BT 1999 Annual Report Download - page 32

FINANCIAL REVIEW
31
Redundancy costs of £124 million were incurred in the 1999
financial year, compared with £106 million in the 1998
financial year and £367 million in the 1997 financial year.
The lower costs in the 1998 and 1999 financial years
compared with the 1997 financial year are a consequence
of a surplus arising in BT’s main pension scheme at its
last full actuarial valuation at 31 December 1996. In view of
this surplus, and in accordance with BT’s accounting
policies, redundancy charges for the 1999 and 1998
financial years do not include the costs of the incremental
pension benefits provided to early retirees, which totalled
£279 million and £224 million, respectively. In the 1997
financial year, redundancy costs included £258 million
relating to incremental pension benefits.
Now that Concert is wholly owned by BT, work is being
undertaken to ensure that the group’s business becomes
fully independent of MCI. The costs involved in this work
are estimated at £150 million over the 1999 and 2000
financial years, of which £69 million had been incurred to
31 March 1999. These costs are shown as exceptional
items in the group profit and loss account.
Group operating profit
Group operating profit for the 1999 financial year of
£3,816 million was £159 million higher than in the previous
year, which was £412 million higher than in the 1997
financial year. Before the exceptional income in the 1998
financial year and the exceptional costs in the 1999 financial
year, described above, group operating profit in the 1999
financial year was 13.6% higher than in the 1998 financial
year. This, in turn, was 5.4% higher than that in the 1997
financial year.
Associates and joint ventures
The group’s share of its ventures’ operating losses totalled
£342 million in the 1999 financial year. The comparable
losses, excluding MCI’s results, amounted to £221 million
in the 1998 financial year and £36 million in the 1997
financial year. The principal loss in all three years arose
in Viag Interkom in developing its networks to compete
in the German market; BT’s share of these losses was
£193 million, £151 million and £23 million in the 1999, 1998
and 1997 financial years, respectively. In the 1999 financial
year, other losses were incurred by Telfort in the
Netherlands, Albacom in Italy, British Interactive
Broadcasting in the UK and LG Telecom in the Republic of
Korea, which has been a BT joint venture since October
1998. In the 1998 financial year, the other losses were
principally those incurred by Telfort and Cegetel in France,
which has been a BT associate since September 1997.
As a consequence of the termination of the BT/MCI
merger agreement and the then-prospective
MCI/WorldCom merger, BT ceased treating MCI as an
associate on 31 October 1997. The group’s pre-tax profit
for the 1998 financial year incorporated a loss of £27 million,
representing BT’s share of MCI’s results up to that date,
which included a special charge of £63 million. BT’s share
of MCI’s pre-tax profit for the 1997 financial year amounted
to £175 million, under BT’s accounting policies.
Total operating profit
Total operating profit for the 1999 financial year at
£3,474 million, including BT’s share of the operating results
of its ventures, increased by £13 million compared with the
1998 financial year after increasing by £32 million over the
1997 financial year. Before exceptional items, total operating
profit for the 1999 financial year was 9.9% higher than that
in the previous financial year, which was 6.0% lower than
the result for the 1997 financial year, due principally to the
losses in the group’s new ventures.
Profit on sale of MCI shares
Following the completion of the MCI/WorldCom merger
on 15 September 1998, BT sold its holding in MCI to
WorldCom under the agreement made in November 1997.
The proceeds totalled £4,159 million on which an
exceptional profit of £1,133 million was realised in the 1999
financial year, after taking into account the goodwill written
off on BT’s interest in MCI, originally acquired in
September 1994.
Interest charge and bond repurchase premium
In the 1999 financial year, the group’s net interest charge
at £286m was £24 million lower than in the preceding year.
The group benefited since September 1998 from the
interest derived from the short-term investments funded
with the MCI share sale proceeds. In the 1998 financial
year, the group’s net interest charge of £310 million was
£136 million higher than the interest charge in the previous
year, due mainly to the increase in the group’s net debt
following the special dividend payment in September 1997.
Interest cover for the 1999 financial year represented
12 times total operating profit.
During August 1996, the company took the opportunity to
repurchase two of the three then-remaining series of
Government held bonds for £422 million, at an effective
premium of £60 million which was charged against profit in
the 1997 financial year in accordance with UK accounting