BT Group plc Annual Report & Form 20-F 2015
Investing for the future building on a history of
1846 1869 1892 1915 1938 1961 1984 2015
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Inventing a smarter future
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PC_FRONT.indb 4 5/15/2015 1:46:42 AM Welcome to BT Group plc’s Annual Report & Form 20-F 2015
7KLVLVWKH%7$QQXDO5HSRUWIRUWKH\HDUHQGHG0DUFK Contents ,W{FRPSOLHVZLWK8.UHJXODWLRQVDQGFRPSULVHVSDUW RIWKH$QQXDO5HSRUWDQG)RUP)IRUWKH866HFXULWLHV 2 &KDLUPDQoVLQWURGXFWLRQ DQG([FKDQJH&RPPLVVLRQWRPHHW86UHJXODWLRQV Overview 7KLVLVRXUƬUVWLQWHJUDWHG$QQXDO5HSRUW:HZDQWWR The Strategic Report FRPPXQLFDWHRXUVWRU\LQDPRUHFRPSHOOLQJZD\:HVHH Purpose and strategy ,QWHJUDWHG5HSRUWLQJ ,5 DVWKHEHVWZD\WRGRWKDW6RWKLV &KLHI([HFXWLYHoVLQWURGXFWLRQ \HDUIRUWKHƬUVWWLPHZHDUHUHƮHFWLQJWKLVDSSURDFKLQ 21 Our purpose 21 Our goal KRZZHVWUXFWXUHDQGSUHVHQWRXU$QQXDO5HSRUW 21 Our strategy ,QWHJUDWHG5HSRUWLQJLVDQLQLWLDWLYHOHGE\WKH,QWHUQDWLRQDO,QWHJUDWHG Delivering our strategy 5HSRUWLQJ&RXQFLO ,,5& :KLOH,5LVPDUNHWOHGLWVSULQFLSOHVDQG 2SHUDWLQJ&RPPLWWHH DLPVDUHFRQVLVWHQWZLWK8.UHJXODWRU\GHYHORSPHQWVLQƬQDQFLDODQG 2XUEXVLQHVVPRGHO FRUSRUDWHUHSRUWLQJ )LQDQFLDOVWUHQJWK 2XUSHRSOH ,Q'HFHPEHUWKH,,5&LVVXHGWKH,5)UDPHZRUNWRHVWDEOLVK 2XUQHWZRUNVDQGSK\VLFDODVVHWV guiding principles and content elements IRULQWHJUDWHGUHSRUWV:H{KDYH 5HVHDUFKDQGGHYHORSPHQW WDNHQWKHVHSULQFLSOHVDQGHOHPHQWVLQWRDFFRXQWLQSUHSDULQJRXU %UDQGDQGUHSXWDWLRQ $QQXDO5HSRUW7KLVLVPRVWREYLRXVLQWKHUHYLVHGUHSUHVHQWDWLRQRIRXU 6WDNHKROGHUVDQGUHODWLRQVKLSV EXVLQHVVPRGHODQGWKHQHZVHFWLRQGHVFULELQJRXUPDLQVWDNHKROGHUV 1DWXUDOUHVRXUFHV :HQRORQJHUUHSRUWVLPSOHnRXWSXWVoZHFRQVLGHUnRXWFRPHVoRU 2XUULVNV WKHLPSDFWWKDWZHKDYHDVDEXVLQHVV$QGZHXVHDVHWRIVL[LFRQV 51 ((DFTXLVLWLRQ ULVNV WKURXJKRXWWKLV$QQXDO5HSRUWWRSURYLGHOLQNDJHWRWKHEXVLQHVVPRGHO Our lines of business %XWWKLVLVMXVWWKHVWDUW:HUHFRJQLVHWKDWRXUPRYHWRZDUGnIXOOo,5 ZLOO{FRQWLQXHWRHYROYH)LQGRXWPRUH ZZZWKHLLUFRUJ Group performance *URXS)LQDQFH'LUHFWRUoVLQWURGXFWLRQ *URXSSHUIRUPDQFH 'HOLYHULQJVRFLHWDODQGHQYLURQPHQWDOEHQHƬWV
Governance &KDLUPDQoVJRYHUQDQFHUHSRUW +RZZHJRYHUQWKHJURXS %RDUGRI'LUHFWRUV 7KH%RDUG 5HSRUWVRIWKH%RDUGFRPPLWWHHV 'LUHFWRUVoLQIRUPDWLRQ Online Annual Report 'HOLYHULQJRXUSXUSRVHXSGDWH *HQHUDOLQIRUPDWLRQ ZZZEWFRPDQQXDOUHSRUW ZZZEWFRPGHOLYHULQJRXUSXUSRVH 6KDUHKROGHUVDQG$QQXDO*HQHUDO0HHWLQJ
Financial statements $XGLWRUVoUHSRUWVsFRQVROLGDWHG{ƬQDQFLDO{VWDWHPHQWV &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV $XGLWRUVoUHSRUWsSDUHQWFRPSDQ\ƬQDQFLDO{VWDWHPHQWV )LQDQFLDOVWDWHPHQWVRI%7*URXSSOF 6XEVLGLDU\XQGHUWDNLQJV
Additional information $OWHUQDWLYHSHUIRUPDQFHPHDVXUHV Please see the cautionary statement regarding forward-looking statements 6HOHFWHGƬQDQFLDOGDWD on page 209. )LQDQFLDODQGRSHUDWLRQDOVWDWLVWLFV The Purpose and strategy, Delivering our strategy, Our lines of business and ,QIRUPDWLRQIRUVKDUHKROGHUV Group performance sections on pages 19 to 92 form the Strategic Report. &URVVUHIHUHQFHWR)RUP) 7KH{*RYHUQDQFHVHFWLRQRQSDJHV WRIRUPVWKH5HSRUWRIWKH'LUHFWRUV *ORVVDU\RIWHUPV
7KURXJKRXWWKHUHSRUW Reference to other pages Reference to video Reference to further Our business model ORRNRXWIRUWKHVH within the report FRQWHQW{RQOLQH UHDGLQJ{RQOLQH LFRQV{VXFK{DV 1
PC_FRONT.indb 1 5/15/2015 1:46:46 AM 2 BT Group plc Annual Report 2015
:HZLOOPDNHVXUH%76SRUWUHPDLQVJUHDWYDOXHDQGZLGHO\DYDLODEOHWR Chairman’s introduction 8.KRXVHKROGV :HKDYHLQYHVWHGIXUWKHULQRXUFXVWRPHUVHUYLFH:HUHFUXLWHG QHZHQJLQHHUVDQGPRUHWKDQQHZSHRSOHLQWRRXUFRQWDFWFHQWUHV $QGZHDUHVHHLQJWKHEHQHƬWVRIRXULQYHVWPHQW:HKDYHLQFUHDVHG WKHVSHHGRIVHUYLFHGHOLYHU\DQGUHSDLUHGIDXOWVIDVWHU%XWZHGLGQoW PHHWRXUFXVWRPHUSHUFHSWLRQWDUJHWVDQGLQDFRPSHWLWLYHPDUNHWZH QHHGWRGRPRUH7KLVUHPDLQVDQDEVROXWHSULRULW\IRU%7DQGRQHZKHUH ZHDUHFRPPLWWHGWRLQYHVWDQGLPSURYHIXUWKHU
Building our global presence $VLJQLƬFDQWSURSRUWLRQRIRXUUHYHQXHLVJHQHUDWHGRXWVLGHWKH8. PDLQO\IURPODUJHPXOWLQDWLRQDOEXVLQHVVHV%7*OREDO6HUYLFHVKDVDJDLQ FRQVROLGDWHGLWVSRVLWLRQDVDJOREDOOHDGHUIRUPDQDJHGQHWZRUNHG,7 VHUYLFHV7REHVWVHUYHRXUFXVWRPHUVLWLVFULWLFDOWKDWZHKDYHIDLUDFFHVV WRQHWZRUNVDFURVVWKHZRUOG2WKHURSHUDWRUVFDQXVHRXUQHWZRUNVLQ WKH8.RQIDYRXUDEOHWHUPV
PC_FRONT.indb 2 5/15/2015 1:46:47 AM The Strategic Report 3 Overview Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional information
Overview
:HOFRPHWR%7oVƬUVWLQWHJUDWHG$QQXDO 2XUSXUSRVH :KRZHDUHDQGZKDWZHGR 5HSRUWZKLFKZHKDYHVXPPDULVHGLQWKHQH[W 5 Our goal and strategy VHYHQSDJHV+HUHZHRXWOLQHRXUSXUSRVHRXU 5 Our business model .H\SHUIRUPDQFHLQGLFDWRUV VWUDWHJ\DQGRXUEXVLQHVVPRGHO Who we are :HDUHRQHRIWKHZRUOGoVOHDGLQJFRPPXQLFDWLRQV VHUYLFHVFRPSDQLHV Our business model 2XUIXOOEXVLQHVVPRGHOVKRZLQJDOOWKHLQSXWV outputs and outcomes is on page 28 Our lines of business )RUHDFKOLQHRIEXVLQHVVZHSURYLGHDVXPPDU\ RIZKDWWKH\GRDQGKRZWKH\GLGLQWKH\HDUs ERWKRSHUDWLRQDOO\DQGƬQDQFLDOO\ PC_FRONT.indb 3 5/15/2015 1:46:48 AM 4 BT Group plc Annual Report 2015 Our purpose 2XUSXUSRVHLVWRXVHWKHSRZHURIFRPPXQLFDWLRQVWRPDNHDEHWWHUZRUOG%\EULQJLQJWRJHWKHURXUQHWZRUNV RXU{WHFKQRORJ\DQGWKHKDUGZRUNDQGH[SHUWLVHRIRXUSHRSOHZHGHYHORSVHUYLFHVWKDWRXUFXVWRPHUVYDOXH We use the power of communications to make a better world We are improving our business. We make a major contribution :HKDYHWKHƬQDQFLDOVWUHQJWK 2XU{SHRSOHWHFKQRORJ\DQG to society, businesses to invest for the future while QHWZRUNV{VHWXVDSDUW DQG{FRPPXQLWLHV UHZDUGLQJRXU{VWDNHKROGHUV Who we are and what we do We are one of the world’s In the UK we are delivering one We provide managed networked leading communications RIWKH{IDVWHVWUROORXWVRIƬEUH IT services for many of the VHUYLFHV{FRPSDQLHV EURDGEDQGLQ{WKH{ZRUOG largest global companies We are the leading provider of Every day we touch the lives of millions We are Europe’s largest voice and broadband services RISHRSOHKHOSLQJ{WKHPFRPPXQLFDWH telecoms services WR{8.{60(V{DQG{FRQVXPHUV GR{EXVLQHVVDQGEH{HQWHUWDLQHGDQG{LQIRUPHG ZKROHVDOHUE\{UHYHQXH PC_FRONT.indb 4 5/15/2015 1:46:54 AM The Strategic Report 5 Overview Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional information Our goal and strategy Our business model 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8.EXVLQHVVPDUNHWV DQGVXSSRUWLQJ Ƭ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{WKDWZHPDNHWKHULJKWLQYHVWPHQWVDQGFUHDWHSURGXFWVDQGVHUYLFHV ƮRZ,QWKH\HDUVDKHDGUHYHQXHJURZWKWRJHWKHUZLWKFRQWLQXHG WKDWFXVWRPHUVZDQWWREX\%HLQJDEOHWRDQWLFLSDWHDQGUHVSRQG WUDQVIRUPDWLRQRIRXUFRVWVZLOOSURYLGHDSRZHUIXOSODWIRUPIRUORQJ WRFKDQJHVLQRXUHQYLURQPHQWPDNHVIRUDƮH[LEOHDQGVXVWDLQDEOH WHUPDQGVXVWDLQDEOHFDVKƮRZJURZWK7KLVZLOOFUHDWHYDOXHIRURXU EXVLQHVVPRGHO:HVHHPRUHDQGPRUHGHPDQGIRURXUVHUYLFHV VKDUHKROGHUVDVZHOODVIRURXURWKHUVWDNHKROGHUV EHFDXVH{WKH\SOD\VXFKDQLQWHJUDOUROHLQPRGHUQOLIH6RZHDUH FRQƬGHQWWKDW{ZHZLOOEHDEOHWRGHOLYHUYDOXHWRGD\DQGLQWKHIXWXUH External environment Governance Our purpose To use the power of communications to make a better world Our goal $JURZLQJ%7 WRGHOLYHUVXVWDLQDEOHSURƬWDEOHUHYHQXHJURZWK Our strategy Broaden and deepen our customer relationships 'HOLYHU{VXSHULRU Transform Invest for customer service our costs growth Outputs & Inputs Value creation Outcomes Mobility Leading TV and UK business Fibre DQGIXWXUH{ global content markets voice companies Our culture A healthy organisation Our values Customer Team Honesty Change Pride :HDUH :HKHOS :HDUHKRQHVW :HDOOPDNH :HDUHSURXG KHUHIRURXU HDFKRWKHU DQG{UHVSHFWIXO FKDQJH WRPDNHD customers DFKLHYH{PRUH KDSSHQ GLƪHUHQFH Risks Find out more Our business model inputs Our business model outputs Our Governance Our Risks on page RXWFRPHV{RQSDJH on page on page 28 28 93 41 PC_FRONT.indb 5 5/15/2015 1:46:55 AM 6 BT Group plc Annual Report 2015 Key performance indicators Our performance for the year :HPHDVXUHRXUSURJUHVVXVLQJIRXUNH\SHUIRUPDQFH 7KLV\HDUZHGHOLYHUHGRQRXUFRUHEXVLQHVVLQJOREDOO\FKDOOHQJLQJ PDUNHWVDFKLHYLQJRUEHDWLQJWKHRXWORRNZHVHWDWWKHVWDUWRIWKH\HDU LQGLFDWRUV .3,V %7&RQVXPHUODXQFKHGJUHDWYDOXHPRELOHSURSRVLWLRQVDQGZHKDYHVHW 2XUNH\PHDVXUHRIWKHJURXSoVUHYHQXHWUHQGXQGHUO\LQJUHYHQXH RXWRXUSODQVWRGHOLYHUXOWUDIDVWEURDGEDQGZLWK*IDVWWRPRVWRIWKH H[FOXGLQJWUDQVLWZDVGRZQLQOLQHZLWKRXURXWORRNRIEURDGO\ 8.)RURXUEXVLQHVVFXVWRPHUVZHODXQFKHGDQXPEHURILQQRYDWLYH ƮDW%7&RQVXPHUUHYHQXHZDVXSKHOSHGE\VWURQJJURZWKLQRXU VROXWLRQVLQFOXGLQJ%7$VVXUH7KUHDW'HIHQFHLQ%7*OREDO6HUYLFHVDQG ƬEUHEURDGEDQGDQG79FXVWRPHUEDVHV7KLVZDVRƪVHWE\GHFOLQHVLQ FORXGEDVHGYRLFHVHUYLFHVLQ%7%XVLQHVVDQG%7:KROHVDOH RXU{RWKHUOLQHVRIEXVLQHVVLQSDUWGXHWRUHJXODWRU\SULFLQJSUHVVXUHV :HKDYHPDGHIXUWKHUSURJUHVVLQWUDQVIRUPLQJRXUFRVWV'HVSLWH :HJUHZDGMXVWHGHDUQLQJVSHUVKDUHE\1RUPDOLVHGIUHHFDVKƮRZ FRQWLQXLQJWRLQVRXUFHMREVQHWODERXUFRVWVZHUHGRZQDVZH RI~PZDVXSDQGDKHDGRIRXURXWORRNIRUWKH\HDURIDERYH 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LWVSURGXFWVZLWKLQWDUJHWWLPHV/RRNLQJDKHDGZH{QHHGWRLPSURYHRXU UHGXFHGRXUQHWGHEWDQGPDGHIXUWKHUVLJQLƬFDQWFRQWULEXWLRQVWRWKH SURYLVLRQRI(WKHUQHWVHUYLFHVDQGUHFRYHUPRUHTXLFNO\ZKHQZHGRIDLO %73HQVLRQ6FKHPH2XUSURSRVHGIXOO\HDUGLYLGHQGWRVKDUHKROGHUVLV WRPHHWRXUSURPLVHV SXS{ Trend in underlying revenue excluding transit Adjusted earnings per share Year ended 31 March Year ended 31 March % pence 1.0 35 0.5 30 0.0 0.5 25 31.5 (0.5) 28.2 (3.1) (3.0) (1.9) (1.0) 20 26.3 (0.4) 23.4 (1.5) 15 20.7 (2.0) 10 (2.5) (3.0) 5 (3.5) 0 20112012 2013 2014 2015 20112012 2013 2014 2015 a Financial outlook which was 2XWORRNa Result given at the start of the year. %URDGO\OHYHO 'RZQ 1RUPDOLVHGIUHHFDVKƮRZ Customer service improvement Year ended 31 March At 31 March £m % 2,900 20 4.7 2,700 18.7 2,830 15 3.0 1.5 (4.0) 2,500 3.0 10 2,300 2,450 10.5 5 2,307 2,076 2,100 2,300 1,900 0 20112012 2013 2014 2015 20102011 2012 2013 20142015 2015b a Financial outlook which was 2XWORRNa Result b Cumulative improvement in Target Result given at the start of the year. $ERYH~EQ ~EQ RFT from 1 April 2009. 8SDWOHDVW 8S Find out more Our KPIs 2XUƬQDQFLDOSHUIRUPDQFH on page from page 80 77 PC_FRONT.indb 6 5/15/2015 1:46:56 AM The Strategic Report 7 Overview Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional information Financial highlights Revenue Operating costsb EBITDA Year ended 31 March Year ended 31 March Year ended 31 March £m £m £m 18,500 12,500 6,400 6,200 12,447 18,000 18,339 12,000 6,271 12,312 18,287 18,287 12,196 12,171 18,103 6,000 6,143 6,116 17,979 11,961 17,500 17,851 11,500 6,018 5,800 11,580 5,840 17,000 11,000 5,600 5,791 20132014 2015 20132014 2015 20132014 2015 2014 2015 2014 2015 2014 2015 reported 1% 2% reported 1% 4% reported 1% 3% adjusteda 0% 2% adjusteda 0% 5% adjusteda 0% 3% Adjusted earnings per sharea Free cash ƮRw Net debt 2,700 7,797 2,830 6,000 2,782 p 2,600 7,028 2,500 4,000 2,400 5,119 2,300 2,450 2,200 2,000 2,300 p 2,100 2,292 2,000 2,171 0 20132014 2015 20132014 2015d &KDQJH 2014 2015 ^ reported 5% 28% c 12 normalised 7% 16% Proposed full year dividend Adjusted revenueaa by line of business Adjusted EBITDA by line of business 11% 28% 41% 17% Openreach Openreach Openreach BT Global 2015 (including internal) Services 38% p 12% BT Global Services 17% BT BT Wholesale Business 10.9p 24% 15% 9% 16% &KDQJH BT Consumer BT Business BT Wholesale BT Consumer ^ See page 54 for commentary on relative contributions by each line of business a,WHPVSUHVHQWHGDVDGMXVWHGDUHVWDWHGEHIRUHVSHFLƬFLWHPV6HHSDJHIRUIXUWKHUGHWDLOV c6HHGHƬQLWLRQRQSDJHDQGVXPPDULVHGFDVKƮRZVWDWHPHQWRQSDJH b Before depreciation and amortisation. d,QFOXGHVWKHLPSDFWRI~EQHTXLW\SODFLQJ6HHSDJH PC_FRONT.indb 7 5/15/2015 1:46:56 AM 8 BT Group plc Annual Report 2015 How our lines of business performed BT Global Services BT Business :HKDYHFRQVROLGDWHGRXUSRVLWLRQDVDJOREDOPDUNHW %7%XVLQHVVSURYLGHVFRPPXQLFDWLRQVDQG,7VHUYLFHV 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LQQRYDWLYHQHZZD\VWRXVHWKLVWHFKQRORJ\DQGZHZLOOVWDUWFXVWRPHU Chief Executive WULDOVWKLVVXPPHU:HZLOODOVREHRƪHULQJD*ESVVHUYLFHWRWKRVH 0D\ ZKRZDQWHYHQIDVWHUVSHHGV7KLVZLOOEHDQRWKHUODUJHDQGPXOWL\HDU LQYHVWPHQWE\2SHQUHDFKWKDWZLOOUHTXLUHWKHULJKWLQYHVWPHQWDQG UHJXODWRU\HQYLURQPHQW,WZLOOEHWKHULJKWWKLQJIRUERWK%7DQGWKH 8.SURYLGLQJHYHQIDVWHUVSHHGVLQDQDOUHDG\FRPSHWLWLYHPDUNHW Find out more Watch my video online at www.bt.com/annualreport PC_FRONT.indb 20 5/15/2015 1:47:31 AM The Strategic Report 21 Overview Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional information Our purpose Our goal %7oVSXUSRVHLVWRXVHWKHSRZHURIFRPPXQLFDWLRQVWR 2XUJRDOLVWRGHOLYHUVXVWDLQDEOHSURƬWDEOH PDNHDEHWWHUZRUOG UHYHQXHJURZWK :HDUHKHUHWRPHHWWKHQHHGVRIRXUFXVWRPHUVGHOLYHULQJWKH 3UHYLRXVO\ZHKDGWRGHSHQGRQFRVWWUDQVIRUPDWLRQWRJURZRXUFDVK H[SHULHQFHSURGXFWVDQGVHUYLFHVWKDWPDWWHUWRWKHP0LOOLRQVRI ƮRZV,QWKH\HDUVDKHDGUHYHQXHJURZWKFRPELQHGZLWKFRQWLQXHG 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PC_FRONT.indb 79 5/15/2015 1:48:01 AM 80 BT Group plc Annual Report 2015 Group performance Our progress against our KPIs Our progress against our KPIs Trend in underlying revenue excluding transit :HKDYHDJDLQGHOLYHUHGRQRXUWKUHHƬQDQFLDO.3,V Our key measure of the 2015 ZLWKVWURQJJURZWKLQDGMXVWHG(36DQGFDVKƮRZ group’s revenue trend, 2XU{FXVWRPHUVHUYLFHSHUIRUPDQFHLVXSEXW underlying revenue excluding transit, was down 0.4%, in ZH{VWLOO{ZDQWWRGREHWWHU line with the outlook we set at :HXVHIRXUNH\SHUIRUPDQFHLQGLFDWRUV .3,V WRPHDVXUHKRZZHDUH the start of the year. GRLQJDJDLQVWRXUVWUDWHJ\2XUƬQDQFLDO.3,VPHDVXUH WKHWUHQGLQ XQGHUO\LQJUHYHQXHH[FOXGLQJWUDQVLW RXUDGMXVWHGHDUQLQJVSHUVKDUH 0.5 DQGQRUPDOLVHGIUHHFDVKƮRZ&XVWRPHUVHUYLFHLPSURYHPHQWLVDOVR DYLWDOQRQƬQDQFLDO.3,IRUXV7KHVH.3,VDUHXVHGWRPHDVXUHWKH YDULDEOHHOHPHQWVRIRXUVHQLRUH[HFXWLYHVoSD\HDFK\HDUDVVHWRXW LQ{WKHReport on Directors’ Remuneration VHHSDJH :HKDYHRXWOLQHGRXUSHUIRUPDQFHDJDLQVWHDFK.3,KHUHWRJHWKHUZLWK DQH[SODQDWLRQLQLWDOLFVRIKRZZHGHƬQHHDFKPHDVXUH Outlook for 2015/16 &KDQJH :HFRQWLQXHWRH[SHFWJURZWKLQXQGHUO\LQJUHYHQXHH[FOXGLQJWUDQVLWLQ :HH[SHFWPRGHVWJURZWKLQDGMXVWHG(%,7'$7KLVLVGHVSLWH 12 D\HDURQ\HDULPSDFWRIDURXQG~PGXHWRORZHULQFRPHIURP ERWKODGGHUSULFLQJDQGWKHVDOHRIUHGXQGDQWFRSSHUDKLJKHUSHQVLRQV RSHUDWLQJFKDUJHDQGKLJKHUOHDYHUFRVWV:HZLOODOVRLQFXUFRVWV UHODWLQJWRWKHODXQFKRIRXU8()$&KDPSLRQV/HDJXHDQG8()$(XURSD 1RUPDOLVHGIUHHFDVKƮRZ /HDJXHFRQWHQWLQWKH\HDU We generated normalised free 2015 1RUPDOLVHGIUHHFDVKƮRZLVH[SHFWHGWREHDURXQG~EQLQ FDVKƮRZRI~PZKLFK 7KLVFRPSDUHVZLWK~PLQDQGLVGHVSLWHDQLQFUHDVHRI was 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PC_FRONT.indb 117 5/15/2015 1:48:37 AM 118 BT Group plc Annual Report 2015 Share awards under long-term incentive schemes held at 31 March 2015 (audited) 'HWDLOVRIWKHFRPSDQ\oVRUGLQDU\VKDUHVSURYLVLRQDOO\DZDUGHGWRGLUHFWRUVDVSDUWLFLSDQWVXQGHUWKH,63DUHDVIROORZV Total 0RQHWDU\ number of YDOXHRI DZDUGVKDUHV 0DUNHW YHVWHG 'LYLGHQGV 0DUFK Performance Price price at DZDUG $SULO $ZDUGHG UHLQYHVWHG 9HVWHG /DSVHG 2015 period end on grant YHVWLQJ ~ *DYLQ3DWWHUVRQ ,63a s s s S S ,63b s s s S S ,63c s s s S s s ,63d s s s S s s ,63e s s s S ss 7RQ\&KDQPXJDP ,63a s s s S S ,63b s s s S S ,63c s s s S s s ,63e s s s S s s a$ZDUGVJUDQWHGRQ-XQH7KHQXPEHURIVKDUHVVXEMHFWWRDZDUGVZDVFDOFXODWHGXVLQJ c$ZDUGVJUDQWHGRQ-XQH7KHQXPEHURIVKDUHVVXEMHFWWRDZDUGVZDVFDOFXODWHGXVLQJ WKHDYHUDJHPLGGOHPDUNHWSULFHRID%7VKDUHIRUWKHWKUHHGD\VSULRUWRJUDQWRI S WKHDYHUDJHPLGGOHPDUNHWSULFHRID%7VKDUHIRUWKHWKUHHGD\VSULRUWRJUDQWRIHDFKDZDUG RIHDFKDZDUGLVOLQNHGWR765FRPSDUHGZLWKDJURXSRIFRPSDQLHVLVOLQNHGWRDWKUHH LVOLQNHGWR765FRPSDUHGZLWKDJURXSRIFRPSDQLHVLVOLQNHGWRDWKUHH\HDUQRUPDOLVHG \HDUDGMXVWHGFXPXODWLYHIUHHFDVKƮRZPHDVXUHDQGWRDPHDVXUHRIJURZWKLQXQGHUO\LQJ IUHHFDVKƮRZPHDVXUHDQGWRDPHDVXUHRIJURZWKLQXQGHUO\LQJUHYHQXH H[FOXGLQJWUDQVLW UHYHQXH H[FOXGLQJWUDQVLW RYHUWKUHH\HDUV7KHDZDUGVYHVWHGLQ0D\ over three years. b$ZDUGVJUDQWHGRQ-XQH7KHQXPEHURIVKDUHVVXEMHFWWRDZDUGVZDVFDOFXODWHGXVLQJ d$ZDUGJUDQWHGRQ1RYHPEHUIROORZLQJDSSRLQWPHQWDV&KLHI([HFXWLYH7KHQXPEHU WKHDYHUDJHPLGGOHPDUNHWSULFHRID%7VKDUHIRUWKHWKUHHGD\VSULRUWRJUDQWRIS of shares subject to award was calculated using the average middle market price of a BT share RIHDFKDZDUGLVOLQNHGWR765FRPSDUHGZLWKDJURXSRIFRPSDQLHVLVOLQNHGWRDWKUHH IRUWKHWKUHHGD\VSULRUWRJUDQWRIHDFKDZDUGLVOLQNHGWR765FRPSDUHGZLWKDJURXSRI \HDUQRUPDOLVHGIUHHFDVKƮRZPHDVXUHDQGWRDPHDVXUHRIJURZWKLQXQGHUO\LQJUHYHQXH FRPSDQLHVLVOLQNHGWRDWKUHH\HDUQRUPDOLVHGIUHHFDVKƮRZPHDVXUHDQGWRD H[FOXGLQJWUDQVLW RYHUWKUHH\HDUV7KHPDUNHWSULFHDWYHVWLQJLVDQHVWLPDWHRIWKHYDOYHXVLQJ PHDVXUHRIXQGHUO\LQJUHYHQXHJURZWK H[FOXGLQJWUDQVLW RYHUWKUHH\HDUV DWKUHHPRQWKDYHUDJHVKDUHSULFHIURP-DQXDU\WR0DUFKRI~7KH e$ZDUGVJUDQWHGRQ -XQH7KHQXPEHURIVKDUHVVXEMHFWWRDZDUGVZDVFDOFXODWHGXVLQJ DZDUGZLOOYHVWDWRIWKHWRWDOQXPEHURIDZDUGVKDUHVLQ0D\ WKHDYHUDJHPLGGOHPDUNHWSULFHRID%7VKDUHIRUWKHWKUHHGD\VSULRUWRJUDQWRIHDFKDZDUG LVOLQNHGWR765FRPSDUHGZLWKDJURXSRIFRPSDQLHVLVOLQNHGWRDWKUHH\HDUQRUPDOLVHG IUHHFDVKƮRZPHDVXUHDQGWRDPHDVXUHRIXQGHUO\LQJUHYHQXHJURZWK H[FOXGLQJWUDQVLW over three years. 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Strategic ReportWKHIROORZLQJLQIRUPDWLRQ UHTXLUHGE\ODZWREH LQFOXGHGLQWKHReport of the Directors r WKHƬQDOGLYLGHQGSURSRVHGE\WKH%RDUG SDJH r DQLQGLFDWLRQRIOLNHO\IXWXUHGHYHORSPHQWVLQWKHEXVLQHVVRIWKH FRPSDQ\ VHHWKHStrategic ReportRQSDJHV WR r DQLQGLFDWLRQRIRXU5 'DFWLYLWLHV SDJH r LQIRUPDWLRQDERXWRXUSHRSOH SDJH DQG r LQIRUPDWLRQDERXWJUHHQKRXVHJDVHPLVVLRQV SDJH %\RUGHURIWKH%RDUG Dan Fitz Group General Counsel & Company Secretary 0D\ Find out more Contact information for shareholders, institutional investors and industry analysts is on page 225 PC_FRONT.indb 136 5/15/2015 1:48:39 AM 7KH6WUDWHJLF5HSRUW 137 2YHUYLHZ 3XUSRVHDQGVWUDWHJ\ 'HOLYHULQJRXUVWUDWHJ\ *URXSSHUIRUPDQFH *RYHUQDQFH )LQDQFLDOVWDWHPHQWV $GGLWLRQDOLQIRUPDWLRQ Financial statements 138 Auditors’ reports – consolidated ƬQDQFLDOVWDWHPHQWV 138 United Kingdom opinion 143 United States opinion 144 *URXSLQFRPHVWDWHPHQW 145 *URXSVWDWHPHQWRIFRPSUHKHQVLYH LQFRPH 146 *URXSEDODQFHVKHHW 147 *URXSVWDWHPHQWRIFKDQJHVLQHTXLW\ 148 *URXSFDVKƮRZVWDWHPHQW 149 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDO VWDWHPHQWV 149 Basis of preparation 149 Critical accounting estimates and key judgements 1506LJQLƬFDQWDFFRXQWLQJSROLFLHV 155 Segment information 159 Operating costs 160 Employees 160 Audit, audit related and other non-audit services 1616SHFLƬFLWHPV 162 Taxation 165 Earnings per share 165 Dividends 166 Intangible assets 168 Property, plant and equipment 169 Business combinations 169 Programme rights 169 Trade and other receivables 170 Trade and other payables 171 Provisions 1725HWLUHPHQWEHQHƬWSODQV 179 Own shares 180 Share-based payments 182 Investments 183 Cash and cash equivalents 183 Loans and other borrowings 186 Finance expense 187 Financial instruments and risk management 193 Other reserves 193 Related party transactions 194 Financial commitments and contingent liabilities 194 Subsequent events 195 $XGLWRUVoUHSRUWsSDUHQWFRPSDQ\ ƬQDQFLDOVWDWHPHQWV 196 )LQDQFLDOVWDWHPHQWVRI%7*URXSSOF 199 6XEVLGLDU\XQGHUWDNLQJV financials.indb 137 15/05/2015 01:51 138 BT Group plc Annual Report 2015 8QLWHG.LQJGRPRSLQLRQ 2XUDXGLWDSSURDFK Independent auditors’ report to the members of Overview r Overall group materiality: £120m, which represents 5% of the BT Group plc DYHUDJHRISURƬWEHIRUHWD[IRUWKHFXUUHQW\HDUDQGWKHSUHYLRXV three years. 5HSRUWRQWKHJURXSƬQDQFLDOVWDWHPHQWV r We conducted full scope audit work at three reporting units – the UK, Our opinion Italy and Germany. ,QRXURSLQLRQ%7*URXSSOFoVJURXSƬQDQFLDOVWDWHPHQWV WKH‘ƬQDQFLDO r 6SHFLƬFDXGLWSURFHGXUHVZHUHSHUIRUPHGLQIRXUUHSRUWLQJXQLWV statements’): based on our risk assessment in France, Ireland, the Netherlands and Spain. r JLYHDWUXHDQGIDLUYLHZRIWKHVWDWHRIWKHJURXSoVDƪDLUVDV r The reporting units within our audit scope accounted for over 80% at 31{0DUFKDQGRILWVSURƬWDQGFDVKƮRZVIRUWKH\HDU RIWKHJURXSoVUHYHQXHDQGSURƬWEHIRUHWD[ then{ended; r have been properly prepared in accordance with International Our assessment of the risk of material misstatement also informed )LQDQFLDO5HSRUWLQJ6WDQGDUGV ‘IFRS’) as adopted by the European our views on the areas of particular focus for our work which are Union; and listed below: r have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. r Major contracts in BT Global Services and BT Wholesale r Accuracy of revenue due to complex billing systems 6HSDUDWHRSLQLRQLQUHODWLRQWR,)56DVLVVXHGE\WKH,$6% r Pension scheme obligations and unquoted investments in the $VH[SODLQHGLQQRWHWRWKHƬQDQFLDOVWDWHPHQWVWKHJURXSLQDGGLWLRQ BT{Pension Scheme to applying IFRS as adopted by the European Union, has also applied r Regulatory and other provisions ,)56DVLVVXHGE\WKH,QWHUQDWLRQDO$FFRXQWLQJ6WDQGDUGV%RDUG ‘IASB’). r Capitalisation practices and asset lives for property, plant and equipment and software intangible assets ,QRXURSLQLRQWKHJURXSƬQDQFLDOVWDWHPHQWVFRPSO\ZLWK,)56DV r Recognition and measurement of potential tax exposures and issued by the IASB. tax assets :KDWZHKDYHDXGLWHG r Assessment of the carrying value of goodwill in BT Global Services %7*URXSSOFoVƬQDQFLDOVWDWHPHQWVFRPSULVH The scope of our audit and our areas of focus r the group balance sheet as at 31 March 2015; We conducted our audit in accordance with International Standards r the group income statement and group statement of comprehensive RQ$XGLWLQJ 8.DQG,UHODQG ‘,6$V 8. ,UHODQG ’). income for the year then ended; We designed our audit by determining materiality and assessing the r WKHJURXSFDVKƮRZVWDWHPHQWIRUWKH\HDUWKHQHQGHG ULVNVRIPDWHULDOPLVVWDWHPHQWLQWKHƬQDQFLDOVWDWHPHQWV,QSDUWLFXODU r the group statement of changes in equity for the year then ended; and we looked at where the directors made subjective judgements, for r WKHQRWHVWRWKHƬQDQFLDOVWDWHPHQWVZKLFKLQFOXGHDVXPPDU\RI H[DPSOHLQUHVSHFWRIVLJQLƬFDQWDFFRXQWLQJHVWLPDWHVWKDWLQYROYHG VLJQLƬFDQWDFFRXQWLQJSROLFLHVDQGRWKHUH[SODQDWRU\LQIRUPDWLRQ making assumptions and considering future events that are inherently Certain required disclosures have been presented elsewhere in the uncertain. As in all of our audits, we also addressed the risk of $QQXDO5HSRUW )RUP) WKH‘Annual Report’), rather than in management override of internal controls, including evaluating whether WKHQRWHVWRWKHƬQDQFLDOVWDWHPHQWV7KHVHDUHFURVVUHIHUHQFHGIURP there was evidence of bias by the directors that represented a risk of WKHƬQDQFLDOVWDWHPHQWVDQGDUHLGHQWLƬHGDVDXGLWHG material misstatement due to fraud. 7KHƬQDQFLDOUHSRUWLQJIUDPHZRUNWKDWKDVEHHQDSSOLHGLQWKH 7KHULVNVRIPDWHULDOPLVVWDWHPHQWWKDWKDGWKHJUHDWHVWHƪHFWRQRXU SUHSDUDWLRQRIWKHƬQDQFLDOVWDWHPHQWVLVDSSOLFDEOHODZDQG,)56 DXGLWLQFOXGLQJWKHDOORFDWLRQRIRXUUHVRXUFHVDQGHƪRUWDUHLGHQWLƬHG as adopted by the European Union. as ‘areas of focus’ in the table below. We have also set out how we WDLORUHGRXUDXGLWWRDGGUHVVWKHVHVSHFLƬFDUHDVLQRUGHUWRSURYLGHDQ RSLQLRQRQWKHƬQDQFLDOVWDWHPHQWVDVDZKROHDQGDQ\FRPPHQWVZH make on the results of our procedures should be read in this context. 7KLVLVQRWDFRPSOHWHOLVWRIDOOULVNVLGHQWLƬHGE\RXUDXGLW financials.indb 138 15/05/2015 01:51 The Strategic Report 139 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information $UHDRIIRFXV +RZRXUDXGLWDGGUHVVHGWKHDUHDRIIRFXV 0DMRUFRQWUDFWVLQ%7*OREDO6HUYLFHVDQG%7:KROHVDOH We tested a sample of major contracts through the year, focusing Refer to page 102 $XGLW 5LVN&RPPLWWHH5HSRUW SDJH149 1RWH our work on those which are material by size or which we otherwise 2 – Critical accounting estimates and key judgements) and page 151 regarded as higher risk because of the nature of the contract or 1RWHs6LJQLƬFDQWDFFRXQWLQJSROLFLHV its stage of delivery. In performing this testing we assessed the appropriateness of the assumptions and judgements underpinning the :HIRFXVHGRQWKLVDUHDDVLWLQYROYHVVLJQLƬFDQWMXGJHPHQWVLQUHVSHFW accounting for these major contracts as follows: of: r :HHYDOXDWHGWKHGHVLJQDQGWHVWHGWKHRSHUDWLQJHƪHFWLYHQHVVRI r WKHGHWHUPLQDWLRQDQGWLPLQJRIUHFRJQLWLRQRIFRQWUDFWSURƬWVDQG controls in respect of the accounting for major contracts. WKHDVVXPSWLRQVXQGHUSLQQLQJWKHOLIHWLPHSURƬWDELOLW\IRUHFDVWVIRU r We obtained and read the relevant sections of the contracts agreed the contracts; between BT and the customer, tested a sample of revenue and cost r completeness and adequacy of provisions against contracts transactions to supporting evidence of delivery and acceptance and projected to be loss making; and assessed the revenue recognised in the period by comparing it with r WKHUHFRYHUDELOLW\RIFRQWUDFWVSHFLƬFDVVHWVLQFOXGLQJGHIHUUHG the contractual terms and actual pattern of delivery of services. costs and property, plant and equipment. r We compared the forecast results of each contract to the actual Our work focused on the contracts in BT Global Services and BT results to assess the performance of the contract and the historical Wholesale. accuracy of forecasting. :HDVVHVVHGWKHUHDVRQDEOHQHVVRIOLIHWLPHSURƬWDELOLW\IRUHFDVWVE\ analysing historical contract performance relative to overall contractual commitments. We challenged directors’ assumptions on the future costs including any forecast savings by assessing the actions required to achieve these forecasts. In determining whether the provisions for loss making contracts are adequate, we considered the results of the above procedures. :HFKDOOHQJHGWKHUHFRYHUDELOLW\RIFRQWUDFWVSHFLƬFDVVHWVGHGLFDWHG to the sampled contracts by examining contractual cover or assessing UHFRYHUDELOLW\DJDLQVWWKHIRUHFDVWSURƬWDELOLW\RIWKHUHOHYDQWFRQWUDFW We considered the accounting adopted to be in line with the group’s accounting policies. $FFXUDF\RIUHYHQXHGXHWRFRPSOH[ELOOLQJV\VWHPV We evaluated the relevant IT systems and the design of controls, and Refer to page 150 1RWH3 – 6LJQLƬFDQWDFFRXQWLQJSROLFLHV and page WHVWHGWKHRSHUDWLQJHƪHFWLYHQHVVRIFRQWUROVRYHUWKH 155 1RWHs6HJPHQWLQIRUPDWLRQ r capture and recording of revenue transactions; The accuracy of revenue amounts recorded is an inherent industry risk. r authorisation of rate changes and the input of this information This is because telecoms billing systems are complex and process large to the billing systems; and YROXPHVRIGDWDZLWKDFRPELQDWLRQRIGLƪHUHQWSURGXFWVVROGDQG r calculation of amounts billed to customers. SULFHFKDQJHVLQWKH\HDUWKURXJKDQXPEHURIGLƪHUHQWV\VWHPV We also tested a sample of customer bills and checked these to cash received from customers. Our testing included customer bills for consumers, corporate and wholesale customers. :HIRXQGQRVLJQLƬFDQWH[FHSWLRQVLQRXUFRQWUROVWHVWLQJDQGQR material misstatements in our substantive testing. 3HQVLRQVFKHPHREOLJDWLRQVDQGXQTXRWHGLQYHVWPHQWVLQWKH :HHYDOXDWHGWKHGHVLJQDQGWHVWHGWKHRSHUDWLQJHƪHFWLYHQHVVRIFRQWUROV %7{3HQVLRQ6FKHPH in respect of the determination of the pension scheme obligations. Refer to page 102 $XGLW 5LVN&RPPLWWHH5HSRUW SDJH150 1RWH We assessed and challenged the reasonableness of actuarial 2 – Critical accounting estimates and key judgements) and page 172 assumptions used in valuing the pension scheme obligations. 1RWH s5HWLUHPHQWEHQHƬWSODQV 7KHDVVXPSWLRQVXVHG DVVHWRXWLQQRWH DUHFRQVLVWHQWZLWK We focused on this area because the valuation of the BT Pension our internally developed benchmarks. We tested underlying inputs 6FKHPHREOLJDWLRQV ~EQ DQGXQTXRWHGLQYHVWPHQWV ~6bn) used in determining the obligations. UHTXLUHWKHXVHRIHVWLPDWHVDQGVLJQLƬFDQWMXGJHPHQWDQGDVPDOO 7KHSHQVLRQDVVHWVLQFOXGHVLJQLƬFDQWXQTXRWHGSHQVLRQDVVHW FKDQJHLQWKHDVVXPSWLRQVFDQKDYHDPDWHULDOLPSDFWRQWKHƬQDQFLDO investments. We tested the existence of the unquoted investments statements. and we tested the valuation of these investments on a sample basis. 6SHFLƬFDOO\ r For property assets, we tested internal controls at the property fund manager and obtained valuation reports prepared by third party specialist valuers. We assessed the methods and assumptions used by the valuers. r For direct investments, the valuations of the investments are derived IURPGLVFRXQWHGFDVKƮRZPRGHOV:HDVVHVVHGWKHDVVXPSWLRQV used in the valuations by checking that the assumptions used were consistent with our internally developed range of discount rates, by FRPSDULQJWKHFDVKƮRZVWRKLVWRUical results and considering the impact of other external information. We tested the accuracy of the calculations and assessed whether the assumptions used were in line ZLWKRWKHUPDUNHWSDUWLFLSDQWVDQGUHƮHFWHGWKHSDUWLFXODUVWDWXVRI the investment shareholding. r )RURWKHUXQTXRWHGLQYHVWPHQWVZHREWDLQHGFRQƬUPDWLRQVIURP the custodians and the investment managers. )RUDOOWHVWLQJSHUIRUPHGZHDOVRDJUHHGWKDWWKHYDOXHVZHUHUHƮHFWHG LQWKHƬQDQFLDOVWDWHPHQWV financials.indb 139 15/05/2015 01:51 140 BT Group plc Annual Report 2015 $UHDRIIRFXV +RZRXUDXGLWDGGUHVVHGWKHDUHDRIIRFXV 5HJXODWRU\DQGRWKHUSURYLVLRQV For regulatory provisions, we read correspondence and Refer to page 102 $XGLW 5LVN&RPPLWWHH5HSRUW SDJH150 1RWH pronouncements from Ofcom and the Competition Appeal Tribunal. 2 – Critical accounting estimates and key judgements) and page 171 We held discussions with management to understand the risk 1RWHs3URYLVLRQV associated with historical transactions where there is not yet a formal dispute but there is a known risk of dispute. The group has provisions of £564m relating to restructuring, property DQGRWKHU FRPSULVLQJOLWLJDWLRQUHJXODWRU\ULVNVDQGLQVXUDQFHFODLPV )RUSURSHUW\SURYLVLRQVZHDVVHVVHGWKHNH\DVVXPSWLRQV SULPDULO\WKH Provisions are based on judgements and estimates made by the GLVFRXQWUDWHDQGWKHXQGHUO\LQJFDVKƮRZV DSSOLHGE\WKHGLUHFWRUV directors. In particular, the current telecoms regulatory environment For legal provisions, we held discussions with the group’s general has seen an increased frequency and magnitude of matters brought to counsel and head of litigation, read the summary of litigation Ofcom and the Competition Appeal Tribunal in the UK in recent years. matters provided by management and discussed each of the material cases noted in the report to determine the group’s assessment of the likelihood and magnitude of any liability that may arise. Where appropriate and relevant, we examined correspondence connected with the cases, including external legal advice. For all provisions we tested the calculation of the provisions, assessed the assumptions including with third party data where available), and assessed the judgements against historical trends. From the evidence obtained, we considered the directors’ judgements on the level of provisioning to be appropriate in the context of materiality. &DSLWDOLVDWLRQSUDFWLFHVDQGDVVHWOLYHVIRUSURSHUW\SODQWDQG :HHYDOXDWHGWKHGHVLJQDQGWHVWHGWKHRSHUDWLQJHƪHFWLYHQHVV HTXLSPHQWDQGVRIWZDUHLQWDQJLEOHDVVHWV of controls around the property, plant and equipment cycle and Refer to page 102 $XGLW 5LVN&RPPLWWHH5HSRUW SDJH150 1RWH software intangible assets cycle, including the controls over whether 2 – Critical accounting estimates and key judgements) and page 168 HQJLQHHULQJ ODERXU DFWLYLW\LVFDSLWDORURSHUDWLQJLQQDWXUH 1RWHs3URSHUW\plant and equipment) :HGHWHUPLQHGWKDWWKHHƪHFWLYHRSHUDWLRQRIWKHFRQWUROVSURYLGHG us with audit evidence in respect of the capitalisation practices. Capitalisation of costs and the useful lives assigned to assets are areas RIVLJQLƬFDQWMXGJHPHQWE\WKHGLUHFWRUV We assessed the nature of costs incurred in capital projects through testing of amounts recorded and assessing whether the description There are two main risks that we addressed in our audit: of the expenditure met capitalisation criteria. We found no material r the risk that amounts being capitalised do not meet capitalisation misstatements from our testing. criteria; and We tested the controls over the annual review of asset lives. r the risk that the useful economic lives assigned to assets are In addition, we tested whether the directors’ decisions on asset lives inappropriate. are appropriate by considering our knowledge of the business and Our work also focused on the capitalisation of costs for broadband practice in the wider telecoms industry. We also tested whether deployment under the BDUK programme and the recognition of the approved asset life changes were appropriately applied prospectively associated capital grants. WRWKHƬ[HGDVVHWUHJLVWHU:HIRXQGWKDWWKHDVVHWOLYHVZHUH consistent with those commonly used in the industry and appropriately UHƮHFWHGWHFKQRORJLFDOGHYHORSPHQWV :HDVVHVVHGWKHNH\DVVXPSWLRQV SULPDULO\WKHIRUHFDVWOHYHORIHQG users) applied by the directors to calculate the level of capital grants attributable to superfast broadband deployment in rural areas and we tested the calculation of the accrual based on these assumptions and the current level of capital investment. From the evidence obtained, we considered the level of grant recognition, to be appropriate in the context of materiality. 5HFRJQLWLRQDQGPHDVXUHPHQWRISRWHQWLDOWD[H[SRVXUHVDQGWD[ We assessed and evaluated management’s rationale in relation to the assets level of tax provisions. We considered the status of recent and current Refer to page 102 $XGLW 5LVN&RPPLWWHH5HSRUW SDJH150 1RWH tax audits and enquiries, the results of previous claims and changes 2 – Critical accounting estimates and key judgements) and page 162 to the tax environments. We utilised our specialist tax knowledge and 1RWH s7D[DWLRQ experience of similar situations elsewhere to examine tax planning arrangements and assess management’s judgements. We focused on this area due to the judgements required in determining the gURXSoVHƪHFWLYHWD[UDWHVSHFLƬFDOO\LQUHODWLRQWRWKHUHFRJQLWLRQ In the calculation of deferred tax assets, we evaluated the amount of of tax exposures and potential deferred tax assets. WD[ORVVHVUHFRJQLVHGLQOLJKWRIIXWXUHSURMHFWHGSURƬWDELOLW\RIWKH relevant subsidiary companies. From the evidence obtained, we considered the level of provisioning and the deferred tax recognition to be appropriate in the context of{materiality. financials.indb 140 15/05/2015 01:51 The Strategic Report 141 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information $UHDRIIRFXV +RZRXUDXGLWDGGUHVVHGWKHDUHDRIIRFXV $VVHVVPHQWRIWKHFDUU\LQJYDOXHRIJRRGZLOOLQ%7*OREDO6HUYLFHV :HDJUHHGWKHFDVKƮRZIRUHFDVWVXVHGLQWKHLPSDLUPHQWPRGHOWR Refer to page 102 $XGLW 5LVN&RPPLWWHH5HSRUW SDJH150 1RWH Board approved forecasts. We considered the directors’ expectations 2 – Critical accounting estimates and key judgements) and page 166 LQUHVSHFWRIPDWHULDOFRQWUDFWDFWLYLW\ LQFOXGLQJQHZEXVLQHVVDQG 1RWHs,QWDQJLEOHDVVHWV contract renewals) and planned operational improvements and ZKHWKHUWKHVHZHUHDSSURSULDWHO\UHƮHFWHGLQWKHFDVKƮRZIRUHFDVWV As at 31 March 2015, goodwill relating to the BT Global Services cash JHQHUDWLQJXQLW &*8 DPRXQWHGWR~ PRXWRIDWRWDOJRRGZLOO :HFRPSDUHGDFWXDOKLVWRULFDOFDVKƮRZUHVXOWVIRUWKH%7*OREDO balance of £1,396m. The directors have prepared an impairment Services CGU with previous forecasts and determined whether any assessment that is based on a value in use calculation of the GLƪHUHQFHVIDOOZLWKLQDQDFFHSWDEOHUDQJH BT Global Services CGU. We independently calculated a weighted average cost of capital by We focused on the impairment assessment for BT Global Services as PDNLQJUHIHUHQFHWRPDUNHWGDWDDQGYHULƬHGWKHORQJWHUPJURZWK WKHDVVHVVPHQWLVVHQVLWLYHWRFKDQJHVLQDVVXPSWLRQV LQSDUWLFXODU rate to market data. the long term growth rate, the discount rate and the assumptions :HDVVHVVHGWKHVXƯFLHQF\RIWKHVHQVLWLYLW\DQDO\VLVSHUIRUPHGE\ XQGHUO\LQJIXWXUHRSHUDWLQJFDVKƮRZV the{directors and performed further sensitivity analyses, primarily IRFXVHGRQFKDQJHVLQRSHUDWLQJFDVKƮRZV :HFRQVLGHUHGWKHGLVFORVXUHVLQQRWHRIWKHƬQDQFLDOVWDWHPHQWV and assessed them as appropriate. How we tailored the audit scope Materiality We tailored the scope of our audit to ensure that we performed enough 7KHVFRSHRIRXUDXGLWZDVLQƮXHQFHGE\RXUDSSOLFDWLRQRIPDWHULDOLW\ ZRUNWREHDEOHWRJLYHDQRSLQLRQRQWKHƬQDQFLDOVWDWHPHQWVDVD We set certain quantitative thresholds for materiality. These, together whole, taking into account the geographical structure of the group, the with qualitative considerations, helped us to determine the scope of accounting processes and controls, and the industry in which the group our audit and the nature, timing and extent of our audit procedures and operates. WRHYDOXDWHWKHHƪHFWRIPLVVWDWHPHQWVERWKLQGLYLGXDOO\DQGRQWKH ƬQDQFLDOVWDWHPHQWVDVDZKROH 7KHJURXSoVDFFRXQWLQJSURFHVVLVVWUXFWXUHGDURXQGDƬQDQFHIXQFWLRQ in each of the reporting units. These are responsible for their own Based on our professional judgement, we determined materiality for the DFFRXQWLQJUHFRUGVDQGFRQWUROVDQGUHSRUWWRWKHKHDGRƯFHƬQDQFH ƬQDQFLDOVWDWHPHQWVDVDZKROHDVIROORZV team in London through an integrated consolidation system. In establishing the overall approach to the group audit, we determined Overall group materiality ~P ~P the type of work that needed to be performed at reporting units by us, as the group engagement team, or component auditors from other How we determined it $YHUDJHRIRISURƬWEHIRUHWD[IRU 3Z&QHWZRUNƬUPVRSHUDWLQJXQGHURXULQVWUXFWLRQ:KHUHWKHZRUN the current year and the previous three was performed by component auditors, we determined the level of years. involvement we needed to have in the audit work at those reporting XQLWVWREHDEOHWRFRQFOXGHZKHWKHUVXƯFLHQWDSSURSULDWHDXGLW Rationale for benchmark :HXVHGDQDYHUDJHRISURƬWEHIRUHWD[ evidence had been obtained as a basis for our opinion on the group applied for the current year and previous three ƬQDQFLDOVWDWHPHQWVDVDZKROH years to reduce volatility in the measure year on year. )RUWKUHHUHSRUWLQJXQLWV 8.,WDO\DQG*HUPDQ\ DQDXGLWRIWKH FRPSOHWHƬQDQFLDOLQIRUPDWLRQZDVSHUIRUPHG,QDIXUWKHUIRXU UHSRUWLQJXQLWVVSHFLƬFDXGLWSURFHGXUHVRQUHYHQXHDQGUHFHLYDEOHV We agreed with the Audit & Risk Committee that we would report to purchases and payables, cash and provisions were performed. WKHPPLVVWDWHPHQWVLGHQWLƬHGGXULQJRXUDXGLWDERYH~P This,{together with additional procedures performed on centralised £5m) as well as misstatements below that amount that, in our view, functions and at the group level, gave us the evidence we needed for our warranted reporting for qualitative reasons. RSLQLRQRQWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVDVDZKROH Going concern The group engagement team performed the audit of the UK reporting Under the Listing Rules we are required to review the directors’ unit. The group team visited Italy and Germany and conference calls statement, set out on page 130, in relation to going concern. were held with these teams on a regular basis. The group engagement We have nothing to report having performed our review. team was also involved in the audits of the four reporting units for As noted in the directors’ statement, the directors have concluded ZKLFKVSHFLƬFDXGLWSURFHGXUHVZHUHSHUIRUPHGWKURXJKDFRPELQDWLRQ WKDWLWLVDSSURSULDWHWRSUHSDUHWKHƬQDQFLDOVWDWHPHQWVXVLQJWKH of visits and conference calls. going concern basis of accounting. The going concern basis presumes The reporting units within the scope of our group audit procedures that the group has adequate resources to remain in operation, and DFFRXQWHGIRURYHURIWKHJURXSoVUHYHQXHDQGSURƬWEHIRUHWD[ that the directors intend it to do so, for at least one year from the GDWHWKHƬQDQFLDOVWDWHPHQWVZHUHVLJQHG$VSDUWRIRXUDXGLWZH have concluded that the directors’ use of the going concern basis is{appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group’s ability to continue as a going concern. financials.indb 141 15/05/2015 01:51 142 BT Group plc Annual Report 2015 Other required reporting &RQVLVWHQF\RIRWKHULQIRUPDWLRQ Companies Act 2006 opinion In our opinion, the information given in the 6WUDWHJLF5HSRUW and the 5HSRUWRIWKH'LUHFWRUVIRUWKHƬQDQFLDO\HDUIRUZKLFKWKHƬQDQFLDOVWDWHPHQWV DUHSUHSDUHGLVFRQVLVWHQWZLWKWKHƬQDQFLDOVWDWHPHQWV ,6$V 8. ,UHODQG UHSRUWLQJ 8QGHU,6$V 8. ,UHODQG ZHDUHUHTXLUHGWRUHSRUWWR\RXLILQRXURSLQLRQ r information in the Annual Report is: We have no exceptions to report arising – PDWHULDOO\LQFRQVLVWHQWZLWKWKHLQIRUPDWLRQLQWKHDXGLWHGƬQDQFLDOVWDWHPHQWV RU from this responsibility. – apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course of performing our audit; or – otherwise misleading. r the statement given by the directors on page 130, in accordance with provision C.1.1 of the UK We have no exceptions to report arising &RUSRUDWH*RYHUQDQFH&RGH ‘the Code’), that they consider the Annual Report taken as a whole from this responsibility. to be fair, balanced and understandable and provides the information necessary for members to assess the group’s performance, business model and strategy is materially inconsistent with our knowledge of the group acquired in the course of performing our audit. r the section of the Annual Report on page 101, as required by provision C.3.8 of the Code, We have no exceptions to report arising describing the work of the Audit & Risk Committee does not appropriately address matters from this responsibility. communicated by us to the Audit & Risk Committee. $GHTXDF\RILQIRUPDWLRQDQGH[SODQDWLRQVUHFHLYHG :KDWDQDXGLWRIƬQDQFLDOVWDWHPHQWVLQYROYHV Under the Companies Act 2006 we are required to report to you if, in An audit involves obtaining evidence about the amounts and disclosures our opinion, we have not received all the information and explanations LQWKHƬQDQFLDOVWDWHPHQWVVXƯFLHQWWRJLYHUHDVRQDEOHDVVXUDQFHWKDW we require for our audit. We have no exceptions to report arising from WKHƬQDQFLDOVWDWHPHQWVDUHIUHHIURPPDWHULDOPLVVWDWHPHQWZKHWKHU this responsibility. caused by fraud or error. This includes an assessment of: 'LUHFWRUVoUHPXQHUDWLRQ r whether the accounting policies are appropriate to the group’s Under the Companies Act 2006 we are required to report to you if, in circumstances and have been consistently applied and adequately RXURSLQLRQFHUWDLQGLVFORVXUHVRIGLUHFWRUVoUHPXQHUDWLRQVSHFLƬHG disclosed; by{law are not made. We have no exceptions to report arising from r WKHUHDVRQDEOHQHVVRIVLJQLƬFDQWDFFRXQWLQJHVWLPDWHVPDGHE\WKH this{responsibility. directors; and r WKHRYHUDOOSUHVHQWDWLRQRIWKHƬQDQFLDOVWDWHPHQWV &RUSRUDWHJRYHUQDQFHVWDWHPHQW Under the Listing Rules we are required to review the part of the We primarily focus our work in these areas by assessing the directors’ Corporate Governance Statement relating to the company’s compliance judgements against available evidence, forming our own judgements, with ten provisions of the UK Corporate Governance Code. We have DQGHYDOXDWLQJWKHGLVFORVXUHVLQWKHƬQDQFLDOVWDWHPHQWV nothing to report having performed our review. We test and examine information, using sampling and other auditing 5HVSRQVLELOLWLHVIRUWKHƬQDQFLDOVWDWHPHQWVDQGWKHDXGLW techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through 2XUUHVSRQVLELOLWLHVDQGWKRVHRIWKHGLUHFWRUV WHVWLQJWKHHƪHFWLYHQHVVRIFRQWUROVVXEVWDQWLYHSURFHGXUHVRUD As explained more fully in the Statement of directors’ responsibilities combination of both. set out on page 130, the directors are responsible for the preparation of the{ƬQDQFLDOVWDWHPHQWVDQGIRUEHLQJVDWLVƬHGWKDWWKH\JLYHDWUXHDQG ,QDGGLWLRQZHUHDGDOOWKHƬQDQFLDODQGQRQƬQDQFLDOLQIRUPDWLRQ fair{view. in the Annual Report to identify material inconsistencies with the DXGLWHGƬQDQFLDOVWDWHPHQWVDQGWRLGHQWLI\DQ\LQIRUPDWLRQWKDWLV 2XUUHVSRQVLELOLW\LVWRDXGLWDQGH[SUHVVDQRSLQLRQRQWKHƬQDQFLDO apparently materially incorrect based on, or materially inconsistent VWDWHPHQWVLQDFFRUGDQFHZLWKDSSOLFDEOHODZDQG,6$V 8. ,UHODQG with, the knowledge acquired by us in the course of performing the Those standards require us to comply with the Auditing Practices Board’s audit. If we become aware of any apparent material misstatements or Ethical Standards for Auditors. inconsistencies we consider the implications for our report. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part Other matter 16 of the Companies Act 2006 and for no other purpose. We do not, :HKDYHUHSRUWHGVHSDUDWHO\RQWKHFRPSDQ\ƬQDQFLDOVWDWHPHQWVRI in giving these opinions, accept or assume responsibility for any other BT{Group plc for the year ended 31 March 2015 and on the information purpose or to any other person to whom this report is shown or into in the 5HSRUWRQ'LUHFWRUVo5HPXQHUDWLRQ that is described as having whose hands it may come save where expressly agreed by our prior been{audited. consent in writing. 3DXO%DUNXV 6HQLRU6WDWXWRU\$XGLWRU IRUDQGRQEHKDOIRI3ULFHZDWHUKRXVH&RRSHUV//3 Chartered Accountants and Statutory Auditors London 6 May 2015 financials.indb 142 15/05/2015 01:51 The Strategic Report 143 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information United States opinion $FRPSDQ\oVLQWHUQDOFRQWURORYHUƬQDQFLDOUHSRUWLQJLVDSURFHVV 5HSRUWRILQGHSHQGHQWUHJLVWHUHGSXEOLFDFFRXQWLQJƬUP designed to provide reasonable assurance regarding the reliability of ƬQDQFLDOUHSRUWLQJDQGWKHSUHSDUDWLRQRIƬQDQFLDOVWDWHPHQWVIRU to the Board of directors and shareholders of BT Group plc external purposes in accordance with generally accepted accounting WKHnFRPSDQ\o SULQFLSOHV$FRPSDQ\oVLQWHUQDOFRQWURORYHUƬQDQFLDOUHSRUWLQJLQFOXGHV WKRVHSROLFLHVDQGSURFHGXUHVWKDW L {SHUWDLQWRWKHPDLQWHQDQFHRI In our opinion, the accompanying group balance sheets and the UHFRUGVWKDWLQUHDVRQDEOHGHWDLODFFXUDWHO\DQGIDLUO\UHƮHFWWKH related group income statements, group statements of comprehensive WUDQVDFWLRQVDQGGLVSRVLWLRQVRIWKHDVVHWVRIWKHFRPSDQ\ LL {SURYLGH LQFRPHJURXSVWDWHPHQWVRIFKDQJHVLQHTXLW\DQGJURXSFDVKƮRZ reasonable assurance that transactions are recorded as necessary to VWDWHPHQWVSUHVHQWIDLUO\LQDOOPDWHULDOUHVSHFWVWKHƬQDQFLDOSRVLWLRQ SHUPLWSUHSDUDWLRQRIƬQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWKJHQHUDOO\ of BT Group plc and its subsidiaries at 31 March 2015 and 31 March accepted accounting principles, and that receipts and expenditures of DQGWKHUHVXOWVRIWKHLURSHUDWLRQVDQGWKHLUFDVKƮRZVIRUHDFK the company are being made only in accordance with authorisations of of the three years in the period ended 31 March 2015 in conformity PDQDJHPHQWDQGGLUHFWRUVRIWKHFRPSDQ\ DQG LLL {SURYLGHUHDVRQDEOH with International Financial Reporting Standards as issued by the assurance regarding prevention or timely detection of unauthorised International Accounting Standards Board. Also in our opinion, the acquisition, use, or disposition of the company’s assets that could have FRPSDQ\PDLQWDLQHGLQDOOPDWHULDOUHVSHFWVHƪHFWLYHLQWHUQDOFRQWURO a{PDWHULDOHƪHFWRQWKHƬQDQFLDOVWDWHPHQWV RYHUƬQDQFLDOUHSRUWLQJDVRI0DUFKEDVHGRQFULWHULD established in the Turnbull Guidance. %HFDXVHRILWVLQKHUHQWOLPLWDWLRQVLQWHUQDOFRQWURORYHUƬQDQFLDO reporting may not prevent or detect misstatements. Also, projections of 7KHFRPSDQ\oVPDQDJHPHQWLVUHVSRQVLEOHIRUWKHVHƬQDQFLDO DQ\HYDOXDWLRQRIHƪHFWLYHQHVVWRIXWXUHSHULRGVDUHVXEMHFWWRWKHULVN VWDWHPHQWVIRUPDLQWDLQLQJHƪHFWLYHLQWHUQDOFRQWURORYHUƬQDQFLDO that controls may become inadequate because of changes in conditions, UHSRUWLQJDQGIRULWVDVVHVVPHQWRIWKHHƪHFWLYHQHVVRILQWHUQDOFRQWURO or that the degree of compliance with the policies or procedures RYHUƬQDQFLDOUHSRUWLQJLQFOXGHGLQPDQDJHPHQWoVHYDOXDWLRQRIWKH may{deteriorate. HƪHFWLYHQHVVRILQWHUQDOFRQWURORYHUƬQDQFLDOUHSRUWLQJDVVHWRXWLQ WKHƬUVWWZRSDUDJUDSKVRI,QWHUQDOFRQWURORYHUƬQDQFLDOUHSRUWLQJLQ the 5HSRUWRIWKHDirectors, *HQHUDOLQIRUPDWLRQ, of the BT Group plc Annual Report & Form 20-F 2015. 2XUUHVSRQVLELOLW\LVWRH[SUHVVRSLQLRQVRQWKHVHƬQDQFLDOVWDWHPHQWV and on the cRPSDQ\oVLQWHUQDOFRQWURORYHUƬQDQFLDOUHSRUWLQJEDVHGRQ our integrated audits. We conducted our audits in accordance with the 3ULFHZDWHUKRXVH&RRSHUV//3 VWDQGDUGVRIWKH3XEOLF&RPSDQ\$FFRXQWLQJ2YHUVLJKW%RDUG 8QLWHG London, United Kingdom States). Those standards require that we plan and perform the audits 6 May 2015 WRREWDLQUHDVRQDEOHDVVXUDQFHDERXWZKHWKHUWKHƬQDQFLDOVWDWHPHQWV DUHIUHHRIPDWHULDOPLVVWDWHPHQWDQGZKHWKHUHƪHFWLYHLQWHUQDOFRQWURO RYHUƬQDQFLDOUHSRUWLQJZDVPDLQWDLQHGLQDOOPDWHULDOUHVSHFWV 2XUDXGLWVRIWKHƬQDQFLDOVWDWHPHQWVLQFOXGHGH[DPLQLQJRQDWHVW EDVLVHYLGHQFHVXSSRUWLQJWKHDPRXQWVDQGGLVFORVXUHVLQWKHƬQDQFLDO VWDWHPHQWVDVVHVVLQJWKHDFFRXQWLQJSULQFLSOHVXVHGDQGVLJQLƬFDQW HVWLPDWHVPDGHE\PDQDJHPHQWDQGHYDOXDWLQJWKHRYHUDOOƬQDQFLDO VWDWHPHQWSUHVHQWDWLRQ2XUDXGLWRILQWHUQDOFRQWURORYHUƬQDQFLDO reporting included obtaining an understanding of internal control over ƬQDQFLDOUHSRUWLQJDVVHVVLQJWKHULVNWKDWDPDWHULDOZHDNQHVVH[LVWV DQGWHVWLQJDQGHYDOXDWLQJWKHGHVLJQDQGRSHUDWLQJHƪHFWLYHQHVVRI internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for{our opinions. financials.indb 143 15/05/2015 01:51 144 BT Group plc Annual Report 2015 *URXSLQFRPHVWDWHPHQW Before 6SHFLƬF VSHFLƬFLWHPV items a Total Year ended 31 March 2015 Notes £m £m £m 5HYHQXH 4 128 Operating costs 5 2SHUDWLQJSURƬW ORVV 4 Finance expense 25 Finance income 17 – 17 1HWƬQDQFHH[SHQVH Share of post tax loss of associates and joint ventures – 3URƬWRQGLVSRVDORILQWHUHVWLQDVVRFLDWHVDQGMRLQWYHQWXUHV 8 – 25 25 3URƬW ORVV EHIRUHWD[DWLRQ Taxation 9 121 3URƬW ORVV IRUWKH\HDU (DUQLQJVSHUVKDUH 10 Basic 26.5p Diluted 26.1p Before 6SHFLƬF VSHFLƬFLWHPV items a Total Year ended 31 March 2014 Notes £m £m £m 5HYHQXH 4 – Operating costs 5 2SHUDWLQJSURƬW ORVV 4 Finance expense 25 Finance income 12 – 12 1HWƬQDQFHH[SHQVH Share of post tax loss of associates and joint ventures – Loss on disposal of interest in associates and joint ventures 8 – 3URƬW ORVV EHIRUHWD[DWLRQ Taxation 9 319 3URƬW ORVV IRUWKH\HDU (DUQLQJVSHUVKDUH 10 Basic 25.7p Diluted 24.5p a)RUDGHƬQLWLRQRIVSHFLƬFLWHPVVHHSDJH202$QDQDO\VLVRIVSHFLƬFLWHPVLVSURYLGHGLQQRWH financials.indb 144 15/05/2015 01:51 The Strategic Report 145 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information *URXSLQFRPHVWDWHPHQW Before 6SHFLƬF VSHFLƬFLWHPV items a Total Year ended 31 March 2013 Notes £m £m £m 5HYHQXH 4 Operating costs 5 2SHUDWLQJSURƬW ORVV 4 Finance expense 25 Finance income 13 – 13 1HWƬQDQFHH[SHQVH 6KDUHRISRVWWD[SURƬWRIDVVRFLDWHVDQGMRLQWYHQWXUHV 9 – 9 3URƬWRQGLVSRVDORILQWHUHVWLQDVVRFLDWHs and joint ventures 8 – 130 130 3URƬW ORVV EHIRUHWD[DWLRQ Taxation 9 230 3URƬW ORVV IRUWKH\HDU (DUQLQJVSHUVKDUH 10 Basic 24.8p Diluted 23.7p a)RUDGHƬQLWLRQRIVSHFLƬFLWHPVVHHSDJH202$QDQDO\VLVRIVSHFLƬFLWHPVLVSURYLGHGLQQRWH *URXSVWDWHPHQWRIFRPSUHKHQVLYHLQFRPH 2015 2014 2013 Year ended 31 March Notes £m £m £m 3URƬWIRUWKH\HDU 2WKHUFRPSUHKHQVLYH ORVV LQFRPH ,WHPVWKDWZLOOQRWEHUHFODVVLƬHGWRWKHLQFRPHVWDWHPHQW $FWXDULDOORVVHVUHODWLQJWRUHWLUHPHQWEHQHƬWREOLJDWLRQV 19 Tax on actuarial losses 9 208 16 762 ,WHPVWKDWPD\EHUHFODVVLƬHGVXEVHTXHQWO\WRWKHLQFRPHVWDWHPHQW ([FKDQJHGLƪHUHQFHVRQWUDQVODWLRQRIIRUHLJQRSHUDWLRQV 27 5 59 Fair value movements on available-for-sale assets 27 7 14 )DLUYDOXHPRYHPHQWVRQFDVKƮRZKHGJHV sQHWIDLUYDOXHJDLQV ORVVHV 27 207 105 – recognised in income and expense 27 384 7D[RQFRPSRQHQWVRIRWKHUFRPSUHKHQVLYHLQFRPHWKDWPD\EHUHFODVVLƬHG 9, 27 37 4 24 2WKHUFRPSUHKHQVLYHORVVIRUWKH\HDUQHWRIWD[ 7RWDOFRPSUHKHQVLYHLQFRPH ORVV IRUWKH\HDU 512 financials.indb 145 15/05/2015 01:51 146 BT Group plc Annual Report 2015 *URXSEDODQFHVKHHW 2015 2014 At 31 March Notes £m £m Non-current assets Intangible assets 12 3,170 3,087 Property, plant and equipment 13 13,505 13,840 'HULYDWLYHƬQDQFLDOLQVWUXPHQWV 26 1,232 539 Investments 22 44 34 Associates and joint ventures 26 18 Trade and other receivables 16 184 214 Deferred tax assets 9 1,559 1,460 Current assets Programme rights 15 118 108 Inventories 94 82 Trade and other receivables 16 3,140 2,907 Current tax receivable 65 26 'HULYDWLYHƬQDQFLDOLQVWUXPHQWV 26 97 114 Investments 22 3,523 1,774 Cash and cash equivalents 23 434 695 Current liabilities Loans and other borrowings 24 1,900 1,873 'HULYDWLYHƬQDQFLDOLQVWUXPHQWV 26 168 139 Trade and other payables 17 5,276 5,261 Current tax liabilities 222 315 Provisions 18 142 99 7RWDODVVHWVOHVVFXUUHQWOLDELOLWLHV Non-current liabilities Loans and other borrowings 24 7,868 7,941 'HULYDWLYHƬQDQFLDOLQVWUXPHQWV 26 927 679 5HWLUHPHQWEHQHƬWREOLJDWLRQV 19 7,583 7,022 Other payables 17 927 898 Deferred tax liabilities 9 948 829 Provisions 18 422 434 (TXLW\ Ordinary shares 419 408 Share premium 1,051 62 Own shares 20 Other reserves 27 1,485 1,447 Retained loss 7RWDOHTXLW\ GHƬFLW 808 7KHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVRQSDJHV144 to 194 and 199 were approved by the Board of Directors on 6 May 2015 and were signed on its behalf by: 6LU0LFKDHO5DNH Chairman *DYLQ3DWWHUVRQ Chief Executive 7RQ\&KDQPXJDP Group Finance Director financials.indb 146 15/05/2015 01:51 The Strategic Report 147 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information *URXSVWDWHPHQWRIFKDQJHVLQHTXLW\ Retained Total Share Share Own Other ORVV equity capital a premium b shares c reserves d earnings GHƬFLW Notes £m £m £m £m £m £m At 1 April 2012 408 62 100 3URƬWIRUWKH\HDU – – – – 1,948 1,948 2WKHUFRPSUHKHQVLYHLQFRPH ORVV sEHIRUHWD[ –––178 7D[RQRWKHUFRPSUHKHQVLYHLQFRPH ORVV 9 – – – 24 762 786 Transferred to the income statement – – – – 7RWDOFRPSUHKHQVLYHLQFRPH ORVV IRUWKH\HDU –––34 Dividends to shareholders 11 – – – – Share-based payments 21 ––––6464 Tax on share-based payments 9 ––––6868 Net buyback of own shares 20 – – 186 – At 1 April 2013 408 62 3URƬWIRUWKH\HDU ––––2,018 2,018 Other comprehensive loss – before tax – – – Tax on other comprehensive loss 9 – – – 4 16 20 Transferred to the income statement – – – 384 – 384 7RWDOFRPSUHKHQVLYH ORVV LQFRPHIRUWKH\HDU ––– 855 512 Dividends to shareholders 11 –––– Share-based payments 21 ––––6060 Tax on share-based payments 9 ––––106106 Net buyback of own shares 20 – – 3 – At 1 April 2014 408 62 3URƬWIRUWKH\HDU ––––2,135 2,135 2WKHUFRPSUHKHQVLYHJDLQ ORVV sEHIRUHWD[ –––219 7D[RQRWKHUFRPSUHKHQVLYHJDLQ ORVV 9 – – – 37 208 245 Transferred to the income statement – – – – Total comprehensive income for the year – – – 38 1,292 1,330 Issue of new sharese 11989–––1,000 Dividends to shareholders 11 –––– Share-based payments 21 ––––7070 Tax on share-based payments 9 ––––5454 Net buyback of own shares 20 – – 664 – Other movements – – – – $W0DUFK 419 808 a7KHDOORWWHGFDOOHGXSDQGIXOO\SDLGRUGLQDU\VKDUHFDSLWDORI%7*URXSSOFDW0DUFKZDV~ PFRPSULVLQJ ~PFRPSULVLQJ RUGLQDU\VKDUHVRI S{HDFK b7KHVKDUHSUHPLXPDFFRXQWFRPSULVLQJWKHSUHPLXPRQDOORWPHQWRIVKDUHVLVQRWDYDLODEOHIRUGLVWULEXWLRQ c)RUIXUWKHUDQDO\VLVRIRZQVKDUHVVHHQRWH d )RUIXUWKHUDQDO\VLVRIRWKHUUHVHUYHVVHHQRWH e2Q)HEUXDU\WKHFRPSDQ\LVVXHGRUGLQDU\VKDUHVRISDWSSHUVKDUHUDLVLQJ~PQHWRILVVXHFRVWV6KDUHFDSLWDOLQFUHDVHGE\~PDQGVKDUHSUHPLXPE\~ P financials.indb 147 15/05/2015 01:51 148 BT Group plc Annual Report 2015 *URXSFDVKƮRZVWDWHPHQW 2015 2014 2013 Year ended 31 March Note £m £m £m &DVKƮRZIURPRSHUDWLQJDFWLYLWLHV 3URƬWEHIRUHWD[DWLRQ 2,645 2,312 2,315 3URƬW ORVVRQGLVSRVDORILQWHUHVWLQDVVRFLDWHVDQGMRLQWYHQWXUHV 4 6KDUHRISRVWWD[ORVV SURƬW RIDVVRFLDWHVDQGMRLQWYHQWXUHV 1 3 1HWƬQDQFHH[SHQVH 859 826 772 2SHUDWLQJSURƬW 3,480 3,145 2,948 Other non-cash charges 39 56 /RVV SURƬW RQGLVSRVDORIEXVLQHVVHV 1– Depreciation and amortisation 2,538 2,695 2,843 ,QFUHDVH GHFUHDVHLQLQYHQWRULHV 16 3 ,QFUHDVH GHFUHDVHLQWUDGHDQGRWKHUUHFHLYDEOHV 454 Decrease in trade and other payables Decrease in other liabilitiesa ,QFUHDVH GHFUHDVH LQSURYLVLRQV 19 &DVKJHQHUDWHGIURPRSHUDWLRQVb Income taxes paid 1HWFDVKLQƮRZIURPRSHUDWLQJDFWLYLWLHV &DVKƮRZIURPLQYHVWLQJDFWLYLWLHV Interest received 1069 Proceeds on disposal of subsidiariesc, associates and joint ventures 26 2 287 Acquisition of subsidiariesc and joint ventures 3URFHHGVRQGLVSRVDORIFXUUHQWƬQDQFLDODVVHWVd 8,124 7,531 8,856 3XUFKDVHVRIFXUUHQWƬQDQFLDODVVHWVd Proceeds on disposal of non-current asset investments 8 4 4 Proceeds on disposal of property, plant and equipment 100 10 43 Purchases of property, plant and equipment and software Purchases of telecommunications licences – – 1HWFDVKRXWƮRZIURPLQYHVWLQJDFWLYLWLHV &DVKƮRZIURPƬQDQFLQJDFWLYLWLHV Equity dividends paid Interest paid Repayment of borrowingse 6) 1HW UHSD\PHQWRI SURFHHGVIURPFRPPHUFLDOSDSHU 153 Proceeds from bank loans and bonds 812 1,195 798 &DVKƮRZVIURPGHULYDWLYHVUHODWHGWRQHWGHEW 297 33 Proceeds from issue of own shares 1,201 75 109 Repurchase of ordinary share capital 1HWFDVKXVHGLQƬQDQFLQJDFWLYLWLHV 1HW GHFUHDVH LQFUHDVHLQFDVKDQGFDVKHTXLYDOHQWV 600 Opening cash and cash equivalentsI 684 919 323 1HW GHFUHDVH LQFUHDVHLQFDVKDQGFDVKHTXLYDOHQWV 600 (ƪHFWRIH[FKDQJHUDWHFKDQJHV 19 &ORVLQJFDVKDQGFDVKHTXLYDOHQWVI 23 407 684 919 a,QFOXGHVSHQVLRQGHƬFLWSD\PHQWVRI~P ~P ~P b,QFOXGHVFDVKƮRZVUHODWLQJWR79SURJUDPPHULJKWV c $FTXLVLWLRQVDQGGLVSRVDOVRIVXEVLGLDULHVDUHVKRZQQHWRIFDVKDFTXLUHGRUGLVSRVHGRI d3ULPDULO\FRQVLVWVRILQYHVWPHQWLQDQGUHGHPSWLRQRIDPRXQWVKHOGLQOLTXLGLW\IXQGV e5HSD\PHQWRIERUURZLQJVLQFOXGHVWKHLPSDFWRIKHGJLQJDQGUHSD\PHQWRIOHDVHOLDELOLWLHV I 1HWRIEDQNRYHUGUDIWVRI~P ~P ~P financials.indb 148 15/05/2015 01:51 The Strategic Report 149 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV There are no other standards or interpretations issued but not yet HƪHFWLYHZHH[SHFWWRKDYHDPDWHULDOLPSDFWRQWKHJURXS %DVLVRISUHSDUDWLRQ 3UHSDUDWLRQRIWKHƬQDQFLDOVWDWHPHQWV 3UHVHQWDWLRQRIVSHFLƬFLWHPV 7KHVHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVKDYHEHHQSUHSDUHGLQ The group’s income statement and segmental analysis separately accordance with the Companies Act 2006, Article 4 of the IAS LGHQWLI\WUDGLQJUHVXOWVEHIRUHVSHFLƬFLWHPV7KHGLUHFWRUVEHOLHYH 5HJXODWLRQDQG,QWHUQDWLRQDO$FFRXQWLQJ6WDQGDUGV ,$6 DQG that presentation of the group’s results in this way is relevant to an ,QWHUQDWLRQDO)LQDQFLDO5HSRUWLQJ6WDQGDUGV ,)56 DQGUHODWHG XQGHUVWDQGLQJRIWKHJURXSoVƬQDQFLDOSHUIRUPDQFHDVVSHFLƬFLWHPVDUH interpretations, as adopted by the European Union. The consolidated LGHQWLƬHGE\YLUWXHRIWKHLUVL]HQDWXUHRULQFLGHQFH7KLVSUHVHQWDWLRQ ƬQDQFLDOVWDWHPHQWVDUHDOVRLQFRPSOLDQFHZLWK,)56DVLVVXHGE\WKH LVFRQVLVWHQWZLWKWKHZD\WKDWƬQDQFLDOSHUIRUPDQFHLVPHDVXUHGE\ ,QWHUQDWLRQDO$FFRXQWLQJ6WDQGDUGV%RDUG WKH,$6% 7KHFRQVROLGDWHG management and reported to the Board and the Operating Committee ƬQDQFLDOVWDWHPHQWVDUHSUHSDUHGRQDJRLQJFRQFHUQEDVLV and assists in providing a meaningful analysis of the trading results of WKHJURXS,QGHWHUPLQLQJZKHWKHUDQHYHQWRUWUDQVDFWLRQLVVSHFLƬF 7KHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVDUHSUHSDUHGRQWKHKLVWRULFDO management considers quantitative as well as qualitative factors such FRVWEDVLVH[FHSWIRUFHUWDLQƬQDQFLDODQGHTXLW\LQVWUXPHQWVWKDW as the frequency or predictability of occurrence. KDYHEHHQPHDVXUHGDWIDLUYDOXH7KHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV are presented in Sterling, the functional currency of BT Group plc, Furthermore, the group considers a columnar presentation to be the parent company. appropriate, as it improves the clarity of the presentation and is FRQVLVWHQWZLWKWKHZD\WKDWƬQDQFLDOSHUIRUPDQFHLVPHDVXUHGE\ Reorganisation management and reported to the Board and the Operating Committee. From 1 April 2014 BT Conferencing has moved from BT Business 6SHFLƬFLWHPVPD\QRWEHFRPSDUDEOHWRVLPLODUO\WLWOHGPHDVXUHVXVHG into BT Global Services. This VLPSOLƬHV the way we provide integrated by other companies. Examples of charges or credits meeting the above collaboration solutions to our global customers. BT Security has moved GHƬQLWLRQDQGZKLFKKDYHEHHQSUHVHQWHGDVVSHFLƬFLWHPVLQWKHFXUUHQW from our central group functions within Other into BT Global Services. DQGRUSULRU\HDUVLQFOXGHGLVSRVDOVRIEXVLQHVVHVDQGLQYHVWPHQWV Security is of increasing importance to our customers, and we believe regulatory settlements, historic insurance or litigation claims, business that this move helps us better compete in the market and take full restructuring programmes, asset impairment charges, property advantage of global opportunities. rationalisation programmes, net interest on pensions and the settlement In order to present historical information on a consistent basis, we have of multiple tax years. In the event that other items meet the criteria, revised comparatives for the years ended 31 March 2014 and 31 March which are applied consistently from year to year, they are also treated 2013 in BT Global Services, BT Business and Other. There is no impact DVVSHFLƬFLWHPV RQWKHWRWDOJURXSUHVXOWV7KHQHWDVVHWV LQFOXGLQJJRRGZLOO KDYH 6SHFLƬFLWHPVIRUWKHFXUUHQWDQGSULRU\HDUVDUHGLVFORVHGLQQRWH{ EHHQUHDOORFDWHGWRWKHDSSURSULDWHFDVKJHQHUDWLQJXQLWVWRUHƮHFWWKLV UHRUJDQLVDWLRQ VHHQRWH 7KHRYHUDOOLPSDFWRQWKHOLQHVRIEXVLQHVV &ULWLFDODFFRXQWLQJHVWLPDWHVDQGNH\MXGJHPHQWV is disclosed in note 4. 7KHSUHSDUDWLRQRIƬQDQFLDOVWDWHPHQWVLQFRQIRUPLW\ZLWK,)56UHTXLUHV the use of accounting estimates and assumptions. It also requires New and amended accounting standards adopted with no management to exercise its judgement in the process of applying the VLJQLƬFDQWLPSDFWRQWKHJURXS group’s accounting policies. We continually evaluate our estimates, The following new and amended accounting standards adopted during assumptions and judgements based on available information and WKH\HDUGLGQRWKDYHDQ\VLJQLƬFDQWLPSDFWRQWKHJURXS H[SHULHQFH$VWKHXVHRIHVWLPDWHVLVLQKHUHQWLQƬQDQFLDOUHSRUWLQJ – ,$6n)LQDQFLDO,QVWUXPHQWV3UHVHQWDWLRQ2ƪVHWWLQJ)LQDQFLDO DFWXDOUHVXOWVFRXOGGLƪHUIURPWKHVHHVWLPDWHV0DQDJHPHQWKDV Assets and Financial Liabilities – Amendments to IAS 32’ discussed its critical accounting estimates and associated disclosures – IAS 39 ‘Novation of Derivatives and Continuation of Hedge with the Audit & Risk Committee. The areas involving a higher degree Accounting’ RI{MXGJHPHQWRUFRPSOH[LW\DUHGHVFULEHGEHORZ – ,$6n5HFRYHUDEOH$PRXQW'LVFORVXUHVIRU1RQƬQDQFLDO$VVHWVs Amendments to IAS 36’. Long-term customer contracts /RQJWHUPFXVWRPHUFRQWUDFWVFDQH[WHQGRYHUDQXPEHURIƬQDQFLDO New and amended accounting standards that have been \HDUV'XULQJWKHFRQWUDFWXDOSHULRGUHFRJQLWLRQRIFRVWVDQGSURƬWV LVVXHGEXWDUHQRW\HWHƪHFWLYH PD\EHLPSDFWHGE\HVWLPDWHVRIWKHXOWLPDWHSURƬWDELOLW\RIHDFK contract. If, at any time, these estimates indicate that any contract will 7KHIROORZLQJVWDQGDUGVKDYHEHHQLVVXHGDQGDUHHƪHFWLYHIRU EHXQSURƬWDEOHWKHHQWLUHHVWLPDWHGORVVIRUWKHFRQWUDFWLVUHFRJQLVHG accounting periods ending on or after 1 January 2015 and are expected immediately. If these estimates indicate that any contract will be less WRKDYHDQLPSDFWRQWKHJURXSƬQDQFLDOVWDWHPHQWV SURƬWDEOHWKDQSUHYLRXVO\IRUHFDVWFRQWUDFWDVVHWVPD\KDYHWREH ,)56n5HYHQXHIURP&RQWUDFWVZLWK&XVWRPHUVo written down to the extent they are no longer considered to be fully In May 2014, IFRS 15 ‘Revenue from Contracts with Customers’ was UHFRYHUDEOH7KHJURXSSHUIRUPVRQJRLQJSURƬWDELOLW\UHYLHZVRILWV LVVXHGDQGLVH[SHFWHGWREHHƪHFWLYHIRUSHULRGVEHJLQQLQJRQRUDIWHU contracts in order to determine whether the latest estimates {-DQXDU\VXEMHFWWRFRQVXOWDWLRQRQSRWHQWLDOGHIHUUDOE\RQH are appropriate. year and endorsement by the EU. Key factors reviewed include: IFRS 15 sets out the requirements for recognising revenue from contracts – 7UDQVDFWLRQYROXPHVRURWKHULQSXWVDƪHFWLQJIXWXUHUHYHQXHVZKLFK with customers. The standard requires entities to apportion revenue can vary depending on customer requirements, plans, market position earned from contracts to individual promises, or performance obligations, and other factors such as general economic conditions. RQDUHODWLYHVWDQGDORQHVHOOLQJEDVLVEDVHGRQDƬYHVWHSPRGHO – Our ability to achieve key contract milestones connected with the The group is in the process of quantifying the impact of this standard. transition, development, transformation and deployment phases for customer contracts. ,)56 n)LQDQFLDO,QVWUXPHQWVo – The status of commercial relations with customers and the implication ,)56 ZDVSXEOLVKHGLQ-XO\DQGZLOOEHHƪHFWLYHIRUSHULRGV for future revenue and cost projections. beginning on or after 1 January 2018 subject to endorsement by the – 2XUHVWLPDWHVRIIXWXUHVWDƪDQGWKLUGSDUW\FRVWVDQGWKHGHJUHHWR (8,WLVDSSOLFDEOHWRƬQDQFLDODVVHWVDQGƬQDQFLDOOLDELOLWLHVDQGFRYHUV ZKLFKFRVWVDYLQJVDQGHƯFLHQFLHVDUHGHOLYHUDEOH WKHFODVVLƬFDWLRQPHDVXUHPHQWLPSDLUPHQWDQGGHUHFRJQLWLRQRI ƬQDQFLDODVVHWVDQGƬQDQFLDOOLDELOLWLHVWRJHWKHUZLWKDQHZKHGJH The carrying value of assets comprising the costs of the initial set up, accounting model. transition or transformation phase of long-term networked IT services contracts is disclosed in note 16. The group is in the process of quantifying the impact of the new standard. financials.indb 149 15/05/2015 01:51 150 BT Group plc Annual Report 2015 &ULWLFDODFFRXQWLQJHVWLPDWHVDQGNH\MXGJHPHQWV WRUHVROYH7KHƬQDOGHWHUPLQDWLRQRISULRU\HDUWD[OLDELOLWLHVFRXOGEH continued GLƪHUHQWIURPWKHHVWLPDWHVUHƮHFWHGLQWKHƬQDQFLDOVWDWHPHQWVDQG Pension obligations may result in the recognition of an additional tax expense or tax credit in the income statement. BT has a commitment, mainly through the BTPS, to pay pension EHQHƬWVWRDSSUR[LPDWHO\SHRSOHRYHUDSHULRGRIPRUHWKDQ Deferred tax assets and liabilities require management judgement {\HDUV7KHDFFRXQWLQJFRVWRIWKHVHEHQHƬWVDQGWKHSUHVHQWYDOXH in determining the amounts to be recognised. The group uses of our pension liabilities depend on such factors as the life expectancy management’s expectations of future revenue growth, operating costs, of the members, the salary progression of our current employees, price DQGSURƬWPDUJLQVWRGHWHUPLQHWKHH[WHQWWRZKLFKIXWXUHWD[DEOH LQƮDWLRQDQGWKHGLVFRXQWUDWHXVHGWRFDOFXODWHWKHQHWSUHVHQWYDOXHRI SURƬWVZLOOEHJHQHUDWHGDJDLQVWZKLFKWRFRQVXPHWKHGHIHUUHGWD[ the future pension payments. We use estimates for all of these factors in assets. GHWHUPLQLQJWKHSHQVLRQFRVWVDQGOLDELOLWLHVLQFRUSRUDWHGLQRXUƬQDQFLDO VWDWHPHQWV7KHDVVXPSWLRQVUHƮHFWKLVWRULFDOH[SHULHQFHDQGRXU The value of the group’s income tax assets and liabilities is disclosed judgement regarding future expectations. on the balance sheet on page 146. The carrying value of the group’s deferred tax assets and liabilities is disclosed in note 9. The value of the net pension obligation at 31 March 2015, the key ƬQDQFLDODVVXPSWLRQVXVHGWRPHDVXUHWKHREOLJDWLRQWKHVHQVLWLYLW\ Goodwill of the IAS 19 pension liability at 31 March 2015, and of the income 7KHUHFRYHUDEOHDPRXQWRIFDVKJHQHUDWLQJXQLWV &*8V KDVEHHQ VWDWHPHQWRSHUDWLQJFKDUJHLQWRFKDQJHVLQWKHVH determined based on value-in-use calculations. These calculations assumptions are disclosed in note 19. require the use of estimates, including management’s expectations of IXWXUHUHYHQXHJURZWKRSHUDWLQJFRVWVSURƬWPDUJLQVDQGRSHUDWLQJ Useful lives for property, plant and equipment and software FDVKƮRZVIRUHDFK&*8 The plant and equipment in our networks is long lived with cables and switching equipment operating for over ten years and underground The carrying value of goodwill and the key assumptions used in ducts being used for decades. We also develop software for use in IT performing the annual impairment assessment are disclosed in note 12. systems and platforms that supports the products and services provided to our customers and that is also used within the group. Providing for doubtful debts BT provides services to consumer and business customers, mainly The annual depreciation and amortisation charge is sensitive to the on credit terms. We know that certain debts due to us will not be estimated service lives allocated to each type of asset. Asset lives are paid through the default of a small number of our customers. DVVHVVHGDQQXDOO\DQGFKDQJHGZKHQQHFHVVDU\WRUHƮHFWFXUUHQW Estimates, based on our historical experience, are used in determining thinking on the remaining lives in light of technological change, network the level of debts that we believe will not be collected. These estimates LQYHVWPHQWSODQV LQFOXGLQJWKHJURXSoVƬEUHUROORXWSURJUDPPH include such factors as the current state of the economy and particular prospective economic utilisation and physical condition of the assets industry issues. concerned. Changes to the service lives of assets implemented from $SULOKDGQRVLJQLƬFDQWLPSDFWLQDJJUHJDWHRQWKHUHVXOWVIRU The value of the provision for doubtful debts is disclosed in note 16. the year ended 31 March 2015. 6LJQLƬFDQWDFFRXQWLQJSROLFLHV The carrying values of software and property, plant and equipment are 7KHVLJQLƬFDQWDFFRXQWLQJSROLFLHVDSSOLHGLQSUHSDUDWLRQRIWKHVH disclosed in notes 12 and 13. The useful lives applied to the principal FRQVROLGDWHGƬQDQFLDOVWDWHPHQWVDUHVHWRXWEHORZ7KHVHSROLFLHV categories of assets are disclosed on page 152. have been consistently applied to all the years presented, unless otherwise stated. Provisions and contingent liabilities As disclosed in note 18, the group’s provisions principally relate Revenue to obligations arising from property rationalisation programmes, Revenue represents the fair value of the consideration received or restructuring programmes, claims, litigation and regulatory risks. receivable for communications services and equipment sales, net of 8QGHURXUSURSHUW\UDWLRQDOLVDWLRQSURJUDPPHVZHKDYHLGHQWLƬHGD discounts and sales taxes. Revenue is recognised when it is probable QXPEHURIVXUSOXVSURSHUWLHV$OWKRXJKHƪRUWVDUHEHLQJPDGHWR WKDWWKHHFRQRPLFEHQHƬWVDVVRFLDWHGZLWKDWUDQVDFWLRQZLOOƮRZ sub-let this space, this is not always possible. Estimates have been made to the group and the amount of revenue and associated costs can be of the cost of vacant possession and of any shortfall arising from any measured reliably. Where the group acts as an agent in a transaction, sub-lease income being lower than the lease costs. Any such shortfall it recognises revenue net of directly attributable costs. is recognised as a provision. 6HUYLFHV In respect of claims, litigation and regulatory risks, the group provides Revenue arising from separable installation and connection services IRUDQWLFLSDWHGFRVWVZKHUHDQRXWƮRZRIUHVRXUFHVLVFRQVLGHUHG is recognised when it is earned, upon activation. Revenue from the probable and a reasonable estimate can be made of the likely outcome. rental of analogue and digital lines and private circuits is recognised on The prices at which certain services are charged are regulated and may a straight-line basis over the period to which it relates. Revenue from be subject to retrospective adjustment by regulators. Estimates are calls is recognised at the time the call is made over the group’s network. used in assessing the likely value of the regulatory risk. For all risks, Subscription fees, consisting primarily of monthly charges for access to the ultimate liability may vary from the amounts provided and will be broadband and other internet access or voice services, are recognised as dependent upon the eventual outcome of any settlement. revenue as the service is provided. Revenue from the interconnection of YRLFHDQGGDWDWUDƯFEHWZHHQRWKHUWHOHFRPPXQLFDWLRQVRSHUDWRUVLV Management exercise judgement in measuring the exposures to recognised at the time of transit across the group’s network. FRQWLQJHQWOLDELOLWLHV VHHQRWH WKURXJKDVVHVVLQJWKHOLNHOLKRRG that a potential claim or liability will arise and in quantifying the (TXLSPHQWVDOHV SRVVLEOHUDQJHRIƬQDQFLDORXWFRPHV Revenue from the sale of equipment is recognised when all the VLJQLƬFDQWULVNVDQGUHZDUGVRIRZQHUVKLSDUHWUDQVIHUUHGWRWKH Current and deferred income tax customer, which is normally the date the equipment is delivered and accepted by the customer. 7KHDFWXDOWD[ZHSD\RQRXUSURƬWVLVGHWHUPLQHGDFFRUGLQJWRFRPSOH[ WD[ODZVDQGUHJXODWLRQV:KHUHWKHHƪHFWRIWKHVHODZVDQGUHJXODWLRQV is unclear, we use estimates in determining the liability for the tax to be SDLGRQRXUSDVWSURƬWVZKLFKZHUHFRJQLVHLQRXUƬQDQFLDOVWDWHPHQWV We believe the estimates, assumptions and judgements are reasonable but this can involve complex issues which may take a number of years financials.indb 150 15/05/2015 01:51 The Strategic Report 151 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6LJQLƬFDQWDFFRXQWLQJSROLFLHVFRQWLQXHG The costs incurred by BT TSO are recharged to the customer-facing /RQJWHUPFRQWUDFWXDODUUDQJHPHQWV OLQHVRIEXVLQHVVWRUHƮHFWWKHVHUYLFHVLWSURYLGHVWRWKHP'HSUHFLDWLRQ 5HYHQXHIURPORQJWHUPFRQWUDFWXDODUUDQJHPHQWVLQFOXGLQJƬ[HGSULFH and amortisation incurred by BT TSO in relation to the networks and contracts to design and build software solutions, is recognised based systems it manages and operates on behalf of the customer-facing on the percentage of completion method. The stage of completion is lines of business is allocated to the lines of business based on their estimated using an appropriate measure according to the nature of UHVSHFWLYHXWLOLVDWLRQ&DSLWDOH[SHQGLWXUHLQFXUUHGE\%7{762IRUVSHFLƬF the contract such as the proportion of costs incurred relative to the projects undertaken on behalf of the customer-facing lines of business estimated total contract costs, or other measures of completion such is allocated based on the value of the directly attributable expenditure as the achievement of contract milestones and customer acceptance. incurred. Where projects are not directly attributable to a particular line In the case of time and materials contracts, revenue is recognised as of business, capital expenditure is allocated between them based the service is rendered. RQWKHSURSRUWLRQRIHVWLPDWHGIXWXUHHFRQRPLFEHQHƬWV%7762 and the group’s centralised functions are not reportable segments as Costs related to delivering services under long-term contractual WKH\GLGQRWPHHWWKHTXDQWLWDWLYHWKUHVKROGVDVVHWRXWLQ,)56{ arrangements are expensed as incurred except for an element of ‘Operating Segments’ for any of the years presented. costs incurred in the initial contract set up, transition or transformation phase, which is deferred and recorded within non-current assets. These Performance of each reportable segment is measured based on costs are then recognised in the income statement on a straight line DGMXVWHG(%,7'$GHƬQHGDV(%,7'$EHIRUHVSHFLƬFLWHPVDVLQFOXGHG basis over the remaining contract term, unless the pattern of service LQWKHLQWHUQDOƬQDQFLDOUHSRUWVUHYLHZHGE\WKHOperating Committee. GHOLYHU\LQGLFDWHVDGLƪHUHQWSURƬOHLVDSSURSULDWH7KHVHFRVWVDUH (%,7'$LVGHƬQHGDVWKHRSHUDWLQJSURƬWRUORVVEHIRUHGHSUHFLDWLRQ GLUHFWO\DWWULEXWDEOHWRVSHFLƬFFRQWUDFWVUHODWHWRIXWXUHDFWLYLW\ZLOO DPRUWLVDWLRQQHWƬQDQFHH[SHQVHDQGWD[DWLRQ$GMXVWHG(%,7'$LV JHQHUDWHIXWXUHHFRQRPLFEHQHƬWVDQGDUHDVVHVVHGIRUUHFRYHUDELOLW\ considered to be a useful measure of the operating performance of the on a regular basis. lines of business because it approximates to the underlying operating FDVKƮRZE\HOLPLQDWLQJGHSUHFLDWLRQDQGDPRUWLVDWLRQ,WDOVRSURYLGHV The percentage of completion method relies on estimates of total DPHDQLQJIXODQDO\VLVRIWUDGLQJSHUIRUPDQFHE\H[FOXGLQJVSHFLƬF expected contract revenues and costs, as well as reliable measurement items, which are disclosed separately by virtue of their size, nature or RIWKHSURJUHVVPDGHWRZDUGVFRPSOHWLRQ8QOHVVWKHƬQDQFLDORXWFRPH LQFLGHQFH6SHFLƬFLWHPVDUHGHWDLOHGLQQRWH{DQGDUHQRWDOORFDWHGWR of a contract can be estimated with reasonable certainty, no attributable WKHUHSRUWDEOHVHJPHQWVDVWKLVUHƮHFWVKRZWKH\DUHUHSRUWHGWRWKH SURƬWLVUHFRJQLVHG,QVXFKFLUFXPVWDQFHVUHYHQXHLVUHFRJQLVHG Operating Committee. Finance expense and income are not allocated to equal to the costs incurred to date, to the extent that such revenue is the reportable segments, as the central treasury function manages this expected to be recoverable, or costs are accrued to bring the margin to activity, together with the overall net debt position of the group. QLO5HFRJQLVHGUHYHQXHDQGSURƬWVDUHVXEMHFWWRUHYLVLRQVGXULQJWKH contract if the assumptions regarding the overall contract outcome are 5HWLUHPHQWEHQHƬWV changed. The cumulative impact of a revision in estimates is recorded in 7KHJURXSoVQHWREOLJDWLRQLQUHVSHFWRIGHƬQHGEHQHƬWSHQVLRQSODQV the period in which such revisions become likely and can be estimated. LV{WKHSUHVHQWYDOXHRIWKHGHƬQHGEHQHƬWREOLJDWLRQOHVVWKHIDLUYDOXH Where the actual and estimated costs to completion exceed the of the plan assets. estimated revenue for a contract, the full contract life loss is recognised immediately. 7KHFDOFXODWLRQRIWKHREOLJDWLRQLVSHUIRUPHGE\DTXDOLƬHGDFWXDU\ using the projected unit credit method and key actuarial assumptions 0XOWLSOHHOHPHQWDUUDQJHPHQWV at the balance sheet date. Where a contractual arrangement consists of two or more separate elements that have value to a customer on a standalone basis, revenue is The income statement expense is allocated between an operating recognised for each element as if it were an individual contract. The total FKDUJHDQGQHWƬQDQFHLQFRPHRUH[SHQVH7KHRSHUDWLQJFKDUJHUHƮHFWV contract consideration is allocated between the separate elements on WKHLQFUHDVHLQWKHGHƬQHGEHQHƬWREOLJDWLRQUHVXOWLQJIURPWKHSHQVLRQ the basis of relative fair value and the appropriate revenue recognition EHQHƬWHDUQHGE\DFWLYHHPSOR\HHVLQWKHFXUUHQWSHULRGWKHFRVWV criteria are applied to each element as described above. RIDGPLQLVWHULQJWKHSODQVDQGDQ\SDVWVHUYLFHFRVWVFUHGLWVVXFKDV WKRVHDULVLQJIURPFXUWDLOPHQWVRUVHWWOHPHQWV7KHQHWƬQDQFHLQFRPH Operating and reportable segments RUH[SHQVHUHƮHFWVWKHLQWHUHVWRQWKHUHWLUHPHQWEHQHƬWREOLJDWLRQV 7KHJURXSoVRSHUDWLQJVHJPHQWVDUHUHSRUWHGEDVHGRQƬQDQFLDO recognised in the group balance sheet, based on the discount rate at information provided to the Operating Committee, as detailed on the start of the year. Actuarial gains and losses are recognised in full SDJH{26, which is the key management committee and represents in the period in which they occur and are presented in the group the ‘chief operating decision maker’. statement of comprehensive income. 7KHJURXSoVRUJDQLVDWLRQDOVWUXFWXUHUHƮHFWVWKHGLƪHUHQWFXVWRPHU 7KHJURXSDOVRRSHUDWHVGHƬQHGFRQWULEXWLRQSHQVLRQSODQVDQGWKH groups to which it provides communications products and services via income statement expense represents the contributions payable for its customer-facing lines of business: BT Global Services, BT Business, WKH{\HDU BT Consumer, BT Wholesale and Openreach. The customer-facing lines of business are supported by an internal service unit: BT Technology, Property, plant and equipment 6HUYLFH 2SHUDWLRQV %7762 Property, plant and equipment are included at historical cost, net of accumulated depreciation, government grants and any impairment The customer-facing lines of business are the group’s reportable charges. An item of property, plant and equipment is derecognised on segments and generate substantially all the group’s revenue. GLVSRVDORUZKHQQRIXWXUHHFRQRPLFEHQHƬWVDUHH[SHFWHGWRDULVH The remaining operations of the group are aggregated and included IURPWKHFRQWLQXHGXVHRIWKHDVVHW7KHGLƪHUHQFHEHWZHHQWKHVDOH within the ‘Other’ category to reconcile to the consolidated results proceeds and the net book value at the date of disposal is recognised in of the group. The ‘Other’ category includes BT TSO and the group’s operating costs in the income statement. centralised functions including procurement, supply chain and property management. Included within the cost of network infrastructure and equipment are direct and indirect labour costs, materials and directly 3URYLVLRQVIRUWKHVHWWOHPHQWRIVLJQLƬFDQWOHJDOFRPPHUFLDODQG attributable overheads. regulatory disputes, which are negotiated at a group level, are initially recorded in the ‘Other’ segment. On resolution of the dispute, the full Depreciation is provided on property, plant and equipment on a straight LPSDFWLVUHFRJQLVHGLQWKHUHOHYDQWOLQHRIEXVLQHVVoUHVXOWVDQGRƪVHW OLQHEDVLVIURPWKHWLPHWKHDVVHWLVDYDLODEOHIRUXVHWRZULWHRƪWKH in the group results through the utilisation of the provision previously asset’s cost over the estimated useful life taking into account any charged to the ‘Other’ segment. Settlements which are particularly expected residual value. Freehold land is not depreciated. VLJQLƬFDQWRUFRYHUPRUHWKDQRQHƬQDQFLDO\HDUPD\IDOOZLWKLQWKH GHƬQLWLRQRIVSHFLƬFLWHPVDVGHWDLOHGRQSDJH149. financials.indb 151 15/05/2015 01:51 152 BT Group plc Annual Report 2015 6LJQLƬFDQWDFFRXQWLQJSROLFLHVFRQWLQXHG relationships or brands and include management’s estimates of revenue The lives assigned to principal categories of assets are as follows: DQGSURƬWVWREHJHQHUDWHGE\WKHP (VWLPDWHGXVHIXOHFRQRPLFOLYHV Land and buildings The estimated useful economic lives assigned to the principal categories – Freehold buildings 40 years of intangible assets are as follows: – Leasehold land and buildings Unexpired portion of lease or 40 years, whichever is the shorter – Computer software 2 to 10 years – Telecommunications licences 2 to 20 years Network infrastructure – Customer relationships and brands 5 to 15 years Transmission equipment – Duct 40 years 3URJUDPPHULJKWV – Cable 3 to 25 years Programme rights are recognised on the balance sheet from the point at – Fibre 5 to 20 years which the legally enforceable licence period begins. Rights for which the Exchange equipment 2 to 13 years licence period has not started are disclosed as contractual commitments in note 29. Payments made to receive commissioned or acquired Other network equipment 2 to 20 years programming in advance of the legal right to broadcast the programmes Other assets DUHFODVVLƬHGDVSUHSD\PHQWV – Motor vehicles 2 to 9 years Programme rights are initially recognised at cost and are amortised from – &RPSXWHUVDQGRƯFHHTXLSPHQW WR\HDUV the point at which they are available for use, on a straight line basis over the programming period, or the remaining licence term, as appropriate. $VVHWVKHOGXQGHUƬQDQFHOHDVHVDUHGHSUHFLDWHGRYHUWKHVKRUWHURI The amortisation charge is recorded within operating costs in the the lease term or their useful economic life. Residual values and income statement. useful lives are reassessed annually and, if necessary, changes are Programmes produced internally are recognised within current assets at recognised prospectively. production cost, which includes labour costs and an appropriate portion of relevant overheads, and charged to the income statement over the Intangible assets period of the related broadcast. ,GHQWLƬDEOHLQWDQJLEOHDVVHWVDUHUHFRJQLVHGZKHQWKHJURXSFRQWUROV WKHDVVHWLWLVSUREDEOHWKDWIXWXUHHFRQRPLFEHQHƬWVDWWULEXWDEOHWR Programme rights are tested for impairment in accordance with WKHDVVHWZLOOƮRZWRWKHJURXSDQGWKHFRVWRIWKHDVVHWFDQEHUHOLDEO\ WKHJURXSoVSROLF\IRULPSDLUPHQWRIQRQƬQDQFLDODVVHWVVHWRXWRQ measured. All intangible assets, other than goodwill, are amortised SDJH{1535HODWHGFDVKRXWƮRZVDUHFODVVLƬHGDVRSHUDWLQJFDVKƮRZV RYHUWKHLUXVHIXOHFRQRPLFOLIH7KHPHWKRGRIDPRUWLVDWLRQUHƮHFWVWKH LQWKHFDVKƮRZVWDWHPHQW pattern in which the assets are expected to be consumed. If the pattern cannot be determined reliably, the straight line method is used. Provisions Provisions are recognised when the group has a present legal or *RRGZLOO constructive obligation as a result of past events, it is probable that Goodwill represents the excess of the cost of an acquisition over the DQRXWƮRZRIUHVRXUFHVZLOOEHUHTXLUHGWRVHWWOHWKHREOLJDWLRQDQG IDLUYDOXHRIWKHJURXSoVVKDUHRIWKHLGHQWLƬDEOHQHWDVVHWV LQFOXGLQJ the amount can be reliably estimated. Provisions are determined by intangible assets) of the acquired business. GLVFRXQWLQJWKHH[SHFWHGIXWXUHFDVKƮRZVDWDSUHWD[UDWHWKDWUHƮHFWV For the purpose of impairment testing, goodwill acquired in a business current market assessments of the time value of money and the risks FRPELQDWLRQLVDOORFDWHGWRHDFKRIWKH&*8VWKDWLVH[SHFWHGWREHQHƬW VSHFLƬFWRWKHOLDELOLW\)LQDQFLDOOLDELOLWLHVZLWKLQSURYLVLRQVDUHLQLWLDOO\ from the business combination. Each CGU to which goodwill is allocated recognised at fair value and subsequently carried at amortised cost using represents the lowest level within the group at which the goodwill is WKHHƪHFWLYHLQWHUHVWPHWKRG2QHURXVOHDVHSURYLVLRQVDUHPHDVXUHGDW monitored for internal management purposes. WKHORZHURIWKHFRVWWRIXOƬORUWRH[LWWKHFRQWUDFW &RPSXWHUVRIWZDUH Current and deferred income tax Computer software comprises computer software licences purchased Current income tax is calculated on the basis of the tax laws enacted or from third parties, and also the cost of internally developed software. substantively enacted at the balance sheet date in the countries where Computer software licences purchased from third parties are initially the company’s subsidiaries, associates and joint ventures operate and recorded at cost. generate taxable income. The group periodically evaluates positions taken in tax returns with respect to situations in which applicable Costs directly associated with the production of internally developed tax regulation is subject to interpretation, and the group establishes software, including direct and indirect labour costs of development, provisions where appropriate on the basis of the amounts expected are capitalised only where it is probable that the software will generate to be paid to tax authorities. IXWXUHHFRQRPLFEHQHƬWVWKHFRVWRIWKHDVVHWFDQEHUHOLDEO\PHDVXUHG and technical feasibility can be demonstrated, in which case it is Deferred tax is recognised, using the liability method, in respect of capitalised as an intangible asset on the balance sheet. Costs which do WHPSRUDU\GLƪHUHQFHVEHWZHHQWKHFDUU\LQJDPRXQWRIWKHJURXSoV not meet these criteria and research costs are expensed as incurred. assets and liabilities and their tax base. Deferred income tax assets and OLDELOLWLHVDUHRƪVHWZKHQWKHUHLVDOHJDOO\HQIRUFHDEOHULJKWWRRƪVHW The group’s development costs which give rise to internally developed current tax assets against current tax liabilities and when the deferred software include upgrading the network architecture or functionality income tax assets and liabilities relate to income taxes levied by the DQGGHYHORSLQJVHUYLFHSODWIRUPVDLPHGDWRƪHULQJQHZVHUYLFHVWR VDPHWD[DWLRQDXWKRULW\RQHLWKHUWKHWD[DEOHHQWLW\RUGLƪHUHQWWD[DEOH the group’s customers. entities where there is an intention to settle the balances on a net basis. 7HOHFRPPXQLFDWLRQVOLFHQFHV Any remaining deferred tax asset is recognised only when, on the basis Licence fees paid to governments, which permit telecommunications of all available evidence, it can be regarded as probable that there will be DFWLYLWLHVWREHRSHUDWHGIRUGHƬQHGSHULRGVDUHLQLWLDOO\UHFRUGHGDWFRVW VXLWDEOHWD[DEOHSURƬWVZLWKLQWKHVDPHMXULVGLFWLRQLQWKHIRUHVHHDEOH and amortised from the time the network is available for use to the end IXWXUHDJDLQVWZKLFKWKHGHGXFWLEOHWHPSRUDU\GLƪHUHQFHFDQEHXWLOLVHG of the licence period. Deferred tax is determined using tax rates that are expected to apply in $FTXLUHGLQWDQJLEOHDVVHWVsFXVWRPHUUHODWLRQVKLSVDQGEUDQGV the periods in which the asset is realised or liability settled, based on tax Intangible assets such as customer relationships or brands acquired rates and laws that have been enacted or substantively enacted by the through business combinations are recorded at fair value at the date of balance sheet date. acquisition. Assumptions are used in estimating the fair values of these financials.indb 152 15/05/2015 01:51 The Strategic Report 153 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6LJQLƬFDQWDFFRXQWLQJSROLFLHVFRQWLQXHG Once a government grant is recognised, any related contingent liability Basis of consolidation RUFRQWLQJHQWDVVHWLVWUHDWHGLQDFFRUGDQFHZLWK,$6{n3URYLVLRQV 7KHJURXSƬQDQFLDOVWDWHPHQWVFRQVROLGDWHWKHƬQDQFLDOVWDWHPHQWVRI Contingent Liabilities and Contingent Assets’. %7*URXSSOF nWKHFRPSDQ\o DQGLWVVXEVLGLDULHVDQGWKH\LQFRUSRUDWH its share of the results of associates and joint ventures using the equity Foreign currencies method of accounting. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. A subsidiary is an entity that is controlled by another entity, known Foreign exchange gains and losses resulting from the settlement of as the parent or investor. An investor controls an investee when transactions and the translation of monetary assets and liabilities the investor is exposed, or has rights, to variable returns from its denominated in foreign currencies at period end exchange rates are LQYROYHPHQWZLWKWKHLQYHVWHHDQGKDVWKHDELOLW\WRDƪHFWWKRVHUHWXUQV recognised in the income statement line which most appropriately through its power over the investee. UHƮHFWVWKHQDWXUHRIWKHLWHPRUWUDQVDFWLRQ Non-controlling interests in the net assets of consolidated subsidiaries, On consolidation, assets and liabilities of foreign undertakings are which consist of the amounts of those interests at the date of the translated into Sterling at year end exchange rates. The results of original business combination and non-controlling share of changes in foreign undertakings are translated into Sterling at average rates equity since the date of the combination, are not material to the group’s RIH[FKDQJHIRUWKH\HDU XQOHVVWKLVDYHUDJHLVQRWDUHDVRQDEOH ƬQDQFLDOVWDWHPHQWV DSSUR[LPDWLRQRIWKHFXPXODWLYHHƪHFWVRIWKHUDWHVSUHYDLOLQJRQWKH transaction dates, in which case income and expenses are translated at The results of subsidiaries acquired or disposed of during the year WKHGDWHVRIWKHWUDQVDFWLRQV )RUHLJQH[FKDQJHGLƪHUHQFHVDULVLQJRQ are consolidated from and up to the date of change of control. retranslation are recognised directly in a separate component of equity, Where necessary, accounting policies of subsidiaries have been the translation reserve. aligned with the policies adopted by the group. All intra-group transactions including any gains or losses, balances, income or In the event of the disposal of an undertaking with assets and expenses are eliminated in full on consolidation. liabilities denominated in a foreign currency, the cumulative translation GLƪHUHQFHDVVRFLDWHGZLWKWKHXQGHUWDNLQJLQWKHWUDQVODWLRQUHVHUYH :KHQWKHJURXSORVHVFRQWURORIDVXEVLGLDU\WKHSURƬWRUORVVRQ is charged or credited to the gain or loss on disposal recognised in the GLVSRVDOLVFDOFXODWHGDVWKHGLƪHUHQFHEHWZHHQ L WKHDJJUHJDWHRI income statement. the fair value of the consideration received and the fair value of any UHWDLQHGLQWHUHVWDQG LL WKHSUHYLRXVFDUU\LQJDPRXQWRIWKHDVVHWV LQFOXGLQJJRRGZLOO DQGOLDELOLWLHVRIWKHVXEVLGLDU\DQGDQ\ Research and development Research expenditure is recognised in the income statement in the QRQFRQWUROOLQJLQWHUHVWV7KHSURƬWRUORVVRQGLVSRVDOLVUHFRJQLVHG period in which it is incurred. Development expenditure, including DVDVSHFLƬFLWHP the cost of internally developed software, is recognised in the income Business combinations statement in the period in which it is incurred unless it is probable that HFRQRPLFEHQHƬWVZLOOƮRZWRWKHJURXSIURPWKHDVVHWEHLQJGHYHORSHG On acquisition of a subsidiary, purchase consideration is measured at fair the cost of the asset can be reliably measured and technical feasibility value, which is the aggregate of the fair values of the assets transferred, can be demonstrated, in which case it is capitalised as an intangible liabilities incurred or assumed and the equity instruments issued in asset on the balance sheet. Capitalisation ceases when the asset being exchange for control of the acquiree. Acquisition-related costs are developed is ready for use. Research and development costs include H[SHQVHGDVLQFXUUHG7KHDFTXLUHHoVLGHQWLƬDEOHDVVHWVDQGOLDELOLWLHV direct and indirect labour, materials and directly attributable overheads. are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and measured at Leases cost, representing the excess of the aggregate of the consideration, the The determination of whether an arrangement is, or contains, a lease is amount of any non-controlling interests in the acquiree, and the based on the substance of the arrangement and requires an assessment fair value of the acquirer’s previously held equity interest in the acquiree RIZKHWKHUWKHIXOƬOPHQWRIWKHDUUDQJHPHQWLVGHSHQGHQWRQWKHXVHRI LIDQ\ RYHUWKHQHWRIWKHIDLUYDOXHVRIWKHLGHQWLƬDEOHDVVHWVDQG DVSHFLƬFDVVHWRUDVVHWVDQGZKHWKHUWKHDUUDQJHPHQWFRQYH\VWKHULJKW liabilities at the date of acquisition. to use the asset. ,PSDLUPHQWRIQRQƬQDQFLDODVVHWV Leases of property, plant and equipment where the group holds VXEVWDQWLDOO\DOOWKHULVNVDQGUHZDUGVRIRZQHUVKLSDUHFODVVLƬHG ,QWDQJLEOHDVVHWVZLWKƬQLWHXVHIXOOLYHVDQGSURSHUW\SODQWDQG DVƬQDQFHOHDVHV)LQDQFHOHDVHDVVHWVDUHFDSLWDOLVHGDWWKH equipment are tested for impairment if events or changes in commencement of the lease term at the lower of the present value of FLUFXPVWDQFHV DVVHVVHGDWHDFKUHSRUWLQJGDWH LQGLFDWHWKDWWKH the minimum lease payments or the fair value of the leased asset. The carrying amount may not be recoverable. When an impairment test REOLJDWLRQVUHODWLQJWRƬQDQFHOHDVHVQHWRIƬQDQFHFKDUJHVLQUHVSHFW is performed, the recoverable amount is assessed by reference to the of future periods, are recognised as liabilities. Leases are subsequently KLJKHURIWKHQHWSUHVHQWYDOXHRIWKHH[SHFWHGIXWXUHFDVKƮRZV PHDVXUHGDWDPRUWLVHGFRVWXVLQJWKHHƪHFWLYHLQWHUHVWPHWKRG YDOXHLQXVH RIWKHUHOHYDQWFDVKJHQHUDWLQJXQLWDQGWKHIDLUYDOXH less cost to sell. /HDVHVZKHUHDVLJQLƬFDQWSRUWLRQRIWKHULVNVDQGUHZDUGVDUHKHOGE\ WKHOHVVRUDUHFODVVLƬHGDVRSHUDWLQJOHDVHV5HQWDOVDUHFKDUJHGWRWKH Goodwill is reviewed for impairment at least annually. Impairment income statement on a straight line basis over the period of the lease. ORVVHVDUHUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWDVDVSHFLƬFLWHP,ID FDVKJHQHUDWLQJXQLWLVLPSDLUHGLPSDLUPHQWORVVHVDUHDOORFDWHGƬUVWO\ against goodwill, and secondly on a pro rata basis against intangible Own shares Own shares represent the shares of the parent company BT Group plc and other assets. that are held in treasury or by employee share ownership trusts. Own Government grants shares are recorded at cost and deducted from equity. When shares vest unconditionally or are cancelled they are transferred from the own Government grants are recognised when there is reasonable assurance shares reserve to retained earnings at their weighted average cost. that the conditions associated with the grants have been complied with and the grants will be received. Share-based payments Grants for the purchase or production of property, plant and equipment The group operates a number of equity settled share-based payment are deducted from the cost of the related assets and reduce future arrangements, under which the group receives services from employees depreciation expense accordingly. Grants for the reimbursement of LQFRQVLGHUDWLRQIRUHTXLW\LQVWUXPHQWV VKDUHRSWLRQVDQGVKDUHV RIWKH operating expenditure are deducted from the related category of costs group. Equity settled share-based payments are measured at fair value in the income statement. Government grants received relating to future DWWKHGDWHRIJUDQWH[FOXGLQJWKHHƪHFWRIQRQPDUNHWEDVHGYHVWLQJ expenditure are recognised as payments received in advance within conditions but including any market-based performance criteria and Other payables. WKHLPSDFWRIQRQYHVWLQJFRQGLWLRQV IRUH[DPSOHWKHUHTXLUHPHQW financials.indb 153 15/05/2015 01:51 154 BT Group plc Annual Report 2015 6LJQLƬFDQWDFFRXQWLQJSROLFLHVFRQWLQXHG Cash and cash equivalents for employees to save). The fair value determined at the grant date Cash and cash equivalents comprise cash in hand and current balances is recognised as an expense on a straight line basis over the vesting with banks and similar institutions, which are readily convertible to period, based on the group’s estimate of the options or shares that will FDVKDQGDUHVXEMHFWWRLQVLJQLƬFDQWULVNRIFKDQJHVLQYDOXHDQGKDYH HYHQWXDOO\YHVWDQGDGMXVWHGIRUWKHHƪHFWRIQRQPDUNHWEDVHGYHVWLQJ an original maturity of three months or less. For the purpose of the conditions. Fair value is measured using either the Binomial options FRQVROLGDWHGFDVKƮRZVWDWHPHQWFDVKDQGFDVKHTXLYDOHQWVDUHDV pricing model or Monte Carlo simulations, whichever is most appropriate GHƬQHGDERYHQHWRIRXWVWDQGLQJEDQNRYHUGUDIWV%DQNRYHUGUDIWV to the share-based payment arrangement. are included within loans and other borrowings, in current liabilities RQWKHEDODQFHVKHHW{ Service and performance conditions are vesting conditions. Any other conditions are non-vesting conditions which have to be taken into )LQDQFLDODVVHWVDQGOLDELOLWLHVDWIDLUYDOXHWKURXJKSURƬWRUORVV account to determine the fair value of equity instruments granted. In the $OORIWKHJURXSoVGHULYDWLYHƬQDQFLDOLQVWUXPHQWVDUHKHOGIRUWUDGLQJ case that an award or option does not vest as a result of a failure to meet DQGFODVVLƬHGDVIDLUYDOXHWKURXJKSURƬWRUORVV a non-vesting condition that is within the control of either counterparty, 'HULYDWLYHƬQDQFLDOLQVWUXPHQWV this is accounted for as a cancellation. Cancellations are treated as 7KHJURXSXVHVGHULYDWLYHƬQDQFLDOLQVWUXPHQWVPDLQO\WRUHGXFH accelerated vesting and all remaining future charges are immediately exposure to foreign exchange and interest rate risks. The group’s recognised in the income statement. As the requirement to save policy is not to use derivatives for trading purposes. However, under an employee saveshare arrangement is a non-vesting condition, GHULYDWLYHVWKDWGRQRWTXDOLI\IRUKHGJHDFFRXQWLQJRUDUHVSHFLƬFDOO\ employee cancellations are treated as an accelerated vesting. QRWGHVLJQDWHGDVDKHGJHZKHUHQDWXUDORƪVHWLVPRUHDSSURSULDWHDUH Awards that lapse or are forfeited result in a credit to the income initially recognised and subsequently measured at fair value through VWDWHPHQW UHYHUVLQJDOOSUHYLRXVO\UHFRJQLVHGFKDUJHV LQWKH\HDU SURƬWDQGORVV$Q\GLUHFWWUDQVDFWLRQFRVWVDUHUHFRJQLVHGLPPHGLDWHO\ in which they lapse or are forfeited. in the income statement. Gains and losses on re-measurement are recognised in the income statement in the line that most appropriately 7HUPLQDWLRQEHQHƬWV UHƮHFWVWKHQDWXUHRIWKHLWHPRUWUDQVDFWLRQWRZKLFKWKH\UHODWH 7HUPLQDWLRQEHQHƬWV OHDYHUFRVWV DUHSD\DEOHZKHQHPSOR\PHQWLV 'HULYDWLYHƬQDQFLDOLQVWUXPHQWVDUHFODVVLƬHGDVFXUUHQWDVVHWVRU terminated before the normal retirement date, or when an employee current liabilities where they have a maturity period within 12 months. DFFHSWVYROXQWDU\UHGXQGDQF\LQH[FKDQJHIRUWKHVHEHQHƬWV7KHJURXS :KHUHGHULYDWLYHƬQDQFLDOLQVWUXPHQWVKDYHDPDWXULW\SHULRGJUHDWHU UHFRJQLVHVWHUPLQDWLRQEHQHƬWVZKHQLWLVGHPRQVWUDEO\FRPPLWWHGWR WKDQPRQWKVWKH\DUHFODVVLƬHGZLWKLQHLWKHUQRQFXUUHQWDVVHWV WKHDƪHFWHGHPSOR\HHVOHDYLQJWKHJURXS RUQRQFXUUHQWOLDELOLWLHV{ Where the fair value of a derivative contract at initial recognition is not Financial instruments VXSSRUWHGE\REVHUYDEOHPDUNHWGDWDDQGGLƪHUVIURPWKHWUDQVDFWLRQ )LQDQFLDOOLDELOLWLHVDWDPRUWLVHGFRVW price, a day one gain or loss will arise which is not recognised in the Trade and other payables income statement. Such gains and losses are deferred and amortised Financial liabilities within trade and other payables are initially to the income statement based on the remaining contractual term recognised at fair value, which is usually the original invoiced and as observable market data becomes available. amount, and subsequently carried at amortised cost using the HƪHFWLYHLQWHUHVWPHWKRG +HGJHDFFRXQWLQJ Where derivatives qualify for hedge accounting, recognition of any Loans and other borrowings resultant gain or loss depends on the nature of the hedge. To qualify Loans and other borrowings are initially recognised at the fair value of for hedge accounting, hedge documentation must be prepared at amounts received net of transaction costs. Loans and other borrowings LQFHSWLRQDQGWKHKHGJHPXVWEHH[SHFWHGWREHKLJKO\HƪHFWLYHERWK DUHVXEVHTXHQWO\PHDVXUHGDWDPRUWLVHGFRVWXVLQJWKHHƪHFWLYHLQWHUHVW SURVSHFWLYHO\DQGUHWURVSHFWLYHO\7KHKHGJHLVWHVWHGIRUHƪHFWLYHQHVV method and, if included in a fair value hedge relationship, are re-valued at inception and in subsequent periods in which the hedge remains WRUHƮHFWWKHIDLUYDOXHPRYHPHQWVRQWKHKHGJHGULVNDVVRFLDWHGZLWK in operation. Hedge accounting is discontinued when the hedging the loans and other borrowings. The resulting amortisation of fair LQVWUXPHQWH[SLUHVRULVVROGWHUPLQDWHGRUQRORQJHUTXDOLƬHVIRU value movements, on de-designation of the hedge, is recognised in hedge accounting or the group chooses to end the hedge relationship. WKHLQFRPHVWDWHPHQW{ 7KHJURXSGHVLJQDWHVFHUWDLQGHULYDWLYHVDVHLWKHUFDVKƮRZKHGJHV $YDLODEOHIRUVDOHLQYHVWPHQWV or fair value hedges. /LTXLGDQGRWKHULQYHVWPHQWVDUHFODVVLƬHGDVDYDLODEOHIRUVDOH &DVKƮRZKHGJHV investments and are initially recognised at fair value plus direct :KHQDGHULYDWLYHƬQDQFLDOLQVWUXPHQWLVGHVLJQDWHGDVDKHGJHRI transaction costs and then re-measured at subsequent reporting dates WKHYDULDELOLW\LQFDVKƮRZVRIDUHFRJQLVHGDVVHWRUOLDELOLW\RUD WRIDLUYDOXHZLWKXQUHDOLVHGJDLQVDQGORVVHV H[FHSWIRUFKDQJHVLQ KLJKO\SUREDEOHWUDQVDFWLRQWKHHƪHFWLYHSDUWRIDQ\JDLQRUORVVRQ exchange rates for monetary items, interest, dividends and impairment WKHGHULYDWLYHƬQDQFLDOLQVWUXPHQWLVUHFRJQLVHGGLUHFWO\LQHTXLW\ losses, which are recognised in the income statement) recognised LQWKHFDVKƮRZUHVHUYH)RUFDVKƮRZKHGJHVRIUHFRJQLVHGDVVHWV LQHTXLW\XQWLOWKHƬQDQFLDODVVHWLVGHUHFRJQLVHGDWZKLFKWLPHWKH or liabilities, the associated cumulative gain or loss is removed from cumulative gain or loss previously recognised in equity is taken to the equity and recognised in the same line of the income statement and LQFRPHVWDWHPHQWLQWKHOLQHWKDWPRVWDSSURSULDWHO\UHƮHFWVWKH LQWKHVDPHSHULRGRUSHULRGVWKDWWKHKHGJHGWUDQVDFWLRQDƪHFWVWKH nature of the item or transaction. On disposal or impairment of the LQFRPHVWDWHPHQW$Q\LQHƪHFWLYHQHVVDULVLQJRQDFDVKƮRZKHGJH investments, any gains and losses that have been deferred in other of a recognised asset or liability is recognised immediately in the same FRPSUHKHQVLYHLQFRPHDUHUHFODVVLƬHGWRWKHLQFRPHVWDWHPHQW LQFRPHVWDWHPHQWOLQHDVWKHKHGJHGLWHP:KHUHLQHƪHFWLYHQHVV Dividends on equity investments are recognised in the income arises on highly probable transactions, it is recognised in the income statement when the group’s right to receive payment is established. VWDWHPHQWOLQHZKLFKPRVWDSSURSULDWHO\UHƮHFWVWKHQDWXUHRIWKH Equity investments are recorded in non-current assets unless they item or transaction. DUHH[SHFWHGWREHVROGZLWKLQRQH\HDU{ Fair value hedges /RDQVDQGUHFHLYDEOHV :KHQDGHULYDWLYHƬQDQFLDOLQVWUXPHQWLVGHVLJQDWHGDVDKHGJHRIWKH Trade and other receivables variability in fair value of a recognised asset or liability, or unrecognised Trade and other receivables are initially recognised at fair value, which ƬUPFRPPLWPHQWWKHFKDQJHLQIDLUYDOXHRIWKHGHULYDWLYHWKDWLV is usually the original invoiced amount, and are subsequently carried designated as a fair value hedge is recorded in the income statement DWDPRUWLVHGFRVWXVLQJWKHHƪHFWLYHLQWHUHVWPHWKRGOHVVSURYLVLRQV at each reporting date, together with any changes in fair value of the PDGHIRUGRXEWIXOUHFHLYDEOHV3URYLVLRQVDUHPDGHVSHFLƬFDOO\ZKHUH KHGJHGDVVHWRUOLDELOLW\WKDWLVDWWULEXWDEOHWRWKHKHGJHGULVN{ there is evidence of a risk of non-payment, taking into account ageing, previous losses experienced and general economic conditions. financials.indb 154 15/05/2015 01:51 The Strategic Report 155 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6HJPHQWLQIRUPDWLRQ 7KHGHƬQLWLRQRIWKHJURXSoVRSHUDWLQJDQGUHSRUWDEOHVHJPHQWVLVSURYLGHGRQSDJH151. From 1 April 2014 BT Conferencing and BT Security have moved into BT Global Services, from BT Business and our central group functions within 2WKHUUHVSHFWLYHO\7KLVVLPSOLƬHVWKHZD\ZHSURYLGHLQWHJUDWHGFROODERUDWLRQVROXWLRQVWRRXUJOREDOFXVWRPHUVEHWWHUFRPSHWHLQWKHPDUNHW and take full advantage of global opportunities. Comparative results for BT Global Services, BT Business and Other and intra-group items have been restated to be presented on a consistent basis. 7KHLPSDFWRQWKHOLQHRIEXVLQHVVUHVXOWVIRU\HDUHQGHG0DUFKZDVWRLQFUHDVHUHYHQXH(%,7'$DQGRSHUDWLQJSURƬWLQ%7*OREDO6HUYLFHV E\~P~ PDQG~ P ~P~PDQG~ P DQGWRUHGXFHUHYHQXH(%,7'$DQGRSHUDWLQJSURƬWLQ%7%XVLQHVVE\ ~ P~ PDQG~P ~ P~PDQG~ P :LWKLQ2WKHUFHQWUDOJURXSIXQFWLRQVUHYHQXH(%,7'$DQGRSHUDWLQJSURƬW UHGXFHGE\~P~PDQG~P ~P~PDQG~P ,QWUDJURXSHOLPLQDWLRQVRQUHYHQXHGHFUHDVHGE\~P £121m). These organisational changes do not impact the results of BT Consumer, BT Wholesale or Openreach and there is no impact on the total group results, EDODQFHVKHHWRUFDVKƮRZV Information regarding the results of each reportable segment is provided below. 6HJPHQWUHYHQXHDQGSURƬW BT Global Services BT Business BT Consumer BT Wholesale Openreach Other Total Year ended 31 March 2015 £m £m £m £m £m £m £m Segment revenue 6,779 3,145 4,285 2,157 5,011 74 21,451 Internal revenue – 5HYHQXHIURPH[WHUQDOFXVWRPHUVa 28 (%,7'$b 561 Depreciation and amortisation 2SHUDWLQJSURƬW ORVV a 528 861 813 337 6SHFLƬFLWHPV QRWH 2SHUDWLQJSURƬW 1HWƬQDQFHH[SHQVHc Share of post tax loss of associates and joint ventures 3URƬWRQGLVSRVDORILQWHUHVWLQDVVRFLDWHV and joint ventures 25 3URƬWEHIRUHWD[ BT Global Services BT Business BT Consumer BT Wholesale Openreach Other Total Segment revenue 7,269 3,213 4,019 2,422 5,061 82 22,066 Internal revenue – 5HYHQXHIURPH[WHUQDOFXVWRPHUV 37 (%,7'$b 833 614 25 Depreciation and amortisation 2SHUDWLQJSURƬWa 425 805 614 369 13 6SHFLƬFLWHPV QRWH 2SHUDWLQJSURƬW 1HWƬQDQFHH[SHQVHc Share of post tax loss of associates and joint ventures Loss on disposal of interest in associates and joint ventures 3URƬWEHIRUHWD[ a %HIRUHVSHFLƬFLWHPV b(%,7'$LVVWDWHGEHIRUHVSHFLƬFLWHPVDQGLVDQRQ*$$3PHDVXUHSURYLGHGLQDGGLWLRQWRWKHGLVFORVXUHUHTXLUHPHQWVGHƬQHGXQGHU,)567KHUDWLRQDOHIRUXVLQJQRQ*$$3PHDVXUHVLVH[SODLQHGRQ SDJHV{202 to . c1HWƬQDQFHH[SHQVHLQFOXGHVVSHFLƬFLWHPH[SHQVHRI~ P ~P ~ P 6HHQRWH d5HVWDWHGVHHDERYH financials.indb 155 15/05/2015 01:51 156 BT Group plc Annual Report 2015 6HJPHQWLQIRUPDWLRQFRQWLQXHG BT Global Services BT Business BT Consumer BT Wholesale Openreach Other Total Segment revenue 7,392 3,220 3,846 2,608 5,115 54 22,235 Internal revenue – 5HYHQXHIURPH[WHUQDOFXVWRPHUVa 28 (%,7'$b 950 940 968 620 23 Depreciation and amortisation 2SHUDWLQJSURƬW ORVV)) a 316 707 720 366 6SHFLƬFLWHPV QRWH 2SHUDWLQJSURƬW 1HWƬQDQFHH[SHQVHc 6KDUHRISRVWWD[SURƬWRIDVVRFLDWHVDQG joint ventures 9 3URƬWRQGLVSRVDORILQWHUHVWLQDVVRFLDWHV and joint ventures 130 3URƬWEHIRUHWD[ a %HIRUHVSHFLƬFLWHPV b(%,7'$LVVWDWHGEHIRUHVSHFLƬFLWHPVDQGLVDQRQ*$$3PHDVXUHSURYLGHGLQDGGLWLRQWRWKHGLVFORVXUHUHTXLUHPHQWVGHƬQHGXQGHU,)567KHUDWLRQDOHIRUXVLQJQRQ*$$3PHDVXUHVLVH[SODLQHGRQ SDJHV{202 to . c1HWƬQDQFHH[SHQVHLQFOXGHVVSHFLƬFLWHPH[SHQVHRI~ P ~P ~ P 6HHQRWH d5HVWDWHGVHHDERYH Internal revenue and costs Intra-group revenue generated from the sale of regulated products and services is based on market price. Intra-group revenue from the sale of RWKHUSURGXFWVDQGVHUYLFHVLVDJUHHGEHWZHHQWKHUHOHYDQWOLQHVRIEXVLQHVVDQGWKHUHIRUHOLQHRIEXVLQHVVSURƬWDELOLW\FDQEHLPSDFWHGE\WUDQVIHU pricing levels. BT Wholesale does not generate internal revenue from the other lines of business. The majority of internal trading relates to Openreach and arises on rentals, and any associated connection or migration charges, of the UK access lines and other network products to the customer-facing lines of EXVLQHVV7KLVRFFXUVERWKGLUHFWO\DQGDOVRLQGLUHFWO\WKURXJK%7762ZKLFKLVLQFOXGHGZLWKLQWKHn2WKHUoVHJPHQW,QWHUQDOUHYHQXHLQ%7{%XVLQHVV relates primarily to IT services and BT Ireland,QWHUQDOUHYHQXHDULVLQJLQ%7&RQVXPHUUHODWHVSULPDULO\WRHPSOR\HHEURDGEDQGDQGZLƬVHUYLFHV Internal revenue in BT Global Services relates primarily to conferencing services. ,QWHUQDOFRVWUHFRUGHGE\ BT Global Services BT Business BT Consumer BT Wholesale Openreach Other Total Year ended 31 March 2015 £m £m £m £m £m £m £m ,QWHUQDOUHYHQXHUHFRUGHGE\ BT Global Services – 29––––29 BT Business 241 – 62 94 1 1 399 BT Consumer 20 22 – 2 – 18 62 BT Wholesale ––––––– Openreach 187 306 939 242 – 1,390 Other – – – – 46 – 46 7RWDO 448 357 338 47 ,QWHUQDOFRVWUHFRUGHGE\ BT Global Services BT Business BT Consumer BT Wholesale Openreach Other Total ,QWHUQDOUHYHQXHUHFRUGHGE\ BT Global Services – 31––––31 BT Business 247 – 47 120 1 – 415 BT Consumer 13 18 – 3 – 15 49 BT Wholesale ––––––– Openreach 198 333 1,021 275 – 1,412 Other – – 3 – 42 – 45 7RWDO 458 382 398 43 a5HVWDWHGVHHDERYH financials.indb 156 15/05/2015 01:51 The Strategic Report 157 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6HJPHQWLQIRUPDWLRQFRQWLQXHG ,QWHUQDOFRVWUHFRUGHGE\ BT Global a Services BT Business a BT Consumer BT Wholesale Openreach Othera Total Year ended 31 March 2013 £m £m £m £m £m £m £m ,QWHUQDOUHYHQXHUHFRUGHGE\ BT Global Servicesa –35––––35 BT Businessa 247 – 55 110 3 8 423 BT Consumer 11 9 – 8 – 16 44 BT Wholesale ––––––– Openreach 198 386 1,097 275 – 1,412 Othera – – 5 – 21 – 26 7RWDO 456 430 393 24 a5HVWDWHGVHHDERYH Revenue by products and services 2015 2014 a 2013 a Year ended 31 March £m £m £m ICT and managed networks 6,493 6,608 6,515 Broadband, TV and convergence 3,540 3,205 2,906 Calls and lines and connectivity 5,969 6,064 6,358 Transit 555 697 869 Other products and services 1,294 1,713 1,691 5HYHQXHb a5HVWDWHGWRSUHVHQWSULRUSHULRGLQIRUPDWLRQRQDFRQVLVWHQWEDVLV The imSDFWLQZDVto decrease ICT and PDQDJHGQHWZRUNVUHYHQXHE\~P ~P LQFUHDVH%URDGEDQG79DQG FRQYHUJHQFHUHYHQXHE\~P ~P DQGGHFUHDVHRWKHUSURGXFWVDQGVHUYLFHVUHYHQXHE\~ P ~P b %HIRUHVSHFLƬFLWHPV Capital expenditure BT Global Services BT Business BT Consumer BT Wholesale Openreach Other Total Year ended 31 March 2015 £m £m £m £m £m £m £m Intangible assets 220 31 85 80 55 90 561 Property, plant and equipment 248 156 122 130 1,027 82 1,765 &DSLWDOH[SHQGLWXUHa 468 187 207 210 172 BT Global b Services BT Business b BT Consumer BT Wholesale Openreach Other b Total Year ended 31 March 2014 £m £m £m £m £m £m £m Intangible assets 172 18 44 78 74 121 507 Property, plant and equipment 344 109 167 166 975 78 1,839 &DSLWDOH[SHQGLWXUHa 516 127 211 244 199 a1HWRIJRYHUQPHQWJUDQWV b5HVWDWHGVHHQRWHDQGDERYH financials.indb 157 15/05/2015 01:51 158 BT Group plc Annual Report 2015 6HJPHQWLQIRUPDWLRQFRQWLQXHG Geographic information The UK is the group’s country of domicile and the group generates the majority of its revenue from external customers in the UK. The geographic analysis of revenue is on the basis of the country of origin in which the customer is invoiced. Revenue from external customers 2015 2014 2013 Year ended 31 March £m £m £m UK 13,827 14,084 14,152 Europe, Middle East and Africa, excluding the UK 2,328 2,585 2,604 Americas 1,115 1,074 1,057 $VLD3DFLƬF 581 544 526 5HYHQXHa a%HIRUHVSHFLƬFLWHPV Non-current assets 2015 2014 At 31 March £m £m UK 13,977 14,318 Europe, Middle East and Africa, excluding the UK 2,184 2,322 Americas 555 451 $VLD3DFLƬF 169 68 Non-current assets 1RQFXUUHQWDVVHWVZKLFKH[FOXGHGHULYDWLYHƬQDQFLDOLQVWUXPHQWVLQYHVWPHQWVDQGGHIHUUHGWD[DVVHWVDUHEDVHGRQWKHORFDWLRQRIWKHDVVHWV financials.indb 158 15/05/2015 01:51 The Strategic Report 159 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 2SHUDWLQJFRVWV 2015 2014 2013 Year ended 31 March Notes £m £m £m 2SHUDWLQJFRVWVE\QDWXUH 6WDƪFRVWV Wages and salaries 3,574 3,736 3,879 Social security costs 440 444 443 Other pension costs 19 467 463 399 Share-based payment expense 21 70 60 64 7RWDOVWDƪFRVWV Own work capitalised 1HWVWDƪFRVWV Net indirect labour costsa 324 452 499 Net labour costs Payments to telecommunications operators 2,144 2,472 2,677 Property and energy costs 968 959 1,022 Network operating and IT costs 605 591 587 TV programme rights charges 330 203 – Other operating costs 3,573 3,672 3,552 Other operating income Depreciation of property, plant and equipment Owned assets 13 1,997 2,090 2,175 +HOGXQGHUƬQDQFHOHDVHV 13 11 22 19 Amortisation of intangible assets 12 530 583 649 7RWDORSHUDWLQJFRVWVEHIRUHVSHFLƬFLWHPV 6SHFLƬFLWHPV 8 381 276 116 7RWDORSHUDWLQJFRVWV 2SHUDWLQJFRVWVEHIRUHVSHFLƬFLWHPVLQFOXGHWKHIROORZLQJ Leaver costsb 81458 Research and development expenditurec 662 739 829 Operating lease charges 388 390 423 Foreign currency gains Government grants a1HWRIFDSLWDOLVHGLQGLUHFWODERXUFRVWVRI~P ~ P ~P b/HDYHUFRVWVDUHLQFOXGHGZLWKLQZDJHVDQGVDODULHVDQGVRFLDOVHFXULW\FRVWVH[FHSWIRUOHDYHUFRVWVRI~P ~P ~P DVVRFLDWHGZLWKUHVWUXFWXULQJZKLFKKDYHEHHQ UHFRUGHGDVDVSHFLƬFLWHP c5HVHDUFKDQGGHYHORSPHQWH[SHQGLWXUHUHSRUWHGLQWKHLQFRPHVWDWHPHQWLQFOXGHVDPRUWLVDWLRQRI~ P ~P ~P LQUHVSHFWRILQWHUQDOO\GHYHORSHGFRPSXWHUVRIWZDUH DQGRSHUDWLQJH[SHQVHVRI~P ~P ~ P ,QDGGLWLRQWKHJURXSFDSLWDOLVHGVRIWZDUHGHYHORSPHQWFRVWVRI~P ~P ~P . Compensation of key management personnel Key management personnel comprise executive and non-executive directors and members of the Operating Committee. Compensation of key management personnel is shown in the table below: 2015 2014 2013 Year ended 31 March £m £m £m 6KRUWWHUPHPSOR\HHEHQHƬWV 9.7 11.1 10.5 3RVWHPSOR\PHQWEHQHƬWV 1.1 1.0 1.1 Share-based payments 5.7 6.4 6.0 7HUPLQDWLRQEHQHƬWV 0.5 – – 17.0 18.5 17.6 More detailed information concerning directors’ remuneration, shareholdings, pension entitlements, share options and other long-term incentive plans is shown in the audited part of the 5HSRUWRQ'LUHFWRUVo5HPXQHUDWLRQ VHHSDJHV111 to 129), which forms part of the consolidated ƬQDQFLDOVWDWHPHQWV financials.indb 159 15/05/2015 01:51 160 BT Group plc Annual Report 2015 (PSOR\HHV 2015 2014 2013 Year end Average Year end Average Year end Average Number of employees in the groupa 000 000 000 000 000 000 UK 70.9 72.2 72.2 72.7 73.2 74.1 Non-UK 17.6 16.5 15.6 15.1 14.7 15.0 7RWDOHPSOR\HHV 88.5 88.7 87.8 87.8 87.9 89.1 2015 2014b 2013b Year end Average Year end Average Year end Average Number of employees in the groupa 000 000 000 000 000 000 BT Global Services 18.1 19.2 22.7 22.1 21.4 22.0 BT Business 8.0 8.6 8.7 8.9 8.0 8.4 BT Consumer 6.2 6.0 6.0 6.2 6.6 6.4 BT Wholesale 1.5 1.7 1.8 1.8 2.0 1.4 Openreach 32.7 32.4 31.6 31.5 30.4 30.4 Other 22.0 20.8 17.0 17.3 19.5 20.5 7RWDOHPSOR\HHV 88.5 88.7 87.8 87.8 87.9 89.1 a7KHVHUHƮHFWWKHIXOOWLPHHTXLYDOHQWRIIXOODQGSDUWWLPHHP SOR\HHV b5HVWDWHGWRUHƮHFWRXULQWHUQDOUHRUJDQLVDWLRQ VHHQRWH $XGLWDXGLWUHODWHGDQGRWKHUQRQDXGLWVHUYLFHV The following fees were paid or are payable to the company’s auditors, PricewaterhouseCoopers LLP. 2015 2014 2013 Year ended 31 March £000 £000 £000 Fees payable to the company’s auditors and its associates for: $XGLWVHUYLFHVa 7KHDXGLWRISDUHQWFRPSDQ\DQGFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV 2,925 2,619 2,674 The audit of the company’s subsidiaries 4,809 5,355 5,284 $XGLWUHODWHGDVVXUDQFHVHUYLFHVb 2WKHUQRQDXGLWVHUYLFHV Taxation compliance servicesc 350 260 472 Taxation advisory servicesd 401 371 370 All other assurance servicese 3,199 180 166 All other servicesf 570 829 933 7RWDOVHUYLFHV a6HUYLFHVLQUHODWLRQWRWKHDXGLWRIWKHSDUHQWFRPSDQ\DQGWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVLQFOXGLQJIHHVIRUUHSRUWVXQGHUVHFWLRQRIWKH6DUEDQHV2[OH\$FW7KLVDOVRLQFOXGHVIHHVSD\DEOHIRU WKHVWDWXWRU\DXGLWVRIWKHƬQDQFLDOVWDWHPHQWVRIVXEVLGLDU\FRPSDQLHV b6HUYLFHVLQUHODWLRQWRRWKHUVWDWXWRU\ƬOLQJVRUHQJDJHPHQWVWKDWDUHUHTXLUHGE\ODZRUUHJXODWLRQWREHFDUULHGRXWE\WKHDSSRLQWHGDXGLWRU7KLVLQFOXGHVIHHVIRUWKHDXGLWRIWKHJURXSoVUHJXODWRU\ƬQDQFLDO VWDWHPHQWVDQGUHSRUWLQJDVVRFLDWHGZLWKWKHJURXSoV86GHEWVKHOIUHJLVWUDWLRQDQGWKHLVVXHRID(XURPHGLXPWHUPQRWHZKLFKWRRNSODFHGXULQJWKH\HDU c6HUYLFHVUHODWLQJWRWD[UHWXUQVWD[DXGLWVPRQLWRULQJDQGHQTXLULHV d)HHVSD\DEOHIRUDOOWD[DWLRQDGYLVRU\VHUYLFHVQRWIDOOLQJZLWKLQWD[DWLRQFRPSOLDQFH e$OORWKHUDVVXUDQFHVHUYLFHVLQFOXGHIHHVSD\DEOHWR3ULFHZDWHUKRXVH&RRSHUV//3DV5HSRUWLQJ$FFRXQWDQWVLQUHODWLRQWRWKHVKDUHKROGHUFLUFXODUZKLFKZDVLVVXHGRQ$SULOLQFRQQHFWLRQZLWKWKH SURSRVHGDFTXLVLWLRQRI(( I )HHVSD\DEOHIRUDOOQRQDXGLWVHUYLFHVQRWFRYHUHGDERYHSULQFLSDOO\FRPSULVLQJRWKHUDGYLVRU\VHUYLFHV 7KH%73HQVLRQ6FKHPHLVDQDVVRFLDWHGSHQVLRQIXQGDVGHƬQHGLQWKH&RPSDQLHV 'LVFORVXUHRI$XGLWRU5HPXQHUDWLRQDQG/LDELOLW\/LPLWDWLRQ $JUHHPHQWV $PHQGPHQW 5HJXODWLRQV,QWKH\HDUHQGHG0DUFK3ULFHZDWHUKRXVH&RRSHUV//3UHFHLYHGWRWDOIHHVIURPWKH%7 3HQVLRQ6FKHPHRI~ ~ ~ LQUHVSHFWRIWKHIROORZLQJVHUYLFHV DXGLWRIƬQDQFLDOVWDWHPHQWV RIDVVRFLDWHV~ ~ ~ DXGLWUHODWHGDVVXUDQFHVHUYLFHV~ ~QLO ~QLO WD[DWLRQFRPSOLDQFHVHUYLFHV~ ~ ~ WD[DWLRQDGYLVRU\VHUYLFHV~ ~ ~ DQGRWKHUQRQDXGLWVHUYLFHVRI~ ~ ~ financials.indb 160 15/05/2015 01:51 The Strategic Report 161 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6SHFLƬFLWHPV 2015 2014 2013 Year ended 31 March £m £m £m 5HYHQXH Retrospective regulatory rulings – 236 2SHUDWLQJFRVWV Restructuring charges 315 276 204 Property rationalisation costs 45 – – 3URƬWRQGLVSRVDORISURSHUW\ –– 3URƬWRQGLVSRVDORIEXVLQHVVHV – Retrospective regulatory matters 75 – EE related acquisition costs 19–– Impairment charges ––18 Provisions for claims – – 43 381 276 116 1HWƬQDQFHH[SHQVH ,QWHUHVWH[SHQVHRQUHWLUHPHQWEHQHƬWREOLJDWLRQ 292 235 117 ((UHODWHGƬQDQFLQJFRVWV 7–– Interest on provisions for claims – – 2 299 235 119 6KDUHRIUHVXOWVRIDVVRFLDWHVDQGMRLQWYHQWXUHV 3URƬW ORVVRQGLVSRVDORILQWHUHVWLQDVVRFLDWHVDQGMRLQWYHQWXUHV 4 1HWVSHFLƬFLWHPVFKDUJHEHIRUHWD[ 527 515 341 7D[DWLRQ 7D[FUHGLWRQVSHFLƬFLWHPVDERYH Tax credit on re-measurement of deferred tax – 1HWVSHFLƬFLWHPVFKDUJHDIWHUWD[ 406 196 111 5HWURVSHFWLYHUHJXODWRU\UXOLQJV – in July 2014 the Supreme Court overturned a Court of Appeal judgment, made in July 2012, which had GLVDOORZHGRXUODGGHUSULFLQJSROLF\UHODWLQJWRDQGFDOOVIURPPRELOHSKRQHVWHUPLQDWLQJRQRXUQHWZRUN,QZHKDG UHFRJQLVHGVSHFLƬFLWHPFKDUJHVRI~PDQG~PDJDLQVWUHYHQXHDQG(%,7'$UHVSHFWLYHO\UHODWLQJWRWKLVPDWWHU,QZHUHFRJQLVHG revenue and EBITDA of £128m, being the prior year impacts of ladder pricing agreements with the UK mobile operators following the Supreme Court judgment. 5HVWUXFWXULQJFKDQJHVsWKHFRPSRQHQWVRIWKHUHVWUXFWXULQJFKDUJHVUHFRJQLVHGLQDQGZHUH SHRSOHDQGSURSHUW\ FKDUJHVRI~ P ~P ~P SULQFLSDOO\FRPSULVLQJOHDYHUFRVWVRI~PSURSHUW\H[LWFRVWVDQGQHWZRUNVSURGXFWV DQGSURFXUHPHQWFKDQQHOVUDWLRQDOLVDWLRQFKDUJHVRI~P ~ P ~P 3URSHUW\UDWLRQDOLVDWLRQFRVWV – we recognised a £45m charge increasing onerous lease provisions relating to the rationalisation of the group’s property portfolio. 3URƬWRQGLVSRVDORISURSHUW\ – in February 2015 we disposed of a surplus building in London, Keybridge House, for a consideration of £93m UHVXOWLQJLQDSURƬWRI~P 5HWURVSHFWLYHUHJXODWRU\PDWWHUV – iQ$XJXVWWKH&RPSHWLWLRQ$SSHDO7ULEXQDO &$7 KDQGHGGRZQMXGJPHQWRQYDULRXVDSSHDOVEURXJKW against a December 2012 Ofcom determination on the pricing of certain Ethernet products. We disagree with the CAT’s judgment and have applied for permission to appeal to the Court of Appeal. Ofcom had determined that BT had overcharged for certain services between 1 April 2006 and 31{March 2011 and required BT to make repayments. The CAT judged that BT should also pay interest on these amounts. Together with a review of RXUUHJXODWRU\ULVNSRVLWLRQLQUHODWLRQWRRWKHUKLVWRULFDOPDWWHUVZHKDYHUHFRJQLVHGDVSHFLƬFLWHPFKDUJHRI~P,QZHKDGUHFRJQLVHG charges of £151m and £36m against revenue and EBITDA respectively, following Ofcom’s determinations on historic Ethernet pricing. ((UHODWHGDFTXLVLWLRQDQGƬQDQFLQJFRVWVsWUDQVDFWLRQFRVWVRI~ PZHUHLQFXUUHGUHODWLQJWRWKHSODQQHGDFTXLVLWLRQRI((DQGGHEWƬQDQFLQJ fees of £7m were incurred setting up a £3.6bn acquisition facility. 3URYLVLRQVIRUFODLPV – the group makes provision for legal or constructive obligations arising from insurance, litigation and regulatory risks. 3URYLVLRQVLQFUHDVHGE\~PLQKDYLQJUHDVVHVVHGSRWHQWLDOFODLPVUHODWLQJWRFHUWDLQKLVWRULFDOPDWWHUV ,QWHUHVWH[SHQVHRQUHWLUHPHQWEHQHƬWREOLJDWLRQV– see note 19 for more details. 3URƬWRUORVVRQGLVSRVDORILQWHUHVWLQDVVRFLDWHVDQGMRLQWYHQWXUHVsLQZHUHFRJQLVHGD~PSURƬWRQWKHGLVSRVDORIDQDVVRFLDWH Accommodation Services Holdings, which was held at £QLOFRVW,QZHUHFRJQLVHGDSURƬWRI~PDVDUHVXOWRIWKHGLVSRVDORIWKHJURXSoV remaining interest in its associate Tech Mahindra, which was held at a carrying value of £127m at 31 March 2012. 7D[FUHGLWRQUHPHDVXUHPHQWRIGHIHUUHGWD[ – see note 9 for more details. financials.indb 161 15/05/2015 01:51 162 BT Group plc Annual Report 2015 7D[DWLRQ Analysis of taxation expense for the year 2015 2014 2013 Year ended 31 March £m £m £m 8QLWHG.LQJGRP &RUSRUDWLRQWD[DW Adjustments in respect of prior periods 35 10 277 1RQ8.WD[DWLRQ Current Adjustments in respect of prior periods 18 3 1 7RWDOFXUUHQWWD[H[SHQVH 'HIHUUHGWD[DWLRQ 2ULJLQDWLRQDQGUHYHUVDORIWHPSRUDU\GLƪHUHQFHV 170 239 158 Adjustments in respect of prior periods 4 ,PSDFWRIFKDQJHLQ8.FRUSRUDWLRQWD[UDWH – 208 103 7RWDOGHIHUUHGWD[DWLRQFUHGLW 152 451 40 7RWDOWD[DWLRQH[SHQVH )DFWRUVDƪHFWLQJWD[DWLRQH[SHQVHIRUWKH\HDU 7KHWD[DWLRQH[SHQVHRQWKHSURƬWIRUWKH\HDUGLƪHUVIURPWKHDPRXQWFRPSXWHGE\DSSO\LQJWKH8.FRUSRUDWLRQWD[UDWHWRWKHSURƬWEHIRUH taxation as a result of the following factors: 2015 2014 2013 Year ended 31 March £m £m £m 3URƬWEHIRUHWD[DWLRQ ([SHFWHGWD[DWLRQH[SHQVHDW8.UDWHRI (ƪHFWVRI Non-UK losses utilised 36 13 14 Non-deductible depreciation and amortisation Non-deductible non-UK losses +LJKHU ORZHUWD[HVRQQRQ8.SURƬWV 10 Lower taxes on gain on disposal of business 7 – 28 Other deferred tax assets not recognised 95436 Adjustments in respect of prior periods 35 17 57 Re-measurement of deferred tax balances – 208 103 Other 10 3 – 7RWDOWD[DWLRQH[SHQVH ([FOXGHVSHFLƬFLWHPV QRWH 7RWDOWD[DWLRQH[SHQVHEHIRUHVSHFLƬFLWHPV financials.indb 162 15/05/2015 01:51 The Strategic Report 163 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 7D[DWLRQFRQWLQXHG Tax components of other comprehensive income 2015 2014 2013 Tax credit Tax credit Tax credit H[SHQVH H[SHQVH H[SHQVH Year ended 31 March £m £m £m 7D[RQLWHPVWKDWZLOOQRWEHUHFODVVLƬHGWRWKHLQFRPHVWDWHPHQW $FWXDULDOORVVHVUHODWLQJWRUHWLUHPHQWEHQHƬWREOLJDWLRQV 208 16 762 7D[RQLWHPVWKDWPD\EHUHFODVVLƬHGVXEVHTXHQWO\WRWKHLQFRPHVWDWHPHQW ([FKDQJHGLƪHUHQFHVRQWUDQVODWLRQRIIRUHLJQRSHUDWLRQV 13 10 )DLUYDOXHPRYHPHQWVRQFDVKƮRZKHGJHV – net fair value gains or losses 24 6 – recognised in income and expense – – 39 245 20 786 Current tax credita 268 130 133 'HIHUUHGWD[ H[SHQVH FUHGLW 653 245 20 786 a,QFOXGHV~20P ~P ~P UHODWLQJWRDFWXDULDOORVVHVDULVLQJIURPUHWLUHPHQWEHQHƬWREOLJDWLRQV Tax credit recognised directly in equity 2015 2014 2013 Year ended 31 March £m £m £m Tax credit relating to share-based payments 54 106 68 Deferred taxation Excess Retirement Share- capital EHQHƬW based Jurisdictional allowances obligationsa payments Other RƪVHW Total £m £m £m £m £m £m At 1 April 2013 1,418 – &UHGLW H[SHQVHUHFRJQLVHGLQWKHLQFRPHVWDWHPHQW 10 14 – &UHGLW H[SHQVHUHFRJQLVHGLQRWKHUFRPSUHKHQVLYHLQFRPH 106 – 6 – 110 Credit recognised in equity – – –– Acquisitions – – – 3 – 3 $W0DUFK – Non-current Deferred tax asset 416 Deferred tax liability 1,208 – – 37 829 At 1 April 2014 – &UHGLW H[SHQVHUHFRJQLVHGLQLQFRPHVWDWHPHQW 326 – Expense recognised in other comprehensive income 6 12 – 5 – 23 Expense recognised in equity – – 149 – – 149 $W0DUFK – Non-current Deferred tax asset 242 Deferred tax liability 1,161 – – 29 948 $W0DUFK – a,QFOXGHVDGHIHUUHGWD[DVVHWRI~P ~P DULVLQJRQFRQWULEXWLRQVSD\DEOHWRGHƬQHGFRQWULEXWLRQSHQVLRQSODQV 'HIHUUHGWD[EDODQFHVIRUZKLFKWKHUHLVDULJKWRIRƪVHWZLWKLQWKHVDPHMXULVGLFWLRQDUHSUHVHQWHGQHWRQWKHIDFHRIWKHJURXSEDODQFHVKHHWDV permitted by IAS 12, with the exception of deferred tax related to BT’s pension schemes which is disclosed within deferred tax assets. $W0DUFKDOORIWKHGHIHUUHGWD[DVVHWRI~ P ~P DQGDOORIWKHGHIHUUHGWD[OLDELOLW\RI~ P ~ P are expected to be recovered or settled after more than one year. financials.indb 163 15/05/2015 01:51 164 BT Group plc Annual Report 2015 7D[DWLRQFRQWLQXHG )DFWRUVDƪHFWLQJIXWXUHWD[FKDUJHV The rate of UK corporation tax changed from 21% to 20% on 1 April 2015. As deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal, deferred tax balances at 31 March 2014 were calculated using a rate of 20%. This resulted in a tax FUHGLWRI~PZKLFKZDVWUHDWHGDVDVSHFLƬFLWHPLQWKHLQFRPHVWDWHPHQW QRWH DQGDGHIHUUHGWD[H[SHQVHRI~PLQUHVHUYHVIRUWKH\HDU HQGLQJ{0DUFK As all deferred tax balances were measured at 20% at 31 March 2014 and 31 March 2015, there was no further impact on deferred taxation for the \HDUHQGLQJ{0DUFK 8QUHFRJQLVHGWD[ORVVHVDQGRWKHUWHPSRUDU\GLƪHUHQFHV $W0DUFKWKHJURXSKDGRSHUDWLQJORVVHVFDSLWDOORVVHVDQGRWKHUWHPSRUDU\GLƪHUHQFHVFDUULHGIRUZDUGLQUHVSHFWRIZKLFKQRGHIHUUHG WD[DVVHWVZHUHUHFRJQLVHGDPRXQWLQJWR~EQ ~EQ 7KHJURXSoVFDSLWDOORVVHVDQGRWKHUWHPSRUDU\GLƪHUHQFHVKDYHQRH[SLU\ date restrictions. The expiry date of operating losses carried forward is dependent upon the tax law of the various territories in which the losses arose. ${VXPPDU\RIH[SLU\GDWHVIRUORVVHVLQUHVSHFWRIZKLFKUHVWULFWLRQVDSSO\LVVHWRXWEHORZ 2015 Expiry of At 31 March £m losses 5HVWULFWHGORVVHV Europe 356 2016-2034 Americas 10 2024-2034 Other 73 2016-2023 7RWDOUHVWULFWHGORVVHV 439 Unrestricted losses Operating losses 3,193 No expiry Capital losses 17,150 No expiry 7RWDOXQUHVWULFWHGORVVHV 2WKHUWHPSRUDU\GLƪHUHQFHV 195 7RWDO 7 At 31 March 2015 the undistributed earnings of non-UKVXEVLGLDULHVZHUH~EQ ~EQ 1RGHIHUUHGWD[OLDELOLWLHVKDYHEHHQ recognised in respect of these unremitted earnings because the group is in a position to control the timing of any dividends from subsidiaries and hence any tax consequences that may arise. financials.indb 164 15/05/2015 01:51 The Strategic Report 165 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information (DUQLQJVSHUVKDUH %DVLFHDUQLQJVSHUVKDUHLVFDOFXODWHGE\GLYLGLQJWKHSURƬWDIWHUWD[DWWULEXWDEOHWRHTXLW\VKDUHKROGHUVE\WKHZHLJKWHGDYHUDJHQXPEHURIVKDUHVLQ issue after deducting the own shares held by employee share ownership trusts and treasury shares. In calculating the diluted earnings per share, share options outstanding and other potential shares have been taken into account where the impact RIWKHVHLVGLOXWLYH2SWLRQVRYHUPVKDUHV PVKDUHV PVKDUHV ZHUHH[FOXGHGIURPWKHFDOFXODWLRQRIWKHWRWDOGLOXWHG number of shares as the impact of these is antidilutive. Year ended 31 March 2015 2014 2013 %DVLFZHLJKWHGDYHUDJHQXPEHURIVKDUHV PLOOLRQV 8,056 7,857 7,832 'LOXWLYHVKDUHVIURPVKDUHRSWLRQV PLOOLRQV 80 314 275 'LOXWLYHVKDUHVIURPH[HFXWLYHVKDUHDZDUGV PLOOLRQV 55 60 96 'LOXWHGZHLJKWHGDYHUDJHQXPEHURIVKDUHV PLOOLRQV 8,191 8,231 8,203 Basic earnings per share 26.5p 25.7p 24.8p Diluted earnings per share 26.1p 24.5p 23.7p 7KHHDUQLQJVSHUVKDUHFDOFXODWLRQVDUHEDVHGRQSURƬWDIWHUWD[DWWULEXWDEOHWRHTXLW\VKDUHKROGHUVRIWKHSDUHQWFRPSDQ\ZKLFKH[FOXGHV QRQFRQWUROOLQJLQWHUHVWV3URƬWDIWHUWD[DWWULEXWDEOHWRHTXLW\VKDUHKROGHUVRIWKHSDUHQWFRPSDQ\ZDV~P ~P ~ P DQGSURƬWDIWHUWD[DWWULEXWDEOHWRQRQFRQWUROOLQJLQWHUHVWVZDV~QLO ~P ~P 3URƬWDWWULEXWDEOH WRQRQFRQWUROOLQJLQWHUHVWVLVQRWSUHVHQWHGVHSDUDWHO\LQWKHƬQDQFLDOVWDWHPHQWVDVLWLVQRWPDWHULDO 7KHJURXSDOVRPHDVXUHVƬQDQFLDOSHUIRUPDQFHEDVHGRQDGMXVWHGHDUQLQJVSHUVKDUHZKLFKH[FOXGHVVSHFLƬFLWHPV$GMXVWHGHDUQLQJVSHUVKDUH and a reconciliation to basic earnings per share is disclosed on page 203. 'LYLGHQGV 2015 2014 2013 pence pence pence Year ended 31 March per share £m per share £m per share £m Final dividend in respect of the prior year 7.5 609 6.5 512 5.7 449 Interim dividend in respect of the current year 3.9 316 3.4 269 3.0 235 11.4 925 9.9 781 8.7 684 7KH%RDUGUHFRPPHQGVWKDWDƬQDOGLYLGHQGLQUHVSHFWRIWKH\HDUHQGHG0DUFKRISSHUVKDUHZLOOEHSDLGWRVKDUHKROGHUVRQ {6HSWHmber 2015WDNLQJWKHIXOO\HDUSURSRVHGGLYLGHQGLQUHVSHFWRIWRS S S ZKLFKDPRXQWVWR DSSUR[LPDWHO\~P ~P ~ P 7KLVGLYLGHQGLVVXEMHFWWRDSSURYDOE\VKDUHKROGHUVDWWKH$QQXDO*HQHUDO0HHWLQJ DQGWKHUHIRUHWKHOLDELOLW\RIDSSUR[LPDWHO\~P ~P ~P KDVQRWEHHQLQFOXGHGLQWKHVHƬQDQFLDOVWDWHPHQWV The proposed dividend will be payable to all shareholders on the Register of Members on 14 August 2015. 7KHYDOXHRI~ P ~P ~P IRUWKHƬQDODQGLQWHULPGLYLGHQGVLVGLVFORVHGLQWKHJURXSVWDWHPHQWRIFKDQJHVLQ HTXLW\7KLVYDOXHPD\GLƪHUIURPWKHDPRXQWVKRZQIRUHTXLW\GLYLGHQGVSDLGLQWKHJURXSFDVKƮRZVWDWHPHQWZKLFKUHSUHVHQWVWKHDFWXDOFDVK SDLGLQUHODWLRQWRGLYLGHQGFKHTXHVWKDWKDYHEHHQSUHVHQWHGRYHUWKHFRXUVHRIWKHƬQDQFLDO\HDU financials.indb 165 15/05/2015 01:52 166 BT Group plc Annual Report 2015 ,QWDQJLEOHDVVHWV Customer relation- Telecoms Internally ships and licences developed Purchased Goodwill brands DQG{RWKHU software software Total £m £m £m £m £m £m Cost At 1 April 2013 358 481 Additions – – 1 433 73 507 $FTXLVLWLRQRIVXEVLGLDULHV QRWH 1520–––35 Interest on qualifying assetsa –––1–1 Disposals and adjustments 27 ([FKDQJHGLƪHUHQFHV $W0DUFK 394 415 Additions – – 1 488 72 561 Interest on qualifying assetsa –––2–2 Disposals and adjustments – – – 2) Transfers – – – 35 ([FKDQJHGLƪHUHQFHV 65 5 2 3) $W0DUFK 399 390 $FFXPXODWHGDPRUWLVDWLRQ At 1 April 2013 291 186 Charge for the year 15 7 468 93 583 Disposals and adjustments 26 ([FKDQJHGLƪHUHQFHV $W0DUFK 323 101 Charge for the year 15 7 448 60 530 Disposals and adjustments – – Transfers ––18 ([FKDQJHGLƪHUHQFHV 1 $W0DUFK 336 96 &DUU\LQJDPRXQW $W0DUFK 63 294 138 At 31 March 2014 1,331 71 314 1,217 154 3,087 a$GGLWLRQVWRLQWHUQDOO\GHYHORSHGVRIWZDUHLQLQFOXGHLQWHUHVWFDSLWDOLVHGDWDZHLJKWHGDYHUDJHERUURZLQJUDWHRI financials.indb 166 15/05/2015 01:52 The Strategic Report 167 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information ,QWDQJLEOHDVVHWVFRQWLQXHG Goodwill impairment review 7KHJURXSSHUIRUPVDQDQQXDOJRRGZLOOLPSDLUPHQWUHYLHZEDVHGRQLWVFDVKJHQHUDWLQJXQLWV &*8V 7KH&*8VWKDWKDYHDVVRFLDWHGJRRGZLOODUH%7*OREDO6HUYLFHV%7%XVLQHVVDQG%7&RQVXPHU7KHVHDUHWKHVPDOOHVWLGHQWLƬDEOHJURXSVRIDVVHWVWKDW JHQHUDWHFDVKLQƮRZVWKDWDUHODUJHO\LQGHSHQGHQWRIWKHFDVKLQƮRZVIURPRWKHUJURXSVRIDVVHWVDQGWRZKLFKJRRGZLOOLVDOORFDWHG*RRGZLOOLV allocated to the group’s CGUs as follows: BT Global Services BT Business restated a restated a BT Consumer Total £m £m £m £m At 1 April 2013 24 221 65 $FTXLVLWLRQV QRWH ––15 15 Disposals and adjustments –– ([FKDQJHGLƪHUHQFHV – $W0DUFK 7 214 80 ([FKDQJHGLƪHUHQFHV 59 6 – 65 $W0DUFK 220 80 a'XHWRWKHPRYHRI%7&RQIHUHQFLQJIURP%7%XVLQHVVWR%7*OREDO6HUYLFHV VHHQRWHVDQG JRRGZLOORI~PKDVEHHQDOORFDWHGIURP%7%XVLQHVVWR%7*OREDO6HUYLFHVRQWKHEDVLVRIUHODWLYHIDLUYDOXHV 7KHGLVFRXQWUDWHXVHGLQSHUIRUPLQJWKHYDOXHLQXVHFDOFXODWLRQLQZDV9.3 IRUDOO&*8V7KHSHUSHWXLW\JURZWKUDWHIRU %7{*OREDO6HUYLFHVZDV DQG IRU%7%XVLQHVVDQG%7&RQVXPHU 5HFRYHUDEOHDPRXQW 7KHYDOXHLQXVHRIHDFK&*8LVGHWHUPLQHGXVLQJFDVKƮRZSURMHFWLRQVGHULYHGIURPƬQDQFLDOSODQVDSSURYHGE\WKH%RDUGFRYHULQJDWKUHH\HDU SHULRG7KH\UHƮHFWPDQDJHPHQWoVH[SHFWDWLRQVRIUHYHQXH(%,7'$JURZWKFDSLWDOH[SHQGLWXUHZRUNLQJFDSLWDODQGRSHUDWLQJFDVKƮRZVEDVHGRQ SDVWH[SHULHQFHDQGIXWXUHH[SHFWDWLRQVRIEXVLQHVVSHUIRUPDQFH&DVKƮRZVDUHDOVRDGMXVWHGGRZQZDUGVWRUHƮHFWWKHGLƪHUHQWULVNDWWULEXWHVRI HDFK&*8&DVKƮRZVEH\RQGWKHthree-year period have been extrapolated using perpetuity growth rates. Discount rate 7KHSUHWD[GLVFRXQWUDWHVDSSOLHGWRWKHFDVKƮRZIRUHFDVWVDUHGHULYHGIURPWKHJURXSoVSRVWWD[ZHLJKWHGDYHUDJHFRVWRIFDSLWDO7KHDVVXPSWLRQV used in the calculation of the group’s weighted average cost of capital are benchmarked to externally available data. *URZWKUDWHV 7KHSHUSHWXLW\JURZWKUDWHVDUHGHWHUPLQHGEDVHGRQWKHORQJWHUPKLVWRULFDOJURZWKUDWHVRIWKHUHJLRQVLQZKLFKWKH&*8RSHUDWHVDQGWKH\UHƮHFW an assessment of the long-term growth prospects of that sector. The growth rates have been benchmarked against external data for the relevant markets. None of the growth rates applied exceed the long-term historical average growth rates for those markets or sectors. 6HQVLWLYLWLHV 7KHUHLVVLJQLƬFDQWKHDGURRPLQDOO&*8V)RU%7*OREDO6HUYLFHVWKHYDOXHLQXVHH[FHHGVWKHFDUU\LQJYDOXHRIWKH&*8E\DSSUR[LPDWHO\~P 7KH{IROORZLQJFKDQJHV LQFRPELQDWLRQ LQDVVXPSWLRQVZRXOGFDXVHWKHUHFRYHUDEOHDPRXQWWRIDOOEHORZWKHFDUU\LQJYDOXH – UHGXFWLRQLQWKHSHUSHWXLW\JURZWKUDWHIURPWKHDVVXPSWLRQDSSOLHGWRDUHYLVHGDVVXPSWLRQRI QRJURZWK – an increase in the discount rate from the 9.3% assumption applied to a revised assumption of 15% or more – VKRUWIDOOVLQWUDGLQJSHUIRUPDQFHDJDLQVWIRUHFDVWUHVXOWLQJLQRSHUDWLQJFDVKƮRZs decreasing by £180m or more in perpetuity. For BT Business and BT Consumer no reasonably possible changes in the key assumptions would cause the carrying amount of the CGUs to exceed the recoverable amount. financials.indb 167 15/05/2015 01:52 168 BT Group plc Annual Report 2015 3URSHUW\SODQWDQGHTXLSPHQW Assets in Land and Network course of buildings a infrastructure a Other b construction Total £m £m £m £m £m Cost At 1 April 2013 1,260 45,266 2,199 718 49,443 Additionsc 34 205 119 1,487 1,845 Transfers 3 1,531 3 – Disposals and adjustmentsd ([FKDQJHGLƪHUHQFHV $W0DUFK 650 Additionsc 12 106 159 1,482 1,759 Transfers 18 1,545 24 76) 11 Disposals and adjustmentsd 01) 63) 25) 40) ([FKDQJHGLƪHUHQFHV $W0DUFK 527 $FFXPXODWHGGHSUHFLDWLRQ At 1 April 2013 747 32,716 1,900 – 35,363 Charge for the year 57 1,951 104 – 2,112 Disposals and adjustmentsd – ([FKDQJHGLƪHUHQFHV – $W0DUFK 706 – Charge for the year 50 1,845 113 – 2,008 Disposals and adjustmentsd 0) 57) – 8) Transfers – 13 – 7 ([FKDQJHGLƪHUHQFHV – $W0DUFK 687 – &DUU\LQJDPRXQW $W0DUFK 445 346 527 Engineering stores – – – 74 74 7RWDODW0DUFK 445 346 601 At 31 March 2014 485 12,341 296 650 13,772 Engineering stores – – – 68 68 7RWDODW0DUFK 485 296 718 2015 2014 At 31 March £m £m The carrying amount of land and buildings, including leasehold improvements, comprised: Freehold 208 233 Leasehold 237 252 7RWDOODQGDQGEXLOGLQJV 445 485 a7KHFDUU\LQJDPRXQWRIWKHJURXSoVSURSHUW\SODQWDQGHTXLSPHQWLQFOXGHVDQDPRXQWRI~P ~ P LQUHVSHFWRIDVVHWVKHOGXQGHUƬQDQFHOHDVHVFRPSULVLQJODQGDQGEXLOGLQJVRI~P ~P DQGQHWZRUNLQIUDVWUXFWXUHRI~P ~P 7KHGHSUHFLDWLRQH[SHQVHRQWKRVHDVVHWVLQZDV~P ~P FRPSULVLQJODQGDQGEXLOGLQJVRI~P ~P DQGQHWZRUNLQIUDVWUXFWXUHRI~P ~P :LWKLQQHWZRUNLQIUDVWUXFWXUHDUHDVVHWVZLWKQHWERRNYDOXHRI~EQZKLFKKDYHXVHIXOHFRQRPLFOLYHVRIPRUHWKDQ\HDUV b2WKHUPDLQO\FRPSULVHVPRWRUYHKLFOHVFRPSXWHUVDQGRƯFHHTXLSPHQW c1HWRIJRYHUQPHQWJUDQWVRI~ P ~P d)XOO\GHSUHFLDWHGDVVHWVLQWKHJURXSoVƬ[HGDVVHWUHJLVWHUsZHUHUHYLHZHGGXULQJWKH\HDUDVSDUWRIWKHJURXSoVDQQXDODVVHWYHULƬFDWLRQH[HUFLVHDQGFHUWDLQDVVHWVWKDWZHUHQRORQJHULQXVHKDYHEHHQ ZULWWHQRXWUHGXFLQJFRVWDQGDFFXPXODWHGGHSUHFLDWLRQE\~EQ ~EQ financials.indb 168 15/05/2015 01:52 The Strategic Report 169 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information %XVLQHVVFRPELQDWLRQV On 1 August 2013 the group acquired 100% of the issued share capital of ESPN Global Limited, together with certain trademarks, licences and programme rights. The purchase was made for consideration of £30m. Intangible assets of £14m and goodwill of £15m were recognised. 3URJUDPPHULJKWV Total £m At 1 April 2013 – Additions 311 Amortisation At 1 April 2014 108 Additions 340 Amortisation $W0DUFK 118 $GGLWLRQVUHƮHFW79SURJUDPPHULJKWVIRUZKLFKWKHOHJDOO\HQIRUFHDEOHOLFHQFHSHULRGKDVVWDUWHGGXULQJWKH\HDU3D\PHQWVPDGHIRUSURJUDPPH ULJKWVIRUZKLFKWKHOHJDOO\HQIRUFHDEOHOLFHQFHSHULRGKDVQRW\HWVWDUWHGDUHLQFOXGHGZLWKLQSUHSD\PHQWV VHHQRWH Programme rights commitments are disclosed in note 29. 7UDGHDQGRWKHUUHFHLYDEOHV 2015 2014 At 31 March £m £m Non-current Other assetsa 184 214 a2WKHUDVVHWVLQFOXGHVFRVWVUHODWLQJWRWKHLQLWLDOVHWXSWUDQVLWLRQRUWUDQVIRUPDWLRQSKDVHRIORQJWHUPQHWZRUNHG,7VHUYLFHVFRQWUDFWVRI~ P ~P DQGSUHSD\PHQWVDQGOHDVLQJGHEWRUVRI ~ P ~P 2015 2014 At 31 March £m £m Current Trade receivables 1,454 1,370 Prepayments 505 508 Accrued income 810 815 Other receivables 371 214 Trade receivables are stated after deducting allowances for doubtful debts, as follows: 2015 2014 £m £m At 1 April 192 218 Expense 78 77 Utilised ([FKDQJHGLƪHUHQFHV $W0DUFK 196 192 7UDGHUHFHLYDEOHVDUHFRQWLQXRXVO\PRQLWRUHGDQGDOORZDQFHVDSSOLHGDJDLQVWWUDGHUHFHLYDEOHVFRQVLVWRIERWKVSHFLƬFLPSDLUPHQWVDQGFROOHFWLYH impairments based on the group’s historical loss experiences for the relevant aged category and taking into account general economic conditions. +LVWRULFDOORVVH[SHULHQFHDOORZDQFHVDUHFDOFXODWHGE\OLQHRIEXVLQHVVLQRUGHUWRUHƮHFWWKHVSHFLƬFQDWXUHRIWKHFXVWRPHUVUHOHYDQWWRWKDWOLQH of business. 7UDGHDQGRWKHUUHFHLYDEOHVDUHFODVVLƬHGDVORDQVDQGUHFHLYDEOHVDQGKHOGDWDPRUWLVHGFRVW7KHFDUU\LQJDPRXQWRIWKHVHEDODQFHVDSSUR[LPDWHV to fair value due to the short maturity of amounts receivable. Note 26 provides further disclosure regarding the credit quality of the group’s gross trade receivables. financials.indb 169 15/05/2015 01:52 170 BT Group plc Annual Report 2015 7UDGHDQGRWKHUUHFHLYDEOHVFRQWLQXHG Trade receivables are due as follows: 3DVWGXHDQGQRWVSHFLƬFDOO\LPSDLUHG Trade receivables VSHFLƬFDOO\ Between Between Between impaired net 0 and 3 3 and 6 6 and 12 Over 12 Not past due of provision months months months months Total At 31 March £m £m £m £m £m £m £m 2015 867 71 366 44 37 69 2014 857 39 300 31 43 100 *URVVWUDGHUHFHLYDEOHVZKLFKKDYHEHHQVSHFLƬFDOO\LPSDLUHGDPRXQWHGWR~159P ~P Trade receivables not past due and accrued income are analysed below by line of business. Trade receivables not past due Accrued income 2015 2014a 2015 2014a At 31 March £m £m £m £m BT Global Services 517 535 405 448 BT Business 143 193 115 112 BT Consumer 119 106 85 – BT Wholesale 70 4 128 118 Openreach 15 12 75 137 Other 3 7 2 – 7RWDO 867 857 810 815 a &HUWDLQEDODQFHVKDYHEHHQUHVWDWHGVHHQRWH Given the broad and varied nature of the group’s customer base, the analysis of trade receivables not past due and accrued income by line of business is considered the most appropriate disclosure of credit concentrations. Cash collateral held against trade and other receivables amounted to £4m ~P 7UDGHDQGRWKHUSD\DEOHV 2015 2014 At 31 March £m £m Current Trade payables 2,835 2,745 Other taxation and social security 416 480 Other payables 535 545 Accrued expenses 414 444 Deferred income 1,076 1,047 2015 2014 At 31 March £m £m Non-currenta Other payables 854 845 Deferred income 73 53 927 898 a1RQFXUUHQWtrade and other SD\DEOHVPDLQO\UHODWHWRRSHUDWLQJOHDVHOLDELOLWLHV andGHIHUUHGJDLQVRQDSULRUSHULRGVDOHDQGƬQDQFHOHDVHEDFNWUDQVDFWLRQDVZHOODV estimatHVRISRWHQWLDOUHLQYHVWPHQWRU UHSD\PHQWRIJRYHUQPHQWJUDQWVUHFHLYHG. financials.indb 170 15/05/2015 01:52 The Strategic Report 171 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 3URYLVLRQV Restructuringa Property b Otherc Total £m £m £m £m At 1 April 2013 67 241 322 630 Income statement expense 2041741 Unwind of discount –8–8 Utilised or released ([FKDQJHGLƪHUHQFHV – $W0DUFK 58 201 274 533 Income statement expense 64688140 Unwind of discount –8–8 Utilised or released Transfers ––66 ([FKDQJHGLƪHUHQFHV 1 – $W0DUFK 45 217 302 564 2015 2014 At 31 March £m £m Analysed as: Current 142 99 Non-current 422 434 564 533 a3URYLVLRQVUHODWLQJWRWKHJURXSZLGHUHVWUXFWXULQJSURJUDPPH7KHVHDUHEHLQJXWLOLVHGDVWKHREOLJDWLRQVDUHVHWWOHG b3URSHUW\SURYLVLRQVPDLQO\FRPSULVHRQHURXVOHDVHSURYLVLRQVDULVLQJIURPWKHUDWLRQDOLVDWLRQRIWKHJURXSoVSURSHUW\SRUWIROLR7KHSURYLVLRQVZLOOEHXWLOLVHGRYHUWKHUHPDLQLQJOHDVHSHULRGV ZKLFKUDQJHIURPRQHWR\HDUV c 2WKHUSURYLVLRQVLQFOXGHDPRXQWVSURYLGHGIRUOHJDORUFRQVWUXFWLYHREOLJDWLRQVDULVLQJIURPLQVXUDQFHFODLPVOLWLJDWLRQDQGUHJXODWRU\ULVNVZKLFKZLOOEHXWLOLVHGDVWKHREOLJDWLRQVDUHVHWWOHG financials.indb 171 15/05/2015 01:52 172 BT Group plc Annual Report 2015 5HWLUHPHQWEHQHƬWSODQV Background 7KHJURXSKDVERWKGHƬQHGEHQHƬWDQGGHƬQHGFRQWULEXWLRQUHWLUHPHQWEHQHƬWSODQV7KHJURXSoVPDLQSODQVDUHLQWKH8.DQGWKHODUJHVWE\ PHPEHUVKLSLVWKH%73HQVLRQ6FKHPH %736 ZKLFKLVDGHƬQHGEHQHƬWSODQWKDWZDVFORVHGWRQHZHQWUDQWVRQ0DUFK$IWHUWKDWGDWH QHZHQWUDQWVLQWKH8.KDYHEHHQDEOHWRMRLQDGHƬQHGFRQWULEXWLRQSODQFXUUHQWO\WKH%75HWLUHPHQW6DYLQJ6FKHPH %7566 DFRQWUDFW based arrangement. 'HƬQHGFRQWULEXWLRQSODQV $GHƬQHGFRQWULEXWLRQSODQLVDSHQVLRQDUUDQJHPHQWXQGHUZKLFKWKHEHQHƬWVDUHOLQNHGWRFRQWULEXWLRQVSDLGWKHSHUIRUPDQFHRIHDFKLQGLYLGXDOoV FKRVHQLQYHVWPHQWVDQGWKHIRUPLQZKLFKLQGLYLGXDOVFKRRVHWRWDNHWKHLUEHQHƬWV&RQWULEXWLRQVDUHSDLGLQWRDQLQGHSHQGHQWO\DGPLQLVWHUHG IXQG7KHLQFRPHVWDWHPHQWFKDUJHLQUHVSHFWRIGHƬQHGFRQWULEXWLRQSODQVUHSUHVHQWVWKHFRQWULEXWLRQSD\DEOHE\WKHJURXSEDVHGXSRQDƬ[HG percentage of employees’ pay. The company has no exposure to investment and other experience risks. 'HƬQHGEHQHƬWSODQV $GHƬQHGEHQHƬWSODQLVDSHQVLRQDUUDQJHPHQWXQGHUZKLFKSDUWLFLSDWLQJPHPEHUVUHFHLYHDSHQVLRQEHQHƬWDWUHWLUHPHQWGHWHUPLQHGE\WKHSODQ rules dependent on factors such as age, years of service and pensionable pay and is not dependent upon actual contributions made by the company RUPHPEHUV7KHLQFRPHVWDWHPHQWVHUYLFHFRVWLQUHVSHFWRIGHƬQHGEHQHƬWSODQVUHSUHVHQWVWKHLQFUHDVHLQWKHGHƬQHGEHQHƬWOLDELOLW\DULVLQJIURP SHQVLRQEHQHƬWVHDUQHGE\DFWLYHPHPEHUVLQWKHFXUUHQWSHULRG7KHFRPSDQ\LVH[SRVHGWRLQYHVWPHQWDQGRWKHUH[SHULHQFHULVNVDQGPD\QHHGWR PDNHDGGLWLRQDOFRQWULEXWLRQVZKHUHLWLVHVWLPDWHGWKDWWKHEHQHƬWVZLOOQRWEHPHWIURPUHJXODUFRQWULEXWLRQVH[SHFWHGLQYHVWPHQWLQFRPH and assets held. *URXSLQFRPHVWDWHPHQW 7KHH[SHQVHRULQFRPHDULVLQJIURPDOOJURXSUHWLUHPHQWEHQHƬWDUUDQJHPHQWVUHFRJQLVHGLQWKHJURXSLQFRPHVWDWHPHQWLVVKRZQEHORZ 2015 2014 2013 Year ended 31 March £m £m £m 5HFRJQLVHGLQWKHLQFRPHVWDWHPHQWEHIRUHVSHFLƬFLWHPV Current service cost: sGHƬQHGEHQHƬWSODQV 254 272 225 sGHƬQHGFRQWULEXWLRQSODQV 176 151 136 Past service credit a –– $GPLQLVWUDWLRQH[SHQVHVDQG3HQVLRQ3URWHFWLRQ)XQG n33)o OHY\ 42 40 38 7RWDORSHUDWLQJH[SHQVH 467 463 399 1HWLQWHUHVWH[SHQVHRQQHWSHQVLRQVGHƬFLWLQFOXGHGLQVSHFLƬFLWHPV QRWH 292 235 117 7RWDOUHFRJQLVHGLQWKHLQFRPHVWDWHPHQW 759 698 516 a3DVWVHUYLFHFUHGLWUHODWHVWRYDULRXVSHQVLRQSODQVRSHUDWLQJRXWVLGHWKH8. *URXSVWDWHPHQWRIFRPSUHKHQVLYHLQFRPH 5HPHDVXUHPHQWVRIWKHQHWGHƬQHGEHQHƬWREOLJDWLRQDUHUHFRJQLVHGLQIXOOLQWKHJURXSVWDWHPHQWRIFRPSUHKHQVLYHLQFRPHLQWKH\HDULQZKLFK WKH\DULVH7KHVHFRPSULVHWKHLPSDFWRQWKHGHƬQHGEHQHƬWOLDELOLW\RIFKDQJHVLQGHPRJUDSKLFDQGƬQDQFLDODVVXPSWLRQVFRPSDUHGZLWKWKHVWDUWRI WKH\HDUDFWXDOH[SHULHQFHEHLQJGLƪHUHQWWRWKRVHDVVXPSWLRQVDQGWKHUHWXUQRQSODQDVVHWVDERYHWKHDPRXQWLQFOXGHGLQWKHQHWSHQVLRQ interest expense. *URXSEDODQFHVKHHW 7KHQHWSHQVLRQREOLJDWLRQLQUHVSHFWRIGHƬQHGEHQHƬWSODQVUHSRUWHGLQWKHJURXSEDODQFHVKHHWLVVHWRXWEHORZ 2015 2014 Present value Present value Assets of liabilities 'HƬFLW Assets of liabilities 'HƬFLW At 31 March £m £m £m £m £m £m BTPS 43,386 39,939 Other plansa 241 174 5HWLUHPHQWEHQHƬWREOLJDWLRQ $GMXVWPHQWVGXHWRHƪHFWRIDVVHWFHLOLQJb – – Deferred tax asset 1,481 1,381 1HWSHQVLRQREOLJDWLRQ a,QFOXGHGLQWKHSUHVHQWYDOXHRIOLDELOLWLHVRIRWKHUSODQVLV~P ~ P UHODWHGWRXQIXQGHGSHQVLRQDUUDQJHPHQWV b7KHUHLVQROLPLWLQJHƪHFWRIWKHDVVHWFHLOLQJDVDQ\DFFRXQWLQJVXUSOXVDULVLQJLVGHHPHGWREHUHFRYHUDEOHGXHWRWKHHFRQRPLFEHQHƬWVDYDLODEOHLQWKHIRUPRIIXWXUHUHIXQGVRUUHGXFWLRQVWR IXWXUHFRQWULEXWLRQV $W0DUFK~ P ~P RIFRQWULEXWLRQVWRGHƬQHGFRQWULEXWLRQSODQVZHUHRXWVWDQGLQJDQGDUHLQFOXGHGZLWKLQWUDGHDQGRWKHU payables in the group balance sheet. financials.indb 172 15/05/2015 01:52 The Strategic Report 173 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG 0RYHPHQWVLQGHƬQHGEHQHƬWSODQDVVHWVDQGOLDELOLWLHV 7KHWDEOHEHORZVKRZVWKHPRYHPHQWVRQWKHSODQDVVHWVDQGOLDELOLWLHVLQWKH\HDUDQGLQGLFDWHVZKHUHWKH\DUHUHƮHFWHGLQWKHƬQDQFLDOVWDWHPHQWV Assets Liabilities 'HƬFLW £m £m £m At 1 April 2013 41,566 Current service cost – ,QWHUHVWRQSHQVLRQGHƬFLW 1,710 Settlements 61 Administration expenses and PPF levy – ,QFOXGHGLQWKHJURXSLQFRPHVWDWHPHQW Return on plan assets below the amount included in the group income statementa – $FWXDULDOJDLQDULVLQJIURPFKDQJHVLQƬQDQFLDODVVXPSWLRQVb – 580 580 Actuarial loss arising from changes in demographic assumptionsb ––– Actuarial loss arising from experience adjustmentsc – ,QFOXGHGLQWKHJURXSVWDWHPHQWRIFRPSUHKHQVLYHLQFRPH 274 Regular contributions by employer 228 – 228 'HƬFLWFRQWULEXWLRQVE\HPSOR\HU 325 – 325 ,QFOXGHGLQWKHJURXSFDVKƮRZVWDWHPHQW 553 – 553 Contributions by employees 12 – %HQHƬWVSDLG 2,166 – Foreign exchange 15 9 2WKHUPRYHPHQWV 9 $W0DUFK Current service cost – ,QWHUHVWRQSHQVLRQGHƬFLW 1,663 Past service credit –55 Administration expenses and PPF levy – ,QFOXGHGLQWKHJURXSLQFRPHVWDWHPHQW Return on plan assets above the amount included in the group income statementa 3,083 – 3,083 $FWXDULDOORVVDULVLQJIURPFKDQJHVLQƬQDQFLDODVVXPSWLRQVb – Actuarial gain arising from changes in demographic assumptionsb – 126 126 Actuarial gain arising from experience adjustmentsc – 443 443 ,QFOXGHGLQWKHJURXSVWDWHPHQWRIFRPSUHKHQVLYHLQFRPH Regular contributions by employer 178 – 178 'HƬFLWFRQWULEXWLRQVE\HPSOR\HU 876 – 876 ,QFOXGHGLQWKHJURXSFDVKƮRZVWDWHPHQW – Contributions by employees 12 – %HQHƬWVSDLG 2,231 – Foreign exchange 44 19 2WKHUPRYHPHQWV 19 $W0DUFK a7KHWRWDODFWXDOUHWXUQRQSODQDVVHWVLQZDVDJDLQRI~P ~P b7KHDFWXDULDOJDLQRUORVVDULVHVIURPFKDQJHVLQWKHDVVXPSWLRQVXVHGWRYDOXHWKHGHƬQHGEHQHƬWOLDELOLWLHVDWWKHHQGRIWKH\HDUFRPSDUHGZLWKWKHDVVXPSWLRQVXVHGDWWKHVWDUWRIWKH\HDU7KLV{LQFOXGHV ERWKƬQDQFLDODVVXPSWLRQVZKLFKDUHEDVHGRQPDUNHWFRQGLWLRQVDWWKH\HDUHQGDQGGHPRJUDSKLFDVVXPSWLRQVVXFKDVOLIHH[SHFWDQF\ c7KHDFWXDULDOORVVRUJDLQDULVLQJIURPH[SHULHQFHDGMXVWPHQWVRQGHƬQHGEHQHƬWOLDELOLWLHVUHSUHVHQWVWKHLPSDFWRQWKHOLDELOLWLHVRIGLƪHUHQFHVEHWZHHQDFWXDOH[SHULHQFHGXULQJWKH\HDUFRPSDUHGZLWK WKHDVVXPSWLRQVPDGHDWWKHVWDUWRIWKH\HDU6XFKGLƪHUHQFHVPLJKWDULVHIRUH[DPSOHIURPPHPEHUVFKRRVLQJGLƪHUHQWEHQHƬWRSWLRQVDWUHWLUHPHQWDFWXDOVDODU\LQFUHDVHVEHLQJGLƪHUHQWIURPWKRVH DVVXPHGRUDFWXDOEHQHƬWLQFUHDVHVEHLQJKLJKHUWKDQWKHLQƮDWLRQDVVXPSWLRQ financials.indb 173 15/05/2015 01:52 174 BT Group plc Annual Report 2015 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG BTPS $W0DUFKWKHUHZHUHPHPEHUVRIWKH%7360HPEHUVEHORQJWRRQHRIWKUHHVHFWLRQVGHSHQGLQJXSRQWKHGDWHWKH\ƬUVWMRLQHG WKHVFKHPH6HFWLRQ$LVIRUPHPEHUVZKRMRLQHGEHIRUH'HFHPEHU 6HFWLRQ%LVIRUPHPEHUVZKRMRLQHGWKHVFKHPHEHWZHHQ{'HFHPEHU 1971 and 31 March 1986 and Section C is for members who joined the scheme on or after 1 April 1986 but before the scheme closed to new entrants on 31 March 2001. The membership is analysed below. Number Number of of active deferred Number of Total At 31 March 2015 members members pensioners membership Sections A and Ba 15,000 32,000 176,000 223,000 Section C 23,000 40,500 20,000 83,500 7RWDO At 31 March 2014 Sections A and Ba 17,000 35,500 176,500 229,000 Section C 24,000 41,000 19,000 84,000 7RWDO a6HFWLRQ$DQG6HFWLRQ%PHPEHUVKLSVKDYHEHHQDJJUHJDWHGLQWKLVWDEOHDV6HFWLRQ$PHPEHUVKDYHW\SLFDOO\HOHFWHGWRWDNH6HFWLRQ%EHQHƬWVDWUHWLUHPHQW 6LQFH$SULO ZKHQFKDQJHVWRPHPEHUEHQHƬWVDQGFRQWULEXWLRQUDWHVZHUHLQWURGXFHG6HFWLRQ%DQG&PHPEHUVKDYHDFFUXHGEHQHƬWV EDVHGXSRQDFDUHHUDYHUDJHUHYDOXHGHDUQLQJV &$5( EDVLVDQGDQRUPDOSHQVLRQDEOHDJHRI2QD&$5(EDVLVEHQHƬWVDUHEXLOWXSEDVHGXSRQ HDUQLQJVLQHDFK\HDUDQGWKHEHQHƬWDFFUXHGIRUHDFK\HDULVLQFUHDVHGE\WKHORZHURILQƮDWLRQRUWKHLQGLYLGXDOoVDFWXDOSD\LQFUHDVHLQHDFK\HDUWR UHWLUHPHQW%HQHƬWVHDUQHGIRUSHQVLRQDEOHVHUYLFHSULRUWR$SULO DUHEDVHGXSRQDPHPEHUoVƬQDOVDODU\DQGDQRUPDOSHQVLRQDEOHDJHRI 8QGHUWKHVFKHPHUXOHVWKHGHWHUPLQDWLRQRIWKHUDWHRILQƮDWLRQIRUVWDWXWRU\PLQLPXPUDWHVRIUHYDOXDWLRQDQGLQGH[DWLRQRIEHQHƬWVLVEDVHGXSRQ HLWKHUWKH5HWDLO3ULFHV,QGH[ 53, RUWKH&RQVXPHU3ULFHV,QGH[ &3, ZKLFKDSSO\WRHDFKFDWHJRU\RIPHPEHUDVVKRZQEHORZ Active members Deferred members Pensioners Section Ba %HQHƬWVDFFUXHRQD&$5(EDVLVLQFUHDVLQJ 3UHVHUYHGEHQHƬWVDUHUHYDOXHGEHIRUH ,QFUHDVHVLQEHQHƬWVLQSD\PHQWDUHEDVHG at the lower of RPI or the individual’s actual UHWLUHPHQWEDVHGXSRQ{&3, upon CPI Section C pay increase ,QFUHDVHVLQEHQHƬWVLQSD\PHQWDUH currently based upon RPI up to a maximum of 5% a6HFWLRQ$PHPEHUVKDYHW\SLFDOO\HOHFWHGWRWDNH6HFWLRQ%EHQHƬWVDWUHWLUHPHQW 0DQDJHPHQWRIWKHVFKHPH %73HQVLRQ6FKHPH7UXVWHHV/LPLWHG WKH7UXVWHH KDVEHHQDSSRLQWHGE\%7DVDQLQGHSHQGHQWWUXVWHHWRDGPLQLVWHUDQGPDQDJHWKHVFKHPHRQ behalf of the members in accordance with the terms of the Trust Deed of the scheme and relevant legislation. Under the terms of the Trust Deed there are nine Trustee directors all of whom are appointed by BT. The chairman of the Trustee is appointed after consultation with, and with the agreement RIWKHUHOHYDQWWUDGHXQLRQVZKRDUHDOVRUHVSRQVLEOHIRUQRPLQDWLQJIRXUGLUHFWRUVWRDFWDVUHSUHVHQWDWLYHVRIWKHPHPEHUV2I{WKHUHPDLQLQJIRXU GLUHFWRUVWZRZLOOQRUPDOO\KROGVHQLRUSRVLWLRQVZLWKLQWKHJURXSDQGWZRZLOOQRUPDOO\KROG RUKDYHKHOG VHQLRUSRVLWLRQVLQFRPPHUFHRULQGXVWU\ 6XEMHFWWRWKHUHEHLQJDQDSSURSULDWHO\TXDOLƬHGFDQGLGDWHDWOHDVWRQHRIWKH7UXVWHHGLUHFWRUVLVFXVWRPDULO\DFXUUHQWSHQVLRQHURUGHIHUUHG pensioner of the BTPS. Trustee directors are usually appointed for a three-year term but are then eligible for re-appointment. BTPS assets Asset allocation 7KHDOORFDWLRQRIDVVHWVEHWZHHQGLƪHUHQWFODVVHVRILQYHVWPHQWLVUHYLHZHGUHJXODUO\DQGLVDNH\IDFWRULQWKH7UXVWHHoVLQYHVWPHQWSROLF\ 7KH{DOORFDWLRQVVHWUHƮHFWWKH7UXVWHHoVYLHZVRQWKHDSSURSULDWHEDODQFHWREHVWUXFNEHWZHHQVHHNLQJUHWXUQVDQGLQFXUULQJULVNDQGRQWKHH[WHQWWR which the assets should be distributed to match liabilities. Current market conditions and trends are regularly assessed which may lead to adjustments LQWKHDVVHWDOORFDWLRQ7KH%736DOVRXVHVƬQDQFLDOLQVWUXPHQWVWREDODQFHWKHDVVHWDOORFDWLRQDQGWRPDQDJHLQƮDWLRQULVNLQWHUHVWUDWHULVNOLTXLGLW\ risk and foreign currency risk. 8QGHU,$6{ SODQDVVHWVPXVWEHYDOXHGDWWKHELGPDUNHWYDOXHDWWKHEDODQFHVKHHWGDWH)RUWKHPDLQDVVHWFDWHJRULHV – securities listed on recognised stock exchanges are valued at closing bid prices – properties are valued on the basis of open market value – XQOLVWHGHTXLWLHVDUHYDOXHGLQDFFRUGDQFHZLWK,QWHUQDWLRQDO3ULYDWH(TXLW\DQG9HQWXUH&DSLWDO ,3(9& JXLGHOLQHV – XQOLVWHGƬ[HGLQWHUHVWDQGLQGH[OLQNHGLQVWUXPHQWVDUHYDOXHGXVLQJWKHODWHVWPDUNHWSULFHRUXVLQJGLVFRXQWHGFDVKƮRZPRGHOVWKDWFRQVLGHU credit risk. financials.indb 174 15/05/2015 01:52 The Strategic Report 175 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG The fair value of the assets of the BTPS analysed by asset category are shown below. These are subdivided by assets that have a quoted market price in DQDFWLYHPDUNHWDQGWKRVHWKDWGRQRW VXFKDVLQYHVWPHQWIXQGV 2015a 2014a of which of which Total assets quoted b Total Total assets quoted b Total At 31 March £bn £bn % £bn £bn % Equitiesc 13.1 10.6 30 11.2 5.8 28 Fixed-interest securities 7.4 5.7 17 7.1 5.7 18 Index-linked securities 11.7 10.5 27 9.9 8.5 24 Property 4.6 – 11 4.3 – 11 Alternative assetsd 6.2 – 14 7.1 1.0 18 Cash and other 0.4 – 1 0.3 – 1 7RWDO 43.4 26.8 100 39.9 21.0 100 a$W0DUFKDQG0DUFKWKH6FKHPHoVDVVHWVGLGQRWLQFOXGHDQ\GLUHFWO\KHOGRUGLQDU\VKDUHVRIWKHFRPSDQ\7KH6FKHPHKHOG~ P ~ P RILQGH[OLQNHGERQGVLVVXHGE\WKH JURXS b$VVHWVZLWKDTXRWHGSULFHLQDQDFWLYHPDUNHW c$W0DUFKWKH%736KHOG~EQRI8.HTXLWLHV ~EQ d$OWHUQDWLYHDVVHWFODVVHVLQFOXGHFRPPRGLWLHVSULYDWHHTXLW\DQGFUHGLWRSSRUWXQLWLHV /RQJHYLW\LQVXUDQFH On 4 July 2014, the Scheme entered into arrangements to hedge around 25% of the Scheme’s exposure to potential improvements in longevity. These arrangements form part of the Scheme’s investment portfolio and will provide income to the Scheme in the event that pensions are paid out for longer than expected under the terms of the contract. To facilitate the transaction, the Trustee set up a wholly owned insurance company. The Scheme transferred longevity risk to this insurer, who has in turn reinsured this longevity risk with The Prudential Insurance Company of America, a U.S. based life insurance company. These arrangements required no additional cash contributions from BT. At 31 March 2015, the fair value of the insurance contract was negligible and has been included within cash and other assets. ,QYHVWPHQWSHUIRUPDQFH The Trustee reports on investment performance against a benchmark which is based on the asset mix and the market returns for each asset class. BTPS performance against the benchmark for the periods to 30 June 2014 was as follows. Over Actual XQGHU Benchmark BTPS return performance Period ending 30 June 2014 % % % 1 year 6.2 6.2 – 3 years 6.2 5.8 10 years 6.5 7.0 0.5 BTPS liabilities under IAS 19 9DOXDWLRQPHWKRGRORJ\ 7KHOLDELOLWLHVRIWKH%736DUHPHDVXUHGDVWKHSUHVHQWYDOXHRIWKHHVWLPDWHGIXWXUHEHQHƬWFDVKƮRZVWREHSDLGE\WKH6FKHPHFDOFXODWHGXVLQJWKH SURMHFWHGXQLWFUHGLWPHWKRG7KHVHFDOFXODWLRQVDUHSHUIRUPHGIRUWKHFRPSDQ\E\DSURIHVVLRQDOO\TXDOLƬHGLQGHSHQGHQWDFWXDU\ 7KHH[SHFWHGIXWXUHEHQHƬWSD\PHQWVDUHEDVHGRQDQXPEHURIDVVXPSWLRQVLQFOXGLQJIXWXUHLQƮDWLRQUHWLUHPHQWDJHVEHQHƬWRSWLRQVFKRVHQDQG OLIHH[SHFWDQF\DQGDUHWKHUHIRUHLQKHUHQWO\XQFHUWDLQ$FWXDOEHQHƬWSD\PHQWVLQDJLYHQ\HDUPD\EHKLJKHURUORZHUIRUH[DPSOHLIPHPEHUVUHWLUH sooner or later than assumed, or take a greater or lesser cash lump sum at retirement. The estimated duration of BTPS liabilities, which is an indicator RIWKHZHLJKWHGDYHUDJHWHUPRIWKHOLDELOLWLHVLVDURXQG\HDUVDOWKRXJKWKHEHQHƬWVSD\DEOHE\WKH%736DUHH[SHFWHGWREHSDLGRYHUPRUHWKDQ \HDUVDVVKRZQLQWKHJUDSKEHORZ:KLOVWEHQHƬWSD\PHQWVDUHH[SHFWHGWRLQFUHDVHRYHUWKHHDUOLHU\HDUVWKHYDOXHRIWKHOLDELOLWLHVLVH[SHFWHG to reduce. financials.indb 175 15/05/2015 01:52 176 BT Group plc Annual Report 2015 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG Forecast benefits payable by the BTPS at 31 March 2015 (unaudited) £bn £bn 3.0 60 a 2.5 50 2.0 40 a 1.5 30 Liabilities 1.0 20 0.5 10 Forecast benefits payable by the BTPS benefits payable Forecast 0 0 2015 2035 2055 2075 2095 Forecast benefit payments (Left axis) Liabilities (Right axis) a Based on accrued benefits to date. .H\DVVXPSWLRQVs,$6 7KHNH\ƬQDQFLDODVVXPSWLRQVXVHGWRPHDVXUHWKHOLDELOLWLHVRIWKH%736XQGHU,$6 DUHVKRZQEHORZ 1RPLQDOUDWHV SHU\HDU 5HDOUDWHV SHU\HDU a 2015 2014 2013 2015 2014 2013 At 31 March % % % % % % Rate used to discount liabilities 3.25 4.25 4.20 0.39 0.97 0.87 ,QƮDWLRQsLQFUHDVHLQ53, 2.85 3.25 3.30 – – – ,QƮDWLRQsLQFUHDVHLQ&3, 1.85b 2.50c 2.55c b c c a 7KHUHDOUDWHLVFDOFXODWHGUHODWLYHWR53,LQƮDWLRQDQGLVVKRZQDVDFRPSDUDWRU b$VVXPHGWREHORZHUDIWHU0DUFK c$VVXPHGWREHORZHUDIWHU0DUFK Rate used to discount liabilities IAS 19 requires that the discount rate is determined by reference to market yields at the reporting date on high quality corporate bonds. The currency DQGWHUPRIWKHVHVKRXOGEHFRQVLVWHQWZLWKWKHFXUUHQF\DQGHVWLPDWHGWHUPRIWKHSHQVLRQREOLJDWLRQV7KHGLVFRXQWUDWHDW{0DUFKLV EDVHGRQDPDUNHWEDVHG$$FRUSRUDWHERQG\LHOGFXUYHDOORZLQJIRUWKHIXWXUHH[SHFWHGEHQHƬWSD\PHQWVIURPWKH%736 ,QƮDWLRQsLQFUHDVHVLQ53,DQG&3, 6DODU\LQFUHDVHVDUHDVVXPHGWREHDOLJQHGZLWK&3,LQƮDWLRQZKLOVWEHQHƬWVDUHDVVXPHGWRLQFUHDVHE\HLWKHU53,RU&3,LQƮDWLRQDVSUHVFULEHGE\ WKHUXOHVRIWKH%736DQGVXPPDULVHGDERYH7KHDVVXPSWLRQIRU53,KDVEHHQDVVHVVHGE\UHIHUHQFHWR\LHOGVRQORQJWHUPƬ[HGDQGLQGH[OLQNHG *RYHUQPHQWERQGVDQG%DQNRI(QJODQGSXEOLVKHGLQƮDWLRQDU\H[SHFWDWLRQV&3,LVDVVHVVHGDWDPDUJLQEHORZ53,WDNLQJLQWRDFFRXQWPDUNHW IRUHFDVWVDQGLQGHSHQGHQWHVWLPDWHVRIWKHORQJWHUPGLƪHUHQFH Longevity The average life expectancy assumptions, after retirement at 60 years of age, are as follows. 2015 2014 Number of Number of At 31 March years years Male in lower pay bracket 26.0 26.0 Male in medium pay bracket 27.3 27.7 Male in higher pay bracket 28.7 Female in lower pay bracket 28.7 28.5 Female in higher pay bracket 29.0 Average improvement for a member retiring at age 60 in 10 years’ time 1.0 1.0 The assumptions about life expectancy have regard to information published by the UK actuarial profession’s Continuous Mortality Investigation. However, due to the size of the membership of the BTPS it is considered appropriate for the adopted life expectancy assumptions to take into account the actual membership experience of the scheme. Allowance is also made for future improvements in mortality. The BTPS actuary undertakes formal reviews of the membership experience at every triennial valuation. Sensitivity analysis of the principal assumptions used to measure BTPS liabilities 7KHDVVXPSWLRQVRQWKHGLVFRXQWUDWHLQƮDWLRQVDODU\LQFUHDVHVDQGOLIHH[SHFWDQF\DOOKDYHDVLJQLƬFDQWHƪHFWRQWKHPHDVXUHPHQWRIVFKHPH OLDELOLWLHV7KHWDEOHEHORZSURYLGHVDQLQGLFDWLRQRIWKHVHQVLWLYLW\RIWKH,$6{ SHQVLRQOLDELOLWLHVDW0DUFKDQGRIWKHLQFRPHVWDWHPHQW FKDUJHIRUWRFKDQJHVLQWKHVHDVVXPSWLRQV There may also be a move in the assets from changes in conditions. The total expected impact to liabilities and assets is illustrated as the sensitivity of WKHGHƬFLW)RUH[DPSOHWKHOLIHH[SHFWDQF\VFHQDULRLQFRUSRUDWHVWKHH[SHFWHGPRYHPHQWLQWKHYDOXHRIWKHORQJHYLW\KHGJH financials.indb 176 15/05/2015 01:52 The Strategic Report 177 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG Decrease Decrease Decrease LQFUHDVH LQ LQFUHDVH LQ LQFUHDVH LQ liability GHƬFLW service cost £bn £bn £m 0.25 percentage point increase to: – discount rate 1.9 1.2a 10 sLQƮDWLRQUDWH DVVXPLQJ53,&3,DQGVDODU\LQFUHDVHVDOOPRYHE\SHUFHQWDJHSRLQWV b s&3,LQƮDWLRQUDWH DVVXPLQJ53,DQGVDODU\LQFUHDVHVDUHXQFKDQJHG sVDODU\LQFUHDVHV DVVXPLQJ53,DQG&3,DUHXQFKDQJHG Additional one year increase to life expectancy a$OORZVIRUWKHHVWLPDWHGLPSDFWRQDVVHWVIURPDSHU\HDULQFUHDVHWRLQWHUHVWUDWHVDQGFRUSRUDWHERQG\LHOGVZLWKFUHGLWVSUHDGVXQFKDQJHG. b$OORZVIRUWKHHVWLPDWHGLPSDFWRQDVVHWVGLUHFWO\OLQNHGWRLQƮDWLRQIURPDSHU\HDULQFUHDVHWRLQƮDWLRQ. BTPS funding 7ULHQQLDOIXQGLQJYDOXDWLRQ 7KHWULHQQLDOYDOXDWLRQLVFDUULHGRXWIRUWKH7UXVWHHE\DSURIHVVLRQDOO\TXDOLƬHGLQGHSHQGHQWDFWXDU\7KH{SXUSRVHRIWKHYDOXDWLRQLVWRGHVLJQD IXQGLQJSODQWRHQVXUHWKDWWKH6FKHPHKDVVXƯFLHQWIXQGVDYDLODEOHWRPHHWIXWXUHEHQHƬWSD\PHQWV7KHODWHVWIXQGLQJYDOXDWLRQZDVSHUIRUPHG DVDW-XQH7KHQH[WIXQGLQJYDOXDWLRQZLOOKDYHDQHƪHFWLYHGDWHRIQRODWHUWKDQ-XQH The valuation methodology for funding purposes, which is based on prudent assumptions, is broadly as follows: – assets are valued at market value at the valuation date; and – liabilities are measured on an actuarial funding basis using the projected unit credit method and discounted to their present value. The results of the two most recent triennial valuations are shown below. June June 2014 2011 valuation valuation £bn £bn BTPS liabilities Market value of BTPS assets 40.2 36.9 )XQGLQJGHƬFLW 3HUFHQWDJHRIDFFUXHGEHQHƬWVFRYHUHGE\%736DVVHWVDWYDOXDWLRQGDWH 85.2% 90.4% 3HUFHQWDJHRIDFFUXHGEHQHƬWVRQDVROYHQF\EDVLVFRYHUHGE\WKH%736DVVHWVDWWKHYDOXDWLRQGDWH 63.0% 66.0% 7KHIXQGLQJGHƬFLWLQFUHDVHGWR~EQDW-XQH:KLOHGHƬFLWFRQWULEXWLRQSD\PHQWVWRWDOOLQJ~EQDQGLQYHVWPHQWUHWXUQVRI per year since the 2011 valuation contributed to higher assets at the 2014 valuation date, the low interest rate environment resulted in a higher YDOXHEHLQJSODFHGRQWKH6FKHPHoVOLDELOLWLHVZKLFKPRUHWKDQRƪVHWWKHLPSURYHPHQWVLQWKH6FKHPHoVDVVHWV .H\DVVXPSWLRQVsIXQGLQJYDOXDWLRQ These valuations were determined using the following prudent long-term assumptions. 1RPLQDOUDWHV SHU\HDU 5HDOUDWHV SHU\HDU a June June June June 2014 2011 2014 2011 valuation valuation valuation valuation % % % % Average single equivalent discount rate 4.5 5.2 1.0 2.0 Average long-term increase in RPI 3.5 3.2 – – Average long-term increase in CPI 2.5 2.2 a7KHUHDOUDWHLVFDOFXODWHGUHODWLYHWR53,LQƮDWLRQDQGLVVKRZQDVDFRPSDUDWRU ,QOLQHZLWKGHYHORSLQJPDUNHWSUDFWLFHDQGUHƮHFWLQJDPRUHVRSKLVWLFDWHGPHWKRGRORJ\WKHGLVFRXQWUDWHDW-XQHKDVEHHQGHULYHGIURP SUXGHQWUHWXUQH[SHFWDWLRQVDERYHD\LHOGFXUYHEDVHGRQJLOWDQGVZDSUDWHV7KHGLVFRXQWUDWHUHƮHFWVYLHZVRIIXWXUHUHWXUQVDWWKHYDOXDWLRQGDWH This gives a prudent discount rate of 2.1% per year above the yield curve initially, trending down to 0.6% per year above the curve in the long-term. 7KHDVVXPSWLRQLVHTXLYDOHQWWRXVLQJDƮDWGLVFRXQWUDWHRISHU\HDU financials.indb 177 15/05/2015 01:52 178 BT Group plc Annual Report 2015 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG The average life expectancy assumptions at the 2014 valuation date, for members 60 years of age, are as follows. June June 2014 2011 Number of years from 30 June 2014 assumptions assumptions Male in lower pay bracket 26.1 26.3 Male in medium pay bracket 27.5 28.1 Male in high pay bracket 29.0 Female in lower pay bracket 28.9 28.7 Female in high pay bracket 29.2 Average improvement for a member retiring at age 60 in 10 years’ time 1.3 1.2 3D\PHQWVPDGHWRWKH%736 2015 2014 Year ended 31 March £m £m Ordinary contributions 168 205 'HƬFLWFRQWULEXWLRQV 875 325 7RWDOFRQWULEXWLRQVLQWKH\HDU 530 7KHJURXSPDGHDGHƬFLWFRQWULEXWLRQSD\PHQWRI~PLQ$SULODQGH[SHFWVWRPDNHIXUWKHUFRQWULEXWLRQVRIDSSUR[LPDWHO\~PWRWKH %736LQFRPSULVLQJRUGLQDU\FRQWULEXWLRQVRIDSSUR[LPDWHO\~PDQGGHƬFLW{FRQWULEXWLRQVRI~P )XWXUHIXQGLQJREOLJDWLRQVDQGUHFRYHU\SODQ Under the terms of the Trust Deed, the group is required to have a funding plan, determined at the conclusion of the triennial funding valuation, ZKLFKLVDOHJDODJUHHPHQWEHWZHHQ%7DQGWKH7UXVWHHDQGVKRXOGDGGUHVVWKHGHƬFLWRYHUDPD[LPXPSHULRGRI\HDUV ,Q-DQXDU\WKHWULHQQLDOIXQGLQJYDOXDWLRQZDVƬQDOLVHGDJUHHGZLWKWKH7UXVWHHDQGFHUWLƬHGE\WKH6FKHPH$FWXDU\7KHIXQGLQJ GHƬFLWDW-XQHZDV~EQ8QGHUWKHDVVRFLDWHGUHFRYHU\SODQ%7PDGHSD\PHQWVRI~PLQ0DUFKDQG~PLQ$SULO %7ZLOOPDNHIXWXUHGHƬFLWSD\PHQWVLQOLQHZLWKWKHWDEOHEHORZ Year to 31 March 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 'HƬFLWFRQWULEXWLRQ ~P 250 250 688 699 711 724 670 670 670 495 495 495 495 495 289 7KHRUGLQDU\FRQWULEXWLRQUDWHWRPHHWWKHEHQHƬWVRIFXUUHQWHPSOR\HGPHPEHUVLQFUHDVHGIURPWRRISHQVLRQDEOHVDODULHV LQFOXGLQJ employee contributions) from 1 April 2015 through to the next valuation date. 2WKHUSURWHFWLRQV The 2014 funding agreement with the Trustee included additional features for BT to provide support to the Scheme. These include: Feature Detail 6KDUHKROGHU In the event that shareholder distributions exceed an agreed threshold, BT will provide matching payments to the Scheme. distributions The threshold allows for 15% per year dividend per share growth plus £300m per year of share buybacks on a cumulative basis. BT will consult with the Trustee if it considers share buybacks in excess of £300m per year or making a special dividend. 7KHVHSURYLVLRQVDSSO\IURP -DQXDU\XQWLO0DUFK RUXQWLOWKHƬQDOLVDWLRQRIWKHQH[WYDOXDWLRQLIHDUOLHU Material corporate ,QWKHHYHQWWKDW%7JHQHUDWHVQHWFDVKSURFHHGVJUHDWHUWKDQ~EQIURPGLVSRVDOV QHWRIDFTXLVLWLRQV LQDQ\PRQWK HYHQWV period, BT will make additional contributions to the Scheme equal to one third of those net cash proceeds. BT will consult with the Trustee if: – it considers making acquisitions with a total cost of more than £1bn in any 12-month period; or – it considers making disposals of more than £1bn; or – LWFRQVLGHUVPDNLQJD&ODVVWUDQVDFWLRQ DFTXLVLWLRQRUGLVSRVDO RU – LWLVVXEMHFWWRDWDNHRYHURƪHU BT will advise the Trustee should there be other material corporate events which may impact BT’s covenant to the Scheme. 7KHVHSURYLVLRQVDSSO\IURP -DQXDU\XQWLO0DUFK RUXQWLOWKHƬQDOLVDWLRQRIWKHQH[WYDOXDWLRQLIHDUOLHU 1HJDWLYHSOHGJH A negative pledge that future creditors will not be granted superior security to the Scheme in excess of a £1.5bn threshold, to cover both British Telecommunications plc and BT Group plc. 7KLVSURYLVLRQDSSOLHVXQWLOWKHGHƬFLWUHGXFHVWREHORZ~EQDWDQ\VXEVHTXHQWIXQGLQJYDOXDWLRQ financials.indb 178 15/05/2015 01:52 The Strategic Report 179 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 5HWLUHPHQWEHQHƬWSODQVFRQWLQXHG ,QWKHXQOLNHO\HYHQWWKDWWKHJURXSZHUHWREHFRPHLQVROYHQWWKHUHDUHDGGLWLRQDOSURWHFWLRQVRI%736PHPEHUVoEHQHƬWV Feature Detail &URZQ*XDUDQWHH The Crown Guarantee was granted by the Government when the group was privatised in 1984 and would only come into HƪHFWXSRQWKHinsolvency of BT. The Trustee brought court proceedings to clarify the scope and extent of the Crown Guarantee. The Court of Appeal judgment on 16 July 2014 established that: – the Crown Guarantee covers BT’s funding obligation in relation to members of the Scheme who joined post-privatisation as well as thoseZKRMRLQHGSUHSULYDWLVDWLRQ VXEMHFWWRFHUWDLQH[FHSWLRQV ; – WKHIXQGLQJREOLJDWLRQWRZKLFKWKH&URZQ*XDUDQWHHUHODWHVLVPHDVXUHGZLWKUHIHUHQFHWR%7oVREOLJDWLRQWRSD\GHƬFLW contributions under the rules of the Scheme. The Crown Guarantee is not taken into account for the purposes of the actuarial valuation of the Scheme and is an entirely separate matter, only being relevant in the highly unlikely event that BT became insolvent. Pension Protection 7KH3HQVLRQ3URWHFWLRQ)XQG 33) PD\WDNHRYHUWKH6FKHPHDQGSD\EHQHƬWVWRPHPEHUVQRWFRYHUHGE\WKH )XQG 33) Crown Guarantee. 7KHUHDUHOLPLWVRQWKHDPRXQWVSDLGE\WKH33)DQGWKLVZRXOGQRWJLYHH[DFWO\WKHVDPHEHQHƬWVDVWKRVHSURYLGHG by the Scheme. 2WKHUEHQHƬWSODQV ,QDGGLWLRQWRWKH%736WKHJURXSPDLQWDLQVEHQHƬWSODQVLQPRVWRWKHUFRXQWULHVZLWKDIRFXVRQWKHVHEHLQJDSSURSULDWHIRUWKHORFDOPDUNHW and culture. $IWHUWKH%736WKHODUJHVWGHƬQHGEHQHƬWSODQVSRQVRUHGE\WKHJURXSLVDSODQLQWKH1HWKHUODQGVZLWKOLDELOLWLHVRIDURXQG~P 7KH%75HWLUHPHQW6DYLQJ6FKHPH %7566 LVWKHODUJHVWGHƬQHGFRQWULEXWLRQVFKHPHPDLQWDLQHGE\WKHJURXSZLWKDURXQG DFWLYHPHPEHUV In the year to 31 March 2015, the group contributed £105m to the BTRSS. 2ZQVKDUHV Employee share Treasury sharesa ownership trusta Total millions £m millions £m millions £m At 1 April 2013 271 52 323 Own shares purchasedb 27 59 86 Share options exercisedb,c 172–– 172 Executive share awards vested – – 133 133 At 31 March 2014 232 62 294 Own shares purchasedb 25 55 80 Share options exercisedb,c 6) 724 173 7) 897 Executive share awards vested – – 87 87 $W0DUFK 1 41 42 a$W0DUFK VKDUHV ZLWKDQDJJUHJDWHQRPLQDOYDOXHRI~QLO ~P ZHUHKHOGDWFRVWDVWUHDVXU\VKDUHVDQGVKDUHV ZLWKDQDJJUHJDWHQRPLQDOYDOXHRI~P ~P ZHUHKHOGLQWKH7UXVW b6HHJURXSFDVKƮRZVWDWHPHQWRQSDJH,QWKHFDVKSDLGIRUWKHUHSXUFKDVHRIRUGLQDU\VKDUHFDSLWDOZDV~P ~P 7KHFDVKUHFHLYHGIRUSURFHHGVRQWKHLVVXHRI WUHDVXU\VKDUHVZDV~P ~P c,QFOXGHVVKDUHRSWLRQH[HUFLVHVLQUHODWLRQWR(PSOR\HH6DYHVKDUH3ODQVDQG*623DQG*/23/HJDF\3ODQV VHHQRWHIRUGHWDLOV DVZHOODV2P QLO UHODWLQJWRRWKHUSODQV The treasury shares reserve represents BT Group plc shares purchased directly by the group. The BT Group Employee Share Ownership Trust nWKH7UXVWo DOVRSXUFKDVHV%7*URXSSOFVKDUHV The treasury shares and the shares in the Trust are being utilised to satisfy the group’s obligations under its employee share plans. Further details on Employee Saveshare Plans and Executive share plans are provided in note 21. financials.indb 179 15/05/2015 01:52 180 BT Group plc Annual Report 2015 6KDUHEDVHGSD\PHQWV Overview The company has savings-related share option plans for its employees and those of participating subsidiaries, further share option plans for selected employees and a stock purchase plan for employees in the US. It also has several share plans for executives. All share-based payment plans are equity settled and details of these plans and an analysis of the total charge by type of award is set out below. 2015 2014 2013 Year ended 31 March £m £m £m Employee Saveshare Plans 25 25 25 Executive Share Plans: ,QFHQWLYH6KDUH3ODQ ,63 32 21 27 'HIHUUHG%RQXV3ODQ '%3 91110 Other plans 4 3 2 70 60 64 (PSOR\HH6DYHVKDUH3ODQV 8QGHUDQ+05&DSSURYHGVDYLQJVUHODWHGVKDUHRSWLRQSODQHPSOR\HHVVDYHRQDPRQWKO\EDVLVRYHUDWKUHHRUƬYH\HDUSHULRGWRZDUGVWKH SXUFKDVHRIVKDUHVDWDƬ[HGSULFHGHWHUPLQHGZKHQWKHRSWLRQLVJUDQWHG7KLVSULFHLVXVXDOO\VHWDWDGLVFRXQWWRWKHPDUNHWSULFHIRUƬYH year plans and 10% for three-year plans. The options must be exercised within six months of maturity of the savings contract, otherwise they lapse. Similar plans operate for BT’s overseas employees. ,QFHQWLYH6KDUH3ODQ ,63 Under the ISP, participants are only entitled to these shares in full at the end of a three-year period if the company has met the relevant pre- GHWHUPLQHGFRUSRUDWHSHUIRUPDQFHPHDVXUHVDQGLIWKHSDUWLFLSDQWVDUHVWLOOHPSOR\HGE\WKHJURXS)RU,63DZDUGVJUDQWHGLQ DQG RIHDFKDZDUGLVOLQNHGWRDWRWDOVKDUHKROGHUUHWXUQ 765 WDUJHWIRUDFRPSDUDWRUJURXSRIFRPSDQLHVIURPWKHEHJLQQLQJRIWKH UHOHYDQWSHUIRUPDQFHSHULRG LVOLQNHGWRDWKUHH\HDUFXPXODWLYHIUHHFDVKƮRZPHDVXUHDQGWRJURZWKLQXQGHUO\LQJUHYHQXHH[FOXGLQJ transit. 'HIHUUHG%RQXV3ODQ '%3 Under the DBP, awards are granted annually to selected employees of the group. Shares in the company are transferred to participants at the end of three years if they continue to be employed by the group throughout that period. In accordance with the terms of the ISP and DBP, dividends or dividend equivalents earned on shares during the conditional periods are reinvested LQ{FRPSDQ\VKDUHVIRUWKHSRWHQWLDOEHQHƬWRIWKHSDUWLFLSDQWV Employee Saveshare Plans Movements in Employee Saveshare options are shown below. Movement in the number of share options Weighted average exercise price 2015 2014 2013 2015 2014 2013 Year ended 31 March millions millions millions pence pence pence Outstanding at 1 April 459 490 561 102 91 79 Granted 81 40 66 326 257 176 Forfeited 239 158 120 Exercised 65 110 69 Expired 163 78 188 2XWVWDQGLQJDW0DUFK 226 459 490 226 102 91 Exercisable at 31 March – 2 – 74 111 – 7KHZHLJKWHGDYHUDJHVKDUHSULFHIRUDOORSWLRQVH[HUFLVHGGXULQJZDVS S S 7KHIROORZLQJWDEOHVXPPDULVHVLQIRUPDWLRQUHODWLQJWRRSWLRQVRXWVWDQGLQJDQGH[HUFLVDEOHXQGHU(PSOR\HH6DYHVKDUHSODQVDW{0DUFK Weighted Weighted Number of average average outstanding remaining Exercise price per exercise options contractual 1RUPDOGDWHVRIYHVWLQJDQGH[HUFLVH EDVHGRQFDOHQGDU\HDUV share price millions life 2015 104p – 189p 135p 61 10 months 2016 156p – 280p 205p 33 22 months 2017 168p – 359p 236p 54 34 months 2018 249p – 319p 251p 22 46 months 2019 319p 319p 56 58 months 7RWDO 226p 226 PRQWKV financials.indb 180 15/05/2015 01:52 The Strategic Report 181 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6KDUHEDVHGSD\PHQWVFRQWLQXHG *623DQG*/23 /HJDF\([HFXWLYH3ODQV 'XULQJP P P RSWLRQVZHUHH[HUFLVHGQLO QLO P RSWLRQVH[SLUHGDQGQLO QLO QLO RSWLRQVZHUHIRUIHLWHGXQGHUIRUPHUH[HFXWLYHVKDUHRSWLRQSODQV *623DQG*/23 There were no options outstanding at 31 March 2015. Executive share plans 0RYHPHQWVLQH[HFXWLYHVKDUHSODQDZDUGVGXULQJDUHVKRZQEHORZ 1XPEHURIVKDUHV PLOOLRQV ISP DBP Total At 1 April 2014 70 13 83 Awards granted 16 3 19 Awards vested Awards lapsed – Dividend shares reinvested 2 – 2 $W0DUFK 57 11 68 Fair values The following table summarises the fair values and key assumptions used for valuing grants made under the Employee Saveshare plans and ISP in DQG 2015 2014 2013 Employee Employee Employee Year ended 31 March Saveshare ISP Saveshare ISP Saveshare ISP Weighted average fair value 82p 309p 61p 269p 43p 170p Weighted average share price 387p 393p 310p 315p 209p 204p Weighted average exercise price 326p QD 257p QD 176p QD Expected dividend yield 3.5% – 3.8% QD 3.9% – 5.6% QD 3.6% – 5.2% QD Risk free rates 1.2% – 2.0% 1.2% 0.7% – 1.5% 0.7% 0.3% – 0.8% 0.4% Expected volatility 22.2% – 24.9% 24.3% 23.3% – 31.9% 32.0% 28.1% – 36.5% 33.6% Employee Saveshare grants are valued using a Binomial options pricing model. Awards under the ISP are valued using Monte Carlo simulations. TSRs are generated for BT and the comparator group at the end of the three-year performance period, using each company’s volatility and dividend yield, as well as the cross correlation between pairs of stocks. 9RODWLOLW\KDVEHHQGHWHUPLQHGE\UHIHUHQFHWR%7oVKLVWRULFDOYRODWLOLW\ZKLFKLVH[SHFWHGWRUHƮHFWWKH%7VKDUHSULFHLQWKHIXWXUH$QH[SHFWHGOLIHRI three months after vesting date is assumed for Employee Saveshare options and for all other awards the expected life is equal to the vesting period. 7KHULVNIUHHLQWHUHVWUDWHLVEDVHGRQWKH8.JLOWFXUYHLQHƪHFWDWWKHWLPHRIWKHJUDQWIRUWKHH[SHFWHGOLIHRIWKHRSWLRQRUDZDUG The fair values for the DBP were determined using the market price of the shares at the date of grant. The weighted average share price for DBP DZDUGVJUDQWHGLQZDV S S S financials.indb 181 15/05/2015 01:52 182 BT Group plc Annual Report 2015 ,QYHVWPHQWV 2015 2014 At 31 March £m £m Non-current assets Available-for-sale 36 25 )DLUYDOXHWKURXJKSURƬWRUORVV 8 9 44 34 Current assets Available-for-sale 3,133 1,774 Loans and receivables 390 – Loans and receivables are held on balance sheet at amortised cost and this approximates fair value. Loans and receivables consist of investments in WHUPGHSRVLWVGHQRPLQDWHGLQ6WHUOLQJRI~P ~QLO DQGLQ86 DollarsRI~P ~QLO Total held at )DLUYDOXHKLHUDUFK\ Level 1 Level 2 Level 3 fair value At 31 March 2015 £m £m £m £m 1RQFXUUHQWDQGFXUUHQWLQYHVWPHQWV Available-for-sale investments 26 3,133 10 3,169 )DLUYDOXHWKURXJKSURƬWRUORVV 8 – – 8 7RWDO 34 10 Total held at Level 1 Level 2 Level 3 fair value At 31 March 2014 £m £m £m £m 1RQFXUUHQWDQGFXUUHQWLQYHVWPHQWV Available-for-sale investments 18 1,774 7 1,799 )DLUYDOXHWKURXJKSURƬWRUORVV 9 – – 9 7RWDO 27 7 The three levels of valuation methodology used are: Level 1 – uses quoted prices in active markets for identical assets or liabilities Level 2 – uses inputs for the asset or liability other than quoted prices, that are observable either directly or indirectly Level 3 – uses inputs for the asset or liability that are not based on observable market data, such as internal models or other valuation method. /HYHOEDODQFHVFODVVLƬHGDVDYDLODEOHIRUVDOHFRQVLVWRILQYHVWPHQWVLQ OLTXLGLW\IXQGVGHQRPLQDWHGLQ6WHUOLQJRI~P ~P DQGLQ(XURVRI~ P ~QLO /HYHOEDODQFHVFRQVLVWRIDYDLODEOHIRUVDOHLQYHVWPHQWVRI~P ~P ZKLFKUHSUHVHQWLQYHVWPHQWVLQDQXPEHURISULYDWHFRPSDQLHV ,QWKHDEVHQFHRIVSHFLƬFPDUNHWGDWDWKHVHLQYHVWPHQWVDUHKHOGDWFRVWDGMXVWHGDVQHFHVVDU\IRULPSDLUPHQWVZKLFKDSSUR[LPDWHVWRIDLUYDOXH $JDLQRI~PZDVUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWLQUHVSHFWRI/HYHODVVHWVGLVSRVHGRIGXULQJ ~QLO financials.indb 182 15/05/2015 01:52 The Strategic Report 183 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information &DVKDQGFDVKHTXLYDOHQWV 2015 2014 At 31 March £m £m &DVKDWEDQNDQGLQKDQG 335 380 &DVKHTXLYDOHQWV Loans and receivables US deposits 28 55 UK deposits 28 257 Other deposits 43 3 7RWDOFDVKHTXLYDOHQWV 99 315 7RWDOFDVKDQGFDVKHTXLYDOHQWV 434 695 %DQNRYHUGUDIWV QRWH &DVKDQGFDVKHTXLYDOHQWVSHUWKHFDVKƮRZVWDWHPHQW 407 684 7KHJURXSKDVFURVVXQGHUWDNLQJJXDUDQWHHIDFLOLWLHVDFURVVFHUWDLQEDQNDFFRXQWVZKLFKDOORZDOHJDOO\HQIRUFHDEOHULJKWRIVHWRƪRIWKHUHOHYDQW cash and overdraft balances on bank accounts included within each scheme. 7KHJURXSoVFDVKDQGFDVKHTXLYDOHQWVLQFOXGHGUHVWULFWHGFDVKRI~P ~ P RIZKLFK~P ~P ZDVKHOGLQ countries in which prior approval is required to transfer funds abroad. Such funds can be used by the group within a reasonable period of time if it FRPSOLHVZLWKWKHVHUHTXLUHPHQWV7KHUHPDLQLQJEDODQFHRI~P ~P ZDVKHOGLQHVFURZDFFRXQWV &DVKDQGFDVKHTXLYDOHQWVDUHFODVVLƬHGDVORDQVDQGUHFHLYDEOHVDQGDUHKHOGRQWKHJURXSEDODQFHVKHHWDWDPRUWLVHGFRVWZKLFKHTXDWHVWRIDLUYDOXH /RDQVDQGRWKHUERUURZLQJV Capital management policy The objective of the group’s capital management policy is to reduce net debt over time whilst investing in the business, supporting the pension scheme and paying progressive dividends. In order to meet this objective, the group may issue or repay debt, issue new shares, repurchase shares, or adjust the amount of dividends paid to shareholders. The group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the group. The Board regularly reviews the capital structure. No changes were made to these REMHFWLYHVDQGSURFHVVHVGXULQJDQG)RUGHWDLOVRIVKDUHLVVXHVDQGUHSXUFKDVHVLQWKH\HDUVHHQRWH The group’s capital structure consists of net debt and shareholders’ equity. The analysis below summarises the components which the group manages as capital. 2015 2014 At 31 March £m £m Net debt 5,119 7,028 7RWDOSDUHQWVKDUHKROGHUVoHTXLW\ GHƬFLW a 796 a([FOXGHVQRQFRQWUROOLQJLQWHUHVWVRI~P ~P financials.indb 183 15/05/2015 01:52 184 BT Group plc Annual Report 2015 /RDQVDQGRWKHUERUURZLQJVFRQWLQXHG Net debt 1HWGHEWFRQVLVWVRIORDQVDQGRWKHUERUURZLQJV ERWKFXUUHQWDQGQRQFXUUHQW OHVVFXUUHQWDVVHWLQYHVWPHQWVDQGFDVKDQGFDVKHTXLYDOHQWV Loans{and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Currency denominated balances within net debt are translated to Sterling at swapped rates where hedged. Net debt is considered to be an DOWHUQDWLYHSHUIRUPDQFHPHDVXUHDVLWLVQRWGHƬQHGLQ,)567KHPRVWGLUHFWO\FRPSDUDEOH,)56PHDVXUHLVWKHDJJUHJDWHRIORDQVDQGRWKHU ERUURZLQJV FXUUHQW{and non-current), current asset investments and cash and cash equivalents. A reconciliation from this measure, the most directly comparable IFRS measure, to net debt is given below. 2015 2014 At 31 March £m £m Loans and other borrowings 9,768 9,814 Less: Cash and cash equivalents Current asset investments 5,811 7,345 Adjustments: To retranslate debt balances at swap rates where hedged by currency swaps 7RUHPRYHDFFUXHGLQWHUHVWDSSOLHGWRUHƮHFWWKHHƪHFWLYHLQWHUHVWPHWKRGDQGIDLUYDOXHDGMXVWPHQWV Net debt 2015 2014 At 31 March £m £m 5.25% €750m bond due June 2014a – 645 6.125% €600m bond due July 2014DE – 518 2.00% US$750m bond due June 2015a 508 452 6.50% €1,000m bond due July 2015a 758 867 1.625% US$600m bond due June 2016a 406 361 ~PERQGGXH'HFHPEHU PLQLPXPd) 695 699 1.25% US$500m bond due February 2017a 337 300 6.625% £500m bond due June 2017a 525 526 5.95% US$1,100m bond due January 2018a 750 668 2.35% US$800m bond due February 2019a 541 481 1.125% €1,000m bond due June 2019a 730 – 8.625% £300m bond due March 2020 299 299 3.50% £250m index linked bond due April 2025 392 382 5.75% £600m bond due December 2028c 751 670 9.625% US$2,670m bond due December 2030a PLQLPXPd) 1,850 1,648 6.375% £500m bond due June 2037a 522 522 7RWDOOLVWHGERQGV Finance leases 238 264 Commercial papere – 324 Other loans 439 177 %DQNRYHUGUDIWV QRWH 27 11 7RWDORWKHUORDQVDQGERUURZLQJV 466 512 7RWDOORDQVDQGERUURZLQJV a 'HVLJQDWHGLQDFDVKƮRZKHGJHUHODWLRQVKLS b7KHLQWHUHVWUDWHSD\DEOHRQWKLVERQGDWWUDFWVDQDGGLWLRQDOIRUDGRZQJUDGHE\RQHFUHGLWUDWLQJFDWHJRU\E\HLWKHURUERWKRI0RRG\oVDQG6 3EHORZ%DD%%%sUHVSHFWLYHO\ c'HVLJQDWHGLQDIDLUYDOXHKHGJHUHODWLRQVKLS d7KHLQWHUHVWUDWHSD\DEOHRQWKLVERQGDWWUDFWVDQDGGLWLRQDOIRUDGRZQJUDGHE\RQHFUHGLWUDWLQJE\HLWKHU0RRG\oVRU6 3WRWKHJURXSoVVHQLRUXQVHFXUHGGHEWEHORZ$$sUHVSHFWLYHO\ ,QDGGLWLRQLI0RRG\oVRU6 3VXEVHTXHQWO\LQFUHDVHWKHUDWLQJVWKHQWKHLQWHUHVWUDWHZLOOEHGHFUHDVHGE\IRUHDFKUDWLQJFDWHJRU\XSJUDGHE\HDFKUDWLQJDJHQF\,QQRHYHQWZLOOWKH LQWHUHVWUDWHEHUHGXFHGEHORZWKHPLQLPXPUDWHUHƮHFWHGLQWKHDERYHWDEOH e&RPPHUFLDOSDSHURI~QLO ~P LVGHQRPLQDWHGLQ(XURVDQGRI~QLO ~P LQ86'ROODUV Unless designated in a fair value hedge relationship, all loans and other borrowings are carried in the group balance sheet and the table above at DPRUWLVHGFRVW7KHIDLUYDOXHRIOLVWHGERQGVLV~ P ~ P DQGWKHIDLUYDOXHRIƬQDQFHOHDVHVLV~P ~P The fair value of the group’s bonds and other long-term borrowings is estimated on the basis of quoted market prices, based on the same or similar LVVXHVZKHUHWKH\H[LVW:KHUHWKHVDPHRUVLPLODULVVXHVGRQRWH[LVWWKHIDLUYDOXHLVHVWLPDWHGEDVHGRQWKHFDOFXODWLRQRIIXWXUHFDVKƮRZVXVLQJ EOHQGHGGLVFRXQWUDWHVLQHƪHFWDWWKHEDODQFHVKHHWGDWH financials.indb 184 15/05/2015 01:52 The Strategic Report 185 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information /RDQVDQGRWKHUERUURZLQJVFRQWLQXHG The carrying amount of commercial paper, other loans and bank overdrafts equates to fair value due to the short maturity of these items. 7KHLQWHUHVWUDWHVSD\DEOHRQORDQVDQGERUURZLQJVGLVFORVHGDERYHUHƮHFWWKHFRXSRQVRQWKHXQGHUO\LQJLVVXHGORDQVDQGERUURZLQJVDQG not the interest rates achieved through applying associated cross-currency and interest rate swaps in hedge arrangements. Loans and other borrowings are analysed as follows: 2015 2014 At 31 March £m £m Current liabilities Listed bonds 1,422 1,349 Finance leases 13 14 Commercial paper – 324 Other loans and bank overdrafts 465 186 7RWDOFXUUHQWOLDELOLWLHV Non-current liabilities Listed bonds 7,642 7,689 Finance leases 225 250 Other loans and borrowings 1 2 7RWDOQRQFXUUHQWOLDELOLWLHV 7RWDO 7KHFDUU\LQJYDOXHVGLVFORVHGLQWKHDERYHWDEOHUHƮHFWEDODQFHVDWDPRUWLVHGFRVWDGMXVWHGIRUDFFUXHGLQWHUHVWDQGFXUUHQWIDLUYDOXHDGMXVWPHQWV WRWKHUHOHYDQWORDQVRUERUURZLQJV7KHVHGRQRWUHƮHFWWKHƬQDOSULQFLSDOUHSD\PHQWVWKDWZLOODULVHDIWHUWDNLQJDFFRXQWRIWKHUHOHYDQWGHULYDWLYHV LQKHGJLQJUHODWLRQVKLSVZKLFKDUHUHƮHFWHGLQWKHWDEOHEHORZ$SDUWIURPƬQDQFHOHDVHVDOOERUURZLQJVDVDW0DUFKDQGZHUH unsecured. 7KHSULQFLSDOUHSD\PHQWVRIORDQVDQGERUURZLQJVDWKHGJHGUDWHVDPRXQWHGWR~ P ~ P DQGUHSD\PHQWVIDOOGXHDVIROORZV 2015 2014 (ƪHFWRI Principal (ƪHFWRI Principal hedging repayments hedging repayments Carrying and at hedged Carrying and at hedged amount interest a rates amount interest a rates At 31 March £m £m £m £m £m £m :LWKLQRQH\HDURURQGHPDQG Between one and two years 1,431 1,383 1,291 1,284 Between two and three years 1,251 1,060 1,353 36 1,389 Between three and four years 549 498 1,172 1,061 %HWZHHQIRXUDQGƬYH\HDUV 1,033 89 1,122 492 7 499 $IWHUƬYH\HDUV 3,461 3,263 3,572 1 3,573 7RWDOGXHIRUUHSD\PHQWDIWHUPRUHWKDQRQH\HDU 7RWDOUHSD\PHQWV Fair value adjustments for hedged risk 143 61 7RWDOORDQVDQGRWKHUERUURZLQJV a$GMXVWPHQWVIRUKHGJLQJDQGLQWHUHVWUHƮHFWWKHLPSDFWRIWKHFXUUHQF\HOHPHQWRIGHULYDWLYHVDQGDGMXVWWKHUHSD\PHQWVWRH[FOXGHLQWHUHVWUHFRJQLVHGLQWKHFDUU\LQJDPRXQW financials.indb 185 15/05/2015 01:52 186 BT Group plc Annual Report 2015 /RDQVDQGRWKHUERUURZLQJVFRQWLQXHG 2EOLJDWLRQVXQGHUƬQDQFHOHDVHVDUHDQDO\VHGDVIROORZV 2015 2014 2015 2014 Repayment of outstanding Minimum lease payments lease obligations At 31 March £m £m £m £m $PRXQWVSD\DEOHXQGHUƬQDQFHOHDVHV Due within one year 29 31 13 14 %HWZHHQWZRWRƬYH\HDUV 101 111 46 51 $IWHUƬYH\HDUV 269 307 179 199 399 449 238 264 /HVV IXWXUHƬQDQFHFKDUJHV – – 7RWDOƬQDQFHOHDVHREOLJDWLRQV 238 264 238 264 $VVHWVKHOGXQGHUƬQDQFHOHDVHVPDLQO\FRQVLVWRIEXLOGLQJVDQGQHWZRUNDVVHWV7KHJURXSoVREOLJDWLRQVXQGHUƬQDQFHOHDVHVDUHVHFXUHGE\WKH lessors’ title to the leased assets. )LQDQFHH[SHQVH 2015 2014 2013 Year ended 31 March £m £m £m )LQDQFHH[SHQVH Interest on: Financial liabilities at amortised cost 516 560 623 Finance leases 15 16 19 Derivatives 7135 Fair value movements: Bonds designated as hedged items in fair value hedges 82 31 Derivatives designated as hedging instruments in fair value hedges 47 Derivatives not in a designated hedge relationship 7 6 5HFODVVLƬFDWLRQRIFDVKƮRZKHGJHIURPRWKHUFRPSUHKHQVLYHLQFRPH 26 9 12 Unwinding of discount on provisions 8 8 6 Finance expense 579 604 671 /HVV LQWHUHVWFDSLWDOLVHGDWZHLJKWHGDYHUDJHUDWHRI 7RWDOƬQDQFHH[SHQVHEHIRUHVSHFLƬFLWHPV 577 603 666 6SHFLƬFLWHPV QRWH 299 235 119 7RWDOƬQDQFHH[SHQVH 876 838 785 5HFRQFLOLDWLRQRIQHWƬQDQFHH[SHQVHWRQHWLQWHUHVWFDVKRXWƮRZ 1HWLQWHUHVWFDVKRXWƮRZRI~P ~P ~ P LV~PKLJKHU ~P ~ P WKDQWKHQHW ƬQDQFHH[SHQVHLQWKHLQFRPHVWDWHPHQW7KLVLVPRVWO\GXHWRFHUWDLQLQWHUHVWFDVKRXWƮRZVDQGLQƮRZVEHLQJVSUHDGRYHUDQXPEHURI\HDUVLQ the income statement. 2015 2014 2013 Year ended 31 March £m £m £m 1HWƬQDQFHH[SHQVH 560 591 653 7LPLQJGLƪHUHQFHV – Derivative restructuring costs –1416 – Timing of coupon payments on bonds 4 15 – Deferred income 988 6SHFLƬFLWHP QRWH 7 – – 1HWLQWHUHVWFDVKRXWƮRZ 580 608 692 financials.indb 186 15/05/2015 01:52 The Strategic Report 187 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information )LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQW 7KHJURXSLVVXHVRUKROGVƬQDQFLDOLQVWUXPHQWVPDLQO\WRƬQDQFHLWVRSHUDWLRQV WRƬQDQFHFRUSRUDWHWUDQVDFWLRQVVXFKDVGLYLGHQGVVKDUHEX\EDFNV and acquisitions; for the temporary investment of short-term funds; and to manage the currency and interest rate risks arising from its operations DQGIURPLWVVRXUFHVRIƬQDQFH,QDGGLWLRQYDULRXVƬQDQFLDOLQVWUXPHQWVIRUH[DPSOHWUDGHUHFHLYDEOHVDQGWUDGHSD\DEOHVDULVHGLUHFWO\IURP the group’s operations. Financial risk management 7KHJURXSoVDFWLYLWLHVH[SRVHLWWRDYDULHW\RIƬQDQFLDOULVNV PDUNHWULVN LQFOXGLQJLQWHUHVWUDWHULVNDQGIRUHLJQH[FKDQJHULVN FUHGLWULVNDQG OLTXLGLW\{ULVN 7UHDVXU\RSHUDWLRQV The group has a centralised treasury operation whose primary role is to manage liquidity and funding requirements as well as the group’s exposure WRDVVRFLDWHGƬQDQFLDODQGPDUNHWULVNVLQFOXGLQJFUHGLWULVNLQWHUHVWUDWHULVNDQGIRUHLJQH[FKDQJHULVN 7UHDVXU\SROLF\ Treasury policy is set by the Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of borrowing, investments and group-wide exposures. The Board has delegated authority to operate these policies to a series of panels responsible for the management of key treasury risks and operations. Appointment to and removal from the key panels requires approval from two of the following: the Chairman, the Chief Executive or the Group Finance Director. 7KHUHKDVEHHQQRFKDQJHLQWKHQDWXUHRIWKHJURXSoVULVNSURƬOHEHWZHHQ0DUFKDQGWKHGDWHRIDSSURYDORIWKHVHƬQDQFLDOVWDWHPHQWV Interest rate risk management 0DQDJHPHQWSROLF\ ,QWHUHVWUDWHULVNDULVHVSULPDULO\IURPWKHJURXSoVORQJWHUPERUURZLQJV,QWHUHVWFDVKƮRZULVNDULVHVIURPERUURZLQJVLVVXHGDWYDULDEOHUDWHSDUWLDOO\ RƪVHWE\FDVKKHOGDWYDULDEOHUDWHV)DLUYDOXHLQWHUHVWUDWHULVNDULVHVIURPERUURZLQJVLVVXHGDWƬ[HGUDWHV 7KHJURXSoVSROLF\DVVHWE\WKH%RDUGLVWRHQVXUHWKDWDWOHDVWRIQHWGHEWLVDWƬ[HGUDWHV6KRUWWHUPLQWHUHVWUDWHPDQDJHPHQWLVGHOHJDWHG to the treasury operation while long-term interest rate management decisions require further approval by the Group Finance Director, Director of Treasury, Tax and Risk Management or the BT Group Treasurer who each have been delegated such authority from the Board. +HGJLQJVWUDWHJ\ ,QRUGHUWRPDQDJHWKHJURXSoVLQWHUHVWUDWHSURƬOHWKHJURXSKDVHQWHUHGLQWRFURVVFXUUHQF\DQGLQWHUHVWUDWHVZDSDJUHHPHQWVZLWKFRPPHUFLDO EDQNVDQGRWKHULQVWLWXWLRQVWRYDU\WKHDPRXQWVDQGSHULRGVIRUZKLFKLQWHUHVWUDWHVRQERUURZLQJVDUHƬ[HG7KHGXUDWLRQRIWKHVZDSDJUHHPHQWV PDWFKHVWKHGXUDWLRQRIWKHGHEWLQVWUXPHQWV7KHPDMRULW\RIWKHJURXSoVORQJWHUPERUURZLQJVKDYHEHHQDQGDUHVXEMHFWWRƬ[HG6WHUOLQJLQWHUHVW rates after applying the impact of these hedging instruments. Foreign exchange risk management 0DQDJHPHQWSROLF\ 7KHSXUSRVHRIWKHJURXSoVIRUHLJQFXUUHQF\KHGJLQJDFWLYLWLHVLVWRSURWHFWWKHJURXSIURPWKHULVNWKDWHYHQWXDOIXWXUHQHWLQƮRZVDQGQHWRXWƮRZV ZLOOEHDGYHUVHO\DƪHFWHGE\FKDQJHVLQH[FKDQJHUDWHV 7KH%RDUGoVSROLF\IRUIRUHLJQH[FKDQJHULVNPDQDJHPHQWGHƬQHVWKHW\SHRIWUDQVDFWLRQVZKLFKVKRXOGQRUPDOO\EHFRYHUHGLQFOXGLQJVLJQLƬFDQW RSHUDWLRQDOIXQGLQJDQGFXUUHQF\LQWHUHVWH[SRVXUHVDQGWKHSHULRGRYHUZKLFKFRYHUVKRXOGH[WHQGIRUWKHGLƪHUHQWW\SHVRIWUDQVDFWLRQV Short-term foreign exchange management is delegated to the treasury operation whilst long-term foreign exchange management decisions require further approval from the Group Finance Director, Director of Treasury, Tax and Risk Management or the BT Group Treasurer who have been delegated such authority by the Board. +HGJLQJVWUDWHJ\ $VLJQLƬFDQWSURSRUWLRQRIWKHJURXSoVH[WHUQDOUHYHQXHDQGFRVWVDULVHZLWKLQWKH8.DQGDUHGHQRPLQDWHGLQ6WHUOLQJ7KHJURXSoVQRQ8.RSHUDWLRQV generally trade and are funded in their functional currency which limits their exposure to foreign exchange volatility. Foreign currency borrowings XVHGWRƬQDQFHWKHJURXSoVRSHUDWLRQVKDYHEHHQSUHGRPLQDQWO\VZDSSHGLQWR6WHUOLQJXVLQJFURVVFXUUHQF\VZDSV The group also enters into forward currency contracts to hedge foreign currency, capital purchases, purchase and sale commitments, interest expense DQGIRUHLJQFXUUHQF\LQYHVWPHQWV7KHFRPPLWPHQWVKHGJHGDUHSULQFLSDOO\GHQRPLQDWHGLQ86'ROODU(XURDQG$VLD3DFLƬFUHJLRQFXUUHQFLHV$VD UHVXOWWKHJURXSoVH[SRVXUHWRIRUHLJQFXUUHQF\DULVHVPDLQO\RQLWVQRQ8.VXEVLGLDU\LQYHVWPHQWVDQGRQUHVLGXDOFXUUHQF\WUDGLQJƮRZV 7KHWDEOHEHORZUHƮHFWVWKHFXUUHQF\DQGLQWHUHVWUDWHSURƬOHRIRXUORDQVDQGERUURZLQJVDIWHUWKHLPSDFWRIKHGJLQJ 2015 2014 Floating Floating Fixed rate rate Fixed rate rate interest interest Total interest interest Total At 31 March £m £m £m £m £m £m Sterling 7,601 991 8,592 7,946 1,265 9,211 Euro – 482 482 – 285 285 7RWDO 5DWLRRIƬ[HGWRƮRDWLQJ 84% 16% 100% 84% 16% 100% :HLJKWHGDYHUDJHHƪHFWLYHƬ[HGLQWHUHVWUDWHs6WHUOLQJ 6.3% 6.6% financials.indb 187 15/05/2015 01:52 188 BT Group plc Annual Report 2015 )LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQWFRQWLQXHG 7KHƮRDWLQJUDWHORDQVDQGERUURZLQJVEHDULQWHUHVWUDWHVƬ[HGLQDGYDQFHIRUSHULRGVUDQJLQJIURPRQHGD\WRRQH\HDUSULPDULO\E\UHIHUHQFHWR LIBOR and EURIBOR quoted rates. 6HQVLWLYLW\DQDO\VLV The group is exposed to volatility in the income statement and shareholders’ equity arising from changes in interest rates and foreign exchange rates. To demonstrate this volatility, management have concluded that the following are reasonable benchmarks for performing sensitivity analysis: – for interest, a 1% increase in interest rates and parallel shift in yield curves across Sterling, US Dollar and Euro currencies; and – IRUIRUHLJQH[FKDQJHDVWUHQJWKHQLQJZHDNHQLQJLQ6WHUOLQJDJDLQVWRWKHUFXUUHQFLHV 7KHLPSDFWRIDFKDQJHLQLQWHUHVWUDWHVRQWKHJURXSoVDQQXDOQHWƬQDQFHH[SHQVHZDVLQVLJQLƬFDQWLQERWKDQG7KHLPSDFW on equity, before tax, of a 1% increase in interest rates is as detailed below: 2015 2014 £m £m Increase Increase At 31 March reduce) reduce) Sterling interest rates 428 337 US Dollar interest rates Euro interest rates A 1% decrease in interest rates would have broadly the same impact in the opposite direction. 7KHJURXSoVH[SRVXUHWRIRUHLJQH[FKDQJHYRODWLOLW\LQWKHLQFRPHVWDWHPHQWDIWHUKHGJLQJDQGZLWKLQVKDUHKROGHUVoHTXLW\ H[FOXGLQJWUDQVODWLRQ H[SRVXUHV ZDVLQVLJQLƬFDQWLQERWKDQG &UHGLWUDWLQJV The group’s December 2016 and December 2030 bonds contain covenants which have required the group to pay higher rates of interest once the JURXSFHDVHGWREHUDWHGDWOHDVW$LQWKHFDVHRI0RRG\oVRUDWOHDVW$sLQWKHFDVHRI6WDQGDUG 3RRUoV 6 3 $GGLWLRQDOLQWHUHVWRISHU\HDU DFFUXHVIRUHDFKUDWLQJVFDWHJRU\GRZQJUDGHE\HDFKDJHQF\EHORZWKRVHOHYHOVHƪHFWLYHIURPWKHQH[WFRXSRQGDWHIROORZLQJDGRZQJUDGH %DVHGRQWKHWRWDOQRWLRQDOYDOXHRIGHEWRXWVWDQGLQJRI~EQDW0DUFKWKHJURXSoVƬQDQFHH[SHQVHZRXOGLQFUHDVHGHFUHDVHE\ DSSUR[LPDWHO\~PD\HDULI%7oVFUHGLWUDWLQJZHUHWREHGRZQJUDGHGXSJUDGHGUHVSHFWLYHO\E\RQHFUHGLWUDWLQJFDWHJRU\E\ERWKDJHQFLHVIURP the current ratings. The group’s credit ratings were as detailed below: 2015 2014 At 31 March Rating Outlook Rating Outlook 5DWLQJDJHQF\ Standard & Poor’s BBB Stable BBB Stable Moody’s Baa2 Positive Baa2 Positive 7KHJURXSLVWDUJHWLQJD%%%%DDFUHGLWUDWLQJRYHUWKHPHGLXPWHUP Liquidity risk management 0DQDJHPHQWSROLF\ 7KHJURXSHQVXUHVLWVOLTXLGLW\LVPDLQWDLQHGE\HQWHULQJLQWRVKRUWPHGLXPDQGORQJWHUPƬQDQFLDOLQVWUXPHQWVWRVXSSRUWRSHUDWLRQDODQGRWKHU funding requirements. The group determines its liquidity requirements by the use of both short and long-term cash forecasts. These forecasts are VXSSOHPHQWHGE\DƬQDQFLDOKHDGURRPDQDO\VLVZKLFKLVXVHGWRDVVHVVIXQGLQJDGHTXDF\IRUDWOHDVWDPRQWKSHULRG2QDWOHDVWDQDQQXDOEDVLV WKH%RDUGUHYLHZVDQGDSSURYHVWKHPD[LPXPORQJWHUPIXQGLQJRIWKHJURXSDQGRQDQRQJRLQJEDVLVFRQVLGHUVDQ\UHODWHGPDWWHUV5HƬQDQFLQJ ULVNLVPDQDJHGE\OLPLWLQJWKHDPRXQWRIERUURZLQJWKDWPDWXUHVZLWKLQDQ\VSHFLƬHGSHULRGDQGKDYLQJDSSURSULDWHVWUDWHJLHVLQSODFHWRPDQDJH UHƬQDQFLQJQHHGVDVWKH\DULVH7KHPDWXULW\SURƬOHRIWKHJURXSoVORDQVDQGERUURZLQJVDW0DUFKLVGLVFORVHGLQQRWH7KHJURXSKDV WHUPGHEWPDWXULWLHVRI~EQLQ Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters of the policies set by WKH{%RDUGThe group holds cash, cash equivalents and current investments in order to manage short-term liquidity requirements. At 31 March WKHJURXSKDGXQGUDZQFRPPLWWHGERUURZLQJIDFLOLWLHVRI~EQ ~EQ PDWXULQJLQ6HSWHPEHU DQGDIXUWKHU~EQ ~QLO ZLWKDQDYDLODELOLW\SHULRGWRWKHHDUOLHURIWKHFORVHRIWKHproposed EE acquisition or August 2016, which is subject to certain restrictions and can only be used to fund the transaction, including transaction costs. financials.indb 188 15/05/2015 01:52 The Strategic Report 189 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information )LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQWFRQWLQXHG 0DWXULW\DQDO\VLV 7KHIROORZLQJWDEOHSURYLGHVDQDQDO\VLVRIWKHUHPDLQLQJFRQWUDFWXDOO\DJUHHGFDVKƮRZVLQFOXGLQJLQWHUHVWSD\DEOHIRUWKHJURXSoVQRQGHULYDWLYH ƬQDQFLDOOLDELOLWLHVRQDQXQGLVFRXQWHGEDVLVZKLFKWKHUHIRUHGLƪHUVIURPERWKWKHFDUU\LQJYDOXHDQGIDLUYDOXH Interest on Loans loans Trade and other and other and other 1RQGHULYDWLYHƬQDQFLDOOLDELOLWLHV borrowings borrowings payables Provisions Total At 31 March 2015 £m £m £m £m £m Due within one year 1,706 513 3,784 32 6,035 Between one and two years 1,431 458 – 19 1,908 Between two and three years 1,251 392 – 15 1,658 Between three and four years 549 315 – 15 879 %HWZHHQIRXUDQGƬYH\HDUV 1,033 302 – 13 1,348 $IWHUƬYH\HDUV 3,461 2,973 – 218 6,652 4 312 0 Interest payments not yet accrued – –– Fair value adjustment for hedged risk 143–––143 Impact of discounting – – – &DUU\LQJYDOXHRQWKHEDODQFHVKHHWa 194 4 208 0 Interest on Loans loans Trade and other and other and other borrowings borrowings payables Provisions Total At 31 March 2014 £m £m £m £m £m Due within one year 1,641 554 3,734 37 5,966 Between one and two years 1,291 485 – 36 1,812 Between two and three years 1,353 424 – 22 1,799 Between three and four years 1,172 360 – 18 1,550 %HWZHHQIRXUDQGƬYH\HDUV 492 287 – 17 796 $IWHUƬYH\HDUV 3,572 3,045 – 225 6,842 355 Interest payments not yet accrued – –– Fair value adjustment for hedged risk 61–––61 Impact of discounting – – – &DUU\LQJYDOXHRQWKHEDODQFHVKHHWa 232 198 a)RUHLJQFXUUHQF\UHODWHGFDVKƮRZVZHUHWUDQVODWHGDWFORVLQJUDWHVDVDWWKHUHOHYDQWUHSRUWLQJGDWH)XWXUHYDULDEOHLQWHUHVWUDWHFDVKƮRZVZHUHFDOFXODWHGXVLQJWKHPRVWUHFHQWUDWHDSSOLHGDWWKHUHOHYDQW balance sheet date. Trade and other payables are held at amortised cost. The carrying amount of these balances approximates to fair value due to the short maturity of amounts payable. financials.indb 189 15/05/2015 01:52 190 BT Group plc Annual Report 2015 )LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQWFRQWLQXHG 7KHIROORZLQJWDEOHSURYLGHVDQDQDO\VLVRIWKHFRQWUDFWXDOO\DJUHHGFDVKƮRZVLQUHVSHFWRIWKHJURXSoVGHULYDWLYHƬQDQFLDOLQVWUXPHQWV&DVKƮRZV are presented on a net or gross basis in accordance with the settlement arrangements of the instruments. Derivatives – Analysed based on holding instrument Derivatives – Analysed by earliest payment datea to maturity Gross settled Gross settled Gross settled Gross settled DHULYDWLYHƬQDQFLDOOLDELOLWLHV Net settled RXWƮRZV LQƮRZV Total Net settled RXWƮRZV LQƮRZV Total At 31 March 2015 £m £m £m £m £m £m £m £m Due within one year 215 1,421 344 88 1,320 229 Between one and two years 471 39 484 109 42 121 Between two and three years 273 38 285 92 42 104 Between three and four years 177 38 189 94 42 106 %HWZHHQIRXUDQGƬYH\HDUV 48 838 137 111 842 200 $IWHUƬYH\HDUV – 390 690 476 675 7RWDOb Derivatives – Analysed based on holding instrument Derivatives – Analysed by earliest payment datea to maturity Gross settled Gross settled Gross settled Gross settled Net settled RXWƮRZV LQƮRZV Total Net settled RXWƮRZV LQƮRZV Total At 31 March 2014 £m £m £m £m £m £m £m £m Due within one year 263 1,754 311 125 1,754 173 Between one and two years 351 661 393 84 560 119 Between two and three years 642 947 685 84 950 126 Between three and four years 70 806 55 84 65 88 %HWZHHQIRXUDQGƬYH\HDUV – 334 7 84 369 92 $IWHUƬYH\HDUV – 198 12 865 1,002 865 7RWDOb a&HUWDLQGHULYDWLYHƬQDQFLDOLQVWUXPHQWVFRQWDLQEUHDNFODXVHVZKHUHE\HLWKHUWKHJURXSRUEDQNFRXQWHUSDUW\FDQWHUPLQDWHWKHVZDSRQFHUWDLQGDWHVDQGWKHPDUNWRPDUNHWSRVLWLRQLVVHWWOHGLQFDVK b)RUHLJQFXUUHQF\UHODWHGFDVKƮRZVZHUHWUDQVODWHGDWFORVLQJUDWHVDVDWWKHUHOHYDQWUHSRUWLQJGDWH)XWXUHYDULDEOHLQWHUHVWUDWHFDVKƮRZVZHUHFDOFXODWHGXVLQJWKHPRVWUHFHQWUDWHDSSOLHGDWWKHUHOHYDQW balance sheet date. Credit risk management 0DQDJHPHQWSROLF\ 7KHJURXSoVH[SRVXUHWRFUHGLWULVNDULVHVIURPƬQDQFLDODVVHWVWUDQVDFWHGE\WKHWUHDVXU\RSHUDWLRQ SULPDULO\GHULYDWLYHVLQYHVWPHQWVFDVKDQG cash equivalents) and from its trading-related receivables. )RUWUHDVXU\UHODWHGEDODQFHVWKH%RDUGoVGHƬQHGSROLF\UHVWULFWVH[SRVXUHWRDQ\RQHFRXQWHUSDUW\E\VHWWLQJFUHGLWOLPLWVEDVHGRQWKHFUHGLW TXDOLW\DVGHƬQHGE\0RRG\oVDQG6 3DQGE\GHƬQLQJWKHW\SHVRIƬQDQFLDOLQVWUXPHQWVZKLFKPD\EHWUDQVDFWHG7KHPLQLPXPFUHGLWUDWLQJV SHUPLWWHGZLWKFRXQWHUSDUWLHVLQUHVSHFWRIQHZWUDQVDFWLRQVDUH$$sIRUORQJWHUPDQG3$IRUVKRUWWHUPLQYHVWPHQWV$FWLRQLVWDNHQ ZKHUHDSSURSULDWHDQGFRVWHƪHFWLYHLIFRXQWHUSDUWLHVLQUHVSHFWRIH[LVWLQJWUDQVDFWLRQVIDOOEHORZWKHSHUPLWWHGFULWHULD The treasury operation continuously reviews the limits applied to counterparties and will adjust the limit according to the nature and credit standing of the counterparty and in response to market conditions, up to the maximum allowable limit set by the Board. 2SHUDWLRQDOPDQDJHPHQWSROLF\ 7KHJURXSoVFUHGLWSROLF\IRUWUDGLQJUHODWHGƬQDQFLDODVVHWVLVDSSOLHGDQGPDQDJHGE\HDFKRIWKHOLQHVRIEXVLQHVVWRHQVXUHFRPSOLDQFH7KH SROLF\UHTXLUHVWKDWWKHFUHGLWZRUWKLQHVVDQGƬQDQFLDOVWUHQJWKRIFXVWRPHUVLVDVVHVVHGDWLQFHSWLRQDQGRQDQRQJRLQJEDVLV3D\PHQWWHUPV are set in accordance with industry standards. Where appropriate, the group may endeavour to minimise risks by requesting securities such as deposits, guarantees and letters of credit. The group takes proactive steps including constantly reviewing credit ratings of relationship banks WRPLQLPLVHWKHLPSDFWRIDGYHUVHPDUNHWFRQGLWLRQVRQWUDGLQJUHODWHGƬQDQFLDODVVHWV ([SRVXUHV 7KHPD[LPXPFUHGLWULVNH[SRVXUHRIWKHJURXSoVƬQDQFLDODVVHWVDWWKHEDODQFHVKHHWGDWHLVDVIROORZV 2015 2014 At 31 March Notes £m £m 'HULYDWLYHƬQDQFLDODVVHWV 1,329 653 Investments 22 3,567 1,808 Trade and other receivablesa 16 2,264 2,185 Cash and cash equivalents 23 434 695 a7KHFDUU\LQJDPRXQWH[FOXGHV~P ~P RIQRQFXUUHQWWUDGHDQGRWKHUUHFHLYDEOHVZKLFKUHODWHWRQRQƬQDQFLDODVVHWVDQG~P ~P RISUHSD\PHQWVDQGRWKHU UHFHLYDEOHV financials.indb 190 15/05/2015 01:52 The Strategic Report 191 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information )LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQWFRQWLQXHG 7KHFUHGLWTXDOLW\DQGFUHGLWFRQFHQWUDWLRQRIFDVKHTXLYDOHQWVFXUUHQWDVVHWLQYHVWPHQWVDQGGHULYDWLYHƬQDQFLDODVVHWVDUHGHWDLOHGLQWKHWDEOHV EHORZ:KHUHWKHRSLQLRQRI0RRG\oVDQG6 3GLƪHUWKHORZHUUDWLQJLVXVHG 2015 2014 0RRG\oV6 3FUHGLWUDWLQJRIFRXQWHUSDUW\ £m £m $D$$DQGDERYH 3,133 1,774 $D$$s 206 47 $$ 248 111 $$a 793 434 $$s 121 – %DD%%% 439 376 %DD%%%DQGEHORZ 11 – a7KHJURXSKROGVFDVKFROODWHUDORI~P ~P LQUHVSHFWRIGHULYDWLYHƬQDQFLDODVVHWVZLWKFHUWDLQFRXQWHUSDUWLHV The concentration of credit risk for trading balances of the group is provided in note 16, which analyses outstanding balances by line of business. :KHUHPXOWLSOHWUDQVDFWLRQVDUHXQGHUWDNHQZLWKDVLQJOHƬQDQFLDOFRXQWHUSDUW\RUJURXSRIUHODWHGFRXQWHUSDUWLHVWKHJURXSKDVHQWHUHGLQWR QHWWLQJDUUDQJHPHQWVWRUHGXFHWKHJURXSoVH[SRVXUHWRFUHGLWULVNE\PDNLQJXVHRIVWDQGDUG,QWHUQDWLRQDO6ZDSVDQG'HULYDWLYHV$VVRFLDWLRQ ,6'$ documentation. The group has also entered into credit support agreements with certain swap counterparties whereby on a weekly and monthly basis WKHIDLUYDOXHSRVLWLRQRQQRWLRQDO~ PRIORQJGDWHGFURVVFXUUHQF\VZDSVDQGLQWHUHVWUDWHVZDSVLVFROODWHUDOLVHG7KHUHODWHGQHWFDVKLQƮRZ GXULQJWKH\HDUZDV~ P FDVKRXWƮRZRI~ P 7KHFROODWHUDOSDLGDQGUHFHLYHGLVUHFRJQLVHGZLWKLQFXUUHQWDVVHWLQYHVWPHQWV FDVKDQGFDVKHTXLYDOHQWV DQGORDQVDQGRWKHUERUURZLQJVUHVSHFWLYHO\ 2ƪVHWWLQJRIƬQDQFLDOLQVWUXPHQWV 7KHWDEOHEHORZVKRZVWKHJURXSoVƬQDQFLDODVVHWVDQGOLDELOLWLHVWKDWDUHVXEMHFWWRRƪVHWLQWKHJURXSoVEDODQFHVKHHWDQGWKHLPSDFWRIHQIRUFHDEOH master netting or similar agreements. 5HODWHGDPRXQWVQRWVHWRƪLQWKHEDODQFHVKHHW Amounts presented in 5LJKWRIVHWRƪZLWK Gross Amounts the balance derivative Cash Net Financial assets and liabilities amounts VHWRƪ sheet counterparties collateral amount At 31 March 2015 £m £m £m £m £m £m 'HULYDWLYHƬQDQFLDODVVHWV 1,329 – 1,329 289 'HULYDWLYHƬQDQFLDOOLDELOLWLHV – 603 30 Cash and cash equivalents 588 434 – – 434 Bank overdrafts 154 – – 7RWDO 641 – 641 – 234 5HODWHGDPRXQWVQRWVHWRƪLQWKHEDODQFHVKHHW Amounts presented in 5LJKWRIVHWRƪZLWK Gross Amounts the balance derivative Cash Net Financial assets and liabilities amounts VHWRƪ sheet counterparties collateral amount At 31 March 2014 £m £m £m £m £m £m 'HULYDWLYHƬQDQFLDODVVHWV 653 – 653 182 'HULYDWLYHƬQDQFLDOOLDELOLWLHV – 297 20 Cash and cash equivalents 3,165 695 – – 695 Bank overdrafts 2,470 – – 7RWDO 519 – 519 – 365 &DVKDQGFDVKHTXLYDOHQWVDQGEDQNRYHUGUDIWVLQFOXGHDPRXQWVVHWRƪRI~P ~P DVSDUWRIDPDVWHUQHWWLQJDJUHHPHQWZLWK %DUFOD\V{%DQN{3OF%DODQFHVKHOGZLWKLQWKLVDUUDQJHPHQWDUHSRROHGDQGLQWHUHVWLVSDLGRUUHFHLYHGRQWKHQHWEDODQFH financials.indb 191 15/05/2015 01:52 192 BT Group plc Annual Report 2015 )LQDQFLDOLQVWUXPHQWVDQGULVNPDQDJHPHQWFRQWLQXHG Derivatives $OORIWKHJURXSoVGHULYDWLYHƬQDQFLDOLQVWUXPHQWVDUHKHOGDWIDLUYDOXHRQWKHJURXSoVEDODQFHVKHHW7KHIDLUYDOXHVRIRXWVWDQGLQJVZDSVDQGIRUHLJQ H[FKDQJHFRQWUDFWVDUHHVWLPDWHGXVLQJGLVFRXQWHGFDVKƮRZPRGHOVDQGPDUNHWUDWHVRILQWHUHVWDQGIRUHLJQH[FKDQJHDWWKHEDODQFHVKHHWGDWH Current Non-current Current Non-current 'HULYDWLYHV asset asset liability liability At 31 March 2015 £m £m £m £m 'HVLJQDWHGLQDFDVKƮRZKHGJH 86 941 161 698 Designated in a fair value hedge 6 143 – – Other 5 148 7 229 7RWDOGHULYDWLYHV 97 168 927 Current Non-current Current Non-current 'HULYDWLYHV asset asset liability liability At 31 March 2014 £m £m £m £m 'HVLJQDWHGLQDFDVKƮRZKHGJH 73 394 74 514 Designated in a fair value hedge 6 61 – – Other 35 84 65 165 7RWDOGHULYDWLYHV 114 539 139 679 'XULQJWKH\HDUWKHJURXSGHIHUUHGDJDLQRI~QLO ~P UHODWLQJWRWKHIDLUYDOXHRIDGHULYDWLYHHQHUJ\FRQWUDFWDWLQLWLDOUHFRJQLWLRQ $W0DUFKWKHDPRXQWGHIHUUHGZKLFKLVQRW\HWUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWLV~P ~P :LWKWKHH[FHSWLRQRI WKLVFRQWUDFWZKLFKLVLQFOXGHGDW/HYHODQGYDOXHGXVLQJDVVXPSWLRQVRQYROXPHVLQƮDWLRQDQGPDUNHWHQHUJ\SULFHVDOORWKHUGHULYDWLYHƬQDQFLDO LQVWUXPHQWVDUHFDWHJRULVHGDW/HYHORIWKHIDLUYDOXHKLHUDUFK\{DV{GHƬQHGLQQRWH Hedging activities 'HULYDWLYHVPD\TXDOLI\DVKHGJHVIRUDFFRXQWLQJSXUSRVHVLIWKH\PHHWWKHFULWHULDIRUGHVLJQDWLRQDVIDLUYDOXHKHGJHVRUFDVKƮRZKHGJHVLQ accordance with IAS 39. &DVKƮRZKHGJHV ,QVWUXPHQWVGHVLJQDWHGLQDFDVKƮRZKHGJHLQFOXGHLQWHUHVWUDWHVZDSVDQGFURVVFXUUHQF\VZDSVKHGJLQJ(XURDQG86'ROODUGHQRPLQDWHG borrowings. Forward currency contracts are taken out to hedge step-up interest on currency denominated borrowings relating to the group’s 2030 86'ROODUERQG7KHKHGJHGFDVKƮRZVZLOODƪHFWWKHJURXSoVLQFRPHVWDWHPHQWDVLQWHUHVWDQGSULQFLSDODPRXQWVDUHUHSDLGRYHUWKHUHPDLQLQJWHUP RIWKHERUURZLQJV sHH{QRWH Forecast foreign currency purchases, principally denominated in US Dollar, EuroDQG$VLD3DFLƬFFXUUHQFLHVDUHKHGJHGPRQWKVIRUZDUG, with certain specLƬFWUDQVDFWLRQVKHdged further forward7KHUHODWHGFDVKƮRZVDUHUHFRJQLVHGLQWKHLQFRPHVWDWHPHQWRYHUWKLVSHULRG $OOFDVKƮRZKHGJHVZHUHIXOO\HƪHFWLYHLQWKHSHULRG6HHQRWHIRUGHWDLOVRIWKHPRYHPHQWVLQWKHFDVKƮRZKHGJHUHVHUYH )DLUYDOXHKHGJHV Fair value hedges consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of the 2028 Sterling bond due to movements in market interest rates. Gains and losses arising on fair value hedges are disclosed in note 25. Other derivatives The group’s policy is not to use derivatives for speculative purposes. However, due to the complex nature of hedge accounting under IAS 39, some GHULYDWLYHVPD\QRWTXDOLI\IRUKHGJHDFFRXQWLQJRUDUHVSHFLƬFDOO\QRWGHVLJQDWHGDVDKHGJHZKHUHQDWXUDORƪVHWLVPRUHDSSURSULDWH'HULYDWLYH LQVWUXPHQWVWKDWGRQRWTXDOLI\IRUKHGJHDFFRXQWLQJDUHFODVVLƬHGDVKHOGIRUWUDGLQJDQGKHOGDWIDLUYDOXHWKURXJKSURƬWRUORVVXQGHU,$6 financials.indb 192 15/05/2015 01:52 The Strategic Report 193 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 2WKHUUHVHUYHV Other comprehensive income Capital Available- Merger redemption &DVKƮRZ for-sale Translation reserve a reserve reserve b reserve c reserve d Total £m £m £m £m £m £m At 1 April 2012 998 27 229 24 478 ([FKDQJHGLƪHUHQFHV ––––4646 Recycled foreign exchange on disposal of subsidiary ––––1313 1HWIDLUYDOXHJDLQRQFDVKƮRZKHGJHV ––105––105 Recognised in income and expense – – –– Fair value movement on available-for-sale assets – – – 14 – 14 Tax recognised in other comprehensive income – – 14 – 10 24 At 1 April 2013 998 27 180 38 547 ([FKDQJHGLƪHUHQFHV –––– 1HWIDLUYDOXHORVVRQFDVKƮRZKHGJHV –– –– Recognised in income and expense – – 384 – – 384 Fair value movement on available-for-sale assets – – – – Tax recognised in other comprehensive income – – 6 – 4 At 1 April 2014 998 27 42 11 369 ([FKDQJHGLƪHUHQFHV ––––55 1HWIDLUYDOXHJDLQRQFDVKƮRZKHGJHV ––207––207 Recognised in income and expense – – –– Fair value movement on available-for-sale assets – – – 7 – 7 Tax recognised in other comprehensive income – – 24 – 13 37 $W0DUFK 998 27 55 18 387 a7KHPHUJHUUHVHUYHDURVHRQWKHJURXSUHRUJDQLVDWLRQWKDWRFFXUUHGLQ1RYHPEHUDQGUHSUHVHQWHGWKHGLƪHUHQFHEHWZHHQWKHQRPLQDOYDOXHRIVKDUHVLQWKHQHZSDUHQWFRPSDQ\%7{*URXS{SOFDQG WKHDJJUHJDWHRIWKHVKDUHFDSLWDOVKDUHSUHPLXPDFFRXQWDQGFDSLWDOUHGHPSWLRQUHVHUYHRIWKHSULRUSDUHQWFRPSDQ\%ULWLVK7HOHFRPPXQLFDWLRQVSOF b 7KHFDVKƮRZUHVHUYHLVXVHGWRUHFRUGWKHHƪHFWLYHSRUWLRQRIWKHFXPXODWLYHQHWFKDQJHLQWKHIDLUYDOXHRIFDVKƮRZKHGJLQJLQVWUXPHQWVUHODWHGWRKHGJHGWUDQVDFWLRQVWKDWKDYHQRW\HWRFFXUUHG $PRXQWVnUHFRJQLVHGLQLQFRPHDQGH[SHQVHoLQFOXGHDQHWFKDUJHWRWKHFDVKƮRZUHVHUYHRI~P QHWFUHGLW~P QHWFKDUJHRI~P UHODWLQJWRIDLUYDOXHPRYHPHQWVRQ GHULYDWLYHV7KHLWHPVJHQHUDWLQJWKHVHIRUHLJQH[FKDQJHPRYHPHQWVDUHLQGHVLJQDWHGFDVKƮRZKHGJHUHODWLRQVKLSV c 7KHDYDLODEOHIRUVDOHUHVHUYHLVXVHGWRUHFRUGWKHFXPXODWLYHIDLUYDOXHJDLQVDQGORVVHVRQDYDLODEOHIRUVDOHƬQDQFLDODVVHWV7KHFXPXODWLYHJDLQVDQGORVVHVDUHUHF\FOHGWRWKHLQFRPHVWDWHPHQWRQ GLVSRVDORIWKHDVVHWV d 7KHWUDQVODWLRQUHVHUYHLVXVHGWRUHFRUGFXPXODWLYHWUDQVODWLRQGLƪHUHQFHVRQWKHDVVHWVDQGOLDELOLWLHVRIIRUHLJQRSHUDWLRQV7KHFXPXODWLYHWUDQVODWLRQGLƪHUHQFHVDUHUHF\FOHGWRWKHLQFRPHVWDWHPHQWRQ GLVSRVDORIWKHIRUHLJQRSHUDWLRQ 5HODWHGSDUW\WUDQVDFWLRQV Key management personnel comprise executive and non-executive directors and members of the Operating Committee. Compensation of key management personnel is disclosed in note 5. $PRXQWVSDLGWRWKHJURXSoVUHWLUHPHQWEHQHƬWSODQVDUHVHWRXWLQQRWH financials.indb 193 15/05/2015 01:52 194 BT Group plc Annual Report 2015 )LQDQFLDOFRPPLWPHQWVDQGFRQWLQJHQWOLDELOLWLHV Financial commitments were as follows: 2015 2014 At 31 March £m £m Capital commitments 507 400 Programme rights commitments 2,512 1,657 7RWDO At 31 March 2015 programme rights commitments, mainly relating to football broadcast rights, are those for which the licence period has not yet started. Future minimum operating lease payments for the group were as follows: 2015 2014 £m £m Payable in the year ending 31 March: 2015 – 396 2016 427 397 2017 401 368 2018 392 365 2019 377 363 2020 365 366 Thereafter 4,562 4,583 7RWDOIXWXUHPLQLPXPRSHUDWLQJOHDVHSD\PHQWV Operating lease commitments were mainly in respect of land and buildings which arose from a sale and operating leaseback transaction in a prior SHULRG/HDVHVKDYHDQDYHUDJHWHUPRI\HDUV \HDUV DQGUHQWDOVDUHƬ[HGIRUDQDYHUDJHRI\HDUV \HDUV Other than as disclosed below, there were no contingent liabilities or guarantees at 31 March 2015 other than those arising in the ordinary course of the group’s business and on these no material losses are anticipated. The group has insurance cover to certain limits for major risks on property and major claims in connection with legal liabilities arising in the course of its operations. Otherwise, the group generally carries its own risks. On 5 February 20%7DJUHHGGHƬQLtive terms to acquire EE Limited and its subsidiaries for £12.5bn. Under the terms of the sale and purchase agreement, if BT were to recommend an alternative transaction and not proceed to completion, Deutsche Telekom and Orange have the right to terminate the sale and purchase agreement and BT would pay a break fee of £250m, in aggregate, to them. Under the Broadband Delivery UK programme, grants received by the group may be subject to re-investment or repayment to the customer depending on the level of take-up. 7KHJURXSKDVSURYLGHGJXDUDQWHHVUHODWLQJWRFHUWDLQOHDVHVHQWHUHGLQWRE\7HOHIÎQLFD8./LPLWHG IRUPHUO\28./LPLWHG SULRUWRWKHGHPHUJHURI PP2IURP%7RQ {1RYHPEHUPP2SOF QRZSDUWRIWKH7HOHIÎQLFD*URXS KDVJLYHQ%7DFRXQWHULQGHPQLW\IRUWKHVHJXDUDQWHHV7KHUH is no exposure in the event of credit default in respect of amounts used to defease future lease obligations. The guarantee lasts until Telefónica UK /LPLWHGKDVGLVFKDUJHGDOOLWVREOLJDWLRQVZKLFKLVH[SHFWHGWREHZKHQWKHOHDVHVHQGRQ{-DQXDU\ 7KHJURXSGRHVQRWEHOLHYHWKDWWKHUHLVDQ\VLQJOHFXUUHQWFRXUWDFWLRQWKDWZRXOGKDYHDPDWHULDODGYHUVHHƪHFWRQWKHƬQDQFLDOSRVLWLRQRU RSHUDWLRQVRIWKHJURXS'XULQJWKHDJJUHJDWHYROXPHDQGYDOXHRIOHJDODFWLRQVZKLFKWKHJURXSLVSDUW\to reduced. 6XEVHTXHQWHYHQWV The shareholders of BT approved the proposed acquisition of EE on 30 April 2015 and we are now awaiting approval from the Competition and Markets Authority. Subject to merger clearance, we expect the transactionWRFRPSOHWHEHIRUHWKHHQGRIWKHƬQDQFLDO\HDU financials.indb 194 15/05/2015 01:52 The Strategic Report 195 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information ,QGHSHQGHQWDXGLWRUVoUHSRUWWRWKHPHPEHUV 5HVSRQVLELOLWLHVIRUWKHƬQDQFLDOVWDWHPHQWVDQGWKHDXGLW 2XUUHVSRQVLELOLWLHVDQGWKRVHRIWKHGLUHFWRUV RI{%7*URXSSOF As explained more fully in the 6WDWHPHQWRIdirectors’ responsibilities 5HSRUWRQWKHFRPSDQ\ƬQDQFLDOVWDWHPHQWV set out on page 130, the directors are responsible for the preparation Our opinion RIWKHƬQDQFLDOVWDWHPHQWVDQGIRUEHLQJVDWLVƬHGWKDWWKH\JLYHDWUXH ,QRXURSLQLRQ%7*URXSSOFoVFRPSDQ\ƬQDQFLDOVWDWHPHQWV WKH and fair view. ƬQDQFLDOVWDWHPHQWV 2XUUHVSRQVLELOLW\LVWRDXGLWDQGH[SUHVVDQRSLQLRQRQWKHƬQDQFLDO r JLYHDWUXHDQGIDLUYLHZRIWKHVWDWHRIWKHFRPSDQ\oVDƪDLUVDVDW VWDWHPHQWVLQDFFRUGDQFHZLWKDSSOLFDEOHODZDQG,6$V 8. ,UHODQG 31{March 2015; Those standards require us to comply with the Auditing Practices Board’s r have been properly prepared in accordance with United Kingdom Ethical Standards for Auditors. Generally Accepted Accounting Practice; and r have been prepared in accordance with the requirements of the This report, including the opinions, has been prepared for and only for Companies Act 2006. the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, :KDWZHKDYHDXGLWHG in giving these opinions, accept or assume responsibility for any other %7*URXSSOFoVƬQDQFLDOVWDWHPHQWVFRPSULVH purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior r the BT Group plc company balance sheet as at 31 March 2015; consent in writing. r the BT Group plc company reconciliation of movement in equity shareholders’ funds for the year then ended; and :KDWDQDXGLWRIƬQDQFLDOVWDWHPHQWVLQYROYHV r WKHQRWHVWRWKHƬQDQFLDOVWDWHPHQWVZKLFKLQFOXGHDVXPPDU\RI :HFRQGXFWHGRXUDXGLWLQDFFRUGDQFHZLWK,6$V 8. ,UHODQG $Q VLJQLƬFDQWDFFRXQWLQJSROLFLHVDQGRWKHUH[SODQDWRU\LQIRUPDWLRQ audit involves obtaining evidence about the amounts and disclosures LQWKHƬQDQFLDOVWDWHPHQWVVXƯFLHQWWRJLYHUHDVRQDEOHDVVXUDQFHWKDW 7KHƬQDQFLDOUHSRUWLQJIUDPHZRUNWKDWKDVEHHQDSSOLHGLQWKH WKHƬQDQFLDOVWDWHPHQWVDUHIUHHIURPPDWHULDOPLVVWDWHPHQWZKHWKHU SUHSDUDWLRQRIWKHƬQDQFLDOVWDWHPHQWVLVDSSOLFDEOHODZDQG8QLWHG caused by fraud or error. This includes an assessment of: .LQJGRP$FFRXQWLQJ6WDQGDUGV 8QLWHG.LQJGRP*HQHUDOO\$FFHSWHG Accounting Practice). r whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately Other required reporting disclosed; &RQVLVWHQF\RIRWKHULQIRUPDWLRQ r WKHUHDVRQDEOHQHVVRIVLJQLƬFDQWDFFRXQWLQJHVWLPDWHVPDGHE\WKH Companies Act 2006 opinion directors; and In our opinion, the information given in the 6WUDWHJLF5HSRUW and the r WKHRYHUDOOSUHVHQWDWLRQRIWKHƬQDQFLDOVWDWHPHQWV 5HSRUWRIWKHDirectorsIRUWKHƬQDQFLDO\HDUIRUZKLFKWKHƬQDQFLDO We primarily focus our work in these areas by assessing the directors’ VWDWHPHQWVDUHSUHSDUHGLVFRQVLVWHQWZLWKWKHƬQDQFLDOVWDWHPHQWV judgements against available evidence, forming our own judgements, ,6$V 8. ,UHODQG UHSRUWLQJ DQGHYDOXDWLQJWKHGLVFORVXUHVLQWKHƬQDQFLDOVWDWHPHQWV 8QGHU,QWHUQDWLRQDO6WDQGDUGVRQ$XGLWLQJ 8.DQG,UHODQG p,6$V 8. We test and examine information, using sampling and other auditing & Ireland)”) we are required to report to you if, in our opinion, information techniques, to the extent we consider necessary to provide a reasonable LQWKH$QQXDO5HSRUW )RUP) WKHp$QQXDO5HSRUWq LV basis for us to draw conclusions. We obtain audit evidence through r PDWHULDOO\LQFRQVLVWHQWZLWKWKHLQIRUPDWLRQLQWKHDXGLWHGƬQDQFLDO WHVWLQJWKHHƪHFWLYHQHVVRIFRQWUROVVXEVWDQWLYHSURFHGXUHVRUD statements; or combination of both. r apparently materially incorrect based on, or materially inconsistent ,QDGGLWLRQZHUHDGDOOWKHƬQDQFLDODQGQRQƬQDQFLDOLQIRUPDWLRQLQ with, our knowledge of the company acquired in the course of the Annual Report to identify material inconsistencies with the audited performing our audit; or ƬQDQFLDOVWDWHPHQWVDQGWRLGHQWLI\DQ\LQIRUPDWLRQWKDWLVDSSDUHQWO\ r otherwise misleading. materially incorrect based on, or materially inconsistent with, the We have no exceptions to report arising from this responsibility. knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies $GHTXDF\RIDFFRXQWLQJUHFRUGVDQGLQIRUPDWLRQDQGH[SODQDWLRQV we consider the implications for our report. UHFHLYHG Under the Companies Act 2006 we are required to report to you if, in Other matter our opinion: :HKDYHUHSRUWHGVHSDUDWHO\RQWKHJURXSƬQDQFLDOVWDWHPHQWVRI r we have not received all the information and explanations we require BT{Group plc for the year ended 31 March 2015. for our audit; or r adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or r WKHƬQDQFLDOVWDWHPHQWVDQGWKHSDUWRIWKH5HSRUW on Directors’ 5HPXQHUDWLRQto be audited are not in agreement with the accounting 3DXO%DUNXV 6HQLRU6WDWXWRU\$XGLWRU records and returns. IRUDQGRQEHKDOIRI3ULFHZDWHUKRXVH&RRSHUV//3 Chartered Accountants and Statutory Auditors We have no exceptions to report arising from this responsibility. London 'LUHFWRUVoUHPXQHUDWLRQ 6 May 2015 Report on Directors’ Remuneration – Companies Act 2006 opinion In our opinion, the part of the 5HSRUWRQ'LUHFWRUVo5HPXQHUDWLRQ to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in RXURSLQLRQFHUWDLQGLVFORVXUHVRIGLUHFWRUVoUHPXQHUDWLRQVSHFLƬHG by law are not made. We have no exceptions to report arising from this responsibility. financials.indb 195 15/05/2015 01:52 196 BT Group plc Annual Report 2015 )LQDQFLDOVWDWHPHQWVRI%7*URXSSOF &DVK Cash includes cash in hand and bank deposits repayable on demand. BT Group plc accounting policies $FFRXQWLQJEDVLV 6KDUHEDVHGSD\PHQWV $VXVHGLQWKHVHƬQDQFLDOVWDWHPHQWVDQGDVVRFLDWHGQRWHVWKHWHUP The company does not incur a charge for share-based payments. nFRPSDQ\oUHIHUVWR%7*URXSSOF7KHVHVHSDUDWHƬQDQFLDOVWDWHPHQWV However, the issuance by the company of share options and awards to of the company are presented as required by the Companies Act 2006. employees of its subsidiaries represents additional capital contributions 7KHVHSDUDWHƬQDQFLDOVWDWHPHQWVKDYHEHHQSUHSDUHGLQDFFRUGDQFH to its subsidiaries. An addition to the company’s investment in ZLWK8.*HQHUDOO\$FFHSWHG$FFRXQWLQJ3UDFWLFH 8.*$$3 7KH subsidiaries is recorded with a corresponding increase in equity principal accounting policies are set out below and have been applied shareholders’ funds. The additional capital contribution is determined consistently throughout the year and the previous year. based on the fair value of options and awards at the date of grant and is recognised over the vesting period. 7KHƬQDQFLDOVWDWHPHQWVDUHSUHSDUHGRQDJRLQJFRQFHUQEDVLVDQG XQGHUWKHKLVWRULFDOFRVWFRQYHQWLRQDVPRGLƬHGE\WKHUHYDOXDWLRQRI $FFRXQWLQJVWDQGDUGVLQWHUSUHWDWLRQVDQGDPHQGPHQWV FHUWDLQƬQDQFLDOLQVWUXPHQWVDWIDLUYDOXH QRW\HWHƪHFWLYH Following the publication of FRS 100 ‘Application of Financial $VSHUPLWWHGE\6HFWLRQ RIWKH&RPSDQLHV$FW Reporting Requirements’ by the Financial Reporting Council, BT WKHFRPSDQ\oVSURƬWDQGORVVDFFRXQWKDVQRWEHHQSUHVHQWHG Group plc is required to change its accounting framework for its entity 7KH%7*URXSSOFFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVIRUWKH\HDU ƬQDQFLDOVWDWHPHQWVZKLFKLVFXUUHQWO\8.*$$3IRULWVƬQDQFLDO\HDU HQGHG0DUFKFRQWDLQDFRQVROLGDWHGFDVKƮRZVWDWHPHQW commencing 1 April 2015. The purpose of FRS 100 is to align reporting &RQVHTXHQWO\DVSHUPLWWHGE\)56n&DVKƮRZVWDWHPHQWVoWKH in the UK with IFRS. As the ultimate parent, the company will adopt FRS FRPSDQ\KDVGHFLGHGQRWWRSUHVHQWLWVRZQFDVKƮRZVWDWHPHQW 101 ‘Reduced Disclosure Framework’. 7KH%7*URXSSOFFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVIRUWKH\HDU $VUHTXLUHGE\)56%7*URXSSOFQRWLƬHGLWVVKDUHKROGHUVRIWKH ended 31 March 2015 contain related party disclosures. proposed change at the Annual General Meeting in July 2014. Consequently, the company has taken advantage of the exemption in FRS 8, ‘Related Party Disclosures’, not to disclose transactions Other information with other members of the BT Group. 'LYLGHQGV 7KH%RDUGUHFRPPHQGVWKDWDƬQDOGLYLGHQGLQUHVSHFWRIWKH\HDUHQGHG 7KH%7*URXSSOFFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVIRUWKH\HDUHQGHG 31 March 2015 of 8.5S S ZLOOEHSDLGWRVKDUHKROGHUV 31 March 2015FRQWDLQƬQDQFLDOLQVWUXPHQWGLVFORVXUHVZKLFKFRPSO\ RQ{6HSWHPEHUWDNLQJWKHIXOO\HDUSURSRVHGGLYLGHQGLQUHVSHFW with FRS 29, ‘Financial Instruments: Disclosures’. Consequently, the of to 12.4S : 10.9p). This dividend is subject to company is exempt from the disclosure requirements of FRS 29 in shareholder approval at the Annual General Meeting and therefore the UHVSHFWRILWVƬQDQFLDOLQVWUXPHQWV liability of approximately £712P : £611m) has not been ,QYHVWPHQWVLQVXEVLGLDU\XQGHUWDNLQJV LQFOXGHGLQWKHVHƬQDQFLDOVWDWHPHQWV Investments in subsidiary undertakings are stated at cost and reviewed (PSOR\HHV for impairment if there are indicators that the carrying value may not The Chairman, the executive directors and the Group General Counsel be recoverable. &RPSDQ\6HFUHWDU\RI%7{*URXSSOFZHUHWKHRQO\HPSOR\HHV 7D[DWLRQ of the company during . The costs relating to qualifying )XOOSURYLVLRQLVPDGHIRUGHIHUUHGWD[DWLRQRQDOOWLPLQJGLƪHUHQFHV services provided to the company’s principal subsidiary, British which have arisen but not reversed at the balance sheet date. Deferred Telecommunications plc, are recharged to that company. WD[DVVHWVDUHUHFRJQLVHGWRWKHH[WHQWWKDWLW{LVUHJDUGHGDVPRUH $XGLWIHHV OLNHO\WKDQQRWWKDWWKHUHZLOOEHVXƯFLHQWWD[DEOHSURƬWVIURPZKLFK 7KHDXGLWIHHLQUHVSHFWRIWKHSDUHQWFRPSDQ\ZDV~ WKHXQGHUO\LQJWLPLQJGLƪHUHQFHVFDQEHGHGXFWHG7KHGHIHUUHGWD[ £41,000). Fees payable to PricewaterhouseCoopers LLP for non-audit balances are not discounted. services to the company are not required to be disclosed as they are 'LYLGHQGV LQFOXGHGZLWKLQQRWHWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVRI Dividend distributions are recognised as a liability in the year in which %7{*URXSSOF the dividends are approved by the company’s shareholders. Interim GLYLGHQGVDUHUHFRJQLVHGZKHQWKH\DUHSDLG ƬQDOGLYLGHQGVZKHQ authorised in general meetings by shareholders. 6KDUHFDSLWDO 2UGLQDU\VKDUHVDUHFODVVLƬHGDVHTXLW\5HSXUFKDVHGVKDUHVRIWKH company are recorded in the balance sheet as part of Own shares and presented as a deduction from shareholders’ equity at cost. financials.indb 196 15/05/2015 01:52 The Strategic Report 197 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information %7*URXSSOFFRPSDQ\EDODQFHVKHHW 2015 2014 At 31 March £m £m )L[HGDVVHWV Investments in subsidiary undertakingsa 10,686 10,616 7RWDOƬ[HGDVVHWV 10 Current assets Amounts from subsidiary undertaking falling due after more than one yearb 1,004 – Cash at bank and in hand 5 5 7RWDOFXUUHQWDVVHWV 5 Creditors: amounts falling due within one yearc 22 1,260 Net current liabilities 98 7RWDODVVHWVOHVVFXUUHQWOLDELOLWLHV Non-current liabilities Amounts due to subsidiary undertakingsc 1,307 – 7RWDODVVHWVOHVVORQJWHUPOLDELOLWLHV &DSLWDODQGUHVHUYHV Called up share capital 419 408 Share premium account 1,051 62 Capital redemption reserve 27 27 Own shares 3URƬWDQGORVVDFFRXQW 9,034 9,693 7RWDOHTXLW\VKDUHKROGHUVoIXQGVd a 7KURXJKRXWDQGWKHFRPSDQ\KHOGDLQYHVWPHQWLQ%7*URXS,QYHVWPHQWV/LPLWHGDFRPSDQ\UHJLVWHUHGLQ(QJODQGDQG:DOHV b$PRXQWVGXHIURPVXEVLGLDU\XQGHUWDNLQJUHODWHSULPDULO\WR~EQWKDWZDVUDLVHGWKURXJKDQHTXLW\SODFLQJLQ)HEUXDU\ c &UHGLWRUVFRQVLVWVRIDPRXQWVRZHGWRVXEVLGLDU\XQGHUWDNLQJVR I~P ~P DQGRWKHUFUHGLWRUVRI~P ~P 'XULQJDUHYLHZRILQWHUFRPSDQ\ORDQVDQG ERUURZLQJVZDVXQGHUWDNHQ$GD\UHSD\PHQWFODXVHZDVUHPRYHGIURPWKHORDQGRFXPHQWDWLRQUHVXOWLQJLQDUHFODVVLƬFDWLRQIURPFXUUHQWWRQRQFXUUHQWOLDELOLWLHVRI~P d7KHPRYHPHQWVLQWRWDOHTXLW\VKDUHKROGHUVoIXQGVDUHVKRZQRQSDJH . 7KHƬQDQFLDOVWDWHPHQWVRIWKHFRPSDQ\RQSDJHV196 to 198 were approved by the Board of Directors on 6 May 2015 and were signed on its behalf by: 6LU0LFKDHO5DNH Chairman *DYLQ3DWWHUVRQ Chief Executive 7RQ\&KDQPXJDP Group Finance Director financials.indb 197 15/05/2015 01:52 198 BT Group plc Annual Report 2015 %7*URXSSOFFRPSDQ\UHFRQFLOLDWLRQRIPRYHPHQWLQHTXLW\VKDUHKROGHUVoIXQGV Called Share Capital 3URƬW XS{VKDUH premium redemption and loss capitala account reserve Own shares b accountb,c Total £m £m £m £m £m £m At 1 April 2013 408 62 27 9,667 9,332 3URƬWIRUWKHƬQDQFLDO\HDU ––––977977 Dividends paid –––– Capital contribution in respect of share-based payments ––––6060 Net buyback of own shares – – – 3 At 1 April 2014 408 62 27 3URƬWIRUWKHƬQDQFLDO\HDU ––––979979 Dividends paid –––– Capital contribution in respect of share-based payments ––––7070 Issue of new sharesa 11989–––1,000 Net buyback of own shares – – – 664 $W0DUFK 419 27 a 7KHDOORWWHGFDOOHGXSDQGIXOO\SDLGRUGLQDU\VKDUHFDSLWDOR IWKHFRPSDQ\DW0DUFKZDV~ P 0DUFK ~P UHSUHVHQWLQJ 0DUFK RUGLQDU\VKDUHVRISHDFK2Q)HEUXDU\WKHFRPSDQ\LVVXHGRUGLQDU\VKDUHVRISDWSSHUVKDUHUDLVLQJ~PQHWRILVVXHFRVWV6KDUHFDSLWDOLQFUHDVHGE\~PDQG VKDUHSUHPLXPE\~ P b,Q{ VKDUHV ZHUHLVVXHGIURP2ZQVKDUHVWRVDWLVI\REOLJDWLRQVXQGHUHPSOR\HHVKDUHVFKHPHVDQGH[HFXWLYHVKDUHDZDUGVDWDFRVWRI~ P ~P $W{0DUFK {VKDUHV 0DUFK ZLWKDQDJJUHJDWHQRPLQDOYDOXHRI~P 0DUFK ~P ZHUHKHOGDVSDUWRI2ZQVKDUHVDWFRVW c7KHSURƬWIRUWKHƬQDQFLDO\HDUGHDOWZLWKLQWKHSURƬWDQGORVVDFFRXQWRIWKHFRPSDQ\DIWHUWDNLQJLQWRDFFRXQWGLYLGHQGVUHFHLYHGIURPVXEVLGLDU\XQGHUWDNLQJVZDV~ P ~ P financials.indb 198 15/05/2015 01:52 The Strategic Report 199 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6XEVLGLDU\XQGHUWDNLQJV The table below gives brief details of the group’s principala operating subsidiariesb at 31 March 2015. All subsidiaries are unlisted and held through an intermediate holding company, unless otherwise stated. No subsidiaries are excluded from the group consolidation. The group did not have any VLJQLƬFDQWDVVRFLDWHVRUMRLQWYHQWXUHVDW0DUFK Group interest Country 6XEVLGLDU\XQGHUWDNLQJV Activity in allotted capitalc of operationd British Telecommunications plc Communications-related services and products provider 100% ordinary UK BT Americas Incd Communications-related services, systems integration and 100% common International products provider BT Australasia Pty Limited Communications-related services and products provider 100% ordinary Australia 100% preference BT Business Direct Limited Technology equipment retailer 100% ordinary UK BT Communications do Brasil Limitadab Communications-related services, technology consulting 100% common Brazil and products provider BT Communications Ireland Limited Telecommunications services provider 100% ordinary Republic of Ireland BT Conferencing Inc Audio, video and web collaboration services provider 100% common US BT Conferencing Video Inc Audio, video and web collaboration services provider 100% common US BT ESPANA, Compania de Servicios Globales Communications-related services and products provider 100% ordinary Spain de Telecommunicaciones, SA BT Fleet Limited Fleet management company 100% ordinary UK BT France SA Communications-related services, systems integration and 100% ordinary France products provider %7 *HUPDQ\ *PE+ &RR+* Communications-related services and products provider 100% ordinary Germany BT Global Communications India Private Communications-related services 74% ordinary India Limited BT Global Services Limited International telecommunications network systems provider 100% ordinary UK BT Holdings Limited Investment holding company 100% ordinary UK BT Hong Kong Limited Communications-related services and products provider 100% ordinary Hong Kong 100% preference BT Italia SpA Communications-related services and products provider 98.6% ordinary Italy BT IT Services Limitede IT solutions provider 100% ordinary UK BT Latam Argentina SA Communications-related services and products provider 100% common Argentina BT Limited International telecommunications network systems provider 100% ordinary International BT Managed Services Limited Communications-related services and products provider 100% ordinary UK BT Nederland NV Communications-related services and products provider 100% ordinary Netherlands BT Payment Services Limited Payment services provider 100% ordinary UK BT Services SA Technology consulting and engineering services 100% ordinary France BT Singapore Pte Ltd Communications-related services and products provider 100% ordinary Singapore BT Switzerland AG Communications-related services and products provider 100% ordinary Switzerland Communications Global Network Services Communications-related services and products provider 100% ordinary International Limitedd &RPPXQLFDWLRQV1HWZRUNLQJ6HUYLFHV 8. Communications-related services and products provider 100% ordinary UK dabs.com plc Technology equipment retailer 100% ordinary UK Plusnet plc Broadband service provider 100% ordinary UK Radianz Americas Inc Global managed network service provider 100% common US 100% preference a 7KHJURXSFRPSULVHVDODUJHQXPEHURIHQWLWLHVDQGLWLVQRWSUDFWLFDOWRLQFOXGHDOORIWKHPLQWKLVOLVW7KHOLVWWKHUHIRUHLQFOXGHVRQO\WKRVHHQWLWLHVWKDWKDYHDVLJQLƬFDQWLPSDFWRQWKHUHYHQXH SURƬWRUDVVHWVRIWKHJURXS$IXOOOLVWRIVXEVLGLDULHVMRLQWYHQWXUHVDQGDVVRFLDWHVZLOOEHDQQH[HGWRWKHFRPSDQ\oVQH[WDQQXDOUHWXUQƬOHGZLWKWKH5HJLVWUDURI&RPSDQLHV b7KHSULQFLSDORSHUDWLQJVXEVLGLDULHV OLVWHGDERYH KDYHDUHSRUWLQJGDWHRI{0DUFKH[FHSWIRUHQWLWLHVGRPLFLOHGLQ%UD]LOGXHWRUHJXODWRU\UHTXLUHPHQWV c7KHSURSRUWLRQRIYRWLQJULJKWVKHOGFRUUHVSRQGVWRWKHDJJUHJDWHLQWHUHVWSHUFHQWDJHKHOGE\WKHKROGLQJFRPSDQ\DQGVXEVLGLDU\XQGHUWDNLQJV d$OORYHUVHDVXQGHUWDNLQJVDUHLQFRUSRUDWHGLQWKHLUFRXQWU\RIRSHUDWLRQV6XEVLGLDU\XQGHUWDNLQJVRSHUDWLQJLQWHUQDWLRQDOO\DUHDOOLQFRUSRUDWHGLQ(QJODQGDQG:DOHVH[FHSW%7$PHULFDV,QF DQG&RPPXQLFDWLRQV*OREDO1HWZRUN6HUYLFHV/LPLWHGZKLFKDUHLQFRUSRUDWHGLQWKH86DQG%HUPXGDUHVSHFWLYHO\ e2Q0D\%7(QJDJH,7/LPLWHGFKDQJHGLWVQDPHWR%7,76HUYLFHV/LPLWHG financials.indb 199 15/05/2015 01:52 200 BT Group plc Annual Report 2015 financials.indb 200 15/05/2015 01:52 7KH6WUDWHJLF5HSRUW 201 2YHUYLHZ 3XUSRVHDQGVWUDWHJ\ 'HOLYHULQJRXUVWUDWHJ\ *URXSSHUIRUPDQFH *RYHUQDQFH )LQDQFLDOVWDWHPHQWV $GGLWLRQDOLQIRUPDWLRQ $GGLWLRQDO,QIRUPDWLRQ ,QWKLVVHFWLRQ\RXZLOOƬQGPRUHƬQDQFLDO 202 $OWHUQDWLYHSHUIRUPDQFHPHDVXUHV and operational statistics. We also provide 205 6HOHFWHGƬQDQFLDOGDWD information for shareholders on subjects such 207 Financial and operational statistics as dividends and location. We have also 209 ,QIRUPDWLRQIRUVKDUHKROGHUV included certain information relating 226 &URVVUHIHUHQFHWR)RUP) to our planned acquisition of EE, as well 230 *ORVVDU\RIWHUPV as a glossary of terms we use in this report. 5HYLVLRQVPDGHWROLQHRIEXVLQHVVUHVXOWV (ƪHFWLYHIURP$SULOZHPDGHDQXPEHU of changes in our internal organisational VWUXFWXUH&RPSDUDWLYHƬQDQFLDOUHVXOWVIRU DQGKDYHEHHQUHVWDWHG IRUWKHDƪHFWHGOLQHVRIEXVLQHVVto be on a consistent basis throughout this Annual Report. We have provided further details on page 149. financials.indb 201 15/05/2015 01:52 202 BT Group plc Annual Report 2015 $OWHUQDWLYHSHUIRUPDQFHPHDVXUHV Introduction We assess the performance of the group using a variety of alternative performance measures. We principally discuss the group’s results on an nDGMXVWHGoEDVLV7KHUDWLRQDOHIRUXVLQJDGMXVWHGPHDVXUHVLVH[SODLQHGEHORZ5HVXOWVRQDQDGMXVWHGEDVLVDUHSUHVHQWHGEHIRUHVSHFLƬFLWHPV :HDOVRH[SODLQƬQDQFLDOSHUIRUPDQFHXVLQJPHDVXUHVWKDWDUHQRWGHƬQHGXQGHU,)56DQGDUHWKHUHIRUHWHUPHGnQRQ*$$3oPHDVXUHV 7KH{QRQ*$$3PHDVXUHVZHXVHDUH WKHWUHQGLQXQGHUO\LQJUHYHQXHH[FOXGLQJWUDQVLWDQGLQXQGHUO\LQJRSHUDWLQJFRVWVH[FOXGLQJWUDQVLW DVZHOODVLQUHSRUWHGDQGDGMXVWHG(%,7'$ UHSRUWHGDQGQRUPDOLVHGIUHHFDVKƮRZ DQGQHWGHEW$UHFRQFLOLDWLRQIURPWKHVHQRQ*$$3PHDVXUHV to the nearest measure prepared in accordance with IFRS is presented below. The alternative performance measures we use may not be directly comparable with similarly titled measures used by other companies. 6SHFLƬFLWHPV 7KHJURXSoVLQFRPHVWDWHPHQWDQGVHJPHQWDODQDO\VLVVHSDUDWHO\LGHQWLI\WUDGLQJUHVXOWVEHIRUHVSHFLƬFLWHPV7KHGLUHFWRUVEHOLHYHWKDWSUHVHQWDWLRQ RIWKHJURXSoVUHVXOWVLQWKLVZD\LVUHOHYDQWWRDQXQGHUVWDQGLQJRIWKHJURXSoVƬQDQFLDOSHUIRUPDQFHDVVSHFLƬFLWHPVDUHLGHQWLƬHGE\YLUWXHRIWKHLU VL]HQDWXUHRULQFLGHQFH7KLVSUHVHQWDWLRQLVFRQVLVWHQWZLWKWKHZD\WKDWƬQDQFLDOSHUIRUPDQFHLVPHDVXUHGE\PDQDJHPHQWDQGUHSRUWHGWRWKH Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. In determining whether an HYHQWRUWUDQVDFWLRQLVVSHFLƬFPDQDJHPHQWFRQVLGHUVTXDQWLWDWLYHDVZHOODVTXDOLWDWLYHIDFWRUVVXFKDVWKHIUHTXHQF\RUSUHGLFWDELOLW\RIRFFXUUHQFH ([DPSOHVRIFKDUJHVRUFUHGLWVPHHWLQJWKHDERYHGHƬQLWLRQDQGZKLFKKDYHEHHQSUHVHQWHGDVVSHFLƬFLWHPVLQWKHFXUUHQWDQGRUSULRU\HDUVLQFOXGH disposals of businesses and investments, regulatory settlements, historic insurance or litigation claims, business restructuring programmes, asset impairment charges, property rationalisation programmes, net interest on pensions and the settlement of multiple tax years. In the event that other LWHPVPHHWWKHFULWHULDZKLFKDUHDSSOLHGFRQVLVWHQWO\IURP\HDUWR\HDUWKH\DUHDOVRWUHDWHGDVVSHFLƬFLWHPV 6SHFLƬFLWHPVDUHGLVFORVHGLQQRWHWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV 7UHQGVLQXQGHUO\LQJUHYHQXHDQGRSHUDWLQJFRVWV 8QGHUO\LQJUHYHQXHDQGXQGHUO\LQJRSHUDWLQJFRVWVDUHPHDVXUHVZKLFKVHHNWRUHƮHFWWKHXQGHUO\LQJSHUIRUPDQFHRIWKHJURXSWKDWZLOOFRQWULEXWH WRORQJWHUPVXVWDLQDEOHSURƬWDEOHJURZWK$VVXFKWKH\H[FOXGHWKHLPSDFWRIDFTXLVLWLRQVRUGLVSRVDOVIRUHLJQH[FKDQJHPRYHPHQWVDQG VSHFLƬFLWHPV:HIRFXVRQWKHWUHQGVLQXQGHUO\LQJUHYHQXHDQGXQGHUO\LQJRSHUDWLQJFRVWVH[FOXGLQJWUDQVLWDVWUDQVLWWUDƯFLVORZPDUJLQDQG LV{VLJQLƬFDQWO\DƪHFWHGE\UHGXFWLRQVLQPRELOHWHUPLQDWLRQUDWHV A reconciliation from the decrease in reported revenue and in reported operating costs, the most directly comparable IFRS measures, to the decrease in underlying revenue and underlying operating costs excluding transit, is set out below. 2015 2014 2013 Year ended 31 March % % % 'HFUHDVH LQFUHDVHLQUHSRUWHGUHYHQXH 1.0 6SHFLƬFLWHPV 'HFUHDVHLQDGMXVWHGUHYHQXH Transit revenue 0.6 1.0 1.3 Acquisitions and disposals – 0.2 Foreign exchange movements 1.4 0.9 'HFUHDVH LQFUHDVHLQXQGHUO\LQJUHYHQXHH[FOXGLQJWUDQVLW 0.5 2015 2014 2013 Year ended 31 March % % % 'HFUHDVHLQUHSRUWHGRSHUDWLQJFRVWV Depreciation and amortisation 0.3 1.2 'HFUHDVH LQFUHDVHLQUHSRUWHGRSHUDWLQJFRVWVEHIRUHGHSUHFLDWLRQDQGDPRUWLVDWLRQ 1.1 6SHFLƬFLWHPV 'HFUHDVHLQDGMXVWHGRSHUDWLQJFRVWVEHIRUHGHSUHFLDWLRQDQGDPRUWLVDWLRQ Transit costs 1.0 1.4 1.7 Acquisitions and disposals – 0.2 Foreign exchange movements 1.5 – 1.0 'HFUHDVH LQFUHDVHLQXQGHUO\LQJRSHUDWLQJFRVWVEHIRUHGHSUHFLDWLRQDQGDPRUWLVDWLRQH[FOXGLQJWUDQVLW 4 1.1 financials.indb 202 15/05/2015 01:52 The Strategic Report 203 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information (%,7'$ ,QDGGLWLRQWRPHDVXULQJƬQDQFLDOSHUIRUPDQFHRIWKHJURXSDQGOLQHVRIEXVLQHVVEDVHGRQRSHUDWLQJSURƬWZHDOVRPHDVXUHSHUIRUPDQFHEDVHGRQ (%,7'$DQGDGMXVWHG(%,7'$(%,7'$LVGHƬQHGDVWKHJURXSSURƬWEHIRUHGHSUHFLDWLRQDPRUWLVDWLRQQHWƬQDQFHH[SHQVHDQGWD[DWLRQ$GMXVWHG (%,7'$LVGHƬQHGDV(%,7'$EHIRUHVSHFLƬFLWHPV(%,7'$LVDFRPPRQPHDVXUHXVHGE\LQYHVWRUVDQGDQDO\VWVWRHYDOXDWHWKHRSHUDWLQJƬQDQFLDO performance of companies, particularly in the telecommunications sector. We consider EBITDA and adjusted EBITDA to be useful measures of our operating performance because they approximate the underlying operating FDVKƮRZE\HOLPLQDWLQJGHSUHFLDWLRQDQGDPRUWLVDWLRQ(%,7'$DQGDGMXVWHG(%,7'$DUHQRWGLUHFWPHDVXUHVRIRXUOLTXLGLW\ZKLFKLVVKRZQE\RXU FDVKƮRZVWDWHPHQWDQGQHHGWREHFRQVLGHUHGLQWKHFRQWH[WRIRXUƬQDQFLDOFRPPLWPHQWV Within the lines of business we may also consider our performance using an underlying EBITDA measure, which additionally excludes the impact of acquisitions and disposals and foreign exchange. $UHFRQFLOLDWLRQIURPJURXSRSHUDWLQJSURƬWWKHPRVWGLUHFWO\FRPSDUDEOH,)56PHDVXUHWRUHSRUWHGDQGDGMXVWHGJURXS(%,7'$LVVHWRXWEHORZ ${UHFRQFLOLDWLRQEHWZHHQRSHUDWLQJSURƬWDQGDGMXVWHG(%,7'$IRURXUOLQHVRIEXVLQHVVLVVHWRXWLQQRWHWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV 2015 2014 2013 Year ended 31 March £m £m £m 2SHUDWLQJSURƬW Depreciation and amortisation 2,538 2,695 2,843 5HSRUWHG(%,7'$ 6SHFLƬFLWHPV 253 276 352 $GMXVWHG(%,7'$ (DUQLQJVSHUVKDUH :HDOVRPHDVXUHƬQDQFLDOSHUIRUPDQFHEDVHGRQDGMXVWHGHDUQLQJVSHUVKDUHZKLFKH[FOXGHVVSHFLƬFLWHPV%DVLFDQGDGMXVWHGHDUQLQJVSHUVKDUH DQGWKHSHUVKDUHLPSDFWRIVSHFLƬFLWHPVDUHDVIROORZV 2015 2014 2013 Pence Pence Pence Year ended 31 March per share £m per share £m per share £m %DVLFHDUQLQJVSHUVKDUHSURƬWa 26.5 25.7 24.8 6SHFLƬFLWHPVb 5.0 406 2.5 196 1.5 111 $GMXVWHGEDVLFHDUQLQJVSHUVKDUHSURƬW 31.5 28.2 26.3 a7KHVWDWHGSURƬWDPRXQWVDUHWKHFRPSRQHQWVRIWKHWRWDOSURƬWZKLFKDUHDWWULEXWDEOHWRHTXLW\VKDUHKROGHUVH[FOXGLQJQRQFRQWUROOLQJLQWHUHVWV b6SHFLƬFLWHPVDUHVHWRXWLQQRWHWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV :HGLVFORVHUHSRUWHGHDUQLQJVSHUVKDUHERWKEDVLFDQGGLOXWHGLQQRWHWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV )UHHFDVKƮRZ 1RUPDOLVHGIUHHFDVKƮRZLVRQHRIWKHJURXSoVNH\SHUIRUPDQFHLQGLFDWRUVE\ZKLFKRXUƬQDQFLDOSHUIRUPDQFHLVPHDVXUHG1RUPDOLVHGIUHH FDVKƮRZLVGHƬQHGDVWKHQHWLQFUHDVHLQFDVKDQGFDVKHTXLYDOHQWVOHVV FDVKƮRZVIURPƬQDQFLQJDFWLYLWLHV H[FHSWQHWLQWHUHVWSDLG WKH DFTXLVLWLRQRUGLVSRVDORIJURXSXQGHUWDNLQJV WKHQHWVDOHRIVKRUWWHUPLQYHVWPHQWVDQGH[FOXGLQJ WKHFDVKLPSDFWRIVSHFLƬFLWHPV SXUFKDVHV RI{WHOHFRPPXQLFDWLRQVOLFHQFHV DQGWKHFDVKWD[EHQHƬWRISHQVLRQGHƬFLWSD\PHQWV)RUQRQWD[UHODWHGLWHPVWKHDGMXVWPHQWVDUHPDGHRQD pre-tax basis. 1RUPDOLVHGIUHHFDVKƮRZLVSULPDULO\DOLTXLGLW\PHDVXUH+RZHYHUZHDOVREHOLHYHLWLVDQLPSRUWDQWLQGLFDWRURIRXURYHUDOORSHUDWLRQDOSHUIRUPDQFH DVLWUHƮHFWVWKHFDVKZHJHQHUDWHIURPRSHUDWLRQVDIWHUFDSLWDOH[SHQGLWXUHDQGƬQDQFLQJFRVWVERWKRIZKLFKDUHVLJQLƬFDQWRQJRLQJFDVKRXWƮRZV DVVRFLDWHGZLWKLQYHVWLQJLQRXULQIUDVWUXFWXUHDQGƬQDQFLQJRXURSHUDWLRQV,QDGGLWLRQQRUPDOLVHGIUHHFDVKƮRZH[FOXGHVFDVKƮRZVWKDWDUH determined at a corporate level independently of ongoing trading operations such as dividends, share buybacks, acquisitions and disposals and UHSD\PHQWDQGUDLVLQJRIGHEW1RUPDOLVHGIUHHFDVKƮRZLVQRWDPHDVXUHRIWKHIXQGVWKDWDUHDYDLODEOHIRUGLVWULEXWLRQWRVKDUHKROGHUV 2XUNH\IUHHFDVKƮRZPHDVXUHFKDQJHGIURPDGMXVWHGIUHHFDVKƮRZWRQRUPDOLVHGIUHHFDVKƮRZLQIROORZLQJWKH~EQOXPSVXP SHQVLRQGHƬFLWSD\PHQWPDGHLQ0DUFK7KH~PWD[FUHGLWUHODWLQJWRWKLVGHƬFLWSD\PHQWZRXOGKDYHGLVWRUWHGRXUIUHHFDVKƮRZPHDVXUH LQDVZRXOGWKH~PSD\PHQWIRUWKH*VSHFWUXPOLFHQFH&HUWDLQKLVWRULFDOLQFHQWLYHVKDUHDZDUGVVWLOOXVHDGMXVWHGIUHH FDVKƮRZDVRQHRIWKHSHUIRUPDQFHFULWHULDIRUYHVWLQJ$GMXVWHGIUHHFDVKƮRZGRHVQRWH[FOXGHSXUFKDVHVRIWHOHFRPPXQLFDWLRQVOLFHQFHVDQG WKHFDVKWD[EHQHƬWRISHQVLRQGHƬFLWSD\PHQWV financials.indb 203 15/05/2015 01:52 204 BT Group plc Annual Report 2015 $UHFRQFLOLDWLRQIURPQHWFDVKLQƮRZIURPRSHUDWLQJDFWLYLWLHVWKHPRVWGLUHFWO\FRPSDUDEOH,)56PHDVXUHWRUHSRUWHGDGMXVWHGDQGQRUPDOLVHGIUHH FDVKƮRZLVVHWRXWEHORZ 2015 2014 2013 Year ended 31 March £m £m £m 1HWFDVKLQƮRZIURPRSHUDWLQJDFWLYLWLHV $GGEDFNSHQVLRQGHƬFLWSD\PHQWs 876 325 325 ,QFOXGHGLQFDVKƮRZVIURPLQYHVWLQJDFWLYLWLHV Net capital expenditure before purchases of telecommunications licences Purchases of telecommunications licences –– Interest received 1069 6DOHVRIQRQFXUUHQWƬQDQFLDODVVHWV 844 ,QFOXGHGLQFDVKƮRZVIURPƬQDQFLQJDFWLYLWLHV Interest paid 5HSRUWHGIUHHFDVKƮRZ 1HWFDVKRXWƮRZIURPVSHFLƬFLWHPV 154 356 366 $GMXVWHGIUHHFDVKƮRZ $GGEDFN GHGXFW Purchases of telecommunications licences – – 202 &DVKWD[EHQHƬWRISHQVLRQGHƬFLWSD\PHQWV 1RUPDOLVHGIUHHFDVKƮRZ Net debt 1HWGHEWFRQVLVWVRIORDQVDQGRWKHUERUURZLQJV ERWKFXUUHQWDQGQRQFXUUHQW OHVVFXUUHQWDVVHWLQYHVWPHQWVDQGFDVKDQGFDVKHTXLYDOHQWV/RDQV and other borrowings are measured as the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Our net debt calculation VWDUWVIURPWKHH[SHFWHGIXWXUHXQGLVFRXQWHGFDVKƮRZVWKDWVKRXOGDULVHZKHQRXUƬQDQFLDOLQVWUXPHQWVPDWXUH:HDGMXVWWKHVHFDVKƮRZVWR UHƮHFWKHGJHGULVNVWKDWDUHUHPHDVXUHGXQGHUIDLUYDOXHKHGJHVDVZHOODVIRUWKHLPSDFWRIWKHHƪHFWLYHLQWHUHVWPHWKRG&XUUHQF\GHQRPLQDWHG balances within net debt are translated to Sterling at swap rates where hedged. Net debt is a measure of the group’s net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the group’s cash position and indebtedness. There are material limitations in the use of alternative performance measures and the use of the term net debt does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure. 1HWGHEWLVFRQVLGHUHGWREHDQDOWHUQDWLYHSHUIRUPDQFHPHDVXUHDVLWLVQRWGHƬQHGLQ,)567KHPRVWGLUHFWO\FRPSDUDEOH,)56PHDVXUHLVWKH DJJUHJDWHRIORDQVDQGRWKHUERUURZLQJV FXUUHQWDQGQRQFXUUHQW FXUUHQWDVVHWLQYHVWPHQWVDQGFDVKDQGFDVKHTXLYDOHQWV$UHFRQFLOLDWLRQIURP these to net debt is given below. 2015 2014 At 31 March £m £m Loans and other borrowings 9,768 9,814 Less: Cash and cash equivalents Current asset investments Adjustments: To retranslate debt balances at swap rates where hedged by currency swaps 7RUHPRYHDFFUXHGLQWHUHVWDSSOLHGWRUHƮHFWWKHHƪHFWLYHLQWHUHVWPHWKRGDQGIDLUYDOXHDGMXVWPHQWV Net debt financials.indb 204 15/05/2015 01:52 The Strategic Report 205 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6HOHFWHGƬQDQFLDOGDWD 6XPPDU\JURXSLQFRPHVWDWHPHQW 2015 2014 2013 2012 2011 Year ended 31 March £m £m £m £m £m 5HYHQXH Adjusted 17,851 18,287 18,339 19,397 20,174 6SHFLƬFLWHPV 128 – – 2SHUDWLQJFRVWV Adjusted 6SHFLƬFLWHPV 237 2SHUDWLQJSURƬW Adjusted 3,733 3,421 3,300 3,062 2,879 6SHFLƬFLWHPV 1HWƬQDQFHH[SHQVH Adjusted 6SHFLƬFLWHPV 6KDUHRISRVWWD[ ORVV SURƬWRIDVVRFLDWHVDQGMRLQWYHQWXUHV Adjusted 9 10 21 91021 3URƬW ORVV RQGLVSRVDORILQWHUHVWLQDVVRFLDWHVDQGMRLQWYHQWXUHVsVSHFLƬFLWHPV 25 130 – 42 3URƬWEHIRUHWD[DWLRQ Adjusted 3,172 2,827 2,656 2,391 2,055 6SHFLƬFLWHPV 7D[DWLRQH[SHQVH Adjusted 6SHFLƬFLWHPV 121 319 230 212 327 3URƬWIRUWKH\HDU Adjusted 2,541 2,214 2,059 1,815 1,610 6SHFLƬFLWHPV %DVLFHDUQLQJVSHUVKDUH Adjusted 31.5p 28.2p 26.3p 23.4p 20.7p 6SHFLƬFLWHPV S S S S S 26.5p 25.7p 24.8p 22.6p 15.9p $YHUDJHQXPEHURIVKDUHVXVHGLQEDVLFHDUQLQJVSHUVKDUH PLOOLRQV 8,056 7,857 7,832 7,763 7,750 $YHUDJHQXPEHURIVKDUHVXVHGLQGLOXWHGHDUQLQJVSHUVKDUH PLOOLRQV 8,191 8,231 8,203 8,201 8,116 Diluted earnings per share 26.1p 24.5p 23.7p 21.4p 15.2p Dividends per sharea 12.4p 10.9p 9.5p 8.3p 7.4p Dividends per share, US centsa,b 18.4c 18.2c 14.4c 13.3c 11.8c a'LYLGHQGVSHUVKDUHUHSUHVHQWVWKHGLYLGHQGSDLGDQGSURSRVHGLQUHVSHFWRIWKHUHOHYDQWƬQDQFLDO\HDU8QGHU,)56GLYLGHQGVDUHUHFRJQLVHGDVDGHGXFWLRQIURPVKDUHKROGHUVoHTXLW\ZKHQWKH\DUHSDLG b%DVHGRQDFWXDOGLYLGHQGVSDLGDQGRU\HDUHQGH[FKDQJHUDWHRQSURSRVHGGLYLGHQGV financials.indb 205 15/05/2015 01:52 206 BT Group plc Annual Report 2015 6XPPDU\JURXSEDODQFHVKHHW 2015 2014 2013 2012 2011 At 31 March £m £m £m £m £m Intangible assets 3,170 3,087 3,258 3,127 3,389 Property, plant and equipment 13,505 13,840 14,153 14,388 14,623 Other non-current assets 3,045 2,265 2,794 1,902 1,597 7RWDOQRQFXUUHQWDVVHWV Current assets less current liabilities 7RWDODVVHWVOHVVFXUUHQWOLDELOLWLHV 483 Non-current loans and other borrowings 5HWLUHPHQWEHQHƬWREOLJDWLRQV Other non-current liabilities 7RWDODVVHWVOHVVOLDELOLWLHV 808 Ordinary shares 419 408 408 408 408 Share premium account 1,051 62 62 62 62 Own shares Other reserves 1,485 1,447 1,790 1,756 1,763 5HWDLQHG ORVV HDUQLQJV 2) 100 796 7RWDOHTXLW\ GHƬFLW 808 financials.indb 206 15/05/2015 01:52 The Strategic Report 207 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information Financial and operational statistics Financial statistics 2015 2014 2013 2012 2011 Year ended 31 March £m £m £m £m £m DHFUHDVH increase LQXQGHUO\LQJUHYHQXHH[FOXGLQJWUDQVLWaE 0.4)% 0.5% $GMXVWHG(%,7'$DE 6,271 6,116 6,143 6,034 5,858 )UHHFDVKƮRZa Normalised 2,830 2,450 2,300 2,307 2,076 Reported 2,782 2,171 2,292 2,318 2,011 1HWGHEWDW0DUFKa 5,119 7,028 7,797 9,082 8,816 2SHUDWLQJFRVWVH[FOXGLQJGHSUHFLDWLRQDQGDPRUWLVDWLRQb 11,580 12,171 12,196 13,363 14,316 ([SHQGLWXUHRQUHVHDUFKDQGGHYHORSPHQW Research and development operating expense 172 257 279 285 389 Capitalised software development costs 330 273 265 275 295 7RWDOH[SHQGLWXUHRQUHVHDUFKDQGGHYHORSPHQW 502 530 544 560 684 &DSLWDOH[SHQGLWXUH Additions to property, plant and equipment comprised: Land and buildings 31 44 42 37 20 Network infrastructure Transmission equipment 1,472 1,126 1,170 1,121 985 Exchange equipment 33 24 32 46 43 Other network equipment 455 657 660 794 851 Other &RPSXWHUVDQGRƯFHHTXLSPHQW 85 112 80 95 92 Motor vehicles and other 75 8 24 43 87 Total additions to property, plant and equipment 2,151 1,971 2,008 2,136 2,078 ,QFUHDVH GHFUHDVH LQHQJLQHHULQJVWRUHV 6 12 2,157 1,966 1,999 2,135 2,090 Software additions 561 506 454 459 500 7RWDOFDSLWDOH[SHQGLWXUHEHIRUHJRYHUQPHQWJUDQWV Government grants – – &DSLWDOH[SHQGLWXUHQHWRIJRYHUQPHQWJUDQWV 'HFUHDVH LQFUHDVH in payables 92 10 43 55 &DVKRXWƮRZIURPFDSLWDOH[SHQGLWXUHEHIRUHSXUFKDVHVRIWHOHFRPPXQLFDWLRQVOLFHQFHV Purchases of telecommunications licences – – 202 – – &DVKRXWƮRZIURPWRWDOFDSLWDOH[SHQGLWXUH a'HƬQHGRQSDJHV202 to . b%HIRUHVSHFLƬFLWHPV financials.indb 207 15/05/2015 01:52 208 BT Group plc Annual Report 2015 Financial ratios Year ended 31 March 2015 2014 2013 2012 2011 5HWXUQRQFDSLWDOHPSOR\HGa Adjustedb – % 25.2 22.9 22.1 20.4 18.5 Reported – % 23.6 21.1 20.6 19.3 16.7 ,QWHUHVWFRYHUc Adjustedb – times 6.7 5.8 5.1 4.5 3.4 Reported – times 4.1 3.8 3.8 3.7 2.0 1HWGHEWWRDGMXVWHG(%,7'$bsWLPHV 0.8 1.1 1.3 1.5 1.5 &DSLWDOH[SHQGLWXUHcDVDSHUFHQWDJHRIUHYHQXHb – % 13.0 12.8 13.3 13.4 12.8 a7KHUDWLRLVEDVHGRQSURƬWEHIRUHWD[DWLRQDQGQHWƬQDQFHH[SHQVHWRFDSLWDOHPSOR\HG&DSLWDOHPSOR\HGLVUHSUHVHQWHGE\WRWDODVVHWVOHVVFXUUHQWOLDELOLWLHV H[FOXGLQJFRUSRUDWLRQWD[FXUUHQWERUURZLQJV GHULYDWLYHƬQDQFLDOOLDELOLWLHVDQGƬQDQFHOHDVHFUHGLWRUV OHVVGHIHUUHGDQGFXUUHQWWD[DVVHWVUHWLUHPHQWEHQHƬWDVVHWFDVKDQGFDVKHTXLYDOHQWVGHULYDWLYHƬQDQFLDODVVHWVDQGLQYHVWPHQWV b%HIRUHVSHFLƬFLWHPV c7KHQXPEHURIWLPHVQHWƬQDQFHH[SHQVHLVFRYHUHGE\RSHUDWLQJSURƬW Operational statisticsa All values in thousands unless otherwise stated. Year ended 31 March 2015 2014 2013 2012 2011 %7*OREDO6HUYLFHV 2UGHULQWDNH ~P 6,458 6,963 6,348 6,683 7,270 %7%XVLQHVV 2UGHULQWDNH ~P 2,073 2,098 2,002 1,916 – %7&RQVXPHU $YHUDJHUHYHQXHSHUXVHU $538 b ~ 415 391 365 343 326 Active lines 9,447 9,650 9,824 10,321 10,799 BT TV customers 1,142 1,002 810 707 575 %7:KROHVDOH 2UGHULQWDNH ~P 1,908 1,910 2,031 748 – 2SHQUHDFK Physical lines Internal 12,243 12,697 13,214 14,128 15,356 External 4,472 4,544 5,088 5,192 5,191 Fully unbundled 8,587 7,846 6,702 5,631 4,266 7RWDOSK\VLFDOOLQHV %7*URXS Broadband lines Total retail 7,713 7,281 6,704 6,280 5,691 %7:KROHVDOH H[WHUQDO 1,831 1,872 2,066 2,262 2,421 Openreach 9,761 9,302 8,859 8,253 7,608 7RWDOEURDGEDQGOLQHV 5 Broadband market share Total retail share of net asset additionsc 51% 69% 51% 55% 51% Total retail share of installed base 40% 39% 38% 37% 36% Lines sold through BT lines of businessd Consumer 9,633 9,908 10,207 10,919 11,802 %XVLQHVVFRUSRUDWH 3,503 3,784 4,165 4,551 4,917 7RWDOH[FKDQJHOLQHV a&HUWDLQFRPSDUDWLYHVKDYHEHHQUHVWDWHGWRSUHVHQWWKHPRQDFRQVLVWHQWEDVLV7KHVHDUHDOLJQHGZLWKRXURSHUDWLRQDOSHUIRUPDQFHPHDVXUHVWKDWZHSXEOLVKRQDTXDUWHUO\EDVLV b5ROOLQJPRQWKFRQVXPHUUHYHQXHOHVVPRELOH32/2VOHVV%76SRUWUHYHQXHIURP VDWHOOLWHFXVWRPHUVSD\LQJIRUWKHFKDQQHOVRXUZKROHVDOHGHDOVDQGIURPFRPPHUFLDOSUHPLVHV 7KLVLVGLYLGHGE\DYHUDJHQXPEHURISULPDU\OLQHV c'6/DQGƬEUHH[FOXGLQJFDEOH d/LQHVVROGWKURXJK%7OLQHVRIEXVLQHVVLQFOXGHDQDORJXHOLQHVDQGGLJLWDOFKDQQHOVVROGWKURXJK%7*OREDO6HUYLFHV%7%XVLQHVV%7&RQVXPHUDQG%7:KROHVDOH financials.indb 208 15/05/2015 01:52 The Strategic Report 209 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information ,QIRUPDWLRQIRUVKDUHKROGHUV $OWKRXJK%7EHOLHYHVWKDWWKHH[SHFWDWLRQVUHƮHFWHGLQWKHVHIRUZDUG looking statements are reasonable, it can give no assurance that &DXWLRQDU\VWDWHPHQWUHJDUGLQJIRUZDUGORRNLQJ these expectations will prove to have been correct. Because these VWDWHPHQWV VWDWHPHQWVLQYROYHULVNVDQGXQFHUWDLQWLHVDFWXDOUHVXOWVPD\GLƪHU This Annual Report contains certain forward-looking statements which materially from those expressed or implied by these forward-looking are made in reliance on the safe harbour provisions of the US Private VWDWHPHQWV)DFWRUVWKDWFRXOGFDXVHGLƪHUHQFHVEHWZHHQDFWXDOUHVXOWV Securities Litigation Reform Act of 1995. These statements relate and those implied by the forward-looking statements include, but are to analyses and other information which are based on forecasts of not limited to: material adverse changes in economic conditions in the future results and estimates of amounts not yet determinable. These markets served by BT; future regulatory actions, decisions, conditions statements include, without limitation, those concerning: current and or requirements in BT’s operating areas, including competition from future years’ outlook; revenue and revenue trends; EBITDA; free cash others; selection by BT of the appropriate trading and marketing models ƮRZ FDSLWDOH[SHQGLWXUH SURSRVHGDFTXLVLWLRQVDQGUHODWHGIRUHFDVWV for its products and services; technological innovations, including shareholder returns including progressive dividends and share buyback; the cost of developing new products, networks and solutions and the net debt; credit ratings; our group-wide restructuring programme, cost need to increase expenditures for improving the quality of service; the transformation plans and restructuring costs; investment in and roll DQWLFLSDWHGEHQHƬWVDQGDGYDQWDJHVRIQHZWHFKQRORJLHVSURGXFWV RXWRIRXUƬEUHQHWZRUNDQGLWVUHDFKLQQRYDWLRQVLQFUHDVHGVSHHGV and services not being realised; developments in the convergence of and speed availability; our broadband-based service and strategy; our technologies; external threats to cyber security, data or resilience; investment in TV, enhancing our TV service and BT Sport; the BT Pension prolonged adverse weather conditions resulting in a material increase in Scheme recovery plan, operating charge, regular cash contributions RYHUWLPHVWDƪRURWKHUFRVWVRULPSDFWRQFXVWRPHUVHUYLFH WKHWLPLQJ DQGLQWHUHVWH[SHQVH HƪHFWLYHWD[UDWH JURZWKRSSRUWXQLWLHVLQ RIHQWU\DQGSURƬWDELOLW\RI%7LQFHUWDLQPDUNHWV VLJQLƬFDQWFKDQJHVLQ networked IT services, the pay-TV services market, broadband, and PDUNHWVKDUHVIRU%7RULWVSULQFLSDOSURGXFWVDQGVHUYLFHV ƮXFWXDWLRQV mobility and future voice; growth of, and opportunities available in, in foreign currency exchange rates or interest rates; the underlying the communications industry and BT’s positioning to take advantage assumptions and estimates made in respect of major customer of those opportunities; expectations regarding competition, market contracts proving unreliable; the aims of the group-wide restructuring shares, prices and growth; expectations regarding the convergence programme not being achieved; uncertainties and assumptions relating of technologies; plans for the launch of new products and services; WRWKHSURSRVHG((DFTXLVLWLRQFRQGLWLRQVRIWKHDFTXLVLWLRQ LQFOXGLQJ network performance and quality; the impact of regulatory initiatives, regulatory approval)QRWEHLQJVDWLVƬHGDQGWKHDQWLFLSDWHGV\QHUJLHV decisions and outcomes on operations, including the regulation of VWUDWHJLFEHQHƬWVDQGUHWXUQRQLQYHVWPHQWQRWEHLQJUHDOLVHG DQG WKH8.Ƭ[HGZKROHVDOHDQGUHWDLOEXVLQHVVHVDQGWKHLPSDFWRIWKH JHQHUDOƬQDQFLDOPDUNHWFRQGLWLRQVDƪHFWLQJ%7oVSHUIRUPDQFHDQG Undertakings to Ofcom under the Enterprise Act; BT’s possible or DELOLW\WRUDLVHƬQDQFH&HUWDLQRIWKHVHIDFWRUVDUHGLVFXVVHGLQPRUH DVVXPHGIXWXUHUHVXOWVRIRSHUDWLRQVDQGRUWKRVHRILWVDVVRFLDWHVDQG detail elsewhere in this Annual Report including, without limitation, in MRLQWYHQWXUHV LQYHVWPHQWSODQV DGHTXDF\RIFDSLWDO ƬQDQFLQJSODQV 2XUULVNV on pages 41 to 52. BT undertakes no obligation to update any DQGUHƬQDQFLQJUHTXLUHPHQWV GHPDQGIRUDQGDFFHVVWREURDGEDQG forward-looking statements whether written or oral that may be made and the promotion of broadband by third-party service providers; from time to time, whether as a result of new information, future events DQWLFLSDWHGƬQDQFLDODQGRWKHUEHQHƬWVDQGV\QHUJLHVUHVXOWLQJIURPWKH or otherwise. proposed acquisition of EE, including revenue, operating cost and capital expenditure synergies; our plans and objectives following completion of the acquisition; and those statements preceded by, followed by, or that include the words ‘aims’, ‘believes’, ‘expects’, ‘anticipates’, ‘intends’, ‘will’, ’should’ ‘plans’, ’strategy’, ’future’, ‘likely’, ’seeks’, ’projects’, ‘estimates’ or similar expressions. financials.indb 209 15/05/2015 01:52 210 BT Group plc Annual Report 2015 6WRFNH[FKDQJHOLVWLQJV The principal listing of BT Group’s ordinary shares is on the London Stock Exchange. Trading on the London Stock Exchange is under the symbol ‘BT.A’. $PHULFDQ'HSRVLWDU\6KDUHV $'6V HDFKUHSUHVHQWLQJWHQRUGLQDU\VKDUHVKDYHEHHQLVVXHGE\-30RUJDQ&KDVH &RDV'HSRVLWDU\IRUWKH$PHULFDQ 'HSRVLWDU\5HFHLSWV $'5V HYLGHQFLQJWKH$'6VDQGDUHOLVWHGRQWKH1HZ Share and ADS prices Pence per ordinary share US$ per ADS High Low High Low pence pence US$ US$ )LQDQFLDO\HDUVHQGHG0DUFK 2011 191.10 109.90 31.31 16.19 2012 232.10 161.00 36.89 25.69 2013 281.00 200.70 42.76 31.02 2014 418.10 265.70 69.75 40.70 2015 470.55 356.20 70.18 57.99 )LQDQFLDO\HDUHQGHG0DUFK 1 April – 30 June 2013 322.30 265.70 49.86 40.70 1 July – 30 September 2013 348.90 316.20 55.86 47.40 1 October – 31 December 2013 382.00 340.60 63.13 54.49 1 January – 31 March 2014 418.10 369.90 69.75 60.99 )LQDQFLDO\HDUHQGHG0DUFK 1 April – 30 June 2014 406.10 356.20 68.19 59.68 1 July – 30 September 2014 397.80 367.90 67.46 61.48 1 October – 31 December 2014 420.00 360.10 65.43 57.99 1 January – 31 March 2015 470.55 385.90 70.18 58.60 0RQWKV November 2014 410.20 362.20 63.98 58.25 December 2014 420.00 397.40 65.43 61.92 January 2015 431.10 385.90 64.76 58.60 February 2015 460.00 413.10 70.08 62.24 March 2015 470.55 438.00 70.18 65.17 April 2015 467.60 441.40 71.51 65.65 1 May 2015 459.80 – 70.00 – 7KHSULFHVDUHWKHKLJKHVWDQGORZHVWFORVLQJPLGGOHPDUNHWSULFHVIRU%7RUGLQDU\VKDUHVDVGHULYHGIURPWKH'DLO\2ƯFLDO/LVWRIWKH/RQGRQ6WRFN Exchange and the highest and lowest closing sales prices of ADSs, as reported on the New York Stock Exchange. )OXFWXDWLRQVLQWKHH[FKDQJHUDWHEHWZHHQ6WHUOLQJDQGWKH86'ROODUDƪHFWWKH86'ROODUHTXLYDOHQWRIWKH6WHUOLQJSULFHRIWKHFRPSDQ\oVRUGLQDU\ VKDUHVRQWKH/RQGRQ6WRFN([FKDQJHDQGDVDUHVXOWDUHOLNHO\WRDƪHFWWKHPDUNHWSULFHRIWKH$'6VRQWKH1HZ %DFNJURXQG BT Group plc is a public limited company registered in England and Wales and listed on the London and New York Stock Exchanges. It was incorporated in England and Wales on 30 March 2001 as Newgate Telecommunications Limited with the registered number 4190816. Its registered RƯFHDGGUHVVLV1HZJDWH6WUHHW/RQGRQ(&$$-7KHFRPSDQ\FKDQJHGLWVQDPHWR%7*URXSSOFRQ6HSWHPEHU)ROORZLQJWKH demerger of mmO2 from BT in November 2001, the continuing activities of BT were transferred to BT Group plc. British Telecommunications plc is a wholly-owned subsidiary of BT Group plc and encompasses virtually all the businesses and assets of the BT group. The successor to the statutory corporation British Telecommunications, it was incorporated in England and Wales as a public limited company, wholly owned by the Government, as a result of the Telecommunications Act 1984. Between November 1984 and July 1993, the Government sold all of its VKDUHKROGLQJLQ%ULWLVK7HOHFRPPXQLFDWLRQVSOFLQWKUHHSXEOLFRƪHULQJV financials.indb 210 15/05/2015 01:52 The Strategic Report 211 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information $QDO\VLVRIVKDUHKROGLQJVDW0DUFK Ordinary shares of 5p each Percentage Number of Percentage Number of of total shares held of total Range holdings % millions % 1 – 399 354,114 39.69 73 0.87 400 – 799 236,217 26.47 131 1.56 800 – 1,599 170,855 19.15 191 2.28 1,600 – 9,999 125,118 14.02 381 4.55 10,000 – 99,999 4,754 0.53 90 1.07 100,000 – 999,999 647 0.07 244 2.91 1,000,000 – 4,999,999 503 0.06 3,244 38.74 5,000,000 and abovea,b,c,d 30 0.00 4,019 48.00 Totale 892,238 100.00 8,373 100.00 a VKDUHVZHUHKHOGLQWUXVWE\,OIRUG7UXVWHHV -HUVH\ /LPLWHGIRUDOORFDWLRQWRHPSOR\HHVXQGHUWKHHPSOR\HHVKDUHSODQV b8QGHUWKH%7*URXS(PSOR\HH6KDUH,QYHVWPHQW3ODQPVKDUHVZHUHKHOGLQWUXVWRQEHKDOIRI SDUWLFLSDQWVZKRZHUHEHQHƬFLDOO\HQWLWOHGWRWKHVKDUHV PVKDUHVZHUHKHOGLQWKH FRUSRUDWHQRPLQHH%7*URXS(DV\6KDUHRQEHKDOIRI EHQHƬFLDORZQHUV c PVKDUHVZHUHUHSUHVHQWHGE\$'6V$QDQDO\VLVE\VL]HRIKROGLQJLVQRWDYDLODEOHIRUWKHVH dPVKDUHVZHUHKHOGDVWUHDVXU\VKDUHV e RIWKHVKDUHVZHUHLQLQGLYLGXDOKROGLQJVRIZKLFK ZHUHMRLQWKROGLQJVDQG RIWKHVKDUHVZHUHLQLQVWLWXWLRQDOKROGLQJV As far as the company is aware, the company is not directly or indirectly owned or controlled by another corporation or by the UK Government or any other foreign government or by any other natural or legal person severally or jointly. There are no arrangements known to the company, the operation of which may at a subsequent date result in a change in control of the company. 7KHFRPSDQ\oVPDMRUVKDUHKROGHUVGRQRWKDYHGLƪHUHQWYRWLQJULJKWVWRWKRVHRIRWKHUVKDUHKROGHUV At 1 May 2015, there were 8,373,227,252 ordinary shares outstanding, including 866,369 shares held as treasury shares. At the same date, approximately 13.7P$'6V HTXLYDOHQWWR137.9m ordinary shares, or approximately 1.65% of the total number of ordinary shares outstanding on that date) were outstanding and were held by 1,615 record holders of ADRs. At 31 March 2015, there were 3,661 shareholders with a US address on the register of shareholders who in total hold 0.03% of the ordinary shares of the company. financials.indb 211 15/05/2015 01:52 212 BT Group plc Annual Report 2015 'LYLGHQGV $ƬQDOGLYLGHQGLQUHVSHFWRIWKH\HDUHQGHG0DUFKZDVSDLGRQ6HSWHPEHUWRVKDUHKROGHUVRQWKHUHJLVWHURQ$XJXVW and an interim dividend in respect of the year ended 31 March 2015 was paid on 9 February 2015 to shareholders on the register on 30 December 7KHƬQDOSURSRVHGGLYLGHQGLQUHVSHFWRIWKH\HDUHQGHG0DUFKLIDSSURYHGE\VKDUHKROGHUVZLOOEHSDLGRQ6HSWHPEHUWR shareholders on the register on 14 August 2015. 7KHGLYLGHQGVSDLGRUSD\DEOHRQ%7VKDUHVDQG$'6VIRUWKHODVWƬYHƬQDQFLDO\HDUVDUHVKRZQLQWKHIROORZLQJWDEOH7KHGLYLGHQGVRQWKHRUGLQDU\ shares exclude the associated tax credit. The amounts shown are not those that were actually paid to holders of ADSs. For the tax treatment of dividends paid, see 7D[DWLRQRIGLYLGHQGV on page 223. Dividends have been translated from Sterling into US Dollars using exchange rates prevailing on the date the ordinary dividends were paid. Per ordinary share Per ADS Per ADS Interim Final Total Interim Final Total Interim Final Total Financial years ended 31 March pence pence pence £ £ £ US$ US$ US$ 2011 2.40 5.00 7.40 0.240 0.500 0.740 0.366 0.777 1.143 2012 2.60 5.70 8.30 0.260 0.570 0.830 0.390 0.885 1.275 2013 3.00 6.50 9.50 0.300 0.650 0.950 0.451 0.994 1.445 2014 3.40 7.50 10.90 0.340 0.750 1.090 0.534 1.187 1.721 2015 3.90 8.50 12.40 0.390 0.850 1.240 0.573 –a –a a4XDOLI\LQJKROGHUVRI$'6VRQUHFRUGDVRI$XJXVWDUHHQWLWOHGWRUHFHLYHWKHƬQDOGLYLGHQGZKLFKZLOOEHSDLGWR$'6KROGHUVRQ6HSWHPEHUVXEMHFWWRDSSURYDODWWKH$*07KH86'ROODU DPRXQWRIWKHƬQDOGLYLGHQGRISHQFHSHU$'6WREHSDLGWRKROGHUVRI$'6VZLOOEHEDVHGRQWKHH[FKDQJHUDWHLQHƪHFWRQ6HSWHPEHUWKHGDWHRISD\PHQWWRKROGHUVRIRUGLQDU\VKDUHV $VGLYLGHQGVSDLGE\WKHFRPSDQ\DUHLQ6WHUOLQJH[FKDQJHUDWHƮXFWXDWLRQVZLOODƪHFWWKH86'ROODUDPRXQWVUHFHLYHGE\KROGHUVRI$'6VRQ conversion by the Depositary of such cash dividends. Dividend mandate $Q\VKDUHKROGHUZLVKLQJGLYLGHQGVWREHSDLGGLUHFWO\LQWRDEDQNRUEXLOGLQJVRFLHW\DFFRXQWVKRXOGFRQWDFWWKH6KDUHKROGHU+HOSOLQH VHHSDJH225), or go to the Shareholder information page of our website. 'LYLGHQGVSDLGLQWKLVZD\ZLOOEHSDLGWKURXJKWKH%DQNHUV$XWRPDWHG&OHDULQJ6\VWHP %$&6 6KDUHEX\EDFN Total number of shares Maximum number Total number Average price paid purchased as part of of shares yet to be of shares SHUVKDUH SHQFHs publicly announced purchased under the Calendar montha purchased net of dealing costs) plans or programmes AGM authorityb April 2014 nil QD nil 726,434,300 May 22,753,900 381 22,753,900 703,680,400 June 16,083,700 392 16,083,700 687,596,700 July 12,000,000 381 12,000,000 780,000,000 August nil QD nil 780,000,000 September nil QD nil 780,000,000 October nil QD nil 780,000,000 November 10,008,300 373 10,008,300 769,991,700 December 3,549,900 411 3,549,900 766,441,800 January 2015 nil QD nil 766,441,800 February 16,058,900 442 16,058,900 750,382,900 March nil QD nil 750,382,900 396 a3XUFKDVHVPDGHIURP$SULOWR-XO\ZHUHPDGHLQDFFRUGDQFHZLWKDUHVROXWLRQSDVVHGDWWKH$*0KHOGRQ-XO\2ZQVKDUHSXUFKDVHVE\%7IURP-XO\WR0DUFK ZHUHPDGHLQDFFRUGDQFHZLWKDUHVROXWLRQSDVVHGDWWKH$*0RQ-XO\ b$XWKRULW\ZDVJLYHQWRSXUFKDVHXSWRPVKDUHVRQ-XO\DQG PVKDUHVRQ-XO\7KHVHDXWKRULWLHVH[SLUHDWWKHFORVHRIWKHIROORZLQJ$*0 $WRWDORIPRZQVKDUHVZHUHSXUFKDVHGGXULQJ2IWKHVHPVKDUHVZHUHSXUFKDVHGIRUDWRWDOFRQVLGHUDWLRQRI~P PVKDUHV for a consideration of £76m under the authority given at the 2013 AGM and 6m shares for a consideration of £26m under the authority given at the 2014 AGM), and 55m shares were purchased by the BT Group Employee Share Ownership Trust for a consideration of £218m. Please see note 20 to WKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVIRUIXUWKHUGHWDLOV financials.indb 212 15/05/2015 01:52 The Strategic Report 213 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 'LYLGHQGLQYHVWPHQWSODQ Under the Dividend investment plan, cash from participants’ dividends is used to buy further BT shares in the market. Shareholders could elect to receive additional shares in lieu of a cash dividend for the following dividends: Price per share Date paid pence LQWHULP 7 February 2011 185.89 ƬQDO 5 September 2011 164.64 LQWHULP 6 February 2012 216.39 ƬQDO 3 September 2012 223.15 LQWHULP 4 February 2013 265.01 ƬQDO 2 September 2013 339.38 LQWHULP 3 February 2014 385.76 ƬQDO 8 September 2014 387.00 LQWHULP 9 February 2015 436.92 *OREDO,QYHVW'LUHFW Details of the direct purchase plan run by the ADR Depositary, JPMorgan Chase & Co, Global Invest Direct, including reinvestment of dividends, are DYDLODEOHIURP-30RUJDQ&KDVH &RRQ WROOIUHHZLWKLQWKH86 RURQZULWWHQUHTXHVWWRWKH$'5'HSRVLWDU\ 7RWDOVKDUHKROGHUUHWXUQ 7RWDO6KDUHKROGHU5HWXUQ 765 LVWKHPHDVXUHRIWKHUHWXUQVWKDWDFRPSDQ\KDVJHQHUDWHGIRULWVVKDUHKROGHUVUHƮHFWLQJERWKPRYHPHQWLQWKH VKDUHSULFHDQGGLYLGHQGVZKLFKDUHDVVXPHGWREHUHLQYHVWHG:HFRPSDUHWKLVDJDLQVWLQGH[HVIRUWKH8.PDUNHW )76( DQGWKH(XURSHDQ WHOHFRPPXQLFDWLRQVVHFWRU )76(XURƬUVW7HOFR,QGH[ %7oV765IRUZDVSRVLWLYH FRPSDUHGZLWKWKHPDUNHWZKLFKZDVSRVLWLYH DQGWKHVHFWRUZKLFKZDVSRVLWLYH%7oV765SHUIRUPDQFHLQZDVPDLQO\GULYHQE\WKHPRYHPHQWLQWKHVKDUHSULFHZKLFK LQFUHDVHGIURPDFORVLQJSULFHRI SRQ0DUFKWRDFORVLQJSULFHRISRQ0DUFK2YHUWKHODVWƬYHƬQDQFLDO\HDUV BT’s TSR was positive 325.6%, compared with the market’s TSR of positive 42.4% and the sector’s TSR of positive 88.6%. BT’s TSR performance vs the FTSE100 and FTSEuroƬUst 300 Telco Index 31 March 2009=100 450 400 350 300 250 200 150 100 50 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 BT FTSE100 Sector Index € Source: Datastream The graph shows the relative TSR performance of BT, the FTSE100 DQGWKH)76(XURƬUVW7HOFR,QGH[oYHUWKHSDVWƬYH\HDUV )LQGRXWPRUH financials.indb 213 15/05/2015 01:52 214 BT Group plc Annual Report 2015 5HVXOWVDQQRXQFHPHQWV Expected announcements of results: 5HVXOWVIRUWKHƬQDQFLDO\HDU Datea 1st quarter 31 July 2015 2nd quarter and half year October 2015 3rd quarter and nine months January 2016 4th quarter and full year May 2016 Annual Report 2016 published May 2016 a'DWHVPD\EHVXEMHFWWRFKDQJH 6KDUH*LIW 6PDOOSDUFHOVRIVKDUHVZKLFKPD\EHXQHFRQRPLFWRVHOORQWKHLURZQFDQEHGRQDWHGWR6KDUH*LIWsWKHVKDUHGRQDWLRQFKDULW\ 5HJLVWHUHG&KDULW\ number 1052686). ShareGift transfers these holdings into their name, aggregates them, and uses the proceeds to support a wide range of UK registered charities based on donor suggestion. They can also accept larger donations of shares. If you would like further details about ShareGift, please visit www.sharegift.org, email [email protected] or telephone them on 020 7930 3737. ([FKDQJHUDWHV %7SXEOLVKHVLWVFRQVROLGDWHGƬQDQFLDOVWDWHPHQWVH[SUHVVHGLQ6WHUOLQJ7KHIROORZLQJWDEOHVSURYLGHFHUWDLQLQIRUPDWLRQFRQFHUQLQJWKHH[FKDQJH UDWHVEHWZHHQ6WHUOLQJDQG86'ROODUVEDVHGRQWKHQRRQEX\LQJUDWHLQ1HZ Year ended 31 March 2015 2014 2013 2012 2011 Period end 1.49 1.67 1.52 1.60 1.60 Averagea 1.61 1.60 1.58 1.61 1.56 High 1.72 1.68 1.63 1.67 1.64 Low 1.47 1.48 1.49 1.53 1.43 a7KHDYHUDJHRIWKH1RRQ%X\LQJ5DWHVLQHƪHFWRQWKHODVWGD\RIHDFKPRQWKGXULQJWKHUHOHYDQWSHULRG Month April March February January December 2015 2015 2015 2015 2014 High 1.55 1.54 1.55 1.56 1.57 Low 1.47 1.47 1.50 1.50 1.55 On 1 May 2015, the latest practicable date for this Annual Report, the Noon Buying Rate was US$1.51 to £1.00. financials.indb 214 15/05/2015 01:52 The Strategic Report 215 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information $UWLFOHVRI$VVRFLDWLRQ $UWLFOHV LL E\VSHFLDOUHVROXWLRQUHGXFHLWVVKDUHFDSLWDODQ\FDSLWDO The following is a summary of the principal provisions of BT’s Articles, a redemption reserve and any share premium account. FRS\RIZKLFKKDVEHHQƬOHGZLWKWKH5HJLVWUDURI&RPSDQLHV$nKROGHU G 'LYLGHQGV of shares’ and a ’shareholder’ is, in either case, the person entered on The company’s shareholders can declare dividends by passing an the company’s register of members as the holder of the relevant shares. ordinary resolution provided that no dividend can exceed the amount Shareholders can choose whether their shares are to be evidenced UHFRPPHQGHGE\WKHGLUHFWRUV'LYLGHQGVPXVWEHSDLGRXWRISURƬWV E\VKDUHFHUWLƬFDWHV LHLQFHUWLƬFDWHGIRUP RUKHOGLQHOHFWURQLF DYDLODEOHIRUGLVWULEXWLRQ,IWKH%RDUGFRQVLGHUVWKDWWKHSURƬWVRIWKH LH{XQFHUWLƬFDWHG IRUPLQ&5(67 WKHHOHFWURQLFVHWWOHPHQWV\VWHPLQ company justify such payments, they can pay interim dividends on any the UK). class of shares of the amounts and on the dates and for the periods they %7DGRSWHGQHZ$UWLFOHVRI$VVRFLDWLRQZLWKHƪHFWIURP2FWREHU decide. Fixed dividends will be paid on any class of shares on the dates largely to take account of changes in UK company law brought about by stated for the payments of those dividends. WKH&RPSDQLHV$FW $FW 8QGHUWKDW$FWWKH0HPRUDQGXP 7KHGLUHFWRUVFDQRƪHURUGLQDU\VKDUHKROGHUVWKHULJKWWRFKRRVHWR of Association serves a more limited role as historical evidence of the receive new ordinary shares, which are credited as fully paid, instead of formation of the company. Since October 2009, the provisions in some or all of their cash dividend. Before they can do this, the company’s relation to objects in BT’s Memorandum are deemed to form part of shareholders must have passed an ordinary resolution authorising the BT’s Articles, and have been deleted from those Articles because of GLUHFWRUVWRPDNHWKLVRƪHU VKDUHKROGHUVSDVVLQJDUHVROXWLRQWRWKLVHƪHFWDWWKH$*08QGHUWKH 2006 Act, BT’s objects are unrestricted. Any dividend which has not been claimed for ten years after it was declared or became due for payment will be forfeited and will belong to D 9RWLQJULJKWV the company. Subject to the restrictions described below, on a show of hands, every shareholder present in person or by proxy at any general meeting has H 'LVWULEXWLRQRIDVVHWVRQZLQGLQJXS one vote and, on a poll, every shareholder present in person or by proxy ,IWKHFRPSDQ\LVZRXQGXS ZKHWKHUWKHOLTXLGDWLRQLVYROXQWDU\XQGHU has one vote for each share which they hold. supervision of the court or by the court) the liquidator can, with the authority of a special resolution passed by the shareholders, divide Voting at any meeting of shareholders is by a show of hands unless a among the shareholders all or any part of the assets of the company. SROOLVGHPDQGHGE\WKHFKDLUPDQRIWKHPHHWLQJRUE\DWOHDVWƬYH This applies whether the assets consist of property of one kind or VKDUHKROGHUVDWWKHPHHWLQJZKRDUHHQWLWOHGWRYRWH RUWKHLUSUR[LHV GLƪHUHQWNLQGV)RUWKLVSXUSRVHWKHOLTXLGDWRUFDQSODFHZKDWHYHUYDOXH or by one or more shareholders at the meeting who are entitled to vote the liquidator considers fair on any property and decide how the division RUWKHLUSUR[LHV DQGZKRKDYHEHWZHHQWKHPDWOHDVWRIWKHWRWDO LVFDUULHGRXWEHWZHHQVKDUHKROGHUVRUGLƪHUHQWJURXSVRIVKDUHKROGHUV votes of all shareholders who have the right to vote at the meeting. The liquidator can also, with the same authority, transfer any assets No person is, unless the Board decides otherwise, entitled to attend or WRWUXVWHHVXSRQDQ\WUXVWVIRUWKHEHQHƬWRIVKDUHKROGHUVZKLFKWKH vote at any general meeting or to exercise any other right conferred by OLTXLGDWRUGHFLGHV7KHOLTXLGDWLRQRIWKHFRPSDQ\FDQWKHQEHƬQDOLVHG being a shareholder if they or any person appearing to be interested in and the company dissolved. No past or present shareholder can be those shares has been sent a notice under section 793 of the Companies compelled to accept any shares or other property under the Articles $FW ZKLFKFRQIHUVXSRQSXEOLFFRPSDQLHVWKHSRZHUWRUHTXLUH which could give that shareholder a liability. information with respect to interests in their voting shares) and they I 7UDQVIHURIVKDUHV or any interested person has failed to supply to the company the &HUWLƬFDWHGVKDUHVRIWKHFRPSDQ\PD\EHWUDQVIHUUHGLQZULWLQJHLWKHU information requested within 14 days after delivery of that notice. by an instrument of transfer in the usual standard form or in another These restrictions end seven days after the earlier of the date the form approved by the Board. The transfer form must be signed or made shareholder complies with the request satisfactorily or the company HƪHFWLYHE\RURQEHKDOIRIWKHSHUVRQPDNLQJWKHWUDQVIHU7KHSHUVRQ receives notice that there has been an approved transfer of the shares. making the transfer will be treated as continuing to be the holder of the shares transferred until the name of the person to whom the shares are E 9DULDWLRQRIULJKWV being transferred is entered in the register of members of the company. :KHQHYHUWKHVKDUHFDSLWDORIWKHFRPSDQ\LVVSOLWLQWRGLƪHUHQWFODVVHV of shares, the special rights attached to any of those classes can be The Board may refuse to register any transfer of any share held in varied or withdrawn either: FHUWLƬFDWHGIRUP L ZLWKWKHVDQFWLRQRIDVSHFLDOUHVROXWLRQSDVVHGDWDVHSDUDWH L ZKLFKLVLQIDYRXURIPRUHWKDQIRXUMRLQWKROGHUV RU meeting of the holders of the shares of that class; or LL XQOHVVWKHWUDQVIHUIRUPWREHUHJLVWHUHGLVSURSHUO\VWDPSHGWR LL ZLWKWKHFRQVHQWLQZULWLQJRIWKHKROGHUVRIDWOHDVWLQ show payment of any applicable stamp duty and delivered to the nominal value of the issued shares of that class. FRPSDQ\oVUHJLVWHUHGRƯFHRUDQ\RWKHUSODFHWKH%RDUGGHFLGH 7KHWUDQVIHUPXVWKDYHZLWKLW WKHVKDUHFHUWLƬFDWHIRUWKHVKDUHV At any separate meeting, the necessary quorum is two persons holding to be transferred; any other evidence which the Board ask for to or representing by proxy not less than one-third in nominal amount of prove that the person wanting to make the transfer is entitled to WKHLVVXHGVKDUHVRIWKHFODVVLQTXHVWLRQ EXWDWDQ\DGMRXUQHGPHHWLQJ do this; and if the transfer form is executed by another person on any person holding shares of the class or his proxy is a quorum). behalf of the person making the transfer, evidence of the authority The company can issue new shares and attach any rights and restrictions of that person to do so. to them, as long as this is not restricted by special rights previously given 7UDQVIHUVRIXQFHUWLƬFDWHGVKDUHVPXVWEHFDUULHGRXWXVLQJDUHOHYDQW to holders of any existing shares. Subject to this, the rights of new shares V\VWHP DVGHƬQHGLQWKH8QFHUWLƬFDWHG6HFXULWLHV5HJXODWLRQV can take priority over the rights of existing shares, or existing shares can WKH5HJXODWLRQV 7KH%RDUGFDQUHIXVHWRUHJLVWHUDWUDQVIHURIDQ take priority over them, or the new shares and the existing shares can XQFHUWLƬFDWHGVKDUHLQWKHFLUFXPVWDQFHVVWDWHGLQWKH5HJXODWLRQV rank equally. If the Board decide not to register a transfer of a share, the Board must F &KDQJHVLQFDSLWDO notify the person to whom that share was to be transferred giving The company may by ordinary resolution: reasons for its decision. This must be done as soon as possible and L GLYLGHDOORUDQ\RILWVVKDUHFDSLWDOLQWRVKDUHVZLWKDVPDOOHU no later than two months after the company receives the transfer or nominal value; and instruction from the operator of the relevant system. LL FRQVROLGDWHDQGGLYLGHDOORUSDUWRILWVVKDUHFDSLWDOLQWRVKDUHVRID J 8QWUDFHGVKDUHKROGHUV larger nominal value. BT may sell any shares after advertising its intention and waiting for The company may also: three months if the shares have been in issue for at least ten years, during that period at least three dividends have become payable L EX\EDFNLWVRZQVKDUHV DQG on them and have not been cashed and BT has not heard from the financials.indb 215 15/05/2015 01:52 216 BT Group plc Annual Report 2015 shareholder or any person entitled to the dividends by transmission. LY ZKHUH%7RUDQ\RILWVVXEVLGLDU\XQGHUWDNLQJVLVRƪHULQJDQ\ The net sale proceeds belong to BT, but it must pay those proceeds to shares, debentures or other securities for subscription or purchase the former shareholder or the person entitled to them by transmission if to which the director is or may be entitled to participate as a that shareholder, or that other person, asks for them. holder of BT securities; or where the director will be involved in the underwriting or sub-underwriting; K *HQHUDOPHHWLQJVRIVKDUHKROGHUV Y UHODWLQJWRDQ\RWKHUFRPSDQ\LQZKLFKWKHGLUHFWRUKDVDQLQWHUHVW Every year the company must hold an annual general meeting. The GLUHFWO\RULQGLUHFWO\ LQFOXGLQJKROGLQJDSRVLWLRQLQWKDWFRPSDQ\ Board can call a general meeting at any time and, under general law, or is a shareholder, creditor, employee or otherwise involved in that must call one on a shareholders’ requisition. At least 21 clear days’ company – these rights do not apply if the director owns 1% or written notice must be given for every annual general meeting. For more of that company or of the voting rights in that company; every other general meeting, at least 14 clear days’ written notice must YL UHODWLQJWRDQDUUDQJHPHQWIRUWKHEHQHƬWRI%7HPSOR\HHVRU be given. The Board can specify in the notice of meeting a time by which former BT employees or any of BT’s subsidiary undertakings which a person must be entered on the register of shareholders in order to RQO\JLYHVWKHGLUHFWRUVWKHVDPHEHQHƬWVWKDWDUHJHQHUDOO\JLYHQ KDYHWKHULJKWWRDWWHQGRUYRWHDWWKHPHHWLQJ7KHWLPHVSHFLƬHGPXVW to the employees or former employees to whom the arrangement QRWEHPRUHWKDQKRXUVEHIRUHWKHWLPHƬ[HGIRUWKHPHHWLQJ relates; L /LPLWDWLRQVRQULJKWVRIQRQUHVLGHQWRUIRUHLJQVKDUHKROGHUV YLL UHODWLQJWR%7EX\LQJRUUHQHZLQJLQVXUDQFHIRUDQ\OLDELOLW\IRU The only limitation imposed by the Articles on the rights of non-resident WKHEHQHƬWRIGLUHFWRUVRUIRUWKHEHQHƬWRISHUVRQVZKRLQFOXGH or foreign shareholders is that a shareholder whose registered address directors; is outside the UK and who wishes to receive notices of meetings of YLLL UHODWLQJWRWKHJLYLQJRILQGHPQLWLHVLQIDYRXURIGLUHFWRUV shareholders or documents from BT must give the company an address L[ UHODWLQJWRWKHIXQGLQJRIH[SHQGLWXUHE\DQ\GLUHFWRURUGLUHFWRUV within the UK to which they may be sent. on defending criminal, civil or regulatory proceedings or actions against the director or the directors; in connection with an M 'LUHFWRUV application to the court for relief; or on defending the director or Directors’ remuneration the directors in any regulatory investigations; or which enables any Excluding remuneration referred to below, each director will be paid director or directors to avoid incurring expenditure as described in such fee for his services as the Board decide, not exceeding £65,000 a this paragraph; and year and increasing by the percentage increase of the retail prices index [ LQZKLFKWKHGLUHFWRUoVLQWHUHVWRUWKHLQWHUHVWRIGLUHFWRUV DVGHƬQHGE\VHFWLRQ ,QFRPHDQG&RUSRUDWLRQ7D[HV$FW generally, has been authorised by an ordinary resolution. for any 12-month period beginning 1 April 1999 or an anniversary of that date. The company may by ordinary resolution decide on a higher Subject to the relevant legislation, the shareholders can, by passing an sum. This resolution can increase the fee paid to all or any directors ordinary resolution, ratify any particular contract carried out in breach of either permanently or for a particular period. The directors may be paid those provisions. their expenses properly incurred in connection with the business of the Directors’ appointment and retirement company. Under BT’s Articles there must be at least two directors, who manage The Board can award extra fees to a director who: holds an executive the business of the company. The shareholders can vary this minimum position; acts as chairman or deputy chairman; serves on a Board DQGRUGHFLGHDPD[LPXPE\RUGLQDU\UHVROXWLRQ7KH%RDUGDQG committee at the request of the Board; or performs any other services WKHVKDUHKROGHUV E\RUGLQDU\UHVROXWLRQ PD\DSSRLQWDSHUVRQZKR which the Board consider extend beyond the ordinary duties of a LVZLOOLQJWREHHOHFWHGDVDGLUHFWRUHLWKHUWRƬOODYDFDQF\RUDVDQ director. additional director. 7KHGLUHFWRUVPD\JUDQWSHQVLRQVRURWKHUEHQHƬWVWRDPRQJRWKHUV At every annual general meeting, any director who was elected or last any director or former director or persons connected with them. re-elected a director at or before the annual general meeting held in the +RZHYHU%7FDQRQO\SURYLGHWKHVHEHQHƬWVWRDQ\GLUHFWRURUIRUPHU third year before the current year, must retire by rotation. Any director GLUHFWRUZKRKDVQRWEHHQDQHPSOR\HHRUKHOGDQ\RWKHURƯFHRU appointed by the directors automatically retires at the next following executive position in the company or any of its subsidiary undertakings, annual general meeting. A retiring director is eligible for re-election. or to relations or dependants of, or people connected to, those directors In addition to any power of removal under the 2006 Act, the or former directors, if the shareholders approve this by passing an shareholders can pass an ordinary resolution to remove a director, even ordinary resolution. WKRXJKKLVRUKHUWLPHLQRƯFHKDVQRWHQGHG7KH\FDQHOHFWDSHUVRQ Directors’ votes to replace that director subject to the Articles, by passing an ordinary A director need not be a shareholder, but a director who is not a resolution. A person so appointed is subject to retirement by rotation shareholder can still attend and speak at shareholders’ meetings. when the director replaced would have been due to retire. Unless the Articles say otherwise, a director cannot vote on a resolution Directors’ borrowing powers DERXWDFRQWUDFWLQZKLFKWKHGLUHFWRUKDVDQLQWHUHVW WKLVZLOODOVRDSSO\ To the extent that the legislation and the Articles allow, the Board can to interests of a person connected with the director). exercise all the powers of the company to borrow money, to mortgage RUFKDUJHLWVEXVLQHVVSURSHUW\DQGDVVHWV SUHVHQWDQGIXWXUH DQG If the legislation allows, a director can vote and be counted in the to issue debentures and other securities, and give security either quorum on a resolution concerning a contract: outright or as collateral security for any debt, liability or obligation of L LQZKLFKWKHGLUHFWRUKDVDQLQWHUHVWRIZKLFKWKHGLUHFWRULVQRW the company or another person. The Board must limit the borrowings aware; or which cannot reasonably be regarded as likely to give rise of the company and exercise all the company’s voting and other rights WRDFRQƮLFWRILQWHUHVW or powers of control exercisable by the company in relation to its LL LQZKLFKWKHGLUHFWRUKDVDQLQWHUHVWRQO\EHFDXVHWKHGLUHFWRULVD subsidiary undertakings so as to ensure that the aggregate amount of holder of shares, debentures or other securities of BT, or by reason all borrowings by the group outstanding, net of amounts borrowed of any other interest in or through BT; intragroup among other things, at any time does not exceed £35bn. LLL ZKLFKLQYROYHV WKHJLYLQJRIDQ\VHFXULW\JXDUDQWHHRULQGHPQLW\ These borrowing powers may only be varied by amending the Articles. to the director or any other person for money lent or obligations N 6LQNLQJIXQGOLDELOLW\WRIXUWKHUFDOOVDQGFKDQJHRIFRQWURO incurred by the director or by any other person at the request BT’s shares are not subject to any sinking fund provision under the RIRUIRUWKHEHQHƬWRI%7RUWKHEHQHƬWRIDQ\RILWVVXEVLGLDU\ Articles or as a matter of the laws of England and Wales. No shareholder undertakings; or a debt or other obligation which is owed by BT is currently liable to make additional contributions of capital in respect or any of its subsidiary undertakings to that other person if the of BT’s ordinary shares in the future. There are no provisions in the director has taken responsibility for all or any part of that debt or Articles or of corporate legislation in England and Wales that would obligation by giving a guarantee, security or indemnity; delay, defer or prevent a change of control. financials.indb 216 15/05/2015 01:52 The Strategic Report 217 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information O 'LVFORVXUHRILQWHUHVWVLQVKDUHV Ordinary Shares: the ordinary shares of nominal value 5 pence each Under the Financial Services and Markets Act 2000 and the UK in the capital of the Company, including, if the context requires, the Disclosure and Transparency Rules there is a statutory obligation on a Consideration Shares SHUVRQZKRDFTXLUHVRUFHDVHVWRKDYHDQRWLƬDEOHLQWHUHVWLQWKHUHOHYDQW Regulations: WKH8QFHUWLƬFDWHG6HFXULWLHV5HJXODWLRQVRIWKH share capital of a public company like BT to notify the company of that United Kingdom fact. The disclosure threshold is 3%. These Rules also deal with the disclosure by persons of interests in shares or debentures of companies Resolutions: the Resolutions set out in the Notice of General Meeting in which they are directors and certain associated companies. Under VHFWLRQ RIWKH$FW UHIHUUHGWRLQ D DERYH %7PD\DVFHUWDLQ Sellers: Deutsche Telekom and Orange the persons who are or have within the last three years been interested Shareholder: DKROGHURI2UGLQDU\6KDUHVDQGp6KDUHKROGHUVqVKDOOEH in its shares and the nature of those interests. The UK City Code on construed accordingly Takeovers and Mergers also imposes strict disclosure requirements with UHJDUGWRGHDOLQJVLQWKHVHFXULWLHVRIDQRƪHURURURƪHUHHFRPSDQ\RQ Sponsor: JP Morgan Cazenove all parties to a takeover and also on their respective associates during the Transaction Documents: the Share Purchase Agreement, the FRXUVHRIDQRƪHUSHULRG Relationship Agreement, the Standstill and Lock-up Agreement and the CP Contracts Material contracts 7KHFRQWUDFWVVXPPDULVHGEHORZ QRWEHLQJHQWHUHGLQWRLQWKHRUGLQDU\ 3URSRVHGDFTXLVLWLRQRI((sVXPPDU\RIWKHSULQFLSDOWHUPV course of business) have been entered into in the two years preceding the date of this document by BT or another member of the group and Share Purchase Agreement On 5 February 2015, the Share Purchase Agreement was entered into are, or may be, material to the group or have been entered into by BT between the Company, the Sellers, who hold 100% of the issued share or another member of the group and contain a provision under which a capital of EE on a combined basis, Deutsche Telekom AG as guarantor member of the group has an obligation or entitlement which is, or may of Deutsche Telekom and Orange SA as guarantor of Orange. Pursuant be, material to BT or such other member of the group. to the Share Purchase Agreement, the Sellers have conditionally agreed 'HƬQLWLRQV to sell, and the Company has conditionally agreed to acquire, the entire issued share capital of EE. 7KHGHƬQLWLRQVIURPWKHVKDUHKROGHUFLUFXODUDSSO\WRWKHIROORZLQJ sections: 3URSRVHGDFTXLVLWLRQRI((sVXPPDU\RIWKHSULQFLSDOWHUPV, 3XUFKDVHSULFH 3URƬWHVWLPDWHDQGSURƬWIRUHFDVWFRQVLGHUHGLQWKHVKDUHKROGHU 1.1 Consideration adjustments circular and)LQDQFLDOHƪHFWVRIWKHDFTXLVLWLRQFRQVLGHUHGLQWKH Under the terms of the Share Purchase Agreement, BT will purchase VKDUHKROGHUFLUFXODU. For reference and understanding, we set out the entire issued share capital of EE for a purchase price equivalent to FHUWDLQRIWKHVHGHƬQLWLRQVEHORZ £12.5 billion on a debt and cash free basis. The purchase price to be paid LVVXEMHFWWRFXVWRPDU\SRVW&RPSOHWLRQDGMXVWPHQWVWRUHƮHFWWKHGHEW Acquisition: the proposed acquisition by BT of EE cash, working capital and capex position of EE at Completion. Based upon Acquisition Resolution: the Resolution to approve the Acquisition and to EE’s net debt as at 31 December 2014, adjusted for estimated other debt- JUDQWWKH'LUHFWRUVVSHFLƬFDXWKRULW\WRDOORWWKH&RQVLGHUDWLRQ6KDUHV OLNHLWHPVWKHFRQVLGHUDWLRQSD\DEOHE\%7ZLOOEHVDWLVƬHGE\ Articles: the articles of association of BT in force from time to time D WKHLVVXHWR'HXWVFKH7HOHNRPRIDURXQGELOOLRQQHZ2UGLQDU\ Shares, equivalent to 12% of BT’s share capital on an enlarged basis Board: the Directors of the Company from time to time post-Acquisition; BT Pension Scheme: %7oVPDLQGHƬQHGEHQHƬWSHQVLRQVFKHPH E DUHVLGXDOFDVKSD\PHQWWR'HXWVFKH7HOHNRPRIDURXQG~ million based upon a reference price of 411.5 pence per Ordinary Buy-Back Resolution: the resolution to approve the buy-back of 6KDUHEHLQJWKHFORVLQJSULFHRQ'HFHPEHU VXEMHFWWR Ordinary Shares from Deutsche Telekom andor Orange pursuant to the further variation in accordance with the cap and collar protection CP Contracts mechanism described below); CP Contracts: the DT CP Contract and Orange CP Contract F WKHLVVXHWR2UDQJHRIDURXQGELOOLRQQHZ2UGLQDU\6KDUHV equivalent to 4% of BT’s share capital on an enlarged basis post- Company: BT Group plc Acquisition; and Completion: completion of the Acquisition pursuant to the terms of the G DUHVLGXDOFDVKSD\PHQWWR2UDQJHRIDURXQG~ELOOLRQEDVHG Share Purchase Agreement XSRQDUHIHUHQFHSULFHRISHQFHSHU2UGLQDU\6KDUH VXEMHFW to further variation in accordance with the cap and collar protection Conditions: the conditions to Completion as set out in the Share mechanism described below). Purchase Agreement The Consideration Shares will be issued at Completion, credited as fully Consideration Shares: the Ordinary Shares to be issued by the Company paid and will rank pari passu in all respects with the existing Ordinary to the Sellers pursuant to the Share Purchase Agreement Shares, including the right to receive all dividends, distributions or any return of capital declared, made or paid after Completion. Directors or Board of Directors: the directors of the Company whose names appear in the section in the shareholder circular entitled 1.2 Cap and collar mechanism 'LUHFWRUV&RPSDQ\6HFUHWDU\5HJLVWHUHG2ƯFHDQG$GYLVHUV The Share Purchase Agreement contains a cap and collar protection mechanism which provides for an adjustment to the cash element of Enlarged Group: the Company and its subsidiaries and subsidiary the consideration where there is a movement in the price of an Ordinary undertakings, including EE and its subsidiaries and subsidiary 6KDUH PHDVXUHGE\UHIHUHQFHWRWKHDYHUDJH2UGLQDU\6KDUHSULFHLQ undertakings, after the Acquisition and from time to time thereafter WKHWUDGLQJGD\VEHIRUHWKHGDWHZKLFKLVƬYH%XVLQHVV'D\VEHIRUH Financial Investor: D4XDOLƬHG,QVWLWXWLRQDO%X\HUDVGHƬQHGLQ5XOH Completion) from the reference price set out above, subject to: $XQGHUWKH866HFXULWLHV$FW RUD4XDOLƬHG,QYHVWRUDV D DPLQLPXPVKDUHSULFHSHU2UGLQDU\6KDUHRIDSSUR[LPDWHO\ GHVFULEHGLQ6HFWLRQ, RI$QQH[,,WR'LUHFWLYH (&RWKHU SHQFH EHLQJ% below the reference price). A share price than any activist fund, or any company licensed as a telecommunications below this level would not result in further adjustment to the cash RSHUDWRU RULWVDƯOLDWHV consideration and therefore the value of the Acquisition would fall General Meeting: the general meeting of the Company held at 10.00 am below £12.5 billion; and on 30 April 2015 to approve the Resolutions E DPD[LPXPVKDUHSULFHSHU2UGLQDU\6KDUHRIDSSUR[LPDWHO\ SHQFH EHLQJ% above the reference price). A share price Long Stop Date: 5 August 2016 above this level would not result in further adjustment to the cash financials.indb 217 15/05/2015 01:52 218 BT Group plc Annual Report 2015 consideration and therefore the value of the Acquisition would 3UH&RPSOHWLRQXQGHUWDNLQJV increase above £12.5 billion. 3.1 BT BT has agreed that until Completion or earlier termination of the Share If the cash element of the consideration due to Deutsche Telekom Purchase Agreement, it shall: LVHVWLPDWHGWREHOHVVWKDQ]HURDW&RPSOHWLRQ DVDUHVXOWRI((oV estimated adjusted net debt position as at Completion), BT can reduce D HQVXUHDWDOOWLPHVWKDWLWVVKDUHVDUHDGPLWWHGWRWKH2ƯFLDO/LVW the number of Ordinary Shares to be issued to Deutsche Telekom by such and to trading on the London Stock Exchange; number as results in the cash consideration payable to Deutsche Telekom E QRWXQGHUWDNHDQ\VKDUHLVVXDQFHRUFUHDWHDQ\ULJKWWRVXEVFULEH then being as near as possible to zero. In such circumstances, Deutsche for any Ordinary Shares or share capital, or issue or create any right Telekom would then receive less than 12% of BT’s enlarged issued share to subscribe for any other securities or equity interests convertible capital as a result of the Acquisition. LQWR2UGLQDU\6KDUHVRUVKDUHFDSLWDO VDYHLQFRQQHFWLRQZLWKDQ\ existing BT employee share plans); 2. Conditions F QRWDQQRXQFHDXWKRULVHGHFODUHPDNHRUSD\DQ\GLYLGHQGRWKHU Completion is conditional upon satisfaction or, where capable of being than ordinary course dividends payable in cash in accordance with waived, waiver of the following Conditions prior to the Long Stop Date its announced dividend policy; RUVXFKODWHUGDWHDVWKHSDUWLHVPD\DJUHH G QRWLPSOHPHQWDQ\VKDUHEX\EDFNRURWKHUUHWXUQRIFDSLWDO D SDVVLQJWKH$FTXLVLWLRQ5HVROXWLRQ except in accordance with its existing ordinary course share buy- E DOORWPHQWRIWKH&RQVLGHUDWLRQ6KDUHVWRWKH6HOOHUVVXEMHFWRQO\WR back programme; their admission to listing and trading; H QRWLPSOHPHQWDQ\UHRUJDQLVDWLRQRURWKHUGHPHUJHURUVSLQRƪ F WKH8./LVWLQJ$XWKRULW\KDYLQJDSSURYHGWKHDGPLVVLRQRIWKH I QRWWDNHDQ\RWKHUDFWLRQZKLFKZRXOGDƪHFWWKHQXPEHURI &RQVLGHUDWLRQ6KDUHVWRWKH2ƯFLDO/LVWDQGWKH/RQGRQ6WRFN Ordinary Shares in issue or make any other shareholder distribution Exchange having approved admission of the Consideration Shares RILQFRPHRUFDSLWDORUVLPLODUDUUDQJHPHQW RWKHUWKDQWKH WRWUDGLQJZLWKHƪHFWIURP&RPSOHWLRQ exceptions outlined above); or G FOHDUDQFHRIWKH$FTXLVLWLRQE\WKH&0$PHDQLQJ J VXEMHFWWRFXVWRPDU\H[FHSWLRQVQRWVROLFLWDQ\WDNHRYHURƪHUIRU L FOHDUDQFHRIWKH$FTXLVLWLRQE\WKH&0$DW3KDVH BT or any similar transaction which would materially prejudice the unconditionally, or conditionally on BT giving remedies, which likelihood of Completion. DUHDW%7oVVROHGLVFUHWLRQWRDJUHH EXWLQFRRUGLQDWLRQDQG As a result of the undertakings described above, BT will be unable consultation with the Sellers); or to access the equity capital markets to raise additional capital until LL FOHDUDQFHRIWKH$FTXLVLWLRQE\WKH&0$DW3KDVH Completion or earlier termination of the Share Purchase Agreement. unconditionally, or conditionally on BT giving remedies, which are to be agreed by BT acting reasonably and in co-ordination 3.2 EE and consultation with the Sellers, provided that BT shall not The Sellers have agreed that until Completion or earlier termination of be required to give any remedy which would have a material the Share Purchase Agreement, they shall procure that EE: DGYHUVHHƪHFWRQ%7RUWKH((*URXSRUZRXOGQRWEH D FDUULHVRQLWVEXVLQHVVLQWKHRUGLQDU\FRXUVHDQGH[HUFLVHVVXFK UHDVRQDEOHIURPDƬQDQFLDORUVWUDWHJLFSHUVSHFWLYHDQGLQWKH ULJKWVDVLWKDVWRSURFXUHWKDWWKHDƪDLUVRI0%1/DUHFDUULHGRQLQ event that BT agrees such remedies, the Sellers shall share the the ordinary course; and cost of such remedies by way of a reasonable reduction in the E GRHVQRWZLWKRXWWKHSULRUFRQVHQWRI%7 H[FHSWLQUHODWLRQWR purchase price for the Acquisition; certain projects of EE agreed with BT around the time of entry into H RULIWKH$FTXLVLWLRQLVUHIHUUHGWRWKH(XURSHDQ&RPPLVVLRQ the Share Purchase Agreement): clearance of the Acquisition by the European Commission, meaning; L PDNHDQ\PDWHULDODFTXLVLWLRQVRUGLVSRVDOVRIDVVHWVRU L FOHDUDQFHRIWKH$FTXLVLWLRQE\WKH(XURSHDQ&RPPLVVLRQ properties; XQGHU$UWLFOH E RIWKH(XURSHDQ8QLRQ0HUJHU LL HQWHULQWRRUDOWHUDQ\PDWHULDOFRQWUDFWVH[FHSWLQWKH Regulation unconditionally, or conditionally on BT giving ordinary course of business; UHPHGLHVZKLFKDUHDW%7oVVROHGLVFUHWLRQWRDJUHH EXWLQFR LLL HQWHULQWRRUDOWHUDQ\H[LVWLQJPDWHULDODUUDQJHPHQWVZLWKWKH ordination and consultation with the Sellers); or Sellers’ Groups; LL FOHDUDQFHRIWKH$FTXLVLWLRQE\WKH(XURSHDQ&RPPLVVLRQ LY LQFXUDQ\QHZPDWHULDOLQGHEWHGQHVVRULQFXUDQ\QHZPDWHULDO XQGHU$UWLFOH RU RIWKH(XURSHDQ8QLRQ0HUJHU guarantee obligations or, except in the ordinary course, Regulation unconditionally, or conditionally on BT giving indemnity obligations; remedies, which are to be agreed by BT acting reasonably and Y DJUHHWRDQ\FKDQJHLQWKHWHUPVRIWKHH[LVWLQJLQYHVWPHQW in co-ordination and consultation with the Sellers, provided strategy or, except in limited circumstances, the funding basis that BT shall not be required to give any remedy which would RIWKH((GHƬQHGEHQHƬWSHQVLRQVFKHPH KDYHDPDWHULDODGYHUVHHƪHFWRQ%7RUWKH((*URXSRUZRXOG YL DJUHHDQ\VXUUHQGHURIRUWDNHDQ\DFWLRQZKLFKFRXOG QRWEHUHDVRQDEOHIURPDƬQDQFLDORUVWUDWHJLFSHUVSHFWLYH prejudice the use of, the EE Group’s tax losses; and in the event that BT agrees such remedies, the Sellers YLL HQWHULQWRRUVHWWOHDQ\PDWHULDOOLWLJDWLRQRURWKHUPDWHULDO shall share the cost of such remedies by way of a reasonable dispute; reduction in the purchase price for the Acquisition; YLLL DFTXLUHDQ\ZLUHOHVVVSHFWUXP I QR((PDWHULDODGYHUVHFKDQJHKDYLQJRFFXUUHG DQG L[ PDNHDQ\IXQGDPHQWDOFKDQJHVWRWKHQHWZRUNWHFKQRORJLHV J QR%7PDWHULDODGYHUVHFKDQJHKDYLQJRFFXUUHG RUSULQFLSDOELOOLQJV\VWHPVRIWKH((*URXS DQGRU If the Acquisition Resolution is approved at the General Meeting and each [ SHUIRUPDQXPEHURIIXUWKHUFXVWRPDU\DFWLRQVLQFOXGLQJ RIWKHRWKHU&RQGLWLRQVLVVDWLVƬHG RUZKHUHFDSDEOHRIEHLQJZDLYHG changing the material general terms of employment of its ZDLYHG SULRUWRWKH/RQJ6WRS'DWH RUVXFKODWHUGDWHDVWKHSDUWLHV employees; adopting or materially amending any employee may agree), the Company will be contractually obliged to proceed to EHQHƬWERQXVRUSURƬWVKDULQJVFKHPH PDWHULDOO\FKDQJLQJLWV Completion unless the Share Purchase Agreement is otherwise terminated. pension and retirement arrangements for employees; declaring DGLYLGHQG H[FHSWLQDFFRUGDQFHZLWK((oVEXGJHW %7H[SHFWVWKH$FTXLVLWLRQWRFRPSOHWHEHIRUHWKHHQGRI%7oV which would result in the Deutsche Telekom cash consideration ƬQDQFLDO\HDU RQ0DUFK resulting from the Aquisition being less than zero; issuing or encumbering shares; or making changes to its accounting policies, constitutional documents or corporate group structure. The Sellers have also agreed to customary standstill provisions prohibiting DFTXLVLWLRQVRI2UGLQDU\6KDUHVRUWKHPDNLQJRIDQ\WDNHRYHURƪHUIRU BT prior to Completion, from which point the terms of the Relationship Agreement and Standstill and Lock-up Agreement shall apply. financials.indb 218 15/05/2015 01:52 The Strategic Report 219 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 6HOOHU:DUUDQWLHV,QGHPQLWLHVDQG&RYHQDQWV use of the brands will be for the purpose of an orderly wind-down and 4.1 Warranties extraction of the Orange and T-Mobile brands from EE’s business and The Share Purchase Agreement contains customary warranties given subject to the continued payment of royalties. by the Sellers, including in relation to authorisations, valid obligations, BT has also undertaken to Deutsche Telekom AG to provide, from ƬOLQJVDQGFRQVHQWVIRUWKHHQWU\RIWKH6HOOHUVLQWRWKH7UDQVDFWLRQ Completion, a back-to-back guarantee of Deutsche Telekom AG’s Documents, and including in relation to the EE Group, its share capital, guarantee to Hutchison, to a maximum value of £750 million. Deutsche DFFRXQWVDQGƬQDQFLDOFRQGLWLRQPDWHULDOOLFHQFHVDQGDSSURYDOV Telekom AG’s existing arrangement guarantees EE’s obligations in FRPSOLDQFHZLWKODZVFRQGLWLRQDQGVXƯFLHQF\RILWVQHWZRUNDQG respect of any liability incurred by EE under the MBNL joint operation. assets, tax, material contracts, related party arrangements, litigation, IP DQG,7V\VWHPVHPSOR\HHVDQGEHQHƬWDUUDQJHPHQWVSHQVLRQVFKHPHV 7. Guarantee real estate and ownership and conduct of the MBNL joint venture Deutsche Telekom AG has agreed to guarantee the performance by arrangement. Deutsche Telekom, and Orange S.A. has agreed to guarantee the performance by Orange, of their respective obligations under the Share 4.2 Indemnities Purchase Agreement. The Sellers have also agreed, amongst other things, to indemnify BT in WKHHYHQWWKDW%7VXƪHUVORVVDVDUHVXOWRIFHUWDLQUHJXODWRU\ƬQHVEHLQJ %UHDNIHH OHYLHGDJDLQVW%7RUWKH((*URXSDQGDJDLQVWORVVHVVXƪHUHGE\%7RU If the Board changes its recommendation that Shareholders vote in the EE Group as a result of certain other investigations and disputes. favour of the Acquisition prior to the vote being taken and Shareholders do not approve the Acquisition or if BT recommends an alternative The warranties and indemnities given by the Sellers are subject to transaction prior to Completion and the Acquisition does not proceed to FXVWRPDU\ƬQDQFLDODQGRWKHUOLPLWDWLRQV &RPSOHWLRQDVDUHVXOWWKHQ%7VKDOOSD\DEUHDNIHHRI~PLOOLRQ LQ 4.3 Covenants aggregate) to Deutsche Telekom and Orange. The Share Purchase Agreement contains customary covenants restricting 7HUPLQDWLRQ the Sellers from competing with EE’s business for a period of three years ,QWKHHYHQWWKDWWKH&RQGLWLRQVDUHQRWVDWLVƬHGRUZKHUHFDSDEOHRI IROORZLQJ&RPSOHWLRQ VXEMHFWWRFXVWRPDU\H[FHSWLRQVIRUH[LVWLQJ EHLQJZDLYHGZDLYHGE\WKH/RQJ6WRS'DWH RUVXFKODWHUGDWHDVWKH EXVLQHVVHVDQGƬQDQFLDOLQYHVWPHQWV DQGIURPVROLFLWLQJHPSOR\HHVRI parties may agree), including where any remedies required by the CMA in WKH((*URXSIRUDSHULRGRIWZR\HDUVIROORZLQJ&RPSOHWLRQ VXEMHFWWR order to obtain merger clearance are not reasonable, the Share Purchase customary exceptions). Agreement will automatically terminate. The Share Purchase Agreement also contains a customary tax covenant BT may terminate the Share Purchase Agreement prior to the Long Stop in respect of liability for taxes due pre and post-Completion. Date if the Acquisition Resolution is not approved. &RPSDQ\:DUUDQWLHVDQG,QGHPQLW\ The Sellers are entitled to terminate the Share Purchase Agreement The Share Purchase Agreement contains warranties given by the prior to the Long Stop Date if the Board changes its recommendation Company as to, amongst other things, its capacity and authority to that Shareholders vote in favour of the Acquisition prior to the vote enter into and perform its obligations under the Transaction Documents, being taken and Shareholders do not approve the Acquisition or if BT compliance by the Company in all material respects with certain laws recommends an alternative transaction prior to Completion and the DQGUHJXODWLRQVWKHDYDLODELOLW\RIƬQDQFLQJIRUWKHFDVKHOHPHQWRIWKH Acquisition does not proceed to Completion as a result. FRQVLGHUDWLRQIRUWKH$FTXLVLWLRQWKHDFFXUDF\RILWVSXEOLFƬOLQJVDQG WKHUHKDYLQJEHHQQRPDWHULDODGYHUVHFKDQJHWRLWVƬQDQFLDOSRVLWLRQ 10. Costs since its last accounts date. The Company and the Sellers have each agreed to pay the costs and expenses incurred by them in connection with the preparation, BT also agrees that it will indemnify the Sellers in the event that they negotiation, entering into and completion of the Transaction Documents VXƪHUORVVDVDUHVXOWRI%7KDYLQJWDNHQFHUWDLQDFWLRQVLQUHVSHFW and any other agreements in respect of the Acquisition. BT has agreed to RIWKH((GHƬQHGEHQHƬWSHQVLRQVFKHPHRUWKH%7GHƬQHGEHQHƬW bear any stamp duty or other transfer taxes in respect of the transfer of SHQVLRQVFKHPH EXWLQUHODWLRQWRWKH%73HQVLRQ6FKHPHRQO\ZKHUH the shares of EE. 'HXWVFKH7HOHNRPLVLGHQWLƬHGDVEHLQJFRQQHFWHGWR%7E\YLUWXHRIWKH appointment of a Director to the Board by the Deutsche Telekom Group). Relationship Agreement The warranties and indemnity given by BT are subject to customary 5HODWLRQVKLS$JUHHPHQWZLWK'HXWVFKH7HOHNRP$*DQG ƬQDQFLDODQGRWKHUOLPLWDWLRQV 'HXWVFKH{7HOHNRP At Completion, BT will enter into the Relationship Agreement with 2WKHUXQGHUWDNLQJV Deutsche Telekom AG and Deutsche Telekom, which will regulate aspects Prior to Completion, the Sellers and BT will agree the scope and terms of the ongoing relationship between BT, Deutsche Telekom AG and the of any transitional services arrangements required after Completion, Deutsche Telekom Group. with a view to entering into separate transitional services agreements between EE, BT and each of the Sellers at Completion. The purpose of 7KH5HODWLRQVKLS$JUHHPHQWZLOOWHUPLQDWHLI D WKH2UGLQDU\6KDUHVDUH these transitional services agreements is to document any services that QRORQJHUOLVWHGRQWKHSUHPLXPOLVWLQJVHJPHQWRIWKH2ƯFLDO/LVWDQG DUHFXUUHQWO\SURYLGHGE\DSDUW\ RUDPHPEHURILWVJURXS DQGWKDWWKH traded on the London Stock Exchange’s main market for listed securities recipient of those services wishes to continue to receive for a transitional RU E WKH'HXWVFKH7HOHNRP*URXSFHDVHVWREHLQWHUHVWHGLQPRUHWKDQ period from Completion. Any services that a service recipient elects to 3% of the issued ordinary share capital of BT. continue to receive from Completion will be provided on the current terms or agreement applicable to the provision and receipt of those The Relationship Agreement will contain, among other things, services. Unless otherwise agreed, the maximum term of each service undertakings from Deutsche Telekom AG that for such period as the will be between six and 18 months depending on the type of service. Deutsche Telekom Group holds 10% or more of the issued share capital of BT: (DFK6HOOHUDVDSSOLFDEOHZLOOSURFXUHWKDW((FDQFRQWLQXHWREHQHƬW from an existing Orange or T-Mobile brand licence for three calendar L WUDQVDFWLRQVDQGDUUDQJHPHQWVEHWZHHQ%7DQGWKH'HXWVFKH months following Completion. Prior to the date falling three calendar Telekom Group will be entered into on an arm’s length basis PRQWKVDIWHU&RPSOHWLRQWKH6HOOHUV RUWKHUHOHYDQWPHPEHUVRIWKHLU and on normal commercial terms; groups), BT, and EE will agree appropriate conditions for the continued LL QHLWKHULWQRUDQ\PHPEHURIWKH'HXWVFKH7HOHNRP*URXSZLOO XVHRIWKH2UDQJHRU70RELOH DVDSSOLFDEOH EUDQGVE\((IROORZLQJ WDNHDQ\DFWLRQWKDWZRXOGKDYHWKHHƪHFWRISUHYHQWLQJ%7 WKDWGDWHXQWLOWKHGDWHIDOOLQJPRQWKV LQWKHFDVHRIWKH70RELOH from complying with its obligations under the Listing Rules; EUDQG DQGPRQWKV LQWKHFDVHRIWKH2UDQJHEUDQG WKHUHDIWHU and 6XFKDJUHHPHQWZLOOLQFOXGHDSSURSULDWHPRGLƬFDWLRQVWRWKHH[LVWLQJ EUDQGOLFHQFHVWRUHƮHFWWKHFKDQJHLQRZQHUVKLSRI((DQGFRQWLQXHG financials.indb 219 15/05/2015 01:52 220 BT Group plc Annual Report 2015 LLL QHLWKHULWQRUDQ\PHPEHURIWKH'HXWVFKH7HOHNRP*URXSZLOO L ZKHUH'HXWVFKH7HOHNRP$*RU'HXWVFKH7HOHNRPDFFHSWVDQ\RƪHU propose or procure the proposal of a shareholder resolution by a third party for the whole of the ordinary share capital of BT, which is intended or appears to be intended to circumvent the ZKHWKHUE\WHQGHURƪHURUVFKHPHRIDUUDQJHPHQWRUSURYLGHV SURSHUDSSOLFDWLRQRIWKH/LVWLQJ5XOHV WKHp,QGHSHQGHQFH an irrevocable undertaking or letter of intent to accept or vote in Provisions”). IDYRXURIDQ\VXFKRƪHU LL DQ\'LVSRVDOWRDQ\PHPEHURIWKH'HXWVFKH7HOHNRP*URXS Deutsche Telekom AG undertakes to procure the compliance of its group provided that the transferee agrees to be bound by the restrictions members with the Independence Provisions. of the Relationship Agreement; and 6WDQGVWLOO3URYLVLRQV LLL DQ\VDOHRIVKDUHVYLDDQ\VLQJOHRƪPDUNHWWUDGHWRD)LQDQFLDO The Relationship Agreement will contain standstill provisions pursuant Investor of no more than 5% each of the Ordinary Shares in issue of to which Deutsche Telekom AG undertakes on behalf of itself and the %7 RURQRQHRFFDVLRQRQO\WKHVDOHRIWZRVWDNHVRIQRWPRUHWKDQ Deutsche Telekom Group for a period of three years from the date of 5%HDFKDWWKHVDPHWLPHWRWZRGLƪHUHQW)LQDQFLDO,QYHVWRUV WKH5HODWLRQVKLS$JUHHPHQW WKHp,QLWLDO6WDQGVWLOO3HULRGq VXEMHFWWR provided that any transferee enters into a lock-up agreement certain exceptions, not to: on substantially similar terms to the lock-up provisions of the Relationship Agreement. L DFTXLUHRURƪHUWRDFTXLUHDQ\LQWHUHVWLQDQ\VKDUHVRURWKHU securities of BT as a result of which the aggregate interest of the '7&3&RQWUDFW Deutsche Telekom Group and any of its concert parties increases Prior to any Disposal by Deutsche Telekom AG, Deutsche Telekom or any above 12% of Ordinary Shares in issue at any time; RIWKHLUJURXSPHPEHUVLQDFFRUGDQFHZLWKSDUDJUDSK LLL DERYH%7 LL DFWLQFRQFHUWZLWKDQ\SHUVRQZLWKUHVSHFWWRWKHKROGLQJYRWLQJ KDVDULJKWRIƬUVWRƪHULQUHODWLRQWRWKHUHOHYDQWVKDUHV VXEMHFWWRWKH or disposition of any shares or other securities of BT; passing of the Buy-Back Resolution), and such right is set out in the DT LLL VROLFLWRUSDUWLFLSDWHLQDQ\VROLFLWDWLRQRI6KDUHKROGHUVWRYRWHLQD CP Contract. particular manner at any meeting of Shareholders; or Pursuant to the DT CP Contract, prior to an intended Disposal to Financial LY DFWLYHO\RUSXEOLFO\PDNHDQ\SURSRVDOVIRUDQ\PHUJHU Investors, the relevant selling entity is obliged to issue a notice to consolidation or share exchange involving shares or other securities BT specifying the number of Ordinary Shares proposed to be sold or RI%7 IRUWKHSXUSRVHVRIWKLV3DUWRQO\WKHp6WDQGVWLOO WUDQVIHUUHG%7KDVQLQH%XVLQHVV'D\VZLWKLQZKLFKWRPDNHDQRƪHU Provisions”). for all of the Ordinary Shares detailed in the notice, or else its right to The exceptions to the Standstill Provisions include circumstances: PDNHDQRƪHUZLOOODSVH,IWKHRƪHULVQRWDFFHSWHGWKHVHOOLQJHQWLW\ may make the sale or transfer within three months of the delivery of the L ZKHUHWKH'HXWVFKH7HOHNRP*URXSDFTXLUHVDQLQWHUHVWLQDQ\ QRWLFHWR%7DWDSULFHHTXDOWRRUJUHDWHUWKDQWKHSULFHRƪHUHGE\%7 shares or other securities of BT from the Orange Group provided ,I%7GRHVQRWPDNHDQRƪHUZLWKLQWKHDOORWWHGWLPHWKHVHOOLQJHQWLW\ that such acquisition does not increase the aggregate interest of may sell the Ordinary Shares within three months of the delivery of the the Deutsche Telekom Group and its concert parties above 15% of notice to BT at any price. The DT CP Contract will terminate 18 months the Ordinary Shares in issue; from Completion. LL ZKHUHWKH'HXWVFKH7HOHNRP*URXSDQQRXQFHVDQRƪHUXQGHU5XOH RIWKH&LW\&RGHRQ7DNHRYHUVDQG0HUJHUV WKHp&RGHq RUWDNHV The notice from the selling entity may be issued to BT during a close DQ\DFWLRQUHTXLULQJLWWRPDNHDQRƪHUXQGHU5XOH RIWKH&RGHLQ SHULRGRUSURKLELWHGSHULRG DVVXFKWHUPVDUHGHƬQHGLQWKH0RGHO HDFKFDVHLIVXFKRƪHULVUHFRPPHQGHGE\WKH'LUHFWRUVRI%7 Code of Chapter 9 of the Listing Rules) of BT. If any such period does not LLL ZKHUHDQ\WKLUGSDUW\PDNHVRUDQQRXQFHVXQGHU5XOHRIWKH expire prior to the end of the nine Business Day period within which BT &RGHDQRƪHUWRDFTXLUHWKHLVVXHGRUGLQDU\VKDUHFDSLWDORI%7 PD\HOHFWWRPDNHDQRƪHUWREX\EDFNWKHVKDUHV%7ZLOOQRWEHDEOHWR ZKHWKHUVXFKRƪHULVUHFRPPHQGHGE\WKH'LUHFWRUVRI%7RUQRW H[HUFLVHLWVULJKWRIƬUVWRƪHU and :KHQH[HUFLVHGLQFRQMXQFWLRQZLWK%7oVULJKWRIƬUVWRƪHULQUHODWLRQWR LY ZKHUH%7PDNHVDQ\RƪHULQJRULVVXHRIVKDUHVRURWKHUVHFXULWLHV Ordinary Shares held by Orange and Orange SA, the maximum amount and the Deutsche Telekom Group takes up its rights to subscribe for RI2UGLQDU\6KDUHV%7FDQDFTXLUHE\H[HUFLVHRILWVULJKWVRIƬUVWRƪHULV RUDFTXLUHWKHVKDUHVRURWKHUVHFXULWLHVRƪHUHGWRLWE\%7 approximately 14% of BT’s share capital on an enlarged basis post- Under the Relationship Agreement, Deutsche Telekom AG undertakes, Acquisition. The price at which Ordinary Shares can be bought back shall among other things, that for a period of two years from the expiry of the be no more than the higher of the closing price of the Ordinary Shares Initial Standstill Period, in the event that the Deutsche Telekom Group RQ L WKHGDWHRQZKLFK%7PDNHVDQRƪHUWREX\EDFNWKH2UGLQDU\ DFTXLUHV RWKHUWKDQDVDUHVXOWRIDUHGXFWLRQRUUHRUJDQLVDWLRQRIVKDUH 6KDUHVDQG LL WKHODVWWUDGLQJGD\EHIRUHWKHEX\EDFNWDNHVSODFH,Q capital or re-purchase of shares or other securities of BT) any Shares addition, BT has separately undertaken to give the Sponsor prior notice in excess of 15%RIWKH2UGLQDU\6KDUHVLQLVVXH WKHp([FHVV6KDUHVq RILWVLQWHQWLRQWRPDNHDQRƪHUIRU2UGLQDU\6KDUHVXQGHUWKH'7&3 it shall procure that the votes attaching to such Excess Shares shall be &RQWUDFWWRFRQVXOWZLWKWKH6SRQVRUUHJDUGLQJVXFKRƪHUDQGQRWWR H[HUFLVHG VXEMHFWWRWKHSURYLVLRQVRIWKH&RGHDQGDSSOLFDEOHODZRU PDNHVXFKRƪHUXQOHVVDWWKHUHOHYDQWWLPHWKH%RDUGKDYLQJEHHQVR regulation) in accordance with the recommendation of the Board of DGYLVHGE\WKH6SRQVRUFRQVLGHUVVXFKRƪHUWREHIDLUDQGUHDVRQDEOH Directors of BT on all shareholder resolutions which relate to a transfer of as far as Shareholders are concerned. After expiry of the lock-up period an interest in Ordinary Shares carrying in aggregate 30% or more of the described above, the Deutsche Telekom Group will be free to dispose of voting rights of BT and on all special resolutions of BT. After expiry of the its shareholding in BT without further restriction. Initial Standstill Period, the Deutsche Telekom Group will otherwise be A copy of the DT CP Contract will be available for inspection at the free to increase its shareholding in BT. &RPSDQ\oVUHJLVWHUHGRƯFHQRWOHVVWKDQGD\VEHIRUHWKHGDWHRIWKH /RFNXS3URYLVLRQV General Meeting. The Relationship Agreement contains lock-up provisions pursuant to 5LJKWVRI'HXWVFKH7HOHNRP$* which Deutsche Telekom AG and Deutsche Telekom undertake for a Under the Relationship Agreement, subject to compliance with any period of 18 months from the date of the Relationship Agreement, applicable regulatory requirements, Deutsche Telekom AG is able subject to certain exceptions, that neither they nor any of their group WRDSSRLQWRQH1RQ([HFXWLYH'LUHFWRU WKHp'HXWVFKH7HOHNRP PHPEHUVZLOOGLUHFWO\RULQGLUHFWO\RƪHUVHOOFRQWUDFWWRVHOOJUDQWRU Representative Director”) to the Board for so long as the Deutsche sell options over, purchase any option or contract to sell, transfer, charge, Telekom Group holds 10% or more of the issued share capital of BT pledge, grant any right or warrant or otherwise transfer, lend or dispose SURYLGHGWKDWLIWKHVKDUHKROGLQJLVUHGXFHGEHORZ% as a result of of any shares in BT or any securities convertible into or exercisable or a non-pre-emptive share issuance by BT, the board appointment right exchangeable for such shares, or announce or otherwise publish an shall continue for as long as the Deutsche Telekom Group holds at least LQWHQWLRQWRGRDQ\RIWKHIRUHJRLQJ HDFKRIWKHDERYHDFWLYLWLHVEHLQJD 8% of BT’s shares but provided further that such reduced shareholding p'LVSRVDOq 7KHH[FHSWLRQVLQFOXGH shall not have occurred as a result of the Deutsche Telekom Group selling Ordinary Shares, and also provided that the Deutsche Telekom Group financials.indb 220 15/05/2015 01:52 The Strategic Report 221 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information must top up to 10% within 12 months or the right will lapse). Any such LLL ZKHUH%7PDNHVDQ\RƪHULQJRULVVXHRIVKDUHVRURWKHUVHFXULWLHV appointment shall be made in consultation with the BT Nominating & and the Orange Group takes up its rights to subscribe for or acquire Governance Committee and the appointee must be approved by the BT WKHVKDUHVRURWKHUVHFXULWLHVRƪHUHGWRLWE\%7 &KDLUPDQ VXFKDSSURYDOQRWWREHXQUHDVRQDEO\ZLWKKHOGRUGHOD\HG After expiry of the standstill period, the Orange Group will otherwise be The Relationship Agreement provides for the establishment of a free to increase its shareholding in BT. QHZFRPPLWWHHRI%7 WKHp&RQƮLFWHG0DWWHUV&RPPLWWHHq ZKLFK /RFNXS3URYLVLRQV shall assess whether and to what extent the Board papers and Board The Standstill and Lock-up Agreement will contain lock-up provisions meetings of BT are likely to consider or refer to any matter in respect of pursuant to which Orange SA and Orange undertake for a period of 12 ZKLFKWKH&RQƮLFWHG0DWWHUV&RPPLWWHHEHOLHYHVWKDWHLWKHU months from the date of the Standstill and Lock-up Agreement, subject L %7DQGWKH'HXWVFKH7HOHNRP*URXSDUHFRPSHWLWRUV RU to certain exceptions, that neither they nor any of their group members LL WKHUHLVDQDFWXDORUSRWHQWLDOFRQƮLFWRILQWHUHVWEHWZHHQ%7DQG ZLOOGLUHFWO\RULQGLUHFWO\HƪHFWDQ\'LVSRVDO DVGHƬQHGLQ/RFNXS WKH'HXWVFKH7HOHNRP*URXS Dp&RQƮLFWHG0DWWHUq 3URYLVLRQV on page 220 above). The exceptions include: 7KH&RQƮLFWHG0DWWHUV&RPPLWWHHVKDOOFRPSULVHRIDWOHDVWWKUHH L DQ\'LVSRVDOWRWKH'HXWVFKH7HOHNRP*URXS members including at all times the Secretary to the Board, the Head LL ZKHUH2UDQJH6$RU2UDQJHDFFHSWVDQ\RƪHUE\DWKLUGSDUW\ of Competition and Regulatory Law and the Director of Governance. for the whole of the ordinary share capital of BT, whether by The Deutsche Telekom Representative Director shall not be a WHQGHURƪHURUVFKHPHRIDUUDQJHPHQWRUSURYLGHVDQLUUHYRFDEOH PHPEHURIWKH&RQƮLFWHG0DWWHUV&RPPLWWHH7KH'HXWVFKH7HOHNRP undertaking or letter of intent to accept or vote in favour of any Representative Director shall not attend any Board meeting of BT unless VXFKRƪHU DVHQLRUFRPSOLDQFHRƯFHURI'HXWVFKH7HOHNRP$*KDVUHFHLYHGSULRU LLL DQ\'LVSRVDOWRDQ\PHPEHURIWKH2UDQJH*URXSSURYLGHG FRQƬUPDWLRQWKDWWKH&RQƮLFWHG0DWWHUV&RPPLWWHHKDVFRQVLGHUHG that the transferee agrees to be bound by the restrictions of the ZKHWKHUVXFKDWWHQGDQFHUDLVHVDQ\FRQFHUQVLQUHODWLRQWRD&RQƮLFWHG Standstill and Lock-up Agreement; 0DWWHU,QWKHHYHQWWKDWWKH&RQƮLFWHG0DWWHUV&RPPLWWHHKDVDVHULRXV LY DQ\VDOHRIVKDUHVYLDDQ\VLQJOHRƪPDUNHWWUDGHWRD)LQDQFLDO RULPPHGLDWHFRQFHUQLQUHODWLRQWRD&RQƮLFWHG0DWWHUWKH'HXWVFKH Investor of up to all the shares of BT in which the Orange Group Telekom Representative Director shall not attend any Board meetings in has an interest, provided that the transferee enters into a lock-up UHODWLRQWRWKH&RQƮLFWHG0DWWHUDQGVKDOOQRWUHFHLYHDQ\LQIRUPDWLRQLQ agreement on substantially similar terms to the lock-up provisions UHODWLRQWRWKH&RQƮLFWHG0DWWHU of the Standstill and Lock-up Agreement; and Y LIWKH2UDQJH*URXSRZQV2% or less of the issued ordinary share Deutsche Telekom AG is also entitled to receive, subject to compliance capital of the Company, any Disposal which is by way of a swap or E\%7ZLWKLWVOHJDODQGUHJXODWRU\REOLJDWLRQVVXFKƬQDQFLDORURWKHU other agreement to transfer the economic ownership of the shares. information in relation to the BT Group as is necessary or reasonably required by Deutsche Telekom AG in order to comply with its reporting 2UDQJH&3&RQWUDFW requirements and legal, regulatory or tax obligations. Prior to any Disposal by Orange SA, Orange or any of their group PHPEHUVLQDFFRUGDQFHZLWKSDUDJUDSK LY DERYH%7KDVDULJKWRI Standstill and Lock-up Agreement with Orange SA ƬUVWRƪHULQUHODWLRQWRWKHUHOHYDQWVKDUHV VXEMHFWWRWKHSDVVLQJRI and Orange the Buy-Back Resolution), and such right is set out in the Orange CP 6WDQGVWLOODQG/RFNXS$JUHHPHQW Contract. At Completion, BT will enter into a Standstill and Lock-up Agreement Pursuant to the Orange CP Contract, prior to an intended Disposal to with Orange SA and Orange, which will regulate the ability of the Orange Financial Investors, the relevant selling entity is obliged to issue a notice Group to deal in shares and other securities of BT. The Standstill and to BT specifying the number of Ordinary Shares proposed to be sold or /RFNXS$JUHHPHQWZLOOWHUPLQDWHLI D WKH2UGLQDU\6KDUHVDUHQR WUDQVIHUUHG%7KDVQLQH%XVLQHVV'D\VZLWKLQZKLFKWRPDNHDQRƪHU ORQJHUOLVWHGRQWKHSUHPLXPOLVWLQJVHJPHQWRIWKH2ƯFLDO/LVWDQG for all of the shares detailed in the notice, or else its right to make an admitted to trading on the London Stock Exchange’s main market for RƪHUZLOOODSVH,IWKHRƪHULVQRWDFFHSWHGWKHVHOOLQJHQWLW\PD\PDNH OLVWHGVHFXULWLHVRU E WKH2UDQJH*URXSFHDVHVWREHLQWHUHVWHGLQPRUH the sale or transfer within three months of the delivery of the notice to than 3% of the issued ordinary share capital of BT. %7DWDSULFHHTXDOWRRUJUHDWHUWKDQWKHSULFHRƪHUHGE\%7,I%7GRHV 6WDQGVWLOO3URYLVLRQV QRWPDNHDQRƪHUZLWKLQWKHDOORWWHGWLPHWKHVHOOLQJHQWLW\PD\VHOO The Standstill and Lock-up Agreement will contain standstill provisions the Ordinary Shares within three months of the delivery of the notice to pursuant to which Orange SA will undertake on behalf of itself and its BT at any price. The Orange CP Contract will terminate 12 months from group for a period of three years from the date of the Standstill and Completion. Lock-up Agreement, subject to certain exceptions, not to: The notice from the selling entity may be issued to BT during a close L DFTXLUHRURƪHUWRDFTXLUHDQ\LQWHUHVWLQDQ\VKDUHVRURWKHU SHULRGRUSURKLELWHGSHULRG DVVXFKWHUPVDUHGHƬQHGLQWKH0RGHO securities of BT as a result of which the aggregate interest of Code of Chapter 9 of the Listing Rules) of BT. If any such period does not the Orange Group and its concert parties increases above 4% of expire prior to the end of the nine Business Day period within which BT Ordinary Shares in issue at any time; PD\HOHFWWRPDNHDQRƪHUWREX\EDFNWKHVKDUHV%7ZLOOQRWEHDEOHWR LL DFWLQFRQFHUWZLWKDQ\SHUVRQLQUHVSHFWRIWKHKROGLQJYRWLQJRU H[HUFLVHLWVULJKWRIƬUVWRƪHU disposition of any shares or other securities of BT; :KHQH[HUFLVHGLQFRQMXQFWLRQZLWK%7oVULJKWRIƬUVWRƪHULQUHODWLRQWR LLL VROLFLWRUSDUWLFLSDWHLQDQ\VROLFLWDWLRQRI6KDUHKROGHUVWRYRWHLQD Ordinary Shares held by Deutsche Telekom AG and Deutsche Telekom, particular manner at any meeting of the Shareholders; or the maximum amount of Ordinary Shares BT can acquire by exercise LY DFWLYHO\RUSXEOLFO\PDNHDQ\SURSRVDOVIRUDQ\PHUJHU RILWVULJKWVRIƬUVWRƪHULVDSSUR[LPDWHO\% of BT’s share capital on consolidation or share exchange involving shares or other an enlarged basis post-Acquisition. The price at which Ordinary Shares VHFXULWLHVRI%7 IRUWKHSXUSRVHVRIWKLV3DUWRQO\WKHp6WDQGVWLOO can be bought back shall be no more than the higher of the closing Provisions”). SULFHRIWKH2UGLQDU\6KDUHVRQ L WKHGDWHRQZKLFK%7PDNHVDQRƪHU The exceptions to the Standstill Provisions include: WREX\EDFNWKH2UGLQDU\6KDUHVDQG LL WKHODVWWUDGLQJGD\EHIRUH the buy-back takes place. After expiry of the lock-up period described L ZKHUHWKH2UDQJH*URXSDQQRXQFHVDQRƪHUXQGHU5XOHRIWKH above, the Orange Group will be free to dispose of its shareholding in BT &RGHRUWDNHVDQ\DFWLRQUHTXLULQJLWWRPDNHDQRƪHUXQGHU5XOH without further restriction. RIWKH&RGHLQHDFKFDVHLIVXFKRƪHULVUHFRPPHQGHGE\WKH Directors of BT; A copy of the Orange CP Contract will be available for inspection at the LL ZKHUHDQ\WKLUGSDUW\PDNHVRUDQQRXQFHVXQGHU5XOHRIWKH &RPSDQ\oVUHJLVWHUHGRƯFHQRWOHVVWKDQGD\VEHIRUHWKHGDWHRIWKH &RGHDQRƪHUWRDFTXLUHWKHLVVXHGRUGLQDU\VKDUHFDSLWDORI%7 General Meeting. ZKHWKHUVXFKRƪHULVUHFRPPHQGHGE\WKH'LUHFWRUVRI%7RUQRW and financials.indb 221 15/05/2015 01:52 222 BT Group plc Annual Report 2015 3URƬWHVWLPDWHDQGSURƬWIRUHFDVWFRQVLGHUHGLQWKH )LQDQFLDOHƪHFWVRIWKHDFTXLVLWLRQFRQVLGHUHGLQWKH VKDUHKROGHUFLUFXODU VKDUHKROGHUFircular Introduction Introduction On 1 April 2015 we published a shareholder circular in relation to our The Board believes that the proposed acquisition RI(( WKHn$FTXLVLWLRQo proposed acquisition of EE. In this, we provided information relating ZLOOJHQHUDWHFRQVLGHUDEOHYDOXHIRUVKDUHKROGHUVZLWKVLJQLƬFDQWFRVW WRRXUSURƬWHVWLPDWHDQGRXUSURƬWIRUHFDVW7KLV savings as well as revenue synergies. We have reproduced below the LQIRUPDWLRQFRQƬUPHGRXURXWORRNDVVWDWHGRQ-DQXDU\ information relating to cost savings and revenue synergies that was set when we published our unaudited results for the third quarter and nine out in the shareholder circular. months to 31 December 2014. Adjusting for the net present value of operating cost and capex In this we included the following statement: synergies, the Acquisition values EE at a multiple of 6.0x 2014 EBITDA and 9.6x 2014 OpFCF.a The Acquisition is expected to be accretive to WHH[SHFWDGMXVWHG(%,7'$RI~ELOOLRQs~ELOOLRQLQ )&)SHU2UGLQDU\6KDUHIURPWKHƬUVWIXOO\HDUSRVW&RPSOHWLRQb As a ZLWKIXUWKHUJURZWKLQ result of EE’s high amortisation and depreciation charge, the Acquisition 7KHSURƬWHVWLPDWHDQGWKHSURƬWIRUHFDVWGRQRW is expected to be accretive to Adjusted EPS one year later.c take into account any impact of the proposed acquisition of EE. We have The cash return on investment is expected to comfortably exceed reproduced below the basis of preparation of theSURƬWHVWLPDWHDQG BT’s cost of capital in the third year post-Completion on the basis of SURƬWIRUHFDVWDVit was set out in the shareholder circular. estimated synergies and integration costs. Basis of preparation Cost savings %RWKWKHSURƬWHVWLPDWHDQGWKHSURƬWIRUHFDVW 7KH$FTXLVLWLRQLVH[SHFWHGWRJHQHUDWHVLJQLƬFDQWRSHUDWLQJFRVW were prepared on a basis consistent with the current accounting savings and additional capex savings. Together these are expected policies of BT which are in accordance with IFRS as adopted by the to reach approximately £360 million per annum in the fourth full European Union and in accordance with IFRS issued by the International year post-Completion. Integration costs to achieve these savings are Accounting Standards Board, and are expected to be applicable for the expected to be around £600 million. The savings are equivalent to a net years to 31 March 2015 and 2016. present value of around £3.5 billion before integration costs or around 7KHGLUHFWRUVSUHSDUHGWKHSURƬWHVWLPDWHEDVHGXSRQWKH £3.0 billion after integration costs. unaudited published results for the nine months ended 31 December Both BT and EE have a proven track record in delivering transformation 2014, the unaudited management accounts for the two months ZLWKVWURQJƬQDQFLDOUHVXOWV%7EULQJVLWVWULHGDQGWHVWHGDSSURDFKWR ended 28 February 2015 and a forecast of the results for the month to cost transformation, which uses forensic analysis to redesign processes 31{March 2015. WRUHPRYHLQHƯFLHQF\UHGXFHWKHFRVWRIIDLOXUHDQGLPSURYHFXVWRPHU 7KHGLUHFWRUVSUHSDUHGWKHSURƬWIRUHFDVWEDVHGRQDIRUHFDVW experience. EE has demonstrated its ability to deliver post-transaction of the results for the period to 31 March 2016. synergies ahead of initial expectations following its creation by the merger of the Orange Group’s UK business and the Deutsche Telekom Assumptions *URXSoV8.EXVLQHVV%7LVFRQƬGHQWLWFDQXVHWKHFRPELQHGH[SHULHQFH 7KHSURƬWIRUHFDVWKDVEHHQSUHSDUHGRQWKHEDVLVRIWKH WRXQORFNVLJQLƬFDQWV\QHUJLHVDFURVVWKH(QODUJHG*URXS following assumptions during the forecast period. The operating cost and capex savings are expected to be achieved as )DFWRUVRXWVLGHWKHLQƮXHQFHRUFRQWURORIWKHGLUHFWRUV follows: a) WKHUHZLOOEHQRPDWHULDOFKDQJHLQWKHSROLWLFDODQGRUHFRQRPLF r commercial savings with an annual run-rate of approximately £70 HQYLURQPHQWWKDWZRXOGPDWHULDOO\DƪHFWWKHJURXS million from consolidating sales and marketing operations, procurement b) there will be no material change in market conditions in relation to HƯFLHQFLHVDQGVLPSOLI\LQJGLJLWDOSODWIRUPVDQGWKHEUDQGSRUWIROLR customer demand or the competitive environment; r IT savings with an annual run-rate of approximately £90 million c) there will be no material change in legislation or regulatory through consolidating IT systems and insourcing activities; requirements impacting on the group’s operations or its accounting r network savings with an annual run-rate of approximately £80 million policies; through integrating some network elements and insourcing certain d) WKHUHZLOOEHQREXVLQHVVGLVUXSWLRQVWKDWPDWHULDOO\DƪHFWWKH activities; and group, its customers or operations, including natural disasters, acts r operational savings with an annual run-rate of approximately £120 of terrorism, cyber DWWDFNDQGRUWHFKQRORJLFDOLVVXHVRUVXSSO\ PLOOLRQIURPFRQVROLGDWLQJKHDGRƯFHIXQFWLRQVUDWLRQDOLVLQJ chain disruptions; property and realising scale economies in customer service operations. e) foreign exchange rates will be an average US$: Pounds Sterling exchange rate of US$1.50: £1 and an average Euro: Pounds Revenue synergies Sterling exchange rate of €1.35: £1; BT expects to generate revenue synergies by providing a full range of f) there will be no material technological developments in the communications services to the combined customer base. This includes telecommunications market that disrupt the group’s core services; VHOOLQJ%7oVEURDGEDQGƬ[HGWHOHSKRQ\DQGSD\79VHUYLFHVWRWKRVH(( g) there will be no industrial action; customers who do not currently take a service from BT. BT also expects h) WKHUHZLOOEHQRPDWHULDOƮXFWXDWLRQLQWKHOHYHORIWKH,$6 WRDFFHOHUDWHWKHVDOHRIFRQYHUJHGƬ[HGPRELOHVHUYLFHVWRLWVH[LVWLQJ DFFRXQWLQJSHQVLRQGHƬFLWDQGDVVRFLDWHGLQFRPHVWDWHPHQW FRQVXPHUDQGEXVLQHVVFXVWRPHUVDQGRƪHUQHZVHUYLFHVXVLQJERWK charge; and companies’ product portfolios, skills and networks. BT expects revenue i) there will be no material change in the management or control of synergies, over and above the revenue it had expected to be generated the group. from its standalone mobile strategy, to have a net present value of )DFWRUVZLWKLQWKHLQƮXHQFHRUFRQWURORIWKHGLUHFWRUV around £1.6 billion. The revenue synergies are expected on a recurring a) there will be no material acquisitions or disposals; basis, reaching a run-rate level in the fourth year post-Completion. b) there will be no material change in the existing operational strategy a 7KHPXOWLSOHVDUHFDOFXODWHGEDVHGRQ DQ$FTXLVLWLRQSULFHRI ~ELOOLRQOHVVWKH139RI of the Group; and WKHRSHUDWLQJFRVWDQGFDSH[V\QHUJLHVDIWHULQWHJUDWLRQFRVWVRIDSSUR[LPDWHO\~ELOOLRQ c) there are no material strategic investments over and above those DQG(($GMXVWHG(%,7'$IRUWKHWZHOYHPRQWKVWR'HFHPEHURI~ PLOOLRQDQG currently planned. 2S)&)IRUWKHWZHOYHPRQWKVWR'HFHPEHURI~ PLOOLRQ ERWKDGMXVWHGWRUHPRYH PDQDJHPHQWDQGEUDQGIHHVRI~PLOOLRQUHVWUXFWXULQJFRVWVRI~PLOOLRQDQGH[FHSWLRQDO 2XUDFWXDODGMXVWHG(%,7'$IRUZDV~P H[SHQVHVRI~PLOOLRQ DVUHSRUWHGLQ((oVUHVXOWVIRUWKH\HDUHQGHG'HFHPEHU b $IWHURSHUDWLQJFRVWDQGFDSH[V\QHUJLHVDQGEHIRUHLQWHJUDWLRQFRVWV c $IWHURSHUDWLQJFRVWDQGFDSH[V\QHUJLHVDQGEHIRUHLQWHJUDWLRQ FRVWVDQGH[FOXGLQJSXUFKDVH DFFRXQWLQJDGMXVWPHQWVUHODWLQJWRWKH$FTXLVLWLRQ7KLVVWDWHPHQWUHJDUGLQJHDUQLQJV HQKDQFHPHQWLVQRWLQWHQGHGWREHDSURƬWIRUHFDVWDQGVKRXOGQRWEHLQWHUSUHWHGWRPHDQWKDW WKHHDUQLQJVSHU2UGLQDU\6KDUHIRUWKHFXUUHQWRUIXWXUHƬQDQFLDOSHULRGVZLOOQHFHVVDULO\EHJUHDWHU WKDQWKRVHIRUWKHUHOHYDQWSUHFHGLQJƬQDQFLDOSHULRG financials.indb 222 15/05/2015 01:52 The Strategic Report 223 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information 7KHV\QHUJLHVFRVWVDYLQJVDQGLQWHJUDWLRQFRVWVGHVFULEHGDERYHUHƮHFW should not recognise any exchange gain or loss. A US Holder who does ERWKWKHEHQHƬFLDOHOHPHQWVDQGWKHUHOHYDQWFRVWVDQGDUHFRQWLQJHQW not convert Sterling into US Dollars on the date of receipt generally will on the Acquisition and could not be achieved independently. have a tax basis in Sterling equal to their US Dollar value on such date. Foreign currency gain or loss, if any, recognised by the US Holder on a 7D[DWLRQ 86+ROGHUV subsequent conversion or other disposition of Sterling generally will be This is a summary only of the principal US federal income tax and UK tax US source ordinary income or loss. In addition, in a situation where US consequences of the ownership and disposition of ordinary shares or KROGHUVUHFHLYHGLVWULEXWLRQVRISUHYLRXVO\WD[HGHDUQLQJVDQGSURƬWV $'6VE\86+ROGHUV DVGHƬQHGEHORZ ZKRKROGWKHLURUGLQDU\VKDUHV foreign currency gain or loss will generally be recognised as the same or ADSs as capital assets. It does not address all aspects of US federal source as the associated income included under Subpart F rules for income taxation and does not address aspects that may be relevant US federal income tax purposes. Dividends paid by BT to a US Holder to persons who are subject to special provisions of US federal income will not be eligible for the US dividends received deduction that may tax law, including: US expatriates; insurance companies; tax-exempt otherwise be available to corporate shareholders. RUJDQLVDWLRQV EDQNV UHJXODWHGLQYHVWPHQWFRPSDQLHV ƬQDQFLDO For purposes of calculating the foreign tax credit limitation, dividends institutions; securities broker-dealers; traders in securities who elect a paid on the ordinary shares or ADSs will be treated as income from mark-to-market method of accounting; persons subject to alternative sources outside the US and generally will constitute ‘passive income’. minimum tax; investors that directly, indirectly or by attribution own The rules relating to the determination of the foreign tax credit are very 10% or more of the outstanding share capital or voting power of BT; complex. US Holders who do not elect to claim a credit with respect persons holding their ordinary shares or ADSs as part of a straddle, to any foreign taxes paid in a given taxable year may instead claim a hedging transaction or conversion transaction; persons who acquired deduction for foreign taxes paid. A deduction does not reduce US federal their ordinary shares or ADSs pursuant to the exercise of options or income tax on a Dollar for Dollar basis like a tax credit. The deduction, otherwise as compensation; or persons whose functional currency is however, is not subject to the limitations applicable to foreign credits. not the US Dollar, amongst others. Those holders may be subject to US IHGHUDOLQFRPHWD[FRQVHTXHQFHVGLƪHUHQWIURPWKRVHVHWIRUWKEHORZ There will be no right to any UK tax credit or to any payment from HMRC in respect of any tax credit on dividends paid on ordinary shares or ADSs. )RUWKHSXUSRVHVRIWKLVVXPPDU\D86+ROGHULVDEHQHƬFLDORZQHURI ordinary shares or ADSs that, for US federal income tax purposes, is: &HUWDLQ86+ROGHUV LQFOXGLQJLQGLYLGXDOV DUHHOLJLEOHIRUUHGXFHGUDWHV DFLWL]HQRULQGLYLGXDOUHVLGHQWRIWKH8QLWHG6WDWHV DFRUSRUDWLRQ RU RI86IHGHUDOLQFRPHWD[ FXUUHQWO\DWDPD[LPXPRI LQUHVSHFWRI other entity taxable as a corporation for US federal income tax purposes) TXDOLƬHGGLYLGHQGLQFRPHUHFHLYHGLQWD[DEOH\HDUVEHJLQQLQJ-DQXDU\ created or organised in or under the laws of the United States or any 2013. There could also be a 3.8% net investment income tax on political subdivision thereof; an estate the income of which is subject dividends to individuals with income above a certain amount. This also to US federal income taxation regardless of its sources, or a trust if EHJDQLQ)RUWKHVHSXUSRVHVTXDOLƬHGGLYLGHQGLQFRPHJHQHUDOO\ a US court can exercise primary supervision over the administration includes dividends paid by a non-US corporation if, among other things, of the trust and one or more US persons are authorised to control all the US Holders meet certain minimum holding periods and the non-US substantial decisions of the trust. If a partnership holds ordinary shares FRUSRUDWLRQVDWLVƬHVFHUWDLQUHTXLUHPHQWVLQFOXGLQJWKDWHLWKHU L WKH or ADSs, the US tax treatment of a partner generally will depend upon shares or ADSs with respect to which the dividend has been paid are the status of the partner and the activities of the partnership. A partner UHDGLO\WUDGDEOHRQDQHVWDEOLVKHGVHFXULWLHVPDUNHWLQWKH86RU LL in a partnership that holds ordinary shares or ADSs is urged to consult its WKHQRQ86FRUSRUDWLRQLVHOLJLEOHIRUWKHEHQHƬWVRIDFRPSUHKHQVLYH own tax adviseUUHJDUGLQJWKHVSHFLƬFWD[FRQVHTXHQFHVRIRZQLQJDQG 86LQFRPHWD[WUHDW\ VXFKDVWKH&RQYHQWLRQ ZKLFKSURYLGHVIRUWKH disposing of the ordinary shares or ADSs. exchange of information. BT currently believes that dividends paid ZLWKUHVSHFWWRLWVRUGLQDU\VKDUHVDQG$'6VVKRXOGFRQVWLWXWHTXDOLƬHG ,QSDUWLFXODUWKLVVXPPDU\LVEDVHGRQ L FXUUHQW8.WD[ODZDQGWKH dividend income for US federal income tax purposes. Each individual SUDFWLFHRI+HU0DMHVW\oV5HYHQXH &XVWRPV +05& DQG86ODZDQG86 US Holder of ordinary shares or ADSs is urged to consult his own tax ,QWHUQDO5HYHQXH6HUYLFH ,56 SUDFWLFHLQFOXGLQJWKH,QWHUQDO5HYHQXH adviser regarding the availability to him of the reduced dividend tax rate Code of 1986, as amended, existing and proposed Treasury regulations, in light of his own particular situation and regarding the computations rulings, judicial decisions and administrative practice, all as currently in RIKLVIRUHLJQWD[FUHGLWOLPLWDWLRQZLWKUHVSHFWWRDQ\TXDOLƬHGGLYLGHQG HƪHFWDQGDYDLODEOH LL WKH8QLWHG.LQJGRP8QLWHG6WDWHV&RQYHQWLRQ income paid by BT to him, as applicable. UHODWLQJWRHVWDWHDQGJLIWWD[HVDQG LLL WKH8QLWHG.LQJGRP8QLWHG States Tax Convention that entered into force on 31 March 2003 and WKHSURWRFROWKHUHWR WKH&RQYHQWLRQ DOODVLQHƪHFWRQWKHGDWHRI Taxation of capital gains this Annual Report, all of which are subject to change or changes in Unless a US Holder of ordinary shares or ADSs is resident in or ordinarily LQWHUSUHWDWLRQSRVVLEO\ZLWKUHWURDFWLYHHƪHFW resident for UK tax purposes in the UK or unless a US Holder of ordinary shares or ADSs carries on a trade, profession, or vocation in the UK US Holders should consult their own tax advisers as to the applicability through a branch, agency, or in the case of a company, a permanent of the Convention and the consequences under UK, US federal, state HVWDEOLVKPHQWLQWKH8.DQGWKHRUGLQDU\VKDUHVDQGRU$'6VKDYHEHHQ and local, and other laws, of the ownership and disposition of ordinary used, held, or acquired for the purposes of that trade, profession or shares or ADSs. vocation, the holder should not be liable for UK tax on capital gains on a GLVSRVDORIRUGLQDU\VKDUHVDQGRU$'6V Taxation of dividends A US Holder who is an individual and who has ceased to be resident or Under current UK tax law, BT will not be required to withhold tax at ordinarily resident for tax purposes in the UK on or after 17 March 1998 source from dividend payments it makes. Unless a US Holder of ordinary or who falls to be regarded as resident outside the UK for the purposes shares or ADSs is resident in or ordinarily resident for UK tax purposes RIDQ\GRXEOHWD[WUHDW\ 7UHDW\QRQUHVLGHQW RQRUDIWHU0DUFK in the UK or unless a US Holder of ordinary shares or ADSs carries on a 2005 and continues to not be resident or ordinarily resident in the UK trade, profession or vocation in the UK through a branch or agency, or, RUFRQWLQXHVWREH7UHDW\QRQUHVLGHQWIRUDSHULRGRIOHVVWKDQƬYH\HDUV in the case of a company, a permanent establishment in the UK, the of assessment and who disposes of his ordinary shares or ADSs during holder should not be liable for UK tax on dividends received in respect of that period may also be liable on his return to the UK to UK tax on capital RUGLQDU\VKDUHVDQGRU$'6V gains, subject to any available exemption or relief, even though he is not For US federal income tax purposes, a distribution will be treated as resident or ordinarily resident in the UK or is Treaty non-resident at the ordinary dividend income. The amount of the distribution includible time of disposal. in gross income of a US Holder will be the US Dollar value of the For US federal income tax purposes, a US Holder generally will recognise GLVWULEXWLRQFDOFXODWHGE\UHIHUHQFHWRWKHVSRWUDWHLQHƪHFWRQWKHGDWH capital gain or loss on the sale, exchange or other disposition of ordinary the distribution is actually or constructively received by a US Holder of VKDUHVRU$'6VLQDQDPRXQWHTXDOWRWKHGLƪHUHQFHEHWZHHQWKH86 ordinary shares, or by the Depositary, in the case of ADSs. A US Holder Dollar value of the amount realised on the disposition and the US who converts Sterling into US Dollars on the date of receipt generally financials.indb 223 15/05/2015 01:52 224 BT Group plc Annual Report 2015 +ROGHUoVDGMXVWHGWD[EDVLV GHWHUPLQHGLQ86'ROODUV LQWKHRUGLQDU\ UK stamp duty shares or ADSs. Such gain or loss generally will be US source gain or loss, A transfer of or an agreement to transfer an ordinary share will generally and will be treated as long-term capital gain or loss if the ordinary shares EHVXEMHFWWR8.VWDPSGXW\RU8.VWDPSGXW\UHVHUYHWD[ 6'57 DW have been held for more than one year at the time of disposition. Long- 0.5% of the amount or value of any consideration provided rounded term capital gains recognised by an individual US Holder generally are XS LQWKHFDVHRIVWDPSGXW\ WRWKHQHDUHVW~6'57LVJHQHUDOO\WKH subject to US federal income tax at preferential rates. The deductibility of liability of the purchaser. It is customarily also the purchaser who pays FDSLWDOORVVHVLVVXEMHFWWRVLJQLƬFDQWOLPLWDWLRQV UK stamp duty. A transfer of an ordinary share to, or to a nominee for, a person whose business is or includes the provision of clearance services A US Holder’s tax basis in an ordinary share will generally be its US Dollar or to, or to a nominee or agent of, a person whose business is or includes cost. The US Dollar cost of an ordinary share purchased with foreign issuing depositary receipts gives rise to a 1.5% charge to stamp duty currency will generally be the US Dollar value of the purchase price on or SDRT of either the amount of the consideration provided or the the date of purchase, or the settlement date for the purchase, in the case YDOXHRIWKHVKDUHLVVXHGURXQGHGXS LQWKHFDVHRIVWDPSGXW\ WRWKH RIRUGLQDU\VKDUHVWUDGHGRQDQHVWDEOLVKHGVHFXULWLHVPDUNHWDVGHƬQHG nearest £5. No UK stamp duty will be payable on the transfer of an in the applicable Treasury Regulations, that are purchased by a cash basis $'6 DVVXPLQJLWLVQRWUHJLVWHUHGLQWKH8. SURYLGHGWKDWWKHWUDQVIHU 86+ROGHU RUDQDFFUXDOEDVLV86+ROGHUWKDWVRHOHFWV 6XFKDQHOHFWLRQ documents are executed and always retained outside the UK. by an accrual basis US Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. The amount Transfers of ordinary shares into CREST will generally not be subject to realised on a sale or other disposition of ordinary shares for an amount in stamp duty or SDRT unless such a transfer is made for a consideration foreign currency will be the US Dollar value of this amount on the date of in money or money’s worth, in which case a liability to SDRT will arise, sale or disposition. On the settlement date, the US Holder will recognise usually at the rate of 0.5% of the value of the consideration. Paperless 86VRXUFHIRUHLJQFXUUHQF\JDLQRUORVV WD[DEOHDVRUGLQDU\LQFRPHRU transfers of ordinary shares within CREST are generally liable to SDRT at ORVV HTXDOWRWKHGLƪHUHQFH LIDQ\ EHWZHHQWKH86'ROODUYDOXHRIWKH the rate of 0.5% of the value of the consideration. CREST is obliged to DPRXQWUHFHLYHGEDVHGRQWKHH[FKDQJHUDWHVLQHƪHFWRQWKHGDWHRI collect SDRT from the purchaser of the shares on relevant transactions sale or other disposition and the settlement date. However, in the case settled within the system. of ordinary shares traded on an established securities market that are VROGE\DFDVKEDVLV86+ROGHU RUDQDFFUXDOEDVLV86+ROGHUWKDWVR The above statements are intended as a general guide to the current HOHFWV WKHDPRXQWUHDOLVHGZLOOEHEDVHGRQWKHH[FKDQJHUDWHLQHƪHFW SRVLWLRQ&HUWDLQFDWHJRULHVRISHUVRQ LQFOXGLQJUHFRJQLVHGPDUNHW on the settlement date for the sale, and no exchange gain or loss will be makers, brokers and dealers) may not be liable to stamp duty or SDRT or recognised at that time. may, although not liable for the tax, be required to notify and account for it under the Stamp Duty Reserve Tax Regulations 1986. Passive foreign investment company status $QRQ86FRUSRUDWLRQZLOOEHFODVVLƬHGDVDSDVVLYHIRUHLJQLQYHVWPHQW UK inheritance and gift taxes in connection with ordinary FRPSDQ\IRU86IHGHUDOLQFRPHWD[SXUSRVHV D3),& IRUDQ\WD[DEOH\HDU VKDUHVDQGRU$'6V if at least 75% of its gross income consists of passive income or at least The rules and scope of domicile are complex and action should not 50% of the average value of its assets consist of assets that produce, or EHWDNHQZLWKRXWDGYLFHVSHFLƬFWRWKHLQGLYLGXDOoVFLUFXPVWDQFHV$ are held for the production of, passive income. BT currently believes that OLIHWLPHJLIWRUDWUDQVIHURQGHDWKRIRUGLQDU\VKDUHVDQGRU$'6VE\DQ it did not qualify as a PFIC for the tax year ended 31 March 2015. If BT LQGLYLGXDOKROGHUZKRLV86GRPLFLOHG IRUWKHSXUSRVHVRIWKH8.86 ZHUHWREHFRPHD3),&IRUDQ\WD[\HDU86+ROGHUVZRXOGVXƪHUDGYHUVH (VWDWHDQG*LIW7D[&RQYHQWLRQ DQGZKRLVQRWD8.QDWLRQDO DVGHƬQHG tax consequences. These consequences may include having gains in the Convention) will not generally be subject to UK inheritance tax realised on the disposition of ordinary shares or ADSs treated as ordinary if the gift is subject to US federal gift or US estate tax unless the tax is income rather than capital gains and being subject to punitive interest QRWSDLG RWKHUZLVHWKDQDVDUHVXOWRIDVSHFLƬFH[HPSWLRQGHGXFWLRQ charges on certain dividends and on the proceeds of the sale or other exclusion, credit or allowance). disposition of the ordinary shares or ADSs. Furthermore, dividends paid E\%7ZRXOGQRWEHnTXDOLƬHGGLYLGHQGLQFRPHoZKLFKPD\EHHOLJLEOHIRU )XUWKHUQRWHRQFHUWDLQDFWLYLWLHV reduced rates of taxation as described above. US Holders should consult 'XULQJFHUWDLQRIWKHJURXSoVQRQ86VXEVLGLDULHVRURWKHU their own tax advisers regarding the potential application of the PFIC non-US entities conducted limited activities in, or with persons from, rules to BT. FHUWDLQFRXQWULHVLGHQWLƬHGE\WKH86'HSDUWPHQWRI6WDWHDV6WDWH Sponsors of Terrorism or otherwise subject to US sanctions. These US information reporting and backup withholding activities, which generally relate to the provision of communications Dividends paid on and proceeds received from the sale, exchange services to embassies and diplomatic missions of US-allied governments, or other disposition of ordinary shares or ADSs may be subject to other CPs, news organisations, multinational corporations and other information reporting to the IRS and backup withholding at a current customers that require global communications connectivity, are UDWHRI ZKLFKUDWHPD\EHVXEMHFWWRFKDQJH &HUWDLQH[HPSW LQVLJQLƬFDQWWRWKHJURXSoVƬQDQFLDOFRQGLWLRQDQGUHVXOWVRIRSHUDWLRQV UHFLSLHQWV VXFKDVFRUSRUDWLRQV DUHQRWVXEMHFWWRWKHVHLQIRUPDWLRQ Under Section 219 of the Iran Threat Reduction and Syria Human Rights reporting requirements. Backup withholding will not apply, however, to $FWRIZKLFKDGGHG6HFWLRQ U WRWKH6HFXULWLHV([FKDQJH$FW D86+ROGHUZKRSURYLGHVDFRUUHFWWD[SD\HULGHQWLƬFDWLRQQXPEHURU RI ZHDUHUHTXLUHGWRGLVFORVHZKHWKHU%7RUDQ\RILWVDƯOLDWHV FHUWLƬFDWHRIIRUHLJQVWDWXVDQGPDNHVDQ\RWKHUUHTXLUHGFHUWLƬFDWLRQ knowingly engaged in certain activities, transactions or dealings or who is otherwise exempt. Persons that are US persons for US federal relating to Iran or certain designated individuals or entities. Disclosure income tax purposes who are required to establish their exempt is required even when the activities were conducted outside the US by VWDWXVJHQHUDOO\PXVWIXUQLVK,56)RUP: 5HTXHVWIRU7D[SD\HU non-US entities and even when they were conducted in compliance with ,GHQWLƬFDWLRQ1XPEHUDQG&HUWLƬFDWLRQ +ROGHUVWKDWDUHQRW86SHUVRQV DSSOLFDEOHODZ2XUGLVFORVXUHVIRUDUHEHORZ for US federal income tax purposes generally will not be subject to US information reporting or backup withholding. However, such holders BT has a contract in place with Telecommunication Infrastructure PD\EHUHTXLUHGWRSURYLGHFHUWLƬFDWLRQRIQRQ86VWDWXVLQFRQQHFWLRQ &RPSDQ\ 7,& WRPDNHDQGUHFHLYHvoice calls from Iran to the UK. These ZLWKSD\PHQWVUHFHLYHGLQWKH86RUWKURXJKFHUWDLQ86UHODWHGƬQDQFLDO payments are subject to HM Treasury approval. intermediaries. BT entered into a Framework Agreement with Rafsanjan Industrial Backup withholding is not an additional tax. Amounts withheld as &RPSOH[ 5,& IRUEXVLQHVVFRQVXOWDQF\VHUYLFHVLQ0D\DQG backup withholding may be credited against a holder’s US federal provided an initial consultancy engagement under phase 1 of the income tax liability. A holder may obtain a refund of any excess amounts agreement. In February 2011, phase 2 was agreed with RIC however BT ZLWKKHOGXQGHUWKHEDFNXSZLWKKROGLQJUXOHVE\WLPHO\ƬOLQJWKH stopped work in December 2011 due to the geopolitical situation. RIC appropriate claim for refund with the IRS and furnishing any required made an advance payment to BT of €384,120 to carry out the phase 2 information. work. We continue to explore whether the amount can be refunded. financials.indb 224 15/05/2015 01:52 The Strategic Report 225 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information /LPLWDWLRQVDƪHFWLQJVHFXULW\KROGHUV 6KDUHKROGHUFRPPXQLFDWLRQ There are no government laws, decrees, regulations, or other UK BT is committed to communicating openly with each of its stakeholder OHJLVODWLRQZKLFKKDYHDPDWHULDOHƪHFWRQWKHLPSRUWRUH[SRUWRI audiences in the manner most appropriate to their requirements. capital, including the availability of cash and cash equivalents for use by $OOLQYHVWRUVFDQYLVLWRXUZHEVLWHDWZZZEWFRPLQYHVWRUFHQWUHIRU the company except as otherwise described in 7D[DWLRQ 86+ROGHUV . more information about BT. There are direct links from this page to sites There are no limitations under UK law restricting the right of non- providing information particularly tailored for shareholders, institutional residents to hold or to vote shares in the company. LQYHVWRUVƬQDQFLDODQDO\VWVLQGXVWU\DQDO\VWVDQGMRXUQDOLVWV 'RFXPHQWVRQGLVSOD\ Private shareholders $OOUHSRUWVDQGRWKHULQIRUPDWLRQWKDW%7ƬOHVZLWKWKH866HFXULWLHV If private shareholders have any enquiries about their shareholding, they DQG([FKDQJH&RPPLVVLRQ 6(& PD\EHLQVSHFWHGDWWKH6(&oVSXEOLF should contact our Registrars, Equiniti, at the address below. Equiniti reference facilities at Room 1580, 100 F Street NE, Washington, DC maintain BT Group’s share register and the separate BT Group EasyShare 20549, US. register. They also provide a Shareholder Helpline service on Freefone 0808 100 4141. These reports may be accessed via the SEC’s website at www.sec.gov 6KDUHKROGHUHelpline Publications Tel: Freefone 0808 100 4141 %7SURGXFHVDVHULHVRIUHSRUWVRQWKHFRPSDQ\oVƬQDQFLDOFRPSOLDQFH Fax: 01903 833371 and social and environmental performance. Textphone: Freefone 0800 169 6907 From outside the UK: Document Publication date Tel: +44 121 415 7178 Fax: +44 1903 833371 Notice of meeting May Textphone: +44 121 415 7028 Annual Report & Form 20-F May KWWSV KHOSVKDUHYLHZFRXN Delivering our purpose report May 7KH5HJLVWUDU $'5'HSRVLWDU\ EAB Annual Report May Equiniti JPMorgan Chase & Co Expected quarterly results releases July, October, January and May Aspect House PO Box 64504 Current Cost Financial Statements July Spencer Road St Paul, MN 55164-0854, US The Way We Work, a statement of Lancing Tel: +1 800 990 1135 *HQHUDO business practice West Sussex or +1 651 453 2128 For printed copies, when available, contact the Shareholder Helpline on BN99 6DA )URPRXWVLGHWKH86 Freefone 0808 100 4141 or contact our Registrars in the UK, at the www.equiniti.com or +1 800 428 4237 address opposite. *OREDO,QYHVW'LUHFW email: Most of these repRUWV DVZHOODVWKH($%$QQXDO5HSRUWRQ BT’s MSPRUJDQDGU#ZHOOVIDUJRFRP compliance with the Undertakings) can be accessed online at ZZZDGUFRP ZZZEWFRPDERXWbt. More detailed disclosures on BT’s implementation of social, ethical and environmental policies and *HQHUDOHQTXLULHV procedures are available online through our inGHSHQGHQWO\YHULƬHG BT Group plc sustainability report at www.bt.cRPGHOLYHULQJRXUSXUSRVH BT Centre 81 Newgate Street (OHFWURQLFFRPPXQLFDWLRQ London EC1A 7AJ Shareholders can choose to receive their shareholder documents United Kingdom electronically rather than by post. Tel: 020 7356 5000 From outside the UK: Shareholders may elect to receive documents in this way by going to Tel: +44 1793 596 931 ZZZEWFRPVLJQXSDQGIROORZLQJWKHRQOLQHLQVWUXFWLRQVRUE\FDOOLQJ the Shareholder Helpline. ,QVWLWXWLRQDOLQYHVWRUVƬQDQFLDODQGLQGXVWU\DQDO\VWV ,QVWLWXWLRQDOLQYHVWRUVDQGƬQDQFLDODQDO\VWVPD\FRQWDFW%7,QYHVWRU Relations on: Tel: 020 7356 4909 email: ir#EWFRP Industry analysts and consultants may contact BT Analyst Relations on: Tel: 020 7356 4909 email: LQGXVWU\HQTXLU\#EWFRP )LQGRXWPRUH $QRQOLQHYHUVLRQRIWKLVGRFXPHQWLV $IXOOOLVWRI%7FRQWDFWVDQGDQ )RUPRUHLQIRUPDtion DYDLODEOHDW HOHFWURQLFIHHGEDFNIDFLOLW\ DERXW%7YLVLW ZZZEWFRPDQQXDOUHSRUW DUHDYDLODEOHDW ZZZEWFRPLQYHVWRUFHQWUH ZZZEWFRPWDON financials.indb 225 15/05/2015 01:52 226 BT Group plc Annual Report 2015 &URVVUHIHUHQFHWR)RUP) 7KHLQIRUPDWLRQLQWKLVGRFXPHQWWKDWLVUHIHUUHGWRLQWKHIROORZLQJWDEOHVKDOOEHGHHPHGWREHƬOHGZLWKWKH6HFXULWLHVDQG([FKDQJH&RPPLVVLRQ for all purposes. None of the websites referred to in this Annual Report 2015, including where a link is provided, nor any of the information contained on such websites is incorporated by reference in the Form 20-F. Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page 1 ,GHQWLW\RIGLUHFWRUVVHQLRUPDQDJHPHQWDQGDGYLVers Not applicable 2 2ƪHUVWDWLVWLFVDQGH[SHFWHGWLPHWDEOH Not applicable 3 .H\LQIRUPDWLRQ $ 6HOHFWHGƬQDQFLDOGDWD )LQDQFLDOKLJKOLJKWV 7 Group performance *URXSƬQDQFLDOUHVXOWV 79 6HOHFWHGƬQDQFLDOGDWD 205 Information for shareholders Exchange rates 214 3B Capitalisation and indebtedness Not applicable & 5HDVRQVIRUWKHRƪHUDQGXVHRISURFHHGV 1RWDSSOLFDEOH 4 ,QIRUPDWLRQRQWKHFRPSDQ\ 4A History and development of the company How our lines of business performeda 8 Information for shareholders Background 210 Group performance Capital expenditure 88 General information Capital management and funding policy 132 4B Business overview Key performance indicators 6 Our purpose 21 Our goal 21 Our strategy 21 Information for shareholders FinaQFLDOHƪHFWVRIWKH acquisition considered in the shareholdHU{FLUFXODU 222 Our networks and physical assets 33 Research and development 34 Brand and reputation 34 Our lines of business 54 Stakeholders and relationships Our suppliers 36 Human Rights 37 Our relationship with HM Government 38 Regulation 38 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Segment information 155 Financial and operational statistics Operational statistics 208 Information for shareholders Cautionary statement regarding forward-looking statements 209 Further note on certain activities 224 4C Organisational structure Operating Committee 26 Our business model 28 Our lines of business 54 Subsidiary undertakings 199 4D Property, plants and equipment Our networks and physical assets Properties 33 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Property, plant and equipment 168 Financial and operational statistics Financial statistics 207 5 2SHUDWLQJDQGƬQDQFLDOUHYLHZDQGSURVSHFWV 5A Operating results Our lines of business 54 Group performanceb 80 financials.indb 226 15/05/2015 01:52 The Strategic Report 227 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page 'HOLYHULQJVRFLHWDODQGHQYLURQPHQWDOEHQHƬWV 90 Alternative performance measures 202 Information for shareholders Cautionary statement regarding forward-looking statements 209 5B Liquidity and capital resources Group performanceb 80 Information for shareholders Cautionary statement regarding forward-looking statements 209 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Loans and other borrowings 183 Financial instruments and risk management 187 Financial commitments and contingent liabilities 194 5C Research and development, patents and licences Research and development 34 Financial and operational statistics Financial statistics 207 5D Trend information Group performanceb 80 6HOHFWHGƬQDQFLDOGDWD 205 Information for shareholders Cautionary statement regarding forward-looking statements 209 ( 2ƪEDODQFHVKHHWDUUDQJHPHQWV *HQHUDOLQIRUPDWLRQ 2ƪEDODQFHVKHHWDUUDQJHPHQWV 133 5F Tabular disclosure of contractual obligations Group performance Contractual obligations and commitments 90 6 'LUHFWRUVVHQLRUPDQDJHPHQWDQGHPSOR\HHV 6A Directors and senior management Board of Directors 96 The Board 98 6B Compensation Reports of the Board committees Report on Directors’ Remuneration 111 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV 5HWLUHPHQWEHQHƬWSODQV 172 Share-based payments 180 6C Board practices Board of Directors 96 The Board 98 Reports of the Board committees Report on Directors’ Remuneration 111 6D Employees Our people 30 Group performance Income statement Operating costs 82 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Employees 160 6E Share ownership Reports of the Board committees Report on Directors’ Remuneration 111 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Share-based payments 180 7 0DMRUVKDUHKROGHUVDQGUHODWHGSDUW\WUDQVDFWLRQV 7A Major shareholders Shareholders and Annual General Meeting Relations with shareholders Substantial shareholdings 135 Information for shareholders Analysis of shareholdings at 31 March 2015 211 7B Related party transactions Directors’ information Interest of management in certain transactions 131 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Related party transactions 193 7C Interests of experts and counsel Not applicable financials.indb 227 15/05/2015 01:52 228 BT Group plc Annual Report 2015 Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page 8 )LQDQFLDOLQIRUPDWLRQ $ &RQVROLGDWHGVWDWHPHQWVDQGRWKHUƬQDQFLDOLQIRUPDWLRQ 6HH,WHPEHORZ General information Legal proceedings 133 Group performance Dividends 84 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Financial commitments and contingent liabilities 194 Information for shareholders Dividends 212 $UWLFOHVRI$VVRFLDWLRQ $UWLFOHV Dividends 215 % 6LJQLƬFDQWFKDQJHV 'LUHFWRUVoLQIRUPDWLRQ Going concern 130 9 7KHRƪHUDQGOLVWLQJ $ 2ƪHUDQGOLVWLQJGHWDLOV ,QIRUPDWLRQIRUVKDUHKROGHUV Stock exchange listings Share and ADS prices 210 9B Plan of distribution Not applicable 9C Markets Information for shareholders Stock exchange listings 210 9D Selling shareholders Not applicable 9E Dilution Not applicable 9F Expenses of the issue Not applicable 10 $GGLWLRQDOLQIRUPDWLRQ 10A Share capital Not applicable 10B Memorandum and articles of association Information for shareholders $UWLFOHVRI$VVRFLDWLRQ $UWLFOHV 215 10C Material contracts Information for shareholders Material contracts 217 10D Exchange controls Information for shareholders /LPLWDWLRQVDƪHFWLQJVHFXULW\KROGHUV 225 10E Taxation Information for shareholders 7D[DWLRQ 86+ROGHUV 223 10F Dividends and paying agents Not applicable 10G Statement by experts Not applicable 10H Documents on display Information for shareholders Documents on display 225 10I Subsidiary information Not applicable 11 4XDQWLWDWLYHDQGTXDOLWDWLYH &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV GLVFORVXUHVDERXWPDUNHWULVN 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV 6LJQLƬFDQWDFFRXQWLQJSROLFLHV Financial instruments 154 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Financial instruments and risk management 187 12 'HVFULSWLRQRIVHFXULWLHVRWKHUWKDQHTXLW\VHFXULWLHV Not applicable 13 'HIDXOWVGLYLGHQGDUUHDUDJHVDQGGHOLQTXHQFLHV Not applicable 14 0DWHULDOPRGLƬFDWLRQVWRWKHULJKWVRIVHFXULW\KROGHUV DQGXVHRISURFHHGV Not applicable financials.indb 228 15/05/2015 01:52 The Strategic Report 229 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information Required Item in Form 20-F Where information can be found in this Annual Report Item Section Page 15 Controls and procedures General information US Regulation US Sarbanes-Oxley Act of 2002 131 Disclosure controls and procedures 131 ,QWHUQDOFRQWURORYHUƬQDQFLDOUHSRUWLQJ 132 5HSRUWRIWKHLQGHSHQGHQWDXGLWRUVs&RQVROLGDWHGƬQDQFLDO statements United States opinion 143 16A $XGLWFRPPLWWHHƬQDQFLDOH[SHUW General information US Regulation US Sarbanes-Oxley Act of 2002 131 16B &RGHRIHWKLFV General information US Regulation US Sarbanes-Oxley Act of 2002 131 16C 3ULQFLSDODFFRXQWDQWVoIHHVDQGVHUYLFHV &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 1RWHVWRWKHFRQVROLGDWHGƬQDQFLDOVWDWHPHQWV Audit, audit related and other non-audit services 160 Reports of the Board Committees Audit & Risk Committee Chairman’s report 101 16E 3XUFKDVHVRIHTXLW\VHFXULWLHVE\WKHLVVXHUDQG Information for shareholders DƯOLDWHGSXUFKDVHUV Share buyback 212 16F &KDQJHLQUHJLVWUDQWoVUHSRUWLQJDFFRXQWDQW Not applicable 16G &RUSRUDWH*RYHUQDQFH General information US Regulation New York Stock Exchange 131 17 )LQDQFLDOVWDWHPHQWV Not applicable 18 )LQDQFLDOVWDWHPHQWV 5HSRUWRIWKHLQGHSHQGHQWDXGLWRUVs&RQVROLGDWHGƬQDQFLDO statements United States opinion 143 &RQVROLGDWHGƬQDQFLDOVWDWHPHQWV 144 a ([FOXGLQJWKHLQIRUPDWLRQRQSDJHVWKURXJK b ([FOXGLQJWKHLQIRUPDWLRQXQGHUWKHVXEKHDGLQJp3URƬWHVWLPDWHDQGSURƬWIRUHFDVWFRQVLGHUHGZLWKLQWKHVKDUHKROGHUFLUFXODUqRQSDJH financials.indb 229 15/05/2015 01:52 230 BT Group plc Annual Report 2015 *ORVVDU\RIWHUPV % I %'8. Broadband Delivery UK – the UK Government body charged ,3 internet protocol – a packet-based protocol for delivering data – ZLWKKHOSLQJWRRYHUVHHWKHXVHRISXEOLFPRQH\IRUUROOLQJRXWƬEUH including voice and video – across networks. broadband in harder-to-reach parts of the country. ,379 internet protocol television – the combination of broadcast %736 %73HQVLRQ6FKHPHsWKHGHƬQHGEHQHƬWSHQVLRQVFKHPHZKLFK content with broadband content, delivering both through the television. was closed to new members on 31 March 2001. ,3; IP exchange – a telecommunications interconnection model for the %75HWLUHPHQW3ODQ DGHƬQHGFRQWULEXWLRQSHQVLRQVFKHPHVHWXSRQ H[FKDQJHRI,3EDVHGWUDƯFEHWZHHQFXVWRPHUVRIVHSDUDWHPRELOHDQG {$SULODQGZKLFKFORVHGWRQHZPHPEHUVRQ0DUFK Ƭ[HGRSHUDWRUV %7566 BT Retirement Saving Scheme – the scheme set up on 1 April ,6'1 integrated services digital network – a telephone system network, 2009 as a successor to the BT Retirement Plan. It is a contract-based, which integrates voice and data on the same lines. GHƬQHGFRQWULEXWLRQDUUDQJHPHQW L C /DGGHUSULFLQJ Ladder pricing links the amounts that BT charges &3 communications provider – a provider of communications services – mobile operators for mobile calls to 0800, 0845 and 08700 numbers telephony, broadband, video on demand and other services. terminating on our network to the retail price charged by mobile operators to their customers. //8 local loop unbundling – the process by which CPs can rent the copper lines between BT’s exchanges and customer premises from ' Openreach to provide voice and broadband services using their own equipment. '6/ digital subscriber line – a broadband service where existing wires between the local telephone exchange and a customer’s telephone sockets are transformed into a high-speed digital line. 0 0DQDQJHG(WKHUQHW$FFHVV6HUYLFH a product that uses pseudo wire E WHFKQRORJ\WRFDUU\(WKHUQHWWUDƯFEHWZHHQWKHPRELOHRSHUDWRUV FHOO and core sites in a single converged packet network. 03/6 multi-protocol label switching – supports the rapid transmission (WKHUQHW high-capacity, high-speed digital connections available of data across network routers, enabling modern networks to achieve WKURXJKRXWWKH8.7KH\WHQGWREHXVHGE\EXVLQHVVHVDQGRƯFHVIRU high quality of service. which a domestic connection is inadequate when large numbers of 0912 mobile virtual network operator – an arrangement where a devices have to be online. retailer sells mobile services under its own brand but uses a mobile network owned by another operator to do so. F N )77& ƬEUHWRWKHFDELQHWsDYDULDQWRI*($ZKLFKXVHVƬEUHWR provide high connection speeds from the exchange to a street cabinet 1*$ QH[WJHQHUDWLRQDFFHVVsDVLJQLƬFDQWXSJUDGHWRWKHEURDGEDQG QHDUWRDFXVWRPHUSUHPLVHVDQGDFRSSHUOLQHIRUWKHƬQDOFRQQHFWLRQ available generally taken to refer to broadband products that provide a to the premises. maximum download speed greater than 24Mbps. )773 ƬEUHWRWKHSUHPLVHVsDYDULDQWRI*($ZKLFKXVHVƬEUHWR provide high connection speeds for the whole route from the exchange to the customer. O * 2IFRP the independent regulator and competition authority in the UK communications industries, with responsibilities across television, radio, telecommunications and wireless communications services. *)DVW an innovative technology that uses higher frequencies than FTTC to provide faster broadband speeds over copper. *($ JHQHULF(WKHUQHWDFFHVVs2SHQUHDFKoVZKROHVDOHƬEUHEURDGEDQG product. P 3,$ passive infrastructure access – this occurs when one company DFFHVVHVGXFWVRZQHGE\DQRWKHUDQGLQVWDOOVLWVRZQƬEUHRSWLFRURWKHU cables. 32/2V payments to other licensed operators – typically refers to SD\PHQWVE\RQH&3WRDQRWKHU&3ZKHQWHUPLQDWLQJYRLFHWUDƯFRQ their network to carry the call to the customer receiving the call. 3R3V points of presence – this refers to a location in a city where BT has the ability to connect customers to one of its networks. financials.indb 230 15/05/2015 01:52 The Strategic Report 231 Overview Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information R 5)7 ‘Right First Time’ – the internal measure of whether we are keeping our promises to our customers and meeting or exceeding their expectations. 6 6,3 session initiation protocol – a method for creating, modifying and terminating sessions with one or more participants. These include internet telephone calls, multimedia distribution and multimedia conferences. 8 8QGHUWDNLQJV legally-binding commitments BT made to Ofcom, designed to bring greater transparency and certainty to the regulation of the telecommunications industry in the UK. They led to the formation of Openreach. 9 9R,3 voice over internet protocol – a method of transporting speech over the internet. 931 virtual private network – a secure way to create an apparent dedicated network between nodes over a network infrastructure, which is in reality shared with other services. : :$1 wide area network – a computer network that exists over a relatively large geographical area that connects two or more smaller networks. This enables computers and users in one location to communicate with computers and users in other locations. :%& wholesale broadband connect – a product supplied by BT Wholesale which provides high-speed, high-performance broadband services. :/5 wholesale line rental – a product supplied by Openreach which LVXVHGE\RWKHU&3VWRRƪHUWHOHSKRQ\VHUYLFHVXVLQJWKHLURZQEUDQG pricing structure and billing, but using BT’s network. 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