UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20 F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended 31 March 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission File Number: 2-94004
British Telecommunications plc
(Exact name of Registrant as specified in its charter)
Not Applicable | England and Wales | |
(Translation of Registrants name into English) |
(Jurisdiction of incorporation or organization) |
BT Centre
81 Newgate Street, London, EC1A 7AJ
England
(address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
$2,800,000,000 8.625% Notes Due 2030
$800,000,000 2.35% Senior Notes Due 2019
$1,100,000,000 5.95% Senior Notes Due 2018
$500,000,000 1.25% Senior Notes Due 2017
$600,000,000 1.625% Senior Notes Due 2016
$750,000,000 2.00% Senior Notes Due 2015
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:
8,689,755,905 Ordinary Shares, of 25p each
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ¨ No x
Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligation under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Not applicable Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer x | ||
(Do not check if a smaller reporting company) |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ | International Financial Reporting Standards as issued by the International |
Other ¨ | ||
Accounting Standards Board x |
If Other has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Not applicable Yes ¨ No ¨
All references in this Form 20-F to us, we or the Company, are to British Telecommunications plc.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
3.A Selected financial data
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 3.A of the BT Group plc Annual Report & Form 20-F for the year ended March 31, 2014 (the BT Group plc 2014 Annual Report) dated May 22, 2014, which is incorporated into this annual report by reference.
3.B Capitalization and indebtedness
Not applicable
3.C Reasons for the offer and use of proceeds
Not applicable
3.D Risk factors
This section features some of the principal risks and uncertainties affecting us, but it is not exhaustive. These risks have the potential to impact our business, brand, assets, revenue, profits, liquidity or capital resources. The principal risks we described last year have evolved, and so has our response to them.
Our Enterprise Risk Management framework provides reasonable (but cannot give absolute) assurance that significant risks are identified and addressed. There may be some risks which are unknown to us at present. And there may be some that we consider less significant now but become more important later.
As in the prior year, external factors present both risks and opportunities, both to our business and to others. Inevitably, there are uncertainties in terms of the impact to BT should Scotland vote in favour of independence in September 2014. We have performed a high-level risk assessment of what those implications may be, and will continue to monitor the issue, seeking clarification on key questions from relevant parties where possible.
External factors drive a number of the risks that we face and we focus our efforts on predicting and mitigating these, while at the same time seeking to capitalise on opportunities that may emerge.
Security and resilience
The volume of traffic through our systems and networks is always growing, and our customers tolerance of service interruption is reducing as the world becomes increasingly dependent on information technology. Expectations are even higher when we stream live action through BT Sport. We have a responsibility to many millions of customers, both business and consumer, to safeguard their electronic information and to maintain the continuity of our services. We also need to safeguard the availability and security of our own data and intellectual property. This all requires the highest levels of operational resilience and security, which can be threatened at any time by malicious cyber-attacks, damage or theft of copper cable and equipment, vandalism, sabotage, extreme weather, component overload, loss of power and human error.
Impact
A breach of our security, or compromise of data or resilience affecting our operations, or those of our customers, could lead to an extended interruption to our services or even affect national infrastructure. Such failure may lead to a loss of customer confidence, termination of contracts, loss of revenue, and lower cash generation through penalties and unplanned costs of restoration and improvement. Additional reputational damage and financial loss may arise from a legal or contractual failing such as breaching data protection or handling requirements. Failure or interruption of data transfer could also have a significant adverse effect on our business.
Changes over the last year
The external cyber threat continues to rise, as shown by the amount of data traffic blocked by our malware filters and intrusion detection systems, and by the number of attempts to disrupt the websites that we manage. Criminal use of targeted phishing messages and other deception techniques are seen as the fastest growing risk. Government agencies around the world have raised their threat warning levels for cyber-attacks as larger numbers of credit and debit card records are reported stolen.
Major contracts
We have a number of complex and high-value national and multinational contracts. The revenue arising from, and the profitability of, these contracts are subject to a number of factors including: variation in cost; achievement of cost reductions anticipated in the contract pricing (both in terms of scale and time); delays in the delivery or achievement of agreed milestones owing to factors either within or outside our control; changes in customers requirements, budgets, strategies or businesses; and the performance of our suppliers. Any of these factors could make a contract less profitable or even loss-making.
The degree of risk generally varies depending on the scope and life of the contract and is typically higher in its early stages. Some customer contracts require investment in the early stages, which is expected to be recovered over the life of the contract. Major contracts often involve the implementation of new systems and communications networks, transformation of legacy networks and the development of new technologies. The recoverability of these upfront costs may be impacted by delays or failure to meet milestones. Substantial performance risk exists in these contracts.
Impact
Failure to manage or meet our commitments under these contracts, as well as changes in customers requirements, budgets, strategies or businesses, may lead to a reduction in our expected future revenue, profitability and cash generation. Unexpectedly high costs associated with the delivery of contracts could also negatively impact profitability. We may lose revenue due to the merger, acquisition or business failure of customers, or due to contract termination, and contracts may therefore become loss-making. Failure to replace the revenue and earnings lost from those customers could lead to an overall reduction in group revenue, profitability and cash flow.
Changes over the last year
Tough market conditions and increased competitive pressures continue to persist in many global regions. In some regions we are experiencing higher growth in volume of business due to previous investments. This changes the risk landscape and the focus of risk support and review. In the year, the increasing number of broadband delivery contracts with local authorities through the BDUK programme is of particular note.
Pensions
We have a significant funding obligation in relation to our defined benefit pension schemes and operate a large defined benefit pension scheme in the UK, the BT Pension Scheme (BTPS).
The BTPS faces similar risks to other defined benefit schemes. Future low investment returns, high inflation, longer life expectancy and regulatory changes may all result in the cost of funding the BTPS becoming a significant burden on our financial resources.
Following conclusion of the last actuarial funding valuation in May 2012, the valuation documentation was submitted to the Pensions Regulator. The final Court decision in the Crown Guarantee case, after any appeals, will give greater clarity as to the extent to which the liabilities of the BTPS are covered by a Crown Guarantee. This will inform the Pension Regulators next steps with regards to the valuation of the BTPS. Accordingly, as matters stand, it is uncertain as to when it will conclude its review.
Impact
An increase in the pension deficit at the next actuarial valuation as at 30 June 2014 may have an impact on the level of deficit payments we are required to make into the BTPS. Indirectly it may also have an adverse impact on our listed holding companys share price and our credit rating. Any deterioration in our credit rating would increase our cost of borrowing and may limit the availability or flexibility of future funding, thereby affecting our ability to invest, pay dividends or repay debt as it matures.
Changes over the last year
The BTPS is affected by financial market conditions. When determining expected future returns, different factors are taken into account, including yields (or returns) on government bonds. Government bond yields have remained below the levels at the last funding valuation, driven by a number of factors, including the Bank of Englands Quantitative Easing programme. If these conditions continue and a lower investment return assumption is adopted at the 30 June 2014 valuation, the liabilities may increase, potentially leading to a higher level of deficit payments.
The European Commission published draft revisions to the current Pensions Directive in March 2014. The proposed changes primarily focus on governance and transparency and are not expected to impact the valuation of pension liabilities.
In the UK, the Pensions Regulator has a new objective to consider the impact on the sustainable growth of an employer when reviewing funding plans. As a result, the Pensions Regulator is revising its Code of Practice which is expected to be finalised later this year.
Growth in a competitive market
We operate in markets which are characterised by: high levels of change; strong and new competition; declining prices and in some markets declining revenues; technology substitution; market and product convergence; customer churn; and regulatory intervention to promote competition and reduce wholesale prices.
A significant proportion of our revenue and profit is generated in the UK where the overall telecoms market has been in decline in real terms, despite strong volume growth in new services. Revenue from our calls and lines services to consumers and businesses has historically been in decline but new broadband and connectivity markets are growing. Our ability to deliver profitable revenue growth in a responsible and sustainable manner depends on us delivering on the strategic investments we are making.
Impact
Failure to achieve sustainable, profitable revenue growth could erode our competitive position and reduce our profitability, cash flow and ability to invest for the future.
Changes over the last year
Despite the slight improvement in the UK economy in the year, customers are still cautious with their spending, especially those small business customers not planning to make technology changes. Regulatory decisions related to charge controls have impacted negatively our revenue and profits. Regulation has failed to address imbalances in the competitive playing field between the heavily regulated fixed telecoms sector and other sectors such as mobile and pay-TV. This means that some of our competitors in the consumer space continue to benefit from both limited regulation of their core business and extensive sector-specific regulation of our UK fixed-line business.
The consumer broadband and triple-play markets remain very competitive. Sky acquired O2 (Telefónica) UKs consumer broadband business and continues to cross-sell broadband and telephony services to its pay-TV customers. Virgin Media (acquired by Liberty Global in the year) remains strong in these markets. In addition, the four main UK mobile operators launched 4G services during the year.
Communications industry regulation
Our activities across all the jurisdictions in which we operate can be impacted by regulation. In the UK where, following detailed market analysis, we are found to have significant market power, Ofcom can require us to provide wholesale services at regulated prices and service levels. It can also require us to make retrospective repayments to other CPs where we are found to have set prices outside regulatory requirements, and can impose fines on us for non-compliance with the regulatory rules, including competition law.
Outside the UK, general licensing requirements can restrict the extent to which we can enter markets and compete. Regulation will also define the terms on which we can purchase key wholesale services from others.
In the UK, risks can come from periodic market reviews (which might introduce tighter regulatory constraints), new charge controls, or CPs disputing or complaining about our pricing, products or services. Outside the UK, regulators can investigate our licensing requirements and whether our services comply with their rules.
Impact
Regulatory requirements and constraints can directly impact our ability to compete effectively and earn revenues. Regulatory risks are highest in the UK. Based on the latest Regulatory Financial Statements for 2012/13, around £5.5bn of our revenue (of which £3.0bn is to downstream parts of BT) is from wholesale markets where we have been found to have significant market power and which are currently subject to regulatory charge controls. Most of these controls require us to reduce our prices annually. Controls are usually set for three years and will therefore constrain revenues during that period.
Other CPs can ask Ofcom to resolve disputes with us about current or historic prices. Where Ofcom finds that these prices are, or have been, set at levels above those required under the regulatory framework, we may need to make retrospective repayments to CPs.
We may from time-to-time be required to provide new services, or existing services on improved terms, to wholesale customers on a non-discriminatory basis. This could increase our costs. Regulation outside the UK can impact our revenue by limiting our ability to compete through overly-restrictive licensing requirements or ineffective regulation of access to other CP networks.
Changes over the last year
Over the last year, we have seen regulatory activity in a number of areas. A number of these rulings will reduce our future pricing.
Business integrity and ethics
We are committed to maintaining high standards of ethical behaviour, and have a zero tolerance approach to bribery and corruption. We have to comply with a wide range of local and international anti-corruption and bribery laws. In particular, the UK Bribery Act and the US Foreign and Corrupt Practices Act (FCPA) provide comprehensive anti-bribery legislation. Both have extraterritorial reach and so cover our global operations. As we expand internationally, we are increasingly operating in countries identified as having a higher risk of bribery and corruption. We also have to ensure that we comply with trade sanctions, and import and export controls.
Impact
Failure by our employees or associated persons (such as suppliers or agents) to comply with anti-corruption and bribery and sanctions legislation could result in substantial penalties, criminal prosecution and significant damage to our reputation. This could in turn impact our future revenue and cash flow, the extent of which would depend on the nature of the breach, the legislation concerned and any associated penalties. Allegations of corruption or bribery, or violation of sanctions regulations, could also lead to reputational and brand damage with investors, regulators and customers.
Changes over the last year
The importance of conducting business ethically is becoming increasingly recognised across the globe as more countries introduce anti-corruption and bribery legislation. There have yet to be any significant judgments resulting from the UK Bribery Act, but there have been many significant enforcement actions brought under the US FCPA.
Comprehensive sanctions remain on Iran, Syria, Cuba, Sudan and North Korea. The European Union adopted additional restrictive measures against the Syrian regime and new sanctions on Russia.
Supply chain
We aim to harness the capability, diversity and innovation of the global supply market to add value to our business and customers. The integrity and continuity of our supply chain is critical to our operations and therefore a significant risk to our business.
We are committed to ensuring that all dealings with suppliers, from selection and consultation through to contracting and payment, are conducted in accordance with our trading and ethical policies.
We have a number of suppliers that we have identified as critical. The failure of one of these suppliers to meet its obligations could cause significant harm to our business.
Impact
While the size of the impact from a supplier failure can vary, all supplier failures typically result in an increased cost to our business and have the potential to adversely impact customer service and our brand. In many cases, the costs associated with the failure of a critical supplier could be significant, particularly if this results in our having to change technology. If we are unable to contract with an alternative supplier, our customer commitments could also be compromised, possibly leading to contractual breach, loss of revenue or penalties.
A failure in our supply chain to meet legal obligations or ethical expectations could adversely impact our reputation or possibly lead to censure, legal action and financial loss.
Changes over the last year
Economic conditions in certain markets and geographies continue to challenge some of our suppliers. Recent events in other markets, such as the food supply and clothing industries, have highlighted the need to explore risks further down our supply chain, beyond our immediate suppliers. Protecting our brand from events in the supply chain, such as corrupt practices, the sourcing of conflict minerals or possible human rights abuse, continue to demand a high level of focus.
ITEM 4. INFORMATION ON THE COMPANY
4.A History and development of the company
The information set forth under the headings:
| Additional information Background on page 114; and |
| Performance Group financial performance Capital expenditure on page 34; |
of the Annual Report & Form 20-F for the year ended March 31, 2014 included as Exhibit 15.2 to this Form 20-F (Annual Report 2014) is incorporated herein by reference.
4.B Business overview
| The information set forth under the headings: |
| Purpose and strategy Our purpose on page 2; |
| Purpose and strategy Our strategy on page 2; |
| Purpose and strategy Our strategic priorities on page 4; |
| Delivering our strategy Our business model on page 6; |
| Delivering our strategy Our assets and resources on page 8; |
| Delivering our strategy How we measure our progress on page 11; |
| Delivering our strategy Our lines of business on page 11; |
| Delivering our strategy Human rights on page 24; |
| Delivering our strategy Regulation on page 25; |
| Additional information Cautionary statement regarding forward-looking statements on page 113; and |
| Additional information Further note on certain activities on page 118 |
of the Annual Report 2014 is incorporated herein by reference.
4.C Organizational structure
The information set forth under the headings:
| Purpose and strategy Overview on page 2; and |
| Subsidiary undertakings on page 111 |
of the Annual Report 2014 is incorporated herein by reference.
4.D Property, plants and equipment
The information set forth under the headings:
| Delivering our strategy Our assets and resources Properties on page 9; and |
| Consolidated financial statements Notes to the consolidated financial statements Property, plant and equipment on page 67 |
of the Annual Report 2014 is incorporated herein by reference.
ITEM 4A. UNRESOLVED STAFF COMMENTS
As far as the Company is aware, there are no unresolved written comments from the SEC staff regarding its periodic reports under the Exchange Act received more than 180 days before March 31, 2014.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A Operating results
The information set forth under the headings:
| Delivering our strategy Our lines of business on page 11; |
| Performance on page 31; |
| Additional information Alternative performance measures on page 112; and |
| Additional information Cautionary statement regarding forward-looking statements on page 113 |
of the Annual Report 2014 is incorporated herein by reference.
5.B Liquidity and capital resources
The information set forth under the headings:
| Performance on page 31; |
| Additional information Cautionary statement regarding forward-looking statements on page 113; |
| Consolidated financial statements Notes to the consolidated financial statements Loans and other borrowings on page 81; |
| Consolidated financial statements Notes to the consolidated financial statements Financial instruments and risk management on page 85; and |
| Consolidated financial statements Notes to the consolidated financial statements Financial commitments and contingent liabilities on page 93 |
of the Annual Report 2014 is incorporated herein by reference.
5.C Research and development, patents and licenses
The information set forth under the heading Delivering our strategy Our assets and resources Innovation on page 9 of the Annual Report 2014 is incorporated herein by reference.
5.D Trend information
The information set forth under the headings:
| Performance on page 31; and |
| Additional information Cautionary statement regarding forward-looking statements on page 113 |
of the Annual Report 2014 is incorporated herein by reference.
5.E Off-balance sheet arrangements
The information set forth under the heading Report of the directors Statutory information Off-balance sheet arrangements on page 38 of the Annual Report 2014 is incorporated herein by reference.
5.F Tabular disclosure of contractual obligations
The information set forth under the heading Performance Group financial performance Contractual obligations and commitments on page 35 of the Annual Report 2014 is incorporated herein by reference.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A Directors and senior management
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 6.A of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
6.B Compensation
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 6.B of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
6.C Board practices
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 6.C of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
6.D Employees
The information set forth under the headings:
| Delivering our strategy Our People on page 7; and |
| Consolidated financial statements Notes to the consolidated financial statements Employees on page 60 |
of the Annual Report 2014 is incorporated herein by reference.
6.E Share ownership
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 6.E of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A Major shareholders
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 7.A of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
7.B Related party transactions
The information set forth under the heading Consolidated financial statements Notes to the consolidated financial statements Related party transactions on page 92 of the Annual Report 2014 is incorporated herein by reference.
7.C Interests of experts and counsel
Not applicable
8.A Consolidated statements and other financial information
See Item 18 below
In addition, the information set forth under the headings:
| Report of the directors Statutory information Legal proceedings on page 38; |
| Performance Group financial performance Income statement Dividends on page 33; |
| Consolidated financial statements Notes to the consolidated financial statements Financial commitments and contingent liabilities on page 93; and |
| Additional information for shareholders Articles of Association (Articles) Dividends on page 116 |
of the Annual Report 2014 is incorporated herein by reference.
8.B Significant changes
The information set forth under the heading Report of the directors Statutory information Going concern on page 38 of the Annual Report 2014 is incorporated herein by reference.
9.A Offer and listing details
Not applicable
9.B Plan of distribution
Not applicable
9.C Markets
Not applicable
9.D Selling shareholders
Not applicable
9.E Dilution
Not applicable
9.F Expenses of the issue
Not applicable
ITEM 10. ADDITIONAL INFORMATION
10.A Share capital
Not applicable
10.B Memorandum and Articles of Association
The information set forth under the heading Additional information Articles of Association (Articles) on page 116 of the Annual Report 2014 is incorporated herein by reference.
10.C Material contracts
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 10.C of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
10.D Exchange controls
The information set forth under the heading Additional information Limitations affecting security holders on page 118 of the Annual Report 2014 is incorporated herein by reference.
10.E Taxation
Not applicable
10.F Dividends and paying agents
Not applicable
10.G Statement by experts
Not applicable
10.H Documents on display
The information set forth under the heading Additional information Documents on display on page 118 of the Annual Report 2014 is incorporated herein by reference.
10.I Subsidiary information
Not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the headings:
| Consolidated financial statements Notes to the consolidated financial statements Significant accounting policies Financial instruments on page 54; and |
| Consolidated financial statements Notes to the consolidated financial statements Financial instruments and risk management on page 85 |
of the Annual Report 2014 is incorporated herein by reference.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable
ITEM 15. CONTROLS AND PROCEDURES
The information set forth under the headings:
| Report of the directors Statutory information US Sarbanes-Oxley Act of 2002 on page 39; |
| Report of the directors Statutory information US Sarbanes-Oxley Act of 2002 Disclosure controls and procedures on page 39; |
| Report of the directors Statutory information US Sarbanes-Oxley Act of 2002 Internal control over financial reporting on page 40; and |
| Report of the independent auditors Consolidated financial statements United States opinion on page 43 |
of the Annual Report 2014 is incorporated herein by reference.
ITEM 16.A AUDIT COMMITTEE FINANCIAL EXPERT
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 16A of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 16B of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
ITEM 16.C PRINCIPAL ACCOUNTANT FEES AND SERVICES
16.C(a) Audit Fees
The information set forth in the table under the heading Audit services in Consolidated financial statements Notes to the consolidated financial statements Audit, audit related and other non-audit services on page 60 of the Annual Report 2014 is incorporated herein by reference.
16.C(b) Audit-Related Fees
The information set forth in the table under the heading Audit related assurance services in Consolidated financial statements Notes to the consolidated financial statements Audit, audit related and other non-audit services on page 60 of the Annual Report 2014 is incorporated herein by reference.
16.C(c) Tax Fees
The information set forth in the table under the headings Other non-audit services Taxation compliance services and Other non-audit services Taxation advisory services in Consolidated financial statements Notes to the consolidated financial statements Audit, audit related and other non-audit services on page 60 of the Annual Report 2014 is incorporated herein by reference.
16.C(d) All Other Fees
The information set forth in the table under the headings Other non-audit services All other assurance services and Other non-audit services All other services in Consolidated financial statements Notes to the consolidated financial statements Audit, audit related and other non-audit services on page 60 of the Annual Report 2014 is incorporated herein by reference.
16.C(e)
The information set forth under the headings:
| Report of the Directors Statutory Information Auditors on page 39; and |
| Consolidated financial statements Notes to the consolidated financial statements Audit, audit related and other non-audit services on page 60 |
of the Annual Report 2014 is incorporated herein by reference.
16.C(f)
Not applicable
ITEM 16.E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable
ITEM 16.F CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
Not applicable
ITEM 16.G CORPORATE GOVERNANCE
Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F. See Item 16G of the BT Group plc 2014 Annual Report which is incorporated into this annual report by reference.
Not applicable
The information set forth under the headings:
| Report of the independent auditors Consolidated financial statements United States opinion on page 43; |
| Consolidated financial statements on page 44; and |
| Consolidated financial statements Notes to the consolidated financial statements on page 49 |
of the Annual Report 2014 is incorporated herein by reference.
The following exhibits are filed as part of this annual report:
1.1 Articles of Association of the Company adopted on 5 August 2010, incorporated by reference to Exhibit 1.1 to the Companys Annual Report on Form 20-F dated May 27, 2011
8.1 | Omitted pursuant to General Instruction I of Form 10-K as applied to reports on Form 20-F | |
12.1 | Section 302 Certification of Principal Executive Officer and Principal Financial Officer | |
13.1 | Section 906 Certification | |
15.1 | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm | |
15.2* | Annual Report & Form 20-F 2014 |
* | Certain of the information included within Exhibit 15.2, which is provided pursuant to Rule 12b-23(a)(3) of the Securities Exchange Act of 1934, as amended, is incorporated by reference in this Form 20-F, as specified elsewhere in this Form 20-F. With the exception of the items and pages so specified, the Annual Report & Form 20-F is not deemed to be filed as part of this Form 20-F. |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
BRITISH TELECOMMUNICATIONS plc | ||
By: | /s/ Tony Chanmugam | |
Name: | Tony Chanmugam | |
Title: | Principal Financial Officer |
Date: May 22, 2014
CERTIFICATION
I, Tony Chanmugam, certify that:
1. | I have reviewed this annual report on Form 20-F of British Telecommunications plc; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | As the companys Principal Executive Officer and Principal Financial Officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and I have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
Date: May 22, 2014 |
/s/ Tony Chanmugam |
Name: Tony Chanmugam |
Principal Executive Officer |
Principal Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I the undersigned hereby certify that to the best of my knowledge:
1. | this annual report on Form 20-F of British Telecommunications plc fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in this annual report fairly presents, in all material respects, the financial condition and results of operations of British Telecommunications plc. |
Date: May 22, 2014
/s/ Tony Chanmugam |
Name: Tony Chanmugam |
Principal Executive Officer |
Principal Financial Officer |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form F-3 (No. 333-182204) of British Telecommunications plc of our report dated 15 May 2014 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in British Telecommunications plcs Annual Report and Form 20-F for the year ended 31 March 2014.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
London, United Kingdom
22 May 2014
Annual
Report &
Form 20-F
2014
As a wholly-owned subsidiary of BT Group plc, British Telecommunications plc meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K as applied to reports on Form 20-F and is therefore filing this Form 20-F with the reduced disclosure format.
BT is one of the worlds leading communications services companies, serving the needs of customers in the UK and in more than 170 countries worldwide.
This is the BT plc Annual Report for the year ended 31 March 2014. It complies with UK regulations and comprises part of the Annual Report on Form 20-F for the US Securities and Exchange Commission to meet US regulations.
Please see the cautionary statement regarding forward-looking statements on page 113.
In this document, references to BT, BT plc, the group, the company, we or our are to British Telecommunications plc and its subsidiaries and lines of business, its internal service unit, or any of them as the context may require.
A reference to a year expressed as 2013/14 is to the financial year ended 31 March 2014 and a reference to a year expressed as 2014 is to the calendar year. This convention applies similarly to any reference to a previous or subsequent year. References to this year, the year and the current year are to the financial year ended 31 March 2014. References to last year and the prior year are to the financial year ended 31 March 2013.
2 |
The Strategic Report Purpose and strategy |
THE STRATEGIC REPORT |
PURPOSE AND STRATEGY |
Our strategy
We are committed to growing a successful business by being valuable to our customers and society, and to delivering value to our shareholders
The Strategic Report Purpose and strategy |
3 |
4 |
The Strategic Report Purpose and strategy |
The Strategic Report Purpose and strategy |
5 |
6 |
The Strategic Report Delivering our strategy |
DELIVERING OUR STRATEGY |
Our business model
Our business model delivers value to shareholders, customers and society while allowing us to reinvest in the business and fulfil our purpose.
The Strategic Report Delivering our strategy |
7 |
8 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
9 |
10 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
11 |
12 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
13 |
14 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
15 |
16 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
17 |
18 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
19 |
20 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
21 |
22 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
23 |
24 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
25 |
26 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
27 |
28 |
The Strategic Report Delivering our strategy |
The Strategic Report Delivering our strategy |
29 |
30 |
The Strategic Report Delivering our strategy |
The Strategic Report Performance |
31 |
PERFORMANCE |
32 |
The Strategic Report Performance |
The Strategic Report Performance |
33 |
34 |
The Strategic Report Performance |
The Strategic Report Performance |
35 |
36 |
The Strategic Report Performance |
OUR PERFORMANCE AS A RESPONSIBLE AND SUSTAINABLE BUSINESS |
The Strategic Report Performance |
37 |
Our 2020 Goals
|
2013/14 target
|
2013/14 result
|
2014/15 target
| |||||
Better Future Programme 2020 goals |
Connected Society More than 9/10 people in the UK will have access to fibre-based products and services Net Good |
5.8/10 people can access fibre-based products and services
|
6.6/10 people can access fibre-based products and services
|
Continue to deliver against 9/10 target
| ||||
Helping our customers reduce carbon emissions by at least 3 times the end-to-end carbon impact of our business Improving Lives | 1.1:1 achieved against our goal of 3:1 | 1.3:1 achieved against our goal of 3:1 | Continue to deliver against 3:1 target | |||||
Using our skills and technology to help generate more than £1bn for good causes
|
Over £63m raised for good causes | Over £85m raised for good causes | Continue to deliver against £1bn target | |||||
Our foundations for being a responsible and sustainable business
|
||||||||
Our foundations
|
2013/14 target
|
2013/14 result
|
2014/15 target
| |||||
Our investment |
Investment in responsible and sustainable business activities |
1% of PBT invested in responsible and sustainable business activities
|
1% of PBT invested |
Maintain 1% of PBT invested in responsible and sustainable business activities | ||||
Our customers |
Customer service: a measure across our entire customer base |
Improve RFT to more than recover the decline in performance seen in 2012/13
|
1.5% improvement |
Improve RFT from 2013/14 level | ||||
Our employees |
Employee engagement index: a measure of our relationship with our employees |
Maintain or improve from 2012/13 performance, outcome was 3.69/5 |
3.82/5 achieved |
Maintain or improve from 2013/14 performance | ||||
Sickness absence rate: | Reduce or maintain | 2.10% calendar days | Maintain or improve | |||||
% of calendar days lost to | 2.13% calendar days | lost in sickness | from 2013/14 | |||||
sickness absence | lost in sickness | performance | ||||||
Ethical performance: a measure of our employees awareness and training |
Maintain or improve from 2012/13 performance, outcome was 4.19/5
|
4.29/5 achieved | Maintain or improve from 2013/14 performance | |||||
Our suppliers |
Ethical trading: a measure of our supply chain review; with specific focus on Human Rights |
100% follow-up within three months, for all those suppliers identified as high/medium risk
|
97% follow-up within three months |
100% follow-up within three months, for all those suppliers identified as high/medium risk | ||||
Our environmental impact |
CO2 emissions: a measure of our climate change impact |
By December 2020 reduce our net CO2 e emission intensity by 80% against 1996/97 levels
|
79% net reduction in net CO2e emission intensity against 1996/97 levels |
Continue to deliver against 80% target |
38 |
Report of the directors Statutory information |
REPORT OF THE DIRECTORS |
STATUTORY INFORMATION |
Report of the directors Statutory information |
39 |
40 |
Report of the directors Statutory information |
Statement of directors responsibilities |
41 |
STATEMENT OF DIRECTORS RESPONSIBILITIES |
for preparing the financial statements |
42 |
Report of the independent auditors Consolidated financial statements |
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF |
BRITISH TELECOMMUNICATIONS PLC (CONSOLIDATED) |
UNITED KINGDOM OPINION
Report of the independent auditors Consolidated financial statements |
43 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BRITISH TELECOMMUNICATIONS PLC (THE COMPANY) |
UNITED STATES OPINION
44 |
Group income statement |
CONSOLIDATED FINANCIAL STATEMENTS |
GROUP INCOME STATEMENT |
Year ended 31 March 2014 | Notes |
|
Before specific items £m |
|
|
Specific items £m |
a
|
|
Total £m |
| ||||||
Revenue |
4 | 18,287 | | 18,287 | ||||||||||||
Operating costs |
5 | (14,864 | ) | (276 | ) | (15,140 | ) | |||||||||
Operating profit (loss) |
4 | 3,423 | (276 | ) | 3,147 | |||||||||||
Finance expense |
23 | (603 | ) | (235 | ) | (838 | ) | |||||||||
Finance income |
23 | 220 | | 220 | ||||||||||||
Net finance expense |
(383 | ) | (235 | ) | (618 | ) | ||||||||||
Share of post tax loss of associates and joint ventures |
(3 | ) | | (3 | ) | |||||||||||
Loss on disposal of interest in associates and joint ventures |
8 | | (4 | ) | (4 | ) | ||||||||||
Profit (loss) before taxation |
3,037 | (515 | ) | 2,522 | ||||||||||||
Taxation |
9 | (662 | ) | 319 | (343 | ) | ||||||||||
Profit (loss) for the year |
2,375 | (196 | ) | 2,179 | ||||||||||||
Year ended 31 March 2013 | Notes |
|
Before specific items Restated £m |
b
|
|
Specific items Restated £m |
a b
|
|
Total Restated £m |
b
| ||||||
Revenue |
4 | 18,339 | (236 | ) | 18,103 | |||||||||||
Operating costs |
5 | (15,035 | ) | (116 | ) | (15,151 | ) | |||||||||
Operating profit (loss) |
4 | 3,304 | (352 | ) | 2,952 | |||||||||||
Finance expense |
23 | (666 | ) | (119 | ) | (785 | ) | |||||||||
Finance income |
23 | 274 | | 274 | ||||||||||||
Net finance expense |
(392 | ) | (119 | ) | (511 | ) | ||||||||||
Share of post tax profit of associates and joint ventures |
9 | | 9 | |||||||||||||
Profit on disposal of interest in associate |
8 | | 130 | 130 | ||||||||||||
Profit (loss) before taxation |
2,921 | (341 | ) | 2,580 | ||||||||||||
Taxation |
9 | (661 | ) | 230 | (431 | ) | ||||||||||
Profit (loss) for the year |
2,260 | (111 | ) | 2,149 | ||||||||||||
Year ended 31 March 2012 | Notes |
|
Before specific items Restated £m |
b
|
|
Specific items Restated £m |
a b
|
|
Total Restated £m |
b
| ||||||
Revenue |
4 | 19,397 | (410 | ) | 18,987 | |||||||||||
Operating costs |
5 | (16,331 | ) | 237 | (16,094 | ) | ||||||||||
Operating profit (loss) |
4 | 3,066 | (173 | ) | 2,893 | |||||||||||
Finance expense |
23 | (692 | ) | (98 | ) | (790 | ) | |||||||||
Finance income |
23 | 301 | | 301 | ||||||||||||
Net finance expense |
(391 | ) | (98 | ) | (489 | ) | ||||||||||
Share of post tax profit of associates and joint ventures |
10 | | 10 | |||||||||||||
Profit (loss) before taxation |
2,685 | (271 | ) | 2,414 | ||||||||||||
Taxation |
9 | (652 | ) | 212 | (440 | ) | ||||||||||
Profit (loss) for the year |
2,033 | (59 | ) | 1,974 |
a | For a definition of specific items, see page 49. An analysis of specific items is provided in note 8. |
b | Restated, see note 1. |
Group statement of comprehensive income |
45 |
GROUP STATEMENT OF COMPREHENSIVE INCOME |
Year ended 31 March | Notes |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| ||||||
Profit for the year |
2,179 | 2,149 | 1,974 | |||||||||||||
Other comprehensive (loss) income |
||||||||||||||||
Items that will not be reclassified to the income statement |
||||||||||||||||
Actuarial losses relating to retirement benefit obligations |
18 | (1,179 | ) | (3,569 | ) | (2,419 | ) | |||||||||
Tax on actuarial losses |
9 | 16 | 762 | 522 | ||||||||||||
Items that may be reclassified subsequently to the income statement |
||||||||||||||||
Exchange differences on translation of foreign operations |
25 | (176 | ) | 47 | (38 | ) | ||||||||||
Fair value movements on available-for-sale assets |
25 | (27 | ) | 14 | | |||||||||||
Fair value movements on cash flow hedges: |
||||||||||||||||
net fair value (losses) gains |
25 | (528 | ) | 105 | (56 | ) | ||||||||||
recognised in income and expense |
25 | 384 | (168 | ) | 179 | |||||||||||
Tax on components of other comprehensive income that may be reclassified |
9, 25 | 4 | 24 | (23 | ) | |||||||||||
Other comprehensive loss for the year, net of tax |
(1,506 | ) | (2,785 | ) | (1,835 | ) | ||||||||||
Total comprehensive income (loss) for the year |
673 | (636 | ) | 139 |
a | Restated, see note 1. |
46 |
Group balance sheet |
GROUP BALANCE SHEET |
At 31 March | Notes |
|
2014 £m |
|
|
2013 £m |
| |||||
Non-current assets |
||||||||||||
Intangible assets |
11 | 3,095 | 3,266 | |||||||||
Property, plant and equipment |
12 | 13,840 | 14,153 | |||||||||
Derivative financial instruments |
24 | 539 | 1,080 | |||||||||
Investments |
20 | 18,846 | 19,063 | |||||||||
Associates and joint ventures |
18 | 28 | ||||||||||
Trade and other receivables |
15 | 214 | 184 | |||||||||
Deferred tax assets |
9 | 1,460 | 1,438 | |||||||||
38,012 | 39,212 | |||||||||||
Current assets |
||||||||||||
Programme rights |
14 | 108 | | |||||||||
Inventories |
82 | 103 | ||||||||||
Trade and other receivables |
15 | 2,911 | 2,934 | |||||||||
Current tax receivable |
26 | 16 | ||||||||||
Derivative financial instruments |
24 | 114 | 170 | |||||||||
Investments |
20 | 2,552 | 1,275 | |||||||||
Cash and cash equivalents |
21 | 690 | 919 | |||||||||
6,483 | 5,417 | |||||||||||
Current liabilities |
||||||||||||
Loans and other borrowings |
22 | 1,873 | 1,736 | |||||||||
Derivative financial instruments |
24 | 139 | 74 | |||||||||
Trade and other payables |
16 | 5,283 | 5,614 | |||||||||
Current tax liabilities |
315 | 100 | ||||||||||
Provisions |
17 | 99 | 120 | |||||||||
7,709 | 7,644 | |||||||||||
Total assets less current liabilities |
36,786 | 36,985 | ||||||||||
Non-current liabilities |
||||||||||||
Loans and other borrowings |
22 | 7,941 | 8,277 | |||||||||
Derivative financial instruments |
24 | 679 | 802 | |||||||||
Retirement benefit obligations |
18 | 7,022 | 5,856 | |||||||||
Other payables |
16 | 898 | 883 | |||||||||
Deferred tax liabilities |
9 | 829 | 1,209 | |||||||||
Provisions |
17 | 434 | 510 | |||||||||
17,803 | 17,537 | |||||||||||
Equity |
||||||||||||
Ordinary shares |
2,172 | 2,172 | ||||||||||
Share premium |
8,000 | 8,000 | ||||||||||
Other reserves |
25 | 1,156 | 1,499 | |||||||||
Retained earnings |
7,655 | 7,777 | ||||||||||
Total equity |
18,983 | 19,448 | ||||||||||
36,786 | 36,985 |
The consolidated financial statements on pages 44 to 93 and 111 were approved by the Board of Directors on 15 May 2014 and were signed on its behalf by
Tony Chanmugam
Director
Group statement of changes in equity |
47 |
GROUP STATEMENT OF CHANGES IN EQUITY |
Notes |
|
Share capital £m |
a
|
|
Share premium £m |
b
|
|
Other reserves £m |
c
|
|
Retained earnings £m |
|
|
Total equity £m |
| |||||||||
At 1 April 2011 |
2,172 | 8,000 | 1,414 | 9,561 | 21,147 | |||||||||||||||||||
Profit for the yeard |
| | | 1,974 | 1,974 | |||||||||||||||||||
Other comprehensive (loss) income before taxd |
| | (93 | ) | (2,420 | ) | (2,513 | ) | ||||||||||||||||
Tax on other comprehensive (loss) incomed |
9 | | | (23 | ) | 522 | 499 | |||||||||||||||||
Transferred to the income statement |
| | 179 | | 179 | |||||||||||||||||||
Comprehensive income |
| | 63 | 76 | 139 | |||||||||||||||||||
Share-based payments |
19 | | | | 75 | 75 | ||||||||||||||||||
Tax on share-based payments |
| | | 17 | 17 | |||||||||||||||||||
Other movements |
| | | (17 | ) | (17 | ) | |||||||||||||||||
At 1 April 2012 |
2,172 | 8,000 | 1,477 | 9,712 | 21,361 | |||||||||||||||||||
Profit for the yeard |
| | | 2,149 | 2,149 | |||||||||||||||||||
Other comprehensive income (loss) before taxd |
| | 166 | (3,569 | ) | (3,403 | ) | |||||||||||||||||
Tax on other comprehensive income (loss)d |
9 | | | 24 | 762 | 786 | ||||||||||||||||||
Transferred to the income statement |
| | (168 | ) | | (168 | ) | |||||||||||||||||
Comprehensive income (loss) |
| | 22 | (658 | ) | (636 | ) | |||||||||||||||||
Share-based payments |
19 | | | | 64 | 64 | ||||||||||||||||||
Tax on share-based payments |
9 | | | | 68 | 68 | ||||||||||||||||||
Dividends to parent company |
10 | | | | (1,400 | ) | (1,400 | ) | ||||||||||||||||
Other movements |
| | | (9 | ) | (9 | ) | |||||||||||||||||
At 1 April 2013 |
2,172 | 8,000 | 1,499 | 7,777 | 19,448 | |||||||||||||||||||
Profit for the year |
| | | 2,179 | 2,179 | |||||||||||||||||||
Other comprehensive (loss) income before tax |
| | (731 | ) | (1,179 | ) | (1,910 | ) | ||||||||||||||||
Tax on other comprehensive income (loss) |
9 | | | 4 | 16 | 20 | ||||||||||||||||||
Transferred to the income statement |
| | 384 | | 384 | |||||||||||||||||||
Comprehensive (loss) income |
| | (343 | ) | 1,016 | 673 | ||||||||||||||||||
Share-based payments |
19 | | | | 60 | 60 | ||||||||||||||||||
Tax on share-based payments |
9 | | | | 106 | 106 | ||||||||||||||||||
Dividends to parent company |
10 | | | | (1,300 | ) | (1,300 | ) | ||||||||||||||||
Other movements |
| | | (4 | ) | (4 | ) | |||||||||||||||||
At 31 March 2014 |
2,172 | 8,000 | 1,156 | 7,655 | 18,983 |
a | The allotted, called up and fully paid ordinary share capital of the company at 31 March 2014 and 31 March 2013 was £2,172m comprising 8,689,755,905 ordinary shares of 25p each. |
b | The share premium account, representing the premium on allotment of shares, is not available for distribution. |
c | For further analysis of other reserves, see note 25. |
d | Restated, see note 1. |
48 |
Group cash flow statement |
GROUP CASH FLOW STATEMENT |
Year ended 31 March | Note |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| ||||||
Cash flow from operating activities |
||||||||||||||||
Profit before taxationa |
2,522 | 2,580 | 2,414 | |||||||||||||
Loss (profit) on disposal of interest in associates |
4 | (130 | ) | | ||||||||||||
Share of loss (profit) of associates and joint ventures |
3 | (9 | ) | (10 | ) | |||||||||||
Net finance expensea |
618 | 511 | 489 | |||||||||||||
Operating profita |
3,147 | 2,952 | 2,893 | |||||||||||||
Other non-cash charges |
41 | 56 | 106 | |||||||||||||
(Profit) loss on disposal of businesses |
| (7 | ) | 19 | ||||||||||||
Depreciation and amortisation |
2,695 | 2,843 | 2,972 | |||||||||||||
Decrease in inventories |
16 | 3 | 12 | |||||||||||||
(Increase) decrease in trade and other receivables |
(259 | ) | 454 | 28 | ||||||||||||
Decrease in trade and other payables |
(163 | ) | (463 | ) | (67 | ) | ||||||||||
Decrease in other liabilitiesa,b |
(234 | ) | (281 | ) | (1,891 | ) | ||||||||||
Decrease in provisions |
(100 | ) | (198 | ) | (112 | ) | ||||||||||
Cash generated from operationsc |
5,143 | 5,359 | 3,960 | |||||||||||||
Income taxes paid |
(347 | ) | (64 | ) | (400 | ) | ||||||||||
Net cash inflow from operating activities |
4,796 | 5,295 | 3,560 | |||||||||||||
Cash flow from investing activities |
||||||||||||||||
Interest received |
73 | 134 | 127 | |||||||||||||
Dividends received from associates and joint ventures |
1 | 3 | 4 | |||||||||||||
Proceeds on disposal of interest in associates |
2 | 270 | 7 | |||||||||||||
Proceeds on disposal of businesses, net of cash and bank overdrafts |
| 17 | 13 | |||||||||||||
Acquisition of joint ventures |
(3 | ) | (5 | ) | | |||||||||||
Acquisition of subsidiaries, net of cash acquired |
(21 | ) | (60 | ) | (5 | ) | ||||||||||
Outflow on non-current amounts owed by parent companyd |
(67 | ) | (125 | ) | (119 | ) | ||||||||||
Outflow on non-current amounts owed by ultimate parent companye |
(1,005 | ) | (876 | ) | (579 | ) | ||||||||||
Proceeds on disposal of current financial assetsf |
7,531 | 8,856 | 8,329 | |||||||||||||
Purchases of current financial assetsf |
(8,773 | ) | (8,875 | ) | (8,845 | ) | ||||||||||
Proceeds on disposal of non-current financial assets |
3 | 1 | 1 | |||||||||||||
Proceeds on disposal of property, plant and equipment |
10 | 43 | 18 | |||||||||||||
Purchases of property, plant and equipment and software |
(2,356 | ) | (2,481 | ) | (2,578 | ) | ||||||||||
Purchases of telecommunications licences |
| (202 | ) | | ||||||||||||
Net cash outflow from investing activities |
(4,605 | ) | (3,300 | ) | (3,627 | ) | ||||||||||
Cash flow from financing activities |
||||||||||||||||
Interest paid |
(614 | ) | (701 | ) | (693 | ) | ||||||||||
Repayment of borrowingse,g |
(321 | ) | (1,663 | ) | (26 | ) | ||||||||||
Repayment of finance lease liabilities |
(18 | ) | (15 | ) | (2 | ) | ||||||||||
Net proceeds from commercial paper |
(420 | ) | 153 | 522 | ||||||||||||
Proceeds from bank loans and bonds |
1,195 | 798 | | |||||||||||||
Cash flows from derivatives relating to loans and other borrowings |
(209 | ) | 33 | 258 | ||||||||||||
Net cash used in financing activities |
(387 | ) | (1,395 | ) | 59 | |||||||||||
Net (decrease) increase in cash and cash equivalents |
(196 | ) | 600 | (8 | ) | |||||||||||
Opening cash and cash equivalents |
914 | 318 | 328 | |||||||||||||
Net (decrease) increase in cash and cash equivalents |
(196 | ) | 600 | (8 | ) | |||||||||||
Effect of exchange rate changes |
(39 | ) | (4 | ) | (2 | ) | ||||||||||
Closing cash and cash equivalents |
21 | 679 | 914 | 318 |
a | Restated, see note 1. |
b | Includes pension deficit payments of £325m (2012/13: £325m, 2011/12: £2,000m). |
c | Includes cash flows relating to TV programme rights. |
d | In addition, there are non-cash movements in these intra-group loan arrangements which principally relate to funding and investment transactions between British Telecommunications plc and its subsidiaries where one of the parties to the transaction has an intra-group loan arrangement with the parent company. For further details see note 27. |
e | In addition, there are non-cash movements in this intra-group loan arrangement which principally relate to settlement of dividends with the parent company and amounts the ultimate parent company was owed by the parent company which were settled through their loan accounts with British Telecommunications plc. For further details see notes 10 and 27. |
f | Primarily consists of investment in and redemption of amounts held in liquidity funds. |
g | Repayment of borrowings includes the impact of hedging. |
Notes to the consolidated financial statements |
49 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
50 |
Notes to the consolidated financial statements |
Notes to the consolidated financial statements |
51 |
52 |
Notes to the consolidated financial statements |
Notes to the consolidated financial statements |
53 |
54 |
Notes to the consolidated financial statements |
Notes to the consolidated financial statements |
55 |
56 |
Notes to the consolidated financial statements |
4. Segment information
The definition of the groups operating and reportable segments is provided on page 51.
Effective from 1 April 2013 we simplified our internal trading and more closely aligned our line of business financial results with our regulatory accounts. This was in addition to the restatements disclosed in note 1 for the adoption of IAS 19 (Revised 2011) and presentational changes relating to other operating income. The comparatives for 2012/13 and 2011/12 have been restated to reflect these changes and ensure prior year results are presented on a consistent basis. The impact on line of business results in 2012/13 was to increase revenue, EBITDA and operating profit in BT Global Services by £4m, £206m and £204m (2011/12: £3m, £208m and £219m), to increase revenue and EBITDA but decrease operating profit in BT Retail by £71m, £90m and £17m (2011/12: £79m, £107m and increase £13m), to reduce revenue, EBITDA and operating profit in BT Wholesale by £980m, £548m and £209m (2011/12: £980m, £541m and £196m), to increase revenue and EBITDA but reduce operating profit in BT Openreach by £48m, £328m and £128m (2011/12: £51m, £319m and £158m) and to increase revenue, reduce EBITDA and increase operating profit in Other by £36m, £114m and £112m (2011/12: £10m, £123m and £92m). Intra group revenues were decreased by £907m in 2012/13 (2011/12: £927m). The impact on total group results is shown in note 1.
Also, as explained on page 49, BT Retail was subsequently split into two reportable segments, BT Business and BT Consumer.
Information regarding the results of each reportable segment is provided below.
Segment revenue and profit
Year ended 31 March 2014 |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Segment revenue |
7,041 | 3,509 | 4,019 | 2,422 | 5,061 | 147 | 22,199 | |||||||||||||||||||||
Internal revenue |
| (579 | ) | (49 | ) | | (3,239 | ) | (45 | ) | (3,912 | ) | ||||||||||||||||
Revenue from external customers |
7,041 | 2,930 | 3,970 | 2,422 | 1,822 | 102 | 18,287 | |||||||||||||||||||||
EBITDAa |
932 | 1,098 | 833 | 614 | 2,601 | 40 | 6,118 | |||||||||||||||||||||
Depreciation and amortisation |
(606 | ) | (206 | ) | (219 | ) | (245 | ) | (1,406 | ) | (13 | ) | (2,695 | ) | ||||||||||||||
Operating profitb |
326 | 892 | 614 | 369 | 1,195 | 27 | 3,423 | |||||||||||||||||||||
Specific items (note 8) |
(276 | ) | ||||||||||||||||||||||||||
Operating profit |
3,147 | |||||||||||||||||||||||||||
Net finance expensec |
(618 | ) | ||||||||||||||||||||||||||
Share of post tax loss of associates and joint ventures |
(3 | ) | ||||||||||||||||||||||||||
Loss on disposal of interest in associates and joint ventures |
(4 | ) | ||||||||||||||||||||||||||
Profit before tax |
2,522 | |||||||||||||||||||||||||||
Year ended 31 March 2013 (Restatedd ) |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Segment revenue |
7,170 | 3,516 | 3,846 | 2,608 | 5,115 | 101 | 22,356 | |||||||||||||||||||||
Internal revenue |
| (579 | ) | (44 | ) | | (3,368 | ) | (26 | ) | (4,017 | ) | ||||||||||||||||
Revenue from external customersb |
7,170 | 2,937 | 3,802 | 2,608 | 1,747 | 75 | 18,339 | |||||||||||||||||||||
EBITDAa |
832 | 1,047 | 968 | 620 | 2,642 | 38 | 6,147 | |||||||||||||||||||||
Depreciation and amortisation |
(625 | ) | (245 | ) | (248 | ) | (254 | ) | (1,428 | ) | (43 | ) | (2,843 | ) | ||||||||||||||
Operating profit (loss)b |
207 | 802 | 720 | 366 | 1,214 | (5 | ) | 3,304 | ||||||||||||||||||||
Specific items (note 8) |
(352 | ) | ||||||||||||||||||||||||||
Operating profit |
2,952 | |||||||||||||||||||||||||||
Net finance expensec |
(511 | ) | ||||||||||||||||||||||||||
Share of post tax profit of associates and joint ventures |
9 | |||||||||||||||||||||||||||
Profit on disposal of interest in associate |
130 | |||||||||||||||||||||||||||
Profit before tax |
2,580 |
a | EBITDA is stated before specific items and is a non-GAAP measure provided in addition to the disclosure requirements defined under IFRS. The rationale for using non-GAAP measures is explained on pages 112 to 113. |
b | Before specific items. |
c | Net finance expense includes specific item expense of £235m (2012/13: £119m, 2011/12: £98m). See note 8. |
d | Restated, see note 1. |
Notes to the consolidated financial statements |
57 |
4. Segment information continued
Year ended 31 March 2012 (Restateda ) |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Segment revenue |
7,812 | 3,594 | 3,925 | 2,943 | 5,187 | 66 | 23,527 | |||||||||||||||||||||
Internal revenue |
| (547 | ) | (16 | ) | | (3,564 | ) | (3 | ) | (4,130 | ) | ||||||||||||||||
Revenue from external customersb |
7,812 | 3,047 | 3,909 | 2,943 | 1,623 | 63 | 19,397 | |||||||||||||||||||||
EBITDAc |
835 | 1,037 | 882 | 667 | 2,618 | (1 | ) | 6,038 | ||||||||||||||||||||
Depreciation and amortisation |
(701 | ) | (248 | ) | (252 | ) | (259 | ) | (1,416 | ) | (96 | ) | (2,972 | ) | ||||||||||||||
Operating profit (loss)b |
134 | 789 | 630 | 408 | 1,202 | (97 | ) | 3,066 | ||||||||||||||||||||
Specific items (note 8) |
(173 | ) | ||||||||||||||||||||||||||
Operating profit |
2,893 | |||||||||||||||||||||||||||
Net finance expensed |
(489 | ) | ||||||||||||||||||||||||||
Share of post tax profit of associates and |
10 | |||||||||||||||||||||||||||
Profit before tax |
2,414 |
a | Restated, see note 1. |
b | Before specific items. |
c | EBITDA is stated before specific items and is a non-GAAP measure provided in addition to the disclosure requirements defined under IFRS. The rationale for using non-GAAP measures is explained on pages 112 to 113. |
d | Net finance expense includes specific item income of £235m (2012/13: £119m, 2011/12: £98m). See note 8. |
Internal revenue and costs
Intra group revenue generated from the sale of regulated products and services is based on market price. Intra group revenue from the sale of other products and services is agreed between the relevant lines of business and therefore line of business profitability can be impacted by transfer pricing levels.
BT Global Services and BT Wholesale do not generate internal revenue from the other lines of business. The majority of internal trading relates to Openreach and arises on rentals, and any associated connection or migration charges, of the UK access lines and other network products to the customer-facing lines of business. This occurs both directly, and also indirectly, through BT TSO which is included within the Other segment. Internal revenue in BT Business relates primarily to BT Ireland and BT Enterprises. Internal revenue arising in BT Consumer relates primarily to employee broadband and wi-fi services.
Internal cost recorded by | ||||||||||||||||||||||||||||
Year ended 31 March 2014 |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Internal revenue recorded by |
||||||||||||||||||||||||||||
BT Global Services |
| | | | | | | |||||||||||||||||||||
BT Business |
411 | | 47 | 120 | 1 | | 579 | |||||||||||||||||||||
BT Consumer |
13 | 18 | | 3 | | 15 | 49 | |||||||||||||||||||||
BT Wholesale |
| | | | | | | |||||||||||||||||||||
Openreach |
198 | 333 | 1,021 | 275 | | 1,412 | 3,239 | |||||||||||||||||||||
Other |
| | 3 | | 42 | | 45 | |||||||||||||||||||||
Total |
622 | 351 | 1,071 | 398 | 43 | 1,427 | 3,912 | |||||||||||||||||||||
Internal cost recorded by | ||||||||||||||||||||||||||||
Year ended 31 March 2013 (Restateda ) |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Internal revenue recorded by |
||||||||||||||||||||||||||||
BT Global Services |
| | | | | | | |||||||||||||||||||||
BT Business |
386 | | 55 | 110 | 3 | 25 | 579 | |||||||||||||||||||||
BT Consumer |
11 | 9 | | 8 | | 16 | 44 | |||||||||||||||||||||
BT Wholesale |
| | | | | | | |||||||||||||||||||||
Openreach |
198 | 386 | 1,097 | 275 | | 1,412 | 3,368 | |||||||||||||||||||||
Other |
| | 5 | | 21 | | 26 | |||||||||||||||||||||
Total |
595 | 395 | 1,157 | 393 | 24 | 1,453 | 4,017 |
a | Restated, see note 1. |
58 |
Notes to the consolidated financial statements |
4. Segment information continued
Internal cost recorded by | ||||||||||||||||||||||||||||
Year ended 31 March 2012 (Restateda ) |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Internal revenue recorded by |
||||||||||||||||||||||||||||
BT Global Services |
| | | | | | | |||||||||||||||||||||
BT Business |
353 | | 56 | 99 | 5 | 34 | 547 | |||||||||||||||||||||
BT Consumer |
5 | 6 | | 5 | | | 16 | |||||||||||||||||||||
BT Wholesale |
| | | | | | | |||||||||||||||||||||
Openreach |
254 | 416 | 1,234 | 245 | | 1,415 | 3,564 | |||||||||||||||||||||
Other |
| | 3 | | | | 3 | |||||||||||||||||||||
Total |
612 | 422 | 1,293 | 349 | 5 | 1,449 | 4,130 |
a | Restated, see note 1. |
Revenue by products and services
Year ended 31 March |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
ICT and managed networks |
6,696 | 6,618 | 7,058 | |||||||||
Broadband, TV and convergence |
3,038 | 2,739 | 2,618 | |||||||||
Calls and lines and connectivity |
6,064 | 6,358 | 6,738 | |||||||||
Transit |
697 | 869 | 1,173 | |||||||||
Other products and services |
1,792 | 1,755 | 1,810 | |||||||||
Revenueb |
18,287 | 18,339 | 19,397 |
a | As part of the restatements explained on page 49, items previously reported as other operating income were changed to be either revenue or a reduction in operating costs (as appropriate). The impact in 2012/13 is to increase Other products and services revenue by £86m (2011/12: £90m). In addition, due to a change in our reported financial and operating measures during the year, the categories of products and services have been changed. Prior year amounts are presented on a consistent basis. |
b | Before specific items. |
Capital expenditurea
Year ended 31 March 2014 |
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Intangible assets |
162 | 14 | 44 | 78 | 74 | 135 | 507 | |||||||||||||||||||||
Property, plant and equipment |
333 | 119 | 167 | 166 | 975 | 79 | 1,839 | |||||||||||||||||||||
Capital expenditure |
495 | 133 | 211 | 244 | 1,049 | 214 | 2,346 | |||||||||||||||||||||
Year ended 31 March 2013 | |
BT Global Services |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
BT Wholesale £m |
|
|
Openreach £m |
|
|
Other £m |
|
|
Total £m |
| |||||||
Intangible assets |
153 | 51 | 14 | 75 | 76 | 85 | 454 | |||||||||||||||||||||
Property, plant and equipment |
371 | 96 | 227 | 158 | 1,068 | 64 | 1,984 | |||||||||||||||||||||
Capital expenditureb |
524 | 147 | 241 | 233 | 1,144 | 149 | 2,438 | |||||||||||||||||||||
Purchases of telecommunications licences |
| | | | | 202 | 202 | |||||||||||||||||||||
524 | 147 | 241 | 233 | 1,144 | 351 | 2,640 |
a | Net of government grants. |
b | Before purchases of telecommunications licences. |
Geographic information
The UK is the groups country of domicile and the group generates the majority of its revenue from external customers in the UK. The geographic analysis of revenue is on the basis of the country of origin in which the customer is invoiced.
Revenue from external customers
Year ended 31 March |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
UK |
14,084 | 14,152 | 14,856 | |||||||||
Europe, Middle East and Africa, excluding the UK |
2,585 | 2,604 | 2,973 | |||||||||
Americas |
1,074 | 1,057 | 1,070 | |||||||||
Asia Pacific |
544 | 526 | 498 | |||||||||
Revenueb |
18,287 | 18,339 | 19,397 | |||||||||
a Restated, see note 1. b Before specific items. |
Notes to the consolidated financial statements |
59 |
4. Segment information continued
Non-current assets
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
UK |
14,318 | 14,566 | ||||||
Europe, Middle East and Africa, excluding the UK |
2,322 | 2,425 | ||||||
Americas |
451 | 559 | ||||||
Asia Pacific |
68 | 73 | ||||||
Non-current assets |
17,159 | 17,623 |
Non-current assets, which exclude derivative financial instruments, investments and deferred tax assets, are based on the location of the assets.
5. Operating costs
Year ended 31 March | Notes |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| ||||||
Operating costs by nature |
||||||||||||||||
Staff costs: |
||||||||||||||||
Wages and salaries |
3,730 | 3,872 | 3,956 | |||||||||||||
Social security costs |
444 | 443 | 454 | |||||||||||||
Other pension costs |
18 | 463 | 399 | 423 | ||||||||||||
Share-based payment expense |
19 | 60 | 64 | 75 | ||||||||||||
Total staff costs |
4,697 | 4,778 | 4,908 | |||||||||||||
Own work capitalised |
(600 | ) | (620 | ) | (652 | ) | ||||||||||
Net staff costs |
4,097 | 4,158 | 4,256 | |||||||||||||
Net indirect labour costsb |
452 | 499 | 579 | |||||||||||||
Net labour costs |
4,549 | 4,657 | 4,835 | |||||||||||||
Payments to telecommunications operators |
2,472 | 2,677 | 3,153 | |||||||||||||
Property and energy costs |
959 | 1,022 | 1,066 | |||||||||||||
Network operating and IT costs |
591 | 587 | 630 | |||||||||||||
TV programme rights charges |
203 | | | |||||||||||||
Other operating costs |
3,676 | 3,555 | 3,972 | |||||||||||||
Other operating income |
(281 | ) | (306 | ) | (297 | ) | ||||||||||
Depreciation of property, plant and equipment |
||||||||||||||||
Owned assets |
12 | 2,090 | 2,175 | 2,248 | ||||||||||||
Held under finance leases |
12 | 22 | 19 | 29 | ||||||||||||
Amortisation of intangible assets |
11 | 583 | 649 | 695 | ||||||||||||
Total operating costs before specific items |
14,864 | 15,035 | 16,331 | |||||||||||||
Specific items |
8 | 276 | 116 | (237 | ) | |||||||||||
Total operating costs |
15,140 | 15,151 | 16,094 | |||||||||||||
Operating costs before specific items include the following: |
||||||||||||||||
Leaver costsc |
14 | 58 | 97 | |||||||||||||
Research and development expenditured |
739 | 829 | 821 | |||||||||||||
Operating lease charges |
390 | 423 | 404 | |||||||||||||
Foreign currency (gains) losses |
| (6 | ) | 7 | ||||||||||||
Government grants |
(10 | ) | (1 | ) | |
a | Restated, see note 1. |
b | Net of capitalised indirect labour costs of £396m (2012/13: £346m, 2011/12: £335m). |
c | Leaver costs are included within wages and salaries and social security costs, except for leaver costs of £175m (2012/13: £113m, 2011/12: £27m) associated with restructuring, which have been recorded as a specific item. |
d | Research and development expenditure includes amortisation of £482m (2012/13: £550m, 2011/12: £536m) in respect of internally developed computer software and operating expenses of £257m (2012/13: £279m, 2011/12: £285m). |
60 |
Notes to the consolidated financial statements |
5. Operating costs continued
Compensation of key management personnel
Key management personnel comprise executive and non-executive directors and members of the Operating Committee of BT Group plc as well as the directors of the company. It is the BT Group plc Operating Committee which has responsibility for planning, directing and controlling the activities of the group. Compensation of key management personnel is shown in the table below:
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| |||
Short-term employee benefits |
11.9 | 11.3 | 11.6 | |||||||||
Post employment benefits |
1.1 | 1.1 | 1.0 | |||||||||
Share-based payments |
6.9 | 6.3 | 7.8 | |||||||||
19.9 | 18.7 | 20.4 |
Information concerning directors remuneration, pension entitlements and long-term incentive plans is shown in note 26.
6. Employees
2014 | 2013 | 2012 | ||||||||||||||||||||||||||
Number of employees in the groupa |
|
Year end 000 |
|
|
Average 000 |
|
|
Year end 000 |
|
|
Average 000 |
|
|
Year end 000 |
|
|
Average 000 |
| ||||||||||
UK |
72.2 | 72.7 | 73.2 | 74.1 | 73.9 | 74.7 | ||||||||||||||||||||||
Non-UK |
15.6 | 15.1 | 14.7 | 15.0 | 15.1 | 16.0 | ||||||||||||||||||||||
Total employees |
87.8 | 87.8 | 87.9 | 89.1 | 89.0 | 90.7 | ||||||||||||||||||||||
2014 | 2013 | b | 2012 | b | ||||||||||||||||||||||||
Number of employees in the groupa |
|
Year end 000 |
|
|
Average 000 |
|
|
Year end 000 |
|
|
Average 000 |
|
|
Year end 000 |
|
|
Average 000 |
| ||||||||||
BT Global Services |
20.5 | 19.9 | 19.2 | 19.8 | 20.0 | 20.9 | ||||||||||||||||||||||
BT Business |
9.6 | 9.8 | 8.9 | 9.3 | 10.0 | 10.3 | ||||||||||||||||||||||
BT Consumer |
6.0 | 6.2 | 6.6 | 6.4 | 6.3 | 6.2 | ||||||||||||||||||||||
BT Wholesale |
1.8 | 1.8 | 2.0 | 1.4 | 1.4 | 1.6 | ||||||||||||||||||||||
Openreach |
31.6 | 31.5 | 30.4 | 30.4 | 30.9 | 31.2 | ||||||||||||||||||||||
Other |
18.3 | 18.6 | 20.8 | 21.8 | 20.4 | 20.5 | ||||||||||||||||||||||
Total employees |
87.8 | 87.8 | 87.9 | 89.1 | 89.0 | 90.7 |
a | These reflect the full-time equivalent of full and part-time employees. |
b | Updated to reflect our internal reorganisation (see note 1). |
7. Audit, audit related and other non-audit services
The following fees were paid or are payable to the companys auditors, PricewaterhouseCoopers LLP.
Year ended 31 March |
|
2014 £000 |
|
|
2013 £000 |
|
|
2012 £000 |
| |||
Fees payable to the companys auditors and its associates for: |
||||||||||||
Audit servicesa |
||||||||||||
The audit of parent company and consolidated financial statements |
2,578 | 2,633 | 2,655 | |||||||||
The audit of the companys subsidiaries |
5,345 | 5,274 | 5,416 | |||||||||
7,923 | 7,907 | 8,071 | ||||||||||
Audit related assurance servicesb |
1,573 | 1,313 | 1,558 | |||||||||
Other non-audit services |
||||||||||||
Taxation compliance servicesc |
260 | 472 | 455 | |||||||||
Taxation advisory servicesd |
371 | 370 | 770 | |||||||||
All other assurance services |
180 | 166 | 74 | |||||||||
All other servicese |
829 | 933 | 641 | |||||||||
1,640 | 1,941 | 1,940 | ||||||||||
Total services |
11,136 | 11,161 | 11,569 |
a | Services in relation to the audit of the parent company and the consolidated financial statements, including fees for reports under section 404 of the Sarbanes-Oxley Act. This also includes fees payable for the statutory audits of the financial statements of subsidiary companies. |
b | Services in relation to other statutory filings or engagements that are required by law or regulation to be carried out by the appointed auditor. This includes fees for the audit of the groups regulatory financial statements and reporting associated with the groups US debt shelf registration. |
c | Services relating to tax returns, tax audits, monitoring and enquiries. |
d | Fees payable for all taxation advisory services not falling within taxation compliance. |
e | Fees payable for all non-audit services not covered above, principally comprising other advisory services. |
Notes to the consolidated financial statements |
61 |
7. Audit, audit related and other non-audit services continued
In order to maintain the independence of the external auditors, the BT Group plc Board has determined policies as to what non-audit services can be provided by the companys external auditors and the approval processes related to them. Under those policies work of a consultancy nature will not be offered to the external auditors unless there are clear efficiencies and value-added benefits to the company.
In this context audit related assurance services are considered to pose a low threat to auditor independence and therefore the proportion of other non-audit services to total services is considered the most suitable measure of the level of non-audit services provided. These represented 15% of the total fees in 2013/14 (2012/13 and 2011/12: 17%).
The BT Pension Scheme is an associated pension fund as defined in the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011. In the year ended 31 March 2014 PricewaterhouseCoopers LLP received total fees from the BT Pension Scheme of £1,363,000 (2012/13: £1,395,000, 2011/12: £1,901,000) in respect of the following services: audit of financial statements of associates £220,000 (2012/13: £155,000, 2011/12: £131,000); taxation compliance services £221,000 (2012/13: £218,000, 2011/12: £92,000) and other non-audit services of £922,000 (2012/13: £1,022,000, 2011/12: £1,678,000).
8. Specific items
Year ended 31 March |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
Revenue |
||||||||||||
Retrospective regulatory rulingsb |
| 236 | 410 | |||||||||
Operating costs |
||||||||||||
Restructuring chargesc |
276 | 204 | 64 | |||||||||
Property rationalisation costs |
| | 90 | |||||||||
Retrospective regulatory rulingsb |
| (142 | ) | (410 | ) | |||||||
(Profit) loss on disposal of businesses |
| (7 | ) | 19 | ||||||||
Impairment chargesd |
| 18 | | |||||||||
Provisions for claimse |
| 43 | | |||||||||
276 | 116 | (237 | ) | |||||||||
Net finance expense |
||||||||||||
Interest expense on retirement benefit obligationf |
235 | 117 | 98 | |||||||||
Interest on provisions for claims |
| 2 | | |||||||||
235 | 119 | 98 | ||||||||||
Share of results of associates and joint ventures |
||||||||||||
Loss (profit) on disposal of interest in associates and joint venturesg |
4 | (130 | ) | | ||||||||
Net specific items charge before tax |
515 | 341 | 271 | |||||||||
Taxation |
||||||||||||
Tax credit on specific items above |
(111 | ) | (127 | ) | (55 | ) | ||||||
Tax credit on re-measurement of deferred taxh |
(208 | ) | (103 | ) | (157 | ) | ||||||
(319 | ) | (230 | ) | (212 | ) | |||||||
Net specific items charge after tax |
196 | 111 | 59 |
a | Restated, see note 1. |
b | In 2012/13 reported revenue and EBITDA include a one-off specific item charge of £85m and £58m, respectively, following the Court of Appeal decision that wholesale ladder termination pricing should not be applied for 0800, 0845 and 0870 calls from mobile phones terminating on our network. In addition charges of £151m and £36m were recognised against revenue and EBITDA respectively, following Ofcoms determinations on historic Ethernet pricing. In 2011/12, following a retrospective regulatory ruling in Germany in relation to the period from September 2006 to November 2010, a one-off charge of £410m was recognised against revenue with an equal reduction in operating costs. |
c | The components of the restructuring charges recognised in 2013/14, 2012/13 and 2011/12 were: people and property charges of £217m (2012/13: £163m, 2011/12: £28m) principally comprising leaver costs, property exit costs and networks, products and procurement channels rationalisation charges of £59m (2012/13: £41m, 2011/12: £36m). |
d | In 2012/13 impairment charges principally include an impairment of £17m to write down the total investment in Onlive Inc., after it entered creditor protection status. |
e | The group makes provisions for legal or constructive obligations arising from insurance, litigation and regulatory risks. Provisions increased by £43m in 2012/13, having reassessed potential claims relating to certain historical matters. |
f | See note 18 for more details. |
g | In 2012/13 a profit of £130m was recognised as a result of the disposal of the groups remaining interest in its associate Tech Mahindra, which was held at a carrying value of £127m at 31 March 2012. |
h | See note 9 for more details. |
62 |
Notes to the consolidated financial statements |
9. Taxation
Analysis of taxation expense for the year
Year ended 31 March |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
United Kingdom |
||||||||||||
Corporation tax at 23% (2012/13: 24%, 2011/12: 26%) |
(742 | ) | (708 | ) | (754 | ) | ||||||
Adjustments in respect of prior periods |
10 | 277 | 39 | |||||||||
Non-UK taxation |
||||||||||||
Current |
(65 | ) | (41 | ) | (60 | ) | ||||||
Adjustments in respect of prior periods |
3 | 1 | 8 | |||||||||
Total current tax expense |
(794 | ) | (471 | ) | (767 | ) | ||||||
Deferred tax |
||||||||||||
Origination and reversal of temporary differences |
239 | 158 | 143 | |||||||||
Adjustments in respect of prior periods |
4 | (221 | ) | 27 | ||||||||
Impact of change in UK corporation tax rate to 20% (2012/13: 23%, 2011/12: 24%) |
208 | 103 | 157 | |||||||||
Total deferred taxation credit |
451 | 40 | 327 | |||||||||
Total taxation expense |
(343 | ) | (431 | ) | (440 | ) |
a | Restated, see note 1. |
Factors affecting taxation expense for the year
The taxation expense on the profit for the year differs from the amount computed by applying the UK corporation tax rate to the profit before taxation as a result of the following factors:
Year ended 31 March |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
Profit before taxation |
2,522 | 2,580 | 2,414 | |||||||||
Expected taxation expense at UK rate of 23% (2012/13: 24%, 2011/12: 26%) |
(580 | ) | (619 | ) | (627 | ) | ||||||
Effects of: |
||||||||||||
Overseas losses utilised |
13 | 14 | 75 | |||||||||
Non-deductible depreciation and amortisation |
(12 | ) | (14 | ) | (9 | ) | ||||||
Non-deductible non-UK losses |
(40 | ) | (46 | ) | (27 | ) | ||||||
(Higher) lower taxes on non-UK profits |
(5 | ) | 10 | (16 | ) | |||||||
Lower (higher) taxes on gain on disposal of business |
| 28 | (5 | ) | ||||||||
Other deferred tax assets not recognised |
54 | 36 | (1 | ) | ||||||||
Adjustments in respect of prior periods |
17 | 57 | 74 | |||||||||
Re-measurement of deferred tax balances |
208 | 103 | 157 | |||||||||
Other |
2 | | (61 | ) | ||||||||
Total taxation expense |
(343 | ) | (431 | ) | (440 | ) | ||||||
Exclude specific items (note 8) |
(319 | ) | (230 | ) | (212 | ) | ||||||
Total taxation expense before specific items |
(662 | ) | (661 | ) | (652 | ) |
a | Restated, see note 1. |
Tax components of other comprehensive income
Year ended 31 March |
|
2014 Tax (expense) credit £m |
|
|
2013 Tax (expense) credit £m |
|
|
2012 Tax (expense) credit Restated £m |
a
| |||
Tax on items that will not be reclassified to the income statement |
||||||||||||
Actuarial losses relating to retirement benefit obligations |
16 | 762 | 522 | |||||||||
Tax on items that may be reclassified subsequently to the income statement |
||||||||||||
Exchange differences on translation of foreign operations |
(2 | ) | 10 | (1 | ) | |||||||
Fair value movements on cash flow hedges |
||||||||||||
net fair value gains or losses |
6 | (25 | ) | 10 | ||||||||
recognised in income and expense |
| 39 | (32 | ) | ||||||||
20 | 786 | 499 | ||||||||||
Current tax creditb |
130 | 133 | 566 | |||||||||
Deferred tax (expense) credit |
(110 | ) | 653 | (67 | ) | |||||||
20 | 786 | 499 |
a | Restated, see note 1. |
b | Includes £122m (2012/13: £128m, 2011/12: £565m) relating to actuarial losses arising from retirement benefit obligations. |
Notes to the consolidated financial statements |
63 |
9. Taxation continued
Tax credit recognised directly in equity
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| |||||||||||||||
Tax credit relating to share-based payments |
106 | 68 | 17 | |||||||||||||||||||||
Deferred taxation |
||||||||||||||||||||||||
|
Excess capital allowances £m |
|
|
Retirement benefit obligations £m |
a
|
|
Share-based payments £m |
|
|
Other £m |
|
|
Jurisdictional offset £m |
|
|
Total £m |
| |||||||
At 1 April 2012 |
1,342 | (576 | ) | (167 | ) | (125 | ) | | 474 | |||||||||||||||
Expense (credit) recognised in the income statementb |
75 | (104 | ) | 2 | (13 | ) | | (40 | ) | |||||||||||||||
Expense (credit) recognised in other comprehensive incomeb |
1 | (634 | ) | | (20 | ) | | (653 | ) | |||||||||||||||
Credit recognised in equity |
| | (19 | ) | | | (19 | ) | ||||||||||||||||
Acquisitions |
| | | 9 | | 9 | ||||||||||||||||||
At 31 March 2013 |
1,418 | (1,314 | ) | (184 | ) | (149 | ) | | (229 | ) | ||||||||||||||
Non-current |
||||||||||||||||||||||||
Deferred tax asset |
(74 | ) | (1,314 | ) | (184 | ) | (187 | ) | 321 | (1,438 | ) | |||||||||||||
Deferred tax liability |
1,492 | | | 38 | (321 | ) | 1,209 | |||||||||||||||||
At 1 April 2013 |
1,418 | (1,314 | ) | (184 | ) | (149 | ) | | (229 | ) | ||||||||||||||
(Credit) expense recognised in the income statement |
(301 | ) | (174 | ) | 10 | 14 | | (451 | ) | |||||||||||||||
(Credit) expense recognised in other comprehensive income |
(2 | ) | 106 | | 6 | | 110 | |||||||||||||||||
Credit recognised in equity |
| | (64 | ) | | | (64 | ) | ||||||||||||||||
Acquisitions |
| | | 3 | | 3 | ||||||||||||||||||
At 31 March 2014 |
1,115 | (1,382 | ) | (238 | ) | (126 | ) | | (631 | ) | ||||||||||||||
Non-current |
||||||||||||||||||||||||
Deferred tax asset |
(93 | ) | (1,382 | ) | (238 | ) | (163 | ) | 416 | (1,460 | ) | |||||||||||||
Deferred tax liability |
1,208 | | | 37 | (416 | ) | 829 | |||||||||||||||||
At 31 March 2014 |
1,115 | (1,382 | ) | (238 | ) | (126 | ) | | (631 | ) |
a | Includes a deferred tax asset of £1m (2012/13: £1m) arising on contributions payable to defined contribution pension plans. |
b | Restated, see note 1. |
Deferred tax balances for which there is a right of offset within the same jurisdiction are presented net on the face of the group balance sheet as permitted by IAS 12, with the exception of deferred tax related to BTs pension schemes which is disclosed within deferred tax assets.
At 31 March 2014, all of the deferred tax asset of £1,460m (2012/13: £1,438m) and all of the deferred tax liability of £829m (2012/13: £1,209m) are expected to be recovered or settled after more than one year.
Factors affecting future tax charges
The rate of UK corporation tax changed from 23% to 21% on 1 April 2014 and will change to 20% on 1 April 2015. As deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal, deferred tax balances at 31 March 2014 have been calculated using a rate of 20%. This reduction has been recognised as a deferred tax credit of £208m and as a specific item in the income statement (note 8) and a deferred tax expense of £288m in reserves.
64 |
Notes to the consolidated financial statements |
9. Taxation continued
Unrecognised tax losses and other temporary differences
At 31 March 2014, the group had operating losses, capital losses and other temporary differences carried forward in respect of which no deferred tax assets were recognised amounting to £21.6bn (2012/13: £22.0bn). The groups capital losses and other temporary differences have no expiry date restrictions. The expiry date of operating losses carried forward is dependent upon the tax law of the various territories in which the losses arose. A summary of expiry dates for losses in respect of which restrictions apply is set out below:
At 31 March |
|
2014 £m |
|
Expiry of losses | ||||
Restricted losses |
||||||||
Europe |
417 | 20152034 | ||||||
Americas |
93 | 20202033 | ||||||
Other |
20 | 20152024 | ||||||
Total restricted losses |
530 | |||||||
Unrestricted losses |
||||||||
Operating losses |
3,626 | No expiry | ||||||
Capital losses |
17,119 | No expiry | ||||||
Total unrestricted losses |
20,745 | |||||||
Other temporary differences |
355 | |||||||
Total |
21,630 |
At 31 March 2014, the undistributed earnings of overseas subsidiaries were £8.3bn (2012/13: £11.1bn). No deferred tax liabilities have been recognised in respect of these unremitted earnings because the group is in a position to control the timing of any dividends from subsidiaries and hence any tax consequences that may arise.
10. Dividends
A dividend of £1,300m (2012/13: £1,400m) was paid on 15 May 2013 in relation to the year ended 31 March 2013, which is disclosed in the group statement of changes in equity. The directors have declared a final dividend of £1,200m, which will be recognised as an appropriation of retained earnings in 2014/15.
Notes to the consolidated financial statements |
65 |
11. Intangible assets
|
Goodwill £m |
|
|
Customer relationships and brands £m |
|
|
Telecoms licences and other £m |
|
|
Internally developed software £m |
|
|
Purchased software £m |
|
|
Total £m |
| |||||||
Cost |
||||||||||||||||||||||||
At 1 April 2012 |
1,347 | 325 | 273 | 3,091 | 1,178 | 6,214 | ||||||||||||||||||
Additions |
| | 202 | 399 | 55 | 656 | ||||||||||||||||||
Acquisition of subsidiaries |
33 | 28 | | | 9 | 70 | ||||||||||||||||||
Interest on qualifying assetsa |
| | | 5 | | 5 | ||||||||||||||||||
Disposals and adjustments |
(8 | ) | | 2 | (192 | ) | (4 | ) | (202 | ) | ||||||||||||||
Exchange differences |
46 | 5 | 4 | 1 | 7 | 63 | ||||||||||||||||||
At 1 April 2013 |
1,418 | 358 | 481 | 3,304 | 1,245 | 6,806 | ||||||||||||||||||
Additions |
| | 1 | 433 | 73 | 507 | ||||||||||||||||||
Acquisition of subsidiaries (note 13) |
15 | 20 | | | | 35 | ||||||||||||||||||
Interest on qualifying assetsa |
| | | 1 | | 1 | ||||||||||||||||||
Disposals and adjustments |
(12 | ) | 27 | (62 | ) | (580 | ) | (41 | ) | (668 | ) | |||||||||||||
Exchange differences |
(82 | ) | (11 | ) | (5 | ) | (2 | ) | (15 | ) | (115 | ) | ||||||||||||
At 31 March 2014 |
1,339 | 394 | 415 | 3,156 | 1,262 | 6,566 | ||||||||||||||||||
Accumulated amortisation |
||||||||||||||||||||||||
At 1 April 2012 |
270 | 175 | 1,679 | 955 | 3,079 | |||||||||||||||||||
Charge for the year |
18 | 8 | 532 | 91 | 649 | |||||||||||||||||||
Disposals and adjustments |
| | (196 | ) | (5 | ) | (201 | ) | ||||||||||||||||
Exchange differences |
3 | 3 | 1 | 6 | 13 | |||||||||||||||||||
At 1 April 2013 |
291 | 186 | 2,016 | 1,047 | 3,540 | |||||||||||||||||||
Charge for the year |
15 | 7 | 468 | 93 | 583 | |||||||||||||||||||
Disposals and adjustments |
26 | (89 | ) | (543 | ) | (20 | ) | (626 | ) | |||||||||||||||
Exchange differences |
(9 | ) | (3 | ) | (2 | ) | (12 | ) | (26 | ) | ||||||||||||||
At 31 March 2014 |
323 | 101 | 1,939 | 1,108 | 3,471 | |||||||||||||||||||
Carrying amount |
||||||||||||||||||||||||
At 31 March 2014 |
1,339 | 71 | 314 | 1,217 | 154 | 3,095 | ||||||||||||||||||
At 31 March 2013 |
1,418 | 67 | 295 | 1,288 | 198 | 3,266 |
a | Additions to internally developed software in 2013/14 include interest capitalised at a weighted average borrowing rate of 6.1% (2012/13: 6.1%). |
Goodwill impairment review
The group performs an annual goodwill impairment review, based on its cash generating units (CGUs).
The CGUs that have associated goodwill are BT Global Services, BT Business and BT Consumer. These are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other groups of assets, and to which goodwill is allocated. Goodwill is allocated to the groups CGUs as follows:
|
BT Global Services £m |
|
|
BT Business £m |
|
|
BT Consumer £m |
|
|
Total £m |
| |||||
At 1 April 2012 |
1,090 | 192 | 65 | 1,347 | ||||||||||||
Acquisitions (note 13) |
| 33 | | 33 | ||||||||||||
Disposals |
(8 | ) | | | (8 | ) | ||||||||||
Exchange differences |
43 | 3 | | 46 | ||||||||||||
At 1 April 2013 |
1,125 | 228 | 65 | 1,418 | ||||||||||||
Acquisition (note 13) |
| | 15 | 15 | ||||||||||||
Disposals and adjustments |
(12 | ) | | | (12 | ) | ||||||||||
Exchange differences |
(75 | ) | (7 | ) | | (82 | ) | |||||||||
At 31 March 2014 |
1,038 | 221 | 80 | 1,339 |
The discount rate used in performing the value in use calculation in 2013/14 was 9.6% (2012/13: 8.8%) for all CGUs. The perpetuity growth rate for BT Global Services was 2.5% (2012/13: 2.5%) and 2.0% (2012/13: 2.0%) for BT Business and BT Consumer.
66 |
Notes to the consolidated financial statements |
11. Intangible assets continued
Recoverable amount
The value in use of each CGU is determined using cash flow projections derived from financial plans approved by the BT Group plc Board covering a three-year period and a further two years approved by the line of business and group senior management team. They reflect managements expectations of revenue, EBITDA growth, capital expenditure, working capital and operating cash flows, based on past experience and future expectations of business performance. Cash flows are also adjusted downwards to reflect the different risk attributes of each CGU. Cash flows beyond the five-year period have been extrapolated using perpetuity growth rates.
Discount rate
The pre-tax discount rates applied to the cash flow forecasts are derived from the groups post-tax weighted average cost of capital. The assumptions used in the calculation of the groups weighted average cost of capital are benchmarked to externally available data.
Growth rates
The perpetuity growth rates are determined based on the long-term historical growth rates of the regions in which the CGU operates, and they reflect an assessment of the long-term growth prospects of that sector. The growth rates have been benchmarked against external data for the relevant markets. None of the growth rates applied exceed the long-term historical average growth rates for those markets or sectors.
Impact of the simplification of our internal trading model on the goodwill impairment review
As set out in note 1 on page 49, effective from 1 April 2013 we have made a number of changes that simplify our internal trading and more closely align our line of business financial results and our regulatory accounts.
These changes impacted the cash flow projections for BT Global Services, BT Business and BT Consumer used in the annual goodwill impairment review. They resulted in an increase in operating cash flows of BT Global Services of £206m in 2012/13 and £208m in 2011/12.
Sensitivities
There is significant headroom in all CGUs. For BT Global Services, the value in use exceeds the carrying value of the CGU by approximately £2,818m. The following changes (in isolation) in assumptions would cause the recoverable amount to fall below the carrying value:
| reduction in the perpetuity growth rate from the 2.5% assumption applied to a revised assumption of a perpetual decline rate of 9% or more |
| an increase in the discount rate from the 9.6% assumption applied to a revised assumption of 16% or more |
| shortfalls in trading performance against forecast resulting in perpetuity operating cash flow decreasing by £350m or more. |
For BT Business and BT Consumer no reasonably possible changes in the key assumptions would cause the carrying amount of the CGUs to exceed the recoverable amount.
Notes to the consolidated financial statements |
67 |
12. Property, plant and equipment
|
Land and buildings £m |
a
|
|
Network infrastructure £m |
a
|
|
Other £m |
b
|
|
Assets in course
of |
|
|
Total £m |
| ||||||
Cost |
||||||||||||||||||||
At 1 April 2012 |
1,302 | 43,777 | 2,185 | 728 | 47,992 | |||||||||||||||
Additionsc |
21 | 207 | 99 | 1,666 | 1,993 | |||||||||||||||
Acquisitions |
4 | 2 | 2 | 1 | 9 | |||||||||||||||
Transfers |
10 | 1,661 | 4 | (1,675 | ) | | ||||||||||||||
Disposals and adjustments |
(85 | ) | (428 | ) | (103 | ) | (3 | ) | (619 | ) | ||||||||||
Exchange differences |
8 | 47 | 12 | 1 | 68 | |||||||||||||||
At 1 April 2013 |
1,260 | 45,266 | 2,199 | 718 | 49,443 | |||||||||||||||
Additionsc |
34 | 205 | 119 | 1,487 | 1,845 | |||||||||||||||
Transfers |
3 | 1,531 | 3 | (1,537 | ) | | ||||||||||||||
Disposals and adjustmentsd |
(80 | ) | (1,693 | ) | (370 | ) | (9 | ) | (2,152 | ) | ||||||||||
Exchange differences |
(26 | ) | (239 | ) | (29 | ) | (9 | ) | (303 | ) | ||||||||||
At 31 March 2014 |
1,191 | 45,070 | 1,922 | 650 | 48,833 | |||||||||||||||
Accumulated depreciation |
||||||||||||||||||||
At 1 April 2012 |
747 | 31,115 | 1,824 | | 33,686 | |||||||||||||||
Charge for the year |
73 | 1,977 | 144 | | 2,194 | |||||||||||||||
Acquisitions |
| | 2 | | 2 | |||||||||||||||
Disposals and adjustments |
(79 | ) | (413 | ) | (82 | ) | | (574 | ) | |||||||||||
Exchange differences |
6 | 37 | 12 | | 55 | |||||||||||||||
At 1 April 2013 |
747 | 32,716 | 1,900 | | 35,363 | |||||||||||||||
Charge for the year |
57 | 1,951 | 104 | | 2,112 | |||||||||||||||
Disposals and adjustmentsd |
(82 | ) | (1,734 | ) | (356 | ) | | (2,172 | ) | |||||||||||
Exchange differences |
(16 | ) | (204 | ) | (22 | ) | | (242 | ) | |||||||||||
At 31 March 2014 |
706 | 32,729 | 1,626 | | 35,061 | |||||||||||||||
Carrying amount |
||||||||||||||||||||
At 31 March 2014 |
485 | 12,341 | 296 | 650 | 13,772 | |||||||||||||||
Engineering stores |
| | | 68 | 68 | |||||||||||||||
Total at 31 March 2014 |
485 | 12,341 | 296 | 718 | 13,840 | |||||||||||||||
At 31 March 2013 |
513 | 12,550 | 299 | 718 | 14,080 | |||||||||||||||
Engineering stores |
| | | 73 | 73 | |||||||||||||||
Total at 31 March 2013 |
513 | 12,550 | 299 | 791 | 14,153 |
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
The carrying amount of land and buildings, including leasehold improvements, comprised: |
||||||||
Freehold |
233 | 230 | ||||||
Leasehold |
252 | 283 | ||||||
Total land and buildings |
485 | 513 |
a | The carrying amount of the groups property, plant and equipment includes an amount of £95m (2012/13: £100m) in respect of assets held under finance leases, comprising land and buildings of £60m (2012/13: £59m) and network infrastructure of £35m (2012/13: £41m). The depreciation expense on those assets in 2013/14 was £22m (2012/13: £19m), comprising land and buildings of £4m (2012/13: £3m) and network infrastructure of £18m (2012/13: £16m). Within network infrastructure are assets with net book value of £7.4bn which have useful economic lives of more than 18 years. |
b | Other mainly comprises motor vehicles, computers and office equipment. |
c | Net of government grants of £126m (2012/13: £15m). |
d | Fully depreciated assets in the groups fixed asset register were reviewed during the year, as part of the groups annual asset verification exercise, and certain assets that were no longer in use have been written out, reducing cost and accumulated depreciation by £1.4bn. |
13. Business combinations
On 1 August 2013 the group acquired 100% of the issued share capital of ESPN Global Limited, together with certain trademarks, licences and programme rights. The purchase was made for consideration of £30m. Intangible assets of £14m and goodwill of £15m have been recognised.
In January 2013, the group acquired 100% of the issued share capital of Tikit Group plc (Tikit or BT Tikit). The purchase was made for cash consideration of £64m which was settled in the year and the cash acquired with the business was £10m. Intangible assets of £37m recognised in respect of this acquisition comprised customer relationships, proprietary technology and brand. The fair value adjustments relating to this acquisition were provisional at 31 March 2013 and have been finalised during 2013/14 without amendment. Goodwill of £33m was recognised on the acquisition which principally comprised the assembled workforce and forecast synergies.
68 |
Notes to the consolidated financial statements |
14. Programme rights
|
Total £m |
| ||
At 1 April 2013 |
| |||
Additions |
311 | |||
Amortisation |
(203 | ) | ||
At 31 March 2014 |
108 |
Additions reflect TV programme rights for which the legally enforceable licence period has started during the year. Payments made for programme rights for which the legally enforceable licence period has not yet started are included within prepayments. See note 15.
Programme rights commitments are disclosed in note 28.
15. Trade and other receivables
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Non-current |
||||||||
Other assetsa |
214 | 184 |
a | Other assets includes costs relating to the initial set up, transition or transformation phase of long-term networked IT services contracts of £72m (2012/13: £86m) and prepayments and leasing debtors of £142m (2012/13: £98m). |
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Current |
||||||||
Trade receivables |
1,370 | 1,495 | ||||||
Amounts owed by ultimate parent company |
4 | 4 | ||||||
Prepayments |
508 | 515 | ||||||
Accrued income |
815 | 736 | ||||||
Other receivables |
214 | 184 | ||||||
2,911 | 2,934 |
Trade receivables are stated after deducting allowances for doubtful debts, as follows:
|
2014 £m |
|
|
2013 £m |
| |||
At 1 April |
218 | 187 | ||||||
Expense |
77 | 102 | ||||||
Utilised |
(98 | ) | (73 | ) | ||||
Exchange differences |
(5 | ) | 2 | |||||
At 31 March |
192 | 218 |
Trade receivables are continuously monitored and allowances applied against trade receivables consist of both specific impairments and collective impairments based on the groups historical loss experiences for the relevant aged category and taking into account general economic conditions. Historical loss experience allowances are calculated by line of business in order to reflect the specific nature of the customers relevant to that line of business.
Trade and other receivables are classified as loans and receivables and held at amortised cost. The carrying amount of these balances approximates to fair value due to the short maturity of amounts receivable.
Note 24 provides further disclosure regarding the credit quality of the groups gross trade receivables.
Trade receivables are due as follows:
Past due and not specifically impaired | ||||||||||||||||||||||||||||
At 31 March | |
Not past due £m |
|
|
Trade receivables specifically impaired net of provision £m |
|
|
Between 0 and 3 months £m |
|
|
Between 3 and 6 months £m |
|
|
Between 6 and 12 months £m |
|
|
Over 12 months £m |
|
|
Total £m |
| |||||||
2014 |
857 | 39 | 300 | 31 | 43 | 100 | 1,370 | |||||||||||||||||||||
2013 |
967 | 95 | 310 | 27 | 26 | 70 | 1,495 |
Gross trade receivables which have been specifically impaired amounted to £127m (2012/13: £191m).
Trade receivables not past due and accrued income are analysed below by line of business.
Trade receivables not past due |
|
Accrued income |
| |||||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2014 £m |
|
|
2013 £m |
| ||||||
BT Global Services |
520 | 564 | 435 | 399 | ||||||||||||||
BT Business |
199 | 197 | 121 | 121 | ||||||||||||||
BT Consumer |
106 | 119 | | | ||||||||||||||
BT Wholesale |
4 | 64 | 118 | 135 | ||||||||||||||
Openreach |
12 | 21 | 137 | 75 | ||||||||||||||
Other |
16 | 2 | 4 | 6 | ||||||||||||||
Total |
857 | 967 | 815 | 736 |
Notes to the consolidated financial statements |
69 |
15. Trade and other receivables continued
Given the broad and varied nature of the groups customer base, the analysis of trade receivables not past due and accrued income by line of business is considered the most appropriate disclosure of credit concentrations. Cash collateral held against trade and other receivables amounted to £28m (2012/13: £31m).
16. Trade and other payables
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Current |
||||||||
Trade payables |
2,745 | 2,927 | ||||||
Amounts owed to parent company |
40 | 55 | ||||||
Amounts owed to ultimate parent company |
8 | 9 | ||||||
Other taxation and social security |
480 | 458 | ||||||
Other payables |
519 | 564 | ||||||
Accrued expenses |
444 | 446 | ||||||
Deferred income |
1,047 | 1,155 | ||||||
5,283 | 5,614 | |||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Non-currenta |
||||||||
Other payables |
845 | 821 | ||||||
Deferred income |
53 | 62 | ||||||
898 | 883 |
a | Non-current payables mainly relate to operating lease liabilities and deferred gains on a prior period sale and finance leaseback transaction. |
Trade and other payables are held at amortised cost. The carrying amount of these balances approximates to fair value due to the short maturity of amounts payable.
17. Provisions
|
Restructuring £m |
a
|
|
Property £m |
b
|
|
Other £m |
c
|
|
Total £m |
| |||||
At 1 April 2012 |
105 | 296 | 456 | 857 | ||||||||||||
Income statement expense |
31 | | 112 | 143 | ||||||||||||
Unwind of discount |
| 6 | | 6 | ||||||||||||
Utilised or released |
(69 | ) | (61 | ) | (211 | ) | (341 | ) | ||||||||
Transfers |
| | (35 | ) | (35 | ) | ||||||||||
At 1 April 2013 |
67 | 241 | 322 | 630 | ||||||||||||
Income statement expense |
20 | 4 | 17 | 41 | ||||||||||||
Unwind of discount |
| 8 | | 8 | ||||||||||||
Utilised or released |
(28 | ) | (52 | ) | (61 | ) | (141 | ) | ||||||||
Exchange difference |
(1 | ) | | (4 | ) | (5 | ) | |||||||||
At 31 March 2014 |
58 | 201 | 274 | 533 | ||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||||||||||
Analysed as: |
||||||||||||||||
Current |
99 | 120 | ||||||||||||||
Non-current |
434 | 510 | ||||||||||||||
533 | 630 |
a | Provisions relating to the group-wide restructuring programme in the current and prior year. These are being utilised as the obligations are settled. |
b | Property provisions mainly comprise onerous lease provisions arising from the rationalisation of the groups property portfolio. The provisions will be utilised over the remaining lease periods, which range from one to 18 years. |
c | Other provisions include amounts provided for legal or constructive obligations arising from insurance claims, litigation and regulatory risks which will be utilised as the obligations are settled. |
70 |
Notes to the consolidated financial statements |
18. Retirement benefit plans
Background
The group has both defined benefit and defined contribution retirement benefit plans. The groups main plans are in the UK and the largest by membership is the BT Pension Scheme (BTPS) which is a defined benefit plan that was closed to new entrants on 31 March 2001. After that date new entrants have been able to join a defined contribution plan, currently the BT Retirement Saving Scheme (BTRSS), a contract based arrangement.
Defined contribution plans
A defined contribution plan is a pension arrangement under which the benefits are linked to contributions paid, the performance of each individuals chosen investments and the annuity rates at retirement. Contributions are paid into an independently administered fund. The income statement charge in respect of defined contribution plans represents the contribution payable by the group based upon a fixed percentage of employees pay. The company has no exposure to investment and other experience risks.
Defined benefit plans
A defined benefit plan is a pension arrangement under which participating members receive a pension benefit at retirement determined by the plan rules dependent on factors such as age, years of service and pensionable pay and is not dependent upon actual contributions made by the company or members. The income statement service cost in respect of defined benefit plans represents the increase in the defined benefit liability arising from pension benefits earned by active members in the current period. The company is exposed to investment and other experience risks and may need to make additional contributions where it is estimated that the benefits will not be met from regular contributions, expected investment income and assets held.
Group income statement
The expense or income arising from all group retirement benefit arrangements recognised in the group income statement is shown below.
Year ended 31 March |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
Recognised in the income statement before specific items |
||||||||||||
Current service cost: |
||||||||||||
defined benefit plans |
272 | 225 | 267 | |||||||||
defined contribution plans |
151 | 136 | 126 | |||||||||
Administration expenses and Pension Protection Fund (PPF) levy |
40 | 38 | 30 | |||||||||
Total operating expense |
463 | 399 | 423 | |||||||||
Net interest expense on net pensions deficit included in specific items (note 23) |
235 | 117 | 98 | |||||||||
Total recognised in the income statement |
698 | 516 | 521 |
a | Restated to allow for IAS 19 (Revised 2011), see note 1. |
Group statement of comprehensive income
Remeasurements of the net defined benefit obligation are recognised in full in the group statement of comprehensive income in the year in which they arise. These comprise the impact on the defined benefit liability of changes in demographic and financial assumptions compared with the start of the year, actual experience being different to those assumptions and the return on plan assets above the amount included in the net pension interest expense.
Group balance sheet
The net pension obligation in respect of defined benefit plans reported in the group balance sheet is set out below.
2014 | 2013 | |||||||||||||||||||||||||
At 31 March |
|
Assets £m |
|
|
Present value of liabilities |
|
|
Deficit £m |
|
|
Assets £m |
|
|
Present value of liabilities |
|
|
Deficit £m |
| ||||||||
BTPS |
39,939 | (46,759 | ) | (6,820 | ) | 41,344 | (47,000 | ) | (5,656 | ) | ||||||||||||||||
Other plansa |
174 | (376 | ) | (202 | ) | 222 | (422 | ) | (200 | ) | ||||||||||||||||
Retirement benefit obligation |
40,113 | (47,135 | ) | (7,022 | ) | 41,566 | (47,422 | ) | (5,856 | ) | ||||||||||||||||
Adjustments due to effect of asset ceilingb |
| | ||||||||||||||||||||||||
Deferred tax asset |
1,381 | 1,313 | ||||||||||||||||||||||||
Net pension obligation |
(5,641 | ) | (4,543 | ) |
a | Included in the present value of liabilities of other plans is £69m (2012/13: £72m) related to unfunded pension arrangements. |
b | There is no limiting effect of the asset ceiling as any accounting surplus arising is deemed to be recoverable due to the economic benefits available in the form of future refunds or reductions to future contributions. |
At 31 March 2014 £8m (2012/13: £8m) of contributions to defined contribution plans were outstanding and are included within trade and other payables in the group balance sheet.
Notes to the consolidated financial statements |
71 |
18. Retirement benefit plans continued
Movements in defined benefit plan assets and liabilities
The table below shows the movements on the plan assets and liabilities in the year and indicates where they are reflected in the financial statements.
|
Assets £m |
|
|
Liabilities £m |
|
|
Deficit £m |
| ||||
At 1 April 2012 |
38,541 | (40,989 | ) | (2,448 | ) | |||||||
Current service cost |
| (225 | ) | (225 | ) | |||||||
Interest on pension deficita |
1,858 | (1,975 | ) | (117 | ) | |||||||
Administration expenses and PPF levy |
(38 | ) | | (38 | ) | |||||||
Included in the group income statement |
1,820 | (2,200 | ) | (380 | ) | |||||||
Return on plan assets above the amount included in the group income statementb |
2,689 | | 2,689 | |||||||||
Actuarial loss arising from changes in financial assumptionsc |
| (6,116 | ) | (6,116 | ) | |||||||
Actuarial loss arising from changes in demographic assumptionsc |
| (2 | ) | (2 | ) | |||||||
Actuarial loss arising from experience adjustmentsd |
| (140 | ) | (140 | ) | |||||||
Included in the group statement of comprehensive income |
2,689 | (6,258 | ) | (3,569 | ) | |||||||
Regular contributions by employer |
217 | | 217 | |||||||||
Deficit contributions by employer |
325 | | 325 | |||||||||
Included in the group cash flow statement |
542 | | 542 | |||||||||
Contributions by employees |
13 | (13 | ) | | ||||||||
Benefits paid |
(2,044 | ) | 2,047 | 3 | ||||||||
Foreign exchange |
5 | (9 | ) | (4 | ) | |||||||
Other movements |
(2,026 | ) | 2,025 | (1 | ) | |||||||
At 1 April 2013 |
41,566 | (47,422 | ) | (5,856 | ) | |||||||
Current service cost |
| (272 | ) | (272 | ) | |||||||
Interest on pension deficita |
1,710 | (1,945 | ) | (235 | ) | |||||||
Settlements |
(63 | ) | 61 | (2 | ) | |||||||
Administration expenses and PPF levy |
(40 | ) | | (40 | ) | |||||||
Included in the group income statement |
1,607 | (2,156 | ) | (549 | ) | |||||||
Return on plan assets below the amount included in the group income statementb |
(1,453 | ) | | (1,453 | ) | |||||||
Actuarial gain arising from changes in financial assumptionsc |
| 580 | 580 | |||||||||
Actuarial gain (loss) arising from changes in demographic assumptionsc |
| | | |||||||||
Actuarial loss arising from experience adjustmentsd |
| (306 | ) | (306 | ) | |||||||
Included in the group statement of comprehensive income |
(1,453 | ) | 274 | (1,179 | ) | |||||||
Regular contributions by employer |
228 | | 228 | |||||||||
Deficit contributions by employer |
325 | | 325 | |||||||||
Included in the group cash flow statement |
553 | | 553 | |||||||||
Contributions by employees |
12 | (12 | ) | | ||||||||
Benefits paid |
(2,166 | ) | 2,166 | | ||||||||
Foreign exchange |
(6 | ) | 15 | 9 | ||||||||
Other movements |
(2,160 | ) | 2,169 | 9 | ||||||||
At 31 March 2014 |
40,113 | (47,135 | ) | (7,022 | ) |
a | Restated, see note 1. |
b | The total actual return on plan assets in 2013/14 was a gain of £257m (2012/13: £4,547m). |
c | The actuarial gain or loss arises from changes in the assumptions used to value the defined benefit liabilities at the end of the year compared with the assumptions used at the start of the year. This includes both financial assumptions, which are based on market conditions at the year end, and demographic assumptions such as life expectancy. |
d | The actuarial loss or gain arising from experience adjustments on defined benefit liabilities represents the impact on the liabilities of differences between actual experience during the year compared with the assumptions made at the start of the year. Such differences might arise, for example, from members choosing different benefit options at retirement, actual salary increases being different from those assumed or actual benefit increases being higher than the long-term inflation assumption. |
72 |
Notes to the consolidated financial statements |
18. Retirement benefit plans continued
BTPS
At 31 March 2014 there were 313,000 members of the BTPS. Members belong to one of three sections depending upon the date they first joined the scheme. Section A is for members who joined before 1 December 1971, Section B is for members who joined the scheme between 1 December 1971 and 31 March 1986 and Section C is for members who joined the scheme on or after 1 April 1986 but before the scheme closed to new entrants on 31 March 2001. The membership is analysed below.
At 31 March 2014 | |
Number of active members |
|
|
Number of deferred members |
|
|
Number of pensioners |
|
|
Total membership |
| ||||
Sections A and Ba |
17,000 | 35,500 | 176,500 | 229,000 | ||||||||||||
Section C |
24,000 | 41,000 | 19,000 | 84,000 | ||||||||||||
Total |
41,000 | 76,500 | 195,500 | 313,000 | ||||||||||||
At 31 March 2013 | ||||||||||||||||
Sections A and Ba |
19,000 | 39,000 | 175,000 | 233,000 | ||||||||||||
Section C |
25,000 | 41,500 | 18,000 | 84,500 | ||||||||||||
Total |
44,000 | 80,500 | 193,000 | 317,500 |
a | Section A and Section B memberships have been aggregated in this table as Section A members have typically elected to take Section B benefits at retirement. |
Since 1 April 2009, when changes to member benefits and contribution rates were introduced, BTPS members have accrued benefits based upon a career average re-valued earnings (CARE) basis and a normal pensionable age of 65. On a CARE basis benefits are built up based upon earnings in each year and the benefit accrued for each year is increased by the lower of inflation or the individuals actual pay increase in each year to retirement. Benefits earned for pensionable service prior to 1 April 2009 are based upon a members final salary and a normal pensionable age of 60. Under the scheme rules the determination of the rate of inflation for statutory minimum rates of revaluation and indexation of benefits is based upon either the Retail Prices Index (RPI) or the Consumer Prices Index (CPI) which apply to each category of member as shown below.
Active members | Deferred members | Pensioners | ||||
Section Ba |
Benefits accrue on a CARE |
Increases in benefits in | ||||
basis increasing at the lower | Preserved benefits are | payment are based upon CPI
| ||||
Section C |
of RPI or the individuals | revalued before retirement |
Increases in benefits in | |||
actual pay increase | based upon CPI | payment are based upon RPI | ||||
up to a maximum of 5% |
a | Section A members have typically elected to take Section B benefits at retirement. |
Management of the scheme
BT Pension Scheme Trustees Limited (the Trustee) has been appointed by BT as an independent Trustee to administer and manage the scheme on behalf of the members in accordance with the terms of the Trust Deed of the scheme and relevant legislation. Under the terms of the Trust Deed there are nine Trustee directors all of whom are appointed by BT. The chairman of the Trustee is appointed after consultation with, and with the agreement of, the relevant trade unions who are also responsible for nominating four directors to act as representatives of the members. Of the remaining four directors, two will normally hold senior positions within the group, and two will normally hold (or have held) senior positions in commerce or industry. Subject to there being an appropriately qualified candidate at least one of the Trustee directors should be a current pensioner or deferred pensioner of the BTPS. Trustee directors are appointed for a three-year term, but are then eligible for re-appointment.
Notes to the consolidated financial statements |
73 |
18. Retirement benefit plans continued
BTPS assets
Asset allocation
The target allocation of assets between different classes of investment is reviewed regularly and is a key factor in the Trustees investment policy. The targets set reflect the Trustees views on the appropriate balance to be struck between seeking returns and incurring risk, and on the extent to which the assets should be distributed to match liabilities. Current market conditions and trends are regularly assessed and short-term tactical shifts in asset allocation may be made around the long-term target. The BTPS also uses financial instruments to balance the asset allocation and to manage inflation risk, liquidity risk and foreign currency risk.
Under IAS 19 (Revised 2011) plan assets must be valued at the bid market value at the balance sheet date. For the main asset categories
| securities listed on recognised stock exchanges are valued at closing bid prices |
| properties are valued on the basis of open market value |
| unlisted equities are valued in accordance with International Private Equity and Venture Capital (IPEVC) guidelines |
| unlisted fixed interest and index-linked instruments are valued using the latest market price or using discounted cash flow models that consider credit risk. |
The fair value of the assets of the BTPS analysed by asset category are shown below. These are subdivided by assets that have a quoted market price in an active market and those that do not (such as investment funds).
Asset fair valuea | |
2014 Target |
|
Asset fair valuea |
|
2013 Target |
| |||||||||||||||||||||||||||||||
At 31 March | |
Total assets £bn |
|
|
of which quoted £bn |
b
|
|
Total % |
|
% | |
Total assets £bn |
|
|
of which quoted £bn |
b
|
|
Total % |
|
% | ||||||||||||||||||
Equities |
11.2 | c | 5.8 | 28 | 26 | 11.1 | 6.0 | 27 | 26 | |||||||||||||||||||||||||||||
Fixed-interest securities |
7.1 | 5.7 | 18 | 17 | 7.9 | 6.0 | 19 | 17 | ||||||||||||||||||||||||||||||
Index-linked securities |
9.9 | 8.5 | 24 | 26 | 9.5 | 8.3 | 23 | 26 | ||||||||||||||||||||||||||||||
Property |
4.3 | | 11 | 11 | 4.3 | | 10 | 11 | ||||||||||||||||||||||||||||||
Alternative assetsd |
7.1 | 1.0 | 18 | 20 | 8.1 | 0.9 | 20 | 20 | ||||||||||||||||||||||||||||||
Cash and other |
0.3 | | 1 | | 0.4 | | 1 | | ||||||||||||||||||||||||||||||
Total |
39.9 | 21.0 | 100 | 100 | 41.3 | 21.2 | 100 | 100 |
a | At 31 March 2014 and 31 March 2013, the schemes assets did not include any directly held ordinary shares of the company. The scheme held £9m (2012/13: £9m) of index-linked bonds issued by the group. |
b | Assets with a quoted price in an active market. |
c | At 31 March 2014, the BTPS held £2.6bn of UK equities (2012/13: £2.7bn). |
d | Alternative asset classes include commodities, private equity and credit opportunities. |
The Trustee reports on investment performance against a target benchmark which is based on the target asset mix and the market returns for each asset class. BTPS performance against the benchmark for the periods to 30 June 2013 was as follows.
Period ending 30 June 2013 | |
Target benchmark % |
|
|
Actual BTPS % |
|
|
Over (under) performance % |
| |||
6 monthsa |
3.4 | 3.7 | 0.3 | |||||||||
3 years |
7.1 | 7.4 | 0.3 | |||||||||
10 years |
6.9 | 7.9 | 1.0 |
a | The Trustee historically reported investment performance for periods ending 31 December. From 2013, the Trustee changed this to periods ending 30 June. |
74 |
Notes to the consolidated financial statements |
18. Retirement benefit plans continued
BTPS liabilities under IAS 19 (Revised 2011)
Valuation methodology
The liabilities of the BTPS are measured as the present value of the estimated future benefit cash flows to be paid by the scheme, calculated using the projected unit credit method. These calculations are performed for the company by a professionally qualified independent actuary. The expected future benefit payments are based on a number of assumptions including future inflation, retirement ages, benefit options chosen and life expectancy and are therefore inherently uncertain. Actual benefit payments in a given year may be higher or lower, for example if members retire sooner or later than assumed, or take a greater or lesser cash lump sum at retirement. The estimated duration of BTPS liabilities, which is an indicator of the weighted average term of the liabilities, is 15 years (2012/13: 15 years) although the benefits payable by the BTPS are expected to be paid over more than 80 years as shown in the graph below. Whilst benefit payments are expected to increase over the earlier years, the expected value of the liabilities will reduce.
a | Based on accrued benefits to date. |
Key assumptions IAS 19 (Revised 2011)
The key financial assumptions used to measure the liabilities of the BTPS under IAS 19 (Revised 2011) are shown below.
Nominal rates (per year) | Real rates (per year)a | |||||||||||||||||||||||||
At 31 March |
|
2014 % |
|
|
2013 % |
|
|
2012 % |
|
|
2014 % |
|
|
2013 % |
|
|
2012 % |
| ||||||||
Rate used to discount liabilities |
4.25 | 4.20 | 4.95 | 0.97 | 0.87 | 1.84 | ||||||||||||||||||||
Inflation increase in RPI |
3.25 | 3.30 | 3.05 | | | | ||||||||||||||||||||
Inflation increase in CPI |
2.50 | b | 2.55 | b | 2.30 | c | (0.75 | )b | (0.75 | )b | (0.75 | )c |
a | The real rate is calculated relative to RPI inflation and is shown as a comparator. |
b | Assumed to be 0.45% lower after 31 March 2016. |
c | Assumed to be 0.45% lower after 31 March 2015. |
Rate used to discount liabilities
IAS 19 (Revised 2011) requires that the discount rate is determined by reference to market yields at the reporting date on high quality corporate bonds. The currency and term of these should be consistent with the currency and estimated term of the pension obligations. The discount rate at 31 March 2014 and 31 March 2013 is based on a market-based AA corporate bond yield curve allowing for the future expected benefit payments from the BTPS.
Notes to the consolidated financial statements |
75 |
18. Retirement benefit plans continued
Inflation increases in RPI and CPI
Salary increases are assumed to be aligned with RPI inflation whilst benefits are assumed to increase by either RPI or CPI inflation as prescribed by the rules of the BTPS and summarised above. The assumption for RPI has been assessed by reference to yields on long-term fixed and index-linked Government bonds and Bank of England published inflationary expectations. CPI is assessed at a margin below RPI taking into account market forecasts and independent estimates of the long-term difference, such as the Office of Budgetary Responsibilitys analysis indicating a long-term difference of between 1.3% to 1.5%.
Longevity
The average life expectancy assumptions, after retirement at 60 years of age, are as follows.
At 31 March | |
2014 Number of years |
|
|
2013 Number of years |
| ||
Male in lower pay bracket |
26.0 | 25.9 | ||||||
Male in higher pay bracket |
27.7 | 27.6 | ||||||
Female |
28.5 | 28.4 | ||||||
Average improvement for a member retiring at age 60 in 10 years time |
1.0 | 1.0 |
The assumptions about life expectancy have regard to information published by the UK actuarial professions Continuous Mortality Investigation. However, due to the size of the membership of the BTPS it is considered appropriate for the adopted life expectancy assumptions to take into account the actual membership experience of the scheme. Allowance is also made for future improvements in mortality. The BTPS actuary undertakes formal reviews of the membership experience at every triennial valuation.
Sensitivity analysis of the principal assumptions used to measure BTPS liabilities
The assumptions on the discount rate, inflation, salary increases and life expectancy all have a significant effect on the measurement of scheme liabilities. The following table provides an indication of the sensitivity of the IAS 19 (Revised 2011) pension liability at 31 March 2014, and of the income statement charge for 2014/15, to changes in these assumptions.
|
Decrease (increase) in liability £bn |
|
|
Decrease (increase) in service cost £m |
|
|
Decrease (increase) in net interest on pensions deficit £m |
| ||||
0.25 percentage point increase to: |
||||||||||||
discount rate |
1.6 | 10 | 55 | |||||||||
inflation rate (assuming RPI, CPI and salary increases all move by 0.25 percentage points) |
(1.3 | ) | (10 | ) | (55 | ) | ||||||
CPI inflation rate (assuming RPI and salary increases are unchanged) |
(0.8 | ) | (5 | ) | (35 | ) | ||||||
salary increases (assuming RPI and CPI are unchanged) |
(0.2 | ) | (5 | ) | (10 | ) | ||||||
Additional one year increase to life expectancy |
(1.0 | ) | (5 | ) | (40 | ) |
BTPS funding
Triennial funding valuation
The triennial valuation is carried out for the Trustee by a professionally qualified independent actuary, using the projected unit credit method. The purpose of the valuation is to design a funding plan to ensure that the scheme has sufficient funds available to meet future benefit payments. The latest funding valuation was performed as at 30 June 2011. The next funding valuation will have an effective date of no later than 30 June 2014.
The valuation methodology for funding purposes, which is based on prudent assumptions, is broadly as follows:
| assets are valued at market value at the valuation date; and |
| liabilities are measured on an actuarial funding basis using the projected unit credit method and discounted to their present value. |
76 |
Notes to the consolidated financial statements |
18. Retirement benefit plans continued
The results of the two most recent triennial valuations which have been performed using the same methodology are shown below.
|
June 2011 valuation £bn |
|
|
December 2008 valuation £bn |
| |||
BTPS liabilities |
(40.8 | ) | (40.2 | ) | ||||
Market value of BTPS assets |
36.9 | 31.2 | ||||||
Funding deficit |
(3.9 | ) | (9.0 | ) | ||||
Percentage of accrued benefits covered by BTPS assets at valuation date |
90.4% | 77.6% | ||||||
Percentage of accrued benefits on a solvency basis covered by the BTPS assets at the valuation date |
66.0% | 57.0% |
The reduction of the funding deficit in the period from 31 December 2008 to 30 June 2011 reflects an increase in scheme assets due to deficit contribution payments totalling £1.6bn and strong investment performance of 10.1% per year. The liabilities increased due to a lower discount rate which was partly offset by the impact of the announcement in July 2010 by the Government that CPI, rather than RPI, will be used as the basis for determining the rate of inflation for the statutory minimum rate of revaluation and indexation of occupational pension rights.
Key assumptions funding valuation
These valuations were determined using the following prudent long-term assumptions.
Nominal rates (per year) | Real rates (per year)a | |||||||||||||||||
|
June 2011 valuation % |
|
|
December 2008 valuation % |
|
|
June 2011 valuation % |
|
|
December 2008 valuation % |
| |||||||
Discount rate |
||||||||||||||||||
pre-retirement liabilities |
6.35 | 6.76 | 3.05 | 3.65 | ||||||||||||||
post-retirement liabilities |
4.90 | 5.21 | 1.65 | 2.15 | ||||||||||||||
Average long-term increase in RPI and future increases in wages and salaries |
3.20 | 3.00 | | | ||||||||||||||
Average long-term increase in CPI |
2.20 | n/a | (1.0 | ) | n/a |
a | The real rate is calculated relative to RPI inflation and is shown as a comparator. |
The average life expectancy assumptions, after retirement at 60 years of age, are as follows.
At date of valuation |
|
June 2011 valuation Number of years |
|
|
December 2008 valuation Number of years |
| ||
Male in lower pay bracket |
26.0 | 25.5 | ||||||
Male in higher pay bracket |
27.8 | 27.7 | ||||||
Female |
28.5 | 28.3 | ||||||
Average improvement for a member retiring at age 60 in 10 years time |
1.2 | 1.1 | ||||||
Payments made to the BTPS | ||||||||
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Ordinary contributions |
205 | 207 | ||||||
Deficit contributions |
325 | 325 | ||||||
Total contributions in the year |
530 | 532 |
The group expects to contribute approximately £495m to the BTPS in 2014/15, comprising ordinary contributions of approximately £200m and deficit contributions of £295m.
Notes to the consolidated financial statements |
77 |
18. Retirement benefit plans continued
Future funding obligations and recovery plan
Under the terms of the Trust Deed, the group is required to have a funding plan, determined at the conclusion of the triennial funding valuation, which is a legal agreement between BT and the independent Trustee and should address the deficit over a maximum period of 20 years.
In May 2012, the 2011 triennial funding valuation was finalised, agreed with the Trustee and certified by the Scheme Actuary. The funding deficit at 30 June 2011 was £3.9bn. Under the associated recovery plan BT made payments of £2.0bn in March 2012, £325m in March 2013 and £325m in March 2014. BT will make deficit payments of £295m in each year from 2015 to 2021. The valuation in addition determined that the ordinary contributions rate required to meet the benefits of current employed members reduced to 13.5% of pensionable salaries (including employee contributions) from 13.6% with effect from 1 June 2012.
The valuation documentation has been submitted to the Pensions Regulator for review. The final Court decision in the Crown Guarantee case, after any appeals, will give greater clarity as to the extent to which the liabilities of the BTPS are covered by the Crown Guarantee. This will inform the Pensions Regulators next steps with regard to the valuation of the scheme.
Other protections
The 2011 funding agreement with the Trustee included additional features for BT to provide support to the scheme:
| in the event that net cumulative shareholder distributions exceed cumulative pension deficit contributions over the period from 1 March 2012 to 30 June 2015 then BT will make additional matching contributions to the scheme. Shareholder distributions include dividends and the cost of share buybacks (excluding any possible buybacks associated with existing employee share plans) after deducting any proceeds from the issue of shares. BT will consult with the Trustee if it considers making a special dividend or embarking on a share buyback programme (excluding any possible buybacks associated with existing employee share plans). These provisions apply until the finalisation of the next valuation or 30 June 2015 at the latest |
| in the event that BT generates net cash proceeds greater than £1bn from disposals and acquisitions in any year to 30 June then BT will make additional contributions to the scheme equal to one third of those net cash proceeds. BT will consult with the Trustee if it considers making acquisitions with a total cost of more than £1bn in any 12-month period. These provisions apply until the finalisation of the next valuation or 30 September 2015 at the latest |
| a negative pledge that provides protection that future creditors will not be granted superior security to the scheme in excess of a £1.5bn threshold. This provision applies until the deficit reduces below £2.0bn at any subsequent funding valuation |
| in addition, in order to provide greater certainty, BT has committed to a schedule of future potential payments based upon a range of deficits at the next triennial valuations at 2014 and 2017. These payments would be in addition to the remaining deficit payments of £295m per year under the 2011 recovery plan and would have a maximum value of around £3.6bn in 2014 and £3.0bn in 2017 based on 2011 discount rates. |
At the 2014 valuation, the remaining 2011 recovery plan will be worth about £1.7bn (based on 2011 discount rates). If the deficit agreed at the 2014 valuation exceeds this level, BT will provide extra payments in addition to the remaining £295m annual deficit payments under the 2011 recovery plan. The amounts payable are dependent on the level of the deficit as shown in the table below.
Additional contributions payable | ||||||||||||
|
2015 £m |
|
|
2016 £m |
|
|
2017 £m |
| ||||
Deficit above remaining 2011 recovery plan present value |
||||||||||||
£nil |
| | | |||||||||
£1.0bn |
199 | 205 | 211 | |||||||||
£2.0bn |
273 | 282 | 289 | |||||||||
£2.9bn or above |
360 | 371 | 381 |
At deficit levels between these values the level of additional contributions is scaled accordingly. At a level of £2.9bn or above these are the maximum additional contributions under the terms of this agreement. A new agreement would cover additional contributions if these are required.
A similar mechanism applies based on the deficit agreed at the 2017 valuation. If this exceeds the outstanding recovery plan (with the remaining 2011 recovery plan worth about £1.1bn in 2017, based on 2011 discount rates), BT will provide extra payments dependent on the level of the deficit as shown in the table below.
Additional contributions payable | ||||||||||||||||||||||||||||
|
2018 £m |
|
|
2019 £m |
|
|
2020 £m |
|
|
2021 £m |
|
|
2022 £m |
|
|
2023 £m |
|
|
2024 £m |
| ||||||||
Deficit above remaining 2014 recovery plan present value |
||||||||||||||||||||||||||||
£nil |
| | | | | | | |||||||||||||||||||||
£1.0bn |
197 | 203 | 209 | 215 | 207 | 213 | | |||||||||||||||||||||
£2.0bn |
341 | 351 | 362 | 373 | 358 | 369 | 381 | |||||||||||||||||||||
£2.9bn or above |
393 | 404 | 416 | 429 | 670 | 670 | 670 |
A new agreement would cover additional contributions if these are required.
78 |
Notes to the consolidated financial statements |
18. Retirement benefit plans continued
If the deficit at 2014 is below the value of the remaining 2011 recovery plan, no additional deficit contributions are necessary and the remaining recovery plan will be revised. Likewise, if the deficit at 2017 is below the remaining recovery plan at that time.
Other protection of BTPS member benefits
In the unlikely event that the group were to become insolvent there are additional protections available to members:
| the Crown Guarantee which was granted when the group was privatised in 1984 and which applies upon the winding up of BT. The scope and extent of the Crown Guarantee is being clarified by the Trustee through the courts. The decision of the High Court issued in October 2010 was that the Crown Guarantee can cover members who joined before and after privatisation. The Court confirmed that any payments to be made by the Government must be measured on an annuity basis. In a further High Court decision issued in December 2011, it was decided that the Crown Guarantee does not cover the benefits of members accrued while in service with companies that participate in the BTPS other than BT nor does it cover benefit augmentations granted by BT. The judgments were appealed on 30 April 2014 and a decision from the Court of Appeal is pending. |
| the Pension Protection Fund (PPF) may take over the scheme and pay benefits to members not covered by the Crown Guarantee. There are limits on the amounts paid by the PPF and this would not give exactly the same benefits as those provided by the scheme. |
Other benefit plans
In addition to the BTPS, the group maintains benefit plans in most other countries with a focus on these being appropriate for the local market and culture.
After the BTPS, the largest defined benefit plan sponsored by the group is a plan in the Netherlands with liabilities of around £120m.
As part of the group-wide restructuring programme, a defined benefit plan in the US, with liabilities of £60m, was closed and is being wound up, resulting in a settlement charge of around £2m. This charge is included as a specific item within restructuring costs (see note 8).
The BT Retirement Saving Scheme (BTRSS) is the largest defined contribution scheme maintained by the group with around 26,000 active members. In the year to 31 March 2014, the group contributed £97m to the BTRSS.
19. Share-based payments
Overview
The ultimate parent company, BT Group plc, has savings-related share option plans for its employees and those of participating subsidiaries, further share option plans for selected employees and a stock purchase plan for employees in the US. It also has several share plans for executives. All share-based payment plans are equity settled, instruments of BT Group plc and details of these plans and an analysis of the total charge by type of award are set out below.
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| |||
Employee Saveshare Plans |
25 | 25 | 25 | |||||||||
Executive Share Plans: |
||||||||||||
Incentive Share Plan (ISP) |
21 | 27 | 43 | |||||||||
Deferred Bonus Plan (DBP) |
11 | 10 | 8 | |||||||||
Other plans |
3 | 2 | (1 | ) | ||||||||
60 | 64 | 75 |
Employee Saveshare Plans
Under an HMRC approved savings-related share option plan employees save on a monthly basis, over a three or five-year period, towards the purchase of shares at a fixed price determined when the option is granted. This price is usually set at a 20% discount to the market price for five-year plans and 10% for three-year plans. The options must be exercised within six months of maturity of the savings contract, otherwise they lapse. Similar plans operate for BTs overseas employees.
Incentive Share Plan
Under the ISP, participants are only entitled to these shares in full at the end of a three-year period if BT Group plc has met the relevant predetermined corporate performance measures and if the participants are still employed by the group. For ISP awards granted in 2013/14, 2012/13 and 2011/12: 40% of each award is linked to a total shareholder return target (TSR) for a comparator group of companies from the beginning of the relevant performance period; 40% is linked to a three-year cumulative free cash flow measure, and 20% to growth in underlying revenue excluding transit.
Deferred Bonus Plan
Under the DBP, awards are granted annually to selected employees of the group. Shares in BT Group plc are transferred to participants at the end of three years if they continue to be employed by the group throughout that period.
In accordance with the terms of the ISP and DBP, dividends or dividend equivalents earned on shares during the conditional periods are reinvested in shares of BT Group plc for the potential benefit of the participants.
Notes to the consolidated financial statements |
79 |
19. Share-based payments continued
Employee Saveshare Plans
Movements in Employee Saveshare options are shown below.
Movement in the number of share options | Weighted average exercise price | |||||||||||||||||||||||||
Year ended 31 March |
|
2014 millions |
|
|
2013 millions |
|
|
2012 millions |
|
|
2014 pence |
|
|
2013 pence |
|
|
2012 pence |
| ||||||||
Outstanding at 1 April |
490 | 561 | 567 | 91 | 79 | 77 | ||||||||||||||||||||
Granted |
40 | 66 | 33 | 257 | 176 | 161 | ||||||||||||||||||||
Forfeited |
(10 | ) | (10 | ) | (17 | ) | 158 | 120 | 97 | |||||||||||||||||
Exercised |
(57 | ) | (119 | ) | (12 | ) | 110 | 69 | 132 | |||||||||||||||||
Expired |
(4 | ) | (8 | ) | (10 | ) | 78 | 188 | 140 | |||||||||||||||||
Outstanding at 31 March |
459 | 490 | 561 | 102 | 91 | 79 | ||||||||||||||||||||
Exercisable at 31 March |
2 | | 1 | 111 | | 128 |
The weighted average share price for all options exercised during 2013/14 was 356p (2012/13: 221p, 2011/12: 203p).
The following table summarises information relating to options outstanding and exercisable under Employee Saveshare plans at 31 March 2014.
Normal dates of vesting and exercise (based on calendar years) |
|
Exercise price per share |
|
|
Weighted average exercise price |
|
|
Number of outstanding options millions |
|
|
Weighted average remaining contractual life |
| ||||
2014 |
61p 175p | 64p | 302 | 10 months | ||||||||||||
2015 |
104p 189p | 135p | 64 | 22 months | ||||||||||||
2016 |
156p 280p | 207p | 35 | 34 months | ||||||||||||
2017 |
168p 280p | 169p | 35 | 46 months | ||||||||||||
2018 |
249p | 249p | 22 | 58 months | ||||||||||||
Total |
102p | 458 | 19 months |
GSOP and GLOP (Legacy Executive Plans)
During 2013/14 9m (2012/13: 12m, 2011/12: 2m) options were exercised, nil (2012/13: 1m, 2011/12: 2m) options expired and nil (2012/13: nil, 2011/12: 1m) options were forfeited under former executive share option plans (GSOP and GLOP). Under these plans 1m (2012/13: 11m, 2011/12: 24m) options were outstanding at the end of the year and are exercisable up to 2014/15. The weighted average exercise price of the outstanding options was 194p (2012/13: 198p, 2011/12: 198p). At 31 March 2014 outstanding options under GSOP and GLOP had a weighted average remaining contractual life of four months.
Executive share plans
Movements in executive share plan awards during 2013/14 are shown below:
Number of shares (millions) | ||||||||||||
ISP | DBP | Total | ||||||||||
At 1 April 2013 |
98 | 22 | 120 | |||||||||
Awards granted |
19 | 3 | 22 | |||||||||
Awards vested |
(40 | ) | (9 | ) | (49 | ) | ||||||
Awards lapsed |
(9 | ) | (3 | ) | (12 | ) | ||||||
Dividend shares reinvested |
2 | | 2 | |||||||||
At 31 March 2014 |
70 | 13 | 83 |
80 |
Notes to the consolidated financial statements |
19. Share-based payments continued
Fair values
The following table summarises the fair values and key assumptions used for valuing grants made under the Employee Saveshare plans and ISP in 2013/14, 2012/13 and 2011/12.
2014 | 2013 | 2012 | ||||||||||||||||||||||||||
Year ended 31 March | |
Employee Saveshare |
|
ISP | |
Employee Saveshare |
|
ISP | |
Employee Saveshare |
|
ISP | ||||||||||||||||
Weighted average fair value |
61p | 269p | 43p | 170p | 44p | 170p | ||||||||||||||||||||||
Weighted average share price |
310p | 315p | 209p | 204p | 198p | 198p | ||||||||||||||||||||||
Weighted average exercise price |
257p | n/a | 176p | n/a | 161p | n/a | ||||||||||||||||||||||
Expected dividend yield |
3.9% 5.6% | 5.6% | 3.6% 5.2% | 5.1% | 5.3% 5.5% | 5.3% | ||||||||||||||||||||||
Risk free rates |
0.7% 1.5% | 0.7% | 0.3% 0.8% | 0.4% | 1.1% 2.0% | 1.1% | ||||||||||||||||||||||
Expected volatility |
23.3% 31.9% | 32.0% | 28.1% 36.5% | 33.6% | 31.0% 35.6% | 31.2% |
Employee Saveshare grants are valued using a Binomial options pricing model. Awards under the ISP are valued using Monte Carlo simulations. TSRs are generated for BT Group plc and the comparator group at the end of the three-year performance period, using each companys volatility and dividend yield, as well as the cross correlation between pairs of stocks.
Volatility has been determined by reference to BTs historical volatility which is expected to reflect the BT Group plc share price in the future. An expected life of three months after vesting date is assumed for Employee Saveshare options and for all other awards the expected life is equal to the vesting period. The risk-free interest rate is based on the UK gilt curve in effect at the time of the grant, for the expected life of the option or award.
The fair values for the DBP were determined using the market price of the shares at the date of grant. The weighted average share price for DBP awards granted in 2013/14 was 315p (2012/13: 203p, 2011/12: 198p).
20. Investments
At 31 March | |
2014 £m |
|
|
2013 £m |
| ||
Non-current assets |
||||||||
Available-for-sale |
25 | 53 | ||||||
Amounts owed by ultimate parent company |
1,225 | 1,193 | ||||||
Amounts owed by parent company |
17,587 | 17,806 | ||||||
Fair value through profit and loss |
9 | 11 | ||||||
18,846 | 19,063 | |||||||
Current assets |
||||||||
Available-for-sale |
1,774 | 530 | ||||||
Amounts owed by ultimate parent company |
15 | 21 | ||||||
Amounts owed by parent company |
763 | 723 | ||||||
Loans and receivablesa |
| 1 | ||||||
2,552 | 1,275 |
a | Loans and receivables are held on balance sheet at amortised cost. |
Amounts owed by parent and ultimate parent company mainly consist of Sterling denominated loans which earn a floating rate of interest based upon LIBOR. Further details of these amounts are disclosed in note 27.
Notes to the consolidated financial statements |
81 |
20. Investments continued
Fair value hierarchy
At 31 March 2014 |
|
Level 1 £m |
|
|
Level 2 £m |
|
|
Level 3 £m |
|
|
Total £m |
| ||||
Non-current and current investments |
||||||||||||||||
Available-for-sale investments |
18 | 1,774 | 7 | 1,799 | ||||||||||||
Fair value through profit or loss |
9 | | | 9 | ||||||||||||
Total |
27 | 1,774 | 7 | 1,808 | ||||||||||||
At 31 March 2013 |
|
Level 1 £m |
|
|
Level 2 £m |
|
|
Level 3 £m |
|
|
Total £m |
| ||||
Non-current and current investments |
||||||||||||||||
Available-for-sale investments |
45 | 530 | 8 | 583 | ||||||||||||
Fair value through profit or loss |
11 | | | 11 | ||||||||||||
Total |
56 | 530 | 8 | 594 |
The three levels of valuation methodology used are:
Level 1 uses quoted prices in active markets for identical assets or liabilities
Level 2 uses inputs for the asset or liability other than quoted prices, that are observable either directly or indirectly
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 1 balances consist of available-for-sale investments of £18m (2012/13: £45m) and listed investments of £9m (2012/13: £11m) designated at fair value through profit and loss.
Level 2 balances consist of investments in AAA rated liquidity funds denominated in Sterling of £1,774m (2012/13: £530m) are classified as available-for-sale.
Level 3 balances consist of available-for-sale investments of £7m (2012/13: £8m) which represent 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.
There were no losses recognised in the income statement in respect of Level 3 assets held at 31 March 2014 (2012/13: £nil).
21. Cash and cash equivalents
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Cash at bank and in hand |
375 | 324 | ||||||
Cash equivalents |
||||||||
Loans and receivables |
||||||||
US deposits |
55 | 59 | ||||||
UK deposits |
257 | 526 | ||||||
European deposits |
| 3 | ||||||
Other deposits |
3 | 7 | ||||||
Total cash equivalents |
315 | 595 | ||||||
Total cash and cash equivalents |
690 | 919 | ||||||
Bank overdrafts (note 22) |
(11 | ) | (5 | ) | ||||
Cash and cash equivalents per the cash flow statement |
679 | 914 |
The group has cross undertaking guarantee facilities across certain bank accounts which allow a legally enforceable right of set-off of the relevant cash and overdraft balances on bank accounts included within each scheme.
The groups cash at bank included restricted cash of £109m (2012/13: £91m), of which £106m (2012/13: £87m) were held in countries in which prior approval is required to transfer funds abroad. Such funds can be used by the group within a reasonable period of time if it complies with these requirements. The remaining balance of £3m (2012/13: £4m) was held in escrow accounts.
Cash and cash equivalents are classified as loans and receivables and are held on the balance sheet at amortised cost which equates to fair value.
22. Loans and other borrowings
Capital management policy
The capital structure is managed by BT Group plc, the ultimate parent of the group.
The objective of BT Group plcs capital management policy is to reduce net debt over time whilst investing in the business, supporting the pension scheme and paying progressive dividends to its shareholders. In order to meet this objective, BT Group plc may issue or repay debt, issue new shares, repurchase shares, or adjust the amount of dividends paid to shareholders. BT Group plc may also approve the company to issue or repay debt. BT Group plc manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the group. The BT Group plc Board regularly reviews the capital structure. No changes were made to BT Group plcs objectives and processes during 2013/14 and 2012/13.
82 |
Notes to the consolidated financial statements |
22. Loans and other borrowings continued
BT Group plc groups capital structure consists of net debt and shareholders equity. The analysis below summarises the components which BT Group plc manages as capital.
At 31 March | |
2014 £m |
|
|
2013 £m |
| ||
BT Group plc consolidated net debt |
7,028 | 7,797 | ||||||
BT Group plc shareholders (deficit) equitya |
(610 | ) | (276 | ) | ||||
6,418 | 7,521 |
a | Excludes non-controlling interests of £18m (2012/13: £14m). |
Net debt
Net debt consists of loans and other borrowings (both current and non-current), less current asset investments and cash and cash equivalents. Loans and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Currency denominated balances within net debt are translated to Sterling at swapped rates where hedged. Net debt is considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate of loans and other borrowings (current and non-current), current asset investments and cash and cash equivalents.
A reconciliation from this measure for BT Group plc, the most directly comparable IFRS measure, to net debt is given below.
At 31 March | |
2014 £m |
|
|
2013 £m |
| ||
Loans and other borrowings |
9,814 | 10,013 | ||||||
Less: |
||||||||
Cash and cash equivalents |
(695 | ) | (924 | ) | ||||
Current asset investments |
(1,774 | ) | (531 | ) | ||||
7,345 | 8,558 | |||||||
Adjustments: |
||||||||
To retranslate debt balances at swap rates where hedged by currency swaps |
(24 | ) | (417 | ) | ||||
To remove accrued interest applied to reflect the effective interest method and fair value adjustments |
(293 | ) | (344 | ) | ||||
Net debt |
7,028 | 7,797 | ||||||
Loans and borrowings |
||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Floating US$500m FRN due December 2013a |
| 329 | ||||||
5.25% 750m bond due June 2014a |
645 | 660 | ||||||
6.125% 600m bond due July 2014a,b |
518 | 530 | ||||||
2.00% US$750m bond due June 2015a |
452 | 497 | ||||||
6.50% 1,000m bond due July 2015a |
867 | 886 | ||||||
1.625% US$600m bond due June 2016a |
361 | | ||||||
8.50% £683m bond due December 2016 (minimum 7.50%d) |
699 | 699 | ||||||
1.25% US$500m bond due February 2017a |
300 | | ||||||
6.625% £500m bond due June 2017a |
526 | 525 | ||||||
5.95% US$1,100m bond due January 2018a |
668 | 734 | ||||||
2.35% US$800m bond due February 2019a |
481 | | ||||||
8.625% £300m bond due March 2020 |
299 | 299 | ||||||
3.50% £250m index linked bond due April 2025 |
382 | 370 | ||||||
5.75% £600m bond due December 2028c |
670 | 717 | ||||||
9.625% US$2,670m bond due December 2030a (minimum 8.625%d) |
1,648 | 1,809 | ||||||
6.375% £500m bond due June 2037a |
522 | 521 | ||||||
Total listed bonds |
9,038 | 8,576 | ||||||
Finance leases |
264 | 272 | ||||||
Commercial papere |
324 | 769 | ||||||
Other loans |
177 | 391 | ||||||
Bank overdrafts |
11 | 5 | ||||||
Total other loans and borrowings |
512 | 1,165 | ||||||
Total loans and borrowings |
9,814 | 10,013 |
a | Designated in a cash flow hedge relationship. |
b | The interest rate payable on this bond attracts an additional 1.25% for a downgrade by one credit rating category by either or both Moodys and S&P below Baa3/BBB-, respectively. |
c | Designated in a fair value hedge relationship. |
d | The interest rate payable on this bond attracts an additional 0.25% for a downgrade by one credit rating by either Moodys or S&P to the groups senior unsecured debt below A3/A- respectively. In addition, if Moodys or S&P subsequently increase the ratings then the interest rate will be decreased by 0.25% for each rating category upgrade by each rating agency. In no event will the interest rate be reduced below the minimum rate reflected in the above table. |
e | Commercial paper of £237m (2012/13: £146m) is denominated in Euros and of £87m (2012/13: £623m) in US Dollars. |
Notes to the consolidated financial statements |
83 |
22. Loans and other borrowings continued
Unless designated in a fair value hedge relationship, all loans and other borrowings are carried in the group balance sheet and table above at amortised cost. The fair value of listed bonds is £10,597m (2012/13: £10,535m) and the fair value of finance leases is £286m (2012/13: £314m). The fair value of the groups bonds and other long-term borrowings are estimated on the basis of quoted market prices for the same or similar issues with the same maturities, where they exist and a calculation of the value of future cash flows using approximate discount rates in effect at the balance sheet date where market prices of similar issues exist.
The carrying amount of commercial paper, other loans and bank overdrafts equates to fair value due to the short maturity of these items. The interest rates payable on loans and borrowings disclosed above reflect the coupons on the underlying issued loans and borrowings and not the interest rates achieved through applying associated cross-currency and interest rate swaps in hedge arrangements.
The carrying amount of commercial paper, other loans and bank overdrafts equates to fair value due to the short maturity of these items.
Loans and other borrowings are analysed as follows:
At 31 March | |
2014 £m |
|
|
2013 £m |
| ||
Current liabilities |
||||||||
Listed bonds |
1,349 | 566 | ||||||
Finance leases |
14 | 7 | ||||||
Commercial paper |
324 | 769 | ||||||
Other loans and bank overdrafts |
186 | 394 | ||||||
Total current liabilities |
1,873 | 1,736 | ||||||
Non-current liabilities |
||||||||
Listed bonds |
7,689 | 8,010 | ||||||
Finance leases |
250 | 265 | ||||||
Other loans and borrowings |
2 | 2 | ||||||
Total non-current liabilities |
7,941 | 8,277 | ||||||
Total |
9,814 | 10,013 |
The carrying values disclosed in the above table reflect balances at amortised cost adjusted for accrued interest and current fair value adjustments to the relevant loans or borrowings. These do not reflect the final principal repayments that will arise after taking account of the relevant derivatives in hedging relationships which are reflected in the table below. Apart from finance leases, all borrowings as at 31 March 2014 and 2013 were unsecured.
The principal repayments of loans and borrowings at hedged rates amounted to £9,496m (2012/13: £9,251m) and repayments fall due as follows:
2014 | 2013 | |||||||||||||||||||||||||
At 31 March | |
Carrying amount £m |
|
|
Effect of hedging and interest £m |
a
|
|
Principal repayments at hedged rates £m |
|
|
Carrying amount £m |
|
|
Effect of hedging and interest £m |
a
|
|
Principal repayments at hedged rates £m |
| ||||||||
Within one year, or on demand |
1,873 | (183 | ) | 1,690 | 1,736 | (264 | ) | 1,472 | ||||||||||||||||||
Between one and two years |
1,291 | (7 | ) | 1,284 | 1,155 | 9 | 1,164 | |||||||||||||||||||
Between two and three years |
1,353 | 36 | 1,389 | 1,352 | (69 | ) | 1,283 | |||||||||||||||||||
Between three and four years |
1,172 | (111 | ) | 1,061 | 693 | | 693 | |||||||||||||||||||
Between four and five years |
492 | 7 | 499 | 1,235 | (174 | ) | 1,061 | |||||||||||||||||||
After five years |
3,572 | 1 | 3,573 | 3,734 | (156 | ) | 3,578 | |||||||||||||||||||
Total due for repayment after more than one year |
7,880 | (74 | ) | 7,806 | 8,169 | (390 | ) | 7,779 | ||||||||||||||||||
Total repayments |
9,753 | (257 | ) | 9,496 | 9,905 | (654 | ) | 9,251 | ||||||||||||||||||
Fair value adjustments for hedged risk |
61 | 108 | ||||||||||||||||||||||||
Total loans and other borrowings |
9,814 | 10,013 |
a | Adjustments for hedging and interest reflect the impact of the currency element of derivatives and adjust the repayments to exclude interest recognised in the carrying amount. |
84 |
Notes to the consolidated financial statements |
22. Loans and other borrowings continued
Obligations under finance leases are analysed as follows:
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Minimum lease payments | |
Repayment of outstanding lease obligations |
| |||||||||||||||||||
At 31 March | £m | £m | £m | £m | ||||||||||||||||||
Amounts payable under finance leases: |
||||||||||||||||||||||
Within one year |
31 | 23 | 14 | 7 | ||||||||||||||||||
In the second to fifth years inclusive |
111 | 109 | 51 | 47 | ||||||||||||||||||
After five years |
307 | 342 | 199 | 218 | ||||||||||||||||||
449 | 474 | 264 | 272 | |||||||||||||||||||
Less: future finance charges |
(185 | ) | (202 | ) | | | ||||||||||||||||
Total finance lease obligations |
264 | 272 | 264 | 272 |
Assets held under finance leases mainly consist of buildings and network assets. The groups obligations under finance leases are secured by the lessors title to the leased assets.
23. Finance expense and income
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| |||
Finance expense |
||||||||||||
Interest on: |
||||||||||||
Financial liabilities at amortised cost |
560 | 623 | 644 | |||||||||
Finance leases |
16 | 19 | 18 | |||||||||
Derivatives |
13 | 5 | 16 | |||||||||
Fair value movements: |
||||||||||||
Bonds designated as hedged items in fair value hedges |
(47 | ) | 31 | 81 | ||||||||
Derivatives designated as hedging instrument in fair value hedges |
47 | (31 | ) | (81 | ) | |||||||
Derivatives not in a designated hedge relationship |
(2 | ) | 6 | 13 | ||||||||
Reclassification of cash flow hedge from other comprehensive income |
9 | 12 | 5 | |||||||||
Unwinding of discount on provisions |
8 | 6 | 5 | |||||||||
Finance expense |
604 | 671 | 701 | |||||||||
Less: interest capitalised at weighted average rate of 6.1% (2012: 6.1%, 2011/12: 7.3%) |
(1 | ) | (5 | ) | (9 | ) | ||||||
Total finance expense before specific items |
603 | 666 | 692 | |||||||||
Specific items (note 8)a |
235 | 119 | 98 | |||||||||
Total finance expensea |
838 | 785 | 790 | |||||||||
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| |||
Finance income |
||||||||||||
Interest on available-for-sale investments |
5 | 7 | 6 | |||||||||
Interest on loans and receivables |
7 | 6 | 5 | |||||||||
Interest income on loans to immediate and ultimate parent company |
208 | 261 | 290 | |||||||||
Total finance income |
220 | 274 | 301 | |||||||||
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
| |||
Net finance expense before specific items |
383 | 392 | 391 | |||||||||
Specific items (note 8)a |
235 | 119 | 98 | |||||||||
Net finance expensea |
618 | 511 | 489 |
a | Restated, see note 1. |
Notes to the consolidated financial statements |
85 |
24. Financial instruments and risk management
The group issues or holds financial instruments mainly to finance its operations; to finance corporate transactions such as dividends, share buybacks and acquisitions; for the temporary investment of short-term funds; and to manage the currency and interest rate risks arising from its operations and from its sources of finance. In addition, various financial instruments, for example trade receivables and trade payables, arise directly from the groups operations.
Financial risk management
The groups activities expose it to a variety of financial risks: market risk (including interest rate risk and foreign exchange risk); credit risk and liquidity risk.
Treasury operations
The group has a centralised treasury operation whose primary role is to manage liquidity and funding requirements and the groups exposure to associated financial and market risks, including credit risk, interest rate risk and foreign exchange risk.
Treasury policy
Treasury policy is set by the BT Group plc Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of the borrowing, investments and group-wide exposures. The BT Group plc Board has delegated its authority to operate these policies to a series of panels that are responsible for the management of key treasury risks and operations. Appointment to and removal from the key panels requires approval from two of the Chairman, the Chief Executive or the Group Finance Director of the BT Group plc Board.
There has been no change in the nature of the groups risk profile between 31 March 2014 and the date of approval of these financial statements.
Interest rate risk management
Management policy
The groups interest rate risk arises primarily from our long-term borrowings. Interest cash flow risk arises from borrowings issued at variable rate, partially offset by cash held at variable rates. Fair value interest rate risk arises from borrowings issued at fixed rates.
The groups policy, as set by the BT Group plc Board, is to ensure that at least 70% of BT Group plcs consolidated net debt is at fixed rates. Short-term interest rate management is delegated to the treasury operation while long-term interest rate management decisions require further approval by the BT Group plc Group Finance Director, Director Treasury, Tax and Risk Management or the Treasurer BT Group who have been delegated such authority from the BT Group plc Board.
Hedging strategy
In order to manage the groups interest rate profile, the group has entered into cross-currency and interest rate swap agreements with commercial banks and other institutions to vary the amounts and periods for which interest rates on borrowings are fixed. The duration of the swap agreements matches the duration of the debt instruments. The majority of the groups long-term borrowings have been, and are, subject to fixed Sterling interest rates after applying the impact of these hedging instruments.
Foreign exchange risk management
Management policy
The purpose of the groups foreign currency hedging activities is to protect the group from the risk that eventual future net inflows and net outflows will be adversely affected by changes in exchange rates.
The BT Group plc Boards policy for foreign exchange risk management defines the type of transactions which should normally be covered, including significant operational, funding and currency interest exposures, and the period over which cover should extend for the different types of transactions.
Short-term foreign exchange management is delegated to the treasury operation whilst long-term foreign exchange management decisions require further approval from the BT Group plc Group Finance Director, Director Treasury, Tax and Risk Management or the Treasurer BT Group who have been delegated such authority by the BT Group plc Board.
Hedging strategy
A significant proportion of the groups external revenue and costs arise within the UK and are denominated in Sterling. The groups non-UK operations generally trade and are funded in their functional currency which limits their exposure to foreign exchange volatility. Foreign currency borrowings used to finance the groups operations have been predominantly swapped into Sterling using cross-currency swaps.
The group also enters into forward currency contracts to hedge foreign currency, capital purchases, purchase and sale commitments, interest expense and foreign currency investments. The commitments hedged are principally denominated in US Dollar, Euro and Asia Pacific region currencies. As a result, the groups exposure to foreign currency arises mainly on its non-UK subsidiary investments and on residual currency trading flows.
86 |
Notes to the consolidated financial statements |
24. Financial instruments and risk management continued
The table below reflects the currency and interest rate profile of our loans and borrowings after the impact of hedging.
2014 | 2013 | |||||||||||||||||||||||||
At 31 March |
|
Fixed rate interest £m |
|
|
Floating rate interest £m |
|
|
Total £m |
|
|
Fixed rate interest £m |
|
|
Floating rate interest £m |
|
|
Total £m |
| ||||||||
Sterling |
7,946 | 1,265 | 9,211 | 7,083 | 1,695 | 8,778 | ||||||||||||||||||||
Euro |
| 285 | 285 | | 467 | 467 | ||||||||||||||||||||
US Dollar |
| | | 6 | | 6 | ||||||||||||||||||||
Total |
7,946 | 1,550 | 9,496 | 7,089 | 2,162 | 9,251 | ||||||||||||||||||||
Ratio of fixed to floating |
84% | 16% | 100% | 77% | 23% | 100% | ||||||||||||||||||||
Weighted average effective fixed interest rate Sterling |
6.6% | 7.1% |
The floating rate loans and borrowings bear interest rates fixed in advance for periods ranging from one day to one year, primarily by reference to LIBOR and EURIBOR quoted rates.
Sensitivity analysis
The group is exposed to volatility in the income statement and shareholders equity arising from changes in interest rates and foreign exchange rates. To demonstrate this volatility, management have concluded that the following are reasonable benchmarks for performing sensitivity analysis:
| for interest, a 1% increase in interest rates and parallel shift in yield curves across Sterling, US Dollar and Euro currencies |
| for foreign exchange, a 10% strengthening/weakening in Sterling against other currencies |
The impact on the groups annual net finance expense of a 1% increase in interest rates would be a decrease of £207m (2012/13: £193m). The impact on equity, before tax, of a 1% increase in interest rates is as detailed below:
At 31 March |
|
2014 £m Increase (Reduce) |
|
|
2013 £m Increase (Reduce) |
| ||
Sterling interest rates |
337 | 418 | ||||||
US Dollar interest rates |
(361 | ) | (420 | ) | ||||
Euro interest rates |
(14 | ) | (36 | ) |
A 1% decrease in interest rates would have broadly the same impact in the opposite direction.
The groups exposure to foreign exchange volatility in the income statement, after hedging, and within shareholders equity (excluding translation exposures) was insignificant in both 2013/14 and 2012/13.
Credit ratings
The groups 2016 and 2030 bonds contain covenants which have required the group to pay higher rates of interest once the group ceased to be rated at least A3 in the case of Moodys or at least A in the case of Standard & Poors (S&P). Additional interest of 0.25% per year accrues for each ratings category downgrade by each agency below those levels from the next coupon date following a downgrade. Based on the total notional value of debt outstanding of £2.3bn at 31 March 2014, the groups finance expense would increase/decrease by approximately £12m a year if BTs credit rating were to be downgraded/upgraded, respectively, by one credit rating category by both agencies from the current ratings.
The groups 600m 2014 bond attracts an additional 1.25% for a downgrade by one credit rating below Baa3/BBB by either or both Moodys and S&P, respectively. This would result in an additional finance expense of approximately £6m per year.
BT Group plcs credit ratings were as detailed below:
2014 | 2013 | |||||||||||||||||
At 31 March | Rating | Outlook | Rating | Outlook | ||||||||||||||
Rating agency |
||||||||||||||||||
Standard & Poors |
BBB | Stable | BBB | Stable | ||||||||||||||
Moodys |
Baa2 | Positive | Baa2 | Positive |
BT Group plc is targeting a BBB+/Baa1 credit rating over the medium term.
Notes to the consolidated financial statements |
87 |
24. Financial instruments and risk management continued
Liquidity risk management
Management policy
The group ensures its liquidity is maintained by entering into short, medium and long-term financial instruments to support operational and other funding requirements. The group determines its liquidity requirements by the use of both short and long-term cash forecasts. These forecasts are supplemented by a financial headroom analysis which is used to assess funding adequacy for at least a 12-month period. On at least an annual basis the BT Group plc Board reviews and approves the maximum long-term funding of the group and on an ongoing basis considers any related matters. Refinancing risk is managed by limiting the amount of borrowing that matures within any specified period and having appropriate strategies in place to manage refinancing needs as they arise. The maturity profile of the groups loans and borrowings at 31 March 2014 is disclosed in note 22. The group has term debt maturities of £1.2bn in 2014/15.
Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters of the policies set by the BT Group plc Board. During 2013/14 and 2012/13 the group issued commercial paper and held cash, cash equivalents and current investments in order to manage short-term liquidity requirements. At 31 March 2014 the group has undrawn committed borrowing facilities of £1.5bn (2012/13: £1.5bn) maturing in March 2016.
Maturity analysis
The following table provides an analysis of the remaining contractually agreed cash flows including interest payable for the groups non-derivative financial liabilities on an undiscounted basis, which therefore differs from both the carrying value and fair value.
Non-derivative financial liabilities
At 31 March 2014 |
|
Loans and other borrowings |
|
|
Interest on loans and other borrowings £m |
|
|
Trade and other payables |
|
|
Provisions £m |
|
|
Total £m |
| |||||
Due within one year |
1,641 | 554 | 3,756 | 37 | 5,988 | |||||||||||||||
Between one and two years |
1,291 | 485 | | 36 | 1,812 | |||||||||||||||
Between two and three years |
1,353 | 424 | | 22 | 1,799 | |||||||||||||||
Between three and four years |
1,172 | 360 | | 18 | 1,550 | |||||||||||||||
Between four and five years |
492 | 287 | | 17 | 796 | |||||||||||||||
After five years |
3,572 | 3,045 | | 225 | 6,842 | |||||||||||||||
9,521 | 5,155 | 3,756 | 355 | 18,787 | ||||||||||||||||
Interest payments not yet accrued |
| (4,923 | ) | | | (4,923 | ) | |||||||||||||
Fair value adjustment for hedged risk |
61 | | | | 61 | |||||||||||||||
Impact of discounting |
| | | (157 | ) | (157 | ) | |||||||||||||
Carrying value on the balance sheeta |
9,582 | 232 | 3,756 | 198 | 13,768 | |||||||||||||||
At 31 March 2013 |
|
Loans and other borrowings £m |
|
|
Interest on loans and other borrowings £m |
|
|
Trade and other payables £m |
|
|
Provisions £m |
|
|
Total £m |
| |||||
Due within one year |
1,500 | 558 | 4,001 | 55 | 6,114 | |||||||||||||||
Between one and two years |
1,155 | 554 | | 30 | 1,739 | |||||||||||||||
Between two and three years |
1,352 | 485 | | 19 | 1,856 | |||||||||||||||
Between three and four years |
693 | 425 | | 15 | 1,133 | |||||||||||||||
Between four and five years |
1,235 | 367 | | 13 | 1,615 | |||||||||||||||
After five years |
3,734 | 3,518 | | 235 | 7,487 | |||||||||||||||
9,669 | 5,907 | 4,001 | 367 | 19,944 | ||||||||||||||||
Interest payments not yet accrued |
| (5,671 | ) | | | (5,671 | ) | |||||||||||||
Fair value adjustment for hedged risk |
108 | | | | 108 | |||||||||||||||
Impact of discounting |
| | | (135 | ) | (135 | ) | |||||||||||||
Carrying value on the balance sheeta |
9,777 | 236 | 4,001 | 232 | 14,246 |
a | Foreign currency-related cash flows were translated at closing rates as at the relevant reporting date. Future variable interest rate cash flows were calculated using the most recent rate applied at the relevant balance sheet date. |
88 |
Notes to the consolidated financial statements |
24. Financial instruments and risk management continued
The following table provides an analysis of the contractually agreed cash flows in respect of the groups derivative financial instruments. Cash flows are presented on a net or gross basis in accordance with the settlement arrangements of the instruments.
Derivative financial liabilities
Analysed by earliest payment datea | Analysed based on holding instrument to maturity | |||||||||||||||||||||||||||||||||
At 31 March 2014 |
|
Derivatives net settled £m |
|
|
Derivatives gross settled outflows £m |
|
|
Derivatives gross settled inflows £m |
|
|
Total £m |
|
|
Derivatives net settled £m |
|
|
Derivatives gross settled outflows £m |
|
|
Derivatives gross settled inflows £m |
|
|
Total £m |
| ||||||||||
Due within one year |
263 | 1,754 | (1,706 | ) | 311 | 125 | 1,754 | (1,706 | ) | 173 | ||||||||||||||||||||||||
Between one and two years |
351 | 661 | (619 | ) | 393 | 84 | 560 | (525 | ) | 119 | ||||||||||||||||||||||||
Between two and three years |
642 | 947 | (904 | ) | 685 | 84 | 950 | (908 | ) | 126 | ||||||||||||||||||||||||
Between three and four years |
70 | 806 | (821 | ) | 55 | 84 | 65 | (61 | ) | 88 | ||||||||||||||||||||||||
Between four and five years |
| 334 | (327 | ) | 7 | 84 | 369 | (361 | ) | 92 | ||||||||||||||||||||||||
After five years |
| 198 | (186 | ) | 12 | 865 | 1,002 | (1,002 | ) | 865 | ||||||||||||||||||||||||
Totalb |
1,326 | 4,700 | (4,563 | ) | 1,463 | 1,326 | 4,700 | (4,563 | ) | 1,463 | ||||||||||||||||||||||||
Analysed by earliest payment datea | Analysed based on holding instrument to maturity | |||||||||||||||||||||||||||||||||
At 31 March 2013 |
|
Derivatives net settled £m |
|
|
Derivatives gross settled £m |
|
|
Derivatives gross settled inflows £m |
|
|
Total £m |
|
|
Derivatives net settled £m |
|
|
Derivatives gross settled outflows £m |
|
|
Derivatives gross settled inflows £m |
|
|
Total £m |
| ||||||||||
Due within one year |
359 | 1,462 | (1,443 | ) | 378 | 65 | 973 | (956 | ) | 82 | ||||||||||||||||||||||||
Between one and two years |
559 | 541 | (542 | ) | 558 | 53 | 557 | (559 | ) | 51 | ||||||||||||||||||||||||
Between two and three years |
304 | 105 | (107 | ) | 302 | 83 | 20 | (21 | ) | 82 | ||||||||||||||||||||||||
Between three and four years |
14 | | | 14 | 83 | 20 | (21 | ) | 82 | |||||||||||||||||||||||||
Between four and five years |
70 | | | 70 | 83 | 20 | (21 | ) | 82 | |||||||||||||||||||||||||
After five years |
| | | | 939 | 518 | (514 | ) | 943 | |||||||||||||||||||||||||
Totalb |
1,306 | 2,108 | (2,092 | ) | 1,322 | 1,306 | 2,108 | (2,092 | ) | 1,322 |
a | Certain derivative financial instruments contain break clauses whereby either the group or bank counterparty can terminate the swap on certain dates and the mark to market position is settled in cash. |
b | Foreign currency-related cash flows were translated at closing rates as at the relevant reporting date. Future variable interest rate cash flows were calculated using the most recent rate applied at the relevant balance sheet date. |
Credit risk management
Management policy
The groups exposure to credit risk arises from financial assets transacted by the treasury operation (primarily derivatives, investments, cash and cash equivalents) and from its trading-related receivables.
For treasury-related balances, the BT Group plc Boards defined policy restricts exposure to any one counterparty by setting credit limits based on the credit quality as defined by Moodys and S&P and by defining the types of financial instruments which may be transacted. The minimum credit ratings permitted with counterparties in respect of new transactions are A3/A for long-term and P1/A1 for short-term investments. Action is taken where appropriate and cost effective, if counterparties in respect of existing transactions fall below the permitted criteria.
The treasury operation continuously reviews the limits applied to counterparties and will adjust the limit according to the nature and credit standing of the counterparty and in response to market conditions, up to the maximum allowable limit set by the BT Group plc Board.
Operational management policy
The BT Group plc Boards credit policy for trading-related financial assets is applied and managed by each of the lines of business to ensure compliance. The policy requires that the creditworthiness and financial strength of customers is assessed at inception and on an ongoing basis. Payment terms are set in accordance with industry standards. Where appropriate, the group may endeavour to minimise risks by requesting securities such as deposits, guarantees and letters of credit. The group takes proactive steps including constantly reviewing credit ratings of relationship banks to minimise the impact of adverse market conditions on trading-related financial assets.
Exposures
The maximum credit risk exposure of the groups financial assets at the balance sheet date is as follows:
At 31 March | Notes |
|
2014 £m |
|
|
2013 £m |
| |||||
Derivative financial assets |
653 | 1,250 | ||||||||||
Investments |
20 | 21,398 | 20,338 | |||||||||
Trade and other receivablesa |
15 | 2,189 | 2,235 | |||||||||
Cash and cash equivalents |
21 | 690 | 919 | |||||||||
24,930 | 24,742 |
a | The carrying amount excludes £214m (2012/13: £184m) of non-current trade and other receivables which relate to non-financial assets, and £722m (2012/13: £699m) of prepayments and other receivables. |
Notes to the consolidated financial statements |
89 |
24. Financial instruments and risk management continued
The credit quality and credit concentration of cash equivalents, current asset investments and derivative financial assets are detailed in the tables below. Where the opinion of Moodys and S&P differ, the lower rating is used.
Moodys/S&P credit rating of counterparty |
|
2014 £m |
|
|
2013 £m |
| ||
Aaa/AAA |
1,774 | 530 | ||||||
Aa3/AA |
47 | 139 | ||||||
A1/A+ |
111 | 136 | ||||||
A2/Aa |
434 | 583 | ||||||
A3/Aa |
| 591 | ||||||
Baa1/BBB+ |
376 | | ||||||
Baa2/BBBa |
| 397 | ||||||
2,742 | 2,376 |
a | The group holds cash collateral of £174m (2012/13: £385m) in respect of derivative financial assets with certain counterparties. |
The concentration of credit risk for trading balances of the group is provided in note 15, which analyses outstanding balances by line of business.
Where multiple transactions are undertaken with a single financial counterparty, or group of related counterparties the group has entered into netting arrangements to reduce the groups exposure to credit risk by making use of standard International Swaps and Derivatives Association (ISDA) documentation. The group has also entered into credit support agreements with certain swap counterparties whereby on a weekly and monthly basis the fair value position on notional £945m of long dated cross-currency swaps and interest rate swaps is collateralised. The related net cash outflow during the year was £209m (2012/13: cash inflow of £33m). The collateral paid and received is recognised within cash and cash equivalents, and loans and other borrowings, respectively.
Net financial instruments
The table below shows the groups financial assets and liabilities that are subject to offset in the groups balance sheet and the impact of enforceable master netting or similar agreements.
Related amounts not set off in the balance sheet | ||||||||||||||||||||||||
Financial assets and liabilities At 31 March 2014 |
|
Gross amounts £m |
|
|
Amounts set off £m |
|
|
Amounts presented in the balance sheet £m |
|
|
Right of set off with derivative £m |
|
|
Cash collateral £m |
|
|
Net amount £m |
| ||||||
Derivative financial assets |
653 | | 653 | (297 | ) | (174 | ) | 182 | ||||||||||||||||
Derivative financial liabilities |
(818 | ) | | (818 | ) | 297 | 20 | (501 | ) | |||||||||||||||
Cash and cash equivalents |
3,160 | (2,470 | ) | 690 | | | 690 | |||||||||||||||||
Bank overdrafts |
(2,481 | ) | 2,470 | (11 | ) | | | (11 | ) | |||||||||||||||
Total |
514 | | 514 | | (154 | ) | 360 | |||||||||||||||||
Related amounts not set off in the balance sheet | ||||||||||||||||||||||||
Financial assets and liabilities At 31 March 2013 |
|
Gross amounts £m |
|
|
Amounts set off £m |
|
|
Amounts presented in the balance sheet £m |
|
|
Right of set off with £m |
|
|
Cash collateral £m |
|
|
Net amount £m |
| ||||||
Derivative financial assets |
1,250 | | 1,250 | (337 | ) | (385 | ) | 528 | ||||||||||||||||
Derivative financial liabilities |
(876 | ) | | (876 | ) | 337 | 26 | (513 | ) | |||||||||||||||
Cash and cash equivalents |
3,393 | (2,474 | ) | 919 | | | 919 | |||||||||||||||||
Bank overdrafts |
(2,479 | ) | 2,474 | (5 | ) | | | (5 | ) | |||||||||||||||
Total |
1,288 | | 1,288 | | (359 | ) | 929 |
Cash and cash equivalents and bank overdrafts include amounts set off of £2,470m (2012/13: £2,474m) as part of a master netting agreement with Barclays Bank Plc. Balances held within this arrangement are notionally pooled and interest is paid or received on the net balance.
90 |
Notes to the consolidated financial statements |
24. Financial instruments and risk management continued
Derivatives
All of the groups derivative financial instruments are held at fair value on the groups balance sheet. The fair values of outstanding swaps and foreign exchange contracts are estimated using discounted cash flow models and market rates of interest and foreign exchange at the balance sheet date.
Derivatives At 31 March 2014 |
|
Current asset £m |
|
|
Non current asset £m |
|
|
Current liability £m |
|
|
Non current liability £m |
| ||||
Designated in a cash flow hedge |
73 | 394 | 74 | 514 | ||||||||||||
Designated in a fair value hedge |
6 | 61 | | | ||||||||||||
Other |
35 | 84 | 65 | 165 | ||||||||||||
Total derivatives |
114 | 539 | 139 | 679 | ||||||||||||
Derivatives At 31 March 2013 |
|
Current asset £m |
|
|
Non current asset £m |
|
|
Current liability £m |
|
|
Non current liability £m |
| ||||
Designated in a cash flow hedge |
111 | 816 | 19 | 531 | ||||||||||||
Designated in a fair value hedge |
6 | 108 | | | ||||||||||||
Other |
53 | 156 | 55 | 271 | ||||||||||||
Total derivatives |
170 | 1,080 | 74 | 802 |
During the year the group deferred a gain of £16m relating to the fair value of a derivative energy contract at initial recognition. At 31 March 2014 the amount deferred which is not yet recognised in the income statement is £14m. With the exception of this contract which is included at Level 3, and valued using assumptions on volumes, inflation, and market energy prices, all other derivative financial instruments are categorised at Level 2 of the fair value hierarchy as defined in note 20.
Hedging activities
Derivatives may qualify as hedges for accounting purposes if they meet the criteria for designation as fair value hedges or cash flow hedges in accordance with IAS 39.
Cash flow hedges
Instruments designated in a cash flow hedge include interest rate swaps and cross-currency swaps hedging Euro and US Dollar denominated borrowings. Forward currency contracts are taken out to hedge step up interest on currency denominated borrowings relating to our 2030 US Dollar bond. The hedged cash flows will affect profit or loss as interest and principal amounts are repaid over the remaining term of the borrowings. (See note 22 Loans and other borrowings).
Forecast foreign currency purchases, principally denominated in US Dollar and Asia Pacific currencies and purchases of US Dollar denominated retail devices are hedged 12 months forward on a one month rolling basis. The related cash flows will be recognised in the income statement over this period.
All cash flow hedges were fully effective in the period. See note 25 for details of the movements in the cash flow hedge reserve.
Fair value hedges
Fair value hedges consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of the 2028 Sterling bond due to movements in market interest rates.
Gains and losses arising on fair value hedges are disclosed in note 23.
Other derivatives
BT Group plcs policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39, some derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate. Derivative instruments that do not qualify for hedge accounting are classified as held for trading and held at fair value through profit or loss under IAS 39.
Notes to the consolidated financial statements |
91 |
25. Other reserves
|
Other comprehensive income
|
|
||||||||||||||||||
|
Cash flow reserve £m |
a
|
|
Available-for- sale reserve £m |
b
|
|
Translation reserve £m |
c
|
|
Merger and other reserves £m |
d
|
|
Total other reserves £m |
| ||||||
At 1 April 2011 |
128 | 24 | 404 | 858 | 1,414 | |||||||||||||||
Exchange differences |
| | (39 | ) | | (39 | ) | |||||||||||||
Recycled foreign exchange on disposal of subsidiary |
| | 2 | | 2 | |||||||||||||||
Net fair value loss on cash flow hedges |
(56 | ) | | | | (56 | ) | |||||||||||||
Recognised in income and expense |
179 | | | | 179 | |||||||||||||||
Tax recognised in other comprehensive income |
(22 | ) | | (1 | ) | | (23 | ) | ||||||||||||
At 1 April 2012 |
229 | 24 | 366 | 858 | 1,477 | |||||||||||||||
Exchange differences |
| | 47 | | 47 | |||||||||||||||
Recycled foreign exchange on disposal of subsidiary |
| | | | | |||||||||||||||
Net fair value loss on cash flow hedges |
105 | | | | 105 | |||||||||||||||
Recognised in income and expense |
(168 | ) | | | | (168 | ) | |||||||||||||
Fair value movement on available-for-sale assets |
| 14 | | | 14 | |||||||||||||||
Tax recognised in other comprehensive income |
14 | | 10 | | 24 | |||||||||||||||
At 1 April 2013 |
180 | 38 | 423 | 858 | 1,499 | |||||||||||||||
Exchange differences |
| | (176 | ) | | (176 | ) | |||||||||||||
Net fair value loss on cash flow hedges |
(528 | ) | | | | (528 | ) | |||||||||||||
Recognised in income and expense |
384 | | | | 384 | |||||||||||||||
Fair value movement on available-for-sale assets |
| (27 | ) | | | (27 | ) | |||||||||||||
Tax recognised in other comprehensive income |
6 | | (2 | ) | | 4 | ||||||||||||||
At 31 March 2014 |
42 | 11 | 245 | 858 | 1,156 |
a | The cash flow reserve is used to record the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Amounts recognised in income and expense include a net credit to the cash flow reserve of £374m (2012/13: net debit of £180m, 2011/12: net credit of £174m) relating to fair value movements on derivatives. The items generating these foreign exchange movements are in designated cash flow hedge relationships. |
b | The available-for-sale reserve is used to record the cumulative fair value gains and losses on available-for-sale financial assets. The cumulative gains and losses are recycled to the income statement on disposal of the assets. |
c | The translation reserve is used to record cumulative translation differences on the assets and liabilities of foreign operations. The cumulative translation differences are recycled to the income statement on disposal of the foreign operation. |
d | The merger reserve arose on the group reorganisation that occurred in November 2001 and represented the difference between the nominal value of shares in the new ultimate parent company, BT Group plc, and the aggregate of the share capital, share premium account and capital redemption reserve of the prior ultimate parent company, British Telecommunications plc. |
92 |
Notes to the consolidated financial statements |
26. Directors emoluments and pensions
For the year ended 31 March 2014 the aggregate emoluments of the directors excluding deferred bonuses of £693,000 (2012/13: £558,000) was £2,263,000 (2012/13: £2,010,000). Deferred bonuses are payable in 5p ordinary shares of BT Group plc in three years time subject to continuous employment.
Retirement benefits were accruing to one director (2012/13: one) under a defined benefits pension scheme and one director (2012/13: one) under a money purchase scheme.
During the year one director exercised options (2012/13: two) under BT Group plc share option plans. Three directors who held office for the whole or part of the year (2012/13: three) received or are entitled to receive 5p ordinary shares of BT Group plc under BT long-term incentive plans. The aggregate value of BT Group plc shares which vested to directors during the year under BT long-term incentive plans was £4,412,000 (2012/13: £2,836,000).
The emoluments of the highest paid director excluding his deferred bonus of £515,000 (2012/13: £409,000) were £1,464,000 (2012/13: £1,266,000). He is entitled to receive 2,138,490 BT Group plc 5p ordinary shares under BT long-term incentive plans subject to continuous employment and in some cases to certain performance conditions being met. There are retirement benefits accruing to the highest paid director under a defined benefit scheme.
Included in the above aggregate emoluments are those of Tony Chanmugam who is also a director of the ultimate holding company, BT Group plc. The directors do not believe it is practicable for the purposes of this report to apportion the amounts of total emoluments received by him between his services as director of the company and his services as director of BT Group plc.
The emoluments of the directors are calculated in accordance with the relevant statutory provisions applicable to the company.
27. Related party transactions
Key management personnel comprise executive and non-executive directors and members of the Operating Committee of BT Group plc as well as the directors of the company. Compensation of key management personnel is disclosed in note 5.
In the comparative periods when Tech Mahindra was the groups principal associate, the net value of services purchased was £99m in 2012/13 (until December 2012) and £253m in 2011/12.
Amounts paid to the groups retirement benefit plans are set out in note 18.
British Telecommunications plc and certain of its subsidiaries act as a funder and deposit taker for cash related transactions for both its parent and ultimate parent company. The loan arrangements described below with these companies reflect this. Cash transactions usually 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, 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.
In 2001/02 the group demerged its former mobile phone business and as a result BT Group plc became the listed ultimate parent company of the remaining group. The demerger steps resulted in the formation of an intermediary holding company, BT Group Investments Limited, between BT Group plc and British Telecommunications plc. This intermediary company held an investment of £18.5bn in British Telecommunications plc which was funded by an intercompany loan facility with British Telecommunications plc.
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 set out below:
2014 | 2013 | |||||||||||||||||||||
Notes |
|
Asset (liability) at 31 March £m |
|
|
Finance income (expense) £m |
|
|
Asset (liability) at 31 March £m |
|
|
Finance income (expense) £m |
| ||||||||||
Amounts owed by (to) parent company |
||||||||||||||||||||||
Loan facility non-current assets investments |
20, 23 | 17,587 | 180 | 17,806 | 225 | |||||||||||||||||
Loan facility current asset investments |
20 | 763 | n/a | 723 | n/a | |||||||||||||||||
Trade and other receivables |
15 | | n/a | | n/a | |||||||||||||||||
Trade and other payables |
16 | (40 | ) | n/a | (55 | ) | n/a | |||||||||||||||
Amounts owed by (to) ultimate parent company |
||||||||||||||||||||||
Non-current assets investments |
20, 23 | 1,225 | 28 | 1,193 | 36 | |||||||||||||||||
Trade and other receivables |
15 | 4 | n/a | 4 | n/a | |||||||||||||||||
Current asset investments |
20 | 15 | n/a | 21 | n/a | |||||||||||||||||
Trade and other payables |
16 | (8 | ) | n/a | (9 | ) | n/a |
The loan facility with the parent company accrued interest at a rate of LIBOR plus 50 basis points, is subject to an overall maximum of £25bn. The parent company currently finances its obligations on the loan as they fall due through dividends paid by the company.
Notes to the consolidated financial statements |
93 |
28. Financial commitments and contingent liabilities
Financial commitments were as follows:
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Capital commitments |
400 | 355 | ||||||
Programme rights commitments |
1,657 | 888 | ||||||
Total |
2,057 | 1,243 |
At 31 March 2014 programme rights commitments, mainly relating to football broadcast rights, are those for which the licence period has not yet started.
Future minimum operating lease payments for the group were as follows:
|
2014 £m |
|
|
2013 £m |
| |||
Payable in the year ending 31 March: |
||||||||
2014 |
| 412 | ||||||
2015 |
396 | 386 | ||||||
2016 |
397 | 374 | ||||||
2017 |
368 | 362 | ||||||
2018 |
365 | 361 | ||||||
2019 |
363 | 358 | ||||||
Thereafter |
4,949 | 4,929 | ||||||
Total future minimum operating lease payments |
6,838 | 7,182 |
Operating lease commitments were mainly in respect of land and buildings which arose from a sale and operating leaseback transaction in a prior period. Leases have an average term of 18 years (2012/13: 19 years) and rentals are fixed for an average of 18 years (2012/13: 19 years).
Other than as disclosed below, there were no contingent liabilities or guarantees at 31 March 2014 other than those arising in the ordinary course of the groups business and on these no material losses are anticipated. The group has insurance cover to certain limits for major risks on property and major claims in connection with legal liabilities arising in the course of its operations. Otherwise, the group generally carries its own risks.
Under the Broadband Delivery UK programme, grants received by the group may be subject to re-investment or repayment to the customer depending on the level of take-up.
The group has provided guarantees relating to certain leases entered into by Telefónica UK Limited (formerly O2 UK Limited) prior to the demerger of mmO2 from BT on 19 November 2001. mmO2 plc (part of the Telefónica Group) has given BT a counter indemnity for these guarantees. There was no exposure as at 31 March 2014 (2012/13: nil), although this could increase by US$40m (2012/13: US$90m), approximately £24m (2012/13: £59m), in the event of credit default in respect of amounts used to defease future lease obligations. The guarantee lasts until Telefónica UK Limited has discharged all its obligations, which is expected to be when the lease ends on 30 January 2017.
The group does not believe that there is any single current court action that would have a material adverse effect on the financial position or operations of the group. During 2013/14 the aggregate volume and value of legal actions to which the group is party reduced.
94 |
Report of the independent auditors Parent company financial statements |
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF |
BRITISH TELECOMMUNICATIONS PLC (THE COMPANY) |
Parent company accounting policies |
95 |
FINANCIAL STATEMENTS OF BRITISH TELECOMMUNICATIONS PLC |
BRITISH TELECOMMUNICATIONS PLC PARENT COMPANY ACCOUNTING POLICIES
96 |
Parent company accounting policies |
Parent company accounting policies |
97 |
98 |
Parent company accounting policies |
Parent company balance sheet |
99 |
PARENT COMPANY BALANCE SHEET |
British Telecommunications plc parent company balance sheet
At 31 March | Notes |
|
2014 £m |
|
|
2013 £m |
| |||||
Fixed assets |
||||||||||||
Intangible assets |
1 | 470 | 292 | |||||||||
Tangible assets |
2 | 14,011 | 14,282 | |||||||||
Derivative financial instruments |
17 | 539 | 1,080 | |||||||||
Investments in subsidiary undertakings, associates and joint ventures |
3 | 32,243 | 41,751 | |||||||||
Other investments |
4 | 20,404 | 10,790 | |||||||||
Total fixed assets |
67,667 | 68,195 | ||||||||||
Current assets |
||||||||||||
Programme rights |
107 | | ||||||||||
Stocks |
37 | 53 | ||||||||||
Debtors |
5 | 2,711 | 2,538 | |||||||||
Derivative financial instruments |
17 | 114 | 170 | |||||||||
Other investments |
4 | 7,380 | 6,406 | |||||||||
Cash |
111 | | ||||||||||
Total current assets |
10,460 | 9,167 | ||||||||||
Creditors: amounts falling due within one year |
||||||||||||
Loans and other borrowings |
6 | 12,004 | 9,865 | |||||||||
Derivative financial instruments |
17 | 139 | 74 | |||||||||
Other creditors |
7 | 4,197 | 3,971 | |||||||||
Total creditors: amounts falling due within one year |
16,340 | 13,910 | ||||||||||
Net current liabilities |
(5,880 | ) | (4,743 | ) | ||||||||
Total assets less current liabilities |
61,787 | 63,452 | ||||||||||
Creditors: amounts falling due after more than one year |
||||||||||||
Loans and other borrowings |
6 | 37,249 | 38,688 | |||||||||
Derivative financial instruments |
17 | 679 | 802 | |||||||||
Other creditors |
8 | 904 | 877 | |||||||||
Total creditors: amounts falling due after more than one year |
38,832 | 40,367 | ||||||||||
Provisions for liabilities and charges |
||||||||||||
Deferred taxation |
9 | 1,075 | 1,343 | |||||||||
Other provisions |
9 | 443 | 524 | |||||||||
Total provisions for liabilities and charges |
1,518 | 1,867 | ||||||||||
Net assets excluding pension obligation |
21,437 | 21,218 | ||||||||||
Pension obligation |
14 | 5,487 | 4,385 | |||||||||
Net assets including pension obligation |
15,950 | 16,833 | ||||||||||
Capital and reserves |
||||||||||||
Called up share capital |
10 | 2,172 | 2,172 | |||||||||
Share premium account |
10 | 8,000 | 8,000 | |||||||||
Other reserves |
10 | 768 | 904 | |||||||||
Profit and loss account |
10 | 5,010 | 5,757 | |||||||||
Equity shareholders funds |
15,950 | 16,833 |
The financial statements of the company on pages 95 to 111 were approved by the Board of Directors on 15 May 2014 and were signed on its behalf by
Tony Chanmugam
Director
100 |
Notes to the financial statements |
NOTES TO THE FINANCIAL STATEMENTS |
1. Intangible fixed assets
|
Goodwill £m |
|
|
Telecoms Licences £m |
|
|
Total £m |
| ||||||||||||
Cost |
||||||||||||||||||||
At 1 April 2013 |
473 | | 473 | |||||||||||||||||
Additionsa |
| 202 | 202 | |||||||||||||||||
At 31 March 2014 |
473 | 202 | 675 | |||||||||||||||||
Accumulated amortisation |
||||||||||||||||||||
At 1 April 2013 |
181 | | 181 | |||||||||||||||||
Charge for the year |
24 | | 24 | |||||||||||||||||
At 31 March 2014 |
205 | | 205 | |||||||||||||||||
Net book value |
||||||||||||||||||||
At 31 March 2014 |
268 | 202 | 470 | |||||||||||||||||
At 31 March 2013 |
292 | | 292 | |||||||||||||||||
2. Tangible fixed assets |
||||||||||||||||||||
|
Land and buildings £m |
|
|
Network infrastructure £m |
b
|
|
Other £m |
c
|
|
Assets in course of construction £m |
|
|
Total £m |
| ||||||
Cost |
||||||||||||||||||||
At 1 April 2013 |
513 | 41,096 | 5,107 | 912 | 47,628 | |||||||||||||||
Additionsd |
| 33 | 83 | 1,967 | 2,083 | |||||||||||||||
Transfers |
3 | 1,518 | 375 | (1,896 | ) | | ||||||||||||||
Disposals and adjustments |
(104 | ) | (1,542 | ) | (776 | ) | (17 | ) | (2,439 | ) | ||||||||||
At 31 March 2014 |
412 | 41,105 | 4,789 | 966 | 47,272 | |||||||||||||||
Depreciation |
||||||||||||||||||||
At 1 April 2013 |
295 | 29,283 | 3,841 | | 33,419 | |||||||||||||||
Charge for the year |
24 | 1,715 | 606 | | 2,345 | |||||||||||||||
Disposals and adjustmentse |
(102 | ) | (1,586 | ) | (747 | ) | | (2,435 | ) | |||||||||||
At 31 March 2014 |
217 | 29,412 | 3,700 | | 33,329 | |||||||||||||||
Net book value |
||||||||||||||||||||
At 31 March 2014 |
195 | 11,693 | 1,089 | 966 | 13,943 | |||||||||||||||
Engineering stores |
| | | 68 | 68 | |||||||||||||||
Total |
195 | 11,693 | 1,089 | 1,034 | 14,011 | |||||||||||||||
At 31 March 2013 |
218 | 11,813 | 1,266 | 912 | 14,209 | |||||||||||||||
Engineering stores |
| | | 73 | 73 | |||||||||||||||
Total |
218 | 11,813 | 1,266 | 985 | 14,282 | |||||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||||||||||||||
The net book value of land and buildings comprised: |
||||||||||||||||||||
Freehold |
56 | 60 | ||||||||||||||||||
Leasehold |
139 | 158 | ||||||||||||||||||
Total net book value of land and buildings |
195 | 218 |
a | During the year the 4G spectrum licence was acquired by the company from its wholly owned subsidiary. |
b | The net book value of assets held under finance leases included within network infrastructure at 31 March 2014 was £118m (2012/13: £264m). The depreciation charge on those assets for the year ended 31 March 2014 was £150m (2012/13: £216m). Within network infrastructure are assets with net book value of £7.4bn which have useful economic lives of more than 18 years. |
c | Other mainly comprises software, computers and motor vehicles. |
d | Net of government grants of £126m (2012/13: £15m). |
e | Fully depreciated assets in the companys fixed asset register were reviewed during the year, as part of the BT Group plc annual asset verification exercise, and certain assets that were no longer in use have been written out, reducing cost and accumulated depreciation by £1.4bn. |
Notes to the financial statements |
101 |
3. Investments in subsidiary undertakings, associates and joint ventures
|
Subsidiary undertakings £m |
|
|
Associates and joint ventures £m |
|
|
Total £m |
| ||||
Cost |
||||||||||||
At 1 April 2013 |
45,468 | 6 | 45,474 | |||||||||
Additionsa |
5,757 | 3 | 5,760 | |||||||||
Disposalsa |
(12,442 | ) | (1 | ) | (12,443 | ) | ||||||
At 31 March 2014 |
38,783 | 8 | 38,791 | |||||||||
Provisions and amounts written off |
||||||||||||
At 1 April 2013 |
3,723 | | 3,723 | |||||||||
Additionsa |
2,825 | | 2,825 | |||||||||
At 31 March 2014 |
6,548 | | 6,548 | |||||||||
Net book value at 31 March 2014 |
32,235 | 8 | 32,243 | |||||||||
Net book value at 31 March 2013 |
41,745 | 6 | 41,751 |
a | Additions and disposals principally arise due to transactions undertaken to simplify our entity hierarchy. |
Details of the principal operating subsidiary undertakings are set out on page 111.
4. Other investments
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Fixed assets |
||||||||
Available-for-sale assets |
3 | 4 | ||||||
Loans to group undertakings |
7,186 | 7,614 | ||||||
Loans to parent undertakings |
13,215 | 3,172 | ||||||
20,404 | 10,790 | |||||||
Current assets |
||||||||
Available-for-sale assets |
1,774 | 530 | ||||||
Loans and receivables |
309 | 586 | ||||||
Loans to group undertakings |
4,711 | 4,747 | ||||||
Loans to parent undertakings |
586 | 543 | ||||||
7,380 | 6,406 |
Available-for-sale current assets consist of investments in AAA rated liquidity funds denominated in Sterling.
Loans and receivables consist of bank deposits totalling £309m (2012/13: £586m). £254m (2012/13: £526m) are denominated in Sterling and £55m (2012/13: £60m) are denominated in US Dollars.
Loans to group and parent undertakings total £25,698m (2012/13: £16,076m). These consist of amounts denominated in Sterling of £21,126m (2012/13: £11,686m), Euro of £1,284m (2012/13: £1,191m), US Dollars of £2,418m (2012/13: £2,331m) and other currencies of £870m (2012/13: £868m).
102 |
Notes to the financial statements |
5. Debtors
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Debtors due within one year |
||||||||
Trade debtors |
632 | 685 | ||||||
Amount owed by group undertakings |
1,015 | 918 | ||||||
Amount owed by parent undertakings |
4 | 4 | ||||||
Other debtors |
128 | 111 | ||||||
Current tax receivable |
| 9 | ||||||
Accrued income |
476 | 443 | ||||||
Prepayments |
329 | 298 | ||||||
2,584 | 2,468 | |||||||
Debtors due after more than one year |
||||||||
Other assetsa |
127 | 70 | ||||||
Total debtors |
2,711 | 2,538 |
a | Primarily represents prepayments and costs relating to the initial set up, transition or transformation phase of long-term networked IT services contracts. |
6. Loans and other borrowings
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Floating US$500m FRN due December 2013a |
| 329 | ||||||
5.25% 750m bond due June 2014a |
645 | 660 | ||||||
6.125% 600m bond due July 2014a,b |
518 | 530 | ||||||
2.00% US$750m bond due June 2015a |
452 | 497 | ||||||
6.50% 1,000m bond due July 2015a |
867 | 886 | ||||||
1.625% US$600m bond due June 2016a |
361 | | ||||||
8.50% £683m bond due December 2016 (minimum 7.50%d ) |
699 | 699 | ||||||
1.25% US$500m bond due February 2017a |
300 | | ||||||
6.625% £500m bond due June 2017a |
526 | 525 | ||||||
5.95% US$1,100m bond due January 2018a |
668 | 734 | ||||||
2.35% US$800m bond due February 2019a |
481 | | ||||||
8.625% £300m bond due March 2020 |
299 | 299 | ||||||
3.50% £250m index linked bond due April 2025 |
382 | 370 | ||||||
5.75% £600m bond due December 2028c |
670 | 717 | ||||||
9.625% US$2,670m bond due December 2030a (minimum 8.625%d ) |
1,648 | 1,809 | ||||||
6.375% £500m bond due June 2037a |
522 | 521 | ||||||
Total listed bonds |
9,038 | 8,576 | ||||||
Finance leases |
6 | 3 | ||||||
Finance leases with group undertakingsf |
50 | 104 | ||||||
Total finance leases |
56 | 107 | ||||||
Commercial papere |
324 | 769 | ||||||
Loans from group undertakingsf |
39,655 | 38,696 | ||||||
Other loans |
177 | 388 | ||||||
Bank overdrafts |
3 | 17 | ||||||
Total other loans and borrowings |
40,159 | 39,870 | ||||||
Total loans and borrowings |
49,253 | 48,553 |
a | Designated in a cash flow hedge relationship. |
b | The interest rate payable on this bond attracts an additional 1.25% for a downgrade by one credit rating category by either or both Moodys and S&P below Baa3/BBB, respectively. |
c | Designated in a fair value hedge relationship. |
d | The interest rate payable on this bond attracts an additional 0.25% for a downgrade by one credit rating by either Moodys or S&P to the groups senior unsecured debt below A3/A- respectively. In addition, if Moodys or S&P subsequently increase the ratings then the interest rate will be decreased by 0.25% for each rating category upgrade by each rating agency. In no event will the interest rate be reduced below the minimum rate reflected in the above table. |
e | Commercial paper of £237m (2012/13: £146m) is denominated in Euros and of £87m (2012/13: £623m) in US Dollars. |
f | Loans from group undertakings including finance leases are £39,705m (2012/13: £38,800m) which consist of £34,779m (2012/13: £36,353m) denominated in Sterling, £1,971m (2012/13: £1,257m) denominated in Euros, £2,464m (2012/13: £714m) denominated in US Dollars and £491m (2012/13: £476m) denominated in other currencies. Included within these balances are fixed interest bonds issued to group undertakings amounting to £1,714m (2012/13: £1,647m) denominated in Sterling and £15m (2012/13: £14m) denominated in Euros with maturities between 2014 and 2025. |
The interest rates payable on loans and borrowings disclosed above reflect the coupons on the underlying issued loans and borrowings and not the interest rates achieved through applying associated cross-currency and interest rate swaps in hedge arrangements.
Notes to the financial statements |
103 |
6. Loans and other borrowings continued
Loans and other borrowings are analysed as follows:
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||||||||||
Current liabilities |
||||||||||||||||
Listed bonds |
1,349 | 566 | ||||||||||||||
Finance leases |
2 | 1 | ||||||||||||||
Finance lease with subsidiary undertakings |
33 | 57 | ||||||||||||||
Commercial paper |
324 | 769 | ||||||||||||||
Loans from group undertakings |
10,118 | 8,069 | ||||||||||||||
Other loans and bank overdrafts |
178 | 403 | ||||||||||||||
Total current liabilities |
12,004 | 9,865 | ||||||||||||||
Non-current liabilities |
||||||||||||||||
Listed bonds |
7,689 | 8,010 | ||||||||||||||
Finance leases |
4 | 2 | ||||||||||||||
Finance lease with subsidiary undertakings |
17 | 47 | ||||||||||||||
Loans from group undertakings |
29,537 | 30,627 | ||||||||||||||
Other loans and borrowings |
2 | 2 | ||||||||||||||
Total non-current liabilities |
37,249 | 38,688 | ||||||||||||||
Total |
49,253 | 48,553 | ||||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||||||||||
Repayments falling due as follows: |
||||||||||||||||
Within one year, or on demand |
12,004 | 9,865 | ||||||||||||||
Between one and two years |
1,283 | 1,177 | ||||||||||||||
Between two and three years |
1,344 | 1,344 | ||||||||||||||
Between three and four years |
1,163 | 685 | ||||||||||||||
Between four and five years |
483 | 1,227 | ||||||||||||||
After five years |
32,915 | 34,147 | ||||||||||||||
Total due for repayment after more than one year |
37,188 | 38,580 | ||||||||||||||
Total repayments |
49,192 | 48,445 | ||||||||||||||
Fair value adjustments for hedged risk |
61 | 108 | ||||||||||||||
Total loans and other borrowings |
49,253 | 48,553 | ||||||||||||||
Minimum lease payments | Repayment of outstanding lease obligations |
|||||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2014 £m |
|
|
2013 £m |
| ||||
Amounts payable under finance leases: |
||||||||||||||||
Within one year |
36 | 62 | 35 | 58 | ||||||||||||
In the second to fifth years inclusive |
20 | 47 | 17 | 43 | ||||||||||||
After five years |
5 | 7 | 4 | 6 | ||||||||||||
61 | 116 | 56 | 107 | |||||||||||||
Less: future finance charges |
(5 | ) | (9 | ) | | | ||||||||||
Total finance lease obligations |
56 | 107 | 56 | 107 | ||||||||||||
The companys obligations under finance leases are secured by the lessors title to the leased assets. | ||||||||||||||||
7. Other creditors: amounts falling due within one year | ||||||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||||||||||
Trade creditors |
1,629 | 1,738 | ||||||||||||||
Amounts owed to group undertakings |
437 | 164 | ||||||||||||||
Amounts owed to parent undertakings |
48 | 64 | ||||||||||||||
Other taxation and social security |
388 | 352 | ||||||||||||||
Current tax payable |
143 | | ||||||||||||||
Other creditors |
414 | 408 | ||||||||||||||
Accrued expenses |
283 | 297 | ||||||||||||||
Deferred income |
855 | 948 | ||||||||||||||
Total |
4,197 | 3,971 | ||||||||||||||
8. Other creditors: amounts falling due after more than one year | ||||||||||||||||
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||||||||||
Other creditors |
19 | 20 | ||||||||||||||
Deferred income |
885 | 857 | ||||||||||||||
Total |
904 | 877 |
104 |
Notes to the financial statements |
9. Provisions for liabilities and charges
Provisions for liabilities and charges excluding deferred taxation |
|
Property provisions £m |
a
|
|
Other provisions £m |
b
|
|
Total £m |
| |||
At 1 April 2013 |
241 | 283 | 524 | |||||||||
Charged to the profit and loss account |
4 | 11 | 15 | |||||||||
Unwind of discount |
8 | | 8 | |||||||||
Utilised or released |
(52 | ) | (52 | ) | (104 | ) | ||||||
At 31 March 2014 |
201 | 242 | 443 |
a | Property provisions mainly comprise onerous lease provisions arising from the rationalisation of the groups property portfolio. The provisions will be utilised over the remaining lease periods, which range from one to 18 years. |
b | Other provisions include amounts provided for legal or constructive obligations arising from insurance claims, litigation and regulatory risks, which will be utilised as the obligations are settled. |
Deferred taxation
Deferred tax is provided for in full on certain timing differences.
£m | ||||||||
At 1 April 2013 |
1,343 | |||||||
Credit recognised in the profit and loss account |
(254 | ) | ||||||
Credit recognised in reserves |
(14 | ) | ||||||
At 31 March 2014 |
1,075 | |||||||
At 31 March | |
2014 £m |
|
|
2013 £m |
| ||
Tax effect of timing differences due to: |
||||||||
Excess capital allowances |
1,168 | 1,450 | ||||||
Share-based payments |
(29 | ) | (39 | ) | ||||
Other |
(64 | ) | (68 | ) | ||||
Total provision for deferred taxation |
1,075 | 1,343 |
The deferred taxation asset relating to the retirement benefit deficit is disclosed in note 14.
10. Reconciliation of movement in equity shareholders funds
|
Share capital £m |
a
|
|
Share premium account £m |
b
|
|
Other reserves £m |
d
|
|
Profit and loss account £m |
|
|
Total £m |
| ||||||
At 1 April 2012 |
2,172 | 8,000 | 951 | 7,902 | 19,025 | |||||||||||||||
Profit for the yearc |
| | | 2,138 | 2,138 | |||||||||||||||
Actuarial losses |
| | | (3,727 | ) | (3,727 | ) | |||||||||||||
Tax on actuarial losses |
| | | 808 | 808 | |||||||||||||||
Share-based payments |
| | | 51 | 51 | |||||||||||||||
Tax on items taken directly to equity |
| | 14 | | 14 | |||||||||||||||
Increase in fair value of cash flow hedges |
| | 105 | | 105 | |||||||||||||||
Dividends to holding company |
| | | (1,400 | ) | (1,400 | ) | |||||||||||||
Recognised in profit and loss account in the year |
| | (166 | ) | | (166 | ) | |||||||||||||
Other movements |
| | | (15 | ) | (15 | ) | |||||||||||||
At 1 April 2013 |
2,172 | 8,000 | 904 | 5,757 | 16,833 | |||||||||||||||
Profit for the yearc |
| | | 1,944 | 1,944 | |||||||||||||||
Actuarial losses |
| | | (1,531 | ) | (1,531 | ) | |||||||||||||
Tax on actuarial losses |
| | | 90 | 90 | |||||||||||||||
Share-based payments |
| | | 50 | 50 | |||||||||||||||
Tax on items taken directly to equity |
| | 6 | | 6 | |||||||||||||||
Decrease in fair value of cash flow hedges |
| | (528 | ) | | (528 | ) | |||||||||||||
Dividends to holding company |
| | | (1,300 | ) | (1,300 | ) | |||||||||||||
Recognised in profit and loss account in the year |
| | 386 | | 386 | |||||||||||||||
At 31 March 2014 |
2,172 | 8,000 | 768 | 5,010 | 15,950 |
a | The allotted, called up and fully paid ordinary share capital of the company at 31 March 2014 and 31 March 2013 was £2,172m representing 8,689,755,905 ordinary shares of 25p each. |
b | The share premium account, representing the premium on allotment of shares, and the capital redemption reserve are not available for distribution. |
c | As permitted by Section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The companys profit for the financial year including dividends received from subsidiary undertakings was £1,944m (2012/13: £2,138m) before dividends paid of £1,300m (2012/13: £1,400m). |
d | A breakdown of other reserves is provided in note 11. |
Notes to the financial statements |
105 |
11. Reconciliation of movement in other reserves
|
Cash flow reserve £m |
a
|
|
Capital redemption reserve £m |
b
|
|
Total other reserves £m |
| ||||
At 1 April 2012 |
199 | 752 | 951 | |||||||||
Net fair value gains |
105 | | 105 | |||||||||
Recognised in profit and loss account in the year |
(166 | ) | | (166 | ) | |||||||
Tax on items taken directly to equity |
14 | | 14 | |||||||||
At 1 April 2013 |
152 | 752 | 904 | |||||||||
Net fair value losses |
(528 | ) | | (528 | ) | |||||||
Recognised in profit and loss account in the year |
386 | | 386 | |||||||||
Tax on items taken directly to equity |
6 | | 6 | |||||||||
At 31 March 2014 |
16 | 752 | 768 |
a | The cash flow reserve is used to record the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Amounts recognised in profit and loss account in the year relate to fair value movements on derivatives. The items generating these foreign exchange movements are in designated cash flow hedge relationships. |
b | The capital redemption reserve is not available for distribution. |
12. Related party transactions
The company is a wholly owned subsidiary of BT Group Investments Limited, which is the immediate parent company. BT Group Investments Limited is a wholly owned subsidiary of the ultimate holding company and controlling entity, BT Group plc.
Copies of the ultimate holding companys financial statements may be obtained from The Secretary, BT Group plc, 81 Newgate Street, London EC1A 7AJ.
The results of the company are included in the consolidated financial statements of BT Group plc. Consequently, the company is exempt under the terms of FRS 8, Related Party Disclosures, from disclosing details of transactions and balances with BT Group plc, fellow subsidiaries and associated undertakings, and other companies which are deemed to be under common control.
13. Financial commitments and contingent liabilities
Financial commitments were as follows:
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Contracts placed for capital expenditure not provided in the accounts |
394 | 346 | ||||||
Programme rights commitments |
1,657 | | ||||||
Total |
2,051 | 346 |
At 31 March 2014 programme rights commitments, mainly relating to football broadcast rights, are those for which the licence period has not yet started.
Future minimum operating lease payments for the group were as follows:
At 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Operating lease payments payable within one year of the balance sheet date were in respect of leases expiring: |
||||||||
Within one year |
11 | 17 | ||||||
Between one and five years |
42 | 47 | ||||||
After five years |
295 | 305 | ||||||
Total payable within one year |
348 | 369 |
Operating lease commitments were mainly in respect of land and buildings which arose from a sale and operating leaseback transaction in a prior period. Leases have an average term of 18 years (2012/13: 19 years) and rentals are fixed for an average of 18 years (2012/13: 19 years).
Other than as disclosed below, there were no contingent liabilities or guarantees at 31 March 2014, other than those arising in the ordinary course of the groups business and on these no material losses are anticipated. The group has insurance cover to certain limits for major risks on property and major claims in connection with legal liabilities arising in the course of its operations. Otherwise, the group generally carries its own risks.
Under the Broadband Delivery UK programme, grants received by the company may be subject to re-investment or repayment to the customer depending on the level of take-up.
The company has provided guarantees relating to certain leases entered into by Telefónica UK Limited (formerly O2 UK Limited) prior to the demerger of mmO2 from BT on 19 November 2001. mmO2 plc (part of the Telefónica group) has given BT a counter indemnity for these guarantees. There was no exposure as at 31 March 2014 (2012/13: nil), although this could increase by US$40m (2012/13: US$90m), approximately £24m (2012/13: £59m), in the event of credit default in respect of amounts used to defease future lease obligations. The guarantee lasts until Telefónica UK Limited has discharged all its obligations, which is expected to be when the lease ends on 30 January 2017.
The company does not believe that there is any single current court action that would have a material adverse effect on the financial position or operations of the company. During 2013/14 the aggregate volume and value of legal actions to which the company is party reduced.
106 |
Notes to the financial statements |
14. Retirement benefits
Background
The company has both defined benefit and defined contribution retirement benefit plans. These plans are in the UK and the largest by membership is the BT Pension Scheme (BTPS) which is a defined benefit plan that has been closed to new entrants since 31 March 2001. Subsequent to that date new entrants have been able to join a defined contribution plan, currently the BT Retirement Saving Scheme (BTRSS), a contract based defined contribution arrangement.
Accounting under FRS 17
Profit and loss account
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Current service cost defined benefit plans |
261 | 216 | ||||||
defined contribution plans |
115 | 100 | ||||||
Total operating charge |
376 | 316 | ||||||
Expected return on pension plan assets |
(2,028 | ) | (1,998 | ) | ||||
Interest expense on pension plan liabilities |
1,933 | 1,962 | ||||||
Net finance income |
(95 | ) | (36 | ) | ||||
Amount charged to profit before taxation |
281 | 280 |
The total current service cost relating to defined benefit plans was £263m (2012/13: £217m) of which £2m (2012/13: £1m) has been recharged to subsidiary undertakings who are participating employers in the BTPS. The company retains the full liability for the BTPS.
The profit and loss account charge in respect of defined contribution schemes represents the contribution payable by the company based upon a fixed proportion of employees pay. The company has no exposure to investment and other experience risk.
Amounts recognised in equity shareholders funds
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Actuarial losses at 1 April |
(6,216 | ) | (2,489 | ) | ||||
Actuarial (losses) gains for the year: |
||||||||
arising on plan liabilities |
289 | (6,220 | ) | |||||
arising on plan assets |
(1,820 | ) | 2,493 | |||||
Net actuarial losses recognised for the year in equity shareholders funds |
(1,531 | ) | (3,727 | ) | ||||
Actuarial losses at 31 March |
(7,747 | ) | (6,216 | ) |
The history of actuarial gains and losses analysed between amounts arising from changes in assumptions and amounts arising from experience gains and losses is set out below:
At 31 March |
|
2014 £m |
|
|
2013 £m |
|
|
2012 £m |
|
|
2011 £m |
|
|
2010 £m |
| |||||
Present value of defined benefit liability |
(46,799 | ) | (47,040 | ) | (40,667 | ) | (38,754 | ) | (43,057 | ) | ||||||||||
Fair value of plan assets |
39,939 | 41,344 | 38,345 | 37,034 | 35,278 | |||||||||||||||
Net pension obligation |
(6,860 | ) | (5,696 | ) | (2,322 | ) | (1,720 | ) | (7,779 | ) | ||||||||||
Actuarial (losses) gains arising from assumptions used to value the defined benefit liabilitya |
593 | (6,078 | ) | (1,007 | ) | 4,656 | (11,102 | ) | ||||||||||||
Actuarial (losses) gains arising from experience adjustments on defined benefit liabilityb |
(304 | ) | (142 | ) | (640 | ) | 258 | 1,632 | ||||||||||||
Total actuarial (losses) gains arising on defined benefit liability |
289 | (6,220 | ) | (1,647 | ) | 4,914 | (9,470 | ) | ||||||||||||
Total actuarial gains or losses arising on defined benefit liability as a percentage of the present value of the defined benefit liability |
0.6% | 13.2% | 4.0% | 12.7% | 22.0% | |||||||||||||||
Actuarial (losses) gains arising from experience adjustment on plan assetsc |
(1,820 | ) | 2,493 | (1,073 | ) | 212 | 5,143 | |||||||||||||
Actuarial gains or losses arising from experience adjustment on plan assets as a percentage of the plan assets |
4.6% | 6.0% | 2.8% | 0.6% | 14.6% |
a | The actuarial losses or gains on defined benefit liabilities arising from changes in the assumptions used to value those liabilities at the year end compared with the assumptions used at the prior year end. This includes both financial assumptions, which are based on market conditions at the year end, and demographic assumptions such as life expectancy. |
b | The actuarial losses or gains arising from experience adjustments on the defined benefit liabilities represent the impact on the liabilities of differences between actual experience during the year compared with the assumptions made. Such differences might arise, for example, from members choosing different benefit options at retirement, actual salary increases being different from those assumed, or actual benefit increases being higher than the long-term inflation assumption. |
c | The actuarial losses or gains arising from experience adjustments on plan assets represent the difference between actual investment performance in the year and the expected rate of return on assets assumed at the start of the year. |
Notes to the financial statements |
107 |
14. Retirement benefits continued
Balance sheet
The net pension obligation in respect of defined benefit plans reported in the balance sheet is set out below:
2014 | 2013 | |||||||||||||||||||||||||
At 31 March | |
Assets £m |
|
|
Present value of liabilities £m |
|
|
Deficit £m |
|
|
Assets £m |
|
|
Present value of liabilities £m |
|
|
Deficit £m |
| ||||||||
BTPS |
39,939 | (46,759 | ) | (6,820 | ) | 41,344 | (47,000 | ) | (5,656 | ) | ||||||||||||||||
Other plansa |
| (40 | ) | (40 | ) | | (40 | ) | (40 | ) | ||||||||||||||||
Total (deficit) asset |
39,939 | (46,799 | ) | (6,860 | ) | 41,344 | (47,040 | ) | (5,696 | ) | ||||||||||||||||
Deferred tax asset |
1,373 | 1,311 | ||||||||||||||||||||||||
Net pension obligation |
(5,487 | ) | (4,385 | ) |
a | Included in the present value of liabilities of other plans is £40m (2012/13: £40m) related to unfunded pension arrangements. |
At 31 March 2014, £8m (2012/13: £8m) of contributions to defined contribution plans were outstanding and are reported under other creditors on the balance sheet.
Movements in defined benefit plan assets and liabilities are shown below:
|
Assets £m |
|
|
Liabilities £m |
|
|
Deficit £m |
| ||||
At 1 April 2012 |
38,345 | (40,667 | ) | (2,322 | ) | |||||||
Current service cost |
| (217 | ) | (217 | ) | |||||||
Expected return on pension plan assetsa (interest expense on pension plan liabilities) |
1,998 | (1,962 | ) | 36 | ||||||||
Actuarial lossa |
2,493 | (6,220 | ) | (3,727 | ) | |||||||
Regular contributions by employer |
207 | | 207 | |||||||||
Deficit contributions by employer |
325 | | 325 | |||||||||
Contributions by employees |
12 | (12 | ) | | ||||||||
Benefits paid |
(2,036 | ) | 2,038 | 2 | ||||||||
At 1 April 2013 |
41,344 | (47,040 | ) | (5,696 | ) | |||||||
Current service cost |
| (263 | ) | (263 | ) | |||||||
Expected return on pension plan assetsa (interest expense on pension plan liabilities) |
2,028 | (1,933 | ) | 95 | ||||||||
Actuarial gain (loss)a |
(1,820 | ) | 289 | (1,531 | ) | |||||||
Regular contributions by employer |
210 | | 210 | |||||||||
Deficit contributions by employer |
325 | | 325 | |||||||||
Contributions by employees |
11 | (11 | ) | | ||||||||
Benefits paid |
(2,159 | ) | 2,159 | | ||||||||
At 31 March 2014 |
39,939 | (46,799 | ) | (6,860 | ) |
a | Actual return on plan assets in 2013/14 was £208m (2012/13: £4,491m). |
BTPS
Management of the scheme
BT Pension Scheme Trustees Limited (the Trustee) has been appointed by BT as an independent Trustee to administer and manage the scheme on behalf of the members in accordance with the terms of the Trust Deed of the scheme and relevant legislation. Under the terms of the Trust Deed there are nine Trustee directors all of whom are appointed by BT. The Chairman of the Trustee is appointed after consultation with, and with the agreement of, the relevant trade unions who are also responsible for nominating four directors to act as representatives of the members. Of the remaining four directors, two will normally hold senior positions within the group, and two will normally hold (or have held) senior positions in commerce or industry. Subject to there being an appropriately qualified candidate at least one of the Trustee directors should be a current pensioner or deferred pensioner of the BTPS. Trustee directors are appointed for a three-year term, but are then eligible for re-appointment.
108 |
Notes to the financial statements |
14. Retirement benefits continued
BTPS assets
2014 | 2013 | |||||||||||||||||||||||||
|
Asset fair value |
|
|
Expected long-term rate of return |
|
|
Asset fair value |
|
|
Expected long-term rate of return |
| |||||||||||||||
At 31 March | £bn (total) | % (total) | % pa | £bn | % | % pa | ||||||||||||||||||||
UK equities |
2.6 | 7 | 6.30 | 2.7 | 7 | 7.00 | ||||||||||||||||||||
Non-UK equities |
8.6 | 21 | 6.30 | 8.4 | 20 | 7.00 | ||||||||||||||||||||
Fixed-interest securities |
7.1 | 18 | 3.80 | 7.9 | 19 | 3.55 | ||||||||||||||||||||
Index-linked securities |
9.9 | 24 | 3.20 | 9.5 | 23 | 2.90 | ||||||||||||||||||||
Property |
4.3 | 11 | 6.00 | 4.3 | 10 | 6.90 | ||||||||||||||||||||
Alternative assetsa |
7.1 | 18 | 5.00 | 8.1 | 20 | 5.75 | ||||||||||||||||||||
Cash and other |
0.3 | 1 | 2.60 | 0.4 | 1 | 2.50 | ||||||||||||||||||||
Total |
39.9 | 100 | 4.80 | 41.3 | 100 | 5.05 |
a | Alternative asset classes include commodities, private equity and credit opportunities. |
The BTPS assets are invested in UK and non-UK equities, UK and overseas properties, fixed-interest and index-linked securities, alternative assets commodities, comprising hedge funds, private equity, infrastructure and credit opportunities, and deposits and short-term investments. At 31 March 2014 and 31 March 2013, the schemes assets did not include any directly held ordinary shares of the ultimate parent company, BT Group plc. However, the scheme held £9m (2012/13: £9m) of index-linked bonds issued by the company.
BTPS liabilities
The present value of the obligation is derived from long-term cash flow projections and is thus inherently uncertain. The rate of inflation influences the assumptions for salary and pension increases.
Cash contributions to the BTPS
The company has made the following contributions to the BTPS:
Year ended 31 March | |
2014 £m |
|
|
2013 £m |
| ||
Ordinary contributions |
205 | 207 | ||||||
Deficit contributions |
325 | 325 | ||||||
Total contributions in the year |
530 | 532 |
The company expects to contribute approximately £495m to the BTPS in 2014/15, comprising ordinary contributions of approximately £200m and deficit contributions of £295m.
Details of the valuation methodology of scheme assets and liabilities, funding valuation and future funding obligations are disclosed in note 18 of the consolidated financial statements of BT plc.
15. Employees and directors
The average number of persons employed by the company (including directors) during the year was:
Year ended 31 March |
|
2014 000 |
|
|
2013 000 |
| ||
Average monthly number of employeesa |
67.5 | 69.6 | ||||||
The aggregate staff costs were as follows: | ||||||||
Year ended 31 March |
|
2014 £m |
|
|
2013 £m |
| ||
Wages and salaries |
2,755 | 2,862 | ||||||
Share-based payments |
50 | 51 | ||||||
Social security |
319 | 318 | ||||||
Other pension costs |
376 | 316 | ||||||
3,500 | 3,547 |
a | Includes an average of 35 non-UK employees (2012/13: 33 employees). |
Notes to the financial statements |
109 |
16. Directors remuneration
Information covering directors remuneration, interests in shares and share options of BT Group plc, (the ultimate parent) and pension benefits is included in note 26 to the consolidated financial statements of BT plc.
17. Derivatives
All of the companys derivative financial instruments are held at fair value on the companys balance sheet. The fair values of outstanding swaps and foreign exchange contracts are estimated using discounted cash flow models and market rates of interest and foreign exchange at the balance sheet date.
Derivatives At 31 March 2014 |
|
Current asset £m |
|
|
Non current asset £m |
|
|
Current liability £m |
|
|
Non current liability £m |
| ||||
Designated in a cash flow hedge |
73 | 394 | 74 | 514 | ||||||||||||
Designated in a fair value hedge |
6 | 61 | | | ||||||||||||
Other |
35 | 84 | 65 | 165 | ||||||||||||
Total derivatives |
114 | 539 | 139 | 679 | ||||||||||||
Derivatives At 31 March 2013 |
|
Current asset £m |
|
|
Non current asset £m |
|
|
Current liability £m |
|
|
Non current liability £m |
| ||||
Designated in a cash flow hedge |
111 | 816 | 19 | 531 | ||||||||||||
Designated in a fair value hedge |
6 | 108 | | | ||||||||||||
Other |
53 | 156 | 55 | 271 | ||||||||||||
Total derivatives |
170 | 1,080 | 74 | 802 |
During the year the company deferred a gain of £16m relating to the fair value of a derivative energy contract at initial recognition. At 31 March 2014 the amount deferred which is not yet recognised in the income statement is £14m. With the exception of this contract which is included at Level 3, and valued using assumptions on volumes, inflation, and market energy prices, all other derivative financial instruments are categorised at Level 2 of the fair value hierarchy as defined on page 81.
Hedging activities
Derivatives may qualify as hedges for accounting purposes if they meet the criteria for designation as fair value hedges or cash flow hedges in accordance with IAS 39.
Cash flow hedges
Instruments designated in a cash flow hedge include interest rate swaps and cross-currency swaps hedging Euro and US Dollar denominated borrowings. Forward currency contracts are taken out to hedge step up interest on currency denominated borrowings relating to our 2030 US Dollar bond. The hedged cash flows will affect profit or loss as interest and principal amounts are repaid over the remaining term of the borrowings. (See note 6 Loans and other borrowings.)
Forecast foreign currency purchases, principally denominated in US Dollar and Asia Pacific currencies and purchases of US Dollar denominated retail devices are hedged 12 months forward on a one month rolling basis. The related cash flows will be recognised in the income statement over this period.
All cash flow hedges were fully effective in the period. See note 11 for details of the movements in the cash flow hedge reserve.
Fair value hedges
Fair value hedges consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of the 2028 Sterling bond due to movements in market interest rates.
Gains and losses arising on fair value hedges are disclosed in note 11.
Other derivatives
The companys policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39, some derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate. Derivative instruments that do not qualify for hedge accounting are classified as held for trading and held at fair value through profit or loss under IAS 39.
110 |
Notes to the financial statements |
17. Derivatives continued
Fair value of financial instruments
The following table discloses the carrying amounts and fair values of all of the companys financial instruments which are not carried at an amount which approximates to its fair value on the balance sheet at 31 March 2014 and 2013. The carrying amounts are included in the company balance sheet under the indicated headings. The fair values of listed investments were estimated based on quoted market prices for those investments. The carrying value of floating rate investments approximated to their fair values due to the frequent re-set of interest rates to market rates. The carrying amount of the short-term deposits and investments approximated to their fair values due to the short maturity of the investments held. The carrying amount of trade receivables and payables approximated to their fair values due to the short maturity of the amounts receivable and payable. The fair value of the companys bonds, finance leases and other long-term borrowings has been estimated on the basis of quoted market prices for the same or similar issues with the same maturities where they existed, and on calculations of the present value of future cash flows using the appropriate discount rates in effect at the balance sheet dates, where market prices of similar issues did not exist. The carrying value of floating rate borrowings approximated to their fair values due to the frequent re-set of interest rates to market rates. The fair value of the companys outstanding swaps and foreign exchange contracts were the estimated amounts, calculated using discounted cash flow models that the company would receive or pay in order to terminate such contracts in an arms length transaction taking into account market rates of interest and foreign exchange of the balance sheet date.
Carrying amount | Fair value | |||||||||||||||||
|
2014 £m |
|
|
2013 £m |
a
|
|
2014 £m |
|
|
2013 £m |
| |||||||
Non-derivatives: |
||||||||||||||||||
Financial liabilities |
||||||||||||||||||
Listed bonds |
9,038 | 8,576 | 10,597 | 10,535 | ||||||||||||||
Finance leases |
56 | 107 | 56 | 107 | ||||||||||||||
Other loans and borrowings |
40,159 | 39,870 | 40,159 | 39,870 |
18. Audit Services
Information relating to fees for audit services paid or payable to the companys auditor, PricewaterhouseCoopers LLP, is included in note 7 to the consolidated financial statements of BT plc.
Subsidiary undertakings |
111 |
SUBSIDIARY UNDERTAKINGS |
The table below gives brief details of the groups principala operating subsidiariesb at 31 March 2014. All subsidiaries are unlisted, unless otherwise stated. No subsidiaries are excluded from the group consolidation. The group did not have any significant associates or joint ventures at 31 March 2014.
Subsidiary undertakings | Activity | Group interest in allotted capitalc |
|
Country of operations |
d | |||
BT Americas Incd,e |
Communications related services, systems integration and products provider | 100% common | International | |||||
BT Australasia Pty Limitede |
Communications related services and products provider | 100% ordinary | Australia | |||||
100% preference | ||||||||
BT Business Direct Limitede |
Technology equipment retailer | 100% ordinary | UK | |||||
BT Communications do Brasil Limitadab,e |
Communications related services, technology consulting and products provider | 100% common | Brazil | |||||
BT Communications Ireland Limitede |
Telecommunications service provider | 100% ordinary | Republic of Ireland | |||||
BT Conferencing Ince |
Audio, video and web collaboration service provider | 100% common | US | |||||
BT Conferencing Video Ince |
Audio, video and web collaboration service provider | 100% common | US | |||||
BT Convergent Solutions Limitede |
Communications related services and products provider | 100% ordinary | UK | |||||
BT ESPANA, Compania de Servicios Globales de Telecommunicaciones, SAe |
Communications related services and products provider | 100% ordinary | Spain | |||||
BT Fleet Limited |
Fleet management company | 100% ordinary | UK | |||||
BT France SAe |
Communications related services, systems integration and products provider | 100% ordinary | France | |||||
BT (Germany) GmbH & Co. oHGe,f |
Communications related services and products provider | 100% ordinary | Germany | |||||
BT Global Communications India Private Limitede |
Communications related services | 74% ordinary | India | |||||
BT Global Services Limitede |
International telecommunications network systems provider | 100% ordinary | UK | |||||
BT Holdings Limited |
Investment holding company | 100% ordinary | UK | |||||
BT Hong Kong Limitede |
Communications related services and products provider | 100% ordinary | Hong Kong | |||||
100% preference | ||||||||
BT Italia SpAe |
Communications related services and products provider | 98.6% ordinary | Italy | |||||
BT IT Services Limitede,g |
IT solutions provider | 100% ordinary | UK | |||||
BT LatAm Brasil Ltdab,e |
Data communication services | 100% common | Brazil | |||||
BT Limitede |
International telecommunications network systems provider | 100% ordinary | International | |||||
BT Managed Services Limited |
Communications related services and products provider | 100% ordinary | UK | |||||
BT Nederland NV |
Communications related services and products provider | 100% ordinary | Netherlands | |||||
BT Payment Services Limited |
Payment services provider | 100% ordinary | UK | |||||
BT Services SAe |
Technology consulting and engineering services | 100% ordinary | France | |||||
BT Singapore Pte Ltde |
Communications related services and products provider | 100% ordinary | Singapore | |||||
BT Switzerland AGe |
Communications related services and products provider | 100% ordinary | Switzerland | |||||
Communications Global Network Services Limitedd,e |
Communications related services and products provider | 100% ordinary | International | |||||
Communications Networking Services (UK)e |
Communications related services and products provider | 100% ordinary | UK | |||||
dabs.com plc |
Technology equipment retailer | 100% ordinary | UK | |||||
Infonet Services Corporatione |
Global managed network service provider | 100% common | US | |||||
Plusnet plc |
Broadband service provider | 100% ordinary | UK | |||||
Radianz Americas Ince |
Global managed network service provider | 100% common | US | |||||
100% preference |
a | The group comprises a large number of entities and it is not practical to include all of them in this list. The list therefore includes only those entities that have a significant impact on the revenue, profit or assets of the group. A full list of subsidiaries, joint ventures and associates will be annexed to the companys next annual return filed with the Registrar of Companies. |
b | The principal operating subsidiaries (listed above) have a reporting date of 31 March, except for entities domiciled in Brazil, due to regulatory requirements. |
c | The proportion of voting rights held corresponds to the aggregate interest percentage held by the holding company and subsidiary undertakings. |
d | All overseas undertakings are incorporated in their country of operations. Subsidiary undertakings operating internationally are all incorporated in England and Wales, except BT Americas Inc and Communications Global Network Services Limited which are incorporated in the US and Bermuda, respectively. |
e | Held through intermediate holding company. |
f | BT (Germany) GmbH & Co. oHG is making use of disclosure exemptions under the German Commercial Code paragraph 264. |
g | In May 2014, BT Engage IT Limited changed its name to BT IT Services Limited. |
112 |
Additional information |
ADDITIONAL INFORMATION |
Alternative performance measures
Introduction
We assess the performance of the group using a variety of alternative performance measures. We principally discuss the groups 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 underlying operating costs excluding transit, the investment in BT Sport and the non-cash increase in the pensions operating charge; reported and adjusted EBITDA; 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 groups income statement and segmental analysis separately identify trading results before specific items. Specific items are those that in managements judgement need to be separately disclosed by virtue of their size, nature or incidence. 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. This is consistent with the way that financial performance is measured by management and reported to the BT Group plc Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group.
The directors believe that presentation of the groups results in this way is relevant to an understanding of the groups underlying financial performance. Items which have been considered to be specific items by virtue of their size, nature or incidence include disposals of businesses and investments, regulatory settlements, historic insurance or litigation claims, business restructuring programmes, asset impairment charges, property rationalisation programmes, net interest on pensions and the settlement of multiple tax years.
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 significantly affected by reductions in mobile termination rates.
A reconciliation from the increase in reported revenue and decrease in reported operating costs, the most directly comparable IFRS measures, to the increase in underlying revenue and increase in underlying operating costs excluding transit, is set out below.
Year ended 31 March |
|
2014 % |
|
|
2013 Restated % |
a
|
|
2012 Restated % |
a
| |||
Increase (decrease) in reported revenue |
1.0 | (4.7 | ) | (5.9 | ) | |||||||
Specific items |
(1.3 | ) | (0.8 | ) | 2.0 | |||||||
Decrease in adjusted revenue |
(0.3 | ) | (5.5 | ) | (3.9 | ) | ||||||
Transit revenue |
1.0 | 1.3 | 1.6 | |||||||||
Acquisitions and disposals |
(0.1 | ) | 0.2 | 0.3 | ||||||||
Foreign exchange movements and other |
(0.1 | ) | 0.9 | 0.1 | ||||||||
Increase (decrease) in underlying revenue excluding transit |
0.5 | (3.1 | ) | (1.9 | ) | |||||||
Year ended 31 March |
|
2014 % |
|
|
2013 Restated % |
a
|
|
2012 Restated % |
a
| |||
Decrease in reported operating costs |
(0.1 | ) | (5.9 | ) | (8.7 | ) | ||||||
Increase (decrease) in depreciation and amortisation |
1.2 | (0.3 | ) | (1.7 | ) | |||||||
Increase (decrease) in reported operating costs before depreciation and amortisation |
1.1 | (6.2 | ) | (10.4 | ) | |||||||
Specific items |
(1.3 | ) | (2.5 | ) | 3.7 | |||||||
Decrease in adjusted operating costs before depreciation and amortisation |
(0.2 | ) | (8.7 | ) | (6.7 | ) | ||||||
Transit costs |
1.5 | 1.5 | 1.8 | |||||||||
Acquisitions and disposals |
(0.1 | ) | 0.2 | 0.3 | ||||||||
Foreign exchange movements and other |
(0.2 | ) | 1.3 | 0.3 | ||||||||
Increase (decrease) in underlying operating costs before depreciation and amortisation excluding transit |
1.0 | (5.7 | ) | (4.3 | ) |
a | Restated, see note 1 to the consolidated financial statements. |
Additional information |
113 |
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 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 |
|
2014 £m |
|
|
2013 Restated £m |
a
|
|
2012 Restated £m |
a
| |||
Operating profit |
3,147 | 2,952 | 2,893 | |||||||||
Depreciation and amortisation |
2,695 | 2,843 | 2,972 | |||||||||
Reported EBITDA |
5,842 | 5,795 | 5,865 | |||||||||
Specific items |
276 | 352 | 173 | |||||||||
Adjusted EBITDA |
6,118 | 6,147 | 6,038 |
a | Restated, see note 1 to the consolidated financial statements. |
Net debt
This measure is applied in the context of BT Group plcs financial statements and is referred to in these financial statements.
Net debt consists of loans and other borrowings (both current and non-current), less current asset investments and cash and cash equivalents. Loans and other borrowings are measured as the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Our net debt calculation starts from the expected future undiscounted cash flows that should arise when our financial instruments mature. We adjust these cash flows to reflect hedged risks that are re-measured under fair value hedges, as well as for the impact of the effective interest method. Currency denominated balances within net debt are translated to Sterling at swap rates where hedged.
Net debt is a measure of BT Group plcs consolidated net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the BT Group plcs consolidated cash position and its indebtedness. There are material limitations in the use of alternative performance measures and the use of the term net debt does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure.
BT Group plcs management consider net debt to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate of loans and other borrowings (current and non-current), current asset investments and cash and cash equivalents, and a reconciliation is provided in note 22 to the consolidated financial statements.
Cautionary statement regarding forward-looking statements
Certain statements in this annual report are forward-looking and are made in reliance on the safe harbour provisions of the US Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements include, without limitation, those concerning: current and future years outlook; revenue; EBITDA; net debt; capital expenditure; credit ratings; our group-wide restructuring programme, cost transformation and restructuring costs; investment in and rollout of our fibre network, and its reach, innovations, increased speeds and speed availability; our broadband-based service and strategy; our investment in TV and enhancing our TV service and our BT Sport proposition; the BT Pension Scheme recovery plan, operating charge, regular cash contributions and interest expense; effective tax rate; growth opportunities in networked IT services, the pay-TV services market, broadband and mobility and future voice; growth of, and opportunities available in, the communications industry and BTs positioning to take advantage of those opportunities; expectations regarding competition, market shares, prices and growth; expectations regarding the convergence of technologies; plans for the launch of new products and services; network performance and quality; the impact of regulatory initiatives, decisions and outcomes on operations, including the regulation of the UK fixed wholesale and retail businesses and the impact of the Undertakings to Ofcom under the Enterprise Act; BTs possible or assumed future results of operations and/or those of its associates and joint ventures; capital expenditure and investment plans; adequacy of capital; financing plans and refinancing requirements; demand for and access to broadband and the promotion of broadband by third-party service providers; and those preceded by, followed by, or that include the words aims, believes, expects, anticipates, intends, will, should or similar expressions.
Although BT believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause differences between actual results and those implied by the forward-looking statements include, but are not limited to: material adverse changes in economic conditions in the markets served by BT; future regulatory actions, decisions, conditions or requirements in BTs operating areas, including competition from others; selection by BT of the appropriate trading and marketing models for its products and services; technological innovations, including the cost of developing new products, networks and solutions and the need to increase expenditures for improving the quality of service; the anticipated benefits and advantages of new technologies, products and services not being realised; developments in the convergence of technologies; prolonged adverse weather conditions resulting in a material increase in overtime, staff or other costs or impact on customer service; the
114 |
Additional information |
timing of entry and profitability of BT in certain markets; significant changes in market shares for BT or its principal products and services; fluctuations in foreign currency exchange rates or interest rates; the underlying assumptions and estimates made in respect of major contracts proving unreliable; the aims of the group-wide restructuring programme not being achieved; and general financial market conditions affecting BTs performance and ability to raise finance. Certain of these factors are discussed in more detail elsewhere in this Annual Report including, without limitation, in Our risks on pages 26 to 30. BT undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Background
Telephone services in almost all of the UK were, until 1981, provided by the Post Office, which was a government department until 1969 when it was established as a state public corporation. In 1981, the postal and telecommunications services of the Post Office became the responsibility of two separate corporations, with British Telecommunications under the trading name of British Telecom taking over the telecommunications business.
British Telecommunications plc, the successor to the statutory corporation British Telecommunications, was incorporated in England and Wales on 1 April 1984 as a public limited company, wholly owned by the UK Government, as a result of the Telecommunications Act 1984. Between November 1984 and July 1993, the UK Government sold all of its shareholding in three public offerings.
BT Group plc was formed when the mmO2 business, comprising what had been BTs mobile activities in the UK, the Netherlands, Germany and the Republic of Ireland, was demerged on 19 November 2001. British Telecommunications plc (BT plc) shares ceased trading on the London, New York and Tokyo stock exchanges on 16 November 2001. BT Group plcs shares commenced trading on the London and New York stock exchanges on 19 November 2001. As a result of the transaction BT plc became a wholly-owned subsidiary of BT Group Investments Limited (BTGI), itself wholly owned by BT Group plc. Accordingly, the ordinary shares of BT plc were de-listed from the London Stock Exchange on 19 November 2001.
The registered office address of BT is 81 Newgate Street, London EC1A 7AJ. The companys agent in the US is Richard Nohe, 620 Eighth Avenue, New York, NY 10018, US.
Bonds prices
On 5 December 2000 BT issued four series of bonds comprising US$2.8bn 8.625% bonds due 2030 (the thirty-year 2000 Bonds), US$3.0bn 8.125% bonds due 2011 (the ten-year 2000 Bonds), US$3.1bn 7.625% bonds due 2005 (the five-year 2000 Bonds) and US$1.1bn floating rate bonds due 2003 (the three-year 2000 Bonds, and, together with the thirty-year 2000 Bonds, the ten-year 2000 Bonds and the five-year 2000 Bonds, the 2000 Bonds). The three-year 2000 Bonds were redeemed at par on 15 December 2003, the five-year 2000 Bonds were redeemed at par on 15 December 2005 and the ten-year 2000 Bonds were redeemed at par on 15 December 2011. On 5 December 2007, BT issued two series of bonds comprising US$600,000,000 5.15% senior bonds due 2013 (the five-year 2007 Bonds) and US$600,000,000 5.95% senior bonds due 2018 (the ten-year 2007 Bonds and, together with the five-year 2007 Bonds, the 2007 Bonds). On 19 March 2008, BT issued two series of bonds comprising US$250,000,000 5.15% senior bonds due 2013 (the five-year 2008 Bonds) and US$500,000,000 5.95% senior bonds due 2018 (the ten-year 2008 Bonds and, together with the five-year 2008 Bonds, the 2008 Bonds). The five-year 2007 Bonds and the five-year 2008 Bonds were redeemed at par on 15 January 2013.
The high and low prices for the outstanding 2000 Bonds since 31 March 2008 as determined by indications or reports supplied by Bloomberg were as follows:
Thirty-year 2000 Bonds | ||||||||
High | Low | |||||||
US¢ | US¢ | |||||||
Year ended 31 March 2010 |
130.78 | 91.54 | ||||||
Year ended 31 March 2011 |
141.67 | 119.55 | ||||||
Year ended 31 March 2012 |
153.24 | 137.70 | ||||||
Year ended 31 March 2013 |
||||||||
First quarter |
156.65 | 147.30 | ||||||
Second quarter |
163.09 | 152.58 | ||||||
Third quarter |
165.00 | 158.59 | ||||||
Fourth quarter |
159.46 | 154.25 | ||||||
Full period |
165.00 | 147.30 | ||||||
Year ended 31 March 2014 |
||||||||
First quarter |
163.10 | 149.08 | ||||||
Second quarter |
154.36 | 147.14 | ||||||
Third quarter |
150.98 | 146.42 | ||||||
Fourth quarter |
156.36 | 147.70 | ||||||
Full period |
163.10 | 146.42 | ||||||
Last six months |
||||||||
November 2013 |
149.23 | 146.42 | ||||||
December 2013 |
149.88 | 147.38 | ||||||
January 2014 |
154.00 | 147.69 | ||||||
February 2014 |
154.89 | 150.84 | ||||||
March 2014 |
156.36 | 152.83 | ||||||
April 2014 |
158.67 | 154.93 |
Additional information |
115 |
Bonds prices continued
The high and low prices for the outstanding 2007 Bonds and 2008 Bonds since 31 March 2008 issue as determined by indications or reports supplied by Bloomberg were as follows:
Ten-year 2007 Bonds | Ten-year 2008 Bonds | |||||||||||||||
High | Low | High | Low | |||||||||||||
US¢ | US¢ | US¢ | US¢ | |||||||||||||
Year ended 31 March 2010 |
104.11 | 80.52 | 104.11 | 80.52 | ||||||||||||
Year ended 31 March 2011 |
113.21 | 101.72 | 113.21 | 101.72 | ||||||||||||
Year ended 31 March 2012 |
116.78 | 108.53 | 116.78 | 108.53 | ||||||||||||
Year ended 31 March 2013 |
||||||||||||||||
First quarter |
117.27 | 115.60 | 117.27 | 115.60 | ||||||||||||
Second quarter |
119.84 | 116.62 | 119.84 | 116.62 | ||||||||||||
Third quarter |
120.38 | 119.59 | 120.38 | 119.59 | ||||||||||||
Fourth quarter |
120.12 | 118.89 | 120.12 | 118.89 | ||||||||||||
Full period |
120.38 | 115.60 | 120.38 | 115.60 | ||||||||||||
Year ended 31 March 2014 |
||||||||||||||||
First quarter |
120.03 | 114.97 | 120.03 | 114.97 | ||||||||||||
Second quarter |
116.02 | 113.28 | 116.02 | 113.28 | ||||||||||||
Third quarter |
115.64 | 114.50 | 115.64 | 114.50 | ||||||||||||
Fourth quarter |
115.72 | 114.16 | 115.72 | 114.16 | ||||||||||||
Full period |
120.03 | 113.28 | 120.03 | 113.28 | ||||||||||||
Last six months |
||||||||||||||||
November 2013 |
115.57 | 114.71 | ||||||||||||||
December 2013 |
115.38 | 114.50 | ||||||||||||||
January 2014 |
115.55 | 114.37 | ||||||||||||||
February 2014 |
115.72 | 115.10 | ||||||||||||||
March 2014 |
115.53 | 114.16 | ||||||||||||||
April 2014 |
114.93 | 113.97 |
On 22 June 2012 BT issued two series of bonds comprising US$750m 2% senior notes due 2015 (the fixed rate 2012 Bonds) and US$500m floating rate senior notes due 2013 (the floating rate 2012 Bonds, and, together with the fixed rate 2012 Bonds, the 2012 Bonds). The US$500m floating rate senior notes were redeemed at par on 20 December 2013.
The high and low prices for the 2012 Bonds since issue as determined by indications or reports supplied by Bloomberg were as follows:
Fixed 2012 Bonds | ||||||||
High | Low | |||||||
US¢ | US¢ | |||||||
Year ended 31 March 2013 |
||||||||
First quarter |
100.91 | 100.81 | ||||||
Second quarter |
102.77 | 101.21 | ||||||
Third quarter |
102.86 | 102.48 | ||||||
Fourth quarter |
102.70 | 102.39 | ||||||
Full period |
102.86 | 100.81 | ||||||
Year ended 31 March 2014 |
||||||||
First quarter |
102.85 | 101.96 | ||||||
Second quarter |
102.06 | 101.52 | ||||||
Third quarter |
101.86 | 101.70 | ||||||
Fourth quarter |
101.80 | 101.51 | ||||||
Full period |
102.85 | 101.51 | ||||||
Last six months |
||||||||
November 2013 |
101.86 | 101.79 | ||||||
December 2013 |
101.84 | 101.73 | ||||||
January 2014 |
101.79 | 101.70 | ||||||
February 2014 |
101.80 | 101.74 | ||||||
March 2014 |
101.77 | 101.51 | ||||||
April 2014 |
101.60 | 101.46 |
116 |
Additional information |
Bonds prices continued
During the year BT raised new long term borrowings by issuing US$1,900m of bonds in the US market. These comprised: US$600m bond with 1.625% fixed semi-annual coupons, issued on 28 June 2013 due 28 June 2016 (the three year 2013 bonds); US$500m bond with 1.25% fixed semi-annual coupons, issued on 14 February 2014, due 14 February 2017 (then three year 2014 bonds); and US$800m bond with 2.35% fixed semi-annual coupons, issued on 14 February 2014, due 14 February 2019 (the five year 2014 bonds, and together with the three year 2013 bonds and the three year 2014 bonds, the 2014 bonds).
The high and low prices for the outstanding 2014 bonds since issue as determined by indications or reports supplied by Bloomberg were as follows:
Three year 2013 bonds | Three year 2014 bonds | Five year 2014 bonds | ||||||||||||||||||||||
High US¢ | Low US¢ | High US¢ | Low US¢ | High US¢ | Low US¢ | |||||||||||||||||||
Year ended 31 March 2014 |
||||||||||||||||||||||||
First quarter |
100.37 | 100.37 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Second quarter |
101.02 | 100.03 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Third quarter |
101.45 | 100.80 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Fourth quarter |
101.69 | 100.91 | 100.61 | 99.39 | 100.36 | 99.62 | ||||||||||||||||||
Full period |
101.69 | 100.37 | 100.61 | 99.39 | 100.68 | 99.62 | ||||||||||||||||||
Last six months |
||||||||||||||||||||||||
November 2013 |
101.45 | 101.27 | n/a | n/a | n/a | n/a | ||||||||||||||||||
December 2013 |
101.38 | 100.88 | n/a | n/a | n/a | n/a | ||||||||||||||||||
January 2014 |
101.17 | 100.91 | n/a | n/a | n/a | n/a | ||||||||||||||||||
February 2014 |
101.67 | 101.13 | 100.57 | 100.03 | 100.30 | 100.03 | ||||||||||||||||||
March 2014 |
101.70 | 101.32 | 100.61 | 99.39 | 100.36 | 99.62 | ||||||||||||||||||
April 2014 |
101.53 | 101.32 | 100.57 | 99.46 | 100.20 | 99.71 |
Articles of Association (Articles)
The following is a summary of the principal provisions of BTs Articles, a copy of which has been filed with the Registrar of Companies. New Articles of Association were adopted on 5 August 2010, largely to take account of changes in UK company law brought about by the Companies Act 2006 (2006 Act). Under the 2006 Act, the Memorandum of Association serves a more limited role as historical evidence of the formation of the company. Since August 2010, the provisions in relation to objects in BTs Memorandum are deemed to form part of BTs Articles, and have been deleted from those Articles because of shareholders passing a resolution to this effect. Under the 2006 Act, BTs objects are unrestricted.
Articles
(a) | Voting rights |
In the following description of the rights attaching to the shares in the company, a holder of shares and a member is, in either case, the person registered in the companys register of members as the holder of the relevant shares.
Subject to certain restrictions, on a show of hands, every member present in person or by proxy at any general meeting has one vote and, on a poll, every member present in person or by proxy has one vote for each share which they hold.
Voting at any meeting of members is by a show of hands unless a poll is demanded by the chairman of the meeting or by any member at the meeting who is entitled to vote (or the members proxy).
(b) | Changes in capital |
The company may by ordinary resolution:
(i) | consolidate, or consolidate and then divide, all or any of its share capital into shares of a larger amount than its existing shares; |
(ii) | divide its shares, or any of them, into shares of a smaller amount and the resolution may decide that, as between the shares resulting from the division, any of them may have any preference or advantage as compared with the others. |
The company may also:
(i) | buy back its own shares; and |
(ii) | by special resolution reduce its share capital, any capital redemption reserve and any share premium account. |
(c) | Dividends |
The companys members can declare dividends by passing an ordinary resolution, in addition to the powers of the Board, but no dividend can exceed the amount recommended by the Board. Dividends must be paid out of profits available for distribution. If the directors consider that the profits of the company justify such payments, they can pay interim and final dividends. Fixed dividends will be paid on any class of share on the dates stated for the payments of those dividends.
Any dividend which has not been claimed for 10 years after it was declared or became due for payment will be forfeited and belong to the company again unless the directors decide otherwise.
(d) | Distribution of assets on winding up |
If the company is wound up (whether the liquidation is voluntary, under supervision of a court or by a court) the liquidator can, with the authority of a special resolution passed by the members, divide among the members all or any part of the assets of the company. This applies whether the assets consist of property of one kind or different kinds. For this purpose, the liquidator can place whatever value the liquidator considers fair on any property and decide how the division is carried out between members or different groups of members. The liquidator can also, with the same authority, transfer any assets to trustees upon trusts for the benefit of members which the liquidator decides. The liquidation of the company can then be finalised and the company dissolved. No past or present members can be compelled to accept any shares or other property under BTs Articles which could give them a liability.
Additional information |
117 |
Articles continued
(e) | Transfer of shares |
Shares of the company may only be transferred in writing and either in the usual form or another form approved by the Board. A transfer form must be signed or made effective in some other way, by or on behalf of the person making the transfer and, unless the share is fully paid, by or on behalf of the person to whom the shares are being transferred.
(f) | General meetings |
The Board can decide to call general meetings. If there are not enough directors in the UK to call a general meeting, any director or member may call a general meeting.
(g) | Limitations on rights of non-resident or foreign shareholders |
There are no limitations on the rights of non-resident or foreign shareholders.
(h) | Directors |
Directors remuneration
The directors are entitled to the remuneration set by the company by an ordinary resolution. The directors may be paid their expenses properly incurred in connection with the business of the company.
The directors can decide whether to provide pensions, annual payments or other allowances or benefits to any people including people who are or were directors of the company. The Board can decide to extend these arrangements to relations or dependants of, or people connected to these people. The Board can also decide to contribute to a scheme or fund or to pay premiums to a third party for these purposes. However, the company can only provide pension and other similar benefits to any director or former director who has not been employed by or held any other office or executive position, in BT Group plc or any of its subsidiary undertakings, including the company, or to relations or dependants of, or people connected to, those directors or former directors, if the members approve this by passing an ordinary resolution.
(i) | Directors votes |
A director need not be a member, but a director who is not a member can still attend and speak at members meetings. Unless BTs Articles say otherwise, a director cannot vote on a resolution about a contract in which the director has an interest (this will also apply to interests of a person connected with the director).
If the legislation allows, a director can vote and be counted in the quorum on a resolution concerning a contract:
(I) | in which the director has an interest of which the director is not aware; or which cannot reasonably be regarded as likely to give rise to a conflict of interest; |
(II) | in which the director has an interest only because the director is a holder of shares, debentures or other securities of BT, or by reason of any other interest in or through BT; |
(III) | which involves the giving of any security, guarantee or indemnity to the director or any other person for: money lent or obligations incurred by the director or by any other person at the request of or for the benefit of BT or the benefit of any of its subsidiary undertakings; or a debt or other obligation which is owed by BT or any of its subsidiary undertakings to that other person if the director has taken responsibility for all or any part of that debt or obligation by giving a guarantee, security or indemnity; |
(IV) | where BT or any of its subsidiary undertakings is offering any shares, debentures or other securities for subscription or purchase to which the director is or may be entitled to participate as a holder of BT or BT Group plc securities; or where the director will be involved in the underwriting or sub-underwriting; |
(V) | relating to any other company in which the director has an interest, directly or indirectly (including holding a position in that company) or is a shareholder, creditor, employee or otherwise involved in that company. These rights do not apply if the director owns 1% or more of that company or of the voting rights in that company; |
(VI) | relating to an arrangement for the benefit of BT employees or former employees of BT or any of BTs subsidiary undertakings which only gives the directors the same benefits that are generally given to the employees or former employees to whom the arrangement relates; |
(VII) | relating to BT buying or renewing insurance for any liability for the benefit of directors or for the benefit of persons who include directors; |
(VIII) | relating to the giving of indemnities in favour of directors; |
(IX) | relating to the funding of expenditure by any director or directors: on defending criminal, civil or regulatory proceedings or actions against the director or the directors; in connection with an application to the court for relief; or on defending the director or the directors in any regulatory investigations; or which enables any director or directors to avoid incurring expenditure as described in this paragraph; and |
(X) | in which the directors interest, or the interest of directors generally, has been authorised by an ordinary resolution. |
Subject to the relevant legislation, the members can by passing an ordinary resolution ratify any particular contract or arrangement carried out in breach of those provisions.
(j) | Retirement of directors |
No person will be prevented from being or becoming a director simply because that person has reached the age of 70.
118 |
Additional information |
Articles continued
(k) | Directors borrowing powers |
To the extent that the legislation and BTs Articles allow, the Board may exercise all the powers of the company to borrow money, to mortgage or charge its business, property and assets (present and future) and to issue debentures and other securities, and give security either outright or as collateral security for any debt, liability or obligation of the company or another person.
Further note on certain activities
During 2013/14, certain of the groups non-US subsidiaries or other non-US entities conducted limited activities in, or with persons from, certain countries identified by the US Department of State as State Sponsors of Terrorism or otherwise subject to US sanctions. These activities, which generally relate to the provision of communications services to embassies and diplomatic missions of US-allied governments, other CPs, news organisations, multinational corporations and other customers that require global communications connectivity, are insignificant to the groups financial condition and results of operations.
Under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13 (r) to the Securities Exchange Act of 1934, we are required to disclose whether BT or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or certain designated individuals or entities. Disclosure is required even when the activities were conducted outside the US by non-US entities and even when they were conducted in compliance with applicable law. Our disclosures for 2013/14, which remain unchanged from 2012/13, are below.
HM Treasury approval was granted on 31 October 2012 for authorisation to receive 75,000 euros from Telecommunication Infrastructure Company (TIC), in Iran. The payment was for receiving incoming UK telecommunications tariff from Iran (BT is paid on a per minute basis for terminating calls).
Between July 2007 and October 2012 a BT subsidiary, Communications Global Network Services (CGNS), acted as billing agent for a consortium of telecommunications companies, of which CGNS was a member, in respect of a subsea cable contract. As billing agent, CGNS invoiced telecommunications companies worldwide, collecting funds and dispersing these to the consortium members and, during that time, received indirect payments on behalf of TIC.
BT entered into a Framework Agreement with Rafsanjan Industrial Complex (RIC) for business consultancy services in May 2010 and provided an initial consultancy engagement under phase 1 of the agreement. In February 2011, phase 2 was agreed with RIC however BT stopped work in December 2011 due to the geopolitical situation. RIC made an advance payment to BT of 384,120 to carry out the phase 2 work. We are exploring whether the amount can be refunded.
Limitations affecting security holders
There are no limitations under the laws of the United Kingdom restricting the right of non-residents to hold or to vote shares in the company.
Documents on display
All reports and other information that BT files with the US Securities and Exchange Commission (SEC) may be inspected at the SECs public reference facilities at Room 1580, 100 F Street, NE Washington, DC, 20549, US. These reports may be accessed via the SECs website at www.sec.gov.
Cross reference to Form 20-F |
119 |
The information in this document that is referred to in the following table shall be deemed to be filed with the Securities and Exchange Commission for all purposes:
Required Item in Form 20-F | Where information can be found in this Annual Report | |||||
Item | Section | Page | ||||
1 | Identity of directors, senior management and advisors | Not applicable | ||||
2 | Offer statistics and expected timetable | Not applicable | ||||
3 | Key information | |||||
3A | Selected financial data | Omitted due to reduced disclosure format | ||||
3B | Capitalisation and indebtedness | Not applicable | ||||
3C | Reasons for the offer and use of proceeds | Not applicable | ||||
4 | Information on the company | |||||
4A | History and development of the company | Additional information | ||||
Background |
114 | |||||
Performance | ||||||
Group financial performance |
||||||
Capital expenditure |
34 | |||||
4B | Business overview | Purpose and strategy | ||||
Our purpose |
2 | |||||
Our strategy |
2 | |||||
Our strategic priorities |
4 | |||||
Delivering our strategy | ||||||
Our business model |
6 | |||||
Our assets and resources |
8 | |||||
How we measure our progress |
11 | |||||
Our lines of business |
11 | |||||
Human rights |
24 | |||||
Regulation |
25 | |||||
Additional information | ||||||
Cautionary statement regarding forward-looking statements |
113 | |||||
Further note on certain activities |
118 | |||||
4C | Organisational structure | Purpose and strategy | ||||
Overview |
2 | |||||
Subsidiary undertakings | 111 | |||||
4D | Property, plants and equipment | Delivering our strategy | ||||
Our assets and resources |
||||||
Properties |
9 | |||||
Consolidated financial statements | ||||||
Notes to the consolidated financial statements |
||||||
Property, plant and equipment |
67 | |||||
5 | Operating and financial review and prospects | |||||
5A | Operating results | Delivering our strategy | ||||
Our lines of business |
11 | |||||
Performance | 31 | |||||
Additional information | ||||||
Alternative performance measures |
112 | |||||
Cautionary statement regarding forward-looking statements |
113 | |||||
5B | Liquidity and capital resources | Performance | 31 | |||
Additional information | ||||||
Cautionary statement regarding forward-looking statements |
113 | |||||
Consolidated financial statements | ||||||
Notes to the consolidated financial statements |
||||||
Loans and other borrowings |
81 | |||||
Financial instruments and risk management |
85 | |||||
Financial commitments and contingent liabilities |
93 | |||||
5C | Research and development, patents and licences | Delivering our strategy | ||||
Our assets and resources |
||||||
Innovation |
9 | |||||
5D | Trend information | Performance | 31 | |||
Additional information | ||||||
Cautionary statement regarding forward-looking statements |
113 | |||||
5E | Off-balance sheet arrangements | Report of the directors | ||||
Statutory information |
||||||
Off-balance sheet arrangements |
38 | |||||
5F | Tabular disclosure of contractual obligations | Performance | ||||
Group financial performance |
||||||
Contractual obligations and commitments |
35 | |||||
6 | Directors, senior management and employees | |||||
6A | Directors and senior management | Omitted due to reduced disclosure format | ||||
6B | Compensation | Omitted due to reduced disclosure format | ||||
6C | Board practices | Omitted due to reduced disclosure format | ||||
6D | Employees | Delivering our strategy | ||||
Our People |
7 | |||||
Consolidated financial statements | ||||||
Notes to the consolidated financial statements |
||||||
Employees |
60 | |||||
6E | Share ownership | Omitted due to reduced disclosure format |
120 |
Cross reference to Form 20-F |
Required Item in Form 20-F | Where information can be found in this Annual Report | |||||
Item | Section | Page | ||||
7 | Major shareholders and related party transactions | |||||
7A | Major shareholders | Omitted due to reduced disclosure format | ||||
7B | Related party transactions | Consolidated financial statements | ||||
Notes to the consolidated financial statements |
||||||
Related party transactions |
92 | |||||
7C | Interests of experts and counsel | Not applicable | ||||
8 | Financial information | |||||
8A | Consolidated statements and other financial information | See Item 18 below | ||||
Report of the directors | ||||||
Statutory information |
||||||
Legal proceedings |
38 | |||||
Performance | ||||||
Group financial performance |
||||||
Income statement |
||||||
Dividends |
33 | |||||
Consolidated financial statements | ||||||
Notes to the consolidated financial statements |
||||||
Financial commitments and contingent liabilities |
93 | |||||
Additional information | ||||||
Articles of Association (Articles) |
||||||
Dividends |
116 | |||||
8B | Significant changes | Report of the directors | ||||
Statutory information |
||||||
Going concern |
38 | |||||
9 | The offer and listing | |||||
9A | Offer and listing details | Not applicable | ||||
9B | Plan of distribution | Not applicable | ||||
9C | Markets | Not applicable | ||||
9D | Selling shareholders | Not applicable | ||||
9E | Dilution | Not applicable | ||||
9F | Expenses of the issue | Not applicable | ||||
10 | Additional information | |||||
10A | Share capital | Not applicable | ||||
10B | Memorandum and articles of association | Additional information | ||||
Articles of Association (Articles) |
116 | |||||
10C | Material contracts | Omitted due to reduced disclosure format | ||||
10D | Exchange controls | Additional information | ||||
Limitations affecting security holders |
118 | |||||
10E | Taxation | Not applicable | ||||
10F | Dividends and paying agents | Not applicable | ||||
10G | Statement by experts | Not applicable | ||||
10H | Documents on display | Additional information | ||||
Documents on display |
118 | |||||
10I | Subsidiary information | Not applicable | ||||
11 | Quantitative and qualitative | Consolidated financial statements | ||||
disclosures about market risk | Notes to the consolidated financial statements |
|||||
Significant accounting policies |
||||||
Financial instruments |
54 | |||||
Financial instruments and risk management | 85 | |||||
12 | Description of securities other than equity securities | Not applicable | ||||
13 | Defaults, dividend arrearages and delinquencies | Not applicable | ||||
14 | Material modifications to the rights of security holders | |||||
and use of proceeds | Not applicable | |||||
15 | Controls and Procedures | Report of the directors | ||||
Statutory information |
||||||
US Sarbanes-Oxley Act of 2002 |
39 | |||||
Disclosure controls and procedures |
39 | |||||
Internal control over financial reporting |
40 | |||||
Report of the independent auditors Consolidated financial statements | ||||||
United States opinion |
43 | |||||
16A | Audit Committee financial expert | Omitted due to reduced disclosure format | ||||
16B | Code of ethics | Omitted due to reduced disclosure format | ||||
16C | Principal accountants fees and services | Report of the directors | ||||
Statutory information |
||||||
Auditors |
39 | |||||
Consolidated financial statements | ||||||
Notes to the consolidated financial statements |
||||||
Audit, audit related and other non-audit services |
60 | |||||
16E | Purchases of equity securities by the issuer and affiliated purchasers | Not applicable | ||||
16F | Change in registrants certifying accountants | Not applicable | ||||
16G | Corporate governance | Omitted due to reduced disclosure format | ||||
17 | Financial statements | Not applicable | ||||
18 | Financial statements | Report of the independent auditors Consolidated financial statements | ||||
United States opinion |
43 | |||||
Consolidated financial statements | 44 | |||||
Notes to the consolidated financial statements |
49 |
British Telecommunications plc
Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England No. 1800000
Produced by BT Group Designed by saslondon.com Typeset by RR Donnelley
Printed in England by Leycol Printers Ltd Printed on elemental chlorine-free paper Sourced from sustainably managed forests
www.bt.com
PHME 70300 |
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