Financial review

BT's financial performance has been adversely affected for the second year running by the combined effects of tight price controls, increased competition and the depressed UK economy. Reduced staffing levels and firm control of other costs largely counteracted the low level of volume growth, but led to high redundancy charges.

BT's earnings per share for the year were 19.8 pence, compared with 33.2 pence in the previous year, and pre tax profit was £1,972 million, a reduction of £1,101 million, mainly due



to redundancy charges of £1,034 million. These include the cost of providing early leavers with pension benefits. The results also included a net loss of £132 million on the disposal of businesses no longer key to BT's strategy and a premium of £56 million paid to HM Government, allowing the company to pay off early some of its debt due to the Government, which was carrying a high rate of interest.

A total of 39,800 people left the group in the year, including 31,700 leaving under voluntary release schemes. These redundancies were one of the main reasons why the company's pension scheme has moved into deficit. As well as resuming payment of contributions for all active members, BT intends to make a contribution of £800 million to the scheme in the year ending 31 March 1994, thus giving added security to members' pension rights.

Price controls

The tight price controls and poor economic climate meant that, overall, prices were not raised in the year, although BT continued to make rebalancing increases on exchange line rentals, better to reflect costs.
Increased competition led to BT's share of the UK business market for telephone calls and provision of exchange lines going down from 90 per cent in the previous 12 months to 87 per cent in the year.
Turnover declined slightly, by 0.7 per cent, in the year, primarily due to the effect of the disposal of subsidiary companies.
The number of customer lines grew by 1.9 per cent to 26.1 million, but telephone call revenues were almost unchanged because an increased volume of international calls was offset by price reductions; there was negligible volume growth in inland calls.

Operating costs

Operating costs, before redundancy charges, were largely held at the previous year's level as a result of continuing firm control. Operating profit, before redundancy charges, grew by 1.1 per cent.

Dividends

Dividends paid and recommended of 15.6 pence per share represent an 8.3 per cent increase on the previous year, reflecting the group's underlying performance and financial strength. They are covered 1.3 times by earnings.

BT's balance sheet continues to be strong; net debt was reduced in the year by £743 million to £1,762 million. The return on capital employed fell from 19.3 per cent to 13.6 per cent due to the redundancy charges.

Capital expenditure totalled £2,155 million, a reduction of £291 million on the previous year. Progress continued to be made in upgrading the local telephone network.



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