British Telecommunications Plc readily admits that the 46% increase in pre-tax profit for the half year is not quite as sparkling as it might appear. Last year’s first half saw the company hit by unusually large redundancy costs, together with other non recurring charges. Factor these out and the profit growth comes down to just 2.5%. Similarly, the nominal 5.5% growth in earnings per share shrinks to 0.3%. Redundancy costs for the first half of 1993 were UKP150m and the number of people employed by BT was cut by 4,400 to 166,300 (it had 230,000 four years ago). Since the company has committed to shedding 15,000 people this year, the majority of the costs, totalling UKP500m, will occur in the second half. All-in-all, the directors exuded a confident air, but there were warnings of turbulent times to come. Analysts were cautioned on no fewer than three occasions that the current growth in dividends – the interim payment up just over 8% this time at 6.65 pence – should not be relied upon in the future. Chairman Iain Vallance highlighted increased domestic competition, regulatory pressure, historically low inflation and overseas investment as factors inhibiting dividend growth in the future. The second half of this year will see some of these factors begin to bite. For example, with its tough price cap of 7.5% below the price of inflation, BT is forced to reduce prices by an annualised UKP500m. Last week’s price cuts on weekend long-distance calls make up only UKP130m of this year’s reduction, so the bulk of cuts still have to be made. The new price formula will hit second half revenues, the company says. Still, if the tighter margins hurt BT, they are likely to hurt the company’s UK competition just as much, as the opportunities for undercutting become harder to find. One of the most heartening statistics for British Telecom is its continued growth in call volume, which outstripped the effect of its various discount schemes, leading to a growth in domestic call turnover of 3%. Meanwhile currency fluctuations confuse international call income somewhat – the raw figures show an 11% growth in revenue, but a substantial part of this was balanced out by the increased payments which BT had to make to overseas carriers, 7% growth in turnover is a fairer measure, says the company. Currency fluctuations were also the predominant cause of a 4.3% increase in operating costs, excluding redundancy charges.
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