##### Table of Contents



BT Group plcAnnual Report & Form 20-F2010
    
    (ARROW)




---



##### 



BT GROUP PLC ANNUAL REPORT & FORM 20-F
 
 BT Group plc  Annual Report & Form 20-F 2010
 (LOGO)2
    

Financial summary4
    
    Chairmans message5
    
    Chief Executives statement6
    
    Our business(LOGO)11
    
    Our business and strategy15
    
    Our markets and customers18
    
    Our resources22
    
    Our lines of business34
    
    Our corporate responsibility36
    
    Our risks38
    
    Other information41
    
    Financial review(LOGO)58
    
    Board of directors and Operating Committee60
    
    The Board62
    
    Report of the Audit Committee64
    
    Report of the Nominating Committee65
    
    Report of the Committee for Responsible 
and Sustainable Business66
    
    Report on directors remuneration78
    
    Directors information79
    
    Business policies82
    
    Shareholders and annual general meeting(LOGO)84
    
    Statement of directors responsibilities85
    
    Report of the independent auditors 
 consolidated financial statements87
    
    Consolidated financial statements145
    
    Report of the independent auditors 
 parent company financial statements146
    
    Financial statements of BT Group plc149
    
    Subsidiary undertakings and associate150
    
    Quarterly analysis of revenue and profit151
    
    Selected financial data153
    
    Financial statistics154
    
    Operational statistics(LOGO)156
    
    Information for shareholders168
    
    Cross reference to Form 20-F171
    
    Glossary of terms174
    
    Index




---



##### Table of Contents



OVERVIEW
 
 FINANCIAL SUMMARY
 
 Group results
 2010
    
    
    2009a£m
    
    
    £m
    
    
    Change
    
    Five year recordRevenue
    
    
    
    
    
    
    
    
    
    
    
    Adjusted revenue (£m) adjustedb,c
    
    
    £20,911
    
    
    
    £21,431
    
    (ARROW)
    2%
    
    (ARROW) reported
    
    
    £20,859
    
    
    
    £21,390
    
    (ARROW)
    2%EBITDAd
    
    
    
    
    
    
    
    
    
    
    
    Adjusted EBITDA (£m) adjustedb,c
    
    
    £5,639
    
    
    
    £5,238
    
    (ARROW)
    8%
    
    (ARROW) reported
    
    
    £5,162
    
    
    
    £3,191
    
    (ARROW)
    62%Profit (loss) before taxation
    
    
    
    
    
    
    
    
    
    
    
    Adjusted profit before taxation (£m) adjustedb,c
    
    
    £1,735
    
    
    
    £1,454
    
    (ARROW)
    19%
    
    (ARROW) reported
    
    
    £1,007
    
    
    
    £(244
    )
    (ARROW)
    £1,251mEarnings (loss) per share
    
    
    
    
    
    
    
    
    
    
    
    Adjusted earnings per share (pence) adjustedb,c
    
    
    17.3p
    
    
    
    14.1p
    
    (ARROW)
    23%
    
    (ARROW) reported
    
    
    13.3p
    
    
    
    (2.5)p
    
    (ARROW)
    15.8pFull year dividend (pence)Proposed full year dividend
    
    
    6.9p
    
    
    
    6.5p
    
    (ARROW)
    6%
    
    (ARROW)Free cash flow (£m)Free cash flowc
    
    
    £1,933
    
    
    
    £737
    
    (ARROW)
    £1,196m
    
    (ARROW)Net debt (£m)Net debtc
    
    
    £9,283
    
    
    
    £10,361
    
    (ARROW)
    £1,078m
    
    (ARROW)
 
 a
    
    Restated. See page 94.b
    
    Items presented as adjusted are stated before specific items, BT Global Services
contract and financial review charges in 2009 and net interest on pensions. See page 55 for further
details. In our quarterly results announcements we also report adjusted measures before leaver
costs, consistent with the basis of our outlook for the year (see page 3). From 2011 onwards, we
will be reporting our quarterly adjusted results after leaver costs.c
    
    Adjusted revenue, adjusted EBITDA, adjusted profit (loss) before taxation, adjusted
earnings (loss) per share, free cash flow and net debt are non-GAAP measures provided in addition
to the disclosure requirements of IFRS. The rationale for using non-GAAP measures and the locations
of reconciliations to the most directly comparable IFRS measure are provided in the Financial
reviewon pages 54 to 56.d
    
    EBITDA: Earnings before interest, taxation, depreciation and amortisation.
 
   2 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



OVERVIEW FINANCIAL SUMMARY
 
 Performance against our outlook for 2010
 
 Outlook
    
    Outlook
    
    
    
    
    
    OutlookMay 2009
    
    updated
    
    Outcome
    
    achieved(ARROW)
    
    Adjusted revenue decline
    
    
    4%-5
    %
    
    
    3%-4
    %
    
    
    2
    %
    
    (CHECK MARK)(ARROW)
    
    Total underlying costareductions
    
    >£1bn
    
    >£1.5bn
    
    £1.75bn
    
    (CHECK MARK)(ARROW)
    
    Adjusted EBITDAbbefore leaver costs
    
    
    
    
    c.£5.7bn
    
    £5.8bn
    
    (CHECK MARK)(ARROW)
    
    Capital expenditure
    
    c.£2.7bn
    
    c.£2.5bn
    
    £2.5bn
    
    (CHECK MARK)(ARROW)
    
    Free cash flowc
    
    >£1bn
    
    c.£1.7bn
    
    £1.9bn
    
    (CHECK MARK)(ARROW)
    
    Full year dividend
    
    
    
    
    c.5%up
    
    6% up
    
    (CHECK MARK)(ARROW)
    
    Net debtd
    
    
    
    
    <£10.0bn
    
    £9.3bn
    
    (CHECK MARK)
 
 Key points for 2010
 
 (ARROW)
    
    Full year results ahead of our outlook(ARROW)
    
    Revenue down 2%(ARROW)
    
    Total underlying costsareduced by £1,752m, down 9%(ARROW)
    
    Capital expenditure reduced by £555m to £2,533m(ARROW)
    
    Free cash flowcof £1,933m, an improvement of £1,196m(ARROW)
    
    Net debtdreduced by over £1bn(ARROW)
    
    Proposed final dividend of 4.6p per share, giving 6.9p for the full year
 
 Outlook for 2011
 
 (ARROW)
    
    Revenue
    
    c.£20bn(ARROW)
    
    Operating cost savingse
    
    c.£900m(ARROW)
    
    Adjusted EBITDAbafter leaver costs
    
    in line with 2010(ARROW)
    
    Free cash flowfbefore specific items
    
    c.£1.8bn(ARROW)
    
    Net debtd
    
    <£9.0bn
 
 
 a
    
    Underlying operating costs and capital expenditure, before specific items, leaver
costs, depreciation and amortisation and other operating income, excluding BT Global Services
contract and financial review charges in 2009.b
    
    Before specific items.c
    
    Before pension deficit payment of £525m but after the cash costs of the BT Global Services restructuring.d
    
    Net debt is defined on page 56.e
    
    Underlying operating costs before specific items and depreciation and amortisation.f
    
    Before pension deficit payment and before specific items of around £150m, with capital expenditure at around £2.6bn.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 3




---



##### Table of Contents



OVERVIEW
 
 CHAIRMANS MESSAGE
 
 
 
  Dividends
  Pension fund
  Regulation
  Environment and the community
    The Board
       The future
  SIR MICHAEL RAKE
 4 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



OVERVIEW
 
 CHIEF EXECUTIVES STATEMENT
 
 
 
 A better business, a better future
  A better business
   A better future
      Our people
      IAN LIVINGSTON
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 5




---



##### Table of Contents



OVERVIEW
 
 OUR BUSINESS
  
 What we do
 
   
  Multinational corporations
 4
    
    Global networked IT services4
    
    Worldwide virtual private network via our multi-protocol label switching service4
    
    State-of-the-art videoconferencing and telepresence services
 Small and medium enterprises
 4
    
    Fixed line and mobile call and broadband packages4
    
    IT and communications solutions
 UK consumer
 4
    
    Fixed line calls and broadband packages4
    
    Largest video-on-demand service in the UK4
    
    Biggest wi-fi network, with more than 1.5m hotspots4
    
    A new fibre-based access network
 Wholesale and carrier
 4
    
    Local loop unbundling, allowing communications providers to install their equipment in BT
exchanges, and use these lines to connect to end users4
    
    White label managed services for customers
who want to enter the communications market without the need to invest4
    
    Managed network solutions for communications providers> More on page 11
 
 Our aim
 
 
 4
    
    Customer service delivery4
    
    Cost transformation4
    
    Investing for the future
 
 (ARROW)
    
    
    
    Customer service deliveryOur goal is to provide excellent customer service in every market in which we operate by
putting our customers at the heart of everything we do.> More on page 11(ARROW)
    
    
    
    Cost transformationWe continue our drive to reduce costs across our business and deliver absolute levels of cost
reduction.> More on page 11(ARROW)
    
    
    
    Investing for the futureWe are investing in our networks, systems and services to ensure they enable our customers to
take advantage of the digital revolution.> More on page 12
 
   6 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



OVERVIEW OUR BUSINESS
 
 Our strategic priorities
 
  
 (ARROW)
    
    Broadband-based consumer services
 > More on page 12
 (ARROW)
    
    The Brand for Business for UK small and medium enterprises
 >More on page 12
 (ARROW)
    
    BT Global Services  a global leader
 >More on page 12
 (ARROW)
    
    The wholesaler of choice
 >More on page 13
 (ARROW)
    
    The best network provider
 >More on page 13
 
 How we measure our progress
 
  
 Adjusted earnings per sharea,b(pence)(PERFORMANCE GRAPH)
    
    Free cash flowb(£m)(PERFORMANCE GRAPH)
    
    Customer service improvementc(%)(PERFORMANCE GRAPH)
 > More on pages 13 and 14
 
 a
    
    Before specific items, BT Global Services contract and financial review charges in
2009 and net interest on pensions.b
    
    Adjusted earnings per share and free cash flow are non-GAAP measures provided in
addition to the disclosure requirements of IFRS. The rationale for using non-GAAP measures is
explained on pages 54 to 56. A reconciliation of adjusted earnings per share and free cash flow, to
the most directly comparable IFRS measure, is provided on pages 42 and 51, respectively.c
    
    Cumulative improvement from 1 April 2007.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 7




---



##### Table of Contents



OVERVIEW OUR BUSINESS
 
 How we are structured
 
 
 
 BT Global Services
  > More on page 22
 
 BT Retail
  > More on page 25
 
 BT Wholesale
  > More on page 28
 
 Openreach
  > More on page 31
 
 BT Innovate & Design
  > More on page 33
 
 BT Operate
  > More on page 33
 2010 Adjusted external revenue a by line of business
 
 
 2010 Adjusted EBITDA a by line of business
 
 
 How we maintain a sustainable business
 
  > More on page 34
 
 
 8 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



OVERVIEW OUR BUSINESS
 
 Where we operate
 
 We serve the needs of customers in the UK and in more than 170 countries worldwide.  > More on page 16
 
 Our products and services and who we sell them to
 
  > More on page 16
 
 
 BT GROUP PLCANNUAL REPORT & FORM 20-F 9




---



##### Table of Contents



REVIEW OF THE YEAR
  11
    
    OUR BUSINESS AND STRATEGY11
    
    Who we are11
    
    What we do11
    
    Our aim12
    
    Our strategic priorities13
    
    How we measure our progress14
    
    2010 outlook14
    
    2011 outlook and future plans15
    
    OUR MARKETS AND CUSTOMERS15
    
    Our markets15
    
    Competition16
    
    Customers16
    
    How we are structured16
    
    How we sell our products and services18
    
    OUR RESOURCES18
    
    Brand and reputation18
    
    People20
    
    Networks and platforms20
    
    Global research capability21
    
    Suppliers21
    
    Property portfolio22
    
    OUR LINES OF BUSINESS22
    
    BT Global Services25
    
    BT Retail28
    
    BT Wholesale31
    
    Openreach33
    
    BT Innovate & Design33
    
    BT Operate34
    
    OUR CORPORATE RESPONSIBILITY34
    
    Helping tackle climate change34
    
    Developing sustainable customer solutions34
    
    Enabling skills for an inclusive society35
    
    Charity support35
    
    Our corporate responsibility risks35
    
    Recognition of our contribution35
    
    Further information36
    
    OUR RISKS36
    
    Principal risks and uncertainties36
    
    Competitive activity36
    
    Global economic and credit market conditions36
    
    Regulatory controls37
    
    Major contracts37
    
    Security and resilience37
    
    Pensions38
    
    OTHER INFORMATION38
    
    Regulation39
    
    Our relationship with HM Government39
    
    Legal proceedings40
    
    Acquisitions and disposals41
    
    FINANCIAL REVIEW41
    
    Principal accounting policies, critical accounting estimates and key judgements42
    
    Summarised group income statement43
    
    Financial results48
    
    Financial position and resources51
    
    Liquidity52
    
    Funding and capital management54
    
    Alternative performance measures
 10     BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OUR BUSINESS AND STRATEGY
   Our business and strategy()
    
    Who we are()
    
    What we do()
    
    Our aim()
    
    Our strategic priorities()
    
    How we measure our progress()
    
    2010 outlook()
    
    2011 outlook and future plans
 This is the Annual Report for the year ended 31 March 2010. It complies with UK regulations and
is the Annual Report on Form 20-F for the US Securities and Exchange Commission to meet US
regulations. This Annual Report has been sent to shareholders who have elected to receive a copy. A
separate summary financial statement & notice of meeting 2010 has been issued to shareholders who
have elected to receive a shorter document. Both documents are available on the companys website, www.bt.com
 In this Annual Report, references to BT Group, BT, the group, the company, we or
our are to BT Group plc (which includes the continuing activities of British Telecommunications
plc) and its subsidiaries and lines of business, internal service units, or any of them as the
context may require.
 References to a year are to the financial year ended 31 March of that year, e.g. 2010
refers to the year ended 31 March 2010, except in relation to our fibre-based broadband roll out
plans which are based on calendar years, not financial years. Unless otherwise stated, all non
financial statistics are at 31 March 2010. Please see cautionary statement regarding
forward-looking statements on page 156.
 Denotes non financial targets. Being a responsible and sustainable business is integral to the
way we work. Our non financial key performance indicators measure our progress. These also include
direct costs to BT related to our environmental and social performance, in line with the principles
of the connected reporting framework.
 
 Who we are
  
 What we do
   
 Our aim
   2
       Transforming our cost base
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 11




---



##### Table of Contents



REVIEW OF THE YEAR OUR BUSINESS AND STRATEGY
             
 Our strategic priorities
  4
     4
  4
  12 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR BUSINESS AND STRATEGY
  BT Global Services  How BT Global
Services is changing
   4
     4
    
 How we measure our progress
  Adjusted earnings per share
 Financial review
 
 Adjusted earnings per share a,b
 (pence)
 
 
 Free cash flow
 Financial
review
 
 Free cash flow b
 (£m)
 
 
 
  a
    
    Before specific items, BT Global Services contract and financial review charges in 2009 and
net interest on pensions.b
    
    Adjusted basic earnings per share and free cash flow are non-GAAP measures provided in addition
to the disclosure requirements of IFRS. The rationale for using non-GAAP measures is explained on
pages 54 to 56. A reconciliation of adjusted earnings per share and free cash flow, to the most
directly comparable IFRS measure, is provided on pages 42 and 51, respectively. BT GROUP PLCANNUAL REPORT & FORM 20-F 13




---



##### Table of Contents



REVIEW OF THE YEAR OUR BUSINESS AND STRATEGY
  Customer service
  
 Customer service year-on-year improvement
 (%)
 
 
 
 2010 outlook
  4
    
    revenue to decline by 4%-5%4
    
    a net reduction in group capital expenditure and operating costs of well over £1bn4
    
    a reduction in group capital expenditure to around £2.7bn4
    
    group free cash flow, before any pension deficit payments, but after the cash costs of BT Global Services restructuring, to reach over £1bn.
  4
    
    revenue to decline by 3%-4%4
    
    total underlying cost reductions of at least £1.5bn4
    
    EBITDA of around £5.7bn4
    
    capital expenditure of around £2.5bn4
    
    free cash flow of around £1.7bn4
    
    net debt below £10bn4
    
    dividend growth of around 5%.
 Financial summary
 
 2011 outlook and future plans
     4
    
    revenue of around £20bn4
    
    operating cost savingsaof around £900m4
    
    adjusted EBITDAbafter leaver costs in line with last years level with underlying
improvement being offset by the increase in the pension service charge of around £100m and targeted
investment in the business of around £200m4
    
    free cash flowcof around £1.8bn before the
cash effect of specific items of around £150m, with capital expenditure at around £2.6bn4
    
    BT Global Services operating cash flow expected to show further significant improvement, turning positive by 20124
    
    Net debt below £9bn.
  4
    
    we expect improving underlying revenue trends from 2011 to 2013,
with growth in 20134
    
    BT Global Services revenue expected to grow by 20134
    
    BT Retail expected to show an improvement in revenue trends over the period to 20134
    
    BT Wholesale and Openreach revenue expected to be broadly level over the period to 20134
    
    adjusted EBITDAbafter leaver costs
expected to grow from 2011 to 2013 driven by a combination of further cost reductions and improving
revenue trends4
    
    free cash flowcbefore specific items expected to reach around £2bn by 20134
    
    progressive dividends over the next three years.
 
 a
    
    Underlying operating costs before specific items, depreciation and
amortisation.b
    
    Before specific items.c
    
    Before pension deficit payment. 14 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OUR MARKETS AND CUSTOMERS
   Our markets and customers(LOGO)
    
    Our markets(LOGO)
    
    Competition(LOGO)
    
    Customers(LOGO)
    
    How we are structured(LOGO)
    
    How we sell our products and services
 
 Our markets
           2
     
 Competition
  4
    
    In the UK consumer market, our voice and broadband offerings compete with a range of players and
propositions. Our competitors include a number of well known brands that utilise BTs
infrastructure to provide competing services in telephony and broadband, and also Virgin Media
which provides an alternative service utilising its own cable network.4
    
    In serving our SME customers, we find competition is fragmented and can depend on which services
our customers take from us, simple connectivity, or one of our more popular IT services packages.
For smaller accounts, we might be in competition with local start-ups or services firms such as
Geek Squad. For larger SMEs, we face competition from, among others, TalkTalk (via Opal) and Cable
& Wireless Worldwide. However, we retain the largest market share in voice telephony.4
    
    The networked IT services market is also challenging, both in the UK and internationally. Companies
such as Orange Business Services and Verizon Business are targeting multinational corporations.4
    
    Finally, while we have the largest network in the UK, our BT Wholesale and Openreach lines of
business compete regularly against other CPs either selling network capabilities to others or
choosing to build their own infrastructure.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 15




---



##### Table of Contents



REVIEW OF THE YEAR OUR MARKETS AND CUSTOMERS
  
 Customers
     Public sector
   Our relationship with HM Government
           
 How we are structured
    
 How we sell our products and services
  4
    
    Managed solutions which comprise networked IT services, multi-protocol label switching (MPLS) and
MNS4
    
    Broadband and convergence4
    
    Calls and lines4
    
    Transit, conveyance, interconnect circuits, wholesale line rental (WLR), global carrier and other
wholesale products4
    
    Other products and services which include BT Global Services revenue from non UK global products
and BT Retails Enterprises division including revenue from conferencing, directories, payphones
and other select services.
 16 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR MARKETS AND CUSTOMERS
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 17




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OUR RESOURCES
   Our resources()
    
    Brand and reputation()
    
    People()
    
    Networks and platforms()
    
    Global research capability()
    
    Suppliers()
    
    Property portfolio
  
 Brand and reputation
    
 BT marks the 1,000 day countdown to the London 2012 Olympic Games and Paralympic Games
 
 
     
 People
      Diversity of the BT workforce
 Target 2011
    
    2010
    
    2009
    
    2008BT will maintain a top 10
position in four of five major
diversity benchmarks; four UK 

based, and one global
    
    ()
    
    ()
    
    ()
 18 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR RESOURCES
   
 Tidying waterways bordering the Olympic Park in Stratford is just one of many volunteering
activities carried out by BT people
 
 
         Financial review
     Lost time injury rate
 Non financial performanceTarget 2011
    
    2010
    
    
    2009
    
    
    2008Reduce to 0.18 cases
    
    
    0.209
    
    
    
    0.160
    
    
    
    0.188
 Financial performance2010
    
    
    2009
    
    
    2008Cost to the business arising from injuries resulting in time off work
    
    
    £5.6m
    
    
    
    £7.0m
    
    
    newmeasurein 2009
  Sickness absence rate
 Non financial performanceTarget 2011
    
    2010
    
    2009
    
    2008Reduce to 2.21%
    
    
    2.46%
    
    
    2.17%
    
    
    2.43%
 Financial performance2010
    
    2009
    
    2008BT sick pay costs
    
    £95.4m
    
    £85.2m
    
    £89.8m
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 19




---



##### Table of Contents



REVIEW OF THE YEAR OUR RESOURCES
       4
    
    Trustworthy: we do what we say we will4
    
    Helpful: we work as one team4
    
    Inspiring: we create new possibilities4
    
    Straightforward: we make things clear4
    
    Heart: we believe in what we do.
  
 
 
 
 Networks and platforms
       
 Global research capability
      20 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR RESOURCES
  
 Suppliers
    Supplier
relationships
 Non financial performanceTarget 2011
    
    2010
    
    2009
    
    2008To achieve a rating of 80% or more
 based on a response of excellent or good to the question: How would
 you describe the quality of your companys relationship with BT?
    
    
    86
    %
    
    
    85
    %
    
    
    78
    %Financial performance2010
    
    2009
    
    2008Total spend with external supply base
    
    £12.0bn
    
    £13.0bn
    
    £12.8bnEthical
trading a measure of the application of BTs supply chain human rights standard ()
 Non financial performanceTarget 2011
    
    2010
    
    2009
    
    2008To achieve 100% follow up within three months for all
suppliers identified as high
    
    180 risk
    
    78 risk
    
    234 riskor medium risk, through our ethical standard questionnaires
    
    assessments
    
    assessments
    
    assessmentswith 100%
    
    with 100%
    
    with 100%follow up
    
    follow up
    
    follow upValue
of procurement contracts where our suppliers agree that we work with them to improve
sustainability impactsFinancial performance2010
    
    2009
    
    2008Value of spend where our suppliers
 agree that BT ensures its purchases are made, delivered, used and disposed
 of in a socially and environmentally responsible manner
(extrapolated from supplier survey responses)
    
    86% ofsupplierspend
    
    83% ofsupplierspend
    
    66% ofsupplierspend
   www.payontime.co.uk
 
 Property portfolio
    Specific items Financial review
  Waste to
landfill and recycling
 Non financial performanceUK onlyTarget 2011
    
    2010
    
    2009
    
    
    2008BT Group will reduce the tonnage of waste sent to landfill by
 10% from 2010 levels
    
    
    15
    %
    
    
    17
    %
    
    
    22
    %reduction
    
    reduction
    
    reductionin waste to
    
    in waste to
    
    in waste tolandfill from
    
    landfill from
    
    landfill from2009
    
    
    2008
    
    
    2007
 Financial performanceUK only2010
    
    
    2009
    
    
    2008Net benefit to the business of the waste programme
    
    
    £1.61m
    
    
    
    £0.67m
    
    
    
    £0.32m
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 21




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OUR LINES OF BUSINESS
  Our lines of business()
    BT Global Services()
    BT Retail()
    BT Wholesale()
    Openreach()
    BT Innovate & Design()
    BT Operate
  Segment
information
 
 BT Global Services
 How BT Global Services is changing
      Specific items Financial review
  4
    
    seamless global connectivity and networked IT services to multinational
corporations4
    
    networked IT services to customers in the UK corporate and public sectors4
    
    networked IT
services to corporate and public sector customers outside the UK.
    Business overview
   22 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
           Operating review
   
 Order intake  (£bn)
 
  4
    
    a global contract with FIAT Group to provide and manage
their worldwide networked IT services with an MPLS network connecting more than 500 locations in 37
countries4
    
    a two-year contract extension with Eni Group, one of the worlds major integrated energy
companies, to provide and manage their global telecommunications services across five continents.
   4
    
    global investment bank Nomura to provide
dealing room technologies and implementation of market data infrastructure4
    
    Commerzbank, one of
Germanys biggest banks, to manage local and wide area network across hundreds of sites.
   BT GROUP PLCANNUAL REPORT & FORM 20-F 23




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
     Financial performance
 2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mAdjusted revenue
    
    
    8,513
    
    
    
    8,628
    
    
    
    7,664Net operating costs
    
    
    8,056
    
    
    
    8,367
    
    
    
    6,856Adjusted EBITDA
    
    
    457
    
    
    
    261
    
    
    
    808Contract and financial review
chargesb
    
    
    
    
    
    
    1,639
    
    
    
    EBITDA
    
    
    457
    
    
    
    (1,378
    )
    
    
    808Depreciation and amortisation
    
    
    815
    
    
    
    776
    
    
    
    744Adjusted operating (loss) profit
    
    
    (358
    )
    
    
    (2,154
    )
    
    
    64Capital expenditure
    
    
    599
    
    
    
    886
    
    
    
    961Operating cash flow
    
    
    (482
    )
    
    
    (912
    )
    
    
    (150
    )
 a
    
    Restated. See page 101.b
    
    Contract and financial review charges in 2009 include £41m recognised in revenue.
   2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mProducts and servicesManaged solutions
    
    
    5,281
    
    
    
    5,273
    
    
    
    4,468Calls and lines
    
    
    956
    
    
    
    1,055
    
    
    
    1,197Global carrier
    
    
    822
    
    
    
    904
    
    
    
    777Broadband and convergence
    
    
    334
    
    
    
    321
    
    
    
    275Other products and services
    
    
    1,120
    
    
    
    1,075
    
    
    
    947Total adjusted revenue
    
    
    8,513
    
    
    
    8,628
    
    
    
    7,664
 a
    
    Restated. See page 101.
         24 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
    
 BT Retail
 Business overview
  
 2010 Revenue by division
 
 
      800 
    BT Conferencing
    
    
    Global provider of audio, video and internet
collaboration servicesBT Directories
    
    
    Directory Enquiries (118 500), operator and
emergency services, and The Phone BookBT Expedite
    
    
    Software and IT services for retailers. BT
Expedite now supports more than 10,000
points of sale for more than 60 retailersBT Payphones
    
    
    Street, managed, prison, card and private
payphones. In a declining market, we are
committed to meeting our obligation to
provide a public payphone serviceBT Redcare
    
    
    Alarm monitoring and tracking facilities
  bt.com www.bt.com/inclusion
   BT GROUP PLCANNUAL REPORT & FORM 20-F 25




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
  Operating review
   BT Consumer
    
 Average annual revenue per consumer user
(£)
 
 
  
 BTs retail broadbandamarket share year end  (million lines)
 
 
          26 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
 2
 BT Business
   
 BT Business mobile end user base (excl. free mobile broadband)
(000)
 
 
     BT Enterprises
  2
    BT Ireland
       Customer service delivery
   bt.com
 BT GROUP PLCANNUAL REPORT & FORM 20-F 27




---



##### Table of Contents



REVIEW
OF THE YEAR OUR LINES OF BUSINESS
 Financial performance
 2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mRevenue
    
    
    8,297
    
    
    
    8,663
    
    
    
    8,682Net operating costs
    
    
    6,447
    
    
    
    6,999
    
    
    
    7,153Adjusted EBITDA
    
    
    1,850
    
    
    
    1,664
    
    
    
    1,529Depreciation and
amortisation
    
    
    459
    
    
    
    426
    
    
    
    445Adjusted operating profit
    
    
    1,391
    
    
    
    1,238
    
    
    
    1,084Capital expenditure
    
    
    417
    
    
    
    471
    
    
    
    579Operating cash flow
    
    
    1,640
    
    
    
    1,064
    
    
    
    1,011
 a
    
    Restated. See page 101.
   2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mProducts and servicesCalls and lines
    
    
    5,031
    
    
    
    5,422
    
    
    
    5,745Broadband and convergence
    
    
    1,316
    
    
    
    1,313
    
    
    
    1,201Managed solutions
    
    
    588
    
    
    
    599
    
    
    
    530Other products and services
    
    
    989
    
    
    
    986
    
    
    
    941External revenue
    
    
    7,924
    
    
    
    8,320
    
    
    
    8,417Internal revenue
    
    
    373
    
    
    
    343
    
    
    
    265Total
    
    
    8,297
    
    
    
    8,663
    
    
    
    8,682
 a
    
    Restated. See page 101.
           
 BT Wholesale
 Business overview
    2
 
   28 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
 Products and services
 Wholesale Ethernet
  Private and partial private circuits
  Wholesale broadband
   Content distribution network
  Capacity and call-based products
  Operating review
   Year-on-year EBITDA movement (%)
  Revenue under long-term contract  (%)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 29




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
 2010 External revenue by customer
  4
    
    A
10-year network outsourcing agreement with KCOM Group to provide the operator with a fully-managed,
national operational capability and a new streamlined portfolio of next generation products and
services4
    
    A long-term agreement to provide O2 with fixed line broadband
services to enable it to offer fixed line services to the SME market in the UK for the first
time4
    
    A long-term contract with Vodafone UK to enable it to introduce unified communications to UK
SMEs4
    
    A five-year agreement to consolidate O2s core fixed and mobile
networks in the UK into one cost-effective network using BTs IP network platform.
  MNS as a growing proportion of external revenue  (%)
   Financial performance
 2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mRevenue
    
    
    4,450
    
    
    
    4,658
    
    
    
    4,959Internal revenue
    
    
    1,227
    
    
    
    1,228
    
    
    
    1,252External revenue
    
    
    3,223
    
    
    
    3,430
    
    
    
    3,707Net operating costs
    
    
    3,171
    
    
    
    3,381
    
    
    
    3,553Adjusted EBITDA
    
    
    1,279
    
    
    
    1,277
    
    
    
    1,406Depreciation and
amortisation
    
    
    680
    
    
    
    686
    
    
    
    893Adjusted operating profit
    
    
    599
    
    
    
    591
    
    
    
    513Capital expenditure
    
    
    325
    
    
    
    435
    
    
    
    522Operating cash flow
    
    
    844
    
    
    
    824
    
    
    
    800
 a
    
    Restated. See page 101.
  2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mProducts and servicesTransit, conveyance and WLR
    
    
    1,521
    
    
    
    1,828
    
    
    
    2,113Managed network services
    
    
    715
    
    
    
    518
    
    
    
    295Broadband and convergence
    
    
    431
    
    
    
    482
    
    
    
    624Calls and lines
    
    
    306
    
    
    
    385
    
    
    
    462Other products and services
    
    
    250
    
    
    
    217
    
    
    
    213Total external revenue
    
    
    3,223
    
    
    
    3,430
    
    
    
    3,707Internal revenue
    
    
    1,227
    
    
    
    1,228
    
    
    
    1,2524,450
    
    
    
    4,658
    
    
    
    4,959
 a
    
    Restated. See page 101.
 
   30 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
       
 Openreach
 Business overview
      Products and services
  Wholesale line rental (WLR)
  Local loop unbundling (LLU)
  Ethernet
  Fibre-based broadband roll out
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 31




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
 Fibre-based broadband access
  Operating review
        A BT engineer during the winter
snow
   Financial performance
 2010
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £mExternal revenue
    
    
    1,211
    
    
    
    1,013
    
    
    
    888Revenue from other BT lines
of business
    
    
    3,953
    
    
    
    4,218
    
    
    
    4,378Revenue
    
    
    5,164
    
    
    
    5,231
    
    
    
    5,266Net operating costs
    
    
    3,204
    
    
    
    3,235
    
    
    
    3,355Adjusted EBITDA
    
    
    1,960
    
    
    
    1,996
    
    
    
    1,911Depreciation and
amortisation
    
    
    856
    
    
    
    778
    
    
    
    689Adjusted operating profit
    
    
    1,104
    
    
    
    1,218
    
    
    
    1,222Capital expenditure
    
    
    907
    
    
    
    951
    
    
    
    1,073Operating cash flow
    
    
    1,167
    
    
    
    1,079
    
    
    
    841
 
   32 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR LINES OF BUSINESS
     
 BT Innovate & Design
    
 BT Operate
    2 2 2 2 www.bt.com/betterworld
 BTs worldwide CO2equivalent emissions
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 33




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OUR CORPORATE RESPONSIBILITY
   Our corporate responsibility
 
 (IMAGE)
    
    Helping tackle climate change(IMAGE)
    
    Developing sustainable customer solutions(IMAGE)
    
    Enabling skills for an inclusive society(IMAGE)
    
    Charity support(IMAGE)
    
    Our corporate responsibility risks(IMAGE)
    
    Recognition of our contribution(IMAGE)
    
    Further information
  The Way We Work
    
 Community investment
 (£m)
 
 
  
 Helping tackle climate change
   Our
lines of business  BT Operate
 
 Developing sustainable customer solutions
    Financial performance
 2010
    
    
    2009
    a
    
    2008
    aCustomer bids with a
sustainability element
    
    £2.1bn
    
    
    £1.5bn
    
    
    £2.6bn
 a
    
    We have improved the way we collect this data during the year and have restated
2009 and 2008 figures.
 
 Enabling skills for an inclusive society
 
   34 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR CORPORATE RESPONSIBILITY
      
 Charity support
        
 BT people take calls/donations for Sport Relief and other telethons
 
 
 
 Our corporate responsibility (CR) risks
   4
    
    Mitigating climate change impacts such as increased costs associated with
changing legislation4
    
    Adapting our business to reduce our exposure to the direct impacts of climate
change, such as severe weather4
    
    The effect of diversity on employee relations and customer service4
    
    Unacceptable supply chain working conditions.We manage the following three CR risks at group level:4
    
    Health and safety risks to employees and the
public exposed to BT operations4
    
    Breach of integrity leading to a loss of trust in BT4
    
    Loss of trust caused by unintended release of private customer data which is part of our Security
and resiliencerisk (see Our riskson page 37).
 Our
risks
 
 Recognition of our contribution
  
 Further information
 www.bt.com/betterworld
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 35




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OUR RISKS
   Our risks
 
 (IMAGE)
    
    Principal risks and uncertainties(IMAGE)
    
    Competitive activity(IMAGE)
    
    Global economic and credit market conditions(IMAGE)
    
    Regulatory controls(IMAGE)
    
    Major contracts(IMAGE)
    
    Security and resilience(IMAGE)
    
    Pensions
 
 Principal risks and uncertainties
   Internal control and risk management Operating Committee
 Cautionary statement
regarding forward-looking statements
 
 Competitive activity
   
 Global economic and credit market conditions
   
 Regulatory controls
 
   36 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OUR RISKS
    
 Major contracts
 
   
 Security and resilience
    
 Pensions
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 37




---



##### Table of Contents



REVIEW OF THE YEAR
 
 OTHER INFORMATION
  Other information
 
  (IMAGE)
    
    Regulation(IMAGE)
    
    Our relationship with HM Government(IMAGE)
    
    Legal proceedings(IMAGE)
    
    Acquisitions and disposals
 
 Regulation
 Significant
market power designations
   Ofcom
   Conditions applying to all providers
  Conditions applying to BT
   Significant market power designations
 
   38 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR OTHER INFORMATION
    4
    
    network charge controls
(NCC) on wholesale interconnect services  we operate under interconnection agreements with most
other CPs4
    
    partial private circuits (PPC) charge controls applying to certain wholesale leased lines
that BT provides to other network operators4
    
    certain wholesale Ethernet access and backhaul services4
    
    LLU and WLR.
  Significant market power designations
  BTs Undertakings
  Business rates
    European Union
  The rest of the world
  Competition law
  
 Our relationship with HM Government
  
 Legal proceedings
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 39




---



##### Table of Contents



REVIEW OF THE YEAR OTHER INFORMATION
   
 Acquisitions and disposals
      2
  4
    
    Wire One Holdings Inc (one of the leading providers of videoconferencing solutions in the US)4
    
    Ufindus Ltd (one of the UKs leading online business directories)4
    
    Ribbit Corporation (a Silicon Valley-based Telco 2.0 platform company)4
    
    Stemmer GmbH and SND GmbH (two German companies constituting the enterprise IT
services segment of net AG, listed on the Frankfurt Stock Exchange).
  4
    
    an agreement with
Sekunjalo Investments Limited, under which Sekunjalo became a 30% shareholder in BTs South African business4
    
    an extension of the geographic scope of our joint venture with Enìa SpA in Parma, Italy,
and an increase of our stake in the joint venture from 55% to 59.5%4
    
    the acquisition of the
remaining shares of Net2S SA, a publicly-traded IT services company listed in France, other than
certain treasury shares and locked-up shares issued under employee share plans (we had acquired
over 91% of the outstanding issued share capital of Net2S SA in 2008).
 
   40 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR
 
 FINANCIAL REVIEW
   Financial review
 
 (IMAGE)
    
    Principal accounting policies, critical accounting estimates and key judgements(IMAGE)
    
    Summarised group income statement(IMAGE)
    
    Financial results(IMAGE)
    
    Financial position and resources(IMAGE)
    
    Liquidity(IMAGE)
    
    Funding and capital management(IMAGE)
    
    Alternative performance measures
 Financial review Financial review Financial review
 Financial review
 Financial review
 
 Principal accounting policies, critical accounting estimates and key judgements
    Review of the year Segment information
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 41




---



##### Table of Contents



REVIEW
OF THE YEAR FINANCIAL REVIEW
  
 Summarised group income statement
 2010
    
    
    2009
    b
    
    2008bYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenueAdjusteda
    
    
    20,911
    
    
    
    21,431
    
    
    
    20,704Specific items
    
    
    (52
    )
    
    
    
    
    
    
    Contract and financial review charges
    
    
    
    
    
    
    (41
    )
    
    
    Reported
    
    
    20,859
    
    
    
    21,390
    
    
    
    20,704Other operating incomeAdjusteda
    
    
    378
    
    
    
    352
    
    
    
    359Specific items
    
    
    2
    
    
    
    (13
    )
    
    
    (10
    )Reported
    
    
    380
    
    
    
    339
    
    
    
    349Operating costsAdjusteda
    
    
    (18,689
    )
    
    
    (19,435
    )
    
    
    (18,168
    )Specific items
    
    
    (427
    )
    
    
    (395
    )
    
    
    (529
    )Contract and financial review charges
    
    
    
    
    
    
    (1,598
    )
    
    
    Reported
    
    
    (19,116
    )
    
    
    (21,428
    )
    
    
    (18,697
    )Operating profitAdjusteda
    
    
    2,600
    
    
    
    2,348
    
    
    
    2,895Specific items
    
    
    (477
    )
    
    
    (408
    )
    
    
    (539
    )Contract and financial review charges
    
    
    
    
    
    
    (1,639
    )
    
    
    Reported
    
    
    2,123
    
    
    
    301
    
    
    
    2,356Net finance expenseAdjusteda
    
    
    (890
    )
    
    
    (933
    )
    
    
    (798
    )Specific items
    
    
    11
    
    
    
    
    
    
    
    Net interest on pensions
    
    
    (279
    )
    
    
    313
    
    
    
    420Reported
    
    
    (1,158
    )
    
    
    (620
    )
    
    
    (378
    )Share of post tax profits (losses) of associates and joint venturesAdjusteda
    
    
    25
    
    
    
    39
    
    
    
    (11
    )Specific items
    
    
    29
    
    
    
    36
    
    
    
    Reported
    
    
    54
    
    
    
    75
    
    
    
    (11
    )(Loss) profit on disposal of associates and joint ventures specific items
    
    
    (12
    )
    
    
    
    
    
    
    9Profit (loss) before taxationAdjusteda
    
    
    1,735
    
    
    
    1,454
    
    
    
    2,086Specific items
    
    
    (449
    )
    
    
    (372
    )
    
    
    (530
    )Contract and financial review charges
    
    
    
    
    
    
    (1,639
    )
    
    
    Net interest on pensions
    
    
    (279
    )
    
    
    313
    
    
    
    420Reported
    
    
    1,007
    
    
    
    (244
    )
    
    
    1,976Taxation credit (charge)Adjusteda
    
    
    (398
    )
    
    
    (361
    )
    
    
    (455
    )Specific items
    
    
    342
    
    
    
    43
    
    
    
    343Contract and financial review charges
    
    
    
    
    
    
    459
    
    
    
    Net interest on pensions
    
    
    78
    
    
    
    (88
    )
    
    
    (126
    )Reported
    
    
    22
    
    
    
    53
    
    
    
    (238
    )Profit (loss) for the yearAdjusteda
    
    
    1,337
    
    
    
    1,093
    
    
    
    1,631Specific items
    
    
    (107
    )
    
    
    (329
    )
    
    
    (187
    )Contract and financial review charges
    
    
    
    
    
    
    (1,180
    )
    
    
    Net interest on pensions
    
    
    (201
    )
    
    
    225
    
    
    
    294Reported
    
    
    1,029
    
    
    
    (191
    )
    
    
    1,738Basic earnings (loss) per shareAdjusteda
    
    
    17.3p
    
    
    
    14.1p
    
    
    
    20.2pSpecific items
    
    
    (1.4)p
    
    
    
    (4.3)p
    
    
    
    (2.4)pContract and financial review charges
    
    
    
    
    
    
    (15.3)p
    
    
    
    Net interest on pensions
    
    
    (2.6)p
    
    
    
    3.0p
    
    
    
    3.7pReported
    
    
    13.3p
    
    
    
    (2.5)p
    
    
    
    21.5p
 a
    
    Adjusted revenue, adjusted other operating income, adjusted operating costs,
adjusted operating profit, adjusted net finance expense, adjusted share of post tax profits
(losses) of associates and joint ventures, adjusted profit (loss) before taxation, adjusted
taxation credit (charge), adjusted profit (loss) for the year and adjusted basic earnings (loss)
per share are non-GAAP measures provided in addition to the disclosure requirements defined under
IFRS. The rationale for using non-GAAP measures is explained on pages 54 to 56.b
    
    Restated. See page 94.
 
   42 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
 
 Financial results
   
 Movement in adjusted revenue  (£m)
 
 
  2010
    
    
    2009a
    
    
    2008a£m
    
    
    £m
    
    
    £mManaged solutions
    
    
    6,581
    
    
    
    6,390
    
    
    
    5,293Broadband and convergence
    
    
    2,678
    
    
    
    2,617
    
    
    
    2,549Calls and lines
    
    
    6,293
    
    
    
    6,862
    
    
    
    7,404Transit, conveyance,
interconnect, WLR,
global carrier and other
wholesale products
    
    
    2,957
    
    
    
    3,244
    
    
    
    3,329Other products and services
    
    
    2,402
    
    
    
    2,318
    
    
    
    2,129Adjusted revenue
    
    
    20,911
    
    
    
    21,431
    
    
    
    20,704Specific items
    
    
    (52
    )
    
    
    
    
    
    
    Contract and financial review
charges
    
    
    
    
    
    
    (41
    )
    
    
    Revenue
    
    
    20,859
    
    
    
    21,390
    
    
    
    20,704
 a
    
    Restated. See page 101.
 Managed solutions
  Broadband and convergence
  Calls and lines
  Transit, conveyance, interconnect, WLR, global carrier and other wholesale products
  Other products and services
  
 Revenue by products and services  (£bn)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 43




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
   
 Movement in total underlying costs a  (£m)
 
 
 a
    
    Underlying costs exclude specific items, leaver costs, depreciation and
amortisation, foreign exchange movements and acquisitions.b
    
    Comprises payments to telecommunications operators.
    2010
    
    
    2009
    a
    
    2008
    a£m
    
    
    £m
    
    
    £mStaff costs before leaver costs
    
    
    4,862
    
    
    
    5,412
    
    
    
    5,231Leaver costs
    
    
    142
    
    
    
    204
    
    
    
    127Staff costs
    
    
    5,004
    
    
    
    5,616
    
    
    
    5,358Own work capitalised
    
    
    (575
    )
    
    
    (673
    )
    
    
    (724
    )Net staff costs
    
    
    4,429
    
    
    
    4,943
    
    
    
    4,634Depreciation
    
    
    2,304
    
    
    
    2,249
    
    
    
    2,410Amortisation
    
    
    735
    
    
    
    641
    
    
    
    479Payments to
telecommunications
operators
    
    
    4,083
    
    
    
    4,266
    
    
    
    4,237Other operating costs
    
    
    7,138
    
    
    
    7,336
    
    
    
    6,408Adjusted operating costs
    
    
    18,689
    
    
    
    19,435
    
    
    
    18,168Specific items
    
    
    427
    
    
    
    395
    
    
    
    529Contract and financial
review charges
    
    
    
    
    
    
    1,598
    
    
    
    Operating costs
    
    
    19,116
    
    
    
    21,428
    
    
    
    18,697
 a
    
    Restated. See page 94.
 Staff costs
 2010
    
    
    2009a
    
    
    2008a£m
    
    
    £m
    
    
    £mStaff costsWages and salaries
    
    
    4,182
    
    
    
    4,499
    
    
    
    4,242Social security costs
    
    
    447
    
    
    
    432
    
    
    
    417Pensions costs
    
    
    304
    
    
    
    544
    
    
    
    626Share-based payments
    
    
    71
    
    
    
    141
    
    
    
    735,004
    
    
    
    5,616
    
    
    
    5,358
 a
    
    Restated. See page 94.
    Depreciation and amortisation
  Payments to telecommunications operators
  Other operating costs
 
   44 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  Segment information
 Selected financial data
     Specific items
  2010
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £mRevenueRegulatory settlement
    
    
    52
    
    
    
    
    
    
    
    Other operating income(Profit) loss on disposal of a business
    
    
    (2
    )
    
    
    13
    
    
    
    10Operating costsBT Global Services restructuring charges
    
    
    301
    
    
    
    280
    
    
    
    Property rationalisation costs
    
    
    121
    
    
    
    
    
    
    
    Costs associated with settlement of open tax years
    
    
    5
    
    
    
    
    
    
    
    Restructuring costs  group transformation and reorganisation activities
    
    
    
    
    
    
    65
    
    
    
    40221CN asset impairment and related charges
    
    
    
    
    
    
    50
    
    
    
    Creation of Openreach and delivery of the Undertakings
    
    
    
    
    
    
    
    
    
    
    53Write off of circuit inventory and other working capital balances
    
    
    
    
    
    
    
    
    
    
    74427
    
    
    
    395
    
    
    
    529Finance incomeInterest on settlement of open tax years
    
    
    (11
    )
    
    
    
    
    
    
    Share of results of associates and joint venturesImpact of renegotiated supply contracts on associate
    
    
    (29
    )
    
    
    
    
    
    
    Reassessment of carrying value of associate
    
    
    
    
    
    
    (36
    )
    
    
    Loss (profit) on disposal of associate
    
    
    12
    
    
    
    
    
    
    
    (9
    )Net specific items charge before tax
    
    
    449
    
    
    
    372
    
    
    
    530Tax credit in respect of settlement of open tax years
    
    
    (230
    )
    
    
    
    
    
    
    (40
    )Tax credit on re-measurement of deferred tax
    
    
    
    
    
    
    
    
    
    
    (154
    )Tax credit on specific items above
    
    
    (112
    )
    
    
    (43
    )
    
    
    (149
    )Net specific items charge after tax
    
    
    107
    
    
    
    329
    
    
    
    187
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 45




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  4
    
    A charge of £52m was recognised in 2010 reflecting an Ofcom determination in relation to 2Mb/s
partial private circuit prices.4
    
    In 2010 and 2009, respectively, the group recognised BT Global
Services restructuring charges of £301m and £280m. The main components of the charges are set out
below.
 
    
    Networks, products and procurement channels rationalisation charges of £142m (2009: £183m).
In 2010 this included a payment of £127m made to Tech Mahindra for the renegotiation of
certain supply contracts as part of the rationalisation of procurement channels. There was an
associated credit of £29m in connection with BTs share of its associate, Tech Mahindra.
    
    People and property charges of £132m (2009: £51m) principally comprising leaver costs and
property exit costs.
    
    Intangible asset impairments and other charges of £27m (2009: £46m) reflecting the costs
associated with rationalising the services that are offered to customers and the brands under
which customers are served.
 4
    
    In 2010 £121m of property rationalisation charges were recognised in relation to the
rationalisation of the groups UK property portfolio as detailed on page 21. The charge relates to
properties which have been vacated and as a result of which, the associated leases have become
onerous, reflecting future commitments to meet rental obligations which exceed future economic
benefits. This rationalisation programme is expected to continue over the next two years. Including
the charge recognised in 2010, the total cost of the rationalisation programme is expected to be
around £300m.4
    
    In 2010 the group agreed substantially all outstanding tax matters with HM Revenue & Customs (HMRC)
relating to the 2006, 2007 and 2008 tax years. Specific items include a tax credit of £230m,
associated interest of £11m and costs of £5m in connection with reaching the agreement. In 2008,
the group agreed an outstanding tax matter relating to a business disposed of in 2001, the impact
of which was a tax credit of £40m.4
    
    In 2009 and 2008, respectively, the group incurred costs of £65m and £402m in respect of the
groups transformation and reorganisation activities. The costs mainly comprised leaver costs,
property exit and transformation programme costs.4
    
    In 2009 a £50m charge was recognised comprising £31m of asset impairments and £19m of associated
costs, following the groups review of its 21CN programme and associated voice strategy in the
light of the move to a customer-led roll out strategy and focus on next generation voice service
developments of fibre-based products.4
    
    In 2008 a charge of £53m was recognised in relation to further estimated costs to create Openreach
and deliver the Undertakings agreed with Ofcom.4
    
    In 2008 a charge of £74m was recognised as a result of the completion of a review of circuit
inventory and other working capital balances.4
    
    In 2009 a credit of £36m was recognised in respect of a reassessment of the value of the groups
share of the net assets of an associate.4
    
    In 2008 a tax credit of £154m was recognised for the re-measurement of deferred tax balances as a
result of the change in the UK statutory corporation tax rate from 30% to 28% effective in 2009.
 Net finance expense
 2010
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £mInterest on borrowings
    
    
    886
    
    
    
    935
    
    
    
    822Loss arising on derivatives
not in a designated
hedge relationship
    
    
    19
    
    
    
    29
    
    
    
    41Interest on pension
scheme liabilities
    
    
    2,211
    
    
    
    2,308
    
    
    
    2,028Finance expense
    
    
    3,116
    
    
    
    3,272
    
    
    
    2,891Less: interest on
qualifying assets
    
    
    (3
    )
    
    
    
    
    
    
    Total finance expense
    
    
    3,113
    
    
    
    3,272
    
    
    
    2,891Other interest and
similar income
    
    
    (12
    )
    
    
    (31
    )
    
    
    (65
    )Expected return on pension
scheme assets
    
    
    (1,932
    )
    
    
    (2,621
    )
    
    
    (2,448
    )Total finance income
    
    
    (1,944
    )
    
    
    (2,652
    )
    
    
    (2,513
    )Analysed as:Adjusted net finance expense
    
    
    890
    
    
    
    933
    
    
    
    798Net interest on pensions
    
    
    279
    
    
    
    (313
    )
    
    
    (420
    )Net finance expense before
specific items
    
    
    1,169
    
    
    
    620
    
    
    
    378Specific items
    
    
    (11
    )
    
    
    
    
    
    
    Net finance expense
    
    
    1,158
    
    
    
    620
    
    
    
    378
 Finance expense
 
   46 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  
 Average gross debt and interest rates  (£bn)
 
 
 Finance income
  Net interest on pensions
   Interest cover
     2010
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £mShare of post tax profit (loss)
of associates and
joint ventures
    
    
    25
    
    
    
    39
    
    
    
    (11
    )
        Income statement
   Taxation
     Selected financial data
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 47




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  
 Dividends per share  (pence)
 
 
  Additional
information for shareholders
 
 Financial position and resources
  2010
    
    
    2009
    a£m
    
    
    £mNon current assetsGoodwill
    
    
    1,432
    
    
    
    1,489Other intangible assets
    
    
    2,240
    
    
    
    2,299Property, plant and equipment
    
    
    14,856
    
    
    
    15,405Derivative financial instruments
    
    
    1,076
    
    
    
    2,542Trade and other receivables
    
    
    336
    
    
    
    322Deferred tax assets
    
    
    2,196
    
    
    
    1,103Other non current assets
    
    
    259
    
    
    
    18722,395
    
    
    
    23,347Current assetsTrade and other receivables
    
    
    3,696
    
    
    
    4,185Cash and cash equivalents
    
    
    1,452
    
    
    
    1,300Derivative financial instruments
    
    
    624
    
    
    
    158Other current assets
    
    
    513
    
    
    
    2846,285
    
    
    
    5,927Current liabilitiesLoans and other borrowings
    
    
    3,269
    
    
    
    1,542Derivative financial instruments
    
    
    166
    
    
    
    56Trade and other payables
    
    
    6,531
    
    
    
    7,215Current tax liabilities
    
    
    320
    
    
    
    1Provisions
    
    
    134
    
    
    
    25410,420
    
    
    
    9,068Total assets less current liabilities
    
    
    18,260
    
    
    
    20,206Non current liabilitiesLoans and other borrowings
    
    
    9,522
    
    
    
    12,365Derivative financial instruments
    
    
    533
    
    
    
    711Deferred tax liabilities
    
    
    1,456
    
    
    
    1,728Retirement benefit obligations
    
    
    7,864
    
    
    
    3,973Provisions
    
    
    707
    
    
    
    466Other non current liabilities
    
    
    804
    
    
    
    79420,886
    
    
    
    20,037EquityOrdinary shares and share premium
    
    
    470
    
    
    
    470Retained loss and other reserves
    
    
    (3,120
    )
    
    
    (328
    )(2,650
    )
    
    
    142Minority interest
    
    
    24
    
    
    
    27Total (deficit) equity
    
    
    (2,626
    )
    
    
    16918,260
    
    
    
    20,206
 a
    
    Restated. See page 94.
 
   48 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
                        Taxation
       
 Pension scheme liabilities under IAS 19  (£bn)
 
 
      2010
    
    
    2009£m
    
    
    £mTotal equity at the beginning of the year
    
    
    169
    
    
    
    5,432Profit (loss) for the year
    
    
    1,029
    
    
    
    (191
    )Other comprehensive loss for the year
    
    
    (3,661
    )
    
    
    (3,911
    )Dividends to shareholders
    
    
    (263
    )
    
    
    (1,222
    )Share-based payment
    
    
    81
    
    
    
    143Tax on share-based payment
    
    
    19
    
    
    
    (12
    )Net issue (purchase) of treasury shares
    
    
    4
    
    
    
    (63
    )Movements in minority interests
    
    
    (4
    )
    
    
    (7
    )Total (deficit) equity at the end of the year
    
    
    (2,626
    )
    
    
    169
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 49




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
   Other comprehensive income
  Treasury shares
   Total tax contribution
   
 2010 Percentage of total tax contribution
 
 
 Tax strategy
        Tax accounting
 
   50 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
   
 Liquidity
   Free cash flow
  Selected financial data
 Summarised cash flow statement2010
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £mCash generated from
operations
    
    
    4,476
    
    
    
    4,934
    
    
    
    5,187Net income taxes
received (paid)
    
    
    349
    
    
    
    (228
    )
    
    
    299Net cash inflow from
operating activities
    
    
    4,825
    
    
    
    4,706
    
    
    
    5,486Add back pension
deficit payment
    
    
    525
    
    
    
    
    
    
    
    320Net capital expenditure
    
    
    (2,480
    )
    
    
    (3,038
    )
    
    
    (3,253
    )Net purchase of non current
financial assets
    
    
    
    
    
    
    
    
    
    
    (1
    )Dividends from associates
and joint ventures
    
    
    3
    
    
    
    6
    
    
    
    2Interest paid
    
    
    (956
    )
    
    
    (956
    )
    
    
    (842
    )Interest received
    
    
    16
    
    
    
    19
    
    
    
    111Free cash flow
    
    
    1,933
    
    
    
    737
    
    
    

1,823Deduct pension deficit
payment
    
    
    (525
    )
    
    
    
    
    
    
    (320
    )Acquisitions and disposals
    
    
    (68
    )
    
    
    (227
    )
    
    
    (364
    )Net (purchase) sale of
current financial assets
    
    
    (246
    )
    
    
    286
    
    
    
    (159
    )Net (repayment) drawdown
of borrowings
    
    
    (497
    )
    
    
    522
    
    
    
    2,061Dividends paid
    
    
    (265
    )
    
    
    (1,222
    )
    
    
    (1,236
    )Net issue (purchase) of
treasury shares
    
    
    4
    
    
    
    (209
    )
    
    
    (1,413
    )Foreign exchange
    
    
    (7
    )
    
    
    54
    
    
    
    25Net increase (decrease) in
cash and cash equivalents
    
    
    329
    
    
    
    (59
    )
    
    
    417Cash and cash equivalents
at the start of the year
    
    
    1,115
    
    
    
    1,174
    
    
    
    757Cash and cash equivalents
at the end of the year
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174
 Net cash inflow from operating activities
   Capital expenditure
  Financial statistics
    
 Capital expenditure
 (£m)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 51




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
    Interest
   Acquisitions and disposals
    Net (purchase) sale of current and non current financial assets
  Net (repayment) drawdown of borrowing
 
   Dividends
  Net purchase of shares
   
 Funding and capital management
 
   52 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
    Foreignexchange
    
    
    AcquisitionsAt
    
    
    
    
    
    
    and fair
    
    
    and other
    
    
    At1 April
    
    
    Cash
    
    
    value
    
    
    non cash
    
    
    31 March2009
    
    
    flow
    
    
    movements
    
    
    movements
    
    
    2010Movements in net debt
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mBank overdrafts
    
    
    185
    
    
    
    (177
    )
    
    
    
    
    
    
    
    
    
    
    8Debt due within 1 year
    
    
    1,357
    
    
    
    (1,006
    )
    
    
    377
    
    
    
    2,533
    
    
    
    3,261Debt due after 1 year
    
    
    12,365
    
    
    
    509
    
    
    
    (817
    )
    
    
    (2,535
    )
    
    
    9,522Cash at bank and in hand
    
    
    (562
    )
    
    
    360
    
    
    
    5
    
    
    
    
    
    
    
    (197
    )Cash equivalents
    
    
    (738
    )
    
    
    (519
    )
    
    
    2
    
    
    
    
    
    
    
    (1,255
    )Current asset investments
    
    
    (163
    )
    
    
    (246
    )
    
    
    1
    
    
    
    2
    
    
    
    (406
    )12,444
    
    
    
    (1,079
    )
    
    
    (432
    )
    
    
    
    
    
    
    10,933Adjustmentsa
    
    
    (2,083
    )
    
    
    
    
    
    
    433
    
    
    
    
    
    
    
    (1,650
    )Net debt
    
    
    10,361
    
    
    
    (1,079
    )
    
    
    1
    
    
    
    
    
    
    
    9,283
 a
    
    Adjustments to net debt of £1,650m
at 31 March 2010 (2009: £2,083m) comprise £1,326m
(2009: £1,766m) arising from the re-translation of
currency denominated balances at swapped rates where
hedged and £324m (2009: £317m) to remove fair value
adjustments and accrued interest.
 
  
 Maturity profile of term
debta  (£m)
 
  
 a
    
    Balances reported at swapped rates where hedged.
  Funding valuation and future funding obligations
    4
    
    In the event that cumulative shareholder distributions exceed
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 53




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  cumulative total pension contributions over the
three-year period to 31 December 2011, then BT will
make additional matching contributions to the
scheme. Total pension contributions (including
regular contributions) are expected to be
approximately £2.4bn over the three years.4
    
    In the event that BT generates net cash proceeds
greater than £1bn from disposals and acquisitions in
any 12-month period to 31 December 2011, then BT will
make additional contributions to the scheme equal to
one third of those net cash proceeds.4
    
    A negative
pledge that provides comfort to the scheme that
future creditors will not be granted superior
security to the scheme in excess of a £1.5bn
threshold.
      Payments due by periodLess
    
    
    Between
    
    
    Between
    
    
    Morethan 1
    
    
    1 and 3
    
    
    3 and 5
    
    
    than 5Contractual obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsand commitments
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLoans and other borrowingsa
    
    
    12,493
    
    
    
    3,253
    
    
    
    1,753
    
    
    
    1,204
    
    
    
    6,283Finance lease obligations
    
    
    304
    
    
    
    16
    
    
    
    28
    
    
    
    20
    
    
    
    240Operating lease obligations
    
    
    7,687
    
    
    
    494
    
    
    
    891
    
    
    
    775
    
    
    
    5,527Capital commitments
    
    
    383
    
    
    
    330
    
    
    
    28
    
    
    
    23
    
    
    
    2Pension deficit obligations
    
    
    11,012
    
    
    
    525
    
    
    
    1,108
    
    
    
    1,219
    
    
    
    8,160Total
    
    
    31,879
    
    
    
    4,618
    
    
    
    3,808
    
    
    
    3,241
    
    
    
    20,212
 a
    
    Excludes fair value adjustments for hedged risks.
       Review of the year Financial review
   
 Alternative performance measures
 How we measure our progress
 
   54 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  Financial
review Consolidated financial statements
 EBITDA
  reconciliation page
102
 Adjusted performance measures
  reconciliation page 102 reconciliation page 42 reconciliation page 110
  Operating Committee Specific items pages
45 106
     Underlying revenue, operating costs and capital expenditure
   Operating
    
    
    Capitalcosts
    
    
    expenditure
    
    
    TotalYear ended 31 March 2010
    
    £m
    
    
    £m
    
    
    £mReported
    
    
    19,116
    
    
    
    2,533
    
    
    
    21,649Less:Specific items
    
    
    (427)
    
    
    
    
    
    
    
    (427
    )Depreciation and amortisation
    
    
    (3,039)
    
    
    
    
    
    
    
    (3,039
    )Leaver costs
    
    
    (142)
    
    
    
    
    
    
    
    (142
    )15,508
    
    
    
    2,533
    
    
    
    18,041Less:Foreign exchange
    
    
    (316)
    
    
    
    (16
    )
    
    
    (332
    )Acquisitions
    
    
    (32)
    
    
    
    
    
    
    
    (32
    )Total underlying costs
    
    
    15,160
    
    
    
    2,517
    
    
    
    17,677
 Free cash flow
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 55




---



##### Table of Contents



REVIEW OF THE YEAR FINANCIAL REVIEW
  reconciliation page 51
 Net debt
   reconciliation page 53
 
   56 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS
 We are committed to operating in accordance with best practice in business integrity,
maintaining the highest standards of financial reporting, corporate governance and ethics. The
directors consider that BT has, throughout the year, complied with the provisions set out in
Section 1 of the 2008 Combined Code on Corporate Governance (the Code) and has applied the main
principles of the Code as described in this report.
  58
    
    BOARD OF DIRECTORS AND OPERATING COMMITTEE58
    
    Chairman58
    
    Executive directors58
    
    Company Secretary58
    
    Operating Committee59
    
    Non-executive directors60
    
    THE BOARD60
    
    Introduction60
    
    Corporate governance statement60
    
    Directors60
    
    Governance and role of the Board61
    
    Directors powers to authorise conflicts of interest61
    
    BTs non-executive directors61
    
    Main Board committees61
    
    New York Stock Exchange62
    
    REPORT OF THE AUDIT COMMITTEE62
    
    Introduction62
    
    Committee role62
    
    Committee activities64
    
    REPORT OF THE NOMINATING COMMITTEE64
    
    Introduction64
    
    Committee role and activities64
    
    Board evaluation65
    
    REPORT OF THE COMMITTEE FOR RESPONSIBLE AND SUSTAINABLE BUSINESS65
    
    Introduction65
    
    Committee role65
    
    Committee activities66
    
    REPORT ON DIRECTORS REMUNERATION66
    
    Overview66
    
    Introduction66
    
    Remuneration policy (not audited)73
    
    Remuneration review (audited)78
    
    DIRECTORS INFORMATION78
    
    Election and re-election78
    
    Meetings attendance78
    
    Service agreements78
    
    Training and information78
    
    Independent advice78
    
    Directors and officers liability insurance and indemnity78
    
    Interest of management in certain transactions79
    
    BUSINESS POLICIES79
    
    Responsible business79
    
    Political donations79
    
    Pension funds79
    
    Financial statements79
    
    Takeover Directive disclosure80
    
    Financial instruments80
    
    Internal control and risk management80
    
    US Sarbanes-Oxley Act of 200281
    
    Disclosure controls and procedures81
    
    Internal control over financial reporting82
    
    SHAREHOLDERS AND ANNUAL GENERAL MEETING82
    
    Relations with shareholders82
    
    Substantial shareholdings82
    
    AGM resolutions82
    
    Authority to purchase shares
 BT GROUP PLC 57




---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 BOARD OF DIRECTORS AND OPERATING COMMITTEE
  
  ()
    
    Sir Michael Rake
Chairmanc,d,e,f
 Nominating
Committee Committee for Responsible and
Sustainable Business
   
 
  ()
    
    Ian Livingston
Chief Executivea,f
 Operating Committee
 ()
    
    Tony Chanmugam
Group Finance Directora
  ()
    
    Gavin Patterson
Chief Executive, BT Retaila,e
  
 
  ()
    
    Andrew Parker
  
  Operating Committee
 Ian Livingston, Chief Executive Tony
Chanmugam, Group Finance Director Sally
Davis, Chief Executive, BT Wholesale
Jeff Kelly, Chief Executive, BT Global
Services Roel Louwhoff, Chief Executive,
BT Operate Gavin Patterson, Chief
Executive, BT Retail Clive Selley, Chief
Executive, BT Innovate & Design
 Key to membership of Board committees:
 a
 b
 c
 d
 e
 f
 g


58 BT GROUP PLCANNUAL REPORT & FORM 20-F






---



##### Table of Contents



REPORT OF THE DIRECTORS BOARD OF DIRECTORS AND OPERATING COMMITTEE
  
  ()
    
    Tony Balld
  ()
    
    J Eric Danielsc,d
   ()
    
    Phil Hodkinsonb,d,e,f
 Audit Committee
  ()
    
    Clayton Brendishb,d,e
   ()
    
    Rt Hon Patricia Hewittb,c,d,f
 Remuneration Committee Pension Scheme Performance Review Group
 ()
    
    Carl G Symonb,c,g
 Equality of
Access Board


BT GROUP PLCANNUAL REPORT & FORM 20-F 59




---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 THE BOARD
  
 Introduction
   Review of the year
 
 Corporate governance statement
 www.frc.org.uk/corporate/combinedcode.cfm
 
 Directors
 Board of
Directors and Operating Committee
  Former directors
    
    Date of changeMatti Alahuhta
    
    31 May 2009Maarten van den Bergh
    
    15 July 2009Hanif Lalani
    
    7 January 2010Deborah Lathen
    
    31 January 2010New directorTony Ball
    
    16 July 2009
 Remuneration Committee Pension
Scheme Performance Review Group Nominating Committee
 
 Governance and role of the Board
   4
    
    Strategy4
    
    Development4
    
    Growing shareholder value4
    
    Oversight and control4
    
    Corporate governance.
 It approves BTs:
 4
    
    values, ethics and business policies and practices4
    
    strategic plans4
    
    annual budget4
    
    capital expenditure and investments budgets4
    
    larger capital expenditure proposals4
    
    the overall system of internal controls,
governance and compliance authorities.
 www.bt.com/board
 Operating Committee
  Nominating Committee Nominating Committee Board of Directors and Operating Committee


60 BT GROUP PLCANNUAL REPORT & FORM 20-F






---



##### Table of Contents



REPORT OF THE DIRECTORS THE BOARD
  
 Directors powers to authorise conflicts of
interest
  4
    
    consider each conflict situation separately on its particular facts4
    
    consider the conflict situation in conjunction with the rest of
their duties under the 2006 Act4
    
    keep records and Board minutes as to authorisations granted by
directors and the scope of any approvals given4
    
    regularly review conflict authorisation.
 
 BTs non-executive directors
 Nominating Committee
  Remuneration
Committee
  
 Main Board committees
 Operating Committe Operating
Committee
 Audit Committee Remuneration Committee Nominating Committee Report of the Audit Committee Report
of the Nominating Committee Report on
directors remuneration Report of the Committee for responsible and
sustainable business The
Equality of Access Board
 Pension Scheme Performance
Review Group
 
 New York Stock Exchange
  Nominating Committee Nominating
Committee
 Audit Committee Audit Committee


BT GROUP PLCANNUAL REPORT & FORM 20-F 61






---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT OF THE AUDIT COMMITTEE
  
 Introduction
 Audit Committee
 Audit Committee Audit Committee
 Audit Committee
 
 Committee role
 www.bt.com/committees
 Audit Committee Notes to the consolidated financial statements
 Audit Committee
  Audit Committee
    
 Committee activities
  Audit Committee
  4
    
    BT Global Services contract performance4
    
    review of the internal control requirements under the
Combined Code and Sarbanes-Oxley4
    
    draft Annual Report and Form 20-F.May:4
    
    review of going concern4
    
    review of external audit and non-audit fees


62 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT OF THE AUDIT COMMITTEE
  4
    
    the Annual Report and Form 20-F, full year results
announcements and related formal statements4
    
    corporation tax provisions4
    
    accounting estimates and judgements4
    
    review of the internal control requirements under
the Combined Code and Sarbanes-Oxley4
    
    annual report on the performance of the Internal
Audit function and year end Corporate Summary
report4
    
    annual update on whistleblowing, litigation
trends and major litigation report4
    
    external auditors report.July:4
    
    review of the external and internal auditors effectiveness4
    
    first quarter results, announcement and related formal statements4
    
    BT Security update.September:4
    
    review of internal audit effectiveness.

November:4
    
    review of fees for audit and non-audit services4
    
    review of the line of business Audit Committees4
    
    enterprise risk management review4
    
    half year results, announcement and related formal statements4
    
    external audit plan4
    
    BT Global Services major contracts review4
    
    review of internal control requirements under the Combined Code and Sarbanes-Oxley4
    
    forward strategy for Internal Audit.February:4
    
    third quarter results, announcement and related formal statements4
    
    internal audit review update4
    
    risk management agenda for 2010/114
    
    external auditors quarterly report4
    
    annual review of accounting policies4
    
    review of the operation of Sarbanes-Oxley s404 processes.


BT GROUP PLCANNUAL REPORT & FORM 20-F 63






---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT OF THE NOMINATING COMMITTEE
  
 Introduction
 Nominating Committee
  
 Committee role and activities
 www.bt.com/committees Nominating
Committee
   4
    
    the appointment of Patricia Hewitt as Senior
Independent Director in succession to Maarten van den
Bergh; and4
    
    the appointment of Tony Ball as a
non-executive director to bring industry-relevant knowledge and experience to
the Board, having held senior executive positions in
broadcasting and telecommunication businesses in the
US and Europe, including the UK.
  Nominating Committee
 
 Board evaluation
    4
    
    the appointment of Tony Ball as a director, to bring
broadcasting and telecommunication business experience to the Board4
    
    an increased focus on improving BT Global Services performance4
    
    more frequent discussion at Board meetings on strategic issues and opportunities4
    
    building further customer and investor confidence4
    
    improving the quality and depth of oversight functions.
  Audit Committee Remuneration Committe Operating Committee


64 BT GROUP PLCANNUAL REPORT & FORM 20-F






---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT OF THE COMMITTEE FOR RESPONSIBLE AND SUSTAINABLE BUSINESS
  
 Introduction
 Committee for Responsible and Sustainable
Business
 
 Committee role
  
 Committee activities
  4
    
    progress against CR strategy and key performance indicators4
    
    community and charity support programmes4
    
    the development of BTs volunteering and sustainability skills programmes4
    
    activities supporting BTs environment and climate change programmes4
    
    proposals relating to the development of BTs low carbon economy solutions.


BT GROUP PLCANNUAL REPORT & FORM 20-F 65






---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT ON DIRECTORS REMUNERATION
  
 Overview
 4
    
    The Remuneration Committeeendorsed the Chief
Executives proposal that directors and senior
executives should receive no salary increase in
2009/10, in line with the pay freeze for all
employees.4
    
    In view of our executive teams strong performance,
the Committee decided to increase salaries to
directors and senior executives from June 2010.
Executive directors salaries are set to be below the
median level for directors of comparable companies.
The salary increases proposed for 2010/11 are in line
with that principle.4
    
    The demanding conditions set for the 2009/10 annual
bonus were largely met. In particular, BT exceeded
the targets for free cash flow and earnings per share
(EPS). The Chief Executive was therefore awarded a
bonus of 142% of target; 71% of his maximum bonus
opportunity.4
    
    In 2008, shareholders supported a two-stage change in
executive remuneration, designed to simplify the
structure and bring total remuneration closer to our
comparators. As we reported last year, however, the
second stage was postponed in view of the companys
disappointing performance. The second stage will now
be implemented in 2010/11, but with lower maximum
long-term incentive opportunities than originally
proposed, and lower than awards granted in previous
years.4
    
    Following consultation with major shareholders, we
strengthened the performance measures for our
long-term Incentive Share Plan. For awards granted
from 2009/10, half of each award is linked to total
shareholder return and half to a new three-year
cumulative free cash flow measure.4
    
    The Committee introduced a clawback mechanism into
all executive share plans, making BT one of the
first companies to take such action.4
    
    Having considered the impact of personal income tax
changes from April 2010, the Committee endorsed the
Chief Executives recommendation that no changes be
made in order to either avoid or to compensate for
the higher top tax rate.4
    
    Hanif Lalani, Chief Executive of BT Global Services
and formerly Group Finance Director, resigned as a
director on 7 January 2010. Details of his leaving
arrangements are disclosed in this report.
 
 Introduction
   4
    
    Remuneration policy (not subject to audit)
 (i)
    
    Role of the Remuneration Committee(ii)
    
    Remuneration principles(iii)
    
    Remuneration in 2009/10 and 2010/11(iv)
    
    Other mattersExecutive share ownershipPensionsOther benefitsDirector who has left the BoardService agreementsOutside appointmentsNon-executive directors letters of appointmentNon-executive directors remunerationDirectors service agreements and contracts of appointmentDirectors interestsPerformance graph
 4
    
    Remuneration review (audited)
 Directors emolumentsFormer directorsLoansPensionsShare optionsShare awards under long-term incentive plansVesting of outstanding share awards and optionsDeferred Bonus Plan awardsShare awards under the Employee Share Investment Plan
 Shareholders will be asked to vote on this Report at the 2010 AGM.
 
 Remuneration policy
 This part of the Report on directors remuneration is not subject to audit.
  Remuneration Committee
 www.bt.com/committees
 Remuneration Committee
   4
    
    Matti Alahuhta (retired 31 May 2009)4
    
    Eric Daniels4
    
    Deborah Lathen (retired 31 January 2010)4
    
    Carl Symon


66 BT GROUP PLCANNUAL REPORT & FORM 20-F






---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
         
     2008/09
    
    2009/10
    
    2010/11Base salary
    
    increases to align
    
    no increases
    
    increases to alignwith the market
    
    
    
    with the marketAnnual bonusChief Executive
    
    target 100% salary
    
    target 100% salary
    
    target 125% salarymaximum 200% salary
    
    maximum 200% salary
    
    maximum 200% salaryExecutive directors
    
    target 80% salary
    
    target 80% salary
    
    target 100% salarymaximum 120% salary
    
    maximum 120% salary
    
    maximum 150% salaryDeferred bonus (in shares)Chief Executive
    
    1x cash bonus
    
    1x cash bonus
    
    1x cash bonusExecutive directors
    
    75% of cash bonus
    
    75% of cash bonus
    
    75% of cash bonusIncentive sharesChief Executive
    
    3x salary
    
    3x salary
    
    2.5x salaryaExecutive directors
    
    2.5x salary
    
    2.5x salary
    
    2x salaryaRetention shares
    
    none
    
    none
    
    noneShare options
    
    none
    
    none
    
    none
 
 a
    
    Although shareholders agreed a maximum award of incentive shares of 3x salary for
the Chief Executive (2.5x for executive directors) , theRemuneration Committeeapproved a proposal
from the Chairman and Chief Executive to reduce this to 2.5x salary for the Chief Executive (2x
salary for executive directors), in view of the wider economic conditions and the base salary
increases.


BT GROUP PLCANNUAL REPORT & FORM 20-F 67






---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Remuneration in 2009/10
 Salaries
  Annual bonus
  % of total bonus opportunityEarnings per share (EPS)
    
    30%Free cash flow
    
    30%Customer service
    
    25%Environmental, social andgovernance objectives
    
    15%
  Measure (weighting)
    
    Threshold
    
    
    Target
    
    
    Stretch
    
    
    ActualFinancial measures (60%)EPS (30%)
    
    
    15%
    
    
    
    30%
    
    
    
    60%
    
    
    
    43%Free cash flow (30%)
    
    
    15%
    
    
    
    30%
    
    
    
    60%
    
    
    
    60%Customer service (25%)
    
    
    12.5%
    
    
    
    25%
    
    
    
    50%
    
    
    
    18%Sub-total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121%Environment, social andgovernance (15%)
    
    
    7.5%
    
    
    
    15%
    
    
    
    30%
    
    
    
    a
 
 a
    
    Performance is assessed on an individual basis.      Deferred Bonus Plan
    Remuneration in 2010/11
 Remuneration Committee
    Annual bonus
   Proportion of fixed and variable remuneration
  Fixed
    
    
    Variable
    
    
    Variablebase pay
    
    
    cash
    
    
    shares
    
    
    TotalIan Livingston2010/11 target
    
    
    22%
    
    
    
    28%
    
    
    
    50%
    
    
    
    100%compositiona2009/10 actual
    
    
    38%
    
    
    
    53%
    
    
    
    9%
    
    
    
    100%compositionbTony Chanmugam2010/11 target
    
    
    28%
    
    
    
    28%
    
    
    
    44%
    
    
    
    100%compositiona2009/10 actual
    
    
    48%
    
    
    
    46%
    
    
    
    6%
    
    
    
    100%compositionbGavin Patterson2010/11 target
    
    
    28%
    
    
    
    28%
    
    
    
    44%
    
    
    
    100%compositiona2009/10 actual
    
    
    46%
    
    
    
    45%
    
    
    
    9%
    
    
    
    100%compositionb
 
 a
    
    Target remuneration comprises current base salary, on-target annual bonus and the
expected value of awards under the deferred bonus and incentive share plans, excluding retention
shares.b
    
    Actual remuneration comprises base salary, actual cash bonus and the value
received from deferred shares and incentive shares (awards granted in 2006 and vested in 2009)
during the financial year, excluding retention shares.


68 BT GROUP PLCANNUAL REPORT & FORM 20-F






---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Long-term share-based incentives
 Incentive shares
    Accenture
    
    France Telecom
    
    Telecom ItaliaAT & T
    
    Hellenic Telecom
    
    TelefónicaBelgacom
    
    IBM
    
    Telekom AustriaBSkyB
    
    National Grid
    
    TelenorBT Group
    
    Portugal Telecom
    
    TeliaSoneraCable & Wireless Worldwide
    
    Royal KPN
    
    VerizonCap Gemini
    
    Swisscom
    
    Virgin MediaCentrica
    
    TalkTalk
    
    VodafoneDeutsche Telekom
   TSR vesting schedule for ISP awards granted in
2009/10 and 2010/11
 Relative TSR over 3 years
    
    % of share award vestingBelow median
    
    NilMedian
    
    12.5%Between median and upper quartile

    Between 12.5% and 50% on
straight line basisUpper quartile
    
    50%
    Clawback
   Retention shares
  Share options
   Other share plans
  Openreach


BT GROUP PLCANNUAL REPORT & FORM 20-F 69




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Dilution
   Executive share ownership
   Pensions
    Other benefits
  Director who has left the Board
  Remuneration Committee
 Remuneration Committee
 Service agreements
  Outside appointments
  Non-executive directors letters of appointment
 Governance
and role of the Board
 Non-executive directors remuneration
 
   70 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  
 AdditionalCommittee
    
    Members fee
    
    
    Chairmans feeAudit
    
    
    £10,000
    
    
    
    £15,000Remuneration
    
    
    £10,000
    
    
    
    £10,000Nominating
    
    
    £5,000
    
    
    
    £5,000Other Board committees
    
    
    £5,000
    
    
    
    £5,000
     Directors service agreements and contracts of appointment
  Chairman and executive directors
    
    Commencement date
    
    
    
    Expiry date of current service agreement or letter of appointmentSir Michael Rake 
I Livingston 
T Chanmugam 
G Patterson
    
    26 September 2007
1 June 2008
1 December 2008
1 June 2008
    

(GRAPHIC)
    
    The contract is terminable by the company on 12 months notice and by the
director on six months notice.Non-executive directorsC Brendish 
C G Symon
    
    1 September 2002
14 January 2002
    

(GRAPHIC)
    
    Letters of appointment were for an initial period of three years. The
appointments were extended for three years in 2005 and by a further three
years in 2008. The appointments are terminable by the company or the
director on three months notice.P Hodkinson
    
    1 February 2006
    
    
    
    Letter of appointment was for an initial period of three years. The
appointment was extended for three years in 2009. The appointment is
terminable by the company or the director on three months notice.J E Daniels 
P Hewitt 
T Ball
    
    1 April 2008
24 March 2008
16 July 2009
    
(GRAPHIC)
    
    Letters of appointment are for an initial period of three years and are
terminable by the company or the director on three months notice.Former directorsH Lalani
    
    7 February 2005
    
    
    
    The contract was terminable by the company on 12 months notice and by
the director on six months notice. The contract was terminated on
11 January 2010.M van den Bergh
    
    1 September 2000
    
    
    
    Letter of appointment was for an initial period of three years. The
appointment was extended for three years in 2003 and extended for a
further three years in 2006. The appointment was terminable by the
company or director on three months notice. The appointment terminated
at the conclusion of the Annual General Meeting on 15 July 2009.M Alahuhta
    
    1 February 2006
    
    
    
    Letter of appointment was for an initial period of three years. The
appointment was extended for three months in February 2009. The
appointment terminated on 31 May 2009.D Lathen
    
    1 February 2007
    
    
    
    Letter of appointment was for an initial period of three years and was
terminable by the company or the director on three months notice.
Appointment terminated on 31 January 2010.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 71




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Directors interests
  Number of sharesBeneficial holdings
    
    2010
    
    
    2009Sir Michael Rake
    
    
    108,362
    
    
    
    102,056I Livingstona,b
    
    
    1,084,513
    
    
    
    759,108T Chanmugama,b
    
    
    205,629
    
    
    
    49,249G Pattersona,b
    
    
    409,181
    
    
    
    252,769T Ballc
    
    
    15,000
    
    
    
    C Brendish
    
    
    41,920
    
    
    
    36,920J E Daniels
    
    
    12,647
    
    
    
    12,647P Hewitt
    
    
    10,554
    
    
    
    6,534P Hodkinson
    
    
    16,683
    
    
    
    9,261C G Symon
    
    
    20,056
    
    
    
    20,056Total
    
    
    1,924,545
    
    
    
    1,248,600
 
 a
    
    Includes free shares awarded under the BT Group Employee Share Investment Plan.b
    
    The executive directors decided to receive their annual bonuses for 2008/09 in shares.
On 1 June 2009, 224,385 shares were purchased for Ian Livingston, 67,097 shares were purchased for
Tony Chanmugam and 105,592 shares were purchased for Gavin Patterson.c
    
    Tony Ball was appointed as a director on 16 July 2009.    Performance graph
   
 BTs total shareholder return (TSR) performance  over the five financial years to 31 March 2010
 
   72 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  
 Remuneration review
 This part of the Report on directors remuneration is subject to audit.
 Directors emoluments
  Pension
allowance
net
of pension
contributionsaOther
benefitsexcluding
pensionBasicsalary andfeesTotal salaryand fees
    
    
    Annualbonus
    
    
    Expenseallowance
    
    
    
    
    Total
    
    
    Total
    
    

    Deferred Bonus Planb2010
    
    
    2009
    
    
    2010
    
    
    2009£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000Sir Michael Rakec
    
    
    600
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    670
    
    
    
    630
    
    
    
    
    
    
    
    I Livingstonc
    
    
    850
    
    
    
    10
    
    
    
    860
    
    
    
    1,206
    
    
    
    
    
    
    
    39
    
    
    
    2,105
    
    
    
    1,174
    
    
    
    1,206
    
    
    
    343T Chanmugamc,d,e
    
    
    475
    
    
    
    143
    
    
    
    618
    
    
    
    463
    
    
    
    19
    
    
    
    9
    
    
    
    1,109
    
    
    
    275
    
    
    
    346
    
    
    
    77G Pattersonc,d
    
    
    500
    
    
    
    100
    
    
    
    600
    
    
    
    487
    
    
    
    19
    
    
    
    27
    
    
    
    1,133
    
    
    
    698
    
    
    
    365
    
    
    
    121T Ballf
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    C Brendish
    
    
    80
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    80
    
    
    
    
    
    
    
    J E Daniels
    
    
    75
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    74
    
    
    
    
    
    
    
    P Hewittg
    
    
    128
    
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    75
    
    
    
    
    
    
    
    P Hodkinson
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100
    
    
    
    
    
    
    
    C G Symonh
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    174
    
    
    
    150
    
    
    
    
    
    
    
    H Lalanic,d,i
    
    
    458
    
    
    
    176
    
    
    
    634
    
    
    
    503
    
    
    
    4
    
    
    
    25
    
    
    
    1,166
    
    
    
    805
    
    
    
    
    
    
    
    M Alahuhtaj
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    70
    
    
    
    
    
    
    
    D Lathenh,k
    
    
    63
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    81
    
    
    
    75
    
    
    
    
    
    
    
    M van den Berghl
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    150
    
    
    
    
    
    
    
    F Barraultm
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,257
    
    
    
    
    
    
    
    B Verwaayenn
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    3,588
    
    
    
    429
    
    
    
    4,017
    
    
    
    2,659
    
    
    
    42
    
    
    
    212
    
    
    
    6,930
    
    
    
    6,190
    
    
    
    1,917
    
    
    
    541Termination paymentsH Lalanio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    F Barraultp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1,599B Verwaayen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7007,071
    
    
    
    8,489
 
 a
    
    Pension allowance paid in cash for the 2009/10 financial year  see Pensions
below.b
    
    Deferred annual bonuses payable in shares in three years time, subject to
continued employment.c
    
    Other benefits include some or all of the following: company
car, fuel or driver, personal telecommunications facilities and home security, medical and dental
cover for the director and immediate family, special life cover, professional subscriptions,
personal tax advice, and financial counselling.d
    
    Expense allowance in the above table includes a monthly cash allowance in lieu of a company car or part of such allowance which has not
been used for a company car.e
    
    Tony Chanmugam was granted a retention cash award in
early 2008 prior to his appointment as a director. He will receive a payment of £315,000 in May
2010.f
    
    Tony Ball was appointed as a director on 16 July 2009.g
    
    Patricia Hewitt was appointed as Senior Independent Director on 16 July 2009.h
    
    Includes an additional fee for regular travel from overseas to Board and Board committee meetings.i
    
    Hanif Lalani resigned as a director on 7 January 2010 and left the company on 31 March 2010.j
    
    Matti Alahuhta retired as a director on 31 May 2009.k
    
    Deborah Lathen retired as a director on 31 January 2010.l
    
    Maarten van den Bergh retired as a director on 15 July 2009.m
    
    François Barrault resigned as a director on 30 October 2008 and left
the company on 30 November 2008.n
    
    Ben Verwaayen retired as a director on 30 June 2008.o
    
    Hanif Lalanis contract was terminated on 11 January 2010. In accordance with his
contract, his salary of £585,000 per annum and the value of all the benefits to which he is
entitled, amounting to £195,000 per annum, will continue to be provided until the earlier of nine
months from 31 March 2010 or his obtaining full-time employment.p
    
    François Barrault continued to receive medical insurance until 30 November 2009, in accordance with the terms of his
contract.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 73




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
     Former directors
  Committee for Responsible and Sustainable Business
  Loans
  Pensions
       Increases in pension benefits at 31 March 2010
 Transfervalue ofincreaseChange
    
    
    
    
    
    
    in accruedin transfer
    
    
    Additional
    
    
    benefits invalue c-d
    
    
    accrued benefits
    
    
    e lessless directors
    
    
    earned in
    
    
    directorsAccrued pension
    
    
    Transfer value of accrued benefits
    
    
    contributions
    
    
    the year
    
    
    contributions2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2010£000a
    
    
    £000b
    
    
    £000c
    
    
    £000d
    
    
    £000
    
    
    £000e
    
    
    £000
    fT Chanmugamg,h
    
    
    180
    
    
    
    140
    
    
    
    3,536
    
    
    
    2,419
    
    
    
    1,117
    
    
    
    35
    
    
    
    693H Lalanig,i
    
    
    166
    
    
    
    161
    
    
    
    2,382
    
    
    
    1,742
    
    
    
    640
    
    
    
    
    
    
    
    
 a-d
    
    As required by the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008.a-b
    
    The values represent the deferred pension to which they
would have been entitled had they left the company on 31 March 2010 and 2009, respectively.c
    
    Transfer value of the deferred pension in column (a) as at 31 March 2010 calculated on the
basis of actuarial advice in accordance with relevant legislation. The transfer value represents a
liability of the BTPS rather than any remuneration due to the individual, and cannot be
meaningfully aggregated with annual remuneration, as it is not money the individual is entitled to
receive.d
    
    The equivalent transfer value but calculated as at 31 March 2009 on the
assumption that the director left the company on that date.e
    
    The increase in pension
built up during the year, net of inflation. The gross amount can be calculated by deducting the
amount under column (b) from the amount under column (a).f
    
    The transfer value of the
pension in column (e), less directors contributions.g
    
    Directors contributions in the
financial year 2009/10 were as follows: Hanif Lalani £nil (2009: £nil); Tony Chanmugam, £nil (2009:
£9,500).h
    
    Tony Chanmugam was appointed as a director on 1 December 2008.i
    
    Hanif Lalani resigned as a director on 7 January 2010 and left the company on 31 March 2010.
 
   74 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Share options held at 31 March 2010, or date of appointment if later
 Number of shares under option1 April 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Usual dateor date of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    Option price
    
    
    from which
    
    
    Usual expiryappointment if later
    
    
    Granted
    
    
    Lapsed
    
    
    Exercised
    
    
    2010
    
    
    per share
    
    
    exercisable
    
    
    dateSir Michael Rake
    
    
    
    
    
    
    12,110
    a
    
    
    
    
    
    
    
    
    
    
    12,110
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013I Livingston
    
    
    
    
    
    
    12,110
    a
    
    
    
    
    
    
    
    
    
    
    12,110
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013T Chanmugam
    
    
    37,384
    b
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,384
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/2014
    
    
    
    12,110
    a
    
    
    
    
    
    
    
    
    
    
    12,110
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013G Patterson
    
    
    11,198
    d
    
    
    
    
    
    
    11,198
    
    
    
    
    
    
    
    
    
    
    
    146p
    
    
    
    14/08/2009
    
    
    
    14/02/201098,178
    b
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,178
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/2014Former directorH Lalanie
    
    
    90,625
    b
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,625
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/2014105,264
    c
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,264
    
    
    
    199.5p
    
    
    
    24/06/2004
    
    
    
    24/06/2013
    
    
    
    12,110
    a
    
    
    12,110
    
    
    
    
    
    
    
    
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013Total
    
    
    342,649
    
    
    
    48,440
    
    
    
    23,308
    
    
    
    
    
    
    
    367,781
 All of the above options were granted for nil consideration.a
    
    Option granted on 7
April 2009 under the Employee Sharesave Scheme, in which all employees of the company are entitled
to participate.b
    
    Options granted under the GSOP on 24 June 2004. The exercise of
options was subject to a performance measure being met. The performance measure is relative TSR
compared with a group of 20 companies from the European Telecom Sector as at 1 April 2004. BTs TSR
had to be in the upper quartile for all the options to become exercisable. At median 30% of the
options would be exercisable.
Below that point none of the options could be exercised. The three-year performance period
ended on 31 March 2007. At that date, the company was at 8th position against the comparator group
and as a result, 42% of the options lapsed and 58% of each option became exercisable on 24 June
2007.c
    
    Option granted under the GSOP (Special Incentive Award) on 24 June 2003, prior
to Hanif Lalanis appointment as a director. This option is not subject to a performance measure as
the grant was linked to personal performance.d
    
    Option granted on 25 June 2004 under the
Employee Sharesave Scheme, in which all employees of the company are eligible to participate.e
    
    Hanif Lalani left the company on 31 March 2010. His options under the GSOP were
preserved until 31 March 2011. His options under the Employee Sharesave Scheme lapsed on 31 March
2010.
 Unrealised gains on share options
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 75




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Share awards under long-term incentive plans held at 31 March 2010, or date of appointment, if later
  Totalnumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monetaryaward
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    value ofshares
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    vested1 April
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    Normal
    
    
    Price
    
    
    price
    
    
    award2009
    
    
    Awarded
    
    
    re-invested
    
    
    Vested
    
    
    Lapsed
    
    
    2010
    
    
    vesting date
    
    
    on grant
    
    
    at vesting
    
    
    £000I LivingstonISP 2007a
    
    
    383,307
    
    
    
    
    
    
    
    9,961
    
    
    
    
    
    
    
    393,268
    
    
    
    
    
    
    
    31/3/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    ISP 2008b
    
    
    1,397,025
    
    
    
    
    
    
    
    36,307
    
    
    
    
    
    
    
    
    
    
    
    1,433,332
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    ISP 2009c
    
    
    
    
    
    
    1,985,723
    
    
    
    51,606
    
    
    
    
    
    
    
    
    
    
    
    2,037,329
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    T ChanmugamISP 2007a
    
    
    92,411
    
    
    
    
    
    
    
    2,400
    
    
    
    
    
    
    
    94,811
    
    
    
    
    
    
    
    31/3/2010
    
    
    
    317.67p
    
    
    
    
    
    
    
    ISP 2008b
    
    
    145,179
    
    
    
    
    
    
    
    3,772
    
    
    
    
    
    
    
    
    
    
    
    148,951
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    ISP 2009c
    
    
    
    
    
    
    924,723
    
    
    
    24,032
    
    
    
    
    
    
    
    
    
    
    
    948,755
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    RSP 2007d
    
    
    97,772
    
    
    
    
    
    
    
    2,540
    
    
    
    100,312
    
    
    
    
    
    
    
    
    
    
    
    20/3/2010
    
    
    
    300p
    
    
    
    121.07
    
    
    
    121G PattersonISP 2007a
    
    
    124,941
    
    
    
    
    
    
    
    3,246
    
    
    
    
    
    
    
    128,187
    
    
    
    
    
    
    
    31/3/2010
    
    
    
    317.67p
    
    
    
    
    
    
    
    ISP 2008b
    
    
    684,815
    
    
    
    
    
    
    
    17,797
    
    
    
    
    
    
    
    
    
    
    
    702,612
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    ISP 2009c
    
    
    
    
    
    
    973,393
    
    
    
    25,296
    
    
    
    
    
    
    
    
    
    
    
    998,689
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    Former directorH LalaniISP 2007a
    
    
    251,887
    
    
    
    
    
    
    
    6,546
    
    
    
    
    
    
    
    258,433
    
    
    
    
    
    
    
    31/3/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    ISP 2008b
    
    
    801,235
    
    
    
    
    
    
    
    20,823
    
    
    
    
    
    
    
    822,058
    
    
    
    
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    ISP 2009c
    
    
    
    
    
    
    1,138,870
    
    
    
    29,597
    
    
    
    
    
    
    
    1,168,467
    
    
    
    
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    
 a
    
    Awards under the ISP granted in 2007 vest subject to meeting a performance
condition, on 31 March 2010. The performance measure is relative TSR compared with a group of 15
companies from the European Telecom Sector as at 1 April 2007. BTs TSR had to be in the upper
quartile for all the shares to vest. At median, 25% of the shares would vest. At 31 March 2010,
BTs TSR was at 14th position against the comparator group. As a result all of the awards lapsed on
that date.b
    
    Awards under the ISP granted on 25 June 2008. The number of shares subject
to awards was calculated using the average middle market price of a BT share for the three days
prior to the grant. The awards will vest subject to meeting a performance condition, on 31 March
2011. The performance measure is relative TSR compared with a group of 15 companies from the
European Telecom Sector as at 1 April 2008. BTs TSR must be in the upper quartile for all the
shares to vest. At median, 25% of the shares would vest. Below that point, no shares would vest.c
    
    Awards under the ISP granted on 7 August 2009. The number of shares subject to awards
was calculated using the average middle market price of a BT share for the three days prior to the
grant. 50% of each award of shares is linked to TSR compared with a group of 25 companies and 50%
is linked to a three-year cumulative free cash flow measure. The awards will vest subject to
meeting the two performance conditions, on 31 March 2012.d
    
    Tony Chanmugam was granted
an RSP award on 20 March 2007. The award vested in full on 20 March 2010. Vesting of RSP awards is
not subject to a performance target being met.e
    
    Hanif Lalani left the company on 31
March 2010. On that date, all of his outstanding awards under the ISP lapsed.
 Vesting of outstanding share awards and options
 31 March 2010
    
    
    
    
    
    
    
    
    
    

    31 March 2009Free cash
    
    
    Percentage of
    
    
    
    
    
    
    Percentage of
    
    
    
    
    
    
    Percentage ofVesting date
    
    
    flow position
    
    
    shares vesting
    
    
    TSR position
    
    
    shares vesting
    
    
    TSR position
    
    
    shares vestingISP 2006a
    
    
    31/03/2009
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    14
    
    
    
    0%
    
    
    
    14
    
    
    
    0%ISP 2007b
    
    
    31/03/2010
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    14
    
    
    
    0%
    
    
    
    14
    
    
    
    0%ISP 2008c
    
    
    31/03/2011
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    14
    
    
    
    0%
    
    
    
    14
    
    
    
    0%ISP 2009d
    
    
    31/03/2012
    
    
    
    100%
    
    
    
    50%
    
    
    
    10
    
    
    
    31%
    
    
    
    
    
    
    
    
 a
    
    The performance period for the ISP 2006 ended on 31 March 2009. BTs TSR position
was at 14th position against the European Telecom Sector of 17 companies. As a result all the
shares lapsed on that date.b
    
    The performance period for the ISP 2007 ended on 31 March
2010. BTs TSR position was at 14th position against the European Telecom Sector of 15 companies.
As a result all the shares lapsed on that date.c
    
    The performance period for the ISP
2008 ends on 31 March 2011.d
    
    The performance period for the ISP 2009 ends on 31 March
2012. 50% of each award of shares is linked to TSR; and 50% is linked to a three-year cumulative
free cash flow measure. (See Long-term share-based incentiveson page 69). The awards will vest
subject to meeting the two performance conditions on 31 March 2012.
 
   76 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
  Deferred Bonus Plan (DBP) awards at 31 March 2010, or date of appointment, if later
  Totalnumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monetaryaward
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    value ofshares
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    vested1 April
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    
    
    
    
    Price
    
    
    price
    
    
    award2009
    
    
    Awardeda
    
    
    re-invested
    
    
    Vested
    
    
    Lapsed
    
    
    2010
    
    
    Vesting date
    
    
    at grant
    
    
    at vesting
    
    
    £000I Livingston
    
    
    167,149
    
    
    
    
    
    
    
    
    
    
    
    167,149
    
    
    
    
    
    
    
    
    
    
    
    1/8/2009
    
    
    
    231.58p
    
    
    
    124.43p
    
    
    
    208138,708
    
    
    
    
    
    
    
    3,604
    
    
    
    
    
    
    
    
    
    
    
    142,312
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    221,199
    
    
    
    
    
    
    
    5,747
    
    
    
    
    
    
    
    
    
    
    
    226,946
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    
    
    
    
    267,410
    
    
    
    6,948
    
    
    
    
    
    
    
    
    
    
    
    274,358
    
    
    
    1/8/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    T Chanmugam
    
    
    51,230
    
    
    
    
    
    
    
    
    
    
    
    51,230
    
    
    
    
    
    
    
    
    
    
    
    1/8/2009
    
    
    
    231.58p
    
    
    
    124.43p
    
    
    
    6437,450
    
    
    
    
    
    
    
    972
    
    
    
    
    
    
    
    
    
    
    
    38,422
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    52,007
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    
    
    
    
    53,357
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    
    
    
    
    59,972
    
    
    
    1,557
    
    
    
    
    
    
    
    
    
    
    
    61,529
    
    
    
    1/8/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    G Patterson
    
    
    84,071
    
    
    
    
    
    
    
    
    
    
    
    84,071
    
    
    
    
    
    
    
    
    
    
    
    1/8/2009
    
    
    
    231.58p
    
    
    
    124.43p
    
    
    
    10557,440
    
    
    
    
    
    
    
    1,491
    
    
    
    
    
    
    
    
    
    
    
    58,931
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    90,267
    
    
    
    
    
    
    
    2,344
    
    
    
    
    
    
    
    
    
    
    
    92,611
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    
    
    
    
    94,380
    
    
    
    2,452
    
    
    
    
    
    
    
    
    
    
    
    96,832
    
    
    
    1/8/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    Former directorH Lalanib
    
    
    127,351
    
    
    
    
    
    
    
    
    
    
    
    127,351
    
    
    
    
    
    
    
    
    
    
    
    1/8/2009
    
    
    
    231.58p
    
    
    
    124.43p
    
    
    
    158121,533
    
    
    
    
    
    
    
    3,158
    
    
    
    
    
    
    
    
    
    
    
    124,691
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    154,050
    
    
    
    
    
    
    
    4,003
    
    
    
    
    
    
    
    52,679
    
    
    
    105,374
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    
 a
    
    Awards granted on 3 August 2009 in respect of the financial year 2008/09. The
number of shares subject to awards was calculated using the average middle market price of a BT
share for the three days prior to the grant.b
    
    Hanif Lalani left the company on 31 March
2010. His 2008 award was pro-rated and will vest on 1 August 2011.
  Share awards under the Employee Share Investment Plan (ESIP) at 31 March 2010, or at date of appointment, if later
 Total number ofshares31 March 2010I Livingston
    
    
    363T Chanmugam
    
    
    679G Patterson
    
    
    247Former directorH Lalania
    
    
    679
 a
    
    Hanif Lalani left the company on 31 March 2010.
   Rt Hon Patricia Hewitt
Chair of Remuneration Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 77




---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 DIRECTORS INFORMATION
 
 Election and re-election
  Report on directors remuneration
 
 Meetings attendance
 Audit,
Nominating Remuneration Committees
 Audit
    
    
    Nominating
    
    
    RemunerationBoard
    
    
    Committee
    
    
    Committee
    
    
    CommitteeNumber of meetings held9
    
    
    6
    
    
    3
    
    
    5Number of meetings attended (maximum possible)Sir Michael Rake
    
    
    9 (9)
    
    
    
    
    
    
    
    3 (3)
    
    
    
    3 (5)Tony Balla
    
    
    6 (6)
    
    
    
    
    
    
    
    2 (2)
    
    
    
    Clay Brendish
    
    
    9 (9)
    
    
    
    6 (6)
    
    
    
    2 (3)
    
    
    
    Tony Chanmugam
    
    
    9 (9)
    
    
    
    
    
    
    
    
    
    
    
    Eric Daniels
    
    
    9 (9)
    
    
    
    
    
    
    
    3 (3)
    
    
    
    5 (5)Patricia Hewitt
    
    
    8 (9)
    
    
    
    6 (6)
    
    
    
    2 (2)
    
    
    
    4 (4)Phil Hodkinson
    
    
    9 (9)
    
    
    
    6 (6)
    
    
    
    3 (3)
    
    
    
    Ian Livingston
    
    
    9 (9)
    
    
    
    
    
    
    
    
    
    
    
    Gavin Patterson
    
    
    9 (9)
    
    
    
    
    
    
    
    
    
    
    
    Carl Symon
    
    
    9 (9)
    
    
    
    6 (6)
    
    
    
    
    
    
    
    5 (5)Matti Alahuhtab
    
    
    2 (2)
    
    
    
    
    
    
    
    
    
    
    
    1 (1)Maarten van den Berghc
    
    
    2 (3)
    
    
    
    2 (2)
    
    
    
     (1)
    
    
    
    1 (1)Hanif Lalanid
    
    
    7 (7)
    
    
    
    
    
    
    
    
    
    
    
    Deborah Lathene
    
    
    7 (7)
    
    
    
    
    
    
    
    
    
    
    
    2 (3)
 a
    
    Appointed to the Board on 16 July 2009b
    
    Resigned from the Board on 31 May 2009c
    
    Resigned from the Board on 15 July 2009d
    
    Resigned from the Board on 7 January 2010e
    
    Resigned from the Board on 31 January 2010
 
 Service agreements
 Remuneration
Committee Report on directors
remuneration
 
 Training and information
 Operating Committee
   
 Independent advice
  
 Directors and officers liability insurance and indemnity
  
 Interest of management in certain transactions
  78 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 BUSINESS POLICIES
 
 Responsible business
 The Way We Work The Way We
Work
 The Way We Work
  The Way We Work It matters
  Committee for
Responsible and Sustainable Business Review of the year  Our
corporate responsibility Report of the
Committee for responsible and sustainable business
 
 Political donations
  
 Pension funds
  
 Financial statements
  Statement of directors
responsibility Review of the year 
Financial review
 
 Takeover Directive disclosure
  4
    
    structure of BTs share capital (refer to page 123) including the rights and obligations attaching to the shares (refer to pages 161 to 164);4
    
    restrictions on the transfer of BT shares and voting rights (refer to pages 161 and 162);4
    
    significant direct or indirect shareholdings (refer to page 82); and4
    
    appointment and replacement of directors (refer to page 163).
  4
    
    BT has
two employee share ownership trusts which hold BT shares for the purpose of satisfying awards made
under the various employee share plans. The trustee of the BT Group ESIP
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 79




---



##### Table of Contents



REPORT OF THE DIRECTORS BUSINESS POLICIES
 may invite participants on whose behalf it holds shares to direct it how to vote in respect of
those shares, and if there is an offer for the shares or other transaction which would lead to a
change of control of BT, participants may direct it to accept the offer or agree to the
transaction. In respect of shares held in the BT Group Employee Share Ownership Trust, the
trustee abstains from voting those shares, and if there is an offer for the shares the trustee is
not obliged to accept or reject the offer but will have regard to the interests of the
participants, may consult them to obtain their views on the offer and may otherwise take the
action with respect to the offer it thinks fair:
 4
    
    we are not aware of any agreements between shareholders that may result in restrictions on the
transfer of shares or on voting rights4
    
    no person holds securities carrying special rights with regard to control of the Company4
    
    proxy appointment and voting instructions must be received by the registrars not less than 48
hours before a general meeting (see also page 161)4
    
    the amendment of BTs articles of association requires shareholder approval in accordance with
legislation in force from time to time4
    
    the powers of the directors are determined by UK legislation and the articles of association.
They are authorised to issue and allot shares, and to undertake purchases of BT shares subject to
shareholder approval at the AGM4
    
    BT Group plc is not party to any significant agreements that take effect, alter or terminate upon
a change of control following a takeover4
    
    we do not have any agreements with directors providing
for compensation for loss of office or employment that occurs because of a takeover.
There is similarly no such provision in standard contracts for employees.
 
 Financial instruments
  
 Internal control and risk management
  Review of the year 
Our resources
  Review of the Year  Our Risks
  4
    
    senior executives collectively review the groups key risks and have created a group risk
register describing the risks, owners and mitigation strategies. This is reviewed by the
Operating Committeebefore being reviewed and approved by the Board4
    
    the lines of business carry out risk assessments of their operations, create risk registers
relating to those operations, and ensure that the key risks are addressed4
    
    senior executives with responsibilities for major group operations report quarterly with their
opinion on the effectiveness of the operation of internal controls in their area of
responsibility4
    
    the groups internal auditors carry out continuing assessments of the quality of risk management
and control, report to management and the Audit Committeeon the status of specific areas
identified for improvement and promote effective risk management in the lines of business
operations4
    
    the Audit Committee, on behalf of the Board, considers the effectiveness of the operation of
internal control procedures in the group during the financial year. It reviews reports from the
internal and external auditors and reports its conclusions to the Board. The Audit Committeehas
carried out these actions for the 2010 financial year.
  Operating
Committee
  
 US Sarbanes-Oxley Act of 2002
 
   80 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS BUSINESS POLICIES
 Audit Committee www.bt.com/ethics
 
 Disclosure controls and procedures
  
 Internal control over financial reporting
   Audit Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 81




---



##### Table of Contents



REPORT OF THE DIRECTORS
 
 SHAREHOLDERS AND ANNUAL GENERAL MEETING
 
 Relations with shareholders
   
 Substantial shareholdings
  Shares
    
    
    % of total voting rightsInvesco Limited
    
    
    780,354,826
    
    
    
    10.06BlackRock Inc
    
    
    381,255,769
    
    
    
    4.92Barclays PLC
    
    
    360,935,363
    
    
    
    4.65AXA S.A.
    
    
    359,297,926
    
    
    
    4.63Legal & General Group PLC
    
    
    309,597,603
    
    
    
    3.99Norges Bank
    
    
    240,354,001
    
    
    
    3.09
 
 AGM resolutions
 Report on directors remuneration
 Audit Nominating Remuneration
 Summary
financial statement & notice of meeting 2010
  www.bt.com/btagm2010
 
 Authority to purchase shares
    Andrew Parker
    82 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
      84
    
    STATEMENT OF DIRECTORS RESPONSIBILITIES85
    
    REPORT OF THE INDEPENDENT AUDITORS CONSOLIDATED FINANCIAL STATEMENTS85
    
    United Kingdom opinion86
    
    United States opinion87
    
    CONSOLIDATED FINANCIAL STATEMENTS87
    
    ACCOUNTING POLICIES96
    
    GROUP INCOME STATEMENT97
    
    GROUP STATEMENT OF COMPREHENSIVE INCOME98
    
    GROUP STATEMENT OF CHANGES IN EQUITY99
    
    GROUP CASH FLOW STATEMENT100
    
    GROUP BALANCE SHEET101
    
    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS101
    
    Segment information104
    
    Other operating income104
    
    Operating costs105
    
    Employees106
    
    Specific items107
    
    Finance expense and finance income107
    
    Dividends108
    
    Taxation109
    
    Earnings (loss) per share110
    
    Cash and cash equivalents111
    
    Net debt112
    
    Intangible assets114
    
    Property, plant and equipment115
    
    Investments116
    
    Associates and joint ventures116
    
    Inventories117
    
    Trade and other receivables119
    
    Loans and other borrowings120
    
    Derivative financial instruments121
    
    Trade and other payables122
    
    Provisions122
    
    Deferred taxation123
    
    Minority interests123
    
    Share capital124
    
    Other reserves124
    
    Related party transactions125
    
    Financial commitments and contingent liabilities126
    
    Acquisitions127
    
    Retirement benefit plans132
    
    Share-based payments136
    
    Audit and non-audit services137
    
    Financial instruments and risk management145
    
    REPORT OF THE INDEPENDENT AUDITORS  PARENT COMPANY FINANCIAL STATEMENTS146
    
    FINANCIAL STATEMENTS OF BT GROUP PLC149
    
    SUBSIDIARY UNDERTAKINGS AND ASSOCIATE150
    
    QUARTERLY ANALYSIS OF REVENUE AND PROFIT151
    
    SELECTED FINANCIAL DATA153
    
    FINANCIAL STATISTICS154
    
    OPERATIONAL STATISTICS
 BT GROUP PLCANNUAL REPORT & FORM 20-F     83




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 STATEMENT OF DIRECTORS RESPONSIBILITIES
   4
    
    select suitable
accounting policies and then apply them consistently;4
    
    make judgements and accounting estimates that
are reasonable and prudent;4
    
    state whether IFRSs as adopted by the European Union and IFRSs issued
by IASB and applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the consolidated and parent company financial statements
respectively; and4
    
    prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the company will continue in
business.
   4
    
    the consolidated financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the group; and4
    
    the Report of the directors on pages
57 to 82 includes a fair review of the development and performance of the business and the position
of the group, together with a description of the principal risks and uncertainties that it faces.
 
   84 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 REPORT OF THE INDEPENDENT AUDITORS  CONSOLIDATED FINANCIAL STATEMENTS
 
 United Kingdom opinion
  Respective responsibilities of directors and auditors
   Scope of the audit of the financial statements
  Opinion on financial statements
  4
    
    give a true and fair view of the state
of the groups affairs as at
31 March 2010 and of its profit and cash flows for
the year then ended;4
    
    have been properly prepared in
accordance with IFRSs as adopted by the European
Union; and4
    
    have been prepared in accordance with the
requirements of the Companies Act 2006 and Article 4
of the IAS Regulation.
 Separate opinion in relation to IFRSs as issued by the IASB
   Opinion on other matters prescribed by the Companies Act 2006
  Matters on which we are required to report by exception
   4
    
    certain
disclosures of directors remuneration specified by law are not made; or4
    
    we have not received all
the information and explanations we require for our audit.
  4
    
    the
directors statement, set out on page 54, in relation
to going concern; and4
    
    the part of the Corporate
Governance Statement relating to the companys
compliance with the nine provisions of the June 2008
Combined Code specified for our review.
 Other matter
  for and on behalf of PricewaterhouseCoopers LLP
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 85




---



##### Table of Contents



FINANCIAL STATEMENTS REPORT OF THE INDEPENDENT AUDITORS  CONSOLIDATED FINANCIAL STATEMENTS
 
 United States opinion
         PricewaterhouseCoopers LLP
 
   86 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 CONSOLIDATED FINANCIAL STATEMENTS
 
 Accounting policies
  Compliance with applicable law and IFRS
  Accounting convention
  Presentation of specific items
 Operating Committee Operating Committee
 Critical accounting estimates and key judgements
 Critical accounting estimates and key judgements.
 Implementation of new accounting standards
  Composition of the group
    4
    
    A subsidiary is an entity that is controlled by
another entity, known as the parent. Control is the
power to govern the financial and operating policies
of an entity so as to obtain benefits from its
activities.4
    
    A joint venture is an entity that is jointly
controlled by two or more entities. Joint control is
the contractually agreed sharing of control over an
economic activity, and exists only when the strategic
financial and operating decisions relating to the
activity require the unanimous consent of the parties
sharing control.4
    
    An associate is an entity over which
another entity has significant influence and that is
neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to
participate in the financial and operating policy
decisions of an entity but is not control or joint
control over those policies.
     Services
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 87




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 Equipment sales
  Long-term contractual arrangements
 
   88 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
     4
    
    Goodwill which arose after 1 April 2004:
included in the balance sheet at original
cost, less any provisions for impairment.
This goodwill is not amortised.4
    
    Goodwill which arose between 1 January
1998 and 1 April 2004: included in the
balance sheet at original cost, less
accumulated amortisation to the date of
transition to IFRS and less any provisions
for impairment. This goodwill is not
amortised after the date of transition to
IFRS.4
    
    Goodwill which arose before 1 January
1998: written off directly to retained
earnings.
    Goodwill
  Computer software
  Telecommunication licences
  Brands, customer lists and customer relationships
  Subscriber acquisition costs
  Estimated useful economic lives
  4
    
    Computer software
    
    2 to 5 years4
    
    Telecommunication licences
    
    1 to 5 years4
    
    Brands, customer lists and customer relationships
    
    3 to 15 years
       Cost
  Depreciation
  4
    
    Land and buildingsFreehold buildings
    
    40 yearsLeasehold land and buildings
    
    Unexpired portion of lease or 40 years, whichever is the shorter
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 89




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
  4
    
    Network infrastructure and equipmentTransmission equipment:Duct
    
    40 yearsCable
    
    3 to 25 yearsFibre
    
    5 to 20 yearsExchange equipment
    
    2 to 13 yearsPayphones and other network equipment
    
    2 to 20 years4
    
    OtherMotor vehicles
    
    2 to 9 yearsComputers and office equipment
    
    3 to 6 years
    90 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
                Recognition and derecognition of
financial assets and financial liabilities
  Financial assets
 Financial assets at fair value through income statement
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 91




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
        Financial liabilities
             Cash flow hedge
      Fair value hedge
    92 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
   Hedge of net investment in a foreign operation
   Discontinuance of hedge accounting
      Long-term customer contracts
  4
    
    Transaction volumes or other inputs affecting future revenues
which can vary depending on customer requirements,
plans and market position and other factors such as
general economic conditions;4
    
    Our ability to achieve
key contract milestones connected with the transition,
development, transformation and deployment phases for
customer contracts;4
    
    The status of commercial relations
with customers and the implication for future revenue
and cost projections; and4
    
    Our estimates of future
staff and third party costs and the degree to which
cost savings and efficiencies are deliverable.
  Interconnect income and payments to
other telecommunications operators
  Pension obligations
   Useful lives for property, plant and equipment and software
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 93




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
  Income tax
   Deferred tax
   Goodwill
   Determination of fair values
   Providing for doubtful debts
   Provisions
    
  Amendment to IFRS 2 Share-based payment 
Vesting Conditions and Cancellations
   IAS 1 (Revised) Presentation of Financial Statements
    94 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
  IAS 23 (Revised) Borrowing costs
  Amendment to IFRS 7 Financial Instruments: Disclosures
  IFRS 8 Operating Segments
    4
    
    IFRIC 12 Service concession arrangements;4
    
    IFRIC 13 Customer loyalty programmes;4
    
    IFRIC 16 Hedges of a net investment in a foreign operation; and4
    
    IFRIC 18 Transfer of assets from customers.
 
  IFRS 3 (Revised) Business Combinations (effective 1 April 2010)
  IAS 27 (Revised) Consolidated and Separate
Financial Statements (effective 1 April
2010)
  IFRIC 17 Distributions of Non-cash Assets to Owners (effective 1 April 2010)
  Amendment to IAS 39 Financial Instruments:
Recognition and Measurement: Eligible Hedged items
(effective 1 April 2010)
  Amendment to IAS 32 Financial Instruments:
Presentation-Classification of Rights Issues
(effective 1 April 2010)
  Annual Improvements to IFRSs 2009 (effective 1 April 2010)
  IAS 24 (Revised) Related Party Disclosures (effective 1 April 2011)
  Amendment to IFRIC 14 Prepayments of a Minimum
Funding Requirement (effective 1 April 2011)
  IFRIC 19 Extinguishing Financial Liabilities
with Equity Instruments (effective 1 April
2011)
  IFRS 9 Financial Instruments (effective 1 April 2013)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 95




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 
 GROUP INCOME STATEMENT
  Before specific
    
    
    Specificitems
    
    
    items
    a
    
    TotalYear ended 31 March 2010
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    20,911
    
    
    
    (52
    )
    
    
    20,859Other operating income
    
    
    2
    
    
    
    378
    
    
    
    2
    
    
    
    380Operating costs
    
    
    3
    
    
    
    (18,689
    )
    
    
    (427
    )
    
    
    (19,116
    )Operating profit
    
    
    1
    
    
    
    2,600
    
    
    
    (477
    )
    
    
    2,123Finance expense
    
    
    6
    
    
    
    (3,113
    )
    
    
    
    
    
    
    (3,113
    )Finance income
    
    
    6
    
    
    
    1,944
    
    
    
    11
    
    
    
    1,955Net finance expense
    
    
    
    
    
    
    (1,169
    )
    
    
    11
    
    
    
    (1,158
    )Share of post tax profit of associates and joint ventures
    
    
    15
    
    
    
    25
    
    
    
    29
    
    
    
    54Loss on disposal of associate
    
    
    15
    
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Profit before taxation
    
    
    
    
    
    
    1,456
    
    
    
    (449
    )
    
    
    1,007Taxation
    
    
    8
    
    
    
    (320
    )
    
    
    342
    
    
    
    22Profit for the year
    
    
    
    
    
    
    1,136
    
    
    
    (107
    )
    
    
    1,029Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,135
    
    
    
    (107
    )
    
    
    1,028Minority interests
    
    
    23
    
    
    
    1
    
    
    
    
    
    
    
    1Earnings per share
    
    
    9Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.3pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.9p
 a
    
    For a definition of specific items, see page 87. An analysis of specific items is provided in note 5.
  Before specific
    
    
    Specificitems
    b
    
    items
    a
    
    Total
    bYear ended 31 March 2009
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    21,390
    
    
    
    
    
    
    
    21,390Other operating income
    
    
    2
    
    
    
    352
    
    
    
    (13
    )
    
    
    339Operating costs
    
    
    3
    
    
    
    (21,033
    )
    
    
    (395
    )
    
    
    (21,428
    )Operating profit
    
    
    1
    
    
    
    709
    
    
    
    (408
    )
    
    
    301Finance expense
    
    
    6
    
    
    
    (3,272
    )
    
    
    
    
    
    
    (3,272
    )Finance income
    
    
    6
    
    
    
    2,652
    
    
    
    
    
    
    
    2,652Net finance expense
    
    
    
    
    
    
    (620
    )
    
    
    
    
    
    
    (620
    )Share of post tax profit of associates and joint ventures
    
    
    15
    
    
    
    39
    
    
    
    36
    
    
    
    75Profit (loss) before taxation
    
    
    
    
    
    
    128
    
    
    
    (372
    )
    
    
    (244
    )Taxation
    
    
    8
    
    
    
    10
    
    
    
    43
    
    
    
    53Profit (loss) for the year
    
    
    
    
    
    
    138
    
    
    
    (329
    )
    
    
    (191
    )Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    136
    
    
    
    (329
    )
    
    
    (193
    )Minority interests
    
    
    23
    
    
    
    2
    
    
    
    
    
    
    
    2Loss per share
    
    
    9Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5)pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5)p
 a
    
    For a definition of specific items, see page 87. An analysis of specific items is provided in note 5.b
    
    Restated. See page 94.
    96 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 GROUP INCOME STATEMENT
  Before specific
    
    
    Specificitems
    b
    
    items
    a
    
    Total
    bYear ended 31 March 2008
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    20,704
    
    
    
    
    
    
    
    20,704Other operating income
    
    
    2
    
    
    
    359
    
    
    
    (10
    )
    
    
    349Operating costs
    
    
    3
    
    
    
    (18,168
    )
    
    
    (529
    )
    
    
    (18,697
    )Operating profit
    
    
    1
    
    
    
    2,895
    
    
    
    (539
    )
    
    
    2,356Finance expense
    
    
    6
    
    
    
    (2,891
    )
    
    
    
    
    
    
    (2,891
    )Finance income
    
    
    6
    
    
    
    2,513
    
    
    
    
    
    
    
    2,513Net finance expense
    
    
    
    
    
    
    (378
    )
    
    
    
    
    
    
    (378
    )Share of post tax loss of associates and joint ventures
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Profit on disposal of associate
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9Profit before taxation
    
    
    
    
    
    
    2,506
    
    
    
    (530
    )
    
    
    1,976Taxation
    
    
    8
    
    
    
    (581
    )
    
    
    343
    
    
    
    (238
    )Profit for the year
    
    
    
    
    
    
    1,925
    
    
    
    (187
    )
    
    
    1,738Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,924
    
    
    
    (187
    )
    
    
    1,737Minority interests
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Earnings per share
    
    
    9Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.5pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.1p
 a
    
    For a definition of specific items, see page 87. An analysis of specific items is provided in note 5.b
    
    Restated. See page 94.
  
 GROUP STATEMENT OF COMPREHENSIVE INCOME
 2010
    
    
    2009
    a
    
    2008
    aYear ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mProfit (loss) for the year
    
    
    
    
    
    
    1,029
    
    
    
    (191
    )
    
    
    1,738Other comprehensive (loss) incomeActuarial (losses) gains relating to retirement benefit obligations
    
    
    29
    
    
    
    (4,324
    )
    
    
    (7,037
    )
    
    
    2,621Exchange differences on translation of foreign operations
    
    
    25
    
    
    
    (119
    )
    
    
    692
    
    
    
    213Fair value movements on available-for-sale assets
    
    
    25
    
    
    
    7
    
    
    
    5
    
    
    
    Fair value movements on cash flow hedges: fair value (losses) gains
    
    
    25
    
    
    
    (1,067
    )
    
    
    2,719
    
    
    
    446 reclassified and reported in net profit (loss)
    
    
    25
    
    
    
    496
    
    
    
    (2,144
    )
    
    
    (294
    ) reclassified and reported in non current assets
    
    
    25
    
    
    
    (4
    )
    
    
    (5
    )
    
    
    11Tax on components of other comprehensive income
    
    
    8
    
    
    
    1,350
    
    
    
    1,859
    
    
    
    (832
    )Other comprehensive (loss) income for the year, net of tax
    
    
    
    
    
    
    (3,661
    )
    
    
    (3,911
    )
    
    
    2,165Total comprehensive (loss) income for the year
    
    
    
    
    
    
    (2,632
    )
    
    
    (4,102
    )
    
    
    3,903Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    (2,633
    )
    
    
    (4,113
    )
    
    
    3,899Minority interests
    
    
    
    
    
    
    1
    
    
    
    11
    
    
    
    4(2,632
    )
    
    
    (4,102
    )
    
    
    3,903
 a
    
    Restated. See page 94.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 97




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 
 GROUP STATEMENT OF CHANGES IN EQUITY
  Shareholders equity (deficit)Share
    
    
    Share
    
    
    Capital
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    Minority
    
    
    Totalcapital
    a
    
    premium
    a
    
    reserve
    
    
    reserves
    b
    
    earnings
    
    
    Total
    
    
    interests
    c
    
    Equity£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    432
    
    
    
    31
    
    
    
    2
    
    
    
    88
    
    
    
    3,685
    
    
    
    4,238
    
    
    
    34
    
    
    
    4,272Change in accounting policy for adoption of
the amendment to IFRS 2 (see page 94)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive incomed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    3,555
    
    
    
    3,899
    
    
    
    4
    
    
    
    3,903Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,241
    )
    
    
    (1,241
    )
    
    
    
    
    
    
    (1,241
    )Share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    55
    
    
    
    
    
    
    
    55Tax on share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )Issue of ordinary shares
    
    
    1
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Cancellation of shares
    
    
    (13
    )
    
    
    
    
    
    
    13
    
    
    
    570
    
    
    
    (570
    )
    
    
    
    
    
    
    
    
    
    
    Net purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,529
    )
    
    
    
    
    
    
    (1,529
    )
    
    
    
    
    
    
    (1,529
    )Other movements in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )At 1 April 2008
    
    
    420
    
    
    
    62
    
    
    
    15
    
    
    
    (527
    )
    
    
    5,439
    
    
    
    5,409
    
    
    
    23
    
    
    
    5,432Total comprehensive (loss) incomed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,094
    
    
    
    (5,207
    )
    
    
    (4,113
    )
    
    
    11
    
    
    
    (4,102
    )Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,222
    )
    
    
    (1,222
    )
    
    
    
    
    
    
    (1,222
    )Share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    143
    
    
    
    
    
    
    
    143Tax on share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Issue of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    797
    
    
    
    (797
    )
    
    
    
    
    
    
    
    
    
    
    Cancellation of shares
    
    
    (12
    )
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    
    
    
    
    (63
    )
    
    
    
    
    
    
    (63
    )Other movements in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )At 1 April 2009
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    1,301
    
    
    
    (1,656
    )
    
    
    142
    
    
    
    27
    
    
    
    169Total comprehensive (loss) incomed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (548
    )
    
    
    (2,085
    )
    
    
    (2,633
    )
    
    
    1
    
    
    
    (2,632
    )Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263
    )
    
    
    (263
    )
    
    
    
    
    
    
    (263
    )Share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81
    
    
    
    81
    
    
    
    
    
    
    
    81Tax on share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19
    
    
    
    
    
    
    
    19Net issuance of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Other movements in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )At 31 March 2010
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    757
    
    
    
    (3,904
    )
    
    
    (2,650
    )
    
    
    24
    
    
    
    (2,626
    )
 a
    
    For details of share capital and share premium, see note 24.b
    
    For further analysis of Other reserves, see note 25.c
    
    For further analysis of minority interests, see note 23.d
    
    The group statement of comprehensive income is on page 97.
    98 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 
 GROUP CASH FLOW STATEMENT
  2010
    
    
    2009
    a
    
    2008
    aYear ended 31 March
    
    Note
    
    
    £m
    
    
    £m
    
    
    £mCash flow from operating activitiesProfit (loss) before taxationb
    
    
    
    
    
    
    1,007
    
    
    
    (244
    )
    
    
    1,976Depreciation and amortisation
    
    
    
    
    
    
    3,039
    
    
    
    2,890
    
    
    
    2,889Loss on sale of associates and group undertakings
    
    
    
    
    
    
    10
    
    
    
    13
    
    
    
    1Net finance expense
    
    
    
    
    
    
    1,158
    
    
    
    620
    
    
    
    378Other non cash charges
    
    
    
    
    
    
    77
    
    
    
    596
    
    
    
    60Share of (profits) losses of associates and joint ventures
    
    
    
    
    
    
    (54
    )
    
    
    (75
    )
    
    
    11Decrease in inventories
    
    
    
    
    
    
    14
    
    
    
    11
    
    
    
    23Decrease (increase) in trade and other receivables
    
    
    
    
    
    
    524
    
    
    
    1,063
    
    
    
    (498
    )(Decrease) increase in trade and other payables
    
    
    
    
    
    
    (708
    )
    
    
    (379
    )
    
    
    451(Decrease) increase in provisions and other liabilitiesd
    
    
    
    
    
    
    (591
    )
    
    
    439
    
    
    
    (104
    )Cash generated from operationsb
    
    
    
    
    
    
    4,476
    
    
    
    4,934
    
    
    
    5,187Income taxes paid
    
    
    
    
    
    
    (76
    )
    
    
    (232
    )
    
    
    (222
    )Income tax repayment for prior years
    
    
    
    
    
    
    425
    
    
    
    4
    
    
    
    521Net cash inflow from operating activities
    
    
    
    
    
    
    4,825
    
    
    
    4,706
    
    
    
    5,486Cash flow from investing activitiesInterest received
    
    
    
    
    
    
    16
    
    
    
    19
    
    
    
    111Dividends received from associates and joint ventures
    
    
    
    
    
    
    3
    
    
    
    6
    
    
    
    2Proceeds on disposal of property, plant and equipment
    
    
    
    
    
    
    29
    
    
    
    44
    
    
    
    62Proceeds on disposal of businesses
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Proceeds on disposal of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Proceeds on disposal of non current financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Proceeds on disposal of current financial assetsc
    
    
    
    
    
    
    8,739
    
    
    
    6,316
    
    
    
    4,779Acquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    (70
    )
    
    
    (227
    )
    
    
    (377
    )Purchases of property, plant and equipment and software
    
    
    
    
    
    
    (2,509
    )
    
    
    (3,082
    )
    
    
    (3,315
    )Purchases of non current financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Purchases of current financial assetsc
    
    
    
    
    
    
    (8,985
    )
    
    
    (6,030
    )
    
    
    (4,938
    )Net cash outflow from investing activities
    
    
    
    
    
    
    (2,775
    )
    
    
    (2,954
    )
    
    
    (3,664
    )Cash flow from financing activitiesEquity dividends paid
    
    
    
    
    
    
    (265
    )
    
    
    (1,221
    )
    
    
    (1,236
    )Dividends paid to minority interests
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Interest paid
    
    
    
    
    
    
    (956
    )
    
    
    (956
    )
    
    
    (842
    )Repayment of borrowings
    
    
    
    
    
    
    (307
    )
    
    
    (863
    )
    
    
    (913
    )Repayment of finance lease liabilities
    
    
    
    
    
    
    (24
    )
    
    
    (16
    )
    
    
    (284
    )Net proceeds (repayment) of issued commercial paper
    
    
    
    
    
    
    (697
    )
    
    
    606
    
    
    
    (681
    )New bank loans raised
    
    
    
    
    
    
    522
    
    
    
    795
    
    
    
    3,939Proceeds from finance leases
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    Repurchase of ordinary shares
    
    
    
    
    
    
    
    
    
    
    (334
    )
    
    
    (1,498
    )Proceeds on issue of treasury shares
    
    
    
    
    
    
    4
    
    
    
    125
    
    
    
    85Net cash used in financing activities
    
    
    
    
    
    
    (1,714
    )
    
    
    (1,865
    )
    
    
    (1,430
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (7
    )
    
    
    54
    
    
    
    25Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    329
    
    
    
    (59
    )
    
    
    417Cash and cash equivalents at the start of the year
    
    
    
    
    
    
    1,115
    
    
    
    1,174
    
    
    
    757Cash and cash equivalents at the end of the year
    
    
    10
    
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174
 a
    
    Restated. See page 94.b
    
    The reconciliation from the loss before taxation of £244m for 2009 to the cash
generated from operations of £4,934m for 2009 includes BT Global Services contract and financial
review charges of £1,639m, which were non cash charges.c
    
    Primarily consists of investment in and redemption of amounts held in liquidity funds.d
    
    Includes pension deficit payment of £525m (2009: £nil, 2008: £320m).
     BT GROUP PLCANNUAL REPORT & FORM 20-F 99




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 
 GROUP BALANCE SHEET
  2010
    
    
    2009
    a
    
    2008
    aAt 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mNon current assetsIntangible assets
    
    
    12
    
    
    
    3,672
    
    
    
    3,788
    
    
    
    3,355Property, plant and equipment
    
    
    13
    
    
    
    14,856
    
    
    
    15,405
    
    
    
    15,307Derivative financial instruments
    
    
    19
    
    
    
    1,076
    
    
    
    2,542
    
    
    
    316Investments
    
    
    14
    
    
    
    64
    
    
    
    55
    
    
    
    31Retirement benefit asset
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    2,887Associates and joint ventures
    
    
    15
    
    
    
    195
    
    
    
    132
    
    
    
    85Trade and other receivables
    
    
    17
    
    
    
    336
    
    
    
    322
    
    
    
    854Deferred tax assets
    
    
    22
    
    
    
    2,196
    
    
    
    1,103
    
    
    
    22,395
    
    
    
    23,347
    
    
    
    22,835Current assetsInventories
    
    
    16
    
    
    
    107
    
    
    
    121
    
    
    
    122Trade and other receivables
    
    
    17
    
    
    
    3,696
    
    
    
    4,185
    
    
    
    4,449Derivative financial instruments
    
    
    19
    
    
    
    624
    
    
    
    158
    
    
    
    71Investments
    
    
    14
    
    
    
    406
    
    
    
    163
    
    
    
    440Cash and cash equivalents
    
    
    10
    
    
    
    1,452
    
    
    
    1,300
    
    
    
    1,4356,285
    
    
    
    5,927
    
    
    
    6,517Current liabilitiesLoans and other borrowings
    
    
    18
    
    
    
    3,269
    
    
    
    1,542
    
    
    
    1,524Derivative financial instruments
    
    
    19
    
    
    
    166
    
    
    
    56
    
    
    
    58Trade and other payables
    
    
    20
    
    
    
    6,531
    
    
    
    7,215
    
    
    
    7,591Current tax liabilities
    
    
    
    
    
    
    320
    
    
    
    1
    
    
    
    241Provisions
    
    
    21
    
    
    
    134
    
    
    
    254
    
    
    
    8110,420
    
    
    
    9,068
    
    
    
    9,495Total assets less current liabilities
    
    
    
    
    
    
    18,260
    
    
    
    20,206
    
    
    
    19,857Non current liabilitiesLoans and other borrowings
    
    
    18
    
    
    
    9,522
    
    
    
    12,365
    
    
    
    9,818Derivative financial instruments
    
    
    19
    
    
    
    533
    
    
    
    711
    
    
    
    1,014Retirement benefit obligations
    
    
    29
    
    
    
    7,864
    
    
    
    3,973
    
    
    
    108Other payables
    
    
    20
    
    
    
    804
    
    
    
    794
    
    
    
    707Deferred tax liabilities
    
    
    22
    
    
    
    1,456
    
    
    
    1,728
    
    
    
    2,513Provisions
    
    
    21
    
    
    
    707
    
    
    
    466
    
    
    
    26520,886
    
    
    
    20,037
    
    
    
    14,425EquityOrdinary shares
    
    
    24
    
    
    
    408
    
    
    
    408
    
    
    
    420Share premium
    
    
    24
    
    
    
    62
    
    
    
    62
    
    
    
    62Capital redemption reserve
    
    
    
    
    
    
    27
    
    
    
    27
    
    
    
    15Other reserves
    
    
    25
    
    
    
    757
    
    
    
    1,301
    
    
    
    (527
    )Retained (loss) earnings
    
    
    
    
    
    
    (3,904
    )
    
    
    (1,656
    )
    
    
    5,439Total parent shareholders (deficit) equity
    
    
    
    
    
    
    (2,650
    )
    
    
    142
    
    
    
    5,409Minority interests
    
    
    23
    
    
    
    24
    
    
    
    27
    
    
    
    23Total (deficit) equityb
    
    
    
    
    
    
    (2,626
    )
    
    
    169
    
    
    
    5,43218,260
    
    
    
    20,206
    
    
    
    19,857
 a
    
    Restated. See page 94.b
    
    The Group statement of changes in equity is on page 98.
  Sir Michael Rake
 Ian Livingston
 Tony Chanmugam
    100 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 1. Segment information
 Operating Committee, Operating
Committee
 BT Global Services  BT Retail  BT Wholesale
 Openreach
    Operating Committee Operating
Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 101




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Segment information continued
  BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2010
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTotal segment revenue
    
    
    8,513
    
    
    
    8,297
    
    
    
    4,450
    
    
    
    5,164
    
    
    
    40
    
    
    
    26,464Internal revenue
    
    
    
    
    
    
    (373
    )
    
    
    (1,227
    )
    
    
    (3,953
    )
    
    
    
    
    
    
    (5,553
    )Revenue from external customers
    
    
    8,513
    
    
    
    7,924
    
    
    
    3,223
    
    
    
    1,211
    
    
    
    40
    
    
    
    20,911Adjusted EBITDAb
    
    
    457
    
    
    
    1,850
    
    
    
    1,279
    
    
    
    1,960
    
    
    
    93
    
    
    
    5,639Depreciation and amortisation
    
    
    (815
    )
    
    
    (459
    )
    
    
    (680
    )
    
    
    (856
    )
    
    
    (229
    )
    
    
    (3,039
    )Adjusted operating profit (loss)b
    
    
    (358
    )
    
    
    1,391
    
    
    
    599
    
    
    
    1,104
    
    
    
    (136
    )
    
    
    2,600Specific items (note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477
    )
    
    
    (477
    )Operating (loss) profit
    
    
    (358
    )
    
    
    1,391
    
    
    
    599
    
    
    
    1,104
    
    
    
    (613
    )
    
    
    2,123Share of post tax profits of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Loss on disposal of associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Net finance expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,158
    )Profit before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,007
 BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2009a
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTotal segment revenue
    
    
    8,628
    
    
    
    8,663
    
    
    
    4,658
    
    
    
    5,231
    
    
    
    40
    
    
    
    27,220Internal revenue
    
    
    
    
    
    
    (343
    )
    
    
    (1,228
    )
    
    
    (4,218
    )
    
    
    
    
    
    
    (5,789
    )Adjusted revenue from external customersb
    
    
    8,628
    
    
    
    8,320
    
    
    
    3,430
    
    
    
    1,013
    
    
    
    40
    
    
    
    21,431Contract and financial review charges
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41
    )Revenue from external customers
    
    
    8,587
    
    
    
    8,320
    
    
    
    3,430
    
    
    
    1,013
    
    
    
    40
    
    
    
    21,390Adjusted EBITDAb
    
    
    261
    
    
    
    1,664
    
    
    
    1,277
    
    
    
    1,996
    
    
    
    40
    
    
    
    5,238Depreciation and amortisation
    
    
    (776
    )
    
    
    (426
    )
    
    
    (686
    )
    
    
    (778
    )
    
    
    (224
    )
    
    
    (2,890
    )Adjusted operating profit (loss)b
    
    
    (515
    )
    
    
    1,238
    
    
    
    591
    
    
    
    1,218
    
    
    
    (184
    )
    
    
    2,348Specific items (note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (408
    )
    
    
    (408
    )Contract and financial review charges
    
    
    (1,639
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,639
    )Operating (loss) profit
    
    
    (2,154
    )
    
    
    1,238
    
    
    
    591
    
    
    
    1,218
    
    
    
    (592
    )
    
    
    301Share of post tax profits of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Net finance expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )Loss before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )
 a
    
    Restated. See pages 94 and 101.
 BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2008a
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTotal segment revenue
    
    
    7,664
    
    
    
    8,682
    
    
    
    4,959
    
    
    
    5,266
    
    
    
    28
    
    
    
    26,599Internal revenue
    
    
    
    
    
    
    (265
    )
    
    
    (1,252
    )
    
    
    (4,378
    )
    
    
    
    
    
    
    (5,895
    )Revenue from external customers
    
    
    7,664
    
    
    
    8,417
    
    
    
    3,707
    
    
    
    888
    
    
    
    28
    
    
    
    20,704Adjusted EBITDAb
    
    
    808
    
    
    
    1,529
    
    
    
    1,406
    
    
    
    1,911
    
    
    
    130
    
    
    
    5,784Depreciation and amortisation
    
    
    (744
    )
    
    
    (445
    )
    
    
    (893
    )
    
    
    (689
    )
    
    
    (118
    )
    
    
    (2,889
    )Adjusted operating profitb
    
    
    64
    
    
    
    1,084
    
    
    
    513
    
    
    
    1,222
    
    
    
    12
    
    
    
    2,895Specific items (note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (539
    )
    
    
    (539
    )Operating profit (loss)
    
    
    64
    
    
    
    1,084
    
    
    
    513
    
    
    
    1,222
    
    
    
    (527
    )
    
    
    2,356Share of post tax losses of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Profit on disposal of associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Net finance expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (378
    )Profit before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,976
 a
    
    Restated. See pages 94 and 101.b
    
    Adjusted revenue, adjusted EBITDA and adjusted operating profit (loss) are stated
before specific items and BT Global Services contract and financial review charges in 2009 and are
non-GAAP measures provided in addition to the disclosure requirements defined under IFRS. The
rationale for using non-GAAP measures is explained on pages 54 to 56.
 
   102 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Segment information continued
  BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2010
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mProperty, plant and equipment
    
    
    395
    
    
    
    333
    
    
    
    230
    
    
    
    816
    
    
    
    130
    
    
    
    1,904Intangible assets
    
    
    204
    
    
    
    84
    
    
    
    95
    
    
    
    91
    
    
    
    155
    
    
    
    629Capital expenditure
    
    
    599
    
    
    
    417
    
    
    
    325
    
    
    
    907
    
    
    
    285
    
    
    
    2,533BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mProperty, plant and equipment
    
    
    576
    
    
    
    386
    
    
    
    310
    
    
    
    823
    
    
    
    154
    
    
    
    2,249Intangible assets
    
    
    310
    
    
    
    85
    
    
    
    125
    
    
    
    128
    
    
    
    191
    
    
    
    839Capital expenditure
    
    
    886
    
    
    
    471
    
    
    
    435
    
    
    
    951
    
    
    
    345
    
    
    
    3,088Revenue
by products and services2010
    
    
    2009
    
    
    2008Year ended 31 March
    












    £m
    
    
    £m
    
    
    £mManaged solutions
    












    
    6,581
    
    
    
    6,390
    
    
    
    5,293Broadband and convergence
    












    
    2,678
    
    
    
    2,617
    
    
    
    2,549Calls and lines
    












    
    6,293
    
    
    
    6,862
    
    
    
    7,405Transit, conveyance, interconnect services, WLR, 

global carrier and other wholesale products
    







    
    2,957
    
    
    
    3,244
    
    
    
    3,327Other products and services
    












    
    2,402
    
    
    
    2,318
    
    
    
    2,130Total adjusted revenue
    












    
    20,911
    
    
    
    21,431
    
    
    
    20,704Specific items
    












    
    (52
    )
    
    
    
    
    
    
    Contract and financial review charges
    












    
    
    
    
    
    (41
    )
    
    
    Total revenue
    












    
    20,859
    
    
    
    21,390
    
    
    
    20,704Geographic informationThe UK is the groups country of domicile and 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 customers2010
    
    
    2009
    
    
    2008Year ended 31 March
    












    £m
    
    
    £m
    
    
    £mUK
    












    
    16,064
    
    
    
    16,736
    
    
    
    17,186Europe, Middle East and Africa, excluding the UK
    







    
    3,250
    
    
    
    3,247
    
    
    
    2,510Americas
    












    
    1,235
    
    
    
    1,119
    
    
    
    847Asia Pacific
    












    
    310
    
    
    
    288
    
    
    
    161Total revenue
    












    
    20,859
    
    
    
    21,390
    
    
    
    20,704Non current assets2010
    
    
    2009At 31 March
    
















    £m
    
    
    £mUK
    
















    
    15,583
    
    
    
    16,110Europe, Middle East and Africa, excluding the UK
    











    
    2,761
    
    
    
    3,046Americas
    
















    
    653
    
    
    
    421Asia Pacific
    
















    
    62
    
    
    
    70Total
    
















    
    19,059
    
    
    
    19,647
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 103




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 2. Other operating income
 2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mProfits on disposal of property, plant and equipment
    
    
    75
    
    
    
    52
    
    
    
    50Income from repayment works
    
    
    74
    
    
    
    72
    
    
    
    74Other operating income
    
    
    229
    
    
    
    228
    
    
    
    235Other operating income before specific items
    
    
    378
    
    
    
    352
    
    
    
    359Specific items (note 5)
    
    
    2
    
    
    
    (13
    )
    
    
    (10
    )Other operating income
    
    
    380
    
    
    
    339
    
    
    
    349
 
 3. Operating costs
 2010
    
    
    2009
    a
    
    2008
    aYear ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mCosts by natureStaff costs:Wages and salaries
    
    
    
    
    
    
    4,182
    
    
    
    4,499
    
    
    
    4,242Social security costs
    
    
    
    
    
    
    447
    
    
    
    432
    
    
    
    417Pension costs
    
    
    29
    
    
    
    304
    
    
    
    544
    
    
    
    626Share-based payment expense
    
    
    30
    
    
    
    71
    
    
    
    141
    
    
    
    73Total staff costs
    
    
    
    
    
    
    5,004
    
    
    
    5,616
    
    
    
    5,358Own work capitalised
    
    
    
    
    
    
    (575
    )
    
    
    (673
    )
    
    
    (724
    )Net staff costs
    
    
    
    
    
    
    4,429
    
    
    
    4,943
    
    
    
    4,634Depreciation of property, plant and equipment:Owned assets
    
    
    13
    
    
    
    2,260
    
    
    
    2,200
    
    
    
    2,324Held under finance leases
    
    
    13
    
    
    
    44
    
    
    
    49
    
    
    
    86Amortisation of intangible assets
    
    
    12
    
    
    
    735
    
    
    
    641
    
    
    
    479Payments to telecommunications operators
    
    
    
    
    
    
    4,083
    
    
    
    4,266
    
    
    
    4,237Other operating costsb
    
    
    
    
    
    
    7,138
    
    
    
    8,934
    
    
    
    6,408Total operating costs before specific items
    
    
    
    
    
    
    18,689
    
    
    
    21,033
    
    
    
    18,168Specific items
    
    
    5
    
    
    
    427
    
    
    
    395
    
    
    
    529Total operating costs
    
    
    
    
    
    
    19,116
    
    
    
    21,428
    
    
    
    18,697Operating costs before specific items include the following:Contract and financial review chargese
    
    
    
    
    
    
    
    
    
    
    1,598
    
    
    
    Leaver costsc
    
    
    
    
    
    
    142
    
    
    
    204
    
    
    
    127Research and development expenditured
    
    
    
    
    
    
    1,177
    
    
    
    1,021
    
    
    
    857Rental costs relating to operating leases
    
    
    
    
    
    
    451
    
    
    
    426
    
    
    
    423Foreign currency losses
    
    
    
    
    
    
    7
    
    
    
    30
    
    
    
    8
 a
    
    Restated for the adoption of the amendment to IFRS 2. See page 94.b
    
    Other operating costs also include a net charge of £1m (2009: £8m credit, 2008: £nil)
relating to fair value movements on derivatives recycled from the cash flow reserve.c
    
    Leaver costs exclude leaver costs associated with the restructuring of BT Global
Services during 2010 and 2009 and manager leaver costs associated with the groups transformation
and reorganisation activities during 2009 and 2008. These costs have been recorded as a specific
item. Other leaver costs are included within wages and salaries and social security costs.d
    
    Research and development expenditure includes amortisation of £733m (2009: £431m,
2008: £325m) in respect of internally developed computer software.e
    
    In 2009, the group recognised contract and financial review charges of £1,639m, of
which £1,598m was recognised within other operating costs and £41m was recognised as a reduction to
revenue. The total charge of £1,639m was allocated against the following assets and liabilities:
intangible assets £241m; non current trade and other receivables £913m; prepayments £52m; accrued
income £41m; provisions £256m; £136m was allocated against a number of other balance sheet
categories and the individual amounts were insignificant.
 
   104 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 4. Employees
 2010
    
    
    2009
    
    
    2008Year end
    
    
    Average
    
    
    Year end
    
    
    Average
    
    
    Year end
    
    
    Average000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000Number of employees in the groupa:UK
    
    
    79.8
    
    
    
    82.9
    
    
    
    86.5
    
    
    
    89.5
    
    
    
    91.3
    
    
    
    93.0Non UK
    
    
    18.0
    
    
    
    18.8
    
    
    
    20.5
    
    
    
    21.1
    
    
    
    20.6
    
    
    
    15.5Total employees
    
    
    97.8
    
    
    
    101.7
    
    
    
    107.0
    
    
    
    110.6
    
    
    
    111.9
    
    
    
    108.5
 2010
    
    
    2009
    b
    
    2008
    bYear end
    
    
    Average
    
    
    Year end
    
    
    Average
    
    
    Year end
    
    
    Average000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000Number of employees in the groupa:BT Global Services
    
    
    24.3
    
    
    
    26.1
    
    
    
    28.2
    
    
    
    28.4
    
    
    
    29.7
    
    
    
    26.8BT Retail
    
    
    19.4
    
    
    
    20.2
    
    
    
    21.2
    
    
    
    21.9
    
    
    
    21.9
    
    
    
    21.5BT Wholesale
    
    
    2.4
    
    
    
    2.4
    
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.8
    
    
    
    3.1Openreach
    
    
    30.8
    
    
    
    31.4
    
    
    
    32.3
    
    
    
    33.1
    
    
    
    33.6
    
    
    
    33.8Other
    
    
    20.9
    
    
    
    21.6
    
    
    
    22.9
    
    
    
    24.7
    
    
    
    23.9
    
    
    
    23.3Total employees
    
    
    97.8
    
    
    
    101.7
    
    
    
    107.0
    
    
    
    110.6
    
    
    
    111.9
    
    
    
    108.5
 a
    
    The numbers disclosed include both full and
part-time employees.b
    
    Restated for the impact of
customer account moves and other internal trading model
changes. See page 101.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 105




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 5. Specific items
 Operating Committee
 2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenueRegulatory settlementa
    
    
    52
    
    
    
    
    
    
    
    Other operating income(Profit) loss on disposal of a businessb
    
    
    (2
    )
    
    
    13
    
    
    
    10Operating costsBT Global Services restructuring charges: Networks, products and procurement channels rationalisationc
    
    
    142
    
    
    
    183
    
    
    
     People and propertyc
    
    
    132
    
    
    
    51
    
    
    
     Intangible asset impairments and other chargesc
    
    
    27
    
    
    
    46
    
    
    
    301
    
    
    
    280
    
    
    
    Property rationalisation costsd
    
    
    121
    
    
    
    
    
    
    
    Costs associated with settlement of open tax yearse
    
    
    5
    
    
    
    
    
    
    
    Restructuring costs  group transformation and reorganisation activitiesf
    
    
    
    
    
    
    65
    
    
    
    40221CN asset impairment and related chargesg
    
    
    
    
    
    
    50
    
    
    
    Creation of Openreach and delivery of the Undertakingsh
    
    
    
    
    
    
    
    
    
    
    53Write off of circuit inventory and other working capital balancesi
    
    
    
    
    
    
    
    
    
    
    74427
    
    
    
    395
    
    
    
    529Finance incomeInterest on settlement of open tax yearse
    
    
    (11
    )
    
    
    
    
    
    
    Share of results of associates and joint venturesImpact of renegotiated supply contracts on associatej
    
    
    (29
    )
    
    
    
    
    
    
    Reassessment of carrying value of associatek
    
    
    
    
    
    
    (36
    )
    
    
    Loss (profit) on disposal of associates and joint venturesl
    
    
    12
    
    
    
    
    
    
    
    (9
    )(17
    )
    
    
    (36
    )
    
    
    (9
    )Net specific items charge before tax
    
    
    449
    
    
    
    372
    
    
    
    530Tax credit in respect of settlement of open tax yearse
    
    
    (230
    )
    
    
    
    
    
    
    (40
    )Tax credit on re-measurement of deferred taxm
    
    
    
    
    
    
    
    
    
    
    (154
    )Tax credit on specific items above
    
    
    (112
    )
    
    
    (43
    )
    
    
    (149
    )Net specific items charge after tax
    
    
    107
    
    
    
    329
    
    
    
    187
 a
    
    In 2010 a charge of £52m was recognised reflecting an Ofcom determination in
relation to 2Mb/s partial private circuits.b
    
    In 2010 a profit of £2m arose on disposal of a business. In 2009 and 2008
respectively, a £13m and £10m loss on disposal arose from exiting businesses.c
    
    In 2010 and 2009 respectively, the group recognised BT Global Services restructuring
charges of £301m and £280m. The main components of the charges are set out below: Networks, products and procurement channels rationalisation charges of £142m (2009: £183m and
2008: £nil). In 2010 this included a payment of £127m made to Tech Mahindra for the renegotiation
of certain supply contracts as part of the rationalisation of
procurement channels. People and property charges of £132m (2009: £51m and 2008: £nil) principally comprising leaver
costs and property exit costs. Intangible asset impairments and other charges of £27m (2009: £46m and 2008: £nil)
reflecting the costs associated with rationalising the services that are offered to customers and
the brands under which customers are served.d
    
    In 2010 £121m (2009 and 2008: £nil) of property rationalisation charges were
recognised in relation to the rationalisation of the groups UK property portfolio. The charge
recognised relates to properties which have been vacated and as a result of which, the associated
leases have become onerous. This programme is expected to continue over the next two years.
Including the charge recognised in 2010, the total cost of the rationalisation programme is
expected to be around £300m.e
    
    In 2010 the group agreed substantially all outstanding tax matters with HMRC relating
to the 2006, 2007 and 2008 tax years. Specific items include a tax credit of £230m, associated
interest of £11m and costs of £5m in connection with reaching the agreement. In 2008 the group
agreed an outstanding tax matter relating to a business disposed of in 2001, the impact of which
was a tax credit of £40m.f
    
    In 2009 and 2008 respectively, the group incurred costs of £65m and £402m in respect
of the groups transformation and reorganisation activities. The costs mainly comprised leaver
costs, property exit and transformation programme costs.g
    
    In 2009 a £50m charge was recognised comprising £31m of asset impairments and £19m of
associated costs, following the groups review of its 21CN programme and associated voice strategy
in the light of the move to a customer-led roll out strategy and focus on next generation voice
service developments of fibre-based products.h
    
    In 2008 a charge of £53m was recognised in relation to further estimated costs to
create Openreach and deliver the Undertakings agreed with Ofcom.i
    
    In 2008 a charge of £74m was recognised as a result of the completion of a review of
circuit inventory and other working capital balances.j
    
    In 2010 the group recognised a specific item credit of £29m in connection with the
£127m payment to its associate Tech Mahindra, as described above.k
    
    In 2009 a credit of £36m was recognised in respect of a reassessment of the value of
the groups share of the net assets of an associate.l
    
    In 2010 a £12m loss on disposal of an indirect interest in Tech Mahindra was
recognised. In 2008, a £9m profit on the sale of an associate was recognised.m
    
    In 2008 a tax credit of £154m was recognised for the re-measurement of deferred tax
balances as a result of the change in the UK statutory corporation tax rate from 30% to 28%
effective in 2009.
 
   106 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 6. Finance expense and finance income
 2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mFinance expenseInterest on listed bonds, debentures and notesa,b
    
    
    806
    
    
    
    777
    
    
    
    629Interest on finance leasesa
    
    
    18
    
    
    
    25
    
    
    
    31Interest on other borrowingsa
    
    
    58
    
    
    
    130
    
    
    
    159Unwinding of discount on provisionsa
    
    
    4
    
    
    
    3
    
    
    
    3Fair value loss on derivatives not in a designated hedge relationshipe
    
    
    19
    
    
    
    29
    
    
    
    41Interest on pension scheme liabilities
    
    
    2,211
    
    
    
    2,308
    
    
    
    2,028Finance expensec,d
    
    
    3,116
    
    
    
    3,272
    
    
    
    2,891Less: amounts included in the cost of qualifying assetsf
    
    
    (3
    )
    
    
    
    
    
    
    Total finance expense
    
    
    3,113
    
    
    
    3,272
    
    
    
    2,891
 a
    
    Calculated using the effective interest rate method unless otherwise stated below.b
    
    Includes a net charge of £44m (2009: £25m, 2008: £77m) relating to fair value
movements on derivatives recycled from the cash flow reserve.c
    
    Includes a net credit of £29m (2009: net charge of £39m, 2008: net credit of £6m)
relating to fair value movements arising on hedged items and net charge of £29m (2009: net credit
of £39m, 2008: net charge of £6m) relating to fair value movements arising on derivatives
designated as fair value hedges.d
    
    Includes a net credit of £451m (2009: net charge of £2,161m, 2008: net charge of
£373m) relating to foreign exchange movements on loans and borrowings and a net charge of £451m
(2009: net credit of £2,161m, 2008: net credit of £373m) relating to fair value movements on
derivatives recycled from the cash flow reserve. The items generating this foreign exchange are in
designated hedge relationships.e
    
    Includes a loss of £nil (2009: £nil, 2008: £2m) recycled from the cash flow reserve
arising on de-designation of derivatives from a hedge relationship and includes a charge of £9m
arising from the negotiation of swap break dates on certain derivatives.f
    
    The weighted average capitalisation rate on general borrowings was 7.9% in 2010.
 2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mFinance incomeOther interest and similar incomeInterest on available-for-sale investments
    
    
    5
    
    
    
    14
    
    
    
    25Interest on loans and receivables
    
    
    7
    
    
    
    17
    
    
    
    40Other interest and similar incomea
    
    
    11
    
    
    
    
    
    
    
    Expected return on pension scheme assets
    
    
    1,932
    
    
    
    2,621
    
    
    
    2,448Total finance income
    
    
    1,955
    
    
    
    2,652
    
    
    
    2,513
 a
    
    2010 includes £11m relating to interest on settlement of tax matters disclosed as a specific item (see note 5).
 2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mNet finance expense before specific items and pensions
    
    
    890
    
    
    
    933
    
    
    
    798Net interest expense (income) on pensions
    
    
    279
    
    
    
    (313
    )
    
    
    (420
    )Net finance expense before specific items
    
    
    1,169
    
    
    
    620
    
    
    
    378Specific items
    
    
    (11
    )
    
    
    
    
    
    
    Net finance expense
    
    
    1,158
    
    
    
    620
    
    
    
    378
 
 7. Dividends
 2010
    
    
    2009
    
    
    2008pence
    
    
    
    
    
    
    pence
    
    
    
    
    
    
    penceYear ended 31 March
    
    per share
    
    
    £m
    
    
    per share
    
    
    £m
    
    
    per share
    
    
    £mFinal dividend paid in respect of the prior year
    
    
    1.10
    
    
    
    85
    
    
    
    10.40
    
    
    
    804
    
    
    
    10.00
    
    
    
    810Interim dividend paid in respect of the current year
    
    
    2.30
    
    
    
    178
    
    
    
    5.40
    
    
    
    418
    
    
    
    5.40
    
    
    
    4313.40
    
    
    
    263
    
    
    
    15.80
    
    
    
    1,222
    
    
    
    15.40
    
    
    
    1,241
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 107




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 8. Taxation
  2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mUnited KingdomCorporation tax at 28% (2009: 28%, 2008: 30%)
    
    
    161
    
    
    
    
    
    
    
    214Adjustments in respect of prior periods
    
    
    (204
    )
    
    
    (50
    )
    
    
    18Non UK taxationCurrent
    
    
    31
    
    
    
    48
    
    
    
    42Adjustments in respect of prior periods
    
    
    
    
    
    
    (10
    )
    
    
    (88
    )Total current tax (credit) expense
    
    
    (12
    )
    
    
    (12
    )
    
    
    186Deferred taxOrigination and reversal of temporary differences
    
    
    53
    
    
    
    (77
    )
    
    
    78Adjustments in respect of prior periods
    
    
    (63
    )
    
    
    36
    
    
    
    (26
    )Total deferred tax (credit) expense
    
    
    (10
    )
    
    
    (41
    )
    
    
    52Total taxation (credit) expense
    
    
    (22
    )
    
    
    (53
    )
    
    
    238
   2010
    
    
    2009
    a
    
    2008
    aYear ended 31 March
    
    £m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %Profit (loss) before taxation
    
    
    1,007
    
    
    
    
    
    
    
    (244
    )
    
    
    
    
    
    
    1,976Notional taxation expense (credit) at UK rate of 28%

(2009: 28%, 2008: 30%)
    
    
    282
    
    
    
    28.0
    
    
    
    (68
    )
    
    
    28.0
    
    
    
    592
    
    
    
    30.0Effects of:Non deductible depreciation and amortisation
    
    
    18
    
    
    
    1.7
    
    
    
    27
    
    
    
    (11.0
    )
    
    
    23
    
    
    
    1.1Non deductible (taxable) non UK losses (profits)
    
    
    26
    
    
    
    2.6
    
    
    
    (24
    )
    
    
    9.8
    
    
    
    (7
    )
    
    
    (0.3
    )Overseas losses utilised
    
    
    (35
    )
    
    
    (3.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Higher (lower) taxes on non UK profits
    
    
    1
    
    
    
    0.1
    
    
    
    (9
    )
    
    
    3.7
    
    
    
    7
    
    
    
    0.3Higher (lower) taxes on gain on disposal of non current
investments and group undertakings
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    (1.6
    )
    
    
    
    
    
    
    Other deferred tax assets not recognised
    
    
    17
    
    
    
    1.6
    
    
    
    5
    
    
    
    (2.0
    )
    
    
    (13
    )
    
    
    (0.6
    )Associates and joint ventures
    
    
    (11
    )
    
    
    (1.1
    )
    
    
    (21
    )
    
    
    8.6
    
    
    
    (2
    )
    
    
    (0.1
    )Adjustments in respect of prior periods
    
    
    (37
    )
    
    
    (3.7
    )
    
    
    (24
    )
    
    
    9.8
    
    
    
    (56
    )
    
    
    (2.8
    )Tax credit settlement of open tax years
    
    
    (230
    )
    
    
    (22.9
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (2.0
    )Re-measurements of deferred tax balances at 28%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    (7.8
    )Adoption of the amendment to IFRS 2
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (12.3
    )
    
    
    
    
    
    
    Other
    
    
    (53
    )
    
    
    (5.1
    )
    
    
    27
    
    
    
    (11.1
    )
    
    
    (112
    )
    
    
    (5.8
    )Total taxation (credit) expense and effective tax rate
    
    
    (22
    )
    
    
    (2.2
    )
    
    
    (53
    )
    
    
    21.9
    
    
    
    238
    
    
    
    12.0Specific items
    
    
    342
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    343Total taxation (credit) expense before specific items
and effective rate on profit before specific items
    
    
    320
    
    
    
    22.0
    
    
    
    (10
    )
    
    
    (7.8
    )
    
    
    581
    
    
    
    23.2
 a
    
    Restated. See page 94.
 
   108 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  8. Taxation continued
   2010
    
    
    2009
    
    
    2008Tax
    
    
    
    
    
    
    
    
    
    
    Tax
    
    
    
    
    
    
    
    
    
    
    TaxBefore
    
    
    credit
    
    
    After
    
    
    Before
    
    
    credit
    
    
    After
    
    
    Before
    
    
    credit
    
    
    AfterYear ended 31 March
    
    tax
    
    
    (expense)
    
    
    tax
    
    
    tax
    
    
    (expense)
    
    
    tax
    
    
    tax
    
    
    (expense)
    
    
    tax£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mActuarial (losses) gains relating to retirement
benefit obligations
    
    
    (4,324
    )
    
    
    1,211
    
    
    
    (3,113
    )
    
    
    (7,037
    )
    
    
    1,959
    
    
    
    (5,078
    )
    
    
    2,621
    
    
    
    (804
    )
    
    
    1,817Exchange differences on translation of
foreign operations
    
    
    (119
    )
    
    
    (20
    )
    
    
    (139
    )
    
    
    692
    
    
    
    64
    
    
    
    756
    
    
    
    213
    
    
    
    1
    
    
    
    214Fair value movements on available-for-sale assets
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Fair value movements on cash flow hedges fair value gains (losses)
    
    
    (1,067
    )
    
    
    297
    
    
    
    (770
    )
    
    
    2,719
    
    
    
    (766
    )
    
    
    1,953
    
    
    
    446
    
    
    
    (108
    )
    
    
    338
reclassified and reported in net (loss) profit
    
    
    496
    
    
    
    (139
    )
    
    
    357
    
    
    
    (2,144
    )
    
    
    600
    
    
    
    (1,544
    )
    
    
    (294
    )
    
    
    82
    
    
    
    (212
    ) reclassified and reported in non current assets
    
    
    (4
    )
    
    
    1
    
    
    
    (3
    )
    
    
    (5
    )
    
    
    2
    
    
    
    (3
    )
    
    
    11
    
    
    
    (3
    )
    
    
    8(5,011
    )
    
    
    1,350
    
    
    
    (3,661
    )
    
    
    (5,770
    )
    
    
    1,859
    
    
    
    (3,911
    )
    
    
    2,997
    
    
    
    (832
    )
    
    
    2,165Current tax (expense) credit
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Deferred tax credit (expense)
    
    
    
    
    
    
    1,352
    
    
    
    
    
    
    
    
    
    
    
    1,859
    
    
    
    
    
    
    
    
    
    
    
    (834
    )1,350
    
    
    
    
    
    
    
    
    
    
    
    1,859
    
    
    
    
    
    
    
    
    
    
    
    (832
    )
  2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mCurrent tax credit relating to share-based payments
    
    
    
    
    
    
    
    
    
    
    17Deferred tax credit (expense) relating to share-based payments
    
    
    19
    
    
    
    (12
    )
    
    
    (62
    )Total taxation credit (expense) on items recognised directly in equity
    
    
    19
    
    
    
    (12
    )
    
    
    (45
    )
 
 9. Earnings (loss) per share
    2010
    
    
    2009
    a
    
    2008
    amillions of
    
    
    millions of
    
    
    millions ofYear ended 31 March
    
    shares
    
    
    shares
    
    
    sharesBasic
    
    
    7,740
    
    
    
    7,724
    
    
    
    8,066Dilutive ordinary shares from share options
    
    
    174
    
    
    
    5
    
    
    
    106Dilutive ordinary shares held in trust
    
    
    74
    
    
    
    42
    
    
    
    51Diluted
    
    
    7,988
    
    
    
    7,771
    
    
    
    8,223Profit (loss) attributable to equity shareholders of the parent (£m)
    
    
    1,028
    
    
    
    (193
    )
    
    
    1,737Basic earnings (loss) per share (p)
    
    
    13.3p
    
    
    
    (2.5)p
    
    
    
    21.5pDiluted earnings (loss) per share (p)
    
    
    12.9p
    
    
    
    (2.5)p
    
    
    
    21.1p
 a
    
    Restated. See page 94.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 109




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 9. Earnings (loss) per share continued
  2010
    
    
    2009
    a
    
    2008
    apence
    
    
    
    
    
    
    pence
    
    
    
    
    
    
    penceYear ended 31 March
    
    per share
    
    
    £m
    
    
    per share
    
    
    £m
    
    
    per share
    
    
    £mBasic earnings (loss) per share/profit (loss)b
    
    
    13.3
    
    
    
    1,028
    
    
    
    (2.5
    )
    
    
    (193
    )
    
    
    21.5
    
    
    
    1,737Net specific items charge after tax
    
    
    1.4
    
    
    
    107
    
    
    
    4.3
    
    
    
    329
    
    
    
    2.4
    
    
    
    187Net pension interest expense (income) after tax
    
    
    2.6
    
    
    
    201
    
    
    
    (3.0
    )
    
    
    (225
    )
    
    
    (3.7
    )
    
    
    (294
    )BT Global Services contract and financial review
charges after tax
    
    
    
    
    
    
    
    
    
    
    15.3
    
    
    
    1,178
    
    
    
    
    
    
    
    Adjusted basic earnings (loss)per share/profit (loss)
attributable to adjustmentsb
    
    
    4.0
    
    
    
    308
    
    
    
    16.6
    
    
    
    1,282
    
    
    
    (1.3
    )
    
    
    (107
    )Adjusted basic earnings per share/profitb
    
    
    17.3
    
    
    
    1,336
    
    
    
    14.1
    
    
    
    1,089
    
    
    
    20.2
    
    
    
    1,630Diluted earnings (loss) per share/profit (loss)b
    
    
    12.9
    
    
    
    1,028
    
    
    
    (2.5
    )
    
    
    (193
    )
    
    
    21.1
    
    
    
    1,737Adjusted diluted earnings (loss) per share/profit
(loss)attributable to adjustmentsb
    
    
    3.9
    
    
    
    308
    
    
    
    16.5
    
    
    
    1,282
    
    
    
    (1.3
    )
    
    
    (107
    )Adjusted diluted earnings per share/profitb
    
    
    16.8
    
    
    
    1,336
    
    
    
    14.0
    
    
    
    1,089
    
    
    
    19.8
    
    
    
    1,630
 
 a
    
    Restated. See page 94.b
    
    The stated profit (loss) amounts
are the component of the total profit (loss) which is attributable to equity
shareholders excluding minority interests. 
 10. Cash and cash equivalents
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mCash at bank and in hand
    
    
    197
    
    
    
    562Cash equivalentsAvailable-for-saleListed
    
    
    
    
    
    
    7Loans and receivablesUK deposits
    
    
    1,211
    
    
    
    711European deposits
    
    
    7
    
    
    
    5US deposits
    
    
    37
    
    
    
    15Total cash equivalents
    
    
    1,255
    
    
    
    738Total cash and cash equivalents
    
    
    1,452
    
    
    
    1,300Bank overdrafts
    
    
    (8
    )
    
    
    (185
    )Cash and cash equivalents per the cash flow statement
    
    
    1,444
    
    
    
    1,115
   110 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 10. Cash and cash equivalents continued
  2010
    
    
    2009At 31 March
    
    £m
    
    
    £mMoodys/S&P credit ratingaAaa/AAA
    
    
    100
    
    
    
    90Aa2/AA
    
    
    609
    
    
    
    124Aa3/AA
    
    
    202
    
    
    
    271A1/A+
    
    
    341
    
    
    
    251A2/A
    
    
    3
    
    
    
    2Total cash equivalents
    
    
    1,255
    
    
    
    738
 
 a
    
    Cash equivalent balances with counterparties have been classified at the lower of
their Moodys and S&P rating.  
 11. Net debt
   2010
    
    
    2009Analysis of net debt
    
    £m
    
    
    £mLoans and other borrowings (current and non current)
    
    
    12,791
    
    
    
    13,907Less:Cash and cash equivalents
    
    
    (1,452
    )
    
    
    (1,300
    )Current asset investments
    
    
    (406
    )
    
    
    (163
    )10,933
    
    
    
    12,444Adjustments:To retranslate currency denominated balances at swapped rates where hedged
    
    
    (1,326
    )
    
    
    (1,766
    )To remove fair value adjustments and accrued interest applied to reflect the 
effective interest method
    
    
    (324
    )
    
    
    (317
    )Net debt at 31 March
    
    
    9,283
    
    
    
    10,361
  2010
    
    
    2009Reconciliation of movement in net debt
    
    £m
    
    
    £mAt 1 April
    
    
    10,361
    
    
    
    9,460(Decrease) increase in net debt resulting from cash flows
    
    
    (1,079
    )
    
    
    921Net debt assumed or issued on acquisitions
    
    
    
    
    
    
    (2
    )Currency movements
    
    
    
    
    
    
    (36
    )Other non cash movements
    
    
    1
    
    
    
    18At 31 March
    
    
    9,283
    
    
    
    10,361
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 111




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 12. Intangible assets
 Brands,Telecommunication
    
    
    customer
    
    
    Internallylicences and
    
    
    relationships
    
    
    developed
    
    
    ComputerGoodwill
    
    
    other
    
    
    and technology
    
    
    software
    
    
    software
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 1 April 2008
    
    
    1,088
    
    
    
    266
    
    
    
    248
    
    
    
    1,896
    
    
    
    1,281
    
    
    
    4,779Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    712
    
    
    
    127
    
    
    
    839Acquisitions through business combinations
    
    
    131
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    177Disposals and adjustments
    
    
    1
    
    
    
    (3
    )
    
    
    20
    
    
    
    (225
    )
    
    
    (12
    )
    
    
    (219
    )Impairmentsa
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (48
    )
    
    
    (261
    )
    
    
    (335
    )Exchange differences
    
    
    269
    
    
    
    44
    
    
    
    88
    
    
    
    13
    
    
    
    69
    
    
    
    483At 1 April 2009
    
    
    1,489
    
    
    
    307
    
    
    
    376
    
    
    
    2,348
    
    
    
    1,204
    
    
    
    5,724Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    44
    
    
    
    629Acquisitions through business combinationsc
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Interest on qualifying assetsb
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Disposals and adjustments
    
    
    (2
    )
    
    
    (6
    )
    
    
    (3
    )
    
    
    (362
    )
    
    
    9
    
    
    
    (364
    )Exchange differences
    
    
    (56
    )
    
    
    (11
    )
    
    
    (16
    )
    
    
    (5
    )
    
    
    (16
    )
    
    
    (104
    )At 31 March 2010
    
    
    1,432
    
    
    
    290
    
    
    
    357
    
    
    
    2,568
    
    
    
    1,241
    
    
    
    5,888AmortisationAt 1 April 2008
    
    
    
    
    
    
    121
    
    
    
    67
    
    
    
    520
    
    
    
    716
    
    
    
    1,424Charge for the year
    
    
    
    
    
    
    14
    
    
    
    62
    
    
    
    433
    
    
    
    132
    
    
    
    641Disposals and adjustments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (225
    )
    
    
    (9
    )
    
    
    (235
    )Exchange differences
    
    
    
    
    
    
    22
    
    
    
    24
    
    
    
    11
    
    
    
    49
    
    
    
    106At 1 April 2009
    
    
    
    
    
    
    156
    
    
    
    153
    
    
    
    739
    
    
    
    888
    
    
    
    1,936Charge for the year
    
    
    
    
    
    
    15
    
    
    
    54
    
    
    
    559
    
    
    
    107
    
    
    
    735Disposals and adjustments
    
    
    
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (366
    )
    
    
    (53
    )
    
    
    (424
    )Exchange differences
    
    
    
    
    
    
    (5
    )
    
    
    (9
    )
    
    
    (5
    )
    
    
    (12
    )
    
    
    (31
    )At 31 March 2010
    
    
    
    
    
    
    162
    
    
    
    197
    
    
    
    927
    
    
    
    930
    
    
    
    2,216Carrying amountAt 31 March 2010
    
    
    1,432
    
    
    
    128
    
    
    
    160
    
    
    
    1,641
    
    
    
    311
    
    
    
    3,672At 31 March 2009
    
    
    1,489
    
    
    
    151
    
    
    
    223
    
    
    
    1,609
    
    
    
    316
    
    
    
    3,788
 
 a
    
    Impairment charges of £335m were recognised in 2009, comprising BT Global Services
restructuring charges of £81m, BT Global Services contract and financial review charges of £241m
(see note 3) and £13m in relation to the review of the 21CN programme and associated voice
strategy. All impairment losses were recognised in the income statement. The recoverable amount of
the impaired assets was equal to their value in use.b
    
    Additions to internally generated
software in 2010 includes interest capitalised at a weighted average borrowing rate of 7.9%.c
    
    Additional earnout payment in respect of investment in BT Leasing Limited.   BT Global
    
    
    BT RetailServices
    
    
    BT Consumer
    
    
    BT Business
    
    
    BT Ireland
    
    
    BT Enterprises
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    936
    
    
    
    47
    
    
    
    34
    
    
    
    16
    
    
    
    55
    
    
    
    1,088Acquisitions through business combinations
    
    
    37
    
    
    
    10
    
    
    
    10
    
    
    
    
    
    
    
    74
    
    
    
    131Disposals, adjustments and reclassifications
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Exchange differences
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    269At 1 April 2009
    
    
    1,226
    
    
    
    57
    
    
    
    44
    
    
    
    16
    
    
    
    146
    
    
    
    1,489Acquisitions through business combinations
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Disposals, adjustments and reclassifications
    
    
    (3
    )
    
    
    8
    
    
    
    17
    
    
    
    5
    
    
    
    (29
    )
    
    
    (2
    )Exchange differences
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (56
    )At 31 March 2010
    
    
    1,172
    
    
    
    65
    
    
    
    61
    
    
    
    21
    
    
    
    113
    
    
    
    1,432
 
   112 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 12. Intangible assets continued
  BT Global
    
    
    BT RetailServices
    
    
    BT Consumer
    
    
    BT Business
    
    
    BT Ireland
    
    
    BT EnterprisesDiscount rate
    
    
    10.8%
    
    
    
    10.8%
    
    
    
    10.8%
    
    
    
    10.8%
    
    
    
    10.8%Perpetuity growth rate
    
    
    2.5%
    
    
    
    2.0%
    
    
    
    2.0%
    
    
    
    2.0%
    
    
    
    2.0%
  BT Global
    
    
    BT RetailServices
    
    
    BT Consumer
    
    
    BT Business
    
    
    BT Ireland
    
    
    BT EnterprisesDiscount rate
    
    
    11.1%
    
    
    
    11.1%
    
    
    
    11.1%
    
    
    
    11.1%
    
    
    
    11.1%Perpetuity growth rate
    
    
    2.5%
    
    
    
    2.0%
    
    
    
    2.0%
    
    
    
    2.0%
    
    
    
    2.0%
          4
    
    a reduction in the perpetuity growth rate from the 2.5% assumption applied to a revised
assumption of 0.5% or less
 4
    
    an increase in the discount rate from the 10.8% assumption applied to a revised assumption
of 12.2% or more
 4
    
    a reduction in the projected operating cash flows across five years by 15% or more.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 113




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 13. Property, plant and equipment
 Network
    
    
    
    
    
    
    Assets inLand and
    
    
    infrastructure
    
    
    
    
    
    
    course ofbuildings
    a,b
    
    equipment
    b
    
    Other
    c
    
    construction
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 1 April 2008
    
    
    1,209
    
    
    
    39,117
    
    
    
    2,194
    
    
    
    1,240
    
    
    
    43,760Additions
    
    
    8
    
    
    
    238
    
    
    
    187
    
    
    
    1,813
    
    
    
    2,246Acquisition through business combinations
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Transfers
    
    
    16
    
    
    
    2,045
    
    
    
    19
    
    
    
    (2,080
    )
    
    
    Disposals and adjustments
    
    
    3
    
    
    
    (373
    )
    
    
    (169
    )
    
    
    (71
    )
    
    
    (610
    )Impairmentsd
    
    
    
    
    
    
    (121
    )
    
    
    (8
    )
    
    
    (18
    )
    
    
    (147
    )Exchange differences
    
    
    58
    
    
    
    652
    
    
    
    149
    
    
    
    26
    
    
    
    885At 1 April 2009
    
    
    1,294
    
    
    
    41,558
    
    
    
    2,374
    
    
    
    910
    
    
    
    46,136Additions
    
    
    22
    
    
    
    254
    
    
    
    144
    
    
    
    1,441
    
    
    
    1,861Interest on qualifying assetse
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Transfers
    
    
    5
    
    
    
    1,520
    
    
    
    1
    
    
    
    (1,526
    )
    
    
    Disposals and adjustments
    
    
    71
    
    
    
    (1,121
    )
    
    
    (346
    )
    
    
    (14
    )
    
    
    (1,410
    )Exchange differences
    
    
    (13
    )
    
    
    (131
    )
    
    
    (22
    )
    
    
    (5
    )
    
    
    (171
    )At 31 March 2010
    
    
    1,379
    
    
    
    42,080
    
    
    
    2,151
    
    
    
    807
    
    
    
    46,417Accumulated depreciationAt 1 April 2008
    
    
    500
    
    
    
    26,404
    
    
    
    1,574
    
    
    
    
    
    
    
    28,478Charge for the year
    
    
    56
    
    
    
    1,928
    
    
    
    265
    
    
    
    
    
    
    
    2,249Disposals and adjustments
    
    
    4
    
    
    
    (395
    )
    
    
    (209
    )
    
    
    
    
    
    
    (600
    )Exchange differences
    
    
    30
    
    
    
    476
    
    
    
    126
    
    
    
    
    
    
    
    632At 1 April 2009
    
    
    590
    
    
    
    28,413
    
    
    
    1,756
    
    
    
    
    
    
    
    30,759Charge for the year
    
    
    70
    
    
    
    2,015
    
    
    
    219
    
    
    
    
    
    
    
    2,304Disposals and adjustments
    
    
    72
    
    
    
    (1,124
    )
    
    
    (255
    )
    
    
    
    
    
    
    (1,307
    )Exchange differences
    
    
    (7
    )
    
    
    (103
    )
    
    
    (14
    )
    
    
    
    
    
    
    (124
    )At 31 March 2010
    
    
    725
    
    
    
    29,201
    
    
    
    1,706
    
    
    
    
    
    
    
    31,632Carrying amountAt 31 March 2010
    
    
    654
    
    
    
    12,879
    
    
    
    445
    
    
    
    807
    
    
    
    14,785Engineering stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    71Total at 31 March 2010
    
    
    654
    
    
    
    12,879
    
    
    
    445
    
    
    
    878
    
    
    
    14,856At 31 March 2009
    
    
    704
    
    
    
    13,145
    
    
    
    618
    
    
    
    910
    
    
    
    15,377Engineering stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28Total at 31 March 2009
    
    
    704
    
    
    
    13,145
    
    
    
    618
    
    
    
    938
    
    
    
    15,405
 2010
    
    
    2009£m
    
    
    £ma  The carrying amount of land and buildings, including leasehold improvements, comprised:Freehold
    
    
    431
    
    
    
    451Long leases (over 50 years unexpired)
    
    
    33
    
    
    
    30Short leases
    
    
    190
    
    
    
    223Total land and buildings
    
    
    654
    
    
    
    704
 
 b
    
    The carrying amount of the groups property, plant and equipment includes an amount of
£183m (2009: £216m) in respect of assets held under finance leases, comprising land and buildings
of £74m (2009: £76m) and network infrastructure and equipment of £109m (2009: £140m). The
depreciation charge on those assets for 2010 was £44m (2009: £49m), comprising land and buildings
of £3m (2009: £3m) and network infrastructure and equipment of £41m (2009: £46m).c
    
    Other mainly comprises motor vehicles and computers.d
    
    Impairment charges of £147m were recognised in 2009, comprising BT Global Services
restructuring charges of £129m and £18m in relation to the review of the 21CN programme and
associated voice strategy. All impairment losses were recognised in the income statement. The
recoverable amount of the impaired assets was equal to their value in use.e
    
    Additions to assets in the course of construction in 2010 includes interest
capitalised at a weighted average borrowing rate of 7.9%. 114 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 13. Property, plant and equipment continued
 2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £mAdditions to property, plant and equipment comprised:Land and buildings
    
    
    29
    
    
    
    23Network infrastructure and equipmentTransmission equipment
    
    
    902
    
    
    
    1,067Exchange equipment
    
    
    29
    
    
    
    44Other network equipment
    
    
    753
    
    
    
    899OtherComputers and office equipment
    
    
    115
    
    
    
    140Motor vehicles and other
    
    
    33
    
    
    
    73Total additions to property, plant and equipment
    
    
    1,861
    
    
    
    2,246Increase in engineering stores
    
    
    43
    
    
    
    3Total additions
    
    
    1,904
    
    
    
    2,249
 
 14. Investments
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mNon current assetsAvailable-for-sale
    
    
    32
    
    
    
    23Loans and receivables
    
    
    32
    
    
    
    3264
    
    
    
    55Current assetsAvailable-for-sale
    
    
    258
    
    
    
    153Loans and receivables
    
    
    148
    
    
    
    10406
    
    
    
    163
  2010
    
    
    2009At 31 March
    
    £m
    
    
    £mMoodys/S&P credit ratingaAaa/AAA
    
    
    258
    
    
    
    153Aa3/AA-
    
    
    35
    
    
    
    A1/A+
    
    
    105
    
    
    
    10A2/A
    
    
    8
    
    
    
    Total current asset investments
    
    
    406
    
    
    
    163
 
 a
    
    Current asset investment balances with counterparties have been classified at the
lower of their Moodys and S&P rating.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 115




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 15. Associates and joint ventures
 2010
    
    
    2009Associates
    
    
    Joint ventures
    
    
    Total
    
    
    Associates
    
    
    Joint ventures
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNon current assets
    
    
    49
    
    
    
    7
    
    
    
    56
    
    
    
    41
    
    
    
    7
    
    
    
    48Current assets
    
    
    278
    
    
    
    4
    
    
    
    282
    
    
    
    168
    
    
    
    4
    
    
    
    172Current liabilities
    
    
    (77
    )
    
    
    (2
    )
    
    
    (79
    )
    
    
    (86
    )
    
    
    (2
    )
    
    
    (88
    )Non current liabilities
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    
    
    
    
    Share of net assets at 31 March
    
    
    186
    
    
    
    9
    
    
    
    195
    
    
    
    123
    
    
    
    9
    
    
    
    132Revenue
    
    
    298
    
    
    
    14
    
    
    
    312
    
    
    
    308
    
    
    
    15
    
    
    
    323Expenses
    
    
    (266
    )
    
    
    (14
    )
    
    
    (280
    )
    
    
    (262
    )
    
    
    (15
    )
    
    
    (277
    )Taxation
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Share of post tax results before specific items
    
    
    25
    
    
    
    
    
    
    
    25
    
    
    
    39
    
    
    
    
    
    
    
    39Specific items (note 5) impact of renegotiated supply contracts on associate
    
    
    29
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
     reassessment of carrying value of associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    36Share of post tax results
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    75
    
    
    
    
    
    
    
    75
 Associates
    
    
    Joint ventures
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    79
    
    
    
    6
    
    
    
    85Share of post tax profit
    
    
    75
    
    
    
    
    
    
    
    75Dividends received
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Exchange differences and other
    
    
    (25
    )
    
    
    3
    
    
    
    (22
    )At 1 April 2009
    
    
    123
    
    
    
    9
    
    
    
    132Share of post tax profit
    
    
    54
    
    
    
    
    
    
    
    54Additions
    
    
    3
    
    
    
    
    
    
    
    3Disposals (note 5)
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Dividends received
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Exchange differences and other
    
    
    21
    
    
    
    
    
    
    
    21At 31 March 2010
    
    
    186
    
    
    
    9
    
    
    
    195
  
 16. Inventories
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mConsumables
    
    
    30
    
    
    
    23Work in progress
    
    
    43
    
    
    
    57Finished goods
    
    
    34
    
    
    
    41107
    
    
    
    121
 116 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 17. Trade and other receivables
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mCurrentTrade receivables
    
    
    1,937
    
    
    
    1,966Prepayments
    
    
    549
    
    
    
    825Accrued income
    
    
    1,010
    
    
    
    1,135Other receivables
    
    
    200
    
    
    
    2593,696
    
    
    
    4,185
 2010
    
    
    2009£m
    
    
    £mNon currentOther assetsa
    
    
    336
    
    
    
    322
 
 a
    
    Other assets mainly represents costs relating to the initial set up, transition or
transformation phase of long-term networked IT services contracts. At 31 March 2010 the balance was
£294m (2009: £322m). Other assets also include prepayments of £42m (2009: £nil).  2010
    
    
    2009£m
    
    
    £mAt 1 April
    
    
    246
    
    
    
    209Expense recognised in the income statement
    
    
    155
    
    
    
    151Utilised in the year
    
    
    (183
    )
    
    
    (139
    )Acquisitions
    
    
    
    
    
    
    4Exchange differences
    
    
    1
    
    
    
    21At 31 March
    
    
    219
    
    
    
    246
   Past due and not specifically impaired:Tradereceivablesspecificallyimpaired net
    
    
    Between 0
    
    
    Between 3
    
    
    Between 6
    
    
    Over 12Not past due
    
    
    of provision
    
    
    and 3 months
    
    
    and 6 months
    
    
    and 12 months
    
    
    months
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m2010
    
    
    1,257
    
    
    
    51
    
    
    
    426
    
    
    
    98
    
    
    
    60
    
    
    
    45
    
    
    
    1,9372009
    
    
    1,263
    
    
    
    1
    
    
    
    474
    
    
    
    90
    
    
    
    65
    
    
    
    73
    
    
    
    1,966
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 117




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 17. Trade and other receivables continued
  2010
    
    
    2009At 31 March
    
    £m
    
    
    £mBT Global Services
    
    
    867
    
    
    
    878BT Retail
    
    
    228
    
    
    
    308BT Wholesale
    
    
    127
    
    
    
    64Openreach
    
    
    27
    
    
    
    3Other
    
    
    8
    
    
    
    10Total trade receivables not past due
    
    
    1,257
    
    
    
    1,263
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mBT Global Services
    
    
    633
    
    
    
    635BT Retail
    
    
    148
    
    
    
    274BT Wholesale
    
    
    182
    
    
    
    195Openreach
    
    
    44
    
    
    
    26Other
    
    
    3
    
    
    
    5Total accrued income
    
    
    1,010
    
    
    
    1,135
  118 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 18. Loans and other borrowings
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mSterling 6.375% bonds June 2037b
    
    
    521
    
    
    
    521US Dollar 9.625% (2009: 9.125%) notes December 2030 (minimum 8.625%a)b
    
    
    1,811
    
    
    
    1,914Sterling 5.75% bonds December 2028c
    
    
    602
    
    
    
    608Sterling 3.5% indexed linked notes April 2025
    
    
    325
    
    
    
    330Sterling 8.625% bonds March 2020
    
    
    298
    
    
    
    298US Dollar 5.95% bonds January 2018b
    
    
    734
    
    
    
    777Sterling 6.625% bonds June 2017b
    
    
    525
    
    
    
    524Sterling 8.5% (2009: 8.0%) notes December 2016 (minimum 7.5%a)
    
    
    715
    
    
    
    713Euro 6.5% bonds July 2015b
    
    
    935
    
    
    
    973Euro 6.125% bonds July 2014b,f
    
    
    561
    
    
    
    Euro 5.25% bonds June 2014b
    
    
    696
    
    
    
    723Euro 5.25% bonds January 2013b
    
    
    902
    
    
    
    935US Dollar 5.15% bonds January 2013b
    
    
    566
    
    
    
    599Euro 7.87% (2009: 7.375%) notes February 2011 (minimum 6.875%a)b
    
    
    1,015
    
    
    
    1,051US Dollar 9.125% (2009: 8.625%) notes December 2010 (minimum 8.125%a)b
    
    
    1,951
    
    
    
    2,074US Dollar 8.765% bonds August 2009d
    
    
    
    
    
    
    149Total listed bonds, debentures and notes
    
    
    12,157
    
    
    
    12,189Finance leases
    
    
    304
    
    
    
    332Commercial paperb,e
    
    
    
    
    
    
    715Sterling 6.35% bank loan due August 2012
    
    
    312
    
    
    
    312Sterling 10.4% bank loan due September 2009
    
    
    
    
    
    
    140Sterling floating rate note 2009-2010
    
    
    
    
    
    
    28Other loans 2009-2012
    
    
    10
    
    
    
    6Bank overdrafts (of which £nil (2009: £160m) had a legally enforceable rightof set off
 see note 10)
    
    
    8
    
    
    
    185Total other loans and borrowings
    
    
    330
    
    
    
    1,386Total loans and other borrowings
    
    
    12,791
    
    
    
    13,907
 
 a
    
    The interest rate payable on these notes will be subject to adjustment from time to
time if either Moodys or Standard and Poors (S&P) reduce the rating ascribed to the groups
senior unsecured debt below A3 in the case of Moodys or below
A in the case of S&P. In this
event, the interest rate payable on the notes and the spread applicable to the floating notes will
be increased by 0.25% for each ratings category adjustment by each rating agency. In addition, if
Moodys or S&P subsequently increase the ratings ascribed to the groups senior unsecured debt,
then the interest rate then payable on notes and the spread applicable to the floating notes will
be decreased by 0.25% for each rating category upgrade by each rating agency, but in no event will
the interest rate be reduced below the minimum interest rate reflected in the above table. In
February 2010, S&P downgraded BTs credit rating by
one ratings category to BBB as detailed on
page 138. At the next coupon date in the 2011 financial year, the rate payable on these bonds will
therefore increase by 0.25 percentage points.b
    
    Hedged in a designated cash flow hedge.c
    
    Hedged in a designated fair value hedge.d
    
    Hedged in a designated cash flow and fair value hedge.e
    
    Commercial paper is denominated in Sterling of £nil (2009: £209m) and Euros of £nil (2009: £506m).f
    
    The groups 600m bond issued in June 2009
would attract an additional 1.25 percentage points for a downgrade by one credit rating category by both Moodys and S&P below Baa3/BBB respectively.   2010
    
    
    2009Effect of
    
    
    Principal
    
    
    
    
    
    
    Effect of
    
    
    PrincipalCarrying
    
    
    hedging
    
    
    repayments at
    
    
    Carrying
    
    
    hedging and
    
    
    repayments atamount
    
    
    and interest
    a
    
    hedged rates
    
    
    amount
    
    
    interest
    a
    
    hedged ratesAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRepayments fall due as follows:Within one year, or on demand
    
    
    3,269
    
    
    
    (737
    )
    
    
    2,532
    
    
    
    1,542
    
    
    
    (352
    )
    
    
    1,190Between one and two years
    
    
    18
    
    
    
    
    
    
    
    18
    
    
    
    3,098
    
    
    
    (551
    )
    
    
    2,547Between two and three years
    
    
    1,763
    
    
    
    (313
    )
    
    
    1,450
    
    
    
    10
    
    
    
    
    
    
    
    10Between three and four years
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    1,829
    
    
    
    (380
    )
    
    
    1,449Between four and five years
    
    
    1,213
    
    
    
    (177
    )
    
    
    1,036
    
    
    
    14
    
    
    
    
    
    
    
    14After five years
    
    
    6,523
    
    
    
    (431
    )
    
    
    6,092
    
    
    
    7,412
    
    
    
    (799
    )
    
    
    6,613Total due for repayment after more than one year
    
    
    9,528
    
    
    
    (921
    )
    
    
    8,607
    
    
    
    12,363
    
    
    
    (1,730
    )
    
    
    10,633Total repayments
    
    
    12,797
    
    
    
    (1,658
    )
    
    
    11,139
    
    
    
    13,905
    
    
    
    (2,082
    )
    
    
    11,823Fair value adjustments for hedged risk
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    2Total loans and other borrowings
    
    
    12,791
    
    
    
    
    
    
    
    
    
    
    
    13,907
 
 a
    
    Adjustments for hedging and interest reflect the impact of the currency element of
derivatives and adjust the repayments to exclude interest recognised in the carrying amount.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 119




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 18. Loans and other borrowings continued
  2010
    
    
    2009Fixed rate
    
    
    Floating rate
    
    
    
    
    
    
    Fixed rate
    
    
    Floating rateinterest
    
    
    interest
    
    
    Total
    
    
    interest
    
    
    interest
    
    
    TotalAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSterling
    
    
    10,110
    
    
    
    835
    
    
    
    10,945
    
    
    
    10,239
    
    
    
    1,373
    
    
    
    11,612Euro
    
    
    
    
    
    
    184
    
    
    
    184
    
    
    
    
    
    
    
    204
    
    
    
    204US Dollar
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    2Other
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    5
    
    
    
    5Total
    
    
    10,110
    
    
    
    1,029
    
    
    
    11,139
    
    
    
    10,239
    
    
    
    1,584
    
    
    
    11,823Weighted average effective fixed interest rate
Sterling
    
    
    8.0%
    
    
    
    
    
    
    
    
    
    
    
    8.1%The floating rate loans and borrowings bear interest rates fixed in advance for periods ranging
from one day to one year, primarily by reference to LIBOR and EURIBOR quoted rates.2010
    
    
    2009
    
    
    2010
    
    
    2009Repayment of outstandingMinimum lease payments
    
    
    lease obligationsAt 31 March
    
    
    
    
    
    
    
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAmounts payable under finance leases:Within one year
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    32
    
    
    
    16
    
    
    
    14In the second to fifth years inclusive
    
    
    
    
    
    
    
    
    
    
    119
    
    
    
    135
    
    
    
    48
    
    
    
    66After five years
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    456
    
    
    
    240
    
    
    
    252574
    
    
    
    623
    
    
    
    304
    
    
    
    332Less: future finance charges
    
    
    
    
    
    
    
    
    
    
    (270
    )
    
    
    (291
    )
    
    
    
    
    
    
    Total finance lease obligations
    
    
    
    
    
    
    
    
    
    
    304
    
    
    
    332
    
    
    
    304
    
    
    
    332Assets held under finance leases mainly consist of buildings and network assets. The groups
obligations under finance leases are secured by the lessors title to the leased assets.19. Derivative financial instruments2010
    
    
    2009
    a
    
    2008
    aAssets
    
    
    Liabilities
    
    
    Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInterest rate swaps  cash flow hedge
    
    
    
    
    
    
    361
    
    
    
    
    
    
    
    446
    
    
    
    1
    
    
    
    207Interest rate swaps  fair value hedge
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other interest rate swaps
    
    
    106
    
    
    
    295
    
    
    
    107
    
    
    
    316
    
    
    
    25
    
    
    
    239Cross currency swaps  cash flow hedge
    
    
    1,571
    
    
    
    30
    
    
    
    2,541
    
    
    
    1
    
    
    
    340
    
    
    
    605Cross currency swaps  fair value hedge
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    20Other cross currency swaps
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forward foreign exchange contracts  cash flow hedge
    
    
    23
    
    
    
    4
    
    
    
    27
    
    
    
    1
    
    
    
    20
    
    
    
    1Other forward foreign exchange contracts
    
    
    
    
    
    
    2
    
    
    
    7
    
    
    
    2
    
    
    
    1
    
    
    
    Credit default swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1,700
    
    
    
    699
    
    
    
    2,700
    
    
    
    767
    
    
    
    387
    
    
    
    1,072Analysed as:Current
    
    
    624
    
    
    
    166
    
    
    
    158
    
    
    
    56
    
    
    
    71
    
    
    
    58Non current
    
    
    1,076
    
    
    
    533
    
    
    
    2,542
    
    
    
    711
    
    
    
    316
    
    
    
    1,0141,700
    
    
    
    699
    
    
    
    2,700
    
    
    
    767
    
    
    
    387
    
    
    
    1,072
 
 a
    
    Restated. See page 94. 120 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 19. Derivative financial instruments continued
  2010
    
    
    2009At 31 March
    
    £m
    
    
    £mMoodys/S&P credit ratingaAa2/AA
    
    
    89
    
    
    
    200Aa3/AA
    
    
    480
    
    
    
    650A1/A+
    
    
    708
    
    
    
    1,030A2/A
    
    
    318
    
    
    
    719A3/A
    
    
    105
    
    
    
    1011,700
    
    
    
    2,700
 
 a
    
    Derivative financial instrument balances with counterparties have been classified at
the lower of their Moodys and S&P rating.  
 20. Trade and other payables
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mCurrentTrade payables
    
    
    3,668
    
    
    
    4,367Other taxation and social security
    
    
    516
    
    
    
    489Other payables
    
    
    506
    
    
    
    527Accrued expenses
    
    
    498
    
    
    
    460Deferred income
    
    
    1,343
    
    
    
    1,3726,531
    
    
    
    7,215
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mNon currentOther payables
    
    
    734
    
    
    
    718Deferred income
    
    
    70
    
    
    
    76804
    
    
    
    794
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 121




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 21. Provisions
 BT Global
    
    
    Property
    
    
    OtherServices provisions
    a
    
    provisions
    b
    
    provisions
    c
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2009
    
    
    303
    
    
    
    172
    
    
    
    245
    
    
    
    720Charged to the income statementd
    
    
    10
    
    
    
    131
    
    
    
    204
    
    
    
    345Unwind of discount
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Utilised in the year
    
    
    (139
    )
    
    
    (35
    )
    
    
    (98
    )
    
    
    (272
    )Transfers
    
    
    16
    
    
    
    
    
    
    
    31
    
    
    
    47Exchange differences
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )At 31 March 2010
    
    
    187
    
    
    
    272
    
    
    
    382
    
    
    
    841
 2010
    
    
    2009At 31 March
    
    £m
    
    
    £mAnalysed as:Current
    
    
    134
    
    
    
    254Non current
    
    
    707
    
    
    
    466841
    
    
    
    720
 
 a
    
    Amounts provided in relation to the BT Global Services restructuring programme and the contract and the financial reviews in 2009. These will be utilised as the obligations are settled.b
    
    Property provisions mainly comprise onerous lease provisions arising from the rationalisation of the groups property portfolio. The provisions will be utilised over the remaining lease periods, which range from one to 22 years. Financial liabilities comprise £255m (2009: £166m) of this balance.c
    
    Other provisions includes:
 Amounts provided for incremental and directly attributable costs arising from the groups
obligation to deliver the Undertakings, which will be utilised within one year.
 Amounts provided for legal or constructive obligations arising from insurance claims, litigation
and regulatory risk, which will be utilised as the obligations are settled.d
    
    Includes specific items of £121m for property rationalisation costs and £10m relating
to the BT Global Services restructuring programme. 
 22. Deferred taxation
 RetirementExcess capital
    
    
    benefit
    
    
    Share-basedallowances
    
    
    obligations
    a
    
    payments
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    1,969
    
    
    
    778
    
    
    
    (51
    )
    
    
    (183
    )
    
    
    2,513(Credit) expense recognised in the income statement
    
    
    (158
    )
    
    
    78
    
    
    
    32
    
    
    
    7
    
    
    
    (41
    )(Credit) expense recognised in equity
    
    
    
    
    
    
    (1,959
    )
    
    
    12
    
    
    
    100
    
    
    
    (1,847
    )At 31 March 2009
    
    
    1,811
    
    
    
    (1,103
    )
    
    
    (7
    )
    
    
    (76
    )
    
    
    625Deferred tax asset
    
    
    
    
    
    
    (1,103
    )
    
    
    
    
    
    
    
    
    
    
    (1,103
    )Deferred tax liability
    
    
    1,811
    
    
    
    
    
    
    
    (7
    )
    
    
    (76
    )
    
    
    1,728At 1 April 2009
    
    
    1,811
    
    
    
    (1,103
    )
    
    
    (7
    )
    
    
    (76
    )
    
    
    625(Credit) expense recognised in the income statement
    
    
    (115
    )
    
    
    118
    
    
    
    (15
    )
    
    
    2
    
    
    
    (10
    )(Credit) expense recognised in equity
    
    
    
    
    
    
    (1,211
    )
    
    
    (19
    )
    
    
    (143
    )
    
    
    (1,373
    )Transfer from current tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18At 31 March 2010
    
    
    1,696
    
    
    
    (2,196
    )
    
    
    (41
    )
    
    
    (199
    )
    
    
    (740
    )Deferred tax asset
    
    
    
    
    
    
    (2,196
    )
    
    
    
    
    
    
    
    
    
    
    (2,196
    )Deferred tax liability
    
    
    1,696
    
    
    
    
    
    
    
    (41
    )
    
    
    (199
    )
    
    
    1,456At 31 March 2010
    
    
    1,696
    
    
    
    (2,196
    )
    
    
    (41
    )
    
    
    (199
    )
    
    
    (740
    )
 
 a
    
    Includes a deferred tax asset of £3m (2009: £nil) arising on contributions payable to
defined contribution schemes.  122 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 22. Deferred taxation continued
  2010
    
    
    Expiry ofAt 31 March
    
    £m
    
    
    lossesRestricted losses:Americas
    
    
    284
    
    
    
    2010-2029Europe
    
    
    1,719
    
    
    
    2010-2025Total restricted losses
    
    
    2,003Unrestricted losses:Operating losses
    
    
    3,278
    
    
    No expiryCapital losses
    
    
    23,439
    
    
    No expiryOther
    
    
    775
    
    
    No expiryTotal unrestricted losses
    
    
    27,492Total
    
    
    29,495
  
 23. Minority interests
 2010
    
    
    2009£m
    
    
    £mAt 1 April
    
    
    27
    
    
    
    23Share of profits
    
    
    1
    
    
    
    2Disposals
    
    
    (4
    )
    
    
    (9
    )Minority share of dividend paid
    
    
    
    
    
    
    (1
    )Acquisitions through business combinations
    
    
    
    
    
    
    3Exchange differences
    
    
    
    
    
    
    9At 31 March
    
    
    24
    
    
    
    27
 
 24. Share capital
 Number
    
    
    Share capital
    a
    
    Share premium
    bof shares
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    8,401,227,029
    
    
    
    420
    
    
    
    62Cancelledc
    
    
    (250,000,000
    )
    
    
    (12
    )
    
    
    At 1 April 2009 and 31 March 2010
    
    
    8,151,227,029
    
    
    
    408
    
    
    
    62
 
 a
    
    The authorised share capital of the company up to 1 October 2009 was £13,463m, representing 269,260,253,468 ordinary shares of 5p each. The allotted, called up and fully paid ordinary share capital of the company at 31 March 2010 and 31 March 2009 was £408m, representing 8,151,227,029 ordinary shares of 5p each.b
    
    The share premium account, representing the premium on allotment of shares, is not available for distribution.c
    
    In 2010 the group cancelled nil treasury shares (2009: 250,000,000) with a nominal value of £nil (2009: £12m).
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 123




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 25. Other reserves
 Treasury
    
    
    Cash flow
    
    
    Available-for-
    
    
    Translation
    
    
    Merger
    
    
    Total othershares
    a
    
    reserve
    b
    
    sale reserve
    c
    
    reserve
    d
    
    reserve
    e
    
    reserves£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    (884
    )
    
    
    23
    
    
    
    
    
    
    
    (49
    )
    
    
    998
    
    
    
    88Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    
    
    
    
    210Net fair value gain on cash flow hedges
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    446Recognised in income and expense in the year
    
    
    
    
    
    
    (294
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (294
    )Reclassified and reported in non current assets
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Tax recognised in other comprehensive income
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )Net purchase of treasury shares
    
    
    (1,529
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,529
    )Cancellation of treasury shares
    
    
    570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    570At 1 April 2008
    
    
    (1,843
    )
    
    
    157
    
    
    
    
    
    
    
    161
    
    
    
    998
    
    
    
    (527
    )Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    
    
    
    
    683Net fair value gain on cash flow hedges
    
    
    
    
    
    
    2,719
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,719Recognised in income and expense in the year
    
    
    
    
    
    
    (2,144
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,144
    )Reclassified and reported in non current assets
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Gains on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Tax recognised in other comprehensive income
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164
    )Net purchase of treasury shares
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )Cancellation of treasury shares
    
    
    797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    797At 1 April 2009
    
    
    (1,109
    )
    
    
    563
    
    
    
    5
    
    
    
    844
    
    
    
    998
    
    
    
    1,301Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119
    )
    
    
    
    
    
    
    (119
    )Net fair value loss on cash flow hedges
    
    
    
    
    
    
    (1,067
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,067
    )Recognised in income and expense in the year
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    496Reclassified and reported in non current assets
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Gains on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Tax recognised in other comprehensive income
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    139Net issue of treasury shares
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4At 31 March 2010
    
    
    (1,105
    )
    
    
    147
    
    
    
    12
    
    
    
    705
    
    
    
    998
    
    
    
    757
 
 a
    
    The treasury shares reserve is used to hold BT Group plc shares purchased by the
group. During 2010 the company purchased nil (2009: 142,608,225, 2008: 539,657,691) of its own
shares of 5p each, representing nil% (2009: 2%, 2008: 6%) of the called-up share capital, for
consideration (including transaction costs) of £nil (2009: £189m, 2008: £1,626m). In addition,
8,320,766 shares (2009: 90,626,518, 2008: 53,250,144) were issued from treasury to satisfy
obligations under employee share schemes and executive share awards at a cost of £4m (2009: £126m,
2008: £97m), and nil treasury shares (2009 and 2008: 250,000,000) were cancelled at a cost of £nil
(2009: £797m, 2008: £570m). At 31 March 2010, 400,906,119 shares (2009: 409,226,885, 2008:
607,285,178) with an aggregate nominal value of £20m (2009: £20m, 2008: £30m) were held as treasury
shares at cost.b
    
    The cash flow reserve is used to record the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.c
    
    The available-for-sale reserve is used to record the cumulative fair value gains and losses on available-for-sale financial assets. The cumulative gains and losses are recycled to the income statement on
disposal of the assets. The gross gain in the year amounted to £7m (2009: £5m, 2008: £nil).d
    
    The translation reserve is used to record cumulative translation differences on the assets and liabilities of foreign operations. The cumulative translation differences are recycled to the income statement on
disposal of the foreign operation.e
    
    The merger reserve arose on the group reorganisation that occurred in November 2001
and represented the difference between the nominal value of shares in the new parent company, BT
Group plc, and the aggregate of the share capital, share premium account and capital redemption
reserve of the prior parent company, British Telecommunications plc. 
 26. Related party transactions
 Operating Committee
 2010
    
    
    2009
    a
    
    2008
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mSalaries and short-term benefits
    
    
    10.3
    
    
    
    8.4
    
    
    
    8.3Termination benefits
    
    
    0.1
    
    
    
    2.4
    
    
    
    Post employment benefits
    
    
    1.8
    
    
    
    2.3
    
    
    
    1.0Share-based payments
    
    
    2.6
    
    
    
    3.6
    
    
    
    5.014.8
    
    
    
    16.7
    
    
    
    14.3
 
 a
    
    Restated to include the Chairman and non-executive directors.    124 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 27. Financial commitments and contingent liabilities
 2010
    
    
    2009Capital expenditure contracted for at the balance sheet date but not yet incurred was as follows:
    
    £m
    
    
    £mProperty, plant and equipment
    
    
    368
    
    
    
    414Computer software
    
    
    15
    
    
    
    37Total
    
    
    383
    
    
    
    451
 2010
    
    
    2009Future minimum operating lease payments for the group were as follows:
    
    £m
    
    
    £mPayable in the year ending 31 March:2010
    
    
    
    
    
    
    4842011
    
    
    494
    
    
    
    4552012
    
    
    460
    
    
    
    4302013
    
    
    431
    
    
    
    4032014
    
    
    400
    
    
    
    3772015
    
    
    375
    
    
    
    356Thereafter
    
    
    5,527
    
    
    
    5,499Total future minimum operating lease payments
    
    
    7,687
    
    
    
    8,004
   2 2 2 2
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 125




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 28. Acquisitions
  BTGlobal Services
    
    
    BT Retail
    
    
    Other
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFair value of consideration
    
    
    13
    
    
    
    98
    
    
    
    75
    
    
    
    186Less: fair value of net assets acquired
    
    
    3
    
    
    
    24
    
    
    
    28
    
    
    
    55Goodwill arising
    
    
    10
    
    
    
    74
    
    
    
    47
    
    
    
    131Consideration:Cash
    
    
    13
    
    
    
    98
    
    
    
    65
    
    
    
    176Deferred consideration
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10Total
    
    
    13
    
    
    
    98
    
    
    
    75
    
    
    
    186The outflow of cash and cash equivalents was as follows:Cash consideration
    
    
    13
    
    
    
    98
    
    
    
    65
    
    
    
    176Less: cash acquired
    
    
    1
    
    
    
    3
    
    
    
    5
    
    
    
    912
    
    
    
    95
    
    
    
    60
    
    
    
    167
 BT Global Services
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mReceivables
    
    
    6
    
    
    
    
    
    
    
    6Cash and cash equivalents
    
    
    1
    
    
    
    
    
    
    
    1Payables
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net assets acquired
    
    
    3
    
    
    
    
    
    
    
    3Goodwill
    
    
    
    
    
    
    
    
    
    
    10Total consideration
    
    
    
    
    
    
    
    
    
    
    13
  BT Retail
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    2
    
    
    
    21
    
    
    
    23Property, plant and equipment
    
    
    2
    
    
    
    
    
    
    
    2Receivables
    
    
    20
    
    
    
    (1
    )
    
    
    19Cash and cash equivalents
    
    
    3
    
    
    
    
    
    
    
    3Payables
    
    
    (22
    )
    
    
    (1
    )
    
    
    (23
    )Net assets acquired
    
    
    5
    
    
    
    19
    
    
    
    24Goodwill
    
    
    
    
    
    
    
    
    
    
    74Total consideration
    
    
    
    
    
    
    
    
    
    
    98
  126 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 28. Acquisitions continued
 Other
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    
    
    
    
    25
    
    
    
    25Receivables
    
    
    2
    
    
    
    
    
    
    
    2Cash and cash equivalents
    
    
    5
    
    
    
    
    
    
    
    5Payables
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net assets acquired
    
    
    3
    
    
    
    25
    
    
    
    28Goodwill
    
    
    
    
    
    
    
    
    
    
    47Total consideration
    
    
    
    
    
    
    
    
    
    
    75
  
 29. Retirement benefit plans
       Measurement
of scheme assets and liabilities  IAS 19
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 127




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
  Real rates (per annum)
    
    
    Nominal rates (per annum)2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008At 31 March
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %Rate used to discount liabilities
    
    
    1.83
    
    
    
    3.84
    
    
    
    3.24
    
    
    
    5.50
    
    
    
    6.85
    
    
    
    6.85Average future increases in wages and salaries
    
    
    
    
    
    
    
    
    
    
    0.75
    a
    
    
    3.60
    
    
    
    2.90
    
    
    
    4.28
    aAverage increase in pensions in
payment and deferred pensions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.60
    
    
    
    2.90
    
    
    
    3.50Inflation
 average increase in retail price index
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.60
    
    
    
    2.90
    
    
    
    3.50
 
 a
    
    There is a short-term reduction in the real salary growth assumption to 0.5% for the
first three years.   2010
    
    
    2009Number of
    
    
    Number ofyears
    
    
    yearsMale in lower pay bracket
    
    
    25.2
    
    
    
    24.8Male in higher pay bracket
    
    
    27.4
    
    
    
    27.1Female
    
    
    28.1
    
    
    
    27.7Future improvement every 10 years
    
    
    1.1
    
    
    
    1.0
 Amounts recognised in respect of defined benefit schemes
  2010
    
    
    2009Present
    
    
    
    
    
    
    
    
    
    
    Presentvalue
    
    
    
    
    
    
    
    
    
    
    valueAssets
    
    
    of liabilities
    
    
    Obligation
    
    
    Assets
    
    
    of liabilities
    
    
    ObligationAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mBTPS
    
    
    35,278
    
    
    
    (43,018
    )
    
    
    (7,740
    )
    
    
    29,227
    
    
    
    (33,070
    )
    
    
    (3,843
    )Other schemesa
    
    
    151
    
    
    
    (275
    )
    
    
    (124
    )
    
    
    126
    
    
    
    (256
    )
    
    
    (130
    )35,429
    
    
    
    (43,293
    )
    
    
    (7,864
    )
    
    
    29,353
    
    
    
    (33,326
    )
    
    
    (3,973
    )Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    2,193
    
    
    
    
    
    
    
    
    
    
    
    1,103Net pension obligation
    
    
    
    
    
    
    
    
    
    
    (5,671
    )
    
    
    
    
    
    
    
    
    
    
    (2,870
    )
 
 a
    
    Included in the present value of liabilities of other schemes is £54m (2009: £52m)
related to unfunded schemes.  2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mCurrent service cost (including defined contribution schemes)
    
    
    304
    
    
    
    544
    
    
    
    626Total operating charge
    
    
    304
    
    
    
    544
    
    
    
    626Expected return on pension scheme assets
    
    
    (1,932
    )
    
    
    (2,621
    )
    
    
    (2,448
    )Interest expense on pension scheme liabilities
    
    
    2,211
    
    
    
    2,308
    
    
    
    2,028Net finance expense (income)
    
    
    279
    
    
    
    (313
    )
    
    
    (420
    )Total recognised in the income statement
    
    
    583
    
    
    
    231
    
    
    
    206
 128 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
  
 Forecast benefits payable by the BTPS at 31 March 2010
 (£m)
 
 
  2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mActuarial (loss) gain recognised in the year
    
    
    (4,324
    )
    
    
    (7,037
    )
    
    
    2,621Cumulative actuarial (losses) gains
    
    
    (4,915
    )
    
    
    (591
    )
    
    
    6,446Actual return on plan assets
    
    
    7,089
    
    
    
    (6,830
    )
    
    
    (124
    )
  2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £mOpening defined benefit pension obligation
    
    
    (33,326
    )
    
    
    (34,669
    )Current service cost
    
    
    (206
    )
    
    
    (459
    )Interest expense
    
    
    (2,211
    )
    
    
    (2,308
    )Contributions by employees
    
    
    (15
    )
    
    
    (18
    )Actuarial (loss) gain
    
    
    (9,481
    )
    
    
    2,414Business combinations
    
    
    
    
    
    
    (4
    )Benefits paid
    
    
    1,948
    
    
    
    1,741Exchange differences
    
    
    (2
    )
    
    
    (23
    )Closing defined benefit pension obligation
    
    
    (43,293
    )
    
    
    (33,326
    )
  2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £mOpening fair value of plan assets
    
    
    29,353
    
    
    
    37,448Expected return
    
    
    1,932
    
    
    
    2,621Actuarial gain (loss)
    
    
    5,157
    
    
    
    (9,451
    )Regular contributions by employer
    
    
    391
    
    
    
    441Deficiency contributions by employer
    
    
    525
    
    
    
    Contributions by employees
    
    
    15
    
    
    
    18Benefits paid
    
    
    (1,948
    )
    
    
    (1,741
    )Exchange differences
    
    
    4
    
    
    
    17Closing fair value of plan assets
    
    
    35,429
    
    
    
    29,353
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 129




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
     At 31 March 2010
    
    
    At 31 March 2009Expected
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expectedlong-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    long-termrate of return
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rate of return(per annum)
    
    
    
    
    
    
    Asset fair value
    
    
    Target
    
    
    (per annum)
    
    
    
    
    
    
    Asset fair value
    
    
    Target%
    
    
    £bn
    
    
    %
    
    
    %
    
    
    %
    
    
    £bn
    
    
    %
    
    
    %UK equities
    
    
    8.5
    
    
    
    3.6
    
    
    
    10
    
    
    
    11
    
    
    
    8.5
    
    
    
    3.2
    
    
    
    11
    
    
    
    11Non-UK equities
    
    
    8.5
    
    
    
    7.5
    
    
    
    21
    
    
    
    22
    
    
    
    8.5
    
    
    
    5.9
    
    
    
    20
    
    
    
    22Fixed-interest securities
    
    
    5.0
    
    
    
    5.9
    
    
    
    17
    
    
    
    20
    
    
    
    5.9
    
    
    
    6.6
    
    
    
    22
    
    
    
    20Index-linked securities
    
    
    4.2
    
    
    
    5.8
    
    
    
    16
    
    
    
    15
    
    
    
    4.0
    
    
    
    4.4
    
    
    
    15
    
    
    
    15Property
    
    
    7.7
    
    
    
    3.8
    
    
    
    11
    
    
    
    12
    
    
    
    7.0
    
    
    
    3.2
    
    
    
    11
    
    
    
    12Alternative assets
    
    
    6.9
    
    
    
    5.9
    
    
    
    17
    
    
    
    20
    
    
    
    7.0
    
    
    
    5.2
    
    
    
    18
    
    
    
    20Cash and other
    
    
    4.2
    
    
    
    2.8
    
    
    
    8
    
    
    
    
    
    
    
    3.5
    
    
    
    0.8
    
    
    
    3
    
    
    
    6.5
    
    
    
    35.3
    
    
    
    100
    
    
    
    100
    
    
    
    6.7
    
    
    
    29.3
    
    
    
    100
    
    
    
    100
   2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mPresent value of defined benefit obligation
    
    
    (43,293
    )
    
    
    (33,326
    )
    
    
    (34,669
    )
    
    
    (38,779
    )
    
    
    (38,187
    )Fair value of plan assets
    
    
    35,429
    
    
    
    29,353
    
    
    
    37,448
    
    
    
    38,390
    
    
    
    35,640Net pension (obligation) asset
    
    
    (7,864
    )
    
    
    (3,973
    )
    
    
    2,779
    
    
    
    (389
    )
    
    
    (2,547
    )Experience adjustment on defined benefit obligation  gain (loss)
    
    
    1,632
    
    
    
    (238
    )
    
    
    (22
    )
    
    
    190
    
    
    
    (527
    )Percentage of the present value of the defined benefit obligation
    
    
    3.8%
    
    
    
    0.7%
    
    
    
    0.1%
    
    
    
    0.5%
    
    
    
    1.4%Experience adjustment on plan assets  gain (loss)
    
    
    5,157
    
    
    
    (9,451
    )
    
    
    (2,572
    )
    
    
    993
    
    
    
    4,855Percentage of the plan assets
    
    
    14.6%
    
    
    
    32.2%
    
    
    
    6.9%
    
    
    
    2.6%
    
    
    
    13.6%
 
   130     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
 Sensitivity analysis of the principal assumptions used to measure BTPS
liabilities
  Decrease
    
    
    Decrease
    
    
    Decrease(increase) in
    
    
    (increase) in
    
    
    (increase) in netliability
    
    
    service cost
    
    
    finance expense£bn
    
    
    £m
    
    
    £m0.25 percentage point increase to: discount rate
    
    
    1.6
    
    
    
    15
    
    
    
    (15
    ) salary increases
    
    
    (0.2
    )
    
    
    
    
    
    
    (15
    )Additional 1 year increase to life expectancy
    
    
    (1.0
    )
    
    
    (10
    )
    
    
    (55
    )0.1 percentage point increase in expected return on assets
    
    
    
    
    
    
    
    
    
    
    35
  Funding valuation and future funding obligations
   4
    
    scheme assets are valued at market value at the valuation date; and4
    
    scheme liabilities are measured using a projected unit credit method and discounted to their present value.
   Real rates (per annum)
    
    
    Nominal rates (per annum)2008
    
    
    2005
    
    
    2008
    
    
    2005valuation
    
    
    valuation
    
    
    valuation
    
    
    valuation%
    
    
    %
    
    
    %
    
    
    %Discount ratePre retirement liabilities
    
    
    3.65
    
    
    
    3.06
    
    
    
    6.76
    
    
    
    5.84Post retirement liabilities
    
    
    2.15
    
    
    
    1.79
    
    
    
    5.21
    
    
    
    4.54Average increase in retail price index
    
    
    
    
    
    
    
    
    
    
    3.00
    
    
    
    2.70Average future increases in wages and salaries
    
    
    
    
    
    
    0.75
    
    
    
    3.00
    
    
    
    3.47Average increase in pensions
    
    
    
    
    
    
    
    
    
    
    3.00
    
    
    
    2.70
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 131




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
  4
    
    In the event that cumulative shareholder distributions exceed cumulative total pension
contributions over the three year period to 31 December 2011, then BT will make additional matching
contributions to the scheme. Total pension contributions (including regular contributions) are
expected to be approximately £2.4bn over the three financial years.4
    
    In the event that BT generates net cash proceeds greater than £1bn from disposals and
acquisitions in any 12 month period to 31 December 2011 then BT will make additional contributions
to the scheme equal to one third of those net cash proceeds.4
    
    A negative pledge that provides comfort to the scheme that future creditors will not be granted
superior security to the scheme in excess of a £1.5bn threshold.
     
 30. Share-based payments
   2010
    
    
    2009
    a
    
    2008
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mEmployee Sharesave Plan
    
    
    25
    
    
    
    107
    
    
    
    29Allshare International
    
    
    2
    
    
    
    2
    
    
    
    2Employee Stock Purchase Plan
    
    
    1
    
    
    
    
    
    
    
    1Incentive Share Plan
    
    
    29
    
    
    
    18
    
    
    
    26Deferred Bonus Plan
    
    
    13
    
    
    
    12
    
    
    
    12Retention Share Plan
    
    
    1
    
    
    
    2
    
    
    
    371
    
    
    
    141
    
    
    
    73
 a
    
    Restated for the adoption of the amendment to IFRS 2 Share-based payment  vesting
conditions and cancellations. See page 94.  BT Group Employee Sharesave Plans
  Employee Stock Purchase Plan
 
   132     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 30. Share-based payments continued
  BT Group Global Share Option Plan (GSOP)
  BT Group Legacy Option Plan (GLOP)
 2 2
  Employee Share Investment Plan (ESIP)
   Incentive Share Plan, Retention Share Plan and Deferred Bonus Plan
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 133




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 30. Share-based payments continued
   Employee Sharesave
    
    
    GSOP and GLOP2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008Movement in the number of share options:
    
    millions
    
    
    millions
    
    
    millions
    
    
    millions
    
    
    millions
    
    
    millionsOutstanding at the beginning of the year
    
    
    136
    
    
    
    281
    
    
    
    272
    
    
    
    42
    
    
    
    46
    
    
    
    103Granted
    
    
    490
    
    
    
    339
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (44
    )
    
    
    (390
    )
    
    
    (15
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (10
    )Exercised
    
    
    (1
    )
    
    
    (80
    )
    
    
    (28
    )
    
    
    
    
    
    
    (1
    )
    
    
    (14
    )Expired
    
    
    (47
    )
    
    
    (14
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (33
    )Outstanding at the end of the year
    
    
    534
    
    
    
    136
    
    
    
    281
    
    
    
    38
    
    
    
    42
    
    
    
    46Exercisable at the end of the year
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    38
    
    
    
    42
    
    
    
    46Weighted average exercise price:Outstanding at the beginning of the year
    
    
    160
    p
    
    
    180
    p
    
    
    165
    p
    
    
    256
    p
    
    
    257
    p
    
    
    227
    pGranted
    
    
    63
    p
    
    
    135
    p
    
    
    269
    p
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    107
    p
    
    
    153
    p
    
    
    208
    p
    
    
    263
    p
    
    
    199
    p
    
    
    251
    pExercised
    
    
    125
    p
    
    
    155
    p
    
    
    188
    p
    
    
    
    
    
    
    196
    p
    
    
    198
    pExpired
    
    
    150
    p
    
    
    178
    p
    
    
    179
    p
    
    
    
    
    
    
    
    
    
    
    199
    pOutstanding at the end of the year
    
    
    76
    p
    
    
    160
    p
    
    
    180
    p
    
    
    255
    p
    
    
    256
    p
    
    
    257
    pExercisable at the end of the year
    
    
    163
    p
    
    
    195
    p
    
    
    158
    p
    
    
    255
    p
    
    
    256
    p
    
    
    257
    p
  Number of
    
    
    Number ofExercise
    
    
    outstanding
    
    
    exercisableprice
    
    
    options
    
    
    optionsNormal dates of vesting and exercise (based on calendar years)
    
    per share
    
    
    millions
    
    
    millionsBT Group Employee Sharesave Plans2010
    
    
    171p294
    p
    
    
    16
    
    
    
    12011
    
    
    137p208
    p
    
    
    12
    
    
    
    2012
    
    
    68p262
    p
    
    
    143
    
    
    
    2013
    
    
    185
    p
    
    
    8
    
    
    
    2014
    
    
    61p111
    p
    
    
    355
    
    
    
    Total
    
    
    
    
    
    
    534
    
    
    
    1BT Group Legacy Option Plan2001-2011
    
    
    318p648
    p
    
    
    8
    
    
    
    8Total
    
    
    
    
    
    
    8
    
    
    
    8BT Group Global Share Option Plan2004-2014
    
    
    176p199.5
    p
    
    
    24
    
    
    
    242005-2015
    
    
    179p263
    p
    
    
    6
    
    
    
    6Total
    
    
    
    
    
    
    30
    
    
    
    30Total options
    
    
    
    
    
    
    572
    
    
    
    39
 
   134     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 30. Share-based payments continued
  Employee Sharesave
    
    
    
    
    
    
    GSOP and GLOPWeighted
    
    
    Number of
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    Number of
    
    
    Weightedaverage
    
    
    outstanding
    
    
    average
    
    
    
    
    
    
    average
    
    
    outstanding
    
    
    averageRange of exercise
    
    exercise
    
    
    options
    
    
    contractual
    
    
    Range of exercise
    
    
    exercise
    
    
    options
    
    
    contractualprices
    
    price
    
    
    millions
    
    
    remaining life
    
    
    prices
    
    
    price
    
    
    millions
    
    
    remaining life61p68p
    
    
    63p
    
    
    
    465
    
    
    48 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100p  199p
    
    
    143p
    
    
    
    57
    
    
    32 months
    
    
    
    150p-317p
    
    
    
    198p
    
    
    
    30
    
    
    52 months200p  300p
    
    
    242p
    
    
    
    12
    
    
    26 months
    
    
    
    318p-650p
    
    
    
    424p
    
    
    
    8
    
    
    8 monthsTotal
    
    
    
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
   Millions of sharesISP
    
    
    DBP
    
    
    RSP
    
    
    TotalAt 1 April 2009
    
    
    75.2
    
    
    
    15.5
    
    
    
    1.5
    
    
    
    92.2Awards granted
    
    
    50.0
    
    
    
    4.5
    
    
    
    0.3
    
    
    
    54.8Awards vested
    
    
    
    
    
    
    (5.0
    )
    
    
    (0.6
    )
    
    
    (5.6
    )Awards lapsed
    
    
    (28.4
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (29.5
    )Dividend shares reinvested
    
    
    2.4
    
    
    
    0.4
    
    
    
    
    
    
    
    2.8At 31 March 2010
    
    
    99.2
    
    
    
    14.3
    
    
    
    1.2
    
    
    
    114.7
    2010
    
    
    2009
    
    
    2008Employee
    
    
    
    
    
    
    Employee
    
    
    
    
    
    
    EmployeeYear ended 31 March
    
    Sharesave
    
    
    ISP
    
    
    Sharesave
    
    
    ISP
    
    
    Sharesave
    
    
    ISPWeighted average fair value
    
    
    14p
    
    
    
    106p
    
    
    
    27p
    
    
    
    47p
    
    
    
    71p
    
    
    
    182pWeighted average share price
    
    
    80p
    
    
    
    131p
    
    
    
    152p
    
    
    
    199p
    
    
    
    329p
    
    
    
    306pWeighted average exercise price
    
    
    63p
    
    
    
    
    
    
    
    135p
    
    
    
    
    
    
    
    269p
    
    
    
    Expected dividend yield
    
    
    5.7%6.4%
    
    
    
    6.5%
    
    
    
    4.6%6.4%
    
    
    
    4.9%
    
    
    
    5.5%
    
    
    
    5.5%Risk free rates
    
    
    2.2%2.8%
    
    
    
    2.5%
    
    
    
    2.1%5.5%
    
    
    
    5.2%
    
    
    
    5.8%
    
    
    
    5.8%Expected volatility
    
    
    26.9%30.7%
    
    
    
    38.5%
    
    
    
    20.7%28.4%
    
    
    
    23.3%
    
    
    
    22.0%
    
    
    
    18.0%
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 135




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 
 31. Audit and non-audit services
  2010
    
    
    2009
    
    
    2008Year ended 31 March
    
    £000
    
    
    £000
    
    
    £000Audit servicesFees payable to the companys auditor and its associates for the audit of parent company 
and consolidated financial statements
    
    
    2,585
    
    
    
    2,831
    
    
    
    2,990Non-audit servicesFees payable to the companys auditor and its associates for other services: The audit of the companys subsidiaries pursuant to legislationa
    
    
    4,732
    
    
    
    4,675
    
    
    
    3,848 Other services pursuant to legislationa
    
    
    867
    
    
    
    1,211
    
    
    
    1,590 Tax services
    
    
    792
    
    
    
    1,247
    
    
    
    727 Services relating to corporate finance transactionsb
    
    
    
    
    
    
    32
    
    
    
    549 All other services
    
    
    941
    
    
    
    887
    
    
    
    5279,917
    
    
    
    10,883
    
    
    
    10,231
 a
    
    These services are audit services as defined by the Public Company Accounting
Oversight Board AU Section 550 (PCAOB AU Section 550).b
    
    These services are audit related services as defined by the PCAOB AU Section 550.
 
   136     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 
 32. Financial instruments and risk management
  Funding and exposure management
  Treasury operations
  Treasury policy
       2010
    
    
    2009
    
    
    2008At 31 March
    
    £m
    
    
    £m
    
    
    £mTotal parent shareholders (deficit) equity (excluding cash flow reserve)
    
    
    (2,797
    )
    
    
    (421
    )
    
    
    5,252Net debt
    
    
    9,283
    
    
    
    10,361
    
    
    
    9,460Committed facilities
    
    
    1,500
    
    
    
    2,300
    
    
    
    2,335Total capital
    
    
    7,986
    
    
    
    12,240
    
    
    
    17,047
  Management policy
  
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 137




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
 Hedging strategy
    Sensitivities
    2010
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £mCharge
    
    
    Charge
    
    
    ChargeAt 31 March
    
    (credit)
    
    
    (credit)
    
    
    (credit)Sterling interest rates
    
    
    496
    
    
    
    550
    
    
    
    470US Dollar interest rates
    
    
    (392
    )
    
    
    (538
    )
    
    
    (347
    )Euro interest rates
    
    
    (134
    )
    
    
    (149
    )
    
    
    (90
    )
     Management policy
 
   138     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
 Exposure and hedging
  Sensitivities
     Treasury management policy
  Exposures
  2010
    
    
    2009
    
    
    2008At 31 March
    
    £m
    
    
    £m
    
    
    £mDerivative financial assets
    
    
    1,700
    
    
    
    2,700
    
    
    
    387Investments
    
    
    470
    
    
    
    218
    
    
    
    471Trade and other receivablesa
    
    
    2,947
    
    
    
    3,101
    
    
    
    3,193Cash and cash equivalents
    
    
    1,452
    
    
    
    1,300
    
    
    
    1,435Total
    
    
    6,569
    
    
    
    7,319
    
    
    
    5,486
 a
    
    The carrying amount excludes £749m (2009: £1,084m, 2008: £1,256m) of current and £336m
(2009: £322m, 2008: £854m) of non current trade and other receivables which relate to non financial
assets.  Impact of 100 basis
    
    
    Impact of 100 basispoint increase
    
    
    point decreaseAt 31 March 2010
    
    £m
    
    
    £mMoodys/S&P credit ratingAa2/AA
    
    
    (3
    )
    
    
    4Aa3/AA
    
    
    (26
    )
    
    
    30A1/A+
    
    
    (89
    )
    
    
    104A2/A
    
    
    (102
    )
    
    
    122(220
    )
    
    
    260
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 139




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
 Operational management policy
   Management policy
   Liquidity position
 2010
    
    
    2009
    
    
    2008At 31 March
    
    £m
    
    
    £m
    
    
    £mNet debt
    
    
    9,283
    
    
    
    10,361
    
    
    
    9,460
 
   140     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
  Within one
    
    
    Between
    
    
    Between
    
    
    Between
    
    
    BetweenCarrying
    
    
    year, or on
    
    
    one and
    
    
    two and
    
    
    three and
    
    
    four and
    
    
    Afteramount
    
    
    demand
    
    
    two years
    
    
    three years
    
    
    four years
    
    
    five years
    
    
    five yearsOutflow (inflow)d
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 31 March 2010Loans and borrowings
    
    
    12,791Principal
    
    
    
    
    
    
    2,937
    
    
    
    18
    
    
    
    1,763
    
    
    
    11
    
    
    
    1,213
    
    
    
    6,523Interest
    
    
    
    
    
    
    833
    
    
    
    581
    
    
    
    581
    
    
    
    484
    
    
    
    484
    
    
    
    4,016Trade and other payablesa
    
    
    4,672
    
    
    
    4,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provisionsb
    
    
    255
    
    
    
    61
    
    
    
    37
    
    
    
    30
    
    
    
    26
    
    
    
    45
    
    
    
    143Derivative financial instrument liabilities 
analysed based on earliest payment datecNet settled
    
    
    662
    
    
    
    450
    
    
    
    78
    
    
    
    185
    
    
    
    65
    
    
    
    (215
    )
    
    
    745Gross settled
    
    
    37Outflow
    
    
    
    
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inflow
    
    
    
    
    
    
    (1,074
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    8,960
    
    
    
    714
    
    
    
    2,559
    
    
    
    586
    
    
    
    1,527
    
    
    
    11,427Derivative financial instrument liabilities
analysed based on holding instrument
to maturityNet settled
    
    
    662
    
    
    
    193
    
    
    
    92
    
    
    
    93
    
    
    
    92
    
    
    
    93
    
    
    
    745Gross settled
    
    
    37Outflow
    
    
    
    
    
    
    424
    
    
    
    20
    
    
    
    20
    
    
    
    20
    
    
    
    20
    
    
    
    577Inflow
    
    
    
    
    
    
    (413
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (577
    )Within one
    
    
    Between
    
    
    Between
    
    
    Between
    
    
    BetweenCarrying
    
    
    year, or on
    
    
    one and
    
    
    two and
    
    
    three and
    
    
    four and
    
    
    Afteramount
    
    
    demand
    
    
    two years
    
    
    three years
    
    
    four years
    
    
    five years
    
    
    five yearsOutflow (inflow)d
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 31 March 2009Loans and borrowings
    
    
    13,907Principal
    
    
    
    
    
    
    1,227
    
    
    
    3,098
    
    
    
    10
    
    
    
    1,829
    
    
    
    14
    
    
    
    7,412Interest
    
    
    
    
    
    
    906
    
    
    
    900
    
    
    
    649
    
    
    
    650
    
    
    
    550
    
    
    
    5,333Trade and other payablesa
    
    
    5,354
    
    
    
    5,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provisionsb
    
    
    166
    
    
    
    59
    
    
    
    17
    
    
    
    15
    
    
    
    13
    
    
    
    8
    
    
    
    119Derivative financial instrument liabilities
analysed based on earliest payment datecNet settled
    
    
    762
    
    
    
    244
    
    
    
    338
    
    
    
    28
    
    
    
    50
    
    
    
    19
    
    
    
    30Gross settled
    
    
    5Outflow
    
    
    
    
    
    
    414
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inflow
    
    
    
    
    
    
    (409
    )
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    7,795
    
    
    
    4,353
    
    
    
    702
    
    
    
    2,542
    
    
    
    591
    
    
    
    12,894Derivative financial instrument liabilities
analysed based on holding instrument
to maturityNet settled
    
    
    762
    
    
    
    117
    
    
    
    117
    
    
    
    60
    
    
    
    60
    
    
    
    60
    
    
    
    634Gross settled
    
    
    5Outflow
    
    
    
    
    
    
    414
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inflow
    
    
    
    
    
    
    (409
    )
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 a
    
    The carrying amount excludes £1,859m (2009: £1,861m) of current and £804m (2009:
£794m) of non current trade and other payables which relate to non financial liabilities.b
    
    The carrying amount excludes £73m (2009: £195m) of current and £513m (2009: £359m) of
non current provisions which relate to non financial liabilities.c
    
    Certain derivative financial instrument liabilities contain break clauses whereby
either the group or bank counterparty can terminate the swap on certain dates and the mark to
market position is settled in cash.d
    
    Foreign currency related cash flows were translated at the closing rate as at the
relevant reporting date. Future variable interest rate cash flows were calculated using the most
recent rate applied at the relevant balance sheet date.
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 141




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
     Derivative fair valuebNotional
    
    
    
    
    
    
    
    
    
    
    Remaining term
    
    Weighted average
    
    Period overprincipal
    
    
    Asset
    
    
    Liability
    
    
    of hedging
    
    interest rate on
    
    which forecastHedged item
    
    Hedging instruments
    
    Hedge type
    
    £m
    
    
    £m
    
    
    £m
    
    
    instruments
    
    hedging instruments
    
    transaction arisesEuro and US Dollar
    
    Interest rate swaps
    
    Cash flow
    
    
    2,913
    
    
    
    
    
    
    
    361
    
    
    9 months to 21 years
    
    Sterling receivable at 0.8%denominated borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 5.9%Cross currency swaps
    
    Cash flow
    
    
    7,612
    
    
    
    1,571
    
    
    
    30
    
    
    9 months to 21 years
    
    Euro receivable at 6.1%US Dollar receivable at 7.6%Sterling payable at 6.3%Sterling denominated
    
    Interest rate swaps
    
    Fair value
    
    
    500
    
    
    
    
    
    
    
    6
    
    
    19 years
    
    Sterling receivable at 5.8%borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 2.2%Euro and US Dollar step up
    
    Forward currency contracts
    
    Cash flow
    
    
    247
    
    
    
    16
    
    
    
    
    
    
    
    3 to 9 months
    
    
    
    
    
    21 yearsinterest on currency
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisdenominated borrowingsaCurrency exposures on overseas
    
    Forward currency contracts
    
    Cash flow
    
    
    161
    
    
    
    
    
    
    
    4
    
    
    1 month
    
    
    
    
    
    12 monthspurchases principally US Dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisand Asia Pacific currenciesPurchase of US Dollar
    
    Forward currency contracts
    
    Cash flow
    
    
    180
    
    
    
    7
    
    
    
    
    
    
    
    1 to 9 monthsdenominated retail devicesa     See note 18.b     See note 19.The group had outstanding hedging activities as at 31 March 2009 as follows:Derivative fair valuebNotional
    
    
    
    
    
    
    
    
    
    
    Remaining term
    
    Weighted average
    
    Period overprincipal
    
    
    Asset
    
    
    Liability
    
    
    of hedging
    
    interest rate on
    
    which forecastHedged item
    
    Hedging instruments
    
    Hedge type
    
    £m
    
    
    £m
    
    
    £m
    
    
    instruments
    
    hedging instruments
    
    transaction arisesEuro and US Dollar
    
    Interest rate swaps
    
    Cash flow
    
    
    2,913
    
    
    
    
    
    
    
    446
    
    
    
    2 to 22 years
    
    Sterling receivable at 3.0%denominated borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 5.9%Cross currency swaps
    
    Cash flow and fair value
    
    
    7,227
    
    
    
    2,559
    
    
    
    1
    
    
    5 months to 22 years
    
    Euro receivable at 6.0%US Dollar receivable at 7.7%Sterling payable at 7.2%Euro and US Dollar step up
    
    Forward currency contracts
    
    Cash flow
    
    
    223
    
    
    
    9
    
    
    
    
    
    
    
    3 to 5 months
    
    
    
    
    
    22 yearsinterest on currency
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisdenominated borrowingsaEuro and US Dollar
    
    Forward currency contracts
    
    Cash flow
    
    
    490
    
    
    
    17
    
    
    
    
    
    
    Less than 3 monthscommercial papera
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisPurchase of US Dollar
    
    Forward currency contracts
    
    Cash flow
    
    
    48
    
    
    
    
    
    
    
    1
    
    
    Less than 1 month
    
    
    
    
    
    4 yearsdenominated fixed assetsEuro deferred consideration
    
    Forward currency contracts
    
    Cash flow
    
    
    50
    
    
    
    1
    
    
    
    
    
    
    Less than 5 monthson acquisition
 a
    
    See note 18.b
    
    See note 19.
 
   142     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
   Carrying amount
    
    
    Fair value2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008At 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFinancial liabilitiesListed bonds, debentures and notes
    
    
    12,157
    
    
    
    12,189
    
    
    
    9,298
    
    
    
    13,304
    
    
    
    11,384
    
    
    
    9,436Finance leases
    
    
    304
    
    
    
    332
    
    
    
    320
    
    
    
    343
    
    
    
    366
    
    
    
    347Other loans and borrowings
    
    
    330
    
    
    
    1,386
    
    
    
    1,724
    
    
    
    354
    
    
    
    1,338
    
    
    
    1,690
  4
    
    Level 1  uses quoted prices in active markets for identical assets or liabilities4
    
    Level 2  uses inputs for the asset or liability other than quoted prices, that are observable
either directly or indirectly4
    
    Level 3  uses inputs for the asset or liability that are not based on observable market data such
as internal models or other valuation methods.
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAt 31 March 2010
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFinancial assets at fair valueNon current and current derivative financial assetsDerivatives designated as accounting hedges
    
    
    
    
    
    
    1,594
    
    
    
    
    
    
    
    1,594Other derivatives
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    106Total current and non current derivative financial assets (note 19)
    
    
    
    
    
    
    1,700
    
    
    
    
    
    
    
    1,700Available-for-sale financial assetsNon current and current investmentsLiquid investments
    
    
    
    
    
    
    258
    
    
    
    
    
    
    
    258Other investments
    
    
    20
    
    
    
    
    
    
    
    12
    
    
    
    32Total non current and current investments (note 14)
    
    
    20
    
    
    
    258
    
    
    
    12
    
    
    
    290Total financial assets at fair value
    
    
    20
    
    
    
    1,958
    
    
    
    12
    
    
    
    1,990Financial liabilities at fair valueCurrent and non current derivative financial liabilitiesDerivatives designated as accounting hedges
    
    
    
    
    
    
    401
    
    
    
    
    
    
    
    401Other derivatives
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    298Total current and non current financial liabilities (note 19)
    
    
    
    
    
    
    699
    
    
    
    
    
    
    
    699Total financial liabilities at fair value
    
    
    
    
    
    
    699
    
    
    
    
    
    
    
    699
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 143




---



##### Table of Contents



FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
 32. Financial instruments and risk management continued
  Other investments£mAt 1 April 2009
    
    
    11Additions
    
    
    3Disposals
    
    
    (2
    )At 31 March 2010
    
    
    12
 
   144     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 REPORT OF THE INDEPENDENT AUDITORS  PARENT COMPANY FINANCIAL
STATEMENTS
  Respective responsibilities of directors and auditors
   Scope of the audit of the financial statements
  Opinion on financial statements
  4
    
    give a true and fair view of the state of the companys affairs as at 31 March 2010;4
    
    have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and4
    
    have been prepared in accordance with the requirements of the Companies Act 2006.
 Opinion on other matters prescribed by the Companies Act 2006
  4
    
    the part of the Report on directors remuneration to be audited has been properly prepared in
accordance with the Companies Act 2006; and4
    
    the information given in the Report of the directors for the financial year for which the parent
company financial statements are prepared is consistent with the parent company financial
statements.
 Matters on which we are required to report by exception
  4
    
    adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or4
    
    the parent company financial statements and the part of the Report on directors remuneration to
be audited are not in agreement with the accounting records and returns; or4
    
    certain disclosures of directors remuneration specified by law are not made; or4
    
    we have not received all the information and explanations we require for our audit.
 Other matter
  for and on behalf of PricewaterhouseCoopers LLP
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 145




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 FINANCIAL STATEMENTS OF BT GROUP PLC
 BT Group plc accounting policies
 (i) Accounting basis
       (ii) Investments in subsidiary undertakings
  (iii) Taxation
  (iv) Dividends
  (v) Share capital
  (vi) Cash
  (vii) Share-based payments
    (i) Dividends
  (ii) Employees
  (iii) Audit fees
 
   146     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF BT GROUP PLC
 BT Group plc company balance sheet
 2010
    
    
    2009
    eAt 31 March
    
    £m
    
    
    £mFixed assetsInvestments in subsidiary undertakingsa
    
    
    10,349
    
    
    
    10,278Total fixed assets
    
    
    10,349
    
    
    
    10,278Current assetsDebtorsb
    
    
    
    
    
    
    142Cash at bank and in hand
    
    
    11
    
    
    
    13Total current assets
    
    
    11
    
    
    
    155Creditors: amounts falling due within one yearc
    
    
    186
    
    
    
    65Net current (liabilities) assets
    
    
    (175
    )
    
    
    90Total assets less current liabilities
    
    
    10,174
    
    
    
    10,368Capital and reservesCalled up share capital
    
    
    408
    
    
    
    408Share premium account
    
    
    62
    
    
    
    62Capital redemption reserve
    
    
    27
    
    
    
    27Treasury shares reserve
    
    
    (1,105
    )
    
    
    (1,109
    )Profit and loss account
    
    
    10,782
    
    
    
    10,980Total
equity shareholders
fundsd
    
    
    10,174
    
    
    
    10,368
 a
    
    Throughout 2010, the company held a 100% investment in BT Group Investments Limited, a
company registered in England and Wales. The change to investments in subsidiary undertakings
relates to additional capital contributions in respect of share-based payments of £71m in 2010
(2009: £141m).b
    
    Debtors consists of amounts owed by subsidiary undertakings of £nil (2009: £142m).c
    
    Creditors consists of amounts owed to subsidiary undertakings of £166m (2009: £15m)
and other creditors of £20m (2009: £50m).d
    
    The movements in total equity shareholders funds shown on page 148.e
    
    Restated. See page 146.  Sir Michael Rake
 Ian Livingston
 Tony Chanmugam
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 147




---



##### Table of Contents



FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF BT GROUP PLC
 BT Group plc company reconciliation of movement in equity shareholders
funds
 Capital
    
    
    
    
    
    
    ProfitShare
    
    
    Share premium
    
    
    redemption
    
    
    Treasury
    
    
    and losscapital
    a
    
    account
    
    
    reserve
    
    
    reserve
    b
    
    account
    b,c
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    420
    
    
    
    62
    
    
    
    15
    
    
    
    (1,843
    )
    
    
    12,356
    
    
    
    11,010Profit for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    502Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,222
    )
    
    
    (1,222
    )Change in accounting policy for adoption of the
amendment to FRS 20 (see page 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    110Capital contribution in respect of share-based
payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Net purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    
    
    
    
    (63
    )Cancellation of shares
    
    
    (12
    )
    
    
    
    
    
    
    12
    
    
    
    797
    
    
    
    (797
    )
    
    
    At 1 April 2009
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    (1,109
    )
    
    
    10,980
    
    
    
    10,368Loss for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263
    )
    
    
    (263
    )Capital contribution in respect of share-based
payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    71Net issue of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4At 31 March 2010
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    (1,105
    )
    
    
    10,782
    
    
    
    10,174
 a
    
    The authorised share capital of the company up to 1 October 2009 was £13,463m,
representing 269,260,253,468 ordinary shares of 5p each. The allotted, called up and fully paid
ordinary share capital of the company at 31 March 2010 was £408m (2009: £408m), representing
8,151,227,027 ordinary shares of 5p each (2009: 8,151,227,029).b
    
    During 2010, the company repurchased nil (2009: 142,608,225) of its own shares of 5p
each, nil % (2009: 2%) of the called-up share capital, for consideration (including transaction
costs) of £nil (2009: £189m). In addition, 8,320,766 shares (2009: 90,626,518) were issued from
treasury to satisfy obligations under employee share schemes and executive share awards at a cost
of £4m (2009: £126m), and nil treasury shares (2009: 250,000,000) were cancelled at a cost of £nil
(2009: £797m). At 31 March 2010, 400,906,119 shares (2009: 409,226,885) with an aggregate nominal
value of £20m (2009: £20m) were held as treasury shares at cost.c
    
    The loss for the financial year, dealt with in the profit and loss account of the
company after taking into account dividends received from subsidiary undertakings, was £6m (2009:
profit of £502m). As permitted by Section 408(3) of the Companies Act 2006, no profit and loss
account of the company is presented.
 
   148     BT
GROUP PLC ANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 
 SUBSIDIARY UNDERTAKINGS AND ASSOCIATE
 a b
 Group interest
    
    CountrySubsidiary undertakings
    
    Activity
    
    in allotted capitalc
    
    of operation
    dBritish Telecommunications plc
    
    Communications related services and products provider
    
    100% ordinary
    
    UKBT Americas Incd
    
    Communications related services, systems integration and
    
    100% common
    
    Internationalproducts providerBT Australasia Pty Limited
    
    Communications related services and products provider
    
    100% ordinary
    
    Australia100% preferenceBT Centre Nominee 2 Limited
    
    Property holding company
    
    100% ordinary
    
    UKBT Communications do Brasil Limitada
    
    Communications related services, technology consulting
    
    100% ordinary
    
    Braziland products providerBT Communications Ireland Limited
    
    Telecommunications service provider
    
    100% ordinary
    
    IrelandBT Conferencing Inc
    
    Audio, video and web collaboration services provider
    
    100% common
    
    USBT Conferencing Video Inc
    
    Audio, video and web collaboration services provider
    
    100% common
    
    USBT Convergent Solutions Limited
    
    Communications related services and products provider
    
    100% ordinary
    
    UKBT Engage IT Limited
    
    IT solutions provider
    
    100% ordinary
    
    UKBT ESPANA, Compania de Servicios Globales de
    
    Communications related services and products provider
    
    100% ordinary
    
    SpainTelecommunicaciones, SABT Fleet Limited
    
    Fleet management company
    
    100% ordinary
    
    UKBT France SA
    
    Communications related services, systems integration and
    
    100% ordinary
    
    Franceproducts providerBT Frontline Pte Ltd
    
    Communications related services and products provider
    
    100% ordinary
    
    SingaporeBT (Germany) GmbH & Co oHG
    
    Communications related services and products provider
    
    100% ordinary
    
    GermanyBT Global Communications India Private Limited
    
    Communications related services
    
    100% ordinary
    
    IndiaBT Global Services Limited
    
    International telecommunications network systems provider
    
    100% ordinary
    
    UKBT Holdings Limited
    
    Investment holding company
    
    100% ordinary
    
    UKBT Hong Kong Limited
    
    Communications related services and products provider
    
    100% ordinary
    
    Hong Kong100% preferenceBT INS Inc
    
    Information telecommunications consulting and software
    
    100% common
    
    USsolutions providerBT Italia SpA
    
    Communications related services and products provider
    
    98.6% ordinary
    
    ItalyBT Limited
    
    International telecommunications network systems provider
    
    100% ordinary
    
    InternationalBT Nederland NV
    
    Communications related services and products provider
    
    100% ordinary
    
    NetherlandsBT Payment Services Limited
    
    Payment services provider
    
    100% ordinary
    
    UKBT Professional Services Nederland BV
    
    Systems integration and application development
    
    100% ordinary
    
    NetherlandsBT Services SA
    
    Technology consulting and engineering services
    
    100% ordinary
    
    FranceBT Singapore Pte Ltd
    
    Communications related services and products provider
    
    100% ordinary
    
    SingaporeBT US Investments Limitedb
    
    Investment holding company
    
    100% ordinary
    
    JerseyCommunications Global Network Services Limitedd
    
    Communications related services and products provider
    
    100% ordinary
    
    InternationalCommunications Networking Services (UK)
    
    Communications related services and products provider
    
    100% ordinary
    
    UKdabs.com plc
    
    Technology equipment retailer
    
    100% ordinary
    
    UKInfonet Services Corporation
    
    Global managed network service provider
    
    100% common
    
    USInfonet USA Corporation
    
    Global managed network service provider
    
    100% common
    
    USPlusnet plc
    
    Broadband service provider
    
    100% ordinary
    
    UKRadianz Americas Inc
    
    Global managed network service provider
    
    100% preference
    
    US100% common
 a
    
    The group comprises a large number of entities and it is not practical to include all of them in this list. The list therefore includes only those entities that have a significant impact on the revenue, profit or
assets of the group. A full list of subsidiaries, joint ventures and associates will be annexed to the companys next annual return filed with the Registrar of Companies.b
    
    The principal operating subsidiaries (listed above) have a reporting date of 31 March, except for BT US Investments Limited which has a reporting date of 31 October in order to meet its corporate objectives.c
    
    The proportion of voting rights held corresponds to the aggregate interest percentage held by the holding company and subsidiary undertakings.d
    
    All overseas undertakings are incorporated in their country of operations. Subsidiary undertakings operating internationally are all incorporated in England and Wales, except BT Americas Inc and
Communications Global Network Services Limited which are incorporated in the US and Bermuda, respectively.
 Share capitalPercentage
    
    
    CountryAssociate
    
    Activity
    
    Issued
    e
    
    owned
    f
    
    of operation
    gTech Mahindra Limited
    
    Global systems integrator and businesstransformation consultancy provider
    
    
    122,320,114
    
    
    
    30.9
    %
    
    India
 e
    
    Issued share capital comprises ordinary or common shares unless otherwise stated.f
    
    Held through an intermediate holding company.g
    
    Incorporated in the country of operation.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 149




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 
 QUARTERLY ANALYSIS OF REVENUE AND PROFIT
 Unaudited1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    TotalYear ended 31 March 2010
    
    Quarters
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    
    
    
    
    5,235
    
    
    
    5,070
    
    
    
    5,198
    
    
    
    5,356
    
    
    
    20,859Other operating income
    
    
    
    
    
    
    79
    
    
    
    93
    
    
    
    80
    
    
    
    128
    
    
    
    380Operating costs
    
    
    
    
    
    
    (4,767
    )
    
    
    (4,613
    )
    
    
    (4,805
    )
    
    
    (4,931
    )
    
    
    (19,116
    )Operating profit
    
    
    
    
    
    
    547
    
    
    
    550
    
    
    
    473
    
    
    
    553
    
    
    
    2,123Net finance expense
    
    
    
    
    
    
    (283
    )
    
    
    (284
    )
    
    
    (292
    )
    
    
    (299
    )
    
    
    (1,158
    )Share of post tax profits of associates and joint ventures
    
    
    
    
    
    
    8
    
    
    
    9
    
    
    
    28
    
    
    
    9
    
    
    
    54Loss on disposal of associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Profit before taxation
    
    
    
    
    
    
    272
    
    
    
    275
    
    
    
    209
    
    
    
    251
    
    
    
    1,007Taxation
    
    
    
    
    
    
    (58
    )
    
    
    153
    
    
    
    (31
    )
    
    
    (42
    )
    
    
    22Profit for the period
    
    
    
    
    
    
    214
    
    
    
    428
    
    
    
    178
    
    
    
    209
    
    
    
    1,029Basic earnings per share
    
    
    
    
    
    
    2.8p
    
    
    
    5.5p
    
    
    
    2.3p
    
    
    
    2.7p
    
    
    
    13.3pDiluted earnings per share
    
    
    
    
    
    
    2.7p
    
    
    
    5.4p
    
    
    
    2.2p
    
    
    
    2.6p
    
    
    
    12.9pProfit before specific items and taxation
    
    
    
    
    
    
    313
    
    
    
    370
    
    
    
    339
    
    
    
    434
    
    
    
    1,456Adjusted basic earnings per sharea
    
    
    
    
    
    
    3.8p
    
    
    
    4.3p
    
    
    
    4.1p
    
    
    
    5.0p
    
    
    
    17.3pUnaudited1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    Total
    bYear ended 31 March 2009
    
    Quarters
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    
    
    
    
    5,177
    
    
    
    5,303
    
    
    
    5,437
    
    
    
    5,473
    
    
    
    21,390Other operating income
    
    
    
    
    
    
    90
    
    
    
    107
    
    
    
    71
    
    
    
    71
    
    
    
    339Operating costs
    
    
    
    
    
    
    (4,641
    )
    
    
    (4,762
    )
    
    
    (5,299
    )
    
    
    (6,726
    )
    
    
    (21,428
    )Operating profit (loss)
    
    
    
    
    
    
    626
    
    
    
    648
    
    
    
    209
    
    
    
    (1,182
    )
    
    
    301Net finance expense
    
    
    
    
    
    
    (130
    )
    
    
    (159
    )
    
    
    (180
    )
    
    
    (151
    )
    
    
    (620
    )Share of post tax profits of associates and joint ventures
    
    
    
    
    
    
    1
    
    
    
    5
    
    
    
    52
    
    
    
    17
    
    
    
    75(Loss) profit before taxation
    
    
    
    
    
    
    497
    
    
    
    494
    
    
    
    81
    
    
    
    (1,316
    )
    
    
    (244
    )Taxation
    
    
    
    
    
    
    (115
    )
    
    
    (116
    )
    
    
    (19
    )
    
    
    303
    
    
    
    53(Loss) profit for the period
    
    
    
    
    
    
    382
    
    
    
    378
    
    
    
    62
    
    
    
    (1,013
    )
    
    
    (191
    )Basic (loss) earnings per share
    
    
    
    
    
    
    4.9p
    
    
    
    4.9p
    
    
    
    0.8p
    
    
    
    (13.1)p
    
    
    
    (2.5)pDiluted (loss) earnings per share
    
    
    
    
    
    
    4.8p
    
    
    
    4.9p
    
    
    
    0.8p
    
    
    
    (13.0)p
    
    
    
    (2.5)pProfit (loss) before specific items and taxation
    
    
    
    
    
    
    524
    
    
    
    532
    
    
    
    45
    
    
    
    (973
    )
    
    
    128Adjusted basic earnings per sharea
    
    
    
    
    
    
    4.4p
    
    
    
    4.5p
    
    
    
    2.7p
    
    
    
    2.4p
    
    
    
    14.1pUnaudited1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    Total
    bYear ended 31 March 2008
    
    Quarters
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    
    
    
    
    5,033
    
    
    
    5,095
    
    
    
    5,154
    
    
    
    5,422
    
    
    
    20,704Other operating income
    
    
    
    
    
    
    66
    
    
    
    73
    
    
    
    74
    
    
    
    136
    
    
    
    349Operating costs
    
    
    
    
    
    
    (4,441
    )
    
    
    (4,647
    )
    
    
    (4,646
    )
    
    
    (4,963
    )
    
    
    (18,697
    )Operating profit
    
    
    
    
    
    
    658
    
    
    
    521
    
    
    
    582
    
    
    
    595
    
    
    
    2,356Net finance expense
    
    
    
    
    
    
    (55
    )
    
    
    (92
    )
    
    
    (134
    )
    
    
    (97
    )
    
    
    (378
    )Share of post tax losses of associates and joint ventures
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (11
    )Profit (loss) on disposal of associate
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    1
    
    
    
    (1
    )
    
    
    9Profit before taxation
    
    
    
    
    
    
    600
    
    
    
    435
    
    
    
    447
    
    
    
    494
    
    
    
    1,976Taxation
    
    
    
    
    
    
    8
    
    
    
    (96
    )
    
    
    (82
    )
    
    
    (68
    )
    
    
    (238
    )Profit for the period
    
    
    
    
    
    
    608
    
    
    
    339
    
    
    
    365
    
    
    
    426
    
    
    
    1,738Basic earnings per share
    
    
    
    
    
    
    7.4p
    
    
    
    4.2p
    
    
    
    4.5p
    
    
    
    5.4p
    
    
    
    21.5pDiluted earnings per share
    
    
    
    
    
    
    7.2p
    
    
    
    4.1p
    
    
    
    4.4p
    
    
    
    5.3p
    
    
    
    21.1pProfit before specific items and taxation
    
    
    
    
    
    
    650
    
    
    
    617
    
    
    
    581
    
    
    
    658
    
    
    
    2,506Adjusted basic earnings per sharea
    
    
    
    
    
    
    5.0p
    
    
    
    4.8p
    
    
    
    4.8p
    
    
    
    5.5p
    
    
    
    20.2p
 a
    
    Adjusted results refer to the amounts before BT Global Services contract and financial review charges in 2009, specific items and net interest on pensions.b
    
    Restated. See page 94.
 
   150 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 SELECTED FINANCIAL DATA
 Summary group income statement
 2010
    
    
    2009
    a
    
    2008
    a
    
    2007
    a
    
    2006
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenueAdjustedb
    
    
    20,911
    
    
    
    21,431
    
    
    
    20,704
    
    
    
    20,223
    
    
    
    19,514Specific items
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Contract and financial review charges
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    20,859
    
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223
    
    
    
    19,514Other operating incomeAdjustedb
    
    
    378
    
    
    
    352
    
    
    
    359
    
    
    
    236
    
    
    
    227Specific items
    
    
    2
    
    
    
    (13
    )
    
    
    (10
    )
    
    
    (3
    )
    
    
    380
    
    
    
    339
    
    
    
    349
    
    
    
    233
    
    
    
    227Operating costsAdjustedb
    
    
    (18,689
    )
    
    
    (19,435
    )
    
    
    (18,168
    )
    
    
    (17,746
    )
    
    
    (17,108
    )Specific items
    
    
    (427
    )
    
    
    (395
    )
    
    
    (529
    )
    
    
    (169
    )
    
    
    (138
    )Contract and financial review charges
    
    
    
    
    
    
    (1,598
    )
    
    
    
    
    
    
    
    
    
    
    (19,116
    )
    
    
    (21,428
    )
    
    
    (18,697
    )
    
    
    (17,915
    )
    
    
    (17,246
    )Operating profitAdjustedb
    
    
    2,600
    
    
    
    2,348
    
    
    
    2,895
    
    
    
    2,713
    
    
    
    2,633Specific items
    
    
    (477
    )
    
    
    (408
    )
    
    
    (539
    )
    
    
    (172
    )
    
    
    (138
    )Contract and financial review charges
    
    
    
    
    
    
    (1,639
    )
    
    
    
    
    
    
    
    
    
    
    2,123
    
    
    
    301
    
    
    
    2,356
    
    
    
    2,541
    
    
    
    2,495Net finance expenseAdjustedb
    
    
    (890
    )
    
    
    (933
    )
    
    
    (798
    )
    
    
    (653
    )
    
    
    (726
    )Specific items
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    139Net interest on pensions
    
    
    (279
    )
    
    
    313
    
    
    
    420
    
    
    
    420
    
    
    
    254(1,158
    )
    
    
    (620
    )
    
    
    (378
    )
    
    
    (94
    )
    
    
    (472
    )Share of post tax profits (losses) of associates and joint venturesAdjustedb
    
    
    25
    
    
    
    39
    
    
    
    (11
    )
    
    
    15
    
    
    
    16Specific items
    
    
    29
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    75
    
    
    
    (11
    )
    
    
    15
    
    
    
    16(Loss) profit on disposal of associates and joint ventures - specific itemsa
    
    
    (12
    )
    
    
    
    
    
    
    9
    
    
    
    22
    
    
    
    1Profit (loss) before taxationAdjustedb
    
    
    1,735
    
    
    
    1,454
    
    
    
    2,086
    
    
    
    2,075
    
    
    
    1,923Specific items
    
    
    (449
    )
    
    
    (372
    )
    
    
    (530
    )
    
    
    (11
    )
    
    
    (137
    )Contract and financial review charges
    
    
    
    
    
    
    (1,639
    )
    
    
    
    
    
    
    
    
    
    
    Net interest on pensions
    
    
    (279
    )
    
    
    313
    
    
    
    420
    
    
    
    420
    
    
    
    2541,007
    
    
    
    (244
    )
    
    
    1,976
    
    
    
    2,484
    
    
    
    2,040TaxationAdjustedb
    
    
    (398
    )
    
    
    (361
    )
    
    
    (455
    )
    
    
    (485
    )
    
    
    (457
    )Specific items
    
    
    342
    
    
    
    43
    
    
    
    343
    
    
    
    979
    
    
    
    41Contract and financial review charges
    
    
    
    
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    Net interest on pensions
    
    
    78
    
    
    
    (88
    )
    
    
    (126
    )
    
    
    (126
    )
    
    
    (76
    )22
    
    
    
    53
    
    
    
    (238
    )
    
    
    368
    
    
    
    (492
    )Profit (loss) for the yearAdjustedb
    
    
    1,337
    
    
    
    1,093
    
    
    
    1,631
    
    
    
    1,590
    
    
    
    1,466Specific items
    
    
    (107
    )
    
    
    (329
    )
    
    
    (187
    )
    
    
    968
    
    
    
    (96
    )Contract and financial review charges
    
    
    
    
    
    
    (1,180
    )
    
    
    
    
    
    
    
    
    
    
    Net interest on pensions
    
    
    (201
    )
    
    
    225
    
    
    
    294
    
    
    
    294
    
    
    
    1781,029
    
    
    
    (191
    )
    
    
    1,738
    
    
    
    2,852
    
    
    
    1,548Basic earnings (loss) per shareAdjustedb
    
    
    17.3p
    
    
    
    14.1p
    
    
    
    20.2p
    
    
    
    19.1p
    
    
    
    17.4pSpecific items
    
    
    (1.4)p
    
    
    
    (4.3)p
    
    
    
    (2.4)p
    
    
    
    11.7p
    
    
    
    (1.1)pContract and financial review charges
    
    
    
    
    
    
    (15.3)p
    
    
    
    
    
    
    
    
    
    
    
    Net interest on pensions
    
    
    (2.6)p
    
    
    
    3.0p
    
    
    
    3.7p
    
    
    
    3.6p
    
    
    
    2.1pTotal basic (loss) earnings per share
    
    
    13.3p
    
    
    
    (2.5)p
    
    
    
    21.5p
    
    
    
    34.4p
    
    
    
    18.4p
 a
    
    Restated. See page 94.b
    
    Adjusted revenue, adjusted other operating income, adjusted operating costs, adjusted
operating profit, adjusted net finance expense, adjusted share of post tax profits (losses) of
associates and joint ventures, adjusted (loss) profit on disposal of associates and joint ventures,
adjusted profit (loss) before taxation, adjusted taxation credit (charge), adjusted profit (loss)
for the year and adjusted basic earnings (loss) per share are non-GAAP measures provided in
addition to the disclosure requirements defined under IFRS. The rationale for using non-GAAP
measures is explained on pages 54 to 56.
 
   BT
GROUP PLCANNUAL REPORT & FORM
20-F 151




---



##### Table of Contents



FINANCIAL STATEMENTS SELECTED FINANCIAL DATA
 Summary group income statement continued
 Year ended 31 March
    
    2010
    
    
    2009
    a
    
    2008
    a
    
    2007
    a
    
    2006
    aAverage number of shares used in basic earnings per share (millions)
    
    
    7,740
    
    
    
    7,724
    
    
    
    8,066
    
    
    
    8,293
    
    
    
    8,422Average number of shares used in diluted earnings per share (millions)
    
    
    7,988
    
    
    
    7,771
    
    
    
    8,223
    
    
    
    8,479
    
    
    
    8,537Basic earnings (loss) per share
    
    
    13.3p
    
    
    
    (2.5)p
    
    
    
    21.5p
    
    
    
    34.4p
    
    
    
    18.4pDiluted earnings (loss) per share
    
    
    12.9p
    
    
    
    (2.5)p
    
    
    
    21.1p
    
    
    
    33.6p
    
    
    
    18.1pDividends per shareb
    
    
    6.9p
    
    
    
    6.5p
    
    
    
    15.8p
    
    
    
    15.1p
    
    
    
    11.9pDividends per share, centsb,c
    
    
    10.5c
    
    
    
    9.3c
    
    
    
    31.4c
    
    
    
    29.7c
    
    
    
    20.7c
 
 a
        Restated. See page 94.b
        Dividends per share represents the dividend paid and proposed in respect of the
relevant financial year. Under IFRS, dividends are recognised as a deduction from shareholders
equity when they are paid.c
        Based on actual dividends paid and/or year end exchange rate on proposed dividends. Summary group cash flow statement
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet cash inflow from operating activities
    
    
    4,825
    
    
    
    4,706
    
    
    
    5,486
    
    
    
    5,210
    
    
    
    5,387Net cash (outflow) inflow from investing activities
    
    
    (2,775
    )
    
    
    (2,954
    )
    
    
    (3,664
    )
    
    
    (2,778
    )
    
    
    214Net cash used in financing activities
    
    
    (1,714
    )
    
    
    (1,865
    )
    
    
    (1,430
    )
    
    
    (2,898
    )
    
    
    (5,278
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (7
    )
    
    
    54
    
    
    
    25
    
    
    
    (35
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    329
    
    
    
    (59
    )
    
    
    417
    
    
    
    (501
    )
    
    
    323Cash and cash equivalents at the start of the year
    
    
    1,115
    
    
    
    1,174
    
    
    
    757
    
    
    
    1,258
    
    
    
    935Cash and cash equivalents at the end of the year
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174
    
    
    
    757
    
    
    
    1,258
 Summary group balance sheet
 2010
    
    
    2009
    a
    
    2008
    a
    
    2007
    a
    
    2006
    aAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mIntangible assets
    
    
    3,672
    
    
    
    3,788
    
    
    
    3,355
    
    
    
    2,584
    
    
    
    1,908Property, plant and equipment
    
    
    14,856
    
    
    
    15,405
    
    
    
    15,307
    
    
    
    14,997
    
    
    
    15,222Retirement benefit asset
    
    
    
    
    
    
    
    
    
    
    2,887
    
    
    
    
    
    
    
    Other non current assets
    
    
    3,867
    
    
    
    4,154
    
    
    
    1,286
    
    
    
    780
    
    
    
    1,17522,395
    
    
    
    23,347
    
    
    
    22,835
    
    
    
    18,361
    
    
    
    18,305Current assets less current liabilities
    
    
    (4,135
    )
    
    
    (3,141
    )
    
    
    (2,978
    )
    
    
    (3,746
    )
    
    
    (3,052
    )Total assets less current liabilities
    
    
    18,260
    
    
    
    20,206
    
    
    
    19,857
    
    
    
    14,615
    
    
    
    15,253Non current loans and other borrowings
    
    
    (9,522
    )
    
    
    (12,365
    )
    
    
    (9,818
    )
    
    
    (6,387
    )
    
    
    (7,995
    )Retirement benefit obligations
    
    
    (7,864
    )
    
    
    (3,973
    )
    
    
    (108
    )
    
    
    (389
    )
    
    
    (2,547
    )Other non current liabilities
    
    
    (3,500
    )
    
    
    (3,699
    )
    
    
    (4,499
    )
    
    
    (3,567
    )
    
    
    (3,104
    )Total assets less liabilities
    
    
    (2,626
    )
    
    
    169
    
    
    
    5,432
    
    
    
    4,272
    
    
    
    1,607Called up share capital
    
    
    408
    
    
    
    408
    
    
    
    420
    
    
    
    432
    
    
    
    432Share premium account
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    31
    
    
    
    7Capital redemption reserve
    
    
    27
    
    
    
    27
    
    
    
    15
    
    
    
    2
    
    
    
    2Other reserves
    
    
    757
    
    
    
    1,301
    
    
    
    (527
    )
    
    
    88
    
    
    
    364Retained (loss) earnings
    
    
    (3,904
    )
    
    
    (1,656
    )
    
    
    5,439
    
    
    
    3,685
    
    
    
    750Total parent shareholders (deficit) equity
    
    
    (2,650
    )
    
    
    142
    
    
    
    5,409
    
    
    
    4,238
    
    
    
    1,555Minority interests
    
    
    24
    
    
    
    27
    
    
    
    23
    
    
    
    34
    
    
    
    52Total (deficit) equity
    
    
    (2,626
    )
    
    
    169
    
    
    
    5,432
    
    
    
    4,272
    
    
    
    1,607
 
 a
        Restated. See page 94. Other selected financial data
 2010
    
    
    2009
    a
    
    2008
    a
    
    2007
    a
    
    2006
    a£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAdjusted EBITDAb
    
    
    5,639
    
    
    
    5,238
    
    
    
    5,784
    
    
    
    5,633
    
    
    
    5,517Free cash flowc
    
    
    1,933
    
    
    
    737
    
    
    
    1,823
    
    
    
    1,874
    
    
    
    1,612Net debtd
    
    
    9,283
    
    
    
    10,361
    
    
    
    9,460
    
    
    
    7,914
    
    
    
    7,534
 
 a
        Restated. See page 94.b
        Adjusted EBITDA is stated before specific items and BT Global Services
contract and financial review charges in 2009 and is defined on page 55.c
        Free cash flow is defined on page 55.d
        Net debt is defined on page 56. 152 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 
 FINANCIAL STATISTICS
  Year ended 31 March
    
    2010
    
    
    2009
    a
    
    2008
    a
    
    2007
    a
    
    2006
    aFinancial ratiosAdjusted basic earnings per shareb pence
    
    
    17.3
    
    
    
    14.1
    
    
    
    20.2
    
    
    
    19.1
    
    
    
    17.4Reported basic (loss) earnings per share  pence
    
    
    13.3
    
    
    
    (2.5
    )
    
    
    21.5
    
    
    
    34.4
    
    
    
    18.4Adjusted return on capital employedb, c(unaudited)
    
    
    16.0
    
    
    
    14.5
    
    
    
    17.7
    
    
    
    17.6
    
    
    
    18.1Reported
return on capital
employedc (unaudited)
    
    
    13.3
    
    
    
    2.3
    
    
    
    14.4
    
    
    
    16.5
    
    
    
    17.1Adjusted interest cover before net pension interestd
 times (unaudited)
    
    
    2.9
    
    
    
    2.5
    
    
    
    3.6
    
    
    
    4.2
    
    
    
    3.6Reported
interest covere  times (unaudited)
    
    
    0.3
    
    
    
    0.5
    
    
    
    6.2
    
    
    
    27.0
    
    
    
    5.3
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExpenditure on research and developmentResearch and development expense
    
    
    444
    
    
    
    590
    
    
    
    532
    
    
    
    378
    
    
    
    326Amortisation of internally developed computer software
    
    
    733
    
    
    
    431
    
    
    
    325
    
    
    
    314
    
    
    
    161Total
    
    
    1,177
    
    
    
    1,021
    
    
    
    857
    
    
    
    692
    
    
    
    487
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCapital expenditurePlant and equipmentTransmission equipment
    
    
    902
    
    
    
    1,067
    
    
    
    1,117
    
    
    
    1,209
    
    
    
    1,429Exchange equipment
    
    
    29
    
    
    
    44
    
    
    
    83
    
    
    
    118
    
    
    
    80Other network equipment
    
    
    753
    
    
    
    899
    
    
    
    1,060
    
    
    
    854
    
    
    
    727Computers and office equipment
    
    
    115
    
    
    
    140
    
    
    
    181
    
    
    
    149
    
    
    
    138Motor vehicles and other
    
    
    662
    
    
    
    912
    
    
    
    876
    
    
    
    877
    
    
    
    715Land and buildings
    
    
    29
    
    
    
    23
    
    
    
    33
    
    
    
    61
    
    
    
    682,490
    
    
    
    3,085
    
    
    
    3,350
    
    
    
    3,268
    
    
    
    3,157Increase (decrease) in engineering stores
    
    
    43
    
    
    
    3
    
    
    
    (11
    )
    
    
    (21
    )
    
    
    (15
    )Total capital expenditure
    
    
    2,553
    
    
    
    3,088
    
    
    
    3,339
    
    
    
    3,247
    
    
    
    3,142(Decrease) increase in payables
    
    
    (24
    )
    
    
    (6
    )
    
    
    (24
    )
    
    
    51
    
    
    
    (202
    )Cash outflow on capital expenditure
    
    
    2,509
    
    
    
    3,082
    
    
    
    3,315
    
    
    
    3,298
    
    
    
    2,940
 
 a
        Restated. See page 94.b
        Adjusted results refer to the results before specific items, the BT Global Services contract and financial review charges in 2009, and net interest on pensions.c
        The ratio is based on profit before taxation and net finance expense to average capital employed. Capital employed is represented by total assets less current liabilities (excluding corporation
tax, current
borrowings, derivative financial liabilities and finance lease creditors) less deferred tax assets, retirement benefit asset, cash and cash equivalents, derivative financial assets and investments.d
        The number of times net finance expense before net pension interest and specific items is covered by adjusted operating profit.e
        The number of times reported net finance expense is covered by reported operating profit.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 153




---



##### Table of Contents



FINANCIAL STATEMENTS
 
 
 OPERATIONAL STATISTICS
  All values (000) unless otherwise stated.
    
    UnauditedYear ended 31 March
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006BT Global Services12 month rollingaorder intake (£m)
    
    
    6,631
    
    
    
    7,917a
    
    
    
    7,835a
    
    
    
    9,101a
    
    
    
    8,787aBT RetailBTs retail share of broadbandbinstalled base
    
    
    35%
    
    
    
    34%
    
    
    
    35%
    
    
    
    34%
    
    
    
    33%BT Vision installed base
    
    
    467
    
    
    
    423
    
    
    
    214
    
    
    
    
    
    
    
    Call minutes (bn)Non geographic
    
    
    11.86
    
    
    
    14.73
    
    
    
    19.18
    
    
    
    25.03
    
    
    
    34.66Geographic
    
    
    37.31
    
    
    
    42.06
    
    
    
    46.84
    
    
    
    51.92
    
    
    
    58.35Total
    
    
    49.17
    
    
    
    56.79
    
    
    
    66.02
    
    
    
    76.95
    
    
    
    93.01Active consumer linesc
    
    
    11,113
    
    
    
    11,789
    
    
    
    12,600
    
    
    
    13,634
    
    
    
    14,587Average annual revenue per consumer user (ARPU)d(£)
    
    
    309
    
    
    
    287
    
    
    
    274
    
    
    
    262
    
    
    
    251BT GroupTotal employeese
    
    
    97.8
    
    
    
    107.0
    
    
    
    111.9
    
    
    
    106.2
    
    
    
    104.4Broadband lines (UK)BT Retail
    
    
    5,132
    
    
    
    4,757
    
    
    
    4,402
    
    
    
    3,659
    
    
    
    2,668BT Wholesale (external)
    
    
    2,926
    
    
    
    3,305
    
    
    
    3,983
    
    
    
    5,168
    
    
    
    5,092Openreach
    
    
    6,620
    
    
    
    5,750
    
    
    
    4,300
    
    
    
    1,910
    
    
    
    356Total broadband lines
    
    
    14,678
    
    
    
    13,812
    
    
    
    12,685
    
    
    
    10,737
    
    
    
    8,116Exchange lines (UK)Consumer
    
    
    13,051
    
    
    
    14,514
    
    
    
    15,793
    
    
    
    16,636
    
    
    
    17,912Business
    
    
    5,367
    
    
    
    5,992
    
    
    
    6,750
    
    
    
    7,264
    
    
    
    7,797External WLR lines
    
    
    6,028
    
    
    
    5,647
    
    
    
    4,666
    
    
    
    4,227
    
    
    
    2,874Total exchange lines
    
    
    24,446
    
    
    
    26,153
    
    
    
    27,209
    
    
    
    28,127
    
    
    
    28,583
 
 a
        Restated for impact of customer account moves. See page 101.b
        DSL and LLU.c
        Active consumer lines represents the number of lines over which BT is the call provider
(excluding Northern Ireland but including Plusnet in 2010).d
        Rolling 12 month consumer revenue, less mobile POLOs, divided by average number of primary lines.e
        The numbers disclosed include both full-time and part-time employees. 154 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION
      156INFORMATION FOR SHAREHOLDERS168CROSS REFERENCE TO FORM 20-F171GLOSSARY OF TERMS174INDEX
                                        BT GROUP PLCANNUAL REPORT & FORM 20-F     155




---



##### Table of Contents



ADDITIONAL INFORMATION
 
 INFORMATION FOR SHAREHOLDERS
 Cautionary statement regarding forward-looking statements
  Our risks
 156 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 Stock exchange listings
   Pence per
    
    
    US$ perordinary share
    
    
    ADSHigh
    
    
    Low
    
    
    High
    
    
    Lowpence
    
    
    pence
    
    
    US$
    
    
    US$Financial years ended 31 March2006
    
    
    235.00
    
    
    
    196.50
    
    
    
    41.71
    
    
    
    35.342007
    
    
    321.75
    
    
    
    209.25
    
    
    
    62.96
    
    
    
    37.082008
    
    
    336.75
    
    
    
    205.50
    
    
    
    68.55
    
    
    
    40.862009
    
    
    235.50
    
    
    
    71.40
    
    
    
    46.20
    
    
    
    9.802010
    
    
    149.60
    
    
    
    79.70
    
    
    
    25.14
    
    
    
    11.64Financial year ended 31 March 20091 April  30 June 2008
    
    
    235.50
    
    
    
    198.40
    
    
    
    46.20
    
    
    
    39.471 July  30 September 2008
    
    
    217.50
    
    
    
    158.90
    
    
    
    42.60
    
    
    
    27.671 October  31 December 2008
    
    
    167.60
    
    
    
    110.00
    
    
    
    29.11
    
    
    
    16.981 January  31 March 2009
    
    
    143.30
    
    
    
    71.40
    
    
    
    21.31
    
    
    
    9.80Financial year ended 31 March 20101 April  30 June 2009
    
    
    105.60
    
    
    
    79.70
    
    
    
    17.27
    
    
    
    11.641 July  30 September 2009
    
    
    141.45
    
    
    
    100.35
    
    
    
    22.95
    
    
    
    16.221 October  31 December 2009
    
    
    149.60
    
    
    
    128.50
    
    
    
    25.14
    
    
    
    20.471 January  31 March 2010
    
    
    146.90
    
    
    
    113.50
    
    
    
    24.00
    
    
    
    17.00MonthsNovember 2009
    
    
    149.60
    
    
    
    131.30
    
    
    
    25.14
    
    
    
    21.35December 2009
    
    
    144.60
    
    
    
    135.00
    
    
    
    23.94
    
    
    
    21.74January 2010
    
    
    146.90
    
    
    
    135.00
    
    
    
    24.00
    
    
    
    21.74February 2010
    
    
    136.50
    
    
    
    114.90
    
    
    
    21.85
    
    
    
    17.53March 2010
    
    
    126.40
    
    
    
    113.50
    
    
    
    19.15
    
    
    
    17.00April 2010
    
    
    134.20
    
    
    
    122.30
    
    
    
    20.58
    
    
    
    18.651 May  7 May 2010
    
    
    126.70
    
    
    
    109.90
    
    
    
    19.29
    
    
    
    16.19
   Background
 2
  Capital gains tax
 2
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 157




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   2
 2 2 2
 Analysis of shareholdings at 31 March 2010
 Ordinary sharesof 5p eachNumber of
    
    
    Percentage
    
    
    No. of
    
    
    Percentageholdings
    
    
    of total
    
    
    shares held
    
    
    of totalRange
    
    
    
    
    
    (%)
    
    
    millions
    
    
    (%)1  399
    
    
    438,089
    
    
    
    38.54
    
    
    
    92
    
    
    
    1.13400  799
    
    
    312,685
    
    
    
    27.49
    
    
    
    175
    
    
    
    2.15800  1,599
    
    
    223,916
    
    
    
    19.70
    
    
    
    250
    
    
    
    3.071,600  9,999
    
    
    155,753
    
    
    
    13.70
    
    
    
    463
    
    
    
    5.6810,000  99,999
    
    
    5,367
    
    
    
    0.47
    
    
    
    97
    
    
    
    1.19100,000  999,999
    
    
    602
    
    
    
    0.05
    
    
    
    219
    
    
    
    2.691,000,000  4,999,999
    
    
    287
    
    
    
    0.03
    
    
    
    646
    
    
    
    7.925,000,000 and abovea,b,c,d
    
    
    190
    
    
    
    0.02
    
    
    
    6,209
    
    
    
    76.17Totale
    
    
    1,136,889
    
    
    
    100.00
    
    
    
    8,151
    
    
    
    100.00
 
 a
        9m shares were held in trust by Ilford Trustees (Jersey) Limited for allocation to employees under the employee share plans.b
        Under the BT Group Employee Share Investment Plan, 79.2m shares were held in trust on behalf of 68,444 participants who were beneficially entitled to the
shares. 236m shares were held in the corporate
nominee BT Group EasyShare on behalf of 105,102 beneficial owners.c
        134m shares were represented by ADSs. An analysis by size of holding is not available for this holding.d
        398m shares were held as treasury shares.e
        12.43% of the shares were in 1,120,540 individual holdings, of which 95,883 were joint holdings, and 87.57% of the shares were in 16,349 institutional holdings.     Dividends
  Taxation of dividends
 per ordinary share
    
    
    per ADS
    
    
    per ADSInterim
    
    
    Final
    
    
    Total
    
    
    Interim
    
    
    Final
    
    
    Total
    
    
    Interim
    
    
    Final
    
    
    TotalFinancial years ended 31 March
    
    pence
    
    
    pence
    
    
    pence
    
    
    £
    
    
    £
    
    
    £
    
    
    US$
    
    
    US$
    
    
    US$2006
    
    
    4.30
    
    
    
    7.60
    
    
    
    11.90
    
    
    
    0.430
    
    
    
    0.760
    
    
    
    1.190
    
    
    
    0.747
    
    
    
    1.415
    
    
    
    2.1622007
    
    
    5.10
    
    
    
    10.00
    
    
    
    15.10
    
    
    
    0.510
    
    
    
    1.000
    
    
    
    1.510
    
    
    
    0.991
    
    
    
    1.972
    
    
    
    2.9632008
    
    
    5.40
    
    
    
    10.40
    
    
    
    15.80
    
    
    
    0.540
    
    
    
    1.040
    
    
    
    1.580
    
    
    
    1.030
    
    
    
    1.833
    
    
    
    2.8632009
    
    
    5.40
    
    
    
    1.10
    
    
    
    6.50
    
    
    
    0.540
    
    
    
    0.110
    
    
    
    0.650
    
    
    
    0.765
    
    
    
    0.161
    
    
    
    0.9262010
    
    
    2.30
    
    
    
    4.60
    
    
    
    6.90
    
    
    
    0.230
    
    
    
    0.460
    
    
    
    0.690
    
    
    
    0.339
    
    
    
    
    a
    
    
    
    a
 
 a
        Qualifying holders of ADSs on record as of 13 August 2010 are entitled to receive
the final dividend which will be paid to ADS holders on 14 September 2010, subject to approval at
the AGM. The US Dollar amount of the final dividend of 46.0 pence per ADS to be paid to holders of
ADSs will be based on the exchange rate in effect on 6 September 2010, the date of payment to
holders of ordinary shares. 158 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   www.bt.com/investorcentre
    Date paid

    
    Price per share pence2006 interim
    
    13 February 2006
    
    
    214.502006 final
    
    11 September 2006
    
    
    250.982007 interim
    
    12 February 2007
    
    
    320.542007 final
    
    17 September 2007
    
    
    316.212008 interim
    
    11 February 2008
    
    
    232.082008 final
    
    15 September 2008
    
    
    174.382009 interim
    
    9 February 2009
    
    
    107.042009 final
    
    7 September 2009
    
    
    133.342010 interim
    
    8 February 2010
    
    
    131.67
 Global Invest Direct
  Total shareholder return
  BTs total shareholder return (TSR) performance vs the FTSE 100
and FTSEurofirst 300 Telco Index
 BTs total shareholder return (TSR) performance vs the FTSE 100
and FTSEurofirst 300 Telco Index
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 159




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 Results announcements
  Results for the 2011 financial year
    
    Datea1st quarter
    
    29 July 20102nd quarter and half year
    
    11 November 20103rd quarter and nine months
    
    February 20114th quarter and full year
    
    May 20112011 Annual Report published
    
    May 2011
 
 a
        Dates may be subject to change. Individual savings accounts (ISAs)
  ShareGift
 www.ShareGift.org
 Unclaimed Assets Register
 www.uar.co.uk
 Exchange rates
  Year ended 31 March
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Period end
    
    
    1.52
    
    
    
    1.43
    
    
    
    1.99
    
    
    
    1.97
    
    
    
    1.74Averagea
    
    
    1.55
    
    
    
    1.70
    
    
    
    2.01
    
    
    
    1.91
    
    
    
    1.78High
    
    
    1.64
    
    
    
    2.00
    
    
    
    2.11
    
    
    
    1.99
    
    
    
    1.92Low
    
    
    1.49
    
    
    
    1.37
    
    
    
    1.94
    
    
    
    1.74
    
    
    
    1.71
 
 a
        The average of the Noon Buying Rates in effect on the last day of each month
during the relevant period. MonthApril
    
    
    March
    
    
    February
    
    
    January
    
    
    December
    
    
    November2010
    
    
    2010
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009High
    
    
    1.55
    
    
    
    1.53
    
    
    
    1.60
    
    
    
    1.64
    
    
    
    1.66
    
    
    
    1.68Low
    
    
    1.52
    
    
    
    1.49
    
    
    
    1.52
    
    
    
    1.59
    
    
    
    1.59
    
    
    
    1.64
  160 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 Articles of Association (Articles)
   (a) Voting rights
    (b) Variation of rights
  (i)
    
    with the sanction of a special resolution passed at a separate meeting of the holders of the
shares of that class; or(ii)
    
    with the consent in writing of the holders of at least 75% in nominal value of the issued
shares of that class.
   (c) Changes in capital
  (i)
    
    divide all or any of its share capital into shares with a smaller nominal
value; and(ii)
    
    consolidate and divide all or part of its share capital into shares of a
larger nominal value.
  (i)
    
    buy back its own shares; and(ii)
    
    by special resolution reduce its share capital, any capital redemption reserve and any share
premium account.
 (d) Dividends
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 161




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 (e) Distribution of assets on winding up
  (f) Transfer of shares
   (i)
    
    which is in favour of more than four joint holders; or(ii)
    
    unless the transfer form to be registered is properly stamped to show payment of any
applicable stamp duty and delivered to the companys registered office or any other place the Board
decide. The transfer must have with it the share certificate for the shares 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.
   (g) Untraced shareholders
  (h) General meetings of shareholders
  (i) Limitations on rights of non-resident or foreign shareholders
  (j) Directors
     162 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
     (i)
    
    in which the director has an interest of which the director is not aware; or which cannot
reasonably be regarded as likely to give rise to a conflict of interest;(ii)
    
    in which the director has an interest only because the director is a holder of shares,
debentures or other securities of BT, or by reason of any other interest in or through BT;(iii)
    
    which involves the giving of any security, guarantee or indemnity to the director or any
other person for money lent or obligations incurred by the director or by any other person at the
request of or for the benefit of BT or the benefit of any of its subsidiary 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;(iv)
    
    where BT or any of its subsidiary undertakings is offering any 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;(v)
    
    relating to any other company in which the director has an interest, directly or indirectly
(including holding a position in that company) or is a shareholder, creditor, employee or otherwise
involved in that company. These rights do not apply if the director owns one per cent or more of
that company or of the voting rights in that company;(vi)
    
    relating to an arrangement for the benefit of BT employees or former BT employees or any of
BTs subsidiary undertakings which only gives the directors the same benefits that are generally
given to the employees or former employees to whom the arrangement relates;(vii)
    
    relating to BT buying or renewing insurance for any liability for the benefit of directors or
for the benefit of persons who include directors;(viii)
    
    relating to the giving of indemnities in favour of directors;(ix)
    
    relating to the funding of expenditure by any director or 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(x)
    
    in which the directors interest, or the interest of directors generally, has been authorised
by an ordinary resolution.
        (k) Sinking fund, liability to further calls and change of control
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 163




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 (l) Disclosure of interests in shares
  Material contracts
  Taxation (US Holders)
          164 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 165




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
      Limitations affecting security holders
   Documents on display
 www.sec.gov
 Publications
 www.bt.com/aboutbt www.bt.com/betterworld
 Document
    
    Publication dateSummary financial statement & Notice of Meeting
    
    MayAnnual Report & Form 20-F
    
    MayChanging World: Sustained Values
    
    MayEAB Annual Report
    
    MayQuarterly results releases
    
    July, November, February and MayCurrent Cost Financial Statements
    
    SeptemberStatement of
Business Practice (The Way We Work)
    
    January 2009
  Electronic communication
 www.bt.com/signup
 166 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
 Shareholder communication
  www.bt.com/investorcentre
 www.bt.com/annualreport
    Shareholder helpline  0808 100 4141   0800 169 6907      bt@equiniti.com  www.shareview.co.uk
 The Registrar
    
    ADR Depositary:Equiniti
    
    JPMorgan Chase Bank, N.A.Aspect House
    
    PO Box 64504Spencer Road
    
    St Paul, MN 55164-0504, USLancing
    
    Tel: +1 800 990 1135(General)West Sussex
    
    or +1 651 453 2128 (from outside the US)BN99 6DA
    
    or +1 800 428 4237 (Global Invest Direct)Website: www.equiniti.com
    
    e-mail: jpmorgan.adr@wellsfargo.comWebsite: www.adr.com
 General enquiries       Tel: 020 7356 5000
  investorrelations@bt.com
 industryenquiry@bt.com
 www.bt.com/talk
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 167




---



##### Table of Contents



ADDITIONAL INFORMATION
 
 CROSS REFERENCE TO FORM 20-F
  Required Item in Form 20-F 
Item
    
    Where information can be found in this Annual Report
 Section
    
    Page1
    

Identity
of directors, senior management and advisors
    
    Not applicable2
    
    Offer statistics and expected timetable
    
    Not applicable3
    
    Key information3A
    
    Selected financial data
    
    Financial summary
    
    
    2Selected financial data
    
    
    151Information for shareholdersExchange rates
    
    
    1603B
    
    Capitalisation and indebtedness
    
    Not applicable3C
    
    Reasons for the offer and use of proceeds
    
    Not applicable3D
    
    Risk factors
    
    Our risks
    
    
    364
    
    Information on the company4A
    
    History and development of the company
    
    Our business and strategyWho we are
    
    
    11What we do
    
    
    11How we are structured
    
    
    16Information for shareholdersBackground
    
    
    157Other informationAcquisitions and disposals
    
    
    40Financial reviewLiquidityCapital expenditure
    
    
    51Acquisitions and disposals
    
    
    524B
    
    Business overview
    
    Our business and strategy
    
    
    11Our markets and customers
    
    
    15Our resources
    
    
    18Our lines of business
    
    
    22Our corporate responsibility
    
    
    34Consolidated financial statementsNotes to the consolidated financial statementsSegment information
    
    
    101Operational statistics
    
    
    154Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1564C
    
    Organisational structure
    
    Our business and strategyHow we are structured
    
    
    16Subsidiary undertakings and associate
    
    
    1494D
    
    Property, plants and equipment
    
    Our resourcesProperty portfolio
    
    
    21Consolidated financial statementsNotes to the consolidated financial statementsProperty, plant and equipment
    
    
    114Financial statistics
    
    
    1535
    
    Operating and financial review and prospects5A
    
    Operating results
    
    Our business and strategy
    
    
    11Our lines of business
    
    
    22Financial review
    
    
    41Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1565B
    
    Liquidity and capital resources
    
    Financial review
    
    
    41Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    156Consolidated financial statementsNotes to the consolidated financial statementsLoans and other borrowings
    
    
    119Financial commitments and contingent liabilities
    
    
    125Financial instruments and risk management
    
    
    1375C
    
    Research and development, patents and licences
    
    Our resourcesGlobal research capability
    
    
    20Financial statistics
    
    
    153
 168 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION CROSS REFERENCE TO FORM 20-F
 Required Item in Form 20-F
 Item
    
    Where information can be found in this
Annual Report 
Section
    
    Page5D
    
    Trend information
    
    Financial review
    
    
    41Quarterly analysis of revenue and profit
    
    
    150Selected Financial Data
    
    
    151Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1565E
    
    Off-balance sheet arrangements
    
    Financial reviewFunding and capital managementOff-balance sheet arrangements
    
    
    545F
    
    Tabular disclosure of contractual obligations
    
    Financial reviewFunding and capital managementContractual obligations and commitments
    
    
    546
    

Directors,
senior management and employees6A
    
    Directors and senior management
    
    Board of Directors and Operating Committee
    
    
    586B
    
    Compensation
    
    Report on directors remuneration
    
    
    66Consolidated financial statementsNotes to the consolidated financial statementsRetirement benefit plans
    
    
    127Share-based payments
    
    
    1326C
    
    Board practices
    
    Board of Directors and Operating Committee
    
    
    58The Board
    
    
    60Report on directors remuneration
    
    
    666D
    
    Employees
    
    Our resources
    
    
    18Financial reviewFinancial results
    
    
    43Consolidated financial statementsNotes to the consolidated financial statementsEmployees
    
    
    105Operational statistics
    
    
    1546E
    
    Share ownership
    
    Report on directors remuneration
    
    
    66Consolidated financial statementsNotes to the consolidated financial statementsShare-based payments
    
    
    1327
    

Major
shareholders and related party transactions7A
    
    Major shareholders
    
    Shareholders and Annual General MeetingSubstantial shareholdings
    
    
    82Information for shareholdersAnalysis of shareholdings at 31 March 2010
    
    
    1587B
    
    Related party transactions
    
    Directors informationInterest of management in certain transactions
    
    
    78Report on directors remuneration
    
    
    66Consolidated financial statementsNotes to the consolidated financial statementsRelated party transactions
    
    
    1247C
    
    Interests of experts and counsel
    
    Not applicable8
    

Financial
information8A
    
    Consolidated statements and other financial information
    
    See Item 18 belowOther informationLegal proceedings
    
    
    39Financial reviewFinancial resultsDividends
    
    
    47Consolidated financial statementsNotes to the consolidated financial statementsFinancial commitments and contingent liabilities
    
    
    125Information for shareholdersDividends
    
    
    158Articles of Association (Articles)Dividends
    
    
    1618B
    
    Significant changes
    
    Financial reviewFunding and capital management
    
    
    52Going concern
    
    
    54
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 169




---



##### Table of Contents



ADDITIONAL INFORMATION CROSS REFERENCE TO FORM 20-F
 Required Item in Form 20-F 
Item
    
    Where information can be found in this
Annual Report 
Section
    
    Page9
    

The
offer and listing9A
    
    Offer and listing details
    
    Information for shareholdersStock exchange listingsShare and ADS prices
    
    
    1579B
    
    Plan of distribution
    
    Not applicable9C
    
    Markets
    
    Information for shareholdersStock exchange listings
    
    
    1579D
    
    Selling shareholders
    
    Not applicable9E
    
    Dilution
    
    Not applicable9F
    
    Expenses of the issue
    
    Not applicable10
    

Additional
information10A
    
    Share capital
    
    Not applicable10B
    
    Memorandum and articles of association
    
    Information for shareholdersArticles of Association (Articles)
    
    
    16110C
    
    Material contracts
    
    Information for shareholdersMaterial contracts
    
    
    16410D
    
    Exchange controls
    
    Information for shareholdersLimitations affecting security holders
    
    
    16610E
    
    Taxation
    
    Information for shareholdersTaxation (US Holders)
    
    
    16410F
    
    Dividends and paying agents
    
    Not applicable10G
    
    Statement by experts
    
    Not applicable10H
    
    Documents on display
    
    Information for shareholdersDocuments on display
    
    
    16610I
    
    Subsidiary information
    
    Not applicable11
    

Quantitative
and qualitative
    
    Consolidated financial statementsdisclosures
about market risk
    
    Accounting policiesFinancial instruments
    
    
    91Notes to the consolidated financial statementsFinancial instruments and risk management
    
    
    13712
    

Description
of securities other than equity securities
    
    Not applicable13
    

Defaults,
dividend arrearages and delinquencies
    
    Not applicable14
    
    Material modifications to the rights of security holdersand use of proceeds
    
    Not applicable15
    
    Controls and procedures
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    81Disclosure controls and procedures
    
    
    81Internal control over financial reporting
    
    
    8116A
    
    Audit committee financial expert
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    8116B
    
    Code of ethics
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    8116C
    
    Principal accountants fees and services
    
    Consolidated financial statementsNotes to the consolidated financial statementsAudit and non-audit services
    
    
    136Report of the Audit Committee
    
    
    6216E
    
    Purchases of equity securities by the issuer and
    
    Not applicableaffiliated purchasers16F
    
    Change in registrants reporting accountant
    
    Not applicable16G
    
    Corporate Governance
    
    The BoardNew York Stock Exchange
    
    
    6117
    
    Financial statements
    
    Not applicable18
    
    Financial statements
    
    Report of
the independent auditors  Consolidated financial statements
    
    
    85United States opinion
    
    
    86Consolidated financial statements
    
    
    87Quarterly analysis of revenue and profit
    
    
    150
 170 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION
 
 GLOSSARY OF TERMS
 1,2,3
 
 21CN:
 A
 
 ADS:
 ADSL:
 ADSL2+:
 ARPU:
 B
 
 broadband:
 BT Basic:
 BT Business One Plan Plus:
 BT Conferencing:
 BT Directories:
 BT Engage IT:
 BT Enterprises:
 BT Expedite:
 BT Fon:
 BT Global Services:
 BT Infinity:
 BT Innovate & Design:
 BT Ireland:
 BT Openzone:
 BT Operate:
 BT Payphones:
 BT Pension Scheme (BTPS):
 BT Redcare:
 BT Retail:
 BT Retirement Plan (BTRP):
 BT Retirement Saving Scheme (BTRSS):
 BT Vision:
 BT Wholesale:
 Business in the Community:
 C
 
 Childline:
 cloud computing:
 CP:
 CRM:
 CR:
 D
 
 Dabs:
 DBP:
 Dow Jones Sustainability Index:
 DSL:
 E
 
 EBITDA:
 Etherflow:
 Ethernet:
 EPS:
 ESIP:
 ESPP:
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 171




---



##### Table of Contents



ADDITIONAL INFORMATION GLOSSARY OF TERMS
 F
 
 FTTC:
 FTTP:
 G
 
 GLOP:
 GSOP:
 I
 
 IASB:
 ICT:
 IFRS:
 IP Exchange:
 IP:
 ISDN:
 ISO 14001:
 ISP:
 ISP:
 L
 
 LLU:
 M
 
 MNS:
 MPLS:
 N
 
 N3:
 narrowband:
 NCC:
 NGA:
 O
 
 Ofcom:
 Openreach:
 P
 
 PPC:
 Project Canvas:
 Q
 
 Queens Award for Enterprise:
 R
 
 right first time:
 RSP:
 S
 
 SME:
 SMP:
 Super-fast fibre-based broadband:
 T
 
 TSR:
 U
 
 Undertakings:
 UK GAAP:
 USO:
 US SEC:
 172 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION GLOSSARY OF TERMS
 V
 
 VoIP:
 W
 
 Wholesale Broadband Connect Fibre:
 wi-fi:
 WLR:
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 173




---



##### Table of Contents



ADDITIONAL INFORMATION
 
 INDEX
 A
 
 87
 146
  94-95
 89, 126-127
 40, 52
 155
 54-56
 161
 47, 87, 97, 100, 116
 62
 136
 85, 86, 145
 B
 
 57
 48-50, 100, 147, 152
 58-60
 58
 12, 22-25, 101
 33, 101
 33, 101
 25-28, 101
 28-31, 101
 6
 11
 79
 C
 
 14, 51, 55, 103, 125, 153
 157
 91, 99, 110
 51, 99, 152
 156
 4
 5
 15, 36
 97
 83
 54, 125
 60
 34
 11, 44
 41, 93-94
 168-170
 11, 13-14, 27
 16
 D
 
 49, 91, 94, 108, 122-123
 49, 92, 120-121, 137-144
 78
 66-78
 84
 57-82
 81
 159
 159
 47, 52, 91, 107, 146, 158
 166
 E
 
 13, 47, 54-55, 109-110, 150-153
 2, 22, 45, 102, 151
 166
 132-135
 105
 98
 88, 160
 F
 
 125
 151
 46-47, 107
 137-144
 92
 48-50
 41
 43
 146
 153
 2
 88
 13, 51, 55, 152
 52-54
 G
 
 103
 112
 159
 20
 171-173
 54
 43-45
 H
 
 120, 138-139, 142
 8, 16
 174 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



ADDITIONAL INFORMATION INDEX
 I
 
 96-97
 42
 85, 86, 145
 160
 156
 89, 112-113
 80
 81
 115
 12
 L
 
 39
 166
 41
 22
 51
 119
 69
 M
 
 15
 164
 123
 N
 
 Net debt 53, 56, 111Nominating Committee, Report of the 64Non-executive directors 59Notes to the consolidated financial statements 101-144New York Stock Exchange 61
 O
 
 54
 31-33
 58-59
 44, 104
 154
 38-40
 43, 88, 104
 124
 39
 3, 14
 2-9
 P
 
 19, 37, 49, 53
 18
 3, 24, 28, 30, 32
 36
 47
 49, 89, 93, 114-115
 21
 49, 91, 94, 122
 166
 Q
 
 150
 R
 
 38-39
 124
 18-21
 160
 127-132
 43, 87, 102-103
 36
 S
 
 101-103
 151-153
 157
 93, 123, 146
 90, 132-135, 146
 160
 167
 82
 158
 45-46, 55, 106
 97
 157
 12
 149
 T
 
 47, 50, 91, 108-109, 122-123, 146
 164
 19, 133, 159
 49, 92, 121
 49, 91, 117-118
 U
 
 160
 80
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 175




---



##### Table of Contents



www.bt.com
 PHME 59912