Investing For The Future Building On A History Of: Annual Report & Form 20-F 2015

BT Group plc
Annual Report & Form 20-F 2015
Investing for the future

building on a history of
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Our current innovations
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Our history of innovation
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Welcome to BT Group plcs

Annual Report & Form 20-F 2015
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Contents
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The Strategic Report
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Please see the cautionary statement regarding forward-looking statements

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The Purpose and strategy, Delivering our strategy, Our lines of business and
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BT Group plc
Annual Report 2015
Chairmans introduction
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Overview

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BT Group plc
Annual Report 2015
Our purpose
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Overview

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External environment
Governance
Our purpose
To use the power of communications to make a better world
Our goal
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Our strategy
Broaden and deepen our customer relationships

Transform
our costs
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customer service
Inputs
Invest for
growth
Outputs &
Outcomes
Value creation
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content
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UK business
markets
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Find out more

Our business model inputs
on page
28
PC_FRONT.indb 5
Our business model outputs

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28
Our Governance
on page
93
Our Risks
on page
41
5/15/2015 1:46:55 AM
BT Group plc
Annual Report 2015
Key performance indicators
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Trend in underlying revenue excluding transit
Year ended 31 March
15
(2.0)
2011
2012
a Financial outlook which was
2013
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given at the start of the year.
2014
2015
2011
2012
2013
2014
2015
Result
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Year ended 31 March
Customer service improvement

At 31 March
m
2,900
2014
18.7
1.5
2013
4.7
(4.0)
2012
2015
2015b
3.0
15
3.0
2,830
%
20
2,700
2,300
2012
2013
a Financial outlook which was
given at the start of the year.
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10.5
2,307
2011
10
2,450
2,076
2,500
1,900
31.5
(3.0)
2,100
26.3
10
(2.5)
2,300
23.4
(0.4)
20
28.2
0.5
25
(1.5)
(3.5)
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pence
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Adjusted earnings per share

Year ended 31 March
%
1.0
0.0
Our performance for the year
20.7
2014
Result
~EQ
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2010
2011
b Cumulative improvement in
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Target
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Find out more

Our KPIs
on page
80
PC_FRONT.indb 6
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from page
77
5/15/2015 1:46:56 AM
Overview

Group performance
Governance
Financial highlights
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Proposed full year dividend

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2015

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p
10.9p
^
2,500
2,400
6,271
6,018
6,116
5,840
2015
1%
0%
3%
3%
6,000
4,000
2,000
2,000
2013
2014
reported
normalisedc
2015
2014
2015
5%
7%
28%
16%
Adjusted revenue by line of business

Year ended 31 March 2015
11%
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2014
5,119
2,700
2,600
2,300
5,791
11,580
m
8,000
2,800
2,100
reported
adjusteda
2015
Net debt
At 31 March
m
2,900
2,200
6,143
11,961
12,171
4%
5%
Free cash Rw
Year ended 31 March
28%
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(including internal)
2013
2014
24%
BT Consumer
15%
BT Business
2015d
Adjusted EBITDA by line of business

41%
Openreach
38%
BT Global
Services
12%
BT
Wholesale
17%
BT Global
Services
17%
BT
Business
9%
BT Wholesale
16%
BT Consumer
See page 54 for commentary on relative

contributions by each line of business
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2013
7,797
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2015
2,830
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2014
2,782
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1%
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2013
2,450
2014
5,800
5,600
2015
2,171
2014
2,292
reported
adjusted a

6,000
11,000
2013
2015
6,200
11,500
2,300
17,000
12,196
17,851
17,500
12,000
17,979
18,000
12,447
m
6,400
12,312
m
12,500
18,287
m
18,500
18,287
EBITDA
Year ended 31 March
18,339
Operating costsb
Year ended 31 March
18,103
Revenue
Year ended 31 March
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5/15/2015 1:46:56 AM
BT Group plc
Annual Report 2015
How our lines of business performed

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BT Business 12-month rolling order intake

Year ended 31 March
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400
2,100
300
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200
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100
0
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2014
Q4
Q1
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5/15/2015 1:47:00 AM
Overview

Governance
BT Consumer
BT Wholesale
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BT Wholesale 12-month rolling order intake

Year ended 31 March
BTs retail broadband market share

At 31 March
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2011
2012
2013
0DUNHWVKDUHRIEURDGEDQGOLQHV'6/EUH
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PC_FRONT.indb 9
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2015
500
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Q1
Q2
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2014
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Q2
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2015
Q4
5/15/2015 1:47:03 AM
BT Group plc
Annual Report 2015
Openreach
BT Technology, Service & Operations (BT TSO)
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5/15/2015 1:47:31 AM
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BT Group plc
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PC_FRONT.indb 22
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Overview

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Cost transformation within
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53
PC_FRONT.indb 23
5/15/2015 1:47:31 AM
24
BT Group plc
Annual Report 2015
Invest for growth
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PC_FRONT.indb 24
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Overview

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PC_FRONT.indb 25
5/15/2015 1:47:32 AM
26
BT Group plc
Annual Report 2015
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Overview

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BT Group plc
Annual Report 2015
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BT Group plc
Annual Report 2015
How we create value
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PC_FRONT.indb 35
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BT Group plc
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BT Supplier Policy
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5/15/2015 1:47:53 AM
38
BT Group plc
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151
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2014
178
65
142
2015
Total gross emissions Total net emissions

Scope 1: combustion of fuel and operation of facilities
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Scope 3: other indirect emissions
Figures exclude third-party consumption
BTs worldwide energy usea

Year ended 31 March
Gwh
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2,402
2,400
2,515
2,500
2,600
2,600
2,675
2,700
2,756
2,800
2,200
2,100
2,000
2011
2012
2013
2014
2015
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Overview

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42
BT Group plc
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Our principal risks

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44
BT Group plc
Annual Report 2015
Risk description
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Growth in a competitive market

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of change; strong and new competition; declining prices and,
in some markets, declining revenues; technology substitution;
market and product convergence; customer churn; and
regulatory intervention to promote competition and reduce
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46
BT Group plc
Annual Report 2015
Risk description
Impact
Link to strategy
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Communications industry regulation

Regulation impacts our activities across all jurisdictions.
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Business integrity and ethics

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5/15/2015 1:47:54 AM
Overview

Group performance
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5/15/2015 1:47:54 AM
48
BT Group plc
Annual Report 2015
Risk description
Impact
Link to strategy
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We operate in a global supply market. This enables us to
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As a major data controller and processor of customer
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PC_FRONT.indb 48
5/15/2015 1:47:54 AM
Overview

Group performance
Governance
Risk mitigation
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PC_FRONT.indb 49
5/15/2015 1:47:54 AM
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5/15/2015 1:47:55 AM
Overview

Group performance
Governance
53

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54 How we are organised

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59 BT Business
64 BT Consumer
68 BT Wholesale
71 Openreach
76 BT Technology, Service & Operations
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PC_FRONT.indb 53
5/15/2015 1:47:55 AM
54
BT Group plc
Annual Report 2015
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22,000 or 25%
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18,100 or 20%
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8,000 or 9%
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6,200 or 7%
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11%
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32,700 or 37%
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Adjusted EBITDA by line of business

41%
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17%
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17%
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9%
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PC_FRONT.indb 54
5/15/2015 1:47:56 AM

Overview
BT Global Services
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PC_FRONT.indb 55
5/15/2015 1:47:56 AM
56
BT Group plc
Annual Report 2015
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PC_FRONT.indb 59
5/15/2015 1:47:56 AM
BT Group plc
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PC_FRONT.indb 60
5/15/2015 1:47:56 AM
Overview

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PC_FRONT.indb 61
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62
BT Group plc
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Key facts:
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m
2,300
2,200
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2.1bn
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PC_FRONT.indb 67
5/15/2015 1:47:57 AM
68
BT Group plc
Annual Report 2015
BT Wholesale
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PC_FRONT.indb 71
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BT Group plc
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PC_FRONT.indb 72
5/15/2015 1:47:58 AM

Overview
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Over 22m premises passed
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than three-quarters of the UK
215,000 increase in the

number of physical lines
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passed
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market grew by 851,000
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m
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Premises passed (LHS)
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2014
73
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Year ended 31 March
000
500
450
400
350
300
250
200
150
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2011
Governance
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Find out more

BTs Undertakings
on page
38
PC_FRONT.indb 73
5/15/2015 1:47:59 AM
74
BT Group plc
Annual Report 2015
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Openreachs service performance
www.homeandwork.openreach.co.uk/
our-responsibilities
PC_FRONT.indb 74
5/15/2015 1:47:59 AM
Overview

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76
BT Group plc
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Our research and development
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34
PC_FRONT.indb 76
Recruitment of graduates and

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5/15/2015 1:47:59 AM
Overview

Group performance
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PC_FRONT.indb 77
5/15/2015 1:47:59 AM
78
BT Group plc
Annual Report 2015
Group Finance Directors introduction
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5/15/2015 1:48:01 AM
Overview

Group performance
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2015
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adjusteda
m
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,100
2,000
2014
2015
5,791
6,271
6,018
6,116
5,840
2015
2014
2015
1%
0%
3%
3%
2015
2014
2015
2014
2015
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6,000
2,450
4,000
2,000
2,171
2,300
2,782
m
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2,292
2,326
2,346
2,438
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Year ended 31 March
2,120
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2,240
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5%
2,830
reported
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1%
0%
15
1,000
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2014
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20
26.3
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25
24.8
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2,500
2,645
30
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3,000
2,312
pence
35
2,656
m
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6,143
11,961
12,171
11,580
reported
2013
2015
5,119
2015
1%
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5,800
5,600
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11,000
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12,000
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18,000
18,287
m
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18,287
m
18,500
18,339
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Year ended 31 March
18,103
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Year ended 31 March
2014
2015
2014
2015
5%
7%
28%
16%
2013
2014
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5/15/2015 1:48:01 AM
80
BT Group plc
Annual Report 2015
Group performance
Our progress against our KPIs
Our progress against our KPIs
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Our key measure of the

groups revenue trend,
underlying revenue excluding
transit, was down 0.4%, in
line with the outlook we set at
the start of the year.
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Outlook

increased 12% to 31.5p.
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information on page 222
2015
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We generated normalised free
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was higher than our outlook
for the year of more than
2.6bn and 380m above the
prior year.
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Our customer service
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PC_FRONT.indb 80
5/15/2015 1:48:02 AM
Overview

%
1.0
2011
2012
2013
(0.4)
(3.1)
0.5
(1.9)
(1.0)
(3.0)
0.0
(0.5)
(1.5)
(2.0)
(2.5)
(3.0)
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Governance
2014
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2015

Year ended 31 March
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10
5
0
2011
2012
2013
2014
2015
Year ended 31 March
2,830
m
2,900
2,700
2011
2012
2013
2,450
2,300
1,900
2,307
2,100
2,076
2,500
2,300
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2015

At 31 March
4.7
18.7
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3.0
3.0
10.5
10
1.5
%
20
15
5
0
2010
2011
2012
81
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Year ended 31 March
0.5
Group performance
2013
2014
2015
2015a
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PC_FRONT.indb 81
5/15/2015 1:48:02 AM
BT Group plc
Annual Report 2015
Income statement
EBITDA
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6,116
6,143

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3,733
3,421
3,300

3,172
2,827
2,656

2,541
2,214
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11,750
11,580
6,271
11,000
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31

Other
Operating costsa
127
18,339
Programme
rights charges
18,287
307
17,851
Net labour costs
Revenue
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201

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12,171
Summarised income statement
2014
82
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PC_FRONT.indb 82
5/15/2015 1:48:02 AM
Overview

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2014/15 operating costsa

29%
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36%
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28.2
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2014
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Year ended 31 March
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0.3
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26.3
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5/15/2015 1:48:02 AM
84
BT Group plc
Annual Report 2015
Dividends
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15%
6.5 9.5
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PC_FRONT.indb 85
5/15/2015 1:48:03 AM
86
BT Group plc
Annual Report 2015
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2034
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PC_FRONT.indb 86
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Overview

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PC_FRONT.indb 87
5/15/2015 1:48:03 AM
88
BT Group plc
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Capital expenditure
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1,000
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0
2013
2014
Broadband capex
Fibre capex
Network capex
Customer capex
2015
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PC_FRONT.indb 89
5/15/2015 1:48:03 AM
90
BT Group plc
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Contractual obligations and commitments
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Overview

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PC_FRONT.indb 91
Group performance
Governance
91
Valuing Digital Inclusion

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92
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Annual Report 2015
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5/15/2015 1:48:06 AM
Overview

Group performance
Governance
95
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The Board
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You can view a formal
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5/15/2015 1:48:06 AM
96
BT Group plc
Annual Report 2015
Board of Directors
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Sir Michael Rake
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Feb 2006
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Sir Michael Rake

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Overview

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104
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Overview

BT Pensions Committee Chairmans report
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Chairman of the BT Pensions Committee
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PC_FRONT.indb 109
5/15/2015 1:48:32 AM
110
BT Group plc
Annual Report 2015
Committee for Sustainable and Responsible

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Sir Michael Rake
Chairman of the Committee for Sustainable and Responsible Business
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Find out more

Our societal and environmental
initiatives at www.bt.com/
deliveringourpurpose
PC_FRONT.indb 110
The Making Waves

report at
www.betterfutureforum.bt.com/
5/15/2015 1:48:34 AM
Overview

Report on Directors Remuneration
Group performance
Governance
111
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PC_FRONT.indb 111
5/15/2015 1:48:36 AM
112
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PC_FRONT.indb 112
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Overview

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ordinary shares.
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PC_FRONT.indb 116
5/15/2015 1:48:37 AM
Overview

Group performance
Governance
117
Deferred Bonus Plan awards at 31 March 2015 (audited)
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the average middle market price of a BT share for the three days prior to the grant. Awards of
deferred shares in respect of 2015 will be calculated using the average middle market price of a
BT share for the three days prior to grant.
PC_FRONT.indb 117
5/15/2015 1:48:37 AM
118
BT Group plc
Annual Report 2015
Share awards under long-term incentive schemes held at 31 March 2015 (audited)
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over three years.
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of shares subject to award was calculated using the average middle market price of a BT share
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over three years.
Share options held at 31 March 2015 (audited)

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the company are entitled to participate.
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PC_FRONT.indb 118
Option price
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5/15/2015 1:48:37 AM

Overview
Comparison of Chief Executive remuneration to Total

Shareholder Return
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Group performance
Governance
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also participate in performance related pay arrangements on a similar
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c The bonus comparator is based on cash bonus only to give a better like for like comparison.
d Comparator group is the UK management and technical employee population representing around
650
550
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50
119
Percentage change in Chief Executive remuneration

(comparing 2013/14 to 2014/15)
BTs TSR performance vs the FTSE100

%
Mar 09
BT
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
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Implementation of Remuneration Policy in 2015/16

Base salary
FTSE100
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employees
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PC_FRONT.indb 119
5/15/2015 1:48:37 AM
BT Group plc
Annual Report 2015
Annual bonus
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Chief Executive and Group Finance Director
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Customer service
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PC_FRONT.indb 120
5/15/2015 1:48:37 AM
Overview

Chairman and non-executive director remuneration
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5/15/2015 1:48:37 AM
Overview

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5/15/2015 1:48:37 AM
124
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Annual Report 2015
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PC_FRONT.indb 124
5/15/2015 1:48:37 AM
Overview

Group performance
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Our opinion
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statements):
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at 31{0DUFKDQGRILWVSURWDQGFDVKRZVIRUWKH\HDU
then{ended;
r have been properly prepared in accordance with International
)LQDQFLDO5HSRUWLQJ6WDQGDUGVIFRS) as adopted by the European
Union; and
r have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
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to applying IFRS as adopted by the European Union, has also applied
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issued by the IASB.
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r the group balance sheet as at 31 March 2015;
r the group income statement and group statement of comprehensive
income for the year then ended;
r WKHJURXSFDVKRZVWDWHPHQWIRUWKH\HDUWKHQHQGHG
r the group statement of changes in equity for the year then ended; and
r WKHQRWHVWRWKHQDQFLDOVWDWHPHQWVZKLFKLQFOXGHDVXPPDU\RI
VLJQLFDQWDFFRXQWLQJSROLFLHVDQGRWKHUH[SODQDWRU\LQIRUPDWLRQ
Certain required disclosures have been presented elsewhere in the
$QQXDO5HSRUW )RUP)WKHAnnual Report), rather than in
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as adopted by the European Union.
financials.indb 138
2XUDXGLWDSSURDFK
Overview
r Overall group materiality: 120m, which represents 5% of the
DYHUDJHRISURWEHIRUHWD[IRUWKHFXUUHQW\HDUDQGWKHSUHYLRXV
three years.
r We conducted full scope audit work at three reporting units the UK,
Italy and Germany.
r 6SHFLFDXGLWSURFHGXUHVZHUHSHUIRUPHGLQIRXUUHSRUWLQJXQLWV
based on our risk assessment in France, Ireland, the Netherlands
and Spain.
r The reporting units within our audit scope accounted for over 80%
RIWKHJURXSoVUHYHQXHDQGSURWEHIRUHWD[
Our assessment of the risk of material misstatement also informed
our views on the areas of particular focus for our work which are
listed below:
r Major contracts in BT Global Services and BT Wholesale
r Accuracy of revenue due to complex billing systems
r Pension scheme obligations and unquoted investments in the
BT{Pension Scheme
r Regulatory and other provisions
r Capitalisation practices and asset lives for property, plant and
equipment and software intangible assets
r Recognition and measurement of potential tax exposures and
tax assets
r Assessment of the carrying value of goodwill in BT Global Services
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards
RQ$XGLWLQJ8.DQG,UHODQG,6$V8. ,UHODQG).
We designed our audit by determining materiality and assessing the
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we looked at where the directors made subjective judgements, for
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making assumptions and considering future events that are inherently
uncertain. As in all of our audits, we also addressed the risk of
management override of internal controls, including evaluating whether
there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
7KHULVNVRIPDWHULDOPLVVWDWHPHQWWKDWKDGWKHJUHDWHVWHHFWRQRXU
DXGLWLQFOXGLQJWKHDOORFDWLRQRIRXUUHVRXUFHVDQGHRUWDUHLGHQWLHG
as areas of focus in the table below. We have also set out how we
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RSLQLRQRQWKHQDQFLDOVWDWHPHQWVDVDZKROHDQGDQ\FRPPHQWVZH
make on the results of our procedures should be read in this context.
7KLVLVQRWDFRPSOHWHOLVWRIDOOULVNVLGHQWLHGE\RXUDXGLW
15/05/2015 01:51
Overview

Group performance
Governance
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Refer to page 102$XGLW 5LVN&RPPLWWHH5HSRUWSDJH1491RWH
2 Critical accounting estimates and key judgements) and page 151
1RWHs6LJQLFDQWDFFRXQWLQJSROLFLHV
We tested a sample of major contracts through the year, focusing

our work on those which are material by size or which we otherwise
regarded as higher risk because of the nature of the contract or
its stage of delivery. In performing this testing we assessed the
appropriateness of the assumptions and judgements underpinning the
accounting for these major contracts as follows:
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of:
r WKHGHWHUPLQDWLRQDQGWLPLQJRIUHFRJQLWLRQRIFRQWUDFWSURWVDQG
WKHDVVXPSWLRQVXQGHUSLQQLQJWKHOLIHWLPHSURWDELOLW\IRUHFDVWVIRU
the contracts;
r completeness and adequacy of provisions against contracts
projected to be loss making; and
r WKHUHFRYHUDELOLW\RIFRQWUDFWVSHFLFDVVHWVLQFOXGLQJGHIHUUHG
costs and property, plant and equipment.
Our work focused on the contracts in BT Global Services and BT
Wholesale.
139
r :HHYDOXDWHGWKHGHVLJQDQGWHVWHGWKHRSHUDWLQJHHFWLYHQHVVRI
controls in respect of the accounting for major contracts.
r We obtained and read the relevant sections of the contracts agreed
between BT and the customer, tested a sample of revenue and cost
transactions to supporting evidence of delivery and acceptance and
assessed the revenue recognised in the period by comparing it with
the contractual terms and actual pattern of delivery of services.
r We compared the forecast results of each contract to the actual
results to assess the performance of the contract and the historical
accuracy of forecasting.
:HDVVHVVHGWKHUHDVRQDEOHQHVVRIOLIHWLPHSURWDELOLW\IRUHFDVWVE\
analysing historical contract performance relative to overall contractual
commitments. We challenged directors assumptions on the future
costs including any forecast savings by assessing the actions required
to achieve these forecasts. In determining whether the provisions for
loss making contracts are adequate, we considered the results of the
above procedures.
:HFKDOOHQJHGWKHUHFRYHUDELOLW\RIFRQWUDFWVSHFLFDVVHWVGHGLFDWHG
to the sampled contracts by examining contractual cover or assessing
UHFRYHUDELOLW\DJDLQVWWKHIRUHFDVWSURWDELOLW\RIWKHUHOHYDQWFRQWUDFW
We considered the accounting adopted to be in line with the groups
accounting policies.
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Refer to page 1501RWH3 6LJQLFDQWDFFRXQWLQJSROLFLHV and page
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The accuracy of revenue amounts recorded is an inherent industry risk.
This is because telecoms billing systems are complex and process large
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SULFHFKDQJHVLQWKH\HDUWKURXJKDQXPEHURIGLHUHQWV\VWHPV
We evaluated the relevant IT systems and the design of controls, and

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r capture and recording of revenue transactions;
r authorisation of rate changes and the input of this information
to the billing systems; and
r calculation of amounts billed to customers.
We also tested a sample of customer bills and checked these to cash
received from customers. Our testing included customer bills for
consumers, corporate and wholesale customers.
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material misstatements in our substantive testing.
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We focused on this area because the valuation of the BT Pension
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UHTXLUHWKHXVHRIHVWLPDWHVDQGVLJQLFDQWMXGJHPHQWDQGDVPDOO
FKDQJHLQWKHDVVXPSWLRQVFDQKDYHDPDWHULDOLPSDFWRQWKHQDQFLDO
statements.
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in respect of the determination of the pension scheme obligations.
We assessed and challenged the reasonableness of actuarial
assumptions used in valuing the pension scheme obligations.
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our internally developed benchmarks. We tested underlying inputs
used in determining the obligations.
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investments. We tested the existence of the unquoted investments
and we tested the valuation of these investments on a sample basis.
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r For property assets, we tested internal controls at the property fund
manager and obtained valuation reports prepared by third party
specialist valuers. We assessed the methods and assumptions used
by the valuers.
r For direct investments, the valuations of the investments are derived
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used in the valuations by checking that the assumptions used were
consistent with our internally developed range of discount rates, by
FRPSDULQJWKHFDVKRZVWRKLVWRUical results and considering the
impact of other external information. We tested the accuracy of the
calculations and assessed whether the assumptions used were in line
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the investment shareholding.
r )RURWKHUXQTXRWHGLQYHVWPHQWVZHREWDLQHGFRQUPDWLRQVIURP
the custodians and the investment managers.
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LQWKHQDQFLDOVWDWHPHQWV
financials.indb 139
15/05/2015 01:51
140
BT Group plc
Annual Report 2015
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For regulatory provisions, we read correspondence and

pronouncements from Ofcom and the Competition Appeal Tribunal.
We held discussions with management to understand the risk
associated with historical transactions where there is not yet a formal
dispute but there is a known risk of dispute.
The group has provisions of 564m relating to restructuring, property

DQGRWKHUFRPSULVLQJOLWLJDWLRQUHJXODWRU\ULVNVDQGLQVXUDQFHFODLPV
Provisions are based on judgements and estimates made by the
directors. In particular, the current telecoms regulatory environment
has seen an increased frequency and magnitude of matters brought to
Ofcom and the Competition Appeal Tribunal in the UK in recent years.
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For legal provisions, we held discussions with the groups general
counsel and head of litigation, read the summary of litigation
matters provided by management and discussed each of the material
cases noted in the report to determine the groups assessment of
the likelihood and magnitude of any liability that may arise. Where
appropriate and relevant, we examined correspondence connected
with the cases, including external legal advice.
For all provisions we tested the calculation of the provisions, assessed
the assumptions including with third party data where available), and
assessed the judgements against historical trends. From the evidence
obtained, we considered the directors judgements on the level of
provisioning to be appropriate in the context of materiality.
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1RWHs3URSHUW\plant and equipment)
Capitalisation of costs and the useful lives assigned to assets are areas
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There are two main risks that we addressed in our audit:
r the risk that amounts being capitalised do not meet capitalisation
criteria; and
r the risk that the useful economic lives assigned to assets are
inappropriate.
Our work also focused on the capitalisation of costs for broadband
deployment under the BDUK programme and the recognition of the
associated capital grants.
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of controls around the property, plant and equipment cycle and
software intangible assets cycle, including the controls over whether
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us with audit evidence in respect of the capitalisation practices.
We assessed the nature of costs incurred in capital projects through
testing of amounts recorded and assessing whether the description
of the expenditure met capitalisation criteria. We found no material
misstatements from our testing.
We tested the controls over the annual review of asset lives.
In addition, we tested whether the directors decisions on asset lives
are appropriate by considering our knowledge of the business and
practice in the wider telecoms industry. We also tested whether
approved asset life changes were appropriately applied prospectively
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consistent with those commonly used in the industry and appropriately
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users) applied by the directors to calculate the level of capital grants
attributable to superfast broadband deployment in rural areas and we
tested the calculation of the accrual based on these assumptions and
the current level of capital investment. From the evidence obtained,
we considered the level of grant recognition, to be appropriate in the
context of materiality.
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assets
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We focused on this area due to the judgements required in determining
the gURXSoVHHFWLYHWD[UDWHVSHFLFDOO\LQUHODWLRQWRWKHUHFRJQLWLRQ
of tax exposures and potential deferred tax assets.
We assessed and evaluated managements rationale in relation to the

level of tax provisions. We considered the status of recent and current
tax audits and enquiries, the results of previous claims and changes
to the tax environments. We utilised our specialist tax knowledge and
experience of similar situations elsewhere to examine tax planning
arrangements and assess managements judgements.
In the calculation of deferred tax assets, we evaluated the amount of
WD[ORVVHVUHFRJQLVHGLQOLJKWRIIXWXUHSURMHFWHGSURWDELOLW\RIWKH
relevant subsidiary companies.
From the evidence obtained, we considered the level of provisioning
and the deferred tax recognition to be appropriate in the context
of{materiality.
financials.indb 140
15/05/2015 01:51
Overview

Group performance
Governance
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Board approved forecasts. We considered the directors expectations
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contract renewals) and planned operational improvements and
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As at 31 March 2015, goodwill relating to the BT Global Services cash

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balance of 1,396m. The directors have prepared an impairment
assessment that is based on a value in use calculation of the
BT Global Services CGU.
We focused on the impairment assessment for BT Global Services as
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the long term growth rate, the discount rate and the assumptions
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141
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Services CGU with previous forecasts and determined whether any
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We independently calculated a weighted average cost of capital by
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rate to market data.
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the{directors and performed further sensitivity analyses, primarily
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and assessed them as appropriate.
How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough
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whole, taking into account the geographical structure of the group, the
accounting processes and controls, and the industry in which the group
operates.
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in each of the reporting units. These are responsible for their own
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team in London through an integrated consolidation system.
In establishing the overall approach to the group audit, we determined
the type of work that needed to be performed at reporting units by
us, as the group engagement team, or component auditors from other
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was performed by component auditors, we determined the level of
involvement we needed to have in the audit work at those reporting
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evidence had been obtained as a basis for our opinion on the group
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purchases and payables, cash and provisions were performed.
This,{together with additional procedures performed on centralised
functions and at the group level, gave us the evidence we needed for our
RSLQLRQRQWKHFRQVROLGDWHGQDQFLDOVWDWHPHQWVDVDZKROH
The group engagement team performed the audit of the UK reporting
unit. The group team visited Italy and Germany and conference calls
were held with these teams on a regular basis. The group engagement
team was also involved in the audits of the four reporting units for
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of visits and conference calls.
The reporting units within the scope of our group audit procedures
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Materiality
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We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and
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Based on our professional judgement, we determined materiality for the
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Overall group materiality
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How we determined it
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the current year and the previous three
years.
Rationale for benchmark

applied
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for the current year and previous three
years to reduce volatility in the measure
year on year.
We agreed with the Audit & Risk Committee that we would report to
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5m) as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors
statement, set out on page 130, in relation to going concern.
We have nothing to report having performed our review.
As noted in the directors statement, the directors have concluded
WKDWLWLVDSSURSULDWHWRSUHSDUHWKHQDQFLDOVWDWHPHQWVXVLQJWKH
going concern basis of accounting. The going concern basis presumes
that the group has adequate resources to remain in operation, and
that the directors intend it to do so, for at least one year from the
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have concluded that the directors use of the going concern basis
is{appropriate.
However, because not all future events or conditions can be predicted,
these statements are not a guarantee as to the groups ability to
continue as a going concern.
financials.indb 141
15/05/2015 01:51
142
BT Group plc
Annual Report 2015
Other required reporting
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Companies Act 2006 opinion
In our opinion, the information given in the 6WUDWHJLF5HSRUW and the 5HSRUWRIWKH'LUHFWRUVIRUWKHQDQFLDO\HDUIRUZKLFKWKHQDQFLDOVWDWHPHQWV
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r information in the Annual Report is:
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apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the group acquired in the course of performing our audit; or
otherwise misleading.
We have no exceptions to report arising

from this responsibility.
r the statement given by the directors on page 130, in accordance with provision C.1.1 of the UK
&RUSRUDWH*RYHUQDQFH&RGHthe Code), that they consider the Annual Report taken as a whole
to be fair, balanced and understandable and provides the information necessary for members to
assess the groups performance, business model and strategy is materially inconsistent with our
knowledge of the group acquired in the course of performing our audit.

r the section of the Annual Report on page 101, as required by provision C.3.8 of the Code,
describing the work of the Audit & Risk Committee does not appropriately address matters
communicated by us to the Audit & Risk Committee.

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Under the Companies Act 2006 we are required to report to you if, in
our opinion, we have not received all the information and explanations
we require for our audit. We have no exceptions to report arising from
this responsibility.
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An audit involves obtaining evidence about the amounts and disclosures
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caused by fraud or error. This includes an assessment of:
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by{law are not made. We have no exceptions to report arising from
this{responsibility.
r whether the accounting policies are appropriate to the groups

circumstances and have been consistently applied and adequately
disclosed;
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directors; and
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Under the Listing Rules we are required to review the part of the
Corporate Governance Statement relating to the companys compliance
with ten provisions of the UK Corporate Governance Code. We have
nothing to report having performed our review.
5HVSRQVLELOLWLHVIRUWKHQDQFLDOVWDWHPHQWVDQGWKHDXGLW
2XUUHVSRQVLELOLWLHVDQGWKRVHRIWKHGLUHFWRUV
As explained more fully in the Statement of directors responsibilities
set out on page 130, the directors are responsible for the preparation of
the{QDQFLDOVWDWHPHQWVDQGIRUEHLQJVDWLVHGWKDWWKH\JLYHDWUXHDQG
fair{view.
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Those standards require us to comply with the Auditing Practices Boards
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the companys members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
We primarily focus our work in these areas by assessing the directors

judgements against available evidence, forming our own judgements,
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We test and examine information, using sampling and other auditing
techniques, to the extent we consider necessary to provide a reasonable
basis for us to draw conclusions. We obtain audit evidence through
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combination of both.
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in the Annual Report to identify material inconsistencies with the
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apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Other matter
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BT{Group plc for the year ended 31 March 2015 and on the information
in the 5HSRUWRQ'LUHFWRUVo5HPXQHUDWLRQ that is described as having
been{audited.
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Chartered Accountants and Statutory Auditors
London
6 May 2015
financials.indb 142
15/05/2015 01:51
Overview

Group performance
United States opinion
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to the Board of directors and shareholders of BT Group plc
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In our opinion, the accompanying group balance sheets and the
related group income statements, group statements of comprehensive
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of BT Group plc and its subsidiaries at 31 March 2015 and 31 March
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of the three years in the period ended 31 March 2015 in conformity
with International Financial Reporting Standards as issued by the
International Accounting Standards Board. Also in our opinion, the
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established in the Turnbull Guidance.
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VWDWHPHQWVIRUPDLQWDLQLQJHHFWLYHLQWHUQDOFRQWURORYHUQDQFLDO
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the 5HSRUWRIWKHDirectors, *HQHUDOLQIRUPDWLRQ, of the BT Group plc
Annual Report & Form 20-F 2015.
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and on the cRPSDQ\oVLQWHUQDOFRQWURORYHUQDQFLDOUHSRUWLQJEDVHGRQ
our integrated audits. We conducted our audits in accordance with the
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States). Those standards require that we plan and perform the audits
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Governance
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designed to provide reasonable assurance regarding the reliability of
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external purposes in accordance with generally accepted accounting
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reasonable assurance that transactions are recorded as necessary to
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accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorisations of
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assurance regarding prevention or timely detection of unauthorised
acquisition, use, or disposition of the companys assets that could have
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reporting may not prevent or detect misstatements. Also, projections of
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that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may{deteriorate.
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London, United Kingdom

6 May 2015
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EDVLVHYLGHQFHVXSSRUWLQJWKHDPRXQWVDQGGLVFORVXUHVLQWKHQDQFLDO
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reporting included obtaining an understanding of internal control over
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internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for{our opinions.
financials.indb 143
15/05/2015 01:51
144
BT Group plc
Annual Report 2015
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Before
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itemsa
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25

17

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25

25
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financials.indb 144
15/05/2015 01:51
Overview

Group performance
Governance
145
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Year ended 31 March
Notes
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Fair value movements on available-for-sale assets
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recognised in income and expense
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financials.indb 145
2015
m
2014
m
2013
m

19
9

208

16

762
27
27
5
7

59
14
207

37

384
4
105

24

27
27
9, 27

512

15/05/2015 01:51
146
BT Group plc
Annual Report 2015
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At 31 March
Non-current assets
Intangible assets
Property, plant and equipment
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Investments
Associates and joint ventures
Trade and other receivables
Deferred tax assets
Current assets
Programme rights
Inventories
Current tax receivable
Investments
Cash and cash equivalents
Current liabilities
Loans and other borrowings
Trade and other payables
Current tax liabilities
Provisions
Notes
12
13
26
22
16
9
15
16
26
22
23
24
26
17
18
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Non-current liabilities
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24
26
19
17
9
18
20
27
2015
m
2014
m
3,170
13,505
1,232
44
26
184
1,559
3,087
13,840
539
34
18
214
1,460

118
94
3,140
65
97
3,523
434
108
82
2,907
26
114
1,774
695

1,900
168
5,276
222
142
1,873
139
5,261
315
99

7,868
927
7,583
927
948
422
7,941
679
7,022
898
829
434

419
1,051

1,485

408
62

1,447

808

7KHFRQVROLGDWHGQDQFLDOVWDWHPHQWVRQSDJHV144 to 194 and 199 were approved by the Board of Directors on 6 May 2015 and were signed on its
behalf by:
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Chairman
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Chief Executive
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financials.indb 146
15/05/2015 01:51
Overview

Group performance
Governance
147
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Notes
At 1 April 2012
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Transferred to the income statement
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Dividends to shareholders
Share-based payments
Tax on share-based payments
Net buyback of own shares
11
21
9
20
At 1 April 2013
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Other comprehensive loss before tax
Tax on other comprehensive loss
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11
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9
20
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408
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178
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1,948

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1,948

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186
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64
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64
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408
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4
384
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855

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106

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219
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664
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70
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financials.indb 147
15/05/2015 01:51
148
BT Group plc
Annual Report 2015
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Year ended 31 March
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2014
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2013
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3,480

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10
26

8,124

8
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6
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4
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812
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600
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financials.indb 148
15/05/2015 01:51
Overview

Group performance
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accordance with the Companies Act 2006, Article 4 of the IAS
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interpretations, as adopted by the European Union. The consolidated
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are presented in Sterling, the functional currency of BT Group plc,
the parent company.
Reorganisation
From 1 April 2014 BT Conferencing has moved from BT Business

into BT Global Services. This VLPSOLHV the way we provide integrated
collaboration solutions to our global customers. BT Security has moved
from our central group functions within Other into BT Global Services.
Security is of increasing importance to our customers, and we believe
that this move helps us better compete in the market and take full
advantage of global opportunities.
In order to present historical information on a consistent basis, we have
revised comparatives for the years ended 31 March 2014 and 31 March
2013 in BT Global Services, BT Business and Other. There is no impact
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is disclosed in note 4.
New and amended accounting standards adopted with no

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The following new and amended accounting standards adopted during

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Assets and Financial Liabilities Amendments to IAS 32
IAS 39 Novation of Derivatives and Continuation of Hedge
Accounting
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Amendments to IAS 36.
New and amended accounting standards that have been

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accounting periods ending on or after 1 January 2015 and are expected
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year and endorsement by the EU.
IFRS 15 sets out the requirements for recognising revenue from contracts
with customers. The standard requires entities to apportion revenue
earned from contracts to individual promises, or performance obligations,
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beginning on or after 1 January 2018 subject to endorsement by the
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accounting model.
The group is in the process of quantifying the impact of the
new standard.
financials.indb 149
Governance
149
There are no other standards or interpretations issued but not yet

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The groups income statement and segmental analysis separately

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that presentation of the groups results in this way is relevant to an
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management and reported to the Board and the Operating Committee
and assists in providing a meaningful analysis of the trading results of
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management considers quantitative as well as qualitative factors such
as the frequency or predictability of occurrence.
Furthermore, the group considers a columnar presentation to be
appropriate, as it improves the clarity of the presentation and is
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management and reported to the Board and the Operating Committee.
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by other companies. Examples of charges or credits meeting the above
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regulatory settlements, historic insurance or litigation claims, business
restructuring programmes, asset impairment charges, property
rationalisation programmes, net interest on pensions and the settlement
of multiple tax years. In the event that other items meet the criteria,
which are applied consistently from year to year, they are also treated
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the use of accounting estimates and assumptions. It also requires
management to exercise its judgement in the process of applying the
groups accounting policies. We continually evaluate our estimates,
assumptions and judgements based on available information and
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discussed its critical accounting estimates and associated disclosures
with the Audit & Risk Committee. The areas involving a higher degree
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Long-term customer contracts
/RQJWHUPFXVWRPHUFRQWUDFWVFDQH[WHQGRYHUDQXPEHURIQDQFLDO
\HDUV'XULQJWKHFRQWUDFWXDOSHULRGUHFRJQLWLRQRIFRVWVDQGSURWV
PD\EHLPSDFWHGE\HVWLPDWHVRIWKHXOWLPDWHSURWDELOLW\RIHDFK
contract. If, at any time, these estimates indicate that any contract will
EHXQSURWDEOHWKHHQWLUHHVWLPDWHGORVVIRUWKHFRQWUDFWLVUHFRJQLVHG
immediately. If these estimates indicate that any contract will be less
SURWDEOHWKDQSUHYLRXVO\IRUHFDVWFRQWUDFWDVVHWVPD\KDYHWREH
written down to the extent they are no longer considered to be fully
UHFRYHUDEOH7KHJURXSSHUIRUPVRQJRLQJSURWDELOLW\UHYLHZVRILWV
contracts in order to determine whether the latest estimates
are appropriate.
Key factors reviewed include:
7UDQVDFWLRQYROXPHVRURWKHULQSXWVDHFWLQJIXWXUHUHYHQXHVZKLFK
can vary depending on customer requirements, plans, market position
and other factors such as general economic conditions.
Our ability to achieve key contract milestones connected with the
transition, development, transformation and deployment phases for
customer contracts.
The status of commercial relations with customers and the implication
for future revenue and cost projections.
2XUHVWLPDWHVRIIXWXUHVWDDQGWKLUGSDUW\FRVWVDQGWKHGHJUHHWR
ZKLFKFRVWVDYLQJVDQGHFLHQFLHVDUHGHOLYHUDEOH
The carrying value of assets comprising the costs of the initial set up,
transition or transformation phase of long-term networked IT services
contracts is disclosed in note 16.
15/05/2015 01:51
150
BT Group plc
Annual Report 2015
&ULWLFDODFFRXQWLQJHVWLPDWHVDQGNH\MXGJHPHQWV
continued
Pension obligations
BT has a commitment, mainly through the BTPS, to pay pension

EHQHWVWRDSSUR[LPDWHO\SHRSOHRYHUDSHULRGRIPRUHWKDQ
{\HDUV7KHDFFRXQWLQJFRVWRIWKHVHEHQHWVDQGWKHSUHVHQWYDOXH
of our pension liabilities depend on such factors as the life expectancy
of the members, the salary progression of our current employees, price
LQDWLRQDQGWKHGLVFRXQWUDWHXVHGWRFDOFXODWHWKHQHWSUHVHQWYDOXHRI
the future pension payments. We use estimates for all of these factors in
GHWHUPLQLQJWKHSHQVLRQFRVWVDQGOLDELOLWLHVLQFRUSRUDWHGLQRXUQDQFLDO
VWDWHPHQWV7KHDVVXPSWLRQVUHHFWKLVWRULFDOH[SHULHQFHDQGRXU
judgement regarding future expectations.
The value of the net pension obligation at 31 March 2015, the key
QDQFLDODVVXPSWLRQVXVHGWRPHDVXUHWKHREOLJDWLRQWKHVHQVLWLYLW\
of the IAS 19 pension liability at 31 March 2015, and of the income
VWDWHPHQWRSHUDWLQJFKDUJHLQWRFKDQJHVLQWKHVH
assumptions are disclosed in note 19.
Useful lives for property, plant and equipment and software
The plant and equipment in our networks is long lived with cables and
switching equipment operating for over ten years and underground
ducts being used for decades. We also develop software for use in IT
systems and platforms that supports the products and services provided
to our customers and that is also used within the group.
The annual depreciation and amortisation charge is sensitive to the
estimated service lives allocated to each type of asset. Asset lives are
DVVHVVHGDQQXDOO\DQGFKDQJHGZKHQQHFHVVDU\WRUHHFWFXUUHQW
thinking on the remaining lives in light of technological change, network
LQYHVWPHQWSODQVLQFOXGLQJWKHJURXSoVEUHUROORXWSURJUDPPH
prospective economic utilisation and physical condition of the assets
concerned. Changes to the service lives of assets implemented from
$SULOKDGQRVLJQLFDQWLPSDFWLQDJJUHJDWHRQWKHUHVXOWVIRU
the year ended 31 March 2015.
The carrying values of software and property, plant and equipment are
disclosed in notes 12 and 13. The useful lives applied to the principal
categories of assets are disclosed on page 152.
Provisions and contingent liabilities
As disclosed in note 18, the groups provisions principally relate

to obligations arising from property rationalisation programmes,
restructuring programmes, claims, litigation and regulatory risks.
8QGHURXUSURSHUW\UDWLRQDOLVDWLRQSURJUDPPHVZHKDYHLGHQWLHGD
QXPEHURIVXUSOXVSURSHUWLHV$OWKRXJKHRUWVDUHEHLQJPDGHWR
sub-let this space, this is not always possible. Estimates have been made
of the cost of vacant possession and of any shortfall arising from any
sub-lease income being lower than the lease costs. Any such shortfall
is recognised as a provision.
In respect of claims, litigation and regulatory risks, the group provides
IRUDQWLFLSDWHGFRVWVZKHUHDQRXWRZRIUHVRXUFHVLVFRQVLGHUHG
probable and a reasonable estimate can be made of the likely outcome.
The prices at which certain services are charged are regulated and may
be subject to retrospective adjustment by regulators. Estimates are
used in assessing the likely value of the regulatory risk. For all risks,
the ultimate liability may vary from the amounts provided and will be
dependent upon the eventual outcome of any settlement.
Management exercise judgement in measuring the exposures to
FRQWLQJHQWOLDELOLWLHVVHHQRWHWKURXJKDVVHVVLQJWKHOLNHOLKRRG
that a potential claim or liability will arise and in quantifying the
SRVVLEOHUDQJHRIQDQFLDORXWFRPHV
Current and deferred income tax
7KHDFWXDOWD[ZHSD\RQRXUSURWVLVGHWHUPLQHGDFFRUGLQJWRFRPSOH[
WD[ODZVDQGUHJXODWLRQV:KHUHWKHHHFWRIWKHVHODZVDQGUHJXODWLRQV
is unclear, we use estimates in determining the liability for the tax to be
SDLGRQRXUSDVWSURWVZKLFKZHUHFRJQLVHLQRXUQDQFLDOVWDWHPHQWV
We believe the estimates, assumptions and judgements are reasonable
but this can involve complex issues which may take a number of years
financials.indb 150
WRUHVROYH7KHQDOGHWHUPLQDWLRQRISULRU\HDUWD[OLDELOLWLHVFRXOGEH
GLHUHQWIURPWKHHVWLPDWHVUHHFWHGLQWKHQDQFLDOVWDWHPHQWVDQG
may result in the recognition of an additional tax expense or tax credit
in the income statement.
Deferred tax assets and liabilities require management judgement
in determining the amounts to be recognised. The group uses
managements expectations of future revenue growth, operating costs,
DQGSURWPDUJLQVWRGHWHUPLQHWKHH[WHQWWRZKLFKIXWXUHWD[DEOH
SURWVZLOOEHJHQHUDWHGDJDLQVWZKLFKWRFRQVXPHWKHGHIHUUHGWD[
assets.
The value of the groups income tax assets and liabilities is disclosed
on the balance sheet on page 146. The carrying value of the groups
deferred tax assets and liabilities is disclosed in note 9.
Goodwill
7KHUHFRYHUDEOHDPRXQWRIFDVKJHQHUDWLQJXQLWV&*8VKDVEHHQ

determined based on value-in-use calculations. These calculations
require the use of estimates, including managements expectations of
IXWXUHUHYHQXHJURZWKRSHUDWLQJFRVWVSURWPDUJLQVDQGRSHUDWLQJ
FDVKRZVIRUHDFK&*8
The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed in note 12.
Providing for doubtful debts
BT provides services to consumer and business customers, mainly

on credit terms. We know that certain debts due to us will not be
paid through the default of a small number of our customers.
Estimates, based on our historical experience, are used in determining
the level of debts that we believe will not be collected. These estimates
include such factors as the current state of the economy and particular
industry issues.
The value of the provision for doubtful debts is disclosed in note 16.
7KHVLJQLFDQWDFFRXQWLQJSROLFLHVDSSOLHGLQSUHSDUDWLRQRIWKHVH
FRQVROLGDWHGQDQFLDOVWDWHPHQWVDUHVHWRXWEHORZ7KHVHSROLFLHV
have been consistently applied to all the years presented, unless
otherwise stated.
Revenue
Revenue represents the fair value of the consideration received or

receivable for communications services and equipment sales, net of
discounts and sales taxes. Revenue is recognised when it is probable
WKDWWKHHFRQRPLFEHQHWVDVVRFLDWHGZLWKDWUDQVDFWLRQZLOORZ
to the group and the amount of revenue and associated costs can be
measured reliably. Where the group acts as an agent in a transaction,
it recognises revenue net of directly attributable costs.
6HUYLFHV
Revenue arising from separable installation and connection services
is recognised when it is earned, upon activation. Revenue from the
rental of analogue and digital lines and private circuits is recognised on
a straight-line basis over the period to which it relates. Revenue from
calls is recognised at the time the call is made over the groups network.
Subscription fees, consisting primarily of monthly charges for access to
broadband and other internet access or voice services, are recognised as
revenue as the service is provided. Revenue from the interconnection of
YRLFHDQGGDWDWUDFEHWZHHQRWKHUWHOHFRPPXQLFDWLRQVRSHUDWRUVLV
recognised at the time of transit across the groups network.
(TXLSPHQWVDOHV
Revenue from the sale of equipment is recognised when all the
VLJQLFDQWULVNVDQGUHZDUGVRIRZQHUVKLSDUHWUDQVIHUUHGWRWKH
customer, which is normally the date the equipment is delivered and
accepted by the customer.
15/05/2015 01:51
Overview

Group performance
6LJQLFDQWDFFRXQWLQJSROLFLHVFRQWLQXHG
/RQJWHUPFRQWUDFWXDODUUDQJHPHQWV
5HYHQXHIURPORQJWHUPFRQWUDFWXDODUUDQJHPHQWVLQFOXGLQJ[HGSULFH
contracts to design and build software solutions, is recognised based
on the percentage of completion method. The stage of completion is
estimated using an appropriate measure according to the nature of
the contract such as the proportion of costs incurred relative to the
estimated total contract costs, or other measures of completion such
as the achievement of contract milestones and customer acceptance.
In the case of time and materials contracts, revenue is recognised as
the service is rendered.
Costs related to delivering services under long-term contractual
arrangements are expensed as incurred except for an element of
costs incurred in the initial contract set up, transition or transformation
phase, which is deferred and recorded within non-current assets. These
costs are then recognised in the income statement on a straight line
basis over the remaining contract term, unless the pattern of service
GHOLYHU\LQGLFDWHVDGLHUHQWSUROHLVDSSURSULDWH7KHVHFRVWVDUH
GLUHFWO\DWWULEXWDEOHWRVSHFLFFRQWUDFWVUHODWHWRIXWXUHDFWLYLW\ZLOO
JHQHUDWHIXWXUHHFRQRPLFEHQHWVDQGDUHDVVHVVHGIRUUHFRYHUDELOLW\
on a regular basis.
The percentage of completion method relies on estimates of total
expected contract revenues and costs, as well as reliable measurement
RIWKHSURJUHVVPDGHWRZDUGVFRPSOHWLRQ8QOHVVWKHQDQFLDORXWFRPH
of a contract can be estimated with reasonable certainty, no attributable
SURWLVUHFRJQLVHG,QVXFKFLUFXPVWDQFHVUHYHQXHLVUHFRJQLVHG
equal to the costs incurred to date, to the extent that such revenue is
expected to be recoverable, or costs are accrued to bring the margin to
QLO5HFRJQLVHGUHYHQXHDQGSURWVDUHVXEMHFWWRUHYLVLRQVGXULQJWKH
contract if the assumptions regarding the overall contract outcome are
changed. The cumulative impact of a revision in estimates is recorded in
the period in which such revisions become likely and can be estimated.
Where the actual and estimated costs to completion exceed the
estimated revenue for a contract, the full contract life loss is
recognised immediately.
0XOWLSOHHOHPHQWDUUDQJHPHQWV
Where a contractual arrangement consists of two or more separate
elements that have value to a customer on a standalone basis, revenue is
recognised for each element as if it were an individual contract. The total
contract consideration is allocated between the separate elements on
the basis of relative fair value and the appropriate revenue recognition
criteria are applied to each element as described above.
Operating and reportable segments
7KHJURXSoVRSHUDWLQJVHJPHQWVDUHUHSRUWHGEDVHGRQQDQFLDO
information provided to the Operating Committee, as detailed on
SDJH{26, which is the key management committee and represents
the chief operating decision maker.
7KHJURXSoVRUJDQLVDWLRQDOVWUXFWXUHUHHFWVWKHGLHUHQWFXVWRPHU
groups to which it provides communications products and services via
its customer-facing lines of business: BT Global Services, BT Business,
BT Consumer, BT Wholesale and Openreach. The customer-facing lines
of business are supported by an internal service unit: BT Technology,
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The customer-facing lines of business are the groups reportable
segments and generate substantially all the groups revenue.
The remaining operations of the group are aggregated and included
within the Other category to reconcile to the consolidated results
of the group. The Other category includes BT TSO and the groups
centralised functions including procurement, supply chain and
property management.
3URYLVLRQVIRUWKHVHWWOHPHQWRIVLJQLFDQWOHJDOFRPPHUFLDODQG
regulatory disputes, which are negotiated at a group level, are initially
recorded in the Other segment. On resolution of the dispute, the full
LPSDFWLVUHFRJQLVHGLQWKHUHOHYDQWOLQHRIEXVLQHVVoUHVXOWVDQGRVHW
in the group results through the utilisation of the provision previously
charged to the Other segment. Settlements which are particularly
VLJQLFDQWRUFRYHUPRUHWKDQRQHQDQFLDO\HDUPD\IDOOZLWKLQWKH
GHQLWLRQRIVSHFLFLWHPVDVGHWDLOHGRQSDJH149.
financials.indb 151
Governance
151
The costs incurred by BT TSO are recharged to the customer-facing

OLQHVRIEXVLQHVVWRUHHFWWKHVHUYLFHVLWSURYLGHVWRWKHP'HSUHFLDWLRQ
and amortisation incurred by BT TSO in relation to the networks and
systems it manages and operates on behalf of the customer-facing
lines of business is allocated to the lines of business based on their
UHVSHFWLYHXWLOLVDWLRQ&DSLWDOH[SHQGLWXUHLQFXUUHGE\%7{762IRUVSHFLF
projects undertaken on behalf of the customer-facing lines of business
is allocated based on the value of the directly attributable expenditure
incurred. Where projects are not directly attributable to a particular line
of business, capital expenditure is allocated between them based
RQWKHSURSRUWLRQRIHVWLPDWHGIXWXUHHFRQRPLFEHQHWV%7762
and the groups centralised functions are not reportable segments as
WKH\GLGQRWPHHWWKHTXDQWLWDWLYHWKUHVKROGVDVVHWRXWLQ,)56{
Operating Segments for any of the years presented.
Performance of each reportable segment is measured based on
DGMXVWHG(%,7'$GHQHGDV(%,7'$EHIRUHVSHFLFLWHPVDVLQFOXGHG
LQWKHLQWHUQDOQDQFLDOUHSRUWVUHYLHZHGE\WKHOperating Committee.
(%,7'$LVGHQHGDVWKHRSHUDWLQJSURWRUORVVEHIRUHGHSUHFLDWLRQ
DPRUWLVDWLRQQHWQDQFHH[SHQVHDQGWD[DWLRQ$GMXVWHG(%,7'$LV
considered to be a useful measure of the operating performance of the
lines of business because it approximates to the underlying operating
FDVKRZE\HOLPLQDWLQJGHSUHFLDWLRQDQGDPRUWLVDWLRQ,WDOVRSURYLGHV
DPHDQLQJIXODQDO\VLVRIWUDGLQJSHUIRUPDQFHE\H[FOXGLQJVSHFLF
items, which are disclosed separately by virtue of their size, nature or
LQFLGHQFH6SHFLFLWHPVDUHGHWDLOHGLQQRWH{DQGDUHQRWDOORFDWHGWR
WKHUHSRUWDEOHVHJPHQWVDVWKLVUHHFWVKRZWKH\DUHUHSRUWHGWRWKH
Operating Committee. Finance expense and income are not allocated to
the reportable segments, as the central treasury function manages this
activity, together with the overall net debt position of the group.
5HWLUHPHQWEHQHWV
7KHJURXSoVQHWREOLJDWLRQLQUHVSHFWRIGHQHGEHQHWSHQVLRQSODQV
LV{WKHSUHVHQWYDOXHRIWKHGHQHGEHQHWREOLJDWLRQOHVVWKHIDLUYDOXH
of the plan assets.
7KHFDOFXODWLRQRIWKHREOLJDWLRQLVSHUIRUPHGE\DTXDOLHGDFWXDU\
using the projected unit credit method and key actuarial assumptions
at the balance sheet date.
The income statement expense is allocated between an operating
FKDUJHDQGQHWQDQFHLQFRPHRUH[SHQVH7KHRSHUDWLQJFKDUJHUHHFWV
WKHLQFUHDVHLQWKHGHQHGEHQHWREOLJDWLRQUHVXOWLQJIURPWKHSHQVLRQ
EHQHWHDUQHGE\DFWLYHHPSOR\HHVLQWKHFXUUHQWSHULRGWKHFRVWV
RIDGPLQLVWHULQJWKHSODQVDQGDQ\SDVWVHUYLFHFRVWVFUHGLWVVXFKDV
WKRVHDULVLQJIURPFXUWDLOPHQWVRUVHWWOHPHQWV7KHQHWQDQFHLQFRPH
RUH[SHQVHUHHFWVWKHLQWHUHVWRQWKHUHWLUHPHQWEHQHWREOLJDWLRQV
recognised in the group balance sheet, based on the discount rate at
the start of the year. Actuarial gains and losses are recognised in full
in the period in which they occur and are presented in the group
statement of comprehensive income.
7KHJURXSDOVRRSHUDWHVGHQHGFRQWULEXWLRQSHQVLRQSODQVDQGWKH
income statement expense represents the contributions payable for
WKH{\HDU
Property, plant and equipment are included at historical cost, net of

accumulated depreciation, government grants and any impairment
charges. An item of property, plant and equipment is derecognised on
GLVSRVDORUZKHQQRIXWXUHHFRQRPLFEHQHWVDUHH[SHFWHGWRDULVH
IURPWKHFRQWLQXHGXVHRIWKHDVVHW7KHGLHUHQFHEHWZHHQWKHVDOH
proceeds and the net book value at the date of disposal is recognised in
operating costs in the income statement.
Included within the cost of network infrastructure and equipment
are direct and indirect labour costs, materials and directly
attributable overheads.
Depreciation is provided on property, plant and equipment on a straight
OLQHEDVLVIURPWKHWLPHWKHDVVHWLVDYDLODEOHIRUXVHWRZULWHRWKH
assets cost over the estimated useful life taking into account any
expected residual value. Freehold land is not depreciated.
15/05/2015 01:51
152
BT Group plc
Annual Report 2015
The lives assigned to principal categories of assets are as follows:

Land and buildings
Freehold buildings
Leasehold land and buildings
Network infrastructure
Transmission equipment
Duct
Cable
Fibre
Exchange equipment
Other network equipment
Other assets
Motor vehicles
&RPSXWHUVDQGRFHHTXLSPHQW
40 years
Unexpired portion of lease or
40 years, whichever is the shorter
40 years
3 to 25 years
5 to 20 years
2 to 13 years
2 to 20 years
2 to 9 years
WR\HDUV
$VVHWVKHOGXQGHUQDQFHOHDVHVDUHGHSUHFLDWHGRYHUWKHVKRUWHURI
the lease term or their useful economic life. Residual values and
useful lives are reassessed annually and, if necessary, changes are
recognised prospectively.
Intangible assets
,GHQWLDEOHLQWDQJLEOHDVVHWVDUHUHFRJQLVHGZKHQWKHJURXSFRQWUROV
WKHDVVHWLWLVSUREDEOHWKDWIXWXUHHFRQRPLFEHQHWVDWWULEXWDEOHWR
WKHDVVHWZLOORZWRWKHJURXSDQGWKHFRVWRIWKHDVVHWFDQEHUHOLDEO\
measured. All intangible assets, other than goodwill, are amortised
RYHUWKHLUXVHIXOHFRQRPLFOLIH7KHPHWKRGRIDPRUWLVDWLRQUHHFWVWKH
pattern in which the assets are expected to be consumed. If the pattern
cannot be determined reliably, the straight line method is used.
*RRGZLOO
Goodwill represents the excess of the cost of an acquisition over the
IDLUYDOXHRIWKHJURXSoVVKDUHRIWKHLGHQWLDEOHQHWDVVHWVLQFOXGLQJ
intangible assets) of the acquired business.
For the purpose of impairment testing, goodwill acquired in a business
FRPELQDWLRQLVDOORFDWHGWRHDFKRIWKH&*8VWKDWLVH[SHFWHGWREHQHW
from the business combination. Each CGU to which goodwill is allocated
represents the lowest level within the group at which the goodwill is
monitored for internal management purposes.
&RPSXWHUVRIWZDUH
Computer software comprises computer software licences purchased
from third parties, and also the cost of internally developed software.
Computer software licences purchased from third parties are initially
recorded at cost.
Costs directly associated with the production of internally developed
software, including direct and indirect labour costs of development,
are capitalised only where it is probable that the software will generate
IXWXUHHFRQRPLFEHQHWVWKHFRVWRIWKHDVVHWFDQEHUHOLDEO\PHDVXUHG
and technical feasibility can be demonstrated, in which case it is
capitalised as an intangible asset on the balance sheet. Costs which do
not meet these criteria and research costs are expensed as incurred.
The groups development costs which give rise to internally developed
software include upgrading the network architecture or functionality
DQGGHYHORSLQJVHUYLFHSODWIRUPVDLPHGDWRHULQJQHZVHUYLFHVWR
the groups customers.
7HOHFRPPXQLFDWLRQVOLFHQFHV
Licence fees paid to governments, which permit telecommunications
DFWLYLWLHVWREHRSHUDWHGIRUGHQHGSHULRGVDUHLQLWLDOO\UHFRUGHGDWFRVW
and amortised from the time the network is available for use to the end
of the licence period.
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Intangible assets such as customer relationships or brands acquired
through business combinations are recorded at fair value at the date of
acquisition. Assumptions are used in estimating the fair values of these
financials.indb 152
relationships or brands and include managements estimates of revenue

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The estimated useful economic lives assigned to the principal categories
of intangible assets are as follows:
Computer software
Telecommunications licences
Customer relationships and brands
2 to 10 years
2 to 20 years
5 to 15 years
3URJUDPPHULJKWV
Programme rights are recognised on the balance sheet from the point at
which the legally enforceable licence period begins. Rights for which the
licence period has not started are disclosed as contractual commitments
in note 29. Payments made to receive commissioned or acquired
programming in advance of the legal right to broadcast the programmes
DUHFODVVLHGDVSUHSD\PHQWV
Programme rights are initially recognised at cost and are amortised from
the point at which they are available for use, on a straight line basis over
the programming period, or the remaining licence term, as appropriate.
The amortisation charge is recorded within operating costs in the
income statement.
Programmes produced internally are recognised within current assets at
production cost, which includes labour costs and an appropriate portion
of relevant overheads, and charged to the income statement over the
period of the related broadcast.
Programme rights are tested for impairment in accordance with
WKHJURXSoVSROLF\IRULPSDLUPHQWRIQRQQDQFLDODVVHWVVHWRXWRQ
SDJH{1535HODWHGFDVKRXWRZVDUHFODVVLHGDVRSHUDWLQJFDVKRZV
LQWKHFDVKRZVWDWHPHQW
Provisions
Provisions are recognised when the group has a present legal or

constructive obligation as a result of past events, it is probable that
DQRXWRZRIUHVRXUFHVZLOOEHUHTXLUHGWRVHWWOHWKHREOLJDWLRQDQG
the amount can be reliably estimated. Provisions are determined by
GLVFRXQWLQJWKHH[SHFWHGIXWXUHFDVKRZVDWDSUHWD[UDWHWKDWUHHFWV
current market assessments of the time value of money and the risks
VSHFLFWRWKHOLDELOLW\)LQDQFLDOOLDELOLWLHVZLWKLQSURYLVLRQVDUHLQLWLDOO\
recognised at fair value and subsequently carried at amortised cost using
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WKHORZHURIWKHFRVWWRIXOORUWRH[LWWKHFRQWUDFW
Current and deferred income tax
Current income tax is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date in the countries where
the companys subsidiaries, associates and joint ventures operate and
generate taxable income. The group periodically evaluates positions
taken in tax returns with respect to situations in which applicable
tax regulation is subject to interpretation, and the group establishes
provisions where appropriate on the basis of the amounts expected
to be paid to tax authorities.
Deferred tax is recognised, using the liability method, in respect of
WHPSRUDU\GLHUHQFHVEHWZHHQWKHFDUU\LQJDPRXQWRIWKHJURXSoV
assets and liabilities and their tax base. Deferred income tax assets and
OLDELOLWLHVDUHRVHWZKHQWKHUHLVDOHJDOO\HQIRUFHDEOHULJKWWRRVHW
current tax assets against current tax liabilities and when the deferred
income tax assets and liabilities relate to income taxes levied by the
VDPHWD[DWLRQDXWKRULW\RQHLWKHUWKHWD[DEOHHQWLW\RUGLHUHQWWD[DEOH
entities where there is an intention to settle the balances on a net basis.
Any remaining deferred tax asset is recognised only when, on the basis
of all available evidence, it can be regarded as probable that there will be
VXLWDEOHWD[DEOHSURWVZLWKLQWKHVDPHMXULVGLFWLRQLQWKHIRUHVHHDEOH
IXWXUHDJDLQVWZKLFKWKHGHGXFWLEOHWHPSRUDU\GLHUHQFHFDQEHXWLOLVHG
Deferred tax is determined using tax rates that are expected to apply in
the periods in which the asset is realised or liability settled, based on tax
rates and laws that have been enacted or substantively enacted by the
balance sheet date.
15/05/2015 01:51
Overview

Group performance
Basis of consolidation
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%7*URXSSOFnWKHFRPSDQ\oDQGLWVVXEVLGLDULHVDQGWKH\LQFRUSRUDWH
its share of the results of associates and joint ventures using the equity
method of accounting.
A subsidiary is an entity that is controlled by another entity, known
as the parent or investor. An investor controls an investee when
the investor is exposed, or has rights, to variable returns from its
LQYROYHPHQWZLWKWKHLQYHVWHHDQGKDVWKHDELOLW\WRDHFWWKRVHUHWXUQV
through its power over the investee.
Non-controlling interests in the net assets of consolidated subsidiaries,
which consist of the amounts of those interests at the date of the
original business combination and non-controlling share of changes in
equity since the date of the combination, are not material to the groups
QDQFLDOVWDWHPHQWV
The results of subsidiaries acquired or disposed of during the year
are consolidated from and up to the date of change of control.
Where necessary, accounting policies of subsidiaries have been
aligned with the policies adopted by the group. All intra-group
transactions including any gains or losses, balances, income or
expenses are eliminated in full on consolidation.
:KHQWKHJURXSORVHVFRQWURORIDVXEVLGLDU\WKHSURWRUORVVRQ
GLVSRVDOLVFDOFXODWHGDVWKHGLHUHQFHEHWZHHQLWKHDJJUHJDWHRI
the fair value of the consideration received and the fair value of any
UHWDLQHGLQWHUHVWDQGLLWKHSUHYLRXVFDUU\LQJDPRXQWRIWKHDVVHWV
LQFOXGLQJJRRGZLOODQGOLDELOLWLHVRIWKHVXEVLGLDU\DQGDQ\
QRQFRQWUROOLQJLQWHUHVWV7KHSURWRUORVVRQGLVSRVDOLVUHFRJQLVHG
DVDVSHFLFLWHP
Business combinations
On acquisition of a subsidiary, purchase consideration is measured at fair

value, which is the aggregate of the fair values of the assets transferred,
liabilities incurred or assumed and the equity instruments issued in
exchange for control of the acquiree. Acquisition-related costs are
H[SHQVHGDVLQFXUUHG7KHDFTXLUHHoVLGHQWLDEOHDVVHWVDQGOLDELOLWLHV
are recognised at their fair value at the acquisition date.
Foreign currencies
Foreign currency transactions are translated into the functional currency

using the exchange rates prevailing at the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of
transactions and the translation of monetary assets and liabilities
denominated in foreign currencies at period end exchange rates are
recognised in the income statement line which most appropriately
UHHFWVWKHQDWXUHRIWKHLWHPRUWUDQVDFWLRQ
On consolidation, assets and liabilities of foreign undertakings are
translated into Sterling at year end exchange rates. The results of
foreign undertakings are translated into Sterling at average rates
RIH[FKDQJHIRUWKH\HDUXQOHVVWKLVDYHUDJHLVQRWDUHDVRQDEOH
DSSUR[LPDWLRQRIWKHFXPXODWLYHHHFWVRIWKHUDWHVSUHYDLOLQJRQWKH
transaction dates, in which case income and expenses are translated at
WKHGDWHVRIWKHWUDQVDFWLRQV)RUHLJQH[FKDQJHGLHUHQFHVDULVLQJRQ
retranslation are recognised directly in a separate component of equity,
the translation reserve.
In the event of the disposal of an undertaking with assets and
liabilities denominated in a foreign currency, the cumulative translation
GLHUHQFHDVVRFLDWHGZLWKWKHXQGHUWDNLQJLQWKHWUDQVODWLRQUHVHUYH
is charged or credited to the gain or loss on disposal recognised in the
income statement.
Research expenditure is recognised in the income statement in the

period in which it is incurred. Development expenditure, including
the cost of internally developed software, is recognised in the income
statement in the period in which it is incurred unless it is probable that
HFRQRPLFEHQHWVZLOORZWRWKHJURXSIURPWKHDVVHWEHLQJGHYHORSHG
the cost of the asset can be reliably measured and technical feasibility
can be demonstrated, in which case it is capitalised as an intangible
asset on the balance sheet. Capitalisation ceases when the asset being
developed is ready for use. Research and development costs include
direct and indirect labour, materials and directly attributable overheads.
Leases
,PSDLUPHQWRIQRQQDQFLDODVVHWV
Leases of property, plant and equipment where the group holds

VXEVWDQWLDOO\DOOWKHULVNVDQGUHZDUGVRIRZQHUVKLSDUHFODVVLHG
DVQDQFHOHDVHV)LQDQFHOHDVHDVVHWVDUHFDSLWDOLVHGDWWKH
commencement of the lease term at the lower of the present value of
the minimum lease payments or the fair value of the leased asset. The
REOLJDWLRQVUHODWLQJWRQDQFHOHDVHVQHWRIQDQFHFKDUJHVLQUHVSHFW
of future periods, are recognised as liabilities. Leases are subsequently
PHDVXUHGDWDPRUWLVHGFRVWXVLQJWKHHHFWLYHLQWHUHVWPHWKRG
Goodwill is reviewed for impairment at least annually. Impairment

ORVVHVDUHUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWDVDVSHFLFLWHP,ID
FDVKJHQHUDWLQJXQLWLVLPSDLUHGLPSDLUPHQWORVVHVDUHDOORFDWHGUVWO\
against goodwill, and secondly on a pro rata basis against intangible
and other assets.
Government grants
Government grants are recognised when there is reasonable assurance

that the conditions associated with the grants have been complied with
and the grants will be received.
Grants for the purchase or production of property, plant and equipment
are deducted from the cost of the related assets and reduce future
depreciation expense accordingly. Grants for the reimbursement of
operating expenditure are deducted from the related category of costs
in the income statement. Government grants received relating to future
expenditure are recognised as payments received in advance within
Other payables.
153
Once a government grant is recognised, any related contingent liability

RUFRQWLQJHQWDVVHWLVWUHDWHGLQDFFRUGDQFHZLWK,$6{n3URYLVLRQV
Contingent Liabilities and Contingent Assets.
Goodwill arising on acquisition is recognised as an asset and measured at

cost, representing the excess of the aggregate of the consideration, the
amount of any non-controlling interests in the acquiree, and the
fair value of the acquirers previously held equity interest in the acquiree
LIDQ\RYHUWKHQHWRIWKHIDLUYDOXHVRIWKHLGHQWLDEOHDVVHWVDQG
liabilities at the date of acquisition.
,QWDQJLEOHDVVHWVZLWKQLWHXVHIXOOLYHVDQGSURSHUW\SODQWDQG
equipment are tested for impairment if events or changes in
FLUFXPVWDQFHVDVVHVVHGDWHDFKUHSRUWLQJGDWHLQGLFDWHWKDWWKH
carrying amount may not be recoverable. When an impairment test
is performed, the recoverable amount is assessed by reference to the
KLJKHURIWKHQHWSUHVHQWYDOXHRIWKHH[SHFWHGIXWXUHFDVKRZV
YDOXHLQXVHRIWKHUHOHYDQWFDVKJHQHUDWLQJXQLWDQGWKHIDLUYDOXH
less cost to sell.
financials.indb 153
Governance
The determination of whether an arrangement is, or contains, a lease is

based on the substance of the arrangement and requires an assessment
RIZKHWKHUWKHIXOOPHQWRIWKHDUUDQJHPHQWLVGHSHQGHQWRQWKHXVHRI
DVSHFLFDVVHWRUDVVHWVDQGZKHWKHUWKHDUUDQJHPHQWFRQYH\VWKHULJKW
to use the asset.
/HDVHVZKHUHDVLJQLFDQWSRUWLRQRIWKHULVNVDQGUHZDUGVDUHKHOGE\
WKHOHVVRUDUHFODVVLHGDVRSHUDWLQJOHDVHV5HQWDOVDUHFKDUJHGWRWKH
income statement on a straight line basis over the period of the lease.
Own shares
Own shares represent the shares of the parent company BT Group plc
that are held in treasury or by employee share ownership trusts. Own
shares are recorded at cost and deducted from equity. When shares
vest unconditionally or are cancelled they are transferred from the own
shares reserve to retained earnings at their weighted average cost.
The group operates a number of equity settled share-based payment

arrangements, under which the group receives services from employees
LQFRQVLGHUDWLRQIRUHTXLW\LQVWUXPHQWVVKDUHRSWLRQVDQGVKDUHVRIWKH
group. Equity settled share-based payments are measured at fair value
DWWKHGDWHRIJUDQWH[FOXGLQJWKHHHFWRIQRQPDUNHWEDVHGYHVWLQJ
conditions but including any market-based performance criteria and
WKHLPSDFWRIQRQYHVWLQJFRQGLWLRQVIRUH[DPSOHWKHUHTXLUHPHQW
15/05/2015 01:51
154
BT Group plc
Annual Report 2015
for employees to save). The fair value determined at the grant date
is recognised as an expense on a straight line basis over the vesting
period, based on the groups estimate of the options or shares that will
HYHQWXDOO\YHVWDQGDGMXVWHGIRUWKHHHFWRIQRQPDUNHWEDVHGYHVWLQJ
conditions. Fair value is measured using either the Binomial options
pricing model or Monte Carlo simulations, whichever is most appropriate
to the share-based payment arrangement.
Service and performance conditions are vesting conditions. Any other
conditions are non-vesting conditions which have to be taken into
account to determine the fair value of equity instruments granted. In the
case that an award or option does not vest as a result of a failure to meet
a non-vesting condition that is within the control of either counterparty,
this is accounted for as a cancellation. Cancellations are treated as
accelerated vesting and all remaining future charges are immediately
recognised in the income statement. As the requirement to save
under an employee saveshare arrangement is a non-vesting condition,
employee cancellations are treated as an accelerated vesting.
Awards that lapse or are forfeited result in a credit to the income
VWDWHPHQWUHYHUVLQJDOOSUHYLRXVO\UHFRJQLVHGFKDUJHVLQWKH\HDU
in which they lapse or are forfeited.
7HUPLQDWLRQEHQHWV
7HUPLQDWLRQEHQHWVOHDYHUFRVWVDUHSD\DEOHZKHQHPSOR\PHQWLV

terminated before the normal retirement date, or when an employee
DFFHSWVYROXQWDU\UHGXQGDQF\LQH[FKDQJHIRUWKHVHEHQHWV7KHJURXS
UHFRJQLVHVWHUPLQDWLRQEHQHWVZKHQLWLVGHPRQVWUDEO\FRPPLWWHGWR
WKHDHFWHGHPSOR\HHVOHDYLQJWKHJURXS
)LQDQFLDOOLDELOLWLHVDWDPRUWLVHGFRVW
Trade and other payables
Financial liabilities within trade and other payables are initially
recognised at fair value, which is usually the original invoiced
amount, and subsequently carried at amortised cost using the
HHFWLYHLQWHUHVWPHWKRG
Loans and other borrowings are initially recognised at the fair value of
amounts received net of transaction costs. Loans and other borrowings
DUHVXEVHTXHQWO\PHDVXUHGDWDPRUWLVHGFRVWXVLQJWKHHHFWLYHLQWHUHVW
method and, if included in a fair value hedge relationship, are re-valued
WRUHHFWWKHIDLUYDOXHPRYHPHQWVRQWKHKHGJHGULVNDVVRFLDWHGZLWK
the loans and other borrowings. The resulting amortisation of fair
value movements, on de-designation of the hedge, is recognised in
WKHLQFRPHVWDWHPHQW{
$YDLODEOHIRUVDOHLQYHVWPHQWV
/LTXLGDQGRWKHULQYHVWPHQWVDUHFODVVLHGDVDYDLODEOHIRUVDOH
investments and are initially recognised at fair value plus direct
transaction costs and then re-measured at subsequent reporting dates
WRIDLUYDOXHZLWKXQUHDOLVHGJDLQVDQGORVVHVH[FHSWIRUFKDQJHVLQ
exchange rates for monetary items, interest, dividends and impairment
losses, which are recognised in the income statement) recognised
LQHTXLW\XQWLOWKHQDQFLDODVVHWLVGHUHFRJQLVHGDWZKLFKWLPHWKH
cumulative gain or loss previously recognised in equity is taken to the
LQFRPHVWDWHPHQWLQWKHOLQHWKDWPRVWDSSURSULDWHO\UHHFWVWKH
nature of the item or transaction. On disposal or impairment of the
investments, any gains and losses that have been deferred in other
FRPSUHKHQVLYHLQFRPHDUHUHFODVVLHGWRWKHLQFRPHVWDWHPHQW
Dividends on equity investments are recognised in the income
statement when the groups right to receive payment is established.
Equity investments are recorded in non-current assets unless they
DUHH[SHFWHGWREHVROGZLWKLQRQH\HDU{
/RDQVDQGUHFHLYDEOHV
Trade and other receivables are initially recognised at fair value, which
is usually the original invoiced amount, and are subsequently carried
DWDPRUWLVHGFRVWXVLQJWKHHHFWLYHLQWHUHVWPHWKRGOHVVSURYLVLRQV
PDGHIRUGRXEWIXOUHFHLYDEOHV3URYLVLRQVDUHPDGHVSHFLFDOO\ZKHUH
there is evidence of a risk of non-payment, taking into account ageing,
previous losses experienced and general economic conditions.
financials.indb 154

Cash and cash equivalents comprise cash in hand and current balances
with banks and similar institutions, which are readily convertible to
FDVKDQGDUHVXEMHFWWRLQVLJQLFDQWULVNRIFKDQJHVLQYDOXHDQGKDYH
an original maturity of three months or less. For the purpose of the
FRQVROLGDWHGFDVKRZVWDWHPHQWFDVKDQGFDVKHTXLYDOHQWVDUHDV
GHQHGDERYHQHWRIRXWVWDQGLQJEDQNRYHUGUDIWV%DQNRYHUGUDIWV
are included within loans and other borrowings, in current liabilities
RQWKHEDODQFHVKHHW{
)LQDQFLDODVVHWVDQGOLDELOLWLHVDWIDLUYDOXHWKURXJKSURWRUORVV
$OORIWKHJURXSoVGHULYDWLYHQDQFLDOLQVWUXPHQWVDUHKHOGIRUWUDGLQJ
DQGFODVVLHGDVIDLUYDOXHWKURXJKSURWRUORVV
7KHJURXSXVHVGHULYDWLYHQDQFLDOLQVWUXPHQWVPDLQO\WRUHGXFH
exposure to foreign exchange and interest rate risks. The groups
policy is not to use derivatives for trading purposes. However,
GHULYDWLYHVWKDWGRQRWTXDOLI\IRUKHGJHDFFRXQWLQJRUDUHVSHFLFDOO\
QRWGHVLJQDWHGDVDKHGJHZKHUHQDWXUDORVHWLVPRUHDSSURSULDWHDUH
initially recognised and subsequently measured at fair value through
SURWDQGORVV$Q\GLUHFWWUDQVDFWLRQFRVWVDUHUHFRJQLVHGLPPHGLDWHO\
in the income statement. Gains and losses on re-measurement are
recognised in the income statement in the line that most appropriately
UHHFWVWKHQDWXUHRIWKHLWHPRUWUDQVDFWLRQWRZKLFKWKH\UHODWH
'HULYDWLYHQDQFLDOLQVWUXPHQWVDUHFODVVLHGDVFXUUHQWDVVHWVRU
current liabilities where they have a maturity period within 12 months.
:KHUHGHULYDWLYHQDQFLDOLQVWUXPHQWVKDYHDPDWXULW\SHULRGJUHDWHU
WKDQPRQWKVWKH\DUHFODVVLHGZLWKLQHLWKHUQRQFXUUHQWDVVHWV
RUQRQFXUUHQWOLDELOLWLHV{
Where the fair value of a derivative contract at initial recognition is not
VXSSRUWHGE\REVHUYDEOHPDUNHWGDWDDQGGLHUVIURPWKHWUDQVDFWLRQ
price, a day one gain or loss will arise which is not recognised in the
income statement. Such gains and losses are deferred and amortised
to the income statement based on the remaining contractual term
and as observable market data becomes available.
+HGJHDFFRXQWLQJ
Where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the hedge. To qualify
for hedge accounting, hedge documentation must be prepared at
LQFHSWLRQDQGWKHKHGJHPXVWEHH[SHFWHGWREHKLJKO\HHFWLYHERWK
SURVSHFWLYHO\DQGUHWURVSHFWLYHO\7KHKHGJHLVWHVWHGIRUHHFWLYHQHVV
at inception and in subsequent periods in which the hedge remains
in operation. Hedge accounting is discontinued when the hedging
LQVWUXPHQWH[SLUHVRULVVROGWHUPLQDWHGRUQRORQJHUTXDOLHVIRU
hedge accounting or the group chooses to end the hedge relationship.
7KHJURXSGHVLJQDWHVFHUWDLQGHULYDWLYHVDVHLWKHUFDVKRZKHGJHV
or fair value hedges.
&DVKRZKHGJHV
:KHQDGHULYDWLYHQDQFLDOLQVWUXPHQWLVGHVLJQDWHGDVDKHGJHRI
WKHYDULDELOLW\LQFDVKRZVRIDUHFRJQLVHGDVVHWRUOLDELOLW\RUD
KLJKO\SUREDEOHWUDQVDFWLRQWKHHHFWLYHSDUWRIDQ\JDLQRUORVVRQ
WKHGHULYDWLYHQDQFLDOLQVWUXPHQWLVUHFRJQLVHGGLUHFWO\LQHTXLW\
LQWKHFDVKRZUHVHUYH)RUFDVKRZKHGJHVRIUHFRJQLVHGDVVHWV
or liabilities, the associated cumulative gain or loss is removed from
equity and recognised in the same line of the income statement and
LQWKHVDPHSHULRGRUSHULRGVWKDWWKHKHGJHGWUDQVDFWLRQDHFWVWKH
LQFRPHVWDWHPHQW$Q\LQHHFWLYHQHVVDULVLQJRQDFDVKRZKHGJH
of a recognised asset or liability is recognised immediately in the same
LQFRPHVWDWHPHQWOLQHDVWKHKHGJHGLWHP:KHUHLQHHFWLYHQHVV
arises on highly probable transactions, it is recognised in the income
VWDWHPHQWOLQHZKLFKPRVWDSSURSULDWHO\UHHFWVWKHQDWXUHRIWKH
item or transaction.
Fair value hedges
:KHQDGHULYDWLYHQDQFLDOLQVWUXPHQWLVGHVLJQDWHGDVDKHGJHRIWKH
variability in fair value of a recognised asset or liability, or unrecognised
UPFRPPLWPHQWWKHFKDQJHLQIDLUYDOXHRIWKHGHULYDWLYHWKDWLV
designated as a fair value hedge is recorded in the income statement
at each reporting date, together with any changes in fair value of the
KHGJHGDVVHWRUOLDELOLW\WKDWLVDWWULEXWDEOHWRWKHKHGJHGULVN{
15/05/2015 01:51

Overview
Group performance
Governance
155
6HJPHQWLQIRUPDWLRQ
7KHGHQLWLRQRIWKHJURXSoVRSHUDWLQJDQGUHSRUWDEOHVHJPHQWVLVSURYLGHGRQSDJH151.
From 1 April 2014 BT Conferencing and BT Security have moved into BT Global Services, from BT Business and our central group functions within
2WKHUUHVSHFWLYHO\7KLVVLPSOLHVWKHZD\ZHSURYLGHLQWHJUDWHGFROODERUDWLRQVROXWLRQVWRRXUJOREDOFXVWRPHUVEHWWHUFRPSHWHLQWKHPDUNHW
and take full advantage of global opportunities. Comparative results for BT Global Services, BT Business and Other and intra-group items have
been restated to be presented on a consistent basis.
7KHLPSDFWRQWKHOLQHRIEXVLQHVVUHVXOWVIRU\HDUHQGHG0DUFKZDVWRLQFUHDVHUHYHQXH(%,7'$DQGRSHUDWLQJSURWLQ%7*OREDO6HUYLFHV
E\~P~PDQG~P~P~PDQG~PDQGWRUHGXFHUHYHQXH(%,7'$DQGRSHUDWLQJSURWLQ%7%XVLQHVVE\
~P~PDQG~P~P~PDQG~P:LWKLQ2WKHUFHQWUDOJURXSIXQFWLRQVUHYHQXH(%,7'$DQGRSHUDWLQJSURW
UHGXFHGE\~P~PDQG~P~P~PDQG~P,QWUDJURXSHOLPLQDWLRQVRQUHYHQXHGHFUHDVHGE\~P
121m).
These organisational changes do not impact the results of BT Consumer, BT Wholesale or Openreach and there is no impact on the total group results,
EDODQFHVKHHWRUFDVKRZV
Information regarding the results of each reportable segment is provided below.
6HJPHQWUHYHQXHDQGSURW
BT Global
Services
m
BT Business
m
BT Consumer
m
Segment revenue
Internal revenue
6,779

3,145

4,285

5HYHQXHIURPH[WHUQDOFXVWRPHUVa

528
(%,7'$
2SHUDWLQJSURWORVVa
BT Wholesale
m
Openreach
m
Other
m
Total
m
2,157
5,011

74

21,451

28

561

861
813
337

6SHFLFLWHPVQRWH
2SHUDWLQJSURW
1HWQDQFHH[SHQVHc
Share of post tax loss of associates and
joint ventures
3URWRQGLVSRVDORILQWHUHVWLQDVVRFLDWHV
and joint ventures

25
3URWEHIRUHWD[

BT Global
Services
m
BT Business
m
BT Consumer
m
Segment revenue
Internal revenue
7,269

3,213

4,019

5HYHQXHIURPH[WHUQDOFXVWRPHUV

425
<HDUHQGHG0DUFK5HVWDWHGd)
(%,7'$
2SHUDWLQJSURWa
Openreach
m
Other
m
Total
m
2,422
5,061

82

22,066

37

833

614

25

805
614
369

13

6SHFLFLWHPVQRWH
2SHUDWLQJSURW
1HWQDQFHH[SHQVHc
Share of post tax loss of associates and
joint ventures
Loss on disposal of interest in associates
and joint ventures
3URWEHIRUHWD[
BT Wholesale
m

a %HIRUHVSHFLFLWHPV
b(%,7'$LVVWDWHGEHIRUHVSHFLFLWHPVDQGLVDQRQ*$$3PHDVXUHSURYLGHGLQDGGLWLRQWRWKHGLVFORVXUHUHTXLUHPHQWVGHQHGXQGHU,)567KHUDWLRQDOHIRUXVLQJQRQ*$$3PHDVXUHVLVH[SODLQHGRQ
SDJHV{202 to .
c1HWQDQFHH[SHQVHLQFOXGHVVSHFLFLWHPH[SHQVHRI~P~P~P6HHQRWH

d5HVWDWHGVHHDERYH
financials.indb 155
15/05/2015 01:51
156
BT Group plc
Annual Report 2015
6HJPHQWLQIRUPDWLRQFRQWLQXHG
BT Global
Services
m
BT Business
m
BT Consumer
m
Segment revenue
Internal revenue
7,392

3,220

3,846

5HYHQXHIURPH[WHUQDOFXVWRPHUVa
<HDUHQGHG0DUFK5HVWDWHGd)
BT Wholesale
m
Openreach
m
Other
m
Total
m
2,608
5,115

54

22,235

28

(%,7'$b
950

940

968

620

23

2SHUDWLQJSURWORVV))a
316
707
720
366

6SHFLFLWHPVQRWH
2SHUDWLQJSURW
1HWQDQFHH[SHQVHc
6KDUHRISRVWWD[SURWRIDVVRFLDWHVDQG
joint ventures
3URWRQGLVSRVDORILQWHUHVWLQDVVRFLDWHV
and joint ventures

9
130
3URWEHIRUHWD[

a %HIRUHVSHFLFLWHPV
b(%,7'$LVVWDWHGEHIRUHVSHFLFLWHPVDQGLVDQRQ*$$3PHDVXUHSURYLGHGLQDGGLWLRQWRWKHGLVFORVXUHUHTXLUHPHQWVGHQHGXQGHU,)567KHUDWLRQDOHIRUXVLQJQRQ*$$3PHDVXUHVLVH[SODLQHGRQ
SDJHV{202 to .
c1HWQDQFHH[SHQVHLQFOXGHVVSHFLFLWHPH[SHQVHRI~P~P~P6HHQRWH

d5HVWDWHGVHHDERYH
Internal revenue and costs
Intra-group revenue generated from the sale of regulated products and services is based on market price. Intra-group revenue from the sale of
RWKHUSURGXFWVDQGVHUYLFHVLVDJUHHGEHWZHHQWKHUHOHYDQWOLQHVRIEXVLQHVVDQGWKHUHIRUHOLQHRIEXVLQHVVSURWDELOLW\FDQEHLPSDFWHGE\WUDQVIHU
pricing levels.
BT Wholesale does not generate internal revenue from the other lines of business. The majority of internal trading relates to Openreach and arises
on rentals, and any associated connection or migration charges, of the UK access lines and other network products to the customer-facing lines of
EXVLQHVV7KLVRFFXUVERWKGLUHFWO\DQGDOVRLQGLUHFWO\WKURXJK%7762ZKLFKLVLQFOXGHGZLWKLQWKHn2WKHUoVHJPHQW,QWHUQDOUHYHQXHLQ%7{%XVLQHVV
relates primarily to IT services and BT Ireland,QWHUQDOUHYHQXHDULVLQJLQ%7&RQVXPHUUHODWHVSULPDULO\WRHPSOR\HHEURDGEDQGDQGZLVHUYLFHV
Internal revenue in BT Global Services relates primarily to conferencing services.
,QWHUQDOFRVWUHFRUGHGE\
BT Global
Services
m
BT Business
m
BT Consumer BT Wholesale
m
m
Openreach
m
Other
m
Total
m
,QWHUQDOUHYHQXHUHFRUGHGE\
BT Global Services
BT Business
BT Consumer
BT Wholesale
Openreach
Other
241
20
187
29
22
306
62
939
94
2
242
46
1
18
1,390
29
399
62

46
7RWDO
448
357

338
47

<HDUHQGHG0DUFK5HVWDWHGa)
BT Global
Services
m
BT Business
m
BT Consumer
m
BT Wholesale
m
Openreach
m
Other
m
Total
m
BT Global Services
BT Business
BT Consumer
BT Wholesale
Openreach
Other
247
13
198
31
18
333
47
1,021
3
120
3
275
42
15
1,412
31
415
49

45
7RWDO
458
382

398
43

a5HVWDWHGVHHDERYH
financials.indb 156
15/05/2015 01:51
Overview

Group performance
Governance
157
BT Globala
Services
m
BT Businessa BT Consumer
m
m
BT Wholesale
m
Othera
m
Openreach
m
Total
m
BT Global Servicesa
BT Businessa
BT Consumer
BT Wholesale
Openreach
Othera
247
11
198
35
386
55
1,097
5
110
8
275
21
8
16
1,412
35
423
44

26
7RWDO
456
430

393
24

a5HVWDWHGVHHDERYH
Revenue by products and services

2015
m
Year ended 31 March

ICT and managed networks
Broadband, TV and convergence
Calls and lines and connectivity
Transit
Other products and services
5HYHQXHb
2014a
m
2013a
m
6,493
3,540
5,969
555
1,294
6,608
3,205
6,064
697
1,713
6,515
2,906
6,358
869
1,691

a5HVWDWHGWRSUHVHQWSULRUSHULRGLQIRUPDWLRQRQDFRQVLVWHQWEDVLV The imSDFWLQZDVto decrease ICT and PDQDJHGQHWZRUNVUHYHQXHE\~P~PLQFUHDVH%URDGEDQG79DQG
FRQYHUJHQFHUHYHQXHE\~P~PDQGGHFUHDVHRWKHUSURGXFWVDQGVHUYLFHVUHYHQXHE\~P~P
b %HIRUHVSHFLFLWHPV
Capital expenditure
BT Global
Services
m
BT Business
m
BT Consumer
m
BT Wholesale
m
Openreach
m
Other
m
Total
m
Intangible assets
220
248
31
156
85
122
80
130
55
1,027
90
82
561
1,765
&DSLWDOH[SHQGLWXUHa
468
187
207
210

172

BT Globalb
Services
m
BT Businessb BT Consumer
m
m
BT Wholesale
m
Openreach
m
Otherb
m
Total
m
Intangible assets
172
344
18
109
44
167
78
166
74
975
121
78
507
1,839
&DSLWDOH[SHQGLWXUHa
516
127
211
244

199

a1HWRIJRYHUQPHQWJUDQWV
b5HVWDWHGVHHQRWHDQGDERYH
financials.indb 157
15/05/2015 01:51
158
BT Group plc
Annual Report 2015
Geographic information
The UK is the groups country of domicile and the group generates the majority of its revenue from external customers in the UK. The geographic
analysis of revenue is on the basis of the country of origin in which the customer is invoiced.
Revenue from external customers

Year ended 31 March
2015
m
2014
m
2013
m
UK
Europe, Middle East and Africa, excluding the UK
Americas
$VLD3DFLF
13,827
2,328
1,115
581
14,084
2,585
1,074
544
14,152
2,604
1,057
526
5HYHQXHa

a%HIRUHVSHFLFLWHPV
Non-current assets
At 31 March
2015
m
2014
m
UK
Europe, Middle East and Africa, excluding the UK
Americas
$VLD3DFLF
13,977
2,184
555
169
14,318
2,322
451
68
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financials.indb 158
15/05/2015 01:51
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159
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Wages and salaries
Social security costs
Other pension costs
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2015
m
2014
m
2013
m
3,574
440
467
70
3,736
444
463
60
3,879
443
399
64
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1HWVWDFRVWV
Net indirect labour costsa

324

452

499
Net labour costs

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Property and energy costs
Network operating and IT costs
TV programme rights charges
Other operating costs
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Owned assets
+HOGXQGHUQDQFHOHDVHV
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2,144
968
605
330
3,573

2,472
959
591
203
3,672

2,677
1,022
587
3,552

1,997
11
530
2,090
22
583
2,175
19
649

19
21
13
13
12
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381
276
116

8
662
388

14
739
390

58
829
423

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Compensation of key management personnel
Key management personnel comprise executive and non-executive directors and members of the Operating Committee. Compensation of key
management personnel is shown in the table below:
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2015
m
2014
m
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6.4
10.5
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6.0
17.0
18.5
17.6
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plans is shown in the audited part of the 5HSRUWRQ'LUHFWRUVo5HPXQHUDWLRQVHHSDJHV111 to 129), which forms part of the consolidated
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financials.indb 159
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160
BT Group plc
Annual Report 2015
(PSOR\HHV
Year end
000
2015
Average
000
UK
Non-UK
70.9
17.6
72.2
16.5
72.2
15.6
72.7
15.1
73.2
14.7
74.1
15.0
7RWDOHPSOR\HHV
88.5
88.7
87.8
87.8
87.9
89.1
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000
2015
Average
000
BT Global Services
BT Business
BT Consumer
BT Wholesale
Openreach
Other
18.1
8.0
6.2
1.5
32.7
22.0
19.2
8.6
6.0
1.7
32.4
20.8
22.7
8.7
6.0
1.8
31.6
17.0
22.1
8.9
6.2
1.8
31.5
17.3
21.4
8.0
6.6
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30.4
19.5
22.0
8.4
6.4
1.4
30.4
20.5
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88.5
88.7
87.8
87.8
87.9
89.1
2015
000
2014
000
2013
000
Number of employees in the groupa
Number of employees in the groupa
Year end
000
Year end
000
2014
Average
000
2014b
Average
000
Year end
000
Year end
000
2013
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000
2013b
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The following fees were paid or are payable to the companys auditors, PricewaterhouseCoopers LLP.
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Fees payable to the companys auditors and its associates for:
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The audit of the companys subsidiaries
2,925
4,809
2,619
5,355
2,674
5,284

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Taxation compliance servicesc
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350
401
3,199
570
260
371
180
829
472
370
166
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financials.indb 160
15/05/2015 01:51
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161
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2015
m
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m
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236
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3URWRQGLVSRVDORISURSHUW\
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315
45

75
19
276
204

18
43
381
276
116
292
7
235
117
299
235
119
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5HWURVSHFWLYHUHJXODWRU\UXOLQJV in July 2014 the Supreme Court overturned a Court of Appeal judgment, made in July 2012, which had
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revenue and EBITDA of 128m, being the prior year impacts of ladder pricing agreements with the UK mobile operators following the Supreme
Court judgment.
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3URSHUW\UDWLRQDOLVDWLRQFRVWV we recognised a 45m charge increasing onerous lease provisions relating to the rationalisation of the groups
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against a December 2012 Ofcom determination on the pricing of certain Ethernet products. We disagree with the CATs judgment and have applied
for permission to appeal to the Court of Appeal. Ofcom had determined that BT had overcharged for certain services between 1 April 2006 and
31{March 2011 and required BT to make repayments. The CAT judged that BT should also pay interest on these amounts. Together with a review of
RXUUHJXODWRU\ULVNSRVLWLRQLQUHODWLRQWRRWKHUKLVWRULFDOPDWWHUVZHKDYHUHFRJQLVHGDVSHFLFLWHPFKDUJHRI~P,QZHKDGUHFRJQLVHG
charges of 151m and 36m against revenue and EBITDA respectively, following Ofcoms determinations on historic Ethernet pricing.
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fees of 7m were incurred setting up a 3.6bn acquisition facility.
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Accommodation Services Holdings, which was held at QLOFRVW,QZHUHFRJQLVHGDSURWRI~PDVDUHVXOWRIWKHGLVSRVDORIWKHJURXSoV
remaining interest in its associate Tech Mahindra, which was held at a carrying value of 127m at 31 March 2012.
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financials.indb 161
15/05/2015 01:51
162
BT Group plc
Annual Report 2015
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taxation as a result of the following factors:
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financials.indb 162
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133
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1,418

106

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110

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1,208

37
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829
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6

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26
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permitted by IAS 12, with the exception of deferred tax related to BTs pension schemes which is disclosed within deferred tax assets.
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are expected to be recovered or settled after more than one year.
financials.indb 163
15/05/2015 01:51
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BT Group plc
Annual Report 2015
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The rate of UK corporation tax changed from 21% to 20% on 1 April 2015. As deferred tax assets and liabilities are measured at the rates that are
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As all deferred tax balances were measured at 20% at 31 March 2014 and 31 March 2015, there was no further impact on deferred taxation for the
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date restrictions. The expiry date of operating losses carried forward is dependent upon the tax law of the various territories in which the losses arose.
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356
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3,193
17,150
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195
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recognised in respect of these unremitted earnings because the group is in a position to control the timing of any dividends from subsidiaries and
hence any tax consequences that may arise.
financials.indb 164
15/05/2015 01:51
Overview

Group performance
Governance
165
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issue after deducting the own shares held by employee share ownership trusts and treasury shares.
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number of shares as the impact of these is antidilutive.
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8,056
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7,857
314
60
7,832
275
96
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8,191
8,231
8,203
Basic earnings per share

Diluted earnings per share
26.5p
26.1p
25.7p
24.5p
24.8p
23.7p
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and a reconciliation to basic earnings per share is disclosed on page 203.
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2015
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Final dividend in respect of the prior year
Interim dividend in respect of the current year
pence
per share
2014
pence
per share
2013
pence
per share
7.5
3.9
609
316
6.5
3.4
512
269
5.7
3.0
449
235
11.4
925
9.9
781
8.7
684
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The proposed dividend will be payable to all shareholders on the Register of Members on 14 August 2015.
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SDLGLQUHODWLRQWRGLYLGHQGFKHTXHVWKDWKDYHEHHQSUHVHQWHGRYHUWKHFRXUVHRIWKHQDQFLDO\HDU
financials.indb 165
15/05/2015 01:52
166
BT Group plc
Annual Report 2015
,QWDQJLEOHDVVHWV
Goodwill
m
Customer
relationships and
brands
m
Telecoms
licences
DQG{RWKHU
m
Internally
developed
software
m
Purchased
software
m
Total
m
Cost
At 1 April 2013
Additions
$FTXLVLWLRQRIVXEVLGLDULHVQRWH
Interest on qualifying assetsa
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([FKDQJHGLHUHQFHV

15

358
20
27

481
1

433
1

73

507
35
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65
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415
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399
390

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([FKDQJHGLHUHQFHV
291
15
26

186
7

468

93

583

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([FKDQJHGLHUHQFHV
323
15
101
7

448

18
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530

$W0DUFK
336
96

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$W0DUFK

63
294

138

At 31 March 2014
1,331
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314
1,217
154
3,087
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financials.indb 166
15/05/2015 01:52
Overview

Group performance
Governance
167
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Goodwill impairment review
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7KH&*8VWKDWKDYHDVVRFLDWHGJRRGZLOODUH%7*OREDO6HUYLFHV%7%XVLQHVVDQG%7&RQVXPHU7KHVHDUHWKHVPDOOHVWLGHQWLDEOHJURXSVRIDVVHWVWKDW
JHQHUDWHFDVKLQRZVWKDWDUHODUJHO\LQGHSHQGHQWRIWKHFDVKLQRZVIURPRWKHUJURXSVRIDVVHWVDQGWRZKLFKJRRGZLOOLVDOORFDWHG*RRGZLOOLV
allocated to the groups CGUs as follows:
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m
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m
m
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$FTXLVLWLRQVQRWH
([FKDQJHGLHUHQFHV
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221
65
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7
59
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6
80

65
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220
80

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7KHGLVFRXQWUDWHXVHGLQSHUIRUPLQJWKHYDOXHLQXVHFDOFXODWLRQLQZDV9.3IRUDOO&*8V7KHSHUSHWXLW\JURZWKUDWHIRU

%7{*OREDO6HUYLFHVZDVDQGIRU%7%XVLQHVVDQG%7&RQVXPHU
5HFRYHUDEOHDPRXQW
7KHYDOXHLQXVHRIHDFK&*8LVGHWHUPLQHGXVLQJFDVKRZSURMHFWLRQVGHULYHGIURPQDQFLDOSODQVDSSURYHGE\WKH%RDUGFRYHULQJDWKUHH\HDU
SHULRG7KH\UHHFWPDQDJHPHQWoVH[SHFWDWLRQVRIUHYHQXH(%,7'$JURZWKFDSLWDOH[SHQGLWXUHZRUNLQJFDSLWDODQGRSHUDWLQJFDVKRZVEDVHGRQ
SDVWH[SHULHQFHDQGIXWXUHH[SHFWDWLRQVRIEXVLQHVVSHUIRUPDQFH&DVKRZVDUHDOVRDGMXVWHGGRZQZDUGVWRUHHFWWKHGLHUHQWULVNDWWULEXWHVRI
HDFK&*8&DVKRZVEH\RQGWKHthree-year period have been extrapolated using perpetuity growth rates.
Discount rate
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used in the calculation of the groups weighted average cost of capital are benchmarked to externally available data.
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an assessment of the long-term growth prospects of that sector. The growth rates have been benchmarked against external data for the relevant
markets. None of the growth rates applied exceed the long-term historical average growth rates for those markets or sectors.
6HQVLWLYLWLHV
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7KH{IROORZLQJFKDQJHVLQFRPELQDWLRQLQDVVXPSWLRQVZRXOGFDXVHWKHUHFRYHUDEOHDPRXQWWRIDOOEHORZWKHFDUU\LQJYDOXH
UHGXFWLRQLQWKHSHUSHWXLW\JURZWKUDWHIURPWKHDVVXPSWLRQDSSOLHGWRDUHYLVHGDVVXPSWLRQRIQRJURZWK
an increase in the discount rate from the 9.3% assumption applied to a revised assumption of 15% or more
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For BT Business and BT Consumer no reasonably possible changes in the key assumptions would cause the carrying amount of the CGUs to exceed
the recoverable amount.
financials.indb 167
15/05/2015 01:52
168
BT Group plc
Annual Report 2015
3URSHUW\SODQWDQGHTXLSPHQW
Land and
Network
buildingsa infrastructurea
m
m
Otherb
m
Assets in
course of
construction
m
Total
m
Cost
At 1 April 2013
Additionsc
Transfers
Disposals and adjustmentsd
([FKDQJHGLHUHQFHV
1,260
34
3

45,266
205
1,531

2,199
119
3

718
1,487

49,443
1,845

$W0DUFK
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([FKDQJHGLHUHQFHV

12
18

106
1,545
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159
24
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650
1,482
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1,759
11
40)

$W0DUFK

527

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Charge for the year
([FKDQJHGLHUHQFHV
747
57

32,716
1,951

1,900
104

35,363
2,112

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706
50

1,845
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113
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13

2,008
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$W0DUFK
Engineering stores
445

346
527
74

74
7RWDODW0DUFK
445

346
601

At 31 March 2014
Engineering stores
485
12,341
296
650
68
13,772
68
7RWDODW0DUFK
485

296
718

2015
m
2014
m
The carrying amount of land and buildings, including leasehold improvements, comprised:
Freehold
Leasehold
208
237
233
252
7RWDOODQGDQGEXLOGLQJV
445
485
At 31 March
a7KHFDUU\LQJDPRXQWRIWKHJURXSoVSURSHUW\SODQWDQGHTXLSPHQWLQFOXGHVDQDPRXQWRI~P~PLQUHVSHFWRIDVVHWVKHOGXQGHUQDQFHOHDVHVFRPSULVLQJODQGDQGEXLOGLQJVRI~P
~PDQGQHWZRUNLQIUDVWUXFWXUHRI~P~P7KHGHSUHFLDWLRQH[SHQVHRQWKRVHDVVHWVLQZDV~P~PFRPSULVLQJODQGDQGEXLOGLQJVRI~P

~PDQGQHWZRUNLQIUDVWUXFWXUHRI~P~P:LWKLQQHWZRUNLQIUDVWUXFWXUHDUHDVVHWVZLWKQHWERRNYDOXHRI~EQZKLFKKDYHXVHIXOHFRQRPLFOLYHVRIPRUHWKDQ\HDUV
b2WKHUPDLQO\FRPSULVHVPRWRUYHKLFOHVFRPSXWHUVDQGRFHHTXLSPHQW
c1HWRIJRYHUQPHQWJUDQWVRI~P~P
d)XOO\GHSUHFLDWHGDVVHWVLQWKHJURXSoV[HGDVVHWUHJLVWHUsZHUHUHYLHZHGGXULQJWKH\HDUDVSDUWRIWKHJURXSoVDQQXDODVVHWYHULFDWLRQH[HUFLVHDQGFHUWDLQDVVHWVWKDWZHUHQRORQJHULQXVHKDYHEHHQ
ZULWWHQRXWUHGXFLQJFRVWDQGDFFXPXODWHGGHSUHFLDWLRQE\~EQ~EQ
financials.indb 168
15/05/2015 01:52
Overview

Group performance
Governance
169
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On 1 August 2013 the group acquired 100% of the issued share capital of ESPN Global Limited, together with certain trademarks, licences and
programme rights. The purchase was made for consideration of 30m. Intangible assets of 14m and goodwill of 15m were recognised.
3URJUDPPHULJKWV
Total
m
At 1 April 2013
Additions
Amortisation
311

At 1 April 2014
Additions
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108
340

$W0DUFK
118
$GGLWLRQVUHHFW79SURJUDPPHULJKWVIRUZKLFKWKHOHJDOO\HQIRUFHDEOHOLFHQFHSHULRGKDVVWDUWHGGXULQJWKH\HDU3D\PHQWVPDGHIRUSURJUDPPH
ULJKWVIRUZKLFKWKHOHJDOO\HQIRUFHDEOHOLFHQFHSHULRGKDVQRW\HWVWDUWHGDUHLQFOXGHGZLWKLQSUHSD\PHQWVVHHQRWH
Programme rights commitments are disclosed in note 29.
7UDGHDQGRWKHUUHFHLYDEOHV
At 31 March
Non-current
Other assetsa
2015
m
2014
m
184
214
a2WKHUDVVHWVLQFOXGHVFRVWVUHODWLQJWRWKHLQLWLDOVHWXSWUDQVLWLRQRUWUDQVIRUPDWLRQSKDVHRIORQJWHUPQHWZRUNHG,7VHUYLFHVFRQWUDFWVRI~P~PDQGSUHSD\PHQWVDQGOHDVLQJGHEWRUVRI
~P~P
At 31 March
Current
Trade receivables
Prepayments
Accrued income
Other receivables
2015
m
2014
m
1,454
505
810
371
1,370
508
815
214

Trade receivables are stated after deducting allowances for doubtful debts, as follows:
2015
m
2014
m
At 1 April
Expense
Utilised
([FKDQJHGLHUHQFHV
192
78

218
77

$W0DUFK
196
192
7UDGHUHFHLYDEOHVDUHFRQWLQXRXVO\PRQLWRUHGDQGDOORZDQFHVDSSOLHGDJDLQVWWUDGHUHFHLYDEOHVFRQVLVWRIERWKVSHFLFLPSDLUPHQWVDQGFROOHFWLYH
impairments based on the groups historical loss experiences for the relevant aged category and taking into account general economic conditions.
+LVWRULFDOORVVH[SHULHQFHDOORZDQFHVDUHFDOFXODWHGE\OLQHRIEXVLQHVVLQRUGHUWRUHHFWWKHVSHFLFQDWXUHRIWKHFXVWRPHUVUHOHYDQWWRWKDWOLQH
of business.
7UDGHDQGRWKHUUHFHLYDEOHVDUHFODVVLHGDVORDQVDQGUHFHLYDEOHVDQGKHOGDWDPRUWLVHGFRVW7KHFDUU\LQJDPRXQWRIWKHVHEDODQFHVDSSUR[LPDWHV
to fair value due to the short maturity of amounts receivable.
Note 26 provides further disclosure regarding the credit quality of the groups gross trade receivables.
financials.indb 169
15/05/2015 01:52
170
BT Group plc
Annual Report 2015
7UDGHDQGRWKHUUHFHLYDEOHVFRQWLQXHG
Trade receivables are due as follows:
3DVWGXHDQGQRWVSHFLFDOO\LPSDLUHG
At 31 March
Trade
receivables
VSHFLFDOO\
impaired net
Not past due of provision
m
m
Between
0 and 3
months
m
Between
3 and 6
months
m
Between
6 and 12
months
m
Over 12
months
m
Total
m
2015
867
71
366
44
37
69

2014
857
39
300
31
43
100

*URVVWUDGHUHFHLYDEOHVZKLFKKDYHEHHQVSHFLFDOO\LPSDLUHGDPRXQWHGWR~159P~P
Trade receivables not past due and accrued income are analysed below by line of business.
At 31 March
Trade receivables
not past due
2015
2014a
m
m
Accrued income
2015
2014a
m
m
BT Global Services
BT Business
BT Consumer
BT Wholesale
Openreach
Other
517
143
119
70
15
3
535
193
106
4
12
7
405
115
85
128
75
2
448
112
118
137
7RWDO
867
857
810
815
a &HUWDLQEDODQFHVKDYHEHHQUHVWDWHGVHHQRWH
Given the broad and varied nature of the groups customer base, the analysis of trade receivables not past due and accrued income by line of business
is considered the most appropriate disclosure of credit concentrations. Cash collateral held against trade and other receivables amounted to 4m
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At 31 March
Current
Trade payables
Other taxation and social security
Other payables
Accrued expenses
Deferred income
At 31 March
Non-currenta
Other payables
Deferred income
2015
m
2014
m
2,835
416
535
414
1,076
2,745
480
545
444
1,047

2015
m
2014
m
854
73
845
53
927
898
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UHSD\PHQWRIJRYHUQPHQWJUDQWVUHFHLYHG.
financials.indb 170
15/05/2015 01:52
Overview

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m
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m
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m
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([FKDQJHGLHUHQFHV
67
20

241
4
8

322
17

630
41
8

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([FKDQJHGLHUHQFHV
58
6

201
46
8

274
88

6

533
140
8

6

$W0DUFK
45
217
302
564
2015
m
2014
m
142
422
99
434
564
533
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Analysed as:
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Non-current
171
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c 2WKHUSURYLVLRQVLQFOXGHDPRXQWVSURYLGHGIRUOHJDORUFRQVWUXFWLYHREOLJDWLRQVDULVLQJIURPLQVXUDQFHFODLPVOLWLJDWLRQDQGUHJXODWRU\ULVNVZKLFKZLOOEHXWLOLVHGDVWKHREOLJDWLRQVDUHVHWWOHG
financials.indb 171
15/05/2015 01:52
172
BT Group plc
Annual Report 2015
Background
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PHPEHUVKLSLVWKH%73HQVLRQ6FKHPH%736ZKLFKLVDGHQHGEHQHWSODQWKDWZDVFORVHGWRQHZHQWUDQWVRQ0DUFK$IWHUWKDWGDWH
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based arrangement.
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percentage of employees pay. The company has no exposure to investment and other experience risks.
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rules dependent on factors such as age, years of service and pensionable pay and is not dependent upon actual contributions made by the company
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and assets held.
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2015
m
2014
m
2013
m
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Current service cost:
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254
176
a
42
272
151
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225
136
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467
463
399
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292
235
117
7RWDOUHFRJQLVHGLQWKHLQFRPHVWDWHPHQW
759
698
516
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a3DVWVHUYLFHFUHGLWUHODWHVWRYDULRXVSHQVLRQSODQVRSHUDWLQJRXWVLGHWKH8.
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interest expense.
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2015
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Present value
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m
m
'HFLW
m
2014
Present value
Assets of liabilities
m
m
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m
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43,386
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39,939
174

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1,481

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payables in the group balance sheet.
financials.indb 172
15/05/2015 01:52
Overview

Group performance
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173
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Assets
m
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m
'HFLW
m
41,566

1,710

61

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Actuarial loss arising from changes in demographic assumptionsb
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580

580

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274

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,QWHUHVWRQSHQVLRQGHFLW
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,QFOXGHGLQWKHJURXSLQFRPHVWDWHPHQW
a
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'HFLWFRQWULEXWLRQVE\HPSOR\HU
228
325
228
325
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553
553
12

2,166
15
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3,083

126
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178
876
178
876
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Contributions by employees
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Foreign exchange
12

2,231
44
19
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19
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financials.indb 173
15/05/2015 01:52
174
BT Group plc
Annual Report 2015
BTPS
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1971 and 31 March 1986 and Section C is for members who joined the scheme on or after 1 April 1986 but before the scheme closed to new
entrants on 31 March 2001. The membership is analysed below.
At 31 March 2015
Number
of active
members
Number of
deferred Number of
Total
members pensioners membership
Sections A and Ba
Section C
15,000
23,000
32,000
40,500
176,000
20,000
223,000
83,500
7RWDO

Sections A and Ba
Section C
17,000
24,000
35,500
41,000
176,500
19,000
229,000
84,000
7RWDO

At 31 March 2014
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Active members
Section Ba
Section C
Deferred members
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at the lower of RPI or the individuals actual UHWLUHPHQWEDVHGXSRQ{&3,
pay increase
Pensioners
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upon CPI
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currently based upon RPI up to a maximum
of 5%
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behalf of the members in accordance with the terms of the Trust Deed of the scheme and relevant legislation. Under the terms of the Trust Deed there
are nine Trustee directors all of whom are appointed by BT. The chairman of the Trustee is appointed after consultation with, and with the agreement
RIWKHUHOHYDQWWUDGHXQLRQVZKRDUHDOVRUHVSRQVLEOHIRUQRPLQDWLQJIRXUGLUHFWRUVWRDFWDVUHSUHVHQWDWLYHVRIWKHPHPEHUV2I{WKHUHPDLQLQJIRXU
GLUHFWRUVWZRZLOOQRUPDOO\KROGVHQLRUSRVLWLRQVZLWKLQWKHJURXSDQGWZRZLOOQRUPDOO\KROGRUKDYHKHOGVHQLRUSRVLWLRQVLQFRPPHUFHRULQGXVWU\
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pensioner of the BTPS. Trustee directors are usually appointed for a three-year term but are then eligible for re-appointment.
BTPS assets
Asset allocation
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7KH{DOORFDWLRQVVHWUHHFWWKH7UXVWHHoVYLHZVRQWKHDSSURSULDWHEDODQFHWREHVWUXFNEHWZHHQVHHNLQJUHWXUQVDQGLQFXUULQJULVNDQGRQWKHH[WHQWWR
which the assets should be distributed to match liabilities. Current market conditions and trends are regularly assessed which may lead to adjustments
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risk and foreign currency risk.
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securities listed on recognised stock exchanges are valued at closing bid prices
properties are valued on the basis of open market value
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credit risk.
financials.indb 174
15/05/2015 01:52
Overview

Group performance
Governance
175
The fair value of the assets of the BTPS analysed by asset category are shown below. These are subdivided by assets that have a quoted market price in
DQDFWLYHPDUNHWDQGWKRVHWKDWGRQRWVXFKDVLQYHVWPHQWIXQGV
2015a
At 31 March
Total assets
bn
of which
quotedb
bn
Total
%
2014a
Total assets
bn
of which
quotedb
bn
Total
%
Equitiesc
Fixed-interest securities
Index-linked securities
Property
Alternative assetsd
Cash and other
13.1
7.4
11.7
4.6
6.2
0.4
10.6
5.7
10.5
30
17
27
11
14
1
11.2
7.1
9.9
4.3
7.1
0.3
5.8
5.7
8.5
1.0
28
18
24
11
18
1
7RWDO
43.4
26.8
100
39.9
21.0
100
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On 4 July 2014, the Scheme entered into arrangements to hedge around 25% of the Schemes exposure to potential improvements in longevity.
These arrangements form part of the Schemes investment portfolio and will provide income to the Scheme in the event that pensions are paid out
for longer than expected under the terms of the contract. To facilitate the transaction, the Trustee set up a wholly owned insurance company. The
Scheme transferred longevity risk to this insurer, who has in turn reinsured this longevity risk with The Prudential Insurance Company of America, a
U.S. based life insurance company. These arrangements required no additional cash contributions from BT. At 31 March 2015, the fair value of the
insurance contract was negligible and has been included within cash and other assets.
,QYHVWPHQWSHUIRUPDQFH
The Trustee reports on investment performance against a benchmark which is based on the asset mix and the market returns for each asset class.
BTPS performance against the benchmark for the periods to 30 June 2014 was as follows.
Period ending 30 June 2014

1 year
3 years
10 years
Over
XQGHU
Actual
Benchmark BTPS return performance
%
%
%
6.2
6.2
6.5
6.2
5.8
7.0

0.5
BTPS liabilities under IAS 19
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7KHH[SHFWHGIXWXUHEHQHWSD\PHQWVDUHEDVHGRQDQXPEHURIDVVXPSWLRQVLQFOXGLQJIXWXUHLQDWLRQUHWLUHPHQWDJHVEHQHWRSWLRQVFKRVHQDQG
OLIHH[SHFWDQF\DQGDUHWKHUHIRUHLQKHUHQWO\XQFHUWDLQ$FWXDOEHQHWSD\PHQWVLQDJLYHQ\HDUPD\EHKLJKHURUORZHUIRUH[DPSOHLIPHPEHUVUHWLUH
sooner or later than assumed, or take a greater or lesser cash lump sum at retirement. The estimated duration of BTPS liabilities, which is an indicator
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\HDUVDVVKRZQLQWKHJUDSKEHORZ:KLOVWEHQHWSD\PHQWVDUHH[SHFWHGWRLQFUHDVHRYHUWKHHDUOLHU\HDUVWKHYDOXHRIWKHOLDELOLWLHVLVH[SHFWHG
to reduce.
financials.indb 175
15/05/2015 01:52
176
BT Group plc
Annual Report 2015
bn
bn
3.0
60
2.5
50
2.0
40
1.5
30
1.0
20
0.5
10
0
2015
2035
Forecast benet payments (Left axis)

a
Liabilitiesa
Forecast benets payable by the BTPSa
Forecast benets payable by the BTPS at 31 March 2015 (unaudited)
2055
2075
2095
Liabilities (Right axis)
Based on accrued benets to date.
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At 31 March
Rate used to discount liabilities
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2015
2014
2013
%
%
%
3.25
2.85
1.85b
4.25
3.25
2.50c
4.20
3.30
2.55c
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2015
2014
2013
%
%
%
0.39
b
0.97
c
0.87
c
a
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Rate used to discount liabilities

IAS 19 requires that the discount rate is determined by reference to market yields at the reporting date on high quality corporate bonds. The currency
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WKHUXOHVRIWKH%736DQGVXPPDULVHGDERYH7KHDVVXPSWLRQIRU53,KDVEHHQDVVHVVHGE\UHIHUHQFHWR\LHOGVRQORQJWHUP[HGDQGLQGH[OLQNHG
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IRUHFDVWVDQGLQGHSHQGHQWHVWLPDWHVRIWKHORQJWHUPGLHUHQFH
Longevity
The average life expectancy assumptions, after retirement at 60 years of age, are as follows.
At 31 March
2015
Number of
years
2014
Number of
years
Male in lower pay bracket
26.0
26.0
Male in medium pay bracket

Male in higher pay bracket
27.3
28.7
27.7
Female in lower pay bracket

Female in higher pay bracket
28.7
29.0
28.5
1.0
1.0
Average improvement for a member retiring at age 60 in 10 years time
The assumptions about life expectancy have regard to information published by the UK actuarial professions Continuous Mortality Investigation.
However, due to the size of the membership of the BTPS it is considered appropriate for the adopted life expectancy assumptions to take into account
the actual membership experience of the scheme. Allowance is also made for future improvements in mortality. The BTPS actuary undertakes formal
reviews of the membership experience at every triennial valuation.
Sensitivity analysis of the principal assumptions used to measure BTPS liabilities
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There may also be a move in the assets from changes in conditions. The total expected impact to liabilities and assets is illustrated as the sensitivity of
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financials.indb 176
15/05/2015 01:52
Overview

Group performance
Governance
177
Decrease
Decrease
Decrease
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liability
GHFLW service cost
bn
bn
m
0.25 percentage point increase to:

discount rate
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Additional one year increase to life expectancy
1.9

1.2a
b

10

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b$OORZVIRUWKHHVWLPDWHGLPSDFWRQDVVHWVGLUHFWO\OLQNHGWRLQDWLRQIURPDSHU\HDULQFUHDVHWRLQDWLRQ.
BTPS funding
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IXQGLQJSODQWRHQVXUHWKDWWKH6FKHPHKDVVXFLHQWIXQGVDYDLODEOHWRPHHWIXWXUHEHQHWSD\PHQWV7KHODWHVWIXQGLQJYDOXDWLRQZDVSHUIRUPHG
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The valuation methodology for funding purposes, which is based on prudent assumptions, is broadly as follows:
assets are valued at market value at the valuation date; and
liabilities are measured on an actuarial funding basis using the projected unit credit method and discounted to their present value.
The results of the two most recent triennial valuations are shown below.
BTPS liabilities
Market value of BTPS assets
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3HUFHQWDJHRIDFFUXHGEHQHWVRQDVROYHQF\EDVLVFRYHUHGE\WKH%736DVVHWVDWWKHYDOXDWLRQGDWH
June
2014
valuation
bn
June
2011
valuation
bn

40.2

36.9

85.2%
63.0%
90.4%
66.0%
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per year since the 2011 valuation contributed to higher assets at the 2014 valuation date, the low interest rate environment resulted in a higher
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These valuations were determined using the following prudent long-term assumptions.
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June
June
2014
2011
valuation
valuation
%
%
Average single equivalent discount rate
Average long-term increase in RPI
Average long-term increase in CPI
4.5
3.5
2.5
5.2
3.2
2.2
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June
June
2014
2011
valuation
valuation
%
%
1.0

2.0

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This gives a prudent discount rate of 2.1% per year above the yield curve initially, trending down to 0.6% per year above the curve in the long-term.
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financials.indb 177
15/05/2015 01:52
178
BT Group plc
Annual Report 2015
The average life expectancy assumptions at the 2014 valuation date, for members 60 years of age, are as follows.
June
June
2014
2011
assumptions assumptions
Number of years from 30 June 2014

Male in lower pay bracket
26.1
26.3
Male in medium pay bracket

Male in high pay bracket
27.5
29.0
28.1
Female in lower pay bracket

Female in high pay bracket
28.9
29.2
28.7
1.3
1.2
2015
m
2014
m
168
875
205
325

530
Average improvement for a member retiring at age 60 in 10 years time
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Year ended 31 March
Ordinary contributions
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7RWDOFRQWULEXWLRQVLQWKH\HDU
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Under the terms of the Trust Deed, the group is required to have a funding plan, determined at the conclusion of the triennial funding valuation,
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Year to 31 March
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
250
250
688
699
711
724
670
670
670
495
495
495
495
495
289
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employee contributions) from 1 April 2015 through to the next valuation date.
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The 2014 funding agreement with the Trustee included additional features for BT to provide support to the Scheme. These include:
Feature
Detail
6KDUHKROGHU
distributions
In the event that shareholder distributions exceed an agreed threshold, BT will provide matching payments to the Scheme.
The threshold allows for 15% per year dividend per share growth plus 300m per year of share buybacks on a cumulative
basis.
BT will consult with the Trustee if it considers share buybacks in excess of 300m per year or making a special dividend.
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Material corporate
HYHQWV
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period, BT will make additional contributions to the Scheme equal to one third of those net cash proceeds.
BT will consult with the Trustee if:
it considers making acquisitions with a total cost of more than 1bn in any 12-month period; or
it considers making disposals of more than 1bn; or
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BT will advise the Trustee should there be other material corporate events which may impact BTs covenant to the Scheme.
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1HJDWLYHSOHGJH
A negative pledge that future creditors will not be granted superior security to the Scheme in excess of a 1.5bn threshold,
to cover both British Telecommunications plc and BT Group plc.
7KLVSURYLVLRQDSSOLHVXQWLOWKHGHFLWUHGXFHVWREHORZ~EQDWDQ\VXEVHTXHQWIXQGLQJYDOXDWLRQ
financials.indb 178
15/05/2015 01:52
Overview

Group performance
Governance
179
,QWKHXQOLNHO\HYHQWWKDWWKHJURXSZHUHWREHFRPHLQVROYHQWWKHUHDUHDGGLWLRQDOSURWHFWLRQVRI%736PHPEHUVoEHQHWV
Feature
Detail
&URZQ*XDUDQWHH
The Crown Guarantee was granted by the Government when the group was privatised in 1984 and would only come into
HHFWXSRQWKHinsolvency of BT.
The Trustee brought court proceedings to clarify the scope and extent of the Crown Guarantee. The Court of Appeal
judgment on 16 July 2014 established that:
the Crown Guarantee covers BTs funding obligation in relation to members of the Scheme who joined post-privatisation as
well as thoseZKRMRLQHGSUHSULYDWLVDWLRQVXEMHFWWRFHUWDLQH[FHSWLRQV;
WKHIXQGLQJREOLJDWLRQWRZKLFKWKH&URZQ*XDUDQWHHUHODWHVLVPHDVXUHGZLWKUHIHUHQFHWR%7oVREOLJDWLRQWRSD\GHFLW
contributions under the rules of the Scheme.
The Crown Guarantee is not taken into account for the purposes of the actuarial valuation of the Scheme and is an entirely
separate matter, only being relevant in the highly unlikely event that BT became insolvent.
Pension Protection
)XQG33)
7KH3HQVLRQ3URWHFWLRQ)XQG33)PD\WDNHRYHUWKH6FKHPHDQGSD\EHQHWVWRPHPEHUVQRWFRYHUHGE\WKH

Crown Guarantee.
7KHUHDUHOLPLWVRQWKHDPRXQWVSDLGE\WKH33)DQGWKLVZRXOGQRWJLYHH[DFWO\WKHVDPHEHQHWVDVWKRVHSURYLGHG
by the Scheme.
2WKHUEHQHWSODQV
,QDGGLWLRQWRWKH%736WKHJURXSPDLQWDLQVEHQHWSODQVLQPRVWRWKHUFRXQWULHVZLWKDIRFXVRQWKHVHEHLQJDSSURSULDWHIRUWKHORFDOPDUNHW
and culture.
$IWHUWKH%736WKHODUJHVWGHQHGEHQHWSODQVSRQVRUHGE\WKHJURXSLVDSODQLQWKH1HWKHUODQGVZLWKOLDELOLWLHVRIDURXQG~P
7KH%75HWLUHPHQW6DYLQJ6FKHPH%7566LVWKHODUJHVWGHQHGFRQWULEXWLRQVFKHPHPDLQWDLQHGE\WKHJURXSZLWKDURXQGDFWLYHPHPEHUV
In the year to 31 March 2015, the group contributed 105m to the BTRSS.
2ZQVKDUHV
Treasury sharesa
millions
m
Employee share
ownership trusta
millions
m
Total
millions
At 1 April 2013
Own shares purchasedb
Share options exercisedb,c
Executive share awards vested
271
27

172
52
59

133
323
86

172
133
At 31 March 2014
Own shares purchasedb
Share options exercisedb,c
Executive share awards vested
232
25
6)

724
62
55

173
87
294
80
7)

897
87
41

42

$W0DUFK
a$W0DUFKVKDUHVZLWKDQDJJUHJDWHQRPLQDOYDOXHRI~QLO~PZHUHKHOGDWFRVWDVWUHDVXU\VKDUHVDQGVKDUHV
ZLWKDQDJJUHJDWHQRPLQDOYDOXHRI~P~PZHUHKHOGLQWKH7UXVW
b6HHJURXSFDVKRZVWDWHPHQWRQSDJH,QWKHFDVKSDLGIRUWKHUHSXUFKDVHRIRUGLQDU\VKDUHFDSLWDOZDV~P~P7KHFDVKUHFHLYHGIRUSURFHHGVRQWKHLVVXHRI
WUHDVXU\VKDUHVZDV~P~P
c,QFOXGHVVKDUHRSWLRQH[HUFLVHVLQUHODWLRQWR(PSOR\HH6DYHVKDUH3ODQVDQG*623DQG*/23/HJDF\3ODQVVHHQRWHIRUGHWDLOVDVZHOODV2PQLOUHODWLQJWRRWKHUSODQV
The treasury shares reserve represents BT Group plc shares purchased directly by the group. The BT Group Employee Share Ownership Trust
nWKH7UXVWoDOVRSXUFKDVHV%7*URXSSOFVKDUHV
The treasury shares and the shares in the Trust are being utilised to satisfy the groups obligations under its employee share plans. Further details
on Employee Saveshare Plans and Executive share plans are provided in note 21.
financials.indb 179
15/05/2015 01:52
180
BT Group plc
Annual Report 2015
6KDUHEDVHGSD\PHQWV
Overview
The company has savings-related share option plans for its employees and those of participating subsidiaries, further share option plans for selected
employees and a stock purchase plan for employees in the US. It also has several share plans for executives. All share-based payment plans are equity
settled and details of these plans and an analysis of the total charge by type of award is set out below.
Year ended 31 March
Employee Saveshare Plans
Executive Share Plans:
,QFHQWLYH6KDUH3ODQ,63
'HIHUUHG%RQXV3ODQ'%3
Other plans
2015
m
2014
m
2013
m
25
25
25
32
9
4
21
11
3
27
10
2
70
60
64
(PSOR\HH6DYHVKDUH3ODQV
8QGHUDQ+05&DSSURYHGVDYLQJVUHODWHGVKDUHRSWLRQSODQHPSOR\HHVVDYHRQDPRQWKO\EDVLVRYHUDWKUHHRUYH\HDUSHULRGWRZDUGVWKH
SXUFKDVHRIVKDUHVDWD[HGSULFHGHWHUPLQHGZKHQWKHRSWLRQLVJUDQWHG7KLVSULFHLVXVXDOO\VHWDWDGLVFRXQWWRWKHPDUNHWSULFHIRUYH
year plans and 10% for three-year plans. The options must be exercised within six months of maturity of the savings contract, otherwise they lapse.
Similar plans operate for BTs overseas employees.
,QFHQWLYH6KDUH3ODQ,63
Under the ISP, participants are only entitled to these shares in full at the end of a three-year period if the company has met the relevant preGHWHUPLQHGFRUSRUDWHSHUIRUPDQFHPHDVXUHVDQGLIWKHSDUWLFLSDQWVDUHVWLOOHPSOR\HGE\WKHJURXS)RU,63DZDUGVJUDQWHGLQ
DQGRIHDFKDZDUGLVOLQNHGWRDWRWDOVKDUHKROGHUUHWXUQ765WDUJHWIRUDFRPSDUDWRUJURXSRIFRPSDQLHVIURPWKHEHJLQQLQJRIWKH
UHOHYDQWSHUIRUPDQFHSHULRGLVOLQNHGWRDWKUHH\HDUFXPXODWLYHIUHHFDVKRZPHDVXUHDQGWRJURZWKLQXQGHUO\LQJUHYHQXHH[FOXGLQJ
transit.
'HIHUUHG%RQXV3ODQ'%3
Under the DBP, awards are granted annually to selected employees of the group. Shares in the company are transferred to participants at the end of
three years if they continue to be employed by the group throughout that period.
In accordance with the terms of the ISP and DBP, dividends or dividend equivalents earned on shares during the conditional periods are reinvested
LQ{FRPSDQ\VKDUHVIRUWKHSRWHQWLDOEHQHWRIWKHSDUWLFLSDQWV
Employee Saveshare Plans
Movements in Employee Saveshare options are shown below.
Year ended 31 March
Movement in the number of share options

2015
2014
2013
millions
millions
millions
Weighted average exercise price

2015
2014
2013
pence
pence
pence
Outstanding at 1 April
Granted
Forfeited
Exercised
Expired
459
81

490
40

561
66

102
326
239
65
163
91
257
158
110
78
79
176
120
69
188
2XWVWDQGLQJDW0DUFK
226
459
490
226
102
91
74
111
Exercisable at 31 March
7KHZHLJKWHGDYHUDJHVKDUHSULFHIRUDOORSWLRQVH[HUFLVHGGXULQJZDVSSS
7KHIROORZLQJWDEOHVXPPDULVHVLQIRUPDWLRQUHODWLQJWRRSWLRQVRXWVWDQGLQJDQGH[HUFLVDEOHXQGHU(PSOR\HH6DYHVKDUHSODQVDW{0DUFK
1RUPDOGDWHVRIYHVWLQJDQGH[HUFLVHEDVHGRQFDOHQGDU\HDUV
2015
2016
2017
2018
2019
7RWDO
financials.indb 180
Exercise price per

share
104p 189p
156p 280p
168p 359p
249p 319p
319p
Weighted
average
Weighted Number of
average outstanding remaining
exercise
options contractual
life
price
millions
135p
205p
236p
251p
319p
226p
61
33
54
22
56
10 months
22 months
34 months
46 months
58 months
226 PRQWKV
15/05/2015 01:52
Overview

Group performance
Governance
181
6KDUHEDVHGSD\PHQWVFRQWLQXHG
*623DQG*/23/HJDF\([HFXWLYH3ODQV
'XULQJPPPRSWLRQVZHUHH[HUFLVHGQLOQLOPRSWLRQVH[SLUHGDQGQLO

QLOQLORSWLRQVZHUHIRUIHLWHGXQGHUIRUPHUH[HFXWLYHVKDUHRSWLRQSODQV*623DQG*/23 There were no options outstanding
at 31 March 2015.
Executive share plans
0RYHPHQWVLQH[HFXWLYHVKDUHSODQDZDUGVGXULQJDUHVKRZQEHORZ
1XPEHURIVKDUHVPLOOLRQV
ISP
DBP
Total
At 1 April 2014
Awards granted
Awards vested
Awards lapsed
Dividend shares reinvested
70
16

2
13
3

83
19

2
$W0DUFK
57
11
68
Fair values
The following table summarises the fair values and key assumptions used for valuing grants made under the Employee Saveshare plans and ISP in
DQG
2015
Year ended 31 March
Weighted average fair value
Weighted average share price
Weighted average exercise price
Expected dividend yield
Risk free rates
Expected volatility
Employee
Saveshare
82p
387p
326p
3.5% 3.8%
1.2% 2.0%
22.2% 24.9%
ISP
309p
393p
QD
QD
1.2%
24.3%
2014
Employee
Saveshare
61p
310p
257p
3.9% 5.6%
0.7% 1.5%
23.3% 31.9%
ISP
269p
315p
QD
QD
0.7%
32.0%
2013
Employee
Saveshare
43p
209p
176p
3.6% 5.2%
0.3% 0.8%
28.1% 36.5%
ISP
170p
204p
QD
QD
0.4%
33.6%
Employee Saveshare grants are valued using a Binomial options pricing model. Awards under the ISP are valued using Monte Carlo simulations. TSRs
are generated for BT and the comparator group at the end of the three-year performance period, using each companys volatility and dividend yield,
as well as the cross correlation between pairs of stocks.
9RODWLOLW\KDVEHHQGHWHUPLQHGE\UHIHUHQFHWR%7oVKLVWRULFDOYRODWLOLW\ZKLFKLVH[SHFWHGWRUHHFWWKH%7VKDUHSULFHLQWKHIXWXUH$QH[SHFWHGOLIHRI
three months after vesting date is assumed for Employee Saveshare options and for all other awards the expected life is equal to the vesting period.
7KHULVNIUHHLQWHUHVWUDWHLVEDVHGRQWKH8.JLOWFXUYHLQHHFWDWWKHWLPHRIWKHJUDQWIRUWKHH[SHFWHGOLIHRIWKHRSWLRQRUDZDUG
The fair values for the DBP were determined using the market price of the shares at the date of grant. The weighted average share price for DBP
DZDUGVJUDQWHGLQZDVSSS
financials.indb 181
15/05/2015 01:52
182
BT Group plc
Annual Report 2015
,QYHVWPHQWV
At 31 March
Non-current assets
Available-for-sale
)DLUYDOXHWKURXJKSURWRUORVV
Current assets
Available-for-sale
Loans and receivables
2015
m
2014
m
36
8
25
9
44
34
3,133
390
1,774

Loans and receivables are held on balance sheet at amortised cost and this approximates fair value. Loans and receivables consist of investments in
WHUPGHSRVLWVGHQRPLQDWHGLQ6WHUOLQJRI~P~QLODQGLQ86 DollarsRI~P~QLO
)DLUYDOXHKLHUDUFK\
At 31 March 2015
Level 1
m
Level 2
m
Level 3
m
Total held at
fair value
m
1RQFXUUHQWDQGFXUUHQWLQYHVWPHQWV
Available-for-sale investments
26
8
3,133
10
3,169
8
7RWDO
34

10

At 31 March 2014
Level 1
m
Level 2
m
Level 3
m
Total held at
fair value
m
1RQFXUUHQWDQGFXUUHQWLQYHVWPHQWV
Available-for-sale investments
18
9
1,774
1,799
9
7RWDO
27

The three levels of valuation methodology used are:

Level 1 uses quoted prices in active markets for identical assets or liabilities
Level 2 uses inputs for the asset or liability other than quoted prices, that are observable either directly or indirectly
Level 3 uses inputs for the asset or liability that are not based on observable market data, such as internal models or other valuation method.
/HYHOEDODQFHVFODVVLHGDVDYDLODEOHIRUVDOHFRQVLVWRILQYHVWPHQWVLQ OLTXLGLW\IXQGVGHQRPLQDWHGLQ6WHUOLQJRI~P~P
DQGLQ(XURVRI~P~QLO
/HYHOEDODQFHVFRQVLVWRIDYDLODEOHIRUVDOHLQYHVWPHQWVRI~P~PZKLFKUHSUHVHQWLQYHVWPHQWVLQDQXPEHURISULYDWHFRPSDQLHV
,QWKHDEVHQFHRIVSHFLFPDUNHWGDWDWKHVHLQYHVWPHQWVDUHKHOGDWFRVWDGMXVWHGDVQHFHVVDU\IRULPSDLUPHQWVZKLFKDSSUR[LPDWHVWRIDLUYDOXH
$JDLQRI~PZDVUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWLQUHVSHFWRI/HYHODVVHWVGLVSRVHGRIGXULQJ~QLO
financials.indb 182
15/05/2015 01:52
Overview

Group performance
Governance
183
&DVKDQGFDVKHTXLYDOHQWV
2015
m
2014
m
335
380
&DVKHTXLYDOHQWV
Loans and receivables
US deposits
UK deposits
Other deposits
28
28
43
55
257
3
7RWDOFDVKHTXLYDOHQWV
99
315
7RWDOFDVKDQGFDVKHTXLYDOHQWV
%DQNRYHUGUDIWVQRWH
434

695

&DVKDQGFDVKHTXLYDOHQWVSHUWKHFDVKRZVWDWHPHQW
407
684
At 31 March
&DVKDWEDQNDQGLQKDQG
7KHJURXSKDVFURVVXQGHUWDNLQJJXDUDQWHHIDFLOLWLHVDFURVVFHUWDLQEDQNDFFRXQWVZKLFKDOORZDOHJDOO\HQIRUFHDEOHULJKWRIVHWRRIWKHUHOHYDQW
cash and overdraft balances on bank accounts included within each scheme.
7KHJURXSoVFDVKDQGFDVKHTXLYDOHQWVLQFOXGHGUHVWULFWHGFDVKRI~P~PRIZKLFK~P~PZDVKHOGLQ
countries in which prior approval is required to transfer funds abroad. Such funds can be used by the group within a reasonable period of time if it
FRPSOLHVZLWKWKHVHUHTXLUHPHQWV7KHUHPDLQLQJEDODQFHRI~P~PZDVKHOGLQHVFURZDFFRXQWV
&DVKDQGFDVKHTXLYDOHQWVDUHFODVVLHGDVORDQVDQGUHFHLYDEOHVDQGDUHKHOGRQWKHJURXSEDODQFHVKHHWDWDPRUWLVHGFRVWZKLFKHTXDWHVWRIDLUYDOXH
/RDQVDQGRWKHUERUURZLQJV
Capital management policy
The objective of the groups capital management policy is to reduce net debt over time whilst investing in the business, supporting the pension
scheme and paying progressive dividends. In order to meet this objective, the group may issue or repay debt, issue new shares, repurchase shares,
or adjust the amount of dividends paid to shareholders. The group manages the capital structure and makes adjustments to it in the light of changes
in economic conditions and the risk characteristics of the group. The Board regularly reviews the capital structure. No changes were made to these
REMHFWLYHVDQGSURFHVVHVGXULQJDQG)RUGHWDLOVRIVKDUHLVVXHVDQGUHSXUFKDVHVLQWKH\HDUVHHQRWH
The groups capital structure consists of net debt and shareholders equity. The analysis below summarises the components which the group manages
as capital.
At 31 March
Net debt
7RWDOSDUHQWVKDUHKROGHUVoHTXLW\GHFLWa
2015
m
2014
m
5,119
796
7,028

a([FOXGHVQRQFRQWUROOLQJLQWHUHVWVRI~P~P
financials.indb 183
15/05/2015 01:52
184
BT Group plc
Annual Report 2015
/RDQVDQGRWKHUERUURZLQJVFRQWLQXHG
Net debt
1HWGHEWFRQVLVWVRIORDQVDQGRWKHUERUURZLQJVERWKFXUUHQWDQGQRQFXUUHQWOHVVFXUUHQWDVVHWLQYHVWPHQWVDQGFDVKDQGFDVKHTXLYDOHQWV

Loans{and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the
purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value.
Currency denominated balances within net debt are translated to Sterling at swapped rates where hedged. Net debt is considered to be an
DOWHUQDWLYHSHUIRUPDQFHPHDVXUHDVLWLVQRWGHQHGLQ,)567KHPRVWGLUHFWO\FRPSDUDEOH,)56PHDVXUHLVWKHDJJUHJDWHRIORDQVDQGRWKHU
ERUURZLQJVFXUUHQW{and non-current), current asset investments and cash and cash equivalents.
A reconciliation from this measure, the most directly comparable IFRS measure, to net debt is given below.
2015
m
At 31 March
Less:
Current asset investments
Adjustments:
To retranslate debt balances at swap rates where hedged by currency swaps
7RUHPRYHDFFUXHGLQWHUHVWDSSOLHGWRUHHFWWKHHHFWLYHLQWHUHVWPHWKRGDQGIDLUYDOXHDGMXVWPHQWV
Net debt
9,768
9,814

5,811
7,345

2015
m
At 31 March
2014
m
2014
m
5.25% 750m bond due June 2014a

6.125% 600m bond due July 2014DE
2.00% US$750m bond due June 2015a
6.50% 1,000m bond due July 2015a
1.625% US$600m bond due June 2016a
~PERQGGXH'HFHPEHUPLQLPXPd)
1.25% US$500m bond due February 2017a
5.95% US$1,100m bond due January 2018a
2.35% US$800m bond due February 2019a
1.125% 1,000m bond due June 2019a
8.625% 300m bond due March 2020
3.50% 250m index linked bond due April 2025
5.75% 600m bond due December 2028c
9.625% US$2,670m bond due December 2030aPLQLPXPd)
508
758
406
695
337
525
750
541
730
299
392
751
1,850
522
645
518
452
867
361
699
300
526
668
481
299
382
670
1,648
522
7RWDOOLVWHGERQGV

238
264
439
27
324
177
11
Finance leases
e
Commercial paper
Other loans
%DQNRYHUGUDIWVQRWH
7RWDORWKHUORDQVDQGERUURZLQJV
7RWDOORDQVDQGERUURZLQJV
466
512

a 'HVLJQDWHGLQDFDVKRZKHGJHUHODWLRQVKLS
b7KHLQWHUHVWUDWHSD\DEOHRQWKLVERQGDWWUDFWVDQDGGLWLRQDOIRUDGRZQJUDGHE\RQHFUHGLWUDWLQJFDWHJRU\E\HLWKHURUERWKRI0RRG\oVDQG6 3EHORZ%DD%%%sUHVSHFWLYHO\
c'HVLJQDWHGLQDIDLUYDOXHKHGJHUHODWLRQVKLS
d7KHLQWHUHVWUDWHSD\DEOHRQWKLVERQGDWWUDFWVDQDGGLWLRQDOIRUDGRZQJUDGHE\RQHFUHGLWUDWLQJE\HLWKHU0RRG\oVRU6 3WRWKHJURXSoVVHQLRUXQVHFXUHGGHEWEHORZ$$sUHVSHFWLYHO\
,QDGGLWLRQLI0RRG\oVRU6 3VXEVHTXHQWO\LQFUHDVHWKHUDWLQJVWKHQWKHLQWHUHVWUDWHZLOOEHGHFUHDVHGE\IRUHDFKUDWLQJFDWHJRU\XSJUDGHE\HDFKUDWLQJDJHQF\,QQRHYHQWZLOOWKH
LQWHUHVWUDWHEHUHGXFHGEHORZWKHPLQLPXPUDWHUHHFWHGLQWKHDERYHWDEOH
e&RPPHUFLDOSDSHURI~QLO~PLVGHQRPLQDWHGLQ(XURVDQGRI~QLO~PLQ86'ROODUV
Unless designated in a fair value hedge relationship, all loans and other borrowings are carried in the group balance sheet and the table above at
DPRUWLVHGFRVW7KHIDLUYDOXHRIOLVWHGERQGVLV~P~PDQGWKHIDLUYDOXHRIQDQFHOHDVHVLV~P~P
The fair value of the groups bonds and other long-term borrowings is estimated on the basis of quoted market prices, based on the same or similar
LVVXHVZKHUHWKH\H[LVW:KHUHWKHVDPHRUVLPLODULVVXHVGRQRWH[LVWWKHIDLUYDOXHLVHVWLPDWHGEDVHGRQWKHFDOFXODWLRQRIIXWXUHFDVKRZVXVLQJ
EOHQGHGGLVFRXQWUDWHVLQHHFWDWWKHEDODQFHVKHHWGDWH
financials.indb 184
15/05/2015 01:52
Overview

Group performance
Governance
185
The carrying amount of commercial paper, other loans and bank overdrafts equates to fair value due to the short maturity of these items.
7KHLQWHUHVWUDWHVSD\DEOHRQORDQVDQGERUURZLQJVGLVFORVHGDERYHUHHFWWKHFRXSRQVRQWKHXQGHUO\LQJLVVXHGORDQVDQGERUURZLQJVDQG
not the interest rates achieved through applying associated cross-currency and interest rate swaps in hedge arrangements.
Loans and other borrowings are analysed as follows:
2015
m
At 31 March
2014
m
Current liabilities
Listed bonds
Finance leases
Commercial paper
Other loans and bank overdrafts
1,422
13
465
1,349
14
324
186
7RWDOFXUUHQWOLDELOLWLHV

Listed bonds
Finance leases
Other loans and borrowings
7,642
225
1
7,689
250
2
7RWDOQRQFXUUHQWOLDELOLWLHV

7RWDO

7KHFDUU\LQJYDOXHVGLVFORVHGLQWKHDERYHWDEOHUHHFWEDODQFHVDWDPRUWLVHGFRVWDGMXVWHGIRUDFFUXHGLQWHUHVWDQGFXUUHQWIDLUYDOXHDGMXVWPHQWV
WRWKHUHOHYDQWORDQVRUERUURZLQJV7KHVHGRQRWUHHFWWKHQDOSULQFLSDOUHSD\PHQWVWKDWZLOODULVHDIWHUWDNLQJDFFRXQWRIWKHUHOHYDQWGHULYDWLYHV
LQKHGJLQJUHODWLRQVKLSVZKLFKDUHUHHFWHGLQWKHWDEOHEHORZ$SDUWIURPQDQFHOHDVHVDOOERUURZLQJVDVDW0DUFKDQGZHUH
unsecured.
7KHSULQFLSDOUHSD\PHQWVRIORDQVDQGERUURZLQJVDWKHGJHGUDWHVDPRXQWHGWR~P~PDQGUHSD\PHQWVIDOOGXHDVIROORZV
At 31 March
Carrying
amount
m
2015
(HFWRI
Principal
hedging repayments
and at hedged
interesta
rates
m
m
Carrying
amount
m
2014
(HFWRI
Principal
hedging repayments
and at hedged
interesta
rates
m
m
:LWKLQRQH\HDURURQGHPDQG

Between one and two years

Between two and three years
Between three and four years
%HWZHHQIRXUDQGYH\HDUV
$IWHUYH\HDUV
1,431
1,251
549
1,033
3,461

89

1,383
1,060
498
1,122
3,263
1,291
1,353
1,172
492
3,572

36

7
1
1,284
1,389
1,061
499
3,573
7RWDOGXHIRUUHSD\PHQWDIWHUPRUHWKDQRQH\HDU

7RWDOUHSD\PHQWV
Fair value adjustments for hedged risk

143

61

7RWDOORDQVDQGRWKHUERUURZLQJV

a$GMXVWPHQWVIRUKHGJLQJDQGLQWHUHVWUHHFWWKHLPSDFWRIWKHFXUUHQF\HOHPHQWRIGHULYDWLYHVDQGDGMXVWWKHUHSD\PHQWVWRH[FOXGHLQWHUHVWUHFRJQLVHGLQWKHFDUU\LQJDPRXQW
financials.indb 185
15/05/2015 01:52
186
BT Group plc
Annual Report 2015
2EOLJDWLRQVXQGHUQDQFHOHDVHVDUHDQDO\VHGDVIROORZV
2015
At 31 March
$PRXQWVSD\DEOHXQGHUQDQFHOHDVHV
Due within one year
%HWZHHQWZRWRYH\HDUV
$IWHUYH\HDUV
2014
Minimum lease payments

m
m
2015
2014
Repayment of
outstanding
lease obligations
m
m
29
101
269
31
111
307
13
46
179
14
51
199
399
449
238
264
/HVVIXWXUHQDQFHFKDUJHV

7RWDOQDQFHOHDVHREOLJDWLRQV
238
264
238
264
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lessors title to the leased assets.
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2015
m
2014
m
2013
m
516
15
7
560
16
13
623
19
5
82

7
26
8

47

9
8
31

6
12
6
Finance expense
/HVVLQWHUHVWFDSLWDOLVHGDWZHLJKWHGDYHUDJHUDWHRI
579

604

671

7RWDOQDQFHH[SHQVHEHIRUHVSHFLFLWHPV
577
603
666
6SHFLFLWHPVQRWH
299
235
119
7RWDOQDQFHH[SHQVH
876
838
785
Year ended 31 March

)LQDQFHH[SHQVH
Interest on:
Financial liabilities at amortised cost
Finance leases
Derivatives
Fair value movements:
Bonds designated as hedged items in fair value hedges
Derivatives designated as hedging instruments in fair value hedges
Derivatives not in a designated hedge relationship
5HFODVVLFDWLRQRIFDVKRZKHGJHIURPRWKHUFRPSUHKHQVLYHLQFRPH
Unwinding of discount on provisions
5HFRQFLOLDWLRQRIQHWQDQFHH[SHQVHWRQHWLQWHUHVWFDVKRXWRZ
1HWLQWHUHVWFDVKRXWRZRI~P~P~PLV~PKLJKHU~P~PWKDQWKHQHW
QDQFHH[SHQVHLQWKHLQFRPHVWDWHPHQW7KLVLVPRVWO\GXHWRFHUWDLQLQWHUHVWFDVKRXWRZVDQGLQRZVEHLQJVSUHDGRYHUDQXPEHURI\HDUVLQ
the income statement.
2015
m
2014
m
2013
m
1HWQDQFHH[SHQVH
7LPLQJGLHUHQFHV
Derivative restructuring costs
Timing of coupon payments on bonds
Deferred income
6SHFLFLWHPQRWH
560
591
653
4
9
7
14

8
16
15
8
1HWLQWHUHVWFDVKRXWRZ
580
608
692
Year ended 31 March
financials.indb 186
15/05/2015 01:52
Overview

Group performance
Governance
187
)LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQW
7KHJURXSLVVXHVRUKROGVQDQFLDOLQVWUXPHQWVPDLQO\WRQDQFHLWVRSHUDWLRQVWRQDQFHFRUSRUDWHWUDQVDFWLRQVVXFKDVGLYLGHQGVVKDUHEX\EDFNV
and acquisitions; for the temporary investment of short-term funds; and to manage the currency and interest rate risks arising from its operations
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the groups operations.
Financial risk management
7KHJURXSoVDFWLYLWLHVH[SRVHLWWRDYDULHW\RIQDQFLDOULVNVPDUNHWULVNLQFOXGLQJLQWHUHVWUDWHULVNDQGIRUHLJQH[FKDQJHULVNFUHGLWULVNDQG

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The group has a centralised treasury operation whose primary role is to manage liquidity and funding requirements as well as the groups exposure
WRDVVRFLDWHGQDQFLDODQGPDUNHWULVNVLQFOXGLQJFUHGLWULVNLQWHUHVWUDWHULVNDQGIRUHLJQH[FKDQJHULVN
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Treasury policy is set by the Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of borrowing, investments
and group-wide exposures. The Board has delegated authority to operate these policies to a series of panels responsible for the management of key
treasury risks and operations. Appointment to and removal from the key panels requires approval from two of the following: the Chairman, the Chief
Executive or the Group Finance Director.
7KHUHKDVEHHQQRFKDQJHLQWKHQDWXUHRIWKHJURXSoVULVNSUROHEHWZHHQ0DUFKDQGWKHGDWHRIDSSURYDORIWKHVHQDQFLDOVWDWHPHQWV
Interest rate risk management
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,QWHUHVWUDWHULVNDULVHVSULPDULO\IURPWKHJURXSoVORQJWHUPERUURZLQJV,QWHUHVWFDVKRZULVNDULVHVIURPERUURZLQJVLVVXHGDWYDULDEOHUDWHSDUWLDOO\
RVHWE\FDVKKHOGDWYDULDEOHUDWHV)DLUYDOXHLQWHUHVWUDWHULVNDULVHVIURPERUURZLQJVLVVXHGDW[HGUDWHV
7KHJURXSoVSROLF\DVVHWE\WKH%RDUGLVWRHQVXUHWKDWDWOHDVWRIQHWGHEWLVDW[HGUDWHV6KRUWWHUPLQWHUHVWUDWHPDQDJHPHQWLVGHOHJDWHG
to the treasury operation while long-term interest rate management decisions require further approval by the Group Finance Director, Director of
Treasury, Tax and Risk Management or the BT Group Treasurer who each have been delegated such authority from the Board.
+HGJLQJVWUDWHJ\
,QRUGHUWRPDQDJHWKHJURXSoVLQWHUHVWUDWHSUROHWKHJURXSKDVHQWHUHGLQWRFURVVFXUUHQF\DQGLQWHUHVWUDWHVZDSDJUHHPHQWVZLWKFRPPHUFLDO
EDQNVDQGRWKHULQVWLWXWLRQVWRYDU\WKHDPRXQWVDQGSHULRGVIRUZKLFKLQWHUHVWUDWHVRQERUURZLQJVDUH[HG7KHGXUDWLRQRIWKHVZDSDJUHHPHQWV
PDWFKHVWKHGXUDWLRQRIWKHGHEWLQVWUXPHQWV7KHPDMRULW\RIWKHJURXSoVORQJWHUPERUURZLQJVKDYHEHHQDQGDUHVXEMHFWWR[HG6WHUOLQJLQWHUHVW
rates after applying the impact of these hedging instruments.
Foreign exchange risk management
0DQDJHPHQWSROLF\
7KHSXUSRVHRIWKHJURXSoVIRUHLJQFXUUHQF\KHGJLQJDFWLYLWLHVLVWRSURWHFWWKHJURXSIURPWKHULVNWKDWHYHQWXDOIXWXUHQHWLQRZVDQGQHWRXWRZV
ZLOOEHDGYHUVHO\DHFWHGE\FKDQJHVLQH[FKDQJHUDWHV
7KH%RDUGoVSROLF\IRUIRUHLJQH[FKDQJHULVNPDQDJHPHQWGHQHVWKHW\SHRIWUDQVDFWLRQVZKLFKVKRXOGQRUPDOO\EHFRYHUHGLQFOXGLQJVLJQLFDQW
RSHUDWLRQDOIXQGLQJDQGFXUUHQF\LQWHUHVWH[SRVXUHVDQGWKHSHULRGRYHUZKLFKFRYHUVKRXOGH[WHQGIRUWKHGLHUHQWW\SHVRIWUDQVDFWLRQV
Short-term foreign exchange management is delegated to the treasury operation whilst long-term foreign exchange management decisions require
further approval from the Group Finance Director, Director of Treasury, Tax and Risk Management or the BT Group Treasurer who have been delegated
such authority by the Board.
+HGJLQJVWUDWHJ\
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generally trade and are funded in their functional currency which limits their exposure to foreign exchange volatility. Foreign currency borrowings
XVHGWRQDQFHWKHJURXSoVRSHUDWLRQVKDYHEHHQSUHGRPLQDQWO\VZDSSHGLQWR6WHUOLQJXVLQJFURVVFXUUHQF\VZDSV
The group also enters into forward currency contracts to hedge foreign currency, capital purchases, purchase and sale commitments, interest expense
DQGIRUHLJQFXUUHQF\LQYHVWPHQWV7KHFRPPLWPHQWVKHGJHGDUHSULQFLSDOO\GHQRPLQDWHGLQ86'ROODU(XURDQG$VLD3DFLFUHJLRQFXUUHQFLHV$VD
UHVXOWWKHJURXSoVH[SRVXUHWRIRUHLJQFXUUHQF\DULVHVPDLQO\RQLWVQRQ8.VXEVLGLDU\LQYHVWPHQWVDQGRQUHVLGXDOFXUUHQF\WUDGLQJRZV
7KHWDEOHEHORZUHHFWVWKHFXUUHQF\DQGLQWHUHVWUDWHSUROHRIRXUORDQVDQGERUURZLQJVDIWHUWKHLPSDFWRIKHGJLQJ
2015
Fixed rate
interest
m
Floating
rate
interest
m
Sterling
Euro
7RWDO
7,601

991
482

5DWLRRI[HGWRRDWLQJ
:HLJKWHGDYHUDJHHHFWLYH[HGLQWHUHVWUDWHs6WHUOLQJ
84%
6.3%
16%
At 31 March
financials.indb 187
2014
Fixed rate
interest
m
Floating
rate
interest
m
8,592
482

7,946

1,265
285

9,211
285

100%
84%
6.6%
16%
100%
Total
m
Total
m
15/05/2015 01:52
188
BT Group plc
Annual Report 2015
)LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQWFRQWLQXHG
7KHRDWLQJUDWHORDQVDQGERUURZLQJVEHDULQWHUHVWUDWHV[HGLQDGYDQFHIRUSHULRGVUDQJLQJIURPRQHGD\WRRQH\HDUSULPDULO\E\UHIHUHQFHWR
LIBOR and EURIBOR quoted rates.
6HQVLWLYLW\DQDO\VLV
The group is exposed to volatility in the income statement and shareholders equity arising from changes in interest rates and foreign exchange rates.
To demonstrate this volatility, management have concluded that the following are reasonable benchmarks for performing sensitivity analysis:
for interest, a 1% increase in interest rates and parallel shift in yield curves across Sterling, US Dollar and Euro currencies; and
IRUIRUHLJQH[FKDQJHDVWUHQJWKHQLQJZHDNHQLQJLQ6WHUOLQJDJDLQVWRWKHUFXUUHQFLHV
7KHLPSDFWRIDFKDQJHLQLQWHUHVWUDWHVRQWKHJURXSoVDQQXDOQHWQDQFHH[SHQVHZDVLQVLJQLFDQWLQERWKDQG7KHLPSDFW
on equity, before tax, of a 1% increase in interest rates is as detailed below:
At 31 March
Sterling interest rates
US Dollar interest rates
Euro interest rates
2015
m
Increase
reduce)
2014
m
Increase
reduce)
428

337

A 1% decrease in interest rates would have broadly the same impact in the opposite direction.
7KHJURXSoVH[SRVXUHWRIRUHLJQH[FKDQJHYRODWLOLW\LQWKHLQFRPHVWDWHPHQWDIWHUKHGJLQJDQGZLWKLQVKDUHKROGHUVoHTXLW\H[FOXGLQJWUDQVODWLRQ
H[SRVXUHVZDVLQVLJQLFDQWLQERWKDQG
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The groups December 2016 and December 2030 bonds contain covenants which have required the group to pay higher rates of interest once the
JURXSFHDVHGWREHUDWHGDWOHDVW$LQWKHFDVHRI0RRG\oVRUDWOHDVW$sLQWKHFDVHRI6WDQGDUG 3RRUoV6 3$GGLWLRQDOLQWHUHVWRISHU\HDU
DFFUXHVIRUHDFKUDWLQJVFDWHJRU\GRZQJUDGHE\HDFKDJHQF\EHORZWKRVHOHYHOVHHFWLYHIURPWKHQH[WFRXSRQGDWHIROORZLQJDGRZQJUDGH
%DVHGRQWKHWRWDOQRWLRQDOYDOXHRIGHEWRXWVWDQGLQJRI~EQDW0DUFKWKHJURXSoVQDQFHH[SHQVHZRXOGLQFUHDVHGHFUHDVHE\
DSSUR[LPDWHO\~PD\HDULI%7oVFUHGLWUDWLQJZHUHWREHGRZQJUDGHGXSJUDGHGUHVSHFWLYHO\E\RQHFUHGLWUDWLQJFDWHJRU\E\ERWKDJHQFLHVIURP
the current ratings.
The groups credit ratings were as detailed below:
At 31 March
5DWLQJDJHQF\
Standard & Poors
Moodys
Rating
2015
Outlook
Rating
2014
Outlook
BBB
Baa2
Stable
Positive
BBB
Baa2
Stable
Positive
7KHJURXSLVWDUJHWLQJD%%%%DDFUHGLWUDWLQJRYHUWKHPHGLXPWHUP
Liquidity risk management
0DQDJHPHQWSROLF\
7KHJURXSHQVXUHVLWVOLTXLGLW\LVPDLQWDLQHGE\HQWHULQJLQWRVKRUWPHGLXPDQGORQJWHUPQDQFLDOLQVWUXPHQWVWRVXSSRUWRSHUDWLRQDODQGRWKHU
funding requirements. The group determines its liquidity requirements by the use of both short and long-term cash forecasts. These forecasts are
VXSSOHPHQWHGE\DQDQFLDOKHDGURRPDQDO\VLVZKLFKLVXVHGWRDVVHVVIXQGLQJDGHTXDF\IRUDWOHDVWDPRQWKSHULRG2QDWOHDVWDQDQQXDOEDVLV
WKH%RDUGUHYLHZVDQGDSSURYHVWKHPD[LPXPORQJWHUPIXQGLQJRIWKHJURXSDQGRQDQRQJRLQJEDVLVFRQVLGHUVDQ\UHODWHGPDWWHUV5HQDQFLQJ
ULVNLVPDQDJHGE\OLPLWLQJWKHDPRXQWRIERUURZLQJWKDWPDWXUHVZLWKLQDQ\VSHFLHGSHULRGDQGKDYLQJDSSURSULDWHVWUDWHJLHVLQSODFHWRPDQDJH
UHQDQFLQJQHHGVDVWKH\DULVH7KHPDWXULW\SUROHRIWKHJURXSoVORDQVDQGERUURZLQJVDW0DUFKLVGLVFORVHGLQQRWH7KHJURXSKDV
WHUPGHEWPDWXULWLHVRI~EQLQ
Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters of the policies set by
WKH{%RDUGThe group holds cash, cash equivalents and current investments in order to manage short-term liquidity requirements. At 31 March
WKHJURXSKDGXQGUDZQFRPPLWWHGERUURZLQJIDFLOLWLHVRI~EQ~EQPDWXULQJLQ6HSWHPEHUDQGDIXUWKHU~EQ
~QLOZLWKDQDYDLODELOLW\SHULRGWRWKHHDUOLHURIWKHFORVHRIWKHproposed EE acquisition or August 2016, which is subject to certain
restrictions and can only be used to fund the transaction, including transaction costs.
financials.indb 188
15/05/2015 01:52
Overview

Group performance
Governance
189
0DWXULW\DQDO\VLV
7KHIROORZLQJWDEOHSURYLGHVDQDQDO\VLVRIWKHUHPDLQLQJFRQWUDFWXDOO\DJUHHGFDVKRZVLQFOXGLQJLQWHUHVWSD\DEOHIRUWKHJURXSoVQRQGHULYDWLYH
QDQFLDOOLDELOLWLHVRQDQXQGLVFRXQWHGEDVLVZKLFKWKHUHIRUHGLHUVIURPERWKWKHFDUU\LQJYDOXHDQGIDLUYDOXH
1RQGHULYDWLYHQDQFLDOOLDELOLWLHV
At 31 March 2015
Due within one year
$IWHUYH\HDUV
Interest on
loans
Loans
and other and other
borrowings borrowings
m
m
1,706
1,431
1,251
549
1,033
3,461
Trade
and other
payables
m
Provisions
m
Total
m
513
458
392
315
302
2,973
3,784
32
19
15
15
13
218
6,035
1,908
1,658
879
1,348
6,652

4
312
0
Interest payments not yet accrued

Fair value adjustment for hedged risk
Impact of discounting
143

143

&DUU\LQJYDOXHRQWKHEDODQFHVKHHWa

194
4
208
0
Interest on
loans
Loans
and other and other
borrowings borrowings
m
m
Trade
and other
payables
m
Provisions
m
Total
m
At 31 March 2014
Due within one year
$IWHUYH\HDUV
1,641
1,291
1,353
1,172
492
3,572
554
485
424
360
287
3,045
3,734
37
36
22
18
17
225
5,966
1,812
1,799
1,550
796
6,842

355

Interest payments not yet accrued

Fair value adjustment for hedged risk
Impact of discounting
61

61

&DUU\LQJYDOXHRQWKHEDODQFHVKHHWa

232

198

a)RUHLJQFXUUHQF\UHODWHGFDVKRZVZHUHWUDQVODWHGDWFORVLQJUDWHVDVDWWKHUHOHYDQWUHSRUWLQJGDWH)XWXUHYDULDEOHLQWHUHVWUDWHFDVKRZVZHUHFDOFXODWHGXVLQJWKHPRVWUHFHQWUDWHDSSOLHGDWWKHUHOHYDQW
balance sheet date.
Trade and other payables are held at amortised cost. The carrying amount of these balances approximates to fair value due to the short maturity of
amounts payable.
financials.indb 189
15/05/2015 01:52
190
BT Group plc
Annual Report 2015
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are presented on a net or gross basis in accordance with the settlement arrangements of the instruments.
DHULYDWLYHQDQFLDOOLDELOLWLHV
At 31 March 2015
Due within one year
$IWHUYH\HDUV
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At 31 March 2014
Due within one year
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7RWDOb
Derivatives Analysed based on holding instrument

to maturity
Derivatives Analysed by earliest payment datea
Gross settled Gross settled
RXWRZV
LQRZV
RXWRZV
LQRZV
Net settled
Total Net settled
Total
m
m
m
m
m
m
m
m
215
471
273
177
48
1,421
39
38
38
838
390

344
484
285
189
137

88
109
92
94
111
690
1,320
42
42
42
842
476

229
121
104
106
200
675

Derivatives Analysed based on holding instrument

to maturity
Derivatives Analysed by earliest payment datea
RXWRZV
LQRZV
RXWRZV
LQRZV
Net settled
Total Net settled
Total
m
m
m
m
m
m
m
m
263
351
642
70
1,754
661
947
806
334
198

311
393
685
55
7
12
125
84
84
84
84
865
1,754
560
950
65
369
1,002

173
119
126
88
92
865

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b)RUHLJQFXUUHQF\UHODWHGFDVKRZVZHUHWUDQVODWHGDWFORVLQJUDWHVDVDWWKHUHOHYDQWUHSRUWLQJGDWH)XWXUHYDULDEOHLQWHUHVWUDWHFDVKRZVZHUHFDOFXODWHGXVLQJWKHPRVWUHFHQWUDWHDSSOLHGDWWKHUHOHYDQW
balance sheet date.
Credit risk management
0DQDJHPHQWSROLF\
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cash equivalents) and from its trading-related receivables.
)RUWUHDVXU\UHODWHGEDODQFHVWKH%RDUGoVGHQHGSROLF\UHVWULFWVH[SRVXUHWRDQ\RQHFRXQWHUSDUW\E\VHWWLQJFUHGLWOLPLWVEDVHGRQWKHFUHGLW
TXDOLW\DVGHQHGE\0RRG\oVDQG6 3DQGE\GHQLQJWKHW\SHVRIQDQFLDOLQVWUXPHQWVZKLFKPD\EHWUDQVDFWHG7KHPLQLPXPFUHGLWUDWLQJV
SHUPLWWHGZLWKFRXQWHUSDUWLHVLQUHVSHFWRIQHZWUDQVDFWLRQVDUH$$sIRUORQJWHUPDQG3$IRUVKRUWWHUPLQYHVWPHQWV$FWLRQLVWDNHQ
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The treasury operation continuously reviews the limits applied to counterparties and will adjust the limit according to the nature and credit
standing of the counterparty and in response to market conditions, up to the maximum allowable limit set by the Board.
2SHUDWLRQDOPDQDJHPHQWSROLF\
7KHJURXSoVFUHGLWSROLF\IRUWUDGLQJUHODWHGQDQFLDODVVHWVLVDSSOLHGDQGPDQDJHGE\HDFKRIWKHOLQHVRIEXVLQHVVWRHQVXUHFRPSOLDQFH7KH
SROLF\UHTXLUHVWKDWWKHFUHGLWZRUWKLQHVVDQGQDQFLDOVWUHQJWKRIFXVWRPHUVLVDVVHVVHGDWLQFHSWLRQDQGRQDQRQJRLQJEDVLV3D\PHQWWHUPV
are set in accordance with industry standards. Where appropriate, the group may endeavour to minimise risks by requesting securities such as
deposits, guarantees and letters of credit. The group takes proactive steps including constantly reviewing credit ratings of relationship banks
WRPLQLPLVHWKHLPSDFWRIDGYHUVHPDUNHWFRQGLWLRQVRQWUDGLQJUHODWHGQDQFLDODVVHWV
([SRVXUHV
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At 31 March
'HULYDWLYHQDQFLDODVVHWV
Investments
Trade and other receivablesa
Notes
22
16
23
2015
m
2014
m
1,329
3,567
2,264
434
653
1,808
2,185
695

a7KHFDUU\LQJDPRXQWH[FOXGHV~P~PRIQRQFXUUHQWWUDGHDQGRWKHUUHFHLYDEOHVZKLFKUHODWHWRQRQQDQFLDODVVHWVDQG~P~PRISUHSD\PHQWVDQGRWKHU
UHFHLYDEOHV
financials.indb 190
15/05/2015 01:52
Overview

Group performance
Governance
191
7KHFUHGLWTXDOLW\DQGFUHGLWFRQFHQWUDWLRQRIFDVKHTXLYDOHQWVFXUUHQWDVVHWLQYHVWPHQWVDQGGHULYDWLYHQDQFLDODVVHWVDUHGHWDLOHGLQWKHWDEOHV
EHORZ:KHUHWKHRSLQLRQRI0RRG\oVDQG6 3GLHUWKHORZHUUDWLQJLVXVHG
2015
m
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$D$$DQGDERYH
$D$$s
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$$a
$$s
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2014
m
3,133
206
248
793
121
439
11
1,774
47
111
434
376

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The concentration of credit risk for trading balances of the group is provided in note 16, which analyses outstanding balances by line of business.
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QHWWLQJDUUDQJHPHQWVWRUHGXFHWKHJURXSoVH[SRVXUHWRFUHGLWULVNE\PDNLQJXVHRIVWDQGDUG,QWHUQDWLRQDO6ZDSVDQG'HULYDWLYHV$VVRFLDWLRQ,6'$
documentation. The group has also entered into credit support agreements with certain swap counterparties whereby on a weekly and monthly basis
WKHIDLUYDOXHSRVLWLRQRQQRWLRQDO~PRIORQJGDWHGFURVVFXUUHQF\VZDSVDQGLQWHUHVWUDWHVZDSVLVFROODWHUDOLVHG7KHUHODWHGQHWFDVKLQRZ
GXULQJWKH\HDUZDV~PFDVKRXWRZRI~P7KHFROODWHUDOSDLGDQGUHFHLYHGLVUHFRJQLVHGZLWKLQFXUUHQWDVVHWLQYHVWPHQWV
FDVKDQGFDVKHTXLYDOHQWVDQGORDQVDQGRWKHUERUURZLQJVUHVSHFWLYHO\
2VHWWLQJRIQDQFLDOLQVWUXPHQWV
7KHWDEOHEHORZVKRZVWKHJURXSoVQDQFLDODVVHWVDQGOLDELOLWLHVWKDWDUHVXEMHFWWRRVHWLQWKHJURXSoVEDODQFHVKHHWDQGWKHLPSDFWRIHQIRUFHDEOH
master netting or similar agreements.
5HODWHGDPRXQWVQRWVHWRLQWKHEDODQFHVKHHW
Amounts
presented in 5LJKWRIVHWRZLWK
derivative
Amounts the balance
Cash
Net
sheet
counterparties
VHWR
collateral
amount
m
m
m
m
m
Financial assets and liabilities

At 31 March 2015
Gross
amounts
m
'HULYDWLYHQDQFLDOOLDELOLWLHV
Bank overdrafts
1,329

588

154
1,329

434

603

30
289

434

641
641

234
7RWDO
5HODWHGDPRXQWVQRWVHWRLQWKHEDODQFHVKHHW
Amounts
presented in 5LJKWRIVHWRZLWK
derivative
Amounts the balance
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Net
sheet
counterparties
VHWR
collateral
amount
m
m
m
m
m
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At 31 March 2014
Gross
amounts
m
'HULYDWLYHQDQFLDOOLDELOLWLHV
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653

3,165

2,470
653

695

297

20
182

695

519
519

365
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financials.indb 191
15/05/2015 01:52
192
BT Group plc
Annual Report 2015
Derivatives
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H[FKDQJHFRQWUDFWVDUHHVWLPDWHGXVLQJGLVFRXQWHGFDVKRZPRGHOVDQGPDUNHWUDWHVRILQWHUHVWDQGIRUHLJQH[FKDQJHDWWKHEDODQFHVKHHWGDWH
'HULYDWLYHV
At 31 March 2015
Current Non-current
asset
asset
m
m
Current Non-current
liability
liability
m
m
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Designated in a fair value hedge
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86
6
5
941
143
148
161
698
229
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168
927
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asset
m
m
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liability
liability
m
m
73
6
35
394
61
84
74
65
514
165
114
539
139
679
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LQVWUXPHQWVDUHFDWHJRULVHGDW/HYHORIWKHIDLUYDOXHKLHUDUFK\{DV{GHQHGLQQRWH
Hedging activities
'HULYDWLYHVPD\TXDOLI\DVKHGJHVIRUDFFRXQWLQJSXUSRVHVLIWKH\PHHWWKHFULWHULDIRUGHVLJQDWLRQDVIDLUYDOXHKHGJHVRUFDVKRZKHGJHVLQ
accordance with IAS 39.
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borrowings. Forward currency contracts are taken out to hedge step-up interest on currency denominated borrowings relating to the groups 2030
86'ROODUERQG7KHKHGJHGFDVKRZVZLOODHFWWKHJURXSoVLQFRPHVWDWHPHQWDVLQWHUHVWDQGSULQFLSDODPRXQWVDUHUHSDLGRYHUWKHUHPDLQLQJWHUP
RIWKHERUURZLQJVsHH{QRWH
Forecast foreign currency purchases, principally denominated in US Dollar, EuroDQG$VLD3DFLFFXUUHQFLHVDUHKHGJHGPRQWKVIRUZDUG, with
certain specLFWUDQVDFWLRQVKHdged further forward7KHUHODWHGFDVKRZVDUHUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWRYHUWKLVSHULRG
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Fair value hedges consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of the 2028 Sterling
bond due to movements in market interest rates.
Gains and losses arising on fair value hedges are disclosed in note 25.
Other derivatives
The groups policy is not to use derivatives for speculative purposes. However, due to the complex nature of hedge accounting under IAS 39, some
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LQVWUXPHQWVWKDWGRQRWTXDOLI\IRUKHGJHDFFRXQWLQJDUHFODVVLHGDVKHOGIRUWUDGLQJDQGKHOGDWIDLUYDOXHWKURXJKSURWRUORVVXQGHU,$6
financials.indb 192
15/05/2015 01:52
Overview

Group performance
Governance
193
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Recycled foreign exchange on disposal of subsidiary
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Recognised in income and expense
Fair value movement on available-for-sale assets
Tax recognised in other comprehensive income
998
27
229
105

14
24
14
478
46
13
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46
13
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14
24
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([FKDQJHGLHUHQFHV
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384
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b 7KHFDVKRZUHVHUYHLVXVHGWRUHFRUGWKHHHFWLYHSRUWLRQRIWKHFXPXODWLYHQHWFKDQJHLQWKHIDLUYDOXHRIFDVKRZKHGJLQJLQVWUXPHQWVUHODWHGWRKHGJHGWUDQVDFWLRQVWKDWKDYHQRW\HWRFFXUUHG
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c 7KHDYDLODEOHIRUVDOHUHVHUYHLVXVHGWRUHFRUGWKHFXPXODWLYHIDLUYDOXHJDLQVDQGORVVHVRQDYDLODEOHIRUVDOHQDQFLDODVVHWV7KHFXPXODWLYHJDLQVDQGORVVHVDUHUHF\FOHGWRWKHLQFRPHVWDWHPHQWRQ
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management personnel is disclosed in note 5.
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financials.indb 193
15/05/2015 01:52
194
BT Group plc
Annual Report 2015
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Financial commitments were as follows:
At 31 March
2015
m
2014
m
Capital commitments
Programme rights commitments
507
2,512
400
1,657
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At 31 March 2015 programme rights commitments, mainly relating to football broadcast rights, are those for which the licence period has not
yet started.
Future minimum operating lease payments for the group were as follows:
2015
m
2014
m
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2015
2016
2017
2018
2019
2020
Thereafter
427
401
392
377
365
4,562
396
397
368
365
363
366
4,583
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Operating lease commitments were mainly in respect of land and buildings which arose from a sale and operating leaseback transaction in a prior
SHULRG/HDVHVKDYHDQDYHUDJHWHUPRI\HDUV\HDUVDQGUHQWDOVDUH[HGIRUDQDYHUDJHRI\HDUV\HDUV
Other than as disclosed below, there were no contingent liabilities or guarantees at 31 March 2015 other than those arising in the ordinary course of
the groups business and on these no material losses are anticipated. The group has insurance cover to certain limits for major risks on property and
major claims in connection with legal liabilities arising in the course of its operations. Otherwise, the group generally carries its own risks.
On 5 February 20%7DJUHHGGHQLtive terms to acquire EE Limited and its subsidiaries for 12.5bn. Under the terms of the sale and purchase
agreement, if BT were to recommend an alternative transaction and not proceed to completion, Deutsche Telekom and Orange have the right to
terminate the sale and purchase agreement and BT would pay a break fee of 250m, in aggregate, to them.
Under the Broadband Delivery UK programme, grants received by the group may be subject to re-investment or repayment to the customer
depending on the level of take-up.
7KHJURXSKDVSURYLGHGJXDUDQWHHVUHODWLQJWRFHUWDLQOHDVHVHQWHUHGLQWRE\7HOHIQLFD8./LPLWHGIRUPHUO\28./LPLWHGSULRUWRWKHGHPHUJHURI
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is no exposure in the event of credit default in respect of amounts used to defease future lease obligations. The guarantee lasts until Telefnica UK
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The shareholders of BT approved the proposed acquisition of EE on 30 April 2015 and we are now awaiting approval from the Competition and
Markets Authority. Subject to merger clearance, we expect the transactionWRFRPSOHWHEHIRUHWKHHQGRIWKHQDQFLDO\HDU
financials.indb 194
15/05/2015 01:52
Overview

Group performance
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31{March 2015;
r have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
r have been prepared in accordance with the requirements of the
Companies Act 2006.
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r the BT Group plc company balance sheet as at 31 March 2015;
r the BT Group plc company reconciliation of movement in equity
shareholders funds for the year then ended; and
r WKHQRWHVWRWKHQDQFLDOVWDWHPHQWVZKLFKLQFOXGHDVXPPDU\RI
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Accounting Practice).
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Companies Act 2006 opinion
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statements; or
r apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the company acquired in the course of
performing our audit; or
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We have no exceptions to report arising from this responsibility.
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our opinion:
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for our audit; or
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returns adequate for our audit have not been received from branches
not visited by us; or
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Governance
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As explained more fully in the 6WDWHPHQWRIdirectors responsibilities
set out on page 130, the directors are responsible for the preparation
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and fair view.
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Those standards require us to comply with the Auditing Practices Boards
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the companys members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
:KDWDQDXGLWRIQDQFLDOVWDWHPHQWVLQYROYHV
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audit involves obtaining evidence about the amounts and disclosures
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caused by fraud or error. This includes an assessment of:
r whether the accounting policies are appropriate to the companys
circumstances and have been consistently applied and adequately
disclosed;
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directors; and
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We primarily focus our work in these areas by assessing the directors
judgements against available evidence, forming our own judgements,
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We test and examine information, using sampling and other auditing
techniques, to the extent we consider necessary to provide a reasonable
basis for us to draw conclusions. We obtain audit evidence through
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combination of both.
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the Annual Report to identify material inconsistencies with the audited
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materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Other matter
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BT{Group plc for the year ended 31 March 2015.
3DXO%DUNXV6HQLRU6WDWXWRU\$XGLWRU
IRUDQGRQEHKDOIRI3ULFHZDWHUKRXVH&RRSHUV//3
Chartered Accountants and Statutory Auditors
London
6 May 2015
Other Companies Act 2006 reporting

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by law are not made. We have no exceptions to report arising from
this responsibility.
financials.indb 195
15/05/2015 01:52
196
BT Group plc
Annual Report 2015
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BT Group plc accounting policies
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of the company are presented as required by the Companies Act 2006.
7KHVHSDUDWHQDQFLDOVWDWHPHQWVKDYHEHHQSUHSDUHGLQDFFRUGDQFH
ZLWK8.*HQHUDOO\$FFHSWHG$FFRXQWLQJ3UDFWLFH8.*$$37KH
principal accounting policies are set out below and have been applied
consistently throughout the year and the previous year.
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ended 31 March 2015 contain related party disclosures.
Consequently, the company has taken advantage of the exemption
in FRS 8, Related Party Disclosures, not to disclose transactions
with other members of the BT Group.
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31 March 2015FRQWDLQQDQFLDOLQVWUXPHQWGLVFORVXUHVZKLFKFRPSO\
with FRS 29, Financial Instruments: Disclosures. Consequently, the
company is exempt from the disclosure requirements of FRS 29 in
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Investments in subsidiary undertakings are stated at cost and reviewed
for impairment if there are indicators that the carrying value may not
be recoverable.
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which have arisen but not reversed at the balance sheet date. Deferred
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balances are not discounted.
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Dividend distributions are recognised as a liability in the year in which
the dividends are approved by the companys shareholders. Interim
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authorised in general meetings by shareholders.
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Cash includes cash in hand and bank deposits repayable on demand.
6KDUHEDVHGSD\PHQWV
The company does not incur a charge for share-based payments.
However, the issuance by the company of share options and awards to
employees of its subsidiaries represents additional capital contributions
to its subsidiaries. An addition to the companys investment in
subsidiaries is recorded with a corresponding increase in equity
shareholders funds. The additional capital contribution is determined
based on the fair value of options and awards at the date of grant and
is recognised over the vesting period.
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Following the publication of FRS 100 Application of Financial
Reporting Requirements by the Financial Reporting Council, BT
Group plc is required to change its accounting framework for its entity
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commencing 1 April 2015. The purpose of FRS 100 is to align reporting
in the UK with IFRS. As the ultimate parent, the company will adopt FRS
101 Reduced Disclosure Framework.
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proposed change at the Annual General Meeting in July 2014.
Other information
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31 March 2015 of 8.5SSZLOOEHSDLGWRVKDUHKROGHUV
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of to 12.4S: 10.9p). This dividend is subject to
shareholder approval at the Annual General Meeting and therefore the
liability of approximately 712P: 611m) has not been
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The Chairman, the executive directors and the Group General Counsel
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of the company during . The costs relating to qualifying
services provided to the companys principal subsidiary, British
Telecommunications plc, are recharged to that company.
$XGLWIHHV
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41,000). Fees payable to PricewaterhouseCoopers LLP for non-audit
services to the company are not required to be disclosed as they are
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company are recorded in the balance sheet as part of Own shares and
presented as a deduction from shareholders equity at cost.
financials.indb 196
15/05/2015 01:52
Overview

Group performance
Governance
197
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2015
m
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2014
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Investments in subsidiary undertakingsa
10,686
10,616
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Current assets
Amounts from subsidiary undertaking falling due after more than one yearb
Cash at bank and in hand
1,004
5
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22
1,260
98

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Net current liabilities
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Called up share capital
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1,307

419
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9,693

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7KHQDQFLDOVWDWHPHQWVRIWKHFRPSDQ\RQSDJHV196 to 198 were approved by the Board of Directors on 6 May 2015 and were signed on its
behalf by:
6LU0LFKDHO5DNH
Chairman
*DYLQ3DWWHUVRQ
Chief Executive
7RQ\&KDQPXJDP
financials.indb 197
15/05/2015 01:52
198
BT Group plc
Annual Report 2015
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Called
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capitala
m
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account
m
m
m
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and loss
accountb,c
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m
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Dividends paid
Capital contribution in respect of share-based payments
408
62
27

9,667
977

60

9,332
977

60

At 1 April 2014
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Dividends paid
Capital contribution in respect of share-based payments
Issue of new sharesa
408
11
62
989
27

664

979

70

979

70
1,000

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419

27

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financials.indb 198
15/05/2015 01:52
Overview

Group performance
Governance
199
The table below gives brief details of the groups principala operating subsidiariesb at 31 March 2015. All subsidiaries are unlisted and held through
an intermediate holding company, unless otherwise stated. No subsidiaries are excluded from the group consolidation. The group did not have any
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British Telecommunications plc
BT Americas Incd
BT Australasia Pty Limited
BT Business Direct Limited
BT Communications do Brasil Limitadab
BT Communications Ireland Limited
BT Conferencing Inc
BT Conferencing Video Inc
BT ESPANA, Compania de Servicios Globales
de Telecommunicaciones, SA
BT Fleet Limited
BT France SA
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BT Global Communications India Private
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BT Global Services Limited
BT Holdings Limited
BT Hong Kong Limited
BT Italia SpA
BT IT Services Limitede
BT Latam Argentina SA
BT Limited
BT Managed Services Limited
BT Nederland NV
BT Payment Services Limited
BT Services SA
BT Singapore Pte Ltd
BT Switzerland AG
Communications Global Network Services
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Plusnet plc
Radianz Americas Inc
Activity
Communications-related services and products provider
Communications-related services, systems integration and
products provider
Technology equipment retailer
Communications-related services, technology consulting
and products provider
Telecommunications services provider
Audio, video and web collaboration services provider
Audio, video and web collaboration services provider
Group interest
in allotted capitalc
Country
of operationd
100% ordinary
100% common
UK
International
100% ordinary
100% preference
100% ordinary
100% common
Australia
UK
Brazil
100% ordinary
100% common
100% common
100% ordinary
Republic of Ireland
US
US
Spain
Fleet management company

Communications-related services, systems integration and
products provider
Communications-related services
100% ordinary
100% ordinary
UK
France
100% ordinary
74% ordinary
Germany
India
International telecommunications network systems provider

Investment holding company
100% ordinary
100% ordinary
100% ordinary
100% preference
98.6% ordinary
100% ordinary
100% common
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary

IT solutions provider
International telecommunications network systems provider
Payment services provider
Technology consulting and engineering services
Technology equipment retailer
Broadband service provider
Global managed network service provider
UK
UK
Hong Kong
Italy
UK
Argentina
International
UK
Netherlands
UK
France
Singapore
Switzerland
International
100% ordinary
100% ordinary
100% ordinary
100% common
100% preference
UK
UK
UK
US
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financials.indb 199
15/05/2015 01:52
200
BT Group plc
Annual Report 2015
financials.indb 200
15/05/2015 01:52
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and operational statistics. We also provide
information for shareholders on subjects such
as dividends and location. We have also
included certain information relating
to our planned acquisition of EE, as well
as a glossary of terms we use in this report.
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consistent basis throughout this Annual Report.
We have provided further details on page 149.
financials.indb 201
15/05/2015 01:52
202
BT Group plc
Annual Report 2015
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Introduction
We assess the performance of the group using a variety of alternative performance measures. We principally discuss the groups results on an
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to the nearest measure prepared in accordance with IFRS is presented below. The alternative performance measures we use may not be directly
comparable with similarly titled measures used by other companies.
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Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. In determining whether an
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disposals of businesses and investments, regulatory settlements, historic insurance or litigation claims, business restructuring programmes, asset
impairment charges, property rationalisation programmes, net interest on pensions and the settlement of multiple tax years. In the event that other
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A reconciliation from the decrease in reported revenue and in reported operating costs, the most directly comparable IFRS measures, to the decrease
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2015
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2014
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financials.indb 202
15/05/2015 01:52
Overview

Group performance
Governance
203
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performance of companies, particularly in the telecommunications sector.
We consider EBITDA and adjusted EBITDA to be useful measures of our operating performance because they approximate the underlying operating
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Within the lines of business we may also consider our performance using an underlying EBITDA measure, which additionally excludes the impact of
acquisitions and disposals and foreign exchange.
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pre-tax basis.
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determined at a corporate level independently of ongoing trading operations such as dividends, share buybacks, acquisitions and disposals and
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financials.indb 203
15/05/2015 01:52
204
BT Group plc
Annual Report 2015
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m
2014
m
2013
m

876

325

325

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202


Net debt
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and other borrowings are measured as the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this
measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Our net debt calculation
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balances within net debt are translated to Sterling at swap rates where hedged.
Net debt is a measure of the groups net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that
can be used to assess both the groups cash position and indebtedness. There are material limitations in the use of alternative performance measures
and the use of the term net debt does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities
included in this measure.
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these to net debt is given below.
At 31 March
Less:
Current asset investments
Adjustments:
To retranslate debt balances at swap rates where hedged by currency swaps
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Net debt
financials.indb 204
2015
m
2014
m
9,768
9,814

15/05/2015 01:52
Overview

Group performance
Governance
205
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$YHUDJHQXPEHURIVKDUHVXVHGLQEDVLFHDUQLQJVSHUVKDUHPLOOLRQV
$YHUDJHQXPEHURIVKDUHVXVHGLQGLOXWHGHDUQLQJVSHUVKDUHPLOOLRQV
Diluted earnings per share
Dividends per sharea
Dividends per share, US centsa,b
2015
m
2014
m
2013
m
2012
m
2011
m
17,851
128
18,287
18,339

19,397

20,174

237

3,733

3,421

3,300

3,062

2,879

10
21

25

9
130
10
21
42
3,172

2,827

2,656

2,391

2,055

121

319

230

212

327

2,541

2,214

2,059

1,815

1,610

31.5p
S
28.2p
S
26.3p
S
23.4p
S
20.7p
S
26.5p
25.7p
24.8p
22.6p
15.9p
8,056
8,191
26.1p
12.4p
18.4c
7,857
8,231
24.5p
10.9p
18.2c
7,832
8,203
23.7p
9.5p
14.4c
7,763
8,201
21.4p
8.3p
13.3c
7,750
8,116
15.2p
7.4p
11.8c
a'LYLGHQGVSHUVKDUHUHSUHVHQWVWKHGLYLGHQGSDLGDQGSURSRVHGLQUHVSHFWRIWKHUHOHYDQWQDQFLDO\HDU8QGHU,)56GLYLGHQGVDUHUHFRJQLVHGDVDGHGXFWLRQIURPVKDUHKROGHUVoHTXLW\ZKHQWKH\DUHSDLG
b%DVHGRQDFWXDOGLYLGHQGVSDLGDQGRU\HDUHQGH[FKDQJHUDWHRQSURSRVHGGLYLGHQGV
financials.indb 205
15/05/2015 01:52
206
BT Group plc
Annual Report 2015
6XPPDU\JURXSEDODQFHVKHHW
At 31 March
2015
m
2014
m
2013
m
2012
m
2011
m
Intangible assets
Other non-current assets
3,170
13,505
3,045
3,087
13,840
2,265
3,258
14,153
2,794
3,127
14,388
1,902
3,389
14,623
1,597
7RWDOQRQFXUUHQWDVVHWV
Current assets less current liabilities

Non-current loans and other borrowings
5HWLUHPHQWEHQHWREOLJDWLRQV
Other non-current liabilities
483

808

419
1,051

1,485
2)
408
62

1,447

408
62

1,790

408
62

1,756
100
408
62

1,763
796
808

7RWDODVVHWVOHVVOLDELOLWLHV
Ordinary shares
Share premium account
Own shares
Other reserves
5HWDLQHGORVVHDUQLQJV
7RWDOHTXLW\GHFLW
financials.indb 206
15/05/2015 01:52
Overview

Group performance
Governance
207
Financial and operational statistics

Financial statistics
Year ended 31 March
2015
m
2014
m
2013
m
2012
m
2011
m
DHFUHDVHincrease LQXQGHUO\LQJUHYHQXHH[FOXGLQJWUDQVLWaE
0.4)%
0.5%

$GMXVWHG(%,7'$DE
6,271
6,116
6,143
6,034
5,858
)UHHFDVKRZa
Normalised
Reported
2,830
2,782
2,450
2,171
2,300
2,292
2,307
2,318
2,076
2,011
1HWGHEWDW0DUFKa
5,119
7,028
7,797
9,082
8,816
11,580
12,171
12,196
13,363
14,316
([SHQGLWXUHRQUHVHDUFKDQGGHYHORSPHQW
Research and development operating expense
Capitalised software development costs
172
330
257
273
279
265
285
275
389
295
7RWDOH[SHQGLWXUHRQUHVHDUFKDQGGHYHORSPHQW
502
530
544
560
684
31
44
42
37
20
1,472
33
455
1,126
24
657
1,170
32
660
1,121
46
794
985
43
851
85
75
112
8
80
24
95
43
92
87
Total additions to property, plant and equipment

,QFUHDVHGHFUHDVHLQHQJLQHHULQJVWRUHV
2,151
6
1,971

2,008

2,136

2,078
12
Software additions
2,157
561
1,966
506
1,999
454
2,135
459
2,090
500
7RWDOFDSLWDOH[SHQGLWXUHEHIRUHJRYHUQPHQWJUDQWV
Government grants

&DSLWDOH[SHQGLWXUHQHWRIJRYHUQPHQWJUDQWV
'HFUHDVHLQFUHDVH in payables

92

10

43

55
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202

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Additions to property, plant and equipment comprised:
Land and buildings
Network infrastructure
Transmission equipment
Exchange equipment
Other network equipment
Other
&RPSXWHUVDQGRFHHTXLSPHQW
Motor vehicles and other
a'HQHGRQSDJHV202 to .
b%HIRUHVSHFLFLWHPV
financials.indb 207
15/05/2015 01:52
208
BT Group plc
Annual Report 2015
Financial ratios
Year ended 31 March
2015
2014
2013
2012
2011
25.2
23.6
22.9
21.1
22.1
20.6
20.4
19.3
18.5
16.7
6.7
4.1
0.8
13.0
5.8
3.8
1.1
12.8
5.1
3.8
1.3
13.3
4.5
3.7
1.5
13.4
3.4
2.0
1.5
12.8
5HWXUQRQFDSLWDOHPSOR\HG
Adjustedb %
Reported %
,QWHUHVWFRYHUc
Adjustedb times
Reported times
1HWGHEWWRDGMXVWHG(%,7'$bsWLPHV
&DSLWDOH[SHQGLWXUHcDVDSHUFHQWDJHRIUHYHQXHb %
a7KHUDWLRLVEDVHGRQSURWEHIRUHWD[DWLRQDQGQHWQDQFHH[SHQVHWRFDSLWDOHPSOR\HG&DSLWDOHPSOR\HGLVUHSUHVHQWHGE\WRWDODVVHWVOHVVFXUUHQWOLDELOLWLHVH[FOXGLQJFRUSRUDWLRQWD[FXUUHQWERUURZLQJV
GHULYDWLYHQDQFLDOOLDELOLWLHVDQGQDQFHOHDVHFUHGLWRUVOHVVGHIHUUHGDQGFXUUHQWWD[DVVHWVUHWLUHPHQWEHQHWDVVHWFDVKDQGFDVKHTXLYDOHQWVGHULYDWLYHQDQFLDODVVHWVDQGLQYHVWPHQWV
b%HIRUHVSHFLFLWHPV
c7KHQXPEHURIWLPHVQHWQDQFHH[SHQVHLVFRYHUHGE\RSHUDWLQJSURW
Operational statisticsa
All values in thousands unless otherwise stated.
Year ended 31 March
2015
2014
2013
2012
2011
%7*OREDO6HUYLFHV
2UGHULQWDNH~P
6,458
6,963
6,348
6,683
7,270
2,073
2,098
2,002
1,916
415
9,447
1,142
391
9,650
1,002
365
9,824
810
343
10,321
707
326
10,799
575
1,908
1,910
2,031
748
Physical lines
Internal
External
Fully unbundled
12,243
4,472
8,587
12,697
4,544
7,846
13,214
5,088
6,702
14,128
5,192
5,631
15,356
5,191
4,266
7RWDOSK\VLFDOOLQHV

7,713
1,831
9,761
7,281
1,872
9,302
6,704
2,066
8,859
6,280
2,262
8,253
5,691
2,421
7,608
5

51%
40%
69%
39%
51%
38%
55%
37%
51%
36%
9,633
3,503
9,908
3,784
10,207
4,165
10,919
4,551
11,802
4,917

%7%XVLQHVV
2UGHULQWDNH~P
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$YHUDJHUHYHQXHSHUXVHU$538b~
Active lines
BT TV customers
%7:KROHVDOH
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2SHQUHDFK
%7*URXS
Broadband lines
Total retail
%7:KROHVDOHH[WHUQDO
Openreach
7RWDOEURDGEDQGOLQHV
Broadband market share
Total retail share of net asset additionsc
Total retail share of installed base
Lines sold through BT lines of businessd
Consumer
%XVLQHVVFRUSRUDWH
7RWDOH[FKDQJHOLQHV
a&HUWDLQFRPSDUDWLYHVKDYHEHHQUHVWDWHGWRSUHVHQWWKHPRQDFRQVLVWHQWEDVLV7KHVHDUHDOLJQHGZLWKRXURSHUDWLRQDOSHUIRUPDQFHPHDVXUHVWKDWZHSXEOLVKRQDTXDUWHUO\EDVLV
b5ROOLQJPRQWKFRQVXPHUUHYHQXHOHVVPRELOH32/2VOHVV%76SRUWUHYHQXHIURPVDWHOOLWHFXVWRPHUVSD\LQJIRUWKHFKDQQHOVRXUZKROHVDOHGHDOVDQGIURPFRPPHUFLDOSUHPLVHV
7KLVLVGLYLGHGE\DYHUDJHQXPEHURISULPDU\OLQHV
c'6/DQGEUHH[FOXGLQJFDEOH
d/LQHVVROGWKURXJK%7OLQHVRIEXVLQHVVLQFOXGHDQDORJXHOLQHVDQGGLJLWDOFKDQQHOVVROGWKURXJK%7*OREDO6HUYLFHV%7%XVLQHVV%7&RQVXPHUDQG%7:KROHVDOH
financials.indb 208
15/05/2015 01:52
Overview

Group performance
&DXWLRQDU\VWDWHPHQWUHJDUGLQJIRUZDUGORRNLQJ
VWDWHPHQWV
This Annual Report contains certain forward-looking statements which

are made in reliance on the safe harbour provisions of the US Private
Securities Litigation Reform Act of 1995. These statements relate
to analyses and other information which are based on forecasts of
future results and estimates of amounts not yet determinable. These
statements include, without limitation, those concerning: current and
future years outlook; revenue and revenue trends; EBITDA; free cash
RZFDSLWDOH[SHQGLWXUHSURSRVHGDFTXLVLWLRQVDQGUHODWHGIRUHFDVWV
shareholder returns including progressive dividends and share buyback;
net debt; credit ratings; our group-wide restructuring programme, cost
transformation plans and restructuring costs; investment in and roll
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and speed availability; our broadband-based service and strategy; our
investment in TV, enhancing our TV service and BT Sport; the BT Pension
Scheme recovery plan, operating charge, regular cash contributions
DQGLQWHUHVWH[SHQVHHHFWLYHWD[UDWHJURZWKRSSRUWXQLWLHVLQ
networked IT services, the pay-TV services market, broadband, and
mobility and future voice; growth of, and opportunities available in,
the communications industry and BTs positioning to take advantage
of those opportunities; expectations regarding competition, market
shares, prices and growth; expectations regarding the convergence
of technologies; plans for the launch of new products and services;
network performance and quality; the impact of regulatory initiatives,
decisions and outcomes on operations, including the regulation of
WKH8.[HGZKROHVDOHDQGUHWDLOEXVLQHVVHVDQGWKHLPSDFWRIWKH
Undertakings to Ofcom under the Enterprise Act; BTs possible or
DVVXPHGIXWXUHUHVXOWVRIRSHUDWLRQVDQGRUWKRVHRILWVDVVRFLDWHVDQG
MRLQWYHQWXUHVLQYHVWPHQWSODQVDGHTXDF\RIFDSLWDOQDQFLQJSODQV
DQGUHQDQFLQJUHTXLUHPHQWVGHPDQGIRUDQGDFFHVVWREURDGEDQG
and the promotion of broadband by third-party service providers;
DQWLFLSDWHGQDQFLDODQGRWKHUEHQHWVDQGV\QHUJLHVUHVXOWLQJIURPWKH
proposed acquisition of EE, including revenue, operating cost and capital
expenditure synergies; our plans and objectives following completion of
the acquisition; and those statements preceded by, followed by, or that
include the words aims, believes, expects, anticipates, intends,
will, should plans, strategy, future, likely, seeks, projects,
estimates or similar expressions.
financials.indb 209
Governance
209
$OWKRXJK%7EHOLHYHVWKDWWKHH[SHFWDWLRQVUHHFWHGLQWKHVHIRUZDUG
looking statements are reasonable, it can give no assurance that
these expectations will prove to have been correct. Because these
VWDWHPHQWVLQYROYHULVNVDQGXQFHUWDLQWLHVDFWXDOUHVXOWVPD\GLHU
materially from those expressed or implied by these forward-looking
VWDWHPHQWV)DFWRUVWKDWFRXOGFDXVHGLHUHQFHVEHWZHHQDFWXDOUHVXOWV
and those implied by the forward-looking statements include, but are
not limited to: material adverse changes in economic conditions in the
markets served by BT; future regulatory actions, decisions, conditions
or requirements in BTs operating areas, including competition from
others; selection by BT of the appropriate trading and marketing models
for its products and services; technological innovations, including
the cost of developing new products, networks and solutions and the
need to increase expenditures for improving the quality of service; the
DQWLFLSDWHGEHQHWVDQGDGYDQWDJHVRIQHZWHFKQRORJLHVSURGXFWV
and services not being realised; developments in the convergence of
technologies; external threats to cyber security, data or resilience;
prolonged adverse weather conditions resulting in a material increase in
RYHUWLPHVWDRURWKHUFRVWVRULPSDFWRQFXVWRPHUVHUYLFHWKHWLPLQJ
RIHQWU\DQGSURWDELOLW\RI%7LQFHUWDLQPDUNHWVVLJQLFDQWFKDQJHVLQ
PDUNHWVKDUHVIRU%7RULWVSULQFLSDOSURGXFWVDQGVHUYLFHVXFWXDWLRQV
in foreign currency exchange rates or interest rates; the underlying
assumptions and estimates made in respect of major customer
contracts proving unreliable; the aims of the group-wide restructuring
programme not being achieved; uncertainties and assumptions relating
WRWKHSURSRVHG((DFTXLVLWLRQFRQGLWLRQVRIWKHDFTXLVLWLRQLQFOXGLQJ
regulatory approval)QRWEHLQJVDWLVHGDQGWKHDQWLFLSDWHGV\QHUJLHV
VWUDWHJLFEHQHWVDQGUHWXUQRQLQYHVWPHQWQRWEHLQJUHDOLVHGDQG
JHQHUDOQDQFLDOPDUNHWFRQGLWLRQVDHFWLQJ%7oVSHUIRUPDQFHDQG
DELOLW\WRUDLVHQDQFH&HUWDLQRIWKHVHIDFWRUVDUHGLVFXVVHGLQPRUH
detail elsewhere in this Annual Report including, without limitation, in
2XUULVNV on pages 41 to 52. BT undertakes no obligation to update any
forward-looking statements whether written or oral that may be made
from time to time, whether as a result of new information, future events
or otherwise.
15/05/2015 01:52
210
BT Group plc
Annual Report 2015
6WRFNH[FKDQJHOLVWLQJV
The principal listing of BT Groups ordinary shares is on the London Stock Exchange. Trading on the London Stock Exchange is under the symbol BT.A.
$PHULFDQ'HSRVLWDU\6KDUHV$'6VHDFKUHSUHVHQWLQJWHQRUGLQDU\VKDUHVKDYHEHHQLVVXHGE\-30RUJDQ&KDVH &RDV'HSRVLWDU\IRUWKH$PHULFDQ
'HSRVLWDU\5HFHLSWV$'5VHYLGHQFLQJWKH$'6VDQGDUHOLVWHGRQWKH1HZ<RUN6WRFN([FKDQJH7UDGLQJRQWKH1HZ<RUN6WRFN([FKDQJHLVXQGHU
the symbol BT.
Share and ADS prices

Pence per ordinary share
High
Low
pence
pence
High
US$
US$ per ADS

Low
US$
)LQDQFLDO\HDUVHQGHG0DUFK
2011
2012
2013
2014
2015
191.10
232.10
281.00
418.10
470.55
109.90
161.00
200.70
265.70
356.20
31.31
36.89
42.76
69.75
70.18
16.19
25.69
31.02
40.70
57.99
)LQDQFLDO\HDUHQGHG0DUFK
1 April 30 June 2013
1 July 30 September 2013
1 October 31 December 2013
1 January 31 March 2014
322.30
348.90
382.00
418.10
265.70
316.20
340.60
369.90
49.86
55.86
63.13
69.75
40.70
47.40
54.49
60.99
)LQDQFLDO\HDUHQGHG0DUFK
1 April 30 June 2014
1 July 30 September 2014
1 October 31 December 2014
1 January 31 March 2015
406.10
397.80
420.00
470.55
356.20
367.90
360.10
385.90
68.19
67.46
65.43
70.18
59.68
61.48
57.99
58.60
0RQWKV
November 2014
December 2014
January 2015
February 2015
March 2015
April 2015
1 May 2015
410.20
420.00
431.10
460.00
470.55
467.60
459.80
362.20
397.40
385.90
413.10
438.00
441.40
63.98
65.43
64.76
70.08
70.18
71.51
70.00
58.25
61.92
58.60
62.24
65.17
65.65
7KHSULFHVDUHWKHKLJKHVWDQGORZHVWFORVLQJPLGGOHPDUNHWSULFHVIRU%7RUGLQDU\VKDUHVDVGHULYHGIURPWKH'DLO\2FLDO/LVWRIWKH/RQGRQ6WRFN
Exchange and the highest and lowest closing sales prices of ADSs, as reported on the New York Stock Exchange.
)OXFWXDWLRQVLQWKHH[FKDQJHUDWHEHWZHHQ6WHUOLQJDQGWKH86'ROODUDHFWWKH86'ROODUHTXLYDOHQWRIWKH6WHUOLQJSULFHRIWKHFRPSDQ\oVRUGLQDU\
VKDUHVRQWKH/RQGRQ6WRFN([FKDQJHDQGDVDUHVXOWDUHOLNHO\WRDHFWWKHPDUNHWSULFHRIWKH$'6VRQWKH1HZ<RUN6WRFN([FKDQJH
%DFNJURXQG
BT Group plc is a public limited company registered in England and Wales and listed on the London and New York Stock Exchanges. It was
incorporated in England and Wales on 30 March 2001 as Newgate Telecommunications Limited with the registered number 4190816. Its registered
RFHDGGUHVVLV1HZJDWH6WUHHW/RQGRQ(&$$-7KHFRPSDQ\FKDQJHGLWVQDPHWR%7*URXSSOFRQ6HSWHPEHU)ROORZLQJWKH
demerger of mmO2 from BT in November 2001, the continuing activities of BT were transferred to BT Group plc.
British Telecommunications plc is a wholly-owned subsidiary of BT Group plc and encompasses virtually all the businesses and assets of the BT group.
The successor to the statutory corporation British Telecommunications, it was incorporated in England and Wales as a public limited company, wholly
owned by the Government, as a result of the Telecommunications Act 1984. Between November 1984 and July 1993, the Government sold all of its
VKDUHKROGLQJLQ%ULWLVK7HOHFRPPXQLFDWLRQVSOFLQWKUHHSXEOLFRHULQJV
financials.indb 210
15/05/2015 01:52
Overview

Group performance
Governance
211
$QDO\VLVRIVKDUHKROGLQJVDW0DUFK
Range
Ordinary shares of 5p each

Percentage Number of Percentage
of total shares held
of total
Number of
%
millions
%
holdings
1 399
400 799
800 1,599
1,600 9,999
10,000 99,999
100,000 999,999
1,000,000 4,999,999
5,000,000 and abovea,b,c,d
354,114
236,217
170,855
125,118
4,754
647
503
30
39.69
26.47
19.15
14.02
0.53
0.07
0.06
0.00
73
131
191
381
90
244
3,244
4,019
0.87
1.56
2.28
4.55
1.07
2.91
38.74
48.00
Totale
892,238
100.00
8,373
100.00
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b8QGHUWKH%7*URXS(PSOR\HH6KDUH,QYHVWPHQW3ODQPVKDUHVZHUHKHOGLQWUXVWRQEHKDOIRISDUWLFLSDQWVZKRZHUHEHQHFLDOO\HQWLWOHGWRWKHVKDUHVPVKDUHVZHUHKHOGLQWKH
FRUSRUDWHQRPLQHH%7*URXS(DV\6KDUHRQEHKDOIRIEHQHFLDORZQHUV
cPVKDUHVZHUHUHSUHVHQWHGE\$'6V$QDQDO\VLVE\VL]HRIKROGLQJLVQRWDYDLODEOHIRUWKHVH
dPVKDUHVZHUHKHOGDVWUHDVXU\VKDUHV
eRIWKHVKDUHVZHUHLQLQGLYLGXDOKROGLQJVRIZKLFKZHUHMRLQWKROGLQJVDQGRIWKHVKDUHVZHUHLQLQVWLWXWLRQDOKROGLQJV
As far as the company is aware, the company is not directly or indirectly owned or controlled by another corporation or by the UK Government or any
other foreign government or by any other natural or legal person severally or jointly. There are no arrangements known to the company, the operation
of which may at a subsequent date result in a change in control of the company.
7KHFRPSDQ\oVPDMRUVKDUHKROGHUVGRQRWKDYHGLHUHQWYRWLQJULJKWVWRWKRVHRIRWKHUVKDUHKROGHUV
At 1 May 2015, there were 8,373,227,252 ordinary shares outstanding, including 866,369 shares held as treasury shares. At the same date,
approximately 13.7P$'6VHTXLYDOHQWWR137.9m ordinary shares, or approximately 1.65% of the total number of ordinary shares outstanding on
that date) were outstanding and were held by 1,615 record holders of ADRs.
At 31 March 2015, there were 3,661 shareholders with a US address on the register of shareholders who in total hold 0.03% of the ordinary shares
of the company.
financials.indb 211
15/05/2015 01:52
212
BT Group plc
Annual Report 2015
'LYLGHQGV
$QDOGLYLGHQGLQUHVSHFWRIWKH\HDUHQGHG0DUFKZDVSDLGRQ6HSWHPEHUWRVKDUHKROGHUVRQWKHUHJLVWHURQ$XJXVW
and an interim dividend in respect of the year ended 31 March 2015 was paid on 9 February 2015 to shareholders on the register on 30 December
7KHQDOSURSRVHGGLYLGHQGLQUHVSHFWRIWKH\HDUHQGHG0DUFKLIDSSURYHGE\VKDUHKROGHUVZLOOEHSDLGRQ6HSWHPEHUWR
shareholders on the register on 14 August 2015.
7KHGLYLGHQGVSDLGRUSD\DEOHRQ%7VKDUHVDQG$'6VIRUWKHODVWYHQDQFLDO\HDUVDUHVKRZQLQWKHIROORZLQJWDEOH7KHGLYLGHQGVRQWKHRUGLQDU\
shares exclude the associated tax credit. The amounts shown are not those that were actually paid to holders of ADSs. For the tax treatment of
dividends paid, see 7D[DWLRQRIGLYLGHQGV on page 223. Dividends have been translated from Sterling into US Dollars using exchange rates prevailing
on the date the ordinary dividends were paid.
Financial years ended 31 March

2011
2012
2013
2014
2015
Interim
pence
2.40
2.60
3.00
3.40
3.90
Per ordinary share

Final
Total
pence
pence
Interim
5.00
5.70
6.50
7.50
8.50
0.240
0.260
0.300
0.340
0.390
7.40
8.30
9.50
10.90
12.40
Final
0.500
0.570
0.650
0.750
0.850
Per ADS
Total
Interim
US$
0.740
0.830
0.950
1.090
1.240
0.366
0.390
0.451
0.534
0.573
Final
US$
Per ADS
Total
US$
0.777
0.885
0.994
1.187
a
1.143
1.275
1.445
1.721
a
4XDOLI\LQJKROGHUVRI$'6VRQUHFRUGDVRI$XJXVWDUHHQWLWOHGWRUHFHLYHWKHQDOGLYLGHQGZKLFKZLOOEHSDLGWR$'6KROGHUVRQ6HSWHPEHUVXEMHFWWRDSSURYDODWWKH$*07KH86'ROODU
DPRXQWRIWKHQDOGLYLGHQGRISHQFHSHU$'6WREHSDLGWRKROGHUVRI$'6VZLOOEHEDVHGRQWKHH[FKDQJHUDWHLQHHFWRQ6HSWHPEHUWKHGDWHRISD\PHQWWRKROGHUVRIRUGLQDU\VKDUHV
$VGLYLGHQGVSDLGE\WKHFRPSDQ\DUHLQ6WHUOLQJH[FKDQJHUDWHXFWXDWLRQVZLOODHFWWKH86'ROODUDPRXQWVUHFHLYHGE\KROGHUVRI$'6VRQ
conversion by the Depositary of such cash dividends.
Dividend mandate
$Q\VKDUHKROGHUZLVKLQJGLYLGHQGVWREHSDLGGLUHFWO\LQWRDEDQNRUEXLOGLQJVRFLHW\DFFRXQWVKRXOGFRQWDFWWKH6KDUHKROGHU+HOSOLQHVHHSDJH225),
or go to the Shareholder information page of our website.
'LYLGHQGVSDLGLQWKLVZD\ZLOOEHSDLGWKURXJKWKH%DQNHUV$XWRPDWHG&OHDULQJ6\VWHP%$&6
6KDUHEX\EDFN
Total number of shares
Maximum number
of shares yet to be
Average price paid purchased as part of
SHUVKDUHSHQFHs publicly announced purchased under the
AGM authorityb
net of dealing costs) plans or programmes
Calendar montha
Total number
of shares
purchased
April 2014
May
June
July
August
September
October
November
December
January 2015
February
March
nil
22,753,900
16,083,700
12,000,000
nil
nil
nil
10,008,300
3,549,900
nil
16,058,900
nil
QD
381
392
381
QD
QD
QD
373
411
QD
442
QD
nil
22,753,900
16,083,700
12,000,000
nil
nil
nil
10,008,300
3,549,900
nil
16,058,900
nil
726,434,300
703,680,400
687,596,700
780,000,000
780,000,000
780,000,000
780,000,000
769,991,700
766,441,800
766,441,800
750,382,900
750,382,900

396

a3XUFKDVHVPDGHIURP$SULOWR-XO\ZHUHPDGHLQDFFRUGDQFHZLWKDUHVROXWLRQSDVVHGDWWKH$*0KHOGRQ-XO\2ZQVKDUHSXUFKDVHVE\%7IURP-XO\WR0DUFK
ZHUHPDGHLQDFFRUGDQFHZLWKDUHVROXWLRQSDVVHGDWWKH$*0RQ-XO\
b$XWKRULW\ZDVJLYHQWRSXUFKDVHXSWRPVKDUHVRQ-XO\DQGPVKDUHVRQ-XO\7KHVHDXWKRULWLHVH[SLUHDWWKHFORVHRIWKHIROORZLQJ$*0
$WRWDORIPRZQVKDUHVZHUHSXUFKDVHGGXULQJ2IWKHVHPVKDUHVZHUHSXUFKDVHGIRUDWRWDOFRQVLGHUDWLRQRI~PPVKDUHV
for a consideration of 76m under the authority given at the 2013 AGM and 6m shares for a consideration of 26m under the authority given at the
2014 AGM), and 55m shares were purchased by the BT Group Employee Share Ownership Trust for a consideration of 218m. Please see note 20 to
WKHFRQVROLGDWHGQDQFLDOVWDWHPHQWVIRUIXUWKHUGHWDLOV
financials.indb 212
15/05/2015 01:52
Overview

Group performance
Governance
213
'LYLGHQGLQYHVWPHQWSODQ
Under the Dividend investment plan, cash from participants dividends is used to buy further BT shares in the market. Shareholders could elect to
receive additional shares in lieu of a cash dividend for the following dividends:
LQWHULP
QDO
LQWHULP
QDO
LQWHULP
QDO
LQWHULP
QDO
LQWHULP
Date paid
Price per share

pence
7 February 2011
5 September 2011
6 February 2012
3 September 2012
4 February 2013
2 September 2013
3 February 2014
8 September 2014
9 February 2015
185.89
164.64
216.39
223.15
265.01
339.38
385.76
387.00
436.92
*OREDO,QYHVW'LUHFW
Details of the direct purchase plan run by the ADR Depositary, JPMorgan Chase & Co, Global Invest Direct, including reinvestment of dividends, are
DYDLODEOHIURP-30RUJDQ&KDVH &RRQWROOIUHHZLWKLQWKH86RURQZULWWHQUHTXHVWWRWKH$'5'HSRVLWDU\
7RWDOVKDUHKROGHUUHWXUQ
7RWDO6KDUHKROGHU5HWXUQ765LVWKHPHDVXUHRIWKHUHWXUQVWKDWDFRPSDQ\KDVJHQHUDWHGIRULWVVKDUHKROGHUVUHHFWLQJERWKPRYHPHQWLQWKH

VKDUHSULFHDQGGLYLGHQGVZKLFKDUHDVVXPHGWREHUHLQYHVWHG:HFRPSDUHWKLVDJDLQVWLQGH[HVIRUWKH8.PDUNHW)76(DQGWKH(XURSHDQ
WHOHFRPPXQLFDWLRQVVHFWRU)76(XURUVW7HOFR,QGH[%7oV765IRUZDVSRVLWLYHFRPSDUHGZLWKWKHPDUNHWZKLFKZDVSRVLWLYH
DQGWKHVHFWRUZKLFKZDVSRVLWLYH%7oV765SHUIRUPDQFHLQZDVPDLQO\GULYHQE\WKHPRYHPHQWLQWKHVKDUHSULFHZKLFK
LQFUHDVHGIURPDFORVLQJSULFHRISRQ0DUFKWRDFORVLQJSULFHRISRQ0DUFK2YHUWKHODVWYHQDQFLDO\HDUV
BTs TSR was positive 325.6%, compared with the markets TSR of positive 42.4% and the sectors TSR of positive 88.6%.
BTs TSR performance vs the FTSE100

and FTSEuroUst 300 Telco Index
31 March 2009=100
450
400
350
300
250
200
150
100
50
Mar 10
BT
Mar 11
FTSE100
Mar 12
Mar 13
Mar 14
Mar 15
Sector Index
Source: Datastream
The graph shows the relative TSR performance of BT, the FTSE100
DQGWKH)76(XURUVW7HOFR,QGH[oYHUWKHSDVWYH\HDUV
)LQGRXWPRUH
<RXFDQQGFRQWDFW
details and other shareholder
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financials.indb 213
15/05/2015 01:52
214
BT Group plc
Annual Report 2015
5HVXOWVDQQRXQFHPHQWV
Expected announcements of results:

Datea
5HVXOWVIRUWKHQDQFLDO\HDU
1st quarter
2nd quarter and half year
3rd quarter and nine months
4th quarter and full year
Annual Report 2016 published
31 July 2015
October 2015
January 2016
May 2016
May 2016
a'DWHVPD\EHVXEMHFWWRFKDQJH
6KDUH*LIW
6PDOOSDUFHOVRIVKDUHVZKLFKPD\EHXQHFRQRPLFWRVHOORQWKHLURZQFDQEHGRQDWHGWR6KDUH*LIWsWKHVKDUHGRQDWLRQFKDULW\5HJLVWHUHG&KDULW\
number 1052686). ShareGift transfers these holdings into their name, aggregates them, and uses the proceeds to support a wide range of UK
registered charities based on donor suggestion. They can also accept larger donations of shares.
If you would like further details about ShareGift, please visit www.sharegift.org, email help@sharegift.org or telephone them on 020 7930 3737.
([FKDQJHUDWHV
%7SXEOLVKHVLWVFRQVROLGDWHGQDQFLDOVWDWHPHQWVH[SUHVVHGLQ6WHUOLQJ7KHIROORZLQJWDEOHVSURYLGHFHUWDLQLQIRUPDWLRQFRQFHUQLQJWKHH[FKDQJH
UDWHVEHWZHHQ6WHUOLQJDQG86'ROODUVEDVHGRQWKHQRRQEX\LQJUDWHLQ1HZ<RUN&LW\IRUFDEOHWUDQVIHUVLQ6WHUOLQJDVFHUWLHGIRUFXVWRPVSXUSRVHV
E\WKH)HGHUDO5HVHUYH%DQNRI1HZ<RUNWKH1RRQ%X\LQJ5DWH
Year ended 31 March
Period end
Averagea
High
Low
2015
2014
2013
2012
2011
1.49
1.61
1.72
1.47
1.67
1.60
1.68
1.48
1.52
1.58
1.63
1.49
1.60
1.61
1.67
1.53
1.60
1.56
1.64
1.43
April
2015
March
2015
1.55
1.47
1.54
1.47
a7KHDYHUDJHRIWKH1RRQ%X\LQJ5DWHVLQHHFWRQWKHODVWGD\RIHDFKPRQWKGXULQJWKHUHOHYDQWSHULRG
High
Low
February
2015
1.55
1.50
January
2015
1.56
1.50
Month
December
2014
1.57
1.55
On 1 May 2015, the latest practicable date for this Annual Report, the Noon Buying Rate was US$1.51 to 1.00.
financials.indb 214
15/05/2015 01:52
Overview

Group performance
$UWLFOHVRI$VVRFLDWLRQ$UWLFOHV
The following is a summary of the principal provisions of BTs Articles, a

FRS\RIZKLFKKDVEHHQOHGZLWKWKH5HJLVWUDURI&RPSDQLHV$nKROGHU
of shares and a shareholder is, in either case, the person entered on
the companys register of members as the holder of the relevant shares.
Shareholders can choose whether their shares are to be evidenced
E\VKDUHFHUWLFDWHVLHLQFHUWLFDWHGIRUPRUKHOGLQHOHFWURQLF
LH{XQFHUWLFDWHGIRUPLQ&5(67WKHHOHFWURQLFVHWWOHPHQWV\VWHPLQ
the UK).
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largely to take account of changes in UK company law brought about by
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of Association serves a more limited role as historical evidence of the
formation of the company. Since October 2009, the provisions in
relation to objects in BTs Memorandum are deemed to form part of
BTs Articles, and have been deleted from those Articles because of
VKDUHKROGHUVSDVVLQJDUHVROXWLRQWRWKLVHHFWDWWKH$*08QGHUWKH
2006 Act, BTs objects are unrestricted.
D9RWLQJULJKWV
Subject to the restrictions described below, on a show of hands, every
shareholder present in person or by proxy at any general meeting has
one vote and, on a poll, every shareholder present in person or by proxy
has one vote for each share which they hold.
Voting at any meeting of shareholders is by a show of hands unless a
SROOLVGHPDQGHGE\WKHFKDLUPDQRIWKHPHHWLQJRUE\DWOHDVWYH
VKDUHKROGHUVDWWKHPHHWLQJZKRDUHHQWLWOHGWRYRWHRUWKHLUSUR[LHV
or by one or more shareholders at the meeting who are entitled to vote
RUWKHLUSUR[LHVDQGZKRKDYHEHWZHHQWKHPDWOHDVWRIWKHWRWDO
votes of all shareholders who have the right to vote at the meeting.
No person is, unless the Board decides otherwise, entitled to attend or
vote at any general meeting or to exercise any other right conferred by
being a shareholder if they or any person appearing to be interested in
those shares has been sent a notice under section 793 of the Companies
$FWZKLFKFRQIHUVXSRQSXEOLFFRPSDQLHVWKHSRZHUWRUHTXLUH
information with respect to interests in their voting shares) and they
or any interested person has failed to supply to the company the
information requested within 14 days after delivery of that notice.
These restrictions end seven days after the earlier of the date the
shareholder complies with the request satisfactorily or the company
receives notice that there has been an approved transfer of the shares.
E9DULDWLRQRIULJKWV
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of shares, the special rights attached to any of those classes can be
varied or withdrawn either:
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meeting of the holders of the shares of that class; or
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nominal value of the issued shares of that class.
At any separate meeting, the necessary quorum is two persons holding

or representing by proxy not less than one-third in nominal amount of
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any person holding shares of the class or his proxy is a quorum).
The company can issue new shares and attach any rights and restrictions
to them, as long as this is not restricted by special rights previously given
to holders of any existing shares. Subject to this, the rights of new shares
can take priority over the rights of existing shares, or existing shares can
take priority over them, or the new shares and the existing shares can
rank equally.
F&KDQJHVLQFDSLWDO
The company may by ordinary resolution:
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nominal value; and
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larger nominal value.
The company may also:

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financials.indb 215
EX\EDFNLWVRZQVKDUHVDQG
Governance
215
LL E\VSHFLDOUHVROXWLRQUHGXFHLWVVKDUHFDSLWDODQ\FDSLWDO
redemption reserve and any share premium account.
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The companys shareholders can declare dividends by passing an
ordinary resolution provided that no dividend can exceed the amount
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company justify such payments, they can pay interim dividends on any
class of shares of the amounts and on the dates and for the periods they
decide. Fixed dividends will be paid on any class of shares on the dates
stated for the payments of those dividends.
7KHGLUHFWRUVFDQRHURUGLQDU\VKDUHKROGHUVWKHULJKWWRFKRRVHWR
receive new ordinary shares, which are credited as fully paid, instead of
some or all of their cash dividend. Before they can do this, the companys
shareholders must have passed an ordinary resolution authorising the
GLUHFWRUVWRPDNHWKLVRHU
Any dividend which has not been claimed for ten years after it was
declared or became due for payment will be forfeited and will belong to
the company.
H'LVWULEXWLRQRIDVVHWVRQZLQGLQJXS
,IWKHFRPSDQ\LVZRXQGXSZKHWKHUWKHOLTXLGDWLRQLVYROXQWDU\XQGHU
supervision of the court or by the court) the liquidator can, with the
authority of a special resolution passed by the shareholders, divide
among the shareholders all or any part of the assets of the company.
This applies whether the assets consist of property of one kind or
GLHUHQWNLQGV)RUWKLVSXUSRVHWKHOLTXLGDWRUFDQSODFHZKDWHYHUYDOXH
the liquidator considers fair on any property and decide how the division
LVFDUULHGRXWEHWZHHQVKDUHKROGHUVRUGLHUHQWJURXSVRIVKDUHKROGHUV
The liquidator can also, with the same authority, transfer any assets
WRWUXVWHHVXSRQDQ\WUXVWVIRUWKHEHQHWRIVKDUHKROGHUVZKLFKWKH
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and the company dissolved. No past or present shareholder can be
compelled to accept any shares or other property under the Articles
which could give that shareholder a liability.
I7UDQVIHURIVKDUHV
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by an instrument of transfer in the usual standard form or in another
form approved by the Board. The transfer form must be signed or made
HHFWLYHE\RURQEHKDOIRIWKHSHUVRQPDNLQJWKHWUDQVIHU7KHSHUVRQ
making the transfer will be treated as continuing to be the holder of the
shares transferred until the name of the person to whom the shares are
being transferred is entered in the register of members of the company.
The Board may refuse to register any transfer of any share held in
FHUWLFDWHGIRUP
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show payment of any applicable stamp duty and delivered to the
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7KHWUDQVIHUPXVWKDYHZLWKLWWKHVKDUHFHUWLFDWHIRUWKHVKDUHV
to be transferred; any other evidence which the Board ask for to
prove that the person wanting to make the transfer is entitled to
do this; and if the transfer form is executed by another person on
behalf of the person making the transfer, evidence of the authority
of that person to do so.
7UDQVIHUVRIXQFHUWLFDWHGVKDUHVPXVWEHFDUULHGRXWXVLQJDUHOHYDQW
V\VWHPDVGHQHGLQWKH8QFHUWLFDWHG6HFXULWLHV5HJXODWLRQV
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If the Board decide not to register a transfer of a share, the Board must
notify the person to whom that share was to be transferred giving
reasons for its decision. This must be done as soon as possible and
no later than two months after the company receives the transfer or
instruction from the operator of the relevant system.
J8QWUDFHGVKDUHKROGHUV
BT may sell any shares after advertising its intention and waiting for
three months if the shares have been in issue for at least ten years,
during that period at least three dividends have become payable
on them and have not been cashed and BT has not heard from the
15/05/2015 01:52
216
BT Group plc
Annual Report 2015
shareholder or any person entitled to the dividends by transmission.

The net sale proceeds belong to BT, but it must pay those proceeds to
the former shareholder or the person entitled to them by transmission if
that shareholder, or that other person, asks for them.
K*HQHUDOPHHWLQJVRIVKDUHKROGHUV
Every year the company must hold an annual general meeting. The
Board can call a general meeting at any time and, under general law,
must call one on a shareholders requisition. At least 21 clear days
written notice must be given for every annual general meeting. For
every other general meeting, at least 14 clear days written notice must
be given. The Board can specify in the notice of meeting a time by which
a person must be entered on the register of shareholders in order to
KDYHWKHULJKWWRDWWHQGRUYRWHDWWKHPHHWLQJ7KHWLPHVSHFLHGPXVW
QRWEHPRUHWKDQKRXUVEHIRUHWKHWLPH[HGIRUWKHPHHWLQJ
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The only limitation imposed by the Articles on the rights of non-resident
or foreign shareholders is that a shareholder whose registered address
is outside the UK and who wishes to receive notices of meetings of
shareholders or documents from BT must give the company an address
within the UK to which they may be sent.
M'LUHFWRUV
Directors remuneration
Excluding remuneration referred to below, each director will be paid
such fee for his services as the Board decide, not exceeding 65,000 a
year and increasing by the percentage increase of the retail prices index
DVGHQHGE\VHFWLRQ,QFRPHDQG&RUSRUDWLRQ7D[HV$FW
for any 12-month period beginning 1 April 1999 or an anniversary of
that date. The company may by ordinary resolution decide on a higher
sum. This resolution can increase the fee paid to all or any directors
either permanently or for a particular period. The directors may be paid
their expenses properly incurred in connection with the business of the
company.
The Board can award extra fees to a director who: holds an executive
position; acts as chairman or deputy chairman; serves on a Board
committee at the request of the Board; or performs any other services
which the Board consider extend beyond the ordinary duties of a
director.
7KHGLUHFWRUVPD\JUDQWSHQVLRQVRURWKHUEHQHWVWRDPRQJRWKHUV
any director or former director or persons connected with them.
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GLUHFWRUZKRKDVQRWEHHQDQHPSOR\HHRUKHOGDQ\RWKHURFHRU
executive position in the company or any of its subsidiary undertakings,
or to relations or dependants of, or people connected to, those directors
or former directors, if the shareholders approve this by passing an
ordinary resolution.
Directors votes
A director need not be a shareholder, but a director who is not a
shareholder can still attend and speak at shareholders meetings.
Unless the Articles say otherwise, a director cannot vote on a resolution
DERXWDFRQWUDFWLQZKLFKWKHGLUHFWRUKDVDQLQWHUHVWWKLVZLOODOVRDSSO\
to interests of a person connected with the director).
If the legislation allows, a director can vote and be counted in the
quorum on a resolution concerning a contract:
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aware; or which cannot reasonably be regarded as likely to give rise
WRDFRQLFWRILQWHUHVW
LL LQZKLFKWKHGLUHFWRUKDVDQLQWHUHVWRQO\EHFDXVHWKHGLUHFWRULVD
holder of shares, debentures or other securities of BT, or by reason
of any other interest in or through BT;
LLL ZKLFKLQYROYHVWKHJLYLQJRIDQ\VHFXULW\JXDUDQWHHRULQGHPQLW\
to the director or any other person for money lent or obligations
incurred by the director or by any other person at the request
RIRUIRUWKHEHQHWRI%7RUWKHEHQHWRIDQ\RILWVVXEVLGLDU\
undertakings; or a debt or other obligation which is owed by BT
or any of its subsidiary undertakings to that other person if the
director has taken responsibility for all or any part of that debt or
obligation by giving a guarantee, security or indemnity;
financials.indb 216
LY ZKHUH%7RUDQ\RILWVVXEVLGLDU\XQGHUWDNLQJVLVRHULQJDQ\
shares, debentures or other securities for subscription or purchase
to which the director is or may be entitled to participate as a
holder of BT securities; or where the director will be involved in the
underwriting or sub-underwriting;
Y UHODWLQJWRDQ\RWKHUFRPSDQ\LQZKLFKWKHGLUHFWRUKDVDQLQWHUHVW
GLUHFWO\RULQGLUHFWO\LQFOXGLQJKROGLQJDSRVLWLRQLQWKDWFRPSDQ\
or is a shareholder, creditor, employee or otherwise involved in that
company these rights do not apply if the director owns 1% or
more of that company or of the voting rights in that company;
YL UHODWLQJWRDQDUUDQJHPHQWIRUWKHEHQHWRI%7HPSOR\HHVRU
former BT employees or any of BTs subsidiary undertakings which
RQO\JLYHVWKHGLUHFWRUVWKHVDPHEHQHWVWKDWDUHJHQHUDOO\JLYHQ
to the employees or former employees to whom the arrangement
relates;
YLL UHODWLQJWR%7EX\LQJRUUHQHZLQJLQVXUDQFHIRUDQ\OLDELOLW\IRU
WKHEHQHWRIGLUHFWRUVRUIRUWKHEHQHWRISHUVRQVZKRLQFOXGH
directors;
YLLL UHODWLQJWRWKHJLYLQJRILQGHPQLWLHVLQIDYRXURIGLUHFWRUV
L[ UHODWLQJWRWKHIXQGLQJRIH[SHQGLWXUHE\DQ\GLUHFWRURUGLUHFWRUV
on defending criminal, civil or regulatory proceedings or actions
against the director or the directors; in connection with an
application to the court for relief; or on defending the director or
the directors in any regulatory investigations; or which enables any
director or directors to avoid incurring expenditure as described in
this paragraph; and
[ LQZKLFKWKHGLUHFWRUoVLQWHUHVWRUWKHLQWHUHVWRIGLUHFWRUV
generally, has been authorised by an ordinary resolution.
Subject to the relevant legislation, the shareholders can, by passing an
ordinary resolution, ratify any particular contract carried out in breach of
those provisions.
Directors appointment and retirement
Under BTs Articles there must be at least two directors, who manage
the business of the company. The shareholders can vary this minimum
DQGRUGHFLGHDPD[LPXPE\RUGLQDU\UHVROXWLRQ7KH%RDUGDQG
WKHVKDUHKROGHUVE\RUGLQDU\UHVROXWLRQPD\DSSRLQWDSHUVRQZKR
LVZLOOLQJWREHHOHFWHGDVDGLUHFWRUHLWKHUWROODYDFDQF\RUDVDQ
additional director.
At every annual general meeting, any director who was elected or last
re-elected a director at or before the annual general meeting held in the
third year before the current year, must retire by rotation. Any director
appointed by the directors automatically retires at the next following
annual general meeting. A retiring director is eligible for re-election.
In addition to any power of removal under the 2006 Act, the
shareholders can pass an ordinary resolution to remove a director, even
WKRXJKKLVRUKHUWLPHLQRFHKDVQRWHQGHG7KH\FDQHOHFWDSHUVRQ
to replace that director subject to the Articles, by passing an ordinary
resolution. A person so appointed is subject to retirement by rotation
when the director replaced would have been due to retire.
Directors borrowing powers
To the extent that the legislation and the Articles allow, the Board can
exercise all the powers of the company to borrow money, to mortgage
RUFKDUJHLWVEXVLQHVVSURSHUW\DQGDVVHWVSUHVHQWDQGIXWXUHDQG
to issue debentures and other securities, and give security either
outright or as collateral security for any debt, liability or obligation of
the company or another person. The Board must limit the borrowings
of the company and exercise all the companys voting and other rights
or powers of control exercisable by the company in relation to its
subsidiary undertakings so as to ensure that the aggregate amount of
all borrowings by the group outstanding, net of amounts borrowed
intragroup among other things, at any time does not exceed 35bn.
These borrowing powers may only be varied by amending the Articles.
N6LQNLQJIXQGOLDELOLW\WRIXUWKHUFDOOVDQGFKDQJHRIFRQWURO
BTs shares are not subject to any sinking fund provision under the
Articles or as a matter of the laws of England and Wales. No shareholder
is currently liable to make additional contributions of capital in respect
of BTs ordinary shares in the future. There are no provisions in the
Articles or of corporate legislation in England and Wales that would
delay, defer or prevent a change of control.
15/05/2015 01:52
Overview

Group performance
O'LVFORVXUHRILQWHUHVWVLQVKDUHV
Under the Financial Services and Markets Act 2000 and the UK
Disclosure and Transparency Rules there is a statutory obligation on a
SHUVRQZKRDFTXLUHVRUFHDVHVWRKDYHDQRWLDEOHLQWHUHVWLQWKHUHOHYDQW
share capital of a public company like BT to notify the company of that
fact. The disclosure threshold is 3%. These Rules also deal with the
disclosure by persons of interests in shares or debentures of companies
in which they are directors and certain associated companies. Under
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the persons who are or have within the last three years been interested
in its shares and the nature of those interests. The UK City Code on
Takeovers and Mergers also imposes strict disclosure requirements with
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all parties to a takeover and also on their respective associates during the
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Material contracts
7KHFRQWUDFWVVXPPDULVHGEHORZQRWEHLQJHQWHUHGLQWRLQWKHRUGLQDU\
course of business) have been entered into in the two years preceding
the date of this document by BT or another member of the group and
are, or may be, material to the group or have been entered into by BT
or another member of the group and contain a provision under which a
member of the group has an obligation or entitlement which is, or may
be, material to BT or such other member of the group.
'HQLWLRQV
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sections: 3URSRVHGDFTXLVLWLRQRI((sVXPPDU\RIWKHSULQFLSDOWHUPV,
3URWHVWLPDWHDQGSURWIRUHFDVWFRQVLGHUHGLQWKHVKDUHKROGHU
circular and)LQDQFLDOHHFWVRIWKHDFTXLVLWLRQFRQVLGHUHGLQWKH
VKDUHKROGHUFLUFXODU. For reference and understanding, we set out
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Acquisition: the proposed acquisition by BT of EE
Acquisition Resolution: the Resolution to approve the Acquisition and to
JUDQWWKH'LUHFWRUVVSHFLFDXWKRULW\WRDOORWWKH&RQVLGHUDWLRQ6KDUHV
Articles: the articles of association of BT in force from time to time
Board: the Directors of the Company from time to time
BT Pension Scheme: %7oVPDLQGHQHGEHQHWSHQVLRQVFKHPH
Buy-Back Resolution: the resolution to approve the buy-back of
Ordinary Shares from Deutsche Telekom andor Orange pursuant to the
CP Contracts
CP Contracts: the DT CP Contract and Orange CP Contract
Company: BT Group plc
Completion: completion of the Acquisition pursuant to the terms of the
Share Purchase Agreement
Conditions: the conditions to Completion as set out in the Share
Purchase Agreement
Consideration Shares: the Ordinary Shares to be issued by the Company
to the Sellers pursuant to the Share Purchase Agreement
Directors or Board of Directors: the directors of the Company whose
names appear in the section in the shareholder circular entitled
'LUHFWRUV&RPSDQ\6HFUHWDU\5HJLVWHUHG2FHDQG$GYLVHUV
Enlarged Group: the Company and its subsidiaries and subsidiary
undertakings, including EE and its subsidiaries and subsidiary
undertakings, after the Acquisition and from time to time thereafter
Financial Investor: D4XDOLHG,QVWLWXWLRQDO%X\HUDVGHQHGLQ5XOH
$XQGHUWKH866HFXULWLHV$FWRUD4XDOLHG,QYHVWRUDV
GHVFULEHGLQ6HFWLRQ,RI$QQH[,,WR'LUHFWLYH(&RWKHU
than any activist fund, or any company licensed as a telecommunications
RSHUDWRURULWVDOLDWHV
General Meeting: the general meeting of the Company held at 10.00 am
on 30 April 2015 to approve the Resolutions
Long Stop Date: 5 August 2016
financials.indb 217
Governance
217
Ordinary Shares: the ordinary shares of nominal value 5 pence each

in the capital of the Company, including, if the context requires, the
Consideration Shares
Regulations: WKH8QFHUWLFDWHG6HFXULWLHV5HJXODWLRQVRIWKH
United Kingdom
Resolutions: the Resolutions set out in the Notice of General Meeting
Sellers: Deutsche Telekom and Orange
Shareholder: DKROGHURI2UGLQDU\6KDUHVDQGp6KDUHKROGHUVqVKDOOEH
construed accordingly
Sponsor: JP Morgan Cazenove
Transaction Documents: the Share Purchase Agreement, the
Relationship Agreement, the Standstill and Lock-up Agreement and the
CP Contracts
3URSRVHGDFTXLVLWLRQRI((sVXPPDU\RIWKHSULQFLSDOWHUPV
Share Purchase Agreement
On 5 February 2015, the Share Purchase Agreement was entered into
between the Company, the Sellers, who hold 100% of the issued share
capital of EE on a combined basis, Deutsche Telekom AG as guarantor
of Deutsche Telekom and Orange SA as guarantor of Orange. Pursuant
to the Share Purchase Agreement, the Sellers have conditionally agreed
to sell, and the Company has conditionally agreed to acquire, the entire
issued share capital of EE.
3XUFKDVHSULFH
1.1 Consideration adjustments
Under the terms of the Share Purchase Agreement, BT will purchase
the entire issued share capital of EE for a purchase price equivalent to
12.5 billion on a debt and cash free basis. The purchase price to be paid
LVVXEMHFWWRFXVWRPDU\SRVW&RPSOHWLRQDGMXVWPHQWVWRUHHFWWKHGHEW
cash, working capital and capex position of EE at Completion. Based upon
EEs net debt as at 31 December 2014, adjusted for estimated other debtOLNHLWHPVWKHFRQVLGHUDWLRQSD\DEOHE\%7ZLOOEHVDWLVHGE\
D WKHLVVXHWR'HXWVFKH7HOHNRPRIDURXQGELOOLRQQHZ2UGLQDU\
Shares, equivalent to 12% of BTs share capital on an enlarged basis
post-Acquisition;
E DUHVLGXDOFDVKSD\PHQWWR'HXWVFKH7HOHNRPRIDURXQG~
million based upon a reference price of 411.5 pence per Ordinary
6KDUHEHLQJWKHFORVLQJSULFHRQ'HFHPEHUVXEMHFWWR
further variation in accordance with the cap and collar protection
mechanism described below);
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equivalent to 4% of BTs share capital on an enlarged basis postAcquisition; and
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XSRQDUHIHUHQFHSULFHRISHQFHSHU2UGLQDU\6KDUHVXEMHFW
to further variation in accordance with the cap and collar protection
mechanism described below).
The Consideration Shares will be issued at Completion, credited as fully
paid and will rank pari passu in all respects with the existing Ordinary
Shares, including the right to receive all dividends, distributions or any
return of capital declared, made or paid after Completion.
1.2 Cap and collar mechanism
The Share Purchase Agreement contains a cap and collar protection
mechanism which provides for an adjustment to the cash element of
the consideration where there is a movement in the price of an Ordinary
6KDUHPHDVXUHGE\UHIHUHQFHWRWKHDYHUDJH2UGLQDU\6KDUHSULFHLQ
WKHWUDGLQJGD\VEHIRUHWKHGDWHZKLFKLVYH%XVLQHVV'D\VEHIRUH
Completion) from the reference price set out above, subject to:
D DPLQLPXPVKDUHSULFHSHU2UGLQDU\6KDUHRIDSSUR[LPDWHO\
SHQFHEHLQJ% below the reference price). A share price
below this level would not result in further adjustment to the cash
consideration and therefore the value of the Acquisition would fall
below 12.5 billion; and
E DPD[LPXPVKDUHSULFHSHU2UGLQDU\6KDUHRIDSSUR[LPDWHO\
SHQFHEHLQJ% above the reference price). A share price
above this level would not result in further adjustment to the cash
15/05/2015 01:52
218
BT Group plc
Annual Report 2015
consideration and therefore the value of the Acquisition would

increase above 12.5 billion.
If the cash element of the consideration due to Deutsche Telekom
LVHVWLPDWHGWREHOHVVWKDQ]HURDW&RPSOHWLRQDVDUHVXOWRI((oV
estimated adjusted net debt position as at Completion), BT can reduce
the number of Ordinary Shares to be issued to Deutsche Telekom by such
number as results in the cash consideration payable to Deutsche Telekom
then being as near as possible to zero. In such circumstances, Deutsche
Telekom would then receive less than 12% of BTs enlarged issued share
capital as a result of the Acquisition.
2. Conditions
Completion is conditional upon satisfaction or, where capable of being
waived, waiver of the following Conditions prior to the Long Stop Date
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E DOORWPHQWRIWKH&RQVLGHUDWLRQ6KDUHVWRWKH6HOOHUVVXEMHFWRQO\WR
their admission to listing and trading;
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&RQVLGHUDWLRQ6KDUHVWRWKH2FLDO/LVWDQGWKH/RQGRQ6WRFN
Exchange having approved admission of the Consideration Shares
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unconditionally, or conditionally on BT giving remedies, which
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consultation with the Sellers); or
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unconditionally, or conditionally on BT giving remedies, which
are to be agreed by BT acting reasonably and in co-ordination
and consultation with the Sellers, provided that BT shall not
be required to give any remedy which would have a material
DGYHUVHHHFWRQ%7RUWKH((*URXSRUZRXOGQRWEH
UHDVRQDEOHIURPDQDQFLDORUVWUDWHJLFSHUVSHFWLYHDQGLQWKH
event that BT agrees such remedies, the Sellers shall share the
cost of such remedies by way of a reasonable reduction in the
purchase price for the Acquisition;
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clearance of the Acquisition by the European Commission, meaning;
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Regulation unconditionally, or conditionally on BT giving
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ordination and consultation with the Sellers); or
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Regulation unconditionally, or conditionally on BT giving
remedies, which are to be agreed by BT acting reasonably and
in co-ordination and consultation with the Sellers, provided
that BT shall not be required to give any remedy which would
KDYHDPDWHULDODGYHUVHHHFWRQ%7RUWKH((*URXSRUZRXOG
QRWEHUHDVRQDEOHIURPDQDQFLDORUVWUDWHJLFSHUVSHFWLYH
and in the event that BT agrees such remedies, the Sellers
shall share the cost of such remedies by way of a reasonable
reduction in the purchase price for the Acquisition;
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If the Acquisition Resolution is approved at the General Meeting and each
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ZDLYHGSULRUWRWKH/RQJ6WRS'DWHRUVXFKODWHUGDWHDVWKHSDUWLHV
may agree), the Company will be contractually obliged to proceed to
Completion unless the Share Purchase Agreement is otherwise terminated.
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3.1 BT
BT has agreed that until Completion or earlier termination of the Share
Purchase Agreement, it shall:
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and to trading on the London Stock Exchange;
E QRWXQGHUWDNHDQ\VKDUHLVVXDQFHRUFUHDWHDQ\ULJKWWRVXEVFULEH
for any Ordinary Shares or share capital, or issue or create any right
to subscribe for any other securities or equity interests convertible
LQWR2UGLQDU\6KDUHVRUVKDUHFDSLWDOVDYHLQFRQQHFWLRQZLWKDQ\
existing BT employee share plans);
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than ordinary course dividends payable in cash in accordance with
its announced dividend policy;
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except in accordance with its existing ordinary course share buyback programme;
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I QRWWDNHDQ\RWKHUDFWLRQZKLFKZRXOGDHFWWKHQXPEHURI
Ordinary Shares in issue or make any other shareholder distribution
RILQFRPHRUFDSLWDORUVLPLODUDUUDQJHPHQWRWKHUWKDQWKH
exceptions outlined above); or
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BT or any similar transaction which would materially prejudice the
likelihood of Completion.
As a result of the undertakings described above, BT will be unable
to access the equity capital markets to raise additional capital until
Completion or earlier termination of the Share Purchase Agreement.
3.2 EE
The Sellers have agreed that until Completion or earlier termination of
the Share Purchase Agreement, they shall procure that EE:
D FDUULHVRQLWVEXVLQHVVLQWKHRUGLQDU\FRXUVHDQGH[HUFLVHVVXFK
ULJKWVDVLWKDVWRSURFXUHWKDWWKHDDLUVRI0%1/DUHFDUULHGRQLQ
the ordinary course; and
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certain projects of EE agreed with BT around the time of entry into
the Share Purchase Agreement):
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properties;
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ordinary course of business;
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Sellers Groups;
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guarantee obligations or, except in the ordinary course,
indemnity obligations;
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strategy or, except in limited circumstances, the funding basis
RIWKH((GHQHGEHQHWSHQVLRQVFKHPH
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prejudice the use of, the EE Groups tax losses;
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dispute;
YLLL DFTXLUHDQ\ZLUHOHVVVSHFWUXP
L[ PDNHDQ\IXQGDPHQWDOFKDQJHVWRWKHQHWZRUNWHFKQRORJLHV
RUSULQFLSDOELOOLQJV\VWHPVRIWKH((*URXSDQGRU
[ SHUIRUPDQXPEHURIIXUWKHUFXVWRPDU\DFWLRQVLQFOXGLQJ
changing the material general terms of employment of its
employees; adopting or materially amending any employee
EHQHWERQXVRUSURWVKDULQJVFKHPHPDWHULDOO\FKDQJLQJLWV
pension and retirement arrangements for employees; declaring
DGLYLGHQGH[FHSWLQDFFRUGDQFHZLWK((oVEXGJHW
which would result in the Deutsche Telekom cash consideration
resulting from the Aquisition being less than zero; issuing or
encumbering shares; or making changes to its accounting
policies, constitutional documents or corporate group structure.
The Sellers have also agreed to customary standstill provisions prohibiting
DFTXLVLWLRQVRI2UGLQDU\6KDUHVRUWKHPDNLQJRIDQ\WDNHRYHURHUIRU
BT prior to Completion, from which point the terms of the Relationship
Agreement and Standstill and Lock-up Agreement shall apply.
financials.indb 218
15/05/2015 01:52
Overview

Group performance
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4.1 Warranties
The Share Purchase Agreement contains customary warranties given
by the Sellers, including in relation to authorisations, valid obligations,
OLQJVDQGFRQVHQWVIRUWKHHQWU\RIWKH6HOOHUVLQWRWKH7UDQVDFWLRQ
Documents, and including in relation to the EE Group, its share capital,
DFFRXQWVDQGQDQFLDOFRQGLWLRQPDWHULDOOLFHQFHVDQGDSSURYDOV
FRPSOLDQFHZLWKODZVFRQGLWLRQDQGVXFLHQF\RILWVQHWZRUNDQG
assets, tax, material contracts, related party arrangements, litigation, IP
DQG,7V\VWHPVHPSOR\HHVDQGEHQHWDUUDQJHPHQWVSHQVLRQVFKHPHV
real estate and ownership and conduct of the MBNL joint venture
arrangement.
4.2 Indemnities
The Sellers have also agreed, amongst other things, to indemnify BT in
WKHHYHQWWKDW%7VXHUVORVVDVDUHVXOWRIFHUWDLQUHJXODWRU\QHVEHLQJ
OHYLHGDJDLQVW%7RUWKH((*URXSDQGDJDLQVWORVVHVVXHUHGE\%7RU
the EE Group as a result of certain other investigations and disputes.
The warranties and indemnities given by the Sellers are subject to
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4.3 Covenants
The Share Purchase Agreement contains customary covenants restricting
the Sellers from competing with EEs business for a period of three years
IROORZLQJ&RPSOHWLRQVXEMHFWWRFXVWRPDU\H[FHSWLRQVIRUH[LVWLQJ
EXVLQHVVHVDQGQDQFLDOLQYHVWPHQWVDQGIURPVROLFLWLQJHPSOR\HHVRI
WKH((*URXSIRUDSHULRGRIWZR\HDUVIROORZLQJ&RPSOHWLRQVXEMHFWWR
customary exceptions).
The Share Purchase Agreement also contains a customary tax covenant
in respect of liability for taxes due pre and post-Completion.
&RPSDQ\:DUUDQWLHVDQG,QGHPQLW\
The Share Purchase Agreement contains warranties given by the
Company as to, amongst other things, its capacity and authority to
enter into and perform its obligations under the Transaction Documents,
compliance by the Company in all material respects with certain laws
DQGUHJXODWLRQVWKHDYDLODELOLW\RIQDQFLQJIRUWKHFDVKHOHPHQWRIWKH
FRQVLGHUDWLRQIRUWKH$FTXLVLWLRQWKHDFFXUDF\RILWVSXEOLFOLQJVDQG
WKHUHKDYLQJEHHQQRPDWHULDODGYHUVHFKDQJHWRLWVQDQFLDOSRVLWLRQ
since its last accounts date.
BT also agrees that it will indemnify the Sellers in the event that they
VXHUORVVDVDUHVXOWRI%7KDYLQJWDNHQFHUWDLQDFWLRQVLQUHVSHFW
RIWKH((GHQHGEHQHWSHQVLRQVFKHPHRUWKH%7GHQHGEHQHW
SHQVLRQVFKHPHEXWLQUHODWLRQWRWKH%73HQVLRQ6FKHPHRQO\ZKHUH
'HXWVFKH7HOHNRPLVLGHQWLHGDVEHLQJFRQQHFWHGWR%7E\YLUWXHRIWKH
appointment of a Director to the Board by the Deutsche Telekom Group).
The warranties and indemnity given by BT are subject to customary
QDQFLDODQGRWKHUOLPLWDWLRQV
2WKHUXQGHUWDNLQJV
Prior to Completion, the Sellers and BT will agree the scope and terms
of any transitional services arrangements required after Completion,
with a view to entering into separate transitional services agreements
between EE, BT and each of the Sellers at Completion. The purpose of
these transitional services agreements is to document any services that
DUHFXUUHQWO\SURYLGHGE\DSDUW\RUDPHPEHURILWVJURXSDQGWKDWWKH
recipient of those services wishes to continue to receive for a transitional
period from Completion. Any services that a service recipient elects to
continue to receive from Completion will be provided on the current
terms or agreement applicable to the provision and receipt of those
services. Unless otherwise agreed, the maximum term of each service
will be between six and 18 months depending on the type of service.
(DFK6HOOHUDVDSSOLFDEOHZLOOSURFXUHWKDW((FDQFRQWLQXHWREHQHW
from an existing Orange or T-Mobile brand licence for three calendar
months following Completion. Prior to the date falling three calendar
PRQWKVDIWHU&RPSOHWLRQWKH6HOOHUVRUWKHUHOHYDQWPHPEHUVRIWKHLU
groups), BT, and EE will agree appropriate conditions for the continued
XVHRIWKH2UDQJHRU70RELOHDVDSSOLFDEOHEUDQGVE\((IROORZLQJ
WKDWGDWHXQWLOWKHGDWHIDOOLQJPRQWKVLQWKHFDVHRIWKH70RELOH
EUDQGDQGPRQWKVLQWKHFDVHRIWKH2UDQJHEUDQGWKHUHDIWHU
6XFKDJUHHPHQWZLOOLQFOXGHDSSURSULDWHPRGLFDWLRQVWRWKHH[LVWLQJ
EUDQGOLFHQFHVWRUHHFWWKHFKDQJHLQRZQHUVKLSRI((DQGFRQWLQXHG
financials.indb 219
Governance
219
use of the brands will be for the purpose of an orderly wind-down and
extraction of the Orange and T-Mobile brands from EEs business and
subject to the continued payment of royalties.
BT has also undertaken to Deutsche Telekom AG to provide, from
Completion, a back-to-back guarantee of Deutsche Telekom AGs
guarantee to Hutchison, to a maximum value of 750 million. Deutsche
Telekom AGs existing arrangement guarantees EEs obligations in
respect of any liability incurred by EE under the MBNL joint operation.
7. Guarantee
Deutsche Telekom AG has agreed to guarantee the performance by
Deutsche Telekom, and Orange S.A. has agreed to guarantee the
performance by Orange, of their respective obligations under the Share
Purchase Agreement.
%UHDNIHH
If the Board changes its recommendation that Shareholders vote in
favour of the Acquisition prior to the vote being taken and Shareholders
do not approve the Acquisition or if BT recommends an alternative
transaction prior to Completion and the Acquisition does not proceed to
&RPSOHWLRQDVDUHVXOWWKHQ%7VKDOOSD\DEUHDNIHHRI~PLOOLRQLQ
aggregate) to Deutsche Telekom and Orange.
7HUPLQDWLRQ
,QWKHHYHQWWKDWWKH&RQGLWLRQVDUHQRWVDWLVHGRUZKHUHFDSDEOHRI
EHLQJZDLYHGZDLYHGE\WKH/RQJ6WRS'DWHRUVXFKODWHUGDWHDVWKH
parties may agree), including where any remedies required by the CMA in
order to obtain merger clearance are not reasonable, the Share Purchase
Agreement will automatically terminate.
BT may terminate the Share Purchase Agreement prior to the Long Stop
Date if the Acquisition Resolution is not approved.
The Sellers are entitled to terminate the Share Purchase Agreement
prior to the Long Stop Date if the Board changes its recommendation
that Shareholders vote in favour of the Acquisition prior to the vote
being taken and Shareholders do not approve the Acquisition or if BT
recommends an alternative transaction prior to Completion and the
Acquisition does not proceed to Completion as a result.
10. Costs
The Company and the Sellers have each agreed to pay the costs
and expenses incurred by them in connection with the preparation,
negotiation, entering into and completion of the Transaction Documents
and any other agreements in respect of the Acquisition. BT has agreed to
bear any stamp duty or other transfer taxes in respect of the transfer of
the shares of EE.
Relationship Agreement
5HODWLRQVKLS$JUHHPHQWZLWK'HXWVFKH7HOHNRP$*DQG
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At Completion, BT will enter into the Relationship Agreement with
Deutsche Telekom AG and Deutsche Telekom, which will regulate aspects
of the ongoing relationship between BT, Deutsche Telekom AG and the
Deutsche Telekom Group.
7KH5HODWLRQVKLS$JUHHPHQWZLOOWHUPLQDWHLIDWKH2UGLQDU\6KDUHVDUH
QRORQJHUOLVWHGRQWKHSUHPLXPOLVWLQJVHJPHQWRIWKH2FLDO/LVWDQG
traded on the London Stock Exchanges main market for listed securities
RUEWKH'HXWVFKH7HOHNRP*URXSFHDVHVWREHLQWHUHVWHGLQPRUHWKDQ
3% of the issued ordinary share capital of BT.
The Relationship Agreement will contain, among other things,
undertakings from Deutsche Telekom AG that for such period as the
Deutsche Telekom Group holds 10% or more of the issued share capital
of BT:
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Telekom Group will be entered into on an arms length basis
and on normal commercial terms;
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WDNHDQ\DFWLRQWKDWZRXOGKDYHWKHHHFWRISUHYHQWLQJ%7
from complying with its obligations under the Listing Rules;
and
15/05/2015 01:52
220
BT Group plc
Annual Report 2015
LLL QHLWKHULWQRUDQ\PHPEHURIWKH'HXWVFKH7HOHNRP*URXSZLOO
propose or procure the proposal of a shareholder resolution
which is intended or appears to be intended to circumvent the
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Provisions).
Deutsche Telekom AG undertakes to procure the compliance of its group
members with the Independence Provisions.
6WDQGVWLOO3URYLVLRQV
The Relationship Agreement will contain standstill provisions pursuant
to which Deutsche Telekom AG undertakes on behalf of itself and the
Deutsche Telekom Group for a period of three years from the date of
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certain exceptions, not to:
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securities of BT as a result of which the aggregate interest of the
Deutsche Telekom Group and any of its concert parties increases
above 12% of Ordinary Shares in issue at any time;
LL DFWLQFRQFHUWZLWKDQ\SHUVRQZLWKUHVSHFWWRWKHKROGLQJYRWLQJ
or disposition of any shares or other securities of BT;
LLL VROLFLWRUSDUWLFLSDWHLQDQ\VROLFLWDWLRQRI6KDUHKROGHUVWRYRWHLQD
particular manner at any meeting of Shareholders; or
LY DFWLYHO\RUSXEOLFO\PDNHDQ\SURSRVDOVIRUDQ\PHUJHU
consolidation or share exchange involving shares or other securities
RI%7IRUWKHSXUSRVHVRIWKLV3DUWRQO\WKHp6WDQGVWLOO
Provisions).
The exceptions to the Standstill Provisions include circumstances:
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shares or other securities of BT from the Orange Group provided
that such acquisition does not increase the aggregate interest of
the Deutsche Telekom Group and its concert parties above 15% of
the Ordinary Shares in issue;
LL ZKHUHWKH'HXWVFKH7HOHNRP*URXSDQQRXQFHVDQRHUXQGHU5XOH
RIWKH&LW\&RGHRQ7DNHRYHUVDQG0HUJHUVWKHp&RGHqRUWDNHV
DQ\DFWLRQUHTXLULQJLWWRPDNHDQRHUXQGHU5XOHRIWKH&RGHLQ
HDFKFDVHLIVXFKRHULVUHFRPPHQGHGE\WKH'LUHFWRUVRI%7
LLL ZKHUHDQ\WKLUGSDUW\PDNHVRUDQQRXQFHVXQGHU5XOHRIWKH
&RGHDQRHUWRDFTXLUHWKHLVVXHGRUGLQDU\VKDUHFDSLWDORI%7
ZKHWKHUVXFKRHULVUHFRPPHQGHGE\WKH'LUHFWRUVRI%7RUQRW
and
LY ZKHUH%7PDNHVDQ\RHULQJRULVVXHRIVKDUHVRURWKHUVHFXULWLHV
and the Deutsche Telekom Group takes up its rights to subscribe for
RUDFTXLUHWKHVKDUHVRURWKHUVHFXULWLHVRHUHGWRLWE\%7
Under the Relationship Agreement, Deutsche Telekom AG undertakes,
among other things, that for a period of two years from the expiry of the
Initial Standstill Period, in the event that the Deutsche Telekom Group
DFTXLUHVRWKHUWKDQDVDUHVXOWRIDUHGXFWLRQRUUHRUJDQLVDWLRQRIVKDUH
capital or re-purchase of shares or other securities of BT) any Shares
in excess of 15%RIWKH2UGLQDU\6KDUHVLQLVVXHWKHp([FHVV6KDUHVq
it shall procure that the votes attaching to such Excess Shares shall be
H[HUFLVHGVXEMHFWWRWKHSURYLVLRQVRIWKH&RGHDQGDSSOLFDEOHODZRU
regulation) in accordance with the recommendation of the Board of
Directors of BT on all shareholder resolutions which relate to a transfer of
an interest in Ordinary Shares carrying in aggregate 30% or more of the
voting rights of BT and on all special resolutions of BT. After expiry of the
Initial Standstill Period, the Deutsche Telekom Group will otherwise be
free to increase its shareholding in BT.
/RFNXS3URYLVLRQV
The Relationship Agreement contains lock-up provisions pursuant to
which Deutsche Telekom AG and Deutsche Telekom undertake for a
period of 18 months from the date of the Relationship Agreement,
subject to certain exceptions, that neither they nor any of their group
PHPEHUVZLOOGLUHFWO\RULQGLUHFWO\RHUVHOOFRQWUDFWWRVHOOJUDQWRU
sell options over, purchase any option or contract to sell, transfer, charge,
pledge, grant any right or warrant or otherwise transfer, lend or dispose
of any shares in BT or any securities convertible into or exercisable or
exchangeable for such shares, or announce or otherwise publish an
LQWHQWLRQWRGRDQ\RIWKHIRUHJRLQJHDFKRIWKHDERYHDFWLYLWLHVEHLQJD
p'LVSRVDOq7KHH[FHSWLRQVLQFOXGH
financials.indb 220
L
ZKHUH'HXWVFKH7HOHNRP$*RU'HXWVFKH7HOHNRPDFFHSWVDQ\RHU
by a third party for the whole of the ordinary share capital of BT,
ZKHWKHUE\WHQGHURHURUVFKHPHRIDUUDQJHPHQWRUSURYLGHV
an irrevocable undertaking or letter of intent to accept or vote in
IDYRXURIDQ\VXFKRHU
LL DQ\'LVSRVDOWRDQ\PHPEHURIWKH'HXWVFKH7HOHNRP*URXS
provided that the transferee agrees to be bound by the restrictions
of the Relationship Agreement; and
LLL DQ\VDOHRIVKDUHVYLDDQ\VLQJOHRPDUNHWWUDGHWRD)LQDQFLDO
Investor of no more than 5% each of the Ordinary Shares in issue of
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5%HDFKDWWKHVDPHWLPHWRWZRGLHUHQW)LQDQFLDO,QYHVWRUV
provided that any transferee enters into a lock-up agreement
on substantially similar terms to the lock-up provisions of the
Relationship Agreement.
'7&3&RQWUDFW
Prior to any Disposal by Deutsche Telekom AG, Deutsche Telekom or any
RIWKHLUJURXSPHPEHUVLQDFFRUGDQFHZLWKSDUDJUDSKLLLDERYH%7
KDVDULJKWRIUVWRHULQUHODWLRQWRWKHUHOHYDQWVKDUHVVXEMHFWWRWKH
passing of the Buy-Back Resolution), and such right is set out in the DT
CP Contract.
Pursuant to the DT CP Contract, prior to an intended Disposal to Financial
Investors, the relevant selling entity is obliged to issue a notice to
BT specifying the number of Ordinary Shares proposed to be sold or
WUDQVIHUUHG%7KDVQLQH%XVLQHVV'D\VZLWKLQZKLFKWRPDNHDQRHU
for all of the Ordinary Shares detailed in the notice, or else its right to
PDNHDQRHUZLOOODSVH,IWKHRHULVQRWDFFHSWHGWKHVHOOLQJHQWLW\
may make the sale or transfer within three months of the delivery of the
QRWLFHWR%7DWDSULFHHTXDOWRRUJUHDWHUWKDQWKHSULFHRHUHGE\%7
,I%7GRHVQRWPDNHDQRHUZLWKLQWKHDOORWWHGWLPHWKHVHOOLQJHQWLW\
may sell the Ordinary Shares within three months of the delivery of the
notice to BT at any price. The DT CP Contract will terminate 18 months
from Completion.
The notice from the selling entity may be issued to BT during a close
SHULRGRUSURKLELWHGSHULRGDVVXFKWHUPVDUHGHQHGLQWKH0RGHO
Code of Chapter 9 of the Listing Rules) of BT. If any such period does not
expire prior to the end of the nine Business Day period within which BT
PD\HOHFWWRPDNHDQRHUWREX\EDFNWKHVKDUHV%7ZLOOQRWEHDEOHWR
H[HUFLVHLWVULJKWRIUVWRHU
:KHQH[HUFLVHGLQFRQMXQFWLRQZLWK%7oVULJKWRIUVWRHULQUHODWLRQWR
Ordinary Shares held by Orange and Orange SA, the maximum amount
RI2UGLQDU\6KDUHV%7FDQDFTXLUHE\H[HUFLVHRILWVULJKWVRIUVWRHULV
approximately 14% of BTs share capital on an enlarged basis postAcquisition. The price at which Ordinary Shares can be bought back shall
be no more than the higher of the closing price of the Ordinary Shares
RQLWKHGDWHRQZKLFK%7PDNHVDQRHUWREX\EDFNWKH2UGLQDU\
6KDUHVDQGLLWKHODVWWUDGLQJGD\EHIRUHWKHEX\EDFNWDNHVSODFH,Q
addition, BT has separately undertaken to give the Sponsor prior notice
RILWVLQWHQWLRQWRPDNHDQRHUIRU2UGLQDU\6KDUHVXQGHUWKH'7&3
&RQWUDFWWRFRQVXOWZLWKWKH6SRQVRUUHJDUGLQJVXFKRHUDQGQRWWR
PDNHVXFKRHUXQOHVVDWWKHUHOHYDQWWLPHWKH%RDUGKDYLQJEHHQVR
DGYLVHGE\WKH6SRQVRUFRQVLGHUVVXFKRHUWREHIDLUDQGUHDVRQDEOH
as far as Shareholders are concerned. After expiry of the lock-up period
described above, the Deutsche Telekom Group will be free to dispose of
its shareholding in BT without further restriction.
A copy of the DT CP Contract will be available for inspection at the
&RPSDQ\oVUHJLVWHUHGRFHQRWOHVVWKDQGD\VEHIRUHWKHGDWHRIWKH
General Meeting.
5LJKWVRI'HXWVFKH7HOHNRP$*
Under the Relationship Agreement, subject to compliance with any
applicable regulatory requirements, Deutsche Telekom AG is able
WRDSSRLQWRQH1RQ([HFXWLYH'LUHFWRUWKHp'HXWVFKH7HOHNRP
Representative Director) to the Board for so long as the Deutsche
Telekom Group holds 10% or more of the issued share capital of BT
SURYLGHGWKDWLIWKHVKDUHKROGLQJLVUHGXFHGEHORZ% as a result of
a non-pre-emptive share issuance by BT, the board appointment right
shall continue for as long as the Deutsche Telekom Group holds at least
8% of BTs shares but provided further that such reduced shareholding
shall not have occurred as a result of the Deutsche Telekom Group selling
Ordinary Shares, and also provided that the Deutsche Telekom Group
15/05/2015 01:52
Overview

Group performance
must top up to 10% within 12 months or the right will lapse). Any such
appointment shall be made in consultation with the BT Nominating &
Governance Committee and the appointee must be approved by the BT
&KDLUPDQVXFKDSSURYDOQRWWREHXQUHDVRQDEO\ZLWKKHOGRUGHOD\HG
The Relationship Agreement provides for the establishment of a
QHZFRPPLWWHHRI%7WKHp&RQLFWHG0DWWHUV&RPPLWWHHqZKLFK
shall assess whether and to what extent the Board papers and Board
meetings of BT are likely to consider or refer to any matter in respect of
ZKLFKWKH&RQLFWHG0DWWHUV&RPPLWWHHEHOLHYHVWKDWHLWKHU
L %7DQGWKH'HXWVFKH7HOHNRP*URXSDUHFRPSHWLWRUVRU
LL WKHUHLVDQDFWXDORUSRWHQWLDOFRQLFWRILQWHUHVWEHWZHHQ%7DQG
WKH'HXWVFKH7HOHNRP*URXSDp&RQLFWHG0DWWHUq
7KH&RQLFWHG0DWWHUV&RPPLWWHHVKDOOFRPSULVHRIDWOHDVWWKUHH
members including at all times the Secretary to the Board, the Head
of Competition and Regulatory Law and the Director of Governance.
The Deutsche Telekom Representative Director shall not be a
PHPEHURIWKH&RQLFWHG0DWWHUV&RPPLWWHH7KH'HXWVFKH7HOHNRP
Representative Director shall not attend any Board meeting of BT unless
DVHQLRUFRPSOLDQFHRFHURI'HXWVFKH7HOHNRP$*KDVUHFHLYHGSULRU
FRQUPDWLRQWKDWWKH&RQLFWHG0DWWHUV&RPPLWWHHKDVFRQVLGHUHG
ZKHWKHUVXFKDWWHQGDQFHUDLVHVDQ\FRQFHUQVLQUHODWLRQWRD&RQLFWHG
0DWWHU,QWKHHYHQWWKDWWKH&RQLFWHG0DWWHUV&RPPLWWHHKDVDVHULRXV
RULPPHGLDWHFRQFHUQLQUHODWLRQWRD&RQLFWHG0DWWHUWKH'HXWVFKH
Telekom Representative Director shall not attend any Board meetings in
UHODWLRQWRWKH&RQLFWHG0DWWHUDQGVKDOOQRWUHFHLYHDQ\LQIRUPDWLRQLQ
UHODWLRQWRWKH&RQLFWHG0DWWHU
Deutsche Telekom AG is also entitled to receive, subject to compliance
E\%7ZLWKLWVOHJDODQGUHJXODWRU\REOLJDWLRQVVXFKQDQFLDORURWKHU
information in relation to the BT Group as is necessary or reasonably
required by Deutsche Telekom AG in order to comply with its reporting
requirements and legal, regulatory or tax obligations.
Standstill and Lock-up Agreement with Orange SA

and Orange
6WDQGVWLOODQG/RFNXS$JUHHPHQW
At Completion, BT will enter into a Standstill and Lock-up Agreement
with Orange SA and Orange, which will regulate the ability of the Orange
Group to deal in shares and other securities of BT. The Standstill and
/RFNXS$JUHHPHQWZLOOWHUPLQDWHLIDWKH2UGLQDU\6KDUHVDUHQR
ORQJHUOLVWHGRQWKHSUHPLXPOLVWLQJVHJPHQWRIWKH2FLDO/LVWDQG
admitted to trading on the London Stock Exchanges main market for
OLVWHGVHFXULWLHVRUEWKH2UDQJH*URXSFHDVHVWREHLQWHUHVWHGLQPRUH
than 3% of the issued ordinary share capital of BT.
6WDQGVWLOO3URYLVLRQV
The Standstill and Lock-up Agreement will contain standstill provisions
pursuant to which Orange SA will undertake on behalf of itself and its
group for a period of three years from the date of the Standstill and
Lock-up Agreement, subject to certain exceptions, not to:
L
DFTXLUHRURHUWRDFTXLUHDQ\LQWHUHVWLQDQ\VKDUHVRURWKHU
securities of BT as a result of which the aggregate interest of
the Orange Group and its concert parties increases above 4% of
Ordinary Shares in issue at any time;
LL DFWLQFRQFHUWZLWKDQ\SHUVRQLQUHVSHFWRIWKHKROGLQJYRWLQJRU
disposition of any shares or other securities of BT;
LLL VROLFLWRUSDUWLFLSDWHLQDQ\VROLFLWDWLRQRI6KDUHKROGHUVWRYRWHLQD
particular manner at any meeting of the Shareholders; or
LY DFWLYHO\RUSXEOLFO\PDNHDQ\SURSRVDOVIRUDQ\PHUJHU
consolidation or share exchange involving shares or other
VHFXULWLHVRI%7IRUWKHSXUSRVHVRIWKLV3DUWRQO\WKHp6WDQGVWLOO
Provisions).
The exceptions to the Standstill Provisions include:
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ZKHUHWKH2UDQJH*URXSDQQRXQFHVDQRHUXQGHU5XOHRIWKH
&RGHRUWDNHVDQ\DFWLRQUHTXLULQJLWWRPDNHDQRHUXQGHU5XOH
RIWKH&RGHLQHDFKFDVHLIVXFKRHULVUHFRPPHQGHGE\WKH
Directors of BT;
LL ZKHUHDQ\WKLUGSDUW\PDNHVRUDQQRXQFHVXQGHU5XOHRIWKH
&RGHDQRHUWRDFTXLUHWKHLVVXHGRUGLQDU\VKDUHFDSLWDORI%7
ZKHWKHUVXFKRHULVUHFRPPHQGHGE\WKH'LUHFWRUVRI%7RUQRW
and
financials.indb 221
Governance
221
LLL ZKHUH%7PDNHVDQ\RHULQJRULVVXHRIVKDUHVRURWKHUVHFXULWLHV
and the Orange Group takes up its rights to subscribe for or acquire
WKHVKDUHVRURWKHUVHFXULWLHVRHUHGWRLWE\%7
After expiry of the standstill period, the Orange Group will otherwise be
free to increase its shareholding in BT.
/RFNXS3URYLVLRQV
The Standstill and Lock-up Agreement will contain lock-up provisions
pursuant to which Orange SA and Orange undertake for a period of 12
months from the date of the Standstill and Lock-up Agreement, subject
to certain exceptions, that neither they nor any of their group members
ZLOOGLUHFWO\RULQGLUHFWO\HHFWDQ\'LVSRVDODVGHQHGLQ/RFNXS
3URYLVLRQV on page 220 above). The exceptions include:
L DQ\'LVSRVDOWRWKH'HXWVFKH7HOHNRP*URXS
LL ZKHUH2UDQJH6$RU2UDQJHDFFHSWVDQ\RHUE\DWKLUGSDUW\
for the whole of the ordinary share capital of BT, whether by
WHQGHURHURUVFKHPHRIDUUDQJHPHQWRUSURYLGHVDQLUUHYRFDEOH
undertaking or letter of intent to accept or vote in favour of any
VXFKRHU
LLL DQ\'LVSRVDOWRDQ\PHPEHURIWKH2UDQJH*URXSSURYLGHG
that the transferee agrees to be bound by the restrictions of the
Standstill and Lock-up Agreement;
LY DQ\VDOHRIVKDUHVYLDDQ\VLQJOHRPDUNHWWUDGHWRD)LQDQFLDO
Investor of up to all the shares of BT in which the Orange Group
has an interest, provided that the transferee enters into a lock-up
agreement on substantially similar terms to the lock-up provisions
of the Standstill and Lock-up Agreement; and
Y LIWKH2UDQJH*URXSRZQV2% or less of the issued ordinary share
capital of the Company, any Disposal which is by way of a swap or
other agreement to transfer the economic ownership of the shares.
2UDQJH&3&RQWUDFW
Prior to any Disposal by Orange SA, Orange or any of their group
PHPEHUVLQDFFRUGDQFHZLWKSDUDJUDSKLYDERYH%7KDVDULJKWRI
UVWRHULQUHODWLRQWRWKHUHOHYDQWVKDUHVVXEMHFWWRWKHSDVVLQJRI
the Buy-Back Resolution), and such right is set out in the Orange CP
Contract.
Pursuant to the Orange CP Contract, prior to an intended Disposal to
Financial Investors, the relevant selling entity is obliged to issue a notice
to BT specifying the number of Ordinary Shares proposed to be sold or
WUDQVIHUUHG%7KDVQLQH%XVLQHVV'D\VZLWKLQZKLFKWRPDNHDQRHU
for all of the shares detailed in the notice, or else its right to make an
RHUZLOOODSVH,IWKHRHULVQRWDFFHSWHGWKHVHOOLQJHQWLW\PD\PDNH
the sale or transfer within three months of the delivery of the notice to
%7DWDSULFHHTXDOWRRUJUHDWHUWKDQWKHSULFHRHUHGE\%7,I%7GRHV
QRWPDNHDQRHUZLWKLQWKHDOORWWHGWLPHWKHVHOOLQJHQWLW\PD\VHOO
the Ordinary Shares within three months of the delivery of the notice to
BT at any price. The Orange CP Contract will terminate 12 months from
Completion.
The notice from the selling entity may be issued to BT during a close
SHULRGRUSURKLELWHGSHULRGDVVXFKWHUPVDUHGHQHGLQWKH0RGHO
Code of Chapter 9 of the Listing Rules) of BT. If any such period does not
expire prior to the end of the nine Business Day period within which BT
PD\HOHFWWRPDNHDQRHUWREX\EDFNWKHVKDUHV%7ZLOOQRWEHDEOHWR
H[HUFLVHLWVULJKWRIUVWRHU
:KHQH[HUFLVHGLQFRQMXQFWLRQZLWK%7oVULJKWRIUVWRHULQUHODWLRQWR
Ordinary Shares held by Deutsche Telekom AG and Deutsche Telekom,
the maximum amount of Ordinary Shares BT can acquire by exercise
RILWVULJKWVRIUVWRHULVDSSUR[LPDWHO\% of BTs share capital on
an enlarged basis post-Acquisition. The price at which Ordinary Shares
can be bought back shall be no more than the higher of the closing
SULFHRIWKH2UGLQDU\6KDUHVRQLWKHGDWHRQZKLFK%7PDNHVDQRHU
WREX\EDFNWKH2UGLQDU\6KDUHVDQGLLWKHODVWWUDGLQJGD\EHIRUH
the buy-back takes place. After expiry of the lock-up period described
above, the Orange Group will be free to dispose of its shareholding in BT
without further restriction.
A copy of the Orange CP Contract will be available for inspection at the
&RPSDQ\oVUHJLVWHUHGRFHQRWOHVVWKDQGD\VEHIRUHWKHGDWHRIWKH
General Meeting.
15/05/2015 01:52
222
BT Group plc
Annual Report 2015
3URWHVWLPDWHDQGSURWIRUHFDVWFRQVLGHUHGLQWKH
VKDUHKROGHUFLUFXODU
Introduction
On 1 April 2015 we published a shareholder circular in relation to our

proposed acquisition of EE. In this, we provided information relating
WRRXUSURWHVWLPDWHDQGRXUSURWIRUHFDVW7KLV
LQIRUPDWLRQFRQUPHGRXURXWORRNDVVWDWHGRQ-DQXDU\
when we published our unaudited results for the third quarter and nine
months to 31 December 2014.
In this we included the following statement:
WHH[SHFWDGMXVWHG(%,7'$RI~ELOOLRQs~ELOOLRQLQ
ZLWKIXUWKHUJURZWKLQ
7KHSURWHVWLPDWHDQGWKHSURWIRUHFDVWGRQRW
take into account any impact of the proposed acquisition of EE. We have
reproduced below the basis of preparation of theSURWHVWLPDWHDQG
SURWIRUHFDVWDVit was set out in the shareholder circular.
Basis of preparation
%RWKWKHSURWHVWLPDWHDQGWKHSURWIRUHFDVW
were prepared on a basis consistent with the current accounting
policies of BT which are in accordance with IFRS as adopted by the
European Union and in accordance with IFRS issued by the International
Accounting Standards Board, and are expected to be applicable for the
years to 31 March 2015 and 2016.
7KHGLUHFWRUVSUHSDUHGWKHSURWHVWLPDWHEDVHGXSRQWKH
unaudited published results for the nine months ended 31 December
2014, the unaudited management accounts for the two months
ended 28 February 2015 and a forecast of the results for the month to
31{March 2015.
7KHGLUHFWRUVSUHSDUHGWKHSURWIRUHFDVWEDVHGRQDIRUHFDVW
of the results for the period to 31 March 2016.
Assumptions
7KHSURWIRUHFDVWKDVEHHQSUHSDUHGRQWKHEDVLVRIWKH
following assumptions during the forecast period.
)DFWRUVRXWVLGHWKHLQXHQFHRUFRQWURORIWKHGLUHFWRUV
a) WKHUHZLOOEHQRPDWHULDOFKDQJHLQWKHSROLWLFDODQGRUHFRQRPLF
HQYLURQPHQWWKDWZRXOGPDWHULDOO\DHFWWKHJURXS
b) there will be no material change in market conditions in relation to
customer demand or the competitive environment;
c) there will be no material change in legislation or regulatory
requirements impacting on the groups operations or its accounting
policies;
d) WKHUHZLOOEHQREXVLQHVVGLVUXSWLRQVWKDWPDWHULDOO\DHFWWKH
group, its customers or operations, including natural disasters, acts
of terrorism, cyber DWWDFNDQGRUWHFKQRORJLFDOLVVXHVRUVXSSO\
chain disruptions;
e) foreign exchange rates will be an average US$: Pounds Sterling
exchange rate of US$1.50: 1 and an average Euro: Pounds
Sterling exchange rate of 1.35: 1;
f) there will be no material technological developments in the
telecommunications market that disrupt the groups core services;
g) there will be no industrial action;
h) WKHUHZLOOEHQRPDWHULDOXFWXDWLRQLQWKHOHYHORIWKH,$6
DFFRXQWLQJSHQVLRQGHFLWDQGDVVRFLDWHGLQFRPHVWDWHPHQW
charge; and
i) there will be no material change in the management or control of
the group.
)DFWRUVZLWKLQWKHLQXHQFHRUFRQWURORIWKHGLUHFWRUV
a) there will be no material acquisitions or disposals;
b) there will be no material change in the existing operational strategy
of the Group; and
c) there are no material strategic investments over and above those
currently planned.
2XUDFWXDODGMXVWHG(%,7'$IRUZDV~P
financials.indb 222
)LQDQFLDOHHFWVRIWKHDFTXLVLWLRQFRQVLGHUHGLQWKH
VKDUHKROGHUFircular
Introduction
The Board believes that the proposed acquisition RI((WKHn$FTXLVLWLRQo

ZLOOJHQHUDWHFRQVLGHUDEOHYDOXHIRUVKDUHKROGHUVZLWKVLJQLFDQWFRVW
savings as well as revenue synergies. We have reproduced below the
information relating to cost savings and revenue synergies that was set
out in the shareholder circular.
Adjusting for the net present value of operating cost and capex
synergies, the Acquisition values EE at a multiple of 6.0x 2014 EBITDA
and 9.6x 2014 OpFCF.a The Acquisition is expected to be accretive to
)&)SHU2UGLQDU\6KDUHIURPWKHUVWIXOO\HDUSRVW&RPSOHWLRQb As a
result of EEs high amortisation and depreciation charge, the Acquisition
is expected to be accretive to Adjusted EPS one year later.c
The cash return on investment is expected to comfortably exceed
BTs cost of capital in the third year post-Completion on the basis of
estimated synergies and integration costs.
Cost savings
7KH$FTXLVLWLRQLVH[SHFWHGWRJHQHUDWHVLJQLFDQWRSHUDWLQJFRVW
savings and additional capex savings. Together these are expected
to reach approximately 360 million per annum in the fourth full
year post-Completion. Integration costs to achieve these savings are
expected to be around 600 million. The savings are equivalent to a net
present value of around 3.5 billion before integration costs or around
3.0 billion after integration costs.
Both BT and EE have a proven track record in delivering transformation
ZLWKVWURQJQDQFLDOUHVXOWV%7EULQJVLWVWULHGDQGWHVWHGDSSURDFKWR
cost transformation, which uses forensic analysis to redesign processes
WRUHPRYHLQHFLHQF\UHGXFHWKHFRVWRIIDLOXUHDQGLPSURYHFXVWRPHU
experience. EE has demonstrated its ability to deliver post-transaction
synergies ahead of initial expectations following its creation by the
merger of the Orange Groups UK business and the Deutsche Telekom
*URXSoV8.EXVLQHVV%7LVFRQGHQWLWFDQXVHWKHFRPELQHGH[SHULHQFH
WRXQORFNVLJQLFDQWV\QHUJLHVDFURVVWKH(QODUJHG*URXS
The operating cost and capex savings are expected to be achieved as
follows:
r commercial savings with an annual run-rate of approximately 70
million from consolidating sales and marketing operations, procurement
HFLHQFLHVDQGVLPSOLI\LQJGLJLWDOSODWIRUPVDQGWKHEUDQGSRUWIROLR
r IT savings with an annual run-rate of approximately 90 million
through consolidating IT systems and insourcing activities;
r network savings with an annual run-rate of approximately 80 million
through integrating some network elements and insourcing certain
activities; and
r operational savings with an annual run-rate of approximately 120
PLOOLRQIURPFRQVROLGDWLQJKHDGRFHIXQFWLRQVUDWLRQDOLVLQJ
property and realising scale economies in customer service operations.
Revenue synergies
BT expects to generate revenue synergies by providing a full range of

communications services to the combined customer base. This includes
VHOOLQJ%7oVEURDGEDQG[HGWHOHSKRQ\DQGSD\79VHUYLFHVWRWKRVH((
customers who do not currently take a service from BT. BT also expects
WRDFFHOHUDWHWKHVDOHRIFRQYHUJHG[HGPRELOHVHUYLFHVWRLWVH[LVWLQJ
FRQVXPHUDQGEXVLQHVVFXVWRPHUVDQGRHUQHZVHUYLFHVXVLQJERWK
companies product portfolios, skills and networks. BT expects revenue
synergies, over and above the revenue it had expected to be generated
from its standalone mobile strategy, to have a net present value of
around 1.6 billion. The revenue synergies are expected on a recurring
basis, reaching a run-rate level in the fourth year post-Completion.
a 7KHPXOWLSOHVDUHFDOFXODWHGEDVHGRQDQ$FTXLVLWLRQSULFHRI~ELOOLRQOHVVWKH139RI
WKHRSHUDWLQJFRVWDQGFDSH[V\QHUJLHVDIWHULQWHJUDWLRQFRVWVRIDSSUR[LPDWHO\~ELOOLRQ
DQG(($GMXVWHG(%,7'$IRUWKHWZHOYHPRQWKVWR'HFHPEHURI~PLOOLRQDQG
2S)&)IRUWKHWZHOYHPRQWKVWR'HFHPEHURI~PLOOLRQERWKDGMXVWHGWRUHPRYH
PDQDJHPHQWDQGEUDQGIHHVRI~PLOOLRQUHVWUXFWXULQJFRVWVRI~PLOOLRQDQGH[FHSWLRQDO
H[SHQVHVRI~PLOOLRQDVUHSRUWHGLQ((oVUHVXOWVIRUWKH\HDUHQGHG'HFHPEHU
b $IWHURSHUDWLQJFRVWDQGFDSH[V\QHUJLHVDQGEHIRUHLQWHJUDWLRQFRVWV
c $IWHURSHUDWLQJFRVWDQGFDSH[V\QHUJLHVDQGEHIRUHLQWHJUDWLRQFRVWVDQGH[FOXGLQJSXUFKDVH
DFFRXQWLQJDGMXVWPHQWVUHODWLQJWRWKH$FTXLVLWLRQ7KLVVWDWHPHQWUHJDUGLQJHDUQLQJV
HQKDQFHPHQWLVQRWLQWHQGHGWREHDSURWIRUHFDVWDQGVKRXOGQRWEHLQWHUSUHWHGWRPHDQWKDW
WKHHDUQLQJVSHU2UGLQDU\6KDUHIRUWKHFXUUHQWRUIXWXUHQDQFLDOSHULRGVZLOOQHFHVVDULO\EHJUHDWHU
WKDQWKRVHIRUWKHUHOHYDQWSUHFHGLQJQDQFLDOSHULRG
15/05/2015 01:52
Overview

Group performance
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on the Acquisition and could not be achieved independently.
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This is a summary only of the principal US federal income tax and UK tax
consequences of the ownership and disposition of ordinary shares or
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or ADSs as capital assets. It does not address all aspects of US federal
income taxation and does not address aspects that may be relevant
to persons who are subject to special provisions of US federal income
tax law, including: US expatriates; insurance companies; tax-exempt
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institutions; securities broker-dealers; traders in securities who elect a
mark-to-market method of accounting; persons subject to alternative
minimum tax; investors that directly, indirectly or by attribution own
10% or more of the outstanding share capital or voting power of BT;
persons holding their ordinary shares or ADSs as part of a straddle,
hedging transaction or conversion transaction; persons who acquired
their ordinary shares or ADSs pursuant to the exercise of options or
otherwise as compensation; or persons whose functional currency is
not the US Dollar, amongst others. Those holders may be subject to US
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ordinary shares or ADSs that, for US federal income tax purposes, is:
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other entity taxable as a corporation for US federal income tax purposes)
created or organised in or under the laws of the United States or any
political subdivision thereof; an estate the income of which is subject
to US federal income taxation regardless of its sources, or a trust if
a US court can exercise primary supervision over the administration
of the trust and one or more US persons are authorised to control all
substantial decisions of the trust. If a partnership holds ordinary shares
or ADSs, the US tax treatment of a partner generally will depend upon
the status of the partner and the activities of the partnership. A partner
in a partnership that holds ordinary shares or ADSs is urged to consult its
own tax adviseUUHJDUGLQJWKHVSHFLFWD[FRQVHTXHQFHVRIRZQLQJDQG
disposing of the ordinary shares or ADSs.
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SUDFWLFHRI+HU0DMHVW\oV5HYHQXH &XVWRPV+05&DQG86ODZDQG86
,QWHUQDO5HYHQXH6HUYLFH,56SUDFWLFHLQFOXGLQJWKH,QWHUQDO5HYHQXH
Code of 1986, as amended, existing and proposed Treasury regulations,
rulings, judicial decisions and administrative practice, all as currently in
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UHODWLQJWRHVWDWHDQGJLIWWD[HVDQGLLLWKH8QLWHG.LQJGRP8QLWHG
States Tax Convention that entered into force on 31 March 2003 and
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this Annual Report, all of which are subject to change or changes in
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US Holders should consult their own tax advisers as to the applicability
of the Convention and the consequences under UK, US federal, state
and local, and other laws, of the ownership and disposition of ordinary
shares or ADSs.
Taxation of dividends
Under current UK tax law, BT will not be required to withhold tax at

source from dividend payments it makes. Unless a US Holder of ordinary
shares or ADSs is resident in or ordinarily resident for UK tax purposes
in the UK or unless a US Holder of ordinary shares or ADSs carries on a
trade, profession or vocation in the UK through a branch or agency, or,
in the case of a company, a permanent establishment in the UK, the
holder should not be liable for UK tax on dividends received in respect of
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For US federal income tax purposes, a distribution will be treated as
ordinary dividend income. The amount of the distribution includible
in gross income of a US Holder will be the US Dollar value of the
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the distribution is actually or constructively received by a US Holder of
ordinary shares, or by the Depositary, in the case of ADSs. A US Holder
who converts Sterling into US Dollars on the date of receipt generally
financials.indb 223
Governance
223
should not recognise any exchange gain or loss. A US Holder who does
not convert Sterling into US Dollars on the date of receipt generally will
have a tax basis in Sterling equal to their US Dollar value on such date.
Foreign currency gain or loss, if any, recognised by the US Holder on a
subsequent conversion or other disposition of Sterling generally will be
US source ordinary income or loss. In addition, in a situation where US
KROGHUVUHFHLYHGLVWULEXWLRQVRISUHYLRXVO\WD[HGHDUQLQJVDQGSURWV
foreign currency gain or loss will generally be recognised as the same
source as the associated income included under Subpart F rules for
US federal income tax purposes. Dividends paid by BT to a US Holder
will not be eligible for the US dividends received deduction that may
otherwise be available to corporate shareholders.
For purposes of calculating the foreign tax credit limitation, dividends
paid on the ordinary shares or ADSs will be treated as income from
sources outside the US and generally will constitute passive income.
The rules relating to the determination of the foreign tax credit are very
complex. US Holders who do not elect to claim a credit with respect
to any foreign taxes paid in a given taxable year may instead claim a
deduction for foreign taxes paid. A deduction does not reduce US federal
income tax on a Dollar for Dollar basis like a tax credit. The deduction,
however, is not subject to the limitations applicable to foreign credits.
There will be no right to any UK tax credit or to any payment from HMRC
in respect of any tax credit on dividends paid on ordinary shares or ADSs.
&HUWDLQ86+ROGHUVLQFOXGLQJLQGLYLGXDOVDUHHOLJLEOHIRUUHGXFHGUDWHV
RI86IHGHUDOLQFRPHWD[FXUUHQWO\DWDPD[LPXPRILQUHVSHFWRI
TXDOLHGGLYLGHQGLQFRPHUHFHLYHGLQWD[DEOH\HDUVEHJLQQLQJ-DQXDU\
2013. There could also be a 3.8% net investment income tax on
dividends to individuals with income above a certain amount. This also
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includes dividends paid by a non-US corporation if, among other things,
the US Holders meet certain minimum holding periods and the non-US
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shares or ADSs with respect to which the dividend has been paid are
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WKHQRQ86FRUSRUDWLRQLVHOLJLEOHIRUWKHEHQHWVRIDFRPSUHKHQVLYH
86LQFRPHWD[WUHDW\VXFKDVWKH&RQYHQWLRQZKLFKSURYLGHVIRUWKH
exchange of information. BT currently believes that dividends paid
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dividend income for US federal income tax purposes. Each individual
US Holder of ordinary shares or ADSs is urged to consult his own tax
adviser regarding the availability to him of the reduced dividend tax rate
in light of his own particular situation and regarding the computations
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income paid by BT to him, as applicable.
Taxation of capital gains
Unless a US Holder of ordinary shares or ADSs is resident in or ordinarily

resident for UK tax purposes in the UK or unless a US Holder of ordinary
shares or ADSs carries on a trade, profession, or vocation in the UK
through a branch, agency, or in the case of a company, a permanent
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used, held, or acquired for the purposes of that trade, profession or
vocation, the holder should not be liable for UK tax on capital gains on a
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A US Holder who is an individual and who has ceased to be resident or
ordinarily resident for tax purposes in the UK on or after 17 March 1998
or who falls to be regarded as resident outside the UK for the purposes
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2005 and continues to not be resident or ordinarily resident in the UK
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of assessment and who disposes of his ordinary shares or ADSs during
that period may also be liable on his return to the UK to UK tax on capital
gains, subject to any available exemption or relief, even though he is not
resident or ordinarily resident in the UK or is Treaty non-resident at the
time of disposal.
For US federal income tax purposes, a US Holder generally will recognise
capital gain or loss on the sale, exchange or other disposition of ordinary
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Dollar value of the amount realised on the disposition and the US
15/05/2015 01:52
224
BT Group plc
Annual Report 2015
+ROGHUoVDGMXVWHGWD[EDVLVGHWHUPLQHGLQ86'ROODUVLQWKHRUGLQDU\

shares or ADSs. Such gain or loss generally will be US source gain or loss,
and will be treated as long-term capital gain or loss if the ordinary shares
have been held for more than one year at the time of disposition. Longterm capital gains recognised by an individual US Holder generally are
subject to US federal income tax at preferential rates. The deductibility of
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A US Holders tax basis in an ordinary share will generally be its US Dollar
cost. The US Dollar cost of an ordinary share purchased with foreign
currency will generally be the US Dollar value of the purchase price on
the date of purchase, or the settlement date for the purchase, in the case
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in the applicable Treasury Regulations, that are purchased by a cash basis
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by an accrual basis US Holder must be applied consistently from year to
year and cannot be revoked without the consent of the IRS. The amount
realised on a sale or other disposition of ordinary shares for an amount in
foreign currency will be the US Dollar value of this amount on the date of
sale or disposition. On the settlement date, the US Holder will recognise
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ORVVHTXDOWRWKHGLHUHQFHLIDQ\EHWZHHQWKH86'ROODUYDOXHRIWKH
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sale or other disposition and the settlement date. However, in the case
of ordinary shares traded on an established securities market that are
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HOHFWVWKHDPRXQWUHDOLVHGZLOOEHEDVHGRQWKHH[FKDQJHUDWHLQHHFW
on the settlement date for the sale, and no exchange gain or loss will be
recognised at that time.
Passive foreign investment company status
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FRPSDQ\IRU86IHGHUDOLQFRPHWD[SXUSRVHVD3),&IRUDQ\WD[DEOH\HDU
if at least 75% of its gross income consists of passive income or at least
50% of the average value of its assets consist of assets that produce, or
are held for the production of, passive income. BT currently believes that
it did not qualify as a PFIC for the tax year ended 31 March 2015. If BT
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tax consequences. These consequences may include having gains
realised on the disposition of ordinary shares or ADSs treated as ordinary
income rather than capital gains and being subject to punitive interest
charges on certain dividends and on the proceeds of the sale or other
disposition of the ordinary shares or ADSs. Furthermore, dividends paid
E\%7ZRXOGQRWEHnTXDOLHGGLYLGHQGLQFRPHoZKLFKPD\EHHOLJLEOHIRU
reduced rates of taxation as described above. US Holders should consult
their own tax advisers regarding the potential application of the PFIC
rules to BT.
US information reporting and backup withholding
Dividends paid on and proceeds received from the sale, exchange

or other disposition of ordinary shares or ADSs may be subject to
information reporting to the IRS and backup withholding at a current
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UHFLSLHQWVVXFKDVFRUSRUDWLRQVDUHQRWVXEMHFWWRWKHVHLQIRUPDWLRQ
reporting requirements. Backup withholding will not apply, however, to
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FHUWLFDWHRIIRUHLJQVWDWXVDQGPDNHVDQ\RWKHUUHTXLUHGFHUWLFDWLRQ
or who is otherwise exempt. Persons that are US persons for US federal
income tax purposes who are required to establish their exempt
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,GHQWLFDWLRQ1XPEHUDQG&HUWLFDWLRQ+ROGHUVWKDWDUHQRW86SHUVRQV
for US federal income tax purposes generally will not be subject to US
information reporting or backup withholding. However, such holders
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ZLWKSD\PHQWVUHFHLYHGLQWKH86RUWKURXJKFHUWDLQ86UHODWHGQDQFLDO
intermediaries.
Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against a holders US federal
income tax liability. A holder may obtain a refund of any excess amounts
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appropriate claim for refund with the IRS and furnishing any required
information.
financials.indb 224
UK stamp duty
A transfer of or an agreement to transfer an ordinary share will generally

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0.5% of the amount or value of any consideration provided rounded
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liability of the purchaser. It is customarily also the purchaser who pays
UK stamp duty. A transfer of an ordinary share to, or to a nominee for, a
person whose business is or includes the provision of clearance services
or to, or to a nominee or agent of, a person whose business is or includes
issuing depositary receipts gives rise to a 1.5% charge to stamp duty
or SDRT of either the amount of the consideration provided or the
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nearest 5. No UK stamp duty will be payable on the transfer of an
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documents are executed and always retained outside the UK.
Transfers of ordinary shares into CREST will generally not be subject to
stamp duty or SDRT unless such a transfer is made for a consideration
in money or moneys worth, in which case a liability to SDRT will arise,
usually at the rate of 0.5% of the value of the consideration. Paperless
transfers of ordinary shares within CREST are generally liable to SDRT at
the rate of 0.5% of the value of the consideration. CREST is obliged to
collect SDRT from the purchaser of the shares on relevant transactions
settled within the system.
The above statements are intended as a general guide to the current
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makers, brokers and dealers) may not be liable to stamp duty or SDRT or
may, although not liable for the tax, be required to notify and account
for it under the Stamp Duty Reserve Tax Regulations 1986.
UK inheritance and gift taxes in connection with ordinary

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The rules and scope of domicile are complex and action should not
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OLIHWLPHJLIWRUDWUDQVIHURQGHDWKRIRUGLQDU\VKDUHVDQGRU$'6VE\DQ
LQGLYLGXDOKROGHUZKRLV86GRPLFLOHGIRUWKHSXUSRVHVRIWKH8.86
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in the Convention) will not generally be subject to UK inheritance tax
if the gift is subject to US federal gift or US estate tax unless the tax is
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exclusion, credit or allowance).
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non-US entities conducted limited activities in, or with persons from,
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Sponsors of Terrorism or otherwise subject to US sanctions. These
activities, which generally relate to the provision of communications
services to embassies and diplomatic missions of US-allied governments,
other CPs, news organisations, multinational corporations and other
customers that require global communications connectivity, are
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Under Section 219 of the Iran Threat Reduction and Syria Human Rights
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RIZHDUHUHTXLUHGWRGLVFORVHZKHWKHU%7RUDQ\RILWVDOLDWHV
knowingly engaged in certain activities, transactions or dealings
relating to Iran or certain designated individuals or entities. Disclosure
is required even when the activities were conducted outside the US by
non-US entities and even when they were conducted in compliance with
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BT has a contract in place with Telecommunication Infrastructure
&RPSDQ\7,&WRPDNHDQGUHFHLYHvoice calls from Iran to the UK. These
payments are subject to HM Treasury approval.
BT entered into a Framework Agreement with Rafsanjan Industrial
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provided an initial consultancy engagement under phase 1 of the
agreement. In February 2011, phase 2 was agreed with RIC however BT
stopped work in December 2011 due to the geopolitical situation. RIC
made an advance payment to BT of 384,120 to carry out the phase 2
work. We continue to explore whether the amount can be refunded.
15/05/2015 01:52
Overview

Group performance
Governance
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There are no limitations under UK law restricting the right of nonresidents to hold or to vote shares in the company.
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more information about BT. There are direct links from this page to sites
providing information particularly tailored for shareholders, institutional
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Private shareholders
There are no government laws, decrees, regulations, or other UK

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capital, including the availability of cash and cash equivalents for use by
the company except as otherwise described in 7D[DWLRQ86+ROGHUV.
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reference facilities at Room 1580, 100 F Street NE, Washington, DC
20549, US.
These reports may be accessed via the SECs website at www.sec.gov
Publications
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and social and environmental performance.
Document
Notice of meeting
Annual Report & Form 20-F
Delivering our purpose report
EAB Annual Report
Expected quarterly results releases
Current Cost Financial Statements
The Way We Work, a statement of
business practice
Publication date
May
May
May
May
July, October, January and May
July
For printed copies, when available, contact the Shareholder Helpline on

Freefone 0808 100 4141 or contact our Registrars in the UK, at the
address opposite.
Most of these repRUWVDVZHOODVWKH($%$QQXDO5HSRUWRQ BTs
compliance with the Undertakings) can be accessed online at
ZZZEWFRPDERXWbt. More detailed disclosures on BTs
implementation of social, ethical and environmental policies and
procedures are available online through our inGHSHQGHQWO\YHULHG
sustainability report at www.bt.cRPGHOLYHULQJRXUSXUSRVH
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Shareholders can choose to receive their shareholder documents

electronically rather than by post.
Shareholders may elect to receive documents in this way by going to
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the Shareholder Helpline.
225
BT is committed to communicating openly with each of its stakeholder

audiences in the manner most appropriate to their requirements.
If private shareholders have any enquiries about their shareholding, they

should contact our Registrars, Equiniti, at the address below. Equiniti
maintain BT Groups share register and the separate BT Group EasyShare
register. They also provide a Shareholder Helpline service on Freefone
0808 100 4141.
6KDUHKROGHUHelpline
Tel: Freefone 0808 100 4141
Fax: 01903 833371
Textphone: Freefone 0800 169 6907
From outside the UK:
Tel: +44 121 415 7178
Fax: +44 1903 833371
Textphone: +44 121 415 7028
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7KH5HJLVWUDU
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.equiniti.com
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JPMorgan Chase & Co
PO Box 64504
St Paul, MN 55164-0854, US
Tel: +1 800 990 1135*HQHUDO
or +1 651 453 2128
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or +1 800 428 4237
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email:
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BT Group plc
BT Centre
81 Newgate Street
London EC1A 7AJ
United Kingdom
Tel: 020 7356 5000
From outside the UK:
Tel: +44 1793 596 931
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Relations on:
Tel: 020 7356 4909
email: ir#EWFRP
Industry analysts and consultants may contact BT Analyst Relations on:
Tel: 020 7356 4909
email: LQGXVWU\HQTXLU\#EWFRP
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15/05/2015 01:52
226
BT Group plc
Annual Report 2015
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for all purposes. None of the websites referred to in this Annual Report 2015, including where a link is provided, nor any of the information contained
on such websites is incorporated by reference in the Form 20-F.
Required Item in Form 20-F
Item
Where information can be found in this Annual Report

Section
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3B
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Capitalisation and indebtedness

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4A
History and development of the company
4B

Business overview

4C
Organisational structure
4D
Property, plants and equipment

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5A
Operating results
financials.indb 226
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Group performance
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Information for shareholders
Exchange rates
Not applicable
1RWDSSOLFDEOH
How our lines of business performeda

Background
Group performance
Capital expenditure
General information
Capital management and funding policy
Key performance indicators
Our purpose
Our goal
Our strategy
FinaQFLDOHHFWVRIWKH acquisition considered in the
shareholdHU{FLUFXODU
Brand and reputation
Our suppliers
Human Rights
Our relationship with HM Government
Regulation
Segment information
Operational statistics
Cautionary statement regarding forward-looking statements
Further note on certain activities
Operating Committee
Our business model
Subsidiary undertakings
Properties

Group performanceb
Page
7
79
205
214
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15/05/2015 01:52

Overview

Item
financials.indb 227
5B
Liquidity and capital resources

5C
Research and development, patents and licences
5D
Trend information
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5F

Tabular disclosure of contractual obligations
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6A
Directors and senior management
6B
Compensation

6C
Board practices
6D
Employees

6E
Share ownership

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7A
Major shareholders
7B
Related party transactions

7C
Interests of experts and counsel
Group performance
Governance

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Employees
Shareholders and Annual General Meeting

Relations with shareholders
Substantial shareholdings
Analysis of shareholdings at 31 March 2015
Directors information
Interest of management in certain transactions
Related party transactions
Not applicable
227
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Memorandum and articles of association

Material contracts
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Overview

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Controls and procedures

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financials.indb 230
15/05/2015 01:52
Overview

Group performance
Governance
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5)7 Right First Time the internal measure of whether we are
keeping our promises to our customers and meeting or exceeding their
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and terminating sessions with one or more participants. These include
internet telephone calls, multimedia distribution and multimedia
conferences.
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financials.indb 231
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Investing For The Future Building On A History Of: Annual Report & Form 20-F 2015

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Investing For The Future Building On A History Of: Annual Report & Form 20-F 2015

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BT Group plc

Annual Report & Form 20-F 2015

Investing for the future

Our current innovations

30 years since privatisation

Inventing a smarter future

Read more on page 12

Our history of innovation

Welcome to BT Group plcs

The Strategic Report

Delivering our strategy

Online Annual Report

Purpose and strategy

Our lines of business

Please see the cautionary statement regarding forward-looking statements

Reference to other pages

Our business model

Building our global presence

Investing for growth

Rewarding our people

Strengthening the Board

Generating value for shareholders

Sir Michael Rake

The Strategic Report

Delivering our strategy

0ur lines of business

Our business model

Our lines of business

We use the power of

We make a major contribution

Who we are and what we do

We are one of the worlds

In the UK we are delivering one

We provide managed networked

We are the leading provider of

Every day we touch the lives of millions

We are Europes largest

The Strategic Report

Delivering our strategy

0ur lines of business

Our goal and strategy

Our business model

To use the power of communications to make a better world

Broaden and deepen our customer relationships

Find out more

Our business model outputs

Key performance indicators

a Financial outlook which was

given at the start of the year.

Customer service improvement

a Financial outlook which was

given at the start of the year.

Adjusted earnings per share

Our performance for the year

RFT from 1 April 2009.

Find out more

The Strategic Report

Delivering our strategy

0ur lines of business

Proposed full year dividend

Adjusted revenue by line of business

Adjusted EBITDA by line of business

See page 54 for commentary on relative