##### Table of Contents



BT GROUP PLC ANNUAL REPORT & FORM 20-F




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##### 



BT GROUP PLC ANNUAL REPORT & FORM 20-F
  
 2
    
    Financial summary3
    
    Chairmans message4
    
    Chief Executives statement5
    
    This is BT6
    
    How we are structured
  
 8
    
    Business review26
    
    Other matters32
    
    Financial review
  
 50
    
    Board of Directors and Operating Committee52
    
    The Board54
    
    Report of the Audit Committee56
    
    Report of the Nominating Committee56
    
    Report of the Committee for Responsible and Sustainable Business57
    
    Report on directors remuneration70
    
    Directors information71
    
    Business policies74
    
    Shareholders and Annual General Meeting
 
 76
    
    Statement of directors responsibilities77
    
    Report of the
independent auditors  consolidated financial statements79
    
    Consolidated financial statements136
    
    Glossary of terms and US equivalents137
    
    Report of the
independent auditors  parent company138
    
    Financial statements of BT Group plc141
    
    Subsidiary undertakings and associate142
    
    Quarterly analysis of revenue and profit143
    
    Selected financial data145
    
    Financial statistics146
    
    Operational statistics
 
 148
    
    Information for shareholders160
    
    Cross reference to Form 20-F163
    
    Glossary of terms166
    
    Index




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OVERVIEW
 
 FINANCIAL SUMMARY
  
 2009
    
    
    2008£m
    
    
    £mRevenue
    
    
    £21,390
    
    
    
    £20,704EBITDAa adjustedb,c
    
    
    £5,348
    
    
    
    £5,784 reported
    
    
    £3,301
    
    
    
    £5,245Profit (loss) before taxation adjustedb,c
    
    
    £1,877
    
    
    
    £2,506 reported
    
    
    £(134
    )
    
    
    £1,976Earnings (loss) per share adjustedb,c
    
    
    18.4p
    
    
    
    23.9p reported
    
    
    (1.1)p
    
    
    
    21.5pFull year proposed dividend
    
    
    6.5p
    
    
    
    15.8p
 Key performance indicators
 
 Key points
  
 4
    
    Revenue growth of 3%4
    
    EBITDA decline due to the unacceptable performance of BT Global Services4
    
    The rest of the business delivered a good performance in spite of the economic downturn4
    
    BT Global Services contract and financial review charges of £1.6bn and a specific item
restructuring charge of £280m4
    
    Pension deficit payments of £525m per annum for the next three years4
    
    Full year proposed dividend of 6.5p per share
 
 a
    
    EBITDA: Earnings before interest, taxation, depreciation and amortisation.b
    
    Items presented as adjusted are stated before contract and financial review charges
recorded within BT Global Services and specific items.c
    
    Adjusted EBITDA, adjusted profit before taxation, adjusted earnings per share and free
cash flow are non-GAAP measures. The rationale for using non-GAAP measures and reconciliations to
the most directly comparable IFRS indicators are provided in the Financial review on pages 33-35,
39, 41, 47 and 48. 2 BT GROUP PLCANNUAL REPORT & FORM 20-F




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OVERVIEW
 
 CHAIRMANS MESSAGE
 
 
                     Sir Michael Rake
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 3




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OVERVIEW
 
 CHIEF EXECUTIVES STATEMENT
 
 
 The actions we have taken will enable BT to come out of this recession a stronger and better
business.
               Ian Livingston
 4 BT GROUP PLCANNUAL REPORT & FORM 20-F




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OVERVIEW
 
 THIS IS BT
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 5




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OVERVIEW
 
 HOW WE ARE STRUCTURED
 We meet the needs of our different customer groups through four customer-facing lines of business,
supported by two internal functional units. BT Retail, BT Wholesale and Openreach operate mainly in
the UK. BT Global Services provides services in more than 170 countries around the world.
  
  
 6 BT GROUP PLCANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS
 BUSINESS
REVIEW8
    

Introduction8
    
    Our 2009 performance8
    
    Our focus9
    
    Maintaining a sustainable business9
    
    Measuring our performance9
    
    Outlook10
    
    How we are structured10
    
    BT Global Services13
    
    BT Retail16
    
    BT Wholesale17
    
    Openreach19
    
    BT Design20
    
    BT Operate20
    
    Our resources23
    

Corporate responsibilityOTHER
MATTERS26
    
    Regulation27
    
    Competition28
    
    Branches outside the UK28
    
    Our relationship with HM Government28
    
    Legal proceedings28
    
    Acquisitions and disposals29
    
    Our property portfolio29
    
    Principal risks and uncertaintiesFINANCIAL REVIEW32
    
    Summarised group income statement33
    
    Introduction to the Financial review33
    
    Group results36
    
    Other group items40
    
    Cash flow41
    
    Balance sheet44
    
    Taxation45
    
    Financial risk management47
    
    Critical accounting policies47
    

Alternative
performance measuresPlease see Cautionary statement regarding
forward-looking statementson page 148.
 BT
GROUP PLCANNUAL REPORT & FORM
20-F 7




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BUSINESS
AND FINANCIAL REVIEWS
 
 BUSINESS REVIEW
 Falling prices, rising data speeds and constant innovation continue to make the communications
marketplace dynamic and intensely competitive. In 2009, we faced the additional challenges of the
economic downturn and an unacceptable performance from BT Global Services.
  Introduction
   
 Our 2009 performance
     
 Our focus
  These are:4
    
    providing excellent customer service4
    
    building future networks4
    
    becoming more agile.
             8 BT GROUP PLCANNUAL REPORT & FORM 20-F




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BUSINESS
AND FINANCIAL REVIEWS BUSINESS REVIEW
  Maintaining a sustainable business
    
 Measuring our performance
  4
    
    customer service4
    
    earnings per share4
    
    free cash flow.
     a,b Financial review
  b Financial review
 
 Outlook
     
 a
    
    Items presented as adjusted are stated before contract and financial review charges
and specific items.b
    
    Adjusted basic earnings per share and free cash flow are non-GAAP measures provided
in addition to disclosure requirements defined under IFRS. The rationale for using non-GAAP
measures is explained on pages 33, 47 and 48, and a reconciliation of adjusted basic earnings per
share and free cash flow, to the most directly comparable IFRS indicator, is provided on pages 39
and 41 respectively.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 9




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 BT
Global Services order intake (£m)
 
 
 
 How we are structured
      Business review
 
 BT Global Services
        Principal risks and uncertainties
     10 BT GROUP PLCANNUAL REPORT & FORM 20-F




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BUSINESS
AND FINANCIAL REVIEWS BUSINESS REVIEW
 BT Global Services new structure
 
 
     4
    
    being the number one provider of networked IT services to corporate and public sector customers in
the UK, building on BT Global Services strong market position and the groups 21CN products and
services4
    
    providing networked IT services to key multinational customers, differentiating BT Global Services
through seamless global connectivity and delivery of BTs core portfolio of products and services4
    
    creating a BT Global Services Enterprises unit consisting of a discrete portfolio of businesses
addressing specific customer needs in key countries.
  4
    
    integrated sales, marketing, professional services, account management and delivery capability,
competing effectively in each target market4
    
    enhanced bid management and start-up processes to improve win rates on selected deals and ensure
standardisation and quality of delivery4
    
    a single global service model, consolidating a large number of individual centres into a small
number of larger operational hubs, which will provide a single point of customer contact and enable
improved right first time customer service4
    
    continued rationalisation of systems and networks, reducing the number of systems by a third and
halving the number of global networks, thereby removing duplication and enabling significant cost
savings4
    
    restructuring corporate support functions to serve the three customer segments more efficiently and
effectively4
    
    strategic partnering for sales, service and infrastructure.
 Specific items Financial review
     In the UK
        4
    
    a seven-year, £160m
outsourcing deal with Nationwide Building Society to manage its networked IT services
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 11




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BUSINESS
AND FINANCIAL REVIEWS BUSINESS REVIEW
 BT
Global Services UK/Non UK revenue (£m)
 
 
 4
    
    a three-year contract extension with Manpower to provide fully managed global wide area network
(WAN) infrastructure and managed services4
    
    a five-year contract with Carillion worth £32m for voice/hosted voice, IP data, conferencing and
private automated branch exchange (PABX) maintenance.
    4
    
    a five-year, US$526m contract with Procter & Gamble to provide and manage local area network (LAN)
and WAN infrastructure in more than 80 countries4
    
    a contract with BMW to manage a large part of its communications infrastructure, including voice
over IP (VoIP), contact centres, email services and videoconferencing4
    
    a three-year managed services contract with SWIFT to connect strategic offices across Europe, the
US and Asia with BTs unified communications video solution4
    
    a three-year contract with Munich Re to provide security and network services in 33 countries4
    
    a contract with the Emirates airline to consolidate and manage its worldwide contact centres4
    
    a seven-year, 118m extension of current services provided to Syngenta for data and voice services
plus deployment of IP telephony, managed LAN and BT OneVoice to 112 sites and the deployment of BT
managed mobile services to 13 countries.
  
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mRevenue
    
    
    8,828
    
    
    
    7,889
    
    
    
    7,312Adjusted gross profita
    
    
    2,576
    
    
    
    2,839
    
    
    
    2,759Adjusted SG&A costsa
    
    
    2,267
    
    
    
    1,978
    
    
    
    2,024Adjusted EBITDAa
    
    
    309
    
    
    
    861
    
    
    
    735Contract and financial
review charges
    
    
    1,639
    
    
    
    
    
    
    
    EBITDAb
    
    
    (1,330
    )
    
    
    861
    
    
    
    735Operating (loss) profitb
    
    
    (2,106
    )
    
    
    117
    
    
    
    70
 
 a
    
    Adjusted items are before contract and financial review charges and specific items.b
    
    Before specific items.       12 BT GROUP PLCANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 Average
annual revenue per consumer household (£)
 
 
   
 BT
Retail
         BT
Consumer
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 13




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 BT Retail broadband market share* year end (000 lines)
 
  
   BT Business
 Voice
     Broadband
  Mobility
  Other services
    BT Ireland
    2
 14 BT GROUP PLC ANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 BT Retail external revenue by unit (%)
 
  2
 BT Enterprises
  4
    
    BT Conferencing  a leading global
provider of audio, video and internet collaboration services4
    
    BT Directories  comprising Directory
Enquiries (118 500), operator and emergency services, and The Phone Book. In July 2008 we acquired
Ufindus, supporting the increasing demand for online directory enquiries4
    
    BT Payphones  providing
street, managed, prison, card and private payphones4
    
    BT Redcare  providing alarm monitoring and
tracking facilities4
    
    BT Expedite  offering integration solutions and services to retailers4
    
    BT Shop
and dabs.com  a leading internet-based retailer of IT and technology products.
  Efficiency
  Financial performance
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mRevenue
    
    
    8,471
    
    
    
    8,477
    
    
    
    8,346Gross profit
    
    
    3,186
    
    
    
    3,114
    
    
    
    2,938SG&A costs
    
    
    1,552
    
    
    
    1,619
    
    
    
    1,581EBITDA
    
    
    1,634
    
    
    
    1,495
    
    
    
    1,357Operating profit
    
    
    1,209
    
    
    
    1,050
    
    
    
    912
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mBT Retail external revenueManaged solutions
    
    
    519
    
    
    
    456
    
    
    
    361Broadband and convergence
    
    
    1,298
    
    
    
    1,189
    
    
    
    985Calls and lines
    
    
    4,825
    
    
    
    5,167
    
    
    
    5,409Other
    
    
    1,470
    
    
    
    1,382
    
    
    
    1,345Total external revenue
    
    
    8,112
    
    
    
    8,194
    
    
    
    8,100Internal revenue
    
    
    359
    
    
    
    283
    
    
    
    246Total
    
    
    8,471
    
    
    
    8,477
    
    
    
    8,346
 
   BT GROUP PLC ANNUAL REPORT & FORM 20-F 15




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 DSL broadband connections year end (m)
 
 
     
 BT Wholesale
 Business overview
     Market context
   Operational performance
 Managed network solutions
   4
    
    in June 2008, we announced a three-year deal with Sky to provide it with wholesale voice
services to support over one million Sky Talk customers and in February 2009 we announced an
agreement to provide Sky with a managed directory enquiries service4
    
    in August 2008, we signed a five-year managed network solutions agreement with Mobile
Broadband Network Limited (MBNL) on behalf of the joint venture partners 3 UK and T-Mobile UK to
provide and manage high-speed connectivity between their base stations and our core national
network in the UK.
  White label managed services
  Wholesale products
 Wholesale Ethernet
  16 BT GROUP PLC ANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
  Wholesale broadband
   Capacity and call-based products
  Efficiency
  Financial performance
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mRevenue
    
    
    4,658
    
    
    
    4,959
    
    
    
    5,386Internal revenue
    
    
    1,228
    
    
    
    1,252
    
    
    
    1,277External revenue
    
    
    3,430
    
    
    
    3,707
    
    
    
    4,109Gross profit
    
    
    1,427
    
    
    
    1,593
    
    
    
    1,796SG&A costs
    
    
    161
    
    
    
    198
    
    
    
    296EBITDA
    
    
    1,266
    
    
    
    1,395
    
    
    
    1,500Operating profit
    
    
    580
    
    
    
    502
    
    
    
    592
    
 Openreach
 Business overview
 
   BT GROUP PLC ANNUAL REPORT & FORM 20-F 17




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 £1.5bn
 planned investment in super-fast broadband
 
 Market context
   Operational performance
 Service performance
    Delivering on the Undertakings
 Regulation
 Openreach products
 Wholesale line rental
   Local loop unbundling
   Ethernet
  Next generation access
    18 BT GROUP PLC ANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
  Efficiency
   Financial performance
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mRevenue
    
    
    5,231
    
    
    
    5,266
    
    
    
    5,223Internal revenue
    
    
    4,253
    
    
    
    4,380
    
    
    
    4,538External revenue
    
    
    978
    
    
    
    886
    
    
    
    685Operating costs
    
    
    3,235
    
    
    
    3,355
    
    
    
    3,296EBITDA
    
    
    1,996
    
    
    
    1,911
    
    
    
    1,927Operating profit
    
    
    1,218
    
    
    
    1,222
    
    
    
    1,220
         
 BT Design
 
   BT GROUP PLC ANNUAL REPORT & FORM 20-F 19




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 BT was named the UKs strongest telecommunications brand in
the 2009 Business Superbrands survey
 
 
 
 BT Operate
     
 Our resources
 Our trusted reputation
    Our people
   Leadership
  Learning and development
    20 BT GROUP PLC ANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
  Reward and recognition
    Pensions
      Pensions Financial review
 Flexibility and diversity
     Health and safety
   Employee communications
 
   BT GROUP PLC ANNUAL REPORT & FORM 20-F 21




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 £1.1bn
 invested in R&D in 2009
 
   Our UK network
  Our global research and development capability
   Open innovation
      22 BT GROUP PLC ANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
  Corporate responsibility
 www.bt.com/betterworld
 Supporting communities
  UK
    Rest of the world
   Protecting the environment
    Corporate responsibility risks
  4
    
    breach of our code of business ethics4
    
    climate change4
    
    diversity4
    
    health and safety4
    
    privacy4
    
    supply chain working conditions.
 Principal risks and
uncertainties
 
   BT GROUP PLC ANNUAL REPORT & FORM 20-F 23




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
 Non-financial
corporate responsibility KPIs
 Key performance indicators
    
    
    Direct company impacts: Non-financial indicatorsTarget 2010
    
    
    2009
    
    
    2008
    
    
    2007Customers
    
    
    Customer service
A measure of success across 
BTs entire customer base
    
    
    To improve customer service 
based on getting things right 
first time (RFT) in line with
our corporate scorecard
    
    
    17%
improvement in
RFT service from
2008
    
    
    9%improvement
in RFT service from
2007
    
    
    3%
increase in
customer
satisfaction (our
previous measure)Employees
    
    
    Employee engagement index
A measure of the success of BTs 
relationship with employees, 
through its annual employee 
attitude survey
    
    
    Maintain or improve the 
2009 level of employee 
engagement. We moved to a 
five point scale this year, and 
have restated previous scores
    
    
    3.61
    
    
    3.60
    
    
    3.62Diversity
A measure of the diversity of the 
BT workforce
    
    
    BT will maintain a top 10
placement in four of five major 
diversity benchmarks. Includes 
four UK benchmarks and the 
Schneider-Ross Global Diversity 
benchmark (from 2008)
    
    
    BT is in the top 
10 placement in 
four out of the five
major diversity 
benchmarks
    
    
    BT is in the top 
10 placement in 
four out of the five
major diversity 
benchmarks
    
    
    BT is in the top 
10 placement in 
three out of four 
main UK diversity 
benchmarksH&S: lost time injury rate
Lost time injury cases expressed as 
a rate per 100,000 hours worked 
on a 12 month rolling average
    
    
    Reduce to 0.157 cases
    
    
    0.160 cases
    
    
    0.188 cases
    
    
    0.238casesH&S: sickness absence rate
Percentage of calendar days lost 
to sickness absence expressed as 
a 12 month rolling average
    
    
    Reduce to 1.9% calendar 
days lost due to sickness
    
    
    2.17%
    
    
    2.43%
    
    
    2.43%Suppliers
    
    
    Supplier relationships
A measure of the overall success 
of BTs relationship with suppliers, 
based on our annual supplier survey
    
    
    To achieve a rating of 80% or 
more, based on the question:
How would you describe the
quality of your companys 
relationship with BT?
    
    
    85%
    
    
    78%
    
    
    New measure
in 2008Ethical trading
A measure of the application of BTs 
supply chain human rights standard
    
    
    To achieve 100% follow up
within three months for all
suppliers identified as high or
medium risk, through our
ethical standard questionnaires
    
    
    78risk
assessments with
100% follow up
    
    
    234risk
assessments with
100% follow up
    
    
    413risk
assessments with
100% follow upImproving 
society
    
    
    Community effectiveness measure
An independent evaluation of our 
community programme
    
    
    Maintain evaluation score at
over 90%
    
    
    91%
    
    
    79%
    
    
    70%Investment to improve society
    
    
    Maintain a minimum 
investment of 1% of 
underlying pre-tax profits
    
    
    1.01%
    
    
    1.02%
    
    
    1.05%Environment
    
    
    CO2 equivalent emissions
A measure of BTs climate change 
impact
    
    
    By December 2020, BT group 
will reduce its CO2e emission 
intensity by 80% against 1997
levels. New target set in 2008
    
    
    CO2e 906,000 tonnes44%reduction43%intensity
reduction
    
    
    CO2e 920,000 tonnes43%reduction52%intensity
reduction
    
    
    CO2e 896,000 tonnes45%reduction52%intensity
reductionWaste to landfill and recycling
A measure of BTs use of resources
    
    
    BT group will reduce the 
tonnage of waste sent to 
landfill by 8% from 2009
    
    
    17%reduction in 
waste to landfill 
from 2008 (UK 
only)
    
    
    22%reduction in 
waste to landfill 
from 2007 (UK 
only)
    
    
    8%reduction in 
waste to landfill 
from 2006 (UK 
only)Integrity
    
    
    Business practices measure
How our Statement of Business 
Practice is implemented. 
Measured through a regular 
employee survey
    
    
    We plan to make this indicator 
more broad-ranging to 
include all relevant policies 
including our new anti-
corruption and bribery, and
gifts and hospitality policies
    
    
    77%
    
    
    83%
    
    
    87%
 24 BT
GROUP PLC ANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
   All targets have an end date of 31 March
2010 unless otherwise indicated.
 
 Direct company impacts: Financial indicators
    

Indirect company impacts
 2009
    
    
    2008
    
    
    2007Total revenue
    
    
    £21,390m
    
    
    £20,704m
    
    
    £20,223mAverage annual revenue per
(UK) consumer household
    
    
    £287
    
    
    £274
    
    
    £262Employee costs
    
    
    £5,506m
    
    
    £5,358m
    
    
    £5,223m
    
    
    Employee engagement is a driver 
of customer satisfactionNumber of employees
    
    
    107,021
    
    
    111,858
    
    
    106,200BT will develop a relevant financial 
indicator for diversity next year
    
    
    
    
    
    
    
    
    
    
    
    Establishing a diverse workforce promotes
social cohesionCost to the business arising from 
injuries resulting in time off work
    
    
    £7m
    
    
    New measure
in 2009
    
    
    
    
    
    Lowering lost days from injuries and 
sickness reduces societal health care 
costs and improves productivityBT sick pay costs
    
    
    £85.2m
    
    
    £89.8m
    
    
    £84.7mTotal spend with suppliers
    
    
    £8.9bn
    
    
    £8.6bn
    
    
    £6.8bn
    
    
    Economic multiplier effect
(e.g. employment) arising from 
BTs supply chain procurementValue of procurement contracts where 
our suppliers agree that we work withthem to improve sustainability impacts
(extrapolated from a representative 
supplier survey)
    
    
    £7.4bn
(83% of supplier 
spend)
    
    
    £5.7bn
(66% of supplier 
spend)
    
    
    First measured
in 2008
    
    
    Quality of life  especially working 
conditions in emerging economiesCommunity investment
(time, cash and in-kind support)
    
    
    £25.0m
    
    
    £22.3m
    
    
    £21.8m
    
    
    BTs community programme focuses on 
improving communication and ICT skills. 
This helps improve peoples employment 
prospects and increase social inclusionTotal energy costs
(fleet fuel + gas + oil + diesel for back up 
generators etc; UK and Ireland only)
    
    
    £227m
    
    
    £194m
    
    
    £185m
    
    
    Indirect negative impacts occur in the 
manufacture of equipment and through 
energy consumption in customer premises.
Positive impacts arise from application
of ICT to support low-carbon economyIncome from recycling
    
    
    £7.42m
    
    
    £6.70m
    
    
    £4.48m
    
    
    Dealing with end of life products sold into the market place. Acting to reduce
obsolescenceLandfill tax savings
    
    
    £1.15m
    
    
    £0.89m
    
    
    £0.84mWaste costs
    
    
    £(7.90)m
    
    
    £(7.27)m
    
    
    £(5.15)mNet waste savings
    
    
    £0.67m
    
    
    £0.32m
    
    
    £0.17mRevenue Support
(customer bids with 
a sustainability component)
    
    
    £1.9bn
    
    
    £2.2bn
    
    
    £1.8bn
    
    
    A responsible business culture, banning
corrupt practices including facilitation
payments, supports better international
governance
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 25




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BUSINESS
AND FINANCIAL REVIEWS
 
 OTHER MATTERS
  
 
 Regulation
     Ofcom
   Conditions applying to all providers
   Conditions applying to BT
           26 BT GROUP PLCANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
   4
    
    network charge controls (NCC) on wholesale
interconnect services  we operate under
interconnection agreements with most other CPs. Our
charges for interconnect services are controlled by
Ofcom, under the NCC regime. These controls are
designed to ensure that our charges are reasonably
derived from costs, plus an appropriate return on
capital employed. Ofcom is currently reviewing the
charge control to take effect for four years from 1
October 2009 and is consulting on a range of options
where charges would be allowed to increase by more
than inflation4
    
    partial private circuits (PPC) charge controls
applying to certain wholesale leased lines that BT
provides to other network operators. Ofcom has
consulted on proposals for new controls to apply
from 1 October 2009 and is expected to issue its
final decision in the first quarter of the 2010
financial year4
    
    Ofcom is proposing to introduce charge controls on
BTs provision of wholesale Ethernet access and
backhaul services at bandwidths of 1Gb or below
from 1 October 2009. Again, Ofcoms final decision
on these controls is expected in the first quarter
of the 2010 financial year4
    
    Ofcom has also been consulting on regulatory
controls governing the charges Openreach applies to
the provision of local loop unbundling (LLU)
services and wholesale line rental (WLR). Ofcom is
expected to publish a statement shortly setting out
its conclusions on LLU charges and issue a further
consultation on WLR charges.
        European Union
    The rest of the world
  
 Competition
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 27




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
  
    
 Branches outside the UK
  
 Our relationship with HM Government
   
 Legal proceedings
  
 Acquisitions and disposals
  2009
 
 
 Date
    
    AcquisitionMay 2008
    
    Wire One Holdings Inc  one of the leading
providers of videoconferencing solutions in the US.
Wire One is central to BT Conferencings video
business unit, extending its customer footprint and
enhancing its videoconferencing capabilities.July 2008
    
    Ufindus Ltd, one of the UKs leading online business
directories. The acquisition from Iomart Group plc
underpins the continued growth of BT Directories,
our classified advertising and directories business.July 2008
    
    Ribbit Corporation, a Silicon Valley-based Telco 2.0
platform company for $105m. The acquisition will
accelerate our transformation into a next generation,
platform-based, software-driven services company.
In addition, it complements our existing capability in
software development platforms. The integration of
Ribbit with 21CN progressed well during the year.July 2008
    
    Stemmer GmbH and SND GmbH, two German
companies constituting the enterprise IT services
segment of net AG, listed on the Frankfurt Stock
Exchange. The acquisitions strengthen our skills and
capabilities in the German market, in line with our
strategy to offer networked IT services to our
corporate customers in Germany and globally.
  4
    
    an agreement with Sekunjalo Investments Ltd, under
which Sekunjalo has become a 30% shareholder in
BTs South African business4
    
    an extension of the geographic scope of our joint
venture with Enìa SpA in Parma, Italy and an
increase of our stake in the joint venture from 55%
to 59.5%4
    
    the acquisition of the remaining shares of Net2S SA,
a publicly traded IT services company listed in
France, other than certain treasury shares and
locked-up shares issued under employee share plans
(we had acquired over 91% of the outstanding issued
share capital of Net2S SA in 2008).
 28 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
   Prior to 2009
 2
  4
    
    dabs.com (an online retailer of IT and
technology products)4
    
    PlusNet (an internet service provider)4
    
    International Network Services (INS) (the
California-based global provider of IT consulting
and software solutions).
In 2008, our acquisitions included:4
    
    i2i Enterprise Pvt Ltd (a Mumbai-based company which
specialises in IP communications services for major
Indian and global multinational companies)4
    
    Comsat International (a provider of data
communications services for corporations and public
sector organisations in Latin America)4
    
    the IT infrastructure division of CS Communication &
Systèmes (the French IT systems and network services
provider)4
    
    Frontline Technologies Corporation Ltd (one of the
leading providers of end-to-end IT services in the
Asia Pacific region).
  
 Our property portfolio
   
 Principal risks and uncertainties
   Internal control and risk management
  Cautionary statement regarding
forward looking statements
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 29




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
  
         Regulation
        30 BT GROUP PLCANNUAL REPORT & FORM 20-F




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BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
   
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 31




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS
 
 FINANCIAL REVIEW
 The following table shows the summarised group income statement.
  
 
 Summarised group income statement
 2009
    
    
    2008
    
    
    2007Year ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223Other operating incomea
    
    
    339
    
    
    
    349
    
    
    
    233Operating costsa
    
    
    (21,318
    )
    
    
    (18,697
    )
    
    
    (17,915
    )Operating profitBefore specific itemsb
    
    
    819
    
    
    
    2,895
    
    
    
    2,713Specific items
    
    
    (408
    )
    
    
    (539
    )
    
    
    (172
    )411
    
    
    
    2,356
    
    
    
    2,541Net finance expenseBefore specific itemsb
    
    
    (620
    )
    
    
    (378
    )
    
    
    (233
    )Specific items
    
    
    
    
    
    
    
    
    
    
    139(620
    )
    
    
    (378
    )
    
    
    (94
    )Share of post tax profits (losses) of associates and joint venturesBefore specific itemsb
    
    
    39
    
    
    
    (11
    )
    
    
    15Specific items
    
    
    36
    
    
    
    
    
    
    
    75
    
    
    
    (11
    )
    
    
    15Profit on disposal of associates and joint ventures  specific items
    
    
    
    
    
    
    9
    
    
    
    22(Loss) profit before taxationBefore specific itemsb
    
    
    238
    
    
    
    2,506
    
    
    
    2,495Specific items
    
    
    (372
    )
    
    
    (530
    )
    
    
    (11
    )(134
    )
    
    
    1,976
    
    
    
    2,484TaxationBefore specific itemsb
    
    
    10
    
    
    
    (581
    )
    
    
    (611
    )Specific items
    
    
    43
    
    
    
    343
    
    
    
    97953
    
    
    
    (238
    )
    
    
    368(Loss) profit for the yearBefore specific itemsb
    
    
    248
    
    
    
    1,925
    
    
    
    1,884Specific items
    
    
    (329
    )
    
    
    (187
    )
    
    
    968(81
    )
    
    
    1,738
    
    
    
    2,852Basic (loss) earnings per shareBefore specific itemsb
    
    
    3.2p
    
    
    
    23.9p
    
    
    
    22.7pSpecific items
    
    
    (4.3)p
    
    
    
    (2.4)p
    
    
    
    11.7pTotal basic (loss) earnings per share
    
    
    (1.1)p
    
    
    
    21.5p
    
    
    
    34.4p
 a
    
    Includes specific items.b
    
    Operating profit before specific items, net finance expense before specific items, share of post tax profits
(losses) of associates and joint ventures before specific items, (loss) profit before taxation and specific
items, taxation before specific items, (loss) profit for the year before specific items and basic (loss)
earnings per share before specific items are non-GAAP measures provided in addition to the disclosure
requirements defined under IFRS. The rationale for using non-GAAP measures is explained on pages 33, 47 and 48.
 c
 (Loss) profit before taxation
    
    
    (134
    )
    
    
    1,976
    
    
    
    2,484Contract and financial review charges
    
    
    1,639
    
    
    
    
    
    
    
    Specific items
    
    
    372
    
    
    
    530
    
    
    
    11Adjusted profit before taxationc
    
    
    1,877
    
    
    
    2,506
    
    
    
    2,495Adjusted basic earnings per sharec
    
    
    18.4p
    
    
    
    23.9p
    
    
    
    22.7p
 c
    
    Adjusted results refer to the results before the contract and financial review charges recorded within BT
Global Services and specific items and are non-GAAP measures provided in addition to the disclosure
requirements defined under IFRS. The rationale for using non-GAAP measures is explained on pages 33, 47 and 48.
 32 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
 Revenue by product  year ended 31 March (£m)
 
  Introduction to the Financial review
      Internal cost recorded byBT Global
    
    
    BT
    
    
    BTServices
    
    
    Retail
    
    
    Wholesale
    
    
    Openreach
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInternal revenue
recorded by:BT Global Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BT Retail
    
    
    219
    
    
    
    
    
    
    
    51
    
    
    
    4
    
    
    
    85
    
    
    
    359BT Wholesale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    1,228Openreach
    
    
    
    
    
    
    2,250
    
    
    
    85
    
    
    
    
    
    
    
    1,918
    
    
    
    4,253Total
    
    
    219
    
    
    
    2,250
    
    
    
    136
    
    
    
    1,232
    
    
    
    2,003
    
    
    
    5,840
  
 Group results
    2009£mGroup revenue
    
    
    21,390Foreign exchange movements
    
    
    (653
    )Acquisitions
    
    
    (521
    )Underlying revenuea
    
    
    20,216
 a
    
    Underlying revenue is a new non-GAAP measure used by the group for the first time in 2009.
This measure is discussed in more detail at the end of this section on page 47.
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mRevenue by productManaged solutions
    
    
    6,365
    
    
    
    5,320
    
    
    
    4,825Broadband and convergence
    
    
    2,637
    
    
    
    2,567
    
    
    
    2,310Calls and lines
    
    
    6,305
    
    
    
    6,818
    
    
    
    7,098Transit, conveyance,
interconnect services, WLR,
global carrier and other
wholesale products
    
    
    3,301
    
    
    
    3,398
    
    
    
    3,452Other
    
    
    2,782
    
    
    
    2,601
    
    
    
    2,538Group total
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 33




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
 Revenue by customer segmentyear
ended 31 March 2009 (%)
 
 
   Customer segment
    
    Source of revenueMajor corporate
    
    BT Global Services major corporate customersBusiness
    
    BT Retails SME customersConsumer
    
    BT Retails consumer customersWholesale/carrier
    
    Openreachs external customers,BT Wholesales external customers andBT Global Services global carrier customers
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mRevenue by customer segmentMajor corporate
    
    
    8,463
    
    
    
    7,573
    
    
    
    7,089Business
    
    
    2,631
    
    
    
    2,590
    
    
    
    2,456Consumer
    
    
    4,850
    
    
    
    5,071
    
    
    
    5,124Wholesale/carrier
    
    
    5,404
    
    
    
    5,442
    
    
    
    5,537Other
    
    
    42
    
    
    
    28
    
    
    
    17Group total
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223
 Major corporate
  Business
  Consumer
   Line of business results
 Contract and financial reviewRevenue
    
    
    Operating profit (loss)a
    
    
    charges and specific items2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mBT Global Services
    
    
    8,828
    
    
    
    7,889
    
    
    
    7,312
    
    
    
    (2,106
    )
    
    
    117
    
    
    
    70
    
    
    
    1,639
    
    
    
    
    
    
    
    BT Retail
    
    
    8,471
    
    
    
    8,477
    
    
    
    8,346
    
    
    
    1,209
    
    
    
    1,050
    
    
    
    912BT Wholesale
    
    
    4,658
    
    
    
    4,959
    
    
    
    5,386
    
    
    
    580
    
    
    
    502
    
    
    
    592Openreach
    
    
    5,231
    
    
    
    5,266
    
    
    
    5,223
    
    
    
    1,218
    
    
    
    1,222
    
    
    
    1,220Other
    
    
    42
    
    
    
    28
    
    
    
    17
    
    
    
    (490
    )
    
    
    (535
    )
    
    
    (253
    )
    
    
    408
    c
    
    
    539
    c
    
    
    172
    cIntra-group
    
    
    (5,840
    )
    
    
    (5,915
    )
    
    
    (6,061
    )Group totals
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223
    
    
    
    411
    
    
    
    2,356
    
    
    
    2,541
    
    
    
    2,047
    
    
    
    539
    
    
    
    172
 a
    
    A reconciliation from total operating profit (loss) to (loss) profit after tax is given on page 32.b
    
    Items presented as adjusted are stated before contract and financial review charges recorded
within BT Global Services and specific items.c
    
    Specific items for all years presented.
 34 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  Wholesale and carrier
      2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mStaff costs before leaver costs
    
    
    5,302
    
    
    
    5,231
    
    
    
    5,076Leaver costs
    
    
    204
    
    
    
    127
    
    
    
    147Staff costs
    
    
    5,506
    
    
    
    5,358
    
    
    
    5,223Own work capitalised
    
    
    (673
    )
    
    
    (724
    )
    
    
    (718
    )Net staff costs
    
    
    4,833
    
    
    
    4,634
    
    
    
    4,505Depreciation
    
    
    2,249
    
    
    
    2,410
    
    
    
    2,536Amortisation
    
    
    641
    
    
    
    479
    
    
    
    384Payments to
telecommunications
operators
    
    
    4,266
    
    
    
    4,237
    
    
    
    4,162Other operating costs
    
    
    8,934
    
    
    
    6,408
    
    
    
    6,159Operating costs before
specific items
    
    
    20,923
    
    
    
    18,168
    
    
    
    17,746Specific items
    
    
    395
    
    
    
    529
    
    
    
    169Operating costs
    
    
    21,318
    
    
    
    18,697
    
    
    
    17,915
  Adjusted
    
    
    Depreciationoperating profit (loss)b
    
    
    and amortisation
    
    
    Adjusted EBITDAb2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m(467
    )
    
    
    117
    
    
    
    70
    
    
    
    776
    
    
    
    744
    
    
    
    665
    
    
    
    309
    
    
    
    861
    
    
    
    735
    
    
    BT Global Services1,209
    
    
    
    1,050
    
    
    
    912
    
    
    
    425
    
    
    
    445
    
    
    
    445
    
    
    
    1,634
    
    
    
    1,495
    
    
    
    1,357
    
    
    BT Retail580
    
    
    
    502
    
    
    
    592
    
    
    
    686
    
    
    
    893
    
    
    
    908
    
    
    
    1,266
    
    
    
    1,395
    
    
    
    1,500
    
    
    BT Wholesale1,218
    
    
    
    1,222
    
    
    
    1,220
    
    
    
    778
    
    
    
    689
    
    
    
    707
    
    
    
    1,996
    
    
    
    1,911
    
    
    
    1,927
    
    
    Openreach(82
    )
    
    
    4
    
    
    
    (81
    )
    
    
    225
    
    
    
    118
    
    
    
    195
    
    
    
    143
    
    
    
    122
    
    
    
    114
    
    
    OtherIntra-group2,458
    
    
    
    2,895
    
    
    
    2,713
    
    
    
    2,890
    
    
    
    2,889
    
    
    
    2,920
    
    
    
    5,348
    
    
    
    5,784
    
    
    
    5,633
    
    
    Group totals
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 35




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
 
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mStaff costsWages and salaries
    
    
    4,499
    
    
    
    4,242
    
    
    
    4,099Social security costs
    
    
    432
    
    
    
    417
    
    
    
    388Pensions costs
    
    
    544
    
    
    
    626
    
    
    
    643Share based payments
    
    
    31
    
    
    
    73
    
    
    
    935,506
    
    
    
    5,358
    
    
    
    5,223
        
 Other group items
 Specific items
  36 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
   2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mOther operating incomeNet loss on sale of group
undertakings
    
    
    13
    
    
    
    10
    
    
    
    5Profit on sale of non current
asset investments
    
    
    
    
    
    
    
    
    
    
    (2
    )13
    
    
    
    10
    
    
    
    3Operating costsBT Global Services
restructuring charges Networks and products
rationalisation
    
    
    183
    
    
    
    
    
    
    
     People and property
    
    
    51
    
    
    
    
    
    
    
     Intangible asset
impairments
    
    
    46
    
    
    
    
    
    
    
    Group restructuring charges
    
    
    65
    
    
    
    402
    
    
    
    21CN asset impairment
and related charges
    
    
    50
    
    
    
    
    
    
    
    Property rationalisation costs
    
    
    
    
    
    
    
    
    
    
    64Creation of Openreach and
delivery of the
Undertakings
    
    
    
    
    
    
    53
    
    
    
    30Write off of circuit
inventory and other
working capital balances
    
    
    
    
    
    
    74
    
    
    
    65Costs associated with
settlement of
open tax years
    
    
    
    
    
    
    
    
    
    
    10395
    
    
    
    529
    
    
    
    169Finance incomeInterest on settlement of
open tax years
    
    
    
    
    
    
    
    
    
    
    (139
    )Associates and joint
venturesReassessment of carrying
value of associate
    
    
    (36
    )
    
    
    
    
    
    
    Profit on sale of associate
    
    
    
    
    
    
    (9
    )
    
    
    (22
    )Net specific items charge
before tax
    
    
    372
    
    
    
    530
    
    
    
    11Tax credit in respect of
settlement of
open tax years
    
    
    
    
    
    
    (40
    )
    
    
    (938
    )Tax credit on
re-measurement of
deferred taxes
    
    
    
    
    
    
    (154
    )
    
    
    Tax credit on specific
items above
    
    
    (43
    )
    
    
    (149
    )
    
    
    (41
    )Net specific items charge
(credit) after tax
    
    
    329
    
    
    
    187
    
    
    
    (968
    )
  4
    
    A loss on disposal of £13m (2008: £10m, 2007: £5m)
arose from the disposal of a business. The £10m and
£5m losses in 2008 and 2007, respectively, relate
principally to the disposal of the groups satellite
broadcast business.
 4
    
    As a result of the BT Global Services operational
review, (described on page 11) the group has
recorded restructuring charges of £280m, with
further costs of around £420m expected to be
recorded over the next two
years, the majority of which will be in 2010. These
charges are expected to result in a net cash outflow
of approximately £260m in 2010 and £50m in 2011. The
main components of the specific item are set out
below.
 
    
    Networks and products rationalisation  as a
result of the rationalisation of the legacy
networks, including the associated systems and
processes, a charge of £183m has been
recognised, representing the difference between
the recoverable amount and the carrying value of
the assets impacted by the rationalisation. In
addition, further dual running and transition
costs of approximately £70m are expected to be
incurred over the next two financial years as
the rationalisation programme is completed.
    
    People and property  a charge of £51m has
been recognised, relating to the costs
associated with the people and property aspects
of the restructuring and rationalisation. The
main components of the charge are leaver costs
and property exit costs. Further people leaver
related costs of approximately £350m are
expected to be incurred over the next two
financial years.
    
    Intangible asset impairment  a charge of £46m
has been recognised, reflecting the costs
associated with rationalising the services that
are offered to customers and the brands under
which customers are served. The charge includes
the write down of brands and other acquired
intangible assets that no longer have an
economic value to the business.
 4
    
    A charge of £65m (2008: £402m, 2007: £nil) was
recognised in respect of restructuring costs
relating to the groups transformation and
reorganisation activities. The costs mainly comprise
leaver costs, property exit and transformation
programme costs.
 4
    
    A charge of £50m was recognised, comprising £31m of
asset impairments and £19m of associated costs,
following the groups review of its 21CN programme
and associated voice strategy in the light of the
move to a customer-led roll out strategy and focus
on next generation voice service developments of
fibre based products.
 4
    
    A credit of £36m was recognised in respect of a
reassessment of the value of our share of the net
assets of an associated undertaking.
 4
    
    A tax credit of £43m (2008: £149m, 2007: £41m)
arose on specific items.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 37




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  
  4
    
    A £64m charge in 2007 incurred in respect of
property rationalisation costs.
 4
    
    Charges of £53m in 2008 and £30m in 2007, were
recognised in relation to further estimated costs
required to create Openreach and deliver the
Undertakings agreed with Ofcom, particularly with
regard to the introduction of equivalence of input
systems.4
    
    Charges of £74m in 2008 and £65m in 2007 were
recognised as a result of the completion of a review
of circuit inventory and other working capital
balances.4
    
    Profit on the sale of associates of £9m in 2008 and
£22m in 2007. In 2008, the £9m profit arose from
the receipt of contingent consideration from the
disposal of the groups interest in e-peopleserve.
In 2007, the £22m profit arose from the disposal of
6% of the groups equity interest in the associate
Tech Mahindra Limited.4
    
    In 2008, the group agreed an outstanding tax matter
relating to a business disposed of in 2001, the
impact of which was a tax credit of £40m, and this
closed all open items in relation to the settlement
reached in 2007. In 2007, the group agreed the
settlement of substantially all open UK tax matters
relating to ten tax years up to and including 2004/05
with HM Revenue and Customs (HMRC). In 2007, the
total impact of the settlement was a net credit of
£1,067m, comprising a tax credit of £938m
representing those elements of the tax charges
previously recognised which were in excess of the
final agreed liability, interest income of £139m and
operating costs of £10m, representing the costs
associated with reaching this agreement. A tax credit
of £154m was also recognised in 2008 for the
re-measurement of deferred tax balances as a result of
the change in the UK statutory corporation tax rate
from 30% to 28%, effective in 2009.
 Net finance expense
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mInterest on borrowings
    
    
    935
    
    
    
    822
    
    
    
    728Loss arising on derivatives
not in a designated
hedge relationship
    
    
    29
    
    
    
    41
    
    
    
    4Interest on pension
scheme liabilities
    
    
    2,308
    
    
    
    2,028
    
    
    
    1,872Total finance expense
    
    
    3,272
    
    
    
    2,891
    
    
    
    2,604Income from listed
investments
    
    
    
    
    
    
    
    
    
    
    (7
    )Other interest and
similar income
    
    
    (31
    )
    
    
    (65
    )
    
    
    (72
    )Expected return on pension
scheme assets
    
    
    (2,621
    )
    
    
    (2,448
    )
    
    
    (2,292
    )Total finance income
    
    
    (2,652
    )
    
    
    (2,513
    )
    
    
    (2,371
    )Analysed as:Net finance expense before
specific items and pensions
    
    
    933
    
    
    
    798
    
    
    
    653Interest associated with
pensions
    
    
    (313
    )
    
    
    (420
    )
    
    
    (420
    )Net finance expense before
specific items
    
    
    620
    
    
    
    378
    
    
    
    233Specific items
    
    
    
    
    
    
    
    
    
    
    (139
    )Net finance expense
    
    
    620
    
    
    
    378
    
    
    
    94
   38 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  6.5p
 full year proposed dividend
  
   Associates and joint ventures
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mShare of post tax profit (loss)
of associates and
joint ventures
    
    
    39
    
    
    
    (11
    )
    
    
    15
  Profit before taxation
   Taxation
   Earnings per share
  2009
    
    
    2008
    
    
    2007pence
    
    
    pence
    
    
    penceAdjusted basic earnings
per sharea
    
    
    18.4
    
    
    
    23.9
    
    
    
    22.7Contract and financial review
charges and specific items
    
    
    (19.5
    )
    
    
    (2.4
    )
    
    
    11.7Reported basic (loss)
earnings per share
    
    
    (1.1
    )
    
    
    21.5
    
    
    
    34.4
 a
    
    Adjusted amounts refer to the amounts
before contract and financial review charges
recorded within BT Global Services and specific
items.
  Dividends
   Financing
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 39




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  
 
 Cash flow
 Summarised cash flow statement
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mCash generated from
operations
    
    
    4,934
    
    
    
    5,187
    
    
    
    5,245Net income taxes
(paid) repaid
    
    
    (228
    )
    
    
    299
    
    
    
    (35
    )Net cash inflow from
operating activities
    
    
    4,706
    
    
    
    5,486
    
    
    
    5,210Net purchase of property,
plant, equipment and
software
    
    
    (3,038
    )
    
    
    (3,253
    )
    
    
    (3,209
    )Net acquisition of
subsidiaries, associates,
joint ventures and
group undertakings
    
    
    (227
    )
    
    
    (364
    )
    
    
    (237
    )Net sale (purchase) of
current and non current
financial assets
    
    
    286
    
    
    
    (160
    )
    
    
    515Dividends received from
associates and joint
ventures
    
    
    6
    
    
    
    2
    
    
    
    6Interest received
    
    
    19
    
    
    
    111
    
    
    
    147Net cash used in
investing activities
    
    
    (2,954
    )
    
    
    (3,664
    )
    
    
    (2,778
    )Net drawdown (repayment)
of borrowings
    
    
    522
    
    
    
    2,061
    
    
    
    (765
    )Equity dividends paid
    
    
    (1,222
    )
    
    
    (1,236
    )
    
    
    (1,057
    )Net repurchase of shares
    
    
    (209
    )
    
    
    (1,413
    )
    
    
    (279
    )Interest paid
    
    
    (956
    )
    
    
    (842
    )
    
    
    (797
    )Net cash used in financing
activities
    
    
    (1,865
    )
    
    
    (1,430
    )
    
    
    (2,898
    )Effect of exchange rates on
cash and cash equivalents
    
    
    54
    
    
    
    25
    
    
    
    (35
    )Net (decrease) increase
in cash and cash
equivalents
    
    
    (59
    )
    
    
    417
    
    
    
    (501
    )Increase in net debt
resulting from cash flows
    
    
    (921
    )
    
    
    (1,510
    )
    
    
    (219
    )
        40 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
   Free cash flow
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mNet cash inflow from
operating activities
    
    
    4,706
    
    
    
    5,486
    
    
    
    5,210Net purchase of property,
plant equipment and
software
    
    
    (3,038
    )
    
    
    (3,253
    )
    
    
    (3,209
    )Net purchase of non current
financial assets
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )Dividends from associates
and joint ventures
    
    
    6
    
    
    
    2
    
    
    
    6Interest received
    
    
    19
    
    
    
    111
    
    
    
    147Interest paid
    
    
    (956
    )
    
    
    (842
    )
    
    
    (797
    )Free cash flow
    
    
    737
    
    
    
    1,503
    
    
    
    1,354
    
 Balance
sheet
 Summarised balance sheet
 2009
    
    
    2008£m
    
    
    £mNon
current assetsIntangible assets
    
    
    3,788
    
    
    
    3,355Property, plant and equipment
    
    
    15,405
    
    
    
    15,307Retirement benefit asset
    
    
    
    
    
    
    2,887Trade and other receivables
    
    
    322
    
    
    
    854Other non current assets
    
    
    3,746
    
    
    
    42623,261
    
    
    
    22,829Current
assetsTrade and other receivables
    
    
    4,185
    
    
    
    4,449Cash and cash equivalents
    
    
    1,300
    
    
    
    1,435Other current assets
    
    
    528
    
    
    
    6396,013
    
    
    
    6,523Current
liabilitiesLoans and other borrowings
    
    
    1,542
    
    
    
    1,524Trade and other payables
    
    
    7,215
    
    
    
    7,591Other current liabilities
    
    
    595
    
    
    
    5899,352
    
    
    
    9,704Total assets less current liabilities
    
    
    19,922
    
    
    
    19,648Non
current liabilitiesLoans and other borrowings
    
    
    12,365
    
    
    
    9,818Deferred tax liabilities
    
    
    1,728
    
    
    
    2,513Retirement benefit obligations
    
    
    3,973
    
    
    
    108Other non current liabilities
    
    
    1,687
    
    
    
    1,77719,753
    
    
    
    14,216EquityOrdinary shares and share premium
    
    
    470
    
    
    
    482Retained (loss) earnings
    
    
    (328
    )
    
    
    4,927142
    
    
    
    5,409Minority interest
    
    
    27
    
    
    
    23Total equity
    
    
    169
    
    
    
    5,43219,922
    
    
    
    19,648
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 41




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  
   Capital expenditure
   Acquisitions
       Return on capital employed
  Pensions
    42 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
   Capital management
   2009
    
    
    2008£m
    
    
    £mTotal parent shareholders (deficit) equity(excluding cash flow reserve)
    
    
    (421
    )
    
    
    5,252Net debt (see note 10)
    
    
    10,361
    
    
    
    9,460Undrawn committed facilities(see note 33)
    
    
    2,300
    
    
    
    2,33512,240
    
    
    
    17,047
      Capital resources
 (IMAGE)
   BT GROUP PLCANNUAL REPORT & FORM 20-F 43




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  
    Payments due by periodLess
    
    
    Between
    
    
    Between
    
    
    Morethan 1
    
    
    1 and 3
    
    
    3 and 5
    
    
    than 5Contractual obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsand commitments
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLoans and other borrowingsa
    
    
    13,573
    
    
    
    1,528
    
    
    
    3,066
    
    
    
    1,819
    
    
    
    7,160Finance lease obligations
    
    
    332
    
    
    
    14
    
    
    
    42
    
    
    
    24
    
    
    
    252Operating lease obligations
    
    
    8,004
    
    
    
    484
    
    
    
    885
    
    
    
    780
    
    
    
    5,855Pension deficiency obligations
    
    
    2,695
    
    
    
    525
    
    
    
    1,050
    
    
    
    560
    
    
    
    560Capital commitments
    
    
    451
    
    
    
    380
    
    
    
    62
    
    
    
    6
    
    
    
    3Total
    
    
    25,055
    
    
    
    2,931
    
    
    
    5,105
    
    
    
    3,189
    
    
    
    13,830
 a
    
    Excludes fair value adjustments for hedged risks.
   Off-balance sheet arrangements
  
 
 Taxation
             44 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
   Financial risk management
     Foreign exchange risk management
   Interest rate risk management
 (IMAGE)
   BT GROUP PLCANNUAL REPORT & FORM 20-F 45




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  
 Credit risk management
   Impact of 100basis pointincrease£mMoodys/S&P credit ratingAa2/AA
    
    
    (18
    )Aa3/AA
    
    
    (21
    )A1/A+
    
    
    (92
    )A2/A
    
    
    (146
    )A3/A
    
    
    (277
    )
  Liquidity risk management
   
 46 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
   Price risk management
   
 Critical accounting policies
   
 Alternative performance measures
   EBITDA
   Results before specific items
  Underlying revenue and operating costs
 (IMAGE)
   BT GROUP PLCANNUAL REPORT & FORM 20-F 47




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##### Table of Contents



BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
  
  Adjusted performance measures
  Free cash flow
  Net debt
    48 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT OF THE DIRECTORS
  50 BOARD OF DIRECTORS AND OPERATING
COMMITTEE50 Board of Directors50 Executive directors50 Non-executive directors51 Operating Committee52 THE BOARD52 Introduction52 Directors52 Governance and role of the Board53 BTs non-executive directors53 Main Board committees53 New York Stock Exchange54 REPORT OF THE AUDIT
COMMITTEE54 Introduction54 Committee role54 Committee activities56 REPORT OF THE NOMINATING
COMMITTEE56 Introduction56 Committee role and activities56 Board evaluation56 REPORT OF THE COMMITTEE FOR RESPONSIBLE AND
SUSTAINABLE BUSINESS56 Introduction56 Committee role56 Committee activities57 REPORT ON DIRECTORS
REMUNERATION57 Remuneration policy (not audited)64 Remuneration review (audited)70 DIRECTORS INFORMATION70 Election and re-election70 Meetings attendance70 Service agreements70 Training and information70 Independent advice70 Directors and officers liability
insurance and indemnity70 Interest of management in certain
transactions71 BUSINESS POLICIES71 Responsible business71 Political donations71 Pension funds71 Payment of suppliers71 Financial statements71 Takeover Directive disclosure72 Financial instruments72 Internal control and risk
management73 US Sarbanes-Oxley Act of 200273 Disclosure controls and procedures73 Internal control over financial
reporting74 SHAREHOLDERS AND ANNUAL GENERAL
MEETING74 Relations with shareholders74 Substantial shareholdings74 AGM resolutions74
Authority to purchase shares
 BT GROUP PLCANNUAL REPORT & FORM 20-F 49




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 BOARD OF DIRECTORS AND OPERATING COMMITTEE
  
  
 Nominating
Committee Committee for Responsible and Sustainable Business Remuneration Committee Pension Scheme Performance Review Group
   
  
  
  
  
  
  
 Remuneration Committee Pension Scheme Performance
Review Group
   
   50 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT OF THE DIRECTORSBOARD OF DIRECTORS AND OPERATING COMMITTEE
   Audit Committee
  
   
 Equality of Access Board
  
  
 
 Operating Committee
 
 Key to membership of Board committees:  a  b  c  d  e  f  g
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 51




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 THE BOARD
 
 Introduction
   Business review, Other matters and Financial review
  
 Directors
 Board of
Directors and Operating Committee
  
 Former directors
    
    Date of changeBen Verwaayen
    
    30 June 2008François Barrault
    
    30 October 2008
 
 New directorsTony Chanmugam
    
    1 December 2008Eric Daniels
    
    1 April 2008Gavin Patterson
    
    1 June 2008
  
 Governance and role of the Board
   4
    
    values;4
    
    business practice policies;4
    
    strategic plans;4
    
    annual budget;4
    
    capital expenditure and investments budgets; larger capital expenditure proposals; and4
    
    the overall system of internal controls, governance and compliance authorities.
 www.bt.com/board Operating Committee
  Nominating Committee Nominating Committee Board of Directors and Operating Committee
  52 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT
OF THE DIRECTORS THE BOARD
   BTs non-executive directors
 Nominating Committee
  Remuneration Committee
  
 Main Board committees
 Operating Committee Operating Committee
 Audit Committee Remuneration Committee Nominating
Committee Report of the Audit Committee Report of the Nominating Committee Report on directors remuneration Report of the Committee for Responsible and Sustainable
Business Equality of Access Board
 Pension Scheme Performance Review Group
 
 New York Stock Exchange
  Nominating
Committee Nominating Committee
 Audit
Committee Audit Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 53




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT OF THE AUDIT COMMITTEE
  
 Introduction
 Audit Committee
 Audit Committee
 Audit Committee
 
 Committee role
 www.bt.com/committees
  Audit
Committee Notes to the consolidated financial
statements
 Audit Committee
  Audit Committee
   
 Committee activities
  Audit Committee
  4
    
    the effectiveness of internal control procedures;4
    
    the annual financial statements, full year results announcement, and related formal statements;4
    
    the basis of accounting for long term contracts;4
    
    BT Global Services major contracts review;4
    
    annual review of security, business continuity and fraud;4
    
    annual report on the performance of the Internal Audit and Regulatory Compliance functions;4
    
    annual update on whistleblowing.
 54 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT OF THE AUDIT
COMMITTEE
  July:4
    
    non-audit services governance policy;4
    
    Audit Committee and External Audit effectiveness;4
    
    first quarter results, announcement and related formal statements;4
    
    BT Global Services major contracts review;4
    
    pension accounting assumptions;4
    
    management of corporate fraud risks.
 October:4
    
    review and approval of trading update.
 November:4
    
    review of fees for audit and non-audit work;4
    
    half year results, announcement and related formal statements;4
    
    BT Global Services major contracts review;4
    
    review of global assurance capabilities;4
    
    half year report on the performance of Internal Audit and Regulatory Compliance;4
    
    review of internal control requirements under Sarbanes-Oxley and the Combined Code for the 2009 financial year;4
    
    review of regulatory developments;4
    
    external audit plan.
 January:4
    
    review and approval of trading update.
 February:4
    
    third quarter results, announcement and related formal statements;4
    
    BT Global Services major contracts review;4
    
    trends on auditing and accounting issues in overseas operations;4
    
    annual review of accounting policies;4
    
    the process for post investment reviews;4
    
    review of the operation of Sarbanes-Oxley S404 processes;4
    
    the Internal Audit Plan for the 2010 financial year.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 55




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT OF THE NOMINATING COMMITTEE
  
 Introduction
 Nominating Committee
 
 Committee role and activities
 www.bt.com/committees Nominating Committee
    Nominating Committee
 
 Board evaluation
 Nominating Committee
 Nominating Committee Remuneration Committee
 Audit Committee Report of the Audit Committee
 
 Report of the Committee for Responsible and Sustainable Business
 Introduction
 Committee for Responsible and Sustainable Business
 
 Committee role
  
 Committee activities
  56 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT OF THE DIRECTORS
 
 REPORT ON DIRECTORS REMUNERATION
   4
    
    Remuneration policy (not audited)
 (i)
    
    Role of the Remuneration Committee(ii)
    
    Remuneration principles(iii)
    
    Remuneration in 2008/09 and 2009/10(iv)
    
    Other mattersExecutive share ownershipPensionsOther benefitsDirectors who have left the BoardService agreementsOutside appointmentsNon-executive directors letters of appointmentNon-executive directors remunerationDirectors service agreements and contracts of appointmentDirectors interestsPerformance graph
 4
    
    Remuneration review (audited)
 Directors emolumentsFormer directorsLoansPensionsShare optionsShare awards under long-term incentive plansVesting of outstanding share awards and optionsDeferred Bonus Plan awardsShare awards under the Employee Share Investment Plan and Allshare International
 
 Remuneration policy
 This part of the Report on directors remuneration is not subject to audit.
 Shareholders will be asked to vote on this Report at the 2009 AGM.
  Remuneration Committee
  www.bt.com/committees
  4
    
    Sir Michael Rake4
    
    Matti Alahuhta4
    
    Eric Daniels (appointed 8 May 2008)4
    
    Deborah Lathen4
    
    Carl Symon
        Committee for Responsible and Sustainable Business
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 57




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
    2009/10changes agreed
    
    2009/102008/09
    
    by shareholders
    
    ActualBase salary
    
    increases to align with the market
    
    increases to align with the market
    
    no increasesAnnual bonusChief ExecutiveExecutive directors
    
    target 100% salary
maximum 200% salarytarget 80% salary
maximum 120% salary
    
    target 125% salary
maximum 200% salarytarget 100% salary
maximum 150% salary
    üýþ
    no increases applied
no change to2008/09 levelsDeferred bonus (in shares)Chief Executive
    
    1x cash bonus
    
    1x cash bonus
    
    no changeExecutive directors
    
    75% of cash bonus
    
    75% of cash bonus
    
    no changeIncentive sharesChief Executive
    
    3x salary
    
    3x salary
    
    no changeExecutive directors
    
    2.5x salary
    
    2.5x salary
    
    no changeRetention shares
    
    none
    
    no change
    
    noneShare options
    
    none
    
    no change
    
    none
  Remuneration in 2008/09
     Earnings per
    
    Free cash
    
    Customershare
    
    flow
    
    service0%
    
    0%
    
    24.4%
   Operating Committee
  Remuneration in 2009/10
 Remuneration Committee
       58 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
   Fixedbase pay
    
    Variable
    
    TotalIan
Livingston2009/10 target
    
    
    24
    %
    
    
    76
    %
    
    
    100
    %compositiona2008/09 actual
    
    
    58
    %
    
    
    42
    %
    
    
    100
    %compositionbTony
Chanmugam2009/10 target
    
    
    29
    %
    
    
    71
    %
    
    
    100
    %compositiona2008/09 actual
    
    
    65
    %
    
    
    35
    %
    
    
    100
    %compositionbHanif
Lalani2009/10 target
    
    
    29
    %
    
    
    71
    %
    
    
    100
    %compositiona2008/09 actual
    
    
    76
    %
    
    
    24
    %
    
    
    100
    %compositionbGavin
Patterson2009/10 target
    
    
    29
    %
    
    
    71
    %
    
    
    100
    %compositiona2008/09 actual
    
    
    62
    %
    
    
    38
    %
    
    
    100
    %compositionb
 a
    
    Target remuneration comprises current base salary, on-target annual bonus and the
expected value of awards under the deferred bonus and incentive share plans, excluding retention
shares.b
    
    Actual remuneration comprises base salary, actual cash bonus and the value received
from deferred shares and incentive shares (awards granted in 2005 and vested in 2008) during the
financial year.
 Long-term incentives
      BT Group
    
    SwisscomBelgacom
    
    Telecom ItaliaCegetel
    
    Telecom Italia RNCDeutsche Telekom
    
    TelefonicaFrance Telecom
    
    Telekom AustriaHellenic Telecom
    
    TelenorPortugal Telecom
    
    TeliaSoneraRoyal KPN
    
    Vodafone Group
    Remuneration Committee
 Accenture
    
    National GridAT & T
    
    Portugal TelecomBelgacom
    
    Royal KPNBSkyB
    
    SwisscomBT Group
    
    Telecom ItaliaCable & Wireless
    
    TelefonicaCap Gemini
    
    Telekom AustriaCarphone Warehouse
    
    TelenorCentrica
    
    TeliaSoneraDeutsche Telecom
    
    VerizonFrance Telecom
    
    Virgin MediaHellenic Telecom
    
    VodafoneIBM
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 59




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
                            Executive share ownership
   Pensions
   60 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
   Other benefits
  Directors who have left the Board
       Service agreements
  Outside appointments
  Non-executive directors letters of appointment
 Governance and role of the
Board
 Non-executive directors remuneration
   Audit Committee Remuneration
Committee Remuneration Committee Pension Scheme Performance Review Group Equality of Access Board
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 61




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
    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 Livingstona
T ChanmugamH Lalani
G Patterson
    
    26 September 20071 June 20081 December 2008
7 February 20051 June 2008
    üýþ
    The contract is terminable by the company on 12 months notice and by the director on six months notice.Non-executive directorsM van den Bergh
    
    1 September 2000
    
    Letter of appointment was for an initial period of three years. The appointment was extended for three
years in 2003 and extended for a further three years in 2006. The appointment is terminable by the
company or the director on three months notice. The appointment will terminate at the conclusion of the
Annual General Meeting on 15 July 2009.C 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 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 extended for a further three years in 2008. The appointment is terminable by the
company or the director on three months notice.M Alahuhta
    
    1 February 2006
    
    Letter of appointment was for an initial period of three years. The appointment was extended for three
months in February 2009. The appointment will terminate on 31 May 2009.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.D Lathen
    
    1 February 2007
    üýþ
    Letters of appointment are for an initial period of three years and are terminable by the company or the
director on three months notice. The appointment is renewable by mutual agreement.J E Daniels
    
    1 April 2008P Hewitt
    
    24 March 2008Former directorsB Verwaayen
    
    14 January 2002
    
    The contract was terminable by the company on 12 months notice and by the director on six months
notice. The contract terminated on 30 June 2008.F Barraultb
    
    24 April 2007
    
    The contract was terminable by the company on 12 months notice and by the director on six months
notice. Terminated on 30 October 2008.
 a
    
    Ian Livingston entered into a new contract when he became Chief Executive on 1
June 2008. His previous contract commenced on 8 April 2002.b
    
    François Barrault also had a management agreement, dated 26 April 2004, which he
entered into when he was appointed President, BT International. This agreement was terminable by
the company on 12 months notice and by the director on six months notice. Terminated on 30
November 2008.
  62 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON
DIRECTORS REMUNERATION
   Directors interests
  No. of sharesBeneficial holdings:
    
    2009
    
    
    2008Sir Michael Rakea,d
    
    
    102,056
    
    
    
    19,284I Livingstona,d
    
    
    759,108
    
    
    
    528,459T Chanmugama,b,d
    
    
    49,249
    
    
    
    49,249H Lalania,d
    
    
    191,017
    
    
    
    80,640G Pattersona,c,d
    
    
    252,769
    
    
    
    233,408M Alahuhta
    
    
    20,000
    
    
    
    20,000M van den Bergh
    
    
    13,621
    
    
    
    13,621C Brendish
    
    
    36,920
    
    
    
    30,920J E Danielse
    
    
    12,647
    
    
    
    P Hewittf
    
    
    6,534
    
    
    
    P Hodkinson
    
    
    9,261
    
    
    
    9,261D Lathen
    
    
    2,250
    
    
    
    2,250C G Symon
    
    
    20,056
    
    
    
    15,069Total
    
    
    1,475,488
    
    
    
    1,002,161
 a
    
    At 31 March 2009, Sir Michael Rake and each of the executive directors, as
potential beneficiaries, had a non-beneficial interest in 9,342,130 shares (2008: 10,131,478) held
in trust by Ilford Trustees (Jersey) Limited for allocation to employees under the employee share
plans. They each also had a non-beneficial interest in 76,891 shares (2008: 31,898) held in trust
by Halifax Corporate Trustees Limited for participants in the BT Group Employee Share Investment
Plan.b
    
    Tony Chanmugam was appointed as a director on 1 December 2008.c
    
    Gavin Patterson was appointed as a director on 1 June 2008.d
    
    Includes  shares awarded under the BT Group Employee Share Investment Plan.e
    
    Eric Daniels was appointed as a director on 1 April 2008.f
    
    Patricia Hewitt was appointed as a director on 24 March 2008.During the period from 1
April 2009 to 8 May 2009, there were no movements in directors beneficial holdings.
  Performance graph
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 63




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON
DIRECTORS REMUNERATION
  
 Remuneration review
 This part of the Report on directors remuneration is subject to audit.
 Directors emoluments
  Pension
    
    
    
    
    
    
    Annualallowance
    
    
    
    
    
    
    bonus
    
    
    
    
    
    
    OtherBasic
    
    
    net
    
    
    
    
    
    
    (to be
    
    
    
    
    
    
    benefitssalary and
    
    
    of pension
    
    
    Total salary
    
    
    converted
    
    
    Expenses
    
    
    excluding
    
    
    Total
    
    
    Total
    
    
    Deferred
    
    
    Bonus Planbfees
    
    
    contributionsa
    
    
    and fees
    
    
    to sharesp)
    
    
    allowance
    
    
    pension
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000Sir Michael Rakec,d
    
    
    600
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    630
    
    
    
    328
    
    
    
    
    
    
    
    I Livingstond,e,f
    
    
    802
    
    
    
    6
    
    
    
    808
    
    
    
    343
    
    
    
    8
    
    
    
    15
    
    
    
    1,174
    
    
    
    1,018
    
    
    
    343
    
    
    
    404T Chanmugamd,e,f,h,i
    
    
    158
    
    
    
    
    
    
    
    158
    
    
    
    103
    
    
    
    6
    
    
    
    8
    
    
    
    275
    
    
    
    
    
    
    
    77
    
    
    
    H Lalanid,f,g
    
    
    574
    
    
    
    172
    
    
    
    746
    
    
    
    
    
    
    
    7
    
    
    
    52
    
    
    
    805
    
    
    
    1,076
    
    
    
    
    
    
    
    281G Pattersond,e,f,j
    
    
    417
    
    
    
    85
    
    
    
    502
    
    
    
    162
    
    
    
    15
    
    
    
    19
    
    
    
    698
    
    
    
    
    
    
    
    121
    
    
    
    M van den Bergh
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    128
    
    
    
    
    
    
    
    M Alahuhta
    
    
    70
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    51
    
    
    
    
    
    
    
    C Brendish
    
    
    80
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    56
    
    
    
    
    
    
    
    J E Danielsk
    
    
    74
    
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    P Hewittl
    
    
    75
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    1
    
    
    
    
    
    
    
    P Hodkinson
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    69
    
    
    
    
    
    
    
    D Lathenm
    
    
    75
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    55
    
    
    
    
    
    
    
    C G Symon
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    128
    
    
    
    
    
    
    
    F Barraultd,n
    
    
    441
    
    
    
    132
    
    
    
    573
    
    
    
    
    
    
    
    
    
    
    
    684
    
    
    
    1,257
    
    
    
    1,263
    
    
    
    
    
    
    
    312B Verwaayend,p
    
    
    200
    
    
    
    51
    
    
    
    251
    
    
    
    300
    
    
    
    
    
    
    
    26
    
    
    
    577
    
    
    
    1,816
    
    
    
    
    
    
    
    1,534Sir Christopher Blandr
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270
    
    
    
    
    
    
    
    A Greens
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    P Reynoldst
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    686
    
    
    
    
    
    
    
    Baroness Jayu
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    42
    
    
    
    
    
    
    
    J F Nelsonv
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    3,973
    
    
    
    446
    
    
    
    4,419
    
    
    
    908
    
    
    
    36
    
    
    
    834
    
    
    
    6,197
    
    
    
    7,677
    
    
    
    
    
    
    
    Termination paymentsF Barraulto
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,599B Verwaayenq
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7008,496
 a
    
    Pension allowance paid in cash for the financial year 2008/09  see Pensions below.b
    
    Deferred annual bonuses payable in shares in three years time, subject to continued employment.c
    
    Sir Michael Rake was appointed as Chairman and a director on 26 September 2007.d
    
    Other benefits include some or all of the following: company car, fuel or driver,
personal telecommunications facilities and home security, medical and dental cover for the director
and immediate family, special life cover, professional subscriptions, personal tax planning, and
financial counselling.e
    
    Directors will use their cash bonus to purchase BT shares.f
    
    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.g
    
    Hanif Lalani advised the Remuneration Committee that he did not wish to be considered for a bonus for 2008/09.h
    
    Tony Chanmugam was appointed as a director on 1 December 2008.i
    
    Tony Chanmugam was granted a retention cash award in early 2008 under which he will receive payment of £315,000 in March 2010.j
    
    Gavin Patterson was appointed as a director on 1 June 2008.k
    
    Eric Daniels was appointed as a director on 1 April 2008.l
    
    Patricia Hewitt was appointed as a director on 24 March 2008.m
    
    Deborah Lathen was appointed as a director on 1 February 2007.n
    
    François Barrault resigned as a director on 30 October 2008 and left the company on 30
November 2008. His additional expatriate benefits included housing allowance, school fees,
international tax preparation and equalisation, social club and representation allowance. He also
received a payment of 700,000 (£554,150) in June 2008 arising from a retention award prior to
his appointment to the Board. A further payment of £176,358 was made on behalf of François Barrault
to the relevant authorities in respect of tax equalisation. This did not constitute monies paid to,
or received by, François Barrault, but represented amounts paid to equalise his tax to his home
country level.o
    
    François Barrault received a termination payment of 1,933,435 (£1,598,805) in accordance with
the terms of his contract. This consisted of the equivalent of 12 months salary and benefits as
defined in the contract. Total remuneration and payments to François Barrault in 2008/09 amounted
to £2,855,805.p
    
    Ben Verwaayen retired as a director on 30 June 2008. He received a bonus of £300,000
for his contribution in 2008/09 prior to leaving the Board. The bonus was paid in cash and will not
be converted to shares.q
    
    Ben Verwaayen received a termination payment of £700,000 in accordance with the terms
of his contract. Total remuneration and payments to Ben Verwaayen in 2008/09 amounted to
£1,277,000.r
    
    Sir Christopher Bland retired as a director on 30 September 2007.s
    
    Andy Green resigned as a director on 12 November 2007 and left the company on 31 December 2007.t
    
    Paul Reynolds resigned as a director on 14 September 2007.u
    
    Baroness Jay retired as a director on 13 January 2008 but continues as a member of the
Committee for Responsible and Sustainable Business for which she receives an annual fee of £6,500.v
    
    John Nelson retired as a director on 13 January 2008.
 64 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON
DIRECTORS REMUNERATION
   Former directors
  Committee for Responsible and Sustainable Business
 Loans
  Pensions
         Increases in pension benefits at 31 March 2009
 Transfervalue ofincreaseChange
    
    
    
    
    
    
    in accruedin transfer
    
    
    Additional
    
    
    benefits invalue c-d
    
    
    accrued benefits
    
    
    e lessless directors
    
    
    earned in
    
    
    directorsAccrued pension
    
    
    Transfer value of accrued benefits
    
    
    contributions
    
    
    the year
    
    
    contributions2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009£000a
    
    
    £000b
    
    
    £000c
    
    
    £000d
    
    
    £000
    
    
    £000e
    
    
    £000fT Chanmugamg,h
    
    
    140
    
    
    
    112
    
    
    
    2,419
    
    
    
    1,754
    
    
    
    655
    
    
    
    28
    
    
    
    475H Lalanig
    
    
    161
    
    
    
    143
    
    
    
    1,742
    
    
    
    1,775
    
    
    
    (33
    )
    
    
    18
    
    
    
    195A Greeng,i
    
    
    
    
    
    
    179
    
    
    
    
    
    
    
    3,407
    
    
    
    
    
    
    
    
    
    
    
    P Reynoldsg,i
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    2,410
    
    
    
    
    
    
    
    
    
    
    
    
 a-d
    
    As required by the Companies Act 1985 Schedule 7A.a-b
    
    The values for Hanif Lalani represent the deferred pension to which he would have
been entitled had he left the company on 31 March 2009 and 2008, respectively. For Tony Chanmugam,
the amounts represent the deferred pension at 1 December 2008 and 31 March 2009. For Andy Green and
Paul Reynolds, the amounts represent the deferred pension at 31 March 2008 if they had left the
company on that date.c
    
    Transfer value of the deferred pension in column (a) as at 31 March 2009 calculated on
the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer value
represents a liability of the BT Pension Scheme 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 2008 on the assumption
that the director left service at that date or the actual leaving service date, as appropriate.e
    
    The increase in pension built up during the year, net of inflation. The gross amount
can be calculated by deducting the amount under column (b) from the amount under column (a).f
    
    The transfer value of the pension in column (e), less directors contributions.g
    
    Directors contributions in the financial year 2008/09 were as follows: Hanif Lalani
£nil (2008: £nil); Andy Green, £nil (2008: £23,200); Tony Chanmugam, £9,500 (2008: £) and Paul
Reynolds £nil (2008: £nil).h
    
    Tony Chanmugam was appointed as a director on 1 December 2008.i
    
    Paul Reynolds resigned as a director on 14 September 2007 and Andy Green left the
company on 31 December 2007.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 65




---



##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON
DIRECTORS REMUNERATION
  Share options held at 31 March 2009, or date of appointment if later
 No. of shares under option1 April 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Usual dateor date of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    Option price
    
    
    from which
    
    
    Usual expiryappointment if later
    
    
    Granted
    
    
    Lapsed
    
    
    Exercised
    
    
    2009
    
    
    per share
    
    
    exercisable
    
    
    dateSir Michael Rake
    
    
    
    
    
    
    8,797
    c
    
    
    8,797
    
    
    
    
    
    
    
    
    
    
    
    185p
    
    
    
    14/08/2013
    
    
    
    13/02/2014
    
    
    
    7,560
    d
    
    
    7,560
    
    
    
    
    
    
    
    
    
    
    
    124p
    
    
    
    01/03/2012
    
    
    
    31/08/2012I Livingston
    
    
    6,250
    e
    
    
    
    
    
    
    6,250
    
    
    
    
    
    
    
    
    
    
    
    262p
    
    
    
    14/08/2012
    
    
    
    13/02/2013
    
    
    
    14,594
    d
    
    
    14,594
    
    
    
    
    
    
    
    
    
    
    
    111p
    
    
    
    01/03/2014
    
    
    
    31/08/2014T Chanmugama
    
    
    37,384
    f
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,384
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/2014H Lalani
    
    
    90,625
    f
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,625
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/20148,994
    g
    
    
    
    
    
    
    8,994
    
    
    
    
    
    
    
    
    
    
    
    179p
    
    
    
    14/08/2011
    
    
    
    13/02/2012105,264
    h
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,264
    
    
    
    199.5p
    
    
    
    24/06/2004
    
    
    
    24/06/2013
    
    
    
    7,560
    d
    
    
    7,560
    
    
    
    
    
    
    
    
    
    
    
    124p
    
    
    
    01/03/2012
    
    
    
    31/08/2012G Pattersonb
    
    
    11,198
    i
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,198
    
    
    
    146p
    
    
    
    14/08/2009
    
    
    
    13/02/201098,178
    f
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,178
    
    
    
    192p
    
    
    
    24/06/2007
    
    
    
    24/06/2014Former directorsF Barrault
    
    
    362,500
    j
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,500
    
    
    
    180p
    
    
    
    21/05/2007
    
    
    
    21/05/20143,606
    k
    
    
    
    
    
    
    3,606
    
    
    
    
    
    
    
    
    
    
    
    262p
    
    
    
    14/08/2010
    
    
    
    13/02/2011Total
    
    
    723,999
    
    
    
    38,511
    
    
    
    57,361
    
    
    
    
    
    
    
    705,149
  a
    
    Tony Chanmugam was appointed as a director on 1 December 2008.b
    
    Gavin Patterson was appointed as a director on 1 June 2008.c
    
    Option granted on 19 June 2008 under the Employee Sharesave Scheme, in which all employees of the company are entitled to participate. Sir Michael Rake cancelled the option, which was under water, on 13 January 2009.d
    
    Options granted on 13 January 2009 under the Employee Sharesave Scheme, in which all
employees of the company are entitled to participate. Sir Michael Rake, Ian Livingston and Hanif
Lalani cancelled the options, which were under water, in March 2009.e
    
    Option granted on 26 June 2007 under the Employee Sharesave Scheme, in which all
employees of the company are entitled to participate. Ian Livingston cancelled the option, which
was under water, on 13 January 2009.f
    
    Options granted under the GSOP on 24 June 2004. The exercise of options was subject to
a performance measure being met. The performance measure was relative TSR compared with a group of
20 companies from the European Telecom Sector as at 1 April 2004. BTs TSR had to be in the upper
quartile for all the options to become exercisable. At median 30% of the options would be
exercisable. Below that point none of the options could be exercised. The three-year performance
period ended on 31 March 2007. At that date, the company was at 8th position against the comparator
group and as a result, 42% of the options lapsed and 58% of each option became exercisable on 24
June 2007.g
    
    Option granted on 23 June 2006 under the Employee Sharesave Scheme, in which all employees of the company are eligible to participate. Hanif Lalani cancelled the option, which was under water, on 13 January 2009.h
    
    Option granted under the GSOP (Special Incentive Award) on 24 June 2003, prior to Hanif Lalanis appointment as a Director. This option is not subject to a performance measure as the grant was linked to personal performance.i
    
    Option granted on 25 June 2004 under the Employee Sharesave Scheme, in which all employees of the company are eligible to participate.j
    
    Option granted to François Barrault under the GSOP on 21 May 2004. The option was preserved for 12 months from the date on which François Barrault left the company, until 30 November 2009.k
    
    Option granted on 26 June 2007 under the International Employee Sharesave Scheme. The option lapsed on 30 November 2008, the date François Barrault left the company.
 Unrealised gains on share options
   2009
    
    
    2008Unrealised gains
    
    
    Unrealised gainsNo. of
    
    
    £000
    
    
    No. of
    
    
    £000shares
    
    
    
    
    
    
    sharesF Barraulta
    
    
    
    
    
    
    
    
    
    
    362,500
    
    
    
    135H Lalani
    
    
    
    
    
    
    
    
    
    
    105,264
    
    
    
    19H Lalani
    
    
    
    
    
    
    
    
    
    
    90,625
    
    
    
    23
 a
    
    François Barrault left the company on 30 November 2008.
   66 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT
OF THE DIRECTORS REPORT ON
DIRECTORS REMUNERATION
   Vesting of outstanding share awards and options
 31
March 2009
    
    
    31 March 2008Percentage of
    
    
    
    
    
    
    Percentage ofVesting date
    
    
    TSR position
    
    
    shares vesting
    
    
    TSR position
    
    
    shares vestingGSOP 2003a
    
    
    31/03/2008
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    0%ISP 2005b
    
    
    31/03/2008
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    25%ISP 2006c
    
    
    31/03/2009
    
    
    
    14
    
    
    
    0%
    
    
    
    8
    
    
    
    43.75%ISP 2007d
    
    
    31/03/2010
    
    
    
    13
    
    
    
    0%
    
    
    
    12
    
    
    
    0%ISP 2008d
    
    
    31/03/2011
    
    
    
    14
    
    
    
    0%
    
    
    
    
    
    
    
    
 a
    
    The performance period for the GSOP 2003 ended on 31 March 2008. BTs TSR position
was at 53rd position against the FTSE 100. As a result, all of the options have lapsed.b
    
    The performance period for the ISP 2005 ended on 31 March 2008. BTs TSR position was
at 10th position against the European Telecom Sector of 19 companies. As a result, 75% of shares
awarded lapsed on that date and 25% of shares awarded were transferred to participants on 19 May
2008.c
    
    The performance period for the ISP 2006 ended on 31 March 2009. BTs TSR position was
at 14th position against the European Telecom Sector of 17 companies. As a result, all of the
shares awarded lapsed on that date.d
    
    The performance periods for the ISP 2007 and ISP 2008 end on 31 March 2010 and 2011
respectively.
 Share awards under long-term incentive plans held at 31 March 2009, or date of appointment, if
later
  Totalnumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monetaryaward
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    value ofshares
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    vested1 April
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    
    
    
    
    Price
    
    
    price
    
    
    award2008
    
    
    Awarded
    
    
    re-invested
    
    
    Vested
    
    
    Lapsed
    
    
    2009
    
    
    Vesting date
    
    
    on grant
    
    
    at vesting
    
    
    £000I LivingstonISP 2005a
    
    
    66,870
    
    
    
    
    
    
    
    
    
    
    
    66,870
    
    
    
    
    
    
    
    
    
    
    
    31/03/2008
    
    
    
    227.75p
    
    
    
    232.76p
    
    
    
    156ISP 2006b
    
    
    250,495
    
    
    
    
    
    
    
    28,091
    
    
    
    
    
    
    
    278,586
    
    
    
    
    
    
    
    
    
    
    
    231.58p
    
    
    
    
    
    
    
    ISP 2007c
    
    
    344,657
    
    
    
    
    
    
    
    38,650
    
    
    
    
    
    
    
    
    
    
    
    383,307
    
    
    
    31/03/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    ISP 2008d
    
    
    
    
    
    
    1,256,157
    
    
    
    140,868
    
    
    
    
    
    
    
    
    
    
    
    1,397,025
    
    
    
    31/03/2011
    
    
    
    203p
    
    
    
    
    
    
    
    T ChanmugameISP 2006b
    
    
    119,283
    
    
    
    
    
    
    
    13,375
    
    
    
    
    
    
    
    132,658
    
    
    
    
    
    
    
    
    
    
    
    231.58p
    
    
    
    
    
    
    
    ISP 2007c
    
    
    83,094
    
    
    
    
    
    
    
    9,317
    
    
    
    
    
    
    
    
    
    
    
    92,411
    
    
    
    31/03/2010
    
    
    
    317.67p
    
    
    
    
    
    
    
    ISP 2008d
    
    
    
    
    
    
    130,541
    
    
    
    14,638
    
    
    
    
    
    
    
    
    
    
    
    145,179
    
    
    
    31/03/2011
    
    
    
    203p
    
    
    
    
    
    
    
    RSP 2007f
    
    
    87,914
    
    
    
    
    
    
    
    9,858
    
    
    
    
    
    
    
    
    
    
    
    97,772
    
    
    
    20/03/2010
    
    
    
    300p
    
    
    
    
    
    
    
    H LalaniISP 2005a
    
    
    50,948
    
    
    
    
    
    
    
    
    
    
    
    50,948
    
    
    
    
    
    
    
    
    
    
    
    31/03/2008
    
    
    
    227.75p
    
    
    
    232.76p
    
    
    
    119ISP 2006b
    
    
    190,853
    
    
    
    
    
    
    
    21,402
    
    
    
    
    
    
    
    212,255
    
    
    
    
    
    
    
    
    
    
    
    231.58p
    
    
    
    
    
    
    
    ISP 2007c
    
    
    226,489
    
    
    
    
    
    
    
    25,398
    
    
    
    
    
    
    
    
    
    
    
    251,887
    
    
    
    31/03/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    ISP 2008d
    
    
    
    
    
    
    720,443
    
    
    
    80,792
    
    
    
    
    
    
    
    
    
    
    
    801,235
    
    
    
    31/03/2011
    
    
    
    203p
    
    
    
    
    
    
    
    G PattersongISP 2006b
    
    
    161,271
    
    
    
    
    
    
    
    18,084
    
    
    
    
    
    
    
    179,355
    
    
    
    
    
    
    
    
    
    
    
    231.58p
    
    
    
    
    
    
    
    ISP 2007c
    
    
    112,343
    
    
    
    
    
    
    
    12,598
    
    
    
    
    
    
    
    
    
    
    
    124,941
    
    
    
    31/03/2010
    
    
    
    317.67p
    
    
    
    
    
    
    
    ISP 2008d
    
    
    
    
    
    
    615,763
    
    
    
    69,052
    
    
    
    
    
    
    
    
    
    
    
    684,815
    
    
    
    31/03/2011
    
    
    
    203p
    
    
    
    
    
    
    
    Former directorsB VerwaayenhISP 2005a
    
    
    89,161
    
    
    
    
    
    
    
    
    
    
    
    89,161
    
    
    
    
    
    
    
    
    
    
    
    31/03/2008
    
    
    
    227.75p
    
    
    
    232.76p
    
    
    
    208ISP 2006b
    
    
    333,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333,995
    
    
    
    
    
    
    
    
    
    
    
    231.58p
    
    
    
    
    
    
    
    ISP 2007c
    
    
    525,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    525,193
    
    
    
    
    
    
    
    
    
    
    
    321.67p
    
    
    
    
    
    
    
    F BarraultiISP 2005a
    
    
    49,070
    
    
    
    
    
    
    
    
    
    
    
    49,070
    
    
    
    
    
    
    
    
    
    
    
    31/03/2008
    
    
    
    227.75p
    
    
    
    232.76p
    
    
    
    114ISP 2006b
    
    
    205,803
    
    
    
    
    
    
    
    12,237
    
    
    
    
    
    
    
    218,040
    
    
    
    
    
    
    
    
    
    
    
    231.58p
    
    
    
    
    
    
    
    ISP 2007c
    
    
    251,208
    
    
    
    
    
    
    
    14,937
    
    
    
    
    
    
    
    266,145
    
    
    
    
    
    
    
    
    
    
    
    321.67p
    
    
    
    
    
    
    
    ISP 2008d
    
    
    
    
    
    
    757,486
    
    
    
    45,042
    
    
    
    
    
    
    
    802,528
    
    
    
    
    
    
    
    
    
    
    
    203p
    
    
    
    
    
    
    
    RSP 2007j
    
    
    169,851
    
    
    
    
    
    
    
    10,099
    
    
    
    119,966
    
    
    
    59,984
    
    
    
    
    
    
    
    10/12/2008
    
    
    
    300p
    
    
    
    140.5p
    
    
    
    169
  a
    
    Awards under the ISP granted in 2005 were subject to a performance target. The
performance measure was relative TSR compared with a group of 19 companies from the European
Telecom Sector as at 1 April 2005. BTs TSR had to be in the upper quartile for all the shares to
vest. At median, 25% of the shares would vest. At 31 March 2008, BTs TSR was at median position
against the comparator group. As a result, 75% of the awards lapsed on that date and 25% of the
awards were transferred to participants on 19 May 2008. On that date, the market price of a BT
share was 232.76p.b
    
    Awards under the ISP granted in 2006 were subject to a performance target. The
performance measure was relative TSR compared with a group of 18 companies from the European
Telecom Sector as at 1 April 2006. BTs TSR had to be in the upper quartile for all the shares to
vest. At median, 25% of the shares would vest. At 31 March 2009, BTs TSR was at 14th position
against the comparator group. As a result, all of the awards lapsed on that date.c
    
    Awards under the ISP granted in 2007 will vest subject to meeting a performance
condition, on 31 March 2010. The performance measure is relative TSR compared with a group of 16
companies from the European Telecom Sector as at 1 April 2007. BTs TSR must be in the upper
quartile for all the shares to vest. At median, 25% of the shares will vest. Below that point, no
shares will vest.d
    
    Awards under the ISP granted on 25 June 2008. The number of shares subject to awards
was calculated using the average middle market price of a BT share for the three days prior to the
grant. The awards will vest subject to meeting a performance condition, on 31 March 2011. The
performance measure is relative TSR compared with a group of 16 companies from the European Telecom
Sector as at 1 April 2008. BTs TSR must be in the upper quartile for all the shares to vest. At
median, 25% of the shares will vest. Below that point, no shares will vest.e
    
    Tony Chanmugam was appointed as a director on 1 December 2008.f
    
    Tony Chanmugam was granted an RSP award on 20 March 2007. The award will vest in full subject to continued employment on 20 March 2010.g
    
    Gavin Patterson was appointed as a director on 1 June 2008.h
    
    Ben Verwaayen left the company on 30 June 2008. On that date all of his outstanding awards under the ISP lapsed.i
    
    François Barrault left the company on 30 November 2008. On that date, all of his outstanding awards under the ISP lapsed.j
    
    François Barrault was granted an RSP award on 20 March 2007. On 10 December 2008, the
award was pro-rated, part of the award vested and the remainder of the award lapsed.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 67




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
 Deferred Bonus Plan awards at 31 March 2009, or date of appointment, if later
  Totalnumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monetaryaward
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    value ofshares
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    vested1 April
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    31 March
    
    
    
    
    
    
    Price
    
    
    price
    
    
    award2008
    
    
    Awardeda
    
    
    re-invested
    
    
    Vested
    
    
    Lapsed
    
    
    2009
    
    
    Vesting date
    
    
    at grant
    
    
    at vesting
    
    
    £000I Livingston
    
    
    50,402
    
    
    
    
    
    
    
    
    
    
    
    50,402
    
    
    
    
    
    
    
    
    
    
    
    01/08/2008
    
    
    
    227.75p
    
    
    
    172.29p
    
    
    
    87150,296
    
    
    
    
    
    
    
    16,853
    
    
    
    
    
    
    
    
    
    
    
    167,149
    
    
    
    01/08/2009
    
    
    
    231.58p
    
    
    
    
    
    
    
    124,722
    
    
    
    
    
    
    
    13,986
    
    
    
    
    
    
    
    
    
    
    
    138,708
    
    
    
    01/08/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    
    
    
    
    198,896
    
    
    
    22,303
    
    
    
    
    
    
    
    
    
    
    
    221,199
    
    
    
    01/08/2011
    
    
    
    203p
    
    
    
    
    
    
    
    T Chanmugamb
    
    
    46,065
    
    
    
    
    
    
    
    5,165
    
    
    
    
    
    
    
    
    
    
    
    51,230
    
    
    
    01/08/2009
    
    
    
    231.58p
    
    
    
    
    
    
    
    33,675
    
    
    
    
    
    
    
    3,775
    
    
    
    
    
    
    
    
    
    
    
    37,450
    
    
    
    01/08/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    
    
    
    
    46,764
    
    
    
    5,243
    
    
    
    
    
    
    
    
    
    
    
    52,007
    
    
    
    01/08/2011
    
    
    
    203p
    
    
    
    
    
    
    
    H Lalani
    
    
    34,759
    
    
    
    
    
    
    
    
    
    
    
    34,759
    
    
    
    
    
    
    
    
    
    
    
    01/08/2008
    
    
    
    227.75p
    
    
    
    172.29p
    
    
    
    60114,510
    
    
    
    
    
    
    
    12,841
    
    
    
    
    
    
    
    
    
    
    
    127,351
    
    
    
    01/08/2009
    
    
    
    231.58p
    
    
    
    
    
    
    
    109,279
    
    
    
    
    
    
    
    12,254
    
    
    
    
    
    
    
    
    
    
    
    121,533
    
    
    
    01/08/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    
    
    
    
    138,517
    
    
    
    15,533
    
    
    
    
    
    
    
    
    
    
    
    154,050
    
    
    
    01/08/2011
    
    
    
    203p
    
    
    
    
    
    
    
    G Pattersonc
    
    
    30,991
    
    
    
    
    
    
    
    
    
    
    
    30,991
    
    
    
    
    
    
    
    
    
    
    
    01/08/2008
    
    
    
    227.75p
    
    
    
    172.29p
    
    
    
    5375,594
    
    
    
    
    
    
    
    8,477
    
    
    
    
    
    
    
    
    
    
    
    84,071
    
    
    
    01/08/2009
    
    
    
    231.58p
    
    
    
    
    
    
    
    51,649
    
    
    
    
    
    
    
    5,791
    
    
    
    
    
    
    
    
    
    
    
    57,440
    
    
    
    01/08/2010
    
    
    
    321.67p
    
    
    
    
    
    
    
    
    
    
    
    81,166
    
    
    
    9,101
    
    
    
    
    
    
    
    
    
    
    
    90,267
    
    
    
    01/08/2011
    
    
    
    203p
    
    
    
    
    
    
    
    Former directorsB Verwaayend
    
    
    114,249
    
    
    
    
    
    
    
    
    
    
    
    114,249
    
    
    
    
    
    
    
    
    
    
    
    30/06/2008
    
    
    
    227.75p
    
    
    
    198.4p
    
    
    
    227627,911
    
    
    
    
    
    
    
    
    
    
    
    627,911
    
    
    
    
    
    
    
    
    
    
    
    30/06/2008
    
    
    
    231.58p
    
    
    
    198.4p
    
    
    
    1,246448,423
    
    
    
    
    
    
    
    
    
    
    
    448,423
    
    
    
    
    
    
    
    
    
    
    
    30/06/2008
    
    
    
    321.67p
    
    
    
    198.4p
    
    
    
    889
    
    
    
    755,783
    
    
    
    
    
    
    
    755,783
    
    
    
    
    
    
    
    
    
    
    
    30/06/2008
    
    
    
    203p
    
    
    
    198.4p
    
    
    
    1,499F Barraulte
    
    
    58,882
    
    
    
    
    
    
    
    
    
    
    
    58,882
    
    
    
    
    
    
    
    
    
    
    
    01/08/2008
    
    
    
    227.75p
    
    
    
    172.29p
    
    
    
    10196,602
    
    
    
    
    
    
    
    5,744
    
    
    
    82,445
    
    
    
    19,901
    
    
    
    
    
    
    
    10/12/2008
    
    
    
    231.58p
    
    
    
    140.5p
    
    
    
    11667,832
    
    
    
    
    
    
    
    4,033
    
    
    
    33,936
    
    
    
    37,929
    
    
    
    
    
    
    
    10/12/2008
    
    
    
    321.67p
    
    
    
    140.5p
    
    
    
    47
    
    
    
    158,559
    
    
    
    9,428
    
    
    
    
    
    
    
    167,987
    
    
    
    
    
    
    
    
    
    
    
    203p
    
    
    
    
    
    
    
    
 a
    
    Awards granted on 25 June 2008 in respect of the financial year 2007/08. 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
    
    Tony Chanmugam was appointed as a director on 1 December 2008.c
    
    Gavin Patterson was appointed as a director on 1 June 2008.d
    
    Ben Verwaayen left the company on 30 June 2008. All of his awards under the DBP vested
on 30 June 2008.e
    
    François Barrault left the company on 30 November 2008. His 2006 and 2007 awards were
pro-rated and part of the awards vested and part of the awards lapsed on 10 December 2008. His 2008
award lapsed on that date.  68 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



REPORT OF THE DIRECTORS REPORT ON DIRECTORS REMUNERATION
 Share awards under the Employee Share Investment Plan (ESIP) and Allshare International at 31 March
2009, or at date of appointment, if later
 Total number ofaward shares1 April 2008
    
    
    Awardeda
    
    
    31 March 2009I LivingstonESIP 2004
    
    
    116
    
    
    
    
    
    
    
    116ESIP 2005
    
    
    56
    
    
    
    
    
    
    
    56ESIP 2006
    
    
    107
    
    
    
    
    
    
    
    107ESIP 2007
    
    
    84
    
    
    
    
    
    
    
    84363
    
    
    
    
    
    
    
    363T ChanmugamESIP 2002
    
    
    130
    
    
    
    
    
    
    
    130ESIP 2003
    
    
    186
    
    
    
    
    
    
    
    186ESIP 2004
    
    
    116
    
    
    
    
    
    
    
    116ESIP 2005
    
    
    56
    
    
    
    
    
    
    
    56ESIP 2006
    
    
    107
    
    
    
    
    
    
    
    107ESIP 2007
    
    
    84
    
    
    
    
    
    
    
    84679
    
    
    
    
    
    
    
    679H LalaniESIP 2002
    
    
    130
    
    
    
    
    
    
    
    130ESIP 2003
    
    
    186
    
    
    
    
    
    
    
    186ESIP 2004
    
    
    116
    
    
    
    
    
    
    
    116ESIP 2005
    
    
    56
    
    
    
    
    
    
    
    56ESIP 2006
    
    
    107
    
    
    
    
    
    
    
    107ESIP 2007
    
    
    84
    
    
    
    
    
    
    
    84679
    
    
    
    
    
    
    
    679G PattersonESIP 2005
    
    
    56
    
    
    
    
    
    
    
    56ESIP 2006
    
    
    107
    
    
    
    
    
    
    
    107ESIP 2007
    
    
    84
    
    
    
    
    
    
    
    84247
    
    
    
    
    
    
    
    247Former DirectorF BarraultbAllshare International 2006
    
    
    107
    
    
    
    
    
    
    
    107Allshare International 2007
    
    
    84
    
    
    
    
    
    
    
    84Allshare International 2008
    
    
    
    
    
    
    116
    
    
    
    116191
    
    
    
    116
    
    
    
    307
 a
    
    Award granted under Allshare International on 23
June 2008. On that date, the market price of a BT share was
201.5p.b
    
    François Barrault left the company on 30 November
2008. His awards continued to be held in Allshare International.  Maarten van den Bergh
Deputy Chairman and Chairman of Remuneration Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 69




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##### Table of Contents



REPORT OF THE DIRECTORSDIRECTORS INFORMATION
 
 Election and re-election
  Report on directors remuneration
 
 Meetings attendance
 Audit,
Nominating and Remuneration Committees
 Audit
    
    Nominating
    
    RemunerationBoard
    
    Committee
    
    Committee
    
    CommitteeNumber of meetings held12
    
    5
    
    2
    
    5Number of meetings attended (maximum possible)Sir Michael Rake
    
    
    12
    (12)
    
    
    

    
    
    2(2
    )
    
    4(5
    )Matti Alahuhta
    
    
    9
    (12)
    
    
    

    
    
    

    
    
    4(5
    )François Barraulta
    
    
    5(6)

    
    
    

    
    
    

    
    
    Maarten van den Bergh
    
    
    10
    (12)
    
    
    3(5
    )
    
    2(2
    )
    
    5(5
    )Clay Brendish
    
    
    12
    (12)
    
    
    5(5
    )
    
    2(2
    )

    
    Tony Chanmugamb
    
    
    4(4)

    
    
    

    
    
    

    
    
    Eric Daniels
    
    
    10
    (12)
    
    
    2(2

    )
    
    

    
    
    4(4
    )Patricia Hewitte
    
    
    11
    (12)
    
    
    4(4
    )
    
    

    
    
    Phil Hodkinsone
    
    
    11
    (12)
    
    
    5(5
    )
    
    1(2
    )
    
    Hanif Lalanie
    
    
    11
    (12)
    
    
    

    
    
    

    
    
    Deborah Lathene
    
    
    10
    (12)
    
    
    

    
    
    

    
    
    5(5
    )Ian Livingston
    
    
    12
    (12)
    
    
    

    
    
    

    
    
    Gavin Pattersonc,e
    
    
    9
    (10)
    
    
    

    
    
    

    
    
    Carl Symon
    
    
    12
    (12)
    
    
    5(5
    )
    
    

    
    
    5(5
    )Ben Verwaayend
    
    
    2(3)

    
    
    

    
    
    

    
    
    
 a
    
    Resigned as a director on 30 October 2008b
    
    Appointed to the Board on 1 December 2008c
    
    Appointed to the Board on 1 June 2008d
    
    Resigned from the Board on 30 June 2008e
    
    All scheduled Board meetings attended 
 Service agreements
 Remuneration Committee Report on
directors remuneration
 
 Training and information
 Operating Committee
   
 Independent advice
  
 Directors and officers liability insurance and indemnity
  
 Interest of management in certain transactions
  70 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



REPORT OF THE DIRECTORS  BUSINESS POLICIES
  Responsible business
 The Way We
Work The Way We Work
 The Way We Work
  The Way We Work It matters
  Committee for Responsible and Sustainable Business Business review  Corporate Responsibility Report of
the Committee for Responsible and Sustainable Business
 
 Political donations
  
 Pension funds
  
 Payment of suppliers
  
 Financial statements
  Statement of directors responsibility Financial review  Capital resources
 
 Takeover Directive disclosure
  4
    
    structure of BTs share capital (refer to page 115) including the
rights and obligations attaching to the shares (refer to pages 153 to 155);4
    
    restrictions on the
transfer of BT shares and voting rights (refer to pages 153 and 154);
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 71




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REPORT
OF THE DIRECTORS BUSINESS POLICIES
  4
    
    significant direct or indirect shareholdings (refer to page 74);4
    
    BT Group plc Annual Report & Form 20-F; and4
    
    appointment and replacement of directors (refer to page 155).
  4
    
    BT has two employee share ownership trusts which hold BT shares for the purpose of satisfying
awards made under the various employee share plans. The trustee of the BT Group 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;4
    
    we are not aware of any agreements between shareholders that may result in restrictions on the
transfer of shares or on voting rights;4
    
    no person holds securities carrying special rights with regard to control of the Company;4
    
    proxy appointment and voting instructions must be received by the registrars not less than 48 hours
before a general meeting (see also page 153);4
    
    the amendment of BTs articles of association requires shareholder approval in accordance with
legislation in force from time to time;4
    
    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;4
    
    we are not party to any significant agreements that take effect, alter or terminate upon a change
of control following a takeover; and4
    
    we do not have any agreements with directors or employees providing for compensation for loss of
office or employment that occurs because of a takeover.
 
 Financial instruments
  
 Internal control and risk management
  Business review  Our people
  Business review
 Principal risks and uncertainties
  4
    
    senior executives collectively review the groups key risks and have created a group risk register
describing the risks, owners and mitigation strategies. This is reviewed by the Operating Committee
before being reviewed and approved by the Board;4
    
    the lines of business carry out risk assessments
of their operations, create risk registers relating to those operations, and ensure that the key
risks are addressed;4
    
    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;4
    
    the groups internal auditors carry out continuing assessments of the
quality of risk management and control, report to management and the Audit Committeeon the status
of specific areas identified for improvement and promote effective risk management in the lines of
business operations; and4
    
    the Audit Committee, on behalf of the Board, considers the effectiveness
of the operation of internal control procedures in the group during the financial year. It reviews
reports from the internal and external auditors and reports its conclusions to the Board. The Audit
Committeehas carried out these actions for the 2009 financial year.
  Operating Committee
  72 BT GROUP PLCANNUAL REPORT & FORM 20-F




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REPORT OF THE DIRECTORS BUSINESS POLICIES
   
 US Sarbanes-Oxley Act of 2002
  Audit Committee
 www.bt.com/ethics
 
 Disclosure controls and procedures
  
 Internal control over financial reporting
   Audit Committee
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 73




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REPORT OF THE DIRECTORSSHAREHOLDERS AND ANNUAL GENERAL MEETING
 
 Relations with shareholders
   
 Substantial shareholdings
  
 AGM resolutions
 Report on directors remuneration
 Audit, Nominating Remuneration
 Summary financial statement & notice of meeting 2009
  www.bt.com/btagm2009
 
 Authority to purchase shares
    Andrew Parker
Secretary
 74 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS
  76STATEMENT OF DIRECTORS RESPONSIBILITIES77REPORT OF THE INDEPENDENT AUDITORS  CONSOLIDATED FINANCIAL STATEMENTS77 United Kingdom opinion78 United States opinion79CONSOLIDATED FINANCIAL STATEMENTS79ACCOUNTING POLICIES88GROUP INCOME STATEMENT89GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE90GROUP CASH FLOW STATEMENT91GROUP BALANCE SHEET92NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS92 Segmental analysis95 Other operating income96 Operating costs97 Specific items98 Finance expense and finance income98 Dividends99 Taxation100 Earnings per share102 Cash and cash equivalents103 Net debt104 Intangible assets106 Property, plant and equipment107 Investments108 Associates and joint ventures108 Trade and other receivables110 Loans and other borrowings111 Derivative financial instruments112 Trade and other payables113 Provisions113 Deferred taxation114 Minority interests114 Reconciliation of movements in equity115 Share capital115 Other reserves116 Retained earnings116 Related party transactions117 Financial commitments and contingent liabilities118 Acquisitions121 Retirement benefit plans126 Employees126 Share based payments129 Audit and non-audit services130 Financial instruments and risk management136 GLOSSARY OF TERMS AND US EQUIVALENTS137 REPORT OF THE INDEPENDENT AUDITORS  PARENT COMPANY138 FINANCIAL STATEMENTS OF BT GROUP PLC141 SUBSIDIARY UNDERTAKINGS AND ASSOCIATE142 QUARTERLY ANALYSIS OF REVENUE AND PROFIT143 SELECTED FINANCIAL DATA145 FINANCIAL STATISTICS146 OPERATIONAL STATISTICS
 BT GROUP PLCANNUAL REPORT & FORM 20-F     75




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FINANCIAL STATEMENTS
 
 STATEMENT OF DIRECTORS RESPONSIBILITIES
    4
    
    select suitable accounting policies and then
apply them consistently;4
    
    make judgments and estimates that are reasonable and prudent;4
    
    state
whether the consolidated financial statements comply with IFRS as adopted by the EU and issued by
the IASB, and with regard to the parent company financial statements whether applicable accounting
standards have been followed, subject to any material departures disclosed and explained in the
financial statements; and4
    
    prepare the consolidated and parent company financial statements on the
going concern basis unless it is inappropriate to presume that the group will continue in business.
     4
    
    that the consolidated financial statements,
which have been prepared in accordance with IFRS as adopted by the EU and issued by the IASB, give
a true and fair view of the assets, liabilities, financial position and profit or loss of the
group; and4
    
    that the Report of the Directors on pages 49 to 74 includes a fair review of the
information required by Rules 4.1.8-4.1.11 of the Disclosure and Transparency Rules of the United
Kingdom Financial Services Authority.
  76 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS
 
 REPORT OF THE INDEPENDENT AUDITORS  CONSOLIDATED FINANCIAL STATEMENTS
 United Kingdom opinion
    Respective responsibilities of directors and auditors
        Basis of audit opinion
   Opinion
  4
    
    the consolidated financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the groups affairs as at 31 March 2009 and
of its loss and cash flows for the year then ended;4
    
    the consolidated financial statements have been
properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;
and4
    
    the information given in the Report of the Directors is consistent with the consolidated
financial statements.
 Separate opinion in relation to IFRSs
   PricewaterhouseCoopers LLP
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 77




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




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FINANCIAL STATEMENTS
 
 CONSOLIDATED FINANCIAL STATEMENTS
  
 Accounting policies
      31 March 2007
   4
    
    A subsidiary is an entity that is controlled by another entity, known as the parent. Control is the
power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities.4
    
    A joint venture is an entity that is jointly controlled by two or more entities. Joint control is
the contractually agreed sharing of
control over an economic activity, and exists only when the strategic financial and operating
decisions relating to the activity require the unanimous consent of the parties sharing control.4
    
    An
associate is an entity over which another entity has significant influence and that is neither a
subsidiary nor an interest in a joint venture. Significant influence is the power to participate in
the financial and operating policy decisions of an entity but is not control or joint control over
those policies.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 79




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FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
                   4
    
    Goodwill which arose after 1 April
2004: included in the balance sheet at original cost, less any provisions for impairment. This
goodwill is not amortised.4
    
    Goodwill which arose between 1 January 1998 and 1 April 2004: included in the balance sheet at
original cost, less accumulated amortisation to the date of transition to IFRS and less any
provisions for impairment. This goodwill is not amortised after the date of transition to IFRS.4
    
    Goodwill which arose before 1 January 1998: written off directly to retained earnings.
  80 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
     Goodwill
  Telecommunication licences
  Brands, customer lists and customer relationships
  Computer software
  Subscriber acquisition costs
  Estimated useful economic lives
  4 Telecommunication licences
    
    1 to 5 years4 Brands, customer lists and customer relationships
    
    3 to 15 years4 Computer software
    
    2 to 5 years
        Cost
  Depreciation
   4 Land and buildingsFreehold buildings
    
    40 yearsLeasehold land and buildings
    
    Unexpired portion of lease or 40 years,
whichever is the
shorter4 Network infrastructure and equipmentTransmission equipment:Duct
    
    40 yearsCable
    
    3 to 25 yearsRadio and repeater equipment
    
    2 to 25 yearsExchange equipment
    
    2 to 13 yearsPayphones and other network equipment
    
    2 to 20 years4 OtherMotor vehicles
    
    2 to 9 yearsComputers and office equipment
    
    3 to 6 years
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 81




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
                             82 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
     Recognition and derecognition of financial assets and financial liabilities
  Financial assets
     4
    
    those that the group intends to sell immediately or
in the short term, which are classified as held for trading;4
    
    those for which the group may not
recover substantially all of its initial investment, other than because of credit deterioration,
which are classified as available-for-sale.
               Financial liabilities
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 83




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
                          84 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
    Long-term customer contracts
  Interconnect income and payments to other telecommunications operators
  Pension obligations
  Useful lives for property, plant and equipment
  Income tax
  Deferred tax
  Goodwill
  Determination of fair values
  Providing for doubtful debts
  Property arrangements
  31 March 2009
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 85




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##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
   IFRS 2, Share Based Payments  vesting conditions and cancellations, (effective from 1 April
2009)
  IFRS 3 (Revised), Business Combinations (effective from 1 April 2010)
  IFRS 8, Operating Segments (effective from 1 April 2009)
  IAS 1 (Revised), Presentation of Financial Statements (effective from 1 April 2009)
  Amendment to IAS 23, Borrowing Costs (effective from 1 April 2009)
  IAS 27 (Revised), Consolidated and Separate Financial Statements (effective from 1 April 2010)
  IFRIC 12, Service Concession Arrangements (effective from 1 April 2009; effective under full IFRS
from 1 April 2008, but not adopted by the EU until 25 March 2009)
  IFRIC 13, Customer Loyalty Programmes (effective from 1 April 2009)
  Amendment to IFRS 7, Financial Instruments: Disclosures (effective 1 April 2009)
  IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective 1 April 2009)
  86 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
  IFRIC 17, Distributions of Non-cash Assets to Owners (effective 1 April 2010)
  IFRIC 18, Transfers of Assets from Customers (effective 1 July 2009)
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 87




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##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
 GROUP INCOME STATEMENT
 Before specific
    
    
    Specificitems
    
    
    itemsa
    
    
    TotalYear ended 31 March 2009
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    21,390
    
    
    
    
    
    
    
    21,390Other operating income
    
    
    2
    
    
    
    352
    
    
    
    (13
    )
    
    
    339Operating costs
    
    
    3
    
    
    
    (20,923
    )
    
    
    (395
    )
    
    
    (21,318
    )Operating profit
    
    
    1
    
    
    
    819
    
    
    
    (408
    )
    
    
    411Finance expense
    
    
    5
    
    
    
    (3,272
    )
    
    
    
    
    
    
    (3,272
    )Finance income
    
    
    5
    
    
    
    2,652
    
    
    
    
    
    
    
    2,652Net finance expense
    
    
    
    
    
    
    (620
    )
    
    
    
    
    
    
    (620
    )Share of post tax profit of associates and joint ventures
    
    
    14
    
    
    
    39
    
    
    
    36
    
    
    
    75(Loss) profit before taxation
    
    
    
    
    
    
    238
    
    
    
    (372
    )
    
    
    (134
    )Taxation
    
    
    7
    
    
    
    10
    
    
    
    43
    
    
    
    53(Loss) profit for the year
    
    
    
    
    
    
    248
    
    
    
    (329
    )
    
    
    (81
    )Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    246
    
    
    
    (329
    )
    
    
    (83
    )Minority interests
    
    
    21
    
    
    
    2
    
    
    
    
    
    
    
    2Loss per share
    
    
    8Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1)pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1)p
 a
    
    For a definition of specific items, see page 79. An analysis of specific items is
provided in note 4.  Before specific
    
    
    Specificitems
    
    
    itemsa
    
    
    TotalYear ended 31 March 2008
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    20,704
    
    
    
    
    
    
    
    20,704Other operating income
    
    
    2
    
    
    
    359
    
    
    
    (10
    )
    
    
    349Operating costs
    
    
    3
    
    
    
    (18,168
    )
    
    
    (529
    )
    
    
    (18,697
    )Operating profit
    
    
    1
    
    
    
    2,895
    
    
    
    (539
    )
    
    
    2,356Finance expense
    
    
    5
    
    
    
    (2,891
    )
    
    
    
    
    
    
    (2,891
    )Finance income
    
    
    5
    
    
    
    2,513
    
    
    
    
    
    
    
    2,513Net finance expense
    
    
    
    
    
    
    (378
    )
    
    
    
    
    
    
    (378
    )Share of post tax loss of associates and joint ventures
    
    
    14
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Profit on disposal of associate
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9Profit before taxation
    
    
    
    
    
    
    2,506
    
    
    
    (530
    )
    
    
    1,976Taxation
    
    
    7
    
    
    
    (581
    )
    
    
    343
    
    
    
    (238
    )Profit for the year
    
    
    
    
    
    
    1,925
    
    
    
    (187
    )
    
    
    1,738Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,924
    
    
    
    (187
    )
    
    
    1,737Minority interests
    
    
    21
    
    
    
    1
    
    
    
    
    
    
    
    1Earnings per share
    
    
    8Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.5pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.1p
 a
    
    For a definition of specific items, see page 79. An analysis of specific items is
provided in note 4. 88 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
 GROUP INCOME STATEMENT
 Before specific
    
    
    Specificitems
    
    
    itemsa
    
    
    TotalYear ended 31 March 2007
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    1
    
    
    
    20,223
    
    
    
    
    
    
    
    20,223Other operating income
    
    
    2
    
    
    
    236
    
    
    
    (3
    )
    
    
    233Operating costs
    
    
    3
    
    
    
    (17,746
    )
    
    
    (169
    )
    
    
    (17,915
    )Operating profit
    
    
    1
    
    
    
    2,713
    
    
    
    (172
    )
    
    
    2,541Finance expense
    
    
    5
    
    
    
    (2,604
    )
    
    
    
    
    
    
    (2,604
    )Finance income
    
    
    5
    
    
    
    2,371
    
    
    
    139
    
    
    
    2,510Net finance expense
    
    
    
    
    
    
    (233
    )
    
    
    139
    
    
    
    (94
    )Share of post tax profit of associates and joint ventures
    
    
    14
    
    
    
    15
    
    
    
    
    
    
    
    15Profit on disposal of associate
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Profit before taxation
    
    
    
    
    
    
    2,495
    
    
    
    (11
    )
    
    
    2,484Taxation
    
    
    7
    
    
    
    (611
    )
    
    
    979
    
    
    
    368Profit for the year
    
    
    
    
    
    
    1,884
    
    
    
    968
    
    
    
    2,852Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    1,882
    
    
    
    968
    
    
    
    2,850Minority interests
    
    
    21
    
    
    
    2
    
    
    
    
    
    
    
    2Earnings per share
    
    
    8Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.4pDiluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33.6p
 a
    
    For a definition of specific items, see page 79. An analysis of specific items is
provided in note 4. 
 GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
 2009
    
    
    2008
    
    
    2007Year ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £m(Loss) profit for the year
    
    
    
    
    
    
    (81
    )
    
    
    1,738
    
    
    
    2,852Actuarial (losses) gains relating to retirement benefit obligations
    
    
    29
    
    
    
    (7,037
    )
    
    
    2,621
    
    
    
    1,409Exchange differences: on translation of foreign operations
    
    
    
    
    
    
    692
    
    
    
    213
    
    
    
    (95
    )Fair value movements on available-for-sale assets: fair value gains
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Fair value movements on cash flow hedges: fair value gains (losses)
    
    
    
    
    
    
    2,719
    
    
    
    446
    
    
    
    (201
    ) reclassified and reported in net (loss) profit
    
    
    
    
    
    
    (2,144
    )
    
    
    (294
    )
    
    
    364 reclassified and reported in non current assets
    
    
    
    
    
    
    (5
    )
    
    
    11
    
    
    
    Tax impact of above items
    
    
    7
    
    
    
    1,859
    
    
    
    (832
    )
    
    
    (486
    )Net (losses) gains recognised directly in equity
    
    
    
    
    
    
    (3,911
    )
    
    
    2,165
    
    
    
    991Total recognised income and expense for the year
    
    
    
    
    
    
    (3,992
    )
    
    
    3,903
    
    
    
    3,843Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    (3,994
    )
    
    
    3,899
    
    
    
    3,843Minority interests
    
    
    
    
    
    
    2
    
    
    
    4
    
    
    
    (3,992
    )
    
    
    3,903
    
    
    
    3,843
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 89




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##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
 
 GROUP CASH FLOW STATEMENT
 2009
    
    
    2008
    
    
    2007Year ended 31 March
    
    Notes
    
    
    £m
    
    
    £m
    
    
    £mCash flow from operating activities(Loss) profit before taxationa
    
    
    
    
    
    
    (134
    )
    
    
    1,976
    
    
    
    2,484Depreciation and amortisation
    
    
    
    
    
    
    2,890
    
    
    
    2,889
    
    
    
    2,920Loss (profit) on sale of associates and non current asset investments
    
    
    
    
    
    
    13
    
    
    
    1
    
    
    
    (19
    )Net finance expense
    
    
    
    
    
    
    620
    
    
    
    378
    
    
    
    94Other non cash charges
    
    
    
    
    
    
    486
    
    
    
    60
    
    
    
    50Share of (profits) losses of associates and joint ventures
    
    
    
    
    
    
    (75
    )
    
    
    11
    
    
    
    (15
    )Decrease (increase) in inventories
    
    
    
    
    
    
    11
    
    
    
    23
    
    
    
    (6
    )Decrease (increase) in trade and other receivables
    
    
    
    
    
    
    1,063
    
    
    
    (498
    )
    
    
    (373
    )(Decrease) increase in trade and other payables
    
    
    
    
    
    
    (379
    )
    
    
    451
    
    
    
    282Increase (decrease) in provisions and other liabilities
    
    
    
    
    
    
    439
    
    
    
    (104
    )
    
    
    (172
    )Cash generated from operationsa
    
    
    
    
    
    
    4,934
    
    
    
    5,187
    
    
    
    5,245Income taxes paid
    
    
    
    
    
    
    (232
    )
    
    
    (222
    )
    
    
    (411
    )Income tax repayment for prior years
    
    
    
    
    
    
    4
    
    
    
    521
    
    
    
    376Net cash inflow from operating activities
    
    
    
    
    
    
    4,706
    
    
    
    5,486
    
    
    
    5,210Cash flow from investing activitiesInterest received
    
    
    
    
    
    
    19
    
    
    
    111
    
    
    
    147Dividends received from associates and joint ventures
    
    
    
    
    
    
    6
    
    
    
    2
    
    
    
    6Proceeds on disposal of group undertakings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Proceeds on disposal of property, plant and equipment
    
    
    
    
    
    
    44
    
    
    
    62
    
    
    
    89Proceeds on disposal of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    27Proceeds on disposal of non current financial assets
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    4Proceeds on disposal of current financial assetsb
    
    
    
    
    
    
    6,316
    
    
    
    4,779
    
    
    
    8,525Acquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    (227
    )
    
    
    (377
    )
    
    
    (284
    )Purchases of property, plant and equipment and computer software
    
    
    
    
    
    
    (3,082
    )
    
    
    (3,315
    )
    
    
    (3,298
    )Investment in associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Purchases of non current financial assets
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (7
    )Purchases of current financial assetsb
    
    
    
    
    
    
    (6,030
    )
    
    
    (4,938
    )
    
    
    (8,007
    )Net cash outflow from investing activities
    
    
    
    
    
    
    (2,954
    )
    
    
    (3,664
    )
    
    
    (2,778
    )Cash flow from financing activitiesEquity dividends paid
    
    
    
    
    
    
    (1,221
    )
    
    
    (1,236
    )
    
    
    (1,054
    )Dividends paid to minority interests
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (3
    )Interest paid
    
    
    
    
    
    
    (956
    )
    
    
    (842
    )
    
    
    (797
    )Repayments of borrowings
    
    
    
    
    
    
    (863
    )
    
    
    (913
    )
    
    
    (809
    )Repayment of finance lease liabilities
    
    
    
    
    
    
    (16
    )
    
    
    (284
    )
    
    
    (276
    )Net proceeds on issue of (purchase of) commercial paper
    
    
    
    
    
    
    606
    
    
    
    (681
    )
    
    
    309New bank loans raised
    
    
    
    
    
    
    795
    
    
    
    3,939
    
    
    
    11Repurchase of ordinary shares
    
    
    
    
    
    
    (334
    )
    
    
    (1,498
    )
    
    
    (400
    )Proceeds on issue of treasury shares
    
    
    
    
    
    
    125
    
    
    
    85
    
    
    
    123Repurchase of ordinary shares by subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net cash used in financing activities
    
    
    
    
    
    
    (1,865
    )
    
    
    (1,430
    )
    
    
    (2,898
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    54
    
    
    
    25
    
    
    
    (35
    )Net (decrease) increase in cash and cash equivalents
    
    
    
    
    
    
    (59
    )
    
    
    417
    
    
    
    (501
    )Cash and cash equivalents at the start of the year
    
    
    
    
    
    
    1,174
    
    
    
    757
    
    
    
    1,258Cash and cash equivalents at the end of the year
    
    
    9
    
    
    
    1,115
    
    
    
    1,174
    
    
    
    757
 a
    
    The reconciliation from the loss before taxation of £134m 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 (2008 and 2007: £nil), which are non-cash charges. For further detail,
see note 3.b
    
    Primarily consists of investment in and redemption of amounts held in
liquidity funds. 90 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
 
 GROUP BALANCE SHEET
 2009
    
    
    2008At 31 March
    
    Notes
    
    
    £m
    
    
    £mNon current assetsIntangible assets
    
    
    11
    
    
    
    3,788
    
    
    
    3,355Property, plant and equipment
    
    
    12
    
    
    
    15,405
    
    
    
    15,307Derivative financial instruments
    
    
    17
    
    
    
    2,456
    
    
    
    310Investments
    
    
    13
    
    
    
    55
    
    
    
    31Retirement benefit asset
    
    
    29
    
    
    
    
    
    
    
    2,887Associates and joint ventures
    
    
    14
    
    
    
    132
    
    
    
    85Trade and other receivables
    
    
    15
    
    
    
    322
    
    
    
    854Deferred tax assets
    
    
    20
    
    
    
    1,103
    
    
    
    23,261
    
    
    
    22,829Current assetsInventories
    
    
    
    
    
    
    121
    
    
    
    122Trade and other receivables
    
    
    15
    
    
    
    4,185
    
    
    
    4,449Derivative financial instruments
    
    
    17
    
    
    
    244
    
    
    
    77Investments
    
    
    13
    
    
    
    163
    
    
    
    440Cash and cash equivalents
    
    
    9
    
    
    
    1,300
    
    
    
    1,4356,013
    
    
    
    6,523Current liabilitiesLoans and other borrowings
    
    
    16
    
    
    
    1,542
    
    
    
    1,524Derivative financial instruments
    
    
    17
    
    
    
    340
    
    
    
    267Trade and other payables
    
    
    18
    
    
    
    7,215
    
    
    
    7,591Current tax liabilities
    
    
    
    
    
    
    1
    
    
    
    241Provisions
    
    
    19
    
    
    
    254
    
    
    
    819,352
    
    
    
    9,704Total assets less current liabilities
    
    
    
    
    
    
    19,922
    
    
    
    19,648Non current liabilitiesLoans and other borrowings
    
    
    16
    
    
    
    12,365
    
    
    
    9,818Derivative financial instruments
    
    
    17
    
    
    
    427
    
    
    
    805Retirement benefit obligations
    
    
    29
    
    
    
    3,973
    
    
    
    108Other payables
    
    
    18
    
    
    
    794
    
    
    
    707Deferred tax liabilities
    
    
    20
    
    
    
    1,728
    
    
    
    2,513Provisions
    
    
    19
    
    
    
    466
    
    
    
    26519,753
    
    
    
    14,216EquityOrdinary shares
    
    
    23
    
    
    
    408
    
    
    
    420Share premium
    
    
    23
    
    
    
    62
    
    
    
    62Capital redemption reserve
    
    
    
    
    
    
    27
    
    
    
    15Other reserves
    
    
    24
    
    
    
    1,301
    
    
    
    (527
    )Retained (loss) earnings
    
    
    25
    
    
    
    (1,656
    )
    
    
    5,439Total parent shareholders equity
    
    
    
    
    
    
    142
    
    
    
    5,409Minority interests
    
    
    21
    
    
    
    27
    
    
    
    23Total equity
    
    
    22
    
    
    
    169
    
    
    
    5,43219,922
    
    
    
    19,648
  Sir Michael Rake
 Ian Livingston
 Tony Chanmugam
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 91




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##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 1. Segmental analysis
     BT Global Services
 BT Retail
 BT Wholesale
 Openreach
     BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    Intra-group
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExternal revenue
    
    
    8,828
    
    
    
    8,112
    
    
    
    3,430
    
    
    
    978
    
    
    
    42
    
    
    
    
    
    
    
    21,390Internal revenue
    
    
    
    
    
    
    359
    
    
    
    1,228
    
    
    
    4,253
    
    
    
    
    
    
    
    (5,840
    )
    
    
    Total revenue
    
    
    8,828
    
    
    
    8,471
    
    
    
    4,658
    
    
    
    5,231
    
    
    
    42
    
    
    
    (5,840
    )
    
    
    21,390
 BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    Intra-group
    
    
    TotalYear ended 31 March 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExternal revenue
    
    
    7,889
    
    
    
    8,194
    
    
    
    3,707
    
    
    
    886
    
    
    
    28
    
    
    
    
    
    
    
    20,704Internal revenue
    
    
    
    
    
    
    283
    
    
    
    1,252
    
    
    
    4,380
    
    
    
    
    
    
    
    (5,915
    )
    
    
    Total revenue
    
    
    7,889
    
    
    
    8,477
    
    
    
    4,959
    
    
    
    5,266
    
    
    
    28
    
    
    
    (5,915
    )
    
    
    20,704
 BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    Intra-group
    
    
    TotalYear ended 31 March 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExternal revenue
    
    
    7,312
    
    
    
    8,100
    
    
    
    4,109
    
    
    
    685
    
    
    
    17
    
    
    
    
    
    
    
    20,223Internal revenue
    
    
    
    
    
    
    246
    
    
    
    1,277
    
    
    
    4,538
    
    
    
    
    
    
    
    (6,061
    )
    
    
    Total revenue
    
    
    7,312
    
    
    
    8,346
    
    
    
    5,386
    
    
    
    5,223
    
    
    
    17
    
    
    
    (6,061
    )
    
    
    20,223
 92 BT GROUP PLCANNUAL REPORT & FORM 20-F




---



##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED
FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Segmental analysis continued
  BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mOperating (loss) profit before specific items
    
    
    (2,106
    )
    
    
    1,209
    
    
    
    580
    
    
    
    1,218
    
    
    
    (82
    )
    
    
    819Specific itemsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (408
    )
    
    
    (408
    )Segment resultb
    
    
    (2,106
    )
    
    
    1,209
    
    
    
    580
    
    
    
    1,218
    
    
    
    (490
    )
    
    
    411Share of post tax profit of associates and
joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Net finance expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )Loss before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (134
    )Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )Depreciation
    
    
    537
    
    
    
    340
    
    
    
    645
    
    
    
    707
    
    
    
    20
    
    
    
    2,249Amortisation
    
    
    239
    
    
    
    85
    
    
    
    41
    
    
    
    71
    
    
    
    205
    
    
    
    641
 a
    
    The 2009 specific items include BT Global Services restructuring charges of £280m
(2008 and 2007: £nil), of which £4m was paid in cash in 2009, and 21CN asset impairment and related
charges of £50m (2008 and 2007: £nil), which are non-cash charges.b
    
    The 2009 BT Global
Services segment result of £(2,106)m includes contract and financial review charges of £1,639m
(2008 and 2007: £nil), which are non-cash charges. For further detail, see note 3. BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mOperating profit before specific items
    
    
    117
    
    
    
    1,050
    
    
    
    502
    
    
    
    1,222
    
    
    
    4
    
    
    
    2,895Specific items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (539
    )
    
    
    (539
    )Segment result
    
    
    117
    
    
    
    1,050
    
    
    
    502
    
    
    
    1,222
    
    
    
    (535
    )
    
    
    2,356Share of post tax loss of associates and
joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Profit on disposal of associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Net finance expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (378
    )Profit before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,976Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (238
    )Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,738Depreciation
    
    
    548
    
    
    
    377
    
    
    
    839
    
    
    
    664
    
    
    
    (18
    )
    
    
    2,410Amortisation
    
    
    196
    
    
    
    68
    
    
    
    54
    
    
    
    25
    
    
    
    136
    
    
    
    479
 BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalYear ended 31 March 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mOperating profit before specific items
    
    
    70
    
    
    
    912
    
    
    
    592
    
    
    
    1,220
    
    
    
    (81
    )
    
    
    2,713Specific items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (172
    )
    
    
    (172
    )Segment result
    
    
    70
    
    
    
    912
    
    
    
    592
    
    
    
    1,220
    
    
    
    (253
    )
    
    
    2,541Share of post tax profit of associates and
joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Profit on disposal of associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Net finance expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )Profit before tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,484Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,852Depreciation
    
    
    484
    
    
    
    402
    
    
    
    864
    
    
    
    663
    
    
    
    123
    
    
    
    2,536Amortisation
    
    
    181
    
    
    
    43
    
    
    
    44
    
    
    
    44
    
    
    
    72
    
    
    
    384
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 93




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##### Table of Contents



FINANCIAL
STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Segmental analysis continued
  BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalAt 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAssetsSegment assets
    
    
    7,501
    
    
    
    2,850
    
    
    
    3,038
    
    
    
    9,285
    
    
    
    1,147
    
    
    
    23,821Associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    132Unallocated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,321
    
    
    
    5,321Consolidated total assets
    
    
    7,501
    
    
    
    2,850
    
    
    
    3,038
    
    
    
    9,285
    
    
    
    6,600
    
    
    
    29,274LiabilitiesSegment liabilities
    
    
    3,927
    
    
    
    2,068
    
    
    
    1,275
    
    
    
    594
    
    
    
    253
    
    
    
    8,117Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,988
    
    
    
    20,988Consolidated total liabilities
    
    
    3,927
    
    
    
    2,068
    
    
    
    1,275
    
    
    
    594
    
    
    
    21,241
    
    
    
    29,105Capital expenditureProperty, plant and equipment
    
    
    478
    
    
    
    270
    
    
    
    537
    
    
    
    823
    
    
    
    141
    
    
    
    2,249Intangible assets
    
    
    339
    
    
    
    51
    
    
    
    70
    
    
    
    143
    
    
    
    236
    
    
    
    839817
    
    
    
    321
    
    
    
    607
    
    
    
    966
    
    
    
    377
    
    
    
    3,088Consideration for acquisitions
    
    
    13
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    186Total capital additions
    
    
    830
    
    
    
    419
    
    
    
    607
    
    
    
    966
    
    
    
    452
    
    
    
    3,274
 BT GlobalServices
    
    
    BT Retail
    
    
    BT Wholesale
    
    
    Openreach
    
    
    Other
    
    
    TotalAt 31 March 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAssetsSegment assets
    
    
    8,131
    
    
    
    2,999
    
    
    
    3,870
    
    
    
    9,150
    
    
    
    (63
    )
    
    
    24,087Associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    85Unallocated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,180
    
    
    
    5,180Consolidated total assets
    
    
    8,131
    
    
    
    2,999
    
    
    
    3,870
    
    
    
    9,150
    
    
    
    5,202
    
    
    
    29,352LiabilitiesSegment liabilities
    
    
    3,773
    
    
    
    2,365
    
    
    
    1,008
    
    
    
    850
    
    
    
    567
    
    
    
    8,563Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,357
    
    
    
    15,357Consolidated total liabilities
    
    
    3,773
    
    
    
    2,365
    
    
    
    1,008
    
    
    
    850
    
    
    
    15,924
    
    
    
    23,920Capital expenditureProperty, plant and equipment
    
    
    474
    
    
    
    281
    
    
    
    560
    
    
    
    972
    
    
    
    226
    
    
    
    2,513Intangible assets
    
    
    310
    
    
    
    80
    
    
    
    103
    
    
    
    101
    
    
    
    232
    
    
    
    826784
    
    
    
    361
    
    
    
    663
    
    
    
    1,073
    
    
    
    458
    
    
    
    3,339Consideration for acquisitions
    
    
    406
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    477Total capital additions
    
    
    1,190
    
    
    
    432
    
    
    
    663
    
    
    
    1,073
    
    
    
    458
    
    
    
    3,816
  94 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTSCONSOLIDATED FINANCIAL
STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Segmental analysis continued
  2009
    
    
    2008
    
    
    2007Revenue by geographic area
    
    £m
    
    
    £m
    
    
    £mUK
    
    
    16,736
    
    
    
    17,186
    
    
    
    17,241Europe, Middle East and Africa, excluding the UK
    
    
    3,247
    
    
    
    2,510
    
    
    
    2,174Americas
    
    
    1,119
    
    
    
    847
    
    
    
    711Asia Pacific
    
    
    288
    
    
    
    161
    
    
    
    97Total
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223
  Capital
    
    
    ConsiderationTotal assets
    
    
    expenditure
    
    
    for acquisitionsTotal assets, capital expenditure and consideration
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008for acquisitions by geographic area
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mUK
    
    
    17,996
    
    
    
    18,435
    
    
    
    2,772
    
    
    
    3,023
    
    
    
    40
    
    
    
    71Europe, Middle East and Africa, excluding the UK
    
    
    4,346
    
    
    
    4,231
    
    
    
    170
    
    
    
    189
    
    
    
    17
    
    
    
    134Americas
    
    
    1,364
    
    
    
    1,286
    
    
    
    113
    
    
    
    103
    
    
    
    129
    
    
    
    130Asia Pacific
    
    
    247
    
    
    
    220
    
    
    
    33
    
    
    
    24
    
    
    
    
    
    
    
    142Unallocated assets
    
    
    5,321
    
    
    
    5,180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    29,274
    
    
    
    29,352
    
    
    
    3,088
    
    
    
    3,339
    
    
    
    186
    
    
    
    477
  
 2. Other operating income
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mProfits on disposal of property, plant and equipment
    
    
    52
    
    
    
    50
    
    
    
    20Income from repayment works
    
    
    72
    
    
    
    74
    
    
    
    68Other operating income
    
    
    228
    
    
    
    235
    
    
    
    148Other operating income before specific items
    
    
    352
    
    
    
    359
    
    
    
    236Specific items (note 4)
    
    
    (13
    )
    
    
    (10
    )
    
    
    (3
    )Other operating income
    
    
    339
    
    
    
    349
    
    
    
    233
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 95




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##### Table of Contents



FINANCIAL
STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 3. Operating costs
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mCosts by natureStaff costs:Wages and salaries
    
    
    4,499
    
    
    
    4,242
    
    
    
    4,099Social security costs
    
    
    432
    
    
    
    417
    
    
    
    388Pension costs
    
    
    544
    
    
    
    626
    
    
    
    643Share based payment costs
    
    
    31
    
    
    
    73
    
    
    
    93Total staff costs
    
    
    5,506
    
    
    
    5,358
    
    
    
    5,223Own work capitalised
    
    
    (673
    )
    
    
    (724
    )
    
    
    (718
    )Net staff costs
    
    
    4,833
    
    
    
    4,634
    
    
    
    4,505Depreciation of property, plant and equipment:Owned assets
    
    
    2,200
    
    
    
    2,324
    
    
    
    2,420Held under finance leases
    
    
    49
    
    
    
    86
    
    
    
    116Amortisation of intangible assets
    
    
    641
    
    
    
    479
    
    
    
    384Payments to telecommunications operators
    
    
    4,266
    
    
    
    4,237
    
    
    
    4,162Other operating costsa
    
    
    8,934
    
    
    
    6,408
    
    
    
    6,159Total operating costs before specific items
    
    
    20,923
    
    
    
    18,168
    
    
    
    17,746Specific items (note 4)
    
    
    395
    
    
    
    529
    
    
    
    169Total operating costs
    
    
    21,318
    
    
    
    18,697
    
    
    
    17,915Operating costs before specific items include the following:Contract and financial review charges
    
    
    1,598
    
    
    
    
    
    
    
    Leaver costsb
    
    
    204
    
    
    
    127
    
    
    
    147Research and development expenditurec
    
    
    1,021
    
    
    
    857
    
    
    
    692Rental costs relating to operating leases
    
    
    426
    
    
    
    423
    
    
    
    389Foreign currency losses
    
    
    30
    
    
    
    8
    
    
    
    5
 a
    
    Other operating costs also include a net credit of £8m (2008 and 2007: £nil) relating
to fair value movements on derivatives recycled from the cash flow reserve.b
    
    Leaver costs exclude manager leaver costs associated with the groups transformation and reorganisation
activities during 2009 and 2008. Manager leaver costs associated with the transformation activities
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 £431m (2008: £325m, 2007: £314m) in respect of internally developed computer software.   96 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED
FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 4. Specific items
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mOther operating incomeNet loss on sale of group undertakingsa
    
    
    13
    
    
    
    10
    
    
    
    5Profit on sale of non current asset investmentsb
    
    
    
    
    
    
    
    
    
    
    (2
    )13
    
    
    
    10
    
    
    
    3Operating costsBT Global Services restructuring charges: Networks and products rationalisationc
    
    
    183
    
    
    
    
    
    
    
     People and propertyc
    
    
    51
    
    
    
    
    
    
    
     Intangible asset impairmentsc
    
    
    46
    
    
    
    
    
    
    
    280
    
    
    
    
    
    
    
    Restructuring costs  group transformation and reorganisation activitiesd
    
    
    65
    
    
    
    402
    
    
    
    Property rationalisation costse
    
    
    
    
    
    
    
    
    
    
    64Creation of Openreach and delivery of the Undertakingsf
    
    
    
    
    
    
    53
    
    
    
    30Write off of circuit inventory and other working capital balancesg
    
    
    
    
    
    
    74
    
    
    
    6521CN asset impairment and related chargesh
    
    
    50
    
    
    
    
    
    
    
    Costs associated with settlement of open tax yearsi
    
    
    
    
    
    
    
    
    
    
    10395
    
    
    
    529
    
    
    
    169Finance incomeInterest on settlement of open tax yearsi
    
    
    
    
    
    
    
    
    
    
    (139
    )Share of results of associates and joint venturesReassessment of carrying value of associatej
    
    
    (36
    )
    
    
    
    
    
    
    Profit on disposal of associates and joint venturesk
    
    
    
    
    
    
    (9
    )
    
    
    (22
    )(36
    )
    
    
    (9
    )
    
    
    (22
    )Net specific items charge before tax
    
    
    372
    
    
    
    530
    
    
    
    11Tax credit in respect of settlement of open tax yearsi
    
    
    
    
    
    
    (40
    )
    
    
    (938
    )Tax credit on re-measurement of deferred taxl
    
    
    
    
    
    
    (154
    )
    
    
    Tax credit on specific items above
    
    
    (43
    )
    
    
    (149
    )
    
    
    (41
    )Net specific items charge (credit) after tax
    
    
    329
    
    
    
    187
    
    
    
    (968
    )
 a
    
    In 2009, a £13m (2008: £10m, 2007: £5m) loss on disposal arose from exiting a
business. The £10m and £5m losses in 2008 and 2007, respectively, relate principally to the
disposal of the groups satellite broadcast business.b
    
    In 2007, the group disposed of
some non-core investments, resulting in a profit of £2m (2009 and 2008: £nil).c
    
    In
2009, as a result of the BT Global Services operational review, the group recorded restructuring
charges of £280m (2008 and 2007: £nil). The main components of the specific item are set out below. Networks and products rationalisation  as a result of the decision to rationalise the legacy
networks, including the associated systems and processes, a charge of £183m (2008 and 2007: £nil)
has been recognised, representing the difference between the recoverable amount and the carrying
value of the assets impacted by the rationalisation. People and property  a charge of £51m (2008 and 2007: £nil) has been recognised, relating to the
costs associated with the restructuring and rationalisation of people and property. The main
components of the restructuring charge are leaver costs and property exit costs. Intangible asset impairments  a charge of £46m (2008 and 2007: £nil) has been recognised,
reflecting the costs associated with rationalising the services that are offered to customers and
the brands under which customers are served. The charge includes the write down of brands and other
acquired intangible assets that no longer have an economic value to the business.d
    
    In
2009 and 2008, respectively, the group incurred costs of £65m and £402m (2007: £nil) in respect of
the groups transformation and reorganisation activities. The costs mainly comprised leaver costs,
property exit and transformation programme costs.e
    
    In 2007, the group incurred property
rationalisation costs of £64m (2009 and 2008: £nil).f
    
    In 2008 and 2007, respectively,
charges of £53m and £30m (2009: £nil) were recognised in relation to further estimated costs
required to create Openreach and deliver the Undertakings agreed with Ofcom, particularly with
regard to the introduction of equivalence of input systems.g
    
    In 2008 and 2007,
respectively, the group recorded charges of £74m and £65m (2009: £nil), recognised as a result of
the completion of a review of circuit inventory and other working capital balances.h
    
    In
2009, a £50m (2008 and 2007: £nil) charge was recognised, comprising £31m of asset impairments and £19m of
associated costs, following the groups review of its 21CN programme and associated voice strategy
in the light of the move to a customer-led roll out strategy and focus on next generation voice
service developments of fibre based products.i
    
    In 2008, the group agreed an outstanding
tax matter relating to a business disposed of in 2001, the impact of which was a tax credit of
£40m, and this closed all open items in relation to the settlement reached in 2007. In 2007, the
group agreed the settlement of substantially all open UK tax matters relating to ten tax years up
to and including 2004/05 with HM Revenue and Customs (HMRC). In 2007, the total impact of the
settlement was a net credit of £1,067m, comprising a tax credit of £938m representing those
elements of the tax charges previously recognised which were in excess of the final agreed
liability, interest income of £139m and operating costs of £10m representing the costs associated
with reaching this agreement.j
    
    In 2009, a £36m credit (2008 and 2007: £nil) was
recognised in respect of a reassessment of the value of the groups share of the net assets of an
associated undertaking.k
    
    In 2008 and 2007, respectively, profit on the sale of
associates of £9m and £22m (2009: £nil) were recognised. In 2008, the £9m profit arose from the
receipt of contingent consideration from the disposal of the groups interest in e-peopleserve. In
2007, the £22m profit arose from the disposal of 6% of the groups equity interest in the associate
Tech Mahindra Limited.l
    
    In 2008, a tax credit of £154m was recognised for the
re-measurement of deferred tax balances as a result of the change in the UK statutory corporation
tax rate from 30% to 28%, effective in 2009.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 97




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 5. Finance expense and finance income
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mFinance expenseInterest on listed bonds, debentures and notesa,b
    
    
    777
    
    
    
    629
    
    
    
    623Interest on finance leasesa
    
    
    25
    
    
    
    31
    
    
    
    44Interest on other borrowingsa
    
    
    130
    
    
    
    159
    
    
    
    58Unwinding of discount on provisionsa
    
    
    3
    
    
    
    3
    
    
    
    3Fair value loss on derivatives not in a designated hedge relationshipe
    
    
    29
    
    
    
    41
    
    
    
    4Interest on pension scheme liabilities
    
    
    2,308
    
    
    
    2,028
    
    
    
    1,872Total finance expensec,d
    
    
    3,272
    
    
    
    2,891
    
    
    
    2,604
 a
    
    Calculated using the effective interest method unless otherwise stated below.b
    
    Includes a net charge of £25m (2008: £77m, 2007: £67m) relating to fair value movements on
derivatives recycled from the cash flow reserve.c
    
    Includes a net charge of £39m (2008:
net credit of £6m, 2007: net credit of £70m) relating to fair value movements arising on hedged
items and a net credit of £39m (2008: net charge of £6m, 2007: net charge of £70m) relating to fair
value movements arising on derivatives designated as fair value hedges.d
    
    Includes a net
charge of £2,161m (2008: net charge of £373m, 2007: net credit of £420m) relating to foreign
exchange movements on loans and borrowings and a net credit of £2,161m (2008: net credit of £373m,
2007: net charge of £420m) relating to fair value movements on derivatives recycled from the cash
flow reserve. The items generating this foreign exchange are in designated hedge relationships.e
    
    Includes a loss of £nil (2008: £2m, 2007: £nil) recycled from the cash flow reserve
arising on de-designation of derivatives from a hedge relationship. 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mFinance incomeIncome from listed investmentsNet gain on held for trading investments
    
    
    
    
    
    
    
    
    
    
    6Interest on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    1Other interest and similar incomeInterest on held for trading investments
    
    
    
    
    
    
    
    
    
    
    39Interest on available-for-sale investments
    
    
    14
    
    
    
    25
    
    
    
    16Interest on loans and receivables
    
    
    17
    
    
    
    40
    
    
    
    17Other interest and similar incomea
    
    
    
    
    
    
    
    
    
    
    139Expected return on pension scheme assets
    
    
    2,621
    
    
    
    2,448
    
    
    
    2,292Total finance incomeb
    
    
    2,652
    
    
    
    2,513
    
    
    
    2,510Net finance expense
    
    
    620
    
    
    
    378
    
    
    
    94
 a
    
    2007 includes £139m relating to interest on settlement of open tax matters disclosed
as a specific item (see note 4).b
    
    Includes a net charge of £nil (2008: £nil, 2007:
£123m) relating to foreign exchange movements on investments and a net credit of £nil (2008: £nil,
2007: £123m) relating to fair value movements on derivatives recycled from the cash flow reserve.
The items generating this foreign exchange are in designated hedge relationships. 
 6. Dividends
 2009
    
    
    2008
    
    
    2007pence
    
    
    
    
    
    
    pence
    
    
    
    
    
    
    penceper share
    
    
    £m
    
    
    per share
    
    
    £m
    
    
    per share
    
    
    £mFinal dividend paid in respect of the prior year
    
    
    10.40
    
    
    
    804
    
    
    
    10.00
    
    
    
    810
    
    
    
    7.60
    
    
    
    631Interim dividend paid in respect of the current year
    
    
    5.40
    
    
    
    418
    
    
    
    5.40
    
    
    
    431
    
    
    
    5.10
    
    
    
    42215.80
    
    
    
    1,222
    
    
    
    15.40
    
    
    
    1,241
    
    
    
    12.70
    
    
    
    1,053
 14 August 2009.
 98 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 7. Taxation
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mUnited KingdomCorporation tax at 28% (2008 and 2007: 30%)
    
    
    
    
    
    
    214
    
    
    
    256Adjustments in respect of prior periods
    
    
    (50
    )
    
    
    18
    
    
    
    (1,096
    )Non UK taxationCurrent
    
    
    48
    
    
    
    42
    
    
    
    25Adjustments in respect of prior periods
    
    
    (10
    )
    
    
    (88
    )
    
    
    38Total current tax (credit) expense
    
    
    (12
    )
    
    
    186
    
    
    
    (777
    )Deferred taxOrigination and reversal of temporary differences
    
    
    (77
    )
    
    
    78
    
    
    
    367Adjustments in respect of prior periods
    
    
    36
    
    
    
    (26
    )
    
    
    42Total deferred tax (credit) expense
    
    
    (41
    )
    
    
    52
    
    
    
    409Total taxation (credit) expense in the income statement
    
    
    (53
    )
    
    
    238
    
    
    
    (368
    )
 Factors affecting taxation (credit) expense
  2009
    
    
    2008
    
    
    2007£m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %(Loss) profit before taxation
    
    
    (134
    )
    
    
    
    
    
    
    1,976
    
    
    
    
    
    
    
    2,484Notional taxation (credit) expense at UK rate of 28%
(2008 and 2007: 30%)
    
    
    (38
    )
    
    
    28.0
    
    
    
    592
    
    
    
    30.0
    
    
    
    745
    
    
    
    30.0Effects of:Non deductible depreciation and amortisation
    
    
    27
    
    
    
    (20.0
    )
    
    
    23
    
    
    
    1.1
    
    
    
    4
    
    
    
    0.1Non (taxable) deductible non UK (profits) losses
    
    
    (24
    )
    
    
    17.9
    
    
    
    (7
    )
    
    
    (0.3
    )
    
    
    9
    
    
    
    0.4(Lower) higher taxes on non UK profits
    
    
    (9
    )
    
    
    6.7
    
    
    
    7
    
    
    
    0.3
    
    
    
    11
    
    
    
    0.4Higher (lower) taxes on gain on disposal of non current
investments and group undertakings
    
    
    4
    
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (0.1
    )Other deferred tax assets not recognised
    
    
    5
    
    
    
    (3.7
    )
    
    
    (13
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    Associates and joint ventures
    
    
    (21
    )
    
    
    15.7
    
    
    
    (2
    )
    
    
    (0.1
    )
    
    
    (5
    )
    
    
    (0.2
    )Adjustments in respect of prior periods
    
    
    (24
    )
    
    
    17.9
    
    
    
    (56
    )
    
    
    (2.8
    )
    
    
    (78
    )
    
    
    (3.2
    )Tax credit in respect of settlement of open tax years
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (2.0
    )
    
    
    (938
    )
    
    
    (37.8
    )Re-measurements of deferred tax balances at 28%
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    (7.8
    )
    
    
    
    
    
    
    Other
    
    
    27
    
    
    
    (20.0
    )
    
    
    (112
    )
    
    
    (5.8
    )
    
    
    (114
    )
    
    
    (4.5
    )Total taxation (credit) expense and effective tax rate
    
    
    (53
    )
    
    
    39.6
    
    
    
    238
    
    
    
    12.0
    
    
    
    (368
    )
    
    
    (14.9
    )Specific items
    
    
    43
    
    
    
    
    
    
    
    343
    
    
    
    
    
    
    
    979Total taxation (credit) expense before specific items
and effective rate on profit before specific items
    
    
    (10
    )
    
    
    (4.2
    )
    
    
    581
    
    
    
    23.2
    
    
    
    611
    
    
    
    24.5
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 99




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##### Table of Contents



FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  7. Taxation continued
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mCurrent tax credit on exchange differences
    
    
    
    
    
    
    (1
    )
    
    
    Deferred tax credit on exchange differences
    
    
    (64
    )
    
    
    
    
    
    
    Deferred tax expense relating to losses on cash flow hedges
    
    
    164
    
    
    
    29
    
    
    
    62Deferred tax (credit) expense on actuarial (loss) gain relating to retirement benefit obligations
    
    
    (1,959
    )
    
    
    804
    
    
    
    424Total taxation on items taken to statement of recognised income and expense
    
    
    (1,859
    )
    
    
    832
    
    
    
    486Current tax credit relating to share based payments
    
    
    
    
    
    
    (17
    )
    
    
    (12
    )Deferred tax expense (credit) relating to share based payments
    
    
    12
    
    
    
    62
    
    
    
    (70
    )Total taxation on items taken directly to equitya
    
    
    (1,847
    )
    
    
    877
    
    
    
    404
 a
    
    2008 includes a £50m expense arising from the re-measurement of deferred tax balances
at 28%. 
 8. (Loss) earnings per share
    2009
    
    
    2008
    
    
    2007millions of
    
    
    millions of
    
    
    millions ofshares
    
    
    shares
    
    
    sharesBasic
    
    
    7,724
    
    
    
    8,066
    
    
    
    8,293Dilutive ordinary shares from share options
    
    
    5
    
    
    
    106
    
    
    
    123Dilutive ordinary shares held in trust
    
    
    42
    
    
    
    51
    
    
    
    63Total diluted
    
    
    7,771
    
    
    
    8,223
    
    
    
    8,479(Loss) profit attributable to equity shareholders of the parent (£m)
    
    
    (83
    )
    
    
    1,737
    
    
    
    2,850Basic (loss) earnings per share (p)
    
    
    (1.1)p
    
    
    
    21.5p
    
    
    
    34.4pDiluted (loss) earnings per share (p)
    
    
    (1.1)p
    
    
    
    21.1p
    
    
    
    33.6p
 100 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  8. (Loss) earnings per share continued
  2009
    
    
    2008
    
    
    2007pence
    
    
    
    
    
    
    pence
    
    
    
    
    
    
    penceper share
    
    
    £m
    
    
    per share
    
    
    £m
    
    
    per share
    
    
    £mPer share impact of specific items:Net loss on sale of group undertakings
    
    
    (0.2
    )
    
    
    (13
    )
    
    
    (0.1
    )
    
    
    (10
    )
    
    
    
    
    
    
    (5
    )Profit on sale of non current asset investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2BT Global Services restructuring charges Networks and products rationalisation
    
    
    (2.4
    )
    
    
    (183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     People and property
    
    
    (0.7
    )
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     Intangible asset impairment
    
    
    (0.6
    )
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21CN asset impairment and related charges
    
    
    (0.7
    )
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring costs
    
    
    (0.8
    )
    
    
    (65
    )
    
    
    (5.0
    )
    
    
    (402
    )
    
    
    
    
    
    
    Property rationalisation costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (64
    )Reassessment of carrying value of associate
    
    
    0.5
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Creation of Openreach and delivery of
the Undertakings
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    (53
    )
    
    
    (0.4
    )
    
    
    (30
    )Write off of circuit inventory and other working
capital balances
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    (74
    )
    
    
    (0.8
    )
    
    
    (65
    )Costs associated with settlement of open tax years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (10
    )Interest on settlement of open tax years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    139Profit on disposal of associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    9
    
    
    
    0.3
    
    
    
    22Tax credit in respect of settlement of open tax years
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    40
    
    
    
    11.3
    
    
    
    938Tax credit on re-measurement of deferred tax
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    154
    
    
    
    
    
    
    
    Tax credit on specific items
    
    
    0.6
    
    
    
    43
    
    
    
    1.8
    
    
    
    149
    
    
    
    0.5
    
    
    
    41Basic (loss) earnings per share/(loss) profit for
the year attributable to specific itemsa
    
    
    (4.3
    )
    
    
    (329
    )
    
    
    (2.4
    )
    
    
    (187
    )
    
    
    11.7
    
    
    
    968Basic earnings per share/profit for the year
before specific itemsa
    
    
    3.2
    
    
    
    246
    
    
    
    23.9
    
    
    
    1,924
    
    
    
    22.7
    
    
    
    1,882Basic (loss) earnings per share/(loss) profit for
the yeara
    
    
    (1.1
    )
    
    
    (83
    )
    
    
    21.5
    
    
    
    1,737
    
    
    
    34.4
    
    
    
    2,850Diluted (loss) earnings per share/(loss) profit for
the year attributable to specific itemsa
    
    
    (4.3
    )
    
    
    (329
    )
    
    
    (2.3
    )
    
    
    (187
    )
    
    
    11.4
    
    
    
    968Diluted earnings per share/profit for the year
before specific itemsa
    
    
    3.2
    
    
    
    246
    
    
    
    23.4
    
    
    
    1,924
    
    
    
    22.2
    
    
    
    1,882Diluted (loss) earnings per share/(loss) profit for
the yeara
    
    
    (1.1
    )
    
    
    (83
    )
    
    
    21.1
    
    
    
    1,737
    
    
    
    33.6
    
    
    
    2,850
 a
    
    The stated (loss) profit amounts are the component of the total (loss) profit which is attributable to equity shareholders excluding minority interests.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 101




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 9. Cash and cash equivalents
 2009
    
    
    2008£m
    
    
    £mCash at bank and in hand
    
    
    562
    
    
    
    732Cash equivalentsAvailable-for-saleListed
    
    
    7
    
    
    
    8Loans and receivablesUK deposits
    
    
    711
    
    
    
    671European deposits
    
    
    5
    
    
    
    24US deposits
    
    
    15
    
    
    
    Total cash equivalents
    
    
    738
    
    
    
    703Total cash and cash equivalents
    
    
    1,300
    
    
    
    1,435Bank overdrafts
    
    
    (185
    )
    
    
    (261
    )Cash and cash equivalents per the cash flow statement
    
    
    1,115
    
    
    
    1,174
   2009
    
    
    2008£m
    
    
    £mMoodys/S&P credit ratingaAaa/AAA
    
    
    90
    
    
    
    40Aa1/AA+
    
    
    
    
    
    
    30Aa2/AA
    
    
    124
    
    
    
    447Aa3/AA
    
    
    271
    
    
    
    181A1/A+
    
    
    251
    
    
    
    3A2/A
    
    
    2
    
    
    
    2Total cash equivalents
    
    
    738
    
    
    
    703
 a
    
    Cash equivalent balances with counterparties have been classified at the lower of
their Moodys and S&P rating.  102 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 10. Net debt
   2009
    
    
    2008£m
    
    
    £mAnalysis of net debtLoans and other borrowings (current and non current)
    
    
    13,907
    
    
    
    11,342Less:Cash and cash equivalents
    
    
    (1,300
    )
    
    
    (1,435
    )Current asset investments
    
    
    (163
    )
    
    
    (440
    )12,444
    
    
    
    9,467Adjustments:To retranslate currency denominated balances at swapped rates where hedged
    
    
    (1,766
    )
    
    
    241To recognise borrowings at net proceeds adjusted to amortise discount and investments
at the lower of cost and net realisable value
    
    
    (317
    )
    
    
    (248
    )Net debt at 31 March
    
    
    10,361
    
    
    
    9,460
  2009
    
    
    2008£m
    
    
    £mReconciliation of movement in net debtNet debt at 1 April
    
    
    9,460
    
    
    
    7,914Increase in net debt resulting from cash flows
    
    
    921
    
    
    
    1,510Net debt assumed or issued on acquisitions
    
    
    (2
    )
    
    
    35Currency movements
    
    
    (36
    )
    
    
    (4
    )Other non-cash movements
    
    
    18
    
    
    
    5Net debt at 31 March
    
    
    10,361
    
    
    
    9,460
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 103




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 11. Intangible assets
 Brands,Telecommunication
    
    
    customerlicences and
    
    
    relationships
    
    
    ComputerGoodwill
    
    
    other
    
    
    and technology
    
    
    software
    a
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 1 April 2007
    
    
    819
    
    
    
    185
    
    
    
    118
    
    
    
    2,487
    
    
    
    3,609Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    826
    
    
    
    826Acquisitions through business combinationsb
    
    
    320
    
    
    
    6
    
    
    
    68
    
    
    
    2
    
    
    
    396Disposals and adjustments
    
    
    (62
    )
    
    
    36
    
    
    
    62
    
    
    
    (181
    )
    
    
    (145
    )Exchange differences
    
    
    11
    
    
    
    39
    
    
    
    
    
    
    
    43
    
    
    
    93At 1 April 2008
    
    
    1,088
    
    
    
    266
    
    
    
    248
    
    
    
    3,177
    
    
    
    4,779Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    839
    
    
    
    839Acquisitions through business combinations
    
    
    131
    
    
    
    
    
    
    
    46
    
    
    
    1
    
    
    
    178Disposals and adjustments
    
    
    1
    
    
    
    (3
    )
    
    
    20
    
    
    
    (237
    )
    
    
    (219
    )Impairmentsb
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (309
    )
    
    
    (335
    )Exchange differences
    
    
    269
    
    
    
    44
    
    
    
    88
    
    
    
    82
    
    
    
    483At 31 March 2009
    
    
    1,489
    
    
    
    307
    
    
    
    376
    
    
    
    3,553
    
    
    
    5,725AmortisationAt 1 April 2007
    
    
    
    
    
    
    59
    
    
    
    24
    
    
    
    942
    
    
    
    1,025Charge for the year
    
    
    
    
    
    
    12
    
    
    
    43
    
    
    
    424
    
    
    
    479Acquisitions through business combinations
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    4Disposals and adjustments
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    (164
    )
    
    
    (133
    )Exchange differences
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    32
    
    
    
    49At 1 April 2008
    
    
    
    
    
    
    121
    
    
    
    67
    
    
    
    1,236
    
    
    
    1,424Charge for the year
    
    
    
    
    
    
    14
    
    
    
    62
    
    
    
    565
    
    
    
    641Acquisitions through business combinations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Disposals and adjustments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (234
    )
    
    
    (235
    )Exchange differences
    
    
    
    
    
    
    22
    
    
    
    24
    
    
    
    60
    
    
    
    106At 31 March 2009
    
    
    
    
    
    
    156
    
    
    
    153
    
    
    
    1,628
    
    
    
    1,937Carrying amountAt 31 March 2009
    
    
    1,489
    
    
    
    151
    
    
    
    223
    
    
    
    1,925
    
    
    
    3,788At 31 March 2008
    
    
    1,088
    
    
    
    145
    
    
    
    181
    
    
    
    1,941
    
    
    
    3,355
 a
    
    Computer software includes additions in 2009 of £529m (2008: £720m) in respect of
internally developed computer software.b
    
    Impairment charges of £335m were recognised in 2009, comprising BT Global Services
restructuring charges of £81m, BT Global Services contract and financial review charges of £241m
(see note 3) and £13m in relation to the review of the 21CN programme and associated voice
strategy. All impairment losses were recognised in the income statement. The recoverable amount of
the impaired assets is equal to their value in use.   BT Global
    
    
    BT RetailServices
    
    
    Consumer
    
    
    BT Business
    
    
    BT Ireland
    
    
    Enterprises
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    691
    
    
    
    57
    
    
    
    
    
    
    
    16
    
    
    
    55
    
    
    
    819Acquisitions through business combinations
    
    
    273
    
    
    
    13
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    320Disposals and adjustments
    
    
    (39
    )
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )Exchange differences
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11At 1 April 2008
    
    
    936
    
    
    
    47
    
    
    
    34
    
    
    
    16
    
    
    
    55
    
    
    
    1,088Acquisitions through business combinations
    
    
    37
    
    
    
    10
    
    
    
    10
    
    
    
    
    
    
    
    74
    
    
    
    131Disposals and adjustments
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Exchange differences
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    269At 31 March 2009
    
    
    1,226
    
    
    
    57
    
    
    
    44
    
    
    
    16
    
    
    
    146
    
    
    
    1,489
 104 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 11. Intangible assets continued
  BT RetailBT GlobalServices

    
    Consumer

    
    BT Business

    
    BT Ireland

    
    EnterprisesMethod of determining recoverable amount
    
    Value in use
    
    Value in use
    
    Value in use
    
    Value in use
    
    Value in useDiscount rate
    
    
    11.1
    %
    
    
    11.1
    %
    
    
    11.1
    %
    
    
    11.1
    %
    
    
    11.1
    %Perpetuity growth rate
    
    
    2.5
    %
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %
          4
    
    a reduction in the perpetuity growth rate from the 2.5% assumption applied to a revised
assumption of 0.0% or less;4
    
    an increase in the discount rate from the 11.1% assumption applied to a revised assumption of
12.9% or more;4
    
    a reduction in the projected operating cash flows across five years by 18% or more. A
reduction in forecast operating cash flows could arise from the lower than anticipated realisation
of cost savings from the revised operating model, particularly in the next two financial years.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 105




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 12. 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 2007
    
    
    1,115
    
    
    
    36,849
    
    
    
    2,220
    
    
    
    1,013
    
    
    
    41,197Additions
    
    
    18
    
    
    
    250
    
    
    
    225
    
    
    
    2,031
    
    
    
    2,524Acquisition through business combinations
    
    
    12
    
    
    
    237
    
    
    
    35
    
    
    
    
    
    
    
    284Transfers
    
    
    39
    
    
    
    1,794
    
    
    
    2
    
    
    
    (1,835
    )
    
    
    Disposals and adjustments
    
    
    (5
    )
    
    
    (409
    )
    
    
    (371
    )
    
    
    9
    
    
    
    (776
    )Exchange differences
    
    
    30
    
    
    
    396
    
    
    
    83
    
    
    
    22
    
    
    
    531At 1 April 2008
    
    
    1,209
    
    
    
    39,117
    
    
    
    2,194
    
    
    
    1,240
    
    
    
    43,760Additions
    
    
    8
    
    
    
    238
    
    
    
    187
    
    
    
    1,813
    
    
    
    2,246Acquisition through business combinations
    
    
    1
    
    
    
    3
    
    
    
    6
    
    
    
    
    
    
    
    10Transfers
    
    
    16
    
    
    
    2,045
    
    
    
    19
    
    
    
    (2,080
    )
    
    
    Disposals and adjustments
    
    
    3
    
    
    
    (373
    )
    
    
    (169
    )
    
    
    (71
    )
    
    
    (610
    )Impairmentsd
    
    
    
    
    
    
    (121
    )
    
    
    (8
    )
    
    
    (18
    )
    
    
    (147
    )Exchange differences
    
    
    58
    
    
    
    652
    
    
    
    149
    
    
    
    26
    
    
    
    885At 31 March 2009
    
    
    1,295
    
    
    
    41,561
    
    
    
    2,378
    
    
    
    910
    
    
    
    46,144Accumulated depreciationAt 1 April 2007
    
    
    426
    
    
    
    24,233
    
    
    
    1,577
    
    
    
    
    
    
    
    26,236Charge for the year
    
    
    55
    
    
    
    2,127
    
    
    
    228
    
    
    
    
    
    
    
    2,410Acquisition through business combinations
    
    
    5
    
    
    
    167
    
    
    
    26
    
    
    
    
    
    
    
    198Disposals and adjustments
    
    
    (4
    )
    
    
    (404
    )
    
    
    (327
    )
    
    
    
    
    
    
    (735
    )Exchange differences
    
    
    18
    
    
    
    281
    
    
    
    70
    
    
    
    
    
    
    
    369At 1 April 2008
    
    
    500
    
    
    
    26,404
    
    
    
    1,574
    
    
    
    
    
    
    
    28,478Charge for the year
    
    
    56
    
    
    
    1,928
    
    
    
    265
    
    
    
    
    
    
    
    2,249Acquisition through business combinations
    
    
    1
    
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    8Disposals and adjustments
    
    
    4
    
    
    
    (395
    )
    
    
    (209
    )
    
    
    
    
    
    
    (600
    )Exchange differences
    
    
    30
    
    
    
    476
    
    
    
    126
    
    
    
    
    
    
    
    632At 31 March 2009
    
    
    591
    
    
    
    28,416
    
    
    
    1,760
    
    
    
    
    
    
    
    30,767Carrying amountAt 31 March 2009
    
    
    704
    
    
    
    13,145
    
    
    
    618
    
    
    
    910
    
    
    
    15,377Engineering stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28Total at 31 March 2009
    
    
    704
    
    
    
    13,145
    
    
    
    618
    
    
    
    938
    
    
    
    15,405At 31 March 2008
    
    
    709
    
    
    
    12,713
    
    
    
    620
    
    
    
    1,240
    
    
    
    15,282Engineering stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    25Total at 31 March 2008
    
    
    709
    
    
    
    12,713
    
    
    
    620
    
    
    
    1,265
    
    
    
    15,307
 2009
    
    
    2008£m
    
    
    £maThe carrying amount of land and buildings, including leasehold improvements, comprised:Freehold
    
    
    451
    
    
    
    412Long leases (over 50 years unexpired)
    
    
    30
    
    
    
    21Short leases
    
    
    223
    
    
    
    276Total land and buildings
    
    
    704
    
    
    
    709
 b
    
    The carrying amount of the groups property, plant and equipment includes an amount of
£216m (2008: £275m) in respect of assets held under finance leases, comprising land and buildings
of £76m (2008: £80m) and network infrastructure and equipment of £140m (2008: £195m). The
depreciation charge on those assets for 2009 was £49m (2008: £86m), comprising land and buildings
of £3m (2008: £3m) and network infrastructure and equipment of £46m (2008: £83m).c
    
    Other mainly comprises motor vehicles and computers.d
    
    Impairment charges of £147m were recognised in 2009, comprising BT Global Services
restructuring charges of £129m and £18m in relation to the review of the 21CN programme and
associated voice strategy. All impairment losses were recognised in the income statement. The
recoverable amount of the impaired assets is equal to their value in use. 106 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 12. Property, plant and equipment continued
 2009
    
    
    2008£m
    
    
    £mAdditions to property, plant and equipment comprised:Land and buildings
    
    
    23
    
    
    
    33Network infrastructure and equipmentTransmission equipment
    
    
    1,067
    
    
    
    1,117Exchange equipment
    
    
    44
    
    
    
    83Other network equipment
    
    
    899
    
    
    
    1,060OtherComputers and office equipment
    
    
    140
    
    
    
    181Motor vehicles and other
    
    
    73
    
    
    
    50Total additions to property, plant and equipment
    
    
    2,246
    
    
    
    2,524Increase (decrease) in engineering stores
    
    
    3
    
    
    
    (11
    )Total additions
    
    
    2,249
    
    
    
    2,513
 
 13. Investments
 2009
    
    
    2008£m
    
    
    £mNon current assetsAvailable-for-sale
    
    
    23
    
    
    
    15Loans and receivables
    
    
    32
    
    
    
    1655
    
    
    
    31Current assetsAvailable-for-sale
    
    
    153
    
    
    
    439Loans and receivables
    
    
    10
    
    
    
    1163
    
    
    
    440
  2009
    
    
    2008£m
    
    
    £mMoodys/S&P credit ratingaAaa/AAA
    
    
    153
    
    
    
    440A1/A+
    
    
    10
    
    
    
    Total current asset investments
    
    
    163
    
    
    
    440
 a
    
    Current asset investment balances with counterparties have been classified at the
lower of their Moodys and S&P rating.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 107




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 14. Associates and joint ventures
 2009
    
    
    2008Associates
    
    
    Joint ventures
    
    
    Total
    
    
    Associates
    
    
    Joint ventures
    
    
    Total£m
    
    
    
    £m
    
    
    
    £m
    
    
    
    £m
    
    
    
    £m
    
    
    
    £mNon current assets
    
    
    41
    
    
    
    7
    
    
    
    48
    
    
    
    28
    
    
    
    5
    
    
    
    33Current assets
    
    
    168
    
    
    
    4
    
    
    
    172
    
    
    
    129
    
    
    
    4
    
    
    
    133Current liabilities
    
    
    (86
    )
    
    
    (2
    )
    
    
    (88
    )
    
    
    (78
    )
    
    
    (3
    )
    
    
    (81
    )Share of net assets
    
    
    123
    
    
    
    9
    
    
    
    132
    
    
    
    79
    
    
    
    6
    
    
    
    85Revenue
    
    
    308
    
    
    
    15
    
    
    
    323
    
    
    
    172
    
    
    
    17
    
    
    
    189Expenses
    
    
    (262
    )
    
    
    (15
    )
    
    
    (277
    )
    
    
    (173
    )
    
    
    (23
    )
    
    
    (196
    )Taxation
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Share of post tax results before specific items
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    (5
    )
    
    
    (6
    )
    
    
    (11
    )Specific
items  reassessment of carrying
value of associate (note 4)
    
    
    36
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Share of post tax results
    
    
    75
    
    
    
    
    
    
    
    75
    
    
    
    (5
    )
    
    
    (6
    )
    
    
    (11
    )
 Associates
    
    
    Joint ventures
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    61
    
    
    
    6
    
    
    
    67Share of post tax loss
    
    
    (5
    )
    
    
    (6
    )
    
    
    (11
    )Dividends received
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Acquisitions
    
    
    12
    
    
    
    
    
    
    
    12Disposals
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Exchange differences and other
    
    
    13
    
    
    
    8
    
    
    
    21At 1 April 2008
    
    
    79
    
    
    
    6
    
    
    
    85Share of post tax profit
    
    
    75
    
    
    
    
    
    
    
    75Dividends received
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Exchange differences and other
    
    
    (25
    )
    
    
    3
    
    
    
    (22
    )At 31 March 2009
    
    
    123
    
    
    
    9
    
    
    
    132
  
 15. Trade and other receivables
 2009
    
    
    2008£m
    
    
    £mCurrentTrade receivables
    
    
    1,966
    
    
    
    1,853Prepayments
    
    
    825
    
    
    
    981Accrued income
    
    
    1,135
    
    
    
    1,340Other receivables
    
    
    259
    
    
    
    2754,185
    
    
    
    4,449
 2009
    
    
    2008£m
    
    
    £mNon currentOther assetsa,b
    
    
    322
    
    
    
    854
 a
    
    Other assets mainly represents costs relating to the initial set up,
transition or transformation phase of long-term networked IT services contracts.b
    
    The decrease in Other assets in 2009 reflects the impact of the BT
Global Services contract and financial review charges (see note 3). 108 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 15. Trade and other receivables continued
  2009
    
    
    2008£m
    
    
    £mAt 1 April
    
    
    209
    
    
    
    280Amounts charged to the income statement
    
    
    151
    
    
    
    114Utilised in the year
    
    
    (139
    )
    
    
    (211
    )Acquisitions
    
    
    4
    
    
    
    7Exchange differences
    
    
    21
    
    
    
    19At 31 March
    
    
    246
    
    
    
    209
   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
    
    
    £m2009
    
    
    1,263
    
    
    
    1
    
    
    
    474
    
    
    
    90
    
    
    
    65
    
    
    
    73
    
    
    
    1,9662008
    
    
    1,090
    
    
    
    3
    
    
    
    571
    
    
    
    63
    
    
    
    73
    
    
    
    53
    
    
    
    1,853
   2009
    
    
    2008Trade receivables not past due
    
    £m
    
    
    £mBT Global Services
    
    
    878
    
    
    
    793BT Retail
    
    
    308
    
    
    
    224BT Wholesale
    
    
    64
    
    
    
    68Openreach
    
    
    3
    
    
    
    Other
    
    
    10
    
    
    
    5Total trade receivables not past due
    
    
    1,263
    
    
    
    1,090
 2009
    
    
    2008Accrued income
    
    £m
    
    
    £mBT Global Services
    
    
    635
    
    
    
    797BT Retail
    
    
    274
    
    
    
    309BT Wholesale
    
    
    195
    
    
    
    176Openreach
    
    
    26
    
    
    
    42Other
    
    
    5
    
    
    
    16Total accrued income
    
    
    1,135
    
    
    
    1,340
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 109




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 16. Loans and other borrowings
 2009
    
    
    2008£m
    
    
    £mSterling 6.375% bonds June 2037b
    
    
    521
    
    
    
    521US dollar 9.125% (2008: 9.125%) notes December 2030 (minimum 8.625%a)b
    
    
    1,914
    
    
    
    1,380Sterling 5.75% bonds December 2028
    
    
    608
    
    
    
    608Sterling 3.5% indexed linked notes April 2025
    
    
    330
    
    
    
    315Sterling 8.625% bonds March 2020
    
    
    298
    
    
    
    298US dollar 5.95% bonds January 2018b
    
    
    777
    
    
    
    563Sterling 6.625% bonds June 2017b
    
    
    524
    
    
    
    524Sterling 8.0% (2008: 8.0%) notes December 2016 (minimum 7.5%a)
    
    
    713
    
    
    
    712Euro 6.5% bonds July 2015b
    
    
    973
    
    
    
    Euro 5.25% bonds June 2014b
    
    
    723
    
    
    
    622Euro 5.25% bonds January 2013b
    
    
    935
    
    
    
    812US dollar 5.15% bonds January 2013b
    
    
    599
    
    
    
    434Euro 7.375% (2008: 7.375%) notes February 2011 (minimum 6.875%a)b
    
    
    1,051
    
    
    
    903US dollar 8.625% (2008: 8.625%) notes December 2010 (minimum 8.125%a)b
    
    
    2,074
    
    
    
    1,496US dollar 8.765% bonds August 2009c
    
    
    149
    
    
    
    110Total listed bonds, debentures and notes
    
    
    12,189
    
    
    
    9,298Finance leases
    
    
    332
    
    
    
    320Commercial paperb,d
    
    
    715
    
    
    
    107Sterling 6.35% bank loan due August 2012
    
    
    312
    
    
    
    312Sterling 10.4% bank loan due September 2009
    
    
    140
    
    
    
    140Sterling floating rate note 2008-2009 (average effective interest rate 4.2% (2008: 5.2%))
    
    
    28
    
    
    
    36Sterling floating rate loan 2008-2009 (average effective interest rate in 2008: 6.7%)
    
    
    
    
    
    
    402Sterling floating rate loan 2008 (average effective interest rate in 2008: 6.3%)
    
    
    
    
    
    
    351Sterling floating rate loan 2008 (average effective interest rate in 2008: 6.4%)
    
    
    
    
    
    
    100Other loans 2008-2012
    
    
    6
    
    
    
    15Bank
overdrafts (of which £160m (2008: £256m) had a legally enforceable right of set off  see note 9)
    
    
    185
    
    
    
    261Total other loans and borrowings
    
    
    1,386
    
    
    
    1,724Total loans and other borrowings
    
    
    13,907
    
    
    
    11,342
 a
    
    The interest rate payable on these notes will be subject to adjustment from time to
time if either Moodys or Standard and Poors (S&P) reduce the rating ascribed to the groups
senior unsecured debt below A3 in the case of Moodys or below A- in the case of S&P. In this
event, the interest rate payable on the notes and the spread applicable to the floating notes will
be increased by 0.25% for each ratings category adjustment by each rating agency. In addition, if
Moodys or S&P subsequently increase the ratings ascribed to the groups senior unsecured debt,
then the interest rate then payable on notes and the spread applicable to the floating notes will
be decreased by 0.25% for each rating category upgrade by each rating agency, but in no event will
the interest rate be reduced below the minimum interest rate reflected in the above table. On 31
March 2009, both Moodys and S&P downgraded BTs credit rating by one ratings category to Baa2 and
BBB, respectively. At the next coupon date in the 2010 financial year, the rate payable on these
bonds will therefore increase by 0.5 percentage points.b
    
    Hedged in a designated cash flow hedge.c
    
    Hedged in a designated cash flow and fair value hedge.d
    
    Commercial paper is denominated in Sterling of £209m (2008: £nil) and Euros of £506m
(2008: £107m).   2009
    
    
    2008Effect of
    
    
    Principal
    
    
    
    
    
    
    Effect of
    
    
    PrincipalCarrying
    
    
    hedging
    
    
    repayments at
    
    
    Carrying
    
    
    hedging and
    
    
    repayments atamount
    
    
    and interest
    a
    
    hedged rates
    
    
    amount
    
    
    interest
    a
    
    hedged rates£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRepayments fall due as follows:Within one year, or on demand
    
    
    1,542
    
    
    
    (352
    )
    
    
    1,190
    
    
    
    1,524
    
    
    
    (264
    )
    
    
    1,260Between one and two years
    
    
    3,098
    
    
    
    (551
    )
    
    
    2,547
    
    
    
    278
    
    
    
    22
    
    
    
    300Between two and three years
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    2,363
    
    
    
    157
    
    
    
    2,520Between three and four years
    
    
    1,829
    
    
    
    (380
    )
    
    
    1,449
    
    
    
    12
    
    
    
    
    
    
    
    12Between four and five years
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    1,536
    
    
    
    (86
    )
    
    
    1,450After five years
    
    
    7,412
    
    
    
    (799
    )
    
    
    6,613
    
    
    
    5,626
    
    
    
    164
    
    
    
    5,790Total due for repayment after more than
one year
    
    
    12,363
    
    
    
    (1,730
    )
    
    
    10,633
    
    
    
    9,815
    
    
    
    257
    
    
    
    10,072Total repayments
    
    
    13,905
    
    
    
    (2,082
    )
    
    
    11,823
    
    
    
    11,339
    
    
    
    (7
    )
    
    
    11,332Fair value adjustments for hedged risk
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3Total loans and other borrowings
    
    
    13,907
    
    
    
    
    
    
    
    
    
    
    
    11,342
 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. 110 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 16. Loans and other borrowings continued
  2009
    
    
    2008Fixed rate
    
    
    Floating rate
    
    
    
    
    
    
    Fixed rate
    
    
    Floating rateinterest
    
    
    interest
    
    
    Total
    
    
    interest
    
    
    interest
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSterling
    
    
    10,239
    
    
    
    1,373
    
    
    
    11,612
    
    
    
    9,442
    
    
    
    1,718
    
    
    
    11,160Euro
    
    
    
    
    
    
    204
    
    
    
    204
    
    
    
    
    
    
    
    172
    
    
    
    172US dollar
    
    
    
    
      
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
        
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    10,239
    
    
    
    1,584
    
    
    
    11,823
    
    
    
    9,442
    
    
    
    1,890
    
    
    
    11,332Weighted average effective fixed interest rate
Sterling
    
    
    8.1
    %
    
    
    
    
    
    
    
    
    
    
    8.2
    %
  2009
    
    
    2008
    
    
    2009
    
    
    2008Repayment of outstandingMinimum lease payments
    
    

    lease obligations£m
    
    
    £m
    
    
    £m
    
    
    £mAmounts payable under finance leases:Within one year
    
    
    32
    
    
    
    35
    
    
    
    14
    
    
    
    19In the second to fifth years inclusive
    
    
    135
    
    
    
    127
    
    
    
    66
    
    
    
    63After five years
    
    
    456
    
    
    
    450
    
    
    
    252
    
    
    
    238623
    
    
    
    612
    
    
    
    332
    
    
    
    320Less: future finance charges
    
    
    (291
    )
    
    
    (292
    )
    
    
    
    
    
    
    Total finance lease obligations
    
    
    332
    
    
    
    320
    
    
    
    332
    
    
    
    320
  
 17. Derivative financial instruments
 2009
    
    
    
    
    
    
    2008Assets
    
    
    Liabilities
    
    
    Assets
    
    
    Liabilities£m
    
    
    £m
    
    
    £m
    
    
    £mInterest rate swaps  cash flow hedge
    
    
    
    
    
    
    446
    
    
    
    1
    
    
    
    207Other interest rate swaps
    
    
    107
    
    
    
    316
    
    
    
    25
    
    
    
    239Cross currency swaps  cash flow hedge
    
    
    2,541
    
    
    
    1
    
    
    
    340
    
    
    
    605Cross currency swaps  fair value hedge
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    20Forward foreign exchange contracts  cash flow hedge
    
    
    27
    
    
    
    1
    
    
    
    20
    
    
    
    1Other forward foreign exchange contracts
    
    
    7
    
    
    
    2
    
    
    
    1
    
    
    
    Credit default swaps
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2,700
    
    
    
    767
    
    
    
    387
    
    
    
    1,072Analysed as:Current
    
    
    244
    
    
    
    340
    
    
    
    77
    
    
    
    267Non current
    
    
    2,456
    
    
    
    427
    
    
    
    310
    
    
    
    8052,700
    
    
    
    767
    
    
    
    387
    
    
    
    1,072
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 111




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 17. Derivative financial instruments continued
  2009
    
    
    2008£m
    
    
    £mMoodys/S&P credit ratingaAa1/AA+
    
    
    
    
    
    
    2Aa2/AA
    
    
    200
    
    
    
    330Aa3/AA
    
    
    650
    
    
    
    A1/A+
    
    
    1,030
    
    
    
    A2/A
    
    
    719
    
    
    
    55A3/A
    
    
    101
    
    
    
    2,700
    
    
    
    387
 a
    
    Derivative financial instrument balances with counterparties have been classified at the lower of
their Moodys and S&P rating.  
 18. Trade and other payables
 2009
    
    
    2008£m
    
    
    £mCurrentTrade payables
    
    
    4,367
    
    
    
    4,410Other taxation and social security
    
    
    489
    
    
    
    548Other payables
    
    
    527
    
    
    
    838Accrued expenses
    
    
    460
    
    
    
    580Deferred income
    
    
    1,372
    
    
    
    1,2157,215
    
    
    
    7,591
 2009
    
    
    2008£m
    
    
    £mNon currentOther payables
    
    
    718
    
    
    
    636Deferred income
    
    
    76
    
    
    
    71794
    
    
    
    707
  112 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 19. Provisions
 Property
    
    
    Otherprovisions
    a
    
    provisions
    b
    
    Total£m
    
    
    £m
    
    
    £mAt 1 April 2008
    
    
    210
    
    
    
    136
    
    
    
    346Charged to the income statement
    
    
    8
    
    
    
    433
    
    
    
    441Unwind of discount
    
    
    3
    
    
    
    
    
    
    
    3Utilised in the year
    
    
    (49
    )
    
    
    (41
    )
    
    
    (90
    )Exchange differences
    
    
    
    
    
    
    20
    
    
    
    20At 31 March 2009
    
    
    172
    
    
    
    548
    
    
    
    7202009
    
    
    2008£m
    
    
    £mAnalysed as:Current
    
    
    
    
    
    
    254
    
    
    
    81Non current
    
    
    
    
    
    
    466
    
    
    
    265720
    
    
    
    346
 a
    
    Property provisions mainly comprise onerous lease provisions on rationalisation of the
groups property portfolio. The provisions will be utilised over the remaining lease periods, which
range from 1 to 23 years. Financial liabilities comprise £166m (2008: £127m) of this balance.b
    
    Other provisions includes: 
    
    Amounts provided in relation to networks and products rationalisation and people and
property restructuring and rationalisation, following the 2009 BT Global Services operational
review. The cash outflows associated with this provision are expected to occur over the next
two years, the majority of which will be in 2010.
    
    Amounts provided in relation to the BT Global Services contract and financial review (see
note 3), which will be utilised as the obligations are settled, the timing of which is
currently uncertain.
    
    Amounts provided for the estimated incremental and directly attributable costs arising from
the groups obligation to set up Openreach and deliver the Undertakings, which will be
utilised over two years.
    
    Amounts provided for legal or constructive obligations arising from insurance claims and
litigation, which will be utilised as the obligations are settled.
 
 20. Deferred taxation
 RetirementExcess capital
    
    
    benefit
    
    
    Share basedallowances
    
    
    obligations
    
    
    payments
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    2,096
    
    
    
    (117
    )
    
    
    (128
    )
    
    
    (285
    )
    
    
    1,566Charge to the income statement 
(excluding impact of change
in tax rate)
    
    
    10
    
    
    
    121
    
    
    
    11
    
    
    
    64
    
    
    
    206Charge to equity (excluding impact of change in tax rate)
    
    
    
    
    
    
    768
    
    
    
    57
    
    
    
    20
    
    
    
    845Impact of change in tax rate to 28%
    
    
    (137
    )
    
    
    6
    
    
    
    9
    
    
    
    18
    
    
    
    (104
    )At 31 March 2008
    
    
    1,969
    
    
    
    778
    
    
    
    (51
    )
    
    
    (183
    )
    
    
    2,513Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred tax liability
    
    
    1,969
    
    
    
    778
    
    
    
    (51
    )
    
    
    (183
    )
    
    
    2,513At 31 March 2008
    
    
    1,969
    
    
    
    778
    
    
    
    (51
    )
    
    
    (183
    )
    
    
    2,513(Credit) charge to the income statement
    
    
    (158
    )
    
    
    78
    
    
    
    32
    
    
    
    7
    
    
    
    (41
    )(Credit) charge to equity
    
    
    
    
    
    
    (1,959
    )
    
    
    12
    
    
    
    100
    
    
    
    (1,847
    )At 31 March 2009
    
    
    1,811
    
    
    
    (1,103
    )
    
    
    (7
    )
    
    
    (76
    )
    
    
    625Deferred tax asset
    
    
    
    
    
    
    (1,103
    )
    
    
    
    
    
    
    
    
    
    
    (1,103
    )Deferred tax liability
    
    
    1,811
    
    
    
    
    
    
    
    (7
    )
    
    
    (76
    )
    
    
    1,728At 31 March 2009
    
    
    1,811
    
    
    
    (1,103
    )
    
    
    (7
    )
    
    
    (76
    )
    
    
    625
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 113




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 20. Deferred taxation continued
  2009
    
    
    Expiry of£m
    
    
    lossesRestricted losses:Americas
    
    
    271
    
    
    
    2009-2029Europe
    
    
    1,875
    
    
    
    2009-2024Total restricted losses
    
    
    2,146Unrestricted losses:Operating losses
    
    
    3,410
    
    
    No expiryCapital losses
    
    
    17,780
    
    
    No expiryOther
    
    
    932
    
    
    No expiryTotal unrestricted losses
    
    
    22,122Total
    
    
    24,268At the balance sheet date, the undistributed earnings of overseas subsidiaries was £10.1bn (2008:
£10.6bn). No deferred tax liabilities have been recognised in respect of these unremitted earnings
because the group is in a position to control the timing of the reversal of the temporary
differences and it is probable that such differences will not reverse in the foreseeable future.
Temporary differences arising in connection with interests in associates and joint ventures for
which deferred tax liabilities have not been recognised are insignificant.21. Minority interests2009
    
    
    2008£m
    
    
    £mAt 1 April
    
    
    23
    
    
    
    34Share of profits
    
    
    2
    
    
    
    1Disposals
    
    
    (9
    )
    
    
    (23
    )Minority share of dividend paid
    
    
    (1
    )
    
    
    Acquisitions through business combinations
    
    
    3
    
    
    
    8Exchange differences
    
    
    9
    
    
    
    3At 31 March
    
    
    27
    
    
    
    23
 
 22. Reconciliation of movements in equity
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mTotal equity at 1 April
    
    
    5,432
    
    
    
    4,272
    
    
    
    1,607(Loss) profit for the year
    
    
    (83
    )
    
    
    1,737
    
    
    
    2,850Dividends
    
    
    (1,222
    )
    
    
    (1,241
    )
    
    
    (1,053
    )Share based payments
    
    
    33
    
    
    
    55
    
    
    
    71Issue of shares
    
    
    
    
    
    
    32
    
    
    
    24Net purchase of treasury shares
    
    
    (63
    )
    
    
    (1,529
    )
    
    
    (284
    )Exchange differences
    
    
    683
    
    
    
    210
    
    
    
    (93
    )Actuarial (losses) gains
    
    
    (7,037
    )
    
    
    2,621
    
    
    
    1,409Net fair value movements on cash flow hedges
    
    
    570
    
    
    
    163
    
    
    
    163Net fair value movements on available-for-sale assets
    
    
    5
    
    
    
    
    
    
    
    Tax on items taken directly to equity
    
    
    1,847
    
    
    
    (877
    )
    
    
    (404
    )Minority interests
    
    
    4
    
    
    
    (11
    )
    
    
    (18
    )Net movement in equity
    
    
    (5,263
    )
    
    
    1,160
    
    
    
    2,665Total equity at 31 March
    
    
    169
    
    
    
    5,432
    
    
    
    4,272
 114 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 23. Share capital
 Number
    
    
    Share capitala
    
    
    Share premiumbof shares
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    8,640,654,852
    
    
    
    432
    
    
    
    31Arising on share issues
    
    
    10,572,177
    
    
    
    1
    
    
    
    31Cancelledc
    
    
    (250,000,000
    )
    
    
    (13
    )
    
    
    At 1 April 2008
    
    
    8,401,227,029
    
    
    
    420
    
    
    
    62Cancelledc
    
    
    (250,000,000
    )
    
    
    (12
    )
    
    
    At 31 March 2009
    
    
    8,151,227,029
    
    
    
    408
    
    
    
    62
 a
    
    The authorised share capital of the company throughout 2009 and 2008 was £13,463m,
representing 269,260,253,468 ordinary shares of 5p each. The allotted, called up and fully paid
ordinary share capital of the company at 31 March 2009 was £408m (2008: £420m), representing
8,151,227,029 (2008: 8,401,227,029) ordinary shares of 5p each. Of the authorised but unissued
share capital at 31 March 2009, nil ordinary shares (2008: 21m) were reserved to meet options
granted under employee share option schemes.b
    
    The share premium account, representing the premium on allotment of shares, is not
available for distribution. The movement in share premium arose, in 2008, from shares issued in
consideration for the acquisition of Net 2S SA (a company which changed its name to BT Services SA
on 1 April 2009), and from the excess of proceeds received on the exercise of share options versus
the cost of treasury shares issued to satisfy those exercises.c
    
    In 2009, the group cancelled 250,000,000 treasury shares (2008: 250,000,000) with a
nominal value of £12m (2008: £13m). 
 24. Other reserves
 Treasury
    
    
    Cash flow
    
    
    Available-for-
    
    
    Translation
    
    
    Merger
    
    
    Total othersharesa
    
    
    reserveb
    
    
    sale reservec
    
    
    reserved
    
    
    reservee
    
    
    reserves£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2006
    
    
    (600
    )
    
    
    (78
    )
    
    
    
    
    
    
    44
    
    
    
    998
    
    
    
    364Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    (93
    )Net purchase of treasury shares
    
    
    (284
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284
    )Net fair value loss on cash flow hedges
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )Recognised in income and expense in the year
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    364Tax on items taken directly to equity
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )At 1 April 2007
    
    
    (884
    )
    
    
    23
    
    
    
    
    
    
    
    (49
    )
    
    
    998
    
    
    
    88Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    
    
    
    
    210Net purchase of treasury shares
    
    
    (1,529
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,529
    )Cancellation of treasury shares
    
    
    570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    570Net fair value gain on cash flow hedges
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    446Recognised in income and expense in the year
    
    
    
    
    
    
    (294
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (294
    )Reclassified and reported in non current assets
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Tax on items taken directly to equity
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )At 1 April 2008
    
    
    (1,843
    )
    
    
    157
    
    
    
    
    
    
    
    161
    
    
    
    998
    
    
    
    (527
    )Exchange differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    
    
    
    
    683Net purchase of treasury shares
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )Cancellation of treasury shares
    
    
    797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    797Net fair value gain on cash flow hedges
    
    
    
    
    
    
    2,719
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,719Recognised in income and expense in the year
    
    
    
    
    
    
    (2,144
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,144
    )Reclassified and reported in non current assets
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Gains on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Tax on items taken directly to equity
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164
    )At 31 March 2009
    
    
    (1,109
    )
    
    
    563
    
    
    
    5
    
    
    
    844
    
    
    
    998
    
    
    
    1,301
 a
    
    The treasury shares reserve is used to hold BT Group plc shares purchased by the
group. During 2009, the company repurchased 142,608,225 (2008: 539,657,691, 2007: 147,550,000) of
its own shares of 5p each, representing 2% (2008: 6%, 2007: 2%) of the called-up share capital, for
consideration (including transaction costs) of £189m (2008: £1,626m, 2007: £404m). In addition,
90,626,518 shares (2008: 53,250,144, 2007: 66,719,600) were issued from treasury to satisfy
obligations under employee share schemes and executive share awards at a cost of £126m (2008: £97m,
2007: £120m), and 250,000,000 treasury shares (2008: 250,000,000, 2007: nil) were cancelled at a
cost of £797m (2008: £570m, 2007: £nil). At 31 March 2009, 409,226,885 shares (2008: 607,285,178,
2007: 290,047,231) with an aggregate nominal value of £20m (2008: £30m, 2007: £19m) were held as
treasury shares at cost.b
    
    The cash flow reserve is used to record the effective portion of the cumulative net
change in the fair value of cash flow hedging instruments related to hedged transactions that have
not yet occurred.c
    
    The available-for-sale reserve is used to record the cumulative fair value gains and
losses on available-for-sale financial assets. The cumulative gains and losses are recycled to the
income statement on disposal of the assets. The gross gain in the year amounted to £5m (2008 and
2007: £nil).d
    
    The translation reserve is used to record cumulative translation differences on the
assets and liabilities of foreign operations. The cumulative translation differences are recycled
to the income statement on disposal of the foreign operation.e
    
    The merger reserve arose on the group reorganisation that occurred in November 2001
and represents 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.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 115




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 25. Retained (loss) earnings
 2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mAt 1 April
    
    
    5,439
    
    
    
    3,685
    
    
    
    750(Loss) profit for the year
    
    
    (83
    )
    
    
    1,737
    
    
    
    2,850Dividends
    
    
    (1,222
    )
    
    
    (1,241
    )
    
    
    (1,053
    )Share based payments
    
    
    33
    
    
    
    55
    
    
    
    71Actuarial (loss) gain
    
    
    (7,037
    )
    
    
    2,621
    
    
    
    1,409Cancellation of treasury shares
    
    
    (797
    )
    
    
    (570
    )
    
    
    Tax on items taken directly to equity
    
    
    2,011
    
    
    
    (848
    )
    
    
    (342
    )At 31 March
    
    
    (1,656
    )
    
    
    5,439
    
    
    
    3,685
 
 26. Related party transactions
   2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mSalaries and short-term benefits
    
    
    6.8
    
    
    
    7.0
    
    
    
    6.5Termination benefits
    
    
    2.4
    
    
    
    
    
    
    
    Post employment benefits
    
    
    2.3
    
    
    
    1.0
    
    
    
    1.4Share based payments
    
    
    3.6
    
    
    
    5.0
    
    
    
    3.215.1
    
    
    
    13.0
    
    
    
    11.1
   116 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 27. Financial commitments and contingent liabilities
 2009
    
    
    2008Capital expenditure contracted for at the balance sheet date but not yet incurred was as follows:
    
    £m
    
    
    £mProperty, plant and equipment
    
    
    414
    
    
    
    639Software
    
    
    37
    
    
    
    101Total
    
    
    451
    
    
    
    740
 2009
    
    
    2008Future minimum operating lease payments for the group were as follows:
    
    £m
    
    
    £mPayable in the year ending 31 March:2009
    
    
    
    
    
    
    4692010
    
    
    484
    
    
    
    4532011
    
    
    455
    
    
    
    4322012
    
    
    430
    
    
    
    4082013
    
    
    403
    
    
    
    3882014
    
    
    377
    
    
    
    365Thereafter
    
    
    5,855
    
    
    
    6,227Total future minimum operating lease payments
    
    
    8,004
    
    
    
    8,742
   2 2 2 2
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 117




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 28. Acquisitions
 BT Global Services
    
    
    BT Retail
    
    
    Other
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFair value of consideration
    
    
    13
    
    
    
    98
    
    
    
    75
    
    
    
    186Less: fair value of net assets acquired
    
    
    3
    
    
    
    24
    
    
    
    28
    
    
    
    55Goodwill arising
    
    
    10
    
    
    
    74
    
    
    
    47
    
    
    
    131Consideration:Cash
    
    
    13
    
    
    
    98
    
    
    
    65
    
    
    
    176Deferred consideration
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10Total
    
    
    13
    
    
    
    98
    
    
    
    75
    
    
    
    186The outflow of cash and cash equivalents is as follows:Cash consideration
    
    
    13
    
    
    
    98
    
    
    
    65
    
    
    
    176Less: cash acquired
    
    
    1
    
    
    
    3
    
    
    
    5
    
    
    
    912
    
    
    
    95
    
    
    
    60
    
    
    
    167BT Global ServicesComsatInternational
    
    
    Other
    
    
    BT Retail
    
    
    TotalYear ended 31 March 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFair value of consideration
    
    
    130
    
    
    
    276
    
    
    
    71
    
    
    
    477Less: fair value of net assets acquired
    
    
    57
    
    
    
    82
    
    
    
    24
    
    
    
    163Goodwill arising
    
    
    73
    
    
    
    194
    
    
    
    47
    
    
    
    314Consideration:Cash
    
    
    125
    
    
    
    204
    
    
    
    63
    
    
    
    392Deferred consideration
    
    
    5
    
    
    
    50
    
    
    
    8
    
    
    
    63Equity shares issued
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Total
    
    
    130
    
    
    
    276
    
    
    
    71
    
    
    
    477The outflow of cash and cash equivalents is as follows:Cash consideration
    
    
    125
    
    
    
    204
    
    
    
    63
    
    
    
    392Less: cash acquired
    
    
    3
    
    
    
    17
    
    
    
    3
    
    
    
    23122
    
    
    
    187
    
    
    
    60
    
    
    
    369
  BT Global Services
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mReceivables
    
    
    6
    
    
    
    
    
    
    
    6Cash and cash equivalents
    
    
    1
    
    
    
    
    
    
    
    1Payables
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net assets acquired
    
    
    3
    
    
    
    
    
    
    
    3Goodwill
    
    
    
    
    
    
    
    
    
    
    10Total consideration
    
    
    
    
    
    
    
    
    
    
    13
   118 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 28. Acquisitions continued
 BT Retail
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    2
    
    
    
    21
    
    
    
    23Property, plant and equipment
    
    
    2
    
    
    
    
    
    
    
    2Receivables
    
    
    20
    
    
    
    (1
    )
    
    
    19Cash and cash equivalents
    
    
    3
    
    
    
    
    
    
    
    3Payables
    
    
    (22
    )
    
    
    (1
    )
    
    
    (23
    )Net assets acquired
    
    
    5
    
    
    
    19
    
    
    
    24Goodwill
    
    
    
    
    
    
    
    
    
    
    74Total consideration
    
    
    
    
    
    
    
    
    
    
    98
   Other
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    
    
    
    
    25
    
    
    
    25Receivables
    
    
    2
    
    
    
    
    
    
    
    2Cash and cash equivalents
    
    
    5
    
    
    
    
    
    
    
    5Payables
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net assets acquired
    
    
    3
    
    
    
    25
    
    
    
    28Goodwill
    
    
    
    
    
    
    
    
    
    
    47Total consideration
    
    
    
    
    
    
    
    
    
    
    75
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 119




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##### Table of Contents



FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 28. Acquisitions continued
 Year ended 31 March 2008
 BT Global Services
Comsat International
  Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    
    
    
    
    11
    
    
    
    11Property, plant and equipment
    
    
    70
    
    
    
    1
    
    
    
    71Other non current assets
    
    
    4
    
    
    
    
    
    
    
    4Receivables
    
    
    31
    
    
    
    
    
    
    
    31Cash and cash equivalents
    
    
    3
    
    
    
    
    
    
    
    3Payables
    
    
    (58
    )
    
    
    (5
    )
    
    
    (63
    )Net assets acquired
    
    
    50
    
    
    
    7
    
    
    
    57Goodwill
    
    
    
    
    
    
    
    
    
    
    73Total consideration
    
    
    
    
    
    
    
    
    
    
    130
  Other
 Fair valueBook value
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    4
    
    
    
    48
    
    
    
    52Property, plant and equipment
    
    
    15
    
    
    
    (4
    )
    
    
    11Associates and joint ventures
    
    
    14
    
    
    
    
    
    
    
    14Receivables
    
    
    112
    
    
    
    (6
    )
    
    
    106Cash and cash equivalents
    
    
    17
    
    
    
    
    
    
    
    17Payables
    
    
    (130
    )
    
    
    (1
    )
    
    
    (131
    )Minority interest
    
    
    14
    
    
    
    (1
    )
    
    
    13Net assets acquired
    
    
    46
    
    
    
    36
    
    
    
    82Goodwill
    
    
    
    
    
    
    
    
    
    
    194Total consideration
    
    
    
    
    
    
    
    
    
    
    276
  120 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  28. Acquisitions continued
 BT Retail
 Book
    
    
    Fair valuevalue
    
    
    adjustments
    
    
    Fair value£m
    
    
    £m
    
    
    £mIntangible assets
    
    
    
    
    
    
    23
    
    
    
    23Property, plant and equipment
    
    
    4
    
    
    
    
    
    
    
    4Receivables
    
    
    22
    
    
    
    (1
    )
    
    
    21Cash and cash equivalents
    
    
    3
    
    
    
    
    
    
    
    3Payables
    
    
    (25
    )
    
    
    (2
    )
    
    
    (27
    )Net assets acquired
    
    
    4
    
    
    
    20
    
    
    
    24Goodwill
    
    
    
    
    
    
    
    
    
    
    47Total consideration
    
    
    
    
    
    
    
    
    
    
    71
  
 29. Retirement benefit plans
 Background
 Defined contribution schemes
 Defined benefit schemes
 Measurement
of scheme assets and liabilities  IAS 19
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 121




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
  Real rates (per annum)
    
    
    Nominal rates (per annum)2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007%
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %Rate used to discount liabilities
    
    
    3.84
    
    
    
    3.24
    
    
    
    2.28
    
    
    
    6.85
    
    
    
    6.85
    
    
    
    5.35Average future increases in wages and salaries
    
    
    
    
    
    
    0.75
    a
    
    
    0.75
    a
    
    
    2.90
    
    
    
    4.28
    a
    
    
    3.77
    aAverage increase in pensions in
payment and deferred pensions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.90
    
    
    
    3.50
    
    
    
    3.00Inflation
 average increase in retail price index
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.90
    
    
    
    3.50
    
    
    
    3.00
 
 a
    
    There is a short-term reduction in the real salary growth assumption to 0.5% for the
first three years.  2009
    
    
    2008Number of
    
    
    Number ofyears
    
    
    yearsMale in lower pay bracket
    
    
    24.8
    
    
    
    22.8Male in higher pay bracket
    
    
    27.1
    
    
    
    25.2Female
    
    
    27.7
    
    
    
    25.7Future improvement every 10 years
    
    
    1.0
    
    
    
    1.0
 Amounts recognised in respect of defined benefit schemes
 2009
    
    
    2008Present
    
    
    
    
    
    
    
    
    
    
    Presentvalue
    
    
    Asset
    
    
    
    
    
    
    value
    
    
    AssetAssets
    
    
    of liabilities
    
    
    (obligation)
    
    
    Assets
    
    
    of liabilities
    
    
    (obligation)£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mBTPS
    
    
    29,227
    
    
    
    (33,070
    )
    
    
    (3,843
    )
    
    
    37,331
    
    
    
    (34,444
    )
    
    
    2,887Other schemes
    
    
    126
    
    
    
    (256
    )
    
    
    (130
    )
    
    
    117
    
    
    
    (225
    )
    
    
    (108
    )29,353
    
    
    
    (33,326
    )
    
    
    (3,973
    )
    
    
    37,448
    
    
    
    (34,669
    )
    
    
    2,779Deferred tax asset (liability)
    
    
    
    
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    (778
    )Net pension (obligation) asset
    
    
    
    
    
    
    
    
    
    
    (2,870
    )
    
    
    
    
    
    
    
    
    
    
    2,001
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mCurrent service cost (including defined contribution schemes)
    
    
    544
    
    
    
    626
    
    
    
    643Total operating charge
    
    
    544
    
    
    
    626
    
    
    
    643Expected return on pension scheme assets
    
    
    (2,621
    )
    
    
    (2,448
    )
    
    
    (2,292
    )Interest on pension scheme liabilities
    
    
    2,308
    
    
    
    2,028
    
    
    
    1,872Net finance income
    
    
    (313
    )
    
    
    (420
    )
    
    
    (420
    )Total amount charged to the income statement
    
    
    231
    
    
    
    206
    
    
    
    223


122     BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  29. Retirement benefit plans continued
  Forecast benefits payable by the BTPS at 31 March 2009
 
  2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mActuarial (loss) gain recognised in the year
    
    
    (7,037
    )
    
    
    2,621
    
    
    
    1,409Cumulative actuarial (losses) gains
    
    
    (591
    )
    
    
    6,446
    
    
    
    3,825Actual return on plan assets
    
    
    (6,830
    )
    
    
    (124
    )
    
    
    3,285
  2009
    
    
    2008£m
    
    
    £mOpening defined benefit pension obligation
    
    
    (34,669
    )
    
    
    (38,779
    )Current service cost
    
    
    (459
    )
    
    
    (576
    )Interest cost
    
    
    (2,308
    )
    
    
    (2,028
    )Contributions by employees
    
    
    (18
    )
    
    
    (19
    )Actuarial gain
    
    
    2,414
    
    
    
    5,193Business combinations
    
    
    (4
    )
    
    
    Benefits paid
    
    
    1,741
    
    
    
    1,559Exchange differences
    
    
    (23
    )
    
    
    (19
    )Closing defined benefit pension obligation
    
    
    (33,326
    )
    
    
    (34,669
    )
  2009
    
    
    2008£m
    
    
    £mOpening fair value of plan assets
    
    
    37,448
    
    
    
    38,390Expected return
    
    
    2,621
    
    
    
    2,448Actuarial loss
    
    
    (9,451
    )
    
    
    (2,572
    )Regular contributions by employer
    
    
    441
    
    
    
    388Deficiency contributions by employer
    
    
    
    
    
    
    320Contributions by employees
    
    
    18
    
    
    
    19Benefits paid
    
    
    (1,741
    )
    
    
    (1,559
    )Exchange differences
    
    
    17
    
    
    
    14Closing fair value of plan assets
    
    
    29,353
    
    
    
    37,448
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 123




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FINANCIAL
STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 29. Retirement benefit plans continued
   2009
    
    
    2008Expected
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expectedlong-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    long-termrate of return
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    rate of return(per annum)
    
    
    
    
    Asset fair value
    
    
    Target
    
    
    (per annum)
    
    
    Asset fair value
    
    
    Target%
    
    £bn
    
    
    %
    
    
    %
    
    
    %
    
    
    £bn
    
    
    %
    
    
    %UK equities
    
    
    8.5
    
    
    
    3.2
    
    
    
    11
    
    
    
    11
    
    
    
    8.5
    
    
    
    6.2
    
    
    
    17
    
    
    
    23Non-UK equities
    
    
    8.5
    
    
    
    5.9
    
    
    
    20
    
    
    
    22
    
    
    
    8.5
    
    
    
    10.5
    
    
    
    28
    
    
    
    28Fixed-interest securities
    
    
    5.9
    
    
    
    6.6
    
    
    
    22
    
    
    
    20
    
    
    
    5.7
    
    
    
    7.1
    
    
    
    19
    
    
    
    15Index-linked securities
    
    
    4.0
    
    
    
    4.4
    
    
    
    15
    
    
    
    15
    
    
    
    4.6
    
    
    
    3.6
    
    
    
    10
    
    
    
    10Property
    
    
    7.0
    
    
    
    3.2
    
    
    
    11
    
    
    
    12
    
    
    
    7.0
    
    
    
    5.2
    
    
    
    14
    
    
    
    13Alternative assets
    
    
    7.0
    
    
    
    5.2
    
    
    
    18
    
    
    
    20
    
    
    
    7.2
    
    
    
    2.9
    
    
    
    8
    
    
    
    11Cash and other
    
    
    3.5
    
    
    
    0.8
    
    
    
    3
    
    
    
    
    
    
    
    5.0
    
    
    
    1.8
    
    
    
    4
    
    
    
    6.7
    
    
    
    29.3
    
    
    
    100
    
    
    
    100
    
    
    
    7.1
    
    
    
    37.3
    
    
    
    100
    
    
    
    100
   2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mPresent value of defined benefit obligation
    
    
    (33,326
    )
    
    
    (34,669
    )
    
    
    (38,779
    )
    
    
    (38,187
    )
    
    
    (34,435
    )Fair value of plan assets
    
    
    29,353
    
    
    
    37,448
    
    
    
    38,390
    
    
    
    35,640
    
    
    
    29,628Net pension (obligation) asset
    
    
    (3,973
    )
    
    
    2,779
    
    
    
    (389
    )
    
    
    (2,547
    )
    
    
    (4,807
    )Experience
adjustment on defined benefit obligation  (loss) gain
    
    
    (238
    )
    
    
    (22
    )
    
    
    190
    
    
    
    (527
    )
    
    
    (437
    )Percentage of the present value of the defined benefit obligation
    
    
    0.7%
    
    
    
    0.1%
    
    
    
    0.5%
    
    
    
    1.4%
    
    
    
    1.3%Experience
adjustment on plan assets  (loss) gain
    
    
    (9,451
    )
    
    
    (2,572
    )
    
    
    993
    
    
    
    4,855
    
    
    
    1,664Percentage of the plan assets
    
    
    32.2%
    
    
    
    6.9%
    
    
    
    2.6%
    
    
    
    13.6%
    
    
    
    5.6%
  Sensitivity analysis of the principal assumptions used to measure BTPS scheme liabilities
 Impact on liabilityDecrease/(increase)£bn0.25 percentage point increase to: discount rate
    
    
    1.2 salary increases
    
    
    (0.3
    )Additional 1 year increase to life expectancy
    
    
    (1.3
    )
 124 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   29. Retirement benefit plans continued
 Funding valuation and future funding obligations
   
    
    scheme assets are valued at market value at the valuation date; and
    
    scheme liabilities are measured using a projected unit credit method and discounted to their
present value.
    Real rates (per annum)
    
    
    Nominal rates (per annum)2005
    
    
    2002
    
    
    2005
    
    
    2002valuation
    
    
    valuation
    
    
    valuation
    
    
    valuation%
    
    
    %
    
    
    %
    
    
    %Discount ratePre retirement liabilities
    
    
    3.06
    
    
    
    
    
    
    
    5.84Post retirement liabilities
    
    
    1.79
    
    
    
    
    
    
    
    4.54Return on existing assets, relative to market values
    
    
    
    
    
    
    4.52
    
    
    
    
    
    
    
    7.13(after allowing for an annual increase in dividends of)
    
    
    
    
    
    
    1.00
    
    
    
    
    
    
    
    3.53Return on future investments
    
    
    
    
    
    
    4.00
    
    
    
    
    
    
    
    6.60Average increase in retail price index
    
    
    
    
    
    
    
    
    
    
    2.70
    
    
    
    2.50Average future increases in wages and salaries
    
    
    0.75
    
    
    
    1.5
    a
    
    
    3.47
    
    
    
    4.04
    aAverage increase in pensions
    
    
    
    
    
    
    
    
    
    
    2.70
    
    
    
    2.50
 a
    
    There is a short-term reduction in the real salary growth assumption to 1.25% for the
first three years.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 125




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 30. Employees
 2009
    
    
    2008
    
    
    2007Year end
    
    
    Average
    
    
    Year end
    
    
    Average
    
    
    Year end
    
    
    Average000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000Number of employees in the groupa:UK
    
    
    86.5
    
    
    
    89.5
    
    
    
    91.3
    
    
    
    93.0
    
    
    
    92.8
    
    
    
    92.4Non UK
    
    
    20.5
    
    
    
    21.1
    
    
    
    20.6
    
    
    
    15.5
    
    
    
    13.4
    
    
    
    12.8Total employees
    
    
    107.0
    
    
    
    110.6
    
    
    
    111.9
    
    
    
    108.5
    
    
    
    106.2
    
    
    
    105.2
 2009
    
    
    2008
    
    
    2007aYear end
    
    
    Average
    
    
    Year end
    
    
    Average
    
    
    Year end
    
    
    Average000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000Number of employees in the groupa:BT Global Services
    
    
    31.4
    
    
    
    31.8
    
    
    
    33.1
    
    
    
    30.3
    
    
    
    29.6
    
    
    
    28.9BT Retail
    
    
    20.4
    
    
    
    21.0
    
    
    
    21.1
    
    
    
    20.7
    
    
    
    20.3
    
    
    
    20.3BT Wholesale
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.9
    
    
    
    3.1
    
    
    
    3.4
    
    
    
    3.7Openreach
    
    
    32.2
    
    
    
    33.1
    
    
    
    33.6
    
    
    
    33.8
    
    
    
    33.3
    
    
    
    32.1Other
    
    
    20.6
    
    
    
    22.2
    
    
    
    21.2
    
    
    
    20.6
    
    
    
    19.6
    
    
    
    20.2Total employees
    
    
    107.0
    
    
    
    110.6
    
    
    
    111.9
    
    
    
    108.5
    
    
    
    106.2
    
    
    
    105.2
 a
    
    The numbers disclosed include both full and part time employees.
 
 31. Share based payments
   2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mEmployee Sharesave Plan
    
    
    (3
    )
    
    
    29
    
    
    
    25Allshare
    
    
    2
    
    
    
    2
    
    
    
    26Employee Stock Purchase Plan
    
    
    
    
    
    
    1
    
    
    
    1Incentive Share Plan
    
    
    18
    
    
    
    26
    
    
    
    18Deferred Bonus Plan
    
    
    12
    
    
    
    12
    
    
    
    13Retention Share Plan
    
    
    2
    
    
    
    3
    
    
    
    3GSOP and GLOP
    
    
    
    
    
    
    
    
    
    
    731
    
    
    
    73
    
    
    
    93
  BT Group Employee Sharesave plans
  Employee Stock Purchase Plan
   126 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   31. Share based payments continued
  BT Group Global Share Option Plan (GSOP)
  BT Group Legacy Option Plan (GLOP)
   Incentive Share Plan, Retention Share Plan and Deferred Bonus Plan
     Employee Share Investment Plan (ESIP)
     Employee Sharesave
    
    
    GSOP and GLOP2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007Movement in the number of share options:
    
    millions
    
    
    millions
    
    
    millions
    
    
    millions
    
    
    millions
    
    
    millionsOutstanding at the beginning of the year
    
    
    281
    
    
    
    272
    
    
    
    279
    
    
    
    46
    
    
    
    103
    
    
    
    187Granted
    
    
    339
    
    
    
    54
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (390
    )
    
    
    (15
    )
    
    
    (12
    )
    
    
    (3
    )
    
    
    (10
    )
    
    
    (9
    )Exercised
    
    
    (80
    )
    
    
    (28
    )
    
    
    (42
    )
    
    
    (1
    )
    
    
    (14
    )
    
    
    (20
    )Expired
    
    
    (14
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    (33
    )
    
    
    (55
    )Outstanding at the end of the year
    
    
    136
    
    
    
    281
    
    
    
    272
    
    
    
    42
    
    
    
    46
    
    
    
    103Exercisable at the end of the year
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    42
    
    
    
    46
    
    
    
    48Weighted average exercise price:Outstanding at the beginning of the year
    
    
    180p
    
    
    
    165p
    
    
    
    166p
    
    
    
    257p
    
    
    
    227p
    
    
    
    213pGranted
    
    
    135p
    
    
    
    269p
    
    
    
    185p
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    153p
    
    
    
    208p
    
    
    
    176p
    
    
    
    199p
    
    
    
    251p
    
    
    
    222pExercised
    
    
    155p
    
    
    
    188p
    
    
    
    199p
    
    
    
    196p
    
    
    
    198p
    
    
    
    203pExpired
    
    
    178p
    
    
    
    179p
    
    
    
    179p
    
    
    
    
    
    
    
    199p
    
    
    
    189pOutstanding at the end of the year
    
    
    160p
    
    
    
    180p
    
    
    
    165p
    
    
    
    256p
    
    
    
    257p
    
    
    
    227pExercisable at the end of the year
    
    
    195p
    
    
    
    158p
    
    
    
    210p
    
    
    
    256p
    
    
    
    257p
    
    
    
    261p
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 127




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  31. Share based payments continued
   Number of
    
    
    Number ofExercise
    
    
    outstanding
    
    
    exercisableprice
    
    
    options
    
    
    optionsNormal dates of vesting and exercise (based on calendar years)
    
    per share
    
    
    millions
    
    
    millionsBT Group Employee Sharesave Plans2008
    
    
    154p192p
    
    
    
    1
    
    
    
    12009
    
    
    146p231p
    
    
    
    46
    
    
    
    2010
    
    
    171p294p
    
    
    
    18
    
    
    
    2011
    
    
    137p208p
    
    
    
    16
    
    
    
    2012
    
    
    124p262p
    
    
    
    19
    
    
    
    2013
    
    
    185p
    
    
    
    11
    
    
    
    2014
    
    
    111p
    
    
    
    25
    
    
    
    Total
    
    
    
    
    
    
    136
    
    
    
    1BT Group Legacy Option Plan2001-2011
    
    
    318p648p
    
    
    
    9
    
    
    
    9Total
    
    
    
    
    
    
    9
    
    
    
    9BT Group Global Share Option Plan2004-2014
    
    
    176p199.5p
    
    
    
    25
    
    
    
    252005-2015
    
    
    179p263p
    
    
    
    8
    
    
    
    8Total
    
    
    
    
    
    
    33
    
    
    
    33Total options
    
    
    
    
    
    
    178
    
    
    
    43
  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 life100p  199p
    
    
    140p
    
    
    
    117
    
    
    32 months
    
    
    150p317p
    
    
    
    198p
    
    
    
    33
    
    
    65 months200p  300p
    
    
    231p
    
    
    
    19
    
    
    32 months
    
    
    318p650p
    
    
    
    479p
    
    
    
    9
    
    
    20 monthsTotal
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42
   Millions of sharesISP
    
    
    DBP
    
    
    RSP
    
    
    TotalAt 1 April 2008
    
    
    66.4
    
    
    
    12.4
    
    
    
    2.6
    
    
    
    81.4Awards granted
    
    
    30.9
    
    
    
    7.1
    
    
    
    0.2
    
    
    
    38.2Awards vested
    
    
    (5.3
    )
    
    
    (4.2
    )
    
    
    (1.4
    )
    
    
    (10.9
    )Awards lapsed
    
    
    (24.6
    )
    
    
    (1.4
    )
    
    
    (0.1
    )
    
    
    (26.1
    )Dividend shares reinvested
    
    
    7.8
    
    
    
    1.6
    
    
    
    0.2
    
    
    
    9.6At 31 March 2009
    
    
    75.2
    
    
    
    15.5
    
    
    
    1.5
    
    
    
    92.2
  128 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   31. Share based payments continued
   2009
    
    
    2008
    
    
    2007Employee
    
    
    
    
    
    
    Employee
    
    
    
    
    
    
    EmployeeSharesave
    
    
    ISP
    
    
    Sharesave
    
    
    ISP
    
    
    Sharesave
    
    
    ISPWeighted average fair value
    
    
    27p
    
    
    
    47p
    
    
    
    71p
    
    
    
    182p
    
    
    
    43p
    
    
    
    127pWeighted average share price
    
    
    152p
    
    
    
    199p
    
    
    
    329p
    
    
    
    306p
    
    
    
    229p
    
    
    
    230pWeighted average exercise price
    
    
    135p
    
    
    
    
    
    
    
    269p
    
    
    
    
    
    
    
    185p
    
    
    
    Expected dividend yield
    
    
    4.6%6.4%
    
    
    
    4.9%
    
    
    
    5.5%
    
    
    
    5.5%
    
    
    
    5.5%
    
    
    
    5.5%Risk free rates
    
    
    2.1%5.5%
    
    
    
    5.2%
    
    
    
    5.8%
    
    
    
    5.8%
    
    
    
    5.0%
    
    
    
    5.0%Expected volatility
    
    
    20.7%28.4%
    
    
    
    23.3%
    
    
    
    22.0%
    
    
    
    18.0%
    
    
    
    17.0%
    
    
    
    17.0%
    
 32. Audit and non-audit services
  2009
    
    
    2008
    
    
    2007£000
    
    
    £000
    
    
    £000Audit servicesFees payable to the companys auditor and its associates for the audit of parent company
and consolidated accounts
    
    
    2,831
    
    
    
    2,990
    
    
    
    3,100Non-audit servicesFees payable to the companys auditor and its associates for other services: The audit of the companys subsidiaries pursuant to legislation
    
    
    4,675
    
    
    
    3,848
    
    
    
    3,518 Other services pursuant to legislation
    
    
    1,211
    
    
    
    1,590
    
    
    
    1,212 Tax services
    
    
    1,247
    
    
    
    727
    
    
    
    763 Services relating to corporate finance transactions
    
    
    32
    
    
    
    549
    
    
    
    748 All other services
    
    
    887
    
    
    
    527
    
    
    
    2310,883
    
    
    
    10,231
    
    
    
    9,364
 Audit Services
 The audit of the companys subsidiaries pursuant to legislation
 Other services pursuant to legislation
 Tax Services
 Services relating to corporate finance transactions
 All other services
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 129




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
 33. Financial instruments and risk management
              130 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   33. Financial instruments and risk management continued
  2009
    
    
    2008£m
    
    
    £mCharge
    
    
    Charge(credit)
    
    
    (credit)Sterling interest rates
    
    
    550
    
    
    
    470US dollar interest rates
    
    
    (538
    )
    
    
    (347
    )Euro interest rates
    
    
    (149
    )
    
    
    (91
    )
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 131




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  33. Financial instruments and risk management continued
  2009
    
    
    2008£m
    
    
    £mDerivative financial assets
    
    
    2,700
    
    
    
    387Investments
    
    
    218
    
    
    
    471Trade and other receivablesa
    
    
    3,101
    
    
    
    3,193Cash and cash equivalents
    
    
    1,300
    
    
    
    1,435Total
    
    
    7,319
    
    
    
    5,486
 a
    
    The carrying amount excludes
£1,084m (2008: £1,256m) of
current and £322m (2008:
£854m) of non current trade
and other receivables which
relate to non-financial
assets.
  Impact of 100 basispoint increase£mMoodys/S&P credit ratingAa2/AA
    
    
    (18
    )Aa3/AA
    
    
    (21
    )A1/A+
    
    
    (92
    )A2/A
    
    
    (146
    )A3/A
    
    
    (277
    )
      2009
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £mNet debt (note 10)
    
    
    10,361
    
    
    
    9,460
    
    
    
    7,914
 
 132 BT GROUP PLCANNUAL REPORT & FORM 20-F




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   33. Financial instruments and risk management continued
 
   Within one
    
    
    Between
    
    
    Between
    
    
    Between
    
    
    BetweenCarrying
    
    
    year, or on
    
    
    one and
    
    
    two and
    
    
    three and
    
    
    four and
    
    
    Afteramount
    
    
    demand
    
    
    two years
    
    
    three years
    
    
    four years
    
    
    five years
    
    
    five yearsOutflow (inflow)d
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m2009Loans and borrowings
    
    
    13,907Principal
    
    
    
    
    
    
    1,227
    
    
    
    3,098
    
    
    
    10
    
    
    
    1,829
    
    
    
    14
    
    
    
    7,412Interest
    
    
    
    
    
    
    906
    
    
    
    900
    
    
    
    649
    
    
    
    650
    
    
    
    550
    
    
    
    5,333Trade and other payablesa
    
    
    5,354
    
    
    
    5,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provisionsb
    
    
    166
    
    
    
    59
    
    
    
    17
    
    
    
    15
    
    
    
    13
    
    
    
    8
    
    
    
    119Derivative financial instrument liabilities
analysed based on earliest payment datecNet settled
    
    
    762
    
    
    
    244
    
    
    
    338
    
    
    
    28
    
    
    
    50
    
    
    
    19
    
    
    
    30Gross settled
    
    
    5Outflow
    
    
    
    
    
    
    414
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inflow
    
    
    
    
    
    
    (409
    )
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    7,795
    
    
    
    4,353
    
    
    
    702
    
    
    
    2,542
    
    
    
    591
    
    
    
    12,894Derivative financial instrument liabilities
analysed based on holding instrument
to maturityNet settled
    
    
    762
    
    
    
    117
    
    
    
    117
    
    
    
    60
    
    
    
    60
    
    
    
    60
    
    
    
    634Gross settled
    
    
    5Outflow
    
    
    
    
    
    
    414
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inflow
    
    
    
    
    
    
    (409
    )
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2008Loans and borrowings
    
    
    11,342Principal
    
    
    
    
    
    
    1,278
    
    
    
    274
    
    
    
    2,362
    
    
    
    13
    
    
    
    1,537
    
    
    
    5,646Interest
    
    
    
    
    
    
    743
    
    
    
    696
    
    
    
    659
    
    
    
    478
    
    
    
    480
    
    
    
    4,700Trade and other payablesa
    
    
    5,828
    
    
    
    5,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provisionsb
    
    
    127
    
    
    
    31
    
    
    
    25
    
    
    
    16
    
    
    
    14
    
    
    
    13
    
    
    
    66Derivative financial instrument liabilities
analysed based on earliest payment datecNet settled
    
    
    446
    
    
    
    18
    
    
    
    101
    
    
    
    158
    
    
    
    19
    
    
    
    40
    
    
    
    47Gross settled
    
    
    626Outflow
    
    
    
    
    
    
    480
    
    
    
    526
    
    
    
    1,701
    
    
    
    86
    
    
    
    211
    
    
    
    351Inflow
    
    
    
    
    
    
    (393
    )
    
    
    (337
    )
    
    
    (1,318
    )
    
    
    (47
    )
    
    
    (147
    )
    
    
    (327
    )Total
    
    
    
    
    
    
    7,985
    
    
    
    1,285
    
    
    
    3,578
    
    
    
    563
    
    
    
    2,134
    
    
    
    10,483Derivative financial instrument liabilities
analysed based on holding instrument
to maturityNet settled
    
    
    446
    
    
    
    18
    
    
    
    18
    
    
    
    18
    
    
    
    20
    
    
    
    20
    
    
    
    66Gross settled
    
    
    626Outflow
    
    
    
    
    
    
    480
    
    
    
    482
    
    
    
    2,107
    
    
    
    177
    
    
    
    305
    
    
    
    4,619Inflow
    
    
    
    
    
    
    (393
    )
    
    
    (365
    )
    
    
    (1,715
    )
    
    
    (137
    )
    
    
    (263
    )
    
    
    (3,756
    )
 a
    
    The carrying amount excludes £1,861m (2008: £1,763m) of current and £794m (2008: £707m) of non current trade and other payables which relate to non-financial liabilities.b
    
    The carrying amount excludes £195m (2008: £50m) of current and £359m (2008: £169m) of non current provisions which relate to non-financial liabilities.c
    
    Certain derivative financial instrument liabilities contain break clauses which, if exercised, require settlement of the derivative.d
    
    Foreign currency related cash flows were translated at the closing
rate as at the relevant reporting date. Future variable interest rate cash flows were calculated
using the most recent rate applied at the relevant balance sheet date.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 133




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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  33. Financial instruments and risk management continued
     Derivative fair valueNotional
    
    
    
    
    
    
    
    
    
    
    Remaining term
    
    Weighted average
    
    Period overprincipal
    
    
    Asset
    
    
    Liability
    
    
    of hedging
    
    interest rate on
    
    which forecastHedged item
    
    Hedging instruments
    
    Hedge type
    
    £m
    
    
    £m
    
    
    £m
    
    
    instruments
    
    hedging instruments
    
    transaction arisesEuro and US dollar
    
    Interest rate swaps
    
    Cash flow
    
    
    2,913
    
    
    
    
    
    
    
    446
    
    
    2 to 22 years
    
    Sterling receivable at 3.0%denominated borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 5.9%Cross currency swaps
    
    Cash flow and fair value
    
    
    7,227
    
    
    
    2,559
    
    
    
    1
    
    
    5 months to 22 years
    
    Euro receivable at 6.0%US dollar receivable at 7.7%Sterling payable at 7.2%Euro and US dollar step up
 interest on currency
denominated borrowingsa
    
    Forward currency contracts
    
    Cash flow
    
    
    223
    
    
    
    9
    
    
    
    
    
    
    3 to 5 monthsrolling basis
    
    
    
    
    
    22 yearsEuro and US dollar
commercial papera
    
    Forward currency contracts
    
    Cash flow
    
    
    490
    
    
    
    17
    
    
    
    
    
    
    Less than 3 monthsrolling basisPurchase of US dollar
denominated fixed assets
    
    Forward currency contracts
    
    Cash flow
    
    
    48
    
    
    
    
    
    
    
    1
    
    
    Less than 1 month
    
    
    
    
    
    4 yearsEuro deferred consideration

on acquisition
    
    Forward currency contracts
    
    Cash flow
    
    
    50
    
    
    
    1
    
    
    
    
    
    
    Less than 5 monthsa     See note 16.The group had outstanding hedging activities as at 31 March 2008 as follows:Derivative fair valueNotional
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    1
    
    
    
    207
    
    
    3 to 23 years
    
    Sterling receivable at 6.1%denominated borrowingsa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling payable at 5.9%Cross currency swaps
    
    Cash flow and fair value
    
    
    6,433
    
    
    
    340
    
    
    
    625
    
    
    1 to 23 years
    
    Euro receivable at 5.9%
US dollar receivable at 7.7%
Sterling payable at 8.6%Euro
and US dollar
step up 
interest on currency 
denominated
borrowingsa
    
    Forward currency contracts
    
    Cash flow
    
    
    182
    
    
    
    6
    
    
    
    
    
    
    3 to 5 months rolling basis
    
    
    
    
    
    23 yearsEuro and US dollar
commercial papera
    
    Forward currency contracts
    
    Cash flow
    
    
    95
    
    
    
    14
    
    
    
    
    
    
    Less than 5 monthsrolling basisPurchase of US dollar
denominated fixed assets
    
    Forward currency contracts
    
    Cash flow
    
    
    115
    
    
    
    
    
    
    
    1
    
    
    Less than 1 month
    
    
    
    
    
    5 years
 a
    
    See note 16.
   134 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   33. Financial instruments and risk management continued
 Fair value of financial instruments
  Carrying amount
    
    
    Fair value2009
    
    
    2008
    
    
    2009
    
    
    2008£m
    
    
    £m
    
    
    £m
    
    
    £mFinancial liabilities:Listed bonds, debentures and notes
    
    
    12,189
    
    
    
    9,298
    
    
    
    11,384
    
    
    
    9,436Finance leases
    
    
    332
    
    
    
    320
    
    
    
    366
    
    
    
    347Other loans and borrowings
    
    
    1,386
    
    
    
    1,724
    
    
    
    1,338
    
    
    
    1,690
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 135




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##### Table of Contents



FINANCIAL STATEMENTS
 
 GLOSSARY OF TERMS AND US EQUIVALENTS
  Term used in UK Annual Report
    
    US equivalent or definitionAccounts
    
    Financial statementsAssociates
    
    Equity investeesCapital allowances
    
    Tax depreciationCapital redemption reserve
    
    Other additional capitalFinance lease
    
    Capital leaseFinancial year
    
    Fiscal yearFreehold
    
    Ownership with absolute rights in perpetuityInterests in associates and joint ventures
    
    Securities of equity investeesLeaver costs
    
    Termination benefitsLoans to associates and joint ventures
    
    Indebtedness of equity investees not currentOwn work capitalised
    
    Costs of labour engaged in the construction of plant and
equipment for internal useProvision for doubtful debts
    
    Allowance for bad and doubtful accounts receivableProvisions
    
    Long-term liabilities other than debt and specific accounts
payableStatement of recognised income and expense
    
    Comprehensive incomeReserves
    
    Shareholders equity other than paid-up capitalShare premium account
    
    Additional paid-in capital or paid-in surplus (not distributable)
 136 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS
 
 REPORT OF THE INDEPENDENT AUDITORS  PARENT COMPANY
   Respective responsibilities of directors and auditors
      Basis of audit opinion
   Opinion
  4
    
    the parent company financial
statements give a true and fair view, in accordance
with United Kingdom Generally Accepted Accounting
Practice, of the state of the companys affairs as at
31 March 2009;4
    
    the parent company financial statements
and the Remuneration review have been properly
prepared in accordance with the Companies Act 1985;
and4
    
    the information given in the Report of the
Directors is consistent with the parent company
financial statements.
  PricewaterhouseCoopers LLP
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 137




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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
  138 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL
STATEMENTS FINANCIAL STATEMENTS OF BT GROUP PLC
   BT Group plc company balance sheet
 2009
    
    
    2008£m
    
    
    £mFixed assetsInvestments in subsidiary undertakingsa
    
    
    10,168
    
    
    
    10,182Total fixed assets
    
    
    10,168
    
    
    
    10,182Current assetsDebtorsb
    
    
    142
    
    
    
    996Cash at bank and in hand
    
    
    13
    
    
    
    16Total current assets
    
    
    155
    
    
    
    1,012Creditors: amounts falling due within one yearc
    
    
    65
    
    
    
    184Net current assets
    
    
    90
    
    
    
    828Total assets less current liabilities
    
    
    10,258
    
    
    
    11,010Capital and reservesdCalled up share capital
    
    
    408
    
    
    
    420Share premium account
    
    
    62
    
    
    
    62Capital redemption reserve
    
    
    27
    
    
    
    15Treasury shares reserve
    
    
    (1,109
    )
    
    
    (1,843
    )Profit and loss account
    
    
    10,870
    
    
    
    12,356Total equity shareholders funds
    
    
    10,258
    
    
    
    11,010
 a
    
    Throughout 2009, the company held a 100% investment in BT Group Investments Limited, a
company registered in England and Wales. The company also held a 91% investment in Net 2S SA at 31
March 2008 (a company which changed its name to BT Services SA on 1 April 2009), which it increased
to 98.9% in 2009 before selling the investment within the BT Group to BT France SA on 25 March 2009
for a consideration of £64m and a profit on disposal of £11m. The remaining change to investments
in subsidiary undertakings relates to additional capital contributions in respect of share based payments (2009: £31m, 2008: £73m).b
    
    Debtors consists of amounts owed by subsidiary undertakings of £142m (2008: £996m).c
    
    Creditors consists of amounts owed to subsidiary undertakings of £15m (2008: £8m) and other creditors of £50m (2008: £176m).d
    
    Capital and reserves are shown on page 140.
  Sir Michael Rake
 Ian Livingston
 Tony Chanmugam
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 139




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##### Table of Contents



FINANCIAL
STATEMENTS FINANCIAL STATEMENTS OF BT GROUP
PLC
  BT Group plc company balance sheet continued
 Capital
    
    
    
    
    
    
    ProfitShare
    
    
    Share premium
    
    
    redemption
    
    
    Treasury
    
    
    and losscapital
    a
    
    account
    b
    
    reserve
    
    
    reserve
    c
    
    account
    c,d
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2007
    
    
    432
    
    
    
    31
    
    
    
    2
    
    
    
    (884
    )
    
    
    10,597
    
    
    
    10,178Profit for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,497
    
    
    
    3,497Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,241
    )
    
    
    (1,241
    )Capital contribution in respect of share
based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    73Net purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,529
    )
    
    
    
    
    
    
    (1,529
    )Cancellation of shares
    
    
    (13
    )
    
    
    
    
    
    
    13
    
    
    
    570
    
    
    
    (570
    )
    
    
    Arising on share issues
    
    
    1
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32At 1 April 2008
    
    
    420
    
    
    
    62
    
    
    
    15
    
    
    
    (1,843
    )
    
    
    12,356
    
    
    
    11,010Profit for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    502Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,222
    )
    
    
    (1,222
    )Capital contribution in respect of share
based payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Net purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    
    
    
    
    (63
    )Cancellation of shares
    
    
    (12
    )
    
    
    
    
    
    
    12
    
    
    
    797
    
    
    
    (797
    )
    
    
    At 31 March 2009
    
    
    408
    
    
    
    62
    
    
    
    27
    
    
    
    (1,109
    )
    
    
    10,870
    
    
    
    10,258
 a
    
    The authorised share capital of the company throughout 2009 and 2008 was £13,463m,
representing 269,260,253,468 ordinary shares of 5p each. The allotted, called up and fully paid
ordinary share capital of the company at 31 March 2009 was £408m (2008: £420m), representing
8,151,227,029 ordinary shares of 5p each (2008: 8,401,227,029). Of the authorised but unissued
share capital at 31 March 2009, nil ordinary shares (2008: 21m) were reserved to meet options granted under
employee share option schemes.b
    
    The share premium account, representing the premium on
allotment of shares, is not available for distribution. The movement in share premium arose, in
2008, from shares issued in consideration for the acquisition of Net 2S SA (a company which changed
its name to BT Services SA on 1 April 2009), and from the excess of proceeds received on the
exercise of share options versus the cost of treasury shares issued to satisfy those exercises.c
    
    During 2009, the company repurchased 142,608,225 (2008: 539,657,691) of its own shares
of 5p each, representing 2% (2008: 6%) of the called-up share capital, for consideration (including
transaction costs) of £189m (2008: £1,626m). In addition, 90,626,518 shares (2008: 53,250,144) were
issued from treasury to satisfy obligations under employee share schemes and executive share awards
at a cost of £126m (2008: £97m), and 250,000,000 treasury shares (2008: 250,000,000) were cancelled
at a cost of £797m (2008: £570m). At 31 March 2009, 409,226,885 shares (2008: 607,285,178) with an
aggregate nominal value of £20m (2008: £30m) are held as treasury shares at cost.d
    
    The profit for the financial year, dealt with in the profit and loss account of the company and after
taking into account dividends from subsidiary undertakings, was £502m (2008: £3,497m). As permitted
by Section 230 of the Companies Act 1985, no profit and loss account of the company is presented.
 140 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS
 
 SUBSIDIARY UNDERTAKINGS AND ASSOCIATE
   a b
 Group interest
    
    CountrySubsidiary undertakings
    
    Activity
    
    in allotted capitalc
    
    of operationsdBasilica Computing Limitede,f
    
    IT solutions provider
    
    100% ordinary
    
    UKBritish Telecommunications plce
    
    Communication related services and products provider
    
    100% ordinary
    
    UKBT Americas Incd,e
    
    Communication related services, systems integration and
products provider
    
    100% common
    
    InternationalBT Australasia Pty Limitede
    
    Communication related services and products provider
    
    100% ordinary
    
    Australia100% preferenceBT Centre Nominee 2 Limitede
    
    Property holding company
    
    100% ordinary
    
    UKBT Communications Ireland Limitede
    
    Telecommunication service provider
    
    100% ordinary
    
    IrelandBT Conferencing Ince
    
    Audio, video and web collaboration services provider
    
    100% common
    
    USABT Conferencing Video Incg
    
    Audio, video and web collaboration services provider
    
    100% common
    
    USABT Convergent Solutions Limitede
    
    Communications related services and products provider
    
    100% ordinary
    
    UKBT ESPANA, Compania de Servicios Globales de
Telecommunicaciones, SAe
    
    Communication related services and products provider
    
    100% ordinary
    
    SpainBT Fleet Limitede
    
    Fleet management company
    
    100% ordinary
    
    UKBT France SAe
    
    Communications related services, systems integration and
products provider
    
    100% ordinary
    
    FranceBT Frontline Pte Ltde,h
    
    Communications related services and products provider
    
    100% ordinary
    
    SingaporeBT (Germany) GmbH & Co oHGe
    
    Communications related services and products provider
    
    100% ordinary
    
    GermanyBT Global Communications India Private Limitede
    
    Communications related services
    
    100% ordinary
    
    IndiaBT Global Services Limitede
    
    International telecommunication network systems provider
    
    100% ordinary
    
    UKBT Holdings Limitede
    
    Investment holding company
    
    100% ordinary
    
    UKBT Hong Kong Limitede
    
    Communication related services and products provider
    
    100% ordinary
    
    Hong Kong100% preferenceBT Infrastructures Critiquese,i
    
    IT systems and network provider
    
    100% ordinary
    
    FranceBT INS Ince
    
    Information telecommunication consulting and software
solutions provider
    
    100% common
    
    USABT Italia SpAe
    
    Communication related services and products provider
    
    97.3% ordinary
    
    ItalyBT Limitede
    
    International telecommunication network systems provider
    
    100% ordinary
    
    InternationalBT Nederland NVe
    
    Communication related services and products provider
    
    100% ordinary
    
    NetherlandsBT Payment Services Limitede
    
    Payment services provider
    
    100% ordinary
    
    UKBT Professional Services Nederland BVe
    
    Systems integration and application development
    
    100% ordinary
    
    NetherlandsBT Services SAe,i
    
    Technology consulting and engineering services
    
    98.9% ordinary
    
    FranceBT Singapore Pte Ltde
    
    Communications related services and products provider
    
    100% ordinary
    
    SingaporeBT US Investments Limitedb,e
    
    Investment holding company
    
    100% ordinary
    
    JerseyCommunications Global Network Services Limitedd,e
    
    Communication related services and products provider
    
    100% ordinary
    
    InternationalCommunications Networking Services (UK)e
    
    Communication related services and products provider
    
    100% ordinary
    
    UKdabs.com plce
    
    Technology equipment retailer
    
    100% ordinary
    
    UKInfonet Services Corporatione
    
    Global managed network service provider
    
    100% common
    
    USAInfonet USA Corporatione
    
    Global managed network service provider
    
    100% common
    
    USARadianz Americas Ince
    
    Global managed network service provider
    
    100% preference
    
    USA100% common
 a
    
    The group comprises a large number of entities and it is not practical to include all
of them in this list. The list therefore includes only those entities that have a significant
impact on the revenue, profit or assets of the group. A full list of subsidiaries, joint ventures
and associates will be annexed to the companys next annual return filed with the Registrar of
Companies.b
    
    The principal operating subsidiaries (listed above) have a reporting date
of 31 March, except for BT US Investments Limited which changed its reporting date to 31 October in
order to meet its corporate objectives.c
    
    The proportion of voting rights held
corresponds to the aggregate interest percentage held by the holding company and subsidiary
undertakings.d
    
    All overseas undertakings are incorporated in their country of
operations. Subsidiary undertakings operating internationally are all incorporated in England and
Wales, except BT Americas Inc and Communications Global Network Services Limited which are
incorporated in the USA and Bermuda respectively.e
    
    Held through intermediate holding
company.f
    
    On 1 April 2009, Basilica Computing Limited sold its business and net assets
to BT Lynx Limited. BT Lynx Limited changed its name to BT Engage Limited on 1 April 2009.g
    
    In June 2008, Wire One Communications Inc changed its name to BT Conferencing Video Inc.h
    
    In April 2008, Frontline Technologies Corporation Limited changed its name to BT
Frontline Pte Ltd.i
    
    On 1 April 2009, BT Infrastructures Critiques sold its business and
net assets to Net2S SA. Net2S SA changed its name to BT Services SA on 1 April 2009.
 Share capitalPercentage
    
    
    CountryAssociate
    
    Activity
    
    Issuedj
    
    
    ownedl
    
    
    of operationskTech Mahindra Limited
    
    IT systems integrator and transformation consultancy provider
    
    
    121,733,634
    
    
    
    34.5
    %
    
    India
 j
    
    Issued share capital comprises ordinary or common shares, unless otherwise stated.k
    
    Incorporated in the country of operations.l
    
    Held through an intermediate holding company.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 141




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##### Table of Contents



FINANCIAL STATEMENTS
 
 QUARTERLY ANALYSIS OF REVENUE AND PROFIT
 UnauditedQuarters
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    TotalYear ended 31 March 2009
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    5,177
    
    
    
    5,303
    
    
    
    5,437
    
    
    
    5,473
    
    
    
    21,390Other operating income
    
    
    90
    
    
    
    107
    
    
    
    71
    
    
    
    71
    
    
    
    339Operating costs
    
    
    (4,625
    )
    
    
    (4,740
    )
    
    
    (5,264
    )
    
    
    (6,689
    )
    
    
    (21,318
    )Operating profit (loss)
    
    
    642
    
    
    
    670
    
    
    
    244
    
    
    
    (1,145
    )
    
    
    411Net finance expense
    
    
    (130
    )
    
    
    (159
    )
    
    
    (180
    )
    
    
    (151
    )
    
    
    (620
    )Share of post tax profits of associates and joint ventures
    
    
    1
    
    
    
    5
    
    
    
    52
    
    
    
    17
    
    
    
    75(Loss) profit before taxation
    
    
    513
    
    
    
    516
    
    
    
    116
    
    
    
    (1,279
    )
    
    
    (134
    )Taxation
    
    
    (115
    )
    
    
    (116
    )
    
    
    (19
    )
    
    
    303
    
    
    
    53(Loss) profit for the period
    
    
    398
    
    
    
    400
    
    
    
    97
    
    
    
    (976
    )
    
    
    (81
    )Basic (loss) earnings per share
    
    
    5.1p
    
    
    
    5.2p
    
    
    
    1.3p
    
    
    
    (12.6)p
    
    
    
    (1.1)pDiluted (loss) earnings per share
    
    
    5.1p
    
    
    
    5.2p
    
    
    
    1.3p
    
    
    
    (12.6)p
    
    
    
    (1.1)pProfit (loss) before specific items and taxation
    
    
    540
    
    
    
    554
    
    
    
    80
    
    
    
    (936
    )
    
    
    238Basic earnings (loss) per share before specific items
    
    
    5.4p
    
    
    
    5.6p
    
    
    
    0.8p
    
    
    
    (8.5)p
    
    
    
    3.2pAdjusted basic earnings per sharea
    
    
    5.4p
    
    
    
    5.6p
    
    
    
    3.9p
    
    
    
    3.6p
    
    
    
    18.4pDiluted earnings (loss) per share before specific items
    
    
    5.3p
    
    
    
    5.5p
    
    
    
    0.8p
    
    
    
    (8.5)p
    
    
    
    3.2p
 a
    
    Adjusted results refer to the amounts before contract and financial review charges
recorded within BT Global Services and specific items.
 UnauditedQuarters
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    TotalYear ended 31 March 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    5,033
    
    
    
    5,095
    
    
    
    5,154
    
    
    
    5,422
    
    
    
    20,704Other operating income
    
    
    66
    
    
    
    73
    
    
    
    74
    
    
    
    136
    
    
    
    349Operating costs
    
    
    (4,441
    )
    
    
    (4,647
    )
    
    
    (4,646
    )
    
    
    (4,963
    )
    
    
    (18,697
    )Operating profit
    
    
    658
    
    
    
    521
    
    
    
    582
    
    
    
    595
    
    
    
    2,356Net finance expense
    
    
    (55
    )
    
    
    (92
    )
    
    
    (134
    )
    
    
    (97
    )
    
    
    (378
    )Share of post tax losses of associates and joint ventures
    
    
    (3
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (11
    )Profit (loss) on disposal of associate
    
    
    
    
    
    
    9
    
    
    
    1
    
    
    
    (1
    )
    
    
    9Profit before taxation
    
    
    600
    
    
    
    435
    
    
    
    447
    
    
    
    494
    
    
    
    1,976Taxation
    
    
    8
    
    
    
    (96
    )
    
    
    (82
    )
    
    
    (68
    )
    
    
    (238
    )Profit for the period
    
    
    608
    
    
    
    339
    
    
    
    365
    
    
    
    426
    
    
    
    1,738Basic earnings per share
    
    
    7.4p
    
    
    
    4.2p
    
    
    
    4.5p
    
    
    
    5.4p
    
    
    
    21.5pDiluted earnings per share
    
    
    7.2p
    
    
    
    4.1p
    
    
    
    4.4p
    
    
    
    5.3p
    
    
    
    21.1pProfit before specific items and taxation
    
    
    650
    
    
    
    617
    
    
    
    581
    
    
    
    658
    
    
    
    2,506Basic earnings per share before specific items
    
    
    5.9p
    
    
    
    5.7p
    
    
    
    5.7p
    
    
    
    6.5p
    
    
    
    23.9pDiluted earnings per share before specific items
    
    
    5.8p
    
    
    
    5.6p
    
    
    
    5.6p
    
    
    
    6.4p
    
    
    
    23.4
 UnauditedQuarters
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    TotalYear ended 31 March 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    4,864
    
    
    
    4,941
    
    
    
    5,126
    
    
    
    5,292
    
    
    
    20,223Other operating income
    
    
    50
    
    
    
    52
    
    
    
    55
    
    
    
    76
    
    
    
    233Operating costs
    
    
    (4,255
    )
    
    
    (4,334
    )
    
    
    (4,626
    )
    
    
    (4,700
    )
    
    
    (17,915
    )Operating profit
    
    
    659
    
    
    
    659
    
    
    
    555
    
    
    
    668
    
    
    
    2,541Net finance (expense) income
    
    
    (46
    )
    
    
    (55
    )
    
    
    77
    
    
    
    (70
    )
    
    
    (94
    )Share of post tax profits of associates and joint ventures
    
    
    2
    
    
    
    5
    
    
    
    7
    
    
    
    1
    
    
    
    15Profit on disposal of associate
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    2
    
    
    
    22Profit before taxation
    
    
    615
    
    
    
    629
    
    
    
    639
    
    
    
    601
    
    
    
    2,484Taxation
    
    
    (151
    )
    
    
    (154
    )
    
    
    819
    
    
    
    (146
    )
    
    
    368Profit for the period
    
    
    464
    
    
    
    475
    
    
    
    1,458
    
    
    
    455
    
    
    
    2,852Basic earnings per share
    
    
    5.6p
    
    
    
    5.7p
    
    
    
    17.6p
    
    
    
    5.5p
    
    
    
    34.4pDiluted earnings per share
    
    
    5.5p
    
    
    
    5.6p
    
    
    
    17.1p
    
    
    
    5.3p
    
    
    
    33.6pProfit before specific items and taxation
    
    
    615
    
    
    
    632
    
    
    
    616
    
    
    
    632
    
    
    
    2,495Basic earnings per share before specific items
    
    
    5.6p
    
    
    
    5.7p
    
    
    
    5.6p
    
    
    
    5.8p
    
    
    
    22.7pDiluted earnings per share before specific items
    
    
    5.5p
    
    
    
    5.6p
    
    
    
    5.5p
    
    
    
    5.6p
    
    
    
    22.2p
 142 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS
 
 SELECTED FINANCIAL DATA
   Summary of group income statement
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    21,390
    
    
    
    20,704
    
    
    
    20,223
    
    
    
    19,514
    
    
    
    18,429Other operating income
    
    
    339
    
    
    
    349
    
    
    
    233
    
    
    
    227
    
    
    
    551Operating costs
    
    
    (21,318
    )
    
    
    (18,697
    )
    
    
    (17,915
    )
    
    
    (17,246
    )
    
    
    (15,988
    )Operating profitBefore specific itemsa
    
    
    819
    
    
    
    2,895
    
    
    
    2,713
    
    
    
    2,633
    
    
    
    2,693Specific itemsa
    
    
    (408
    )
    
    
    (539
    )
    
    
    (172
    )
    
    
    (138
    )
    
    
    299411
    
    
    
    2,356
    
    
    
    2,541
    
    
    
    2,495
    
    
    
    2,992Net finance expenseNet finance expense before specific itemsa
    
    
    (620
    )
    
    
    (378
    )
    
    
    (233
    )
    
    
    (472
    )
    
    
    (599
    )Specific itemsa
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    (620
    )
    
    
    (378
    )
    
    
    (94
    )
    
    
    (472
    )
    
    
    (599
    )Share of post tax profits (losses) of associates and joint venturesBefore specific itemsa
    
    
    39
    
    
    
    (11
    )
    
    
    15
    
    
    
    16
    
    
    
    (39
    )Specific itemsa
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    (11
    )
    
    
    15
    
    
    
    16
    
    
    
    (39
    )Profit on disposal of associates and joint ventures  specific itemsa
    
    
    
    
    
    
    9
    
    
    
    22
    
    
    
    1
    
    
    
    (Loss) profit before taxation and specific itemsBefore specific itemsa
    
    
    238
    
    
    
    2,506
    
    
    
    2,495
    
    
    
    2,177
    
    
    
    2,080Specific itemsa
    
    
    (372
    )
    
    
    (530
    )
    
    
    (11
    )
    
    
    (137
    )
    
    
    274(134
    )
    
    
    1,976
    
    
    
    2,484
    
    
    
    2,040
    
    
    
    2,354TaxationBefore specific itemsa
    
    
    10
    
    
    
    (581
    )
    
    
    (611
    )
    
    
    (533
    )
    
    
    (541
    )Specific itemsa
    
    
    43
    
    
    
    343
    
    
    
    979
    
    
    
    41
    
    
    
    1653
    
    
    
    (238
    )
    
    
    368
    
    
    
    (492
    )
    
    
    (525
    )(Loss) profit for the yearBefore specific itemsa
    
    
    248
    
    
    
    1,925
    
    
    
    1,884
    
    
    
    1,644
    
    
    
    1,539Specific itemsa
    
    
    (329
    )
    
    
    (187
    )
    
    
    968
    
    
    
    (96
    )
    
    
    290(81
    )
    
    
    1,738
    
    
    
    2,852
    
    
    
    1,548
    
    
    
    1,829
 Year ended 31 March
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Average number of shares used in basic earnings per share (millions)
    
    
    7,724
    
    
    
    8,066
    
    
    
    8,293
    
    
    
    8,422
    
    
    
    8,524Average number of shares used in diluted earnings per share (millions)
    
    
    7,771
    
    
    
    8,223
    
    
    
    8,479
    
    
    
    8,537
    
    
    
    8,581Basic (loss) earnings per share
    
    
    (1.1)p
    
    
    
    21.5p
    
    
    
    34.4p
    
    
    
    18.4p
    
    
    
    21.5pDiluted (loss) earnings per share
    
    
    (1.1)p
    
    
    
    21.1p
    
    
    
    33.6p
    
    
    
    18.1p
    
    
    
    21.3pDividends per sharec
    
    
    6.5p
    
    
    
    15.8p
    
    
    
    15.1p
    
    
    
    11.9p
    
    
    
    10.4pDividends per share, centsb,c
    
    
    9.3c
    
    
    
    31.4c
    
    
    
    29.7c
    
    
    
    20.7c
    
    
    
    19.5c
 a
    
    A definition of specific items is provided in the accounting policies section on page
79. The directors believe these measures provide a more meaningful analysis of the trading results
of the group and are consistent with the way the financial performance is measured by management.b
    
    Based on actual dividends paid and/or year end exchange rate on proposed dividends.c
    
    Dividends per share represents the dividend proposed in respect of the relevant
financial year. Under IFRS, dividends are recognised as a deduction from shareholders equity when
they are paid.
 d
 (Loss) profit before taxation
    
    
    (134
    )
    
    
    1,976
    
    
    
    2,484
    
    
    
    2,040
    
    
    
    2,354Contract and financial review charges
    
    
    1,639
    
    
    
    
    
    
    
    Specific items
    
    
    372
    
    
    
    530
    
    
    
    11
    
    
    
    137
    
    
    
    (274
    )Adjusted profit before taxationd
    
    
    1,877
    
    
    
    2,506
    
    
    
    2,495
    
    
    
    2,177
    
    
    
    2,080Adjusted
basic earnings per shared
    
    
    18.4p
    
    
    
    23.9p
    
    
    
    22.7p
    
    
    
    19.5p
    
    
    
    18.1pAdjusted
diluted earnings per shared
    
    
    18.4p
    
    
    
    23.4p
    
    
    
    22.2p
    
    
    
    19.2p
    
    
    
    17.9p
 d
    
    Adjusted results refer to the results before the contract and financial review charges
recorded within BT Global Services and specific items and are non-GAAP measures provided in
addition to the disclosure requirements defined under IFRS. The rationale for using non-GAAP
measures is explained on pages 33, 47 and 48.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 143




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##### Table of Contents



FINANCIAL
STATEMENTS SELECTED FINANCIAL DATA
  Summary of group cash flow statement
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Year ended 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet cash inflow from operating activities
    
    
    4,706
    
    
    
    5,486
    
    
    
    5,210
    
    
    
    5,387
    
    
    
    5,574Net cash (outflow) inflow from investing activities
    
    
    (2,954
    )
    
    
    (3,664
    )
    
    
    (2,778
    )
    
    
    214
    
    
    
    (1,843
    )Net cash used in financing activities
    
    
    (1,865
    )
    
    
    (1,430
    )
    
    
    (2,898
    )
    
    
    (5,278
    )
    
    
    (3,529
    )Effect of exchange rate changes on cash and cash equivalents

    
    54
    
    
    
    25
    
    
    
    (35
    )
    
    
    
    
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (59
    )
    
    
    417
    
    
    
    (501
    )
    
    
    323
    
    
    
    202Cash and cash equivalents at the start of the year
    
    
    1,174
    
    
    
    757
    
    
    
    1,258
    
    
    
    935
    
    
    
    733Cash and cash equivalents at the end of the year
    
    
    1,115
    
    
    
    1,174
    
    
    
    757
    
    
    
    1,258
    
    
    
    935
 Summary of group balance sheet
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005At 31 March
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mIntangible assets
    
    
    3,788
    
    
    
    3,355
    
    
    
    2,584
    
    
    
    1,908
    
    
    
    1,379Property, plant and equipment
    
    
    15,405
    
    
    
    15,307
    
    
    
    14,997
    
    
    
    15,222
    
    
    
    15,266Retirement benefit asset
    
    
    
    
    
    
    2,887
    
    
    
    
    
    
    
    
    
    
    
    Other non current assets
    
    
    4,068
    
    
    
    1,280
    
    
    
    759
    
    
    
    1,153
    
    
    
    1,56723,261
    
    
    
    22,829
    
    
    
    18,340
    
    
    
    18,283
    
    
    
    18,212Current assets less current liabilities
    
    
    (3,339
    )
    
    
    (3,181
    )
    
    
    (3,757
    )
    
    
    (3,063
    )
    
    
    (2,783
    )Total assets less current liabilities
    
    
    19,922
    
    
    
    19,648
    
    
    
    14,583
    
    
    
    15,220
    
    
    
    15,429Non current loans and other borrowings
    
    
    (12,365
    )
    
    
    (9,818
    )
    
    
    (6,387
    )
    
    
    (7,995
    )
    
    
    (7,744
    )Retirement benefit obligations
    
    
    (3,973
    )
    
    
    
    
    
    
    (389
    )
    
    
    (2,547
    )
    
    
    (4,807
    )Other non current liabilities
    
    
    (3,415
    )
    
    
    (4,398
    )
    
    
    (3,535
    )
    
    
    (3,071
    )
    
    
    (2,783
    )Total assets less liabilities
    
    
    169
    
    
    
    5,432
    
    
    
    4,272
    
    
    
    1,607
    
    
    
    95Called up share capital
    
    
    408
    
    
    
    420
    
    
    
    432
    
    
    
    432
    
    
    
    432Share premium account
    
    
    62
    
    
    
    62
    
    
    
    31
    
    
    
    7
    
    
    
    3Capital redemption reserve
    
    
    27
    
    
    
    15
    
    
    
    2
    
    
    
    2
    
    
    
    2Other reserves
    
    
    1,301
    
    
    
    (527
    )
    
    
    88
    
    
    
    364
    
    
    
    762Retained (loss) earnings
    
    
    (1,656
    )
    
    
    5,439
    
    
    
    3,685
    
    
    
    750
    
    
    
    (1,154
    )Total parent shareholders equity
    
    
    142
    
    
    
    5,409
    
    
    
    4,238
    
    
    
    1,555
    
    
    
    45Minority interests
    
    
    27
    
    
    
    23
    
    
    
    34
    
    
    
    52
    
    
    
    50Total equity
    
    
    169
    
    
    
    5,432
    
    
    
    4,272
    
    
    
    1,607
    
    
    
    95
 144 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



FINANCIAL STATEMENTS
 
 FINANCIAL STATISTICS
   2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Financial ratiosAdjusted basic earnings per share  pencea
    
    
    18.4
    
    
    
    23.9
    
    
    
    22.7
    
    
    
    19.5
    
    
    
    18.1Reported basic (loss) earnings per share  pence
    
    
    (1.1
    )
    
    
    21.5
    
    
    
    34.4
    
    
    
    18.4
    
    
    
    21.5Adjusted return on capital employed (unaudited)a, b
    
    
    15.1
    
    
    
    17.7
    
    
    
    17.6
    
    
    
    18.1
    
    
    
    18.2Reported return on capital employed (unaudited)b
    
    
    2.9
    
    
    
    14.4
    
    
    
    16.5
    
    
    
    17.1
    
    
    
    20.0Adjusted interest cover before net pension finance incomec times (unaudited)

    
    2.6
    
    
    
    3.6
    
    
    
    4.2
    
    
    
    3.6
    
    
    
    3.4Reported interest coverd times (unaudited)d
    
    
    0.7
    
    
    
    6.2
    
    
    
    27.0
    
    
    
    5.3
    
    
    
    5.0
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExpenditure on research and developmentResearch and development expense
    
    
    590
    
    
    
    532
    
    
    
    378
    
    
    
    326
    
    
    
    257Amortisation of internally developed computer software
    
    
    431
    
    
    
    325
    
    
    
    314
    
    
    
    161
    
    
    
    95Total
    
    
    1,021
    
    
    
    857
    
    
    
    692
    
    
    
    487
    
    
    
    352
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExpenditure on property, plant and equipment and softwarePlant and equipmentTransmission equipment
    
    
    1,067
    
    
    
    1,117
    
    
    
    1,209
    
    
    
    1,429
    
    
    
    1,488Exchange equipment
    
    
    44
    
    
    
    83
    
    
    
    118
    
    
    
    80
    
    
    
    143Other network equipment
    
    
    899
    
    
    
    1,060
    
    
    
    854
    
    
    
    727
    
    
    
    648Computers and office equipment
    
    
    140
    
    
    
    181
    
    
    
    149
    
    
    
    138
    
    
    
    187Motor vehicles and other
    
    
    912
    
    
    
    876
    
    
    
    877
    
    
    
    715
    
    
    
    474Land and buildings
    
    
    23
    
    
    
    33
    
    
    
    61
    
    
    
    68
    
    
    
    643,085
    
    
    
    3,350
    
    
    
    3,268
    
    
    
    3,157
    
    
    
    3,004Increase (decrease) in engineering stores
    
    
    3
    
    
    
    (11
    )
    
    
    (21
    )
    
    
    (15
    )
    
    
    7Total expenditure on property, plant and equipment
    
    
    3,088
    
    
    
    3,339
    
    
    
    3,247
    
    
    
    3,142
    
    
    
    3,011(Decrease) increase in payables
    
    
    (6
    )
    
    
    (24
    )
    
    
    51
    
    
    
    (202
    )
    
    
    45Cash
outflow on purchase of property, plant and equipment
and software

    
    3,082
    
    
    
    3,315
    
    
    
    3,298
    
    
    
    2,940
    
    
    
    3,056
 a
    
    Adjusted results refer to the results excluding the contract and financial review
charges recorded within BT Global Services and 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, cash and cash equivalents, derivative financial assets and
investments.c
    
    The number of times net finance expense before net pension finance income is covered
by adjusted operating profit.d
    
    The number of times net finance expense is covered by total operating profit.
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 145




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##### Table of Contents



FINANCIAL STATEMENTS
 
 OPERATIONAL STATISTICS
  All values (000) unless otherwise stated.
    
    UnauditedAs at 31 March
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005BT Global ServicesNetworked IT services sales order value (£m)a
    
    
    5,473
    
    
    
    4,985
    
    
    
    5,209
    
    
    
    5,391
    
    
    
    7,161Other order intake (£m)a
    
    
    2,571
    
    
    
    3,040
    
    
    
    4,090
    
    
    
    3,607
    
    
    
    2,465Total sales order value (£m)a
    
    
    8,044
    
    
    
    8,025
    
    
    
    9,299
    
    
    
    8,998
    
    
    
    9,626BT RetailBroadband lines (UK)
    
    
    4,757
    
    
    
    4,402
    
    
    
    3,659
    
    
    
    2,668
    
    
    
    1,780Broadband lines (UK): BTs retail share of installed base
    
    
    34%
    
    
    
    35%
    
    
    
    34%
    
    
    
    33%
    
    
    
    35%Exchange lines (UK)
    
    
    20,665
    
    
    
    22,543
    
    
    
    23,900
    
    
    
    25,709
    
    
    
    27,878BT Vision installed base
    
    
    423
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    Average annual revenue per consumer household user (ARPU)b(£)
    
    
    287
    
    
    
    274
    
    
    
    262
    
    
    
    251
    
    
    
    254% consumer contracted revenuesc
    
    
    71%
    
    
    
    70%
    
    
    
    68%
    
    
    
    67%
    
    
    
    64%BT WholesaleBroadband lines (UK) (Non-BT ISPs)
    
    
    3,305
    
    
    
    3,983
    
    
    
    5,168
    
    
    
    5,092
    
    
    
    3,243OpenreachFull and shared unbundled local loops
    
    
    5,749
    
    
    
    4,300
    
    
    
    1,910
    
    
    
    356
    
    
    
    41Wholesale line rental (lines)
    
    
    5,647
    
    
    
    4,666
    
    
    
    4,227
    
    
    
    2,874
    
    
    
    1,026BT GroupTotal employees (000)
    
    
    107.0
    
    
    
    111.9
    
    
    
    106.2
    
    
    
    104.4
    
    
    
    102.1Broadband lines (UK):BT Retail
    
    
    4,757
    
    
    
    4,402
    
    
    
    3,659
    
    
    
    2,668
    
    
    
    1,780BT Wholesale
    
    
    3,305
    
    
    
    3,983
    
    
    
    5,168
    
    
    
    5,092
    
    
    
    3,243Openreach
    
    
    5,749
    
    
    
    4,300
    
    
    
    1,910
    
    
    
    356
    
    
    
    41Total broadband lines
    
    
    13,811
    
    
    
    12,685
    
    
    
    10,737
    
    
    
    8,116
    
    
    
    5,064Exchange lines (UK):BT Retail
    
    
    20,665
    
    
    
    22,543
    
    
    
    23,900
    
    
    
    25,709
    
    
    
    27,878Openreach
    
    
    5,647
    
    
    
    4,666
    
    
    
    4,227
    
    
    
    2,874
    
    
    
    1,026Total exchange lines
    
    
    26,312
    
    
    
    27,209
    
    
    
    28,127
    
    
    
    28,583
    
    
    
    28,904
 a
    
    Rolling 12 month order intake.b
    
    Rolling 12 month consumer revenue, less mobile POLOs, divided by average number of
primary lines.c
    
    Includes line rental, broadband, select services and packages.
 146 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION
  148
INFORMATION FOR SHAREHOLDERS160 CROSS REFERENCE TO FORM 20F163 GLOSSARY OF TERMS166 INDEX
 BT GROUP PLCANNUAL REPORT & FORM 20-F     147




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ADDITIONAL INFORMATION
 
 INFORMATION FOR SHAREHOLDERS
  Cautionary statement regarding forward-looking statements
  Principal risks and
uncertainties
 148 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   Stock exchange listings
   pence per
    
    
    US$ perordinary share
    
    
    ADSHigh
    
    
    Low
    
    
    High
    
    
    Lowpence
    
    
    pence
    
    
    US$
    
    
    US$Financial years ended 31 March2005
    
    
    216.25
    
    
    
    169.25
    
    
    
    40.93
    
    
    
    30.342006
    
    
    235.00
    
    
    
    196.50
    
    
    
    41.71
    
    
    
    35.342007
    
    
    321.75
    
    
    
    209.25
    
    
    
    62.96
    
    
    
    37.082008
    
    
    336.75
    
    
    
    205.50
    
    
    
    68.55
    
    
    
    40.862009
    
    
    235.50
    
    
    
    71.40
    
    
    
    46.20
    
    
    
    9.80Financial year ended 31 March 20081 April  30 June 2007
    
    
    333.00
    
    
    
    306.25
    
    
    
    66.58
    
    
    
    60.581 July  30 September 2007
    
    
    336.75
    
    
    
    295.00
    
    
    
    68.55
    
    
    
    59.921 October  31 December 2007
    
    
    327.75
    
    
    
    272.75
    
    
    
    68.09
    
    
    
    53.921 January  31 March 2008
    
    
    280.25
    
    
    
    205.50
    
    
    
    54.55
    
    
    
    40.46Financial year ended 31 March 20091 April  30 June 2008
    
    
    235.50
    
    
    
    198.40
    
    
    
    46.20
    
    
    
    39.471 July  30 September 2008
    
    
    217.50
    
    
    
    158.90
    
    
    
    42.60
    
    
    
    27.671 October  31 December 2008
    
    
    167.60
    
    
    
    110.00
    
    
    
    29.11
    
    
    
    16.981 January  31 March 2009
    
    
    143.30
    
    
    
    71.40
    
    
    
    21.31
    
    
    
    9.80MonthsNovember 2008
    
    
    115.10
    
    
    
    135.20
    
    
    
    21.01
    
    
    
    16.98December 2008
    
    
    143.50
    
    
    
    131.50
    
    
    
    22.21
    
    
    
    19.19January 2009
    
    
    143.30
    
    
    
    104.90
    
    
    
    21.31
    
    
    
    14.98February 2009
    
    
    108.60
    
    
    
    86.00
    
    
    
    16.11
    
    
    
    12.22March 2009
    
    
    87.00
    
    
    
    71.40
    
    
    
    12.20
    
    
    
    9.80April 2009
    
    
    94.00
    
    
    
    79.70
    
    
    
    13.73
    
    
    
    11.641 May  8 May 2009
    
    
    96.60
    
    
    
    92.00
    
    
    
    14.67
    
    
    
    13.67
   Capital gains tax
 2
   2
 2 2 2
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 149




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##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
  Analysis of shareholdings at 31 March 2009
 Ordinary sharesof 5p eachNo. ofNumber of
    
    
    Percentage
    
    
    shares held
    
    
    PercentageRange
    
    holdings
    
    
    of total
    
    
    millions
    
    
    of total1  399
    
    
    443,717
    
    
    
    37.98
    
    
    
    93
    
    
    
    1.14400  799
    
    
    321,773
    
    
    
    27.54
    
    
    
    180
    
    
    
    2.21800  1,599
    
    
    231,899
    
    
    
    19.85
    
    
    
    259
    
    
    
    3.181,600  9,999
    
    
    163,860
    
    
    
    14.03
    
    
    
    488
    
    
    
    5.9910,000  99,999
    
    
    5,879
    
    
    
    0.50
    
    
    
    106
    
    
    
    1.30100,000  999,999
    
    
    642
    
    
    
    0.05
    
    
    
    232
    
    
    
    2.851,000,000  4,999,999
    
    
    316
    
    
    
    0.03
    
    
    
    740
    
    
    
    9.085,000,000 and abovea,b,c,d
    
    
    182
    
    
    
    0.02
    
    
    
    6,052
    
    
    
    74.25Totale
    
    
    1,168,268
    
    
    
    100.00
    
    
    
    8,151
    
    
    
    100.00
 a
    
    9.3m 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, 75.9m shares were held in trust on
behalf of 76,678 participants who were beneficially entitled to the shares. 234m shares were held
in the corporate nominee BT Group EasyShare on behalf of 106,296 beneficial owners.c
    
    198m shares were represented by ADSs. Analysis by size of holding is not available for
this holding.d
    
    406m shares were held as treasury shares.e
    
    12.8% of the shares were in 1,145,398 individual holdings, of which 86,257 were joint
holdings, and 87.2% of the shares were in 22,870 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$2005
    
    
    3.90
    
    
    
    6.50
    
    
    
    10.40
    
    
    
    0.390
    
    
    
    0.650
    
    
    
    1.040
    
    
    
    0.724
    
    
    
    1.195
    
    
    
    1.9192006
    
    
    4.30
    
    
    
    7.60
    
    
    
    11.90
    
    
    
    0.430
    
    
    
    0.760
    
    
    
    1.190
    
    
    
    0.747
    
    
    
    1.415
    
    
    
    2.1622007
    
    
    5.10
    
    
    
    10.00
    
    
    
    15.10
    
    
    
    0.510
    
    
    
    1.000
    
    
    
    1.510
    
    
    
    0.991
    
    
    
    1.972
    
    
    
    2.9632008
    
    
    5.40
    
    
    
    10.40
    
    
    
    15.80
    
    
    
    0.540
    
    
    
    1.040
    
    
    
    1.580
    
    
    
    1.030
    
    
    
    1.833
    
    
    
    2.8632009
    
    
    5.40
    
    
    
    1.10
    
    
    
    6.50
    
    
    
    0.540
    
    
    
    0.110
    
    
    
    0.650
    
    
    
    0.765
    
    
    
    a
    
    
    
    a
 a
    
    Qualifying holders of ADSs on record as of 14 August 2009 are entitled to receive the
final dividend which will be paid to ADS holders on 15 September 2009, subject to approval at the
AGM. The US dollar amount of the final dividend of 100 pence per ADS to be paid to holders of ADSs
will be based on the exchange rate in effect on 8 September 2009, the date of payment to holders of
ordinary shares.
   www.bt.com/investorcentre
 150 BT GROUP PLCANNUAL REPORT & FORM 20-F




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ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
  Date paid
    
    
    Price per share pence2005 interim
    
    7 February 2005
    
    
    
    209.952005 final
    
    5 September 2005
    
    
    
    220.252006 interim
    
    13 February 2006
    
    
    
    214.502006 final
    
    11 September 2006
    
    
    
    250.982007 interim
    
    12 February 2007
    
    
    
    320.542007 final
    
    17 September 2007
    
    
    
    316.212008 interim
    
    11 February 2008
    
    
    
    232.082008 final
    
    15 September 2008
    
    
    
    174.382009 interim
    
    9 February 2009
    
    
    
    107.04
 Global Invest Direct
 +1 800 428
4237
 Total shareholder return
 
    BT GROUP PLCANNUAL REPORT & FORM 20-F 151




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##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
  Results announcements
  Results for the 2010 financial year
    
    
    Datea1st quarter
    
    30 July 20092nd quarter and half year
    
    12 November 20093rd quarter and nine months
    
    February 20104th quarter and full year
    
    May 20102010 Annual reports published
    
    May 2010
 a
    
    Date may be subject to change.
 Individual savings accounts (ISAs)
  ShareGift
 www.sharegift.org
 Unclaimed Assets Register
 www.uar.co.uk
 Exchange rates
  Year ended 31 March
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Period end
    
    
    1.43
    
    
    
    1.99
    
    
    
    1.97
    
    
    
    1.74
    
    
    
    1.89Averagea
    
    
    1.70
    
    
    
    2.01
    
    
    
    1.91
    
    
    
    1.78
    
    
    
    1.85High
    
    
    2.00
    
    
    
    2.11
    
    
    
    1.99
    
    
    
    1.92
    
    
    
    1.95Low
    
    
    1.37
    
    
    
    1.94
    
    
    
    1.74
    
    
    
    1.71
    
    
    
    1.75
 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
    
    
    November2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008High
    
    
    1.50
    
    
    
    1.47
    
    
    
    1.49
    
    
    
    1.53
    
    
    
    1.55
    
    
    
    1.61Low
    
    
    1.44
    
    
    
    1.38
    
    
    
    1.42
    
    
    
    1.37
    
    
    
    1.44
    
    
    
    1.48
  152 BT GROUP PLCANNUAL REPORT & FORM 20-F




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ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   Share buy back
  Total number of
    
    
    Maximum number ofshares purchased as
    
    
    shares that may yetAverage price paid
    
    
    part of publicly
    
    
    be purchased underTotal number of
    

    per share (pence  net
    
    
    announced plans or
    
    
    the plan orCalendar montha
    
    shares purchased
    
    
    of dealing costs)
    
    
    programmes
    
    
    programmesbApril 2008
    
    
    39,630,000
    
    
    
    £2.20
    
    
    
    39,630,000
    
    
    
    380,062,309May 2008
    
    
    24,200,000
    
    
    
    £2.26
    
    
    
    24,200,000
    
    
    
    355,862,309June 2008
    
    
    48,188,225
    
    
    
    £2.14
    
    
    
    48,188,255
    
    
    
    307,674,084July 2008
    
    
    30,590,000
    
    
    
    £2.02
    
    
    
    30,590,000
    
    
    
    277,084,084142,608,225
    
    
    
    £2.15
    
    
    
    142,608,225
    
    
    
    277,084,084
 a
    
    Purchases made from April 2008 to 16 July 2008 were made in accordance with a
resolution passed at the AGM held on 19 July 2007.b
    
    Purchases from 17 July 2008 to 25 July 2008 were made in accordance with a
resolution passed at the AGM on 16 July 2008.
 Memorandum and Articles of Association
      (a) Voting rights
    (b) Variation of rights
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 153




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ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
  (c) Changes in capital
  (i)
    
    consolidate and divide all or any of its share capital into shares of a larger amount;(ii)
    
    divide all or part of its share capital into shares of a smaller amount;(iii)
    
    cancel any shares which have not, at the date of the ordinary resolution, been taken or
agreed to be taken by any person and reduce the amount of its share capital by the amount of the
shares cancelled; and(iv)
    
    increase its share capital.
  (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
    (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
  154 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   (i) Limitations on rights of non-resident or foreign shareholders
  (j) Directors
           (i)
    
    have any kind of interest in a contract with or involving BT (or in which BT has an interest or
with or involving another company in which BT has an interest);(ii)
    
    have any kind of interest in a company in which BT has an interest (including holding a
position in that company or being a shareholder of that company);(iii)
    
    hold a position (other than auditor) in BT or another company in which BT has an interest on
terms and conditions decided by the Board; and(iv)
    
    alone (or through some firm with which the director is associated) do paid professional work
(other than as auditor) for BT or another company in which BT has an interest on terms and
conditions decided by the Board.
         Material contracts
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 155




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ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
  Taxation (US Holders)
           156 BT GROUP PLCANNUAL REPORT & FORM 20-F




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ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 157




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##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
     Limitations affecting security holders
  Documents on display
 www.sec.gov
 Publications
 www.bt.com/aboutbt www.bt.com/betterworld
 Document
    
    Publication dateSummary financial statement & Notice of Meeting
    
    MayAnnual Report & Form 20-F
    
    MayChanging World: Sustained Values
    
    MayEAB Annual Report
    
    MayQuarterly results releases
    
    July, November, February and MayCurrent Cost Financial Statements
    
    SeptemberStatement of Business Practice (The Way We Work)
    
    January 2009
 0808 100 4141
 Electronic communication
 www.bt.com/signup
 158 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
   Shareholder communication
  www.bt.com/investorcentre
 www.bt.com/annualreport
   0808 100 4141
 Shareholder helpline
 0808 100 4141   0800 169 6907      bt@equiniti.com  www.shareview.co.uk
 The Registrar
    
    ADR DepositaryEquiniti
    
    JPMorgan Service CenterAspect House
    
    PO Box 358409Spencer Road
    
    Pittsburg, PALancing
    
    15252-8409 USAWest Sussex
    
    Tel: +1 800 634 8366 (toll free in the USA and Canada)BN99 6DA
    
    or +1 201 680 6630 (from outside the USA and Canada)Website: www.equiniti.com
    
    e-mail: jpmorganadr@mellon.comWebsite:www.adr.com
 General enquiries
 
  investorrelations@bt.com
 industryenquiry@bt.com
 www.bt.com/talk
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 159




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##### 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
    
    Selected financial data
    
    
    143Information for shareholdersExchange rates
    
    
    1523B
    
    Capitalisation and indebtedness
    
    Not applicable3C
    
    Reasons for the offer and use of proceeds
    
    Not applicable3D
    
    Risk factors
    
    Other mattersPrincipal risks and uncertainties
    
    
    294
    
    Information on the company4A
    
    History and development of the company
    
    Business reviewIntroduction
    
    
    8How we are structured
    
    
    10Other mattersAcquisitions and disposals
    
    
    28Financial reviewBalance sheetCapital expenditure
    
    
    42Acquisitions
    
    
    424B
    
    Business overview
    
    Business review
    
    
    8Financial reviewIntroduction to the financial reviewLine of business results
    
    
    33Operational statistics
    
    
    146Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1484C
    
    Organisational structure
    
    Business reviewIntroduction
    
    
    8Subsidiary undertakings and associate
    
    
    1414D
    
    Property, plants and equipment
    
    Other mattersOur property portfolio
    
    
    29Financial statistics
    
    
    1455
    
    Operating and financial review and prospects5A
    
    Operating results
    
    Financial review
    
    
    32Consolidated financial statementsAccounting policies
    
    
    79Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    1485B
    
    Liquidity and capital resources
    
    Financial review
    
    
    32Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    148Consolidated financial statementsNotes to the consolidated financial statementsLoans and other borrowings
    
    
    110Financial commitments and contingent liabilities
    
    
    117Financial instruments and risk management
    
    
    1305C
    
    Research and development, patents and licences
    
    Business reviewOur resourcesOur global research and development capability
    
    
    22Financial statistics
    
    
    1455D
    
    Trend information
    
    Financial review
    
    
    32Information for shareholdersCautionary statement regarding forward-looking statements
    
    
    148
 160 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### 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
    
    Page5E
    
    Off-balance sheet arrangements
    
    Financial reviewBalance sheetOff-balance sheet arrangements
    
    
    445F
    
    Tabular disclosure of contractual obligations
    
    Financial reviewBalance sheetCapital resources
    
    
    436
    
    Directors, senior management and employees6A
    
    Directors and senior management
    
    Board of Directors and Operating Committee
    
    
    506B
    
    Compensation
    
    Report on directors remuneration
    
    
    57Consolidated financial statementsNotes to the consolidated financial statementsRetirement benefit plans
    
    
    121Share based payments
    
    
    1266C
    
    Board practices
    
    Board of Directors and Operating Committee
    
    
    50The Board
    
    
    52Report on directors remuneration
    
    
    576D
    
    Employees
    
    Financial reviewGroup results
    
    
    33Consolidated financial statementsNotes to the consolidated financial statementsEmployees
    
    
    126Operational statistics
    
    
    1466E
    
    Share ownership
    
    Report on directors remuneration
    
    
    57Consolidated financial statementsNotes to the consolidated financial statementsShare based payments
    
    
    1267
    
    Major shareholders and related party transactions7A
    
    Major shareholders
    
    Shareholders and Annual General MeetingSubstantial shareholdings
    
    
    74Information for shareholdersAnalysis of shareholdings at 31 March 2009
    
    
    1507B
    
    Related party transactions
    
    Directors informationInterest of management in certain transactions
    
    
    70Report on directors remuneration
    
    
    57Consolidated financial statementsNotes to the consolidated financial statementsRelated party transactions
    
    
    1167C
    
    Interests of experts and counsel
    
    Not applicable8
    
    Financial information8A
    
    Consolidated statements and other financial information
    
    See Item 18 belowOther mattersLegal proceedings
    
    
    28Financial reviewOther group itemsDividends
    
    
    39Consolidated financial statementsNotes to the consolidated financial statementsFinancial commitments and contingent liabilities
    
    
    117Information for shareholdersDividends
    
    
    150Memorandum and Articles of AssociationArticlesDividends
    
    
    1548B
    
    Significant changes
    
    Financial reviewBalance sheetCapital resources
    
    
    43
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 161




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##### 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
    
    Page9
    
    The offer and listing9A
    
    Offer and listing details
    
    Information for shareholdersStock exchange listingsShare and ADS prices
    
    
    1499B
    
    Plan of distribution
    
    Not applicable9C
    
    Markets
    
    Information for shareholdersStock exchange listings
    
    
    1499D
    
    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 shareholdersMemorandum and Articles of Association
    
    
    15310C
    
    Material contracts
    
    Information for shareholdersMaterial contracts
    
    
    15510D
    
    Exchange controls
    
    Information for shareholdersLimitations affecting security holders
    
    
    15810E
    
    Taxation
    
    Information for shareholdersTaxation (US Holders)
    
    
    15610F
    
    Dividends and paying agents
    
    Not applicable10G
    
    Statement by experts
    
    Not applicable10H
    
    Documents on display
    
    Information for shareholdersDocuments on display
    
    
    15810I
    
    Subsidiary information
    
    Not applicable11
    
    Quantitative and qualitative disclosures about market risk
    
    Financial reviewFinancial risk management
    
    
    45Consolidated financial statementsAccounting policiesFinancial instruments
    
    
    83Notes to the consolidated financial statementsFinancial instruments and risk management
    
    
    13012
    
    Description of securities other than equity securities
    
    Not applicable13
    
    Defaults, dividend arrearages and delinquencies
    
    Not applicable14
    
    Material modifications to the rights of security holders and use of proceeds
    
    Not applicable15
    
    Controls and procedures
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    7316A
    
    Audit committee financial expert
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    7316B
    
    Code of ethics
    
    Business policiesUS Sarbanes-Oxley Act of 2002
    
    
    7316C
    
    Principal accountants fees and services
    
    Consolidated financial statementsNotes to the consolidated financial statementsAudit and non-audit services
    
    
    129Report of the Audit Committee
    
    
    5416E
    
    Purchases of equity securities by the issuer and
    
    Information for shareholdersaffiliated purchasers
    
    Share buy back
    
    
    15316F
    
    Change in registrants reporting accountant
    
    Not applicable16G
    
    Corporate Governance
    
    The BoardNew York Stock Exchange
    
    
    5317
    
    Financial statements
    
    Not applicable18
    
    Financial statements
    
    Report of
the independent auditors  Consolidated financial statements
    
    
    77United States opinion
    
    
    78Consolidated financial statements
    
    
    79Quarterly analysis of revenue and (loss) profit
    
    
    142
 162 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION
 
 GLOSSARY OF TERMS
 1,2,3
 
 21CN:
 21CN Ethernet:
 A
 
 ADS:
 ARPU:
 B
 
 backhaul network:
 broadband:
 BT Basic:
 BT Business One Plan:
 BT Conferencing:
 BT Design:
 BT Digital Vault:
 BT Directories:
 BT Engage IT:
 BT Enterprises:
 BT Expedite:
 BT FON:
 BT Global Services:
 BT Home Hub 2.0:
 BT Ireland:
 BT Openzone:
 BT Operate:
 BT Payphones:
 BT Pension Scheme (BTPS):
 BT Redcare:
 BT Retail:
 BT Retirement Plan (BTRP):
 BT Retirement Saving Scheme:
 BT Tradespace:
 BT Total Broadband:
 BT Vision:
 BT Wholesale:
 Business in the Community:
 C
 
 Childline:
 cloud computing:
 CP:
 CPS:
 CRM:
 CR:
 D
 
 dabs.com:
 DBP:
 Dow Jones Sustainability Index:
 DSL:
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 163




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##### Table of Contents



ADDITIONAL INFORMATION GLOSSARY OF TERMS
  E
 
 EBITDA:
 Ethernet:
 EMP:
 EPS:
 ESIP:
 ESPP:
 F
 
 Friends & Family Mobile:
 FTTC:
 FTTP:
 G
 Gb:
 GLOP:
 GSOP:
 I
 
 IASB:
 ICT:
 IFRS:
 IP:
 I-Plate:
 ISDN:
 ISO 14001:
 ISP:
 ISP:
 L
 
 LAN:
 LLU:
 M
 
 MNS
 managed network solutions:
 MPLS:
 N
 
 N3:
 narrowband:
 NCC:
 NGA:
 O
 
 Ofcom:
 Openreach:
 P
 
 PPC:
 PSTN:
 Q
 
 Queens Award for Enterprise:
 R
 
 right first time:
 Route2Learn (R2L):
 RSP:
 S
 
 SME:
 SMP:
 Super-fast broadband:
 T
 
 TSR:
 164 BT GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION GLOSSARY OF TERMS
   U
 
 Undertakings:
 UK GAAP:
 US GAAP:
 USO:
 US SEC:
 V
 
 VoIP:
 W
 
 WAN:
 Wholesale Broadband Connect:
 Wi-Fi:
 WLR:
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 165




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##### Table of Contents



ADDITIONAL INFORMATION
 
 INDEX
  A
 
 79-87  85-87  42, 118-121  28-29  148-167  47-48  153-155  39, 108  54-55  129  77, 78, 137
 B
 
 41-44, 91, 139-140, 144  52-53  50-51  28  19  10-13  20  13-16  16-17  71-73  8-25
 C
 
 42, 94, 95, 117  149  43-44  83, 90, 102  90, 144  148  3  4  27-28  79-135  23-25  47  160-162  9
 D
 
 113-114  84, 111-112, 131-135  70  57-69  76  50-74  151  150  39, 82, 98, 138, 150-151, 154  158
 E
 
 9, 39, 100-101  158  126-129  23  152
 F
 
 117  143-144  130-135  32-48  45-47  138-140  145  2  39-42  8-9  80  9, 41, 48
 G
 
 35, 95  151  163-165  136  33-36
 H
 
 6, 10
 I
 
 143-145  89-90  32  77, 78, 137  152  148-159  81, 104-105  107
 L
 
 28  158  33  110-111
 M
 
 9  155  9  153-155  114
 166 BT
GROUP PLCANNUAL REPORT & FORM 20-F




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##### Table of Contents



ADDITIONAL INFORMATION INDEX
   N
 
 48, 103  56  24-25  92-135
 O
 
 44  17-19  51  35-36, 96  146  26-31  36-39  35, 80, 95  115  28  9  2-6
 P
 
 21, 42-43, 60-61, 65  8  29-31  39  81, 106-107  29  83, 113  158
 Q
 
 142
 R
 
 114  26-27  116  20-22  152  116  121-125  42
 S
 
 92-95  143-144  149  153  84, 115, 138  82, 126-129, 138  152  159  74  150  36-38, 97  89  149  141
 T
 
 39, 44-45, 82, 99-100, 138  156-158  5  151  83, 112  83, 108-109
 U
 
 152
 
   BT GROUP PLCANNUAL REPORT & FORM 20-F 167




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##### Table of Contents



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