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June 18, 1987


By CBR Staff Writer

British Telecommunications Plc yesterday announced pre-tax profits over two billion pounds for the first time – and accompanied the figures with news that one or more acquistions costing up to UKP200m are very much on the cards. But, despite the figure of UKP2,067m coming right at the top-end of City expectations, the share price shed 20p before recovering to 301 down 14p on the day. There were few convincing explanations for the fall apart from a feeling that the results had been artificially boosted by the withholding of the employee bonus which last year led to UKP18m in equity being shared out between 200,000 employees. Analysts also cited profit-taking after the election and the absence of expected Japanese buying combined with generally mixed market conditions, while one dealer put the fall down to panic among juniors standing in for their seniors, all enjoying themselves and doing lots of congenial business at Royal Ascot and Lord’s cricket ground. The engineers’ strike, which some analysts thought would help and others thought would hinder the figures, turned out to be roughly neutral with the UKP70 saving in operating costs being offset by a reduction in revenue from new installations. Turnover for the year was up 12.4% to UKP9,424m, with rental income up 10.6% to UKP3,059 and call income up 9.5% at UKP4,968m. The number of residential lines in service was up 2.5% with business lines up 5.2% helped by the City’s ‘Big Bang’ which boosted the installation of private and conventional circuit lines. According to Telecom chairman Sir George Jefferson, demand from the City had exceeded even the most optimistic forecasts and was continuing to accelerate. And, he was delighted by Telecom’s absence from the newspaper headlines around October. If it had been in the news then, he said, it would have been for the wrong reasons.

Sale of second tranche of Telecom

In the event, it was the computers, nothing to do with Telecom, that broke down, and not the phone lines. Apart from the figures themselves, there was a distinct absence of exitement at both the analyst and journalist briefings with Sir George and his team. The chairman confirmed record spending on new plant and equipment, the continuing reduction in staff in core businesses through natural wastage and voluntary redundancy, and a slowdown in the rise in overheads. Sir George went on to say that competition from Racal Vodafone had helped the growth of cellular radio and competition was also pushing the value-added network market faster than expected. The charge that we are a privatised monopoly just does not stand up, according to Sir George. But, he said, Cable & Wireless’ Mercury Communications was having little direct impact on British Telecom’s level of business. Sir George also revealed that his board would shortly be meeting Treasury officals to discuss the floating off of the 50% of Telecom still in government hands. Looking forward over the next 12 months, finance director Graeme Odgers saw little change in capital expenditure from its current UKP2.1bn – UKP500m was spent on new exchanges – and forecast no deterioration in the debt-to-equity ratio, now at 33% compared to 39% last year, although he did raise the possibility of a small to medium acquisition – up to UKP200m – in the coming year. Sir George explained that Telecom was looking to grow nationally and internationally but that any acquisition was likely to be for one of the International, Overseas, or Telecom Enterprise divisions. Promising to continue the fight against call box vandalism, Sir George said that expenditure on expanding the payphone service had reached UKP160m over the last three years. In conclusion, he said, that he looked forward to making further progress this year. But he gave no indication that increased profits would be used, as British Gas announced on Wednesday, to cut prices to customers.

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