LONDON -- Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.
You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.
Today I'm looking at BT Group
|
Year to March 31 |
2008 |
2009 |
2010 |
2011 |
2012 |
|---|---|---|---|---|---|
|
Profit before unusual items (£m) |
2,583 |
1,914 |
1,511 |
1,958 |
2,176 |
|
Restructuring charges (£m) |
(529) |
(549) |
(564) |
(376) |
(251) |
|
Gains on sales of assets and investments |
49 |
39 |
65 |
145 |
110 |
|
Asset writedowns (£m) |
(74) |
(50) |
- |
(10) |
- |
|
Other unusual items (£m) |
(53) |
(1,598) |
(5) |
- |
- |
Source: S&P Capital IQ
While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.
So between 2007 and 2011, my stats tell me BT reported cumulative profits before exceptional items and tax of £10.1 billion. However, aggregate exceptional costs came to £3.7 billion -- equivalent to a mammoth 37% of cumulative "underlying" profits. I think that's the largest percentage of any company we've looked at in the last few weeks.
Looking at these figures, BT certainly seems to be guilty of serial restructuring. It's taken charges of around £2 billion over the last five years, as it continually reshuffled its business and operations. When restructuring happens this often, it's hard to describe it as a one-off item!
BT also took a hefty £1.6 billion hit in 2009.This was after it reassessed the profitability of its BT Global Services division. This is the part of BT that serves large, international businesses, with contracts that typically spread out over several years.
Accounting for these sort of contracts can be particularly tricky, as you often need to make estimates of the proportion of work done, and how much profit you can recognize along the way. A number of U.K. outsourcers that relied on long-term contracts have come unstuck in recent times, because they either overestimated their revenues and/or understated their costs.
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