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9
BT Group plc
Annual Report
2019
At a glance
We help build better digital
lives and businesses, and
support the UK as a world-
class digital economy.
In a rapidly
changing
industry …
… we have a clear
business model …
Our purpose
We use the power of
communications to
make a better world.
Market context
We understand and respond
to market opportunities and
challenges.
Business model
We provide customers with
communications and connectivity
services.
… supported by a strategy
with three refreshed
priorities …
O ur strategy
(cid:127) Diff erentiated customer experience.
(cid:127) Best converged network.
(cid:127) Simplifi ed, lean and agile business.
p 14
p 8
p 12
… a strong culture with
shared values …
… focused on
sustainable growth…
People and
culture
Making BT
a brilliant
place to work.
p 22
Values
(cid:127) Personal
(cid:127) Simple
(cid:127) Brilliant
Key performance
indicators
Group
performance
p 22
p 30
p 34
… and being a
responsible business …
… to achieve
our goal.
Our goal
Drive sustainable
growth in value.
Non-fi nancial
performance
Our performance
as a sustainable
and responsible
business.
Governance
Corporate
Governance
is critical to
delivering our
strategy.
p 32
p 55
N on-Financial Reporting Information Statement
Our integrated approach to reporting means that the requirements
of the Non-Financial Reporting Directive are addressed throughout
the Strategic report. For ease of reference, information pertaining to
each of the matters addressed by the new regulation can be found
on the following pages: Human rights (page 25 ); Our people (page
22 ); Social (page 24 ); Environmental (page 26 ); Anti-corruption and
bribery (page 32 ).
1
Strategic report
Governance
Financial statements
Additional information
Contents
Strategic report
2
3
4
6
8
12
14
16
22
30
34
A message from our Chairman
A message from our Chief Executive
About BT
Executive Committee
Market context
Our business model
Our strategy
Strategic progress
Our stakeholders
Our key performance indicators
Group performance
A message from the Openreach
42
Chairman
44
Our approach to risk management
Our principal risks and uncertainties 46
54
Our viability statement
Governance
Financial statements
Additional information
55
100
185
BT Group plc
Annual Report 2019
Look out for these t hroughout
the report:
Reference to another page in the report
Reference to further reading online
Critical accounting estimates
and key judgements
More information
btplc.com
bt.com/annualreport
Digital impact and sustainability report
btplc .com/ digitalimpactandsustainability
This Strategic report was approved
by the Board on 8 May 2019.
By order of the Board
Rachel Canham
Company Secretary & General Counsel, Governance
8 May 2019
Please see the cautionary statement regarding
forward-looking statements on page 190 .
Pages 1 to 54 form the Strategic report. It includes
Our business model, Strategic progress, Group
performance and Our principal risks and uncertainties.
The Governance section on pages 55 to 99 forms the
Report of the Directors.
2
BT Group plc
Annual Report 2019
A message from
our Chairman
In May 2018 we agreed the 2017 triennial
funding valuation for the BT Pension
Scheme. This allows us to move ahead with
greater fi nancial certainty.
Our solid profi t and normalised free cash
fl ow not only provide the foundation for
investment in our strategic priorities but
allow us to reward shareholders. We are
paying the same dividend as last year at
15.4 p per share. We also expect to hold
the dividend unchanged in respect of the
2019/20 fi nancial year given our outlook
for earnings and cash fl ow. The Board
remains committed to our dividend policy,
which is to maintain or grow the dividend
each year whilst taking into consideration
a number of factors including underlying
medium term earnings expectations and
levels of business reinvestment ( which
would include the consideration of
accelerated FTTP investment).
I am satisfi ed we are making progress
at pace. The coming year will see BT
continuing its transformation to become
a simplifi ed, lean and agile business.
Across the business I see a commitment to
streamlining processes, governance and
organisational structures; simplifying lines
of responsibility; and helping people make
better decisions.
As a Board, we are leading by example.
I recently carried out a review of the
structure, composition and operation
of our committees to speed up decision
making and improve overall governance.
As a result, we have reduced the number
of board committees and clarifi ed lines of
responsibility. Further details are described
in the Governance report on page 55 .
I would like to welcome non-executive
directors Matthew Key and Allison Kirkby
to the Board. They both bring valuable
experience of the communications and
technology sectors.
Gavin Patterson stepped down as chief
executive at the end of January and I would
like to thank him for his contribution to the
business over his 1 5 years with the company.
He led BT with vision and dedication through
a challenging time and started the necessary
process of transforming our business for the
demands of modern society. We wish him
well for the future.
We have made good progress on
delivering our strategy, focused
around diff erentiated customer
experience, our best converged
network, and creating a simple,
lean and agile business.
I am pleased to report that we have
over the last year overcome numerous
challenges to deliver a set of solid fi nancial
results. More importantly, we have made
good progress on delivering our strategy,
focused around diff erentiated customer
experience, our best converged network,
and creating a simple, lean and agile
business. We have continued to deliver the
vital connectivity and services that families
and businesses in the UK and beyond need
to fl ourish.
BT has a critical role at the heart of the
UK’s digital future, and our substantial
investments in fi xed and mobile networks
make an essential contribution. The new
converged propositions we launched this
year are the start of the services of the
future. Within BT we are strengthening
our focus on enabling the digital skills of
our people, customers and communities,
thereby further contributing to the UK’s
digital economy.
We will be launching 5G in 16 cities this
year. We will also increase our investment
in fi bre-to-the-premises (FTTP), while
working with the Government and Ofcom
to create the right conditions to go further
and faster. We are pleased with our closer
relationships with these key stakeholders
as we unite around the common goal of
building the UK’s FTTP network.
I would like to extend a warm welcome
to our new chief executive Philip Jansen.
Philip is a proven leader with outstanding
experience in managing large, complex
businesses and has the right combination
of skills and experience to take BT into the
future. Philip has made an excellent start as
chief executive and I am confi dent that he
will have the full support of all our people as
we embark on the challenging but exciting
next chapter of this great company.
This is a very important time for BT and
the UK’s digital economy. I look forward to
working with Philip and his team as they
develop our strategy and accelerate the
reshaping of BT to deliver future success.
Jan du Plessis
Chairman
8 May 2019
Full year d ividend per share
15.4 p
Revenue
£23 .4 bn (1) %
Profi t after tax
£ 2. 2bn + 6 %
BT Group plc
Annual Report 2019
A message from
our Chief Executive
3
Strategic report
Governance
Financial statements
Additional information
succeed by delivering sustainable value that
refl ects what customers and society want.
Our core priorities around customer
experience, building the best converged
network and transforming our operating
model underpin how we will compete and
drive sustainable growth.
Everything we do should start with the
aim of delivering a diff erentiated customer
experience. We are already making
progress with this . W e introduced our fi rst
converged products, BT Plus, for consumers
and 4G Assure, for small businesses, which
ha ve seen strong take-up . In the coming
year there will be additional investment to
improve our propositions, off er great value
for money and increase consumer loyalty.
We will also invest to maintain our network
leadership position. We already have the
best mobile and fi xed networks and in the
coming year we will launch 5G across 16
UK cities and accelerate our rollout of FTTP.
Although important points still need to be
agreed, our dialogue with the Government
and Ofcom is constructive and we are
increasingly confi dent in the environment
for investment in the UK. As a result w e
are increasing our aim of reaching 3 million
homes to 4 million by March 2021 and
15 million by the mid-2020’s, subject to
conditions being right .
BT has made progress during the year
towards creating a simplifi ed, lean and
more agile business. We will make further
improvements in the coming year to
speed up decision making and the pace
of work, making use of the latest digital
technologies. Our people recognise we are
too complex and want us to go faster in our
transformation. Employee engagement is
high, with a 77% engagement outcome
for colleagues participating in our
recent people survey. The results were
generally encouraging, and demonstrate
our collective desire to embrace the
changes required to make BT a brilliant
place to work and give our customers an
outstanding experience.
I am pleased to see how much our people
contribute to the community and am proud
that BT encourages this work. One area I
want us to really lead on is improving digital
skills – for our colleagues, customers and
families across the UK and well beyond. BT is
uniquely qualifi ed to help people navigate the
opportunities and challenges of our digital
age. Enabling these skills will help people
adapt to new ways of working and create
future customer demand for our products.
We’re committed to respecting human and
digital rights – we launched an overarching
human rights policy, and we’re partnering
with others to combat modern slavery.
We continue to tackle environmental
challenges, having recently announced our
ambition to be a net zero carbon emissions
business by 2045.
BT has delivered solid results for the year ,
and this is due to the commitment of our
colleagues. The markets we are in remain
highly competitive and w e continue to
expect market dynamics, cost infl ation and
legacy product declines and the changing
regulatory environment to impact our
results in the short term, however, we are
confi dent that our plans will deliver good
returns over the medium term and improve
the quality and performance of the business.
As a result, for 2019/20, we expect
adjusted revenue to be down around 2%.
This is mainly as a result of the challenging
market conditions, regulatory pressure
in both fi xed and mobile markets, and
the ongoing impact from our decision to
de-emphasise lower margin products,
particularly in our enterprise businesses.
Along with the fl ow through of lower
revenue, we expect our opex investments
to result in Group adjusted EBITDA for
2019/20 being in the range £7.2bn –
£7.3bn. While we will sustain these opex
investments into 2020/21, we continue
to expect Group adjusted EBITDA for
2020/21 to be above that for 2019/20.
We are raising our reported capital
expenditure guidance (excluding BDUK
clawback) for 2019/20 to be in a range of
£3.7bn – £3.9bn. We expect normalised
free cash fl ow for 2019/20 to out-turn in
the range £1.9bn – £2.1bn.
I look forward to working alongside our
colleagues to build the new BT and I am
optimistic and energised for the future.
Philip Jansen
Chief Executive
8 May 2019
I am delighted to be the new
chief executive of BT. We play
a n important role in UK society
and provide mission-critical
services all around the world. It is
a privilege to lead such a special
company, with a great history and
a very exciting future. BT creates
value for a large and diverse
group of stakeholders.
My fi rst priority on joining in January was
to meet as many BT colleagues as possible,
and I have seen fi rst-hand the energy and
commitment they bring to doing the right
thing by our customers. As we build the BT
of the future, this dedication will be essential
for transforming the company and improving
the service we provide to our customers.
Many of our people talk to customers every
day and can provide great insight into
how they think. The way our customers
see the world and our role in their lives
and businesses is changing. In the coming
year we will focus on developing a better
understanding of what customers value
about BT in each of our market segments.
BT is already making signifi cant investments
in our key markets and we have a very
strong market position, but we need to
invest more in our core areas to drive
future growth. Constant innovation is key
to keeping our business moving forward.
Our increasing investment in fi bre and 5G
programmes is vital to our future success.
Our relationship with the UK Government
and Ofcom continues to improve. We’re
working in a pragmatic, straightforward
and collaborative way. We want to shape
the regulatory environment so that it
is clear and predictable, enabling BT to
4
4
BT Group plc
Annual Report 2019
About BT
Who we are
We’re one of the world’s leading
communications services companies.
We’re based in the UK but we serve
customers in 180 countries.
What we do
We develop and sell communications
products and services and build
and operate networks that are
an essential part of modern lives,
businesses and communities.
How we’re organised
BT is organised into two types of
units: customer-facing units that sell
products and services and corporate
units that support the whole group.
Financial highlights
Revenue
Change in underlyinga revenue
£23.4bn (1)%
(0.9)%
Profit before tax
Adjustedb EBITDA
£2.7bn +2%
£7.4bn (2)%
Basic earnings per share
21.8p +6%
Adjustedb earnings per share
26.3p (6)%
Net cash inflow from
operating activities
Normalised free
cash flowc
£4.3bn (14)%
£2.4bn (18)%
For more information on our
financial performance see page 34.
Capital expenditured
(excluding BDUK clawback)
£3.8bn +8%
Alternative performance measures
We assess the performance of the group using a variety of performance measures. These measures are not all defined
under IFRS and are therefore termed ‘non-GAAP’ measures. We present a reconciliation from these non-GAAP
measures to the nearest prepared measure in accordance with IFRS on pages 185 to 187. The alternative performance
measures we use may not be directly comparable with similarly titled measures used by other companies.
a Underlying revenue excludes specific items, foreign exchange movements and disposals.
b Items presented as adjusted are stated before specific items. See page 185 for more information.
c After net interest paid, before pension deficit payments (including the cash tax benefit of pension
deficit payments) and specific items.
d Additions to property, plant and equipment and software in the period less proceeds from disposals.
BT Group plcAnnual Report 2019
BT Group plc
Annual Report 2019
5
5
Strategic report
Governance
Financial statements
Additional information
Our corporate units
Strategy and Transformation
We are responsible for developing and
setting corporate, network and product
strategies for the group. We also drive
pan-BT transformation programmes.
Led by
Michael Sherman
Chief strategy
and transformation officer
Technology
We are responsible for designing,
building and operating BT’s core and
mobile networks, platforms and IT
systems in the UK and globally. We also
work with the customer-facing units
to develop and roll out products and
services for their customers.
Led by
Howard Watson
Chief technology
and information officer
Corporate functions
The remaining corporate units carry out
central activities on behalf of the group.
We benefit from shared expertise and
economies of scale. They include: Finance,
HR, Legal and Company Secretarial,
Compliance, Corporate Affairs, Property,
Facilities, Procurement, Regulatory Affairs
and Group Business Services.
Our customer-facing units
Consumer
Across our three brands – BT, EE and
Plusnet – we connect customers to
information, entertainment, friends
and family, at home and on the move.
Between them, the three brands serve
the whole of the UK, providing mobile,
broadband, home phone and TV services.
We buy access to fixed-line and broadband
infrastructure from Openreach, and we
use EE’s mobile network to provide mobile
phone services.
Led by
Marc Allera
CEO, Consumer
Enterprise
We sell communications and IT services to
businesses and public sector organisations
in the UK and Ireland. We also provide
network products and services to
communications providers operating in
Great Britain. We’re focused on four main
product markets: fixed voice, mobile,
converged connectivity and networked
IT services.
Led by
Gerry McQuade
CEO, Enterprise
External revenue
£10,588m +3%
External revenue
£5,933m (4)%
Percentage of
group revenue
45%
Percentage of
group revenue
25%
Global Services
We are a leading enterprise
communications provider, serving
enterprise customers in 180 countries.
We provide managed network and
IT infrastructure services, enabling
customers’ digital transformations.
Led by
Bas Burger
CEO, Global Services
Openreach
We build and operate the fixed network
that connects the UK’s homes and
businesses. We are responsible for
providing wholesale ‘last mile’ fixed access
from premises to exchanges, and installing
and maintaining the fibre and copper
communications networks.
Led by
Clive Selley
CEO, Openreach
External revenue
£4,735m (6)%
External revenue
£2,200m (3)%
Percentage of
group revenue
20%
Percentage of
group revenue
10%
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 6
BT Group plc
Annual Report 2019
Executive Committee
BT Group plc
Annual Report 2019
7
Strategic report
Governance
Financial statements
Additional information
The Executive Committee
provides input and
recommendations
to support the chief
executive in exercising
the authority delegated
by the Board to run the
business of the group
day -to -day. It meets
weekly and is chaired by
the chief executive.
The Executive Committee
assists the chief executive in:
(cid:127) developing the group
strategy and budget for
the Board’s approval
(cid:127) executing the strategic plan
once agreed by the Board
(cid:127) providing assurance to the
Board in relation to overall
performance and risk
management.
All decisions are taken by
the chief executive, or his
delegate, in keeping with
the principle of single point
accountability.
Philip Jansen
Chief executive
Appointed as chief executive in February 2019
and on the Board since January 2019.
Simon Lowth
Chief fi nancial offi cer
Appointed to the Board as chief fi nancial offi cer
in July 2016.
Philip joined BT from Worldpay where he had
been CEO since April 2013. Before that he
was CEO and then chairman at Brakes Group
between 2010 and 2015. Philip spent the
previous six years at Sodexo where he was group
chief operating offi cer and chief executive,
Europe, South Africa and India. Prior to that he
was chief operating offi cer at MyTravel Group
from 2002 to 2004 and managing director of
Telewest Communications (now Virgin Media)
from 200 0 to 2002, after starting his career at
Procter & Gamble.
Simon was CFO and executive director of
BG Group before the takeover by Royal Dutch
Shell in February 2016. Previously Simon was
CFO and an executive director of AstraZeneca,
and fi nance director and executive director of
ScottishPower. Prior to that, Simon was a director
of McKinsey & Company.
Marc Allera
CEO, Consumer
Appointed February 2016 as CEO, EE and
became CEO, Consumer in September 2017.
Marc was previously chief commercial offi cer for
EE from 2011 to 2015. Marc spent ten years
at Three UK as sales and marketing director and
subsequently chief commercial offi cer. Prior to
that, Marc was general manager of Sega UK
and Europe.
Bas Burger
CEO, Global Services
Appointed June 2017.
Sabine Chalmers
General counsel
Appointed April 2018.
Bas was formerly president, BT in the Americas,
BT Global Services. Bas joined BT in 2008 as
CEO Benelux.
Before joining BT, Bas was executive president
and a member of the management committee of
Getronics NV, where he ran global sales, channels
and partnerships, developing the company’s
international business. He was also CEO and
managing director of KPN Entercom Solutions.
Before joining BT, Sabine was chief legal and
corporate aff airs offi cer and company secretary
of Anheuser-Busch InBev for 12 years. She also
held various legal leadership roles at Diageo.
Sabine is qualifi ed to practise law in England
and Wales and New York State.
Gerry McQuade
CEO, Enterprise
Appointed CEO, Wholesale and Ventures in March
2016 and became CEO, Enterprise in May 2018.
Gerry was formerly chief sales and marketing
offi cer at EE responsible for the business,
wholesale and product development areas which
he had overseen since the merger in 2010 of
Orange and T-Mobile. He joined the board of
Orange in January 2008, and prior to Orange
he was a founding director of Virgin Mobile.
Howard Watson
Chief technology and information offi cer
Appointed February 2016.
Howard was formerly chief architect and
managing director, global IT systems and led the
technical teams behind the launch of BT Sport
in 2013.
Howard joined BT in 2011 and has 30 years
of telecoms experience having spent time at
Telewest Communications (now Virgin Media)
and Cartesian, a telecommunications consultancy
and software company.
Ed Petter
Corporate aff airs director
Appointed November 2016.
Cathryn Ross
Regulatory aff airs director
Appointed January 2018.
Ed was formerly deputy director of corporate
aff airs at Lloyds Banking Group . Prior to that he
held corporate aff airs roles at McDonald’s Europe,
McKinsey & Company and the Blue Rubicon
communications consultancy, having previously
worked as a news producer and editor at the BBC.
Cathryn was formerly chief executive of Ofwat,
the independent economic regulator for the
water and waste water sector in England and
Wales. Cathryn is an experienced regulatory
and competition economist and has worked
across a number of diff erent sectors advising on
economic, regulatory and competition issues.
Michael Sherman
Chief strategy and transformation offi cer
Appointed May 2018.
Michael is responsible for developing BT’s long-
term strategy and guiding pan-BT business
transformation. Prior to BT, Michael was a
partner and managing director at Boston
Consulting Group for 11 years. Before that,
Michael spent eight years as an executive at
Viewlocity, an enterprise software company.
Alison Wilcox
HR director
Appointed July 2015.
Alison was formerly regional HR director for
Vodafone Europe and before that, r egional HR
d irector for Vodafone’s Africa, Middle East and
Asia Pacifi c footprint. Alison joined Vodafone in
2006 as group director of leadership following
a career in consulting.
Clive Selley
Invitee, CEO, Openreach
Clive was appointed CEO, Openreach in
February 2016. He was formerly CEO, BT
Technology, Service & Operations, CEO
BT innovate & design and before that
president, BT Global Services portfolio
& service design. The CEO of Openreach
cannot be a member of the Executive
Committee under the provisions of the
Commitments. Clive attends Executive
Committee meetings as appropriate.
Rachel Canham
Company secretary & general
counsel, governance
Rachel is company secretary of BT
Group plc. She joined BT in 2011 as a senior
commercial lawyer before becoming chief
counsel for mergers & acquisitions in 2013.
Rachel was appointed company secretary &
general counsel, governance in November
2018. Rachel attends all Executive
Committee meetings.
88
BT Group plc
Annual Report 2019
Market context
By understanding market trends in our own industry and in others
that affect us, we can take advantage of opportunities as they arise
and act more quickly to reduce any risks to our business.
Our share of UK households
(Number of households)
15m
BT UK share
27m
Number of
homes in the UK
15m
BT UK share
Homes with EE relationship
Homes with BT relationship
8m
7m
Homes with a relationship with both BT & EE 2m
Homes with a relationship with Plusnet
1m
Service providers
Our markets
UK fixed
connectivity
UK Mobile
TV and content
Converged
connectivity
and services
Global
telecoms services
Fixed
infrastructure
Our brands
BT
EE
Plusnet
Openreach
Selected competitors
primary offering
Amazon Prime Video
Apple TV
CityFibre
Giffgaff
Hyperoptic
Netflix
O2
Orange Business Solutions
Sky
TalkTalk
Three
Virgin Media
Vodafone
Please note that these are primary offerings. We acknowledge that our competitors also have secondary offerings in some of our markets in addition to the above.
BT Group plcAnnual Report 2019 9
UK fixed connectivity
Providing fixed
broadband services to
consumers, businesses
and communications
providers.
UK mobile
Providing mobile
connectivity to
consumers, businesses
and MVNOs.
We connect customers to information,
entertainment, and friends and family,
at home.
Fixed connectivity includes providing
connectivity directly to homes or businesses
and is our biggest market by revenue. It
includes voice telephony, internet access and
the provision of dedicated lines for business
and public sector customers.
Within Enterprise, we have three main types
of customers with different communications
needs:
• Small and Medium Enterprise customers,
who we define as having fewer than
100 employees, often rely heavily on
communications services and look for more
consumer-style products.
• Corporate customers, who often have more
complex needs, and who are increasingly
buying more security and cloud-based
products.
• Public Sector and Major Business customers,
who look to buy both fixed and mobile
services in multi-year contracts and who
can demand very high security.
We also serve communications providers who
want to buy solutions to sell on to their end
customers.
This market includes any data or voice services
on mobile devices. It is a major segment of our
business.
We use EE’s mobile network to provide mobile
phone services across our three brands to the
whole of the UK.
Both Consumer and Enterprise sell mobile
services in this market.
Another aspect of the mobile market is
wholesaling to Mobile Virtual Network
Operators (MVNOs) in the UK, where Mobile
Network Operators offer wholesale mobile
connectivity.
This segment is experiencing a technology
migration from the legacy Public Switched
Telephone Network (PSTN) to Internet
Protocol (IP). The UK Government actively
supports this.
In Consumer, fixed internet connectivity is
increasingly essential to our individual and
household customers, with each using an
average of 240GB a year. In 2018, nine in
ten people had access to the internet in their
home. Many adults claim to spend as much as
24 hours per week online, more than twice as
much as in 2007.
Price competition on phone calls and
broadband continues to be intense. Therefore,
revenue opportunities in this segment focus
on increased demand for higher speed and
better-quality products, driven by consumers
and businesses using more data.
Historically, the mobile market has largely
been driven by handset launches. Less
innovation and differentiation mean
consumers are keeping their handset for
longer and visiting stores less often. This trend
is leading to increased uptake of SIM-only
plans in the market. We also see market
volume growth coming from consumers
buying extra SIMs and devices and using
more data.
Businesses are increasingly letting their
people use their own smartphones at work.
Despite that, they are continuing to buy
large data bundles to support their people’s
increasing mobile data use, for example in
areas such as collaboration.
The UK currently has more than 100 MVNOs
and we are one of the leading providers of
MVNO services.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 10
Market context continued
TV and content
We sell TV content in our Consumer division
under our BT and EE brands.
We also wholesale BT Sport to other providers.
Providing TV content
to customers.
The UK has a well-established free-to-air TV
service, on top of which consumers buy many
premium content packages including live
sport, which continues to be a staple in most
UK homes.
In comparison to ‘cord-cutting’ where
consumers abandon TV packages in favour
of a range of over-the-top (OTT) streaming
media offers, we are seeing some evidence of
‘package-thinning’ as an emerging feature
of the market. This is where customers buy
the most basic package to get TV access and
accentuate this with on-demand OTT content.
These trends are affecting traditional
providers in limiting their ability to sell
premium monthly content subscription
packages.
Converged connectivity and services
With our fixed and mobile networks, we are
well positioned in the converged connectivity
and services market.
The UK is in the early stages of convergence –
the bundling of fixed, mobile and TV services
into a single service.
We have launched BT Plus, the UK’s first
converged fibre and 4G plan that gives
customers BT’s fastest speeds in and out of the
home with a unique Keep Connected Promise,
all on one simple bill.
We launched 4G Assure for our business
customers, providing 4G connectivity if their
fixed broadband service was not available.
Providing converged
products and services
to customers.
Convergence can increase customer lifetime
value, as those taking converged offers tend
to be more loyal.
Greater connectivity and new devices will
lead to new possibilities for technology
convergence. As an example, people can
already answer their front doors and adjust
their central heating remotely using Internet
of Things (IoT) technology.
Applications like smart homes and connected
cities are no longer ideas beyond the horizon
– they are here and are already part of many
major economies.
BT Group plcAnnual Report 2019 11
Global ICT services
Providing ICT services to
global enterprises.
The global ICT services market includes
security, network and IT services and is highly
competitive, with many players. It includes
local markets – often dominated by incumbent
communications providers – and the global
enterprise-grade fixed line services market.
Global Services operates in this market,
leveraging the strengths of the BT network
and capabilities, to deliver the tailored service
that customers need.
The demands of business customers are
changing. For example, they are moving
from traditional voice services to digital
voice services – from MPLS (Multi Protocol
Label Switching) to services such as SD-WAN
(Software-Defined Wide Area Networks).
They are also increasingly focused on solving
security challenges.
Companies value partners with the knowledge
to help them on this journey. They rely on
their technical expertise and scale to help
them benefit from advanced services, in
multiple regions, across infrastructures with
mixed technologies and standards.
Fixed infrastructure
Providing network
access to
communications
providers.
In just under half of the fixed infrastructure
market, Openreach is the main provider to
communications providers, who then offer
services to their home and business customers.
In the rest, we overlap with our biggest cable
and fibre competitors.
Openreach is deploying new technologies such
as Fibre to the Premises (FTTP) and Gfast to
improve the performance and quality of its
network. It also provides regulated access to
its passive network assets (ducts and poles) to
support network build by other providers.
The UK has a large fixed access network
consisting of fibre and copper communication
networks. Openreach operates in the UK’s
regulated, fixed access market and trades
mainly with communications providers. It is
responsible for providing services over the
local access network, sometimes referred to as
the ‘last mile’, installing and maintaining the
fibre and copper communications networks
that connect homes and businesses.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
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12
BT Group plc
BT Group plc
Annual Report 2019
Annual Report 2019
BT Group plc
BT Group plc
Annual Report 2019
Annual Report 2019
13
13
Strategic report
Strategic report
Governance
Governance
Financial statements
Financial statements
Additional information
Additional information
Our business
model
International Integrated
Reporting Council’s capitals
This key provides a mapping to the ‘capitals’ of
the IIRC’s Integrated Reporting (IR) Framework.
You can fi nd out more at the iirc.org
F Financial
H Human
M Manufactured
I Intellectual
S Social
N Natural
Our business model is centred
around providing customers with
communications and connectivity
services, while delivering great
experiences and maintaining
long- term relationships.
Our customers and what we off er them
Our customers are consumers, businesses,
multinational corporations, public sector
organisations and other communications
providers.
We sell fi xed-voice, broadband, mobile and TV
to UK consumers, with a range of ancillary products
and services such as handsets and insurance. For
our UK and global business customers, our services
range from phone and broadband to complex
managed networks, IT services and cyber security.
We also sell wholesale access products and services
to UK communications providers.
Customers primarily buy through monthly,
recurring subscriptions or contracts, which provide
us with ongoing and predictable revenue. This is
comple mented by pay-as-you-go mobile services.
Individuals, households and SMEs pay for
standalone or bundled services, typically on 12- to
24-month contracts. In addition, large enterprise
customers – both domestic and international – buy
managed services on multi-year contracts.
Wholesale contracts range from one month for
regulated products, to fi ve years or more for
major managed services deals.
To create lasting revenue and profi t, we focus on
providing a diff erentiated customer experience,
measured through Net Promoter Score (NPSa),
which has improved over 11 consecutive quarters.
a Group NPS measures Net Promoter Score in our retail business
and Net Satisfaction in our wholesale business.
What sets us apart
We have a unique combination of people, technology, content, networks
and other physical assets that sets us apart and supports us in adding value:
F Financial strength
Our cash fl ows provide us with the funding
to make long-term investments. This year we
invested £ 2 .1bn in our network and generated
£ 2.4bn normalised free cash fl ow, to support
investment in future years.
H Our people
The commitment, expertise and diversity of
our people are key to our success. We have
106,700 employees, 84,300 of whom are
in the UK.
S Our customer base
The size, scope and breadth of our customer
base gives us an advantage over our
competitors. We have a total of around
26.8 million consumer customers, 1.1
million UK business customers and 4,100
multinational customers.
M Networks and physical assets
We maintain a substantial core network
with key fi xed and mobile assets, such as our
superfast fi bre broadband footprint of 27.5
million homes and businesses and our mobile
spectrum assets.
I Our brands
We own three retail brands: BT, EE and Plusnet.
We also own the Openreach brand which serves
communications providers.
M Retail footprint
In the UK we have more than 600 retail stores,
giving us the largest retail footprint of any
mobile network operator.
I Innovation
This year we spent £643 m on research and
development enabling us to stay at the
forefront of a rapidly changing world. We have
a portfolio of more than 5,000 patents and
applications, with 10 3 patent applications for
inventions fi led in 2018/19. As an example we
are currently market leaders in the rollout of 4 G
and intend to lead the market to 5 G.
N Partners
Our business model relies on partners
and suppliers.
£2.4bn
Normalised free
cash fl ow
106,700
Total number
of employees
28 m
Total number of
customers worldwide
27.9m
Homes and businesses
with superfast fi bre
broadband
Our brands
600
Retail stores
throughout the UK
£ 643 m
R& D spend
1 00
Number of countries
we have suppliers in
What we do
Our purpose
To use the power of communications to make a better world .
Our goal
Drive sustainable growth in value. Lead in converged connectivity
and services, seize new business opportunities and deliver industry -
leading effi ciency.
We build
We build fi xed and mobile
connectivity across the UK,
creating the UK’s leading
network.
We innovate
We use our customer insight
and technical skills to create
new connectivity- based
products and solutions.
We se ll
Through our brands, we sell
products and services to build
trust, create value and
generate loyalty.
We operate
We operate fast, secure and
reliable fi xed and mobile
networks that deliver what
our customers need.
Our organisation
Cu sto mers
Consumer
Global Services
Enterprise
Openreach
Strategy and
Transformation
Corporate units
Technology
Corporate
Functions
Stakeholder outcomes
Shareholders
10.78 p
1 5.40 p
Proposed fi nal dividend
per share
F ull year dividend
per share
Customers
5. 4 %
3. 4m
Improvements in Right
First Time performance
BT Call Protect
customers
Colleagues
77 %
Employee engagement
outcome
Suppliers
£13.4 bn
Spent with
suppliers
1,400
Agency workers
converted to
permanent
67%
With top 1 00
suppliers
Communities and society
2m
87%
Children reached
through the Barefoot
Computing programme
Electricity used from
renewable sources
worldwide (UK now
at 100% directly
purchased)
Government
1,800
UK public sector
customers
Information linked to our business model
About BT – we explain how we’re organised
and how and where we operate on page 4 .
Strategy – our strategy supports our business
model and is on page 14 .
Principal risks and uncertainties – we describe
these and how we manage them on page 46 .
Viability statement – our directors’ assessment
of our prospects and viability is on page 54 .
Governance – we describe how we govern
our business from page 55 .
Remuneration – the directors’ remuneration
report is from page 73 .
1414
BT Group plc
Annual Report 2019
Our strategy
Our strategy is to lead in
converged connectivity and
services, capitalising on new
business opportunities and
delivering industry-leading
operational efficiency. This is
to support our goal of
delivering sustainable
growth in value.
Our markets are transitioning but they are
still based on the universal need to connect
and communicate, a need which has never
been more essential.
Creating experiences for our customers that
truly differentiate us from our competitors is
at the centre of our strategic framework.
Everything we do with respect to building
the best converged network, and becoming
a simpler, leaner and more agile business,
needs to ultimately support our strategy to
deliver great customer experience.
We have underpinned our strategy to fulfil
the needs of two other critical stakeholder
groups – our people and the communities in
which we do business. For our people, our
strategy is to make BT a brilliant place to
work. For the communities we operate in,
our strategy is to be a valued partner in
helping to build better digital lives.
Our purpose
To use the power of communications to make a better world
Our goal
Drive sustainable growth in value
Lead in converged connectivity and services, seize new business opportunities
and deliver industry leading efficiency
Our strategy
Customer
Best
converged
network
Differentiated
customer
experience
Simplified,
lean and agile
business
Colleague
A brilliant place to work
Community
A valued partner helping build better digital lives
Our values
Personal
Simple
Brilliant
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
Strengths and opportunities
Our long-standing relationships with home
and business customers give us a platform
for continued investment.
Our investments result in long-lasting
assets. This includes nationwide networks,
where we are investing in the critical physical
components – such as cabling, switches and
routers – of the digital economy of the near
future. Our strategy supports the building of
a robust network that will underpin the
growth of the digital economy, and
enhanced connectivity in all parts of the UK.
Our network also creates a robust physical
foundation for many uses in next generation
technologies which need the best
connectivity. We will own the foundation
and therefore be in an unrivalled position.
We see significant opportunities in the
advancement of Artificial Intelligence
(AI) and machine learning, for new
communications methods, such as virtual
and augmented reality, and for connected
devices. All of these opportunities require
great connectivity, which we will need to
support.
As a major player in the UK communications
market we have a responsibility to do the
right thing for the UK and make sure we
operate within a fair regulatory framework
and clear ethical boundaries. But being a
player with substantial resources and a large
and diverse customer base also gives us a
real strategic advantage.
15
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Strategic report
Governance
Financial statements
Additional information
In global markets we are often a challenger
to the incumbent, presenting an opportunity
to innovate and move faster to deliver secure
hybrid network solutions that support our
customers’ migration to new digital
technologies.
For more on the risks that affect us
see page 46.
Best
converged
network
Differentiated
customer
experience
Simplified,
lean and agile
business
Customers want fast, secure,
seamless and reliable connectivity
to enable their digital lives and
businesses. Therefore we must
deliver the best converged
network in the UK through our
rollout of FTTP and 5G.
Consumers and businesses have
more choice than ever about
how they communicate and
the company they choose to
buy from. We want to deliver a
brilliant experience to encourage
existing customers to stay with
us and do more with us, and to
encourage potential customers to
switch to us. We aim to offer easy,
personalised experiences across
our channels and deliver seamless
digital services.
Markets today are more
dynamic and competitive and
we operate in a complicated and
regulated space. We are creating
a simplified and lean business
with agile ways of working. This
means continually modernising
our organisation, changing how
we work to do things better for
less cost, and simplifying our
products, processes and systems.
For more information
see page 18.
For more information
see page 16.
For more information
see page 20.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 16
BT Group plc
Annual Report 2019
Strategic progress
Delivering a differentiated customer experience
3.
Creating an outstanding customer experience for all our
customers, backed by the best network, is central to
our long-term growth and future success. We are
making progress but we want to go further.
Everyone at BT is responsible for
providing a brilliant customer experience.
We want our customers to enjoy using
the products, services and support
channels that we provide.
We measure customer experience in two
different, but complementary, ways:
customer experience (based on Net
Promoter Score) and how often we get
things Right First Time (RFT).
We regularly review the priorities of both
our consumer and business customers,
and will be evolving our RFT metric for
2019/20 to reflect this.
Our evolved measure, Keeping Our
Promises, is focused on us meeting the
commitments we make and providing
a more reliable service.
NPS has increased over 11 consecutive
quarters, with this year’s overall score 6.5
points better than last year’s. RFT was
up 5.4%.
These improvements are largely due to
our consistent approach over the past
three years, focusing on:
1. Delivering a consistent
and reliable service
2. Loyalty and value
42
We have met or exceeded all of Ofcom’s
42 Minimum Service Level targets on
copper and broadband services
600 shops
Customers can now talk to us face-
to-face in more than 600 EE shops
<1.8%
45Mbps
We now miss less than 1.8% of
engineering appointments
Average broadband speeds for BT
consumer customers is 45Mbps
3. Products that fit our
customers’ needs
4. Enabling digital
global business
90%
180
More than 90% of Samsung mobile
phones were repaired on the same day
Next generation SD-WAN is
available in 180 countries
SD-WAN
First
Launched innovative converged
business products such as SD-WAN
First foreign communications provider
to be awarded a licence in China
BT Group plc
Annual Report 2019
1. Delivering a consistent
and reliable service
The communications we enable are so
essential to our customers that delayed
orders, faults or service disruptions can cause
significant distress. This year, therefore, our
investments included:
• speeding up our ultrafast fibre rollout
(FTTP), passing an average of c14,000
new premises every week in 2018/19.
• hiring over 4,000 new contact centre
agents, and switching 800 from agency
contracts to full time, helping cut call
centre wait times for business customers
by a third and for EE broadband customers
by a half.
• increasing the proportion of all BT brand
Consumer service conversations handled
in the UK to around 83%, and working
towards a target of 100%. All BT Plus, EE
and Plusnet calls are handled in the UK
• improving our eChat service, which is now
used by one in five BT brand Consumer
customers for service queries.
• increasing our intake of engineering
apprentices by around 1,700.
We are innovating to improve the experience
of our customers. For example, we are using
remote visual assistant technology to help
our call centre agents and our engineers
provide expert advice more quickly.
Openreach’s proactive maintenance meant
we had 2% fewer copper network faults than
in 2017/18, Global Services transformation
has enabled 71% of service incidents to be
proactively detected. Openreach provided
99% of all customers with their first
appointment date for a new service within
12 days, an improvement from 92% in
2017/18. Customer complaints to Ofcom
reduced by a third for both BT’s consumer
broadband and EE’s mobile customers when
measured on a year-on-year basis.
Like many businesses, our complexity is still
a challenge. But making our portfolio smaller
and simplifying our processes will cut the
cost and inertia that leads to poor customer
experience.
Service progress around BT
• We have met or exceeded all of Ofcom’s 42
Minimum Service Level targets on copper
and broadband services.
• We now miss less than 1.8% of
engineering appointments, 23% fewer
than last year.
• Average Ethernet provisioning times went
down 7.6% compared to last year.
• Enterprise won two golds at the UK
Customer Experience Awards.
2. Loyalty and value
We want to reward customer loyalty by
focusing on value for money.
There will be no price increases for our BT
brand consumer broadband, line rental and
mobile products in 2019.
We want to do more than just stop customers
leaving. We want to build more loyalty across
all our brands, by focusing on value for money.
We want customers to increasingly get more
for their money – whether that is faster
broadband speeds or better mobile coverage.
Loyalty and value progress around BT
• Customers can talk to us face-to-face
in more than 600 EE shops about BT
broadband and TV and EE products and
services, with a full BT service planned for
the end of 2019/20.
• Average broadband speeds for BT’s
Consumer customers have improved 10%
to 45Mbps.
• We now have nearly 3.4 million customers
using our Call Protect product, preventing
more than 220 million unwanted calls
since launch in January 2017.
3. Products that fit our
customers’ needs
Our BT Plus convergence proposition includes
mobile replacement, guaranteed minimum
speeds and double mobile data allowances
for customers.
BT Plus launched in May 2018 and has
around one million subscribers. Complete
Wi-Fi subsequently launched as an enhanced
version of the service and the take up has
been encouraging. BT Sport saw a 4%
audience increase for English Premier League
games and an 18% increase for Champions
League coverage.
We also launched BT’s new Stay Fast
Guarantee to improve customer experience
and reduce churn. We’ll optimise connection
performance for new and re-contracting
customers and then monitor and proactively
manage connection quality, offering £20
compensation if we cannot fix speed issues.
We launched EE Smart Plans to expand our
differentiation and drive value through more
for more offers. The handset plan came with
Swappable Benefits to increase value and
encourage migration from SIM only, whilst
both handset and Smart SIM plans offer a
Service Pack including annual device health
checks, accessory vouchers and extended
device warranties.
17
Strategic report
Governance
Financial statements
Additional information
Openreach launched a new volume-
related discount offer for communications
providers to help them boost their
customers’ adoption of higher-speed
and more reliable broadband services.
We have also started migrating customers
to our all-IP digital platform. This brings
opportunities for a range of richer
experiences and propositions – from smart
home technologies for consumers to
sophisticated voice services for SMEs.
Products progress around BT
• We have launched innovative converged
products for businesses such as BTNet,
SD-WAN and cloud solution collaboration
with Microsoft Azure.
• In TV, we are now a content super-
aggregator with Netflix and Amazon Prime
already available, and Sky (via NOW TV) on
its way later in 2019.
• We launched a trial of fast mobile phone
delivery through Enjoy on EE (within the
M25) – offering customers delivery and
set-up of their smartphone as quickly as
two hours from placing their order.
• We launched a trial same-day repair
service with Samsung where more than
90% of repairs were fixed on the same day
and 80% in the same hour.
• We launched 4G Assure for our business
customers, providing 4G connectivity if
their fixed broadband service was not
available. Half of new SME business orders
now take this product.
4. Enabling digital
global business
Our Global Services unit is refocusing on
truly global customers. We are offering a
smaller portfolio of repeatable, scalable
cloud-of-clouds solutions – supported by
market-leading security – to give customers
flexibility, choice and control. We are also
making processes smoother with self-service
tools and automation.
Digital global business progress around BT
• Next generation, SD-WAN services are
now available in 180 countries and we
have launched two new Cisco and Meraki-
based solutions.
• We were the first to market with
Riverbed’s ‘Visibility as a Service’, which
allows customers to view and manage
their application traffic.
• To help our customers migrate to the
cloud, last year we added Google and IBM
to the partners we already support on our
Cloud Connect Platform.
• Last year, a BT joint venture was awarded
domestic operating licences within China.
This is a major step towards allowing us to
better serve our multinational customers.
18
BT Group plc
Annual Report 2019
Strategic progress
Building the best converged network
The converged network we are creating
is a long-term, sustainable asset. The investments
we make today are the foundation of tomorrow’s
digital services and our future revenue.
Our aim is to bring together our mobile,
broadband and wi-fi networks to
lead the market for converged digital
services, while reducing our network
costs by switching off assets like legacy
PSTN by 2025.
Our technology focus areas have stayed
the same over recent years, aligned
to meeting our customers’ needs to
connect and communicate. These are:
1. Superfast and ultrafast fibre
2. Current and future mobile
12.2m
We have 12.2m fibre
broadband customers
3.2m
Number of homes and businesses
in the UK passed by our ultrafast fibre
16
We will launch 5G in 16 UK
cities in 2019
84%
The percentage of 4G geographic
coverage in the UK
3. Network integration
First
EE is the first UK network to support
all major smart home ecosystems
50%
By the end of March 2019 half
of SME broadband sales came
with 4G Assure
19
Strategic report
Governance
Financial statements
Additional information
3. Network integration
We are bringing together our market-leading
mobile, broadband and wi-fi networks into
one converged, digital network to give
customers seamless connectivity wherever
they go. It will be the first of its kind in the
UK. It is scheduled for completion in 2022
and when it launches it will signal a new era
of connectivity.
Network integration progress around BT
• EE showcased Hybrid Broadband,
combining mobile and fixed connections
in one service.
• EE is the first UK network to support all
major smart home ecosystems – with
partnerships including Google, Apple,
Alexa, Hive and Nest.
• We launched broadband with 4G
Assure for SME customers to keep their
broadband running if the fixed connection
is lost. By the end of March 2019 half
of SME broadband sales came with
4G Assure.
• We created a team dedicated to partnering
with innovative converged technology
companies to introduce new content,
smartphones and smart home technology.
• Since EE launched shared data plans
there have been more than three million
data gifts between customers.
BT Group plc
Annual Report 2019
This year we made good progress, which
will continue next year. More of our
customers took up superfast broadband
products and we increased the pace of
our investments in ultrafast.
Ultimately, our ambition is to lead the UK
to 5G. We are starting to roll out our 5G
network, with 16 UK locations going live in
2019. We are proud of still being the best
network in the UK for current technologies,
such as 4G.
We believe fibre is the future fixed connection
to homes and we are rolling it out as fast
as possible. We are increasing our aim of
bringing FTTP from three million to four
million properties by the end of March 2021,
and our ambition to go from ten million
properties to 15 million by the mid-2020s,
subject to conditions being right.
To keep us in the lead for mobile, we are
switching 3G signal to 4G and upgrading
4G sites to enable more spectrum and give
customers a better experience. In 2018
we also acquired the spectrum we needed
to start rolling out 5G. There is another
spectrum auction happening in Spring 2020
where we expect to bid for more.
Commercial success increasingly depends on
innovation, which is why we invest in research
and development.
We are constantly looking at new innovations
to deploy – like edge computing to cut
network congestion and speed up
application performance.
This year we invested £643m (2017/18:
£632m) in innovation. Over the last decade
we’ve been one of the largest investors in
innovation in the UK, and globally in the
telecoms sector.
We have a portfolio of more than 5,000
patents and applications, with 103 patents
for inventions filed in 2018/19.
1. Superfast and
ultrafast fibrea
We have now rolled out ultrafast fibre to
3.2 million homes and businesses. As part
of the Openreach full fibre rollout, we are
progressing build in 26 locations and in April
announced a further 12 locations to benefit
from FTTP availability. This includes London,
Birmingham, Leeds, Manchester, Bristol,
Cardiff, Edinburgh and Liverpool.
Superfast and ultrafast progress around BT
• We have 12.2 million superfast fibre
broadband customers, within our footprint
of 27.5 million covering 86.6% of homes
and businesses.
• Our ultrafast fibre footprint now reaches
more than 3.2 million homes and
businesses.
• EE will offer ultrafast broadband to
customers in summer 2019.
• We are working with government and
Ofcom on options for a broadband
Universal Service Obligation – to provide
100% of UK homes and businesses with a
minimum speed of 10Mbps by 2020.
2. Current and future
mobile
In August, RootMetrics named EE as the
UK’s best network for the fifth year in a row.
Using Ofcom measures, our mobile network
now provides 84% geographic coverage in
the UK. We aim to be the UK’s first mobile
provider to offer 5G, launching in 16 busy UK
cities in 2019.
Mobile progress around BT
• We’ve switched on 5G sites in East London
and are rapidly launching more. We have
also trialled live 5G in Canary Wharf.
• We announced a partnership with OnePlus
on 5G in the UK. EE will be the first mobile
operator in the world to offer the OnePlus
5G smartphone.
• We continue to increase capacity on 4G
sites, laying the foundation for our 5G
launch, and we have built more than
350 new 4G sites in the last 12 months
to connect previously unconnected rural
communities.
a Superfast fibre broadband refers to fibre-to-the-cabinet (FTTC). Ultrafast broadband refers to fibre-to-the-premises (FTTP) and Gfast.
20
BT Group plc
Annual Report 2019
Strategic progress
Creating a simplified, leaner and more agile business
This year we have continued to focus on
modernising our organisation, to put customers
at the heart of what we do.
We simplified our structure by bringing
together our Consumer and EE
businesses and our Business and Public
Sector and Wholesale and Ventures
businesses to create two new customer-
facing units – Consumer and Enterprise.
We are changing our culture to bring
it more in line with the dynamic
company we want to be. That includes
changes to the way we manage
performance, our job categories
and inter-team working.
Our specific focus areas are:
1. Simplifying products,
processes and systems
2. Building a more modern,
productive operation
4
Number of customer-facing
units reduced from six last year
3. Strategic sourcing
67%
Around 67% of our spend is
with our top 100 suppliers
£875m
Overall cost savings from our cost
transformation programme are currently
an annualised benefit of £875m with
an associated cost of £386m
4,029
Roles removed in the year through
our cost transformation programme
BT Group plc
Annual Report 2019
To transform our business we need a simpler,
flatter and more modern organisational
structure. This means having broader, more
accountable roles; fewer job levels; market-
aligned pay; and clearer career paths that
support individuals’ development.
Last year we committed to reshaping our
workforce by reducing roles in the UK and
overseas by 13,000 over the next three
years, with a focus on senior and middle
management roles and by getting smarter
about how we operate.
We are on track against our restructuring
plans with reductions in senior management
balanced with hiring in our front lines –
engineers and contact centres. This includes
hiring more apprentices into Openreach to
resource our integrated network and fibre
rollout programmes.
In contact centres, we are recruiting more
people to help improve the experience of our
customers when they get in touch with us.
Balancing the reductions in management
roles with the increases in contact centre and
engineering roles will leave a net reduction of
around 7,000 roles by March 2021.
We are working with our people to ensure
those affected by changes are supported
through the change process.
We are one of the biggest private sector
recruiters of apprentices in the UK by a
significant margin. We are also popular –
last year there were 63,000 apprentice
applications for almost 4,000 places.
We aim to reshape our workplaces to make
working for BT feel more like working for a
modern technology company. We have started
to roll out a more open working culture. This
includes more teams working in the same
buildings to boost productivity, innovation
and inter-team working, supported by a wider
range of collaborative software.
We are also speeding up ways of working.
This means quickly bringing together teams
for specific projects, then dissolving them
when the project has finished. We are also
letting people work in more fluid ways,
encouraging more collaboration and cross
functional working than we had before. We
are creating more opportunities for people to
test, learn and try again.
We have around 7,000 properties in the UK
and 1,678 across the rest of the world. We
lease most of our UK properties from Telereal
Trillium, part of the William Pears group. We
signed a sale and lease back arrangement
with them in 2001. Eighty-seven per cent
of our UK properties are operational sites
housing fixed and mobile telecoms and
broadband kit. These are retail outlets, offices,
contact centres, depots and data centres. We
also have BT Sport TV studios in London.
To enable these new working practices, we
are creating and investing in more modern,
fit-for-purpose office environments. For
example, we are focusing on around 30
modern, strategic sites to create a more
collaborative, open and customer focused
working culture.
We recently carried out a review of the
structure, composition and operation of our
Board committees to speed up executive
decision making and improve overall
governance. Changes were approved and
implemented by the Board in April 2019.
For further information please see page 56
of the Governance report.
1. Simplifying products,
processes and systems
Our large portfolio of products and services
is complicated for customers and is resource-
intensive to support.
We are starting to simplify our products
and services and streamline our IT systems
and processes. This will reduce additional
work and duplication and help us keep our
promises to customers more quickly and
reliably. It will also give us a springboard to
become the efficient business we need to be
to thrive in the future.
Simplifying operations progress around BT
• We brought together our Consumer and
EE businesses, integrating teams under a
new multi-brand operating model.
• We integrated our Business and Public
Sector and Wholesale and Ventures
businesses into Enterprise to strengthen
services and products and help customers
move to converged technologies.
• Global Services restructured its operating
model to create a new sales organisation
around three global industry verticals,
supported by a single, global commercial
unit. This will give us deeper focus
on fewer customers, improving their
experience of doing business with us.
2. Building a more
modern, productive
operation
We know that becoming more efficient
will make us more productive in the future,
better able to offer a truly differentiated
customer experience.
21
Strategic report
Governance
Financial statements
Additional information
To do that we need a smaller workforce in
some areas and a larger one in others. Our
recent investments in front line contact
centre people and engineers are part of our
plan to put resources, support and decision
making as close as possible to our customers.
To further boost productivity we also need
our people to have better places to work and
better digital skills. These will enable much
greater customer focus.
Productivity progress
• Our better workplace programme
is reducing the number of sites and
upgrading those that remain.
• Our cost transformation programme
remains on track, with c4,000 roles
removed in the year.
• Overall savings from our cost
transformation programme are currently
an annualised benefit of £875m with an
associated cost of £386m.
• Outsourcing of our UK and Republic
of Ireland facilities management and
projects and construction teams took
effect on 1 April 2019. This has resulted
in approximately 1,900 employees
transferring out of BT.
• Openreach is committed to achieving a
world-class cost base to underpin our
fibre build and has integrated key network
delivery teams to improve efficiency.
• In Global Services we are redesigning our
service and portfolio operations to focus
on the needs of our largest multinational
customers.
3. Strategic sourcing
Through strategic sourcing, we delivered
significant savings in 2018/19 and we are on
track to deliver more savings in the future.
This approach is changing the way we think
about procurement, which is also helping
suppliers. Thinking earlier helps them
optimise their own supply chains to support
our future plans. This gives everyone more
certainty and cuts back on unnecessary
cost, which in turn improves our customer
experience.
Strategic sourcing programme
• We are further rationalising our supplier
base to reduce risk and cost.
• We are signing better value multi-year
deals with more of a partnering ethos.
• We are working with our suppliers’
suppliers to cut raw material sourcing
costs.
22
Our stakeholders
We rely on our
stakeholders for our
success as we build
the UK’s national
digital infrastructure.
Our main stakeholders are
customers, our people, the
communities in which we do
business, the environment,
shareholders, suppliers,
government and regulatory
bodies.
Customers
We offer our customers the latest
technologies and services to
enable them to communicate,
share, be entertained and do
business. We deliver and support
these products and services to
build valuable, high-quality, long-
term and sustainable relationships.
Our 28 million customer base is integral to
our success. Our customers are consumers,
businesses, multinational corporations,
public sector organisations and other
communications providers.
Some customers are also competitors
because we sell wholesale products and
services to other communications providers
in the UK and overseas.
Everything we do starts with the aim
of delivering a differentiated customer
experience to generate value and create
loyalty.
You can find more information on how our
customers fit into our business model on
page 12.
People
Our people are central to the
transformation of our business,
and our ability to deliver our vision,
goals and strategic priorities.
We want them to use their skills and our
technology to deliver great products and
services for customers, communities and
societies around the world.
Our people strategy is summed up by our
ambition to be a brilliant place to work. We
want to deliver an outstanding customer
experience by getting our employee
experience right. That means making BT a
place where our people feel engaged and
inspired to be at their best.
At the heart of this are our values:
Personal
Simple
Brilliant
In January’s BT-wide ‘Your Say’ employee
engagement survey, we did better than
previous years on all our value scores:
+3pp
Improvement
in our personal
score (78%)
+2pp
Improvement
in our simple
score (64%)
+3pp
Improvement
in our brilliant
score (73%)
Eighty-four per cent of our people know how
to use our values in their every day work,
which helps us to provide our customers with
a differentiated customer service.
We know that we still need to do more and
make it easier for our people to make things
happen for our customers. As a result we
have introduced the RAPID® (Recommend,
Agree, Perform, Input, Decide) framework.
RAPID® helps us be clear about the
accountabilities for key decisions, which
fosters speed, effectiveness and greater
empowerment. We are embedding the
framework through training our leaders
across the organisation in how to use it.
Engaging our people
We are proud that BT people continue to live
by our values – personal, simple, brilliant –
and that their engagement keeps improving.
Our most recent annual engagement survey
in January had an extremely high response
rate of 87% and our year-on-year people
engagement score increased by three
percentage points to 77%.
We tell our people about company results,
major business decisions and other things
that affect them through lots of different
channels. Leaders regularly meet their teams
through roundtables, town hall debates, site
visits, webcasts and blogs.
You can find more information on how we
are reshaping our organisation and ways of
working on page 21.
BT Group plcAnnual Report 2019 BT people
at a glance
106,700
We employ 106,700 full-time equivalent
people in 60 countries, 84,300 of whom
are in the UK. We employ an additional
2,000 FTE people through agencies.
16,000
This year, excluding acquisitions, we hired
almost 16,000 people, 12,300 of whom
were UK-based.
4,000
In 2018/19 we took on almost
4,000 new apprentices and more
than 400 graduates.
1,400
We converted just under 1,400 agency
workers to permanent, 800 of whom were
in contact centres.
70%
The average age of our workforce is
reducing with 70% under 50.
14,700
In 2018/19, 14,700 people left the
company. 10,800 left through natural
attrition, and 3,900 through paid leaver
programmes as part of our drive to create
a simple, lean and agile business.
We also listen to our people’s concerns
through more formal engagement with
our European Consultative Council, the
Communications Workers Union, Prospect
and EE employee representatives in the UK.
Building skills for future careers
We are reshaping our workforce profile to
meet the evolving needs of our customers
and the changing technology landscape.
We have continued to invest in
apprenticeships and graduate programmes
in all disciplines, mainly engineering, cyber,
technology and customer operations. We
complement functional skills with front line
and future leader programmes which prepare
our people for people management roles.
We are also focusing on hiring and
developing talent to meet rising demand
for digital and security skills over traditional
telecommunications skills. For example, we
have a Digital Academy in Consumer, we
are building digital media and data insights
teams in Enterprise, and in Global Services we
are developing cloud computing and cyber
skills at scale.
As we transition from PSTN to a modern,
all-IP fibre network, we need to develop
different skills. In Openreach we are
addressing this increased demand with
our ‘Open Street’ training facilities, which
replicate a complete end-to-end network
– from fibre to copper. They also recreate
the homes and streets that our engineers
encounter and provide a safe, real time
environment to master new skills quickly.
For example, ‘real’ scenarios can be created
for students, including blocked ducts, open
joints and intermittent faults. We plan to
invest a further £11m and by 2021 have 11
fully operational Regional Training Centres all
with their own ‘Open streets’.
This is part of our overall focus on improving
digital skills – helping us contribute to the
future success of the digital UK, improve
our customers’ ability to connect, create
demand for our future products and feed
our talent pipeline.
For more information on our digital skills
programmes see page 25.
23
Supporting our people in their careers
Careers are becoming more flexible. Many
of our people want portfolio careers with
different phases. Newer generations
recognise that they might work for longer
than their parents but don’t necessarily want
jobs for life; they want to do different things
and learn different skills.
We are making changes to our culture to
keep abreast of these trends. We are working
to attract and retain a diverse workforce,
invest in our people’s development, promote
their health and wellbeing and help them
save for a better retirement.
As we reshape our workforce we are also
providing a new career philosophy with
greater transparency, clearer choice and a
focus on skills for the future.
We continue in our positive approach to
recruiting and developing disabled talent as
part of our vision to be a disability confident
employer. Our range of support services
and our processes support our managers to
making the necessary adjustments for new or
existing disabled persons within BT.
Health and wellbeing
Employee wellbeing is one of the biggest
contributors to organisational health and
business success. Our aim is to build a team
of engaged, healthy people who are fulfilled
at work.
Our approach to wellbeing reflects this.
We provide access to employee assistance
globally, and we are making it easier for our
people to get mental health support through
early access counselling services. We have
expanded our peer-to-peer scheme and
manager training on mental health both in
the UK and internationally. Our success rate
in getting people with mental illness back to
work has risen to 96.5%.
The support available to our managers
and team members helps us maintain
a low absence rate of 2.36%. We have
strengthened our support in managing and
coping with change to help our people and
managers work through the changes in our
business.
We continue to drive focus on safety and
assurance programmes. Our lost time injury
rate is currently 0.24 working hours per
200,000 working hours, with an increase
against a low baseline impacting the results.
We track incident trends very closely and
have not seen a pattern to the increase but
continue to monitor this monthly.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 24
Our stakeholders continued
Working to
improve our
diversity
24%
Around 24% of our
workforce (26,100) and
28% of our management
(13,700) are women,
including three out of
11 Board members.
Our workforce includes
around 79,800 men,
with 34,000 of these in
management roles.
12%
Around 12% of our UK
people have a black,
Asian or minority
ethnic background.
5.0%
This year, BT’s overall
median gender pay gap is
5.0%. Our mean gender
pay gap is 5.9%. This is
roughly the same as last
year.
• We are redesigning our
technology apprentice and
graduate schemes to reduce
the risk of selection bias.
• We have active people
networks for Gender,
Disability, Ethnicity, LGBT+
and Neurodiversity. All have
senior sponsors and charters
aligned to our strategy.
• We continue to develop
long-term initiatives such
as TechWomen, furtHER
and STEM Returners to
help the organisation retain
and nurture female talent.
Pay and benefits
We regularly review our pay and benefits.
Most of our UK-based engineering and
support people’s pay is negotiated through
collective bargaining with our recognised
trade unions. This means everyone gets
treated fairly. Our managers’ pay ranges
are also set at competitive levels. We work
out bonuses through a mix of business
performance and personal contribution.
Our executives may also get long-term share
awards. These are discretionary and aligned
to the long-term strategy of the company.
What they get is determined by the group’s
performance over a three-year period.
Executive directors must keep hold of those
shares for two more years.
Incentives for Openreach are tied to a
combination of personal contribution
and Openreach’s performance, not Group
performance. And these are paid in cash, not
BT shares.
We support our people through retirement
savings plans, employee share schemes and
country-specific benefits.
Volunteering
This year, we took the decision to no longer
focus purely on the proportion of our people
who volunteer, which is why the volunteering
participation rate dropped to 26%. Instead
we will refocus our volunteering efforts on
digital skills – the area we think will deliver
the greatest impact for the UK and BT.
In the year ahead we’ll develop a new target,
that better reflects the impact and growing
contribution our people are making through
volunteering. As an example, this year just
over 2,500 of our people contributed more
than 6,700 days supporting digital skills
programmes and helping young people
prepare for the world of work.
Helping people save for a better retirement
Over the past two years we have worked
to change the way our people save for
retirement. This ensures that our pensions
are fair, flexible and affordable for all
members and also helps manage our future
risks and costs.
The BT Pension Scheme (BTPS) triennial
valuation process ran in 2017/18. In
2018/19 we concluded our UK Pensions
Review, agreeing the closure of Sections
B and C of the BTPS to future accrual with
members moving into the BT Retirement
Saving Scheme (BTRSS).
For further information on our pension
scheme, see page 145.
Communities
Our communications products,
services, networks and people
are vital to the communities in
which we operate. Our place at
the heart of so many communities
also makes it important that our
business practices are ethical and
transparent.
Our total investment in society in 2018/19
was £28.7m – 0.83% of adjusted profit
before tax. Although this was below our
target of 1%, we remain committed to the
target and have invested £194.9m at an
average of 1.02% over the last five years.
Going forward, this investment will mainly
be directed towards digital skills. This has led
to some difficult decisions, like the closure
of our fundraising platform, MyDonate, in
June 2019.
Introduced in 2011, MyDonate was the
UK’s first fee-free platform, but there are
now many other providers in the market.
We’re proud of what we achieved, helping
raise more than £400m over the last nine
years. But it is now time to lead in another
important area for the UK. Our work with
charities and other partners will increasingly
focus on digital skills. We will continue to
report on our ambition to use our skills and
technology to generate more than £1bn for
good causes by 2020, but it will no longer
be a business priority. Since 2012/13, we’ve
BT Group plcAnnual Report 2019 25
What the
digital skills
gap means
for the UK
65%
The percentage of
children starting
school today who
will have jobs that
don’t yet exist.
11.3m
The number of
adults who lack
basic digital skills.
3 in 4
The number of UK
businesses who
report internal
digital skills gaps.
The above data has been drawn from external sources.
£63bn
The estimated
annual impact
of the digital
skills gap on
the UK’s future
competitiveness.
Boosting digital skills and inclusion
• We’re helping SMEs with digital skills,
through initiatives including workshops
run by BT Sport and Google
Digital Garage. We held 11 workshops
and coached over 1,000 BT Sport
commercial customers to enhance their
online profiles.
• Our BT furtHER programme in
partnership with ‘Code First: Girls’
is a free full-time digital intensive
programme that gives women the
opportunity to move into a technical
career. Twenty-one women from the
first programme have transitioned into
software developer roles in technology.
• EE partnered with ‘Action On Hearing
Loss’ to give mobile plans and service to
the one in six people in the UK who have
hearing loss.
• We’ve partnered with the British Asian
Trust in India on a programme that aims
to empower 500,000 adolescent girls
through technology and education.
• Our funding and technical expertise
is helping Jān˙gala, a tech start up,
develop easy to deploy wi-fi systems for
refugee camps and in a wide range of
humanitarian situations in Italy, Serbia
and the UK.
This year we launched a new overarching
human rights policy, and reported on modern
slavery, privacy and freedom of expression.
We collaborate on privacy and free expression
challenges through the Global Network
Initiative.
We want to lead the way in tackling modern
slavery through technology. This year we
co-founded and launched Tech Against
Trafficking, a coalition of organisations
including Amazon, Vodafone, AT&T,
Microsoft, Nokia, Salesforce and anti-
trafficking experts, to work together on
the challenge. We also partnered with the
UK charity Unseen to extend the reach of
the UK Modern Slavery Helpline through a
smartphone app.
We comply with the Modern Slavery Act and
follow international standards on human
rights, such as the International Labour
Organisations Principles and the UN Guiding
Principles on Business and Human Rights.
We have contractual standards on working
conditions to avoid forced labour. We also
have processes in place to assess the risks of
our suppliers not meeting these conditions.
We work with EcoVadis and the Responsible
Business Alliance to inform our assessments.
We will follow up with our suppliers on any
improvements needed. For higher risk sites of
concern, we go to see the working conditions
for ourselves.
For more information on human and digital
rights, see btplc.com /digitalimpact and
sustainability/humanrights/modernslavery
used our technology and expertise to help
generate more than £646m for good causes,
including £109m this year.
Digital skills
The UK faces a major digital skills challenge
and we are in a unique position to help
tackle this. We are fundamental to the UK’s
ambition to be a leading digital economy.
We take our responsibilities very seriously –
investing in nurturing the skills needed by
everyone to flourish in the digital world.
Doing so serves a number of our stakeholders
as well as creating the potential for future
demand for our products and helping us to
adapt our workforce.
We’re increasing our efforts with a major
push to encourage and equip our customers
and communities to upgrade their digital
skills and capabilities.
To reflect our ambition in this important
area, we have set a target to reach ten million
people in the UK with digital skills training
by 2025. This supersedes our existing target
(to help ten million people overcome social
disadvantage through the benefits our
products and services can bring) with a more
focused and measurable programme.
This new target builds on our existing
investment in young people. In a world
where life and work increasingly depend on
technology, giving today’s school children the
right skills will be critical to their success.
Barefoot Computing, our partnership with
BCS, the Chartered Institute for IT, operates
in around 60% of UK primary schools and
helps young people (aged five to 11) develop
their computational thinking skills as part of
the computer curriculum. BT volunteers have
helped to train more than 70,000 teachers.
Through them, Barefoot has reached more
than two million children since 2014.
BT has become the first strategic partner
of the new National Centre for Computing
Education (NCCE). This initiative from the
Department for Education is designed to
improve the reach and quality of computing
teaching across England. Among other
things, we’ll be bringing Barefoot to the
heart of the NCCE’s offer for primary schools.
Championing human and digital rights
We’re committed to respecting everyone’s
basic rights and freedoms – both online and
offline. The nature of what we do means we
must protect customers from online harm,
safeguard their privacy and security and
support their right to free expression. Our
Digital Impact & Sustainability Committee, a
board committee, oversees our human and
digital rights programme.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
26
Our stakeholders continued
Becoming
a net zero
carbon
emissions
business
Our worldwide greenhouse gas emissionsa
Year ended 31 March
,
,
4
6
7
4
6
7
1
5
CO2e
In October 2018 we pledged to become
Ktonnes
6,000
a net zero carbon emissions business by
0
1
2045. This extends our 1.5° C science-
5,000
4
4
based target to reduce the carbon
4,000
emissions intensity of our operations
by 87% by 2030 (against a 2016/17
3,000
baseline). There are three main areas we
2,000
are focusing on to achieve this:
1,000
,
0
2017
2018
2019
Scope 1: Direct emissions from our own operations
(eg fuel combustion).
Scope 2 : Indirect emissions from the generation of our
purchased energy (mainly electricity).
Scope 3: Including supply chain, customer use of our
products, and other indirect emissions
(such as employee commuting).
Our COe emissions
Year ended 31 March
CO2e Ktonnes
Scope 3
Scope 2
Scope 1
Total
2017
4,772
222
182
2018
2019
4,387
4,112
193
184
114
184
5,176
4,764
4,410
Scope 1 + 2 intensity:
(CO2e tonnes per £m value added)
31
29
23
We now include all scope 3 emissions in our reporting.
Figures exclude third-party consumption. Scope 2 data
uses market-based calculation. For full methodology and
further data see btplc.com/digitalimpactandsustainability
The environment
Our products, supply chain and
operations all have an impact on
the environment. We are taking
a leadership role in tackling
climate change and have a target
to become a ‘net zero’ carbon
emissions business by 2045.
The Intergovernmental Panel on Climate
Change report published in October 2018
has underscored the importance of urgently
tackling climate change. We continue to
work in areas we control, while also being
active in driving change with our customers,
suppliers and other stakeholders.
Cutting our emissions and energy use
This year our energy consumption dropped
by 2.24% and we reduced our total end-
to-end worldwide CO2 equivalent (CO2e)
emissions by 7.4%.
We have saved around £298m since 2009/10
through more efficient cooling systems,
modernising data centres, optimising our
networks, introducing LED lighting and
installing energy management systems. This
year we celebrate our tenth year of investment
in energy reduction programmes, through
which we have consistently delivered energy
Our worldwide greenhouse gas emissionsa
Year ended 31 March
6
7
1
5
,
4
6
7
4
,
0
1
4
4
,
CO2e
Ktonnes
6,000
5,000
4,000
3,000
2,000
1,000
0
2017
2018
2019
Scope 1: Direct emissions from our own operations
(eg fuel combustion).
Scope 2 : Indirect emissions from the generation of our
purchased energy (mainly electricity).
Scope 3: Including supply chain, customer use of our
products, and other indirect emissions
(such as employee commuting).
Our COe emissions
Year ended 31 March
CO2e Ktonnes
2019
a We restate previous years’ data when we think subsequent
Scope 3
4,112
information is materially significant (eg replacing estimates
114
with measured figures).
Scope 2
4,387
4,772
2018
2017
222
193
Scope 1
Total
182
5,176
184
184
4,764
4,410
Scope 1 + 2 intensity:
(CO2e tonnes per £m value added)
31
29
23
We now include all scope 3 emissions in our reporting.
Figures exclude third-party consumption. Scope 2 data
uses market-based calculation. For full methodology and
further data see btplc.com/digitalimpactandsustainability
• purchase 100% renewable electricity
worldwide by 2020 where markets
allow. We are currently at 87%.
This year, we agreed new contracts
to power EE’s mobile network with
renewable electricity meaning that
in the UK, 100% of our directly
purchased electricity is now from
renewable sources
• convert our fleet to ultra-low
emissions vehicles
• decarbonise our buildings.
Our worldwide energy use
Year ended 31 March
GWh
3,000
2,500
2,000
1,500
1,000
500
0
0
8
8
2
,
5
4
8
2
,
1
8
7
2
,
2017
2018
2019
BT Group plcAnnual Report 2019
27
Supplier risks
There has been recent commentary on how
national security could be compromised
at the level of some of the foundation
technologies in national communications
networks. Our approach is to focus on
sourcing a range of the best technologies in
the core of our networks, from a wide range
of places.
We also face a continual challenge to ensure
the quality and ethical integrity of our supply
chain. You can read more about our supply-
related risks on page 52.
Valuing our
suppliers
£13.4bn
We spent around £13.4bn with
suppliers this year (2017/18:
£13.7bn). This is around 66%
of our costs.
67%
Around 67% of our spend
is with our top 100 suppliers.
52 days
New legislation in 2018 introduced
a duty to report (DTR), requiring the
UK’s largest companies to report on
their payment practices, policies and
performance. Reporting from 1 October
to 31 March (H2), BT plc’s average time
to pay invoices was 52 days with 92%
of supplier invoices paid in accordance
with terms agreed with the supplier.
This year we reduced our quarterly
disclosures to encourage investors to focus
on longer-term trends.
We keep all shareholders up to date through
regular communications, including the
Annual Report, AGM and our quarterly
financial and trading statements.
Debt investors
We have an investment-grade credit rating
based on the strength of our balance sheet.
Our relationship with debt investors, mainly
financial institutions who invest in our
publicly-traded bonds, is key to making
sure we have access to debt capital to
finance our business.
Suppliers
Our thousands of suppliers are
a vital part of our value chain.
Because of our size, we are also a
vital part of theirs.
Our suppliers provide products and services
that help us execute our strategy. We source
from across the world and have suppliers in
nearly 100 countries. Our integrated fibre
and 5G network will require significant
capital investment, and procurement savings
are key to funding this.
We want to know who we’re doing business
with and who’s acting on our behalf, so we:
• choose suppliers using principles that
make sure we act ethically and responsibly
• check that goods and services we buy
are made, delivered and disposed of in a
socially and environmentally responsible
way
• measure factors such as suppliers’ energy
use, environmental impact and labour
standards as well as working with them to
improve these.
We are a signatory of the UK Prompt
Payment Code and support government
initiatives to encourage small business
growth.
consumption savings. There will be further
savings as energy efficiency reduces our
environmental impact and plays a part in
overall cost transformation.
Helping customers lessen their impact
Our products and services help our
customers reduce carbon emissions – for
example, through avoiding travel and
becoming more efficient.
Last year our products and services helped
our customers avoid 11.7 million tonnes
of carbon. That is the equivalent of the
carbon emissions of around three million
UK households.
Carbon in our supply chain
The products we sell are manufactured
in our upstream supply chain and we
continue to work with key suppliers to
reduce their carbon impact.
Wider environment aspects
We are reducing plastic waste from our
products and from our operations. We
track this through our Environmental
Management System. Our people are
passionate about reducing plastic use
within BT. More than 4,500 BT people
signed our recent internal plastic pact,
pledging to cut their plastic use at work
and at home.
For more on this, and on other environmental
matters, see our Digital impact and
sustainability report
btplc.com/digitalimpactandsustainability
Shareholders
We have two main shareholder
groups: institutional investors and
individual shareholders. We also
have debt investors.
As a consequence of privatisation in
1984, most of our c829,000
shareholders are individual shareholders,
although institutional investors hold the
biggest volume of shares.
We have an extensive investor relations
programme aimed at keeping existing
and prospective investors informed.
In 2018/19, we held 500 meetings
or events with institutional investors
(2017/18: 450).
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 28
Our stakeholders continued
HM Government
We work with over 1,800 UK
public sector customers and
support critical services in the UK.
Our networks enable vital services, such as
welfare, tax, health and social care, police
and defence, to function – while protecting
citizens’ personal data.
Civil resilience and other obligations
Under the Communications Act 2003, the
Government can ask us (and others) to run or
restore services during disasters.
The Civil Contingencies Act 2004 also states
that the Government can impose obligations
on us (and others) at times of emergency
or in connection with civil contingency
planning.
The Secretary of State for the Home
Department can sometimes also oblige us
to act in the interests of national security.
Our public affairs team is responsible for
relationships with the Government on all
issues of policy. Our Enterprise team is
responsible for selling and maintaining public
sector contracts and services.
We continue to monitor and provide
assurance to Ofcom on our compliance
with the Commitments. We are currently
working to make our internal processes
and information sharing between BT and
Openreach more transparent.
Future Telecoms Infrastructure Review
In July 2018, the Government published its
Future Telecoms Infrastructure Review which
concluded that the most effective way to
deliver nationwide fibre connectivity at pace
is to promote competition and commercial
investment where possible, and to intervene
where necessary. Ofcom’s subsequent
policy documents signalled a shift from
emphasising retail competition to facilitating
competitive investment in full fibre.
The Government’s February 2018
consultation on its statement of strategic
priorities for Ofcom reiterates its ambition to
see ‘gigabit capable’ networks available to
15 million premises by 2025 and nationwide
by 2033. This is alongside an ambition to
extend mobile coverage to 95% of the
UK by 2022. This desire to see the UK as a
world leader in digital infrastructure fits with
our desire to invest more, and aligns with
our strategic priority of building the best
converged network.
Consumer regulation
UK regulators have consumers’ interests as
a priority. One area of attention is different
pricing between new and existing customers.
We aim to provide all our customers with
great value, with offers that are fair and right
for them. We also help our EE customers
make sure they are on the best value deal by
telling them when it’s time to reconsider their
contracts and offering them alternatives.
We will be implementing end of contract
notifications for all of our BT and Plusnet
customers too.
Regulators
Communications and TV services
are regulated in the UK and
around the world. Regulation
helps ensure that there are
consistent rules and standards
within each jurisdiction to
protect consumers and promote
competition.
Our main regulatory relationship is with
Ofcom in the UK. Ofcom operates under the
Communications Act 2003, which gave it
its powers and duties and transposed the
EU regulatory framework for electronic
communications in the UK.
Under the Act, Ofcom sets conditions that
communications providers must adhere
to. Ofcom’s main duties in respect of
communications are to further the interests
of citizens and consumers, where appropriate
by promoting competition. In doing so it
must also have regard, where relevant, to the
desirability of encouraging investment and
innovation. Ofcom has general competition
powers for the sector and enforces consumer
law, alongside other economic regulators and
the Competition and Markets Authority.
We aim to be leaders in full fibre and 5G,
and launch a UK converged network. This
will benefit our customers, as well as the
UK more widely. Our dialogue with Ofcom
focuses on how the regulatory regime can
help its ambition for the UK, while keeping
the market fair and competitive.
In 2018 we implemented the Commitments
we gave to Ofcom to provide Openreach
with greater strategic and operational
independence following its Digital
Communications Review. Ofcom reported
it is broadly satisfied with our progress. This
included incorporating Openreach Limited
as a wholly owned subsidiary of BT Group
plc, with its own board and greater strategic
independence. It also included completing
the TUPE transfer into the new Openreach
Limited of 31,000 employees from BT plc.
BT Group plcAnnual Report 2019 29
The directives are there to encourage
competition, leading to better investment
in fixed and mobile networks, and to protect
consumers. They require independent
national regulators to review markets for
significant market power regularly and to
put in place fair and proportionate remedies.
They also include rules covering spectrum
authorisation, consumer protection and
universal service obligations.
This framework was updated in 2018 in
the form of a new European Electronic
Communications Code (EECC). We believe
the EECC is largely positive – making it easier
for operators to roll out ultrafast fixed and
mobile networks.
Other international regulation
Regulation in international markets varies
widely. This can stop us competing and
providing the services our customers want.
We keep driving incumbent operators around
the world, and their regulators, for fair, cost-
related wholesale access to their networks.
Decent broadband for all
The Government has committed to
implement a Universal Service Obligation
for 10Mbps broadband from 2020 and
Ofcom is working to deliver this. It issued a
consultation in December 2018 proposing to
designate BT and KCom as Universal Service
Providers. We are working with Ofcom to
look at how to deliver this efficiently and in
a way that provides a good experience for
customers.
Wholesale regulation
In December, 2018 Ofcom issued a
consultation on Physical Infrastructure
Markets and Business Connectivity Markets
setting out how it intends to regulate up to
2021. It has also started consulting on a
clear, predictable and long-term framework
for regulation from 2021 onwards. This
framework envisages longer (five-year)
market review periods (instead of the current
three-year reviews). On balance, we welcome
Ofcom’s approach, including its shift toward
regulating passive infrastructure where it
enables deregulation further downstream.
In its consultation on Physical Infrastructure
Markets, Ofcom proposes to extend the
existing access obligation applicable to BT’s
ducts and poles, currently limited to mixed
residential and business broadband, to
deployments of any fixed networks including
standalone leased lines. The proposal is for
this to start one month after publication of
its final statement, expected in Q1 2019/20.
We understand the importance Ofcom
attaches to unrestricted ducts and poles
access and have indicated our willingness
to work with Ofcom on the detailed
implementation of the proposals, including
how to ensure a sustainable long-term
pricing regime ahead of the 2021 market
review period.
In its consultation on Business Connectivity
Markets, Ofcom proposed to remove
regulation of legacy business connectivity
products and deregulate additional BT
exchanges and data centres. Ofcom also
proposed to maintain stable wholesale
pricing in these markets to support
investment in full fibre. While positive overall,
some of Ofcom’s proposals are less helpful,
for example its proposed obligation on us to
provide dark fibre from BT-only exchanges
which in our view is not consistent with the
desire for greater investment nor necessary
to promote competition given passive
infrastructure access. We are continuing to
engage with Ofcom on this and expect it to
say more in 2019.
Spectrum
In the mobile area, 2018’s spectrum
auction gave us the bandwidth we needed
to start rolling out 5G. The next auction is
expected in spring 2020 which we intend to
participate in.
Simplifying regulatory reporting
Understanding the economics of the services
we provide in regulated areas of our business
is important. We are working with Ofcom to
improve our reporting to become relevant,
transparent and more focused in order to get
better quality insight.
EU regulation
Brexit may have a significant effect on
regulation. Until we know how the UK will
exit the EU, we cannot know what that effect
will be, but we have made contingency plans.
Where we do business in EU countries,
electronic communications networks and
services are governed by directives and
regulations set by European institutions.
These create an EU-wide framework for fixed
and wireless telecommunications, internet,
broadcasting and transmission services.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 30
Our key performance indicators
We have achieved our customer
experience target for the year, but
want to go further. Our results
were in line with the financial
guidance we set in May 2018 for
adjusted EBITDA and normalised
free cash flow. We exceeded our
target for change in underlying
revenue. Our capital expenditure
(excluding BDUK clawback) was
slightly ahead of our guidance
as we accelerate our network
investment.
We use four key performance indicators
(KPIs) to measure progress against
our strategy; one non-financial and
three financial. Our non-financial KPI is
improvement in customer service, which is
measured using our Right First Time metric.
Our financial KPIs are: change in underlying
revenue; adjusted earnings per share; and
normalised free cash flow.
As explained on page 16 we will be
evolving our Right First Time metric for
2019/20 to reflect the commitments we
make to customers and providing a more
reliable service. This evolved measure will
be renamed Keeping Our Promises.
We also measure customer experience
through Net Promoter Score (NPS). This
is up 6.5 points from last year and has
improved over 11 consecutive quarters.
From 2019/20 we will be reporting this as
one of our non-financial KPIs.
As our strategy evolves we will continue to
review these KPIs to make sure they are the
best measures to reflect our performance
against our strategy.
Customer service
Right First Time is our main measure of customer service. It tracks how often we keep our
promises to customers. This could be keeping to appointment times, completing orders in
the defined timeframe or fixing faults within an agreed period. As well as improving service
and the customer experience, keeping our promises should reduce the work required to fix
mistakes, and so reduce our costs.
+5.4%
Right First Time was up 5.4%
(2017/18: up 4.3%).
Right First Time improvementa
At 31 March
%
35
30
25
20
15
10
5
0
.
8
1
3
4
5
.
3
4
.
4
6
.
7
4
.
5
1
.
0
3
.
0
3
.
.
5
0
1
)
0
4
.
(
)
0
3
.
(
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
9
1
0
2
Improving the service we deliver is key.
We’re making good progress and every
customer-facing unit has improved its
Right First Time score. Despite these
improvements, our strategic priority is to
truly differentiate ourselves on customer
experience, and we will keep looking for
ways to do that. You can read more about
our differentiated customer experience
on page 16.
a Cumulative improvement from 1 April 2009.
Change in underlying revenue
Underlying revenue reflects the underlying performance of the group that will contribute to
long-term sustainable growth. We exclude the impact of specific items, foreign exchange
movements, acquisitions and disposals.
(0.9)%
Change in underlying revenue
Year ended 31 March
%
3
9
1
.
2
1
0
(1)
(2)
(3)
)
4
0
.
(
)
2
0
.
(
)
0
1
.
(
)
9
0
.
(
2015
2016a
2017b
2018
2019c
Change in underlying revenue was
down 0.9% (2017/18: down 1.0%)
which exceeds our outlook of
down c2%.
Change in underlying revenue was down
as growth in our Consumer business
was more than offset by regulated price
reductions in Openreach and declines
in our enterprise businesses. We explain
more about the performance of our
customer-facing units from page 40.
a Calculated as though EE was not part of the group
until 1 April 2016.
b Calculated as though EE had been part of the
group from 1 April 2015.
c Calculated including the impact of transit,
which is no longer material.
BT Group plcAnnual Report 2019
31
Adjusted earnings per share
Adjusted earnings per share is the adjusted profit after tax attributable to shareholders
excluding the impact of specific items, divided by the weighted average number of
issued shares. This makes it a comparable and consistent way of measuring our business
performance over time.
Alternative performance measures
Reconciliations of these financial measures
to the closest IFRS measure are set out in
the Additional Information section from
page 185.
Adjusted earnings per share decreased
6% to 26.3p (2017/18: down 3%
to 27.9p).
Adjusted profit after tax decreased 6%
to £2,611m this year, reflecting lower
revenues partly offset by lower payments
to telecommunications operators driven
by Global Services strategy to de-
emphasise low margin business.
26.3p
Adjusted earnings per share
Year ended 31 March
pence
35
30
25
20
15
10
5
0
.
6
0
3
.
8
1
3
.
9
8
2
.
9
7
2
.
3
6
2
2015
2016
2017
2018
2019
Normalised free cash flow
Normalised free cash flow is free cash flow (net cash inflow from operating activities after
capital expenditure) after net interest paid, before pension deficit payments (including the
cash tax benefit of pension deficit payments) and specific items.
We generated normalised free cash
flow of £2,440m. This was down
£533m from last year and is in line
with our outlook of £2.3bn to £2.5bn.
The fall of £533m or 18% in our
normalised free cash flow mainly reflects
increased cash capital expenditure as
we increase our investment in fibre and
5G, decrease in EBITDA and higher tax
payments.
£2,440m
Normalised free cash flow
Year ended 31 March
£m
4,000
3,000
2,000
1,000
0
8
9
0
3
,
0
3
8
2
,
2
8
7
2
,
3
7
9
2
,
0
4
4
2
,
2015
2016
2017
2018
2019
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
32
Our performance as a sustainable
and responsible business
Building
better digital
lives
Non-Financial Reporting Information
Statement
Our integrated approach to reporting
means that the requirements of the Non-
Financial Reporting Directive are addressed
throughout the Strategic report. For ease of
reference, information pertaining to each of
the matters addressed by the new regulation
can be found on the following pages: Human
rights (page 25); Our people (page 22);
Social (page 24); Environmental (page 26);
Anti-corruption and bribery (page 32).
Tackling
climate
change and
environmental
challenges
For more information on our codes of
practice and employee policies, see btplc.
com/thegroup/policyandregulation/people
Our ambitionsa
By 2025, to reach 10m people in
the UK with digital skills trainingb
Our ambitions
By 2045, to become a net zero
carbon emissions businessc
For more information on human
and digital rights, see btplc.
com/digitalimpactandsustainability/
humanrights/modernslavery
Additionally, non-financial matters have
long been embedded in our business model
as stakeholder outcomes on page 13. Non-
financial performance indicators are linked to
our ambitions and foundation measures as a
sustainable and responsible business and can
be seen in the following table.
Anti-corruption and bribery
We follow local and international law,
including anti-corruption and bribery laws.
The UK Bribery Act and US Foreign Corrupt
Practices Act (FCPA) have extraterritorial
reach, so cover our global operations. We also
have to make sure we follow trade sanctions
and import and export controls.
2018/19 performance
N/A
new ambition
2017/18: N/A
Status
Reporting to start
in 2019/20
2018/19 performance
298,461
tonnes CO2e
2017/18: 377,073
Status
>
ongoing target
By 2020, to help 5m children
to receive better teaching in
computer skills
2018/19 performance
2m
children reached
2017/18: 1.6m
Status
To be subsumed
into above target
in 2019/20
By 2030, to cut our carbon emissions
intensityd by 87%, compared with
2016/17 levels
2018/19 performance
25.7%
reduction achieved
2017/18: 7.1%
(restated)
Status
>
ongoing target
By 2020, to enable customers to
reduce their carbon emissions by at
least three times the end-to-end
carbon impact of our business
2018/19 performance
2.6:1
achieved
2017/18: 2.4:1
(restated)
Status
>
ongoing target
By 2020, to buy 100% of our
electricity worldwide from renewable
sources, wherever markets allow
Status
>
ongoing target
2018/19 performance
87%
bought from
renewable sources
2017/18: 80%
(restated)
a As we direct our resources onto digital skills, we will no longer prioritise our fundraising ambition (by 2020, to use our skills and technology to help generate more than £1bn for good causes)
but continue to report performance on page 25.
b Revised target introduced to supersede our previous aim (by 2020, to help 10m people overcome social disadvantage through the benefits our products and services can bring).
c Measured for scopes 1 and 2 greenhouse gases.
d Measures for scopes 1 and 2 greenhouse gases, per unit of gross value added.
e Senior management team: our top c600 leaders.
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
33
Strategic report
Governance
Financial statements
Additional information
To fi nd out more about our progress
in these areas, see: bt.com
/ digitalimpactandsustainability
Investment
in society
Employees
Supply
chain
Our ambitions
Carbon emissions: by 2030,
to reduce our supply chain carbon
emissions by 29%, compared to
2016/17 levels.
2018/19 performance
7.3 %
reduction achieved
2017/18: 5.1 %
(restated)
Status
>
ongoing target
Our ambitions
Societal investment: to be more than
1% of adjusted profi t before tax (PBT)
Status
>
ongoing target
2018/19 performance
0. 83 %
of PBT invested
2017/18: 1.02%
1. 02 %
5-year average
2017/18: 1.06%
Volunteering: by 2020, to inspire
66% (two-thirds) of our people
to volunteer
2018/19 performance
2 6 %
of BT people
volunteering
2017/18: 39%
Status
To be replaced
with new target
in 2019/20
Our ambitions
Employee engagement index:
to maintain or improve our
relationship with our employees
2018/19 performance
77%
favourable
2017/18: 74%
Status
3
target met
Gender: By end of 2020/21, we want
40% of our senior management teame
to be women
2018/19 performance
31%
Women on senior
management team
2017/18: N/A
Status
>
ongoing target
Sickness absence rate: to maintain
or reduce percentage of calendar days
lost to sickness
2018/19 performance
2.36%
calendar days
lost to sickness
2017/18: 2.30%
Status
5
target failed
Ethical perception: to maintain or
improve our employees’ perception
of our ethical performance
2018/19 performance
86%
favourable
2017/18: 83%
Status
3
target met
34
Group performance
Introduction from our Chief Financial Officer
Outlook provided
in May 2018
Result
Performance
against outlook
2019/20
outlook
Change in underlyinga revenue
Down c2% Down 0.9%
3
Change in adjustedb revenue
Down c2%
Adjustedb EBITDA
£7.3bn–£7.4bn
£7.4bn
3 £7.2bn–£7.3bn
Capital expenditurec (excluding
BDUK clawback)
c£3.7bn
Normalised free cash flowd
£2.3bn–£2.5bn
£3.8bn
£2.4bn
5 £3.7bn–£3.9bn
3 £1.9bn–£2.1bn
a Underlying revenue excludes specific items, foreign exchange movements, acquisitions and disposals.
b Items presented as adjusted are stated before specific items. See page 185 for more information.
c Additions to property, plant and equipment and intangible assets in the period
d After net interest paid, before pension deficit payments (including the cash tax benefit of pension deficit payments) and specific items.
Our results were in line with the guidance we
set in May 2018 for adjustedb EBITDA and
normalised free cash flowc. We exceeded our
target for underlyinga revenue. Our capital
expenditure (excluding BDUK clawback)
was slightly ahead of our guidance due to
acceleration of network investment.
Outlook for 2019/20
BT remains well positioned in a challenging
market. We are taking decisive actions to
further strengthen our competitive position.
Specifically, we are increasing investment
to: introduce new customer propositions;
deliver fair, predictable and competitive
pricing; accelerate migration of copper ADSL
to superfast; drive the next step change in
customer experience investment; ramp up FTTP
to 4 million by March 2021; and accelerate 5G
coverage. These actions will impact our outlook.
For 2019/20, we expect adjusted revenue to
be down around 2%. This is mainly as a result of
the challenging market conditions, regulatory
pressure in both fixed and mobile markets, and
the ongoing impact from our decision to de-
emphasise lower margin products, particularly
in our enterprise businesses.
Along with the flow through of lower revenue,
we expect our opex investments to result in
Group adjusted EBITDA for 2019/20 being
in the range £7.2bn – £7.3bn. While we will
sustain these opex investments into 2020/21,
we continue to expect Group adjusted EBITDA
for 2020/21 to be above that for 2019/20.
We are raising our reported capital expenditure
guidance (excluding BDUK clawback) for
2019/20 to be in a range of £3.7bn – £3.9bn.
We expect normalised free cash flow for
2019/20 to out-turn in the range £1.9bn –
£2.1bn.
Dividend
We have delivered solid results for 2018/19
and are making positive progress against our
core pillars; to improve customer experience,
to create the best converged network; and to
create a simplified, lean and agile business. This
is being delivered in an increasingly competitive
market environment with a number of
regulatory and other headwinds. We remain
confident in our ability to deliver the benefits
we expect from the decisive actions we are
taking to strengthen our competitive position.
As a result, the Board has decided to hold the
dividend unchanged for 2018/19 at 15.4p
per share, leading to a final dividend of 10.78p
per share. The Board also expects to hold the
dividend unchanged in respect of the 2019/20
financial year given our outlook for earnings
and cash flow. In line with previous guidance,
our interim dividend for 2019/20 will be fixed
at 30% of this year’s full year dividend.
The Board remains committed to our
dividend policy, which is to maintain or
grow the dividend each year whilst taking
into consideration a number of factors
including underlying medium term
earnings expectations and levels of business
reinvestment (which would include the
consideration of accelerated FTTP investment).
Subject to shareholder approval, the dividend
will be paid on 9 September 2019 to
shareholders on the register at 9 August 2019.
The final dividend, amounting to approximately
£1,069m (2018/19: £1,044m), will be
recognised as an appropriation of the retained
earnings in the quarter to 30 September 2019.
Simon Lowth
Chief Financial Officer
8 May 2019
Performance
BT delivered solid results for the year, in line
with our guidance.
Reported revenue fell by 1% to £23.4bn and
underlyinga revenue was down 0.9% as growth
in our Consumer business was more than offset
by regulated price reductions in Openreach
and declines in our enterprise businesses.
Our reported profit before tax was up 2%
to £2.7bn, reflecting one-off EE acquisition
warranty costs in the prior year. Adjustedb profit
before tax was down 6% at £3.2bn reflecting
the lower revenue partly offset by restructuring
related cost savings and lower payments to
telecommunications operators driven by
Global Services strategy to de-emphasise low
margin business.
Alternative performance measures
We assess the performance of the group
using various alternative performance
measures. These measures are not defined
under IFRS so are termed ‘non-GAAP’ or
‘alternative performance’ measures. We
present a reconciliation from these to the
nearest prepared measure in line with
IFRS on pages 185 to 187. The
alternative performance measures we use
may not be directly comparable with
similarly-titled measures used by other
companies.
IFRS 15
IFRS 15 ‘Revenue from Contacts with
Customers’ replaced IAS 18 ‘Revenue’
with effect from 1 April 2018. We present
current year results on the new IFRS 15
basis but prior year comparatives on an
IAS 18 basis. For this reason, certain
measures may not be directly comparable.
See notes 1 and 2 for further information.
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
Group performance
Summary financial performance for the year
Year ended 31 March
35
Strategic report
Governance
Financial statements
Additional information
Revenue
(£m)
Adjusteda EBITDA
(£m)
Profit before tax
(£m)
BONUS
KPI
Operating cash flow
(£m)
Normalised free
cash flowb (£m)
(1)%
(2)%
2%
(14)%
(18)%
5
4
6
7
,
5
0
5
7
,
2
9
3
7
,
2
6
0
4
2
,
3
2
7
3
2
,
8
2
4
3
2
,
£m
25,000
20,000
15,000
10,000
5,000
0
£m
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
£m
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
6
1
6
2
,
6
6
6
2
,
4
5
3
2
,
7
2
9
4
,
6
5
2
4
,
£m
7,000
6,000
4
7
1
6
,
5,000
4,000
3,000
2,000
1,000
0
£m
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
3
7
9
2
,
2
8
7
2
,
0
4
4
2
,
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
Proposed full year dividend
2018/19 Capital expenditure
Net debt (£m)
15.4p
2018: 15.4p
2017: 15.4p
KPI
Earnings per share (p)
2019
2019
2018
2018
2017
2017
Reported EPS
Adjusteda EPS
21.8
20.5
26.3
19.2
27.9
28.9
4
2019
2018
2017
11,035
9,627
8,932
£3,963m
+13%
1
3
2
1. Capacity and network investment
2. Customer driven investment
3. Systems and IT
4. Non-network infrastructure
53%
23%
19%
5%
a Items presented as adjusted are stated before
specific items. See page 185 for more information.
b After net interest paid, before pension deficit
payments, (including the cash tax benefit of deficit
payments) and specific items.
36
Group performance continued
Summary financial performance for the year continued
Summarised income statement
Adjustedb operating costs before depreciation,
amortisation and specific items
Year ended 31 March
Year ended 31 March
Revenue
Operating costsa
2019
£m
2018
£m
2017
£m
23,428
23,723
24,062
(16,461)
(16,828)
(17,323)
Depreciation and amortisation
(3,546)
(3,514)
(3,572)
Operating profit
Net finance expense
3,421
3,381
3,167
(756)
(764)
(804)
£m
17,000
16,500
16,000
15,500
15,000
Associates and joint ventures
1
(1)
(9)
14,500
Profit before tax
Tax
2,666
2,616
2,354
14,000
(507)
(584)
(446)
Profit for the period
2,159
2,032
1,908
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Revenue
Both reported and adjustedb revenue fell by 1% as growth in
our Consumer business, was more than offset by regulated price
reductions in Openreach and declines in our enterprise businesses
in particular in fixed voice and also reflecting our strategy to
reduce low margin activity such as equipment sales. Excluding
the negative impact of £35m from foreign exchange movements,
underlyingc revenue fell 0.9% (2017/18: fell 1%), which exceeds
our expectation of down around 2%.
You can find details of revenue by customer-facing unit on pages
40 to 41. Note 6 to the consolidated financial statements shows
a full breakdown of reported revenue by all our major product and
service categories.
Operating costs
Reported operating costs were down 2% and adjustedb operating
costs before depreciation and amortisation were down 1%. This
was mainly driven by restructuring related cost savings and lower
payments to telecommunications operators driven by Global
Services strategy to de-emphasise low margin business, partly
offset by higher costs of recruiting and training engineers to
support Openreach’s ‘Fibre First’ programme and help deliver
improved customer service.
Our cost transformation programme remains on track. c4,000
roles were removed in the year, with the largest elements being in
Global Services and our Corporate Units. Overall savings from the
programme are currently an annualised benefit of £875m with an
associated cost of £386m.
Note 7 to the consolidated financial statements shows a detailed
breakdown of our operating costs.
a Excluding depreciation and amortisation.
b Items presented as adjusted are stated before specific items. See page 185 for more
information.
c Underlying revenue excludes specific items, foreign exchange movements,
acquisitions and disposals.
Profit before tax
Our reported profit before tax was up 2% at £2,666m, reflecting
one-off EE acquisition warranty costs in the prior year. Adjustedb
profit before tax was down 6% at £3,230m reflecting the lower
revenue partly offset by the lower costs and higher net finance
expense from increased net debt.
Adjustedb EBITDA
Adjustedb EBITDA was down 2% at £7,392m, in line with our
expectations. This is primarily driven by revenue decline partly
offset by the lower costs as described above. You can find details
of adjustedb EBITDA by customer-facing unit on pages 40 to 41.
Specific items
As we explain on page 185, we separately identify and disclose
those items that in management’s judgement need to be disclosed
by virtue of their size, nature or incidence (termed ‘specific items’).
Specific items are used to derive the adjusted results as presented
in the consolidated income statement. Adjusted results are
consistent with the way that financial performance is measured by
management and assists in providing an additional analysis of the
reported trading results of the group.
Specific items resulted in a net charge after tax of £452m
(2017/18: £741m).
During the year we incurred restructuring costs of £386m
(2017/18: £287m), mainly relating to leavers. The costs reflect
projects which are part of our group-wide cost transformation
programme, including remaining activities related to the EE
integration.
We have recognised a net charge of £27m (2017/18: £49m)
relating to the completion of the majority of deemed consent
compensation payments, new regulatory matters arising across
a range of issues, including price and service issues, the re-
assessment of other regulatory risks and in light of historical
regulatory decisions by Ofcom.
BT Group plcAnnual Report 2019
37
We have recognised a charge of £36m (2017/18: £28m) relating
to the rationalisation of the Group’s property portfolio, a charge of
£26m (2017/18: £nil) in relation to the high court requirement
to equalise pension benefits between men and women due to
guaranteed minimum pension (GMP) and net interest expense
on pensions of £139m (2017/18: £218m). This decreased
from 2017/18 due to the decrease in the BT Pension Scheme
deficit over the year to 31 March 2018. We also released £55m
(2017/18: £nil) of provisions following the settlement of various
matters in our Italian business.
The tax credit on specific items was £112m (2017/18: £87m).
Note 10 to the consolidated financial statements shows the details
of all revenues and costs that we have treated as a specific item.
Taxation
Our effective tax rate was 19.0% (2017/18: 22.3%) on reported
profit and 19.2% (2017/18: 19.5%) on profit before specific items.
We paid income taxes globally of £431m (2017/18: £473m).
peak deployment phase. Our BDUK Gainshare provision at the end
of the year was £639m.
Other capital expenditure components were up 5% with £929m
spent on customer driven investments, £747m on systems and IT,
and £204m on non-network infrastructure.
Capital expenditure contracted but not yet spent was £1,432m at
31 March 2019 (2017/18: £993m).
Summarised cash flow statement
Year ended 31 March
2019
£m
2018
£m
2017
£m
Cash generated from operations
4,687
5,400
6,725
Tax paid
(431)
(473)
(551)
Net cash inflows from operating
activities
Net purchase of property, plant and
4,256
4,927
6,174
equipment and software
(3,637)
(3,341)
(3,119)
We paid UK corporation tax of £317m (2017/18: £374m). We
benefited from £90m of EE’s historical tax losses (2017/18:
£111m) and £391m from tax deductions on employees’ pension
and share schemes (2017/18: £217m).
Free cash flow
Interest received
Interest paid
Our tax expense recognised in the income statement before specific
items was £619m (2017/18: £671m). We also recognised a
£343m tax credit (2017/18: £262m expense) in the statement of
comprehensive income, mainly relating to our pension scheme.
We expect our sustainable income statement effective tax rate
before specific items to be around the UK rate of corporation tax, as
we do most of our business in the UK.
Note 11 to the consolidated financial statements shows further
details of our tax expense, along with our key tax risks.
Earnings per share
Reported earnings per share was 21.8p, up 6%, while adjusteda
earnings per share decreased 6% to 26.3p.
Dividends
The Board is proposing a final dividend to shareholders of 10.78p
bringing the full year dividend to 15.40p, unchanged from
last year. It will be paid, subject to shareholder approval, on 9
September 2019 to shareholders on the register on 9 August
2019. The Board also expects to hold the dividend unchanged
in respect of the 2019/20 financial year given our outlook for
earnings and cash flow.
Note 13 to the consolidated financial statements shows details of
the dividends we paid during the year.
Capital expenditure
In recent years we’ve prioritised capital expenditure to underpin our
strategy, and to expand coverage and capacity whilst making our
fixed and mobile networks faster and more resilient.
Capital expenditure was £3,963m (2017/18: £3,522m) including
network investment of £2,083m, up 21%. This includes £213m
grant funding deferral under the Broadband Delivery UK (BDUK)
programme, of which £168m relates to a change in base-case
assumption for customer take-up. Excluding the effect of the
grant funding deferral, capital expenditure was £3,750m. The
remaining increase in network investment reflects increased spend
on our Fibre Cities programme, partially offset by lower mobile
investment as the Emergency Services Network (ESN) passed the
619
23
(531)
2,024
1,586
3,055
7
(555)
872
7
(629)
274
Add back pension deficit payments
Add back net cash flow from specific
items
598
828
205
Add back net sale of non-current
asset investments
Add back prepayments in respect of
acquisition of spectrum licence
Remove refund on acquisition of
spectrum licence
Remove cash tax benefit of pension
19
(20)
1
–
325
(21)
–
–
–
deficit payments
(273)
(109)
(110)
Normalised free cash flowb
2,440
2,973
2,782
Cash flow
We generated a net cash inflow from operating activities of
£4,256m, down £671m, mainly driven by £2bn contributions
to the BT Pension Scheme, offset by favourable working capital
movements. In line with our outlook, normalised free cash flowb
was £2,440m, down £533m or 18%, driven by increased cash
capital expenditure, decrease in EBITDA and higher tax payments.
Free cash flow, which includes specific item outflows of £598m
(2017/18: £828m) and a £273m (2017/18: £109m) tax benefit
from pension deficit payments, was £619m (2017/18: £1,586m).
Last year also included payments of £325m for the acquisition of
mobile spectrum. The spectrum auction bidding took place across
the 2017/18 and 2018/19 financial years. Whilst £325m was
on deposit with Ofcom at 31 March 2018, we went on to acquire
spectrum for a total price of £304m and the excess deposit balance
has since been refunded. We made pension deficit payments
of £2,024m (2017/18: £872m) and paid dividends to our
shareholders of £1,504m (2017/18: £1,523m).
The net cash cost of specific items of £598m (2017/18: £828m)
includes restructuring payments of £372m (2017/18: £189m)
and regulatory payments of £170m (2017/18: £267m). Last year
also included payments of £225m relating to the settlement of
warranty claims under the 2015 EE acquisition agreement.
a Adjusted measures exclude specific items, as explained in the Additional Information on page 185.
b After net interest paid, before pension deficit payments (including the cash tax benefit of pension deficit payments) and specific items.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 38
Group performance continued
Summary financial performance for the year continued
You can see a reconciliation to normalised free cash flow from
the net cash inflow from operating activities, the most directly
comparable IFRS measure, on page 186.
Summarised balance sheet
As at 31 March
Intangible assets
2018
(Restateda)
£m
2019
£m
Movement
£m
14,385
14,447
(62)
Property, plant and equipment
17,835
17,000
Derivative financial instruments
1,592
1,509
835
83
Cash and cash equivalents
Investments
1,666
3,268
528
1,138
3,075
193
Trade and other receivables
3,667
4,331
(664)
Contract assets
Deferred tax assets
1,602
–
1,602
1,347
1,326
21
299
Other current and non-current assets
925
626
Total assets
46,287
42,842
3,445
Loans and other borrowings
16,876
14,275
2,601
Derivative financial instruments
940
837
103
Trade and other payables
7,269
8,494
(1,225)
Contract liabilities
Provisions
1,425
–
1,425
1,006
1,055
(49)
Retirement benefit obligations
7,182
6,847
335
Deferred tax liabilities
1,407
1,340
Other current and non-current liabilities
15
83
67
(68)
Total liabilities
Total equity
36,120
32,931
3,189
10,167
9,911
256
Pensions
The accounting deficit, net of tax, increased during the year from
£5.7bna to £6.0bn, primarily driven by an increase in the liabilities
due to a fall in the real discount rate reflecting market movements;
partly offset by deficit contributions from the group and positive
asset returns. The movements in the deficit for the group’s defined
benefit plans are shown below:
Key movements in IAS 19 deficit
3
0
.
)
1
2
.
(
7
3
.
1
1
.
7
5
.
£m
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
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c
Net of deferred tax asset
Deferred tax asset
Note 20 to the consolidated financial statements gives more
information on our pension arrangements.
Net debtc
Net debtc increased by £1,408m to £11,035m, mainly reflecting
the £2bn of contributions to the BT Pension Scheme in June 2018.
We issued £2bn of bonds to the BT Pension Scheme in June 2018.
We also issued bonds of £2.0bn in September and December 2018
and repaid bonds of £1.4bn maturing in August 2018 and February
and March 2019.
Gross debt translated at swap rates and excluding fair value
adjustments at 31 March 2019 was £15,912m. This comprises
term debt of £15,001m, finance leases of £200m and other loans
of £711m.
a Certain results have been restated to reflect the update to the calculation of our IAS 19 accounting valuation of retirement benefit obligations. See note 2 to the consolidated financial statements.
b The actual investment return in the year to 31 March 2019 of around 6% was greater than our discount rate assumption at 31 March 2018 of 2.65%.
c Loans and other borrowings (both current and non-current), less current asset investments and cash and cash equivalents. Currency denominated balances within net debt are translated to sterling
at swapped rates where hedged. Fair value adjustments and accrued interest applied to reflect the effective interest method are removed. Please refer to note 25 for reconciliation from nearest
IFRS measure.
BT Group plcAnnual Report 2019
39
Contractual obligations and commitments
We’ve shown in the table below our principal undiscounted
contractual financial obligations and commitments at
31 March 2019.
As at 31 March 2019
Less
than 1
year
£m
Between
1 and
3 years
£m
Between
3 and
5 years
£m
More
than
5 years
£m
Total
£m
Loans and other borrowingsa
16,624 2,084 1,289 2,396 10,855
Finance lease obligations
202
16
35
31
120
Operating lease obligations
6,619
755 1,240 1,067 3,557
Capital commitments
1,432 1,129
162
141
Other commitments
253
253
–
Programme rights commitments
2,113
843 1,262
–
8
–
–
–
Pension deficit obligations
10,351 1,276 1,817 1,816 5,442
Total
37,594 6,356 5,805 5,459 19,974
The graph below shows our debt maturity profile:
Debt maturity profile
300
811
4.3%
1,161
2.3%
528
450
2.8%
427
1,357
2.3%
1,492
2.2%
1,007
4.4%
1,013
2.5%
598
548
446
3.8%
1,604
9.4%
a Excludes fair value adjustments.
We have unused committed borrowing facilities totalling £2.1bn.
We expect that these resources, combined with the future cash we
generate, will allow us to settle our obligations as they are due.
Notes 20, 25 and 30 to the consolidated financial statements gives
further information on these items.
Share buyback
We spent £9m (2017/18: £221m) on our share buyback
programme. We received proceeds of £5m (2017/18: £53m)
from people exercising their share options.
496
3.2%
666
3.8%
498
6.4%
666
4.0%
686
4.0%
247
3.7%
0
360
720
1,080
1,440
1,800
£ debt
$ swapped for £
€ swapped for £
£m
Note 25 to the consolidated financial statements gives more
information on our debt arrangements.
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 40
Group performance continued
Our customer-facing units
Consumer
Adjusteda revenue
£10,695m
Adjusteda operating profit
£1,510m
Enterprised
Adjusteda revenue
£6,292m
Adjusteda operating profit
£1,356m
Year to 31 March
Adjusteda revenue
2019
(IFRS 15)
£m
2018
(IAS 18)
£m
10,695 10,360
Adjusteda operating costs
8,161
7,984
Adjusteda EBITDA
2,534
2,376
Depreciation & amortisation
1,024
992
Adjusteda operating profit
1,510
1,384
Capital expenditure
994
919
Normalised free cash flowb
1,323
1,389
Change
£m
335
177
158
32
126
75
(66)
3
2
7
3
9
8
%
Year to 31 March
2019
(IFRS 15)
£m
2018
(IAS 18)
£m
Adjusteda revenue
6,292
6,647
Adjusteda operating costs
4,302
4,570
Adjusteda EBITDA
1,990
2,077
Depreciation & amortisation
634
635
Adjusteda operating profit
1,356
1,442
Capital expenditure
501
492
9
(5)
Normalised free cash flowb
1,483
1,587
(104)
Change
£m
(355)
(268)
(87)
(1)
(86)
%
(5)
(6)
(4)
–
(6)
2
(7)
We continue to experience challenging trends in both the high-end
smartphone market and in the broadband market. However, with
leading mobile and fixed networks, improving customer experience,
three strong brands and further enhancements to BT Plus, with 5G
coming imminently, we are well placed for the future.
Adjusteda revenue growth of 3% for the year was driven by the
continued increase in handset costs for customers, growth in the SIM-
only base across all brands and the impact of price increases, partially
offset by solus voice price reductions.
Adjusteda EBITDA grew 7% for the year as the revenue growth was
partially offset by increased trading costs.
Capital expenditure growth of 8% was driven by increased network
spend as preparations were made for the EE 5G launch in 2019.
Normalised free cash flowb was £1,323m, down 5% on last year as
the increase in EBITDA was offset by the settlement at the start of the
year of the Phones4U dispute relating to the retail trading agreement,
and increased capital expenditure.
Mobile churnc was stable at 1.2% for the year, whilst fixed churnc
was up from 1.3% to 1.4% reflecting the impact of price increases
in the year.
The UK and Ireland business-to-business market remains challenging.
The main headwind we face is the decline in traditional calls and lines
where we have a relatively high market share. The IP Voice market is
significantly more fragmented, with a large number of providers, and
we are focused on expanding our share in this growing market. The
mobile market remains competitive and we continue to see pressure on
pricing. While overall growth in the broadband market is limited, we are
seeing good demand for our premium products such as fibre and 4G
Assure. Newer areas such as the Internet of Things, Cloud, SDWAN and
security remain good opportunities for us over the longer term.
Adjusteda revenue decreased 5% for the year mainly due to the
ongoing decline of fixed voice revenue. We continue to see a steeper
than expected reduction in calls per fixed line as usage moves to
mobile and IP. We continue to sell less low margin equipment and also
experienced ongoing declines in some of our other legacy products
such as private circuits. This was partially offset by growth in IP, Mobile
and Networking. We’re also continuing to see encouraging growth in
messaging volumes in Ventures.
Adjusteda operating costs reduced 6%, helped by labour cost
efficiencies from our cost transformation programmes. Adjusteda
EBITDA decreased 4%, with our lower cost base more than offset
by the reduction in revenue.
Capital expenditure increased 2% and normalised free cash flowb
decreased 7%, reflecting the reduction in EBITDA and the higher
capital expenditure.
The Retail order intake decreased 15% to £2.9bn for the year due to
the signing of a large contract in Republic of Ireland in the prior year.
The Wholesale order intake declined 22% to £1.0bn after 2017/18
benefitted from a number of large deals, including the timing of some
contract renewals.
a Adjusted measures exclude specific items, as explained in the Additional Information on page 185.
b Free cash flow after net interest paid, before pension deficit payments (including the cash tax benefit of pension deficit payments) and specific items.
c Number of customers who disconnect from the network, voluntarily or involuntarily, during the period, divided by the average number of customers during the period, presented as a
monthly figure.
d Enterprise comparatives have been re-presented to reflect the bringing together of our Business and Public Sector and Wholesale and Ventures units into a single Enterprise unit, as well
as the transfer of Northern Ireland Networks from Enterprise to Openreach.
BT Group plcAnnual Report 2019
41
Strategic report
Governance
Financial statements
Additional information
Adjusteda operating profit
£955m
BT Group plc
Annual Report 2019
Global Services
Adjusteda revenue
£4,735m
Adjusteda operating profit
£135m
Openreachc
Adjusteda revenue
£5,075m
Year to 31 March
Adjusteda revenue
Year to 31 March
Adjusteda revenue
2019
(IFRS 15)
£m
2018
(IAS 18)
£m
4,735
5,013
Adjusteda operating costs
4,230
4,579
Adjusteda EBITDA
Depreciation & amortisation
Adjusteda operating profit
Capital expenditure
Normalised free cash flowb
505
370
135
245
296
434
424
10
278
118
%
(6)
(8)
Change
£m
(278)
(349)
71
(54)
2019
(IFRS 15)
£m
2018
(IAS 18)
£m
5,075
5,278
Change
£m
(203)
(11)
(192)
67
%
(4)
–
(7)
5
Adjusteda operating costs
2,652
2,663
16
Adjusteda EBITDA
2,423
2,615
(13)
Depreciation & amortisation
1,468
1,401
125
1,250
Adjusteda operating profit
955
1,214
(259)
(21)
(33)
178
(12)
Capital expenditure
2,081
1,699
151
Normalised free cash flowb
685
1,100
382
(415)
22
(38)
Global Services operates in a global market that continues to
experience high levels of change driven by both rapid technology
innovation and a dynamic competitive landscape. Customers’
demands continue to evolve towards more flexible, on-demand
models and new cloud-based and software-defined networking
solutions. We continue to execute our Digital Global Services
transformation programme to focus our business, standardise our
operations, transform our underlying infrastructure, and provide
innovative solutions to address the changing demands of our
customers. We are focused on around 800 multinational companies
and financial institutions served by three global industry verticals.
Adjusteda revenue for the year was down 6%, in line with our
strategy to de-emphasise low margin business and including the
impact of divestments. This includes a £35m negative impact
from foreign exchange movements, primarily reflecting lower IP
Exchange volumes and equipment sales.
Adjusteda operating costs for the year were down 8% mainly
reflecting the decline in IP Exchange volumes and equipment
sales and lower labour costs from our ongoing restructuring
programme. Adjusteda EBITDA for the year was up £71m reflecting
the reduction in operating costs and certain one-offs, more than
offsetting the impact of lower revenue.
Depreciation and amortisation was down 13% for the year due to
closure of certain projects in the prior year.
Capital expenditure was down 12% for the year reflecting
ongoing rationalisation and our strategy to become a more asset
light business. Normalised free cash flowb for the year improved
by 151% to £296m, reflecting higher EBITDA, lower capital
expenditure and improved working capital.
Total order intake was £3.3bn, down 15% year on year continuing
to reflect a shift in customer behaviour, including shorter contract
lengths and greater prevalence of usage-based terms.
Openreach has a UK-wide presence which is overlapped by our
competitors in around half the country. This overlap is expected
to grow as alternative network providers build-out new fibre
footprint. Our volume discount deal, signed with the majority of
our major communications provider customers, has led to another
record quarter for fibre sales. We are also rapidly expanding our
fibre-to-the-premises network to provide the next generation of
services for our customers. We have experienced strong demand
from businesses for Ethernet circuits for the second consecutive
quarter.
Adjusteda revenue decline of 4% for the year was driven by
regulated price reductions predominantly on FTTC and Ethernet
products, non-regulated price reductions (mainly driven by
communications providers signing up for fibre volume discounts), a
small decline in our physical line base and a reclassification of costs
to revenue. This was partly offset by 25% growth in our fibre rental
base, a 9% increase in our Ethernet rental base and the impact of
adopting IFRS 15.
Adjusteda operating costs were broadly flat, with higher costs
from recruiting and training engineers to support our ‘Fibre First’
programme and help improve customer experience, as well as
pay inflation and business rates, offset by efficiency savings and a
reclassification of costs to revenue. Adjusteda EBITDA was down
7% for the year.
Capital expenditure was £2.1bn, up 22%, driven by investment in
our FTTP and Gfast network build and higher year-on-year BDUK
net grant funding deferrals, partly offset by efficiency savings.
Normalised free cash flowb was down 38% due to the EBITDA
decline, higher underlying capital expenditure (excluding BDUK
grant funding deferrals) and timing of customer receipts.
a Adjusted measures exclude specific items, as explained in the Additional Information on page 185.
b Free cash flow after net interest paid, before pension deficit payments (including the cash tax benefit of pension deficit payments) and specific items.
c Openreach comparatives have been re-presented to reflect the transfer of Northern Ireland Networks from Enterprise to Openreach.
42
BT Group plc
Annual Report 2019
A message from the
Openreach Chairman
Openreach has had a solid year
of progress. We improved our
customer service performance,
confi rmed our status as a legally
separate entity, and accelerated
our full fi bre build programme
through major investments in
our people and our network.
Fulfi lling our commitments to Ofcom
Following Ofcom’s Digital Communications
Review of 2015, we have implemented a
series of changes to our governance and
operations to give Openreach more control
of its strategy, investments and plans
within a strategic and fi nancial framework
defi ned by BT.
The major milestone this year concerned
our people. On 1 October 2018, more than
31,000 people transferred from BT into the
new Openreach Limited – a considerable
step that we believe is the largest ever
one-off people transfer in UK corporate
history . We also created Openreach
Northern Ireland to complete the formal
implementation of our commitments to
Ofcom under the Review.
Meanwhile, our rebranding programme
continues ahead of schedule. Almost
17,000 vehicles now feature the new
Openreach brand, and we have updated
all our external websites, templates and
systems. Out of 32 Openreach buildings,
we have just seven more to rebrand.
Ofcom recognised the progress we have
made across the board in its most recent
implementation report.
We have completed most of what I call the
‘hard wiring’ necessary to create the more
independent Openreach. The ‘soft wiring’,
encompassing things such as culture and
behaviour, always takes longer to embed.
I am , however, very encouraged at the real
progress that BT and Openreach have made
in this regard. There is a real consensus
throughout both organisations that only by
embedding this new way of working will we
establish an enduring legacy. It takes time
but we are on the right path.
Investing in our service and people
Our network is more than 173 million
kilometres long and passes nearly 32
million homes and businesses. With so
many customers, improving the service we
off er will always be our top priority.
I am encouraged by the progress we’re
making in reducing faults, keeping missed
appointments down and fi xing issues much
faster. Last year we cut the total number
of faults on our network by 4.4% – saving
some 194,000 engineer visits . Th is is
helping us continue to meet or exceed all of
Ofcom’s 42 Minimum Service Level targets
on copper and broadband services.
On the dedicated circuits we provide for
businesses, we delivered another strong
year of Ethernet orders and we are also
fi xing 94 % of faults within just fi ve hours.
We also opened more direct
communication with end customers, via
our website and social media, to tackle the
frustration some face in contacting us.
But we know we need to do better, because
what we do is so important to the UK’s
citizens and businesses.
We’re continuing to invest heavily in our
people, training and systems. This year
we hired 3,500 more trainee engineers
to help us sustain improvements and we
will hire a further 2,700 next year. It is the
biggest recruitment drive in our history.
To consolidate it we have introduced new
training and career opportunities to help
us develop and keep hold of the very best
engineering talent.
We have now opened four fi bre training
centres, including Peterborough ,
Livingston and Yarnfi eld. A further eight
similar centres are being built or upgraded
across the country. This 100,000 square-
foot facility includes an ‘ Open Street’ – a
mock-up of a typical suburban street, to
help our engineers develop their skills in an
authentic and immersive environment.
43
Another hurdle is adoption. Having built
our superfast network to almost 27.5
million premises across the UK, there are
still more than 15.5 million homes and
businesses who have not signed up to our
superfast broadband.
That is why last year we took the
unprecedented step of offering volume-
related discounts to encourage more
communications providers to upgrade their
customers. The move is already having a
positive effect on take-up.
We also continue to extend fibre into
rural areas – via publicly-subsidised
schemes and direct partnerships with
local communities. We recently signed
our 850th Community Fibre Partnership
contract. Overall the scheme has helped
us upgrade almost 98,000 homes and
businesses in recent years.
Looking to the future
We are committed to openness and
transparency, so we are now publishing a
wide range of information about our ‘Fibre
First’ programme on our website, including
maps and a list of locations we will be
building in over the next 12 months.
We also publish details of the specific
exchanges where we’ve installed, are
currently installing, or will soon be
installing (within the next three months)
FTTP. We will update this information every
three months.
These are exciting times at Openreach.
We want to get decent, reliable and future-
proof broadband to as many people as we
can, as fast as we can. I look forward to
seeing that continue to materialise over
the coming year.
Mike McTighe
Chairman, Openreach
8 May 2019
Highlights
173m
Our network is more than
173 million kilometres long
94%
We are fixing 94% of network
faults within five hours
3,500
In 2018 we hired
3,500 trainee engineers
26
We are progressing FTTP build
in 26 locations
27.5m
We have built our superfast
network to almost 27.5 million
premises across the UK
‘Fibre First’
FTTP is a vital technology for the UK’s
future. It is fast, reliable and future-proof.
We believe it is key to the future success
of digital services in the UK and we believe
Openreach has to underpin this. That is why
our strategy is ‘Fibre First’.
Last year we accelerated our fibre build
programme and doubled our FTTP
footprint. The new network is now available
to more than 1.2 million homes and
businesses. As a result, we are increasing
our aim of reaching three million homes
to four million by March 2021. We are
progressing FTTP build in 26 locations and
in April announced a further 12 locations
to benefit from FTTP availability in the
next 12 months, bringing the total to 38.
Around a third of our FTTP footprint today
is in rural areas, and our continuing BDUK
work is almost exclusively focused on FTTP.
We want to go further – to 15 million by
the mid-2020s – if the right conditions
to invest are in place. To help create those
conditions, we are doing whatever we
can to reduce the cost of rolling out fibre
– including tools and techniques such as
drones, micro-ducting, ribbonised cables
and ‘plug-and-play’ connections.
We’re also working with the Government
and Ofcom to deliver the enablers we
need to go even further and faster. One
of the biggest of these is business rates
– specifically the Cumulo tax on fibre
infrastructure. It is a barrier to investment
for any operator wanting to build more
FTTP, and we believe that action on this by
the Government would boost investment
across the sector.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 44
Our approach to
risk management
Like any business, we face
a number of risks and
uncertainties. Some come
from outside our organisation,
others from within. Some we
can control but others we
can’t, in which case we plan
for the consequences. Many
of our risks are similar to those
faced by similar businesses.
Principal risks and uncertainties
The principal risks and uncertainties that
affect us could have an impact on our
business, brand, customers, assets, revenue,
profits, liquidity or capital resources.
Our Enterprise Risk Management framework
gives reasonable (but cannot give absolute)
assurance that we’ve identified and are
addressing our biggest risks. But there may be
some risks that are either currently unknown,
or currently seen as less important but with
the potential to become more important in
the future.
Events outside BT present both risks and
opportunities. We focus our efforts on
predicting and managing risks while aiming
to take advantage of any opportunities that
may emerge.
We recognise the uncertainty that political
and geopolitical risks present, and have
continued to operate a specific Brexit
programme across BT that looks at how we
might be affected and what our response
should be. This programme has developed
contingency plans covering a range of
scenarios, including the possibility that the UK
leaves the EU without a deal. The programme
continues to follow developments closely
and reports to a steering group chaired
by our chief financial officer.
In the section below, we explain what we’re
doing to help prevent our main risks from
materialising, or to limit their impact if they
do. Our principal risks and uncertainties
should be considered alongside our risk
management process, the forward-looking
statements in this document and the
associated cautionary statement (see
page 190).
Enterprise Risk Management framework: responsibilities and governance
Customer-facing and
technology unit audit
and risk committees
Customer-facing
and technology unit
leadership teams
Audit & Risk
Committee
Group Risk
Panel
Executive
Committee
Board
Our units follow our Enterprise
Risk Management framework
to manage risks. That means
identifying, responding to,
monitoring and assuring the
key risks affecting their business.
They record the risks for their
leadership teams to review.
Audit and risk committees in our
customer-facing and technology
units, plus corporate functions,
oversee this process.
The Group Risk Panel supports
the Board and the Executive
Committee. Every three months
it reviews the Group Risk
Register, which describes our
most significant risks and how
they are being managed,
considers new or emerging risks,
and recommends ways to tackle
them. It also oversees the work
of the group risk management
function.
The Executive Committee
owns and oversees the risk
management process. Significant
risks are reported and monitored
through the Group Risk Register.
The Executive Committee assigns
a senior owner to take charge of
monitoring and managing each
risk. It monitors risks through
detailed reviews of individual
risks as well as six-monthly
reviews of the Group Risk
Register.
The Board has overall
responsibility for making sure
we manage risks appropriately.
It regularly reviews, either
directly or through the Audit
& Risk Committee, how we’re
doing across the group, in our
customer-facing and technology
units and corporate functions.
BT Group plcAnnual Report 2019 45
How we manage risk
Managing risk is essential if we’re to meet
our objectives, build shareholder value,
become more resilient, maintain our licence
to operate and promote our stakeholders’
interests. To help us, we’ve developed a
group-wide risk management process
with four stages:
Identification
Monitoring
Business
activities
Evaluation
Response
Changes over the year
In 2017/18 we improved the way we
manage risk through: revisiting our three
lines of defence model and how we apply
it to our key areas of risk; reviewing our risk
management arrangements against some
external benchmarks; and continuing our
cycle of war gaming. Specific improvements
to our risk and assurance activities in
2018/19 included:
Integrated approach
This year we brought together, under
new management, our risk management,
compliance, internal audit and some second
line assurance functions to manage risk
and provide assurance in a more integrated
and simplified way. To extend and sustain
the benefits of this across the organisation,
we’ve launched a new programme called
‘One BT Integrity and Compliance’ – see page
70 for more detail.
Supplier failure
We’ve been reviewing the lessons we learned
following the collapse of a major supplier
during the year, and have made a number of
improvements to how we would pre-empt
and respond to a similar event in the future.
Major contracts
We’ve been reviewing responsibilities
across the three lines of defence for the
management and governance of our
major contracts, and have strengthened
our assurance reporting over key contract
controls.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 46
Our principal risks
and uncertainties
Strategic risks
Competition and technology changes
Link to strategy
1 Best converged network
2 Differentiated customer experience
3 Simplified, lean and agile business
Trend versus prior year indicates our perception
of pre-mitigation risk
Increasing/worsening
Lessening/improving
At a similar level
Link to business model
F Financial capital
H Human capital
M Manufactured capital
Intellectual capital
I
S Social capital
N Natural capital
Trend
• Our strategy and business model could be disrupted by technology change and/or
intensifying competition from established players and new entrants into our markets
Link to business model
F
I
Link to strategy
1 2 3
Potential impact
• Loss of market share, lower revenues, and profit.
• Products becoming obsolete faster.
• A need for us to invest more.
Developments in 2018/19
• The UK telecom market struggled to grow.
• Competition increased in the UK as many of our competitors tried
to take more market share.
• Some alternative network providers announced fibre network
investment plans in the UK.
• UK sports rights competition increased, with Amazon winning
a three-year broadcast package for the Premier League,
starting in 2019.
• Competitors are developing their future 5G propositions.
Examples of how we mitigate
• We are:
– delivering a differentiated customer experience to retain
existing customers and attract new customers
– investing in building the best converged network to provide
our customers with products and services that stand out in the
marketplace
– simplifying our business and processes to reduce our cost
base, which is an essential enabler to deliver a differentiated
customer experience and build the best converged network.
• We’re keeping a close eye on and responding to technology
developments and competitor activity that could have an impact
on us achieving our goals.
Communications industry regulation
• Risk of unfavourable changes to the way we operate and compete where, for
example, Ofcom raises competition concerns around market power
• Also the risk of unfavourable regulatory changes outside the UK to licensing
and terms on which we access incumbent operators’ networks
Trend
Link to business model
F M
Link to strategy
1 3
Potential impact
Examples of how we mitigate
• Our regulatory and policy specialists, legal experts, compliance
and operational teams guard against potential risks and look for
timely opportunities to support the shaping of regulation. This is
underpinned by our regulatory strategy.
• We push for clear, predictable and proportionate regulation,
submitting evidence and analysis into market reviews, charge
controls, disputes and investigations.
• Regular engagement with regulators, government, consumer
organisations and other key stakeholders helps us build trust and
understand their outlook.
• We can ask for judicial reviews of regulatory decisions and appeal
to the Competition Appeal Tribunal, dispute things or complain
against outcomes that we feel aren’t in the best interests of the
market or our customers.
• Reduced prices on products.
• Increased costs of doing business due to the service standards
we are required to meet.
• Limitations in the scope and competitiveness of the services
we can provide.
Developments in 2018/19
• Ofcom published Digital Communications Review
Implementation Reports in June and November 2018 reviewing
BT’s and Openreach’s adoption of the Commitments and
Governance Protocol.
• The Department for Digital, Culture, Media and Sport published
its Future Telecoms Infrastructure Review.
• Ofcom continued its cycle of market reviews, including
consultations on the business connectivity and physical
infrastructure markets, and on its move to more holistic
regulation of access across business and residential markets.
• Consumer issues such as charges once a customer’s minimum
contract term expires were part of a super-complaint by Citizens
Advice to the Competition and Markets Authority (across
telecommunications and financial services sectors) and has been
referred back to Ofcom.
BT Group plcAnnual Report 2019
47
Political risk
• Our future strategy and investor confidence could be undermined as a result
of an uncertain or adversarial political environment
• Our operations and revenues could be disrupted as a result of geopolitical risk,
in particular outside the UK
Trend
Link to business model
F H S
Link to strategy
1 2
Potential impact
Examples of how we mitigate
• Direct consequences include impact of movement in foreign
exchange rates, lower consumer and business confidence,
cost and availability of capital, interest rates and changes in
tax regimes.
• We have strong relationships with the UK Government, key
departments, MPs, peers, the media and business and consumer
bodies. We also engage often and closely with governments and
politicians in the EU and our key global markets.
• Political risk can also impact upon some of our other principal
• We inform public debate around the communications market
risks, in particular regulation.
with campaigns explaining our role within it.
• Outside the UK political risk impacts us through changes in
regulation and competition. It could also result in social unrest or
a breakdown in the rule of law, which could lead to a threat to our
people and assets.
Developments in 2018/19
• There were continued negotiations between the EU and UK
to agree Brexit terms – against a backdrop of domestic
political instability.
• There was high political interest and policy focus around
communications – particularly fibre broadband and 5G.
The Government’s Future Telecoms Infrastructure
Review concluded.
• There was more political focus on issues like consumer pricing
and contracts, and security and competition in the
communications supply chain.
• In the build up to the UK’s scheduled exit from the EU we’ve
continued our contingency planning to make sure customers
keep getting our services. This includes: making sure we have
enough stock to mitigate any short-term disruption; making
crisis management arrangements in the immediate aftermath of
a ‘hard’ Brexit; reviewing how we’d keep serving EU customers;
assessing what systems we need to change; and making sure our
key suppliers are similarly prepared for any eventuality.
• Outside the UK our public affairs and regulatory teams support
governments and regulators to establish and maintain open and
fair regulation of markets.
• Our security and business continuity teams focus on
protecting our people and assets against the consequences
of geopolitical risks.
Financial risks
Pensions risk
Trend
• Our defined benefit (DB) pension schemes, in particular the BT Pension Scheme
(BTPS), could become more of a financial burden as a result of future low
investment returns, high inflation, longer life expectancy and/or regulatory changes
Link to business model
F H S
Link to strategy
3
Potential impact
Examples of how we mitigate
• The next BTPS valuation is due at 30 June 2020. A rise in the
deficit might affect the size of payments we have to make
into the scheme.
• We and the BTPS Trustee regularly review the scheme’s funding
position and investment performance. We also consider
associated risks and possible mitigations.
• A rise in the deficit could also negatively affect our share price or
credit rating, making it harder and more expensive to
access funding.
Developments in 2018/19
• The actuarial valuation of the BTPS was agreed in May 2018.
This led to a £2bn contribution in June 2018, funded by
proceeds from issuing long-term bonds to the BTPS.
• We reviewed pension arrangements for our UK people, closing
Sections B and C of the BTPS to future benefit accrual on 30 June
2018 (representing more than 99% of active members at the
time). This has largely removed the build-up of additional future
liabilities in the BTPS.
• Our agreement with the BTPS Trustee following the last funding
valuation helped reduce investment risk and allows for a gradual
move to a low-risk investment approach over time. Our strategy
also aims to mitigate the impact of liability increases (for example
by investing in assets that will go up in value if future inflation
expectations rise).
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 48
Our principal risks and uncertainties continued
Financial risks continued
Financial risk
• Like many other major international businesses, we’re exposed to
financial risks such as market risk (including interest rate and foreign
exchange risks), credit risk, liquidity risk and tax risks
Trend
Link to business model
F S
Link to strategy
2 3
Potential impact
Examples of how we mitigate
• Interest and foreign exchange rate movements could negatively
affect our profitability, cash flow and balance sheets (see note 27
to the consolidated financial statements).
• We have a centralised treasury function whose job is to manage
liquidity and funding requirements as well as our exposure to
financial and market risks.
• If credit risks materialise they could negatively impact our
• Our governance framework is at the heart of how we mitigate
liquidity and profitability.
• If we don’t stick to tax rules we could face financial penalties
and reputational damage.
Developments in 2018/19
• Earlier in the year S&P and Fitch downgraded our credit rating,
due to concerns over the effect that competing pressures,
including those related to our pension and our network
investments, may have on our cash flows. The three main
agencies now rate us Baa2/BBB with stable outlook.
• As the external tax environment changes, we have to make
more judgements to forecast the future tax consequences of
business decisions.
Compliance risks
Significant financial control failure
• Financial controls may not prevent or detect fraud, financial misstatement
tax risk. This is set and agreed by the Board. We always aim to pay
tax in line with the laws of the countries where we do business.
We want open, constructive relationships with tax authorities
worldwide, getting reputable independent advice where we
need it.
Trend
Link to business model
F
Link to strategy
1 3
or other financial loss
Potential impact
• Failures in our financial control framework could result in financial
misstatement, financial loss including a failure to prevent fraud,
or key decisions being taken based on incorrect information.
Developments in 2018/19
• KPMG have become our new external auditors.
• We have brought together, under new management, our risk
management, compliance, internal audit and some second line
assurance functions.
• We commenced a significant Sarbanes-Oxley control
enhancement programme which identified two particular areas
requiring remediation: IT general controls and risk assessment,
in particular, documentation of information used in controls.
Although improvements have been made, remediation and
testing of all IT general controls and risk assessment remediation
plans was not complete at 31 March 2019 and will be a
significant focus for 2019/20. Unremediated deficiencies in
the two areas were concluded to be a ‘material weakness’ as at
31 March 2019 as defined by the Sarbanes-Oxley Act.
Examples of how we mitigate
• We train our people (including those in high risk roles) to build
awareness and understanding of controls – including our
three lines of defence, fraud awareness and balance sheet
reconciliation best practice courses.
• We have implemented a financial controls framework with
appropriate policies, processes, checks and balances – including
quarterly certifications over key controls by senior leaders.
• We are progressing a programme to strengthen our financial
control framework, supported by a new Group Financial Controls
and Assurance team.
BT Group plcAnnual Report 2019 49
Privacy, data protection and data governance
• We might fail to ensure that our customers’ and employees’ data are secure
and protected in compliance with data privacy laws, against internal and
external threats
Trend
Link to business model
F S
Link to strategy
1
Potential impact
Examples of how we mitigate
• A breach of data protection regulation could result in
• We perform compliance reviews of our activities involving
enforcement action, significant fines, class action, prison
sentences and the regulator telling us to stop processing
the data.
• This could also result in potential reputational damage,
stopped operations and financial loss from fines and
customers leaving.
Developments in 2018/19
• EU General Data Protection Regulation (EU GDPR) came into
force on 25 May 2018. Our preparations included setting out
in our privacy policies what personal data we collect, what we
do with it and why we process it; reviewing our contractual data
obligations with suppliers; and increasing our resources to deal
with data subject access requests.
• A number of major corporations have fallen victim to significant
data breaches this year.
personal data across the business. Our focus is on protecting
systems, enhancing our operational processes and training our
people to protect the personal data they handle.
• We provide our people with tools to make risk-based decisions in
their day-to-day activities (like using Privacy Impact Assessments
when they develop new products or services).
• We conduct due diligence activities on third parties’ data
handling and security arrangements.
• We have Binding Corporate Rules agreed with the regulator to
guide and support our business operations.
Health, safety and wellbeing
Trend
• We might fail to ensure the health, safety and wellbeing of our people or members
of the public, in breach of health and safety laws and regulations
Link to business model
F H N S
Link to strategy
1
Potential impact
Examples of how we mitigate
• Health and safety failures could mean injury to our people or
• We implement a company-wide and Board-endorsed health,
members of the public, financial penalties, hindered or stopped
operations and reputational damage.
Developments in 2018/19
• Changes in technology and working processes helped reduce
physical risks to our people.
• Changes in our workforce mean we have more new recruits and
they need more safeguards while they gain experience.
• We’re managing the psychological impact of the pace and scale
of our transformation on our people.
• We’ve appointed a new director of health, safety and wellbeing.
safety and wellbeing strategy.
• All our people do training in basic health and safety, overseen
by their managers.
• We monitor compliance through annual licensing, refresher
training, competency assessments and accreditation for
higher-risk groups.
• We have a new IT system to help us better capture and share
information on health and safety incidents.
• We run wellbeing campaigns for our people.
Ethical culture
• Our controls and procedures could fail to detect unethical or inappropriate
behaviour by our people or associates
Trend
Link to business model
F H S
Link to strategy
1 3
Potential impact
Examples of how we mitigate
• Unethical or inappropriate behaviour could result in fraud or a
• First and second line assurance teams perform risk-focused
breach of regulation or legislation.
thematic reviews in addition to controls monitoring.
• That in turn could expose BT to significant penalties, criminal
• We have policies covering financial and non-financial controls
prosecution and damage to our brand and reputation.
Developments in 2018/19
• A steady flow of companies being prosecuted under anti-
corruption and bribery laws (UK Bribery Act and the FCPA).
• An increase in legislation to address and report on human rights
abuses by companies.
• An increase in Speak Up (BT’s confidential whistleblowing service)
reports and conflict of interest registrations.
including trade sanctions, conflicts of interest, gifts and
hospitality, charitable donations and sponsorship.
• We carry out due diligence on third parties like suppliers, agents,
resellers and distributors.
• We include anti-corruption and bribery clauses in our
procurement contracts.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 50
Our principal risks and uncertainties continued
Operational risks
Customer experience
Trend
• Our customer experience may not be brand enhancing nor drive sustainable
profitable revenue growth
Link to business model
H F
Link to strategy
1 3
Potential impact
Examples of how we mitigate
• If we don’t deliver a great customer experience it could damage
our brand, cause customers to leave and so reduce our revenue,
or even lead to financial penalties.
• It could also impact our people’s pride in working for BT.
Developments in 2018/19
• We continued to improve our customer experience, achieving
our best ever customer perception results for BT Consumer, EE,
Enterprise and Global Services.
• Our consumer brands came together under a new Consumer
unit.
• We launched our new Be There brand positioning.
• We track a range of customer experience metrics very closely and
have programmes in place to drive improvement. For example,
our BT transformation plan includes a radical business process
simplification workstream.
• We’ve launched new and innovative products to further enhance
our customers’ experience, for example, BT Plus.
Major contracts
Trend
• There is a substantial performance risk to our complex and high-value national
and multinational customer contracts
Link to business model
F
Link to strategy
1 3
Potential impact
Examples of how we mitigate
• If we don’t meet contractual commitments, or if customers’
• We have governance, risk management and reporting
needs change, then our expected future revenue, profitability
and cash generation may reduce.
processes in place at both corporate function and customer-
facing unit levels.
• Contracts may even become loss-making through a drop in
• We have an independent review programme to provide
checks and balances on individual contracts.
• We check how we’re managing contracts against a best practice
framework, based on our knowledge of running and managing
major programmes.
• We also train our contract managers to better identify
and manage risk.
revenue, changes to customers’ businesses, business failure or
contract termination.
• We are delivering some particularly high-profile infrastructure
contracts, notably the Emergency Services Network (ESN) and
the Broadband Delivery UK programme (BDUK). If we failed to
deliver these, or had an operational failure, it could lead to major
reputational damage.
Developments in 2018/19
• We made improvements this year, including:
– learning more about why the performance of some contracts
deteriorates and how to stop it happening in future
– improving the process for management reviewing contracts
– improving long-term forecasting
– improving our contract management systems
and governance processes
– redefining and enhancing our controls and assurance.
• On top of deploying the second and third phases of our BDUK
contracts, we continued to win new BDUK work to further
extend coverage of superfast broadband in rural areas.
• We agreed a new ESN contract framework with the Government.
BT Group plcAnnual Report 2019 51
Service interruption
• There is a risk we are unable to prevent and respond to incidents caused by natural perils,
network and system faults, and malicious acts that threaten our network
• We may also fail to prevent interruption to our services as a result of supply chain failure,
software changes, equipment faults, fire, flood, infrastructure outages and sabotage
Trend
Link to business model
M N
F
I
Link to strategy
1 2
Potential impact
Examples of how we mitigate
• A major interruption event could result in lost productivity,
• We monitor our IT and network performance very closely, and
rework and recovery costs, loss of revenue, increased insurance
costs, legal or contractual penalties, or even harm to individuals.
• It could also result in customers leaving BT.
Developments in 2018/19
• Extreme weather always challenges our IT and network estate.
This year we had to keep our network operating through the joint
hottest UK summer on record, lightning storms and heavy rain.
• We’ve particularly focused on technology lifecycle management
to recognise and manage the risks associated with our systems
estate over time.
have controls in place to limit interruption to service.
• Our mobile, geographically dispersed, emergency response
facilities help us manage incidents if they do occur.
• We are continuing our programme of providing permanent flood
protection for our critical assets most at risk.
• We test our resilience through a number of activities, including a
continual cycle of war gaming.
• We review the lessons learned from major incidents in order to
try to prevent such things from recurring.
Cyber and information security
• Security risks could arise from people inside BT or from external sources like
hacktivists, criminals, terrorists or nation states attacking our infrastructure
and assets, for example through use of hacking tools, phishing scams and
disruptive malware
Trend
Link to business model
F
I
Link to strategy
1
Potential impact
Examples of how we mitigate
• A cyber attack could result in disruption to our business or
data being compromised, leading to financial loss, long-term
reputational damage, loss of market share, regulatory sanctions,
fines and contract penalties or termination.
• It could also result in missed opportunities to grow revenue
and launch new services ahead of our competitors.
Developments in 2018/19
• Major corporates continue to fall victim to cyberattack, with a
number of high-profile incidents occurring in 2018/19.
• EU GDPR came into force on 25 May 2018.
• We monitor and log our network and systems, and keep raising
our people’s security awareness through training and mock
phishing attacks.
• We have compartmentalised our IT estate as we provision
new cloud-based systems to limit the potential impact of a
cyber attack.
• ‘Red Team’ exercises run by our ethical hackers help us to keep
improving security across BT, especially around upgrading our
access controls.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 52
Our principal risks and uncertainties continued
Operational risks continued
Supply chain
• There is a risk of disruption to the integrity and continuity of our supply chain
• Global markets expose us to global supply chain risks. These include different labour
standards and environmental and climate change practices, increasing regulation
and geopolitical events
Trend
Link to business model
F H N S
Link to strategy
1 3
Potential impact
Examples of how we mitigate
• The impact of suppliers failing can vary. If substituting a failing
supplier meant we had to disrupt our business, it could cost us a
lot of time and money.
• If we couldn’t find a different supplier, it might compromise the
commitments we make to our customers, leading to us breaking
our contract, losing revenue or incurring financial penalties.
• If our supply chain doesn’t meet legal, regulatory or ethical
standards it could damage our reputation and possibly lead to
legal action and fines.
Developments in 2018/19
• With EU GDPR coming into force, we worked closely with our
suppliers through the year to help protect our people and
customers and incorporate privacy-by-design by default into the
products and services they supply us.
• We planned extensively for the potential impacts of Brexit on
our supply chain.
• We’ve been closely monitoring global political developments
with respect to Huawei.
• We started work to establish a new centralised third-party risk
and control capability.
• After the failure of Carillion (one of our large suppliers) last year,
we strengthened our risk monitoring processes, including the
ways we identify and respond to early warning signs of potential
supplier failure.
• In December 2018 we announced that, in line with our long-
standing network architecture principles around the use of
Huawei, we will replace the current Huawei 4G core (inherited
through the EE acquisition). This will be implemented as we move
to a future new and combined 4G/5G core.
• For our most important suppliers, we keep a close watch
on our relationships, their performance and ability to meet
their obligations. We tell the business when there’s a risk of a
supplier failing, and our senior leaders review our readiness
for such events.
• We undertake due diligence when we introduce new suppliers
and in our continuing business with existing ones. That includes
checks on company finances, business systems, accreditations,
media reputation and ethical practices. The standards we apply
are available on selling2bt.com.
• We are also refining the way our three lines of defence come
together to manage and assure supplier risks.
• Our dealings with suppliers follow our trading, compliance
and ethical policies – see page 27 for more detail.
BT Group plcAnnual Report 2019 Colleague engagement
• There is a risk that our people are not sufficiently engaged to enable us to achieve
our strategic priorities
Potential impact
Examples of how we mitigate
53
Trend
Link to business model
H
Link to strategy
1 3
• Negative reactions to change might mean us losing talented
• We’ve undertaken extensive consultations with unions, works
people, leading to us losing important skills and needing to hire
more external people, adding cost to the business.
councils and colleague representatives to make sure we
maintain a healthy and positive relationship with our people.
• Poor engagement also raises the risk of general industrial unrest
• We’re continuing to streamline our management structure –
moving responsibilities closer to front line teams and speeding up
decision making to help deliver a better customer experience.
and action.
Developments in 2018/19
• We’ve worked constructively with our unions this year to agree
a number of transformation initiatives, including changes to
our defined benefit pension scheme and the TUPE transfer
of our people into Openreach Limited.
• As we create a simpler business, we’re also working closely with
our unions to roll out a new people framework defining job
families and career levels for our people.
Change management
Trend
• Our BT transformation plan could fail to deliver its required benefits
• There is also a risk that such deep and fast change can be distracting and cause
Link to business model
H F
Link to strategy
1 3
uncertainty amongst our people
Potential impact
Examples of how we mitigate
• If we don’t manage our change programme carefully, we may not
deliver its intended benefits, it could negatively impact customer
experience or affect our employee engagement.
• We could potentially overspend on the change programme itself.
Developments in 2018/19
• We made good progress delivering our BT transformation
plan, including establishing a new people framework for our
management grades.
• Work continued delivering a new Digital Global Services with an
agreed new organisational structure.
• We completed the integration of our Business and Public
Sector and Wholesale and Ventures units into a single new
Enterprise unit.
• We apply a formal structure and governance to our key
change programmes – for example our BT transformation plan
has a full-time programme office and our Executive Committee
reviews progress regularly. Change programmes are also
supported by our business transformation team.
• Close communication with our people and unions, supported
by monitoring our engagement levels, helps us manage the
uncertainty that the transformation may cause and to target
interventions where needed.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 54
Our viability statement
Assessment of prospects
An understanding of the group’s business
model and strategy is central to assessing its
prospects, and details can be found on pages
12 to 21.
Viability statement
In accordance with provision C.2.2 of the
2016 UK Corporate Governance Code, the
directors have assessed the prospects and
viability of the group.
We’ve also assumed that, should the need
arise, we would have both the ability to
renew existing debt facilities which mature
over the three-year period and be able to
raise new debt.
Based on the results of this analysis, the
directors have a reasonable expectation
that the group will be able to continue in
operation and meet its liabilities as they
fall due over the three-year period of their
assessment.
Our business model provides resilience
that is relevant to any consideration of
our prospects and viability. In the UK, we
benefit from diversification across a number
of markets and products, which increased
significantly through the acquisition of EE.
We also have a broad spread of customers
and suppliers across different geographic
areas and market sectors, serving the needs
of customers in 180 countries worldwide.
Our strategy of delivering great customer
experience, investing in network leadership
and transforming our operating model
are all designed to support long-term and
sustainable cash flow growth.
We assess our prospects on a regular basis
through our financial planning process.
Our Medium Term Plan forecasts the
group’s profitability, cash flow and funding
requirements, and is reviewed by the Board
during the year. The Medium Term Plan is
built from the bottom-up forecasts of each
of our customer-facing units, supplemented
by items managed at a group level and
assumptions such as macro-economic
activity and exchange rates. The performance
of the group and our customer-facing units
against these forecasts is monitored monthly
and this is supplemented each quarter
through a series of Quarterly Business
Reviews of each unit conducted by the chief
executive officer and chief financial officer.
Beyond our Medium Term Planning horizon,
the group also makes investments that
have business cases covering a longer time
period, such as our network investments.
Significant capital expenditure investment
cases are approved by the chief executive
officer and, where appropriate, the Board,
after taking into account longer-term risks
and opportunities such as the economy,
technology and regulation.
Our business and financial planning also takes
into account our longer-term obligations,
including the funding of our defined benefit
pension schemes.
Although the directors have no reason to
believe that the Group will not be viable
over a longer period, the Board has chosen
to conduct this review for a period of three
years to 31 March 2022. The Board believes
this is an appropriate timeframe as it aligns
with the primary focus of our business
planning and the underpinning time cycles of
a number of our principal risks: for example
the pension scheme funding valuation and
Ofcom’s market review cycles.
In support of this statement we’ve stress
tested our forecast cash flow by assessing,
through a probabilistic analysis, the range
of potential combined impacts our most
significant risks could have on these
forecasts. This assessment was informed by
our judgements as to the potential financial
impact of these risks if they materialise,
together with their likelihood of occurrence.
Our stress testing confirmed that existing
projected cash flows and cash management
activities provide us with a buffer against
the impact of our most likely risks. In the
most extreme scenarios we tested, we have
considered the further actions we could
take to mitigate the negative cash flow
impact and ensure additional liquidity. These
actions could include, for example, sale of
assets, limiting or delaying discretionary
capital expenditure and marketing activities,
restricting share buy-back programmes and
reducing or ceasing dividend payments.
In our viability assessment we’ve adopted
a number of assumptions designed to
stress test our resilience. For example, in
making our assessments of the impact and
likelihood of our risks, we’ve only taken into
account the control activities that we have
in place today. We’ve not factored in any of
the extensive future mitigation activities
that we’re undertaking to address these
risks, thereby assuming such activity proves
ineffective. Whilst we do not expect this to
happen, we’ve adopted these pessimistic
assumptions to add greater stress to our
viability testing.
BT Group plcAnnual Report 2019
Strategic report
Governance
Financial statements
Additional information
Contents
Governance
Chairman’s governance report
Our governance framework
Board of Directors
The Board
Relations with shareholders
Reports of the Board committees
• Nominations Committee chair’s report
• Audit & Risk Committee chair’s report
Report on directors’ remuneration
• Remuneration Committee chair’s letter
• Focus on remuneration
• Annual remuneration report
Directors’ information
General information
55
56
57
58
60
64
66
66
69
73
73
76
79
92
94
Financial statements
Additional information
100
185
BT Group plc
Annual Report 2019
We believe that effective corporate governance is
critical to delivering our strategy and creating long-
term value for our shareholders. We also recognise
the importance of our wider stakeholders in delivering
our strategy and achieving sustainability within our
business. We are always conscious of our responsibilities
and duties to these stakeholders under section 172
of the Companies Act 2006. We have detailed our
stakeholders and their importance to our business
in the Strategic report on pages 1 to 54.
Leadership
Effectiveness
The Board is collectively
responsible for the long-term
success of the company. Read
more about how our board leads
BT on pages 60 to 63.
We continually think about
the effectiveness of our board
and its committees including
composition, induction and
development of directors. Read
more about effectiveness on
pages 55 to 75.
Accountability
Remuneration
The Board has established the
Audit & Risk Committee to
oversee corporate reporting,
risk management and internal
control and our relationship with
the company’s external auditors.
Read more about this in the Audit
& Risk Committee chair’s report
on pages 69 to 72.
The Board has established the
Remuneration Committee to
develop the remuneration
policy and set the remuneration
for the executive directors
and other senior executives.
Read the Report on directors’
remuneration on pages 73 to 90.
Our corporate governance compliance statement
As a Premium Listed company BT is subject to the UK Corporate Governance Code (the Code)
published by the Financial Reporting Council. For 2018/19 we are reporting against the 2016
version of the Code and the Board considers that throughout the year BT has complied with the
provisions of the Code and applied the main principles of the Code as described on pages 55 to 99
of this report.
Directors’ report
The directors submit their report and the audited financial statements of the company, BT Group plc,
and the group, which includes its subsidiary undertakings, for 2018/19. BT Group plc is the listed
holding company for the BT group of companies. Its shares are listed on the London Stock Exchange,
and on the New York Stock Exchange in the form of American Depositary Shares.
The Code and associated guidance are available on the
Financial Reporting Council website at frc.org.uk
56
Chairman’s governance report
We believe that effective
corporate governance is
critical to delivering our
strategy and creating
long-term value for our
shareholders.
On behalf of the Board, I am pleased to
present the governance report for the year
ended 31 March 2019. We continue to
believe that effective corporate governance
is critical to delivering our strategy
and creating long-term value for our
shareholders.
Corporate Governance Code
During the year, BT has complied with the
provisions of the UK Corporate Governance
Code 2016 and applied its principles. Also,
in preparation for our adoption of the UK
Corporate Governance Code 2018 from
1 April 2019, we have carried out a detailed
review of our governance framework.
We will report on our application of the
UK Corporate Governance Code 2018
in our 2020 Annual Report, including
the mechanism we’ll have put in place to
ensure effective engagement by the Board
with our colleagues.
Board changes and activities
In June 2018, we announced that Gavin
Patterson would stand down as chief
executive. After an extensive external
search, Philip Jansen was appointed as
an executive director on 1 January 2019
and became chief executive on 1 February
2019 following a handover period with
Gavin.
During the year, we have continued to keep
under review the composition of the Board
and its committees to ensure that we have
the right balance of skills, independence,
experience and diversity. We have
welcomed Matthew Key and Allison Kirkby
to the Board as non-executive directors
who bring a wealth of knowledge and
experience in the telecoms sector. We have
reviewed the independence of Nick Rose
and Jasmine Whitbread, both of whom
have served more than eight years, and
concluded that they continue to remain
independent in character and judgement. It
is the current expectation of the Board that
Nick and Jasmine will step down by the end
of the 2020 AGM. Nick and Jasmine bring
considerable experience to the Board and
by remaining in post for a further year they
will provide invaluable continuity during
Philip’s first year as chief executive.
Streamlining governance
In line with the rest of the business, we
have sought to streamline our governance
processes and structures. To this end
we have reviewed our governance
framework and reduced the number of
board committees, clarifying the lines of
responsibility. We have also reviewed and
refreshed the terms of reference of all
board committees ensuring consistency
and clarity. Details of the refreshed board
committee structure and the duties
of these committees are described on
page 57.
Engaging with our stakeholders
We recognise the importance of our wider
stakeholders in delivering our strategy
and business sustainability. We are
conscientious about our responsibilities and
duties to our stakeholders under section
172 of the Companies Act 2006. We have
detailed our stakeholders, their importance
to our business and our engagement with
them in the Strategic report on pages 1
to 54.
I would like to thank the Board and
executive team for their ongoing support.
I look forward to continuing to work
together as we implement our streamlined
governance processes and structures.
Jan du Plessis
Chairman
8 May 2019
You can find the refreshed board
committee structure and terms of
reference on our website at btplc.com
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
Our governance framework
57
Strategic report
Governance
Financial statements
Additional information
The Board
The Board is responsible for managing the group, agreeing strategy, setting the budget, overseeing
performance and discharging certain legal responsibilities. The Board has established certain committees to
assist it in discharging its responsibilities and delegates day-to-day responsibility for running the group to
the chief executive.
Audit & Risk
Committee
The Audit & Risk Committee
oversees, assesses and reviews
BT’s financial and narrative
reporting, internal controls and
risk management, including
internal and external audit, core
compliance programmes and
non-financial assurance.
Nominations
Committee
The Nominations Committee
makes sure the Board has the
appropriate balance of skills,
experience, independence,
knowledge and diversity. It
also provides input on the chief
executive’s plans for executive
succession.
Remuneration
Committee
The Remuneration Committee
agrees the remuneration
framework for the chairman,
executive directors and certain
senior executives.
BT Compliance
Committee
The BT Compliance
Committee is a sub-
committee of the Audit &
Risk Committee. It oversees
BT’s adherence to the
Commitments made as
part of the 2017 Digital
Communications Review
with Ofcom.
Digital Impact &
Sustainability Committee
The Digital Impact & Sustainability
Committee provides oversight and
direction to bring BT’s purpose to
life through the digital impact and
sustainability strategy.
Investigatory
Powers Governance
Committee
The Investigatory Powers
Governance Committee oversees
BT’s role in the use of official
investigatory powers.
The BT Pensions and Technology Committees were disbanded on 3 April 2019.
Chief Executive
Our chief executive is responsible for running the business
and delivering our strategy.
Executive Committee
The Executive Committee provides input
and recommendations to help
the chief executive run the business.
BT Investment Board
The BT Investment Board
provides input and recommendations that
support the chief executive’s decision making
on investment budgets and cases.
Pages 58 and 59 Board biographies
Pages 60 and 61 Board activities for the year
Pages 62 and 67 Board diversity
btplc.com
58
BT Group plc
Annual Report 2019
Board of Directors
Board of Directors
BT Group plc
Annual Report 2019
59
Strategic report
Governance
Financial statements
Additional information
Key to membership of committees
A Audit & Risk
E Executive
C BT Compliance
D Digital Impact & Sustainability
IP Investigatory Powers Governance
N Nominati ons
R Remuneration
E Committee chair
IP N D
E
E
A N
N
C D N R
Jan du Plessis
Chairman
Appointed chairman in November 2017 and on
the Board since June 2017. Age 65.
Philip Jansen
Chief executive
Appointed chief executive in February 2019 and
on the Board since January 2019. Age 52.
Simon Lowth
Chief fi nancial offi cer
Appointed to the Board as chief fi nancial offi cer
in July 2016. Age 57.
Skills and experience
Jan has signifi cant experience on the boards of
major UK public companies, having served as
chairman and non-executive director of various
FTSE 100 companies across a range of sectors.
Jan was chairman of Rio Tinto from 2009 to
March 2018 and chairman of SABMiller from
July 2015 until October 2016 having been with
the company since 2014. He was also a director
and senior independent director of Marks &
Spencer from 2008 and 2012 respectively until
March 2015.
Other appointments
None outside BT.
Skills and experience
Simon has experience in fi nance, accounting,
risk, corporate strategy and mergers and
acquisitions. He was CFO and executive director
of BG Group before the takeover by Royal Dutch
Shell in February 2016. Simon was CFO and an
executive director of AstraZeneca from 2007
to 2013. Prior to that, he was an executive
director of ScottishPower from 2003 to 2007
and was appointed fi nance director in 2005.
Before 2003, Simon was a director of McKinsey
& Company.
O ther appointments
None outside BT.
Skills and experience
Philip has experience of leading and
growing large private and publicly-listed
UK and international businesses, delivering
transformational change and large technology
programmes. He joined from Worldpay where
he had been CEO since April 2013. Before
that he was CEO and then chairman at Brakes
Group between 2010 and 2015. Philip spent
the previous six years at Sodexo where he was
group chief operating offi cer and chief executive,
Europe, South Africa and India. Prior to that he
was chief operating offi cer at MyTravel Group
from 2002 to 2004 and managing director of
Telewest Communications (now Virgin Media)
from 2000 to 2002 after starting his career at
Procter & Gamble.
Other appointments include
Senior adviser at Bain Capital and a trustee of
Wellbeing of Women.
Iain Conn
Independent non-executive director
Appointed to the Board in June 2014. Age 56.
Skills and experience
Iain has international experience and an
understanding of technology, energy and
regulated consumer markets. Iain joined Centrica
as chief executive in January 2015, having been
with BP since 1986. From 2004 to 2014 Iain
was executive director of BP and chief executive
downstream from 2007 to 2014. Until May
2014, Iain was a non-executive director of Rolls-
Royce for nine years and senior independent
director.
Other appointments include
Member of the CBI President’s Committee,
chairman of the advisory board of the Imperial
College Business School and member of the
Imperial College Council.
Tim Höttges
Non-independent, non-executive director
Appointed to the Board in January 2016.
Age 56.
Isabel Hudson
Independent non-executive director
Appointed to the Board in November 2014.
Age 59.
Skills and experience
Tim has international telecoms experience
having been CEO of Deutsche Telekom since
January 2014, and with the company since
2000. From 2009 until his appointment as CEO,
he was a member of the board of management
responsible for fi nance and controlling. From
2006 to 2009 he was a member of the board of
management responsible for the T-Home unit. In
this position, he was in charge of fi xed network
and broadband business, as well as integrated
sales and service in Germany.
Other appointments include
Chairman of T-Mobile US and supervisory board
member of FC Bayern München AG and Henkel
AG & Co. KGaA.
Skills and experience
Isabel has experience in the fi nancial sector as
well as pensions, risk, control, governance and
international business. Isabel was previously
a non-executive director of The Pensions
Regulator, MGM Advantage, QBE Insurance,
Standard Life and an executive director of
Prudential Assurance Company in the UK.
Other appointments include
Non-executive chair of National House Building
Council and senior independent director of RSA
Insurance. Isabel is also an ambassador for the
disability charity, SCOPE.
C D N R
A N
A N
A R N
D A C N
Mike Inglis
Independent non-executive director
Appointed to the Board in September 2015.
Age 59.
Matthew Key
Independent non-executive director
Appointed to the Board in October 2018.
Age 56.
Allison Kirkby
Independent non-executive director
Appointed to the Board in March 2019. Age 51.
Skills and experience
Mike’s technology experience includes serving
as non-executive chairman of Ilika until January
2019 and on the board of ARM Holdings from
2002 to 2013. His roles there included chief
commercial offi cer, executive vice president
and general manager of the processor division
and executive vice president of sales and
marketing. Prior to joining ARM, Mike worked
in management consultancy with AT Kearney
and held a number of senior operational and
marketing positions at Motorola. Mike was
previously a director of Pace and an independent
director of Advanced Micro Devices.
Other appointments
None outside BT.
Skills and experience
Matthew’s telecoms experience includes various
positions at Tele f ónica from 2007 to 2014
including chairman and CEO of Tele fónica Europe
and chairman and CEO of Tele f ónica Digital. From
2002 to 2004 he was the CFO, strategy and
regulation director of O2 UK before becoming
CEO in 2004. Matthew has also served as fi nance
director at Vodafone UK and chairman of Tesco
Mobile. He has previously held positions at
companies including Kingfi sher , Coca Cola and
Schweppes Beverages and Grand Metropolitan.
Other appointments include
Non-executive director of Burberry and
chairman of the Dallaglio Foundation .
Skills and experience
A llison has valuable experience in the
international telecoms sector and in driving
performance, improving customer service
and delivering shareholder value. Allison was
previously group CFO and then president and
group CEO of Tele2 AB, positions she held from
2014 and 2015 respectively. Allison was a non-
executive director of Greggs until May 2019
and has also held roles within 21st Century Fox,
Virgin Media, Proct er & Gamble and Guinness.
O ther appointments include
President and Group CEO of TDC Group.
Rachel Canham
Company secretary & general
counsel, governance
Rachel joined BT in 2011 and was
appointed company secretary &
general counsel, governance in
November 2018.
Nick Rose
Senior independent director and
independent non-executive director
Appointed to the Board in January 2011 and
senior independent director since March 2014.
Age 61.
Skills and experience
Nick brings experience in fi nance, risk, control,
governance and international business . He
was chief fi nancial offi cer of Diageo prior to his
retirement in December 2010, having joined the
board in 1999.
Other appointments include
Chairman of Williams Grand Prix Holdings,
senior independent director of BAE Systems and
non-executive chairman of Loch Lomond Scotch
Whisky.
Jasmine Whitbread
Independent non-executive director
Appointed to the Board in January 2011.
Age 55.
Skills and experience
Jasmine has experience in transforming
large complex organisations in the UK and
internationally and brings an understanding of
corporate social responsibility and sustainable
business. She was previously chief executive
of Save the Children International and has a
background in technology marketing.
Other appointments include
Chief executive of London First and non-
executive director of Standard Chartered.
60
The Board
Leadership
Board activities
The Board is responsible for managing the group, agreeing strategy, setting the budget, overseeing performance and discharging certain
legal responsibilities. It passes day-to-day management to the chief executive, but certain matters are reserved to the Board, including the
approval of major acquisitions and other strategically important issues. The Board sets the strategic direction for the company, shapes the
organisational culture, promotes corporate governance and plays a key role in creating sustainable growth in shareholder value.
The table below describes the Board’s activities throughout the year. It is not an exhaustive list; instead it provides a high-level overview
of discussions held during board meetings and the wide range of factors that the directors consider in order to help the company achieve
its goals.
Agenda item
Discussions, decisions and actions
Strategy and transformation
Strategic priorities
Spectrum strategy
At the start of the year, the Board discussed the key themes and actions arising from the 2017/18
strategy day. They agreed a programme of strategic discussions to be covered at meetings throughout
2018/19. The Board revisited strategic priorities throughout the year, as detailed below.
The Board approved BT’s bidding strategy and financial envelope for Ofcom’s 3.4GHz spectrum auction.
BT secured 40MHz of 3.4GHz spectrum suitable for 5G services, strengthening EE’s mobile network
leadership.
Network strategy
The Board discussed the development of BT’s integrated, long-term network strategy, including
investment in ultrafast fixed network technologies and plans to lead the market to 5G.
Performance and risk
Financial performance
Enterprise risk management
Board risk oversight
BT’s financial performance and outlook was considered at each meeting throughout the year and the
Board approved the Medium Term Plan for the group.
At each quarter-end the Board approved the financial statements and results announcements and at
year-end they approve the Annual Report and Form 20-F.
The Board conducted their annual review of the Group Risk Register. They discussed the principal risks
and uncertainties facing the group, which are set out on pages 46 to 53 of the Strategic report. Each
risk owner will report to the Board on their area of risk during 2019/20.
The Board reviewed their oversight of BT’s risk management and internal control systems, and their
assessment of principal risks. The Board concluded that these risks were appropriately monitored by the
Board and its committees.
Organisation, people and culture
Health, safety
and wellbeing
Better workplace
People framework
Talent and culture
Chief executive succession
The Board received reports on the health, safety and wellbeing of our people. They discussed how we
support our people during times of change and transformation and the importance of promoting a
strong culture of safety across BT.
BT’s workplace transformation for UK desk-based employees will focus on around 30 modern, strategic
sites to create a more collaborative, open and customer focused working culture. The Board received
updates on this initiative throughout the year.
The Board discussed the programme to transform BT’s operating model and build a lean, agile
organisation that delivers sustained improvement in customer experience and productivity.
The Board reviewed succession plans for members of the Executive Committee, discussed talent and
diversity initiatives and discussed BT’s organisational culture and aspirations.
The Board agreed that Gavin Patterson should step down as chief executive, and approved the
appointment of Philip Jansen as his successor. Philip joined the Board as an executive director on
1 January 2019 and, following a handover period with Gavin Patterson, became chief executive on
1 February 2019.
BT Group plcAnnual Report 2019 61
Stakeholders
Customer experience
The Board considered and endorsed our customer experience ambition, performance and plans
for the business.
Investor relations
The Board received reports on market perspectives from investor relations and the external brokers.
Political and regulatory
engagement
The Board endorsed the political and regulatory strategy for the group.
Governance and compliance
Secretary’s report
The company secretary reported on key governance developments and recommendations at each board
meeting, including proposed changes to board committee membership and terms of reference.
Committee reports
Committee chairs reported back to the Board on matters discussed at committee meetings.
Corporate governance
Board evaluation
The Board received briefings on developments in corporate governance, including the new Corporate
Governance Code 2018, and refresher training on the Market Abuse Regulation and BT’s disclosure
obligations.
More details can be found on page 63. The chairman conducted individual evaluations of each director
to make sure they continued to contribute effectively and demonstrated commitment to the role. The
senior independent director led the chairman’s performance evaluation, taking into account the views
of other directors.
Time commitment
All directors are expected to attend all meetings of the Board and any committees of which they are members, as well as the AGM and any
board away days. Directors are also expected to devote sufficient time to prepare for each board and/or committee meeting and to take part
in at least one visit to one of BT’s offices or other sites each year. By accepting their appointment each non-executive director has confirmed
that they are able to allocate sufficient time to the company to discharge their responsibilities effectively. Non-executive directors are also
required to obtain the agreement of the chairman before accepting any additional commitments that might affect the time they are able
to devote to their role as non-executive director of BT. In accordance with the new Corporate Governance Code 2018 for the financial year
2019/20 onwards, directors must seek prior approval of the Board before accepting additional external appointments.
Attendance at meetings
The table below summarises members’ attendance at board meetings in 2018/19. If directors are unable to attend a meeting, they are
encouraged to offer their views and comments on the topics and board papers to the chairman in advance of the meeting.
Board members and attendance
Member
Jan du Plessis (chairman)
Philip Jansena
Gavin Pattersonb
Simon Lowth
Tony Ballc
Iain Conn
Tim Höttges
Isabel Hudson
Mike Inglis
Matthew Keyd
Allison Kirkbye
Karen Richardsonc
Nick Rose
Jasmine Whitbread
a Philip was appointed to the Board as an executive director on 1 January 2019 and became chief executive on 1 February 2019.
b Gavin stepped down from the Board at midnight on 31 January 2019.
c Tony and Karen retired from the Board on 11 July 2018.
d Matthew was appointed to the Board on 25 October 2018.
e Allison was appointed to the Board on 15 March 2019.
Eligible
to attend
Attended
10
2
9
10
4
10
10
10
10
4
0
4
10
10
10
2
9
10
3
10
9
10
10
4
0
3
10
10
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 62
The Board continued
Leadership continued
Director induction
On appointment, directors are provided with an induction programme to ensure they gain a thorough overview of the business. This
includes meetings with the chairman, chief executive, senior independent director and company secretary, as well as other board and
Executive Committee members and senior members of management. We encourage directors to visit BT sites, for example Adastral Park,
the BT Sport studio, contact centres and EE shops. Directors can also spend a day with an Openreach engineer.
The programme provides new directors with details of the role and responsibilities of the Board and BT’s governance framework.
New directors also receive key information such as recent financial data and the policies supporting our business practices, including
our ethics code.
Division of responsibilities
The division of responsibilities between the chairman and the chief executive are clearly documented in written job descriptions, and are
summarised below:
The chairman
The chief executive
• leads the Board and creates a culture of openness characterised by
robust, respectful debate and appropriate challenge
• promotes the highest standards of corporate governance
• ensures the Board understands the nature and extent of any significant
risks BT is willing to take to implement its strategy
• leads the group’s performance and management
• proposes strategies, business plans and policies to the Board
• implements board decisions, policies and strategies
• develops and promotes compliance with BT’s policies on conducting
business around the world
• makes sure the Board receives accurate, timely and clear information
• maintains an effective framework of internal control and risk
and is consulted on all relevant matters
management
• monitors the contribution and performance of board members
• makes sure BT communicates clearly with shareholders and discusses
their views and concerns with the Board
• acts as a key contact for important stakeholders, as well as working with
the chief executive and the senior independent director to represent BT
in key strategic and government relationships.
The independent non-executive directors
• bring experience and independent judgement to the Board
• develop and constructively challenge strategy proposals.
Each non-executive director is appointed for an initial three-year term
but is subject to annual re-election by shareholders at the Annual General
Meeting.
The non-independent, non-executive director
After acquiring EE, Deutsche Telekom’s nominated director Tim Höttges
was appointed to the Board. As a non-independent, non-executive
director, Tim has the same responsibilities as the other directors. Tim owes
a fiduciary duty to both BT and Deutsche Telekom. We set up the Conflicted
Matters Committee to identify potential or actual conflicts of interest.
• leads the Executive Committee in the day-to-day running of every part
of the business
• leads, motivates and monitors the performance of BT’s senior
management team, as well as overseeing succession planning for roles
on the Executive Committee.
The senior independent director
• meets with BT’s major institutional shareholders and shareholder
representative bodies to discuss matters that would not be appropriate
for discussion with the chairman or the chief executive
• acts as a sounding board for the chairman and as an intermediary
between the chairman and other directors
• reviews the chairman’s performance during the year, taking account
of feedback from other board members.
Independence of directors
The majority of the Board are independent non-executive
directors. BT judged the chairman to be independent at the time
of his appointment, and considers all other non-executive directors
to be independent under the terms of the Code with the exception
of Tim Höttges, Deutsche Telekom’s nominated director who
owes a fiduciary duty to both BT and Deutsche Telekom. Our
Conflicted Matters Committee identifies potential or actual
conflicts of interest for Tim.
Balance of board membership
Male
73%
Female 27%
Chairman
1
Executive directors
2
Non-independent,
non-executive director
1
Independent
non-executive directors
7
BT Group plcAnnual Report 2019 63
Training and information
We encourage all directors to keep their skills and knowledge up to
date, and we give the Board and individual directors any training
they may need. Agendas and accompanying papers are distributed
to the Board and committee members in advance of each board
or committee meeting. These include reports from members of
senior management and external advisers. During board meetings
the chief executive provides regular updates. These are designed to
give directors a good understanding of operational issues and the
competitive and regulatory environment that affects BT and the
wider communications industry, as well as group and business unit
performance, investor relations matters and corporate responsibility.
The company secretary provides briefings on any significant legal
and governance developments. During the year these briefings have
included updates on the new UK Corporate Governance Code 2018
and refresher training on the Market Abuse Regulation.
The information supplied to the Board and its committees is kept
under review and formally assessed on an annual basis as part of
the Board evaluation exercise. This ensures it is fit for purpose and
supports the directors in effectively discharging their duties under
the Companies Act, the Listing Rules, the Disclosure Guidance &
Transparency Rules and the Code.
The chairman works with individual directors to identify any
specific training they need to successfully fulfil their role. Non-
executive directors regularly meet with management, enhancing
their understanding of the business through briefing sessions. The
chairman typically holds private sessions with our independent non-
executive directors before board meetings and holds dinners before
most board meetings for all board members. We hold a dinner at least
once a year for members of the Board and the Executive Committee.
Election and re-election of directors
Matthew Key, Philip Jansen and Allison Kirkby (appointed to the
Board on 25 October 2018, 1 January 2019 and 15 March 2019
respectively) will be proposed for election by shareholders at the
2019 AGM. All other directors will be proposed for annual re-election
in line with the Code.
The Board believes that each director brings considerable knowledge
and wide ranging skills and experience to the Board as a whole and
continues to make an effective and valuable contribution to the
deliberations of the Board. Each director has continued to perform
effectively and demonstrate commitment to their role.
We include details of all directors’ contracts/letters of appointment in
the Report on directors’ remuneration on page 90.
Board evaluation
In 2017 the Board engaged an external facilitator to carry out a review of the Board and its committees. The main actions and outcomes
from the 2017/18 external evaluation are set out below:
Action
Further clarifying the
allocation of risk oversight
responsibilities across the
Board and its committees
to ensure the directors
effectively discharge their
duties.
Outcome
The most significant risks
facing BT are allocated
to the Board or one of its
committees. The governance
framework was reviewed and
we reduced the number of
board committees, clarifying
the lines of responsibility. We
also reviewed and refreshed
the terms of reference of
each of the committees.
Action
Prioritising discussions
to spend more time on the
most important issues facing
the company and spending
more time with
management on strategic
issues.
Outcome
The length of board
meetings has been extended
and more time has been
allocated to strategic
matters. The annual board
programme is under review
to ensure that the Board has
sufficient time for discussion
of these issues.
Action
Increasing attention
on succession planning
for senior management
including the Executive
Committee.
Outcome
The Nominations Committee
is now the forum which
considers executive
succession planning. During
the year the committee has
spent a considerable amount
of time in connection with
the appointment of the chief
executive.
Action
Devoting more time to
monitoring the evolution
of culture.
Outcome
The Board has spent time
during the year on talent and
culture and will continue to
do so in the year ahead.
During 2018/19 we carried out an internal evaluation of the Board and its committees led by the chairman and the company secretary.
Members, attendees and external advisers completed questionnaires, the output of which was discussed and debated by the Board and
the respective committees. The output was positive overall. In particular the relationship between board members is positive and board
discussions are viewed as open, rigorous and constructive. Our key areas of focus for 2019/20 are set out below:
Key areas of focus
Suggested actions
Strategy setting and
strategic priorities
• Further time during meetings for discussion of strategic priorities, in particular, network strategy
• Management to include external perspectives, benchmarking and insight into competitors in
proposals, where possible and appropriate.
Cultural transformation
• The Board should receive regular updates to track progress of our cultural transformation
• Board visits to include engagement with colleagues at all levels within the organisation.
Talent management
and succession planning
for executives
• Greater focus on senior executive succession planning at the Nominations Committee
• Regular reporting on how senior executives are performing and their development needs
• More visibility of key talent at board meetings and visits.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 64
Relations with shareholders
Individual shareholders
We have over 829,000 individual shareholders. As well as using
our website, they receive regular communications and are all
invited to attend our AGM. The company secretary oversees
communications with individual shareholders, making sure we
respond as appropriate to any matters regarding their shareholding.
A dedicated team at Equiniti (our share registrar) also looks after
their needs. We encourage direct payment of dividends and
e-communications; this improves the security and efficiency of
our communications and reduces the amount of paper we use.
Institutional shareholders
Our executive management team regularly meets with institutional
investors. The chairman, senior independent director and other
board members also meet with investors where appropriate. We do
this via an investor relations programme that includes one-to-one
meetings, roadshows, group meetings, conferences and industry
events. During 2018/19 we held around 500 meetings with
investors, covering a wide range of topics including our strategy,
financial and operational performance, capital investment,
pension, remuneration, capital allocation policy and relations with
government and our regulator. We gather feedback from our main
shareholders, which is regularly considered by management and
the Board.
In addition to the institutional shareholder programme, the following table describes some of the other ways we engage
with our shareholders:
AGM
The AGM provides an opportunity for directors to engage with shareholders, answer their
questions and meet them informally. The 2019 AGM will take place on Wednesday 10 July
in London. We invite all shareholders to attend and use the opportunity to ask questions. We
encourage those who cannot attend to vote by proxy on all the resolutions put forward. All
votes (with the exception of procedural resolutions) are taken on a poll. In 2018, voting levels
at the AGM were over 70% of the company’s issued share capital, the same level as in 2017.
Whilst the overall voting outcome was over 90% in favour of most resolutions at last
year’s AGM, the 2018 Annual Remuneration Report received an overall voting outcome
of 65.84% in favour. When we announced the results of this vote, we explained what
actions we intended to take to consult with shareholders on this result and we provided a
follow up announcement on 18 December 2018. Further details of our consultations with
shareholders are contained in the Remuneration Committee chair’s letter on pages 73 to 75.
Annual Report
We publish a full annual report and accounts each year that contains a strategic report,
governance section, financial statements and additional information. The report is available
online and in paper format.
Press releases
We issue press releases for all substantive news relating to BT’s financial and operational
performance. You can find press releases on our website.
Results announcements
Website
We release a full set of financial and operational results at the interim and full year stage. We
release trading statements at the first and third quarter with reduced disclosure, while still
providing sufficient information to allow investors to model and value our business. The full
year results are accompanied by a presentation hosted by senior management, and the first,
second and third quarter results are webcast. All our results events provide an opportunity for
investors to ask questions of management.
Our website contains a comprehensive range of information on our company. There is
a section dedicated to investors, which includes our investor calendar, financial results,
presentations, press releases and contact details. The area dedicated to individual
shareholders is an essential communications channel that includes information on
administration services, contact information and information for our shareholders.
btplc.com
BT Group plcAnnual Report 2019 65
Substantial shareholdings
At 8 May 2019, BT had received notice, under the Financial
Conduct Authority’s Disclosure Guidance & Transparency Rules,
in respect of the following holdings of shares:
Date of notification
Shares
% of total
voting rights
BlackRock Inc 28 November 2018 497,990,721
5.01%
At 31 March 2019, BlackRock’s interest was 569,835,476 shares
representing 5.74% of total voting rights. No requirement to
notify the company of any increase or decrease would have arisen
unless the holding moved up or down a whole number percentage
level. The percentage level may decrease on the transfer of
treasury shares for any of the company’s share plans.
In addition, T-Mobile Holdings Limited holds 1,196,175,322
shares representing 12% of total voting rights.
Annual General Meeting
Resolutions
As part of our policy to involve shareholders fully in the affairs
of the company, our AGM gives them the opportunity to ask
questions about BT’s activities. We also give shareholders the
opportunity to vote on every important issue by proposing a
separate resolution for each.
The separate Notice of meeting 2019, which we send to all
shareholders who have requested shareholder documents by
post, contains the 21 resolutions (with explanatory notes) we
will propose at the 2019 AGM on 10 July in London. We notify
all shareholders of the publication of these documents, which we
send out in the most cost-effective way. We aim to give as much
notice of our AGM as possible and at least 21 clear days’ notice, as
required by our Articles of Association. In practice, we send these
documents to shareholders more than 20 working days before
the AGM. (For other general meetings this should be at least 14
working days in advance.)
At the AGM we will propose resolutions to re-appoint KPMG as
BT’s auditors and to authorise the Audit & Risk Committee to
agree their remuneration. We will also ask our shareholders to
vote on both the Annual Report and the Report on directors’
remuneration.
Authority to purchase shares
The authority given at last year’s AGM for BT to purchase in the
market 992 million of its shares, representing 10% of the issued
share capital, expires on 10 July 2019. We will ask shareholders
to give a similar authority at the 2019 AGM.
During 2018/19, no shares were purchased under this authority.
During 2018/19, we transferred 916,407 treasury shares to
meet BT’s obligations under our employee share plans. At 8 May
2019, we held a total of 45.2 million shares as treasury shares.
Before the AGM, we count the proxy votes for and against
each resolution, as well as votes withheld, and make the results
available at the meeting. As at previous AGMs, we will take votes
on all matters at the 2019 AGM on a poll, except procedural
issues.
The BT Group Employee Share Ownership Trust (the Trust)
purchased 4.3 million BT shares for a total consideration of
£9.5m. The Trust continued to hold 9 million shares at
8 May 2019.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 66
66
BT Group plc
BT Group plc
Annual Report 2019
Annual Report 2019
Nominations Committee
Chair’s report
Membership and key responsibilities
The committee comprises all of the company’s non-executive
directors. The company secretary attends the meetings, as
does the chief executive where appropriate.
We are responsible, on behalf of the Board, for keeping under
review the balance of executive and non-executive directors,
together with the composition of the Board and board
committees in terms of members’ skills, experience, diversity,
independence and knowledge.
We receive reports from the chief executive on Executive
Committee succession planning. We also consider and agree
appointments to and removals from the Executive Committee.
Attendance
Member
Jan du Plessis (chair)
Tony Balla
Iain Conn
Tim Höttgesb
Isabel Hudson
Mike Inglisc
Matthew Keyd
Allison Kirkbye
Nick Rose
Jasmine Whitbreadc
Eligible
to attend
Attended
6
2
6
5
6
6
2
0
6
6
6
1
6
5
6
6
2
0
6
5
a Tony stepped down from the committee on 11 July 2018.
b Tim was appointed to the committee on 1 May 2018.
c Mike and Jasmine were appointed to the committee on 1 April 2018.
d Matthew was appointed to the committee on 25 October 2018.
e Allison was appointed to the committee on 15 March 2019.
Activities in 2018/19
Succession has been the key area of focus this year. The committee
oversaw the appointments of the new chief executive (following the
announcement in June 2018 that Gavin Patterson would step down),
and two new non-executive directors.
For the chief executive position, the committee agreed a role
specification and undertook a detailed review of candidates
suggested by both committee members and MWM Consulting (an
external search organisation with no connection to BT), leading to a
shortlist of potential candidates. Following a comprehensive review
process, the committee made a clear recommendation to the Board,
culminating in the appointment of Philip Jansen as chief executive.
Philip is a proven leader with outstanding experience in managing
large, complex businesses.
The committee also reviewed the company’s need for non-executive
directors throughout the year. As with the chief executive succession
process described above, MWM Consulting was engaged to identify
potential new non-executive directors. Following a review of its
long list of possible candidates, a shortlist of particularly promising
individuals were invited to meet members of the committee and the
chief executive. Following this process, the committee recommended
to the Board the appointment of Matthew Key and Allison Kirkby as
non-executive directors.
Matthew has hugely valuable and relevant experience from his time
at O2 UK, Telefónica and Vodafone UK. As well as strategic skills and
experience as a non-executive, Allison brings valuable and recent
experience in the international telecoms sector and has experience
in driving performance, improving customer service and delivering
shareholder value. Both are excellent additions to the Board.
As well as the new appointments to the Board, the committee also
recommended that Mike Inglis’s appointment as an independent
non-executive director be extended for a further three-year
term from 1 September 2018. Mike has a wealth of technology
experience and makes a valuable and broad-ranging contribution
to the Board and the committees of which he is a member.
67
Governance structure and effectiveness
The committee reviewed the composition, remit and terms of
reference of each board committee, and recommended to the
Board simplification of the governance framework.
The composition of the committees has been refreshed to take
into account the new board members and the skills that they bring
to the Board. The streamlining of the governance framework has
reduced the number of board committees, simplifying the lines of
responsibility and the operation of this framework. The BT Pensions
Committee has been disbanded and overall responsibility for
pensions continues to rest with the Board. Day-to-day authority
and accountability for pensions is delegated via the chief executive
to the chief financial officer. The Technology Committee has also
been disbanded, with the duties of this committee being covered
by the Board and management.
As part of the simplification of our committee structure, the
Nominating & Governance Committee has been renamed the
Nominations Committee, retaining all existing duties with regards
to nominating and succession for non-executive directors,
executive directors and members of the Executive Committee.
Responsibility for governance continues to rest with the Board.
The committee has also considered recent corporate governance
developments and their implications for BT. The new UK Corporate
Governance Code 2018 and the Companies (Miscellaneous
Reporting) Regulations 2018 apply to BT for the financial year
2019/20. An implementation plan is in place for these new
requirements and we will report on this in our 2020 Annual Report.
The committee discussed whether or not Nick and Jasmine remain
independent after eight years on the Board and considered that they
do, taking into account:
• their personal qualities and circumstances, including that there are
no relevant relationships or circumstances to suggest that they do
not remain independent and they have other directorships outside
of BT, further evidencing that they remain independent
• the context of the proposed re-appointments, namely the ongoing
refresh of the Board with two new non-executive directors
appointed within the last 12 months and a new chief executive
appointed in February 2019.
Both recommendations to the Board followed a rigorous review of
Nick and Jasmine’s performance, and we continue to believe that
they make a valuable and broad ranging contribution to both the
Board and the committees of which they are members. This will
also bring invaluable continuity during Philip’s first year as chief
executive. We also reviewed their other roles to assess if they have
sufficient time available to discharge their board responsibilities
effectively. Our findings lead us to believe these other roles do not
prevent them from making a full contribution as BT non-executive
directors.
It is the current expectation of the Board that Nick and Jasmine
will step down by the end of the 2020 AGM.
During the year we also conducted a review of members of the
Executive Committee. 2018/19 has been a year of significant
change in the business as we continued to transform BT while
transitioning to a new chief executive. We consider that the
Executive Committee has performed well over the year.
Board diversity
We consider the diversity of board and board committee members
carefully to ensure we benefit from the right balance of skills,
range of experience, knowledge and diversity (including gender).
We currently have three female board members out of eleven,
equivalent to 27% female representation.
We continue to work towards achieving the Hampton-Alexander
review target of at least 33% female board representation by 2020,
and the Parker review target of at least one director of colour by
2021. We challenge our external search consultants where necessary
to ensure that diversity is always considered when drawing up
candidate shortlists. However, while taking these important
considerations into account, we will continue to recommend
appointments to the Board based on merit and the individual
skills and experience of each candidate.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 68
Nominations Committee continued
Chair’s report continued
Board changes 2018/19
June
2018
July
2018
October
2018
October
2018
March
2019
Announced that Gavin
Patterson would step
down as chief executive
later in the year.
Karen Richardson
and Tony Ball stepped
down from the Board
at the end of the AGM
on 11 July 2018.
Matthew Key joined
the Board, Audit &
Risk and Nominations
Committees with effect
from 25 October 2018.
Philip Jansen announced
as successor to Gavin
Patterson. Appointed
from 1 January 2019 as
an executive director and
as chief executive from
1 February 2019.
Allison Kirkby joined
the Board, Audit &
Risk and Nominations
Committees with effect
from 15 March 2019.
The chief executive appointment process
Candidate requirements
The committee agreed a detailed candidate profile setting out the capabilities and experience required.
Process
Search
Interviews
The process to appoint the new chief
executive was led by the chairman, with MWM
Consulting appointed to facilitate the process.
The committee as a whole was closely involved
in identifying and agreeing a shortlist
of candidates.
The chairman considered a full list of
candidates with MWM Consulting. The full
list was shared with the committee, who
also considered candidates put forward
independently by committee members.
A shortlist of candidates to be invited for
interview was agreed.
New chief executive announced
Following initial interviews with the chairman
and a further review with committee
members, the number of candidates was
reduced. The remaining committee members
met with the shortlisted candidates.
Following their interviews, each committee member provided feedback on the candidates to the chairman.
The committee discussed the relative merits of each candidate and agreed that Philip Jansen should be proposed
to the Board for appointment as chief executive. The Board approved his appointment as an executive director
from 1 January 2019 and as chief executive from 1 February 2019.
Committee evaluation 2018/19
We carried out an internal evaluation led by the chairman and the company secretary. This entailed questionnaires completed by members
and attendees, the output of which was discussed and debated by the committee.
Key areas of focus
Suggested actions
Non-executive succession
• Review the skills and experience of non-executive directors
• Discuss plan and next steps for non-executive succession.
Talent management and succession
planning for executives
• Greater focus on senior executive succession planning
• Regular reporting on how senior executives are performing and their
development needs.
Board diversity
• Continue to review the composition of the Board and discuss plans to improve
diversity in all its forms.
Jan du Plessis
Chair of the Nominations Committee
8 May 2019
BT Group plcAnnual Report 2019 Audit & Risk Committee
Chair’s report
Membership and key responsibilities
The committee acts independently of the executive. Its
members are all independent non-executive directors of the
company, with diverse skills and experiences. The committee
as a whole has competence relevant to the sector. Matthew
Key, Allison Kirkby and I have recent and relevant financial
experience, as required by the provisions of the Code and we
are the designated financial experts for Sarbanes-Oxley Act
purposes.
Attendance
Member
Nick Rose (chair)
Iain Conn
Matthew Keya
Allison Kirkbyb
Karen Richardsonc
Jasmine Whitbread
Eligible
to attend
Attended
9
9
3
0
4
9
9
9
3
0
3
9
a Matthew was appointed to the committee on 25 October 2018.
b Allison was appointed to the committee on 15 March 2019.
c Karen stepped down from the committee on 11 July 2018.
The company secretary is secretary to the committee and
attends all meetings. The chairman and chief executive have
attended the majority of Audit & Risk Committee meetings
during the year. Other attendees include:
Regular
attendee
Attends as
required
Chief financial officer
Director, group finance
Director of risk, compliance & assurance
External auditorsa
Group general counsel
External reporting & financial controls director
Enterprise risk management director
Ethics & compliance director
a PwC attended the April, May and June 2018 meetings in their capacity as auditors for the
2017/18 financial year. KPMG also observed these meetings and were appointed as BT’s
external auditors at the conclusion of the 2018 AGM.
The committee met nine times during the year. Meetings
are scheduled in line with the financial reporting timetable.
As chair of the Audit & Risk Committee, I meet with the
regular attendees ahead of meetings to discuss key areas of
committee focus. After each meeting, reports are made to the
Board on the committee’s activity, the main issues discussed
and matters of particular relevance, with the Board receiving
copies of the committee minutes. The external auditors were
not present at meetings where their performance and/or
remuneration was discussed.
69
During the year, we held several separate sessions with BT’s internal
and external auditors, in the absence of management.
The Audit & Risk Committee’s key responsibilities are set out in the
committee’s terms of reference available on our website.
Activities in 2018/19
Pension valuation
In July 2018, the group announced that it had been alerted to an
error made by its independent external actuary in the actuary’s
calculation of the IAS 19 accounting valuation of retirement
benefit obligations at 31 March 2018. The error resulted from the
incorrect application of changes to demographic assumptions.
The committee focused on understanding and challenging
management on their assessment of this error, including whether
it required restatement of published financials and re-filing of the
2017/18 financial statements on Form 20-F, and that the error
constituted a material weakness in the operation of the group’s
internal controls. Subsequently, the committee has overseen
management’s actions in strengthening their internal controls
to ensure they appropriately addressed the previously identified
material weakness. Further detail on the restatement of the group’s
results can be found on page 118.
Internal control status
Management is responsible for establishing and maintaining an
adequate system of internal control. The committee is responsible
for overseeing the effectiveness of these controls. Last year,
I reported on management’s implementation of a number of
enhancements to processes and controls across the group, in
response to the internal control deficiencies related to our Italian
business. I also reported that management was creating a new
central financial controls and assurance team, who would set and
maintain controls, policies and standards going forward.
During the year, management continued the improvements and
commenced a significant Sarbanes-Oxley control enhancement
programme. The new second line of defence financial controls
and assurance team is leading on this group-wide programme,
with support from Deloitte and Ernst & Young. This involved
documenting our in-scope end-to-end processes and related
Sarbanes-Oxley controls. As a result, a greater number of processes
and controls, operating to lower materiality, are now within our
Sarbanes-Oxley control scope.
The committee has monitored the ongoing implementation of
this enhancement programme, including overseeing the key risk
areas. The programme identified two particular areas requiring
remediation, partly associated with the wider scope: IT general
controls and risk assessment, in particular, documentation of
information used in controls. Although significant improvements
have been made, remediation and testing of all remediating plans
was not complete at 31 March 2019. Management has therefore
concluded that our internal control over financial reporting was
not effective as at 31 March 2019, under Sarbanes-Oxley, in
relation to IT general controls and risk assessment. Management
has detailed remediation plans which are intended to be completed
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 70
Audit & Risk Committee continued
Chair’s report continued
in financial year 2019/20. The committee will continue to monitor
management’s progress in their remediation activities.
The committee has monitored the status of management’s
remediation and overseen the steps taken to conclude that these
material weaknesses do not result in any identified misstatements
in the current period financial statements nor any prior year
financial statements.
Management has also carried out an assessment of our close
procedures, which resulted in more detailed and holistic quarterly
reviews, improved quality and timeliness of reviews, as well as
reduced duplication and increased standardisation. The committee
continues to focus on monitoring and overseeing management
on these improvements to governance, compliance and financial
safeguards.
The new financial controls and compliance team has continued
the programme of detailed balance sheet reviews, previously
undertaken by Ernst & Young, including in our operations outside
the UK. All actions resulting from these reviews have been tracked
and monitored and the reviews have not identified significant
issues or areas of concern.
One BT Integrity and Compliance programme
In September, management brought together, under new leadership,
our risk management, compliance, internal audit and some second
line assurance functions, with the intent of managing risk and
providing assurance in a more co-ordinated and simplified way.
To extend and sustain the benefits of this across the organisation,
management has launched a new programme called ‘One BT
Integrity and Compliance’. This programme is designed to ensure the
organisation has the optimal framework of risk management, controls
Key matters considered by the Audit & Risk Committee
April 2018
– Openreach board audit risk & compliance
committee (OBARCC) report
– External audit and non-audit fees
– Sarbanes-Oxley
–
Update on full year results and draft
Annual Report & Form 20-F 2018
– External auditor report
–
– Ethics & compliance and Speak Up cases.
Internal audit plan and internal audit charter
May 2018 (two meetings)
–
Risk management, internal control and
compliance enhancements
– Sarbanes-Oxley
– 2017/18 full year results
–
Annual Report & Form 20-F 2018, including
a review to ensure the report
was fair, balanced and understandable
– Going concern and viability statement
– Pensions accounting
– External and internal audit reports
Major litigation, competition and
–
regulatory law
– Financial commitments and liabilities
General Data Protection Regulation
–
compliance.
June 2018
– Review of the year end
– Finance transformation programme
– IT general controls and IT asset management
– Regulatory financial statements 2017/18
– Security risk management
–
Ethics & compliance, including ethical culture
and controls and Speak Up cases.
July 2018
– Openreach internal audit
– FRC audit quality review
– First quarter results
– Pension valuation
– External and internal audit reports
– Regulatory financial statements 2017/18
Risk management, internal control and
–
compliance enhancements
– Sarbanes-Oxley
– Non-audit fees
–
Major litigation, competition and regulatory
law.
September 2018
–
Risk updates from the chief executive
and the CEOs of the customer-facing units
and Technology.
October 2018
–
–
–
–
–
–
–
–
–
–
–
–
Openreach board audit risk & compliance
committee (OBARCC) report
External auditors’ engagement letter
One BT Integrity and Compliance programme
External audit and non-audit fees
Half year results
External and internal audit reports
Going concern assessment
External audit plan 2018/19
Ethics & compliance
Financial commitments and liabilities
Corporate income tax accounting
Major competition, regulatory law and
litigation
Annual Report process review
–
– Sarbanes-Oxley.
December 2018
–
IT user access management, IT asset
management and payment card industry data
security standard (PCI DSS)
– Privacy and data governance
– Supplier risk and assurance
–
– Sarbanes-Oxley
–
BT Compliance Committee chair report
Ethics & compliance, regional governance
committees update and Speak Up cases
International audit coverage and trend
analysis.
–
January 2019
– Third quarter results
– Sarbanes-Oxley
– External and internal audit reports
–
Developments in financial reporting,
statutory audit and regulatory oversight
India regional governance committee
Financial commitments and liabilities
PCI DSS
Non-audit fees
Litigation, employment, competition and
regulatory law.
–
–
–
–
–
April 2019 (two meetings)
– 2018/19 full year results
–
Annual Report 2019, including a review
to ensure the report was fair, balanced and
understandable
– Viability and going concern statements
– Tax and pension matters
– Sarbanes-Oxley
– External and internal audit reports
– Internal Audit Charter
– Committee evaluation
– External auditor effectiveness
– External audit and non-audit fees
–
Major litigation, competition and regulatory
law
– One BT Integrity and Compliance programme
– Openreach internal audit
– Annual Relevant Turnover Returns
– Data Subject Access Requests.
BT Group plcAnnual Report 2019 and assurance for dealing with our landscape of risk and uncertainty;
and the right culture to support it. Improvements to date include
the launch of a new code of conduct and the BT Way, as well as new
training on fraud and the three lines of defence. The committee will
continue to receive updates on the programme’s progress.
BT Compliance Committee
The BT Compliance Committee, a sub-committee of the Audit & Risk
Committee, oversees BT’s compliance with the Commitments made as
part of the 2017 Digital Communications Review (DCR) with Ofcom.
The committee met six times in 2018/19. As chair of the Audit & Risk
Committee, I have sight of agendas and minutes of BT Compliance
Committee meetings.
Isabel Hudson, chair of the BT Compliance Committee, provided an
update to the Audit & Risk Committee during the year on the work
undertaken in its first full year of operation, in relation to BT’s financial
planning process, the strategic framework, culture and behaviours and
DCR outcomes.
The BT Compliance Committee will publish a separate report on its
activities for 2018/19 and this will be available on our website.
Financial reporting
The committee considered and assessed:
• the Annual Report and the annual, half year and quarterly
trading announcements for recommendation to the Board
• the quality and appropriateness of accounting policies and
practices, as well as critical accounting estimates and key
judgements
• whether the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the group’s position and performance,
business model and strategy. This assessment formed the basis
of the advice given to the Board.
Significant issues considered in relation to the financial statements
Group accounting policies, critical accounting
estimates and judgements
The committee considered the accounting policies and disclosures
in the consolidated financial statements that relate to critical
accounting estimates and judgements, the key judgements and
assumptions in relation to provisions, including restructuring,
regulatory risks and litigation, the assumed level of take-
up in the BDUK programme (which affects the value of our
potential obligation to re-invest or repay grant funding), the
implementation processes for the adoption of IFRS 15, Revenue
from Contracts with Customers, and IFRS 16, Leases, and the
impacts and key judgements on the group’s accounting when
adopted.
Going concern
Management’s forecasts of group cash flows and net debt, as
well as our liquidity requirements and the borrowing facilities
available to the group were considered. Following this review
and a discussion of the sensitivities, we confirmed that the going
concern basis of accounting continues to be an appropriate basis
of preparation for the financial statements. Further detail on the
basis of the going concern assessment by the directors is set out
on page 92.
71
Viability statement
The process and assessment of the group’s prospects, the time
horizon and how this aligned with the group’s long-term forecasts,
taking into account the company’s current position and principal
risks, was assessed. The committee also considered the group risks
included in management’s stress testing model. The committee
was satisfied that the viability statement could be provided, and
endorsed the continued selection of a three-year time horizon as
a basis for the statement and the approach to its development.
Further detail on the assessment of viability and the viability
statement are set out on page 54.
Regulatory reporting
We were supportive of the changes across people, processes
and systems that were put in place to ensure that we met our
2018/19 regulatory financial reporting obligations.
Pensions
The assumptions underlying the valuation of the pension liabilities in
the financial statements, the financial assumptions as summarised
in note 20 to the financial statements, the sensitivities around the
assumptions and the impact of the assumptions on the balance
sheet, income statement and related disclosures were considered.
Goodwill impairment
We considered and were satisfied with the key assumptions,
including operating cash flow forecasts, resulting headroom and
the sensitivity analysis performed by management and agreed that
no goodwill impairment charges were required this year.
Major contracts
The performance of major contracts in Enterprise, Global Services,
the Emergency Services Network contract and EE, specifically, were
considered. Management regularly monitors BT’s exposure to major
contracts and the updates to the committee included overviews
of the trading and operational performance of the contracts,
assessments of the recoverability of dedicated contract assets,
assessments of the future performance of the contracts and any
requirement for loss provisions.
Asset verification and asset lives
The results of management’s annual asset life review, asset
verification exercise and review of fully depreciated assets were
considered and we were satisfied that the judgements taken and
the methodology applied were appropriate.
Other matters
Specific items were reviewed quarterly, and we considered
whether they were appropriately categorised. We also considered
management’s view of the quality of earnings and of the
effective tax rate. At the half year and full year, we considered a
detailed assessment of provisions and at each quarter and the
full year, the committee was satisfied with the analysis provided
in relation to the results.
External audit
Last year, I reported on the external audit tender process we had
undertaken. Following the audit tender process, KPMG were
appointed as our external auditors at the conclusion of the 2018
AGM. A change in our external auditors has provided additional
challenge and a fresh perspective through which to assess our
controls. Tony Cates is the lead audit partner for KPMG, and
commenced his tenure on the appointment of KPMG. The company
confirms that it complied with the provisions of the Competition
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 72
Audit & Risk Committee continued
Chair’s report continued
and Markets Authority’s Order for the financial year under review.
The committee reviewed with the auditors the scope of work and
the risk informing this, external audit findings and the letter of
engagement. The committee approved KPMG’s audit plan and the
letter of representation. Further information can be found in the
Independent auditors’ report on pages 101 to 109.
Auditor independence, objectivity and effectiveness
The committee discussed independence matters and areas that
could give rise to a conflict of interest and safeguards that the
external auditors have in place to prevent compromising their
independence and objectivity. BT has policies in place detailing
non-audit services that can be provided by the external auditors.
The external auditors are not permitted to perform any work
which they may later be required to audit or which might affect
their objectivity and independence, or create a conflict of
interest. Internal procedures describe the approval process for
work performed by the external auditors. This applied to KPMG
throughout the year and to PwC until they stepped down. The
committee monitored compliance with the policies and procedures
and considered business relationships with the external auditors,
and the level and appropriateness of non-audit services and fees.
Further details of the non-audit services that are prohibited and
allowed under the policy can be found on our website. Details
of non-audit services carried out by the external auditors are
described in note 9 to the consolidated financial statements. Audit-
related assurance services, including the audit of the regulatory
financial statements, are considered a low threat to auditor
independence. The proportion of other non-audit services to total
services is therefore considered the most suitable measure of the
non-audit services provided. These represented 6% of the total
fees (2017/18: 6%).
The committee also reviewed the quality of the audit and the
performance of the external auditors. We concluded they were
independent and recommended to the Board that they be re-appointed.
In addition, during the year, the Financial Reporting Council’s Audit
Quality Review Team (AQRT) reviewed PwC’s audit of the group’s
2017/18 financial statements as part of their annual inspection of
audit firms. I received and reviewed the final report from the AQRT
which indicated that there were no significant areas of concern.
Internal audit
The committee:
• reviewed and approved the annual internal audit plan at the
start of the year and received regular updates on audit activities,
progress against the plan, details of unsatisfactory audits and
action plans to address these
• reviewed the performance of the function twice during the year.
We commissioned an external effectiveness review of internal
audit in 2018/19. This was conducted, in accordance with our
five-year cycle of such reviews, by the Chartered Institute of
Internal Auditors
• reviewed overdue recommendations and ensured these are
tracked through to completion and subject to close monitoring
by management.
Risk management
Each quarter, all customer-facing units certify the adequacy and
effectiveness of their risk management processes and the operation
of their Sarbanes-Oxley controls. BT’s risk management processes,
which have been in place throughout the period under review,
identify and monitor the risks facing the group. The Executive
Committee and the Board regularly review the risks that are
considered material.
During the year, the chief executive and the CEOs of each
customer-facing unit and Technology (or their delegates),
presented to the committee on the enterprise-wide risk
management process, the key risks facing the group and the units,
and the operation of the three lines of defence. The escalation of
issues and how material risks are identified, evaluated and managed
were also discussed.
The Board is ultimately responsible for the group’s system of risk
management and internal control. See page 96 for further details.
See US Regulation on page 94 for details on internal controls
assessment for the purposes of the Sarbanes-Oxley Act.
Governance and compliance
We received and considered reports from management on
BT’s ethics and compliance priorities, including Speak Up. We
ensure that arrangements are in place for the proportionate and
independent investigation of these and other matters, including
privacy and data governance and anti-corruption and bribery.
Committee evaluation 2018/19
We carried out an internal evaluation of the committee led by the chairman and the company secretary. This entailed questionnaires completed
by members, attendees and KPMG (our external auditors); the output of which was discussed and debated by the committee.
Key areas of focus
Risk management
Suggested actions
• Further review of the quality, reliability and resilience of key controls, especially
financial and IT controls, and to verify our risks
• Refresh and maintain knowledge levels; increase ‘deep dive’ reviews across our
key risks and financial controls.
Meetings
Composition
• Further time for debate and challenge at meetings.
• Continue to keep the committee composition under review.
Nick Rose
Chair of the Audit & Risk Committee
8 May 2019
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
73
Strategic report
Governance
Financial statements
Additional information
Report on Directors’ remuneration
Chair’s letter
Membership and key responsibilities
• Determine the salary and benefi ts for the executive
directors, members of the Executive Committee and the
company secretary, and monitor the relationship between
pay and benefi ts of other employees
• Operation of the annual bonus scheme, including setting
performance targets and objectives for the year ahead
• Determine awards under the annual bonus scheme
for executive directors and review the awards of other
senior executives
• Governance of the long-term incentive plans, including
target setting
• Review and approve the Annual Remuneration Report
for inclusion in the Annual Report
• Review, approve and ensure operation within the
Remuneration Policy including seeking shareholder
approval, on a binding basis, at least every three years.
Attendance
Member
Nick Rose (chair )a
Tony Ballb
Isabel Hudson
Mike Inglis
Karen Richardsonc
Eligible
to attend
Attended
10
3
10
10
3
10
3
10
10
2
a Nick was appointed chair of the committee on 12 July 2018.
b Tony stepped down as chair of the committee on 11 July 2018.
c Karen stepped down as a member of the committee on 11 July 2018.
In addition to the committee members, the chairman and
chief executive are invited to attend meetings, except in
instances where their own remuneration is discussed or other
circumstances where their attendance would not be appropriate.
The committee regularly consults the chief executive, the group
HR director, and the director of reward .
The company secretary is secretary to the committee and
attends all meetings.
This is my fi rst report since taking over as chair of the
committee in July 2018. On behalf of the committee,
I would like to thank my predecessor, Tony Ball, for his
leadership and contribution. There is no doubt that this
is a particularly challenging time for all remuneration
committees to balance the legitimate views of all
stakeholders in the area of executive remuneration
and associated governance.
The contents of this report
are as follows:
Chair ’s letter
Review of the year; committee decisions; key
outturns and plans for the year ahead
pages 73 to 75
Focus on remuneration
The key aspects of our remuneration structure, risk
management, how we have performed, how we
applied the Remuneration Policy during 2018/19
and application in 2019/20
pages 76 to 78
Annual Remuneration Report
More detail on how we have applied our
Remuneration Policy during 2018/19 including
the single fi gure of remuneration for each director
How we intend to apply the Remuneration Policy
in 2019/20
pages 73 to 90
74
BT Group plc
Annual Report 2019
Report on Directors’ remuneration continued
Chair’s report continued
Listening to shareholders
The interests of our shareholders underpin the committee’s oversight
of our Remuneration Policy and payments to executive directors.
The committee was therefore disappointed with the vote against
our Annual Remuneration Report at the 2018 AGM. Following that
meeting, I met with some of our shareholders and prominent proxy
advisory bodies to understand why they voted against our Annual
Remuneration Report. It was reassuring to hear that shareholders
did not have any material concerns with our overall Remuneration
Policy. Rather, some shareholders felt that the annual bonus pay-out
last year did not align with the overall share price performance. In
addition, there was concern around the amount of annual bonus paid
to Gavin Patterson given the Board’s announcement, shortly after its
bonus decision, that Gavin would be stepping down.
All of this has been achieved against a backdrop of very significant
organisational change as part of the first phase of transformation.
The restructuring programme has achieved annualised cost savings
of £875m and enabled us to simplify our business and systems and
to de-layer our organisation. Ofcom has recognised the ‘significant
progress’ made in its reports of June and November 2018 and the
committee recognised that much has been done in the year to rebuild
our relationship with Ofcom to put us on a better footing for future
strategic discussions.
And we have navigated the additional challenge of a chief executive
transition, with an orderly and well controlled handover, and with real
progress on delivery of our transformation agenda, which is critical to
building the foundations for growth and success in the future.
I explained to shareholders that, in line with best practice, the
committee had applied its discretion to reduce bonuses for all
executive directors down to target levels despite the formulaic results
yielding a higher bonus. However, given the significant share price
fall over 2017/18, some shareholders felt the reduction in bonus
was not sufficient. The committee discussed shareholders’ feedback
at length. In response, we have implemented a new process whereby,
in reviewing performance against the formulaic targets under our
various incentive plans, we will give greater weight to a broader
range of performance factors and circumstances, including share
price performance, when determining the overall outcome.
I have continued the dialogue with some of our shareholders,
particularly in relation to the 2018/19 bonus outcomes. I’d like to
thank those shareholders who have taken the opportunity to engage
with me. The committee has carefully considered these views when
making its final decisions.
Business performance
This year has once again been difficult for the committee in balancing
the performance achieved with remuneration outcomes. Although
reported numbers indicate a broadly flat performance year-on-year,
management has had to overcome significant headwinds impacting
EBITDA including regulatory price reductions of £252m, cost
inflation (including the effect of cumulo rate increases) of £362m
and declines in fixed voice of £179m. The final outcome for the year
as a whole was therefore very creditable and allowed us to report
numbers at the top end of market expectations.
The committee noted further progress this year in meeting our year-
on-year customer service targets, with Group Net Promoter Score up
6.5 points and Right First Time up 5.4%, continuing improvement
over eleven consecutive quarters. Customer complaints to Ofcom
reduced by a third for both BT’s consumer broadband and EE’s mobile
customers.
Investment and delivery in our core networks have significantly
improved with accelerated fibre-to-the-premises (FTTP) build and
ambition, doubling the number of premises passed to 1.2 million at
the lower end of the cost range (£300-£400), and achieving around
2 million premises passed with G Fast. EE has retained the ‘best
mobile network’ position for the fifth consecutive year in the 2018
RootMetrics survey and we are on track to launch 5G in 16 cities in
2019 with a range of device partners.
The committee also recognises that despite much good work during
the year, as I write this letter our share price has remained essentially
flat this year, albeit marginally outperforming the sector.
Reward outcomes for the year
Performance relative to our financial and customer experience
targets led to a formulaic annual bonus outcome of just over 146%
of target for the executive directors. However, considering the overall
shareholder experience, the broadly flat earnings performance and
the insufficient progress we have made in closing the customer
service gap versus our competition, the committee exercised its
discretion to reduce the annual bonus outturn relative to the financial
and customer experience targets to 115% of target. This resulted in
Philip Jansen and Simon Lowth receiving an annual bonus of 134%
and 137% of salary, respectively. More information on the 2018/19
annual bonus is on pages 80 and 81.
In the three-year period 1 April 2016 to 31 March 2019, the group
performed below threshold against the revenue, free cashflow and
relative total shareholder return targets under the 2016 Incentive
Share Plan (ISP) award. This resulted in no payment being made
under the 2016 ISP. More information on the 2016 ISP is on
page 81.
Chief executive changes
Departure of Gavin Patterson
When we announced Gavin’s departure from BT last June, the
Board felt we did not have an internal successor and wanted the
opportunity to conduct an extensive external search to identify
the best possible candidate to lead the company in the next phase
of its development. The Board therefore concluded at that time
that it was in the company’s best interests to ask Gavin to remain
in place to ensure the best continuity and the smoothest transition
possible to a new chief executive. As part of Gavin’s commitment to
do this, the committee agreed that he would be eligible for a bonus
based on the overall financial outcomes and his personal objectives
including delivery of key strategic programmes (eg 5G and FTTP to
plan), rebuilding trust and reputation with the regulator, developing
and implementing a new operating model, the delivery of the
digital communications review with Ofcom and ensuring a seamless
transition to the new chief executive.
75
The committee has reviewed Gavin’s overall performance for the
year in the light of these objectives and concluded that the personal
element of his bonus would merit an on target outcome. This
reflects the role Gavin played in a seamless transition to Philip as our
new chief executive, and the momentum sustained in progressing
our transformation programme. However, having concluded on
the formulaic outcomes for Gavin, the committee was keen to get
input from some of our major shareholders, knowing full well that
shareholders and society at large expect remuneration committees to
exercise discretion more frequently, especially when an executive is
leaving an organisation.
We received a broad range of views representing some of our largest
shareholders, including our largest shareholder Deutsche Telekom.
Having listened carefully to this feedback and after discussion with
Gavin, the committee and Gavin agreed that a reduction of the total
bonus outcome by 50% would be the right thing to do and in the
best interests of all stakeholders. This resulted in Gavin receiving
an annual bonus of 56% of target. Further details can be found on
page 81. In addition, the committee exercised its discretion and, with
Gavin’s agreement, decided that his 2017 ISP should lapse in full.
(Gavin was not awarded a 2018 ISP.) This has been a difficult decision
and a difficult year for the committee to balance all the relevant
factors.
Appointment of Philip Jansen
During the year we welcomed our new chief executive, Philip Jansen,
a proven leader with exceptional experience in managing large and
complex businesses. In considering Philip’s remuneration package,
the committee sought to balance the desire to secure his services
with adherence to our Remuneration Policy. Throughout, we were
guided by the views of shareholders and the provisions of the new
UK Corporate Governance Code (the new Code) published by the
Financial Reporting Council in July 2018. Philip has made a really
excellent start as chief executive. However as detailed on page 81
the committee felt that the personal element of his bonus should be
capped at 50% of maximum given the short period in question.
As detailed in the appointment announcement on 25 October 2018,
Philip’s base salary is £1,100,000, which is fixed for five years.
He receives our standard executive benefits package and a cash
allowance in lieu of pension of 15% of salary in line with the wider
management population in the UK. Philip’s incentive opportunities
are in line with our Remuneration Policy, with a maximum annual
bonus of 240% of salary and a maximum ISP award of 400% of
salary. His annual bonus for 2018/19 has been pro-rated to reflect
his period of service. He was awarded a 2018 ISP in February 2019.
This recognises that he will be leading BT’s progress towards these
targets for most of the three-year performance period. The award
was made at a reduced level of 300% of salary to recognise that he
joined part-way through the first year.
Philip also received an award with a face value of £895,848 to
compensate him for his loss in shares forfeited from Worldpay, his
previous employer. The buy-out award mirrors the value and terms
of the original award forfeited. Following the announcement that
FIS will acquire Worldpay, Worldpay has confirmed the original award
will vest in full. Therefore, Philip’s BT buy-out award will also vest in
full on 20 March 2020, subject to continued employment. Philip has
voluntarily agreed to hold any vested shares for a further year.
As communicated at the time of appointment, Philip invested nearly
£2m in purchasing BT shares in November 2018.
2019 remuneration
We are not proposing any major changes to our executive director
remuneration in 2019. Our chief financial officer, Simon Lowth,
will receive a salary increase of 2.5%, in line with that for the wider
workforce, while Philip Jansen is not eligible for an increase as the
committee agreed on his appointment to fix his base pay for five
years.
In terms of the 2019 ISP awards, the committee has reviewed
the level of ISP award for Philip Jansen and Simon Lowth and
agreed awards of 400% and 350% respectively in line with our
Remuneration Policy. Recognising the need to ensure that our
remuneration arrangements support the delivery of BT’s strategy
under Philip’s stewardship, the committee has delayed agreeing
the ISP 2019 performance conditions. The intention is that awards
will be granted in June 2019 and full details of the performance
conditions will be disclosed in advance of the AGM.
Corporate governance
The committee welcomes the new Code. We are already aligned
with the new provisions in several areas. For example, approval of
remuneration for the Executive Committee already falls within our
remit. We also now consider a broader range of performance factors
and wider circumstances when determining incentive pay-outs
and do not simply follow the formulaic outcome. Finally, we took
the opportunity to align the pension provision for our new chief
executive to that of the wider management population in the UK,
reflecting society’s sentiment in this area.
We have also chosen to disclose our chief executive pay ratio for
2018/19. This is set out on page 87.
Looking ahead
2019 will be another busy year for the committee. Our primary aim is
to ensure that executive pay continues to support the delivery of our
business strategy, and that outcomes are appropriately aligned with
shareholders’ interests.
We will put our Remuneration Policy to shareholders for approval at
the 2020 AGM. Ahead of this, we will carry out a thorough review of
our remuneration framework and metrics, recognising the need to
ensure that our arrangements support the delivery of BT’s strategy
under Philip Jansen’s stewardship and best align executive rewards
with shareholder rewards and any new Code provisions. We will
consult with shareholders on any proposals during the year, and I look
forward to an open and constructive dialogue.
We will further develop our compliance with the new Code, with
a close eye on wider market practice, the expectations of our
stakeholders and, of course, what is in the best interests of BT.
Finally, I would like to thank our shareholders for taking the time
to engage with us over the course of the year and I look forward to
seeing you at our 2019 AGM.
Nick Rose
Chair of the Remuneration Committee
8 May 2019
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
76
76
BT Group plc
Annual Report 2019
Focus on remuneration
How we align our remuneration policy with shareholders’
interests and risk management
Base salary and core benefits
Alignment with shareholders’ interests
• Forms a key part of the remuneration framework required to attract,
retain and motivate the calibre of executives needed to shape and
execute our strategy and generate shareholder value.
Risk management
• Loss of existing talent and an inability to recruit new talent would
represent a risk to the business
• Mitigated by setting salary and benefits at a level that is competitive
against relevant businesses and recognises breadth of the role and
individual experience.
Application in 2018/19
Application for 2019/20
• An increase of 2.5% for Gavin Patterson and Simon Lowth
was applied in June 2018
• Base salary for Gavin Patterson of £1,022,000 and for
Simon Lowth £717,500
• Gavin Patterson and Simon Lowth received a cash pensions
allowance of 30% of salary
• Philip Jansen’s remuneration package was agreed upon appointment
with a base salary of £1,100,000 fixed for five years and a cash
pension allowance of 15% of salary
• Benefits include company car, fuel or driver, personal
telecommunication facilities and home security, medical and dental
cover (for the directors and immediate family), life cover, professional
subscriptions, personal tax advice and financial counselling.
Annual bonus
Alignment with shareholders’ interests
• Financial and personal objectives are set with reference to our business
strategy approved by the Board
• Focused on KPIs for the business, including:
– EPS, free cash flow and revenue (excluding transit)
– Delivering great customer service
– Strategic objectives linked to key operational and strategic projects
• Deferral of one-third of the bonus for three years provides retention
and alignment over the longer term.
• An increase of 2.5% for Simon Lowth to be applied in June 2019
• No change to Philip Jansen’s base salary
• There are no changes being proposed to the benefit framework
or pension arrangements for 2019/20 for Philip Jansen or
Simon Lowth.
Risk management
• The Board seeks to ensure that the budget balances achievable goals
without encouraging undue risk, with incentive targets aligned with
delivering the budget
• The financial metrics reflect how well management mitigates our
principal business risks
• The committee retains absolute discretion to reduce variable
compensation in light of risk and the group’s overall performance
and circumstances
• Bonus deferral encourages a focus on long-term outcomes
• Malus and clawback provisions are in place.
Application in 2018/19
Application for 2019/20
• The maximum level of bonus opportunity was 240% for Gavin
• No changes are being proposed to the maximum bonus opportunities
Patterson and Philip Jansen, and 180% for Simon Lowth
or to the overall structure of the annual bonus
• Performance relative to our financial and customer experience targets
led to formulaic annual bonus outcome of 146.5% of target for the
executive directors
• Minor changes are being made to the way some of our performance
metrics are measured to ensure that they remain fully aligned with the
business’ main areas of focus
• The committee exercised its discretion to reduce the financial and
customer experience annual bonus outturn to 115% of target.
This resulted in an annual bonus of 56% of maximum for
Philip Jansen and 76% of maximum for Simon Lowth
• Having concluded on the formulaic outcome for Gavin Patterson,
listened carefully to shareholder feedback, and following discussion
with Gavin, the committee and Gavin agreed that a reduction of the
total bonus outcome by 50% would be the right thing to do and in the
best interests of all stakeholders. This resulted in an annual bonus of
28% of maximum for Gavin Patterson.
• Change to revenue measure to be inclusive of transit revenue, to
reflect how we are reporting in our quarterly financial statements
• Introduction of Keeping Our Promises measure in place of Right First
Time to reflect that this provides a better measure of meeting
the commitments we make and providing more reliable services
for our customers.
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
7777
Strategic report
Governance
Financial statements
Additional information
Incentive Share Plan (ISP)
Alignment with shareholders’ interests
• Based on performance against free cash flow, revenue (excluding transit)
and total shareholder return
• Total shareholder return (TSR) metric provides a direct measure
of our relative performance against peers.
Risk management
• Metrics balance internal and external financial performance, producing a
rounded view of performance and effective risk management over the
longer term
• Two year holding period ensures individuals retain exposure to the share
price for at least five years in total.
Application in 2018/19
Application for 2019/20
• No award for Gavin Patterson
• Philip Jansen received an award of 300% of salary in February 2019,
reduced from 400% to reflect his joining part way through the
three-year performance period
• Simon Lowth received an award of 350% of salary.
• At the time of going to print, the ISP 2019 targets had not been set
by the committee
• Full details of the performance measures will be disclosed in advance
of the AGM in July.
Shareholding guidelines
Alignment with shareholders’ interests
Risk management
• Shareholding guidelines ensure appropriate alignment between
• Encourages executives to build and hold a material, personal stake
executives and investors
in the business
• Current shareholding levels are set out on page 83.
• Ensures that they have significant equity at stake in the event
Application in 2018/19
• Gavin Patterson: equivalent to 300% of salary
• Philip Jansen: equivalent to 300% of salary
• Simon Lowth: equivalent to 250% of salary.
of adverse risk-related events.
Application for 2019/20
• No changes are being proposed.
Our remuneration principles are to
maintain a competitive remuneration
package that promotes the long-
term success of the business, avoids
excessive or inappropriate risk taking
and aligns management’s interests
with those of shareholders.
We believe in pay for performance against challenging targets and
stretching goals for the annual bonus and long-term incentive
shares. A significant proportion of the total remuneration package
is therefore variable and linked to corporate performance.
In applying these principles, the committee determines the
remuneration policy for the executive directors and the chairman.
The chairman is not a member of the committee.
The committee:
• reviews the performance targets regularly to ensure that they
are both challenging and closely linked to the group’s strategic
priorities. Furthermore, because a large part of the remuneration
package is delivered in shares and senior executives are required
to build up a significant shareholding themselves, they are
directly exposed to the same gains or losses as all
other shareholders.
• takes account of the pay and employment conditions of all our
employees, the performance of the group and the individual,
the current views and guidelines of shareholders and their
representatives, and general market conditions. Remuneration
arrangements at other companies of a similar size and complexity
are also reviewed for guidance.
• continues to keep under review the relationship of risk to
remuneration. The chair of the Audit & Risk Committee is chair
of the Remuneration Committee.
• ensures that the incentive structure for senior executives
does not raise environmental, social or governance risks by
inadvertently motivating irresponsible behaviour. Part of the
annual bonus depends upon an assessment of each senior
executive’s personal contribution which typically includes the
environmental, social and governance agenda.
• retains absolute discretion to reduce variable compensation in
light of risk and the group’s overall performance and any other
factor it deems relevant.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
78
78
BT Group plc
Annual Report 2019
Focus on remuneration continued
The Remuneration Report is colour-coded as follows:
Fixed pay
Annual bonus
Annual bonus,
deferred bonus
Incentive
Share Plan (ISP)
Pay breakdown
The pay breakdown for the executive directors in 2017/18 and 2018/19 is set out below.
Gavin Pattersona
Former chief executive
£000
Philip Jansen
Current chief executive
£000
Simon Lowth
Chief financial officer
£000
3,000
2,500
2,000
1,500
1,000
500
0
Fixed
£
Variable
£
2
9
2
1
,
3
5
3
1
,
2
7
5
7
4
1
1
,
b
2017/ 8
c
2018/19
Base salary
Benefits
Pension
Annual bonus
(shares)
Annual bonus
(cash)
ISP (shares)
997
57
299
847
46
254
431
191
861
381
0
0
3,000
2,500
2,000
1,500
1,000
500
0
Fixed
£
Variable
£
0
7
3
5
5
3
n/a
2017/18
d
2018/19
Base salary
Benefits
Pension
Annual bonus
(shares)
Annual bonus
(cash)
ISP (shares)
n/a
n/a
n/a
n/a
n/a
n/a
275
39
41
123
247
n/a
3,000
2,500
2,000
1,500
1,000
500
0
Fixed
£
7
0
9
3
3
9
2
8
9
3
5
9
2017/18
c
2018/19
700
23
210
715
24
214
Base salary
Benefits
Pension
Variable
£
Annual bonus
(shares)
Annual bonus
(cash)
ISP (shares)
302
327
605
n/a
655
0
a Gavin stood down from the Board at midnight on 31 January 2019.
b The group returned below threshold performance against all of the performance measures for the 2015 ISP. No payment was made.
c The group returned below threshold performance against all of the performance measures for the 2016 ISP. No payment was made.
d Philip was appointed to the Board on 1 January 2019 and became chief executive on 1 February 2019. His first ISP award was made in February 2019.
Annual bonus for 2018/19
The resulting bonus outcomes as a percentage of base salary were:
Gavin Patterson (pro-rated to reflect the period he was in full-time employment during the year)
240%
maximum opportunity
67%
2018/19 Outcome:
=
2/3
cash bonus
1/3
deferred shares
Philip Jansen (pro-rated to reflect the period he was in full-time employment during the year)
240%
maximum opportunity
Simon Lowth
180%
maximum opportunity
134%
2018/19 Outcome:
137%
2018/19 Outcome:
=
=
2/3
cash bonus
1/3
deferred shares
2/3
cash bonus
1/3
deferred shares
Vesting of 2016 ISP award
The ISP is a conditional share award with three performance conditions measured over a three-year performance period.
The group returned below-threshold performance against all of the performance measures for the 2016 ISP. This resulted
in no payment being made.
40%
Total Shareholder Return
40%
Normalised free cash flow
20%
Underlying revenue growth (excluding transit)
Performance
Threshold 12th
Outcome
20th = threshold not met
Performance
Threshold £10.70bn
Outcome
£8.19bn = threshold not met
Performance
Threshold 2.1%
Outcome
(2.19)% = threshold not met
BT Group plcAnnual Report 2019 79
Annual remuneration report
This section summarises all elements of the directors’ remuneration in 2018/19.
References to ‘audited’ refer to an audit performed in accordance with UK statutory reporting requirements. For US purposes,
disclosures have not been audited from a Public Company Accounting Oversight Board perspective.
Single total figure of remuneration (audited)
The following sets out all emoluments received by directors for the financial years 2018/19 and 2017/18, including bonus and deferred
bonus, long-term incentive share plans (ISP) and pension arrangements.
Base salary
and fees
(2018/19)
£000
Base salary
and fees
(2017/18)
£000
Benefits
excluding
pension
(2018/19)
£000
Benefits
excluding
pension
(2017/18)
£000
a
Pension
(2018/19)
£000
Pension
(2017/18)
£000
Annual
Bonusb
(2018/19)
£000
Annual
Bonus
(2017/18)
£000
c
ISP
d
ISP
(2018/19)
£000
(2017/18)
£000
e
Malus
2017/18
Total
2018/19
£000
Total
2017/18
£000
Chairman
Jan du Plessis
Executive directors
Philip Jansenf
Simon Lowth
Non-executive directors
Iain Conn
Tim Höttgesg
Isabel Hudsonh
Mike Inglish
Matthew Keyh,i
Allison Kirkbyj
Nick Roseh
Jasmine Whitbread
Sub-total
Former directors
Gavin Pattersonk
Tony Ballh,l
Karen Richardsonh,m,n
700
322
275
715
124
–
157
126
39
3
171
134
–
700
122
–
188
105
173
107
2,444
1,717
847
36
36
997
138
127
24
39
23
3
2
1
1
93
46
1
8
41
214
–
210
370
982
–
907
43
–
23
1
2
2
71
255
210
1,352
907
254
299
572
1,292
57
2
31
Total
3,363
2,979
148
161
509
509
1,924
2,199
–
–
–
–
724
365
–
–
725
0
1,934
1,840
124
0
160
128
40
3
172
134
122
0
189
107
0
0
175
107
–
4,144
2,905
-338
1,719
2,307
37
44
140
158
–
-338
5,944
5,510
–
–
–
–
–
a
c
Pension allowance paid in cash for the financial year – see ‘Total pension entitlement’
on page 81.
b Annual bonus shown includes both the cash and deferred share element. The deferred
element of the 2018/19 bonus includes the value of deferred shares to be granted in June
2019. Further details of the deferred element are set out on page 81.
The ISP 2016 granted in June 2016 will lapse in full. Further details are provided
on page 81.
d
The ISP 2015 granted in June 2015 lapsed in full in May 2018.
e As a result of investigations into improper accounting practices in BT’s Italian business,
the committee exercised its discretion and applied the malus provisions under the deferred
bonus plan. This was applied in May 2017 and the figure was calculated based on the share price
at the original grant.
Philip was appointed as a director on 1 January 2019 and became chief executive
from 1 February 2019.
f
g
Under the terms of the Relationship Agreement between BT and Deutsche Telekom
and Tim’s letter of appointment, no remuneration is payable for this position.
h Value shown relates to reimbursement of reasonable travelling and other expenses (including
any relevant tax) incurred in carrying out their duties.
i
Matthew was appointed as a director on 25 October 2018.
j
Allison was appointed as a director on 15 March 2019.
k
Gavin stood down as a director at midnight on 31 January 2019.
l
Tony retired as a director on 11 July 2018.
m
Karen retired as a director on 11 July 2018.
n
Includes an additional fee for regular travel to Board and board committee meetings.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
80
Annual remuneration report continued
Additional disclosures relating
to the single figure table (audited)
We set out below the weighting of the annual bonus structure for the
executive directors in 2018/19.
Salaries
Executive directors’ salaries are reviewed annually, with increases
typically effective from 1 June. We reviewed the salaries for Gavin
Patterson and Simon Lowth during the year and agreed a 2.5%
increase in line with increases for the UK management population
and a lower increase than that given to team members. The new base
salaries were £1,022,000 and £717,500 respectively. We agreed
Philip Jansen’s salary of £1,100,000 (fixed for five years) at the time
of his appointment in January 2019.
4
The annualised pay settlement for our team members in the UK
in 2018/19 was 3.1%.
Benefits
Benefits provided to the executive directors and the chairman include
company car, fuel or driver, personal telecommunication facilities
and home security, medical and dental cover (for the directors and
immediate family), life cover (executive directors only), professional
subscriptions, personal tax advice and financial counselling.
Annual bonus
The annual bonus opportunities (expressed as a percentage of salary)
for the executive directors in 2018/19 were as follows:
Chief executive
%
0
Target
Maximum
50
100
150
200
250
80%
40%
160%
80%
1. Adjusted earnings per share 25%
2. Normalised free cash flow 25%
3. Customer experience
20%
20%
4. Personal objectives
5. Revenue (excluding transit) 10%
5
3
1
2
The annual bonus is based on performance against key financial and
non-financial metrics, and personal objectives. Key measures under
the financial and non-financial elements include adjusted earnings per
share, cash flow, revenue (excluding transit) and customer experience.
As set out in the table below, the formulaic results against targets
produced an above-target outcome across all of the measures.
However, considering the overall shareholder experience, the
broadly flat earnings performance and the insufficient progress
we have made in closing the customer service gap versus our
competition, the committee exercised its discretion to reduce
the annual bonus outturn relative to the financial and customer
experience targets to 115% of target.
Measure
Threshold
Target
Stretch
Actual
Outcome
Chief financial officer
%
0
50
100
150
200
250
Adjusted EPS (p)a
24.6
25.9
27.8
26.3
Target
Maximum
80%
40%
120%
60%
(cid:31) Cash (cid:31) Deferred shares
The annual bonus opportunities for the chief executive applied to
Gavin Patterson and Philip Jansen during their respective time in the
role as chief executive.
Normalised
free cash flow (£m)b
Revenue (excluding
transit) (£m)
Customer
experience
2,270 2,389
2,569
2,440
22,848 23,079
23,425
23,300
50
100
200
164.13
a Adjusted EPS is defined on page 31.
b Normalised free cash flow is defined on page 31.
Between
target and
stretch
Between
target and
stretch
Between
target and
stretch
Between
target and
stretch
BT Group plcAnnual Report 2019 81
The assessment of performance against personal objectives
was carried out by the chairman for Gavin Patterson and Philip
Jansen, and by Gavin Patterson for Simon Lowth. In addition, the
Nominations Committee reviewed the performance of the executive
directors as part of a wider Executive Committee performance review.
These assessments were based on a number of factors including
BT’s regular employee surveys and performance against personal
objectives set at the start of the year.
Gavin Patterson achieved 50% of maximum for his personal
contribution score. This reflected Gavin’s progress against the
delivery of key strategic programmes (eg 5G and FTTP to plan),
rebuilding trust and reputation with the regulator, developing and
implementing a new operating model, the delivery of the digital
communications review with Ofcom and ensuring a seamless
transition to Philip Jansen. Having concluded on the formulaic
outcomes for Gavin, listened carefully to shareholder feedback, and
following discussion with Gavin, the committee and Gavin agreed
that a reduction of the total bonus outcome by 50% would be the
right thing to do and in the best interests of all stakeholders.
Philip Jansen achieved 50% of maximum for his personal
contribution score. Philip has made an excellent start in the role
as chief executive. However, given that he is new to the role, the
committee felt that target level of achievement was appropriate
and consistent with how we treat other new joiners in the company.
Simon Lowth achieved 90% of maximum for his personal
contribution score. In addition to successfully delivering this year’s
financial outturns, Simon has demonstrated stand-out leadership
in transforming the finance function. This has included improving
our risk management processes, strengthening our controls,
and bolstering the team with new skills and experience. He has
also helped with the transition of the Strategy & Transformation
function to Michael Sherman. As a member of the Openreach
board, he played an important role in delivering the Digital
Communications Review.
The table below sets out the total bonus outturns:
Financial and customer
service measures
(80% weighting)
Personal
objectives
(20% weighting)
Formulaic
outcome
Following
discretion
Formulaic
outcome
Following
discretion
Gavin
Patterson
146.5%
of target
57.5%
of target
100%
of target
50%
of target
Philip
Jansen
146.5%
of target
115%
of target
100%
of target
100%
of target
Simon
Lowth
146.5%
of target
115%
of target
140%
of target
140%
of target
Overall bonus
28% of maximum
67% of salary
£381,547 cash/
£190,773 shares
56% of maximum
134% of salary
£246,400 cash/
£123,200 shares
76% of maximum
137% of salary
£654,360 cash/
£327,180 shares
For executive directors, one-third of any bonus paid is deferred into
shares for three years with the remaining two-thirds paid in cash.
Deferred shares are not subject to performance conditions.
Gavin Patterson’s bonus, paid both in cash and deferred shares,
represented 67% of salary (pro-rated to reflect the period he was
chief executive during the year) (2017/18: 130%) and 28% of the
maximum bonus opportunity (2017/18: 54%).
Philip Jansen’s bonus, paid both in cash and deferred shares,
represented 134% of salary (pro-rated to reflect the period he was
in full-time employment during the year) (2017/18: N/A) and 56%
of the maximum bonus opportunity (2017/18: N/A).
Simon Lowth’s bonus, paid both in cash and deferred shares,
represented 137% of salary (2017/18: 130%) and 76% of the
maximum bonus opportunity (2017/18: 70%).
The deferred shares will be granted in June 2019.
Incentive share plan 2016 (audited)
The ISP is a conditional share award. The committee assesses the
performance conditions to 31 March 2019 and the awards would
ordinarily vest in May 2019. The performance conditions are based
40% on relative TSR, 40% on normalised free cash flow, and 20%
on growth in underlying revenue (excluding transit) over a three-
year performance period.
As set out in the table below, the threshold performance target in
respect of each measure was not met and therefore no payment
was made.
40% Total Shareholder
Return
40% Normalised
free cash flow
20% Underlying
revenue growth
(excluding transit)
Performance
Threshold
12th
Outcome
20th =
threshold
not met
Performance
Threshold
£10.70bn
Outcome
£8.19bn =
threshold
not met
Performance
Threshold
2.1%
Outcome
(2.19)% =
threshold
not met
Total pension entitlements (audited)
We closed the BT Pension Scheme (BTPS) to new entrants on 31
March 2001. None of the executive directors participate in future
service accrual in the BTPS.
New UK employees are eligible to join a defined contribution
scheme, typically a personal pension plan. For executive directors,
the company agrees to pay a fixed percentage of the executive’s
salary each year which can be put towards the provision of
retirement benefits.
Philip Jansen receives an annual allowance equal to 15% of salary
in lieu of pension provision as set out in the table on page 79. Philip
has not previously been a member of any of the company pension
schemes. BT also provides death in service cover consisting of a
lump sum equal to four times his salary.
Gavin Patterson receives an annual allowance equal to 30% of
salary in lieu of pension provision as set out in the table on page 79.
Gavin has previously been a member of the BT Retirement Saving
Scheme (BTRSS) but neither he nor the company has made any
contribution to the scheme during 2018/19. BT also provides
death in service cover consisting of a lump sum equal to four times
his salary plus a dependant’s pension equal to 30% of his capped
salary.
Simon Lowth receives an annual allowance equal to 30% of salary
in lieu of pension provision as set out in the table on page 79.
Simon has not previously been a member of any of the company
pension schemes. BT also provides death in service cover consisting
of a lump sum equal to four times his salary plus a dependant’s
pension equal to 30% of his capped salary.
Jan du Plessis is not a member of any of the company pension
schemes. The company has made no payments towards his
retirement provision and provided no life cover benefit.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 82
Annual remuneration report continued
Awards granted during the year (audited)
2018 ISP awards
The 2018 ISP awards were made in June 2018 and February 2019
as set out below and on page 85. Despite serving as chief executive
for almost a year of the performance period, no award was made
to Gavin Patterson on the basis of him stepping down as chief
executive at the end of January 2019.
Financial targets
Measure
2018/19–2020/21
Normalised free
cash flow
Underlying
revenue growth
(excluding transit)
Threshold
Level of
vesting
Maximum
Level of
vestinga
£6.4bn
25%
£7.4bn
100%
0.2%
25%
1.9%
100%
The award for Simon Lowth was 350% of salary.
a Vesting levels between threshold and maximum will be on a straight line basis.
To reflect his joining part way through the three-year performance
period, an award of 300% of salary was made to Philip Jansen.
Director
Philip Jansena
Simon Lowthb
Date of award
ISP award
(shares)
Face value
of award
1 February 2019
1,412,872
£3,299,056
19 June 2018
1,190,071
£2,511,248
a Face value based on share price at the date of grant of 233.56p. The grant price is calculated using the
average middle-market price of a BT share for the three days prior to grant.
b Face value based on share price at the date of grant of 211.02p. The grant price is calculated using the
average middle-market price of a BT share for the three days prior to grant.
The ISP is a conditional share award. Performance conditions
attached to the awards are based on: 40% relative TSR, 40%
normalised free cash flow, and 20% growth in underlying revenue
excluding transit over a three-year performance period from 1 April
2018 to 31 March 2021. The performance conditions are the same
for both directors. The table below sets out the pay-out ranges for
TSR, the normalised free cash flow and underlying revenue growth
excluding transit for the three-year performance period 2018/19
to 2020/21.
TSR position
Proportion vesting
(of TSR portion of award)
Proportion vesting
(of overall award)
1-5
6
7
8
9
10-17
100.0%
81.3%
62.50%
43.75%
25.00%
0.00%
40.0%
32.5%
25.0%
17.5%
10.0%
0.0%
As disclosed in the 2018 Directors’ Remuneration Report,
the committee agreed a revised comparator group of 16 other
companies for the 2018 awards as set out below.
Centrica
Proximus
Telecom Italia
Deutsche Telekom Sky
KPN
SSE
Telefónica
Telenor
Liberty Global
Swisscom
Telia Company
National Grid
TalkTalk
Vodafone
Orange
When setting the targets, the committee takes into account
the budget, medium-term plan and consensus at the time. The
committee believes the performance ranges for free cash flow and
revenue measures are challenging, and the financial performance
necessary to achieve the upper end of the range for each measure
is stretching.
When ISP awards vest, additional shares representing the value of
reinvested dividends on the underlying shares are added.
The awards are subject to a further holding period of two years,
commencing from the end of the performance period and applied
to the net number of shares received after tax and other statutory
deductions. During the holding period, no further performance
measures will apply.
2018 deferred shares (DBP)
We awarded a proportion of the 2017/18 annual bonus in deferred
shares. The table below provides further details.
Director
Gavin Patterson
Simon Lowth
Date of award
DBP award
(shares)
Face value
of awarda
19 June 2018
204,072
£430,626
19 June 2018
143,306
£302,400
a Face value based on share price at grant of 211.02p. The grant price is calculated using the average
middle-market price of a BT share for the three days prior to grant.
The DBP is a conditional share award. Deferred shares are not
subject to performance conditions and have a three-year vesting
period. Details of all interests in deferred shares are set out on
page 85.
When DBP awards vest, additional shares representing the value of
reinvested dividends on the underlying shares are added.
Joining arrangements for Philip Jansen
During the year we welcomed our new chief executive, Philip
Jansen, a proven leader with exceptional experience in managing
large and complex businesses. In considering Philip’s remuneration
package, the committee sought to balance the desire to secure his
service with adherence to our Remuneration Policy. Throughout,
we were guided by the views of shareholders and the provisions of
the new Code.
BT Group plcAnnual Report 2019 83
We use the average BT share price over the preceding 12 months
(or the share price at acquisition date if higher) to determine
whether the minimum shareholding requirement has been reached.
The table below sets out the shareholding position as at 31 March
2019. As a new director, Philip has not yet received any vested
shares under the executive share plans. Details of his buy-out are
included on page 86 the award will vest in full on 20 March 2020
and Philip has voluntarily agreed to hold the shares for a further
one year until 20 March 2021. Philip invested nearly £2m in
purchasing shares in the market in November 2018.
Gavin Patterson is required to maintain a shareholding equivalent to
300% of salary until the end of his notice period, being 25 October
2019.
Executive director
Gavin Pattersona
Philip Jansen
Simon Lowth
Personal shareholding
as a percentage of salary
919%
180%
51%
a Gavin stood down from the Board at midnight on 31 January 2019 and the percentage reflects
his personal shareholding at that date.
The following table shows the total unvested interests held by
the executive directors in the ISP and DBP, and for Philip Jansen
the RSP. The numbers represent the maximum possible vesting
levels. The ISP awards will only vest to the extent the performance
conditions are met over the three-year period. Full details of all
ISP and DBP awards, including performance periods and vesting
conditions, are set out on page 85.
Unvested interests in shares (audited)
ISP (subject to
performance)
DBP (not subject to
performance)
RSP (subject to
Worldpay performance)
Total
number
of award
shares
31 March
2019
1 April
2018
Total
number
of award
shares
31 March
2019
1 April
2018
Gavin Pattersona
3,354,841 2,537,389
127,638
253,742
Philip Jansenb
Simon Lowth
– 1,441,160
–
–
1,568,600 2,947,475
44,397
200,548
Total
number
of award
shares
31 March
2019
–
378,221
–
1 April
2018
–
–
–
a Gavin stood down from the Board at midnight on 31 January 2019 and the number
reflects his awards at that date.
b Philip joined the Board in January 2019 and will be granted his first DBP award
in June 2019.
During the period 1 April 2019 to 8 May 2019, there were no
movements in unvested interests in shares.
Philip’s base salary is £1,100,000, which is fixed for five years.
He receives our standard executive benefits package and a cash
allowance in lieu of pension of 15% of salary in line with our wider
management population in the UK. Philip’s incentive opportunities
are in line with our Remuneration Policy, with a maximum annual
bonus of 240% of salary and a maximum ISP award of 400% of
salary. His annual bonus for 2018/19 has been pro-rated to reflect
his period of service. He was awarded a 2018 ISP in February
2019. This recognises that he will be leading BT’s progress towards
the targets for most of the three-year performance period. To
recognise that he joined part-way through the first year, the award
was made at a reduced level of 300% of salary.
Philip also received an award with a face value of £895,848 to
compensate him for his loss in shares forfeited from Worldpay, his
previous employer. The buy-out award mirrors the value and terms
of the award forfeited. Following the announcement that FIS will
acquire Worldpay, Worldpay have confirmed the original award will
vest in full. Therefore, Philip’s BT buy-out award will also vest in full
on 20 March 2020, subject to continued employment. Philip has
voluntarily agreed to hold any vested shares for a further year until
20 March 2021.
Director
Philip Jansen
Date of award
RSP award
(shares)
Face value
of awarda
1 February 2019
370,798
£895,848
a Face value based on share price at grant of 241.6p. The grant price is calculated using the closing
share price on 17 October 2018.
Payments for loss of office (audited)
Gavin Patterson stood down as a director at midnight on
31 January 2019. Under the terms of his service contract, he will
continue to receive his salary and contractual benefits until the
end of his notice period, being 25 October 2019. These pro-
rated payments will total £777,489 salary and fees, £15,000
benefits and £225,000 pension allowance. Gavin will receive
no compensation or payment for the termination of his service
contract or his ceasing to be a director of the company or any other
group company, although BT will pay outplacement fees of up to
£40,000 and legal fees of up to £9,000.
Former directors (audited)
Phil Hodkinson retired as a non-executive director on 31 January
2016 and was a member of the Committee for Sustainable and
Responsible Business until standing down on 31 January 2019.
He received an annual fee of £10,000 as a member of this
committee.
Directors’ share ownership (audited)
The committee believes that the interests of the executive directors
should be closely aligned with those of shareholders.
The chief executive is required to build up a shareholding equal
to 300% of salary, and the chief financial officer 250% of salary.
The aim is to encourage the build up of a meaningful shareholding
in the company over time by retaining shares received under an
executive share plan (other than shares sold to meet tax and other
statutory deductions) or from purchases in the market.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information During the period 1 April 2019 to 8 May 2019, there were no
movements in directors’ beneficial holdings. The directors, as a
group, beneficially own less than 1% of the company’s shares.
The company encourages the chairman and independent non-
executive directors to purchase, on a voluntary basis, BT shares
with an aggregate value of £5,000 on average each year to further
align the interests of non-executive directors with those of our
shareholders. The directors are asked to hold these shares until they
retire from the Board. This policy is not mandatory.
This policy does not apply to Tim Höttges who was appointed to
the Board as a non-independent, non-executive director following
completion of the EE acquisition in January 2016. This helps avoid
any conflict of interest in relation to Tim’s ongoing employment as
CEO of Deutsche Telekom.
84
Annual remuneration report continued
Directors’ interests at 31 March 2019 or date of retirement,
if earlier (audited)
The following table shows the beneficial interests of directors
holding office at the end of the year (or at the point of leaving for
directors who retired during the year), and their families, in the
company’s shares at 31 March 2019 and 1 April 2018, or at date
of appointment if later.
Beneficial holdings
Jan du Plessis
Gavin Pattersona,b
Philip Jansenc
Simon Lowth
Tony Balld
Iain Conn
Tim Höttges
Isabel Hudson
Allison Kirkbye
Mike Inglis
Matthew Keyf
Karen Richardsong,h
Nick Rose
Jasmine Whitbread
Total
Number of shares
31 March 2019
1 April 2018
501,599
400,000
2,958,405
2,943,453
771,313
157,379
193,871
19,442
–
24,090
–
29,091
31,000
13,525
400,000
11,832
770,500
10,536
193,871
19,442
–
15,090
–
4,599
–
13,525
300,000
11,289
5,111,547
4,682,305
a Gavin stood down as a director at midnight on 31 January 2019 and the number reflects
his holding at that date.
b Includes shares purchased under directshare and free shares awarded under UK allshare.
Directshare is an HMRC approved plan that allows BT employees to buy shares out of
gross pay. Prior to 2008 BT awarded free shares to UK employees (UK allshare).
c Philip was appointed as a director on 1 January 2019. He purchased 770,500 shares in
the market in November 2018.
d Tony retired as a director on 11 July 2018 and the number reflects his holding
at that date.
e Allison was appointed as a director on 15 March 2019.
f Matthew was appointed as a director on 25 October 2018.
g Karen retired as a director on 11 July 2018 and the number reflects her holding
at that date.
h Shares are held as 2,705 American Depositary Shares (ADS). One ADS equates to five BT
ordinary shares.
BT Group plcAnnual Report 2019 85
Deferred bonus plan awards at 31 March 2019 (audited)
The following DBP awards have been granted to the directors. These shares will normally be transferred to participants at the end of the
three-year deferral period. Philip Jansen joined the Board on 1 January 2019 and is due to be granted his first DBP award in June 2019.
1 April 2018
a
Awarded
Dividends
re-invested
Vested
Lapsed
Total number
of award shares
31 March 2019
Vesting date
Price at
grant
Market price
at vesting
Monetary
value of
vested award
£000
Simon Lowth
DBP 2017
DBP 2018
Former director
Gavin Patterson
DBP 2015
DBP 2016
DBP 2017b
DBP 2018
44,397
–
– 143,306
3,038
9,807
–
–
–
94,220
94,220
33,418
–
–
–
2,286
–
– 204,072
13,966
–
–
–
–
–
–
–
–
–
47,435 01/08/2020 286.40p
153,113 01/08/2021 211.01p
–
–
–
–
– 01/08/2018 449.50p 230.68p
217
35,704 01/08/2019 403.18p
–
–
–
218,038 01/08/2021 211.01p
–
–
–
–
–
–
a Awards granted on 19 June 2018. The number of shares subject to awards was calculated using the average middle market price of a BT share for the three days prior to the grant.
Awards of deferred shares in respect of 2019 will be calculated using the average middle market price of a BT share for the three days prior to grant.
b The committee exercised its discretion and determined that no bonus would be awarded to Gavin in respect of 2016/17. This resulted in no DBP award being granted in 2017.
Share awards under long-term incentive share plan (ISP) held at 31 March 2019 (audited)
Details of the company’s ordinary shares under conditional share awards made to directors, as participants under the ISP are as follows:
1 April 2018
Awarded
Dividends
re-invested
Vested
Lapsed
Total number
of award shares
31 March 2019
Performance
period end
Price on
grant
Market price
at vesting
Philip Jansen
ISP 2018a
Simon Lowth
ISP 2016b
ISP 2017c
ISP 2018d
Former director
Gavin Patterson
ISP 2015e
ISP 2016f
ISP 2017c
ISP 2018g
– 1,412,872
28,288
664,614
903,986
–
–
45,486
61,869
– 1,190,071
81,449
979,988
1,087,543
1,287,310
–
–
–
–
–
74,432
88,014
–
–
–
–
–
–
–
–
–
–
–
–
–
1,441,160 31/03/2021 233.56p
710,100 31/03/2019 405.38p
965,855 31/03/2020
286.4p
1,271,520 31/03/2021 211.01p
(979,988)
– 31/03/2018
449.5p
–
–
–
1,161,975 31/03/2019 403.18p
1,375,324 31/03/2020
286.4p
–
–
–
–
–
–
–
–
–
–
–
Monetary
value of
vested
award
£000
–
–
–
–
–
–
–
–
a Award granted on 1 February 2019. The number of shares subject to award was
calculated using the average middle-market price of a BT share for the three days prior
to grant of 233.56p. 40% of each award is linked to TSR compared with a group of 17
companies, 40% is linked to a three-year normalised free cash flow measure and 20% to
a measure of underlying revenue growth (excluding transit) over three years.
b Award granted on 29 July 2016. The number of shares subject to award was calculated
using the average middle market price of a BT share for the three days prior to grant of
405.38p. 40% of each award is linked to TSR compared with a group of 21 companies,
40% is linked to a three-year normalised free cash flow measure and 20% to a measure
of underlying revenue growth (excluding transit) over three years.
c Award granted on 22 June 2017. The number of shares subject to award was calculated using
the average middle market price of a BT share for the three days prior to grant of 286.40p.
40% of each award is linked to TSR compared with a group of 21 companies, 40% is linked to
a three-year normalised free cash flow measure and 20% to a measure of underlying revenue
growth (excluding transit) over three years.
d Award granted on 19 June 2018. The number of shares subject to award was calculated
using the average middle market price of a BT share for the three days prior to grant of
211.01p. 40% of each award is linked to TSR compared with a group of 17 companies,
40% is linked to a three-year normalised free cash flow measure and 20% to a measure
of underlying revenue growth (excluding transit) over three years.
e Award granted on 18 June 2015. The number of shares subject to award was calculated
using the average middle market price of a BT share for the three days prior to grant of
449.50p. 40% of each award is linked to TSR compared with a group of 21 companies,
40% is linked to a three-year normalised free cash flow measure and 20% to a measure
of underlying revenue growth (excluding transit) over three years.
f Award granted on 20 June 2016. The number of shares subject to award was calculated
using the average middle market price of a BT share for the three days prior to grant of
403.18p. 40% of each award is linked to TSR compared with a group of 21 companies,
40% is linked to a three-year normalised free cash flow measure and 20% to a measure
of underlying revenue growth (excluding transit) over three years.
g The committee exercised its discretion and determined that no ISP would be awarded to
Gavin in respect of 2018/19.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 86
Annual remuneration report continued
Retention share plan awards at 31 March 2019 (audited)
The following RSP award was granted to Philip Jansen. This is a buy-out award to compensate Philip for the loss in shares that he forfeited
on leaving Worldpay to join BT. In accordance with our approved Remuneration Policy, the buy-out mirrors the value and terms of the
award forfeited. The shares will vest on 20 March 2020 subject to continued employment and will only vest to the extent that the forfeited
award meets the original performance targets set by Worldpay. Following the announcement that FIS will acquire Worldpay, Worldpay has
confirmed the original award will vest in full. Philip has voluntarily agreed to hold any vested shares for a further one year until 20 March
2020.
1 April
2018
Awarded
Dividends
re-invested
Vested
Lapsed
31 March 2019
Vesting date
Total number of
award shares
Price
at grant
Market
price
at vesting
Monetary
value of vested
award £000
Philip Jansen
RSP 2018
– 370,798
7,423
–
–
378,221 20/03/2020
241.6p
–
–
Share options held without performance conditons (saveshare) at 31 March 2019 (audited)
The directors exercised no saveshare options during the year. There were no vested but unexercised options at year-end.
Number of shares under option:
1 April 2018
Granted
Lapsed
Exercised
31 March 2019
Option price
per share
Market price
at date of
exercise
Usual date
from which
exercisable
Usual expiry
date
Former director
Gavin Pattersona
5,642b
–
–
–
5,642
319p
–
01/08/2019 01/02/2020
All of the above options were granted for nil consideration.
a Gavin stood down from the Board at midnight on 31 January 2019 and the number reflects the number of shares under option at that date. The options are exercisable up to 31 July 2019.
b Option granted on 26 June 2014 under the employee sharesave scheme, in which all employees of the company are entitled to participate.
Comparison of chief executive remuneration
to total shareholder return (unaudited)
Total shareholder return (TSR) is the measure of the returns that a
company has provided for its shareholders, reflecting share price
movements and assuming reinvestment of dividends. The graph
opposite illustrates the performance of BT Group plc measured by
TSR relative to a broad equity market index over the past ten years.
We consider the FTSE 100 to be the most appropriate index against
which to measure performance, as BT has been a member of the
FTSE 100 throughout the nine-year period, and the index is
widely-used.
BT’s TSR performance vs the FTSE 100
900
800
700
600
500
400
300
200
100
0
Mar
09
Mar
10
Mar
11
Mar
12
Mar
13
Mar
14
Mar
15
Mar
16
Mar
17
Mar
18
Mar
19
BT FTSE 100
Source: Datastream
The graph shows the relative TSR performance
of BT and the FTSE 100 over the past ten years.
BT Group plcAnnual Report 2019 History of chief executive remuneration
Year end
Chief Executive
2019
Philip Jansena
2018
2017
2016b
2015
2014c
2013
2012
2011
2010
Gavin Pattersonb
Gavin Patterson
Gavin Patterson
Gavin Patterson
Gavin Patterson
Gavin Patterson
Ian Livingstond
Ian Livingston
Ian Livingston
Ian Livingston
Ian Livingston
Total rem
£000
Annual bonus
(% of max)
ISP vesting
(% of max)
725
1,719
2,307
1,345
5,396
4,562
2,901
4,236
9,402
8,520
4,009
3,556
56%
28%
54%
0%
45%
58%
62%
35%
65%
73%
79%
71%
N/A
0%
0%
0%
67.4%
78.7%
63.4%
100%
100%
0%
0%
a Philip was appointed as a director on 1 January 2019 and became chief executive from
1 February 2019. His first ISP award was made in February 2019.
b Gavin stood down as chief executive at midnight on 31 January 2019 and Philip took over
from 1 February 2019.
c The total remuneration figure includes the ISP award as CEO BT Retail and the first award
as chief executive, granted in 2013.
d Ian stepped down on 10 September 2013 and Gavin took over from that date.
Percentage change in chief executive remuneration
(unaudited)
The table below illustrates the increase in salary, benefits and
annual bonus for Gavin Patterson and Philip Jansen in the role as
chief executive and that of a representative group of the company’s
employees. For these purposes, we’ve used the UK management
and technical employee population representing around 24,607
people. We believe this broad group provides the most meaningful
comparison as they have similar performance related pay
arrangements as our executive directors.
% Change in chief executive
remuneration
% Change in comparator groupc
Salary
a
Benefits
b
Bonus
13%
2.5%
49% (27)%
0%
15%
a The increase in benefits for the chief executive was around £28,000.
b The bonus comparator is based on cash bonus only to give a better like-for-like comparison.
c Comparator group is the UK management and technical employee population representing
around 24,607 individuals.
87
A significant proportion of the chief executive’s remuneration is
delivered through long term incentives, where awards are linked to
company performance and share price movements over the longer
term. This means that the ratios will depend significantly on long-
term incentive outcomes and may fluctuate from year to year. None
of the employees in the previous table participated in long-term
incentive plans.
82.01%
Chief executive base pay
P25 employee base pay
P50 employee base pay
P75 employee base pay
P25 employee base pay ratio
P50 employee base pay ratio
P75 employee base pay ratio
£1,122,000
£30,090
£35,918
£41,740
37 : 1
31 : 1
27 : 1
Methodology
We have used ‘Option B’ (based on gender pay reporting).
The P25, P50 and P75 employees were identified from the
company’s gender pay report, together with the 80 employees
below and above each of the ‘P’ points to form enlarged groups.
This was to guard against volatility in the underlying data.
The total FTE remuneration of each employee in each of the groups
was calculated for the year ended 31 March 2019.
A median total remuneration figure for each ‘P’ group was
calculated, to produce a more representative result than relying on
a single employee from the company’s gender pay reporting.
Relative importance of spend on pay (unaudited)
The table below shows the change in total remuneration paid to all
employees and dividends paid and share buyback paid.
Area
2018/19 (£m)
2017/18 (£m)
% change
Remuneration paid to
all employees
Dividends/share buybacks
5,382
1,513
5,400
1,746
(0.3)%
(13.3)%
Implementation of remuneration
policy in 2019/20 (unaudited)
Chief executive pay ratio
The table below sets out the chief executive pay ratio as at
31 March 2019. The report will build up over time to show a rolling
10-year period.
Base salary
The committee considered the base salary for Simon Lowth. In line
with the increases agreed for our managerial employees, we agreed
a 2.5% salary increase effective in June 2019.
The ratios compare the single total figure of remuneration of the
chief executive with the equivalent figures for the lower quartile
(P25), median (P50) and upper quartile (P75) employees.
Philip Jansen’s base salary of £1,100,000 was agreed on
appointment and is fixed for five years. Therefore no increase will
be applied in 2019/20.
Chief executive remuneration
P25 employee remuneration
P50 employee remuneration
P75 employee remuneration
P25 employee pay ratio
P50 employee pay ratio
P75 employee pay ratio
Philip Jansena
Simon Lowth
2019/20
Base salary
% change
£1,100,000
£735,438
0%
2.5%
a Philip was appointed as a director on 1 January 2019 and became chief executive on
1 February 2019. His base salary is fixed for five years.
£2,444,000
£34,281
£41,477
£51,594
71 : 1
59 : 1
47 : 1
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 88
Annual remuneration report continued
Benefits
The committee has set benefits in line with the Remuneration
Policy. We propose no changes to the benefit framework for
2019/20.
Pension
The table below sets out the level of pension provision for 2019/20
for both executive directors. As a new joiner, Philip’s pension
provision is in line with that of the wider management population in
the UK. We will review the pension provision for existing executive
directors in advance of our 2020 Remuneration Policy review.
% of salary
Philip Jansen
Simon Lowth
15% of salary in lieu of pension provision
30% of salary in lieu of pension provision
Annual bonus
The table below describes the level of bonus opportunity (expressed
as a percentage of salary) for Philip Jansen and Simon Lowth in
2019/20. One third of any bonus will be deferred into shares for a
period of three years.
Philip Jansen
%
0
Target
Maximum
Simon Lowth
%
0
Target
Maximum
50
100
150
200
250
80%
40%
160%
80%
50
100
150
200
250
80%
40%
120%
60%
(cid:31) Cash (cid:31) Deferred shares
The 2019/20 annual bonus structure and weighting is set
out below.
Chief executive and chief financial officer
Chief executive and chief financial officer
1. Adjusted earnings per share 25%
2. Normalised free cash flow 25%
20%
3. Customer experience
20%
4. Strategic objectives
5. Revenue (including transit) 10%
5
4
3
1
2
Adjusted earnings per share, normalised free cash flow, and
revenue (including transit) have a direct impact on shareholder
value. Customer experience (measured through Customer
Perception and Keeping Our Promises) is vital to the company’s
long-term health and growth. All four of these measures are KPIs
for BT and are defined on pages 30 to 31.
We do not publish details of the financial targets in advance as these
are commercially confidential. We will publish achievement against
these targets at the same time as we disclose bonus payments in the
2020 Directors’ Remuneration Report so shareholders can evaluate
performance against those targets.
The strategic objectives are aligned to our strategy and are assessed by
the chairman for the chief executive and by the chief executive for the
chief financial officer and each senior executive. Performance against
the strategic objectives element is assessed individually and is based
on achievement against individual objectives, organisational culture
and growth measures.
Incentive share plan
Recognising the need to ensure that our remuneration arrangements
support the delivery of BT’s strategy under Philip’s stewardship, at
the time of going to print the ISP 2019 targets had not been set
by the committee. Full details of the performance measures will be
disclosed in advance of the AGM in July so that shareholders have a
full understanding when voting.
Chairman and non-executive director remuneration
The fees for non-executive directors were reviewed during the year.
The last review of non-executive director fees was in January 2018.
In accordance with the Articles of Association, the chairman and
executive directors conducted the review, and considered the role
and requirements of BT, together with the fees paid to non-executive
directors at companies of a similar size and complexity. Following
the review, it was agreed to increase the basic non-executive fee to
£77,000 per year (from £75,000) from 1 June 2019. Other changes
agreed as part of the review were:
• An increase to £8,000 (from £5,000) for membership of the
Digital Impact & Sustainability Committee (formerly named the
Committee for Sustainable and Responsible Business) and an
increase to £14,000 (from £12,000) for the Digital Impact &
Sustainability Committee chair
• An increase to £30,000 (from £28,000) for the Remuneration
Committee chair
• A fee of £8,000 for membership of the Investigatory Powers
Governance Committee
• An increase to £5,000 (from £4,000) for the fee paid per trip to
those non-executive directors travelling on an intercontinental
basis to Board and board committee meetings.
These increases reflect the responsibilities of the roles and ensures we
remain competitive in the marketplace and are able to recruit directors
with international telecoms experience where required.
BT Group plcAnnual Report 2019 The BT Pensions and Technology Committees were disbanded on
3 April 2019. See page 67 for further detail.
The table below sets out the fees for membership of, or chairing a
board committee (including the changes agreed during the year):
Committee
Audit & Risk
BT Compliancea
Digital Impact & Sustainability
Investigatory Powers Governance
Nominations
Remuneration
Chair’s fee
Member’s fee
£35,000
£ 25,000
£14,000
n/ab
n/ab
£30,000
£25,000
£12,000
£8,000
£8,000
£10,000
£15,000
a A sub-committee of the Audit & Risk Committee.
b Where the chairman or chief executive acts as chair of a board committee, no additional
committee chair fee is payable.
The senior independent director receives an additional fee of £27,000
a year for that position.
No element of non-executive director remuneration is performance-
related. Non-executive directors do not participate in BT’s bonus or
employee share plans and are not members of any of the company
pension schemes.
No review of the chairman’s fee was undertaken. The committee
agreed a five year fixed fee of £700,000 per year, on Jan du Plessis’s
appointment as chairman in November 2017.
Other remuneration matters
Advisers
During the year, the committee received independent advice on
executive remuneration matters from Deloitte LLP. Deloitte received
£204,295 in fees for these services. The fees are charged on a
time-spent basis in delivering advice. That advice materially assisted
the committee in their consideration of matters relating to executive
remuneration.
Deloitte is a founder member of the Remuneration Consultants
Group and as such, voluntarily operates under the code of conduct
in relation to executive remuneration consulting in the UK. The
committee appointed Deloitte to the role of independent advisers
to the committee in 2012 following a competitive tender exercise
conducted by the committee.
The committee is comfortable that the Deloitte engagement partner
and team, who provide remuneration advice to the committee,
have no connections with BT that may impair their independence
or objectivity.
In addition, during 2018/19, Deloitte provided the company with
advice on corporate and indirect taxes, assistance with regulatory,
risk and compliance issues and additional consultancy services.
89
Dilution
For a number of years we generally used treasury shares to satisfy
the exercise of share options and the vesting of share awards under
our employee share plans. We intend to use both treasury shares and
shares purchased by the BT Group Employee Share Ownership Trust
(the Trust) for share option exercises, and shares purchased by the
Trust for the vesting of executive share awards in 2019/20. Shares
held in the Trust do not have any voting rights.
At the end of 2018/19, shares equivalent to 2.83% (2017/18:
1.76%) of the issued share capital (excluding treasury shares) would
be required for all share options and awards outstanding.
Of these, we estimate that for 2019/20, shares equivalent to
approximately 0.39% (2018/19: 0.28%) of the issued share capital
(excluding treasury shares) will be required for the all-employee
share plans.
Outside appointments
The Nominations Committee determines the policy for, considers,
and if thought fit agrees the taking up of external directorships and
other external interests by members of the Executive Committee, and
other senior direct reports to the chief executive. In accordance with
the new Code for the financial year 2019/20 onwards, directors must
seek prior approval of the Board before accepting additional external
appointments.
Gavin Patterson is a non-executive director of British Airways for
which he receives an annual fee of £50,000 and the benefit of free
BA flights.
Voting at the 2018 Annual General Meeting
The table below sets out the votes cast in respect of the Annual
Remuneration Report at the Annual General Meeting held on
11 July 2018.
Votes cast in
favour
% Votes cast against
%
Approve Annual
Remuneration
Report
4,419,598,193
65.84
2,292,952,264
34.16
235,781,388 votes were withheld against approving the Annual
Remuneration Report. Withheld votes are not counted when
calculating voting outcomes. We set out details of our response in the
remuneration committee chair's letter on pages 73 to 75.
Committee evaluation 2018/19
We carried out an internal evaluation led by the chairman and
company secretary. This entailed questionnaires completed by
committee members and attendees; the output of which was
discussed and debated by the committee.
Key area of focus
Suggested actions
Incentive and reward
structure
Target setting
• Review the structure of executive
incentives and reward, in the
context of the strategy refresh
and the new chief executive’s
priorities.
• Ensure that when setting targets
they are appropriately stretching.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 90
Annual remuneration report continued
Independent non-executive directors’ letters of appointment
Each independent non-executive director has an appointment
letter setting out the terms of his or her appointment. They do
not have service contracts. The letter includes membership of any
board committees, the fees to be paid and the time commitment
expected. We ask each non-executive director to allow a minimum
commitment of 22 days each year, subject to committee
responsibilities, and to allow slightly more in the first year in
order to take part in the induction programme. The actual time
commitment required in any year may vary depending on business.
We make clear that additional time may be required during periods
of increased activity.
Appointments are for an initial period of three years. During that
period, either party can give the other at least three months’ notice
of termination. All Board appointments automatically terminate
in the event of a director not being elected or re-elected by
shareholders at the Annual General Meeting. The appointment of
a non-executive director is terminable on notice by the company
without compensation. At the end of the period, the appointment
may be continued by mutual agreement. The appointment letter
also covers matters such as confidentiality, data protection and BT’s
share dealing code.
See below for further details of appointment arrangements for
independent non-executive directors.
Tim Höttges was appointed as a non-independent, non-executive
director in January 2016 following Deutsche Telekom’s nomination,
and his appointment letter reflects the terms of the Relationship
Agreement between BT and Deutsche Telekom.
Directors’ service agreements and letters of appointment
The following table sets out the dates on which directors’ service agreements/initial letters of appointment commenced and the current expiry dates:
Chairman and executive directors
Commencement date Expiry date of current service agreement or letter of appointment
Jan du Plessis
1 June 2017
Terminable by the company on 12 months’ notice and by the director on six months’ notice.
Philip Jansen
1 January 2019
Terminable by the company on 12 months’ notice and by the director on six months’ notice.
Simon Lowth
6 July 2016
Terminable by the company on 12 months’ notice and by the director on six months’ notice.
Non-executive directors
Commencement date
Expiry date of current service agreement or letter of appointment
Iain Conn
1 June 2014
Letter of appointment was for an initial period of three years. The appointment was extended for a further three
years in May 2017.
Tim Höttges
29 January 2016
Appointed as a non-independent, non-executive director under the terms of the Relationship Agreement between
BT and Deutsche Telekom. The appointment is terminable immediately by either party.
Isabel Hudson
1 November 2014
Letter of appointment was for an initial period of three years. The appointment was extended for a further three
years in October 2017.
Mike Inglis
1 September 2015
Letter of appointment was for an initial period of three years. The appointment was extended for a further three
years in August 2018.
Matthew Key
25 October 2018
Letter of appointment is for an initial period of three years.
Allison Kirkby
15 March 2019
Letter of appointment is for an initial period of three years.
Nick Rose
1 January 2011
Letter of appointment was for an initial period of three years. The appointment was extended for a further three
years in December 2016 following extension in 2013.
Jasmine Whitbread 19 January 2011
Letter of appointment was for an initial period of three years. The appointment was extended for a further three
years in December 2016 following extension in 2013.
There are no other service agreements, letters of appointment or material contracts, existing or proposed, between the company and any
of the directors. There are no arrangements or understandings between any director or executive officer and any other person pursuant to
which any director or executive officer was selected to serve. There are no family relationships between the directors.
Inspection by the public
The service agreements and letters of appointment are available for inspection by the public at BT’s registered office. They will also be
available for inspection commencing one hour prior to the start of our AGM, to be held in London on 10 July 2019.
Nick Rose
Chair of the Remuneration Committee
8 May 2019
BT Group plcAnnual Report 2019 91
Remuneration policy
The directors’ remuneration policy (the ‘Policy’) which was
approved by shareholders at the AGM on 12 July 2017 in
accordance with section 439A of the Companies Act 2006,
can be found online at bt.com/downloadcentre
Legacy matters
The committee reserves the right to make any remuneration
payments and/or payments for loss of office (including exercising
any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the Policy where
the terms of the payment were agreed (i) before the AGM in 2014
(the date the company’s first shareholder-approved directors’
remuneration policy came into effect); (ii) before this Policy came
into effect, provided that the terms of the payment were consistent
with the shareholder-approved directors’ remuneration policy
in force at the time they were agreed; or (iii) at a time when the
relevant individual was not a director of the company and, in the
opinion of the committee, the payment was not in consideration
for the individual becoming a director of the company. For these
purposes “payments” includes the committee satisfying awards
of variable remuneration and, in relation to an award over shares,
the terms of the payment are “agreed” at the time the award is
granted. Any legacy payments would be disclosed in the Annual
Remuneration Report for the relevant year.
Minor amendments
The committee may make minor amendments to the arrangements
for the directors as described in the Policy, for regulatory, exchange
control, tax or administrative purposes, or to take account of a
change in legislation.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 92
Directors’ information
Statement of directors’ responsibilities in respect
of the annual report and the financial statements
The directors are responsible for preparing the Annual Report and
the Group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements
in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and
applicable law and have elected to prepare the parent company
financial statements on the same basis.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and parent company
and of their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the directors are
required to:
• select suitable accounting policies and then apply them
consistently
• make judgements and estimates that are reasonable, relevant
and reliable
• state whether they have been prepared in accordance with IFRSs
as adopted by the EU
• assess the Group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern
• use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy at
any time the financial position of the parent company and enable
them to ensure that its financial statements comply with the
Companies Act 2006 (the 2006 Act). They are responsible for
such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Responsibility statement of the directors in respect
of the annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of
the company and the undertakings included in the consolidation
taken as a whole
• the strategic report includes a fair review of the development
and performance of the business and the position of the issuer
and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the group’s position and
performance, business model and strategy.
Critical accounting estimates, key judgements
and significant accounting policies
Our critical accounting estimates, key judgements and significant
accounting policies conform with IFRSs, as adopted by the
European Union and IFRSs issued by IASB, and are set out on
pages 120 and 121 of the consolidated financial statements. The
directors have reviewed these policies and applicable estimation
techniques, and have confirmed they are appropriate for the
preparation of the 2018/19 consolidated financial statements.
Disclosure of information to auditors
As far as each of the directors is aware, there is no relevant audit
information (as defined by section 418(3) of the 2006 Act) that
hasn’t been disclosed to the auditors. Each of the directors believes
that all steps have been taken that ought to have been taken to
make them aware of any relevant audit information and to establish
that the auditors have been made aware of that information.
Going concern
The Strategic report on pages 1 to 54 includes information on the
group structure, strategy and business model, the performance
of each customer-facing unit, the impact of regulation and
competition, and principal risks and uncertainties. The Group
performance section on pages 34 to 41 includes information
on our group financial results, financial outlook, cash flow and
net debt, and balance sheet position. Notes 23, 24, 25 and 27
of the consolidated financial statements include information on
the group’s investments, cash and cash equivalents, borrowings,
derivatives, financial risk management objectives, hedging policies
and exposure to interest, foreign exchange, credit, liquidity and
market risks.
In line with IAS 1 ‘Presentation of financial statements’, and revised
FRC guidance on ‘risk management, internal control and related
financial and business reporting’, management has taken into
account all available information about the future for a period of
at least, but not limited to, 12 months from the date of approval
of the financial statements when assessing the group’s ability to
continue as a going concern.
BT Group plcAnnual Report 2019 93
The directors carried out a robust assessment of the principal risks
affecting the group, including any that could threaten our business
model, future performance, insolvency or liquidity. Details of those
risks and how we manage and mitigate them are set out in Our
principal risks and uncertainties on pages 46 to 53.
Interest of management in certain transactions
During and at the end of 2018/19, none of BT’s directors were
materially interested in any material transaction in relation to the
group’s business. None are materially interested in any currently
proposed material transactions.
As set out below, Tim Höttges is a member of the Board as well as
the CEO of Deutsche Telekom.
Power to authorise conflicts
All directors have a duty under the 2006 Act to avoid a situation
in which he or she has, or can have, a direct or indirect interest
that conflicts, or possibly may conflict, with the interests of the
company. The company’s Articles of Association include provisions
for dealing with directors’ conflicts of interest in accordance with
the 2006 Act. The company has procedures in place, which it
follows, to deal with such situations. These require the Board to:
• consider each conflict situation separately on its particular facts
• consider the conflict situation in conjunction with its other duties
under the 2006 Act
• keep records and board minutes on any authorisations granted
by directors and the scope of any approvals given
• regularly review conflict authorisation.
We also have a Conflicted Matters Committee. Tim Höttges owes
duties to both BT and Deutsche Telekom, and the Conflicted
Matters Committee helps Tim comply with his fiduciary duties,
although ultimate responsibility rests with him.
Having assessed the principal risks, the directors considered it
appropriate to adopt the going concern basis of accounting when
preparing the financial statements. This assessment covers the
period to May 2020, which is consistent with the FRC guidance.
Independent advice
The Board has a procedure that allows directors to seek
independent professional advice at BT’s expense.
All directors also have access to the advice and services of the
company secretary.
Directors’ and officers’ liability insurance
and indemnity
For some years, BT has bought insurance cover for directors,
officers and employees in positions of managerial supervision
of BT Group plc and its subsidiaries. This is intended to protect
against defence costs, civil damages and, in some circumstances,
civil fines and penalties following an action brought against
them in their personal capacity. The policy also covers individuals
serving as directors of other companies or of joint ventures, or
on boards of trade associations or charitable organisations at BT’s
request. The insurance protects the directors and officers directly
in circumstances where, by law, BT cannot provide an indemnity. It
also provides BT, subject to a retention, with cover against the cost
of indemnifying a director or officer. One layer of insurance is ring-
fenced for the directors of BT Group plc.
As at 8 May 2019, and throughout 2018/19, the company’s
wholly-owned subsidiary, British Telecommunications plc, has
provided an indemnity for a group of people similar to the group
covered by the above insurance. Neither the insurance nor the
indemnity provides cover where the individual is proven to have
acted fraudulently or dishonestly.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 94
General information
US regulation
New York Stock Exchange
As a foreign issuer with American Depositary Shares listed on the
New York Stock Exchange (NYSE), BT is obliged to disclose any
significant ways in which its corporate governance practices differ
from the corporate governance listing standards of the NYSE.
We have reviewed the NYSE listing standards and believe that our
corporate governance practices are consistent with them, with the
following exceptions which do not meet the strict requirements in
the standards.
The NYSE listing standards state that companies must have a
nominating/corporate governance committee composed entirely
of independent directors and with written terms of reference
which, in addition to identifying individuals qualified to become
board members, develops and recommends to the Board a set of
corporate governance principles applicable to the company.
We have a Nominations Committee (see Nominations Committee
chair’s report on pages 66 to 68). The Nominations Committee’s
terms of reference were amended in 2019 such that it will
not ‘‘develop and recommend to the Board a set of corporate
governance guidelines applicable to the corporation’’. These
duties will be discharged by the Board, in compliance with the
rules and regulations of BT’s home country of England & Wales.
This is, however, a technical non-compliance with the NYSE
listing standards. The Nominations Committee is chaired by BT’s
chairman, Jan du Plessis who is not considered independent under
the NYSE listing standards. Tim Höttges, our non-independent,
non-executive director, joined the committee on 1 May 2018. The
Board and the Nominations Committee are made up of a majority
of independent non-executive directors.
The US Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the US
Securities and Exchange Commission (SEC) and the NYSE listing
standards all require companies to comply with certain provisions
relating to their audit committee. These include the independence
of audit committee members and procedures for the treatment of
complaints regarding accounting or auditing matters. We comply
fully with these requirements.
US Sarbanes-Oxley Act of 2002
BT has securities registered with the SEC. As a result, we must
comply with those provisions of the Sarbanes-Oxley Act which
apply to foreign issuers. We comply with the legal and regulatory
requirements introduced under the Sarbanes-Oxley Act, in so far as
they apply.
The code of ethics we have adopted for the purposes of the
Sarbanes-Oxley Act applies to the chief executive, chief financial
officer and senior finance managers.
Controls and procedures
Prior year material weakness
Background to the prior year material weakness in relation to
the calculation of our IAS19 accounting valuation of retirement
benefit obligations
In July 2018, we announced that we had been alerted to an
error made by our independent external actuary in the actuary’s
calculation of our IAS 19 accounting valuation of retirement
benefit obligations at 31 March 2018. Our independent external
actuary is employed as an expert to calculate the IAS 19 accounting
valuation on behalf of management. The error resulted from the
incorrect application of changes to demographic assumptions and
led to an increase in our net pension deficit of £0.4bn at 31 March
2018. Management determined that the error was material with
respect to our group statement of comprehensive income and
required the group to restate its previously issued consolidated
financial statements for the year ended 31 March 2018. The
group restated its comparative balance sheet and statement of
comprehensive income in the next published financial report at
Q2 2018/19. The restated figures can also be found on page 119.
Also, in accordance with US financial reporting requirements, we
filed restated financial statements as amendment 2 to our Form
20-F for the year ended 31 March 2018 on 20 September 2018.
We reassessed the effectiveness of the company’s internal control
over financial reporting as of 31 March 2018 following the
identification of this error. A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our consolidated financial statements will not be
prevented or detected on a timely basis.
Management determined that, whilst there was a failure in the
operation of controls at our independent external actuary (acting
on behalf of management as an expert), our monitoring control did
not identify the failure.
This monitoring control failure resulted in a material misstatement
of the account balances and disclosures relating to our retirement
benefit obligations in our annual consolidated financial statements
that was not prevented or detected. Accordingly, management
determined that this control deficiency constituted a material
weakness which was reported in the amendment 2 to our 20-F for
the year ended 31 March 2018.
The Audit & Risk Committee includes Nick Rose, Allison Kirkby
and Matthew Key who, in the opinion of the Board, are ‘audit
committee financial experts’ and are independent (as defined for
this purpose). The Board considers that the committee’s members
have broad commercial knowledge and extensive business
leadership experience, having held between them various prior
roles in major business, financial management, and financial
function supervision and that this constitutes a broad and suitable
mix of business and financial experience on the committee.
Remediation of material weakness in relation to the calculation of
our IAS19 accounting valuation of retirement benefit obligations
During the year, management has undertaken a number of actions
to strengthen our internal control over our oversight procedures
in respect of this and have enhanced controls in operation as of
31 March 2019, which will continue to operate going forwards.
Specifically:
• obtaining independent confirmation of the operation of controls
within our independent external actuary
BT Group plcAnnual Report 2019
95
• increased provision of documentation from our independent
external actuary to allow us to verify changes to data and
demographic assumptions
While management has commenced the implementation of
its remediation plans, these material weaknesses existed as of
31 March 2019.
• the certification to us of independent checks of changes to
non-financial assumptions performed within our independent
external actuary
• utilising this additional information to enhance and remediate
our monitoring control.
These enhanced controls operated as of 31 March 2019 and
management has concluded the previously reported material
weakness has been appropriately remediated.
Management’s report on internal control over financial reporting
as of 31 March 2019
Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the group.
Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for
external reporting purposes in accordance with IFRS as issued by
the IASB and IFRS as adopted by the EU.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore
even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may
deteriorate.
Management conducted an assessment of the effectiveness of
our internal control over financial reporting as of 31 March 2019
based on the criteria established in “Internal Control – Integrated
Framework” (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
While we are satisfied that we have remediated the material
weakness reported in 2018 in respect of our IAS19 accounting
valuation of retirement benefit obligations, described above,
management has concluded that our internal control over financial
reporting was not effective as of 31 March 2019 due to the
material weaknesses in relation to IT General Controls and Risk
Assessment, described below.
In 2018/19 management undertook a continuous improvement
and enhancement programme in relation to its framework of
internal control over financial reporting. This programme identified
two areas requiring remediation, specifically, IT General Controls
and Risk Assessment.
Although this did not result in any identified misstatements in
the current period consolidated financial statements, nor in any
restatements of consolidated financial statements previously
reported by the company, and there are no changes to previously
released financial results as a result of these matters, it created a
reasonable possibility that a material misstatement would not have
been prevented or detected on a timely basis during the year ended
31 March 2019.
Material weaknesses in IT General Controls and Risk Assessment
Background to IT General Controls
We did not design and maintain effective controls over certain
information systems that are relevant to the preparation of
our consolidated financial statements, principally including the
following deficiencies:
• During the year, additional IT applications were brought into
the scope of management’s framework of internal control over
financial reporting. These additional IT applications were not
identified for inclusion in the scope of management’s framework
of internal control over financial reporting by our risk assessment
procedures with sufficient time to allow the IT General
Controls supporting these additional applications to operate in
accordance with COSO 2013.
• Within EE, SAP privileged user access was granted for short
periods of time during the year ended 31 March 2019 related
to development activity but logs of activity free from potential
manipulation by these users were not retained and changes
implemented by privileged users were not directly monitored.
• While management have a process in place to approve changes
to IT dependent business process controls, this process did not
ensure that all changes during the year ended 31 March 2019
received an appropriate level of approval testing.
Other deficiencies that management has identified in relation to
IT General Controls include: the strength of passwords in legacy
systems and an inappropriate policy related to the timely removal
of application access for leavers.
Although these control deficiencies did not result in a misstatement
in our consolidated financial statements the pervasive nature of
these IT General Control deficiencies across our significant classes
of transactions, including the consequential potential impact on
automated controls and dependent manual business controls, has
led management to conclude that a reasonable possibility of a
material misstatement related to these IT General Controls existed
as of 31 March 2019. While remediation activities related to the
above IT General Control deficiencies commenced during the year
ended 31 March 2019, management concluded that these were
not fully remediated as of 31 March 2019.
Background to Risk Assessment
Secondly, we identified aspects of our risk assessment processes
requiring remediation. Specifically:
• Management have not appropriately addressed the risks of
material misstatement associated with certain outsourced
service organisations, including pension asset valuation services
and a significant IT outsourced provider.
• Exceptions were noted during our enhancement programme
and subsequent management testing that indicated that
certain ‘Information Produced by the Entity’ (being information
presented in reports used in the operation of a control) was
not itself subject to sufficient controls to ensure that such
information was complete and accurate.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 96
General information continued
• Additionally, we identified sub-processes with inadequate
identification and linkage between risk points and their related
controls including management review controls.
Although these control deficiencies did not result in a misstatement
in our consolidated financial statements, as a result of the
potentially pervasive impact of these deficiencies on our financial
statement accounts, we have concluded that there is a reasonable
possibility of material misstatements arising. While remediation
activities related to the above issues commenced during the year
ended 31 March 2019, management concluded that these issues
were not remediated as of 31 March 2019.
Audit of the effectiveness of internal control over
financial reporting
Our independent registered public accounting firm, KPMG LLP,
who audited the consolidated financial statements included within
the Form 20-F, has expressed an adverse report on the design
and operating effectiveness of our internal control over financial
reporting, as stated in their report as of 31 March 2019, which is
included within the Form 20-F.
Changes in internal control over financial reporting
Changes in our internal control over financial reporting that
occurred during 2018/19, which have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting are described above under Remediation of
material weakness in relation to the calculation of our IAS19
accounting valuation of retirement benefit obligations, on
page 94, and in relation to the material weaknesses described
under Material weaknesses in IT General Controls and Risk
Assessment and related remediation thereof as described therein.
To the extent not yet implemented, other changes described
under Remediation of IT General Controls and Remediation of
Risk Assessment are expected to impact our internal control over
financial reporting during 2019/2020.
Disclosure controls and procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934 (Exchange Act), and
the rules and regulations thereunder, is recorded, processed,
summarised and reported within the time periods specified in the
SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our chief executive
and chief financial officer to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognises that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgement and makes
assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote.
that information required to be disclosed by us in the reports that
we file or furnish under the Exchange Act is recorded, processed,
summarised and reported, within the time periods specified in the
applicable rules and forms.
Remediation of the Material weaknesses in IT General Controls
and Risk Assessment
Remediation of IT General Controls
A programme has been operating since the beginning of the fourth
quarter of 2018/19 to implement controls over the additionally
identified applications to the required standard. We have detailed
remediation plans for the other specific items identified which we
intend to complete in our financial year 2019/20.
Remediation of Risk Assessment
A programme has been operating since the beginning of the
fourth quarter of 2018/19 to document the mapping of risks in
outsourced service organisations, to support the identification and
testing of the completeness and accuracy of certain Information
Produced by the Entity and to continue to document the
identification and linkage between risk points and their related
controls. It is intended that this will be completed in our financial
year 2019/20.
UK internal control and risk management
The Board is responsible for the group’s systems of internal control,
risk management and assurance and for reviewing the effectiveness
of those systems each year. These systems are designed to manage,
rather than eliminate, risks we face that may prevent us achieving
our business objectives; any system can provide only reasonable,
and not absolute, assurance against material misstatement or loss.
For details of our assessment of our internal controls for the
purposes of the Sarbanes-Oxley Act, see US Regulation on
page 94. The Board also takes account of significant social,
environmental and ethical matters that relate to BT’s businesses,
and reviews BT’s corporate responsibility policy every year. We
describe our workplace practices, specific environmental, social
and ethical risks and opportunities, and details of underlying
governance processes on pages 1 to 54 in the Strategic report.
We have enterprise-wide risk management processes for
identifying, evaluating and managing the principal risks faced by
the group. These processes have been in place throughout the year
and have continued up to the date on which this document was
approved. The processes are in accordance with the FRC guidance
on risk management, internal control and related financial and
business reporting.
Risk assessment and evaluation are an integral part of BT’s annual
strategic review cycle. We have a detailed risk management process
which identifies the key risks facing the group, our customer-facing
units and Technology.
We have evaluated the effectiveness of our disclosure controls and
procedures. Based upon that evaluation, our chief executive and
chief financial officer concluded that, as a result of the material
weaknesses in relation to IT General Controls and Risk Assessment
described above, as of 31 March 2019, our disclosure controls
and procedures were not effective to provide reasonable assurance
The key features of our enterprise-wide risk management and
internal control process (covering financial, operational and
compliance controls) are as follows:
• senior executives collectively review the group’s key risks, and
have created a Group Risk Register describing the risks, their
owners and associated mitigation strategies. The Group Risk
BT Group plcAnnual Report 2019 97
Panel and the Executive Committee reviews this before it’s
reviewed and approved by the Board
• our customer-facing units and Technology carry out risk
assessments of their operations, create risk registers relating to
those operations and ensure that the key risks are addressed
• senior executives with responsibility for major group operations
report quarterly on their opinion on the effectiveness of the
operation of internal controls in their areas of responsibility
• the group’s internal auditors carry out ongoing assessments
of the quality of risk management and control, report to
management and the Audit & Risk Committee on the status of
specific areas identified for improvement, and promote effective
risk management in customer-facing units and Technology
• the Audit & Risk Committee, on behalf of the Board, considers
the effectiveness of the group’s internal control procedures
during the financial year. It reviews reports from the internal
and external auditors, and reports its conclusions to the Board.
The Audit & Risk Committee has carried out these actions for
2018/19
• the Audit & Risk Committee, on behalf of the Board, reviews
the effectiveness of risk management arrangements across the
group. In support of this, the chief executive and the CEOs of
each customer-facing unit and Technology or their delegates
hold an annual review meeting.
We have not included joint ventures and associates, which BT does
not control, as part of the group risk management process. Third
parties we enter into joint ventures with are responsible for their
own internal control assessment.
We have set out our significant accounting policies on pages 120 to
121. The consistent application of those policies is subject to on-
going verification through management review and independent
review by internal and external auditors.
The processes supporting the preparation and consolidation of the
financial statements have been documented and are subject to
annual verification through the programme of testing completed
by our internal auditors. This serves to confirm the operation of
internal controls over financial reporting, as well as compliance
with the Sarbanes-Oxley Act. The Audit & Risk Committee reviews
BT’s published financial results, related disclosures and accounting
judgements. The committee’s activities for 2018/19 are set out on
pages 69 to 72.
Capital management and funding policy
The objective of our capital management policy is to target an
overall level of debt consistent with our credit rating objectives,
while investing in the business, supporting the pension fund and
paying dividends.
The Board reviews the group’s capital structure regularly.
Management proposes actions which reflect the group’s investment
plans and risk characteristics, as well as the macro-economic
conditions in which we operate.
Our funding policy is to raise and invest funds centrally to meet the
group’s anticipated requirements. We use a combination of capital
market bond issuance, commercial paper borrowing and committed
borrowing facilities to fund the group. When issuing debt, in order
to avoid refinancing risk, group treasury will take into consideration
the maturity profile of the group’s debt portfolio as well as forecast
cash flows.
See note 27 to the consolidated financial statements for details of
our treasury policy.
Financial instruments
Details of the group’s financial risk management objectives, policies
of the group and exposure to interest risk, credit risk, liquidity risk
and foreign exchange are given in note 27 to the consolidated
financial statements.
Credit risk management policy
We take proactive steps to minimise the impact of adverse market
conditions on our financial instruments. In managing investments
and derivative financial instruments, the group’s central treasury
function monitors the credit quality across treasury counterparties
and actively manages any exposures that arise. Management within
the business units also actively monitors any exposures arising from
trading balances.
Off-balance sheet arrangements
Other than the financial commitments and contingent liabilities
disclosed in note 30 to the consolidated financial statements,
there are no off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on:
• our financial condition
• changes in financial condition
• revenues or expenses
• results of operations
• liquidity
• capital expenditure
• capital resources.
Legal proceedings
The group is involved in various legal proceedings, including
actual or threatened litigation and government or regulatory
investigations. For further details of legal and regulatory
proceedings to which the group is party please see note 30 to the
consolidated financial statements on pages 171 to 172.
Apart from the information disclosed in note 30 to the consolidated
financial statements, the group does not currently believe
that there are any legal proceedings, government or regulatory
investigations that may have a material adverse impact on the
operations or financial condition of the group. In respect of each
of the claims described in note 30, the nature and progression of
such proceedings and investigations can make it difficult to predict
the impact they will have on the group. Many factors prevent us
from making these assessments with certainty, including that the
proceedings or investigations are in early stages, no damages or
remedies have been specified, and/or the frequently slow pace of
litigation.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 98
General information continued
Other information - Listing Rules
For the purposes of LR 9.8.4CR, the information required to be
disclosed by LR 9.8.4R is on the following pages:
Section Information
(1)
Interest capitalised
Page
Not material
for the group
The Trustee of the BT Group Employee Share Investment Plan
may invite participants, on whose behalf it holds shares, to direct
it how to vote in respect of those shares. If there is an offer for
the shares or other transaction that would lead to a change of
control of BT, participants may direct the Trustee to accept the
offer or agree to the transaction. In respect of shares held in the
BT Group Employee Share Ownership Trust, the Trustee abstains
from voting those shares
Publication of unaudited financial information
Not applicable
• if there is an offer for the shares, the Trustee does not have to
(2)
(4)
Details of unusual long-term incentive schemes
86
(5) Waiver of emoluments by a director
Not applicable
(6) Waiver of future emoluments by a director
Not applicable
(7)
(8)
(9)
Non pre-emptive issues of equity for cash
Not applicable
Non pre-emptive issue by a major subsidiary
undertaking
Parent participation in a placing by
a listed subsidiary
Not applicable
Not applicable
(10) Contracts of significance involving a director or
Not applicable
controlling shareholder
(11) Provision of services by a controlling shareholder
Not applicable
(12) Shareholder waiver of dividends
(13) Shareholder waiver of future dividends
See below
See below
(14) Agreements with controlling shareholders
Not applicable
In respect of LR 9.8.4R (12) and (13), the Trustee of the BT Group
Employee Share Ownership Trust agrees to waive dividends payable
on the BT shares it holds for satisfying awards under various BT
executive share plans. Under the rules of these share plans, the
dividends are reinvested in BT shares that are added to the relevant
share awards.
Other statutory information – Companies Act 2006
Certain provisions of the 2006 Act require us to make additional
disclosures. These are described on the pages listed below:
Information
Structure of BT’s share capital (including the rights
and obligations attaching to the shares)
Restrictions on the transfer of BT shares
and voting rights
Page
113 and
98 to 99
98 to 99
Significant direct or indirect shareholdings
65
Appointment and replacement of directors
Significant agreements to which BT Group plc is a
party that take effect, alter or terminate upon a
change of control following a takeover
Branches
63, 90 and
98
Not
applicable
177 to 184
The following disclosures are not covered elsewhere in this Annual
Report:
• BT has two employee share ownership trusts that hold BT shares
for satisfying awards under our various employee share plans.
accept or reject the offer but will have regard to the interests of
the participants, may consult them to obtain their views on the
offer, and may otherwise take any action with respect to the offer
it thinks fair
• no person holds securities carrying special rights with regard to
control of the company
• the registrars must receive proxy appointment and voting
instructions not less than 48 hours before a general meeting (see
also pages 98 and 99)
• any amendment of BT’s Articles of Association requires
shareholder approval in accordance with applicable legislation
• the powers of BT directors are determined by UK legislation and
the Articles of Association. The directors are authorised to issue
and allot shares, and to undertake purchases of BT shares subject
to shareholder approval at the AGM
• we have no agreements with directors providing for
compensation for loss of office or employment as a result of a
takeover. Similarly, there is no provision for this in our standard
employee contracts
• we are not aware of any agreements between shareholders
that may result in restrictions on the transfer of shares or on
voting rights.
Articles of Association
The company’s current Articles of Association were adopted
pursuant to a resolution passed at the Annual General Meeting of
the company held on 15 July 2015 and contain, amongst others,
provisions on the rights and obligations attaching to the company’s
shares. The Articles of Association may only be amended by special
resolution at a general meeting of the shareholders.
Directors’ appointment and retirement
The company’s Articles of Association regulate the appointment
and removal of directors, as does the 2006 Act and related
legislation. The Board and shareholders (by ordinary resolution)
may appoint a person who is willing to be elected as a director,
either to fill a vacancy or as an additional director. At every annual
general meeting, all directors must automatically retire. A retiring
director is eligible for re-election. In addition to any power of
removal under the 2006 Act, the shareholders can pass an ordinary
resolution to remove a director.
Share rights
(a) Voting rights
Subject to the restrictions described below, on a show of hands,
every shareholder present in person or by proxy at any general
meeting has one vote and, on a poll, every shareholder present in
person or by proxy has one vote for each share which they hold.
Voting at any meeting of shareholders is by a show of hands unless
BT Group plcAnnual Report 2019 99
to do so. Transfers of uncertificated shares must be carried out
using a relevant system (as defined in the Uncertificated Securities
Regulations 2001 (the Regulations)). The Board can refuse to
register a transfer of an uncertificated share in the circumstances
stated in the Regulations. If the Board decides not to register a
transfer of a share, the Board must notify the person to whom that
share was to be transferred giving reasons for its decision. This must
be done as soon as possible and no later than two months after the
company receives the transfer or instruction from the operator of
the relevant system.
Political donations
Our policy is that no company in the group will make contributions
in cash or in kind to any political party, whether by gift or loan.
However, the definition of political donations used in the 2006
Act is very much broader than the sense in which these words are
ordinarily used. For example, it could cover making members of
parliament and others in the political world aware of key industry
issues and matters affecting the company, enhancing their
understanding of BT.
The authority for political donations requested at the AGM is not
intended to change this policy. It will, however, ensure that the
group continues to act within the provisions of the 2006 Act
requiring companies to obtain shareholder authority before they
make donations to EU political parties and/or political organisations
as defined in the 2006 Act. During 2018/19, the company’s wholly
owned subsidiary, British Telecommunications plc, paid the costs of
attending corporate days of (i) the Conservative party conference;
(ii) the Labour party conference; and (iii) the Scottish National party
conference. These costs totalled £4,616 (2017/18: £3,829). No
company in the BT Group made any loans to any political party.
Cross reference to the Strategic report
In line with the 2006 Act, we have chosen to include the following
information in the Strategic report (required by law to be included
in the Report of the Directors):
• The final dividend proposed by the Board (page 13)
• An indication of likely future developments in the business of the
company (see the Strategic report on pages 1 to 54)
• An indication of our R&D activities (pages 12 and 19)
• Information about our people (pages 22 to 24)
• Information about greenhouse gas emissions (pages 26 and 27).
By order of the Board
Rachel Canham
Company Secretary & General Counsel, Governance
8 May 2019
a poll is demanded by the chairman of the meeting or by at least
five shareholders at the meeting who are entitled to vote (or their
proxies), or by one or more shareholders at the meeting who are
entitled to vote (or their proxies) and who have, between them, at
least 10% of the total votes of all shareholders who have the right
to vote at the meeting.
No person is, unless the Board decides otherwise, entitled to
attend or vote at any general meeting or to exercise any other right
conferred by being a shareholder if they or any person appearing to
be interested in those shares has been sent a notice under section
793 of the 2006 Act (which confers upon public companies the
power to require information with respect to interests in their
voting shares) and they or any interested person has failed to
supply the company the information requested within 14 days
after delivery of that notice. These restrictions end seven days after
the earlier of the date the shareholder complies with the request
satisfactorily or the company receives notice that there has been an
approved transfer of the shares.
Variation of rights
(b)
Whenever the share capital of the company is split into different
classes of shares, the special rights attached to any of those classes
can be varied or withdrawn either: (i) with the sanction of a special
resolution passed at a separate meeting of the holders of the shares
of that class; or (ii) with the consent in writing of the holders of at
least 75% in nominal value of the issued shares of that class. The
company can issue new shares and attach any rights and restrictions
to them, as long as this is not restricted by special rights previously
given to holders of any existing shares. Subject to this, the rights
of new shares can take priority over the rights of existing shares, or
existing shares can take priority over them, or the new shares and
the existing shares can rank equally.
(c) Changes in capital
The company may by ordinary resolution: (i) divide all or any of
its share capital into shares with a smaller nominal value; and (ii)
consolidate and divide all or part of its share capital into shares of
a larger nominal value. The company may also: (i) buy back its own
shares; and (ii) by special resolution reduce its share capital, any
capital redemption reserve and any share premium account.
Transfer of shares
Certificated shares of the company may be transferred in writing
either by an instrument of transfer in the usual standard form or
in another form approved by the Board. The transfer form must
be signed or made effective by or on behalf of the person making
the transfer. The person making the transfer will be treated as
continuing to be the holder of the shares transferred until the name
of the person to whom the shares are being transferred is entered in
the register of members of the company. The Board may refuse to
register any transfer of any share held in certificated form: (i) which
is in favour of more than four joint holders; or (ii) unless the transfer
form to be registered is properly stamped to show payment of any
applicable stamp duty and delivered to the company’s registered
office or any other place the Board decide. The transfer must have
with it: any other evidence which the Board asks for to prove that
the person wanting to make the transfer is entitled to do this; and
if the transfer form is executed by another person on behalf of the
person making the transfer, evidence of the authority of that person
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
100
BT Group plc
Annual Report 2019
Detailed analysis of our statutory accounts,
independently audited and providing in-depth
disclosure on the financial performance
and position of the group.
Financial statements
Independent auditors’ report
Group income statement
Group statement of comprehensive income
Group balance sheet
Group statement of changes in equity
Group cash flow statement
Notes to the consolidated financial statements
Basis of preparation
Prior year restatement and opening balance adjustments
Critical accounting estimates and key judgements
Significant accounting policies that apply
to the overall financial statements
Segment information
Revenue
Operating costs
Employees
Audit, audit related and other non-audit services
Specific items
Taxation
Earnings per share
Dividends
Intangible assets
Property, plant and equipment
Programme rights
Trade and other receivables
Trade and other payables
Provisions
Retirement benefit plans
Own shares
Share-based payments
Investments
Cash and cash equivalents
Loans and other borrowings
Finance expense
Financial instruments and risk management
Other reserves
Related party transactions
Financial commitments and contingent liabilities
Financial statements of BT Group plc
Related undertakings
101
110
111
112
113
114
115
119
120
121
122
125
128
129
130
130
132
135
135
136
138
141
141
143
143
145
155
155
157
159
159
163
163
170
171
171
173
177
Additional information
185
101
Independent auditors’ report
to the members of BT Group plc
Report on the audit of the financial statements
1 Our opinion is unmodified
We have audited the financial statements of BT Group plc (“the Company”) for the year ended 31 March 2019 which comprise the group
income statement, the group statement of comprehensive income, group balance sheet, group statement of changes in equity, group cash
flow statement, company balance sheet, company statement of changes in equity, and the related notes, including the accounting policies
in note 1.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 March 2019
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU);
• the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101
Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Additional opinion in relation to IFRSs as issued by the IASB
As explained in the note to the Group financial statements, the Group, in addition to complying with its legal obligation to apply IFRSs as
adopted by the EU, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).
In our opinion, the Group financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit
opinion is consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on 11 July 2018. The financial year ended 31 March 2019 is our first year as
auditor. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that
standard were provided.
Overview
Materiality: Group financial statements as a whole
£115m
4.3% of profit before tax
Coverage
97% group profit before tax
Key audit matters
• Valuation of pension scheme obligation and unquoted investments in the BT Pension Scheme (BTPS)
• Long term customer contracts in Global Services and Enterprise
• Adequacy of regulatory and litigation provisions
• Useful economic lives assigned to internally generated intangible assets
• Accuracy of revenue due to the complexity of the billing systems
• Recoverability of parent company’s investment in subsidiary and debt due from group undertakings
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion
above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those
procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the
purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that
opinion, and we do not provide a separate opinion on these matters.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 102
Valuation of pension scheme obligation and unquoted investments in the BT Pension Scheme (BTPS)
BTPS obligation £58.9 billion
Refer to page 69 Audit & Risk Committee Report, page 145 note 20 accounting policy Retirement benefits and page 145 financial
disclosures note 20 Retirement benefit plans.
The risk
Subjective estimate:
Small changes in the assumptions used to value the BTPS obligation, in particular those relating to inflation, mortality and discount rates,
can have a significant impact on the BTPS net pension deficit.
The BTPS holds plan assets for which quoted prices are not available. Significant judgement is required in determining the value of these
level 3 assets, which together represented 17% (£9.0 billion) of the total pension scheme assets held. The plan asset categories which
require significant judgement include property, private equity, infrastructure and the longevity insurance contract.
The effect of these matters is a potential range of reasonable outcomes greater than our materiality for the financial statements as a
whole. The financial statements (note 20) disclose the sensitivity of key assumptions for the obligation estimated by the Group and the
uncertainties associated with the valuation of level 3 plan assets.
Our response
For the pension scheme obligation our procedures included:
• Control design and operation: Evaluating the processes and controls over the assumptions of the BTPS obligation.
• Benchmarking assumptions: Challenging, with the support of our own actuarial specialists, the key assumptions, being the inflation,
mortality and discount rate, applied to derive the pension obligation against both internally and externally derived data.
For the level 3 plan assets our procedures included:
• Control design and operation: Evaluating the processes and controls over the valuation of the BTPS level 3 plan assets.
Our testing identified weaknesses in the design of these controls. As a result we expanded the extent of our detailed testing over and
above that originally planned.
Property/Infrastructure:
• Assessing valuer’s credentials: Evaluating the competence, capabilities and objectivity of the directors’ experts engaged to
independently value the property and infrastructure investments.
• Benchmarking assumptions: Engaging our own valuation specialist to review the 3rd party valuation reports, including benchmarking
assumptions against externally derived indices, comparable assets and market practice with focus on those which are highly sensitive in
deriving fair value. Challenging 3rd party valuation experts, through direct discussions, on the valuation methodology and key
assumptions applied, using the benchmarking noted above (property only).
• Expectation vs outcome: Performing trend analysis on key data inputs used by the 3rd party experts in determining the valuation.
(infrastructure only).
• Test of details: Agreeing key inputs in the 3rd party valuations to a sample of property lease agreements (property only).
Private Equity:
• Assessing valuer’s credentials: Evaluating the competence, capabilities and objectivity of the fund managers responsible for
overseeing the private equity funds.
• Evaluating the control environment of the funds by obtaining and analysing independently issued controls reports.
• Test of details: Obtaining third party investment manager confirmations, reading the latest audited financial statements for the
private equity funds and assessing the historical accuracy of previous valuations.
Longevity insurance contract:
• Methodology choice: Engaging our own valuation specialist to critically assess the valuation methodology with respect to the
Statement of Recommended Practice principals for longevity swap valuations.
• Benchmarking assumptions: Engaging our own valuation specialist to compare mortality, discount rate and market premium rate
assumptions against internally and externally derived data and producing a valuation range against which we compare the proposed
longevity insurance contract valuation. Challenging 3rd party valuation experts, through direct discussions, on the valuation
methodology and key assumptions applied using the benchmarking noted above.
Independent auditors’ report to the members of BT Group plc continuedReport on the audit of the financial statements continuedBT Group plcAnnual Report 2019 103
For both pension scheme obligation and level 3 plan assets our procedures included:
• Assessing transparency: Considering the adequacy of the Group’s disclosures in respect of the sensitivity of the deficit to these
assumptions. Considering the adequacy the Group’s disclosures in respect of the uncertainties associated with the valuation of
level 3 plan assets.
Our results
We consider the valuation of the BTPS obligation and unquoted investments to be acceptable.
Long-term customer contracts in Global Services and Enterprise
Refer to page 69 (Audit & Risk Committee Report), page 125 financial disclosures note 6 Revenue, page 141 financial disclosures note 17
Trade and other receivables and page 143 financial disclosures note 19 Provisions.
The risk
Subjective estimate:
The Global Services and Enterprise customer-facing units enter into long-term customer contracts, including major contracts which can
contain non-standard terms and conditions and bespoke performance obligations, including transition and transformation programmes
that are complex and require up-front investment by BT and are expected to result in cash inflows in future periods.
There is significant subjectivity in estimating the overall profit or loss that will be recognised over these contract’s terms as this is reliant on
future projections of revenues and costs. As a result, a high degree of judgement is required to determine whether contract-specific assets
are recoverable and to determine the completeness and amount of provisions against contracts projected to be loss-making.
The effect of these matters is that, as part of our risk assessment, we determined that the completeness and amount of provisions against
contracts projected to be loss-making and the recoverability of contract-specific assets has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.
31 March 2019 Sales:
The revenue recognition process for long-term contracts involves a manual process with a high volume of journals being posted throughout
the year. We have identified a significant risk of fraud in respect of the existence and amount of revenue recognition on long-term contracts
as a result of these manual journals posted to adjust the revenue recognised, as the volume and materiality of these journals posted results
in an inherent risk that revenue could be materially manipulated.
Our response
Our procedures included:
• Control design and operation: Evaluating the processes and controls over the recoverability of contract-specific assets, estimation of
provisions against contracts projected to be loss-making and fraud risk relating to long-term contract revenue recognition.
Our testing identified weaknesses in the design of these controls. As a result we expanded the extent of our detailed testing over and
above that originally planned.
For the major contracts recoverability of contract-specific assets and estimation of provisions against contracts projected to be
loss-making our procedures included:
Assessing the Directors’ process to identify contracts that have a higher risk of being loss-making, by testing a sample of inputs into
management’s high-risk model and then applying our own criteria (including quantitative and qualitative factors) to that model to select
a sample of contracts which have a higher risk of being loss-making. For the sample of higher risk contracts (which includes those with
provisions against contracts projected to be loss-making as well as others), our procedures included:
• Inquiries of contract management teams: Obtaining an understanding of the performance and status of the contracts through
discussions with contract teams including a mixture of operational and finance personnel.
• Expectation vs outcome: Challenging revenue and cost forecasts, including key assumptions such as cost savings or variations
underpinning the expected lifetime performance, by comparing future projections against past performance;
• Test of details: Obtaining the contractual agreements between BT and the customer and comparing the key obligations and
contractual clauses against the contract risk-registers.
Challenging the Company as to whether all risks had been identified and appropriately valued by comparing risk registers against
contractual obligations and benchmarking common risks across contracts
• Historical accuracy: Assessing the variances between budget and actual results in the past two years for a sample of higher risk
contracts. We used this assessment to inform our sensitivity analysis over the future cash flow projections of the contracts in our high
risk sample and incorporated the results in our challenge of the company over the key assumptions on those contracts.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 104
For the risk of fraud relating to revenue recognition process for long-term contracts our procedures included:
• Test of details: Reconciling the revenue recognised to the invoices issued during the year. Testing, on a sample basis, the year-end
balance sheet position for contract assets, contract liabilities and trade receivables back to supporting evidence.
Analysing the journal postings to revenue, investigating any unexpected pairings or unusual postings.
Our results
We consider the long-term customer contracts in Global Services and Enterprise to be acceptable.
Adequacy of regulatory and litigation provisions
Regulatory provision £182 million
Litigation provision £84 million
Refer to page 69 Audit & Risk Committee Report, and page 143 financial disclosures note 19 Provisions.
The risk
Omitted exposures:
The Group operates in a highly regulated environment and faces legal, competition and regulatory challenges which can lead to potential
claims and exposures (together ‘regulatory and litigation matters’). In certain litigation and regulatory matters significant judgement is
required to determine whether a liability or contingent liability should be recognised or disclosed, as appropriate.
Subjective estimate:
The amounts involved are potentially significant, and the application of accounting standards to estimate the amount, if any, to be provided
as a liability inherently subjective.
The effect of these matters is that, as part of our risk assessment, we determined that the regulatory and litigation provisions have a high
degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as
a whole.
Our response
Our procedures included:
• Control design and operation: Evaluating the processes and controls over regulatory and legal provisions.
Our testing identified weaknesses in the design and operation of these controls. As a result we expanded the extent of our detailed
testing over and above that originally planned.
For regulatory provisions our procedures included:
• Our regulatory expertise: Analysing, with the support of our own regulatory specialists, the key assumptions, inspecting
correspondence with regulators and monitoring external sources of information.
• Historical comparison: performing procedures over the historical accuracy of the provisions by comparing the previous estimate made
to actual outcomes.
• Sensitivity analysis: sensitising the significant assumptions to evaluate the reasonableness of the assumptions
• Methodology choice: Assessing whether the bespoke approach to estimating the provision is materially consistent with IAS 37.
For litigation provisions our procedures included:
• Our legal expertise: Analysing, with the support of our own legal specialists, the key assumptions, inspecting correspondence with
Brazilian authorities and assessing the competency and reputation of the directors’ experts.
• Test of details: Inspecting the report produced by internal counsel, accompanied by discussions with that counsel;
• Enquiry of lawyers: On all significant legal cases, assessing correspondence with the Group’s external counsel accompanied by
discussions and formal confirmations from that counsel;
For both regulatory and litigation our procedures included:
• Assessing transparency: Assessing whether the group’s disclosures detailing significant regulatory and litigation proceedings
adequately disclose the potential liabilities of the group.
Our results
We consider the provisions recognised, and the contingent liability disclosures made, to be acceptable.
Useful economic lives assigned to internally generated intangible assets
Internally generated intangible assets £1,297 million
Refer to page 69 Audit & Risk Committee Report, and page 136 financial disclosures note 14 Intangible assets.
Independent auditors’ report to the members of BT Group plc continuedReport on the audit of the financial statements continuedBT Group plcAnnual Report 2019 105
The risk
Subjective estimate:
Useful economic lives assigned to internally generated intangible assets contain a greater inherent level of judgement with regards to
appropriate useful economic life in comparison to separately acquired assets.
The effect of these matters is that, as part of our risk assessment, we determined that the useful economic lives assigned to internally
generated intangible assets have a higher degree of estimation uncertainty, with useful economic life less typically derived from underlying
contractual arrangement (in comparison to separately acquired assets), with a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole.
Our response
Our procedures included:
• Control design and operation: Evaluating the processes and controls in respect of the determination of the useful economic lives.
• Test of details: Challenging that the directors’ view on asset lives are supportable considering our knowledge of the business, enquiry
of operational managers, inspection of relevant supporting documentation, and benchmarking analysis (where applicable);
• Historical comparisons: Assessing whether the results of prior year asset life reviews, including consideration of fully-depreciated
assets still in use, have been appropriately taken into account when considering asset lives in the current year.
Our results:
We consider the judgements made in relation to the useful economic lives assigned to internally generated intangible assets to be acceptable.
Accuracy of revenue due to the complexity of the billing systems
Refer to page 125 financial disclosures note 6 Revenue.
The risk
Processing error:
BT non-long-term contract revenue consists of a large number of similar low value transactions. The group operates a number of distinct
billing systems and the IT landscape underpinning revenue and linking the billing systems together is complex.
There are multiple products sold at multiple rates with varying pricing structures in place. Products represent a combination of service based
products, such as fixed line telephony, as well as goods, such as the provision of mobile handsets. There are monthly tariff based charges, as
well as usage based charges arising on the volume of minutes or data used.
Accuracy of revenue has been determined a key audit matter, as it was a significant area in the audit of the financial statements, having the
greatest effect on the allocation of resources in the audit. It is not identified as a significant risk or an area of significant auditor judgement.
Our response
Our procedures included:
• Control design and operation: Evaluating the design and testing the operating effectiveness of controls in respect of all major revenue
streams, including controls over:
– the processing of call data records;
– the authorisation of price changes;
– the accuracy of invoicing, and
– cash receipting.
Our testing included those controls over the recording of revenue transactions from the billing system to the general ledger.
Our testing identified weaknesses in the design and operation of these controls. As a result we expanded the extent of our tests of detail
over and above that originally planned.
• Test of details: Comparing a sample of customer bills to supporting evidence eg orders, contracts, call detail records (where applicable)
and cash received.
Our results:
We consider revenue relating to non-long-term contract revenue to be acceptable.
Recoverability of parent company’s investment in subsidiary and loans to group undertakings
Investment in subsidiary £10,952 million
Refer to page 175 accounting policy on investments and page 175 financial disclosures note 2 Investments.
Loans to group undertakings £5,657 million
Refer to page 116 accounting policy Impairment of financial assets.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 106
The risk
Low risk, high value:
The carrying amount of the parent company’s investment in subsidiary and the amount of the loans to group undertakings represent 66%
and 34% respectively, of the company’s total assets as at 31 March 2019.
Their recoverability is not considered a significant risk or subject to significant judgement. However, due to their materiality in the context
of the parent company financial statements, these are considered to be the areas that will have the greatest effect on our overall parent
company audit.
Our response
Our procedures included:
– Test of details: Comparing the carrying amount of the parent company’s investment and loans to group undertakings, with the
relevant subsidiary draft balance sheet to identify whether their net assets, being an approximation of their minimum recoverable
amount, were in excess of their carrying amount and assessing whether those subsidiaries have historically been profit-making.
Our results
We consider the group’s assessment of the recoverability of the investment in subsidiaries and debt due from group entities to be
acceptable.
3 Our application of materiality and an overview of the scope of our audit
Materiality for the group financial statements as a whole was set at £115 million, determined with reference to a benchmark of Group
profit before tax from continuing operations of which it represents 4.3%.
Materiality for the parent company financial statements as a whole was set at £110 million, determined with reference to a benchmark of
total assets, of which it represents 0.7%, and chosen to be lower than materiality for the group financial statements as a whole.
We agreed to report to the Audit & Risk Committee any corrected or uncorrected identified misstatements exceeding £5.5 million, in
addition to other identified misstatements that warranted reporting on qualitative grounds.
Scope of our audit
Of the Group’s seven reporting components (one being the parent company), all were subjected to full scope audits. Work on the Group’s
entire property, plant and equipment balance was performed by the component auditor of the Technology component on behalf of the
Group and component teams.
The components within the scope of our work accounted for the following percentages:
Audits for group reporting purposes
97%
99%
100%
Group profit before tax
Group revenue
Group total assets
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the
information to be reported back. In the case of the Technology component, the Group team provided instructions of the audit of account
balance to be performed over the property, plant and equipment on behalf of the Group and component teams.
The component materialities ranged from £40m to £110m, having regard to the mix of size and risk profile of the Group across the
components.
The work on all of the components, excluding the audit of the parent company, was performed by component auditors. The parent
company was audited by the Group team. All of the component audit teams were based in the UK. The Group engagement team met
frequently in person with the component audit teams as part of the audit planning and completion phases to explain our audit instructions
and discuss the component auditors’ plans as well as performing more detailed file reviews upon completion of the component auditors’
engagements. Telephone conference meetings were also held with these component auditors.
At these meetings with component auditors, the findings reported to the Group team were discussed in more detail, and any further work
required by the Group team was then performed by the component auditor.
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the
Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this
is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
Independent auditors’ report to the members of BT Group plc continuedReport on the audit of the financial statements continuedBT Group plcAnnual Report 2019 107
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related
to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Group and the Company will continue in
operation.
In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model and analysed
how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period.
The risks that we considered most likely to adversely affect the Group’s and Company’s available financial resources over this period were:
• The impact of a significant reduction in profitability arising from one, or a combination of, the principal risks outlined in the Group’s
strategic report on page 46.
• The impact of a tightening in capital markets that would adversely affect the Company’s ability to raise future debt.
As these were risks that could potentially cast significant doubt on the Group’s and the Company’s ability to continue as a going concern,
we considered sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of
reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively and evaluated the
achievability of the actions the Directors consider they would take to improve the position should the risks materialise. We also considered
less predictable but realistic second order impacts, such as the impact of a disorderly Brexit and the erosion of customer or supplier
confidence, which could result in a rapid reduction of available financial resources.
Based on this work, we are required to report to you if:
• we have anything material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial statements on
the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements; or
• the related statement under the Listing Rules set out on page 98 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects, and we did not identify going concern as a key audit matter.
5 We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as
explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report and the directors’ report;
• in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 108
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention
to in relation to:
• the directors’ confirmation within the Directors’ information on page 92 that they have carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
• the principal risks and uncertainties disclosures describing these risks and explaining how they are being managed and mitigated; and
• the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we
cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s
and Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the
directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business
model and strategy; or
• the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by
us to the Audit Committee.
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions
of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
6 We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 92, the directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Independent auditors’ report to the members of BT Group plc continuedReport on the audit of the financial statements continuedBT Group plcAnnual Report 2019 109
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements
from our general commercial and sector experience and through discussion with the directors and other management (as required
by auditing standards), and from inspection of the group’s regulatory and legal correspondence and discussed with the directors and
other management the policies and procedures regarding compliance with laws and regulations. We communicated identified laws
and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included
communication from the group to component audit teams of relevant laws and regulations identified at group level.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation
(including related companies legislation), distributable profits legislation, taxation legislation, and pension legislation and we assessed the
extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the group is subject to many other laws and regulations where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the
group’s licence to operate. We identified the following areas as those most likely to have such an effect: anti-bribery, regulations affecting
telecommunications providers, and certain aspects of company legislation recognising the financial and regulated nature of the group’s
activities (reflecting compliance with Ofcom regulation). Auditing standards limit the required audit procedures to identify non-compliance
with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence,
if any. These limited procedures did not identify actual or suspected non-compliance. Further details in respect of regulations over products
subject to charge controls and other regulated pricing regimes is set out in the key audit matter disclosures in section 2 of this report.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For
example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the
financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with
any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to
detect non-compliance with all laws and regulations.
8 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and
the terms of our engagement by the company. Our audit work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report, and the further matters we are required to state to them in
accordance with the agreed terms with the company, and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for
the opinions we have formed.
Antony Cates (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
8 May 2019
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 110
BT Group plc
Annual Report 2019
Group income statement
Year ended 31 March 2019
Revenue
Operating costs
Operating profit (loss)
Finance expense
Finance income
Net finance expense
Share of post tax profit (loss) of associates and joint ventures
Profit (loss) before taxation
Taxation
Profit (loss) for the year
Earnings per share
Basic
Diluted
Year ended 31 March 2018
Revenue
Operating costs
Operating profit (loss)
Finance expense
Finance income
Net finance expense
Share of post tax profit (loss) of associates and joint ventures
Profit (loss) before taxation
Taxation
Profit (loss) for the year
Earnings per share
Basic
Diluted
a For a definition of specific items, see page 185. An analysis of specific items is provided in note 10.
Before
specific items
(‘Adjusted’)
£m
23,459
(19,613)
3,846
(651)
34
(617)
1
3,230
(619)
2,611
Before
specific items
(‘Adjusted’)
£m
23,746
(19,755)
3,991
(558)
12
(546)
(1)
3,444
(671)
2,773
Notes
5, 6
7
5
26
11
12
Notes
5, 6
7
5
26
11
12
Specific
itemsa
£m
Total
(Reported)
£m
(31)
(394)
(425)
(139)
–
(139)
–
(564)
112
(452)
23,428
(20,007)
3,421
(790)
34
(756)
1
2,666
(507)
2,159
21.8p
21.6p
Specific
itemsa
£m
Total
(Reported)
£m
(23)
(587)
(610)
(218)
–
(218)
–
(828)
87
(741)
23,723
(20,342)
3,381
(776)
12
(764)
(1)
2,616
(584)
2,032
20.5p
20.4p
BT Group plc
Annual Report 2019
Group income statement
Year ended 31 March 2017
Revenue
Operating costs
Operating profit (loss)
Finance expense
Finance income
Net finance expense
Share of post tax profit (loss) of associates and joint ventures
Profit (loss) before taxation
Taxation
Profit (loss) for the year
Earnings per share
Basic
Diluted
111
Strategic report
Governance
Financial statements
Additional information
Before
specific items
(‘Adjusted’)
£m
24,082
(19,947)
4,135
(607)
13
(594)
(9)
3,532
(663)
2,869
Notes
5, 6
7
5
26
11
12
Specific
itemsa
£m
Total
(Reported)
£m
(20)
(948)
(968)
(210)
–
(210)
–
(1,178)
217
(961)
24,062
(20,895)
3,167
(817)
13
(804)
(9)
2,354
(446)
1,908
19.2p
19.1p
a For a definition of specific items, see page 185. An analysis of specific items is provided in note 10.
Group statement of comprehensive income
Year ended 31 March
Profit for the year
Other comprehensive income (loss)
Items that will not be reclassified to the income statement
Remeasurements of the net pension obligation
Tax on pension remeasurements
Items that have been or may be reclassified to the income statement
Exchange differences on translation of foreign operations
Fair value movements on available-for-sale assets
Fair value movements on assets at fair value through other comprehensive income
Movements in relation to cash flow hedges:
net fair value gains (losses)
recognised in income and expense
Tax on components of other comprehensive income that have been or may be reclassified
Other comprehensive income (loss) for the year, net of tax
Total comprehensive income (loss) for the year
Notes
20
11
28
28
28
28
28
11, 28
2019
£m
2,159
2018
(Restated)a
£m
2017
£m
2,032
1,908
(2,102)
384
1,684
(263)
(2,789)
416
64
–
3
176
(18)
(41)
(188)
11
–
(368)
277
1
237
(3)
–
884
(938)
29
(1,534)
1,154
(2,164)
625
3,186
(256)
a Certain results have been restated to reflect the update to the calculation of our IAS 19 accounting valuation of retirement benefit obligations. See note 2 to the consolidated financial statements.
112
BT Group plc
Annual Report 2019
Group balance sheet
At 31 March
Notes
2019
£m
2018
(Restated)a
£m
Non-current assets
Intangible assets
Property, plant and equipment
Derivative financial instruments
Investments
Associates and joint ventures
Trade and other receivables
Contract assetsb
Deferred tax assets
Current assets
Programme rights
Inventories
Trade and other receivables
Contract assetsb
Assets held for sale
Current tax receivable
Derivative financial instruments
Investments
Cash and cash equivalents
Current liabilities
Loans and other borrowings
Derivative financial instruments
Trade and other payables
Contract liabilitiesb
Current tax liabilities
Provisions
Total assets less current liabilities
Non-current liabilities
Loans and other borrowings
Derivative financial instruments
Contract liabilitiesb
Retirement benefit obligations
Other payables
Deferred tax liabilities
Provisions
Equity
Share capital
Share premium
Own shares
Merger reserve
Other reserves
Retained earnings
Total equity
14
15
27
23
17
6
11
16
17
6
27
23
24
25
27
18
6
19
25
27
6
20
18
11
19
21
28
14,385
17,835
1,481
54
47
445
249
1,347
35,843
310
369
3,222
1,353
89
110
111
3,214
1,666
10,444
2,100
48
5,790
1,225
15
424
9,602
36,685
14,776
892
200
7,182
1,479
1,407
582
26,518
499
1,051
(167)
4,147
718
3,919
10,167
36,685
2017
£m
15,029
16,498
1,818
44
31
360
–
1,717
14,447
17,000
1,312
53
38
317
–
1,326
34,493
35,497
272
239
4,014
–
–
77
197
3,022
528
8,349
2,281
50
7,168
–
83
603
264
227
3,835
–
–
73
428
1,520
528
6,875
2,632
34
7,437
–
197
625
10,185
32,657
10,925
31,447
11,994
787
–
6,847
1,326
1,340
452
10,081
869
–
9,088
1,298
1,240
536
22,746
23,112
499
1,051
(186)
6,647
534
1,366
9,911
499
1,051
(96)
6,647
884
(650)
8,335
32,657
31,447
a
b
Certain results have been restated to reflect the update to the calculation of our IAS 19 accounting valuation of retirement benefit obligations. See note 2 to the consolidated financial statements.
Contract assets and contract liabilities arise following adoption of IFRS 15 on 1 April 2018. See notes 1 and 2 to the consolidated financial statements.
The consolidated financial statements on pages 110 to 184 were approved by the Board of Directors on 8 May 2019 and were signed
on its behalf by:
Jan du Plessis
Chairman
Philip Jansen
Chief Executive
Simon Lowth
Chief Financial Officer
BT Group plc
Annual Report 2019
Group statement of changes in equity
Notes
Share
capitala
£m
499
Share
premiumb
£m
1,051
Own
sharesc
£m
(115)
Merger
reserved
£m
8,422
At 1 April 2016
Profit for the year
Other comprehensive income (loss) – before tax
Tax on other comprehensive income (loss)
Transferred to the income statement
Total comprehensive income (loss) for the year
Transfers to realised profit
Dividends to shareholders
Share-based payments
Tax on share-based payments
Net buyback of own shares
At 1 April 2017
Profit for the year
Other comprehensive income (loss) – before tax
Tax on other comprehensive income (loss)
Transferred to the income statement
Total comprehensive income (loss) for the year
Dividends to shareholders
Share-based payments
Tax on share-based payments
Net buyback of own shares
Transfer to realised profit
At 31 March 2018 – as previously reported
Pension restatementf
At 31 March 2018 – restated
IFRS opening balance adjustmentg
Tax on IFRS opening balance adjustmentg
At 1 April 2018
Profit for the year
Other comprehensive income (loss) – before tax
Tax on other comprehensive income (loss)
Transferred to the income statement
Total comprehensive income (loss) for the year
Dividends to shareholders
Unclaimed Dividend over 10 years
Share-based payments
Tax on share-based payments
Net buyback of own shares
Transfer to realised profit
Other movements
11
13
22
11
21
11
13
22
11
21
11
13
22
11
21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19
499
1,051
(96)
–
–
–
–
–
–
–
–
–
–
499
–
499
–
–
499
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(90)
–
–
1,051
–
–
1,051
–
–
–
–
–
–
–
–
–
–
–
–
–
(186)
–
–
(186)
–
–
–
–
–
–
–
–
–
19
–
–
–
–
–
–
–
(1,775)
–
–
–
–
6,647
–
–
–
–
–
–
–
–
–
–
–
6,647
–
–
6,647
–
–
–
–
–
–
–
–
–
–
(2,500)
–
4,147
1,051
(186)
6,647
113
Strategic report
Governance
Financial statements
Additional information
Retained
(loss)
earnings
(Restated)f
£m
Total
equity
(deficit)
(Restated)
£m
(430)
10,112
1,908
(2,779)
416
–
(455)
1,775
(1,436)
57
(6)
(155)
(650)
2,032
2,160
(346)
–
3,846
(1,524)
84
(2)
(78)
83
1,759
(393)
1,366
1,308
(248)
2,426
2,159
(2,102)
384
–
441
(1,503)
14
67
–
(23)
2,500
(3)
3,919
1,908
(1,671)
445
(938)
(256)
–
(1,436)
57
(6)
(136)
8,335
2,032
1,615
(345)
277
3,579
(1,524)
84
(2)
(168)
–
10,304
(393)
9,911
1,308
(248)
10,971
2,159
(1,859)
343
(18)
625
(1,503)
14
67
–
(4)
–
(3)
10,167
Other
reservese
£m
685
–
1,108
29
(938)
199
–
–
–
–
–
884
–
(545)
1
277
(267)
–
–
–
–
(83)
534
–
534
–
–
534
–
243
(41)
(18)
184
–
–
–
–
–
–
–
718
At 31 March 2019
499
1,051
(167)
a The allotted, called up, and fully paid ordinary share capital of BT Group plc at 31 March 2019 was £499m comprising 9,968,127,681 ordinary shares of 5p each (2018: £499m comprising
9,968,127,681 ordinary shares of 5p each).
b The share premium account, comprising the premium on allotment of shares, is not available for distribution.
c For further analysis of own shares, see note 21.
d The merger reserve balance at 1 April 2016 includes £998m related to the group reorganisation that occurred in November 2001 and represented the difference between the nominal value of shares in
the new parent company, BT Group plc, and the aggregate of the share capital, share premium account and capital redemption reserve of the prior parent company, British Telecommunications plc. In
addition, on 29 January 2016, the company issued 1,594,900,429 ordinary shares of 5p at 470.7p per share. These shares were used as part consideration for the acquisition of EE. As a result of this
transaction the merger reserve was credited with £7,424m net of £3m issue costs. Following settlement of intercompany loans by qualifying consideration of £1,775m (2016/17) and £2,500m
(2018/19), equivalent balances were transferred from merger reserve to realised profit.
e For further analysis of other reserves, see note 28.
f Certain results have been restated to reflect the update to the calculation of our IAS 19 accounting valuation of retirement benefit obligations. See note 2 to the consoliated financial statements.
g Opening retained earnings adjusted following adoption of IFRS 15 on 1 April 2018. See notes 1 and 2 to the consolidated financial statements.
114
BT Group plc
Annual Report 2019
Group cash flow statement
Year ended 31 March
Cash flow from operating activities
Profit before taxation
Share of post tax (profit) loss of associates and joint ventures
Net finance expense
Operating profit
Other non-cash charges
Loss (profit) on disposal of businesses
Depreciation and amortisation
Increase in inventories
Decrease (increase) in programme rights
(Increase) decrease in trade and other receivablesa
Decrease in contract assetsb
Increase (decrease) in trade and other payables
Decrease in contract liabilitiesb
Decrease in other liabilitiesc
(Decrease) increase in provisions
Cash generated from operations
Income taxes paid
Net cash inflow from operating activities
Cash flow from investing activities
Interest received
Dividends received from associates and joint ventures
Acquisition of subsidiariesd
Proceeds on disposal of subsidiariesd, associates and joint ventures
Acquisition of joint ventures
Proceeds on disposal of current financial assetse
Purchases of current financial assetse
Proceeds on disposal of non-current asset investmentsf
Purchases of non-current asset investments
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment and software
Net cash outflow from investing activities
Cash flow from financing activities
Equity dividends paid
Interest paid
Repayment of borrowingsg
Proceeds from bank loans and bonds
Cash flows from derivatives related to net debt
Repayment of acquisition facility
Repayment of EE revolving credit facility
Proceeds from issue of own shares
Repurchase of ordinary share capital
Net cash inflow (outflow) from financing activities
Net increase in cash and cash equivalents
Opening cash and cash equivalentsh
Net increase in cash and cash equivalents
Effect of exchange rate changes
Closing cash and cash equivalentsh
Notes
2019
£m
2018
£m
2017
£m
2,666
(1)
756
3,421
(112)
5
3,546
(138)
49
(58)
15
57
(72)
(1,934)
(92)
4,687
(431)
4,256
23
–
–
23
(9)
12,887
(13,088)
1
–
41
(3,678)
2,616
1
764
3,381
33
(1)
3,514
(14)
(34)
(156)
–
(345)
–
(775)
(203)
2,354
9
804
3,167
20
(16)
3,572
(33)
(95)
168
–
(152)
–
(307)
401
5,400
6,725
(473)
(551)
4,927
6,174
7
–
(16)
2
(9)
11,134
(12,629)
19
–
21
(3,362)
7
2
18
46
(13)
10,834
(9,411)
–
(22)
26
(3,145)
(3,800)
(4,833)
(1,658)
(1,504)
(531)
(1,423)
3,972
124
–
–
5
(9)
634
1,090
499
1,090
5
1,594
(1,523)
(555)
(1,401)
3,760
(188)
–
–
53
(221)
(1,435)
(629)
(1,805)
3
119
(181)
(438)
70
(206)
(75)
(4,502)
19
511
19
(31)
499
14
459
14
38
511
24
a
b
c
d
e
f
g
h
Includes a prepayment of £nil (2017/18: £325m, 2016/17: £nil) in respect of the acquisition of Spectrum.
Contract assets and contract liabilities arise following adoption of IFRS 15 on 1 April 2018. See notes 1 and 2 to the consolidated financial statements.
Includes pension deficit payments of £2,024m (2017/18: £872m, 2016/17: £274m).
Acquisitions and disposals of subsidiaries are shown net of cash acquired or disposed of and in 2017 included £20m true-up of consideration following the audit of the completion balance sheet relating to the
acquisition of EE.
Primarily consists of investment in and redemption of amounts held in liquidity funds.
Relates to sale of fair value through equity investment in 2018/19 and assets held for sale classified within trade and other receivables in 2017/18.
Repayment of borrowings includes the impact of hedging and repayment of lease liabilities.
Net of bank overdrafts of £72m (2017/18: £29m, 2016/17: £17m).
BT Group plc
Annual Report 2019
115
Strategic report
Governance
Financial statements
Additional information
Notes to the consolidated financial statements
1. Basis of preparation
Preparation of the financial statements
These consolidated financial statements have been prepared in
accordance with the Companies Act 2006 as applicable to
companies using International Financial Reporting Standards
(IFRS), Article 4 of the IAS Regulation and International
Accounting Standards (IAS) and IFRS and related interpretations,
as adopted by the European Union. The consolidated financial
statements are also in compliance with IFRS as issued by the
International Accounting Standards Board (the IASB) and
interpretations as issued by the IFRS Interpretations Committee.
The consolidated financial statements are prepared on a going
concern basis.
These financial statements consolidate BT Group plc, the parent
company, and its subsidiaries (together the ‘group’, ‘us’, ‘we’
or ‘our’).
The consolidated financial statements are prepared on the
historical cost basis, except for certain financial and equity
instruments that have been measured at fair value. The
consolidated financial statements are presented in sterling, the
functional currency of BT Group plc.
New and amended accounting standards effective
during the year
The following standards have been adopted during the year and
have a significant impact on the financial statements.
IFRS 15 ‘Revenue from Contracts with Customers’
Background
IFRS 15 sets out the requirements for recognising revenue and
costs from contracts with customers and includes extensive
disclosure requirements. It replaced IAS 18 ‘Revenue’ and related
interpretations. The standard requires us to apportion revenue
earned from contracts to individual promises, or performance
obligations, on a relative stand-alone selling price basis, based on
a five-step model.
Transition
We chose to adopt IFRS 15 using the cumulative effect method.
Under this transition method:
• the standard has been applied only to contracts in progress but
not completed as at 1 April 2018
• for contracts that were modified before 1 April 2018, the
aggregate effect of all of the modifications that occurred
before this date are reflected as at 1 April 2018
• prior year comparatives have not been restated for the effect
of IFRS 15 and continue to be reported under IAS 18. Instead
our 1 April 2018 opening retained earnings have been
adjusted for the full cumulative impact of adopting the
standard.
after tax) has primarily been recorded as a contract asset and has
led to an additional one-off cash tax payment equally split
between 2018/19 and 2019/20.
The cumulative increase in retained earnings is mainly due to the
acceleration of handset revenues and, to a lesser extent, deferral
of costs, notably third-party contract acquisition costs primarily
associated with post pay contracts.
The financial impact of each business area is as follows:
• Under our previous accounting policy, mobile handset revenue
was recognised based on the amount the customer pays for the
handset when it is delivered to the customer. Generally mobile
handsets are either provided free or for a small upfront charge.
Under IFRS 15, additional revenue is allocated to the mobile
handset at the start of the contract. This is calculated with
reference to its relative standalone value within the contract,
regardless of the contract pricing. For each mobile handset
contract, the revenue recognition profile changes with greater
day one recognition of revenue for the handset and a
corresponding reduction in ongoing mobile service revenue over
the contract period. The difference between the mobile handset
revenue recognised and the amounts charged to the customer
has been recognised as a contract asset. Over time, we expect
the contract asset generated to remain at similar levels as old
contracts expire and new ones are signed. However, we will see
short-term volatility, for example around key handset launches.
This primarily impacted Consumer, and to a lesser extent, mobile
handset revenues in Enterprise in respect of the legacy EE
business division. There is a similar effect in respect of subsidised
equipment although this had a less significant impact due to its
lower relative standalone value.
• Previously, sales commissions and other third-party acquisition
costs resulting directly from securing contracts with customers
were expensed when incurred. Under IFRS 15, these costs are
recognised as an asset, and amortised over the period in which
the corresponding benefit is received, resulting in earlier profit
recognition. The impact is greatest in Consumer in respect of
third-party acquisition costs partially associated with post-pay
contracts.
• The above two impacts are partly offset by the change in
accounting for connections revenue. Previously, the group
recognised connections revenue upon performance of the
connection activity. Under IFRS 15, connections revenue is
deferred and recognised on a straight-line basis over the
associated line/circuit contractual period. This means that
revenue and profits are recognised later. On transition this
created a contract liability as revenue and profits are deferred
to future periods. Openreach and Enterprise deliver the
majority of this service and therefore experienced the majority
of the impact. Over time, this liability is expected to remain at
similar levels as old contracts expire and new ones are signed.
• We will provide for expected lifetime losses on contract assets
as required by IFRS 9 as set out below.
Financial Impact
In the prior year Annual Report we estimated that the likely
impact on transition at 1 April 2018 would produce a cumulative
increase in retained earnings of between £1.1bn and £1.5bn
before tax. The actual increase of £1.3bn before tax (£1.1bn
• The IFRS 15 impact on other areas was not material. This
included certain contract fulfilment costs which are recognised
as an asset and amortised over the period in which benefit is
received and certain expenses that are recognised as a
deduction from revenue.
116
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
1. Basis of preparation continued
The impact of the adoption of IFRS 15 on opening retained
earnings at 1 April 2018 is shown in note 2. The following tables
show, for the year ended 31 March 2019, the impact had the
IFRS 15 standard not been adopted on the financial statement
line items affected for the income statement and balance sheet.
There was no net impact on the key cash flow captions (net cash
flow from operating activities, net cash flow from investing
activities or net cash flow from financing activities).
Group income statement
Year ended 31 March 2019
Revenue
Operating costs
Operating profit
Profit before tax
Tax
Profit for the year
Earnings per share – basic
Earnings per share – diluted
Group balance sheet
As at 31 March 2019
Non-current assets
Contract assets
Trade and other receivables
Current assets
Contract assets
Trade and other receivables
Current tax receivable
Current liabilities
Trade and other payables
Contract liabilities
Total assets less current
liabilities
Non-current liabilities
Other payables
Contract liabilities
Equity
Retained earnings
As
reported
(IFRS 15)
£m
23,428
(20,007)
3,421
2,666
(507)
2,159
21.8p
21.6p
Adjustments
£m
(252)
1
(251)
(251)
48
(203)
(2.1p)
(2.0p)
Without
adoption
of IFRS 15
(IAS 18)
£m
23,176
(20,006)
3,170
2,415
(459)
1,956
19.7p
19.6p
As
reported
(IFRS 15)
£m
Adjustments
£m
Without
adoption
of IFRS 15
(IAS 18)
£m
249
445
1,353
3,222
110
5,790
1,225
(249)
(149)
–
296
(1,353)
180
296
–
3,402
406
1,313
(1,225)
7,103
–
36,685
(1,363)
35,322
1,479
200
102
(200)
1,581
–
3,919
(1,265)
2,654
Total equity and non-current
liabilities
36,685
(1,363)
35,322
Disclosures
IFRS 15 requires additional disclosures in our Annual Report. To
reflect these expanded requirements we have added a dedicated
revenue note (note 6). The key disclosure changes are as follows:
• we have changed our revenue disclosures to comply with the
requirements to disaggregate revenue recognised from
contracts with customers into categories that depict how the
nature, amount, timing and uncertainty of revenue and
associated cash flows are affected by economic factors
• we have provided further detail around contract balances and
their movements in the year
• we have provided an aggregate amount of the transaction price
allocated to performance obligations that are unsatisfied as at
the end of the reporting period and an explanation of when
these are expected to be recognised as revenue.
IFRS 9 ‘Financial Instruments’
IFRS 9 sets out requirements for classification, measurement,
impairment and de-recognition of financial assets and liabilities,
and includes a new hedge accounting model. It replaces IAS 39
‘Financial Instruments: Recognition and Measurement’. The
standard has not had a material impact on our results, with the
key impacts set out below.
Impairment of financial assets
We have revised the methodologies we use to impair financial
assets to reflect the forward-looking ‘expected credit loss’ model
introduced by IFRS 9, in contrast to the backward-looking
‘incurred credit loss’ model used under IAS 39. As a result we now
recognise a loss allowance for all expected credit losses on initial
recognition of financial assets, including trade receivables and the
contract assets recognised on transition to IFRS 15. Providing for
loss allowances on our existing financial assets has not had a
material impact on the financial statements.
Classification of financial instruments
IFRS 9 introduces new categories of financial instrument: fair
value through profit and loss, fair value through other
comprehensive income, and amortised cost. These replace the
IAS 39 categories of fair value through profit and loss,
available-for-sale, loans and receivables, and held-to-maturity.
We have reclassified our financial instruments based on these new
categories. Certain investments in liquidity funds, disclosed in
note 23, were classified as available-for-sale under IAS 39 but
have been reclassified to amortised cost under IFRS 9, because
they are held to collect contractual cash flows. All other financial
instruments classified as available-for-sale under IAS 39,
including all equity instruments, have been reclassified as fair
value through other comprehensive income under IFRS 9. All
financial instruments previously classified as loans and receivables
and held-to-maturity under IAS 39 have been reclassified as
amortised cost under IFRS 9, and the classification of all
instruments classified as fair value through profit and loss under
IAS 39 is unchanged under IFRS 9.
Reclassification of liquidity fund investments has not had a
material impact on the accounting as they are short-term in
nature and amortised cost can reasonably be expected to equate
to fair value. The reclassifications have not changed the
accounting for any other instruments and therefore their carrying
amounts are unchanged under IFRS 9.
Hedging
We have chosen to adopt the IFRS 9 hedge accounting
requirements because they enable us to align our hedge
accounting more closely with our risk management activities in
BT Group plc
Annual Report 2019
1. Basis of preparation continued
the future. Adoption of the revised requirements has had no
impact on the effectiveness of our existing hedges, however, it
has been necessary for us to revise hedge documentation to
ensure compliance with enhanced IFRS 9 documentation
requirements.
We have taken the exemption not to restate comparative
information for prior periods with respect to classification and
measurement requirements, including the move to the expected
credit loss model. Consequently, we have not restated prior
period comparatives on adoption of IFRS 9.
Other standards
The following amended standards and interpretations were also
effective during the year, however, they have not had a
significant impact on our consolidated financial statements.
• Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2).
• Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts (Amendments to IFRS 4).
• Transfers of investment property (Amendments to IAS 40).
• Annual Improvements to IFRS Standards 2014–2016 Cycle –
various standards.
• IFRIC 22 Foreign currency transactions and advance
consideration.
New and amended accounting standards that have been issued
but are not yet effective
IFRS 16 ‘Leases’ is effective for the accounting period starting
1 April 2019 and will have a material impact on our financial
statements.
Background
IFRS 16 was published in January 2016 and replaces IAS 17
‘Leases’ and related interpretations. The standard requires lessees
to recognise a right-of-use asset and lease liability for all leases
meeting the lease definition set out by the standard unless certain
exemptions are available. Accounting for lessors is largely
unchanged.
Transition
We will adopt IFRS 16 on a modified retrospective basis. On
transition, remaining payments payable under lease
arrangements will be discounted using an appropriate
incremental borrowing rate and recognised as lease liabilities.
Right-of-use assets will be recognised equivalent to the lease
liability, adjusted for any pre-existing prepaid lease payments,
accrued lease expenses, and related onerous lease and
decommissioning provisions.
We will recognise the cumulative effect of initially applying the
standard as an adjustment to the opening balance of retained
earnings at 1 April 2019, ie the date of initial application. Results
in the 2019/20 financial year will be reported under IFRS 16 and
the Annual Report 2020 will be the first Annual Report to include
the results on this basis.
We have made significant progress in implementing the standard.
A cross-functional project team has been engaged in identifying
arrangements in scope of IFRS 16, determining appropriate
accounting policies and judgements, and implementing a system
solution capable of quantifying the impact of the standard and
processing accounting entries on a business-as-usual basis.
117
Strategic report
Governance
Financial statements
Additional information
Practical expedients and judgements
We have elected to make use of the following practical expedients
and exemptions available under IFRS 16:
• low-value leases and short-term leases will be excluded from
IFRS 16 accounting, ie they will be accounted for in the same
manner as operating leases currently are
• onerous lease provisions in existence at the date of initial
adoption will be derecognised and applied against the
corresponding right-of-use asset as a proxy for impairment
• leases of intangible assets such as software licenses will
continue to be accounted for under IAS 38 ‘Intangible Assets’
• where we are lessee in a contract containing both lease
components and non-lease components, we will account for
the arrangement as though it comprises a single lease
component
• initial direct costs will be excluded when measuring the
right-of-use asset
• hindsight will be used when assessing the lease term.
Anticipated impact
BT as lessee
All arrangements previously disclosed as operating lease
commitments will now be recognised on the balance sheet. A key
driver will be group’s portfolio of leased land and buildings, the
majority of which is currently recognised off balance sheet
following a sale and operating leaseback transaction in 2001. Cell
and switch site leases represent another material element, due to
the long lease terms associated with these arrangements.
On the basis of progress made in implementing the standard, we
expect the following impact on adoption:
• lease liabilities of between £5.6bn – £6.6bn will be recognised
as a result of bringing operating lease commitments onto the
balance sheet. Corresponding right-of-use assets will be
recognised, adjusted for accrued lease payments and provisions
currently recognised as liabilities. We do not anticipate a
material impact on retained earnings due to the transition
options selected
• the increase in liabilities will have a corresponding impact on
net debt and gearing ratios
• depreciation expense and interest expense will replace the
current operating lease expense, resulting in increased EBITDA
• profit after tax will see a reduction in the periods immediately
following transition to IFRS 16, driven by interest expense
charged in respect of the new leases being ‘frontloaded’ when
compared to the previous straight-line operating lease expense
• within the cash flow statement, lease payments will now be
presented within cash flows from operating activities and cash
flows from financing activities in respect of depreciation and
interest expense respectively. The timing of cash flows will
remain unchanged.
BT as lessor
Lessor accounting is substantially unchanged under IFRS 16 and
we do not expect the standard to have a material impact on the
accounting for arrangements currently identified as leases.
However, “last mile” arrangements provided by Openreach to
communications providers and currently accounted for as service
contracts meet the revised IFRS 16 lease definition, with
Openreach as lessor.
Connection fees received will now be deferred over the lease
term, which is longer than the current contractual deferral period
as it also covers the duration that we are ‘reasonably certain’ that
communications providers will retain the use of the line beyond
the contractual period. We have determined that this is
six months for all last mile arrangements with the exception of
118
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
1. Basis of preparation continued
FTTP, which is unchanged. Additional deferred income will be
recognised in respect of active arrangements at the transition
date, with a corresponding adjustment to retained earnings. This
is not expected to have a material impact on the balance sheet or
income statement.
Other standards
The following standards and interpretations are applicable in
future periods but are not expected to have a significant impact
on the consolidated financial statements.
• IFRIC 23 Uncertainty over Tax Treatments
• IFRS 17 Insurance Contracts
Presentation of specific items
Our income statement and segmental analysis separately identify
trading results before specific items (‘adjusted’). The directors
believe that presentation of our results in this way is relevant to
an understanding of our financial performance, as specific items
are identified by virtue of their size, nature or incidence.
This presentation is consistent with the way that financial
performance is measured by management and reported to the
Board and the ExecutiveCommitteeand assists in providing a
meaningful analysis of our trading results. In determining
whether an event or transaction is specific, management
considers quantitative as well as qualitative factors such as the
frequency or predictability of occurrence.
Furthermore, we consider a columnar presentation to be
appropriate, as it improves the clarity of the presentation and is
consistent with the way that financial performance is measured
by management and reported to the Board and the
ExecutiveCommittee.
Specific items may not be comparable to similarly titled measures
used by other companies. Examples of charges or credits meeting
the above definition and which have been presented as specific
items in the current and/or prior years include acquisitions/
disposals of businesses and investments, regulatory settlements,
historical insurance or litigation claims, business restructuring
programmes, asset impairment charges, property rationalisation
programmes, net interest on pensions and the settlement of
multiple tax years. In the event that other items meet the criteria,
which are applied consistently from year to year, they are also
treated as specific items.
Specific items for the current and prior years are disclosed in
note 10.
2. Prior year restatement and opening balance
adjustments
Revision of segment results
During the year we reduced the number of our customer-facing
units with a corresponding impact on reportable segments. Our
BT Consumer and EE customer-facing units were brought
together on 1 April 2018, and our Business and Public Sector and
Wholesale and Ventures customer-facing units were combined on
1 October 2018. The group now has four customer-facing units:
• Consumer (formerly BT Consumer and EE)
• Enterprise (formerly Business and Public Sector and Wholesale
and Ventures)
• Global Services
• Openreach.
During the year we also transferred our Northern Ireland
Networks business from Enterprise to Openreach.
Where appropriate, comparative results for all four
customer-facing units have been revised to be presented on a
consistent basis. This affects the segment information and
employees disclosures. See notes 5 and 8 respectively.
Restatement of previously issued financial statements for
IAS 19 accounting valuation of retirement benefit obligations
On 27 July 2018 we announced that we had been alerted to an
error made by our independent external actuary in the actuary’s
calculation of our IAS 19 accounting valuation of retirement
benefit obligations at 31 March 2018. Our independent external
actuary is employed as an expert to calculate the IAS 19
accounting valuation on behalf of management. The error
resulted from the incorrect application of changes to
demographic assumptions. Management determined that the
error was material with respect to the statement of
comprehensive income and would require us to restate the
previously issued consolidated financial statements for the year
ended 31 March 2018.
The accounting error understated the net pension obligation,
after tax, at 31 March 2018 by £393m (£476m gross of
deferred tax) and overstated total equity in the balance sheet by
£393m. The re-measurement gain of the net pension obligation
recorded within the statement of comprehensive income for the
year ended 31 March 2018 was overstated by £476m and tax
expense on the pension re-measurement was overstated by
£83m.
The error has no effect on the income statement or the cash flow
statement or any amounts included in the financial statements for
the year ending 31 March 2017. It also has no effect on the
2017 triennial funding valuation of the BT Pension Scheme,
associated cash contributions or on the pension scheme members.
Opening balance adjustments resulting from the
implementation of IFRS 15 and IFRS 9
The transition methods we have chosen in applying IFRS 9 and
IFRS 15 mean we do not restate comparative information for the
impact of these standards. We have instead adjusted the 1 April
2018 balance sheet to reflect the impact on opening retained
earnings of recognition of the IFRS 15 contract asset and liability,
and for the IFRS 9 expected loss allowance.
Impact of restatement and opening balance adjustments
Set out below is the impact of these items on the group
statement of comprehensive income and balance sheet. They are
reflected in the group statement of changes in equity as
presented on page 113.
BT Group plc
Annual Report 2019
2. Prior year restatement and opening balance adjustments continued
Group statement of comprehensive income
Profit for the period
Other comprehensive income (loss)
Items that will not be reclassified to the income statement:
Remeasurements of the net pension obligation
Tax on pension remeasurements
Items that have been or may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations
Fair value movements on available-for-sale assets
Movements in relation to cash flow hedges:
net fair value (losses) gains
recognised in income and expense
Tax on components of other comprehensive income that have been or may be reclassified
Other comprehensive profit (loss) for the period, net of tax
Total comprehensive income (loss) for the period
Group balance sheet
119
Strategic report
Governance
Financial statements
Additional information
Year ended
31 March
2018
(as published)
£m
2,032
Pension
restatement
£m
Year ended
31 March
2018
(restated)
£m
–
2,032
2,160
(346)
(188)
11
(368)
277
1
1,547
3,579
(476)
83
1,684
(263)
–
–
–
–
–
–
(393)
(393)
(188)
11
(368)
277
1
1,154
3,186
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Contract assets
Deferred tax assets
Other non-current assets
Current assets
Trade and other receivables
Contract assets
Cash and cash equivalents
Other current assets
Current liabilities
Loans and other borrowings
Trade and other payables
Contract liabilities
Current tax liabilities
Other current liabilities
Total assets less current liabilities
Non-current liabilities
Loans and other borrowings
Contract liabilities
Retirement benefit obligations
Other non-current liabilities
Equity
Share capital
All other reserves
Retained earnings
Total equity
At 31 March
2018
(as published)
£m
Pension
restatement
£m
At 31 March
2018
(restated)
£m
IFRS 9 & 15
opening
balance
adjustment
£m
14,447
17,000
317
–
1,243
1,403
34,410
4,014
–
528
3,807
8,349
2,281
7,168
–
83
653
10,185
32,574
11,994
–
6,371
3,905
22,270
499
8,046
1,759
10,304
32,574
–
–
–
–
83
–
83
–
–
–
–
–
–
–
–
–
–
–
83
–
–
476
–
476
–
–
(393)
(393)
83
14,447
17,000
317
–
1,326
1,403
34,493
4,014
–
528
3,807
8,349
2,281
7,168
–
83
653
10,185
32,657
11,994
–
6,847
3,905
22,746
499
8,046
1,366
9,911
32,657
–
–
114
198
–
–
312
(337)
1,417
–
–
1,080
–
(1,409)
1,406
248
–
245
1,147
–
87
–
–
87
–
–
1,060
1,060
1,147
At 1 April
2018
£m
14,447
17,000
431
198
1,326
1,403
34,805
3,677
1,417
528
3,807
9,429
2,281
5,759
1,406
331
653
10,430
33,804
11,994
87
6,847
3,905
22,833
499
8,046
2,426
10,971
33,804
120
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
3. Critical accounting estimates and key judgements
The preparation of financial statements in conformity with IFRS
requires the use of accounting estimates and assumptions. It also
requires management to exercise its judgement in the process of
applying our accounting policies. We continually evaluate our
estimates, assumptions and judgements based on available
information and experience. As the use of estimates is inherent in
financial reporting, actual results could differ from these
estimates. Management has discussed its critical accounting
estimates and associated disclosures with the AuditandRisk
Committee. The areas involving a higher degree of judgement or
complexity are described in the applicable notes to the financial
statements. Critical accounting estimates and key judgements can
be identified throughout the notes by the following symbol
.
We have the following critical accounting estimates (E) and key
judgements (J):
• Current and deferred income tax, see note 11 (E, J).
• Goodwill impairment, see note 14 (E, J).
• Government grants relating to Broadband Delivery UK (BDUK)
contracts, see note 15 (J).
• Provisions and contingent liabilities, see note 19 (E, J).
• Pension obligations, see note 20 (E, J).
4. Significant accounting policies that apply to the
overall financial statements
The significant accounting policies applied in the preparation of
our consolidated financial statements are set out below. Other
significant accounting policies applicable to a particular area are
disclosed in the most relevant note. We have applied all policies
consistently to all the years presented, unless otherwise stated.
Basis of consolidation
The group financial statements consolidate the financial
statements of BT Group plc and its subsidiaries, and include its
share of the results of associates and joint ventures using the
equity method of accounting. The group recognises its direct
rights to (and its share of) jointly held assets, liabilities, revenues
and expenses of joint operations under the appropriate headings
in the consolidated financial statements.
All business combinations are accounted for using the acquisition
method regardless of whether equity instruments or other assets
are acquired. No material acquisitions were made in the year.
A subsidiary is an entity that is controlled by another entity,
known as the parent or investor. An investor controls an investee
when the investor is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee.
Non-controlling interests in the net assets of consolidated
subsidiaries, which consist of the amounts of those interests at
the date of the original business combination and non-controlling
share of changes in equity since the date of the combination, are
not material to the group’s financial statements.
The results of subsidiaries acquired or disposed of during the year
are consolidated from and up to the date of change of control.
Where necessary, accounting policies of subsidiaries have been
aligned with the policies adopted by the group. All intra-group
transactions including any gains or losses, balances, income or
expenses are eliminated in full on consolidation.
When the group loses control of a subsidiary, the profit or loss on
disposal is calculated as the difference between (i) the aggregate
of the fair value of the consideration received and the fair value of
any retained interest and (ii) the previous carrying amount of the
assets (including goodwill), and liabilities of the subsidiary and any
non-controlling interests. The profit or loss on disposal is
recognised as a specific item.
Inventories
Network maintenance equipment and equipment to be sold to
customers are stated at the lower of cost or net realisable value,
taking into account expected revenue from the sale of packages
comprising a mobile handset and a subscription. Cost corresponds
to purchase or production cost determined by either the first in
first out (FIFO) or average cost method.
Government grants
Government grants are recognised when there is reasonable
assurance that the conditions associated with the grants have
been complied with and the grants will be received.
Grants for the purchase or production of property, plant and
equipment are deducted from the cost of the related assets and
reduce future depreciation expense accordingly. Grants for the
reimbursement of operating expenditure are deducted from the
related category of costs in the income statement. Estimates and
judgements applied in accounting for government grants received
in respect of the BDUK programme and other rural superfast
broadband contracts are described in note 15.
Once a government grant is recognised, any related deferred
income is treated in accordance with IAS 20 ‘Accounting for
Government Grants and Disclosure of Government Assistance’.
Foreign currencies
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the
settlement of transactions and the translation of monetary assets
and liabilities denominated in foreign currencies at period end
exchange rates are recognised in the income statement line which
most appropriately reflects the nature of the item or transaction.
On consolidation, assets and liabilities of foreign undertakings are
translated into sterling at year end exchange rates. The results of
foreign undertakings are translated into sterling at average rates
of exchange for the year (unless this average is not a reasonable
approximation of the cumulative effects of the rates prevailing on
the transaction dates, in which case income and expenses are
translated at the dates of the transactions). Foreign exchange
differences arising on the retranslation of foreign undertakings
are recognised directly in a separate component of equity, the
translation reserve.
121
Strategic report
Governance
Financial statements
Additional information
Termination benefits
Termination benefits (leaver costs) are payable when employment
is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these
benefits. We recognise termination benefits when they are
demonstrably committed to the affected employees leaving
the group.
BT Group plc
Annual Report 2019
4. Significant accounting policies that apply to the
overall financial statements continued
In the event of the disposal of an undertaking with assets and
liabilities denominated in a foreign currency, the cumulative
translation difference associated with the undertaking in the
translation reserve is charged or credited to the gain or loss on
disposal recognised in the income statement.
Research and development
Research expenditure is recognised in the income statement in the
period in which it is incurred. Development expenditure, including
the cost of internally developed software, is recognised in the
income statement in the period in which it is incurred unless it is
probable that economic benefits will flow to the group from the
asset being developed, the cost of the asset can be reliably
measured and technical feasibility can be demonstrated, in which
case it is capitalised as an intangible asset on the balance sheet.
Capitalisation ceases when the asset being developed is ready for
use. Research and development costs include direct and indirect
labour, materials and directly attributable overheads.
Leases
Under IAS 17, the determination of whether an arrangement is,
or contains, a lease is based on the substance of the arrangement
and requires an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or assets
and whether the arrangement conveys the right to use the asset.
Leases of property, plant and equipment where we hold
substantially all the risks and rewards of ownership are classified
as finance leases. Finance lease assets are capitalised at the
commencement of the lease term at the lower of the present
value of the minimum lease payments or the fair value of the
leased asset. The obligations relating to finance leases, net of
finance charges in respect of future periods, are recognised as
liabilities. Leases are subsequently measured at amortised cost
using the effective interest method.
Leases where a significant portion of the risks and rewards are
held by the lessor are classified as operating leases. Rentals are
charged to the income statement on a straight line basis over the
period of the lease.
122
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
5. Segment information
Significant accounting policies that apply to segment information
Operating and reportable segments
Our operating segments are reported based on financial information provided to the ExecutiveCommittee,which is the key management
committee and represents the ‘chief operating decision maker’.
Our organisational structure reflects the different customer groups to which we provide communications products and services via our
customer-facing units: Consumer, Enterprise, Global Services and Openreach. The customer-facing units are supported by an internal service
unit, Technology, and corporate units including procurement and property management.
The customer-facing units are our reportable segments and generate substantially all of our revenue. Technology and the group’s corporate
units are not reportable segments as they did not meet the quantitative thresholds as set out in IFRS 8 ‘Operating Segments’ for any of the years
presented.
We aggregate the remaining operations and include within the ‘Other’ category to reconcile to the consolidated results of the group. The ‘Other’
category includes unallocated Technology costs and our corporate units.
Allocation of certain items to segments
Provisions for the settlement of significant legal, commercial and regulatory disputes, which are negotiated at a group level, are initially recorded
in the ‘Other’ segment. On resolution of the dispute, the full impact is recognised in the results of the relevant customer-facing unit and offset in
the group results through the utilisation of the provision previously charged to the ‘Other’ segment. Settlements which are particularly
significant or cover more than one financial year may fall within the definition of specific items as detailed in note 10.
The costs incurred by Technology and corporate units are recharged to the customer-facing units to reflect the services it provides to them.
Depreciation and amortisation incurred by Technology in relation to the networks and systems it manages and operates on behalf of the
customer-facing units is allocated to the customer-facing units based on their respective utilisation. Capital expenditure incurred by Technology
for specific projects undertaken on behalf of the customer-facing units is allocated based on the value of the directly attributable expenditure
incurred. Where projects are not directly attributable to a particular customer-facing unit, capital expenditure is allocated between them based
on the proportion of estimated future economic benefits.
Specific items are detailed in note 10 and are not allocated to the reportable segments as this reflects how they are reported to the Executive
Committee.Finance expense and income are not allocated to the reportable segments, as the central treasury function manages this activity,
together with the overall net debt position of the group.
Measuring segment performance
Performance of each reportable segment is measured based on adjusted EBITDA. EBITDA is defined as the group profit or loss before interest,
taxation, depreciation and amortisation. Adjusted EBITDA is defined as EBITDA before specific items, net non-interest related finance expense,
and share of profits or losses of associates and joint ventures. Adjusted EBITDA is considered to be a useful measure of the operating
performance of the customer-facing units because it approximates the underlying operating cash flow by eliminating depreciation and
amortisation and also provides a meaningful analysis of trading performance by excluding specific items, which are disclosed separately by virtue
of their size, nature or incidence.
Revenue recognition
Our revenue recognition policy is set out in the following note.
Internal revenue and costs
Most of our internal trading relates to Openreach and arises on rentals, and any associated connection or migration charges, of the UK access
lines and other network products to the customer-facing units, including the use of BT Ireland’s network. This occurs both directly, and also
indirectly, through Technology which is included within the ‘Other’ segment. Enterprise internal revenue arises from Consumer for mobile
Ethernet access and Technology for transmission planning services. Internal revenue arising in Consumer relates primarily to employee
broadband and wi-fi services. Intra-group revenue generated from the sale of regulated products and services is based on market price. Intra-
group revenue from the sale of other products and services is agreed between the relevant customer-facing units and therefore the profitability
of customer-facing units may be impacted by transfer pricing levels.
Geographic segmentation
The UK is our country of domicile and we generate the majority of our revenue from external customers in the UK. The geographic analysis of
revenue is based on the country of origin in which the customer is invoiced. The geographic analysis of non-current assets, which exclude
derivative financial instruments, investments and deferred tax assets, is based on the location of the assets.
BT Group plc
Annual Report 2019
123
Strategic report
Governance
Financial statements
Additional information
5. Segment information continued
Segment revenue and profit
As explained in note 2, our reportable segments changed during the year as a result of a reduction in the number of our customer-
facing units. The BT Consumer and EE segments disclosed in last year’s accounts have been combined into a single reportable segment
named ‘Consumer’, and the Business and Public Sector and Wholesale and Ventures segments now form a single reportable segment,
‘Enterprise’. We also transferred our Northern Ireland Networks business from Enterprise to Openreach and reclassified certain internal
revenues generated by our Ventures businesses as segmental revenue rather than as an internal recovery of cost. The prior year
comparatives presented in this note have been restated to reflect these changes.
Year ended 31 March 2019 (IFRS 15)
Segment revenue
Internal revenue
Revenue from external customersa
Adjusted EBITDAb
Depreciation and amortisationa
Operating profit (loss)a
Specific items (note 10)
Operating profit
Net finance expensec
Share of post tax profit (loss) of associates and joint ventures
Profit before tax
Year ended 31 March 2018 (restated) (IAS 18)
Segment revenue
Internal revenue
Revenue from external customersa
Adjusted EBITDAb
Depreciation and amortisationa
Operating profit (loss)a
Specific items (note 10)
Operating profit
Net finance expensec
Share of post tax profit (loss) of associates and joint ventures
Profit before tax
Year ended 31 March 2017 (restated) (IAS 18)
Segment revenue
Internal revenue
Revenue from external customersa
Adjusted EBITDAb
Depreciation and amortisationa
Operating profit (loss)a
Specific items (note 10)
Operating profit
Net finance expensec
Share of post tax profit (loss) of associates and joint ventures
Profit before tax
Consumer
£m
Enterprise
£m
10,695
(107)
10,588
2,534
(1,024)
1,510
6,292
(359)
5,933
1,990
(634)
1,356
Global
Services
£m
4,735
–
4,735
505
(370)
135
Openreach
£m
Other
£m
5,075
(2,875)
2,200
2,423
(1,468)
955
3
–
3
(60)
(50)
(110)
Consumer
£m
10,360
(103)
10,257
2,376
(992)
1,384
Enterprised
£m
6,647
(441)
6,206
2,077
(635)
1,442
Global
Services
£m
5,013
–
5,013
434
(424)
10
Openreachd
£m
Other
£m
5,278
(3,016)
2,262
2,615
(1,401)
1,214
8
–
8
3
(62)
(59)
Consumer
£m
10,024
(100)
9,924
2,168
(989)
1,179
Enterprised
£m
6,975
(480)
6,495
2,261
(613)
1,648
Global
Services
£m
5,479
–
5,479
495
(439)
56
Openreachd
£m
Other
£m
5,250
(3,076)
2,174
2,734
(1,414)
1,320
10
–
10
(13)
(55)
(68)
Total
£m
26,800
(3,341)
23,459
7,392
(3,546)
3,846
(425)
3,421
(756)
1
2,666
Total
£m
27,306
(3,560)
23,746
7,505
(3,514)
3,991
(610)
3,381
(764)
(1)
2,616
Total
£m
27,738
(3,656)
24,082
7,645
(3,510)
4,135
(968)
3,167
(804)
(9)
2,354
a
b
c
d
Before specific items.
Adjusted EBITDA is defined in the alternative performance measures section on page 185.
Net finance expense includes specific item expense of £139m (2017/18: £218m, 2016/17: £210m). See note 10.
On 1 October 2018 we transferred our Northern Ireland Networks business from Enterprise to Openreach which resulted in an increase in segment revenue, Adjusted EBITDA and Operating profit in
Openreach of £155m, £95m, and £54m and a decrease in segment revenue, Adjusted EBITDA and Operating profit in Enterprise of £117m, £95m, and £54m for the year ended 31 March 2018 and
an increase in segment revenue, Adjusted EBITDA and Operating profit in Openreach of £152m, £101m, and £56m and a decrease in segment revenue, Adjusted EBITDA and Operating profit in
Enterprise of £112m, £101m, and £56m for the year ended 31 March 2017. Additionally, within the Enterprise segment, we reclassified £224m and £242m of internal revenue generated by our
Ventures businesses as segmental revenue rather than as an internal recovery of cost for the years ended 31 March 2018 and 2017, respectively.
124
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
5. Segment information continued
Internal revenue and costs
Year ended 31 March 2019
Internal revenue recorded by
Consumer
Enterprise
Global Services
Openreach
Total
Year ended 31 March 2018
Internal revenue recorded by
Consumer
Enterprisea
Global Services
Openreacha
Total
Year ended 31 March 2017
Internal revenue recorded by
Consumer
Enterprisea
Global Services
Openreacha
Total
Internal cost recorded by
Consumer
£m
Enterprise
£m
–
63
–
920
983
69
–
–
401
470
Global
Services
£m
20
51
–
112
183
Openreach
£m
Other
£m
Total
£m
–
177
–
–
177
18
68
–
1,442
1,528
107
359
–
2,875
3,341
Internal cost recorded by
Consumer
£m
Enterprise
£m
–
130
–
896
1,026
65
–
–
480
545
Global
Services
£m
20
51
–
125
196
Openreach
£m
Other
£m
Total
£m
–
173
–
–
173
18
87
–
1,515
1,620
103
441
–
3,016
3,560
Internal cost recorded by
Consumer
£m
Enterprise
£m
–
148
–
910
1,058
62
–
–
536
598
Global
Services
£m
20
71
–
158
249
Openreach
£m
Other
£m
Total
£m
–
165
–
–
165
18
96
–
1,472
1,586
100
480
–
3,076
3,656
a On 1 October 2018 we transferred our Northern Ireland Networks business from Enterprise to Openreach and we reclassified certain internal revenues generated by our Ventures businesses as
segmental revenue rather than an internal recovery of cost. This increases internal revenue recorded by Enterprise by £224m in the year ended 31 March 2018 and £242m in the year ended 31 March
2017. Internal revenue for Openreach has increased by £38m in the year ended 31 March 2018 and £40m in the year ended 31 March 2017.
Capital expenditure
Year ended 31 March 2019
Intangible assetsa
Property, plant and equipmentb
Capital expenditure
Acquisition of spectruma
Capital expenditure including spectrum
Year ended 31 March 2018 (restated)
Intangible assetsa
Property, plant and equipmentb,c
Capital expenditure
Year ended 31 March 2017 (restated)
Intangible assetsa
Property, plant and equipmentb,c
Capital expenditure
Consumer
£m
Enterprise
£m
Global
Services
£m
Openreach
£m
276
718
994
–
994
180
321
501
–
501
Consumer
£m
Enterprise
£m
236
683
919
180
312
492
Consumer
£m
Enterprise
£m
225
628
853
141
313
454
93
152
245
–
245
Global
Services
£m
92
186
278
Global
Services
£m
126
235
361
82
1,999
2,081
–
2,081
Openreach
£m
70
1,629
1,699
Openreach
£m
74
1,546
1,620
Other
£m
49
93
142
304
446
Other
£m
64
70
134
Other
£m
55
111
166
Total
£m
680
3,283
3,963
304
4,267
Total
£m
642
2,880
3,522
Total
£m
621
2,833
3,454
BT Group plc
Annual Report 2019
125
Strategic report
Governance
Financial statements
Additional information
5. Segment information continued
a Additions to intangible assets as presented in note 14.
b Additions to property, plant and equipment as presented in note 15, inclusive of movement on engineering stores.
c On 1 October 2018 we transferred our Northern Ireland Networks business from Enterprise to Openreach. This decreased property, plant and equipment in Enterprise and increased property, plant and
equipment in Openreach by £41m and £47m in the years ended 31 March 2018 and 31 March 2017 respectively.
Geographic segmentation
Revenue from external customers
Year ended 31 March
UK
Europe, Middle East and Africa, excluding the UK
Americas
Asia Pacific
Revenuea
a
Before specific items.
Non-current assets
At 31 March
UK
Europe, Middle East and Africa, excluding the UK
Americas
Asia Pacific
Non-current assetsa
2019
£m
19,683
2,280
936
560
23,459
2019
£m
30,049
2,217
336
110
32,712
2018
£m
19,687
2,489
996
574
2017
£m
19,421
2,841
1,148
672
23,746
24,082
2018
£m
28,835
2,527
331
109
2017
£m
28,810
2,535
424
149
31,802
31,918
a
Comprising the following balances presented in the group balance sheet: intangible assets; property, plant and equipment; investments in associates and joint ventures; and trade and other receivables.
6. Revenue
We adopted IFRS 15 on 1 April 2018. The impact of initial application of the standard is described in notes 1 and 2.
Significant accounting policies that apply to revenue
On inception of the contract we identify a “performance obligation” for each of the distinct goods or services we have promised to
provide to the customer. The consideration specified in the contract with the customer is allocated to each performance obligation
identified based on their relative standalone selling prices, and is recognised as revenue as they are satisfied.
The table below summarises the performance obligations we have identified for our major service lines and provides information on
the timing of when they are satisfied and the related revenue recognition policy. Also detailed in this note is revenue expected to be
recognised in future periods for contracts in place at 31 March 2019 that contain unsatisfied performance obligations.
Service line
Performance obligations
Revenue recognition policy
ICT and managed
networks
Provision of networked IT services, managed network
services, and arrangements to design and build
software solutions. Performance obligations are
identified for each distinct service or deliverable for
which the customer has contracted, and are
considered to be satisfied over the time period that
we deliver these services or deliverables.
Commitments to provide hardware to customers that
are distinct from the other promises are considered
to be satisfied at the point in time that control passes
to the customer.
Revenue for services is recognised over time using a
measure of progress that appropriately reflects the
pattern by which the performance obligation is
satisfied. For time and material contracts, revenue
is recognised as the service is received by the
customer. Where performance obligations exist for
the provision of hardware, revenue is recognised at
the point in time that the customer obtains control
of the promised asset. For long-term fixed price
contracts revenue recognition will typically be
based on the achievement of contract milestones
and customer acceptance.
126
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
6. Revenue continued
Service line
Performance obligations
Revenue recognition policy
Fixed access
subscriptions
Mobile
subscriptions
Equipment and
other services
Provision of broadband, TV and fixed telephony
services including local, national and international
calls, connections, line rental, and calling features.
Performance obligations exist for each ongoing
service provided to the customer and are satisfied
over the period that the services are provided.
Installation services are recognised as distinct
performance obligations if their relationship with the
other services in the contract is purely functional.
These are satisfied when the customer benefits from
the service. Connection services are not distinct
performance obligations and are therefore combined
with the associated service performance obligation.
Provision of mobile postpaid and prepaid services,
including voice minutes, SMS, and data services.
Performance obligations exist for each ongoing
service provided to the customer and are satisfied
over the period that the services are provided.
Provision of equipment and other services, including
mobile phone handsets and hardware such as set top
boxes and broadband routers provided as part of
customer contracts. Performance obligations are
satisfied at the point in time that control passes to
the customer. For other services, performance
obligations are identified based on the distinct goods
and services we have committed to provide.
Fixed subscription charges are recognised as
revenue on a straight line basis over the period that
the services are provided. Upfront charges for
non-distinct connection and installation services are
deferred as contract liabilities and are recognised as
revenue over the same period. Variable charges such
as call charges are recognised when the related
services are delivered. Where installation activities
are distinct performance obligations, revenue is
recognised at the point in time that the installation
is completed.
Subscription fees, consisting primarily of monthly
charges for access to broadband and other internet
access or voice and data services, are recognised as
the service is provided. One-off services such as calls
outside of plan and excess data usage are
recognised when the service is used.
Revenue from equipment sales is recognised at the
point in time that control passes to the customer.
Where payment is not received in full at the time of
the sale, such as with equipment provided as part of
mobile and fixed access subscriptions, contract
assets are recognised for the amount due from the
customer that will be recovered over the contract
period. Revenue to be recognised is calculated by
reference to the relative standalone selling price of
the equipment. For other services, revenue is
recognised when the related performance
obligations are satisfied, which could be over time or
at a point in time depending on the nature of the
service.
We recognise revenue based on the relative standalone selling price of each performance obligation. Determining the standalone
selling price often requires judgement and may be derived from regulated prices, list prices, a cost-plus derived price, or the price of
similar products when sold on a standalone basis by BT or a competitor. In some cases it may be appropriate to use the contract price
when this represents a bespoke price that would be the same for a similar customer in a similar circumstance.
The fixed element of fixed access and mobile subscription arrangements sold by our Consumer business is typically payable in
advance, with any variable or one-off charges billed in arrears. Payment is received immediately for direct sales of equipment to
customers. Where equipment is provided to customers under mobile and fixed access subscription arrangements, payment for the
equipment is received over the course of the contract term. For sales by our enterprise businesses, invoices are issued in line with
contractual terms. Payments received in advance are recognised as contract liabilities, amounts billed in arrears are recognised as
contract assets.
We do not have any material obligations in respect of returns, refunds or warranties. Where we act as an agent in a transaction, we
recognise commission net of directly attributable costs. Where the actual and estimated costs to completion of the contract exceed
the estimated revenue, a loss is recognised immediately.
We exercise judgement in assessing whether the initial set-up, transition and transformation phases of long-term contracts are
distinct from the other services to be delivered under the contract and therefore represent distinct performance obligations. This
determines whether revenue is recognised in the early stages of the contract, or deferred until delivery of the other services promised
in the contract begins.
BT Group plc
Annual Report 2019
127
Strategic report
Governance
Financial statements
Additional information
6. Revenue continued
We recognise immediately the entire estimated loss for a contract when we have evidence that the contract is unprofitable. If these
estimates indicate that any contract will be less profitable than previously forecast, contract assets may have to be written down to
the extent they are no longer considered to be fully recoverable. We perform ongoing profitability reviews of our contracts in order
to determine whether the latest estimates are appropriate. Key factors reviewed include:
• Transaction volumes or other inputs affecting future revenues which can vary depending on customer requirements, plans, market
position and other factors such as general economic conditions.
• Our ability to achieve key contract milestones connected with the transition, development, transformation and deployment
phases for customer contracts.
• The status of commercial relations with customers and the implications for future revenue and cost projections.
• Our estimates of future staff and third-party costs and the degree to which cost savings and efficiencies are deliverable.
Disaggregation of revenue from contracts with customers
The following table disaggregates revenue from contracts with customers by our major service lines and by reportable segment. The
prior year comparatives have been presented consistent with the presentation in last year’s Annual Report under IAS 18.
Year ended 31 March 2019 (IFRS 15)
ICT and managed networks
Fixed access subscriptions
Mobile subscriptions
Equipment and other services
Revenue before specific items
Specific items (note 10)
Revenue
Year ended 31 March (IAS 18)
ICT and managed networks
Broadband and TV
Mobile
Calls, lines and connections
Transit
Other products and services
Revenue before specific items
Specific items (note 10)
Revenue
Consumer
£m
Enterprise
£m
–
4,564
3,866
2,158
10,588
2,236
2,181
1,277
239
5,933
Global
Services
£m
2,613
362
130
1,630
4,735
Openreach
£m
Other
£m
–
2,135
–
65
2,200
–
–
–
3
3
2018
£m
5,530
4,655
6,451
5,126
265
1,719
Total
£m
4,849
9,242
5,273
4,095
23,459
(31)
23,428
2017
£m
5,927
4,477
6,358
5,069
404
1,847
23,746
24,082
(23)
23,723
(20)
24,062
Revenue expected to be recognised in future periods for performance obligations that are not complete (or are partially complete) as at
31 March 2019 is £14,296m. Of this, £9,425m relates to ICT and managed services contracts and equipment and other services which
will substantially be recognised as revenue within five years. Fixed access and mobile subscription services typically have shorter
contract periods and so £4,871m will substantially be recognised as revenue within two years. Revenue recognised this year relating to
performance obligations that were satisfied, or partially satisfied, in previous years was not material.
Contract assets and liabilities
Significant accounting policies that apply to contract assets and liabilities
We recognise contract assets for goods and services for which control has transferred to the customer before consideration is due.
These assets mainly relate to mobile handsets provided upfront but paid for over the course of a contract. Contract assets are
reclassified as receivables when the right to payment becomes unconditional and we have billed the customer.
Contract liabilities are recognised when we have received advance payment for goods and services that we have not transferred to
the customer. These primarily relate to fees received for connection and installation services that are not distinct performance
obligations.
Where the initial set-up, transition or transformation phase of a long-term contract is considered to be a distinct performance
obligation we recognise a contract asset for any work performed but not billed. Conversely a contract liability is recognised where
these activities are not distinct performance obligations and we receive upfront consideration. In this case eligible costs associated
with delivering these services are capitalised as fulfilment costs, see note 17.
We provide for expected lifetime losses on contract assets following the policy set out in note 17.
128
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
6. Revenue continued
Contract assets and liabilities recognised at 31 March 2019 are as follows:
Contract assets
Current
Non-current
Contract liabilities
Current
Non-current
31 March 2019
£m
1 April 2018
£m
1,353
249
1,602
1,225
200
1,425
1,417
198
1,615
1,406
87
1,493
£1,216m of the contract liability recognised at 1 April 2018 was recognised as revenue during the year. Impairment losses of £36m
were recognised on contract assets during the year. Other than business-as-usual movements there were no significant changes in
contract asset and liability balances during the year.
7. Operating costs
Year ended 31 March
Operating costs by nature
Staff costs:
Wages and salaries
Social security costs
Other pension costs
Share-based payment expense
Total staff costs
Own work capitalised
Net staff costs
Net indirect labour costsa
Net labour costs
Product costs and sales commissionsb
Payments to telecommunications operators
Property and energy costs
Network operating and IT costs
TV programme rights charges
Provision and installationb
Marketing and salesb
Other operating costsb
Other operating income
Depreciation of property, plant and equipment
Owned assets
Held under finance leases
Amortisation of intangible assetsc
Total operating costs before specific items
Specific items
Total operating costs
Operating costs before specific items include the following:
Leaver costsd
Research and development expendituree
Operating lease charges
Foreign currency gains
Inventories recognised as an expense
Government grants
Notes
2019
£m
2018
£m
2017
£m
20
22
15
15
14
10
4,264
440
611
67
5,382
(834)
4,548
267
4,815
4,464
2,059
1,325
1,026
841
624
322
831
(240)
2,390
2
1,154
19,613
394
20,007
17
643
801
(11)
2,388
(3)
4,229
461
624
84
5,398
(798)
4,600
315
4,915
4,429
2,306
1,285
963
763
657
317
830
(224)
2,381
10
1,123
4,134
477
521
57
5,189
(813)
4,376
399
4,775
4,588
2,653
1,202
983
714
669
365
675
(187)
2,382
10
1,118
19,755
19,947
587
948
20,342
20,895
50
632
732
0
2,588
(3)
86
638
692
(12)
2,680
(5)
a Net of capitalised indirect labour costs of £672m (2017/18: £612m, 2016/17: £463m).
b Included within ‘other operating costs’ in prior years were costs relating to product costs and commissions; provision and installation; and marketing and sales. These are now presented separately. The
‘other operating costs’ comparative for 2017/18 and 2016/17 has been re-presented for consistency.
c Excludes £nil (2017/18: £nil, 2016/17: £62m) of amortisation presented as specific items which relate to a write-off of software costs as a result of the integration of EE.
d Leaver costs are included within wages and salaries, except for leaver costs of £257m (2017/18: £168m, 2016/17: £37m) associated with restructuring and EE integration costs, which have been
recorded as specific items.
e Research and development expenditure reported in the income statement includes amortisation of £581m (2017/18: £573m, 2016/17: £577m) in respect of internally developed computer software
and operating expenses of £62m (2017/18: £59m, 2016/17: £61m). In addition, the group capitalised software development costs of £472m (2017/18: £450m, 2016/17: £457m).
BT Group plc
Annual Report 2019
129
Strategic report
Governance
Financial statements
Additional information
7. Operating costs continued
Who are our key management personnel and how are they compensated?
Key management personnel comprise executive and non-executive directors and members of the ExecutiveCommittee.
Compensation of key management personnel is shown in the table below:
Year ended 31 March
Short-term employee benefits
Post employment benefitsa
Share-based payments
Termination benefits
2019
£m
13.5
1.2
5.0
0.6
20.3
2018
£m
11.8
1.3
6.2
2.2
21.5
2017
£m
10.5
1.3
5.6
–
17.4
a Post employment benefits comprise cash pensions allowances paid to the Chief Executive Officer and Chief Financial Officer. The group does not contribute to defined contribution or defined benefit
pension schemes on behalf of key management personnel.
Key management personnel are compensated solely in the form of cash and share-based payments. During the current and prior years,
key management personnel made no gains from exercise of share options.
8. Employees
Number of employees in the groupa
UK
Non-UK
Total employees
Year end
000
84.3
22.4
2019
Average
000
83.4
23.1
Year end
000
82.2
23.6
2018
Average
000
82.5
23.7
Year end
000
82.8
23.6
2017
Average
000
82.2
22.8
106.7
106.5
105.8
106.2
106.4
105.0
As explained in note 2, we reduced the number of our customer-facing units during the year. BT Consumer and EE have been combined
into ‘Consumer’, and Business and Public Sector and Wholesale and Ventures have been combined into ‘Enterprise’. We also transferred
c700 employees in our Northern Ireland Networks business from Enterprise to Openreach. The prior year comparatives presented in the
table below have been restated to reflect these changes.
Number of employees in the groupa
Consumer
Enterpriseb
Global Services
Openreachb
Other
Total employees
Year end
000
19.7
13.4
16.6
33.2
23.8
2019
Average
000
19.0
13.8
16.8
31.9
25.0
Year end
000
18.2
13.2
16.9
31.2
26.3
2018
Average
000
18.0
13.5
17.3
31.1
26.3
Year end
000
17.9
13.4
17.5
30.9
26.7
2017
Average
000
16.8
13.2
17.4
31.6
26.0
106.7
106.5
105.8
106.2
106.4
105.0
a These reflect the full-time equivalent of full and part-time employees.
b The 2018 and 2017 comparatives have been restated to reflect the change in segments and the transfer of Northern Ireland Networks as described above.
130
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
9. Audit, audit related and other non-audit services
The following fees were paid or are payable to the company’s auditors, KPMG LLP and other firms in the KPMG network, for the year
ended 31 March 2019. Figures in the table below for the years ended 31 March 2017 and 2018 are in respect of fees paid to the
company’s previous auditors, PricewaterhouseCoopers LLP.
Year ended 31 March
Fees payable to the company’s auditors and its associates for:
Audit servicesa,b
The audit of the parent company and the consolidated financial statements
The audit of the company’s subsidiaries
Audit related assurance servicesc
Other non-audit services
Taxation compliance servicesd
Taxation advisory servicese
All other assurance servicesf
All other servicesg
Total services
2019
£000
2018
£000
2017
£000
8,165
6,061
5,418
5,877
14,226
11,295
4,316
5,675
9,991
2,236
1,771
1,865
–
–
748
210
958
–
–
211
592
803
366
111
200
2,332
3,009
17,420
13,869
14,865
a Services in relation to the audit of the parent company and the consolidated financial statements, including fees for reports under section 404 of the Sarbanes-Oxley Act. This also includes fees payable
for the statutory audits of the financial statements of subsidiary companies. This excludes amounts for the audit of BT Group Employee Share Ownership Trust and Ilford Trustees (Jersey) Limited
amounting to £32,000.
b During the year a further £446,000 of fees were payable to PricewaterhouseCoopers LLP in relation to the audit of 2017/18 subsidiary accounts and the audit of our restated IAS 19 accounting
valuation of retirement benefit obligations, which have not been included in the 2019 balances in the above table.
c Services in relation to other statutory filings or engagements that are required by law or regulation to be carried out by an appointed auditor. This includes fees for the review of interim results, the
accrued fee for the audit of the group’s regulatory financial statements and reporting associated with the group’s US debt shelf registration.
d Services relating to tax returns, tax audits, monitoring and enquiries.
e Fees payable for all taxation advisory services not falling within taxation compliance.
f All other assurance services include fees payable to KPMG LLP for agreed upon procedures performed on the estimated impact of the new IFRS 15 revenue accounting standard, which took effect from
1 April 2018 for the 2017/18 audit.
g Fees payable for all non-audit services not covered above, principally comprising other advisory services.
The BT Pension Scheme is an associated pension fund as defined in the Companies (Disclosure of Auditor Remuneration and Liability
Limitation Agreements) (Amendment) Regulations 2011. In the year ended 31 March 2019 KPMG LLP received total fees from the BT
Pension Scheme of £1.1m (PricewaterhouseCoopers LLP: 2017/18: £2.1m, 2016/17: £2.1m) in respect of the following services:
Year ended 31 March
Audit of financial statements of associates
Audit-related assurance services
Taxation compliance services
Taxation advisory services
Other non-audit services
Total services
10. Specific items
2019
£000
1,005
53
–
–
62
1,120
2018
£000
345
–
153
1,074
565
2,137
2017
£000
251
–
210
493
1,168
2,122
Significant accounting policies that apply to specific items
We separately identify and disclose those items that in management’s judgement need to be disclosed by virtue of their size, nature
or incidence (termed ‘specific items’). Specific items are used to derive the adjusted results as presented in the consolidated income
statement presented on page 110. Adjusted results are consistent with the way that financial performance is measured by
management and assists in providing an additional analysis of the reporting trading results of the group. Specific items may not be
comparable to similarly titled measures used by other companies.
In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors.
Examples of charges or credits meeting the above definition and which have been presented as specific items in the current and/or
prior years include acquisitions/disposals of businesses and investments, retrospective regulatory matters, historical insurance or
litigation claims, business restructuring programmes, asset impairment charges, property rationalisation programmes, net interest on
pensions and the settlement of multiple tax years. In the event that items meet the criteria, which are applied consistently from year
to year, they are treated as specific items.
BT Group plc
Annual Report 2019
10. Specific items continued
Year ended 31 March
Revenue
Italian business investigation
Retrospective regulatory matters
Operating costs
EE acquisition warranty claims
Restructuring charges
EE integration costs
Property rationalisation costs
Pension equalisation costs
Retrospective regulatory matters
Italian business investigation
Out of period irrecoverable VAT
Profit (loss) on disposal of businesses
Operating loss
Net finance expense
Interest expense on retirement benefit obligation
Interest on out of period irrecoverable VAT
Net specific items charge before tax
Taxation
Tax credit on specific items above
Tax credit on re-measurement of deferred tax
Net specific items charge after tax
131
Strategic report
Governance
Financial statements
Additional information
2019
£m
2018
£m
2017
£m
–
31
31
–
386
–
36
26
(4)
(55)
–
5
394
425
139
–
139
564
(112)
–
(112)
452
–
23
23
225
241
46
28
–
26
22
–
(1)
587
610
218
–
218
828
(87)
–
(87)
741
22
(2)
20
–
–
215
–
–
481
238
30
(16)
948
968
209
1
210
1,178
(154)
(63)
(217)
961
Restructuring charges
During the year we incurred charges of £386m (2017/18: £241m, 2016/17: £nil), primarily relating to leaver costs. These costs
reflect projects within our group-wide cost transformation programme and include costs related to the remaining integration of EE and
£23m costs to close the BT Pension Scheme and provide transition payments to affected employees.
EE integration costs
EE integration costs incurred in prior years (2017/18: £46m, 2016/17: £215m) relate to EE related restructuring and leaver costs. In
2016/17, this also included a £62m amortisation charge relating to the write-off of IT assets as we integrated the EE and BT IT
infrastructure. In the current year remaining EE integration activities have been combined into the wider restructuring programme.
Retrospective regulatory matters
We have recognised a net charge of £27m (2017/18: £49m, 2016/17: £479m) in relation to regulatory matters in the year. This
reflects the completion of the majority of compensation payments to other communications providers in relation to Ofcom’s March
2017 findings of its investigation into our historical practices on Deemed Consent by Openreach, and new matters arising. Of this,
£31m is recognised in revenue offset by £4m in operating costs.
Pension equalisation costs
During the year we recognised a charge of £26m (2017/18: £nil, 2016/17: £nil) in relation to the high court requirement to equalise
pension benefits between men and women due to guaranteed minimum pension (GMP).
Property rationalisation costs
We have recognised a charge of £36m (2017/18: £28m, 2016/17: £nil) relating to the rationalisation of the group’s property
portfolio and a reassessment of lease-end obligations.
Italian business investigation
During the year we have released £(55)m provisions relating to settlement of various matters in our Italian business (2017/18: a charge
of £22m, 2016/17: a charge of £238m).
Interest expense on retirement benefit obligation
During the year we incurred £139m (2017/18: £218m, 2016/17: 209m) of interest costs in relation to our defined benefit pension
obligations. See note 20 for more details.
Tax on specific items
A tax credit of £112m (2017/18: £87m, 2016/17: 154m) was recognised in relation to specific items.
132
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
10. Specific items continued
EE acquisition warranty claims
In the prior year we reached settlements with Deutsche Telekom and Orange in respect of any warranty claims under the 2015 EE
acquisition agreement, arising from the issues previously announced regarding our operations in Italy. This represents a full and final
settlement of these issues and resulted in a specific item charge of £225m.
11. Taxation
Significant accounting policies that apply to taxation
Current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the
countries where the group’s subsidiaries, associates and joint ventures operate and generate taxable income. We periodically
evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and
establish provisions where appropriate on the basis of the amounts expected to be paid to tax authorities.
Deferred tax is recognised, using the liability method, in respect of temporary differences between the carrying amount of our assets
and liabilities and their tax base. Deferred tax is determined using tax rates that are expected to apply in the periods in which the
asset is realised or liability settled, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet
date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Any remaining deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that
there will be suitable taxable profits, within the same jurisdiction, in the foreseeable future against which the deductible temporary
difference can be utilised. Deferred tax balances for which there is a right of offset within the same jurisdiction are presented net on
the face of the group balance sheet as permitted by IAS 12, with the exception of deferred tax related to our pension schemes which
is disclosed within deferred tax assets.
Critical accounting judgements and key estimates made in accounting for taxation
We seek to pay tax in accordance with the laws of the countries where we do business. However, in some areas these laws are
unclear, and it can take many years to agree an outcome with a tax authority or through litigation. We estimate our tax on
country-by-country and issue-by-issue bases. Our key uncertainties are whether EE’s tax losses will be available to us, whether our
intra-group trading model will be accepted by a particular tax authority and whether intra-group payments are subject to
withholding taxes. We provide for the most likely outcome where an outflow is probable, but the agreed amount can differ materially
from our estimates. Approximately 85% by value of the provisions are under active tax authority examination and are therefore
likely to be re-estimated or resolved in the coming 12 months. £252m (2017/18: £240m) is included in current tax liabilities in
relation to these uncertainties.
Under a downside case an additional amount of £556m could be required to be paid, of which £474m would relate to EE losses. This
amount is not provided as we don’t consider this outcome to be probable.
Deciding whether to recognise deferred tax assets is judgemental. We only recognise them when we consider it is probable that they
can be recovered. In making this judgement we consider evidence such as historical financial performance, future financial plans and
trends, the duration of existing customer contracts and whether our intra-group pricing model has been agreed by the relevant tax
authority.
The value of the group’s income tax assets and liabilities is disclosed on the group balance sheet on page 112. The value of the
group’s deferred tax assets and liabilities is disclosed below.
BT Group plc
Annual Report 2019
11. Taxation continued
Analysis of our taxation expense for the year
Year ended 31 March
United Kingdom
Corporation tax at 19% (2017/18: 19%, 2016/17: 20%)
Adjustments in respect of earlier years
Non-UK taxation
Current
Adjustments in respect of earlier years
Total current tax expense
Deferred taxation
Origination and reversal of temporary differences
Adjustments in respect of earlier years
Impact of change in UK corporation tax rate to 17% (2017/18: 17%, 2016/17: 17%)
Remeasurement of temporary differences
Total deferred taxation (expense) credit
Total taxation expense
133
Strategic report
Governance
Financial statements
Additional information
2019
£m
(434)
(9)
(74)
15
(502)
(20)
2
–
13
(5)
2018
£m
2017
£m
(578)
37
(66)
23
(584)
46
(57)
–
11
–
(555)
33
(109)
–
(631)
96
26
63
–
185
(446)
(507)
(584)
Factors affecting our taxation expense for the year
The taxation expense on the profit for the year differs from the amount computed by applying the UK corporation tax rate to the profit
before taxation as a result of the following factors:
Year ended 31 March
Profit before taxation
Expected taxation expense at UK rate of 19% (2017/18: 19%, 2016/17: 20%)
Effects of:
(Higher) lower taxes on non-UK profits
Net permanent differences between tax and accountinga
Adjustments in respect of earlier yearsb
Prior year non-UK losses used against current year profits
Non-UK losses not recognisedc
Other deferred tax assets not recognised
Lower taxes on profit on disposal of business
Re-measurement of deferred tax balances
Other non-recurring items
Total taxation expense
Exclude specific items (note 10)
Total taxation expense before specific items
2019
£m
2,666
(506)
(7)
(36)
8
21
–
–
–
13
–
(507)
(112)
(619)
2018
£m
2017
£m
2,616
2,354
(497)
(471)
(8)
(100)
3
16
(9)
–
–
11
–
(584)
(87)
(671)
(29)
(183)
59
120
(8)
–
3
63
–
(446)
(217)
(663)
a Includes income that is not taxable or UK income taxable at a different rate, and expenses for which no tax relief is received. Examples include some types of depreciation and amortisation and the
benefit of R&D tax incentives.
b Reflects the differences between initial accounting estimates and tax returns submitted to tax authorities, including the release and establishment of provisions for uncertain tax positions.
c Reflects losses made in countries where it has not been considered appropriate to recognise a deferred tax asset, as future taxable profits are not probable.
Tax components of other comprehensive income
Year ended 31 March
Tax on items that will not be reclassified to the income statement
Pension remeasurementsa
Tax on items that have been or may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations
Fair value movements on cash flow hedges
net fair value gains or losses
recognised in income and expense
Current tax creditb
Deferred tax (expense) credit
2019
Tax credit
(expense)
£m
2018
Tax credit
(expense)
(Restated)
£m
2017
Tax credit
(expense)
£m
384
(4)
(37)
–
343
395
(52)
343
(263)
416
(9)
21
57
(47)
(262)
203
(465)
(262)
(131)
139
445
122
323
445
a Certain results have been restated to reflect the update to the calculation of our IAS 19 accounting valuation of retirement benefit obligations. See note 2.
b Includes £391m (2017/18: £212m, 2016/17: £110m) relating to cash contributions made to reduce retirement benefit obligations.
134
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
11. Taxation continued
Tax (expense) credit recognised directly in equity
Year ended 31 March
Tax (expense) credit relating to share-based payments
Deferred taxation
At 1 April 2017
Expense (credit) recognised in the income statement
Expense (credit) recognised in other comprehensive
income (restated)a
Expense (credit) recognised in equity
Exchange differences
Transfer to current tax
At 31 March 2018
Non-current
Deferred tax asset
Deferred tax liability
At 1 April 2018
Expense (credit) recognised in the income statement
Expense (credit) recognised in other comprehensive
income
Expense (credit) recognised in equity
Exchange differences
At 31 March 2019
Non-current
Deferred tax asset
Deferred tax liability
At 31 March 2019
Fixed asset
temporary
differences
£m
1,432
11
Retirement
benefit
obligationsb
£m
(1,537)
(104)
Share-
based
payments
£m
(17)
4
–
–
–
17
475
–
–
–
1,460
(1,166)
(41)
1,501
1,460
(60)
–
–
–
(1,166)
–
(1,166)
(59)
15
–
–
1,400
(1,210)
(27)
1,427
1,400
(1,210)
–
(1,210)
–
6
–
–
(7)
(7)
–
(7)
1
–
(1)
1
(6)
(6)
–
(6)
Tax
losses
£m
(270)
89
–
–
(2)
–
(183)
(183)
–
(183)
114
–
–
(1)
(70)
(70)
–
(70)
2019
£m
–
2018
£m
(2)
2017
£m
(6)
Other
£m
Jurisdictional
offset
£m
Total
(Restated)
£m
(85)
–
(10)
–
5
–
(90)
(90)
–
(90)
(1)
37
–
–
(54)
(54)
–
(54)
–
–
–
–
–
–
–
(477)
–
465
6
3
17
14
161
(161)
(1,326)
1,340
–
–
–
–
–
–
14
(5)
52
(1)
–
60
20
(20)
–
(1,347)
1,407
60
a Certain results have been restated to reflect the update to the calculation of our IAS 19 accounting valuation of retirement benefit obligations. See note 2.
b Includes a deferred tax asset of £2m (2017/18: £2m) arising on contributions payable to defined contribution pension plans.
The majority of the deferred tax assets and liabilities noted above are anticipated to be realised after more than 12 months.
What factors affect our future tax charges?
The rate of UK corporation tax will change from 19% to 17% on 1 April 2020. As deferred tax assets and liabilities are measured at the
rates that are expected to apply in the periods of the reversal, deferred tax balances at 31 March 2019 have been calculated at the rate
at which the relevant balance is expected to be recovered or settled.
What are our unrecognised tax losses and other temporary differences?
At 31 March 2019 we had operating losses and other temporary differences carried forward in respect of which no deferred tax assets
were recognised amounting to £4.2bn (2017/18: £4.1bn). Our other temporary differences have no expiry date restrictions. The
expiry date of operating losses carried forward is dependent upon the tax law of the various territories in which the losses arose.
A summary of expiry dates for losses in respect of which restrictions apply is set out below:
At 31 March 2019
Restricted losses
Europe
Americas
Other
Total restricted losses
Unrestricted operating losses
Other temporary differences
Total
£m
16
205
3
224
3,905
108
4,237
Expiry
2019–2038
2019–2038
2019–2038
No expiry
No expiry
BT Group plc
Annual Report 2019
135
Strategic report
Governance
Financial statements
Additional information
11. Taxation continued
At 31 March 2019 we had UK capital losses carried forward in respect of which no deferred tax assets were recognised amounting to
£16.9bn (2017/18: £16.9bn). These losses have no expiry date, but we consider the future utilisation of significant amounts of these
losses to be remote.
At 31 March 2019 the undistributed earnings of non-UK subsidiaries were £2.5bn (2017/18: £2.4bn). No deferred tax liabilities have
been recognised in respect of these unremitted earnings because the group is in a position to control the timing of any dividends from
subsidiaries and hence any tax consequences that may arise. Under current tax rules, tax of £18.2m (2017/18: £23.0m) would arise if
these earnings were to be repatriated to the UK. On 29 March 2017, the UK Government notified the EU of its intention to withdraw
membership from the EU. Depending on the outcome of negotiations we could cease to benefit from the EU Parent Subsidiary directive
on dividends paid by our EU subsidiaries. In this event, additional tax of up to £27.5m could arise if the undistributed earnings of EU
subsidiaries of £970m were to be repatriated to the UK.
12. Earnings per share
How are earnings per share calculated?
Basic earnings per share is calculated by dividing the profit after tax attributable to equity shareholders by the weighted average
number of shares in issue after deducting the own shares held by employee share ownership trusts and treasury shares.
In calculating the diluted earnings per share, share options outstanding and other potential shares have been taken into account where
the impact of these is dilutive. Options over 36m shares (2017/18: 23m shares, 2016/17: 27m shares) were excluded from the
calculation of the total diluted number of shares as the impact of these is antidilutive.
Year ended 31 March
Basic weighted average number of shares (millions)
Dilutive shares from share options (millions)
Dilutive shares from executive share awards (millions)
Diluted weighted average number of shares (millions)
Basic earnings per share
Diluted earnings per share
2019
9,912
6
57
9,975
21.8p
21.6p
2018
9,911
2
48
9,961
20.5p
20.4p
2017
9,938
27
29
9,994
19.2p
19.1p
The earnings per share calculations are based on profit after tax attributable to equity shareholders of the parent company which
excludes non-controlling interests. Profit after tax was £2,159m (2017/18: £2,032m, 2016/17: £1,908m) and profit after tax
attributable to non-controlling interests was £3m (2017/18: £4m, 2016/17: £1m). Profit attributable to non-controlling interests is
not presented separately in the financial statements as it is not material.
13. Dividends
What dividends have been paid and proposed for the year?
The Board recommends that a final dividend in respect of the year ended 31 March 2019 of 10.78p per share will be paid to
shareholders on 9 September 2019 (2017/18: 10.55p paid to shareholders on 3 September), taking the full year proposed dividend
per share in respect of 2018/19 to 15.4p (2017/18: 15.4p, 2016/17: 15.4p) which amounts to approximately £1,527m (2017/18:
£1,524m, 2016/17: £1,532m). This final dividend is subject to approval by shareholders at the Annual General Meeting and therefore
the liability of approximately £1,069m (2017/18: £1,044m, 2016/17: £1,050m) has not been included in these financial
statements. The proposed dividend will be payable to all shareholders on the Register of Members on 9 August 2019. The election date
for participation in BT’s Dividend Investment Plan in respect of this dividend is 23 August 2019.
The amount of £1,503m (2017/18: £1,524m, 2015/16: £1,436m) for the final and interim dividends is disclosed in our statement of
changes in equity and analysed below. This value may differ from the amount shown for equity dividends paid in the group cash flow
statement, which represents the actual cash paid in relation to dividend cheques that have been presented over the course of the
financial year.
Year ended 31 March
Final dividend in respect of the prior year
Interim dividend in respect of the current year
2019
2018
2017
pence
per share
10.55
4.62
15.17
£m
1,045
458
1,503
pence
per share
10.55
4.85
15.40
£m
1,044
480
1,524
pence
per share
9.60
4.85
£m
954
482
14.45
1,436
136
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
14. Intangible assets
Significant accounting policies that apply to intangible assets
We recognise identifiable intangible assets where we control the asset, it is probable that future economic benefits attributable to
the asset will flow to the group, and we can reliably measure the cost of the asset. We amortise all intangible assets, other than
goodwill, over their useful economic life. The method of amortisation reflects the pattern in which the assets are expected to be
consumed. If the pattern cannot be determined reliably, the straight line method is used.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the identifiable net assets
(including intangible assets) of the acquired business. Our goodwill impairment policy is set out later in this note.
Acquired intangible assets – customer relationships and brands
Intangible assets such as customer relationships or brands acquired through business combinations are recorded at fair value at the
date of acquisition and subsequently carried at amortised cost. Assumptions are used in estimating the fair values of these
relationships or brands and include management’s estimates of revenue and profits to be generated by them.
Telecommunications licences
Licence fees paid to governments, which permit telecommunications activities to be operated for defined periods, are initially
recorded at cost and amortised from the time the network is available for use to the end of the licence period or where our usage
can extend beyond the initial licence period, over the period we expect to benefit from the use of the licences, which is typically
20 years. Licences acquired through business combinations are recorded at fair value at the date of acquisition and subsequently
carried at amortised cost. The fair value is based on management’s assumption of future cash flows using market
expectations at acquisition date.
Computer software
Computer software comprises computer software licences purchased from third parties, and also the cost of internally developed
software. Computer software licences purchased from third parties are initially recorded at cost. We only capitalise costs directly
associated with the production of internally developed software, including direct and indirect labour costs of development, where it
is probable that the software will generate future economic benefits, the cost of the asset can be reliably measured and technical
feasibility can be demonstrated, in which case it is capitalised as an intangible asset on the balance sheet. Costs which do not meet
these criteria and research costs are expensed as incurred.
Our development costs which give rise to internally developed software include upgrading the network architecture or functionality
and developing service platforms aimed at offering new services to our customers.
Other
Other intangible assets include website development costs and other licences. Items are capitalised at cost and amortised on a
straight line basis over their useful economic life or the term of the contract.
Estimated useful economic lives
The estimated useful economic lives assigned to the principal categories of intangible assets are as follows:
• Computer software
• Telecommunications licences
• Customer relationships and brands
2 to 10 years
2 to 20 years
1 to 15 years
Impairment of intangible assets
Intangible assets with finite useful lives are tested for impairment if events or changes in circumstances (assessed at each reporting
date) indicate that the carrying amount may not be recoverable. When an impairment test is performed, the recoverable amount is
assessed by reference to the higher of the net present value of the expected future cash flows (value in use) of the relevant cash
generating unit and the fair value less costs to dispose.
Goodwill is reviewed for impairment at least annually as described below. Impairment losses are recognised in the income statement,
as a specific item. If a cash generating unit is impaired, impairment losses are allocated firstly against goodwill, and secondly on a
pro-rata basis against intangible and other assets.
BT Group plc
Annual Report 2019
14. Intangible assets continued
137
Strategic report
Governance
Financial statements
Additional information
Customer
relationships
and brands
£m
Telecoms
licences
and other
£m
Internally
developed
software
£m
Goodwill
£m
Purchased
software
£m
8,034
–
14
(3)
(100)
7,945
–
(2)
–
63
8,006
–
–
–
–
–
–
–
–
–
–
3,422
–
–
–
(12)
3,410
–
–
–
7
3,417
813
379
–
(1)
1,191
377
–
–
3
1,571
2,945
–
3
(3)
6
2,951
304
(3)
4
(4)
3,252
280
141
(3)
3
421
142
(3)
3
(3)
560
4,363
517
–
(55)
(3)
4,822
520
(945)
120
1
4,518
3,193
525
(36)
(2)
3,680
525
(941)
(43)
–
3,221
Total
£m
20,617
642
17
(474)
(100)
20,702
984
(1,091)
44
59
1,853
125
–
(413)
9
1,574
160
(141)
(80)
(8)
1,505
20,698
1,302
78
(426)
9
963
110
(147)
43
(8)
961
5,588
1,123
(465)
9
6,255
1,154
(1,091)
3
(8)
6,313
Cost
At 1 April 2017
Additions
Acquisitions
Disposals and adjustmentsa
Exchange differences
At 31 March 2018
Additions
Disposals and adjustmentsa
Transfers
Exchange differences
At 31 March 2019
Accumulated amortisation
At 1 April 2017
Charge for the year
Disposals and adjustmentsa
Exchange differences
At 31 March 2018
Charge for the year
Disposals and adjustmentsa
Transfers
Exchange differences
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
8,006
7,945
1,846
2,219
2,692
2,530
1,297
1,142
544
611
14,385
14,447
a Fully depreciated assets in the group’s fixed asset registers were reviewed during the year, as part of the group’s annual asset verification exercise, and certain assets that were no longer in use have been
written off, reducing cost and accumulated depreciation by £1.0bn (2017/18: £0.4bn).
Impairment of goodwill
Significant accounting policies that apply to impairment of goodwill
We perform an annual goodwill impairment review.
Goodwill recognised in a business combination does not generate cash flows independently of other assets or groups of assets. As a
result, the recoverable amount, being the value in use, is determined at a cash generating unit (CGU) level. These CGUs represent the
smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other groups
of assets. Our CGUs are deemed to be legacy BT Consumer, legacy EE, Enterprise, and Global Services.
We allocate goodwill to each of the Cash Generating Units (CGUs) that we expect to benefit from the business combination. Each CGU
to which goodwill is allocated represents the lowest level within the group at which the goodwill is monitored for internal
management purposes.
The value in use of each CGU is determined using cash flow projections derived from financial plans approved by the Board covering a
five-year period. They reflect management’s expectations of revenue, EBITDA growth, capital expenditure, working capital and
operating cash flows, based on past experience and future expectations of business performance. Cash flows beyond the fifth year
have been extrapolated using perpetuity growth rates.
Critical accounting estimates and key judgements made in reviewing goodwill for impairment
Determining our CGUs
The determination of our CGUs is judgemental. The identification of CGUs involves an assessment of whether the asset or group of
assets generate largely independent cash inflows. This involves consideration of how our core assets are operated and whether these
generate independent revenue streams. During the year we reviewed our CGUs and have brought together Business and Public
Sector and Wholesale and Ventures into ‘Enterprise’, aligning our CGUs to our customer-facing units. The legacy BT Consumer and
EE CGUs remain as two separate CGUs due to their having independent cash flows.
138
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
14. Intangible assets continued
Estimating value in use
Our value in use calculations require estimates in relation to uncertain items, including management’s expectations of future revenue
growth, operating costs, profit margins, operating cash flows, and the discount rate for each CGU. Future cash flows used in the value
in use calculations are based on our latest Board-approved five-year financial plans. Expectations about future growth reflect the
expectations of growth in the markets to which the CGU relates. The future cash flows are discounted using a pre-tax discount rate
that reflects current market assessments of the time value of money. The discount rate used in each CGU is adjusted for the risk
specific to the asset, including the countries in which cash flow will be generated, for which the future cash flow estimates have not
been adjusted.
We tested our goodwill for impairment as at 31 December 2018. The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment and sensitivities are disclosed below.
Cost
At 1 April 2017
Exchange differences
Acquisitions and disposals
At 31 March 2018
Transfer
Exchange differences
Acquisitions and disposals
At 31 March 2019
Legacy BT
Consumer
£m
1,183
–
–
1,183
–
–
–
1,183
Legacy EE
£m
Enterprise
£m
Business and
Public Sector
Wholesale and
Ventures
2,768
–
–
2,768
–
–
–
2,768
–
–
–
–
3,504
5
–
3,509
2,570
(8)
–
2,562
(2,562)
–
–
–
942
–
–
942
(942)
–
–
–
Global
Services
£m
571
(92)
11
490
–
58
(2)
546
Total
£m
8,034
(100)
11
7,945
–
63
(2)
8,006
What discount rate have we used?
The pre-tax discount rates applied to the cash flow forecasts are derived from our post-tax weighted average cost of capital. The
assumptions used in the calculation of the group’s weighted average cost of capital are benchmarked to externally available data. The
pre-tax discount rate used in performing the value in use calculation in 2018/19 was 8.2% (2017/18: 8.4%). We’ve used the same
discount rate for all CGUs except Global Services where we have used 8.7% (2017/18: 8.8%) reflecting higher risk in some of the
countries in which Global Services operates.
What growth rates have we used?
The perpetuity growth rates are determined based on the forecast market growth rates of the regions in which the CGU operates, and
they reflect an assessment of the long-term growth prospects of that market. The growth rates have been benchmarked against
external data for the relevant markets. None of the growth rates applied exceed the expected long-term average growth rates for those
markets or sectors. We used a perpetuity growth rate of 2.4% (2017/18: 2.3%) for Global Services and 2.0% (2017/18: 2.0%) for
Enterprise and our legacy BT Consumer and EE CGUs.
What sensitivities have we applied?
There is significant headroom in our Enterprise and legacy BT Consumer and EE CGUs. For Global Services, the value in use exceeds the
carrying value of the CGU by approximately £1,198m (2017/18: £776m). Any of the following changes in assumptions in isolation
would cause the recoverable amount for the CGU to equal its carrying amount:
• a reduction in the perpetuity growth rate from our 2.4% assumption to a revised assumption of a perpetuity decline rate of 4.1%;
• an increase in the discount rate from our 8.7% assumption to a revised assumption of 13.6%; or
• shortfalls in trading performance against forecast resulting in operating cash flows decreasing by 42% each year and in perpetuity.
15. Property, plant and equipment
Significant accounting policies that apply property, plant and equipment
Our property, plant and equipment is included at historical cost, net of accumulated depreciation, government grants and any
impairment charges. Property, plant and equipment acquired through business combinations are initially recorded at fair value and
subsequently accounted for on the same basis as our existing assets. We derecognise items of property, plant and equipment on
disposal or when no future economic benefits are expected to arise from the continued use of the asset. The difference between the
sale proceeds and the net book value at the date of disposal is recognised in operating costs in the income statement.
Included within the cost of network infrastructure and equipment are direct and indirect labour costs, materials and directly
attributable overheads.
BT Group plc
Annual Report 2019
139
Strategic report
Governance
Financial statements
Additional information
15. Property, plant and equipment continued
We depreciate property, plant and equipment on a straight line basis from the time the asset is available for use, to write off the
asset’s cost over the estimated useful life taking into account any expected residual value. Freehold land is not depreciated.
Estimated useful economic lives
The estimated useful lives assigned to principal categories of assets are as follows:
Land and buildings
• Freehold buildings
• Short-term leasehold improvements
• Leasehold land and buildings
Network infrastructure
Transmission equipment
• Duct
• Cable
• Fibre
Exchange equipment
Other network equipment
Other assets
• Motor vehicles
• Computers and office equipment
14 to 50 years
Shorter of 10 years or lease term
Unexpired portion of lease or 40 years, whichever is the shorter
40 years
3 to 25 years
5 to 20 years
2 to 13 years
2 to 20 years
2 to 9 years
3 to 7 years
Assets held under finance leases are depreciated over the shorter of the lease term or their useful economic life. Residual values and
useful lives are reassessed annually and, if necessary, changes are recognised prospectively.
Network share assets
Certain assets have been contributed to a network share arrangement by both EE and Hutchison 3G UK Limited, with legal title
remaining with the contributor. This is considered to be a reciprocal arrangement. Our share of the assets on acquisition of EE were
recognised at fair value within tangible assets, and depreciated in line with policy. Subsequent additions are recorded at cost.
Impairment of property, plant and equipment
We test property, plant and equipment for impairment if events or changes in circumstances (assessed at each reporting date)
indicate that the carrying amount may not be recoverable. When an impairment test is performed, we assess the recoverable amount
by reference to the higher of the net present value of the expected future cash flows (value in use) of the relevant asset and the fair
value less costs to dispose. If it is not possible to determine the recoverable amount for the individual asset then we assess
impairment by reference to the relevant cash generating unit as described in note 14.
Key judgements made in accounting for our BDUK contracts
We receive government grants in relation to the Broadband Delivery UK (BDUK) programme and other rural superfast broadband
contracts. Where we have achieved certain service levels, or delivered the network more efficiently than anticipated, we have an
obligation to either re-invest or repay grant funding. Where this is the case, we assess and defer the income with a corresponding
increase in capital expenditure.
Assessing the timing of whether and when we change the estimated take-up assumption is judgemental as it involves considering
information which is not always observable. Our consideration on whether and when to change the base case assumption is
dependent on our expectation of the long-term take-up trend.
Our assessment of how much grant income to defer includes consideration of the difference between the take-up percentage agreed
with the local authority and the likelihood of actual take-up. The value of the government grants deferred is disclosed in note 18.
140
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
15. Property, plant and equipment continued
Cost
At 31 March 2017
Additionsc
Transfers
Disposals and adjustmentsd
Exchange differences
At 31 March 2018
Additionsc
Transfers
Disposals and adjustmentsd
Exchange differences
At 31 March 2019
Accumulated depreciation
At 31 March 2017
Charge for the year
Disposals and adjustmentsd
Exchange differences
At 31 March 2018
Charge for the year
Transfers
Disposals and adjustmentsd
Exchange differences
At 31 March 2019
Carrying amount
At 31 March 2019
Engineering stores
Total at 31 March 2019
At 31 March 2018
Engineering stores
Total at 31 March 2018
Land and
buildingsa
£m
Network
infrastructurea
£m
1,302
12
36
(82)
(6)
1,262
12
13
(178)
(2)
49,372
193
2,793
(1,540)
(35)
50,783
97
2,988
(1,943)
(32)
Otherb
£m
1,938
92
16
(119)
(13)
1,914
119
18
(333)
4
1,107
51,893
1,722
Assets in
course of
construction
£m
1,413
2,597
(2,845)
(48)
1
1,118
3,034
(3,063)
102
–
1,191
817
57
(96)
(5)
773
51
1
(104)
(1)
720
387
–
387
489
–
489
35,214
2,213
(1,613)
(24)
35,790
2,236
(4)
(1,940)
(30)
36,052
15,841
–
15,841
14,993
–
14,993
1,554
121
(107)
(10)
1,558
105
–
(296)
4
1,371
351
–
351
356
–
356
–
–
–
–
–
–
–
–
–
–
1,191
65
1,256
1,118
44
1,162
Total
£m
54,025
2,894
–
(1,789)
(53)
55,077
3,262
(44)
(2,352)
(30)
55,913
37,585
2,391
(1,816)
(39)
38,121
2,392
(3)
(2,340)
(27)
38,143
17,770
65
17,835
16,956
44
17,000
a The carrying amount of the group’s property, plant and equipment includes an amount of £34m (2017/18: £53m) in respect of assets held under finance leases, comprising land and buildings of £34m
(2017/18: £42m) and network infrastructure of £nil (2017/18: £11m). The depreciation expense on those assets in 2018/19 was £2m (2017/18: £10m), comprising land and buildings of £2m
(2017/18: £3m) and network infrastructure of £nil (2017/18: £7m).
b Other mainly comprises motor vehicles, computers and fixtures and fittings.
c Net of grant deferral of £63m (2017/18: £74m net grant funding).
d Fully depreciated assets in the group’s fixed asset registers were reviewed during the year, as part of the group’s annual asset verification exercise, and certain assets that were no longer in use have been
written off, reducing cost and accumulated depreciation by £1.9bn (2017/18: £1.3bn). Disposals and adjustments also reflect the reclassification of the BT Centre property to held for sale (£89m), and
£124m of adjustments resulting from changes in assumptions used in calculating lease-end obligations where the corresponding asset is capitalised.
At 31 March
The carrying amount of land and buildings, including leasehold improvements, comprised:
Freehold
Leasehold
Total land and buildings
2019
£m
158
229
387
2018
£m
261
228
489
Network infrastructure
Some of our network assets are jointly controlled by EE Limited with Hutchison 3G UK Limited. These relate to shared 3G network and
certain elements of network for 4G rural sites. The net book value of the group’s share of assets controlled by its joint operation MBNL is
£584m (2017/18: £526m) and is recorded within network infrastructure. Included within this is £125m (2017/18: £132m), being
the group’s share of assets owned by its joint operation MBNL.
Within network infrastructure are assets with a net book value of £9.0bn (2017/18: £8.3bn) which have useful economic lives of more
than 18 years.
BT Group plc
Annual Report 2019
16. Programme rights
141
Strategic report
Governance
Financial statements
Additional information
Significant accounting policies that apply to programme rights
Programme rights are recognised on the balance sheet from the point at which the legally enforceable licence period begins. They
are initially recognised at cost and are amortised from the point at which they are available for use, on a straight line basis over the
programming period, or the remaining licence term, as appropriate, which is generally 12 months. Programme rights are tested for
impairment in accordance with our impairment policy as set out in note 14.
Additions reflect TV programme rights for which the legally enforceable licence period has started during the year. Rights for which
the licence period has not started are disclosed as contractual commitments in note 30. Payments made to receive commissioned or
acquired programming in advance of the legal right to broadcast the programmes are classified as prepayments (see note 17).
Programmes produced internally are charged to the income statement over the period of the related broadcast.
At 1 April 2017
Additions
Amortisation
At 1 April 2018
Additions
Amortisation
At 31 March 2019
17. Trade and other receivables
Total
£m
264
771
(763)
272
879
(841)
310
Significant accounting policies that apply to trade and other receivables
We initially recognise trade and other receivables at fair value, which is usually the original invoiced amount. They are subsequently
carried at amortised cost using the effective interest method. The carrying amount of these balances approximates to fair value due
to the short maturity of amounts receivable.
We provide services to consumer and business customers, mainly on credit terms. We know that certain debts due to us will not be
paid through the default of a small number of our customers. Because of this, we recognise an allowance for doubtful debts on initial
recognition of receivables, which is deducted from the gross carrying amount of the receivable. The allowance is calculated by
reference to credit losses expected to be incurred over the lifetime of the receivable. In estimating a loss allowance we consider
historical experience and informed credit assessment alongside other factors such as the current state of the economy and particular
industry issues. We consider reasonable and supportable information that is relevant and available without undue cost or effort.
Once recognised, trade receivables are continuously monitored and updated. Allowances are based on our historical loss experiences
for the relevant aged category as well as forward-looking information and general economic conditions. Allowances are calculated by
individual customer-facing units in order to reflect the specific nature of the customers relevant to that customer-facing unit.
At 31 March
Current
Trade receivables
Prepaymentsa
Accrued incomeb
Deferred contract costsc
Other receivablesd
At 31 March
Non-current
Other assetse
Deferred contract costsc
2019
£m
1,732
698
34
417
341
3,222
2019
£m
173
272
445
2018
£m
2017
£m
1,741
1,103
777
–
393
4,014
1,774
733
955
–
373
3,835
2018
£m
2017
£m
317
–
317
360
–
360
a 2017/18 includes £325m in respect of the acquisition of Spectrum.
b Accrued income recognised in prior years has been substantially reclassified to contract assets on adoption of IFRS 15. See notes 1 and 2.
c Deferred contract costs arise following adoption of IFRS 15 on 1 April 2018. See notes 1 and 2.
d Other receivables includes assets held for sale of £nil (2017/18: £nil, 2016/17: £22m). £89m assets held for sale as at 31 March 2019 are presented separately on the face of the balance sheet.
e Other assets comprise prepayments and leasing debtors. Included in prior year comparatives are costs relating to the initial set-up, transition or transformation phase of long-term networked IT services
contracts (2017/18: £145m, 2016/17: £163m), which are presented within deferred contract costs following adoption of IFRS 15.
142
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
17. Trade and other receivables continued
Trade receivables are stated after deducting allowances for doubtful debts, as follows:
At 1 April
Expense
Utilised
Exchange differences
At 31 March
2019
£m
375
95
(165)
(6)
299
2018
£m
303
129
(61)
4
375
2017
£m
195
211
(114)
11
303
Included within the 2016/17 expense above are amounts for exposures relating to the Italian business investigation.
Note 27 provides further disclosure regarding the credit quality of our gross trade receivables. Trade receivables are due as follows:
At 31 March
2019
2018
2017
Trade
receivables
specifically
impaired net
of provision
£m
34
61
146
Not past due
£m
1,229
1,251
1,184
Past due and not specifically impaired
Between
0 and 3
months
£m
371
293
292
Between
3 and 6
months
£m
Between
6 and 12
months
£m
42
44
17
40
25
41
Over 12
months
£m
16
67
94
Total
£m
1,732
1,741
1,774
Gross trade receivables which have been specifically impaired amounted to £57m (2017/18: £124m, 2016/17: £238m).
Trade receivables not past due and accrued income are analysed below by customer-facing unit.
At 31 March
Consumer
Enterprise
Global Services
Openreach
BT Consumer
EE
Business and Public Sector
Wholesale and Ventures
Other
Total
Trade receivables not past due
Accrued income
2019
£m
457
274
498
–
–
–
–
–
–
2018
£m
–
–
477
61
157
206
253
92
5
2017
£m
–
–
444
1
128
335
200
75
1
1,229
1,251
1,184
2019
£m
2018
£m
2017
£m
32
2
–
–
–
–
–
–
–
34
–
–
222
67
86
122
134
145
1
777
–
–
297
78
90
170
151
167
2
955
Given the broad and varied nature of our customer base, the analysis of trade receivables not past due and accrued income by
customer-facing unit is considered the most appropriate disclosure of credit concentrations. Cash collateral held against trade and
other receivables amounted to £9m (2017/18: £6m, 2016/17: £4m).
Deferred contract costs
Significant accounting policies that apply to deferred contract costs
We capitalise certain costs associated with the acquisition and fulfilment of contracts with customers and amortise them over the
period that we transfer the associated services.
Connection costs are deferred as contract fulfilment costs because they allow satisfaction of the associated connection performance
obligation and are considered recoverable. Sales commissions and other third party contract acquisition costs are capitalised as costs
to acquire a contract unless the associated contract term is less than 12 months, in which case they are expensed as incurred.
Capitalised costs are amortised over the minimum contract term. A portfolio approach is used to determine contract term.
Where the initial set-up, transition and transformation phases of long-term contractual arrangements represent distinct
performance obligations, costs in delivering these services are expensed as incurred. Where these services are not distinct
performance obligations, we capitalise eligible costs as a cost of fulfilling the related service. Capitalised costs are amortised on a
straight line basis over the remaining contract term, unless the pattern of service delivery indicates a more appropriate profile. To be
eligible for capitalisation, costs must be directly attributable to specific contracts, relate to future activity, and generate future
economic benefits. Capitalised costs are regularly assessed for recoverability.
BT Group plc
Annual Report 2019
17. Trade and other receivables continued
The following table shows the movement on deferred costs:
At 1 April 2018
Additions
Amortisation
Impairment
Other
At 31 March 2019
18. Trade and other payables
Strategic report
Governance
Financial statements
Additional information
Deferred
connection
costs
£m
Deferred
contract
acquisition
costs –
commissions
£m
Deferred
contract
acquisition
costs – dealer
incentives
£m
Transition and
transformation
£m
7
15
(14)
–
23
31
85
76
(76)
(5)
6
86
416
446
(426)
(4)
–
432
161
32
(53)
(1)
1
140
143
Total
£m
669
569
(569)
(10)
30
689
Significant accounting policies that apply to trade and other payables
We initially recognise trade and other payables at fair value, which is usually the original invoiced amount. We subsequently carry
them at amortised cost using the effective interest method.
At 31 March
Current
Trade payables
Other taxation and social security
Other payables
Accrued expenses
Deferred incomea
At 31 March
Non-current
Other payablesb
Deferred incomea
2019
£m
4,141
564
387
630
68
5,790
2019
£m
873
606
2018
£m
2017
£m
3,991
704
456
492
1,525
7,168
4,205
704
672
382
1,474
7,437
2018
£m
2017
£m
871
455
885
413
1,479
1,326
1,298
a Deferred income recognised in prior periods has substantially been reclassified to contract liabilities on adoption of IFRS 15, see notes 1 and 2. The remaining balance includes £51m (2017/18: £132m,
2016/17: £71m) current and £586m (2017/18: £404m, 2016/17: £375m) non-current liabilities relating to the Broadband Delivery UK programme, for which grants received by the group may be
subject to re-investment or repayment depending on the level of take-up.
b Other payables relate to operating lease liabilities and deferred gains on a 2001 sale and finance leaseback transaction.
19. Provisions
Our provisions principally relate to obligations arising from property rationalisation programmes, restructuring programmes, asset
retirement obligations, network assets, insurance claims, litigation and regulatory risks.
Significant accounting policies that apply to provisions
We recognise provisions when the group has a present legal or constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the liability. Financial liabilities within provisions are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method. We measure onerous lease provisions at the lower of the cost to fulfil or to exit
the contract.
Critical accounting estimates and key judgements made in accounting for provisions
We exercise judgement in determining the timing and quantum of all provisions to be recognised. Our assessment includes
consideration of whether we have a present obligation, whether payment is probable and if so whether the amount can be estimated
reliably.
As part of this assessment, we also assess the likelihood of contingent liabilities occurring in the future which are not recognised as
liabilities on our balance sheet. By their nature, contingencies will be resolved only when one or more uncertain future events occur
or fail to occur. We assess the likelihood that a potential claim or liability will arise and also quantify the possible range of financial
outcomes where this can be reasonably determined. We’ve disclosed our assessment of contingent liabilities in note 30.
144
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
19. Provisions continued
Restructuring programmes involve estimation of the direct cost necessary for the restructuring and exclude items that are associated
with ongoing activities. The amounts below exclude restructuring costs for which the timing and amount are certain. These are
recognised as part of trade and other payables.
Under our property rationalisation programmes we’ve identified a number of surplus leased properties. Although efforts are being
made to sublet this space, this is not always possible. Estimates have been made of the cost of vacant possession and of any shortfall
arising from any potential sub-lease income being lower than the lease costs. Any such shortfall is recognised as a provision. We have
also made estimates of the costs to restore properties upon vacation where this is required under the lease agreements.
Asset retirement obligations (AROs) involve an estimate of the cost to dismantle equipment and restore network sites upon vacation
and the timing of the event. The provision represents the group’s best estimate of the amount that may be required to settle the
obligation.
Network asset provisions represent our future operational costs and vacant site rentals arising from obligations relating to network
share agreements. Costs are expected to be incurred over a period of up to 20 years.
Our regulatory provision represents our best estimate of the cost to settle our present obligation in relation to historical regulatory
matters. The charge for the year represents the outcome of management’s re-assessment of the estimates and regulatory risks
across a range of issues, including price and service issues. The prices at which certain services are charged are regulated and may be
subject to retrospective adjustment by regulators. Estimates are used in assessing the likely value of the regulatory risk.
For all risks, the ultimate liability may vary materially from the amounts provided and will be dependent upon the eventual outcome
of any settlement.
At 31 March 2017
Additions
Unwind of discount
Utilised or released
Transfers
Exchange differences
At 31 March 2018
Additions
Unwind of discount
Utilised or released
Transfers
Exchange differences
At 31 March 2019
At 31 March
Analysed as:
Current
Non-current
Restructuring
£m
Property
£m
Network
ARO
£m
Network
share
£m
Regulatory
£m
Litigation
£m
11
4
–
(2)
–
(1)
12
–
–
–
(12)
–
–
292
37
11
(46)
–
–
294
84
11
(71)
21
–
339
83
2
2
(16)
–
–
71
102
2
(13)
–
–
162
50
–
2
(19)
–
–
33
2
1
(9)
–
–
27
479
51
–
(210)
–
–
320
58
–
(196)
–
–
182
69
6
–
(11)
–
–
64
3
–
(9)
27
(1)
84
2019
£m
424
582
Other
£m
177
33
–
(32)
85
(2)
261
66
–
(109)
(7)
1
212
Total
£m
1,161
133
15
(336)
85
(3)
1,055
315
14
(407)
29
–
1,006
2018
£m
2017
£m
603
452
625
536
1,006
1,055
1,161
In 2016/17 we recognised a £300m charge in relation to estimated deemed consent compensation payments. In 2016/17 a related
fine of £42m was imposed and was recognised as a payable rather than as a provision. The provision movement in the year reflects the
completion of the majority of deemed consent compensation payments, and new matters arising across a range of issues, including
price and service issues, and the re-assessment of other regulatory risks and in light of historic regulatory decisions by Ofcom. The
movement has been recorded as a specific item.
Included within ‘Other’ provisions are contract loss provisions of £25m (2017/18: £38m) relating to the anticipated total losses in
respect of certain contracts. It is expected that the majority of these provisions will be utilised in the next few years. Although there is a
short period remaining to the finalisation of these contracts, there remains uncertainty as to whether potential future changes to key
assumptions made when estimating their future losses could have a significant impact. There is no single change in key variables that
BT Group plc
Annual Report 2019
145
Strategic report
Governance
Financial statements
Additional information
19. Provisions continued
could materially affect future expected losses on these contracts, but it is reasonably possible there will be a combination of changes in
key variables that could have a material impact. Also included in ‘Other’ are amounts provided for constructive obligations arising from
insurance claims which will be utilised as the obligations are settled.
During the year we have updated property provisions to reflect our reassessment of lease-end obligations to reflect the group’s
property strategy announced in May 2018, and to update the rate used to discount these provisions. Where additions to the provision
relate to capitalised assets there has been a corresponding increase in the asset (see note 15). Other amounts have been charged to the
income statement as specific items.
During the year we have updated provisions relating to asset retirement obligations to reflect our latest assessment of the cost to
dismantle equipment and restore the sites, and to update the rate used to discount the provisions. The increase in the provision has
been reflected in an increase in the corresponding capitalised asset (see note 15).
20. Retirement benefit plans
Background to BT’s pension plans
The group has both defined benefit and defined contribution retirement benefit plans. The group’s main plans are in the UK and the
largest by membership is the BT Pension Scheme (BTPS) which is a defined benefit plan that was closed to new entrants on 31 March
2001. After that date new entrants to BT in the UK have been able to join a defined contribution plan, currently the BT Retirement
Saving Scheme (BTRSS), a contract-based arrangement operated by Standard Life.
Sections B and C of the BTPS were closed to future benefit accrual on 30 June 2018 (which represented over 99% of the BTPS active
membership at the time) and affected employees have been able to join the BTRSS for future pension accrual. Non-management
employees will be eligible to join a new hybrid pension arrangement, the BT Hybrid Scheme, between 1 April 2019 and 30 September
2019. This new arrangement combines elements of both defined benefit and defined contribution pension schemes.
EE Limited operates the EE Pension Scheme (EEPS), which has a defined benefit section that was closed to future benefit accrual in
2014 and a defined contribution section which is open to new joiners.
We also have retirement arrangements around the world in line with local markets and culture.
Defined contribution
plans
Defined benefit plans
What are they?
How do they impact BT’s financial statements?
Benefits in a defined contribution plan are linked
to:
• contributions paid
• the performance of each individual’s chosen
investments
• the form in which individuals choose to take their
benefits.
The income statement charge in respect of
defined contribution plans represents the
contribution payable by the group based upon a
fixed percentage of employees’ pay.
The group has no exposure to investment and
other experience risks.
Contributions are paid into an independently
administered fund.
Benefits in a defined benefit plan are:
• determined by the plan rules, dependent on
factors such as age, years of service and
pensionable pay
• not dependent upon actual contributions made
by the company or members.
The income statement service cost in respect of
defined benefit plans represents the increase in
the defined benefit liability arising from pension
benefits earned by active members in the current
period.
The group is exposed to investment and other
experience risks and may need to make additional
contributions where it is estimated that the
benefits will not be met from regular
contributions, expected investment income and
assets held.
Significant accounting policies that apply to retirement benefits
Definedbenefitplans
Our net obligation in respect of defined benefit pension plans is the present value of the defined benefit obligation less the fair value
of the plan assets.
The income statement expense is allocated between an operating charge and net finance income or expense.
• The operating charge reflects the increase in the defined benefit obligation resulting from the pension benefit earned by active
employees in the current period, the costs of administering the plans and any past service costs/credits such as those arising from
curtailments or settlements.
146
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
20. Retirement benefit plans continued
• The net finance income or expense reflects the interest on the net retirement benefit obligations recognised in the group balance
sheet, based on the discount rate at the start of the year.
Remeasurements of the net pension obligation are recognised in full in the group statement of comprehensive income in the year in
which they arise. These comprise the impact on the defined benefit obligation of changes in demographic and financial assumptions
compared with the start of the year, actual experience being different to those assumptions and the return on plan assets being
above or below the amount included in the net pension interest expense.
Definedcontributionplans
The income statement expense for the defined contribution pension plans we operate represents the contributions
payable for the year.
Amounts in the financial statements
Group income statement
The expense or income arising from all group retirement benefit arrangements recognised in the group income statement
is shown below.
Year ended 31 March
Recognised in the income statement before specific items
Service cost (including administration expenses & PPF levy):
defined benefit plans
defined contribution plans
Past service credita
Subtotal
Recognised in the income statement as specific items (note 10)
Costs to close BT Pension Scheme and provide transition paymentsb for affected employees
Cost to equalise benefits between men and women due to guaranteed minimum pension (GMP)c
Net interest expense on pensions deficit included in specific items
Subtotal
Total recognised in the income statement
2019
£m
2018
£m
2017
£m
135
476
–
611
23
26
139
188
799
376
265
(17)
624
–
–
218
218
842
281
240
–
521
–
–
209
209
730
a Relates to the removal of future indexation obligations following changes to the benefits provided under certain pension plans operating outside the UK in 2017/18.
b All employees impacted by the closure of the BTPS receive transition payments into their BTRSS pot for a period linked to the employee’s age. There was no past service cost or credit on closure due to
the assumed past service benefit link as an active member being the same as that assumed for a deferred member.
c In October, a High Court judgment involving the Lloyds Banking Group’s defined benefit pension schemes was handed down, resulting in the group needing to recognise additional liability to equalise
benefits between men and women due to GMPs, in common with most UK defined benefit schemes.
Group balance sheet
The net pension obligation in respect of defined benefit plans reported in the group balance sheet is set out below. The prior year
retirement benefit obligation has been restated as a result of a prior period accounting error, refer to note 2 for more details.
At 31 March
BTPS
EEPS
Other plansa
Retirement benefit obligation
Adjustments due to effect of asset ceiling (IFRIC 14)
Deferred tax asset
Net pension obligation
2019
Present value
of liabilities
£m
(58,855)
(997)
(694)
(60,546)
Assets
£m
52,186
816
362
53,364
2018
Present value
of liabilities
(Restated)
£m
(56,259)
(920)
(624)
(57,803)
Assets
£m
49,894
763
299
50,956
Deficit
(Restated)
£m
(6,365)
(157)
(325)
(6,847)
–
1,164
(5,683)
Deficit
£m
(6,669)
(181)
(332)
(7,182)
–
1,208
(5,974)
a Included in the present value of obligations of other plans is £101m (2017/18: £97m) related to unfunded pension arrangements.
Included within trade and other payables in the group balance sheet is £42m (2017/18: £17m) in respect of contributions payable to
defined contribution plans.
BT is not required to limit any pensions surplus or recognise additional pensions liabilities in individual plans as economic benefits are
available in the form of either future refunds or reductions to future contributions. This is on the basis that IFRIC 14 applies enabling a
refund of surplus following the gradual settlement of the liabilities over time until there are no members remaining in the scheme.
BT Group plc
Annual Report 2019
147
Strategic report
Governance
Financial statements
Additional information
20. Retirement benefit plans continued
Movements in defined benefit plan assets and liabilities
The table below shows the movements on the pension assets and liabilities and shows where they are reflected in the financial
statements. The prior year retirement benefit obligation has been restated as a result of a prior period accounting error, refer to note 2
for more details.
At 31 March 2017
Service cost (including administration expenses and PPF levy)
Past service credit
Interest on pension deficit
Included in the group income statement
Return on plan assets above the amount included in the group income statement
Actuarial gain arising from changes in financial assumptionsa
Actuarial loss arising from changes in demographic assumptionsa (Restated)
Actuarial gain arising from experience adjustmentsb
Included in the group statement of comprehensive income
Regular contributions by employer
Deficit contributions by employer
Included in the group cash flow statement
Contributions by employees
Benefits paid
Foreign exchange
Other movements
At 31 March 2018 (Restated)
Service cost (including administration expenses and PPF levy)
Costs to close BT Pension Scheme
Cost to equalise benefits between men and women due to guaranteed minimum pension (GMP)
Interest on pension deficit
Included in the group income statement
Return on plan assets above the amount included in the group income statement
Actuarial loss arising from changes in financial assumptionsa
Actuarial gain arising from changes in demographic assumptionsa
Actuarial loss arising from experience adjustmentsb
Included in the group statement of comprehensive income
Regular contributions by employer
Deficit contributions by employer
Included in the group cash flow statement
Contributions by employees
Benefits paid
Foreign exchange
Other movements
At 31 March 2019
Assets
£m
51,112
(67)
–
1,201
Liabilities
£m
(60,200)
(309)
17
(1,419)
10
–
–
–
264
872
–
2,251
(697)
120
–
–
2
(2,449)
11
(2)
2,449
(13)
Deficit
£m
(9,088)
(376)
17
(218)
(577)
10
2,251
(697)
120
1,684
264
872
1,136
–
–
(2)
(2)
50,956
(57,803)
(6,847)
(49)
(6)
–
1,356
1,607
–
–
–
43
2,024
(86)
–
(26)
(1,495)
–
(3,920)
247
(36)
–
–
1
(2,564)
(4)
(1)
2,564
10
(135)
(6)
(26)
(139)
(306)
1,607
(3,920)
247
(36)
(2,102)
43
2,024
2,067
–
–
6
6
53,364
(60,546)
(7,182)
a The actuarial gain or loss arises from changes in the assumptions used to value the defined benefit liabilities at the end of the year compared with the assumptions used at the start of the year. This
includes both financial assumptions, which are based on market conditions at the year end, and demographic assumptions such as life expectancy.
b The actuarial loss or gain arising from experience adjustments on defined benefit liabilities represents the impact on the liabilities of differences between actual experience during the year compared with
the assumptions made at the start of the year. Such differences might arise, for example, from members choosing different benefit options at retirement, actual salary increases being different from
those assumed or actual benefit increases being different to the pension increase assumption.
How do we value our retirement benefit plans?
Valuation methodology
The IAS 19 liabilities are measured as the present value of the estimated future benefit cash flows to be paid by each scheme, calculated
using the projected unit credit method. These calculations are performed for the group by professionally qualified actuaries.
The expected future benefit payments are based on a number of assumptions including future inflation, retirement ages, benefit options
chosen and life expectancy and are therefore inherently uncertain. Actual benefit payments in a given year may be higher or lower, for
example if members retire sooner or later than assumed, or take a greater or lesser cash lump sum at retirement than assumed.
Critical accounting judgements and key estimates made when valuing our retirement benefit plans
The accounting cost of these benefits and the present value of our pension liabilities involve judgements about uncertain events
including the life expectancy of the members, price inflation and the discount rate used to calculate the net present value of the
future pension payments. We use estimates for all of these uncertain events in determining the pension costs and liabilities in our
financial statements. Our assumptions reflect historical experience, external advice and our judgement regarding future
expectations. Financial assumptions are based on market expectations at the balance sheet date.
148
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
20. Retirement benefit plans continued
The fair value of our pension asset is made up of quoted and unquoted investments. The latter require more judgement as their
values are not directly observable. The assumptions used in valuing unquoted investments are affected by current market conditions
and trends which could result in changes in fair value after the measurement date.
How do we value the assets?
Under IAS 19, plan assets must be valued at the bid market value at the balance sheet date. For the main asset categories:
• Equities listed on recognised stock exchanges are valued at closing bid prices.
• Properties are valued on the basis of open market value.
• Bonds are measured using a combination of broker quotes and pricing models making assumptions for credit risk, market risk and
market yield curves.
• Holdings in investment funds are valued at fair value which is typically the Net Asset Value provided by the investment manager.
• Certain unlisted investments are valued using a model based valuation such as a discounted cash flow.
• The value of the longevity insurance contract held by the BTPS is measured by discounting the projected cash flows payable under
the contract (projected by an actuary, consistent with the terms of the contract).
Overview and governance of the BTPS
What is the profile of the BTPS?
At 31 March 2019 there were 288,000 members of the BTPS. Members belong to one of three sections depending upon the date they
first joined the BTPS. The membership is analysed below.
Analysis of BTPS
Sections A and B liabilities (£bn)a
Section C liabilities (£bn)
Total IAS 19 liabilities (£bn)
Total number of members
Active
members
Deferred
members
Pensioners
9.0
14.1
23.1
31.5
4.3
35.8
Total
40.5
18.4
58.9
83,000
205,000 288,000
–
–
–
–b
a Sections A and B have been aggregated in this table as Section A members have typically elected to take Section B benefits at retirement.
b At 31 March 2019 there are around 50 active members in the BTPS.
The estimated duration of the BTPS liabilities, which is an indicator of the weighted average term of the liabilities, is around 16 years
although the benefits payable by the BTPS are expected to be paid over more than 70 years. Whilst benefit payments are expected to
increase over the earlier years, the value of the liabilities is expected to reduce.
The chart below illustrates the estimated benefits payable from the BTPS forecast using the IAS 19 assumptions.
Forecast benefits payable by the BTPS at 31 March 2019 (unaudited)
a Based on accrued benefits to 30 June 2018.
BT Group plc
Annual Report 2019
149
Strategic report
Governance
Financial statements
Additional information
20. Retirement benefit plans continued
What are the benefits under the BTPS?
Benefits earned for pensionable service prior to 1 April 2009 are based upon a member’s final salary and a normal pensionable
age of 60.
Between 1 April 2009 and 30 June 2018, Section B and C active members accrued benefits based upon a career average re-valued
earnings (CARE) basis and a normal pensionable age of 65. On a CARE basis benefits are built up based upon earnings in each year and
the benefit accrued for each year is increased by the lower of inflation or the individual’s actual pay increase in each year to retirement.
Under the Scheme rules the determination of the rate of inflation for statutory minimum rates of revaluation and indexation for the
majority of benefits is based upon either the Retail Price Index (RPI) or the Consumer Price Index (CPI) which apply to each category of
member as shown below.
Active members
Deferred members
Pensioners
Section Ba
Section C
Benefits accrue on a CARE basis increasing
at the lower of RPI or the individual’s actual
pensionable pay increase
Preserved benefits are revalued before
retirement based upon CPI
Increases in benefits in payment are
currently based upon CPI
Increases in benefits in payment are
currently based upon RPI up to a
maximum of 5%
a Section A members have typically elected to take Section B benefits at retirement.
In December 2018, the Court of Appeal upheld the High Court’s ruling that it is currently not possible to change the index used to
calculate pension increases paid in the future to members of Section C of the BTPS from RPI to another index. BT is seeking permission
to appeal the decision from the Supreme Court.
How is the BTPS governed and managed?
BT Pension Scheme Trustees Limited (the Trustee) has been appointed by BT as an independent trustee to administer and manage the
BTPS on behalf of the members in accordance with the terms of the BTPS Trust Deed and Rules and relevant legislation (principally the
Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004).
Under the terms of the Trust Deed there are nine Trustee directors, all of whom are appointed by BT, as illustrated below. Trustee
directors are usually appointed for a three-year term but are then eligible for re-appointment.
Chairman of the Trustees
Appointed by BT after consultation with,
and with the agreement of, the relevant
trade unions.
Member nominated Trustees
Appointed by BT based on nominations
by trade unions.
Employer nominated Trustees
Appointed by BT. Two normally hold senior
positions within the group and two normally
hold (or have held) senior positions in
commerce or industry.
BTPS assets
Asset allocation
The allocation of assets between different classes of investment is reviewed regularly and is a key factor in the Trustee’s investment
policy. The allocations reflect the Trustee’s views on the appropriate balance to be struck between seeking returns and incurring risk,
and on the extent to which the assets should be allocated to match liabilities. Current market conditions and trends are regularly
assessed which may lead to adjustments in the asset allocation.
150
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
20. Retirement benefit plans continued
The fair value of the assets of the BTPS analysed by asset category are shown below. These are subdivided by assets that have a quoted
market price in an active market and those that do not (such as investment funds).
Growth
Equities
Private Equity
Property
Other growth assets
Liability matching
Government bonds
Investment grade credit
Cash, derivatives and other
Cash balances
Longevity insurance contracte
Otherf
Total
UK
Overseas developed
Emerging markets
UK
Overseas
Absolute Returnc
Non Core Creditd
Mature Infrastructure
UK Index Linked
Global
2019a
ofwhich
quotedb
£bn
Total
%
Total
assets
£bn
2018a
ofwhich
quotedb
£bn
Total
%
Total
assets
£bn
0.5
7.7
1.1
1.5
3.5
1.1
1.2
3.8
1.4
13.2
14.3
2.7
(0.7)
0.9
52.2
0.4
7.3
1.1
–
–
–
–
1.1
–
13.2
10.1
–
–
–
1
15
2
3
7
2
2
7
3
25
27
5
(1)
2
0.5
7.8
0.5
1.9
3.9
1.2
1.5
3.4
1.4
0.5
7.3
0.4
–
–
–
–
1.0
–
12.5
10.0
12.5
8.0
1
16
1
4
8
2
3
7
3
25
20
3.8
(0.4)
1.9
–
–
–
7
(1)
4
33.2
100
49.9
29.7 100
a At 31 March 2019, the Scheme did not hold any equity issued by the group (2017/18: £3m). The Scheme also held £2,154m (2017/18: £10m) of bonds issued by the group, reflecting the BTPS fully
subscribing to £2bn of bonds issued by BT in June 2018 following agreement of the 2017 funding valuation.
b Assets with a quoted price in an active market.
c This allocation seeks to generate returns irrespective of the direction of markets. Managers within this allocation will typically manage their portfolios without close regard to a specific market
benchmark.
d This allocation includes a range of credit investments, including emerging market, sub-investment grade and unrated credit. The allocation seeks to exploit investment opportunities within credit
markets using the expertise of a range of specialist investment managers.
e The Trustee has hedged some of the Scheme’s longevity risk through a longevity insurance contract which was entered into in 2014. The value reflects experience to date on the contract from higher
than expected deaths. This amount partly offsets a reduction which would be recognised in the Scheme’s liabilities over time.
f Includes collateral posted in relation to derivatives held by the Scheme.
IAS 19 assumptions
The table below summarises the approach used to set the key IAS 19 assumptions for the BTPS.
Discount rate
RPI inflation
CPI inflation
Pension increases
Approach to set the assumption
IAS 19 requires that the discount rate is determined by reference to market yields at the
reporting date on high quality corporate bonds. The currency and term of these should be
consistent with the currency and estimated term of the pension obligations.
The assumption is calculated by applying the projected BTPS benefit cash flows to a
corporate bond yield curve constructed by our external actuary based on the yield on
AA-rated corporate bonds.
In setting the yield curve, judgement is required on the selection of appropriate bonds to
be included in the universe and the approach used to then derive the yield curve.
The RPI inflation assumption is set using an inflation curve derived from market yields on
government bonds, weighted by projected BTPS benefit cash flows, and making an
adjustment for an inflation risk premium (to reflect the extra premium paid by investors
for inflation protection), which is currently assumed to be 20bps.
CPI is assessed at a margin below RPI taking into account market forecasts and
independent estimates of the expected difference.
Benefits are assumed to increase in line with the RPI or CPI inflation assumptions, based
on the relevant index for increasing benefits, as prescribed by the rules of the BTPS and
summarised above.
BT Group plc
Annual Report 2019
20. Retirement benefit plans continued
151
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Governance
Financial statements
Additional information
Longevity
Approach to set the assumption
The longevity assumption takes into account:
• the actual mortality experience of the BTPS pensioners, based on a formal review
conducted at the 2014 triennial funding valuation
• future improvements in longevity based on a model published by UK actuarial
profession’s Continuous Mortality Investigation (using the CMI 2017 Mortality
Projections model with a 1.25% per year long-term improvement parameter).
The key financial assumptions used to measure the liabilities of the BTPS are shown below.
At 31 March
Rate used to discount liabilities
Inflation – increase in RPI
Inflation – increase in CPI
a The real rate is calculated relative to RPI inflation.
b Assumed to be 0.1% lower until 31 March 2023.
c Assumed to be 0.1% higher until 31 March 2023.
d Assumed to be 0.5% higher until 31 March 2019.
Nominal rates (per year)
2018
%
2019
%
2.35
3.25
2.25b
2.65
3.10
2.00c
2017
%
2.40
3.20
2.00d
Real rates (per year)a
2018
%
2019
%
(0.87)
–
(1.0)b
(0.44)
–
(1.1)c
2017
%
(0.78)
–
(1.2)d
The BTPS represents over 97% of the group’s retirement benefit obligation. While the financial assumptions may vary for each plan,
the nominal financial assumptions weighted by liabilities across all plans are equal to the figures shown in the table above (to the
nearest 0.05%).
Based on the IAS 19 longevity assumptions, the forecast life expectancies for BTPS members aged 60 are as follows:
At 31 March
Male in lower pay bracket
Male in medium pay bracket
Male in higher pay bracket
Female in lower pay bracket
Female in higher pay bracket
Average improvement for a member retiring at age 60 in 10 years’ time
2019
Number of
years
2018
Number of
years
25.7
27.0
28.5
28.5
28.7
0.7
25.8
27.1
28.5
28.5
28.7
0.7
Risks underlying the assumptions
Background
The BTPS faces similar risks to other UK DB schemes: things like future low investment returns, high inflation, longer life expectancy and
regulatory changes may all mean the BTPS becomes more of a financial burden. Further details are set out on page 47.
Changes in external factors, such as interest rates, can have an impact on the IAS 19 assumptions, impacting the measurement of BTPS
liabilities. These factors can also impact the Scheme assets. The BTPS hedges some of these risks, including longevity and currency using
financial instruments and insurance contracts.
Some of the key financial risks, and mitigations, for the BTPS are set out in the table below.
Changes in bond yields
A fall in yields on AA-rated corporate bonds, used to set the IAS 19 discount rate, will lead to an increase in the
IAS 19 liabilities.
The BTPS’s assets include corporate bonds, government bonds and interest rate derivatives which are expected to
partly offset the impact of movements in the discount rate. However, yields on these assets may diverge compared
with the discount rate in some scenarios.
Changes in inflation
expectations
A significant proportion of the benefits paid to members are currently increased in line with RPI or CPI inflation. An
increase in long-term inflation expectations will lead to an increase in the IAS 19 liabilities.
The BTPS’s assets include index-linked government bonds and inflation derivatives which are expected to largely
offset the impact of movements in inflation expectations.
Changes in life expectancy
An increase in the life expectancy of members will result in benefits being paid out for longer, leading to an increase
in the BTPS liabilities.
The BTPS holds a longevity insurance contract which covers around 25% of the BTPS’s total exposure to
improvements in longevity, providing long-term protection and income to the BTPS in the event that members live
longer than currently expected.
Other risks include: volatile asset returns (ie where asset returns differ from the discount rate); changes in legislation or regulation which
impact the value of the liabilities or assets; and member take-up of options before and at retirement to reshape their benefits.
152
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
20. Retirement benefit plans continued
Quantification
BT’s independent actuary has assessed the potential negative impact of the key risks that might occur no more than once in every
20 years illustrated as the following four scenarios:
Scenario
1. Fall in discount ratea
2. Increase to inflation rateb
3. Fall in equity marketsc
4. Increase to life expectancy
a Scenario assumes a fall in the yields on both government and corporate bonds.
b Assuming RPI, CPI, pension increases and salary increases all increase by the same amount.
c Scenario ignores any potential benefit from derivatives held by the scheme.
1-in-20 events
2019
2018
1.1%
0.7%
30.0%
1.25 years
1.1%
0.7%
–
1.35 years
The impact shown under each scenario looks at each event in isolation – in practice a combination of events could arise.
Sensitivity analysis of the principal assumptions to 1-in-20 events used to measure BTPS IAS 19 liabilities
£bn
12
10
8
6
4
2
0
Increase in liabilities
Increase in deficit
2.3
11.4
5.4
1.2
2.8
2.2
2.9
1.1 percentage point fall in
discount rate
0.7 percentage point increase
to inflation rate
30% fall in equities
1.25 year increase to life
expectancy
The sensitivity of the deficit allows for both the change in the liabilities and the assumed change in the assets. For example, the increase
in the deficit under the life expectancy scenario incorporates the expected movement in the value of the insurance contract held to
hedge longevity risk.
The sensitivities have been prepared using the same approach as 2017/18 which involves calculating the liabilities and deficit using the
alternative assumptions stated.
BTPS funding
Triennial funding valuation
The triennial valuation is carried out for the Trustee by a professionally qualified independent actuary. The purpose of the valuation is to
design a funding plan to ensure that the BTPS has sufficient funds available to meet future benefit payments. The latest funding
valuation was performed as at 30 June 2017. The next funding valuation will have an effective date of no later than 30 June 2020.
The valuation methodology for funding purposes, which is based on prudent assumptions, is broadly as follows:
• Assets are valued at market value at the valuation date.
• Liabilities are measured on an actuarial funding basis using the projected unit credit method and discounted to their present value.
The results of the two most recent triennial valuations are shown below.
BTPS liabilities
Market value of BTPS assets
Funding deficit
Percentage of accrued benefits covered by BTPS assets at valuation date
Percentage of accrued benefits on a solvency basis covered by the BTPS assets at the valuation date
June
2017
valuation
£bn
June
2014
valuation
£bn
(60.4)
49.1
(11.3)
(47.2)
40.2
(7.0)
81.3%
62.2%
85.2%
63.0%
BT Group plc
Annual Report 2019
20. Retirement benefit plans continued
Key assumptions – funding valuation
These valuations were determined using the following prudent long-term assumptions.
Average single equivalent discount rate
Average long-term increase in RPI
Average long-term increase in CPI
a The real rate is calculated relative to RPI inflation and is shown as a comparator.
153
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Governance
Financial statements
Additional information
Nominal rates (per year)
June
2017
valuation
%
2.6
3.4
2.4
June
2014
valuation
%
4.5
3.5
2.5
Real rates (per year)a
June
2017
valuation
%
June
2014
valuation
%
(0.8)
–
(1.0)
1.0
–
(1.0)
The discount rate at 30 June 2017 was derived from prudent return expectations above a risk-free yield curve based on gilt and swap
rates. The discount rate reflects views of future returns at the valuation date, allowing for the Scheme to hold 45% of its investments in
growth assets initially, before de-risking to a low risk investment approach by 2034. This gives a prudent discount rate of 1.4% per
year above the yield curve initially, trending down to 0.7% per year above the curve in the long-term. The assumption is equivalent to
using a flat discount rate of 1.0% per year above the yield curve at the valuation date.
The average life expectancy assumptions at the valuation dates, for members 60 years of age, are as follows.
Number of years from valuation date
Male in lower pay bracket
Male in medium pay bracket
Male in high pay bracket
Female in lower pay bracket
Female in high pay bracket
Average improvement for a member retiring at age 60 in 10 years’ time
Payments made to the BTPS
Year ended 31 March
Ordinary contributions
Deficit contributions
Total contributions in the year
June
2017
assumptions
June
2014
assumptions
25.9
27.2
28.6
28.6
28.9
0.9
2019
£m
33
2,000
2,033
26.1
27.5
29.0
28.9
29.2
1.3
2018
£m
248
850
1,098
Future funding obligations and recovery plan
Under the terms of the Trust Deed, the group is required to have a funding plan, determined at the conclusion of the triennial funding
valuation, which is a legal agreement between BT and the Trustee and should address the deficit over a maximum period of 20 years.
In May 2018, the 2017 triennial funding valuation was finalised, agreed with the Trustee and certified by the Scheme Actuary. The
funding deficit at 30 June 2017 was £11.3bn. The deficit was agreed to be met over a 13 year period, with the remaining payments
shown in the table below.
BT is scheduled to make future deficit payments to the BTPS in line with the table below.
Year to 31 March
Deficit contribution (£m)
a payable by 30 June 2019.
b £400m payable by 30 June 2020.
c £200m payable by 30 June 2021.
2020
1,250a
2021
900b
2022
900c
2023
2024
2025
2026
2027
2028
2029
2030
907
907
907
907
907
907
907
907
Based on the 2017 funding valuation agreement, the group expects to make contributions of approximately £1,310m to the BTPS in
2019/20, comprising of contributions of approximately £60m for expenses and future accrual and deficit contributions of £1,250m.
Other protections
The 2017 funding agreement with the Trustee included additional features for BT to provide support to the BTPS. These include:
Feature
Shareholder
distributions
Detail
BT will provide additional payments to the BTPS by the amount that shareholder distributions exceed a
threshold. The threshold allows for 10% per year dividend per share growth plus £200m per year of share
buybacks on a cumulative basis.
This will apply until 30 June 2021, or until the finalisation of the next valuation if earlier.
BT will also consult with the Trustee if it considers share buybacks in excess of £200m per year or making a
special dividend. This obligation is on-going until otherwise terminated.
154
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
20. Retirement benefit plans continued
Feature
Detail
Material
corporate events
In the event that BT generates net cash proceeds greater than £1.0bn from disposals (net of acquisitions) in
any 12-month period ending 30 June, BT will make additional contributions to the BTPS equal to one third of
those net cash proceeds. This obligation applies until the next valuation is signed.
BT will consult with the Trustee if:
• it considers making acquisitions with a total cost of more than £1.0bn in any 12-month period; or
• it considers making disposals of more than £1.0bn; or
• it considers making a Class 1 transaction (acquisition or disposal); or
• it is subject to a takeover offer.
This obligation is on-going until otherwise terminated.
BT will advise the Trustee should there be other material corporate events which would materially impact BT’s
covenant to the BTPS. This obligation is on-going until otherwise terminated.
Negative pledge
A negative pledge that future creditors will not be granted superior security to the BTPS in excess of a £1.5bn
threshold, to cover both British Telecommunications plc and BT Group plc.
This provision applies until the deficit reduces to below £2.0bn at any subsequent funding valuation.
In the highly unlikely event that the group were to become insolvent there are additional protections of BTPS members’ benefits:
Feature
Detail
Crown Guarantee
The Crown Guarantee was granted by the Government when the group was privatised in 1984 and would only
come into effect upon the insolvency of BT.
The Trustee brought court proceedings to clarify the scope and extent of the Crown Guarantee. The Court of
Appeal judgment on 16 July 2014 established that:
• the Crown Guarantee covers BT’s funding obligation in relation to the benefits of members of the BTPS who
joined post-privatisation as well as those who joined pre-privatisation (subject to certain exceptions)
• the funding obligation to which the Crown Guarantee relates is measured with reference to BT’s obligation
to pay deficit contributions under the rules of the BTPS.
The Crown Guarantee is not taken into account for the purposes of the actuarial valuation of the BTPS and is
an entirely separate matter, only being relevant in the highly unlikely event that BT became insolvent.
The Pension Protection Fund (PPF) may take over the BTPS and pay benefits not covered by the Crown
Guarantee to members.
There are limits on the amounts paid by the PPF and the PPF would not provide exactly the same benefits as
those provided under the BTPS Rules.
Pension
Protection Fund
(PPF)
Other benefit plans
In addition to the BTPS, the group maintains benefit plans around the world with a focus on these being appropriate for the local market
and culture.
EE Pension Scheme (EEPS)
The EEPS is the second largest defined benefit plan sponsored by the group. It has a defined benefit section that is closed to future
accrual, with liabilities of around £1.0bn, and a defined contribution section with around 11,000 members.
At 31 March 2019, the defined benefit section’s assets are invested across a number of asset classes including global equities (23%),
property & illiquid alternatives (22%), an absolute return portfolio (25%) and a liability driven investment portfolio (30%).
The triennial valuation of the defined benefit section was performed as at 31 December 2015, and agreed in March 2017. This showed
a funding deficit of £141m. The group is scheduled to contribute £1.875m each month between 1 April 2019 and November 2020.
The next funding valuation is taking place as at 31 December 2018 and is underway.
BTRSS
The BTRSS is the largest defined contribution scheme maintained by the group with around 69,000 active members. In the year to
31 March 2019, the group contributed £388m to the BTRSS.
BT Group plc
Annual Report 2019
21. Own shares
155
Strategic report
Governance
Financial statements
Additional information
Significant accounting policies that apply to own shares
Own shares are recorded at cost and deducted from equity. When shares vest unconditionally or are cancelled they are transferred
from the own shares reserve to retained earnings at their weighted average cost.
At 31 March 2017
Own shares purchasedb
Share options exercisedb
Transfer of shares to satisfy US share scheme
Executive share awards vested
At 1 April 2018
Own shares purchasedb
Share options exercisedb
Executive share awards vested
At 31 March 2019
Treasury sharesa
millions
8
43
(1)
(4)
–
46
–
(1)
–
45
Employee share ownership
trusta
£m
(35)
(125)
2
13
–
(145)
–
2
–
(143)
millions
14
32
(29)
–
(5)
12
5
–
(8)
9
£m
(61)
(96)
100
–
16
(41)
(9)
–
26
(24)
Total
millions
22
75
(30)
(4)
(5)
58
5
(1)
(8)
54
£m
(96)
(221)
102
13
16
(186)
(9)
2
26
(167)
a At 31 March 2019, 45,308,559 shares (2017/18: 46,224,966) with an aggregate nominal value of £2m (2017/18: £2m) were held at cost as treasury shares and 9,021,714 shares (2017/18:
12,855,378) with an aggregate nominal value of £nil (2017/18: £1m) were held in the Trust.
b See group cash flow statement on page 114. In 2018/19 the cash paid for the repurchase of ordinary share capital was £9m (2017/18: £221m). The cash received for proceeds on the issue of treasury
shares was £5m (2017/18: £53m).
The treasury shares reserve represents BT Group plc shares purchased directly by the group. The BT Group Employee Share Ownership
Trust (the Trust) also purchases BT Group plc shares.
The treasury shares and the shares in the Trust are being used to satisfy our obligations under employee share plans. Further details on
Employee Saveshare Plans and Executive share plans are provided in note 22.
22. Share-based payments
Significant accounting policies that apply to share-based payments
We operate a number of equity-settled share-based payment arrangements, under which we receive services from employees in
consideration for equity instruments (share options and shares) of the group. Equity-settled share-based payments are measured at
fair value at the date of grant. Market-based performance criteria and non-vesting conditions (for example, the requirement for
employees to make contributions to the share purchase programme) are reflected in this measurement of fair value. The fair value
determined at the grant date is recognised as an expense on a straight line basis over the vesting period, based on the group’s
estimate of the options or shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair
value is measured using either the Binomial options pricing model or Monte Carlo simulations, whichever is more appropriate to the
share-based payment arrangement.
Service and performance conditions are vesting conditions. Any other conditions are non-vesting conditions which have to be taken
into account to determine the fair value of equity instruments granted. In the case that an award or option does not vest as a result
of a failure to meet a non-vesting condition that is within the control of either counterparty, this is accounted for as a cancellation.
Cancellations are treated as accelerated vesting and all remaining future charges are immediately recognised in the income
statement. As the requirement to save under an employee saveshare arrangement is a non-vesting condition, employee
cancellations, other than through a termination of service, are treated as an accelerated vesting.
No adjustment is made to total equity for awards that lapse or are forfeited after the vesting date.
Year ended 31 March
Employee Saveshare Plans
Executive Share Plans:
Incentive Share Plan (ISP)
Deferred Bonus Plan (DBP)
Retention Share Plan (RSP)
Other plans
2019
£m
2018
£m
38
6
6
17
–
67
42
16
4
21
1
84
2017
£m
40
–
9
8
–
57
What share incentive arrangements do we have?
Our plans include savings-related share option plans for employees and those of participating subsidiaries, further share option plans for
selected employees and a stock purchase plan for employees in the US. We also have several share plans for executives. All share-based
payment plans are equity-settled. Details of these plans is set out below.
156
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
22. Share-based payments continued
Employee Saveshare Plans
Under an HMRC-approved savings-related share option plan, employees save on a monthly basis, over a three or five-year period,
towards the purchase of shares at a fixed price determined when the option is granted. This price is usually set at a 20% discount to the
market price for five-year plans and 10% for three-year plans. The options must be exercised within six months of maturity of the
savings contract, otherwise they lapse. Similar plans operate for our overseas employees.
Incentive Share Plan (ISP)
Under the ISP, participants are entitled to these shares in full at the end of a three-year period only if the company has met the relevant
pre-determined corporate performance measures and if the participants are still employed by the group. For ISP awards granted in
2018/19, 2017/18 and 2016/17: 40% of each award is linked to a total shareholder return (TSR) target for a comparator group of
companies from the beginning of the relevant performance period; 40% is linked to a three-year cumulative normalised free cash flow
measure; and 20% to growth in underlying revenue excluding transit.
Deferred Bonus Plan (DBP)
Under the DBP, awards are granted annually to selected employees. Shares in the company are transferred to participants at the end of
three years if they continue to be employed by the group throughout that period.
Retention Share Plan (RSP)
Under the RSP, awards are granted to selected employees. Shares in the company are transferred to participants at the end of a
specified retention period if they continue to be employed by the group throughout that period.
Under the terms of the ISP, DBP and RSP, dividends or dividend equivalents earned on shares during the conditional periods are
reinvested in company shares for the potential benefit of the participants.
Employee Saveshare Plans
Movements in Employee Saveshare options are shown below.
Year ended 31 March
Outstanding at 1 April
Granted
Forfeited
Exercised
Expired
Outstanding at 31 March
Exercisable at 31 March
Movement in the number of share
options
2018
millions
2019
millions
2017
millions
175
80
(44)
(1)
(20)
190
–
189
69
(41)
(30)
(12)
175
–
197
44
(18)
(33)
(1)
189
–
Weighted average exercise price
2019
2017
2018
pence
pence
pence
306
175
298
247
294
254
249
313
250
328
169
353
306
320
287
362
345
208
345
313
237
The weighted average share price for all options exercised during 2018/19 was 249p (2017/18: 311p, 2016/17: 357p).
The following table summarises information relating to options outstanding and exercisable under Employee Saveshare plans at
31 March 2019.
Normal dates of vesting and exercise (based on calendar years)
2019
2020
2021
2022
2023
Total
Exercise price
per share
319p – 397p
243p – 376p
170p – 353p
243p
170p
Weighted
average
exercise
price
Number of
outstanding
options
millions
Weighted
average
remaining
contractual life
333p
305p
232p
243p
170p
254p
40
34
43
29
43
189
10 months
22 months
34 months
46 months
58 months
34 months
BT Group plc
Annual Report 2019
22. Share-based payments continued
Executive share plans
Movements in executive share plan awards during 2018/19 are shown below:
At 31 March 2018
Awards granted
Awards vested
Awards lapsed
Dividend shares reinvested
At 31 March 2019
157
Strategic report
Governance
Financial statements
Additional information
ISP
54
33
–
(18)
5
74
Number of shares (millions)
Total
RSP
DBP
6
4
(1)
(1)
–
8
12
7
(7)
(1)
–
11
72
44
(8)
(20)
5
93
Fair values
The following table summarises the fair values and key assumptions used for valuing grants made under the Employee Saveshare plans
and ISP in 2018/19, 2017/18 and 2016/17.
Year ended 31 March
Weighted average fair value
Weighted average share price
Weighted average exercise price of options granted
Expected dividend yield
Risk free rates
Expected volatility
2019
Employee
Saveshare
ISP
156p
41p
211p
208p
n/a
175p
n/a
3.47% – 3.83%
0.74% – 1.07%
0.7%
23.3% – 25.8% 23.5%
2018
Employee
Saveshare
ISP
2017
Employee
Saveshare
ISP
56p
296p
250p
3.12% – 3.21%
0.1% – 0.2%
202p
281p
n/a
n/a
0.2%
23.1% – 24.3% 23.6%
72p
422p
362p
2.9% – 3.4%
0.5% – 0.8%
328p
426p
n/a
n/a
0.6%
19.0% – 21.5% 21.8%
Employee Saveshare grants are valued using a Binomial options pricing model. Awards under the ISP are valued using Monte Carlo
simulations. TSRs are generated for BT and the comparator group at the end of the three-year performance period, using each
company’s volatility and the cross correlation between pairs of stocks.
Volatility has been determined by reference to BT’s historical volatility which is expected to reflect the BT share price in the future. An
expected life of three months after vesting date is assumed for Employee Saveshare options. For all other awards the expected life is
equal to the vesting period. The risk-free interest rate is based on the UK gilt curve in effect at the time of the grant, for the expected
life of the option or award.
The fair values for the DBP and RSP were determined using the market price of the shares at the grant date. The weighted average share
price for DBP awards granted in 2018/19 was 209p (2017/18: 282p, 2016/17: 421p) and for RSP awards granted in 2018/19 217p
(2017/18: 282p, 2016/17: 417p).
23. Investments
Significant accounting policies that apply to investments
Investments classified as amortised cost
These investments are measured at amortised cost. Any gain or loss on derecognition is recognised in the income statement.
Investments classified as fair value through profit and loss
These investments are initially recognised at fair value plus direct transaction costs. They are re-measured at subsequent reporting
dates to fair value and changes are recognised directly in the income statement.
Debt instruments classified as fair value through other comprehensive income
These investments are initially recognised at fair value plus direct transaction costs. Investments are re-measured at subsequent
reporting dates to fair value, and unrealised gains and losses are recognised in other comprehensive income (except for changes in
exchange rates for monetary items, interest, and impairment losses, which are recognised in the income statement). On
derecognition of the investment, the cumulative gain or loss previously recognised in other comprehensive income is taken to the
income statement, in the line that most appropriately reflects the nature of the item or transaction.
Equity instruments classified as fair value through other comprehensive income
We have made an irrevocable election to present changes in the fair value of equity investments that are not held for trading in other
comprehensive income. All gains or losses are recognised in other comprehensive income and are not reclassified to the income statement
when the investments are disposed of, aside from dividends which are recognised in the income statement when our right to receive
payment is established. Equity investments are recorded in non-current assets unless they are expected to be sold within one year.
158
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
23. Investments continued
IFRS 9 was applied for the first time on 1 April 2018 and introduces new classifications for financial instruments, including investments.
Under IAS 39, we classified investments as available-for-sale, loans and receivables, and fair value through profit or loss. On transition
to IFRS 9 we have reclassified them as fair value through other comprehensive income, fair value through profit or loss, and amortised
cost, as set out in note 1. The current year figures in the following table reflect the classifications under IFRS 9, and the prior year
figures reflect the previous classifications under IAS 39.
At 31 March
Non-current assets
Fair value through other comprehensive income
Available-for-sale
Fair value through profit or loss
Current assets
Fair value through other comprehensive income
Available-for-sale
Investments held at amortised cost
Loans and receivables
2019
£m
2018
£m
2017
£m
48
–
6
54
–
–
3,214
–
3,214
–
46
7
53
–
37
7
44
–
2,575
–
447
3,022
–
1,437
–
83
1,520
Investments held at amortised cost consist of investments previously classified as loans and receivables and relate to money market
investments denominated in sterling of £2,687m (2017/18: £416m, 2016/17: £35m), in US dollars of £26m (2017/18: £27m,
2016/17: £30m) in euros of £499m (2017/18: £nil, 2016/17: £nil) and in other currencies £2m (2017/18: £4m, 2016/17: £18m).
They also include investments in liquidity funds of £2,522m (2017/18: £2,575m, 2016/17: £1,437m) held to collect contractual
cash flows. In prior years these were classified as available-for-sale.
Fair value estimation
Fair value hierarchy
At 31 March 2019
Non-current and current investments
Fair value through other comprehensive income
Fair value through profit or loss
Total
At 31 March 2018
Non-current and current investments
Available-for-sale
Fair value through profit or loss
Total
At 31 March 2017
Non-current and current investments
Available-for-sale
Fair value through profit or loss
Total
Level 1
£m
Level 2
£m
Level 3
£m
Total held at
fair value
£m
38
6
44
–
–
–
10
–
10
Level 1
£m
Level 2
£m
Level 3
£m
32
7
39
2,575
–
2,575
14
–
14
Level 1
£m
Level 2
£m
Level 3
£m
21
7
28
1,437
–
1,437
16
–
16
48
6
54
Total held at
fair value
£m
2,621
7
2,628
Total held at
fair value
£m
1,474
7
1,481
The three levels of valuation methodology used are:
Level 1 – uses quoted prices in active markets for identical assets or liabilities.
Level 2 – uses inputs for the asset or liability other than quoted prices that are observable either directly or indirectly.
Level 3 – uses inputs for the asset or liability that are not based on observable market data, such as internal models
or other valuation methods.
BT Group plc
Annual Report 2019
159
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Governance
Financial statements
Additional information
23. Investments continued
Level 2 balances disclosed in prior years consist of investments classified as available-for-sale and relating to liquidity funds
denominated in sterling of £2,180m (2017/18) and £900m (2016/17), and in euros of £395m (2017/18) and £537m (2016/17).
Their fair value was calculated by using notional currency amounts adjusted by year end spot exchange rates. These have been
reclassified on adoption of IFRS 9 and are now held at amortised cost.
Level 3 balances consist of investments classified as fair value through other comprehensive income (previously available-for-sale) of
£10m (2017/18: £14m, 2016/17: £16m) which represent investments in a number of private companies. In the absence of specific
market data, these investments are held at cost, adjusted as necessary for impairments, which approximates to fair value.
24. Cash and cash equivalents
Significant accounting policies that apply to cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions, which are readily
convertible to cash and are subject to insignificant risk of changes in value and have an original maturity of three months or less. All
are held at amortised cost on the balance sheet, equating to fair value.
For the purpose of the consolidated cash flow statement, cash and cash equivalents are as defined above net of outstanding bank
overdrafts. Bank overdrafts are included within the current element of loans and other borrowings (note 25).
IFRS 9 was applied for the first time on 1 April 2018 and introduces new classifications for financial instruments. Cash and cash
equivalents were classified as loans and receivables under IAS 39, and are now classified as financial assets held at amortised cost under
IFRS 9. This has not had an impact on the accounting for these instruments, or on their carrying amounts.
At 31 March
Cash at bank and in hand
Cash equivalents
US deposits
UK deposits
Other deposits
Total cash equivalents
Total cash and cash equivalents
Bank overdrafts (note 25)
Cash and cash equivalents per the cash flow statement
2019
£m
495
3
1,132
36
1,171
1,666
(72)
1,594
2018
£m
446
26
31
25
82
528
(29)
499
2017
£m
469
32
1
26
59
528
(17)
511
Cash and cash equivalents include restricted cash of £44m (2017/18: £32m, 2016/17: £43m), of which £40m (2017/18: £29m,
2016/17: £41m) was held in countries where local capital or exchange controls currently prevent us from accessing cash balances.
The remaining balance of £4m (2017/18: £3m, 2016/17: £2m) was held in escrow accounts, or in commercial arrangements
akin to escrow.
25. Loans and other borrowings
Significant accounting policies that apply to loans and other borrowings
We initially recognise loans and other borrowings at the fair value of amounts received net of transaction costs. They are
subsequently measured at amortised cost using the effective interest method and, if included in a fair value hedge relationship, are
re-valued to reflect the fair value movements on the associated hedged risk. The resulting amortisation of fair value movements, on
de-designation of the hedge, is recognised in the income statement.
What’s our capital management policy?
The objective of our capital management policy is to target an overall level of debt consistent with our credit rating target while
investing in the business, supporting the pension scheme and paying dividends. In order to meet this objective, we may issue or repay
debt, issue new shares, repurchase shares, or adjust the amount of dividends paid to shareholders. We manage the capital structure and
make adjustments to it in the light of changes in economic conditions and the risk characteristics of the group. The Board regularly
reviews the capital structure. No changes were made to these objectives and processes during 2018/19, 2017/18 or 2016/17. For
details of share issues and repurchases in the year see note 21.
Our capital structure consists of net debt and shareholders’ equity. The analysis below summarises the components which we manage as
capital.
At 31 March
Net debt
Total parent shareholders’ equitya
2019
£m
11,035
10,140
21,175
2018
£m
9,627
9,877
2017
£m
8,932
8,305
19,504
17,237
a Excludes non-controlling interests of £27m (2017/18: £34m, 2016/17: £30m). 2017/18 parent shareholders’ equity has been restated to reflect the update to the calculation of our IAS 19
accounting valuation of retirement benefit obligations, refer to note 2.
160
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
25. Loans and other borrowings continued
Net debt
Net debt consists of loans and other borrowings (both current and non-current), less current asset investments and cash and cash
equivalents. Loans and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of
the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost
and net realisable value. Currency denominated balances within net debt are translated to sterling at swapped rates where hedged.
Net debt is considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure
is the aggregate of loans and other borrowings (current and non-current), current asset investments and cash and cash equivalents.
A reconciliation from the most directly comparable IFRS measure to net debt is given below.
At 31 March
Loans and other borrowings
Less:
Cash and cash equivalents
Current asset investments
Adjustments:
To retranslate debt balances at swap rates where hedged by currency swaps
To remove accrued interest applied to reflect the effective interest method and fair value adjustments
Net debt
The table below shows the key components of net debt and of the increase of £1,408m this year.
Debt due within one yeara
Debt due after one year
Cash flows from derivatives related to net debt
Overdrafts
Impact of cross-currency swapsb
Removal of the accrued interest and fair value
adjustmentsc
Gross debt
Less:
Cash and cash equivalents
Current asset investments
Removal of the accrued interestc
Net debt
Issuance/
(maturities)
£m
Fair value
movements
£m
Foreign
exchange
£m
At
1 April
2018
£m
2,281
11,994
–
–
(874)
(1,423)
3,972
124
46
–
(226)
–
13,175
2,719
(528)
(3,022)
2
9,627
(1,140)
(203)
–
1,376
(8)
(11)
–
–
–
19
–
–
–
–
–
(97)
(102)
–
–
182
–
(17)
(3)
11
–
(9)
a Including accrued interest and bank overdrafts.
b Translation of debt balances at swap rates where hedged by cross currency swaps.
c Removal of accrued interest applied to reflect the effective interest rate method and removal of fair value adjustments.
2019
£m
2018
£m
2017
£m
16,876
14,275
12,713
(1,666)
(3,214)
(528)
(3,022)
(528)
(1,520)
11,996
10,725
10,665
(701)
(260)
(874)
(224)
(1,419)
(314)
11,035
9,627
8,932
Transfer
to within
one year
£m
1,281
(1,111)
(124)
(46)
–
–
–
–
–
–
–
Accrued
interest
movements
£m
66
34
–
–
(9)
(56)
35
5
–
1
At
31 March
2019
£m
2,100
14,776
–
–
(701)
(263)
15,912
(1,666)
(3,214)
3
41
11,035
BT Group plc
Annual Report 2019
25. Loans and other borrowings continued
The table below gives details of the listed bonds and other debt.
At 31 March
6.625% £500m bond due June 2017a
5.95% US$1,100m bond due January 2018a
3.25% €600m bond due August 2018a
2.35% US$800m bond due February 2019a
4.38% £450m bond due March 2019
1.125% €1,000m bond due June 2019a
8.625% £300m bond due March 2020
0.625% €1,500m bond due March 2021a
0.5% €575m bond due June 2022a
1.125% €1,100m bond due March 2023a
0.875% €500m bond due September 2023a
4.5% US$675m bond due December 2023a
1% €575m bond due June 2024a
1% €1,100m bond due November 2024a
3.50% £250m index linked bond due April 2025
1.75% €1,300m bond due March 2026a
1.5% €1,150m bond due June 2027a
2.125% €500m bond due September 2028a
5.125% US$700m bond due December 2028a
5.75% £600m bond due December 2028
9.625% US$2,670m bond due December 2030a (minimum 8.625%b)
3.125% £500m bond due November 2031
3.64% £330m bond due June 2033
1.613% £330m index linked bond due June 2033
6.375% £500m bond due June 2037a
3.883% £330m bond due June 2039
1.739% £330m index linked bond due June 2039
3.924% £340m bond due June 2042
1.774% £340m index linked bond due June 2042
3.625% £250m bond due November 2047
Total listed bonds
Finance leases
2.21% £350m bank loan due December 2017
Other loans
Bank overdrafts (note 24)
Total other loans and borrowings
Total loans and other borrowings
161
Strategic report
Governance
Financial statements
Additional information
2019
£m
–
–
–
–
–
869
300
1,289
495
946
430
524
498
943
433
1,118
993
433
542
710
2,096
502
339
340
522
340
340
350
351
250
2018
£m
–
–
541
572
455
883
300
1,309
502
961
–
–
506
959
419
1,137
1,009
–
–
721
1,943
502
–
–
522
–
–
–
–
250
2017
£m
526
891
539
642
460
863
300
1,282
–
942
–
–
–
–
403
1,113
–
–
–
731
2,191
–
–
–
522
–
–
–
–
–
15,953
13,491
11,405
206
–
645
72
717
223
–
532
29
561
229
352
710
17
1,079
16,876
14,275
12,713
a Designated in a cash flow hedge relationship.
b The interest rate payable on this bond attracts an additional 0.25% for a downgrade by one credit rating by either Moody’s or Standard & Poor’s to the group’s senior unsecured debt below A3/A–
respectively. In addition, if Moody’s or Standard & Poor’s subsequently increase the ratings then the interest rate will be decreased by 0.25% for each rating category upgrade by each rating agency. In
no event will the interest rate be reduced below the minimum rate reflected in the above table.
Unless previously designated in a fair value hedge relationship, all loans and other borrowings are carried on our balance sheet and in
the table above at amortised cost. The fair value of listed bonds and other long-term borrowings is £17,785m (2017/18: £14,878m,
2016/17: £13,496m) and the fair value of finance leases is £251m (2017/18: £253m, 2016/17: £273m).
The fair value of our bonds and other long-term borrowings is estimated on the basis of quoted market prices (Level 1), or based on
similar issuances where they exist (Level 2).
The carrying amount of other loans and bank overdrafts equates to fair value due to the short maturity of these items (Level 3).
The interest rates payable on loans and borrowings disclosed above reflect the coupons on the underlying issued loans and borrowings
and not the interest rates achieved through applying associated cross-currency and interest rate swaps in hedge arrangements.
162
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
25. Loans and other borrowings continued
Loans and other borrowings are analysed as follows:
At 31 March
Current liabilities
Listed bonds
Finance leases
Bank loans
Other loans and bank overdraftsa
Total current liabilities
Non-current liabilities
Listed bonds
Finance leases
Other loans
Total non-current liabilities
Total
2019
£m
2018
£m
2017
£m
1,367
16
–
717
2,100
14,586
190
–
14,776
16,876
1,702
18
–
561
2,281
11,789
205
–
1,539
15
352
726
2,632
9,866
214
1
11,994
10,081
14,275
12,713
a Includes collateral received on swaps of £638m (2017/18: £525m, 2016/17: £702m).
The carrying values disclosed in the above table reflect balances at amortised cost adjusted for accrued interest and fair value
adjustments to the relevant loans or borrowings. These do not reflect the final principal repayments that will arise after taking account
of the relevant derivatives in hedging relationships which are reflected in the table below. Apart from finance leases, all borrowings as at
31 March 2019, 2018 and 2017 were unsecured.
The principal repayments of loans and borrowings at hedged rates amounted to £15,912m (2017/18: £13,175m, 2016/17:
£10,980m) and repayments fall due as follows:
At 31 March
Within one year, or on demand
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Total due for repayment after
more than one year
Total repayments
Fair value adjustments
Total loans and other
borrowings
Carrying
amount
£m
2,100
1,309
15
1,463
964
10,975
14,726
16,826
50
16,876
2019
Effect of
hedging
and
interest
£m
Principal
repayments
at hedged
rates
£m
(264)
(133)
–
(89)
33
(461)
(650)
(914)
1,836
1,176
15
1,374
997
10,514
14,076
15,912
2018
Effect of
hedging
and
interest
£m
(291)
(66)
(154)
–
(111)
(405)
Principal
repayments
at hedged
rates
£m
1,981
1,126
1,178
18
1,378
7,494
(736)
(1,027)
11,194
13,175
Carrying
amount
£m
2,272
1,192
1,332
18
1,489
7,899
11,930
14,202
73
14,275
2017
Effect of
hedging
and
interest
£m
(498)
(197)
(43)
(121)
–
(724)
Principal
repayments
at hedged
rates
£m
2,134
1,417
1,123
1,174
12
5,120
Carrying
amount
£m
2,632
1,614
1,166
1,295
12
5,844
9,931
(1,085)
8,846
(1,583)
10,980
12,563
150
12,713
Obligations under finance leases are analysed as follows:
2019
2018
2017
At 31 March
Amounts payable under finance leases:
Due within one year
Between two to five years
After five years
Less: future finance charges
Fair value adjustments for purchase price adjustment
Total finance lease obligations
Minimum lease payments
£m
£m
£m
29
109
159
297
(95)
4
206
33
122
193
348
(129)
4
29
102
237
368
(139)
–
223
229
2019
2017
2018
Repayment of outstanding
lease obligations
£m
£m
£m
16
66
120
202
–
4
206
18
71
130
219
–
4
223
14
50
165
229
–
–
229
Assets held under finance leases mainly consist of buildings and network assets. Our obligations under finance leases are secured by the
lessors’ title to the leased assets.
BT Group plc
Annual Report 2019
26. Finance expense
Year ended 31 March
Finance expense
Interest on:
Financial liabilities at amortised cost and associated derivatives
Finance leases
Derivatives
Fair value movements on derivatives not in a designated hedge relationship
Reclassification of cash flow hedge from other comprehensive income
Unwinding of discount on provisions
Total finance expense before specific items
Specific items (note 10)
Total finance expense
163
Strategic report
Governance
Financial statements
Additional information
2019
£m
2018
£m
2017
£m
582
13
–
(3)
45
14
651
139
790
478
16
14
1
34
15
558
218
776
567
15
12
(2)
(1)
16
607
210
817
Reconciliation of net finance expense to net interest cash outflow
Net interest cash outflow of £508m (2017/18: £548m, 2016/17: £622m) is £109m lower (2017/18: £2m higher, 2016/17: £28m
higher) than the net finance expense in the income statement.
Year ended 31 March
Finance expense before specific items
Finance income before specific items
Net finance expense before specific items
Timing differences:
Derivative restructuring costs
Timing of coupon payments on bonds
Deferred income
Principal uplift on CPI and RPI linked bonds
Net interest cash outflow
2019
£m
651
(34)
617
–
(85)
8
(32)
2018
£m
558
(12)
546
–
(6)
8
–
2017
£m
607
(13)
594
1
19
8
–
508
548
622
27. Financial instruments and risk management
We issue or hold financial instruments mainly to finance our operations; to finance corporate transactions such as dividends, share
buybacks and acquisitions; for the temporary investment of short-term funds; and to manage currency and interest rate risks. In
addition, various financial instruments, for example trade receivables and payables arise directly from operations.
How do we manage financial risk?
Our activities expose us to a variety of financial risks: market risk (including interest rate risk and foreign exchange risk), credit risk and
liquidity risk.
Treasury operation
We have a centralised treasury operation whose primary role is to manage liquidity and funding requirements as well as our exposure to
associated market risks, and credit risk.
Treasury policy
Treasury policy is set by the Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of borrowing,
investments and group-wide exposures. The Board has delegated authority to operate these policies to a series of panels responsible for
the management of key treasury risks and operations. Appointment to and removal from the key panels requires approval from two of
the following: the chairman, the chief executive or the chief financial officer.
There has been no change in the nature of our risk profile between 31 March 2019 and the date of approval of these financial
statements.
How do we manage interest rate risk?
Management policy
Interest rate risk arises primarily from our long-term borrowings. Interest cash flow risk arises from borrowings issued at variable rates,
partially offset by cash held at variable rates. Fair value interest rate risk arises from borrowings issued at fixed rates.
Our policy, as set by the Board, is to ensure that at least 70% of ongoing net debt is at fixed rates. Short-term interest rate
management is delegated to the treasury operation while long-term interest rate management decisions require further approval by
the chief financial officer, group director tax, treasury, insurance and pensions or the treasury director who each have been delegated
such authority from the Board.
Hedging strategy
In order to manage our interest rate profile, we have entered into cross-currency and interest rate swap agreements to vary the
amounts and periods for which interest rates on borrowings are fixed. The duration of the swap agreements matches the duration of the
debt instruments. The majority of the group’s long-term borrowings are subject to fixed sterling interest rates after applying the impact
of these hedging instruments.
164
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
27. Financial instruments and risk management continued
How do we manage foreign exchange risk?
Management policy
Foreign currency hedging activities protect the group from the risk that changes in exchange rates will adversely affect future net cash
flows.
The Board’s policy for foreign exchange risk management defines the types of transactions typically covered, including significant
operational, funding and currency interest exposures, and the period over which cover should extend for each type of transaction.
The Board has delegated short-term foreign exchange management to the treasury operation and long-term foreign exchange
management decisions require further approval from the chief financial officer, group director tax, treasury, insurance and pensions or
the treasury director.
Hedging strategy
A significant proportion of our external revenue and costs arise within the UK and are denominated in sterling. Our non-UK operations
generally trade and are funded in their functional currency which limits their exposure to foreign exchange volatility.
We enter into forward currency contracts to hedge foreign currency capital purchases, purchase and sale commitments, interest
expense and foreign currency investments. The commitments hedged are principally denominated in US dollar, euro and Asia Pacific
region currencies. As a result, our exposure to foreign currency arises mainly on non-UK subsidiary investments and on residual currency
trading flows. We use cross-currency swaps to swap foreign currency borrowings into sterling.
The table below reflects the currency and interest rate profile of our loans and borrowings after the impact of hedging.
At 31 March
Sterling
Euro
Total
Ratio of fixed to floating
Weighted average effective
fixed interest rate – sterling
2019
Floating
rate
interest
£m
1,767
589
2,356
15%
Total
£m
15,323
589
15,912
100%
Fixed rate
interest
£m
13,556
–
13,556
85%
4.0%
2018
Floating
rate
interest
£m
676
509
1,185
Total
£m
12,666
509
13,175
9%
100%
Fixed rate
interest
£m
11,990
–
11,990
91%
4.4%
Fixed rate
interest
£m
9,633
–
9,633
88%
4.9%
2017
Floating
rate
interest
£m
706
641
1,347
12%
Total
£m
10,339
641
10,980
100%
The floating rate loans and borrowings bear interest rates fixed in advance for periods ranging from one day to one year, primarily by
reference to LIBOR quoted rates, RPI and CPI.
Sensitivity analysis
The income statement and shareholders’ equity are exposed to volatility arising from changes in interest rates and foreign exchange
rates. To demonstrate this volatility, management has concluded that the following are reasonable benchmarks for performing
sensitivity analysis:
• For interest, a 1% increase in interest rates and parallel shift in yield curves across sterling, US dollar and euro currencies.
• For foreign exchange, a 10% strengthening/weakening of sterling against other currencies.
The impact on equity, before tax and excluding any impact related to retirement benefit plans, of a 1% increase in interest rates and a
10% strengthening of sterling against other currencies is as detailed below:
At 31 March
Sterling interest rates
US dollar interest rates
Euro interest rates
Sterling strengthening
2019
£m
Increase
(reduce)
672
(350)
(399)
(219)
2018
£m
Increase
(reduce)
628
(267)
(401)
(236)
2017
£m
Increase
(reduce)
554
(348)
(229)
(269)
A 1% decrease in interest rates and 10% weakening in sterling against other currencies would have broadly the same impact in the
opposite direction.
BT Group plc
Annual Report 2019
165
Strategic report
Governance
Financial statements
Additional information
27. Financial instruments and risk management continued
The impact of a 1% change in interest rates on the group’s annual net finance expense and our exposure to foreign exchange volatility
in the income statement, after hedging, (excluding translation exposures) would not have been material in 2018/19, 2017/18 and
2016/17.
Credit ratings
We continue to target a BBB+/Baa1 credit rating over the cycle. We regularly review the liquidity of the group and our funding strategy
takes account of medium-term requirements. These include the pension deficit and shareholder distributions.
Our December 2030 bond contains covenants which require us to pay higher rates of interest since our credit ratings fell below A3 in
the case of Moody’s or A– in the case of Standard & Poor’s (S&P). Additional interest of 0.25% per year accrues for each ratings
category downgrade by each agency below those levels effective from the next coupon date following a downgrade. Based on the total
notional value of debt outstanding of £2.0bn at 31 March 2019, our finance expense would increase/decrease by approximately £10m
a year if the group’s credit rating were to be downgraded/upgraded, respectively, by one credit rating category by both agencies.
Our credit ratings were as detailed below:
At 31 March
Rating agency
Moody’s
Standard & Poor’s
2019
2018
2017
Rating
Outlook
Rating
Outlook
Rating
Outlook
Baa2
BBB
Stable
Stable
Baa2
BBB+
Stable
Negative
Baa1
BBB+
Negative
Negative
How do we manage liquidity risk?
Management policy
We maintain liquidity by entering into short and long-term financial instruments to support operational and other funding
requirements, determined using short and long-term cash forecasts. These forecasts are supplemented by a financial headroom analysis
which is used to assess funding adequacy for at least a 12-month period. On at least an annual basis the Board reviews and approves the
long-term funding requirements of the group and on an ongoing basis considers any related matters. We manage refinancing risk by
limiting the amount of borrowing that matures within any specified period and having appropriate strategies in place to manage
refinancing needs as they arise. The maturity profile of our loans and borrowings at 31 March 2019 is disclosed in note 25. We have
term debt maturities of £1.2bn in 2019/20.
Our treasury operation reviews and manages our short-term requirements within the parameters of the policies set by the Board. We
hold cash, cash equivalents and current investments in order to manage short-term liquidity requirements. At 31 March 2019 we had
undrawn committed borrowing facilities of £2.1bn (2017/18: £2.1bn, 2016/17: £2.1bn) maturing in September 2021.
In the UK, the group has arranged for funders to offer a supplier financing scheme to the group’s suppliers. This enables suppliers who
sign up to the arrangements to sell their invoices to the funders and to be paid earlier than the invoice due date. The group assesses the
arrangement against indicators to assess if debts which vendors have sold to the funder under the supplier financing scheme continue
to meet the definition of trade payables or should be classified as borrowings. At 31 March 2019 the payables met the criteria of trade
payables.
Maturity analysis
The following table provides an analysis of the remaining contractually-agreed cash flows including interest payable for our non-
derivative financial liabilities on an undiscounted basis, which therefore differs from both the carrying value and fair value.
Non-derivative financial liabilities
At 31 March 2019
Due within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Interest payments not yet accrued
Fair value adjustment
Impact of discounting
Carrying value on the balance sheeta,b
Loans and
other
borrowings
£m
Interest on
loans
and other
borrowings
£m
Trade and
other
payables
£m
Provisions
£m
1,886
1,309
15
1,463
964
10,975
16,612
–
50
–
541
505
497
496
482
3,543
6,064
(5,850)
–
–
5,158
–
–
–
–
–
5,158
–
–
–
39
33
35
14
12
127
260
–
–
(29)
Total
£m
7,624
1,847
547
1,973
1,458
14,645
28,094
(5,850)
50
(29)
16,662
214
5,158
231
22,265
166
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
27. Financial instruments and risk management continued
Non-derivative financial liabilities
At 31 March 2018
Due within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Interest payments not yet accrued
Fair value adjustment
Impact of discounting
Carrying value on the balance sheeta,b
Non-derivative financial liabilities
At 31 March 2017
Due within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Interest payments not yet accrued
Fair value adjustment
Impact of discounting
Carrying value on the balance sheeta,b
Loans and
other
borrowings
£m
Interest on
loans
and other
borrowings
£m
Trade and
other
payables
£m
Provisions
£m
2,120
1,192
1,332
18
1,489
7,899
14,050
–
73
–
14,123
452
404
365
357
355
2,714
4,647
(4,495)
–
–
152
4,939
–
–
–
–
–
4,939
–
–
–
4,939
54
34
25
43
19
197
372
–
–
(72)
300
Loans
and other
borrowings
£m
Interest on
loans
and other
borrowings
£m
Trade
and other
payables
£m
Provisions
£m
2,468
1,614
1,166
1,295
12
5,844
12,399
–
150
–
12,549
507
415
364
327
319
2,726
4,658
(4,494)
–
–
164
5,259
–
–
–
–
–
5,259
–
–
–
5,259
62
41
21
18
17
310
469
–
–
(177)
292
Total
£m
7,565
1,630
1,722
418
1,863
10,810
24,008
(4,495)
73
(72)
19,514
Total
£m
8,296
2,070
1,551
1,640
348
8,880
22,785
(4,494)
150
(177)
18,264
a Foreign currency-related cash flows were translated at closing rates as at the relevant reporting date. Future variable interest rate cash flows were calculated using the most recent rate applied at the
relevant balance sheet date.
b The carrying amount of trade and other payables excludes £1,479m (2017/18: £1,326m, 2016/17: £1,298m) of non-current trade and other payables which relates to non-financial liabilities, and
£632m (2017/18: £2,229m, 2016/17: £2,178m) of other taxation and social security and deferred income.
Trade and other payables are held at amortised cost. The carrying amount of these balances approximates to fair value due to the short
maturity of amounts payable.
The following table provides an analysis of the contractually agreed cash flows in respect of the group’s derivative financial instruments.
Cash flows are presented on a net or gross basis in accordance with the settlement arrangements of the instruments.
Derivative financial liabilities
At 31 March 2019
Due within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Totalb
Derivative financial liabilities
At 31 March 2018
Due within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Totalb
Derivatives – Analysed by earliest payment datea
Derivatives – Analysed based on holding instrument to maturity
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
167
128
131
163
207
43
839
1,007
541
131
633
1,095
3,790
7,197
(950)
(489)
(96)
(591)
(1,042)
(3,660)
(6,828)
Total
£m
224
180
166
205
260
173
1,208
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
82
77
71
71
71
467
839
1,007
541
131
633
1,095
3,790
7,197
(950)
(489)
(96)
(591)
(1,042)
(3,660)
(6,828)
Total
£m
139
129
106
113
124
597
1,208
Derivatives – Analysed by earliest payment datea
Derivatives – Analysed based on holding instrument to maturity
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
140
135
156
143
161
291
1,026
587
183
442
52
52
2,234
3,550
(547)
(166)
(446)
(29)
(29)
(2,149)
(3,366)
Total
£m
180
152
152
166
184
376
1,210
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
91
91
85
80
80
599
1,026
587
183
69
68
68
2,575
3,550
(547)
(166)
(47)
(47)
(47)
(2,512)
(3,366)
Total
£m
131
108
107
101
101
662
1,210
BT Group plc
Annual Report 2019
167
Strategic report
Governance
Financial statements
Additional information
27. Financial instruments and risk management continued
Derivatives – Analysed by earliest payment datea
Derivatives –Analysed based on holding instrument to maturity
Derivative financial liabilities
At 31 March 2017
Due within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Totalb
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
Total
£m
297
338
198
114
104
123
(576)
(1,097)
–
–
–
–
291
296
198
114
104
123
1,126
582
1,139
–
–
–
–
1,721
92
92
92
88
83
679
582
1,139
–
–
–
–
1,721
(576)
(1,097)
–
–
–
–
Total
£m
98
134
92
88
83
679
(1,673) 1,174
1,126
(1,673)
1,174
a Certain derivative financial instruments contain break clauses whereby either the group or bank counterparty can terminate the swap on certain dates and the mark to market position is settled in cash.
b Foreign currency-related cash flows were translated at closing rates as at the relevant reporting date. Future variable interest rate cash flows were calculated using the most recent rate applied at the
relevant balance sheet date.
How do we manage credit risk?
Management policy
Our exposure to credit risk arises from financial assets transacted by the treasury operation (primarily derivatives, investments, cash and
cash equivalents) and from trading-related receivables.
For treasury-related balances, the Board’s defined policy restricts exposure to any one counterparty by setting credit limits based on the
credit quality as defined by Moody’s and Standard & Poor’s. The minimum credit ratings permitted with counterparties in respect of new
transactions are A3/A– for long-term and P1/A1 for short-term investments. If counterparties in respect of existing transactions fall
below the permitted criteria we will take action where appropriate.
The treasury operation continuously reviews the limits applied to counterparties and will adjust the limit according to the nature and
credit standing of the counterparty, and in response to market conditions, up to the maximum allowable limit set by the Board.
Operational management policy
Our credit policy for trading-related financial assets is applied and managed by each of the customer-facing units to ensure compliance.
The policy requires that the creditworthiness and financial strength of customers are assessed at inception and on an ongoing basis.
Payment terms are set in accordance with industry standards. Where appropriate, we may minimise risks by requesting securities such
as deposits, guarantees and letters of credit. We take proactive steps including constantly reviewing credit ratings of counterparties to
minimise the impact of adverse market conditions on trading-related financial assets.
Exposures
The maximum credit risk exposure of the group’s financial assets at the balance sheet date is as follows:
At 31 March
Derivative financial assets
Investments
Trade and other receivablesa
Contract assets
Cash and cash equivalents
Notes
23
17
6
24
2019
£m
1,592
3,268
1,766
1,602
1,666
9,894
2018
£m
1,509
3,075
2,518
–
528
7,630
2017
£m
2,246
1,564
2,729
–
528
7,067
a The carrying amount excludes £445m (2017/18: £317m, 2016/17: £360m) of non-current trade and other receivables which relate to non-financial assets, and £1,456m (2017/18: £1,496m,
2016/17: £1,106m) of prepayments, deferred contract costs and other receivables.
The credit quality and credit concentration of cash equivalents, current asset investments and derivative financial assets are detailed in
the tables below. Where the opinion of Moody’s and Standard & Poor’s (S&P) differ, the lower rating is used.
Moody’s/S&P credit rating of counterparty
Aa2/AA and above
Aa3/AA–
A1/A+a
A2/Aa
A3/A–a
Baa1/BBB+a
Baa2/BBB and belowa
2019
£m
2,522
1,376
1,145
649
50
75
160
5,977
2018
£m
2,575
313
651
628
180
59
207
4,613
2017
£m
1,444
208
952
370
204
561
86
3,825
a We hold cash collateral of £638m (2017/18: £492m, 2016/17: £702m) in respect of derivative financial assets with certain counterparties.
The concentration of credit risk for our trading balances is provided in note 17, which analyses outstanding balances by customer-
facing unit. Where multiple transactions are undertaken with a single financial counterparty or group of related counterparties, we
enter into netting arrangements to reduce our exposure to credit risk by making use of standard International Swaps and Derivatives
Association (ISDA) documentation. We have also entered into credit support agreements with certain swap counterparties whereby, on
a daily, weekly and monthly basis, the fair value position on notional £3,289m of long dated cross-currency swaps and interest rate
swaps is collateralised. The related net cash inflow during the year was £129m (2017/18: outflow £220m, 2016/17: inflow £100m).
The collateral paid and received is recognised within current asset investments and loans and other borrowings, respectively.
168
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
27. Financial instruments and risk management continued
Offsetting of financial instruments
The table below shows our financial assets and liabilities that are subject to offset in the group’s balance sheet and the impact of
enforceable master netting or similar agreements.
Financial assets and liabilities
At 31 March 2019
Derivative financial assets
Derivative financial liabilities
Total
Financial assets and liabilities
At 31 March 2018
Derivative financial assets
Derivative financial liabilities
Total
Financial assets and liabilities
At 31 March 2017
Derivative financial assets
Derivative financial liabilities
Total
Amounts
presented in the
balance sheet
£m
1,592
(940)
652
Amounts
presented in the
balance sheet
£m
1,509
(837)
672
Amounts
presented in the
balance sheet
£m
2,246
(903)
1,343
Related amounts not set off in the balance sheet
Right of set off
with derivative
counterparties
£m
Cash
collateral
£m
Net
amount
£m
(802)
802
–
(638)
90
(548)
152
(48)
104
Related amounts not set off in the balance sheet
Right of set off
with derivative
counterparties
£m
Cash
collateral
£m
Net
amount
£m
(754)
754
–
(492)
60
(432)
263
(23)
240
Related amounts not set off in the balance sheet
Right of set off
with derivative
counterparties
£m
Cash
collateral
£m
Net
amount
£m
(693)
693
–
(702)
64
(638)
851
(146)
705
Derivatives and hedging
We use derivative financial instruments mainly to reduce exposure to foreign exchange and interest rate risks. Derivatives may qualify as
hedges for accounting purposes if they meet the criteria for designation as fair value hedges or cash flow hedges in accordance with
IFRS 9.
Significant accounting policies that apply to derivatives and hedge accounting
All of our derivative financial instruments are held at fair value on the balance sheet.
Derivatives designated in a cash flow hedge
The group designates certain derivatives as cash flow hedges. Where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the hedge. To qualify for hedge accounting, hedge documentation must be prepared
at inception, the hedge must be in line with BT’s risk management strategy and there must be an economic relationship based on the
currency, amount and timing of the respective cash flows of the hedging instrument and hedged item. This is assessed at inception
and in subsequent periods in which the hedge remains in operation. Hedge accounting is discontinued when it is no longer in line
with BT’s risk management strategy or if it no longer qualifies for hedge accounting.
When a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a
highly probable transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in
equity, in the cash flow reserve. For cash flow hedges of recognised assets or liabilities, the associated cumulative gain or loss is
removed from equity and recognised in the same line of the income statement and in the same period or periods that the hedged
transaction affects the income statement. Any ineffectiveness arising on a cash flow hedge is recognised immediately in the income
statement.
Other derivatives
Our policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting, some derivatives
may not qualify for hedge accounting, or may be specifically not designated as a hedge because natural offset is more appropriate.
These derivatives are classified as fair value through profit and loss and are recognised at fair value. Any direct transaction costs are
recognised immediately in the income statement.
Gains and losses on re-measurement are recognised in the income statement in the line that most appropriately reflects the nature of
the item or transaction to which they relate. Derivative financial instruments are classified as current assets or current liabilities
where they have a maturity period within 12 months. Where derivative financial instruments have a maturity period greater than
12 months, they are classified within either non-current assets or non-current liabilities.
BT Group plc
Annual Report 2019
169
Strategic report
Governance
Financial statements
Additional information
27. Financial instruments and risk management continued
Where the fair value of a derivative contract at initial recognition is not supported by observable market data and differs from the
transaction price, a day one gain or loss will arise which is not recognised in the income statement. Such gains and losses are deferred
and amortised to the income statement based on the remaining contractual term and as observable market data becomes available.
The fair values of outstanding swaps and foreign exchange contracts are estimated using discounted cash flow models and market
rates of interest and foreign exchange at the balance sheet date.
At 31 March 2019
Designated in a cash flow hedge
Other
Total derivatives
At 31 March 2018
Designated in a cash flow hedge
Other
Total derivatives
At 31 March 2017
Designated in a cash flow hedge
Other
Total derivatives
Current
asset
£m
102
9
111
Current
asset
£m
187
10
197
Current
asset
£m
417
11
428
Non-current
asset
£m
1,228
253
1,481
Non-current
asset
£m
1,061
251
1,312
Non-current
asset
£m
1,508
310
1,818
Current
liability
£m
Non-current
liability
£m
40
8
48
689
203
892
Current
liability
£m
Non-current
liability
£m
41
9
50
587
200
787
Current
liability
£m
Non-current
liability
£m
25
9
34
616
253
869
All derivative financial instruments are categorised at Level 2 of the fair value hierarchy as defined in note 23.
Instruments designated in a cash flow hedge include interest rate swaps and cross-currency swaps hedging euro- and US dollar-
denominated borrowings. Forward currency contracts are taken out to hedge step-up interest on currency denominated borrowings
relating to the group’s 2030 US dollar bond. The hedged cash flows will affect the group’s income statement as interest and principal
amounts are repaid over the remaining term of the borrowings (see note 25).
We hedge forecast foreign currency purchases, principally denominated in US dollar, euro and Asia Pacific currencies 12 months
forward with certain specific transactions hedged further forward. The related cash flows are recognised in the income statement over
this period.
The amounts related to items designated as hedging instruments were as follows:
Hedged items
At 31 March 2019
Sterling, euro and US dollar denominated borrowingsa
US dollar step up interest on US denominated borrowingsb
Foreign currency purchases, principally denominated in US dollar,
euro and Asia Pacific currenciesc
Total cash flow hedges
Deferred tax
Derivatives not in a designated hedge relationship
Carrying value on the balance sheet
Notional
principal
£m
13,518
145
Asset
£m
1,311
3
1,821
16
15,484
1,330
Hedged items
At 31 March 2018d
Sterling, euro and US dollar denominated borrowingsa
US dollar step up interest on US denominated borrowingsb
Foreign currency purchases, principally denominated in US dollar,
euro and Asia Pacific currenciesc
Total cash flow hedges
Deferred tax
Derivatives not in a designated hedge relationship
Carrying value on the balance sheet
Notional
principal
£m
12,504
143
1,989
14,636
Balance in cash
flow hedge
related reserves
(gain)/loss
£m
Fair value
(gain)/loss
recognised
in OCI
£m
Amount
recycled from
cash flow hedge
related
reserves to P&L
£m
(130)
(13)
(33)
(176)
(19)
4
33
18
(48)
(38)
(13)
(99)
15
–
(84)
Balance in cash
flow hedge
related reserves
(gain)/loss
£m
Fair value
(gain)/loss
recognised
in OCI
£m
Amount
recycled from
cash flow hedge
related reserves
to P&L
£m
347
13
8
368
(333)
3
53
(277)
101
(29)
(13)
59
(22)
–
37
Liability
£m
(702)
(1)
(26)
(729)
–
(211)
(940)
Liability
£m
(608)
(6)
(14)
(628)
–
(209)
(837)
–
262
1,592
Asset
£m
1,222
–
26
1,248
–
261
1,509
170
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
27. Financial instruments and risk management continued
Hedged items
At 31 March 2017d
Sterling, euro and US dollar denominated borrowingsa
US dollar step up interest on US denominated borrowingsb
Foreign currency purchases, principally denominated in US dollar,
euro and Asia Pacific currenciesc
Total cash flow hedges
Deferred tax
Derivatives not in a designated hedge relationship
Carrying value on the balance sheet
Notional
principal
£m
10,041
146
2,327
12,514
Asset
£m
1,845
5
75
1,925
–
321
2,246
Liability
£m
(621)
(2)
(18)
(641)
–
(262)
(903)
Balance in cash
flow hedge
related reserves
(gain)/loss
£m
Fair value
(gain)/loss
recognised
in OCI
£m
Amount
recycled from
cash flow hedge
related reserves
to P&L
£m
(800)
(21)
(63)
(884)
938
4
(4)
938
87
(45)
(74)
(32)
(95)
–
(127)
a Sterling, euro and US dollar denominated borrowings are hedged using cross currency swaps and interest rate swaps. Amounts recycled to profit and loss are presented within other operating costs and
finance expense.
b US dollar step up interest on US denominated borrowings are hedged using forward currency contracts. Amounts recycled to profit and loss are presented within finance expense.
c Foreign currency purchases, principally denominated in US dollar, euro and Asia Pacific currencies are hedged using forward currency contracts. Amounts recycled to profit and loss in respect of these
items are presented within cost of sales and other operating costs.
d We have presented comparatives to this information, now required by IFRS 7 following the adoption of IFRS 9, for 31 March 2018 and 31 March 2017.
All cash flow hedges were fully effective in the period.
28. Other reserves
At 1 April 2016
Exchange differencese
Net fair value gain (loss) on cash flow hedges
Movements in relation to cash flow hedges recognised in income
and expense
Fair value movement on available-for-sale assets
Tax recognised in other comprehensive income
At 31 March 2017
Exchange differencese
Net fair value gain (loss) on cash flow hedges
Movements in relation to cash flow hedges recognised in income
and expense
Fair value movement on available-for-sale assets
Tax recognised in other comprehensive income
Transfer to realised profit
At 31 March 2018
Transfer to cost of hedging reserve
At 1 April 2018
Exchange differencese
Net fair value gain (loss) on cash flow hedges
Movements in relation to cash flow hedges recognised in income
and expense
Fair value movement on assets at fair value through other
comprehensive income
Tax recognised in other comprehensive income
Transfer to realised profit
At 31 March 2019
Other comprehensive income
Capital
redemption
reserve
£m
27
–
–
Cash flow
reservea
£m
173
–
884
Fair
value
reserveb
£m
16
–
–
Cost of
hedging
reservec
£m
–
–
–
Translation
reserved
£m
469
227
–
–
–
–
27
–
–
–
–
–
–
27
–
27
–
–
–
–
–
–
27
(938)
–
8
127
–
(368)
277
–
10
(83)
(37)
81
44
–
168
(31)
–
(37)
–
144
–
(3)
–
13
–
–
–
11
–
–
24
–
24
–
–
–
3
–
–
27
–
–
–
–
–
–
–
–
–
–
–
(81)
(81)
–
8
13
–
–
–
(60)
–
–
21
717
(188)
–
–
–
(9)
–
520
–
520
64
–
–
–
(4)
–
580
Total
£m
685
227
884
(938)
(3)
29
884
(188)
(368)
277
11
1
(83)
534
–
534
64
176
(18)
3
(41)
–
718
a The cash flow reserve is used to record the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.
Amounts ‘recognised in income and expense’ include a net charge to the cash flow reserve of £30m (2017/18: credit of £295m, 2016/17: charge of £941m) relating to fair value movements on
derivatives. The items generating these foreign exchange movements are in designated cash flow hedge relationships.
b The fair value reserve (2017/18, 2016/17: available-for-sale reserve) is used to record the cumulative fair value gains and losses on assets classified as fair value through other comprehensive income
(2017/18, 2016/17: available-for-sale financial assets). The cumulative gains and losses are recycled to the income statement on disposal of the assets.
c The cost of hedging reserve reflects the gain or loss on the portion excluded from the designated hedging instrument that relates to the currency basis element of our cross currency swaps. It is initially
recognised in other comprehensive income and accounted for similarly to gains or losses in the cash flow reserve.
d The translation reserve is used to record cumulative translation differences on the net assets of foreign operations. The cumulative translation differences are recycled to the income statement on
disposal of the foreign operation.
e Excludes £(2)m (2017/18: £1m, 2016/17: £10m) of exchange differences in relation to retained earnings attributed to non-controlling interests.
BT Group plc
Annual Report 2019
171
Strategic report
Governance
Financial statements
Additional information
29. Related party transactions
Information about material related party transactions of the BT Group is set out below.
Key management personnel comprise executive and non-executive directors and members of the ExecutiveCommittee.Compensation
of key management personnel is disclosed in note 7.
Amounts paid to the group’s retirement benefit plans are set out in note 20.
30. Financial commitments and contingent liabilities
Financial commitments were as follows:
At 31 March
Operating lease commitments
TV programme rights commitments
Capital commitments
Other commitments
Total
2019
£m
6,619
2,113
1,432
253
2018
£m
6,597
2,823
993
624
10,417
11,037
TV programme rights commitments, mainly relating to football broadcast rights, are those for which the licence period has not yet
started.
Future minimum operating lease payments were as follows:
Payable in the year ending 31 March:
2019
2020
2021
2022
2023
2024
Thereafter
Total future minimum operating lease payments
2019
£m
–
755
641
599
555
512
3,557
6,619
2018
£m
600
550
513
486
463
449
3,536
6,597
Operating lease commitments were mainly in respect of land and buildings which arose from a sale and operating leaseback
transaction in 2001. Leases have an average term of 13 years (2017/18: 14 years) and rentals are fixed for an average of 13 years
(2017/18: 14 years).
Other than as disclosed below, there were no contingent liabilities or guarantees at 31 March 2018 other than those arising in the
ordinary course of the group’s business and on these no material losses are anticipated. We have insurance cover to certain limits for
major risks on property and major claims in connection with legal liabilities arising in the course of our operations. Otherwise, the group
generally carries its own risks.
Commitments and guarantees
BT plc
On 27 March 2019 a formal guarantee was put in place for BT Group plc to fully and unconditionally guarantee the obligations of its
wholly-owned subsidiary British Telecommunications plc (‘BT plc’) under it’s US dollar-denominated SEC-registered bonds. BT Group
will also guarantee the obligations under the existing notes and new notes issued under BT plc’s Euro Medium Term Note Programme
(EMTN), and under BT plc’s £300m 8.625% bonds due in 2020 and £600m 5.75% bonds due in 2028.
BDUK
Under the Broadband Delivery UK programme, grants received by the group may be subject to reinvestment or repayment to the local
authority depending on the level of take-up.
Telefónica UK Limited leases
We’ve provided guarantees relating to certain leases entered into by Telefónica UK Limited (formerly O2 UK Limited) prior to the
demerger of mmO2 from BT on 19 November 2001. mmO2 plc (now part of the Telefónica Group) has given BT a counter indemnity
for these guarantees. There is no exposure in the event of credit default in respect of amounts used to defease future lease obligations.
The guarantee lasts until Telefónica UK Limited has discharged all its obligations.
Legal proceedings
The group is involved in various legal proceedings, including actual or threatened litigation, and government or regulatory
investigations. However, save as disclosed below, the group does not currently believe that there are any legal proceedings, or
government or regulatory investigations that may have a material adverse impact on the operations or financial condition of the group.
In respect of each of the claims below, the nature and progression of such proceedings and investigations can make it difficult to predict
the impact they will have on the group. There are many reasons why we cannot make these assessments with certainty, including,
among others, that they are in early stages, no damages or remedies have been specified, and/or the often slow pace of litigation.
172
BT Group plc
Annual Report 2019
Notes to the consolidated financial statements continued
30. Financial commitments and contingent liabilities continued
Italian business
US securities class action complaints: The plaintiffs filed a third amended complaint in December 2018. We filed a motion to dismiss
that complaint, which plaintiffs opposed. We filed our reply to the plaintiff’s opposition to the motion to dismiss on 11 January 2019.
We are awaiting a decision from the US District court.
Italian Authorities: On 11 February 2019 the Milan Public Prosecutor served BT Italia S.P.A. with a notice regarding conclusion of their
preliminary investigation. The notice (which named BT Italia, as well as various individuals) records the prosecutor’s view that as at the
conclusion of the preliminary investigation there is a basis for proceeding with its case against BT Italia for certain potential offences
under articles 5 and 25 of Legislative Decree 231/2001. BT Italia disputes this and maintains in a defence brief filed on 19 April 2019
that it should not be prosecuted. BT Italia is not presently the subject of any formal charge (nor are any of the individuals named in the
prosecutor’s notice).
Phones 4U
In December 2016, the administrators of Phones 4U started legal proceedings in the High Court in the United Kingdom against EE,
claiming payments under a retail trading agreement for sums then due in respect of revenues (net of costs) from certain customers prior
to Phones 4U entering administration. This sharing of revenue under the retail trading agreement was due to continue until September
2019, with related payments continuing until April 2021. On May 2018 we reached a confidential agreement with the administrators
of Phones 4U to settle this matter. This settlement is in line with the accruals we held to cover potential payments required by EE.
Since 2015 the administrators of Phones 4U Limited have made allegations that EE and other mobile network operators colluded to
procure Phones 4U’s insolvency. During the year proceedings were issued for an unquantified amount by the administrators and in April
2019 we submitted our defence to this claim. We continue to dispute these allegations vigorously.
Brazilian tax claims
Brazilian tax claims The Brazilian state tax authorities have made tax demands on the exchange of goods and services (ICMS) and
regulatory assessments (FUST/FUNTTEL) against certain Brazilian subsidiaries. These are indirect taxes imposed on the provision of
telecommunications services in Brazil. The state tax and regulatory authorities are seeking to impose ICMS and FUST/FUNTTEL on
revenue earned on activities that the company does not consider as being part of the provision of telecommunications services, such as
equipment rental and managed services. We have disputed the basis on which ICMS and FUST/FUNTTEL are imposed and, in the case of
ICMS, have challenged the rate which the tax authorities are seeking to apply.
We currently have 33 ICMS cases with a current potential value of £204m (as at the end of March 2019). This is the assessed amount
for all cases spanning the period from 1998 to 2012 (plus one outlier case for the period 2013 to 2016 in the state of Minas Gerais and
one case for the period 2014 to 2015 in the state of Amazonas). There are currently 56 FUST/FUNTTEL cases with a known overall
liability of £19m; with a further £4m estimated (as at the end of April 2019). The judicial process is likely to take many years. There are
eight ICMS cases worth approximately £55m which are at an advanced stage. These are currently pending before the Sao Paulo Court of
Appeal. We are waiting for the Reporting Judge to schedule the trial hearing and expect to have a date soon, following the February
judicial recess.
Regulatory matters
In respect of regulatory risks, the group provides for anticipated costs where an outflow of resources is considered probable and
a reasonable estimate can be made of the likely outcome. Estimates are used in assessing the likely value of the regulatory risk.
The ultimate liability may vary from the amounts provided and will be dependent upon the eventual outcome of any settlement.
Northern Ireland Public Sector Shared Network contract
On 4 April 2019 Ofcom opened an investigation into whether the award of the Public Sector Shared Network contract for Northern
Ireland to BT complied with relevant significant market power conditions. We are cooperating with Ofcom’s investigation.
Other regulatory matters
We hold provisions reflecting management’s estimates of regulatory risks across a range of issues, including price and service issues.
The precise outcome of each matter depends on whether it becomes an active issue, and the extent to which negotiation or regulatory
decisions will result in financial settlement.
BT Group plc
Annual Report 2019
Financial Statements of BT Group plc
BT Group plc company balance sheet
Registered number 04190816
At 31 March
Non-current assets
Investments
Trade and other receivablesa
Current assets
Trade and other receivablesa
Cash and cash equivalents
Current liabilities
Trade and other payablesb
Total assets less current liabilities
Non-current liabilities
Loans and other borrowingsc
Equity
Ordinary shares
Share premium
Capital redemption reserve
Merger reserve
Own shares
Profit and loss accountd
Total equity
173
Strategic report
Governance
Financial statements
Additional information
Notes
2
2019
£m
2018
£m
10,952
4,540
10,885
6,928
15,492
17,813
1,117
2
1,119
96
96
112
6
118
75
75
16,515
17,856
3,029
3,029
499
1,051
27
3,149
(167)
8,927
2,983
2,983
499
1,051
27
5,649
(186)
7,833
13,486
16,515
14,873
17,856
3
a Trade and other receivables primarily relate to a £1,010m equity placing raised in February 2015 and net proceeds of £7,507m, before £3m of issue costs, relating to the sale of EE to British
Telecommunications plc on 29 January 2016. Subsequently £4,275m of the loan receivable relating to the sale of EE has been repaid. The balance consists of two loans to group undertakings
of £1,061m (2017/18: £1,044m) repayable on 31 January 2058 and £3,479m (2017/18: £5,884m) repayable on 21 December 2064. The loans attract interest of LIBOR plus 102.5 basis
points (2017/18: LIBOR plus 90 basis points). Included in the current trade and other receivables are loan to group undertakings of £997m (2017/18: £nil) and accrued interest of £120m
(2017/18: £112m).
b Trade and other payables consists of loans from group undertakings of £60m (2017/18: £34m) and other creditors of £36m (2017/18: £41m).
c Loans and other borrowings consist of a loan from group undertakings of £3,029m (2017/18: £2,983m). The loan is repayable on 31 January 2058 and attracts interest of LIBOR plus 102.5 basis
points (2017/18: LIBOR plus 90 basis points).
d As permitted by Section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The profit for the financial year, dealt with in the profit and loss account of the
company was £44m (2017/18: £61m).
The financial statements of the company on pages 173 to 176 were approved by the Board of Directors on 8 May 2019 and were
signed on its behalf by:
Jan du Plessis
Chairman
Philip Jansen
Chief Executive
Simon Lowth
Chief Financial Officer
174
BT Group plc
Annual Report 2019
BT Group plc company statement
of changes in equity
At 1 April 2017
Profit for the financial year
Dividends paid
Capital contribution in respect of share-based
payments
Net buyback of own shares
At 1 April 2018
Profit for the financial year
Transfer to realised profit
Dividends paid
Capital contribution in respect of share-based
payments
Net buyback of own shares
Unclaimed dividends over 10 years
At 31 March 2019
3
Called up share
capitala
£m
Note
Share
premium
account
£m
1,051
–
–
–
–
1,051
–
–
–
–
–
–
Capital
redemption
reserve
£m
27
–
–
–
–
27
–
–
–
–
–
–
Merger
reserve
£m
5,649
–
–
–
–
5,649
–
(2,500)
–
–
–
–
Own sharesb
£m
(96)
–
–
–
(90)
(186)
–
–
–
–
19
–
Profit
and loss
accountb,c
£m
9,290
61
(1,524)
84
(78)
7,833
44
2,500
(1,503)
Total
£m
16,420
61
(1,524)
84
(168)
14,873
44
–
(1,503)
67
(23)
9
67
(4)
9
499
–
–
–
–
499
–
–
–
–
–
–
499
1,051
27
3,149
(167)
8,927
13,486
a The allotted, called up and fully paid ordinary share capital of the company at 31 March 2019 was £499m (31 March 2018: £499m), representing 9,968,127,681 (31 March 2018: 9,968,127,681)
ordinary shares of 5p each.
b In 2018/19 9,066,942 shares (2017/18: 38,627,352) were issued from Own shares to satisfy obligations under employee share schemes and executive share awards at a cost of £28m (2017/18:
£130m). At 31 March 2019, 54,330,273 shares (31 March 2018: 59,249,666) with an aggregate nominal value of £3m (31 March 2018: £1m) were held as part of Own shares at cost.
c As permitted by Section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The profit for the financial year, dealt with in the profit and loss account of the
company, was £44m (2017/18: £61m).
BT Group plc
Annual Report 2019
175
Strategic report
Governance
Financial statements
Additional information
Notes to the company financial statements
1. BT Group plc accounting policies
Principal activity
The principal activity of the company is to act as ultimate holding
company of the BT group.
Accounting basis
As used in these financial statements and associated notes, the
term ‘company’ refers to BT Group plc (a public company limited
by shares). These separate financial statements of the company
are prepared in accordance with, and presented as required by,
the Companies Act 2006 as applicable to companies using
Financial Reporting Standard 101 (FRS 101). These financial
statements have been prepared in accordance with FRS 101.
FRS 101 incorporates, with limited amendments, International
Financial Reporting Standards (IFRS).
Financial statements
The financial statements are prepared on a going concern basis
and under the historical cost convention.
As permitted by Section 408(3) of the Companies Act 2006, the
company’s profit and loss account has not been presented.
New and amended accounting standards effective
during the year
There have been no new or amended accounting standards or
interpretations adopted during the year that have a significant
impact on the financial statements.
Exemptions
As permitted by FRS 101, the company has taken advantage of
the disclosure exemptions available under that standard in
relation to business combinations, share-based payments,
non-current assets held for sale, financial instruments, capital
management, and presentation of comparative information in
respect of certain assets, presentation of a cash flow statement,
standards not yet effective, impairment of assets and related
party transactions. The company intends to continue to take
advantage of these exemptions in future years. Further detail is
provided below.
Where required, equivalent disclosures have been given in the
consolidated financial statements of BT Group plc.
The BT Group plc consolidated financial statements for the year
ended 31 March 2019 contain a consolidated cash flow
statement. Consequently, as permitted by IAS 7 ‘Statement of
Cash flow’, the company has not presented its own cash flow
statement.
The BT Group plc consolidated financial statements for the year
ended 31 March 2019 contain related party disclosures.
Consequently, the company has taken advantage of the
exemption in IAS 24, ‘Related Party Disclosures’ not to disclose
transactions with other members of the BT Group.
The BT Group plc consolidated financial statements for the year
ended 31 March 2019 contain financial instrument disclosures
which comply with IFRS 7, ‘Financial Instruments: Disclosures’.
Consequently, the company is exempt from the disclosure
requirements of IFRS 7 in respect of its financial instruments.
Investments
Investments are stated at cost and reviewed for impairment if
there are indicators that the carrying value may not be
recoverable. An impairment loss is recognised to the extent that
the carrying amount cannot be recovered either by selling the
asset or by continuing to hold the asset and benefiting from the
net present value of the future cash flows of the investment.
Taxation
Full provision is made for deferred taxation on all temporary
differences which have arisen but not reversed at the balance
sheet date. Deferred tax assets are recognised to the extent that
it is regarded as more likely than not that there will be sufficient
taxable profits from which the underlying timing differences can
be deducted. The deferred tax balances are not discounted.
Dividends
Dividend distributions are recognised as a liability in the year in
which the dividends are approved by the company’s shareholders.
Interim dividends are recognised when they are paid; final
dividends when authorised in general meetings by shareholders.
Dividend income is recognised on receipt.
Share capital
Ordinary shares are classified as equity. Repurchased shares of the
company are recorded in the balance sheet as part of Own shares
and presented as a deduction from shareholders’ equity at cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current
balances with banks and similar institutions, which are readily
convertible to cash and are subject to insignificant risk of changes
in value and have an original maturity of three months or less.
Share-based payments
The company does not incur a charge for share-based payments.
However, the issuance by the company of share options and
awards to employees of its subsidiaries represents additional
capital contributions to its subsidiaries. An addition to the
company’s investment in subsidiaries is recorded with a
corresponding increase in equity shareholders’ funds. The
additional capital contribution is determined based on the fair
value of options and awards at the date of grant and is recognised
over the vesting period.
2. Investments
Cost
At 31 April 2017
Additions
At 31 March 2018
Additions
At 31 March 2019
Total
£m
10,801
84
10,885
67
10,952
Additions of £67m (2017/18: £84m) comprise capital
contributions in respect of share-based payments.
176
BT Group plc
Annual Report 2019
Notes to the company financial statements continued
2. Investments continued
4. Other information
Dividends
The Board recommends that a final dividend in respect of the year
ended 31 March 2019 of 10.78p per share will be paid to
shareholders on 9 September 2019, taking the full year proposed
dividend in respect of 2018/19 to 15.4p (2017/18: 15.4p,
2016/17: 15.4p) which amounts to approximately £1,527m
(2017/18: £1,524m, 2016/17: £1,532m). This final dividend is
subject to approval by shareholders at the Annual General
Meeting and therefore the liability of approximately £1,069m
(2017/18: £1,044m, 2016/17: £1,050m) has not been
included in these financial statements. The proposed dividend will
be payable to all shareholders on the Register of Members on
9 August 2019.
Employees
The chairman, the executive directors and the company
secretary & general counsel, governance of BT Group plc were the
only employees of the company during 2018/19 and 2017/18.
The costs relating to qualifying services provided to the
company’s principal subsidiary, British Telecommunications plc,
are recharged to that company.
The company held a 100% investment in BT Group Investments
Limited, a company registered in England and Wales, throughout
2018/19 and 2017/18.
3. Merger reserve
On 29 January 2016, the company issued 1,594,900,429
ordinary shares of 5p at 470.70p per share resulting in a total of
£80m being credited to the share capital.
These shares were used as part consideration for the acquisition
of EE, which completed on 29 January 2016. As a result of this
transaction, a merger reserve was created of £7,424m net of
£3m issue costs. The acquisition of EE was structured by way of a
share-for-share exchange. This transaction fell within the
provisions of Section 612 of the Companies Act 2006 (merger
relief) such that no share premium was recorded in respect of the
shares issued. The company chose to record its investment in EE
at fair value and therefore recorded a merger reserve equal to the
value of the share premium which would have been recorded had
Section 612 of the Companies Act 2006 not been applicable ie
equal to the difference between the fair value of EE and the
aggregate nominal value of the shares issued.
This merger reserve was initially considered unrealised on the
basis it was represented by the investment in EE. This was not
considered to represent qualifying consideration (in accordance
with Tech 02/10 (Guidance on the determination of realised
profits and losses in the context of distributions under the
Companies Act 2006)), as superseded by Tech 02/17 (Guidance
on realised and distributable profits under the Companies
Act 2006).
Immediately following the acquisition of EE, the company’s
investment in EE was transferred to BT in exchange for an
intercompany loan. To the extent the loan is settled in qualifying
consideration, the related proportion of the merger reserve is
considered realised. Hence the merger reserve is an unrealised
reserve until it is realised by the settlement of the intercompany
loan by qualifying consideration.
During 2018/19, £2,500m (2017/18: £nil) of merger reserve
was transferred to realised profit following the settlement of an
intercompany loan by qualifying consideration.
177
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala
Share class
Related undertakings
Subsidiaries
Company name
Held directly
United Kingdom
Group
interest in
allotted
capitala
Company name
Share class
Barbados
The Gabbles, Haggatt Hall, St Michael,
BB11063, Barbados
BT (Barbados) Limited
100% ordinary
Belarus
81 Newgate Street, London, EC1A 7AJ, United
Kingdom
BT Group Investments
Limited
BT Group Nominees
Limited
100% ordinary
58 Voronyanskogo St, Office 89, Minsk
220007, Belarus
100% ordinary
BT BELRUS Foreign
Limited Liability Company
100% ordinary
Held via other group companies
Belgium
Albania
Rr. Murat Toptani, Eurocol Center, Kati 8,
Tirana, Albania
BT Albania Limited SH.P.K
100% ordinary
Algeria
20 Micro zone d’Activités Dar El Madina,
Bloc B, Loc N01 Hydra, Alger, 16000, Algeria
Telecomlaan 9, 1831 Diegem, Belgium
BT Global Services Belgium
BVBA
BT Limitedb
BT Professional Services
(Holdings) N.V.
100% ordinary
–
100%
100% ordinary
Rue de L’Aêropostale 8, 4460
Grâce-Hollogne, Belgium
BT Algeria
Communications SARL
Argentina
100% ordinary
IP Trade SA
Bermuda
Lola Mora 421, 15th Floor, Puerto Madero,
Buenos Aires, C1107DDA, Argentina
Century House, 16 Par-la-Ville Road, Hamilton,
HM08, Bermuda
Australia
Bolivia
Level 1, 76 Berry Street, North Sydney NSW
2060, Australia
BT Australasia Pty Limited
100% ordinary
100% preference
Austria
Avenida Arce esquina Rosendo Gutierrez,
Edifico Multicentre Torre B, Piso 12, La Paz,
Bolivia
BT Solutions Limited
Sucursal Boliviab
Bosnia and Herzegovina
100%
–
Louis-Häfliger-Gasse 10, 1210, Wien, Austria
BT Austria GmbH
100% ordinary
ul. Despiceva broj 3/II, Sarajevo, Sarajevo-Stari
Grad, 71000, Bosnia and Herzegovina
Azerbaijan
The Landmark III Building, 8th Floor, c/o
Deloitte & Touche, 96 Nizami Street, Baku, AZ
1010, Azerbaijan
BTIH Teleconsult
Drustvo sa organicenom
odgovornoscu za
posredovanje i zastupanje
d.o.o. Sarajevo
100%
–
BT Azerbaijan Limited,
Limited Liability Company
Bahrain
100% ordinary
Botswana
Suite #650, 6th floor, Building No. 247,
Road 1704, Diplomatic Area 317, Bahrain
BT Solutions Limited
(Bahrain Branch)b
Bangladesh
100%
–
House 51 (3rd Floor), Road 9, Block F, Banani,
Dhaka, 1213, Bangladesh
BT Communications
Bangladesh Limited
100% ordinary
Plot 113, Unit 28 Kgale Mews, Gaborone
International Finance Park, Gaborone,
PO BOX 1839, Botswana
BT Global Services
Botswana (Proprietary)
Limited
Brazil
Avenida Das Naçôes Unidas, 4777- 17 andar-
Parte- Jardim Universidade, São Paulo- SP-
CEP, 05477- 000, Brazil
BT Global Communications
do Brasil Limitada
100%
quotas
Avenida Das Nações Unidas, 4777 - 14,
andar- parte- Jardim Universidade -
São Paulo- SP- CEP, 05477-000, Brazil
BT LatAm Holdings Brasil
Ltda
BT Communications do
Brasil Limitada
100% common
100%
quotas
Rodovia SP 101, KM 9,5, Trecho Campinas-
Monte Mor, Unidade 27, Bloco Beta, Distrito
Industrial, Hortolandia - SP- CEP, São Paolo,
13185-900, Brazil
BT Brasil Serviços de
Telecomunicações Ltda
BT LatAm Brasil Ltda.
British Virgin Islands
100%
100%
quotas
quotas
Sea Meadow House, P.O. Box 116, Road Town,
Tortola, British Virgin Islands
BT LatAm (BVI)
Corporation
100% common
51B Bulgaria Blvd., fl. 4, Sofia, 1404, Bulgaria
BT Bulgaria EOOD
100% ordinary
Canada
BT Canada Inc.
Tikit, Inc.
Cabo Verde
100% common
100% ordinary
Avenida Andrade Corvo, 30, Praia, CP63,
Cabo Verde
B. Telecomunicações,
Cabo Verde, Sociedade
Unipessoal, SA
Chile
100% ordinary
55 Oficina 52, Las Condes, Santiago, 7580067,
Chile, Chile
Servicios de
Telecomunicaciones BT
Global Networks Chile
Limitada
China
100% ordinary
Building 16, 6th Floor, Room 602-B, No. 269
Wuyi Road, Hi-tech Park, Dalian, 116023,
China
100% ordinary
BT Technology (Dalian)
Company Limited
100% registered
No. 3 Dong San Huan Bei Lu, Chao Yang District,
Beijing, 100027, China
BT Limited, Beijing Officeb
100%
–
100% ordinary
Bulgaria
BT Argentina S.R.L.
BT Latam Argentina S.A
100% ordinary
100% common
Communications Global
Network Services Limited
100% ordinary
200 King St W, Suite 1904, Toronto ON M5H
3T4, Canada
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information
178
Related undertakings continued
Company name
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala
Share class
Company name
Estonia
Group
interest in
allotted
capitala
Share class
No. 31 Software Park Road, Tower A, Science
& Technology Building, Dalian Software Park,
Dalian, 116023, China
BT Global Services (Dalian)
Co. Ltd.
100% registered
Room 1206, Tower A, United Plaza, 5022 Bin
He Avenue, Fu Tian District, Shenzhen, P. R.
China
Infonet Primalliance
Shenzhen Co. Ltd.
35% ordinary
Room 2101-2103, 21/F, International Capital
Plaza, No. 1318 North Sichuan Road, Hong Kou
District, Shanghai, 200080, China
BT China Limited-
Shanghai Branch Officeb
100%
–
Room 4B, 7/F, Tower W3, Oriental Plaza, 1 East
Chang An Avenue, Dong Cheng District, Beijing,
P. R. China
Côte d’Ivoire
Abidjan Plateau, Rue du commerce, Immeuble
Nabil 1er étage, 01 BP 12721 Abidjan 01,
Côte d’Ivoire
BT Côte d’Ivoire
100% ordinary
Croatia
Savska 64, 10 000 Zagreb, Croatia
BT Solutions Limited
Podruznica Hrvatskab
100%
Cyprus
236 Strovolos Avenue, Strovolos 2048,
Nicosia, Cyprus
BT Solutions Limitedb
100%
Czech Republic
Katerinska 466/40, Nove Mesto, Prague 2,
120 00, Czech Republic
Infonet Primalliance
Beijing Co. Ltd.
66% ordinary
BT Limited, organizacni
slozkab
100%
Room 601, No. 2 BLDG, 750 West Zhong Shan
Rd., Shanghai, 200051, P.R .China
Infonet Primalliance
Shanghai Co. Ltd.
28% ordinary
Room 635-3, No. 2 BLDG, 351 Guo Shou Jing
Road, Zhang Jiang High Technology Park,
Shanghai, P. R. China
Infonet Primalliance
Holding Co. Ltd.
100% ordinary
Room 702A, Tower W3,Oriental Plaza,
1 East Chang An Avenue, Dongcheng, Beijing,
100738, China
Denmark
Havnegade 39, 1058, Kobenhavn K, Denmark
BT Denmark ApS
100% ordinary
Dominican Republic
Av. Abraham Lincoln Esq. Jose Amado Soler,
Edif. Progresso, Local 3-A, Sector Ens.
Serralles, Santo Domingo, Dominican Republic
BT Dominican Republic,
S. A.
BT LatAm Dominicana,
S.A.
100% ordinary
100% common
BT China Limited
100% registered
Ecuador
Unit 1537B, Floor 15th, No. 55, Xili Road,
Shanghai Free Trade Zone, Shanghai, China
Av. Amazonas N21-252 y Carrión, Edificio
Londres, 4° Piso, Quito, Ecuador
–
–
–
A.H. Tammsaare tee 47, Tallinn, 11316, Estonia
BT Solutions Limited Eesti
Filiaalb
100%
–
Finland
Mannerheimvägen 12 B 6, 00100 Helsinki,
Finland
BT Nordics Finland Oy
100% ordinary
France
Tour Ariane, 5 place de la Pyramide, La Defense
Cedex, 92088 PARIS, France
BT France S.A.S.
BT Newco France S.A.S.
BT Services S.A.S
100% ordinary
100% ordinary
100% ordinary
Georgia
74 Ilia Chavchavadze Avenue, Tbilisi, Georgia
BT Georgia Limited LLC
100%
–
Germany
Barthstraße 4, 80339, Munich, Germany
BT (Germany) GmbH &
Co. oHG
BT Deutschland GmbH
BT Garrick GmbH
100% ordinary
100% ordinary
100% ordinary
Franfurterstrasse 21-25, 65760, Eschborn
Taunus, Germany
IP Trade Networks GmbH
100% ordinary
Ghana
No 11 Adaman Loop, Near Abeka Junction, P.O.
Box AN 19113, Tesano, Accra - North, Ghana
BT Ghana Limited
100% ordinary
Gibraltar
BT China Communications
Limited
50% ordinary
Colombia
Calle 113 # 7-21, Torre A oficina 1112,
Teleport Business Park, Bogota, Colombia
América Inalámbrica S.A.
BT Colombia Limitada
BT LatAm Colombia S.A.
BT LatAm Holdings
(Colombia) S.A.
Costa Rica
100% common
100%
quotas
100% common
100% common
Centro Corporativo Internacional, Piso 1,
Avenida 6 y 8, Calle 26 y 28, Barrio Don Bosco,
Costa Rica
BT Global Costa Rica SRL
BT LatAm Costa Rica, S.A.
100% ordinary
100% common
BT Solutions Limited
(Sucursal Ecuador)b
El Salvador
100%
–
Montagu Pavilion, 8-10 Queensway, Gibraltar
BT (Gibraltar) Limited
100% ordinary
Boulevard Orden de Malta, Centro Profesional
Madre Tierra, Local 10, Primer Nivel, Antiguo
Cuscatlán, La Libertad, El Salvador
BT El Salvador, Limitada de
Capital Variable
100% ordinary
Guatemala
Greece
75 Patision Street, Athens, 10434, Greece
BT Solutions Limited-
Greek Branchb
100%
–
Edificio Centro Profesional Madre Tierra,
Local 10, Piso 1, Santa Elena, Antiguo
Cuscatlan, El Salvador
BT LatAm El Salvador, S.A.
de CV
100% common
Egypt
1 Wadi El Nile St., Mohandessin, Giza, Cairo,
Egypt
BT Telecom Egypt LLC
100%
stakes
3a Avenida 13–78, Zona 10 Torre Citibank,
Nivel 2, Oficina No. 206, Guatemala
BT Guatemala S.A.
Comsat de Guatemala S.A.
BT LatAm Guatemala, S.A.
100%
unique
100% common
100% common
BT Group plcAnnual Report 2019 179
Company name
Honduras
Group
interest in
allotted
capitala
Share class
Company name
Indonesia
Group
interest in
allotted
capitala
Share class
Company name
Jersey
Group
interest in
allotted
capitala
Share class
Colonia Lomas Del Guijarro sur, edificio Plaza
azul, 2do. Nivel, local #26, Tegucigalpa,
Honduras
World Trade Centre 5, Lantai. 13, Jl. Jend.
Sudirman Kav. 29-31, Kel. Karet Setiabudi,
Jakarta Selatan, Jakarta, 12920, Indonesia
BT Sociedad De
Responsabilidad Limitada
100%
–
Edificio Plaza Azul, Piso 2 do Nivel, Local No.
26, Colonia Lomas del Guijarro Sur, Avenida
Paris, Calle Viena, Tegucigalpa, Honduras
PT BT Indonesia
PT BT Communications
Indonesia
PT Sun Microsystems
Indonesia
100% ordinary
95% ordinary
60% ordinary
BT LatAm Honduras, S.A.
100% common
Israel
26 New Street, St Helier, JE2 3RA, Jersey
Ilford Trustees (Jersey)
Limited
100% ordinary
First Floor Windward House, La Route de la
Liberation, St Helier, JE1 1BG, Jersey
BT US Investments Limited 100% ordinary
PO Box 264, Forum 4, Grenville Street, St
Helier, JE4 8TQ, Jersey
BT Jersey Limited
100% ordinary
Hong Kong
38th Floor Dorset House, Taikoo Place, 979
King’s Road, Island East, Hong Kong
BT Hong Kong Limited
Infonet Primalliance Co.,
Limited
Infonet China Limited
39% ordinary
61% preference
100% ordinary
100% ordinary
Room 1102, Lee Garden One, 33 Hysan
Avenue, Causeway Bay, Hong Kong
IP Trade Networks Limited
100% ordinary
Hungary
Budafoki út 91-13, 1117 Budapest, Hungary
BT Limited Magyarorszagi
Fioktelepeb
BT ROC Kft
100%
–
100% business
Iceland
BDO ehf, Skutuvogi 1E, 104 Reykjavik, Iceland
BT Solutions Limited Útibú
á Íslandib
100%
–
India
602, Tower B, RMZ Infinity, Municipal No. 3,
Old Madras Road, Benninganahalli, Bengaluru,
Karnataka, 560016, India
BT Professional Services
(India) Private Limited
100% ordinary
11th Floor, Eros Corporate Tower, Opp.
International Trade Tower, Nehru Place, New
Delhi, 110019, India
100% ordinary
BT (India) Private Limited
BT e-Serv (India) Private
Limited
BT Global Business
Services Private Limited
BT Global Communications
India Private Limited
BT Telecom India Private
Limited
A-47, Hauz Khas, New Delhi, Delhi-DL,
110016, India
Orange Services India
Private Limited
100% ordinary
Beit Oz, 14 Abba Hillel Silver Rd, Ramat Gan,
52506, Israel
Jordan
B.T. Communication Israel
Ltd
100% ordinary
Italy
Strada Santa Margherita, 6 / A, 43123, Parma,
Italy
BT Enìa Telecomunicazioni
S.P.A.
87% ordinary
Via Charles Robert Darwin, no 85, 20019,
Settimo Milanese, Italy
ERPTech S.p.A.
99% ordinary
Via Correggio 5, 20097, San Donato Milanese,
Milan, Italy
Radianz Italia S.r.l.
100% ordinary
Via Mario Bianchini 15, 00142 Roma, Italy
Al Gardens Area (Tiaa Al Ali), Al Salheen
Neighborhood, Building #185, 7th Floor, Wasfi
Al Tal Street, Amman, 11118, Jordan
BT (International)
Holdings Limited (Jordan)
100% ordinary
Kazakhstan
36 Al Farabi Ave., Bldg. B, Almaty Financial
District, Almaty, Republic of Kazakhstan,
050059, Kazakhstan
BT Kazakhstan LLP
100%
–
Kenya
6th Floor, Virtual Offices, Morningside Office
Park, Ngong Road, Nairobi, Kenya
BT Communications Kenya
Limited
100% ordinary
BT Global Services Limitedb 100%
–
P.O. BOX 10032-00100, Nairobi, Kenya
Via Pianezza n° 123, Torino, Italy
Atlanet SpA
99% ordinary
BT Telecommunications
Kenya Limited
100% ordinary
Via Tucidide 56, Torre 7, 20134, Milano, Italy
Korea
Basictel SpA
BT Italia S.p.A.
BT Nederland N.V.b
Infonet Italia S.p.A
Nuova Societa di
Telecomunicazioni SpA
Jamaica
99% ordinary
99% ordinary
100%
–
100% ordinary
99% ordinary
8th Floor, KTB Building, 66 Yeoui-daero,
Yeongdeungpo-gu, Seoul, 07325, Korea
BT Global Services Korea
Limited
100% common
Kuwait
Block 2-A, 9th Floor, Ahmad Al Jaber Street,
Sharq, Kuwait
26 Beechwood Avenue, Cross Roads, St.
Andrew, Kingston 5, Jamaica
BT Jamaica Limited
100% ordinary
BT Solutions Limited –
Kuwait Branchb
Latvia
100%
–
100%
equity
Japan
Muitas iela 1A, Riga, LV-1010, Latvia
100% ordinary
74% ordinary
74% ordinary
ARK Mori Building, 12-32 Akasaka, 1-Chome,
Minato-Ku, Tokyo, 107 - 6024, Japan
BT Global Japan Corporation
BT Japan Corporation
100% ordinary
100% ordinary
BT Latvia Limited,
Sabiedriba ar ierobezotu
atbildibu
Lebanon
100% ordinary
Abou Hamad, Merheb, Nohra & Chedid Law
Firm, Chbaro Street, 22nd Achrafieh Warde
Building, 1st Floor, Beirut, P.O.BOX 165126,
Lebanon
BT Lebanon S.A.L.
100% ordinary
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 180
Related undertakings continued
Company name
Lithuania
Group
interest in
allotted
capitala
Share class
Company name
Mexico
Group
interest in
allotted
capitala
Share class
Company name
Niger
Group
interest in
allotted
capitala
Share class
Aludariu str 2-33, LT-01113 Vilnius, Lithuania
UAB BTH Vilnius
100% ordinary
Av. Renato Leduc 321, Col. Toriello Guerra,
14050 Mexico D.F.
Luxembourg
12 rue Eugene Ruppert, L 2453, Luxembourg
BT LatAm México, S.A. de C.V. 100% common
100% common
Opimus S.A. de C.V.
Moldova
100% ordinary
IPTEH Building, 65 Stefan cel Mare Blvd,
Office 806, Chisinau, Republic of Moldova
100% ordinary
BT MDV Limited
100% ordinary
57, Rue des Sorkhos, BP 616, Niamey, Niger
BT Niger
Nigeria
100% ordinary
ADOL House, 15 CIPM Avenue, Central
Business District, Alausa, Ikeja, Lagos, Nigeria
BT (Nigeria) Limited
100% ordinary
Norway
Munkedamsveien 45, c/o BDO AS, 0121 Oslo,
Norway
BT Solutions Norway AS
100% ordinary
Oman
Maktabi Building, Building No. 458,
Unit No. 413 (4th Floor, Road No - R41,
Block No. 203, Plot No. 107, Zone No. SW41,
Complex No. 271, Al Watiyah, Bausher,
Muscat, Sultanate of Oman, Oman
BT International Holdings
Limited & Co. LLC
100% ordinary
Pakistan
2nd Floor, Block C, Lakson Square, Building
No. 1, Sarwar Shaheed Road, Karachi, 74200,
Pakistan
Montenegro
Bulevar revolucije 7, Podgorica, 81000,
Montenegro
BT Montenegro DOO
100%
Morocco
193, Avenue HASSAN II, Casablanca, MAROC
s/c Domicilia services, Morocco
BT Solutions Limited –
Morocco Branchb
100%
–
–
Espace Jet Business Class, 16/18 Lot Attoufik
Sidi Maarouf, Casablanca, 20190, Morocco
Syntone S.A.R.L.
100% ordinary
Mozambique
Av. 25 de Setembro, 1230, 3º, Bloco 5, Caixa
Postal 4200, Maputo, 4200, Mozambique
BT Mozambique, Limitada
100%
quotas
BT Pakistan (Private)
Limited
Panama
100% ordinary
Namibia
PO Box 2184, 61 Bismarck Street, Windhoek,
Namibia
BT Solutions Limitedb
100%
–
Edificio Credicorp Bank, Piso 3, Oficina 301,
Cuidad de Panama, Panama
BT de Panama, S.R.L.
BT LatAm Panama, Inc.
100% ordinary
100% common
Netherlands
Paraguay
Minerva & Mercurius building, Herikerbergweg
2, 1101CM, Amsterdam Zuidoost, Netherlands
Gral Diaz 521, Edificio Internacional Faro,
Piso 6, Asuncion, Paraguay
BT (Netherlands) Holdings
B.V.
BT Nederland N.V.
BT Professional Services
Nederland B.V.
New Zealand
100% ordinary
100% ordinary
100% ordinary
c/o BDO Auckland, Level 4, 4 Graham Street,
Auckland, 1010, New Zealand
BT Australasia Pty Limited
– New Zealand Branchb
100%
–
BT Paraguay S.R.L.
100%
quotas
Peru
Calle Martir Olaya, 129 of 1901, Miraflores,
Lima, Peru
BT LatAm Peru S.A.C.
BT Peru S.R.L.
100% common
100% ordinary
Philippines
11th Floor, Page One Building, 1215 Acacia
Avenue, Madrigal, Business park, Ayala
Alabany, Muntinlupa city, 1780 City, Manila,
1780, Philippines
IT Holdings, Inc
Sun Microsystems
Philippines, Inc
100% ordinary
51% common
18th Floor, Philamlife Tower, 8767 Paseo de
Roxas, Makati City, 1226, Philippines
BT Communications
Philippines Incorporated
100% ordinary
BT Solutions Limitedb
100%
Nicaragua
–
Mauritius
10 Frere Felix De Valois Street, Port Louis,
Mauritius
BT Global Communications
(Mauritius) Limited
100% ordinary
Edificio Invercasa, 5to Piso, Suite 505, Via
Fontana, frente al colegio La Salle, Managua,
Nicaragua
BT LatAm Nicaragua, S.A.
BT Nicaragua S.A.
100% common
capital
100%
BT Global Services
Luxembourg SARL
BT Professional Services
(Luxembourg) S.A.
BT Broadband
Luxembourg Sàrl
BT Luxembourg
Investment Holdings Sarl
Macedonia
100% ordinary
100% ordinary
Str. Dame Gruev no.8, 5th floor, Building “Dom
na voenite invalidi”, SKOPJE 1000, Macedonia
BT Solutions Limited
Branch Office in Skopjeb
100%
Macao
Avenida da.Praia Grande, No. 367-371, Keng
Ou Building, 15th andar C, em Macao, Macau,
Macao
BT Hong Kong Ltd. –
Macau Branchb
100%
Malawi
–
–
BDO Tax & Advisory Services (Pvt) Ltd, 6th
Floor Unit House, 12 Victoria Street PO BOX
3038, Blantyre, Malawi
BT Malawi Limited
100% ordinary
Malaysia
Menara BT, Level 8, Tower 3, Avenue 7,
Bangsar South, No.8, Jalan Kerinchi, 59200,
Kuala Lumpur, Malaysia
BT Global Services (M)
Sdn Bhd
BT Global Services
Solutions Sdn Bhd
BT Global Technology (M)
Sdn. Bhd.
BT Systems (Malaysia)
Sdn Bhd
Malta
100% ordinary
100% ordinary
100% ordinary
100% ordinary
Tower Gate Place, Tal-Qroqq Street, Msida MSD
1703, Malta
BT Group plcAnnual Report 2019 181
Share class
Company name
Spain
Group
interest in
allotted
capitala
Share class
C/ Isabel Colbrand 6-8, 28050, Madrid, Spain
BT ESPAÑA, Compañia
de Servicios Globales de
Telecommunicaciones,S.A
Sri Lanka
100% ordinary
Company name
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala
c/o Sun Microsystems Phil Inc., 8767 Paseo de
Roxas, Makati City, Philippines
PSPI-Subic, Inc
51% ordinary
Russia
Room 62, prem xx, Floor 2, Pravdy, 26,
127137, Moscow, Russian Federation
Poland
Al. Armii Ludowej 14, 00-638 Warszawa,
International Business Center, Poland
BT Solutions Limited
Liability Company
Serbia
100%
–
BT Poland Spółka
Z Ograniczoną
Odpowiedzialnością
Portugal
100% ordinary
Rua D. Francisco Manuel de Melo 21-1,
1070-085 Lisboa, Portugal
BT Portugal –
Telecomunicaçöes,
Unipessoal Lda
Puerto Rico
100% ordinary
The Prentice-Hall Corporation System, Puerto
Rico, Inc., c/o Fast Solutions, LLC, Citi Tower,
252 Ponce de Leon Avenue, Floor 20, San Juan,
Puerto Rico, 00918, Puerto Rico
BT Communications Sales,
LLC Puerto Rico branchb
100%
–
Qatar
1413, 14th Floor, Al Fardan Office Tower, Doha,
31316, Qatar
Dimitrija Georgijevica Starike 20, Belgrade,
11070, Serbia
Charter House 65/2, Sir Chittampalam A.,
Gardiner Mawatha, Colombo, 2, Sri Lanka
BT Belgrade d.o.o
100% ordinary
Sierra Leone
BT Communications Lanka
(Private) Limited
100% ordinary
84 Dundas Street, Freetown, Sierra Leone
Sudan
100% ordinary
Alskheikh Mustafa Building, Parlman Street,
Khartoum, Sudan
BT (SL) Limited
Singapore
100%
–
BT Nordics Sweden AB
100% ordinary
Level 3, #03-01/02 & #03-04, Block B,
Alexandra Technopark, 438B Alexandra Road,
119968, Singapore
BT (India) Private Limited
Singapore Branchb
BT Global Services
Technologies Pte. Ltd.
BT Global Solutions Pte.
Ltd.
BT Singapore Pte. Ltd.
Sun Vietnam Pte. Ltd.
Slovakia
100% ordinary
100% ordinary
100% ordinary
60% ordinary
BT Global Services (North
Gulf) LLC
Republic of Ireland
BT Communications
Ireland Group Limited
BT Communications
Ireland Holdings Limited
BT Communications
Ireland Limited
BT Global Communications
(Ireland) Limited
Canal Capital Investment
Limited
Whitestream Industries
Limited
Romania
49% ordinary
Dvorakovo nabrezie 4, 811 02, Bratislava,
Slovakia
2 Grand Canal Plaza, Upper Grand Canal Street,
Dublin 4, Republic of Ireland
BT Slovakia s.r.o.
100% ordinary
Slovenia
100% ordinary
CESTA V MESTNI LOG 1, 1000 LJUBLJANA,
Slovenia
100% ordinary
100% ordinary
BT GLOBALNE STORITVE,
telekomunikacijske
storitve, obdelava
podatkov, podatkovnih
baz; d.o.o.
100% ordinary
South Africa
100% ordinary
100% ordinary
24-18th Street, Menlo Park, Pretoria, 0081,
South Africa
100% ordinary
EE Communications (South
Africa) Proprietary Limited
100% ordinary
35-37 Oltenitei Str., Cladirea A1, Biroul Nr. 52,
Bucharest, Sector 4, Romania
BT Global Services
Limited Londra Sucursala
Bucurestib
100%
–
BT Building North Office Park, 54 Maxwell
Drive, Woodmead, 2191, South Africa
BT Communications
Services South Africa (Pty)
Limited
70% ordinary
First Floor, Culross Court North, 16 Culross
Road, Bryanston 2021, South Africa
BT Limitedb
100%
–
Newgate Communication
(Sudan) Co. Ltd
100% ordinary
Sweden
Box 30005, 104 25, Stockholm, Sweden
Switzerland
Richtistrasse 5, 8304 Wallisellen, Switzerland
BT Switzerland AG
100% ordinary
Taiwan
Shin Kong Manhattan Building, 14F, No. 8,
Sec. 5, Xinyi Road, Taipei, 11049, Taiwan
BT Limited Taiwan Branchb
100%
–
Tanzania
BDO East Africa, 1st Floor-Wing B, Infotech
Place, Mwai Kibaki Road, Dar es Salaam, Tanzania
BT Solutions Limited –
Tanzania Branchb
Thailand
100%
–
Athenee Tower, 23rd Floor, (CEO Suite, Suite 38
& 40), 63 Wireless Road, Lumpini, Pathumwan,
Bangkok, 10330, Thailand
BT Siam Communications
Co. Ltd.
BT Siam Limited
Trinidad and Tobago
class B
49%
69% preference
2nd Floor CIC Building, 122-124 Frederick
Street, Port of Spain, Trinidad and Tobago
BT Solutions Limitedb
100%
–
Tunisia
BT chez BDO Tunisie, Immeuble, ENNOUR
BUILDING 3ème étage, Centre Urbain Nord
1082, Mahrajène Tunis, Tunisia
BT Tunisia S.A.R.L
100% ordinary
BT Group plcAnnual Report 2019Strategic reportGovernanceFinancial statementsAdditional information 182
Related undertakings continued
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala
Share class
Company name
Turkey
Yenisahra Mah. Yavuz Selim Cad. No.19/A D.4
Ataşehir, İstanbu, 34700, Turkey
BT Bilisim Hizmetleri
Anonim Şirketi
BT Telekom Hizmetleri
Anonim Şirketi
Uganda
100% ordinary
100% common
6th Floor Block C, Nakawa Business Park, Plot
3 - 5, New Portbell Road, Kampala, Uganda
BT Solutions Limitedb
100%
–
Ukraine
Office 702, 34 Lesi Ukrainky Boulevard, Kyiv
01042, Ukraine
BT Ukraine Limited
Liability Company
United Arab Emirates
100%
stakes
Office No G03, Ground Floor, EIB Building No
04, Dubai, United Arab Emirates
BT MEA FZ-LLC
100% ordinary
Office No. (F6) International Business Center,
Building No. (27W10), Three Sails Tower,
Cornish, Abu Dhabi, United Arab Emirates
BT UAE Limited - Abu
Dhabi Branchb
100%
Office no.206 BLOCK B, Diamond Business
Center 1, Al Barsha South Third, Dubai,
P.O. BOX 25205, United Arab Emirates
BT UAE Limited - Dubai
Branch (1)b
BT UAE Limited - Dubai
Branch (2)b
United Kingdom
100%
100%
–
–
–
81 Newgate Street, London, EC1A 7AJ, United
Kingdom
Autumnwindow Limited
100% ordinary
Autumnwindow No.2
Limited
Autumnwindow No.3
Limited
BPSLP Limited
British
Telecommunications plc
Bruning Limited
BT (International) Holdings
Limited
BT (RRS LP) Limited
BT Centre Nominee 2
Limited
BT Communications
Ireland Group Limited – UK
Branchb
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100%
–
BT Cornwall Limited
BT Corporate Trustee
Limited
BT European Investments
Limited
BT Facilities Services
Limited
BT Fifty-One
BT Fifty-Three Limited
BT Fleet Limited
BT Global Security Services
Limited
BT Global Services Limited
BT Holdings Limited
BT IoT Networks Limited
BT Lancashire Services
Limited
BT Law Limited
BT LGS Limited
BT Limited
BT Managed Services
(No.2) Limited
BT Managed Services
Limited
BT Nominees Limited
BT Property Holdings
(Aberdeen) Limited
BT Property Limited
BT Sixty-Four Limited
BT SLE Euro Limited
BT SLE USD Limited
BT Solutions Limited
BT South Tyneside Limited
BT UAE Limited
Communications Global
Network Services Limited
– UK Branchb
Communications
Networking Services (UK)
Communicator (IOM)
Limited – UK Branchb
ESAT Telecommunications
(UK) Limited
Extraclick Limited
groupBT Limited
Newgate Street
Secretaries Limited
Numberrapid Limited
Pelipod Ltd
Radianz Limited
SEV Automotive And Plant
Limited
100% ordinary
limited by
guarantee
100%
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100%
–
Southgate Developments
Limited
Tikit Limited
Tudor Minstrel
100% ordinary
100% ordinary
100% ordinary
Alexander Bain House, 15 York Street,
Glasgow, G2 8LA Scotland
Holland House (Northern)
Limited
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
BDO LLP, 55 Baker Street, London, W1U 7EU,
United Kingdom
BT Business Direct Limited
BT Fifty
BT Forty-Nine
BT IT Services Limited
BT Lease Holdings Limited
BT Leasing Limited
BT Moorgate One Limited
BT Moorgate Two Limited
BT Property Holdings
(Oxford) Limited
BT Seventy-Three
BTexact Technologies
Limited
BTexact Venturing Limited
dabs.com Limited
IP Trade Networks Ltd
Mobilise Telecoms Limited
M-Viron Limited
Newgate Leasing Limited
Postgate Holding
Company
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
Kelvin House, 123 Judd Street, London, WC1H
9NP, United Kingdom
Openreach Limited
100% ordinary
The Balance, 2 Pinfold Street, Sheffield,
S1 2GU, United Kingdom
Plusnet plc
100% ordinary
100% ordinary
Third Floor, St Georges Court, Upper Church
Street, Douglas, IM1 1EE, Isle of Man
Belmullet Limited
Communicator Insurance
Company Limited
Communicator Limited
Priestgate Limited
100% ordinary
99% ordinary
1% preference
100% ordinary
100% ordinary
100%
–
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
BT Group plcAnnual Report 2019 BT Group plc
Annual Report 2019
183
Strategic report
Governance
Financial statements
Additional information
Company name
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala
Share class
Uruguay
Rincón 487 Piso 11, Montevideo, ZIP CODE
11.000, Uruguay
BT Solutions Limited
Sucursal Uruguayb
Venezuela
100%
–
Edificio Parque Cristal, Torre Oeste, Piso 5, Oficina
5, Avenida Francisco de Miranda, Urbanización Los
Palos Grandes, Caracas 1060, Venezuela
BT LatAm Venezuela, S.A.
BT Global (Venezuela) S.A.
100% ordinary
100% ordinary
Vietnam
16th Floor, Saigon Tower, 29 Le Duan Road,
District 1 Ho Chi Minh City, Socialist Republic
of Vietnam
BT (Vietnam) Co. Ltd.
100% ordinary
7th Floor, ESTAR Building, 147-149 Vo Van Tan
Street, Ward 6, District 3, HCM City, Vietnam
Sun Vietnam Co., Ltd.
60% ordinary
Zambia
Plot No. 4015A, Frost Building, Gallery Office
Park, Lagos Road, Rhodespark, Lusaka, Lusaka
Province, Zambia
BT Solutions Limitedb
100%
–
Zimbabwe
3 Baines Avenue, Box 334, Harare, Zimbabwe
Numberrapid Limitedb
100%
–
Trident Place, Mosquito Way, Hatfield,
Hertfordshire, AL10 9BW, United Kingdom
EE (Group) Limited
EE Finance Limited
EE Limited
EE Pension Trustee
Limited
EE Services Limited
Everthing Everywhere
Limited
Mainline Communications
Group Limited
Mainline Digital
Communications Limited
Orange Furbs Trustees
Limited
Orange Home UK Limited
Orange Personal
Communications Services
Limited
United States
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
100% ordinary
c/o Corporation Service Company, 2215-B
Renaissance Drive, Las Vegas, NV 89119,
United States
BT LatAm (Nevada) Corp.
100% common
c/o Corporation Service Company, 251 Little
Falls Drive, Wilmington DE 19808, United
States
100%
100% common
100% common
100% common
BT Americas Holdings Inc.
BT Americas Inc.
BT Communications Sales
LLC
units
BT Conferencing Video Inc. 100% common
100% common
BT Federal Inc.
BT LatAm Holdings One,
Inc.
BT LatAm Holdings Three,
Inc.
BT LatAm Holdings Two,
Inc.
BT LatAm Services, Inc.
BT LatAm, Inc.
BT Procure L.L.C.
BT United States L.L.C.
Infonet Services
Corporation
IP Trade Network Corp
Radianz Americas Inc.
100% common
100% common
100% common
units
100%
units
100%
100% common
100% common
100% common
100% common
184
Related undertakings continued
Associates
Joint Ventures and Joint Operationsc
Company name
Group
interest in
allotted
capitala
Share class
Company name
Group
interest in
allotted
capitala Share class
–
25%
50% ordinary
Held via other group companies
United Kingdom
Sixth Floor, Thames Tower, Station Road,
Reading, RG1 1LX, United Kingdom
Mobile Broadband
Network Limited
6th Floor, One London Wall, London, EC2Y
5EB, United Kingdom
Internet Matters Limited
81 Newgate Street, London, EC1A 7AJ,
United Kingdom
BT OnePhone Limited
70% ordinary
St Helen’s 1 Undershaft, London, EC3P 3DQ,
United Kingdom
Rugby Radio Station
(General Partner) Limited
Rugby Radio Station
(Nominee) Limited
Rugby Radio Station LP
10 Lower Thames Street, Third Floor,
London, EC3R 6YT, United Kingdom
Youview TV Limited
50% ordinary
–
50%
50% ordinary
voting
14%
–
23%
43% ordinary
50% ordinary
Held via other group companies
British Virgin Islands
Craigmuir Chambers, PO Box 71, Road Town,
Tortora, British Virgin Islands
Ecquaria Limited
Italy
Piazzale Luigi Sturzo, 23, 00144, Roma, Italy
QXN S.c.p.A.
25% ordinary
Via XII Ottobre 2N, 16121, Genova, Liguria,
Italy
I2 S.r.l
Mauritius
IFS Court, Bank Street, TwentyEight
Cybercity, Ebene, 72201, Mauritius
Mahindra – BT
Investment Company
(Mauritius) Limited
Philippines
32F Philam Life Tower, 8767 Paseo de Roxas,
Makati City, Philippines
ePLDTSunphilcox JV, Inc
SunPhilcox JV, Inc
Saudi Arabia
New Acaria Commercial Complex, Al-Siteen
Street, Malaz, Riyadh, Saudi Arabia
British Telecom Al-Saudia
Limited
United Kingdom
24/25 The Shard, 32 London Bridge Street,
London, SE1 9SG, United Kingdom
Digital Mobile Spectrum
Limited
25% ordinary
Unit 1, Colwick Quays Business Park, Colwick,
Nottingham, Nottinghamshire, NG4 2JY,
United Kingdom
Midland Communications
Distribution Limited
20% ordinary
20% ordinary
35% ordinary
other
49%
Interests in joint operations
EE Limited and Hutchison 3G UK Limited
(together ‘the Companies’) each have a
50% share in the joint operation Mobile
Broadband Network Limited (‘MBNL’).
MBNL’s ongoing purpose is the operation
and maintenance of mobile networks
through a sharing arrangement. This
includes the efficient management of shared
infrastructure and networks on behalf of
the Companies, acquiring certain network
elements for shared use, and coordinating
the deployment of new infrastructure and
networks on either a shared or a unilateral
basis (unilateral elements being network
assets or services specific to one company
only). The group is committed to incurring
50% of costs in respect of restructuring
the Shared Network, a similar proportion
of the operating costs (which varies in line
with usage), and 100% of any unilateral
elements.
Guarantees for the joint operation are given
by British Telecommunications plc and
CK Hutchison Holdings Limited.
The principal place of business of the joint
operation is in the UK.
a
The proportion of voting rights held corresponds to the aggregate
interest in percentage held by the holding company and
subsidiaries undertaking.
b No shares issued for a branch.
c
All joint ventures are governed by a joint venture agreement
or shareholder agreement. MBNL is accounted for as a joint
operation.
BT Group plcAnnual Report 2019
BT Group plc
Annual Report 2019
Additional information
Alternative performance measures
Introduction
We assess the performance of the group using a variety of
alternative performance measures that are not defined under
IFRS and are therefore termed non-GAAP measures. The
non-GAAP measures we use are: change in underlying revenue,
adjusted revenue, adjusted EBITDA, adjusted earnings per share,
normalised free cash flow, and net debt. The rationale for using
these measures, along with a reconciliation from the nearest
measures prepared in accordance with IFRS, are presented in this
Additional Information below.
The alternative performance measures we use may not be directly
comparable with similarly titled measures used by other
companies.
Specific items
The group’s income statement and segmental analysis separately
identify trading results on an adjusted basis, being before specific
items. The directors believe that presentation of the group’s
results in this way is relevant to an understanding of the group’s
financial performance as specific items are those that in
management’s judgement need to be disclosed by virtue of their
size, nature or incidence. This is consistent with the way that
financial performance is measured by management and reported
to the Board and the ExecutiveCommitteeand assists in
providing a meaningful analysis of the trading results of the
group.
In determining whether an event or transaction is specific,
management considers quantitative as well as qualitative factors,
such as the frequency or predictability of occurrence.
Examples of charges or credits meeting the above definition and
which have been presented as specific items in the current and/or
prior years include acquisitions/disposals of businesses and
investments, retrospective regulatory matters, historical
insurance or litigation claims, business restructuring programmes,
asset impairment charges, property rationalisation programmes,
net interest on pensions and the settlement of multiple tax years.
In the event that items meet the criteria, which are applied
consistently from year to year, they are treated as specific items.
Reported revenue, reported operating costs, reported operating
profit, reported profit before tax, reported net finance expense
and reported EPS are the equivalent IFRS measures. A
reconciliation from these can be seen in the Group income
statement on page 110.
Change in underlying revenue
Change in underlying revenue is a non-GAAP measure that seeks
to reflect the underlying performance of the group that will
contribute to long-term sustainable growth. As such this excludes
the impact of acquisitions or disposals, foreign exchange
movements and specific items.
We have also separately included IFRS 15 in the current year to
identify the impact of the new revenue standard which was
effective from 1 April 2018. This is important to understand the
185
Strategic report
Governance
Financial statements
Additional information
movement in revenue year on year as comparatives for prior years
are reported under the previous standard (IAS 18).
A reconciliation from the movement in reported revenue, the
most directly comparable IFRS measures, to the movement in
underlying revenue, is set out below.
Year ended 31 March
Decrease in reported revenue (IAS 18)
Specific items (IAS 18)
IFRS 15 adjustment
Decrease in adjusted revenue (IFRS 15 pro forma)
Transit revenue
Acquisitions and disposals
Foreign exchange movements
Decrease in underlying revenue
2019
%
(1.2)
–
(0.1)
(1.3)
–
0.2
0.2
(0.9)
2018
%
(1.4)
–
–
(1.4)
0.6
0.1
(0.3)
(1.0)
Adjusted EBITDA
In addition to measuring financial performance of the group and
customer-facing units based on operating profit, we also measure
performance based on EBITDA and adjusted EBITDA. EBITDA is
defined as the group profit or loss before interest, taxation,
depreciation and amortisation. Adjusted EBITDA is defined as
EBITDA before specific items, net non-interest related finance
expense, and share of profits or losses of associates and joint
ventures. EBITDA is a common measure used by investors and
analysts to evaluate the operating financial performance of
companies, particularly in the telecommunications sector.
We consider EBITDA and adjusted EBITDA to be useful measures
of our operating performance because they approximate the
underlying operating cash flow by eliminating depreciation and
amortisation. EBITDA and adjusted EBITDA are not direct
measures of our liquidity, which is shown by our cash flow
statement, and need to be considered in the context of our
financial commitments.
A reconciliation of reported profit for the period, the most directly
comparable IFRS measure, to EBITDA and adjusted EBITDA is set
out below.
Year ended 31 March
Reported profit for the period
Tax
Reported profit before tax
Net interest related finance expense
Depreciation and amortisation
EBITDA
EBITDA specific itemsa
Net other finance expense
Share of post tax losses (profits) of
associates and joint ventures
Adjusted EBITDA
2019
£m
2,159
507
2,666
606
3,546
6,818
425
150
2018
£m
2,032
584
2,616
530
3,514
6,660
610
234
2017
£m
1,908
446
2,354
580
3,572
6,506
906
224
(1)
1
9
7,392
7,505
7,645
a Excludes amortisation specifics of £nil (2017/18: £nil, 2016/17: £62m). Specific items are set
out in note 10 to the consolidated financial statements.
186
BT Group plc
Annual Report 2019
Additional information continued
Alternative performance measures continued
Earnings per share
We also measure financial performance based on adjusted earnings per share, which excludes specific items. Basic and adjusted earnings
per share, and the per share impact of specific items, are as follows:
Year ended 31 March
Basic earnings per share/profit
Specific itemsa
Adjusted basic earnings per share/profit
a Specific items are set out in note 10 to the consolidated financial statements.
2019
2018
2017
Pence
per share
21.8
4.5
26.3
£m
2,159
452
2,611
Pence
per share
20.5
7.4
27.9
£m
2,032
741
2,773
Pence
per share
19.2
9.7
28.9
£m
1,908
961
2,869
We disclose reported earnings per share, both basic and diluted, in note 12 to the consolidated financial statements.
Normalised free cash flow
Normalised free cash flow is one of the group’s key performance indicators by which our financial performance is measured. It is
primarily a liquidity measure. However, we also believe it is an important indicator of our overall operational performance as it reflects
the cash we generate from operations after capital expenditure and financing costs, both of which are significant ongoing cash outflows
associated with investing in our infrastructure and financing our operations.
Normalised free cash flow is defined as free cash flow (net cash inflow from operating after capital expenditure) after net interest paid,
before pension deficit payments (including the cash tax benefit of pension deficit payments) and specific items. It excludes cash flows
that are determined at a corporate level independently of ongoing trading operations such as dividends, share buybacks, acquisitions
and disposals, and repayment and raising of debt.
Normalised free cash flow is not a measure of the funds that are available for distribution to shareholders.
A reconciliation from cash inflow from operating activities, the most directly comparable IFRS measure, to free cash flow and normalised
free cash flow, is set out below.
Year ended 31 March
Cash generated from operations
Tax paid
Net cash inflow from operating activities
Net purchase of property, plant and equipment and software
Free cash flow
Interest received
Interest paid
Add back pension deficit payments
Add back net cash flow from specific items
Add back net sale of non-current asset investments
Add back payments in respect of acquisition of spectrum licences
Remove refund on acquisition of spectrum licence
Remove cash tax benefit of pension deficit payments
Normalised free cash flow
2019
£m
4,687
(431)
4,256
(3,637)
619
23
(531)
2,024
598
1
–
(21)
(273)
2,440
2018
£m
5,400
(473)
4,927
(3,341)
1,586
7
(555)
872
828
19
325
–
(109)
2017
£m
6,725
(551)
6,174
(3,119)
3,055
7
(629)
274
205
(20)
–
–
(110)
2,973
2,782
Net debt
Net debt consists of loans and other borrowings (both current and non-current), less current asset investments and cash and cash
equivalents. Loans and other borrowings are measured as the net proceeds raised, adjusted to amortise any discount over the term of
the debt. For the purpose of this measure, current asset investments and cash and cash equivalents are measured at the lower of cost
and net realisable value.
Our net debt calculation starts from the expected future undiscounted cash flows that should arise when our financial instruments
mature. We adjust these cash flows to reflect hedged risks that are re-measured under fair value hedges, as well as for the impact of
the effective interest method. Currency-denominated balances within net debt are translated to sterling at swap rates where hedged.
Net debt is a measure of the group’s net indebtedness that provides an indicator of overall balance sheet strength. It is also a single
measure that can be used to assess both the group’s cash position and its indebtedness. The use of the term ‘net debt’ does not
necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure.
BT Group plc
Annual Report 2019
187
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Governance
Financial statements
Additional information
Alternative performance measures continued
Net debt is considered to be an alternative performance measure as it is not defined in IFRS. A reconciliation from loans and other
borrowings, cash and cash equivalents, and current asset investments, the most directly comparable IFRS measures to net debt, is
set out below.
At 31 March
Loans and other borrowingsa
Cash and cash equivalents
Current investments
Adjustments:
To retranslate currency denominated balances at swapped rates where hedgedb
To remove fair value adjustments and accrued interest applied to reflect the effective interest methodc
Net debt
a Includes overdrafts of £72m at 31 March 2019 (31 March 2018: £29m, 31 March 2017: £17m).
b The translation difference between spot rate and hedged rate of loans and borrowings denominated in foreign currency.
c Includes remaining fair value adjustments made on certain loans and other borrowings and accrued interest at the balance sheet date.
2019
£m
16,876
(1,666)
(3,214)
2018
£m
2017
£m
14,275
(528)
(3,022)
12,713
(528)
(1,520)
11,996
10,725
10,665
(701)
(260)
(874)
(224)
(1,419)
(314)
11,035
9,627
8,932
188
BT Group plc
Annual Report 2019
Additional information continued
Selected financial data
Summary group income statement
Year ended 31 March
Revenue
Adjusted
Specific items
Operating costs
Adjusted
Specific items
Operating profit
Adjusted
Specific items
Net finance expense
Adjusted
Specific items
Share of post tax (loss) profit of associates and joint ventures
Adjusted
Profit (loss) on disposal of interest in associates and joint ventures – specific items
Profit before taxation
Adjusted
Specific items
Taxation expense
Adjusted
Specific items
Profit for the year
Adjusted
Specific items
Basic earnings per share
Adjusted
Specific items
Average number of shares used in basic earnings per share (millions)
Average number of shares used in diluted earnings per share (millions)
Diluted earnings per share
Dividends per sharea
Dividends per share, US centsa,b
2019
£m
2018
£m
2017
£m
2016
£m
2015
£m
23,459
(31)
23,428
23,746
(23)
24,082
(20)
18,879
133
17,840
128
23,723
24,062
19,012
17,968
(19,613)
(394)
(19,755)
(587)
(19,947)
(948)
(15,051)
(348)
(14,185)
(381)
(20,007)
(20,342)
(20,895)
(15,399)
(14,566)
3,846
(425)
3,421
(617)
(139)
(756)
1
–
1
3,230
(564)
2,666
(619)
112
(507)
2,611
(452)
2,159
26.3p
(4.5)p
21.8p
9,912
9,975
21.6p
15.4p
20.1c
3,991
(610)
3,381
(546)
(218)
(764)
(1)
–
(1)
3,444
(828)
2,616
(671)
87
(584)
2,773
(741)
2,032
27.9p
(7.4)p
20.5p
9,911
9,961
20.4p
15.4p
21.6c
4,135
(968)
3,167
(594)
(210)
(804)
(9)
–
(9)
3,532
(1,178)
2,354
(663)
217
(446)
2,869
(961)
1,908
28.9p
(9.7)p
19.2p
9,938
9,994
19.1p
15.4p
19.3c
3,828
(215)
3,613
(483)
(229)
(712)
6
–
6
3,351
(444)
2,907
(607)
166
(441)
2,744
(278)
2,466
31.8p
(3.3)p
28.5p
8,619
8,714
28.2p
14.0p
20.1c
3,655
(253)
3,402
(560)
(299)
(859)
(1)
25
24
3,094
(527)
2,567
(631)
121
(510)
2,463
(406)
2,057
30.6p
(5.1)p
25.5p
8,056
8,191
25.1p
12.4p
18.4c
a Dividends per share represents the dividend paid and proposed in respect of the relevant financial year. Under IFRS, interim dividends are recognised as a deduction from shareholders’ equity when they
are paid, final dividends when they are approved.
b Based on actual dividends paid and/or year end exchange rate on proposed dividends.
BT Group plc
Annual Report 2019
Selected financial data continued
Summary group balance sheet
At 31 March
Intangible assets
Property, plant and equipment
Other non-current assets
Total non-current assets
Current assets less current liabilities
Total assets less current liabilities
Non-current loans and other borrowings
Retirement benefit obligations
Other non-current liabilities
Total assets less liabilities
Ordinary shares
Share premium account
Own shares
Merger reserve
Other reserves
Retained loss
Total equity
189
Strategic report
Governance
Financial statements
Additional information
2019
£m
14,385
17,835
3,623
35,843
842
36,685
(14,776)
(7,182)
(4,560)
10,167
499
1,051
(167)
4,147
718
3,919
10,167
2018
(Restated)a
£m
14,447
17,000
3,046
34,493
(1,836)
32,657
(11,994)
(6,847)
(3,905)
9,911
499
1,051
(186)
6,647
534
1,366
9,911
2017
£m
15,029
16,498
3,970
35,497
(4,050)
31,447
(10,081)
(9,088)
(3,943)
2016
£m
15,450
15,971
2,997
34,418
(3,103)
31,315
(11,025)
(6,382)
(3,796)
2015
£m
3,170
13,498
3,040
19,708
(356)
19,352
(7,862)
(7,583)
(3,226)
8,335
10,112
681
499
1,051
(96)
6,647
884
(650)
499
1,051
(115)
8,422
685
(430)
419
1,051
(165)
998
502
(2,124)
8,335
10,112
681
a Certain results have been restated to reflect the update to the calculation of our IAS19 accounting valuation of retirement benefit obligations. See note 2 to the Condensed consoliated financial
statements.
190
BT Group plc
Annual Report 2019
Additional information continued
Cautionary statement regarding forward-looking statements
This Annual Report contains certain forward-looking statements
which are made in reliance on the safe harbour provisions of
the US Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information which are
based on forecasts of future results and estimates of amounts not
yet determinable. These statements include, without limitation,
those concerning: current and future years’ outlook; underlying
revenue and revenue trends; EBITDA; free cash flow; capital
expenditure; shareholder returns including dividends and share
buyback; net debt; credit ratings; our group-wide transformation
and restructuring programme, cost transformation plans and
restructuring costs; investment in and roll out of our fibre network
and its reach, innovations, increased speeds and speed availability;
our broadband-based service and strategy; investment in and
rollout of 5G; our investment in TV, enhancing our TV service and
BT Sport; the investment in converged network; the recovery
plan, operating charge, regular cash contributions and interest
expense for our defined benefit pension schemes; effective tax
rate; growth opportunities in networked IT services, the pay-TV
services market, broadband, artificial intelligence and mobility
and future voice; growth of, and opportunities available in, the
communications industry and BT’s positioning to take advantage of
those opportunities; expectations regarding competition, market
shares, prices and growth; expectations regarding the convergence
of technologies; plans for the launch of new products and services;
network performance and quality; the impact of regulatory
initiatives, decisions and outcomes on operations, including the
regulation of the UK fixed wholesale and retail businesses and
the impact of the Commitments we gave to Ofcom to provide
Openreach with greater strategic and operational independence
following Ofcom’s Digital Communications Review; BT’s possible or
assumed future results of operations and/or those of its associates
and joint ventures; investment plans; adequacy of capital; financing
plans and refinancing requirements; demand for and access
to broadband and the promotion of broadband by third-party
service providers; improvements to the control environment; and
those statements preceded by, followed by, or that include the
words ‘aims’, ‘believes’, ‘expects’, ‘anticipates’, ‘intends’, ‘will’,
‘should’,‘plans’, ‘strategy’, ‘future’, ‘likely’, ‘seeks’, ‘projects’,
‘estimates’ or similar expressions.
Although BT believes that the expectations reflected in these
forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied
by these forward-looking statements. Factors that could cause
differences between actual results and those implied by the
forward-looking statements include, but are not limited to:
market disruptions caused by technological change and/or
intensifying competition from established players or new market
entrants; unfavourable changes to our business where Ofcom
raises competition concerns around market power; unfavourable
regulatory changes; disruption to our business caused by an
uncertain or adversarial political environment; geopolitical risks;
adverse developments in respect of our defined benefit pension
schemes; adverse changes in economic conditions in the markets
served by BT, including interest rate risk, foreign exchange risk,
credit risk, liquidity risk and tax risk; financial controls that may not
prevent or detect fraud, financial misstatement or other financial
loss; security breaches relating to our customers’ and employees’
data or breaches of data privacy laws; failures in the protection
of the health, safety and wellbeing of our people or members of
the public or breaches of health and safety law and regulations;
controls and procedures that could fail to detect unethical or
inappropriate behaviour by our people or associates; customer
experiences that are not brand enhancing nor drive sustainable
profitable revenue growth; failure to deliver, and other operational
failures, with regard to our complex and high-value national and
multinational customer contracts; changes to our customers’ needs
or businesses that adversely affect our ability to meet contractual
commitments or realise expected revenues, profitability or cash
flow; termination of customer contracts; natural perils, network
and system faults or malicious acts that could cause disruptions
or otherwise damage our network; supply chain failure, software
changes, equipment faults, fire, flood, infrastructure outages
or sabotage that could interrupt our services; attacks on our
infrastructure and assets by people inside BT or by external sources
like hacktivists, criminals, terrorists or nation states; disruptions
to the integrity and continuity of our supply chain (including any
impact of global political developments with respect to Huawei);
insufficient engagement from our people; and risks relating to our
BT transformation plan. Certain of these factors are discussed in
more detail elsewhere in this Annual Report including, without
limitation, in Our approach to risk management on pages 44 to
54. BT undertakes no obligation to update any forward-looking
statements whether written or oral that may be made from time
to time, whether as a result of new information, future events or
otherwise.
Material contracts
Excluding contracts entered into in the ordinary course of business,
no contracts have been entered into in the two years preceding the
date of this document by BT or another member of the group which
are, or may be, material to the group or contain a provision under
which a member of the group has an obligation or entitlement
which is, or may be, material to BT or such other member of the
group.
Notes
Notes
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