Report of the directors

The directors submit their report and the audited financial statements of the company, British Telecommunications plc, and the group, which includes its subsidiary undertakings, for the year ended 31 March 1996.

The business review, the financial review, the discussion on corporate governance and the report of the Board Committee on Executive Remuneration (Part 1 and Part 2) form part of this report. The audited financial statements are also presented.

The groupís principal activity is the supply of telecommunication services and equipment. In the year, 98% of group turnover arose from operations in the United Kingdom.

The current directors of the company are also shown. All served throughout the financial year with the exception of Dr Iain Anderson who was appointed to the Board as from 1 November 1995 and Sir Peter Bonfield who was appointed as from 1 January 1996.

In addition, Mr Michael Hepher and Mr Paul Bosonnet served on the Board until their retirement as directors on 31 December 1995, and Sir Michael Bett served until his retirement on 31 January 1996.

In accordance with the articles of association, Sir Peter Bonfield and Dr Iain Anderson, having been appointed to the Board since the last annual general meeting, retire at the annual general meeting and will be proposed for election. Sir Iain Vallance, Sir Ewen Fergusson and Mr Robert Brace retire by rotation and will be proposed for re-election. Details of these directorsí service contracts or contracts of appointment are shown in the report of the Board Committee on Executive Remuneration.

During and at the end of the financial year, no director was materially interested in any contract of significance in relation to the groupís business.

Substantial shareholdings
At 21 May 1996, the company had received a notification from the Prudential Corporation group of companies under Part VI of the Companies Act 1985 in respect of a holding of 189 million shares representing 3.0% of the companyís issued ordinary share capital.

HM Governmentís present beneficial shareholding is 30 million shares (0.5% of the issued ordinary shares). Under the share bonus arrangements made under the UK Governmentís offer for sale in 1993, shares will be transferred from HM Government to eligible individuals who purchased shares in the offer and continue to hold them until 31 July 1996.

Policy on the payment of suppliers
BTís policy is to use its purchasing power fairly and to pay promptly and as agreed.

BT has a variety of payment terms with its suppliers. The terms for payments for purchases under major contracts are settled when agreeing the other terms negotiated with the individual suppliers. It is BTís policy to make payments for other purchases within thirty working days of the invoice date, provided that the relevant invoice is presented to the company in a timely fashion and is complete. BTís payment terms are printed on the companyís standard purchase order forms or, where appropriate, specified in individual contracts agreed with suppliers.

Close company provisions
The close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the company. There has been no change in this respect since the end of the financial year.

A resolution to reappoint Coopers & Lybrand as the companyís auditors will be proposed at the annual general meeting.

Annual general meeting resolutions
The resolutions to be proposed at the annual general meeting to be held on 18 July 1996, together with explanatory notes, appear in the separate Notice of 1996 Annual General Meeting sent to all shareholders.

By order of the Board

C R Green
Secretary and Chief Legal Adviser
21 MAY 1996

Registered office: 81 Newgate Street, London EC1A 7AJ
Registered in England: No 1800000

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