BT 1999 Annual Report Download - page 33

FINANCIAL REVIEW
32
standards. The last-remaining series of these bonds was
repaid on its maturity in March 1997.
Profit and taxation
The group’s profit before taxation for the 1999 financial year
was £4,295 million, compared with £3,214 million in the
1998 financial year and £3,203 million in the 1997 financial
year. The higher profit in the 1999 financial year was due
substantially to the gain on the MCI shares sold. Before
this and other exceptional items, profit before taxation in
the 1999 financial year was 9.4% higher than the comparable
profit in the 1998 financial year. This was 7.1% below that in
the 1997 financial year due to the initial impact of our
ventures’ losses in the 1998 financial year and higher
interest charges following the special dividend payment.
The tax charge of £1,293 million for the 1999 financial year
as a percentage of profit before taxation was 30.1%,
compared with an ordinary tax charge of 30.4% for the 1998
financial year and 34.4% for the 1997 financial year. The
group’s tax charge for the 1999 financial year is an effective
31.0% of pre-tax profit, excluding the MCI share sale gain,
which is effectively subject to a lower tax charge under UK
capital gains tax legislation. The group’s ordinary tax
charge for the 1998 financial year was an effective 31.5% of
pre-tax profit, excluding the MCI merger break-up fee
which again was similarly subject to a lower tax charge.
These effective tax charges reflect the lower 31% rate of
corporation tax set for the 1999 and 1998 financial years,
compared with 33% for the 1997 financial year. The higher
effective rate in the 1997 financial year was due to the
premium on the bond repurchase being only partially
deductible for tax purposes. HM Government has set the
corporation tax rate for the 2000 financial year at 30%.
The tax charge for the 1998 financial year included BT’s
£510 million share of HM Government’s windfall tax on
certain privatised companies, imposed in July 1997. The tax
was paid in two equal £255 million instalments in December
1997 and December 1998.
Earnings and dividends
Basic earnings per share, based on a profit for the 1999
financial year of £2,983 million, were 46.3 pence. Earnings
per share for the 1998 and 1997 financial years were
26.6 pence and 32.8 pence, respectively. Earnings before
exceptional items were 34.7 pence per share for the 1999
financial year, in comparison with 31.7 pence for the 1998
financial year and 32.8 pence for the 1997 financial year.
Diluted earnings per share are not materially different.
Dividends paid and recommended for the 1999 financial
year of 20.4 pence per share represent a 7.4% increase on
the previous year and are covered 1.7 times by earnings
before exceptional items. These dividends comprise the
interim dividend of 8.1 pence per share, paid in February
1999, and the proposed final dividend of 12.3 pence per
share which, if approved at the annual general meeting,
will be paid on 20 September 1999 to shareholders on the
register on 20 August 1999. These dividends will absorb
£1,322 million.
In the 1998 financial year, BT paid or recommended
ordinary dividends of 19.0 pence per share. The company
also paid a special dividend of 35.0 pence per share in
respect of the 1997 financial year. This dividend, which was
paid in September 1997, absorbed £2,244 million. For the
1997 financial year, ordinary dividends of 19.85 pence per
share were paid or recommended. The Board adjusted the
level of subsequent dividends to take into account the effect
of the special dividend.
Financing
Net cash inflow from operating activities of £6,035 million in
the 1999 financial year compared with £6,071 million in the
1998 financial year and £6,185 million in the 1997 financial
year. The £200 million special contribution to the main
pension fund, described below, reduced the cash inflow in
the 1999 financial year. The higher net cash inflow in the
1997 financial year than in either of the two later years
reflected a reduction in working capital in that year.
Tax paid in the 1999 financial year, which totalled £630 million,
included the second and final windfall tax instalment of
£255 million. We paid less UK corporation tax than in
either of the two previous years because of the advance
corporation tax (ACT) paid on the 1997 special dividend.
In contrast, the tax paid in the 1998 financial year, which
totalled £1,886 million, was particularly high because of
£561 million ACT paid in respect of the special dividend
and £255 million paid as the first windfall tax instalment.
The tax paid in the 1997 financial year, which amounted to
£1,045 million, principally related to the prior year’s profit.
The UK Government has changed the pattern of
corporation tax payments from April 1999 by requiring
companies to pay tax in quarterly instalments starting at
the half year stage in each financial year. The changes
are being phased in over the 2000 to 2002 financial years,
and replace the former main single corporation tax
payment made nine months after the financial year end
and ACT payments associated with dividends. The effect