Annual report and accounts 1998 Chairman’s statement The 1998 financial year proved to be a very Turnover has grown by 4.7 per cent and we important chapter in the BT story, even if not have seen strong growth in demand. Customers quite in the way we anticipated 12 months ago. have benefited from sound quality of service, price cuts worth over £750 million in the year, This time last year, we expected that there was a and a range of new and exciting services. Our good chance that our prospective merger with MCI Internet-related business is growing fast and we Communications Corporation would be completed are seeing considerable demand for second lines by the end of the calendar year. In the event, of and ISDN connections. We have also announced course, this did not happen. WorldCom tabled a a major upgrade to our broadband network to considerably higher bid for MCI and we did not match the ever-increasing volumes of data we feel that it would be in shareholders’ best interests are required to carry. to match it. Earnings per share were 26.7 pence and I am In our view, the preferable course was to pleased to report a final dividend for the year of accept the offer WorldCom made for our 20 per 11.45 pence per share, which brings the total cent holding in MCI. On completion of the dividend for the year to 19 pence per share, MCI/WorldCom merger, BT will receive around which is as forecast. This represents an increase US$7 billion (more than £4 billion). This, added of 6.4 per cent on last year, adjusted to take to the break-up fee and expenses, represents over account of the special dividend that we paid in US$54 per share for a holding we acquired for September 1997. just over US$32 per share in 1994. As I write, the MCI/WorldCom merger is awaiting regulator y Relations with the new Government have been clearance in the USA and Europe. good. Notwithstanding the so-called “Windfall Tax”, which we did not and do not believe was Nor has the success of Concert Communications appropriate to BT, the Government’s interest in Services, our joint venture with MCI, been the social and economic benefits that information compromised. Indeed, Concert has continued technology can bring is clear and undiminished. to lead the world in providing global managed We are proud to support the Government’s New network services to multinational customers. Deal welfare-to-work initiative, and have been a MCI WorldCom will, for a period, have key player in developing the “national grid for non-exclusive rights to distribute Concert learning” in the UK. products in the USA. Beyond that, we shall ensure that enduring distribution arrangements Outside the UK, liberalisation has been gathering are put in place for the longer term. momentum. The World Trade Organisation is committed to opening telecommunications In other important respects, this has been a good markets; and, in Europe, give or take the odd year for your company – both in the UK and in derogation, there has been full competition in other markets around the world. the market since 1 January 1998. BT has now established a presence throughout the European Union, and we are engaged in turning long-awaited opportunities into action, across the world. CHAIRMAN’S STATEMENT Our capacity to address such opportunities and Financial highlights to meet the challenges of change depends to FOR THE YEAR ENDED 31 MARCH 1998 a great extent on the skills and commitment of 1998 1997 1996 our employees and I thank all BT people for the !!!11110!!!11110!!!11110 continued dedication which they have shown Turnover £15,640m £14,935m £14,446m to the company over the year. MCI break-up fee net of expenses £238m –– In a word, we have the right people, the right strategy and the right positioning for success. Operating profit £3,657m £3,245m £3,100m And we aim to continue to translate that strategy Profit before taxation £3,219m £3,203m £3,019m into long-term shareholder value. Windfall tax charge £510m –– I also wish to pay tribute to those directors Profit after taxation £1,731m £2,101m £1,992m who retired from the Board during the year, Earnings per share 26.7p 32.8p 31.6p Birgit Breuel, Yve Newbold, Bert Roberts Jnr, Dr Alan Rudge and Gerald Taylor, each of whom Earnings per share before made a much appreciated and distinctive exceptional items 31.7p 32.8p 31.6p contribution to the company’s progress during Dividends per share – ordinary 19.00p 19.85p 18.70p their term of office. – special – 35.00p – We are pleased to welcome our new non-executive Net cash flow from directors, Helen Alexander and Neville Isdell, to operating activities £6,076m £6,192m £5,834m our Board. We also welcome Sir John Weston, who Capital expenditure £3,030m £2,719m £2,771m will join the Board in the autumn. 000011!!!11110!!!11110!!!11110 In a break with tradition, I would like to close this Chairman’s statement on a personal note. I announced earlier this year that, with effect from 31 July, I will become part-time Chairman, having been fortunate enough to serve as your company’s full-time, executive Chairman for over ten years. BT now has a strong and experienced senior management team in place, under the leadership of Chief Executive, Sir Peter Bonfield. There is no longer a need for two full-time executives at the helm. That said, I shall continue to play a full part in the life of the company and I can assure you that my Sir Iain Vallance personal commitment to BT and to the industry Chairman is undiminished. 26 MAY 1998 3 An interview with Chief Executive, Sir Peter Bonfõeld A lot has been said about BT’s strategy over the means all services which help people communicate past year. How would you describe it? free from location restraints – including services such as calling cards and messaging as well as mobile Quite simply, our strategy is to seize the opportunities telephones. Cellnet – in which we have a 60 per cent for growth in the communications market worldwide. stake – has a reputation for innovation. It was the first In practice, that means continuing to stimulate and operator to enable customers to send and receive faxes meet growing demand in the UK; moving into new and data using mobile phones. And, in the last year, it has growth markets such as the rest of Europe; and launched an Internet-linked service, Cellnet Genie, that maintaining our world-leading position in serving the delivers information such as news, share prices, football needs of multinational companies through Concert scores or job opportunities to your mobile phone. Communications Services. Across all of those markets, In mainland Europe, we are pioneering the merging of we will also look to take advantage of the explosive mobile and fixed line services, with one network, one growth in advanced services such as mobility, data, bill and, ultimately, one handset. multimedia and the Internet. The market for data communications is experiencing Communications technologies are the engines of explosive growth and is set to overtake voice traffic change and growth in the world’s economy at the in the next five years. This trend, known as the moment – and that gives us a wealth of opportunities. “datawave”, is being driven by developments such as Our task is to seize those opportunities, deliver the spectacular growth of the Internet. Already, BT’s excellent value for shareholders and, in doing so, realise Internet business is growing faster than 100 per cent our vision of becoming the most successful worldwide per annum. In the UK, we’ve announced that we will be telecommunications group. making a £1.1 billion investment in our networks to meet the demand for data communications and Internet There’s a lot of competition for these opportunities. services. In Europe, data revenues are growing very How can BT make sure it makes the most of them? strongly, and Concert offers global companies a choice BT is uniquely well-positioned. We have proved that of data services delivered consistently and reliably we can please a wide range of customers. We are highly around the world. experienced in competitive situations. We have significant In the UK, we are also helping the next generation financial strength and we are already an established to use data networks by connecting schools to the global player, with operations in all major markets Net at affordable prices. We’re also on the brink of a around the world. multimedia innovation that will transform the domestic communications market: digital interactive television. Can there be any growth left in the UK market after Subject to the necessary regulatory clearances, our over a decade of competition? joint venture, British Interactive Broadcasting, will Yes there is – even though in the last five years we’ve enable people to do some shopping, check their steadily increased revenues and call volumes. Usage bank statement, have an on-line tutorial or buy a CD, of residential lines continues to increase. It now stands all from their homes. They will be able to receive and at more than 11 minutes per line per day, a rise of more respond to information via the TV set using a combination than two minutes since 1994. Remember also that UK of satellite transmission and the telecommunications usage is still only 60 per cent of that in the USA – which network.