Annual Report & Accounts 1997

Black Cyan Magenta Yellow PMS300 Earnings & dividends per share (pence) Contents 2 Chairman’s statement 54.85 4 An interview with Chief Executive, Sir Peter Bonfield 6 Business review 13 Financial review 32.8 31.6 21 Report of the directors 28.5 27.8 22 Board of directors 19.8 18.7 17.7 16.7 24 Corporate governance 15.6 26 Auditors’ report on corporate governance matters 27 Report of the Board Committee on Executive Remuneration 93 94 95 96 97 34 Statement of directors’ responsibility Report of the auditors Earnings per share 34 Wordwork Dividends per share 35 Five year financial summary Job Disc No: 1 36 Accounting policies Bag No: 48278 Page No: 01 38 Consolidated financial statements Order No: 00000 Origination: SI 61 Subsidiary and associated undertakings Capital expenditure (£m) Revision: SI 63 Quarterly analysis of turnover and profit Date: 20/05/97 Proof No: 10 64 Financial statistics 2,771 2,719 2,671 65 Operational statistics 2,171 Regulatory statistics and information 2,155 66 67 United States Generally Accepted Accounting Principles reconciliations 69 Additional information for shareholders 72 Index 93 94 95 96 97 Profit before and after tax (£m) 3 Proposed merger with MCI announced to form group with annual turnover of around £26 billion 3,203 3,019 3 Prices reduced by over £800 million in the year 2,756 2,662 3 Strategic alliances and joint ventures in Europe and Asia announced or completed in year 2,101 1,992 1,972 3 Operating cash flow grew by 6 per cent to £6.2 billion 1,805 1,736 3 Capital expenditure maintained at over £2.7 billion 1,248 3 6.1 per cent increase in ordinary dividends per share with a special dividend of 35 pence per share 93 94 95 96 97 Profit before tax Profit after tax 1 Black Cyan Magenta Yellow PMS300 Red Chairman’s In my remarks at the Extraordinary Things have not stood still while General Meeting held in April, merger talks were in progress, and statement I described the merger as a “rite of your company has had a most passage” for BT – on the journey satisfactory year. Turnover grew by 1996/97 was the most from nationalised monopoly to 3.4 per cent, helped by innovative significant year for BT since its leading global competitor. In some and successful marketing and by privatisation some 12 years of the press coverage this was growth in the demand for advanced ago. It was the year in which reported as a “right of passage” services, such as FeatureNet and BT and MCI made history by and, as so often happens, such a high-speed ISDN connections. announcing our intention to slip revealed a new truth. Our reputation as a company that merge and form Concert, a Concert is indeed a “right of offers excellent value for money leading player in the global passage” for your company, in the was further enhanced by price Wordwork telecommunications industry sense that it is something that we reductions on a range of call types Job Disc No: 1 of the future. Bag No: 48278 have earned. and other services worth a total of Page No: 02 A great deal has to happen between over £800 million in the year. Order No: 00000 If BT had not become so customer- Origination: SI the announcement of a proposed focused, so responsive to Earnings per share increased to Revision: MT merger and eventual closure. But Date: 21/05/97 competition, innovative, and 32.8p and I am pleased to report a Proof No: 11 we have already safely passed a committed to quality, we would final dividend for the year of 11.95p number of key milestones. The simply not have been in a position per share. This will be paid at the merger has received overwhelming to make this merger work. The fact same time as the 35p per share shareholder approval on both sides that we are is a splendid testimony special dividend, which was of the Atlantic and we have made to the BT people who have announced in connection with the good progress towards the reshaped this company over the merger and which brings the total necessary regulatory clearances. last decade, and to the enlightened dividend for the year to 54.85p. BT and MCI, between us, have policies of privatisation, liberalisation Excluding the special dividend, driven many of the dramatic and rigorous regulation pursued by this represents an increase of changes that have taken place the outgoing UK Government. 6.1 per cent on last year. in our industry over the last We have yet to see how the policies decade. We are now seizing the of the incoming Government will chance to build one of the first develop. But I am encouraged by great companies of the twenty- its clear enthusiasm for the benefits first century. that information technology can bring. 2 Black Cyan Magenta Yellow PMS300 CHAIRMAN’S STATEMENT Your company has continued to Financial highlights make substantial investments in its FOR THE YEAR ENDED 31 MARCH 1997 UK network, over the year, to match 1997 1996 the ever-rising level and scope of Turnover £14,935m £14,446m service our customers expect. The Profit before taxation £3,203m £3,019m growth in demand for advanced Profit after taxation £2,101m £1,992m services is especially marked. Earnings per share 32.8p 31.6p For personal customers, the Dividends per share – ordinary 19.85p 18.70p benefits are clear. Particularly in – special 35.00p – such areas as education, Capital expenditure £2,719m £2,771m healthcare and public information, your company is developing Wordwork products and services that really do Job Disc No: 1 Bag No: 48278 add value to our customers’ lives. Page No: 03 Order No: 00000 This has been a record year, too, for The recent agreements that we There is no apparent slowing in the Origination: SI awards to BT on its unique Revision: MT have put in place with Spain’s rate at which new markets and new Date: 20/05/97 community programme. Telefonica and with Portugal opportunities – both geographical Proof No: 10 For business customers, the Telecom illustrate the opportunities and technical – are emerging. Internet and corporate intranet that abound in global The demand for communications markets are growing at an telecommunications markets. We services around the world is exhilarating rate and BT and MCI will be especially well positioned to intense and it is growing. seize opportunities in Latin America in Concert will carry around half of This is the world of opportunity and among the Spanish-speaking the world’s Internet traffic. in which Concert will find its communities of the USA. We are focusing on developing place. Our task is to convert that integrated solutions that meet the The Asia-Pacific region is also of opportunity into long-term whole range of a company’s needs, great importance to us. We are shareholder value. helping it to gain competitive already a leading supplier of advantage in its own marketplace. value-added data networks in Electronic commerce, for example, Japan. We have significant has the capacity to revolutionise the initatives underway in each of the way businesses bring their sub-regions. Sir Iain Vallance products to market and interact One particularly encouraging Chairman with their customers. development was the 20 MAY 1997 On the international front, as we announcement, in March, that BT approach the liberalisation of and Japan’s NTT had joined forces telecommunications markets to bid, with local partners, for a throughout the European Union second telecoms licence in from 1 January 1998, we are Singapore. building a presence across the continent. BT is now particularly well positioned in all the major European countries. 3 Black Cyan Magenta Yellow PMS300 An interview with Why are you so convinced that In what ways are BT and MCI the Concert merger is the right natural partners? Chief Executive, thing for BT? The two companies complement Sir Peter Bonfıeld For a start, the timing of the merger each other extremely well. We share is perfect. BT has done great things a commitment to free competition Sir Peter Bonfield, Chief in the 12 years since privatisation, and customer choice, we have a Executive Officer (designate) of but we now need to become a shared view of the future of our Concert plc explains why the global player. MCI also finds itself industry, and a shared strategy merger is such a major with opportunities to develop and for making the most of the opportunity for both BT and MCI grow. It has, of course, been opportunities that we face. and why he believes the new fantastically successful, but now BT has a worldwide reputation for company will be a force to be faces new challenges in markets Wordwork research and development; MCI is reckonedwithintheglobal it wishes to break into, primarily Job Disc No: 1 famous for its innovative marketing. Bag No: 48278 communications markets of local services in the US and They bring speed of action - they Page No: 04 the future. Latin America. Order No: 00000 get new products and services Origination: SI The global telecoms market is from the drawing board to the Revision: SI Date: 20/05/97 growing at an extraordinary pace. marketplace in a matter of months; Proof No: 9 The local market in the US will be we bring unrivalled strategic worth $100 billion a year; the management skills. European Union, post 1 January BT has 12 years’ experience 1998, could be worth $190 billion; of competition in the local and other markets – the Asia- telecommunications market, which Pacific region and Latin America will be of enormous importance to in particular – could be even MCI as it moves into the local more valuable.

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