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2015

BT Group plc Annual Report & Form 20-F 2015

Investing for the future building on a history of

1961 198419381915189218691846

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Our history of innovation

1984>2013 2014>15 2015>

Our current innovations

Inventing a smarter future

30 years since privatisation

Read more on page 105

Committee for Sustainable and Responsible Business Read more on page 110

BT Pensions Committee Read more on page 109

Equality of Access Board Find out more at www.bt.com/eab

Operating Committee Read more on page

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96 BT Group plc Annual Report 2015

Board of Directors

Sir Michael Rake Chairman

Skills and experience

Other appointments include

Gavin Patterson h Chief Executive

Skills and experience

Other appointments include

Tony Chanmugam Group Finance Director

Skills and experience

Other appointments

Tony Ball h

Skills and experience

Other appointments include

Iain Conn

Skills and experience

Other appointments include

Dan Fitz Company Secretary

Key to membership of Board committees Operating

Remuneration

BT Pensions

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97 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Warren East h

Skills and experience

Other appointments include

Phil Hodkinson

Skills and experience

Other appointments include

Isabel Hudson

Skills and experience

Other appointments include

Karen Richardson h

Skills and experience

Other appointments include

Skills and experience

Other appointments include

Jasmine Whitbread

Skills and experience

Other appointments include

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98 BT Group plc Annual Report 2015

The Board Who we are

and

What we have done

Allocation of time

34% Strategy

20% Finance & investor relations

26%

3% People, health & safety

14% Governance, risk & audit

3% Other Business &

CEO updates

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99 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Financial reports

Annual Report & Form 20-F

Mobility Strategy

Technology Committee

Director election and re-election inted Isabel

Length of appointment of Chairman and non-executive directors

Phil Hodkinson

Sir Michael Rake

Tony Ball

Jasmine Whitbread

Nick Rose

Karen Richardson

Warren East

lain Conn

Isabel Hudson

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Calendar year

Feb 2006

Sep 2007

Jul 2009

Jan 2011

Nov 2011

Feb 2014

June 2014

Nov 2014

Report on Directors’ Remuneration

Attendance at Board meetings

Board members

Attended

10 10

Tony Ball 10 10

10 10

10 10 a b

Find out more

You can see our Board members on page

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100 BT Group plc Annual Report 2015

Areas of focus Actions

Competitor awareness

Succession planning and exposure to management – priorities to include:

Group Finance Director and

directors

Customer service

Site visits

Improving strategic planning and challenge

Board induction

Induction for Isabel Hudson

Training and information

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101 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Committee members

a Attended

a Includes a joint meeting with the Nominating & Governance Committee b c

What we have done

Committee Chairman’s report

Allocation of time

29% Financial matters

26% Risk management &

internal controls

22% Governance

13% External audit matters

10% Internal audit matters

Who we are

“ This year the committee has paid particular attention to two aspects of our IT environment, namely data security and cyber security. We reviewed in considerable depth the actions being taken to protect our data and our customers’ data. We have also discussed in detail the resources and capabilities that we are applying to protect our infrastructure from outside threats. Many of

to help them protect their networks and infrastructure. This will be an area of continuing focus.”

Reports of the Board committees Audit & Risk Committee Chairman’s report

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102 BT Group plc Annual Report 2015

Financial reporting

Independent auditors’ report

Group accounting policies, critical accounting estimates and key judgements

Going concern

Goodwill impairment

BT Pension Scheme (BTPS)

Revenue, including major contracts

Other matters

Regulatory reporting

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103 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Audit tender

Independence and objectivity

Internal audit

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104 BT Group plc Annual Report 2015

Enterprise risk management

and

Chairman of the Audit & Risk Committee

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105 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Operating

2015

Chairman’s report

Who we are

Committee members

a Attended

Tony Ball b

a Includes a joint meeting with the Audit & Risk Committee b

What we have done

Allocation of time 42%

Governance & compliance programmes

16% Regional Governance Committees

13% Governance structure

4% Other

25% Board membership & succession

“ This year we continued our focus on succession planning, reviewed aspects of our governance framework and

compliance programmes.”

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106 BT Group plc Annual Report 2015

and its

Key areas Actions

Succession planning for the Board and senior management

appointments and senior management positions

management appointments at a

international

of major contracts

BT and

Audit & and

Anti-Corruption and Bribery (ACB)

compliant culture across BT

Data governance and security

of our compliance programmes

and security

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107 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Governance and compliance

our international telecommunications regulation and compliance

Joint meeting with the Audit & Risk Committee

Key areas Actions

Other Priorities

Design and implement a robust and integrated non-

compliance control

to country managers for a set

completion on time of statutory

descriptions for country managers and

Board committees

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108 BT Group plc Annual Report 2015

Sir Michael Rake

Our Regional Governance Committee (RGC) structure from 1 April 2015

Audit & Risk Committee

Europe RGCUK & Republic Asia & Middle East a

South East Asia Sub-Committee

India RGC US & Canada RGC Latin America RGC

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109 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Who we are

Committee members

Attended

5 c

a b c Group People Director.

Further information

What we have done

BT Pensions Committee Chairman’s report Allocation of time

24% 2014 Triennial funding valuation

20% Pensions legislation changes

3.5% BTPS administration

17% BTPS strategy and performance

22.5% Governance, legal

and regulatory

Other 7% Risk management

Phil Hodkinson Chairman of the BT Pensions Committee

“ The committee’s work this year highlighted our primary role in overseeing the company’s relationship with the BT Pension Scheme in the interests of scheme members, shareholders and other stakeholders.”

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110 BT Group plc Annual Report 2015

Who we are

Committee members

Attended

2 1

2 2 a 2 2

d 2 1 c 2 2

2 2 c 2 2

2 2

2 2 a BT employee. b c Independent member. d

What we have done

In addition

Committee for Sustainable and Responsible Business Chairman’s report

Allocation of time 37.5%

Strategy & Governance

16% Supporting charities and communities

12.5% Volunteering

9% Engagement

12.5%

12.5% Creating a connected society

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

“BT’s purpose is to use the power of communications to make a better world. The committee’s role focuses on BT’s sustainable and responsible business programmes

Find out more

Our societal and environmental initiatives at www.bt.com/ deliveringourpurpose

The ‘Making Waves’ report at www.betterfutureforum.bt.com/

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111 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

plan

Looking ahead

Tony Ball Chairman of the Remuneration Committee

Report on Directors’ Remuneration

Review of the year

Outcomes for the year

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112 BT Group plc Annual Report 2015

Annual bonus

Basic salary and fees

Basic salary and fees pension pension

Annual Bonusa

Annual Bonusa b c

Pension

of pension contributionsd

Pension

of pension contributionsd Total Total

G Patterson

T Ball e

g 100 112 112

11 11

Total

Annual Remuneration Report

Directors’ emoluments (audited)

a Annual bonus shown includes both the cash and deferred share element. The deferred element of

deferred element are set out below. b

e f g Includes a fee for regular travel to Board and Board Committee meetings.

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113 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Bonus award and proportion of value

Patterson Tony

Purposeful company

Personal contribution

Chief Executive and Group Finance Director % Weighting

25% Customer service

20% Adjusted earnings

per share

20% Normalised free

10% Purposeful company

15% Personal contribution

10%

Target Outcome

a b

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114 BT Group plc Annual Report 2015

TSR

Accenture AT & T Belgacom

BT Group

France Telecom

Portugal Telecom

Telecom Italia

Telenor

TSR vesting schedule 2012 Awards

TSR ranking position

% o

f s ha

re a

w ar

d ve

st in

25%

50%

302520151050

Revenue growth

Overall vesting of 2012 ISP

Director element

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115 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Accrued Pension

Additional

accrued across two BT pension schemes. Tony is beyond the pension plans’ normal retirement age and is not drawing a pension.

Awards granted during the year (audited)

Director a

TSR vesting schedule 2014 Awards

TSR ranking position

% o

f s ha

re a

w ar

d ve

st in

25%

50%

2520151050

a b

Director a

Responsible Business

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116 BT Group plc Annual Report 2015

Directors’ share ownership

a percentage of salary

1 April during year

during year

date of 2015

501 501

2015

G Pattersona

T Ball b

Total

a Includes shares purchased under directshare and free shares awarded under UK allshare. Directshare

b c d

ordinary shares.

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117 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Deferred Bonus Plan awards at 31 March 2015 (audited)

Total number of

date

Price at grant

price at

DBP 2011

DBP 2012

DBP 2011

DBP 2012

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.

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118 BT Group plc Annual Report 2015

Share awards under long-term incentive schemes held at 31 March 2015 (audited)

Total number of

2015 Performance

period end Price

on grant price at

over three years. d

of shares subject to award was calculated using the average middle market price of a BT share

over three years.

Share options held at 31 March 2015 (audited)

Granted Option price

at date of

date a

501c 501 5

All of the above options were granted for nil consideration. a

the company are entitled to participate. b

the company are entitled to participate.

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119 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Comparison of Chief Executive remuneration to Total Shareholder Return

BT FTSE100

BT’s TSR performance vs the FTSE100

Source: Datastream The graph shows the relative TSR performance of BT and the FTSE100 over the past six years.

150

250

350

450

550

650

750

Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15

Total Rem Annual bonus

2015

2012

2011

2010 a

Percentage change in Chief Executive remuneration (comparing 2013/14 to 2014/15)

also participate in performance related pay arrangements on a similar

b Bonusc

a b 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

21,000 individuals.

Relative importance of spend on pay

Area

Remuneration paid to all employees

Implementation of Remuneration Policy in 2015/16 Base salary

Pension

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120 BT Group plc Annual Report 2015

Annual bonus

Group Finance Director

Total bonus

Chief Executive and Group Finance Director % Weighting

20% Adjusted earnings per share

20%

25% Customer service

15%

20% Personal contribution

Accenture AT & T Belgacom BT Group

Orange Portugal Telecom

Telecom Italia

Telenor

TSR Vesting schedule

TSR vesting schedule 2015 Awards

TSR ranking position

% o

f s ha

re a

w ar

d ve

st in

25%

50%

2520151050

a b c

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121 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Chairman and non-executive director remuneration

Remuneration a

BT Pensions b a

- a Where the Chairman acts as Chair of a Board committee, no additional committee chair fee is

payable. b

The Remuneration Committee

Attended

Other Remuneration Matters

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122 BT Group plc Annual Report 2015

Dilution

Outside appointments

against

Remuneration Report

Remuneration policy

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123 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Directors’ service agreements and letters of appointment

Tony Ball

Tony Ball Chairman of the Remuneration Committee

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124 BT Group plc Annual Report 2015

Remuneration Principles

is a member and

Remuneration policy

Legacy matters

Minor amendments

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Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

125

Executive Directors and Chairman

Policy Element Operation and Opportunity Performance measures or basis of payment

Base salary

to attract and retain

Annual bonus

our business plan

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126 BT Group plc Annual Report 2015

Incentive Share Plan (ISP)

strategy and long-

page 101

of our business and a direct and focused measure of

Pension

post-retirement

Scheme (saveshare)

encourage employee

ESIP (directshare)

encourage employee

Notes to the policy table 1. For further information on the performance measures applicable to the annual bonus and ISP see

page 101. directshare in line with market practice.

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Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

127

Remuneration arrangements throughout the company

Recruitment

All-employee plans – leavers

ISP/DBP – change of control

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128 BT Group plc Annual Report 2015

Employment conditions elsewhere in the group

Executive director and Chairman service contracts

Illustration of executive director pay scenarios

Performance Assumptions

Fixed pay All scenarios

Variable pay

On-target

remuneration policy is 500% of base salary. .

Provision Policy

Termination payment

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Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

129

8 7 5 26 34 1 0 £m

Chief Executive – performance scenario chart

Minimum

On-target

Maximum

Fixed remuneration

100%

38%34%28%

17%31%52%

Variable remuneration Long-term incentives

£3.4m £7.4m

£1.3m

4 3.5 2.5 13 1.52 0.5 0 £m

Group Finance Director – performance scenario chart

Minimum

On-target

Maximum

Fixed remuneration

100%

43%34%23%

21%34%45%

Variable remuneration Long-term incentives

£3.9m £2.0m

£0.85m

Pension Total

Group Finance Director

Other Remuneration Policies

Element/purpose and link to strategy Operation Opportunity

Report on Remuneration on page

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130 BT Group plc Annual Report 2015

Directors’ information Statement of directors’ responsibilities

Annual Report Report on Directors’ Remuneration Financial statements in

Report on Directors’ Remuneration

Strategic Report

Fair, balanced and understandable

Critical accounting estimates and key judgements,

Disclosure of information to auditors

Going concern Strategic Report

Group Performance

Independent advice

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131 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Our directors’ names and functions on page

The Strategic Report from page

The code of ethics adopted for the purposes of the

www.bt.com/ethics

Find out more

Interest of management in certain transactions

and none is materially interested in any presently proposed material

General information US Regulation

terms of

are made up

Disclosure controls and procedures

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132 BT Group plc Annual Report 2015

Internal control and risk management

Delivering our strategy

Operating

Capital management and funding policy

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133 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Financial instruments

Credit risk management policy

Legal proceedings

Other Information – Listing Rules

Section Information Page

Interest capitalised group

information 2 and 22

director

Parent participation in a placing by a listed subsidiary

Our risks from page

Audit & Risk Committee’s activities on page

101

The independent auditors’ report on page

138

The United States opinion on page

143

Find out more

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134 BT Group plc Annual Report 2015

Other statutory information – Companies Act 2006

Information Page

Appointment and replacement of directors

Political donations

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135 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

0ur lines of business

Group performance

Governance

Financial statements

Additional information

Date

Annual General Meeting Resolutions

Report on Directors’ Remuneration

Shareholders and Annual General Meeting Relations with shareholders

Remuneration

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136 BT Group plc Annual Report 2015

of meeting 2015

Strategic Report Report of the Directors

Strategic Report

Dan Fitz Group General Counsel & Company Secretary

Contact information for shareholders, institutional investors and industry analysts is on page

225

Find out more

PC_FRONT.indb 136 5/15/2015 1:48:39 AM

137

Financial statements 138 Auditors’ reports – consolidated

138 United Kingdom opinion 143 United States opinion

144

145

146

147

148

149

149 Basis of preparation 149 Critical accounting estimates

and key judgements 150 155 Segment information 159 Operating costs 160 Employees 160 Audit, audit related and other

non-audit services 161 162 Taxation 165 Earnings per share 165 Dividends 166 Intangible assets 168 Property, plant and equipment 169 Business combinations 169 Programme rights 169 Trade and other receivables 170 Trade and other payables 171 Provisions 172 179 Own shares 180 Share-based payments 182 Investments 183 Cash and cash equivalents 183 Loans and other borrowings 186 Finance expense 187 Financial instruments and

risk management 193 Other reserves 193 Related party transactions 194 Financial commitments and

contingent liabilities 194 Subsequent events

195

196

199

137

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138 BT Group plc Annual Report 2015

Independent auditors’ report to the members of BT Group plc

Our opinion ‘

statements’):

at 31 then ended; have been properly prepared in accordance with International

‘IFRS’) as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

to applying IFRS as adopted by the European Union, has also applied ‘IASB’).

issued by the IASB.

the group balance sheet as at 31 March 2015; the group income statement and group statement of comprehensive income for the year then ended;

the group statement of changes in equity for the year then ended; and

Certain required disclosures have been presented elsewhere in the ‘Annual Report’), rather than in

as adopted by the European Union.

Overview Overall group materiality: £120m, which represents 5% of the

three years. We conducted full scope audit work at three reporting units – the UK, Italy and Germany.

based on our risk assessment in France, Ireland, the Netherlands and Spain. The reporting units within our audit scope accounted for over 80%

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:

Major contracts in BT Global Services and BT Wholesale Accuracy of revenue due to complex billing systems Pension scheme obligations and unquoted investments in the BT Pension Scheme Regulatory and other provisions Capitalisation practices and asset lives for property, plant and equipment and software intangible assets Recognition and measurement of potential tax exposures and tax assets 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

‘ ’).

We designed our audit by determining materiality and assessing the

we looked at where the directors made subjective judgements, for

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.

as ‘areas of focus’ in the table below. We have also set out how we

make on the results of our procedures should be read in this context.

financials.indb 138 15/05/2015 01:51

139 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

Refer to page 102 149 2 – Critical accounting estimates and key judgements) and page 151

of:

the contracts; completeness and adequacy of provisions against contracts projected to be loss making; and

costs and property, plant and equipment.

Our work focused on the contracts in BT Global Services and BT Wholesale.

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:

controls in respect of the accounting for major contracts. 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. 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.

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.

to the sampled contracts by examining contractual cover or assessing

We considered the accounting adopted to be in line with the group’s accounting policies.

Refer to page 150 3 – and page 155

The accuracy of revenue amounts recorded is an inherent industry risk. This is because telecoms billing systems are complex and process large

We evaluated the relevant IT systems and the design of controls, and

capture and recording of revenue transactions; authorisation of rate changes and the input of this information to the billing systems; and 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.

material misstatements in our substantive testing.

Refer to page 102 150 2 – Critical accounting estimates and key judgements) and page 172

We focused on this area because the valuation of the BT Pension 6bn)

statements.

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.

our internally developed benchmarks. We tested underlying inputs used in determining the obligations.

investments. We tested the existence of the unquoted investments and we tested the valuation of these investments on a sample basis.

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. For direct investments, the valuations of the investments are derived

used in the valuations by checking that the assumptions used were consistent with our internally developed range of discount rates, by

ical 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

the investment shareholding.

the custodians and the investment managers.

financials.indb 139 15/05/2015 01:51

140 BT Group plc Annual Report 2015

Refer to page 102 150 2 – Critical accounting estimates and key judgements) and page 171

The group has provisions of £564m relating to restructuring, property

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.

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.

For legal provisions, we held discussions with the group’s 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 group’s 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.

Refer to page 102 150 2 – Critical accounting estimates and key judgements) and page 168

plant and equipment)

Capitalisation of costs and the useful lives assigned to assets are areas

There are two main risks that we addressed in our audit:

the risk that amounts being capitalised do not meet capitalisation criteria; and 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.

of controls around the property, plant and equipment cycle and software intangible assets cycle, including the controls over whether

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

consistent with those commonly used in the industry and appropriately

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.

assets Refer to page 102 150 2 – Critical accounting estimates and key judgements) and page 162

We focused on this area due to the judgements required in determining the g of tax exposures and potential deferred tax assets.

We assessed and evaluated management’s 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 management’s judgements.

In the calculation of deferred tax assets, we evaluated the amount of

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.

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Additional information

Refer to page 102 150 2 – Critical accounting estimates and key judgements) and page 166

As at 31 March 2015, goodwill relating to the BT Global Services cash

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

the long term growth rate, the discount rate and the assumptions

Board approved forecasts. We considered the directors’ expectations

contract renewals) and planned operational improvements and

Services CGU with previous forecasts and determined whether any

We independently calculated a weighted average cost of capital by

rate to market data.

the directors and performed further sensitivity analyses, primarily

and assessed them as appropriate.

How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough

whole, taking into account the geographical structure of the group, the accounting processes and controls, and the industry in which the group operates.

in each of the reporting units. These are responsible for their own

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

was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting

evidence had been obtained as a basis for our opinion on the group

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

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

of visits and conference calls.

The reporting units within the scope of our group audit procedures

Materiality

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

Based on our professional judgement, we determined materiality for the

Overall group materiality

How we determined it the current year and the previous three years.

Rationale for benchmark applied 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

£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

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

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 group’s ability to continue as a going concern.

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142 BT Group plc Annual Report 2015

Other required reporting

Companies Act 2006 opinion In our opinion, the information given in the and the

information in the Annual Report is: – – 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.

the statement given by the directors on page 130, in accordance with provision C.1.1 of the UK ‘the 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 group’s performance, business model and strategy is materially inconsistent with our knowledge of the group acquired in the course of performing our audit.

We have no exceptions to report arising from this responsibility.

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.

We have no exceptions to report arising from this responsibility.

An audit involves obtaining evidence about the amounts and disclosures

caused by fraud or error. This includes an assessment of:

whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;

directors; and

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements,

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

combination of both.

in the Annual Report to identify material inconsistencies with the

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

BT Group plc for the year ended 31 March 2015 and on the information in the that is described as having been audited.

Chartered Accountants and Statutory Auditors London 6 May 2015

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.

Under the Companies Act 2006 we are required to report to you if, in

by law are not made. We have no exceptions to report arising from this responsibility.

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the company’s compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.

As explained more fully in the Statement of directors’ responsibilities set out on page 130, the directors are responsible for the preparation of the fair view.

Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company’s 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.

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143 Overview

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Financial statements

Additional information

United States opinion

to the Board of directors and shareholders of BT Group plc

In our opinion, the accompanying group balance sheets and the related group income statements, group statements of comprehensive

of BT Group plc and its subsidiaries at 31 March 2015 and 31 March

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

established in the Turnbull Guidance.

the Directors, , of the BT Group plc Annual Report & Form 20-F 2015.

and on the c our integrated audits. We conducted our audits in accordance with the

States). Those standards require that we plan and perform the audits

reporting included obtaining an understanding of internal control over

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.

designed to provide reasonable assurance regarding the reliability of

external purposes in accordance with generally accepted accounting

reasonable assurance that transactions are recorded as necessary to

accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of

assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a

reporting may not prevent or detect misstatements. Also, projections of

that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

London, United Kingdom 6 May 2015

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144 BT Group plc Annual Report 2015

Year ended 31 March 2015 Notes

Before

£m items

£m a Total

£m

4 128 Operating costs 5

Finance expense 25 Finance income 17 – 17

Share of post tax loss of associates and joint ventures –

8 – 25 25

Taxation 9 121

10 Basic 26.5p Diluted 26.1p

Year ended 31 March 2014 Notes

Before

£m items

£m a Total

£m

4 – Operating costs 5

Finance expense 25 Finance income 12 – 12

Share of post tax loss of associates and joint ventures – Loss on disposal of interest in associates and joint ventures 8 –

Taxation 9 319

10 Basic 25.7p Diluted 24.5p

a 202

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Year ended 31 March 2013 Notes

Before

£m items

£m a Total

£m

4 Operating costs 5

Finance expense 25 Finance income 13 – 13

9 – 9

s and joint ventures 8 – 130 130

Taxation 9 230

10 Basic 24.8p Diluted 23.7p

a 202

Year ended 31 March Notes 2015

£m 2014

£m 2013

£m

19 Tax on actuarial losses 9 208 16 762

27 5 59 Fair value movements on available-for-sale assets 27 7 14

27 207 105 – recognised in income and expense 27 384

9, 27 37 4 24

512

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146 BT Group plc Annual Report 2015

At 31 March Notes 2015

£m 2014

£m

Non-current assets Intangible assets 12 3,170 3,087 Property, plant and equipment 13 13,505 13,840

26 1,232 539 Investments 22 44 34 Associates and joint ventures 26 18 Trade and other receivables 16 184 214 Deferred tax assets 9 1,559 1,460

Current assets Programme rights 15 118 108 Inventories 94 82 Trade and other receivables 16 3,140 2,907 Current tax receivable 65 26

26 97 114 Investments 22 3,523 1,774 Cash and cash equivalents 23 434 695

Current liabilities Loans and other borrowings 24 1,900 1,873

26 168 139 Trade and other payables 17 5,276 5,261 Current tax liabilities 222 315 Provisions 18 142 99

Non-current liabilities Loans and other borrowings 24 7,868 7,941

26 927 679 19 7,583 7,022

Other payables 17 927 898 Deferred tax liabilities 9 948 829 Provisions 18 422 434

Ordinary shares 419 408 Share premium 1,051 62 Own shares 20 Other reserves 27 1,485 1,447 Retained loss

808

144 to 194 and 199 were approved by the Board of Directors on 6 May 2015 and were signed on its behalf by:

Chairman

Chief Executive

Group Finance Director

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147 Overview

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Additional information

Notes

Share capital

£m

Share a premium

£m

Own b shares

£m

Other c reserves

£m

Retained

d earnings £m

Total equity

£m

At 1 April 2012 408 62 100

– – – – 1,948 1,948 – – – 178

9 – – – 24 762 786 Transferred to the income statement – – – –

– – – 34 Dividends to shareholders 11 – – – – Share-based payments 21 – – – – 64 64 Tax on share-based payments 9 – – – – 68 68 Net buyback of own shares 20 – – 186 –

At 1 April 2013 408 62

– – – – 2,018 2,018 Other comprehensive loss – before tax – – – Tax on other comprehensive loss 9 – – – 4 16 20 Transferred to the income statement – – – 384 – 384

– – – 855 512 Dividends to shareholders 11 – – – – Share-based payments 21 – – – – 60 60 Tax on share-based payments 9 – – – – 106 106 Net buyback of own shares 20 – – 3 –

At 1 April 2014 408 62

– – – – 2,135 2,135 – – – 219

9 – – – 37 208 245 Transferred to the income statement – – – –

Total comprehensive income for the year – – – 38 1,292 1,330 Issue of new sharese 11 989 – – – 1,000 Dividends to shareholders 11 – – – – Share-based payments 21 – – – – 70 70 Tax on share-based payments 9 – – – – 54 54 Net buyback of own shares 20 – – 664 – Other movements – – – –

419 808

b c d e

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148 BT Group plc Annual Report 2015

Year ended 31 March Note 2015

£m 2014

£m 2013

£m

2,645 2,312 2,315 4

1 3 859 826 772

3,480 3,145 2,948 Other non-cash charges 39 56

1 – Depreciation and amortisation 2,538 2,695 2,843

16 3 454

Decrease in trade and other payables Decrease in other liabilitiesa

19 b

Income taxes paid

Interest received 10 6 9 Proceeds on disposal of subsidiariesc, associates and joint ventures 26 2 287 Acquisition of subsidiariesc and joint ventures

d 8,124 7,531 8,856 d

Proceeds on disposal of non-current asset investments 8 4 4 Proceeds on disposal of property, plant and equipment 100 10 43 Purchases of property, plant and equipment and software Purchases of telecommunications licences – –

Equity dividends paid Interest paid Repayment of borrowingse 6)

153 Proceeds from bank loans and bonds 812 1,195 798

297 33 Proceeds from issue of own shares 1,201 75 109 Repurchase of ordinary share capital

600

Opening cash and cash equivalents 684 919 323 600

23 407 684 919

a b c d e

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Additional information

accordance with the Companies Act 2006, Article 4 of the IAS

interpretations, as adopted by the European Union. The consolidated

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 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

is disclosed in note 4.

New and amended accounting standards adopted with no

The following new and amended accounting standards adopted during

– Assets and Financial Liabilities – Amendments to IAS 32’

– IAS 39 ‘Novation of Derivatives and Continuation of Hedge Accounting’

– Amendments to IAS 36’.

New and amended accounting standards that have been

accounting periods ending on or after 1 January 2015 and are expected

In May 2014, IFRS 15 ‘Revenue from Contracts with Customers’ was

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,

The group is in the process of quantifying the impact of this standard.

beginning on or after 1 January 2018 subject to endorsement by the

accounting model.

The group is in the process of quantifying the impact of the new standard.

There are no other standards or interpretations issued but not yet

The group’s income statement and segmental analysis separately

that presentation of the group’s results in this way is relevant to an

management and reported to the Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of

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

management and reported to the Board and the Operating Committee.

by other companies. Examples of charges or credits meeting the above

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

the use of accounting estimates and assumptions. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. We continually evaluate our estimates, assumptions and judgements based on available information and

discussed its critical accounting estimates and associated disclosures with the Audit & Risk Committee. The areas involving a higher degree

Long-term customer contracts

contract. If, at any time, these estimates indicate that any contract will

immediately. If these estimates indicate that any contract will be less

written down to the extent they are no longer considered to be fully

contracts in order to determine whether the latest estimates are appropriate.

Key factors reviewed include:

– 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.

–

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.

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150 BT Group plc Annual Report 2015

Pension obligations BT has a commitment, mainly through the BTPS, to pay pension

of our pension liabilities depend on such factors as the life expectancy of the members, the salary progression of our current employees, price

the future pension payments. We use estimates for all of these factors in

judgement regarding future expectations.

The value of the net pension obligation at 31 March 2015, the key

of the IAS 19 pension liability at 31 March 2015, and of the income

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

thinking on the remaining lives in light of technological change, network

prospective economic utilisation and physical condition of the assets concerned. Changes to the service lives of assets implemented from

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 group’s provisions principally relate to obligations arising from property rationalisation programmes, restructuring programmes, claims, litigation and regulatory risks.

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

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

that a potential claim or liability will arise and in quantifying the

Current and deferred income tax

is unclear, we use estimates in determining the liability for the tax to be

We believe the estimates, assumptions and judgements are reasonable but this can involve complex issues which may take a number of years

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 management’s expectations of future revenue growth, operating costs,

assets.

The value of the group’s income tax assets and liabilities is disclosed on the balance sheet on page 146. The carrying value of the group’s deferred tax assets and liabilities is disclosed in note 9.

Goodwill

determined based on value-in-use calculations. These calculations require the use of estimates, including management’s expectations of

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.

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

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.

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 group’s 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

recognised at the time of transit across the group’s network.

Revenue from the sale of equipment is recognised when all the

customer, which is normally the date the equipment is delivered and accepted by the customer.

continued

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Additional information

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

on a regular basis.

The percentage of completion method relies on estimates of total expected contract revenues and costs, as well as reliable measurement

of a contract can be estimated with reasonable certainty, no attributable

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

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.

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

information provided to the Operating Committee, as detailed on 26, which is the key management committee and represents

the ‘chief operating decision maker’.

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,

The customer-facing lines of business are the group’s reportable segments and generate substantially all the group’s 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 group’s centralised functions including procurement, supply chain and property management.

regulatory disputes, which are negotiated at a group level, are initially recorded in the ‘Other’ segment. On resolution of the dispute, the full

in the group results through the utilisation of the provision previously charged to the ‘Other’ segment. Settlements which are particularly

149.

The costs incurred by BT TSO are recharged to the customer-facing

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

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

and the group’s centralised functions are not reportable segments as

‘Operating Segments’ for any of the years presented.

Performance of each reportable segment is measured based on

Operating Committee.

considered to be a useful measure of the operating performance of the lines of business because it approximates to the underlying operating

items, which are disclosed separately by virtue of their size, nature or

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.

of the plan assets.

using the projected unit credit method and key actuarial assumptions at the balance sheet date.

The income statement expense is allocated between an operating

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.

income statement expense represents the contributions payable for

Property, plant and equipment 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

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

asset’s cost over the estimated useful life taking into account any expected residual value. Freehold land is not depreciated.

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152 BT Group plc Annual Report 2015

The lives assigned to principal categories of assets are as follows:

Land and buildings – Freehold buildings 40 years – Leasehold land and buildings Unexpired portion of lease or

40 years, whichever is the shorter

Network infrastructure Transmission equipment

– Duct 40 years – Cable 3 to 25 years – Fibre 5 to 20 years

Exchange equipment 2 to 13 years Other network equipment 2 to 20 years

Other assets – Motor vehicles 2 to 9 years –

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

measured. All intangible assets, other than goodwill, are amortised

pattern in which the assets are expected to be consumed. If the pattern cannot be determined reliably, the straight line method is used.

Goodwill represents the excess of the cost of an acquisition over the

intangible assets) of the acquired business.

For the purpose of impairment testing, goodwill acquired in a business

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.

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

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 group’s development costs which give rise to internally developed software include upgrading the network architecture or functionality

the group’s customers.

Licence fees paid to governments, which permit telecommunications

and amortised from the time the network is available for use to the end of the licence period.

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

relationships or brands and include management’s estimates of revenue

The estimated useful economic lives assigned to the principal categories of intangible assets are as follows:

– Computer software 2 to 10 years – Telecommunications licences 2 to 20 years – Customer relationships and brands 5 to 15 years

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

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

153

Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that

the amount can be reliably estimated. Provisions are determined by

current market assessments of the time value of money and the risks

recognised at fair value and subsequently carried at amortised cost using

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 company’s 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

assets and liabilities and their tax base. Deferred income tax assets and

current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the

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

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.

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Basis of consolidation

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

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 group’s

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.

the fair value of the consideration received and the fair value of any

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

are recognised at their fair value at the acquisition date.

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 acquirer’s previously held equity interest in the acquiree

liabilities at the date of acquisition.

equipment are tested for impairment if events or changes in

carrying amount may not be recoverable. When an impairment test is performed, the recoverable amount is assessed by reference to the

less cost to sell.

Goodwill is reviewed for impairment at least annually. Impairment

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.

Once a government grant is recognised, any related contingent liability

Contingent Liabilities and Contingent Assets’.

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

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

transaction dates, in which case income and expenses are translated at

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

is charged or credited to the gain or loss on disposal recognised in the income statement.

Research and development 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

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 The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment

to use the asset.

Leases of property, plant and equipment where the group holds

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

of future periods, are recognised as liabilities. Leases are subsequently

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.

Share-based payments The group operates a number of equity settled share-based payment arrangements, under which the group receives services from employees

group. Equity settled share-based payments are measured at fair value

conditions but including any market-based performance criteria and

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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 group’s estimate of the options or shares that will

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

in which they lapse or are forfeited.

terminated before the normal retirement date, or when an employee

Financial instruments

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

Loans and other borrowings Loans and other borrowings are initially recognised at the fair value of amounts received net of transaction costs. Loans and other borrowings

method and, if included in a fair value hedge relationship, are re-valued

the loans and other borrowings. The resulting amortisation of fair value movements, on de-designation of the hedge, is recognised in

investments and are initially recognised at fair value plus direct transaction costs and then re-measured at subsequent reporting dates

exchange rates for monetary items, interest, dividends and impairment losses, which are recognised in the income statement) recognised

cumulative gain or loss previously recognised in equity is taken to the

nature of the item or transaction. On disposal or impairment of the investments, any gains and losses that have been deferred in other

Dividends on equity investments are recognised in the income statement when the group’s right to receive payment is established. Equity investments are recorded in non-current assets unless they

Trade and other receivables Trade and other receivables are initially recognised at fair value, which is usually the original invoiced amount, and are subsequently carried

there is evidence of a risk of non-payment, taking into account ageing, previous losses experienced and general economic conditions.

Cash and cash equivalents Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions, which are readily convertible to

an original maturity of three months or less. For the purpose of the

are included within loans and other borrowings, in current liabilities

exposure to foreign exchange and interest rate risks. The group’s policy is not to use derivatives for trading purposes. However,

initially recognised and subsequently measured at fair value through

in the income statement. Gains and losses on re-measurement are recognised in the income statement in the line that most appropriately

current liabilities where they have a maturity period within 12 months.

Where the fair value of a derivative contract at initial recognition is not

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.

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

at inception and in subsequent periods in which the hedge remains in operation. Hedge accounting is discontinued when the hedging

hedge accounting or the group chooses to end the hedge relationship.

or fair value hedges.

or liabilities, the associated cumulative gain or loss is removed from equity and recognised in the same line of the income statement and

of a recognised asset or liability is recognised immediately in the same

arises on highly probable transactions, it is recognised in the income

item or transaction.

Fair value hedges

variability in fair value of a recognised asset or liability, or unrecognised

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

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155 Overview

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Delivering our strategy

Group performance

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Financial statements

Additional information

151.

From 1 April 2014 BT Conferencing and BT Security have moved into BT Global Services, from BT Business and our central group functions within

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.

£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,

Information regarding the results of each reportable segment is provided below.

Year ended 31 March 2015

BT Global Services

£m BT Business

£m BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m Total

£m

Segment revenue 6,779 3,145 4,285 2,157 5,011 74 21,451 Internal revenue –

a 28 b 561

Depreciation and amortisation a 528 861 813 337

c Share of post tax loss of associates and joint ventures

and joint ventures 25

BT Global Services

£m BT Business

£m BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m Total

£m

Segment revenue 7,269 3,213 4,019 2,422 5,061 82 22,066 Internal revenue –

37 b 833 614 25

Depreciation and amortisation a 425 805 614 369 13

Share of post tax loss of associates and joint ventures Loss on disposal of interest in associates and joint ventures

a b

202 to . c d

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156 BT Group plc Annual Report 2015

BT Global Services

£m BT Business

£m BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m Total

£m

Segment revenue 7,392 3,220 3,846 2,608 5,115 54 22,235 Internal revenue –

a 28 b 950 940 968 620 23

Depreciation and amortisation

))a 316 707 720 366

joint ventures 9

and joint ventures 130

a b

202 to . c d

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

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

relates primarily to IT services and BT Ireland Internal revenue in BT Global Services relates primarily to conferencing services.

Year ended 31 March 2015

BT Global Services

£m BT Business

£m BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m Total

£m

BT Global Services – 29 – – – – 29 BT Business 241 – 62 94 1 1 399 BT Consumer 20 22 – 2 – 18 62 BT Wholesale – – – – – – – Openreach 187 306 939 242 – 1,390 Other – – – – 46 – 46

448 357 338 47

BT Global Services

£m BT Business

£m BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m Total

£m

BT Global Services – 31 – – – – 31 BT Business 247 – 47 120 1 – 415 BT Consumer 13 18 – 3 – 15 49 BT Wholesale – – – – – – – Openreach 198 333 1,021 275 – 1,412 Other – – 3 – 42 – 45

458 382 398 43

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Financial statements

Additional information

Year ended 31 March 2013

BT Global Services

£m

a BT Business

£m a BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m a Total

£m

BT Global Servicesa – 35 – – – – 35 BT Businessa 247 – 55 110 3 8 423 BT Consumer 11 9 – 8 – 16 44 BT Wholesale – – – – – – – Openreach 198 386 1,097 275 – 1,412 Othera – – 5 – 21 – 26

456 430 393 24

Revenue by products and services

Year ended 31 March 2015

£m 2014

£m a 2013

£m a

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

a The im to decrease ICT and

Capital expenditure

Year ended 31 March 2015

BT Global Services

£m BT Business

£m BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m Total

£m

Intangible assets 220 31 85 80 55 90 561 Property, plant and equipment 248 156 122 130 1,027 82 1,765

a 468 187 207 210 172

Year ended 31 March 2014

BT Global Services

£m

b BT Business

£m b BT Consumer

£m BT Wholesale

£m Openreach

£m Other

£m b Total

£m

Intangible assets 172 18 44 78 74 121 507 Property, plant and equipment 344 109 167 166 975 78 1,839

a 516 127 211 244 199

a b

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158 BT Group plc Annual Report 2015

Geographic information The UK is the group’s 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 13,827 14,084 14,152 Europe, Middle East and Africa, excluding the UK 2,328 2,585 2,604 Americas 1,115 1,074 1,057

581 544 526 a

Non-current assets

At 31 March 2015

£m 2014

£m

UK 13,977 14,318 Europe, Middle East and Africa, excluding the UK 2,184 2,322 Americas 555 451

169 68

Non-current assets

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Financial statements

Additional information

Year ended 31 March Notes 2015

£m 2014

£m 2013

£m

Wages and salaries 3,574 3,736 3,879 Social security costs 440 444 443 Other pension costs 19 467 463 399 Share-based payment expense 21 70 60 64

Own work capitalised

Net indirect labour costsa 324 452 499

Net labour costs Payments to telecommunications operators 2,144 2,472 2,677 Property and energy costs 968 959 1,022 Network operating and IT costs 605 591 587 TV programme rights charges 330 203 – Other operating costs 3,573 3,672 3,552 Other operating income Depreciation of property, plant and equipment Owned assets 13 1,997 2,090 2,175

13 11 22 19 Amortisation of intangible assets 12 530 583 649

8 381 276 116

Leaver costsb 8 14 58 Research and development expenditurec 662 739 829 Operating lease charges 388 390 423 Foreign currency gains Government grants

a b

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:

Year ended 31 March 2015

£m 2014

£m 2013

£m

9.7 11.1 10.5 1.1 1.0 1.1

Share-based payments 5.7 6.4 6.0 0.5 – –

17.0 18.5 17.6

More detailed information concerning directors’ remuneration, shareholdings, pension entitlements, share options and other long-term incentive plans is shown in the audited part of the 111 to 129), which forms part of the consolidated

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160 BT Group plc Annual Report 2015

2015 2014 2013

Number of employees in the groupa Year end

000 Average

000 Year end

000 Average

000 Year end

000 Average

000

UK 70.9 72.2 72.2 72.7 73.2 74.1 Non-UK 17.6 16.5 15.6 15.1 14.7 15.0

88.5 88.7 87.8 87.8 87.9 89.1

2015 2014b 2013b

Number of employees in the groupa Year end

000 Average

000 Year end

000 Average

000 Year end

000 Average

000

BT Global Services 18.1 19.2 22.7 22.1 21.4 22.0 BT Business 8.0 8.6 8.7 8.9 8.0 8.4 BT Consumer 6.2 6.0 6.0 6.2 6.6 6.4 BT Wholesale 1.5 1.7 1.8 1.8 2.0 1.4 Openreach 32.7 32.4 31.6 31.5 30.4 30.4 Other 22.0 20.8 17.0 17.3 19.5 20.5

88.5 88.7 87.8 87.8 87.9 89.1

a b

The following fees were paid or are payable to the company’s auditors, PricewaterhouseCoopers LLP.

Year ended 31 March 2015 £000

2014 £000

2013 £000

Fees payable to the company’s auditors and its associates for: a

2,925 2,619 2,674 The audit of the company’s subsidiaries 4,809 5,355 5,284

Taxation compliance servicesc 350 260 472 Taxation advisory servicesd 401 371 370 All other assurance servicese 3,199 180 166 All other servicesf 570 829 933

c d e

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Delivering our strategy

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Financial statements

Additional information

Year ended 31 March 2015

£m 2014

£m 2013

£m

Retrospective regulatory rulings – 236

Restructuring charges 315 276 204 Property rationalisation costs 45 – –

– – –

Retrospective regulatory matters 75 – EE related acquisition costs 19 – – Impairment charges – – 18 Provisions for claims – – 43

381 276 116

292 235 117 7 – –

Interest on provisions for claims – – 2

299 235 119

527 515 341

Tax credit on re-measurement of deferred tax –

406 196 111

– in July 2014 the Supreme Court overturned a Court of Appeal judgment, made in July 2012, which had

revenue and EBITDA of £128m, being the prior year impacts of ladder pricing agreements with the UK mobile operators following the Supreme Court judgment.

– we recognised a £45m charge increasing onerous lease provisions relating to the rationalisation of the group’s property portfolio.

– in February 2015 we disposed of a surplus building in London, Keybridge House, for a consideration of £93m

– i against a December 2012 Ofcom determination on the pricing of certain Ethernet products. We disagree with the CAT’s 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

charges of £151m and £36m against revenue and EBITDA respectively, following Ofcom’s determinations on historic Ethernet pricing.

fees of £7m were incurred setting up a £3.6bn acquisition facility.

– the group makes provision for legal or constructive obligations arising from insurance, litigation and regulatory risks.

– see note 19 for more details.

Accommodation Services Holdings, which was held at £ remaining interest in its associate Tech Mahindra, which was held at a carrying value of £127m at 31 March 2012.

– see note 9 for more details.

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162 BT Group plc Annual Report 2015

Analysis of taxation expense for the year

Year ended 31 March 2015

£m 2014

£m 2013

£m

Adjustments in respect of prior periods 35 10 277

Current Adjustments in respect of prior periods 18 3 1

170 239 158 Adjustments in respect of prior periods 4

– 208 103

152 451 40

taxation as a result of the following factors:

Year ended 31 March 2015

£m 2014

£m 2013

£m

Non-UK losses utilised 36 13 14 Non-deductible depreciation and amortisation Non-deductible non-UK losses

10 Lower taxes on gain on disposal of business 7 – 28 Other deferred tax assets not recognised 9 54 36 Adjustments in respect of prior periods 35 17 57 Re-measurement of deferred tax balances – 208 103 Other 10 3 –

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163 Overview

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Delivering our strategy

Group performance

Governance

Financial statements

Additional information

Tax components of other comprehensive income

Year ended 31 March

2015 Tax credit

£m

2014 Tax credit

£m

2013 Tax credit

£m

208 16 762

13 10

– net fair value gains or losses 24 6 – recognised in income and expense – – 39

245 20 786

Current tax credita 268 130 133 653

245 20 786 a 20

Tax credit recognised directly in equity

Year ended 31 March 2015

£m 2014

£m 2013

£m

Tax credit relating to share-based payments 54 106 68

Deferred taxation

Excess capital

allowances £m

Retirement

obligations £m

Share- based

a payments £m

Other £m

Jurisdictional

£m Total

£m

At 1 April 2013 1,418 – 10 14 –

106 – 6 – 110 Credit recognised in equity – – – – Acquisitions – – – 3 – 3

–

Non-current Deferred tax asset 416 Deferred tax liability 1,208 – – 37 829

At 1 April 2014 – 3 26 –

Expense recognised in other comprehensive income 6 12 – 5 – 23 Expense recognised in equity – – 149 – – 149

–

Non-current Deferred tax asset 242 Deferred tax liability 1,161 – – 29 948

–

permitted by IAS 12, with the exception of deferred tax related to BT’s pension schemes which is disclosed within deferred tax assets.

are expected to be recovered or settled after more than one year.

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164 BT Group plc Annual Report 2015

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 expected to apply in the periods of the reversal, deferred tax balances at 31 March 2014 were calculated using a rate of 20%. This resulted in a tax

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

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.

At 31 March 2015

£m Expiry of

losses

Europe 356 2016-2034 Americas 10 2024-2034 Other 73 2016-2023

439

Unrestricted losses Operating losses 3,193 No expiry Capital losses 17,150 No expiry

195

At 31 March 2015 the undistributed earnings of non-UK 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.

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165 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

issue after deducting the own shares held by employee share ownership trusts and treasury shares.

In calculating the diluted earnings per share, share options outstanding and other potential shares have been taken into account where the impact

number of shares as the impact of these is antidilutive.

Year ended 31 March 2015 2014 2013

8,056 7,857 7,832 80 314 275 55 60 96

8,191 8,231 8,203

Basic earnings per share 26.5p 25.7p 24.8p Diluted earnings per share 26.1p 24.5p 23.7p

and a reconciliation to basic earnings per share is disclosed on page 203.

2015 2014 2013

Year ended 31 March pence

per share £m pence

per share £m

Final dividend in respect of the prior year 7.5 609 6.5 512 5.7 449 Interim dividend in respect of the current year 3.9 316 3.4 269 3.0 235

11.4 925 9.9 781 8.7 684

mber 2015

The proposed dividend will be payable to all shareholders on the Register of Members on 14 August 2015.

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166 BT Group plc Annual Report 2015

Goodwill

£m

Customer relation- ships and

brands £m

Telecoms licences

£m

Internally developed

software £m

Purchased software

£m Total

£m

Cost At 1 April 2013 358 481 Additions – – 1 433 73 507

15 20 – – – 35 Interest on qualifying assetsa – – – 1 – 1 Disposals and adjustments 27

394 415 Additions – – 1 488 72 561 Interest on qualifying assetsa – – – 2 – 2 Disposals and adjustments – – – 2) Transfers – – – 35

65 5 2 3)

399 390

At 1 April 2013 291 186 Charge for the year 15 7 468 93 583 Disposals and adjustments 26

323 101 Charge for the year 15 7 448 60 530 Disposals and adjustments – – Transfers – – 18

336 96

63 294 138

At 31 March 2014 1,331 71 314 1,217 154 3,087

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167 Overview

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Delivering our strategy

Group performance

Governance

Financial statements

Additional information

Goodwill impairment review

allocated to the group’s CGUs as follows:

BT Global Services restated

£m

BT Business a restated

£m a BT Consumer

£m Total

£m

At 1 April 2013 24 221 65 – – 15 15

Disposals and adjustments – – –

7 214 80 59 6 – 65

220 80 a

9.3

three-year period have been extrapolated using perpetuity growth rates.

Discount rate

used in the calculation of the group’s weighted average cost of capital are benchmarked to externally available data.

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.

– – an increase in the discount rate from the 9.3% assumption applied to a revised assumption of 15% or more – s decreasing by £180m or more in perpetuity.

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.

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168 BT Group plc Annual Report 2015

Land and buildings

£m

Network a infrastructure

£m a Other

£m

Assets in course of

b construction £m

Total £m

Cost At 1 April 2013 1,260 45,266 2,199 718 49,443 Additionsc 34 205 119 1,487 1,845 Transfers 3 1,531 3 – Disposals and adjustmentsd

650 Additionsc 12 106 159 1,482 1,759 Transfers 18 1,545 24 76) 11 Disposals and adjustmentsd 01) 63) 25) 40)

527

At 1 April 2013 747 32,716 1,900 – 35,363 Charge for the year 57 1,951 104 – 2,112 Disposals and adjustmentsd –

–

706 – Charge for the year 50 1,845 113 – 2,008 Disposals and adjustmentsd 0) 57) – 8) Transfers – 13 – 7

–

687 –

445 346 527 Engineering stores – – – 74 74

445 346 601

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

485 296 718

At 31 March 2015

£m 2014

£m

The carrying amount of land and buildings, including leasehold improvements, comprised: Freehold 208 233 Leasehold 237 252

445 485

b c d s

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169 Overview

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Group performance

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Financial statements

Additional information

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.

Total

£m

At 1 April 2013 – Additions 311 Amortisation

At 1 April 2014 108 Additions 340 Amortisation

118

Programme rights commitments are disclosed in note 29.

At 31 March 2015

£m 2014

£m

Non-current Other assetsa 184 214

At 31 March 2015

£m 2014

£m

Current Trade receivables 1,454 1,370 Prepayments 505 508 Accrued income 810 815 Other receivables 371 214

Trade receivables are stated after deducting allowances for doubtful debts, as follows:

2015

£m 2014

£m

At 1 April 192 218 Expense 78 77 Utilised

196 192

impairments based on the group’s historical loss experiences for the relevant aged c ategory and taking into account general economic conditions.

of business.

to fair value due to the short maturity of amounts receivable.

Note 26 provides further disclosure regarding the credit quality of the group’s gross trade receivables.

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170 BT Group plc Annual Report 2015

Trade receivables are due as follows:

At 31 March Not past due

£m

Trade receivables

impaired net of provision

£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

159

Trade receivables not past due and accrued income are analysed below by line of business.

At 31 March

Trade receivables not past due Accrued income

2015 £m

2014a £m

2015 £m

2014a £m

BT Global Services 517 535 405 448 BT Business 143 193 115 112 BT Consumer 119 106 85 – BT Wholesale 70 4 128 118 Openreach 15 12 75 137 Other 3 7 2 –

867 857 810 815 a

Given the broad and varied nature of the group’s 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

At 31 March 2015

£m 2014

£m

Current Trade payables 2,835 2,745 Other taxation and social security 416 480 Other payables 535 545 Accrued expenses 414 444 Deferred income 1,076 1,047

At 31 March 2015

£m 2014

£m

Non-currenta

Other payables 854 845 Deferred income 73 53

927 898

a trade and other and estimat .

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171 Overview

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Delivering our strategy

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Financial statements

Additional information

Restructuring

£m a Property

£m b Other

£m c Total

£m

At 1 April 2013 67 241 322 630 Income statement expense 20 4 17 41 Unwind of discount – 8 – 8 Utilised or released

–

58 201 274 533 Income statement expense 6 46 88 140 Unwind of discount – 8 – 8 Utilised or released Transfers – – 6 6

1 –

45 217 302 564

At 31 March 2015

£m 2014

£m

Analysed as: Current 142 99 Non-current 422 434

564 533

a b

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172 BT Group plc Annual Report 2015

Background

based arrangement.

percentage of employees’ pay. The company has no exposure to investment and other experience risks.

rules dependent on factors such as age, years of service and pensionable pay and is not dependent upon actual contributions made by the company

and assets held.

Year ended 31 March 2015

£m 2014

£m 2013

£m

Current service cost: 254 272 225

176 151 136 Past service credit a – –

42 40 38

467 463 399

292 235 117

759 698 516

interest expense.

2015 2014

At 31 March Assets

£m

Present value of liabilities

£m

£m Assets

£m

Present value of liabilities

£m

BTPS 43,386 39,939 Other plansa 241 174

b – – Deferred tax asset 1,481 1,381

a b

payables in the group balance sheet.

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Assets

£m Liabilities

£m

At 1 April 2013 41,566

Current service cost – 1,710

Settlements 61 Administration expenses and PPF levy –

Return on plan assets below the amount included in the group income statementa – b – 580 580

Actuarial loss arising from changes in demographic assumptionsb – – – Actuarial loss arising from experience adjustmentsc –

274

Regular contributions by employer 228 – 228 325 – 325

553 – 553

Contributions by employees 12 – 2,166 –

Foreign exchange 15 9

Current service cost – 1,663

Past service credit – 5 5 Administration expenses and PPF levy –

Return on plan assets above the amount included in the group income statementa 3,083 – 3,083 b –

Actuarial gain arising from changes in demographic assumptionsb – 126 126 Actuarial gain arising from experience adjustmentsc – 443 443

Regular contributions by employer 178 – 178 876 – 876

–

Contributions by employees 12 – 2,231 –

Foreign exchange 44 19

a b

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174 BT Group plc Annual Report 2015

BTPS

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

members Number of pensioners

Total membership

Sections A and Ba 15,000 32,000 176,000 223,000 Section C 23,000 40,500 20,000 83,500

At 31 March 2014

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

Active members Deferred members Pensioners

Section Ba at the lower of RPI or the individual’s actual pay increase

upon CPI

Section C currently based upon RPI up to a maximum of 5%

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

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

which the assets should be distributed to match liabilities. Current market conditions and trends are regularly assessed which may lead to adjustments

risk and foreign currency risk.

– securities listed on recognised stock exchanges are valued at closing bid prices – properties are valued on the basis of open market value – – credit risk.

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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

2015a 2014a

At 31 March Total assets

£bn

of which quoted

£bn b Total

% Total assets

£bn

of which quoted

£bn b Total

Equitiesc 13.1 10.6 30 11.2 5.8 28 Fixed-interest securities 7.4 5.7 17 7.1 5.7 18 Index-linked securities 11.7 10.5 27 9.9 8.5 24 Property 4.6 – 11 4.3 – 11 Alternative assetsd 6.2 – 14 7.1 1.0 18 Cash and other 0.4 – 1 0.3 – 1

43.4 26.8 100 39.9 21.0 100 a

b c d

On 4 July 2014, the Scheme entered into arrangements to hedge around 25% of the Scheme’s exposure to potential improvements in longevity. These arrangements form part of the Scheme’s 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.

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 Benchmark

Actual BTPS return

Over

performance %

1 year 6.2 6.2 – 3 years 6.2 5.8 10 years 6.5 7.0 0.5

BTPS liabilities under IAS 19

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

to reduce.

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176 BT Group plc Annual Report 2015

a Based on accrued benefits to date.

Forecast benefits payable by the BTPS at 31 March 2015 (unaudited)

£bn £bn

1.0

0.5

1.5

3.0

2.5

2.0

2015 2035 2055 2075 2095

Fo re

ca st

b en

efi ts

p ay

ab le

b y

th e

BT PS

Li ab

ili ti

es a

Forecast benefit payments (Left axis) Liabilities (Right axis)

At 31 March 2015

% 2014

% 2013

% 2015

% 2014

% 2013

Rate used to discount liabilities 3.25 4.25 4.20 0.39 0.97 0.87 2.85 3.25 3.30 – – – 1.85b 2.50c 2.55c b c c

a b c

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

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 27.3 Male in higher pay bracket 28.7

27.7

Female in lower pay bracket 28.7 28.5 Female in higher pay bracket 29.0

Average improvement for a member retiring at age 60 in 10 years’ time 1.0 1.0

The assumptions about life expectancy have regard to information published by the UK actuarial profession’s 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

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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177 Overview

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Additional information

Decrease

liability £bn

Decrease

£bn

Decrease

service cost £m

0.25 percentage point increase to: – discount rate 1.9 1.2a 10

Additional one year increase to life expectancy

a . b .

BTPS funding

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.

June 2014

valuation £bn

June 2011

valuation £bn

BTPS liabilities Market value of BTPS assets 40.2 36.9

85.2% 90.4% 63.0% 66.0%

per year since the 2011 valuation contributed to higher assets at the 2014 valuation date, the low interest rate environment resulted in a higher

These valuations were determined using the following prudent long-term assumptions. a

June 2014

valuation %

June 2011

valuation %

June 2014

valuation %

June 2011

valuation %

Average single equivalent discount rate 4.5 5.2 1.0 2.0 Average long-term increase in RPI 3.5 3.2 – – Average long-term increase in CPI 2.5 2.2

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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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.

Number of years from 30 June 2014

June 2014

assumptions

June 2011

assumptions

Male in lower pay bracket 26.1 26.3

Male in medium pay bracket 27.5 28.1

Male in high pay bracket 29.0

Female in lower pay bracket 28.9 28.7

Female in high pay bracket 29.2

Average improvement for a member retiring at age 60 in 10 years’ time 1.3 1.2

Year ended 31 March 2015

£m 2014

£m

Ordinary contributions 168 205 875 325

530

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,

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

employee contributions) from 1 April 2015 through to the next valuation date.

The 2014 funding agreement with the Trustee included additional features for BT to provide support to the Scheme. These include:

Feature Detail

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.

Material corporate 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

–

BT will advise the Trustee should there be other material corporate events which may impact BT’s covenant to the Scheme.

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.

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179 Overview

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Feature Detail

The Crown Guarantee was granted by the Government when the group was privatised in 1984 and would only come into insolvency 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 BT’s funding obligation in relation to members of the Scheme who joined post-privatisation as well as those ;

– 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 Crown Guarantee.

by the Scheme.

and culture.

In the year to 31 March 2015, the group contributed £105m to the BTRSS.

Treasury sharesa Employee share ownership trusta Total

millions £m millions £m millions £m

At 1 April 2013 271 52 323 Own shares purchasedb 27 59 86 Share options exercisedb,c 172 – – 172 Executive share awards vested – – 133 133

At 31 March 2014 232 62 294 Own shares purchasedb 25 55 80 Share options exercisedb,c 6) 724 173 7) 897 Executive share awards vested – – 87 87

1 41 42

c 2

The treasury shares reserve represents BT Group plc shares purchased directly by the group. The BT Group Employee Share Ownership Trust

The treasury shares and the shares in the Trust are being utilised to satisfy the group’s obligations under its employee share plans. Further details on Employee Saveshare Plans and Executive share plans are provided in note 21.

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180 BT Group plc Annual Report 2015

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 2015

£m 2014

£m 2013

£m

Employee Saveshare Plans 25 25 25 Executive Share Plans:

32 21 27 9 11 10

Other plans 4 3 2

70 60 64

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 BT’s overseas employees.

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 pre-

transit.

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

Employee Saveshare Plans Movements in Employee Saveshare options are shown below.

Movement in the number of share options Weighted average exercise price

Year ended 31 March 2015

millions 2014

millions 2013

millions 2015 pence

2014 pence

2013 pence

Outstanding at 1 April 459 490 561 102 91 79 Granted 81 40 66 326 257 176 Forfeited 239 158 120 Exercised 65 110 69 Expired 163 78 188

226 459 490 226 102 91

Exercisable at 31 March – 2 – 74 111 –

Exercise price per share

Weighted average exercise

price

Number of outstanding

options millions

Weighted average

remaining contractual

life

2015 104p – 189p 135p 61 10 months 2016 156p – 280p 205p 33 22 months 2017 168p – 359p 236p 54 34 months 2018 249p – 319p 251p 22 46 months 2019 319p 319p 56 58 months

226p 226

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181 Overview

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Additional information

There were no options outstanding

at 31 March 2015.

Executive share plans

ISP DBP Total

At 1 April 2014 70 13 83 Awards granted 16 3 19 Awards vested Awards lapsed – Dividend shares reinvested 2 – 2

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

2015 2014 2013

Year ended 31 March Employee Saveshare ISP

Employee Saveshare ISP

Weighted average fair value 82p 309p 61p 269p 43p 170p Weighted average share price 387p 393p 310p 315p 209p 204p Weighted average exercise price 326p 257p 176p Expected dividend yield 3.5% – 3.8% 3.9% – 5.6% 3.6% – 5.2% Risk free rates 1.2% – 2.0% 1.2% 0.7% – 1.5% 0.7% 0.3% – 0.8% 0.4% Expected volatility 22.2% – 24.9% 24.3% 23.3% – 31.9% 32.0% 28.1% – 36.5% 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 company’s volatility and dividend yield, as well as the cross correlation between pairs of stocks.

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.

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

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182 BT Group plc Annual Report 2015

At 31 March 2015

£m 2014

£m

Non-current assets Available-for-sale 36 25

8 9

44 34

Current assets Available-for-sale 3,133 1,774 Loans and receivables 390 –

Loans and receivables are held on balance sheet at amortised cost and this approximates fair value. Loans and receivables consist of investments in Dollars

At 31 March 2015

Level 1 £m

Level 2 £m

Level 3 £m

Total held at fair value

£m

Available-for-sale investments 26 3,133 10 3,169 8 – – 8

34 10

At 31 March 2014 Level 1

£m Level 2

£m Level 3

£m

Total held at fair value

£m

Available-for-sale investments 18 1,774 7 1,799 9 – – 9

27 7

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.

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183 Overview

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At 31 March 2015

£m 2014

£m

335 380

Loans and receivables US deposits 28 55 UK deposits 28 257 Other deposits 43 3

99 315

434 695

407 684

cash and overdraft balances on bank accounts included within each scheme.

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

Capital management policy The objective of the group’s 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

The group’s capital structure consists of net debt and shareholders’ equity. The analysis below summarises the components which the group manages as capital.

At 31 March 2015

£m 2014

£m

Net debt 5,119 7,028 a 796

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184 BT Group plc Annual Report 2015

Net debt

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

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.

At 31 March 2015

£m 2014

£m

Loans and other borrowings 9,768 9,814 Less: Cash and cash equivalents Current asset investments

5,811 7,345 Adjustments: To retranslate debt balances at swap rates where hedged by currency swaps

Net debt

At 31 March 2015

£m 2014

£m

5.25% €750m bond due June 2014a – 645 6.125% €600m bond due July 2014 – 518 2.00% US$750m bond due June 2015a 508 452 6.50% €1,000m bond due July 2015a 758 867 1.625% US$600m bond due June 2016a 406 361

d) 695 699 1.25% US$500m bond due February 2017a 337 300 6.625% £500m bond due June 2017a 525 526 5.95% US$1,100m bond due January 2018a 750 668 2.35% US$800m bond due February 2019a 541 481 1.125% €1,000m bond due June 2019a 730 – 8.625% £300m bond due March 2020 299 299 3.50% £250m index linked bond due April 2025 392 382 5.75% £600m bond due December 2028c 751 670 9.625% US$2,670m bond due December 2030a d) 1,850 1,648 6.375% £500m bond due June 2037a 522 522

Finance leases 238 264

Commercial papere – 324 Other loans 439 177

27 11

466 512

a b c d

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

The fair value of the group’s bonds and other long-term borrowings is estimated on the basis of quoted market prices, based on the same or similar

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185 Overview

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The carrying amount of commercial paper, other loans and bank overdrafts equates to fair value due to the short maturity of these items.

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:

At 31 March 2015

£m 2014

£m

Current liabilities Listed bonds 1,422 1,349 Finance leases 13 14 Commercial paper – 324 Other loans and bank overdrafts 465 186

Non-current liabilities Listed bonds 7,642 7,689 Finance leases 225 250 Other loans and borrowings 1 2

unsecured.

At 31 March

2015 2014

Carrying amount

£m

hedging

and interest

£m

Principal repayments

at hedged a rates

£m

Carrying amount

£m

hedging

and interest

£m

Principal repayments

at hedged a rates

£m

Between one and two years 1,431 1,383 1,291 1,284 Between two and three years 1,251 1,060 1,353 36 1,389 Between three and four years 549 498 1,172 1,061

1,033 89 1,122 492 7 499 3,461 3,263 3,572 1 3,573

Fair value adjustments for hedged risk 143 61

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186 BT Group plc Annual Report 2015

At 31 March

2015 2014 2015 2014

Minimum lease payments

Repayment of outstanding

lease obligations £m £m £m £m

Due within one year 29 31 13 14 101 111 46 51 269 307 179 199

399 449 238 264

– –

238 264 238 264

lessors’ title to the leased assets.

Year ended 31 March 2015

£m 2014

£m 2013

£m

Interest on: Financial liabilities at amortised cost 516 560 623 Finance leases 15 16 19 Derivatives 7 13 5 Fair value movements: Bonds designated as hedged items in fair value hedges 82 31 Derivatives designated as hedging instruments in fair value hedges 47 Derivatives not in a designated hedge relationship 7 6

26 9 12 Unwinding of discount on provisions 8 8 6

Finance expense 579 604 671

577 603 666

299 235 119

876 838 785

the income statement.

Year ended 31 March 2015

£m 2014

£m 2013

£m

560 591 653

– Derivative restructuring costs – 14 16 – Timing of coupon payments on bonds 4 15 – Deferred income 9 8 8 7 – –

580 608 692

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187 Overview

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Financial statements

Additional information

and acquisitions; for the temporary investment of short-term funds; and to manage the currency and interest rate risks arising from its operations

the group’s operations.

Financial risk management

The group has a centralised treasury operation whose primary role is to manage liquidity and funding requirements as well as the group’s exposure

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.

Interest rate risk management

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.

rates after applying the impact of these hedging instruments.

Foreign exchange risk management

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.

generally trade and are funded in their functional currency which limits their exposure to foreign exchange volatility. Foreign currency borrowings

The group also enters into forward currency contracts to hedge foreign currency, capital purchases, purchase and sale commitments, interest expense

2015 2014

At 31 March

Fixed rate interest

£m

Floating rate

interest £m

Total £m

Fixed rate interest

£m

Floating rate

interest £m

Total £m

Sterling 7,601 991 8,592 7,946 1,265 9,211 Euro – 482 482 – 285 285

84% 16% 100% 84% 16% 100% 6.3% 6.6%

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188 BT Group plc Annual Report 2015

LIBOR and EURIBOR quoted rates.

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 –

on equity, before tax, of a 1% increase in interest rates is as detailed below:

At 31 March

2015 £m

Increase reduce)

2014 £m

Increase reduce)

Sterling interest rates 428 337 US Dollar interest rates Euro interest rates

A 1% decrease in interest rates would have broadly the same impact in the opposite direction.

The group’s December 2016 and December 2030 bonds contain covenants which have required the group to pay higher rates of interest once the

the current ratings.

The group’s credit ratings were as detailed below: 2015 2014

At 31 March Rating Outlook Rating Outlook

Standard & Poor’s BBB Stable BBB Stable Moody’s Baa2 Positive Baa2 Positive

Liquidity risk management

funding requirements. The group determines its liquidity requirements by the use of both short and long-term cash forecasts. These forecasts are

Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters of the policies set by The group holds cash, cash equivalents and current investments in order to manage short-term liquidity requirements. At 31 March

proposed EE acquisition or August 2016, which is subject to certain restrictions and can only be used to fund the transaction, including transaction costs.

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189 Overview

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At 31 March 2015

Loans and other

borrowings £m

Interest on loans

and other borrowings

£m

Trade and other

payables £m

Provisions £m

Total £m

Due within one year 1,706 513 3,784 32 6,035 Between one and two years 1,431 458 – 19 1,908 Between two and three years 1,251 392 – 15 1,658 Between three and four years 549 315 – 15 879

1,033 302 – 13 1,348 3,461 2,973 – 218 6,652

4 312 0

Interest payments not yet accrued – – – Fair value adjustment for hedged risk 143 – – – 143 Impact of discounting – – –

a 194 4 208 0

At 31 March 2014

Loans and other

borrowings £m

Interest on loans

and other borrowings

£m

Trade and other

payables £m

Provisions £m

Total £m

Due within one year 1,641 554 3,734 37 5,966 Between one and two years 1,291 485 – 36 1,812 Between two and three years 1,353 424 – 22 1,799 Between three and four years 1,172 360 – 18 1,550

492 287 – 17 796 3,572 3,045 – 225 6,842

355

Interest payments not yet accrued – – – Fair value adjustment for hedged risk 61 – – – 61 Impact of discounting – – –

a 232 198

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.

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190 BT Group plc Annual Report 2015

are presented on a net or gross basis in accordance with the settlement arrangements of the instruments.

Derivatives – Analysed by earliest payment datea Derivatives – Analysed based on holding instrument

to maturity

D At 31 March 2015

Net settled £m

Gross settled

£m

Gross settled

£m Total

£m Net settled

£m

Gross settled

£m

Gross settled

£m Total

£m

Due within one year 215 1,421 344 88 1,320 229 Between one and two years 471 39 484 109 42 121 Between two and three years 273 38 285 92 42 104 Between three and four years 177 38 189 94 42 106

48 838 137 111 842 200 – 390 690 476 675

Derivatives – Analysed by earliest payment datea Derivatives – Analysed based on holding instrument

to maturity

At 31 March 2014 Net settled

£m

Gross settled

£m

Gross settled

£m Total

£m Net settled

£m

Gross settled

£m

Gross settled

£m Total

£m

Due within one year 263 1,754 311 125 1,754 173 Between one and two years 351 661 393 84 560 119 Between two and three years 642 947 685 84 950 126 Between three and four years 70 806 55 84 65 88

– 334 7 84 369 92 – 198 12 865 1,002 865

a b

balance sheet date.

Credit risk management

cash equivalents) and from its trading-related receivables.

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.

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

At 31 March Notes 2015

£m 2014

£m

1,329 653 Investments 22 3,567 1,808 Trade and other receivablesa 16 2,264 2,185 Cash and cash equivalents 23 434 695

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2015 £m

2014 £m

3,133 1,774 206 47 248 111

a 793 434 121 – 439 376

11 –

The concentration of credit risk for trading balances of the group is provided in note 16, which analyses outstanding balances by line of business.

documentation. The group has also entered into credit support agreements with certain swap counterparties whereby on a weekly and monthly basis

master netting or similar agreements.

Financial assets and liabilities At 31 March 2015

Gross amounts

£m

Amounts

£m

Amounts presented in the balance

sheet £m

derivative counterparties

£m

Cash collateral

£m

Net amount

£m

1,329 – 1,329 289 – 603 30

Cash and cash equivalents 588 434 – – 434 Bank overdrafts 154 – –

641 – 641 – 234

Financial assets and liabilities At 31 March 2014

Gross amounts

£m

Amounts

£m

Amounts presented in the balance

sheet £m

derivative counterparties

£m

Cash collateral

£m

Net amount

£m

653 – 653 182 – 297 20

Cash and cash equivalents 3,165 695 – – 695 Bank overdrafts 2,470 – –

519 – 519 – 365

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192 BT Group plc Annual Report 2015

Derivatives

At 31 March 2015

Current asset

£m

Non-current asset

£m

Current liability

£m

Non-current liability

£m

86 941 161 698 Designated in a fair value hedge 6 143 – – Other 5 148 7 229

97 168 927

At 31 March 2014

Current asset

£m

Non-current asset

£m

Current liability

£m

Non-current liability

£m

73 394 74 514 Designated in a fair value hedge 6 61 – – Other 35 84 65 165

114 539 139 679

Hedging activities

accordance with IAS 39.

borrowings. Forward currency contracts are taken out to hedge step-up interest on currency denominated borrowings relating to the group’s 2030

Forecast foreign currency purchases, principally denominated in US Dollar, Euro , with certain spec dged further forward

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 group’s 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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193 Overview

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Delivering our strategy

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Financial statements

Additional information

Other comprehensive income

Merger reserve

£m

Capital redemption

a reserve £m

reserve £m

Available- for-sale

b reserve £m

Translation c reserve

£m d Total

£m

At 1 April 2012 998 27 229 24 478 – – – – 46 46

Recycled foreign exchange on disposal of subsidiary – – – – 13 13 – – 105 – – 105

Recognised in income and expense – – – – Fair value movement on available-for-sale assets – – – 14 – 14 Tax recognised in other comprehensive income – – 14 – 10 24

At 1 April 2013 998 27 180 38 547 – – – – – – – –

Recognised in income and expense – – 384 – – 384 Fair value movement on available-for-sale assets – – – – Tax recognised in other comprehensive income – – 6 – 4

At 1 April 2014 998 27 42 11 369 – – – – 5 5 – – 207 – – 207

Recognised in income and expense – – – – Fair value movement on available-for-sale assets – – – 7 – 7 Tax recognised in other comprehensive income – – 24 – 13 37

998 27 55 18 387

Key management personnel comprise executive and non-executive directors and members of the Operating Committee. Compensation of key management personnel is disclosed in note 5.

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194 BT Group plc Annual Report 2015

Financial commitments were as follows:

At 31 March 2015

£m 2014

£m

Capital commitments 507 400 Programme rights commitments 2,512 1,657

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

Payable in the year ending 31 March: 2015 – 396 2016 427 397 2017 401 368 2018 392 365 2019 377 363 2020 365 366 Thereafter 4,562 4,583

Operating lease commitments were mainly in respect of land and buildings which arose from a sale and operating leaseback transaction in a prior

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 group’s 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 tive 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.

is no exposure in the event of credit default in respect of amounts used to defease future lease obligations. The guarantee lasts until Telefónica UK

to reduced.

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 transaction

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195 Overview

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Financial statements

Additional information

Our opinion

31 March 2015; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.

the BT Group plc company balance sheet as at 31 March 2015; the BT Group plc company reconciliation of movement in equity shareholders’ funds for the year then ended; and

Accounting Practice).

Other required reporting

Companies Act 2006 opinion In our opinion, the information given in the and the

Directors

& Ireland)”) we are required to report to you if, in our opinion, information

statements; or apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of performing our audit; or otherwise misleading.

We have no exceptions to report arising from this responsibility.

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; or adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or

on Directors’ to be audited are not in agreement with the accounting

records and returns.

We have no exceptions to report arising from this responsibility.

Report on Directors’ Remuneration – Companies Act 2006 opinion In our opinion, the part of the to be audited has been properly prepared in accordance with the Companies Act 2006.

Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in

by law are not made. We have no exceptions to report arising from this responsibility.

As explained more fully in the directors’ responsibilities set out on page 130, the directors are responsible for the preparation

and fair view.

Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

audit involves obtaining evidence about the amounts and disclosures

caused by fraud or error. This includes an assessment of:

whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed;

directors; and

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements,

combination of both.

the Annual Report to identify material inconsistencies with the audited

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

BT Group plc for the year ended 31 March 2015.

Chartered Accountants and Statutory Auditors London 6 May 2015

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196 BT Group plc Annual Report 2015

BT Group plc accounting policies

of the company are presented as required by the Companies Act 2006.

principal accounting policies are set out below and have been applied consistently throughout the year and the previous year.

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.

31 March 2015 with FRS 29, ‘Financial Instruments: Disclosures’. Consequently, the company is exempt from the disclosure requirements of FRS 29 in

Investments in subsidiary undertakings are stated at cost and reviewed for impairment if there are indicators that the carrying value may not be recoverable.

which have arisen but not reversed at the balance sheet date. Deferred

balances are not discounted.

Dividend distributions are recognised as a liability in the year in which the dividends are approved by the company’s shareholders. Interim

authorised in general meetings by shareholders.

company are recorded in the balance sheet as part of Own shares and presented as a deduction from shareholders’ equity at cost.

Cash includes cash in hand and bank deposits repayable on demand.

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 company’s 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.

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

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’.

proposed change at the Annual General Meeting in July 2014.

Other information

31 March 2015 of 8.5

of to 12.4 : 10.9p). This dividend is subject to shareholder approval at the Annual General Meeting and therefore the liability of approximately £712 : £611m) has not been

The Chairman, the executive directors and the Group General Counsel

of the company during . The costs relating to qualifying services provided to the company’s principal subsidiary, British Telecommunications plc, are recharged to that company.

£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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197 Overview

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Financial statements

Additional information

2015 £m

2014 £mAt 31 March

Investments in subsidiary undertakingsa 10,686 10,616

Current assets Amounts from subsidiary undertaking falling due after more than one yearb 1,004 – Cash at bank and in hand 5 5

Creditors: amounts falling due within one yearc 22 1,260

Net current liabilities 98

Non-current liabilities Amounts due to subsidiary undertakingsc 1,307 –

Called up share capital 419 408 Share premium account 1,051 62 Capital redemption reserve 27 27 Own shares

9,034 9,693 d

a b c

d .

196 to 198 were approved by the Board of Directors on 6 May 2015 and were signed on its behalf by:

Chairman

Chief Executive

Group Finance Director

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198 BT Group plc Annual Report 2015

Called

capital £m

Share premium

a account £m

Capital redemption

reserve £m

Own shares £m

and loss

b account £m

b,c Total £m

At 1 April 2013 408 62 27 9,667 9,332 – – – – 977 977

Dividends paid – – – – Capital contribution in respect of share-based payments – – – – 60 60 Net buyback of own shares – – – 3

At 1 April 2014 408 62 27 – – – – 979 979

Dividends paid – – – – Capital contribution in respect of share-based payments – – – – 70 70 Issue of new sharesa 11 989 – – – 1,000 Net buyback of own shares – – – 664

419 27 a

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199 Overview

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Financial statements

Additional information

The table below gives brief details of the group’s 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

Activity Group interest in allotted capitalc

Country of operationd

British Telecommunications plc Communications-related services and products provider 100% ordinary UK BT Americas Incd Communications-related services, systems integration and

products provider 100% common International

BT Australasia Pty Limited Communications-related services and products provider 100% ordinary 100% preference

Australia

BT Business Direct Limited Technology equipment retailer 100% ordinary UK BT Communications do Brasil Limitadab Communications-related services, technology consulting

and products provider 100% common Brazil

BT Communications Ireland Limited Telecommunications services provider 100% ordinary Republic of Ireland BT Conferencing Inc Audio, video and web collaboration services provider 100% common US BT Conferencing Video Inc Audio, video and web collaboration services provider 100% common US BT ESPANA, Compania de Servicios Globales de Telecommunicaciones, SA

Communications-related services and products provider 100% ordinary Spain

BT Fleet Limited Fleet management company 100% ordinary UK BT France SA Communications-related services, systems integration and

products provider 100% ordinary France

Communications-related services and products provider 100% ordinary Germany BT Global Communications India Private Limited

Communications-related services 74% ordinary India

BT Global Services Limited International telecommunications network systems provider 100% ordinary UK BT Holdings Limited Investment holding company 100% ordinary UK BT Hong Kong Limited Communications-related services and products provider 100% ordinary

100% preference Hong Kong

BT Italia SpA Communications-related services and products provider 98.6% ordinary Italy BT IT Services Limitede IT solutions provider 100% ordinary UK BT Latam Argentina SA Communications-related services and products provider 100% common Argentina BT Limited International telecommunications network systems provider 100% ordinary International BT Managed Services Limited Communications-related services and products provider 100% ordinary UK BT Nederland NV Communications-related services and products provider 100% ordinary Netherlands BT Payment Services Limited Payment services provider 100% ordinary UK BT Services SA Technology consulting and engineering services 100% ordinary France BT Singapore Pte Ltd Communications-related services and products provider 100% ordinary Singapore BT Switzerland AG Communications-related services and products provider 100% ordinary Switzerland Communications Global Network Services Limitedd

Communications-related services and products provider 100% ordinary International

Communications-related services and products provider 100% ordinary UK dabs.com plc Technology equipment retailer 100% ordinary UK Plusnet plc Broadband service provider 100% ordinary UK Radianz Americas Inc Global managed network service provider 100% common

100% preference US

a b c d e

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200 BT Group plc Annual Report 2015

financials.indb 200 15/05/2015 01:52

202

205

207 Financial and operational statistics

209

226

230

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.

of changes in our internal organisational

to be on a consistent basis throughout this Annual Report. We have provided further details on page 149.

201

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202 BT Group plc Annual Report 2015

Introduction We assess the performance of the group using a variety of alternative performance measures. We principally discuss the group’s results on an

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.

Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. In determining whether an

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

A reconciliation from the decrease in reported revenue and in reported operating costs, the most directly comparable IFRS measures, to the decrease in underlying revenue and underlying operating costs excluding transit, is set out below.

Year ended 31 March 2015

% 2014

% 2013

1.0

Transit revenue 0.6 1.0 1.3 Acquisitions and disposals – 0.2 Foreign exchange movements 1.4 0.9

0.5

Year ended 31 March 2015

% 2014

% 2013

Depreciation and amortisation 0.3 1.2

1.1

Transit costs 1.0 1.4 1.7 Acquisitions and disposals – 0.2 Foreign exchange movements 1.5 – 1.0

4 1.1

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203 Overview

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Financial statements

Additional information

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

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.

Year ended 31 March 2015

£m 2014

£m 2013

£m

Depreciation and amortisation 2,538 2,695 2,843

253 276 352

2015 2014 2013

Year ended 31 March Pence

per share £m Pence

per share £m

a 26.5 25.7 24.8 b 5.0 406 2.5 196 1.5 111

31.5 28.2 26.3

a b

pre-tax basis.

determined at a corporate level independently of ongoing trading operations such as dividends, share buybacks, acquisitions and disposals and

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204 BT Group plc Annual Report 2015

Year ended 31 March 2015

£m 2014

£m 2013

£m

s 876 325 325

Net capital expenditure before purchases of telecommunications licences Purchases of telecommunications licences – – Interest received 10 6 9

8 4 4

Interest paid

154 356 366

Purchases of telecommunications licences – – 202

Net debt

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

balances within net debt are translated to Sterling at swap rates where hedged.

Net debt is a measure of the group’s 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 group’s 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.

these to net debt is given below.

At 31 March 2015

£m 2014

£m

Loans and other borrowings 9,768 9,814 Less: Cash and cash equivalents Current asset investments

Adjustments: To retranslate debt balances at swap rates where hedged by currency swaps

Net debt

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205 Overview

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Financial statements

Additional information

Year ended 31 March 2015

£m 2014

£m 2013

£m 2012

£m 2011

£m

Adjusted 17,851 18,287 18,339 19,397 20,174 128 – –

Adjusted 237

Adjusted 3,733 3,421 3,300 3,062 2,879

Adjusted

Adjusted 9 10 21

9 10 21 25 130 – 42

Adjusted 3,172 2,827 2,656 2,391 2,055

Adjusted 121 319 230 212 327

Adjusted 2,541 2,214 2,059 1,815 1,610

Adjusted 31.5p 28.2p 26.3p 23.4p 20.7p

26.5p 25.7p 24.8p 22.6p 15.9p

8,056 7,857 7,832 7,763 7,750 8,191 8,231 8,203 8,201 8,116

Diluted earnings per share 26.1p 24.5p 23.7p 21.4p 15.2p Dividends per sharea 12.4p 10.9p 9.5p 8.3p 7.4p Dividends per share, US centsa,b 18.4c 18.2c 14.4c 13.3c 11.8c

a b

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206 BT Group plc Annual Report 2015

At 31 March 2015

£m 2014

£m 2013

£m 2012

£m 2011

£m

Intangible assets 3,170 3,087 3,258 3,127 3,389 Property, plant and equipment 13,505 13,840 14,153 14,388 14,623 Other non-current assets 3,045 2,265 2,794 1,902 1,597

Current assets less current liabilities

483 Non-current loans and other borrowings

Other non-current liabilities

808

Ordinary shares 419 408 408 408 408 Share premium account 1,051 62 62 62 62 Own shares Other reserves 1,485 1,447 1,790 1,756 1,763

2) 100 796

808

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207 Overview

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Financial statements

Additional information

Financial and operational statistics Financial statistics

Year ended 31 March 2015

£m 2014

£m 2013

£m 2012

£m 2011

£m

D increase a 0.4)% 0.5%

6,271 6,116 6,143 6,034 5,858 a

Normalised 2,830 2,450 2,300 2,307 2,076 Reported 2,782 2,171 2,292 2,318 2,011

a 5,119 7,028 7,797 9,082 8,816 b 11,580 12,171 12,196 13,363 14,316

Research and development operating expense 172 257 279 285 389 Capitalised software development costs 330 273 265 275 295

502 530 544 560 684

Additions to property, plant and equipment comprised: Land and buildings 31 44 42 37 20 Network infrastructure Transmission equipment 1,472 1,126 1,170 1,121 985 Exchange equipment 33 24 32 46 43 Other network equipment 455 657 660 794 851 Other

85 112 80 95 92 Motor vehicles and other 75 8 24 43 87

Total additions to property, plant and equipment 2,151 1,971 2,008 2,136 2,078 6 12

2,157 1,966 1,999 2,135 2,090 Software additions 561 506 454 459 500

Government grants – –

in payables 92 10 43 55

Purchases of telecommunications licences – – 202 – –

a 202 to . b

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208 BT Group plc Annual Report 2015

Financial ratios

Year ended 31 March 2015 2014 2013 2012 2011

Adjustedb – % 25.2 22.9 22.1 20.4 18.5 Reported – % 23.6 21.1 20.6 19.3 16.7

Adjustedb – times 6.7 5.8 5.1 4.5 3.4 Reported – times 4.1 3.8 3.8 3.7 2.0

b 0.8 1.1 1.3 1.5 1.5 c b – % 13.0 12.8 13.3 13.4 12.8

b c

Operational statisticsa All values in thousands unless otherwise stated. Year ended 31 March 2015 2014 2013 2012 2011

6,458 6,963 6,348 6,683 7,270

2,073 2,098 2,002 1,916 –

b 415 391 365 343 326 Active lines 9,447 9,650 9,824 10,321 10,799 BT TV customers 1,142 1,002 810 707 575

1,908 1,910 2,031 748 –

Physical lines Internal 12,243 12,697 13,214 14,128 15,356 External 4,472 4,544 5,088 5,192 5,191 Fully unbundled 8,587 7,846 6,702 5,631 4,266

Broadband lines Total retail 7,713 7,281 6,704 6,280 5,691

1,831 1,872 2,066 2,262 2,421 Openreach 9,761 9,302 8,859 8,253 7,608

Broadband market share Total retail share of net asset additionsc 51% 69% 51% 55% 51% Total retail share of installed base 40% 39% 38% 37% 36%

Lines sold through BT lines of businessd

Consumer 9,633 9,908 10,207 10,919 11,802 3,503 3,784 4,165 4,551 4,917

a b

c d

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209 Overview

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Delivering our strategy

Group performance

Governance

Financial statements

Additional information

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

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

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

networked IT services, the pay-TV services market, broadband, and mobility and future voice; growth of, and opportunities available in, the communications industry and BT’s 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

Undertakings to Ofcom under the Enterprise Act; BT’s possible or

and the promotion of broadband by third-party service providers;

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.

looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these

materially from those expressed or implied by these forward-looking

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 BT’s 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

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

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

regulatory approval)

detail elsewhere in this Annual Report including, without limitation, in 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.

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210 BT Group plc Annual Report 2015

The principal listing of BT Group’s ordinary shares is on the London Stock Exchange. Trading on the London Stock Exchange is under the symbol ‘BT.A’.

the symbol ‘BT’.

Share and ADS prices Pence per ordinary share US$ per ADS

High

pence Low

pence High US$

Low US$

2011 191.10 109.90 31.31 16.19 2012 232.10 161.00 36.89 25.69 2013 281.00 200.70 42.76 31.02 2014 418.10 265.70 69.75 40.70 2015 470.55 356.20 70.18 57.99

1 April – 30 June 2013 322.30 265.70 49.86 40.70 1 July – 30 September 2013 348.90 316.20 55.86 47.40 1 October – 31 December 2013 382.00 340.60 63.13 54.49 1 January – 31 March 2014 418.10 369.90 69.75 60.99

1 April – 30 June 2014 406.10 356.20 68.19 59.68 1 July – 30 September 2014 397.80 367.90 67.46 61.48 1 October – 31 December 2014 420.00 360.10 65.43 57.99 1 January – 31 March 2015 470.55 385.90 70.18 58.60

November 2014 410.20 362.20 63.98 58.25 December 2014 420.00 397.40 65.43 61.92 January 2015 431.10 385.90 64.76 58.60 February 2015 460.00 413.10 70.08 62.24 March 2015 470.55 438.00 70.18 65.17 April 2015 467.60 441.40 71.51 65.65 1 May 2015 459.80 – 70.00 –

Exchange and the highest and lowest closing sales prices of ADSs, as reported on the New York Stock Exchange.

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

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

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211 Overview

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Delivering our strategy

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Financial statements

Additional information

Ordinary shares of 5p each

Range Number of

holdings

Percentage of total

Number of shares held

millions

Percentage of total

1 – 399 354,114 39.69 73 0.87 400 – 799 236,217 26.47 131 1.56 800 – 1,599 170,855 19.15 191 2.28 1,600 – 9,999 125,118 14.02 381 4.55 10,000 – 99,999 4,754 0.53 90 1.07 100,000 – 999,999 647 0.07 244 2.91 1,000,000 – 4,999,999 503 0.06 3,244 38.74 5,000,000 and abovea,b,c,d 30 0.00 4,019 48.00

Totale 892,238 100.00 8,373 100.00 a b

c d e

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.

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 13.7 137.9m 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.

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212 BT Group plc Annual Report 2015

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

shareholders on the register on 14 August 2015.

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 on page 223. Dividends have been translated from Sterling into US Dollars using exchange rates prevailing on the date the ordinary dividends were paid.

Per ordinary share Per ADS Per ADS

Financial years ended 31 March Interim

pence Final

pence Total

pence Interim

£ Final

£ Total

£ Interim

US$ Final US$

Total US$

2011 2.40 5.00 7.40 0.240 0.500 0.740 0.366 0.777 1.143 2012 2.60 5.70 8.30 0.260 0.570 0.830 0.390 0.885 1.275 2013 3.00 6.50 9.50 0.300 0.650 0.950 0.451 0.994 1.445 2014 3.40 7.50 10.90 0.340 0.750 1.090 0.534 1.187 1.721 2015 3.90 8.50 12.40 0.390 0.850 1.240 0.573 –a –a

conversion by the Depositary of such cash dividends.

Dividend mandate 225),

or go to the Shareholder information page of our website.

Calendar montha

Total number of shares

purchased

Average price paid

net of dealing costs)

Total number of shares purchased as part of publicly announced

plans or programmes

Maximum number of shares yet to be

purchased under the AGM authorityb

April 2014 nil nil 726,434,300 May 22,753,900 381 22,753,900 703,680,400 June 16,083,700 392 16,083,700 687,596,700 July 12,000,000 381 12,000,000 780,000,000 August nil nil 780,000,000 September nil nil 780,000,000 October nil nil 780,000,000 November 10,008,300 373 10,008,300 769,991,700 December 3,549,900 411 3,549,900 766,441,800 January 2015 nil nil 766,441,800 February 16,058,900 442 16,058,900 750,382,900 March nil nil 750,382,900

396 a

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

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213 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

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:

Date paid Price per share

pence

7 February 2011 185.89 5 September 2011 164.64

6 February 2012 216.39 3 September 2012 223.15

4 February 2013 265.01 2 September 2013 339.38

3 February 2014 385.76 8 September 2014 387.00

9 February 2015 436.92

Details of the direct purchase plan run by the ADR Depositary, JPMorgan Chase & Co, Global Invest Direct, including reinvestment of dividends, are

BT’s TSR was positive 325.6%, compared with the market’s TSR of positive 42.4% and the sector’s TSR of positive 88.6%.

Source: Datastream The graph shows the relative TSR performance of BT, the FTSE100

100

150

350

250

300

200

400

450

BT FTSE100 Sector Index €

Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15

31 March 2009=100

BT’s TSR performance vs the FTSE100 and FTSEuro st 300 Telco Index

details and other shareholder

centre

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214 BT Group plc Annual Report 2015

Expected announcements of results:

Datea

1st quarter 31 July 2015 2nd quarter and half year October 2015 3rd quarter and nine months January 2016 4th quarter and full year May 2016 Annual Report 2016 published May 2016

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 [email protected] or telephone them on 020 7930 3737.

Year ended 31 March 2015 2014 2013 2012 2011

Period end 1.49 1.67 1.52 1.60 1.60 Averagea 1.61 1.60 1.58 1.61 1.56 High 1.72 1.68 1.63 1.67 1.64 Low 1.47 1.48 1.49 1.53 1.43

Month

April

2015 March 2015

February 2015

January 2015

December 2014

High 1.55 1.54 1.55 1.56 1.57 Low 1.47 1.47 1.50 1.50 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.

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215 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

The following is a summary of the principal provisions of BT’s Articles, a

of shares’ and a ’shareholder’ is, in either case, the person entered on the company’s register of members as the holder of the relevant shares. Shareholders can choose whether their shares are to be evidenced

the UK).

largely to take account of changes in UK company law brought about by

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 BT’s Memorandum are deemed to form part of BT’s Articles, and have been deleted from those Articles because of

2006 Act, BT’s objects are unrestricted.

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

or by one or more shareholders at the meeting who are entitled to vote

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

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.

of shares, the special rights attached to any of those classes can be varied or withdrawn either:

meeting of the holders of the shares of that class; or

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

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.

The company may by ordinary resolution:

nominal value; and

larger nominal value.

The company may also:

redemption reserve and any share premium account.

The company’s shareholders can declare dividends by passing an ordinary resolution provided that no dividend can exceed the amount

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.

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 company’s shareholders must have passed an ordinary resolution authorising the

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.

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

the liquidator considers fair on any property and decide how the division

The liquidator can also, with the same authority, transfer any assets

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.

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

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

show payment of any applicable stamp duty and delivered to the

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.

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.

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

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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.

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

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.

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

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.

any director or former director or persons connected with them.

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

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:

aware; or which cannot reasonably be regarded as likely to give rise

holder of shares, debentures or other securities of BT, or by reason of any other interest in or through BT;

to the director or any other person for money lent or obligations incurred by the director or by any other person at the request

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;

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;

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;

former BT employees or any of BT’s subsidiary undertakings which

to the employees or former employees to whom the arrangement relates;

directors;

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

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 BT’s Articles there must be at least two directors, who manage the business of the company. The shareholders can vary this minimum

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

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

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 company’s 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.

BT’s 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 BT’s 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.

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217 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

Under the Financial Services and Markets Act 2000 and the UK Disclosure and Transparency Rules there is a statutory obligation on a

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

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

all parties to a takeover and also on their respective associates during the

Material contracts

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.

sections: ,

circular and . For reference and understanding, we set out

Acquisition: the proposed acquisition by BT of EE

Acquisition Resolution: the Resolution to approve the Acquisition and to

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:

Buy-Back Resolution: the resolution to approve the buy-back of Ordinary Shares from Deutsche Telekom and or 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

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:

than any activist fund, or any company licensed as a telecommunications

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

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: United Kingdom

Resolutions: the Resolutions set out in the Notice of General Meeting

Sellers: Deutsche Telekom and Orange

Shareholder: 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

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.

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

cash, working capital and capex position of EE at Completion. Based upon EE’s net debt as at 31 December 2014, adjusted for estimated other debt-

Shares, equivalent to 12% of BT’s share capital on an enlarged basis post-Acquisition;

million based upon a reference price of 411.5 pence per Ordinary

further variation in accordance with the cap and collar protection mechanism described below);

equivalent to 4% of BT’s share capital on an enlarged basis post- Acquisition; and

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

Completion) from the reference price set out above, subject to:

% 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

% above the reference price). A share price above this level would not result in further adjustment to the cash

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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

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 BT’s 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

their admission to listing and trading;

Exchange having approved admission of the Consideration Shares

unconditionally, or conditionally on BT giving remedies, which

consultation with the Sellers); or

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

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;

clearance of the Acquisition by the European Commission, meaning;

Regulation unconditionally, or conditionally on BT giving

ordination and consultation with the Sellers); or

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

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;

If the Acquisition Resolution is approved at the General Meeting and each

may agree), the Company will be contractually obliged to proceed to Completion unless the Share Purchase Agreement is otherwise terminated.

3.1 BT BT has agreed that until Completion or earlier termination of the Share Purchase Agreement, it shall:

and to trading on the London Stock Exchange;

for any Ordinary Shares or share capital, or issue or create any right to subscribe for any other securities or equity interests convertible

existing BT employee share plans);

than ordinary course dividends payable in cash in accordance with its announced dividend policy;

except in accordance with its existing ordinary course share buy- back programme;

Ordinary Shares in issue or make any other shareholder distribution

exceptions outlined above); or

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:

the ordinary course; and

certain projects of EE agreed with BT around the time of entry into the Share Purchase Agreement):

properties;

ordinary course of business;

Sellers’ Groups;

guarantee obligations or, except in the ordinary course, indemnity obligations;

strategy or, except in limited circumstances, the funding basis

prejudice the use of, the EE Group’s tax losses;

dispute;

changing the material general terms of employment of its employees; adopting or materially amending any employee

pension and retirement arrangements for employees; declaring

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

BT prior to Completion, from which point the terms of the Relationship Agreement and Standstill and Lock-up Agreement shall apply.

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219 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

4.1 Warranties The Share Purchase Agreement contains customary warranties given by the Sellers, including in relation to authorisations, valid obligations,

Documents, and including in relation to the EE Group, its share capital,

assets, tax, material contracts, related party arrangements, litigation, IP

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

the EE Group as a result of certain other investigations and disputes.

The warranties and indemnities given by the Sellers are subject to

4.3 Covenants The Share Purchase Agreement contains customary covenants restricting the Sellers from competing with EE’s business for a period of three years

customary exceptions).

The Share Purchase Agreement also contains a customary tax covenant in respect of liability for taxes due pre and post-Completion.

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

since its last accounts date.

BT also agrees that it will indemnify the Sellers in the event that they

appointment of a Director to the Board by the Deutsche Telekom Group).

The warranties and indemnity given by BT are subject to customary

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

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.

from an existing Orange or T-Mobile brand licence for three calendar months following Completion. Prior to the date falling three calendar

groups), BT, and EE will agree appropriate conditions for the continued

use of the brands will be for the purpose of an orderly wind-down and extraction of the Orange and T-Mobile brands from EE’s 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 AG’s guarantee to Hutchison, to a maximum value of £750 million. Deutsche Telekom AG’s existing arrangement guarantees EE’s 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.

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

aggregate) to Deutsche Telekom and Orange.

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

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.

traded on the London Stock Exchange’s main market for listed securities

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:

Telekom Group will be entered into on an arm’s length basis and on normal commercial terms;

from complying with its obligations under the Listing Rules; and

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220 BT Group plc Annual Report 2015

propose or procure the proposal of a shareholder resolution which is intended or appears to be intended to circumvent the

Provisions”).

Deutsche Telekom AG undertakes to procure the compliance of its group members with the Independence Provisions.

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

certain exceptions, not to:

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;

or disposition of any shares or other securities of BT;

particular manner at any meeting of Shareholders; or

consolidation or share exchange involving shares or other securities

Provisions”).

The exceptions to the Standstill Provisions include circumstances:

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;

and

and the Deutsche Telekom Group takes up its rights to subscribe for

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

capital or re-purchase of shares or other securities of BT) any Shares in excess of 15% it shall procure that the votes attaching to such Excess Shares shall be

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.

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

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

by a third party for the whole of the ordinary share capital of BT,

an irrevocable undertaking or letter of intent to accept or vote in

provided that the transferee agrees to be bound by the restrictions of the Relationship Agreement; and

Investor of no more than 5% each of the Ordinary Shares in issue of

5% provided that any transferee enters into a lock-up agreement on substantially similar terms to the lock-up provisions of the Relationship Agreement.

Prior to any Disposal by Deutsche Telekom AG, Deutsche Telekom or any

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

for all of the Ordinary Shares detailed in the notice, or else its right to

may make the sale or transfer within three months of the delivery of the

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

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

Ordinary Shares held by Orange and Orange SA, the maximum amount

approximately 14% of BT’s 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 price of the Ordinary Shares

addition, BT has separately undertaken to give the Sponsor prior notice

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

General Meeting.

Under the Relationship Agreement, subject to compliance with any applicable regulatory requirements, Deutsche Telekom AG is able

Representative Director”) to the Board for so long as the Deutsche Telekom Group holds 10% or more of the issued share capital of BT

% 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 BT’s 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

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221 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

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

The Relationship Agreement provides for the establishment of a

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

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

Representative Director shall not attend any Board meeting of BT unless

Telekom Representative Director shall not attend any Board meetings in

Deutsche Telekom AG is also entitled to receive, subject to compliance

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

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

admitted to trading on the London Stock Exchange’s main market for

than 3% of the issued ordinary share capital of BT.

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:

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;

disposition of any shares or other securities of BT;

particular manner at any meeting of the Shareholders; or

consolidation or share exchange involving shares or other

Provisions”).

The exceptions to the Standstill Provisions include:

Directors of BT;

and

and the Orange Group takes up its rights to subscribe for or acquire

After expiry of the standstill period, the Orange Group will otherwise be free to increase its shareholding in BT.

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

on page 220 above). The exceptions include:

for the whole of the ordinary share capital of BT, whether by

undertaking or letter of intent to accept or vote in favour of any

that the transferee agrees to be bound by the restrictions of the Standstill and Lock-up Agreement;

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

2% 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.

Prior to any Disposal by Orange SA, Orange or any of their group

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

for all of the shares detailed in the notice, or else its right to make an

the sale or transfer within three months of the delivery of the notice to

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

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

Ordinary Shares held by Deutsche Telekom AG and Deutsche Telekom, the maximum amount of Ordinary Shares BT can acquire by exercise

% of BT’s 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

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

General Meeting.

financials.indb 221 15/05/2015 01:52

222 BT Group plc Annual Report 2015

Introduction On 1 April 2015 we published a shareholder circular in relation to our proposed acquisition of EE. In this, we provided information relating

when we published our unaudited results for the third quarter and nine months to 31 December 2014.

In this we included the following statement:

take into account any impact of the proposed acquisition of EE. We have reproduced below the basis of preparation of the

it was set out in the shareholder circular.

Basis of preparation

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.

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.

of the results for the period to 31 March 2016.

Assumptions

following assumptions during the forecast period.

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 group’s operations or its accounting policies;

d) group, its customers or operations, including natural disasters, acts of terrorism, cyber 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 group’s core services;

g) there will be no industrial action; h)

charge; and i) there will be no material change in the management or control of

the group.

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.

ircular

Introduction The Board believes that the proposed acquisition

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

b As a result of EE’s 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 BT’s cost of capital in the third year post-Completion on the basis of estimated synergies and integration costs.

Cost savings

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

cost transformation, which uses forensic analysis to redesign processes

experience. EE has demonstrated its ability to deliver post-transaction synergies ahead of initial expectations following its creation by the merger of the Orange Group’s UK business and the Deutsche Telekom

The operating cost and capex savings are expected to be achieved as follows:

commercial savings with an annual run-rate of approximately £70 million from consolidating sales and marketing operations, procurement

IT savings with an annual run-rate of approximately £90 million through consolidating IT systems and insourcing activities; network savings with an annual run-rate of approximately £80 million through integrating some network elements and insourcing certain activities; and operational savings with an annual run-rate of approximately £120

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

customers who do not currently take a service from BT. BT also expects

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

b c

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223 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

on the Acquisition and could not be achieved independently.

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

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

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

ordinary shares or ADSs that, for US federal income tax purposes, is:

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 advise disposing of the ordinary shares or ADSs.

Code of 1986, as amended, existing and proposed Treasury regulations, rulings, judicial decisions and administrative practice, all as currently in

States Tax Convention that entered into force on 31 March 2003 and

this Annual Report, all of which are subject to change or changes in

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

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

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

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

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.

2013. There could also be a 3.8% net investment income tax on dividends to individuals with income above a certain amount. This also

includes dividends paid by a non-US corporation if, among other things, the US Holders meet certain minimum holding periods and the non-US

shares or ADSs with respect to which the dividend has been paid are

exchange of information. BT currently believes that dividends paid

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

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

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

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

2005 and continues to not be resident or ordinarily resident in the UK

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

Dollar value of the amount realised on the disposition and the US

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224 BT Group plc Annual Report 2015

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. Long- term capital gains recognised by an individual US Holder generally are subject to US federal income tax at preferential rates. The deductibility of

A US Holder’s 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

in the applicable Treasury Regulations, that are purchased by a cash basis

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

sale or other disposition and the settlement date. However, in the case of ordinary shares traded on an established securities market that are

on the settlement date for the sale, and no exchange gain or loss will be recognised at that time.

Passive foreign investment company status

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

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

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

reporting requirements. Backup withholding will not apply, however, to

or who is otherwise exempt. Persons that are US persons for US federal income tax purposes who are required to establish their exempt

for US federal income tax purposes generally will not be subject to US information reporting or backup withholding. However, such holders

intermediaries.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s US federal income tax liability. A holder may obtain a refund of any excess amounts

appropriate claim for refund with the IRS and furnishing any required information.

UK stamp duty A transfer of or an agreement to transfer an ordinary share will generally

0.5% of the amount or value of any consideration provided rounded

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

nearest £5. No UK stamp duty will be payable on the transfer of an

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 money’s 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

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

The rules and scope of domicile are complex and action should not

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

exclusion, credit or allowance).

non-US entities conducted limited activities in, or with persons from,

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

Under Section 219 of the Iran Threat Reduction and Syria Human Rights

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

BT has a contract in place with Telecommunication Infrastructure voice calls from Iran to the UK. These

payments are subject to HM Treasury approval.

BT entered into a Framework Agreement with Rafsanjan Industrial

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.

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225 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

There are no government laws, decrees, regulations, or other UK

capital, including the availability of cash and cash equivalents for use by the company except as otherwise described in .

There are no limitations under UK law restricting the right of non- residents to hold or to vote shares in the company.

reference facilities at Room 1580, 100 F Street NE, Washington, DC 20549, US.

These reports may be accessed via the SEC’s website at www.sec.gov

Publications

and social and environmental performance.

Document Publication date

Notice of meeting May Annual Report & Form 20-F May Delivering our purpose report May EAB Annual Report May Expected quarterly results releases July, October, January and May Current Cost Financial Statements July The Way We Work, a statement of business practice

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 rep BT’s compliance with the Undertakings) can be accessed online at

bt. More detailed disclosures on BT’s implementation of social, ethical and environmental policies and procedures are available online through our in sustainability report at www.bt.c

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

the Shareholder Helpline.

BT is committed to communicating openly with each of its stakeholder audiences in the manner most appropriate to their requirements.

more information about BT. There are direct links from this page to sites providing information particularly tailored for shareholders, institutional

Private shareholders If private shareholders have any enquiries about their shareholding, they should contact our Registrars, Equiniti, at the address below. Equiniti maintain BT Group’s share register and the separate BT Group EasyShare register. They also provide a Shareholder Helpline service on Freefone 0808 100 4141.

Helpline 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

Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA www.equiniti.com

JPMorgan Chase & Co PO Box 64504 St Paul, MN 55164-0854, US Tel: +1 800 990 1135 or +1 651 453 2128

or +1 800 428 4237

email:

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

Relations on:

Tel: 020 7356 4909 email: ir

Industry analysts and consultants may contact BT Analyst Relations on:

Tel: 020 7356 4909 email:

tion

financials.indb 225 15/05/2015 01:52

226 BT Group plc Annual Report 2015

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 Where information can be found in this Annual Report Item Section Page

1 ers Not applicable

2 Not applicable

3 7

Group performance 79

205 Information for shareholders Exchange rates 214 3B Capitalisation and indebtedness Not applicable

4A History and development of the company How our lines of business performeda 8 Information for shareholders Background 210 Group performance Capital expenditure 88 General information Capital management and funding policy 132 4B Business overview Key performance indicators 6 Our purpose 21 Our goal 21 Our strategy 21 Information for shareholders Fina acquisition considered in the sharehold 222 Our networks and physical assets 33 Research and development 34 Brand and reputation 34 Our lines of business 54 Stakeholders and relationships Our suppliers 36 Human Rights 37 Our relationship with HM Government 38 Regulation 38

Segment information 155 Financial and operational statistics Operational statistics 208 Information for shareholders Cautionary statement regarding forward-looking statements 209 Further note on certain activities 224 4C Organisational structure Operating Committee 26 Our business model 28 Our lines of business 54 Subsidiary undertakings 199 4D Property, plants and equipment Our networks and physical assets Properties 33

Property, plant and equipment 168 Financial and operational statistics Financial statistics 207

5A Operating results Our lines of business 54 Group performanceb 80

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227 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page

90 Alternative performance measures 202 Information for shareholders Cautionary statement regarding forward-looking statements 209 5B Liquidity and capital resources Group performanceb 80 Information for shareholders Cautionary statement regarding forward-looking statements 209

Loans and other borrowings 183 Financial instruments and risk management 187 Financial commitments and contingent liabilities 194 5C Research and development, patents and licences Research and development 34 Financial and operational statistics Financial statistics 207 5D Trend information Group performanceb 80

205 Information for shareholders Cautionary statement regarding forward-looking statements 209

133 5F Tabular disclosure of contractual obligations Group performance Contractual obligations and commitments 90

6A Directors and senior management Board of Directors 96 The Board 98 6B Compensation Reports of the Board committees Report on Directors’ Remuneration 111

172 Share-based payments 180 6C Board practices Board of Directors 96 The Board 98 Reports of the Board committees Report on Directors’ Remuneration 111 6D Employees Our people 30 Group performance Income statement Operating costs 82

Employees 160 6E Share ownership Reports of the Board committees Report on Directors’ Remuneration 111

Share-based payments 180

7A Major shareholders Shareholders and Annual General Meeting Relations with shareholders Substantial shareholdings 135 Information for shareholders Analysis of shareholdings at 31 March 2015 211 7B Related party transactions Directors’ information Interest of management in certain transactions 131

Related party transactions 193 7C Interests of experts and counsel Not applicable

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228 BT Group plc Annual Report 2015

Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page

General information Legal proceedings 133 Group performance Dividends 84

Financial commitments and contingent liabilities 194 Information for shareholders Dividends 212

Dividends 215

Going concern 130

Stock exchange listings Share and ADS prices 210 9B Plan of distribution Not applicable 9C Markets Information for shareholders Stock exchange listings 210 9D Selling shareholders Not applicable 9E Dilution Not applicable 9F Expenses of the issue Not applicable

10A Share capital Not applicable 10B Memorandum and articles of association Information for shareholders

215 10C Material contracts Information for shareholders Material contracts 217 10D Exchange controls Information for shareholders

225 10E Taxation Information for shareholders

223 10F Dividends and paying agents Not applicable 10G Statement by experts Not applicable 10H Documents on display Information for shareholders Documents on display 225 10I Subsidiary information Not applicable

Financial instruments 154

Financial instruments and risk management 187

12 Not applicable

13 Not applicable

14 Not applicable

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229 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page

15 Controls and procedures General information US Regulation US Sarbanes-Oxley Act of 2002 131 Disclosure controls and procedures 131

132

statements United States opinion 143

16A General information US Regulation US Sarbanes-Oxley Act of 2002 131 16B General information US Regulation US Sarbanes-Oxley Act of 2002 131 16C

Audit, audit related and other non-audit services 160 Reports of the Board Committees Audit & Risk Committee Chairman’s report 101 16E Information for shareholders Share buyback 212 16F Not applicable 16G General information US Regulation New York Stock Exchange 131

17 Not applicable

18 statements United States opinion 143

144

a b

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230 BT Group plc Annual Report 2015

Broadband Delivery UK – the UK Government body charged

broadband in harder-to-reach parts of the country.

was closed to new members on 31 March 2001.

BT Retirement Saving Scheme – the scheme set up on 1 April 2009 as a successor to the BT Retirement Plan. It is a contract-based,

C communications provider – a provider of communications services –

telephony, broadband, video on demand and other services.

digital subscriber line – a broadband service where existing wires between the local telephone exchange and a customer’s telephone sockets are transformed into a high-speed digital line.

E high-capacity, high-speed digital connections available

which a domestic connection is inadequate when large numbers of devices have to be online.

provide high connection speeds from the exchange to a street cabinet

to the premises.

provide high connection speeds for the whole route from the exchange to the customer.

an innovative technology that uses higher frequencies than FTTC to provide faster broadband speeds over copper.

product.

I internet protocol – a packet-based protocol for delivering data –

including voice and video – across networks. internet protocol television – the combination of broadcast

content with broadband content, delivering both through the television. IP exchange – a telecommunications interconnection model for the

integrated services digital network – a telephone system network, which integrates voice and data on the same lines.

L Ladder pricing links the amounts that BT charges

mobile operators for mobile calls to 0800, 0845 and 08700 numbers terminating on our network to the retail price charged by mobile operators to their customers.

local loop unbundling – the process by which CPs can rent the copper lines between BT’s exchanges and customer premises from Openreach to provide voice and broadband services using their own equipment.

a product that uses pseudo wire

and core sites in a single converged packet network. multi-protocol label switching – supports the rapid transmission

of data across network routers, enabling modern networks to achieve high quality of service.

mobile virtual network operator – an arrangement where a retailer sells mobile services under its own brand but uses a mobile network owned by another operator to do so.

available generally taken to refer to broadband products that provide a maximum download speed greater than 24Mbps.

O the independent regulator and competition authority in the UK

communications industries, with responsibilities across television, radio, telecommunications and wireless communications services.

P passive infrastructure access – this occurs when one company

cables. payments to other licensed operators – typically refers to

their network to carry the call to the customer receiving the call. points of presence – this refers to a location in a city where BT has

the ability to connect customers to one of its networks.

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231 Overview

The Strategic Report Purpose and strategy

Delivering our strategy

Group performance

Governance

Financial statements

Additional information

R ‘Right First Time’ – the internal measure of whether we are

keeping our promises to our customers and meeting or exceeding their expectations.

session initiation protocol – a method for creating, modifying and terminating sessions with one or more participants. These include internet telephone calls, multimedia distribution and multimedia conferences.

legally-binding commitments BT made to Ofcom, designed to bring greater transparency and certainty to the regulation of the telecommunications industry in the UK. They led to the formation of Openreach.

voice over internet protocol – a method of transporting speech over the internet.

virtual private network – a secure way to create an apparent dedicated network between nodes over a network infrastructure, which is in reality shared with other services.

wide area network – a computer network that exists over a relatively large geographical area that connects two or more smaller networks. This enables computers and users in one location to communicate with computers and users in other locations.

wholesale broadband connect – a product supplied by BT Wholesale which provides high-speed, high-performance broadband services.

wholesale line rental – a product supplied by Openreach which

pricing structure and billing, but using BT’s network.

Y a service which combines free digital channels with free

on-demand content from public service broadcasters delivered over broadband.

financials.indb 231 15/05/2015 01:52

232 BT Group plc Annual Report 2015

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<< /ASCII85EncodePages false /AllowTransparency false /AutoPositionEPSFiles true /AutoRotatePages /All /Binding /Left /CalGrayProfile (Gray Gamma 2.2) /CalRGBProfile (sRGB IEC61966-2.1) /CalCMYKProfile (U.S. Web Coated \050SWOP\051 v2) /sRGBProfile (sRGB IEC61966-2.1) /CannotEmbedFontPolicy /Warning /CompatibilityLevel 1.4 /CompressObjects /Tags /CompressPages true /ConvertImagesToIndexed true /PassThroughJPEGImages true /CreateJobTicket false /DefaultRenderingIntent /Default /DetectBlends true /DetectCurves 0.1000 /ColorConversionStrategy /sRGB /DoThumbnails true /EmbedAllFonts true /EmbedOpenType false /ParseICCProfilesInComments true /EmbedJobOptions true /DSCReportingLevel 0 /EmitDSCWarnings false /EndPage -1 /ImageMemory 1048576 /LockDistillerParams false /MaxSubsetPct 0 /Optimize true /OPM 1 /ParseDSCComments true /ParseDSCCommentsForDocInfo true /PreserveCopyPage true /PreserveDICMYKValues true /PreserveEPSInfo false /PreserveFlatness false /PreserveHalftoneInfo false /PreserveOPIComments false /PreserveOverprintSettings true /StartPage 1 /SubsetFonts true /TransferFunctionInfo /Apply /UCRandBGInfo /Remove /UsePrologue false /ColorSettingsFile () /AlwaysEmbed [ true ] /NeverEmbed [ true /Arial-Black /Arial-BlackItalic /Arial-BoldItalicMT /Arial-BoldMT /Arial-ItalicMT /ArialMT /ArialNarrow /ArialNarrow-Bold /ArialNarrow-BoldItalic /ArialNarrow-Italic /ArialUnicodeMS /CenturyGothic /CenturyGothic-Bold /CenturyGothic-BoldItalic /CenturyGothic-Italic /CourierNewPS-BoldItalicMT /CourierNewPS-BoldMT /CourierNewPS-ItalicMT /CourierNewPSMT /Georgia /Georgia-Bold /Georgia-BoldItalic /Georgia-Italic /Impact /LucidaConsole /Tahoma /Tahoma-Bold /TimesNewRomanMT-ExtraBold /TimesNewRomanPS-BoldItalicMT /TimesNewRomanPS-BoldMT /TimesNewRomanPS-ItalicMT /TimesNewRomanPSMT /Trebuchet-BoldItalic /TrebuchetMS /TrebuchetMS-Bold /TrebuchetMS-Italic /Verdana /Verdana-Bold /Verdana-BoldItalic /Verdana-Italic ] /AntiAliasColorImages false /CropColorImages false /ColorImageMinResolution 150 /ColorImageMinResolutionPolicy /OK /DownsampleColorImages true /ColorImageDownsampleType /Average /ColorImageResolution 120 /ColorImageDepth -1 /ColorImageMinDownsampleDepth 1 /ColorImageDownsampleThreshold 1.50000 /EncodeColorImages true /ColorImageFilter /DCTEncode /AutoFilterColorImages true /ColorImageAutoFilterStrategy /JPEG /ColorACSImageDict << /QFactor 0.40 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /ColorImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /JPEG2000ColorACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /JPEG2000ColorImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /AntiAliasGrayImages false /CropGrayImages false /GrayImageMinResolution 150 /GrayImageMinResolutionPolicy /OK /DownsampleGrayImages true /GrayImageDownsampleType /Average /GrayImageResolution 120 /GrayImageDepth -1 /GrayImageMinDownsampleDepth 2 /GrayImageDownsampleThreshold 1.50000 /EncodeGrayImages true /GrayImageFilter /DCTEncode /AutoFilterGrayImages true /GrayImageAutoFilterStrategy /JPEG /GrayACSImageDict << /QFactor 0.40 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /GrayImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >> /JPEG2000GrayACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /JPEG2000GrayImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >> /AntiAliasMonoImages false /CropMonoImages false /MonoImageMinResolution 1200 /MonoImageMinResolutionPolicy /OK /DownsampleMonoImages true /MonoImageDownsampleType /Average /MonoImageResolution 300 /MonoImageDepth -1 /MonoImageDownsampleThreshold 1.50000 /EncodeMonoImages true /MonoImageFilter /CCITTFaxEncode /MonoImageDict << /K -1 >> /AllowPSXObjects true /CheckCompliance [ /None ] /PDFX1aCheck false /PDFX3Check false /PDFXCompliantPDFOnly false /PDFXNoTrimBoxError true /PDFXTrimBoxToMediaBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXSetBleedBoxToMediaBox true /PDFXBleedBoxToTrimBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXOutputIntentProfile (U.S. Web Coated \050SWOP\051 v2) /PDFXOutputConditionIdentifier (CGATS TR 001) /PDFXOutputCondition () /PDFXRegistryName (http://www.color.org) /PDFXTrapped /False /CreateJDFFile false /Description << /ENU ([Based on 'Bowne LoRes'] Use these settings to create Adobe PDF documents suitable for reliable viewing and printing of business documents. Created PDF documents can be opened with Acrobat and Adobe Reader 5.0 and later.) >> /Namespace [ (Adobe) (Common) (1.0) ] /OtherNamespaces [ << /AsReaderSpreads false /CropImagesToFrames true /ErrorControl /WarnAndContinue /FlattenerIgnoreSpreadOverrides false /IncludeGuidesGrids false /IncludeNonPrinting false /IncludeSlug false /Namespace [ (Adobe) (InDesign) (4.0) ] /OmitPlacedBitmaps false /OmitPlacedEPS false /OmitPlacedPDF false /SimulateOverprint /Legacy >> << /AllowImageBreaks true /AllowTableBreaks true /ExpandPage false /HonorBaseURL true /HonorRolloverEffect false /IgnoreHTMLPageBreaks false /IncludeHeaderFooter false /MarginOffset [ 0 0 0 0 ] /MetadataAuthor () /MetadataKeywords () /MetadataSubject () /MetadataTitle () /MetricPageSize [ 0 0 ] /MetricUnit /inch /MobileCompatible 0 /Namespace [ (Adobe) (GoLive) (8.0) ] /OpenZoomToHTMLFontSize false /PageOrientation /Portrait /RemoveBackground false /ShrinkContent true /TreatColorsAs /MainMonitorColors /UseEmbeddedProfiles false /UseHTMLTitleAsMetadata true >> << /AddBleedMarks false /AddColorBars false /AddCropMarks false /AddPageInfo false /AddRegMarks false /BleedOffset [ 0 0 0 0 ] /ConvertColors /ConvertToRGB /DestinationProfileName (sRGB IEC61966-2.1) /DestinationProfileSelector /UseName /Downsample16BitImages true /FlattenerPreset << /PresetSelector /MediumResolution >> /FormElements true /GenerateStructure true /IncludeBookmarks false /IncludeHyperlinks false /IncludeInteractive false /IncludeLayers false /IncludeProfiles true /MarksOffset 6 /MarksWeight 0.250000 /MultimediaHandling /UseObjectSettings /Namespace [ (Adobe) (CreativeSuite) (2.0) ] /PDFXOutputIntentProfileSelector /UseName /PageMarksFile /RomanDefault /PreserveEditing true /UntaggedCMYKHandling /UseDocumentProfile /UntaggedRGBHandling /UseDocumentProfile /UseDocumentBleed false >> ] >> setdistillerparams << /HWResolution [600 600] /PageSize [612.000 792.000] >> setpagedevice