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Examples: repor This is an example of how the links appear within this document. They are recogniseable by the blue underline, simply click to go to the appropriate page or web URL (www.btplc.com). t emen s a financial s t t ion addi t ional informa BT Group plc Annual Report & Form 20-F 2009 2009 Form 20-F & Annual Report BT Group plc BT GROUP PLC ANNUAL REPORT & FORM 41, 47and48. 33to 35,39, GAAP measures andreconciliations directly to themost comparable IFRS indicator are provided onpages earningspershare, adjusted netdebtandfree cashflow. Therationale for usingnon- profitadjusted before taxation, ismeasuredfinancial performance operating EBITDA,adjusted bymanagement.Theseinclude EBITDA,adjusted profit, measures provide amore meaningfulanalysisofthetrading results ofthegroup andare withtheway consistent regardingstatement forward-looking on statements 2009.Pleaseseecautionary are at31 March allnon-financialstatistics stated, March 2009.Unlessotherwise 31 mayrequire.any ofthemasthecontext (which includesthecontinuingactivitiesofBritish Telecommunications plc)anditssubsidiaries linesofbusiness,or meeting 2009hasbeenissuedto allshareholders. ¬iceof financialstatement Summary been sentto shareholders whohaveelected to receive acopy. Aseparate onFormReport 20-Ffor theUSSecuritiesandExchange Commissionto meetUSregulations. has ThisAnnualReport shareholding inBritishTelecommunications plcinthree publicofferings. the Telecommunications Act1984.BetweenNovember 1984andJuly1993,theUKGovernmentsoldallofits incorporated inEnglandandWales asapubliclimited company, whollyownedbytheUKGovernment,asaresult of businesses andassetsoftheBT corporation group. Thesuccessorto BritishTelecommunications, thestatutory itwas continuing activitiesofBT were transferred to BT Group plc. changed itsnameto BT Group plcon11September 2001.Following thedemerger ofO2inNovember2001,the the registered number4190816.Itsregistered officeaddress is81Newgate Street, LondonEC1A7AJ.Thecompany exchanges. Itwasincorporated inEnglandandWales on30March 2001 asNewgate Telecommunications Limited with BT Group plcisapubliclimited companyregistered inEnglandandWales ontheLondon andNewYork andlisted stock A numberofmeasures are quoted inthisAnnualReport ‘non-GAAP’measures. TheDirectors believethese References to ayearare to thefinancialyearended31March ofthatyear, eg‘2009’refers to theyearended referencesIn thisAnnualReport, to ‘BT Group’, ‘BT’, ‘thegroup’, ‘thecompany’,‘we’or‘our’are to BT Group plc forThis istheAnnualReport theyearended31March 2009.ItcomplieswithUKregulations andistheAnnual British Telecommunications ofBT allthe Group plcisawhollyowned subsidiary plcandencompassesvirtually ae148. page 20-F 52 50 32 26 8 6 5 4 3 2 166 163 160 148 146 145 143 142 141 138 137 136 79 77 76 74 71 70 57 56 56 54 Committee Board ofDirectors andOperating – parent company oftheindependentauditors Report – consolidated financialstatements oftheindependentauditors Report Meeting Shareholders andAnnualGeneral Business and Sustainable oftheCommittee forReport Responsible The Board Financial review Other matters Business review How weare structured This isBT statement Chief Executive’s Chairman’s message Financial summary Index ofterms Glossary Cross reference to Form 20-F Information for shareholders Operational statistics Financial statistics Selected financial data analysisofrevenue andprofitQuarterly andassociate undertakings Subsidiary ofBTFinancial statements Group plc ofterms andUSequivalents Glossary Consolidated financialstatements Statement ofdirectors’ responsibilities Business policies Directors’ information ondirectors’Report remuneration oftheNominatingCommittee Report oftheAuditCommittee Report

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW adjusted – Profit (loss)before taxation EBITDA Key performance indicators Key performance Full yearproposed dividend reported – adjusted – Earnings (loss)pershare reported – reported – adjusted – Revenue FINANCIAL SUMMARY OVERVIEW 2 c b a points Key Customer service Customer oprbeIR niaosaepoie nteFnnilrve npgs3-5 39,41,47and48. comparable IFRSindicators are provided intheFinancialreview onpages33-35, andfree cashfloware non-GAAPmeasures. Therationale for usingnon-GAAPmeasures andreconciliations directly to themost profit EBITDA,adjusted Adjusted before earningspershare taxation, adjusted are before stated contract andfinancialreview charges recorded andspecificitems. within BT GlobalServices ‘adjusted’ Items presented as EBITDA: Earningsbefore interest, taxation,depreciation andamortisation. ulya proposed dividendof6.5ppershare Full year three thenext years for perannum Pension deficitpaymentsof£525m The rest ofthebusinessdelivered inspite agoodperformance oftheeconomicdownturn ofBT theunacceptableperformance GlobalServices declinedueto EBITDA BT Global Services contractBT andfinancialreview Global Services charges of£1.6bnandaspecificitem restructuring charge of£280m Revenue of3% growth BT GROUP PLC performance increase in2009 performance time’ ‘rightfirst group-wide 17% a b, b, b, c c c ANNU AL REPORT & FORM 20-F (pence) earningspershareAdjusted 0520 0720 2009 2008 2007 2006 2005 18.1 19.5 22.7 b,c 23.9 18.4 Free cashflow 20:£,0m (2008: £1,503m) £737m £21,390 £3,301 £1,877 £5,348 £(134) c (1.1)p 18.4p 6.5p 2009 £m £20,704 £5,245 £2,506 £5,784 £1,976 15.8p 21.5p 23.9p 2008 £m

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW business, reducing debt and supporting thepensionscheme. business, reducing debtandsupporting allow thedividendto grow inthe atthesame timeasinvesting improvements inthebusinesswillgenerate sufficientcashflowto attractive returns for shareholders andbelievesthattheoperational TheBoardconfident issustainable. iscommitted to delivering 6.5p whichrebases dividendpaymentsto alevelwhichweare dividendpolicy.to announceasustainable pension contributionsfor three thenext years,enablingtheBoard division, to profitable growth. towards returning ouroneunderperforming BT GlobalServices, well.Management’s attention isnowdirected highest delivering principal divisions(BT Retail, BT WholesaleandOpenreach) are thatlieahead.Three outofourfouralso seestheopportunities andencouragesinvestment competitionhasneverbeengreater. defending free trade andfightingfor regulation thatpromotes thisbackground,extremely of challenging.Against theimportance markets havebeeninturmoil andtrading conditionsworldwideremain trade hascontracted for timeinmanydecades.Financial thefirst differentThe worldlooksavery placethanitdidayearago.Global low wholesale prices and incentives to invest inunbundledlocal low wholesalepricesandincentivesto invest fallen sharply. Newmarket entrants haveflourished,encouraged by price ofotherutilitieshassoared, thepriceofcommunicationshas competitive telecommunications market intheworld.While theUKasmost hasbeeninestablishing byOfcom Review Strategic 2005Telecommunications the It isclearhowimportant Regulation CHAIRMAN’S MESSAGE OVERVIEW can invest andcompete inthe UK. can invest country, inthe sameunrestricted mannerthatoverseascompanies competition. BT andcompete shouldbeableto inanyother invest America,regulators domore must toNorth encourage fair regulation to moveatthesamespeedasmarket isevolving. sure thatnewmonopolies are notallowedto emerge. We alsoneed company to compete onequalterms andmakeswhich allowsevery involved. We needalevelplayingfieldintheUK’s moving market fast make areturn for shareholders thatiscommensurate withtherisk ThismeansthatBTinvestment. havethepotential to andothersmust it willneedto thriveasaknowledge-basedsociety. willprovideinvestment theUKwithworldclassITinfrastructure atypicalspeedof4-5Mbtoday. This with 100Mb compared carried largely overfibre opticcablesableto deliverspeeds ofupto generationto Thesewillbe deliverthe next ofbroadband services. than anycomparator country. Britainhasmore companiescompetinginthesamespace loops. The proposed finaldividendof1.1pgivesafullyear oftheBT Pension Schemethe We haveagreed withtheTrustee thechallenges, but Our managementteam notonlyunderstands In our overseas markets, particularly intherest ofEuropeIn ouroverseasmarkets, andin particularly environmentIt isessentialthattheregulatory encourages needed abouttheinvestment Now ahealthydebate isunderway Deputy Chairman, Maarten van den Bergh who is stepping down whoisstepping vandenBergh Maarten Deputy Chairman, become ChiefExecutive, BT GlobalServices. as Group FinanceDirector insuccessionto HanifLalaniwhohad In December2008,wewelcomedTony Chanmugamto theBoard Your Board business BT’s Better World Campaigntakes agenuinelyglobalview. keen to buildonthisheritageandmake sure thatasaglobal ofthesolutionto climate change. part are animportant business.We andofbuildingasustainable believeourservices work BT hasaproud record ofcontributingto thecommunitiesinwhichwe business A sustainable Chairman Sir MichaelRake 13 May2009 changingworld. commitment to helpingthemthriveinthisfast that areandonourenduring basedonexcellent service, decisions. Andwewantlong-term relationships withourcustomers long-term business whichwillsupport certainty regulatory the UK’s ITinfrastructure for thelong-term. We are seekingthe BT isinbusinessfor thelong-term. We billionsofpoundsinto invest The future build onBT’s manystrengths inthefuture. their passionandcommitment.Iamconfidentinabilityto pay tribute to theBT staff. by Igohavebeenstruck Everywhere hard challengingmonths.Iwouldalsolike workduringthelast to appointments shortly. Board following andwewillannounce new thesedepartures the Board andwewishhimwell. international experiencehavebeenofgreat valueto and industry telecommunications three years.His over just executive director for asanon havingserved May downattheendof has decidedto step service. years ofdistinguished Remuneration Committee. Iwouldlike to thankhimfor nine almost SchemePerformance Review Group and the Board’s Pension ofboth Chairman since2006andas seniorindependentdirector as hasbeenatremendous assetto theBoard havingserved Maarten from theBoard attheconclusionofthisyear’s AGM inJuly. Chairman Sir MichaelRake Since joiningBT Ihavebeenextremely fortunate to haveasmy workandIam Thousands ofourpeopleare involvedinvoluntary My thanksalsogoto therest oftheBoard for theirextremely I amworkingwiththeNominatingCommittee to strengthen your Alahuhta who Matti I wouldalsolike to express mygratitude to BT GROUP PLC ANNU AL REPORT & FORM 20-F 3

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW we recorded networkfaults. evernumberofoutstanding ourlowest hadimprovedsatisfaction significantly. Day2008 AndonChristmas complaintswere downandcustomer through call, ontheirfirst were 97%ofourcustomers getting years. By theendoffinancialyear, 13 to onceevery improved years.That’s now nine once every Three yearsagoyoucouldexpectafaultonyourtelephone line are goingto domuchmore. Letmegiveyouacoupleofexamples. to people’s homes. bringing speedsofupto 100Mb generation willdeliveranext broadband, ofsuper-fast services prices. Speedsare improving allthetime,andour newfibre based lowest intheworldaswellsomeof take up and availability broadband theUKnowhassomeofhighest investment, communications market intheworld.Thankslargely to BT’s competitive to movewiththem.IntheUKwehavemost The markets inwhichweoperate are andweneed changingfast needs Meeting ourcustomers’ can nowbuildaprofitable business. we thesolidfoundations to establish were from necessary which charges. but Thesehavenotbeencomfortable, substantial of very anumber take Becauseofthiswehavehadto GlobalServices. BT at performance the However thissuccesswasovershadowedby resilient Thatdespite performance. theeconomicdownturn. a together, BT Retail, BT WholesaleandOpenreach havedelivered our shareholders. for BT Group, atough yearfor theeconomyandatough yearfor thishasbeenatough year. Atough year There’s nodoubtaboutit, CHIEF EXECUTIVE’S STATEMENT OVERVIEW 4 2009 addedfree callswithinanorganisation –evenbetween and medium-sized businesses.Itlaunched three yearsagoand in UK’s tripleplay oflandline,mobileandbroadband first for small travel andreducing costs theircarbonfootprint. all around savemoney bycutting theworld.Helpingcustomers Using technology thelatest weare meetingtheneedsofcompanies ofvideoconferencing. theworld’s provider biggest and isnow Conferencing whichisstrongly growing bothrevenues andprofits itdeliversto Areally itscustomers. goodexampleisBTservice to growagile businesswillfindopportunities andimprove the difficulteconomiccircumstances adiverseand Even inthemost New opportunities our journeyto make BT service. aleaderincustomer made significantprogress, definitely nottheendof butthisismost as itisfor from afamilybuyingbroadbandus.We service have true for orBT ofBT customer thebiggest Wholesale GlobalServices That’s as just engineers weneedto sendoutto fixthingsdeclines. number ofpeoplephoningourcallcentres fallsandthenumberof That’s time,the costs. rightfirst becausewhenwegetourservices people wantto dobusinesswithus,andalsowecanreduce our But there are goodreasons to lookforward withoptimism.Taken Another example is our Business One Plan service, which isthe Another exampleisourBusiness One Planservice, improves, are ourcustomers happy,When ourservice more We andwe havemadereal improvements service, incustomer BT GROUP PLC ANNU AL REPORT & FORM 20-F not beingused. tocustomers savepowerbyprogramming itto switch offwhenit’s wireless June.Ithasthebest rangelaunch last onoffer, andallows sinceits customers over800,000 Home Hubhasbeenordered by InourconsumerbusinessthenewBT signupeachweek. customers andmorebusiness linesarethan2,500new nowusingthisservice offices andmobileworkers –asignificant saving.Overamillion business. and better comeoutofthisrecession astronger to The actionswehavetaken willenableBT Tt oeoto hsrcsinasrne n etrbusiness. BT to comeoutofthisrecession astronger andbetter challenges, butIbelievethattheactionswehavetaken willenable broadband.based super-fast Thereplentyof are certainly infibre have taken somebolddecisionstoo. Like £1.5bn investing contractors resource. andthird-party up of reduction camefrom ourpermanentstaff, withtherest made the of yearonlyathirdwhenever wecan.Thathasmeantthatinthepast andredeploy permanentstaff retrain to sought However, wehave saving. Regretfully thishasmeantareduction inourworkforce. In order to transform thecompany, weneed to drivesignificantcost A better business,abetter future score Indexwiththehighest everawarded. Satisfaction Customer ratedjust operator thebest BT intheworldits GlobalServices has Telemark analyst, anindustry Services, pleasedthat particularly intheUKandarounddelivering greattheglobe.Iwas service 13 May2009 Chief Executive Ian Livingston Chief Executive Ian Livingston These are afew just examplesofBT and seizingopportunities So in the past yearwehavetakenSo inthepast sometough decisionsandwe

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW About us Doing businesssustainably andmultinationalcompanies. to governmentdepartments networked ITservices brand intheUK. Around trusted isoneofthemost theworld,weare amajorsupplierof provider to theresidentiallargest communicationsservice andbusinessmarkets. TheBT BT isoneoftheworld’s companies.IntheUK,weare the leadingcommunicationsservices THIS ISBT OVERVIEW r millioncustomers, 15 around We have certification inrecognition ofourworkonreducingcertification ouremissions. achieve thenew, independentlyassessedCarbonTrust Standard For example,wewere companies intheUKto oneofthefirst shareholders andgood for thecommunitiesinwhichwe operate. also believeit’s goodfor BT, goodfor goodfor customers, accordance withourpublishedcodeofpractice – way, ethicalandsustainable in We aimto dobusinessinan timeforfirst our customers. offer isacommitmentto gettingitright we oftheservice business. At theheart determine ofour theperformance is oneofthekey measures bywhichwe institutional investors. from individualprivate to investors major We haveoveronemillionshareholders, the world’s largest multinationals. andsomeof departments single phoneline,to government wedo. ofeverything at theheart are andourshareholders Our customers Work experience ever We aimto offer anexcellent customer nigfo individualconsumerswitha anging from o nyd ebleeta tstherightthingto do,we it’s . Notonlydowebelievethat efrac increase in2009 performance time group-wide right first 17% customers 15m Member 2008/09 Sustainability Indexes Dow Jones y time. Customer service y time.Customer Our services range from:Our services h a We Way The line, providing asingleresidential phone broadband around theworld. tocustomers accesswireless to enablingOpenzone communities, facilitating onlinetrading on-demand TVservice to buildingtheUK’s largest systems, videoconferencing andtelepresence offering state-of-the-art their customers serve help ourwholesalecustomers that providing managedservices to for homesandbusinesses, packages developing innovativecall customers broadband speedsto millionsof offering super-fast to and disabled, developing phonesfor theelderly to majormultinationals IT services to deliveringglobalnetworked Networks andinnovation to thedevelopmentofnew products andservices. from scientific research innovation. This covers everything ourdrive for inR&Dto support £1.1bn In 2009,weinvested countries. 170 than Our MPLSnetworkprovides inmore coverage andsupport of theUK’s homesandbusinessesby 2012. broadband network,whichwillbeavailableto around 40% We haveannouncedplansto buildafibre based,super-fast optical fibre. kilometres of 11m kilometres ofcopperwire andmore than communications networkintheUK,withmor We comprehensive havethemost fixed-line invested ininnovation invested £1.1bn copper wire 128m km Ex revenueExternal bylineofbusiness BT GROUP PLC enlrevenue segment bycustomer ternal ANNU AL REPORT & FORM Wholesaler/carrier BT GlobalServices hn128m e than Major corporate BT Wholesale Openreach Consumer BT Retail Business 20-F 40% 25% 23% 12% 41% 38% 16% 5% 5

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW h utmreprec,a h aetm shligu eueorcssanddrivevaluefor ourshareholders. experience,atthesametimeashelpingusreducethe customer ourcosts We believethatthewayweare structured timeandenhances bringsuscloserto helpsusgetitrightfirst ourcustomers, around theworld. countries than170 more operate in provides mainlyintheUK.BT services GlobalServices functionalunits.BT Retail, BT WholesaleandOpenreach bytwointernal business, supported four linesof customer-facing through We meettheneedsofourdifferent groups customer HOW WEARESTRUCTURED OVERVIEW 6 BT GlobalServices platforms asasingleconverged operation. ITandnetwork infrastructure our thatBT’s runsmoothly. products andservices It manages makingsure BT Operate isresponsible for BT Operate It isalsoresponsible for networkplanningandtheimplementationofBT’s global21CNplatform. ourproducts andprocessesservices. systems thatsupport BT Design isresponsible for thedesignanddeploymentof platforms, Design BT 2009 globally. intheUKand customers enterprise andgovernment ofchoicefor largepartner solutions. Itaimsto bethe and services products, networked IT provider of isa BT GlobalServices contr US$526m five-year international MPLS average timeto provide 40%+ reduction in networks private global datavirtual for satisfaction customer award for inclass best Telemark Platinum Services countries infrastructure in80+ communications Gamble, to provide BT GROUP PLC c ihPotr& Procter act with ANNU AL REPORT & FORM BT Retail 2009 Enterprises division. BT BT Ireland andour comprises runtheirbusinesses.Italso and the waytheylivetheirlives toenable customers enhance that services products and innovative communications the UK,providing arange of medium-sized enterprises in andsmall customers BT consumer Retail serves 20.7m fix lines 4.8m broadband by businesscustomers network faultsexperienced time to cleartelephony 20% improvement inaverage adviser taken to getthrough to an 65% improvement intime 20-F ed lines BT Group BT Wholesale portfolio ranging fromportfolio providers, through adiverse UKcommunications 700 economies ofscaleto around potential BT Wholesalebrings 2009 network solutions. networks, to managed providers’across otherservice interconnection oftraffic the and connectivity services broadband, voiceanddata nationally available ser signed managednetwork available to 10mUKhomes ADSL2+ broadband now by 40% broadband faultsreduced average timetaken to repair lifetimes projected £1.2bnovertheir vices contracts worth a vices contracts worth Openreach local telephone exchange, providers’ to customers their connecting communications mile’ the crucial‘first Openreach isresponsible for 2009 network. economic accessto theUK giving themequal,openand 65%+ a week LLUorders 94,000 fulfilling on average years 13 wrong onlyevery faults thisyear–alinegoes reduction inaccess 20%+ to befixed daysfor afault three than waitingmoreof customers reduction innumber

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW BUSINESS ANDFINANCIALREVIEWS 9Principalrisksanduncertainties 29 portfolio Ourproperty 29 Acquisitionsanddisposals 28 Legalproceedings 28 Ourrelationship withHMGovernment 28 Branches outsidetheUK 28 Competition 27 Regulation 26 OTHER MATTERS Corporate responsibility 23 Ourresources 20 BT Operate 20 BT Design 19 Openreach 17 BT Wholesale 16 BT Retail 13 BT Global Services 10 Howweare structured 10 Outlook 9 Measuringourperformance 9 business Maintainingasustainable 9 Ourfocus 8 Our2009performance 8 Introduction 8 BUSINESS REVIEW 7Criticalaccountingpolicies 47 management Financialrisk 45 Taxation 44 Balancesheet 41 Cashflow 40 Othergroup items 36 Group results 33 to theFinancialreview Introduction 33 Summarisedgroup incomestatement 32 FINANCIAL REVIEW forward-looking statements forward-looking statements Please see measures Alternative performance 47 BT GROUP PLC Cautionary statement regarding statement Cautionary ANNUAL REPORT & FORM npg 148. on page 20-F 7

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW that previous ofprofitability estimates for someofourmajor worsening economicconditions.ThisledtheBoard to conclude reduction ofcost initiativesand theslowdelivery higher costs, fell significantly.Services Thiswascausedbyacombinationof During the2009financialyear, thelevelof profitability inBT Global The issuesinBT GlobalServices Services. inBT performance Global unacceptable overshadowed bythe savings.However, theseachievements were ofcost delivery wasprimarilyduetoslowed. Thisgoodperformance theeffective whileinBTgrowth Wholesaletherate ofdeclineinrevenue has well.BothBTperformed Retail andOpenreach delivered EBITDA business –BT Retail, BT WholesaleandOpenreach –haveeach In 2009,inspite oftheeconomicdownturn, three ofourlines Our 2009performance value. best offering themthevery technology needwhile thatourcustomers tobest create services to bringtogether the effectiveness oftheirbusinesses. Itisourjob continuing to improve thequalityofpeople’s livesandthe sector to millionsoffamiliesandresidential intheUK. customers public sector organisations intheworld,through thesmallbusiness range from someofthelargest multinationalcorporations and that than 170countriesworldwide.We are customers proud to serve companywhichoperatesBT inmore isacommunicationsservices Introduction GlobalServices. BT from performance anunacceptable additional challengesoftheeconomicdownturn and wefacedthe communications marketplace dynamicandintensely competitive.In2009, Falling innovation continueto make prices,risingdataspeedsandconstant the BUSINESS REVIEW BUSINESS ANDFINANCIALREVIEWS 8 and meetingorexceedingcustomers theirexpectations. keeping ourpromises to our time, time every things rightfirst Thatmeansgetting ofourservices. improvements to thedelivery wedo. ofeverything heart operate atthe by puttingourcustomers market inwhichwe Our goalisto provideinevery excellent service Providing excellent service customer delivering onourcurrent strategic prioritiesbetter, andcheaper. faster shareholder valueby We aimto make BT abetter businessanddrive Our focus streamline andrefocus thebusiness. isbeingrestructuredthese issuesandhowBT GlobalServices to contracts were nolongerlikely to beachieved. We are at the heart ofacommunicationsrevolution whichis attheheart We are Every part ofBT istakingactionto part make substantial Every becoming more agile. future networks building providing excellent service customer These are: On BT GROUP PLC ae10 page we explainwhatactionstheBoard took asaresult of ANNUAL REPORT & FORM 20-F international to multi-protocol labelswitching (MPLS)services theaverage timeto provide telephony networkfaults,while market, there wasa20%improvement intheaverage timeto clear Inthesmallbusiness years. 13 wrong onaverage onceevery just inthenumberoflinefaults,whichmeansthatawillgo 20% ofmore than reduction year.the past experienceda Ourcustomers fell by65%in adviser taken to getthrough to an market, thetime differentiator for BT. isakeythat beingrecognised for service customer outstanding In thehighlycompetitivemarkets inwhichweoperate webelieve andweare determined improvements. to make further customers across thewholerange ofour months 12 progress inthelast to finish.We fromof ourcustomers start havemadesignificant We continuallytrack improvements thatreflect thereal experience n rud260inpartnership. around 2,600 and presence managedpointsof 875BT around theworldfrom support to market, eliminatingduplicationandreducingnew services costs. delivered overcopperor fibre. Itwillreduce thetimeittakes to get andmore needsfaster customers’ efficientlywhethertheyare drivenplatform. Itwillhelpusmeetour unified software BT’s transformation for someyears. of platform andhasbeenattheheart global generation is ournext investment. basis for therightregulatory establishing this andwehaveseenencouragingon ourinvestment, progress in videos; allwithgreatly improved uploadaswell asdownloadspeeds. such ashigh-definitionmovies,gaming,complexgraphics and applications, runmultiplebandwidth-hungry simultaneously to withtop speedsofupto 100Mb,allowingcustomers of services of theUK’s homesandbusinessesby2012.Thiswilldeliverarange available to around makingfibre 40% basedservices spend £1.5bn We will inafibre-based broadbandinvestment super-fast network. to ensure thattheyare fitfor thefuture. begun, andweare andservices inournetworks,systems investing We thinkthisrevolution hasonlyjust afewimagine just yearsago. andinformed inwaysthatwouldhavebeenhardentertained to collaborate more effectively thaneverbefore. Theycanbe Itmeanspeoplecanworktogetherall ourcustomers. and The digitalrevolution isopeningupaworldofnewpossibilitiesfor future networks Building over40%. large reduced businesscustomers by As anexampleoftheprogress weare makingintheconsumer Our flagship MPLS network service provides coverage networkservice and MPLS Our flagship We havenowcompleted thenew21CNcore networkwhichisa 21CN broadbandSuper-fast willrunonBT’s 21CNinfrastructure. These plansare conditional onourabilityto make aproper return weannouncedplansto make Britain’s ever biggest In July2008,

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW r sn omnctostcnlg ohl raeabte,more are usingcommunicationstechnology to helpcreate abetter, inasociallyresponsible way. We operating which itworksandto in communities BT iscommitted to contributingpositivelyto the business Maintaining asustainable deliver greater savings. hasto control still more costs tightlyand Global Services savings,althoughBT cost of thedelivery contribution towards progressfurther in2009towards transforming base. ourcost continue ourdriveto reduce across costs thebusiness,andmade We redeployment andretraining, andwillcontinueto doso. to retain ourpermanentworkforce through sought 2010. We have some 15,000.We reductions ofasimilarlevelin expectfurther by around 10,000,givingareduction inourtotal labourresource of working throughcontractors agenciesorthird wasreduced party 5,000. Inadditionto this,thenumberofindirect employees havereduced thenumberoffull-timeemployeesbyaround we year Inthepast well asthenumberofpeopleweneedto employ. authority andto allowthemto dotheirjobsmore effectively. more responsive to needs. customer out anybureaucracy thatcanslowusdown.Asaresult wewillbe Wecustomers. are makingourcompanymore agileaswell,cutting becoming more agileinthewaytheyworktogether to serve the speedandflexibilityofasmallcompany. Ourpeopleare ofbeingalarge companywith Our goalisto combinethestrengths Becoming more agile BUSINESS ANDFINANCIALREVIEWS measured the delivery ofourstrategymeasured were: thedelivery For 2009,thekey whichwe indicators performance (KPI)against Measuring ourperformance wasintheform ofcharitabledonations. amount, £2.3m thecommunityin2009.Ofthis cash andin-kindcontributions,in time, £25m,comprising atotal of society.that support We invested loyalto tocustomers us. dobusinesswithusandstay peopleto wanttothe best workfor BT. reason for Itisapowerful our brand andiscentral to thewaywedobusiness.Itencourages corporate responsibility contributes to shareholder value.Itbuilds economicgrowth. sustainable change, to promote amore inclusivesocietyandto enable world.Ourgoalisto helpmeetthechallengeofclimatesustainable We commitaminimumof1%ourpre-tax profits to activities We believethatbeingarecognised leaderinthefieldof linesofbusinesshavemadeastrong Three outoffour ofour As webecomeamore agileorganisation, wereduce as ourcosts ourbusinessto givepeoplemore simplify We are continuingto free cashflow. earnings pershare service customer BUSINESS REVIEW Adjusted basicearningspershareAdjusted Earnings pershare levelsinmanyareas. service customer excellent improvements in2010.We are nowdelivering andweare targeting further compared with9%in2008 17%, improving timeby24%.We rightfirst achievedanincrease of target in2009of stretching We setourselvesagroup-wide service Customer flow andearningspershare, whichwere wellbelowtarget. impacted inBT free performance cash GlobalServices unacceptable significant improvements duringtheyear. However, the results were service encouragingOur customer andwedelivered b a thepensionscheme. supporting and debt reducing inthebusiness, investing to grow atthesametimeas allowthedividend generate sufficientcashflowto the businesswill for shareholders andbelievesthattheoperational improvements in TheBoardsustainable. iscommitted to deliveringattractive returns is are confident 6.5p whichrebases dividend paymentsto alevelwe £275m in2010. credit of£313minthe2009 financialyearto acharge ofabout finance expenseonthepensionobligationswhichmovesfrom a in 2010andbeyond. restructuring charges,Global Services to reach over£1bn oftheBT thecashcosts butafter any pensiondeficitpayments, around £2.7bn.Asaresult, weexpectgroup free cashflow, before Included withinthisisareduction ingroup capital expenditure to expenditure andoperating ofwellover£1bnin2010. costs rates, together withtheimpactofrefocusing BT GlobalServices. theimpactoflowermobiletermination the2009financialyear, of towards theend year, reflecting acontinuationofthetrends seen to 5%in the 2010financial We expectrevenue to declineby4% Outlook Free cashflow Free cashflow 2008 and2007,respectively. compared withbasicearningspershare of21.5p and34.4pin 39). page with 23.9pin2008and22.7p2007(see 2008 and£1,354min2007(see ae 9ad41 and 39 pages andfree cashflow, directly tothemost comparable IFRSindicator, isprovided on per share measures isexplainedon addition todisclosure requirements definedunderIFRS.Therationale for usingnon-GAAP measures’ provided in ‘non-GAAP andfree cashfloware basicearningspershare Adjusted items. are before stated contract andfinancialreview charges andspecific ‘adjusted’ Items presented as h rpsdfia iiedo 1.1pgivesafullyeardividendof The proposed finaldividend of Earnings pershare willbe impacted bythemovementofnet capital group We expectto deliveranetreduction in The reported basiclosspershareThe reported was1.1pin2009, respectively. b in 2009was£737m,compared with£1,503min pages 33, BT GROUP PLC 47 and48, and areconciliation basicearnings ofadjusted Financial review a,b were 18.4pin2009,compared ANNUAL REPORT & FORM Financial review page 41). 20-F 9

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 1,000 1,500 2,000 2,500 3,000 3,500 BTAt ru prtn rfi ls)bylineofbusiness,andfor (loss) to group operating profit EBITDA items see these discussionof For further review charges andspecificitems. basis,beingbefore‘adjusted’ theimpactofcontract andfinancial onan theresults ofBT GlobalServices measure For 2009,we items. operating profit before specific EBITDAand basedon Openreach BT Retail, BT Wholesaleand of financialperformance the inthis discussed is 2008 and2007 thelinesofbusinessfor 2009, eachof of financialperformance The Line ofbusinessfinancialperformance sure theyrunsmoothly. Neithergenerates revenue. external whileBT Operate isresponsible for making products andservices, our deploys platforms, andprocesses ITsystems thatsupport Specifically, BT Design are managedbyBT DesignandBT Operate. an operating unitofBT GlobalServices. Openreach, andinternationally through GlobalTelecoms Markets, through BT Wholesaleand CPs (CPs). IntheUKwesupport communications wholesalersto othercommunicationsproviders UK andglobally. operates inthe residential andbusinessmarkets. BT GlobalServices where provider weare to the thelargest communicationsservices two internal functionalunits:BT DesignandBT Operate. andOpenreach. by Theseare supported BT Retail, BT Wholesale We havefour linesofbusiness:BT customer-facing GlobalServices, How weare structured (£m) order intake BT GlobalServices BUSINESS ANDFINANCIALREVIEWS 10 repairs within thetarget time. ofinternational 6%improvement inthedelivery anda services MPLS international more than40%intheaverage timeto provide regarded in class. private networkservices, asbest global datavirtual of platinum award, reflecting withourdelivery satisfaction customer Telemark hasgivenBT its Services analyst Providers, andindustry global leaderinGartner’s MagicQuadrant for NetworkService value. andinnovatingtogether to investing buildlong-term partnerships, professional capabilitiestogether withstrong customer services enterprise intheUKandglobally. and governmentcustomers and solutions.We ofchoicefor large aimto bethepartner products, services networked IT isaproviderBT of GlobalServices Business overview BT GlobalServices inthetableatfoot of the group, isprovided 500 BT isoneofEurope’s successful largest andmost BT Retail, BT WholesaleandOpenreach operate mainlyintheUK, utmrsrieipoeet n20 nlddareduction of improvements in2009includeda service Customer Group’sThe Gartner research organisation recognises BT asa ITand We combinationofnetworked havecreated apowerful facilities–which networks,ITandtesting our haveintegrated We 0 BT GROUP PLC 1Q Q3 Q2 Q1 pages 33 2007 ANNUAL REPORT & FORM and 47 to 48. 4Q 2Q 4Q 2Q Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 A reconciliation ofadjusted Business review 2008 BUSINESS REVIEW 20-F pages 34to 35. We measure . 2009 Actions taken expenditure, including ourcontractor base,andhavesuccessfully spend of£450m withsuppliersacross seven categories of reducedsuccessfully theserates byupto 35%.We haveaddressed We reviewed rates across our contractor base,and resource. focus procurement onexternal with particular andtotal labour contracts. requirementsability andreadiness to meetourdelivery onallmajor duediligencearound our enhancing and wincriteria stringent setting are alsoplacinggreater focus onprofitable sectors, forof assumptionsandestimates contracts. newandexisting We a rigorous andregular basisinvolvingstrong independent oversight plans havebeenputinplaceandwillcontinueto beconducted on Additionalscrutinyofcontracts transformationreporting. andcost governance process that combinesoperational, financial andrisk ofastrengthened contract aspart risks andopportunities contract reviews to assesscommercial more regular undertaking therest are beingimplemented in2010.Theseinclude of 2009, of process improvements. Someofthesewere inplacebytheend capitalisedonthebalancesheet. previously been £1.3bn ofthetotal charge relates to contract whichhad costs inthelightofcurrent economicoutlook. particularly estimates, efficiencies andotherchangesinunderlyingassumptions reflect amore cautiousviewoftherecognition offuture cost the subjectofongoingcommercial negotiations.Thesecharges are which includes£1.2bnrelating to the twomajorcontracts that contract andfinancialreviews, acharge of£1.6bnwasrecognised, conducted advisors.Havingcompleted jointlywithexternal the covered complexcontracts thelargest andmost andwere Thecontract reviews anditsbalancesheetposition. Services financial review covered ofBT thefinancialperformance Global andoperations. The contracts financialposition, Services’ Global review anextensive ofBTThe newmanagementteam undertook contracts. onexisting performance indelivery to reduce shortfalls to bringgreater focus to theprofitability ofnewcontract winsand October 2008.Thenewteam’s briefwasto address base, thecost for thedivisionappointed in ChiefExecutive withanew Services, The Board changedtheseniormanagementteam withinBT Global making, adverselyimpactingourprofits. made anumberofthesecontracts lessprofitable orevenloss contract. In2009,afailure to achievetheseanticipated savings savingsthatweexpecttoterm make cost overthelife ofthe profitability for estimates majorcontracts generally includelong- this year’s and andpreviousourpricing,cost years’annualreports, fellBT significantly. GlobalServices UK nationalandlocalgovernment. countries. We are to thelargest - supplierofnetworked ITservices pointsofpresence in more than170 more than3,400 We have meit cinhsas entaken to address base, thecost hasalsobeen Immediate action implementinganumber is managementteam BT GlobalServices’ As explainedinthe Despite thesestrengths, during2009thelevelofprofitability in Principal risksanduncertainties section in

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW e prtn oe which include: model new operating inorder to deliver thebenefitsof will becompleted in2010 beingimplemented. Themajority Significant structural changesare segments: customer three base. lower cost asignificantly andestablish customers abilityto serve Services’ will reshape andrefocus enhancingBT Global thebusiness,further inarevised operating modelandrestructuring planwhich resulting The operational review wascompleted towards theendof2009, ischanging How BT GlobalServices reductions cost to inthe2010financialyear. deliversustainable intheseareas. Theseactionsare expected have achievedreductions expenditure includingtravel, consultancyandconferencing and focused onanumberofareas ofsignificantdiscretionary average, andupto 35%insomecategories. Inaddition,wehave renegotiated contracts, resulting inpricereductions of12%on BUSINESS ANDFINANCIALREVIEWS charges predominantly arisefrom legacynetworksand products These twofinancialyears, themajorityin2010. over thenext charges ofapproximately £420mintotal expected to berecorded specific item restructuring charges of£280min2009,withfurther As aresult ofthisoperational review, thegroup hasrecorded BT Global Services newstructure BT GlobalServices restructuring corporate support functions to serve thethree to serve restructuring functions corporate support savings cost networks, thereby removing duplicationandenablingsignificant byathirdnumber ofsystems andhalvingthenumberofglobal continued rationalisation andnetworks,reducing ofsystems the improved service timecustomer rightfirst which willprovide contactandenable asingle pointofcustomer individual centres into asmallnumberoflarger operational hubs, model,consolidatingalarge numberof a singleglobalservice quality ofdelivery win rates onselected dealsandensure standardisation and processes to improve enhanced bidmanagementandstart-up each target market effectively in capability,management anddelivery competing integrated sales,marketing, professional account services, needs inkey countries. ofbusinessesaddressingdiscrete specificcustomer portfolio ofa consisting unit Enterprises BT GlobalServices creating a services ofBT’sconnectivity anddelivery ofproducts core and portfolio differentiating through BT seamlessglobal GlobalServices customers, key multinational to networked ITservices providing products andservices strong market positionandthegroup’sGlobal Services’ 21CN BT buildingon corporate andpublicsector intheUK, customers being thenumberoneprovider to ofnetworked ITservices Under thenewoperating willfocus model,BT on GlobalServices strategic partnering for sales, service andinfrastructure. forstrategic sales,service partnering more efficientlyandeffectively segments customer UK Domestic BT GlobalServices Multinational Corporations BUSINESS REVIEW BT GlobalServices Enterprises communications (includingTelepresence andconferencing) and operational efficiency, workforce management,security, unified We are seeingcontinuedinterest innetwork market environment. reduce andstreamline theirbusinessesinachallenging costs £600bn. We remain wellplacedto helpourglobalcustomers business,buildingonastrong marketsustainable position. We believethatwehaveidentifiedaclearpathto aprofitable and Market context review provided inthe is impact, analysisofthesecharges, Further includingtheircashflow property. rationalisation andrestructuring associated withpeopleand costs utmr including: customers venues. Games internet accessandlandlinesrequired ateachoftheLondon2012 the provision andmanagementofvoicedatanetworks, involves OlympicGames andParalympic Games.This London 2012 andaschoolsinternet service. voice anddataservices CountyCouncilwithacombinedvalueof£40mtoNorfolk provide Sandwell Metropolitan Borough Councilandtwocontracts with arrangement withLiverpoolCityCouncilandanewcontract with Wecouncil services. to also wonanextension ourexisting more ofanumberkey than£180mforCouncil, worth delivery agreed withSouthTyneside aten-year strategic partnership 2010. in completed fornetworks for Work theDepartment andPensions to be intheregion.community andmentalhealthtrusts ofNPfIT,part in aswellimplementing25newsystems whichhaveyetto roll as outsystems ofEngland South inthe trusts fourEngland. Inaddition,weare acute workingwithafurther ateightacuterunning ofITsystems hospitalsintheSouthof upgrading inLondon,wehavetaken NHSITsystems onthe ITprogrammelargest non-military intheworld. (NHS) NationalProgramme for Information Technology (NPfIT),the Provider contractsLocal Service withtheNationalHealthService sector. We havearound 1,800multi-site intheUK. customers fr sector ofBritishindustry, every We businessesinvirtually serve In theUK Operational performance the current economicenvironment. contactcentreglobal hosted respond solutions,asourcustomers to om banking and finance to transport, logistics andthepublic logistics om bankingandfinanceto transport, The global networked IT services marketThe globalnetworked isvaluedataround ITservices Society to manageitsnetworked ITservices a seven-year, £160moutsourcing dealwithNationwide Building dealswith majorUKcorporate sector We signedanumberof for the partner theofficialcommunicationsservices We are Reinforcing ourpresence inthelocalgovernment sector, we converged IP We are deployingoneofthe world’s largest provider responsibleBuilding onourworkasthelocalservice for We continueto make progress onourN3,SpineandLondon on pages 36to 37. BT GROUP PLC Specific items ANNUAL REPORT & FORM section ofthe Financial 20-F 11

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW the UKin2009andwecontinuedt outside newcustomers 529 signedordersBT with GlobalServices Outside theUK b a Operating (loss)profit grossAdjusted profit Revenue ag utntoa corporations. large multinational BUSINESS ANDFINANCIALREVIEWS 12 Financial performance ofthenationalgovernment’sand hosting ITinfrastructure. ofHomeAffairsforcontract thehousing withtheDutch Ministry 1,150schools. provide additionalbandwidth to afurther 755publicschoolsintowhich BT telecentres and willconvert digitalinclusion–under the Colombiangovernmentsupporting providing free internet accessacross thecity, and acontract with with Barcelona CityCouncilfor 500wireless broadband hotspots, Successes inthepublicsector outsidetheUKincludedacontract Adjusted EBITDA Adjusted SG&Acosts Adjusted review charges Contract andfinancial EBITDA Before specific items. items areAdjusted before contract andfinancialreview charges andspecificitems. xhne(AX maintenance. exchange (PABX) voice, IPdata,conferencing andprivate automated branch £32mfor voice/hosted worth a five-yearcontract withCarillion managed services infrastructure and managed globalwidearea network(WAN) fully to provide a three-year contract withManpower extension We thatwona€30m oftheMatch consortium are alsopart todeployment ofBT 13countries. managedmobileservices telephony, managedLANandBT OneVoice to 112sites andthe plusdeploymentofIP for dataandvoiceservices Syngenta a seven-year, provided ofcurrentto €118mextension services worldwide contactcentres airlineto consolidate andmanageits a contract withtheEmirates in33countries network services to provide securityand a three-year contract withMunichRe communications videosolution strategic officesacross Europe, theUSandAsiawithBT’s unified to connect SWIFT contracta three-year with managedservices andvideoconferencingcontact centres, emailservices communications infrastructure, includingvoiceoverIP(VoIP), a contract ofits withBMWto managealarge part more than80countries and managelocalarea network(LAN)andWAN infrastructure in a five-year, US$526mcontract withProcter &Gambleto provide We signedanumberofmajordealsin2009,including: BT GROUP PLC b a ANNU a a b AL REPORT & FORM (2,106) (1,330) ,2 ,8 7,312 7,889 8,828 ,6 ,7 2,024 2,759 1,978 2,839 2,267 2,576 1,639 2009 309 £m o strengthen ourbusinesswith BUSINESS REVIEW 20-F 082007 2008 117 861 861 £m – 735 735 £m 70 – TGoa evcsU/o Krvne(£m) UK/NonUKrevenue BT GlobalServices n custos oehrwt usiuino UKcallsandlines. of substitution and acquisitions,together with MPLS andreflects theimpactofforeign exchange rate movements inrevenuedriven bygrowth from and bothnetworked ITservices £5,328m, comparedof10%in2008.Theincrease withgrowth was acquisitions. offoreign exchange rate movementsandoverseas impact oforganicaswellthe growth 2007: 36%),reflecting theimpact increased to total 47%ofBT revenue (2008:40%, GlobalServices revenue of£7,889min2008.Revenue from outsidetheUKhas was£7,872m,compared withreported these, underlyingrevenue Excluding rate movementsof£588mandacquisitions£368m. in 2008.Revenue in2009includes theimpactofforeign exchange (2008: £7,889m,2007:£7,312m),comparedof8% withgrowth revenueIn 2009,BT increased GlobalServices by12%to £8,828m £861m. Depreciation and amortisation increased Depreciation by4%to £776m andamortisation £861m. EBITDAincreased by17%to compared with2008.In2008, £552m of of £309m, areduction EBITDA adjusted resultedSG&A costs in by 16%to £2,295m. increased SG&Acosts of£28mincludedwithinSG&Acosts, charges Includingtheimpact ofthecontract andfinancial review 2009. of andgeneraldiscretionary overheadexpenditure inthesecondhalf team ontotal labourresource, suppliernegotiationand therenewed focus from thenewmanagement £1,876m, reflecting decreased costs by5%to SG&A adjusted these, underlying rate movementsof£221mandacquisitions of£170m.Excluding includetheimpactofforeign costs exchange 2% in2008.SG&A (2008: £1,978m,2007:£2,024m),compared withadecrease of andareproducts thegeneral andservices businessoperating costs. to thebusiness processes thatare ofprovidingcosts ancilliary are those costs (SG&A) period. Selling,general andadministrative provision reflected ofproducts inrevenue andservices inthe decreased by66%to £965m. and financialreview charges of£1.6bn,gross profit in2009 in highermargin UKbusiness.Includingtheimpactofcontract thecontinued decline and 3% in2008,primarilydueto highcosts (2008: £2,839m,2007:£2,759m),compared withanincrease of (2008:£8.0bn,2007:£9.3bn). £8.0bn our total order valueof of 68% contracts2007: £5.2bn).Networked represent ITservices (2008:£5.0bn, £5.5bn contractsnetworked worth ITservices movements andacquisitions.Duringtheyear, wewonnew carrier businessandreflects theimpactofforeign exchange rate increase inrevenue wasmainlydrivenbygrowth from theglobal 12% to £2,049m,comparedof11%in2008.The witha growth inmanagednetworksolutions.Otherrevenue increased by growth andconferencing products asshownbythe network more email,IP revenue stream switch ascustomers to the gradual declineinthis compared withadeclineof6%in2008.Thedecrease wasdueto Revenue from callsandlinesdecreased by8%to £1,095m, 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Revenue from managednetworksolutionsincreased by17%to The decrease ingross profit together withtheimpact ofhigher 15%to £2,267min2009 increased costs by SG&A Adjusted Gross profit isrevenue directly lesscosts attributableto the 9%to £2,576min2009 grossAdjusted profit decreased by 0 0720 2009 2008 2007 64% 36% 40% 60% 53% 47% UK Non UK

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Market context fixed linesand4.8mbroadband lines. BT Ireland andBT Enterprises. doing whattheydobest. technologies canfocus soourcustomers on implementing new outof thedrudgery the largest businesses.We dothisbytaking availableonlyto thatwere once communications andITservices byusing theirservice andimprove to cuttheircosts them andenable employees, althoughsomeare significantlylarger) (typicallywithupto 1,000 medium-sized enterprises (SMEs) and small serve what theywantwhenwant.At workwe broadband to theTVandto broadband sothatpeoplecanwatch andsafe connectionto theinternet. We are bringing secure reliable, to enjoyfast, and keep intouch withfriendsandfamilies lives andruntheirbusinesses.At to homeweenableourcustomers enhancethewaytheylivetheir customers its BT Retail aimsto help Business overview BT Retail compared withanoperating profit of£117min2008(2007:£70m). movements. impact ofacquisitions,aswelltheforeign exchange global infrastructure, related customer capitalexpenditure andthe in 2008.Theincrease reflects theincreased inour investment (2008: £744m,2007:£665m),compared withanincrease of12% BUSINESS ANDFINANCIALREVIEWS a oie.We alsoannouncedthatcallsto 0845and 0870 mobiles. pay pre- making itcheaper to callamobile from aBT landlinethan from which nowoffers discountsofupto 40%oncallsto mobiles– value. best the receive terms whouseusthemost butcustomers Weekend Calls.Alloffer competitive CallsandUnlimited Anytime and lines–Unlimit We offer withthree valuefor mainpackagesofcalls moneyservices Voice BT Consumer Operational performance that meettheirneedsanddelivergreat valuefor money. value. best very tocausing businessandpersonalcustomers shoparound for the well asmobilevoice.At thesametimeeconomicdownturn is the mobileoperators whoare nowoffering mobilebroadband as large basesto customer whom theycansellbroadband, andfrom with and competitionintensifies, bothfrom localloopunbundlers demand for broadband hasbeenslowingasthemarket matures therate in ofgrowth challenging: Market conditionshavebeen We haveresponded byoffering complete customers packages 20.7m theUK’s largest communicationsprovider, with We are Business, BT There are four divisionsinBT Retail: BT Consumer, resulted inanoperating lossof£2,106m, The abovefactors n20,w none u e red Family Mobilescheme & weannouncedournew Friends In 2009, ed Weekend Calls,Unlimited Eveningand BUSINESS REVIEW vrg nulrevenue perconsumerhousehold(£) annual Average 240 250 260 270 280 290 broadband experience.For example,weoffer McAfee securityon needto customers haveasafe andenjoyable extras the priceall double thenumber attheendofprevious year. More customers around March 2009,wehad423,000 customers, the endof available. withmore than5,000hoursofprogrammingdemand service football. At 31March 2009,BT VisionwastheUK’s largest on- providers, moviesandlivePremiership includingblockbuster from awiderangechannels andpay-per-viewservices ofcontent pay-per-viewterms. subscription or –enablesus to meettheseneeds.Itisavailableon service fr Consumers increasingly wantto buytelephony, broadband andTV BT Vision website. comparison inapollconducted bytheBroadband Genie service andvoted jointtop for broadband customer provider (ISP) service experience. aleadingonlineself-service customers the award winningPlusnetbrand. Acquired in2007,Plusnetoffers through roaming partners. 50,000locationsworldwide another in theUKandIreland and thechancetocustomers getonlineatmore than150,000locations Wi-Fi hotspots.Betweenthem,BT Openzone andBT FONoffer BT locationsandBT Openzone broadband viaotherBT FONmembers’ small, secure sectionoftheirhomebroadband connection accessto Further, BT whoagree FONenablescustomers to share a package. oftheirTotal aspart Broadband dongles offer 3G thesecustomers consumption. release offers unbeatablewireless coverage andreduced energy an iconicdesignandisthemarket-leading wireless router. Itslatest pictures. back-up valuabledigitalmaterial includingmusicand to customers PCsinthehouse,andDigitalVault, whichenables seven up to W BT Total Broadband istheUK’s popularbroadband most service. Broadband withnewenergy savingpowersupplies. reducing carbonemissions anddisabledcustomers. older needs of addition wedesignourhandsetsto be‘inclusive’andmeetthe In communications provider intheUKto provide thisservice. We are theonly onlowincomebenefits. customers UK market. wouldbeincludedfor free for inourpackages –afirst the numbers masnl rvdr TVso u on-demandtelevision om asingleprovider. BT Vision–our e offer amore complete experiencethanourrivalsbyincludingin The take-up ofBT Visionaccelerated duringthefinancialyear. By BT accessto Visiongivescustomers more than70TVandradio BT wasnamedastheReader’s internet trusted most Digest We alsooffer under lowerpricedbroadband andvoiceservices wantaccesstoSome customers theinternet onthemove.We The BT HomeHubisatthecentre ofBT Total Broadband. Ithas Our range ofhandsetswonpraise in2009for itscontributionto to vulnerable rentals line low offers very Our newBT Basictariff 1Q Q3 Q2 Q1 2007 4Q 2Q 4Q 2Q Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 BT GROUP PLC 2008 ANNU AL REPORT & FORM 2009 20-F 13

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 10,000 12,000 14,000 16,000 easy for salesprofessionals to update key relationship customer Ribbitfor makes salesforce.com. it Thisservice of with thelaunch costs. businesstravel using communicationsto reduce other businessapplications. to integrate voicewith thatusetheinternet are developingservices customers. locations, andaccounted for 35%ofcallrevenues from business March 2009,BT BusinessOnePlanhadmore than460,000 31 (BT BusinessOnePlan).At service withconsistent and mobile, forcustomers packagesthatbringtogether calls,lines,broadband incommunications.Weinvestment haveseenstrong take-up from getmoreinnovation sothatcustomers benefitfrom their of communications,givebett In thebusinessvoicemarket, themanagement weaimto simplify V BT Business inmid2010. service We aimto launchthe pay-TV delivered overthebroadband line. aswell broadcasters on-demand content from thepublicservice broadband to theTV. Itwillcombinefree digitalchannelswithfree previously separate technologies, bringingTVto broadband and Vision andFreeview andwillbridgethegapbetweentwo BT buildon aimsto any relevant approvals). Thenewplatform platform (subjectto and ITVto launchanewdigitalentertainment more thantripled. has viewing oftheservice andsubscribers’ opt for thesubscription‘unlimited views’packs lines) (000 yearend BT Retail broadband market share* BUSINESS ANDFINANCIALREVIEWS 14 smart especiallyinthesaleofBlackBerry™ mobile messaging mobile phonecalls andthisapproach in has drivenstrong growth helping cus We inmobilesales.Ourfocus haveseenstrong growth hasbeenon Mobility andinternet access. hosting recognise for thebenefitsofseamlessbusiness-grade service inparticular, inwebhosting have seenstrong growth ascustomers We timewesellabroadband service). every value-added service alittlemore thanone sell onaverage we (ie rate of113% andnowhave anattachment also offer themvalue-addedservices Whenwesellbroadband to we customers, impact oftherecession. feeling customers the pricesto support also reduced entry-level dongle, enablingthemto connectandworkwherever theyare. We broadband. are Customers provided withaplug-and-play3G During 2009,weenhancedthisser BT Businessremained UKSMEs’preferred provider. internet service Broadband technology, bothfrom thedeskandonmove. usingseamlessvoice-to-textmanagement (CRM)systems 2,000 4,000 6,000 8,000 oice In December 2008, we announced a partnership withtheBBC In December2008,weannouncedapartnership ehavemade‘communications-enabledapplications’areality We We inconferencing, haveseenstrong growth withcustomers and voiceoverIP(VoIP) increased take-up of seenan We have BT GROUP PLC 0 *DSL + LLU installed base *DSL +LLUinstalled 0720 2009 2008 2007 34% 66% tomers workonthemoverather making thanjust ANNU 65% 35% AL REPORT & FORM 34% 66% er valuefor moneyanddrive vice to include mobile BT Other ISPs BUSINESS REVIEW 20-F are leadingwithbusinessapplications,exploitingthegrowing trend and withconsiderable benefitsofsimplicity, securityandagility. We to SMEsatsignificantlylowerprices wayofdeliveringITservices a as and outsourced ITandcommunicationssolutions. to provide fullymanaged solutionsbusiness growing ourcustomer mid-market companiesandare also with have seengoodgrowth We unifiedcommunicationsandmanagedservices. virtualisation, includingdatacentre awiderangecustomers ofITservices, wre ntemre.O awarded inthemarket. contractsand secured anumberofthelargest managedservices consumers andSMEs. to largest DSLbroadband providers oneofthe Weservices. are providers successful largest ofwholesalenetwork and most to governmentandmajorbusinesses,oneofthe IT services access viaOpenreach. andarecustomers responsible for providing regulated wholesale ofgovernmentandmajor partners leading networked ITservices Ireland. Weconsumers andSMEsinNorthern are alsooneofthe Ir BT Ireland operates Ireland acrossandtheRepublic Northern of BT Ireland SMEsinsearch marketing.and support businessesto taketools bookingsovertheweb, thatenableservice financial year, welaunchedanumberofenhancements including were addingaround 2,500eachweek.Towards theendof were 338,000membersoftheBT Tradespace community, andwe At 31Marchwith potential andpartners. customers 2009,there community thatbringsbusinessesandindividualsellerstogether from BT. andservice large companies,withsupport available to very previously ofasophistication management (CRM)systems only toenable ourSMEcustomers relationship accesscustomer computers. Asanexampleweare working withsalesforce.com to paying to havetheapplicationspermanentlyontheirown applications overtheinternet asandwhentheyneeditrather than whereby SMEsaccessanduse towards asaservice’ ‘software which weacquir The creation ofBT EngageIT(incorporating BasilicaandLynx, Other services solutions. and are intelemetry seeingstrong growth phones. We havealsoseengrowing salesofbusinessapplications and publicsectors. Otherkey contracts were woninthebanking,engineering Ireland. theRepublic of throughout broadband availability achieving Communications, Energy andNatural Resources withtheaimof for TheSchemeisrunbytheDepartment Broadband Scheme. oftheNational its principalsubcontractor the delivery to support selected BT as Ireland while3 operations to BT inaseven-yeardeal, eland. We seegreat potential inthedevelopment of‘cloudcomputing’ egie significanttraction intheprivate andpublicsectors gained We In theRepublic ofIreland weare aleadingprovider ofnetworked to We are oneoftheleading communicationsproviders We continueto grow BT Tradespace, ouronlinetrading ed inSeptember 2007)enablesusto offer 2 Ireland outsourced itsnetwork

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW environmental impact.TheacquisitionofWire One HoldingsInc becausetheycanhelptocustomers savetravel andreduce costs Enterprises in2009.Conferencing are attractive services to BT Conferencing in wasoneofthemaindriversgrowth O and Ireland 3 contracts with ofournewmanagedservices thedelivery support for bothmobileoperatorsEthernet services andspecificallyto We continuedtherollout ofour21CN,whichdeliverscarriergrade (%) BT Retail revenue external byunit BUSINESS ANDFINANCIALREVIEWS network telephony faultsexperiencedbybusinesscustomers. anda20%improvement intheaverage timeto clear adviser an reduction inthetimeit takes to consumercustomers getthrough to improvements includeda65% service Customer business. experienceandtakecustomer offailure thecost outofthe improve the Retail. We havearange ofprogrammes whichaimto is anint there innewproductsAlthough wecontinueto invest andservices, Efficiency intheworld. videoconferencing operator leading the intheUS–enhancedBT Conferencing’sservices position as (Wire One)–oneoftheleadingproviders ofvideoconferencing nepie r ubro tn-ln uiess including: Enterprises are businesses, anumberofstand-alone BT Enterprises benefitfrom BT’s broadband. insuper-fast investment to regions wouldbeoneofthefirst intheUK announce thatBelfast Republic ofIreland, andinMarch 2009wewere delighted to over330,000homesandbusinessesinthe exchanges serving to telephone bringing broadband withspeedsofupto 24Mb and technology products. BT Shopanddabs.com–aleadinginternet-based retailer ofIT retailers BT Expedite –offering to integration solutionsandservices monitoring andtracking facilities alarm BT Redcare –providing private payphones BT Payphones –providing street, managed,prison,card and for enquiries onlinedirectory theincreasing2008 weacquireddemand Ufindus,supporting operator andThePhoneBook.InJuly andemergency services, 500), Enquiries(118 Directory BT Directories –comprising internet collaboration services B T Conferencing –aleadingglobalprovider ofaudio,videoand ense focus transformationofBT oncost activitiesinallparts 2 . Our investment inlocalloopunbundling(LLU)is . Ourinvestment BUSINESS REVIEW BT Enterprises BT Consumer BT Business BT Ireland 53% 30% 9% 8% and further market declines. and further theincreasingly competitiveenvironment decline in2009reflects compared withadecrease of4%in2008.Theacceleration ofthe base was34%(2008:35%,2007: 34%). March 2009,ourshare oftheinstalled At 31 additions in2009. represented a31%share ofthetotal broadband DSLandLLUnet additions net March 2009.These at31 4.8m customers to 246 baseincreased installed by355,000, broadband mobility. The 1,345 and market, together withrevenue suchasBT from Vision services broadband maturing retentionsuccessful inthe ofcustomers £985m),reflecting the £1,298m in2009(2008:£1,189m,2007: 283 5,409 1,382 8,100 economic environment on theSMEsector. 361 slowdown innewcontracts, reflecting theimpactof current thegroup sawa 2009 of2008.Towardsquarter theendof 5,167 1,470 8,194 359 reflecting theacquisitions ofBasilicaandLynx inthesecond 985 inBT dueto growth Businessand (2008: £456m,2007:£361m) 456 revenue increased by14% to £519min2009 Managed solutions 4,825 8,112 Total 1,189 Internal revenue 519 revenue external Total Other 1,298 Calls andlines convergence and Broadband Managed solutions BT Retail revenue external BTA1641451,357 1,581 2,938 1,495 1,619 3,114 1,634 and£146m £65m inrespect offoreign exchange rate movements offset byadeclineinrevenue from callsandlines. Revenue includes 1,552 andconferencing, managedsolutions broadband andconvergence, 3,186 reflectinginrevenue growth from £8,477m, 2007:£8,346m), (2008: £8,471m flatyearonat In 2009,BT Retail revenue was Operating profit EBITDA SG&A costs Gross profit Revenue partially offsetbyadeclineincallsandlinesrevenue. partially broadband andmanagedsolutionsrevenue, which wasonly 2008. In2008,revenue increasedin by2%,driven bygrowth £8,260m declinedby3%compared revenue withreported in underlyingrevenue of in respect ofacquisitions.Excluding these, Financial performance Calls andlinesrevenue decreased by7%in2009to £4,825m, revenue increased by9%to andconvergence Broadband BT GROUP PLC ,7 ,7 8,346 8,477 8,471 ,0 1,050 8,346 1,209 8,477 8,471 2009 2009 £m £m ANNU AL REPORT & FORM 082007 2008 082007 2008 £m £m 20-F 912 £m £m 15

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 10 12 14 communications products wholesalerandmanagedsolutions high-volume product wholesaler, generation to anext BT Wholesale’s strategy isto transform itselffrom atraditional, Business overview BT Wholesale £1,050m, 2007:£912m). improvement inoperating profit to £1,209min2009(2008: 15% £1,634m in2009(2008:£1,495m,2007:£1,357m),anda programmes. offsetbysavingsfrom efficiency cost which waspartly product development,marketing andacquisitions,theimpactof increase in2008wasdrivenbyextra inSG&Acosts investment The reduced by7%in2009. of£1,506m underlying SG&Acosts movementsof£12m, andforeign exchange of£34m acquisitions acquisitions andforeign exchange. Excluding theimpactof offsetbytheintegration of supplier savings,beingpartially labourefficiencyand driven byafocus transformation, oncost 2008 and£1,581min2007.The4%reduction was inSG&Acosts 37%, 2007:35%). across growth allthreeshowing steady yearsunderreview (2008: 2008. Gross profit margin increased by0.9%to 38%in2009, £3,114m, 2007:£2,938m),compared withanincrease of6%in OneinMay2008. theacquisitionofWire and inBT£1,382m, 2007:£1,345m),drivenbygrowth Conferencing revenue increased by6%to £1,470min2009(2008: Other (m) yearend connections broadband DSL BUSINESS ANDFINANCIALREVIEWS 16 andthecorestations UKnetwork. mobile operators managetheconnectionsbetweentheirbase all homesandbusinesses.We alsoplay acentral role inhelping thevoicerequirementsthe UKandsupport ofmore than athird of globalrequirements.customers’ wholesale Markets to unitofBT meetour GlobalServices closelywiththeGlobalTelecoms sector worldwide, working BT Wholesaleleadsthewholesale (CPs). communications providers fixed andmobileoperators, providers andother internet service technology, andcanbenefitfrom theeconomiesofscalewebring. them. them. Iftheydonot,wecanprovide andplatforms, wecanmanage they havetheirowninfrastructure operateThis meanshelpingourcustomers ina‘networklite’ way. If andtransform managetheircosts their customers, theirbusinesses. tomanaged networksolutionsthatwillenableourcustomers serve provider. We are BT establishing asaleadingprovider ofinnovative 0 2 4 6 8 SG&A costs wereSG&A costs £1,552min2009,compared with£1,619min 2%in2009to £3,186m(2008: Gross profit increased by emng rud6%o h DLbodadlnstraffic in lines broadband We managearound 60% of theADSL BT Wholesalehasaround intheUK,comprising 700customers and platforms, skills,investment gainaccesstoOur customers BT’s 9%to The abovefactors resulted inEBITDAincreasing by 2007 BT GROUP PLC 082009 2008 ANNU AL REPORT & FORM BT’s retail broadband LLU broadband wholesale External BUSINESS REVIEW 20-F including thereduction inmobiletermination rates internationally. Regulation alsocontinuesto haveamajorimpactonourbusiness, broadband volumedecreases resulting from LLUmigrations. network andoutsourced services. to supplyarange Wholesalewithopportunities ofmanaged BT This presents thatnetworkrenewalcapital investment requires. reluctant to committo thehighlevelsof maybe downturn, they atatimeofeconomic withachallenge.Particularly CPs presents andthis theyprovide areservices extremely bandwidthhungry the providers ratherservice thannetworkoperators. Manyof as Increasingly, are ourcustomers positioningtheirbusinesses Market context services offer high-speed dataconnectivity, customers services resilience national f BT across Wholesale offers thewidest high-speedEthernet services Wholesale Ethernet Wholesale products include thePost OfficeandScottish Southern Electricity. from takingorders to for issuing bills.Ourcustomers suchservices own brands, eventhoughwefrequently managethem endto end, markets quickly. undertheir market Thesecustomers suchservices intheirowninfrastructurenot invested butwhowantto enter new are providedWhite label managedservices to whohave customers voice andbr UKhomesandbusinesseswere receiving At 31March 2009,4.1m White label managedservices theprevious year. 8% from 2009,up in ofBT Wholesale’s revenue external 15% accounted for The managednetworksolutionsbusinessisgrowing rapidly and included: overtheirlifetimes. These aprojected total of£1.2bn worth relationships. long-term, mutually beneficial yearsandenableusto build five and three typically for between eight contracts with solutions To date, wehavesignedmanagednetwork solutions Managed network Operational performance Consolidation continuesto impactBT Wholesale’s market, asdo their base stations andourcoretheir basestations nationalnetworkintheUK. to provide andmanagehigh-speedconnectivitybetween UK UKandT-Mobile 3 (MBNL) onbehalfofthejointventure partners solutions agreement withMobileBroadband Network Limited 2008,wesignedafive-yearmanagednetwork in August service an agreement to provide enquiries Skywithamanageddirectory we announced 2009 andinFebruary million SkyTalk customers overone to support provide itwithwholesalevoiceservices in June2008,weannouncedathree-year dealwithSkyto contracts solutions In theyear, wesignedmanagednetwork of our top 15 customers byrevenue. customers Thesecontracts are 15 of ourtop ootprint intheUK market. Enabledby21CN,these oadband services through our‘white label’platforms. oadband services

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 7 nteya onalike-for-like basis),eliminatingduplication, 17% intheyear (down 19%through headcountreduction Wholesale’s baseby cost oppor In 2009,wemaintainedourfocus reduction onthecost Efficiency of our legacysystems. parts decommissioning ofcertain totime, migrate 21CN,enablingthe theseservices generation withnext core replacements, portfolio wewill,over and new, non-regulated Aswerefresh products andservices. our pr to sellawiderange ofcapacityandcall-based We continue Capacity andcall-basedproducts businesses, around 40%oftheUKaddressable market. homesand 10m available frommore exchangesthan serving was introduced, itwasfirst thisservice 2009, lessthanayearafter speed for stability, At andenhancedlinediagnostics. 31March levelagreements,10Mb, guaranteed theabilityto trade service offersbroadband average customers service, speedsofaround eliminating electricalinterference. user’s telephone master socket to improve broadband speedsby for devicethatcanbefitted to example,isaself-installable anend users andgetmore from theirbroadband connections.TheI-Plate, our cus We continuedto developavarietyoftools andtechniques to help broadband Wholesale more than600nodesthroughout theUK. from and flexibility. At 31March 2009,21CNEthernetwasavailable BUSINESS ANDFINANCIALREVIEWS BTA1261351,500 296 1,796 1,395 198 4,109 1,593 1,277 1,266 switching to LLU CPs continued trend of the primarily dueto 161 decreased by23%to £482m(2008:£624m,2007: £771m) Broadband revenue 3,707 theprevious year(2008:8%). with compared 1,427 1,252 £4,959m, 2007:£5,386m),animprovement intherate ofdecline In 2009,BT Wholesalerevenue declinedby6%to £4,658m(2008: 3,430 1,228 Operating profit EBITDA SG&A costs Gross profit revenue External Internal revenue Revenue Financial performance the daypromised, everperformance. ourbest 2009, 99%ofbroadband circuits were delivered to by customers ByMarch more effectively withtheevolvingneedsofourcustomers. operational efficienciesandaligningourresourcesachieving further oducts and services, includingregulated interconnectoducts andservices, services Wholesale Broadband generation Connect,ournext 21CN tunities thatarise asourbusinesschanges.We reduced BT tomers deliveranexcellent broadband experienceto end ,5 ,5 5,386 4,959 4,658 2009 580 £m BUSINESS REVIEW 082007 2008 502 £m 592 £m levels. providing therightlevelsofresourcing andenhancingservice madeto Ofcom, whiledrivingefficiencies, the Undertakings canthrive. which itscustomers environment in an is committed to deliveringabetter networkand from analoguetelephone It linesto complexnetworked ITservices. enabling themto provide witharange theircustomers ofservices fixed-line localandbackhaul connections. millions ofhomesandbusinessesto localtelephone exchanges, via and openaccessto ouraccessandbackhaulnetworks. 420)–includingotherBT linesofbusiness–fair, equal more than (currently, CPs all offers telecommunications networkintheUK.It Openreach isresponsible for mile’ofthe thecrucial‘first Business overview Openreach been offsetbyourcontinuedfocus onreducing In2009, costs. margin has downward trends onourrevenue andgross some ofthe Theimpactof through focused margin managementinitiatives. Wholesale reduced thegross margin impactoftherevenue declines theprevious year(2008:11%).BT with decline compared £1,593m, 2007:£1,796m),amarginal improvement intherate of principally dueto newcontracts signedintheyear. £306m), increased by76%to £518m(2008:£295m,2007: solutionsbusiness,where revenue network managed inthe growth bypass BT. Thesedeclines,however, offsetby havebeenpartially arisen asmobileoperators buildtheirownnetworksandare ableto with adeclineof9%in2008.Thethetransit businesshas by 16%to £1,134m(2008:£1,349m,2007:£1,485m),compared provided byOpenreach. Revenue from thetransit businessdeclined £592m). compared withadecrease of15%to £502min2008(2007: operating profitamortisation, increased by16%to £580min2009, Largely dueto lowerdepreciation and 2007: £908m). as aresult oflowerdepreciation onlegacyassets (2008:£893m, decreased2007. Depreciationby23%to £686m andamortisation EBITDA margin in2009was27%,compared with 28%in2008and adecrease of7%in2008. with 2007: £1,500m),compared offailurecost from processes. existing time’initiative,whichaimsto reduce oreliminate the first the ‘right has benefited from efficiencyprogrammes continuedcost including £296m) compared withareduction of33%in2008. BT Wholesale 19%to £161m(2008:£198m,2007: decreased SG&A costs u taeyi 09wasto continueto deliverandcomplywith 2009 strategy in Our fieldengineersworkonbehalfofallCPs, 21,000 Openreach’s One oftheUK’s vitalinfrastructure mileconnects assets,thisfirst Gross profit decreased by10%to £1,427min2009(2008: EBITDA decreased by9%to £1,266m in2009(2008:£1,395m, BT GROUP PLC ANNU AL REPORT & FORM 20-F 17

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW aneac rgam,wihrdcdacs al ae ymore maintenance programme, whichreduced accessfaultrates by inaproactive £63m infrastructure. In2009,Openreach invested requires inreinvigorating investment theaccessnetwork waitingmorecustomers thanthree daysfor afaultto befixed. There hasbeenamore than65%reduction inthenumberof reduced andoverathird, bynearlythree respectively. quarters repair ordersdates in2009 thatdidnotmeettarget delivery of ser In 2009,Openreach madesignificantimprovements inthequality performance Service Operational performance andsettingmore competitiveprices. increased bandwidth to provide initsproductinvesting greater portfolio flexibilityand market by leadingpositionintheprovision ofEthernetservices of newapplications.In2009,Openreach continuedto protect its pressure to transfer thegrowth large quantitiesofdatato support bondedcopper. ADSL2+ and innewtechnologies such as over ourcoppernetworkbyinvesting to compete onbandwidth access product, someCPshavestarted super-fast ofOpenreach’s higher bandwidth.Priorto thedelivery andtheneedfor ever CPs drivingimproved andcheaperproducts, of homeswithpersonalcomputers, intense competitionbetween to grow. isdrivenbytheincreasing Thisgrowth numbers continues fixed-line networkfor theprovision ofbroadband services theuseofOpenreach’s market, competition inthelocalaccess increasing In spite ofthecurrent economicdownturn and Market context insuper-fast broadband planned investment £1.5bn BUSINESS ANDFINANCIALREVIEWS 18 KPIswasinitiated. against and periodicreporting In 2009,aprogramme ofcompliancehealthcheckswascompleted theemphasisisincreasingly onongoingmonitoring. Undertakings, products. Aswehavenowdelivered alargeofthe proportion wholesale linerental (WLR) over to equivalentanalogueanddigital physical separation records ofcustomer andmigration ofcustomers made t During 2009,Openreach continuedto deliveronitsUndertakings Delivering ontheUndertakings 2009. for London’s Greenfleet Private Sector FleetoftheYear Award in Openreach wasawarded Transport alternative vehicle technologies. vehicle weight,weare also conductingtrialsofelectricandother rackingvehicles to to the fleetandmodifying systems reduce environmental impact.In additionto introducing more efficient and iscommitted to finding innovativewaysto minimiseits than 20%intheyear. pnec prtsalrefle fmr hn2,0 vehicles more than 20,000 Openreach operates alarge fleetof In additionto reactive provision andrepair, improved service are under asCPs intheEthernetmarket growth alsosaw We BT GROUP PLC iedlvr fispout.Thenumberofprovision and ofitsproducts. vice delivery fo (see o Ofcom ANNUAL REPORT & FORM Regulation , pages 26to 27), BUSINESS REVIEW 20-F including further u %o h rvosya) ftee .mwere for BT linesof 8.1m (up 9%ontheprevious year).Ofthese, own equipmentinthoseexchanges. connecting B to usethelines CPs Local loopunbundling(LLU)enables Local loopunbundling 19%on2008). (up channels were WLRdigital 1.0m 2008) and 21%on were WLRanaloguelines(up 4.6m CPs, provided to other CPs.Ofthelines to other 5.6m BT linesofbusinessand other and pricings to withtheirownbrand offer telephony services CPs enables WLR Wholesale liner Openreach products customers intheUK. customers headline speedavailabletoto residential 100Mb–thefastest speedsofup cansupport competition ataretail level.Theservice awholesalefibre-based broadband product,industry facilitating At thissite, Openreach isoffering thecommunications Kent. (FTTP) onanew1,000acre greenfield Valley site atEbbsfleet in thepremises an initialtrial,Openreach hasbeendeployingfibre to of 2008, aspart than 130,000businessesintheUK.SinceAugust basedonit. services Openreach willdeploythe technology, butCPswilldevelopand sell – CalderValley (nearHalifax)andTaffs Well (nearCardiff). be involvedintheinitialdeployment,aswelltworural locations Cardiff, Edinburgh, Glasgow, LondonandGreater will Manchester throughout theUKearly inthe2010calendaryear. ofBelfast, Parts End usersshouldexperienceheadlinespeedsofupto 40Mb. FTTC pilotsinvolvingupto premises 15,000customer ineacharea. London andoneinWhitchurch, South Glamorgan –willconduct premises.customer Two exchanges –oneinMuswellHillNorth pilots offibr insummer2009,OpenreachStarting willberunningoperational generationNext access data-intensive applications. of thegrowth backhaul markets andsupport intheUKatlowercost andimprove theaccessand support 2009,which February 1 witheffect from inourEthernetportfolio ofservices costs networks. We mademajorreductions intheconnectionandrental high-bandwidth cir awidechoiceof CPs Openreach’s Ethernetproducts offer Ethernet LLUorders aweek. 94,000 than andOpenreach wasfulfillingmore were providing CPs unbundledservices 20 otherCPs.More than were for 5.7m and business t3 ac 09 hr ee1.munbundledlinesintheUK 13.8m At 31March 2009,there were WLRlinesto 20m At 31March 2009,Openreach wasproviding earaypoieEhre-ae fibre to thepremises ofmore Ethernet-based We already provide We planto make fibre availableto 1mhomesandbusinesses e to thecabinet(FTTC) betweentheexchange and tructure overBT’s network. T exchanges to endusers’premises their andto install ental cuits to data theircustomers’ buildorextend

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW BTA1961911,927 685 3,296 1,911 4,538 3,355 1,996 886 Ethernetand WLR andLLUmarkets react to theeconomicslowdown. 4,380 reduced connectionsasthe 2008. Thisdecrease hasbeendrivenby 3,235 in £5,266m, 2007:£5,223m),compared withanincrease of1% 978 1%to £5,231m(2008: decreased by revenue Openreach In 2009, 4,253 Operating profit EBITDA Operating costs revenue External Internal revenue Revenue Financial performance all helpedto reduce further. costs have network reliability andmore orders delivered time– rightfirst asaresult ofimproved levelguaranteereduced payments– service contract renegotiations, engineeringprocess improvement and employees by4%. contractor by40%andthenumberofpermanent andagencystaff the economicdownturn, hasenabledusto reduce thenumberof requirements. This,together withreduced demandresulting from before theyoccurhavehelpedlowerOpenreach’s direct labour and theintroduction ofnewtechnology to diagnosenetworkfaults engineer visits,providing training to enhancegoodworkmanship cos Openreach’s resulted continuedfocus insomesignificant onservice Efficiency BUSINESS ANDFINANCIALREVIEWS f2009. of towards theend bythelaunchofnewproducts assisted portfolio, intheEthernet mitigated bythesignificantgrowth partially CPs.These reductions havebeen to external lines ofbusiness volumesfrom otherBT and LLU reductions ofWLR reflect theshift £4,380m, 2007:£4,538m).These £4,253m in2009(2008: compared with17%in2008 and13%in2007. environment. revenues External nowform 19%ofourrevenue asaresponse to the changingeconomic partly investment, In 2009,CPshavefocused more onobtainingreturns from this connection revenue ingrowing asCPs invested theirinfrastructure. highLLU of in2008waslargelysignificant growth theresult CPs.The and Ethernetmarkets andactivecompetitionamong ofthebroadband thecontinuedgrowth 29% increase) andreflects activity takingplacewithintheexchanges. the resultinbroadband ofgrowth market andunbundling and64%wasfrom WLR.Thisis EthernetandLLU revenue wasfrom 2007when18%ofour with reflecting thechangeinmixcompared nowforms over23%ofourrevenue, just withWLRat59%, LLU Revenue from otherBT linesofbusinessdecreased by3%to (2008: revenueExternal was£978min2009,anincrease of10% Supplier We alsoachievedefficienciesinournon-paycosts. t savings in 2009. Investment inreducingt savingsin2009.Investment thenumberof ,1 ,2 1,220 1,222 5,223 1,218 5,266 5,231 2009 £m BUSINESS REVIEW 082007 2008 £m £m same timeasincreasing output. the group, largely asaresult ofareduction initsworkforce, atthe collaboration developers. withthird-party platforms havebeenbuiltinan‘open’ wayto facilitate BT’s developmentresources. both in-houseandthird-party resource managementprinciplesto increase theproductivity of are createdservices using‘agile’developmentmethodsand and or acombinationofthetwo.Newproducts managed services canchoosetoso thatcustomers doitallthemselves,askfor Designhassimplified andautomated BT’s processes businesses. BT needsandtherequirementswith customer ofBT’s customer-facing platform. network planningandtheimplementationofBT’s global21CN provide to around ourcustomers theworld.Itisalso responsible for we theproducts andprocessesservices systems thatsupport theplatforms, IT designingandbuilding BT Designisresponsible for BT Design than 2008. In 2008, depreciation and amortisation decreased In2008,depreciationby andamortisation than 2008. compared with36%and37%in20082007,respectively. 38%in2009, reduced by1%.EBITDAmargin was EBITDA 2008, on aclaimsbasis. proactively asopposedto CPs to paythemoutto external starting despite guarantee payments,whichhavereduced by49%in2009, level seensavingsinourservice We have improving ourservice. more flexibleandagileworkforce for thefuture. andstructuringourbusinesssoitisbetter equippedwitha service savinginitiativesprimarilyaroundsuccess inourcost improving our 2%in2008.Thedecrease intheyearreflects the increase of Operating decreased costs by4%in2009,compared withan oprdwt 2008and2007. with compared useful economiclives. number oftheaccessnetworkassetsreaching theendoftheir dueto a was 2008.Thereduction intheprioryear in investment into useandtheflowthrough ofhighcapital being brought software highvalue increase in2009ismainlydrivenby The 3%. In 2009,BT savingsfor Designwasableto deliversignificantcost byBTThe developmentactivitiesundertaken Designare aligned ercainadaotsto a 78 n2009,13%higher was£778min Depreciation andamortisation 4%increase yearonyear. In EBITDA was£1,996min2009,a fewOver thepast in years,wehavemadesignificantinvestments prtn rfi a 128 n2009,broadly flatwhen Operating profit was£1,218min BT GROUP PLC ANNU AL REPORT & FORM 20-F 19

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW each year. carbon allowances(effectively of permitsto useenergy) atthestart Environment Agency. Organisations willberequired to purchase – bonusesandpenaltieswillbeadministered through the legislation willrank organisations intheUKonenergy performance Carbon Reduction in2010,thisnew Commitment.Starting recognition ofourpreparation for theUKGovernment’s new independently assessedCarbonTrust Standard in certification, technologies throughout ourinternational operations. electricityornew renewable howto usemore investigating generation. We are combinedheatandpower from 60% almost renewable sources and from our electricityneedsintheUK 40%of approximately wenowmeet 2007) until2010meansthat carbon emissions.Therenewal ofourgreen energy contract (in reduce securityofsupplyandreduce consumption,establish and globally. to meetthesecurityrequirements both intheUK ofourcustomers, us enabling manages securitypolicyandprocesses throughout BT alsosetsand Operate experience.BT ourcustomers’ enhance and avoidduplication and efficiency operations enablesitto achieve linesofbusiness.Thescope its behalf ofthecustomer-facing networkson CPs’ ofother Operate alsorunsparts infrastructure. BT information andcommunicationstechnology (ICT) a seamless providing infrastructure platforms asasingleconverged operation managesBT’s ITandnetwork runsmoothly.services It isresponsible for makingsure thatBT’s products and BT Operate BT Operate BUSINESS ANDFINANCIALREVIEWS 20 chain management. supply workforce, more efficientbusinessoperations andimproved In 2009,BT Operate achievedasignificantreduction inits We were companiesintheUKto achievethenew, oneofthefirst BT Operate managesthegroup’s energy policy, whichaimsto BT GROUP PLC ANNU AL REPORT & FORM BUSINESS REVIEW 20-F will continueto dosointheyearahead. yearand inthepast we havefocused intensely service oncustomer turncustomers to suppliers theyknowcanrely on.So,inturn, panelandmore than1,500businessprofessionals.expert survey. Thisranks brands according to theviewsofan Superbrands telecommunications brand overall and21st inthe2009Business BT wasnamedtheUK’s strongest the company. andsuppliersbetweenthepeoplewhowork forwith customers the UKandaround theworld.Ithelpsto shapeourrelationships We are proud to haveastrong brand thatiswidelyrecognised in reputation trusted Our Our resources the 2009BusinessSuperbrands survey BT wasnamedtheUK’s telecommunications brand strongest in opportunity to enhance existing skillsandacquire to enhanceexisting newones. opportunity benefits from theirinvolvement,whilethey benefitfrom the – more than3,000peopleare activelyinvolved.Thecommunity improve were timeperformance ourrightfirst launched in 2009. excellent one.Anumberofdevelopmentinitiativesdesigned to experienceisan customer to ensure thatevery tools necessary culturecustomer-centric inBT, givingourpeopletheskillsand through Route2Learn, ourgroup-wide web-basedlearningportal. oppor We offer employeesawiderange oflearningandre-skilling Learning anddevelopment thatoftheirpeers. against their performance appropriate andare ableto developmentopportunities benchmark obligations,have accessto them, includingtheirsustainability ensur transformation ofBT. We The qualityofourleadershipisvitalto the Leadership shareholders, thecompanyandthemselves. motivated peoplewhocanmake adifference for customers, 147,000. around contractors, givingBT atotal labourresource (TLR)of peopleindirectly, through agenciesand 42,000 alsoemploy We 20,000outsidetheUK. around equivalent peopleintheUKand full-time 85,000 around At 31March 2009,BT employed Our people threeover thenext years. people andtechnology to realise thepotential ofthisexciting event locations around theUK.We lookforward to usingourexperience, networkfor the2012Gamesat the communicationsservices innovative brand weaimto be.We delivering havealready started Paralympic signaloftheinspiringand Gamesisapowerful Our partnership withtheLondon2012OlympicGamesand Our partnership The strength ofBT’s brand ismore valuable thanever, as BT employees are encouraged to volunteer intheircommunities isdevelopinga Key to delivering excellent service customer Our aimisto create ateam engagedand ofhigh-performing, e that leaders at all levels understand whatisexpected of e thatleadersatalllevelsunderstand tunities. coursesare Onlineandinstructor-led available

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW regulatory requirements.regulatory IntheUK, employeesreceive free shares oracashequivalentdependingonlocallegaland/or improve alignmentto overall businessresults andaffordability. 2009,ourbonusschemewasrestructured to For three-year period. managers, thekey measure isOpenreach’s overa performance measured overaperiodofthree years.For Openreach senior managers are linked to BT’s total shareholder return performance related bonuses.Thelong-term incentivesfor senior ourmost countries inwhichweoperate. This principlewillbefollowed ascloselypossibleinallother arisingfrom the2009review. intheUK be noincreases to salary thatthere will includingseniorexecutives – advised allemployees– base.Followingcost discussionswithourtrades unions,BT has andcompetitive conditions andtheneedto maintainasustainable int We year. conductareview ofsalariesevery The2009review took Reward andrecognition so thosepeoplecanbebrought backinhouse. Asourskillsrequirementsto maximisetheseopportunities. change, recruitmentworking withanexternal agencyto usetheirnetwork organisations to workoutsideBT to helpdeveloptheirskills.We are an innovativeschemeinwhichBT employeesare placedwithother retraining andskillsmanagement.We have,for example,developed toredundancy redeployment, andtheemphasishasshifted to gainaqualificationinICT.opportunity offers youngadultsemployedby SMEsintheSouthofEngland We intheFederated alsoparticipate Apprentice Scheme,which BUSINESS ANDFINANCIALREVIEWS h omlrtrmn g o6,mvn to acareer average moving ageto 65, retirement normal the linked to final pensionablesalary. Thechangesincludeincreasing April2009remain April2009.Benefitsbuiltupbefore 1 from 1 forflexible, fairandsustainable thelongterm. unions andemployees.Theaimwas to ensure theschemesremain arrangements, consultationwiththetrade includingextensive on31March 2009. BTRP and the March 2001 wasclosedto newmembers on31 BTPS The scheme. (BTRP), amoneypurchase until recently, theBT Retirement Plan either apensionscheme, employeesare membersof UK ofour Most Pensions inoneormore ofthese plans. eligible employeesparticipate salaries.More than50%of pre-tax andpre-National Insurance Plan,UKemployeescanbuyBTInvestment shares from their ofthesavingsperiod.UnderBT EmployeeSharethe start to saveto buyBTopportunity shares atadiscountto thepriceat broadband. Employeesinmore than25countries alsohavethe During 2009weconducted areview ofourUKpension Employees outsidetheUKreceive anannualaward offree BT Around 40,000managersare eligiblefor variable,performance- We haverecently introduced alternatives to voluntary hne oftr eetacul ne h TSwere effective BTPS Changes to future benefitaccrualsunderthe o accountthecurrent difficulteconomicclimate, market h TPninShm BP) endbnfi cee or (BTPS), a definedbenefitscheme, the BT Pension Scheme BUSINESS REVIEW printed publication. briefingsanda webchatsandwebcast emailbulletins, service, r Employees are kept informed aboutourbusinessthrough awide Employee communications ectcnrbtoso 55 e nu ilb aei ah or incash, deficit contributionsof£525mperannumwillbemade controlled byindependenttrustees. Allthesepensionschemesare accumulated assetsto thisscheme. invited to transfer their are being andSLFPPmembers BTRP Former annuity rates atretirement, rather thantheirfinalBT salary. is linked to ofthefundand contributionspaid,theperformance thepensionmembersreceive what arrangement, whichmeansthat (SLFPP).Itisacontract-based, definedcontribution Plan andtheSyntegra Limited FlexiblePensions BTRP a successorto the pensioners and96,000deferred members. Pension. Second State outofthe ceasing to contract revalued earningsbasis,changesto membercontributionsand chart on chart and safety anddiversityinBT performance canbefound inthe behavioural/lifestyle change. and wecontinuet The healthandsafety ofourpeopleare ofparamount importance Health andsafety well asrespecting cultural differences. practices are tailored bycountry, to address legislationcountry as us eveniftheircapabilitieschange. to ensurerun aretention with thattalented peoplecanstay service with disabilitiesto workfor BT, withRemploy, andinpartnership we to bepaidfairlyregardless ofgender, ethnicoriginordisability. Ourpolicyisfor people UK are from anethnicminoritybackground. more highlyrewarded than10%ofourmost peopleinthe addition, is female andwomenhold21%ofourtop 400leadershiproles. In working arrangements. byourflexible Thisinclusivenessissupported responsibilities. sexual orientation,genderidentity, genderexpression orcaring religion/beliefs, disability, status,age, maritalorcivilpartnership employees candeveloptheircar We continueto create aninclusiveworkingenvironment inwhich Flexibility anddiversity review See approved bythePensions Regulator. three overthenext years.Thisagreement hasbeen specie, in ange ofcommunicationschannels, includingouronlinenews ehv ece gemn ihteTuteo h TSthat BTPS We havereached agreement withtheTrustee ofthe The BT Retirement SavingSchemewassetupon1April2009as hasaround 64,000activemembers,181,000 BTPS The More detailedinformation onemployeeengagement, our health Outside theUK,weare working to ensure thatourpolicies and We recruitment workwithspecialist agenciesto attract people Examples ofdiversityincludethefactthat22%ourworkforce on ae 4and25. 24 pages page 42 o seekimprovements by focusing on for further details. for further BT GROUP PLC eers regardless oftheirrace, sex, ANNUAL REPORT & FORM Pensions in the Financial 20-F 21

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW University. We alsoplayaleadingrole intheIndia-UKAdvanced Emirates Telecommunications Corporation (Etisalat)andKhalifa research andinnovationcentre intheUnited Arab Emirates withthe centre inChina.We haverecently acollaborative established (England), aresearch team basedinMalaysiaandanewresearch nearIpswich peopleatAdastral Park and developers,including the world.We haveaworld-classteam ofresearchers, scientists BT’scapability to support driveto needsaround meetcustomers’ We havecreated aglobalresearch anddevelopment(R&D) Our globalresearch anddevelopmentcapability backbone network. kilometres ofopticalfibre, IP andanextensive 11m wire andover kilometres ofcopper 128m trunkprocessor units,more than 120 localand 680 exchanges, 5,600 network intheUK,witharound We comprehensive havethemost fixed-line communications network UK Our BTECC. Connect. We alsooperate apan-European workscouncil,the main trade unions–theCommunication Workers Unionand works councilselsewhere inEurope. IntheUK,werecognise two relationshipsconstructive withrecognised unionsintheUKand any areas for improvement. with theirteams andbuildonanystrengths identifiedandaddress for somekey results. We encourage managersto discusstheresults on and relationships withlinemanagers.Seechart of ouremployees’experienceincludingattitudes to team working We ‘pulse’survey, conductaquarterly whichfocuses onkey aspects inR&D2009 invested £1.1bn BUSINESS ANDFINANCIALREVIEWS 22 (2008:£532m). and R&Doperating of£590m costs (2008:£720m) of£529m developmentcosts capitalised software ourdrivefor comprised innovation.Thisinvestment support technologies, businesspropositions andmarket trends a year. moreEurope than600new whoidentify andtheMiddleEast new products andservices. innovation process, from scientificresearch to thedevelopmentof ofthe stage world. We atevery are involvedin partnerships find thebes We embrace openinnovation,reaching outbeyondthecompany to Open innovation forjointworking. systems virtual together, anduseonlinecollaboration andvideoconferencing US andChina.Thesebringallourglobaldevelopmentteams and India,are currently three establishing more inEurope, the from IndiaandtheUK. partners Technology andacademic Centre, aresearchofindustry consortium We havearecord relations industrial andenjoy ofstable n20,w netd£,1m(08 122)inR&Dto (2008:£1,252m) £1,119m In 2009,weinvested We havededicated innovationscanningteams intheUS, Asia, We twoglobaldevelopmentcentres haveestablished intheUK BT GROUP PLC t people and the best ideas,wherevert peopleandthebest theyare inthe ANNUAL REPORT & FORM BUSINESS REVIEW 20-F ae 4and25 24 pages otoi faon ,0 patents andapplications. around 7,600 of portfolio Germany andChina,wecurrently maintainatotal worldwide protection indifferent countriesincludingtheUS,Japan,France, applications for 120inventions in 2009.We routinely seekpatent (Massachusetts Institute ofTechnology). andMIT University ofOxford, UniversityCollegeLondon relationshipskey withtheUniversityofCambridge, partner We workwithmore than30universitiesaround theworldandhave Building onourlongtradition of innovation,wefiledpatent

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Rest oftheworld charity workingfor children withspeechandlanguagedifficulties. telephone networksandprovide the onlinedonationtechnology. We alsomanagethe charity telephone andonlineappeals. ofmajor aspart inourcallcentres take donations to volunteer people over£4m.BT for whichBT andBT employeesraised 2009, in Emergency theDisasters Committee (DEC) Children inNeedand UK. tackle digitalexclusion andimprove communications skillsinthe co-funded par helpedto launchCommunicatingfor Success,a In 2009,we UK activities. ourcommunityinvolvement support All ourlinesofbusiness communities Supporting ( HRH,thePrinceofWales. report Oursustainability by Frameworkprinciples oftheConnected Reporting sponsored environmental andsocialissues.Thisisinaccordance withthe indirect impactsonsocietyassociated withthewaywemanage and25. 24 pages on KPIs,whichare showninthechart goals usingournon-financial We measure progress towards ourcorporate responsibility (CR) Corporate responsibility BUSINESS ANDFINANCIALREVIEWS Community Mark. DevelopmentandBusiness intheCommunity’sSustainable holdtheQueen’s Award for Enterprise for eight years.We also Indexforsector intheDowJonesGlobalSustainability thepast – whichinturn reduces carbonemissions. for improved energy andenergy logistics, distribution management technology reduces theneedfor peopleto travel andoffers scope working hard to reduce these.Ontheotherhand,communications constitute nearly 2%ofglobalcarbonemissions,andweare theITandcommunicationsindustries hand, werecognise that We aimto be aleaderinthenewlowcarboneconomy. Ontheone Protecting theenvironment into zones disaster alongsidethe aidcharity’s ownworkers. with theRed Cross. BT volunteers withcriticalskillscanbedeployed poorest areas. school inoneofDelhi’s theworkofKathaITandE-commerce In India,wesupport in2010,following Brazil in2008andSouthAfrica2007. in China par The InspiringYoung Mindsprogramme, ourglobaldevelopment www.bt.com/betterworld We relief globaldisaster launchedourfirst secondeeprogramme For three iCAN,a thepast years,Openreach hassupported anumberofcharities,includingChildline, with partner We We havebeenrated numberoneinthetelecommunications tnership withUNICEF, whichbringsITskillsto children, launches tnership betweenBT andtheFootball Foundation, to We thedirect to BT alsoreport costs andthe ) provides fulldetailsofourCRprogress. BUSINESS REVIEW significant CRriskscontinueto be: ofourcorporateunderstanding responsibility risks.Ourmost 2009,wecontinuedto developourknowledgeand During Corporate responsibility risks consequently are notincludedin These risksare notregarded asmaterial inrelation to thegroup and Each oftheseriskshasanownerandamitigationstrategy inplace. Wales’ framework. Accountingfor reporting Sustainability andhavealsoappliedthePrinceof onsocialperformance reporting We meettheguidelinesofAssociationBritishInsurers in privacy health andsafety diversity climate change breach ofourcodebusinessethics supply chainworkingconditions. BT GROUP PLC Principal risksanduncertainties ANNUAL REPORT & FORM 20-F 23 .

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Non-financial corporateNon-financial responsibility BUSINESS ANDFINANCIALREVIEWS 24 Environment Employees Customers Integrity society Improving Suppliers BT GROUP PLC ANNU employee survey Measured through aregular Pr How ourStatement ofBusiness Business practicesmeasure A measure ofBT’s useofresources Waste to landfill andrecycling to improveInvestment society community pr An independentevaluationofour Community effectivenessmeasure supply chainhumanrightss A measure oftheapplicationBT’s Ethical trading a 12monthrolling average t Percentage ofcalendardayslost sicknessabsencerate H&S: on a12monthrolling average a r casesexpressed as timeinjury Lost rate timeinjury lost H&S: B A measure ofthediversity Diversity attitude survey through itsannualemployee r A measure ofthesuccessBT’s Employee engagementindex Key performance indicators Key performance CO based onourannualsuppliersurvey of B A measure oftheoverall success Supplier relationships B A measure ofsuccessacross service Customer impact A measure ofBT’s climate change elationship withemployees, o sicknessabsenceexpressed as T workforce T’s entire base customer actice isimplemented. ate per100,000hoursworked 2 AL REPORT & FORM T’s relationship withsuppliers, equivalent emissions ogramme BUSINESS REVIEW 20-F tandard Target 2010 gifts andhospitalitypolicies gifts corruption andbribery, and including ournew anti- include allrelevant policies more broad-ranging to We plan to make thisindicator landfill by8%from 2009 tonnage sentto ofwaste group willreduce the BT underlying pre-tax profits of1% investment Maintain aminimum over 90% Maintain evaluationscore at ethical standard questionnaires medium risk,through our suppliers identifiedashighor within three monthsfor all To achieve100%follow up dueto sickness days lost Reduce to 1.9%calendar cases 0.157 Reduce to (from 2008) benchmark Schneider-Ross GlobalDiversity four UKbenchmarksandthe diversity benchmarks.Includes placement infour offivemajor BT willmaintainatop 10 have restated previous scores five pointscalethisyear, and engagement. We movedto a 2009 levelofemployee Maintain orimprove the Non-financialindicators companyimpacts: Direct relationship withBT?’ quality ofyourcompany’s ‘How wouldyoudescribethe more, basedonthequestion: To achievearating of80%or our corporate scorecard time(RFT)inlinewith first based ongettingthingsright To improve service customer will reduce itsCO group By December2020,BT ees e agtsti 2008 in set target New levels. 1997 intensity by80%against KPIs 2 e emission 2009 major diversity four outofthefive 10 placementin BT isinthetop 3.61 77% only) from 2008(UK towaste landfill 17% 1.01% 91% 100% follow up assessments with 78 2.17% 0.160 benchmarks 2008 from RFT service improvement in 17% CO 85% reduction 43% 44% 2 risk 0,0 t 906,000 e intensity reduction reduction in cases onnes 2008 major diversity four outofthefive 10 placementin BT isinthetop 83% only) from 2007(UK towaste landfill 22% 1.02% 79% 100% follow up assessments with 234 2.43% 0.188 benchmarks 2007 from in RFTservice 9% CO 78% reduction 52% 43% 3.60 2 2,0 t 920,000 e improvement risk intensity reduction reduction in cases onnes 3.62 2007 main UKdiversity three outoffour 10 placementin BT isinthetop 87% only) from 2006(UK towaste landfill 8% 1.05% 70% 100% follow up assessments with 413 2.43% 0.238 benchmarks previous measure) (our satisfaction customer increase in 3% CO in 2008 New measure reduction 52% 45% 2 9,0 t 896,000 e reduction in risk intensity reduction cases onnes

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW BUSINESS ANDFINANCIALREVIEWS a sustainability component) a sustainability bidswith (customer Revenue Support savings Net waste Waste costs Landfill taxsavings Income from recycling (time, cashandin-kindsupport) Community investment supplier survey) (extrapolated from arepresentative them to improveimpacts sustainability agree thatweworkwith our suppliers Value ofprocurement contractswhere BT sickpay costs injuries resulting intimeoffwork to thebusinessarisingfromCost indicator year for next diversity BT willdeveloparelevant financial Number ofemployees Employee costs consumerhousehold (UK) Average annualrevenue per Direct company impacts: Financialindicators companyimpacts: Direct generators etc; UKandIreland only) (fleet fuel+gasoildieselfor backup Total energy costs Total spendwithsuppliers Total revenue BUSINESS REVIEW (83% ofsupplier £21,390m £(7.90)m £5,506m 107,021 £0.67m £1.15m £7.42m £25.0m £85.2m £7.4bn £8.9bn £1.9bn £227m spend) £287 2009 £7m (66% ofsupplier New measure £20,704m £(7.27)m £5,358m 111,858 £0.32m £0.89m £6.70m £22.3m £89.8m in 2009 £2.2bn £8.6bn £194m £5.7bn spend) £274 2008 First measuredFirst £20,223m £(5.15)m £5,223m 106,200 £0.17m £0.84m £4.48m £21.8m £84.7m in 2008 £1.8bn £6.8bn £185m £262 2007 BT GROUP PLC 2010 unless otherwise indicated. 2010 unlessotherwise March All targets haveanenddate of31 social cohesion adiverseworkforceEstablishing promotes satisfaction of customer Employee engagementisadriver governance better international payments, supports includingfacilitation corrupt practices banning culture, A responsible business obsolescence into themarket place.Actingto reduce Dealing withendoflife products sold prospects andincrease socialinclusion This helpsimprove people’s employment improving communicationandICTskills. BT’s communityprogramme focuses on conditions inemerging economies Quality oflife –especiallyworking andimprovescosts productivity sickness reduces societalhealthcare daysfromLowering lost injuriesand nietcmayimpacts company Indirect of ICT to support low-carboneconomy of ICTto support Positive impactsarisefrom application energy premises. consumptionincustomer manufacture of equipmentandthrough Indirect negativeimpactsoccurinthe BT’s supplychainprocurement (e.g. employment)arisingfrom Economic multipliereffect ANNU AL REPORT & FORM 20-F 25

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW in relevant markets, where appropriate bypromoting competition. theinterests ofconsumers communications matters andto further theinterestsprincipal dutiesare ofcitizens to inrelation further to approach to regulating theentire communicationsmarket. Its of CommunicationsAct2002t Ofcom (theOfficeofCommunications)wassetupunderthe Ofcom by2011. review andnewdirectives are expected to take effect regulations andrecommendations. Theframework iscurrently under a framework setoutinvariousEuropean Union(EU)directives, Electronic communicationsregulation intheUK isconducted within Regulation intheUK be stifled. there isareal could Otherwise, riskthatinnovationandinvestment evolving suchthatregulation isonlyappliedwhere necessary. also needregulation to moveatthe samespeedasthemarket is makes sure thatnewmonopoliesare notallowedto emerge. We moving andconverging markets to compete onequalterms, and playing fieldintheUKwhichallowscompaniesacross thefast- and television are availablefrom anincreasing numberofsuppliers. bundlesoffering fixedService andmobiletelephony, broadband byincreasinglyconverging, networks. sophisticated supported are demand.Productsevolvingand customer andservices UK andaround theworld.Innovationisaccelerating, drivenby BT operates inadynamicandcompetitiveenvironment bothinthe Regulation OTHER MATTERS BUSINESS ANDFINANCIALREVIEWS 26 2010. Thishas beenprovided for theperiod to 31 March bankruptcy. for theremoval oftheir networksintheeventofliquidationor out,and provision to coveranydamagecausedbyworktheycarry withapparatus onorinthepublichighwayto make financial CPs and similaractivitiesfor networkprovision. Itrequires electronic outstreetworks authorisedto carry (CPs) communications providers regulates theprovision ofpremium rate services. information to Ofcom andnumbering.Aseparate condition planning, thepaymentofadministrative charges, theprovision of general accessandinterconnection, standards, emergency consumer pr Although thesegeneral conditionsare concernedmainly with Conditions applyingto allproviders market. (SMP) inaparticular providers orhavingsignificantmarketas universalservice power others applyto individualproviders, whichOfcom hasdesignated providers ofelectronic communicationsnetworksandservices; directions undertheseconditions.Someconditionsapplyto all under theCommunicationsAct2003(CommunicationsAct),and We believethat,insuchaclimate, regulation deliveralevel must The Electronic CommunicationsCodeappliesto all Ofcom regulation takes theform ofsetsconditionslaiddown BT GROUP PLC otection, they alsoincluderequirements relating to ANNU AL REPORT & FORM o provide asingle,seamless 20-F plans for covering commitmentsaround universalservice 2009),theUKGovernmentsetoutitsobjectiveto develop (January contribution from thebroader industry. ofmeetingtheUSOorwhetherthere shouldbesome entire cost appropriatein 2009,includingwhetheritisstill for BT to bearthe conditions relate to payphonesandsocialneedsschemes. affordable priceto allcitizens andconsumersintheUK.Other is to ensureare thatbasicfixed-lineavailableatan services Communications isthedesignated provider. obligation Ourprimary for theUK,excludingservice theHullarea where Kingston services intheseareas was thereforeservices removed. regulation ofBT’s wholesaleactivities inrelation to broadband CPs purchasing unbundledlocalloopsfrom Openreach. Allprevious broadband intheseareas hadresulted from cablecompaniesand Ofcom’s findingthateffective competition intheprovision of geographic areas ofthe UK(definedas‘Market 3’).This followed the provision indefined ofwholesalebroadband accessservices laterissue astatement intheyearsettingoutitsconclusions. market reviewservices willcloseon28May2009andOfcom will transit, SMPwouldberemoved andBT’s activitiesderegulated. markets, suchaslocal-to-tandem conveyance andsingletandem exchange lines,callorigination andinterconnect links–in other defined markets –for example,theprovision ofwholesale markets. Ithasproposed thatwhileBT willretain SMPincertain aswechoose. freedom to packageandpricethoseservices finalises itsproposals, thiswouldresult inBT havinggreater ifOfcom SMPinthesemarkets andthat has nolonger that BT and voicecalls.Inthecourseofthisreview, Ofcom hasproposed to thesupplyofconsumerandbusinesstelephone lines particular markets. Itsreview offixed narrowbandrelates retail in services designations inboththeretail andwholesalenarrowband services markets. have SMPinanumberof 2009, asaresult ofprevious market reviews, BT wasdeemedto appropriate remedies, thatmayincludepricecontrols. At 31March r Ofcom isalsorequired byEUdirectives to review relevant markets Significant market powerdesignations fully inthesummerof2009. ontheseplans,whichweexpectwillbepublishedmore industry with theUKGovernment,Ofcom andthewidercommunications We are workingclosely to beeffectivebroadband by2012. services by theSecr obligations(USO)are definedinanorderUniversal service issued Conditions applyingto BT glryaddtriewehrayC hasSMPinthosemarkets. CP egularly anddetermine whetherany It shouldalsobenoted thatinits‘DigitalBritain’ interim report USO narrowband Ofcom isscheduledto conductareview ofthe In May2008,Ofcom removed BT’s SMPdesignationinrelation to Ofcom’s consultationonboththeretail andwholesalenarrowband Ofcom isalsocurrently reviewing wholesalenarrowband services SMP However, Ofcom isintheprocess ofconsultingon Where Ofcom findsthataprovider hasSMP, impose itmust etary ofState. BTetary isthedesignated supplierofuniversal

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW regulatory controls:regulatory number ofwholesaleser ofSMPdesignations,thecharges wecanmake for a As aresult Significant market powercharge controls REVIEWS FINANCIAL AND BUSINESS and wewillcontinue to work withOfcom asourplansdevelop. proceed broadband withtheinitialphaseofoursuper-fast roll out for BT certainty access (NGA).This gavesufficientregulatory to s In March 2009,following consultation,Ofcom published apolicy generationNext accessregulation subject to consultationduringthe2009calendar year. capacity. prioritiesandsystems industry Anyproposed changeswillbe ofchanging in thecontext abouttheremaining Undertakings industry downstream markets overtime. lead to areduction intheneedfor regulation inthosecompetitive competition inrelated ‘downstream’ markets. This,initself, should ‘upstream’ regulated effective products andfair to support aboutthewayBT willprovidetelecommunications industry to are theUK intended to deliverclarityandcertainty Undertakings accepted by Ofcom andcameinto force inSeptember 2005. The which includedthecreation ofOpenreach,Undertakings, were under theEnterprise Act2002(Enterprise Act).These Undertakings t In response to Ofcom’s 2005strategic review of BT’s Undertakings elecommunications, weproposed anumberoflegallybinding tatement setting out a regulatory frameworktatement settingoutaregulatory for generation next BT isindiscussionwithOfcom andthewidercommunications consultationonWLRcharges.on LLUcharges andissueafurther settingoutitsconclusions expected to shortly publishastatement Ofcom is andwholesalelinerental (WLR). unbundling (LLU)services the charges Openreach appliesto theprovision oflocalloop Ofcom controls hasalsobeenconsultingonregulatory governing ofthe2010financialyear quarter Ofcom’s finaldecisiononthesecontrols isexpected inthefirst bandwidths of1Gborbelowfrom 1October 2009.Again, at provision ofwholesaleEthernetaccessandbackhaulservices Ofcom isproposing to introduce charge controls onBT’s ofthe2010financialyear quarter decision inthefirst apply from 1October 2009andis expected to issueitsfinal operators. Ofcom hasconsulted onproposals for newcontrols to wholesale leasedlinesthatBT provides to othernetwork private circuits (PPC)chargepartial controls applyingto certain than inflation wouldbeallowedto increase bymore options where charges October 2009andisconsultingonarange of years from 1 currently reviewing thecharge control to take effect for four plusanappropriatecosts, return oncapitalemployed.Ofcom is designed to ensure thatourcharges are reasonably derivedfrom controlled byOfcom, undertheNCCregime. Thesecontrols are CPs.Ourcharges for are interconnect services other most –weoperate underinterconnection agreements with services (NCC)onwholesaleinterconnect network charge controls ie r ujc othefollowing vices are subjectto TE MATTERS OTHER assessment ofSMPandtheimpositionappropriate remedies. Group to introduce greater harmonisationintheirapproach to the National regulators are workingtogether intheEuropean Regulators to country. fromdirectives country havebeenimplemented vary and recommendations. Themannerandspeedwithwhichtheexisting the r isconducted within Communications regulation ineachEUcountry European Union business. which weoperate andthiscanhaveamaterial impactonour BT regimes complywiththeregulatory inthecountries must Regulation outsidetheUK tailored to theindividualneedsofcustomers. inadditionto arange ofapplicationsandproductsof service Broadband providers are nowexpected to deliveranexcellent level operators markets as thevoiceandtext approach saturation. Mobile broadband hasalsobeenafocus for manyofthe mobile suchastheBBCiPlayer andBT Vision. applications andofservices driven for examplebytheincreased popularityofpeer-to-peer reaches highlevelsofpenetration. However, usageisgrowing, Broadband take upintheUKisslowingasmarket matures and UK market trends Competition ourcustomers. have animpactonourabilityto serve of anychangesto theirnetworkdesignortechnology whichwould access to their networkswhere appropriate andfor advancenotice around theworld(including intheEU)for cost-related wholesale press incumbentoperators authorities andtheirnationalregulatory compete fullyinsomecountriesisconstrained. We continueto are liberalised varieswidely, whichmeansthatourabilityto licences orotherauthorisations.Thedegree to whichthesemarkets conditionsandhavehadto obtain these wehaveto meetcertain oper majorityofthecommunicationsmarketsThe vast inwhichwe The restoftheworld aidisgroundless,of state andthattheappealwillnotsucceed. now beenappealed,butwecontinueto believethatanyallegation aidhadbeengranted.that nostate TheCommission’s decisionhas with European CommunityTreaty aid.Itconcluded rulesonstate Communications, andwhetherornottheUKGovernmentcomplied Government setBT’s rates property andthosepaidbyKingston such obligations. fundto payforcontribute ofmeeting towards thecost anindustry wemayberequired memberstates toalthough incertain BT does not have universal service obligationsoutsidethe UK, BT doesnothaveuniversalservice The European Commissionformally thewayUK investigated egulatory framework determinedegulatory byEUdirectives, regulations ate around theworldare subjectto regulation, of andinmost BT GROUP PLC ANNU AL REPORT & FORM 20-F 27

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW including BT, attherequest ofandinconsultationwiththe telephone networksand/orpubliclyavailabletelephone services, made undertheCommunicationsActrequire all providers ofpublic for theUKGovernment.General services conditions provide certain andsupplierbasis. normal customer hasbeenona supplier andtheUKGovernmentasacustomer described below, thecommercial relationship betweenBT asa ofourrevenue.not compriseamaterial proportion Except as oragenciesdoes to anyoneofitsdepartments provision ofservices The UKGovernment,collectively, isourlargest customer, butthe Government HM relationship with Our Africa, theAmericasandAsiaPacific region. BT operates branches outsidetheUKinEurope, theMiddleEast, UK Branches outsidethe induecourse. decision not amountto anabuseofdominance.Ofcom isexpected to issuea objection to whichweresponded andargued thatourpricingdoes consumer broadband products. Ofcom sentBT three of statements BT hadabusedadominantpositioninrelation to itspricingof are alsosubjectto thecompetitionlawsinrelevant countries. and to EUcompetitionlaw. Where weoperate outsidetheUK,we subject to theCompetitionAct1998(CompetitionAct)inUK regulation, BTIn additionto communicationsindustry-specific is Competition law REVIEWS FINANCIAL AND BUSINESS 28 a provision inrespect ofanysuch claim. The companyhas concludedthatitwouldnotbeappropriate to make could beheldliable,withothers, for anydamages. BT is successful, The PublicProsecutor hasappealedthecourt’s decision.Iftheappeal Rome PublicProsecutor. Alltheotherdefendants were alsoacquitted. employee wasfound notculpableofthefraud charge brought bythe inthatauctionprocess. On20July2005,theformerparticipated BT auction in2000.Blu,whichwe held aminorityinterest, UMTS(universalmobiletelecommunication system) with theItalian 21defendants,against includingaformer BT employee,inconnection operations ofthegroup. There havebeencriminalproceedings inItaly wouldhaveamaterial adverse effect onthefinancialposition or that We donotbelievethatthere are anypendinglegalproceedings proceedings Legal actions intheinterest ofnationalsecurityandinternational relations. ofState powersto requireSecretary hasstatutory usto take certain in connectionwithcivilcontingencyplanning.Inaddition,the attimesofemergency and communications networks,includingBT, onproviders ofpublicelectronic obligations Government to impose theUK Civil ContingenciesAct2004containsprovisions enabling provision The orrestoration inconnectionwithdisasters. ofservices implement,plansforauthorities, to make, the andifnecessary In 2004,Ofcom into allegationsthat launchedaninvestigation We can,however, berequired thingsand bylawto docertain BT GROUP PLC ANNU AL REPORT & FORM TE MATTERS OTHER 20-F aeAcquisition Wire OneHoldingsInc–oneoftheleading May 2008 Date acquisitions: the2009financialyear, wecompleted anumberof During 2009 time to market advantagefor newproducts andservices. companies iftheybringusskills,technology, geographic reach or inourtarget markets.opportunities We willconsideracquiring We ofassetsandacquisition activelyreview ourportfolio anddisposals Acquisitions including: We alsocompleted anumberofothertransactions in2009, Stemmer GmbHandSNDGmbH,twoGerman July 2008 July 2008 UfindusLtd, oneoftheUK’s leadingonlinebusiness July 2008 hr aia fNtSSAin2008). share capitalofNet2S (wehadacquired issued over91%oftheoutstanding share plans sharestreasury andlocked-up shares issuedunderemployee otherthancertain inFrance, companylisted traded ITservices the acquisitionofremaining shares ofNet2SSA,apublicly venture from 55%to 59.5% Enìa SpAinParma, Italyandanincrease ofourstake inthejoint ofthegeographican extension scopeofourjointventure with business Sekunjalo hasbecomea30%shareholder inBT’s SouthAfrican an agreement withSekunjalo Ltd, Investments underwhich providers ofvideoconferencing solutionsintheUS. corporate inGermanyandglobally. customers strategy to offer to our networked ITservices capabilities intheGermanmarket, inlinewithour Exchange. Theacquisitionsstrengthen ourskillsand segment ofnetAG, ontheFrankfurt listed Stock companies constitutingtheenterprise ITservices progressed wellduringtheyear. Ribbit with21CN Theintegration of developmentplatforms. software capabilityin In addition,itcomplementsourexisting company. services platform-based, software-driven accelerate ourtransformation generation, into anext for $105m.Theacquisitionwill platform company Ribbit Corporation, aSiliconValley-based ‘Telco 2.0’ anddirectories business. our classifiedadvertising ofBTunderpins thecontinuedgrowth Directories, directories. Group Theacquisitionfrom plc Iomart enhancing itsvideoconferencing capabilities. footprint itscustomer business unit,extending and Wire Oneiscentral to BT Conferencing’s video

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Our property portfolio property Our rights issue(raising £5.9bn),the demerger ofO company inthe2002financialyear The BT oftoday waslargely created byaradical restructuring ofthe Prior to 2009 REVIEWS FINANCIAL AND BUSINESS extensive analysis of all risk and uncertainty affecting ourbusiness. analysis ofallriskanduncertainty extensive affecting ourbusiness butitisnotintended touncertainties bean of businessesgenerally, to ouroperations. others are particular areperformance macroeconomic andlikely to affect theperformance influencing our Although manyoftherisksanduncertainties notallofwhichare whollywithinourcontrol.and uncertainties, In commonwithallbusinesses,BT isaffected bya numberofrisks risksanduncertainties Principal to 25. 24 pages on chart managementandrecyclingwaste canbefound inthe behalf oftherest ofthebusiness.More detailedinformation on chieflyofoffices,depotsandcomputer centres. consist properties ofour continuingactivities.Othergeneral purpose needed aspart exchange equipment andare whichcontain telephone exchanges, Approximately ofoperational consists 85%oftheUKportfolio the Telereal oftheWilliamPears Group, Group. whichispart are UKproperties ownedby–andleasedfrom – The majorityofthe intherest oftheworld. 400properties the UKandapproximately in properties 7,000 At 31March 2009,weoccupiedapproximately provider withBT ItaliaSpA(formerly Albacom). We alsocompleted themerger ofI.NET SpA,anItaliandataservices of business. joint venture withAT&T) andthecreation ofcustomer-focused lines (our non-core businessesandassets,theunwindingofConcert wholly ownedmobileassetsinEurope), thedisposalofsignificant Our group property team andrecycling manageswaste property on group Our This section highlights some of those particular risks and This sectionhighlightssomeofthose particular providers of end-to-end IT services intheAsiaPacificproviders ofend-to-end region). ITservices Frontline Technologies Corporation Ltd (oneoftheleading (the French provider) andnetworkservices ITsystems the ITinfrastructure divisionofCSCommunication&Systèmes America) for corporationsservices andpublicsector organisations inLatin Comsat International (aprovider of datacommunications global multinationalcompanies) for majorIndianand specialises inIPcommunicationsservices Ltdi2i Enterprise Pvt (aMumbai-basedcompanywhich In 2008,ouracquisitionsincluded: provider solutions). ofITconsultingandsoftware (INS)(theCalifornia-based global International NetworkServices provider) PlusNet (aninternet service dabs.com (anonlineretailer ofITandtechnology products) completed anumberofacquisitions,including: In 2007,we . Thisrestructuring involveda TE MATTERS OTHER 2 (comprising BT’s ik.Teeaenticue o 09because thegroup’s 2009 for risks. Theseare notincluded ‘Transformation Strategy’ and‘Technological Advances’asprincipal evaluating theriskandmitigationstrategies. senior managementownerresponsible for monitoring and significantrisksfacingthebusiness.Eachriskisassigneda most management provided on inthestatement the group. Thekey features oftheriskmanagementprocess are evaluatingandmanagingthesignificantrisksfacedby identifying, and capitalresources adversely. potential to impactourbusiness,revenue, profits, assets,liquidity immaterial, couldturn outto bematerial. Allofthemhavethe Some maybeunknownto usandothers,currently regarded as ongoing exposure to foreign exchange movements. appropriate actions are taken to mitigate thisriskthere remains the currency markets alsoaffects our revenues andwhile andcosts defaultonitscontractual obligations.Volatility in counterparty any markets exposure andincreases should theriskofacounterparty potentially impactsourabilityto accessliquidityinthe capital addition theimpactofcurrent credit market conditions andsuppliersaseconomic conditionsworsen.In customers adversely affected byincreased exposure to thedefaultof revenue andprofits for couldalsobe us.Ourbusinessperformance economic downturn intheglobaleconomycouldleadto alossof A general reduction inbusinessactivityresulting from thecurrent Global economicandcredit market conditions churn andreduced levels ofmarket differentiation. to thecurrent economicenvironment; increased levelsofcustomer inmarket rates growth andprofitability due decline at lowercost; of newtechnologies andproducts offering increased performance capabilities, propositions and/orbusinessmodels;theemergence markets; competitors emerging withradically different bases, costs ‘resource rich’competitors from adjacentmarkets entering our the competitiveintensity andvolatilityofthesemarkets increases. Theprofitability ofthesemarkets isdecliningas competitor activity. levelsaswell switch suppliersbasedonpriceandservice We operate inhighlycompetitivemarkets where can customers Competitive activity regarding forwardlookingstatements thisdocumentandthe in statements conjunction withtheriskmanagementprocess, theforward looking competitive environment are setoutbelow. Ongoingrisksassociated withthegeneral management process. ofthegroup’s aspart normalrisk advances are managed completed, anyongoingrisksassociated withgeneral technological Inaddition,asthenew21CNcore networkhasnowbeen the year. transformation programme halfof wascompleted duringthefirst In the 2008 Annual Report &FormIn the2008AnnualReport 20-F, wehighlighted We haveadefinedenterprise wideriskmanagementprocess for Factors contributingto levelsofcompetitiveactivityinclude shouldbeconsidered in The principalrisksanduncertainties on ae72 page BT GROUP PLC . Thegroup riskregister captures the Internal control andrisk Cautionary statement Cautionary ANNUAL REPORT & FORM on ae148. page 20-F 29

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW oohrCPs.Thesecontrols mayadverselyaffect ourmarket share to other offer whichwehaveto provide inthefuture), theservices orextend thatwemay to whichcontrols apply(including any newservices not increase theseverityofpricecontrols, theservices extend assurance to ourshareholders authorities will thattheregulatory been to require usto reduce ourprices.We cannotprovide theeffect ofsomethesecontrols has CPs.Inrecent years, other to to andtheextent whichwehaveto provide services services among otherthings,thepriceswemaycharge for manyofour controls.subject to significantregulatory Thecontrols regulate, position andfuture profitability. controlsregulatory whichmayaffect ourmarket share, competitive Some ofouractivitiesare subjectto significantpriceandother controlsRegulatory andexploringopportunities. while identifying time andwewillcontinueto seekto mitigate therisksthatarise financial condition,results ofoperations andprospects. commercially reasonable terms, mayadverselyaffect ourbusiness, obligations,orto refinance debton ourdebtservice flow to satisfy reasonable terms, oratall.Ourinabilityto generate sufficientcash additional financingmaynotbeavailableoncommercially capital expenditure orseekadditionalcapital.Refinancing or ofourindebtedness onorbeforeportion maturity, reduce ordelay liquidity requirements. We mayberequired to refinance allora orrepay ourindebtedness ortoenable usto fundourother service able to generate sufficientcashflow, oraccesscapitalmarkets, to If economicandcredit conditionsdonotimprove, wemaynotbe REVIEWS FINANCIAL AND BUSINESS 30 our regulated copper assetbase. may adverselyaffect ourcompetitivepositionandfuture returns on to createan opportunity stability, regulatory there isariskthatthey wholesale localaccessmarket. thesereviews Whilst are, inourview, framework, thewholesalelinerental charge control, andthe wholesalenarrowband market, theOpenreach financial of the be completed duringthe2010financialyear. Theseincludereview capacity. prioritiesandsystems ofchangingindustry in thecontext abouttheremaining Undertakings wider communicationsindustry challengingand weare inconsultationwithOfcomvery andthe are intheUndertakings achievement ofanumberthemilestones for BTagainst damages.Thetimescalesfor inthecourts whosuffer lossesasaresultparties ofabreach mayalsotake action orissueadirection.to seekaninjunction throughThird thecourts to bedelivered. alsoremain intheUndertakings number ofchallengingmilestones accepted by Ofcom andcameinto force inSeptember 2005. A thatwerewe proposed anumberoflegallybindingUndertakings and ourfuture profitability. Ofcom isconductinganumberofreviews whichare expected to OfcomIn thecaseofabreach hastheright of theUndertakings, In response to Ofcom’s strategic review oftelecommunications, ofourwholesalefixed-networkMost activitiesintheUKare We expectthecurrent economicconditionsto continuefor some BT GROUP PLC ANNUAL REPORT & FORM TE MATTERS OTHER 20-F efficiencies weexpectto achieve.Anyincreased orunexpected contract. savingsthatweexpecttoterm achieveoverthelife cost ofthe forestimates majorcontracts generally includeanticipated long- andprofitability Ourpricing,cost competitive. areas whichare increasingly wonin contractsnetworked withcustomers, ITservices contracts.major customer Our businessmaybeadverselyaffected ifwefailto on perform Major contracts profitability. and earningsfrom could reduce customers lost revenue and business failure orcontract expiry. Failure to replace therevenue future revenue, profitability andcashgeneration. underthesecontracts mayleadto areduction in our commitments manageandmeetour commitments inatimelymanner. Failure to to meetthese obligationsmayinturn impactourabilityto meetour requirements providers, fromandfailure othersuppliersorservice incorporateour products orsystem software andservices the recoverability ofanycapitalisedcontract Insomecases, costs. couldadverselyimpactourprofit margins and which may bemissed milestones phases. There canbedelays inthesephasesandcertain the transition, development,transformation anddeployment completionof dependuponsuccessful performance all elementsof inthesecontracts, riskexists performance andsomeor Substantial ofnewtechnologies. legacy networksandthedevelopment andcommunicationsnetworks,transformationnew systems of detail, For more recognised. contract andfinancialreview charges being significant resulting in light ofthecurrent economicoutlook, in particularly changes inunderlyingassumptionsandestimates andother view oftherecognition offuture efficiencies cost andresulted inBTundertaken inamore GlobalServices, cautious adversely impactingourprofits. Contract andfinancialreviews were number ofourmajorcontracts lessprofitable orevenlossmaking, overthelife ofthecontract. recoverable contracts require whichis intheearlystages significantinvestment Somecustomer contract andistypicallyhigherintheearlystages. ofthe andlife risk increases generally to thescope inproportion making, soadverselyimpactingourprofit margins. Thedegree of couldmake thesecontracts lessprofitable orevenloss our control, unanticipated delays,includingdelayscausedbyfactors outside failurescosts, to savings,or achievetheanticipated cost can befound in framework detailsontheregulatory inwhichweoperateFurther These estimates areThese estimates judgementofthe basedonourbest We haveentered into anumberofcomplexandhighvalue We dueto maylosesignificantcustomers merger oracquisition, In addition,majorcontracts involvetheimplementationof often savingsmadea anticipated cost afailure to achieve In 2009, e page10. see Regulation on ae 26to 27. pages

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW h ettreyas Thisagreement hasbeenapproved bythe threethe next years. willbemadeover perannum that deficitcontributionsof£525m detailed on December2008hasnotyetbeencompleted, as at31 as valuation funding actuarial thetriennial Whilst our financialresources. benefit pensionscheme(BTPS) becomingasignificantburden on changesmayresult offundingBT’sregulatory inthecost defined pension scheme. We haveasignificantfundingobligationto adefinedbenefit Pensions security. exposure andtherefore requires ahighlevelofmanagementand allofwhichneedstocustomers besafeguarded from potential and sensitiveinformation. We alsostore andtransmit datafor our means weare required to managesignificantvolumesofpersonal can benoassurance thatmaterial adverseeventswillnotoccur. that strategy mayleadto areduction inourprofitability andthere computer virusattack,hurricaneorflooding.Afailure to deliver example, majorterrorist action,extreme action,industrial designed to dealwithsuchcatastrophic eventsincluding,for corporate resilience strategy andbusinesscontinuityplansinplace, on thebusinessandourresults from operations. We havea of factors outsideourcontrol couldhaveamaterial adverseeffect of ourinformation networksanddata. systems, We are criticallydependantonthesecure operation andresilience resilience Security and REVIEWS FINANCIAL AND BUSINESS all ofwhichare outside our control. trend towards longerlife expectancy, changes, aswellregulatory markets,investment interest andinflationrates andthegeneral requirements willbeimpacted bythefuture of performance Pensions Regulator. The results offuture schemevaluationsandassociated funding returns,Declining investment longerlife expectancyand The scaleofourbusinessandglobalnature ofouroperations Any significantfailure orinterruption ofdatatransfer asaresult ae43, page TadteTuteo h TShaveagreed BTPS BT andtheTrustee ofthe TE MATTERS OTHER BT GROUP PLC ANNUAL REPORT & FORM 20-F 31

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Specific items Before specificitems pershare earnings (loss) Basic Specific items Before specificitems Taxation Specific items Before specificitems Share taxprofits ofpost (losses)ofassociates andjointventures Specific items Before specificitems Net financeexpense Specific items Before specificitems profit before taxation (Loss) Before specificitems Operating profit Other operating income Revenue prtn rfi eoeseicies e nneepnebfr pcfi tm,saeo ottxpot lse)o soitsadjitvnue eoeseicies ls)potbfr aainadspecific and before taxation Operating (loss)profit profit before specificitems, netfinanceexpensebefore specificitems, share taxprofits ofpost (losses)ofassociates andjointventures before specific items, b a earningspershare (loss) Total basic Summarised group incomestatement incomestatement. group The following tableshowsthesummarised FINANCIAL REVIEW BUSINESS ANDFINANCIALREVIEWS 32 c basicearningspershareAdjusted profitAdjusted before taxation Specific items Contract andfinancial review charges (Loss) profit before taxation The following tablereconciles (loss)profit before taxationto profit adjusted before taxation 2009. Before specificitems profit for theyear (Loss) Specific items Profit ondisposalofassociates andjointventures –specificitems Specific items Operating costs Year ended31March requirements definedunderIFRS.Therationale for usingnon-GAAPmeasures isexplainedon (loss)earningspershare before specificitems are ‘non-GAAPmeasures’ provided inadditionto thedisclosure basic items, taxationbefore specificitems, (loss)profit for theyearbefore specificitems and requirements definedunder IFRS.Therationale for usingnon-GAAPmeasures isexplainedon thecontract andfinancialreview charges recorded andspecificitems withinBT andare ‘non-GAAPmeasures’ GlobalServices provided inadditionto thedisclosure before resultsAdjusted refer to theresults Includes specificitems. BT GROUP PLC a ANNUAL REPORT & FORM b b b b b b b a c c 20-F pages 33, 33, pages 47 and48. 47 and48. c , anadditionalnon-GAAPmeasure usedin 2,1)(867 (17,915) (18,697) (21,318) 1302,0 20,223 20,704 21,390 11p2.p34.4p 21.5p (1.1)p 43p(.) 11.7p (2.4)p (4.3)p ,7 ,0 2,495 2,506 1,877 1,639 84 39 22.7p 23.9p 18.4p 14 ,7 2,484 1,976 (134) 2009 14 ,7 2,484 1,976 (134) (94) (378) (620) 60 38 (233) (172) (378) (539) (620) (408) 39 (187) (329) (530) (372) .p2.p22.7p 23.9p 3.2p 1 ,5 2,541 2,713 2,356 2,895 411 819 339 4 ,2 1,884 1,925 248 2,495 2,506 238 372 8)1782,852 1,738 (81) £m 53 10 75 39 43 3 6–– – – 2008 2007 (238) 51 (611) (581) 349 530 343 (11) (11) 9 – – (11) 968 368 139 233 979 15 15 11 22 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW year’ are to theyearended31March 2009. and 2007,respectively. References to ‘theyear’andcurrent and ‘2007’are to thefinancialyears ended31March 2009,2008 on this section, andnet debt. underlyingoperating free costs, cashflow revenue, underlying GAAP measures weuseinthisFinancialreview are and discussedseparately inthisFinancialreview. Theothernon- have littlepredictive value.Specificitems are therefore analysed one-offorunusualinnature and as specificitems are significant this wayisrelevant ofthegroup’s to anunderstanding performance directors believethatpresentation ofthegroup’s trading results in inprovidingassists ameaningfulanalysisofourresults. The ismeasuredway thatfinancialperformance bymanagementand results bothbefore theseitems. withthe Thisisconsistent andafter weseparatelystatement specificitems andpresent identify our financial review charges isgivenon contract discussionoftheBTitems. Further and GlobalServices review charges recorded andspecific withinBT GlobalServices basisareon anadjusted presented before thecontract andfinancial principally discussthegroup’s results basis.Results onanadjusted Inparticular, inthisFinancialreview, we accordance withIFRS. measures are inadditionto, andsupplement,thoseprepared in under IFRS,andare therefore termed ‘non-GAAPmeasures’. These a varietyofmeasures, someofwhichare notexplicitlydefined 2008 and2007.We ofthebusinessusing explaintheperformance for 2009, In theFinancialreview wediscusstheresults ofthegroup to theFinancialreviewIntroduction BUSINESS ANDFINANCIALREVIEWS TGoa evcs – – – – – Total Openreach – BT Wholesale BT Retail BT GlobalServices Internal revenue recorded by: atthefoot of provided inthetable operating profit (loss)bylineofbusiness,andfor thegroup, is see theseitems, charges discussionof andspecificitems. For further basis, beingbefore theimpactofcontract andfinancialreview 2009 wemeasure theresults onan‘adjusted’ ofBT GlobalServices EBITDAandoperating profit before specificitems. For based on BT Retail, BT WholesaleandOpenreach of financial performance We measure the theBusinessreview. and 2007are discussed in ofthelinesbusinessfor 2009,2008 financialperformance The Line ofbusinessresults In theFinancialreview, references wemake to ‘2009’,‘2008’, Each ofthesemeasures isdiscussedinmore detail attheendof ae 7t 48. to 47 pages ae 47and48. pages eoclaino dutdEID to group A reconciliation EBITDA ofadjusted TGoa TBT BT BT Global evcsRti hlsl pnec te Total Other Openreach Wholesale Retail Services 1 148 359 85 5,840 2,003 1,232 4 136 2,250 51 219 – 219 m£ m£ m£m £m £m £m £m £m ,2 1,228 4,253 – 1,918 – 1,228 – 85 – 2,250 – – ae 4t 35. to pages 34 page 10. Internal cost recordedInternal cost by FINANCIAL REVIEW In ourincome solutions revenue increased inrevenue by 10%,drivenbygrowth 2009.In2008,managed newcontracts in from revenue arising and anincrease inBT Wholesale managednetworksolutions revenue onnetworked ITservices of foreign exchange movements 20%to £6,365m,mainlydueto theimpact increased by services, Managed solutionsrevenue, includingMPLSandnetworked IT 2,310 Group total Other 2,567 Transit, conveyance, 2,637 Calls andlines Broadband andconvergence Managed solutions Revenue byproduct Product revenue a Underlying revenue Acquisitions Foreign exchange movements Group revenue Group revenue Group results to Openreach.electronic services arising inBT Wholesalerelates to thesaleoflinecards andaccess relates primarilyto BT Ireland andEnterprises. Internal revenue within Otherinthetableabove.Internal revenue arisinginBT Retail directly, andalsoindirectly through BT Operate whichisincluded network products to linesofbusiness,both thecustomer-facing connection ormigration charges, oftheUKaccesslinesandother relates to Openreach andarisesonrentals, andanyassociated the linesofbusinessfor 2009.The majorityoftheinternal trading The tableaboveanalysesthetrading relationships betweeneachof (£m) yearended31March – Revenue byproduct Underlying revenue 2008. group revenue in in2009,compared with 2% underlying revenue decreased by respectively, to revenueintheyear. growth Excluding these, the impactofacquisitionscontributed £653mand£521m, 4%in2007.Foreign exchange movementsand of 2%in2008and to £21,390m.Thiscompares withgrowth 3% Revenue increased by 10,000 15,000 20,000 25,000 5,000 Underlying revenue isa new‘non-GAAPmeasure’ usedbythegroup for time in 2009. thefirst This measure isdiscussed inmore detailattheendofthissection wholesale products global carrierandother interconnect services, WLR, interconnect services, 0 0720 2009 2008 2007 a BT GROUP PLC 1302,0 20,223 20,704 21,390 ,8 ,0 2,538 3,452 2,601 3,398 7,098 2,782 4,825 3,301 6,818 5,320 6,305 6,365 2009 £m ANNUAL REPORT & FORM Managed solutions Calls andlines other wholesaleproducts WLR,globalcarrierand services, Transit, conveyance,interconnect Other convergence Broadband and on page47. 082007 2008 £m 20-F 20,216 21,390 2009 (521) (653) £m £m 33

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Line ofbusinessresults Group total Other Wholesale/carrier Consumer Business Major corporate segment Revenue bycustomer segments andhowthisrelates to thedifferent linesofbusiness. above indicates thesource ofrevenue for eachofthecustomer segment.Thetable bycustomer The group alsoanalysesrevenue Openreach’s customers, external majorcorporate BT customers GlobalServices’ Wholesale/carrier Consumer Business Source ofrevenue Major corporate segment Customer revenue segment Customer margin transit revenue andconveyancevolumes. declineinlow continued the asaresult of decrease of2%in2008 3%to £3,301m,compared witha decreased by wholesale products conveyance, interconnect circuits, WLR,globalcarrierandother Revenue from transit, marketenvironment declines. andfurther of thedeclinein2009reflects theincreasingly competitive compared withadeclineof4%in2008.Theacceleration £6,305m, inrevenue from callsandlinesto decrease 8% an offset by partially Theseincreases were revenue from consumerbroadband. and convergence revenue increasedin by11%,drivengrowth mobility volumesandrevenue from BT Vision.In2008,broadband r from andMPLS.Broadband networked andconvergence ITservices BUSINESS ANDFINANCIALREVIEWS 34 c b a Group totals Intra-group Other Openreach BT Wholesale BT Retail BT GlobalServices vneicesdb %t 267 u oa nraeinbusiness anincrease 3%to £2,637mdueto evenue increased by Specific items for all yearspresented. isgiven Items presented are as‘adjusted’ before stated contract andfinancialreview charges tax recorded after andspecificitems. withinBT Global Services profit (loss) to (loss) A reconciliation from total operating profit BT GROUP PLC ANNUAL REPORT & FORM BT Global Services’ globalcarriercustomers BT GlobalServices’ BT Wholesale’s and customers external BT Retail’s consumercustomers BT Retail’s SMEcustomers 1302,0 20,223 20,704 21,390 ,0 ,4 5,537 5,124 2,456 7,089 5,442 5,071 2,590 7,573 5,404 4,850 2,631 8,463 2009 £m 42 FINANCIAL REVIEW 20-F 082007 2008 £m 28 1302,0 20,223 20,704 21,390 580 595 (6,061) (5,915) (5,840) ,2 ,8 ,1 216 1 0169–– – 1,639 1,220 1,222 912 1,218 70 1,050 1,209 117 (2,106) 5,223 5,266 5,386 5,231 4,959 8,346 4,658 8,477 7,312 8,471 7,889 8,828 2009 npg 32. on page m£ £m £m £m 22 17 28 42 082007 2008 £m 17 Revenue eeu ycsoe emn eredd3 ac 09(%) yearended31March 2009 – Revenue segment bycustomer Technology. prior yearwasdueto theacquisitionsofBasilicaandLynx revenue.inthe and networked Thesignificantgrowth ITservices revenue increase inmobilityandconvergence isdueto growth The £2,590m, 2007:£2,456m),compar in2009(2008: 2%to £2,631m increased by revenue Business Business in2009(2008:£8.0bn,2007:£9.3bn). contract winsof£8.0bn majorcorporate achievedtotal customers, whichserves Services, BT Global of foreign exchange movementsandrecent acquisitions. reflects thefavourable impact primarily Theincrease in2009 2008. £7,573m, 2007:£7,089m),compar (2008: 12%to £8,463m increased by revenue Major corporate Major corporate together with the successful retentiontogether withthesuccessful ofhighervaluecustomers. from BT, buyingmultipleservices higher numberofcustomers both 2009and2008.Theincrease to consumerARPUreflects the ayearonincrease of5%in 2009 (2008:£274,2007:£262), in was£287 netofmobiletermination charges, household (ARPU), 68% in2007. 70%in2008and with 71%in2009,compared under contract was ofourconsumerrevenue (2008:15m).Theproportion customers callpackage 14m wehad At 31March 2009, March 2009. 31 at 3.6m 9%to Residential broadband connectionsincreased by inmobilityandconvergence offsetbygrowth revenue. partially 2008, dueto adeclineinrevenue from callsandlines,whichwas £5,071m, 2007:£5,124m),compar in2009(2008: 4%to £4,850m decreased by revenue Consumer Consumer h 2mnhrligaeaeana eeu e consumer The 12monthrolling average annualrevenue per 2009 40 55 (253) (535) (490) Operating profit (loss) 1 ,5 ,4 ,4 3 172 539 2,047 2,541 2,356 411 592 502 580 m£ £m £m £m 082007 2008 a dwt rwho %i 2008. 5%in of ed withgrowth ed withanincrease of7%in dwt eraeof1%in decrease ed witha Contract andfinancialreview hre n pcfi items charges andspecific 2009 408 m£ £m £m £m c Wholesale/carrier Major corporate 082007 2008 539 Consumer c Business 172 40% 25% 23% 12% c

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW property. sourcing andincomefrom theexploitationofour intellectual transformation ofouroperational basethrough cost global vehicle fleetoperations, someupfront benefitsfrom the byour businessundertaken largely inthethird dueto growth party Theincrease in2008was from thesaleofscrap andcablerecovery. offsetbyhigherincome licences, vehiclesandotherassets,partially lowerincomefrom thesaleofintellectual rights, property due to largely in2009was decrease The (2008: £359m,2007:£236m). in2009 Other operating incomebefore specificitems was£352m Other operating income connectionsintheyear. 1.1m increase of LLUlines,at31March 2009,an 5.7m connections, including managed networksolutionsandtheglobalcarrierbusiness. offsetbyhigherrevenue from partially LLU, The declineswere revenue, conveyancevolumesandrevenue from DSLbroadband. adeclineinlowmargin transit asaresult of of 2%in2008, 2009 (2008:£5,442m,2007:£5,537m), in 0.7%to £5,404m by decreased revenue Wholesale andcarrier Wholesale andcarrier BUSINESS ANDFINANCIALREVIEWS nteU,w a 38 wholesalebroadband DSLandLLU 13.8m In theUK,wehad ,5 ,9 ,1 280289290 ,4 5,7845,633 5,348 2,8892,920 2,890 2,8952,713 2,458 ,1 ,2 ,2 7 8 0 ,9 ,1 1,927 1,911 707 1,357 1,996 1,495 689 445 1,634 1,220778 445 1,222 912425 1,218 1,050 1,209 2009 47 1 70 117 (467) 8 0 9 8 9 0 ,6 ,9 1,500 1,395 908 1,266 893 592686 502 580 operating profit (loss) 8)4(1 251815 4 2 114 122 143 195 118 225 4(81) (82) m£ £m £m £m 082007 2008 Adjusted b 2009 7 4 665 744 776 FINANCIAL REVIEW m£ £m £m £m compared withadecline and amortisation 082007 2008 Depreciation 2009 0 6 735 861 309 m£ £m £m £m Other operating costs 5,076 Payments to Amortisation Depreciation 5,231 costs Net staff Own workcapitalised Staff costs 5,302 Leaver costs before leavercosts Staff costs and financialreview charges of£1.6bn withinBT GlobalServices acquisitions of£486m.Excluding these,theimpactofcontract foreign exchange rate movementsof£720mandtheimpact of £20,923m. Group operating in2009includetheimpactof costs increased by15%to Group operating before costs specificitems Operating costs Specific items Operating before costs Operating costs h rao nietlbu,icuigaec andcontractors. the area ofindirect labour, includingagency resource byaround ofthereductions 15,000in2009.Most were in savingsinitiatives.Thegroup cost hasreduced total labour group’s acquisitions of£143m.Thereduction reflects the successofthe basis excluding foreign exchange rate movementsof£86mand 6%to £7,669m,or9%onanunderlying £8,562m, decreased by excludingof andleavercosts, costs BTamortisation GlobalServices operating Group costs. operating before costs depreciation, therestOutside ofBTthegroup hasreduced GlobalServices compared withtheprioryear. £18,119m were broadly unchanged (see page10) operators telecommunications specific items Adjusted EBITDA Adjusted 082007 2008 n pcfi tm,underlyingoperating of costs and specificitems, b BT GROUP PLC 1381,9 17,915 18,697 21,318 0931,6 17,746 18,168 20,923 ,6 ,3 4,162 4,237 4,266 ,3 ,0 6,159 6,408 2,536 4,505 8,934 2,410 5,223 4,634 5,358 2,249 4,833 5,506 2009 63 74 (718) (724) (673) 641 204 395 £m ANNUAL REPORT & FORM 082007 2008 479 127 529 £m BT GlobalServices BT Group totals Intra-group Openreach Wholesale 20-F BT Other Retail 169 384 147 £m 35

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW depreciation and amortisation on21CNassetsastheyaredepreciation brought andamortisation 1%in2008.Thisreflects higher compared withadecrease of intheyear. forfeitures UKSharesave andthesignificant numberof in2009 grants new decrease of22%in2008,reflecting thelower fair valueof 58%to £31m,compared witha decreasedbased paymentcosts by onthegroup’sby highercosts definedcontributionschemes.Share in 2008reflected theimpactofleavers from theBTPS, alsooffset membership oftheseschemesgrows. Thedecrease inpensioncosts asthe associated withthegroup’s definedcontribution schemes offsetbyanincrease incosts whichwaspartially cost, service onthedefinedbenefit 2008(5.35%) (6.85%) compared with impactofthehigherdiscountrate intheyearreflectscosts the 2007:£594m).Thedecrease inpension scheme (2008:£561m, maindefinedbenefitpension thegroup’s respect oftheBTPS, in £626m in2008and£643m2007.Thisincluded£451m charge for 2009was£544m, compared with pension The £147m). 2007: were Leavercosts £204m(2008:£127m, savings. cost offsetby partly theimpactofpayinflation and recent acquisitions (2008:3%),largely dueto 3%to £5,506m increased by Staff costs Share basedpayments Pensions costs Social securitycosts Wages andsalaries Staff costs overheads. and marketing research costs, anddevelopmentgeneral ofthenetworks,accommodation,sales maintenance andsupport activity inthenetwork.Otheroperating include the costs contracts networked andincreased ITservices levelsof supporting increased by4%,reflecting of theimpactofacquisitions,cost In2008,otheroperatingsavings withinBT costs GlobalServices. efficiency ofcost delivery impact ofacquisitionsandtheslow of £1.6bn,theadverseimpactforeign exchange movements,the charges withinBT GlobalServices contract andfinancialreview of to £8,934m,largely reflecting theimpact 39% increased by items before specific higher volumesintheyear. Otheroperating costs the impactoflowervolumes.Theincrease in2008wasdueto foreign exchange offsetby rate movements,partially the impactof reflecting to £4,266m, compared withanincrease of2%in2008, depreciation on21CNassets. offsetbyhigher whichwasonlypartially being extended, becoming fullydepreciated andthe usefullivesofotherassets reduction in2008waslargelylegacyassets asaresult ofcertain into use,offsetbylowerdepreciation onlegacyassets.The BUSINESS ANDFINANCIALREVIEWS 36 amnst te eeomncto prtr nrae y1% by increased Payments to othertelecommunication operators 2009, wasbroadly flatin andamortisation Depreciation BT GROUP PLC ANNUAL REPORT & FORM ,0 ,5 5,223 5,358 5,506 ,9 ,4 4,099 4,242 4,499 2009 544 432 £m 31 20-F FINANCIAL REVIEW 082007 2008 626 417 £m 73 643 388 £m 93 n20,ajse prtn rfi a 248 (2008:£2,895m, was£2,458m operatingIn 2009,adjusted profit Operating profit £5,461m in2007. was £3,301min2009,compared with£5,245min2008and EBITDA of contract andfinancialreview charges andspecificitems Includingtheimpact other operating incomegenerated intheyear. EBITDA in2008reflected inthebusinessandadditional growth inBTperformance Retail andOpenreach. Theincrease inadjusted offsetbyagood EBITDA declineinBT Wholesale,partially andcontinued inBTunacceptable performance GlobalServices in 2008and£5,633m2007.Thedecline2009reflects the EBITDAwas£5,348m,compared adjusted with£5,784m In 2009, EBITDA pcfi tm o 09 08ad20 r hw ntetbeon Specific items for 2009,2008and2007are showninthetable Specific items Other group items 2008 and£2,541min2007. operating profit was£411min2009,compared with£2,356min Reported additional otheroperating incomegenerated intheyear. 2008 reflected therevenue ofthebusinessand growth intheotherlinesofbusiness.Theincreasegood performance in offsetby partially inBTunacceptable performance GlobalServices, Thereduction inthecurrent yearreflects the higher than2007. than2008,whichinturn was7% lower 15% 2007: £2,713m), page 37, and are definedon ae33. page

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Profit onsaleofnoncurrent Net lossonsaleofgroup Other operating income BUSINESS ANDFINANCIALREVIEWS Net specificitems charge Net specificitems charge Profit onsaleofassociate Tax credit onspecific Tax credit on Tax credit inrespect of associated with Costs Write offofcircuit – Creation ofOpenreach and rationalisationProperty costs 65 21CN assetimpairment charges Group restructuring BT GlobalServices Operating costs Reassessment of carrying Reassessment ofcarrying Associates andjoint Interest onsettlementof Finance income undertakings (credit) after tax after (credit) items above deferred taxes re-measurement of open taxyears settlement of before tax – open taxyears settlement of working capitalbalances and other inventory Undertakings ofthe delivery and related charges Intangibleasset – People andproperty – Networksandproducts – restructuring charges asset investments value ofassociate ventures open taxyears impairments rationalisation 2009 329 372 183 395 4)(4)(41) (149) (43) (36) £m 13 50 46 51 13 – – – – – – – FINANCIAL REVIEW 082007 2008 (154) 8 (968) 187 530 402 2 169 529 4)(938) (40) £m 10 74 53 10 9 (22) (9) (139) – – – – – – – – – 10 65 30 64 11 (2) £m 5 3 – – – – – – – The specificitems recognised in2009are setoutbelow. ewrsadpout ainlsto asaresult ofthe Networksandproducts rationalisation – – The maincomponentsofthespecificitem are setoutbelow. £260min2010and£50m2011. approximately of outflow Thesecharges are expected to result inanetcash be in2010. themajorityofwhichwill to berecorded twoyears, overthenext £420mexpected around of costs charges of£280m,withfurther (described on As aresult operational oftheBT review, GlobalServices group’s satellite broadcast business. 2007, respectively, relate principallyto thedisposalof the disposalofabusiness.The£10mand£5mlossesin2008 A lossondisposalof£13m(2008:£10m,2007:£5m)arose from specific items. arose on A taxcredit of£43m(2008:£149m,2007:£41m) undertaking. the valueofourshare ofthenetassetsanassociated wasrecognised inrespect ofareassessment of A credit of£36m products. developments offibre generation based next voiceservice on focus and light ofthemoveto roll acustomer-led outstrategy review ofits21CNprogramme andassociated voicestrategy inthe following thegroup's impairments and£19mofassociated costs, wasrecognised, comprising£31mofasset A charge of£50m exitandtransformation property costs, programme costs. leaver and reorganisation mainlycomprise activities.Thecosts respect ofrestructuring relating costs to thegroup’s transformation wasrecognised in A charge of£65m(2008: £402m,2007:£nil) hasbeen Intangibleassetimpairment–acharge of£46m – hasbeenrecognised, People–acharge andproperty of£51m – ytm n rcse,acag f£8mhasbeen andprocesses,systems acharge of£183m thelegacynetworks,includingassociated rationalisation of no longerhaveaneconomicvalueto thebusiness. write downofbrands andotheracquired intangibleassetsthat Thecharge areincludesthe under whichcustomers served. thatare offeredthe services to andthebrands customers recognised, reflecting associated withrationalising thecosts years. financial are expected to beincurred two overthenext £350m peopleleaverrelated ofapproximately Further costs costs. charge exit are andproperty leavercosts components ofthe restructuring andrationalisation. Themain aspects ofthe peopleandproperty relating associated to withthe thecosts the rationalisation programme iscompleted. yearsas financial expected to beincurred two overthenext running andtransition ofapproximately costs £70mare dual impacted bytherationalisation. Inaddition,further recoverable valueoftheassets amountandthecarrying recognised, representing thedifference betweenthe ae11) page BT GROUP PLC h ru a eoddrestructuring the group hasrecorded ANNUAL REPORT & FORM 20-F 37

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW r The specificitems setoutbelowdidnotimpact2009,butwere BUSINESS ANDFINANCIALREVIEWS 38 cgie ntecomparative years. the ecognised in effective in2009. corporation taxratein theUKstatutory from 30%to 28%, measurement ofdeferred taxbalancesasaresult ofthechange recognised in2008for there- also was A taxcredit of£154m representing associated withreaching thecosts thisagreement. interest incomeof£139mandoperating of£10m, costs recognised whichwere inexcess ofthefinalagreed liability, representing thoseelementsofthetaxcharges previously a netcredit of£1,067m,comprisingataxcredit of£938m (HMRC).Customs In2007,thetotal impactofthesettlementwas tax yearsupto andincluding2004/05withHMRevenue and allopenUKtaxmatters relatingsettlement ofsubstantially to ten settlement reached in2007.In2007,thegroup agreed the credit of£40m,andthisclosedallopenitems inrelation to the a businessdisposedofin2001,theimpactwhichwastax In 2008,thegroup agreed taxmatter relating anoutstanding to Tech Mahindra Limited. the disposalof6%group’s equityinterest intheassociate In2007,the£22mprofit aroseinterest ine-peopleserve. from contingent consideration from thedisposalofgroup’s 2007. In2008,the£9mprofit arose from thereceipt of Profit onthesaleofassociates of£9m in2008and£22m other workingcapitalbalances. a result ofthecompletionareview and ofcircuit inventory recognised as were Charges of£74min2008and£65m2007 with regard to theintroduction ofequivalenceinputsystems. agreed withOfcom,and delivertheUndertakings particularly required costs estimated relation to to create further Openreach Charges of£53min2008and£30m2007,were recognised in rationalisation costs. incurred inrespect ofproperty A £64mcharge in2007 BT GROUP PLC ANNU AL REPORT & FORM FINANCIAL REVIEW 20-F Other interest and Income from listed Total financeexpense Interest onpension Loss arisingonderivatives Interest onborrowings Net financeexpense tax intheyear. borrowing transaction whichwasmarginally earnings positiveafter includedacharge of£26monalowcost £41m relationship of In 2008,lossesonderivativesnot inadesignated hedge (2008:£41m,2007:£4m). in2009 hedge relationship was £29m Lossesarisingonderivativesnotinadesignated rate borrowings. £94m reflects highernet debtandhigherinterest rates onvariable Theincrease in2008of dividend andshare buy backpayments. lowerfree cashflowbeingexceeded by mainlydueto debt Theincrease of£113min2009reflects highernet 2007: £728m). 2009. significant reduction in asset valuesduring be anetinterest ofabout£275min2010asaresult cost ofthe to isexpected This ofthefinancialyear. and valuationasatthestart return onpensionschemeassetsreflects theIAS19assumptions in 2007.Theinterest onpensionschemeliabilitiesandexpected atthesamelevelas thanin2008,whichturn was lower £107m was definedbenefitpensionobligationof£313m thegroup’s with (2008: £378m,2007:£233m).Thenetfinanceincomeassociated In 2009,netfinanceexpensebefore specificitems was£620m Net financeexpense Specific items Net financeexpensebefore Interest associated with Net financeexpensebefore Analysed as: Total financeincome Expected return onpension similar income investments scheme liabilities hedge relationship not inadesignated pcfi tm 2 7 233 378 620 specific items pensions 933 specific items andpensions scheme assets neeto orwnsws£3min2009(2008:£822m, Interest onborrowings was£935m 262 253 (2,371) (2,513) (2,652) 261 248 (2,292) (2,448) (2,621) ,7 ,9 2,604 2,891 3,272 ,0 ,2 1,872 2,028 2,308 2009 33 40 (420) (420) (313) 935 620 (31) £m 29 – – 082007 2008 2 728 822 378 653 798 6)(72) (65) £m 41 – (139) – £m 94 (7) 4

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW full yearproposed dividend 6.5p Mahindra’s intheexpansionofitsglobalcapabilities investment focus Thelossin2008reflects onefficiencyandcosts. Tech reflect a profits in2009 profit). The loss,2007:£21m £11m (2008: in2009 profit tax ofpost Limited, whichcontributed £33m profit). significantassociate isTech Ourmost Mahindra £15m loss,2007: in2009(2008:£11m of£39m profit ventures wasa from associates andjoint profit (loss) Our share tax ofthepost Share taxprofit ofpost (loss) and similarincomewas£31m Interest incomearising from andotherinterest investments listed BUSINESS ANDFINANCIALREVIEWS 2007 was£368m andcomprisedacharge of£611monprofit Thenettaxcredit in specificitems. oncertain tax credit of£343m onprofit before taxation andspecificitems, offsetbya of £581m £1.6bn contract andfinancialreview charges of tax credit arisingonthe reflecting the was(4.2)%, profit before taxationandspecificitems the on credit onspecificitems. Theeffective rate ofthe tax of £43m of taxcredit £10m andcompriseda £53m for 2009was credit tax The Taxation in2007. in2008and£2,484m of£1,976m before taxation profit offset bytheincrease in netfinanceexpense. year onyear, withtheincrease inoperating profit beinglargely wasbroadly flat profit before taxation adjusted business. In2008, intheotherlinesof offsetbygoodperformance partially Services, inBT theunacceptableperformance Global 2009 isprimarilydueto with £2,506m in2009,compared was£1,877m profitAdjusted before taxation Profit before taxation during theyear. shown below: The results ofassociates andjointventures before specificitems are Associates andjointventures finance expensein2009(2008:6.2times,2007:27.0times). operating reported profit represented 0.7timesnet cover of operating profits intheyearandhigherborrowing Interest costs. lower Thereduction incoverwaslargely dueto timesin2007. 4.2 which compares withinterest coverof3.6timesin2008and associated withthegroup’s definedbenefitpensionobligation, expense before specificitems andthenetfinanceincome holdings following theirutilisation to fundbondmaturities. interest incomeof £14m reflects thelowerlevelofinvestment thereduction in average interest rates ondeposits. In2008, reflecting heldbythegroup lowerlevelsofinvestments andlower of associates and joint ventures eotdls eoetxto a 14 n20,compared with in2009, £134m was lossbefore taxation Reported h e a hrei 08ws£3mand comprisedacharge was£238m in2008 charge The nettax Adjusted operatingAdjusted profit represented 2.6timesnetfinance ntepotbfr aainadseiciesadacredit anda on theprofit before taxationandspecificitems sepg 10) page (see n20 n 245 n20.Thereduction in in2007. in 2008and£2,495m recorded inthe year. in 2009 2009 £m 39 compared with£65min2008 FINANCIAL REVIEW 082007 2008 (11) £m £m 15 Adjusted basicearnings Adjusted £5,486m, 2007: £5,210m). 2009, netcashinflowfrom operating activitieswas£4,706m(2008: cash receipt of£376minrelation to thesettlementwithHMRC. In In 2007,thegroup paidnettaxof£35m,whichincluded theinitial years upto andincluding2004/05,together withtaxpaid of£222m. inrelation to thesettlement ofopentax included areceipt of£521m refund of£299mreceived in2008.Thenetrefund received in 2008 deficiency paymentsof£320m. In2008,cashgenerated from operations includedpension 2008. £5,187m, 2007:£5,245m),ar (2008: from operations was£4,934m generated cash In 2009, Financing equity. £1,053m) andhavebeenpresented asadeductionto shareholders’ 2008 of5%. adecrease of59%following theincrease in and 15.1pencein2007, 2007:£1,247m).Thiscompares with15.8pencein2008 £1,236m, (2008: pershare, totalling £503m 6.5p is proposed for 2009 pershare, thetotal dividend with the2009interim dividendof5.4p 2009.Whencombined August 14 shareholders ontheregister on to September 2009 7 paid, subjectto shareholder approval, on 2007:£825m). Thiswillbe (2008:£805m, to approximately £85m 10.4p pershare (2008: 1.1p The Board recommends afinaldividendof Dividends under review. earningspershare inanyyear (loss) different from basic reported notmaterially were earningspershare (loss) diluted Reported a (loss) basic Reported h al eo reconciles earningspershare. to adjusted reported The tablebelow (2008: earningspershare 21.5p,2007:earningspershare 34.4p). 1.1p pershare was loss profitability. basic In2009,thereported with 23.9pin2008and22.7p2007,r basicearningspershareAdjusted were 18.4pin2009,compared Earnings pershare relating to ten taxyearsupto andincludingthe2004/05 year. allopenUKtaxmatters arising onsettlementofsubstantially specifictaxcredit of£938m specificitems andafurther certain before taxationandspecificitems, offsetbyataxcredit of£41mon Contract andfinancialreview within BT Global Services andspecificitems.within BT GlobalServices amountsreferAdjusted to theamountsbefore contract andfinancialreview charges recorded earnings pershare share per hre n pcfi tm (19.5) charges andspecificitems In 2009,thegroup paid nettaxof£228m,compared withanettax (2008:£1,241m,2007: Dividends paidin2009were £1,222m e hr,20:1.ppershare) to shareholders, amounting per share, 2007:10.0p a BT GROUP PLC ec ec pence pence pence 2009 dcino 5%compared with eduction of 18.4 11 21.5 (1.1) ANNUAL REPORT & FORM eflecting thereduced 082007 2008 23.9 24 11.7 (2.4) 20-F 34.4 22.7 39

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW qiydvdnspi 122 126 (1,057) (1,236) (1,222) Equity dividendspaid Net drawdown (repayment) in used Net cash Interest received Dividends received from of Net sale(purchase) Net acquisitionof Net purchase ofproperty, Net cashinflowfrom Net incometaxes Cash generated from urn ericueWr n odnsIc(£74m),Ribbit HoldingsInc Wire One current yearinclude Significantacquisitions madeinthe (2008: £364m,2007: £237m). in2009 expenditure onacquiringnewbusinesseswas£227m Netcash required agreed withOfcom. bythe Undertakings preparations for developments 21CNandthesystems reflects 2008 The increase in the lowercapitalexpenditure across thegroup. Thedecrease in2009 reflects (2008: £3,253m,2007:£3,209m). the purchase ofproperty, plantandequipmentwas£3,038m for netcashoutflow (2008: £3,664m,2007:£2,778m).In2009, in2009 from activitieswas£2,954m Net cashoutflow investing netdebt in Increase (279) increase (decrease) Net (1,413) Effect ofexchange rates on (209) Net cashusedinfinancing Interest paid Net repurchase ofshares Summarised cashflowstatement Cash flow BUSINESS ANDFINANCIALREVIEWS 40 netn ciiis(,5)(,6)(2,778) (3,664) (2,954) of borrowings activities investing ventures associates andjoint financial assets 5,210 current andnoncurrent group undertakings 5,486 joint ventures and subsidiaries, associates, 4,706 software plant, equipmentand operating activities repaid (paid) operations eutn rmcs os(2)(,1)(219) (1,510) (921) cashflows resulting from equivalents 54 in cashand cash andequivalents activities BT GROUP PLC ANNUAL REPORT & FORM 185 140 (2,898) (1,430) (1,865) 308 323 (3,209) (3,253) (3,038) ,3 ,8 5,245 5,187 4,934 2009 (956) (227) (228) 2 ,6 (765) 2,061 522 286 (59) £m 19 6 FINANCIAL REVIEW 20-F 082007 2008 82 (797) (842) 515 (237) (160) (364) 1 147 111 299 1 (501) 417 £m 25 2 (35) (35) £m 6 n oe vrg neetrtso eois In2008,interest and loweraverage interest rates ondeposits. in 2009reflecting heldbythegroup lowerlevelsofinvestments Excluding thesereceipts, interest received was£27mlower review. settlement discussedinthespecificitems sectionofthisFinancial and£74m,respectively, from HMRC onthe include £65m in2007.Theinterest receipts in2008and2007 2008 and£147m liquidityfunds. in inamountsheld changes mainly related to inallfinancialyears flows in2007.Thecash inflow of£515m in2008,andan £286m, comparedof£160m withanoutflow significant acquisitionsincludedINSIncandPlusNet. Corporation Limited andi2iEnterprise Private Limited. In2007, ComsatInternational, Frontline Technologies acquisitions included (£21m).In2008,significant Ltd Corporation (£46m)andUfindus are detailedon with areconciliation directly to themost comparable IFRSmeasure, components ofnetdebt,whichisanon-GAAPmeasure, together at31March 2007.The at31March 2008and£7,914m £9,460m paper of£309m. mainlyoffsetbythenetissueofcommercial of£1,085m outflow maturity ofnotes andleases resultedthe fullandpart inacash repayment ofcommercial paperamountingto £1,878m.In2007, repayment ofmaturing borrowings, leaseliabilitiesandthenet onthe programmes offsetbycashoutflows whichwaspartially European MediumTerm Note andUSShelf its mainly through raised debtof£3,939m thegroup amounting to £879m.In2008, on therepayment ofmaturing borrowings andleaseliabilities issue ofcommercial paper. offsetbycashoutflows Thiswaspartially Medium Term Note programme andreceived £606mfrom thenet raised debtof£795mmainlythrough ourEuropean the group in2007.In2009, in2008and£2,898m compares with£1,430m share buybackprogramme andliquiditymanagement. holdings following theirutilisationto fundbondmaturities, the was£27mlowerreflecting thelowerlevelofinvestment received 15 (2008:£85m, 2007:£123m). £125m under employee share schemeexercises receiving consideration of obligations sharesto satisfy outoftreasury 83m We alsoissued and£400m,respectively. shares for cashconsideration of£1,498m and148m During2008and2007 werepurchased 540m £334m. shares for cashconsideration of 143m andwerepurchased 2008 netdebt. average was £19mhigherin2008,reflecting theimpactofincreased payment, interest paidwas£140mhigherin2009, whichinturn Excluding this borrowingassociated with alowcost transaction. onthecloseoutofderivatives a one-offpaymentof£26m Interest paymentsin2008included 2008 and2007,respectively. in and£797m paid in2009was£956m,compared with£842m in2008and2007,respectively. Interest and£1,057m £1,236m and£400min2007. 2008 £1,498min with compared resulted of£334m inacashoutflow neetrcie a 1mi 09 oprdwt 11 in in2009,compared with£111m Interest received was£19m was ofinvestments sale from thenet inflow In 2009,thenetcash At 31March 2009,netdebtwas£10,361m,compared with in2009 fromNet cashoutflow financingactivitiesof£1,865m uig20,tesaebybc rgam otne untilJuly During 2009,theshare buybackprogramme continued Equity dividendspaidin 2009were £1,222m,compared with ae103. page The share buybackprogramme has

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW improvement inworkingcapitalmovements.Theseimprovements (2007:£520m),together withan payments of£320m reduction inincometaxes paidof£189m,lower pensiondeficiency (2007:£376m),a the incometaxrepayment from HMRC of£521m respect ofcapitalexpenditure. offsetbylowercashpaymentsin net interest payments,partially lower EBITDA,highernetincometaxpaidintheyearand refer to the definitionoffree cashflow, directlymost comparable IFRSmeasure. discussionof For further and reconciled to netcashinflowfrom operating activities,the and akey indicator, performance are presented inthetableabove The componentsoffree cashflow, which isanon-GAAPmeasure Free cash flow Interest paid Interest received Dividends from associates Net purchase ofnoncurrent Net purchase ofproperty, Net cashinflowfrom Free cashflow BUSINESS ANDFINANCIALREVIEWS capital expenditure andnetinterest paid. transformation activitiesandhighercashpayments inrespect of associated withour offsetbypaymentsof£297m were partially and jointventures financial assets software plant equipmentand operating activities h nraei recs o n20 f£4mislargely dueto The increase infree cashflowin2008of£149m The decrease infree cashflowin2009of£766m islargely dueto 308 323 (3,209) (3,253) (3,038) ,0 ,8 5,210 5,486 4,706 2009 96 82 (797) (842) (956) 3 ,0 1,354 1,503 737 £m 19 6 – FINANCIAL REVIEW ae 47and48. pages 082007 2008 111 £m (1) 2 147 £m (3) 6 Total equity Minority interest Trade andotherreceivables Current assets Other noncurrent assets Trade andotherreceivables Retirement benefitasset Property, plantandequipment Intangible assets Non current assets £15,307m. andproperty, plant andequipmentwere assets were £22,829m forming theUKfixed network. At 31March 2008,noncurrent were property, plantandequipment,principally which £15,405m translation ofoverseasoperations of£692m. hedges of£570mandforeign exchange movements onthe gainsoncashflow items recorded directly inequityof£1,847m, thetaxcredit relating to offsetby payments of£1,222m,partly dividend of£7,037m, losses for theyearof£81m,actuarial loss the mainlydueto of£5,263m reduction at 31March 2008,with the compared with£5,432m Net assetsat31March 2009 were £169m sharesOrdinary andshare premium Equity Retirement benefitobligations Deferred taxliabilities Loans andotherborrowings Non current liabilities liabilities Total assetslesscurrent Other current liabilities Trade andotherpayables Loans andotherborrowings Current liabilities Other current assets Cash andcashequivalents Summarised balancesheet Balance sheet Retained (loss)earnings Other noncurrent liabilities Tsnncretast oald£321 at31March 2009,of BT’s non current assetstotalled £23,261m BT GROUP PLC ANNUAL REPORT & FORM 99219,648 19,922 32122,829 23,261 97314,216 19,753 54515,307 15,405 2359,818 19,648 12,365 19,922 ,5 9,704 9,352 6,523 6,013 ,8 4,449 4,185 3,746 3,355 3,788 ,2 2,513 3,973 1,728 7,591 1,524 7,215 1,542 1,435 1,300 ,8 1,777 1,687 2009 38 4,927 (328) 6 5,432 5,409 169 142 322 470 595 528 £m 27 2,887 – 20-F 2008 482 108 589 639 426 854 £m 23 41

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW qimn.Cptlepniuei xetdt reduce to around equipment. Capitalexpenditure isexpected to legacy equipment,includingtransmission andexchange offsetbyreducedexpenditure spendon on21CNhasbeenpartially mainly reflected inothernetworkequipment. Theadditional readiness migration. aswellcustomer 21CNexpenditure is sitethan 2007andincludedequipmentdeployment,customer contract winsattheendofyear. 21CNexpenditure washigher major contracts andupfront capitalexpenditure associated with related inthecreation to investment ofre-useable capabilitiesfor increased expenditure on21CN.Theincreased expenditure in2008 offsetby CPs.Thishasbeenpartly LLUvolumesfrom other reduced alowerlevelofhousemovesand dueto volumes inOpenreach expenditure onexchange equipmentandreduced provisioning in areduction reduction inexpenditure in2009reflects in2008and2007,respectively. The and£3,247m with £3,339m in2009compared a year. Capitalexpenditure totalled £3,088m capital accrualsandanyassetsacquired through newacquisitionsin plant andequipmentsof Capital expenditure isameasure ofourexpenditure onproperty, Capital expenditure at31March 2008. 2009, compared with£10,513m at31March of£9,761m reserve) (netofthetreasury reserves are prepared inaccordance withUKGAAP, hadprofit andloss current liabilities. employed atthebalancesheetdate, namelytotal equityandnon financial information beinganindication ofthelevelcapital £19,648m) inthegroup balancesheetbecauseitprovides useful curr We believeitisappropriate to showthesub-total ‘Total assetsless BUSINESS ANDFINANCIALREVIEWS 42 inrespectoutflow oftheseacquisitionswas£60m. Theprovisional consideration and cashacquired, thenet cash deferred Net of and MoorhouseConsultingLtd, for total consideration of£75m. to goodwillof£74m. Thefairvalueofnetassets acquired was£24m, givingrise £95m. acquired, in respect thenetcashoutflow oftheseacquisitions was Netofcash andUfindusLtd, for total consideration of£98m. Inc acquisitions were intheyear. made byBT GlobalServices acquisition was£3m,givingriseto goodwillof£10m.Noother was £12m.Theprovisional fairvalueofnetassetsatthedate of consideration of£13m.Netcashacquired, thenetcash outflow 2008for atotal July in byBT GlobalServices completed Goodwill arisingonacquisitionsmadein2009was£131m. The total consideration for acquisitionsin2009,was£186m. Acquisitions at31 March 2009. ongoing capitalexpenditure totalled £451m Contracts placedfor in2008. £316m unchangedfrom the 2009, £2.7bn in2010. BT Group plc,theparent company, whosefinancialstatements BT Design madetwoacquisitionsintheyear, Ribbit Corporation BT Retail madetwoacquisitionsintheyear, Wire OneHoldings The acquisitionofS arose outsideoftheUKin Of thecapitalexpenditure, £316m n iblte’o 1,2mat31March 2009(2008: ent liabilities’of£19,922m BT GROUP PLC ANNUAL REPORT & FORM temmer GmbH andSNDGmbHwas tware. Itexcludes themovementon FINANCIAL REVIEW 20-F future andcontributionswill dependonthe pensioncosts hasbeenincreasing inrecent years.Consequently, our the BTPS perannum. Insurance Contributions,byabout£100m cashcontributions,net ofincreased National regular will reduce out oftheState SecondPension. We expectthesechanges contract earnings basis,changesto membercontributions andceasingto ageto 65,changingto acareer average revalued retirement normal linked to finalpensionablesalary. Thechangesincludeincreasing the 2009 andbenefitsbuiltupbefore thisdate are protected andremain were effective from 1April undertheBTPS the future benefitaccruals remain for flexible,fairand sustainable the long-term. Changesto and employees.Theaimofthereview wasto ensure theschemes unions arrangements, consultationwiththetrade includingextensive 31%. 45%to from inequities offundsinvested proportion reduced the activities havecontinuedandthishasfurther year. managementde-risking Duringtheyearinvestment duringthe financialmarkets declineinglobal principally reflects the March 2009 to £29.3bnat31 March 2008 at31 £37.4bn inassetvaluesfrom deterioration at31March 2008.The of £2.0bn surplus compared witha was£2.9bn,netoftax, accounting deficit consolidat was £82m,resulting ingoodwillof£194m. value ofthecompanies’netassetsatvariousdates ofacquisition fair inrespectnet cashoutflow oftheseacquisitionswas£187m.The April2009).Netofdeferred consideration andcashacquired, the 1 Net 2SSA(acompanywhichchangeditsnameto SAon BT Services and Technologies Corporation Limited, i2iEnterprise Private Limited in 2008,for atotal consideration of£276m,includeFrontline, to goodwillof£73m.OtheracquisitionsmadebyBT GlobalServices Comsat’s netassetsatthedate ofacquisitionwas£57m,givingrise fairvalueof acquired, was£122m.The thenetcashoutflow cash consideration of£130m.Net deferred consideration and acquisitionofComsatcompleted inJune2007for atotal The £28m, givingriseto goodwillof£47m. fair valueofthecombinednetassetsatdate ofacquisitionwas Detailed pensionsdisclosures are provided in Pensions 2007: 16.5%). average capitalemployedwas2.9%for 2009(2008:14.4%, basis,thereturn Onareported onthe and 17.6%,respectively. f 15.1% ontheaverage capitalemployedwas return The adjusted Return oncapitalemployed £47m. various dates ofacquisitionwas£24m,givingriseto goodwillof £60m. Theprovisional fairvalueofthecompanies’netassetsat deferred consideration andcashacquired,was thenetcashoutflow of £71m,includeLynx Technology, BasilicaandBrightview. Netof r20.I 08ad20 emd najse eunof17.7% return or 2009.In2008and2007wemadeanadjusted The numberofretired members andothercurrent beneficiariesin areview ofourUKpension conducted During theyearwe The total consideration for acquisitionsin2008was£477m. custosmd yB ealin2008,for atotal consideration Acquisitions madebyBT Retail dfiaca ttmns t3 ac 09 h IAS19 Ated financialstatements. 31March 2009,the oe29 note to the

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW The primary objectiveofthegroup’sThe primary capitalmanagementpolicyis Capital management to 7%ispayablebyemployees. pensionable pay, ofwhich6% threethe next years. now beenreplaced bytheagreement to pay£525mperannumover of £280mperannumagreed inrespect oftheprevious valuationhave which showedthefundwasindeficitby£3.4bn.Thepayments as practicable. Trustee andthePensions Regulator are keen to complete thisassoon disclosed inadvanceofthecompletionthosediscussions.BT, the requested thatthevaluationandassumptionsare notfinalisedor ThePensions Regulator has assumptions andbasisofthevaluation. Trustee andBT theunderlying indicated itwishesto discuss withthe Regulator has market conditions,thePensions and giventheuncertain are compared atanadvancedstage to otherschemevaluations parties asat31December2008.Asthe independentactuary, scheme’s fundingvaluation,beingprepared bythe triennial completion ofthe approved bythePensions Regulator. threespecie overthenext years.Thisagreement hasbeen contributions of£525mperannumwillbemadeincashor on theemployees’andemployingcompany’s contributions. contribution pensionarrangement whichprovides benefitsbased inadefined people joiningBT thatdate canparticipate after members andcouldfluct returnsinvestment ofthepensionfundandlife expectancyof BUSINESS ANDFINANCIALREVIEWS Undrawn committed facilities ascapital: summarises thecomponentswhichare managed (excluding Thefollowing thecashflow reserve). analysis facilities andsimilararrangements andshareholders’ equity during2009and2008. processes policiesand structure. Nochangeswere madeto theseobjectives, group. TheBoard regularly reviews thecapital characteristics ofthe it inthelightofchangeseconomicconditionsandrisk The group managesthe capitalstructure andmakes to adjustments amount ofdividendspaidto shareholders, orissuerepay debt. the adjust the group mayissuenew shares, repurchase shares, Inorder to meetthisobjective, enhance thereturn to shareholders. forinvest thefuture and,withanefficientbalancesheet,further t Net debt( equity (deficit) Total parent shareholders’ agtasldivsmn rd rdtrtn hltcniun to grade asolidinvestment credit rating continuing whilst o target (see (excluding cashflowreserve) The group’s capitalstructure ofnetdebt,committed consists 19.5%of of contributionrate aregular paying The group is December 2005 The previous valuationwascarriedoutasat31 BT andtheTrustee havealsoreached inthe anadvancedstage haveagreed thatdeficit BTPS ofthe Trustee BT andthe The BTPS wasclosedto newentrants on31March 2001and oe33) note e oe10) see note uate inthemedium-term. FINANCIAL REVIEW 22017,047 12,240 0319,460 10,361 ,0 2,335 2,300 2009 41 5,252 (421) £m 2008 £m and £400m,respectively. 148m shares were repurchased for cashconsideration of£1,498m 540mand repurchased. During2008and2007, were £334m of 2009,143mshares for cashconsideration During deployment. programme asaresult ofthegroup’s strategic infibre investment this 2009. However, inJuly2008,theBoard suspended programme, whichwasexpected to becompleted by31March pension scheme. the inthebusiness,reducinginvesting debtandsupporting allowthedividendto grow atthesametimeas cash flowto operational improvements inthebusinesswillgenerate sufficient delivering attractive returns for shareholders andbelievesthatthe requirements annually. atleast TheBoard iscommitted to The Board reviews thegroup’s dividendpolicyandfunding orwns nnilrs aaeetojcie,hedgingpolicies borrowings, financialriskmanagementobjectives, cashandequivalents, derivatives, investments, the group’s Consolidated Financial Statements includeinformation on of the processes for capitalmanagement. objectives,policiesand thegroup’s borrowing positionand information onourfinancialposition,cashflows,liquidity review sectionon outlook. ThisFinancial andthe group’scompetition, principalrisksanduncertainties each ofthelinesbusiness,impactregulation and includes inf on andOtherMatters sections review The Business Capital resources outlook). outlook(2008:BBB+withastable BBB withastable rating to credit the balancesheetdate, Fitch changedthegroup’s with Moody’s outlook). After (2008:BBB+/Baa1,bothwithstable andBaa2withnegativeoutlook outlook withStandard andPoor’s exposures whicharise. andisactivelymanaging quality acrosscounterparties treasury centralised operation treasury hascontinuedto monitor thecredit the andderivativefinancialinstruments, managing investments in actively reviewing exposures arisingfrom trading balancesand, minimised. Inparticular, lineofbusinessmanagementhavebeen current adversemarket conditionsonthesefinancialassetsis proactive havebeentaken steps to ensure thattheimpactof equivalents. Credit exposures are continuallyreviewed and cashand financial assets,trade andotherreceivables, ofcurrentconsisting andnoncurrent derivative investments, thebalancesheetdate.agreed after £100mwas 364dayfacilitywithaone-yearterm out.Afurther its funds were raised andinMarch 2009thegroup renewed £800mof oflong-term £795m and long-term requirements. InJune2008, intheirmaturity medium inorder to vary meetshort, instruments Thesefinancial andinvestments. committed borrowing facilities bond issuance,commercial paperborrowing backed upby ofcapitalmarket combination usinga anticipated requirements During 2008,thegroup commenceda£2.5bnshare buyback At 31March 2009,thegroup’s credit rating wasBBBwithstable At 31March 2009thegroup hadfinancialassetsof£7.3bn to meet The general policyisto raise fundscentrally andinvest raino thegroup structure, of theperformance ormation on BT GROUP PLC oe 9,10, Notes ANNUAL REPORT & FORM ae 2t 48 to 32 pages 13, ae o31 to 8 pages 16, 17 includes 20-F and 33 43

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW and commitments Contractual obligations oeeal uueadteeoecniu to adoptthegoing foreseeable future andtherefore continue adequate resources to continueinoperational for existence the untilDecember2010. debtmaturities has nosignificant Thegroup obligationsastheyfalldue. its allow thegroup to settle resources will financialyear. These due for repayment inthe2010 March 2009,£1,190mofdebtprincipal(athedgedrates) fell 31 At facilities,amountingto £2,300m. borrowing committed Thegroup alsohadunused current of£1,463m. assetinvestments At 31March 2009,thegroup hadcash,cashequivalentsand a Total Loans andotherborrowings 2009. and commitmentsastheyfallduefor payment,asat31March debt assetoutin definitionofnet 2008 and£7.9bnat31March 2007(basedonthe 31March £10.4bn at31March 2009compared with£9.5bnat and exposures to credit, liquidityandmarket risks. BUSINESS ANDFINANCIALREVIEWS 44 and UKnetwork rates. ofUKbusiness and £236m Insurance, £210m ofUKcorporation tax of PAYE andNational and paid£1,239mofVAT, £1,178m inatypicalyear. In2009wecollected £3bn paying taxes ofover BT isa significant contributor to theUKExchequer, collectingand Total taxcontribution Taxation the exception ofthefollowing: operations, liquidity, capitalexpenditure orcapitalresources, with changes infinancialcondition,revenues orexpenses,results of current orfuture material effect onthegroup’s financialcondition, sheet arr thereAs disclosedinthefinancialstatements, are nooff-balance Off-balance sheetarrangements group since31March 2009. no significantchangeinthefinancialortrading positionofthe concern basisinpreparing There thefinancialstatements. hasbeen iac es biain 3 44 4252 24 5,855 780 42 885 14 484 Capital commitments 332 8,004 Pension deficiencyobligations Operating leaseobligations Finance leaseobligations Excludes for fairvalueadjustments hedged risks. h olwn al esottegopscontractual obligations thegroup’s The following tablesetsout During theperiodunderr Capital commitmentsandguarantees ( Operating leases( The directors haveareasonable expectationthatthegroup has BT GROUP PLC angements thathaveorare reasonably likely to havea ANNUAL REPORT & FORM oe10). note oe27) note a 50529151531913,830 3,189 5,105 2,931 25,055 3531583061897,160 1,819 3,066 1,528 13,573 eview thegroup’s netdebtincreased to ,9 2 ,5 6 560 560 1,050 525 2,695 5 8 263 6 62 380 451 oa eryasyasyears years years year Total m£ m£ £m £m £m £m £m hn11ad33ad5than5 3and5 1and3 than 1 FINANCIAL REVIEW 20-F esBtenBtenMore Between Between Less oe27) note Payments duebyperiod carried outwithinBoard definedparameters. the companyfor thebenefitofourshareholders. Thisplanningis withitsobligationstoaffairs, beingconsistent protect theassetsof appropriate levelofresponsible taxplanninginmanagingits Board considersitisentirely proper thatthegroup conductsan tax burden for thegroup Inthisrespect anditscustomers. the Board regularly reviews thegroup’s taxstrategy. TheBT andcustomers. HMRC andothertaxauthorities, partners achieve thisthrough engagementwithourstakeholders including minimising thetaxburden for BT We andourcustomers. seekto Our strategy isto complywithrelevant regulations whilst Tax strategy of overseaslosses orprofits whichare relieved ortaxed atdifferent taxation ofspecific items, the impactofdeferred tax andtheimpact corporation the levelofprovisioning tax instalments, for risks, dueto thephasingofUK charges.statement Thisispartly high degree ofjudgement. corporation taxcomputations.Thelevelofprovisioning involvesa final taxsettlementswillbeatamounts inexcess ofoursubmitted corporation for taxreturns usto reflect itisnecessary theriskthat obtain closure inrespect ofsomeitems containedwithinthe group isreviewed indetail.Asitcantake anumberofyearsto calculated for thegroup andthelevelofprovisioning across the At ofthetaxcharge eachfinancialyearendanestimate is Tax accounting and committees andleadingprofessional advisors. the governmentindirectly through theCBI,variousworkinggroups We alsolobby documents where theimpact couldbesubstantial. that are respond likely to consultation to impactusandinparticular with HMRC. project allowedusto buildanddevelop ourworkingrelationship agreement ofallopentaxmatters up to andincluding2005.This in 2007whenweworked intensively withHMRC to accelerate the discussion to bringmatters to asrapid aconclusionaspossible. authorities andwhere thisoccurswewillengageinproactive differing legalinterpretations betweenourselvesandtax all taxmatters withHMRC. We recognise thatthere willbeareas of HMRC. We are committed to prompt disclosure andtransparency in 31 March 2009. deadlineof were all filedpriorto thestatutory tax returns for 2008 TheUKcorporation discussing withHMRC withaviewto resolving. whichweare actively 2007, there are anumberofopenissues For 2006and years upto andincluding2005are fullyagreed. jurisdictions. Interms ofthegroup’s UK corporation taxposition,all arise intheUKwithasmallnumberofissuesarisingouroverseas complexity inthetaxationarena. Howeverthemajorityoftaxissues We operate inover170countriesandwiththiscomesadditional The Board considersthatithasaresponsibility to minimisethe n20 n 08 the cashtaxpaidislowerthantheincome 2008, and 2007 In We haveapolicyto lobbythegovernmentdirectly ontaxmatters Our positiveworkingrelationship withHMRC wasdemonstrated We andpositiveworkingrelationship haveanopen,honest with

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW objective is to manage risk at optimum cost. objective isto manageriskatoptimumcost. aprofit centre andthe The centralised operation treasury isnot volatilityincurrency andinterest rates. including risksarisingfrom thegroup’s market riskexposures, operation alsomanages arisingwithfinancialinstitutions.Thecentralised treasury credit risk andcounterparty manageliquidity, funding,investments role isto operations. receivables andtrade payables,arisedirectly from thegroup’s foraddition, variousfinancialinstruments, exampletrade sources offinance.In risks arisingfrom itsoperations andfrom funds;andto managethecurrency andinterestshort-term rate share buybacksandacquisitions;for of investment thetemporary operations; to financecorporate transactions suchasdividends, The group mainlyto financeits issuesorholdsfinancialinstruments Financial riskmanagement 10) (see contract andfinancialreviewServices charges of£1.6bn BT Global the thetaxcredit arisingon The 2009rate reflects (4.2)%,therate applicableto 2009. is expected to increase from current financialyear. despite theintroduction ofenhancedcapitalallowancesinthe term, cash taxpaidinrelation to the2009liabilityinnearfuture. our incomes In2009,wehavepaidcashtaxinexcess of tax rates from theUK. BUSINESS ANDFINANCIALREVIEWS currency borrowings, whichtotalled £9.9bn at31March 2009,are exchange volatility. Thegroup’s foreignexposure to foreign fundedintheirfunctionalcurrency whichlimitstheir and are arise withintheUK.Thegroup’s overseasoperations generally trade in ofthegroup’sA significantproportion current revenue isinvoiced Foreign exchange riskmanagement financial instruments. these assessandmanagefinancialriskexposures arisingfrom to policiesandprocedures review andperform processes these apply group andlineofbusiness level.Lineofbusinessmanagement payables, isthrough aseries ofpoliciesandprocedures setata primarilytrade financialinstruments, receivables andtrade related Chief Executive ortheGroup FinanceDirector. the key panelsrequires approval from twooftheChairman, risksandoperations.treasury Appointmentto andremoval from series ofpanelsthatare responsible for themanagementofkey Board hasdelegated itsauthorityto operate thesepoliciesto a andgroupinvestments wideexposures underitsmanagement.The commensurate withthemagnitude oftheborrowings and operation anditsactivitiesare subjectto asetofcontrols tax effective rate rate willremain belowthestatutory of28%. h nnilrs aaeeto xoue rsn rmtrading The financialriskmanagementofexposures arisingfrom The Board setsthepolicyfor thegroup’s centralised treasury The group hasacentralised operation treasury whoseprimary The effective corporation taxrate onprofits before specificitems medium It isexpected thatthecashtaxpaidwillincrease inthe Sterling, and asignificantelementofitsoperations andcosts recorded intheyear. However, webelievethatthefuture years’ tatement charge. We expectto obtainarefund ofthe FINANCIAL REVIEW page 2009. £20min credit ofapproximately result ina would other currencies fromthe incomestatement a10%strengthening inSterling against thegroup’s exposure to foreign exchange volatilityin sheet date, based onthecompositionofassetsandliabilitiesatbalance andonresidual currency trading flows. investments subsidiary UK itsnon group’s exposure to foreign currency arisesmainlyon Asaresult, the are principallyUSdollarandEuro denominated. commitmentshedged The sale commitmentsonaselectivebasis. interestinvestments, expense,capitalpurchases andpurchase and foreign currency enters into forward currency contracts to hedge Thegroup also usingcross currency swaps. swapped into Sterling used to financeitsoperations andhavebeenpredominantly approximately £5m. would decrease thegroup’s annual netfinanceexpenseby basispointincrease inSterling interest rates March 2009,a100 31 remaining andbasedonthecomposition ofnetdebtat constant material exposure to interest rate volatility. Withallotherfactors receivables donotpresent andotherfinancialinstruments a trade Trade payables, Sterling interest rates. influenced by variable rate borrowings whichare andinvestments largely on onderivativesnotinhedgingrelationships and movements arisesfrom volatilityintheincomestatement fairvalue interest rate annual financeexpensewouldbereduced byapproximately £28m. the and S&Pwere to beupgraded byonecredit rating category, debt rating ofBaa2/BBB.IfBT’s credit rating witheachofMoody’s along-term one credit bybothagenciesbelow rating category downgraded by approximately £28mifBT’s credit rating were to be increase by 2009, BT’s annualfinanceexpensewould at31March instruments onthese debt of£5.8bnoutstanding downgraded BT’s credit rating to Baa1inMay2001.Basedonthe July2006andMoody’s in downgraded BT’s credit rating to BBB+ to Baa2andBBB,respectively. Priorto thisfinancialyear, S&P March 2009,bothMoody’s andS&Pdowngraded BT’s credit rating for byeachratings adjustment eachratings agency. category In couponperiodattherate of0.25 percentage points interest next Standard &Poor’s (S&P),additionalinterest wouldaccruefrom the ofMoody’s orbelowAminusinthecaseof below A3inthecase Group credit rating were downgraded iftheBT providing that 2001bothcontainedcovenants December 2000andFebruary theamountsandperiodfor whichinterest rates are fixed. to vary agreements withcommercial banksandotherinstitutions rate swap Thegroupimpact ofhedginginstruments. hasentered into interest and are, subjectto Sterling fixed interest rates applyingthe after ensure 70%ofnetdebtisatfixed thatatleast rates. value volatility. Thegroup’s policy, asprescribed bytheBoard, isto liabilities whichmayexposethegr The group hasinterest bearingfinancialassetsand Interest rate riskmanagement fe egn,withallotherfactors remaining and constant hedging, After After theimpactofhedging,group’sAfter mainexposure to whichthegroupThe long-term debtinstruments issuedin The majorityofthegroup’s long-term borrowings havebeen, BT GROUP PLC u oete cashfloworfair oup to either ANNUAL REPORT & FORM 20-F 45

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW derivative financial assets. After applyingalegalrightofsetoff derivative financialassets.After arose. which exposures managedany qualityandactively monitor theircredit continuedto inresponse to market conditions, counterparties with investing when operation tightened thecredit limitsapplied necessary. Duringthe2009financialyear, thecentralised treasury where itisconsidered group alsoseekscollateral orothersecurity netsettlement.The and legalrightofsetoff combination ofa thegroup willseeka possible, documentation. Inaddition,where International Swaps andDerivativeAssociation(ISDA) exposure to credit risk.Currently, thegroup makes useofstandard to reduce thegroup’s nettingarrangements enter into may single counterparty, orgroup thegroup ofrelated counterparties, which mayarise.Where multipletransactions are witha undertaken andactivelymanageanyexposures required,adjustments ifany, the significantutilisationsonaregular basisto determine review themaximumallowablelimitsetbyBoard. Management to up andcredit ofthecounterparty standing nature according to the thelimit andwilladjust reviews thelimitsappliedto counterparties Thecentralisedfor operation treasury short-term. continuously P1/A1 for long-term and A3/A– are permitted withcounterparties whichmaybetransacted. Theminimumcredit ratings instruments Standard andPoor’s andbydefiningthetypesoffinancial Moody’s and credit limitsbasedonthecredit qualityasdefinedby bysetting exposure to any one counterparty defined policyrestricts trading related receivables. For related treasury balances,theBoard cashandequivalents)from its derivatives, investments, tr The group’s exposure to credit riskarisesfrom financialassets Credit riskmanagement BUSINESS ANDFINANCIALREVIEWS 46 A3/A– A2/A A1/A+ Aa3/AA– Aa2/AA Moody’s/S&P credit rating asfollows: pre-tax, impact equity, and financial assetsarevalues classified wouldreduce theircarrying across eachoftheratings categories withinwhichthesederivative assets at31March 2009, a100basispointincrease inyieldcurves andbasedonthecompositionofnetderivative financial constant designated cashflowhedges.Withallotherfactors remaining Themajorityofthesederivativesare in was withsixcounterparties. of£2,282m.Ofthis,85% exposure to derivativecounterparties documentation,thegroup hadanet ISDA under thegroup’s ansacted bythecentralised operation treasury (primarily Note 17 BT GROUP PLC discloses thecredit concentration andcredit qualityof ANNUAL REPORT & FORM FINANCIAL REVIEW 20-F Impact of100 basis point increase (277) (146) (92) (21) (18) £m – customers ineachsegment. customers balancesbylineofbusinessandreflectsoutstanding thenature of balances ofthegroup isprovided in ofcredit riskfor trading related financialassets.Theconcentration minimise theimpactofadversemarket conditionsontrading Thegroup hastaken proactive to steps and letters ofcredit. deposits,guarantees andrequesting securitiessuchas offsetting, byapplyingprocesses whichincludenettingand the group, appropriate, takinginto consideration thecustomer’s exposure to willalsoenhancecredit protection when standards. Thegroup Payment terms are setinaccordance withindustry ongoing basis. isassessedatinceptionandonan customers financial strength of policyrequires and thatthecreditworthiness compliance. The applied andmanagedbyeachofthelinesbusinessto ensure credit policyfor trading related financialassetsis The group’s one-year term out. a with isfor a term of364 daysfrom March 2009 date. Thisfacility thebalancesheet £100magreed after £835m), withafurther of which£800mwasagreed inthe2009financialyear(2008: had anadditionalundrawn committed borrowing facilityof£900m, 2013.ThegroupThe facilityisavailablefor theperiodto January had anundrawn committed borrowing facilityofupto £1,500m. At 31March 2009,thegroup liquidityrequirements. short-term to manage inorder cash equivalentsandcurrent assetinvestments commercial paper andheldcash, financial yearsthegroup issued Duringthe2009 and2008 beenutilised. have respectively, US Shelfregistration inplaceofwhich€3.9bn and$6.9bn, companies are metwhenever possiblefrom central resources. operation. Operating financerequirements ofgroup treasury generally andmanagedbythecentralised invested group are Liquid assetssurplusto immediate operating requirements ofthe responds to possiblefuture cashconstraints inatimelymanner. medium-term requirements. Theseassessmentsensure thegroup reviews cashflowsmore and frequently to assesstheshort forecasts, basis.Thecentralised operation treasury onaquarterly facilities. TheBoard reviews group forecasts, includingcashflow maintaining adiverserange offundingsources andback-up relation thereto, monitoring balancesheetliquidityand projecting cashflowsandconsideringthelevelofliquidassetsin shareholders. enhancethereturn towith anefficientbalancesheet,further grade credit rating for continuingto invest whilst thefuture and, asolidinvestment target capitalmanagementpolicyisto group’s objectiveofthe Theprimary the parameters setbytheBoard. reviewed andmanagedbythecentralised operation treasury within andmedium-term requirementsmatters. Short are regularly funding ofthegroup andonanongoingbasisconsidersanyrelated theBoard reviews andapproves themaximumlong-term basis operational andotherfundingrequirements. anannual Onatleast medium andlong-t The group ensures itsliquidityismaintainedby entering into short, Liquidity riskmanagement The group hasaEuropean MediumTerm Note programme anda The group’s liquidityandfundingmanagementprocess includes erm financial instruments to support erm financialinstruments oe15 note which analyses

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW BUSINESS ANDFINANCIALREVIEWS and determining the fair values of certain financialinstruments. and determining thefairvaluesofcertain impairment reviews; calculatingcurrent anddeferred taxliabilities; makingappropriateand costs; medium-term assumptionsonasset appropriate long-term assumptionsincalculatingpensionliabilities completion andlikely outcome underlong-term contracts; making equipment for depreciation of purposes;assessingthestage assetlivesofproperty, debts;establishing doubtful plantand payments to othertelecommunications operators; providing for areas ofassessingthelevelinterconnect incomewithand affectingsensitive estimates are ourfinancialstatements inthe inthepreparationestimates Themost ofourfinancialstatements. preparation ofthe2009financialstatements. by thedirectors whohaveconfirmed themto beappropriate for the techniques, havebeenreviewedpolicies, andapplicableestimation the consolidated andconform financialstatements withIFRS.These Our principalaccountingpoliciesare setouton Critical accountingpolicies statements. 10,15,16,17 9, 5, notes pricerisk. The group haslimited exposure to Price riskmanagement untilDecember2010. debtmaturities group hasnosignificant strategies inplaceto managerefinancing needsastheyarise.The that matures withinanyspecificperiodandhavingappropriate Refinancing riskismanagedby limiting theamountofborrowing similarly titledmeasures usedbyothercompanies. measuresperformance weusemaynotbedirectly comparable to Financial review The alternative andinthefinancialstatements. in accordance withIFRSare includedwithinthebodyof explained below. Reconciliations to thenearest measure prepared group’s key indicators. financialperformance are alsothe Free basicearningspershare cashflowandadjusted free cashflow;andnetdebt. earningspershare; adjusted taxation; underlyingoperating profit adjusted costs; before revenue; underlying operating adjusted profit; EBITDA; (EBITDA); adjusted earnings before interest, tax,depreciation andamortisation IFRS. Thealternative measures performance weuseinclude addition to, andsupplement,thoseprepared inaccordance with are therefore termed ‘non-GAAPmeasures’. Thesemeasures are in measures, someofwhich are notexplicitlydefinedunderIFRS,and We ofthegroup assesstheperformance usingavarietyof measures Alternative performance provided intheaccountingpolicieson andkeyDetails ofcriticalaccountingestimates judgementsare We, allothercompanies,needto use incommonwithvirtually F Why weuseeachofthesealternative measures performance is rhrifraino nnilisrmnsi icoe in disclosed information is onfinancialinstruments urther and 33 oteCnoiae financial Consolidated to the page 85. FINANCIAL REVIEW ae 9t 87 to 79 pages of neligrvnet eotdrvnei included on revenue is reported to underlying revenue for thepurposeofyearoncomparisons.Areconciliation of andoperating to bepresented costs basis ona consistent revenue currencyacquisitions andonaconstant basis allowsthegroup’s andoperating excluding costs theyearonimpactof revenue impact yearoncomparisons. Presentation ofthegroup’s andoperating andtherefore costs can revenue group’s reported exchange rate movementscanhavesignificantimpactsonthe group’s Bothacquisitionsandforeign financialperformance. operating inthiswayisrelevant costs ofthe to anunderstanding and revenue directors believethatpresentation ofthegroup’s andoperating The costs. on yearmovementinunderlyingrevenue oroperating indetermining theyear costs revenue reported year compared withtheprior year. ismade to theprior Noadjustment rebasing thecurrent currency yearto beonaconstant basis to thedate theacquisitionwascompleted, and2)theimpactof that are notreflected inthecomparable periodintheprioryeardue ex to theamounts andoperating refers costs Underlying revenue andoperating costs revenue Underlying pages37and38. on statement, anditneedstostatement, beconsidered ofour inthecontext direct measure ofourliquidity, whichisshownbyourcashflow EBITDAisnota byeliminatingdepreciationcosts, andamortisation. becauseitreflectsperformance theunderlyingoperating cash inthetelecommunications sector.companies, particularly to evaluateanalysts theoperating of financialperformance it differently. EBITDAisacommonmeasure and usedbyinvestors comparable to theEBITDAofothercompanies,astheymaydefine Since thisisanon-GAAPmeasure, itmaynotbedirectly before financeexpenseandtaxation. depreciation, amortisation, based onEBITDA.EBITDAisdefinedasthegroup profit orloss business basedonoper In additionto ofthelines measuringfinancialperformance EBITDA analysis ofspecificitems recorded inallyearspresented isincluded impairment chargesrationalisation andproperty programmes. An businessrestructuring asset businesses andinvestments, costs, significant one-offorunusualinnature includedisposalsof nature andhavelittlepredictive value.Items thatweconsiderto be asspecificitemsperformance are significantone-offorunusualin is relevant ofthegroup’s to anunderstanding financial directors believethatpresentation ofthegroup’s results inthisway meaningful analysisofthetrading results ofthegroup. The ismeasuredperformance inproviding bymanagementandassists a these items. withthewaythatfinancial Thisisconsistent identif andsegmentalanalysisweseparatelyIn ourincomestatement Results before specificitems financial commitments. cluding 1)thecontributionincurrent yearfrom acquisitions ecnie BTAto beausefulmeasure ofouroperating We considerEBITDA y specificitems andpresent ourresults bothbefore andafter ating profit, wealsomeasure performance BT GROUP PLC ANNUAL REPORT & FORM ae33. page 20-F A 47

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW overall operational asitreflects performance thecashwegenerate indicator ofour measure, howeverwealsobelieveitisanimportant Free investments. of short-term cashflowisprimarilyaliquidity andlessthenetsale acquisition ordisposalofgroup undertakings flows from financingactivities(except interest paid)andlessthe defined asthenetincrease incashandequivalentsless our per Free cashflowisoneofourkey indicators performance withwhich Free cashflow earnings pershare isincludedon A reconciliation from earningspershare adjusted (loss) to reported before (loss)profit taxationto thereported isincludedon included on operating profit, directly themost comparable IFRSmeasure is Areconciliation from EBITDAto adjusted financial performance. results inthiswayisrelevant ofthegroup’s to anunderstanding asthedirectors believethatthepresentation ofthegroup’s items taxation andearningspershare before thesecharges andspecific charges, wehavepresented EBITDA,operating profit, profit before size ofthese recognised in2009(2008and2007:£nil).Giventhe the contract andfinancialreviews, acharge of£1,639mwas financialpositionandcontracts. Havingcompleted Global Services’ review anextensive ofBTthe newmanagementteam undertook andspecificitems. Asexplainedon Services contr are before stated Performance measures presented as‘adjusted’ measures performance Adjusted cos reconciliation ofunderlyingoperating operating to reported costs BUSINESS ANDFINANCIALREVIEWS 48 where hedged. balances withinnetdebtare translated to Sterling atswappedrates and netrealisablelower ofcost value.Currency denominated and cash andequivalentsareinvestments measured atthe the debt.For thepurposeofthismeasure, current asset proceeds anydiscount overtheterm raised, of to adjusted amortise equivalents. Loansandotherborrowings are measured atthenet non curr ofloansandotherborrowingsNet debtconsists (bothcurrent and Net debt comparable IFRSmeasure, isincludedon net cashinflowfrom operating directly activities,themost to shareholders.distribution Areconciliation offree cashflowto mean thatthisisameasure ofthefundsthatare availablefor repayment ofdebt.Our useoftheterm free cashflowdoes not as dividends,share buy backs, acquisitionsanddisposals a corporate levelindependentlyofongoing trading operations such addition, free cashflow excludes cashflowsthatare determined at inourinfrastructureinvesting andfinancingouroperations. In of whichareassociated with significantongoingcashoutflows from operations capitalexpenditure both after andfinancingcosts, ts isgiven BT GROUP PLC act andfinancialreview charges recorded withinBT Global formance ourstrategy against ismeasured. Free cashflow is ent), lesscurrent andcash assetinvestments pages 34and35. on page35. ANNUAL REPORT & FORM A reconciliation from profit adjusted page 39. FINANCIAL REVIEW 20-F ae41. page page 10, during 2009, page 32. h ru’ taeyi esrd ti esr ftegopsnet thegroup’s Itisameasure of strategy ismeasured. the group’s against performance net debtasitisakey measure which against on equivalents. Areconciliation ofnetdebtto thismeasure isincluded and noncurrent), current andcash assetinvestments measure istheaggregate ofloansandotherborrowings (current directlyas itisnotdefinedinIFRS.Themost comparable IFRS of nettingarrangements. IAS 39.Inaddition,thegross balancesare to adjusted take account hedges andtheuseofeffective interest methodasrequired by made from there-measurement ofhedgedrisksunderfairvalue andremovesfinancial instruments thebalancesheetadjustments of future undiscounted cashflowsdueto ariseonmaturity of This definitionofnetdebtmeasures balancesattheexpected value liabilities includedinthismeasure. included inthenetdebtcalculationisavailableto settlethe use oftheterm netdebtdoesnotnecessarilymeanthatthecash the limitations intheuseofalternative measures performance and indebtedness. There are material cashpositionand the group’s strength. Itisalsoasinglemeasure thatcanbeusedto assessboth overall balancesheet the indebtedness thatprovides anindicator of Net debtisconsidered to beanalternative measure performance ae103. page It is considered both useful and necessary to disclose It isconsidered bothusefulandnecessary

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW applied theprinciplesofCodeasdescribedinthisreport. out inSection1ofthe2006CombinedCodeonCorporate Governance(theCode)andhas The directors considerthatBT has,throughout theyear, compliedwiththeprovisions set corporate standards offinancialreporting, maintaining thehighest governanceandethics. We are committed to operating inaccordance practice withbest inbusinessintegrity, REPORT OFTHEDIRECTORS 0DRCOS INFORMATION DIRECTORS’ 70 REMUNERATION REPORT ONDIRECTORS’ 57 REPORT OFTHECOMMITTEE FOR 56 REPORT OFTHENOMINATING COMMITTEE 56 REPORT OFTHEAUDIT COMMITTEE 54 THEBOARD 52 BOARD OFDIRECTORS ANDOPERATING 50 RESPONSIBLE ANDSUSTAINABLE BUSINESS COMMITTEE 70 Service agreements Service 70 Meetingsattendance 70 Electionandre-election 70 Remuneration review (audited) 64 Remuneration policy(notaudited) 57 Committee activities 56 Committee role 56 Introduction 56 Board evaluation 56 Committee role andactivities 56 Introduction 56 Committee activities 54 Committee role 54 Introduction 54 NewYork Stock Exchange 53 MainBoard committees 53 BT’s non-executive directors 53 Governanceandrole oftheBoard 52 Directors 52 Introduction 52 Operating Committee 51 Non-executive directors 50 Executive directors 50 Board ofDirectors 50 0Interest ofmanagementincertain 70 liability insurance andofficers’ Directors’ 70 Independentadvice 70 Training andinformation 70 transactions and indemnity 4SHAREHOLDERSANDANNUAL GENERAL 74 BUSINESSPOLICIES 71 MEETING 3Internal control overfinancialreporting 73 Disclosure controls andprocedures 73 USSarbanes-OxleyActof2002 73 Internal control andriskmanagement 72 Financialinstruments 72 Takeover Directive disclosure 71 Financialstatements 71 Payment ofsuppliers 71 Pension funds 71 Political donations 71 Responsible business 71 4Authorityto purchase shares 74 AGM resolutions 74 shareholdings Substantial 74 Relations withshareholders 74 BT GROUP PLC ANNUAL REPORT & FORM 20-F 49

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW REPORT OFTHEDIRECTORS Aged 44. non-executive director Accountant. ofCeltic.HeisaChartered operational andfinancialroles, bothintheUKandoverseas.Heisa International. HisexperienceatDixons spannedanumberof workingforDixons in1991after 3iGroup andBankofAmerica was group financedirector ofDixons Group from 1997.Hejoined and Group FinanceDirector from April2002.Priorto joiningBT, he He wasformerly ChiefExecutive ofBT Retail from 2005 7February wasappointedIan Livingston asChiefExecutive on1June2008. Executive directors to theaccountancyprofession. Aged61. Taskforce.US/UK Regulatory Board, ManagementInstitute andBERR’s theChartered Advisory TransAtlantic BusinessDialogue,memberoftheCBIInternational vice-president oftheRNIB,memberboard ofthe Council.SirMichael’sFinancial Reporting appointmentsinclude andthe non-executive director ofBarclays, McGraw Hill and a KPMG from 1972. Business International from 2002to 2007,andpreviously heldotherroles in Sustainable and Responsible member ofthe for Committee September 2007.Hechairsthe 26 Sir Michaelwasappointed to theBoard asChairmanon Board ofDirectors BOARD OFDIRECTORS ANDOPERATING COMMITTEE 50 ManagementAccountant.Aged55. Chartered then ChiefOperating OfficeratBT GlobalSolutions.Heisa from 1997to 2004,hewasChiefFinancialOfficerand Officer ofBT Retail andManagingDirector ofBT Enterprises and, 2008 asGroup Finance Director. Hewasformerly ChiefFinancial Tony Chanmugamwasappointed to theBoard on1December Performance Review Group Review Performance He ischairmanoftheUKCommissionfor EmploymentandSkills, A Chartered Accountant,hewasknighted in2007forA Chartered hisservices BT GROUP PLC Remuneration Committee Remuneration ANNU AL REPORT & FORM Chief Executive Ian Livingston Chairman Sir MichaelRake Gr Tony Chanmugam oup FinanceDirector . Hewasformerly chairmanofKPMG c,d,e,f Nominating Committee Nominating 20-F a and the a Pension Scheme Pension and isa and the consumer divisionofTelewest. GavinjoinedTelewest in1999and 1 May2008.Before joiningBT, hewasmanagingdirector of the Division, BT Retail andwasappointed ChiefExecutive, BT Retail on 2004asManagingDirector,joined BT inJanuary Consumer Gavin Patterson wasappointed to theBoard on1June2008.He Ireland. ManagementAccountant.Aged47. HeisaChartered awarded to businessinNorthern theOBEin2003for services Communications (BT’s intheRepublic ofIreland). subsidiary Hewas Director BT Regions. Hanifwasalsochairman ofOCEAN including ChiefExecutive Ireland ofBT andManaging Northern Since joiningBT in1983,hehasheldanumberofpositions, 2005. Hewasformerly ChiefFinancial Officerfor BT Wholesale. 2008.HewasGroup FinanceDirector from 7February November 1 Hanif Lalaniwasappointed ChiefExecutive, on BT GlobalServices, trustees ofAaltotrustees University, Helsinki.AFinnishnational, heisaged56. and chairmanoftheboard of director ofUPM-Kymmene Corporation, Institute for ManagementDevelopment(IMD),anon-executive and president telecommunications. vice-president andchiefstrategy officer, president mobilephones more than20years,where recent hismost roles were executive a director since2003.Hewasformerly atNokiaCorporation for of KoneCorporation since2005,president andCEOsince 2006and May2009.Hehasbeenpresident downon31 and willbestepping 2006 February Matti Alahuhtawasappointed to theBoard on 1 chairs the October 2006.He 2000. Hewasappointed DeputyChairmanon1 September vandenBergh wasappointed toMaarten theBoard on1 Non-executive directors Procter &Gamblesince1990.Aged 41. held anumberofcommercial andmarketing workingfor roles, after national, heisaged67. companies inJuly1992. appointed amanagingdirector oftheRoyal Dutch ShellGroup of committee ofmanagingdirectors from July1998,havingbeen the Royal Dutch Petroleum Companyandvice-chairmanofits downfromwill step theBoard attheconclusionof2009AGM. Performance Review Group Review Performance at samme fteEeuieCmiteoftheInternational amemberoftheExecutive Committee Matti is He isanon-executive ADutch director ofBritishAirways. Prior to hisretirement waspresident of inJuly2000,Maarten Remuneration Committee Remuneration Chief Executive, BT GlobalServices Hanif LalaniOBE Deputy Chairman vandenBergh Maarten Chief Ex Gavin Patterson Matti Alahuhta ei h eiridpnetdrco.He . Heistheseniorindependentdirector. ecutive, BT Retail and the c b,c,d,f Pension Scheme Pension a,e a,f

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Cabinet Minister forCabinet Minister Women from 2001to 2005.Before entering from 2005to 2007andpreviously for Trade and andIndustry Labour MPfor West, Leicester ofState shewasSecretary for Health Patricia Hewittwasappointed to theBoard on24March 2008. 57. aged 2001before joiningLloydsTSBGroup. AUSNational,heis to chairmanandchiefexecutive ofZona Financiera from 2000 was and Annuityfollowing that,Eric itsmerger withCitibank.After Citibank’s consumerbank,thenchairmanandCEOofTravelers Life Citibank from 1975to 2000becoming chiefoperating officerof formerly group executive director, UKretail banking.Heworked for Lloyds TSBGroup) since2003andadirector since2001,andwas Group (formerly Banking been group chiefexecutive ofLloyds Eric Danielswasappointed to theBoard on1April2008.Hehas Aged 62. Trust.Investment of Economist Heisalsoatrustee Newspapers. Fund andEcho Research andanon-executive director ofHerald the CivilService. He alsoacted asanadviserto theGovernmentonefficiencyof Admiral. Claywasco-founder andexecutive chairmanofAdmiral. chairman ofCMGhavingjoinedtheboard whenitacquired Clay Brendish wasappointed to theBoard on1September 2002. REPORT OFTHEDIRECTORS He chairsthe Phil Hodkinsonwasappointed to theBoard 2006. on 1February national, sheisaged60. special consultantto AllianceBoots.ABritishandAustralian dual Public Policy Research. Patricia isasenioradviserto Cinvenanda Consulting (nowAccenture) anddeputydirector oftheInstitute for Parliament in1997,shewasdirector ofresearch EMEA atAndersen Aged 51. AidandBusinessintheCommunity. Resolution, Christian Travelex, and EagleStar Life. andClericalMedical,chiefexecutiveInvestment ofZurichLife included group finance director ofHBOS,chairmanInsight prior to hisretirement in2007,Phil’s former roles Actuaries, He isnon-executive chairmanofAnite, CloseBeaconInvestment Prior to hisretirement inMay2001,Claywasexecutive deputy Phil isanon-executive director ofHMRevenue &Customs, Audit Committee Audit Clayton BrendishClayton Phil Hodkinson Rt HonPatricia HewittMP J EricDaniels BOARD OFDIRECTORS ANDOPERATING COMMITTEE . AFellow oftheInstitute of c,d b,d,e,f b,d,e b,f was appointed chairmanofthe Carl Symon 2002,and wasappointed to theBoard on14January the Quaker Oats Company. AUSnational,sheisaged56. Corporation USAandlegalpositions atTRWFinancialSystems and national consumeraffairsandmanagingcounselatNissanMotor covering thecable,satellite TVandbroadcast industries. Bureau where shewasresponsible for policyandregulation Communications Commission(FCC)aschiefoftheCableServices since 2001.From 1998to 2001sheworked attheFederal matters toand regulatory seniorexecutives ofmajorUScompanies) (which provides strategic, legalandmanagementadviceonpolicy She isaUSattorney andhasbeenpresident ofLathenConsulting Deborah Lathenwasappointed to theBoard 2007. on1February legal private practice. Aged49. the BT Pension Scheme.Andrew previously worked intheCity compliance roles. Heisanemployer-nominated director trustee of worked for BT and since1988inanumber oflegal,regulatory on1April2008.Asolicitor,appointed CompanySecretary hehas Andrew Parker, formerly General Counsel,BT Retail from 2004,was 63. AUSNational,heisaged director ofRolls-Royce. was formerly chairmanoftheHMVGroup andanon-executive Europe. executive positionsintheUS,Canada,LatinAmerica,Asiaand a32-yearcareer,May 2001after duringwhichheheldsenior became operational on1November2005.Heretired from IBMin g f e d c b a of BoardKey to committees: membership Al-Noor Ramji,ChiefExecutive, BT Design Roel Louwhoff, ChiefExecutive, BT Operate Sally Davis,ChiefExecutive, BT Wholesale Gavin Patterson, ChiefExecutive, BT Retail ChiefExecutive, BT GlobalServices Hanif Lalani, Group FinanceDirector Tony Chanmugam, ChiefExecutive Ian Livingston, Operating Committee Pension SchemePerformance Review Group Remuneration Operating Responsible Business andSustainable Equality ofAccessBoard Nominating Audit Prior to joiningtheFCC,Deborah heldroles asdirector of ali anon-executive director ofBAESystems andRexam. He Carl is Deborah Lathen Carl GSymon Company Secr Andrew Parker BT GROUP PLC Equality of Access Board Access of Equality b,c,g ANNU etary c,e AL REPORT & FORM when it 20-F 51

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW New directors REPORT OFTHEDIRECTORS Patterson replaced asChiefExecutive, IanLivingston BT Retail, on BT Group on1June2008.Gavin Ben Verwaayen asChiefExecutive, formerlyIan Livingston, ChiefExecutive, BT Retail, succeeded Former directors set outinthetablebelow: 51 to 50 pages The namesandbiographical detailsofthedirectors are givenon Directors described inthisReport. Governance (theCode)andappliedtheprinciplesofCodeas out inSection1ofthe2006CombinedCodeonCorporate that BT has,throughout theyear, compliedwiththeprovisions set corporatereporting, governanceandethics.Thedirectors consider in businessintegrity, standards offinancial maintainingthehighest arefinancial statements presented on on sections for the2009financialyear. undertakings, includes itssubsidiary ofthecompany,statements BT Group plc,andthegroup, which Shares. Depositary on theNewYork Stock Exchange intheform ofAmerican companies: itsshares are ontheLondonStock listed Exchange and BT Group holdingcompanyfor plcisthelisted theBT group of Introduction THE BOARD 52 2009 financialyear. majority ofindependentnon-executive directors throughout the appointment. InlinewithBT’s policy, theBoard compriseda viewed theChairmanasindependent atthetimeofhis therefore considered bytheBoard to be independent.TheBoard criteria for independencesetoutintheCombinedCodeandare during the2009financialyearmet, andcontinueto meet,the non-executive directors. Allthenon-executive directors eight and time Chairman,theChiefExecutive, three otherexecutive directors The Board, whichoperates asasingleteam, ismadeupofthepart- Governance androle oftheBoard 2009. May 31 downasanon-executive director on stepping is MattiAlahuhta successor willbeannouncedinduecourse. His theconclusionof2009AGM. at theBoard downfrom step will theseniorindependentdirector DeputyChairmanand who is vandenBergh December 2008. Maarten Finance Director on1 succeededHanifLalaniasGroup joinedtheBoard and Chanmugam byHanifLalani,formerly Group FinanceDirector. Tonysucceeded October 2008.Hewas andasadirector on30 Global Services François Barrault resigned asChief Executive, BT May2008. 1 Gavin Patterson Eric Daniels Tony Chanmugam François Barrault Ben Verwaayen We are committed to operating inaccordance practice withbest The The directors andtheaudited financial submittheirreport hne otecmoiino h or rm1Arl20 are 1April2008 from Changes to thecompositionofBoard BT GROUP PLC Business ae o48 to 8 pages in review, ANNUAL REPORT & FORM Board of Directors andOperatingBoard ofDirectors Committee Other form part of this report. Theaudited ofthisreport. form part matters ae 9t 135 to 79 pages 20-F and Financial 1 December2008 30 October 2008 Date ofchange 30 June2008 review 1 June2008 1 April2008 and 141. . Deputy Chairman,oncorporate governanceissues,matters Chairman consultsthenon-executive the directors, particularly They are setoutinwritten jobdescriptions, approved bythe timesduringthe2009financialyear. 12 this Committee are setoutbelow. decisions onoperational andother matters. Theroles andpowersof Company Secretary fromCompany Secretary 1April2008. the wholeBoard; for theBoard instance, approved thechangeof appointment andremovalisamatter for oftheCompanySecretary corporate governanceandcompliancewithin thegroup. The duties (andthemeetingsofmaincommittees), aswell appropriate procedures for themanagementof its meetingsand communicating andimplementingthem.HeadvisestheBoard on corporate governancepoliciesandpractices andisresponsible for Chief Executive, for Board consideration where appropriate, other appropriate times.Herecommends to theChairmanand and, inconsultationwiththeChairmanandChiefExecutive, at accurate andconsidered information to theBoard for itsmeetings for thesuccessofgroup. Executive hasfinalexecutive responsibility, to theBoard, reporting andOperatingBoard ofDirectors Committee Chairman’s othercurrent significantcommitmentsare shownin onBT’sexecutive team, particularly broad strategic direction. The and generally actsasthebridgebetweenBoard andthe and Governmentrelationships, asagreed withthe ChiefExecutive, considered appropriately. Herepresents BT inspecifiedstrategic that theviewsofshareholders are knownto theBoard and duties.TheChairmanensuresthe directors to fulfiltheirfiduciary its decisionsare madeinatimelyandconsidered waythatenables properly informed, to itandthat isconsulted onallissuesreserved Secretary, theChairmanensures thattheBoard iskept Company executive directors beingpresent. WiththeChiefExecutive andthe regular meetingsatwhichtheydiscussmatters withoutthe directors. TheChairmanandthenon-executive directors hold ofthenon-executivechairs, andtheindividualperformance considered bythe Nominating Committee Nominating management committee, the governance framework, including givingauthorityto thekey at set outinaformal oftheBoard’s statement role whichisavailable andreviewsperformance theriskregister. Theseresponsibilities are alsooverseescontrols, operating andfinancial The Board BT’s: and control. Itapproves The Board’s mainfocus isoverall strategic direction, development compliance authorities. the overall ofinternal system controls, governanceand and expenditure proposals; larger capital capital expenditure budgets; andinvestments annual budget; strategic plans; business practice policies; values; The roles oftheChairmanandChiefExecutive are separate. The Board normallymeetsninetimeseachyear. TheBoard met The Company Secretary managestheprovisionThe CompanySecretary oftimely, www.bt.com/board Nominating Committee Nominating The Board hasagreed thecorporate . AswellaschairingtheBoard, the Operating Committee Operating , whichtheChairman bv.TheChief above. , to make

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW The Main Board committees Committee Remuneration The BT’s non-executive directors REPORT OFTHEDIRECTORS approved bytheBoard, the succession plans.WithinBT’s corporate governanceframework, major programmes andreviews theseniortalentbaseand across BT withinplansagreed bytheBoard, plansanddelivers reviews performance, theriskregister,service allocates resources budgets, monitors financial,operational qualityof andcustomer recommends to theBoard capitalexpenditure andinvestments that, itdevelopsBT’s strategy andbudgetfor Board approval, collective responsibility for runningthegroup’s business.To do themeetings.The Committee has Director normallyattends theGroup HR attends allmeetingsand The CompanySecretary Retail, BT BT Wholesale,BT DesignandBT GlobalServices, Operate. are theGroup FinanceDirector andtheChiefExecutives ofBT weekly andischaired bytheChiefExecutive. The othermembers the confidentialityofinformation andBT’s share dealingcode. expected from thedirector. Theletter alsocoverssuchmatters as committees, thefees to bepaidandthetimecommitment his orherappointment,includingmembershipofBoard provided, uponappointment,withaletter settingouttheterms of continued bymutual agreement. Eachnon-executive director is director. At three theendoffirst yearstheappointmentmaybe termination notice from eitherBT orthe subject to three months’ Chairman ortheChiefExecutive. be inappropriate for thosediscussionsto take placewitheitherthe to discussmatters withtheseshareholders where itwould able He is from timeto timewithBT’s majorinstitutionalshareholders. meet to seniorexecutives. Itcandelegate theseapprovals,divestments. upto itsownlimits, expenditure, disposalsoffixed and assets,investments to limitsbeyond whichBoard approval isrequired, capital technology, communicationsandpolitical andinternational affairs. international businessoperations andstrategy, finance,marketing, seniorlevelsof independent judgment,gainedatthemost element ontheBoard. Betweenthem,theybringexperienceand for appointment. the Committee, whichthenrecommends to theBoard candidates candidates meet assess thesuitabilityofcandidates. Short-listed appointment ofanon-executive director isbeingconsidered, to Board. Thisprofile isusedbytheCommittee, whenthe which thenon-executive directors asawholeshouldbringto the time thecombinationofexperience,skillsandotherattributes Committee Non-executive directors are appointed initiallyfor three years, To corporate meetbest governancepractice, the asthechairmanof hiscapacityasDeputyChairman,and In The non-executive directors provide astrong, independent Operating Committee Operating Committee Nominating , the Remuneration Committee Committee Remuneration , thekey managementcommittee, meets , Maarten vandenBergh isavailableto , Maarten Operating Committee Operating has agreed andreviews from timeto THE BOARD and the can approve, up Nominating Audit vial nBT’s website. available on regularlyThe EABreports to theBoard. Itsterms ofreference are Carsberg, Stephenmembers: SirBryan Pettit andDrPeter Radley. Raja, ChiefFinancialOfficer, BT Design;andthree independent director andchairmanoftheEAB;aBT seniorexecutive, Himanshu EAB comprisesfivemembers:CarlSymon, aBT non-executive and itsterms ofreference. Asrequiredthe bytheUndertakings, of theBoard, whichformally approved theformation oftheEAB BT’s TheEABisacommittee compliancewiththeseUndertakings. review oftelecommunications, to monitor, andadviseBT report on givenbyBT toUndertakings Ofcom following Ofcom’s strategic requiring us to comply with certain provisionsrequiring relating usto complywithcertain to the Commission (SEC)andNYSEintroduced ruleson31July2005 non-executive directors. significant waysinwhichitscorporate governancepractices differ New York Stock Exchange (NYSE),is obligedto discloseany BT, asaforeign Shares onthe listed issuerwithAmericanDepositary New York Stock Exchange requirements. accounting orauditingmatters. We are fullycompliantwiththese members andprocedures for thetreatment ofcomplaintsregarding Committee Nominating governance andcomplianceauthorities.TheBoard andthe approves thegroup’s overall ofinternal system controls, governance principlesfor theBoard’s approval. TheBoard itself Chairman, SirMichaelRake, butthisdoesnotdevelopcorporate company. We havea Board asetofcorporate governanceprinciplesapplicableto the to becomeboard members,develops andrecommends to the of reference individualsqualified which,inadditionto identifying composed entirely ofindependentdirectors andwithwritten terms haveanominating/corporatemust governancecommittee requirements setoutinthestandards. thatcompanies Thesestate the following exception where wedonotmeetthestrict our corporate governancepractices are withthem, consistent NYSE. from thecorporate standards ofthe governancelisting Sustainable Business Sustainable time,a first remuneration directors’ the are availableonourwebsite. The governance. Eachcommittee haswritten terms ofreference, which Group Board Board Committee Committee The Board alsohasa The Sarbanes-OxleyActof2002,theUSSecuritiesandExchange We havereviewed theNYSE’s standards andbelievethat listing Report oftheNominatingCommitteeReport . (EAB) was established on 1 November 2005, as part ofthe on1November2005,aspart (EAB) wasestablished . Theseincludetheindependenceof have long been an established part ofBT’s part have longbeenanestablished of system Report oftheCommitteeReport for Responsible and Nominating Committee Nominating is includedon Pension Scheme Performance Review Performance Scheme Pension are madeupofamajorityindependent, BT GROUP PLC are on ae 4t 69. to 54 pages Report oftheAuditCommitteeReport ae56. page ANNUAL REPORT & FORM and the chaired bythe The Audit Committee Audit This year, for the Equality of Access of Equality Report on Report 20-F Audit , 53

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW directors whoare notmembersoftheCommittee. the Committee and/orremuneration. discussestheirperformance normally attend meetings,althoughtheywillnotbepresent when of thechairmanCommittee. auditors Theexternal will of the Group FinancialControl althoughnotmembers Audit andDirector Board meeting. onthediscussionsatnext chairman oftheCommittee reports each financialyear:inMay, July, andthe NovemberandFebruary US Sarbanes-OxleyAct.TheCommittee typicallymeetsfour times the for thepurposesof isan‘auditcommittee financialexpert’ and relevant financialexperiencerequired for theprovisions oftheCode hastherecent and member inthepersonofPhilHodkinsonwho includesa it that membership oftheCommittee andissatisfied management andITexperience.TheBoard hasreviewed this constitutes abroad andsuitablemixofbusiness,financial andthat andfinancialfunctionsupervision management, treasury various priorroles inmajorbusiness,Governmentandfinancial business leadershipexperience,havingheld–betweenthem generally havebroad commercial knowledgeandextensive independent. TheBoard considersthattheCommittee’s members three yearperiods,providedfurther thedirector remains for aperiodofupto three for years,whichmaybeextended two Committee throughout the2009financialyear. Appointmentsare May2008,theywere membersofthe joined theCommittee on8 Withtheexception ofPatricia Hewittwho non-executive directors. Theyare allindependent Patricia HewittandCarlSymon. vandenBergh,members are ClayBrendish, Maarten action to appointnewauditors. Itensures are thatkey partners resignation ordismissal,recommending to theBoard appropriate reappointment auditors oftheexternal andconsiderstheir andare onourwebsiteSecretary posted at The Committee’s terms of reference are availablefrom theCompany Committee role The Introduction REPORT OFTHEAUDIT COMMITTEE REPORT OFTHEDIRECTORS 54 unless there are clearefficiencies andvalue-addedbenefitsto the consultancy nature will notbeoffered to auditors theexternal approval processes related to them.Underthosepolicies,work ofa canbeprovided auditors bytheexternal andthe non-audit services auditors,external theBoard hasdetermined policiesasto what work. Inorder to safeguard theindependenceandobjectivity ofthe to non-audit auditors employtheexternal fornecessary certain restrict the group’s auditfirm. choiceofexternal that obligationsexist continues to beeffective. Nocontractual auditprocess oftheexternal thattheperformance satisfied conducted in respect ofthegroup’s overseassubsidiariesand is thequalityofaudits emphasis onunderstanding placed particular independence. Duringthe2009financialyear, theCommittee internal quality control procedures andassessmentof ontheauditfirm’smanagement, andbyconsideringreports own gathering feedback from Committee membersandsenior The Committee reviews theauditors’ eachyearby performance theresultsthe auditors andreports ofthosereviews to theBoard. commence, reviews theresults andconsidersthe formal of reports discusses withtheauditors thescopeoftheirauditsbefore they years.TheCommittee two for BT’s audithasheldthatpositionfor currently responsible Thepartner rotated atappropriate intervals. The papersandminutes of Internal Director CompanySecretary, The Group FinanceDirector, As aresult orsimilarrequirements, ofregulatory itmaybe The Committee recommends theappointment and Audit Committee Audit BT GROUP PLC Audit Committee Audit ANNUAL REPORT & FORM is chaired byPhilHodkinson.Theother , willattend meetingswiththeagreement Audit Committee Audit 20-F www.bt.com/committees meetings are sentto monitors, reviewsonriskmanagementprocesses andreports and auditors, and with theexternal includingplansandperformance; law, takes responsibility for alldisclosures intheannualreport. UK role inthecompany’s financialcontrols. TheBoard, asrequired by involving managementorotheremployeeswhohaveasignificant controls ormaterial weaknessesinthecontrols, includinganyfraud for aboutthedesignandoperation theannualreport ofinternal Executive andGroup process FinanceDirector duringthecertification 20-F. &Form the AnnualReport Board itin itsapproval to assist oftheresults announcementsand itsviewsto the compliance.Itreports andregulatory statutory &FormAnnual Report 20-Fandotherpublishedinformation for consideration ofthefollowing: andappropriateinvestigation follow upaction. arrangements are inplacefor andindependent theproportionate procedures), ensuring auditing matters (‘whistleblowing’ employees ofconcernsregarding accountingor questionable auditing matters andtheconfidential,anonymoussubmissionby companyregarding accounting,internal accounting controls or the recommendations oftheinternal auditors. management’s responsiveness to the findingsand issues arisingfromincludingmonitoring suchreports, internal auditors andensures thatappropriate actionistaken on matters, are properly identifiedandmanaged. risks, includingrisksrelating to ITsecurity, fraud andrelated the processes andprocedures for ensuring thatmaterial business the standards ofriskmanagementandinternal control, including ae129. page note 32 auditorsDetails ofnon-auditworkcarriedoutbytheexternal are in also monitors thelevelofnon-auditfees paidto theauditors. before It itisundertaken. theCommittee haspre-approved services of notincludedonthelist work auditorsexternal andapproves any bythe monitors ofnon-auditworkbeingperformed theextent auditors The that external maynotperform. provisions oftheSarbanes-OxleyActrelating to non-auditservices were reviewed andappropriately modifiedinthelightof company. Theoverall policiesandtheprocesses to implementthem external auditorsexternal intheabsenceofmanagement. meetingto seektheviewsofinternal and aside timeatevery remedial programmes andITprogrammes. TheCommittee alsosets effectiveness ofkey operational andfunctionalchange andappropriate executives theimplementationand Internal Audit Director withthe At eachofitsmeetings,theCommittee reviews Committee activities The The Committee alsoreviews thedisclosure madebytheChief annual update on‘whistleblowing’. Compliancefunctions; Regulatory oftheInternal ontheperformance Auditand annual report annual review ofsecurity, businesscontinuityandfraud; contracts review; BTmajor Global Services longterm contracts; the basisofaccountingfor and related formal statements; fullyearresultsthe annualfinancialstatements, announcement, the effectiveness ofinternal control procedures; May: It reviews theprocesses for dealingwithcomplaintsreceived by It reviews promptly onthecompanyfrom allmaterial reports the The During theyear, the Audit Committee Audit Committee Audit in the Notes to theconsolidated financialstatements Audit Committee Audit reviews internal auditanditsrelationship reviews BT’s publishedfinancialresults, the business included Audit Committee Audit on

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW REPORT OFTHEDIRECTORS function. experience, skillsandsuccessionplanningwithintheGroup Finance addition to key financialissues.TheCommittee alsoreviewed the in processes should coverenterprise-wide riskmanagement clarity ofpapersandthattheBoard annualaccountingseminar should becontinuedfocus ontheconcisenessandimproving the TheCommittee agreed that there both behavioursandprocesses. others consulted, continueto regard theCommittee aseffective on Board andCommittee evaluation.Committee members,andthose auditors to complete oftheannual questionnaires. This formed part executives andtheexternal key inviting Committee membersand The Committee evaluated andprocesses itsperformance byagain the Internal AuditPlanfor the2010financialyear. ofSarbanes-OxleyS404processes; operation review ofthe the process forreviews; investment post annual review ofaccountingpolicies; trends onauditingandaccountingissuesinoverseasoperations; contracts review; BTmajor GlobalServices statements; results,third announcementandrelated quarter formal February: review andapproval oftrading update. January: auditplan. external review developments; ofregulatory financialyear; 2009 and theCombinedCodefor the review ofinternal control requirements under Sarbanes-Oxley Compliance; Regulatory ofInternal ontheperformance Auditand half yearreport review ofglobalassurance capabilities; contracts review; BTmajor GlobalServices half yearresults, announcementandrelated formal statements; review offees for auditandnon-auditwork; November: review andapproval oftrading update. October: management ofcorporate fraud risks. pension accountingassumptions; contracts review; BTmajor GlobalServices statements; results, announcementandrelated quarter first formal Audit Committee Auditeffectiveness; andExternal governancepolicy; non-audit services July: REPORT OFTHEAUDIT COMMITTEE BT GROUP PLC ANNU AL REPORT & FORM 20-F 55

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW where appropriate to doso. their request, to directors whoare notmembersoftheCommittee, individually. director andfeedback wasgivento them were held witheach greater effectiveness rather thangrading Private sessions thepast. Thereview focused onunlocking questionnaire andinterview. Egon Zehnder2008bywayboth of duringFebruary-April thiswassubsequentlycarriedoutby following Board discussion, formal sixth evaluationin2008,and, conductingthe third party attend theCommittee’s meetings. appropriate, attheinvitationofChairman,ChiefExecutive and,where Secretary Company appointment ofhissuccessor. The intheselectionand Committee. Hewouldnotparticipate chair the to of theBoard, appropriate isthemost person independent, theBoard believesthatSirMichaelRake, asChairman independent non-executive directors. Althoughheisnot Committee on8May2008.Four ofitsfivemembersare ClayBrendish andEricDanielsjoinedthe Phil Hodkinson. members are theDeputyChairman,ClayBrendish, EricDanielsand Executive BT Retail, Chief Executive BT Global Services and BT GlobalServices ChiefExecutive BT Retail, Executive Chief ofChiefExecutive, andconsequentlyof for thepositions search process candidates to identify MWM, conducted athorough bytheCommittee’ssupported appointed search consultants, process. UndertheleadershipofChairman,Committee, Board, andtheBoard andCommittee evaluationquestionnaire and reviewed Board succession,thesize, profile andcompositionofthe appointments. Deputy Chairman,ChiefExecutive andallotherBoard Board onsuccessionplanningfor thepositionsofChairman, non-executive outtheirdutiesandadvisesthe directors to carry also reviews thetimerequired from theDeputyChairmanandother reappoint non-executive directors attheendofterms ofoffice.It candidates. Itmakes recommendations to theBoard onwhetherto the appointmentsofalldirectors havingmetshort-listed after directors consultants,andrecommends andexternal to theBoard appointment, considerscandidates whoare putforward bythe description ofthespecificexperienceandskillsneededfor an anyproposed changesto theBoard. recommending this evaluationto review thesize andcompositionoftheBoard and appropriate balanceofexperienceandabilitiesontheBoard, using www.bt.com/committees andare onourwebsiteSecretary posted at The Committee’s terms ofreference are availablefrom theCompany Committee role andactivities The Introduction REPORT OFTHENOMINATING COMMITTEE REPORT OFTHEDIRECTORS 56 The Board evaluation Brendish andPhilHodkinson retire byrotation atthe2009AGM. Clay three for years. afurther PhilHodkinson and Brendish Clay following rigorous review, thecontinuedappointmentof Chanmugam respectively. Tony Hanif Lalani(formerly Group FinanceDirector) and BT Retail), GavinPatterson, Chief Executive (formerly Livingston appointmentsofIan internal recommended to theBoard the Group FinanceDirector. TheCommittee consequently The minutes of The Committee alsoreviewed andrecommended to theBoard, duringthe2009financialyear. It twice The Committee met to refresh the Board, prepares a It keeps underreview theneed Nominating Committee Nominating Committee Nominating BT GROUP PLC ANNUAL REPORT & FORM Nominating Committee Nominating The considered optionsfor anindependent is chaired bytheChairman.Theother Nominating Committee Nominating 20-F meetings are sent,at ensures an Report oftheAuditCommitteeReport inthe outcome ofthereview are were alsocompleted andthe con h iw ftenneeuiedirectors. account theviewsofnon-executive Chairman reviewed oftheChairmantakinginto theperformance planwillbeproduced. TheDeputy the Board andanaction results oftheworkare currently beingconsidered andreviewed by directors inApril2009.The questionnaire anddiscussionwith review through wascarriedoutbytheChairmanandSecretary a time’initiative.Afurther first andthe‘right service of customer more timehasbeensetasideinBoard meetingsfor thediscussion segmentstrategiescustomer havecontinuedto bediscussedand Baroness JayandDameEllenMacArthur. Deborah Lathenandthree independentmembers:Lord Hastings, Hodkinsonand Phil non-executive directors: ClayBrendish, Affairs; andAlexWilson,Group HumanResources Director; three BT Stone, Retail; President Larry Group PublicandGovernment ChiefExecutive by theChairmanandcomprises:GavinPatterson, Introduction Business Sustainable Responsible and for Committee ofthe Report Committee Nominating implementing them;inparticular, themembershipof number ofrecommendations. Progress hasbeenmadein The Board considered theresults ofthereview andagreed a 2009 financialyear. Itmetthree timesinthe communities withinwhichBT operates. skills andtalent,makes afittingcontributionto the practice andpolicyintheworkplace,includingdevelopment of more societyandensures sustainable thatBT bothadoptsbest thathelpcreate a the innovationofnewcommunicationservices fromhelps to CR.Itencourages maximise businessopportunities risksto BT’s operations andreputation, and CR to minimise any It promotes worldclasscorporate responsibility (CR)performance andthrough responsibleservices; policies,behaviourandpractices. organisation through applicationofcommunication exemplary The Committee aimsto optimisethepositiveimpactofBT asan Committee activities thestrategy.budget, fundingto support stakeholder withintheapproved accountability anddistributes, business practice, overseesaculture oftransparency and evaluates embedsresponsible performance, activityinto standard Board, andreviews andagrees implementationplansandtargets, globally (includingwhollyownedsubsidiaries)for approval bythe group ‘responsible business’strategy andsustainable for theBT panel,theCommittee setsthe advice from anindependentexperts and With inputandrecommendations from executive management Committee role The Committee Separate questionnaires about Committee for Responsible and Sustainable Business Sustainable and Responsible for Committee has simplifiedthestructure ofexecutive remuneration, has beenincreased, the . Audit Committee Audit Remuneration effectiveness is chaired

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW The (i) Role oftheRemuneration Committee AGM. 2009 willbeaskedShareholders to vote atthe onthisReport to audit. remuneration isnotsubject ondirectors’ oftheReport This part Remuneration policy following sections: remuneration isdividedinto the ondirectors’ The Report REPORT ONDIRECTORS’ REMUNERATION REPORT OFTHEDIRECTORS company’s website at but notchair, theremuneration committee. Combined Codepermittingacompanychairmanto beamemberof, member oftheCommittee, inaccordance withtheprovision ofthe complied withallaspects.TheChairman,SirMichaelRake, isa reward-related matters andconfirmsthatthecompanyhas management team. executive share plansto executivesto thesenior reporting also determines thebasisonwhichawards are granted underthe any changeswhichrequire shareholder approval. TheCommittee changes to theexecutive share plansandrecommends to theBoard contracts andtermination arrangements. TheCommittee approves the policyfor allcashremuneration, executive share plans,service the executive seniorexecutives. directors Thisincludes andcertain Board, agrees theframework for theremuneration oftheChairman, Remuneration review (audited) Othermatters (iv) 2008/09and2009/10 Remuneration in (iii) Remuneration principles (ii) Role oftheRemuneration Committee (i) Remuneration policy(notaudited) The terms of reference oftheCommittee are availableonthe The Board hasreviewed compliancewiththeCombinedCodeon Remuneration Committee Remuneration and Allshare International Share awards undertheEmployeeShare Plan Investment Deferred BonusPlanawards Vesting share ofoutstanding awards andoptions Share awards underlong-term incentiveplans Share options Pensions Loans Former directors emoluments Directors’ Performance graph interests Directors’ agreements andcontracts service ofappointment Directors’ remuneration Non-executive directors’ letters ofappointment Non-executive directors’ Outside appointments agreements Service theBoardDirectors whohaveleft Other benefits Pensions Executive share ownership www.bt.com/committees , underdelegated authorityfrom the . Secretary. Company the and Relations, Employee and the Reward Director, Director HR Group the Director, Finance Group Chief the Executive, the consults regularly also Committee to The services company. other the no provide They discussed. are major issues when remuneration meetings Committee attends and company Committee the the and both advises Kepler company. the by appointed were who Associates, Kepler consultants, remuneration independent receive thepapersdiscussedatmeetingsandminutes. directors whoare notmembersoftheCommittee are entitledto example, whenhisownremuneration isdiscussed.Non-executive except whenitwouldbeinappropriate for himto bethere, for In addition,theChiefExecutive isinvited to attend meetings, were: 2008/09 during members whoserved chairman oftheCommittee sinceOctober 2006andtheother vandenBergh,directors. hasbeen TheDeputyChairman,Maarten Chairman, themembersofCommittee are non-executive 2008/09.Inadditionto the timesduring five The Committee met omte o epnil n utial Business Sustainable and Responsible Michael Rake, meetsthree orfour timeseachyear. for Committee The the companymanagessocial,ethicalandenvironmental issues. responsibilitydetailingthewayinwhich report an annualcorporate members oftheBoard, all Committee membersreceive and review motivatingirresponsible behaviour.risks byinadvertently As executives doesnotraise environmental, socialandgovernance elsewhere inthegroup. into account thepayandemploymentconditionsofemployees regularly to ensure thattheyare challenging. corporate targets Theperformance performance. are reviewed bonuses andlong-term incentives–isvariableandlinked to performance. rewardsdeliver upperquartile onlyfor andexcellent sustained expected valueofanylong-term incentives)havingthepotential to (basic salary, annualbonus–incashanddeferred shares –andthe withtheremuneration packageasawhole comparator group, positionedatlevelsbelowthemedianof are typically from andbroadband. networked ITservices anincreasing ofBT’s proportion revenues isderived as important communications technology (ICT)industry. ThisICTcomparisonis and thecompetitivepressures intheglobalinformation and the companyasawhole,remuneration ofotherFTSE30companies oftheindividuallinesbusiness and account oftheperformance BT’s policyisto reward itsseniorexecutives competitively, taking (ii) Remuneration principles h omte a eevdavc uigteya from year the during advice received has Committee The Carl Symon Deborah Lathen Eric Daniels(appointed 8May2008) Matti Alahuhta Sir MichaelRake h omte sstse htteicniesrcuefrsenior thattheincentivestructureThe Committee issatisfied for In settingremuneration ofthedirectors, theCommittee takes ofthetotal remuneration proportion package– A significant The Committee hasamendedthepolicysuchthatbasesalaries BT GROUP PLC ANNUAL REPORT & FORM , chaired bySir 20-F 57

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW REPORT OFTHEDIRECTORS governance objectives(ESG). company’s environmental, socialand director’s contributionto the and10%related to each 30%related to service customer cash flow, 30%related to free scorecard related to earningspershare (EPS), the beginningoffinancialyear The annualbonusislinked to corporate targets performance setat Annual bonus more into linewiththemarket. package overall his to bring atthesame time increased Lalani’s was salary Hanif increased reflecting hisappointmentasChiefExecutive. was IanLivingston of 2008,thesalary June market conditions.In the contributionofindividual,increased responsibilities and the Committ Salaries are reviewed annuallybutincreases are madeonlywhere Salaries Remuneration in2008/09 Note: Underhiscontract, theChairmanisnotentitledto abonusoranannualgrant of share awards oroptions. Share options Retention shares Incentive shares Deferred bonus(inshares) Annual bonus Base salary setoutbelow: is The structure oftheremuneration 2008/09and2009/10 (iii) Remuneration in 58 retention measure andcontributes to thealignmentof oftheannual bonusinthiswayalsoactsasa that deferring a part for ofdeferred thevesting share awards. TheCommittee considers company. There are currently measures noadditionalperformance employedbythe theyremain to three theexecutive yearsif after the Deferred BonusPlan (DBP).Theshares andare vest transferred tax,to purchase2008/09, netafter shares inthecompany. payment,usetheirannualcashbonusforwill, immediately after were excluded from thetarget. plus thenetfinanceincomerelating to thegroup’s pension liabilities market movementsinforeign exchange and financial instruments underIFRSarewhich wouldbereported excluded. Theimpactof In calculatingEPSfor purposesoftheannualbonus,volatileitems andstretch is200% Note: target is100% set outbelow: Earnings per Executive directors Chief Executive Executive directors Chief Executive Executive directors Chief Executive The deferred elementof theannualbonusispaidinshares under All executive directors andmembersofthe is The outcome measured corporate against targets in2008/09 BT GROUP PLC share 0% ee believes the adjustments areee believestheadjustments appropriate to reflect ANNUAL REPORT & FORM REPOR Free cash n20/9 30%ofthe . In2008/09, flow T ONDIRECTORS’ REMUNERATION 0% 20-F Operating Committee Operating 5 fcs ou 5 fcs ou nochange 75%ofcashbonus 2.5x salary 75% ofcashbonus target 80%salary 2008/09 none none 3x salary noincreases applied nochangeto 150%salary maximum 1x cashbonus target 125%salary maximum200%salary maximum 120%salary maximum 200%salary target 100%salary increases to align market increases to alignwiththe Customer Customer service 24.4% the financial year 2009/10 are very challenging. are very the financialyear 2009/10 excluded from thetarget. EPS for thescorecard, underIFRSwillbe volatileitems reported 25% oftheweighting. measure willbe service andthecustomer 30% remain at will each elements TheEPSandcashflow and governance(ESG)objectives. individual’s contributionto thecompany’s environmental, social adjus willbe For annualbonuses,thestructure ofthecorporate scorecard Annual bonus granted andnoretention share awards oroptionswillbegranted. ofawards ofincentiveshares level will benochangesto the There increases inthesalaries ofexecutive directors in2009/10. Inaddition,there willbeno on-target bonuslevelsfor 2009/10. theincreases decidedto postpone in 2007/08. TheCommittee receive increases thesecondstage thathadbeenapproved in executive directors indicated thattheydidnotwishto however, approved byshareholders. inorder to retain key executives. Thesechanges were years deferred andretention shares, whichhadbeenmadeinprevious place overlayarrangements intheform ofadditionalgrants of theneedto putin eliminated also companies. Therevised structure ICT executive directors into linewiththatoftheFTSE30and 2009/10. Thisstructure wasdesignedto bringtheremuneration of remuneration structure to bephasedinduring2008/09and its shareholders, theCommittee decided to implementanew period ofrelative successandhaddelivered for good performance executive remuneration package.At thattime,asBT hadenjoyeda management withthelong-term interests oftheshareholders. In 2007/08,the 2009/10 Remuneration in are containedinthetableon financial year2008/09 attheendof GavinPatterson and HanifLalani Chanmugam, Tony IanLivingston, The deferred awards for previous yearsfor The Committee believesthat thegroup targets performance for As intheprevious twofinancialyears,for purposesofcalculating above. packageare setoutinthetable Details ofthe In thelightofcurrent difficultmarket andtrading conditions, e n20/0 5 ftewihigwl eaet each relate to in2009/10.15%oftheweightingwill ted 2.5x salary agt10 aay2008/09levels target 100%salary by shareholders changes agreed 2009/10 no change no change 3x salary 1x cashbonus with themarket Remuneration Committee Remuneration Actual no change oincreases no 2009/10 none none no change no change reviewed thesenior ae68. page

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Share Plan(ISP)andtheRetention Share Plan(RSP).Incentive granted undertheGlobalShare OptionPlan(GSOP),theIncentive options, incentiveshar The BT Equity comprisesthree IncentivePortfolio elements:share Long-term incentives b a composition 2008/09 actual 2009/10 target Gavin Patterson composition 2008/09 actual 2009/10 target Hanif Lalani composition 2008/09 actual 2009/10 target Tony Chanmugam composition 2008/09 actual 2009/10 target Ian Livingston r The compositionofeachexecutive director’s performance-related offixedProportion andvariableremuneration REPORT OFTHEDIRECTORS competes for capital. sector challengesto BT andare within thesector inwhichBT similarmarket group waschosenbecausethecompaniesfaced companies from theEuropean Telecom Sector. Thiscomparator TSRwas measured agroup against of other majorcompanies. the reward given to directors of BT withtheperformance against purposes wascalculated bythelawfirm,Allen &Overy. TSRlinks and compared witharelevant basket ofcompanies. TSRfor these shareholder return (TSR),calculated onacommoncurrency basis measureperformance for awards outstanding andoptions istotal pr Normally, awards andoptionsbecomeexercisable vest onlyifa Performance measure there wasamisjudgment ofthebasisonwhichaward wasmade. itbecomesapparent that where incircumstances awards unvested each oftheexecutive share plansproviding for aclawbackof rebasing ofanyshare awards. Committee normanagementdeemeditappropriate to considerthe Neitherthe principally asarecruitment orretention tool. 2008/09. Retention shares are usedbyexception only, and shares were inthefinancialyear usedfor equityparticipation composition composition composition composition emuneration, excluding pension,isasfollows: shares andincentiveshares (awards granted in2008)duringthefinancialyear. in2005andvested Actual remuneration comprisesbasesalary, actual cashbonusandthevaluereceived from deferred andincentiveshare plans,excluding retention shares. bonus deferred the of awards under Target remuneration comprisescurrent basesalary, on-target annualbonusandtheexpected value edetermined target performance hasbeenachieved.The In April2009,theCommittee approved achangeto therulesof b a b a b a b a es andretention shares. Awards maybe aepyVral Total Variable base pay REPORT ONDIRECTORS’ REMUNERATION Fixed 62% 29% 76% 29% 65% 29% 58% 24% 8 100% 100% 38% 71% 100% 100% 24% 71% 100% 100% 35% 71% 100% 100% 42% 76% RI isdetermined bycalculatingtheaverage RIvaluetaken daily shares, for adjusted allcapitalactionsanddividendspaid.Theinitial Datastream. Itusestheofficialclosingpricesfor acompany’s measured onadailybasis,astracked byindependentanalysts, the endofperiod.TheRIisTSRvalueacompany periodtoindex (RI)atthebeginningofperformance theRIat were membersofthecomparator group at1April2006. Mobile butwiththeexception ofCegetel andTelecom ItaliaRNC, andTelecom Italia companies, together withTelecom Mobiles Alltheabove wasalsoamemberatthatdate. Telecommunications Cosmote Mobile members ofthegroup asat1April2007. were withtheexception ofCegetel theabovecompanies All Royal KPN TelecomPortugal Hellenic Telecom France Telecom Deutsche Telekom Cegetel Belgacom BT Group dividend payments. ofcashgenerationbe appropriate to given theimportance Thischangewas considered to cashflowmeasure. free cumulative measureperformance and50%willbelinked to athree-year In addition,50%ofeachaward willbelinked to theTSR IBM Telecom Hellenic France Telecom Deutsche Telecom Centrica Carphone Warehouse Cap Gemini Cable &Wireless BT Group BSkyB Belgacom AT &T Accenture The Changes to measure performance in2009/10 inTSR. between theinitialandendvaluesindicates growth This mitigates theeffects ofshare pricevolatility. Apositivechange monthsupto period. theendofperformance three over the period, theendvalueisdetermined bycalculatingtheaverage RI monthspriorto thebeginningofperformance three over the At 1April2008,thegroup containedthefollowing companies: omnigo pi 09cnan h olwn companies: thefollowing contains April2009 commencing on1 Thecomparator group for period theperformance spread to BT. capitalisation and/orhaveasimilarbusinessmixandgeographical contain companieswhichare eithersimilarinsize ormarket group willnotberestricted to European telecoms companiesandwill reflect thesectors inwhichBT nowoperates. Thenewcomparator determined thattheTSRcomparator group shouldberevised to better andinfuturefor theISP.years,ithas For awards granted in2009 The TSRfor acompanyiscalculated bycomparingthereturn Remuneration Committee Remuneration BT GROUP PLC has reviewed measure theperformance ANNU AL REPORT & FORM Vodafone Group TeliaSonera Telenor Telekom Austria Telefonica Telecom ItaliaRNC Telecom Italia Swisscom Vodafone Virgin Media Verizon TeliaSonera Telenor Telekom Austria Telefonica Telecom Italia Swisscom Royal KPN TelecomPortugal National Grid 20-F 59

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW REPORT OFTHEDIRECTORS las in2008/09.The GSOP underthe No share optionswere granted Share options are containedinthetable the financialyear2008/09 attheend of GavinPatterson Tony Chanmugam,HanifLalaniand havelapsed. none oftheshares andalloftheshare willvest awards companies.Asaresult thecomparator positionagainst group of 14th incentive shares. matching shares are offered to anyexecutive ofthe onvesting andmedianpositions.There isnore-testing, andno upper quartile shares reduces thatvests onastraight-line basis betweenthe of award Theproportion willvest. ofthe therelevant part under award Belowthatpoint,noneoftheshares willvest. ofthe part therelevant the shares At to vest. median,25%oftheshares under relative to thecomparatorbe intheupperquartile group for allof TSRattheendofthree-year periodmust granted in2009/10, andawards to be 2008/09 2007/08, 2006/07, financial years, added to theawards. For awards ofincentiveshares granted inthe during thethree-year shares periodare and reinvested infurther measureperformance hasbeenmet.Dividendspaidontheshares employedbyBT isstill three anda years,iftheparticipant professionals. shar For thefinancialyear2008/09, theCommittee granted incentive Incentive shares were consulted aboutthesechangesandwere supportive. upper endoftherange. oftheaward forof therelevantwillvest atthe performance part end oftherange, increasing onastraight linebasis,suchthat100% oftheaward forrelevant willvest atthelower performance part arangeagainst ofcumulativecashflowmeasures. 25%ofthe minimum aschallengingtheprevious measure. confirmedbyitsindependentadviserto beata and Committee This measure willbecalibrated atalevelconsidered bythe 60 directors in2008/09. No awards ofretention shares were granted to executive purposes. for recruitment awards were granted two financial year2008/09, employed byBT conditionsare andanyperformance met. transferred attheendofspecified periodiftheindividualisstill Thesharesyears unlesstheCommittee agreed are otherwise. before awards isflexiblealthough thiswouldnormallybethree vest a corporate target. performance Thelengthoftheretention period As aresult, shares currently underaward are notgenerally linked to contributed to excellent corporate retention. to performance assist some cases,theyare granted to key employeeswhohave individuals withcriticalskills,asar to RSP Retention shares are granted exceptionally underthe Retention shares are containedinthetable the financialyear2008/09 attheendof GavinPatterson Tony Chanmugam,HanifLalaniand have beenexercisable. beingmet. TSR three years,subjectto target aperformance market priceatthedate ofgrant. Optionsare exercisable after Awards of incentive shares vest after a performance periodof Awards aperformance ofincentiveshares after vest A numberofkey andthemainrepresentative investors bodies For awards granted willbeassessed in2009/10,performance Retention shares are usedinspecialcircumstances and,inthe IanLivingston, The detailsoftheoptionsheldby optionsgranted in2004/05 GSOP Since June2007,58%ofthe isthe GSOP The priceatwhichshares maybeacquired under the IanLivingston, The detailsofincentiveshare awards heldby At 31March 2009,theTSRfor the2006/07awards wasat rn fsc share optionswasinthefinancialyear2004/05. such t grant of es to executive directors, seniorexecutives, key managersand BT GROUP PLC ANNUAL REPORT & FORM REPOR ecruitment orretention tool. In T ONDIRECTORS’ REMUNERATION 20-F npg 66. on page 67. on page Treasury shares are theexercise generally usedto satisfy ofshare Dilution incentive plans. plans onthesameterms asotherBT employees. subject to overall affordability withinBT Group. is However, paymentofbonusesinOpenreach ofshares. instead to Openreach targets andlong-term incentivesare paidincash Openreach executives in2005/06.Theannualbonusislinked solely cannot beprovided bywayofBT shares. ratherperformance thanBT targets orshare price.Theseincentives executives withinOpenreach shouldbelinked to Openreach agr givento Ofcom on22SeptemberIn theUndertakings 2005,BT Openreach to theaccounts. each yearwhich can beputtowards theprovision ofretirement company agrees to payafixed percentage oftheexecutive’s salary adefined contributionscheme.For executive directors the is This (BTRP). new employeeswere ableto jointheBT Retirement Plan on benefits for executive directors whoare covered bythisare set out analternative, acashallowanceannually. The as April 2006,receive the pensionsimplificationlegislationwhichcameinto force on6 who haveopted accrualfollowing outoffuture pensionableservice 2001andexecutive directors 31March joined thecompanyafter accrual.Theexecutivefuture directors pensionableservice who members oftheScheme,althoughHanifLalanihasopted outof Tony Chanmugamare theonlyexecutive directors whoare (BTPS), whichisadefinedbenefitscheme.HanifLalaniand Scheme t Those directors andotheremployeeswhojoinedthecompanyprior Pensions meeting thesetargets hasbeenmadein2008/09. andtheremaining directors salary 1.5xsalary. Progress towards 2x The ChiefExecutive isrequired to buildupashareholding of Insurance orincometaxliability)from apurchase inthemarket. executive share plan(otherthanshares soldto meetaNational time byretaining shares whichtheyhavereceived underan are encouraged to buildupashareholding inthecompanyover and incentiveshares provide considerable alignment.Thedirectors should becloselyalignedwiththoseofshar The Committee believesthattheinterests oftheexecutive directors Executive share ownership (iv) Othermatters the employeeshare plansin2009/10. 1%oftheissuedshare capitalwillberequired for all approximately shares thattreasury equivalenttothese purposes.Itisestimated 4%oftheissuedshare capitalwouldberequired for equivalent to financialyear, shares treasury plans. At theendof2008/09 options, thegr other employees.Theredetailsoftheseplansin are further PlanandAllshareInvestment International, onthesamebasisas the International EmployeeSharesave Scheme,EmployeeShare B The executive in directors andtheChairmanmayparticipate Other share plans o 1April2001are eligible for membershipoftheBT Pension T’s all-employeeshare plans,theEmployeeSharesave Scheme, None oftheexecutive intheOpenreach directors participates Openreach intheBT executives participate all-employeeshare As aresult, separate arrangements were putinplacefor Tcoe h TSt e ebr rm3 ac 01andall 2001 March 31 to newmembersfrom BTPS BT closed the Current shareholdings are setouton ae65. page eed thattheincentiveelementsofremuneration of This isbroadly cashneutral for thecompany. ant ofshare awards andfor theall-employeeshare ae63. page eholders. Thedeferred oe31 note

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW h B eeportds ht1631shares and57,830 vested 116,381 the DBPwere pro-rated sothat remaining 59,984shares lapsed.His2006and 2007awards under total of119,966shares on10December2008;the vested 64. page detailsareFurther givenintheDirectors’ emolumentstableon inaseries ofphasedpayments. delivered thisamountwas contract; his benefitsasdefinedin and equivalent of12months’salary in accordance withtheterms ofhis contract. ofthe Thisconsisted November2008. 30 thecompanyon Heleft and asadirector on30October 2008. 2008. 30June on vested DBP underthe shares lapsed on30June2008.Hisawards overatotal of1,946,366 ISP Board. Hisawards overatotal of859,188shares underthe priorto leavingthe £300,000 for hiscontributionin2008/09 inaccordance withtheterms ofhiscontract andabonusof salary, termination paymentof£700,000,equivalentto 10.5months’ and r Ben Verwaayen downasChiefExecutive stepped on31May2008 Board the whohave left Directors executive directors whomaybecomepermanentlyincapacitated. insurance policyto provide coverfor theChairmanandcertain financial counselling.Thecompanyhasapermanenthealth cover, professional subscriptions,andpersonaltaxplanning and dentalcoverfor thedirector andimmediate family, speciallife personal telecommunications facilitiesandhomesecurity, medical include someorallofthef Other benefitsfor theChairman andtheseniormanagementteam Other benefits excluded. bonuses, otherelementsofpayandlong-term incentivesare personal pensionplan. Scheme,whichisagroup Retirement Saving was replaced bytheBT March 2009and future contributionsandnewmembersfrom 31 wasclosedto BTRP The BTRP. director whoisamemberofthe is payableondeathinser benefits. Additionally, alumpsumbenefitequalto four timessalary REPORT OFTHEDIRECTORS oyCamgm ai aaiadGvnPtesnentitlethem on andGavin Patterson Tony Chanmugam,HanifLalani IanLivingston, Thecontracts oftheChairman, contract byBT. includingin theeventofearlyterminationperformance, ofthe provisions dealingwiththeremoval ofadirector for poor to offer agreements a longer fixed contain term. Alloftheservice directors from outsideBT, orcircumstances maymake itappropriate onrecruitment to offernecessary longerinitialperiods to new ser It isthepolicyfor theChairmanandexecutive directors to have agreements Service 69. to 66 Verwaayen andFrançois Barrault are giveninthetableson the company. would beexercisable for 12monthsfrom thedate onwhichheleft sothat it in2004waspreserved GSOP François Barrault underthe shares (87%)lapsed. 1,572,514 and vested (13%) 236,347 shares, 1,808,861 above share plans,ofa total of thecompany.under theISPlapsedwhenheleft Inrespect ofthe shares 1,286,713 Allofhisawards overatotal of shares lapsed. 2008award undertheDBPover167,987 Allofhis shares lapsed. Full detailsoftheshare awards andoptionsheldbyBen An optionover362,500shares whichhadbeengranted to waspro-rated sothatawards overa RSP His award underthe He received atermination payment of€1,933,435(£1,598,805) François Barrault resigned asChiefExecutive, BT GlobalServices Pension provision for alone– allexecutives isbasedonsalary vice agreements providing for oneyear’s notice. Itmaybe esigned asadirector on30June2008. Hereceived a vice. GavinPatterson istheonlyexecutive ollowing: companycar, fuelordriver, REPORT ONDIRECTORS’ REMUNERATION pages the exception ofthe £5,000for chairing acommittee, with £5,000 peryearandafurther There isanadditionalfee for membershipofaBoard committee of since2004. reviewed previously been 2008,havingnot January wasin non-executive directors init. may attend theBoard discussionbut maynotparticipate and discussedagreed bytheBoard. Non-executive directors remuneration isreviewed bytheChairmanandChiefExecutive individually vote ontheirownremuneration. Non-executive who, inaccor Eight ofthedirectors ontheBoard are non-executive directors remuneration Non-executive directors’ compensation. directors are terminable onnoticebythecompanywithout receives anannualfee of£70,000aschairmanthe and chairmanofthe Non-executive directors haveletters ofappointment.Theyare ofappointment letters Non-executive directors’ in Australia. asadirector ofeServGlobal (£30,674) €38,483 of anannualfee received resigned asadirector on30October 2008, who award. stock François Barrault, restricted US$110,000 anda US$75,000 anannualfee of Parcel (UPS),received Service asanon-executive director ofUnited 2008, June 30 director on whoresigned asa the rate of£40,000perannum.BenVerwaayen, from 7July2008until24April2009,for whichhereceived afee at wasanon-executive director Press ofJohnston Gavin Patterson for chairingtheauditcommittee. £5,000 additional annualfee of asanon-executive director ofCelticplcandan £25,000 of receives IanLivingston anannualfee director mayretain thefees. only onemaybeto theBoard ofamajorcompany),for whicha Committee willconsiderupto appointments(ofwhich twoexternal non-executive directorships ofcompaniesoutsideBT. The the companyandindividual,fr The Committee believesthatthere are significantbenefits,to both Outside appointments control. director willreceive abonusorotherpaymentsonchangeof No termination orthedirector obtainingfull-timeemployment. value ofbenefitsuntiltheearlier12monthsfrom noticeof termination oftheircontract byBT andthe to paymentofsalary directors basis, £5,000ofBT to purchase, shares onavoluntary those ofshareholders, thecompany’s policy isto encourage these meetings onaninter-continental basis. non-executive directors travelling regularly from overseasto Board 1 November2005. independent director, chairmanofthe vandenBergh, asDeputyChairman andsenior £10,000. Maarten Board non-executive directors are setoutin agreement. detailsofappointmentarrangements Further for theappointmentmaybecontinuedbymutual end oftheperiod, notice.At the three cangivetheotheratleast months’ either party appoint Furthermore, themembershipfee for the is £10,000andtheadditionalchairmanshipfee is Group cesBoard Access Committee The basicfee for non-executive directors is£60,000peryear. fees for the ofthe Board recent most review bythe The To theinterests ofthenon-executive directors alignfurther with An additionalfee of£2,000pertripispaidto those , receives total fees of£150,000peryear. Carl Symon on ed for aninitialperiodofthree years.Duringthatperiod, ae52. page is £10,000andtheadditionalchairmanshipfee is dance withBT’s ofassociation,cannot articles (a Board on committee), whichwasestablished The letters ofappointmentnon-executive Audit Committee Audit Pension Scheme Performance Review Review Performance Scheme Pension BT GROUP PLC om executive directors accepting , for whichthemembershipfee ANNUAL REPORT & FORM Governance androle ofthe Remuneration Committee Remuneration Remuneration Remuneration £15,000. Equality of Equality 20-F 61

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Livingston I Sir MichaelRake Chairman andexecutive directors agreements/letters dates are ofappointmentcommencedandthecurrent asfo initialservice expiry The dates onwhichdirectors’ agreements andcontractsofappointment service Directors’ retire from theBoard. Thispolicyisnotmandatory. each year. Thedirectors are asked to holdtheseshares untilthey REPORT OFTHEDIRECTORS 62 director There orexecutive are officerwasselected to serve. nofamilyrelationships betweenthedirectors. There are noarrangements betweenanydirector orunderstandings orexecutive officerandanyotherpersonpursuantto whichany There agreements are ormaterial contracts, nootherservice orproposed, existing betweenthecompanyanddirectors. b a F Barrault B Verwaayen Former directors Hewitt P J EDaniels D Lathen Hodkinson P M Alahuhta C GSymon 2005 7February 1June2008 1December2008 C Brendish M vandenBergh Non-executive directors G Patterson H Lalani T Chanmugam ots oieadb h ietro i ots oie emntdo 0Nvme 2008. November months’ noticeandbythedirector onsixmonths’notice.Terminated on30 terminable bythecompanyon12 François Barrault alsohadamanagementagreement, dated 26April2004,whichheentered into whenhewasappointed President, BT International. Thisagreement was enteredIan Livingston into anewcontract whenhebecameChiefExecutive on1June2008.Hisprevious contract commencedon8April2002. No elementofnon-executive remuneration isperformance- BT GROUP PLC b a ANNU AL REPORT & FORM REPORT ONDIRECTORS’ REMUNERATION 20-F Commencement date Expiry date of current service agreement orletter date ofappointment ofcurrent service Expiry 26 September 2007 Commencement date 4Jnay20 h otatwstrial ytecmayo 2mnh’noticeandby terminable bythecompanyon12months’ was Thecontract 24 April2007 Theappointmentisrenewable bymutual agreement. 2002 14 January 24 March 2008 1 April2008 1 June2008 eray20 Letters ofappointmentare for aninitial periodofthree yearsandare for aninitialperiodofthree years.The was ofappointment 2007 1 February Letter 2006 1 February Letter ofappointmentwasfor aninitialperiodofthree years.The 2006 1 February Letter ofappointmentwasfor aninitialperiodofthree years.The 2002 14 January Letter ofappointmentwasfor aninitialperiodofthree years.The 1 September 2002 Letter ofappointmentwasfor aninitialperiodofthree years.The 1 September 2000 pension schemes. employee share plansandare notmembersofanythecompany related. Non-executive inBT’s directors donotparticipate bonusor h ietro i ots oie emntdo 0Otbr2008. October the director onsixmonths’notice.Terminated on30 ietro he ots notice. director onthree months’ isterminable bythecompanyor years in2008.Theappointment three andbyafurther three yearsin2005 for appointment wasextended oftheAnnualGeneral Meetingon15July 2009. conclusion the Theappointmentwillterminate at notice. or thedirector onthree months’ three yearsin2006.Theappointmentisterminable bythecompany further forappointment wasextended three for yearsin2003andextended a The contract wasterminable bythecompanyon12months’noticeand 2008. on30June terminated notice.Thecontract the director onsixmonths’ terminable bythecompanyordirector onthree months’notice. forappointment wasextended three yearsin2009.Theappointmentis May2009. appointment willterminate on31 2009.The February in forappointment wasextended three months notice. or thedirector onthree months’ three yearsin2008.Theappointmentisterminable bythecompany further forappointment wasextended three for yearsin2005andextended a director onsixmonths’notice. The contract isterminable bythecompanyon12months’noticeand terminable bythecompanyordirector onthree months’notice. llows:

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW C GSymon D Lathen P Hodkinson P Hewitt Beneficial holdings: assuming reinvestment ofdividends. provided for itsshareholders, reflecting share pricemovementsand widely used.TSRisthemeasure ofthereturns thatacompanyhas the FTSE100throughout thefive-yearperiodandindexis forperformance thesepurposes,asBT hasbeenaconstituentof appropriate100 to bethemost whichto measure indexagainst equity market fiveyears.We indexoverthepast considertheFTSE per This graph illustrates, asrequired bytheCompaniesAct1985, graphPerformance The directors, asagroup, beneficiallyownlessthan1%ofthecompany’s shares. f e d c b a Total Sir MichaelRake 1 April2008,ordat The interests ofdirectors holdingofficeattheendofyearandtheirfamiliesincompany’s shares at31March 2009and interests Directors’ REPORT OFTHEDIRECTORS J EDaniels C Brendish M vandenBergh Alahuhta M Patterson G H Lalani Chanmugam T I Livingston Eric Danielswasappointed asadirector on1April 2008. At 31 March 2009, Sir Michael Rake and each of the executive directors, as potential beneficiaries, had a non-beneficial interest in 9,342,130 shares (2008: 10,131,478) held in trust byIlford 10,131,478)heldintrust Trustees shares (2008: 9,342,130 At 31March 2009,SirMichaelRake andeachoftheexecutive directors, aspotential beneficiaries,hadanon-beneficialinterest in Patricia Hewittwasappointed asadirector on24March 2008. Gavin Patterson wasappointed asadirector on1June2008. Tony Chanmugamwasappointedasadirector on1December2008. uigtepro rm1Arl20 o8My20,teewr omvmnsi ietr’beneficialholdings. May2009,there were nomovements indirectors’ 8 to During theperiodfrom 1 April2009 shares awarded undertheBT Group EmployeeShare Plan. Investment Includes intheBTfor Group participants EmployeeShare Plan. Investment 76,8 (Jersey) Limitedfor allocationtoemployeesundertheemployeeshare plans.Theyeachalsohadanon-beneficialinterest in formance ofBT Group plcmeasured byTSRrelative to abroad a,d f e a,c,d a,d a,b,d a,d e ofappointmentiflater, are shownbelow: REPORT ONDIRECTORS’ REMUNERATION 100 120 140 160 180 200 220 240 40 60 80 2004 31 Mar Source: Datastream 31 March 2004=100 over thefivefinancialyearsto 31March 2009 BT’s total shareholder return (TSR)performance BT 2005 31 Mar FTSE 100 91 shares (2008: 31,898) held in trust byHalifaxCorporate 31,898)heldintrust Trustees Limited shares (2008: 91 2006 31 Mar BT GROUP PLC 2007 31 Mar ANNU ,7,8 1,002,161 1,475,488 AL REPORT & FORM 5,6 233,408 80,640 252,769 528,459 191,017 19,284 759,108 102,056 00615,069 20,056 69030,920 13,621 12,647 20,000 36,920 13,621 20,000 49,249 49,249 ,5 2,250 9,261 2,250 9,261 6,534 2008 31 Mar 2009 No. ofshares 2009 31 Mar 20-F 2008 63 – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW v u t s r q p François Barrault received atermination paymentof o n m l k j i h g f e B Verwaayen d c b a Sir MichaelRake emolumentsfor thefinancialyear2008/09were asfollows: Directors’ emoluments Directors’ remuneration to audit. issubject ondirectors’ oftheReport This part Remuneration review 64 F Barrault Termination payments J FNelson Baroness Jay P Reynolds A Green Bland Sir Christopher B Verwaayen F Barrault C GSymon D Lathen P Hodkinson P Hewitt J EDaniels C Brendish M Alahuhta vandenBergh M G Patterson Lalani H Chanmugam T Livingston I REPORT OFTHEDIRECTORS Paul Reynolds resigned asadirector on14September 2007. Andy Green resigned thecompanyon31December2007. asadirector on12November2007andleft BlandretiredSir Christopher asadirector on30September 2007. priorto leavingshares. theBoard. Thebonuswaspaidincashandwillnotbeconverted abonusof£300,000for hiscontributionin2008/09 Ben Verwaayen retired asadirector on30June2008. He received Baroness Jayretired 2008butcontinuesasamemberoftheCommittee for asadirector Responsible on13January Businessfor andSustainable whichshereceives anannualfee of£6,500. François Barrault resigned as a director on 30 October 2008 and left thecompanyon30November2008.Hisadditionalexpatriate benefitsincludedhousingallowance, schoolfees, October 2008andleft international tax 30 François Barrault resigned asadirector on Deborah Lathenwasappointed asadirector 2007. on1February Patricia Hewittwasappointed asadirector on24March 2008. Eric Danielswasappointed asadirector on1April 2008. Gavin Patterson wasappointed asadirector on1June2008. early2008underwhichhewillreceive paymentof£315,000inMarch 2010. cashaward in retention Tony Chanmugamwasgranted a Tony Chanmugamwasappointed asadirector on1December2008. ofsuchallowancewhichhasnotbeenused for acompanycar.Expense allowanceintheabovetableincludesamonthlycashlieuofcompanycarorpart usetheircashbonusto purchase BT shares. will Directors Other benefitsincludesomeorallofthefollowing: companycar, fuelordriver, personaltelecommunications security, facilitiesandhome medicaland dentalcoverfor thedirector andimmediate family, e ewae eevdatriainpyeto 7000i codnewt h em fhscnrc.Total remunerationBen Verwaayen andpayments to BenVerwaayen received atermination paymentof£700,000inaccordance in2008/09amounted withtheterms to ofhiscontract. £1,277,000. Total remuneration andpaymentsto François Barraultthe contract. in2008/09amounted to £2,855,805. Barrault, butrepresented level. amountspaidto equalisehistaxto hishomecountry wasmadeonbehalfofFrançois Barrault to therelevant authoritiesinrespect oftaxequalisation.Thisdidnotconstitute monies paidto, or received by, François paymentof£176,358 Afurther Board. Healsoreceived apayment of€700,000(£554,150)inJune2008arisingfrom aretention award prior to hisappointment to the preparation andequalisation,socialclubrepresentation allowance. John Nelson retired as a director on 13 January 2008. 13January on John Nelsonretired asadirector ai aaiavsdteRmnrto Committee thathedidnotwishto beconsidered for abonusfor 2008/09. Remuneration advisedthe Hanif Lalani personaltaxplanning, andfinancialcounselling. special life cover, professional subscriptions, Sir MichaelRake wasappointed asChairman andadirector on26September 2007. Deferred annualbonusespayableinshares inthree years’time,subjectto continuedemployment. Pension allowancepaid incashfor thefinancialyear2008/09 –see‘Pensions’ below. BT GROUP PLC s d,f,g l m o d,n v k t d,e,f,j d,e,f u q d,p d,e,f,h,i c,d ANNU r AL REPORT & FORM REPORT ONDIRECTORS’ REMUNERATION € 1,933,435 (£1,598,805)inaccordance andbenefitsasdefinedin withtheterms ofhiscontract. oftheequivalent12months’salary Thisconsisted 20-F aayado eso oa aaycnetdEpne excluding Expenses converted Total salary ofpension and salary ,7 4 ,1 0 684617767–– – 7,677 6,197 834 36 908 4,419 446 3,973 0 12130–2 7 ,1 1,534 312 – – 1,816 577 1,263 1,257 26 684 – – – 281 – – 121 77 – 300 – – 404 – – 251 1,076 343 573 15 698 805 51 328 275 £000 1,018 132 – 19 10 52 630 8 1,174 200 £000 441 – 15 15 30 7 150 £000 6 8 162 – 100 £000 15 – 103 502 £000 – 343 – 746 158 85 £000 808 172 150 – 600 £000 417 6 574 – £000 158 802 £000 600 £000 ai net Basic escontributions fees 0–8 7 75 – 75 – –75–––7555––7480 –75–––751––70 –74–––74––– –7–––742––7 ––––––44––– ––––––686––– ––––––646––– ––––––270––– allowance Pension a n esto shares and fees 0–––150128––0–––10069––0–––8056––0–––7051––0–––150128–– Annual bonus (to be p loac pension allowance ) benefits Other 8,496 1,599 2009 700 oa oa eerdBonus Plan Deferred Total Total 2008 2009 2008 b

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW a-b a-d Increases inpension benefitsat31March 2009 of £1m. provision. BT benefit provides himwithalumpsumdeathinservice schemes andthecompanymadenopaymentst Sir MichaelRake isnotamemberofanythecompanypension Pensions member oftheBT Group for theirbenefit. 2008 butcontinuesasamemberofthe –£375,736). (2007/08 pension of£390,766 Sir Peter Bonfieldreceived, underpre-existing arrangements, a Former directors positions intheprevious year. one third ofthecashbonusespaidto directors inthesame The aggregate ofthecashbonusesfor 2008/09represents lessthan 96%). 72%to – (2007/08 40%ofcurrent salary 0%to from ranged of thefinancialyear2008/09,whichare notpensionable, inrespect paymentto purchaseused immediately after BT shares) None ofthedirectors’ salarieswillbeincreased in2009/10. was£475,000. salary annual andTony Chanmugam’s £500,000 was salary annual OnappointmentGavinPatterson’s 2008. effective from 1June were (approximately £654,000).Allincreases increased from €750,000(approximately £528,170)to €850,000 was managementfee annual Chief Executive andFrançois Barrault’s increased from £560,000to £850,000uponhisappointmentas was salary annual from £520,000to £585,000,IanLivingston’s r salary annual BenVerwaayen’s During thefinancialyear2008/09, REPORT OFTHEDIRECTORS P Reynolds T Chanmugam i h g f e d c Gr There are loansgranted nooutstanding byanymemberoftheBT Loans £6,500. A Green H Lalani and Sustainable Business Sustainable and mie t£0,0,HnfLln’ nulslr a increased was salary annual at£800,000,HanifLalani’s emained The valuesfor HanifLalanirepresent thedeferred thecompanyon31March 2009and2008,respectively. pensionto whichhewouldhavebeenentitledhadleft For Tony Chanmugam,theamounts Transfer valueof thedeferred pensionincolumn (a)asat31March 2009calculatedonthebasisofactuarial adviceinaccorda Paul Reynolds resigned asadirector thecompanyon31December2007. on14September 2007andAndyGreen left Tony Chanmugamwasappointedasadirector on1December 2008. £nil). £–)andPaul Reynolds £nil(2008: (2008: Directors’ contributionsinthefinancialyear2008/09were asfollows: HanifLalani£nil(2008:£nil); AndyGreen, £nil(2008: £23,200); Tony Chanmugam,£9,500 The transfer valueofthepensionincolumn(e),lessdirectors’ contributions. The increase inpensionbuiltupduringtheyear, netofinflation.Thegross amountcanbecalculatedbydeductingtheunder column(b)from theamount undercolumn(a). The equivalenttransfer atthatdate valuebutcalculatedasat31March service 2008ontheassumptionthatdirector left of theBT Pension Schemerather thananyremuneration duetotheindividualandcannotbemeaningfullyaggregated withannualremuneration, asitisnotmoneytheindividualentitledtoreceive. that date. thecompanyon March 2008iftheyhadleft March 2009.For AndyGreen andPaul Reynolds, theamountsrepresent thedeferredrepresent pensionat31 thedeferred pensionat1December2008and31 As required bytheCompaniesAct1985Schedule7A. u oayofthedirectors orguarantees provided byany oup to any Ian Livingston isnotamemberofanythecompanypension Ian Livingston January Baroness Jayretired asanon-executive director on13 to executive directors (whichwillbe Annual cashbonusawards g,i g g,i g,h payable inthefinancialyear2008/09 , for whichshereceives anannualfee of REPORT ONDIRECTORS’ REMUNERATION £000 2009 161 140 Committee for Responsible for Committee – – a Accrued pension owards retirement £000 2008 4 ,4 1,775 1,754 1,742 2,419 147 179 143 112 b rnfrvleo cre eet contributions Transfer valueofaccruedbenefits £000 2009 amount equal to 30% of his salary towards pensionprovision.amount equalto 30%ofhissalary The pension schemes,butthecompanyhadagreed to payanannual the transfer valueoftheincrease inaccruedbenefits. BTPS, hasbecomeentitledto duringtheyearand member ofthe including thosereferred to above,to whicheachdirector, whoisa benefitoffour timeshissalary.a lumpsumdeathinservice allowance for thefinancialyear 2008/09.BT alsoprovides himwith representing thebalanceofpension cash paymentof£85,000, BTRP, plusa into the pension provision. Thecompanypaid£40,000 towards 30%ofhissalary agreed to payanannualamountequalto year 2008/09. wastherefore madefor thefinancial cash paymentof£172,000 towards pensionprovision.amount equalto 30%ofhissalary A be payableonhisdeath.Thecompanyhasagreed to payanannual accrual.Atwo-thirds widow’spensionable service pensionwould benefitoffour timeshissalary.death inservice the financialyear2008/09.BT alsoprovided himwithalumpsum representing thebalanceofpensionallowancefor of £5,600 paid £235,000into hispersonalpensionplan,plusacashpayment towards pensionprovision.equal to 30%ofhissalary Thecompany schemes, butthecompanyhasagreed to payanannualamount ihalm u et nsriebnfi ffu ie i salary. benefitoffour timeshis with alumpsumdeathinservice therefore madeinthefinancialyear2008/09.BT alsoprovided him (£131,520)was €165,000 pension provision. Acashpaymentof towards annualmanagementfee amount equalto 30%ofhis agreed to payanannual pension schemes,butthecompany benefitoffour timeshissalary.with alumpsumdeathinservice allowance for thefinancialyear2008/09.BT alsoprovided him representing thebalanceofpension payment of£51,180 into hispersonalpensionplan,plusacash company paid£8,820 Ben Verwaayen wasnotamemberofanythecompany showstheincrease intheaccruedbenefits, below table The BTRP. Thecompanyhas Gavin Patterson isamemberofthe BTPS. Tony Chanmugamisamemberofthe buthasopted outoffuture BTPS Hanif Lalaniisamemberofthe rnosBral a notamemberofanythecompany was François Barrault 2,410 3,407 – – c or the actual leaving service date,asappropriate. or theactual leavingservice nce withActuarial GuidanceNoteGN11.Thetransfer valuerepresents aliability £000 2008 d BT GROUP PLC esdrcos andi directors’ earnedin less directors’ ntase diinl benefitsin Additional in transfer au - cre eet eless accruedbenefits value c-d hneinaccrued Change 00£000 £000 0920 2009 2009 2009 655 (33) – – ANNU AL REPORT & FORM h ercontributions the year 18 28 – – e 20-F increase value of Transfer £000 195 475 65 – – f

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW k j i h g f e d H Lalani arut362,500 c b a All oftheaboveoptionswere granted for nilconsideration. Total F Barrault Former directors G Patterson H Lalani T Chanmugam I Livingston Sir MichaelRake Share optionsheldat31March 2009,ordate ofappointmentiflater REPORT OFTHEDIRECTORS 66 on30June2008. thecompany left Ben Verwaayen hadnounrealised gainsasat31March 2008.He Tony ChanmugamandGavinPatterson hadnounrealised gains asat31March 2009. a H Lalani F Barrault below: Unr 71.4p-235.5p (2007/08:205.5p-336.75p). 78.2p(2008:217.25p)andtherange duringthefinancialyear2008/09was The market priceofBT shares at31March 2009was Unrealised gains onshare options Option granted on25June2004underthe EmployeeSharesave Scheme,inwhichallemployeesofthecompanyare eligibleto participate. pin rne ne h SPo 4Jn 04 h xrieo pin a ujc oapromnemauebigmt h efrac esr a relative TSRcompared withagroup of was Options granted undertheGSOPon24June 2004.Theexercise ofoptionswassubjectto measure aperformance measure beingmet.Theperformance pingatdo 6Jn 07udrteEpoe hrsv cee nwihalepoeso h opn r nildt atcpt.InLvnso acle h pin hc a ne ae,on whichwasunderwater, cancelledtheoption, Livingston Ian Option granted on26June2007underthe EmployeeSharesave Scheme,inwhichallemployeesofthecompanyare entitledto participate. pin rne n1 aur 09udrteEpoe hrsv cee nwihalepoeso h opn r nildt atcpt.SirMichaelRake, andHanifLalanicancelled IanLivingston 2009undertheEmployeeSharesave granted Scheme,inwhichallemployeesofthecompanyare on13January entitledto participate. Options François Barrault left thecompanyon 30November2008. left Barrault François on whichwasunderwater, Option granted on19June2008underthe EmployeeSharesave SirMichaelRake Scheme,inwhichallemployeesofthecompanyare entitledto cancelledtheoption, participate. Gavin Patterson wasappointed asadirector on1June2008. Tony Chanmugamwasappointed asadirector on1December2008. Option granted on 26 June 2007 under the International Employee Sharesave Scheme. The option lapsed on 30 November 2008, the date François Barrault left thecompany. left Barrault Option granted on26June2007underthe International EmployeeSharesave Scheme.Theoptionlapsedon30November2008,thedate François 2009. thedate onwhichFrançois thecompany, Barrault left until30November Barrault for undertheGSOPon21May2004.Theoptionwaspreserved 12monthsfrom Option granted to François personal performance. Option granted undertheGSOP(SpecialIncentive Award) on24June2003,priorto HanifLalani’s appointmentasaDirector. Thisoptionisnotsubjectto measure aperformance asthegrant waslinked to 2009. January 13 on whichwasunderwater, Lalanicancelledtheoption, Hanif Option granted on23June2006underthe EmployeeSharesave Scheme,inwhichallemployeesofthecompanyare eligibleto participate. result, 42%oftheoptions lapsedand58%ofeachoptionbecameexercisable on24June2007. three-year periodendedon31March performance 2007.At thecomparator thatdate, thecompanywasat8thpositionagainst group andasa Below thatpointnoneoftheoptionscouldbeexercised. The 20 companiesfrom the European Telecom Sector asat1April2004.BT’s for alltheoptionsto TSRhadto becomeexercisable. beintheupperquartile At median30%oftheoptionswouldbeexercisable. 13 January 2009. January 13 h pin,wihwr ne ae,inMarch 2009. the options,whichwere underwater, 13 January 2009. January 13 aie an nteotossonabove,asat31March 2009,basedonthemarket priceofBT shares atthatdate were asshown ealised gainsontheoptionsshown BT GROUP PLC a b a ANNU AL REPORT & FORM REPORT ONDIRECTORS’ REMUNERATION ponmn fltrGatdLpe Exercised Lapsed Granted appointment iflater 20-F 1 April2008 2,9 85157,361 38,511 723,999 105,264 98,178 90,625 11,198 37,384 or date of 3,606 8,994 6,250 7,560 – 7,560 – 14,594 – 8,797 – k j f i h g f f e – – – 8,994 – – – – 6,250 – 3,606 – d d d c No. ofshares underoption 14,594 7,560 7,560 8,797 – – – – – – shares o f£0 o of£000 No. of£000 No. 6,0 8p2/520 21/05/2014 21/05/2007 180p 24/06/2014 362,500 24/06/2007 192p 13/02/2010 14/08/2009 – 146p 98,178 11,198 – 24/06/2013 24/06/2004 – 199.5p 24/06/2014 24/06/2007 192p 105,264 24/06/2014 24/06/2007 – 192p 90,625 – 37,384 – – – – – – – – – – – – 705,149 Unrealised gains 1MrhOto rc rmwihUsual expiry from which Optionprice 31 March 2009 2p0/321 31/08/2012 01/03/2012 124p – 31/08/2012 01/03/2012 124p 13/02/2014 14/08/2013 185p – – 1p0/321 31/08/2014 01/03/2014 111p – 7p1/821 13/02/2012 14/08/2011 – 179p 13/02/2013 14/08/2012 262p – 6p1/821 13/02/2011 14/08/2010 262p – 2009 105,264 – 90,625 – 362,500 – e hr exercisable per share shares Usual date Unrealised gains 2008 date 135 19 23

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW d c ISP 2006 G Patterson ISP 2005 H Lalani ISP 2006 T Chanmugam ISP 2005 I Livingston Details ofthecompany’s shares ordinary provisionally awarded undertheISPandRSPare to directors, asfollows: asparticipants heldat31March 2009,ordate ofappointment,iflater plans Share awards underlong-term incentive b a ISP 2008 GSOP 2003 Vesting share ofoutstanding awards andoptions REPORT OFTHEDIRECTORS j i h g f e d c b a Vesting ofRSPawards isnot subjectto target aperformance beingmet. RSP 2007 ISP 2005 F Barrault ISP 2005 B Verwaayen Former directors ISP 2008 ISP 2007 ISP 2006 ISP 2007 ISP 2006 ISP 2008 ISP 2007 ISP 2008 ISP 2007 ISP 2006 RSP 2007 ISP 2008 ISP 2007 ISP 2008 ISP 2007 ISP 2006 ISP 2007 ISP 2006 ISP 2005 Ben Verwaayen left the company on 30 June 2008. On that date all of his outstanding awards on30 June2008.Onthatdate allofhisoutstanding undertheISP lapsed. the company left Ben Verwaayen François Barrault left the company on 30 November 2008. On that date, all of his outstanding awards thecompanyon30November2008.On thatdate, all ofhisoutstanding undertheISPlapsed. left Barrault François Tony Chanmugamwasappointedasadirector on1December 2008. Awards undertheISPgranted in2005were target. subjecttoaperformance measure Theperformance wasrelative TSRcompared agroup with of19companiesfrom theEuropean Telecom Sectorasat of19companies.Asaresult, periodforThe performance 75%ofshares theISP2005endedon31March awarded 2008.BT’s lapsed theEuropean TSRpositionwasat10thagainst Telecom Sector 2003endedon31March 2008.BT’s TSRpositionwasat53rd theFTSE100.Asaresult, positionagainst alloftheoptionshavelapsed. periodforThe performance theGSOP h efrac eidfrteIP20 ne n3 ac 09 TsTRpsto a t1t oiinaantteErpa eeo etrof17companies.Asaresult, alloftheshares awarded lapsed theEuropean 14thpositionagainst Telecom Sector periodforThe performance theISP2006endedon31March 2009.BT’s TSRpositionwasat oyCamgmwsgatda S wr n2 ac 07 h wr ilvs nfl ujc ocniudepomn on20March 2010. subjectto continuedemployment Tony Chanmugamwasgranted anRSPaward on20March 2007.Theaward infull willvest Awards undertheISPgranted subjectto condition,on31March meetingaperformance in2007willvest measure 2010.Theperformance is relative TSRcompared withagroup of16companiesfrom the The performance periodsforThe performance theISP2007and2008endon31March 2010and2011respectively. on thatdate. on thatdate and25%ofshares awarded were transferred on19May2008. to participants Awards undertheISPgranted in2006were target. subjecttoaperformance measure Theperformance wasrelative TSRcompared agroup with of18companies from the European Telecom Sectorasat rnosBral a rne nRPaado 0Mrh20.O 0Dcme 08 h wr a r-ae,pr fteaadvse andtheremainder oftheaward lapsed. waspro-rated, oftheaward vested part Barrault wasgranted anRSPaward on20March 2007.On10December 2008,theaward François Gavin Patterson wasappointed asadirector on1June2008. vest. will Belowthatpoint, noshares vest. will 2008. BT’s for alltheshares At beintheupperquartile tovest. TSR must median,25%oftheshares condition,on31March subjecttomeetingaperformance measurewill vest 2011.Theperformance isrelative TSRcompared witha Awards undertheISPgranted on25June2008.Thenumberofshares subjecttoawards wascalculatedusing theaverage middle market priceofaBT share for thethree dayspriortothegrant. Theawards vest. will Belowthatpoint,noshares vest. will European Telecom Sector asat1April 2007.BT’s for alltheshares beintheupperquartile At to TSRmust vest. median,25%oftheshares result, alloftheawards lapsedonthatdate. the comparator 14thpositionagainst April2006.BT’s group. Asa for alltheshares TSR hadto be intheupperquartile At to vest. median,25%oftheshares At wouldvest. 31March 2009,BT’s TSRwasat 1 As aresult, 75%oftheawards lapsedonthatdateand25%oftheawards were transferred date,themarket on19May2008.Onthat priceofaBT toparticipants share was232.76p. 1 April2005.BT’s for alltheshares At TSRhadtobeintheupperquartile tovest. median,25%oftheshares At wouldvest. 31 March 2008,BT’s thecomparator TSRwasatmedianpositionagainst group. d d c b d c b a c b a d c b d c b a d c b d c b a i j f g a h e 169,851 251,208 205,803 525,193 333,995 112,343 161,271 132,658 – 226,489 190,853 13,375 – 119,283 344,657 250,495 49,070 89,161 50,948 87,914 83,094 66,870 1 April 08Aaddr-netdVse Lapsed Vested re-invested Awarded 2008 REPORT ONDIRECTORS’ REMUNERATION – – – – – 1,256,157 615,763 720,443 130,541 757,486 – – – – – – – – – – – – – – – – – Dividends 4,6 – – 140,868 902–– – – – 179,355 – – – 69,052 – 12,598 212,255 – 18,084 – – 80,792 25,398 21,402 – – 14,638 278,586 – – 38,650 28,091 009199659,984 802,528 266,145 – 119,966 218,040 – 10,099 – 45,042 14,937 12,237 ,5 – – – – 9,858 9,317 900– 525,193 49,070 333,995 – – – – – 89,161 – – – 50,948 – – 66,870 – 31/03/2011 31/03/2010 31/03/2009 31/03/2008 31/03/2008 etn aeTRpsto hrsvsigTRpsto shares vesting TSRposition shares vesting TSRposition Vesting date 1,397,025 ubro Monetary number of 31 March 383,307 684,815 124,941 801,235 251,887 145,179 97,772 92,411 hrsMre vested shares Market award value of 2009 Total 14 13 14 group of16companiesfrom theEuropean Telecom Sectorasat1April – – – – – – – – – – – – – – – – 31 March 0/220 0p105 169 140.5p 300p 10 /12/2008 10/00316p–– – 156 321.67p 232.76p 31/03/2010 227.75p 31/03/2008 10/08277p227p114 232.76p 227.75p – 208 31/03/2008 – 232.76p – 227.75p – 31/03/2008 – – 203p – 317.67p 31/03/2011 – – 31/03/2010 203p 119 – – 321.67p 31/03/2011 – 232.76p 31/03/2010 – 227.75p – 31/03/2008 300p – 203p 20/03/2010 – 317.67p 31/03/2011 31/03/2010 203p 31/03/2011 etn aeo rn tvsig£000 atvesting ongrant Vesting date Percentage of BT GROUP PLC 2009 0% 0% 0% 3.8 – – 231.58p – 0p–– – – – – – – 203p – 321.67p – – 231.58p – – – 321.67p – 231.58p – – – – 231.58p – – 231.58p – – – 231.58p – – – ANNU rc rc award price Price AL REPORT & FORM 12 10 53 43.75% 8 – 31 March 2008 Percentage of 20-F 25% 0% 0% 67 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Details ofdeferred bonusawards inrespect ofthefinancialyear2008/09are giveninthetableon e d c b a Barrault F B Verwaayen Former directors G Patterson H Lalani T Chanmugam I Livingston par The following deferred bonuseshavebeenawarded to thedirectors undertheDBP. Theseshares willnormallybetransferred to Deferred BonusPlanawards at31March 2009,ordate ofappointment,iflater REPORT OFTHEDIRECTORS 68 market priceofaBT share for thethree dayspriorto thegrant. deferred bonuseswillbegranted 2009.Thenumberofshares inAugust subjectto theawards willbecalculated usingtheaverage middle Awards granted on25June2008inrespect ofthefinancialyear2007/08.Thenumber shares subjectto awards wascalculated usingtheaverage middlemarket priceofaBT share for thethree daysprior Tony Chanmugamwasappointed asadirector on1December2008. lapsed onthatdate. His2006and2007awards were oftheawards pro-rated lapsedon10December2008.His2008award oftheawards andpart vested andpart thecompanyon30November2008. Barrault left François 2008. 30June on vested DBP Ben Verwaayen thecompanyon30June2008.Allofhisawards underthe left Gavin Patterson wasappointed asadirector on1June2008. to thegrant. ticipants attheendofthree-year deferred are employedbyBT still periodifthoseparticipants Group. BT GROUP PLC e c d b ANNUAL REPORT & FORM 124,722 150,296 109,279 114,510 448,423 627,911 114,249 34,759 50,402 67,832 96,602 58,882 51,649 75,594 30,991 33,675 46,065 1 April 08Awarded 2008 REPOR 138,517 – – 5,8 – 755,783 – 158,559 – 81,166 – 46,764 – 198,896 T ONDIRECTORS’ REMUNERATION 20-F – – –– – – –– –– –– –– – – –– – – –– – – a eivse etdLapsed Vested re-invested Dividends 15,533 – 12,254 12,841 – 22,303 13,986 16,853 ,2 167,987 – 37,929 19,901 33,936 9,428 82,445 4,033 5,744 9,101 5,791 8,477 5,243 3,775 5,165 755,783 448,423 627,911 114,249 34,759 50,402 30,991 58,882 154,050 121,533 – 127,351 – – – – – 138,708 167,149 – – – – 90,267 57,440 – 84,071 – – – – – 52,007 37,450 – 51,230 – – – – – –– –– –– –– –– –– –– –– number of 31 March 221,199 shares award 2009 Total – – – 10/01203p 60 321.67p 01/08/2011 172.29p 231.58p 01/08/2010 227.75p 01/08/2009 01/08/2008 203p 87 321.67p 01/08/2011 172.29p 231.58p 01/08/2010 227.75p 01/08/2009 01/08/2008 00/0823 9.p1,499 889 198.4p 1,246 203p 227 198.4p 198.4p 321.67p 30/06/2008 198.4p 231.58p 30/06/2008 227.75p 30/06/2008 30/06/2008 10/01203p 53 321.67p 01/08/2011 172.29p 231.58p 01/08/2010 227.75p 01/08/2009 01/08/2008 203p 321.67p 01/08/2011 231.58p 01/08/2010 01/08/2009 01/08316p105 47 116 101 140.5p 140.5p 321.67p 172.29p 231.58p 10/12/2008 227.75p 10/12/2008 01/08/2008 etn aea rn tvsig£000 atvesting atgrant Vesting date ae64. page 203p – Awards inrespect ofthe rc rc award price Price aktvested Market –– –– –– –– –– –– –– –– –– –– –– –– –– Monetary value of

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW lsaeItrainl2008 Allshare International ESIP 2007 ESIP 2007 ESIP 2007 ESIP 2007 lsaeItrainl2007 Allshare International ESIP 2006 ESIP 2006 ESIP 2006 ESIP 2006 a 2006 Allshare International F Barrault Former Director ESIP 2005 G Patterson ESIP 2005 ESIP 2004 ESIP 2003 ESIP 2002 H Lalani ESIP 2005 ESIP 2004 ESIP 2003 ESIP 2002 T Chanmugam ESIP 2005 ESIP 2004 I Livingston appointment, iflater andAllshare International at31March 2009,oratdate of Share awards undertheEmployee SharePlan(ESIP) Investment REPORT OFTHEDIRECTORS 13 May2009 Deputy ChairmanandofRemuneration Committee vandenBergh Maarten By order oftheBoard b wr rne ne lsaeItrainlo 3Jn 08 nta ae h aktpieo Tsaews201.5p. June2008.Onthatdate, themarket priceofaBT share was Award granted underAllshare International on23 rnosBral ettecmayo 0Nvme 08 i wrscontinuedto beheldinAllshare International. Hisawards 2008. thecompanyon30November left Barrault François b REPORT ONDIRECTORS’ REMUNERATION pi 08Awarded 1 April2008 107 107 107 107 1 116 186 130 – – – 116 186 130 116 186 130 – – – 116 116 186 130 – 116 107 679 363 – 191 247 679 BT GROUP PLC 84 84 84 84 84 56 56 56 56 – ANNU AL REPORT & FORM 116 116 – – – – – – – – – – – – – – – – a Total numberof 31 March award shares 20-F 2009 116 107 107 107 107 107 307 247 679 679 363 84 84 84 84 84 56 56 56 56 69

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW remuneration about theperiodsofthesecontracts isinthe François Barrault Matti Alahuhta Sir MichaelRake during the2009financialyear. of theBoard and The following tableshowstheattendance ofdirectors atmeetings Meetings attendance ontheBoard for nineyears. serving AGM almost after willretire attheconclusionof vandenBergh Maarten and years for overthree just serving 2009after May 31 leave theBoard on retire byrotation butwillnotseekre-election. MattiAlahuhtawill remuneration directors’ contracts ofappointmentare includedinthe directors’ rotation andwillbeproposed for re-election. Detailsofthese retire by PhilHodkinson and ClayBrendish proposed for election. AGM attheforthcoming andwillbe director bytheBoard, retires than three years.Thedirector mayseekre-election. subsequently retire byrotation ofnotmore atanAGM atintervals their appointment,ifappointed bytheBoard. Adirector must by shareholders annualgeneral atthefirst meeting(AGM) after All directors are required byBT’s ofassociationto beelected articles andre-election Election DIRECTORS’ INFORMATION REPORT OFTHEDIRECTORS 70 also visitsto key BT locationsand meetingswithmembersofthe senior executives, financial information. andthelatest There are and procedures, to thegroup’s includingthepowersreserved most delegated to thosecommittees, BT’s corporate governancepolicies membership ofthemainBoard committees, andthepowers forthe matters reserved itsdecision,theterms ofreference and when theyreceive information aboutBT, therole oftheBoard and On appointment,directors inaninduction programme take part Training andinformation which are approved bythe The Chairmanandexecutive agreements, directors haveservice agreements Service e d c b a Ben Verwaayen Carl Symon a iigtn1(2 – – – 12(12) 5(5) Gavin Patterson Ian Livingston Deborah Lathen 2(2) Hanif Lalani Phil Hodkinson 3(5) Patricia Hewitt Eric Daniels Tony Chanmugam 10(12) Clay Brendish van den Bergh Maarten All scheduledBoard meetingsattended Resigned from theBoard on30June2008 Appointed to theBoard on1June2008 Appointed to theBoard on1December2008 Resigned asadirector on30October 2008 codnl,Tony Chanmugam,havingbeenappointed asa Accordingly, BT GROUP PLC e e e d c,e . e a b Audit, Nominating and Remuneration Committees Remuneration and Nominating Audit, ANNU AL REPORT & FORM h olwn w directors are dueto Thefollowing two . 21)–22 4(5) 2(2) – 12(12) 21)55 5(5) – 5(5) 12(12) 01)––5(5) – – – – – 4(4) – 1(2) – – – – 5(5) 10(12) 4(4) 2(2) 11(12) 2(2) 11(12) 11(12) 5(5) 10(12) 12(12) or omte Committee Committee Committee Board Remuneration Committee Remuneration (2 4(5) – – 9(12) (0 – – – 9(10) Number ofmeetingsattended (maximum possible) ()––– – – – 2(3) – – – – – 4(4) 5(6) 1 2525 Number ofmeetingsheld 20-F ui oiaigR Nominating Audit Report ondirectors’ Report . Information Report on Report emuneration to take independentprofessional adviceifnecessary, atBT’s The Board hasaprocedure for outtheirduties, directors, incarrying Independent advice of theirdutiesasdirectors. Board meetingandatotherappropriate times,andto take account information to beproperly briefed sufficientlyfaraheadofeach papers for eachBoard meeting,sothatthedirectors haveenough non-executive directors withtopical sector highlights. Secretary’s TheChairmanalsosendsaweeklye-mailto Reports. through monthly and onvariouscorporate governancematters example, theyreceived briefingsonchangesto UKcompanylaw and themselvesasdirectors. Duringthe2009financialyear, for accounting andgovernancerequirements affecting thecompany duties eachyearandtheyare alsoupdated onchangesto thelegal, meetings withtheCompanySecretary. Theyare reminded ofthese director company, ofalisted bothinwritingandface-to-face appointment oftheirlegalandotherdutiesobligationsasa sessions annuallyto discussstrategy. Directors are alsoadvisedon meetings withseniorBT executives. TheBoard alsohastwolengthy asawhole,bywritten briefingsand the communicationsindustry responsibility matters andotherchangesaffecting BT and corporate environmentsand regulatory inwhichitoperates, technology and Directors are continuallyupdated onBT’s business,thecompetitive Committee Operating any presently proposed material transactions. relation to thegroup’s businessandnoneismaterially interested in directors wasmaterially interested inanymaterial transaction in During andattheendof2009financialyear, noneofBT’s transactions Interest ofmanagementincertain acted fraudulently ordishonestly. insurance northeindemnityprovides coverwhere thepersonhas people whowouldbecovered bytheaboveinsurance. Neither the plc, hasprovided anindemnityinrespect ofasimilar group of company’s whollyownedsubsidiary, BritishTelecommunications wasapproved,report andthroughout the2009financialyear, the adirectorof indemnifying orofficer. At thedate onwhichthis also provides BT, subjectto aretention, thecost withcoveragainst circumstances where bylawBT cannotprovide anindemnityand operates to protect thedirectors andofficersdirectly in action brought theminthatcapacity. against Theinsurance defenceagainst andcivildamagesawarded costs following an nominated directors ofassociated companiesandjointventures) and officersofBT Group plcanditssubsidiaries(andtheBT For someyearsBT haspurchased insurance to coverthedirectors and indemnity liabilityinsurance andofficers’ Directors’ the CompanySecretary. of expense. Alldirectors alsohaveaccess to theadviceandservices Guidelines govern the content, presentation and delivery of Guidelines governthecontent, presentation anddelivery and otherkey seniorexecutives.

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW published externally. BT’s codeofpractice ( Undertakings the applicationoftheseprinciples.Thehelplinenumberisalso facility are about alsoavailableto employees whohavequestions on-line training. Aconfidentialhelplineanddedicated e-mail continuing andcomprehensive communicationsprogramme and business practice ( We havehadinplacefor nearlyten yearsawritten of statement Responsible business BUSINESS POLICIES REPORT OFTHEDIRECTORS activities havebeen carriedoutonaneven-handed basisovera ofBT. contributionto theirunderstanding important These issuesandmatters affecting thecompany,industry whichmake an such asmakingMPsandothersin thepoliticalworldaware ofkey sense inwhichthesewords are ordinarily used.Itcoversactivities muchbroader thanthe Companies Act2006(theAct) isvery or loan.However, thedefinitionofpoliticaldonationsusedin contributions incashorkindto anypolitical party, whetherbygift Our continuingpolicyisthatnocompanyinthegroup willmake Political donations employees. We are committed to highethicalstandards andlegal worldwide. people ae56. page Committee for Responsible Business andSustainable Corporate Responsibility review – contribution to society. More information isavailablein charitable expenditure andthestrategy for maximisingour responsibility, environment andcommunityactivities,including and three independent members overseesourcorporate representatives from BT businesses,three non-executive directors employee awareness of havemeasured our compliance inallaspectsofourbusiness.We responsible manner. delivered, usedanddisposedofinasociallyenvironmentally that weworkwiththemto ensure our purchases are made, 83%ofoursuppliersagreed improve In2009, theirperformance. We workwithoursuppliersto helpthem suppliers inChina. based inShanghai,whichhasenabledusto focus on ourefforts andtheUK.We nowemployourownassessor Thailand, France also conducted assessmentsinthePhilippines,SouthKorea, The majorityofassessmentswere conducted inChina,althoughwe wecompleted 27on-site assessments(2008:25). financial year, all suppliersidentifiedashigh-ormedium-risk.Duringthe2009 committed to achieving100%follow-up withinthree monthsfor andarepotential socialandenvironmental shortcomings internationally recognised humanrightsstandards. We investigate ensure thatworkingconditionsthroughout oursupplychainmeet on ethicsto reflect ournewpolicies. employees haveethicalbehaviour;andweare reviewing ourKPIs wehaverefreshed andreissued 2009, languages. During contractors whenrepresenting BT, andisavailableinnine and appliesworldwideto allemployees,andto allagentsand the UK. countriesincluding six 14001in since 1992.We to ISO are certified and havehadanenvironmental intheUK managementsystem with it. ofbusinesspractice ofourstatement forms andisconsistent part Sustainable Business Sustainable We Work We We andHospitalitypolicyto our havealsoissuedanewGifts The high-levelprinciplesin Through ourSourcing withHumanDignityinitiative,weseekto or omte the A Board committee – We are committed to managingourenvironmental performance and our policy on Anti-corruption and Bribery to allour and ourpolicyonAnti-corruptionBribery The Way We Work We Way The chaired bySirMichaelRake andcomprising – The Way We Work We Way The Committee for Responsible and Responsible for Committee The Way We Work We Way The npg 23. on page ). Thiscoversallouroperations and the extent thatour and theextent The are supported bya are supported Report ofthe Report is on Business It matters It The Way The ) and future newentrants to bepaidinto individualpersonalpension employee andemployerpensioncontributionsfor BTRP members paid into theBTRP asBT hasmadearrangements for allfuture contributionsare to be April2009,nofurther With effect from 1 accordance withtheirrespective rulesandfor nootherpurpose. of thecompany. Thepensionfunds’assetscanbeusedonlyin theassetsoffunds,whichare heldseparatelyafter from those separate andindependentcorporate look Thetrustees trustees. are notcontrolled bytheBoard butby BT Retirement Plan(BTRP) – theBT Pension Schemeandthe BT’s twomainUKpensionfunds– Pension funds elsewhere assetoutbelow: inthisReport additional disclosures. Anumberofthesedisclosures canbefound provisions ofthe2006Act,wearecertain required to make Following theimplementationofEUTakeover Directive by Takeover disclosure Directive included in responsibility isincludedinthe the financialstatements aware ofthatinformation. information thattheauditors andto havebeenmade establish have beentaken to make themaware ofanyrelevant audit the directors havebeentaken believesthatallsteps thatoughtto information thathasnotbeendisclosedto theauditors andeachof So faraseachofthedirectors isaware, there isnorelevant Financial statements 47). (2008: 49 the paymentrunfor theinvoicewas average numberofdaysbetweentheinvoicedate andthedate of In2009,the obtain paymentsinadvanceoftheagreed terms. supplier financingschemewhichoffersto supplierstheopportunity ofthisterm. BTfollowing expiry also provides accessintheUKto a make paymentto thesupplieronagreed paymentrun next different insomeofthelocalmarkets inwhichBT operates. BT will receipt ofadueandvalidinvoice,althoughtheseterms maybe In theUK,BT’s normalpaymentterms are 60daysfrom thedate of Payment ofsuppliers arranged through Standard Life. plans company intheBT group. byany Plaid Cymru£600.Noloanswere madeto anypoliticalparty £5,380; Liberal Democrats £2,411; £3,333;ScottishNationalParty company’s Party £5,933;Conservative activities:LabourParty briefingmeetingswithMPsandMEPsaboutthe ofhosting the cost to cover (2008:£29,989) following paymentstotalling £17,658 owned subsidiary, BritishTelecommunications plc,madethe thecompany’s wholly- 2009, Act.During 2006 defined inthe and/orpoliticalorganisations as donations to EUpoliticalparties companies to obtainshareholder authoritybefore theycanmake that BT actswithintheprovisions ofthe2006Actrequiring not designedto changetheabovepolicy. Itwill,however, ensure electoral strength. Theauthorityweare requesting attheAGM is related broadly to themajorUKpoliticalparties’ five-year period ae 5 n 154); and 153 pages restrictions onthetransfer ofBT shares andvotingrights(refer to to 155); rights andobligationsattachingto theshares (refer to structure ofBT’s share capital A statement bythedirectorsA statement of theirresponsibilities for preparing Financial review –Capitalresources . The directors’ statement ongoingconcernis statement . Thedirectors’ BT GROUP PLC rfrt ae115) page (refer to ANNUAL REPORT & FORM Statement ofdirectors’ . including the pages 153 20-F 71

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW include thefollowing: REPORT OFTHEDIRECTORS 72 and ethicalmatters thatrelate to BT’s businesses and reviews actionistakenensure to remedy thatnecessary thefailings. the caseofanycategorised assignificant,procedures to exist andevaluate failingsandweaknesses,and,in designed to identify reviewing BT’s ofinternal systems control includesprocedures material orloss.Theprocess misstatement against inplacefor canprovideany system onlyreasonable andnotabsolute assurance than eliminate, theriskoffailure to achievebusiness objectives; are Suchsystems of thosesystems. designedto manage,rather eachyearthe effectiveness for reviewing and riskmanagement The Board isresponsible for thegroup’s ofinternal systems control Internal control andriskmanagement price riskare givenon the group andexposure to interest risk,credit risk,liquidityriskand Details ofthefinancialriskmanagementobjectivesandpolicies Financial instruments respect to theoffer itthinksfair; takeviews ontheoffer theactionwith andmayotherwise mayconsultthemto obtaintheir interests oftheparticipants, obliged to acceptorreject theoffer butwillhaveregard to the shares, andifthere isanoffer for theshares isnot thetrustee Share OwnershipTrust, from abstains thetrustee votingthose transaction. Inrespect ofshares heldintheBT Group Employee maydirect itto accepttheofferparticipants oragree to the transaction whichwouldleadto achangeofcontrol ofBT, those shares, andifthere isanoffer for theshares orother whose behalfitholdsshares to direct ithowto vote inrespect of on Employee Share Planmayinvite participants Investment various employeeshare oftheBT plans.Thetrustee Group shares awards for madeunderthe thepurposeofsatisfying BT hastwoemployeeshare whichholdBT ownershiptrusts occurs becauseofatakeover. providing for compensationfor lossofofficeoremploymentthat we donothaveanyagreements withdirectors oremployees and alter orterminate uponachangeofcontrol following atakeover; to anysignificantagreementswe are thattake notparty effect, shareholder approval attheAGM; shares, purchases andto undertake ofBT shares subjectto ofassociation.Theyare authorisedto issueandallot the articles the powersofdirectors are determined byUKlegislationand time to time; shareholder approval inaccordance withlegislationinforce from the amendmentofBT’s ofassociationrequires articles (see also the registrars notlessthan48hoursbefore ageneral meeting proxy bereceived must by appointmentandvotinginstructions control oftheCompany; specialrightswithregardno personholdssecuritiescarrying to rights; may result inrestrictions onthetransfer ofshares oronvoting we are notaware ofanyagreements betweenshareholders that The disclosures whichare notcovered elsewhere inthisReport appointment andreplacement ofdirectors (refer to and BT Group &Form plcAnnualReport 20-F; significant direct orindirect shareholdings (refer to The Board alsotakes accountofsignificant social,environmental BT GROUP PLC ae153); page ANNUAL REPORT & FORM ae45 page BUSINESS POLICIES and oe3 npgs10t 135. to 130 onpages 33 note 20-F ae74); page ae155). page strengthened contract governance process that combines ofa to aspart assesscommercial risksandopportunities more regularin 2010.Theseincludeundertaking contract reviews were inplacebytheendof2009;rest are beingimplemented implementing anumberofprocess improvements. Someofthese 2009 asdiscussedon executives. group-wide policiesand practices areto identifiedsenior reserved powersrelating to development andimplementationofcertain group’s ofthisframework, seniorexecutives. the Aspart comprise thefollowing procedures: Principalrisksanduncertainties review – strategic review. Ourcurrent key risksare summarisedin information ofthe isreviewed byseniormanagementaspart identifies thekey risksfacingthe group andeachbusinessunit.This management process, culminatinginaBoard review, which BT’s annualstrategic planningcycle.We haveadetailedrisk Guidance). Council(theTurnbullpublished bytheFinancialReporting the Revised Guidancefor Directors ontheCombinedCode this documentwasapproved. Theprocesses are inaccordance with financialyearandhavecontinuedupto thedate onwhich 2009 the group. Theseprocesses havebeeninplacefor thewholeof evaluatingandmanagingthesignificantrisksfacedby identifying, are dealtwithinthe anddetailsofunderlyinggovernanceprocesses and opportunities workplace practices, specificenvironmental, socialandethicalrisks responsibility policy. Thecompany’sannually BT’s corporate responsibilities andpowers ofthe sets outthehighlevelprinciplesbywhichBT ismanagedandthe also approved thegroup’s corporate governanceframework, which are to itfor reserved consideration, approval oroversight.Ithas control assessment. management process and are responsible for theirowninternal ofthegroupnot control,risk havenotbeen dealtwithaspart financialyear. Jointventures andassociates, whichBT does 2010 in theaboveriskmanagementprocess. Theywillbeincludedfor the New subsidiariesacquired duringtheyearhavenotbeenincluded and mitigationstrategies. Thisisreviewed bythe have created agroup riskregister describingtherisks,owners senior executives collectivelyreview thegroup’s key risksand the lines of business carry outriskassessmentsoftheir the linesofbusinesscarry the management inthelinesofbusinessoperations; and areas identifiedfor improvement andpromote effective risk management andthe the qualityofriskmanagementandcontrol,to report the group’s outcontinuingassessmentsof internal auditors carry operation ofinternal controls intheirarea ofresponsibility; withtheiropinionontheeffectiveness ofthe quarterly report senior executives withresponsibilities for majorgroup operations ensure thatthekey risksare addressed; operations, and registers relating to those risk create operations, Board. The itsconclusionstointernal the auditors andexternal andreports the group duringthefinancialyear. Itreviewsfrom reports the effectiveness oftheoperation ofinternal control procedures in 09financialyear. 2009 Committee In thelightofissueswhicharose during inBT GlobalServices The key features oftheenterprise wideriskmanagementprocess Risk assessmentandevaluationtakes of placeasanintegral part We haveenterprise-wide riskmanagementprocesses for The Board hasapproved theformal ofmatters statement which Audit Committee Audit Audit Committee Audit before beingreviewed andapproved bytheBoard; Business review –Ourpeople page 10 , onbehalfoftheBoard, considersthe Audit Committee Audit the managementteam are has carriedouttheseactionsfor the Operating Committee Operating . on thestatusofspecific . Operating and the Business

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ru FinanceDirector andseniorfinancemanagers. Group www.bt.com/ethics onthecompany’sSarbanes-Oxley Actisposted website at andITexperienceontheCommittee. financial, management abroad andsuitablemixofbusiness, thisconstitutes and that supervision andfinancialfunction treasury financial management, variouspriorroles inmajorbusiness,Governmentand – them between – businessleadershipexperience,havingheld extensive members generally havebroad commercial knowledgeand for thispurpose).TheBoard considersthattheCommittee’s andwhoisindependent(asdefined committee financialexpert’, in thepersonofPhilHodkinsonamemberwhoisan‘audit the endofperiodcovered &Form bythisAnnualReport 20-F, the effectiveness ofBT’s disclosure controls andprocedures asof The ChiefExecutive andGroup FinanceDirector, evaluating after Disclosure controls andprocedures pursuant to thislegislation,insofarastheyare applicable. We requirements complywiththelegalandregulatory introduced provisions oftheSarbanes-OxleyActapplicableto foreign issuers. Commission (SEC).Asaresult, complywiththose wemust BT hassecuritiesregistered withtheUSSecuritiesandExchange of2002 US Sarbanes-OxleyAct requirementsmeet ourdelivery onallmajorcontracts. duediligencearound ourabilityandreadiness to enhancing and greater focus onprofitable wincriteria sectors, settingstringent forestimates contracts. newandexisting We are alsoplacing involving strong independentoversightofassumptionsand will continueto beconducted onarigorous andregular basis contr operational, Additionalscrutinyof financialandriskreporting. REPORT OFTHEDIRECTORS The codeofethicsadopted for thepurposesof It istheopinionofBoard thatthe acts and cost transformationacts andcost plans havebeenputinplaceand The codeappliesto theChiefExecutive, BUSINESS POLICIES Audit Committee Audit includes financial reporting, is reported to the isreported financial reporting, Accounting OversightBoard (PCAOB), ininternal control over significant deficiency, asdefinedbytheUSPublicCompany affected, thegroup’s internal controlAny overfinancialreporting. materially affected, orare reasonably likely to havematerially thatoccurredreporting duringthe2009financialyearthathave effective. 31 March 2009,BT’s internal controlwas overfinancialreporting contained intheTurnbull Guidance. basedontheframeworkreporting for internal control evaluation assessment oftheeffectiveness ofinternal control overfinancial purposes inaccordance withIFRS.Managementconducted an and thepreparation for offinancialstatements reporting external reasonable assurance regarding thereliability offinancialreporting Internal controlisdesignedto provide overfinancialreporting adequate internal controlfor overfinancialreporting thegroup. BT’s managementisresponsible for andmaintaining establishing Internal control overfinancialreporting No.5 ofthePCAOB.ison Theirreport internal controlunderAuditingStandard overfinancialreporting financial year, hasalsoaudited theeffectiveness ofthegroup’s consolidated ofthegroup financialstatements for the2009 the certifications requiredthe certifications bySarbanes-OxleyAct. The ChiefExecutive andGroup FinanceDirector havealsoprovided relating to BT wasmadeknownto thembyotherswithinthegroup. procedures were effective to ensure thatmaterial information have concludedthat,asofsuchdate, BT’s disclosure controls and There were nochangesinBT’s internal control overfinancial Based onthisassessment,managementhasconcludedthatasat PricewaterhouseCoopers LLP, whichhasaudited the BT GROUP PLC ANNUAL REPORT & FORM Audit Committee Audit ae78. page . 20-F 73

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW separately onthe attheAGM.report Shareholders willalsoagainbeasked to vote We are continuingourpolicythatshareholders vote ontheannual AGM resolutions voting rights. ofBT’s total 4.66% and 4.65% 5.08%, representing holdingsof respectively, shares 360,935,363 and shares 360,412,112 shares, 393,631,693 Authority, inrespect ofholdings Disclosure andTransparency Rules issuedbytheFinancialServices Barclays PLC, underthe and Limited, Legal&General Group plc May2009,BT hadreceived notificationsfrom Invesco 13 At shareholdingsSubstantial Secretary. chaired bytheCompany committee ofseniorexecutives, the Disclosure Committee, whichis also reviewed for accuracy andcompliancerequirements bya announcementsare Allexternal financialstatements. regulatory sensitive information andthepublication offinancialresults and quality ofourshareholder communications. individualshareholders aboutthe alsosurveys Secretary Company abouttheholdingsofprincipalshareholders.Secretary The viewsandareanalysts’ regularly informed bytheCompany andotherwritten briefingsonmajorshareholders’reports and generally availableto themarket. Thedirectors are provided with price sensitiveinformation that has notalready beenmade controlled bywritten guidelinesto ensure theprotection ofshare shareholders brokers (andwithfinancialanalysts, andthemedia)is wish.Contactwithinstitutional meetingsifthey investors’ attend governance issues.Allnon-executive directors haveaninvitationto include meetingsto discussoverall remuneration policiesand shareholders, attheirrequest, during theyear. Thismayalso andprospects.performance TheChairmanmeetswithmajor and prospective shareholders to discussBT’s strategy, financial directors, holdmeetingswithBT’s majorinstitutionalshareholders Director andincluding,asappropriate, theotherexecutive Senior executives, ledbytheChiefExecutive andtheGroup Finance Relations withshareholders SHAREHOLDERS ANDANNUAL GENERALMEETING REPORT OFTHEDIRECTORS 74 person orbyproxy atthemeetingwillbecounted. Theoutcome of procedural whetherin vote cast, issueswillbetaken onapoll.Every Thisyearvotes onallmatters except made availableatthemeeting. withheld, willbecounted before theAGM andtheresults willbe The proxy votes for eachresolution, andagainst aswellvotes different issuebyproposing aseparate resolution for eachissue. substantially toshareholders vote onevery theopportunity aboutBT’sask questions activitiesandprospects. We alsogive attheAGMof thecompanyandto to givethemtheopportunity Established proceduresEstablished ensure thetimelyrelease ofshare price It is part ofourpolicyto involveshareholders fullyintheaffairs It ispart BT GROUP PLC ANNUAL REPORT & FORM eoto ietr’remuneration ondirectors’ Report 20-F . separate July, notes, appearinthe together withexplanatory 15 Centre on the 2008AGM. available to answerrelevant Allthedirectors questions. attended viewing ontheBT website. www.bt.com/btagm2009 and theChiefExecutive willbebroadcast liveontheinternet at will alsobeproposed attheAGM. auditors andto authorisethedirectors to agree theirremuneration days before theAGM. documents are beingsentto shareholders more than20working notice, asrequiredofassociation.Inpractice, these byourarticles 21cleardays’ aim to giveasmuchnoticepossibleandatleast cost-effective fashion,giventhelarge numberofshareholders. We Form 20-F(ifrequested). Thesedocumentsare sentoutinthemost which issentto allshareholders & together withtheAnnualReport 13 May2009 Secretary Andrew Parker By order oftheBoard July2008. 31 Theprogramme wassuspendedwitheffect from November 2003. an on-market programme ofbuyingbackBT in shares, started shares were retainedshares. astreasury Alltheshares were purchased in 406m atotal of May2009 13 On employee share plans. transferred to meetBT’s obligationsunderour were shares treasury 91m cancelledand were shares treasury 250m financial year For more details,seethetableon pershare. consideration of£307m,atanaverage priceof£2.15 purchased underthisauthority(1.75%oftheshare capital)for a AGM. the 2009. Shareholders willbeasked to giveasimilarauthorityat October 15 representing 10%oftheissuedshare capital,expires on ofitsshares, 774m for BT to purchase in the market July2008 16 year’sThe authoritygivenatlast AGM ofthecompanyheldon Authority to purchase shares circumstances thismeansthatthechairmenof pressing reasons, thismaynotalwaysbepossible,innormal the AGM becauseofillhealthorother ifatallpossible.Whilst, themeeting.Itisourpolicyforpossible after alldirectors to attend onourwebsite beposted assoon will voting ontheresolutions Nominating The resolutions to beproposed atthe2009AGM atTheBarbican Copies ofthespeechandpresentation madebytheChairman Resolutions to reappoint PricewaterhouseCoopers LLPasBT’s uigte20 nnilya,13 hrso peach were 5p shares of 143m financialyear, During the2009 Summary financial statement & notice of meeting 2009 meeting of notice & statement financial Summary and Remuneration After theAGM, theywillbeavailableforAfter committees are attheAGM andare ae153. page During the2009 Audit,

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Board (IASB). the European Union(EU)andasissuedbytheInternational AccountingStandards Standardsapplicable lawandInternational Financial Reporting (IFRS)asadopted by The group’s consolidated havebeenprepared financialstatements inaccordance with FINANCIAL STATEMENTS 2NOTES TO THECONSOLIDATED FINANCIAL 92 SHEET GROUP BALANCE 91 GROUP CASHFLOW STATEMENT 90 GROUP STATEMENT OFRECOGNISED INCOME 89 GROUP INCOME STATEMENT 88 ACCOUNTING POLICIES 79 CONSOLIDATED FINANCIALSTATEMENTS 79 REPORT OFTHEINDEPENDENTAUDITORS – 77 STATEMENT OFDIRECTORS’ RESPONSIBILITIES 76 STATEMENTS 112 111 110 108 108 107 106 104 103 102 100 99 98 98 97 96 95 92 AND EXPENSE 78 77 CONSOLIDATED FINANCIALSTATEMENTS 130 129 126 126 121 118 117 116 116 115 115 114 114 113 113 liabilities Financial commitmentsandcontingent Trade andotherpayables Derivative financialinstruments Loans andotherborrowings Trade andotherreceivables Associates andjointventures Investments Property, plantandequipment Intangible assets Net debt Cash andcashequivalents Earnings pershare Taxation Dividends Finance expenseandfinanceincome Specific items Operating costs Other operating income Segmental analysis United States opinion United Kingdomopinion Financial instruments andriskmanagement Financial instruments Audit andnon-auditservices Share basedpayments Employees Retirement benefitplans Acquisitions transactionsRelated party Retained earnings Other reserves Share capital Reconciliation ofmovementsinequity Minority interests Deferred taxation Provisions 4 OPERATIONAL STATISTICS 146 FINANCIALSTATISTICS 145 FINANCIALDATA SELECTED 143 QUARTERLY ANALYSIS142 OFREVENUEAND SUBSIDIARY UNDERTAKINGS ANDASSOCIATE 141 FINANCIALSTATEMENTS OFBT GROUP PLC 138 REPORT OFTHEINDEPENDENTAUDITORS – 137 GLOSSARY OFTERMSANDUSEQUIVALENTS 136 PROFIT PARENT COMPANY BT GROUP PLC ANNUAL REPORT & FORM 20-F 75

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 76 are required to: that period.Inpreparing thedirectors thosefinancialstatements, affairs ofthecompanyandprofit orlossofthecompanyfor Generally Accepted AccountingPractice of (UKGAAP),ofthestate group andatruefairview, inaccordance withUnited Kingdom ofaffairsthegroupof thestate andoftheprofit orlossofthe accordance withIFRSasadopted bytheEUandissuedIASB, for eachfinancialyearwhichgive atrueandfairview, in Generally Accepted AccountingPractice). law andUnited KingdomAccountingStandards (United Kingdom parent inaccordance companyfinancialstatements withapplicable as adopted bytheEuropean Union(EU),andfor preparing the asissuedbytheIASBandIFRS StandardsFinancial Reporting (IFRS) inaccordancestatements withapplicablelawandInternational The directors are responsible for preparing thegroup’s financial STATEMENT OFDIRECTORS’ RESPONSIBILITIES FINANCIAL STATEMENTS to presume thatthegroup willcontinueinbusiness. onthegoingconcernbasisunlessitisinappropriatestatements prepare theconsolidated andparent companyfinancial and statements; any material disclosedandexplainedinthefinancial departures applicable accountingstandards havebeenfollowed, subjectto regard to theparent whether companyfinancialstatements IFRS asadopted bytheEUandissuedIASB,with whethertheconsolidatedstate complywith financialstatements make thatare judgmentsandestimates reasonable andprudent; them consistently; select suitableaccountingpoliciesandthenapply The directors are responsible for preparing financialstatements BT GROUP PLC ANNUAL REPORT & FORM 20-F from legislationinotherjurisdictions. preparation maydiffer anddisseminationoffinancialstatements website. LegislationintheUnited Kingdomgoverningthe the corporate andfinancialinformation includedonthegroup’s the prevention anddetection offraud andotherirregularities. company andthegroup andhencefor takingreasonable for steps ondirectors’Report remuneration, safeguarding theassetsof Act 1985.Theyare alsoresponsible for thepreparation ofthe parent complywiththeCompanies companyfinancialstatements 4oftheIASRegulation andthe Companies Act1985andArticle them to ensure thatthegroup complywiththe financialstatements financial positionofthecompanyandgroup andto enable records thatdisclosewithreasonable accuracy atanytimethe requirements inpreparing thefinancialstatements. thattheyhavecompliedwiththeabove The directors confirm ae 0t 51. to 50 pages The namesandfunctionsofallthedirectors are setouton that the Report oftheDirectorsthat theReport on liabilities, financialpositionandprofit orlossofthegroup; and issued bytheIASB,giveatrueandfairviewofassets, prepared inaccordance withIFRSasadopted bytheEUand that theconsolidated whichhavebeen financialstatements, The directors oftheirknowledge: confirm,to thebest The directors are responsible for themaintenance andintegrity of The directors are responsible for keeping proper accounting Financial Services Authority.Financial Services Disclosure andTransparency Rules oftheUnited Kingdom review oftheinformation required by Rules 4.1.8-4.1.11ofthe ae 9t 74 to 49 pages includes afair

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW received alltheinformation andexplanationswerequire for our the consolidated financialstatements. information oftheDirectors givenintheReport with isconsistent Regulation. We to youwhetherinouropinionthe alsoreport 4oftheIAS accordance withtheCompaniesAct1985andArticle consolidated havebeenproperly financialstatements prepared in giveatrueandfairviewwhetherthe financial statements agreed byourpriorconsentinwriting. shown orinto whosehandsitmaycomesavewhere expressly for is anyotherpurposeorto anyotherpersonto whom thisreport We donot,ingivingthisopinion,acceptorassumeresponsibility Section 235oftheCompaniesAct1985andfor nootherpurpose. and onlyfor thecompany’s membersasabodyinaccordance with Ireland). includingtheopinion,hasbeenprepared Thisreport, for requirements andInternational Standards onAuditing(UKand inaccordancestatements withrelevant legalandregulatory directors’ responsibilities. adopted bytheEuropean Unionare setoutintheStatement of Standardslaw andInternational FinancialReporting (IFRSs)as the consolidat The directors’ responsibilities for preparing and theAnnualReport andauditors Respective responsibilities ofdirectors issetouton report review. Thisseparate on theinformation intheRemuneration ofBTstatements Group plcfor theyearended31March 2009and prepared undertheaccountingpoliciessetouttherein. 141. and consolidated are financialstatements setouton expense, theAccountingpoliciesandrelated notes. These theGroupstatement, ofrecognised statement incomeand theGroupincome statement, balancesheet,theGroup cashflow plc for theyearended31March 2009whichcomprisetheGroup We haveaudited theconsolidated ofBT financialstatements Group (the‘company’) of BT Group plc members to the Independent auditors’ report United Kingdomopinion FINANCIAL STATEMENTS CONSOLIDATED REPORT OFTHEINDEPENDENTAUDITORS – FINANCIAL STATEMENTS information. Ourresponsibilitiesstatements. to donotextend anyother or material withtheconsolidated inconsistencies financial for ifwebecomeaware ourreport ofanyapparent misstatements We considertheimplications ofBTfinancial statements Group plc. theRemunerationstatements, review andparent company on contents listing consolidated financialstatements. withtheaudited 20-Fandconsiderwhether itisconsistent Form or itsriskandcontrol procedures. the effectiveness ofthegroup’s corporate governanceprocedures internal control coverallrisksandcontrols, orform anopinionon on statements are notrequired to considerwhethertheboard’s Authority,of theFinancialServices ifitdoesnot.We andwereport Combined Code(2006)specifiedfor ourreview Rules bythe Listing the companys’compliancewithnineprovisions ofthe remuneration andothertransactions isnotdisclosed. audit, orifinformation specifiedbylawregarding directors’ The otherinformation comprisesallinformation setoutinthe We read otherinformation and containedintheAnnualReport We review whethertheCorporate GovernanceStatement reflects to you,if,In additionwereport inouropinion,wehavenot We to yououropinionasto whethertheconsolidated report Our responsibility isto audittheconsolidated financial parent companyfinancial We separately havereported onthe These consolidated havebeen financialstatements ed financial statements inaccordanceed financialstatements withapplicable ae1, page ae137. page except for theconsolidated financial ae 9t 135 to 79 pages In ouropinion: Opinion consolidated financialstatements. overall adequacyofthepresentation ofinformation inthe Informing ouropinionwealsoevaluated the irregularity orerror. material whethercausedbyfraud misstatement, orother assurance thattheconsolidated are financialstatements free from order to provide uswithsufficientevidenceto givereasonable information in andexplanationswhich weconsidered necessary circumstances, appliedandadequately consistently disclosed. whether theaccountingpoliciesare appropriate to thegroup’s preparation oftheconsolidated andof financialstatements, andjudgementsmadebythedirectorssignificant estimates inthe Italsoincludesanassessmentofthe financial statements. relevant to theamountsanddisclosures intheconsolidated basis,ofevidence Anauditincludesexamination,onatest Board. on Auditing(UKandIr We conducted ourauditinaccordance withInternational Standards Basis ofauditopinion 13 May2009 London, United Kingdom AccountantsandRegisteredChartered Auditors LLP PricewaterhouseCoopers year thenended. andcashflowsfor the loss affairs asat31March 2009andofits and fairview, inaccordance ofthegroup’s withIFRSs, ofthestate by theInternational AccountingStandards Board. by theEuropean Union,hasalsocompliedwiththeIFRSsasissued complying withitslegalobligationt As explainedintheaccountingpolicies,group inadditionto Separate opinioninrelation to IFRSs the consolidated havebeenproperly financialstatements and cashflowsfor theyearthenended; loss ofthegroup’sstate affairsasat31March 2009andofits accordance withIFRSsasadopted by theEuropean Union,ofthe the consolidat with theconsolidated financialstatements. the information oftheDirectors givenintheReport isconsistent 4oftheIASRegulation; and Article prepared inaccordance withtheCompaniesAct1985and We ourauditsoasto plannedandperformed obtainallthe In ouropiniontheconsolidated giveatrue financialstatements ed financial statements giveatrueandfairview,ed financialstatements in eland) issuedbytheAuditingPractices BT GROUP PLC o complywithIFRSsasadopted ANNUAL REPORT & FORM 20-F 77

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 78 significant estimates madebymanagement,andevaluatingthe significant estimates assessingtheaccountingprinciplesusedand financial statements, theamountsanddisclosures inthe basis, evidencesupporting includedexamining,onatest audits ofthefinancialstatements Our wasmaintainedinallmaterial respects. financial reporting material andwhethereffective misstatement internal control over assurance are aboutwhetherthefinancialstatements free of require theauditsto thatweplanandperform obtainreasonable Thosestandards States). Accounting OversightBoard (United auditsinaccordance withthestandards ofthePublicCompany our We conducted basedonourintegratedfinancial reporting audits. company’s internal control over andonthe financial statements Ourresponsibility isto express opinionsonthese Form 20-F. ofthe Businesspolicies of the Directors, intheReport reporting threein thefirst paragraphs ofInternal Control overfinancial effectiveness ofinternal controlassetout overfinancialreporting includedinmanagement’sreporting, evaluation ofthe assessment oftheeffectiveness ofinternal control overfinancial effective internal controlandfor overfinancialreporting its are responsible for for thesefinancialstatements, maintaining company’s management The Guidance. intheTurnbull established asof31Marchfinancial reporting 2009,basedoncriteria maintained, inallmaterial respects, effective internal control over company Also,inouropinionthe Accounting Standards Board. StandardsReporting (IFRSs)asissuedbytheInternational March 2009,inconformity withInternational Financial 31 and cashflowsfor eachofthethree yearsintheperiodended at 31March 2009,and2008theresults oftheiroperations respects, thefinancialpositionofBT Group plcanditssubsidiaries of recognised incomeandexpensepresent fairly, inallmaterial balance sheets,Group andGroup cashflowstatements statements In ouropinion,theaccompanyingGroup Group incomestatements, (the‘company’) Shareholders ofBT Group plc Accounting Firmto theBoard ofDirectors and ofIndependentRegisteredReport Public United States opinion FINANCIAL STATEMENTS BT GROUP PLC ANNUAL REPORT & FORM REPOR FTEIDPNETADTR CONSOLIDATED FINANCIALSTATEMENTST OFTHEINDEPENDENTAUDITORS – 20-F eotn a o rvn rdtc isaeet.Also, maynotpreventreporting ordetect misstatements. have amaterial effect onthefinancialstatements. acquisition, use,ordispositionofthecompany’s assetsthatcould assurance regarding prevention ortimely detection ofunauthorised and directors ofthecompany;and(iii)provide reasonable being madeonlyinaccordance withauthorisationsofmanagement principles, andthatreceipts andexpenditures ofthecompanyare inaccordancestatements withgenerally accepted accounting are recordedto permitpreparation asnecessary offinancial the company;(ii)provide reasonable assurance thattransactions and fairlyreflect thetransactions anddispositionsoftheassets the maintenance ofrecords that,inreasonable detail,accurately includesthosepoliciesandproceduresto reporting that(i)pertain Acompany’s internal control overfinancial accounting principles. for purposesinaccordance external withgenerally accepted andthepreparationof financialreporting offinancialstatements designed to provide reasonable assurance regarding thereliability believe thatourauditsprovide areasonable basisfor ouropinions. We procedures inthecircumstances. asweconsidered necessary suchother Ourauditsalsoincludedperforming the assessedrisk. the designandoperating effectiveness ofinternal control basedon andevaluating andtesting the riskthatamaterial weaknessexists, ofinternal controlassessing understanding overfinancialreporting, control includedobtainingan overfinancialreporting overall presentation. financialstatement Ourauditofinternal 13 May2009 London, United Kingdom LLP PricewaterhouseCoopers policies orprocedures maydeteriorate. changes inconditions,orthatthedegree ofcompliancewiththe subject to theriskthatcontrols may becomeinadequate becauseof projections ofanyevaluationeffectiveness to future periodsare Because ofitsinherent limitations,internal control overfinancial A company’s internal controlisaprocess overfinancialreporting

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW h eredd3 ac 07b 56 n 27,respectively. March 2007 by£526mand£267m, the yearended31 decreasing cashand equivalentsatthebeginningandendof from activitiesby£257m and the netcashoutflow investing respectively, decreasing financial assets’by£4,838mand£4,581m, disposal ofcurrent financial assets’and‘Purchase ofcurrent March 2007wasanincrease in‘Proceeds on for theyearended31 by£267m.Theimpactinthecash flowstatement asset investments reduced cashandequivalentsby£267mincreased current March 2007 classification. Thebalancesheetrevision asat31 management considered thisto be amore appropriate maturity and includethemwithin‘Current available-for-sale assets’,as tostatements excludeinvestments from ‘Cashequivalents’certain plc, are setouton disclosed in basis inthefuture. Specificitems for thecurrent andprioryearsare The directors intend to follow suchapresentation onaconsistent asset impairmentchargesrationalisation andproperty programmes. businessrestructuring,disposals ofbusinessesandinvestments, considered to besignificantone-off orunusualinnature include titled measures usedbyothercompanies.Items whichhavebeen directors. Specificitems maynotbecomparable to similarly ismeasuredfinancial performance to theBoard andreported of the clarityofpresentation withthewaythat andisconsistent asitimproves acolumnarpresentation to beappropriate, considers nature andhavelittlepredictive value.Furthermore,thegroup asspecificitemsperformance are significantone-offorunusualin this wayisrelevant ofthegroup’s to anunderstanding financial The directors believethatpresentation ofthegroup’s results in providing ameaningfulanalysisofthetrading results ofthegroup. ismeasuredfinancial performance in bymanagementandassists items (termed ‘specificitems’). withthewaythat Thisisconsistent trading results before significantone-offorunusual identify and key judgements’. arestatements, disclosed belowin‘Criticalaccountingestimates areand estimates significant to theconsolidated financial degree ofjudgementorcomplexity, orareas where assumptions the group’s accountingpolicies.Theareas involvingahigher management to exercise itsjudgementintheprocess ofapplying IFRS requires Italsorequires theuseofaccountingestimates. financialassetsandliabilitiesatfairvalue. revaluation ofcertain prepared convention,modifiedfor cost underthehistorical the IFRS asadopted havebeen bytheEU.Thefinancialstatements IFRSasissuedby the IASBand IAS Regulation, inaccordance with 4ofthe accordance withapplicablelawand,asrequired byArticle These consolidated havebeenprepared financialstatements in (i) Basisofpreparation ofthefinancialstatements Accounting policies CONSOLIDATED FINANCIALSTATEMENTS FINANCIAL STATEMENTS using theequitymethodofaccounting. incorporate itsshare oftheresults ofjointventures andassociates of BT Group plc(‘thecompany’)anditssubsidiaries,they The group consolidate financialstatements thefinancialstatements (ii) Basisofconsolidation more entities. Jointcontrol isthe contractually agreed sharingof A jointventure isanentity thatisjointlycontrolled bytwoor its activities. and operating policiesofanentitysoasto obtainbenefitsfrom known astheparent. Control isthepowerto governthefinancial isanentitythatcontrolled byanotherentity,A subsidiary In the2008financialyear, thegroup revised itsprevious financial Accounting policiesinrespect oftheparent company, BT Group The group’s andsegmentalanalysisseparately incomestatement The preparation inconformity offinancialstatements with oe4. note ae138. page These are inaccordance withUKGAAP. (iii) Revenue contracts, revenue is rendered. isrecognised astheservice acceptance.Inthecase oftimeandmaterials customer milestone contract orothermeasures costs, ofcompletionsuchascontract incurred ofcosts relativeby theproportion to total theestimated recognised byreference ofcompletion,asdetermined to thestage contracts solutions,revenue to designandbuildsoftware is output orconsumptionbasis.For fixed pricecontracts, including line, revenue are isrecognisedprovided, asservices usuallyonan contract. However, pattern iftheperformance isotherthanstraight revenue isrecognised onastraight linebasisovertheterm ofthe to thenature ofthecontract. contracts, For long-term services usinganappropriatecompletion isestimated measure according based onthepercentage of ofcompletionmethod.Thestage equipment isdelivered and accepted bythecustomer. are transferred to thebuyer, whichisnormallythedate the recognised whenallthe significantrisksandrewards ofownership transit across thegroup’s network. other telecommunications operators isrecognised atthetimeof arising from theinterconnection ofvoiceanddatatraffic between are recognisedisprovided. asrevenue Revenue astheservice access to broadband andotherinternet accessorvoiceservices, the group’s network. Revenue from callsisrecognised atthetimecallismadeover recognised evenlyovertheperiodto whichthecharges relate. from therental ofanalogueanddigitallines private circuits is isrecognised whenitisearned,uponactivation.Revenueservices recognises revenue netofdirectly attributablecosts. it measured reliably. Where thegroup actsasagentinatransaction, canbe associated costs group andtheamountofrevenue and economic benefitsassociated withatransaction willflowto the and saleofequipmentisrecognised whenitisprobable thatthe discounts andsalestaxes. Revenue from therendering ofservices receivable andequipmentsales,netof for communicationservices Revenue represents thefairvalueofconsideration received or detailed or jointventure. group’s share oftheresults ofoperations taxoftheassociate after reflectsthe valueofindividualassets.Theincomestatement the group’s lessanyimpairmentin share acquisitionreserves, ofpost the group’s inassociates andjointventures investment includesthe valueof thecarrying recognised Subsequentto acquisition, atcost. eliminated onconsolidation. intra-group transactions, balances,incomeandexpensesare accounting policiesusedinlinewiththosebythegroup. All of subsidiaries,associates andjointventures to bringthe Where necessary, are adjustments madeto thefinancialstatements andupto thedate ofchangecontrol. year are consolidated from The results ofsubsidiariesacquired ordisposedofduringthe control orjointcontrol overthosepolicies. financial andoperating policydecisions ofanentitybutisnot venture. inthe Significantinfluenceisthepowerto participate noraninterest inajoint influence andthatisneitherasubsidiary An associate isanentityoverwhichanotherhassignificant require sharingcontrol. theunanimousconsentofparties strategic financialandoperating decisionsrelating to theactivity control overaneconomicactivity, onlywhenthe andexists Revenue from long-term contractual arrangements isrecognised Revenue from thesaleofperipheral andotherequipmentis Subscription fees, primarilyofmonthlycharges consisting for Revenue arisingfrom separable andconnection installation h ru’ rnia prtn usdaisadascae are associates The group’s principaloperating subsidiariesand inassociates andjointventuresInvestments are initially npg 141. on page BT GROUP PLC ANNUAL REPORT & FORM 20-F 79

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW intellectual property. theexploitation of our generated from income and and equipment, andproperty, plant losses onthedisposalofbusinessoperations profits and fleetoperations, our incomegenerated by recovery, andscrap andcable incomefrom repayment works income include asotheroperating andequipmentsales.Items reported services arises from activitiesoutsideoftheprovision of communication Other operating incomeisgenerated bythegroup that (iv) Otheroperating income element asdescribedabove. and theappropriate revenue recognition criteria are appliedto each between theseparate elementsonthebasisofrelative fairvalue individual contract. Thetotal contract consideration isallocated basis, revenue isrecognised for eachelementasifitwere an separate elementsthathavevalueto onastandalone acustomer immediately. contract life lossisrecognised completion exceed revenue theestimated for acontract, thefull Wherecan beestimated. to theactual costs andestimated recorded intheperiodwhichsuchrevisions becomelikely and are changed.Thecumulativeimpactofarevision is inestimates contract iftheassumptionsregarding theoverall contract outcome Recognised revenue andprofits are subjectto revisions duringthe date, to thatsuchrevenue theextent isexpected to berecoverable. circumstances, revenue isrecognised incurred equalto thecosts to reasonable certainty, noattributableprofit isrecognised. Insuch the financialoutcome ofacontract with canbeestimated measurement oftheprogress madetowards completion.Unless total expected contract revenues aswellreliable andcosts, benefits andare assessedfor recoverability onaregular basis. contracts, relate to future activity, willgenerate future economic appropriate. are Thesecosts directly attributableto specific indicates adifferent delivery profilethe pattern is ofservice straight linebasisovertheremaining contractual term, unless areThese costs thenrecognised ona intheincomestatement the contract are deferred andrecorded withinnoncurrent assets. incurred intheinitialsetup,transition ortransformation phaseof arrangements are expensedasincurred. Anelementofcosts underlong-term related contractualCosts to deliveringservices FINANCIAL STATEMENTS 80 period ofthelease. Ifasaleandleasebacktransaction results inan charged to onastraight theincome statement linebasisover the held bythelessorare classifiedasoperating leases.Rentals are recognised overtheleaseterm. intheincomestatement excess amountisdeferred ofsaleproceeds overthecarrying and If asaleandleasebacktransaction results inafinancelease,any usingtheeffective cost interestmeasured method. atamortised future periods,are recognised asliabilities.Leasesare subsequently relating to financeleases,netofcharges inrespect of lease paymentsorthefairvalueofleasedasset.Theobligations the leaseterm atthelowerofpresent valueoftheminimum finance leases. alltherisksandrewardssubstantially ofownershipare classified as the arrangement conveystherightto usethe asset. dependent ontheuseofaspecificassetorassetsandwhether an assessmentofwhetherthefulfilmentarrangement is ofthearrangement isbasedonthesubstance andrequires lease The determination ofwhetheranarrangement is,orcontains,a (v) Leases The percentage ofcompletionmethodrelies of onestimates Leases where a significant portion oftherisksandrewardsLeases where asignificantportion are Finance leaseassetsare capitalisedatthecommencementof Leases ofproperty, plantandequipmentwhere thegroup holds Where acontractual arrangement oftwoormore consists BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED FINANCIALSTATEMENTS 20-F of exchange for theyear(unlessthisaverage isnotareasonable of foreign are translated undertakings into Sterling ataverage rates are translated into Sterling atyearendexchange rates. Theresults recognised inequity. differences are orascashflowhedges,suchexchangehedges ofanetinvestment inaforeignthe netinvestment operation andare designated as of theitem ortransaction. of items form Where part monetary appropriately inthelinewhichmost statement reflects thenature at periodendexchange rates are recognised intheincome assetsandliabilitiesdenominated inforeignmonetary currencies settlement ofsuchtransactions andfrom thetranslation of transaction. Foreign exchange gainsandlossesresulting from the currency usingtheexchange rates prevailing atthedate ofthe Sterling, thepresentation currency ofthegroup. currency). Theconsolidated are financialstatements presented in economic environment inwhichtheentityoperates (thefunctional subsidiaries are measured usingthecurrency oftheprimary Items ofeachthegroup’s includedinthefinancialstatements (vi) Foreign currencies relating to the subsidiary sold.Goodwill previouslyrelating written offto to thesubsidiary amountofgoodwill gain orlossondisposal includesthecarrying directly Ondisposalofasubsidiary, intheincomestatement. the the identifiablenetassetsacquired, thedifference isrecognised of theacquisitionislessthan fairvalueofthegroup’s share of identifiable netassetsacquired isrecorded asgoodwill.Ifthecost acquisition overthefairvalueof the group’s share ofthe the identifiablenetassetsacquired. Theexcess ofthe ofthecost On acquisitionofasubsidiary, fairvaluesare attributed to treated asfollows: Goodwill arisingontheacquisitionofsubsidiariesistherefore retrospectively to acquisitionsthatoccurred before 1April2004. On transition to IFRS,thegroup elected notto applyIFRS3 subsidiaries, inaccordance withIFRS3,‘BusinessCombinations’. The purchase methodofaccountingisusedfor theacquisitionof (vii) Businesscombinations disposal. translation ischarged reserve orcredited to thegainorlosson translation difference inthe associated withtheundertaking foreign currency, thecumulative a liabilities denominated in separate componentofequity, thetranslation reserve. differences arisingonretranslation are recognised directly ina translated atthedates ofthetransactions). Foreign exchange the transaction dates, inwhichcaseincomeandexpensesare approximation ofthecumulativeeffects oftherates prevailing on fair value. loss isdeferred becausethesalepricewasnotequalto oramortised immediately,statement except whereoftheprofit aproportion or operating lease,anyprofit orlossisrecognised intheincome to retained earnings. Goodwill whicharose before 1998:written offdirectly 1January the date of transition to IFRS. after goodwillisnotamortised This provisions for impairment. to thedate oftransitionamortisation to IFRSandlessany less accumulated included inthebalancesheetatoriginalcost, 1998and1April2004: Goodwill whicharose between 1January goodwill isnotamortised. This lessanyprovisionssheet atoriginalcost, for impairment. 1April2004:includedinthebalance Goodwill whicharose after On consolidation,assetsandliabilitiesofforeign undertakings Foreign currency transactions are translated into thefunctional In the event of the disposal of an undertaking withassetsand In theeventofdisposalanundertaking

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW meet thecrit areSubscriber acquisitioncosts expensedasincurred, unlessthey Subscriber acquisitioncosts at cost. purchasedComputer software fromisinitiallyrecorded third parties thir purchased comprisescomputerComputer software software from Computer software generated bytheacquired businesses. include management’s ofrevenue estimates andprofits to be thefairvaluesofacquiredused inestimating intangibleassetsand r Intangible assetsacquired through businesscombinations are Brands, relationships andcustomer lists customer to theendoflicenceperiod. from thetimenetworkisavailablefor andamortised use at cost activities t Licence fees paidto governments,whichpermittelecommunication Telecommunication licences impairment losses. tested annuallyfor lessaccumulated impairmentandcarriedatcost (including intangibleassets)oftheacquired subsidiary. Goodwillis the fairvalueofgr Goodwill represents theexcess ofanacquisitionover ofthecost Goodwill cannot bedetermined reliably, thestraight linemethodisused. which theassetsare expected to beconsumed.Ifthepattern reflectseconomic life. thepattern in Themethodofamortisation overtheiruseful goodwill andindefinite livedassets,are amortised asset canbereliably measured. Allintangibleassets,otherthan attributable to theassetwillflowto thegroup ofthe andthecost controls theasset,itisprobable thatfuture economicbenefits Identifiable intangibleassetsare recognised whenthegroup (viii) Intangibleassets disposal oftherelated subsidiary. retained earningsisnotrecycled to on theincomestatement FINANCIAL STATEMENTS developed isready for use. can bedemonstrated. Capitalisationceaseswhentheasset being oftheassetcan bereliablycost measured andtechnical feasibility benefits willflowto thegroup from theassetbeingdeveloped, period inwhichitisincurred unlessitisprobable thateconomic isrecogniseddeveloped software, inthe inthe incomestatement period inwhichitisincurred. Research expenditure isrecognised inthe intheincomestatement (ix) Research anddevelopment cat usefuleconomiclivesassignedtoThe estimated theprincipal usefuleconomiclives Estimated contractual period. life ofthecustomer or overtheshorter capitalised andamortised ecorded atfairvaluethedate of acquisition.Assumptionsare Development expenditure, ofinternally includingthecost Computer software 3to 15years Brands, relationships andcustomer lists customer Telecommunication licences egories ofintangibleassetsare asfollows: d parties, and also the cost ofinternally developedsoftware. andalsothecost d parties, o beoperated for definedperiods,are initiallyrecorded eria for capitalisation,inwhichcasetheyare oup’s share oftheidentifiablenetassets CONSOLIDATED FINANCIALSTATEMENTS 2 to 5years 1 to 5years The livesassignedto principalcategories ofassetsare asfollows: depreciation. account anyexpected residual value.Freehold landisnotsubjectto to write offtheasset’s usefullife overtheestimated cost takinginto s Depreciation isprovided onproperty, plantandequipment ona Depreciation attributable overheads. ar forIncluded withinthecost networkinfrastructure andequipment Cost disposal isrecorded intheincomestatement. between thesaleproceeds andthenetbookvalueatdate of losses. impairment lessaccumulated depreciation cost, historical andany Property, plantandequipmentisincludedinthebalancesheetat (x) Property, plantandequipment charges, materials anddirectly attributableoverheads. Research includedirect anddevelopmentcosts labour, contractors’ tested for annually. impairmentatleast to sell. value lesscost flows (valueinuse)oftherelevant cashgenerating unitandthefair the higherofnetpresent valueoftheexpected future cash therecoverableis performed, amountisassessedbyreference to amountmay notberecoverable.carrying Whenanimpairmenttest date) indicatecircumstances thatthe (assessedateachreporting equipment are tested for impairmentifeventsorchangesin Intangible assetswithfinite usefullivesandproperty, plantand (xii) Assetimpairment(non-financialassets) period inwhichtheyare incurred. All borrowing are costs inthe expensedintheincomestatement (xi) Borrowing costs recognised prospectively. changesare ifnecessary, useful livesare reassessed annuallyand, of theleaseterm ortheirusefuleconomiclife. Residual valuesand Assets heldunderfinanceleasesare depreciated overtheshorter traight linebasisfrom thetimeassetisavailablefor use,soas ietlbu,cnrcos hre,mtrasanddirectly e direct labour, contractors’ charges, materials Land andbuildings On disposalofproperty, plantandequipment,thedifference Impairment lossesare recognised intheincomestatement. Goodwill andintangibleassetswith indefinite usefullivesare Other Network infrastructure andequipment reodbidns40years of Unexpired portion Leasehold landandbuildings Freehold buildings optr n fc qimn 3to 6years Computers andofficeequipment Motor vehicles 2to 20years Payphones andothernetworkequipment Exchange equipment Radio andrepeater equipment Transmission equipment: Cable Duct BT GROUP PLC ANNU AL REPORT & FORM shorter whichever isthe lease or40years, 3 to 25years 40 years 2 to 9years 2 to 25years 2 to 13years 20-F 81

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW steyeda h aac he aeo Acredit rated bondsthat is theyieldatbalancesheetdate onAA Thediscountrate used arrive atthenetpensionobligationorasset. to present value,andthefairvalueofanyplanassetsisdeducted to date. Thatbenefitisdiscounted to determinetheir service its amount offuture benefitthatemployeeshaveearnedinreturn for plans iscalculated separately for the eachschemebyestimating employees. is administered for byanindependenttrustee, themajorityofits The group operates afundeddefinedbenefitpensionplan,which (xv) Post retirement benefits group. demonstrably committed to theaffected employeesleavingthe benefits. Thegroup recognises termination benefitswhenitis redundancy inexchangeemployee acceptsvoluntary for these is terminated before thenormalretirement date, orwhenan Termination are benefits(leavercosts) payablewhenemployment (xiv) Termination benefits basis. iscalculated onafirst-in-first-out obsolescence. Cost provisions netrealisable andestimated forof cost value,after rental andconsumableitems. mainlycomprisesitems ofequipmentheldforInventory saleor (xiii) Inventory reversed inanycircumstances. not applyfor goodwill,for whichanimpairmentlossmaynotbe ifnoimpairmentlosshadbeenrecognised. Thisdoes amortisation, that wouldhavebeendetermined, netofdepreciation or amount the asset’s amountdoesnotexceed thecarrying carrying butonlyto that theextent impairmentlosswasrecognised, the last usedtoin theestimates determine therecoverable amountsince it maybereversed infuture periodswhere there hasbeenachange intangibleandotherassets. basis against are goodwill,andsecondlyonapro against allocated rata firstly recoverable amount,normallyasaspecificitem. Impairmentlosses amountoftherelated assetsto theirestimated the carrying If acashgenerating unitisimpaired, provision ismadeto reduce FINANCIAL STATEMENTS 82 continuing appropriateness ofthecontributionrates. years,theactuaries reviewvaluations. Inany intervening the of thegroup’s actuary, havingregard to theresults ofthesetrustee isdetermined ontheadvice contribution payable.Thepension cost ofnotmore thanthreeintervals years,to determine therates of asdetermined at bythetrustees out byanindependentactuary income andexpense. which theyoccurandare presented ofrecognised inthestatement oftheyear.prevailing atthestart expected return ontheassetsofplan,basedconditions of thediscountappliedto theliabilitiesofplan,offsetby of theemployees.Thenetfinancecharge reflects theunwinding whichisspread cost overtheworkinglives systematically service charge andanetfinance charge. Theoperating charge reflects the benefit obligationlessthefairvalueofplanassets. recognised inthebalance sheetisthepresent valueofthedefined orasset using theprojected unitcredit method.Thenetobligation byaqualifiedactuary obligations. Thecalculationisperformed have maturity dates approximating theterms ofthegroup’s Equipment heldandconsumableitems are atthelower stated recognised anasset, against hasbeen Where animpairmentloss Actuarial valuationsofthemaindefinedbenefit plan are carried Actuarial gainsandlossesare recognised infulltheperiod chargeThe incomestatement isallocated betweenanoperating obligationinrespect ofdefinedbenefitpension The group’s BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED FINANCIALSTATEMENTS 20-F amounts expected to be paidto taxauthorities. provisionsestablishes where appropriate onthebasisof applicable taxregulation issubjectto interpretation, andthegroup positions taken intaxreturns withrespect to situations inwhich and generate taxableincome.Thegroup periodicallyevaluates countries where thecompany’s subsidiariesandassociates operate enactedenacted atthebalancesheetdate orsubstantively inthe iscalculated onthebasisoftaxlaws Current incometax (xvii) Taxation appropriatemodel, whicheverismost to theaward. granted ismeasured usingeithertheBinomialorMonte Carlo periodoftheaward.vesting Thefairvalueofoptionsandawards Fair valueismeasured atthedate ofgrant andisspread overthe expected allowingfor to vest conditions. nonmarket andservice group’s ofthenumberoptionsandawards estimate best takinginto accountthe expenseafter granted isrecognised asan payments to employees.Thefairvalueofoptionsandawards and award plansunderwhichitmakes equitysettledshare based The group hasanumberofemployeeshare schemes,share option (xvi) Share basedpayments are paid. in general meeting.Interim dividendsare recognised when they they are declared andapproved bythe company’s shareholders Final dividendsare recognised asaliabilityintheyearwhich (xix) Dividends activities are expensedwithin otheroperating asincurred. costs associated withthegroup’sThe costs andmarketing advertising andmarketing (xviii) Advertising equity, inwhichcasethetax isalsorecognised inequity. except whenthetaxrelates to items charged orcredited directly in reverse intheforeseeable future. controlled anditisprobable difference thatthetemporary willnot where thetimingof reversal difference ofthetemporary canbe insubsidiaries,associates andjointventures,investments except enacted bythebalancesheetdate. substantively based ontaxrates andlawsthathavebeenenacted or apply intheperiodswhichassetisrealised orliabilitysettled, utilised. future difference whichthedeductibletemporary against canbe taxable profits, withinthesamejurisdiction,inforeseeable evidence, itcanberegarded asprobable thatthere willbesuitable tax assetisrecognised onlywhen,onthebasisofallavailable localtaxgroup. Anyremainingtaxable entityorqualifying deferred deferred offsetagainst taxassetswithinthesame ‘Income Taxes’, affects neitheraccountingprofit nortaxableprofit. liability inatransaction whichisnotabusinesscombinationand recognition ofgoodwillorfrom theinitialrecognition ofanassetor that thedeferred taxassetorliabilityarisesfrom theinitial group’s assetsandliabilitiestheirtaxbase,except to theextent differencesof temporary amountofthe betweenthecarrying the income statement ischargedthe incomestatement withthecontributionspayable. The group alsooperates definedcontributionpensionschemesand Deferred taxisrecognised, usingtheliabilitymethod,inrespect Current anddeferred taxare recognised intheincomestatement, Deferred taxisprovided differences ontemporary arisingon Deferred taxisdetermined usingtaxrates that are expected to Deferred taxliabilitiesare, where permitted underIAS12

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW other than: or det Loans andreceivables are non-derivativefinancial assetswithfixed Loans andreceivables in theincomestatement. Thedirect transaction are costs recognised immediately transaction. appropriatelyline whichmost reflects thenature oftheitem or with changesinvaluerecognised inthe intheincomestatement are initiallyrecognised andsubsequentlymeasured atfairvalue, designated bymanagement.Financialassetsheldinthiscategory f ifacquired principally A financialassetisclassifiedinthiscategory Financial assetsatfairvaluethr Financial assets which isthedate onwhichtheassetisdelivered to orbythegroup. the group recognises thefinancialassetson settlementdate, particular, for allregular waypurchases andsalesoffinancialassets, obligation undertheliabilityisdischarged, cancelledorexpires. In control oftheasset.Financialliabilitiesare derecognised whenthe longer hasrightsto cashflows,therisksandrewards ofownershipor Financialassetsareinstrument. derecognised whenthegroup no gr Financial assetsandfinancialliabilitiesare recognised whenthe financial liabilities Recognition andderecognition offinancialassetsand (xxi) Financialinstruments contract to exitit. orthecost provisions havebeenmeasured to fulfilthe atthelowerofcost Onerous lease usingtheeffective cost interest method. amortised are initiallyrecognised atfairvalueandsubsequentlycarried Financialliabilitieswithinprovisions the risksspecificto theliability. reflects current market assessmentsofthetimevaluemoneyand discounting theexpected future cashflowsatapre-tax rate that Provisions are determined by the amountcanbereliably estimated. ofresourcesan outflow willberequired to settletheobligationand that probable obligationasaresult events,itis constructive ofpast Provisions are recognised whenthegroup hasapresent legalor (xx) Provisions FINANCIAL STATEMENTS cumulative gain or losspreviously recognised inequityistaken to until thefinancial assetisderecognised, atwhichtimethe recognised inequity which are recognised intheincomestatement) items, interest,for dividendsandimpairment losses, monetary unrealised gainsandlosses(except for changes inexchange rates then remeasured dates to fairvalue,with atsubsequentreporting initially recognised atfairvalueplusdirect transaction and costs any oftheothercategories. Available-for-sale financialassetsare either specificallydesignat Non-derivative financialassetsclassifiedasavailable-for-sale are Available-for-sale financialassets appropriately reflects thenature oftheitem ortransaction. recognised inthelinewhichmost intheincome statement the effective value interest method,withchangesincarrying using cost transaction andsubsequentlycarriedatamortised costs Loans andreceivables are initiallyrecognised atfairvalueplus or the purpose of selling in the short term (heldfor trading)or thepurposeofsellinginshort orifso oup becomes party to thecontractualoup becomesparty provisions ofthe which are classifiedasavailable-for-sale. otherthanbecauseofcreditinitial investment, deterioration, those for whichthegroup maynotrecover allofits substantially term, whichare classifiedasheldfor trading; those thatthegroup intends to sellimmediately orintheshort erminable paymentsthatare notquoted inanactivemarket CONSOLIDATED FINANCIALSTATEMENTS ed in this category ornotclassifiedin ed inthiscategory ough incomestatement asset orgr The group assessesateachbalancesheetdate whetherafinancial Impairment offinancialassets incurrent liabilitiesonthebalancesheet. borrowings, overdrafts. Bankoverdrafts are includedwithinloansandother and cashequivalentsare bank asdefinedabovenetofoutstanding less. changes invalueandhaveanoriginalmaturity ofthree monthsor cashandwhichare subjectto insignificantriskof to convertible balances withbanksandsimilarins Cash andcashequivalentscompriseinhandcurrent Cash andcashequivalents experienced andgeneral economic conditions. of non-payment,takinginto accountageing,previous losses interest methodless provisions madefor receivables. doubtful usingtheeffective cost and are subsequentlycarriedatamortised r Financial assetswithintrade and otherreceivables are initially Trade andotherreceivables the nature oftheitem ortransaction. appropriately inthelinethatmost the incomestatement, reflects borrowings containaseparable embedded derivative,thefair plus dir Loans andotherborrowings are initiallyrecognised atfairvalue Loans andotherborrowings effective interest method. usingthe cost amount, andsubsequentlycarried atamortised r Financial liabilitieswithintrade andotherpayablesare initially T Financial liabilities the current market rate ofreturn for a similarfinancialasset. and thepresent future valueof estimated cashflowsdiscounted at is measured asthedifference betweentheasset’s amount carrying theamountofloss ofsuchan unquoted equityinstrument, delivery on aderivativeassetthatislinked besettledby to andmust fair valuebecauseitscannotbeobjectivelymeasured, or incurred thatisnotcarriedat onanunquoted equityinstrument directly inequity. recognised available-for-sale are Reversalsstatement. inrespect classifiedas ofequityinstruments theimpairmentlosswasrecognised intheincome occurring after canbeobjectivelyrelatedin fairvalueoftheinstrument to anevent areinstruments taken through iftheincrease theincomestatement Reversalsincome statement. ofimpairmentlossesondebt anditsfairvalueistransferredamortisation) from equityto the the difference (netofanyprincipalpaymentand betweenitscost atthedate ofreversal. cost does notexceed itsamortised valueoftheasset and isreversed to thatthecarrying theextent related theimpairmentwasrecognised objectivelyto aneventafter interest rate. Theimpairmentlossisonlyreversed ifitcanbe cash flowsdiscounted atthefinancialasset’s originaleffective asset’s amountandthepresent future valueofestimated carrying The impairmentlossismeasured asthedifference betweenthat reduced withthelossbeingrecognised intheincome statement. amountis thecarrying cost, arisen onassetscarriedatamortised ecognised atfairvalue,whichisusuallytheoriginalinvoicedamount, ecognised atfairvalue,whichisusually theoriginalinvoiced rade andotherpayables For thepurposeofconsolidated cash cashflowstatement, arisk evidenceof Provisions are madespecificallywhere there is If there isobjectiveevidence thatanimpairmentlosshasbeen If anavailable-for-sale assetisimpaired, anamountcomprising Where there isobjectiveevidencethatanimpairment losshas ectly attributable transaction Where costs. loansandother oup offinancialassetsare impaired. BT GROUP PLC titutions, whichare readily ANNU AL REPORT & FORM 20-F 83

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW otatadtehs otati notcarriedatfairvalue.Changes is contract andthehost contract host the and characteristics are notcloselyrelated to thoseof contractshost are treated asseparate derivativeswhentheirrisk liabilities. they are classifiedwithineithernoncurrent assets ornoncurrent greater than12monthsandare designated inahedgerelationship, Where haveamaturity derivativefinancialinstruments period hedging relationship orhaveamaturity periodwithin12months. assets orcurrent liabilitieswhere theyare notdesignated ina arethe hedge.Derivativefinancialinstruments classifiedascurrent recognition ofanyresultant gainorlossdepends onthenature of expense. However, for where derivativesqualify hedgeaccounting, recognised immediately innetfinance intheincome statement value. Thegainorlossonre-measurement to fairvalueis andsubsequentlymeasured atfair and are initiallyrecognised for hedgeaccountingare accounted for astrading instruments. financial trading purposes.However, derivativesthatdonotqualify group for doesnotholdorissuederivativefinancialinstruments exposur The group mainlyto reduce usesderivativefinancialinstruments Derivative financialinstruments when appropriate, cumulativeamortisation. relating to provisions andtheamountinitiallydetermined less, amount determined inaccordance withtheaccountingpolicy tr Financial guarantees are recognised initiallyatfairvalueplus Financial guarantees statement. are recognised intheincome de-designation ofthehedge, borrowings. offairvaluemovements,on Theresultant amortisation movements onthehedgedriskassociated withtheloansandother are revalued to reflect thefairvalue hedge relationship, ifincludedinafairvalue using theeffective interest methodand, and otherborrowings arecost subsequentlymeasured atamortised or borrowing isrecorded separately oninitialrecognition. Loans borrowing. Thefairvalueoftheembeddedderivativeandloan andthefairvalueofloanor fair valueofthehybridinstrument value oftheembeddedderivativeisdifference betweenthe FINANCIAL STATEMENTS 84 income statement. period orperiodsduringwhichthe hedgedtransaction affects the recognised inthesame inthesamelineincomestatement associated cumulativegainorlossisremoved from equityand isrecognisedderivative financialinstrument directly inequity. probable transaction, ofanygainorlossonthe theeffective part variability incashflowsofar isdesignated asahedgeofthe When afinancialinstrument Cash flowhedge which thehedgeremains inoperation. tested for effectiveness atinceptionandinsubsequentperiods effective bothprospectively andretrospectively. Thehedgeis pr To for be qualify hedgeaccounting,documentationmust Hedge accounting nature oftheitem ortransaction. appropriately inthelinewhichmost income statement reflects the in thefairvalueofembeddedderivativesare recognised inthe ansaction costs andsubsequentlymeasuredansaction costs atthehigherof epared beexpected to atinceptionand thehedgemust behighly For cashflowhedgesofrecognised assetsorliabilities,the orother Derivatives embeddedinotherfinancialinstruments areDerivative financialinstruments classifiedasheldfor trading BT GROUP PLC e to foreign exchange risksandinterest rate movements.The ANNU AL REPORT & FORM CONSOLIDATED FINANCIALSTATEMENTS ecognised assetorliability, or ahighly 20-F the hedgedrisk. in fairvalueofthehedgedassetorliabilitythatisattributableto togetherthe samelineinincomestatement, withanychanges derivatives thatare designated asfairvaluehedgesare recorded in unrecognised firmcommitment,thechangeinfairvalueof deduction from shareholders’ equity atcost. and repurchased shares are recorded inthebalancesheetas a company, BT Group plc,heldbyemployeeshare ownershiptrusts deduction from theproceeds received. Shares intheparent attributable t sharesOrdinary are classifiedasequity. Incremental directly costs Share capital method overtheremaining term ofthehedgeditem. to usingtheeffective theincomestatement interestis amortised associated withthehedgedrisk cumulative gainorlossadjustment the in theforeign operation isdisposed.Underafairvaluehedge, oftheprofit ondisposal whenthenetinvestment aspart statement gainorlossisrecognised intheincome relationship. Thecumulative accounting orthegroup revokes designationofthehedge exercised, orwhenthehedgenolongerqualifiesfor hedge expires thehedginginstrument orissold,terminated or when thecumulativegainorlossremainsa netinvestment, inequity recognised immediately Underahedgeof intheincomestatement. cumulative unrealised gain orlossrecognised inequityis the underlying hedgedfinancialassetorliabilitynolongerexists, the hedgedtransaction isnolongerexpected to take placeorthe accordance withtheabovepolicywhentransaction occurs.If gain orlossatthatpointremains inequityandisrecognised in thecumulative expected tostill occur. Underacashflowhedge, financial assetorliabilityremains orahighlyprobable transaction is revokes designationofthehedgerelationship butthehedged nolongerqualifiesfor hedgeaccountingorthegroup hedge ins Discontinuance ofhedgeaccountingmayoccurwhenahedging Discontinuance ofhedgeaccounting foreign operation isrecognised innetfinanceexpense. thehedgesare deemedeffective. that the extent operation are taken to shareholders’ equityonconsolidation to ins Exchange differences arisingfrom the retranslation ofcurrency inaforeignHedge ofnetinvestment operation of thevariabilityinfairvaluear isdesignated asahedge When aderivativefinancialinstrument Fair valuehedge appropriately reflects thenature oftheitem ortransaction. highly probable transactions, itisrecognised inthelinewhichmost lineasthehedgeditem.statement Where ineffectiveness ariseson asset orliabilityisrecognised immediately inthesameincome the incomestatement. periods duringwhichtheassetacquired orliabilityassumedaffects are reclassified into inthesameperiodor theincomestatement associated gainsandlossesthatwere recognised directly inequity in therecognition ofafinancialassetorliability, thenthe amount ofthenon-financialassetorliability. removed from orcarrying equityandincludedintheinitialcost non-financial liabilitytheassociated cumulativegainorlossis subsequently results intherecognition ofanon-financialassetor For highlyprobable transactions, whenthetransaction Any ineffectiveness ina arisingonahedgeofnetinvestment Any ineffectiveness arisingona cashflowhedgeofarecognised If ahedgeofhighlyprobable transaction subsequentlyresults trument expires orissold,terminated orexercised, orwhenthe inaforeigntruments designated ashedgesofnetinvestments o theissueofnewshares are showninequityasa ecognised assetorliability, or

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW the timebefore theyare usedto fundthepensionpaymentsand employees, thereturn thatthepensionfundassetswillgenerate in progressionexpectancy ofthemembers,salary ourcurrent value ofourpensionliabilitiesdependonsuchfactors asthelife approximately ofthesebenefitsandthepresent 60years.Thecost pay pensionbenefitst BT hasacommitment,mainlythrough theBT Pension Scheme,to Pension obligations assessing thelikely effect oftheseadjustments. are andestimates usedin subject to retrospective adjustment, are charged regulatedat whichtheseservices are often andare theseotheroperators. Theprices make to, or paymentsweneedto in thesecasesto determine theamountofincomereceivable from, tr BT instances, reliesIn certain onotheroperators to measure the t incomeandpaymentsInterconnect to other efficiencies. and productivity, andanticipated cost costs third party savings volumes, orotherinputsfor which wegetpaid,future and staff areestimates appropriate. Keyfactors reviewed includetransaction reviews ofitscontracts inorder to determine whetherthelatest recognised immediately. Thegroup ongoingprofitability performs will beunprofitable, theentire lossfor estimated thecontract is each contract. If, indicate atanytime,theseestimates thecontract profits maybeimpacted oftheultimate byestimates profitability of financial years.Duringthecontr Long-term contracts customer overanumberof canextend Long-term contracts customer described below. The areas involvingahigherdegree ofjudgementorcomplexityare actual resultsfinancial reporting, coulddiffer from theseestimates. information isinherent andexperience.As theuseofestimates in assumptionsandjudgementsbasedonavailable our estimates, applying thegroup’s accountingpolicies.We continuallyevaluate requires managementto exercise itsjudgement intheprocess of requires andassumptions.Italso theuseofaccountingestimates The preparation inconformity offinancialstatements withIFRSs key judgements and Critical accountingestimates FINANCIAL STATEMENTS complex taxlaws andr The actual taxwepayonourprofits isdetermined according to Income tax aggregate ontheresults for theyearended31March 2009. hadnosignificantimpactin from 1April2008 implemented livesofassets assets concerned.Changesto theservice prospective economicutilisationandphysicalcondition of the programme), plans(includingthegroup’sinvestment 21CN remaining livesinlightof technological change,network to reflect currentand changedwhennecessary thinkingontheir allocated to eachtypeofasset.Assetlivesare assessedannually depreciation lives charge issensitiveto service theestimated and underground ductsbeingusedfor decades.Theannual cables andswit The plantandequipmentinBT’s networks islonglivedwith Useful livesfor property, plantandequipment expectations. regarding future assumptions reflect experienceandourjudgement historical andliabilitiesincorporatedcosts The inourfinancialstatements. foruse estimates allofthesefactors indetermining thepension the rate atwhichthefuture pensionpaymentsare discounted. We elecommunications operators affic flowsinterconnecting are withour networks.Estimates used ching equipmentoperating for overten years prxmtl 5,0 peopleover 350,000 o approximately egulations. Where theeffect oftheselaws CONSOLIDATED FINANCIALSTATEMENTS actual period,revenue, and costs borrowings, are carriedonthebalancesheetat fairvalue,with financial ins derivative suchasinvestments, financialinstruments Certain Determination offair values each cashgenerating unit. of future revenueoperating andprofit growth, costs margins for require includingmanagement’s theuseofestimates, expectations det The recoverable amountofcashgenerating unitshasbeen Goodwill and leveloffuture taxableincome. assets shouldberecognised withconsideration givento thetiming tojudgement isusedwhenassessingtheextent whichdeferred tax conigprosbgnigo ratr1Arl20 orlater 2009 1April accounting periods beginningonorafter forstandards havebeenpublished thatare thegroup’s mandatory to existing amendments interpretations and newstandards, Certain yet effective amendments to publishedstandards not and Accounting standards, interpretations financial positionorresults ofoperations. The adoptionofthisstandard hashadnoimpactonthegroup’s requirements’, becameeffective andwasadopted duringtheyear. 14,‘Definedbenefitassetsandminimumfunding IFRIC adopted intheyearended31March 2009 amendments to publishedstandards Accounting standards, interpretations and recognised asaprovision. beingbornebyBT.costs hasbeen orshortfall Anysuchcost arising from thesublease rental incomebeinglowerthanthelease ofvacantpossessionandanyshortfall been madeofthecost immediately inthecurrent economic environment. have Estimates sub-let thisspace,itisrecognised thatthismaynotbepossible a numberofsurpluspr rationalisation aproperty programme, wehaveidentified of As part arrangementsProperty issues. industry of theeconomyandparticular collected. includesuchfactors Theseestimates asthecurrent state in determining thelevelofdebtsthatwebelievewillnotbe experience, are basedonourhistorical Estimates, customers. used to uswillnotbepaidthrough thedefault ofasmallnumberour businesses, mainlyoncr millionindividuals and 15 BT to around provides services Providing for debts doubtful byusingvaluationtechniques. and inpart are byreference estimated to publishedpricequotations inpart changes infairvaluereflected Fair inthe incomestatement. values in det Deferred taxassetsandliabilitiesrequire managementjudgement Deferred tax from reflected theestimates inthefinancialstatements. final determination ofprioryeartaxliabilitiescouldbedifferent complex issueswhichmaytake a numberofyearsto resolve. The assumptions andjudgementsare reasonable butthiscaninvolve recognise We inourfinancialstatements. believetheestimates, liability for profits thetaxto bepaidonourpast whichwe and regulations isunclear, indetermining weuseestimates the ermined basedonvalueinusecalculations.Thesecalculations ermining theamountsto berecognised. Inparticular, truments and certain elementsofloansand truments andcertain operties. Although efforts are Althoughefforts beingmadeto operties. edit terms. We debtsdue knowthatcertain BT GROUP PLC ANNU AL REPORT & FORM 20-F 85

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW FS8t infiatyipc t segmentalanalysisdisclosure. its IFRS 8to significantlyimpact doesnotexpecttheadoptionof Thegroup ‘Segmental Reporting’. thescopeanddisclosureextends requirements ofIAS14, on int IFRS 8requires theidentificationofoperating segmentsbased IFRS 8,‘Operating Segments’(effectivefrom 1 April2009) April2010. business combinationsentered 1 into onorafter thegroup accountsfor how Adoption ofthisstandard willimpact business combinationseffected theeffective onorafter date. IFRS3(Revised)income statement. isapplicableprospectively to payments subsequentlyre-measured atfairvalue through the recorded atfairvaluetheacquisitiondate, withsomecontingent the requirement for allpaymentsto acquire abusinessto be the r business combinationssetoutinIFRS3.Amendmentsinclude aspectsofaccountingforIFRS 3(Revised) amendscertain 1 April2010) IFRS 3(Revised), ‘BusinessCombinations’(effectivefrom March 2010. the yearended31 the impactofthisstandard ontheshare basedpaymentcharge for Thegroup iscurrently assessing approximately £110m(2008:£nil). by 2009 standard to increase theshare basedpaymentcharge for Thegroup expects adoptionofthis periods willberestated. 2requires retrospective adoption,therefore prior IFRS statement. remaining future charges are immediately recognised intheincome betreatedCancellations must asaccelerated andall vestings accounted for asacancellation. is group orthecounterparty, this conditionthatiswithinthecontrola non-vesting ofeitherthe failure to meet granted. Inthecasethataward astheresult doesnotvest ofa account to determine thefairvalueofequityinstruments conditions are conditions,whichhaveto betaken non-vesting into per and clarifiesthatonlyservice The amendmentto IFRS2 cancellations’, (eff Payments conditionsand –vesting Based IFRS 2,‘Share are relevant to thegroup’s operations are asfollows: periods, butwhichthegroup hasnotadopted early. Thosewhich FINANCIAL STATEMENTS 86 Thegroup hasassessedtheimpactof this ofthatasset. cost will berequired ofthe to capitalise suchborrowing aspart costs assetasincurred.production Asa result, ofaqualifying thegroup borr The amendmentto IAS23eliminates theoptionto expense 1 April2009) Amendment to IAS23,‘Borrowing(effective from Costs’ April2009. to thegroup’s from financialstatements 1 Adoption ofthisrevision willresult inminorpresentational changes statements. primary andoptionalnamechangesfor certain period; present abalancesheet asatthebeginningofcomparative restatements orreclassifications ofcomparative information to and non-ownerchangesinequity;requirement for entitiesmaking owner of which includethefollowing: theseparate presentation the requirements for thepresentation offinancialstatements, of otherentities.IAS1(Revised) introduces anumberof changesto ofpreviousstatements periodsandwiththefinancialstatements s IAS 1(Revised) prescribes thebasisfor presentation offinancial (eff Statements’ Financial IAS 1(Revised), ‘Presentation of tatements to ensure comparability bothwiththeentity’s financial formance conditionsare conditions.Anyother vesting ective from 1April2009) ective owing costs attributable to the acquisition, construction or attributable to the acquisition,construction owing costs equirement to expensealltransaction asincurred costs and BT GROUP PLC ernal reporting to thechiefoperatingernal reporting decisionmaker and ANNU ective from 1April2009) ective AL REPORT & FORM CONSOLIDATED FINANCIALSTATEMENTS 20-F IFRIC 13 clarifies that where goods and services areIFRIC 13clarifiesthatwheresoldtogether goodsandservices 1 April2009) Programmes’ (effectivefrom Loyalty IFRIC 13,‘Customer asignificantimpactonthegroup’s financialstatements. have doesnot impact ofthisinterpretation andhasconcludedthatit ser ofpublic-private theaccountingbyoperators IFRIC 12addresses March 2009) adopted bytheEUuntil25 1 April2009;eff ConcessionArrangements’ (effectivefromIFRIC 12,‘Service group’s financialstatements. concluded thatitisnotlikely to haveasignificantimpactonthe The group hasassessedtheimpactofthisinterpretation and value andagainorlossrecorded through theincomestatement. control anyremaining islost, interest shouldbere-measured to fair or lossesbeingrecorded. IAS27(Revised) alsospecifiesthatwhen control. Suchtransactions willnolongerresult ingoodwillorgains contr IAS 27(Revised) requires theeffects ofalltransactions withnon group’s financialstatements. adoption ofthisguidanceto haveasignificant impactonthe applied inrespect ofthehedgeditem. Thegroup doesnotexpect be must ‘The Effects ofChangesinForeign Exchange Rates’, translation inrespect IAS21, reserve ofthehedginginstrument, needs to be reclassified to profit orlossfrom theforeign currency beappliedto determine must theamountthat Measurement’, Recognition ‘FinancialInstruments: and and 3)whileIAS39, maybeheldbyanentityorentitieswithin thegroup,instruments which theentitymayapplyhedgeaccounting,2)hedging 1)presentational currency doesnotcreate anexposure to follows: are eligiblefor hedgeaccountinginaccordance withIFRS,as Thestandardfinancial statements. provides guidanceonwhichrisks inves IFRIC 16provides guidance onaccountingfor thehedge ofanet (eff inaForeignIFRIC 16,‘HedgesofaNetInvestment Operation’ amendments. required to make additional disclosures to complywiththese requirements for thedisclosure ofliquidity risk.Thegroup willbe theexisting measurements. Inaddition,theamendmentsclarify additional disclosures abouttherelative reliability offairvalue value measur The amendmentsto IFRS7introduce athree levelhierarchy for fair (eff Disclosures’Amendment to IFRS7,‘FinancialInstruments: statements. financial that itisnotlikely to haveasignificantimpactonthegroup’s assessed theimpactofthisinterpretation andhasconcluded arrangement to theirfairvalues.Thegroup inproportion has shouldbeallocatedcustomer betweenthecomponentsof element arrangement andtheconsideration receivable from the with acus S Financial Separate IAS 27(Revised), ‘Consolidated and the group’s financialstatements. amendment anddoesnotexpectitto haveasignificantimpacton tatements’ (effectivefrom 1April2010) iecneso ragmns Thegroup hasassessed the vice concessionarrangements. ective 1April2009) ective April2009) 1 ective tment inaforeign operation inanentity’s consolidated olling interests to berecorded inequityifthere isnochangein tomer loyaltyincentive,thearrangement isamultiple ement disclosures andrequire entitiesto provide cieudrfl FSfo April2008,butnot underfullIFRSfrom 1 ective

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW financial statements. group’s currently assessingtheimpactofamendmentupon hasoccurred, IAS18,‘Revenue’.goods orservices Thegroup is becauseanexchange ofdissimilar and, Plant andEquipment’, the assetisaccounted for inaccordance withIAS16,‘Property, meets thedefinitionofanasset.Therecognition ofthetransfer of plant andequipmentto recognise ifit itinitsfinancialstatements theentityreceiving theitem ofproperty, IFRIC18requires services. provide withongoingaccessto thecustomer asupplyofgoodsor useeitherto to connectthecustomer entity must anetworkor a cus IFRIC 18appliesto allagreements inwhichanentityreceives from 1 July2009) IFRIC 18,‘Transfers (effective ofAssetsfrom Customers’ statements. this guidanceto haveasignificantimpactonthegroup’s financial Thegroupin theincomestatement. doesnotexpectadoptionof between thefairvalueandbookofassetsisrecorded andanydifference fair valueoftheassetsto bedistributed, The standard requires thedividendpayableto bemeasured atthe dis IFRIC 17provides guidanceonhowanentityshouldmeasure April2010) 1 (effective Owners’ Assetsto ofNon-cash IFRIC 17,‘Distributions FINANCIAL STATEMENTS tributions otherthancashwhenitpaysdividendsto itsowners. tomer anitem ofproperty, plantandequipmentthatthe

CONSOLIDATED FINANCIALSTATEMENTS BT GROUP PLC ANNU AL REPORT & FORM 20-F 87

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ee65 pershare (2008:15.8p,2007:15.1p)whichamounts to approximately £503m(2008:£1,236m, 6.5p were Year ended31March 2008 Year ended31March 2009 Profit before taxation Net financeexpense Finance income Finance expense Operating profit operating income Other Revenue Dividends paidintheyearwere £1,222m(2008:£1,241m,2007:£1,053m),asshownin a Diluted Basic pershare Loss Equity shareholders oftheparent Attributable to: profit for theyear (Loss) profit before taxation (Loss) Net financeexpense Finance income Finance expense Operating profit Other operating income Revenue GROUP INCOME STATEMENT STATEMENTS FINANCIAL 88 a Diluted Basic Earnings pershare Minority interests Equity shareholders oftheparent Attributable to: Profit for theyear Taxation Share taxlossofassociates andjointventures ofpost Operating costs Minority interests Taxation ofassociates andjointventures profit Share tax ofpost Operating costs Profit ondisposalofassociate o ento fseicies see For adefinitionofspecificitems, o ento fseicies see For adefinitionofspecificitems, BT GROUP PLC ANNUAL REPORT & FORM ae79. page ae79. page CONSOLIDATED FINANCIALSTATEMENTS An analysisofspecificitems isprovided in An analysisofspecificitems isprovided in 20-F oe4. note oe4. note Notes Notes 21 21 14 14 oe6. note 8 2,652 (3,272) 5 5 1 2 1 8 7 2,513 (2,891) 5 5 1 2 1 2,2)(9)(21,318) 71 (395) (20,923) 3 1,6)(2)(18,697) (529) (18,168) 3 eoeseicSpecific Before specific eoeseicSpecific Before specific Dividends proposed inrespect of200 21,390 20,704 1,925 2,506 2,895 1,924 tm items items tm items items (620) (378) (581) 246 248 238 819 352 359 (11) £m £m 39 1 2 04 –99 2007: £1,247m). 32 (134) (329) (372) (408) 17 1,738 1,976 (187) (530) 2,356 (539) (329) 17 1,737 (187) 343 (13) (10) £m £m 36 35 2,652 (3,272) – – – 21,390 – – 2,513 (2,891) – – – 20,704 – – – a a (1.1)p (1.1)p 21.1p 21.5p 9 (378) (620) (238) Total Total 349 411 339 (81) (83) (11) £m £m 75 1 2 3

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Year ended31March 2007 Fair valuemovementsonavailable-for-sale assets: Exchange differences: Actuarial (losses)gainsrelating to retirement benefit obligations for theyear profit (Loss) GROUP STATEMENT OFRECOGNISED INCOME ANDEXPENSE a Diluted Basic Earnings pershare Minority interests Equity shareholders oftheparent Attributable to: Profit for theyear Taxation Profit before taxation Net financeexpense Finance income Finance expense Operating profit Other operating income Revenue GROUP INCOME STATEMENT STATEMENTS FINANCIAL A reconciliation andretained ofthechanges inotherreserves earningsisgiven Minority interests Equity shareholders oftheparent Attributable to: Total recognised incomeandexpensefor theyear recognisedinequity directly gains (losses) Net Tax impactofaboveitems Fair valuemovementsoncashflowhedges: Year ended31March Share taxprofit ofpost ofassociates andjointventures Operating costs Profit ondisposalofassociate o ento fseicies see For adefinitionofspecificitems, – reclassified innoncurrent andreported assets – reclassified innet(loss)profit andreported – fairvaluegains(losses) – fairvaluegains – ontranslation offoreign operations ae79. page CONSOLIDATED FINANCIALSTATEMENTS An analysisofspecificitems isprovided in oe4. note oe 4ad25. and 24 notes Notes Notes 21 9(,3)2611,409 2,621 (7,037) 29 14 8 7 2,371 (2,604) 5 5 1 2 1 1,859 7 1,4)(6)(17,915) (169) (17,746) 3 eoeseicSpecific Before specific BT GROUP PLC 20,223 392 ,0 3,843 3,903 2,165 (3,992) (3,911) 394 ,9 3,843 3,899 (3,994) 392 ,0 3,843 3,903 (3,992) 214 (294) (2,144) 1,884 2,495 2,713 1,882 2,719 2009 tm items items (233) (611) 236 692 8)1782,852 1,738 (81) £m £m 15 (5) 2 24– 5–– –2 ANNUAL REPORT & FORM 082007 2008 12 2,541 (172) 82 (486) (832) 6 2,850 2,852 968 968 979 2,510 139 139 446 213 1)2,484 (11) £m £m 11 (3) 22 – (2,604) – 20,223 – – a 20-F 33.6p 34.4p (201) Total 991 364 368 233 (94) (95) £m £m 15 89 2 2 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Purchases ofcurrent financialassets Purchases ofnoncurrent financialassets inassociates andjointventuresInvestment Purchases ofproperty, plantandequipmentcomputer software Acquisition ofsubsidiaries,netcashacquired Income taxrepayment for prioryears Income taxes paid Loss (profit) onsaleofassociates andnoncurrent assetinvestments Depreciation andamortisation GROUP CASHFLOW STATEMENT STATEMENTS FINANCIAL 90 b Dividends paidto minorityinterests Equity dividendspaid Cash flowfrom financingactivities from activities investing outflow Net cash Dividends received from associates andjointventures Interest received Cash flowfromactivities investing Net cashinflowfrom operating activities Cash generated from operations before taxation (Loss) profit Cash flowfrom operating activities a Cash andcashequivalentsattheendofyear incashandequivalents increase (decrease) Net Effect ofexchange rate changesoncashandequivalents Net cashusedinfinancingactivities Net financeexpense Year ended31March Cash and cash equivalents at the start oftheyear Cash andcashequivalentsatthestart commercial paper proceeds onissueof(purchase of) Net Repayment offinanceleaseliabilities Repayments ofborrowings Interest paid Proceeds ondisposalofgroup undertakings Other noncashcharges Proceeds shares onissueoftreasury Repurchase shares ofordinary New bankloansraised Proceeds ondisposalofproperty, plantandequipment hr f(profits) lossesofassociates andjointventures Share of Proceeds ondisposalofassociates andjointventures Repurchase shares ofordinary bysubsidiary Decrease (increase) ininventories Proceeds ondisposalofnoncurrent financialassets erae(nrae intrade andotherreceivables Decrease (increase) Proceeds ondisposalofcurrent financialassets Dces)ices intrade andotherpayables (Decrease) increase nrae(erae inprovisions and otherliabilities Increase (decrease) 20 n 07 nl,wihaenncs hre.Frfrhrdti,see charges of£1,639m contract BT andfinancialreview charges. detail, GlobalServices For further of£4,934mfor 2009includes non-cash cashgenerated from operations are the which to (2008 and2007:£nil), of£134mfor 2009 before taxation loss the reconciliation from The Primarily consists of investment inandredemption ofinvestment ofamountsheldinliquidityfunds. Primarily consists BT GROUP PLC ANNUAL REPORT & FORM a CONSOLIDATED FINANCIALSTATEMENTS a b 20-F b note 3. Notes 9 185 140 (2,898) (1,430) (1,865) (2,778) (3,664) (2,954) 302 335 (3,298) (3,315) (3,082) 600 498 (8,007) (4,938) (6,030) 121 126 (1,054) (1,236) (1,221) ,3 ,8 5,245 5,187 4,934 ,0 ,8 5,210 5,486 4,706 ,1 1,174 1,115 ,1 ,7 8,525 4,779 6,316 ,9 ,8 2,920 2,889 2,890 1,174 1,063 2009 27 37 (284) (377) (227) 22 22 (411) (222) (232) 2,484 1,976 (134) 83 93 (809) (797) (913) (842) (863) (956) 34 148 (400) (1,498) (334) (379) 620 606 486 9 3,939 125 795 439 (59) 1)(8)(276) (284) (16) (75) £m 13 19 54 44 11 (1) 4 6 – – – – – – 082007 2008 (681) 48 (373) (498) 14 (172) (104) 111 521 417 378 5 1,258 757 451 £m 25 60 62 85 11 13 23 (2) 1 2 1 – – – – (501) 147 376 757 309 123 282 (19) (35) (15) £m 94 11 27 50 89 27 (7) (7) (3) (2) (6) 6 4

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Derivative financialinstruments Loans andotherborrowings Non current liabilities Total assetslesscurrent liabilities Investments Derivative financialinstruments Property, plantandequipment Intangible assets Non current assets The consolidated on financialstatements Total equity Minority interests Total parent equity shareholders’ GROUP BALANCE SHEET GROUP BALANCE STATEMENTS FINANCIAL Group FinanceDirector Tony Chanmugam Chief Executive Ian Livingston Chairman Sir MichaelRake signed onitsbehalfby Derivative financialinstruments Loans andotherborrowings Current liabilities At 31March Share premium sharesOrdinary Equity Derivative financialinstruments Trade andotherreceivables Inventories Current assets Other payables Retirement benefitobligations Retirement benefitasset Provisions Current taxliabilities Trade andotherpayables eand(loss)earnings Retained Other reserves Capital redemption reserve Investments Provisions Deferred taxliabilities Associates andjointventures Cash andcashequivalents Trade andotherreceivables Deferred taxassets CONSOLIDATED FINANCIALSTATEMENTS ae 9t 135 to 79 pages n 141 and eeapoe yteBado ietr n1 a 09andwere 2009 May 13 were approved bytheBoard ofDirectors on BT GROUP PLC Notes 21,0 15,307 3,355 2,456 15,405 3,788 13 17 12 11 22 21 17 16 17 16 54154,449 4,185 17 15 23 23 29 93,973 18 29 87257,591 7,215 18 19 13 5(,5)5,439 (1,656) 1,301 25 24 14 01782,513 1,728 19 20 15 01,103 20 ,0 1,435 1,300 9 ANNUAL REPORT & FORM 99219,648 19,922 32122,829 23,261 99219,648 19,922 14,216 19,753 2359,818 12,365 ,1 6,523 6,013 ,5 9,704 9,352 ,4 1,524 1,542 2009 4 5,409 142 121 408 6 5,432 169 427 340 244 794 254 163 132 466 322 £m 55 27 27 62 1 2,887 – 20-F 2008 (527) 310 420 122 108 805 241 267 707 440 265 854 £m 23 31 15 62 77 81 85 91 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW businesses suchasBT Conferencing, BT Directories andBT Payphones. wholesale markets throughout theRepublic Ireland, ofIrelandandEnterprises, whichcomprisesanumberofindividual andNorthern BTcommunications products Retail andservices. alsoincludesBT Ireland, whichoperates across themajorcorporate, SME,consumerand applicationmanagement,professional andoutsourcing solutions. ITservices, services networked voice and data connectivity services andinterconnect to bespoke,voice anddataconnectivityservices fullymanagednetworkoutsourcing andvalue-addedsolutions. Revenue bylineofbusiness BT DesignandBT Operate. bytwointernal functionalunits, which are supported broadband andconverged andinternet productsfixed/mobileservices; andservices; products andservices. The group’s principalactivitiesinclude:theprovision local,nationalandinternational telecommunications ofnetworked ITservices; format reporting –businesssegments Primary 1. Segmentalanalysis NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS FINANCIAL STATEMENTS 92 Total revenue revenueExternal Year ended31March 2007 Total revenue revenueExternal Year ended31March 2008 Total revenue revenueExternal Year ended31March 2009 and developingthetrading model. In2008, there wasnosuchallocationaswewere transforming thebusiness March 2009. intheyear to 31 andamortisation depreciation Thisamountsto £32mofoperating and£129mof costs theyprovide. inlinewiththeservices linesofbusiness customer-facing byBT ofcosts recovery DesignandBT Operate. Inthecurrent year, from allcosts BT DesignandBT Operate havebeenfullyallocated to the theresults of‘Other’includedanyoverorunder to reconcile to‘Other’ category theconsolidated results ofthegroup. Intheprioryear, isagreedsale ofotherproductsbetweentherelevant andservices linesofbusiness. business asiftheywere independentbusinessoperations. Accordingly, depreciation andamortisation. thesegmentalresults donotnecessarilyreflect theoperating results ofthelines with their assets managedbyBT Operate andtheircapitalexpenditure intheyearare alsoallocated to thelinesofbusinessinamannerconsistent operate linesofbusinessare onbehalfofthecustomer-facing allocated to thelinesofbusinessbasedontheirrespective utilisation.The theyprovide.incurred ThedepreciationbyBTservices andamortisation Operate inrelation to theymanageand thenetworksandsystems incurred basis.Thecosts byBT recovery cost DesignandBT Operate are allocated to linesofbusinessinlinewiththe thecustomer-facing Operate generate anyrevenue andbothoperateneither BT ona DesignnorBT Operate aresegments. NeitherBT reportable DesignnorBT andBT Operate isresponsible for theiroperation. Thegroup’s segmentsare reportable thefour linesofbusiness; customer-facing services, products and theprovision oftheplatforms, andprocessesofthegroup’s systems whichsupport build and design responsible for the withregardthan anyothercustomer to terms andconditionsoraccessto anddata. systems business andothercommunicationsproviders atthesamearm’s lengthprices,withtheBT linesofbusinessbeingtreated nodifferently andeconomicaccessto theUKnetwork.Openreach products are soldonanequivalentbasisto BT linesof equal,open giving them Internal revenue Internal revenue Internal revenue Openreach BT Wholesale BT Retail BT GlobalServices The activities of each of the customer-facing linesofbusiness areThe activitiesofeachthecustomer-facing asfollows: The group isorganised into four BT linesofbusiness,BT customer-facing Retail, GlobalServices, BT WholesaleandOpenreach, In additionto thefour linesofbusiness,theremaining customer-facing operations ofthegroup are aggregated andincludedwithinthe Intra-group revenue generated from thesaleofregulated isbasedonmarket products price.Intra-group andservices revenue from the four linesofbusiness. BT customer-facing Designis the support which units internal functional are BT DesignandBT Operate BT GROUP PLC serves consumer customers andsmallmedium-sized consumercustomers enterprises (SMEs)intheUK,providingserves arange ofinnovative is responsible for the crucial ‘first mile’ connecting communications providers’ customers to customers theirlocaltelephone exchange, is responsible for mile’connectingcommunicationsproviders’ thecrucial‘first provides services to UKcommunicationsproviders rangingprovides through services from adiverseportfolio nationallyavailablebroadband, ANNU evsmjrcroae are n oenetognstosars h ol,providing managed high-performance organisations across theworld, andgovernment carrier majorcorporate, serves AL REPORT & FORM CONSOLIDATED FINANCIALSTATEMENTS BT Global BT Global BT Global evcsB ealB hlsl pnec te Intra-group Other Openreach BT Wholesale Intra-group BT Retail Other Services Openreach BT Wholesale BT Retail Services evcsB ealB hlsl pnec te nr-ru Total Intra-group Other Openreach BT Wholesale BT Retail Services ,1 ,4 ,8 5,223 5,386 8,346 5,266 7,312 4,959 8,477 5,231 7,889 4,658 8,471 8,828 ,2 ,1 3,430 8,112 8,828 ,1 ,0 4,109 8,100 7,312 3,707 8,194 7,889 20-F £m £m £m – – – 4 ,7 4,538 1,277 246 4,380 1,252 283 4,253 1,228 359 £m £m £m £m £m £m 685 886 978 £m £m £m £m £m £m 7(,6)20,223 (6,061) 17 20,704 (5,915) 28 21,390 (5,840) 42 17 28 42 (6,061) – (5,915) – (5,840) – £m £m £m 20,223 – 20,704 – 21,390 – Total Total £m £m £m – – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Net financeexpense ofassociates and profit Share tax ofpost Year ended31March 2008 Year ended31March 2009 Amortisation Depreciation Profit for theyear Taxation Profit before tax Net financeexpense Profit ondisposalofassociate Share taxlossofassociates and ofpost Segment result Specific items Operating profit before specificitems b a Amortisation Depreciation for theyear Loss Taxation before tax Loss Segment result Specific items before specificitems (loss)profit Operating Operating results bylineofbusiness 1. Segmentalanalysiscontinued STATEMENTS FINANCIAL Amortisation Depreciation Profit for theyear Taxation Profit before tax Segment result Operating profit before specificitems Net financeexpense Profit ondisposalofassociate Share taxprofit ofpost ofassociates and Specific items Year ended31March 2007 h 09seiciesicueB lblSrie etutrn hre f£8m(08ad20:£i) fwih£4mwaspaidincash ofwhich of£280m(2008and2007:£nil), restructuring BT charges GlobalServices include specificitems 2009 The 20 n 07 nl,wihaenncs charges. non-cash are which (2008 and2007:£nil), h 09B lblSrie emn euto (,0) nldscnrc n nnilrve hre f£,3m(08ad20:£i) hc r o-ahcharges. detail, For further non-cash are which segmentresultThe 2009BT of£(2,106)mincludescontract GlobalServices andfinancialreview charges £nil), of£1,639m(2008and2007: joint ventures joint ventures joint ventures a b CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – BT Global BT Global BT Global evcsB ealB hlsl pnec Other Openreach BT Wholesale BT Retail Services Other Openreach BT Wholesale BT Retail Services evcsB ealB hlsl pnec Other Openreach BT Wholesale BT Retail Services 216 1,209 (2,106) 216 1,209 (2,106) 239 537 181 484 196 1,050 1,050 117 117 548 £m £m £m 70 70 340 402 912 912 377 £m £m £m 85 43 68 8 1,218 580 8 1,218 580 0 1,222 1,222 502 502 645 864 1,220 1,220 592 592 839 £m £m £m 41 44 54 n20,ad21CNassetimpairmentandrelated charges of£50m and in 2009, BT GROUP PLC 707 663 664 £m £m £m 71 44 25 ANNUAL REPORT & FORM (490) 55 2,356 (535) 23 2,541 (253) 59 (539) (539) 48 (408) (408) 12 (172) (172) 205 2 2,536 123 136 (82) 8)2,713 (81) 1)2,410 (18) £m £m £m 02,249 20 72 2,895 4 e note 3. see 20-F 2,852 2,484 1,738 1,976 (134) (620) (238) (378) Total Total Total 411 368 819 384 479 641 (81) (11) (94) £m £m £m 75 53 22 15 93 9

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW At 31March 2009 Capital expenditure Consolidated total liabilities Segment liabilities Liabilities Consolidated total assets Unallocated assets Segment assets Assets Total capitaladditions Capital expenditure Consolidated total liabilities Segment liabilities Liabilities Consolidated total assets Unallocated assets Associat Segment assets Assets Assets andliabilitiesbylineofbusiness 1. Segmentalanalysiscontinued STATEMENTS FINANCIAL 94 deferred taxation,retirement benefitobligations,financeleaseliabilities,corporate borrowings andrelated derivatives. andprovisions. Unallocated liabilities includecurrent and retirement benefitassets.Segmentliabilitiescomprisetrade andotherpayables, and includecashandequivalents,deferred andcurrent derivatives,associates andjointventures, taxation,investments, assets primarilyofproperty,Segment assetsconsist plantand equipment,intangibleassets,inventories, andtrade receivables. Unallocated Total capitaladditions Unallocat Associat Unallocat At 31March 2008 rpry ln n qimn 7 8 6 7 2 2,513 226 972 560 281 839 474 236 2,249 143 141 70 Property, plantandequipment 823 51 537 339 270 478 Intangible assets Property, plantandequipment nagbeast 1 0131122826 232 101 103 80 310 Intangible assets Consideration for acquisitions Consideration for acquisitions BT GROUP PLC es andjointventures es andjointventures ed liabilities ed liabilities ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F BT Global BT Global evcsB ealB hlsl pnec te Total Other Openreach BT Wholesale BT Retail Services evcsB ealB hlsl pnec Other Openreach BT Wholesale BT Retail Services ,7 ,6 1,008 9,150 2,365 3,870 3,773 2,999 8,131 23,821 1,147 1,275 9,285 2,068 3,038 3,927 2,850 7,501 ,3 ,9 ,7 ,5 ,0 29,352 5,202 1,190 1,008 9,150 2,365 3,870 3,773 2,999 8,131 29,274 6,600 1,275 9,285 2,068 3,038 3,927 2,850 7,501 784 817 830 406 £m £m 13 321 361 419 432 £m £m 7 98 1–––4 607 6 1,073 663 607 6 1,073 663 £m £m – 9 12129,105 21,241 594 594 5 59423,920 15,924 850 850 966 966 £m £m – 09820,988 20,988 53715,357 15,357 ,2 5,321 5,321 ,8 5,180 5,180 132 5 3,339 458 5 8,117 253 5 3,816 458 8,563 567 7 3,088 377 5 3,274 452 6)24,087 (63) £m £m 85 75 Total 132 186 £m £m 85 7 7

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW oa ses aia xedtr n osdrto 2009 Total assets,capitalexpenditure andconsideration Other operating income Other operating incomebefore specificitems Profits ondisposalofproperty, plantandequipment 2. Otheroperating income 4,231 Total assetsandcapitalexpenditure are allocated to geographical areas basedonthelocation oftheasset. Total assets 4,346 Europe, andAfrica,excluding MiddleEast theUK UK analysis. diff incomingandtransitdestination, international callswouldbetreated The analysisofrevenue bygeographical area Total Asia Pacific Americas Europe, andAfrica,excluding MiddleEast theUK UK format reporting –geographical informationSecondary 1. Segmentalanalysiscontinued STATEMENTS FINANCIAL for acquisitionsbygeographic area Revenue bygeographic area Specific items Income from repayment works Americas Other operating income Asia Pacific Unallocated assets nt 4) (note CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – is on the basis of the country of origin of the customer invoice.Inananalysiso oforiginthecustomer is onthebasisofcountry 9242,5 ,8 3,339 3,088 29,352 29,274 7961,3 ,7 3,023 2,772 18,435 17,996 ,6 1,286 1,364 ,2 5,18 5,321 247 £m Total assets 2008 220 erently, butwouldnotleadtoamateriallydifferent £m 0–––– 2009 170 113 £m 33 BT GROUP PLC expenditure 1302,0 20,223 20,704 21,390 6761,8 17,241 17,186 16,736 Capital ,4 ,1 2,174 2,510 1,119 3,247 2008 2009 2009 189 288 339 352 103 228 (13) £m £m £m 52 72 24 ANNUAL REPORT & FORM 2009 2007 2008 082007 2008 186 161 847 349 359 129 235 (10) £m £m £m 40 17 50 74 – f revenue by geographical for acquisitions Consideration 20-F 2008 477 233 236 134 711 130 148 142 £m £m £m 71 20 97 68 95 (3)

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW other receivables £913m; prepayments £52m; accrued income £41m; provisions £256m; £136m was allocated against anumber ofother against wasallocated £256m;£136m provisions balance sheetcategories andtheindividualamountsare insignificant. £41m; accruedincome £52m; prepayments £913m; other receivables inthelightofcurrent economicoutlookandeventsoccurringduringtheyear.particularly intheunderlyingassumptionsandestimates, changes more cautiousviewoftherecognition offuture efficienciesandother cost reflect a Thesecharges anditsbalancesheetposition.Thecontractof BT reviews GlobalServices covered complexcontracts. thelargest andmost 3. Operating costs STATEMENTS FINANCIAL 96 ot n 4mwsrcre sardcint eeu.Asdescribedon and£41mwasrecordedcosts asareduction to revenue. In 2009,thegroup recognised contract andfinancialreview charges of£1,639m,which£1,598mwasrecorded withinotheroperating c b a includethefollowing: Operating before costs specificitems Total operating costs 4) Specific items (note Total operating before costs specificitems ofintangibleassets Amortisation Depreciation ofproperty, plantandequipment: costs Net staff Own workcapitalised Total costs staff Staff costs: bynatureCosts Other operating costs Payments to telecommunications operators te prtn ot loicueantcei f£m(08and2007:£nil)relating to fairvaluemovementsonderivativesrecycled from thecashflowreserve. includeanetcredit of£8m(2008 Other operating also costs eerhaddvlpetepniueicue mriaino 41 (2008:£325m,2007:£314m)inrespect ofinternally developedcomputer software. Research of£431m anddevelopmentexpenditure includesamortisation Leaver costs exclude manager leaver costs associated with the group’s transformation and reorganisation activities during 2009 and 2008. Manager leaver costs associated withthetransformation during2009and2008.Managerleavercosts activities exclude associatedLeaver costs withthegroup’s managerleavercosts transformation andreorganisation activities have beenrecorded are asaspecificitem. Otherleavercosts includedwithinwagesandsalariessocialsecuritycosts. Foreign currency losses Leaver costs Contract andfinancialreview charges Held underfinanceleases Owned assets Social securitycosts Wages andsalaries Rental relating costs to operating leases Research anddevelopmentexpenditure Pension costs hr ae amn costs Share basedpayment h oa hreo 169 a loae gis h olwn sesadlaiiis nagbeast 21;noncurrent trade and £241m; intangibleassets thefollowing against assetsandliabilities: allocated The total charge of£1,639mwas BT GROUP PLC b ANNUAL REPORT & FORM a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – c 20-F ae10, page the financialreview covered thefinancialperformance 1381,9 17,915 17,746 18,697 18,168 21,318 20,923 ,3 ,3 4,505 5,223 4,634 5,358 4,833 5,506 ,6 ,3 4,162 4,237 4,266 ,3 ,0 6,159 6,408 8,934 1,021 1,598 2,420 2,324 2,200 4,099 4,242 4,499 2009 63 74 (718) (724) (673) 204 395 641 432 426 544 £m 49 3 31 085 082007 2008 857 127 529 479 417 423 626 £m 86 73 – 692 147 169 384 116 388 389 643 £m 93 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Creation oftheUndertakings ofOpenreach anddelivery group transformation andreorganisation activities – Restructuring costs People andproperty – Costs associated withsettlementofopentaxyears Costs Intangibleassetimpairments – c b a tax after Net specificitems charge (credit) Net specificitems charge before tax Interest onsettlementofopentaxyears Finance income Networksandproducts rationalisation – restructuringBT charges: GlobalServices Operating costs Net lossonsaleofgroup undertakings Other operating income on the group. Adefinitionofspecificitems isprovided ismeasuredthat financialperformance inproviding bymanagementandwebelieveitassists ameaningfulanalysisofthetrading results of The group separately identifiesanddisclosessignificantoneofforunusualitems (termed ‘specificitems’). withtheway Thisisconsistent 4. Specificitems STATEMENTS FINANCIAL l k j i h g f e d Tax credit onspecificitems above Tax credit onre-measurement ofdeferred tax Profit ondisposalofassociates andjointventures valueofassociate Reassessment ofcarrying Share ofresults ofassociates andjointventures 21CN assetimpairmentandrelated charges Write andotherworkingcapitalbalances offofcircuit inventory Property rationalisationProperty costs Profit onsaleofnoncurrent assetinvestments Tax credit inrespect ofsettlementopentaxyears Intangibleassetimpairments –acharge of£46m(2008and2007:£nil)hasbeenrecognised, reflecting thatare associated withrationalising thecosts offered theservices to – People –acharge andproperty of£51m(20082007:£nil)hasbeenrecognised, relating associated to withthe restructuring thecosts andrationalisation ofpeopleand – Networksandproducts rationalisation –asaresult ofthedecisionto rationalise thelegacynetworks,includingassociated andprocesses, systems acharge of£183m – 28%, effective in2009. for there-measurement ofdeferred corporation taxbalancesasaresult taxrate ofthechangeinUKstatutory from 30%to In 2008,ataxcredit of£154mwasrecognised Tech Mahindra Limited. consideration from thedisposalofgroup’s In 2007,the£22mprofit arose interest ine-peopleserve. from thedisposalof6%group’s equityinterest intheassociate respectively, profit onthesaleofassociates of£9mand£22m(2009:£nil)were recognised. In2008,the£9mprofit arose from thereceipt ofcontingent In 2008and2007, share ofthenet assetsofanassociated undertaking. thegroup’s wasrecognised inrespect ofareassessment ofthevalue (2008and2007:£nil) credit In 2009,a£36m associated withreachingcosts thisagreement. interest incomeof£139mandoperating of£10mrepresenting costs the elements ofthetaxcharges previously recognised whichwere inexcess ofthe finalagreed liability, 2004/05 withHMRevenue (HMRC). andCustoms In2007,thetotal impactofthe settlement wasanetcredit of£1,067m,comprisingataxcredit of£938mrepresenting those relation to thesettlementreached in2007.In2007,thegroup agreed allopenUKtaxmatters r thesettlementofsubstantially In 2008,thegroup agreed taxmatter relating anoutstanding to abusinessdisposedofin2001,theimpactwhichwastaxcredit of£40m,andthisclosedallopenitems in products. andfocusdevelopmentsoffibre generation based onnext voiceservice programme andassociated voicestrategy inthelightofmoveto roll acustomer-led outstrategy following thegroup’s review ofits21CN £19mofassociated costs, and impairments In 2009,a£50m(2008and2007:£nil)charge wasrecognised, comprising£31mofasset working capitalbalances. respectively, thegroup recorded charges of£74mand£65m(2009:£nil),recognised asaresult ofthecompletionareview andother ofcircuit inventory In 2008and2007, agreed withregard withOfcom,Undertakings particularly to theintroduction ofequivalenceinputsystems. respectively, charges of£53mand£30m(2009: £nil)were required recognised costs estimated inrelation to to create further Openreach anddeliver the In 2008and2007, In 2007,thegroup incurred rationalisation of£64m(2009and2008:£nil). property costs exitandtransformation property leavercosts, programme costs. comprised mainly respectively, thegroup incurred of£65mand£402m(2007:£nil)inrespect costs ofthegroup’s transformation andreorganisationIn 2009and2008, activities.Thecosts specific item are setoutbelow. operational review, thegroup recorded restructuring charges of£280m(2008and2007:£nil).Themaincomponentsthe In 2009,asaresult oftheBT GlobalServices In 2007,thegroup disposedofsomenon-core resulting investments, inaprofit of£2m(2009and2008:£nil). disposal ofthegroup’s satellite broadcast business. In 2009,a£13m(2008:£10m,2007:£5m)lossondisposalarose from exitingabusiness.The£10mand£5mlossesin20082007,respectively, relate principallyto the economic valueto thebusiness. andthebrands Thechargecustomers areincludesthewrite underwhichcustomers downofbrands served. andotheracquired inta property. Themaincomponentsoftherestructuring charge exitcosts. are andproperty leavercosts (2008 and2007:£nil)hasbeenrecognised, representing thedifference betweentherecoverable valueoftheassetsimpacted bytherationalisation. amountandthecarrying c e CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – c a c i h j l b k i i f ae79. page g d BT GROUP PLC elating to ten taxyearsupto and including 2009 395 2 1 329 372 (36) (36) 4)(149) (43) £m 8 8 5 65 4 5 13 13 ngible assetsthatnolongerhavean 0–– 3–– 0–– 6–– 1–– ––1 –7 –5 ––6 – – – – – ANNUAL REPORT & FORM 082007 2008 (154) 529 402 187 530 4)(938) (40) £m 10 10 (9) (9) 46 33 – – – 20-F (139) (968) 169 (22) (41) (22) £m 11 97 (2) 0 4 5 0 3 5 – – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW e d Fair valuelossonderivativesnotinadesignated hedgerelationship 6. Dividends b Financeexpenseandfinanceincome 5. STATEMENTS FINANCIAL 98 2009. August 14 shareholders ontheRegister ofMemberson Theproposed (2008:£805m)hasnotbeenincludedinthese financialstatements. dividendwillbepayableto all approximately £85m 15.8p, 2007:15.1p).Thisdividendissubjectto approval byshareholders attheAnnualGeneral Meetingandtherefore of theliability (2008: 6.5p September 2009,takingthefullyearproposed dividendinrespect ofthe2009financialyearto 7 on pershare willbepaidto sha 1.1p The directors are proposing thatafinaldividendinrespect oftheyearended31March 2009of Final dividendpaidinrespect oftheprioryear a Net financeexpense Total financeincome Other interest andsimilarincome Income from investments listed Finance income c b a Total financeexpense Interest bonds,debentures onlisted andnotes Finance expense Expected return onpensionschemeassets Interest onpensionschemeliabilities Unwinding ofdiscountonprovisions Interest onotherborrowings Interest onfinanceleases nei iiedpi nrseto h urn er5.40 Interim dividendpaidinrespect ofthecurrent year nldsals f£i (2008:£2m,2007:£nil)recycled fromarisingonde-designationofderivatives thecashflowreserve ahedgerelationship. Includes alossof£nil nldsantcag f£,6m(08 e hreo 33,20:ntcei f£2m eaigt oeg xhnemvmnso on n orwnsadantcei f£,6m(08 e credit (2008:net loansandborrowings andanetcredit of£2,161m of£420m)relating to foreign exchange movementson credit (2008:netcharge of£373m,2007:net Includes anetcharge of£2,161m 07icue 19 relating to interest onsettlementofopentaxmatters disclosedasaspecificitem 2007 includes£139m (2008:netcharge of£6m,2007:net of£39m credit (2008:netcredit of£6m,2007:netcredit of£70m)relating to fairvaluemovementsarisingonhedgeditems andanet charge of£39m Includes anet Calculated below. usingtheeffective stated interest methodunlessotherwise relationships. Theitems generating thisforeign exchange are indesignated hedge charge of£420m)relating to fairvaluemovementsonderivativesrecycled from thecashflowreserve. of £373m,2007:net nldsantcag f£i 20:£i,20:£2m eaigt oeg xhnemvmnso netet n e rdto nl(08 nl 07 £123m)relating to fairvaluemovementson (2008:£nil,2007: andanetcredit investments of£nil £123m)relating to foreign exchange movementson (2008:£nil,2007: Includes anetcharge of £nil charge of£70m)relating to fairvaluemovementsarisingonderivativesdesignated asfairvaluehedges. (2008:£77m,2007:£67m)relating to fairvaluemovementsonderivativesrecycled from thecashflowreserve. Includes anetcharge of£25m eiaie eyldfo h ahflwrsre h tm eeaigti oeg xhneaei designated hedgerelationships. in Theitems generating thisforeign exchange are derivatives recycled from thecashflowreserve. Other interest andsimilarincome Interest onloansandreceivables Interest onavailable-for-sale investments Interest onheldfor trading investments Interest onavailable-for-sale investments Net gainonheldfor trading investments BT GROUP PLC ANNUAL REPORT & FORM b c,d a a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – a a 20-F a,b per share 58 ,2 54 ,4 27 1,053 12.70 1,241 15.40 1,222 15.80 10.40 pence e 2009 sent 4). note (see 0 10.00 418 804 mpershare £m pence 5.40 ,7 ,9 2,604 2,891 3,272 ,5 ,1 2,510 2,513 2,652 ,2 ,4 2,292 2,448 2,621 ,0 ,2 1,872 2,028 2,308 2008 2007 2009 2009 130 777 810 620 431 £m £m mpershare £m 29 25 17 14 333 – – – – pence 082007 2008 082007 2008 7.60 5.10 159 629 378 £m £m 41 31 40 25 – – – – reholders 139 623 631 422 £m £m £m 58 44 94 17 16 39 4 1 6

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW soitsadjitvnue 2)1. 2 01 5 (0.2) – (3.2) – (5) (37.8) 0.4 – (78) – (938) (0.1) 11 0.4 0.1 (2.8) (7.8) (2.0) (2) (0.6) 0.3 9 4 (56) (154) (40) (13) 15.7 7 – 17.9 (0.3) 1.1 – (3.7) (21) (24) 6.7 (7) – 23 5 – (9) 17.9 Re-measurements ofdeferred taxbalancesat28% (20.0) Tax credit inrespect ofsettlementopentaxyears inrespectAdjustments ofpriorperiods Associates andjointventures (24) 27 Other deferred taxassetsnotrecognised taxes ongaindisposalofnoncurrent Higher (lower) taxes onnonUKprofits (Lower) higher Non (taxable)deductiblenonUK(profits) losses Non deductibledepreciation andamortisation Effects of: 28% expenseatUKrate of (credit) Notional taxation profit before taxation (Loss) before taxationasaresult ofthefollowing factors: (loss) profit for theyeardiffers from theamountcomputed byapplyingthecorporation taxrate to the (loss)profit onthe (credit) expense The taxation (credit) expense Factors affecting taxation intheincomestatement expense Total taxation(credit) expense Total deferred tax(credit) Deferred tax expense (credit) Total current tax Non UKtaxation United Kingdom for theyear (credit) expense Analysis oftaxation 7. Taxation STATEMENTS FINANCIAL te 7(00 12 58 14 (4.5) (114) (5.8) (112) (20.0) 27 39.6 (53) expensebefore specificitems (credit) Total taxation andeffectivetaxrate expense (credit) Total taxation Other Specific items 20 n 07 0)(8 80523. 4 30.0 745 30.0 592 42 28.0 (26) 367 (38) 36 78 (1,096) 256 18 (77) 214 and2007:30%) (2008 (50) – inrespect ofpriorperiods Adjustments Origination andreversal differences oftemporary Current inrespectAdjustments ofpriorperiods and2007:30%) 28%(2008 Corporation taxat netet n ru netkns4(.)––()(0.1) (2) – – (2.9) 4 andgroupinvestments undertakings n fetv aeo rfi eoeseicies(10) rate onprofit before specificitems and effective Adjustments inrespectAdjustments ofpriorperiods CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – (134) £m 43 2009 (4.2) % 1,976 238 581 343 £m BT GROUP PLC 2008 2007 2009 12.0 23.2 4)5 409 52 (777) (53) (41) 186 (12) (10) £m 48 % ANNU AL REPORT & FORM 2,484 082007 2008 38 (14.9) (368) 238 979 611 (88) £m £m 42 20-F (368) 24.5 £m 25 38 99 %

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Tax onitems taken directly to equity 7. Taxation continued STATEMENTS FINANCIAL 100 calculation ofthetotal diluted numberofshares astheimpactoftheseisantidilutive. shares) were excluded from the shares, 2007:12m shares (2008:58m 158m account where theimpactoftheseisdilutive.Optionsover deductingthegroup’sshares inissueafter shares shares. heldbyemployeeshare andtreasury ownershiptrusts attributableto equityshareholders bytheweighted average of number loss Basic (loss)earningspershare iscalculated bydividingthe pershare earnings (Loss) 8. a Total taxationonitems taken to equity directly Total taxationonitems taken to ofrecognised statement incomeandexpense Current taxcredit onexchange differences iuieodnr hrsfo hr pin 0 123 106 5 earningspershare (p) (loss) Diluted earningspershare (p) (loss) Basic (Loss) profit attributableto equityshareholders oftheparent (£m) Total diluted sharesDilutive ordinary heldintrust sharesDilutive ordinary from share options Basic Current taxcredit relating to share basedpayments Deferred taxcredit onexchange differences Deferred taxexpense(credit) relating to share basedpayments relating to lossesoncashflowhedges Deferred taxexpense eerdtx(rdt expenseonactuarial (loss)gainrelating to retirement benefitobligations (credit) Deferred tax 08icue 5mexpensearisingfrom there-measurement ofdeferred taxbalancesat28%. 2008 includesa£50m ncluaigtedltd(os earningspershare, shares share andotherpotential ordinary havebeentaken optionsoutstanding into (loss) In calculatingthediluted h egtdaeaenme fsae nteyaswas: The weighted average numberofshares intheyears BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F a iloso iloso millionsof millionsof millions of (1,847) (1,859) (1,959) hrssae shares shares shares 11p2.p33.6p 34.4p 21.1p 21.5p (1.1)p (1.1)p ,7 ,2 8,479 8,293 8,223 8,066 7,771 7,724 2009 2009 164 8)1772,850 1,737 (83) (64) £m 25 63 51 42 12 – – 082007 2008 082007 2008 877 832 804 (17) £m 62 29 (1) – 404 486 424 (12) (70) £m 62 – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW etutrn ot 08 6)(.)(0)–– – for profit earningspershare/(loss) Diluted (loss) (402) Diluted earningspershare/profit for theyear for (5) profit pershare/(loss) earnings (5.0) (loss) Diluted for profit earningspershare/(loss) (loss) Basic (65) – Basic earningspershare/profit for theyear for profit pershare/(loss) earnings (loss) Basic (51) (0.8) (10) (46) (0.7) (50) (0.1) (0.6) (183) (0.7) (13) (2.4) rationalisationProperty costs (0.2) Restructuring costs 21CN assetimpairmentandrelated charges Intangibleassetimpairment – People andproperty – Networksandproducts rationalisation – restructuringBT charges GlobalServices Profit onsaleofnoncurrent assetinvestments Net lossonsaleofgroup undertakings Per ofspecificitems: share impact pershare before specificitems, andthepershare impactofindividualspecificitems, isasfollows: (loss)earnings Basic continued earningspershare (Loss) 8. STATEMENTS FINANCIAL a Reassessment of carrying valueofassociate Reassessment ofcarrying Creation of ofOpenreach anddelivery Write andotherworking offofcircuit inventory Costs associated withsettlementofopentaxyears Costs Profit ondisposalofassociates andjointventures Interest onsettlementofopentaxyears Tax credit inrespect ofsettlementopentaxyears Tax credit onre-measurement ofdeferred tax Tax credit onspecificitems The stated (loss)profitThe stated amountsare thecomponent ofthetotal (loss)profit which isattributableto equityshareholders excluding minorityinterests. the year before specificitems the yearattributableto specificitems before specificitems the yearattributableto specificitems the year the Undertakings capital balances a a a a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – a a e hr mprsae£ e hr £m pershare £m pershare £m per share ec ec pence pence pence (1.1) (329) (4.3) (1.1) (329) (4.3) 3.2 3.2 0.5 0.6 –––– –––––2 – – –––– ––––1 – – – 2009 4 341,924 246 23.4 1,924 246 23.9 8)2. 1,737 21.1 1,737 (83) 21.5 (83) 3 43 6–––– – – – – – 23 17 11.4 (187) 11.7 (2.3) (187) (2.4) (0.7) (0.9) 0.1 0.5 1.9 1.8 –––– –––– –––– –––– BT GROUP PLC 2008 2007 154 149 (53) (74) 40 9 ANNU AL REPORT & FORM 362,850 33.6 2,850 34.4 221,882 22.2 1,882 22.7 11.3 08 (64) (0.8) (0.4) (0.8) (0.1) 0.3 0.5 . 71 – 20-F 968 968 938 101 (30) (65) (10) 3 22 41 9 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ahadcs qiaet r rmrl fixed rate financialassetsheldfor periodsranging from onedayto three months. primarily Cash andcashequivalentsare a Total cashequivalents A2/A A1/A+ Aa3/AA– Aa2/AA Aa1/AA+ Aaa/AAA rating credit Moody’s/S&P balances havenotbeennetted aboveassettlementisnotintended to take placesimultaneouslyoronanetbasis. (2008:£112m).These (2008:£256m)whichhadalegallyenforceable cashbalancesof£96m rightofsetoffagainst balances of£160m relevant cashandoverdraft balancesonbankaccountsincludedwithineachscheme.Includedoverdrafts at31March 2009were The groupguarantee bankaccountswhichallowalegallyenforceable hascross facilitiesacross undertaking certain rightofsetoffthe Cash andcashequivalentspertheflowstatement Bank overdrafts Total cashandequivalents Total cashequivalents Loans andreceivables Available-for-sale Cash equivalents Cash atbankandinhand 9. Cashandcashequivalents STATEMENTS FINANCIAL 102 aheuvln aacswt oneprishv encasfida h oe fterMoysadSPrating. havebeenclassifiedattheloweroftheirMoody’s balanceswithcounterparties andS&P Cash equivalent US deposits European deposits UK deposits Lis h rdtrtn fcutrate ihwihcashequivalentswere heldisdetailedinthetablebelow. The credit withwhich rating ofcounterparties ted BT GROUP PLC ANNU AL REPORT & FORM a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F ,1 1,174 1,435 1,115 1,300 2009 2009 15 (261) (185) 3 703 671 738 711 732 562 3 703 3 181 738 447 251 271 124 £m £m 15 040 90 52 78 22 –30 2008 2008 £m £m 4 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Net debtat31March Other non-cashmovements Currency movements Net debtassumedorissuedonacquisitions Increase innetdebtresulting from cashflows Net debtat1April Reconciliation ofmovementinnetdebt on n te orwns(urn n o urn)1,0 11,342 13,907 (2008:£11,076m). was £11,663m asdefinedabove, gross debtat31March 2009 whichimpactsloansandotherborrowings, allocatingtheelementofadjustments After at31March Net debt Less: Loans andotherborrowings (current andnoncurrent) Analysis ofnetdebt it isakey indicator usedbymanagementinorder to assessoperational andbalancesheetstrength. performance but (2008: £256m).Netdebtisanon-GAAPmeasure sinceitisnotdefinedinaccordance withIFRS, arrangements amountingto £160m and theuseofeffective interest methodasrequired byIAS39.Inaddition,thegross balancesare to adjusted take accountofnetting andremoves madefromfinancial instruments thebalancesheetadjustments there-measurement ofhedgedrisksunderfairvaluehedges balances withinnetdebtare translated to Sterling atswappedrates where hedged. current andcashequivalentsare assetinvestments measured andnetrealisable atthelowerofcost value.Currency denominated are measured atthenetproceeds anydiscountovertheterm raised, ofthedebt.For to adjusted thepurposeofthisanalysis, amortise ofloansandotherborrowingsNet debtconsists lesscurrent andcashequivalents.Loansotherborrowings assetinvestments 10. Netdebt STATEMENTS FINANCIAL Adjustments: Current assetinvestments Cash andcashequivalents ortasaecrec eoiae aacsa wpe ae hr egd(,6)241 (1,766) discountandinvestments to adjusted amortise netproceeds at To recognise borrowings To retranslate currency denominated balancesatswappedrates where hedged This definitionofnetdebtmeasures balancesattheexpected valueoffuture undiscounted cashflowsdueto ariseonmaturity of at the lower of cost andnetrealisableat thelowerofcost value CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – BT GROUP PLC ANNU AL REPORT & FORM 0319,460 10,361 0319,460 10,361 2449,467 12,444 130 (1,435) (1,300) ,6 7,914 9,460 2009 2009 13 (440) (163) 37 (248) (317) 2 1,510 921 (36) £m £m 18 2 35 (2) 20-F 2008 2008 103 £m £m (4) 5

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Exchange differences Impairment tests ofgoodwill Impairment tests b a At 31March 2008 At 31March 2009 amount Carrying At 31March 2009 Charge for theyear At 1April2008 At 1April2007 Amortisation At 31March 2009 Additions At 1April2008 Additions At 1April2007 Cost 11. Intangibleassets STATEMENTS FINANCIAL 104 At 31March 2009 At 1April2008 At 1April2007 of assets,andto whichgoodwillisallocated. Goodwillisallocated to thegroup’s CGUs asfollows: are identifiablegroups thesmallest ofassetsthatgenerate cashinflowsthatare largely independentofthecashinflowsfrom othergroups Enterprises. These BT Ireland and businessunitswithinBT Retail: Consumer, BT Business, andthefollowing Services goodwill are BT Global The group basedonitscashgenerating anannualgoodwillimpairmenttest, performs units(CGUs). TheCGUs thathaveassociated Disposals andadjustments Acquisitions through businesscombinations Charge for theyear Acquisitions through businesscombinations Acquisitions through businesscombinations Exchange differences Acquisitions through businesscombinations Acquisitions through businesscombinations Disposals andadjustments Acquisitions through businesscombinations Disposals andadjustments Exchange differences Disposals andadjustments Impairments Exchange differences Disposals andadjustments Disposals andadjustments Exchange differences Exchange differences optrsfwr nldsadtosi 09o 59 (2008:£720m)inrespect ofinternally developedcomputer software. of£529m includesadditionsin2009 Computer software to theirvalue inuse. Allimpairmentlosseswere recognised Therecoverable intheincomestatement. £13m inrelation amountoftheimpaired to thereview assetsisequal ofthe21CNprogramme andassociated voicestrategy. ( of£241m contract BT andfinancialreview GlobalServices charges of£81m, restructuring BT charges GlobalServices Impairment charges of£335m were recognised in2009,comprising BT GROUP PLC b ANNUAL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F b BT Global evcsCnue TBsns TIeadEnterprises BT Ireland BT Business Consumer Services 1,226 936 691 273 25 (39) £m 37 1 2–––1 1––––1 1––––1 Goodwill 1,489 1,489 1,088 1,088 269 320 819 131 (62) £m 11 1 – – – (23) £m 57 47 57 10 13 eeomncto cust Telecommunication iecsad eainhp Computer relationships licences and te n ehooysoftware andtechnology other BT Retail 307 266 185 145 151 156 121 £m £m 44 59 14 36 12 44 34 39 31 10 34 22 17 (3) (1) 6 2 – – – – – – – Brands, omer 7 ,5 5,725 3,553 4,779 376 3,177 3,609 248 2,487 118 8 ,4 3,355 3,788 1,941 1,937 1,925 181 1,628 223 153 2)(0)(335) (309) (26) £m £m 88 68 24 71261,424 1,236 62 67 62 43 46 16 16 16 20 24 – – – – – – – – – – – 11 (145) (181) 27 (219) (237) 24 (235) (234) 14 (133) (164) 4 1,025 942 839 826 565 424 4 1,489 146 £m £m 82 51,088 55 55 43 74 60 32 2 1 1 2 72 – – a e note 3) see and Total Total 483 396 641 839 826 819 479 178 131 320 106 (62) £m £m 93 6 49 1 4 9 1

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW assumptions would cause the recoverable amount to fall below the carrying value: carrying to fallbelowthe recoverable amount assumptions wouldcausethe amountoftheCGUs to exceedchanges intheassumptionswouldcausecarrying theirrecoverable amount. noreasonably basedonthesensitivityanalysisperformed, possible For theBT Retail CGUs, significantheadroom ineachCGUand, exists Sensitivities for eachCGU’s long-term growth. assessment aligned to management’s rates Thegrowth usedin2009are higherthanthoseusedinprevious yearsandare mo ratesgrowth for thosemarkets orsectors. benchmarked datafor external against therelevant markets. rates Noneofthegrowth appliedexceed thelong-term average historical prospects long-term growth ofthesector inwhichtheCGUoperates. rates Thegrowth havebeen the assessmentof an reflect they and rates growth oftheregions inwhichtheCGUoperates, historical ratesThe perpetuity growth are determined basedonthelong-term ratesGrowth are benchmarked to availabledata. externally the different riskprofiles oftheindividualCGUs. Theassumptionsusedinthecalculationofgroup’s weighted average ofcapital cost The discountrates appliedto thecashflowforecasts are derivedfrom thegroup’s pre-tax weighted average for ofcapital,adjusted cost Discount rate been extrapolated rates. usingperpetuity growth Cashflowsbeyondthefiveyearperiodhave associated withtherestructuring andthecashoutflows charges. revised operating model Theforecast operating cashflowsfor includethebenefitsexpected BT to arisefrom the GlobalServices ofthebusinesses. performance for management’s expectationsofrevenue, EBITDAandoperating experienceandfuture cashflows,basedonpast expectations, seniormanagementteam. Theyreflect andgroup twoyearsapprovedthree bythelineofbusiness yearperiodandafurther The valueinuseofeachCGUisdetermined usingcashflowprojections derivedfrom financialplansapproved bytheboard coveringa Recoverable amount Perpetuity rate growth Discount rate Method ofdetermining recoverable amount The key byCGU,are theimpairmenttest, assumptionsusedinperforming shownbelow: 11. Intangibleassetscontinued STATEMENTS FINANCIAL years. Areduction inforecast operating cashflowscould arise from thelowerthananticipated realisation savingsfrom ormore. ofcost twofinancial therevised inthenext operating model,particularly 18% by operating cashflowsacross fiveyears projected reduction inthe a ormore; 12.9% arevised assumptionof to assumptionapplied 11.1% the orless; an increase inthediscountrate from 0.0% arevised assumptionof to assumptionapplied 2.5% the reduction rate intheperpetuity growth from a o TGoa evcs h au nueecestecryn au fteCUb approximately £850m.Thefollowing changesin For valueoftheCGUby thevalueinuseexceeds BT thecarrying GlobalServices, CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – au nueVlei s au nueVlei s Value inuse Value inuse Value inuse Value inuse Value inuse BT Global evcsCnue TBsns TIeadEnterprises BT Ireland BT Business Consumer Services 11 11 11 11 11.1% 11.1% 11.1% 11.1% 11.1% .%20 .%20 2.0% 2.0% 2.0% 2.0% 2.5% BT GROUP PLC BT Retail ANNU AL REPORT & FORM re closely 20-F 105

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Engineering stores Total at31March 2008 At 31March 2008 Total at31March 2009 Engineering s At 31March 2009 amount Carrying At 31March 2009 Acquisition through businesscombinations Charge for theyear At 1April2008 Acquisition through businesscombinations Char At 1April2007 Accumulated depreciation At 31March 2009 Acquisition through businesscombinations Additions At 1April2008 Acquisition through businesscombinations Additions At 1April2007 Cost 12. Property, plantandequipment STATEMENTS FINANCIAL 106 d c b Total landandbuildings a Exchange differences Disposals andadjustments Exchange differences Disposals andadjustments Transfers Exchange differences Disposals andadjustments Transfers Exchange differences Impairments Disposals andadjustments Other mainlycomprisesmotor vehiclesandcomputers. (2008:£275m)inrespect ofassetsheldunderfinanceleases,comprisinglandandbuildings£76m amountofthegroup’sThe carrying property, plantandequipmentincludesanamountof£216m 20:£m n ewr nrsrcueadeupeto 4m(2008:£83m). (2008: £3m)andnetworkinfrastructure andequipmentof£46m (2008:£86m),comprising landandbuildingsof£3m (2008:£195m).Thedepreciation charge onthoseassetsfor 2009was£49m (2008: £80m)andnetworkinfrastructure andequipmentof£140m taey Allimpairmentlosseswere recognised Therecoverable intheincomestatement. amountoftheimpaired assetsisequalto theirvalueinuse. strategy. and£18minrelation to thereview ofthe21CNprogramme andassociated voice restructuring charges of£129m BT Global Services Impairment charges of£147mwere recognised in2009,comprising amountofland andbuildings,includingleaseholdimprovements, comprised: The carrying Short leases Short Long leases(over50yearsunexpired) Freehold ge for theyear BT GROUP PLC d tores ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F adadinfrastructure Land and buildings ,9 1512,378 41,561 1,295 ,0 91721412043,760 1,240 41,197 2,194 1,013 39,117 2,220 1,209 36,849 1,115 2 4231,577 24,233 426 0 12,713 12,713 709 13,145 1,760 709 13,145 704 28,416 704 1,574 591 26,404 500 £m 62,045 16 1,794 39 52,127 55 12 18 61,928 56 30 30 18 58 4 44 (327) (404) (4) (371) (409) (5) 5 1 8 1 4 3 – – – a,b equipment Network (121) 35 (209) (395) 33 (169) (373) 167 238 237 250 396 476 281 652 £m 3 3 – – b Other 228 2 ,6 15,307 15,282 1,265 1,240 620 620 618 618 265 8 ,1 2,246 1,813 2,524 187 2,031 225 126 149 £m 26 (2,080) 19 35 83 70 (8) 6 (1,835) 2 4 – – c construction course of Assets in 2009 1 46,144 910 0 709 704 15,405 15,377 938 910 2 276 412 223 451 1)(147) (18) 7)(610) (71) £m £m 25 021 30 28 22 26 9 2,410 26,236 – – 30,767 – 2,249 28,478 – – – – – – – – – – 2008 (600) (735) (776) Total 198 284 632 369 531 885 £m £m 25 28 10 8 – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Loans and receivables mainly consist offixed mainlyconsist term loansdenominated inSterling withafixed coupon. Loans andreceivables Loans andreceivables whichare immediately accessibleto thegroup to manageliquidity. (2008: £23m), £13m of USdollars in £81m)and (2008: £43m of inEuros (2008:£335m), liquidityfunddepositsdenominated inSterling of£97m floatingrate of assetsconsist current Available-for-sale Available-for-sale heldfor periods ranging from onedayto oneyear. are investments The majorityofcurrent asset a Total current assetinvestments A1/A+ Aaa/AAA rating credit Moody’s/S&P The credit withwhichcurrent rating were assetinvestments heldisdetailedinthetablebelow. ofcounterparties Loans andreceivables Available-for-sale Current assets Loans andreceivables Available-for-sale Non current assets 13. Investments Total additions inengineeringstores Increase (decrease) Total additionsto property, plantandequipment Other Network infrastructure andequipment Land andbuildings Additions to property, plantandequipmentcomprised: 12. Property, plantandequipmentcontinued STATEMENTS FINANCIAL urn se netetblne ihcutrate aebe lsie ttelwro hi od’ n & rating. havebeenclassifiedattheloweroftheirMoody’sCurrent balanceswithcounterparties assetinvestment andS&P Motor vehiclesandother Computers andofficeequipment Other networkequipment Exchange equipment Transmission equipment a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – BT GROUP PLC ANNU AL REPORT & FORM ,4 2,513 2,524 2,249 2,246 ,6 1,117 1,067 2009 2009 2009 163 153 153 9 1,060 140 899 163 £m £m £m 10 216 15 32 23 10 483 73 33 44 23 55 (11) 3 20-F 2008 2008 2008 440 440 439 181 440 107 £m £m £m 50 31 1 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Trade receivables Current 15. Trade andother receivables Detailsofthegroup’s principalassociate at31March 2009are setouton (2008:£378m). available was£153m At 31March 2009,thefairvalueofgroup’s in associates andjointventures investments for whichpublishedpricequotationsare At 31March 2009 Dividends received Share taxprofit ofpost At 1April2008 Share taxloss ofpost At 1April2007 Share taxresults ofpost before specificitems Share taxresults ofpost Revenue Share ofnetassets Non current assets 14. Associates andjointventures STATEMENTS FINANCIAL 108 b a Other assets Non current Other receivables Accrued income Prepayments Exchange differences andother Dividends received Acquisitions reassessment ofcarrying Specific items – Expenses Current assets Disposals Taxation Exchange differences andother Current liabilities Other assetsmainlyrepresents relating costs totheinitialsetup,transition ortransformation phaseoflong-termnetworked h eraei te sesi 09rflcsteipc fteB lblSrie otatadfiaca eiwcharges contract theBT andfinancialreview GlobalServices in2009reflects theimpactof decrease inOtherassets The value ofassociate BT GROUP PLC a,b ANNUAL REPORT & FORM nt 4) (note CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F soitsJointventures Associates (262) 308 123 168 (86) £m 75 39 41 36 (7) 1)(7)(173) (277) (15) £m 15 (2) 9 7 4 – – – – senote3). (see IT services contracts. IT services 2009 oa soitsJointventures Associates Total 323 132 172 (88) £m 75 39 48 3 (7) 6––– soitsJointventures Associates 123 172 129 (25) (78) £m £m 61 75 79 79 28 12 13 (5) (5) (5) (6) (1) (1) (4) ae141. page ,8 4,449 4,185 ,3 1,340 1,853 1,135 1,966 2009 2009 259 825 322 2)(196) (23) £m £m £m £m 17 (6) (6) (6) (1) (1) (3) 6 9 6 6 5 3 4 8 – – – – 2008 2008 2008 Total Total 275 981 854 132 189 133 (11) (11) (11) (22) (81) £m £m £m £m 75 85 67 85 33 12 21 (6) (2) (2) (4)

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW segment isprovided in (2008:£68m) Gross trade receivables whichhavebeenspecificallyimpaired amounted to £30m 2008 2009 Trade receivables are dueasfollows: relevantcustomers to thatlineofbusiness. lossexperienceallowancesareeconomic conditions.Historical calculated bylineofbusinessinorder to reflect thespecificnature ofthe andtakinginto accountgeneral collective impairmentsbasedonthegroup’s lossexperiencesfor historical therelevant agedcategory Trade receivables are continuouslymonitored trade andallowancesappliedagainst receivables ofbothspecificimpairmentsand consist At 31March Exchange differences Acquisitions Utilised intheyear Amounts charged to theincomestatement At 1April Total trade receivablesdue notpast Other Openreach BT Wholesale BT Retail BT GlobalServices Trade receivables deductingallowancesfor debts,asfollows: are after doubtful stated 15. Trade andotherreceivables continued STATEMENTS FINANCIAL mutdt 2m(2008:£29m). amounted to £23m of businessisconsidered appropriate themost disclosure ofcredit concentrations. Cashcollateral trade held against andotherreceivables Given thebroad andvaried nature ofthegroup’s base,theanalysisoftrade customer receivables dueandaccrued income byline notpast Total accruedincome Other Openreach BT Wholesale BT Retail BT GlobalServices Accrued income Trade receivablesdue notpast Trade receivables dueandaccruedincomeare notpast analysedbelowbylineofbusiness.Thenature associated each ofcustomers with oe1. note CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – o atdeo rvso n otsad6mnh n 2mnh months and12months and6months and3months ofprovision due Not past 1,263 1,090 £m mardntBten0Bten3Bten6Over12 Between6 Between3 Between0 impaired net receivables specifically Trade £m 3 1 571 474 £m Past dueandnotspecificallyimpaired: £m 63 90 BT GROUP PLC £m 73 65 ANNUAL REPORT & FORM ,3 1,340 1,135 1,090 1,263 2009 2009 2009 19 (211) (139) 246 151 209 195 274 635 308 878 £m £m £m £m 21 26 10 64 31,853 1,966 53 73 47 51 3– 20-F 2008 2008 2008 Total 209 114 280 176 309 797 224 793 109 £m £m £m £m 19 42 68 6 5

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW the interest rates achievedthrough applyingassociated currency andinterest rate swapsinhedgearrangements. The interest rates payableonloansandborrowings disclosedabovereflect thecouponsonunderlyingissuedloansandborrowings andnot d c b a Total loansandotherborrowings Total otherloansandborrowings Commercial paper Finance leases Total bonds,debentures listed andnotes Sterling 6.375%bondsJune2037 16. Loansandotherborrowings STATEMENTS FINANCIAL 110 a Total loansand otherborrowings Fair for valueadjustments hedgedrisk Total repayments Total duefor repayment more than after Between twoandthree years Between oneandtwoyears Within oneyear, orondemand Repayments falldueasfollows: unsecured. were and2008 borrowings asat31March 2009 all taking accountoftherelevant derivativesinhedgingrelationships whichisreflected inthetablebelow. from financeleases, Apart relevant loansorborrowings’ hedgedriskinafair valuehedge.Thisdoesnotreflect thefinalprincipalrepayment thatwillariseafter akoedat o hc 10 (2008:£256m)hadalegallyenforceable rightofsetoff Bank overdrafts (ofwhich£160m Other loans2008-2012 2008:6.4%) in Sterling floatingrate loan2008(average effective interest rate 2008:6.3%) in Sterling floatingrate loan2008(average effective interest rate 6.7%) 2008: in Sterling floatingrate loan2008-2009(average effective interest rate 5.2%)) 4.2%(2008: Sterling floatingrate note 2008-2009(average effective interest rate Sterling 10.4%bankloandueSeptember 2009 Sterling 2012 6.35%bankloandueAugust 2009 US dollar8.765%bondsAugust US dollar8.625%(2008:8.625%)notes December2010(minimum8.125% Euro 2011(minimum6.875% 7.375%(2008:7.375%)notes February 2013 US dollar5.15%bondsJanuary 2013 Euro 5.25%bondsJanuary Euro 5.25%bondsJune2014 Sterling 8.0%(2008:8.0%)notes December2016(minimum7.5% Sterling 6.625%bondsJune2017 2018 US dollar5.95%bondsJanuary Sterling 8.625%bondsMarch 2020 Sterling 3.5%indexed linked notes April2025 Sterling 5.75%bondsDecember2028 US dollar9.125%(2008:9.125%)notes December2030(minimum8.625% Euro 6.5%bondsJuly2015 Between three andfour years Between four andfive years After five years After The interest therating rate ascribedto thegroup’s payableonthesenotes from willbesubjectto adjustment timeto timeifeitherMoody’s seniorunsecured debtbelow orStandard andPoor’s (S&P)reduce omrilppri eoiae nSeln f£0m(08 nl n uo f£0m(2008:£107m). £506m andEuros of £nil) (2008: Commercial paperisdenominated inSterling of£209m Hedged inadesignated cashflowandfairvaluehedge. Hedged inadesignated cashflowhedge. dutet o egn n neetrflc h mato h urnyeeeto eiaie n duttherepayments to exclude amount. interest recognised inthecarrying theimpactof currency elementofderivatives andadjust for hedgingandinterest reflect Adjustments nnilya,tert aal nthesebondswilltherefore increase by0.5percentage points. payableon therate financial year, the2010 On31March 2009,bothMoody’s At andS&Pdowngradedcoupondate in thenext BT’s creditrate rating to byoneratings Baa2andBBB,respectively. reflected category intheabovetable. the spread applicableto thefloatingnotes will bedecreased by0.25%for upgrade eachrating byeachrating category agency, butinnoeventwilltheinterest rate bereduced belowtheminimuminterest byeachrating adjustment agency.category Inaddition,ifMoody’s orS&Psubsequentlyincrease theratings ascribedto thegroup’s seniorunsecured debt,thentheinterest rate thenpayable onnotes and inthecaseofS&P. Inthisevent,theinterest rate payableonthenotes andthespread applicableto thefloatingnotes willbeincreased by0.25%for A- eachratings A3 inthecaseofMoody’s orbelow one year The carrying values disclosed above reflect balances at amortised cost adjusted for adjusted cost deferred valuesdisclosedabovereflect balancesatamortised andcurrentThe carrying to the fairvalueadjustments BT GROUP PLC b,d ANNUAL REPORT & FORM b CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – b b b b b b c 20-F arighdigrpyet tCryn egn n repayments at hedgingand Carrying repayments at hedging Carrying mutandinterest amount 395(,8)1,2 11,339 9,815 11,823 10,633 (2,082) 13,907 (1,730) 13,905 12,363 1,542 3,098 1,829 7,412 £m 10 14 2 a ) a ) b feto Principal Effect of a a ) ) b b 32 ,9 1,524 1,190 (352) 51 2,547 (551) 30 1,449 (380) 79 ,1 5,626 6,613 (799) £m – – a egdrtsaon interest amount hedged rates e oe9) note see – 2009 £m 02,363 10 41,536 14 11,342 278 £m 12 3 feto Principal Effect of 2199,298 12,189 39711,342 13,907 ,8 1,724 1,386 ,7 1,496 2,074 1,051 1,380 1,914 2009 24 1,260 (264) 5 2,520 157 332 140 312 715 149 599 935 723 973 524 777 298 330 608 521 185 713 6 5,790 164 5 10,072 257 8)1,450 (86) £m £m 22 28 7 11,332 (7) 61 – – – – a hedged rates 2008 2008 300 320 261 100 351 402 140 312 107 110 903 434 812 622 524 563 298 315 608 521 712 £m £m 12 36 5 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Interest rate swaps–cashflowhedge 17. Derivativefinancialinstruments by thelessors’titleto theleasedassets. Thegroup’s obligationsunderfinanceleasesare secured ofbuildingsandnetworkassets. mainlyconsist Assets heldunderfinanceleases Total financeleaseobligations Amounts payableunderfinanceleases: Non current Current Analysed as: eeec oLBRadERBRquoted rates. andEURIBOR reference to LIBOR The floatingrate by loansandborrowings bearinterest rates fixed inadvancefor periodsranging from onedayto oneyear, primarily Weighted average effective fixed interest rate Total Euro Sterling of hedging. riskassociated theimpact withtheseloansandborrowings after and fairvalue andinterest cashflow table belowreflects thecurrency risk As noted 16. Loansandotherborrowings continued STATEMENTS FINANCIAL Other interest rate swaps Less: future financecharges Cross currency swaps–cashflowhedge US dollar Cross currency swaps–fairvaluehedge Other Forward foreign exchange contracts –cashflow hedge Other forward foreign exchange contracts Credit defaultswaps Within oneyear Sterling In the second to fifth yearsinclusive In thesecondto fifth After fiveyears After npg 110, page on h rnia eamnso on n orwnsa egdrtsaone o£183 (2008:£11,332m).The to £11,823m the principalrepayments ofloansandborrowings athedgedrates amounted CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – ie aeFloatingrate Fixed rate neetinterest interest 0291541,2 ,4 ,9 11,332 1,890 9,442 11,823 1,584 10,239 0291331,1 ,4 ,1 11,160 1,718 9,442 11,612 1,373 10,239 8.1% £m – – – 204 £m 2 5 Minimum leasepayments sesLaiiisAst Liabilities Assets Liabilities Assets 2,700 2,700 2,456 2,541 2009 2009 21 (292) (291) oa neetinterest interest Total 135 244 332 623 107 204 456 £m £m £m 32 18 27 2––– 5––– 7 – –1–– BT GROUP PLC ie aeFloatingrate Fixed rate 2009 2008 8.2% 127 427 340 446 320 767 767 612 316 450 £m £m £m 35 1 1 2 – – ANNUAL REPORT & FORM eamn foutstanding Repayment of 2009 310 332 8 1,072 387 1,072 387 332 172 340 252 £m £m £m 66 77 14 25 20 1 1 – – lease obligations 20-F 2008 2008 2008 Total 805 267 207 320 320 239 172 605 238 111 £m £m £m 63 19 20 1 – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Non current payablesmainlyrelate to operating leaseliabilitiesanddeferred gainsonapriorperiodsaleandfinanceleasebacktransaction. Deferred income Other payables Non current Deferred income Accrued expenses Other payables Other taxationandsocialsecurity Trade payables Current 18. Trade andotherpayables arehedges inwhichthederivativefinancialinstruments utilisedare disclosedin (2008:five).Detailsof withsixcounterparties 85%(2008:100%)was of£2,282m(2008:£152m).Ofthis, derivative counterparties right ofsetoffunderthegroup’s International Swaps andDerivative Association(ISDA)documentation,thegroup hadanetexposure to In the2009financialyear, applyingthelegal After (2008:13counterparties). derivativefinancialassetswere heldwith19counterparties a A3/A– A2/A A1/A+ Aa3/AA– Aa2/AA Aa1/AA+ rating credit Moody’s/S&P financialassetswere heldisdetailedinthetablebelow. The credit withwhichderivative rating ofcounterparties continued 17. Derivativefinancialinstruments STATEMENTS FINANCIAL 112 eiaiefiaca ntuetblne ihcutrate aebe lsie ttelwro hi od’ n & rating. havebeenclassifiedattheloweroftheirMoody’s balanceswithcounterparties Derivative financialinstrument andS&P BT GROUP PLC ANNUAL REPORT & FORM a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F oe33. note 2,700 ,1 7,591 7,215 1,030 ,7 1,215 1,372 4,410 4,367 2009 2009 2009 101 719 650 200 718 460 527 489 794 £m £m £m 76 –2 2008 2008 2008 636 580 838 548 330 387 707 £m £m £m 71 55 – – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW b a Non current Current Analysed as: Cei)cag oteincomestatement the to (Credit) charge At 31March 2008 Deferred taxliability Deferred taxasset At 31March 2008 impactofchange Charge to (excluding theincomestatement At 1April2007 20. Deferred taxation At 31March 2009 At 1April2008 19. Provisions STATEMENTS FINANCIAL 09 l ftedfre a iblt f£,2m(08 253)i xetdt estldatrmr hnoneyear. more (2008:£2,513m)isexpected to than besettledafter ofthedeferred taxliabilityof£1,728m all 2009, oneyear. At 31March (2008:£nil)isexpected to berecovered more than after ofthedeferred taxassetof£1,103m all At 31March 2009, At 31March 2009 Deferred taxliability Deferred taxasset At 31March 2009 Cei)cag to equity (Credit) charge impactofchangeintaxrate) Charge to equity(excluding Charged to theincomestatement mato hnei a aeto 28% Impact ofchangeintaxrate Utilised intheyear Unwind ofdiscount Exchange differences rprypoiin anycmrs nru es rvsosonrationalisation ofthegroup’s Theprovisions portfolio. property onerous leaseprovisions provisionsProperty mainlycomprise Other provisions includes: 3yas Financialliabilitiescomprise£166m(2008:£127m)ofthisbalance. years. 23 Amountsprovided inrelation to contract theBT andfinancialreview GlobalServices – following operational the2009BT review. GlobalServices Thecash Amountsprovided inrelation to networksandproducts rationalisation restructuring andpeopleproperty rationalisation, – mut rvddfrlglo osrcieolgtosaiigfo nuac lisadltgto,whichwillbeutilisedastheobligationsare settled. Amountsprovided for obligationsarisingfrom legalorconstructive insurance claimsandlitigation, – Amountsprovided for incremental theestimated anddirectly arisingfrom attributablecosts thegroup’s obligationto setupO – in taxrate) uflw soitdwt hspoiinaeepce oocroe h ettoyas h aoiyo hc ilb n2010. bein associated withthisprovisionoutflows are expected twoyears,themajorityofwhichwill to occuroverthenext CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – senote 3), (see xescptl eet Share based benefit Excess capital loacsolgtospyet Other payments obligations allowances which willbeutilisedastheobligationsare settled,thetimingofwhichiscurrently uncertain. ,1 (1,103) 1,811 (1,103) 1,811 1,811 1,969 1,969 1,969 2,096 (158) (137) £m 10 (1,103) – ––––– (1,959) – – Retirement penreach and deliver the Undertakings, whichwillbeutilisedovertwoyears. penreach anddeliverthe Undertakings, 17 18 25 1,566 (285) (128) (117) willbeutilisedovertheremaining leaseperiods,whichrange from 1to 778 778 778 121 768 £m 78 6 – BT GROUP PLC provisions rpryOther Property 172 210 5)(8)2,513 2,513 (183) 2,513 (183) (183) (51) (51) (51) (49) £m £m 12 32 11 57 (7) (7) (7) 8 3–3 9 – –2 a ANNUAL REPORT & FORM provisions 2009 466 254 720 548 136 0 (1,847) 100 433 (76) (76) 7)1,728 (76) (41) £m £m £m 64 20 18 7 02 (1,103) – b 20-F 2008 (104) Total Total 265 625 625 346 206 720 346 845 441 113 (41) (90) £m £m 81 0

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 22. Reconciliation ofmovementsinequity At 31March Exchange differences through businesscombinations Acquisitions Minority share ofdividendpaid Disposals Share ofprofits At 1April 21. Minorityinterests connection withinterests inassociates andjointventures for whichdeferred taxliabilitieshavenotbeenrecognised are insignificant. differencestemporary anditisprobable thatsuchdifferences willnotreverse intheforeseeable future. Temporary differences arisingin unremitted earningsbecausethegroup isinapositionto control thetimingofreve these have beenrecognised inrespect of (2008:£10.6bn).Nodeferred taxliabilities At thebalancesheetdate, earningsofoverseassubsidiarieswas£10.1bn theundistributed Total Total losses unrestricted Other Capital losses Operating losses losses: Unrestricted Total losses restricted Europe Americas Restricted losses: dates for lossesinrespect ofexpiry ofwhichrestrictions arose. applyissetoutbelow: Asummary various territories inwhichthelosses date ofoperatingdifferences date restrictions. lossescarriedforward Theexpiry isdependentuponthetaxlawof havenoexpiry (2008:£23.3bn).Thegroup’s capitallossesandothertemporary no deferred taxassetswere recognised amountingto £24.3bn thegroup hadoperating differences losses,capitallossesandothertemporary carriedforward inrespect ofwhich 2009, At 31March 20. Deferred taxationcontinued STATEMENTS FINANCIAL 114 Total equityat31March Net movementinequity Issue ofshares Share basedpayments Dividends for theyear (Loss) profit Total equityat1April Exchange differences Net purchaseshares oftreasury Net fairvaluemovementsoncashflowhedges Actuarial (losses)gains Net fairvaluemovementsonavailable-for-sale assets Tax onitems taken directly to equity Minority interests BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F 523 ,6 2,665 1,160 (5,263) 122 121 (1,053) (1,241) (1,222) 707 ,2 1,409 2,621 (7,037) ,3 ,7 1,607 4,272 5,432 1,847 2009 6 ,3 4,272 5,432 169 683 570 8)1772,850 1,737 (83) 6)(,2)(284) (1,529) (63) £m 35 71 55 33 5 4 –3 24,268 22,122 770Noexpiry 17,780 2,146 ,1 Noexpiry 3,410 2009-2024 1,875 2009 2009 082007 2008 87 (404) (877) 3 Noexpiry 932 2009-2029 271 210 163 (11) mlosses £m £m £m 723 27 34 23 1 – (23) (1) (9) 93 38 21 22 – slo the rsal of Expiry of Expiry 2008 163 (93) (18) £m £m 4 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW At 1April2008 Tax onitems taken directly to equity Tax onitems taken directly to equity At 1April2006 24. Otherreserves c b a At 31March 2009 At 1April2008 Cancelled At 1April2007 23. Share capital STATEMENTS FINANCIAL e d c b a At 31March 2009 Cancelled Arising onshare issues Exchange differences At 1April2007 Exchange differences Recognised inincomeandexpensetheyear oncashflowhedges gain Net fairvalue sharesCancellation oftreasury Net purchaseshares oftreasury Exchange differences oncashflowhedges loss Net fairvalue Net purchaseshares oftreasury Reclassified innoncurrent andreported assets Recognised inincomeandexpensetheyear Net fairvaluegainoncashflowhedges sharesCancellation oftreasury Net purchaseshares oftreasury Recognised inincomeandexpensetheyear Gains onavailable-for-sale investments Reclassified innoncurrent andreported assets Tax onitems taken directly to equity h rauysae eev sue ohl TGoppcsae ucae ytegop uig20,tecmayrprhsd126825(2008:539,657,691,2007:147,550,000)ofitsownshares of 142,608,225 thecompanyrepurchased sharesisusedto holdBTThe treasury reserve Group plcshares purchased bythegroup. During2009, The mergerarose reserve onthegroup reorganisation thatoccurred inNovember2001andrepresents thedifference betweenthenominalvalueofshares inthenewparent company, BT Group plc,andthe The available-for-sale isusedtorecord reserve thecumulativefairvaluegainsandlossesonavailable-for-sale financialasse n20,tegopcneld200000tesr hrs(08 5,0,0)wt oia au f£2 (2008:£13m). 250,000,000)with anominalvalueof£12m shares treasury (2008: 250,000,000 thegroup cancelled In 2009, The cash flow reserve isusedto recordThe cashflowreserve related ofthecumulativenetchangeinfairvaluecashflow hedginginstruments theeffective to hedgedtransactions portion thathave notyetoccurred. shares issuedinconsideration for the arose, in2008,from isnotavailablefor Themovementinshare distribution. premium The share premium account,representing thepremium onallotmentofshares, grgt ftesaecptl hr rmu con andcapitalredemptionofthe priorparent reserve company, BritishTelecommunications plc. account aggregate oftheshare capital,share premium disposal oftheforeign operation. The translation isusedto record reserve cumulativetranslation differences ontheassetsandliabilitiesofforeign operations. Thecumulativetranslation differences are recycled to on theincomestatement March 2009, nil ordinary shares ordinary (2008:21m)wereto meetoptionsgranted reserved underemployeeshare optionschemes. nil March 2009, shares (2008:8,401,227,029)ordinary of5peach.Oftheauthorisedbutunissuedshare capitalat31 8,151,227,029 (2008:£420m),representing was£408m capital ofthecompanyat31March 2009 share Theallotted, calledupandfullypaidordinary representing shares 269,260,253,468ordinary of5peach. was£13,463m, and2008 2009 The authorisedshare capitalofthecompanythroughout issued to satisfy thoseexercises.issued to satisfy from theexcess ofproceeds rec and SA(acompanywhichchangeditsnameto SAon1April2009), BT Services acquisition ofNet2S 290,047,231) with an aggregate nominal value of £20m (2008: £30m, 2007: £19m) were held as treasury shares heldastreasury atcost. were (2008: £30m,2007:£19m) withanaggregate nominalvalueof£20m 290,047,231) shares (2008:607,285,178,2007: 409,226,885 £797m(2008: £570m,2007:£nil).At 31March 2009, were of cancelledatacost (2008:250,000,000,2007:nil) shares 250,000,000 treasury and (2008:£97m,2007:£120m), shares of£126m acost 90,626,518 at Inaddition, obligations underemployeeshare(2008: 53,250,144,2007:66,719,600)were schemesandexecutive issuedfromto satisfy share treasury awards (2008:£1,626m,2007:£404m). ofthecalled-upshare capital,for consideration (includingtransaction of£189m costs) (2008:6%,2007:2%) 2% representing 5p each, ipslo h ses h rs ani h eraone o£m(2008and2007:£nil). amountedto£5m year disposal oftheassets.Thegross gaininthe c c CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – rauyCs o vial-o-TasainMre Total other Merger Translation Available-for- Cashflow Treasury (1,109) (1,843) (1,529) shares (600) (884) (284) 79 57 (63) £m 7––––7 0––––5 – – – – – (2,144) 2,71 – – – – – – – – – – a reserve (201) (294) (164) 563 157 44 36 (78) (29) (62) £m 23 1 (5) 9––– 6–––4 4–––3 1–––1 – – –––– –––– – –––– – b sale reserve ts. Thecumulativegainsandlossesare recycled on totheincomestatement £m eived ontheexercise shares ofshare oftreasury optionsversusthecost 5 5 – – – – – – – – – – – – – c 8,151,227,029 8,401,227,029 8,640,654,852 (250,000,000) (250,000,000) BT GROUP PLC 10,572,177 of shares ubrShare capital Number reserve 844 161 683 210 (93) (49) £m 44 – – – – – – – – d ANNU AL REPORT & FORM reserve 408 420 432 998 9 1,301 998 998 998 (12) (13) £m £m 1 – – – – (2,144) – – – – – – – a e Share premium 20-F reserves (1,529) 2,719 (527) (284) (201) (294) (164) 364 683 210 115 (29) (62) (63) (93) £m £m 62 62 31 31 9 88 4 7 6 (5) 7 6 0 4 1 5 – – b

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW aidaLmtd ersnigicm f£8 andaprepayment of£27m. Mahindra Limited, representing incomeof£28m from Tech wasreceived 2008,acashpaymentof£55m In (2008:£125m,2007:£97m). at31Marchpayable for 2009was£89m services and (2008:£305m,2007:£178m)andtheamountoutstanding Tech purchased Mahindra was£296m Limited. Thenetvalueofservices statements. ( ondirectors’ oftheReport remuneration incentive plansisshownintheaudited part More detailedinformation concerningdirectors’ remuneration, shareholdings, pensionentitlements,share optionsandotherlong-term benefits Salaries andshort-term table below: responsibility for planning,directing andcontrolling theactivitiesofgroup. inthe Keymanagementpersonnelcompensationisshown membersoftheBoard. ItistheOperating Committee whichhas were five) (2008:four, 2007: of theOperating Committee, four whichare eliminated onconsolidationandtherefore undertakings, the companyanditssubsidiary notdisclosed. earnings 25. Retained (loss) STATEMENTS FINANCIAL 116 Amounts paidto thegroup’s retirement benefitplansare setoutin 26. Related transactions party At 31March Tax onitems taken directly to equity sharesCancellation oftreasury Actuarial (loss)gain Share basedpayments Dividends for theyear (Loss) profit At 1April Post employmentbenefits Termination benefits Share basedpayments e aaeetpronlaedee ob h ebr fteOeaigCmite ftesvn(08ad20:fie members five) (2008and2007: seven Key managementpersonnelare deemedto bethemembersofOperating Committee. Ofthe uig20,tegopprhsdsrie ntenra oreo uiesado namslnt ai rmispicplassociate, principal During 2009,thegroupinnormalcourseofbusinessandonanarm’s purchased services lengthbasisfrom its BT GROUP PLC ANNUAL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F oe29. note There were anumberoftransactions duringtheyearbetween ae 4t 69), to 64 pages 166 ,3 3,685 5,439 (1,656) 707 ,2 1,409 (1,053) 2,621 (1,241) (7,037) (1,222) 2,011 3,685 5,439 2009 2009 77 (570) (797) 15.1 which forms part ofthefinancial which forms part 8)1772,850 1,737 (83) 6.8 2 2.3 3.6 £m £m 33 . 4–– 082007 2008 2007 2008 88 (342) (848) 13.0 7.0 1.0 5.0 £m £m 55 11.1 750 6.5 1.4 3.2 £m £m 71 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 2001. O generally carriesitsownrisks. thegroup andmajorclaimsinconnectionwithlegalliabilitiesarisingthecourseofitsoperations.major risksonproperty Otherwise, courseofthegroup’sordinary businessandonthesenomaterial lossesare anticipated. Thegroup limitsfor hasinsurance coverto certain years(2008:24years). 23 rentals are fixed for anaverage of years(2008:24 23 Operating leasecommitmentswere mainlyinrespect oflandandbuildings.Leaseshaveanaverage term of Total future minimumoperating leasepayments Payable intheyearending31March: Future minimumoperating leasepayments for the group were asfollows: Total Software Property, plantandequipment aia xedtr otatdfra h aac he aebtntyticre a asfollows: Capital expenditure contracted for atthebalancesheetdate butnotyetincurred was 27. Financialcommitmentsandcontingentliabilities STATEMENTS FINANCIAL until O intheeventofcredit defaultinrespect ofamountsusedto defease future leaseobligations.Theguarantee lasts (2008:£202m), £278m US$402m),approximately (2008: US$399m (2008:£36m),althoughthiscouldincrease byafurther US$72m), approximately £77m of state aidisgroundless,of state andthattheappealwillnotsucceed. to believethatanyallegation continues thecompany aidhadbeengranted.state TheCommission’s decisionhasnowbeenappealed,but Communications, andwhetherornottheGovernmentcompliedwithEuropean Community Treaty aid. Itconcludedthatno rulesonstate any suchclaim. held liable,withothers,for anydamages.Thecompanyhasconcludedthatitwouldnotbeappropriate to make aprovision inrespect of thecourt’s BT decision.Iftheappealissuccessful, couldbe the otherdefendants were alsoacquitted. ThePublicProsecutor hasappealed process. On20July2005,theformer BT employeewasfound notculpableofthefraud charge brought bytheRome PublicProsecutor. All UMTS (universalmobiletelecommunication auctionin2000.Blu,whichBT system) auction inthat heldaminorityinterest, participated position orresults ofoperations ofthegroup. Thereafter 2014 2013 2012 2011 2010 2009 The group hasprovided guarantees leasesentered relating into to byO certain disclosedbelow, there were nocontingentliabilitiesorguarantees otherthanthosearisinginthe as At 31March 2009,otherthan The European Commissionformally thewayUKgovernmentsetBT’s investigated rates property andthosepaidbyKingston There havebeencriminalproceedings 21defendants, inItalyagainst includingaformer BT employee,inconnectionwiththeItalian The companydoesnotbelievethere are anypending legalproceedings whichwouldhaveamaterial adverseeffect onthefinancial 2 UK Limited 2017. hasdischarged allitsobligations, whichisexpected to bewhentheleaseendson30January 2 l a ie Tacutrnent o hs urnes h aiu xouei S10 sa 1March 2009(2008: asat31 plc hasgivenBT acounterindemnity for theseguarantees. Themaximumexposure isUS$110m CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 2 UK Limited priorto its demerger withO BT GROUP PLC ANNU AL REPORT & FORM ,0 8,742 8,004 ,5 6,227 5,855 2009 2009 2 377 403 430 455 484 451 414 on 19November £m £m 37 469 – 20-F ) and 2008 2008 365 388 408 432 453 740 101 639 117 £m £m

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ahcnieain15246 392 63 63 8 204 125 50 5 purchase The ofBT nowform GlobalServices. part consider which 100%ofStemmer GmbHandSND GmbH acquired thegroup 2008 31July On BT GlobalServices Year ended31March 2009 Less: cashacquired Cash consideration ofcashandequivalentsisasfollows:The outflow Total Equity shares issued Deferred consideration Cash Consideration: Goodwill arising Fair valueofconsideration Cash consideration ofcashandequivalentsisasfollows:The outflow Total Cash Consideration: Goodwill arising Fair valueofconsideration 28. Acquisitions STATEMENTS FINANCIAL 118 by£1m. lower andprofit for theyearwouldhavebeen 2008,thegroup’s revenue wouldhavebeenhigherby£10m acquisitions hadoccurred on1April year. Thegoodwillcomprisesprincipallytheassembledworkforce andforecast synergies. relatingThe fairvalueadjustments to thisacquisitionwere provisional at31March 2009 and willbefinalisedduringthe2010financial Total consideration Goodwill Net assetsacquired Payables Cash andcashequivalents Receivables Year ended31March 2009 Year ended31March 2008 Less: fairvalueofnetassetsacquired Less: cashacquired Deferred consideration Less: fairvalueofnetassetsacquired rmtedt faqiiin hs custoshv otiue eeu f£6 n e rfi f£mto thegroup’s results. Ifthe andanetprofit of£1m From thedate ofacquisition,theseacquisitionshavecontributed revenue of£26m BT GROUP PLC to a 1m h e sesaqie n h odilaiigwsasfollows: was andthegoodwillarising netassetsacquired The was£13m. ation ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F TGoa evcsB ealOther Retail BT BT GlobalServices nentoa te TRti Total BT Retail Other International BT GlobalServices Comsat 130 3 7 1477 392 71 63 276 204 130 125 122 £m m£ m£m £m £m £m 73 13 13 13 10 13 12 57 317 323 1359 3 –2 – okvleajsmnsFair value adjustments Book value 194 276 187 m£ £m £m £m £m 98 98 98 74 98 95 82 24 (4) 3–3 1–1 6–6 –2 2 – Fair value £m 47 71 65 75 65 47 75 60 60 24 10 28 – Total 314 477 176 186 176 131 186 369 167 163 £m 13 10 10 55 (4) 2

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Goodwill Net assetsacquired Payables Cash andcashequivalents Receivables Intangible assets Thecombinednetassetsacquired inthesetransactions andthegoodwillarisingisasfollows: synergies oftheacquisitions. thegoodwillarisingontheseacquisitionshasbeenassignedtoimpairment test thecashgenerating unitsexpected to benefitfrom the For thepurposesofgoodwill ofBT Theseacquisitionsnowform within‘Other’. Design,whichisreported part consideration. and RibbitCorpor 2008) August MoorhouseConsulting(Moorhouse,acquired 11 100%oftheissuedshare capitalof During theyear, thegroup acquired Other higher by£1m. andprofit for theyearwould havebeen occurred on1April2008,thegroup’s revenue would havebeenhigherby£15m acquisitions had Goodwill arisingontheseacquisitionsprincipallyrelates to andrevenue anticipated cost synergies andtheassembledworkforce. technology. andproprietary brand names Intangible assetsrecognised inrespect relationships, oftheseacquisitionscomprisecustomer Total consideration Goodwill Net assetsacquired Intangible assets generating unit.Thecombined net assetsacquired inthesetransactions andthegoodwillarisingisasfollows: Ufindus May2008)and One,acquired 31 OneHoldingsInc(Wire Wire thegroup acquired 100%oftheissuedshare capitalof During theyear, BT Retail 28. Acquisitions STATEMENTS FINANCIAL oe by£1m. lower acquisitions hadoccurred on1April2008,thegroup’s revenue wouldhave beenhigherby£3mandprofit for theyearwouldhavebeen savingsandothersynergies cost expected to bedelivered acquisition. post these acquisitionsprincipallyrelates to Goodwill arisingon 2010financialyear. ofRibbitwere provisional at31March 2009andwillbefinalised duringthe to theacquisition internally developedtechnology. relating Thefairvalueadjustments Intangible assetsrecognised inrespect ofthese acquisitionscomprise Total consideration Receivables Property, plantandequipment Payables Cash andcashequivalents rmtedt faqiiin hs custoshv otiue eeu f£madntls of£7mto thegroup’s results. Ifthe loss From thedate ofacquisition,theseacquisitionshavecontributed revenue of£7mandnet to thegroup’s results. Ifthe of£10m profit andanet From thedate ofacquisition,theseacquisitionshavecontributed revenue of£86m t Unu,aqie uy20)frattlcnieaino 9m hs custosnwfr ato h nepie cash theEnterprises July2008)for atotal consideration of of£98m.Theseacquisitionsnowform part Ltd (Ufindus,acquired 9 to Rbi,aqie 9Jl 08,frattlcnieaino 7mincluding£10mofdeferred, contingent July2008),for atotal consideration of£75m (Ribbit,acquired 29 ation continued CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – BT GROUP PLC okvleajsmnsFair value adjustments Book value okvleajsmnsFair value adjustments Book value (22) m£ £m £m £m m£ £m £m £m 20 4 (4) – (4) 51 22 32 5–5 2–2 2–2 3–3 –2525 ANNU AL REPORT & FORM Fair value Fair value (1) (1) 92 12 52 20-F 119 (23) 75 47 98 74 19 8 4 3

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Intangible assets Thecombinednetassetsacquired inthesetransactions andthe 98.9%. to goodwill arisingisasfollows: Net2SSA increased itsholding in thegroup 2009, In issued. value of£22m.Thefairtheshares issuedwasdetermined byreference to theBT Group plcshare priceonthedate theshares were through wassatisfied theissueofshares inBT Group plc.Atotal of10,572,177 shares were issued,withafair Net2SSA consideration for 2008, andI.NETwhere thegroup increased itsholdingby25%to 90%oftheissuedshare capitalintheyear. Anelementofthepurchase Net2SSA,where thegroup hadacquired 91%oftheissuedshare capitalat31March 100% ofeachcompany, withtheexception of deferred, contingentconsideration. Thegroup acqui purchase consideration paidfor thesesubsidiarieswas£276m,including£50m principally included Theseacquisitions ofBT thatnowform GlobalServices. part undertakings subsidiary other acquired anumberof 2008,thegroup During Other havebeenmadeto thebalancespreviouslyfinalised. Noadjustments reported. hasbeen 2009,thedetermination offairvalues During geographic presence andcapabilities,aswelltheassembledworkforce. Intangible assetsrecognised inrespect ofComsat International relationships comprisecustomer andabrand. Goodwillrepresents Comsat’s Total consideration Goodwill Net assetsacquired Intangible assets consideration. Thenetassetsacquired inthetransaction andthegoodwillarisingare asfollows: deferred, contingent capital ofitsparent company, CIHoldingCorporation. Thetotal purchase consideration was£130m,including£5m On 14June2007,thegroup acquired ComsatInternational Inc(ComsatInternational) through thepurchase of100%theissuedshar Comsat International BT GlobalServices Year ended31March 2008 28. Acquisitions STATEMENTS FINANCIAL 120 the balancespreviously Prioryearbalanceshavenotbeenrestated isnotsignificantto reported. thegroup. astheamountofadjustment havebeenmadeto andadjustments theseacquisitionshasbeenfinalised 2009,thedetermination offairvalueinrespect of During synergies. principally represents thegeographical presence andcapabilitiesoftheacquired companies,aswelltheassembledworkforce andanticipated Intangible assetsrecognised inrespect relationships, oftheseacquisitionscomprisecustomer brands technology. andproprietary Goodwill Total consideration Goodwill Net assetsacquired Property, plantandequipment plantandequipment Property, Associates andjointventures Receivables Other noncurrent assets Payables andcashequivalents Cash Receivables Cash andcashequivalents Payables Minority interest BT GROUP PLC ANNU rnln ehooisCroainLmtd 2 nepiePiaeLmtd e SS andI.NETSpA(I.NET).Thetotal Frontline Technologies Corporation Limited, i2iEnterprise Private Limited, Net2SSA AL REPORT & FORM continued CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F okvleajsmnsFair value adjustments Book value okvleajsmnsFair value adjustments Book value (130) 112 (58) m£ £m £m £m m£ £m £m £m 0757 7 50 63 82 36 46 70 15 31 14 17 14 44 4–4 3–3 –1 Fair value Fair value (4) (5) (6) 1 (131) (1) (1) 11 85 1 – – – red 276 194 130 106 e (63) 73 11 71 14 31 17 13 2 1

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Defined benefitschemes (2008:£3m,2007:£3m)ofcontributionswere at31March outstanding 2009. (2008:£37m,2007:£28m)and£4m £47m fixed percentage ofemployees’pay. for Thetotal pensioncost theyearinrespect ofthegroup’s maindefinedcontributionscheme was chargeThe incomestatement inrespect ofdefinedcontributionschemesrepresents thecontributionpayablebygroup basedupon a Defined contributionschemes was £459m(2008:£576m,2007:£600m). associated Thetotal withthegroup’s cost definedbenefitpensionschemes (2008:£626m,2007:£643m). was£544m costs, within staff ofthegroup Thetotal pensioncost for theyear,included to whichBTRP membersare beinginvited to transfer theiraccumulated assets. April2009BT setuptheBT Retirement SavingScheme,acontract baseddefinedcontributionarrangement On 1 Retirement Plan(BTRP). replaced byadefinedcontributionscheme,the whenitwas scheme. Thisschemehasbeenclosedto newentrants since31March 2001 The group offers retirement benefitplans to itsemployees.Thegroup’s mainscheme,theBT Pension Scheme(BTPS), isadefinedbenefit Background 29. Retirement benefitplans havebeenmadeto thebalancespreviously theseacquisitionshasbeenfinalised.Noadjustments reported. fair valueinrespect of 2009,thedetermination of During acquisitions principallyrelates to andrevenue anticipated cost synergies andtheassembledworkforce. Intangible assetsrecognised inrespect relationships oftheseacquisitionscomprisecustomer andbrand names.Goodwillarisingonthese Total consideration Goodwill Net assetsacquired Receivables Property, plantandequipment Intangible assets assets acquired inthesetransactions andthegoodwillarisingisasfollows: deferred, contingent consideration. Thegroup acquired 100%ofeachcompany. Thecombinednet subsidiaries was£71m,including£8m principally ofBT thatnowform Retail. part undertakings Theseacquisitionsinclude acquired anumberofsmallersubsidiary During 2008,thegroup BT Retail 28. Acquisitions STATEMENTS FINANCIAL recognised in full in the year in which they occur in the statement ofrecognised inwhichtheyoccurthestatement incomeandexpense. year recognised infullthe discounted atthecurrent rate ofreturn onhighquality corporate bondsofanequivalentterm to theliability. Actuarial gainsandlossesare bes Scheme assetsare measured atthebidmarket valueatthebalancesheetdate. Theliabilities oftheBTPS are measured bydiscountingthe Measurement ofschemeassetsandliabilities–IAS19 for re-appointment. deferred pensioneroftheBTPS directors. asoneofthetrustee Trustee directors are appointed for athree-year term, butare commerce orindustry. Subjectto there beinganappropriately qualifiedcandidate, there onecurrent shouldbeatleast pensioneror directorsthe trustee willnormally holdseniorpositionswithinthegroup, in andtwowillnormallyhold(orhaveheld)senior positions the Trustees. Four directors trustee otherthantheChairmanare appointed byBT onthenominationofrelevant trade Two unions. of appointed bythegroup, fiveofwhich appointmentsare madewiththeagreement oftherelevant trade unions,includingtheChairmanof Trust Deedoftheschemeandrelevant deedoftheBTPS, legislation.Undertheterms ofthetrust there are direct ninetrustee BT Pension SchemeTrustees Limited andmanagestheschemeonbehalfofmembersinaccordance administers withtheterms of Payables Cash andcashequivalents t estimate offuturet estimate cashflowsto bepaidout by theschemeusingprojected future unitmethod.Estimated cash flowsare , Lynx Technology HoldingsLimited, BasilicaGroup Limited andBrightviewplc.Thetotal purchase consideration paidfor these continued CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – BT GROUP PLC au dutet Fair value adjustments value okFair value Book (25) £m 22 42 4–4 3–3 –2323 ANNU AL REPORT & FORM £m (1) (2) 02 then eligible ors 20-F the BT 121 (27) £m 71 47 21 4

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW The financialassumptionsusedto measure thenetpensionobligationofBTPS at31March 2009are asfollows: 29. Retirement benefitplanscontinued STATEMENTS FINANCIAL 122 The average life retirement expectancyassumptions,after at60yearsofage,are asfollows: a Inflation –average increase inretail priceindex Average increase inpensions Rate usedto discountliabilities mut eonsdi h noesaeeti epc ftegopspninshmsare asfollows: inrespect ofthegroup’s pensionschemes Amounts recognised intheincomestatement asset (obligation) Net pension Other schemes BTPS below: issetout The netpension(obligation)asset Amounts recognisedofdefinedbenefitschemes inrespect Future 10years improvement every Female Male inhigherpaybracket Male inlowerpaybracket oa mutcagdto theincomestatement charged Total amount Net financeincome Total operating charge (includingdefinedcontributionschemes) cost Current service eerdtaxasset(liability) Deferred Interest onpensionschemeliabilities Expected return onpensionschemeassets Average future increases inwagesandsalaries There is a short-term reduction in the real salary growth assumptionto 0.5%for reductiongrowth threeThere thefirst inthereal years. isashort-term salary amn n eerdpnin .035 3.00 3.50 2.90 – – – payment anddeferred pensions BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F 933(336 393 748(469 2,779 (34,669) 37,448 (3,973) (33,326) 29,353 927(300 383 731(444 2,887 (34,444) 37,331 (3,843) (33,070) 29,227 seso iblte olgto)Ast flaiiis (obligation) ofliabilities Assets (obligation) ofliabilities Assets 2009 3.84 126 £m %%%%%% – – Present Present 082007 2008 au Asset value 26 (130) (256) Real rates (perannum) 3.24 0.75 £m – a (2,870) 1,103 2 2.28 0.75 009 £m – a 261 248 (2,292) (2,448) (2,621) ,0 ,2 1,872 2,028 2,308 2009 2009 33 40 (420) (420) (313) 2.90 2.90 6.85 117 231 544 544 £m £m ubro Numberof Number of Nominal rates (perannum) 2009 082007 2008 082007 2008 au Asset value years 25 (108) (225) 27.7 27.1 24.8 3.50 6.85 4.28 206 626 626 . 1.0 1.0 £m £m a 2,001 2008 2008 years (778) 25.7 25.2 22.8 3.00 5.35 3.77 223 643 643 £m £m a

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Closing fair valueofplanassets Exchange differences Benefits paid Contributions byemployees Deficiency contributionsbyemployer Regular contributionsbyemployer loss Actuarial Expected return Opening fairvalueofplanassets Changes inthefairvalueofplanassetsare asfollows: Closing definedbenefitpensionobligation Exchange differences Benefits paid Business combinations Actuarial gain Contributions byemployees Interest cost cost Current service Opening definedbenefitpensionobligation Changes inthepresent valueofthedefinedbenefitpensionobligationare asfollows: Actual return onplanassets (losses)gains Cumulative actuarial (loss)gainrecognised intheyear Actuarial An analysisofactuarial gainsandlossestheactual return onplanassetsisshownbelow: £m Forecast benefitspayable bytheBTPS at31March 2009 by theBTPS are expected to bepaidasfollows: The present valueoftheobligationisderivedfrom long-term cashflowprojectionsThebenefits payable andisthusinherently uncertain. 29. Retirement benefitplanscontinued STATEMENTS FINANCIAL 1,000 1,500 2,000 2,500 3,000 3,500 500 0 2010 31 Mar 2033 31 Mar CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 2056 31 Mar 2079 31 Mar 2102 31 Mar BT GROUP PLC 707 ,2 1,409 2,621 (7,037) 680 14 3,285 (124) (6,830) 2009 51 ,4 3,825 6,446 (591) £m ANNU AL REPORT & FORM 3,2)(34,669) (33,326) 3,6)(38,779) (34,669) 93337,448 29,353 74838,390 37,448 171 (1,559) (1,741) (2,572) (9,451) 238 (2,028) (2,308) ,2 2,448 2,621 ,4 1,559 5,193 1,741 2,414 2009 2009 082007 2008 49 (576) (459) 441 (23) (18) £m £m £m 17 18 (4) – 20-F 2008 2008 320 388 123 (19) (19) £m £m £m 14 19 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Experience adjustment ondefinedbenefitobligation–(loss)gain Experience adjustment Percentage oftheplanassets onplanassets–(loss)gain Experience adjustment Percentage ofthepresent valueofthedefinedbenefitobligation asset (obligation) Net pension Fair valueofplanassets Present valueofdefinedbenefitobligation income. doesnotaffectinvestments thelevelofobligationbutdoesaffect theexpected return onpension schemeassetswithinthenetfinance Thelong-term expected rate ofreturn on returns returns. andhistorical Alternative assetclassesincludecommoditiesandhedge funds. oftheriskpremiumbased onacombinationofanestimate aboveyieldsongovernmentbonds,consensuseconomicforecasts offuture are oftheyear. basedonthegross redemption yieldsatthestart Expected returns andalternative assetclassesare onequities,property securities index-linked heldofeachassetclassatthebeginningyear.and theproportions Theexpected returns onfixed interest and The assumptionfor theexpected return onschemeassetsisaweighted average basedontheassumedexpected return for eachassetclass Cash andother Alternative assets Property Index-linked securities Fixed-interest securities Non-UK equities UK equities ispayable(2008:£0.1m). ownedbytheBTPStwo properties schemeonwhichanannualrental of£0.1m Thegroup occupies shares 10mordinary ofthecompanywere includedwithinthescheme’s assets,withamarket valueof£22m. 2008, March thescheme’s shares assetsdidnotincludeanyordinary ofthecompany. At 31 March 2009, At investments. 31 and short-term The BTPS fixed assetsare inUKandoverseasequities,properties, interest invested andindexlinked securities 29. Retirement benefitplanscontinued STATEMENTS FINANCIAL 124 yearincrease to life expectancy 1 Additional increases – salary – discountrate 0.25 percentage pointincrease to: f increases ratesThe assumeddiscountrate, allhaveasignificanteffect andsalary mortality onthemeasurement ofschemeliabilities.The Sensitivity analysisoftheprincipalassumptionsusedto measure BTPS schemeliabilities 2010,includingdeficiency contributionsof£525m. to theBTPS in The group expectsto contribute approximately £775m ollowing tableshowsthesensitivityofvaluationto changesintheseassumptions: The expected long-term rate ofreturn andfairvaluesoftheassetsBTPS at31March were: The history of experiencegainsandlossesare asfollows:The history BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – rate ofreturn (per annum) long-term Expected Expected . 9310100 100 29.3 6.7 3.5 7.0 7.0 4.0 5.9 8.5 8.5 £bn % 20-F 0.8 5.2 3.2 4.4 6.6 5.9 3.2 se arvleTre (perannum) Target Asset fairvalue 18 11 15 22 20 11 % 3 3,2)(469 3,7)(817 (34,435) (38,187) (38,779) (34,669) (33,326) 9333,4 8303,4 29,628 35,640 38,390 37,448 29,353 941 (2,572) 2,779 (9,451) (3,973) 22 .%26 36 5.6% 13.6% 2.6% 6.9% 32.2% 2009 .%01 .%14 1.3% 1.4% 0.5% 0.1% 0.7% (238) £m 2009 20 12 15 20 22 11 % – rate ofreturn 0820 062005 2006 2007 2008 long-term (22) £m . 7310100 100 37.3 7.1 5.0 7.2 10.5 7.0 4.6 5.7 8.5 8.5 £bn % 39 257 (4,807) (2,547) (389) 9 ,5 1,664 4,855 993 190 £m 1.8 2.9 5.2 3.6 7.1 6.2 se arvleTarget Asset fairvalue 57 (437) (527) £m 14 10 19 28 17 % Impact onliability 4 8 , deposits Decrease/ (increase) 2008 (1.3) (0.3) £bn 1.2 £m 11 13 10 15 28 23 % –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW vrg nraei ealpieidx––27 2.50 2.70 – 1.5 – 0.75 Nodeficit (2008:£380m). and deficitcontributionswere £280mperannum.In2009,thegroup maderegular contributionsof£433m discount rate. had notimproved bythesameamountasassetsbecauseliabilitiesincludedlonger life expectancyassumptionsand usedalower and contributionsreceived bytheschemeexceeded thebenefitspaidinthree yearsended31December2005.However, thedeficit hadincreased income andtheinvestment investments equity assumptions.Themarket valueof The fundingvaluationusesconservative December2002. at31 compared with£2.1bn 91.6%) ofthebenefitsaccruedbythatdate. Thisrepresented afundingdeficitof£3.4bn (2002: 90.9% (2002:£22.8bn)andwere sufficientto cover At 31December2005,theassets oftheBTPS hadamarket valueof£34.4bn a Average increase inpensions Average future increases inwagesandsalaries Average increase inretail priceindex Discount rate three years.Thisagreement hasbeenapproved bythePensions Regulator. Pensions Regulator are keen to complete thisassoonpracticable. Trustee andthe valuation andassumptionsare notfinalisedordisclosedinadvanceofthecompletionthosediscussions.BT, the discuss withtheTrustee andBT theunderlyingassumptionsandbasisofvaluation.ThePensions Regulator has requested thatthe market comparedstage conditions,thePensions to otherschemevaluationsandgiventheuncertain Regulator hasindicated itwishesto are atanadvanced The triennialfundingvaluationasat31December2008hasreached ofcompletion.Astheparties anadvancedstage be sufficientto meetfuturethe BTPS. at31Decemberasthisisthefinancialyearendof liabilities.Thefundingvaluationisperformed pr A triennialvaluationiscarriedoutfor byaprofessionally theindependentschemetrustees qualifiedindependentactuary, the using Funding valuationandfuture funding obligations 29. Retirement benefitplanscontinued STATEMENTS FINANCIAL entrants, theprojected paymentprofile overmore extends than60years. pensionable salaries,isexpected to increase as themembersofschemeapproach retirement. Despite to theschemebeingclosed new consequently increase. oftheactivemembers’ Under theprojected asaproportion unitcredit cost, method,thecurrent service TheBTPS wasclosedto newentrants on31 March 2001andtheageprofile ofactivemembers wil over amaximumperiodof20years. the PPFandthiswouldnotgiveexactlysamebenefitsasthose provided bythescheme. Pension Protection Fund benefitsto members.There (PPF)maytake are overthe schemeandpaycertain by limitsontheamounts paid entitlements for anyonewhojoinedtheschemebefore 1984, andto paymentsto 6August beneficiaries ofsuchpersons.Secondly,the Crown Guarantee whichwasgranted whenthegroup wasprivatised in1984.Thisapplies,onawindingupofthegroup, to pension 70% ofthemembers’benefitswithaninsurance company. from thecompany, thatasat31December2005,theassetsofschemewouldhavebeensufficientto itisestimated provide around result oftheimplementationfuture benefitchanges,following theUKpensionsreview, witheffect from 1April2009. We expecttheregular contribution rate to reduce asa contributions were madein2009astheyhadbeenpaidadvanceduring2008. There is a short-term reduction in the real salary growth assumptionto 1.25%for growth three thefirst thereal years. salary reductionThere in isashort-term ojected unitcredit method.Thepurposeofthevaluationisto designafundingplanto ensure thatpresent andfuture should contributions otrtrmn iblte .94.54 5.84 3.53 7.13 1.79 3.06 1.00 4.52 Return onfuture investments allowingfor(after anannualincrease individendsof) Return assets,relative onexisting to market values Post retirement liabilities Pre retirement liabilities Under the terms of the trust deedthatgovernstheBTPS,Under theterms ofthetrust thegroup isrequired to haveafundingplanthatshouldaddress thedeficit If thegroup were to becomeinsolvent,however, there are anumberofadditionalprotections availableto members.Firstly, the The intention isfor there to besufficientassetsintheschemeto contribution paypensionsnowandinthefuture. Withoutanyfurther was19.5%ofpensionablesalaries(includingemployeecontributions6%) contributionsrate valuationtheordinary Under the2005 triennialvaluationswere determined usingthefollowing long-term assumptions: two The last BT andtheTrustee agreed inMay2009thatdeficitcontributionsof£525mperannumwillbemadecashorspecieoverthenext schemeliabilitiesare measured usingaprojected unitcredit methodanddiscounted to theirpresent value. – schemeassetsare valuedatmarket valueatthevaluationdate; and – The valuationbasisfor funding purposes isbroadly asfollows: CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – auto auto auto valuation valuation valuation valuation 0520 052002 2005 2002 2005 elrts(e nu)Nominalrates (perannum) Real rates (perannum) %%%% – BT GROUP PLC .06.60 4.00 – a ANNU AL REPORT & FORM 3.47 2.70 re isthe 20-F l 4.04 2.50 125 a

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW BT GlobalServices UK an analysisofthetotal charge bytype ofaward issetoutbelow. United States. Italsohasseveral share plans for executives. Allshare basedpaymentplansare equitysettledanddetailsoftheseplans share optionplansfor subsidiaries,further selected purchase employeesandanemployeestock planforparticipating employeesinthe (2008:£73m,2007:£93m). The total charge recognised in2009respect ofshare basedpaymentswas£31m 31. Share basedpayments a Total employees Number ofemployeesinthegroup Total employees Number ofemployeesinthegroup 30. Employees STATEMENTS FINANCIAL 126 Employee Sharesave Plan 07t 1March 20081,596,480shares (159,648ADSs)were transferred shares outoftreasury undertheESPP). to participants 2007 to 31 launched inDecember2008. Theseventhofferthree undertheESPPwhichdoesnotbase purchase consecutivequarters. Price, was priceontheInitialBaseOption offer undertheESPPwascancelledinDecember2008asmarket priceofanADShadbeenlowerthantheInitialBaseOption Pricefor Shar The BT Group EmployeeStock Purchase to purchase Plan(ESPP),for AmericanDepositary employeesintheUS,enablesparticipants Employee Stock Purchase Plan Similarplansoperate for BT’s overseasemployees. theylapse. savings contract, otherwise the market pricefor fiveyearplansand10%for three beexercised yearplans.Theoptionsmust withinsixmonthsofmaturity ofthe period, t There isanHMRC approved savingsrelated share optionplan,underwhichemployeessaveonamonthlybasis,overthree orfive-year BT Group EmployeeSharesave plans Share Options Incentive Share Plan Employee Stock Purchase Plan Allshare BT Retail Non UK Deferred BonusPlan GSOP andGLOP Retention Share Plan BT Wholesale Openreach Other The numbers disclosed include both full and part timeemployees. The numbersdisclosedincludebothfullandpart The companyhasanemployeeshare planandsavings-related investment share optionplansfor its employeesandthoseof rm1Arl20 o3 ac 09 i hrswr rnfre opriiat u ftesr hrsudrteEP fo 5May March 2009,nilshares were transferred shares outoftreasury undertheESPP(from 15 to participants April2008to 31 From 1 es (ADSs) quarterly at a price which is 85% of the fair market price of an ADS at the end of each quarterly purchase period.Thesixth attheendofeachquarterly whichis85%ofthefairmarket priceofanADS ataprice (ADSs)quarterly es BT GROUP PLC owards thepurchase ofshares atafixed pricedetermined whentheoptionisgranted. Thispriceisusuallysetata20%discountto ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – a a : : 20-F eredAeaeYa n vrg eredAverage Year end Average Year end Average Year end eredAeaeYa n vrg eredAverage Year end Average Year end Average Year end 0. 1. 1. 0. 0. 105.2 106.2 108.5 111.9 105.2 110.6 106.2 107.0 108.5 111.9 110.6 107.0 31.4 86.5 20.4 20.5 32.2 20.6 0 0 0 0 0 000 000 000 000 000 000 000 2.4 2009 2009 31.8 89.5 21.0 21.1 33.1 22.2 000 2.5 33.1 91.3 21.1 20.6 33.6 21.2 000 2.9 2008 2007 2009 2008 2007 30.3 93.0 20.7 15.5 33.8 20.6 000 3.1 £m 31 18 12 (3) 222 233 –11 ––7 082007 2008 29.6 92.8 20.3 13.4 33.3 19.6 000 3.4 £m 73 29 26 12 28.9 92.4 20.3 12.8 32.1 20.2 000 3.7 £m 93 25 18 13 6 a

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ciiyrltn osaeotosdrn 09 08ad20 sshownbelow. is Activity relating to share optionsduring2009,2008and2007 Share optionplans receive awards ofshares where theywillreceive practicable, awards otherwise equivalentto thevalueoffree shares. 81,560). (2008: were onbehalfof76,678participants heldintrust (2008:72.2mshares) March 2009,75.9mshares At 31 employee participants. (2008:22,136)allshare anddirectshare 21,782 shares) were purchased bytheTrustee bydividendreinvestment onbehalfof (2008: 1.4m shares 3.3m (2008:£15.8m).Afurther of£16.4m (2008:19,603)employees atatotal cost 20,384 the Trustee oftheESIPonbehalf directshare shares), were purchased by directshare shares (2008:5.4m 10.7m forheld intrust three at least years(allshare). During 2009, contributions ofupt The ESIPisanHMRC approved planthathasbeeninoperation sinceDecember2001.ItallowsBT employeesto buyshares with Employee SharePlan(ESIP) Investment are reinvested incompanyshares for thepotential benefitoftheparticipants. are transferred attheendofthree yearsiftheycontinueto beemployedbythegroup to participants throughout thatperiod. tranches. Theshares are transferred employedbythegroup. attheendofaspecifiedperiod,onlyifemployeeisstill European Telecom Sector atthebeginningofrelevant period. performance corporate measure performance isBT’s total shareholder return (TSR)measured acomparator against group ofcompaniesfrom the company hasmetther Under theBT Groupare IncentiveShareonlyentitledto theseshares Plan(ISP),participants infullattheendofathree-year periodifthe Retention Share PlanandDeferred BonusPlan Incentive Share Plan, Share Plans originalgrant date. yearsofthe ten continued employmentandmeetingcorporate targets. performance beexercised Optionsmust within arrangement anddemerger of02inNovember2001,andistherefore outsidethescopeofIFRS2.Theoptionswere exercisable subjectto B On thedemerger of02,BT’s share optionplansceasedto operate andwere replaced bysimilarBT Group EmployeeSharesave plansandthe BT Group LegacyOptionPlan(GLOP) meeting corpor The optionsgranted inprevious yearswere exercisable ofthedate ofgrant, onthethird subjectto anniversary continuedempl BT Group GlobalShare OptionPlan(GSOP) The following are legacyoptionplanswhichare nolongeroperated bythegroup. 31. Share basedpayments continued STATEMENTS FINANCIAL Exercisable attheendofyear attheendofyear Outstanding Expired Granted atthebeginningofyear Outstanding Exercisable attheendofyear attheendofyear Outstanding Expired atthebeginningofyear Outstanding Movement inthenumberofshare options: Exercised Forfeited Weighted average exercise price: G Forfeited Exercised r T Group GlobalShare OptionPlan.TheBT Group LegacyOptionPlanwaslaunchedon17December2001following theschemeof a n2008,allshare wasreplaced byfree BT Total Broadband Option3for allBTIn employeesintheUK.EmployeesoutsideUKcontinueto andDBP, dividendsordividendequivalentsearnedonshares duringtheconditionalperiods RSP In accordance withtheterms ofthe ISP, Under theBT Group Deferred BonusPlan(DBP)awards are granted annually to selected employeesofthegroup. Shares inthecompany Under theBT Group Retention Share Plan(RSP),thelengthofretention periodbefore awards isflexible.Awards annuallyin vest mayvest n t e d t efrac agt.Otosms eeecsdwti e er ftegatdate. grant yearsofthe ten ate targets. performance beexercised Optionsmust within 150prtxya u fgospay(directshare) andallowsBT to provide free shares to UKemployeeswhichare o £1,500pertaxyearoutofgross elevant pre-determined corporate are employedbythegroup. measure still performance The andiftheparticipants CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – ilosmlin ilosmlin ilosmillions millions millions millions millions millions 2009 (390) 9p18 1p26 5p261p 227p 257p 257p 213p 256p 256p 227p 210p 165p 179p 257p 158p 180p 185p 179p 166p 195p 160p 269p 178p 165p 135p 180p 136 281 5p18 9p16 9p203p 222p 198p 251p 196p 199p 199p 176p 188p 208p 155p 153p 3 (14) (80) 3 1 95 082007 2008 281 272 (15) (28) Employee Sharesave (2) 2 44 272 279 (12) (42) (2) 2 9––– BT GROUP PLC 2009 42 42 46 (3) (1) – – – ANNU AL REPORT & FORM 082007 2008 9p189p 199p 103 (33) (10) (14) 46 46 – GSOP andGLOP oyment and 20-F 103 187 127 (55) (20) 48 (9) –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW omldtso etn n xrie(basedoncalendaryears) exercise and vesting Normal dates of The options outstanding underallshareThe optionsoutstanding optionplansat31March 2009,haveweighted average remaining contractual livesasfollows: Total options Total 2005-2015 2004-2014 BT Group GlobalShare OptionPlan Total 2001-2011 BT Group LegacyOptionPlan Total 2008 BT Group EmployeeSharesave Plans exercise pricesanddates: March 2009,together withtheir summarises information relating andexercisable to optionsoutstanding underallshare optionplansat31 This alsoincreased thenumberofforfeitures towards theendof2009. 68p. UKSharesave wassubsequentlylaunchedinMarchfurther 2009,andoptionswere granted inApril2009atexercise pricesof61pand Sharesave 124p,beinglowerthanotherunvested options.Theseoptionswere 2009.A granted inJanuary exercise pricesof111pand During 2009,theincrease inthenumberofSharesave optionforfeitures reflects theimpactofanadditionalUKSharesave grant with 31. Share basedpayments continued STATEMENTS FINANCIAL 128 100p –199p iiedsae enetd7816029.6 0.2 1.6 7.8 plans. shares (2008:79.3m)werefor heldintreasury executive share 90.9m shares (2008: 2.1m)were and heldintrust 1.3m At 31March 2009, At 31March 2009 Dividend shares reinvested Awards lapsed Awards vested Awards granted At 1April2008 are shownbelow: executive share plansduring2009 Movements in Executive share plans Total 200p –300p prices Range ofexercise 2009 2010 2011 2012 2013 2014 h egtdaeaesaepiefrotoseecsddrn h erws10 (2008:293p,2007:265p).Thefollowing table for optionsexercised duringtheyearwas180p The weighted average share price BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – egtdNme fWeighted Numberof Weighted xrieotoscnrculRneo xrieeecs pin contractual options exercise Rangeof exercise contractual options exercise vrg usadn average outstanding average 231p 140p rc ilosremaining life millions price 20-F 1 2mnh 5p37 198p 150p-317p 32months 136 117 93 ots38-5p479p 318p-650p 32months 19 Employee Sharesave rcspiemlin remaining life millions price prices 2.)(.)(.)(26.1) (0.1) (1.4) (24.6) 521. . 92.2 1.5 15.5 75.2 09710238.2 81.4 0.2 2.6 7.1 12.4 30.9 66.4 53 42 14 (10.9) (1.4) (4.2) (5.3) S B S Total RSP DBP ISP 7p195 525 25 176p–199.5p 1p68 9 9 318p–648p 7p23 8 8 179p–263p 146p–231p 171p–294p 137p–208p 124p–262p 154p-192p egtdNme fWeighted Numberof Weighted vrg usadn average outstanding average e hr ilosmillions millions per share xrieottnigexercisable outstanding Exercise ilosofshares Millions 185p 111p rc pin options options price ubro Numberof Number of 3 1 136 7 43 178 36 months 65 42 33 333 33 46 18 16 19 11 25 20months 9 99 1 GSOP andGLOP 1 – – – – – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW increase inrelation to newly-acquired subsidiaries. companies.Theincrease in2009includestheadverseimpactofforeign ofsubsidiary financial statements exchange an movementsand nature willnotbeoffered to auditors theexternal unlessthere are clearefficiencies andvalue-addedbenefits to thecompany. provided bythecompany’s auditors external and theapproval processes related to them.Underthosepolicies, workofaconsultancy matters. and disposals. financial statements. required to becarriedoutbytheappointed auditor. Inparticular, thisincludesfees for issuedonthegroup’s auditreports regulatory Fees payableto thecompany’s auditor anditsassociates for otherservices: Non-audit services Fees payableto thecompany’s auditor anditsassociates for theauditofparent company Audit services the three yearsended31March 2009. The following fees were for paidorare auditandnon-auditservices payableto thecompany’s auditors, PricewaterhouseCoopers 32. Auditandnon-auditservices 203p(2008:319p,2007:232p). DBP awards granted in2009was 151p(2008:310p,2007:267p). Theweighted average share price weighted average share pricefor RSPawards granted in2009was of theoptionoraward. period.Theriskfreeequal to thevesting interest ineffect rate atthetimeofgrant, isbasedontheUKgiltcurve for theexpected life isassumedfor EmployeeSharesave optionsandfor allotherawards theexpected life is date vesting expected life ofthree monthsafter well asthecross correlation betweenpairsofstocks. for BT andthecomparator group attheendofthree period,usingeachcompany’s yearperformance volatilityanddividendyield,as are valuedusingabinomialoptionpricingmodel.Awards undertheISPare valuedusingMonte Carlosimulations.TSRswere gene theBT Group EmployeeSharesave andtheBT Group International EmployeeSharesave optionplans, under Employee Sharesave grants, Expected volatility Weighted average fairvalue ‘ 2009, 2008and2007. andISPin plans The following tablesummarises thefairvaluesandkey assumptionsusedfor grants madeundertheEmployeeSharesave Fair value 31. Share basedpayments continued STATEMENTS FINANCIAL Oxley). includes fees for undersection404 oftheUSPublicCompanyAccountingReform reports Protection andInvestor Actof2002(Sarbanes- Risk free rates Expected dividendyield Weighted average exercise price Weighted average share price Tax services – pursuantto legislation Otherservices – Theauditofthecompany’s subsidiariespursuantto legislation – – Services relating to corporate Services financetransactions – Allotherservices – Audit Services Audit and consolidated accounts ‘ ‘ ‘ In order to auditors, canbe maintain theindependenceofexternal theBoard hasdetermined policies asto whatnon-auditservices The auditfee ofthecompanywas£41,000(2008:£40,000,2007: £38,600). ‘ The fairvaluesfor theRSPandDBPwere determined usingthemiddle market share pricethree dayspriorto thedate ofgrant. The Volatility hasbeendetermined byreference to BT’s volatilitywhichisexpected historical to reflect theBT share priceinthefuture. An ‘ All other services transactions other finance All corporate to relating Services Services Tax legislation to pursuant legislation services to Other pursuant subsidiaries company’s the of audit The ’ represents fees inrelation payablefor to theauditofparent services companyandtheconsolidated accountsandalso ’ represents fees services. payablefor taxcompliance and advisory ’ represents fees oninternal payablefor controls reporting and otheradviceonaccountingorfinancial non-regulatory CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – ’ represents fees filingsorengagementsthatare inrelation payablefor to otherstatutory services 07-84 33 20 80 70 17.0% 17.0% 18.0% 22.0% 23.3% 20.7%-28.4% .%55 .%58 .%50 5.0% 5.5% 5.0% 5.5% 5.8% 5.5% 5.8% 5.5% 5.2% 4.9% 2.1%-5.5% 4.6%-6.4% hrsv S hrsv S hrsv ISP Sharesave ISP Sharesave ISP Sharesave mlyeEpoe Employee Employee Employee ’ represent fees payableinrelation to duediligenceworkcompleted onacquisitions 5p19 2p36 2p230p 229p 306p 329p 199p 135p 152p 27p ’ represents fees inrelation payablefor to theauditof services 2009 47p 269p – 1 182p 71p BT GROUP PLC 0831,3 9,364 10,231 10,883 ,1 ,9 1,212 1,590 1,211 ,7 ,4 3,518 3,100 3,848 1,247 2,990 4,675 2,831 2008 2007 00£0 £000 £000 £000 2009 887 32 185p – ANNU AL REPORT & FORM 082007 2008 727 549 527 3 127p 43p LLP, for rated 20-F for 763 748 129 23 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW reference to anagreed notionalprincipalamount.UnderSterling interest rate swaps,thegroupto exchange, agrees at withotherparties USdollarandEuroexchange, fixed atspecifiedintervals, rates into eitherfixed orfloatingSterling interest amountscalculated by amounts andperiodsfor whichinterest rates onborrowings are fixed. Undercross currency swaps,thegroupto agrees withother parties authority bytheBoard. approval from theGroup FinanceDirector, Director Treasury, ManagementortheTreasurer Tax whohavebeendelegated such andRisk management isdelegated to thecentralised operation long-term treasury interest whilst rate managementdecisionsrequires further volatility. Thegroup’s policy, asprescribed bytheBoard, isto ensure 70%ofnetdebtisatfixed thatatleast rates. interest rate Short-term cashfloworfairvalue The group hasinterest bearingfinancialassetsandliabilitieswhichmayexposethegroup to either Interest rate riskmanagement instruments. financial these policies andprocedures review andperform processes to assessandmanagefinancialriskexposures arisingfrom these payables, isthrough aseriesofpoliciesandprocedures setatagroup andlineofbusinesslevel.Linemanagementapply Director. Thekey policiesdefinedbytheBoard are highlighted ineachofthesectionsbelow. Appointment to andremoval from thekey panelsrequires approval from twooftheChairman,ChiefExecutive ortheGroup Finance authority to operate thesepolicesto aseriesofpanelsthatare responsible for themanagementofkey risksandoperations. treasury with themagnitude oftheborrowings andgroup andinvestments wideexposures underitsmanagement.TheBoard hasdelegated its optimum cost. the functionalcurrency oftherelevant entity. Thecentralised operation treasury isnotaprofit centre andtheobjectiveisto manageriskat providing central deposittaking,fundingandforeign Funding exchangeanddeposittakingisusuallyprovided managementservices. in group arising from volatilityincurrency andinterest rates. Thecentralised operation treasury actsasacentral bankto the membersof thegroup’s market riskexposures, includingrisks arisingwithfinancialinstitutions.Thecentralised operation treasury alsomanages risk are toderivative financialinstruments managetherisksarisingfrom undertaken underlyingbusinessactivities. forward currency contracts. Thegroup for doesnotholdorissuederivativefinancialinstruments trading purposes.Alltransactions in overseas operations, acquisitions, overseasassets,liabilitiesandforward purchase used commitments.Thefinancialinstruments forward currency contracts. Thegroup to hedgesome ofitscurrency alsousesfinancialinstruments exposures arisingfrom fundingits exchange rates theseborrowings. against Thederivativesusedfor thispurposeare principallyinterest rate swaps,cross currency swapsand long-term borrowing. Thegroup primarilyto manageitsexposure usesderivativefinancialinstruments to changesininterest andforeign markets provide cost-effective themost means of these andtypically, butnotexclusively, markets inmajorcurrencies bond term bycommitted borrowing commercial facilities.Thegroup papersupported borrows inthemajorlong- borrowing, mainlyusing short-term payables, arisedirectly from thegroup’s operations. from itsoperations andfrom itssources for offinance.Inaddition,variousfinancialinstruments, exampletrade receivables andtrade funds;andto managethecurrencybuy backsandacquisitions;for andinterest ofshort-term investment rate the temporary risksarising The group mainlyto financeitsoperations; issuesorholdsfinancialinstruments to financecorporate transactions suchasdividends,share andriskmanagement 33. Financialinstruments STATEMENTS FINANCIAL 130 approximately £5m(2008:£5m). increase (2008:100basis pointincrease) inSterling interest rates woulddecrease thegroup’s annualnetfinanceexpenseby March 2009,a100basispoint volatility. Withallotherfactors remaining andbasedonthecompositionofnetdebtat31 constant Trade payables,trade receivables donotpresentSterling andotherfinancialinstruments amaterial exposure interest to interest rates. rate variablerate borrowings whichare andinvestments largely influencedby on movements onderivativesnotinhedgingrelationships and effect from therespective balancesheetdate. to interestadjustments rates for are theimpacted financialinstruments assumedto take dollarandEuro currencies isa reasonable benchmarkfor asensitivity analysis.All performing across Sterling,in yieldcurves US volatility, managementhave concludedthata100basispointincrease (2008:100basispointincrease) ininterest rates andparallel shift derivatives’ sectionsbelow. interest rate swapsat31March 2009are detailed inthe‘Hedgingactivities’and‘Other currency Outstanding and hedging instruments. notional principalamount.Thegroup primarilyusesacombinationofthesederivativesto fixitsinterest rates. thedifferencesspecified intervals, betweenfixed rate andfloatingrate Sterling interest amountscalculated byreference to anagreed The group has a centralised treasury operation whose primary role is to manage liquidity, funding, investments and counterparty credit counterparty and The group role hasacentralised operation isto manageliquidity, treasury whoseprimary funding,investments and The group financesitsoperations primarilybyamixture ofissuedshare capital,retained profits, deferred taxation,long-term After theimpactofhedging,group’sAfter mainexposure to interest rate arisesfrom volatilityintheincomestatement fairvalue equityvolatilityarisingfrom changesininterest rates. To demonstrate this shareholders’ The group isexposedto and incomestatement At 31March 2009,thegroup’s fixed:floating interest rate hedging,onnetdebtwas99:1(2008:100:0). profile, after The majorityofthegroup’s long-term borrowings havebeen,andare, subjectto fixed Sterling interest rates applyingtheimpactof after In order to managethisprofile, thegroup hasentered into swap agreements the withcommercial banksandotherinstitutionsto vary There hasbeennochangeinthenature ofthegroup’s riskprofile between31March 2009andthedate ofthesefinancialstatements. The financialriskmanagementofexposures arisingfrom trading related primarily trade financialinstruments, receivables andtrade The Board setsthepolicyfor thegroup’s centralised operation treasury anditsactivitiesare subjectto asetofcontrols commensurate BT GROUP PLC ANNU AL REPORT & FORM CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F comprise

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW urnyaie anyo t o-Ksbiir netet n nrsda urnytrading flows. currency andonresidual investments itsnon-UKsubsidiary currency arisesmainlyon Asaresult, thegroup’s exposure to foreign selective basis.Thecommitmentshedgedare principallyUSdollarandEuro denominated. currency contracts to hedgeforeign currency interest investments, expense,capitalpurchases andpurchase andsalecommitmentsona Thegroup alsoenters into forward usingcross currency swaps. finance itsoperations andhavebeenpredominantly swappedinto Sterling foreign exchange volatility. Thegroup’s foreign currency borrowings, whichtotalled £9.9bnat31March 2009(2008:£6.6bn),are usedto within theUK.Thegroup’s overseasoperations generally trade andare fundedintheirfunctionalcurrency whichlimitstheirexposure to Director to take positionsofupto £1bn. policy delegates authorityto theDirector Treasury, Tax andRiskManagementto take positionsofupto £100mandfor theGroup Finance Finance Director, Director Treasury, Tax andRiskManagementortheTreasurer whohavebeendelegated suchauthoritybytheBoard. The to thecentralised operation long-term treasury foreign whilst exchange managementdecisionsrequiresapproval from further theGroup forthe periodoverwhichcovershouldextend thedifferent foreign typesoftransactions. Short-term exchange managementisdelegated and includingsignificantoperational, fundingandcurrency interest exposures, whichshouldnormallybecovered, types oftransactions willbeadverselyaffectedoutflows bychangesinexchange rates. TheBoard policyfor foreign exchange riskmanagementdefinesthe The purposeofthegroup’s foreign currency hedgingactivitiesisto protect thegroup from theriskthateventual netinflowsand Foreign exchange riskmanagement finance expensewouldbereduced byapproximately £28m. debt rating ofBaa2/BBB.IfBT’s credit rating witheachofMoody’s andS&Pwere to beupgraded byonecredit theannual rating category by approximately £28mifBT’s credit rating were to bedowngraded byonecredit bybothagenciesbelowalong-term rating category at31March ontheseinstruments 2009,BT’s debtof£5.8bnoutstanding annualfinanceexpensewouldincrease 2001. Basedonthetotal financial year, S&Pdowngraded BT’s credit rating to BBBplusinJuly2006andMoody’s downgraded BT’s credit rating to Baa1inMay each ratings agency. InMarch 2009,bothMoody’s andS&Pdowngraded BT’s credit rating to Baa2andBBB,respectively. Priorto this additional interest would accruefrom couponperiodatarate thenext of0.25percentage pointsfor by adjustment eachratings category the BT Group credit rating were downgraded belowA3inthecaseofMoody’s orbelowA–inthecaseofStandard &Poor’s (S&P), whichthegroupThe long-term 2001bothcontainedcovenantsproviding debtinstruments issuedinDecember2000andFebruary thatif Euro interest rates US dollarinterest rates Sterling interest rates andriskmanagementcontinued 33. Financialinstruments odtosadcniudt oio hi rdtqaiyadatvl aae n xoue hc arose. anyexposures which managed andcontinuedto monitor theircredit qualityandactively conditions inresponse to market with counterparties wheninvesting financial year, thecentralised operation treasury tightened thecredit limitsapplied netsettlement.Thegroup alsoseekscollateral orother securitywhere it is considered necessary. Duringthe2009 and alegalrightofsetoff of acombination standard International Swaps andDerivativeAssociation(ISDA)documentation. Inaddition,where possible thegroup willseek to reduce thegroup’s exposure to credit risk.Currently thegroup makes useof nettingarrangements thegroup mayenter into counterparties, manage anyexposures whichmayarise.Where multipletransactions are withasinglecounterparty, undertaken orgroup ofrelate andactively required, adjustments ifany, the by theBoard. Managementreview significantutilisationsonaregular basisto determine upto themaximumallowable limitset andcredit ofthecounterparty standing nature thelimitaccording andwilladjust to the counterparties Thecentralised operation investments. for treasury continuouslyreviews short-term thelimitsapplied to P1/A1 for long-term and A3/A– are permitted withcounterparties which maybetransacted.and bydefiningthetypesoffinancialinstruments Theminimumcredit ratings bysettingcredit limitsbasedonthecredit qualityasdefinedbyMoody’s andStandard andPoor’s exposure to anyonecounterparty restricts cashandequivalents)from itstrading related receivables. For related treasury balances,theBoard definedpolicy investments, group’sThe exposure to credit riskarisesfrom financialassetstransacted bythecentralised operation treasury (primarilyderivatives, Credit riskmanagement fluctuations inequitywouldbeinsignificantboth2009and2008. recycled immediately to to theincomestatement match thehedgeditem and therefore thegroup’s exposure to foreign exchange Themajorityofforeignvalue movementsonderivativesheldinthecashflowreserve. exchange are fluctuations inthecashflowreserve £20min2009(2008:approximately £20m). credit ofapproximately would result ina the group’s exposure to foreign exchange from volatilityintheincomestatement a10%strengthening inSterling othercurrencies against increase (2008:100basispointincrease) ininterest rates ineachofthecurrencies wouldimpactequity, pre tax,asfollows: basispoint 100 atthebalancesheet date, a remaining andbasedonthecompositionofderivativesincludedin thecashflowreserve constant Thederivativeshaveanunderlyinginterest exposureheld inthecashflowreserve. to Sterling, Euro andUSdollarrates. With The group’s mainIFRS7definedexposure to interest rate volatilitywithinshareholders’ equityarisesfrom onderivatives fairvaluemovements STATEMENTS FINANCIAL usadn rs urnysasa 1Mrh20 r ealdi h Hdigatvte’ad‘te eiaie’scin below. sections ‘Hedgingactivities’and‘Otherderivatives’ March 2009are detailedinthe at31 swaps crossOutstanding currency The group’s mainexposure to foreign exchange volatilitywithinshareholders equity(excluding translation exposures) arisesfrom fair date, andbasedonthecompositionofassetsliabilitiesatbalancesheet constant remaining hedging,withallotherfactors After ofthegroup’sA significantproportion current revenue isinvoicedinSterling, andasignificantelementofitsoperations arise andcosts CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – BT GROUP PLC ANNU AL REPORT & FORM cei)(credit) (credit) hreCharge Charge 2009 19 (91) (347) (149) (538) 550 £m all otherfactors d 20-F 2008 470 131 £m

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW The group ensures its liquidity is maintained by entering into short, medium and long-term financial instruments to support operationalThe group to mediumandlong-term ensures support financialinstruments itsliquidityismaintainedby entering into short, Liquidity riskmanagement balancesbyline ofbusinessandreflects whichanalysesoutstanding thenature ineachsegment. ofcustomers 15 in note Theconcentration ofcredit riskfor trading balancesofthegroup isprovided adverse market conditionsontrading related financialassets. Thegroup hastaken proactive to of steps minimisetheimpact requesting securitiessuchasdeposits,guarantees andletters ofcredit. and byapplyingprocesses whichincludenettingandoff-setting, exposure to thegroup, customer’s taking into consideration the basis. Payment standards. terms Thegroup are willalsoenhancecredit setinaccordance protection withindustry whenappropriate, compliance. Thepolicyrequires ongoing andfinancialstrength isassessedatinceptionandonan ofcustomers thatthecreditworthiness 13. and 9 The creditrelated qualityofothertreasury financialassetsisprovided innotes A3/A– A2/A A1/A+ Aa3/AA– Aa2/AA Moody's/S&P credit rating asfollows: andimpactequity, pre-tax, values across eachoftheratingsyield curves categories withinwhichthesederivativefinancialassetsare classifiedwouldreduce theircarrying factors remaining andbasedonthecompositionofnetderivativefinancialassetsat31March constant 2009,a100basispointincrease in Withallother Themajorityofthesederivativesare indesignated cashflowhedges. of £2,282m.Ofthis,85%waswithsixcounterparties. group’s International Swaps andDerivativeAssociation(ISDA)documentation, thegroup hadanetexposure to derivativecounterparties Note 17disclosesthecredit concentration applyingalegalrightofsetoffunderthe andcredit qualityofderivativefinancialassets.After a Total Trade andotherreceivables Investments Derivative financialassets The maximumcredit riskexposure ofthegroup’s financialassetsat31March 2009and31March 2008wasasfollows: andriskmanagementcontinued 33. Financialinstruments STATEMENTS FINANCIAL 132 ranging between 2013and2037bankloans ofissuances throughof £3.9bnmainly consisting thegroup’s European Medium Term Note andUSShelf programmes with maturities £1.9bn matured of2007USdollar7%notes, financeleases andcommercial consisting paper. Thiswasmore thanoffsetbynewissuances net debtincreased from £7.9bnto £9.5bnprimarilydrivenbythegroup’s share buybackprogramme. During2008,debtamounting andcommercial paper. of£0.3bnmatured. In addition,investments During2008,thegroup’s Sterling interest rate of7.7%, annualised whichwasswapped into £0.8bnatanaverage ofa€1bnbondat6.5%repayableby newissuancesof£1.5bnmainly consisting in2015, Sterling floatingrate notes. Thiswasoffset and share buybackpayments.During2009,debtamounting to £0.9bn matured of consisting lowerfree cashflowbeingexceeded bydividend During 2009,thegroup’s netdebtincreased from £9.5bnto £10.4bnprimarilydrivenby Net debt(note 10) centralised operation. treasury Requests from group companiesfor operating financeare metwheneverpossiblefrom central resources. timely manner. Liquidassetssurplusto immediate operating requirements ofthe group are generally andmanagedbythe invested andmedium-term requirements.to assessthe short Theseassessmentsensure thegroup responds to possiblefuture cashconstraints ina basis.Thecentralised operation treasury onaquarterly reviews cashflowsmore frequently reviews forecasts, includingcashflowforecasts, relation thereto, monitoring balancesheetliquidityandmaintainingadiverserange offundingsources andback-up The Board facilities. target grade asolidinvestment credit rating for continuingto invest whilst thefuture and,withanefficientbalancesheet. by thecentralised operation treasury withintheparameters ofthepoliciessetbyBoard. Thegroup’s isto capitalmanagementpolicy group andmedium-term andonanongoingbasisconsidersanyrelated requirements matters. Short are regularly reviewed andmana and otherfundingrequirements. anannualbasistheBoard Onatleast reviews andapproves themaximumlong-term fundingofthe Cash andcashequivalents The carrying amountexcludes £1,084m(2008:£1,256m)ofcurrentThe carrying and£322m(2008:£854m)ofnoncurrent trade andotherreceivables whichrelate to non-financialassets. The group’s liquidityandfunding managementprocess includesprojecting cashflowsandconsideringthelevelofliquidassetsin The group’s credit policyfor trading related financialassetsisappliedandmanagedbyeachofthelinesbusinessto ensure BT GROUP PLC ANNUAL REPORT & FORM a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F senote 16). (see 10,361 2009 £m ,1 5,486 7,319 2,700 ,0 1,435 3,193 1,300 3,101 ,6 7,914 9,460 2009 082007 2008 218 £m £m Impact of100basis point increase to ged 2008 (277) (146) 471 387 (92) (21) (18) £m £m £m –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Derivative financial instrument liabilities Derivative financialinstrument Total 13,907 Trade andotherpayables Loans andborrowings 2009 cash flowsare asfollows: outlook). outlook(2008:BBB+withastable stable Moody’s thebalancesheetdate, Fitch changedthegroup’s outlook).After (2008:BBB+/Baa1,bothwithstable credit rating to BBBwitha March 2009,thegroup’s credit rating outlookwithStandard wasBBBwithastable andPoor’s, andBaa2withnegativeoutlook 31 At untilDecember2010. debtmaturities strategies inplaceto managerefinancing needsastheyarise.Thegroup hasnosignificant aone-yearterm out. with 2009 isfor aterm of364daysfrom March thebalancesheetdate agreed inboth2009and2008.Thisfacility after being £100m with afurther wasagreed inthe2009financialyear, (2008:£835m) undrawn committed borrowing facilityof£900m(2008:£935m),which£800m borrowing facilityofupto 2013.Thegroup £1,500m(2008:£1,500m).Thefacilityisavailablefor hadanadditional theperiodto January current liquidityrequirements. inorder assetinvestments to manageshort-term At 31March 2009,thegroup hadanundrawn committed beenutilised.Duringthe2009and2008financialyearsgroup issuedcommercial paperandheldcash,cashequivalents have The group hasaEuropean MediumTerm Note programme andaUSShelfregistration inplaceofwhich€3.9bnand$6.9bn,respectively, andriskmanagementcontinued 33. Financialinstruments STATEMENTS FINANCIAL d c b a liabilities Derivative financialinstrument Total Trade andotherpayables Loans andborrowings 2008 Outflow (inflow) Outflow Derivative financial instrument liabilities Derivative financialinstrument Provisions Derivative financial instrument liabilities Derivative financialinstrument Provisions to maturity analysed basedonholdinginstrument to maturity analysed basedonholdinginstrument analysed based on earliest paymentdate analysed basedonearliest analysed based on earliest paymentdate analysed basedonearliest relevant balancesheetdate. Foreign currency related cashflowswere translated atthe closingrate asattherelevant date. Future reporting variableinterest rate cashflowswere recent calculated using the most rate appliedatthe liabilitiescontainbreak derivativefinancial instrument clauseswhich,ifexercised,Certain require settlementofthederivative. (2008:£169m) ofnoncurrent provisions whichrelate to non-financialliabilities. amountexcludes £195m(2008:£50m) ofcurrentThe carrying and£359m (2008:£1,763m)ofcurrent and£794m(2008:£707m)ofnoncurrent trade andotherpayableswhichrelate to non-financialliabilities. amountexcludes £1,861m The carrying neet96906960505,333 7,412 550 14 650 1,829 649 10 900 3,098 906 1,227 Interest Principal Gross settled Net settled Gross settled Net settled Gross settled Net settled Interest Principal Gross settled Net settled The group’s remaining contractually agreed cashflows,includinginterest, associated withfinancialliabilitiesbasedonundiscounted Refinancing riskismanagedby limiting theamountofborrowing thatmatures withinanyspecified periodandhavingappropriate Outflow Outflow Inflow Inflow Outflow Inflow Inflow Outflow b b d a a CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – c c Carrying year, or on one and two and three and four and After After four and three and twoand oneand year, oron Carrying mutdmn w er he er f three years twoyears demand amount 11,342 ,2 5,828 5,828 5,354 5,354 626 446 117 117 762 6 4 338 244 762 626 446 127 166 £m 5 5 ihno eBtenBtenBtenBetween Between Within one Between ,8 ,8 ,7 6 ,3 10,483 2,134 563 3,578 1,285 7,985 12,894 591 2,542 702 4,353 7,795 ,7 7 2,362 274 1,278 33 35 175 17 23 (3,756) (263) (137) (327) (1,715) (365) (147) (393) (47) (1,318) (337) (393) (113) (409) (113) (409) 8 8 ,0 7 0 4,619 305 177 2,107 482 480 113 414 4 9 5 7 8 4,700 480 1,701 526 478 480 659 696 743 113 414 £m 18 811158 101 18 59 31 £m 18 17 25 – – 18 60 28 15 16 – – – – – – BT GROUP PLC u er v er fiveyears fiveyears our years £m 20 60 621351 211 86 19 5,646 1,537 13 50 13 14 ANNU – – – – – – AL REPORT & FORM £m 20 634 60 40 19 13 119 8 – – – – – – 20-F 133 £m 66 47 30 66 – – – – – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW denominated borrowings denominated borrowings uoadU olrse pFradcrec otat Cashflow Forward currency contracts Euro up andUSdollarstep Cashflow Forward currency contracts Euro up andUSdollarstep Hedged item Hedged item ucaeo Sdla owr urnycnrcsCashflow Forward currency contracts denominated fixed assets dollar Purchase ofUS Cashflow Cashflow Forward currency contracts Forward currency contracts on acquisition Euro deferred consideration denominated fixed assets dollar Purchase ofUS commercial paper Euro andUSdollar Euro andUSdollar The group hedgingactivitiesasat31March hadoutstanding 2008asfollows: a commercial paper Euro andUSdollar Euro andUSdollar The group hedgingactivitiesasat31March hadoutstanding 2009asfollows: Hedging activities pricerisk. The group haslimited exposure to Price riskmanagement andriskmanagementcontinued 33. Financialinstruments STATEMENTS FINANCIAL 134 March 2008realising alossof£26m. 31 whichhadmatured by sale ofcurrency withanotional principalof£512m tax.Thestructureduring the2008financialyearwhichwasmarginally includedaforward earningspositiveafter currency contract for the andmature withinoneyear. Thegroup entered borrowing into alowcost structure $nil) contracts hadanotionalprincipalof$90m(2008: group entered into credit ofitsUSdollardenominated defaultswapcontracts derivativefinancialassets.These to economicallyhedge part movements.The fairvalue from theseswapsisrecognised through butislimited theincomestatement due to anatural offsetintheir 7.6%(2008:8.5%). Thevolatilityarising ataweighted average rate of is 6%(2008:6.9%)andinterest payable weighted average rate of ata is (2008: £1.9bn)andmature between2014 and2030(2008:20142030).Theinterest receivable undertheseswapcontracts (2008: underninemonths).Interest rate swapsnotinhedging relationships underIAS39hadanotionalprincipalamountof£1.9bn for purchases ofcurrency (2008: £295m)andhadamaturity periodofunderninemonths and hadanotionalprincipalamountof£533m relationships inaccordance withIAS39.Foreign currency forward contracts were economicallyhedgingoperational purchases andsales were notinhedging which At 31Marchforeign 2009,thegroup heldcertain currency forward andinterest rate swapcontracts Other derivatives a denominated borrowings interest oncurrency denominated borrowings interest oncurrency e note 16. See note 16. See BT GROUP PLC a a ANNUAL REPORT & FORM a a a a rs urnysasCs o n arvle72725915mnh o2 er Euro receivable at6.0% 5monthsto 22years 1 2,559 7,227 Cashflowandfairvalue Cross currency swaps rs urnysasCs o n arvle64330651t 3yasEuro receivable at5.9% 1to 23years 625 340 6,433 Cashflowandfairvalue Cross currency swaps egn ntuet Hedgetype Hedging instruments Hedgetype Hedging instruments owr urnycnrcsCashflow Forward currency contracts Cashflow Forward currency contracts neetrt wp Cashflow Interest rate swaps neetrt wp Cashflow Interest rate swaps CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – 20-F rnia se Liability Asset principal rnia se Liability Asset principal Notional Notional ,1 4 o2 er Sterling receivable at3.0% 2to 22years 446 – 2,913 ,1 0 o2 er Sterling receivable at6.1% years 23 3to 207 1 2,913 9 7–Ls hn3months Lessthan3 – 17 490 1 esta month 1 Lessthan 1 – 115 2 o5months 5 3to – 9 223 8 o5months 5 3to – 6 182 m£ £ ntuet egn ntuet transaction arises hedginginstruments instruments £m £m £m m£ £ ntuet egn ntuet transaction arises hedginginstruments instruments £m £m £m 01–Lessthan5months – 1 50 51 Lessthan5months – 14 95 8–1Ls hn1month 1 Lessthan 1 – 48 Derivative fairvalue Derivative fairvalue Remaining term Remaining term rolling basis rolling basis rolling basis rolling basis of hedging of hedging US dollarreceivable at7.7% US dollarreceivable at7.7% Sterling payableat7.2% Sterling payableat5.9% Sterling payableat8.6% Sterling payableat5.9% egtdaeae Period over Weighted average egtdaeae Period over Weighted average neetrt nwhichforecast interest rate on neetrt nwhichforecast interest rate on 23 years 22 years 5 years years 4

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW oestakinginto accountmarket rates ofinterest andforeign exchange atthebalancesheetdate. models of thegroup’s swapsandforeign outstanding exchange contracts were amounts,calculated theestimated usingdiscounted cashflow using theappropriate discountrates ineffect atthebalancesheetdates, where market Thefairvalue pricesofsimilarissuesdidnotexist. for thesameorsimilarissueswith thesamematurities where andoncalculationsofthepresent theyexisted, valueoffuture cashflows group’s bonds,debentures, notes, financeleasesandotherlong-term borrowings onthebasisofquoted hasbeenestimated market prices and payablesapproximated maturity oftheamountsreceivable to theirfairvaluesdueto andpayable.Thefairvalueofthe theshort amountoftrade approximatedinvestments receivables maturityheld.Thecarrying oftheinvestments to theirfairvaluesdueto theshort depositsand wereinvestments basedonquoted estimated marketamountoftheshort-term pricesfor Thecarrying thoseinvestments. Thefairvaluesofli be exchanged inacurrent otherthaninaforced transaction betweenwillingparties, liquidationorsale. could atwhichtheinstruments theamount group is balancesheetundertheindicated headings.Thefairvalueofthefinancialinstruments amountsare includedinthe and2008.Thecarrying fairvalueonthebalancesheetat31March 2009 amount whichapproximates to their amountsandfairvaluesofallthegroup’sThe following tabledisclosesthe carrying whichare financialinstruments notcarriedatan Fair valueoffinancialinstruments andriskmanagementcontinued 33. Financialinstruments STATEMENTS FINANCIAL Financial liabilities: itdbns eetrsadnts1,8 ,9 1349,436 11,384 9,298 12,189 Finance leases bonds,debenturesListed andnotes Other loansandborrowings CONSOLIDATED NOTES TO FINANCIALSTATEMENTS THECONSOLIDATED FINANCIALSTATEMENTS – ,8 ,2 ,3 1,690 1,338 1,724 1,386 2009 3 2 6 347 366 320 332 £m Carrying amount Carrying BT GROUP PLC 2008 £m ANNU AL REPORT & FORM 2009 £m sted 20-F Fair value 2008 135 £m

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Share premium account Reserves Statement ofrecognised incomeandexpense Provisions Provision for debts doubtful Own workcapitalised Loans to associates and jointventures Leaver costs Interests inassociates andjointventures Freehold Financial year Finance lease Capital redemption reserve Capital allowances Associates Accounts Term used in UKAnnualReport GLOSSARY OFTERMSANDUSEQUIVALENTS FINANCIAL STATEMENTS 136 BT GROUP PLC ANNU AL REPORT & FORM 20-F Costs of labour engaged in the construction ofplantand oflabourengagedintheconstruction Costs Indebtedness notcurrent ofequityinvestees Termination benefits Securities ofequityinvestees Fiscal year Capital lease Other additionalcapital Tax depreciation Equity investees Financial statements US equivalentordefinition Additional paid-incapitalorsurplus(notdistributable) Comprehensive income Long-term liabilitiesotherthandebtandspecificaccountspayable Allowance for accountsreceivable badanddoubtful equipment for internal use Ownership withabsolute rightsinperpetuity Shareholders’ equityotherthanpaid-upcapital

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW not kept proper accountingrecords, if wehavenotreceived all withtheparentconsistent companyfinancialstatements. our opiniontheinformation oftheDirectors givenintheReport is with theCompaniesAct1985.We to youwhetherin alsoreport Remuneration review havebeenproperly prepared inaccordance whether theparent andthe companyfinancialstatements giveatrueandfairview company financialstatements prior consentinwriting. into whosehandsitmaycomesavewhere expressly agreed byour isshownor purpose orto anyotherpersonto whomthisreport giving thisopinion,acceptorassumeresponsibility for anyother Companies Act1985andfor nootherpurpose.We donot,in members asabodyinaccordance withSection235ofthe opinion, hasbeenprepared for andonlyfor thecompany’s Standards onAuditing(UKandIreland).includingthe Thisreport, relevant requirements legalandregulatory andInternational andtheRemunerationstatements review inaccordance with directors’ responsibilities. Accepted AccountingPractice) are setoutintheStatement of Kingdom AccountingStandards (United KingdomGenerally inaccordancefinancial statements withapplicablelawandUnited R The directors’ responsibilities for preparing the theAnnualReport, andauditors Respective responsibilities ofdirectors This separate issetout report ofBTstatements Group plcfor theyearended31March 2009. ‘Remuneration review’). been audited (the ondirectors’the Report remuneration thatisdescribedashaving out on out therein. Theseparent are companyfinancialstatements set havebeenpreparedstatements undertheaccountingpoliciesset Group plcaccountingpolicies.Theseparent companyfinancial balancesheet,therelated footnotes andtheBT BT Group plc whichcomprisethe Group plcfor theyearended31March 2009, We haveaudited theparent ofBT companyfinancialstatements (the‘company’) BT Group plc to themembersof Independent auditors’ report PARENT COMPANYREPORT OFTHEINDEPENDENTAUDITORS – FINANCIAL STATEMENTS Our responsibilities to donot extend anyotherinformation. withtheparentinconsistencies companyfinancialstatements. become aware ofanyapparent ormaterial misstatements BT Group plc.We considertheimplicationsfor ifwe ourreport Remuneration review andparent of companyfinancial statements except for theconsolidated the financialstatements, comprises allinformation on setoutinthecontents listing parent Theotherinformation companyfinancial statements. Form withtheaudited 20-Fandconsiderwhetheritisconsistent and othertransactions isnotdisclosed. information specifiedbylawregarding directors’ remuneration the information andexplanationswerequire for ouraudit,orif eport ondirectors’ remunerationeport andtheparent company We read otherinformation and containedintheAnnualReport to youif,In additionwereport inouropinion,thecompanyhas We to yououropinionasto whethertheparent report Our responsibility isto audittheparent companyfinancial We separately havereported ontheconsolidated financial ae 3 o141. to 138 pages We havealsoaudited theinformation in npg 77. on page ae1, page In ouropinion: Opinion andtheRemunerationstatements review. presentation ofinformation intheparent companyfinancial our opinionwealsoevaluated theoverall adequacyofthe whether causedbyfraud orother irregularity orerror. Informing Remuneration review are free from material misstatement, the assurance thattheparent and companyfinancialstatements order to provide uswithsufficientevidenceto givereasonable information in andexplanationswhich weconsidered necessary circumstances, appliedandadequately consistently disclosed. accounting policiesare appropriate to thecompany’s parent andofwhetherthe companyfinancialstatements, judgements madebythedirectors inthepreparation ofthe and also includesanassessmentofthesignificantestimates andtheRemunerationcompany financialstatements review. It evidence relevant to theamountsanddisclosures intheparent Practices Board. basis,of Anauditincludesexamination,onatest S We conducted ourauditinaccordance withInternational Basis ofauditopinion 13 May2009 London, United Kingdom AccountantsandRegisteredChartered Auditors LLP PricewaterhouseCoopers tandards onAuditing(UKandIreland) issuedbytheAuditing Accounting Practice, ofthecompany’s ofthestate affairsasat view, inaccordance withUnited KingdomGenerally Accepted the par with theparent companyfinancialstatements. the information oftheDirectors givenintheReport isconsistent Companies Act1985;and review havebeenproperly prepared inaccordance withthe the parent andtheRemuneration companyfinancialstatements 31 March 2009; We ourauditsoasto plannedandperformed obtainallthe ent company financial statements giveatrueandfair ent companyfinancialstatements BT GROUP PLC ANNUAL REPORT & FORM 20-F 137

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW taxable profits from whichtheunderlyingtiming differences can isregarded asmore likely thannotthatthere willbesufficient it sheet date. Deferred taxassetsare recognised to that theextent diff Full provision ismadefor deferred taxationonalltiming Taxation (iii) value maynotberecoverable. r are and atcost stated undertakings insubsidiary Investments undertakings insubsidiary Investments (ii) instruments. providing itsdisclosure requirements inrespect ofitsfinancial Consequently, thecompanyisexempted byFRS29from Disclosures’.which complywithFRS29,‘FinancialInstruments: disclosures containfinancialinstrument 2009 March ended 31 transactions withothermembersoftheBT Group. notto disclose exemption inFRS8,‘Related Disclosures’, Party Consequently, thecompanyhastaken advantageofthe disclosures. containrelated party 2009 year ended31March own cashflowstatement. notto present its 1,‘CashFlowStatements’, exemption inFRS flows. Consequently, thecompanyhastaken advantageofthe containaconsolidated ofcash statement 2009 ended 31March company’s profit andlossaccounthasnotbeenpresented. atfairvalue. financialinstruments revaluation ofcertain conventionasmodifiedbythe cost and underthehistorical Principles(UKGAAP). Accounting been prepared inaccordance withUKGenerally Accepted Companies Act1985.Theseparate have financialstatements ofthecompanyarestatements presented asrequired bythe t andassociatedAs usedinthesefinancialstatements notes, the Accountingbasis (i) BT Group plcaccountingpolicies FINANCIAL STATEMENTS OFBT GROUP PLC FINANCIAL STATEMENTS 138 presented asadeductionfrom shareholders’ equityatcost. company ar sharesOrdinary are classified asequity. Repurchased shares ofthe Share capital (v) dividends whenauthorisedingeneral meetingsbyshareholders. Interim dividends are recognised whentheyare paid;final which thedividendsar areDividend distributions recognised asaliabilityintheyear Dividends (iv) be deducted. Thedeferred taxbalancesare notdiscounted. eviewed for impairmentifthere are indicators thatthecarrying r cmay eesto BT Group plc.Theseseparate financial erm ‘company’refers The BT Group plcconsolidated for financialstatements the The BT Group plcconsolidated for financialstatements theyear As permitted bySection230(3)oftheCompaniesAct1985, areThe financialstatements prepared onagoingconcernbasis The BT Group plcconsolidated for financialstatements theyear erences whichhavearisenbutnotreversed atthe balance BT GROUP PLC e recorded shares inthebalancesheetastreasury and ANNU AL REPORT & FORM e approved bythecompany’s shareholders. 20-F these financialstatements. (2008:£805m)hasnotbeenincludedin approximately £85m the AnnualGeneral Meetingandtherefore theliabilityof pence).Thisdividendissubjectto shareholder approval at 15.8 pence(2008: 6.5 financialyearto 2009 dividend inrespect ofthe 2009,takingthefullyearproposed 7September shareholders on the yearended31Mar The directors are proposing thatafinaldividendinrespect of Dividends (i) Other information period. over thevesting value ofoptionsandawards atthedate ofgrant andisrecognised additional capitalcontributionisdetermined basedonthefair corresponding increase inequityshareholders’ funds.The company’s insubsidiariesisrecorded investment witha capital contributionsto itssubsidiaries.Anadditionto the awards to employeesofitssubsidiariesrepresents additional are recharged to thatcompany. company’s principalsubsidiary, BritishTelecommunications plc, year. provided to the relating services Thecosts to qualifying the onlyemployeesofcompanyduring2009 Group plcwere executive directors andtheChairmanofBT The Employees (ii) However The companydoesnotincuracharge for share basedpayments. Share basedpayments (vii) demand. bankdepositsrepayable on and Cash includescashinhand Cash (vi) theissuancebycompanyofshare optionsand , h20 f11pencewillbepaidto 1.1 of 2009 ch financial

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW d c b a Total funds equityshareholders’ Profit andlossaccount Treasury shares reserve Capital redemption reserve Share premium account Called upshare capital Capital andreserves Total assetslesscurrent liabilities Net current assets Creditors: amountsfallingduewithinoneyear Total current assets Debtors Current assets Total fixed assets undertakings insubsidiary Investments Fixed assets Group FinanceDirector Tony Chanmugam Chief Executive Ian Livingston Chairman Sir MichaelRake signed onitsbehalfby ofthecompanyon The financialstatements BT Group plccompanybalancesheet FINANCIAL STATEMENTS Cash atbankandinhand Capital and reserves areCapital andreserves shownon of£142m(2008:£996m). undertakings ofamountsowedbysubsidiary Debtors consists March at31 SA 2S Limited, acompanyregistered Investments inEnglandandWales. inNet Thecompanyalsohelda91%investment Throughout inBT 2009,thecompany helda100%investment Group rdtr ossso mut wdt usdayudraig f£5 20:£m n othercreditors of£50m(2008:£176m). and of£15m(2008:£8m) undertakings Creditors ofamountsowedto subsidiary consists (2009: £31m,2008:£73m). March 2009for a on25 SA theBT Group to BT France relates to additionalcapitalcontributionsinrespect undertakings ofshare basedpayments insubsidiary changeto investments within Theremaining sellingtheinvestment consideration of£64mandaprofit whichitincreasedondisposalof£11m. to 98.9%in2009before April2009), on1 SA (acompanywhichchangeditsnameto BT Services 2008 b d ae140. page FINANCIAL STATEMENTS OFBT GROUP PLC a c ae 3 o141 to 138 pages eeapoe ytebado h ietr n1 a 09andwere 2009 May 13 were approved bytheboard ofthedirectors on BT GROUP PLC ANNUAL REPORT & FORM 02811,010 10,258 11,010 10,258 10,182 10,168 08012,356 10,870 01810,182 10,168 119 (1,843) (1,109) 2009 408 1,012 155 142 £m 27 62 90 13 65 20-F 2008 420 828 996 184 139 £m 15 62 16

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW d c b a At 31March 2009 At 1April2008 At 1April2007 BT Group plccompanybalancesheetcontinued FINANCIAL STATEMENTS 140 Profit for thefinancialyear Profit for thefinancialyear Dividends paid Dividends paid Capital contributioninrespect ofshare Capital contributioninrespect ofshare Net purchaseshares oftreasury Net purchaseshares oftreasury Cancellation ofshares Cancellation ofshares Arising onshare issues The profit for thefinancialyear, was£502m(2008:£3,497m).Aspermittedby undertakings, from takingintoaccountdividends dealtwithintheprofit subsidiary andlossaccountofthecompanyafter uig20,tecmayrprhsd126825(08 3,5,9)o t w hrso pec,rpeetn %(08 6%)ofthecalled-upshare capital,for consideration (includingtransaction 2%(2008: 539,657,691)ofitsownshares of5peach,representing (2008: 142,608,225 thecompanyrepurchased 2009, During h hr rmu con,rpeetn h rmu nalteto hrs sntaalbefrdsrbto.Temvmn nsaepeimaoe n20,from shares issuedinconsideration for the The share premium account,representing thepremium onallotmentof shares, isnotavailableforshare Themovementin distribution. premium arose, in2008, The authorised share capital of the company throughout 2009 and 2008 was £13,463m, representing 269,260,253,468 ordinary shares of 5p each. The allotted, called up and fully paid ordinary share Theallotted, calledupandfullypaidordinary representing shares 269,260,253,468ordinary of5peach. was£13,463m, 2008 and 2009 The authorisedshare capital ofthecompanythroughout Section 230oftheCompaniesAct1985,noprofit andlossaccountofthecompanyispresented. 16 20:£7) n 5,0,0 rauysae 20:200000 eecnelda oto 77 20:£7m.A 1Mrh200 £570m).At 31March (2008: were of£797m cancelledat a cost aggregate nominal valueof£20m(2008:£30m)areshares heldastreasury atcost. (2008:250,000,000) shares treasury 250,000,000 and (2008:£97m), £126m obligations 53,250,144)were issuedfromtosatisfy treasury shares (2008: 90,626,518 Inaddition, (2008:£1,626m). of£189m costs) issued to satisfy thoseexercises.issued tosatisfy SAon1April2009),andfromacquisition ofNet2SSA(acompanywhichchangeditsnametoBT theexcess Services ofproceeds received ontheexercise shares ofshare oftreasury optionsversusthecost 31 March 2009, nil ordinary shares ordinary (2008:21m)wereto meetoptionsgranted reserved underemployeeshare optionschemes. nil 2009, 8,401,227,029).Oftheauthorisedbutunissuedshare capitalat March shares ordinary of5peach(2008: 31 8,151,227,029 £420m),representing was£408m(2008: 2009 capital ofthecompanyat31March based payments based payments BT GROUP PLC ANNU AL REPORT & FORM FINANCIAL STATEMENTS OFBT GROUP PLC 20-F capital hr hr rmu eepinTesr andloss Treasury redemption Share premium Share 408 420 432 (13) (12) m£ m£ m£m £m £m £m £m £m 1 – – – – – – – – a account 62 62 31 3 1–––3 – – – – – – – – – – b eev reserve reserve Capital 7(,0)1,7 10,258 10,870 (1,109) 11,010 27 12,356 (1,843) 15 13 12 2 – – – – – – (1,529) – – under employeeshare schemesandexecutive share awards of atacost ,492685shares (2008:607,285,178)withan 409,226,885 9, 84 05710,178 10,597 (884) 570 797 (63) – 3,497 3,497 – 121 (1,241) (1,241) – 122 (1,222) (1,222) – – – c account Profit (570) (797) 502 73 31 (1,529) – – c,d Total 502 (63) 73 31 2 – –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW i h g f e d c b Subsidiary undertakings Subsidiary unlisted, unless otherwise stated. Nosubsidiariesare stated. excluded from unlessotherwise unlisted, thegroup consolidation. ain mrcsInc Radianz Americas Inc INS BT BT HongKongLimited 100%ordinary SA BT France andproducts Communicationrelated provider services BT ESPANA, Globalesde CompaniadeServicios BT Australasia PtyLimited Inc BT Americas BT Limited USInvestments Pte Ltd BT Singapore SA BT Services BV BT Professional Nederland Services BT Limited Payment Services NV BT Nederland BT Limited SpA BT Italia BT Infrastructures Critiques BT HoldingsLimited LimitedBT GlobalServices BT GlobalCommunicationsIndiaPrivate Limited oHG Co BT (Germany)GmbH& Pte Ltd BT Frontline BT FleetLimited BT Convergent SolutionsLimited BT Conferencing VideoInc Inc BT Conferencing BT CommunicationsIreland Limited BT Centre Nominee2Limited British Telecommunications plc Limited Computing Basilica briefdetailsofthegroup’s principal belowgive The tables SUBSIDIARY UNDERTAKINGS ANDASSOCIATE FINANCIAL STATEMENTS l k j Tech Mahindra Limited a Infonet USACorporation CorporationInfonet Services dabs.com plc (UK) Communications NetworkingServices Limited Communications GlobalNetworkServices Associate Incorporated in the country ofoperations.Incorporated inthe country stated. Issued share orcommonshares, capitalcomprisesordinary unlessotherwise Held through intermediate holdingcompany. n1Arl20,B nrsrcue rtqe odisbsns n e sest e2 A e2 Acagdisnm oB evcsS n1April2009. on1 SA changeditsnameto BT Services SA Net2S SA. April2009, BT Infrastructures Critiquessolditsbusinessandnetassetsto Net2S On 1 In April2008,Frontline Ltd. Technologies Corporation Limited changeditsnameto BT Frontline Pte changed itsnameto BT Conferencing VideoInc. Wire OneCommunicationsInc In June2008, April2009. BT Lynx Limited changeditsnameto BTOn 1April2009,BasilicaComputingLimited EngageLimited solditsbusinessandnetassetsto on1 BT Lynx Limited. Held through anintermediate holdingcompany. thathavea significantimpactontherevenue, profit or entities those therefore Thelist list. includesonly entitiesanditisnotpractical to includealloftheminthis The group comprisesalarge numberof The proportion ofvotingrightsheldcorrespondsThe proportion to theaggregate undertakings. interest percentage heldbytheholdingcompanyandsubsidiary Communications Global Network Services Limited whichare incorporatedCommunications GlobalNetworkServices intheUSAandBermudarespectively. and Inc operating internationally are are undertakings allincorporated ofoperations. incorporatedAll overseasundertakings Subsidiary inEnglandandWales, intheircountry except BT Americas objectives. October inorder to meetitscorporate March, except for BT date to Limited 31 whichchangeditsreporting USInvestments The principaloperating date of31 above)haveareporting subsidiaries(listed assets ofthegroup. ofsubsidiaries,jointventures Afulllist andassociates willbeannexed to thecompany’s annualreturn next filedwiththeRegistrar ofCompanies. eeomnccoe,SA Telecommunicaciones, e e e e e e,i d,e e e e,h e e e e e e e g e b,e e,i e,f e e e e e e e e Tssesitgao n rnfraincnutnypoie 2,3,3 34.5% 121,733,634 integratorIT systems andtransformation consultancyprovider Activity e e e d,e Activity omncto eae evcsadpout rvdr10 riayInternational 100%ordinary Singapore 100%ordinary provider Global managednetworkservice Technology equipmentretailer and productsCommunication related provider services 100%ordinary and productsCommunication related provider services Netherlands holdingcompany Investment and productsCommunications related provider services 100%ordinary Technology consultingandengineeringservices International Systems integration andapplicationdevelopment 97.3%ordinary providerPayment services 100%ordinary and productsCommunication related provider services International telecommunication provider networksystems HongKong 100%common and productsCommunication related provider services solutions provider 100% ordinary Information telecommunication consultingandsoftware Germany andnetworkproviderIT systems Singapore and productsCommunication related provider services 100%ordinary holdingcompany Investment 100%ordinary International telecommunication provider networksystems 100%ordinary Communications related services and productsCommunications related provider services 100%ordinary and productsCommunications related provider services products provider integration systems Communications related and services, 100%ordinary Fleet managementcompany Australia andproductsCommunications related provider services providerAudio, videoandwebcollaboration services providerAudio, videoandwebcollaboration services 100%ordinary Telecommunication provider service International holdingcompany Property 100%common 100%ordinary andproductsCommunication related provider services products provider integration systems Communication related and services, andproductsCommunication related provider services IT solutionsprovider Global managed network service provider Global managednetworkservice provider Global managednetworkservice a operating subsidiaries b n soit at31March 2009.Allsubsidiariesare and associate BT GROUP PLC Issued 100% preference in allotted capital Group interest j 100% common 100% preference 100% ordinary 100% ordinary 100% common 100% common 100% ordinary 100% ordinary 100% ordinary 100% preference 100% common 100% common 100% ordinary Netherlands 98.9% ordinary 100% ordinary 100% ordinary 100% ordinary 100% ordinary 100% ordinary ANNU Share capital ecnaeCountry Percentage AL REPORT & FORM owned c l of operations of operations 20-F Country Ireland France France France Jersey Spain India India Italy USA USA USA USA USA USA 141 UK UK UK UK UK UK UK UK UK UK d k

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Other operating income Other operating income Share taxprofits ofpost ofassociates andjointventures Other operating income 142 QUARTERLY PROFIT ANALYSIS OFREVENUEAND Diluted earningspershare before specificitems Basic earningspershare before specificitems Profit before specificitems andtaxation Basic earningspershare Profit for theperiod Profit before taxation Operating profit Operating costs Revenue a Diluted earnings(loss)pershare before specificitems basicearningspershareAdjusted Basic earnings(loss)pershare before specificitems Profit (loss)before specificitems andtaxation pershare (loss)earnings Diluted pershare (loss)earnings Basic for theperiod (Loss) profit Taxation before taxation (Loss) profit Net financeexpense (loss) Operating profit Operating costs Revenue FINANCIAL STATEMENTS Basic earningspershare before specificitems Profit before specificitems andtaxation Diluted earningspershare Basic earningspershare Profit for theperiod Profit before taxation Operating profit Operating costs Revenue Year ended31March 2009 Diluted earningspershare before specific items Taxation Profit ondisposalofassociate Net finance(expense)income Diluted earningspershare Taxation Share taxlossesofassociates andjointventures ofpost Net financeexpense Year ended31March 2007 Year ended31March 2008 Share taxprofits ofpost ofassociates andjointventures Profit (loss)ondisposalofassociate Adjusted resultsAdjusted refer to theamountsbefore contract andfinancialreview charges recorded andspecificitems. withinBT GlobalServices BT GROUP PLC ANNUAL REPORT & FORM a 20-F Quarters Quarters Quarters 465 470 524 669 ( (6,689) (5,264) (4,740) (4,625) 425 434 466 (4,700) (4,626) (4,334) (4,255) (4,963) (4,646) (4,647) (4,441) ,7 ,0 ,3 5,473 5,437 5,303 5,177 ,6 ,4 ,2 5,292 5,126 4,941 4,864 5,422 5,154 5,095 5,033 10 19 10 (151) (180) (116) (159) (115) (130) 11 (154) (151) 5.8p 5.9p 7.4p 7.2p 5.3p 5.4p 5.1p 5.1p 5.6p 5.5p 5.6p 5.4p 5.5p 650 608 540 398 513 642 615 464 615 659 600 658 (46) (55) m£ m£ £m £m £m £m £m £m £m s n r t Total 4th 3rd 2nd 1st 1st 1st 90 50 66 (3) 1 8 2571 – – 5.5p 5.6p 5.2p 5.2p .p17.1p 5.7p 17.6p 5.6p 5.7p 5.6p 5.7p 4.2p 5.6p 5.6p 4.1p 107 554 400 516 670 632 1,458 475 629 659 617 339 435 521 2nd 2nd (55) (96) (134) (92) £m £m Unaudited Unaudited Unaudited 52 73 20 (3) 5 9 .p(8.5)p (8.5)p 0.8p (12.6)p 0.8p (12.6)p 1.3p 1.3p 5.6p 5.6p 5.7p 4.5p 3.9p 5.5p 4.4p 1 (1,279) 116 (1,145) 244 616 819 639 555 581 365 447 582 (19) (82) 3rd 3rd £m £m 52 71 55 74 0(936) 80 97 77 (2) 1 – (976) (146) 5.3p 5.5p 5.8p 6.4p 6.5p 5.4p 3.6p 5.6p 5.3p 303 455 136 632 601 668 658 426 494 595 4th 4th (97) (70) (68) £m £m 17 71 76 (3) (1) 2 (17,915) (18,697) 21,390 20,223 20,704 21,318) (1.1 (1.1 2,852 2,495 2,484 2,541 2,506 1,738 1,976 2,356 33.6p 34.4p 22.7p 23.4p 23.9p 21.5p 18.4p 22.2p 21.1p (620) (134) (378) (238) Total Total 3.2p 3.2p 233 349 238 411 339 368 (81) (94) (11) £m £m 53 75 15 22 ) ) 9 p p

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW c b Before specificitems ofassociates andjointventures Share taxprofits ofpost (losses) Before specificitems specificitems before taxationand profit (Loss) Specific items Contract andfinancialreview charges (Loss) profit before taxation Before specificitems Operating profit Other operating income Revenue ofgroup incomestatement Summary the IASBandIFRSasadopted bytheEU. The group’s consolidated for financialstatements 2009,2008,2007,2006and2005were prepared inaccordance withIFRSasissuedby FINANCIALDATASELECTED FINANCIAL STATEMENTS d 8,581 dilutedAdjusted earnings pershare 8,524 earningspershare basic Adjusted profitAdjusted before taxation 8,537 8,422 8,479 8,293 The following tablereconciles (loss)profit before taxationto profit adjusted before taxation, 8,223 a 8,066 Dividends pershare, cents Dividends pershare 7,771 7,724 Diluted (loss)earningspershare Basic (loss)earningspershare Average numberofshares usedindiluted earningspershare (millions) Average numberofshares usedinbasicearningspershare (millions) Year ended31March Specific items Specific items Year ended31March Specific items Before specificitems Taxation Specific items Net financeexpensebefore specificitems Net financeexpense Specific items Operating costs Before specificitems for theyear (Loss)profit specificitems – Profit ondisposalofassociates andjointventures Specific items requirements definedunderIFRS.Therationale for usingnon-GAAP measures isexplained on the contract andfinancialreview charges recorded andspecificitems withinBT andare ‘non-GAAPmeasures’ Global Services provided inadditionto thedisclosure before resultsAdjusted refer to theresults A definitionofspecificitems isprovided intheaccountingpoliciessectionon Dividends pershare represents thedividendproposed inrespect oftherelevant financialyear. UnderIFRS,dividendsare recognised asadeductionfrom shareholders’ equitywhentheyare paid. Based onactual dividendspaidand/oryearendexchange rate onproposed dividends. ismeasured withthewayfinancialperformance consistent bymanagement. a a a a a a c a a a a a b,c d d d a ae79. page a The directors believethesemeasures provide amore meaningfulanalysisofthetrading results ofthegroup andare pages 33, 2,1)(867 1,1)(726 (15,988) (17,246) (17,915) (18,697) (21,318) 1302,0 0231,1 18,429 19,514 20,223 20,704 21,390 11p2.p3.p1.p21.3p 21.5p 18.1p 18.4p 33.6p 34.4p 21.1p 21.5p (1.1)p (1.1)p 1,639 ,7 ,0 ,9 ,7 2,080 2,177 2,495 2,506 1,877 84 39 27 95 18.1p 19.5p 22.7p 23.9p 18.4p 84 34 22 92 17.9p 19.2p 22.2p 23.4p 18.4p 2009 2009 60 (378) (620) 14 ,7 ,8 ,4 2,354 2,040 2,484 1,976 (134) 14 ,7 ,8 ,4 2,354 2,040 2,484 1,976 (134) 60 38 23 42 (599) (472) (138) (233) (172) (378) (539) (620) (408) 39 (187) (329) (530) (372) .p1.p1.p1.p10.4p 11.9p 15.1p 15.8p 6.5p 47 and48. .c3.c2.c2.c19.5c 20.7c 29.7c 31.4c 9.3c 372 339 1 ,5 ,4 ,9 2,992 2,693 2,495 2,633 2,541 2,713 2,356 2,895 411 819 4 ,2 ,8 ,4 1,539 1,644 1,884 2,080 1,925 2,177 248 2,495 2,506 238 8)1782821581,829 1,548 2,852 1,738 (81) £m 75 3 39 53 43 10 6–––– –92 ––1 d an additionalnon-GAAPmeasure usedin2009. 0820 062005 2006 2007 2008 0820 062005 2006 2007 2008 (238) 51 61 53 (541) (533) (611) (581) 530 349 343 (11) (11) £m – BT GROUP PLC 968 233 368 979 9)(7)(599) (472) (94) 1)(137) (11) £m 3 11 15 15 21– 9–– – ANNUAL REPORT & FORM 42 (525) (492) 137 227 (96) £m 16 16 41 20-F (274) 274 299 290 551 143 (39) (39) £m 16

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Minority interests Called upshare capital 144 Total equity Total parent equity shareholders’ Share premium account Total assetslessliabilities Other noncurrent liabilities Retirement benefitobligations Non current loansandotherborrowings Total assetslesscurrent liabilities Other noncurrent assets Retirement benefitasset Property, plantandequipment Intangible assets ofgroup balancesheet Summary Cash andcashequivalentsattheendofyear incashandequivalents increase Net (decrease) Effect ofexchange rate changesoncashandequivalents Net cashusedinfinancingactivities inflowfrom activities Net cash(outflow) investing Net cashinflowfrom operating activities ofgroup cashflowstatement Summary FINANCIAL STATEMENTS urn sesls urn iblte 339 311 377 303 (2,783) (3,063) (3,757) (3,181) (3,339) Current assetslesscurrent liabilities At 31March Year ended31March Other reserves Capital redemption reserve oftheyear Cash andcashequivalentsatthestart Retained (loss)earnings BT GROUP PLC ANNUAL REPORT & FORM SELECTED FINANCIALDATASELECTED 20-F 1,6)(,1)(,8)(,9)(7,744) (7,995) (6,387) (9,818) (12,365) 9921,4 4531,2 15,429 15,220 14,583 19,648 19,922 3212,2 8301,8 18,212 18,283 18,340 22,829 23,261 5451,0 4971,2 15,266 15,222 14,997 15,307 15,405 (3,973) (3,529) (5,278) (2,898) (2,778) (1,430) (3,664) (1,865) (2,954) 345 438 355 301 (2,783) (3,071) (3,535) (4,398) (3,415) 166 ,3 3,685 5,439 (1,656) ,1 1,174 1,115 ,8 ,5 ,8 ,0 1,379 1,908 2,584 1,280 3,355 4,068 5,574 3,788 5,387 5,210 5,486 4,706 1,174 1,301 2009 2009 408 6 ,3 ,7 1,607 1,555 4,272 4,238 5,432 1,607 5,409 169 4,272 142 5,432 169 (59) m£ m£ £m £m £m £m £m £m £m £m £m £m 27 54 62 27 2,88 – 0820 062005 2006 2007 2008 2005 2006 2007 2008 (527) 420 417 5 1,258 757 23 25 62 1 7––– 5222 – (501) 39 257 (4,807) (2,547) (389) 5 ,5 1,567 1,153 759 1,258 757 432 (35) 34 31 88 1 (1,843) 214 432 935 323 5 (1,154) 750 364 52 7 – 935 432 733 202 762 95 45 95 50 3 –

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW d c b a and software onpurchase ofproperty,Cash outflow plantandequipment inpayables increase (Decrease) Total expenditure onproperty, plantandequipment Land andbuildings Plant andequipment Expenditure onproperty, plantandequipmentsoftware Total Research anddevelopmentexpense Expenditure onresearch anddevelopment interestReported cover times(unaudited) – –pence basicearningspershare Adjusted Financial ratios FINANCIAL STATISTICS FINANCIAL STATEMENTS Amor Reported returnReported oncapitalemployed(unaudited) returnAdjusted oncapitalemployed(unaudited) basic(loss)earningspershareReported –pence dutditrs oe eoentpninfiac income interestAdjusted coverbefore netpensionfinance nrae(erae inengineeringstores Increase (decrease) The ratio isbasedonprofit before taxationandnetfinanceexpenseto average capitalemployed.Capitalemployedisrepresented bytotal assetslesscurrent liabilities(excluding corporation tax,current resultsAdjusted refer to theresults excluding thecontract andfinancialreview charges recorded andspecificitems. withinBT GlobalServices h ubro ie e nneepnebfr e eso nneicm scvrdb dutdoperating profit. adjusted The numberoftimesnetfinanceexpensebefore netpension financeincomeiscovered by h numberoftimesnetfinanceexpenseiscovered bytotal operating profit. The borrowings, derivativefinancial liabilitiesandfinanceleasecreditors) lessdeferred financialassetsandinvestments. taxassets,cashandequivalents,derivative Exchange equipment T Computers andofficeequipment Other networkequipment Motor vehiclesandother ransmission equipment tisation ofinternally developedcomputer software d times(unaudited) – a d a, b b c 1,021 ,8 ,1 ,9 ,4 3,056 3,011 2,940 3,142 3,298 3,247 3,315 3,339 3,082 3,088 ,8 ,5 ,6 ,5 3,004 3,157 3,268 3,350 3,085 ,6 ,1 ,0 ,2 1,488 1,429 1,209 1,117 1,067 2009 2009 2009 15.1 18.4 11 21.5 (1.1) 140 431 590 9 1,060 899 912 2.6 0.7 2.9 £m £m 44 23 (6) 3 0820 062005 2006 2007 2008 0820 062005 2006 2007 2008 0820 062005 2006 2007 2008 17.7 23.9 14.4 181 857 325 532 876 (24) (11) 3.6 6.2 £m £m 83 33 BT GROUP PLC 17.6 34.4 22.7 27.0 16.5 149 854 118 692 314 378 877 (21) 4.2 £m £m 51 61 ANNU AL REPORT & FORM (202) 18.1 18.4 19.5 17.1 138 727 487 161 326 715 (15) 3.6 5.3 £m £m 80 68 20-F 18.2 21.5 18.1 20.0 187 648 143 352 257 474 145 3.4 5.0 £m £m 45 64 95 7

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 146 c b a (UK): lines Broadband Total employees(000) BT Group (lines) Wholesale linerental Full andshared unbundledlocalloops Openreach (UK)(Non-BT ISPs) lines Broadband % consumercontracted revenues Total salesorder value(£m) salesorderNetworked value(£m) ITservices BT GlobalServices As at31March stated. All values(’000)unlessotherwise OPERATIONAL STATISTICS FINANCIAL STATEMENTS Br (UK) lines Broadband BT Retail Other order intake (£m) Exchange lines(UK): vrg nulrvneprcnue oshl sr(ARPU) user consumerhousehold Average annualrevenue per BT base Visioninstalled Exchange lines(UK) BT Wholesale oln 2mnhorder intake. Rolling 12month Rolling 12monthconsumerrevenue, lessmobilePOLOs, lines. dividedbyaverage numberofprimary Includes linerental,andpackages. broadband, selectservices abn ie (UK):BT’s retail share base ofinstalled lines oadband Total exchange lines lines Total broadband Openreach BT Wholesale BT Retail Openreach BT Retail BT GROUP PLC ANNUAL REPORT & FORM a a c 20-F a b (£) 6322,0 8172,8 28,904 28,583 5,064 28,127 8,116 27,209 10,737 26,312 12,685 13,811 0652,4 3902,0 27,878 25,709 23,900 22,543 20,665 0652,4 3902,0 27,878 25,709 23,900 22,543 20,665 ,4 ,2 ,9 ,9 9,626 8,998 9,299 8,025 8,044 0. 1. 0. 0. 102.1 104.4 106.2 111.9 107.0 ,4 ,6 ,2 ,7 1,026 2,874 3,243 4,227 5,092 1,910 4,666 5,168 4,300 5,647 3,983 5,749 3,305 ,5 ,0 ,5 ,6 1,780 2,668 2,465 7,161 3,659 3,607 5,391 4,402 4,090 5,209 4,757 3,040 4,985 2,571 5,473 ,0 ,8 ,6 ,9 3,243 1,780 5,092 2,668 1,910 5,168 3,659 4,300 3,983 4,402 5,749 3,305 4,757 ,4 ,6 ,2 ,7 1,026 2,874 4,227 4,666 5,647 2009 34% 71% 287 423 0820 062005 2006 2007 2008 35% 70% 274 21 4––– Unaudited 34% 68% 262 33% 67% 356 356 251 35% 64% 254 41 41

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ADDITIONAL INFORMATION 6 INDEX 166 GLOSSARY OFTERMS 163 CROSS REFERENCETO FORM 160 INFORMATION FORSHAREHOLDERS 148 20-F BT GROUP PLC ANNUAL REPORT & FORM 20-F 147

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW ‘anticipates’, ‘intends’, ‘will’,‘should’orsimilarexpressions. or thatincludethewords ‘aims’,‘believes’,‘expects’, providers; andthosepreceded service by,third-party followed by, for andaccessto broadband andthepromotion ofbroadband by andrefinancing requirements; demand of capital;financingplans (including expected reductions incapital expenditure); adequacy and jointventures; capitalexpenditure plans andinvestment assumed future results ofoperations and/orthoseofitsassociates to Ofcom undertheEnterpriseUndertakings Act;BT’s possibleor the UKfixed wholesaleandretail businessesand theimpactof initiativesonoperations,regulatory includingtheregulation of andquality;theimpactof networkperformance services; 21CN;plansfor thelaunchofnewproducts and development and broadband networked andmobility;BT’s ITservices, network in opportunities regarding theconvergence oftechnologies; growth competition, market shares, expectations pricesandgrowth; expectationsregardingadvantage ofthoseopportunities; andBT’sthe communicationsindustry positioning to take of, growth availablein, andopportunities and operating costs; savings;expectedexpected reductions cost incapitalexpenditure net financeexpenseonpensionobligations;dividendspershare; expected levelsof expected levelsoffree cashflow; leaver costs; EBITDAbefore specificitems and revenue; those concerning: yet determinable. include,withoutlimitation, Thesestatements based onforecasts offuture results ofamountsnot andestimates relatestatements to analysesandotherinformation whichare Private SecuritiesLitigationReform Actof1995.These are madeinreliance onthesafe harbourprovisions oftheUS are inthisannualreport forward-looking statements and Certain forward-looking statements regarding statement Cautionary INFORMATION FORSHAREHOLDERS ADDITIONAL INFORMATION 148 BT GROUP PLC ANNUAL REPORT & FORM 20-F revised operating modelandrestructuring plannotbeing ofBT Global Services’ aims contracts proving unreliable; the madeinrespectassumptions andestimates ofmajorcustomer theunderlying currency exchange rates andinterest rates; BT fluctuations inforeign anditsprincipalproducts andservices; communications markets; significant changesinmarket shares for incertain andprofitability ofBT thetimingofentry other costs; or conditions resulting staff inamaterial increase inovertime, convergence oftechnologies; prolonged adverseweather notbeingrealised; developmentsinthe products andservices the anticipated benefitsandadvantagesofnewtechnologies, need to increase expenditures for improving thequalityofservice; ofdevelopingnewproducts,cost networksandsolutionsthe technological innovations,includingthe products andservices; oftheappropriate trading andmarketing modelsfor its BT operating areas, includingcompetitionfrom others;selectionby byBT; futureserved actionsandconditionsinits regulatory material adversechangesineconomicconditionsthemarkets forward-looking include,butare statements notlimited to: differences betweenactual results andthoseimpliedbythe these forward-looking Factors statements. thatcouldcause results maydiffer materially from thoseexpressed orimpliedby actual involverisksanduncertainties, Because thesestatements assurance thattheseexpectations willprove to havebeencorrect. forward-looking are statements reasonable, itcangiveno Although BT believesthattheexpectationsreflected inthese or otherwise. whetherasaresultstatements ofnewinformation, future events BT noobligationto update undertakes anyforward-looking limitation, in in more detailelsewhereincluding,without inthisannualreport ofthesefactorsand abilityto are raise discussed finance.Certain general financialmarket conditionsaffecting BT’s performance and ofthepensionfundactuarial valuation; theresults achieved; Principal risksanduncertainties on ae 9to 31. pages 29

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW codnl,frCTcluain,tebs oto TGopsae n O Accordingly, for ofBT CGTcalculations,thebasecost Group shares and shares. 27p epciey hsmasta,o h oa cmie)vleo 6.0,7.4%i trbtbet TGopad2.5%t O 82.75p, respectively. Thismeansthat,ofthetotal (combined)valueof368.50p,77.544%isattributable to BT Group and22.456%to shareholding by77.544%and22.456%,respectively. opst tape. composite LondonStock ontheNewYork closingsalespricesofADSs,asreported Exchange andlowest andthehighest Stock Exchange the closingmiddlemarketThe pricesare andlowest thehighest pricesfor BT shares, ordinary asderivedfrom of theDailyOfficialList 8May2009 – 1 May April 2009 March 2009 2009 February 2009 January December 2008 November 2008 Months –31March 2009 1 January 1 October –31December2008 1 July–30September 2008 1 April–30June2008 Financial yearended31March 2009 –31March 2008 1 January 1 October –31December2007 1 July–30September 2007 1 April–30June2007 Financial yearended31March 2008 2009 2008 2007 2006 2005 ended31March Financial years Share andADSprices trade, butare ontheLondonStock notlisted, Exchange. Trading ontheNewYork Stock Exchange isunderthesymbol‘BT’. Receipts for (ADRs)evidencingtheADSs,andare theAmericanDepositary ontheNewYork listed Depositary Stock Exchange. ADSsalso shares, ordinary havebeenissuedbyJPMorgan ChaseBank,as ten Sharessymbol ‘BT’. (ADSs),eachrepresenting AmericanDepositary ofBTThe principallisting Group’s shares ordinary isontheLondonStock Exchange. Trading ontheLondonStock Exchange isunderthe Stock exchange listings ADDITIONAL INFORMATION h ofimdofiiloeigpie o TGopadO The confirmedofficialopeningprices for BT Group and Demerger ofO 159). page Helpline (see note ontheeffectsAn explanatory oftherightsissueonCGTposition relating to BT shareholdings isavailablefrom theShareholder Rights issue O The rightsissueinJune2001andthedemerger of Capital gainstax New York Stock Exchange. of thecompany’s shares ordinary ontheLondonStock Exchange and, asaresult, are likely to affect themarket priceoftheADSson Fluctuations inthe exchange rate betweenthepoundSterling andtheUSdollaraffect thedollarequivalentofpoundSterling price 2 G calculation CGT – INFORMATION FORSHAREHOLDERS 2 nNvme 01ajse h au,frcptlgistx(G)proe,ofBT for capitalgainstax(CGT)purposes, thevalue, in November2001adjusted 2 shares on19November2001following thedemerger were 285.75p and 2 shares ofaBT iscalculated bymultiplyingtheacquisitioncost 3.0184 62 39.47 40.46 53.92 46.20 59.92 60.58 54.55 68.09 198.40 68.55 40.86 66.58 205.50 37.08 235.50 272.75 46.20 35.34 295.00 30.34 68.55 280.25 306.25 62.96 327.75 71.40 41.71 336.75 40.93 333.00 205.50 209.25 235.50 196.50 336.75 169.25 321.75 235.00 216.25 0.08.01.112.22 14.98 19.19 16.11 16.98 21.31 22.21 16.98 86.00 21.01 27.67 104.90 21.31 131.50 29.11 108.60 135.20 42.60 143.30 71.40 143.50 115.10 110.00 158.90 143.30 167.60 217.50 66 20 46 13.67 11.64 14.67 13.73 12.20 92.00 79.70 71.40 96.60 94.00 87.00 ec pence pence High ordinary shareordinary BT GROUP PLC pence per Low ANNUAL REPORT & FORM High US$ 20-F US$ per 9.80 9.80 9.80 Low ADS US$ 149 2 .

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Range dollars usingexchange rates prevailing dividendswere onthedate theordinary paid. tax treatment ofdividendspaidsee sharesthe ordinary exclude theassociated taxcredit. Theamountsshownare notthosethatwere actually paidto For holdersofADSs. the 2009. August 14 to shareholders ontheregister on September 2009 7 willbepaidon December2008.Thefinaldividendinrespect oftheyearended31March 2009,ifapproved byshareholders, 30 on 2009to shareholders February ontheregis 9 2008, andaninterim dividendinrespect oftheyearended31March 2009waspaidon Augu 22 September 2008to shareholders ontheregister on 15 A finaldividendinrespect oftheyearended31March 2008waspaidon Dividends record holdersofADRs. 2,426 onthatdate) wereoutstanding andwere outstanding heldby shares 2.5%ofthetotal numberofordinary shares, ordinary orapproximately 200m ADSs(equivalentto 20m same date, approximately to thecompanyoperation ofwhichmayatasubsequentdate result inachangecontrol ofthecompany. Government oranyotherforeign governmentorbyanyothernatural orlegalpersonseverally orjointly. There are noarrangements known As farasthecompanyisaware, thecompanyisnotdirectly orindirectly ownedorcontrolled by anothercorporation orbytheUK e d c b a Total 5,000,000 andabove 1,000,000 –4,999,999 100,000 –999,999 10,000 –99,999 1,600 –9,999 800 –1,599 400 –799 1 –399 Analysis ofshareholdings at31March 2009 ADDITIONAL INFORMATION 150 be downloadedfrom theDividendspageofourwebsite at 159). (see page Any shareholder wishing dividendsto bepaiddirectly into abankorbuildingsocietyaccountshouldcontacttheShareholder Helpline Dividend mandate ofsuchcashdividends. of ADSsonconversionbytheDepositary As dividendspaidbythecompanyare inpoundsSterling, exchange rate fluctuations willaffect theUSdollaramounts received b a 2009 2008 2007 2006 2005 Financial years ended31March Financial years ulfighleso Dso eoda f1 uut20 r nildt eev h nldvdn hc ilb adto ADSholde are entitledto receive thefinaldividendwhichwillbepaid 2009 August 14 holdersofADSsonrecordQualifying asof ne h TGopEpoe hr netetPa,7.msae eehl ntuto eafo 668priiat h eebnfiilyette otesae.24 shares were heldinthecorporate 234m whowere beneficiallyentitledto theshares. participants 76,678 shares were onbehalfof heldintrust 75.9m Under theBT Group EmployeeShare Plan, Investment muto h nldvdn f10pneprASt epi ohleso Dswl ebsdo h xhnert nefc n8 amount ofthefinaldividend100penceperADSto bepaidto holdersofADSswillbebasedontheexchange rate ineffect on 28 ftesae eei ,4,9 niiulhlig,o hc 627wr on odns n 72 ftesae eei 280institutionalholdings. 22,870 87.2%oftheshares were in were jointholdings, and 86,257 individualholdings,ofwhich 1,145,398 12.8% oftheshares were in shares wereshares. heldastreasury 406m shares were represented byADSs.Analysissize ofholdingisnotavailablefor thisholding. 198m beneficialowners. 106,296 BT Group EasyShare onbehalfof nominee shares were byIlford heldintrust Trustees (Jersey)Limited for allocationto employeesundertheemployeeshare plans. 9.3m The dividendspaidorpayableonBT shares andADSsfor fivefinancial years are thelast showninthefollowing on table.Thedividends shareholders withaUSaddress ontheregister ofshareholders. 3,676 At 31March 2009,there were sharesshares. heldastreasury At the 406,435,127 shares including ordinary outstanding 8,151,227,027 May2009,there were 8 At e BT GROUP PLC Dividends paidinthiswaywillbe paidthrough theBankers Automated ClearingSystem (BACS). Alternatively, aform may ANNUAL REPORT & FORM a,b,c,d INFORMATION FORSHAREHOLDERS Taxation ofdividends nei ia oa nei ia oa nei ia Total Final Interim FinalTotal FinalTotal Interim Interim ec ec penc pence pence 20-F .01.01.00501001501001832.863 2.963 2.162 1.833 1.919 1.972 1.415 1.030 1.195 0.991 0.747 1.580 0.724 1.510 1.190 1.040 1.040 1.000 0.760 0.540 0.650 0.510 0.430 15.80 0.390 15.10 11.90 10.40 10.40 10.00 7.60 5.40 6.50 5.10 4.30 3.90 .011 .0050010060075– 0.765 0.650 0.110 0.540 6.50 1.10 5.40 per ordinary shareper ordinary npg 156. on page www.bt.com/investorcentre e£££US$US$US$ Dividends havebeentranslated from poundsSterling into US ,6,6 0.0811100.00 8,151 100.00 1,168,268 ubro ecnaesae edPercentage shares held Percentage Number of 6,6 14.03 19.85 27.54 37.98 163,860 231,899 321,773 443,717 odnso oa ilosoftotal millions oftotal holdings 5,879 316 642 182 September shares. 2009,thedate ofpaymentto holdersofordinary so 5September 2009,subjectto approval attheAGM. TheUSdollar 15 on rs per ADS 0.03 0.05 0.50 .260274.25 6,052 0.02 o of No. 740 232 106 488 259 180 93 Ordinary sharesOrdinary a y holders f5 each of 5p per ADS ter 9.08 2.85 1.30 5.99 3.18 2.21 1.14 st – a

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW for theFTSEurofirst 300Telco Index.TheFTSE100TSRoverthesameperiodwasnegative3.9%. period betweenthedemerger on19November2001and31March 2009,BT’s TSRwasnegative59.5%,compared withnegative26.1% compared withtheFTSE100TSRwhichwasnegative28.2%andFTSEurofirst 300Telco IndexTSRwhichwasnegative20.5%.Inthe 2009 financialyear, withtheshare pricetouching analltimelowof70.2p.BT’s TSRfor the2009financialyearwasnegative60.2%, 40.5% compared withtheFTSE100TSRofpositive7.0%.BT’s islargely poorTSRperformance dueto thevolatileshare priceduringthe below),BT’s TSRchart fiveyears(asshowninthefirst movements andassumingreinvestment ofdividends.Overthelast TSRisn Total shareholder return (TSR)isthemeasure ofthereturns thatacompanyhasprovided for itsshareholders, reflecting shareprice Total shareholder return Depositary. dividends, are availablefrom JPMorgan ChaseBankon Details ofthedirect purchase planrunbytheADRDepositary, JPMorgan Direct, ChaseBank,GlobalInvest includingreinvestment of Direct Global Invest 2009 interim 2008 final 2008 interim 2007 final 2007 interim 2006 final 2006 interim 2005 final 2005 interim BT dividendsisusedto shares buyfurther plan,cashfrom inthemarket.Under theDividendinvestment participants’ plan Dividend investment ADDITIONAL INFORMATION 100 120 140 160 180 200 220 240 The graph showstherelative ofBT TSRperformance fiveyears. andtheFTSE100overlast Source: Datastream 1 April2004=100 over the five financial years to 31Marchover thefivefinancialyears 2009 BT’s total shareholder returnvstheFTSE100 (TSR)performance 20 40 60 80 0 Shareholders couldelectto receive additionalshares inlieuofacashdividendfor thefollowing dividends: 2004 31 Mar 2005 31 Mar 2006 31 Mar INFORMATION FORSHAREHOLDERS 2007 31 Mar 2008 31 Mar 1804284237 +1 800 BT FTSE 100 2009 31 Mar since demerger. The graph showstherelative ofBT TSRperformance andtheFTSEurofirst300Telco Index Source: Datastream 31 March 2002=100 since demerger BT’s 300Telco vsthe FTSEurofirst TSRperformance Index 100 120 140 160 20 40 60 80 0 (toll free withintheUSA),oronwritten request to theADR 2002 31 Mar 2003 31 Mar 2004 31 Mar 15 September 2008 17 September 2007 11 September 2006 5 September 2005 11 February 2008 11 February 2007 12 February 2006 13 February BT GROUP PLC 9 February 2009 February 9 2005 7 February 2005 31 Mar aepi Pricepershare pence Date paid 2006 31 Mar ANNU AL REPORT & FORM 2007 31 Mar BT FTSEurofirst 300Telco 2008 31 Mar egative 20-F 107.04 174.38 232.08 316.21 320.54 250.98 214.50 220.25 209.95 2009 31 Mar 151

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW a Low Period end Year ended31March forSterling purposesbytheFederal customs ascertified BankofNewYork Reserve (theNoonBuyingRate). the exchange rates betweenpoundsSterling andUSdollarsbasedonthenoonbuyingrate inNewYork Cityfor cabletransfers in BT publishesitsconsolidated expressed financialstatements inpoundsSterling. information Thefollowing concerning tablesdetailcertain Exchange rates information For visit further assets. unclaimed financialassetssuchasshareholdings anddividends.UAR provides membersofthepublicwithasearch deviceto trace lost BT, alongwithmanyotherleadingUKcompanies,subscribesto Experian’s UnclaimedAssetsRegister (UAR), aregister ofindividualsowed Unclaimed AssetsRegister be obtainedfrom theShareholder Helpline it uneconomicto sellthem.Detailsoftheschemeare availablefrom ShareGift The OrrMackintosh Foundation operates acharityshare donationschemefor shareholders withsmallparcels ofshares makes whosevalue ShareGift W.Yorkshire, (telephone 08702425588).ISAsare alsooffered byotherorganisations. LeedsLS11NS 1LovellPark Road, Information inBT aboutinvesting shares through anISAmaybeobtainedfrom HalifaxShare DealingLimited, Individual savings accounts(ISAs) a published reports 2010 Annual andfullyear 4th quarter andninemonths 3rd quarter andhalfyear 2nd quarter quarter 1st for the2010financialyear Results Expected announcementsofresults: Results announcements ADDITIONAL INFORMATION 152 to £1.00. recent May2009,themost practicable date for theNoonBuyingRate wasUS$1.50 thisannualreport, 8 On High Average High Low The average oftheNoonBuyingRatesineffect dayofeachmonthduringtherelevant onthelast period. Date maybesubjecttochange. BT GROUP PLC a ANNUAL REPORT & FORM INFORMATION FORSHAREHOLDERS www.uar.co.uk 20-F (see page159). or telephone 08702411713. 0920 092009 2009 2009 2009 1.50 1.44 pi ac erayJnayDcme November December January February March April 2009 1.37 1.43 1.70 1.47 2.00 1.38 at www.sharegift.org 0820 062005 2006 2007 2008 1.94 1.99 2.01 1.49 2.11 1.42 or telephone 02079303737,orcan 1.74 1.97 1.91 1.53 1.99 1.37 082008 2008 1.71 1.74 1.78 1.55 1.92 1.44 12 November2009 February 2010 February 30 July2009 pounds May 2010 May 2010 Month Date 1.75 1.89 1.85 1.61 1.95 1.48 a

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW conferred bybeingashareholder iftheyoranypersonappearingto beinterested inthosesharessection 793 hasbeensentanoticeunder (or theirproxies) 10%ofthetotal votes andwhohave,betweenthem,atleast ofallshareholders whohavetherightto vote themeeting. at shareholders atthemeetingwhoare entitledto vote (ortheirproxies), orbyonemore shareholders at the meetingwhoare has onevot Subject to therestrictions describedbelow, shareholder present onashowofhands,every inperson orbyproxy atanygeneral meeting Voting rights (a) electronic intheUK). settlementsystem form inCREST(the uncertificated) form) orheldinelectronic incertificated (ie shares are (ie to beevidencedbyshare certificates the personentered onthecompany’s register ofmembers astheholderofrelevant shares. Shareholders canchoosewhethert In thefollowing descriptionoftherightsattachingto theshares in thecompany, a‘holderofshares’ anda‘shareholder’ is,ineithercase, Articles sounds, visualimages,signals,messagesandcommunicationsofanykind. managing andsupplyingtelecommunication ofanykindfor andsystems systems conveying,receiving, processing storing, ortransmitting The Memorandum provides thatthecompany’s onanybusiness ofrunning,operating, principalobjectsare, amongother things,to carry Memorandum copy ofwhichhasbeenfiledwiththeRegistrar ofCompanies. oftheprincipalprovisionsThe following ofBT’s isasummary ofassociation(‘Memorandum’ memorandum and‘Articles’), andarticles a ofAssociation Memorandum andArticles b a 2008 July 2008 June 2008 May April 2008 July2008. effect from 31 Theshare buybackprogramme wassuspendedwith The following tablegivesdetails ofthepurchase byBT ofitsownshares during2009. Share buyback ADDITIONAL INFORMATION shares, shares orexisting cantake priorityoverthem,orthenewshares shares andtheexisting canrank equally. previously shares. givento holdersofanyexisting Subjectto this,therightsofnewshares cantake ofexisting priorityover therights of theissuedshares (butatanyadjournedmeeting,personholdingshares ofthe classinquestion oftheclassorhisproxy isaquorum). At quorumistwopersonsholdingorrepresenting anyseparate meeting,thenecessary byproxy notlessthanone-third amount innominal 75%innominalvalueoftheissuedshares withtheconsentinwritingof theholdersofatleast ofthat class. (ii) resolution withthesanction ofanextraordinary passedataseparate meetingoftheholdersshares ofthatclass;or (i) varied orwithdr Whenever theshare capital ofthecompanyissplitinto different classesofshares, thespecialrightsattachedto anyofthose classescanbe Variation ofrights (b) orthecompanyreceivessatisfactorily noticethatthere hasbeenanapproved transfer oftheshares. theearlierofdate theshareholder ofthatnotice.Theserestrictions endsevendaysafter complieswiththerequest delivery voting shares) andtheyoranyinterested personhas failed to supplyto thecompanyinformation requested within14daysa of theCompaniesAct2006(whichconfers uponpubliccompaniesthepowerto require information withrespect to interests intheir Calendar month ucae rm1 uy20 o2 uy20 eemd nacrac iharslto asda h G n1 July2008. 16 July2008were madeinaccordance witharesolution passedattheAGM on 25 July2008to 17 Purchases from were madeinaccordance witharesolution passedattheAGM heldon19July2007. July2008 16 to April2008 Purchases madefrom The companycanissuenewshares andattachanyrightsrestrictions to them,aslongthisisnotrestricted byspecialrights entitledto attend orvoteNo personis,unlesstheBoard atanygeneral decideotherwise, meetingorto exercise anyotherright Voting atanymeetingofshareholdersfive isbyashowofhandsunlesspolldemandedthechairmanmeetingoratleast e and, on a poll, every shareholder presente and,onapoll,every inpersonorbyproxy hasonevote for eachshare whichtheyhold. a awn either: INFORMATION FORSHAREHOLDERS hrsprhsdofdealingcosts) shares purchased oa ubro e hr pne–ntannouncedplansor pershare (pence–net Total numberof 142,608,225 30,590,000 48,188,225 24,200,000 39,630,000 vrg rc ad ato ulcybepurchased under ofpublicly part Average pricepaid 21 4,0,2 277,084,084 142,608,225 £2.15 £2.02 £2.14 £2.26 £2.20 BT GROUP PLC hrsprhsda shares thatmayyet shares purchased as oa ubro Maximumnumberof Total numberof programmes 30,590,000 48,188,255 24,200,000 39,630,000 ANNU AL REPORT & FORM entitled to vote 277,084,084 307,674,084 355,862,309 380,062,309 programmes fter h lnor the plan heir 20-F 153 b

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW another f shares ofthecompanymaybetransferredCertificated oftransfer inwritingeitherbyaninstrument intheusualstandard form or in Transfer ofshares (f) whichcouldgivethatshareholder aliability.can becompelledto acceptanysharesundertheArticles orotherproperty orpresentwhich theliquidator decides.Theliquidationofthecompanycanthenbefinalised andthecompanydissolved.Nopast shareholder shareholders. Theliquidator canalso, withthesameauthority, transfer for anyassetsto uponanytrusts trustees thebenefit anddecidehowthedivisioniscarriedoutbetweenshareholdersvalue theliquidator considersfaironanyproperty ordifferen company. ofonekindordifferent ofproperty Thisapplieswhethertheassetsconsist kinds.For thispurpose,theliquidator canplacewhatever i)unlessthetransfer form to beregistered isproperly dutyanddelivered to showpaymentofanyapplicablestamp stamped to the (ii) whichisinfavourofmore thanfour jointholders;or (i) person to whomtheshares are beingtransferred isentered intheregister ofmembersthecompany. transfer. Thepersonmakingthetransfer willbetreated ascontinuingto betheholderofshares transferred ofthe untilthename authority ofanex theliquidator can,withthe orbythecourt) If thecompanyiswoundup(whetherliquidationvoluntary,ofcourt undersupervision ofassets onwindingup Distribution (e) to thecompanyunlessdirectors decideotherwise. authorising thedirectors to make thisoffer. of someoralltheircashdividend.Before theycandothis,thecompany’s resolution shareholders havepassedanordinary must periods theydecide.Fixed dividendswillbepaidonanyclassofshares onthedates for stated thepaymentsofthosedividends. suchpayments,theycanpayinterim dividendsonanyclassofshares oftheamountsandondates andforthe companyjustify the r The company’s shareholders candeclareresolution dividendsbypassinganordinary provided thatnodividendcanexceed theamount Dividends (d) byspecialresolution reduce itsshare capital,anycapitalredemptionandshare reserve premium account. (ii) buybackitsownshares; and (i) The companymayalso: increase itsshare capital. (iv) cancelanyshares resolution, whichhavenot,atthedate oftheordinary beentaken oragreed to betaken reduce byanypersonand (iii) ofitsshare capitalinto shares divideallorpart ofasmalleramount; (ii) (i) resolution:The companymaybyordinary Changesincapital (c) ADDITIONAL INFORMATION 154 calloneon a shareholders’must requisition. hold an annualgeneral yearthecompanymust meeting.The Board cancallageneralEvery meetingatanytimeand,under general law General meetingsofshareholders (h) the former shareholder orthepersonentitledto thembytransmission ifthatshareholder, orthatotherperson,asksfor them. shareholder oranyperson entitledto thedividendsbytransmission. Thenetsaleproceeds belongto BT,proceeds paythose butitmust to threeduring thatperiodatleast dividendshavebecomepayableonthemandnotbeenclaimedBT has notheard from the itsintention andwaitingforBT three advertising maysellanyshares monthsiftheshares after havebeeninissuefor atlea Untraced shareholders (g) shares. uncertificated register notbeclosedwithouttheconsentofoperator must ofarelevant (asdefinedintheRegulations) system inthecaseof thecompanyreceiveslater thetransfer thantwo monthsafter from orinstruction theoperator oftherelevant system. (the Regulations)). TheBoard canrefuse to register atransfer share inthecircumstances intheRegulations. stated ofanuncertificated Transfers SecuritiesRegulations shares becarriedoutusingarelevant 2001 must (asdefinedintheUncertificated system ofuncertificated ecommended bythedirectors. bepaidoutofprofits Dividendsmust availablefor Ifthedirectors distribution. considerthatt Any dividendwhichhasnotbeenclaimedfor itwasdeclared ten orbecameduefor yearsafter paymentwillbeforfeited belong andwill The directors canoffer shareholders ordinary therightto chooseto receiveshares, newordinary whichare credited asfullyp The Board candecideto suspendtheregistration oftransfers, for upto 30daysayear, byclosingtheregister ofshareholders. The If theBoard decidenot to register atransfer ofashare,thepersonto whomthatshare theBoard notify wasto betransferred must no The Board mayrefuse to register anytransfer form: ofanyshare heldincertificated person to doso. and ifthetransfer form isexecuted byanotherpersononbehalfofthemakingtransfer, evidenceoftheauthorityo be transferred; anyotherevidencewhichtheBoard askfor to prove thatthepersonwantingto make thetransfer isentitledto dothis; company’s registered officeoranyotherplacetheBoard decide.The transfer for havewithitthe share must theshares certificate to the amountofitsshare capitalbytheamountofshares cancelled;and consolidate anddividealloranyofitsshare capitalinto shares ofalarger amount; BT GROUP PLC orm approved bytheBoard. Thetransfer form besignedormadeeffective must byoronbehalfofthepersonmaking ANNU traordinary resolution passedbytheshareholders,ofasset divideamongtheshareholders alloranypart AL REPORT & FORM INFORMATION FORSHAREHOLDERS 20-F of shareholders s t ten years, he profits of t groups of aid, instead s ofthe f that ,

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW director doesnothaveto handoverto BT anybenefit received orprofitpermitted to bedoneundertheArticles. madeasaresult ofanything A alone (orthrough somefirmwithwhichthedirector isassociated) dopaidprofessional work(otherthanasauditor) for BT oranother (iv) holdaposition(otherthanauditor) inBT oranothercompanyinwhichBT hasaninterest onterms andconditionsdecidedbythe (iii) haveanykindofinterest inacompanywhichBT hasaninterest (includingholdingapositioninthatcompanyorbeing (ii) (i) If thelegislationallowsanddirector hasdisclosedthenature oftheinterest andextent to theBoard, thedirector can: Directors’ interests quorum onresolutions contract inwhichheorsheisinterested carriedoutinbreach to orratifyanyparticular anyextent thoseprovisions. of provisions relating to theinterest ofadirector inanycontract orarrangement orrelating to adirector’s rightto votebe counted and ina interested assetoutintheArticles. debentures orothersecurities.Adirector can,however, matters vote heorsheis inwhich andbecounted inaquorumrespect ofcertain (this willalsoapplyto interests ofapersonconnected withthedirector). Thedirector canvote iftheinterest isonlyaninterest inBT shares, A director neednotbeashareholder, butadirector whoisnotashareholder attend andspeakatshareholders’ canstill meetings. Directors’ votes directors orformer directors, iftheshareholders approveresolution. thisbypassinganordinary orto relations ordependantsof, undertakings, executive positioninthecompanyoranyofitssubsidiary orpeopleconnected to, those However, BT canonlyprovide thesebenefitsto anydirector orformer director whohasnotbeenanemployeeorheldanyotheroffice of adirector. duties whichtheBoardcommittee beyondtheordinary attherequestconsiderextend oftheBoard; anyotherservices orperforms expenses properly incurred inconnectionwiththebusinessofcompany. resolution canincrease thefee paidto alloranydirectors period.Thedirectors eitherpermanentlyorfor mayb aparticular resolution ofthatdate. This Thecompanymaybyordinary decideonahighersum. month periodbeginning1April1999orananniversary year andincr Excluding remuneration referred to below, eachdirector willbepaidsuchfee astheBoard for decide,notexceeding hisservices £50,000a Dir Directors (j) address withintheUKto whichtheymaybesent. address isoutsidetheUKandwhowishesto receive noticesofmeetingsshareholders ordocumentsfrom BT an givethecompany must ontherightsofnon-resident orforeignThe onlylimitationimposedbytheArticles shareholders isthatashareholder whoseregis Limitationsonrightsofnon-resident orforeign shareholders (i) ADDITIONAL INFORMATION which amemberofthegroup hasanobligationorentitlement whichis,ormaybe,material to BT orsuchothermember ofthegroup. date ofthisdocumentbyBT oranothermemberofthegroup whichare, ormaybe,material to thegroup orcontain aprovision under Excluding contracts entered courseofbusiness,nocontracts into intheordinary havebeenentered into inthetwoyears prece Material contracts amounts borrowed intra-group amongotherthings,atanytimedoesnotexceed £35bn. soasto ensure thattheaggregate undertakings relation amount ofallborrowings to bythegroup itssubsidiary netof outstanding, borrowings ofthecompany andexercise allthecompany’s votingandother rightsorpowersofcontrol exercisable in bythecompany either outrightorascollateral securityfor anydebt,liabilityorobligationof thecompanyoranotherperson.TheBoardlimit must orcharge andassets(present itsbusiness,property andfuture)mortgage andto issuedebentures andothersecurities,give security To allow, thatthelegislationandArticles theextent theBoard canexercise allthepowersofcompanyto borrow money, t Directors’ borrowing powers following annualgeneral meeting.Aretiring director iseligiblefor re-election. in thethird yearbefore thecurrent year, retire must byrotation. Anydirector appointed bythedirectors automatically retires atthenext No oneisprevented from beingorbecomingadirector becausetheyhavereached theageof70. Retirement ofdirectors A When adirector knowsthattheyare interested inacontract withBT tell theotherdirectors. theymust Subject to therelevant legislation, the shareholdersresolution canbypassinganordinary suspendorrelax, the amongotherthings, Unless theAr The directors maygrant pensionsorotherbenefitsto, amongothers,anydirector orformer director orpersonsconnected witht The Board canaward extra fees to adirector onaBoard whoholdsanexecutive position;actsaschairmanordeputychairman;serves ectors’ remuneration t every annualgeneral meeting,anydirectort every re-elected whowaselected orlast adirector atorbefore theannualgeneral meetingheld shareholder ofthatcompany); which BT hasaninterest); have anykindofinterest inacontract withorinvolvingBT (orinwhichBT hasaninterest orwithinvolvinganothercompanyin company inwhichBT hasaninterest onterms andconditionsdecidedbytheBoard. Board; and easing bythepercentage increase oftheretail pricesindex(asdefinedbySection989IncomeTax Act2007)for any12 ticles say otherwise, adirector cannotvote onaresolutionticles sayotherwise, aboutacontract inwhichthedirector hasamaterial interest INFORMATION FORSHAREHOLDERS BT GROUP PLC ANNU AL REPORT & FORM e paidtheir ding the o tered 20-F hem. 155

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Holder willnotbeeligiblefor beavailableto corporate theUSdividendsreceived deductionthatmayotherwise shareholders. conversion orotherdispositionoftheBritishpoundsgenerally willbeUSsourceincomeorloss.DividendspaidbyBT ordinary to aUS pounds equalto theirUSdollarvalueonsuchdate. Foreign currency gainorloss,ifany, recognised bytheUSHolderonasubsequent theBritishpoundsinto USdollarsonthedate ofreceipt generallyUS Holderwhodoesnotconvert British willhaveataxbasisinthe theBritishpoundsinto USdollarsonthedate ofreceipt generallyHolder whoconverts shouldnot recognise anyexchangeor loss.A gain isactuallyreceivedshares,the distribution orconstructively byaUSHolderofordinary ortheDepositary, inthecase of ADSs.AUS in gross calculated byreference incomeofaUSHolderwillbethedollarvaluedistribution to thespotrate ineffect onthedate shares and/orADSs. company, intheUK,holdershouldnotbeliable for apermanentestablishment UKtaxondividendsreceived inrespect ofordinary sharesof ordinary orADSscarriesonatrade, profession orvocationintheUnited Kingdomthrough abranch oragency, or, inthecaseofa sharesordinary orADSsisresident inorordinarily resident for United KingdomtaxpurposesintheUnited KingdomorunlessaUSholder Under current UKtaxlaw, BT willnotberequired to withholdtaxatsource from dividendpaymentsitmakes. UnlessaUSHolderof Taxation ofdividends shares andlocal,otherlaws,oftheownershipdispositionordinary orADSs. state change orchangesininterpretation, possiblywithretroactive effect. 31 March 2003andtheprotocol thereto (theConvention),allasineffect allofwhichare onthedate ofthisannualreport, subjectto States taxes, Conventionrelating and(iii)theUnited to Kingdom–United andgift estate States Tax Conventionthatentered into force on regulations, rulings,judicialdecisionsandadministrative practice, allascurrently ineffect andavailable,(ii)theUnited Kingdom–United (IRS)practice,and USInternal Revenue includingtheInternal Revenue Service andproposed Codeof1986,asamended,existing Treasury sharesthe specifictaxconsequencesofowninganddisposingordinary orADSs. shares thatholdsordinary orADSsisurged to consultitsowntaxad inapartnership Apartner activities ofthepartnership. andthe sharesgenerally holdsordinary orADSs,theUStaxtreatment willdependuponthestatusofpartner ofapartner partnership administration andoneormore ofthetrust United States personsare Ifa authorisedto control decisionsofthe trust. allsubstantial is subjectto USfederal overthe incometaxationregardless canexercisesupervision ofitssource, ifaUScourt primary oratrust purposes) created ororganised inorunderthelawsofUnited States oranypoliticalsubdivisionthereof, theincomeofwhich anestate is: acitizen orindividualresident oftheUnited States, acorporation (orotherentitytaxableasacorporation for USfederal incometax the USdollar, others. Thoseholdersmaybesubjectto USfederal amongst incometaxconsequencesdifferent from thosesetfort sharestheir ordinary orADSspursuantto theexerciseascompensation,orpersonswhosefunctionalcur ofoptionsorotherwise ofastraddle, hedgingtransaction sharespersons holdingtheirordinary orADSsaspart conversiontransaction, personswho thatdirectly,minimum tax,investors indirectly orbyattributionown10%more share ofBT, oftheoutstanding capitalorvotingpower institutions, securitiesbroker-dealers, traders insecuritieswhoelectamark-to-market methodofaccounting,personssubject income taxlaw, includingUSexpatriates, insurance companies,tax-exempt organisations, banks,regulated financial companies, investment federal incometaxationanddoesnotaddress aspectsthatmayberelevant to personswhoare subjectto specialprovisions federal ofUS sharesor ADSsbyUSHolders(asdefinedbelow)whoholdtheirordinary ascapitalassets.Itdoesnotaddress ofUS allaspects onlyoftheprincipalUSfederal sharesThis isasummary incometaxandUKconsequencesoftheownershipdispositionordinary Taxation (USHolders) ADDITIONAL INFORMATION 156 credit limitationwithrespect to anyqualifieddividendincomepaidbyBT to him,asapplicable. availability to himofthereduced situation dividendtaxrate andregarding inlightofhisownparticular thecomputationsofhis foreign tax federal shares incometaxpurposes.EachindividualUSHolderofordinary orADSsisurged to consulthisowntaxadvisorregarding the BT currently believesthatdividendspaidwithrespect shares to itsordinary andADSsshouldconstitute qualified dividendincomefor US eligible for thebenefitsofacomprehensive USincome taxtreaty (suchastheConvention)whichprovides for theexchange ofinformation. dividend hasbeenpaidare readily tradeable securitiesmarket onanestablished intheUnited States, or(ii)thenon-UScorporation is requirements,periods andthenon-UScorporation certain includingthat either(i)theshares satisfies orADSswithrespect to whichthe income generally includesdividendspaidbyanon-UScorporation if, minimumholding amongotherthings, theUSHoldersmeetcertain respect of‘qualifieddividend income’received intaxableyearsbeginningbefore 2011.For thispurpose,qualifieddividend 1January shares orADSs. credit. Thededuction,however, isnotsubjectto thelimitationsapplicableto foreign credits. claimadeductionforinstead foreign taxes paid.Adeductiondoesnotreduce USfederal incometaxonadollarfor dollarbasislike atax credit complex.USHolderswhodonotelectto claimacredit are withrespect very to anyforeign taxes yearmay paidinagiventaxable sources outsidetheUnited States andgenerally willconstitute ‘passiveincome’.Therulesrelating to thedetermination oftheforeign tax In particular, isbasedon(i)current UKtaxlawandthepractice thissummary ofHerMajesty’s Revenue (HMRC) &Customs andUSlaw For thepurposesofthissummary, shares aUSHolderisbeneficialownerofordinary orADSsthat,for USfederal incometaxpurposes, Certain USHolders (includingindividuals)are eligibleforCertain reduced rates of US federal incometax(currently atamaximumrate of15%) in There willbenorightto anyUKtaxcredit orto anypaymentfrom HMRC inrespect ofanytaxcredit ondividendspaidordinary For purposesofcalculatingtheforeign taxcreditshares limitation,dividendspaidontheordinary orADSswill betreated asincomefrom For USfederal includible willbetreated dividendincome.Theamountofthedistribution incometaxpurposes,adistribution asordinary US Holdersshouldconsulttheirowntaxadvisorsasto theapplicabilityof ConventionandtheconsequencesunderUK,USf BT GROUP PLC ANNU AL REPORT & FORM INFORMATION FORSHAREHOLDERS 20-F visor regarding to alternative acquired rency isnot h below. ederal,

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW US information andbackup reporting withholding described above.USHoldersshouldconsulttheirowntaxadvisorsregarding thepotential applicationofthePFICrulesto BT. ADSs. Furthermore,dividendspaidbyBT wouldnotbe‘qualifieddividendincome’whichmayeligiblefor reduced rates oftaxationas subject to dividendsandontheproceedsshares punitiveinterest chargesofthesaleorother dispositionoftheordinary or oncertain include havinggainsrealisedshares onthedispositionofordinary orADSstreated incomerather asordinary thancapitalgainsandbeing 31 March 2009.IfBT were to becomeaPFICfor anytaxyear, USHolderswouldsuffer adversetaxconsequences.Theseconsequenc that produce, orare heldfor theproduction of, passiveincome.BT asaPFICfor currently believesthatitdidnotqualify thetaxyearending 50%oftheaverage 75%ofitsgross of passiveincomeoratleast ofassets taxable yearifatleast incomeconsists valueofitsassetsconsist A non-UScorporation willbeclassifiedasaPassive Foreign Companyfor Investment USfederal incometaxpurposes(aPFIC)for any Passive foreign companystatus investment settlement date for thesale,andnoexchange gainorlosswillberecognised atthattime. cash basisUSHolder(oranaccrualthatsoelects),theamountrealised will bebasedontheexchange rate ineffect onthe disposition andthesettlementdate. However, shares inthecaseofordinary traded securitiesmarket onanestablished thatare soldbya difference (ifany)betweentheUSdollarvalueofamountreceived basedon theexchange rates ineffect onthedate ofsaleorother On thesettlementdate, theUSHolderwillrecognise USsource foreign currencyincomeorlos gainorloss(taxableasordinary sharesdisposition ofordinary for anamountinforeign currency willbetheUSdollarvalueofthisamounton date ofsale frombe appliedconsistently yearto yearandcannotberevoked withouttheconsent oftheIRS.Theamountrealised onasaleorother are purchased byacashbasisUSHolder(oranaccrualthatsoelects).Suchelectionmust purchase, shares inthecaseofordinary traded securitiesmarket, onanestablished asdefinedintheapplicableTreasury Regulations, that foreign currency willgenerally betheUSdollarvalueofpurchase priceonthedate ofpurchase, or thesettlementdate for the rates. Thedeductibilityofcapitallossesissubjectto significantlimitations. disposition. Long-term capitalgainsrecognised byanindividualUSHoldergenerally are subjectto USfederal incometaxatpreferential gain orloss,andwillbetreated shares aslong-term capitalgainorlossiftheordinary havebeenheldfor more thanoneyearatthetimeof the USHolder’s shares taxbasis(determined adjusted inUSdollars)theordinary orADSs.Suchgainlossgenerallybe USsource will sharesordinary orADSsinanamountequalto thedifference betweentheUSdollarvalueofamountrealised onthedispositionand even thoughheisnotresident orordinarily resident intheUnited KingdomorisTreaty non-resident atthetimeofdisposal. may alsobeliableonhisreturn to theUnited Kingdomto United Kingdomtaxoncapitalgains,subjectto anyavailableexemption orrelief, Treaty non-resident for shares period aperiodoflessthanfiveyearsassessmentandwhodisposeshisordinary orADSsduringthat 16Marchnon-resident) 2005andcontinuesto onorafter notberesident orordinarily resident intheUnited Kingdomorcontinuesto be 17March 1998orwhofallstoafter beregarded asresident outsidetheUnited Kingdomfor thepurposesofanydouble taxtreaty (Treaty sharesordinary and/orADSs. acquired for thepurposesofthattrade, profession orvocationtheholdershouldnotbeliablefor UKtaxoncapitalgainsadisposalof agency, orinthecaseofacompany, shares intheUK,andordinary and/orADSshavebeenused,held,or apermanentestablishment sharesor unlessaUSHolderofordinary ADSscarriesontrade, profession, orvocationintheUnited Kingdomthrough abranch, sharesUnless aUSHolderofordinary orADSsisresident inorordinarily resident for United KingdomtaxpurposesintheUnited Kingdom Taxation ofcapitalgains ADDITIONAL INFORMATION retained outsidetheUK. payable onthetransfer ofanADS (assumingitisnotregistered intheUK), provided thatthetransfer documents are executed andalways consideration provided orthevalueofshare issuedrounded duty)to dutywillbe thenearest up(in thecaseofstamp £5.NoUKstamp receipts givesriseto a1.5%chargebusiness isorincludesissuingdepositary dutyorSDRT to stamp ofeithertheamount nominee for, apersonwhosebusinessisor includestheprovision orto, orto of clearance anomineeoragentof, services ap the liabilityofpurchaser. alsothepurchaser Itis customarily duty. whopaysUKstamp Atransfer share ofanordinary to, orto a at 0.5%oftheamountorvalue anyconsideration provided rounded duty)to the nearest up(inthecaseofstamp £5.SDRT isgenerally A transfer ofor anagreement to transfer share tax(SDRT) anordinary willgenerally dutyreserve dutyorUKstamp besubjectto UKstamp duty UK stamp appropriate claimfor refund withtheIRSandfurnishinganyrequired information. income taxliability. Aholder may obtainarefund ofanyexcess amountswithheld underthebackup withholding rulesbytimelyfilingthe United States US-related orthrough financialintermediaries. certain withholding. However, suchholdersmayberequired ofnon-USstatusinconnectionwithpaymentsreceived to inthe provide certification that are notUnited States personsfor USfederal incometaxpurposesgenerally willnotbesubjectto USinformationorbackup reporting theirexemptestablish statusgenerally furnishIRSForm must W-9(Request for Taxpayer IdentificationNumberandCertification). exempt. Persons orwho isotherwise thatare United Statescertification personsfor USfederal incometaxpurposeswhoare requ to aUSHolder whoprovides offoreign acorrect taxpayeridentification numberorcertificate statusandmakes anyotherrequired recipients (suchascorporations) are notsubjectto theseinformation requirements. reporting Backup withholdingwillnotapply, however, information to theIRSandbackup reporting withholdingatacurrent rate of28%(whichrate exempt maybesubjectto change).Certain Dividends paidonandproceeds received from thesale,exchangeshares orotherdispositionofordinary ADSsmaybesubject Backup withholdingisnotanadditionaltax.Amountswithheldasbackup withholdingmaybecredited aholder’s against USfede A USHolder’s share share taxbasisinanordinary willgenerallyofpurchased TheUSdollarcost with beitsUSdollarcost. For USfederal incometaxpurposes,aUSHoldergenerally willrecognise capitalgainorlossonthesale,exchange orotherdispositionof A USHolderwhoisanindividualandhasceasedto beresident orordinarily resident for taxpurposesintheUnited Kingdomonor INFORMATION FORSHAREHOLDERS BT GROUP PLC ANNU AL REPORT & FORM s) equal to the erson whose or disposition. or to ired to Holders 20-F ral es may 157

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW in theUK,ataddress below. For printed copies,whenavailable,contacttheShareholder Helpline onFreefone Statement ofBusinessPractice ( Current FinancialStatements Cost results releasesQuarterly EAB AnnualReport Changing World: Values Sustained &FormAnnual Report 20-F &NoticeofMeeting financialstatement Summary Document available onlinethr www.bt.com/aboutbt onBT’swell astheEABAnnualReport are availableto shareholders compliancewiththeUndertakings), onrequestat andcanbeaccessed (as compliance,socialandenvironmentalofthesereports Most performance. BT producesonthecompany’s aseriesofreports financial, Publications website at reference facilitiesatRoom 1580,100FStreet, NEWashington, maybeaccessedviatheSEC DC,20549,USA.Thesereports public andotherinformationAll reports thatBT fileswiththeUSSecuritiesandExchange Commission(SEC)maybeinspected attheSEC Documents ondisplay the company. There are nolimitationsunderthelawsofUnited Kingdomrestricting therightofnon-residents to holdorto vote shares in Limitations affectingsecurityholders issubjectto USfederal taxunlesstheisnotpaid. orUSestate inheritance taxifthegift gift Tax andGift UK/US Estate Convention)and whoisnotaUKnational(asdefinedintheConvention)willgenerally besubjectto UK oratransferlifetime shares gift ondeathofordinary and/orADSsbyanindividualholder, whoisUSdomiciled(for thepurposesof The rulesandscopeofdomicileare complexandactionshouldnotbetaken withoutadvicespecificto theindividual’s circumstances. A taxesshares inconnectionwithordinary and/orADSs UK inheritanceandgift consideration. CRESTisobliged to collectSDRT from thepurchaser oftheshares onrelevant transactions settledwithinthesystem. consideration. Paperless transfers shares ofordinary withinCRESTare generally liableto SDRT attherate ofthe of0.5%thevalue consideration inmoneyormoney’s inwhichcasealiabilityto SDRT willarise,usuallyat therate worth, of0.5%thevalue Transfers shares ofordinary into CRESTwillgenerally dutyorSDRT notbesubjectto stamp unlesssuchatransfer ismadefora ADDITIONAL INFORMATION 158 159). page documents inthiswaybygoingto Shareholders cannowchooseto receive theirshareholder documentselectronically rather Shareholders thanbypost. mayelectt communication Electronic BT GROUP PLC www.sec.gov ANNUAL REPORT & FORM ough our independently verified sustainability report report ough ourindependentlyverifiedsustainability More detaileddisclosures onBT’s implementationofsocial,ethicalandenvironmental policiesandprocedures are The Way We Work We Way The INFORMATION FORSHAREHOLDERS www.bt.com/signup 20-F ) n olwn h nieisrcin,o ycligteSaeodrHlln (see and following orbycallingtheShareholder theonlineinstructions, Helpline .bt.com/betterworld at www 0808 1004141 or, alternatively, contactourRegistrars July, November, andMay February Publication date January 2009 January o receive September ’s ’s May May May May

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW rmoutsidetheUK: From Fax: 02073565520 Tel: 02073565000 United Kingdom London EC1A7AJ 81 Newgate Street B BT Group plc General enquiries Website: BN99 6DA West Sussex Lancing Spencer Road Aspect House E The Registrar Website: e-mail: Textphone: +441214157028 Fax: +441903833371 Tel: +441214157178 From outsidetheUK: Textphone: Freefone F Tel: Freefone Shareholder helpline onFreefoneservice If private shareholders haveanyenquiriesabouttheirshareholding, theyshouldcontactourRegistrars, Equiniti, attheaddre Private shareholders and sites providing analysts tailored information for particularly shareholders, industry andanalysts, institutionalinvestors BT iscommitted to communicatingopenlywitheachofitsstakeholderappropriate audiencesinthemannermost to theirrequirements. Shareholder communication ADDITIONAL INFORMATION A full list ofBTA fulllist contactsandanelectronic feedback facilityisavailable e-mail: 02073566546 Fax: Tel: 02073565631 maycontact: analysts Industry e-mail: 01908860884 Fax: Tel: 02073564909 andequityresearchInstitutional investors Relations maycontactInvestor analysts on: andanalysts Institutional investors +442073565520 Fax: +442073565000 Tel: ax: 01903833371 quiniti T Centre Equiniti maintainBT Group’s share register andtheseparate BT Group EasyShare register. Theyalsoprovide aShareholder Helpline An onlineversionofthisdocumentisavailable canvisitourwebsiteAll investors at [email protected] [email protected] [email protected] www.equiniti.com www.shareview.co.uk 0808 1004141 0808 1004141 0800 1696907 INFORMATION FORSHAREHOLDERS . www.bt.com/investorcentre Website: e-mail: or +12016806630(from outsidetheUSAandCanada) Tel: 15252-8409 USA Pittsburg, PA PO Box 358409 Center JPMorgan Service ADR Depositar at +1 8006348366 www.bt.com/annualreport jpmor www.adr ganadr y .com @mellon.com for more information aboutBT. There are direct linksfrom thispageto (toll free intheUSAandCanada) at www.bt.com/talk BT GROUP PLC ANNUAL REPORT & FORM journalists. ss below. 20-F 159

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW AOperating results 5A 5 Property, plantsandequipment 4D Organisational structure 4C Businessoverview 4B anddevelopmentofthecompany History 4A 4 Riskfactors Reasons for theoffer anduseofproceeds 3D Capitalisationandindebtedness 3C 3B Selected financialdata 3A 3 2 1 Item Required Item inForm 20-F Commission for allpurposes: The information inthisdocument thatisreferred to inthefollowing tableshallbedeemedto befiledwiththeSecuritiesandExchange CROSS REFERENCETO FORM ADDITIONAL INFORMATION 160 Trend information 5D Research anddevelopment, patents andlicences 5C Liquidityandcapitalresources 5B BT GROUP PLC Operating andfinancialreview andprospects Information onthecompany Key information timetable Offer andexpected statistics seniormanagementandadvisors Identity ofdirectors, ANNU AL REPORT & FORM 20-F 20-F Other matters Financial statistics Financial review Other matters Business review Not applicable Not applicable Inf Selected financialdata Not applicable Not applicable Section Where information canbefound inthisAnnualReport Information for shareholders Financial review Financial statistics Business review Consolidated financialstatements Information for shareholders Financial review Information for shareholders Consolidat Financial review andassociate undertakings Subsidiary Business review Information for shareholders Operational statistics Financial review Business review Other matters Our property portfolio Our property Balance sheet Acquisitions anddisposals structured weare How Intr Principal risksanduncertainties Exchange rates atoaysaeetrgrigfradloigsaeet 148 regarding statement forward-lookingCautionary statements Our resources 148 Notes to theconsolidated financialstatements regarding statement forward-lookingCautionary statements 148 regarding statement forward-lookingCautionary statements Accounting policies 148 Introduction regarding statement forward-lookingCautionary statements Introduction to thefinancialreview ormation for shareholders Acquisitions Capital expenditure Our globalresearch anddevelopmentcapability andriskmanagement Financial instruments Financial commitmentsandcontingentliabilities Loans andotherborrowings Line ofbusinessresults oduction ed financialstatements Page 145 145 130 117 110 141 146 152 143 29 32 22 32 79 32 33 42 42 28 10 29 8 8 8

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 7C Interests of experts andcounsel Interests ofexperts 8 7C transactions Related party 7B Majorshareholders 7A 7 Board practices 6C Directors andseniormanagement 6B 6A 6 Tabular disclosure ofcontractual obligations 5F Off-balancesheetarrangements 5E Item Required Item inForm 20-F ADDITIONAL INFORMATION BSignificant changes 8B Consolidated andotherfinancialinformation statements 8A EShare ownership 6E Employees 6D Financial information transactions andrelatedMajor shareholders party Compensation seniormanagementandemployees Directors, RS EEEC TO FORM CROSS REFERENCE 20-F Board ofDirectors andOperating Committee Report ondirectors’Report remuneration Shareholders andAnnualGeneral Meeting Report ondirectors’Report remuneration The Board Consolidated financialstatements Financial review Financial review Section Where information canbefound inthisAnnualReport Financial review Information for shareholders Consolidated financialstatements Financial review Other matt See Item 18below Not applicable Consolidated financialstatements ondirectors’Report remuneration Information for shareholders Consolidated financialstatements Operational statistics Consolidated financialstatements Financial review Board ofDirectors andOperating Committee ondirectors’Report remuneration Directors’ information Notes to theconsolidated financialstatements Balance sheet Balance sheet Balance sheet ofAssociation Memorandum andArticles Dividends Notes to theconsolidated financialstatements Other group items Legal proceedings Notes to theconsolidated financialstatements transactionsInterest ofmanagementincertain Analysis ofshareholdings at31March 2009 Subs Notes to theconsolidated financialstatements Group results Notes to theconsolidated financialstatements Share basedpayments Retirement benefitplans Capital resources Off-balance sheetarrangements Capital resources Articles Financial commitmentsandcontingentliabilities Dividends transactionsRelated party Employees Share basedpayments tantial shareholdings Dividends ers BT GROUP PLC ANNU AL REPORT & FORM 20-F Page 154 150 117 116 150 126 121 126 146 126 161 50 57 57 43 39 28 57 70 74 57 52 50 43 44 33

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW 10I Subsidiary information Subsidiary 10I Documentsondisplay 10H Statement byexperts 10G Dividendsandpayingagents 10F Taxation 10E Exchange controls 10D 0 Material contracts 10C 16G 16F 16E 16B 16C 15 14 13 12 Notapplicable 11 Notapplicable Information for shareholders Notapplicable Notapplicable 10B Share capital 10A Expensesof theissue 10 Dilution 9F Sellingshareholders 9E 9D Markets Planofdistribution 9C 9B Offer details andlisting 9A 9 Item Required Item inForm 20-F ADDITIONAL INFORMATION 162 18 17 16A BT GROUP PLC Corporate Governance registrant’s accountant reporting in Change affiliated purchasers Purchases ofequitysecuritiesbytheissuerand Code ofethic Principal accountants’fees andservices Financial statements Financial statements Audit committee financialexpert Controls andprocedures and useofpr Material modificationsto therightsofsecurityholders Defaults, dividendarrearages anddelinquencies Description ofsecuritiesotherthanequity disclosures aboutmarket risk Quantitative andqualitative ofassociation Memorandum andarticles Additional information The offer andlisting ANNU oceeds s AL REPORT & FORM RS EEEC TO FORM CROSS REFERENCE 20-F 20-F Not applicable Not applicable Information for shareholders Not applicable Information for shareholders eoto h ui omte 54 (loss) profit analysisofrevenue and Quarterly Consolidated financialstatements The Board Not applicable Information for shareholders of theAuditCommittee Report Business policies Not applicable Consolidated financialstatements Information for shareholders Information for shareholders Not applicable Section Where information canbefound inthisAnnualReport eoto h needn uios–Cnoiae nnilsaeet 77 Consolidated financialstatements – oftheindependentauditors Report Not applicable Business policies Business policies Not applicable Not applicable Consolidat Financial review Information for shareholders Information for shareholders Unit Taxation (USHolders) Limitations affecting securityholders Documents ondisplay Material contracts Memorandum and Articles ofAssociation Memorandum andArticles Notes to theconsolidated financialstatements policies Accounting New Y Share buyback US Sarbanes-OxleyActof2002 Not tc xhnelsig 149 Stock exchange listings S US Sarbanes-OxleyActof2002 US Sarbanes-OxleyActof2002 management Financial risk tock exchange listings Financial instruments andriskmanagement Financial instruments Financial instruments ui n o-ui evcs129 Audit andnon-auditservices hr n D rcs149 Share andADSprices ed States opinion es to theconsolidated financialstatements ork Stock Exchange ed financialstatements Page 156 158 158 155 153 130 142 153 83 79 78 53 73 73 73 45

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW pr backhaul network: B ARPU: ADS: A tr 21CN: 1,2,3 GLOSSARY OFTERMS ADDITIONAL INFORMATION Ethernet wasavailablefrom more than600nodesthroughout the the firs 21CN Ethernet: sector company intheUK’sinvestments communicationsinfrastructure byaprivate rapidly effectively. andcost services Itisoneofthelargest oper BT Operate: around theworld partners) hotspotsthroughout theUKand(viaroaming 200,000 around business, majorbusinessandwholesalemark BT Ireland: pr BT GlobalServices: of otherBT FONmembers cus BT FON: s BT Expedite: andBT Shopanddabs.com Redcare BT B BT Enterprises: andunifiedcommunications centre virtualisation cus BT DigitalVault: BT’ssupport products andservices calling packagedesignedf BT BusinessOnePlan: income benefits BT Basic: awiderange ofapplications network supplier–capableofcarrying UK t BT Openzone: island ofIreland r 2.0: BT HomeHub and off BT EngageIT: and CD-ROM services enquiries, oper BT Directories: personalinformation important and deploymentoftheplat BT Design: audio, videoandwebcollabor BT Conferencing: a high-capacity broadband: BT’s products and services outer echnology (Wi-Fi). Users can access email or surf theinternet from accessemailorsurf echnology (Wi-Fi).Users can tore integration solutionsandservices Conferencing, BT Directories, BT Expedite, BT Payphones, T ansform experiencebydeliveringnew, thecustomer converged oducts, services and solutionsintheUKandglobally oducts, services ovider’s networkwiththeBT exchange tomers using BT Openzone Wi-Fihotspotsandtheconnection tomers’ PCsandlaptops –includingphotos, emails,andother ation oftheplatforms, andprocesses systems whichsupport American Depositary Share American Depositary an end-to-end, next generationan end-to-end, next IPnetwork,designedto ob ul nte2C ltom t3 March 2009,21CN At 31 t to bebuiltonthe21CNplatform. average annualrevenue peruser ers customers a wide range of IT services, including data awiderangeers customers ofITservices, global wireless broadband accessfor BT Total Broadband offers lowlinerental to vulnerable onlow customers a BT internal functionalunitresponsible for thedesign a divisionofBT Retail. Itoperates intheconsumer, comes from ‘broad bandwidth’andisusedto describe a BT internal functionalunitresponsible for the a businesswithinBT Enterprises offering specialist incorporates BasilicaandLynx (acquired in2007), a broadband internet access service usingwireless broadband internet accessservice a trsrie n h hn ok swl sonline andthephonebook,aswell ator services , two-waylinkbetweenanenduserandaccess a businesswithinBT Enterprises offering directory a businessunitwithinBT Retail encompassing a next generation wholesale Ethernet service and generationa next wholesaleEthernetservice a service for safeguarding service filesstored on a a businesswithinBT Enterprises offering global the latest releasethe latest oftheBT HomeHubwireless the networklinkingacommunications Tsln fbsns rvdn networked IT BT’s lineofbusinessproviding obndlandline,mobileandbroadband a combined or businesses forms, andprocesses systems which ation services ets throughout the was closedt BT Pension Scheme(BTPS): telephone sockets are transformed into ahigh-speeddigitalline wir DSL: safety, diversity, supplychainandriskmanagement humanrights, healthand management, communityinvestment, governance andethicalpractices, relations, investor environmental worldwide ontheirper Index: Dow JonesSustainability ar DBP: t dabs.com: D CR: CRM: comput cloud computing: danger Childline: C the UK’ Business intheCommunity: providers, includingotherBT businesses with theint BT Vision: internet voicecalls,free videocalls, andasuite ofsecuritysoftware packages. P BT Total Broadband: partners successor t BT Retirement Saving Scheme: andwasclosedto newmemberson31March 2009 April2001 1 arr BT Retirement Plan(BTRP): business markets pr BT Retail: solutions andvehicletracking monitoring, CCTV, machinemonitoring, secure mobiledata int BT Redcare: cer CPS: CP: devices to handleapplications impact onsociety solutions withintheUK.Itser BT Wholesale: and individualsellerst BT Tradespace: arrangement Pensions Plan.Itisacontract based,definedcontribution managed andprivat BT Payphones: echnology products e granted to selected employeesofthegroup oducts and services to theconsumerandsmallto medium-sized oducts andservices elligent monitoring and tracking services, includingalarm elligent monitoring andtracking services, angement thatwasintroduced for newBT employeesfrom es betweenthelocaltelephone exchange andacustomer’s tain calltypescarriedbyanothernetworkoperator communications provider oprt responsibility corporate carrier pre-selection to enablescustomers chooseto have digital subscriber line – a broadband service wheredigital subscriberline–abroadband existing service TGopDfre ou ln–aplanwhere share awards BT Group Deferred BonusPlan– customer relationshipcustomer management s top companiescommitted to improving theirpositive er resources orpersonal rather thanhavinglocalservers the UK’s free, 24-hourhelplinefor children indistress or a BT lineofbusinessoffering awiderange ofretail next generation TV service combiningtheappealofTV generationnext TVservice o the BT Retiremento theBT PlanandtheSyntegra Ltd Flexible one oftheUK’s leadinginternet retailers ofITand eractivity ofbroadband wrdb downloadspeedsofupto 8Mb,itoffers free owered by e ebr n3 March 2001 o newmemberson31 a businesswithinBT Enterprises offering secure a BT and lineofbusinessproviding networkservices a businesswithinBT Enterprises providing street, an onlinetrading communitythat bringsbusinesses a typeofcomputingthatrelies onsharing e payphonesandcard services comprehensive range ofbroadband a ogether withpotential and customers formance inareas suchascorporate BT GROUP PLC h TS(adefinedbenefitscheme) The BTPS a definedcontributionpension an organisation ofmore than700of vices more than700communications set upon1April2009asa assesses 2,500companies ANNU AL REPORT & FORM 20-F 163

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW services to customers services operators, otherthanBT, to usethecompany’s localloopto provide providers’ networks.This enables to othercommunications lines ar rate data high very a at LLU: printers data and of servers variety PCs, a as connects such It devices, building. a in as such area, geographical ISP: ISP: ISO 14001: connected equipment to talkto each other circuits. Itmakes itpossiblefor anytwocompatiblepiecesof plan whichisnolongeroper GSOP: Shares (ADSs) Depositary employees intheUSwhichenablesthemt ESPP: BT from pre-tax salaries pr ESIP: EPS: day a communications providers. Itcanprocess upto 100,000orders tr EMP: a widechoiceofhigh-bandwidthcircuits IFRS: ICT: sets Int IASB: I which isnolongeroper GLOP: Gb: G FTTP: FTTC: t Friends &Family Mobile: F a localar Ethernet: amor EBITDA: E ADDITIONAL INFORMATION 164 LAN: L that enablesahos ISDN: electrical interference t I-Plate: including voiceandvideo–acr IP: elephone socket to improve broadband speedsbyeliminating o 40%oncallsto mobiles ansactional platform thatunderpinsallitsinteractions with ovide free shares to employees,andemployeescanbuyshares in internet protocol –apacket-based protocol for deliveringdata– gigabits (persecond) information andcommunicationtechnology internet service provider internet service BT Group IncentiveShare Plan BT GROUP PLC earnings pershare tisation local loopunbundling–theprocess whereby BT’s exchange oa ranetwork area local Employee Share Plan–aplanunderwhichBT Investment can International Financial Reporting StandardsInternational FinancialReporting Equivalence ManagementPlatform –Openreach’s fibre to thecabinet fibre to thepremises International AccountingStandards Board –theboard which integrated digitalnetwork–anall services TGopEpoe tc ucaePa aplanfor BT Group EmployeeStock Purchase Plan– TGopLgc pinPa alegacyshare optionplan BT Group LegacyOptionPlan– TGopGoa hr pinPa alegacyshare option BT Group GlobalShare OptionPlan– e physicallydisconnected from BT’s network andconnected ernational Financial Reporting Standardsernational FinancialReporting a self-installable devicethatcanbefitted toa self-installable amaster ea network. Our Ethernet portfolio givesourCPcustomers ea network.OurEthernetportfolio earnings before interest, taxation,depreciation and a popularstandard orprotocol for linkingcomputers into the environmental management standard ANNU t of services to becarriedtogether onthe same t ofservices AL REPORT & FORM ated bythegroup ewr htoeae ihnalimited a within operates that network a – a callingplanthatoffers discountsofup ated bythegroup GLOSSARY OFTERMS oss networks 20-F o purchase American tr MPLS: for ourCPcustomers platform offerings designedto reduce andincrease cost efficiency n uiessb 02 twl u nte2C oeinfrastructure core and businessesby2012.Itwillrunonthe21CN networks to achievehighqualityofservice ar RSP: Route2Learn (R2L): their expectations BT linesofbusiness–onafair, equalandopenbasis to allcommunicationsprovidersprovide –includingother services services television, radio, telecommunications andwireless communications the ex Openreach: the UKcommunicationsindus Ofcom: O plat NGA: NCC: narrowband: N3: N of long-t managednetworksolutions: MNS – M performance period performance sector atthebeginningofrelevant telecom the European used t TSR: T Super-fast broadband: SMP: SME: S k time: right first R business per Queen’s Award for Enterprise: Q PSTN: PPC: P eeping ourpromises to andmeetingorexceeding ourcustomers ansmission ofdataacross networkrouters, enablingmodern e granted to selected employeesofthegroup form, whichweplanto roll outto around ten millionUKhomes the nationalbroadband networkthatBT isbuildingfor theNHS oa hrhle eun–acorporate measure performance Total shareholder return – partial private circuit partial network charge control TGopRtninSaePa aplanwhere share awards BT Group Retention Share Plan– small ormedium-sized enterprise etGnrto ces–afibre broadband based,super-fast a GenerationNext Access– significant market power o measure BT acomparator against group ofcompaniesfrom change through to homesandbusinesses. Itsrole isto public switched telephone network multi-protocol label switching – supports therapidmulti-protocol labelswitching –supports the independentregulator andcompetition authorityfor erm managednetworkoutsourcing andwhite label Openreach looks after the ‘first mile’ofnetwork, from the‘first Openreach looksafter formance non-broadband, fixed accessnetworkorline the most important measure ofwhetherweare important the most u nenllearningmanagementsystem internal our see next generationsee next access tries, withresponsibilities across the UK’s prestigious award most for BT Wholesale’s broad portfolio

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW geogr WAN: W speech overtheint VoIP: V Of Undertakings: U ADDITIONAL INFORMATION network off WLR: ser Wholesale Broadband Connect: PC usingr Wi-Fi: andenhancedlinediagnostics stability levelagreements,guaranteed theabilityto trade service speedfor US SEC: USO: US GAAP: Principles UK GAAP: to theformation ofOpenreach intheUK.Theyled regulation ofthetelecommunications industry com, designedto bringgreater transparency to the andcertainty er their own-branded telephony services overtheOpenreacher theirown-branded telephony services vice offering arange ofbenefitsincludingspeedsupto 24Mb, universal service obligation universal service aphical area voice overinternet protocol –amethodoftransporting wholesale linerental –enablescommunicationsproviders to wide area network–aspread overalarge wireless networking–theabilityto connectto anetworkor US SecuritiesandExchange Commission adio asopposedto aphysical(cabling)connection United States Generally Accepted AccountingPrinciples United KingdomGenerally Accepted Accounting a seriesoflegally-bindingcommitmentsBT madeto ernet GLOSSARY OFTERMS a next generationa next 21CNbroadband BT GROUP PLC ANNU AL REPORT & FORM 20-F 165

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Documents ondisplay Dividends Dividend mandate plan Dividend investment Directors, ofthe Report Directors’ responsibility, of statement Directors’ remuneration, on report Directors’ information Derivative financialinstruments Cash flowstat Cash andcashequivalents Capital resources Capital gainstax Capital expenditure C Business review Business policies BT Wholesale BT Retail BT Operate BT GlobalServices BT Design19 Branches outsidetheUK28 Board ofDirectors andOperating Committee Board, the Balance sheet B Audit opinions Audit andnon-auditservices ofthe Audit Committee, Report Associates andjointventures ofAssociation Articles Alternative measures performance Additional information Acquisitions anddisposals Acquisitions amendments to publishedstandards 85-87 Accounting standards, interpretations and Accounting policies A INDEX ADDITIONAL INFORMATION 166 Deferred taxation D service Customer Cross reference to Form 20-F Critical accountingpolicies Corporate responsibility Consolidated financialstatements Competition Chief Executive’s statement Chairman’s message regarding statement forward-lookingCautionary statements BT GROUP PLC 13-16 39, 82,98,138,150-151,154 52-53 20 42, 118-121 27-28 16-17 ement, group 41-44, 91,139-140,144 77, 78,137 8-25 149 71-73 43-44 ANNUAL REPORT & FORM20-F 9 113-114 10-13 150 42, 94,95,117 79-87 3 70 153-155 158 148-167 50-74 23-25 151 28-29 83, 90,102 47 4 90, 144 39, 108 129 160-162 54-55 84, 111-112,131-135 79-135 57-69 47-48 76 50-51 148 Exchange rates Environment, protecting the Employee plans Electronic communication Loans andotherborrowings Line ofbusinessresults Limitations affecting securityholdings158 Group results ofterms andUSequivalents Glossary ofterms Glossary DirectGlobal Invest G Free cashflow Foreign currencies Focus, Our8-9 Financing 2 Financial summary Financial statistics ofBTFinancial statements Group plc management Financial risk Financial review andriskmanagement Financial instruments Financial data,selected Financial commitmentsandcontingentliabilities F Earnings pershare E Minority interests ofAssociation Memorandum andArticles 9 Measuring ourperformance Material contracts business Maintaining asustainable M Legal proceedings L Investments Intangible assets Information for shareholders Individual savingsaccounts(ISAs) ofthe Independent auditors, Report groupIncome statement, (summarised) groupIncome statement, IFRS I How weare structured H Geographical information 143-145 39-42 107 33-36 9, 41,48 152 126-129 32-48 81, 104-105 163-165 114 155 145 28 80 9, 39,100-101 151 6, 10 33 143-144 89-90 35, 95 158 45-47 110-111 23 148-159 152 9 77, 78,137 138-140 136 32 153-155 130-135 117

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW Reconciliation ofmovementsinequity R analysisofrevenue andloss/profitQuarterly Q Publications Provisions Our portfolio, Property Property, plantandequipment Profit before taxation Principal risksanduncertainties Performance, Our 2009 Pensions P Overview Outlook Our relationship withHMGovernment Other reserves Other operating income Other group items Other matters Operational statistics Operating costs Operating Committee Openreach Off-balance sheetarrangements O Notes to theconsolidated accounts Non-financial corporate responsibility KPIs Nominating Committee, Report ofthe Net debt N ADDITIONAL INFORMATION Return oncapitalemployed Retirement benefitplans Retained (loss)earnings Results announcements Resources, Our transactionsRelated party Regulation 9 48, 103 21, 42-43,60-61,65 2-6 83, 113 26-27 17-19 158 26-31 115 20-22 35-36, 96 36-39 146 39 51 29 152 8 116 35, 80,95 121-125 116 42 INDEX 81, 106-107 29-31 44 92-135 56 28 114 24-25 142 Trade andotherreceivables Trade andotherpayables Total shareholder return This isBT Taxation (USHolders) Taxation T andassociate undertakings Subsidiary Stock exchange listings Statement ofrecognised incomeandexpense,group Specific items Shareholdings, analysisof Shareholders andannualgeneral meeting Shareholder communication ShareGift Share basedpayments Share capital Share buyback Share andADSprices Selected financialdata Segmental analysis S Unclaimed AssetsRegister U 39, 44-45,82,99-100,138 5 152 84, 115,138 36-38, 97 153 92-95 149 156-158 82, 126-129,138 143-144 149 151 BT GROUP PLC 83, 112 150 152 83, 108-109 159 ANNU 141 74 AL REPORT & FORM 89 20-F 167

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW BT Group plc

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