BT 1999 Annual Report Download - page 31

FINANCIAL REVIEW
30
BT’s turnover from its overseas operations grew by 7.4% in
the 1999 financial year after growing by 15.4% in the
previous year. Concert services to multinational customers
provided much of the growth in the 1998 financial year and
these, combined with Syntegra’s services to non-UK
customers, led to the growth in the 1999 financial year.
BT’s share of its ventures’ turnover, excluding MCI, rose
from £86 million in the 1997 financial year to £399 million in
the 1998 financial year and to £1,270 million in the 1999
financial year. This growth was due to our establishment
and acquisition of interests in ventures in Europe and Asia
Pacific over the past three years. In the 1999 financial year,
£1,149 million of the total arose from ventures located
outside the UK. The principal contributors were Cegetel
(£578 million), Airtel (£157 million), Viag Interkom
(£82 million) and LG Telecom (£81 million from
October 1998).
Other operating income
In the 1998 financial year, BT received US$465 million as
the break-up fee and partial reimbursement of expenses
incurred on the BT/MCI merger agreement. This receipt,
net of relevant expenses incurred in that financial year, was
included as an exceptional profit of £238 million in other
operating income for that year.
Operating costs
Total operating costs increased by 7.7% in the 1999 financial
year to £13,305 million after increasing by 4.7% in the 1998
financial year. As a percentage of group turnover, operating
costs decreased from 79.0% in the 1997 and 1998 financial
years to 78.5% in the 1999 financial year. In the 1999
financial year, exceptional costs of £69 million were
incurred which primarily related to Concert expenses.
These exceptional costs are considered separately in the
table below and the discussion which follows.
1999 1998 1997
£m £m £m
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!!!00511111110111
Staff costs 3,871 3,917 3,778
Own work capitalised (428) (424) (399)
Depreciation 2,568 2,395 2,265
Payments to
telecommunication
operators 2,106 1,600 1,476
Other operating costs 5,119 4,867 4,676
00011!!!00511111110111
Total operating costs
before exceptional
costs 13,236 12,355 11,796
Exceptional costs 69 – –
00011!!!00511111110111
Total operating costs 13,305 12,355 11,796
00011!!!00511111110111
Staff costs for the 1998 financial year included a non-
recurring charge of £120 million for compensation for the
special dividend paid that year. The compensation was for
those employees holding unexercised rights, mainly under
group-wide sharesave schemes. Staff costs increased by
1.9% in the 1999 financial year, after rising by 0.5% in the
1998 financial year, if this non-recurring charge is excluded.
In the 1999 financial year, the impact of pay awards was
partially offset by reduced overtime worked and the
reduction in average employee numbers. In the 1998
financial year, the pay awards impact was substantially
offset by reduced pension costs, as explained in more
detail below.
The allocation for the employee share ownership scheme,
included within staff costs, was £64 million in the 1999
financial year, representing 2% of pre-tax profit for the year
before the gain on the sale of MCI shares. The allocation
in each of the 1998 and 1997 financial years was also
£64 million.
The depreciation charge increased by 7.2% in the 1999
financial year to £2,568 million after increasing by 5.7% in
the 1998 financial year, reflecting BT’s continuing high level
of investment in its networks.
Payments to other telecommunication operators grew by
31.6% in the 1999 financial year to £2,106 million after
increasing by 8.4% in the 1998 financial year. The growth in
these payments was primarily as a result of the growing
number of calls terminating on UK competitors’ fixed and
mobile networks and, in particular, from the increase in
mobile phone usage and Internet calls. The increase in the
1998 financial year was mitigated by lower payments to
non-UK operators for outgoing calls from the UK as a
consequence of lower prices and the strengthening
of sterling more than offsetting call volume growth.
Other operating costs, which rose by 5.2% in the 1999
financial year to £5,119 million and by 4.1% in the 1998
financial year, include the maintenance and support of the
networks, accommodation and marketing costs, the cost of
sales of customer premises equipment and redundancy
costs. The costs incurred in supporting the recent
expansion of BT Cellnet was the main factor behind the
increase in costs in the 1999 financial year. Also, in the 1999
financial year, a currency gain of £87 million from investing
the proceeds of the MCI shares was offset against these
costs. In the 1998 financial year, the cost increases were
due to the expansion of BT Cellnet and Concert, and more
was spent on BT’s marketing programmes, including
extensive TV advertising, than in the 1997 financial year.