BT 1999 Annual Report Download - page 37

FINANCIAL REVIEW
36
Return on capital employed
The group made a return of 18.4% on the average capital
employed in its business, on a historical cost basis, in the
year ended 31 March 1999, compared with returns of 19.5%
and 19.1% in the previous two financial years, respectively.
Pensions
The most recent actuarial valuation of BT’s main pension
fund was carried out as at 31 December 1996. This
valuation revealed the fund to be in surplus to an amount
of approximately £66 million. Assets of the fund at
£19,879 million at that date covered just over 100% of the
fund’s liabilities, in contrast to an asset coverage of 97%
at the previous valuation date, 31 December 1993. The
actuarial valuation took into account the effect of HM
Government’s measures in July 1997 to end pension funds’
ability to reclaim the tax credit associated with UK
companies’ dividends.
The group’s annual pension charges for the 1999 and
1998 financial years of £176 million and £177 million,
respectively, have been based on the December 1996
valuation. These charges compare with the charge of
£291 million in the 1997 financial year which was based
on the previous valuation. These lower charges take into
account the amount of the pension provision which had
been established over recent years in the group’s accounts
and which stood at £953 million at 31 March 1999.
Additionally, under UK accounting standards, the cost of
providing incremental pension benefits for early leavers in
the 1998 and 1999 financial years has not been charged
against the profit in the period in which people agree to
leave, since the latest actuarial valuation of the pension fund
indicated a surplus.
The actuarial valuation confirmed that the group’s ordinary
contribution into the fund should continue at 9.5% of
employees’ pensionable pay. The company paid a special
contribution of £200 million into the fund in March 1999.
This was made in part because the investment return on the
fund’s assets in 1998 fell slightly below the market average.
The number of retired members and other current
beneficiaries in the pension fund has been increasing in
recent years and, at 31 December 1998, was approximately
50% higher than the number of active members.
Consequently, BT’s future pension costs and contributions
will depend to a large extent on the investment returns of
the pension fund and could fluctuate in the medium term.
The next full actuarial valuation of the pension fund will be
carried out as at 31 December 1999.
Impact of inflation
In accordance with a requirement of BT’s main licence, the
group’s annual accounts for the 1998 financial year prepared
on a current cost basis were published in September 1998.
These accounts showed that the group’s current cost profit
before tax was £2,210 million, compared with £3,219 million
under the historical cost convention. The group’s current
cost total assets at 31 March 1998 were £28,017 million,
compared with £23,285 million in its historical cost
accounts. The current cost accounts for the 1999 financial
year are to be published by 30 September 1999.
Environment
When removing old analogue exchange equipment from
buildings, BT recycles the metal content and takes special
care to properly dispose of any hazardous materials.
Although BT receives proceeds from the sale of recovered
materials, this is more than offset by the cost of dealing
with hazardous materials, contracting and planning their
removal and preparing the released site for further
development. BT believes that the total cost of dealing with
these hazardous materials will not be significant.
Segmented information
BT essentially operates as a unitary business, providing an
integrated range of telecommunications products and
services. Accordingly, BT does not publish separately the
operating profit for the various sources of turnover
described above. In the 1999 and 1998 financial years,
approximately 96% of the group’s turnover was generated
by operations in the UK, compared with 97% in the 1997
financial year.
15.7
18.4
19.1
19.5
18.4
% return on capital
employed
YEARS ENDED 31 MARCH
95 96 97 98 99