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Welcome to BT Group plcs Annual
Report & Form 20-F 2011
 BT is one of the worlds leading communications
services companies, serving the needs of customers
in the UK and in more than 170 countries worldwide.
 (IMAGE)02030406
    
    Financial summaryChairmans messageOur businessOur strategy09101419233639
    
    Introduction from the Chief ExecutiveOur business and strategyOur markets and customersOur resourcesOur lines of businessOur corporate responsibilityOur risks
    (IMAGE)454650525456
    
    Introduction from the Group Finance DirectorFinancial performanceLiquidityFunding and capital managementFinancial position and resourcesAlternative performance measures
    (IMAGE)60
    
    Board of directors and Operating Committee
    (IMAGE)62
    
    The Board65
    
    Report of the Audit & Risk Committee67
    
    Report of the Nominating & Governance Committee68
    
    Report of the Committee for 
Sustainable & Responsible Business69
    
    Report on directors remuneration82
    
    Directors information83
    
    Business policies86
    
    Shareholders and Annual General Meeting888991151152155
    
    Statement of directors responsibilitiesReport of the independent auditors  consolidated financial statementsConsolidated financial statementsReport of the independent auditors  parent company financial statementsFinancial statements of BT Group plcSubsidiary undertakings and associate
    (IMAGE)157158160161162174177180
    
    Quarterly analysis of revenue and profitSelected financial dataFinancial statisticsOperational statisticsInformation for shareholdersCross reference to Form 20-FGlossary of termsIndex
    (IMAGE)




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OVERVIEW
 
 FINANCIAL SUMMARY
 Group results
 2011
    
    
    2010
    
    
    ChangeRevenueadjusteda
    
    
    £20,076m
    
    
    
    £20,911m
    
    
    

â4
    %reported
    
    
    £20,076m
    
    
    
    £20,859m
    
    
    
    â4
    %EBITDAb,cadjusteda
    
    
    £5,886m
    
    
    
    £5,639m
    
    
    

á4
    %reported
    
    
    £5,557m
    
    
    
    £5,162m
    
    
    

á8
    %Profit before taxationadjusteda
    
    
    £2,083m
    
    
    
    £1,735m
    
    
    
    á20
    %reported
    
    
    £1,717m
    
    
    
    £1,007m
    
    
    
    á71
    %Earnings per shareadjusteda
    
    
    21.0p
    
    
    
    17.3p
    
    
    
    á21
    %reported
    
    
    19.4p
    
    
    
    13.3p
    
    
    
    á46
    %Proposed full year dividend7.4p
    
    
    
    6.9p
    
    
    
    á7
    %Free cash flowc,eadjusteda
    
    
    £2,223m
    
    
    
    £2,106m
    
    
    
    á£117
    mreported
    
    
    £2,011m
    
    
    
    £1,933m
    
    
    
    á£78
    mNet debtc£8,816m
    
    
    
    £9,283m
    
    
    

â£467
    m
 How we performed in 2011
 OutlookMay 2010
    
    ResultRevenue
    
    c.£20bn
    
    £20.1bn
    
    

üOperating costdsavings
    
    c.£900m
    
    £1.1bn
    
    
    üAdjusted EBITDAa,c
    
    in line with 2010f
    
    £5.9bn
    
    
    üAdjusted free cash flowc,e
    
    c.£1.8bnf
    
    £2.2bn
    
    
    üNet debtc
    
    <£9bn
    
    £8.8bn
    
    
    ü
 Outlook
 We expect
 
    
    Underlying revenuegexcluding
transit to be in the range of down 2% to flat in
2012 and to grow by up to 2% in 2013
    
    Adjusted EBITDA to grow in 2012 and to
be above £6.0bn in 2013
    
    Adjusted free cash flow to be above the
2011 level in both 2012 and 2013
 
 a
    Items presented as adjusted are stated before specific items. See page 56 for
further details.b
    EBITDA: Earnings before interest, taxation, depreciation and amortisation.c
    Adjusted and reported EBITDA, adjusted and reported free cash flow and net debt are
non-GAAP measures provided in addition to the disclosure requirements of IFRS. See page 56 for
further details.d
    Operating costs before specific items, depreciation and amortisation. See page 48 for
further details.e
    Before pension deficit payments.f
    Adjusted EBITDA and adjusted free cash flow outlook updated in November 2010 to be
around £5.8bn and £2bn, respectively.g
    Underlying revenue excludes the impact of foreign exchange movements, acquisitions and
disposals and specific items. 2




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OVERVIEW
 
 CHAIRMANS MESSAGE
 
  Dividends
  BTs commitment to the UK
     BTs global presence
 
 BTs contribution to society
   
  The Board and governance
  
  Our future
  
 Sir Michael Rake
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     3




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OVERVIEW
 
 OUR BUSINESS
 Our
main activities
   2011 external revenue and adjusted EBITDA by line of business
 
 Where we operate
 
 Sustainability
  > More on page 36
 
 4




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OVERVIEW
 Our
business model
   BT GROUP PLCBT
GLOBAL SERVICES


    BT RETAIL


        BT WHOLESALE


        OPENREACH(GRAPHIC)


        BT Global Services is a managed
networked IT services business,
serving customers in more than
170 countries worldwide.> More on page 23


        BT Retail provides
communications products
and services to the
consumer market, and
provides IT and
communications services to
small and medium-sized
enterprises.
> More on page 26


        BT Wholesale provides products
and services to over 1,000
communications providers in
the UK.
> More on page 30


        Openreach is responsible for
the last mile of the UK access
network and for the roll-out
of super-fast broadband.
> More on page 33(GRAPHIC)


        Multinational corporations
Domestic businesses
 National and
local government organisations



UK
consumers UK SMEs 
Republic of Ireland businesses, 
government and 
communications providers


        UK communications providers
Mobile operators
Internet service providers
Broadcasters


    UK communications providers(GRAPHIC)


        Account management
Online


        Call centres
Online
Account management
BT Local Businesses


        Account management
Online



Account management
Online(GRAPHIC)


        Networked IT services
Ethernet

Fixed calls and lines
Audio & videoconferencing
Wi-fi & mobility 

Professional services /

Wholesale network capacity


        Fixed lines and calls
Broadband 
TV services 
Wi-fi & mobility 
IT services 
Audio & videoconferencing


        Wholesale network capacity
Wholesale broadband
Private circuits
Ethernet
Managed network services
Content distribution services


    Wholesale fixed lines
Local Loop Unbundling
Ethernet
Physical infrastructure accessBT INNOVATE & DESIGN AND BT OPERATEBT Innovate & Design develops, designs and delivers the processes,
networks and platforms
on behalf of the customer-facing lines of business.
> More on page 35
    
        BT Operate manages BTs IT and
network infrastructure platforms.
> More on page 35
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     5




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OVERVIEW
 
 OUR STRATEGY
 Our aim
  (GRAPHIC)
 
    
    Driving broadband-based consumer services
    
    Being the Brand for Business for UK SMEs
    
    BT Global Services  a global leader
    
    The wholesaler of choice
    
    The best network provider
    
    A responsible and sustainable business leader
 Our strategy starts with
customer service. Our
goal is to deliver excellent
customer service as it is
vital for our customers
and reduces our costs
when we get things
right first time.
> More on
page 10
    
    Improved customer
service and reduced cost
of failure along with other
efficiency measures drive
lower costs across our
business.> More on page 11
    
    Cost transformation frees
up financial and other
resources to allow us to
invest in our networks,
systems, and products
and services to drive
growth.> More on page 11
 Key performance indicators
  Adjusted earnings per share
    
    Reported free cash flow
    
    Customer service improvementThis is a measure of the overall
profitability of our business.>More on page 49
    
    This is a measure of the cash generated
by our business that is available to invest
in the business, reduce net debt, support
the pension fund and pay dividends.> More on page 50
    
    This is a measure of the level of
improvement in how we are serving our
customers.> More on page 10(BAR GRAPH)
    
    (BAR GRAPH)
    
    (BAR GRAPH)
 a
    Adjusted earnings per share is stated before specific items. See page 57 for further details.b
    Reported free cash flow is a non-GAAP measure. See page 58 for further details.c
    Cumulative improvement from 1 April 2007.
 6




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OVERVIEW
  Our strategic priorities
   
    
    5.7m retail broadband customers, up 11%
    
    144,000 BT Infinity customers
    
    64% share of retail net DSL
and LLU additions in the
fourth quarter, highest for
eight years
    
    575,000 BT Vision customers
  
    
    Managed network services
revenue up 8%
    
    40% of external
revenue under
long-term contracts
    
    Customers include the
five main UK mobile
operators and over 1,000
CP customers
  
    
    Improved trend in BT Business revenue
    
    IT services revenue up 17%
    
    Mobility revenue up 14%
  
    
    7.6m external unbundled lines, up 15%
    
    1,000 fibre Ethernet nodes,
the largest Ethernet network
in the UK
    
    Roll-out of super-fast
fibre-based broadband on
track to pass 5m UK
premises by spring 2011
  
    
    Operating cash flow
positive a year ahead of
plan
    
    10% increase in order intake
    
    Investing to grow in the
Asia Pacific region
  
    
    Absolute carbon footprint
down 53% since 1997
    
    Money, time and in-kind
contributions worth £27.6m
invested
    
    49,000 volunteer days
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     7




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BUSINESS REVIEW
  09
    
    INTRODUCTION FROM THE CHIEF EXECUTIVE10
    
    OUR BUSINESS AND STRATEGY10
    
    Who we are10
    
    What we do10
    
    Our aim11
    
    Our strategic priorities13
    
    How we measure our progress14
    
    OUR MARKETS AND CUSTOMERS14
    
    UK consumers15
    
    UK SMEs15
    
    Global networked IT services16
    
    Wholesale16
    
    Access17
    
    Regulation19
    
    OUR RESOURCES19
    
    Brand and reputation19
    
    People21
    
    Networks and platforms21
    
    Global research capability22
    
    Suppliers22
    
    Property portfolio23
    
    OUR LINES OF BUSINESS23
    
    BT Global Services26
    
    BT Retail30
    
    BT Wholesale33
    
    Openreach35
    
    BT Innovate & Design35
    
    BT Operate36
    
    OUR CORPORATE RESPONSIBILITY36
    
    Introduction36
    
    Building stronger communities37
    
    Reducing carbon emissions and our impact on the environment38
    
    Behaving responsibly38
    
    Our corporate responsibility risks38
    
    Further information39
    
    OUR RISKS39
    
    Our approach to managing risk39
    
    Principal risks and uncertainties40
    
    Our risks
 Our lines of business
 Our customer-facing lines of business are BT Global Services, BT Retail, BT Wholesale and
Openreach. The financial performance of our customer-facing lines of business for 2011, 2010 and
2009 is discussed in this section. We measure the performance of the customer-facing lines of
business on an adjusted basis being revenue, EBITDA and operating profits; all stated not
including specific items which are not allocated to customer-facing lines of business. Specific
items are not allocated to the customer-facing lines of business as this reflects how financial
performance is measured by management and reported to the Board and Operating Committee. For
further discussion of specific items, see pages 56 to 57. A reconciliation of adjusted EBITDA to
group operating profit by customer- facing lines of business, and for the group, is provided in
Segment information, note 1 to the consolidated financial statements. The financial performance
commentaries for each customer-facing line of business also discuss movements in operating cash
flow. Operating cash flow is defined as adjusted EBITDA less direct and allocated capital
expenditure, working capital movements and other non-cash items.
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BUSINESS REVIEW
 
 INTRODUCTION FROM THE CHIEF EXECUTIVE
  A better business
            
 Ian Livingston
 
    £2.2bn
    
    5m
    
    36%Adjusted free cash flow
    
    UK premises passed by super-fast
broadband by spring 2011
    

BTs
retail share of DSL and LLU broadband market
 BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     9




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BUSINESS REVIEW
 
 OUR BUSINESS AND STRATEGY
  
    
    Who we are
    
    What we do
    
    Our aim
    
    Our strategic priorities
    
    How we measure our progress
 No. 1
  3%
  £1.1bn
 a
 £2.5bn
  Progress made against all our strategic priorities
     
 a
 
 Who we are
  
 What we do
   
 Our aim
       10




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BUSINESS REVIEW
  Financial review  Transforming our
cost base
  
    
    eliminating the cost of failure across the group
    
    an overhead value analysis programme, which provides a structured approach to reducing
costs
    
    process re-engineering, which reviews processes end-to-end across the group to remove
unnecessary steps.
       
 
 Our strategic priorities
    
    
    we grew our retail  broadband
customer base to 5.7m, up 11%
    
    144,000 customers now take our
super-fast fibre-based broadband service,
BT Infinity
    
    79% of the total UK broadband market, including cable, is now delivered over the BT
network, with our retail share at 29%
    
    our retail share of DSL and LLU net additions in the fourth
quarter of 2011 was 64%, the highest share of quarterly net additions in eight years
    
    BT Visions customer base grew to 575,000.
    
    
    continuing to offer attractive bundled voice, broadband and TV services
    
    enhancing our entertainment offering with services such as online gaming
    
    seeking new opportunities to differentiate our services, for example by using our wi-fi
network.
    
    
    improved trends in BT Business compared
with prior years, with revenue only marginally down in 2011
    
    IT services and mobility revenue
grew by 17% and 14%, respectively.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     11




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BUSINESS REVIEW
   
    
    increasing the number of SME customers buying our services
    
    selling more IT
services and mobility to our existing SME customers
    
    offering bundles which combine fixed
and mobile communication and IT services.
    
    
    we delivered operating cash flow of £119m, a year ahead of target
    
    order intake was £7.3bn
    
    we invested to grow our presence in the Asia Pacific
region
    
    we have been recognised as a leader, winning the award for Best Global Operator at the
World Communication Awards 2010.
  
    
    building on our strong market position in managed networked IT services
    
    expanding further to serve our customers in fast-growing economies
    
    developing our relationships with our target customers, and improving their customer
experience
    
    building and enhancing industry based solutions in key sectors
    
    making our operations more efficient
    
    generating around £200m of operating cash flow in 2012.
    
    
    our managed network services (MNS) revenue grew by 8%
    
    40% of BT Wholesales external revenue is now underpinned by long-term contracts
    
    our second generation copper broadband service is available to over 65% of UK premises
    
    we received the Best Wholesale Carrier
award at the
World Communication Awards 2010.
  
    
    increasing the proportion of revenue under long-term contract by selling new MNS
contracts
    
    making investments in Wholesale Broadband Connect, our second generation broadband service, which
we plan to extend to cover around 80% of UK premises by December 2011
    
    launching IP services that enable our CP customers to enter and exploit new and emerging
markets
    
    increasing capacity on our IP platforms to meet growing customer demand
    
    continuing to evolve our next generation product portfolio for the global wholesale
market.
     
    
    we rolled out our super-fast fibre-based broadband  network to reach over 4m UK premises
    
    we contributed to the growth of the broadband market in the UK by the provision of 7.6m
external unbundled lines, up 15%
    
    we extended our footprint to over 1,000 fibre Ethernet nodes, providing the largest
Ethernet network in the UK
    
    we commenced testing a 1Gbps service over
fibre-to-the-premises.
  
 
 12




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BUSINESS REVIEW
  
    
    fibre-to-the-cabinet (FTTC) where new fibre-optic cables link telephone exchanges to
road-side cabinets and our copper lines are used to deliver super-fast broadband to premises
    
    fibre-to-the-premises (FTTP) where new fibre-optic cables are deployed the whole way from
the exchange to the premises.
    
    
    Openreach is building the fibre access
infrastructure which will offer super-fast
broadband to all CPs on an open and equal basis
    
    BT Wholesale is developing products and
services which use the Openreach network so it
can offer managed super-fast broadband to its CP
customers
    
    BT Retail and BT Global Services will
purchase the BT Wholesale offer and design their
own propositions and services for end users, for
instance BT Infinity
    
    BT Innovate & Design and BT Operate both
play a key role in leading the design,
development and end-to-end testing of the
platforms, systems and products that will
underpin our propositions for customers.
    
    
    continuing with our super-fast broadband roll-out
    
    providing new access products such as duct and pole access
    
    improving our overall efficiency while improving the resilience and reliability of our
networks
    
    increasing our potential FTTC speeds to up to 80Mbps.
 
   
    
    cut our absolute carbon footprint by 53% since 1997 and reduced energy consumption by
2.5% in 2011
    
    invested money and in-kind contributions worth £27.6m supporting responsible and
sustainable business activities, exceeding our commitment to invest at least 1% of group pre-tax
profits
    
    launched a new online fundraising service for UK charities called MyDonate, the first
online fundraising service not to charge a subscription fee or commission
    
    maintained gold sector status in the Dow Jones Sustainability Index and Platinum Plus
level in the Business in the Community Corporate Responsibility Index. We also won awards such as
the World Communication Award Green Award.
 Our corporate
responsibility
   
    
    building stronger communities through the power of our technology and people
    
    reducing carbon emissions and our impact on the environment through our operations and
products
    
    behaving responsibly towards our customers, people and our suppliers
    
    promoting MyDonate for the benefit of charities and fundraising.
 
 How we measure our progress
 Our strategy  Key performance indicators
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     13




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BUSINESS REVIEW
 
 OUR MARKETS AND CUSTOMERS
  
    
    UK consumers
    
    UK SMEs
    
    Global networked IT services
    
    Wholesale
    
    Access
    
    Regulation
 51%
  c.£5.7bn
  c.£29bn
  US$584bn a
  a
  Regulation
 
 UK consumers
     BT Retail
  
 14




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BUSINESS REVIEW
  UK SMEs
    
   
 Global networked IT services
  a
 
  a
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     15




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BUSINESS REVIEW
     Our relationship with HM Government
 
 
 Wholesale
  
    
    
 Access
    16




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BUSINESS REVIEW
  Regulation
   Ofcom
  Conditions applying to all providers
  Conditions applying to BT
  Significant market power designations
   SMP charge controls
   
    
    network charge controls (NCC) on wholesale interconnect
services  we operate under
interconnection agreements with most other CPs
    
    partial private circuits (PPC) charge controls applying to certain wholesale leased lines
that BT provides to other network operators
    
    certain wholesale Ethernet access and backhaul services
    
    LLU and WLR.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     17




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BUSINESS REVIEW
     BTs Undertakings
  Business rates
  Our relationship with HM Government
    European Union
  The rest of the world
  Competition law
  18




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BUSINESS REVIEW
 
 OUR RESOURCES
  
    
    Brand and reputation
    
    People
    
    Networks and platforms
    
    Global research capability
    
    Suppliers
    
    Property portfolio
 92,600
 
 c.120m km
  £684m
  16,700
  8,400
  
 Brand and reputation
 
  
    
    trustworthy: we do what we say we will
    
    helpful: we work as one team
    
    inspiring: we create new possibilities
    
    straightforward: we make things clear
    
    heart: we believe in what we do.
   
 People
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     19




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BUSINESS REVIEW
  
 
 Diversity of the BT workforce
 Target 2012
    
    2011
    
    2010
    
    2009BT will maintain a top 10
position in four of five major
diversity benchmarks; four UK
based, and one global
    
    (GRAPHIC)
    
    (GRAPHIC)
    
    (GRAPHIC)
   
    
   Report on directors remuneration
     20




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BUSINESS REVIEW
  Lost time injury rate  lost time injury cases expressed as a rate per 100,000 hours worked on a
12-month rolling average
 Non financial performanceTarget 2012
    
    2011
    
    
    2010
    
    
    2009Reduce to 0.200 cases
    
    
    0.225
    
    
    
    0.209
    
    
    
    0.160Financial performanceCost to the business arising
from injuries resulting in time
off work
    
    
    £6.1m
    
    
    
    £5.6m
    
    
    
    £7.0m
 
 Sickness absence rate  percentage of calendar days lost to sickness absence expressed as a
12-month rolling average
 Non financial performanceTarget 2012
    
    2011
    
    
    2010
    
    
    2009Reduce to 2.29%
    
    
    2.41%
    
    
    
    2.46%
    
    
    
    2.17
    %Financial performanceBT sick pay costs
    
    
    £90.1m
    
    
    
    £95.4m
    
    
    
    £85.2m
 
 Networks and platforms
     
 
   
 Global research capability
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     21




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BUSINESS REVIEW
  
 Suppliers
   
  
 Supplier
relationships 
 Non financial performanceTarget 2012
    
    2011
    
    
    2010
    
    
    2009To 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%
    
    
    
    86%
    
    
    
    85%Financial performanceTotal spend with external supply
base
    
    
    £11.3bn
    
    
    
    £12.0bn
    
    
    
    £13.0bn
 
 Ethical trading 
 Non financial performanceTarget 2012
    
    2011
    
    2010
    
    2009To achieve 100% follow up
within three months for all
suppliers identified as high
or medium risk, through our
ethical standard questionnaires
    
    70 risk
assessments
with 100%
follow up
    
    180 risk
assessments
with 100%
follow up
    
    78 risk
assessments
with 100%
follow upFinancial performanceValue of spend where our suppliers
agree that BT ensures its purchase
are made, delivered, used and
disposed of in a socially and
environmentally responsible manner
(extrapolated from supplier survey
responses)
    86% of
supplier
spend
    
    86% of
supplier
spend
    
    83% of
supplier
spend
   www.payontime.co.uk
 
 Property portfolio
   Financial review
 
 
 Waste to landfill and recycling  a measure of BTs use of resources
 Non financial performance
 UK onlyTarget 2012
    
    2011
    
    
    2010
    
    2009BT Group
will reduce the tonnage of waste sent to landfill by 20% from 2011 levels
    
    
    69%
    
    
    
    15
    %
    
    
    17
    %reduction
    
    
    reduction
    
    reductionin waste to
    
    
    in waste to
    
    in waste tolandfill from
    
    
    landfill from
    
    landfill from2010
    
    
    
    2009
    
    2008Financial performanceNet benefit to the business of the
waste programme
    
    
    £2.03m
    
    
    
    £2.86ma
    
    £3.79ma
 a 2010 and 2009 figures are restated following a review of expenditure categorisation.
 22




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BUSINESS REVIEW
 
 OUR LINES OF BUSINESS
  BT Global Services
  £8,047m
  £593m
  
 £119m
  £7.3bn
 Business overview
      Networked IT services
  Unified communications
  Customer relationship management (CRM)
  Security
  Data centre services
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     23




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BUSINESS REVIEW
 Mobility
  Operating review
   
    
    improving service levels to take out cost of failure
    
    working with our external suppliers to improve contract terms
    
    reviewing our network and changing our network topography
    
    rationalising our network assets and our operations
    
    improving the service we get from suppliers around the world.
   GLOBAL
    
    GLOBAL COMMERCE
    
    GLOBAL
    
    GLOBALBANKING &
    
    (MANUFACTURING,
    
    CONSUMER
    
    GOVERNMENTFINANCIAL
    
    LOGISTICS &
    
    PACKAGED
    
    & HEALTHMARKETS
    
    PHARMACEUTICALS)
    
    GOODSUKEMEA & LATIN AMERICAUNITED STATES & CANADAASIA PACIFIC
   Customer
    
    ContractUnilever
    
    A four-year extension to our
existing contract to supply
managed services in over 100
countries.UBS
    
    A new five-year contract for the
provision of global voice and data
network services, including a
videoconferencing network and
audio conferencing services.Network Rail
    
    A two-year extension of our
networked IT services contract.Defence Fixed
Telecommunications
Service (DFTS)
    
    A three-year extension to our
DFTS agreement with the UK
Ministry of Defence.Southwest One (working in
partnership with Somerset
County Council, Taunton
Deane Borough Council,
Avon and Somerset Police
and IBM)
    
    Provision of a high-speed
network to 269 schools and
educational establishments
in Somerset, UK.Ministerio de Defensa
de España, Spain
    
    Provision of internet access,
security platform, and on-site
professional services to the Spanish
government.DigitPA (Agency for the
Digital Public Administration),
Italy
    
    A seven-year contract to connect
340 offices in 125 countries,
providing communication services
and managing a global network.
     24




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##### Table of Contents



BUSINESS REVIEW
 
    
    our sustainability practice and carbon impact assessment offer
    
    a professional services smart grid offering in the US.
   a
 Financial performance
 2011
    
    
    2010
    
    
    2009£m
    
    
    £m
    
    
    £mRevenue
    
    
    8,047
    
    
    
    8,513
    
    
    
    8,628Net operating costs
    
    
    7,454
    
    
    
    8,056
    
    
    
    8,367EBITDA
    
    
    593
    
    
    
    457
    
    
    
    261Depreciation and amortisation
    
    
    734
    
    
    
    815
    
    
    
    776Operating loss
    
    
    (141
    )
    
    
    (358
    )
    
    
    (515
    )Capital expenditure
    
    
    498
    
    
    
    599
    
    
    
    886Operating cash flow
    
    
    119
    
    
    
    (482
    )
    
    
    (912
    )
  2011
    
    
    2010
    
    
    2009£m
    
    
    £m
    
    
    £mProducts and servicesICT and managed networks
    
    
    5,310
    
    
    
    5,281
    
    
    
    5,273Calls and lines
    
    
    822
    
    
    
    956
    
    
    
    1,055Transit
    
    
    623
    
    
    
    782
    
    
    
    869Broadband and convergence
    
    
    318
    
    
    
    334
    
    
    
    321Other global carrier
    
    
    206
    
    
    
    229
    
    
    
    237Other products and services
    
    
    768
    
    
    
    931
    
    
    
    873Total
    
    
    8,047
    
    
    
    8,513
    
    
    
    8,628
   (2010: 3%
        a
    The Magic Quadrant is copyrighted 2011 by Gartner, Inc. and is reused with
permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific
time period. It depicts Gartners analysis of how certain vendors measure against criteria for that
marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service
depicted in the Magic Quadrant, and does not advise technology users to select only those vendors
placed in the Leaders quadrant. The Magic Quadrant is intended solely as a research tool, and is
not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied,
with respect to this research, including any warranties of merchantability or fitness for a
particular purpose.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     25




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BUSINESS REVIEW
  BT Retail
  £7,748m
  £1,784m
  
 64%
  5.7m
  1m
 Business overview
    Products and services
 Calls and lines
       BT Business
  
    
    BT iNet: a Cisco centre of excellence specialising in infrastructure, security and unified
communications
    
    BT Engage IT: a leading provider of business-to-business IT solutions and services
    
    BT Business Direct: an online store providing IT, computing and networking equipment plus
associated installation and support services for SMEs.
 26




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BUSINESS REVIEW
  BT Conferencing
    
    Global provider of audio, video and
internet conferencing and
collaboration servicesBT Directories
    
    Directory Enquiries (118 500),
operator and emergency services.
The Phone Book and online web
reviews of businessesBT Expedite
    
    Software and IT services for
medium-sized retailersBT Redcare & Payphones
    
    Residential and business alarm
monitoring and tracking facilities.
Managed, prison, card and private
payphones, as well as meeting our
regulatory obligations to provide a
public payphone serviceBT Openzone
    
    Provision of premium wi-fi hotspots
offering broadband on the move to
retail customers and to wholesale
customers such as mobile network
operators.
    Operating review
   BT Consumer
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     27




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##### Table of Contents



BUSINESS REVIEW
    
     
   
       Financial performance
 2011
    
    
    2010
    a
    
    2009
    a£m
    
    
    £m
    
    
    £mRevenue
    
    
    7,748
    
    
    
    8,124
    
    
    
    8,491Net operating costs
    
    
    5,964
    
    
    
    6,347
    
    
    
    6,906EBITDA
    
    
    1,784
    
    
    
    1,777
    
    
    
    1,585Depreciation and amortisation
    
    
    443
    
    
    
    459
    
    
    
    426Operating profit
    
    
    1,341
    
    
    
    1,318
    
    
    
    1,159Capital expenditure
    
    
    434
    
    
    
    417
    
    
    
    471Operating cash flow
    
    
    1,382
    
    
    
    1,566
    
    
    
    984
 a
    Restated. See page 106.
  28




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BUSINESS REVIEW
  2011
    
    
    2010
    a
    
    2009
    a£m
    
    
    £m
    
    
    £mProducts and servicesCalls and lines
    
    
    4,491
    
    
    
    4,953
    
    
    
    5,346Broadband and convergence
    
    
    1,311
    
    
    
    1,258
    
    
    
    1,253ICT and managed networks
    
    
    551
    
    
    
    578
    
    
    
    591Other products and services
    
    
    949
    
    
    
    962
    
    
    
    958External revenue
    
    
    7,302
    
    
    
    7,751
    
    
    
    8,148Internal revenue
    
    
    446
    
    
    
    373
    
    
    
    343Total
    
    
    7,748
    
    
    
    8,124
    
    
    
    8,491
 a
    Restated. See page 108.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     29




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BUSINESS REVIEW
  BT Wholesale
  £4,210m  Revenue
 £1,316m  EBITDA
 
 24%  of external revenue from managed network
services contracts
 40%  of external revenue under long-term contracts
 Business overview
      30




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BUSINESS REVIEW
  Wholesale broadband
   Content distribution network
  Wholesale Ethernet
  Private and partial private circuits
  Capacity and call-based products
  White label managed services
  
 Operating review
  
        Date
    
    Customer
    
    DetailsMay 2010
    
    Scottish and
Southern
Energy
(SSE)
    
    Re-sign of a long-term agreement for
fully managed voice and wholesale line
rental services that SSE resells under its
own brand to more than 250,000
consumers in the UK.Feb 2011
    
    KCOM
Group
    
    Five-year extension of our national
managed network outsourcing
agreement with KCOM Group with the
addition of a hosted IP Voice service
that KCOM is reselling.
  
  Financial performance
 2011
    
    
    2010
    a
    
    2009
    a£m
    
    
    £m
    
    
    £mRevenue
    
    
    4,210
    
    
    
    4,592
    
    
    
    4,800 Internal revenue
    
    
    980
    
    
    
    1,226
    
    
    
    1,228 External revenue
    
    
    3,230
    
    
    
    3,366
    
    
    
    3,572Net operating costs
    
    
    2,894
    
    
    
    3,239
    
    
    
    3,444EBITDA
    
    
    1,316
    
    
    
    1,353
    
    
    
    1,356Depreciation and amortisation
    
    
    619
    
    
    
    680
    
    
    
    686Operating profit
    
    
    697
    
    
    
    673
    
    
    
    670Capital expenditure
    
    
    329
    
    
    
    325
    
    
    
    435Operating cash flow
    
    
    911
    
    
    
    917
    
    
    
    903
 a
    
    Restated. See page 106.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     31




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BUSINESS REVIEW
  2011
    
    
    2010
    a
    
    2009
    a£m
    
    
    £m
    
    
    £mProducts and servicesTransit
    
    
    895
    
    
    
    976
    
    
    
    1,134Conveyance and interconnect
    
    
    609
    
    
    
    578
    
    
    
    728ICT and managed networks
    
    
    771
    
    
    
    715
    
    
    
    518Broadband and convergence
    
    
    335
    
    
    
    488
    
    
    
    543Calls and lines
    
    
    282
    
    
    
    316
    
    
    
    398Other products and services
    
    
    338
    
    
    
    293
    
    
    
    251External revenue
    
    
    3,230
    
    
    
    3,366
    
    
    
    3,572Internal revenue
    
    
    980
    
    
    
    1,226
    
    
    
    1,228Total
    
    
    4,210
    
    
    
    4,592
    
    
    
    4,800
 a
    
    Restated. See page 108.
             32




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BUSINESS REVIEW
  Openreach
  £4,930m  Revenue
 £2,132m  EBITDA
 
 11,000  Growth in copper line base in 2011
 62%  Increase in Ethernet connections
 Business overview
   Wholesale line rental
  Local loop unbundling
  Ethernet
  Fibre-based broadband
   Operating review
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     33




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BUSINESS REVIEW
 
      
 Financial performance
 2011
    
    
    2010
    a
    
    2009
    a£m
    
    
    £m
    
    
    £mExternal revenue
    
    
    1,459
    
    
    
    1,241
    
    
    
    1,042Revenue from other BT lines
of business
    
    
    3,471
    
    
    
    3,923
    
    
    
    4,189Revenue
    
    
    4,930
    
    
    
    5,164
    
    
    
    5,231Net operating costs
    
    
    2,798
    
    
    
    3,204
    
    
    
    3,235EBITDA
    
    
    2,132
    
    
    
    1,960
    
    
    
    1,996Depreciation and amortisation
    
    
    877
    
    
    
    856
    
    
    
    778Operating profit
    
    
    1,255
    
    
    
    1,104
    
    
    
    1,218Capital expenditure
    
    
    1,087
    
    
    
    907
    
    
    
    951Operating cash flow
    
    
    1,078
    
    
    
    1,167
    
    
    
    1,079
 a

    Restated. See page 106.
          34




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BUSINESS REVIEW
  BT Innovate & Design
    
  
 BT Operate
   Q4 2011
    
    Q4 2010Reliability performance measure
    
    28.2%
improvement
over fourth
quarter of
2010
    
    10.8%
improvement
over fourth
quarter of
2009
    
    Reliability is measured as
the reduction in frequency
and duration of network
and system outages for
certain product journeys.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     35




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BUSINESS REVIEW
 
 OUR CORPORATE RESPONSIBILITY
  
  Introduction
  Building stronger communities
  Reducing carbon emissions and our impact on the environment
  Behaving responsibly
  Our corporate responsibility risks
  Further information
  Our approach to developing and delivering our corporate responsibility
 
 Introduction
    www.bt.com/betterfuture
  
  building stronger communities through the power of our technology and people
  reducing carbon emissions and our impact on the environment through our operations and
products
  behaving responsibly towards our customers, people and  suppliers.
 Report of the directors  Report of the Committee for Sustainable & Responsible Business
 
 Building stronger communities
    36




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##### Table of Contents



BUSINESS REVIEW
 
  www.bt.com/mydonate
   
 
 Reducing carbon emissions and our impact on the environment
   BT Operate
   
     BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     37




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BUSINESS REVIEW
    BT Global Services BT Retail
 
 Behaving responsibly
     
 Ethical
performance measure 
 Non financial performance
 Target 2012
    
    2011
    
    
    2010
    
    
    2009Maintain or improve our 2011
index score
    
    
    4.16
    
    
    
    4.10
    
    
    New in 2010Financial performanceRevenue support
Customer bids with a
sustainability element
    
    £2.1bn
        
    £2.1bn
        
    £1.5 bn
       
 Our corporate responsibility risks
   

    health and safety risks to employees and the public exposed to BT operations

    breach of integrity or unintended release of private customer data leading to a loss of
trust in BT

    mitigating climate change impacts such as increased costs associated with changing
legislation

    adapting our business to reduce our exposure to the direct impacts of climate change,
such as severe weather

    ensuring that our activities and their outcomes meet legal or ethical standards for a diverse workforce

    unacceptable supply chain working conditions.
 Our risks
 
 Further information
 www.bt.com/betterfuture
 38




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BUSINESS REVIEW
 
 OUR RISKS
  

    Our approach to managing risk

    Principal risks and uncertainties

    Our risks
 
    
    Security and resilience
    
    Major contracts
    
    Pensions
    
    Growth in a competitive market
    
    Communications industry regulation
    
    Compliance in a global environment
    
    Supply chain
 
 Our approach to managing risk
   Operating Committee Audit & Risk
Committee
  
 Principal risks and uncertainties
   Cautionary statement regarding forward-looking
statements
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     39




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BUSINESS REVIEW
 
 Our risks
 Impact
 Risk mitigation
  Impact
 Risk mitigation
 40




---



##### Table of Contents



BUSINESS REVIEW
  Impact
 Risk mitigation
  Impact
 Our business and strategy
  Risk mitigation
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     41




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##### Table of Contents



BUSINESS REVIEW
  Impact
 Risk mitigation
  Impact
 Risk mitigation
 The Way We Work
 42




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##### Table of Contents



BUSINESS REVIEW
  Impact
 Risk mitigation
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     43




---



##### 



FINANCIAL REVIEW
  45
    

INTRODUCTION FROM THE GROUP FINANCE DIRECTOR46
    
    FINANCIAL PERFORMANCE46
    
    Summarised income statement46
    
    Group results46
    
    Outlook46
    
    Revenue47
    
    Other operating income47
    
    Transforming our cost base48
    
    Adjusted EBITDA49
    
    Operating profit49
    
    Net finance expense49
    
    Associates and joint ventures49
    
    Profit before taxation49
    
    Taxation49
    
    Adjusted earnings per share50
    
    Dividends50
    
    LIQUIDITY50
    
    Free cash flow50
    
    Summarised cash flow statement51
    
    Taxation52
    
    FUNDING AND CAPITAL MANAGEMENT52
    
    Capital management and funding policy54
    
    Contractual obligations and commitments54
    
    Off-balance sheet arrangements54
    
    Quantitative and qualitative disclosures about interest, foreign exchange, credit and liquidity risks54
    
    Going concern54
    
    FINANCIAL POSITION AND RESOURCES54
    
    Summarised balance sheet56
    
    Acquisitions and disposals56
    
    Legal proceedings56
    
    Principal accounting policies, critical accounting estimates and key judgements56
    
    ALTERNATIVE PERFORMANCE MEASURES56
    
    Introduction56
    
    Specific items57
    
    EBITDA57
    
    Adjusted earnings per share58
    
    Free cash flow58
    
    Net debt




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##### Table of Contents



FINANCIAL REVIEW
 
 INTRODUCTION FROM THE GROUP FINANCE DIRECTOR
  How we performed in 2011
                 Outlook
  
 Tony Chanmugam
  How we performed in 2011
 OutlookMay 2010
    
    ResultRevenue
    
    c.£20bn
    
    £20.1bn
    
    üOperating cost savings
    
    c.£900m
    
    £1.1bn
    
    üAdjusted EBITDAa
    
    in line with 2010b
    
    £5.9bn
    
    üAdjusted free cash flowa,c
    
    c.£1.8bnb
    
    £2.2bn
    
    üNet debta
    
    <£9bn
    
    £8.8bn
    
    ü
 a
    
    Adjusted EBITDA, adjusted free cash flow and net debt are
non-GAAP measures. See pages 56 to 58 for details.b
    
    Adjusted EBITDA and adjusted free cash flow outlook updated in November 2010
to be around £5.8bn and £2bn.c
    
    Before pension deficit payments.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     45




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##### Table of Contents



FINANCIAL REVIEW
 
 FINANCIAL PERFORMANCE
 Summarised income statement
 Year ended 31 March 2011Beforespecific items
    
    
    Specific items
    
    
    Total£m
    
    
    £m
    
    
    £mRevenue
    
    
    20,076
    
    
    
    
    
    
    
    20,076Other operating income
    
    
    373
    
    
    
    
    
    
    
    373Operating costs excluding depreciation and amortisation
    
    
    (14,563
    )
    
    
    (329
    )
    
    
    (14,892
    )EBITDA
    
    
    5,886
    
    
    
    (329
    )
    
    
    5,557Depreciation and amortisation
    
    
    (2,979
    )
    
    
    
    
    
    
    (2,979
    )Operating profit
    
    
    2,907
    
    
    
    (329
    )
    
    
    2,578Net finance expense
    
    
    (845
    )
    
    
    (79
    )
    
    
    (924
    )Share of post tax profits of associates and joint ventures
    
    21
    
    
    
    
    
    
    
    21Profit (loss) on disposal of interest in associate
    
    
    
    
    
    
    42
    
    
    
    42Profit (loss) before taxation
    
    
    2,083
    
    
    
    (366
    )
    
    
    1,717Taxation (expense) credit
    
    
    (452
    )
    
    
    239
    
    
    
    (213
    )Profit (loss) for the year
    
    
    1,631
    
    
    
    (127
    )
    
    
    1,504
 
 Group results
 Financial
review Financial review
 Financial review
 Financial review
 
 Outlook
   
 Revenue
  
 Products and services revenue
  46




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##### Table of Contents



FINANCIAL REVIEW
  Year ended 31 March 2010
    
    
    Year ended 31 March 2009Before
    
    
    
    
    
    
    
    
    
    
    Beforespecific items
    
    
    Specific items
    
    
    Total
    
    
    specific items
    
    
    Specific items
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m20,911
    
    
    
    (52
    )
    
    
    20,859
    
    
    
    21,431
    
    
    
    (41
    )
    
    
    21,390378
    
    
    
    2
    
    
    
    380
    
    
    
    352
    
    
    
    (13
    )
    
    
    339(15,650
    )
    
    
    (427
    )
    
    
    (16,077
    )
    
    
    (16,545
    )
    
    
    (1,993
    )
    
    
    (18,538
    )5,639
    
    
    
    (477
    )
    
    
    5,162
    
    
    
    5,238
    
    
    
    (2,047
    )
    
    
    3,191(3,039
    )
    
    
    
    
    
    
    (3,039
    )
    
    
    (2,890
    )
    
    
    
    
    
    
    (2,890
    )2,600
    
    
    
    (477
    )
    
    
    2,123
    
    
    
    2,348
    
    
    
    (2,047
    )
    
    
    301(890
    )
    
    
    (268
    )
    
    
    (1,158
    )
    
    
    (933
    )
    
    
    313
    
    
    
    (620
    )25
    
    
    
    29
    
    
    
    54
    
    
    
    39
    
    
    
    36
    
    
    
    75
    
    
    
    (12
    )
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    1,735
    
    
    
    (728
    )
    
    
    1,007
    
    
    
    1,454
    
    
    
    (1,698
    )
    
    
    (244
    )(398
    )
    
    
    420
    
    
    
    22
    
    
    
    (361
    )
    
    
    414
    
    
    
    531,337
    
    
    
    (308
    )
    
    
    1,029
    
    
    
    1,093
    
    
    
    (1,284
    )
    
    
    (191
    )
  2011
    
    
    2010
    
    
    2009£m
    
    
    £m
    
    
    £mProducts and servicesICT and managed networks
    
    
    6,632
    
    
    
    6,574
    
    
    
    6,382Broadband and convergence
    
    
    2,767
    
    
    
    2,677
    
    
    
    2,618Calls and lines
    
    
    5,595
    
    
    
    6,225
    
    
    
    6,799Transit
    
    
    1,518
    
    
    
    1,758
    
    
    
    2,003Conveyance, interconnect
circuits, WLR, global carrier
and other wholesale
    
    
    1,471
    
    
    
    1,451
    
    
    
    1,506Other products and services
    
    
    2,093
    
    
    
    2,226
    
    
    
    2,123Revenue
    
    
    20,076
    
    
    
    20,911
    
    
    
    21,431
 Our lines of business
 ICT and managed networks
  Broadband and convergence
  Calls and lines
  Transit
  Conveyance, interconnect circuits, WLR, global carrier and other wholesale products
  Other products and services
  
 Other operating income
  
 Transforming our cost base
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     47




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FINANCIAL REVIEW
  
 a
    Operating cost reductions exclude specific items and depreciation and amortisation.b
    Includes net labour costs, property and energy costs, network maintenance and IT costs and general and administrative costs.
   2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mStaff costsWages and salaries
    
    
    3,947
    
    
    
    4,182
    
    
    
    4,499Social security costs
    
    
    456
    
    
    
    447
    
    
    
    432Pension costs
    
    
    416
    
    
    
    304
    
    
    
    544Share-based payments
    
    
    68
    
    
    
    71
    
    
    
    141Total staff costs
    
    
    4,887
    
    
    
    5,004
    
    
    
    5,616Own work capitalised
    
    
    (718
    )
    
    
    (575
    )
    
    
    (673
    )Net staff costs
    
    
    4,169
    
    
    
    4,429
    
    
    
    4,943Indirect labour costs
    
    
    629
    
    
    
    722
    
    
    
    1,114Net labour costs
    
    
    4,798
    
    
    
    5,151
    
    
    
    6,057Payments to telecommunications
operators
    
    
    3,740
    
    
    
    4,083
    
    
    
    4,266Property and energy costs
    
    
    1,149
    
    
    
    1,284
    
    
    
    1,292Network maintenance and IT costs
    
    
    706
    
    
    
    781
    
    
    
    742Other operating costs
    
    
    2,786
    
    
    
    2,927
    
    
    
    2,710General and administrative costs
    
    
    1,384
    
    
    
    1,424
    
    
    
    1,478Operating costs before
depreciation and amortisation
    
    
    14,563
    
    
    
    15,650
    
    
    
    16,545Depreciation
    
    
    2,288
    
    
    
    2,304
    
    
    
    2,249Amortisation
    
    
    691
    
    
    
    735
    
    
    
    641Operating costs
    
    
    17,542
    
    
    
    18,689
    
    
    
    19,435
 Staff costs
    Indirect labour costs
  Payments to telecommunications operators
  Property and energy costs
  Network maintenance and IT costs
  Other operating costs
  General and administrative costs
  Depreciation and amortisation
  
 Adjusted EBITDA
  
 Selected financial data
 48




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FINANCIAL REVIEW
 
  Operating profit
  
 Net finance expense
  2011
    
    
    2010
    
    
    2009£m
    
    
    £m
    
    
    £mInterest on borrowings
    
    
    852
    
    
    
    886
    
    
    
    935Fair value movements on
derivatives
    
    
    34
    
    
    
    19
    
    
    
    29Finance expense
    
    
    886
    
    
    
    905
    
    
    
    964Less: capitalised interest
    
    
    (6
    )
    
    
    (3
    )
    
    
    Total finance expense
    
    
    880
    
    
    
    902
    
    
    
    964Interest income
    
    
    (35
    )
    
    
    (12
    )
    
    
    (31
    )Total finance income
    
    
    (35
    )
    
    
    (12
    )
    
    
    (31
    )Net finance expense
    
    
    845
    
    
    
    890
    
    
    
    933
    
   
 Associates and joint ventures
  
 Profit before taxation
   
 Taxation
   Taxation
   
 Adjusted earnings per share
 Our strategy  Key performance indicators
  
 a
    Adjusted earnings per share is stated before specific items. See page 57 for
further details.b
    Other includes interest, tax and share of post tax profits of
associates and joint ventures.
 Selected
financial data
 BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     49




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FINANCIAL REVIEW
  
 Dividends
    
 Information for shareholders
 
 LIQUIDITY
 
 Free cash flow
   
 a
    Before pension deficit payments.b
    Before specific items.
 Our strategy  Key performance indicators
  
 a
    Net cash inflow from operating activities before pension deficit payments of
£1,030m.b
    Other includes purchase of non-current asset investments and dividends from associates
and joint ventures.c
    Other mainly includes foreign exchange movements.
 Selected financial
data
 
 Summarised cash flow statement
 2011
    
    
    2010
    
    
    2009£m
    
    
    £m
    
    
    £mCash generated from operations
    
    
    4,775
    
    
    
    4,476
    
    
    
    4,934Net income taxes (paid) received
    
    
    (209
    )
    
    
    349
    
    
    
    (228
    )Net cash inflow from operating
activities
    
    
    4,566
    
    
    
    4,825
    
    
    
    4,706Pension deficit payments
    
    
    1,030
    
    
    
    525
    
    
    
    Net capital expenditure
    
    
    (2,630
    )
    
    
    (2,480
    )
    
    
    (3,038
    )Purchase of non-current
asset investments
    
    
    (18
    )
    
    
    
    
    
    
    Dividends from associates and
joint ventures
    
    
    7
    
    
    
    3
    
    
    
    6Interest paid
    
    
    (973
    )
    
    
    (956
    )
    
    
    (956
    )Interest received
    
    
    29
    
    
    
    16
    
    
    
    19Reported free cash flow
    
    
    2,011
    
    
    
    1,933
    
    
    
    737Pension deficit payments
    
    
    (1,030
    )
    
    
    (525
    )
    
    
    Acquisitions and disposals
    
    
    64
    
    
    
    (68
    )
    
    
    (227
    )Net sale (purchase) of current
financial assets
    
    
    365
    
    
    
    (246
    )
    
    
    286Net (repayment) receipt of
borrowings
    
    
    (1,991
    )
    
    
    (497
    )
    
    
    522Dividends paid
    
    
    (543
    )
    
    
    (265
    )
    
    
    (1,222
    )Net issue (purchase) of treasury
shares
    
    
    8
    
    
    
    4
    
    
    
    (209
    )Foreign exchange
    
    
    (3
    )
    
    
    (7
    )
    
    
    54Net (decrease) increase in cash
and cash equivalents
    
    
    (1,119
    )
    
    
    329
    
    
    
    (59
    )Cash and cash equivalents at
the start of the year
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174Cash and cash equivalents at
the end of the year
    
    
    325
    
    
    
    1,444
    
    
    
    1,115
 50




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FINANCIAL REVIEW
  Cash generated from operations
  Net income taxes (paid) received
 Taxation
 Net capital expenditure
  Interest
   Acquisitions and disposals
   Net sale (purchase) of current and non-current financial assets
  Net (repayment) receipt of borrowings
 
 Net purchase of shares
   
 Taxation
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     51




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FINANCIAL REVIEW
           
 FUNDING AND CAPITAL MANAGEMENT
 
 Capital management and funding policy
        52




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FINANCIAL REVIEW
  Movements in net debt
 £m
    
    
    
    
    
    
    
    
    
    ForeignexchangeAt
    
    
    
    
    
    
    and fair
    
    
    
    
    
    
    At1 April
    
    
    Cash
    
    
    value
    
    
    Other
    
    
    31 March2010
    
    
    flow
    
    
    movements
    
    
    movements
    
    
    2011Bank overdrafts
    
    
    8
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    26Debt due within
1 year
    
    
    3,261
    
    
    
    (2,331
    )
    
    
    (491
    )
    
    
    20
    
    
    
    459Debt due after
1 year
    
    
    9,522
    
    
    
    340
    
    
    
    (511
    )
    
    
    20
    
    
    
    9,371Cash at bank and
in hand
    
    
    (197
    )
    
    
    53
    
    
    
    3
    
    
    
    
    
    
    
    (141
    )Cash equivalents
    
    
    (1,255
    )
    
    
    1,045
    
    
    
    
    
    
    
    
    
    
    
    (210
    )Current asset
investments
    
    
    (406
    )
    
    
    365
    
    
    
    33
    
    
    
    (11
    )
    
    
    (19
    )10,933
    
    
    
    (510
    )
    
    
    (966
    )
    
    
    29
    
    
    
    9,486Adjustmentsa
    
    
    (1,650
    )
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    (670
    )Net debt
    
    
    9,283
    
    
    
    (510
    )
    
    
    14
    
    
    
    29
    
    
    
    8,816
 a
    Adjustments to net debt of £670m at 31 March 2011 (2010: £1,650m) comprise £408m
(2010: £1,326m) arising from the re-translation of currency denominated balances at swapped rates
where hedged and £262m (2010: £324m) to remove fair value adjustments and accrued interest.
 
    Funding valuation and future funding obligations
 
   
 a
    Balances reported at swapped rates where hedged.
 BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     53




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FINANCIAL REVIEW
   
 Contractual obligations and commitments
   Contractual obligations and commitments
 Payments due by periodLess
    
    
    Between
    
    
    Between
    
    
    Morethan 1
    
    
    1 and 3
    
    
    3 and 5
    
    
    than 5£m
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsLoans and other
borrowingsa
    
    
    9,565
    
    
    
    483
    b
    
    
    1,722
    
    
    
    2,087
    
    
    
    5,273Finance lease
obligations
    
    
    294
    
    
    
    2
    
    
    
    35
    
    
    
    22
    
    
    
    235Operating lease
obligations
    
    
    7,192
    
    
    
    464
    
    
    
    853
    
    
    
    756
    
    
    
    5,119Capital
commitments
    
    
    467
    
    
    
    455
    
    
    
    10
    
    
    
    1
    
    
    
    1Pension deficit
obligations
    
    
    9,962
    
    
    
    
    
    
    
    1,183
    
    
    
    1,256
    
    
    
    7,523Total
    
    
    27,480
    
    
    
    1,404
    
    
    
    3,803
    
    
    
    4,122
    
    
    
    18,151
 a
    Excludes fair value adjustments for hedged risks.b
    Includes £266m of accrued interest within less than one year.
 
 Off-balance sheet arrangements
  
 Quantitative and qualitative disclosures about interest, foreign exchange, credit and liquidity risks
  
 Going concern
 Business review Financial review
   
 FINANCIAL POSITION AND RESOURCES
 
 Summarised balance sheet
 2011
    
    
    2010£m
    
    
    £mNon-current assetsGoodwill & acquisition related intangible assets
    
    
    1,566
    
    
    
    1,720Property, plant and equipment & software
    
    
    16,446
    
    
    
    16,808Deferred tax asset
    
    
    461
    
    
    
    2,196Trade and other receivables
    
    
    286
    
    
    
    336Other non-current assets
    
    
    850
    
    
    
    1,33519,609
    
    
    
    22,395Current assetsCash and cash equivalents
    
    
    351
    
    
    
    1,452Trade and other receivables
    
    
    3,332
    
    
    
    3,696Other current assets
    
    
    248
    
    
    
    1,1373,931
    
    
    
    6,285Current liabilitiesTrade and other payables
    
    
    6,114
    
    
    
    6,531Loans and other borrowings
    
    
    485
    
    
    
    3,269Other current liabilities
    
    
    432
    
    
    
    6207,031
    
    
    
    10,420Non-current liabilitiesLoans and other borrowings
    
    
    9,371
    
    
    
    9,522Provisions
    
    
    807
    
    
    
    707Deferred tax liability
    
    
    1,212
    
    
    
    1,456Retirement benefit obligations
    
    
    1,830
    
    
    
    7,864Other non-current liabilities
    
    
    1,338
    
    
    
    1,33714,558
    
    
    
    20,886Total equity (deficit)
    
    
    1,951
    
    
    
    (2,626
    )
  Goodwill and acquisition related intangible assets
  54




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FINANCIAL REVIEW
  Property, plant and equipment and software
  Capital expenditure
   
   Financial statistics
 Deferred tax
  Cash and cash equivalents
 Liquidity Funding and capital management
 Trade and other receivables
  Trade and other payables
  Loans and other borrowings
 Net debt
 Provisions
  Retirement benefit obligations
  2011
    
    
    2010Deficit
    
    £bn
    
    
    £bnAt 1 April
    
    
    (7.9
    )
    
    
    (4.0
    )Current service cost
    
    
    (0.3
    )
    
    
    (0.2
    )Interest
    
    
    (0.1
    )
    
    
    (0.3
    )Actuarial gain (loss)
    
    
    5.2
    
    
    
    (4.3
    )Contributions
    
    
    1.3
    
    
    
    0.9At 31 March
    
    
    (1.8
    )
    
    
    (7.9
    )Deferred tax asset
    
    
    0.4
    
    
    
    2.2Net of deferred tax at 31 March
    
    
    (1.4
    )
    
    
    (5.7
    )
  Equity
  2011
    
    
    2010£m
    
    
    £m(Deficit) equity at 1 April
    
    
    (2,626
    )
    
    
    169Profit for the year
    
    
    1,504
    
    
    
    1,029Other comprehensive income (loss)
    
    
    3,449
    
    
    
    (3,661
    )Dividends to shareholders
    
    
    (543
    )
    
    
    (263
    )Share-based payment
    
    
    68
    
    
    
    81Tax on share-based payment
    
    
    91
    
    
    
    19Net issue of treasury shares
    
    
    8
    
    
    
    4Movements in non-controlling interests
    
    
    
    
    
    
    (4
    )Equity (deficit) at 31 March
    
    
    1,951
    
    
    
    (2,626
    )
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     55




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##### Table of Contents



FINANCIAL REVIEW
  Other comprehensive income
  Treasury shares
  
 Acquisitions and disposals
   Date
    
    InvestmentMay 2010
    
    A 2.6% shareholding in OnLive Inc., a Silicon Valley
based, cloud computing video gaming business. BT
has exclusive rights to bundle the OnLive® Game
Service with broadband in the UK.September 2010
    
    A 14.3% shareholding in YouView TV Limited, a joint
venture between the BBC, ITV, BT, Channel 4 and
others to bring a new free-to-air internet-connected
TV service to UK homes.
  Date
    
    DisposalDecember 2010
and March 2011
    
    A 6.5% interest in our associate Tech Mahindra was
sold for total consideration of £74m.
  
 Legal proceedings
  
 Principal accounting policies, critical accounting estimates and key judgements
   
 ALTERNATIVE PERFORMANCE MEASURES
 
 Introduction
   
 Specific items
  Operating Committee
    Revenue and other operating income
   56




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FINANCIAL REVIEW
  Operating costs
  
    
    BT Global Services restructuring charges of £192m (2010: £301m; 2009: £280m). This
included people and property charges of £129m (2010: 132m; 2009: £51m) principally comprising
leaver costs and property exit costs and networks, products and procurement channels rationalisation
charges of £41m (2010: £142m; 2009: £183m) from rationalising legacy networks, including the
associated systems and processes. In 2010, the charge of £142m included a payment of £127m made to Tech Mahindra
for the renegotiation of certain supply contracts as part of the rationalisation of procurement
channels. In addition intangible asset impairments and other charges of £22m were recognised (2010:
£27m; 2009: £46m). Further BT Global Services restructuring charges of around £50m are expected to
be incurred in 2012 principally in relation to the network rationalisation programme.
    
    Property rationalisation charges of £88m (2010: £121m; 2009: £nil) in relation to the
rationalisation of the groups UK property portfolio.
    
    Intangible assets impairment charges of £49m (2010 and 2009: £nil) relating to goodwill and brands.
    
    BT Global Services contract and financial review charges of £1,598m were
recognised in 2009.
    
    A charge of £65m in respect of the groups transformation and reorganisation
activities was recognised in 2009.
    
    A £50m charge was recognised in 2009 comprising £31m of asset impairments and £19m of
associated costs, following the groups review of its 21CN programme and associated voice strategy.
 Net finance expense
  Associates and joint ventures
  Taxation
  
    
    Tax credit of £72m (2010: £190m; 2009: £414m) on the specific items detailed above.
    
    Tax credit of £172m (2010 and 2009: £nil) for the re-measurement of deferred tax
balances as a result of the change in the UK statutory corporation tax rate from 28% to 26%
effective in 2012.
    
    In 2010 the group agreed substantially all outstanding tax matters with HMRC relating to
the 2008, 2007 and 2006 tax years resulting in a tax repayment. Specific items in 2010 included a tax credit of £230m,
associated interest of £11m on the repayment and operating costs of £5m representing costs
associated with the settlement.
 
 EBITDA
   Segment information
 2011
    
    
    2010
    
    
    2009£m
    
    
    £m
    
    
    £mOperating profit
    
    
    2,578
    
    
    
    2,123
    
    
    
    301Depreciation and
amortisation
    
    
    2,979
    
    
    
    3,039
    
    
    
    2,890Reported EBITDA
    
    
    5,557
    
    
    
    5,162
    
    
    
    3,191Specific items
    
    
    329
    
    
    
    477
    
    
    
    2,047Adjusted EBITDA
    
    
    5,886
    
    
    
    5,639
    
    
    
    5,238
 
 Adjusted earnings per share
  PenceYear ended 31 March 2011
    
    per share
    
    
    £mBasic earnings per share/profita
    
    
    19.4
    
    
    
    1,502Specific items
    
    
    1.6
    
    
    
    127Adjusted basic earnings per share/profit
    
    
    21.0
    
    
    
    1,629
 PenceYear ended 31 March 2010
    
    per share
    
    
    £mBasic earnings per share/profita
    
    
    13.3
    
    
    
    1,028Specific itemsb
    
    
    4.0
    
    
    
    308Adjusted basic earnings per share/profitb
    
    
    17.3
    
    
    
    1,336
 PenceYear ended 31 March 2009b
    
    per share
    
    
    £mBasic loss per share/(loss)a
    
    
    (2.5
    )
    
    
    (193
    )Specific itemsb
    
    
    16.6
    
    
    
    1,284Adjusted basic earnings per share/profitb
    
    
    14.1
    
    
    
    1,091
 a
    The stated profit (loss) amounts are the component of the total profit (loss)
which is attributable to equity shareholders excluding non-controlling interests.b
    Re-presented  see page 56.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     57




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FINANCIAL REVIEW
  
 Free cash flow
      2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mNet cash inflow from operations
    
    
    4,566
    
    
    
    4,825
    
    
    
    4,706Add back pension deficit payment
    
    
    1,030
    
    
    
    525
    
    
    
    Included in cash flows from investing
activitiesNet capital expenditure
    
    
    (2,630
    )
    
    
    (2,480
    )
    
    
    (3,038
    )Interest received
    
    
    29
    
    
    
    16
    
    
    
    19Dividends received from associates
    
    
    7
    
    
    
    3
    
    
    
    6Purchase of non-current financial
assets
    
    
    (18
    )
    
    
    
    
    
    
    Included in cash flows from financing
activitiesInterest paid
    
    
    (973
    )
    
    
    (956
    )
    
    
    (956
    )Reported free cash flow
    
    
    2,011
    
    
    
    1,933
    
    
    
    737Net cash outflow from specific items
    
    
    212
    
    
    
    173
    
    
    
    35Adjusted free cash flow
    
    
    2,223
    
    
    
    2,106
    
    
    
    772
  
 Net debt
     2011
    
    
    2010At 31 March
    
    £m
    
    
    £mLoans and other borrowings
    
    
    9,856
    
    
    
    12,791Less:Cash and cash equivalents
    
    
    (351
    )
    
    
    (1,452
    )Current asset investments
    
    
    (19
    )
    
    
    (406
    )9,486
    
    
    
    10,933Adjustments:To retranslate currency denominated
balances at swapped rates where hedged
    
    
    (408
    )
    
    
    (1,326
    )To remove fair value adjustments
and accrued interest applied to reflect
the effective interest method
    
    
    (262
    )
    
    
    (324
    )Net debt
    
    
    8,816
    
    
    
    9,283
 58




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##### Table of Contents



REPORT OF THE DIRECTORS
  60
    
    BOARD OF DIRECTORS AND OPERATING COMMITTEE60
    
    Chairman60
    
    Executive directors60
    
    Company Secretary60
    
    Operating Committee61
    
    Non-executive directors62
    
    THE BOARD62
    
    Corporate governance statement62
    
    Directors63
    
    Governance and role of the Board63
    
    Directors powers to authorise conflicts of interest63
    
    BTs non-executive directors64
    
    Main Board committees64
    
    New York Stock Exchange65
    
    REPORT OF THE AUDIT & RISK COMMITTEE65
    
    Introduction65
    
    Committee role66
    
    Committee activities67
    
    REPORT OF THE NOMINATING & GOVERNANCE COMMITTEE67
    
    Introduction67
    
    Committee role67
    
    Committee activities67
    
    Board evaluation68
    
    REPORT OF THE COMMITTEE FOR SUSTAINABLE & RESPONSIBLE BUSINESS68
    
    Introduction68
    
    Committee role68
    
    Committee activities69
    
    REPORT ON DIRECTORS REMUNERATION69
    
    Overview69
    
    Introduction69
    
    Remuneration policy (not audited)77
    
    Remuneration review (audited)82
    
    DIRECTORS INFORMATION82
    
    Election and re-election82
    
    Meetings attendance82
    
    Service agreements82
    
    Training and information82
    
    Independent advice82
    
    Directors and officers liability insurance and indemnity82
    
    Interest of management in certain transactions83
    
    BUSINESS POLICIES83
    
    Responsible business83
    
    Political donations83
    
    Pension funds83
    
    Financial statements83
    
    Takeover Directive disclosure84
    
    Financial instruments84
    
    Internal control and risk management85
    
    US Sarbanes-Oxley Act of 200285
    
    Disclosure controls and procedures85
    
    Internal control over financial reporting86
    
    SHAREHOLDERS AND ANNUAL GENERAL MEETING86
    
    Relations with shareholders86
    
    Substantial shareholdings86
    
    AGM resolutions86
    
    Authority to purchase shares
 BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     59




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 BOARD OF DIRECTORS AND OPERATING COMMITTEE
  Sir Michael Rake
 d,e,f
 Nominating & Governance Committee Committee for
Sustainable & Responsible Business Pension Scheme Performance Review Group
  
 
  Ian Livingston
 a,f
 Operating Committee Pension Scheme Performance Review Group
 Tony Chanmugam
 a
 Operating Committee
 
 Gavin Patterson
 a,e
 Operating Committee Committee for Sustainable
& Responsible Business
 
 
  Andrew Parker
  
 
  Ian Livingston  Tony Chanmugam  Sally Davis  Jeff Kelly  Roel Louwhoff  Gavin Patterson  Clive Selley
 Key to membership of Board committees:
 a  b  c  d  e  f  g
 
   60




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REPORT OF THE DIRECTORS
  Tony Ball c,d
 Remuneration Nominating & Governance Committees
 Clayton Brendish b,d,e
 Audit & Risk Nominating & Governance Committees Committee for Sustainable & Responsible
Business
 J Eric Daniels c,d
 Remuneration Nominating & Governance Committees
 Rt Hon Patricia Hewitt b,c,d,f
 Remuneration Committee Pension Scheme Performance Review Group Audit
& Risk Nominating & Governance Committees
 Phil Hodkinson b,d,e,f
 Audit & Risk
Committee Nominating & Governance Committee, Committee for Sustainable &
Responsible Business, Pension Scheme Performance Review Group
 Nicholas
Rose b
 Audit & Risk
Committee
 Carl G Symon b,c,g
 Equality of
Access Board Audit & Risk Remuneration Committees
 Jasmine
Whitbread e
 Committee
for Sustainable & Responsible Business
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     61




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REPORT OF THE DIRECTORS
 
 THE BOARD
  
    
    Corporate governance statement
    
    Directors
    
    Governance and role of the Board
    
    Directors powers to authorise conflicts of interest
    
    BTs non-executive directors
    
    Main Board committees
    
    New York Stock Exchange
   Key activities
 
    
    With operations worldwide, the BT governance framework has to reflect diverse cultures and
regulatory environments. During the year we reviewed our corporate governance framework.
    
    We have extended the role of the Audit Committeeto reflect an increased focus on risk. The Audit
& Risk Committeerecommends to the Board the groups risk appetite and reviews its risk profile.
    
    We have extended the remit of the Nominating Committee
(now the Nominating & Governance Committee) to give it the responsibility for oversight of
governance and compliance issues.
    
    We also established five regional governance committees to have oversight of BTs group-wide
governance policies across their region, particularly focusing on corporate governance and
compliance, ethics, business principles, and data retention and protection.
    
    We have commented on many of the various recent consultations on governance, including those
leading to the new UK Corporate Governance Code, and the associated Guidance on Board
Effectiveness.
  Business review
 
 Corporate governance statement
 www.frc.org.uk/corporate/combinedcode.cfm
  
 Directors
 Board of
Directors and Operating Committee
  New directors
    
    Date of appointmentNick Rose
    
    1 January 2011Jasmine Whitbread
    
    19 January 2011
 
   62




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##### Table of Contents



REPORT OF THE DIRECTORS
  Governance and role of the Board
  Board composition
 
    
    
    strategy
    
    development
    
    growing shareholder value
    
    oversight and control
    
    corporate governance.
  
    
    values, ethics and business policies and practices
    
    strategic plans
    
    annual budget
    
    capital
expenditure and investments budgets
    
    larger capital expenditure proposals
    
    the overall system of
internal controls, governance and compliance authorities.
 www.bt.com/board
 Operating Committee
  Nominating & Governance Committee Nominating & Governance Committee Board of directors and Operating Committee
  
 Directors powers to authorise conflicts of interest
  
    
    consider each conflict situation separately on
its particular facts
    
    consider the conflict situation in conjunction with the rest of their duties
under the 2006 Act
    
    keep records and Board minutes as to authorisations granted by directors and
the scope of any approvals given
    
    regularly review conflict authorisation.
 
 BTs non-executive directors
 Nominating & Governance Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     63




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##### Table of Contents



REPORT OF THE DIRECTORS
  Remuneration Committee
  Main Board committees
  
 Main Board committees
 Operating Committee Operating Committee
 Audit & Risk Committee Remuneration Committee Nominating & Governance Committee Report of the Audit & Risk Committee Report of the Nominating & Governance Committee Report on directors remuneration Report of the Committee for Sustainable
& Responsible business The
Equality of Access Board
 Pension Scheme Performance Review Group
 
 New York Stock Exchange
  Nominating & Governance Committee Report of the Nominating & Governance
Committee Nominating & Governance Committees Nominating & Governance Committee
 
   64




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REPORT OF THE DIRECTORS
 
 REPORT OF THE AUDIT & RISK COMMITTEE
  Introduction
 Audit & Risk
Committee
 Audit & Risk Committee
 Audit & Risk Committee Audit & Risk Committee
 
 Committee role
 www.bt.com/committees
 Audit & Risk Committee Notes to the consolidated
financial statements
 Audit & Risk Committee
  Audit & Risk Committee
  Audit & Risk Committee Nominating & Governance Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     65




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##### Table of Contents



REPORT
OF THE DIRECTORS
  Committee activities
  Audit & Risk Committees
 Month
    
    ConsiderationApril
    
       BT Global Services major contract review   Review of the internal control requirements under
the Code including risk management processes   Sarbanes-Oxley Act update   Draft Annual Report & Form 20-F 2010   Going concern considerations.May
    
       Review of external audit and non-audit fees   The Annual Report & Form 20-F 2010, full year
results, announcement and related formal
statements   Corporation tax provisions   Review of the internal control requirements under
Sarbanes-Oxley   Annual report on the performance of Internal Audit   Internal Audit year end Corporate Summary Report   Annual update on whistleblowing, litigation trends
and major litigation report   External auditors report.July
    
       BTs risk management framework   BT Security and Anti-Trust update   First quarter results, announcement and related
formal statements   External auditors reportSeptember
    
       Review of external auditors effectiveness.November
    
       Review of fees for audit and non-audit services   Half year results, announcement and related formal
statements   Going concern assessment   External audit plan   BT Global Services major contracts review   Internal Audit Half-Year Performance Report   Review of internal control requirements under the
Code and Sarbanes-Oxley   Annual review of Committee terms of reference   External auditors reportJanuary
    

   Internal Audit report   Risk management review update   Audit Committee effectiveness   Sarbanes-Oxley update   Third quarter results, announcement and related
formal statements   External auditors report   Annual review of accounting policies   BT Innovate & Design risk update.
    
    
    the work they had done to test managements assumptions and estimates and how they had satisfied
themselves that these were reasonable;
    
    they had reviewed the groups application of its
accounting policies; and
    
    the results of their testing of the controls and other procedures
carried out in the major overseas locations and the issues they had found there.
 
   66




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REPORT OF THE DIRECTORS
 
 REPORT OF THE NOMINATING & GOVERNANCE COMMITTEE
  Introduction
 Nominating & Governance
Committee
 Nominating & Governance Committee
  
 Committee role
 www.bt.com/committees Nominating & Governance Committee
  
 Committee activities
     
    
    the appointment of both Patricia Hewitt and Eric Daniels be extended for three years following
the expiry of their respective initial three year terms
    
    the appointment of Nick Rose as a
non-executive director to strengthen the Board capability in the assessment of audit and risk
issues, as he had held senior executive positions in various industries
    
    the appointment of
Jasmine
Whitbread as a non-executive director to bring valuable experience to the Board on corporate
responsibility, an area where she has held senior positions both in the UK and globally
    
    the appointment of Carl Symon be extended for one year following the expiry of a nine year term
and having reviewed his independence
    
    the continuation of the Chairman in his role, having served
for three years, following a review of his performance as part of the Board evaluation.
     
    
    recommended the formation of five RGCs namely: UK and Republic of Ireland; US and Canada; Latin
America; Europe, Middle East and Africa; and AsiaPac and agreed their terms of reference;
    
    received a first report in relation to the establishment of each RGC;
    
    received a summary of the
roll-out of BTs ethics adequate procedures programme: and
    
    reviewed the new whistleblowing
procedures and confidential hotline.
 Nominating & Governance Committee
 
 Board evaluation
  
    
    a review was undertaken of the composition of the Board and its Committees. A number of changes
have been proposed which have been implemented;
    
    the remit of the Audit & Risk Committeehas been
extended to cover greater focus on risk management; and
    
    regular updates and training have been
provided to the Board which have covered areas such as the UK Bribery Act 2010 and governance
developments, and updates on particular areas of BTs business operations.
   Audit & Risk Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     67




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REPORT OF THE DIRECTORS
 
 REPORT OF THE COMMITTEE FOR SUSTAINABLE & RESPONSIBLE BUSINESS
  Introduction
 Committee for Sustainable & Responsible Business
 
 Committee role
  
 Committee activities
  
    
    the CR strategy and key performance indicators;
    
    community and charity
support programmes;
    
    the development of BTs volunteering and sustainability skills programmes;
    
    activities supporting BTs environment and climate change programmes; and
    
    proposals relating to
the development of BTs low carbon economy ICT solutions.
 
   68




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REPORT OF THE DIRECTORS
 
 REPORT ON DIRECTORS REMUNERATION
  Overview
 
    
    As outlined in the Chairmans message, the executive team has made considerable progress in a
challenging year, achieving or exceeding demanding objectives for profitability and cash
generation. The Chief Executive was therefore awarded a bonus of 126%
of target (79% of the maximum
opportunity), compared with 142% of target (71% of the maximum) for the previous year. Half of the
bonus will be paid in cash and the remaining half will be deferred into shares receivable in three
years time, subject to continued employment as well as a clawback condition. Whilst customer
service improved during the year, the level of improvement was insufficient to justify a payment
for that component of the annual bonus.
    
    During 2011 the Remuneration Committee reviewed the executive pay structure to ensure that it
remains closely aligned to BTs corporate strategy and shareholders interests. The Chair of the
Committee led a consultation with major investors and representative bodies as part of the review.
    
    The Committee agreed to maintain our policy position of setting basic salaries below the median
of our comparator group, so that executive directors can only achieve upper quartile total rewards
for exceptional performance in line with stretching performance targets.
    
    As BT moves towards achieving profitable growth, alongside a continuing focus on customer service
and cost transformation, the Committee decided to strengthen incentives for long-term performance.
In particular, we will increase the element of the annual bonus dependent upon individual and
role-specific performance aligned with our long-term strategy, and add a new measure of three-year
revenue growth to the long-term incentive shares.
    
    We have reviewed base salaries and, where appropriate, increased them to bring them closer
towards, but still below or around median levels in comparable companies. In making these
decisions, we took account of the position of all BTs employees who will benefit from pay
increases and annual bonuses based on the companys performance in 2011.
    
    BTs executive share plans reach the end of their 10-year life in October 2011. The Committee has
agreed that renewed plans should be adopted, generally in the same
form as the current plans but updated and amended
to reflect best practice and current legislation. Shareholders will
be asked to approve the adoption
of the plans for a further 10 years at the 2011 Annual General Meeting.
 
 Introduction
   
 Remuneration policy
        
    
    all employees, including directors, are paid by reference to the market rate
    
    performance is
measured and rewarded through a number of performance-related bonus schemes across the group
    
    business unit performance measures are cascaded down through the organisation
    
    BT offers employment conditions that reflect our values and are commensurate with a large
publicly listed company, including high standards of health and safety and equal opportunities
    
    BT operates all-employee share plans which are open to all employees and executive directors
alike
    
    BT offers benefits which are available to everyone.
 Audit & Risk Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     69




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##### Table of Contents



REPORT OF THE DIRECTORS
  www.bt.com/committees
    
    
    Eric Daniels
    
    Carl Symon
    
    Sir Michael Rake (member until 31 May 2010).
       Ian Livingston
    
    
    Tony Chanmugam
    
    
    Gavin PattersonBase salary
    
    £892,000
    
    
    
    £504,000
    
    
    
    £521,000Annual bonusCash
    
    £1,415,250
    
    
    
    £604,350
    
    
    
    £645,750Deferred shares
    
    726,514 sharesa
    
    232,680 sharesa
    
    248,620 sharesaPensionb
    
    £32,000
    
    
    
    £151,000
    
    
    
    £104,000Other benefits
    
    Company car, fuel or driver, personal telecommunications facilities, medical cover, financial planningIncentive shares  awarded
    
    1,675,769 shares
    
    707,546 shares
    
    744,786 shares vested
    
    
    
    
    
    
    
    
    
     lapsed
    
    1,499,425
    
    
    
    155,818
    
    
    
    735,010Deferred shares  vested
    
    142,312 shares
    
    38,422 shares
    
    58,931 sharesShareholding requirement
    
    200% salary
    
    150% salary
    
    150% salary
 a
    Awards of deferred shares are expected to be granted in June 2011. An indication of
the number of shares to be granted has been calculated by using the share price (194.8p) on 6 May
2011.b
    Pension allowance paid in cash for 2011  see Pensions on page 78.
 
   70




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##### Table of Contents



REPORT OF THE DIRECTORS
  Salaries
  Annual bonus
  Chief Executive
    
    Executive directorsAnnual cash bonus
    
    target 125% salary
maximum 200% salary
    
    target 100% salary
maximum 150% salaryDeferred bonus into 
shares
    
    target 125% salary
maximum 200% salary
    
    target 75% salary
maximum 112.5%
salaryTotal bonus
    
    target 250% salary
maximum 400% salary
    
    target 175% salary 
maximum 262.5%
salary
  Clawback
  STRUCTURE OF ANNUAL BONUS 2011ADJUSTED
EARNINGS PER SHARE (EPS)
    
    
    30%+REPORTED FREE CASH FLOW
    
    
    30%+CUSTOMER SERVICE IMPROVEMENT
    
    
    20%+ENVIRONMENTAL, SOCIAL AND
GOVERNANCE OBJECTIVES (ESG)
    
    
    10%+ROLE-SPECIFIC OBJECTIVES
    
    
    10%=TOTAL
    
    
    100%
 Our strategy
 Measure (weighting)
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    ActualEPS (30%)
    
    
    15
    %
    
    
    30
    %
    
    
    60
    %
    
    
    60
    %Free cash flow (30%)
    
    
    15
    %
    
    
    30
    %
    
    
    60
    %
    
    
    60
    %Customer service (20%)
    
    
    10
    %
    
    
    20
    %
    
    
    40
    %
    
    
    0
    %Sub-total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120
    %ESG (10%)
    
    
    5
    %
    
    
    10
    %
    
    
    20
    %
    
    
    
    aRole-specific objectives (10%)
    
    
    5
    %
    
    
    10
    %
    
    
    20
    %
    
    
    
    a
 a
    Performance is assessed on an individual basis.
   Business review
     Deferred shares
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     71




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##### Table of Contents



REPORT OF THE DIRECTORS
 Incentive shares
      
    
    At present, incentive shares are based equally on relative
total shareholder return (TSR) and three-year free cash flow. We
will retain both measures, which are critical to delivering shareholder value. In order to increase
the alignment of pay with our focus on long-term profitable growth, we will also
introduce a further measure, worth 20%, based on long-term revenue growth. The remaining 80% will
be split equally between TSR and free cash flow.
    
    The new revenue growth measure is based on underlying revenue
excluding transit revenue as transit traffic is low-margin and is
significantly affected by reductions in regulatory mobile termination
rates which have no impact on the groups profitability.
    
    Our policy is to set measures for the incentive shares for free cash flow and long-term revenue
growth so that they are appropriately stretching. The threshold
performance level, which must be achieved before
shares vest, is established above market expectations when targets are set and the maximum award is
only available for outstanding performance.
The Committee has decided that the revenue element of the award will
begin to vest only if revenue in 2014 is higher than the baseline of
2011. In the face of a tough regulatory environment and intense
competition, the Committee believes that the targets they have set
for remuneration purposes are very challenging.
    
    In order to allow greater differentiation between individuals contribution to the companys
strategic priorities, we will increase the weighting in the annual bonus on personal and
role-specific objectives aligned with our strategy. For the Chief Executive and Group Finance
Director, corporate performance (EPS, free cash flow and customer service) will represent 75% of
the scorecard; personal and role-specific objectives aligned with our strategy 15%, and ESG
performance 10%. For the other executive director, 60% will be linked to corporate objectives, 15%
to business unit objectives, 15% to personal objectives and 10% to ESG performance.
    
    In order to strengthen the alignment with shareholders interests, the customer service element
of the annual bonus will only be paid if the minimum EPS threshold is also achieved.
         Ian Livingston
 
 Tony Chanmugam
 
 Gavin Patterson
 
 
 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.b

    Actual remuneration comprises base salary, actual cash bonus and the value received from deferred
shares and incentive shares (awards granted in 2007 and vested in 2010) during the financial year.
  Incentive shares
 *
 *

    For the grant of share awards and options, references to 2008, 2009, etc., are to the calendar year
and not the financial year.
 
   72




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##### Table of Contents



REPORT OF THE DIRECTORS
  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
   Historical vesting for executive share plans
    Share optionsYear of
    
    Performance
    
    
    Incentive shares
    
    
    percentagegrant
    
    period
    
    
    percentage vesting
    
    
    vesting2004
    
    
    2004-2007
    
    
    
    55
    %
    
    
    58%2005
    
    
    2005-2008
    
    
    
    25
    %
    
    
    2006
    
    
    2006-2009
    
    
    
    0
    %
    
    
    2007
    
    
    2007-2010
    
    
    
    0
    %
    
    
    2008
    
    
    2008-2011
    
    
    
    0
    %
    
    
    Average annual vesting
    
    
    16
    %
    
    
    
   TSR
vesting schedule for awards of incentive shares granted in 2009 and
2010
  
   Clawback
  Retention shares
  Share options
   Renewal of executive share plans
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     73




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##### Table of Contents



REPORT OF THE DIRECTORS
  Other share plans
  Dilution
   Executive share ownership
   Pensions
    Other benefits
  Service agreements
  Outside appointments
  Non-executive directors letters of appointment
 BTs non-executive directors
 Non-executive directors remuneration
 
   74




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##### Table of Contents



REPORT OF THE DIRECTORS
  AdditionalCommittee
    
    Members fee
    
    
    Chairmans feeAudit & Risk
    
    £
    15,000
    
    
    £
    15,000Remuneration
    
    £
    10,000
    
    
    £
    10,000Nominating & Governance
    
    
    £7,500
    
    
    
    £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
    
    (IMAGE)
    
    The contract is terminable by the company on 12 months notice and by the
director on six months notice.Non-executive
directorsC Brendish
    
    1 September 2002
    
    
    
    Letter of appointment was for an initial period of three years. The
appointment was extended for three years in 2005 and by a further three
years in 2008. The appointment will terminate on 31 August 2011. The
appointment is terminable by the company or the director on three months
notice.C G Symon
    
    14 January 2002
    
    
    
    Letter of appointment was for an initial period of three years. The
appointment was extended for three years in 2005 and by a further three
years in 2008. The appointment was extended in January 2011 for
12 months. The appointment will terminate on 13 January 2012. The
appointment is 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
    
    1 April 2008
24 March 2008
    
    (IMAGE)
    
    Letters of appointment were for an initial period of three years and are
terminable by the company or the director on three months notice. The
appointments were extended for three years in March 2011.T Ball
    
    16 July 2009
    
    
    
    Letter of appointment is for an initial period of three years. The
appointment is terminable by the company or the director on three months
notice.N Rose
J Whitbread
    
    1 January 2011
19 January 2011
    
    (IMAGE)
    
    Letters of appointment are for an
initial period of three years.
The appointments are terminable by the company or the director on
three months notice.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     75




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##### Table of Contents



REPORT OF THE DIRECTORS
  Directors interests
 1 April 2010,
 Number of sharesBeneficial holdings
    
    2011
    
    
    2010Sir Michael Rake
    
    
    109,710
    
    
    
    108,362I Livingstona
    
    
    1,155,545
    
    
    
    1,084,513T Chanmugama
    
    
    224,416
    
    
    
    205,629G Pattersona
    
    
    439,473
    
    
    
    409,181T Ball
    
    
    15,000
    
    
    
    15,000C Brendish
    
    
    44,670
    
    
    
    41,920J E Daniels
    
    
    12,647
    
    
    
    12,647P Hewitt
    
    
    12,391
    
    
    
    10,554P Hodkinson
    
    
    16,683
    
    
    
    16,683N Roseb
    
    
    50,000
    
    
    
    C G Symon
    
    
    20,056
    
    
    
    20,056J Whitbreadc
    
    
    640
    
    
    
    Total
    
    
    2,101,231
    
    
    
    1,924,545
 a

    Includes free shares awarded under the ESIP.b

    Nick Rose was appointed on 1
January 2011.c

    Jasmine Whitbread was appointed on 19 January 2011.
   Performance graph
  
 Source: Datastream
The graph shows the relative TSR performance of BT and the FTSE 100 over the past five years.
 
   76




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##### Table of Contents



REPORT OF THE DIRECTORS
  Remuneration review
 The remainder of the Report on directors remuneration is subject to audit.
 Directors emoluments
  Pensionallowance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherBasic
    
    
    net
    
    
    
    
    
    
    Annual
    
    
    
    
    
    
    benefitssalary and
    
    
    of pension
    
    
    Total salary
    
    
    bonus
    
    
    Expense
    
    
    excluding
    
    
    Total
    
    
    Total
    
    
    Deferred sharesbfees
    
    
    contributionsa
    
    
    and fees
    
    
    cash
    
    
    allowance
    
    
    pension
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000Sir Michael Rakec
    
    
    613
    
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    638
    
    
    
    670
    
    
    
    
    
    
    
    I Livingstonc
    
    
    892
    
    
    
    32
    
    
    
    924
    
    
    
    1,415
    
    
    
    
    
    
    
    20
    
    
    
    2,359
    
    
    
    2,105
    
    
    
    1,415
    
    
    
    1,206T Chanmugamc,d,e
    
    
    504
    
    
    
    151
    
    
    
    655
    
    
    
    604
    
    
    
    19
    
    
    
    12
    
    
    
    1,290
    
    
    
    1,109
    
    
    
    453
    
    
    
    346G Pattersonc,d
    
    
    521
    
    
    
    104
    
    
    
    625
    
    
    
    645
    
    
    
    19
    
    
    
    11
    
    
    
    1,300
    
    
    
    1,133
    
    
    
    484
    
    
    
    365T Ball
    
    
    73
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    53
    
    
    
    
    
    
    
    C Brendish
    
    
    82
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    80
    
    
    
    
    
    
    
    J E Daniels
    
    
    76
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    75
    
    
    
    
    
    
    
    P Hewitt
    
    
    152
    
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152
    
    
    
    128
    
    
    
    
    
    
    
    P Hodkinson
    
    
    102
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    100
    
    
    
    
    
    
    
    N Rosef
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    C G Symong
    
    
    152
    
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    168
    
    
    
    174
    
    
    
    
    
    
    
    J Whitbreadh
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    3,197
    
    
    
    287
    
    
    
    3,484
    
    
    
    2,664
    
    
    
    38
    
    
    
    84
    
    
    
    6,270
    
    
    
    5,627
    
    
    
    2,352
    
    
    
    1,917Termination paymentsH Lalanii
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    612
    
    
    
    1316,882
    
    
    
    5,758
 a

    Pension allowance paid in cash for 2011  see Pensions on page 78.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 directors 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 received a payment of £315,000 in May 2010.f

    Nick Rose was appointed as a director on 1 January 2011.g

    Includes an additional fee for regular travel to Board and Board committee meetings.h

    Jasmine Whitbread was appointed as a director on 19 January 2011.i

    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 his benefits to which
he was entitled amounting to £195,000
per annum, continued to be provided until 10 January 2011.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     77




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##### Table of Contents



REPORT OF THE DIRECTORS
  Former directors
  Committee for Sustainable
& Responsible Business
   Loans
  Pensions
      Increases in pension benefits at 31 March 2011
 Transfervalue ofincreaseChange
    
    
    
    
    
    
    in accruedin transfer
    
    
    Additional
    
    
    benefits invalue c-d
    
    
    accrued benefits
    
    
    e lessless directors
    
    
    earned in
    
    
    directorsAccrued pension
    
    
    Transfer value of accrued benefits
    
    
    contributions
    
    
    the year
    
    
    contributions2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2011
    
    
    2011£000a
    
    
    £000b
    
    
    £000c
    
    
    £000d
    
    
    £000
    
    
    £000e
    
    
    £000fT Chanmugamg
    
    
    191
    
    
    
    180
    
    
    
    4,197
    
    
    
    3,536
    
    
    
    661
    
    
    
    3
    
    
    
    51
 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 he would have been entitled had he left the company on 31 March 2011 and 2010, respectively.c

    Transfer value of the deferred pension in column (a) as at 31 March 2011 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 2010 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

    Tony Chanmugams contributions in the financial year 2011 were £nil (2010: £nil).
 
   78




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##### Table of Contents



REPORT OF THE DIRECTORS
  Share options held at 31 March 2011, or date of appointment if later
 Number of shares under option1 April 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Usual dateor date of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    Option price
    
    
    from which
    
    
    Usual expiryappointment if later
    
    
    Granted
    
    
    Lapsed
    
    
    Exercised
    
    
    2011
    
    
    per share
    
    
    exercisable
    
    
    dateSir Michael Rake
    
    
    12,110
    a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,110
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013
    
    
    
    1,485
    b
    
    
    
    
    
    
    
    
    
    
    1,485
    
    
    
    104p
    
    
    
    01/08/2015
    
    
    
    01/02/2017I Livingston
    
    
    12,110
    a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,110
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013T Chanmugam
    
    
    37,384
    c
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,384
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/201412,110
    a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,110
    
    
    
    68p
    
    
    
    01/08/2012
    
    
    
    01/02/2013G Patterson
    
    
    98,178
    c
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,178
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/2014Total
    
    
    171,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173,377
 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

    Option granted on 17 June 2010 under the Employee Sharesave Scheme, in which all employees of the company are entitled to participate.c

    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 each options lapsed and 58% of each option became exercisable on 24 June 2007.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     79




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##### Table of Contents



REPORT OF THE DIRECTORS
  Share awards under long-term incentive plans held at 31 March 2011, or date of appointment, if later
  Totalnumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monetaryaward
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    value ofshares
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    vested1 April
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    
    
    
    
    Price
    
    
    price
    
    
    award2010
    
    
    Awarded
    
    
    re-invested
    
    
    Vested
    
    
    Lapsed
    
    
    2011
    
    
    Vesting date
    
    
    on grant
    
    
    at vesting
    
    
    £000I Livingston2008a
    
    
    1,433,332
    
    
    
    
    
    
    
    66,093
    
    
    
    
    
    
    
    1,499,425
    
    
    
    
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    2009b
    
    
    2,037,329
    
    
    
    
    
    
    
    93,945
    
    
    
    
    
    
    
    
    
    
    
    2,131,274
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    2010c
    
    
    
    
    
    
    1,675,769
    
    
    
    77,273
    
    
    
    
    
    
    
    
    
    
    
    1,753,042
    
    
    
    31/3/2013
    
    
    
    134.26p
    
    
    
    
    
    
    
    T Chanmugam2008a
    
    
    148,951
    
    
    
    
    
    
    
    6,867
    
    
    
    
    
    
    
    155,818
    
    
    
    
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    2009b
    
    
    948,755
    
    
    
    
    
    
    
    43,749
    
    
    
    
    
    
    
    
    
    
    
    992,504
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    2010c
    
    
    
    
    
    
    707,546
    
    
    
    32,626
    
    
    
    
    
    
    
    
    
    
    
    740,172
    
    
    
    31/3/2013
    
    
    
    134.26p
    
    
    
    
    
    
    
    G Patterson2008b
    
    
    702,612
    
    
    
    
    
    
    
    32,398
    
    
    
    
    
    
    
    735,010
    
    
    
    
    
    
    
    31/3/2011
    
    
    
    203p
    
    
    
    
    
    
    
    2009b
    
    
    998,689
    
    
    
    
    
    
    
    46,051
    
    
    
    
    
    
    
    
    
    
    
    1,044,740
    
    
    
    31/3/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    2010c
    
    
    
    
    
    
    744,786
    
    
    
    34,343
    
    
    
    
    
    
    
    
    
    
    
    779,129
    
    
    
    31/3/2013
    
    
    
    134.26p
    
    
    
    
    
    
    
    
 a

    Awards 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 would vest subject to meeting a performance condition, on 31 March 2011. The
performance measure was relative TSR compared with a group of 15 companies from the European
Telecom Sector as at 1 April 2008. BTs TSR had to 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. At 31 March 2011, BTs TSR was at 9th
position against the comparator group. As a result all of the awards lapsed on that date.b

    Awards 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.c

    Awards granted on 25 June 2010. 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 two
performance conditions, on 31 March 2013.
 Vesting of outstanding awards of incentive shares
 31 March 2011
    
    
    31 March 2010Free cash
    
    
    Percentage of
    
    
    
    
    
    
    Percentage of
    
    
    Free cash
    
    
    Percentage of
    
    
    
    
    
    
    Percentage ofVesting date
    
    
    flow position
    
    
    shares vesting
    
    
    TSR position
    
    
    shares vesting
    
    
    flow position
    
    
    shares vesting
    
    
    TSR position
    
    
    shares vesting2007a
    
    
    31/3/2010
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    14
    
    
    
    0%
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    0%2008b
    
    
    31/3/2011
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    9
    
    
    
    0%
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    0%2009c
    
    
    31/3/2012
    
    
    
    100%
    
    
    
    50%
    
    
    
    4
    
    
    
    50%
    
    
    
    100%
    
    
    
    50%
    
    
    
    10
    
    
    
    31%2010d
    
    
    31/3/2013
    
    
    
    100%
    
    
    
    50%
    
    
    
    2
    
    
    
    50%
    
    
    
    100%
    
    
    
    50%
    
    
    
    
    
    
    
    
 a

    The performance period for the 2007 awards 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.b

    The performance period for the 2008 awards ended on 31 March 2011. BTs TSR position
was at 9th 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 2009 awards 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 incentives on page 72). The awards will vest subject to meeting the two
performance conditions on 31 March 2012.d

    The performance period for the 2010 awards ends on 31 March 2013. 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 incentives on page 72). The awards will vest subject to meeting the two
performance conditions on 31 March 2013.Note: For awards granted in 2009 and 2010, the vesting level is the anticipated level based on
performance to date.
 
   80




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##### Table of Contents



REPORT OF THE DIRECTORS
  Deferred share awards at 31 March 2011, or date of appointment, if later
  Totalnumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monetaryaward
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    value ofshares
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    vested1 April
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    
    
    
    
    Price
    
    
    price
    
    
    award2010
    
    
    Awardeda
    
    
    re-invested
    
    
    Vested
    
    
    Lapsed
    
    
    2011
    
    
    Vesting date
    
    
    at grant
    
    
    at vesting
    
    
    £000I Livingston
    
    
    142,312
    
    
    
    
    
    
    
    
    
    
    
    142,312
    
    
    
    
    
    
    
    
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    142p
    
    
    £
    202226,946
    
    
    
    
    
    
    
    10,464
    
    
    
    
    
    
    
    
    
    
    
    237,410
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    274,358
    
    
    
    
    
    
    
    12,650
    
    
    
    
    
    
    
    
    
    
    
    287,008
    
    
    
    1/8/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    
    
    
    
    898,212
    
    
    
    41,417
    
    
    
    
    
    
    
    
    
    
    
    939,629
    
    
    
    1/8/2013
    
    
    
    134.26p
    
    
    
    
    
    
    
    T Chanmugam
    
    
    38,422
    
    
    
    
    
    
    
    
    
    
    
    38,422
    
    
    
    
    
    
    
    
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    142p
    
    
    
    £5553,357
    
    
    
    
    
    
    
    2,459
    
    
    
    
    
    
    
    
    
    
    
    55,816
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    61,529
    
    
    
    
    
    
    
    2,836
    
    
    
    
    
    
    
    
    
    
    
    64,365
    
    
    
    1/8/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    
    
    
    
    258,431
    
    
    
    11,916
    
    
    
    
    
    
    
    
    
    
    
    270,347
    
    
    
    1/8/2013
    
    
    
    134.26p
    
    
    
    
    
    
    
    G Patterson
    
    
    58,931
    
    
    
    
    
    
    
    
    
    
    
    58,931
    
    
    
    
    
    
    
    
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    142p
    
    
    
    £8492,611
    
    
    
    
    
    
    
    4,269
    
    
    
    
    
    
    
    
    
    
    
    96,880
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    96,832
    
    
    
    
    
    
    
    4,464
    
    
    
    
    
    
    
    
    
    
    
    101,296
    
    
    
    1/8/2012
    
    
    
    128.41p
    
    
    
    
    
    
    
    
    
    
    
    272,033
    
    
    
    12,543
    
    
    
    
    
    
    
    
    
    
    
    284,576
    
    
    
    1/8/2013
    
    
    
    134.26p
    
    
    
    
    
    
    
    Former DirectorH Lalanib
    
    
    124,691
    
    
    
    
    
    
    
    
    
    
    
    124,691
    
    
    
    
    
    
    
    
    
    
    
    1/8/2010
    
    
    
    321.67p
    
    
    
    142p
    
    
    £
    177105,374
    
    
    
    
    
    
    
    4,858
    
    
    
    
    
    
    
    
    
    
    
    110,232
    
    
    
    1/8/2011
    
    
    
    203p
    
    
    
    
    
    
    
    
 a

    Awards granted on 25 June 2010 in respect of the 2010 financial year. 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 award of 110,232 shares was
pro-rated and will vest on 1 August 2011.
  Share awards under the Employee Share Investment Plan (ESIP) at 31 March 2011, or at date of
appointment, if later
 Total number ofshares31 March 2011I Livingston
    
    
    363T Chanmugam
    
    
    679G Patterson
    
    
    247
    Rt Hon Patricia Hewitt
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     81




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 DIRECTORS INFORMATION
 Election and re-election
  Report on directors remuneration
  
 Meetings attendance
 Audit &
Risk, Nominating & Governance Remuneration Committees
 Nominating &Audit & Risk
    
    Governance
    
    RemunerationBoard
    
    Committee
    
    Committee
    
    CommitteeNumber of meetings held10
    
    6
    
    4
    
    6Number of meetings attended (maximum possible)Sir Michael Rakea
    
    
    9
    (10)
    
    
    
    
    
    
    4(4
    )
    
    
    1(1
    )Ian Livingston
    
    
    10
    (10)
    
    
    
    
    
    
    
    
    
    
    Tony Chanmugam
    
    
    10
    (10)
    
    
    
    
    
    
    
    
    
    
    Gavin Patterson
    
    
    10
    (10)
    
    
    
    
    
    
    
    
    
    
    Clay Brendish
    
    
    9
    (10)
    
    
    6(6
    )
    
    
    4(4
    )
    
    
    Carl Symon
    
    
    10
    (10)
    
    
    6(6
    )
    
    
    
    
    
    
    6(6
    )Phil Hodkinson
    
    
    9
    (10)
    
    
    6(6
    )
    
    
    3(4
    )
    
    
    Patricia Hewitt
    
    
    8
    (10)
    
    
    6(6
    )
    
    
    3(4
    )
    
    
    6(6
    )Eric Daniels
    
    
    9
    (10)
    
    
    
    
    
    
    4(4
    )
    
    
    6(6
    )Tony Ball
    
    
    10
    (10)
    
    
    
    
    
    
    4(4
    )
    
    
    Nick Roseb
    
    
    2
    (2)
    
    
    
    
    
    
    
    
    
    
    Jasmine Whitbreadc
    
    
    2
    (2)
    
    
    
    
    
    
    
    
    
    
    
 a
    Sir Michael Rake ceased to be
a member of Remuneration Committeeon 31 May
2010.b
    Nick Rose was appointed to the
Board on 1 January 2011.c
    Jasmine Whitbread was appointed to
the Board on 19 January 2011.
  
 Service agreements
 Remuneration Committee Report on directors
remuneration
 
 Training and information
    
 Independent advice
  
 Directors and officers liability insurance and indemnity
  
 Interest of management in certain transactions
 
   82




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 BUSINESS POLICIES
  Responsible business
 The Way We Work TWWW TWWW TWWW
 TWWW
  TWWW It matters
  Committee for Sustainable & Responsible Business Business review  Our corporate responsibility Report of the Committee for Sustainable & Responsible Business
 
 Political donations
  
 Pension funds
  
 Financial statements
  Statement of directors responsibility Financial review
 
 Takeover Directive disclosure
  
    
    structure of BTs share capital (refer to page 137) including the rights and obligations
attaching to the shares (refer to pages 167 to 170)
    
    restrictions on the transfer of BT shares and voting rights (refer to pages 167 and 168)
    
    significant direct or indirect shareholdings (refer to page 86)
    
    appointment and replacement of directors (refer to page 169).
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     83




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##### Table of Contents



REPORT OF THE DIRECTORS
  
    
    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 Employee
Share Investment Plan 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
    
    we are not aware of any agreements between shareholders that may result in restrictions
on the transfer of shares or on voting rights
    
    no person holds securities carrying special rights with regard to control of the company
    
    proxy appointment and voting instructions must be received by the registrars not less
than 48 hours before a general meeting (see also page 167)
    
    the amendment of BTs Articles of Association requires shareholder approval in accordance
with legislation in force from time to time
    
    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 AGM
    
    BT Group plc is not party to any significant agreements that take effect, alter or
terminate upon a change of control following a takeover
    
    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
  Business review  Our resources
  Business review
 Our risks
  
    
    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 Board
    
    the lines of business and internal service units carry out risk assessments of their
operations, create risk registers relating to those operations, and ensure that the key risks are
addressed
    
    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
responsibility
    
    the groups internal auditors carry out continuing assessments of the quality of risk
management and control, report to management and the Audit & Risk Committeeon the status of
specific areas identified for improvement and promote effective risk management in the lines of
business and internal service units operations
    
    the Audit & Risk 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 & Risk
Committeehas carried out these actions for the 2011 financial year.
  Audit & Risk Committee
 Operating Committee
 
   84




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REPORT OF THE DIRECTORS     BUSINESS POLICIES
  US Sarbanes-Oxley Act of 2002
  Audit & Risk Committee www.bt.com/ethics.
 
 Disclosure controls and procedures
    
 Internal control over financial reporting
   Audit & Risk Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     85




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REPORT OF THE DIRECTORS
  SHAREHOLDERS AND ANNUAL GENERAL MEETING
 
 Relations with shareholders
   
 Substantial shareholdings
  Shares
    
    
    % of total voting rightsInvesco Limited
    
    
    845,250,432
    
    
    
    10.88BlackRock Inc.
    
    
    398,607,977
    
    
    
    5.14
 
 AGM resolutions
 Report on directors remuneration
 Audit & Risk Nominating & Governance Remuneration
 Summary financial statement & notice of meeting 2011
  www.bt.com/btagm2011
 
 Authority to purchase shares
    Andrew Parker
 
   86




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FINANCIAL STATEMENTS
  88
    
    STATEMENT OF DIRECTORS RESPONSIBILITIES89
    
    REPORT OF THE INDEPENDENT AUDITORS CONSOLIDATED FINANCIAL STATEMENTS89
    
    United Kingdom opinion90
    
    United States opinion91
    
    CONSOLIDATED FINANCIAL STATEMENTS91
    
    ACCOUNTING POLICIES100
    
    GROUP INCOME STATEMENT101
    
    GROUP STATEMENT OF COMPREHENSIVE INCOME102
    
    GROUP STATEMENT OF CHANGES IN EQUITY103
    
    GROUP CASH FLOW STATEMENT104
    
    GROUP BALANCE SHEET105
    
    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1.
    
    Segment information
    
    
    1052.
    
    Other operating income
    
    
    1093.
    
    Operating costs
    
    
    1094.
    
    Employees
    
    
    1105.
    
    Related party transactions
    
    
    1106.
    
    Share-based payments
    
    
    1117.
    
    Audit and non-audit services
    
    
    1148.
    
    Specific items
    
    
    1159.
    
    Finance expense and finance income
    
    
    11610.
    
    Taxation
    
    
    11711.
    

Earnings (loss) per share
    
    
    11812.
    
    Dividends
    
    
    11813.
    
    Intangible assets
    
    
    11914.
    
    Property, plant and equipment
    
    
    12115.
    
    Investments
    
    
    12216.
    
    Cash and cash equivalents
    
    
    12317.
    
    Associates and joint ventures
    
    
    12318.
    
    Inventories
    
    
    12419.
    
    Trade and other receivables
    
    
    12420.
    
    Loans and other borrowings
    
    
    12621.
    
    Derivative financial instruments
    
    
    12722.
    
    Trade and other payables
    
    
    12823.
    
    Retirement benefit plans
    
    
    12924.
    
    Deferred taxation
    
    
    13625.
    
    Provisions
    
    
    13726.
    
    Non-controlling interests
    
    
    13727.
    
    Share capital
    
    
    13728.
    
    Other reserves
    
    
    13829.
    
    Financial instruments and risk management
    
    
    13930.
    
    Financial commitments and contingent liabilities
    
    
    150151
    
    REPORT OF THE INDEPENDENT AUDITORS  PARENT COMPANY FINANCIAL STATEMENTS152
    
    FINANCIAL STATEMENTS OF BT GROUP PLC155
    
    SUBSIDIARY UNDERTAKINGS AND ASSOCIATE
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     87




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##### Table of Contents



FINANCIAL STATEMENTS
  STATEMENT OF DIRECTORS RESPONSIBILITIES
   
    
    select suitable accounting policies and then apply them consistently;
    
    make judgments and accounting estimates that are reasonable and prudent;
    
    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; and
    
    prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the company will continue in business.
   
    
    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; and
    
    the Report of the directors on pages 59 to 86 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.
 
   88




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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
  
    
    give a true and fair view of the state of the groups affairs as at 31 March 2011 and of
its profit and cash flows for the year then ended;
    
    have been properly prepared in accordance with IFRSs as adopted by the European Union;
and
    
    have been prepared in accordance with the requirements of the Companies Act 2006 and
Article 4 of the IAS Regulation.
 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
   
    
    certain disclosures of directors remuneration specified by law are not made; or
    
    we have not received all the information and explanations we require for our audit.
  
    
    the directors statement, set out on page 54, in relation to going concern;
    
    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; and
    
    certain elements of the Report on directors remuneration.
 Other matter
  Philip Rivett (Senior Statutory Auditor)
 for and on behalf of PricewaterhouseCoopers LLP
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     89




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FINANCIAL STATEMENTS
  United States opinion
        PricewaterhouseCoopers LLP
 
   90




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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.
 Composition of the group
    Accounting for subsidiaries
      Interests in associates and joint ventures
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     91




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FINANCIAL STATEMENTS
  Services
   Equipment sales
  Long-term contractual arrangements
 
   92




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FINANCIAL STATEMENTS      CONSOLIDATED FINANCIAL STATEMENTS
 Goodwill
  Computer software
  Telecommunication licences
  Brands, customer lists and customer relationships
 
  BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     93




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FINANCIAL STATEMENTS
 Subscriber acquisition costs
  Estimated useful economic lives
  Computer software
    
    2 to 10 yearsTelecommunication licences
    
    
    1 to 5 yearsBrands, customer lists and customer relationships
    
    
    3 to 15 years
       Cost
  Depreciation
  Land and buildingsFreehold buildings
    
    40 yearsLeasehold land and buildings
    
    Unexpired portion oflease or 40 years,whichever is theshorterNetwork infrastructure and
equipment
Transmission equipment:Duct
    
    40 yearsCable
    
    3 to 25 yearsFibre
    
    5 to 20 yearsExchange equipment
    
    2 to 13 yearsPayphones and other network
equipment
    
    2 to 20 yearsOtherMotor vehicles
    
    2 to 9 yearsComputers and office equipment
    
    3 to 6 years
 
   94




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FINANCIAL STATEMENTS      CONSOLIDATED FINANCIAL STATEMENTS
 Recognition and derecognition of financial assets and financial liabilities
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     95




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##### Table of Contents



FINANCIAL STATEMENTS
 Financial assets
                  Financial liabilities
      Derivative financial instruments
 
  96




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FINANCIAL STATEMENTS
  Hedge accounting
                Share capital
    Long-term customer contracts
  
    
    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;
 
    
    Our ability to achieve key contract milestones connected
with the transition, development, transformation and
deployment phases for customer contracts;
 
    
    The status of commercial relations with customers and
the implication for future revenue and cost
projections; and
 
    
    Our estimates of future staff and third party costs and
the degree to which cost savings and efficiencies are
deliverable.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     97




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FINANCIAL STATEMENTS
  Interconnect income and payments to other telecommunications operators
  Pension obligations
   Useful lives for property, plant and equipment and software
   Income tax
   Deferred tax
   Goodwill
   Determination of fair values
   Providing for doubtful debts
   Provisions
 
   98




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##### Table of Contents



FINANCIAL STATEMENTS      CONSOLIDATED FINANCIAL STATEMENTS
  
    
    IFRS 3 (Revised) Business Combinations;
 
    
    IAS 27 (Revised) Consolidated and Separate
Financial Statements;
 
    
    IFRIC 17 Distributions of Non-cash Assets to Owners;
 
    
    Amendment to IAS 39 Financial Instruments: Recognition
and Measurement: Eligible Hedged items;
 
    
    Amendment to IAS 32 Financial Instruments:
Presentation  Classification of Rights Issues; and
 
    
    Improvements to IFRSs 2009.
   IFRS 9 Financial Instruments (effective 1 April 2013)
   Amendments to IAS 24 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)
  Improvements to IFRSs 2010 (effective 1 April 2011)
  Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards (effective 1 July 2011)
  Amendments to IFRS 7 Financial Instruments: Disclosures (effective 1 April 2012)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     99




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##### Table of Contents



FINANCIAL STATEMENTS
 
 GROUP INCOME STATEMENT
  Before specific
    
    
    Specificitems
    
    
    items
    a
    
    TotalYear ended 31 March 2011
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    20,076
    
    
    
    
    
    
    
    20,076Other operating income
    
    
    2
    
    
    
    373
    
    
    
    
    
    
    
    373Operating costs
    
    
    3
    
    
    
    (17,542
    )
    
    
    (329
    )
    
    
    (17,871
    )Operating profit
    
    
    1
    
    
    
    2,907
    
    
    
    (329
    )
    
    
    2,578Finance expense
    
    
    9
    
    
    
    (880
    )
    
    
    (2,323
    )
    
    
    (3,203
    )Finance income
    
    
    9
    
    
    
    35
    
    
    
    2,244
    
    
    
    2,279Net finance expense
    
    
    
    
    
    
    (845
    )
    
    
    (79
    )
    
    
    (924
    )Share of post tax profit of associates and joint ventures
    
    
    17
    
    
    
    21
    
    
    
    
    
    
    
    21Profit on disposal of interest in associate
    
    
    8
    
    
    
    
    
    
    
    42
    
    
    
    42Profit before taxation
    
    
    
    
    
    
    2,083
    
    
    
    (366
    )
    
    
    1,717Taxation
    
    
    10
    
    
    
    (452
    )
    
    
    239
    
    
    
    (213
    )Profit for the year
    
    
    
    
    
    
    1,631
    
    
    
    (127
    )
    
    
    1,504Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,629
    
    
    
    (127
    )
    
    
    1,502Non-controlling interests
    
    
    26
    
    
    
    2
    
    
    
    
    
    
    
    2Earnings per share
    
    
    11Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.4pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.5p
 a
    For a definition of specific items, see page 91. An analysis of specific items is
provided in note 8.
 Before specific
    
    
    Specificitems
    a
    
    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
    
    
    9
    
    
    
    (902
    )
    
    
    (2,211
    )
    
    
    (3,113
    )Finance income
    
    
    9
    
    
    
    12
    
    
    
    1,943
    
    
    
    1,955Net finance expense
    
    
    
    
    
    
    (890
    )
    
    
    (268
    )
    
    
    (1,158
    )Share of post tax profit of associates and joint ventures
    
    
    17
    
    
    
    25
    
    
    
    29
    
    
    
    54Loss on disposal of interest in associate
    
    
    8
    
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Profit before taxation
    
    
    
    
    
    
    1,735
    
    
    
    (728
    )
    
    
    1,007Taxation
    
    
    10
    
    
    
    (398
    )
    
    
    420
    
    
    
    22Profit for the year
    
    
    
    
    
    
    1,337
    
    
    
    (308
    )
    
    
    1,029Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,336
    
    
    
    (308
    )
    
    
    1,028Non-controlling interests
    
    
    26
    
    
    
    1
    
    
    
    
    
    
    
    1Earnings per share
    
    
    11Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.3pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.9p
 a
    In 2011 the group amended its definition of specific items. Comparatives for 2010 have
been re-presented to be on a consistent basis. See page 91 for details.
 
   100




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FINANCIAL STATEMENTS
 GROUP INCOME STATEMENT
  Before specific
    
    
    Specificitems
    a
    
    items
    a
    
    TotalYear ended 31 March 2009
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    21,431
    
    
    
    (41
    )
    
    
    21,390Other operating income
    
    
    2
    
    
    
    352
    
    
    
    (13
    )
    
    
    339Operating costs
    
    
    3
    
    
    
    (19,435
    )
    
    
    (1,993
    )
    
    
    (21,428
    )Operating profit
    
    
    1
    
    
    
    2,348
    
    
    
    (2,047
    )
    
    
    301Finance expense
    
    
    9
    
    
    
    (964
    )
    
    
    (2,308
    )
    
    
    (3,272
    )Finance income
    
    
    9
    
    
    
    31
    
    
    
    2,621
    
    
    
    2,652Net finance expense
    
    
    
    
    
    
    (933
    )
    
    
    313
    
    
    
    (620
    )Share of post tax profit of associates and joint ventures
    
    
    
    
    
    
    39
    
    
    
    36
    
    
    
    75Profit (loss) before taxation
    
    
    
    
    
    
    1,454
    
    
    
    (1,698
    )
    
    
    (244
    )Taxation
    
    
    10
    
    
    
    (361
    )
    
    
    414
    
    
    
    53Profit (loss) for the year
    
    
    
    
    
    
    1,093
    
    
    
    (1,284
    )
    
    
    (191
    )Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,091
    
    
    
    (1,284
    )
    
    
    (193
    )Non-controlling interests
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Loss per share
    
    
    11Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5)pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5)p
 a
    In 2011 the group amended its definition of specific items. Comparatives for 2009 have
been re-presented to be on a consistent basis. See page 91 for details. 
 GROUP STATEMENT OF COMPREHENSIVE INCOME
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mProfit (loss) for the year
    
    
    
    
    
    
    1,504
    
    
    
    1,029
    
    
    
    (191
    )Other comprehensive income (loss)Actuarial gains (losses) relating to retirement benefit obligations
    
    
    23
    
    
    
    5,109
    
    
    
    (4,324
    )
    
    
    (7,037
    )Exchange differences on translation of foreign operations
    
    
    28
    
    
    
    (140
    )
    
    
    (119
    )
    
    
    692Fair value movements on available-for-sale assets
    
    
    28
    
    
    
    15
    
    
    
    7
    
    
    
    5Fair value movements on cash flow hedges: net fair value (losses) gains
    
    
    28
    
    
    
    (347
    )
    
    
    (1,067
    )
    
    
    2,719 recognised in income and expense
    
    
    28
    
    
    
    333
    
    
    
    496
    
    
    
    (2,144
    ) reclassified and reported in non-current assets
    
    
    28
    
    
    
    
    
    
    
    (4
    )
    
    
    (5
    )Tax on components of other comprehensive income
    
    
    10
    
    
    
    (1,521
    )
    
    
    1,350
    
    
    
    1,859Other comprehensive income (loss) for the year, net of tax
    
    
    
    
    
    
    3,449
    
    
    
    (3,661
    )
    
    
    (3,911
    )Total comprehensive income (loss) for the year
    
    
    
    
    
    
    4,953
    
    
    
    (2,632
    )
    
    
    (4,102
    )Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    4,951
    
    
    
    (2,633
    )
    
    
    (4,113
    )Non-controlling interests
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    114,953
    
    
    
    (2,632
    )
    
    
    (4,102
    )
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011
     101




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FINANCIAL STATEMENTS
 
 GROUP STATEMENT OF CHANGES IN EQUITY
  Shareholders equity (deficit)Non-Share
    
    
    Share
    
    
    Capital
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    controlling
    
    
    Totalcapital
    a
    
    premium
    a
    
    reserve
    
    
    reserves
    b
    
    earnings
    
    
    Total
    
    
    interests
    c
    
    equity£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    420
    
    
    
    62
    
    
    
    15
    
    
    
    (527
    )
    
    
    5,439
    
    
    
    5,409
    
    
    
    23
    
    
    
    5,432Loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    (193
    )
    
    
    2
    
    
    
    (191
    )Other comprehensive income  before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,407
    
    
    
    (7,037
    )
    
    
    (3,630
    )
    
    
    9
    
    
    
    (3,621
    )Other comprehensive income  tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164
    )
    
    
    2,023
    
    
    
    1,859
    
    
    
    
    
    
    
    1,859Transferred to the income statement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,144
    )
    
    
    
    
    
    
    (2,144
    )
    
    
    
    
    
    
    (2,144
    )Transferred to non-current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )At 1 April 2009
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    1,301
    
    
    
    (1,656
    )
    
    
    142
    
    
    
    27
    
    
    
    169Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,028
    
    
    
    1,028
    
    
    
    1
    
    
    
    1,029Other comprehensive income  before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,179
    )
    
    
    (4,324
    )
    
    
    (5,503
    )
    
    
    
    
    
    
    (5,503
    )Other comprehensive income  tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    1,211
    
    
    
    1,350
    
    
    
    
    
    
    
    1,350Transferred to the income statement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    496Transferred to non-current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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 non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )At 1 April 2010
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    757
    
    
    
    (3,904
    )
    
    
    (2,650
    )
    
    
    24
    
    
    
    (2,626
    )Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,502
    
    
    
    1,502
    
    
    
    2
    
    
    
    1,504Other comprehensive income  before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (472
    )
    
    
    5,109
    
    
    
    4,637
    
    
    
    
    
    
    
    4,637Other comprehensive income  tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    (1,534
    )
    
    
    (1,521
    )
    
    
    
    
    
    
    (1,521
    )Transferred to the income statement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    333Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126
    )
    
    
    5,077
    
    
    
    4,951
    
    
    
    2
    
    
    
    4,953Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (543
    )
    
    
    (543
    )
    
    
    
    
    
    
    (543
    )Share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    68
    
    
    
    
    
    
    
    68Tax on share-based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    91
    
    
    
    
    
    
    
    91Net issuance of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    (19
    )
    
    
    8
    
    
    
    
    
    
    
    8At 31 March 2011
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    658
    
    
    
    770
    
    
    
    1,925
    
    
    
    26
    
    
    
    1,951
 a
    For details of share capital and share premium, see note 27.b
    For further analysis of other reserves, see note 28.c
    For further analysis of non-controlling interests, see note 26.
 
   102




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##### Table of Contents



FINANCIAL STATEMENTS
 
 GROUP CASH FLOW STATEMENT
  2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    Note
    
    
    £m
    
    
    £m
    
    
    £mCash flow from operating activitiesProfit (loss) before taxationa
    
    
    
    
    
    
    1,717
    
    
    
    1,007
    
    
    
    (244
    )Depreciation and amortisation
    
    
    
    
    
    
    2,979
    
    
    
    3,039
    
    
    
    2,890(Profit) loss on disposal of associates and businesses
    
    
    
    
    
    
    (42
    )
    
    
    10
    
    
    
    13Net finance expense
    
    
    
    
    
    
    924
    
    
    
    1,158
    
    
    
    620Other non cash charges
    
    
    
    
    
    
    78
    
    
    
    77
    
    
    
    596Share of profits of associates and joint ventures
    
    
    
    
    
    
    (21
    )
    
    
    (54
    )
    
    
    (75
    )(Increase) decrease in inventories
    
    
    
    
    
    
    (17
    )
    
    
    14
    
    
    
    11Decrease in trade and other receivables
    
    
    
    
    
    
    408
    
    
    
    524
    
    
    
    1,063(Decrease) in trade and other payables
    
    
    
    
    
    
    (378
    )
    
    
    (708
    )
    
    
    (379
    )(Decrease) increase in provisions and other liabilitiesb
    
    
    
    
    
    
    (873
    )
    
    
    (591
    )
    
    
    439Cash generated from operationsa
    
    
    
    
    
    
    4,775
    
    
    
    4,476
    
    
    
    4,934Income taxes paid
    
    
    
    
    
    
    (209
    )
    
    
    (76
    )
    
    
    (232
    )Income tax repayment for prior years
    
    
    
    
    
    
    
    
    
    
    425
    
    
    
    4Net cash inflow from operating activities
    
    
    
    
    
    
    4,566
    
    
    
    4,825
    
    
    
    4,706Cash flow from investing activitiesInterest received
    
    
    
    
    
    
    29
    
    
    
    16
    
    
    
    19Dividends received from associates and joint ventures
    
    
    
    
    
    
    7
    
    
    
    3
    
    
    
    6Proceeds on disposal of interest in associates
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    Proceeds on disposal of businesses
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Acquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    (8
    )
    
    
    (70
    )
    
    
    (227
    )Proceeds on disposal of current financial assetsc
    
    
    
    
    
    
    9,267
    
    
    
    8,739
    
    
    
    6,316Purchases of current financial assetsc
    
    
    
    
    
    
    (8,902
    )
    
    
    (8,985
    )
    
    
    (6,030
    )Purchases of non-current financial assets
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    Proceeds on disposal of property, plant and equipment
    
    
    
    
    
    
    15
    
    
    
    29
    
    
    
    44Purchases of property, plant and equipment and software
    
    
    
    
    
    
    (2,645
    )
    
    
    (2,509
    )
    
    
    (3,082
    )Net cash outflow from investing activities
    
    
    
    
    
    
    (2,183
    )
    
    
    (2,775
    )
    
    
    (2,954
    )Cash flow from financing activitiesEquity dividends paid
    
    
    
    
    
    
    (543
    )
    
    
    (265
    )
    
    
    (1,221
    )Dividends paid to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Interest paid
    
    
    
    
    
    
    (973
    )
    
    
    (956
    )
    
    
    (956
    )Repayment of borrowingsd
    
    
    
    
    
    
    (2,509
    )
    
    
    (307
    )
    
    
    (863
    )Repayment of finance lease liabilities
    
    
    
    
    
    
    (11
    )
    
    
    (24
    )
    
    
    (16
    )Proceeds from finance leases
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    Net proceeds from (repayment of) commercial paper
    
    
    
    
    
    
    69
    
    
    
    (697
    )
    
    
    606Proceeds from bank loans
    
    
    
    
    
    
    340
    
    
    
    522
    
    
    
    795Cash flows from derivatives related to net debt
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    Repurchase of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334
    )Proceeds on issue of treasury shares
    
    
    
    
    
    
    8
    
    
    
    4
    
    
    
    125Net cash used in financing activities
    
    
    
    
    
    
    (3,499
    )
    
    
    (1,714
    )
    
    
    (1,865
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (3
    )
    
    
    (7
    )
    
    
    54Net (decrease) increase in cash and cash equivalents
    
    
    
    
    
    
    (1,119
    )
    
    
    329
    
    
    
    (59
    )Cash and cash equivalents at the start of the year
    
    
    
    
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174Cash and cash equivalents at the end of the year
    
    
    16
    
    
    
    325
    
    
    
    1,444
    
    
    
    1,115
 a
    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.b
    Includes pension deficit payments of £1,030m (2010: £525m, 2009: £nil).c
    Primarily consists of investment in and redemption of amounts held in liquidity funds.d
    In 2011 the repayment of borrowings includes the impact of hedging. See page 144 for further details.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     103




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##### Table of Contents



FINANCIAL STATEMENTS
 
 GROUP BALANCE SHEET
  2011
    
    
    2010At 31 March
    
    Notes
    
    
    £m
    
    
    £mNon-current assetsIntangible assets
    
    
    13
    
    
    
    3,389
    
    
    
    3,672Property, plant and equipment
    
    
    14
    
    
    
    14,623
    
    
    
    14,856Derivative financial instruments
    
    
    21
    
    
    
    625
    
    
    
    1,076Investments
    
    
    15
    
    
    
    61
    
    
    
    64Associates and joint ventures
    
    
    17
    
    
    
    164
    
    
    
    195Trade and other receivables
    
    
    19
    
    
    
    286
    
    
    
    336Deferred tax assets
    
    
    24
    
    
    
    461
    
    
    
    2,19619,609
    
    
    
    22,395Current assetsInventories
    
    
    18
    
    
    
    121
    
    
    
    107Trade and other receivables
    
    
    19
    
    
    
    3,332
    
    
    
    3,696Derivative financial instruments
    
    
    21
    
    
    
    108
    
    
    
    624Investments
    
    
    15
    
    
    
    19
    
    
    
    406Cash and cash equivalents
    
    
    16
    
    
    
    351
    
    
    
    1,4523,931
    
    
    
    6,285Current liabilitiesLoans and other borrowings
    
    
    20
    
    
    
    485
    
    
    
    3,269Derivative financial instruments
    
    
    21
    
    
    
    62
    
    
    
    166Trade and other payables
    
    
    22
    
    
    
    6,114
    
    
    
    6,531Current tax liabilities
    
    
    
    
    
    
    221
    
    
    
    320Provisions
    
    
    25
    
    
    
    149
    
    
    
    1347,031
    
    
    
    10,420Total assets less current liabilities
    
    
    
    
    
    
    16,509
    
    
    
    18,260Non-current liabilitiesLoans and other borrowings
    
    
    20
    
    
    
    9,371
    
    
    
    9,522Derivative financial instruments
    
    
    21
    
    
    
    507
    
    
    
    533Retirement benefit obligations
    
    
    23
    
    
    
    1,830
    
    
    
    7,864Other payables
    
    
    22
    
    
    
    831
    
    
    
    804Deferred tax liabilities
    
    
    24
    
    
    
    1,212
    
    
    
    1,456Provisions
    
    
    25
    
    
    
    807
    
    
    
    70714,558
    
    
    
    20,886EquityOrdinary shares
    
    
    27
    
    
    
    408
    
    
    
    408Share premium
    
    
    27
    
    
    
    62
    
    
    
    62Capital redemption reserve
    
    
    
    
    
    
    27
    
    
    
    27Other reserves
    
    
    28
    
    
    
    658
    
    
    
    757Retained earnings (loss)
    
    
    
    
    
    
    770
    
    
    
    (3,904
    )Total parent shareholders equity (deficit)
    
    
    
    
    
    
    1,925
    
    
    
    (2,650
    )Non-controlling interests
    
    
    26
    
    
    
    26
    
    
    
    24Total equity (deficit)
    
    
    
    
    
    
    1,951
    
    
    
    (2,626
    )16,509
    
    
    
    18,260
  Sir Michael Rake
 Ian Livingston
 Tony Chanmugam
 
   104




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##### Table of Contents



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 PLC
ANNUAL REPORT & FORM 20-F 2011     105




---



##### Table of Contents



FINANCIAL STATEMENTS
  1. Segment information continued
  BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2011
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSegment revenue
    
    
    8,047
    
    
    
    7,748
    
    
    
    4,210
    
    
    
    4,930
    
    
    
    38
    
    
    
    24,973Internal revenue
    
    
    
    
    
    
    (446
    )
    
    
    (980
    )
    
    
    (3,471
    )
    
    
    
    
    
    
    (4,897
    )Revenue from external customersa
    
    
    8,047
    
    
    
    7,302
    
    
    
    3,230
    
    
    
    1,459
    
    
    
    38
    
    
    
    20,076EBITDAb
    
    
    593
    
    
    
    1,784
    
    
    
    1,316
    
    
    
    2,132
    
    
    
    61
    
    
    
    5,886Depreciation and amortisation
    
    
    (734
    )
    
    
    (443
    )
    
    
    (619
    )
    
    
    (877
    )
    
    
    (306
    )
    
    
    (2,979
    )Operating profit (loss)a
    
    
    (141
    )
    
    
    1,341
    
    
    
    697
    
    
    
    1,255
    
    
    
    (245
    )
    
    
    2,907Specific items (note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (329
    )Operating profit (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,578Net finance expensed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (924
    )Share of post tax profit of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Profit on disposal of interest in associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42Profit before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,717
 BT GlobalServices
    
    
    BT Retail
    e
    
    BT Wholesale
    e
    
    Openreach
    e
    
    Other
    
    
    TotalYear ended 31 March 2010
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSegment revenue
    
    
    8,513
    
    
    
    8,124
    
    
    
    4,592
    
    
    
    5,164
    
    
    
    40
    
    
    
    26,433Internal revenue
    
    
    
    
    
    
    (373
    )
    
    
    (1,226
    )
    
    
    (3,923
    )
    
    
    
    
    
    
    (5,522
    )Revenue from external customersa
    
    
    8,513
    
    
    
    7,751
    
    
    
    3,366
    
    
    
    1,241
    
    
    
    40
    
    
    
    20,911EBITDAb
    
    
    457
    
    
    
    1,777
    
    
    
    1,353
    
    
    
    1,960
    
    
    
    92
    
    
    
    5,639Depreciation and amortisation
    
    
    (815
    )
    
    
    (459
    )
    
    
    (680
    )
    
    
    (856
    )
    
    
    (229
    )
    
    
    (3,039
    )Operating profit (loss)a
    
    
    (358
    )
    
    
    1,318
    
    
    
    673
    
    
    
    1,104
    
    
    
    (137
    )
    
    
    2,600Specific items (note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477
    )Operating profit (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,123Net finance expensed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,158
    )Share of post tax profit of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Loss on disposal of interest in associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Profit before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,007
 BT GlobalServices
    
    
    BT Retail
    e
    
    BT Wholesale
    e
    
    Openreach
    e
    
    Other
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSegment revenue
    
    
    8,628
    
    
    
    8,491
    
    
    
    4,800
    
    
    
    5,231
    
    
    
    41
    
    
    
    27,191Internal revenue
    
    
    
    
    
    
    (343
    )
    
    
    (1,228
    )
    
    
    (4,189
    )
    
    
    
    
    
    
    (5,760
    )Revenue from external customersa
    
    
    8,628
    
    
    
    8,148
    
    
    
    3,572
    
    
    
    1,042
    
    
    
    41
    
    
    
    21,431EBITDAb
    
    
    261
    
    
    
    1,585
    
    
    
    1,356
    
    
    
    1,996
    
    
    
    40
    
    
    
    5,238Depreciation and amortisation
    
    
    (776
    )
    
    
    (426
    )
    
    
    (686
    )
    
    
    (778
    )
    
    
    (224
    )
    
    
    (2,890
    )Operating profit (loss)a
    
    
    (515
    )
    
    
    1,159
    
    
    
    670
    
    
    
    1,218
    
    
    
    (184
    )
    
    
    2,348Specific items (note 8)c
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,047
    )Operating profit (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301Net finance expensed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )Share of post tax profit of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Loss before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )
 a
    Before specific items.b
    EBITDA is stated before specific items and is a non-GAAP measure provided in addition to the disclosure requirements defined under IFRS. The rationale for using non-GAAP measures is explained onpages 56 to 58.c
    Re-presented. See page 91.d
    Net finance expense includes specific items of £79m (2010: £268m; 2009: £313m credit). See note 8.e
    In 2011 the group moved certain customer accounts between lines of business. Comparatives for 2010 and 2009 have been restated to be on a consistent basis. The impact on line of business
results in 2010

was to decrease revenue and EBITDA in BT Retail by £173m and £73m (2009: £172m and £79m), to increase revenue and EBITDA in BT Wholesale by £143m and £74m (2009: £142m and £79m), to


increase revenue in Openreach by £30m (2009: £29m) with no impact on EBITDA. There is no impact on total group results.
 
   106




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##### Table of Contents



FINANCIAL
STATEMENTS     
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Segment information continued
  Internal cost recorded byBT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2011
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInternal revenue recorded byBT Global Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BT Retail
    
    
    309
    
    
    
    
    
    
    
    64
    
    
    
    3
    
    
    
    70
    
    
    
    446BT Wholesale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    980Openreach
    
    
    241
    
    
    
    1,780
    
    
    
    198
    
    
    
    
    
    
    
    1,252
    
    
    
    3,471Total
    
    
    550
    
    
    
    1,780
    
    
    
    262
    
    
    
    983
    
    
    
    1,322
    
    
    
    4,897
 Internal cost recorded byBT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2010
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInternal revenue recorded byBT Global Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BT Retail
    
    
    231
    
    
    
    
    
    
    
    51
    
    
    
    2
    
    
    
    89
    
    
    
    373BT Wholesale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,226
    
    
    
    
    
    
    
    1,226Openreach
    
    
    264
    
    
    
    1,988
    
    
    
    131
    
    
    
    
    
    
    
    1,540
    
    
    
    3,923Total
    
    
    495
    
    
    
    1,988
    
    
    
    182
    
    
    
    1,228
    
    
    
    1,629
    
    
    
    5,522
 Internal cost recorded byBT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInternal revenue recorded byBT Global Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BT Retail
    
    
    233
    
    
    
    
    
    
    
    54
    
    
    
    4
    
    
    
    52
    
    
    
    343BT Wholesale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    1,228Openreach
    
    
    398
    
    
    
    2,159
    
    
    
    141
    
    
    
    
    
    
    
    1,491
    
    
    
    4,189Total
    
    
    631
    
    
    
    2,159
    
    
    
    195
    
    
    
    1,232
    
    
    
    1,543
    
    
    
    5,760
  BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2011
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mProperty, plant and equipment
    
    
    338
    
    
    
    355
    
    
    
    246
    
    
    
    982
    
    
    
    169
    
    
    
    2,090Intangible assets
    
    
    160
    
    
    
    79
    
    
    
    83
    
    
    
    105
    
    
    
    73
    
    
    
    500Capital expenditure
    
    
    498
    
    
    
    434
    
    
    
    329
    
    
    
    1,087
    
    
    
    242
    
    
    
    2,590
 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
    
    
    
    2,533
 
   BT GROUP PLC
ANNUAL REPORT & FORM 20-F 2011     107




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FINANCIAL STATEMENTS
  1. Segment information continued
  2011
    
    
    2010
    a
    
    2009
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mICT and managed networks
    
    
    6,632
    
    
    
    6,574
    
    
    
    6,382Broadband and convergence
    
    
    2,767
    
    
    
    2,677
    
    
    
    2,618Calls and lines
    
    
    5,595
    
    
    
    6,225
    
    
    
    6,799Transit
    
    
    1,518
    
    
    
    1,758
    
    
    
    2,003Conveyance, interconnect circuits, WLR, global carrier and other wholesale
    
    
    1,471
    
    
    
    1,451
    
    
    
    1,506Other products and services
    
    
    2,093
    
    
    
    2,226
    
    
    
    2,123Revenueb
    
    
    20,076
    
    
    
    20,911
    
    
    
    21,431
 a
    In 2011 the group moved certain customer accounts between lines of business. This
move has led to a change in the classification of revenue by the nature of products or services.
Comparatives for 2010 and 2009 have been restated to be on a consistent basis. The impact on
products and services in 2010 is to decrease ICT and managed services by £7m (2009: £8m), to
decrease broadband and convergence by £1m (2009: £1m increase), to decrease calls and lines by £68m
(2009: £63m), to increase conveyance, interconnect circuits, WLR, global carrier and other
wholesale by £252m (2009: £265m) and to decrease other products and services by £176m (2009:
£195m). There is no impact on total revenue.b
    Before specific items.
    2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mUK
    
    
    15,575
    
    
    
    16,116
    
    
    
    16,777Europe, Middle East and Africa, excluding the UK
    
    
    3,064
    
    
    
    3,250
    
    
    
    3,247Americas
    
    
    990
    
    
    
    1,235
    
    
    
    1,119Asia Pacific
    
    
    447
    
    
    
    310
    
    
    
    288Revenuea
    
    
    20,076
    
    
    
    20,911
    
    
    
    21,431
 a
    Before specific items.
  2011
    
    
    2010At 31 March
    
    £m
    
    
    £mUK
    
    
    15,127
    
    
    
    15,583Europe, Middle East and Africa, excluding the UK
    
    
    2,673
    
    
    
    2,761Americas
    
    
    601
    
    
    
    653Asia Pacific
    
    
    61
    
    
    
    62Non-current assets
    
    
    18,462
    
    
    
    19,059
 
   108




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##### Table of Contents



FINANCIAL STATEMENTS
 
  2. Other operating income
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mProfits on disposal of property, plant and equipment
    
    
    
    
    
    
    103
    
    
    
    75
    
    
    
    52Income from repayment works
    
    
    
    
    
    
    62
    
    
    
    74
    
    
    
    72Other operating income
    
    
    
    
    
    
    208
    
    
    
    229
    
    
    
    228Other operating income before specific items
    
    
    
    
    
    
    373
    
    
    
    378
    
    
    
    352Specific items
    
    
    8
    
    
    
    
    
    
    
    2
    
    
    
    (13
    )Other operating income
    
    
    
    
    
    
    373
    
    
    
    380
    
    
    
    339
 
 3. Operating costs
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mCosts by natureStaff costsWages and salaries
    
    
    
    
    
    
    3,947
    
    
    
    4,182
    
    
    
    4,499Social security costs
    
    
    
    
    
    
    456
    
    
    
    447
    
    
    
    432Pension costs
    
    
    23
    
    
    
    416
    
    
    
    304
    
    
    
    544Share-based payment expense
    
    
    6
    
    
    
    68
    
    
    
    71
    
    
    
    141Total staff costs
    
    
    
    
    
    
    4,887
    
    
    
    5,004
    
    
    
    5,616Own work capitalised
    
    
    
    
    
    
    (718
    )
    
    
    (575
    )
    
    
    (673
    )Net staff costs
    
    
    
    
    
    
    4,169
    
    
    
    4,429
    
    
    
    4,943Indirect labour costs
    
    
    
    
    
    
    629
    
    
    
    722
    
    
    
    1,114Net labour costs
    
    
    
    
    
    
    4,798
    
    
    
    5,151
    
    
    
    6,057Payments to telecommunications operators
    
    
    
    
    
    
    3,740
    
    
    
    4,083
    
    
    
    4,266Property and energy costs
    
    
    
    
    
    
    1,149
    
    
    
    1,284
    
    
    
    1,292Network maintenance and IT costs
    
    
    
    
    
    
    706
    
    
    
    781
    
    
    
    742Other operating costsa
    
    
    
    
    
    
    2,786
    
    
    
    2,927
    
    
    
    2,710General and administrative costs
    
    
    
    
    
    
    1,384
    
    
    
    1,424
    
    
    
    1,478Depreciation of property, plant and equipmentOwned assets
    
    
    14
    
    
    
    2,255
    
    
    
    2,260
    
    
    
    2,200Held under finance leases
    
    
    14
    
    
    
    33
    
    
    
    44
    
    
    
    49Amortisation of intangible assets
    
    
    13
    
    
    
    691
    
    
    
    735
    
    
    
    641Total operating costs before specific items
    
    
    
    
    
    
    17,542
    
    
    
    18,689
    
    
    
    19,435Specific items
    
    
    8
    
    
    
    329
    
    
    
    427
    
    
    
    1,993Total operating costs
    
    
    
    
    
    
    17,871
    
    
    
    19,116
    
    
    
    21,428Operating costs before specific items include the following:Leaver costsb
    
    
    
    
    
    
    57
    
    
    
    142
    
    
    
    204Research and development expenditurec
    
    
    
    
    
    
    833
    
    
    
    935
    
    
    
    1,021Rental costs relating to operating leases
    
    
    
    
    
    
    395
    
    
    
    451
    
    
    
    426Foreign currency (gains) losses
    
    
    
    
    
    
    (17
    )
    
    
    7
    
    
    
    30
 a
    Other operating costs also include a net charge of £2m (2010: £1m charge, 2009:
£8m credit) relating to fair value movements on derivatives recycled from the cash flow reserve.b
    Leaver costs exclude leaver costs associated with the restructuring of BT Global
Services during 2011, 2010 and 2009 and managed leaver costs associated with the groups
transformation and reorganisation activities during 2009. These costs have been recorded as a
specific item. Other leaver costs are included within wages and salaries and social security costs.c
    Research and development expenditure includes amortisation of £444m (2010: £491m,
2009: £431m) in respect of internally developed computer software.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     109




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FINANCIAL STATEMENTS
 
  4. Employees
 2011
    
    
    2010
    
    
    2009Year end
    
    
    Average
    
    
    Year end
    
    
    Average
    
    
    Year end
    
    
    AverageNumber of employees in the groupa
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000UK
    
    
    75.7
    
    
    
    77.1
    
    
    
    79.8
    
    
    
    82.9
    
    
    
    86.5
    
    
    
    89.5Non UK
    
    
    16.9
    
    
    
    17.5
    
    
    
    18.0
    
    
    
    18.8
    
    
    
    20.5
    
    
    
    21.1Total employees
    
    
    92.6
    
    
    
    94.6
    
    
    
    97.8
    
    
    
    101.7
    
    
    
    107.0
    
    
    
    110.6
 2011
    
    
    2010
    
    
    2009Year end
    
    
    Average
    
    
    Year end
    
    
    Average
    
    
    Year end
    
    
    AverageNumber of employees in the groupa
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000BT Global Services
    
    
    21.8
    
    
    
    22.6
    
    
    
    24.3
    
    
    
    26.1
    
    
    
    28.2
    
    
    
    28.4BT Retail
    
    
    16.6
    
    
    
    17.4
    
    
    
    19.4
    
    
    
    20.2
    
    
    
    21.2
    
    
    
    21.9BT Wholesale
    
    
    1.9
    
    
    
    2.1
    
    
    
    2.4
    
    
    
    2.4
    
    
    
    2.4
    
    
    
    2.5Openreach
    
    
    31.3
    
    
    
    30.9
    
    
    
    30.8
    
    
    
    31.4
    
    
    
    32.3
    
    
    
    33.1Other
    
    
    21.0
    
    
    
    21.6
    
    
    
    20.9
    
    
    
    21.6
    
    
    
    22.9
    
    
    
    24.7Total employees
    
    
    92.6
    
    
    
    94.6
    
    
    
    97.8
    
    
    
    101.7
    
    
    
    107.0
    
    
    
    110.6
 a
 
 5. Related party transactions
 Operating Committee
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mSalaries and short-term benefits
    
    
    11.4
    
    
    
    10.3
    
    
    
    8.4Termination benefits
    
    
    
    
    
    
    0.1
    
    
    
    2.4Post employment benefits
    
    
    1.4
    
    
    
    1.8
    
    
    
    2.3Share-based payments
    
    
    5.3
    
    
    
    2.6
    
    
    
    3.618.1
    
    
    
    14.8
    
    
    
    16.7
 Report on
directors remuneration
 
   110




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##### Table of Contents



FINANCIAL STATEMENTS
 
  6. Share-based payments
  2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mEmployee Sharesave Plan
    
    
    23
    
    
    
    25
    
    
    
    107Allshare International Plan
    
    
    2
    
    
    
    2
    
    
    
    2Employee Stock Purchase Plan
    
    
    1
    
    
    
    1
    
    
    
    Incentive Share Plan
    
    
    37
    
    
    
    29
    
    
    
    18Deferred Bonus Plan
    
    
    5
    
    
    
    13
    
    
    
    12Retention Share Plan
    
    
    
    
    
    
    1
    
    
    
    268
    
    
    
    71
    
    
    
    141
  Employee Sharesave Plan
  Employee Stock Purchase Plan
   Incentive Share Plan, Deferred Bonus Plan and Retention Share Plan
     Employee Share Investment Plan (ESIP)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     111




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##### Table of Contents



FINANCIAL STATEMENTS
  6. Share-based payments continued
   Employee Sharesave
    
    
    GSOP and GLOPa2011
    
    
    2010
    
    
    2009
    
    
    2011
    
    
    2010
    
    
    2009Movement in the number of share options
    
    millions
    
    
    millions
    
    
    millions
    
    
    millions
    
    
    millions
    
    
    millionsOutstanding at the beginning of the year
    
    
    534
    
    
    
    136
    
    
    
    281
    
    
    
    38
    
    
    
    42
    
    
    
    46Granted
    
    
    78
    
    
    
    490
    
    
    
    339
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (28
    )
    
    
    (44
    )
    
    
    (390
    )
    
    
    (5
    )
    
    
    (4
    )
    
    
    (3
    )Exercised
    
    
    (3
    )
    
    
    (1
    )
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Expired
    
    
    (14
    )
    
    
    (47
    )
    
    
    (14
    )
    
    
    (4
    )
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    567
    
    
    
    534
    
    
    
    136
    
    
    
    29
    
    
    
    38
    
    
    
    42Exercisable at the end of the year
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    29
    
    
    
    38
    
    
    
    42Weighted average exercise priceOutstanding at the beginning of the year
    
    
    76
    p
    
    
    160
    p
    
    
    180
    p
    
    
    255
    p
    
    
    256
    p
    
    
    257
    pGranted
    
    
    107
    p
    
    
    63
    p
    
    
    135
    p
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    94
    p
    
    
    107
    p
    
    
    153
    p
    
    
    325
    p
    
    
    263
    p
    
    
    199
    pExercised
    
    
    163
    p
    
    
    125
    p
    
    
    155
    p
    
    
    
    
    
    
    
    
    
    
    196
    pExpired
    
    
    175
    p
    
    
    150
    p
    
    
    178
    p
    
    
    544
    p
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    77
    p
    
    
    76             p
    
    
    
    160
    p
    
    
    207
    p
    
    
    255              p
    
    
    
    256
    pExercisable at the end of the year
    
    
    111
    p
    
    
    163
    p
    
    
    195
    p
    
    
    207
    p
    
    
    255
    p
    
    
    256
    p
 a
    The BT Group Global Share Option Plan (GSOP) and BT Group Legacy Option Plan
(GLOP) are legacy executive share option plans which are no longer operated. Options granted in
previous years were exercisable on the third anniversary of the date of grant. Options must be
exercised within 10 years of the original grant date.
   Number of
    
    
    Number ofExercise
    
    
    outstanding
    
    
    exercisableprice
    
    
    options
    
    
    optionsNormal dates of vesting and exercise (based on calendar years)
    
    per share
    
    
    millions
    
    
    millionsBT Group Employee Sharesave Plans2011
    
    
    137p208p
    
    
    
    11
    
    
    
    12012
    
    
    68p262p
    
    
    
    133
    
    
    
    2013
    
    
    104p185p
    
    
    
    36
    
    
    
    2014
    
    
    61p111p
    
    
    
    341
    
    
    
    2015
    
    
    104p107p
    
    
    
    46
    
    
    
    Total
    
    
    
    
    
    
    567
    
    
    
    1BT Group Legacy Option Plan2001-2011
    
    
    318      p
    
    
    
    2
    
    
    
    2Total
    
    
    
    
    
    
    2
    
    
    
    2BT Group Global Share Option Plan2004-2014
    
    
    176p199.5p
    
    
    
    22
    
    
    
    222005-2015
    
    
    192p263p
    
    
    
    5
    
    
    
    5Total
    
    
    
    
    
    
    27
    
    
    
    27Total options
    
    
    
    
    
    
    596
    
    
    
    30
 
   112




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##### Table of Contents



FINANCIAL STATEMENTS
  6. 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
    
        
    
    447
    
    
    36 months
    
    
    176p200p
    
    
    
    198p
    
        
    
    27
    
    
    40 months104p185p
    
    
    119p
    
        
    
    112
    
    
    42 months
    
    
    215p318p
    
    
    
    302p
    
        
    
    2
    
    
    9 months208p262p
    
    
    247p
    
        
    
    8
    
    
    19 months
    
    
    
    
    
    
    
    
        
    
    
    
        
    
    Total
    
    
    77p
    
        
    
    567
    
    
    37 months
    
    
    
    
    
    
    207p
    
        
    
    29
    
    
    38 months
   Millions of sharesISP
    
    
    DBP
    
    
    RSP
    
    
    TotalAt 1 April 2010
    
    
    99.2
    
        
    
    14.3
    
        
    
    1.2
    
        
    
    114.7Awards granted
    
    
    44.2
    
        
    
    9.1
    
        
    
    0.2
    
        
    
    53.5Awards vested
    
    
    
    
    
    
    (3.8
    )
    
    
    (0.9
    )
    
    
    (4.7
    )Awards lapsed
    
    
    (34.2
    )
    
    
    (1.8
    )
    
    
    (0.2
    )
    
    
    (36.2
    )Dividend shares reinvested
    
    
    5.3
    
        
    
    0.9
    
        
    
    
    
        
    
    6.2At 31 March 2011
    
    
    114.5
    
        
    
    18.7
    
        
    
    0.3
    
        
    
    133.5
    2011
    
    
    2010
    
    
    2009Employee
    
    
    
    
    
    
    Employee
    
    
    
    
    
    
    EmployeeYear ended 31 March
    
    Sharesave
    
    
    ISP
    
    
    Sharesave
    
    
    ISP
    
    
    Sharesave
    
    
    ISPWeighted average fair value
    
    
    34
    p
        
    
    108
    p
    
    
    14
    p
    
    
    106
    p
    
    
    27
    p
    
    
    47
    pWeighted average share price
    
    
    138
    p
        
    
    134
    p
    
    
    80
    p
    
    
    131
    p
    
    
    152
    p
    
    
    199
    pWeighted average exercise price
    
    
    107
    p
        
    
    
    
    
    
    63
    p
    
    
    
    
    
    
    135
    p
    
    
    
    Expected dividend yield
    
    
    5.4%5.8
    %
    
    
    5.4
    %
    
    
    5.7%6.4
    %
    
    
    6.5
    %
    
    
    4.6%6.4
    %
    
    
    4.9
    %Risk free rates
    
    
    1.2%2.2
    %
    
    
    1.2
    %
    
    
    2.2%2.8
    %
    
    
    2.5
    %
    
    
    2.1%5.5
    %
    
    
    5.2
    %Expected volatility
    
    
    34.4%41.4
    %
    
    
    34.4
    %
    
    
    26.9%30.7
    %
    
    
    38.5
    %
    
    
    20.7%28.4
    %
    
    
    23.3
    %
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     113




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##### Table of Contents



FINANCIAL STATEMENTS
 
  7. Audit and non-audit services
  2011
    
    
    2010
    
    
    2009Year 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
    
    
    2,842
    
    
    
    2,585
    
    
    
    2,831Non-audit servicesFees payable to the companys auditor and its associates for other services: The audit of the companys subsidiaries pursuant to legislation
    
    
    4,636
    
    
    
    4,732
    
    
    
    4,675 Other services pursuant to legislation
    
    
    1,405
    
    
    
    867
    
    
    
    1,211 Tax services
    
    
    1,156
    
    
    
    792
    
    
    
    1,247 Services relating to corporate finance transactions
    
    
    
    
    
    
    
    
    
    
    32 All other services
    
    
    857
    
    
    
    941
    
    
    
    88710,896
    
    
    
    9,917
    
    
    
    10,883
 
   114




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##### Table of Contents



FINANCIAL STATEMENTS
 
 8. Specific items
 Operating Committee
 2011
    
    
    2010
    a
    
    2009
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenueRegulatory settlementb
    
    
    
    
    
    
    52
    
    
    
    BT Global Services contract and financial review charges
    
    
    
    
    
    
    
    
    
    
    41Other operating income(Profit) loss on disposal of a business
    
    
    
    
    
    
    (2
    )
    
    
    13Operating costsBT Global Services restructuring chargesc
    
    
    192
    
    
    
    301
    
    
    
    280Property rationalisation costs
    
    
    88
    
    
    
    121
    
    
    
    Intangible asset impairment chargesd
    
    
    49
    
    
    
    
    
    
    
    Costs associated with settlement of open tax yearse
    
    
    
    
    
    
    5
    
    
    
    BT Global Services contract and financial review charges
    
    
    
    
    
    
    
    
    
    
    1,598Restructuring costs  group transformation and reorganisation activities
    
    
    
    
    
    
    
    
    
    
    6521CN asset impairment and related charge
    
    
    
    
    
    
    
    
    
    
    50329
    
    
    
    427
    
    
    
    1,993Net finance expenseInterest expense on pension scheme liabilitiesf
    
    
    2,323
    
    
    
    2,211
    
    
    
    2,308Expected return on pension scheme assetsf
    
    
    (2,244
    )
    
    
    (1,932
    )
    
    
    (2,621
    )Interest income on settlement of open tax yearse
    
    
    
    
    
    
    (11
    )
    
    
    79
    
    
    
    268
    
    
    
    (313
    )Share of results of associates and joint ventures(Profit) loss on disposal of interest in associateg
    
    
    (42
    )
    
    
    12
    
    
    
    Impact of renegotiated supply contracts on associateh
    
    
    
    
    
    
    (29
    )
    
    
    Reassessment of carrying value of associate
    
    
    
    
    
    
    
    
    
    
    (36
    )(42
    )
    
    
    (17
    )
    
    
    (36
    )Net specific items charge before tax
    
    
    366
    
    
    
    728
    
    
    
    1,698Tax credit on specific items above
    
    
    (72
    )
    
    
    (190
    )
    
    
    (414
    )Tax charge (credit) in respect of settlement of open tax yearse
    
    
    5
    
    
    
    (230
    )
    
    
    Tax credit on re-measurement of deferred taxi
    
    
    (172
    )
    
    
    
    
    
    
    (239
    )
    
    
    (420
    )
    
    
    (414
    )Net specific items charge after tax
    
    
    127
    
    
    
    308
    
    
    
    1,284
 a
    In 2011 the group amended its definition of specific items. Comparatives for
2010 and 2009 have been re-presented to be on a consistent basis. See
page 91 for details.b
    In 2010 a charge of £52m was recognised reflecting an Ofcom determination in
relation to 2Mbps partial private circuits.c
    The main components of the BT Global Services restructuring charges recognised
in 2011, 2010 and 2009 were:
 
    
    Networks, products and procurement channels rationalisation charges of £41m (2010: £142m, 2009:
£183m) from rationalising legacy networks, including the associated systems and processes. 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 £129m (2010: £132m, 2009: £51m) principally comprising
leaver costs and property exit costs.
    
    Intangible asset impairments and other charges of £22m (2010: £27m; 2009: £46m).
 d
    In 2011 the group recognised goodwill impairment charges of £39m mainly relating
to an operational restructuring of a business acquired several years ago. In addition, intangible
asset impairments of £10m have been recognised relating to brands which are no longer in use.e
    In 2010 the group agreed substantially all outstanding tax matters with HMRC
relating to the 2008, 2007 and 2006 tax years. Specific items include a tax repayment of £230m and
associated interest of £11m on the repayment, and operating costs of £5m representing costs
associated with reaching the agreement.f
    See note 23 for more details.g
    In 2011 a profit of £42m arose on the disposal of a 6.5% interest in the groups
associate Tech Mahindra. In 2010 a loss of £12m arose on the disposal of an indirect interest in
Tech Mahindra.h
    In 2010 the group recognised a specific item credit of £29m in connection with
the £127m payment to its associate Tech Mahindra, as described in c above.i
    In 2011 a tax credit of £172m was recognised for the re-measurement of deferred
tax balances as a result of the change in the UK statutory corporation tax rate from 28% to 26%
effective in 2012.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     115




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##### Table of Contents



FINANCIAL STATEMENTS
 
  9. Finance expense and finance income
 2011
    
    
    2010
    a
    
    2009
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mFinance expenseInterest on listed bondsb,c
    
    
    775
    
    
    
    806
    
    
    
    777Interest on finance leasesb
    
    
    18
    
    
    
    18
    
    
    
    25Interest on other borrowingsb
    
    
    56
    
    
    
    58
    
    
    
    130Unwinding of discount on provisionsb
    
    
    3
    
    
    
    4
    
    
    
    3Fair value movements on derivativesd
    
    
    34
    
    
    
    19
    
    
    
    29Finance expensee,f
    
    
    886
    
    
    
    905
    
    
    
    964Less: amounts included in the cost of qualifying assetsg
    
    
    (6
    )
    
    
    (3
    )
    
    
    Total finance expense before specific items
    
    
    880
    
    
    
    902
    
    
    
    964Specific items (note 8)
    
    
    2,323
    
    
    
    2,211
    
    
    
    2,308Total finance expense
    
    
    3,203
    
    
    
    3,113
    
    
    
    3,272
 a
    In 2011 the group amended its definition of specific items to include net interest on
pensions due to its volatile nature. Comparatives have been re-presented to be on a consistent
basis.b
    Calculated using the effective interest rate method unless otherwise stated below.c
    Includes a net charge of £38m (2010: £44m, 2009: £25m) relating to fair value
movements on derivatives recycled from the cash flow reserve.d
    Includes a charge of £28m (2010: £9m, 2009: £nil) arising from restructuring certain
derivatives and £6m (2010: £10m, 2009: £29m) of fair value movements on derivatives not in a
designated hedge relationship.e
    Includes a net credit of £293m (2010: net credit of £451m, 2009: net charge of
£2,161m) relating to foreign exchange movements on loans and borrowings and a net charge of £293m
(2010: net charge of £451m, 2009: net credit of £2,161m) relating to fair value movements on
derivatives recycled from the cash flow reserve. The items generating these foreign exchange
movements are in designated hedge relationships.f
    Includes a net credit of £3m (2010: net credit of £29m, 2009: net charge of £39m)
relating to fair value movements arising on hedged items and net charge of £3m (2010: net charge of
£29m, 2009: net credit of £39m) relating to fair value movements arising on derivatives designated
as fair value hedges.g
    The weighted average capitalisation rate on general borrowings was 7.8% in 2011 (2010:
7.9%).
 2011
    
    
    2010
    a
    
    2009
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £mFinance incomeInterest on available-for-sale investments
    
    
    9
    
    
    
    5
    
    
    
    14Interest on loans and receivables
    
    
    7
    
    
    
    7
    
    
    
    17Other interest and similar income
    
    
    19
    
    
    
    
    
    
    
    Total finance income before specific items
    
    
    35
    
    
    
    12
    
    
    
    31Specific items (note 8)
    
    
    2,244
    
    
    
    1,943
    
    
    
    2,621Total finance income
    
    
    2,279
    
    
    
    1,955
    
    
    
    2,652
 a
    In 2011 the group amended its definition of specific items to include net interest on
pensions due to its volatile nature. Comparatives have been re-presented to be on a consistent
basis.
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mNet finance expense before specific items
    
    
    845
    
    
    
    890
    
    
    
    933Specific items (note 8)
    
    
    79
    
    
    
    268
    
    
    
    (313
    )Net finance expense
    
    
    924
    
    
    
    1,158
    
    
    
    620
 
   116




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##### Table of Contents



FINANCIAL STATEMENTS
 
  10. Taxation
  2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mUnited KingdomCorporation tax at 28% (2010: 28%, 2009: 28%)
    
    
    (197
    )
    
    
    (161
    )
    
    
    Adjustments in respect of prior periods
    
    
    (7
    )
    
    
    204
    
    
    
    50Non UK taxationCurrent
    
    
    (40
    )
    
    
    (31
    )
    
    
    (48
    )Adjustments in respect of prior periods
    
    
    11
    
    
    
    
    
    
    
    10Total current tax (expense) credit
    
    
    (233
    )
    
    
    12
    
    
    
    12Deferred taxOrigination and reversal of temporary differences
    
    
    (184
    )
    
    
    (53
    )
    
    
    77Adjustments in respect of prior periods
    
    
    32
    
    
    
    63
    
    
    
    (36
    )Impact of change in UK corporation tax rate to 26%
    
    
    172
    
    
    
    
    
    
    
    Total deferred tax credit
    
    
    20
    
    
    
    10
    
    
    
    41Total taxation (expense) credit
    
    
    (213
    )
    
    
    22
    
    
    
    53
   2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %Profit (loss) before taxation
    
    
    1,717
    
        
    
    
    
    
    
    1,007
    
    
    
    
    
    
    
    (244
    )Expected taxation (expense) credit at UK rate of 28%
(2010: 28%, 2009: 28%)
    
    
    (481
    )
    
    
    28.0
    
    
    
    (282
    )
    
    
    28.0
    
    
    
    68
    
    
    
    28.0Effects of:Non deductible depreciation and amortisation
    
    
    (15
    )
    
    
    0.9
    
    
    
    (18
    )
    
    
    1.7
    
    
    
    (27
    )
    
    
    (11.0
    )Non deductible (taxable) non UK losses (profits)
    
    
    (13
    )
    
    
    0.8
    
    
    
    (26
    )
    
    
    2.6
    
    
    
    24
    
    
    
    9.8Overseas losses utilised
    
    
    53
    
    
    
    (3.1
    )
    
    
    35
    
    
    
    (3.4
    )
    
    
    
    
    
    
    Higher (lower) taxes on non UK profits
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    0.1
    
    
    
    9
    
    
    
    3.7Higher (lower) taxes on gain on disposal of business
    
    
    12
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (1.6
    )Other deferred tax assets not recognised
    
    
    (8
    )
    
    
    0.4
    
    
    
    (17
    )
    
    
    1.6
    
    
    
    (5
    )
    
    
    (2.0
    )Associates and joint ventures
    
    
    6
    
    
    
    (0.3
    )
    
    
    11
    
    
    
    (1.1
    )
    
    
    21
    
    
    
    8.6Adjustments in respect of prior periods
    
    
    36
    
    
    
    (2.1
    )
    
    
    37
    
    
    
    (3.7
    )
    
    
    24
    
    
    
    9.8Tax credit in respect of settlement of open tax years
    
    
    
    
        
    
    
    
    
    
    230
    
    
    
    (22.9
    )
    
    
    
    
    
    
    Re-measurement of deferred tax balances at 26%
    
    
    172
    
    
    
    (10.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adoption of the amendment to IFRS 2
    
    
    
    
        
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (12.3
    )Other
    
    
    26
    
    
    
    (1.5
    )
    
    
    53
    
    
    
    (5.1
    )
    
    
    (27
    )
    
    
    (11.1
    )Total taxation (expense) credit and effective tax rate
    
    
    (213
    )
    
    
    12.4
    
    
    
    22
    
    
    
    (2.2
    )
    
    
    53
    
    
    
    21.9Exclude specific items (note 8)
    
    
    (239
    )
    
    
    
    
    
    
    (420
    )
    
    
    
    
    
    
    (414
    )Total taxation (expense) before specific items and
effective rate on profit before specific items
    
    
    (452
    )
    
    
    21.7
    
    
    
    (398
    )
    
    
    22.9
    
    
    
    (361
    )
    
    
    24.8
    2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mDeferred tax credit (expense) relating to share-based payments
    
    
    91
    
    
    
    19
    
    
    
    (12
    )Total taxation credit (expense) recognised directly in equity
    
    
    91
    
    
    
    19
    
    
    
    (12
    )
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     117




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##### Table of Contents



FINANCIAL STATEMENTS
  10. Taxation continued
   2011
    
    
    2010
    
    
    2009Tax
    
    
    
    
    
    
    
    
    
    
    Tax
    
    
    
    
    
    
    
    
    
    
    TaxBefore
    
    
    (expense)
    
    
    After
    
    
    Before
    
    
    (expense)
    
    
    After
    
    
    Before
    
    
    (expense)
    
    
    Aftertax
    
    
    credit
    
    
    tax
    
    
    tax
    
    
    credit
    
    
    tax
    
    
    tax
    
    
    credit
    
    
    taxYear ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mActuarial
gains (losses) relating to retirement benefit obligations
    
    
    5,109
    
    
    
    (1,534
    )
    
    
    3,575
    
    
    
    (4,324
    )
    
    
    1,211
    
    
    
    (3,113
    )
    
    
    (7,037
    )
    
    
    1,959
    
    
    
    (5,078
    )Exchange differences on translation of
foreign operations
    
    
    (140
    )
    
    
    18
    
    
    
    (122
    )
    
    
    (119
    )
    
    
    (20
    )
    
    
    (139
    )
    
    
    692
    
    
    
    64
    
    
    
    756Fair value movements on available-for-sale assets
    
    
    15
    
        
    
    
    
        
    
    15
    
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    5
    
    
    
    
    
    
    
    5Fair value movements on cash flow hedges fair
value (losses) gains
    
    
    (347
    )
    
    
    (124
    )
    
    
    (471
    )
    
    
    (1,067
    )
    
    
    297
    
    
    
    (770
    )
    
    
    2,719
    
    
    
    (766
    )
    
    
    1,953 recognised in income and expense
    
    
    333
    
        
    
    119
    
        
    
    452
    
    
    
    496
    
    
    
    (139
    )
    
    
    357
    
    
    
    (2,144
    )
    
    
    600
    
    
    
    (1,544
    ) reclassified and reported in non-current assets
    
    
    
    
        
    
    
    
        
    
    
    
    
    
    (4
    )
    
    
    1
    
    
    
    (3
    )
    
    
    (5
    )
    
    
    2
    
    
    
    (3
    )4,970
    
    
    
    (1,521
    )
    
    
    3,449
    
    
    
    (5,011
    )
    
    
    1,350
    
    
    
    (3,661
    )
    
    
    (5,770
    )
    
    
    1,859
    
    
    
    (3,911
    )Current tax credit (expense)
    
    
    
    
        
    
    25
    
        
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Deferred tax (expense) credit
    
    
    
    
    
    
    (1,546
    )
    
    
    
    
    
    
    
    
    
    
    1,352
    
    
    
    
    
    
    
    
    
    
    
    1,859(1,521
    )
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    
    
    
    
    1,859
 
 11. Earnings (loss) per share
   Year ended 31 March
    
    2011
    
    
    2010
    
    
    2009Profit (loss) attributable to equity shareholders of the parent (£m)
    
    
    1,502
    
    
    
    1,028
    
    
    
    (193
    )Basic weighted average number of shares (millions)
    
    
    7,750
    
    
    
    7,740
    
    
    
    7,724Dilutive shares from share options (millions)
    
    
    252
    
    
    
    174
    
    
    
    5Dilutive shares held in trust (millions)
    
    
    114
    
    
    
    74
    
    
    
    42Diluted weighted average number of shares (millions)
    
    
    8,116
    
    
    
    7,988
    
    
    
    7,771Basic earnings (loss) per share
    
    
    19.4p
    
    
    
    13.3p
    
    
    
    (2.5)pDiluted earnings (loss) per share
    
    
    18.5p
    
    
    
    12.9p
    
    
    
    (2.5)p
 
 12. Dividends
 2011
    
    
    2010
    
    
    2009pence
    
    
    
    
    
    
    pence
    
    
    
    
    
    
    penceYear ended 31 March
    
    per share
    
    
    £m
    
    
    per share
    
    
    £m
    
    
    per share
    
    
    £mFinal dividend paid in respect of the prior year
    
    
    4.6
    
        
    
    357
    
    
    
    1.1
    
    
    
    85
    
    
    
    10.4
    
    
    
    804Interim dividend paid in respect of the current year
    
    
    2.4
    
        
    
    186
    
    
    
    2.3
    
    
    
    178
    
    
    
    5.4
    
    
    
    4187.0
    
        
    
    543
    
    
    
    3.4
    
    
    
    263
    
    
    
    15.8
    
    
    
    1,222
 
   118




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##### Table of Contents



FINANCIAL STATEMENTS
 
  13. Intangible assets
 Brands,customer
    
    
    Telecommunication
    
    
    Internallyrelationships
    
    
    licences and
    
    
    developed
    
    
    ComputerGoodwill
    
    
    and technology
    
    
    other
    
    
    software
    
    
    software
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 1 April 2009
    
    
    1,489
    
    
    
    376
    
    
    
    307
    
    
    
    2,348
    
    
    
    1,204
    
    
    
    5,724Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    44
    
    
    
    629Acquisitions through business
combinations
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Interest on qualifying assetsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Disposals and adjustments
    
    
    (2
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (362
    )
    
    
    9
    
    
    
    (364
    )Exchange differences
    
    
    (56
    )
    
    
    (16
    )
    
    
    (11
    )
    
    
    (5
    )
    
    
    (16
    )
    
    
    (104
    )At 1 April 2010
    
    
    1,432
    
        
    
    357
    
        
    
    290
    
        
    
    2,568
    
        
    
    1,241
    
    
    
    5,888Additions
    
    
    
    
        
    
    
    
        
    
    
    
        
    
    435
    
        
    
    65
    
    
    
    500Acquisitions through business
combinations
    
    
    6
    
        
    
    
    
        
    
    
    
        
    
    
    
        
    
    
    
    
    
    6Interest on qualifying assetsa
    
    
    
    
        
    
    
    
        
    
    
    
        
    
    4
    
        
    
    
    
    
    
    4Disposals and adjustments
    
    
    
    
        
    
    
    
        
    
    
    
    
    
    (92
    )
        
    
    (5
    )
    
    
    (97
    )Impairment chargesb
    
    
    (39
    )
    
    
    (10
    )
    
    
    
    
        
    
    
    
        
    
    
    
    
    
    (49
    )Exchange differences
    
    
    (42
    )
    
    
    (9
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (58
    )At 31 March 2011
    
    
    1,357
    
        
    
    338
    
        
    
    288
    
        
    
    2,913
    
        
    
    1,298
    
    
    
    6,194AmortisationAt 1 April 2009
    
    
    
    
    
    
    153
    
    
    
    156
    
    
    
    739
    
    
    
    888
    
    
    
    1,936Charge for the year
    
    
    
    
    
    
    54
    
    
    
    15
    
    
    
    559
    
    
    
    107
    
    
    
    735Disposals and adjustments
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )
    
    
    (366
    )
    
    
    (53
    )
    
    
    (424
    )Exchange differences
    
    
    
    
    
    
    (9
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (12
    )
    
    
    (31
    )At 1 April 2010
    
    
    
    
        
    
    197
    
        
    
    162
    
        
    
    927
    
        
    
    930
    
    
    
    2,216Charge for the year
    
    
    
    
        
    
    47
    
        
    
    14
    
        
    
    544
    
        
    
    86
    
    
    
    691Disposals and adjustments
    
    
    
    
        
    
    
    
        
    
    
    
    
    
    (91
    )
    
    
    (4
    )
    
    
    (95
    )Exchange differences
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (7
    )At 31 March 2011
    
    
    
    
        
    
    242
    
        
    
    175
    
        
    
    1,379
    
        
    
    1,009
    
    
    
    2,805Carrying amountAt 31 March 2011
    
    
    1,357
    
        
    
    96
    
        
    
    113
    
        
    
    1,534
    
        
    
    289
    
    
    
    3,389At 31 March 2010
    
    
    1,432
    
    
    
    160
    
    
    
    128
    
    
    
    1,641
    
    
    
    311
    
    
    
    3,672
 a
    Additions to internally generated software in 2011 includes interest capitalised at a
weighted average borrowing rate of 7.8% (2010: 7.9%).b
    See note 8 for details.
   BT Global
    
    
    BT RetailServices
    
    
    BT Consumer
    
    
    BT Business
    
    
    BT Ireland
    
    
    BT Enterprises
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 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 1 April 2010
    
    
    1,172
    
        
    
    65
    
        
    
    61
    
        
    
    21
    
        
    
    113
    
        
    
    1,432Acquisitions through business combinations
    
    
    6
    
        
    
    
    
        
    
    
    
        
    
    
    
        
    
    
    
        
    
    6Reclassifications
    
    
    
    
        
    
    
    
    
    
    (15
    )
    
    
    
    
        
    
    15
    
        
    
    Impairment chargesa
    
    
    (39
    )
    
    
    
    
        
    
    
    
        
    
    
    
        
    
    
    
    
    
    (39
    )Exchange differences
    
    
    (37
    )
    
    
    
    
        
    
    
    
        
    
    
    
    
    
    (5
    )
    
    
    (42
    )At 31 March 2011
    
    
    1,102
    
        
    
    65
    
        
    
    46
    
        
    
    21
    
        
    
    123
    
        
    
    1,357
 a
    The goodwill impairment charges recognised in 2011 mainly relate to an operational
restructuring of a business acquired several years ago.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     119




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##### Table of Contents



FINANCIAL STATEMENTS
  13. Intangible assets continued
  BT RetailBT GlobalServices
    
    
    BT Consumer
    
    
    BT Business
    
    
    BT Ireland
    
    
    BT EnterprisesDiscount rate
    
    
    10.0%
    
    
    
    10.0%
    
    
    
    10.0%
    
    
    
    10.0%
    
    
    
    10.0%Perpetuity growth rate
    
    
    2.5%
    
    
    
    2.0%
    
    
    
    2.0%
    
    
    
    2.0%
    
    
    
    2.0%
  BT RetailBT GlobalServices
    
    
    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%
          
    
    a reduction in the perpetuity growth rate from the 2.5% assumption applied to a revised
assumption of a 0.7% decline or more
    
    an increase in the discount rate from the 10.0%
assumption applied to a revised assumption of 12.2% or more
    
    a reduction in the projected
operating cash flows across five years by 25% or more.
 
   120




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##### Table of Contents



FINANCIAL STATEMENTS
  14. 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 2009
    
    
    1,294
    
    
    
    41,558
    
    
    
    2,374
    
    
    
    910
    
    
    
    46,136Additions
    
    
    22
    
    
    
    254
    
    
    
    144
    
    
    
    1,441
    
    
    
    1,861Interest on qualifying assetsd
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 1 April 2010
    
    
    1,379
    
    
    
    42,080
    
    
    
    2,151
    
    
    
    807
    
    
    
    46,417Additions
    
    
    11
    
    
    
    197
    
    
    
    180
    
    
    
    1,690
    
    
    
    2,078Interest on qualifying assetsd
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Transfers
    
    
    17
    
    
    
    1,729
    
    
    
    1
    
    
    
    (1,747
    )
    
    
    Disposals and adjustments
    
    
    (2
    )
    
    
    (1,350
    )
    
    
    (77
    )
    
    
    (13
    )
    
    
    (1,442
    )Exchange differences
    
    
    (6
    )
    
    
    (39
    )
    
    
    (8
    )
    
    
    (3
    )
    
    
    (56
    )At 31 March 2011
    
    
    1,399
    
    
    
    42,617
    
    
    
    2,247
    
    
    
    736
    
    
    
    46,999Accumulated depreciationAt 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 1 April 2010
    
    
    725
    
    
    
    29,201
    
    
    
    1,706
    
    
    
    
    
    
    
    31,632Charge for the year
    
    
    63
    
    
    
    2,019
    
    
    
    206
    
    
    
    
    
    
    
    2,288Disposals and adjustments
    
    
    (13
    )
    
    
    (1,316
    )
    
    
    (98
    )
    
    
    
    
    
    
    (1,427
    )Exchange differences
    
    
    (3
    )
    
    
    (24
    )
    
    
    (7
    )
    
    
    
    
    
    
    (34
    )At 31 March 2011
    
    
    772
    
    
    
    29,880
    
    
    
    1,807
    
    
    
    
    
    
    
    32,459Carrying amountAt 31 March 2011
    
    
    627
    
    
    
    12,737
    
    
    
    440
    
    
    
    736
    
    
    
    14,540Engineering stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    83Total at 31 March 2011
    
    
    627
    
    
    
    12,737
    
    
    
    440
    
    
    
    819
    
    
    
    14,623At 31 March 2010
    
    
    654
    
    
    
    12,879
    
    
    
    445
    
    
    
    807
    
    
    
    14,785Engineering stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    71Total at 31 March 2010
    
    
    654
    
    
    
    12,879
    
    
    
    445
    
    
    
    878
    
    
    
    14,856
 2011
    
    
    2010£m
    
    
    £maThe carrying amount of land and buildings, including leasehold improvements, comprised:Freehold
    
    
    420
    
    
    
    431Long leases (over 50 years unexpired)
    
    
    34
    
    
    
    33Short leases
    
    
    173
    
    
    
    190Total land and buildings
    
    
    627
    
    
    
    654
 b
    The carrying amount of the groups property, plant and equipment includes an
amount of £140m (2010: £183m) in respect of assets held under finance leases, comprising land and
buildings of £71m (2010: £74m) and network infrastructure and equipment of £69m (2010: £109m). The
depreciation charge on those assets for 2011 was £33m (2010: £44m), comprising land and buildings
of £3m (2010: £3m) and network infrastructure and equipment of £30m (2010: £41m).c
    Other mainly comprises motor vehicles and computers.d
    Additions to assets in the course of construction in 2011 includes interest
capitalised at a weighted average borrowing rate of 7.8% (2010: 7.9%).
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     121




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FINANCIAL STATEMENTS
  14. Property, plant and equipment continued
 2011
    
    
    2010Year ended 31 March
    
    £m
    
    
    £mAdditions to property, plant and equipment comprised:Land and buildings
    
    
    20
    
    
    
    29Network infrastructure and equipmentTransmission equipment
    
    
    985
    
    
    
    902Exchange equipment
    
    
    43
    
    
    
    29Other network equipment
    
    
    851
    
    
    
    753OtherComputers and office equipment
    
    
    92
    
    
    
    115Motor vehicles and other
    
    
    87
    
    
    
    33Total additions to property, plant and equipment
    
    
    2,078
    
    
    
    1,861Increase in engineering stores
    
    
    12
    
    
    
    43Total additions
    
    
    2,090
    
    
    
    1,904
 
 15. Investments
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mNon-current assetsAvailable-for-sale
    
    
    61
    
    
    
    32Loans and receivables
    
    
    
    
    
    
    3261
    
    
    
    64Current assetsAvailable-for-sale
    
    
    1
    
    
    
    258Loans and receivables
    
    
    7
    
    
    
    148Fair value through profit and loss
    
    
    11
    
    
    
    19
    
    
    
    406
 
   122




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##### Table of Contents



FINANCIAL STATEMENTS
  16. Cash and cash equivalents
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mCash at bank and in hand
    
    
    141
    
    
    
    197Cash equivalentsLoans and receivablesUK deposits
    
    
    182
    
    
    
    1,211US deposits
    
    
    20
    
    
    
    37European deposits
    
    
    8
    
    
    
    7Total cash equivalents
    
    
    210
    
    
    
    1,255Total cash and cash equivalents
    
    
    351
    
    
    
    1,452Bank overdrafts
    
    
    (26
    )
    
    
    (8
    )Cash and cash equivalents per the cash flow statement
    
    
    325
    
    
    
    1,444
    
 17. Associates and joint ventures
 2011
    
    
    2010Associates
    
    
    Joint ventures
    
    
    Total
    
    
    Associates
    
    
    Joint ventures
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNon-current assets
    
    
    28
    
    
    
    6
    
    
    
    34
    
    
    
    49
    
    
    
    7
    
    
    
    56Current assets
    
    
    214
    
    
    
    5
    
    
    
    219
    
    
    
    278
    
    
    
    4
    
    
    
    282Current liabilities
    
    
    (43
    )
    
    
    (1
    )
    
    
    (44
    )
    
    
    (77
    )
    
    
    (2
    )
    
    
    (79
    )Non-current liabilities
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )Share of net assets at 31 March
    
    
    154
    
    
    
    10
    
    
    
    164
    
    
    
    186
    
    
    
    9
    
    
    
    195Revenue
    
    
    263
    
    
    
    22
    
    
    
    285
    
    
    
    298
    
    
    
    14
    
    
    
    312Expenses
    
    
    (233
    )
    
    
    (26
    )
    
    
    (259
    )
    
    
    (266
    )
    
    
    (14
    )
    
    
    (280
    )Taxation
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Share of post tax results before specific items
    
    
    25
    
    
    
    (4
    )
    
    
    21
    
    
    
    25
    
    
    
    
    
    
    
    25Specific items (note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    29Share of post tax results
    
    
    25
    
    
    
    (4
    )
    
    
    21
    
    
    
    54
    
    
    
    
    
    
    
    54
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     123




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##### Table of Contents



FINANCIAL STATEMENTS
  17. Associates and joint ventures continued
 Associates
    
    
    Joint ventures
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 April 2009
    
    
    123
    
    
    
    9
    
    
    
    132Share of post tax profit
    
    
    54
    
    
    
    
    
    
    
    54Additions
    
    
    3
    
    
    
    
    
    
    
    3Disposals
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Dividends received
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Exchange differences and other
    
    
    21
    
    
    
    
    
    
    
    21At 1 April 2010
    
    
    186
    
    
    
    9
    
    
    
    195Share of post tax profit (loss)
    
    
    25
    
    
    
    (4
    )
    
    
    21Additions
    
    
    
    
    
    
    4
    
    
    
    4Disposals
    
    
    (42
    )
    
    
    
    
    
    
    (42
    )Dividends received
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Exchange differences
    
    
    (8
    )
    
    
    1
    
    
    
    (7
    )At 31 March 2011
    
    
    154
    
    
    
    10
    
    
    
    164
  
 18. Inventories
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mConsumables
    
    
    28
    
    
    
    30Work in progress
    
    
    46
    
    
    
    43Finished goods
    
    
    47
    
    
    
    34121
    
    
    
    107
 
 19. Trade and other receivables
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mCurrentTrade receivables
    
    
    1,770
    
    
    
    1,937Prepayments
    
    
    570
    
    
    
    549Accrued income
    
    
    788
    
    
    
    1,010Other receivables
    
    
    204
    
    
    
    2003,332
    
    
    
    3,696
 2011
    
    
    2010£m
    
    
    £mNon-currentOther assetsa
    
    
    286
    
    
    
    336
 a  Other assets mainly represent costs relating to the initial set up, transition or
transformation phase of long-term networked IT services contracts. At 31 March 2011 the balance was
£249m (2010: £294m).
Other assets also include prepayments of £37m (2010: £42m).
  2011
    
    
    2010£m
    
    
    £mAt 1 April
    
    
    219
    
    
    
    246Expense
    
    
    112
    
    
    
    155Utilised
    
    
    (136
    )
    
    
    (183
    )Exchange differences
    
    
    (3
    )
    
    
    1At 31 March
    
    
    192
    
    
    
    219
 
   124




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##### Table of Contents



FINANCIAL STATEMENTS
  19. Trade and other receivables continued
   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
    
    
    £m2011
    
    
    967
    
    
    
    127
    
    
    
    461
    
    
    
    93
    
    
    
    71
    
    
    
    51
    
    
    
    1,7702010
    
    
    1,257
    
    
    
    51
    
    
    
    426
    
    
    
    98
    
    
    
    60
    
    
    
    45
    
    
    
    1,937
   2011
    
    
    2010At 31 March
    
    £m
    
    
    £mBT Global Services
    
    
    674
    
    
    
    867BT Retail
    
    
    178
    
    
    
    228BT Wholesale
    
    
    82
    
    
    
    127Openreach
    
    
    25
    
    
    
    27Other
    
    
    8
    
    
    
    8Total trade receivables not past due
    
    
    967
    
    
    
    1,257
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mBT Global Services
    
    
    422
    
    
    
    633BT Retail
    
    
    138
    
    
    
    148BT Wholesale
    
    
    176
    
    
    
    182Openreach
    
    
    47
    
    
    
    44Other
    
    
    5
    
    
    
    3Total accrued income
    
    
    788
    
    
    
    1,010
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     125




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##### Table of Contents



FINANCIAL STATEMENTS
  20. Loans and other borrowings
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mUS Dollar 9.375% bonds December 2010 (2010: 9.125%, minimum 8.125%a)b
    
    
    
    
    
    
    1,951Euro 7.87% bonds February 2011 (2010: 7.87%, minimum 6.875%a)b
    
    
    
    
    
    
    1,015US Dollar 5.15% bonds January 2013b
    
    
    537
    
    
    
    566Euro 5.25% bonds January 2013b
    
    
    898
    
    
    
    902Euro 5.25% bonds June 2014b
    
    
    693
    
    
    
    696Euro 6.125% bonds July 2014a,d
    
    
    557
    
    
    
    561Euro 6.5% bonds July 2015b
    
    
    930
    
    
    
    935Sterling 8.75% bonds December 2016 (2010: 8.5%, minimum 7.5%a)
    
    
    715
    
    
    
    715Sterling 6.625% bonds June 2017b
    
    
    525
    
    
    
    525US Dollar 5.95% bonds January 2018b
    
    
    695
    
    
    
    734Sterling 8.625% bonds 2020
    
    
    298
    
    
    
    298Sterling 3.5% index linked bonds April 2025
    
    
    340
    
    
    
    325Sterling 5.75% bonds December 2028c
    
    
    605
    
    
    
    602US Dollar 9.875% bonds December 2030 (2010: 9.625%, minimum 8.625%a)b
    
    
    1,714
    
    
    
    1,811Sterling 6.375% bonds June 2037b
    
    
    521
    
    
    
    521Total listed bonds
    
    
    9,028
    
    
    
    12,157Finance leases
    
    
    294
    
    
    
    304Sterling 6.35% bank loan due August 2012
    
    
    312
    
    
    
    312Other loans
    
    
    125
    
    
    
    10Commercial papere
    
    
    71
    
    
    
    Bank overdrafts (see note 16)
    
    
    26
    
    
    
    8Total other loans and borrowings
    
    
    534
    
    
    
    330Total loans and borrowings
    
    
    9,856
    
    
    
    12,791
 a   The interest rate payable on these bonds will be subject to adjustment from time
to time if either Moodys or Standard & 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 payable on the bonds and the spread applicable to the floating rate bonds will
be increased by 0.25% for each ratings category adjustment by each ratings 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 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-. At the next coupon date in 2011 the rate payable on these bonds increased by 0.25 percentage
points.b   Hedged in a designated cash flow hedge.c   Hedged in a designated fair value hedge.d
       The interest rate payable on this bond attracts an additional 1.25% for a downgrade by
one credit rating category by either or both Moodys and S&P below Baa3/BBB- respectively.e

       Commercial paper is denominated in Euros of £56m (2010: £nil) and US Dollars of £15m
(2010: £nil).
   2011
    
    
    2010Effect 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
    
    
    485
    
    
    
    (266
    )
    
    
    219
    
    
    
    3,269
    
    
    
    (737
    )
    
    
    2,532Between one and two years
    
    
    1,747
    
    
    
    (66
    )
    
    
    1,681
    
    
    
    18
    
    
    
    
    
    
    
    18Between two and three years
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    1,763
    
    
    
    (313
    )
    
    
    1,450Between three and four years
    
    
    1,209
    
    
    
    (48
    )
    
    
    1,161
    
    
    
    11
    
    
    
    
    
    
    
    11Between four and five years
    
    
    901
    
    
    
    (94
    )
    
    
    807
    
    
    
    1,213
    
    
    
    (177
    )
    
    
    1,036After five years
    
    
    5,507
    
    
    
    (198
    )
    
    
    5,309
    
    
    
    6,523
    
    
    
    (431
    )
    
    
    6,092Total due for repayment after more than one year
    
    
    9,374
    
    
    
    (406
    )
    
    
    8,968
    
    
    
    9,528
    
    
    
    (921
    )
    
    
    8,607Total repayments
    
    
    9,859
    
    
    
    (672
    )
    
    
    9,187
    
    
    
    12,797
    
    
    
    (1,658
    )
    
    
    11,139Fair value adjustments for hedged risk
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Total loans and other borrowings
    
    
    9,856
    
    
    
    
    
    
    
    
    
    
    
    12,791
 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.
 
   126




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FINANCIAL STATEMENTS
  20. Loans and other borrowings continued
  2011
    
    
    2010Fixed rate
    
    
    Floating rate
    
    
    
    
    
    
    Fixed rate
    
    
    Floating rateinterest
    
    
    interest
    
    
    Total
    
    
    interest
    
    
    interest
    
    
    TotalAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSterling
    
    
    7,954
    
    
    
    913
    
    
    
    8,867
    
    
    
    10,110
    
    
    
    835
    
    
    
    10,945Euro
    
    
    
    
    
    
    283
    
    
    
    283
    
    
    
    
    
    
    
    184
    
    
    
    184US Dollar
    
    
    18
    
    
    
    2
    
    
    
    20
    
    
    
    
    
    
    
    3
    
    
    
    3Other
    
    
    
    
    
    
    17
    
    
    
    17
    
    
    
    
    
    
    
    7
    
    
    
    7Total
    
    
    7,972
    
    
    
    1,215
    
    
    
    9,187
    
    
    
    10,110
    
    
    
    1,029
    
    
    
    11,139Weighted average effective fixed interest rate
Sterling
    
    
    7.4%
    
    
    
    
    
    
    
    
    
    
    
    8.0%
   2011
    
    
    2010
    
    
    2011
    
    
    2010Repayment of outstandingMinimum lease payments
    
    
    lease obligationsAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAmounts payable under finance leases:Within one year
    
    
    19
    
    
    
    33
    
    
    
    2
    
    
    
    16In the second to fifth years inclusive
    
    
    128
    
    
    
    119
    
    
    
    57
    
    
    
    48After five years
    
    
    513
    
    
    
    535
    
    
    
    235
    
    
    
    240660
    
    
    
    687
    
    
    
    294
    
    
    
    304Less: future finance charges
    
    
    (366
    )
    
    
    (383
    )
    
    
    
    
    
    
    Total finance lease obligations
    
    
    294
    
    
    
    304
    
    
    
    294
    
    
    
    304
  
 21. Derivative financial instruments
 2011
    
    
    2010Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCash flow hedgesInterest rate swaps
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    361Cross currency swaps
    
    
    622
    
    
    
    29
    
    
    
    1,571
    
    
    
    30Forward foreign exchange rate contracts
    
    
    4
    
    
    
    6
    
    
    
    23
    
    
    
    4626
    
    
    
    300
    
    
    
    1,594
    
    
    
    395Fair value hedgesInterest rate swaps
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    64
    
    
    
    2
    
    
    
    
    
    
    
    6Derivatives not in a formal
hedge relationshipInterest rate swaps
    
    
    99
    
    
    
    267
    
    
    
    106
    
    
    
    295Cross currency swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Forward foreign exchange rate contracts
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    2103
    
    
    
    267
    
    
    
    106
    
    
    
    298733
    
    
    
    569
    
    
    
    1,700
    
    
    
    699
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     127




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##### Table of Contents



FINANCIAL STATEMENTS
  21. Derivative financial instruments continued
  2011
    
    
    2010Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mWithin one year or on demand
    
    
    108
    
    
    
    62
    
    
    
    624
    
    
    
    166Current
    
    
    108
    
    
    
    62
    
    
    
    624
    
    
    
    166Between one and two years
    
    
    71
    
    
    
    9
    
    
    
    
    
    
    
    Between two and three years
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    Between three and four years
    
    
    66
    
    
    
    100
    
    
    
    
    
    
    
    Between four and five years
    
    
    73
    
    
    
    
    
    
    
    222
    
    
    
    128After five years
    
    
    415
    
    
    
    398
    
    
    
    643
    
    
    
    405Non-current
    
    
    625
    
    
    
    507
    
    
    
    1,076
    
    
    
    533Total
    
    
    733
    
    
    
    569
    
    
    
    1,700
    
    
    
    699
 
 22. Trade and other payables
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mCurrentTrade payables
    
    
    3,250
    
    
    
    3,668Other taxation and social security
    
    
    485
    
    
    
    516Other payables
    
    
    530
    
    
    
    506Accrued expenses
    
    
    505
    
    
    
    498Deferred income
    
    
    1,344
    
    
    
    1,3436,114
    
    
    
    6,531
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mNon-currentaOther payables
    
    
    762
    
    
    
    734Deferred income
    
    
    69
    
    
    
    70831
    
    
    
    804
 a
    Non-current payables mainly relate to operating lease liabilities and deferred
gains on a prior period sale and finance leaseback transaction.
 
   128




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FINANCIAL STATEMENTS
  23. Retirement benefit plans
       2011
    
    
    2010Number
    
    
    NumberAt 31 March
    
    of members
    
    
    of membersActive members
    
    
    51,000
    
    
    
    55,000Deferred members
    
    
    88,500
    
    
    
    93,000Pensioners
    
    
    188,000
    
    
    
    185,000Total membership
    
    
    327,500
    
    
    
    333,000
    Amounts recognised in the income statement in respect of the groups pension plans
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mRecognised in the income statement before specific itemsCurrent service cost  defined benefit plans
    
    
    297
    
    
    
    206
    
    
    
    459 defined contribution plans
    
    
    119
    
    
    
    98
    
    
    
    85Total operating charge
    
    
    416
    
    
    
    304
    
    
    
    544Specific items(note 8)Expected return on pension plan assets
    
    
    (2,244
    )
    
    
    (1,932
    )
    
    
    (2,621
    )Interest expense on pension plan liabilities
    
    
    2,323
    
    
    
    2,211
    
    
    
    2,308Net interest expense (income) included in specific items
    
    
    79
    
    
    
    279
    
    
    
    (313
    )Total recognised in the income statement
    
    
    495
    
    
    
    583
    
    
    
    231
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     129




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FINANCIAL STATEMENTS
  23. Retirement benefit plans continued
    Balance sheet position in respect of defined benefit plans  IAS 19
  2011
    
    
    2010Present
    
    
    
    
    
    
    
    
    
    
    Presentvalue
    
    
    
    
    
    
    
    
    
    
    valueAssets
    
    
    of liabilities
    
    
    Deficit
    
    
    Assets
    
    
    of liabilities
    
    
    DeficitAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mBTPS
    
    
    37,034
    
    
    
    (38,715
    )
    
    
    (1,681
    )
    
    
    35,278
    
    
    
    (43,018
    )
    
    
    (7,740
    )Other plansa
    
    
    188
    
    
    
    (337
    )
    
    
    (149
    )
    
    
    151
    
    
    
    (275
    )
    
    
    (124
    )Retirement benefit obligation
    
    
    37,222
    
    
    
    (39,052
    )
    
    
    (1,830
    )
    
    
    35,429
    
    
    
    (43,293
    )
    
    
    (7,864
    )Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    2,193Net pension obligation
    
    
    
    
    
    
    
    
    
    
    (1,370
    )
    
    
    
    
    
    
    
    
    
    
    (5,671
    )
 a
   Included in the present value of liabilities of other schemes is £70m (2010: £54m)
related to unfunded pension arrangements.
 Measurement of scheme assets  IAS 19
   2011
    
    
    2010Expected
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expectedlong-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    long-termrate of return
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rate of return(per annum)
    
    
    Asset fair value
    b
    
    Target
    
    
    (per annum)
    
    
    Asset fair value
    b
    
    TargetAt 31 March
    
    %
    
    
    £bn
    
    
    %
    
    
    %
    
    
    %
    
    
    £bn
    
    
    %
    
    
    %UK equities
    
    
    7.9
    
    
    
    3.2
    
    
    
    8
    
    
    
    9
    
    
    
    8.5
    
    
    
    3.6
    
    
    
    10
    
    
    
    11Non UK equities
    
    
    7.9
    
    
    
    8.2
    
    
    
    22
    
    
    
    22
    
    
    
    8.5
    
    
    
    7.5
    
    
    
    21
    
    
    
    22Fixed-interest securities
    
    
    5.0
    
    
    
    4.4
    
    
    
    12
    
    
    
    22
    
    
    
    5.0
    
    
    
    5.9
    
    
    
    17
    
    
    
    20Index-linked securities
    
    
    4.1
    
    
    
    5.9
    
    
    
    16
    
    
    
    15
    
    
    
    4.2
    
    
    
    5.8
    
    
    
    16
    
    
    
    15Property
    
    
    7.0
    
    
    
    3.9
    
    
    
    11
    
    
    
    11
    
    
    
    7.7
    
    
    
    3.8
    
    
    
    11
    
    
    
    12Alternative assetsa
    
    
    6.7
    
    
    
    7.3
    
    
    
    20
    
    
    
    21
    
    
    
    6.9
    
    
    
    5.9
    
    
    
    17
    
    
    
    20Cash and other
    
    
    3.6
    
    
    
    4.1
    
    
    
    11
    
    
    
    
    
    
    
    4.2
    
    
    
    2.8
    
    
    
    8
    
    
    
    6.35
    
    
    
    37.0
    
    
    
    100
    
    
    
    100
    
    
    
    6.50
    
    
    
    35.3
    
    
    
    100
    
    
    
    100
 a

      Alternative asset classes include commodities, hedge funds, private equity,
infrastructure and credit opportunities.b

      At 31 March 2011 and 31 March 2010, the schemes assets did not include any ordinary
shares of the company. However, the scheme held £10m (2010: £52m) of bonds and £7m (2010: £6m) of
index-linked bonds issued by the group. The group occupies two (2010: four) properties owned by the
BTPS on which an annual rental of £0.1m is payable (2010: £0.2m).
 Expected long-term return on assets  IAS 19
 
   130




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FINANCIAL STATEMENTS
  23. Retirement benefit plans continued
 Asset allocation
   Target
    
    
    Actual
    
    
    Over/(under)benchmark
    
    
    BTPS
    
    
    performancereturn
    
    
    return
    
    
    returnPeriod ending 31 December 2010
    
    %
    
    
    %
    
    
    %1 year
    
    
    10.7
    
    
    
    11.8
    
    
    
    1.13 years
    
    
    (0.2
    )
    
    
    1.1
    
    
    
    1.310 years
    
    
    4.1
    
    
    
    5.1
    
    
    
    1.0
  Measurement of scheme liabilities  IAS 19
  Principal assumptions used to measure BTPS liabilities
  
   
    
    members who commenced employment prior to 1 April 1986  CPI will be used to revalue
preserved pensions of deferred members and for the rate of inflationary increase applied to
pensions in payment
    
    members who commenced employment on or after 1 April 1986  CPI will
be used to revalue preserved pensions of deferred members and RPI will continue to be used for
inflationary increases to pensions in payment.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     131




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##### Table of Contents



FINANCIAL STATEMENTS
  23. Retirement benefit plans continued
   Nominal rates (per annum)
    
    
    Real rates (per annum)2011
    
    
    2010
    
    
    2009
    
    
    2011
    
    
    2010
    
    
    2009At 31 March
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %Rate used to discount liabilities
    
    
    5.50
    
    
    
    5.50
    
    
    
    6.85
    
    
    
    2.03
    
    
    
    1.83
    
    
    
    3.84Inflation  increase in RPI
    
    
    3.40
    
    
    
    3.60
    
    
    
    2.90
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aInflation  increase in CPI
    
    
    2.40
    a
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aAverage future increases in wages and salaries
    
    
    3.40
    
    
    
    3.60
    
    
    
    2.90
    
    
    
    
    
    
    
    
    
    
    
    
 a

      There is a short-term reduction in CPI of 0.5% for one year.
   2011
    
    
    2010Number of
    
    
    Number ofAt 31 March
    
    years
    
    
    yearsMale in lower pay bracket
    
    
    25.3
    
    
    
    25.2Male in higher pay bracket
    
    
    27.6
    
    
    
    27.4Female
    
    
    28.2
    
    
    
    28.1Average improvement for a member retiring at age 60 in 10 years time
    
    
    1.1
    
    
    
    1.1
  Sensitivity analysis of the principal assumptions used to measure BTPS liabilities
  (Decrease)Decrease
    
    
    Decrease
    
    
    increase in(increase) in
    
    
    (increase) in
    
    
    net financeliability
    
    
    service cost
    
    
    income£bn
    
    
    £m
    
    
    £m0.25 percentage point increase to: discount rate
    
    
    1.4
    
    
    
    15
    
    
    
     inflation rate (RPI)
    
    
    (0.5
    )
    
    
    (15
    )
    
    
    45 salary increases
    
    
    (0.2
    )
    
    
    (5
    )
    
    
    (15
    )Additional one year increase to life expectancy
    
    
    (1.0
    )
    
    
    (5
    )
    
    
    (55
    )0.1 percentage point increase in expected return on assets
    
    
    
    
    
    
    
    
    
    
    35
 
   132




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FINANCIAL STATEMENTS
  23. Retirement benefit plans continued
 Movements in defined benefit plan assets and liabilities
 Assets
    
    
    Liabilities
    
    
    Deficit£m
    
    
    £m
    
    
    £mAt 1 April 2009
    
    
    29,353
    
    
    
    (33,326
    )
    
    
    (3,973
    )Current service cost
    
    
    
    
    
    
    (206
    )
    
    
    (206
    )Expected return on pension plan assetsa(interest expense on pension plan liabilities)
    
    
    1,932
    
    
    
    (2,211
    )
    
    
    (279
    )Actuarial gain (loss)a
    
    
    5,157
    
    
    
    (9,481
    )
    
    
    (4,324
    )Regular contributions by employer
    
    
    391
    
    
    
    
    
    
    
    391Deficiency contributions by employer
    
    
    525
    
    
    
    
    
    
    
    525Contributions by employees
    
    
    15
    
    
    
    (15
    )
    
    
    Benefits paid
    
    
    (1,948
    )
    
    
    1,948
    
    
    
    Exchange differences
    
    
    4
    
    
    
    (2
    )
    
    
    2At 1 April 2010
    
    
    35,429
    
    
    
    (43,293
    )
    
    
    (7,864
    )Current service cost
    
    
    
    
    
    
    (297
    )
    
    
    (297
    )Expected return on pension plan assetsa(interest expense on pension plan liabilities)
    
    
    2,244
    
    
    
    (2,323
    )
    
    
    (79
    )Actuarial gaina
    
    
    234
    
    
    
    4,875
    
    
    
    5,109Regular contributions by employer
    
    
    283
    
    
    
    
    
    
    
    283Deficiency contributions by employer
    
    
    1,030
    
    
    
    
    
    
    
    1,030Contributions by employees
    
    
    15
    
    
    
    (15
    )
    
    
    Benefits paid
    
    
    (2,011
    )
    
    
    2,014
    
    
    
    3Other movements
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Exchange differences
    
    
    (2
    )
    
    
    2
    
    
    
    At 31 March 2011
    
    
    37,222
    
    
    
    (39,052
    )
    
    
    (1,830
    )
 a

      Actual return on plan assets in the year was £2,478m (2010: £7,089m).
 Amounts recognised in the statement of comprehensive income for actuarial gains or losses arising on defined benefit plans
 2011
    
    
    2010
    
    
    2009Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mActuarial (losses) gains at 1 April
    
    
    (4,915
    )
    
    
    (591
    )
    
    
    6,446Actuarial gains (losses) for the year: arising on plan liabilities
    
    
    4,875
    
    
    
    (9,481
    )
    
    
    2,414 arising on plan assets
    
    
    234
    
    
    
    5,157
    
    
    
    (9,451
    )Net actuarial gains (losses) recognised for the year in other comprehensive income
    
    
    5,109
    
    
    
    (4,324
    )
    
    
    (7,037
    )Actuarial gains (losses) at 31 March
    
    
    194
    
    
    
    (4,915
    )
    
    
    (591
    )
 History of experience gains and losses
 2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007At 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mPresent value of defined benefit liabilities
    
    
    (39,052
    )
    
    
    (43,293
    )
    
    
    (33,326
    )
    
    
    (34,669
    )
    
    
    (38,779
    )Fair value of plan assets
    
    
    37,222
    
    
    
    35,429
    
    
    
    29,353
    
    
    
    37,448
    
    
    
    38,390Net pension (obligation) asset
    
    
    (1,830
    )
    
    
    (7,864
    )
    
    
    (3,973
    )
    
    
    2,779
    
    
    
    (389
    )Actuarial gain (loss) arising from assumptions used to value defined

benefit liabilities
    
    
    4,617
    
    
    
    (11,113
    )
    
    
    2,652
    
    
    
    5,215
    
    
    
    226Actuarial gain (loss) arising from experience adjustments on defined 

benefit liabilities
    
    
    258
    
    
    
    1,632
    
    
    
    (238
    )
    
    
    (22
    )
    
    
    190Total actuarial gain (loss) arising on defined benefit liabilities
    
    
    4,875
    
    
    
    (9,481
    )
    
    
    2,414
    
    
    
    5,193
    
    
    
    416Total actuarial gain or loss arising on defined benefit liabilities as a 

percentage of the present value of defined benefit liabilities
    
    
    12.5%
    
    
    
    21.8%
    
    
    
    7.2%
    
    
    
    15.0%
    
    
    
    1.1%Actuarial gain (loss) arising from experience adjustment on plan assets
    
    
    234
    
    
    
    5,157
    
    
    
    (9,451
    )
    
    
    (2,572
    )
    
    
    993Actuarial gain or loss arising from experience adjustment on plan assets

as a percentage of the plan assets
    
    
    0.6%
    
    
    
    14.6%
    
    
    
    32.2%
    
    
    
    6.9%
    
    
    
    2.6%
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     133




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FINANCIAL STATEMENTS
  23. Retirement benefit plans continued
   BTPS funding valuation and future funding obligations
   
    
    assets are valued at market value at the valuation date; and
    
    liabilities are measured using a projected unit credit method and discounted
to their present value.
  Nominal rates (per annum)
    
    
    Real rates (per annum)2008
    
    
    2005
    
    
    2008
    
    
    2005valuation
    
    
    valuation
    
    
    valuation
    
    
    valuation%
    
    
    %
    
    
    %
    
    
    %Discount ratePre retirement liabilities
    
    
    6.76
    
    
    
    5.84
    
    
    
    3.65
    
    
    
    3.06Post retirement liabilities
    
    
    5.21
    
    
    
    4.54
    
    
    
    2.15
    
    
    
    1.79Average long-term increase in retail price index
    
    
    3.00
    
    
    
    2.70
    
    
    
    
    
    
    
    Average future increases in wages and salaries
    
    
    3.00
    
    
    
    3.47
    
    
    
    
    
    
    
    0.75Average increase in pensions
    
    
    3.00
    
    
    
    2.70
    
    
    
    
    
    
    
    
  2008
    
    
    2005valuation
    
    
    valuationAt 31 December
    
    £bn
    
    
    £bnBTPS liabilities
    
    
    (40.2
    )
    
    
    (37.8
    )Market value of BTPS assets
    
    
    31.2
    
    
    
    34.4Funding deficit
    
    
    (9.0
    )
    
    
    (3.4
    )Percentage of accrued benefits covered by BTPS assets at valuation date
    
    
    77.6%
    
    
    
    90.9%Percentage of members benefits that the BTPS assets could purchase from an insurance company at the valuation date
    
    
    57.0%
    
    
    
    70.0%
    Year ended 31 December
    
    £m2011
    
    
    2012
    
    
    5832013-25
    
    Increasing at 3% pa
 
   134




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FINANCIAL STATEMENTS
  23. Retirement benefit plans continued
   
    
    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.
    
    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.
    
    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 made to the BTPS
 2011
    
    
    2010Year ended 31 March
    
    £m
    
    
    £mOrdinary contributions
    
    
    266
    
    
    
    384Deficit contributions
    
    
    1,030
    
    
    
    525Total contributions in the year
    
    
    1,296
    
    
    
    909
  Other protection of BTPS member benefits
  
    
    the Crown Guarantee which was granted when the group was privatised in 1984 and applies
upon the winding up of the group. The scope and extent of the Crown Guarantee is being clarified by
the Trustee through the courts. The decision of the High Court issued in October 2010 was that the
Crown Guarantee is not limited to those who were members of the scheme at the date of privatisation
and that members who joined after privatisation are also capable of being covered. The Court
confirmed that any payments to be made by the Government must be measured on an annuity basis. It
was decided that the Crown Guarantee does not cover the benefits of members accrued while in
service with companies that participate in the BTPS other than BT if the member concerned had not
previously been employed by BT. The judgment was the first stage in the case and leaves further
issues to be considered at future hearings and/or appeals.
Until these issues are finally resolved it is not possible to say with complete precision what
the scope of the Crown Guarantee is.
    
    the Pension Protection Fund (PPF) may take over the
scheme and pay benefits to members not covered by the Crown Guarantee. There are limits on the
amounts paid by the PPF and this would not give exactly the same benefits as those provided by the
scheme.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     135




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FINANCIAL STATEMENTS
  24. Deferred taxation
 RetirementExcess capital
    
    
    benefit
    
    
    Share-basedallowances
    
    
    obligations
    a
    
    payments
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2009
    
    
    1,811
    
    
    
    (1,103
    )
    
    
    (7
    )
    
    
    (76
    )
    
    
    625(Credit) expense recognised in the income statement
    
    
    (115
    )
    
    
    118
    
    
    
    (15
    )
    
    
    2
    
    
    
    (10
    )(Credit) recognised in other comprehensive income
    
    
    
    
    
    
    (1,211
    )
    
    
    
    
    
    
    (143
    )
    
    
    (1,354
    )(Credit) expense recognised in equity
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )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 1 April 2010
    
    
    1,696
    
    
    
    (2,196
    )
    
    
    (41
    )
    
    
    (199
    )
    
    
    (740
    )(Credit) expense recognised in the income statement
    
    
    (315
    )
    
    
    201
    
    
    
    (17
    )
    
    
    111
    
    
    
    (20
    )Expense recognised in other comprehensive income
    
    
    
    
    
    
    1,534
    
    
    
    
    
    
    
    12
    
    
    
    1,546(Credit) recognised in equity
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Transfer from current tax
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56At 31 March 2011
    
    
    1,437
    
    
    
    (461
    )
    
    
    (149
    )
    
    
    (76
    )
    
    
    751Deferred tax asset
    
    
    
    
    
    
    (461
    )
    
    
    
    
    
    
    
    
    
    
    (461
    )Deferred tax liability
    
    
    1,437
    
    
    
    
    
    
    
    (149
    )
    
    
    (76
    )
    
    
    1,212At 31 March 2011
    
    
    1,437
    
    
    
    (461
    )
    
    
    (149
    )
    
    
    (76
    )
    
    
    751
 a

      Includes a deferred tax asset of £1m (2010: £3m) arising on contributions payable
to defined contribution schemes.
     2011
    
    
    Expiry ofAt 31 March
    
    £m
    
    
    lossesRestricted losses:Americas
    
    
    254
    
    
    
    2012-31Europe
    
    
    1,492
    
    
    
    2012-26Asia
    
    
    14
    
    
    
    2012-16Total restricted losses
    
    
    1,760Unrestricted losses:Operating losses
    
    
    3,440
    
    
    No expiryCapital losses
    
    
    17,771
    
    
    No expiryTotal unrestricted losses
    
    
    21,211Other temporary differences
    
    
    536Total
    
    
    23,507
 
   136




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FINANCIAL STATEMENTS
  25. Provisions
 BT GlobalServices restructuring
    a
    
    Property
    b
    
    Other
    c
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2009
    
    
    303
    
    
    
    172
    
    
    
    245
    
    
    
    720Income statement expensed
    
    
    10
    
    
    
    131
    
    
    
    204
    
    
    
    345Unwind of discount
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Utilised or released
    
    
    (139
    )
    
    
    (35
    )
    
    
    (98
    )
    
    
    (272
    )Transfers
    
    
    16
    
    
    
    
    
    
    
    31
    
    
    
    47Exchange differences
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )At 1 April 2010
    
    
    187
    
    
    
    272
    
    
    
    382
    
    
    
    841Income statement expensed
    
    
    76
    
    
    
    131
    
    
    
    190
    
    
    
    397Unwind of discount
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Utilised or released
    
    
    (103
    )
    
    
    (88
    )
    
    
    (76
    )
    
    
    (267
    )Transfers
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Exchange differences
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    (3
    )At 31 March 2011
    
    
    159
    
    
    
    318
    
    
    
    479
    
    
    
    956
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mAnalysed as:Current
    
    
    149
    
    
    
    134Non-current
    
    
    807
    
    
    
    707956
    
    
    
    841
 a

      Amounts provided in relation to the BT Global Services restructuring programme and
the contract and financial reviews in 2009. These are being 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 21 years. Financial liabilities comprise £280m
(2010: £255m) of this balance.c

      Other provisions include 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 £88m (2010: £121m) for property rationalisation costs and
£24m (2010: £10m) relating to the BT Global Services restructuring programme.
 
 26. Non-controlling interests
 2011
    
    
    2010£m
    
    
    £mAt 1 April
    
    
    24
    
    
    
    27Share of profits
    
    
    2
    
    
    
    1Disposals
    
    
    
    
    
    
    (4
    )At 31 March
    
    
    26
    
    
    
    24
 
 27. Share capital
 Number
    
    
    Share capital
    a
    
    Share premium
    bof shares
    
    
    £m
    
    
    £mAt 1 April 2010 and 31 March 2011
    
    
    8,151,227,029
    
    
    
    408
    
    
    
    62
 a

      The allotted, called up and fully paid ordinary share capital of the company at 31
March 2011 and 31 March 2010 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.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     137




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FINANCIAL STATEMENTS
  28. Other reserves
 Other comprehensive incomeTreasury
    
    
    Merger
    
    
    Cash flow
    
    
    Available-for-
    
    
    Translation
    
    
    Total othershares
    a
    
    reserve
    b
    
    reserve
    c
    
    sale reserve
    d
    
    reserve
    e
    
    reserves£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    (1,843
    )
    
    
    998
    
    
    
    157
    
    
    
    
    
    
    
    161
    
    
    
    (527
    )Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    683Net fair value gain on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    2,719
    
    
    
    
    
    
    
    
    
    
    
    2,719Recognised in income and expense
    
    
    
    
    
    
    
    
    
    
    (2,144
    )
    
    
    
    
    
    
    
    
    
    
    (2,144
    )Reclassified and reported in non-current assets
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Fair value movements on available-for-sale assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    
    998
    
    
    
    563
    
    
    
    5
    
    
    
    844
    
    
    
    1,301Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119
    )
    
    
    (119
    )Net fair value loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    (1,067
    )
    
    
    
    
    
    
    
    
    
    
    (1,067
    )Recognised in income and expense
    
    
    
    
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    
    
    
    
    496Reclassified and reported in non-current assets
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Fair value movements on available-for-sale assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Tax recognised in other comprehensive income
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    (20
    )
    
    
    139Net issue of treasury shares
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4At 1 April 2010
    
    
    (1,105
    )
    
    
    998
    
    
    
    147
    
    
    
    12
    
    
    
    705
    
    
    
    757Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (140
    )
    
    
    (140
    )Net fair value loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    (347
    )
    
    
    
    
    
    
    
    
    
    
    (347
    )Recognised in income and expense
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    
    
    
    
    333Fair value movements on available-for-sale assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Tax recognised in other comprehensive income
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    18
    
    
    
    13Net issue of treasury shares
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27At 31 March 2011
    
    
    (1,078
    )
    
    
    998
    
    
    
    128
    
    
    
    27
    
    
    
    583
    
    
    
    658
 a

     The treasury shares reserve is used to hold BT Group plc shares purchased by the
group. During 2011 the company purchased nil (2010: nil, 2009: 142,608,225) of its own shares of 5p
each, representing nil% (2010: nil%, 2009: 2%) of the called-up share capital, for consideration
(including transaction costs) of £nil (2010: £nil, 2009: £189m). In addition, 12,335,580 shares
(2010: 8,320,766 , 2009: 90,626,518) were issued from treasury to satisfy obligations under
employee share schemes and executive share awards at a cost of £27m (2010: £4m, 2009: £126m), and
nil treasury shares (2010 nil, 2009: 250,000,000) were cancelled at a cost of £nil (2010: £nil,
2009: £797m). At 31 March 2011, 388,570,539 shares (2010: 400,906,119, 2009: 409,226,885) with an
aggregate nominal value of £19m (2010: £20m, 2009: £20m) were held as treasury shares at cost.b

     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.c

     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.d

     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.e

     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.
 
   138




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FINANCIAL STATEMENTS
  29. Financial instruments and risk management
    Fair valuethrough
    
    
    DerivativesFinancial assets
    
    
    
    
    
    Loans and
    
    
    profit and
    
    
    used for
    
    
    Available-receivables
    
    
    loss
    
    
    hedging
    
    
    for-sale
    
    
    TotalAt 31 March 2011
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInvestments
    
    
    15
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    62
    
    
    
    80Derivative financial instruments
    
    
    21
    
    
    
    
    
    
    
    103
    
    
    
    630
    
    
    
    
    
    
    
    733Trade and other receivablesa
    
    
    19
    
    
    
    2,558
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,558Cash and cash equivalents
    
    
    16
    
    
    
    351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351Total financial assets
    
    
    
    
    
    
    2,916
    
    
    
    114
    
    
    
    630
    
    
    
    62
    
    
    
    3,722
 Fair valuethrough
    
    
    DerivativesLoans and
    
    
    profit and
    
    
    used for
    
    
    Available-receivables
    
    
    loss
    
    
    hedging
    
    
    for-sale
    
    
    TotalAt 31 March 2010
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInvestments
    
    
    15
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    290
    
    
    
    470Derivative financial instruments
    
    
    21
    
    
    
    
    
    
    
    106
    
    
    
    1,594
    
    
    
    
    
    
    
    1,700Trade and other receivablesa
    
    
    19
    
    
    
    2,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,947Cash and cash equivalents
    
    
    16
    
    
    
    1,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,452Total financial assets
    
    
    
    
    
    
    4,579
    
    
    
    106
    
    
    
    1,594
    
    
    
    290
    
    
    
    6,569
 Fair valuethrough
    
    
    DerivativesFinancial liabilities
    
    
    
    
    
    profit and
    
    
    used for
    
    
    Amortisedloss
    
    
    hedging
    
    
    cost
    
    
    TotalAt 31 March 2011
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLoans and other borrowings
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    9,856
    
    
    
    9,856Derivative financial instruments
    
    
    21
    
    
    
    267
    
    
    
    302
    
    
    
    
    
    
    
    569Trade and other payablesb
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    4,285
    
    
    
    4,285Provisionsc
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    280
    
    
    
    280Total financial liabilities
    
    
    
    
    
    
    267
    
    
    
    302
    
    
    
    14,421
    
    
    
    14,990
 Fair valuethrough
    
    
    Derivativesprofit and
    
    
    used for
    
    
    Amortisedloss
    
    
    hedging
    
    
    cost
    
    
    TotalAt 31 March 2010
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLoans and other borrowings
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    12,791
    
    
    
    12,791Derivative financial instruments
    
    
    21
    
    
    
    298
    
    
    
    401
    
    
    
    
    
    
    
    699Trade and other payablesb
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    4,672
    
    
    
    4,672Provisionsc
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    255
    
    
    
    255Total financial liabilities
    
    
    
    
    
    
    298
    
    
    
    401
    
    
    
    17,718
    
    
    
    18,417
 a Excludes prepayments of £570m (2010: £549m), other receivables £204m (2010:
£200m) and other non-current assets of £286m (2010: £336m).b Excludes other taxation and social security of £485m (2010: £516m), deferred income
£1,344m (2010: £1,343m) and other non-current payables of £831m (2010: £804m).c Excludes provisions of £676m (2010: £586m).
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     139




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##### Table of Contents



FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
   Funding and exposure management
  Treasury operations
  Treasury policy
     Management policy
  Hedging strategy
   2011
    
    
    2010Fixed rate
    
    
    Floating rate
    
    
    
    
    
    
    Fixed rate
    
    
    Floating rateinterest
    
    
    interest
    
    
    Total
    
    
    interest
    
    
    interest
    
    
    TotalAt 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTotal borrowingsa
    
    
    7,972
    
    
    
    1,215
    
    
    
    9,187
    
    
    
    10,110
    
    
    
    1,029
    
    
    
    11,139Ratio of fixed to floating
    
    
    87%
    
    
    
    13%
    
    
    
    100%
    
    
    
    91%
    
    
    
    9%
    
    
    
    100%
 a See note 20.
 
   140




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##### Table of Contents



FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
  Interest rates
    2011
    
    
    2010£m
    
    
    £mReduce
    
    
    ReduceAt 31 March
    
    (Increase)
    
    
    (Increase)Sterling interest rates
    
    
    426
    
    
    
    496US Dollar interest rates
    
    
    (355
    )
    
    
    (392
    )Euro interest rates
    
    
    (94
    )
    
    
    (134
    )
  Credit ratings
    2011
    
    
    2010At 31 March
    
    Rating
    
    
    Outlook
    
    
    Rating
    
    
    OutlookRating agencyStandard & Poors
    
    BBB-
    
    
    Positive
    
    
    BBB-
    
    
    StableMoodys
    
    Baa2
    
    
    Stable
    
    
    Baa2
    
    
    Negative
  Management policy
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     141




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##### Table of Contents



FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
 Hedging strategy
  2011
    
    
    2010At 31 March
    
    £m
    
    
    £mEuro
    
    
    3,361
    
    
    
    4,294US Dollar
    
    
    2,966
    
    
    
    5,065Other
    
    
    17
    
    
    
    76,344
    
    
    
    9,366
   Sensitivities
     Treasury management policy
   Exposures
  2011
    
    
    2010At 31 March
    
    Notes
    
    
    £m
    
    
    £mDerivative financial assets
    
    
    21
    
    
    
    733
    
    
    
    1,700Investments
    
    
    15
    
    
    
    80
    
    
    
    470Trade and other receivablesa
    
    
    19
    
    
    
    2,558
    
    
    
    2,947Cash and cash equivalents
    
    
    16
    
    
    
    351
    
    
    
    1,4523,722
    
    
    
    6,569
 a
      The carrying amount excludes £286m (2010: £336m) of non-current trade and other
receivables which relate to non financial assets, and £774m (2010: £749m) of prepayments and other
receivables.
 142




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##### Table of Contents



FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
  Moodys/S&P credit rating of counterpartyAt 31 March 2011
    
    Aaa/AAA
    
    
    Aa2/AA
    
    
    Aa3/AA-
    
    
    A1/A+
    
    
    A2/A
    
    
    A3/A-
    
    
    TotalCash equivalents
    
    
    
    
    
    
    18
    
    
    
    159
    
    
    
    32
    
    
    
    1
    
    
    
    
    
    
    
    210Current asset investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    12
    
    
    
    
    
    
    
    19Derivative financial assets
    
    
    
    
    
    
    52
    
    
    
    115
    
    
    
    378
    
    
    
    188
    
    
    
    
    
    
    
    733
    
    
    
    70
    
    
    
    274
    
    
    
    417
    
    
    
    201
    
    
    
    
    
    
    
    962
 Moodys/S&P credit rating of counterpartyAt 31 March 2010
    
    Aaa/AAA
    
    
    Aa2/AA
    
    
    Aa3/AA-
    
    
    A1/A+
    
    
    A2/A
    
    
    A3/A-
    
    
    TotalCash equivalents
    
    
    100
    
    
    
    609
    
    
    
    202
    
    
    
    341
    
    
    
    3
    
    
    
    
    
    
    
    1,255Current asset investments
    
    
    258
    
    
    
    
    
    
    
    35
    
    
    
    105
    
    
    
    8
    
    
    
    
    
    
    
    406Derivative financial assets
    
    
    
    
    
    
    89
    
    
    
    480
    
    
    
    708
    
    
    
    318
    
    
    
    105
    
    
    
    1,700358
    
    
    
    698
    
    
    
    717
    
    
    
    1,154
    
    
    
    329
    
    
    
    105
    
    
    
    3,361
     Impact of 100
    
    
    Impact of 100basis point
    
    
    basis pointincrease
    
    
    decreaseAt 31 March 2011
    
    £m
    
    
    £mMoodys/S&P credit ratingAa2/AA
    
    
    (4
    )
    
    
    5Aa3/AA
    
    
    (15
    )
    
    
    20A1/A+
    
    
    (75
    )
    
    
    88A2/A
    
    
    (101
    )
    
    
    120(195
    )
    
    
    233
 Operational management policy
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     143




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##### Table of Contents



FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
  2011
    
    
    2010At 31 March
    
    £m
    
    
    £mNet debt
    
    
    8,816
    
    
    
    9,283Total parent shareholders equity (deficit)a
    
    
    1,925
    
    
    
    (2,650
    )10,741
    
    
    
    6,633
 a

      See page 104.
 Net debt
  2011
    
    
    2010At 31 March
    
    £m
    
    
    £mLoans and other borrowings
    
    
    9,856
    
    
    
    12,791Less:Cash and cash equivalents
    
    
    (351
    )
    
    
    (1,452
    )Current asset investments
    
    
    (19
    )
    
    
    (406
    )9,486
    
    
    
    10,933Adjustments:To retranslate currency denominated balances at swapped rates where hedged
    
    
    (408
    )
    
    
    (1,326
    )To remove fair value adjustments and accrued interest applied to reflect the effective interest method
    
    
    (262
    )
    
    
    (324
    )Net debt
    
    
    8,816
    
    
    
    9,283
  Management policy
    144




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FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
 Maturity analysis
  Due
    
    
    Due
    
    
    Due
    
    
    DueDue
    
    
    between
    
    
    between
    
    
    between
    
    
    between
    
    
    Duewithin
    
    
    1 and 2
    
    
    2 and 3
    
    
    3 and 4
    
    
    4 and 5
    
    
    after 51 year
    
    
    years
    
    
    years
    
    
    years
    
    
    years
    
    
    years
    
    
    TotalAt 31 March 2011  Outflow (inflow)a
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNon-derivative financial liabilitiesLoans and other borrowings
    
    
    221
    
    
    
    1,747
    
    
    
    10
    
    
    
    1,209
    
    
    
    901
    
    
    
    5,507
    
    
    
    9,595Interest payments on loansand other borrowings
    
    
    639
    
    
    
    639
    
    
    
    548
    
    
    
    548
    
    
    
    482
    
    
    
    4,358
    
    
    
    7,214Trade and other payables
    
    
    4,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,285Provisions
    
    
    57
    
    
    
    38
    
    
    
    38
    
    
    
    18
    
    
    
    16
    
    
    
    223
    
    
    
    390Derivative financial liabilities(analysed by earliest payment date)bNet settled
    
    
    132
    
    
    
    553
    
    
    
    234
    
    
    
    276
    
    
    
    63
    
    
    
    (120
    )
    
    
    1,138Gross settled  outflow
    
    
    919
    
    
    
    411
    
    
    
    4
    
    
    
    4
    
    
    
    103
    
    
    
    
    
    
    
    1,441Gross settled  inflow
    
    
    (882
    )
    
    
    (397
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (101
    )
    
    
    
    
    
    
    (1,388
    )5,371
    
    
    
    2,991
    
    
    
    830
    
    
    
    2,051
    
    
    
    1,464
    
    
    
    9,968
    
    
    
    22,675Derivative financial liabilities(analysed based on holding instrument to maturity)Net settled
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    828
    
    
    
    1,138Gross settled  outflow
    
    
    397
    
    
    
    427
    
    
    
    20
    
    
    
    20
    
    
    
    20
    
    
    
    557
    
    
    
    1,441Gross settled  inflow
    
    
    (388
    )
    
    
    (413
    )
    
    
    (20
    )
    
    
    (20
    )
    
    
    (20
    )
    
    
    (527
    )
    
    
    (1,388
    )71
    
    
    
    76
    
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    858
    
    
    
    1,191Due
    
    
    Due
    
    
    Due
    
    
    DueDue
    
    
    between
    
    
    between
    
    
    between
    
    
    between
    
    
    Duewithin
    
    
    1 and 2
    
    
    2 and 3
    
    
    3 and 4
    
    
    4 and 5
    
    
    after 51 year
    
    
    years
    
    
    years
    
    
    years
    
    
    years
    
    
    years
    
    
    TotalAt 31 March 2010  Outflow (inflow)a
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNon-derivative financial liabilitiesLoans and other borrowings
    
    
    2,937
    
    
    
    18
    
    
    
    1,763
    
    
    
    11
    
    
    
    1,213
    
    
    
    6,523
    
    
    
    12,465Interest payments on loansand other borrowings
    
    
    833
    
    
    
    581
    
    
    
    581
    
    
    
    484
    
    
    
    484
    
    
    
    4,016
    
    
    
    6,979Trade and other payables
    
    
    4,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,672Provisions
    
    
    61
    
    
    
    37
    
    
    
    30
    
    
    
    26
    
    
    
    45
    
    
    
    143
    
    
    
    342Derivative financial liabilities(analysed by earliest payment date)bNet settled
    
    
    450
    
    
    
    78
    
    
    
    185
    
    
    
    65
    
    
    
    (215
    )
    
    
    745
    
    
    
    1,308Gross settled  outflow
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,081Gross settled  inflow
    
    
    (1,074
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,074
    )8,960
    
    
    
    714
    
    
    
    2,559
    
    
    
    586
    
    
    
    1,527
    
    
    
    11,427
    
    
    
    25,773Derivative financial liabilities(analysed based on holdinginstrument to maturity)Net settled
    
    
    193
    
    
    
    92
    
    
    
    93
    
    
    
    92
    
    
    
    93
    
    
    
    745
    
    
    
    1,308Gross settled  outflow
    
    
    424
    
    
    
    20
    
    
    
    20
    
    
    
    20
    
    
    
    20
    
    
    
    577
    
    
    
    1,081Gross settled  inflow
    
    
    (413
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (577
    )
    
    
    (1,074
    )204
    
    
    
    91
    
    
    
    92
    
    
    
    91
    
    
    
    92
    
    
    
    745
    
    
    
    1,315
 a
    Foreign currency related cash flows were translated at closing rates 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.b
    Certain derivative financial
instruments 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.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     145




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FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
   Fair value hedges
  Cash flow hedges
      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
    
    
    1,014
    
    
    
    
    
    
    
    265
    
    
    20 years
    
    
    Sterling receivable at 1.0%denominated borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 6.0%Cross currency swaps
    
    Cash flow
    
    
    5,451
    
    
    
    622
    
    
    
    29
    
    
    
    2 to 20 years
    
    
    Euro receivable at 6.1%US Dollar receivable at 6.9%Sterling payable at 3.2%Sterling denominated
    
    Interest rate swaps
    
    Fair value
    
    
    500
    
    
    
    4
    
    
    
    2
    
    
    18 years
    
    
    Sterling receivable at 5.8%borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 2.6%Euro and US Dollar step up
    
    Forward currency contracts
    
    Cash flow
    
    
    245
    
    
    
    1
    
    
    
    4
    
    
    3 months
    
    
    
    
    
    
    20 yearsinterest on currencydenominated borrowingsaEuro and US Dollar
    
    Forward currency contracts
    
    Cash flow
    
    
    70
    
    
    
    1
    
    
    
    
    
    
    
    1 to 6 monthscommercial papera
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisCurrency exposures on
    
    Forward currency contracts
    
    Cash flow
    
    
    3
    
    
    
    
    
    
    
    
    
    
    1 month
    
    
    
    
    
    
    12 monthsoverseas purchases principally
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisUS Dollar and Asia PacificcurrenciesPurchase of US Dollar
    
    Forward currency contracts
    
    Cash flow
    
    
    213
    
    
    
    2
    
    
    
    2
    
    
    
    1 to 6 monthsdenominated retail devicesTotal
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    302
 a See note 20.b See note 21.
 146




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FINANCIAL STATEMENTS
  29. 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
    
    Forward currency contracts
    
    Cash flow
    
    
    161
    
    
    
    
    
    
    
    4
    
    
    1 month
    
    
    
    
    
    
    12 monthsoverseas purchases principally
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rolling basisUS Dollar and Asia PacificcurrenciesPurchase of US Dollar
    
    Forward currency contracts
    
    Cash flow
    
    
    180
    
    
    
    7
    
    
    
    
    
    
    
    1 to 9 monthsdenominated retail devicesTotal
    
    
    
    
    
    
    
    
    
    
    1,594
    
    
    
    401
 a See note 20.b See note 21.
     Notional
    
    
    Derivative fair valuea
    
    
    Remaining
    
    
    Weightedprincipal
    
    
    Asset
    
    
    Liability
    
    
    term of
    
    
    averageAt 31 March 2011
    
    £m
    
    
    £m
    
    
    £m
    
    
    derivatives
    
    
    %Foreign currency forward contracts
    
    
    464
    
    
    
    4
    
    
    
    
    
    
    2 monthsInterest rate swaps
    
    
    1,887
    
    
    
    99
    
    
    
    267
    
    
    
    3 to 20 years
    
    
    Sterling receivable at 4.3%Sterling payable at 5.9%Total
    
    
    
    
    
    
    103
    
    
    
    267Notional
    
    
    Derivative fair valuea
    
    
    Remaining
    
    
    Weightedprincipal
    
    
    Asset
    
    
    Liability
    
    
    term of
    
    
    averageAt 31 March 2010
    
    £m
    
    
    £m
    
    
    £m
    
    
    derivatives
    
    
    %Foreign currency forward contracts
    
    
    189
    
    
    
    
    
    
    
    2
    
    
    1 monthInterest rate swaps
    
    
    1,887
    
    
    
    106
    
    
    
    295
    
    
    
    4 to 21 years
    
    
    Sterling receivable at 4.2%Sterling payable at 5.8%Cross currency swaps
    
    
    12
    
    
    
    
    
    
    
    1
    
    
    9 months
    
    
    US Dollar receivable at 8.1%Sterling payable at 8.7%Total
    
    
    
    
    
    
    106
    
    
    
    298
 a See note 21.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     147




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FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
   Carrying amount
    
    
    Fair value2011
    
    
    2010
    
    
    2011
    
    
    2010At 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFinancial liabilitiesListed bonds
    
    
    9,028
    
    
    
    12,157
    
    
    
    10,274
    
    
    
    13,304Finance leases
    
    
    294
    
    
    
    304
    
    
    
    339
    
    
    
    343Other loans and borrowings
    
    
    534
    
    
    
    330
    
    
    
    562
    
    
    
    354
  
    
    Level 1  uses quoted prices in active markets for identical assets or liabilities
    
    Level 2  uses inputs for the asset or liability other than quoted prices, that are observable
either directly or indirectly
    
    Level 3  uses inputs for the asset or liability that are not based on observable market data
such as internal models or other valuation methods.
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAt 31 March 2011
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFinancial assets at fair valueNon-current and current derivative financial assetsDerivatives designated as accounting hedges
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    630Other derivatives
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    103Total current and non-current derivative financial assets
    
    
    21
    
    
    
    
    
    
    
    733
    
    
    
    
    
    
    
    733Available-for-sale financial assetsNon-current and current investmentsLiquid investments
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Other investments
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    27
    
    
    
    61Fair value through profit and loss
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Total non-current and current investments
    
    
    15
    
    
    
    45
    
    
    
    1
    
    
    
    27
    
    
    
    73Total financial assets at fair value
    
    
    
    
    
    
    45
    
    
    
    734
    
    
    
    27
    
    
    
    806Financial liabilities at fair valueCurrent and non-current derivative financial liabilitiesDerivatives designated as accounting hedges
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    302Other derivatives
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    267Total current and non-current financial liabilities
    
    
    21
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    569Total financial liabilities at fair value
    
    
    
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    569
 148




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##### Table of Contents



FINANCIAL STATEMENTS
  29. Financial instruments and risk management continued
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAt 31 March 2010
    
    Notes
    
    
    £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
    
    
    21
    
    
    
    
    
    
    
    1,700
    
    
    
    
    
    
    
    1,700Available-for-sale financial assetsNon-current and current investmentsLiquid investments
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    
    
    
    
    258Other investments
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    12
    
    
    
    32Fair value through profit and loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-current and current investments
    
    
    15
    
    
    
    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
    
    
    21
    
    
    
    
    
    
    
    699
    
    
    
    
    
    
    
    699Total financial liabilities at fair value
    
    
    
    
    
    
    
    
    
    
    699
    
    
    
    
    
    
    
    699
  Other investments£mAt 1 April 2009
    
    
    11Additions
    
    
    3Disposals
    
    
    (2
    )At 1 April 2010
    
    
    12Additions
    
    
    20Disposals
    
    
    (5
    )At 31 March 2011
    
    
    27
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     149




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FINANCIAL STATEMENTS
  
 30. Financial commitments and contingent liabilities
  2011
    
    
    2010£m
    
    
    £mProperty, plant and equipment
    
    
    467
    
    
    
    368Computer software
    
    
    
    
    
    
    15Total
    
    
    467
    
    
    
    383
  2011
    
    
    2010£m
    
    
    £mPayable in the year ending 31 March:2011
    
    
    
    
    
    
    4942012
    
    
    464
    
    
    
    4602013
    
    
    440
    
    
    
    4312014
    
    
    413
    
    
    
    4002015
    
    
    383
    
    
    
    3752016
    
    
    373
    
    
    
    367Thereafter
    
    
    5,119
    
    
    
    5,160Total future minimum operating lease payments
    
    
    7,192
    
    
    
    7,687
      150




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##### Table of Contents



FINANCIAL STATEMENTS
 
 REPORT OF THE INDEPENDENT AUDITORSPARENT COMPANY FINANCIAL STATEMENTS
  Independent Auditors Report to the members of BT Group plc (the company)
  Respective responsibilities of directors and auditors
   Scope of the audit of the financial statements
  Opinion on financial statements
  
    
    give a true and fair view of the state of the companys affairs as at 31 March 2011;
    
    have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
    
    have been prepared in accordance with the requirements of the Companies Act 2006.
 Opinion on other matters prescribed by the Companies Act 2006
  
    
    the part of the Report on directors remuneration to be audited has been properly prepared in
accordance with the Companies Act 2006; and
    
    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
  
    
    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; or
    
    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; or
    
    certain disclosures of directors remuneration specified by law are not made; or
    
    we have not received all the information and explanations we require for our audit.
 Other matter
  Philip Rivett (Senior Statutory Auditor)
 for and on behalf of PricewaterhouseCoopers LLP
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     151




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##### 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
  
   152




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##### Table of Contents



FINANCIAL STATEMENTS
  BT Group plc company balance sheet
 2011
    
    
    2010At 31 March
    
    £m
    
    
    £mFixed assetsInvestments in subsidiary undertakingsa
    
    
    10,417
    
    
    
    10,349Total fixed assets
    
    
    10,417
    
    
    
    10,349Current assetsCash at bank and in hand
    
    
    
    
    
    
    11Total current assets
    
    
    
    
    
    
    11Creditors: amounts falling due within one yearb
    
    
    722
    
    
    
    186Net current liabilities
    
    
    (722
    )
    
    
    (175
    )Total assets less current liabilities
    
    
    9,695
    
    
    
    10,174Capital and reservesCalled up share capital
    
    
    408
    
    
    
    408Share premium account
    
    
    62
    
    
    
    62Capital redemption reserve
    
    
    27
    
    
    
    27Treasury shares reserve
    
    
    (1,078
    )
    
    
    (1,105
    )Profit and loss account
    
    
    10,276
    
    
    
    10,782Total equity shareholders fundsc
    
    
    9,695
    
    
    
    10,174
 a

    Throughout 2011 and 2010, the company held a 100% investment in BT Group Investments
Limited, a company registered in England and Wales. The increase in investments in subsidiary
undertakings relates to additional capital contributions in respect of share-based payments of £68m
in 2011 (2010: £71m).b

    Creditors consists of amounts owed to subsidiary undertakings of
£703m (2010: £166m) and other creditors of £19m (2010: £20m).c

    The movements in total
equity shareholders funds shown on page 154.
  Sir Michael Rake
 Ian Livingston
 Tony Chanmugam
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     153




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FINANCIAL STATEMENTS
  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 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 1 April 2010
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    (1,105
    )
    
    
    10,782
    
    
    
    10,174Loss for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (543
    )
    
    
    (543
    )Capital
contribution in respect of share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    68Net issue of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    (19
    )
    
    
    8At 31 March 2011
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    (1,078
    )
    
    
    10,276
    
    
    
    9,695
 a

    The allotted, called up and fully paid ordinary share capital of the company at 31
March 2011 and 2010 was £408m, representing 8,151,227,029 ordinary shares of 5p each.b

    In 2011 12,335,580 shares (2010: 8,320,766) were issued from treasury to satisfy
obligations under employee share schemes and executive share awards at a cost of £27m (2010: £4m).
At 31 March 2011 388,570,539 shares (2010: 400,906,119) with an aggregate nominal value of £19m
(2010: £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 £12m (2010:
loss of £6m). As permitted by Section 408(3) of the Companies Act 2006, no profit and loss account
of the company is presented.
 154




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##### 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
products provider
    
    100% common
    
    InternationalBT Australasia Pty Limited
    
    Communications related services and products provider
    
    100% ordinary
100% preference
    
    AustraliaBT Brasil Servicos de Telecomunicacoes Ltdab
    
    Data communication services
    
    100% common
    
    BrazilBT Business Direct Limited
    
    Technology equipment retailer
    
    100% ordinary
    
    UKBT Centre Nominee 2 Limited
    
    Property holding company
    
    100% ordinary
    
    UKBT Communications do Brasil Limitadab
    
    Communications related services, technology consulting
and products provider
    
    100% common
    
    BrazilBT Communications Ireland Limited
    
    Telecommunications service provider
    
    100% ordinary
    
    Republic of 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 
Telecommunicaciones, SA
    
    Communications related services and products provider
    
    100% ordinary
    
    SpainBT Fleet Limited
    
    Fleet management company
    
    100% ordinary
    
    UKBT France SA
    
    Communications related services, systems integration and
products provider
    
    100% ordinary
    
    FranceBT 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
100% preference
    
    Hong KongBT INS Inc
    
    Information telecommunications consulting and software
solutions provider
    
    100% common
    
    USBT LatAm Brasil Ltdab
    
    Data communication services
    
    100% common
    
    BrazilBT Italia SpA
    
    Communications related services and products provider
    
    98.6% ordinary
    
    ItalyBT Limited
    
    International telecommunications network systems provider
    
    100% ordinary
    
    InternationalBT Managed Services Limited
    
    Communications related services and products provider
    
    100% ordinary
    
    UKBT Nederland NV
    
    Communications related services and products provider
    
    100% ordinary
    
    NetherlandsBT Payment Services Limited
    
    Payment services provider
    
    100% ordinary
    
    UKBT Services SA
    
    Technology consulting and engineering services
    
    100% ordinary
    
    FranceBT Singapore Pte Ltd
    
    Communications related services and products provider
    
    100% ordinary
    
    SingaporeBT Switzerland AG
    
    Communications related services and products provider
    
    100% ordinary
    
    SwitzerlandBT US Investments Limitedb
    
    Investment holding company
    
    100% ordinary
    
    JerseyBusiness Integration S.L.
    
    Technology consulting and engineering services
    
    100% ordinary
    
    SpainCommunications 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% common
    
    US100% preference
 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 and entities domiciled in Brazil, due to regulatory requirements.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
    
    
    125,955,481
    
    
    
    23.5%
    
    
    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 2011     155




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##### Table of Contents



ADDITIONAL INFORMATION
 157
    
    QUARTERLY ANALYSIS OF REVENUE AND PROFIT158
    
    SELECTED FINANCIAL DATA160
    
    FINANCIAL STATISTICS161
    
    OPERATIONAL STATISTICS162
    
    INFORMATION FOR SHAREHOLDERS174
    
    CROSS REFERENCE TO FORM 20-F177
    
    GLOSSARY OF TERMS180
    
    INDEX
 156




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##### Table of Contents



ADDITIONAL INFORMATION
  QUARTERLY ANALYSIS OF REVENUE AND PROFIT
 1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    TotalYear ended 31 March 2011
    
    Quarters
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    
    
    
    
    5,006
    
    
    
    4,977
    
    
    
    5,038
    
    
    
    5,055
    
    
    
    20,076Other operating income
    
    
    
    
    
    
    88
    
    
    
    81
    
    
    
    103
    
    
    
    101
    
    
    
    373Operating costs
    
    
    
    
    
    
    (4,475
    )
    
    
    (4,414
    )
    
    
    (4,513
    )
    
    
    (4,469
    )
    
    
    (17,871
    )Operating profit
    
    
    
    
    
    
    619
    
    
    
    644
    
    
    
    628
    
    
    
    687
    
    
    
    2,578Net finance expense
    
    
    
    
    
    
    (248
    )
    
    
    (243
    )
    
    
    (227
    )
    
    
    (206
    )
    
    
    (924
    )Share of post tax profits of associates and joint ventures
    
    
    
    
    
    
    4
    
    
    
    5
    
    
    
    5
    
    
    
    7
    
    
    
    21Profit on disposal of interest in associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    7
    
    
    
    42Profit before taxation
    
    
    
    
    
    
    375
    
    
    
    406
    
    
    
    441
    
    
    
    495
    
    
    
    1,717Taxation
    
    
    
    
    
    
    (91
    )
    
    
    (6
    )
    
    
    (94
    )
    
    
    (22
    )
    
    
    (213
    )Profit for the period
    
    
    
    
    
    
    284
    
    
    
    400
    
    
    
    347
    
    
    
    473
    
    
    
    1,504Basic earnings per share
    
    
    
    
    
    
    3.7p
    
    
    
    5.1p
    
    
    
    4.5p
    
    
    
    6.1p
    
    
    
    19.4pDiluted earnings per share
    
    
    
    
    
    
    3.5p
    
    
    
    4.9p
    
    
    
    4.3p
    
    
    
    5.8p
    
    
    
    18.5pAdjusted basic earnings per sharea
    
    
    
    
    
    
    4.4p
    
    
    
    5.1p
    
    
    
    5.4p
    
    
    
    6.1p
    
    
    
    21.0pProfit before specific items and taxation
    
    
    
    
    
    
    446
    
    
    
    496
    
    
    
    531
    
    
    
    610
    
    
    
    2,083
 1st
    
    
    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 interest in 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
    
    
    
    12.9pAdjusted basic earnings per sharea
    
    
    
    
    
    
    3.8p
    
    
    
    4.4p
    
    
    
    4.1p
    
    
    
    5.1p
    
    
    
    17.3pProfit before specific items and taxation
    
    
    
    
    
    
    382
    
    
    
    440
    
    
    
    408
    
    
    
    505
    
    
    
    1,735
 1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    TotalYear 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
    
    
    
    
    
    
    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
    
    
    
    75Profit (loss) before taxation
    
    
    
    
    
    
    497
    
    
    
    494
    
    
    
    81
    
    
    
    (1,316
    )
    
    
    (244
    )Taxation
    
    
    
    
    
    
    (115
    )
    
    
    (116
    )
    
    
    (19
    )
    
    
    303
    
    
    
    53Profit (loss) for the period
    
    
    
    
    
    
    382
    
    
    
    378
    
    
    
    62
    
    
    
    (1,013
    )
    
    
    (191
    )Basic earnings (loss) per share
    
    
    
    
    
    
    4.9p
    
    
    
    4.9p
    
    
    
    0.8p
    
    
    
    (13.1)p
    
    
    
    (2.5)pDiluted earnings (loss) per share
    
    
    
    
    
    
    4.8p
    
    
    
    4.9p
    
    
    
    0.8p
    
    
    
    (13.0)p
    
    
    
    (2.5)pAdjusted basic earnings per sharea
    
    
    
    
    
    
    4.4p
    
    
    
    4.5p
    
    
    
    2.7p
    
    
    
    2.4p
    
    
    
    14.1pProfit before specific items and taxation
    
    
    
    
    
    
    446
    
    
    
    454
    
    
    
    302
    
    
    
    252
    
    
    
    1,454
 a

    Adjusted results refer to the amounts before specific items as defined on page 91.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     157




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##### Table of Contents



ADDITIONAL INFORMATION
 
 SELECTED FINANCIAL DATA
  Summary group income statement
 2011
    
    
    2010
    a
    
    2009
    a
    
    2008
    a
    
    2007
    aYear ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenueAdjusted
    
    
    20,076
    
    
    
    20,911
    
    
    
    21,431
    
    
    
    20,704
    
    
    
    20,223Specific items
    
    
    
    
    
    
    (52
    )
    
    
    (41
    )
    
    
    
    
    
    
    20,076
    
    
    
    20,859
    
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223Other operating incomeAdjusted
    
    
    373
    
    
    
    378
    
    
    
    352
    
    
    
    359
    
    
    
    236Specific items
    
    
    
    
    
    
    2
    
    
    
    (13
    )
    
    
    (10
    )
    
    
    (3
    )373
    
    
    
    380
    
    
    
    339
    
    
    
    349
    
    
    
    233Operating costsAdjusted
    
    
    (17,542
    )
    
    
    (18,689
    )
    
    
    (19,435
    )
    
    
    (18,168
    )
    
    
    (17,746
    )Specific items
    
    
    (329
    )
    
    
    (427
    )
    
    
    (1,993
    )
    
    
    (529
    )
    
    
    (169
    )(17,871
    )
    
    
    (19,116
    )
    
    
    (21,428
    )
    
    
    (18,697
    )
    
    
    (17,915
    )Operating profitAdjusted
    
    
    2,907
    
    
    
    2,600
    
    
    
    2,348
    
    
    
    2,895
    
    
    
    2,713Specific items
    
    
    (329
    )
    
    
    (477
    )
    
    
    (2,047
    )
    
    
    (539
    )
    
    
    (172
    )2,578
    
    
    
    2,123
    
    
    
    301
    
    
    
    2,356
    
    
    
    2,541Net finance expenseAdjusted
    
    
    (845
    )
    
    
    (890
    )
    
    
    (933
    )
    
    
    (798
    )
    
    
    (653
    )Specific items
    
    
    (79
    )
    
    
    (268
    )
    
    
    313
    
    
    
    420
    
    
    
    559(924
    )
    
    
    (1,158
    )
    
    
    (620
    )
    
    
    (378
    )
    
    
    (94
    )Share of post tax profits (losses) of associates and joint venturesAdjusted
    
    
    21
    
    
    
    25
    
    
    
    39
    
    
    
    (11
    )
    
    
    15Specific items
    
    
    
    
    
    
    29
    
    
    
    36
    
    
    
    
    
    
    
    21
    
    
    
    54
    
    
    
    75
    
    
    
    (11
    )
    
    
    15Profit (loss) on disposal of associates and joint ventures  specific items
    
    
    42
    
    
    
    (12
    )
    
    
    
    
    
    
    9
    
    
    
    22Profit (loss) before taxationAdjusted
    
    
    2,083
    
    
    
    1,735
    
    
    
    1,454
    
    
    
    2,086
    
    
    
    2,075Specific items
    
    
    (366
    )
    
    
    (728
    )
    
    
    (1,698
    )
    
    
    (110
    )
    
    
    4091,717
    
    
    
    1,007
    
    
    
    (244
    )
    
    
    1,976
    
    
    
    2,484Taxation (expense) creditAdjusted
    
    
    (452
    )
    
    
    (398
    )
    
    
    (361
    )
    
    
    (455
    )
    
    
    (485
    )Specific items
    
    
    239
    
    
    
    420
    
    
    
    414
    
    
    
    217
    
    
    
    853(213
    )
    
    
    22
    
    
    
    53
    
    
    
    (238
    )
    
    
    368Profit for the yearAdjusted
    
    
    1,631
    
    
    
    1,337
    
    
    
    1,093
    
    
    
    1,631
    
    
    
    1,590Specific items
    
    
    (127
    )
    
    
    (308
    )
    
    
    (1,284
    )
    
    
    107
    
    
    
    1,2621,504
    
    
    
    1,029
    
    
    
    (191
    )
    
    
    1,738
    
    
    
    2,852Basic earnings (loss) per shareAdjusted
    
    
    21.0p
    
    
    
    17.3p
    
    
    
    14.1p
    
    
    
    20.2p
    
    
    
    19.1pSpecific items
    
    
    (1.6)p
    
    
    
    (4.0)p
    
    
    
    (16.6)p
    
    
    
    1.3p
    
    
    
    15.3pTotal basic earnings (loss) per share
    
    
    19.4p
    
    
    
    13.3p
    
    
    
    (2.5)p
    
    
    
    21.5p
    
    
    
    34.4pAverage number of shares used in basic earnings per share (millions)
    
    
    7,750
    
    
    
    7,740
    
    
    
    7,724
    
    
    
    8,066
    
    
    
    8,293Average number of shares used in diluted earnings per share (millions)
    
    
    8,116
    
    
    
    7,988
    
    
    
    7,771
    
    
    
    8,223
    
    
    
    8,479Diluted earnings (loss) per share
    
    
    18.5p
    
    
    
    12.9p
    
    
    
    (2.5)p
    
    
    
    21.1p
    
    
    
    33.6pDividends per shareb
    
    
    7.4p
    
    
    
    6.9p
    
    
    
    6.5p
    
    
    
    15.8p
    
    
    
    15.1pDividends per share, centsb,c
    
    
    11.8c
    
    
    
    10.5c
    
    
    
    9.3c
    
    
    
    31.4c
    
    
    
    29.7c
 a

    During 2011 the group amended its definition of specific items. Comparatives have
been re-presented to be on a consistent basis.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.
 158




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##### Table of Contents



ADDITIONAL INFORMATION
  Summary group cash flow statement
 2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet cash inflow from operating activities
    
    
    4,566
    
    
    
    4,825
    
    
    
    4,706
    
    
    
    5,486
    
    
    
    5,210Net cash outflow from investing activities
    
    
    (2,183
    )
    
    
    (2,775
    )
    
    
    (2,954
    )
    
    
    (3,664
    )
    
    
    (2,778
    )Net cash used in financing activities
    
    
    (3,499
    )
    
    
    (1,714
    )
    
    
    (1,865
    )
    
    
    (1,430
    )
    
    
    (2,898
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (3
    )
    
    
    (7
    )
    
    
    54
    
    
    
    25
    
    
    
    (35
    )Net (decrease) increase in cash and cash equivalents
    
    
    (1,119
    )
    
    
    329
    
    
    
    (59
    )
    
    
    417
    
    
    
    (501
    )Cash and cash equivalents at the start of the year
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174
    
    
    
    757
    
    
    
    1,258Cash and cash equivalents at the end of the year
    
    
    325
    
    
    
    1,444
    
    
    
    1,115
    
    
    
    1,174
    
    
    
    757
 Summary group balance sheet
 2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007At 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mIntangible assets
    
    
    3,389
    
    
    
    3,672
    
    
    
    3,788
    
    
    
    3,355
    
    
    
    2,584Property, plant and equipment
    
    
    14,623
    
    
    
    14,856
    
    
    
    15,405
    
    
    
    15,307
    
    
    
    14,997Retirement benefit asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,887
    
    
    
    Other non-current assets
    
    
    1,597
    
    
    
    3,867
    
    
    
    4,154
    
    
    
    1,286
    
    
    
    78019,609
    
    
    
    22,395
    
    
    
    23,347
    
    
    
    22,835
    
    
    
    18,361Current assets less current liabilities
    
    
    (3,100
    )
    
    
    (4,135
    )
    
    
    (3,141
    )
    
    
    (2,978
    )
    
    
    (3,746
    )Total assets less current liabilities
    
    
    16,509
    
    
    
    18,260
    
    
    
    20,206
    
    
    
    19,857
    
    
    
    14,615Non-current loans and other borrowings
    
    
    (9,371
    )
    
    
    (9,522
    )
    
    
    (12,365
    )
    
    
    (9,818
    )
    
    
    (6,387
    )Retirement benefit obligations
    
    
    (1,830
    )
    
    
    (7,864
    )
    
    
    (3,973
    )
    
    
    (108
    )
    
    
    (389
    )Other non-current liabilities
    
    
    (3,357
    )
    
    
    (3,500
    )
    
    
    (3,699
    )
    
    
    (4,499
    )
    
    
    (3,567
    )Total assets less liabilities
    
    
    1,951
    
    
    
    (2,626
    )
    
    
    169
    
    
    
    5,432
    
    
    
    4,272Called up share capital
    
    
    408
    
    
    
    408
    
    
    
    408
    
    
    
    420
    
    
    
    432Share premium account
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    62
    
    
    
    31Capital redemption reserve
    
    
    27
    
    
    
    27
    
    
    
    27
    
    
    
    15
    
    
    
    2Other reserves
    
    
    658
    
    
    
    757
    
    
    
    1,301
    
    
    
    (527
    )
    
    
    88Retained earnings (loss)
    
    
    770
    
    
    
    (3,904
    )
    
    
    (1,656
    )
    
    
    5,439
    
    
    
    3,685Total parent shareholders equity (deficit)
    
    
    1,925
    
    
    
    (2,650
    )
    
    
    142
    
    
    
    5,409
    
    
    
    4,238Non-controlling interests
    
    
    26
    
    
    
    24
    
    
    
    27
    
    
    
    23
    
    
    
    34Total equity (deficit)
    
    
    1,951
    
    
    
    (2,626
    )
    
    
    169
    
    
    
    5,432
    
    
    
    4,272
 Other selected financial data
 2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAdjusted EBITDAa
    
    
    5,886
    
    
    
    5,639
    
    
    
    5,238
    
    
    
    5,784
    
    
    
    5,633Reported free cash flowb
    
    
    2,011
    
    
    
    1,933
    
    
    
    737
    
    
    
    1,823
    
    
    
    1,874Net debtc
    
    
    8,816
    
    
    
    9,283
    
    
    
    10,361
    
    
    
    9,460
    
    
    
    7,914
 a

    Adjusted EBITDA is stated before specific items and is defined on page 57.b

    Reported free cash flow is defined on page 58.c

    Net debt is defined on page 58.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     159




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##### Table of Contents



ADDITIONAL INFORMATION
 
 FINANCIAL STATISTICS
  Year ended 31 March
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Financial ratiosAdjusted basic earnings per sharea pence
    
    
    21.0
    
    
    
    17.3
    
    
    
    14.1
    
    
    
    20.2
    
    
    
    19.1Reported basic (loss) earnings per share  pence
    
    
    19.4
    
    
    
    13.3
    
    
    
    (2.5
    )
    
    
    21.5
    
    
    
    34.4Adjusted return on capital employeda, b %
    
    
    18.7
    
    
    
    16.0
    
    
    
    14.5
    
    
    
    17.7
    
    
    
    17.6Reported return on capital employedb %
    
    
    16.9
    
    
    
    13.3
    
    
    
    2.3
    
    
    
    14.4
    
    
    
    16.5Adjusted interest cover before net pension interestc times
    
    
    3.4
    
    
    
    2.9
    
    
    
    2.5
    
    
    
    3.6
    
    
    
    4.2Reported interest coverd times
    
    
    2.8
    
    
    
    1.8
    
    
    
    0.5
    
    
    
    6.2
    
    
    
    27.0
 2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExpenditure on research and developmentResearch and development expense
    
    
    389
    
    
    
    444
    
    
    
    590
    
    
    
    532
    
    
    
    378Amortisation of internally developed computer software
    
    
    444
    
    
    
    491
    
    
    
    431
    
    
    
    325
    
    
    
    314Total
    
    
    833
    
    
    
    935
    
    
    
    1,021
    
    
    
    857
    
    
    
    692
 2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCapital expenditurePlant and equipmentTransmission equipment
    
    
    985
    
    
    
    902
    
    
    
    1,067
    
    
    
    1,117
    
    
    
    1,209Exchange equipment
    
    
    43
    
    
    
    29
    
    
    
    44
    
    
    
    83
    
    
    
    118Other network equipment
    
    
    851
    
    
    
    753
    
    
    
    899
    
    
    
    1,060
    
    
    
    854Computers and office equipment
    
    
    592
    
    
    
    115
    
    
    
    140
    
    
    
    181
    
    
    
    149Motor vehicles and other
    
    
    87
    
    
    
    662
    
    
    
    912
    
    
    
    876
    
    
    
    877Land and buildings
    
    
    20
    
    
    
    29
    
    
    
    23
    
    
    
    33
    
    
    
    612,578
    
    
    
    2,490
    
    
    
    3,085
    
    
    
    3,350
    
    
    
    3,268Increase (decrease) in engineering stores
    
    
    12
    
    
    
    43
    
    
    
    3
    
    
    
    (11
    )
    
    
    (21
    )Total capital expenditure
    
    
    2,590
    
    
    
    2,533
    
    
    
    3,088
    
    
    
    3,339
    
    
    
    3,247Increase (decrease) in payables
    
    
    55
    
    
    
    (24
    )
    
    
    (6
    )
    
    
    (24
    )
    
    
    51Cash outflow on capital expenditure
    
    
    2,645
    
    
    
    2,509
    
    
    
    3,082
    
    
    
    3,315
    
    
    
    3,298
 a

    Adjusted results refer to the results before specific items.b

    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.c

    The number of times net finance expense before specific items is covered by adjusted
operating profit.d

    The number of times reported net finance expense is covered by reported operating
profit.
 160




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##### Table of Contents



ADDITIONAL INFORMATION
 
 OPERATIONAL STATISTICS
  Year ended 31 March
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007BT Global ServicesOrder intake (£m)
    
    
    7,270
    
    
    
    6,631
    
    
    
    7,917
    
    
    
    7,835
    
    
    
    9,101BT RetailCall minutes (bn)
    
    
    43.48
    
    
    
    49.17
    
    
    
    56.79
    
    
    
    66.02
    
    
    
    76.95Average annual revenue per consumer user (ARPU)a(£)
    
    
    326
    
    
    
    309
    
    
    
    287
    
    
    
    274
    
    
    
    262Active consumer linesb
    
    
    10,448
    
    
    
    11,113
    
    
    
    11,789
    
    
    
    12,600
    
    
    
    13,634BT Vision installed base
    
    
    575
    
    
    
    467
    
    
    
    423
    
    
    
    214
    
    
    
    OpenreachcInternal copper lines
    
    
    15,320
    
    
    
    16,795
    
    
    
    18,626
    
    
    
    
    
    
    
    External copper lines
    
    
    5,189
    
    
    
    5,005
    
    
    
    4,751
    
    
    
    
    
    
    
    Fully unbundled copper lines
    
    
    4,266
    
    
    
    2,966
    
    
    
    1,714
    
    
    
    
    
    
    
    Total copper lines
    
    
    24,775
    
    
    
    24,766
    
    
    
    25,091
    
    
    
    
    
    
    
    BT GroupBroadband linesBT Retail
    
    
    5,691
    
    
    
    5,132
    
    
    
    4,757
    
    
    
    4,402
    
    
    
    3,659BT Wholesale (external)
    
    
    2,421
    
    
    
    2,926
    
    
    
    3,305
    
    
    
    3,983
    
    
    
    5,168Openreach
    
    
    7,609
    
    
    
    6,620
    
    
    
    5,750
    
    
    
    4,300
    
    
    
    1,910Total broadband lines
    
    
    15,721
    
    
    
    14,678
    
    
    
    13,812
    
    
    
    12,685
    
    
    
    10,737Broadband market sharedBTs retail share of net additions
    
    
    51
    %
    
    
    43
    %
    
    
    31
    %
    
    
    35
    %
    
    
    30
    %BTs retail share of installed base
    
    
    36
    %
    
    
    35
    %
    
    
    34
    %
    
    
    35
    %
    
    
    34
    %Exchange lineseConsumer
    
    
    11,802
    
    
    
    13,051
    
    
    
    14,514
    
    
    
    15,793
    
    
    
    16,636Business/corporate
    
    
    4,860
    
    
    
    5,367
    
    
    
    5,992
    
    
    
    6,750
    
    
    
    7,264Total exchange lines
    
    
    16,662
    
    
    
    18,418
    
    
    
    20,506
    
    
    
    22,543
    
    
    
    23,900
 a

    Rolling 12 month consumer revenue, less mobile POLOs, divided by average number of
primary lines.b

    Active consumer lines represents the number of lines over which BT is the call
provider (excluding Northern Ireland but including Plusnet in 2010).c

    Total copper lines split is not available on a consistent basis for 2008 and 2007.d

    DSL and LLU.e

    Exchange lines include analogue lines and digital channels
sold through BT Global Services, BT Retail and BT Wholesale.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     161




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##### Table of Contents



ADDITIONAL INFORMATION
 
 INFORMATION FOR SHAREHOLDERS
 Cautionary statement regarding forward-looking statements
  Our risks
 162




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##### Table of Contents



ADDITIONAL INFORMATION
  Stock exchange listings
  Share and ADS prices
 Pence per
    
    
    US$ perordinary share
    
    
    ADSHigh
    
    
    Low
    
    
    High
    
    
    Lowpence
    
    
    pence
    
    
    US$
    
    
    US$Financial years ended 31 March2007
    
    
    321.75
    
    
    
    209.25
    
    
    
    62.96
    
    
    
    37.082008
    
    
    336.75
    
    
    
    205.50
    
    
    
    68.55
    
    
    
    40.462009
    
    
    235.50
    
    
    
    71.40
    
    
    
    46.20
    
    
    
    9.802010
    
    
    149.60
    
    
    
    79.70
    
    
    
    25.14
    
    
    
    11.642011
    
    
    191.10
    
    
    
    109.9
    
    
    
    31.31
    
    
    
    16.19Financial 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
    
    
    
    17.00Financial year ended 31 March 20111 April  30 June 2010
    
    
    140.60
    
    
    
    109.90
    
    
    
    20.85
    
    
    
    16.191 July  30 September 2010
    
    
    146.40
    
    
    
    126.30
    
    
    
    23.35
    
    
    
    19.191 October  31 December 2010
    
    
    187.80
    
    
    
    142.80
    
    
    
    29.13
    
    
    
    22.611 January  31 March 2011
    
    
    191.10
    
    
    
    172.90
    
    
    
    31.31
    
    
    
    27.87MonthsNovember 2010
    
    
    174.20
    
    
    
    155.70
    
    
    
    27.55
    
    
    
    24.86December 2010
    
    
    187.80
    
    
    
    169.50
    
    
    
    29.13
    
    
    
    26.66January 2011
    
    
    190.80
    
    
    
    172.90
    
    
    
    29.83
    
    
    
    27.87February 2011
    
    
    187.70
    
    
    
    176.00
    
    
    
    30.36
    
    
    
    28.53March 2011
    
    
    191.10
    
    
    
    175.50
    
    
    
    31.31
    
    
    
    28.08April 2011
    
    
    195.80
    
    
    
    188.20
    
    
    
    33.06
    
    
    
    30.601 May  6 May 2011
    
    
    196.70
    
    
    
    194.30
    
    
    
    32.86
    
    
    
    31.92
   Background
   Capital gains tax
  Rights issue
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     163




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##### Table of Contents



ADDITIONAL INFORMATION
  Demerger of O2  CGT calculation
  Analysis of shareholdings at 31 March 2011
 Ordinary sharesof 5p eachNumber of
    
    
    Percentage
    
    
    No. of
    
    
    Percentageholdings
    
    
    of total
    
    
    shares held
    
    
    of totalRange
    
    
    
    
    
    %
    
    
    millions
    
    
    %1  399
    
    
    427,887
    
    
    
    38.88
    
    
    
    90
    
    
    
    1.1400  799
    
    
    300,012
    
    
    
    27.27
    
    
    
    168
    
    
    
    2.06800  1,599
    
    
    215,895
    
    
    
    19.62
    
    
    
    241
    
    
    
    2.961,600  9,999
    
    
    150,133
    
    
    
    13.64
    
    
    
    448
    
    
    
    5.4910,000  99,999
    
    
    5,253
    
    
    
    0.48
    
    
    
    95
    
    
    
    1.17100,000  999,999
    
    
    615
    
    
    
    0.06
    
    
    
    229
    
    
    
    2.811,000,000  4,999,999
    
    
    309
    
    
    
    0.03
    
    
    
    728
    
    
    
    8.935,000,000 and abovea,b,c,d
    
    
    172
    
    
    
    0.02
    
    
    
    6,152
    
    
    
    75.48Totale
    
    
    1,100,276
    
    
    
    100.00
    
    
    
    8,151
    
    
    
    100.00
 a

    8.1m 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, 79.3m shares were held in trust on
behalf of 64,643 participants who were beneficially entitled to the shares. 227m shares were held
in the corporate nominee BT Group EasyShare on behalf of 101,488 beneficial owners.c

    142m shares were represented by ADSs. An analysis by size of holding is not available
for this holding.d

    388m shares were held as treasury shares.e

    12.04% of the shares were in 1,085,529 individual holdings, of which 92,973 were joint
holdings, and 87.96% of the shares were in 14,747 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$2007
    
    
    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
    
    
    
    0.684
    
    
    
    1.0232011
    
    
    2.40
    
    
    
    5.00
    
    
    
    7.40
    
    
    
    0.240
    
    
    
    0.500
    
    
    
    0.740
    
    
    
    0.366
    
    
    
    
    a
    
    
    
    a
 a

    Qualifying holders of ADSs on record as of 12 August 2011 are entitled to receive the
final dividend which will be paid to ADS holders on 13 September 2011, subject to approval at the
AGM. The US Dollar amount of the final dividend of 5.0 pence per ADS to be paid to holders of ADSs
will be based on the exchange rate in effect on 5 September 2011, the date of payment to holders of
ordinary shares.
  164




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##### Table of Contents



ADDITIONAL INFORMATION
  Dividend mandate
 www.bt.com/investorcentre
 Dividend investment plan
   Date paid
    
    Price per sharepence2007 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
    
    
    131.672010 final
    
    6 September 2010
    
    
    140.412011 interim
    
    7 February 2011
    
    
    185.89
 Global Invest Direct
  Total shareholder return
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     165




---



##### Table of Contents



ADDITIONAL INFORMATION
  Results announcements
  Results for the 2012 financial year
    
    Datea1st quarter
    
    28 July 20112nd quarter and half year
    
    November 20113rd quarter and nine months
    
    February 20124th quarter and full year
    
    May 20122012 Annual Report published
    
    May 2012
 a

    Dates may be subject to change.
 Individual savings accounts (ISAs)
 www.halifax.co.uk/sharedealing
 ShareGift
 www.ShareGift.org
 Unclaimed Assets Register
 www.uar.co.uk
 Exchange rates
  Year ended 31 March
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Period end
    
    
    1.60
    
    
    
    1.52
    
    
    
    1.43
    
    
    
    1.99
    
    
    
    1.97Averagea
    
    
    1.56
    
    
    
    1.55
    
    
    
    1.70
    
    
    
    2.01
    
    
    
    1.91High
    
    
    1.43
    
    
    
    1.64
    
    
    
    2.00
    
    
    
    2.11
    
    
    
    1.99Low
    
    
    1.64
    
    
    
    1.49
    
    
    
    1.37
    
    
    
    1.94
    
    
    
    1.74
 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
    
    
    November2011
    
    
    2011
    
    
    2011
    
    
    2011
    
    
    2010
    
    
    2010High
    
    
    1.67
    
    
    
    1.64
    
    
    
    1.62
    
    
    
    1.60
    
    
    
    1.59
    
    
    
    1.63Low
    
    
    1.61
    
    
    
    1.60
    
    
    
    1.60
    
    
    
    1.55
    
    
    
    1.54
    
    
    
    1.56
  166




---



##### Table of Contents



ADDITIONAL INFORMATION
  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 2011     167




---



##### Table of Contents



ADDITIONAL INFORMATION
  (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) DirectorsDirectors remuneration
    168




---



##### Table of Contents



ADDITIONAL INFORMATION
  Directors votes
    (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 1% 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.
  Directors appointment and retirement
    Directors borrowing powers
  (k) Sinking fund, liability to further calls and change of control
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     169




---



##### Table of Contents



ADDITIONAL INFORMATION
  (l)  Disclosure of interests in shares
  Material contracts
  Taxation (US Holders)
     Taxation of dividends
     170




---



##### Table of Contents



ADDITIONAL INFORMATION
  Taxation of capital gains
     Passive foreign investment company status
  US information reporting and backup withholding
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     171




---



##### Table of Contents



ADDITIONAL INFORMATION     INFORMATION FOR SHAREHOLDERS
  UK stamp duty
   UK inheritance and gift taxes in connection with ordinary shares and/or ADSs
  Limitations affecting security holders
   Documents on display
 www.sec.gov
 Publications
 www.bt.com/aboutbt www.bt.com/sustainabilityreport
 Document
    
    Publication dateSummary financial statement & Notice of Meeting
    
    MayAnnual Report & Form 20-F
    
    MayBetter future: our annual sustainability report
    
    MayEAB Annual Report
    
    MayQuarterly results releases
    
    July, November, February and MayCurrent Cost Financial Statements
    
    JulyStatement of Business Practice (The Way We Work)
  Electronic communication
 www.bt.com/signup
 172




---



##### Table of Contents



ADDITIONAL INFORMATION
  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
     Institutional investors and financial analysts
   investorrelations@bt.com
   industryenquiry@bt.com
 www.bt.com/talk
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     173




---



##### Table of Contents



ADDITIONAL INFORMATION
  
 CROSS REFERENCE TO FORM 20-F
  Required Item in Form 20-F
    
    Where information can be found in this Annual ReportItem
    
    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
    
    
    158Information for shareholdersExchange rates
    
    
    1663B
    
    Capitalisation and indebtedness
    
    Not applicable3C
    
    Reasons for the offer and use of proceeds
    
    Not applicable4
    
    Information on the company4A
    
    History and development of the company
    
    Our business and strategyWho we are
    
    
    10What we do
    
    
    10Information for shareholdersBackground
    
    
    163Financial position and resourcesAcquisitions and disposals
    
    
    56LiquidityNet capital expenditure
    
    
    514B
    
    Business overview
    
    Our business and strategy
    
    
    10Our markets and customers
    
    
    14Our resources
    
    
    19Our lines of business
    
    
    23Our corporate responsibility
    
    
    36Consolidated financial statementsNotes to the consolidated financial statementsSegment information
    
    
    105Operational statistics
    
    
    161Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1624C
    
    Organisational structure
    
    Our businessOur business model
    
    
    5Subsidiary undertakings and associate
    
    
    1554D
    
    Property, plants and equipment
    
    Our resourcesProperty portfolio
    
    
    22Consolidated financial statementsNotes to the consolidated financial statementsProperty, plant and equipment
    
    
    121Financial statistics
    
    
    1605
    
    Operating and financial review and prospects5A
    
    Operating results
    
    Our business and strategy
    
    
    10Our lines of business
    
    
    23Financial review
    
    
    44Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1625B
    
    Liquidity and capital resources
    
    Financial review
    
    
    44Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    162Consolidated financial statementsNotes to the consolidated financial statementsLoans and other borrowings
    
    
    126Financial instruments and risk management
    
    
    139Financial commitments and contingent liabilities
    
    
    1505C
    
    Research and development, patents and licences
    
    Our resourcesGlobal research capability
    
    
    21Financial statistics
    
    
    160
 174




---



##### Table of Contents



ADDITIONAL INFORMATION
  Required Item in Form 20-F
    
    Where information can be found in this Annual ReportItem
    
    Section
    
    Page5D
    
    Trend information
    
    Financial review
    
    
    44Quarterly analysis of revenue and profit
    
    
    157Selected financial data
    
    
    158Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1625E
    
    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
    
    
    606B
    
    Compensation
    
    Report on directors remuneration
    
    
    69Consolidated financial statementsNotes to the consolidated financial statementsShare-based payments
    
    
    111Retirement benefit plans
    
    
    1296C
    
    Board practices
    
    Board of directors and Operating Committee
    
    
    60The Board
    
    
    62Report on directors remuneration
    
    
    696D
    
    Employees
    
    Our resources
    
    
    19Financial reviewFinancial performanceOperating costs
    
    
    48Consolidated financial statementsNotes to the consolidated financial statements
Employees
    
    
    1106E
    
    Share ownership
    
    Report on directors remuneration
    
    
    69Consolidated financial statementsNotes to the consolidated financial statementsShare-based payments
    
    
    1117
    
    Major shareholders and related party transactions7A
    
    Major shareholders
    
    Shareholders and Annual General MeetingSubstantial shareholdings
    
    
    86Information for shareholdersAnalysis of shareholdings at 31 March 2011
    
    
    1647B
    
    Related party transactions
    
    Directors informationInterest of management in certain transactions
    
    
    82Report on directors remuneration
    
    
    69Consolidated financial statementsNotes to the consolidated financial statementsRelated party transactions
    
    
    1107C
    
    Interests of experts and counsel
    
    Not applicable8
    
    Financial information8A
    
    Consolidated statements and other financial information
    
    See Item 18 belowFinancial position and resourcesLegal proceedings
    
    
    56Financial performanceDividends
    
    
    50Consolidated financial statementsNotes to the consolidated financial statementsFinancial commitments and contingent liabilities
    
    
    150Information for shareholdersDividends
    
    
    164Articles of Association (Articles)Dividends
    
    
    1678B
    
    Significant changes
    
    Funding and capital management 

Going concern
    
    
    54
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     175




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##### Table of Contents



ADDITIONAL INFORMATION
  Required Item in Form 20-F
    
    Where information can be found in this Annual ReportItem
    
    Section
    
    Page9
    
    The offer and listing9A
    
    Offer and listing details
    
    Information for shareholdersStock exchange listingsShare and ADS prices
    
    
    1639B
    
    Plan of distribution
    
    Not applicable9C
    
    Markets
    
    Information for shareholdersStock exchange listings
    
    
    1639D
    
    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)
    
    
    16710C
    
    Material contracts
    
    Information for shareholdersMaterial contracts
    
    
    17010D
    
    Exchange controls
    
    Information for shareholdersLimitations affecting security holders
    
    
    17210E
    
    Taxation
    
    Information for shareholdersTaxation (US Holders)
    
    
    17010F
    
    Dividends and paying agents
    
    Not applicable10G
    
    Statement by experts
    
    Not applicable10H
    
    Documents on display
    
    Information for shareholdersDocuments on display
    
    
    17210I
    
    Subsidiary information
    
    Not applicable11
    
    Quantitative and qualitative
    
    Consolidated financial statementsdisclosures about market risk
    
    Accounting policiesFinancial instruments
    
    
    95Notes to the consolidated financial statementsFinancial instruments and risk management
    
    
    13912
    
    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
    
    
    85Disclosure controls and procedures
    
    
    85Internal control over financial reporting
    
    
    8516A
    
    Audit committee financial expert
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    8516B
    
    Code of ethics
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    8516C
    
    Principal accountants' fees and services
    
    Consolidated financial statementsNotes to the consolidated financial statementsAudit and non-audit services
    
    
    114Report of the Audit & Risk Committee
    
    
    6516E
    
    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
    
    
    6417
    
    Financial statements
    
    Not applicable18
    
    Financial statements
    
    Report of the independent auditors  Consolidated financial statements
    
    
    89United States opinion
    
    
    90Consolidated financial statements
    
    
    91Quarterly analysis of revenue and profit
    
    
    157
 176




---



##### Table of Contents



ADDITIONAL INFORMATION
  GLOSSARY OF TERMS
 A
 
 ADS:
 ADSL:
 ADSL2+:
 ARPU:
 B
 
 Broadband:
 BT Business Direct:
 BT Business:
 BT Conferencing:
 BT Consumer:
 BT Directories:
 BT Engage IT:
 BT Enterprises:
 BT Expedite:
 BT Fon:
 BT Global Services:
 BT Infinity:
 BTiNet:
 BT Innovate & Design:
 BT Ireland:
 BT Openzone:
 BT Operate:
 BT Pension Scheme (BTPS):
 BT Redcare & Payphones:
 BT Retail:
 BT Retirement Plan (BTRP):
 BT Retirement Saving Scheme (BTRSS):
 BT Vision:
 BT Wholesale:
 Business in the Community:
 C
 
 Childline:
 cloud computing:
 CP:
 CPI:
 CR:
 CRM:
 D
 
 DBP:
 Dow Jones Sustainability Index:
 DSL:
 E
 
 EBITDA:
 EMEA:
 Ethernet:
 EPS:
 ESIP:
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     177




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##### Table of Contents



ADDITIONAL INFORMATION
  F
 
 FTTC:
 FTTP:
 FTSE4 Good Index:
 G
 
 GSOP:
 GW/a:
 H
 
 HMRC:
 I
 
 IASB:
 ICT:
 IFRS:
 IP:
 IP Exchange:
 ISDN:
 ISO 14001:
 ISP:
 ISP:
 L
 
 LLU:
 LoB:
 M
 
 Managed networked IT services:
 MNS:
 MPLS:
 MyDonate:
 N
 
 N3:
 NCC:
 NGA:
 O
 
 Ofcom:
 Openreach:
 P
 
 PPC:
 PSTN:
 R
 
 RGCs:
 right first time:
 RPI:
 RSP:
 S
 
 Sharesave:
 SME:
 SMP:
 Super-fast fibre-based broadband:
 T
 
 TSR:
 178




---



##### Table of Contents



ADDITIONAL INFORMATION
  U
 
 UK GAAP:
 UK and RoI:
 Undertakings:
 USO:
 US SEC:
 V
 
 VoIP:
 W
 
 WBA:
 wi-fi:
 WLR:
 Y
 
 YouView:
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     179




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##### Table of Contents



ADDITIONAL INFORMATION
  
 INDEX
 A
 
 91
 152
 99
 56
 156 56  58
 167
 49, 57, 123, 91
 65  66
 114
 B
 
 163
 54  55, 104, 153, 159
 62
 60  61
 12, 23  25
 35
 35
 26  29
 12, 30  32
 4
 10
 5
 83
 C
 
 25, 51, 55, 105, 107, 150
 163
 55, 123, 96
 50, 103, 159
 162
 3
 9
 101
 91
 54
 62
 36  38
 11
 174  176
 6, 10
 D
 
 136, 152
 96  97, 127  128, 146
 82
 69
 88
 60  87
 85
 165
 165
 3, 45, 50, 95, 118, 152, 164, 167, 170
 172
 E
 
 2, 6, 45, 57, 118
 2, 45, 48, 57, 105
 172
 102
 166
 180




---



##### Table of Contents



ADDITIONAL INFORMATION
  F
 
 150
 158  159
 116
 139  149
 96
 54  55
 44
 46  50
 152
 160
 2
 93
 2, 45, 50, 58
 52
 G
 
 108
 119
 165
 21
 77  178
 54
 2, 46
 H
 
 97
 146
 I
 
 101
 89, 151
 166
 162
 54, 93, 119  120
 84
 85
 122
 11
 L
 
 56
 172
 50
 55, 96, 126
 M
 
 14  18  170
 N
 
 2, 45, 52, 58, 144
 67
 137
 61
 105  150
 64
 O
 
 54
 33  34
 60
 48
 161
 152
 47, 56, 93, 109
 138
 18
 2, 45  46
 2  8
 P
 
 20, 41, 53
 19  20
 25, 28, 31, 34
 39
 49
 55, 94, 98, 121  122
 22
 55, 95, 98, 137
 172
 Q
 
 157
 R
 
 17 -18
 110
 19
 166
 129  135
 46, 92, 106  108
 39
 S
 
 105
 158  159
 163
 97, 137, 152
 95, 111  113, 152
 166
 173
 86
 164
 56  57, 91, 115
 101
 163
 11
 155
 T
 
 49, 51  52, 95, 117  118, 152
 170
 111, 165, 178
 55, 96, 128
 55, 96, 124  125
 U
 
 166
 85
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     181




---



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NOTES
 182




---



##### Table of Contents



NOTES
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 2011     183




---



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NOTES
 184




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##### Table of Contents



Bringing it all together
  
  
 
 www.bt.com
 PHME 61899
 (image)  (image)
    Mixed Sources
Product group from well-managed
forests and recycled wood or fiber
www.fsc.org Cert no. TT-COC-002410
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    (image)By Appointment to
Her Majesty the Queen
Suppliers of Communications, Broadband
and Networked Services
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