Notes to the financial statements
1. Turnover 1996
£m
1995
£m

Inland telephone calls 4,882 4,941
International telephone calls 1,980 1,935
Telephone exchange line rentals 2,685 2,534
Private circuits 1,056 1,024
Customer premises equipment supply946 1,041
Mobile communications 856 657
Yellow Pages directories 408 371
Other sales and services 1,633 1,390


Total turnover 14,446 13,893


Turnover included income from telecommunication operators of £1,166m (1995 - £1,155m). In the year 2% (1995 - 2%) of turnover arose from operations outside the United Kingdom. There are no discontinued operations or acquisitions which require disclosure under Financial Reporting Standard 3. In the year ended 31 March 1995 turnover of £59m was attributable to subsidiary undertakings sold in that year.

2. Operating costs 1996
£m
1995
£m

Staff costs:
Wages and salaries 3,105 3,352
Social security costs 261 282
Pension costs (note 23) 284 248
Employee share ownership scheme (a) 30 30


Total staff costs 3,680 3,912
Own work capitalised (417) (460)
Depreciation (note 12) 2,189 2,137
Payments to telecommunication operators 1,383 1,192
Redundancy charges (b) 421 820
Other operating costs 4,193 3,758
Other operating income (103) (129)


Total operating costs 11,346 11,230


Operating costs included the following:
Research and development 282 271
Rental costs relating to operating leases, including plant and equipment hire £23m (1995 - £16m) 250 234



(a) Amount set aside for the year for allocation of ordinary shares in the company to eligible employees. In previous years this charge was shown as a separate item on the face of the profit and loss account; comparative figures have been restated.

(b) Redundancy charges for the year ended 31 March 1996 included £266m (1995 - £483m) being the cost of providing incremental pension benefits for employees taking early retirement.

The directors believe that the nature of the groupís business is such that the analysis of operating costs required by the Companies Act 1985 is not appropriate. As required by the Act, the directors have therefore adapted the prescribed format so that operating costs are disclosed in a manner appropriate to the groupís principal activity.


3. Profit on sale of group undertakings
The profit in the year ended 31 March 1995 of £241m arose primarily from the disposal of the groupís interest in AT&T Corporation shares, which had been exchanged for shares in McCaw Cellular Communications, Inc previously an associated undertaking, and the disposal of BT Marine Limited, a wholly-owned subsidiary company, and a 24.9% interest in the previously wholly-owned Concert Communications Company. The profit was net of goodwill of £321m written off to reserves in prior years. In the years ended 31 March 1995 and 31 March 1996 the subsidiary undertakings disposed had a negligible effect on the groupís operating profit and cash flows and their net assets were immaterial to the groupís financial position.

4. Interest 1996
£m
1995
£m

Total interest payable 371 414


Premium on repurchase of bonds (note 16) - 75


Income from listed investments (29) (27)
Other interest receivable (172) (128)


Total interest receivable (201) (155)


Net interest payable (including premium on repurchase of bonds in 1995) 170 334



5. Tax on profit on ordinary activities 1996
£m
1995
£m

United Kingdom:
Corporation tax at 33% 1,000 839
Deferred taxation charge (credit) at 33% (20) 44
Taxation on the groupís share of results of associated undertakings 1 4
Prior year adjustments (1) (18)


Total UK taxation 980 869
Overseas taxation:
Current 8 45
Taxation on the groupís share of results of associated undertakings 39 12


Total tax on profit on ordinary activities 1,027 926



The total tax charge for the year was £31m (1995 - £48m) higher than the result of applying the UK corporation tax rate of 33% to the groupís profit on ordinary activities. This was primarily due to depreciation on certain tangible fixed assets which is not deductible for tax purposes. The higher tax charge in 1995 occurred mainly due to depreciation on tangible fixed assets and because tax relief was unavailable against the premium paid on the repurchase of bonds from HM Government. Deferred taxation of £30m (1995 - £30m) arising on excess capital allowances and £11m (1995 Ė £18m) on associated undertakingsí profits was not provided in the year ended 31 March 1996.

6. Dividends 1996
pence
per share
1995
pence
per share
1996
£m
1995
£m


Interim dividend paid 7.45 7.05 469 439
Proposed final dividend 11.25 10.65 715 669



Total dividends 18.70 17.70 1,184 1,108




7. Earnings per share
Earnings per share are calculated by dividing the profit for the financial year ended 31 March 1996, amounting to £1,986m (1995 - £1,731m), by 6,283 million shares, the average number of shares in issue during the financial year (1995 - 6,228 million). A fully diluted earnings per share figure based on share options outstanding is not provided as the effect on the earnings per share is not significant.

8. Net cash inflow from operating activities 1996
£m
1995
£m

Operating profit 3,100 2,663
Depreciation 2,189 2,137
Reduction (increase) in stocks 36 (40)
Increase in debtors (335) (109)
Increase in creditors 493 265
Increase in pension provisions 309 230
Decrease in other provisions - (2)
Other 37 (31)


Net cash inflow from operating activities 5,829 5,113



9. Financing Share capital
(including
premium)
£m
Minority
interests
£m
Loans and
other
borrowings
£m



Balances at 1 April 1994 1,917 95 3,999
Net cash inflows (outflow) from financing 57 61 (278)
Reduction in bank overdrafts and other short-term borrowings (note 10) - - (57)
Currency movements - - (132)
Other, including minority share of losses less retained profits - (24) 19




Balances at 31 March 1995 1,974 132 3,551
Net cash inflows from financing 130 59 26
Reduction in bank overdrafts and other short-term borrowings (note 10) - - (29)
Currency movements - 1 65
Other, including minority share of losses less retained profits - (12) 24




Balances at 31 March 1996 2,104 180 3,637





10. Cash and cash equivalents 31 March
1996
£m
31 March
1995
£m
1996
Change
in year
£m
1995
Change
in year
£m


Short-term investments (a)1,276 461 815 (629)
Cash at bank and in hand 121 138 (17) 78
Bank overdrafts and other short-term borrowings (a) (13) (42) 29 57



Total 1,384 557 827 (494)



Currency movements (6) 4



Increase (decrease) in cash and cash equivalents in year 821 (490)




(a) Investments or borrowings with original maturities of less than three months. Changes in other investments or borrowings are dealt with in the cash flow statement under investing activities or financing, respectively.
Contents Next page