Bringing it all together Annual BRITISH TELECOMMUNICATIONS plc BRITISH TELECOMMUNICATIONS Report & Form 20-F 201 1 British Telecommunications plc Registered offi ce: 81 Newgate Street, London EC1A 7AJ Registered in England No. 1800000 Produced by BT Group Designed by Greentarget, London Typeset by RR Donnelley Printed in England by Leycol Printers Ltd Printed on elemental chlorine-free paper Sourced from sustainably managed forests www.bt.com As a wholly-owned subsidiary of BT Group plc, British Telecommunications plc meets the PHME 59915 conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K as applied to reports on Form 20-F and is therefore fi ling this Form 20-F with the reduced disclosure format. U10648_CoverSpread.indd 1 19/5/11 22:32:16 01_U10648_Contents.qxp:BT PLC 01 19/5/11 17:39 Page 1 Bleed: 0mm Scale: 100% BT is one of the world’s leading communications services companies, serving the needs of customers in the UK and in more than 170 countries worldwide. CONTENTS 2 Report of the Directors 2 Business review 19 Financial review 28 Statutory information 30 Statement of directors’ responsibilities 31 Report of the independent auditors – consolidated financial statements 33 Consolidated financial statements 90 Report of the independent auditors – parent company financial statements 91 Financial statements of British Telecommunications plc 108 Subsidiary undertakings and associate 109 Additional information for shareholders 114 Cross reference to Form 20-F This is the Annual Report for the year ended 31 March 2011. It complies with UK regulations and comprises part of the Annual Report on Form 20-F for the US Securities and Exchange Commission to meet US regulations. In this Annual Report, references to “BT”, “BT plc”, “the group”, “the company”, “we” or “our” are to British Telecommunications plc and its subsidiaries and lines of business, internal service units or any of them as the context may require. References to ‘a year’ are to the financial year ended 31 March of that year, eg ‘2011’ refers to the year ended 31 March 2011 except in relation to our super-fast fibre-based broadband roll out plans which are based on calendar years, not financial years. Unless otherwise stated, all non financial statistics are at 31 March 2011 except BT Infinity customer numbers which are at 6 May 2011. Please see cautionary statement regarding forward-looking statements on page 109. A number of measures quoted in this Annual Report are ‘non-GAAP measures’ provided in addition to the disclosure requirements of IFRS. These include EBITDA, adjusted EBITDA and free cash flow. The rationale for using non-GAAP measures is explained on page 26. Reconciliations from non-GAAP measures to the most directly comparable IFRS measure are detailed in the Financial review on page 26. British Telecommunications plc Annual Report and Form 20-F 2011 1 02_U10648_Report of the Directors.qxp:BT PLC 02 19/5/11 17:39 Page 2 Bleed: 0mm Scale: 100% REPORT OF THE DIRECTORS BUSINESS REVIEW OUR BUSINESS AND STRATEGY contact increase by 15 per cent in BT Consumer and 9 per cent in BT Who we are Business. Within BT Global Services’ ‘right first time’ programme, we British Telecommunications plc (BT) is a wholly-owned subsidiary of reduced customer faults by 11 per cent. BT Group plc and encompasses virtually all business and assets of the We believe the changes we have made, and will make in the next BT Group. Our strategy and policies follow the strategy and policies of financial year, will deliver significantly improved service levels for our BT Group plc which are described in this Business Review. customers. BT is one of the world’s leading communications services companies, serving the needs of customers in the UK and in more Cost transformation than 170 countries worldwide. Cost transformation goes hand in hand with getting it ‘right first time’ for customer service – we have continued with our drive to improve What we do operational efficiency across the business, from using IT systems more Our main activities are the provision of fixed telephony lines and calls, effectively and driving savings from suppliers, to streamlining internal broadband, mobile and TV products and services as well as networked processes and ways of working. IT services. In 2011 we made good progress with our cost transformation In the UK we are a leading communications services provider. activities, which have contributed to our operating costs savings of We sell products and services to consumers, small and medium-sized £1.1bn, representing a 7 per cent decline in our operating cost base. enterprises (SMEs) and the public sector. We also sell wholesale This represents a cumulative reduction in our cost base of almost products and services to communications providers (CPs) in the UK £2bn over the last two years. All of our lines of business and internal and around the world. Globally, we supply managed networked IT service units have made a contribution to the delivery of these services to multinational corporations, domestic businesses and savings. See Transforming our cost base on page 20 of the Financial national and local government departments. review for further details. Savings have been delivered from targeted cost reduction programmes which focus on: Our aim • eliminating the cost of failure across the group Our aim is to drive shareholder value by making BT a better business • an overhead value analysis programme, which provides a structured with a better future. Last year we set out a three-year plan to achieve approach to reducing costs this aim. Our strategy focuses on three key areas – customer service • process re-engineering, which reviews processes end-to-end delivery, cost transformation and investing for the future. These three across the group to remove unnecessary steps. areas are the building blocks for making BT a better business. The These actions have allowed us to operate more efficiently and better we serve our customers, the less time and money we spend on consequently reduce our costs while at the same time reducing failure fixing faults and by transforming our costs we create new opportunities in our processes which assist customer service. for investment in our future. By investing in our strategic priorities we We have also continued to review procurement arrangements with expect to deliver growth in 2013. our major suppliers on a group-wide basis and have improved supply terms and service delivery. Customer service delivery As a result of increased efficiency across our operations we have Our strategy starts with customer service and we continually work to continued to reduce net labour costs, which were down 7 per cent. As improve the level of customer experience. In practice this means far as possible, we try to retain our permanent workforce through keeping our promises, being easy to contact and straightforward to redeployment, retraining and in-sourcing work which has been deal with; it means keeping our customers informed and taking previously performed by third parties. Around 4,000 people have prompt action to put things right if they have cause to complain; been re-skilled and redeployed into roles within BT in 2011. above all it means trying to do things ‘right first time’. ‘Right first time’ is our key measure for customer service. It Investing for the future measures how often we get things right the first time for our By being more efficient in customer service and transforming our cost customers: this is important as failure increases our costs. In 2011 we base we can provide services to our customers on a more competitive achieved a 3 per cent improvement in this measure which compares basis and improve our cash generation. This is critical as it creates the with a 10.5 per cent improvement in 2010. This shows that we made opportunity for us to invest in our strategic priorities as well as pay further progress this year but the scale was less than in previous years dividends to shareholders, support the pension fund and reduce our due to a number of issues, particularly a large increase in provision overall level of debt. volumes requiring engineer visits. These were up over 25 per cent in In 2010 we set out five strategic priorities which are underpinned the year. In addition, the very poor winter weather both increased by our views of the markets we operate in. By focusing investment repair demand and reduced our ability to deploy engineers effectively. around these strategic priorities we believe we will build a better In order to meet these challenges we recruited additional engineers future for all our stakeholders. and have now brought repair work in hand to the equivalent of a In 2011 we added a new strategic priority which reflects our work day and a half’s work. Provision lead times improved to an average of to embed sustainability and corporate responsibility at the core of our 10 days at the end of March 2011. We will learn from what went business. wrong and will work more closely with our CP customers to ensure that together we provide better volume forecasts and we have a more Our strategic priorities flexible resource that can meet peaks of demand more effectively. Driving broadband-based consumer services We did make progress in a number of other areas. Call handling Competition in the UK consumer market is intense and customers’ times for consumer sales improved by 19 seconds due to the demands are evolving. Around 99 per cent of UK premises now have introduction of Agent.com, a new system that allows our sales agents access to broadband and customers are increasingly buying their line to process orders faster and more effectively.