BT 1998 Annual Report Download - page 20

N A N C I A L R E V I E W
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
standards. The last-remaining series was repaid on its
maturity in March 1997. The repurchase has reduced the
overall effective interest rate on BT’s borrowings.
Profit and taxation
The group’s profit before taxation for the 1998 financial
year was £3,219 million, compared with £3,203 million in
the 1997 financial year and £3,019 million in the 1996
financial year.
The tax charge for the 1998 financial year includes BT’s
£510 million share of the UK Government’s windfall tax on
certain privatised companies, imposed in July 1997. The
first £255 million instalment was paid on 2 December 1997
with the second being payable in December 1998.
The ordinary tax charge of £978 million as a percentage of
profit before taxation was 30.4%, compared with 34.4% for
the 1997 financial year and 34.0% for the 1996 financial year.
The group’s ordinary tax charge for the 1998 financial year
is an effective 31.5% of pre-tax profit, excluding the MCI
merger break-up fee which is effectively subject to a
lower tax charge under UK capital gains tax legislation.
This effective tax charge reflects the lower 31% rate of
corporation tax set for the year, compared with 33% set
for the previous two financial years. The higher effective
rate in the 1997 financial year was due to the premium
on the bond repurchase only being partially deductible
for tax purposes.
Earnings and dividends
Earnings per share, based on a profit for the 1998 financial
year of £1,706 million, were 26.7 pence. Earnings before
the two exceptional items were 31.7 pence per share, in
comparison with 32.8 pence for the 1997 financial year
and 31.6 pence for the 1996 financial year.
As originally announced in November 1996, the company
paid a special dividend of 35 pence per share in September
1997. This dividend absorbed £2,244 million. The Board
believed that shareholder value and earnings growth would
be enhanced through the introduction of more gearing
which was achieved with this payment.
To maintain the yield on the company’s shares, the
Board has adjusted the level of ongoing annual dividends
to take into account the effect of the special dividend.
This adjustment was first made for the interim dividend
for the year ended 31 March 1998.
The ordinary dividends paid and recommended for the
1998 financial year of 19.0 pence per share represent a 6.4%
increase on the previous year, adjusted for the effect of the
special dividend, and are covered 1.8 times by earnings,
excluding the effect of the windfall tax. These dividends
comprise the interim dividend of 7.55 pence per share,
which was paid in February 1998, and the proposed final
dividend of 11.45 pence per share which, if approved at the
annual general meeting, will be paid on 21 September 1998
to shareholders on the register on 7 August 1998. The
proposed final dividend is that forecast by the Board in its
announcement in October 1997. These ordinary dividends
will absorb £1,220 million. For the 1997 and 1996 financial
years, ordinary dividends of 19.85 pence and 18.7 pence per
share, respectively, were paid or recommended.
Financing
1998 1997 1996
£m £m £m
)))!!
!!!00511111110111
Net cash inflow from
operating activities 6,076 6,192 5,834
Net cash outflow for
returns on investments
and servicing of finance (160) (220) (150)
Tax paid (1,886) (1,045) (784)
Capital expenditure and
financial investment (3,108) (2,820) (2,500)
Acquisitions and
disposals (1,501) (252) (132)
Equity dividends paid (3,473) (1,217) (1,138)
00011!!!00511111110111
Net cash inflow (outflow)
before management
of liquid resources
and financing (4,052) 638 1,130
Management of liquid
resources 2,247 (504) (1,317)
Net cash inflow (outflow)
from financing 1,794 (224) 215
00011!!!00511111110111
Net increase (decrease)
in cash and cash
equivalents (11) (90) 28
00011!!!00511111110111
Decrease (increase)
in net debt (3,860) 849 1,319
00011!!!00511111110111
Net cash inflow from operating activities of £6,076 million in
the 1998 financial year compared with £6,192 million in the
1997 financial year and £5,834 million in the 1996 financial
year. The higher net cash inflow in the 1997 financial year