BT's Earnings
PRELIMINARY RESULTS - YEAR TO MARCH 31, 1999
BT's results for the year ended March 31, 1999 are summarised in the table below.
Sir Iain Vallance, Chairman of BT, said
"Growth in the fourth quarter has been excellent, building on the strong results achieved in the previous
quarter. Our profit improvement was turnover led, benefiting from the communications technologies of the
future such as mobile, high speed data and the Internet.
BT's total turnover is up by 13.6 per cent in the year and earnings have increased by 9.5 per cent before
exceptional items.
Our European partnerships are beginning to punch their weight and we have laid the foundations of our
global venture with AT&T. We have strengthened our presence in the Asia-Pacific region, particularly with
the Japan Telecom agreement announced last month.
I am pleased to announce that the Board has recommended a final dividend of 12.3 pence per share,
making a 7.4 per cent increase in the total for the year."
FOURTH QUARTER AND YEAR TO MARCH 31, 1999
Fourth Quarter
Year
1999
1998
1999
1998
£m
£m
£m
£m
Turnover, including share of continuing ventures
4,897
4,109
18,223
16,039
EBITDA, pre-exceptional items
1,708
1,429
6,453
5,814
Total operating profit before exceptional items
913
729
3,543
3,223
Profit on sale of fixed asset investments
-
-
1,107
63
Profit before taxation
836
630
4,295
3,214
Windfall tax charge
-
-
-
(510)
Profit after taxation
577
431
3,002
1,727
Earnings per share
8.8p
6.5p
46.3p
26.6p
Earnings per share before exceptional items
9.1p
6.5p
34.7p
31.7p
Dividends, net
20.4p
19.0p
Results
Earnings per share for the year ended March 31, 1999 were 46.3 pence based on a profit before taxation of
£4,295 million. Of these earnings, 11.6 pence represented exceptional income mainly relating to the sale of the group's
investment in MCI Communications Corporation in September 1998. Earnings before exceptional items, of 34.7 pence
per share, were 9.5 per cent higher than in the prior year.
Earnings for the fourth quarter were 8.8 pence per share net of 0.3 pence exceptional charges. Earnings per share before
exceptional items were 39 per cent higher compared with the corresponding quarter of the prior year.
Dividends
The Board recommends a final dividend of 12.3 pence per share to shareholders, giving a total dividend of 20.4 pence
per share for the year. The total dividend for the year represents a 7.4 per cent increase on last year.
An interim dividend of 8.1 pence per share was paid in February 1999. The proposed final dividend, if approved at the
annual general meeting, will be paid on September 20, 1999 to those shareholders on the register on August 20, 1999.
The last date for lodging mandates for the BT dividend investment plan is also August 20, 1999.
Turnover
Total turnover, including BT's share of its ventures' turnover, grew by 13.6 per cent on an ongoing basis to
£18,223 million in the year and by 19.2 per cent to £4,897 million in the fourth quarter to March 31, 1999. BT's new
ventures in Europe and Asia-Pacific accounted for over a third of this annual increase in turnover. Both mobile and fixed
network calls in the UK made a strong contribution to the growth in the group's activities in the third and fourth quarters
of the year.
The rapidly expanding use of the Internet and a significant increase in calls to mobile phones have been the main factors
behind a sharp increase in inland calls over BT's fixed network in the second half of the financial year. Volume growth on
a 12-month moving average basis to March 31, 1999 rose to 9 per cent compared with 7 per cent in the year to
March 31, 1998. After taking into account the effect of continuing price decreases, inland call turnover grew by
5.2 per cent to £5,178 million for the year and by 10.2 per cent in the quarter. Prices of calls to mobile phones have been
further reduced by an average of 25 per cent from April 30, 1999.
Exchange line turnover increased by 4.9 per cent in the year to £3,337 million, reflecting mainly the growth in business
lines. ISDN line installations resulted in the number of business line connections growing by 6.1 per cent in the 12 months
to March 31, 1999. Residential lines were maintained at 20.1 million helped by the large number of BT customers
installing second lines and the thousands returning from the cable operators each week.
International call volumes grew strongly by 11 per cent in the year. This contrasted with the 3.3 per cent decrease in
turnover due to significant price reductions. Transit call volumes continue to grow rapidly.
BT Cellnet had another impressive quarter adding 478,000 to its customer base which exceeded 4.5 million at March
31, 1999. The majority of the additional customers came through pre-paid offerings, many of which were sold through
new channels to market which were developed by BT Cellnet in the year. BT Cellnet's customer base increased by
47 per cent over the 12 months to March 31, 1999 and resulted in BT's mobile communications turnover growing by
29 per cent in the year to £1,400 million after taking into account significant price reductions.
Receipts from other licensed operators in the UK grew by 30 per cent in the year and by 62 per cent in the quarter
reflecting the growing number of fixed and mobile calls originating on competing networks but terminating with BT.
Syncordia Solutions, Syntegra, multimedia and advanced services were the main contributors to the 33 per cent increase
in other UK sales and services to £1,770 million in the year. These services mainly consist of outsourcing, data and
multimedia products.
BT's share of its ventures' turnover totalling £1,270 million for the year and £418 million for the quarter, include
contributions from the group's new investments in Malaysia and The Republic of Korea which were completed in
October 1998. The principal contributors in the quarter were Cegetel in France, Airtel in Spain and LG Telecom in The
Republic of Korea.
Operating costs
Excluding £69 million of exceptional costs (primarily relating to Concert expenses) explained below, operating costs
increased by 7.1 per cent to £13,236 million in the year to March 31, 1999.
After adjusting for the £120 million one-off charge in the prior year relating to employee compensation for the special
dividend, staff costs increased by 1.9 per cent. The Board is pleased to have awarded £64 million through the BT
Employee Share Ownership Scheme as recognition of the continued contribution of BT people. Depreciation rose by
7.2 per cent reflecting the higher level of capital expenditure. Payments to telecommunication operators increased by
32 per cent as a consequence of the growing number of calls made to mobile operators and other fixed networks in the
UK, particularly as a result of the increase in Internet usage. Other operating costs grew by 5.2 per cent, mainly due to
higher costs in mobile communications reflecting the growth in the customer base.
Associates and joint ventures
BT's share of operating losses in our ventures totalled £107 million for the fourth quarter and £342 million for the year in
line with expectations. The two main contributors to these losses were Viag Interkom and Telfort which successfully
launched their new mobile businesses in Germany and the Netherlands, respectively, in Autumn 1998.
MCI Communications Corporation and Concert Communications
Following the completion of the MCI-WorldCom merger on September 15, 1998, BT sold its holding in MCI to
WorldCom. As previously reported, the proceeds totalled £4,159 million on which an exceptional pre-tax profit of
£1,133 million was realised.
On the same day as the sale of the MCI shares, BT acquired from MCI its 24.9 per cent interest in Concert
Communications for £607 million. Now that Concert is wholly owned by BT, work is being undertaken to ensure that the
group's business will be fully independent of MCI. The costs involved in this work are estimated at £150 million over the
two years to March 2000, of which £69 million has been incurred to March 31, 1999. These costs are shown as
exceptional items in the profit and loss account.
The net proceeds from the MCI shares were invested mainly in US dollar investments on a short-term basis. During the
quarter a currency translation gain of £36 million was made on these investments bringing the total for the year to
£87 million which has been included in the results as a reduction in other operating costs.
Interest and taxation
The group's net interest charge for the year of £286 million declined by £24 million in the year with a £49 million
reduction in the fourth quarter. The reduction was mainly as a result of the interest received on the proceeds from the sale
of the MCI shares in September 1998, offset by the funding costs of the September 1997 special dividend payment for
the full year.
The effective tax rate for the current financial year was 31.0 per cent of pre-tax profits, excluding the gain on the MCI
shares which bore a slightly lower rate of 28 per cent.
The tax charge for the year ended March 31, 1998 included BT's full charge for the windfall tax of £510 million. The final
instalment of this tax, amounting to £255 million, was paid in December 1998.
Capital expenditure
Capital expenditure on plant, equipment and property totalled £3,269 million in the year, 7.9 per cent higher than in the
previous year. Work continues on improving network capacity for carrying high-speed data and enhancing the intelligence
of the fixed network to enable customers to benefit from advanced services. BT Cellnet has continued improving the
quality and capacity of its digital cellular GSM network. Our European broadband fibre backbone network was
commissioned during the quarter.
BT has announced an agreement with a major supplier for the development and supply of next generation exchange
equipment designed to handle the rapid growth in UK data traffic. The first of these leading edge broadband switches is
due to be in service later in 1999.
Investments in associates and joint ventures and subsidiary company acquisitions
During October 1998, BT made two significant investments in the Asia- Pacific region. The first was the acquisition for
£279 million for a 33.3 per cent stake in Binariang Bhd, a major Malaysian telecommunications group operating a
successful mobile communications business and providing fixed and international gateway services in Malaysia. The
second related to the acquisition for £234 million of an interest of just over 23 per cent in LG Telecom, a leading mobile
telephone operator in The Republic of Korea.
During the year, BT has continued to share in funding the development of its ventures, principally Viag Interkom and
Telfort, to a total of £813 million.
In March 1999, BT Cellnet acquired an 80 per cent interest in Martin Dawes Telecommunications Limited, a significant
UK mobile phone service provider, for approximately £130 million.
Cash flow and net debt
Net cash flow from operations totalled £6,035 million in the year. A special contribution of £200 million was paid to BT's
main pension fund on March 31, 1999. Net cash inflow from investing activities of £1,046 million principally consists of
the proceeds from selling the MCI shares of £4,159 million less the group's expenditure on tangible fixed assets.
The net cash outflow on acquisitions totalled £1,967 million, the principal part of which was the purchase of the minority
interest in Concert, the equity investments in Binariang Bhd and LG Telecom and the additional funding of ventures,
described above. Equity dividends paid in the year totalled £1,186 million and windfall and corporation tax paid
amounted to £630 million. Substantially all of the resulting cash inflow of £2,972 million, before liquid resources and
financing, has been invested and is shown in current asset investments in the balance sheet. Long-term debt of £457
million was repaid in the year.
The proceeds of the sale of the investment in MCI caused net debt to fall in the year to £953 million at March 31, 1999.
Balance sheet gearing was 6 per cent at that date. On May 18, 1999, BT issued a £600 million Eurobond repayable in
2028 at an interest rate of 5.75 per cent.
Proposed global venture with AT&T
In July 1998, BT and AT&T announced the formation of a 50:50 global venture for their trans-border telecommunication
activities to serve the needs of multinational companies and the international calling needs of individuals and businesses.
BT will be transferring cross-border international network assets, its international traffic, its business with selected
multinational customers and its international products for business customers together with Concert into the global venture,
the formation of which is subject to regulatory clearances. The European Union clearance was received on
March 30, 1999. We expect the global venture will be formed later in 1999.
Japan Telecom
On April 25, 1999, BT together with AT&T, announced that they would acquire a 30 per cent interest in Japan Telecom,
one of Japan's largest telecommunication groups. The consideration will be about £1.2 billion. BT will have an economic
interest of 20 per cent with both companies jointly managing the investment. BT Communication Services will be
integrated into Japan Telecom. The transaction is expected to close by Autumn 1999.
Hong Kong
On May 7, 1999, BT acquired a 20 per cent interest in SmarTone, a leading mobile operator in Hong Kong for around
£240 million. SmarTone, a listed company, has a customer base of more than 500,000 connections.
Latin America
In April 1999, BT acquired a 20 per cent interest in ImpSat, a leading telecommunications company in Latin America, for
around £90 million.
Return on capital employed
The group's return on average capital employed was 18.4 per cent for the year ended March 31, 1999 compared with a
return of 19.5 per cent in the previous year.
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