1. Basis of preparation of the financial
statements

The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards. The group financial statements consolidate those of the company and all of its subsidiary undertakings. Where the financial statements of subsidiary and associated undertakings do not conform with the group's accounting policies, appropriate adjustments are made on consolidation in order to present the group financial statements on a consistent basis.

2. Turnover

Turnover, which excludes value added tax and other sales taxes, comprises the value of services provided and equipment sales excluding those between group undertakings.

3. Research and development

Expenditure on research and development is written off as incurred.

4. Interest

Interest payable, including that related to financing the construction of tangible fixed assets, is written off as incurred. Discounts or premiums on the issue of debt securities are amortised over the term of the related security and included within interest payable. Premiums payable on early redemptions of debt securities, in lieu of future interest costs, are written off when paid.

5. Foreign currencies

On consolidation, assets and liabilities of foreign undertakings are translated into sterling at year end exchange rates. The results of foreign undertakings are translated into sterling at average rates of exchange for the year.
Exchange differences arising from the retranslation at year end exchange rates of the net investment in foreign undertakings, less exchange differences on borrowings which finance or provide a hedge against those undertakings, are taken to reserves and are reported in the statement of total recognised gains and losses.

All other exchange gains or losses are dealt with through the profit and loss account.


6. Goodwill

Goodwill, arising from the purchase of subsidiary and associated undertakings, representing the excess of the purchase consideration over the fair value of the net assets acquired, is written off on acquisition against group reserves. If an undertaking is subsequently divested, the appropriate goodwill is dealt with through the profit and loss account in the period of disposal as part of the calculation of gain or loss on divestment.

7. Intangible assets

Mobile cellular telephone and broadcasting licences, held in associated undertakings, are stated at historical cost. No amortisation is provided on these assets, but their value is reviewed annually by the directors and the cost written down if permanent diminution in value has occurred.

8. Tangible fixed assets

Tangible fixed assets are stated at historical cost less depreciation.

(a) Cost

Cost in the case of network services comprises expenditure up to and including the last distribution point before customers' premises and includes contractors' charges and payments on account, materials, direct labour and related overheads.

(b) Depreciation

Depreciation is provided on tangible fixed assets on a straight line basis from the time they are available for use, so as to write off their costs over their estimated useful lives. No depreciation is provided on freehold land.
Electro mechanical and semi electronic telephone exchange equipment is in the course of being replaced by digital equipment. Electro mechanical telephone exchange equipment will be written off by 1995.
Semi-electronic telephone exchange equipment will be substantially written off by 2000.

The lives assigned to other significant tangible fixed assets are:

From 1 April 1993, the lives assigned to duct transmission equipment will be 25 years, those assigned to digital telephone exchange equipment will be 11 to 13 years and those assigned to certain computer equipment will be reduced by one year.

(c) Engineering stores

Most engineering stores items are used in the construction of new plant and the remainder for maintenance. When issued, these stores are charged to the cost of specific plant or to the profit and loss account, as appropriate. They are stated at cost, less a provision for excess and obsolete items.

9. Fixed asset investments

Investments in subsidiary and associated undertakings are stated in the balance sheet of the company at cost less amounts written off. Amounts denominated in foreign currency are translated into sterling at year end exchange rates.
Investments in associated undertakings are stated in the group balance sheet at the group's share of their net assets.
The group's share of profits less losses of associated undertakings is included in the group profit and loss account.
Investments in other participating interests are stated at cost less amounts written off.



10. Stocks

Stocks mainly comprise items of equipment held for sale or rental and consumable items. They are stated at the lower of cost, including appropriate overheads, and estimated net realisable value, after provisions for obsolescence.
Stocks also include work in progress on long term contracts which is stated at cost, after deducting payments on account, less provisions for any foreseeablelosses.

11. Redundancy costs

Redundancy costs arising from periodic reviews of staff levels are charged against profit in the year in which employees leave the group.
When the most recent actuarial valuation of the group's pension scheme shows a deficit, the estimated cost of providing incremental pension benefits in respect of employees leaving the group is charged against profit in the year in which the employees leave the group, within redundancy charges.

12. Pension schemes

The group operates a defined benefit pension scheme (formerly two schemes which merged on 1 January 1993), which is independent of the group's finances, for the substantial majority of its employees. Actuarial valuations of the scheme are carried out as determined by the trustees at intervals of not more than three years, the rates of contribution payable and the pension cost being determined on the advice of the actuaries, having regard to the results of these valuations. In any intervening years, the actuaries review the continuing appropriateness of the contribution rates.
The cost of providing pensions is charged against profits over employees' working lives with the group using the projected unit method. Variations from this regular cost are allocated over the average remaining service lives of current employees to the extent that these variations do not relate to the estimated cost of providing incremental pension benefits in the circumstances described in 11 above.
Interest is accounted for on the provision in the balance sheet which results from differences between amounts recognised as pension costs and amounts funded. The regular pension cost, variations from the regular pension cost, described above, and interest are all charged within staff costs.

13. Taxation

The charge for taxation is based on the profit for the year and takes into account deferred taxation. Provision is made for deferred taxation only to the extent that timing differences are expected to reverse in the foreseeable future, with the exception of timing differences arising on pension costs where full provision is made irrespective of whether they are expected to reverse in the foreseeable future.

14. Financial instruments

Interest differentials, under swap agreements used to vary the amounts and periods for which interest rates on borrowings are fixed, are recognised by adjustment of interest payable.
Currency swap agreements and forward exchange contracts, used to reduce the impact of changes in currency rates on certain of the group's long term borrowings denominated in foreign currency, are valued at year end exchange rates. The resulting gains or losses are offset against foreign exchange gains or losses on the related borrowings.
Premiums or discounts on financial instruments designated as hedges are reflected as adjustments to interest payable.

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