Annual Report & Form 20-F 1999
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1999 Annual report and Form 20-F British Telecommunications plc is a public limited company which has listings on the London, New York and Tokyo stock exchanges and is registered in England. This is the annual report for the year ended 31 March 1999. It complies with UK regulations and is the annual report on Form 20-F for the Securities and Exchange Commission to meet US regulations. This annual report has been sent only to shareholders who have elected to receive a copy. A separate annual review and summary financial statement for the year ended 31 March 1999 has been issued to all shareholders. Contents 3 Financial highlights 5 Chairman’s message 6 Chief Executive’s statement 8 Business review 24 Five year financial summar y 26 Financial review 40 Board of directors 42 Report of the directors 44 Corporate governance 47 Report on directors’ remuneration 57 Statement of directors’ responsibility 58 Report of the auditors 59 Accounting policies 62 Consolidated financial statements 97 United States generally accepted accounting principles 102 Subsidiary undertakings, joint ventures and associates 104 Quarterly analysis of turnover and profit 106 Financial statistics 107 Operational statistics and regulatory information In this annual report, references to the “financial year” are to the year ended 31 March of each year, e.g. the “1999 financial year” 109 Additional information for shareholders refers to the year ended 31 March 1999. 117 Glossary of terms and US equivalents References to the “company” are to British Telecommunications 118 Cross reference to Form 20-F public limited company, and references to “BT” or the “group” are to the company and its subsidiaries, or any of them as the 119 Index context may require. Cautionary statement regarding forward-looking statements In order to utilise the ‘Safe Harbor’ provisions of the US Private Securities Litigation Reform Act of 1995, British Telecommunications plc is providing the following cautionary statement. The annual report includes ‘forward-looking information’ within the meaning of section 27Aof the US Securities Act of 1933, as amended, and section 21E of the US Securities and Exchange Act of 1934, as amended. Certain sections of this annual report are forward looking in nature. These include, without limitation: A. those concerning (i) possible or assumed future results of operations of BT and/or its associates and joint ventures, (ii) impact of regulatory initiatives on BT’s operations, (iii) expectations regarding competition, prices and growth, (iv) impact of the Year 2000 issue, (v) impact on BT of the proposed global venture with AT&T, (vi) adequacy of capital, (vii) impact of legal proceedings on BT’s financial position and results of operations; and B. those preceded by, followed by, or that include the words “believes”, “expects”, “anticipates” or similar expressions. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause such differences include, but are not limited to, material adverse changes in economic conditions in the markets served by BT; future regulatory actions and conditions in BT’s operating areas, including competition from others in the UK and other international telecommunications markets; the timing of entry and profitability of BT in certain national markets; the risks, costs and uncertainties (including the lack of available information) in addressing Year 2000 issues; and fluctuations in foreign currency exchange rates. 1 Financial highlights Earnings and dividends per share (pence) YEARS ENDED 31 MARCH 1999 1998 1997 YEARS ENDED 31 MARCH !!!11110!!!11110!!!11110% Total turnover 85 4. – ongoing activities £18,223m £16,039m £15,021m 5 Exceptional operating 46.3 income (costs) £(69)m £238m – 32.8 Total operating profit £3,474m £3,461m £3,429m 31.6 27.8 26.6 Profit on sale of 20.4 19.0 18.7 17.7 fixed asset investments £1,107m – – Profit before taxation £4,295m £3,214m £3,203m Windfall tax charge – £510m – 95 96 97 98 99 Profit after taxation £3,002m £1,727m £2,101m Earnings per share 00001!!!11110!!!11110!!!11110 Dividends per share Basic earnings per share 46.3p 26.6p 32.8p The 1997 dividends included a special dividend of 35 pence per share. Basic earnings per share before exceptional items 34.7p 31.7p 32.8p Profit before and after tax (£m) Dividends per share – ordinary 20.4p 19.0p 19.85p YEARS ENDED 31 MARCH – special – – 35.00p 00001!!!11110!!!11110!!!11110 4,295 Net cash flow from operating activities £6,035m £6,071m £6,185m 3,214 3,203 3,019 3,002 Capital expenditure £3,269m £3,030m £2,719m 2,666 Investment in associates 2,101 1,992 1,740 and joint ventures £1,326m 1,727 £1,380m £148m 00001!!!11110!!!11110!!!11110 95 96 97 98 99 • Global venture with AT&T announced Profit before tax • £1.3 billion invested in strategic alliances and Profit after tax joint ventures in Europe and Asia Pacific • 12 per cent growth in demand for BT’s Capital expenditure (£m) YEARS ENDED 31 MARCH products and services, driven by rapidly- expanding Internet traffic and mobile usage 3,269 • BT Cellnet’s customer connections up by 3,030 1.4 million to 4.5 million 2,771 2,719 2,671 • 7.4 per cent increase in dividends per share • Net gain of £1,133 million on sale of MCI shares 95 96 97 98 99 3 4 Chairman’s message This past financial year has been an exciting one for 34.7 pence. Your Board is pleased to recommend a final the communications industry, and particularly for BT. dividend for the year of 12.3 pence per share, which For some while, we have been hearing about the brings the total dividend for the year to 20.4 pence per impact that new communications technologies like share, an increase of 7.4 per cent over 1997/98. mobile and, more recently, the Internet will have on Yet a company can only achieve great things through the our lives at work and at home. Now we have begun actions of its people and I would like to record here my to experience that impact first-hand. thanks to BT people for all their efforts. BT’s UK network, for example, now carries more data I would also like to thank two directors who retired from than voice traffic. And Internet usage accounts for some the Board during the year, Malcolm Argent and Sir Ewen 18 per cent of our local UK network traffic. Fergusson. Both made a notable contribution during their In response to such changes, your Board has reviewed terms of office. Sir Ewen joined the Board as a non- BT’s vision statement – the single sentence that sums executive director in 1993. Malcolm was appointed to the up our aims and aspirations. For the past several years, Board in 1989, becoming a non-executive director in 1994, we have aimed “to become the most successful worldwide and played a major part in BT’s transformation into the telecommunications group”. That was an ambitious global communications company it is today. objective when we set it – in fact many people found it During the year, we welcomed Helen Alexander, startling – but it is increasingly clear that it is no longer Neville Isdell and Sir John Weston to the Board. sufficiently comprehensive. Our aim now is “to be the most successful worldwide communications group”. BT has made great progress over the past two decades. Now, with our new vision, we will continue to move I believe the past year has shown that we are well placed forward, building on our success and positioning to succeed. ourselves for the challenges and opportunities of the • Our European alliances and ventures are beginning new Millennium. to punch their weight. • We have laid the foundations of our global venture with AT&T. • We increased our activities in the Asia-Pacific region, and the momentum has continued into the current Sir Iain Vallance financial year with the three-way BT, AT&T, Japan Chairman Telecom alliance. 25 MAY 1999 • And, in the UK, innovative marketing, price cuts and the rapid increase in Internet usage and mobile communications all contributed to a strong performance, despite increasing competition. The figures tell the story. Your group’s turnover, including BT’s share of its ventures’ turnover, grew last year by 13.6 per cent to £18.2 billion. Our new ventures in Europe and Asia Pacific accounted for over £800 million of this increase in turnover, and both mobile and fixed network calls in the UK made strong contributions. BT’s share price grew by 55 per cent in the financial year, compared with only five per cent for the FT-SE 100 index. Earnings per share before exceptional items were 5 Chief Executive’s statement BT is a company experiencing major change, in an electronic commerce, and files sent from computer to industry that is changing the way people live and computer – is growing at more than 30 per cent per year. work around the world. Data has overtaken voice communication over BT’s networks, a phenomenon often referred to as Transformation the “datawave”. With your support, BT is transforming itself from a UK telecommunications company into a global Investment in our networks communications company. In 1998/99, we launched the UK’s largest and most advanced data network. And we have earmarked £5 billion This may seem to be a small change linguistically, but it for future investment in data and multimedia services.