BT 1997 Annual Report Download - page 17

FINANCIAL REVIEW
17
Earnings and dividends
Earnings per share, based on a profit for the financial year
of £2,077 million, were 32.8 pence.
The ordinary dividends paid and recommended of 19.85
pence per share represent a 6.1% increase on the previous
year and are covered 1.7 times by earnings. These
dividends comprise the interim dividend of 7.9 pence
per share, which was paid in February 1997, and the
proposed final dividend of 11.95 pence per share which,
if approved at the annual general meeting, will be paid
on 22 September 1997 to shareholders on the register
on 15 August 1997. The proposed final dividend is that
forecast by the Board in its announcement of the MCI
merger in November 1996. These ordinary dividends will
absorb £1,266 million.
Additionally, as originally announced in November 1996,
the company will be paying a special dividend of 35 pence
per share. This dividend, which absorbs £2,244 million,
will also be paid on 22 September 1997 to shareholders on
the register on 15 August 1997. The Board believes that
shareholder value and earnings growth will be enhanced
through the introduction of more gearing which will be
achieved with this payment. In the event that the merger
with MCI is completed before this record date, alternative
arrangements for the final and special dividends will be
made. The majority of the group’s employees participate
in one or more of the BT option schemes. Since share
option holders are not entitled to the special dividend and
could be otherwise disadvantaged by its payment,
arrangements will be put in place to compensate the
option holders.
The Board intends to adjust the level of ongoing annual
dividends to take into account the effect of the special
dividend in order broadly to maintain the yield on the
company’s shares. This adjustment will first be made for
the interim dividend for the year ending 31 March 1998.
Dividends will continue to be an important component
of shareholder value. The Board believes that earnings
and cash flow will continue to be strong enough to
support a growing dividend (as adjusted for the effect of
the special dividend). The intention will be to grow
earnings at a higher level, which would lead to an increase
in dividend cover over time.
Financing
1997 1996
£m £m
Net cash inflow from
operating activities 6,192 5,834
Net cash outflow for returns on
investments and servicing of finance (220) (150)
Tax p a i d (1,045) (784)
Capital expenditure and financial
investment (2,820) (2,500)
Acquisitions and disposals (252) (132)
Equity dividends paid (1,217) (1,138)
Net cash inflow before use of
liquid resources and financing 638 1,130
Management of liquid resources (504) (1,317)
Net cash inflow (outflow)
from financing (224) 215
Net increase (decrease) in cash and
cash equivalents (90) 28
Decrease in net debt 849 1,319
The cash flow statement presentation has been modified
to conform with the 1996 revision of Financial Reporting
Standard 1.
Net cash inflow from operating activities of £6,192 million
in the year was 6.1% higher than in the previous year.
Tax paid in the year, principally on the prior year’s profit,
amounted to £1,045 million. The increase of £261 million
on the previous year is mainly due to the higher level of
profit made in the year to 31 March 1996 compared to the
prior year.
Net cash outflow for capital expenditure and financial
investment mainly comprises expenditure on plant,
equipment and property of £2,823 million.
In the year, the group drew down £235 million in loans
and repaid debt of £670 million, including £501 million of
Government held bonds discussed above. During the
year, the group also received £160 million for new shares
subscribed by employees, principally following the
exercise of savings-related share options.
The Board believes that, after the merger with MCI, the
enlarged group’s cash flow will be more than adequate to
cover its capital commitments and the dividend payments
on the enlarged capital.