441 5,525
Purchases of current financial assets(2) (7,458) (5,461)
Proceeds on disposal of property, plant and equipment and intangible assets 5 -
Purchases of property, plant and equipment and intangible assets(3) (2,463) (2,455)
Decrease (increase) in amounts owed by joint ventures 84 38
Settlement of minimum guarantee liability with sports joint venture (103) (111)
Net cash outflow from investing activities (3,014) (2,861)
Cash flow from financing activities
Interest paid (476) (463)
Repayment of borrowings(4) (1,346) (485)
Proceeds from bank loans and bonds 1,833 1,899
Payment of lease liabilities (383) (360)
Cash flows from collateral received (paid) 301 (101)
(Decrease) increase in amounts owed to joint ventures (1) (1)
Net cash outflow from financing activities (72) 489
Net decrease in cash and cash equivalents (101) (48)
Opening cash and cash equivalents 351 373
Net decrease in cash and cash equivalents (101) (48)
Effect of exchange rate changes (5) (3)
Closing cash and cash equivalents(5) 245 322
(1 ) Includes pension deficit payments of £791m (H1 FY24: £702m).
(2) Primarily consists of investment in and redemption of amounts held in
liquidity funds.
(3 ) Property, plant and equipment, engineering stores and software
additions of £2,269m (H1 FY24: £2,321m) and capital accruals movements of
£194m (H1 FY24: £134m).
(4) Repayment of borrowings includes the impact of hedging.
(5) Net of bank overdrafts of £58m (H1 FY24: £30m).
Notes to the condensed consolidated financial statements
1. Basis of preparation and accounting policies
Basis of preparation
These unaudited condensed consolidated financial statements (the "financial
statements") comprise the financial results of British Telecommunications plc
for the half years to 30 September 2024 and 2023 together with the balance
sheet at 31 March 2024. The financial statements for the half year to 30
September 2024 have been reviewed by the auditors and their review opinion
is on page 27.The financial statements have been prepared in accordance with
the Disclosure Guidance and Transparency Rules sourcebook (DTR) of the
Financial Conduct Authority and with UK-adopted IAS 34 'Interim Financial
Reporting'. The financial statements should be read in conjunction with the
Annual Report 2024 which was prepared in accordance with UK-adopted
International Financial Reporting Standards (IFRS).
Management have produced forecasts which confirm the group has adequate
resources to continue in operation for a period of at least twelve months from
the date of approval of this report, notwithstanding the net current
liabilities position of £1,758m at 30 September 2024 (£1,076m net current
liabilities at 31 March 2024). Consequently, the directors consider it
appropriate to adopt the going concern basis of accounting in preparing the
condensed consolidated financial statements for the half year to 30 September
2024. When reaching this conclusion, the directors took into account:
• The group's overall financial position (including trading
during the year and ability to repay term debt as it matures without recourse
to refinancing); and
• Exposure to principal risks (including severe but plausible
downsides).
At 30 September 2024, the group had cash and cash equivalents of £245m (net
of bank overdrafts) and current asset investments of £2,385m. The group also
had access to committed borrowing facilities of £2.1bn. These facilities were
undrawn at period-end and are not subject to renewal until March 2027.
The information for the year ended 31 March 2024 does not constitute the
group's statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for that year has been delivered to the
Registrar of Companies. The auditor has reported on those accounts; their
report (i) was unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006 in respect of the accounts for the year to 31 March
2024.
A reference to a year expressed as FY25 is to the financial year ended 31
March 2025.
Accounting policies changes and restatements
Other than as stated below, the financial statements have been prepared in
accordance with the accounting policies as set out in the financial statements
for the year to 31 March 2024 and have been prepared under the historical cost
convention as modified by the revaluation of financial assets and liabilities
(including derivative financial instruments) at fair value.
New and amended accounting standards effective during the year
The following new and amended standards are effective during the year, none of
which had a material impact on the financial statements of the group:
• Lease liability in a Sale and Leaseback (Amendments to IFRS 16
Leases)
• Classification of liabilities as current or non-current and
non current liabilities with covenants (Amendments to IAS 1 Presentation of
Financial Statements)
• Amendments to IAS 7 Statement of Cash Flows and IFRS 7
Financial Instruments: Disclosures - supplier finance arrangements
IFRS Interpretations Committee agenda decisions
The IFRS Interpretations Committee (IFRIC) periodically issues agenda
decisions which explain and clarify how to apply the principles and
requirements of IFRS standards. Agenda decisions are authoritative and may
require the group to revise accounting policies or practice to align with the
interpretations set out in the decision.
We regularly review IFRIC updates and assess the impact of agenda decisions.
No agenda decisions finalised in the half year to 30 September 2024 have
been assessed as having a significant impact on the group.
New and amended accounting standards that have been issued but are not yet
effective
The IASB has issued IFRS 18 Presentation and Disclosure in Financial
Statements which replaces IAS 1 Presentation of Financial Statements. BT is
evaluating the impact of this new standard on its financial statements. It
will be effective for BT for the first time for FY28.
IFRS S1 General Requirements for Disclosure of Sustainability-related
Financial Information, and IFRS S2 Climate-related Disclosures have been
issued but not yet endorsed by the UK Endorsement Board. We continue to report
in line with our regulatory obligations, namely the FCA Premium Listing Rule
9.8.6(8), and amendment to the Companies Act 2006, following the TCFD
framework. We have reviewed the IFRS S1 and S2 standards and will closely
monitor the UK Technical Advisory Committee's assessment and subsequent
endorsement of the standards as part of the UK Sustainability Reporting
Standards. After the release of the UK Sustainability Reporting Standards, we
aim to take part in the consultation process and review our processes and
disclosures with reference to these standards.
2. Operating results - by customer-facing unit
Consumer Business Openreach Other Total
Half year to 30 September 2024 £m £m £m £m £m
Segment revenue 4,836 3,865 3,118 5 11,824
Internal revenue (20) (54) (1,612) - (1,686)
Adjusted(1) external revenue 4,816 3,811 1,506 5 10,138
Adjusted EBITDA(2) 1,330 747 2,059 (3) 4,133
Depreciation and amortisation(1) (873) (477) (974) (24) (2,348)
Adjusted(1) operating profit (loss) 457 270 1,085 (27) 1,785
Specific operating profit (loss) (note 5) (266)
Operating profit 1,519
Half year to 30 September 2023
Segment revenue 4,903 4,100 3,053 8 12,064
Internal revenue (24) (36) (1,590) - (1,650)
Adjusted(1) external revenue 4,879 4,064 1,463 8 10,414
Adjusted EBITDA(2) 1,347 806 1,936 6 4,095
Depreciation and amortisation(1) (840) (490) (992) (32) (2,354)
Adjusted(1) operating profit (loss) 507 316 944 (26) 1,741
Specific operating profit (loss) (note 5) (162)
Operating profit 1,579
(1 ) Before specific items, see Glossary on page 6.
(2 ) Adjusted EBITDA is defined in the Glossary on page 6. For the
reconciliation of adjusted EBITDA, see Additional Information on page 29.
( )
( )
3. Operating results - disaggregation of external revenue
Half year to 30 September 2024 Consumer Business Openreach Other Total
£m £m £m £m £m
ICT and managed networks - 1,633 - - 1,633
Fixed access subscriptions 2,164 1,026 1,461 - 4,651
Mobile subscriptions 1,813 609 - - 2,422
Equipment and other services 839 543 45 5 1,432
Total adjusted(1) revenue 4,816 3,811 1,506 5 10,138
Specific items (note 5) (21)
Total revenue 10,117
Half year to 30 September 2023
ICT and managed networks - 1,798 - - 1,798
Fixed access subscriptions 2,197 1,107 1,426 - 4,730
Mobile subscriptions 1,833 592 - - 2,425
Equipment and other services 849 567 37 8 1,461
Total adjusted(1) revenue 4,879 4,064 1,463 8 10,414
Specific items (note 5) (7)
Total revenue 10,407
(1) See Glossary on page 6.
( )
4. Operating costs
Half year to 30 September
2024 2023
(Restated(1))
£m £m
Operating costs by nature
Wages and salaries 2,013 2,107
Social security costs 216 210
Other pension costs 171 185
Share-based payment expense 29 37
Total staff costs 2,429 2,539
Capitalised direct labour (710) (645)
Net staff costs 1,719 1,894
Indirect labour costs 653 604
Capitalised indirect labour (388) (394)
Net indirect labour costs 265 210
Net labour costs 1,984 2,104
Product costs 1,551 1,658
External sales commissions 229 260
Payments to telecommunications operators 564 640
Property and energy costs 637 666
Network operating and IT costs 534 523
Provision and installation 170 204
Marketing and sales 168 180
Net impairment losses on trade receivables and contract assets 75 72
Other operating costs 212 129
Other operating income (119) (117)
Depreciation and amortisation, including impairment charges 2,348 2,354
Total operating costs before specific items 8,353 8,673
Specific items (note 5) 245 155
Total operating costs 8,598 8,828
(1)Comparatives for the half year to 30 September 2023 have been restated for
employee pension contributions, reclassification of sales commissions to wages
and salaries, and other reclassifications between cost categories.
Depreciation and amortisation, which includes impairment charges, is analysed
as follows:
Half year to 30 September
2024 2023
£m £m
Depreciation and amortisation before impairment charges
Intangible assets 608 581
Property, plant and equipment 1,410 1,438
Right-of-use assets 324 330
Impairment charges
Property, plant and equipment 8 5
Right-of-use assets (2) -
Total depreciation and amortisation before specific items 2,348 2,354
Impairment charges classified as specific items (note 5)
Right-of-use assets - 2
Total operating costs 2,348 2,356
( )
Restatement of half year to 30 September 2023 comparatives
Employee pension contributions
During the half year to 30 September 2024, we have rolled out a new payroll
system. As part of the implementation of the new system, we identified that
employee pension contributions that should have been included as part of gross
wages and salaries were deducted from that category and mapped to employer
pension costs.
( )
In the half year to 30 September 2023 an amount of £111m representing
employee pension contributions for the period, which are not a cost of the
Group, was incorrectly deducted from Wages and Salaries in the Income
statement and added to the amount disclosed as the Group's Other pension cost.
There was no effect on Total Staff costs. Comparatives have been restated.
( )
Reclassification of sales commissions to wages and salaries
As part of an exercise to review cost categories for internal and external
reporting we have revisited our classifications for sales commissions.
Commissions paid to employees are now included within wages and salaries.
Sales commissions paid to employees were previously mapped to the 'Sales
commissions' category but should have been included within staff costs. We
have renamed the 'Sales commissions' category in the operating cost note to
'External sales commissions' to clarify the content of this line.
( )
Wages and salaries of £61m for the half year to 30 September 2023 were
included in 'Sales commissions'. We have adjusted the comparative amounts for
the half year ended 30 September 2023 to show this amount in wages and
salaries.
( )
Other reclassifications between cost categories
During the half year to 30 September 2024, following completion of finance
system transformation, we have more granular information with which to better
align cost allocations with our accounting policies. As a result of this, we
have identified certain reclassifications across our operating cost categories
to the costs reported in the half year to 30 September 2023.
( )
In particular:
( )
• Equipment costs of £63m have been reclassified from
provision and installation costs to product costs to reflect our policy of
reporting customer equipment costs within product costs.
• Network solution costs of £63m to support our products
have been reclassified from product costs to network operating costs to
reflect the nature of the costs being incurred, being costs to develop network
solutions to support our products.
( )
Half year to 30 September
2023 (Reported) Restatement 2023
(Restated)
£m £m
Operating costs by nature
Wages and salaries 1,935 172 2,107
Social security costs 210 - 210
Other pension costs 296 (111) 185
Share-based payment expense 37 - 37
Total staff costs 2,478 61 2,539
Capitalised direct labour (645) - (645)
Net staff costs 1,833 61 1,894
Indirect labour costs 604 - 604
Capitalised indirect labour (394) - (394)
Net indirect labour costs 210 - 210
Net labour costs 2,043 61 2,104
Product costs 1,658 - 1,658
External sales commissions 321 (61) 260
Payments to telecommunications operators 640 - 640
Property and energy costs 666 - 666
Network operating and IT costs 460 63 523
Provision and installation 267 (63) 204
Marketing and sales 180 - 180
Net impairment losses on trade receivables and contract assets 72 - 72
Other operating costs 129 - 129
Other operating income (117) - (117)
Depreciation and amortisation, including impairment charges 2,354 - 2,354
Total operating costs before specific items 8,673 - 8,673
Specific items (note 5) 155 - 155
Total operating costs 8,828 - 8,828
5. Specific items
Our income statement and segmental analysis separately identify trading
results on an adjusted basis, being 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 those
that in management's judgement need to be disclosed 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 BT Group Board and the Executive
Committee and assists in providing an additional analysis of our reporting
trading results. Specific items may not be comparable to similarly titled
measures used by other companies.
In determining whether an event or transaction is specific, management
considers quantitative as well as qualitative factors. 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 significant business
restructuring programmes such as the current group-wide cost transformation
and modernisation programme, acquisitions and disposals of businesses and
investments, charges or credits relating to retrospective regulatory matters,
property rationalisation programmes, historical property-related provisions,
significant out of period contract settlements, net interest on our pension
obligation, and the impact of remeasuring deferred tax balances. In the event
that items meet the criteria, which are applied consistently from year to
year, they are treated as specific items. Any releases to provisions
originally booked as a specific item are also classified as specific.
Conversely, when a reversal occurs in relation to a prior year item not
classified as specific, the reversal is not classified as specific in the
current year.
Movements relating to the sports joint venture (Sports JV) with Warner Bros.
Discovery (WBD), such as fair value gains or losses on the A and C preference
shares or impairment charges on the equity-accounted investment are classified
as specific. Refer to note 1 (#Section20) 0 (#Section20) for further detail.
Half year to 30 September
2024 2023
£m £m
Specific revenue
Retrospective regulatory matters 21 7
Specific revenue 21 7
Specific operating costs
Restructuring charges 187 170
Sports JV-related items 44 17
Other divestment-related items 3 (34)
Retrospective regulatory matters 11 -
Specific operating costs before depreciation and amortisation 245 153
Impairment charges due to property rationalisation - 2
Specific operating costs 245 155
Specific operating loss 266 162
Interest expense on retirement benefit obligation 99 60
Net specific items charge before tax 365 222
Tax charge (credit) on specific items (77) (55)
Net specific items charge after tax 288 167
Retrospective regulatory matters
We recognised net charge £21m in revenue in relation to historic regulatory
matters (H1 FY24: £7m). These items represent movements in provisions
relating to various matters.
Restructuring charges
We have incurred charges of £187m (H1 FY24: £170m) relating to projects
associated with our group-wide cost transformation and modernisation
programme. Costs primarily relate to leaver costs, consultancy costs, and
staff costs associated with colleagues working exclusively on programme
activity. The net cash cost of restructuring activity during the half year was
£198m (H1 FY24: £130m).
The programme was first announced in May 2020 and will run until the end of
FY25. In response to cost inflation, during FY23 we revised the gross
annualised savings target to £3.0bn (previously £2.5bn), with a cost to
achieve of £1.6bn (previously £1.3bn). We had achieved our £3bn target at
the FY24 year end with a cost to achieve of £1.5bn (FY23: achieved gross
annualised savings of £2.1bn and costs of £1.1bn).
A new programme of a further £3bn cost savings was announced in May 2024
which will run until the end of FY29. The costs of the final FY25 year of the
previous programme will be absorbed into the new programme, given that the
previous cost saving target was achieved 12 months early. We have achieved
£0.4bn of cost savings at a cost to achieve of £0.2bn at H1.
Sports JV-related items
We have recorded a net fair value loss of £44m (H1 FY24: £17m) on the A and
C preference shares in the Sports JV (see note 1 (#Section20) 0 (#Section20)
).
Other divestment-related items
We recognised a £3m charge (H1 FY24: £34m credit) mainly relating to minor
movements on divestments.
Impairment charges due to property rationalisation
During H1 FY24, we recognised a £2m impairment charge as specific, in
relation to a property rationalisation programme.
Interest expense on retirement benefit obligation
During the year we incurred £99m (H1 FY24: £60m) of interest costs in
relation to our defined benefit pension obligations.
Tax on specific items
A tax credit of £77m was recognised in relation to specific items (H1 FY24:
£55m).
6. Pensions
30 September 2024 31 March 2024
£bn £bn
IAS 19 liabilities - BTPS
(38.7) (40.0)
Assets - BTPS
34.5 35.4
Other schemes
(0.1) (0.2)
Total IAS 19 deficit, gross of tax(1)
(4.3) (4.8)
Total IAS 19 deficit, net of tax
(3.3) (3.8)
Discount rate (nominal) 5.05 % 4.90
%
Future inflation - average increase in RPI (p.a.) 3.20 % 3.25
%
Future inflation - average increase in CPI (p.a.) 2.80 % 2.80
%
(1) Of which £(4.4)bn relates to schemes in deficit (31 March 2024:
£(4.9)bn) and £0.1bn relates to schemes in surplus (31 March 2024: £0.1bn).
The IAS 19 deficit decreased to £4.3bn at 30 September 2024 from £4.8bn at
31 March 2024 due to scheduled contributions. This was partly offset by lower
than required asset returns.
The 2023 BTPS funding valuation included a future funding commitment for BT to
provide additional deficit contributions of £150m - £300m p.a. should the
funding deficit be more than £1bn behind plan at two consecutive semi-annual
assessment dates.
At the 30 June 2024 assessment date, the funding position was within this
limit.
Co-investment vehicle
As disclosed in Note 19 of the Annual Report 2024, a BTPS co-investment
vehicle was set up in 2021 which provides BT Group with some protection
against the risk of overfunding and therefore enables BT Group to provide
upfront funding with greater confidence. Over the period, £0.6bn of
contributions were paid into the BTPS co-investment vehicle, increasing its
value to £0.7bn at 30 September 2024 (£0.1bn at 31 March 2024). In line with
the 31 March 2024 treatment, the investment in the co-investment vehicle has
been classified as a pension plan asset. This classification is based on an
assessment under IFRS 10 of the control of the vehicle. Due to the increase in
value this classification is now a significant judgement.
The main factors relevant to the assessment were:
• Payments made by BT Group into the co-investment vehicle
are invested as if part of the overall BTPS investment strategy (as set by the
BTPS Trustee after consultation with BT Group); and
• Future returns of surplus to BT Group from the
co-investment vehicle are dependent on the overall returns of the BTPS - the
majority of which sit outside the co-investment vehicle.
Our assessment concluded that the co-investment vehicle is a plan asset. If we
had concluded that BT did control the co-investment vehicle, then instead of
being included as a plan asset with movements through other comprehensive
income, the assets of the vehicle would be consolidated on BT's balance sheet
with movements through the income statement.
7. Financial instruments and risk management
Fair value of financial assets and liabilities measured at amortised cost
At 30 September 2024, the fair value of listed bonds was £18,146m (31 March
2024: £17,820m) and the carrying value was £18,206m (31 March 2024:
£17,994m).
The fair value of the following financial assets and liabilities approximate
to their carrying amount:
• Cash and cash equivalents
• Lease liabilities
• Trade and other receivables
• Trade and other payables
• Provisions
• Investments held at amortised cost
• Other short-term borrowings
• Contract assets
• Contract liabilities
The group's activities expose it to a variety of financial risks: market risk
(including interest rate risk and foreign exchange risk); credit risk; and
liquidity risk. There have been no changes to the risk management policies
which cover these risks since 31 March 2024.
Current trade and other payables balance of £5,620m (31 March 2024: £6,323m)
includes:
• £224m (31 March 2024: £101m) of trade payables in a
supply chain financing programme used with a limited number of suppliers to
extend short payment terms to a more typical payment term.
• £173m (31 March 2024: £224m) of trade payables in a
separate supply chain financing programme that allows suppliers the
opportunity to receive funding earlier than the invoice due date. Financial
institutions are used to support this programme but we continue to recognise
the underlying payables as we continue to cash settle the supplier invoices in
accordance with their terms.
Fair value estimation
Fair values of financial instruments are analysed by three levels of valuation
methodology which are:
1. Level 1 - uses quoted prices in active markets for identical
assets or liabilities.
2. Level 2 - uses inputs for the asset or liability other than
quoted prices, that are observable either directly or indirectly.
3. Level 3 - uses inputs for the asset or liability that are not
based on observable market data, such as internal models or other valuation
methods.
Level 2 balances are the fair values of the group's outstanding derivative
financial assets and liabilities which were estimated using discounted cash
flow models and market rates of interest and foreign exchange at the balance
sheet date.
Level 3 balances comprise the following financial instruments classified as
fair value through profit and loss and fair value through other comprehensive
income:
• A and C preference shares in the Sports JV, see note 1
(#Section20) 0 (#Section20) for more details.
• Investments in a number of private companies. In the
absence of specific market data, these investments are held at cost, adjusted
as necessary for impairments, which approximates to fair value.
• Derivative energy contracts, estimated using discounted
cash flow models and the latest forward energy curves at the balance sheet
date.
Level 1 Level 2 Level 3 Total held at fair value
30 September 2024 £m £m £m £m
Preference shares in joint venture
Fair value through profit and loss - - 489 489
Investments
Fair value through other comprehensive income - - 18 18
Fair value through profit and loss 8 - - 8
Derivative assets
Designated in a hedge - 776 3 779
Fair value through profit and loss - 119 - 119
Total assets 8 895 510 1,413
Derivative liabilities
Designated in a hedge - 488 75 563
Fair value through profit and loss - 88 11 99
Total liabilities - 576 86 662
( )
( )
Level 1 Level 2 Level 3 Total held at fair value
31 March 2024 £m £m £m £m
Preference shares in joint venture
Fair value through profit and loss - - 533 533
Investments
Fair value through other comprehensive income - - 23 23
Fair value through profit and loss 6 - - 6
Derivative assets
Designated in a hedge - 980 1 981
Fair value through profit and loss - 89 - 89
Total assets 6 1,069 557 1,632
Derivative liabilities
Designated in a hedge - 385 78 463
Fair value through profit and loss - 65 11 76
Total liabilities - 450 89 539
( )
Net loss of £59m and net gain of £15m have been recognised in the income
statement and other comprehensive income respectively in respect of fair value
movements on level 3 instruments during the half year ended 30 September 2024.
Of the £59m loss recognised in the income statement £15m loss is in respect
of recycling from cash flow hedge reserve. There were no changes to the
valuation methods or transfers between levels 1, 2 and 3 during the half year.
8. Financial commitments
Financial commitments as at 30 September 2024 include capital commitments of
£1,055m (31 March 2024: £1,049m).
9. Contingent liabilities and legal proceedings
In the ordinary course of business, we are periodically notified of actual or
threatened litigation, and regulatory and compliance matters and
investigations. We have disclosed below a number of such matters including any
matters where we believe a material adverse impact on the operations or
financial condition of the group is possible and the likelihood of a material
outflow of resources is more than remote.
Where the outflow of resources is considered probable, and a reasonable
estimate can be made of the amount of that obligation, a provision is
recognised for these amounts. Where an outflow is not probable but is
possible, or a reasonable estimate of the obligation cannot be made, a
contingent liability exists.
In respect of each of the claims below, the nature and progression of such
proceedings and investigations can make it difficult to predict the impact
they will have on the group. There are many reasons why we cannot make these
assessments with certainty, including, among others, that they are in early
stages, no damages or remedies have been specified, and/or the often slow pace
of litigation.
Class action claim - landline only services
In January 2021, Justin Le Patourel, represented by law firm Mishcon de Reya
applied to the Competition Appeal Tribunal to bring a proposed class action
claim for damages they estimated at £608m (inclusive of compound interest) or
£589m (inclusive of simple interest) alleging anti-competitive behaviour
through excessive pricing by BT to customers with certain residential landline
services. Ofcom considered this topic in 2017. At that time, Ofcom's final
statement made no finding of excessive pricing or breach of competition law
more generally but we implemented a voluntary commitment to reduce prices for
customers that have a BT landline only and not to increase those prices beyond
inflation (CPI). In September 2021 the Competition Appeal Tribunal certified
the claim to proceed to a substantive trial on an opt-out basis (class members
are automatically included in the claim unless they choose to opt-out). In
July 2023 Justin Le Patourel amended his claim seeking increased damages
estimated at £1,338m (inclusive of compound interest) or £1,309m (inclusive
of simple interest), later revised to £1,307m (inclusive of compound
interest) or £1,278m (inclusive of simple interest) in December 2023. A
hearing took place between January and March 2024 and we are awaiting
judgment. At the reporting date we are not aware of any evidence to indicate
that a present obligation exists such that any amount should be provided for.
Class action claim - combined mobile and handset services
In November 2023, Justin Gutmann, represented by law firm Charles Lyndon
applied to the Competition Appeal Tribunal to bring a proposed class action
claim for damages estimated at £1.1bn (inclusive of simple interest) on
behalf of customers who purchased combined handset and airtime contracts who
are outside their minimum contract terms but who continue to pay the same
price as during their minimum contract terms. The claim alleges this approach
was an anti-competitive abuse of a dominant position. Similar claims have also
been brought against Vodafone, Three and O2 with the total damages claimed
£3.285bn (inclusive of simple interest). At the reporting date we are not
aware of any evidence to indicate that a present obligation exists such that
any amount should be provided for. Class actions must be certified by the
Competition Appeal Tribunal at a Collective Proceedings Order (CPO) hearing
before proceeding to a substantive trial. A first case management conference
to determine next procedural steps was completed was held in May 2024.A
certification hearing is currently expected to start on 31 March 2025 If the
class action is certified the substantive trial will not conclude during FY25.
BT intends to defend itself vigorously.
Italian business
Milan Public Prosecutor prosecutions: In FY20 proceedings were initiated
against BT Italia for certain potential offences, namely the charge of having
adopted, from 2011 to 2016, an inadequate management and control organisation
model for the purposes of Articles 5 and 25 of Legislative Decree 231/2001. BT
Italia disputed this and maintained in a defence brief filed in April 2019
that: (a) BT Italia did not gain any interest or benefit from the conduct in
question; and (b) in any event, it had a sufficient organisational, management
and audit model that was circumvented/overridden by individuals acting in
their own self-interest. The trial commenced on 26 January 2021. On 23 April
2021, the Court allowed some parties to be joined to the criminal proceedings
as civil parties ('parte civile') - a procedural feature of the Italian
criminal law system. These claims were directed at certain individual
defendants (which include former BT/ BT Italia employees). Those parties
successfully joined BT Italia as a respondent to their civil claims
('responsabile civile') on the basis that it is vicariously responsible for
the individuals' wrongdoing.
The first instance phase of the trial has now concluded with the Court handing
down its decision on 25 January 2024. The Court convicted certain individuals
(including certain former BT Italia employees) for manipulation of BT Italia's
financial statements for the financial year ending 31 March 2016 and for fraud
against an Italian company, Sed Multitel S.r.l. The Court dismissed all
charges that had been brought against BT Italia but ordered that BT Italia
indemnify certain individual minority shareholders in the company and Sed
Multitel for their losses. The Court has not quantified the indemnification
amount, such that the indemnified parties must now seek to recover these
amounts from BT Italia by agreement or separate civil proceedings. The quantum
of those claims, if they are pursued successfully, is not anticipated to be
material.
Accounting misstatement claims: a law firm acting on behalf of a group of
investors has made claims under s.90A of the Financial Services & Markets
Act 2000, alleging that untrue or misleading statements were made in relation
to the historical irregular accounting practices in BT's Italian business
(which have been the subject of previous disclosures). No value is stated and
the matter is in the early stages. As mentioned in our earlier reports, the
accounting issues in Italy have previously been the subject of class actions
in the US that were dismissed by the US courts.
Phones 4U
Since 2015 the administrators of Phones 4U Limited have made allegations that
EE and other mobile network operators colluded to procure Phones 4U's
insolvency. Legal proceedings for an unquantified amount were issued in
December 2018 by the administrators. The trial on the question of
liability/breach ran from May to July 2022. In November 2023 the High Court
dismissed Phones 4U's claim in its entirety. Phones 4U has subsequently
appealed that judgment to the Court of Appeal and a hearing is expected in May
2025. We continue to dispute these allegations vigorously.
UK Competition and Markets Authority (CMA) investigation
On 12 July 2022 the CMA opened a competition law investigation into BT and
other companies involved in the purchase of freelance services for the
production and broadcasting of sports content in the UK. The investigation is
focused on BT Sport. In February 2023, the CMA extended its investigation to
include suspected breaches of competition law in relation to the employment of
staff supporting the production and broadcasting of sports content in the UK.
However, in March 2024 the CMA confirmed this limb of its investigation would
not be progressed. The CMA has said no assumption should be made at this stage
that competition law has been infringed. BT is cooperating with the
investigation.
10. Joint ventures and associates
30 September 2024 31 March 2024
£m £m
Interest in joint ventures
294 302
Interest in associates
6 5
Closing balance
300 307
Share of post tax loss of associates and joint ventures included in the income
statement of £3m (H1 FY24: £7m loss) includes £4m loss (H1 FY24: £19m
loss) relating to our sports joint venture (Sports JV) with Warner Bros.
Discovery (WBD) and £1m profit (H1 FY24: £12m profit) relating to our other
associates and joint ventures. The Sports JV is the only material
equity-accounted investment held by the group, see below for further details.
Sports JV
In FY23 we formed the Sports JV (known externally as TNT Sports) with WBD,
combining our previous BT Sport operations with WBD's Eurosport UK business.
The group continues to hold both ordinary equity shares and preference shares
in the Sports JV entity.
Ordinary equity shares
Our retained ordinary equity interest in the Sports JV is held under the
equity method of accounting, consistent with our accounting policy on joint
ventures and associates.
2024
£m
Carrying amount at 1 April
300
Share of total comprehensive loss for the period
(8)
Dividends received during the period
-
Carrying amount at 30 September
292
The Sports JV had a loss after tax for the six months to 30 September 2024 of
£7m, after adjustments made to align with the group's accounting policies,
and reflects amortisation of acquired intangibles from the BT Sport and
Eurosport UK business transfers and adjustments for the off-market minimum
guarantee with BT. In addition, the Sports JV had other comprehensive losses
of £8m relating to fair value movements on its foreign exchange hedging
arrangement with the group that have been designated as cash flow hedges.
As required by IAS 36, we have assessed the investment for impairment. There
is no impairment at 30 September 2024 as the fair value less costs to sell is
higher than the carrying amount of the investment. See below for sensitivities
we have applied in determining the fair value less costs to sell.
Since the completion of the transaction with WBD, the Sports JV has been
classified as a joint venture based on an assessment under IFRS 10 and 11,
which is reviewed at each reporting period end. A key factor in our assessment
of control at 30 September 2024 is WBD's call option to acquire BT's 50%
interest in the Sports JV, which is exercisable at specified points in the
first four years of the JV, and was active as at the period end. Determining
whether the call option provides WBD a substantive right to unilaterally
control the key decisions requires significant judgement and consideration of
a variety of factors, including whether there are any barriers to exercise. On
balance of all factors considered, we have assessed that BT's joint control
over the Sports JV still applies at 30 September 2024. The alternative
treatment of discontinuing equity accounting on the basis that joint control
has been lost would not have a material impact. Whilst this particular option
has expired by the date of this announcement, there are further mechanisms for
BT to exit the JV within the next two years, including a further call option
held by WBD.
Our initial accounting of the Sports JV at formation assumed an exit by BT at
the end of the first four years of the venture. Our investments continue to be
valued on this basis, however, an earlier exit would not have a material
impact on the amounts recorded.
Preference shares
In addition to BT's ordinary shareholding, BT held the following investments
in preference shares in the Sports JV that have not been included within the
equity-accounted interest above.
30 September 2024 31 March 2024
£m £m
Investment in A preference shares
338 387
Investment in C preference shares
151 146
Closing balance
489 533
A net £44m movement has been recorded on the group's preference share
investments relating to fair value changes only, see below for further
details.
• A preference shares - a £49m fair value loss has been
recognised through specific items (see note 5), largely driven by a reduction
in revenue after a material customer contract was renewed at a lower than
expected value, leading to lower cash available for distribution under BT's
earn-out entitlement. We disclosed the contract renewal as an item of
significant uncertainty in our FY24 Annual Report.
• C preference shares - these shares are expected to be
sold to WBD at the end of BT's earn-out entitlement in consideration for any
sports rights funded by BT at that point. BT's return on the shares is driven
by changes in the Sports JV's sports rights portfolio which in turn is
dependent on changes in the wider sports rights market and the Sports JV's
financial performance and are therefore held as a financial asset at FVTPL
under IFRS 9. A £5m fair value gain has been recognised through specific
items (see note 5 (#Section15) ).
The preference shares are held at Level 3 on the fair value hierarchy,
reflecting a valuation methodology that does not use inputs based on
observable market data. See below for sensitivities we have applied in
determining the fair value.
Sensitivities
The group's ordinary equity and preference share investments in the Sports JV,
carry both upside and downside risk from changes in micro and macroeconomic
factors affecting the sports content subscription market and risk appetite of
investors in that market.
We have applied the following sensitivities to these risk factors:
• EBITDA decline from loss of revenue or improvement from
outperformance against revised forecasts.
• Increase or decrease in the discount rate applied.
• Increase or decrease in the valuation multiple achieved.
Sensitivity Fair value of A and C preference shares in Sports JV Headroom on impairment test over equity-accounted investment
10% increase or decrease in EBITDA +/- £42m '+/- £34m
10% increase or decrease in discount rate +/- £3m '+/- £6m
10% change in valuation multiple - '+/- £33m
None of the sensitivities applied generated a material impairment on the
group's equity-accounted investment in the Sports JV.
11. Related party transactions
British Telecommunications plc and certain of its subsidiaries act as a funder
and deposit taker for cash-related transactions for both its parent (BT Group
Investments Ltd) and ultimate parent company (BT Group plc). The loan
arrangements described below with these companies reflect this. Cash
transactions normally arise where the parent and ultimate parent company are
required to meet their external payment obligations or receive amounts from
third parties. These principally relate to the payment of dividends, the
buyback of shares and the exercise of share options. Transactions between the
ultimate parent company, the parent company and the group are settled on both
a cash and non-cash basis through these loan accounts depending on the nature
of the transaction.
A dividend of £780m was declared and settled with the parent company (FY24:
£850m).
A summary of the balances with the parent and ultimate parent companies and
the finance income or expense arising in respect of these balances is shown
below:
Asset (liability) Finance income (expense)
30 September 2024 31 March 2024 30 September 2024 30 September 2023
£m £m £m £m
Amounts owed by (to) parent and
ultimate parent company
Loan facility - non-current asset investments 11,843 11,633 382 325
Trade and other receivables 50 25 n/a n/a
Trade and other payables (36) (36) n/a n/a
Associates and joint ventures related parties include the Sports JV with
Warner Bros (see note 10). Sales of services to the Sports JV during the half
year to 30 September 2024 were £7m (FY24: £33m) and purchases from the
Sports JV were £150m (FY24: £299m) excluding £103m (FY24: £211m)
additional payments made to settle the minimum guarantee liability. The amount
receivable from the Sports JV as at 30 September 2024 was £nil (FY24: £3m)
and the amount payable to the Sports JV was £70m (FY24: £94m).
As part of the BT Sport transaction, the group has committed to providing the
Sports JV with a sterling Revolving Credit Facility (RCF), up to a maximum for
£200m, for short-term liquidity required by the Sports JV to fund its working
capital and commitments to sports rights holders. Amounts drawn down by the
Sports JV under the RCF accrue interest at a market reference rate, consistent
with the group's external short-term borrowings. The outstanding balance under
the RCF of £81m (FY24: £163m) is treated as a loan receivable and held at
amortised cost. There is also a loan payable to the Sports JV of £10m (FY24:
£11m).
The Sports JV has a foreign exchange hedging arrangement with the group to
secure Euros required to meet its commitments to certain sports rights
holders; the group has external forward contracts in place to purchase the
Euros at an agreed sterling rate in order to mitigate its exposure to exchange
risk. The group holds a £39m (FY24: £29m) derivative liability in respect of
forward contracts provided to the Sports JV.
Transactions from commercial trading arrangements with associates and joint
ventures, including the Sports JV, are shown below:
30 September 2024 31 March 2024
£m £m
Sales of services to associates and joint ventures
9 37
Purchases from associates and joint ventures
172 338
Amounts receivable from associates and joint ventures
2 5
Amounts payable to associates and joint ventures
72 95
Other related party transactions include a dividend received from a joint
venture in the year ending 31 March 2024 of £12m.
12. Principal risks and uncertainties
We have processes for identifying, evaluating and managing our risks. Whilst
individual risks continue to evolve, overall we do not consider that there has
been a material change to any of our principal risks and uncertainties as
presented on pages 18 to 25 of the Annual Report 2024. We define our risk
landscape into 16 Group Risk Categories ('GRCs'). These are summarised below
and have the potential to have an adverse impact on our profit, assets,
liquidity, capital resources and reputation.
Strategic
Strategy, technology and competition - To deliver value to our stakeholders
and achieve our strategic objectives, we must carefully manage risks around
economic uncertainty, intensifying competition and rapidly changing customer
and technology trends. Similarly, pursuing the wrong strategy, not reflecting
strategy in business plans, or not effectively executing against it could make
us less competitive and create less long-term sustainable value.
Stakeholder management - Stakeholder management, built on trust, is essential
to us achieving our ambitions. We engage with stakeholders fairly and
transparently to build strong, sustainable relationships and manage
reputational risks. Some topics, concerning our stakeholders, need extra
focus. These include using and selling emerging technologies, ESG factors, and
customer fairness.
Financial
Financing - We rely on cash generated by business performance supplemented by
capital markets, credit facilities and cash balances to finance operations,
pension scheme, dividends and debt repayments. We also focus on defining and
executing the right insurance strategy.
Financial management and control - We have financial controls in place to
prevent fraud and to report accurately. If these failed it could result in
material financial losses or cause us to misrepresent our financial position.
We might fail to apply the correct accounting principles and treatment, or to
meet tax compliance. This could result in financial misstatement, fines, legal
disputes and reputational damage.
Compliance
Communications regulation - We work with our regulators as they define clear,
predictable and proportionate regulations which protect customers and society
while ensuring service providers can compete fairly. We must comply with those
regulations, maintain trust and strong relationships while delivering on our
vision and sustainable
value growth.
Data and AI - Our data and AI strategy aims to create value and enable
efficiency, while providing a robust framework for us to comply with data and
AI governance and regulation. Not following data protection laws or
regulations or taking a responsible approach to AI could damage our reputation
and stakeholder trust, harm colleagues, customers or suppliers and/or lead to
litigation, fines and penalties.
Legal compliance - We focus on remaining in compliance with all substantive
laws. Our main focus areas are anti-bribery and corruption, competition law,
trade sanctions, export controls and corporate governance obligations. Other
GRCs focus on complying with other areas of law.
Financial services - We are exposed to more financial services regulation as
we attract new customer credit and insurance customers. Operating outside
Financial Conduct Authority ('FCA') rules, requirements or permissions could
harm customers and lead to fines, loss of FCA permissions, slow service
take-up and broader reputational damage.
Operational
Operational resilience - We want to deliver best-in-class performance across
our fixed and mobile networks and IT by being operationally resilient and
managing any risk that could disrupt our services. Service disruptions could
be caused by things like bad weather or accidental or deliberate damage to our
assets. Some service disruptions might depend on suppliers' and partners'
reliability - making picking the right ones important.
Cyber security - Our aim is to protect BT, colleagues and customers from harm
and financial loss from cyber security events. Because we run critical
national infrastructure, a cyber-attack could disrupt both customers and the
country and compromise data. A poorly managed cyber security event might cost
us money, damage our reputation and impact our market share. The regulator
might also impose fines or penalties.
People - Our people strategy is to enable a culture where every colleague can
be their best and help deliver our ambitions. This means we must manage risk
around our organisational structure, skills and capabilities, engagement,
culture, wellbeing and diversity.
Health, safety and environment - We have diverse working environments in
various locations, some of which pose a health or safety risk. We're committed
to ensuring the health, safety and wellbeing of our colleagues, contractors,
suppliers, customers, visitors and members of the public. We are also
committed to managing risks to protect the environment and build a sustainable
future, with effective environment and energy management - and particular
focus on reducing our carbon emissions.
Major customer contracts - We offer and deliver a diverse mix of major
contracts which contribute to our business performance and growth. Customer
contractual terms can be onerous and challenging to meet which might lead to
delays, penalties and disputes. Delivery or service failures against
obligations and commitments could damage our brand and reputation,
particularly for critical infrastructure contracts or security and data
protection services. Not managing contract exits, migrations, renewals and
disputes could erode profit margins and affect future customer relationships.
Customers, brand and product - We want to give customers standout service,
build personal and enduring relationships and take extra care of vulnerable
customers and customers with differing needs. Not continually improving our
customer experience could affect customer satisfaction and retention,
colleague pride and advocacy, revenues and brand value. Central to this is
being accurate and competitive with our pricing. We must also manage our
product and service lifecycles, inventory and supply chain, and meet our
customer obligations and product and service standards.
Supply management - Successfully selecting, bringing on board and managing
suppliers is essential for us to deliver quality products and services. We
must make decisions about suppliers on concentration, capability, resilience,
security, costs and broader issues that could impact our business and
reputation.
Transformation delivery - We are accelerating transformation delivery to build
a simpler, more efficient and dynamic BT. We are modernising and streamlining
our IT, automating processes with AI, streamlining our product portfolio and
migrating to next-generation strategic networks. This will unlock cost
efficiencies while also improving our customers' and colleagues' digital
experiences. Failing to manage transformation execution risks could make us
less efficient and damage our financial performance and customer experience.
13. Goodwill impairment
Our cash-generating units (CGUs) identified for the purpose of impairment
testing are equivalent to our Consumer and Business customer-facing units (see
note 12 to the BT plc FY24 financial statements for further details).
In line with the requirements of IAS 36 Impairment of Assets we have
considered whether any indicators of impairment are present in these CGUs at
the half year reporting date. No impairment triggers were identified in any of
the CGUs.
We will perform a detailed impairment review for our CGUs ahead of year end.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been
prepared in accordance with UK-adopted IAS 34 'Interim Financial Reporting';
• the interim management report includes a fair review of
the information required by DTR 4.2.7R (the indication of important events and
their impact during the first six months and description of principal risks
and uncertainties for the remaining six month of the year); and
• the interim management report includes a fair review of
the information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Simon Lowth
Director
15 November 2024
INDEPENDENT REVIEW REPORT TO BRITISH TELECOMMUNICATIONS PLC
Conclusion
We have been engaged by British Telecommunications Plc ("the Company") to
review the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 September 2024 which
comprises the Group income statement, Group statement of comprehensive income,
Group balance sheet, Group statement of changes in equity, Group cash flow
statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 September 2024 is not
prepared, in all material respects, in accordance with IAS 34 Interim
Financial Reporting as adopted for use in the UK and the Disclosure Guidance
and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority
("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of consolidated financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of consolidated
financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted for use in the UK.
In preparing the condensed set of consolidated financial statements, the
directors are responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of consolidated financial statements in the half-yearly financial report
based on our review. Our conclusion, including our conclusions relating to
going concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Jonathan Mills
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London, E14 5GL
15 November 2024
Additional Information
Notes
Our commentary focuses on the trading results on an adjusted basis, which is a
non-GAAP measure, being 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 those
that in management's judgement need to be disclosed by virtue of their size,
nature or incidence. This is consistent with the way that financial
performance is measured by management and reported to the Board and the
Executive Committee of BT Group plc 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.
Reported revenue, reported operating profit, reported profit before tax and
reported net finance expense are the equivalent unadjusted or statutory
measures. Reconciliations of reported to adjusted revenue, operating costs,
operating profit and profit before tax are set out in the group income
statement. Reconciliation of adjusted earnings before interest, tax and
depreciation and amortisation from the nearest measures prepared in accordance
with IFRS are provided in this Additional Information.
Reconciliation of adjusted earnings before interest, tax, depreciation and
amortisation
In addition to measuring financial performance of the group and
customer-facing units based on adjusted operating profit, we also measure
performance based on adjusted EBITDA. Adjusted EBITDA is defined as the group
profit or loss before specific items, net finance expense, taxation,
depreciation and amortisation and share of post tax profits or losses of
associates and joint ventures.
We consider adjusted EBITDA to be a useful measure of our operating
performance because it approximates the underlying operating cash flow by
eliminating depreciation and amortisation. Adjusted EBITDA is not a direct
measure of our liquidity, which is shown by our cash flow statement, and needs
to be considered in the context of our financial commitments.
A reconciliation of reported profit for the period, the most directly
comparable IFRS measure, to adjusted EBITDA, is set out below.
Half year to 30 September
2024 2023
£m £m
Reported profit for the period 1,137 1,181
Tax 212 232
Reported profit before tax 1,349 1,413
Net finance expense 167 159
Depreciation and amortisation 2,348 2,356
Specific revenue 21 7
Specific operating costs before depreciation and amortisation 245 153
Share of post tax (profits) losses of associates and joint ventures 3 7
Adjusted(1) EBITDA 4,133 4,095
(1 ) See Glossary on page 6.
( )
( )
Forward-looking statements - caution advised
Certain information included in this announcement is forward looking and
involves risks, assumptions and uncertainties that could cause actual results
to differ materially from those expressed or implied by forward looking
statements. Forward looking statements cover all matters which are not
historical facts and include, without limitation, projections relating to
results of operations and financial conditions and the Company's plans and
objectives for future operations. Forward looking statements can be identified
by the use of forward looking terminology, including terms such as 'believes',
'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'plans',
'projects', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could' or
'should' or, in each case, their negative or other variations or comparable
terminology. Forward looking statements in this announcement are not
guarantees of future performance. All forward looking statements in this
announcement are based upon information known to the Company on the date of
this announcement. Accordingly, no assurance can be given that any particular
expectation will be met and readers are cautioned not to place undue reliance
on forward looking statements, which speak only at their respective dates.
Additionally, forward looking statements regarding past trends or activities
should not be taken as a representation that such trends or activities will
continue in the future. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority), the Company
undertakes no obligation to publicly update or revise any forward looking
statement, whether as a result of new information, future events or otherwise.
Nothing in this announcement shall exclude any liability under applicable laws
that cannot be excluded in accordance with such laws.
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