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Beyond  
Limits

BT Group plc  
Annual Report 2020

 
 
 
 
 
 
 
 
We’re 
investing  
in the 
future...

... of our  
best-in-class
network
5G makes a measurable 
difference to everyday 
experiences and opens  
up even more exciting 
 new experiences.

... of next generation  
fibre broadband 

We expect to invest around 
£12bn to connect 20m 
premises by mid-to-late-20s 
if the conditions are right.

... of our colleagues  
and workplace
We’re giving our people a 
louder voice at the table with 
our new Colleague Board.

... giving people 
skills for tomorrow
BT’s Skills for Tomorrow 
programme aims to empower 
everyone with the digital skills  
they need today, to help build  
their tomorrow. 

BT Group plc Annual Report 2020

New BT Halo.
Combining the
best of 4G, 5G
and fibre.

... of new products  
and services
We launched BT Halo, 
our best ever converged 
connectivity package.

... of flexible TV  
packages
Our range of new flexible TV 
packages aims to disrupt the 
UK’s pay TV market and keep 
pace with the rising tide of 
streamers.

... to keep us all 
connected
During the pandemic, 
we’re helping those who 
need us the most.

... to enable  
a safer world
This year, we used 
artificial intelligence (AI) 
to anticipate emerging 
threats and help protect 
the nation from up to  
4,000 cyberattacks a day. 

... to help  
families, 
businesses and 
communities 
reach their  
full potential.

To read these stories and more – visit our  
online annual review and see how we’re 
helping the UK go beyond limits.

      bt.com/annualreview

Strategic report 
1

Contents 

Strategic report 
A message from our Chairman 
A message from our Chief Executive 
About BT 
Executive Committee 
Customers and markets 
Regulatory update 
Our business model 
Our strategy 
Strategic progress 
Our stakeholders 
Culture and colleagues 
Introducing the Colleague Board 
Section 172 statement 
Non-financial information statement 
Digital impact and sustainability 
Our key performance indicators 
Our performance as a sustainable  
and responsible business 
Group performance 
A letter from the Chair of Openreach 
How we manage risk 
Our principal risks and uncertainties 
Viability statement 

2
4
6
8
10
12
14
16
18
24
30
32
34
35
36
40

42
43
51
52
53
64

Corporate governance report 
Financial statements 
Additional information 

65
117
204

Look out for these throughout the report:

 Reference to another page in the report

 Reference to further reading online

 Significant accounting policies

 Critical accounting estimates and key 
judgements 

  Covid-19 impact

For more information

  bt.com/about 

bt.com/annualreview

   Digital Impact and Sustainability Report

This Strategic report was approved by the Board on 
6 May 2020.

By order of the Board.

Rachel Canham
Company Secretary & General Counsel, Governance 
6 May 2020

Please see the cautionary statement regarding 
forward-looking statements on page 208.

Pages 1 to 64 form the Strategic report. It includes 
Our business model, Strategic progress, Our key 
performance indicators, Group performance and Our 
principal risks and uncertainties.

The Corporate Governance section on pages 65 to 
116 forms the Report of the directors and includes 
the Report on directors’ remuneration.

02_712960_IFC and Contents_pp01.indd   All Pages

20/05/2020   09:15:01

 
 
 
 
 
 
 
2

A message from  
our Chairman

Board is acutely aware of the weakness of 
the share price over the past year. While 
some of this can be ascribed to a turbulent 
macro-economic and political backdrop, 
the most significant drivers have been 
closer to home – an intensely competitive 
market has weighed on the whole sector 
and, for BT in particular, uncertainty 
around the conditions for a large-scale full 
fibre build has made the investment case 
difficult. 

We share the UK Government’s 
determination to build the next 
generation digital networks this country 
needs – illustrated by our collaboration 
with others in our industry to create a 
shared network for rural mobile coverage. 

Investment requires clear and predictable 
regulation. Ofcom’s Wholesale Fixed 
Telecoms Market Review (covering the 
five-year period starting in April 2021) 
set out the basis for investors to make 
a fair return. We are pleased by the 
collaborative spirit that now characterises 
our dealings with the regulator, though 
there remain issues to be resolved to 
support infrastructure investment. We 
wished departing Ofcom chief executive, 
Sharon White well in her new role as 
Chair of John Lewis and we welcome the 
appointment of her successor, Melanie 
Dawes – we look forward to working with 
her and her team in the months ahead.

Our strong stewardship of the network 
continues as we stand prepared to invest 
in the recently increased ambition for  
our full fibre build to reach 20m premises 
by the mid- to late-2020s, on the 
assumption we obtain the required critical 
enablers.

Financial results for the year were in line 
with our expectations, underpinned by 
the strong performance of new products 
and concerted management action to 
control costs. 

Recognising the importance of dividends 
to our shareholders, the Board’s 
decision in relation to the dividend has 
been exceptionally difficult. BT plays a 
key role in sustaining critical national 
infrastructure – as magnified by the 
Covid-19 crisis – and many stakeholders 
trust and rely on the connectivity we 
provide. BT also stands ready to make the 
biggest communications infrastructure 
investment in the UK in a generation – that 
includes building our full fibre network to 
20m premises by the mid- to late-2020s. 

Although the magnitude of the Covid-19 crisis only 
became clearer as our 2019/20 financial year was 
drawing to a close, it has inevitably had a major impact 
on my reflections on the past year, whilst strongly 
reinforcing the opportunities I see in our future. 

The multiple challenges posed by the 
virus have served to highlight the vital  
role BT plays in supporting families, 
businesses and communities across  
the UK and beyond. 

BT is a force for good and I am proud of 
the way in which the company has risen 
to the complex and demanding tasks 
involved in keeping our customers and  
the societies we serve connected during 
the pandemic. 

The resilience and performance of  
our networks have been fundamental – 
supporting our critical public services, 
keeping customers online, and breaking 
down the barriers of isolation for 
families. This is a human effort, as  
well as a technological one, and I pay 
tribute to the thousands of our key 
workers whose endeavours have kept 
everyone connected.

Despite the challenges of the Covid-19 
crisis, our goal remains to create sustainable 
growth in value for shareholders and the 

BT Group plc Annual Report 20203

To maintain such trust, whilst creating 
capacity for value-enhancing investment 
and navigating the unprecedented 
uncertainties caused by Covid-19 without 
compromising our credit rating, the Board 
concluded that the prudent and proper 
decision was to suspend the 2019/20 final 
dividend and all dividends for 2020/21, 
and re-base future dividends to a more 
sustainable level. The Board believes 
that this decision is in the best long-term 
interests of shareholders. 

We expect to resume dividend payments 
in 2021/22, re-based to 7.7p per share. 
The Board expects to continue with a 
progressive dividend policy from this re-
based level for future years. 

BT’s role goes beyond creating physical 
and digital connectivity. We also want 
to help people harness the power of 
technology to meet their needs or fulfil 
their potential.

To do that, they need the right skills. 
Over the past year, we have worked to 
address this through launching the Skills 
for Tomorrow programme which aims to 
reach 10m people in the UK with help to 
improve their digital skills by  
2025. This programme offers free 
resources for school children, parents, 
young jobseekers, small businesses and 
older or more vulnerable people. BT 
volunteers also provide training and 
resources to help teachers deliver the 
computing curriculum.

The programme rapidly became one of 
the key planks of our response to the virus, 
helping isolated customers, children and 
small business owners with the digital  
skills required to cope with the period  
of lockdown.

In terms of the climate change challenge, 
our technology and communications 
networks have a huge role to play in 
enabling the innovative solutions and 
exponential change needed to achieve 
a net zero carbon economy. BT is one of 
the UK’s largest private sector purchasers 
of electricity; 100% of our directly 
purchased electricity in the UK comes 
from renewable energy suppliers. For 
the UK, the switch to full fibre will bring a 
significant increase in energy efficiency. 
We are also working with others to drive 
innovation in electric vehicles to transform 
our fleet.

 For more information read our Digital Impact & Sustainability Report at  
bt.com/sustainabilityreport

One of the highlights of the year was the 
establishment of our Colleague Board. 
With members drawn from across our 
customer-facing and corporate units, the 
Colleague Board represents the voices 
and views of BT’s people as an important 
input to our decision making. It also builds 
stronger engagement between the Board 
and our employees. Isabel Hudson, one 
of our non-executive directors, is the 
dedicated link between the Board and the 
Colleague Board. 

In many ways the Colleague Board 
epitomises the spirit of teamwork with 
which we are transforming BT and which 
has been evidenced in the company’s 
response to Covid-19. We have a long way 
to go and, like so many others, our task has 
been made tougher by recent events. But 
we are building strong foundations for a 
successful BT that continues to meet the 
needs of our shareholders and customers.

Jan du Plessis
Chairman
6 May 2020

We continue to review and refresh the 
Board as part of succession planning 
and to make sure it has the right mix of 
skills and experience. Leena Nair and 
Sir Ian Cheshire joined the Board as 
non-executive directors in July 2019 
and March 2020 respectively. They will 
be joined by Sara Weller CBE on 16 July 
2020, immediately before the 2020 
AGM. Each adds to the Board’s diversity 
of experience and thinking. Jasmine 
Whitbread stepped down in December 
2019 after nearly nine years as a non-
executive director. Earlier this month, we 
announced that Adel Al-Saleh would join 
the Board with effect from 15 May 2020, 
as a non-independent, non-executive 
director and Deutsche Telekom’s (DT’s) 
nominated representative, replacing Tim 
Höttges. Finally, Nick Rose, our senior 
independent non-executive director will 
step down following the AGM after over 
nine years on the Board. My sincere thanks 
go to Nick, Tim and Jasmine for their years  
of service.

Our new Directors’ Remuneration Policy 
(Policy) will be put to shareholders 
for approval at the upcoming AGM. 
Building sustainability into our reward 
and remuneration structures is a major 
priority. The Policy has been designed to 
ensure BT acts for the benefit of all our 
stakeholders, while keeping executive 
reward aligned with shareholders’ 
interests. 

Strategic report BT Group plc Annual Report 2020 
4

A message from  
our Chief Executive

We delivered financial results for the year 
in line with our expectations. However, 
due to the uncertainty resulting from the 
Covid-19 pandemic, we have at this time 
decided not to provide an outlook for 
2020/21.

Though the Covid-19 crisis has 
challenged every aspect of our business, 
it has affirmed that our strategic 
course is the right one: building strong 
foundations through investment and 
bold transformation; innovating to 
create standout customer experiences; 
leading the way to a future in which our 
contribution to society is an integral part  
of our fortunes. 

One of the universal lessons of the Covid-
19 crisis has been the vital importance of 
our strong and resilient networks. These 
are playing a critical role in keeping the 
nation running, including connecting the 
Nightingale field hospitals across the UK.

Last year, we worked hard to secure the 
conditions for a transformative investment 
in full fibre broadband – technology we are 
already building out faster than any other 
operator in the UK. We have also lifted  
our ambition to passing 20m premises  
with full fibre by the mid- to late-2020s 
with the required critical enablers – 
underpinning the Government’s vision for 
the gigabit economy. 

Just as we’re switching fixed networks from 
copper to fibre, in mobile the shift from 
4G to 5G has begun. We are leading the 
charge, initially with the EE brand which 
in May 2019 became the first operator to 
launch its 5G service. We ended 2019/20 
with 5G live in almost 80 cities and large 
towns across the UK. 

Some of its most exciting applications are 
for business and public services. This year 
we ran trials in healthcare, transportation 
and education, testing new frontiers 
opened up by this step-change in the 
speed and strength of connectivity.

At the core of our strategy is the 
convergence of BT’s leading network 
capabilities to provide unrivalled  
customer experiences. For large and global 
customers, work is already underway on 
a truly differentiated software-driven 
solution to deliver the modular, highly 
automated services required for success  
in today’s digital economy.

When I became chief executive in February 2019,  
I talked of BT’s systemic importance to the UK’s society 
and economy. I did that, not to underplay our role as a 
leading business partner to the world’s multinational 
organisations, but to emphasise that our mission  
to build a better BT for the future is in the interests  
of the country at large, as well as our investors. 

We are here to connect for good – for  
the good of our customers, the good  
of our colleagues, and the good of our 
country. These principles have guided our 
decision making throughout the Covid-19 
pandemic. Our national leadership role is 
central to the UK’s post-Brexit fortunes 
and to the Government’s bold ambitions 
for digital infrastructure; but recent 
months have brought it into the sharpest 
focus in our company’s history. 

I am very proud of BT’s response in recent 
months, but equally determined that we 
harness that same energy as we continue 
to transform the company.

BT Group plc Annual Report 20205

This clear strategic focus, alongside 
prudent control of costs and innovative 
investment to meet our customers’ 
evolving needs, is what our shareholders 
rightly expect as we look to the future.

The next technological era is here. AI, 
machine learning, robotics and universal 
connectivity will change our world all 
over again. All can be a force for good, 
but only if we harness their power to the 
right ends. In recent months we have seen 
social media transmit malicious untruths 
about 5G, resulting in damage to vital 
infrastructure, the hindrance of health 
services and threats to our engineers.  
Yet we have also been proud to work with 
our partners in government to ensure that 
the responsible and careful harnessing  
of our data spurred the national public 
health effort.

What we do matters. We are woven into 
the fabric of the UK and play a vital role in 
delivering secure services to organisations 
around the world. Yet how we do it is of 
equal importance. We have shown that 
BT stands by the country, by its customers 
and by our own people. The months ahead 
will bring many further challenges but 
we should approach them emboldened, 
knowing that we have what it takes to build 
a stronger, better BT for the future. 

Philip Jansen
Chief Executive
6 May 2020

BT Halo – the UK’s ultimate converged 
plan – launched recently to an outstanding 
response from customers: almost a third 
of our broadband base has already signed 
up to Halo.

The spirit of our new brand, encapsulated 
as Beyond Limits, breaks down barriers to 
help our customers get the most from our 
services and support. The brand refresh 
was rooted in our biggest ever launch 
of new products across the company. 
480,000 households have been moved 
from copper to superfast fibre free of 
charge. Responding to customers, we’ve 
brought all consumer calls back to UK 
or Ireland contact centres a year ahead 
of schedule. 900 Home Tech Experts 
are now out and about, helping people 
with setup and service at home. We’ve 
taken BT back to the high street, with a 
presence in over 500 stores. The response 
has been fantastic, with great feedback 
and a significant upturn in the inclination 
of public sector, large corporate and 
individual customers to recommend  
BT to their peers.

This spirit of determined, imaginative 
delivery for our customers drove our 
response to Covid-19. Unlimited home 
broadband for all, no data limits for NHS 
workers, extra support for vulnerable 
customers, virtual GP consultations, 
enabling intensive care patients to talk 
with their loved ones, flexibility and 
support for our small business customers…
the innovation and pace of delivery across 
these and countless other initiatives were  
a credit to the entire BT team.

The BT of the future will be simpler and 
more agile. My colleagues – the bedrock 
of our future success – have shown they 
are up to that challenge. Our engineers, 
contact centre staff and others who serve 
as key workers have been true heroes. I am 
unashamedly proud of them and I thank 
them all for their service.

Early in the year we announced that 
everyone who works for BT was to be made 
a shareholder, giving them a direct stake 
 in our shared future. Despite the 
challenging economic climate, in April 
2020 we reaffirmed our annual award 
of shares – £500 worth in the first year – 
alongside steps to ensure that our frontline 
workers were prioritised in our approach  
to remuneration.

Our Better Workplace Programme is 
consolidating BT’s UK footprint to around 
30 modern, future-fit locations. The 
past year saw good progress, with hub 
locations across the UK confirmed and 
long-term homes announced in London, 
Birmingham, Bristol and Manchester. 

A more efficient BT is a better BT – faster, 
smarter, more responsive, less frustrating 
for customers and colleagues alike. We are 
forging ahead with our drive for efficiency 
and simplicity, automating processes to 
cut costs, slimming down our product 
portfolio and making the most of the 
digital opportunity for the full range of 
customer interactions. 

Building on the £1.6bn of gross cost 
savings delivered last year, this end-to-
end simplification programme is expected 
to deliver £2bn of annualised gross cost 
savings over the next five years. In the 
context of a tough trading environment 
for our sector and the universal economic 
challenges resulting from the Covid-19 
crisis, we will act to build firm foundations 
for our business and a strong long-term 
value proposition for our shareholders.

We have already progressed the sale of 
non-core parts of our business, such as 
BT Fleet Solutions and our IT business for 
the legal profession, Tikit. Internationally, 
as we sharpen our customer focus on the 
leading transnational organisations, we are 
divesting some infrastructure no longer 
needed to deliver global services in the 
digital economy. 

Strategic report BT Group plc Annual Report 20206

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 around 180 
countries.

What we do
We develop and sell 
communications propositions 
and services, and build and 
operate the networks that are  
essential to modern lives, 
businesses and communities.

How we’re organised
We operate as a single business, 
made up of organisational  
units. There are customer-facing  
units that sell propositions and 
services and corporate units  
that support the whole group.

a  Items presented as adjusted are stated before specific items. See page 204 

for more information.

b  Adjusted (being before specific items, share of post tax profits/losses of 

associates and joint ventures and net non-interest related finance expense), 
as explained in the Additional information on page 204.

c  Free cash flow after net interest paid and payment of lease liabilities, before 
pension deficit payments (including the cash tax benefit of pension deficit 
payments) and specific items as explained in the Additional information on 
page 206.

Financial highlights

Revenue

£22.9bn 
(2)%

Change in  
adjusteda revenue

(3)% 

Profit before tax

£2.4bn 
(12)%

Adjustedb EBITDA

£7.9bn
7%

Cash flow from  
operating activities

£6.3bn
47%

Normalised free  
cash flowc

£2.0bn
(18)%

Basic earnings  
per share

17.5p
(20)%

Capital expenditure

£4.0bn
flat

7

Enterprise
We are the leading business 
communications provider in  
the UK. We connect more 
 than 1m business customers 
and public sector organisations 
with our extensive portfolio 
of communications and IT 
solutions. We also provide 
network products and services 
to communications providers 
operating in the UK and Republic 
of Ireland.

We focus on four main product 
markets: fixed voice, mobile, 
fixed connectivity and IT services. 
We provide managed services 
for large networking and security 
contracts. Openreach provides 
us access to fixed-line and 
broadband infrastructure, and 
we deliver mobile phone services 
over EE’s mobile network.

Led by  
Gerry McQuade
CEO, Enterprise

Global
We are a leading business 
connectivity, communications 
and IT services provider to major 
multinational corporations 
in around 180 countries. We 
own an extensive global voice 
and data network providing 
managed services, security and 
network and IT infrastructure 
services, enabling customers’ 
digital transformations.

We partner in countries 
worldwide for access to voice 
and data infrastructure and we 
buy enterprise technologies and 
equipment for our customers 
from the world’s leading 
technology providers.

Led by  
Bas Burger
CEO, Global

Our customer-facing units

Consumer
Our three brands – BT, EE 
and Plusnet – connect UK 
consumers to information, 
entertainment, friends and 
family, at home and on the 
move. Between them, they 
provide the whole of the UK 
with 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

Openreach
We build, and sell access to, 
the network that connects the 
UK’s homes and businesses. 
We provide wholesale ‘last 
mile’ fixed access from 
homes and businesses to 
exchanges, and we install and 
maintain the fibre and copper 
communications networks. 

Led by  
Clive Selley
CEO, Openreach

Our corporate units

Strategy and 
Transformation
We develop and set corporate, 
network and product strategies 
for the group. We also drive 
pan-BT transformation 
programmes. 

Technology
We design, build and operate 
BT’s networks, platforms and IT 
systems. We also work with the 
customer-facing units to develop 
and roll out products and 
services for their customers. 

Led by  
Michael Sherman
Chief strategy and transformation 
officer

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.

These include: Finance, Legal & 
Company Secretarial, Corporate Affairs, 
Regulatory Affairs, HR, Risk, Compliance 
& Assurance, Property & Facilities, 
Procurement and Group Business 
Services (which provides shared services 
across the company).

BT Group plc Annual Report 2020BT Group plc Annual Report 2020Strategic report 8

Executive Committee

The Executive Committee provides 
input and recommendations to assist 
the chief executive in the day-to-day 
management of the business and its 
operations. It meets weekly and is 
chaired by the chief executive.

The Executive Committee assists the chief 
executive in:

•  developing the group strategy and budget 

for the Board’s approval

•  executing the strategy once agreed by the 

Board

•  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 to the Board in January 2019.

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 officer and 
chief executive, Europe, South Africa and 
India. Prior to that he was chief operating 
officer 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.

Simon Lowth 
Chief financial officer
Appointed to the Board as chief financial 
officer in July 2016.

Simon was CFO of BG Group before 
the takeover by Royal Dutch Shell in 
February 2016. Prior to that he was CFO 
of AstraZeneca, and finance director 
and executive director of ScottishPower. 
Simon was also previously a director of 
McKinsey & Company.

Ed Petter 
Corporate affairs director
Appointed November 2016.

Ed was formerly deputy director of 
corporate affairs at Lloyds Banking Group. 
Prior to that he held corporate affairs 
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.

Howard Watson 
Chief technology and information officer
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.

BT Group plc Annual Report 2020Marc Allera 
CEO, Consumer
Appointed February 2016 as CEO, EE  
and became CEO, Consumer in 
September 2017.

Marc was previously chief commercial 
officer for EE from 2011 to 2015. Marc 
spent ten years at Three UK as sales and 
marketing director and subsequently chief 
commercial officer. Prior to that, Marc was 
general manager of Sega UK and Europe.

Sabine Chalmers 
General counsel
Appointed April 2018.

Before joining BT, Sabine was chief 
legal and corporate affairs officer and 
company secretary of Anheuser-Busch 
InBev for 12 years. She also held various 
legal leadership roles at Diageo. Sabine 
is qualified to practise law in England and 
Wales and New York State.

Cathryn Ross 
Regulatory affairs director
Appointed January 2018.

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 different sectors advising on economic, 
regulatory and competition issues.

 Alison Wilcox
HR director
Appointed July 2015.

Alison was formerly regional HR director for 
Vodafone Europe and before that, regional 
HR director for Vodafone’s Africa, Middle 
East and Asia Pacific footprint. Alison joined 
Vodafone in 2006 as group director of 
leadership following a career in consulting.

Clive Selley 
Invitee, CEO, Openreach
Appointed February 2016.

Clive 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.

9

Bas Burger 
CEO, Global
Appointed June 2017.
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.

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 
officer 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.

Michael Sherman 
Chief strategy and transformation officer
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.

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.

BT Group plc Annual Report 2020Strategic report 10

Customers and markets

Our business model – and the strategies 
that support it – starts with understanding 
our customers and markets. 

We operate in a rapidly changing environment. By 
understanding market trends in our own industry, 
and others that affect us, we can take advantage 
of opportunities as they arise. This helps us to act 
quickly to reduce risks to our business.

Fixed connectivity market

Key trends 

Our portfolio of propositions and services 

Supported by the UK Government, the fixed connectivity market 
is undergoing a technological migration from the legacy Public 
Switched Telephone Network (PSTN) to Internet Protocol (IP). 
This is because newer technologies are more efficient and have 
lower running costs.

In both the consumer and enterprise markets, data consumption 
through fixed connectivity is increasing. With more connected 
devices and increased TV, gaming and streaming content (in 
higher definition), data consumption is increasing at 20% year-
on-year.

Price competition for phone and broadband is more intense 
than ever. Therefore, revenue opportunities are focused on 
the increase in demand for higher speed and better quality 
propositions. This is driven by consumers and businesses using 
more data, and by demand for supplementary services such as 
security and entertainment.

We are also seeing rapid business adoption of collaboration tools 
like Microsoft Teams. More businesses are moving their processes 
and software to the cloud driving increased demand for high 
bandwidth.

We provide direct connectivity to homes and businesses, which is 
our biggest market by revenue.

We sell a range of propositions and services, including fixed voice 
over broadband, mobile, internet access and dedicated lines for 
business and public sector customers. 

We continue to track emerging trends so that we can launch 
appropriate propositions and services to our customers. As an 
example, we have launched voice over broadband to enable our 
business customers to transition from traditional voice services 
to IP voice. 

Our Consumer unit serves households and individuals.

Our Enterprise unit serves three types of customer, each with 
different communications needs:
•  Small and medium enterprises (SMEs) – who we define as 

having fewer than 100 employees. The smaller businesses want 
consumer-like solutions while others are looking for business 
grade service, guarantees and more sophisticated business 
solutions. 

•  Corporates and public sector – who we define as having more 
than 100 employees. They need solutions to drive their digital 
transformation, and are increasingly buying software-designed 
networking, security and cloud-based solutions. They are 
looking for a reliable partner able to offer managed services in 
these areas, often with multi-year contracts.

•  Communications providers – who want to buy packaged 

solutions to sell to their end customers.

Mobile market

Key trends 

Our portfolio of propositions and services 

Previously this market was heavily driven by handset launches. 
Today, while handset innovation continues, handset prices are 
higher, leading to consumers keeping their handsets for longer. 
This has also had an impact on store footfall.

That means more people are buying SIM-only plans and market 
volume growth will come from consumers buying extra SIMs and 
additional smart devices, and using more data.

The mobile market is a major segment of our business. We sell 
data and voice services as well as mobile handsets. 

We provide mobile phone services to the whole of the UK, 
keeping our customers connected through our leading mobile 
network. As the demand for data increases we have created 
propositions that are fit for purpose; for example, we launched 
unlimited data plans for our consumer and business customers.

Increasingly, businesses are letting employees use their own 
smartphones at work. But they’re continuing to buy large data 
bundles to support their people’s increasing mobile data use, for 
example for collaboration. 

We use the BT network to sell mobile services under our three 
brands: BT, EE and Plusnet. Whilst we maintain a strong position 
with our 4G network, we are also rolling out 5G to ensure our 
customers have the best connectivity available to them.

The UK is a mature mobile market and has a substantial number 
of Mobile Virtual Network Operators (MVNOs).

Our mobile services are also available to enterprise customers. 

Our wholesale channel sells infrastructure services to UK MVNOs 
who provide mobile connectivity to their end customers. 

BT Group plc Annual Report 202011

TV and content market

Key trends 

Our portfolio of propositions and services 

The UK has a well-established free-to-air TV service. This 
minimises the need for consumers to buy premium content 
packages. However, live sport continues to be watched in a large 
number of UK homes. 

Recent years have seen consumers favouring a range of over-the-
top (OTT) streaming media services over traditional TV packages. 
They are buying the most basic TV access and then building up 
further content with on-demand OTT services.

In response, traditional providers are changing their offerings and 
striking deals with OTT service providers to aggregate a range of 
content to customers.

Bundled and converged services market

As OTT services continue to be a trend within the TV and content 
market, we launched Sky channels from NOW TV, Netflix and 
Amazon Prime Video to fuel customer demand.

We sell TV content to consumer customers through our BT, EE 
and Plusnet brands.

BT Sport is also available to our enterprise customers. 

Key trends 

Our portfolio of propositions and services 

The UK is still in the early stages in the adoption of convergence. 
Currently, bundled offers of fixed, mobile and TV services are 
common within the market. 

We will eventually serve this market with a single seamless 
connection through dynamically integrated fixed and mobile 
networks.

The need for convergence has increased as companies have 
adopted flexible working and more collaboration. Businesses 
are moving away from traditional phone services and bundling 
together fixed-voice, mobile and collaborative tools.

Convergence can increase customer lifetime value, as those 
taking converged offers tend to stay with us for longer.

New services such as smart homes (e.g. remotely controlled 
heating) and connected cities have become possible through 
converged connectivity and a new generation of devices.

We are well positioned in the bundled and converged services 
market with the UK’s largest fixed access and mobile network.

Based on this emerging trend, we recently launched BT Halo for 
our consumer customers. BT Halo combines 4G, 5G and fibre 
to offer a converged plan that includes 900 Home Tech Experts 
dedicated to making people better connected. 

We provide our business customers converged business solutions 
helping them to stay productive across fixed and mobile, legacy 
and IP. We launched Cloud Voice Express with fibre broadband – a 
digital phone line to make and take calls on your business number 
from anywhere. We also provide BT One Phone which is a mobile 
cloud-based phone system that gives business users access to all 
their corporate desk phone features on their mobile. To ensure 
customers are always connected, we developed a unique solution, 
4G Assure, providing customers with 4G connectivity if their fixed 
broadband service is not available.

Global connectivity and communications services market

Key trends 

Our portfolio of propositions and services 

Our Global business serves multinational corporations across 
the world, offering managed services, security, network and IT 
infrastructure services. 

Leveraging the strengths of our network, security and other 
capabilities helps us to operate in this market. For example, Global 
offers tailored services to meet our customers’ complex business 
connectivity and cloud requirements. 

Global businesses are moving from traditional to digital voice 
services to enable digital transformation – from Multiprotocol 
Label Switching (MPLS) to services such as Software-Defined 
Wide Area Networks (SD-WAN). 

Competition is intense across both local markets, often 
dominated by incumbent communications providers, as well as 
the global enterprise-grade fixed-line services market.

Today, there is greater demand for managed services which 
include cyber security. These free up customers to focus on their 
own business rather than managing the networks that underpin 
them.

Companies want to work with partners whose technical expertise
and scale will help them benefit from advanced services across 
multiple regions, infrastructures and technologies as well as 
increasingly managing multiple cloud partners.

Fixed access market

Key trends 

Our portfolio of propositions and services 

The UK's fixed access communications network runs over copper 
and fibre. It is the market segment on which Ofcom's regulatory 
activities are focused.

Infrastructure players are rolling out fibre-to-the-premises 
(FTTP) across the UK because it offers a faster, more reliable 
connection.

Openreach’s duct and pole access (DPA) product has made it 
more attractive for Alternative Networks (AltNets) to build fibre 
both for retail and wholesale offerings. 

AltNets continue to build their networks while targeting deals with 
communications providers to guarantee demand. 

The fixed access market is where we overlap with our biggest 
cable and fibre competitors. 

Openreach supplies fixed access to communications providers, 
who then offer services to their home and business customers. 

Openreach provides services over the local access network 
(referred to as the ‘last mile’). It installs and maintains the fibre 
and copper communications networks that connect homes and 
businesses.

Openreach is deploying FTTP to improve the performance and 
quality of its network and now plans to accelerate its FTTP build 
to 4.5m premises passed by March 2021.

BT Group plc Annual Report 2020Strategic report 12

Regulatory update

Ensuring the UK’s digital  
infrastructure is future-ready

BT continues to play a pivotal role in connecting the vast majority 
of UK households with broadband services and helping to 
transform some of the most remote communities in the UK. We 
are leaders in full fibre and 5G in the UK, and we’re launching a 
converged network, which will benefit our customers and the UK 
more widely. 

Statement of Strategic Priorities 
The Government’s Statement of Strategic Priorities from October 
2019 supports full fibre connectivity, covering: 

•  lowering barriers to deployment and enhancing investment

•  effective access to passive infrastructure

•  stable long-term regulation that encourages network 

investment

•  an outside-in approach to deployment

•  enhancing switchover processes

We are committed to delivering full fibre across the UK – funding 
Openreach to deliver fibre to 4.5m homes by the end of March 
2021. Our investment is enabling Openreach to reach a current 
rate of 32,000 new premises with full fibre each week. 

•  mobile and 5G connectivity

•  spectrum management

•  5G and fibre convergence. 

And we want to go further. With the right fiscal, regulatory and 
legislative enablers in place, we can invest at the level Openreach 
needs for scale deployment in all parts of the country, supporting 
the Government’s nationwide gigabit-capable broadband 
ambition.

Ofcom’s regulation – and in particular its ongoing Wholesale 
Fixed Telecoms Market Review – is key to enabling the delivery of 
the Government’s strategic priorities.

   Covid-19 pandemic

We welcome the supportive approach that Ofcom has taken to 
industry during this time of national crisis, helping us to keep doing 
the right thing for our customers and the country. This included, for 
example, deferring consultations, easing some deadlines and being 
clear that it will take a pragmatic approach to enforcement, where 
activity has been affected by Covid-19 priorities. This has enabled 
us to keep focusing on responding to the crisis, and supporting 
provision of critical services – such as hospital connectivity and 999.

Although Covid-19 has affected our ability to meet some 
regulatory obligations, we have worked hard to minimise any 
customer impact. We had to delay the implementation of end 
of contract notifications. With Ofcom’s agreement we have had 
to suspend automatic compensation and Openreach declared 
‘Matters Beyond Our Reasonable Control’ due to the effect of the 
crisis on provision and repair. We continued with implementation 
of the broadband universal service obligation (USO) in March 
2020, with comfort from Ofcom giving us more flexibility on 
targets. 

We have continued to give effect to our Fairness Commitments, 
introducing specific measures to support our customers as they 
increasingly rely on communications services during the crisis. For 
example, for vulnerable customers, we’ve removed out-of-bundle 
charges for critical services, and for landline-only customers, we 
have set £5 monthly caps on out-of-bundle call charges.

The Statement sets out targets for rapid nationwide deployment 
of gigabit-capable broadband networks and for becoming a 
world leader in next generation 5G mobile technology. 

We welcome the Government’s ambition. We support Ofcom’s 
intended shift towards a more pro-investment regulatory regime 
in fixed markets, coupled with greater deregulation where 
competition is found to be effective.

We also welcome Ofcom regulating passive infrastructure 
where this will enable deregulation further downstream. We are 
encouraged by the Government’s £5bn commitment to facilitate 
the build of gigabit-capable networks in the hardest-to-reach 
parts of the country.

This desire to see the UK as a world leader in digital infrastructure 
fits with our desire to see better outcomes for customers and 
the UK across full fibre rollout, 5G and enhanced customer 
experience. It also aligns with our strategic priority of building the 
best converged network.

Wholesale Fixed Telecoms Market Review (WFTMR)
Ofcom’s policy documents (including its consultation Promoting 
Competition and Investment in Fibre Networks, published in 
January 2020) help shift emphasis from retail competition to 
facilitating competitive investment in full fibre. Its regulatory 
framework also sees five-year market review periods instead of 
the current three-year period and looks across the whole of the 
wholesale fixed telecoms market rather than considering business 
and residential connectivity in separate processes. We see these 
as positive changes. 

While further detail is still to be worked out, we are encouraged by 
Ofcom’s proposals to extend stable legacy pricing into the parts 
of the country where build by more than one network provider is 
not economic, subject to a commitment by BT to build in the area. 

We welcome Ofcom’s confirmation that regulation should not 
prevent us from earning sufficient returns to compensate for the 
downside risk we took at the time of our investment (the ‘fair 
bet’). We also note Ofcom’s willingness to discuss Openreach 
varying its commercial contract terms fairly with downstream 
communications providers, to meet competition and share risk.

Overall, Ofcom’s consultation document is an important step 
towards enabling us to increase investment in FTTP. We will 
continue to work constructively with Ofcom to further develop 
and implement the new regulatory framework. 

BT Group plc Annual Report 2020 
13

All IP
We are committed to migrating communications providers 
to IP voice services and withdrawing traditional voice access 
by December 2025. We welcome the WFTMR proposals to 
allow Openreach to stop selling new copper lines when 75% of 
premises in the relevant area have ultrafast availability. We also 
support the withdrawal of price controls on copper services when 
ultrafast coverage in an exchange area is complete.

We acknowledge that overcoming challenges posed to 
vulnerable customers and critical national infrastructure are key 
to the successful withdrawal of copper services. 

We continue our close engagement with Ofcom, industry working 
groups and Government to ensure a smooth migration.

Decent broadband for all
In June 2019, Ofcom designated BT (along with KCom in Hull) as 
a universal service provider for broadband. This means that we are 
obliged to provide at least 10 Mbps broadband to those premises 
that cannot get this speed (subject to some qualifying conditions). 
Where the cost of providing 10 Mbps broadband to a premises 
is less than £3,400, we must provide it; where the cost is more 
than £3,400 the customer may opt to pay the additional amount. 
We anticipate being able to recover the net cost of meeting this 
obligation from an industry-contributed fund. 

Customers have been able to request the broadband USO 
product since March 2020. We have been working with Ofcom to 
ensure efficient delivery and a good customer experience. 

Shared Rural Network
Work across mobile network operators, the Department for 
Digital, Culture, Media & Sport (DCMS), HM Treasury and 
Ofcom, led to agreement on the Shared Rural Network (SRN) 
proposal in mid-March 2020. This will lead to a boost in 4G 
coverage for people in rural areas. It includes DCMS grant funding 
arrangements and a variation to our existing 1800 MHz spectrum 
licence to incorporate new coverage obligations – 90% of the 
UK’s geography within six years. 

Consumer fairness
UK regulators have consumers’ interests as a priority. We support 
that. We want a regulatory framework which creates better 
outcomes for all customers and ensures support for vulnerable 
customers in particular. 

We have continued to work closely with Ofcom to demonstrate 
our adherence to the Fairness Commitments we signed up to last 
summer. This includes:

•  giving consumers the support they need

•  helping them engage with the market

•  making sure services work as promised and consumers can 

change or leave quickly and smoothly

•  making sure everyone gets fair treatment. 

Ofcom has also been looking at different pricing between new 
and existing customers. In January 2020, the Competition and 
Markets Authority published a Loyalty Penalty Update, covering 
mobile and broadband pricing across the industry. We have 
worked with Ofcom to address these concerns. For example, we 
have voluntarily implemented a package of measures to support 
our customers who choose not to switch to a new deal at the end 
of their contract. 

We have committed to upgrade 700,000 of our customers 
from copper to superfast broadband at no extra cost, and to 
cap broadband out-of-contract price rises. EE mobile handset 
customers that have been out of contract for more than three 
months will get a price discount after their contract ends.

In December 2019, Ofcom published a consultation on 
its proposals to implement the new European Electronic 
Communications Code (EECC) for consumer protections. While 
we support many of the proposals, certain aspects could lead to 
worse outcomes for consumers; we will engage with Ofcom on 
these areas through its consultation process. The EECC will also 
make it easier for operators to roll out ultrafast fixed and mobile 
networks.

Simplifying regulatory reporting
Understanding the economics of the services we provide in the 
regulated areas of our business is important. Regulatory reporting 
also evolves as regulatory priorities and policies evolve. We are 
working with Ofcom to improve our reporting. To provide better 
quality insight it needs to be more relevant, transparent and 
focused.

Spectrum
We have engaged with Ofcom on a number of spectrum-related 
consultations. Notably, from July 2019, Ofcom facilitated 
new shared access to existing mobile spectrum bands. And in 
December 2019, it made available four new shared bands for 
local access licences. 

Ofcom has issued a statement confirming the final rules for the 
upcoming auction of 700 MHz and 3.6 GHz spectrum in the UK. 
The auction is expected in 2020/21, but timing may be affected 
by constraints arising from Covid-19.

International regulation
Brexit may have an effect on regulation in our sector and others. 
Until we know the detail of the future UK/EU trading relationship, 
we cannot predict the effects, and so we have made contingency 
plans. 

Regardless of the outcome of the trade negotiations, our 
European businesses are incorporated locally and operate under 
their own local regulatory authorisation.

In the EU, regulations and directives aim to protect consumers 
while encouraging competition and investment in fixed and 
mobile networks. They require independent national regulators 
to review markets regularly for significant market power and to 
put in place fair and proportionate remedies. They include rules 
covering spectrum authorisation, consumer protection and 
universal service obligations.

Technology is evolving fast. Combined with increasing use of 
communications services across jurisdictions, this can create 
regulatory environments that lack precision and certainty. Our 
role is to make sure we are at the forefront of technological 
change, and our focus is on how this can impact regulated 
markets. We provide input into regulators and decision makers 
about these changes, and the domestic benefits of establishing 
an effectively regulated market. 

Access regulation in particular varies widely around the world. We 
continue to press incumbent operators, and their regulators, for 
fair, cost-related wholesale access to their networks. 

BT Group plc Annual Report 2020Strategic report 14

Our business model

We build and operate the UK’s digital 
infrastructure. We provide customers with 
connectivity and communications services, 
while delivering brilliant experiences that 
create trusted relationships and build 
loyalty. 

Our customers are consumers, businesses, 
multinational corporations, public sector 
organisations and other communications providers. 

Our innovative propositions and services enable 
customers to connect, communicate, share, be 
entertained and do business more effectively.  
The support we provide creates long-term,  
trusted relationships. 

For our consumer customers, we sell voice, 
broadband, mobile and TV services, with a range 
of supplementary propositions such as handsets, 
accessories and insurance. Our services for our 
business customers are similar, but also incorporate 
complex managed networks, IT services and 
cyber security. We also sell wholesale access 
propositions and services (including BT Sport) to UK 
communications providers. 

Customers mainly buy our propositions and services 
on monthly, recurring subscriptions or contracts – 
providing us with ongoing revenue. In Consumer, this 
type of payment model is complemented with pay-
as-you-go propositions. 

For example, individuals and households are typically 
on 12- to 24-month contracts. Small and medium 
enterprise customers are usually on the same. 
Large enterprise customers – both domestic and 
international – usually buy managed services on 
multi-year contracts.

Wholesale contracts range from one month for 
regulated products, to five years or more for major 
managed service deals.

Information linked to our business model  
About BT – how we’re organised and how and where we 
operate – page 6. 
Stakeholders – how we engage with our stakeholders  
– page 24. 
Strategy – our strategy and how it supports our  
business model – page 16.  
Principal risks and uncertainties – how we manage 
these – page 52.  
Viability statement – our directors’ assessment  
of our prospects and viability – page 64. 
Governance – how we govern our business – page 65.  
Directors’ remuneration – page 84.

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 efficiency.

Build
We build fixed and mobile 
connectivity across the UK, 
creating the UK’s leading 
network. We also build global 
networks for multinational 
corporations.

Innovate
We use our customer 
insight and technical 
skills to create new 
connectivity-based 
products, services and 
propositions.

Sell
Through our brands, we 
market products, services 
and propositions to build 
trust, create value and 
generate loyalty. 

Operate
We operate fast, secure 
and reliable fixed and 
mobile networks, 
and customer service 
operations, that deliver 
what our customers need.

Strategic report 
15

Our distinctive resources

Stakeholder outcomes

We have a unique combination of people, technology, 
content, networks and other physical assets that set 
us apart and support us in adding value, providing us 
with many opportunities.

Our brands – we own three retail 
brands: BT, EE and Plusnet. We also 
own the Openreach brand to serve 
communications providers.

Retail footprint – we have more 
than 620 UK stores, giving us the 
largest retail footprint of any mobile 
network operator.

Innovation – we are market leaders 
in the rollout of 5G. The service is 
now available in 80 cities and large 
towns. This year we spent £662m 
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 103 filed in 
2019/20.

Suppliers and partners – our 
partners and suppliers’ propositions 
and services help us to execute our 
strategy.

Financial strength – our cash flow 
provides us with the funding to 
make long-term value-creating 
investments. This year we invested 
£2.1bn in our network and generated 
£2.0bn normalised free cash flow, to 
support change in future years. 

Colleagues – their commitment, 
expertise and diversity are key to our 
success. We have 105,300 employees, 
of whom 82,700 are in the UK.

Customers – the size, scope and 
breadth of our customer base gives us 
an advantage when new propositions 
and services are brought to market. We 
have a total of around 32m customers. 
Of these, over 30m are consumer 
customers, over 1m are business and 
public sector organisations in the UK 
and Republic of Ireland and around 
4,000 are multinational corporations. 
We also provide network propositions 
and services to more than 650 UK 
communications providers.

Networks and physical assets –  
we own and manage the UK’s 
core fixed network. More than 650 
communications providers use our 
network to deliver services. We hold 
key mobile spectrum, with extensive 
network coverage across the UK with 
our 2G, 3G, 4G and 5G networks. 

How we’re organised

Customer-facing units

Consumer

Enterprise

Global Services 

Openreach

Corporate units

Strategy & 
Transformation

Technology

Corporate Functions

To generate sustainable revenue and 
profit, we focus on providing differentiated 
products, services and propositions and 
delivering a superior customer experience. 
We measure this through Net Promoter 
Score (NPS)a, which has improved over  
15 consecutive quarters. 

Our business model generates value for 
different groups:

Shareholders benefit from the Board acting in the 
best interests of the company and investors for  
long-term value generation. 

Customers get to connect and communicate, 
discover, do business and be entertained through 
innovative propositions and services. 

5.5 percentage points improvement in NPS 

3.7m BT Call Protect customers

Colleagues get salaries, pension contributions,  
extra benefits and career opportunities, development 
and training. 

79% employee engagement outcome

c. 3,800 new apprentices and 500 graduates taken on

Communities benefit from us enabling the digital 
world, improving digital skills, protecting the 
environment and making society more connected. 

2.8m people reached through our Skills for Tomorrow 
programme

92% electricity consumed worldwide is from 
renewable sources (UK is at 100% for directly 
purchased electricity)

Suppliers get revenues from what we buy, and our 
thoughts to help them optimise their own supply chain. 

£13.8bn spent with suppliers, more than two thirds  
of our total costs

 69% with top 100 suppliers

HM Government gets value from our enhancements 
to the UK’s digital infrastructure and from the taxes 
we pay. 

43 police forces in England protected from cyber 
attacks, and sensitive data safeguarded, whilst 
ensuring the police can make increasing use of cloud 
services 

Regulators are informed and reassured through active 
engagement and collaboration. 

a  Group NPS measures Net Promoter Score in our retail business and 
Net Satisfaction in our wholesale business.

BT Group plc Annual Report 2020BT Group plc Annual Report 202016

Our strategy

Investing in the future

Our strategy is to lead in converged 
connectivity and services, capitalise on 
new business opportunities and deliver 
industry-leading efficiency. This supports 
our goal of delivering sustainable growth 
in value and creating a best-in-class 
customer experience. 

Differentiated customer experience 
We are focused on delivering great services 
and experiences to customers to build 
long-term relationships. 

Best converged network
Having the largest and best converged 
network is critical to our future. 
The universal need to connect and 
communicate has never been more 
important. With the rapid increase of 
‘smart’ devices and sensors, the demand 
for leading connectivity platforms is only 
expected to grow faster.

It will help us succeed, both in terms  
of scale benefits and differentiating  
us from our competition. 

Simplified, lean and agile business
We believe that our scale and technology 
support our long-term cost position. But we 
must complement it with a disciplined focus 
on simplifying our business which will make 
us easier to work with.

We want our strategy to meet the  
needs of two other critical stakeholder 
groups – our colleagues and the 
communities we do business in. 
For our colleagues, that strategy is  
to make BT a brilliant place to work.  
For our communities, it’s to be a  
valued partner helping build better  
digital lives. 

BT Group plc Annual Report 202017

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.

Best 
converged  
network

Customers want fast, secure, 
seamless, ubiquitous and reliable 
connectivity to enable their digital 
lives and businesses. So we’re 
prioritising delivering the UK’s best 
converged network as we roll out 
FTTP and 5G across our fixed and 
mobile assets.

Our strategy
Customers

Differentiated 
customer 
experience

Simplified,  
lean and agile 
business

Consumers and businesses have more 
choice than ever about how they 
communicate and through which 
company. We aim to provide genuinely 
differentiated products, services and 
propositions and deliver a best-in-class 
experience that encourages existing 
customers to stay with us and do more 
with us, and new customers to switch to 
us. We want to be at the centre of our 
customers’ digital lives, offering them 
easy, personalised experiences. 

Our markets are dynamic and 
competitive. We operate in a 
complicated and regulated industry. 
A priority is to create a simpler, 
leaner and more agile business. That 
means continually modernising our 
organisation, changing how we work 
to do things better, at lower cost, and 
simplifying our products, processes 
and systems.

These strategic priorities are built on our key strengths and distinctive resources. We are well placed to succeed,  
building on our leading network, brand and relationship with our customers. The market is changing and we are  
continually assessing the opportunities for us to continue transforming our business and lead the market.

Colleagues
A brilliant place to work

Communities
A valued partner helping build better digital lives

Our values

Personal

Simple

Brilliant

BT Group plc Annual Report 2020Strategic report 18

Strategic progress 

Delivering a differentiated 
customer experience
Creating a standout experience for all our customers, 
backed by the best networks, is central to our long-
term growth and future success. We continue to make 
progress, but we want to go further. We want to go 
Beyond Limits.

Everyone at BT has a part 
to play to create a brilliant 
customer experience. We 
want every customer to feel 
the unique value of what we 
do and how we do it. If they 
ever have a problem, we  
want to fix it quickly.

We measure customer 
experience using Net 
Promoter Score (NPS).  
We’ve had 15 consecutive 
quarters of NPS improvement 
and this year’s score was 5.5 
percentage points higher 
than last year. We’ve achieved 
this by applying a consistent 
approach for the past four 
years, focused on:

•   delivering a consistent  
and reliable service

•   creating loyalty and value

•   providing propositions that 
fit our customers’ needs.

60%

Our new team of Tech  
Experts is now available  
to 60% of the population.

Delivering a consistent 
and reliable service

Our communications services are essential 
to our customers’ lives. If orders are late or 
service is disrupted, it can cause customers 
significant distress, impact mission-critical 
services in the public sector and disrupt 
business operations. To avoid this, we 
continue to invest. This year we’ve:

•  launched a new team of Tech Experts 
to help BT Halo customers install or fix 
the latest technology in their homes or 
businesses and this is now available to 
60% of the population

•  to drive forwards our full fibre rollout, 

we’ve recruited and trained more than 
3,000 engineers

•  maintained on-time repair performance 
for copper and fibre products at 84% 
despite the very difficult weather 
conditions, bringing customers back 
into service as quickly as possible

•  reduced the number of faults in our 

copper network by 3.4%.

Service progress around BT

•  We met all of Ofcom’s 42 minimum 

service levels for voice and broadband 
services, including fibre-to-the-cabinet 
(FTTC).

•  Complaints to Ofcom are down. BT 

Consumer broadband complaints fell 
41% compared to last year. For our BT 
branded landline service complaints 
went down 38%. For the first time, 
levels of complaints for our BT brand 
landline and broadband were better 
than the industry average.

•  EE complaints were the lowest in the 

industry for broadband. EE also saw the 
lowest levels of complaints amongst the 
mobile major network operators.

•  We installed 17% more Ethernet 

circuits to customers than last year.

•  Global opened a new Cyber Security 

Operations Centre (SOC) in Paris, and 
upgraded existing SOC facilities in 
Madrid and Frankfurt. We launched 
our Security Advisory Services 
practice, marking another step in 
the ongoing expansion of our cyber 
security capabilities. The practice will 
offer strategic security guidance and 
solutions to organisations across the 
globe.

BT Group plc Annual Report 2020 
19

Creating loyalty  
and value

We want customers to be loyal to our 
brands. We also want them to get more 
for their money. That could mean faster 
speeds, or better mobile coverage. Or 
it could mean additional benefits from 
being with us, such as free McAfee 
antivirus software for BT broadband 
customers, or free data swapping 
between family members for EE 
customers. This year:

•  we reached 100% of all consumer 

calls being answered in UK and Ireland 
contact centres across our three brands. 
We’ve achieved that a year ahead of our 
original schedule

•  we brought BT brand sales and services 
to the UK high street with over 500 
dual-branded BT/EE stores

•  we launched the new BT TV service 

in February 2020 allowing customers 
to change channel packs monthly, 
incorporating all the Sky channels from 
NOW TV with our existing Netflix and 
Amazon Prime Video services

•  EE launched unlimited data  

plans for 4G and 5G consumer  
and business customers

•  5G business plans include MobileIron 

Threat Defense to help protect against 
security risks

•  we offered two new swappable benefits 

to consumers under Smart Plans: 
Amazon Prime Video and Gamers’ 
Data Pass

•  BT launched 5G smartphone plans 

for BT Mobile consumer and business 
customers.

Loyalty and value progress around BT

•  The average speed of BT Consumer 
broadband increased by 10% to 
52Mbps.

•  We are committed to upgrading 

700,000 home and business customers 
to superfast broadband at no extra 
charge by late summer 2020.

•  We secured exclusive rights to UEFA 
Champions League, UEFA Europa 
League and UEFA Europa Conference 
League until 2024.

•  Almost a third of a billion nuisance calls 
have been diverted since we launched 
BT Call Protect in January 2017.

100%

of all customer calls 
answered in the UK  
and Ireland.

5G

EE launched unlimited 
data plans for 4G and 
5G consumer and SME 
customers.

Providing propositions 
that fit our customers’ 
needs

We strive to develop differentiated 
products, services and propositions for 
all our customers. We want to make sure 
we provide the best connection and 
experience to our customers.

•  BT Halo offers the best connection and 
experience. It comes with unlimited 
data on mobile and broadband, access 
to 5G and inclusive Home Tech Expert 
support for consumers. 

•  In October we introduced the Digital 

Voice network (our all-IP digital 
platform). This provides customers with 
high definition voice and advanced 
home phone capabilities.

•  For SME customers, we launched 

our converged BT Halo for Business 
product. It’s the first on the market to 
bundle superfast broadband with a 
digital phone line so that businesses can 
make and take calls on their business 
number from anywhere.

•  For larger customers and the public 
sector, we’re investing in the next 
generation of intelligent, digital 
connectivity. We launched managed 
SD-WAN solutions to constantly 
analyse and prioritise the traffic going 
through each business network.

•  Global continues to transform its 

business from network-led to digital 
solutions, underpinned by a portfolio of 
solutions supported by market-leading 
security services.

•  This year we defined the strategy and 
started the execution journey to build 
a new, digital native business model 
for Global. Work is underway to build 
and launch new over-the-top and 
software-defined solutions, using a new 
software as a service-based IT platform. 
The aim is to offer our customers 
services that better meet their needs – 
choice, great employee and customer 
experience, commercial flexibility and 
security; and to internally accelerate our 
transformation into a simpler and more 
digital business. We have invited our 
first group of customers to co-create 
with us and will look to further refine as 
we progress this new approach.

Products, services and propositions 
progress around BT

•  We launched our BT Halo convergence 
proposition to which 30% of our BT 
Consumer broadband base subscribe.

•  4G Assure is available to all our business 
customers and accounts for over half of 
new SME broadband sales. Customers’ 
NPS scores for these propositions are 
higher than with standard broadband.

•  We launched cloud contact centre and 
collaboration services in partnership 
with Cisco, Microsoft, Google and IBM.

•  We launched our 5G Business plans and 
worked with a number of customers to 
shape future use cases enabled by 5G. 

BT Group plc Annual Report 2020Strategic report 20

Strategic progress continued

Building the best  
converged network
The converged network we are creating  
is a long-term, sustainable platform.  
The investments we make in new and  
existing technologies are the foundation  
of tomorrow’s digital services and our  
future revenue.

80

5G now available in 80 cities 
and large towns.

90

Improved mobile coverage 
on the railways, with 90 sites 
deployed and 23 upgrades.

Mobile progress 
around BT

We have made significant progress on 
network deployment and services this 
year. EE launched 5G in May 2019 – the 
first in the UK and one of the first in Europe, 
followed by BT Mobile in October. 

We have continued to grow our 5G 
network and leverage our fixed network to 
provide a leading end-to-end experience. 
We’re also preparing for the forthcoming 
spectrum auction. The auction is expected 
in 2020/21, but timing may be affected by 
constraints arising from Covid-19.

We continue to invest in the 4G mobile 
network, deploying more spectrum and 
enabling more sites in rural areas and 
along railway lines. Our 4G network has 
maintained its leading position, with 
RootMetrics naming EE as the UK’s best 
network for the sixth year running. Our 
mobile network now covers 99.3% of the 
outdoor population of the UK. 

This year we:

•  extended our 5G coverage, which is 

now available across 80 cities and large 
towns. We will continue to lead in 5G, 
investing significantly over the coming 
quarters to more than double our 
current 5G footprint by March 2021, 
assuming the right conditions are in 
place

•  launched the best set of 5G devices and 

will improve the range over time

•  improved mobile coverage on the 

railways, extended our coverage with 
90 sites deployed and 23 upgrades, all 
primarily targeting London commuter 
rail routes.

BT Group plc Annual Report 2020 
Fibre by default

Network integration

We have accelerated our full fibre 
deployment, reaching a rate of 32,000 
premises passed per week (equivalent to 
one home or business every 19 seconds). 
Given current progress, our plan is to 
accelerate FTTP build to 4.5m premises 
passed by March 2021 and 20m premises 
by mid- to late-2020s, subject to the 
successful resolution of a number of critical 
enablers. Within this commitment we aim 
to connect 250,000 homes and businesses 
in over 200 villages, market towns and 
hard-to-reach areas by March 2021. 

We continue to extend the fibre  
network. During the year Openreach 
was awarded two of three lots to provide 
superfast speeds to Scotland. The vast 
majority of the build will be FTTP.

Other highlights in the year:

•  as part of the Openreach full fibre 
rollout, we have extended our fibre 
cities plan to 110 locations

•  we have passed 2.6m premises with 

FTTP

•  over 28m homes and businesses have 

access to the Openreach fibre network, 
comprising 87.8% of all UK premises. 
Openreach has 14.6m fibre broadband 
customers, comprising 69% of the UK 
broadband base

•  Openreach’s Gfast footprint now 
reaches more than 2.8m homes  
and businesses

•  our consumer ultrafast broadband 
proposition is now available to 
approximately 5.4m homes

•  in relation to ultrafast, we have a speed 

fast guarantee set at 100 Mbps.

In addition to our market-leading mobile 
and broadband networks, we have the 
UK’s most extensive public wi-fi network. 
Customers can stay connected in even 
more places with our 5m hotspots.

We are bringing together these three 
networks into one converged, digital 
platform to give customers seamless 
connectivity wherever they go. As we 
integrate these we are building new 
capabilities and features. We are constantly 
looking at new innovations, which we will 
deploy over the next two to three years 
– like edge computing to cut network 
congestion and speed up application 
performance, and 5G service capabilities.

Commercial success increasingly depends 
on innovation, which is why we invest 
in research and development. We are 
constantly looking at new innovations 
to deploy. This year we invested £662m 
(2018/19: £643m) 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 2019/20.

The integration of the BT and EE networks 
continues. We’re building the network 
cloud core infrastructure to support 
both the fixed core and the future 5G 
mobile core. Doing so enables us to 
separate core network software from the 
hardware infrastructure it runs on, giving 
greater speed of introduction of new 
technology and more agility. We have 
recently selected the first set of vendor 
applications to run on this infrastructure to 
provide a cloud native 5G core network.

32,000

We reached an FTTP 
deployment rate of 
32,000 premises passed 
per week.

28m

Over 28m homes and 
businesses have access 
to the Openreach fibre 
network.

21

£662m

This year we invested  
£662m (2018/19: £643m)  
in innovation. 

To meet our customers’ changing 
connectivity and communication needs, 
we’ve sharpened our technology focus to 
future technologies. For example:

•  fibre by default

•  5G by default

• 

 building an integrated digital IP network 
platform for the future

•  migrating and switching off legacy 

platforms, such as PSTN and 3G, which 
also saves network costs.

Working closely with the National 
Cyber Security Centre (NCSC), we have 
developed clear and robust network 
design, procurement and security 
policies for minimising vendor risk in our 
networks. The UK, via the Huawei Cyber 
Security Evaluation Centre overseen by 
the NCSC, evaluate Huawei products 
as part of the UK remediation for use of 
Huawei. It leads the world in its ability 
to understand, analyse and assure the 
quality and integrity of its hardware and 
software. We are committed to working 
with government to continuously improve 
network security and resilience. 

We worked closely with the Government 
throughout its Telecoms Supply Chain 
Review. Its conclusions on high-risk 
vendors (HRVs) in January 2020 were an 
important clarification for the industry as a 
whole. The Review broadly supported the 
network architecture principles already in 
place at BT, with HRVs not permitted in the 
sensitive core network. The planned 35% 
limit on the use of HRVs in the full fibre and 
5G access networks, within a three-year 
compliance window, will cost an estimated 
£500m over five years. We will continue 
to work closely with Government and the 
security services on the detail of these 
requirements and as new legislation is put 
before Parliament in due course.

BT Group plc Annual Report 2020Strategic report 22

Strategic progress continued

Creating a simplified,  
lean and agile business
We have continued to modernise our  
organisation to deliver better experiences  
for our colleagues and customers.

£1.6bn

In two years we have achieved 
£1.6bn  gross cost reduction.

January 
2020

We finished onshoring call 
centres in January 2020,  
a year ahead of schedule.

9,000

9,000 roles removed 
through our transformation 
programme.

Building a more 
modern, productive 
operation

To build a successful business 
that’s fit for the future, our 
customers and colleagues 
must be at the heart of our 
transformation. 

Our plan is to create a simplified, leaner 
and more agile business that delivers best-
in-class experiences to our customers, and 
their friends and family, enabling us to be 
at the centre of their digital lives. 

We are also focused on creating market-
leading colleague engagement by making 
BT a brilliant place to work and attracting 
the best talent.

Finally, delivering industry top-quartile 
productivity is a critical outcome in our 
transformation. We want to be more 
efficient than our competitors, so we  
can deliver competitive prices and  
strong margins. 

We have worked on four distinctive areas 
to ensure we continue to radically simplify 
our organisation.

Lowering our costs. We committed to a 
gross cost reduction of £1.5bn between 
2018 and 2021. Two years in, we have 
reached our total through a range of 
programmes.

Reducing organisational complexity.
To increase efficiency we committed to 
reduce our organisation by 13,000 roles 
across that same time period. So far, we 
have removed 9,000 roles from the across 
the business.

Onshoring our contact centres. We 
committed to onshoring our contact 
centres so we are able to deliver a best-
in-class experience for our customers. We 
finished onshoring these in January 2020, 
a year ahead of schedule. We’re now 
working to deliver localised call routing to 
provide a more personal, local service. 

Rationalising our office estate. For our 
people, we announced the rationalisation 
of our office estate to around 30 strategic 
sites. During the year we secured the 
location of our new London headquarters 
and our new Bristol and Birmingham 
buildings. Key events over the next two 
years include the transition to our new 
London headquarters, the opening of our 
new buildings and further consolidation of 
our estate. 

BT Group plc Annual Report 202023

16m

We will move our 16m 
customers from legacy  
to converged networks.

15

NPS has improved over  
15 consecutive quarters.

Simplifying products, 
processes and systems

To continue our transformation  
we will focus on four core issues  
in our business. 
• 
Migrating customers from legacy to converged 
networks. We will move our 16m customers from 
legacy networks which are increasingly unreliable 
and expensive to maintain. They’ll switch to state-
of-the-art technology, providing faster and more 
reliable connectivity.

 Building simple zero-touch, fully automated 
processes. We will radically re-work our complex 
processes, making them more effective and 
efficient, with less manual intervention required. 
This will enable us to deliver services to our 
customers more quickly than today and increase 
our productivity.

 Simplifying our portfolio and focusing on 
experiences and services. We need to radically 
reduce the number of services we sell. The 
complexity is confusing both to our customers and 
colleagues. In addition, our product proliferation is 
expensive to manage and makes it more difficult 
to respond quickly to market dynamics.

 Creating modern IT components to enable 
digital experiences. As we reduce our solutions 
and process complexity, we will be able to 
massively simplify our IT estate, reducing our 
58 system stacks and delivering a modularised 
solution fit for future growth. We’ll embrace the 
benefits of the cloud and share more components 
across our business.

Simplified, lean and agile

These plans will enable us to create 
a simplified, leaner and more agile 
business that delivers:

1. Best-in-class NPS –  
we want customers to love  
BT and recommend us to  
their friends and family.

2. Industry top-quartile 
productivity – we want to 
be more efficient than our 
competitors, so that we can 
deliver competitive prices and 
strong margins.

3. Market-leading colleague 
engagement – we want to  
make BT a brilliant place to  
work and attract the best talent.

BT Group plc Annual Report 2020Strategic report 24

Our stakeholders

We must meet our stakeholders’ 
needs to be successful as we 
build the UK’s national digital 
infrastructure.
Our main stakeholders are:

Colleagues

Customers

 You can find out more on our culture and 
colleagues, the ways we are reshaping our 
organisation and the ways we work on page 30.

You can find out more on the Colleague 
Board on page 32.

 You can find out more on how our customers 
fit into our business model on page 15 and on 
the propositions and services we provide them 
on page 19.

Shareholders

Communities

  You can find out more on our substantial 
shareholders in the Directors’ information on 
page 116.

 You can find out more information on 
communities and our digital impact and 
sustainability strategy on page 36.

Suppliers

HM Government

The Board is responsible for the group’s 
strategic direction, long-term objectives 
and development. It also oversees the 
group’s operations, performance and 
governance and ensures compliance with 
statutory and regulatory obligations. The 
Board has established certain committees 
to assist it in discharging its responsibilities 
and delegates day-to-day responsibilities 
to the chief executive. 

We engage with our stakeholders 
internally and externally at all levels of the 
business, including through our frontline 
operations, our customer-facing and 
corporate units, senior leadership team, 
the Executive Committee and the Board 
and its committees.

We use a variety of mechanisms to 
engage with our stakeholders, including 
face-to-face meetings, conferences, 
reviews, forums and webcasts. The Board 
and its committees also receive updates 
on these mechanisms and initiatives for 
engagement. This is then used to inform 
decision making.

 You can find out more on our supply chain 
related risks on page 56.

  You can find out more on the Government’s 
Statement of Strategic Priorities on page 12.

Board and committee activities can  
be found in the Corporate Governance Report:

Regulators

 You can find more on regulatory  
updates on page 12.

The Board: page 71

Nominations Committee: page 76 

Audit & Risk Committee: page 78

BT Compliance Committee: page 82

Digital Impact & Sustainability  
Committee: page 83

Remuneration Committee: page 84

BT Group plc Annual Report 2020  
 
 
  
 
  
 
  
 
  
 
  
 
  
 
25

We use feedback from our colleagues to focus on key areas and 
initiatives that will make the biggest impact. Colleague feedback 
is used to further shape and inform the things that we do for our 
colleagues, for example our Skills for Tomorrow programme, as 
well as launching collaboration tools such as Workplace and our 
Better Workplace Programme. 

Workplace is a best-in-class, mobile-first, internal social 
networking channel and almost 70,000 colleagues have 
registered to use Workplace since it launched in July 2019. 
It is a secure and simple way for colleagues to connect, share 
knowledge and keep up to date with BT news and activities. 
Colleagues can access Workplace wherever they are and on the 
device of their choice. 

Workplace helps us become the best connected company across 
all the markets we do business in, bringing together colleagues 
from all our brands and offices on one social platform. It also 
enhances two-way conversations across BT and allows our 
Executive Committee and senior leaders to connect more easily 
with colleagues across the business. 

During the year we also engaged with our colleagues through a 
survey completed by our contact centre and corporate population 
which highlighted that collaboration across the business is often 
harder than it should be. Our Better Workplace Programme aims 
to bring our colleagues together in modern, future-fit buildings 
that ensure easy collaboration. We have involved our colleagues 
in the creation of the workspaces at our temporary sites secured 
in cities such as Manchester, and in the design and prioritisation 
of facilities in the new corporate and contact centre spaces. Our 
investments are linked where possible to the elements that our 
colleagues care most about.

  The engagement of colleagues across BT has been of 
paramount importance and focus throughout the Covid-19 
pandemic. Our chief executive has connected directly with 
colleagues via a series of video recordings posted on Workplace, 
and the Executive Committee has hosted weekly Q&A calls for 
c.700 senior managers from across the business, ensuring all 
senior leaders have the most current information to share with 
their teams, and setting the tone on the importance of leadership 
visibility. 

Early policy decisions on office closures, remote working, key 
worker status and support options for colleagues have provided 
the structure for the colleague information site hosted on BT 
Today (our internal intranet news site), with extensive Q&A 
available to all colleagues. In addition to providing clarity on 
policy, the engagement activity has concentrated strongly 
on supporting colleagues’ wellbeing. The launch of the Your 
Wellbeing portal has provided a valuable source of internal and 
external support, enabling colleagues to adjust to changes in 
their working lives , with support on key wellbeing topics such as 
family, health, life and money. Workplace has proved invaluable in 
helping teams stay connected and our Colleague Board members 
have also played an important role in keeping the views of 
colleagues strongly represented.

Colleagues

Our colleagues are central to delivering our vision, 
goals, strategy and transformation. We employ 
105,300 full-time equivalent people in 58 countries, 
82,700 of these are in the UK, and an additional 
1,800 people through agencies.

Our colleagues want us to:
•  share their personal values
•  provide flexible and agile ways of working
•  provide career opportunities, development and training
•  reward performance with fair and competitive pay and benefits.

How do we engage and what is the outcome  
of our engagement?
Senior leaders across BT regularly meet their teams through 
roundtables, town hall debates, site visits, webcasts and blogs, 
using these opportunities to share relevant information and invite 
comments and questions.

We also listen to any concerns through more formal engagement 
with our European Consultative Council, the Communication Workers 
Union, Prospect and EE employee representatives in the UK.

Twice a year our colleagues share feedback about how it feels 
to work at BT through our Your Say engagement survey. With 
around 85% of colleagues taking part, this survey gives us a good 
understanding as to how our colleagues are feeling and helps us 
understand what more we can do to make BT a brilliant place to 
work. 

The Board was kept updated on talent management and culture 
throughout the organisation and how this has shaped our 
initiatives and programmes, including those in relation to the 
wellbeing of our colleagues, and progress against these. 

This year we established the Colleague Board, which aims to bring 
our colleagues closer to Board decision making. This is another 
mechanism to allow for the Board, as well as management, 
to understand the views of our colleagues. It sits alongside 
BT’s existing employee forums, people networks, unions and 
engagement methods. The Board is updated on feedback from 
the Colleague Board by Isabel Hudson, the designated non-
executive director for workforce engagement.

BT Group plc Annual Report 2020Strategic report 26

Our stakeholders continued 

Customers

We recognise that developing a strong 
understanding of customers’ needs and putting this 
at the heart of our business and strategy is critical. 
We have a large and diverse customer base which 
is integral to our future success. Our customers are 
consumers, businesses, multinational corporations, 
public sector organisations and communications 
providers. 

Our customers want us to:
• 
• 
• 

 provide propositions and services that meet their needs
 create value
 deliver a consistent and reliable service.

Therefore, everything we do starts with the aim of delivering 
a differentiated customer experience to generate value and 
create loyalty.

How do we engage and what is the outcome  
of our engagement?
We engage with our customers at all stages of our proposition 
development process to understand their needs and to develop 
products and experiences that endeavour to meet these needs. 
We have an Insight Centre of Excellence that serves all parts of 
BT to ensure we build a strong capability that delivers a deep 
understanding of what customers need and want from BT. 

We use a variety of methodologies and data sources to identify 
customer needs, expectations and behaviours in all categories 
and channels that we currently operate in, as well as future ones. 
We use these insight methods to inform all elements of our 
strategy including targeting & positioning, proposition & pricing, 
customer experience, and brand & communication development.

For our multinational customers, we run the Global Advisory 
Board on a regular basis where we talk to the CEOs and CIOs of 
our major customers to discuss and understand their needs and 
priorities and feed this into our activities. 

Openreach continues to ensure that all of its customers obtain 
equal access to our network by ensuring that its industry 
consultation process operates compliantly, with strong 
governance controls. 

The process offers communications providers the opportunity 
to engage confidentially with Openreach during an initial 
consultation stage and this opportunity has been taken up during 
the past year. 

The respective customer-facing unit CEOs and their 
management teams ultimately provide operational oversight 
to ensure that we meet the very highest standards of customer 
experience. Regular business reviews with Executive Committee 
members led by the chief executive and chief financial officer 
include discussions as to how we are tracking with reference 
to our customer experience KPIs, and how we can continue to 
improve on this. 

The chief executive and the Executive Committee regularly review 
and discuss complaints directly with our customers to enable 
us to better understand the process we follow in responding to 
complaints and the areas requiring improvement. 

The Board is updated on customer experience KPIs, namely 
Net Promoter Score (NPS) and Keeping Our Promises, and the 
initiatives which continue to drive improvements on our customer 
experience proposition. The Board has detailed discussions 
on customer experience with each of the customer-facing 
unit and Openreach chief executives supported by Strategy 
& Transformation.

During the year the Digital Impact & Sustainability Committee 
also discussed the work ongoing in Consumer to support the 
needs of our customers who are living with challenges. The 
committee discussed our current proposition and service 
offering and will continue to monitor management’s focus on the 
development of propositions for these customers, to help us to 
support them more effectively. 

Customers remain a central part of discussions and decisions 
by the Board and the Executive Committee in relation to group 
strategy, including the development of our strategic plans and 
investment propositions.

BT Group plc Annual Report 202027

Shareholders

Communities

We have two main shareholder groups: institutional 
investors and individuals, as well as debt investors.  
As a result of privatisation in 1984, most of our 
c.795,000 shareholders are individuals, although 
institutional investors hold the biggest volume of shares.

Our communications propositions, services,  
networks and our colleagues are vital to the  
communities we operate in. Our place at the heart  
of so many communities also makes it important  
we do business ethically and transparently.

Our shareholders want us to deliver:
•  a return on their investment through payment of dividends or 

Our communities want us to:
•  provide the best service and products for a fair price and to be a 

capital appreciation 

•  performance against our outlook and long-term strategy.

How do we engage and what is the outcome  
of our engagement?
We regularly communicate with our shareholders through our 
website, the Annual Report and our quarterly financial results 
and trading statements. The AGM provides an opportunity for 
directors to engage with shareholders. 

The company secretary oversees communications with individual 
shareholders, making sure we respond as appropriate to any 
matters regarding their shareholding. Our share registrar, Equiniti, 
also has a dedicated team to look after our shareholders’ needs. 

We build engagement with institutional investors through an 
investor relations programme, which includes one-to-one 
conversations, roadshows, group meetings, conferences and 
industry events. The chairman, senior independent director and 
other directors also meet with investors where appropriate.

In 2019/20, the chief executive, chief financial officer, other 
executives, board members and the investor relations team held 
around 408 meetings with investors. Topics included strategy, 
financial and operational performance, capital investment, 
pension, remuneration, capital allocation policy and relations with 
government and our regulator.

As part of changes to our Directors’ Remuneration Policy, the 
Remuneration Committee chair engaged with a number of our 
investors taking into account their feedback as part of the final 
Directors’ Remuneration Policy put to shareholders for approval 
(see pages 90 to 97).

The Board received regular reports on movements in the share 
register, relative share price performance, investor relations 
activities and engagement with shareholders, analysts and 
brokers. These matters are discussed by the Board with 
management. 

In September 2019, we delisted from the New York Stock 
Exchange (NYSE) and terminated our American depository 
receipts programme in order to reduce reporting costs and 
complexity, whilst maintaining the highest standards of corporate 
governance and transparent financial reporting.

trusted and reliable company

•  help make society and individuals more connected and able to 
take advantage of an increasingly digital world by helping to 
improve everyone’s digital skills and confidence

•  protect the environment through tackling climate change and 

other environmental challenges.

How do we engage and what is the outcome  
of our engagement?
Our teams are a key part of communities across the UK and 
beyond and we capture views from all key stakeholder groups as 
part of our annual materiality analysis. This helps us to understand 
which sustainability-related topics are of most importance and 
this is then reflected in our digital impact and sustainability 
strategy. The Digital Impact & Sustainability Committee oversees 
our strategy in this area. The committee reviews our performance 
against our sustainability and responsible business KPIs to 
monitor our investment in the community. 

As technological advancements continue, it is our responsibility to 
go Beyond Limits to help our communities, people and businesses 
thrive. We launched one of the key parts of the digital impact 
and sustainability strategy this year under the Skills for Tomorrow 
programme, which is designed to empower 10m people in the UK 
by giving them help to improve their digital skills.

On top of what we invest through our day-to-day business, 
we have a long-standing commitment to give 1% of profit 
before taxes to good causes – as a mixture of cash and in-kind 
investments. This year, we invested £29m or 0.9% of adjusted 
profit before tax – below our 1% target. This was mainly due to 
in-kind contributions like volunteering falling as we reorganised 
our efforts to focus on our Skills for Tomorrow programme but 
we’re still committed to the target, having invested £164m at an 
average of 0.98% over the last five years.

  Throughout the Covid-19 pandemic we have been 

partnering with the UK National Emergencies Trust that’s been 
set up to support communities in times of greatest need. We’ll 
help to fund the Trust’s operations and offer support through 
the partnership, via our Skills for Tomorrow programme, to help 
people harness technology to remain safe, healthy, connected 
and resilient.

BT Group plc Annual Report 2020Strategic report 28

Our stakeholders continued 

Suppliers

We have created a Digital Garage with our Procurement function 
to assess and implement the latest technologies, which includes 
us working with a number of early stage start-ups. This will 
enhance, digitise and optimise our ways of working, and help our 
sourcing teams become more agile and customer-focused. 

This year the Audit & Risk Committee received an update on our 
Supply Chain Risk Management strategy and also reviewed the 
supplier KPIs that we use to measure our own effectiveness. The 
Audit & Risk Committee also keeps under review the business we 
undertake with high risk suppliers.

On behalf of the Board, the Digital Impact & Sustainability 
Committee considers our annual Modern Slavery Statement and 
recommends its approval by British Telecommunications plc. 

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.

We also engage with our suppliers on a number of proactive 
initiatives such as carbon emissions reduction and plastic 
packaging initiatives, and progress on these are discussed with 
the Digital Impact & Sustainability Committee. 

We remain supportive of the Government’s Prompt Payment 
Code programme in the UK and BT plc has improved the 
suppliers paid in 60 days monthly run rate from around 60% to 
over 90% during 2019/20. British Telecommunications plc paid 
94.5% of supplier invoices in line with the terms we had agreed 
with them and aim to comply with local regulations globally.

  Supply chain risk from Covid-19 now encompasses the 
global supply chain and impacts both products and services. 
Our critical suppliers have been able to deliver products and 
services to the extent that our broad infrastructure has not been 
drastically affected so far.

We have c.300 critical suppliers that are key to BT. Our buyers 
are regularly in touch with these critical suppliers seeking regular 
updates on their situation and any potential supply impacts.

Our suppliers want us to:
•  pay them in line with our agreed terms 
•  act ethically and transparently
•  work collaboratively with them and build stronger relationships.

How do we engage and what is the outcome  
of our engagement?
We use our online portal, Selling2bt, to guide prospective 
suppliers on our requirements and expectations.

As part of complying with the EU General Data Protection 
Regulations, we carried out a review and a phased uplift of 
relevant supplier contracts.

We want to know who we’re doing business with and who is  
acting on our behalf, so we:
•  choose suppliers using principles that make sure we act 

ethically and responsibly

•  undertake due diligence on them before and after we sign 
a contract, including checks in relation to financial health, 
anti-corruption and bribery and compliance checks against 
our minimum standards, for example, quality management, 
security and data privacy requirements

•  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.

BT Group plc Annual Report 202029

HM Government

Regulators

We work with over 1,800 UK public sector customers 
and support critical services in the UK. Our networks 
enable vital public services – such as welfare, tax, 
health, social care, police and defence to function – 
while protecting citizens’ personal data.

It is important to the Government that  
BT continues to:
•  invest in the UK’s infrastructure
•  support national security.

How do we engage and what is the outcome  
of our engagement?
Our policy and public affairs team manages our relationships with 
Government and other politicians on all public policy issues.

Our Enterprise team delivers and maintains public sector 
contracts and services – for example, for the Emergency  
Services Network. 

We operate the critical national infrastructure and support 
national security; our priority is fulfilling our responsibilities and 
obligations to the country and our customers. 

The Board is updated on key discussions as necessary by the chief 
executive and relevant Executive Committee members. 

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) in emergencies or in 
connection with civil contingency planning.

We respond to initiatives and consultations, and build support for 
policies that will help us deliver benefits to the UK as well as to 
our shareholders. Government work covers a wide territory, from 
investment in infrastructure, national security, regulation of online 
harms, and trade and economic policy.

   In the difficult circumstances created by Covid-19, we have 
offered direct support to many government and NHS customers. 
Our assistance with the wider government response has included 
regular reporting on network resilience, public messaging via 
SMS, tailored support for vulnerable customers and NHS staff, 
and sharing of aggregated and anonymised mobile location data 
to help the Government to assess the effectiveness of restrictions.

Communications and TV services are regulated to 
ensure consistent rules and standards within each 
jurisdiction to protect consumers and promote 
competition. 

Our main regulatory relationship is with Ofcom in the UK. Ofcom 
primarily operates under the Communications Act 2003, which gives 
it powers and duties, and maps the EU regulatory framework for 
electronic communications to the UK. 

Ofcom has general competition powers for the sector and enforces 
consumer law, alongside other economic regulators and the 
Competition and Markets Authority (CMA).

In line with its duties, Ofcom’s key concerns 
are:
•  furthering the interests of citizens and consumers, where 

appropriate by promoting competition
•  encouraging investment and innovation 
•  supporting investment in critical digital infrastructure in the UK.

How do we engage and what is the outcome  
of our engagement?
We have an open dialogue with Ofcom with engagement by our 
chairman, chief executive and senior leaders. This focuses on how 
the regulatory regime can help Ofcom’s ambition for world-class 
digital infrastructure in the UK, and enable efficient infrastructure 
investment, while keeping the market fair and competitive.

Following Ofcom’s 2017 Digital Communications Review, we 
implemented a set of Commitments and a supporting Governance 
Protocol. These provide Openreach with greater strategic 
and operational independence, whilst enabling BT to exercise 
appropriate parent company control. 

The BT Compliance Committee monitors how BT complies with the 
Commitments and the chair of the committee, with the support of 
the Commitments Assurance Office, engages regularly with Ofcom, 
communications providers and other key stakeholders.

Under the Commitments we’ve developed and published new 
Guidance Notes covering regulatory, policy, legal and commercial 
processes. These encourage and support more efficient and 
transparent governance across BT and Openreach. Work is 
ongoing to ensure our information management and internal 
processes between BT and Openreach is more transparent. 

Ofcom has reported that it is broadly satisfied with our 
progress thus far, and we continue to engage with Ofcom and 
communications providers to maintain and enhance confidence in 
our compliance with both the letter and spirit of the Commitments.

BT Group plc Annual Report 2020Strategic report 30

Culture and colleagues

Our colleague strategy is summed up by our 
ambition to make BT a brilliant place to work. 
Delivering a differentiated customer experience 
relies on getting our employee experience right. 
That means making sure everyone at BT feels 
engaged and inspired to be at their best.

29% 

of our Executive Committee  
and their direct reports  
are women.

c.15,100

This year (excluding 
acquisitions) we hired almost 
15,100 people; 11,100 of 
these were in the UK.

4,300

In 2019/20 we took on  
almost 3,800 new apprentices 
and 500 graduates.

25%

Around 25% of our workforce 
(25,900) and 29% of our 
management (13,900) are 
women, including 3 out of 
12 Board members. Our 
workforce includes around 
78,600 men. 33,300 of these 
are in management roles.

Building future capabilities and careers
Our business is constantly shaped by fast 
technological change. So we need to 
continuously renew our skills, capabilities 
and behaviours. 

The way people look at current and 
prospective employers is also changing. 
They expect different career experiences 
– such as flexible working, career breaks, 
multiple careers and for their employer to 
share their values. 

We’re changing our career planning and 
capability development practices in line 
with these trends. For example, we now 
outline various career options and help our 
colleagues re-map their careers to remain 
relevant. We’re embracing more flexible 
ways of working to attract people from 
every segment of society. And we have 
clearly articulated our purpose so people 
know what we stand for.

Our development toolkit provides a range 
of learning, planning and networking 
opportunities – tailored so people can 
learn how, when and where they choose. 

Our learning offering focuses not only 
on technical skills, but also on broader 
key behavioural competencies – such as 
resilience and adaptability. 

We developed a new tool that provides 
greater transparency of roles, outlining the 
full range of career opportunities at BT. 

We’ve created networks like TechWomen 
and the Aspire programme, and specialist 
communities for subjects like engineering. 
Workplace helps to share learnings 
and build skills. All these opportunities 
allow our colleagues to maximise the 
power of communities and crowdsource 
knowledge.

We help our colleagues develop life skills 
outside the workplace too – like digital 
and financial skills. We also encourage 
our colleagues to take their skills back 
into society through volunteering, such 
as our Skills for Tomorrow programme. 
This year, that amounted to c.3,500 days 
of volunteering, and we’re aiming to grow 
that in the year ahead as more of our 
colleagues support the programme.

BT Group plc Annual Report 202031

c.13,400

In 2019/20, c.13,400 people left 
the company. Around 10,000 left 
through natural attrition and 3,400 
left through paid leaver programmes 
as part of our drive to create a simple, 
lean and agile business.

4.8%

Our overall median gender pay gap 
is 4.8%. Our mean gender pay gap is 
4.7%. Both are well below national 
and industry averages, but we won’t 
stop until they are as close  
to zero as possible.

We offer our colleagues other benefits 
including retirement savings plans and 
other country-specific benefits.

employees in India. This change, as well as 
a slightly upward trend overall, has seen an 
increase in the rate for the group to 3%.

Health and wellbeing
Leading business performance is 
underpinned by the highest levels 
of employee wellbeing. We focus on 
updating and improving the range of 
physical, mental and emotional support 
we provide to our colleagues.

We continue to work towards zero 
avoidable harm in relation to safety 
incidents. There were 4% fewer safety 
incidents than last year, helping to achieve 
an incident rate of 0.22 per 200,000 
working hours for lost time injuries, the 
lowest year-end rate yet reported. And 
we’re rolling out a new fall-arrest harness 
system for our colleagues working at 
height to further reduce risk from this 
activity.

From April 2019, our core reporting system 
also captures all sickness absence for 

We have enhanced our colleagues’ 
wellbeing support services with an 
innovative web portal that holds 
wellbeing resources, activities, support 
and information all in one place. Covering 
topics like family, money and health, 
anyone in BT can access it – anywhere and 
anytime. We have now reached more than 
1,880 people through our line manager 
mental health awareness training.

This year, BT-funded rehabilitation 
services got over 96% of people needing 
treatment, back to work on full duties.

This year we have investigated employee 
wellbeing via an in-depth survey of 
thousands of employees plus follow-up 
focus groups of hundreds more. The 
results are informing updates to our health 
and wellbeing strategy.

c.13%

Around 13% of our UK 
colleagues are from  
a black, Asian or minority 
ethnic background.

As a Disability Confident Leadera we 
have a positive approach to attracting, 
recruiting and developing our disabled 
talent. That includes our range of support 
services and processes to help our 
managers make necessary adjustments 
for new and existing disabled colleagues 
who work here. We have an active 
Colleague Network for our disabled and 
neurodiverse colleagues who maintain 
active links with our team of Diversity 
and Inclusion specialists. We are also 
signatories of the Valuable 500 initiative.

Pay and benefits
We regularly review our pay and benefits 
to make sure they are competitive, 
sustainable and fair. Most of our UK-based 
engineering and support colleagues’ pay is 
negotiated through collective bargaining 
with our recognised trade unions. 

As part of an initiative to encourage 
everyone to be a long-term shareholder in 
BT and align our colleagues’ interests with 
the long-term success of the company, 
they will each receive an annual award of 
shares through the yourshare plan. We 
also give our colleagues the opportunity 
to participate in all employee share plans 
such as save as you earn (saveshare) and 
share incentive plan (directshare). 

Our executives may also get long-term 
share awards. These are determined by 
group performance against the long-
term strategy of the company as well as 
personal performance.

Incentives for Openreach colleagues 
are based on a combination of personal 
contribution and Openreach performance.

a 

 For more information on what makes a 
Disability Confident Leader see gov.uk/
government/publications/disability-confident-
guidance-for-levels-1-2-and-3/level-3-
disability-confident-leader

BT Group plc Annual Report 2020Strategic report 32

Introducing the Colleague Board

We want the 
Colleague Board 
to bring the 
whole of BT and 
our colleagues 
closer together.

Steve Tucker
Retail area manager and 
member of our Colleague 
Board

engagement and a member of the 
Colleague Board. Isabel acts as the formal 
connection to the Board and reports back 
to the Board on key discussions with its 
members. The agenda and minutes of 
Colleague Board meetings are also shared 
with the Board. 

All directors continue to engage with 
colleagues as part of BT site and office 
visits, as well as through other Board and 
committee updates. 

During the year, we established 
a Colleague Board to give our 
people a louder voice at the table 
from across the business.

The Colleague Board was inspired, in 
part, by the UK Corporate Governance 
Code 2018 requirement for the Board to 
engage with our colleagues. The Board 
spent time discussing the various options 
with management, the approach taken by 
other companies and how this would work 
for us given our business and global reach. 
The Board was keen that the arrangement 
would lead to meaningful input and 
change for our colleagues across the 
organisation. Accordingly, a Colleague 
Board, with members drawn from across 
the business, including a designated 
non-executive director, felt like the right 
mechanism. In October 2019, Isabel 
Hudson was appointed as the designated 
non-executive director for workforce 

BT Group plc Annual Report 202033

Membership and key responsibilities
During the year, all colleagues had the 
opportunity to apply to join the Colleague 
Board. The process included asking at 
least ten colleagues to endorse their 
application. Almost 1,000 applications 
were received and a shortlist of candidates 
were interviewed and asked to produce 
video answers to a couple of questions. 
Openreach’s shortlist was provided by 
the Openreach team. The Colleague 
Board nominations committee (Isabel 
Hudson, Philip Jansen, Sabine Chalmers, 
group general counsel, and Alison Wilcox, 
group HR director) decided on the final 
ten members, with representatives from 
across the customer-facing and corporate 
units, plus two proposed invitees from 
Openreach.

The Colleague Board is chaired by the 
chief executive. Alison Wilcox and Sabine 
Chalmers attend all meetings. The 
company secretary is secretary to the 
Colleague Board and attends all meetings. 
The chairman has also been invited to 
attend meetings. The HR, communication 
and company secretarial teams 
support Isabel Hudson (the designated 
non-executive director for workforce 
engagement) and the Colleague Board.

Management seeks the views of 
the Colleague Board on significant 
programmes and initiatives across the 
business, how these align with our values 
and culture and on communications with 
our colleagues.

It also discusses colleague 
communications and engagement 
mechanisms which we already have in 
place, for example the Your Say survey, 
and it connects with other networks and 
forums across the group to understand 
trends and priorities. Workplace is one 
of the key internal channels used by the 
members to communicate with all of our 
colleagues. 

We look forward to using the Colleague 
Board throughout 2020/21 to shape the 
business positively and strengthen the 
relationship between the Board and our 
colleagues.

Activities in 2019/20

Ahead of our first meeting in January 2020, we provided the 
Colleague Board with training and support on its role. This 
included guidance to help the members communicate with the 
rest of our colleagues across the organisation. The Colleague 
Board will meet at least four times a year. Meeting agendas will 
include topics from the business, as well as those suggested by 
members themselves.

The first meeting covered:
•  the chief executive’s thoughts on his first year at BT and key  

initiatives that have taken place

•  the ongoing work in relation to BT’s long-term ambition

•  feedback on BT's current purpose and values to help management review 

whether we should keep or change these

•  current communication methods across the business and how we manage 

messaging, including from the Colleague Board to the rest of the organisation

•  potential topics for future meetings.

Input and feedback from the Colleague Board included: 
•  views on our purpose and values, with comments shared and discussed  

by the Executive Committee 

•  recognition that there are a number of business initiatives taking  

place throughout the year and agreement that a series of additional  
workshops for the members would be held to discuss matters in order  
to enable the Colleague Board to shape these and input into  
proposed communications.

Communication with the rest of our colleagues:
The Colleague Board discussed and agreed how best to communicate  
with our colleagues to:

•  ensure all our colleagues know the key things that were discussed at meetings

•  ensure colleagues understand and see the value and the role of the  

Colleague Board

•  provide an opportunity for our colleagues to feed into future agenda items

•  share members’ insights where they have been involved in developing a new 

business initiative. 

Our colleagues play  
a big part in who we  
are and what we do,  
so I want to know what 
matters to them and  
how they feel about  
the things we do.

Philip Jansen
Chief executive and chair  
of the Colleague Board

The establishment  
of the Colleague Board 
reflects how serious 
BT is about engaging 
with colleagues across 
the business and I have 
been impressed by 
the enthusiasm and 
engagement of the 
members and the  
quality of discussions.

Isabel Hudson
Designated non-executive director  
for workforce engagement

BT Group plc Annual Report 2020Strategic report 34

Section 172 statement

In accordance with section 172 of the 
Companies Act 2006 each of our directors 
acts in the way that he or she considers, in 
good faith, would most likely promote the 
success of the company for the benefit of 
its members as a whole. 

Our directors have regard, amongst other 
matters, to the:

•  likely consequences of any decisions in 

the long-term

•  interests of our colleagues

•  need to foster the company’s business 
relationships with suppliers, customers 
and other key stakeholders

•  impact of the company’s operations on 

communities and the environment

•  desirability of the company maintaining 

a reputation for high standards of 
business conduct

•  need to act fairly as between members 

of the company.

Key strategic decisions
Decisions taken by the Board and its 
committees consider the interests of 
our key stakeholders, the impacts of 
these decisions and the need to foster 
the company’s business relationship 
with customers, suppliers and other 
stakeholders. Papers submitted to 
the Board consider the impact on key 
stakeholders.

Directors have had regard to the 
matters set out in section 172(1)
(a)-(f) of the Companies Act 2006 
when discharging their section 172 
duties. The following are some of the 
decisions taken by either the Board or 
its committees during the year and the 
considerations given to stakeholder 
interests and impacts:

The directors take into account the views 
and interests of a wider set of stakeholders 
and you can find out more about how BT 
engages with its stakeholders on pages 
24 to 29. During the year the Board 
and its committees received papers, 
presentations and reports, participated 
in discussions and considered the impact 
of the company’s activities on its key 
stakeholders (wherever relevant). We 
acknowledge that every decision we make 
will not necessarily result in a positive 
outcome for all of our stakeholders and 
the Board frequently has to make difficult 
decisions based on competing priorities. 
By considering the company’s purpose 
and values together with its strategic 
priorities and having a process in place for 
decision making, we do, however, aim to 
balance those different perspectives. 

How does the Board engage with 
stakeholders? 
The Board will sometimes engage 
directly with stakeholders on certain 
issues, but the size and distribution of 
our stakeholders, and of BT, means 

Delisting from the New York Stock 
Exchange (NYSE) and termination of 
BT’s American depositary receipts (ADR) 
programme and deregistration from the 
US Securities and Exchange Commission 
(SEC)  
As part of the Board’s decision to delist 
from the NYSE, terminate our ADR 
programme and subsequently deregister 
from the SEC, as announced on 14 August 
2019, it took into consideration a number 
of stakeholders, including: our investors 
based in North America and the type 
of shares (ordinary shares or American 
depositary shares) they predominantly 
held; our colleagues who were participants 
in our US all-employee share schemes and 
therefore holders of ADRs; and the holders 
of US bonds given these were registered 
with the SEC. The Board also took into 
consideration the current reporting costs 
and complexities of a listing on the NYSE 
and registration with the SEC. 

Sale of BT’s domestic operations in Spain
During the year, the Board considered and 
approved the proposal to sell BT España, 
which was announced on 16 December 
2019. Consideration was given to the 
different stakeholders including the 
impact on our colleagues and customers 
(both multi-nationals and local) and how 
divestment would enable us to continue 
to deliver on our ongoing transformation 
strategy of Global and our future business 
operations in Spain.

that stakeholder engagement often 
takes place at an operational level. The 
Board considers information from across 
the organisation to help it understand 
the impact of BT’s operations, and 
the interests and views of our key 
stakeholders. It also reviews strategy, 
financial and operational performance, 
as well as information covering areas 
such as key risks, and legal and regulatory 
compliance.

As a result of these activities, the Board 
has an overview of engagement with 
stakeholders, and other relevant factors, 
which enable the directors to comply 
with their legal duty under section 172 
of the Companies Act 2006. For details 
on how the Board operates and the way 
in which the Board and its committees 
reach decisions, including the matters we 
discussed during the year, see pages 70 
to 83.

Directors’ Remuneration Policy
As part of developing the new Directors’ 
Remuneration Policy (the Policy), 
the group HR director and reward 
team liaised with various stakeholders 
including the Executive Committee 
and all non-executive directors to 
understand their views of the current 
remuneration arrangements at BT 
and the alignment of remuneration 
to our strategy and priorities over the 
medium term. These views were shared 
with the Remuneration Committee 
alongside information on the wider 
workforce remuneration structure, 
external market practice, corporate 
governance regulations and institutional 
guidelines. Consideration was given to 
ensuring we continue to have in place 
a remuneration structure that benefits 
all of the company's stakeholders, 
whilst ensuring executive reward aligns 
with shareholders’ long-term interests. 
During the year, the Remuneration 
Committee conducted a comprehensive 
review of the current Policy following 
which the Remuneration Committee 
chair consulted extensively with 
our largest shareholders and their 
representative bodies on the proposed 
changes to the Policy. This helped 
shape the committee’s thinking and 
the development of the new Policy. The 
committee recommended the Policy 
to the Board for approval, which will be 
subject to a binding shareholder vote at 
the 2020 AGM.

BT Group plc Annual Report 2020Non-financial information statement

35

Our integrated approach to reporting 
means that the requirements of the  
Non-Financial Reporting Directive 
required pursuant to the Companies Act 
2006, including a description of policies, 
due diligence processes and outcomes, 
where applicable, are addressed 
throughout the Strategic report:

Non-financial information

Section

Pages

14

24
36

52

40

36

24

36

36

Business model

Our business model

Policies

Our stakeholders
Digital impact and sustainability

Principal risks

Principal risks and uncertainties

Key performance indicators including 
performance against our strategic 
non-financial performance measures

Our key performance indicators

Environmental matters

Digital impact and sustainability

Colleagues

Human rights

Social matters

Anti-bribery and anti-corruption

Our stakeholders

Digital impact and sustainability

Digital impact and sustainability

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.

 For more information on our codes of practice and employee policies,  
see bt.com/ourpolicies that support our key outcomes for all of our stakeholders. 

BT Group plc Annual Report 2020Strategic report  
36

Digital impact  
and sustainability

We think everyone should 
be able to thrive in today and 
tomorrow’s digital world.

In the UK we’re focusing our efforts on a major issue 
that affects the economy and real lives – the fact 
that millions of people lack the digital skills they 
need. We aim to make a positive and measurable 
difference through our Skills for Tomorrow 
programme, which we launched this year. 

We also continue to take a sector-leading position in tackling 
climate change and environmental challenges. We’ll be a net zero 
carbon business by 2045, and we continue to champion human 
and digital rights.

These priorities are at the heart of our digital impact and 
sustainability strategy: 

Our 3 strategic focus areas 

1.  Building  

better digital  
lives

 2.  Championing 
human and 
digital rights

3.  Tackling 
climate 
change and 
environmental 
challenges

Our ambitions 

Reach 10m people in the  
UK with help to improve  
their digital skills by 2025.

Our progress 

Keeping people secure online, 
protecting privacy and freedom 
of expression, and supporting 
efforts to tackle modern slavery.

A sector-leading approach  
to climate action, with a target  
to become a net zero carbon  
business by 2045.

•  Launched our Skills for Tomorrow 

• 

 Signatory to UN Global Compact.

programme, including an online portal 
containing free resources.

•  2.8m people reached in total since 

2014/15.

•  20 Online Centres sponsored so far 
with the Good Things Foundation.

•  3,300 Work Ready graduates since 

2014.

•  Approach steered by the UN Guiding 
Principles on Business and Human 
Rights.

•  Founding partner of the UK Modern 
Slavery Helpline and Tech Against 
Trafficking.

• 

 Joined World Business Council for  
Sustainable Development CEO call  
to action on human rights.

Supporting the UK’s ambitions 

Giving everyone access to the digital skills  
they need is a key strand of the UK 
Government’s Digital Strategy.

The UK Government is committed to 
tackling the crime of modern slavery that 
affects an estimated 40m people globally.

• 

 42% reduction in carbon intensity  
since 2016/17.

•  92% of the electricity we consume 
around the world is now renewably 
sourced – and we’re at 100% for our 
directly purchased electricity in the UK. 

•  We’ve now helped our customers save 
three times as much carbon as our own 
end-to-end carbon emissions – one 
year ahead of target.

•  12 suppliers signed up to climate clause.

•  New plastics policy and commitment.

The UK Government’s target is to  
achieve net zero emissions by 2050.

Contributing to the UN  
Sustainable Development Goals 

Target
4.3 + 4.4

Target
5b

Target
9.1 + 9c

Target
8.7

Target
10.2

Target
16.10

Target
12.5 + 12.7

Target
13a

Our ambitions on digital skills and reducing our carbon emissions intensity are of such importance that  
we have revised our KPIs (effective from 2020/21) to include both. This is linked to 10% of the 2020/21 
annual bonus. You can find more on our directors’ remuneration on page 84 and changes to our KPIs for 
2020/21 on page 40.

BT Group plc Annual Report 20201.  Building better 
digital lives

We want to empower people to 
make the most of life to support 
their daily lives, their families, 
their careers and their businesses.

In October 2019, we launched Skills for 
Tomorrow. It’s a major new programme 
aiming to give 10m people the skills 
and confidence they need to flourish 
in the digital world. We’re partnering 
with some of the UK’s leading digital 
skills organisations to offer free help, 
and ensuring that even during uncertain 
times we are able to benefit those who 
need it most. We have resources for 
school children, parents, teachers, job-
seeking 18-24 year olds, people working 
in small businesses, and older and more 
vulnerable people. 

The Skills for Tomorrow online portal is 
the gateway to free courses and other 
materials. It covers everything from 
getting started and staying safe online  
to digital skills for the workplace.

Barefoot, our partnership with Computing 
at School, gives teachers the resources 
and skills to bring computing lessons 
alive. The Barefoot website has now been 
accessed by teachers from across the 
majority of UK primary schools. It helps 
5-11 year-olds develop computational 
thinking skills as part of the computing 
curriculum. Barefoot has reached more 

2.8m

Barefoot has reached more than 2.8m 
children since 2014. And we’re aiming  
to increase that to 5m by 2025.

than 85,600 teachers, with support from 
our volunteers who help to train them. 
Through these teachers, Barefoot has 
reached more than 2.8m children since 
2014. And we’re aiming to increase that  
to 5m by 2025.

Our Work Ready programme prepares 
young people for the world of work – 
giving them practical skills to make them 
more employable. The programme also 
provides hands-on tech skills and work 
experience to young people not currently 
in education, employment or training. 
There have been over 3,300 Work Ready 
graduates since 2014. From 2020, the 
programme is being embedded to 
support grassroots development of young 
people and community clubs as part 
of BT’s partnership with the four home 
nations of the FA (Football Association).

We’re also helping older, more vulnerable, 
and digitally-excluded people to gain new 
skills and confidence. Our partnership 
with Good Things Foundation sponsors 20 
Online Centres who offer face-to-face and 
online training.

We aim to help 1m people working in 
small businesses by 2025 – developing 
digital routes to market while keeping 
their businesses safe. This year we ran  
five regional workshops in partnership 
with Google Digital Garage and partnered 
with LinkedIn Learning and Small Business 
Britain to support small businesses across 
the UK. 

Partnership is central to our approach  
– we believe we can make more 
meaningful change if we work 
together. We’re a founding member of 
FutureDotNow, a new coalition of leading 
companies and non-governmental 
organisations aiming to empower 
everyone to thrive in a digital UK. 

37

1m

We aim to help 1m people working in 
small businesses by 2025 – developing 
digital routes to market while keeping 
their businesses safe.

In India, we partner with the British Asian 
Trust to help boost youth skills – focusing 
on empowering over 100,000 adolescent 
girls through digital learning. We are also 
working with the NGO Katha to train 200 
young people as digital entrepreneurs, 
who’ll reach an estimated 300,000 young 
learners at local schools. 

 For more information on Skills for 
Tomorrow see bt.com/skillsfortomorrow

  Supporting people through the 

Covid-19 crisis
With large numbers of people practising 
social distancing, self-isolation or being 
confined to their homes during the 
Covid-19 pandemic, it’s more important 
than ever to ensure that those with low 
or no digital skills can keep in touch with 
family and friends, and access vital health 
services. 

Our Skills for Tomorrow programme 
offers a wide range of free resources and 
information to help people build their 
digital skills and work online effectively 
wherever they are. Although face-to-face 
training has been cancelled during the 
UK Government-mandated lockdown, 
the programme’s ‘digital first’ approach 
means participants can still access 
extensive resources through the Skills  
for Tomorrow portal. 

The portal includes key topics such as 
how to navigate the NHS website, how 
to access GP online services, how to 
make video calls, and how to shop or 
bank online. There are also engaging 
activities to help children develop 
their computational thinking skills and 
families learn how to stay safe online. 
We’ve reached out through social 
media channels to offer regular tips and 
guidance on the digital skills people need 
to manage their lives and work online.

BT Group plc Annual Report 2020Strategic report  
 
38

Digital impact and sustainability continued

impacts throughout our business. Within 
our supply chain, we have mandatory 
contractual standards on working 
conditions. We assess the risks of our 
suppliers not meeting these conditions, 
and follow up where improvements are 
needed. 

We have embedded checks in our sales 
process, used to find and address potential 
risks that our products or services might 
be misused by customers in ways that 
could affect someone’s rights. 

3.  Tackling climate 

change and 
environmental 
challenges

We’ve been a climate action 
leader for more than 25 years. 
Now we’re stepping up even 
further.

We’re committed to implementing  
the recommendations of the Task  
Force on Climate Related Financial 
Disclosures (TCFD), fully embedding 
them over the coming year. They’re an 
important step towards enabling a net 
zero carbon economy. 

Climate scenario analysis
Climate-related risks and opportunities 
extend beyond normal business strategic 
planning cycles. And they have both near- 
and long-term potential impact.
In line with the TCFD recommendations, 
we’ve carried out scenario analysis on 
the impacts of 2°C and 4°C rises in 
global temperatures above preindustrial 
levels by 2100. This helps us understand 
the potential impact of climate on our 

business. We looked at impacts out to 
2030. First, assuming no changes to 
our activities. Then, accounting for the 
transition and mitigation plans we have in 
place. 

The 2°C scenario – We looked at the 
disruptive policies and regulatory changes 
of moving from today’s business-as-usual 
to a low carbon economy. The main risks 
for BT of a 2°C scenario include the effect 
of accelerated and widespread carbon 
pricing; diesel and petrol vehicle bans; 
and higher costs for renewable energy if 
demand outstrips supply.

The 4°C scenario – We considered 
physical risks, like more regular extreme 
weather, and big temperature and 
rainfall changes. In the UK, more storms 
and floods could lead to more service 
disruption, damage to our assets (like 
exchanges) and provide access problems 
for our engineers. These could all increase 
our operational costs. 

Globally, extreme weather could affect our 
customers and cause service disruption. It 
could also make it harder for us to source 
raw materials from key suppliers who 
operate in nearly 100 countries.

Under both scenarios we face financial 
risks by 2030. The most likely impact will be 
somewhere between the two. But there are 
also opportunities in a low carbon economy 
– particularly in how our products, services 
and infrastructure can help. 

30,000

We have one of the largest vehicle fleets 
in the UK (over 30,000 vehicles). We’re 
committed to transitioning as much of 
our fleet as we can to run on electric and 
alternative fuels by 2030. 

2.  Championing  

human and digital  
rights

We respect everyone’s rights and 
freedoms – both on and offline. 

Our business helps people realise 
their potential, and enjoy their rights 
and freedoms. We give them better 
connectivity while keeping their 
information secure online. 

But our global communications 
technology could also have negative 
impacts – especially on customers’ rights 
to privacy and free expression online. We 
must work to support and respect the 
rights of anyone affected by our business.

We comply with applicable modern 
slavery acts and follow international 
standards on human rights. They include 
the International Labour Organization’s 
Declaration on Fundamental Principles 
and Rights at Work, and the UN Guiding 
Principles on Business and Human Rights.

 Each year, we report on our work to 
combat modern slavery at bt.com/
modernslavery. We set out our overall 
approach in our human rights policy at  
bt.com/humanrights

We continue to champion human 
and digital rights through strategic 
partnerships and collaborations. This 
includes the Global Network Initiative 
(GNI), a global multi-stakeholder 
organisation dedicated to responding 
to evolving privacy and freedom of 
expression challenges. We’re committed 
to implementing the GNI Principles. 

Our other key partnerships and 
memberships include Tech Against 
Trafficking (we’re co-founders of a 
coalition of organisations, exploring ways 
to use technology to combat modern 
slavery), the Marie Collins Foundation 
(supporting the training of professionals 
responding to children who have been 
harmed or abused online) and the Centre 
for Sport and Human Rights (helping the 
business of sport fully support human 
rights). We also support Unseen, the UK 
Charity which runs the UK Modern Slavery 
Helpline.

We have processes and procedures 
in place to identify and address our 
potential and actual human rights 

BT Group plc Annual Report 2020 
39

We respond to physical climate change 
impacts identified. So, in the UK we plan 
on updating our Flood Defence strategy 
in light of higher overall flood risks. And 
we’ll keep monitoring the effect of other 
extreme weather events, like increases in 
lightning. 

 You can find more information on  
climate-related risks on page 63.

Responding to climate-related risks  
and opportunities
We’re already acting on the climate-
related risks and opportunities we’ve 
found. 

We hit our first science-based target 
four years early in 2016 (cutting carbon 
emissions intensity by 80% by 2020). 
We’re speeding up our activity and now 
aim to cut the carbon intensity of our 
operations by a further 87% by 2030. 
This is in line with the latest science to 
limit global warming to 1.5°C above pre-
industrial levels. And by 2045, we aim to 
be a net zero carbon emissions business.

Reducing our carbon emissions intensity 
will be one of our KPIs from 2020/21 and 
is included in our 2020/21 annual bonus. 

 You can find more on our directors’ 
remuneration on page 84 and changes to 
our KPIs for 2020/21 on page 40.

We’re already mitigating transition risks: 
we’re committed to purchasing 100% 
renewable electricity; decarbonising our 
buildings; moving to a low carbon vehicle 
fleet; and helping suppliers and customers 
reduce their own carbon use.

Switching to renewable electricity: 92% 
of the electricity we consume around the 
world is now renewably sourced – and 
we’re at 100% for our directly purchased 
electricity in the UK.

Decarbonise our buildings: This year we 
invested £45.3m in energy management 
projects in the UK, which cut operating 
costs and contributed to a global energy 
reduction of 65GWh. These investments 
have saved us £343m since 2009/10.

Transition to a low carbon fleet: We have 
one of the largest vehicle fleets in the UK 
(over 30,000 vehicles), which makes up 
two thirds of our operational emissions 
(Scopes 1 and 2). We’re committed to 
transitioning as much of our fleet as we 
can to run on electric and alternative fuels 
by 2030. 

Helping suppliers to cut carbon: Over 
two-thirds of our end-to-end carbon 
emissions come from our supply chain. 
Our goal is to cut supply chain (scope 3) 
emissions by 29% by 2030 (compared  
to 2016/17 levels). This year we  
reached 8.0%. 

Our worldwide greenhouse gas emissionsa
Year ended 31 March (CO2e Ktonne)

  Scope 1: Direct emissions from our own operations (e.g. 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).

2018
2018
4,647

2019 
2019 
4,302

2020
2020
4,209

4,271

4,003

3,965

193

184

114

185

61

183

a 

 We restate previous years’ data when we think subsequent information is materially significant 
(e.g. replacing estimates with measured figures).

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 bt.com/digitalimpactandsustainability

Our worldwide energy use
Year ended 31 March

UK     N ON-UK     

Electricity
Gas & heating oil

Electricity
Gas & heating oil

GWh

3,000

2,500

2,000

1,500

1,000

500

0

2018
2,895

74

2,461

2019 
2,836

67

2,422

2020
2,770

66

2,378

1

359

1

346

1

325

Helping customers cut carbon: 
Information Communication Technology 
could reduce UK carbon emissions by 
around 24% in 2030. Our products and 
services help customers cut energy, fuel 
and emissions by avoiding travel and 
being more efficient. This year, we helped 
them avoid c.13m tonnes of carbon. These 
products generated £5.5bn in revenue. 

Overall we cut total emissions from our 
global operations (scopes 1 and 2) by 
18.6% over the last year to 243 Ktonnes 
of CO2e. Since 2016/17, we’ve reduced 
our carbon intensity by 42% to 18 tonnes 
of CO2e per £m value addeda. Combined 
together, this means we’ve now achieved 
our 3:1 carbon abatement goal one year 
early, by helping customers to save three 
times as much carbon as our own end-to-
end carbon emissions.

Wider environment aspects
In the UK, we recycle or recover almost 
all our waste. This year, we produced over 
38 Ktonnes of UK waste, 30% more than 
last year – however 99.5% of this was 
recovered or recycled. We’ve introduced 
a clause in new BT customer contracts 
to incentivise the return of products 
and thereby reduce electronic waste. 
Customers are informed they’ll incur a fee 
for non-return of home hubs and TV set-
top boxes at the end of their contract. By 
refurbishing or recycling used equipment, 
we’ll reduce the amount going to landfill 
sites.

We’re reducing single-use plastics in our 
operations, under a new policy launched 
this year. And we’ve set a 2025 target to 
reuse, recycle or compost 100% of the 
plastic packaging we send to customers.

 For more information, see the Digital  
Impact and Sustainability Report at 
bt.com/sustainabilityreport

 For more information on our 
environmental policy, see bt.com/
environmentalpolicy

a  BT adopted IFRS 16 on 1 April 2019. Prior to adoption, EBITDA used to calculate value added was on an IAS 17 basis.

BT Group plc Annual Report 2020Strategic report  
  
 
 
 
 
40

41

Our key performance indicators

Our customer experience 
performance improved for the 
year, but we want to go further. Our 
financial results were overall in line 
with the guidance we set in July 
2019a.

We used five key performance indicators 
(KPIs) to measure progress against our 
strategy this year – two operational and 
three financial. Our operational KPIs 
were: improvement in customer service, 
measured using Group Net Promoter 
Score (NPS) and Keeping Our Promises. 
Our financial KPIs were: change in 
adjustedb revenue; adjustedb earnings per 
share; and normalised free cash flowc. 

Alternative performance measures
Reconciliations of these financial measures 
to the closest IFRS measure are set out 
in the Additional information section on 
pages 204 to 206.

a  Outlook originally provided in May 2019 was updated 
in July 2019 for the effect of IFRS 16. The range of 
group adjustedb EBITDA was updated from £7.2bn - 
£7.3bn to £7.9bn - £8.0bn.

b  Adjusted measures exclude specific items, as 

explained in the Additional information on page 204. 

c  Free cash flow after net interest paid and payment 
of lease liabilities, before pension deficit payments 
(including the cash tax benefit of pension deficit 
payments) and specific items as explained in the 
Additional information on page 206.

Changes to our KPIs

As our strategy develops we continue 
to evolve our KPIs to make sure they 
are the best measures of performance 
against our strategy. With this in mind, we 
have updated our KPIs with effect from 
2020/21 to more accurately reflect our 
strategic priorities.

We will report on these revised KPIs 
from 2020/21. You can see how we have 
performed against the climate change 
and digital skills KPIs this year on page 
42.

In determining our directors’ 
remuneration, we consider performance 
against a number of measures, including 
some linked to the above KPIs.

 To read more about directors’ 
remuneration please see page 84.

Net Promoter Score (NPS)
At 31 March

Keeping Our Promises
At 31 March

Change in adjustedb revenue
Year ended 31 March

Adjustedb earnings per share
Year ended 31 March

Normalised free cash flowc  
Year ended 31 March

percentage point improvement

30

25

20

15

10

5

0

-5

6
0

.

5
1

)
7
1
(

.

6
1

5
5

.

5
6

.

%

25

20

15

10

7
4

.

5

3
8

.

0
5

.

Right First 
Time

Keeping Our
Promises

6
2

.

4
5

.

3
4

.

4
6

.

%

0

1

2

3

4

)
4
1
(

.

)
2
1
(

.

)
0
3
(

.

6
1

.

)
7
2
(

0
2

7
1

8
1

9
1

0
2

5
1

7
1

8
1

9
1

0
2

8
1

9
1

This tracks changes in our customers’ 
perception of BT since we launched 
the measure in April 2016. It’s a 
combined measure of ‘promoters’ minus 
‘detractors’ across our business units. 
Group NPS measures Net Promoter 
Score in our retail business and Net 
Satisfaction in our wholesale business.

Group NPS was up 5.5pp (2018/19: up 
6.5pp). 

Despite these improvements, our 
strategic priority is to truly differentiate 
ourselves on customer experience, and 
we will keep looking for ways to do that. 

This customer service measure is focused 
on us meeting the commitments we 
make to customers and providing a more 
reliable service. That could be keeping to 
appointment times, completing orders in 
the promised timeframe or fixing faults 
when we say we will. As well as improving 
service and customer experience, 
improving our performance means less 
work required to fix mistakes and so helps 
us to cut costs.

Keeping Our Promises was up 2.6% 
(2018/19: up 5.4%). 

Improving our service is key to providing 
a differentiated customer experience. 
We’re making good progress and every 
customer-facing unit has improved its 
Keeping Our Promises score. 

Adjustedb revenue excludes the impact 
of specific items to reflect the underlying 
performance of the group. 

Change in adjustedb revenue was down 
3% (2018/19: down 1%).

This mainly reflects the impact of 
regulation, declines in legacy products, 
strategic reductions of low margin 
business and divestments. This was 
partially offset by growth in new products 
and services and higher rental bases of 
fibre-enabled products and Ethernet. 

 You can read more about our approach to 
customer experience on page 18. 

 You can read more about our approach to 
customer experience on page 18. 

 You can read more on how our customer-
facing units performed from page 49. 

.

8
1
3

.

9
8
2

.

9
7
2

.

3
6
2

.

5
3
2

p

35

30

25

20

15

10

5

0

8
9
0
3

,

2
8
7
2

,

3
7
9
2

,

0
4
4
2

,

1
1
0
2

,

£m

4,000

3,000

2,000

1,000

0

6
1

7
1

8
1

9
1

0
2

6
1

7
1

8
1

9
1

0
2

This is the adjustedb profit after tax 
attributable to shareholders divided by 
the weighted average number of issued 
shares. Adjustedb earnings per share 
gives a comparable and consistent way 
of measuring our business performance 
over time.

This is free cash flow (net cash inflow 
from operating activities after capital 
expenditure) after net interest paid 
and payment of lease liabilities, before 
pension deficit payments (including 
the cash tax benefit of pension deficit 
payments) and specific items.

Adjustedb earnings per share decreased 
11% to 23.5p (2018/19: down 6% to 
26.3p) impacted by the fall in profit 
before tax. 

We generated £2,011m of normalised 
free cash flowc. This was down £429m 
from last year, and in line with our 
guidance range of £1.9bn to £2.1bn. 

Adjustedb profit after tax fell 11% to 
£2,324m, impacted by the higher upfront 
interest expense associated with IFRS 16 
lease liabilities recognised on 1 April 2019. 

The fall of £429m or 18% mainly reflects 
increased cash capital expenditure, 
lower EBITDA, the deposit for UEFA 
club football rights and higher interest 
payments, partially offset by one-off cash 
flows and working capital phasing.

2019/20
•  Brand NPS 
•  Keeping Our Promises
•  Change in adjustedb revenue
•  Adjustedb earnings per share
•  Normalised free cash flowc

2020/21
•  Brand NPS
•  Customers connected to FTTP
•  Customers connected to 5G
• 
• 

 % reduction in CO2 emissions intensity
 Cumulative number of people trained 
on digital skills
•  Reported revenue
•  Adjustedb EBITDA
•  Normalised free cash flowc
•  Organic EBITDA margin
•  Reported capital expenditure 
• 

 Organic return on capital employed 
(ROCE)

Link to strategy 

1   

 Differentiated 
customer 
experience

2   

 Best converged 
network

3  

 Simplified, 
lean and agile 
business 

4   A valued partner  
helping build  
digital lives

Financial

1    2     
Reported revenue – Revenue as reported 
in our income statement

3  
Adjusted EBITDA – Earnings before 
specific items, share of post tax profits/
losses of associates and joint ventures and 
net non-interest related finance expense

3  
Normalised free cash flow – Free cash flow 
after net interest paid and payment of lease 
liabilities, before pension deficit payments 
(including the cash tax benefit of pension 
deficit payments) and specific items

3  
Organic EBITDA margin – Margin 
calculated using adjusted EBITDA and 
revenue before specific items, divestments 
and the impact of foreign exchange

2  
 Reported capital expenditure – Additions 
to property, plant and equipment and 
intangible assets in the period

1    2    3
Organic ROCE – Earnings before interest, 
tax, specific
impact of foreign exchange as a percentage 
of total assets less current liabilities

items, divestments and the 

Operational

1  
Group NPS – Group NPS measures Net 
Promoter Score in our retail business and 
Net Satisfaction in our wholesale business

2  
 Total Openreach FTTP connections – 
The number of premises connected to 
Openreach’s FTTP network

2  
 Total 5G connections – The number of 
customers connected to our 5G products

4  
 Percentage reduction in CO2 emissions 
intensity – Reduction in our CO2 emissions 
intensity. This is to track performance 
against our target to reduce carbon 
emissions intensity by 87% in 2030 
compared to 2016/17 levels

4  
 Cumulative number of people reached to 
help improve their digital skills – Number 
of people reached to improve their digital 
skills through our Skills for Tomorrow 
programme against our ambition to reach 
10m people in the UK by 2025

BT Group plc Annual Report 2020BT Group plc Annual Report 2020Strategic report  
 
 
 
 
 
 
 
 
 
 
 
 
 
42

Our performance as a sustainable  
and responsible business

Ambition

2018/19 performance

2019/20 performance

Status

Building a better 
digital society

By 2025, to reach 10m people in 
the UK to help to improve their 
digital skillsa 

N/A

2.8m people

> Ongoing target

Tackling climate 
change and 
environmental 
challenges

By 2045, to become a net zero 
carbon emissions businessb

298,717 tonnes CO2e

243,214 tonnes CO2e

> Ongoing target

By 2030, to cut our carbon 
emissions intensityc by 87% 
compared with 2016/17 levels

26% reduction  
achievedd

42% reduction achieved > Ongoing target

By end of 2020, to enable 
customers to reduce their carbon 
emissions by at least three times 
the end-to-end carbon impact of 
our business

By end of 2020, to buy 100% of 
our electricity worldwide from 
renewable sources, wherever 
markets allow

2.9:1 achievedd

3.1:1 achieved

Target met

86% bought from 
renewable sourcesd

92% bought from 
renewable sources

> Ongoing target 

Investing in 
society

Societal investment: To invest 
more than 1% of adjusted profit 
before tax (PBT) in society

0.83% of PBT invested
1.02% 5-year average

0.90% of PBT invested
0.98% 5-year average

Target failed

Colleagues

Employee engagement index: 
To maintain or improve our 
relationship with our colleagues

77% favourable

79% favourable

Target met

Gender: By end of 2020/21, 40% 
of our senior management teame 
will be women

31% women on senior 
management team

35% women on senior 
management team

> Ongoing target

Sickness absence rate: To 
maintain or cut the percentage 
of calendar days lost to sickness

Ethical perception: To maintain 
or improve our colleagues’ 
perception of our ethical 
performance

2.64% calendar days lost 
to sickness

3.00% calendar days lost 
to sicknessf

Target failed

86% favourable

93% favourable

Target met

Supply chain

Carbon emissions: To reduce our 
supply chain carbon emissions 
by 29% by 2030 compared to 
2016/17 levels

8.4% cut achievedd 

8.0% cut achieved

> Ongoing target

a 

 We’ve revised the wording of this ambition from providing ‘training’ to ‘help’ improve digital skills, to reflect the broader range of support we’re providing as part of our Skills 
for Tomorrow programme.

b  Measured for scopes 1 and 2 greenhouse gases.
c  Measures for scopes 1 and 2 greenhouse gases, per unit of gross value added.
d  We restate previous years’ data when we think subsequent information is materially significant (e.g. replacing estimates with measured figures).
e  Senior management team: our top c.600 leaders.
f 

 Our core systems reporting now captures sickness absences for our employees in India. This has led to a slight upward trend, as well as a restating of our 2018/19 result (from 
2.36% to 2.64%). 

BT Group plc Annual Report 2020Group performance
Introduction from our Chief Financial Officer

43

KPI

Earnings per share

p
30

25

20

15

10

5

0

.

5
3
2

.

8
1
2

.

3
6
2

.

9
7
2

.

5
0
2

.

5
7
1

2020d

2019

2018

  Reported EPS

  Adjusteda EPS

Revenue 
 £ 22,905m
(2)%

Profit before tax
£2,353m
(12)%

Adjusteda EBITDA 
 £7,907m
+7%

2019/20 Capital expenditure

4

5
0
9
2
2

,

8
2
4
3
2

,

3
2
7
3
2

,

£m
25,000

20,000

15,000

10,000

5,000

0

£m
8,000

6,000

4,000

2,000

0

3
5
3
2

,

6
6
6
2

,

6
1
6
2

,

7
0
9
7

,

2
9
3
7

,

5
0
5
7

,

£m
8,000

6,000

4,000

2,000

0

2020 2019 2018

2020d 2019 2018

2020d 2019 2018

£3,960m

1

3

2

1. Network investment 
2. Customer driven investment
3. Systems and IT 
4. Non-network investment 

52%
25%
19%
4%

a  Items presented as adjusted are 
stated before specific items. See 
page 204 for more information.

 b  After net interest paid and payment 
of lease liabilities, before pension 
deficit payments, (including 
the cash tax benefit of deficit 
payments) and specific items.
c  Loans and other borrowings and 
lease liabilities (both current and 
non-current), less current asset 
investments and cash and cash 
equivalents, including items which 
have been classified as held for sale 
on the balance sheet. 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 26 
for reconciliation from nearest IFRS 
measure.

d  Movement includes impact of 

adopting IFRS 16 from 1 April 2019.

Operating cash flow
£6,271m
+47%

£m
8,000

6,000

4,000

2,000

0

1
7
2
6

,

7
2
9
4

,

6
5
2
4

,

KPI

Normalised free  
cash flowb 
£2,011m
(18)%
£m
7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

3
7
9
2

,

0
4
4
2

,

1
1
0
2

,

Net debtc
£17,969m

9
6
9
7
1

,

£m
18,000

15,000

12,000

9,000

6,000

3,000

0

5
3
0
1
1

,

7
2
6
9

,

2020 2019 2018

2020 2019 2018

2020d 2019 2018

BT Group plc Annual Report 2020Strategic report   
  
 
 
 
 
 
44

Group performance continued

Outlook 
provided in 
July 2019a

Performance
in line with
outlook

Result

Change in  
adjustedb revenue

Adjustedc EBITDA
Capital expenditured 
(excluding BDUK 
clawback)
Normalised free  
cash flowe

Down c.2% down 2.7%

£7.9bn - £8.0bn

£7.9bn

£3.7bn - £3.9bn

£3.9bn

£1.9bn - £2.1bn

£2.0bn

✘

✔

✔

✔

a  Outlook originally provided in May 2019 was updated in July 2019 for the effect of 
IFRS 16. The range of group adjustedb EBITDA was updated from £7.2bn - £7.3bn 
to £7.9bn - £8.0bn.

b   Items presented as adjusted are stated before specific items. See page 204 for 

c 

more information.
 Adjusted (being before specific items, share of post tax profits/losses of associates 
and joint ventures and net non-interest related finance expense), as explained in 
the Additional information on page 204.

d   Additions to property, plant and equipment and intangible assets in the period.
e 
 Free cash flow after net interest paid and payment of lease liabilities, before 
pension deficit payments (including the cash tax benefit of pension deficit 
payments) and specific items.

Alternative performance measures 
We assess the performance of the group using various alternative 
performance measures. As these are not defined under IFRS they 
are termed ‘non-GAAP’ or ‘alternative performance’ measures. We 
reconcile these to the nearest prepared measure in line with IFRS on 
pages 204 to 206. The alternative performance measures we use 
may not be directly comparable with similarly-titled measures used 
by other companies. 

IFRS 16 
IFRS 16 ‘Leases’ replaced IAS 17 ‘Leases’ with effect from 1 April 
2019. We present current year results on the new IFRS 16 basis but 
prior year comparatives on an IAS 17 basis. For this reason, certain 
measures may not be directly comparable. EBITDA has increased 
under IFRS 16 because operating lease expense has been replaced 
by interest expense and depreciation. See note 1 to the financial 
statements for further information.

Performance 
Overall our results for the year were in line with guidance.

Reported revenue was £22.9bn, down 2% and adjustedb revenue 
was £22.8bn, down 3%. This mainly reflects the impact of 
regulation, declines in legacy products, strategic reductions of 
low margin business and divestments. This was partially offset by 
growth in new products and services and higher rental bases of 
fibre-enabled products and Ethernet. 

Reported profit before tax was £2.4bn, impacted by the higher 
upfront interest expense associated with IFRS 16 lease liabilities 
recognised on 1 April 2019. 

Adjustedc EBITDA of £7.9bn was up 7%. This was mainly driven by 
the impact of IFRS 16. Excluding this, adjustedc EBITDA was down 
3%, mainly driven by the fall in revenue, increased business rates, 
investments in customer experience and increased salary costs in 
Openreach to support FTTP rollout and better service, partially 
offset by savings from our ongoing transformation programme.

   We have recognised £95m of Covid-19 impacts on various 
balance sheet items as a specific item. These primarily relate to 
an increase in our expected credit loss provisions against trade 
receivables and contract assets, mainly within our enterprise units.

   Outlook for 2020/21 

Given the uncertainty created by Covid-19 we will not be 
providing an outlook statement for 2020/21. 

Covid-19 will have an impact on our business. The full impact on 
the group will depend on the duration of this unique crisis and how 
deeply it impacts the economy, with a range of potential outcomes 
too large to provide a meaningful quantification at this point. 

This fiscal year and beyond we expect the primary trading impact 
in five areas: 

•  We are seeing lower revenue from our BT Sport propositions 
in Consumer, due to the impact of customer credits, pubs 
and clubs closures, and reduced advertising revenues. We will 
continue to offer bill credits while there isn’t live sport. 

•  We expect an impact from sharply reduced business activity 
and rising insolvencies, specifically among the SME segment 
served by Enterprise and to a lesser extent Global. 

•  We are seeing an adverse impact on Openreach trading. While 
we anticipate lower churn, we expect significant reductions 
in the volume of broadband and Ethernet upgrades and 
provisioning, due to reduced business activity, including fewer 
new site builds, and restrictions on provisioning activity under 
current stay-at-home guidelines. 

•  Retail trading in Consumer and the volume end of Enterprise 
is being adversely impacted, with fewer sales and upgrades 
across fixed and mobile products, partly offset by lower churn. 
In addition, we are seeing lower mobile roaming volumes. 

•  We are seeing a reduction in spending and a more cautious 
approach from our multinational customers resulting in 
cancellations and delays to purchasing cycles, primarily 
impacting trading in Global. 

Of these, we expect the vast majority of the financial impact will 
derive from lower revenue from the impacts on our BT Sport 
propositions, the SME segment and Openreach trading. 

We will continue to evaluate the potential impacts as the situation 
develops further and hope to provide an outlook statement later 
in the year.

Dividend 
To create capacity for BT’s value-enhancing investment 
opportunities, including our strategic intent for an accelerated 
FTTP build and our extensive transformation and modernisation 
programme, coupled with the shorter term impact of Covid-19, the 
Board has decided that it is appropriate to suspend the final dividend 
for 2019/20 and all dividends for 2020/21. The Board expects to 
resume dividend payments in 2021/22 at 7.7 pence per share.

The Board expects to continue with a progressive dividend policy 
from this re-based level for future years. The Board continues to 
expect to declare two dividends per year with the interim dividend 
being fixed at 30% of the prior year’s full year dividend. The Board 
believes that suspending and re-basing the dividend and then 
maintaining a progressive dividend policy is the right thing to do 
for the long-term future of BT and that the headroom generated 
by this decision is prudent given the Covid-19 pandemic, while the 
investments will create significant additional value for shareholders.

Simon Lowth 
Chief Financial Officer 
6 May 2020

BT Group plc Annual Report 2020Summarised income statement 

Year ended 31 March

Revenue

Operating costsa

2020 
(IFRS 16) 
£m

2019 
(IAS 17) 
£m

2018 
(IAS 17)
£m

22,905

23,428

23,723

(15,348)

(16,461)

(16,828)

Depreciation and amortisation

(4,274)

(3,546)

(3,514)

Operating profit

3,283

3,421

3,381

Net finance expense
Share of post tax profit/(loss) of 
associates and ventures

(897)

(756)

(764)

(33)

1

(1)

Profit before tax

2,353

2,666

2,616

Tax

(619)

(507)

(584)

Profit for the period

1,734

2,159

2,032

Revenue 
Reported revenue fell by 2% and adjustedb revenue fell by 3%. 
This was primarily due to the impact of regulation, declines in 
legacy products, strategic reductions of low margin business and 
divestments. This was partially offset by growth in new products 
and services and higher rental bases of fibre-enabled products 
and Ethernet. 

You can find details of revenue by customer-facing unit on pages 
49 and 50. Note 5 to the consolidated financial statements shows 
a full breakdown of revenue by all our major product and service 
categories. 

Operating costs 
Both reported and adjustedb operating costs were down 2%. This 
was mainly driven by savings from our ongoing transformation 
programmes, partially offset by increased business rates, 
investment in customer experience and increased salary costs in 
Openreach to support FTTP rollout and better service.

Our cost transformation programme announced in May 2018 
is complete with an annual benefit of over £1,550m and an 
associated implementation cost of £670m. During the year there 
was a reduction of 5,000 roles, taking the total to 9,000 over the 
past 2 years. 

The next phase of our transformation will focus on simplifying 
our product portfolio, simplifying and automating our customer 
journeys, moving to a modern, modular IT architecture, and 
migrating customers from our legacy networks to our modern 
FTTP and 5G networks. This will deliver annualised gross cost 
savings of £1bn per annum by the end of March 2023, realised in 
broadly equal annual increments, increasing to £2bn per annum 
by the end of March 2025. The savings will comprise reductions 
in both our total labour costs and spend with external suppliers. 
We expect around 80% of the savings will be realised in operating 
costs and the remainder in capital expenditure. We anticipate that 
the one-off cost to achieve these savings will be £1.3bn in total 
across the five years of the programme, of which £900m will be 
invested in the first three years, including around £400m this fiscal 
year. 

Note 6 to the consolidated financial statements shows a detailed 
breakdown of our operating costs.

45

7
1
9
4
1

,

Adjustedb operating costs before depreciation,  
amortisation and specific items 
Year ended 31 March

7
6
0
6
1

,

£m

18,000

17,000

16,000

15,000

14,000

13,000

12,000

11,000

)
7
3
(

)
0
1
3
(

)
4
2
(

)
1
2
3
(

)
8
2
1
(

9
2

)
9
5
3
(

9
1
0
2

s
t
s
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r
u
o
b
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s
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t
s
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n
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m
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&
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p
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N

e
m
m
a
r
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a
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t
h
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i
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r
e
h
t
O

0
2
0
2

Profit before tax 
Reported profit before tax was £2,353m and adjustedb profit 
before tax was £2,860m. This was impacted by the higher 
upfront interest expense associated with IFRS 16 lease liabilities 
recognised on 1 April 2019.

Adjustedc EBITDA 
Adjustedc EBITDA of £7,907m was up 7%. This was mainly driven 
by the impact of IFRS 16. Excluding this adjustedc EBITDA was 
down 3%, reflecting the revenue decline partly offset by the 
lower costs as described above. You can find details of adjustedc 
EBITDA by customer-facing unit on pages 49 and 50. 

Specific items 
As we explain on page 204, we separately identify and disclose 
those items that in management’s judgement need to be 
disclosed by virtue of their size, nature or incidence. We call 
these 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 £590m 
(2018/19: £452m). The main components are restructuring 
costs of £322m (2018/19: £386m), divestment related items of 
£199m (2018/19: £5m), interest expense on pensions of £145m 
(2018/19: £139m), £95m one-offs resulting from Covid-19 
(2018/19: £nil) and a tax charge on specific items of £83m 
(2018/19: credit of £112m).

These charges were offset by the gain on disposal of BT Centre 
of £115m (2018/19: £nil); release of regulatory provisions of 
£72m (2018/19: £27m charge); and payment of £87m including 
settlement interest of £5m from Ofcom relating to overpaid 
annual licence fees that were charged during the period 2015-
2017. 

Note 9 to the consolidated financial statements shows the details 
of all revenues and costs that we have treated as a specific item.

a  Excluding depreciation and amortisation. 
b  Items presented as adjusted are stated before specific items. See page 204 for more information. 
c  Adjusted (being before specific items, share of post tax profits/losses of associates and joint ventures and net non-interest related finance expense), as explained in the 

Additional information on page 204.

BT Group plc Annual Report 2020Strategic report  
 
 
 
 
 
 
 
 
46

Group performance continued

Taxation 
Our effective tax rate was 26.3% (2018/19: 19.0%) on reported 
profit and 18.7% (2018/19: 19.2%) on profit before specific 
items. We paid income taxes globally of £210m (2018/19: 
£431m). 

Normalised free cash flow 

Year ended 31 March

2020 
£m

2019 
£m

2018
£m

Cash generated from operations

6,481

4,687

5,400

We paid UK corporation tax of £147m (2018/19: £317m). We 
benefited £434m from tax deductions on employees’ pension 
and share schemes (2018/19: £391m). We no longer benefit 
from EE’s historical tax losses (2018/19: benefit of £90m). 

Our tax expense recognised in the income statement before 
specific items was £536m (2018/19: £619m). We also 
recognised a £892m tax charge (2018/19: £343m tax credit) 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 10 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 17.5p, down 20%, while 
adjusteda earnings per share fell 11% to 23.5p. 

Capital expenditure 
In recent years we’ve prioritised capital expenditure to underpin 
our strategy of connecting customers to the UK’s best network, 
expanding coverage and capacity, and making our fixed and 
mobile networks faster and more resilient. 

Capital expenditure was £3,960m (2018/19: £3,963m). This 
includes grant funding deferral under the Building Digital 
UK (BDUK) programme. Excluding BDUK gainshare, capital 
expenditure was £3,943m (2018/19: £3,750m).

Network investment (excluding BDUK gainshare) was £2,053mb, 
up 4%b. This reflects our continued investment in our fibre cities 
network build and the rollout of 5G. Other capital expenditure 
components were up 6%b, with £972mb spent on customer-
driven investments, £755mb on systems and IT, and £163mb on 
non-network infrastructure.

Capital expenditure contracted but not yet spent was £1,234m at 
31 March 2020 (2018/19: £1,432m). 

Tax paid
Net cash inflows from
operating activities

Net purchase of property,

plant and equipment and 
software

Free cash flow

Interest received

Interest paid
Add back pension deficit

payments

Dividends from associates
Add back net cash flow from

specific items

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 deficit payments

Payment of lease liabilities

(210)

(431)

(473)

6,271

4,256

4,927

(3,889)

(3,637)

(3,341)

2,382

30

619

23

1,586

7

(736)

(531)

(555)

1,274

2,024

1

-

112

598

1

-

33

-

-

872

-

828

19

325

(21)

-

(434)

(651)

(273)

(109)

-

-

Normalised free cash flowc

2,011

2,440

2,973

Cash flow 
Net cash inflow from operating activities was up £2,015m from 
last year to £6,271m. This was mainly driven by £750m lower 
deficit contributions to the BT Pension Scheme in the current year 
and significant one-off cash flows. Normalised free cash flowc was 
£2,011m, down £429m. This was driven by increased cash capital 
expenditure, lower EBITDA, deposit payments for UEFA club 
football rights and increased interest payments, partially offset by 
one-off cash flows.

Free cash flow, which includes specific item outflows of £112m 
(2018/19: £598m) and a £434m (2018/19: £273m) tax benefit 
from pension deficit payments, was £2,382m (2018/19: £619m). 
We made pension deficit payments of £1,274m (2018/19: 
£2,024m) and paid dividends to our shareholders of £1,521m 
(2018/19: £1,504m). 

Net cash cost of specific items was £112m (2018/19: net cash 
cost of £598m). This includes restructuring payments of £350m 
(2018/19: £372m) and regulatory payments of £39m (2018/19: 
£170m), offset by proceeds on disposal of BT Centre of £210m 
(2018/19: £nil) and receipt of annual licence fee refund from 
Ofcom of £87m (2018/19: £nil).

You can see a reconciliation to normalised free cash flow from 
net cash inflow from operating activities (the most directly 
comparable IFRS measure) on page 206.

a  Adjusted measures exclude specific items, as explained in the Additional information on page 204. 
b Capital expenditure by spend type has been re-presented to reflect an improved mapping process.
c  Free cash flow after net interest paid and payment of lease liabilities, before pension deficit payments (including the cash tax benefit of pension deficit payments) and 

specific items.

BT Group plc Annual Report 2020  
Summarised balance sheet

As at 31 March

2020
£m

2019
£m

2018
£m

Intangible assets

13,889

14,385

14,447

Property, plant and equipment

18,474

17,835

17,000

Right-of-use assets
Derivative financial

instruments

Cash and cash equivalents

Investments

Trade and other receivables

Contract assets

Deferred tax assets
Other current and non-current

assets

Total assets

Loans and other borrowings
Derivative financial

instruments

Trade and other payables

Contract liabilities

Lease liabilities

Provisions

Retirement benefit obligations

Deferred tax liabilities
Other current and non-current

liabilities

Total liabilities

Total equity

5,391

-

-

2,489

1,549

5,112

3,185

1,721

300

1,592

1,666

3,268

3,667

1,602

1,347

1,509

528

3,075

4,331

-

1,326

957

925

626

53,067

46,287

42,842

19,334

16,876

14,275

1,012

6,548

1,151

6,560

719

1,140

1,608

940

7,269

1,425

-

1,006

7,182

1,407

837

8,494

-

-

1,055

6,847

1,340

232

15

83

38,304

36,120

32,931

14,763

10,167

9,911

47

Pensions 
The accounting deficit, net of tax, decreased during the year 
from £6.0bn to £1.0bn. This mainly reflects an increase in the 
real discount rate, deficit contributions paid over the period and 
positive asset returns. However, interest rates are extremely 
volatile in the current markets and we estimate our IAS 19 deficit 
will have materially worsened since 31 March principally reflecting 
the subsequent fall in capital spreads. The movements in the 
deficit for the group’s defined benefit plans are shown below:

£bn

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0

2
1

.

0
6

.

t
a
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e
D

9
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0
2

l
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1

2
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0
2
0
2
h
c
r
a
M
1
3

9
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.

  Net of deferred tax asset   

  Deferred tax asset

Key movements in IAS 19 deficit 
Note 20 to the consolidated financial statements gives more 
information on our pension arrangements.

Net debtb
Net debtb was £18.0bn at 31 March 2020, £6.9bn higher than 
at 31 March 2019 (£11.0bn), primarily reflecting lease liabilities 
recognised on transition to IFRS 16 on 1 April 2019. Excluding 
lease liabilities, net financial debt was £0.5bn higher than at  
31 March 2019.

The increase in net financial debt was driven by £1.3bn of BT 
Pension Scheme contributions, £1.5bn dividend payments, 
£3.9bn net capital expenditure, £0.7bn payment of lease liabilities 
and £0.7bn net interest payments. These were partly offset by 
net cash inflow from operating activities (excluding pension 
contributions) of £7.5bn and net proceeds from disposals of 
subsidiaries, associates and joint ventures of £0.1bn.

At 31 March 2020 the group held cash and current investment 
balances of £6.6bn. The current portion of loans and other 
borrowings of £2.8bn include term debt of £1.3bn repayable 
during 2020/21. We issued bonds in September 2019, November 
2019 and February 2020 totalling £2.8bn, including a £0.4bn 
hybrid bond; and in June 2019 and March 2020 repaid bonds 
totalling £1.1bn. 

Gross debt translated at swap rates and excluding fair value 
adjustments at 31 March 2020 was £24.6bn. This comprises  
term debt of £16.8bn lease liabilities of £6.6bn and other  
loans of £1.3bn.

a  The actual investment return in the year to 31 March 2020 of around 2.9% was greater than our discount rate assumption at 31 March 2019 of 2.35%. 
b   Loans and other borrowings and lease liabilities (both current and non-current), less current asset investments and cash and cash equivalents, including items which have 
been classified as held for sale on the balance sheet. 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 26 for reconciliation from nearest IFRS measure. 

BT Group plc Annual Report 2020Strategic report  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
438

2,012

3.5%

Capital commitments 1,234

Contractual obligations and commitments 
The table below shows our principal undiscounted contractual 
financial obligations and commitments at 31 March 2020.

As at 31 March

Loans and other
borrowingsa

Less than 
1 year
£m

Total
£m

Between 
1 and 3 
years
£m

Between 
3 and 5 
years
£m

More 
than 5
years
£m

18,028

2,436

1,357

2,469 11,766

Lease commitments

7,484

799

1,545

1,388

3,752

Other commitments
Programme rights
commitments
Pension deficit
obligations

993

228

170

–

71

–

228

2,434

880

1,148

406

–

–

–

9,162

946

1,863

1,816

4,537

Total

38,570

6,282

6,083

6,150 20,055

a  Principal repayments at hedged rates.

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 15, 20, 26 and 31 to the consolidated financial statements 
gives further information on these items. 

Share buyback 
We spent £86m (2018/19: £9m) on our share buyback 
programme. We received proceeds of £2m (2018/19: £5m) from 
people exercising their share options.

48

Group performance continued

The graph below shows our debt maturity profile:

1,161

528

450

1,358

1,492

2.3%

2.3%

2.8%

2.2%

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

1,013

599

548

446

777

673

1,604

497

668

498

668

689

2.5%

3.8%

2.8%

9.6%

3.2%

3.0%

6.4%

3.2%

3.2%

3.7%

3.2%

2048

247

2049

2050

389

£m

0

600

1,200

1,800

2,400

3,000

  £ debt   

  $ debt swapped to £   

  € swapped to £

Note 26 to the consolidated financial statements gives more 
information on our debt arrangements. 

BT Group plc Annual Report 202049

%

(5)

(8)

3

4

2

(9)

3

55

29

26

(50)

41

Our customer-facing units

Consumer
Adjustedb revenue
£10,388m
(2)%

Year ended 31 March

Adjustedb operating profit
£1,148m
(12)%

2020
(IFRS 16) 
£m

2019a
(IAS 17) 
£m

Change

£m

Adjustedb revenue

10,388

10,591

(203)

Adjustedb operating costs

7,962

8,260

(298)

Adjustedc EBITDA

2,426

2,331

Depreciation & amortisation

1,278

1,030

95

248

%

(2)

(4)

4

24

Enterprise
Adjustedb revenue
£6,093m
(5)%

Year ended 31 March

Adjustedb revenue

Adjustedb operating profit
£1,246m
+2%

2020
(IFRS 16) 
£m

2019a
(IAS 17) 
£m

Change

£m

6,093

6,396

(303)

Adjustedb operating costs

4,128

4,486

(358)

Adjustedc EBITDA

1,965

1,910

Depreciation & amortisation

719

690

Adjustedb operating profit

1,148

1,301

(153)

(12)

Adjustedb operating profit

1,246

1,220

Capital expenditure

948

944

4

Normalised free cash flowd

1,065

1,166

(101)

–

(9)

Capital expenditure

501

551

Normalised free cash flowd

1,397

1,356

Revenueb declined due to known regulatory headwinds from 
international calling and mobile spend caps and a declining base of 
voice only customers. Revenue from TV and sport continued to grow.

EBITDAc was up 4% primarily driven by the impact of IFRS 
16. Excluding this, EBITDAc was down 5% due to the impact 
of regulation, a declining base of voice only customers and 
investments in the fairness agenda. EBITDAc from TV and sport 
continued to grow during the year. EBITDAc in both years included 
certain one-off credits.

   Going into the next financial year, we are seeing lower 
revenue from our BT Sport propositions, due to the impact 
of customer credits, pubs and clubs closures, and reduced 
advertising revenues. We will continue to offer bill credits while 
there isn’t live sport. Retail trading is being adversely impacted 
with fewer sales and upgrades across fixed and mobile products, 
partly offset by lower churn. In addition, we are seeing lower 
mobile roaming volumes.

EBITDAc after specific items includes a £9m charge in relation 
to the expected impact of the Covid-19 outbreak on the 
recoverability of receivable balances held at 31 March 2020.

The movement in depreciation and amortisation was primarily 
due to the adoption of IFRS 16.

Capital expenditure was largely flat primarily due to lower core 
network investment. Normalised free cash flowd was down 9% 
mainly due to lower EBITDA.

Fixed churn has improved to 1.3% due to improvements to 
customer experience and our new annual CPI pricing strategy. 
Consumer broadband complaints have been reduced to below 
industry average for the first time. Mobile churn was 1.2%.

We continue to experience challenging market trends, with 
declines in traditional calls and lines where we have a relatively 
high market share, limited growth and pricing pressures in the 
broadband market and tough mobile competition. 

Revenueb decreased 5% in the year due to continued declines in 
traditional fixed voice usage, with total fixed voice revenue down 
£149m, and the impact of divestments. Excluding the impact of 
divestments, revenueb decreased 2%. These declines were partly 
offset by growth in wholesale mobile and WAN & Ethernet.

Operating costsb were down 8% in the year, due to the impact 
of IFRS 16 and lower labour costs from our restructuring 
programmes. EBITDAc increased 3%, however excluding the 
impact of IFRS 16 EBITDAc decreased 3%, with our lower cost 
base more than offset by the reduction in revenue. Excluding the 
impact of IFRS 16 and divestments, EBITDAc was down 1%. 

   In the next financial year we expect an impact from sharply 

reduced business activity and rising insolvencies, specifically 
among the SME segment. We are also seeing an adverse impact 
on mobile roaming volumes and fewer sales and upgrades across 
fixed and mobile products, partly offset by lower churn.

Depreciation and amortisation and operating profit movements 
primarily reflect the impact of IFRS 16.

Capital expenditure decreased 9% and normalised free cash 
flowd increased 3%, with the upfront cash payment of c.£100m 
received as part of our deal with Cellnex.

Despite the competitive market, we saw a strong order intake. The 
Wholesale order intake increased 15% to £1.2bn and the Retail 
order intake increased 23% to £3.6bn, helped by a major contract 
extension within the public sector. 

a  All prior year comparatives have been restated for the change in the allocation 
of group overhead costs and the transfer of the Emergency Services Network 
contract from Consumer to Enterprise. For more information please see note 1 to 
the financial statements on page 129.

b   Adjusted measures exclude specific items, as explained in the Additional 

c 

information on page 204.
 Adjusted (being before specific items, share of post tax profits/losses of associates 
and joint ventures and net non-interest related finance expense), as explained in 
the Additional information on page 204.

d   Free cash flow after net interest paid and payment of lease liabilities, before 
pension deficit payments (including the cash tax benefit of pension deficit 
payments) and specific items as explained in the Additional information on page 
206.

BT Group plc Annual Report 2020Strategic report  
 
 
 
 
 
50

Group performance continued
Our customer-facing units continued

Global
Adjustedb revenue
£4,361m
(8)%

Year ended 31 March

Adjustedb revenue

Adjustedb operating costs

Adjustedc EBITDA

Depreciation & amortisation

Adjustedb operating profit

Capital expenditure

Normalised free cash flowd

Adjustedb operating profit
£155m
+135%

2020
(IFRS 16) 
£m

2019a
(IAS 17) 
£m

Change

£m

4,735

(374)

Openreach
Adjustedb revenue
£5,112m
+1%

%

(8)

Year ended 31 March

Adjustedb revenue

Adjustedb operating profit
£1,146m
(15)%

2020
(IFRS 16) 
£m

2019a
(IAS 17) 
£m

5,112

2,254

5,075

2,331

2,858

2,744

Change

£m

37

%

1

(77)

(3)

114

314

4

22

4,361

3,727

634

479

155

223

255

444

378

66

245

235

4,291

(564)

(13)

Adjustedb operating costs

190

101

43

27

Adjustedc EBITDA

Depreciation & amortisation

1,712

1,398

89

135

Adjustedb operating profit

1,146

1,346

(200)

(15)

(22)

20

(9)

9

Capital expenditure

2,108

2,081

27

1

Normalised free cash flowd

670

1,006

(336)

(33)

Revenueb for the year was down 8% reflecting our strategic 
decisions to reduce low margin business, divestments and legacy 
portfolio declines, partially offset by growth in Security and a 
£13m positive impact from foreign exchange movements. 

EBITDAc was up 43%, primarily reflecting the impact of IFRS 16. 
Excluding IFRS 16 EBITDAc was up 5% as lower revenue was more 
than offset by a reduction in operating costsb reflecting ongoing 
transformation and certain one-offs. 

Depreciation and amortisation and operating profit movements 
primarily reflect the impact of IFRS 16.

Capital expenditure was down 9% reflecting ongoing 
rationalisation and our strategy to become an asset light business. 
Normalised free cash flowd improved by £20m to an inflow of 
£255m, reflecting higher EBITDAc and lower capital expenditure 
offset by adverse working capital.

Order intake was £4.3bn, up 32% benefiting from a number of 
large renewals but also reflecting increased new business wins. 
We expect a slow down in order intake during 2020/21 due to 
a reduction in expected renewals, combined with the impact of 
Covid-19 on growth opportunities.

   Covid-19 has not materially impacted our 2019/20 trading 
results, although additional loss provisions of around £35m were 
taken against trade receivables and contracts at 31 March 2020 
primarily in relation to SME and regional enterprise customers 
where the insolvency risk is expected to be more pronounced. These 
provisions were recognised through specific items and are therefore 
not reflected in the above results which are on an adjusted basis.

Looking forward, we are seeing a reduction in spending and a more 
cautious approach from our multinational customers resulting in 
cancellations and delays to purchasing cycles impacting trading. 

Revenueb growth was driven by higher rental bases in fibre-
enabled products (driven by commercial offers), up 20%, and 
Ethernet, up 11%. This was partially offset by price reductions 
(both the impact of Openreach’s commercial offer of fibre 
volume discounts, and regulated price reductions), and higher 
service level guarantee payments due to implementation of auto-
compensation. 

Operating costsb were down 3% driven by the impact of IFRS 
16. Excluding this, operating costsb were up 5% primarily driven 
by higher business rates and higher salary costs as Openreach 
invested in more colleagues to support FTTP rollout and better 
service, and pay inflation. These drivers were partly offset by 
efficiency savings and certain one-off items. Excluding the impact 
of IFRS 16, EBITDAc was down 3% reflecting the above. 

Depreciation and amortisation and operating profit movements 
primarily reflect the impact of IFRS 16.

Capital expenditure was up 1%, however excluding BDUK 
gainshare, it was up £223m, or 12%, driven by investments in the 
network (predominantly fibre enabled infrastructure) partially 
offset by efficiency savings. Normalised free cash flowd was down 
33% due to higher cash capital expenditure and costs, and timing 
of working capital. 

   Looking forward, Openreach is seeing an adverse impact on 
trading as a result of Covid-19. While Openreach anticipate lower 
churn, significant reductions in the volume of broadband and 
ethernet upgrades and provisioning are expected, due to reduced 
business activity, including fewer new site builds, and restrictions 
on provisioning activity under current stay-at-home guidelines. 
Openreach is prioritising service and maintenance to support 
vulnerable customers.

a 

 All prior year comparatives have been restated for the change in the allocation of group overhead costs and the transfer of the Emergency Services Network contract from 
Consumer to Enterprise. For more information please see note 1 to the financial statements on page 129.

b   Adjusted measures exclude specific items, as explained in the Additional information on page 204.
c 

 Adjusted (being before specific items, share of post tax profits/losses of associates and joint ventures and net non-interest related finance expense), as explained in the 
Additional information on page 204.

d   Free cash flow after net interest paid and payment of lease liabilities, before pension deficit payments (including the cash tax benefit of pension deficit payments) and 

specific items as explained in the Additional information on page 206.

BT Group plc Annual Report 2020 
 
 
 
A letter from the Chair of Openreach

51

As of today, we’ve included 110 UK 
locations in our ‘Fibre First’ towns, cities 
and boroughs programme, and we’re now 
making full fibre available to more than 
32,000 homes and businesses every week. 
That’s one every 19 seconds. 

We have made good progress in making 
Salisbury our first fully fibred city, making 
FTTP available to all premises we were 
able to access. 

We know from the expert research we 
commissioned this year that full fibre 
broadband can be a massive platform for 
economic growth, social cohesion and 
positive environmental change. 

The Centre for Economics & Business 
Research’s (Cebr) report ‘The Blueprint 
for a Full Fibre Future’ showed how a 
nationwide full fibre network could boost 
UK productivity by up to £59bn in five 
years. It could also unlock job opportunities 
for people otherwise left behind. 

Full fibre will also transform our public 
services; unleashing innovations behind 
better education, healthier, longer lives 
and more connected communities. 

Over the next decade, having this world-
class connectivity at home could help 
400,000 more people avoid commuting. 
That means people launching new 
businesses or working from wherever they 
choose to live – reversing a hundred-year 
trend towards moving to big urban centres. 

It also means 300m commuting trips 
could be saved each year, with 3bn fewer 
kilometres travelled by car.

One of the best big companies to work for
To drive forward our full fibre rollout, 
we’ve recruited and trained more than 
3,000 engineers – reinforcing our position 
as one of the UK’s leading private sector 
employer of apprentices. 

We’ve also continued to be one of the 
biggest supporters of the country’s Armed 
Forces veterans. And I’m delighted that 
our commitment to an amazing team of 
people has helped us become one of The 
Sunday Times 25 Best Big Companies to 
Work For, ranked at number 15.

Getting the right conditions
Subject to the resolution of a number of 
critical enablers we believe we can reach 
20m premises with full fibre by the mid- to 
late-2020s.

Over the last year we’ve seen encouraging 
progress on the enablers we need from 
the UK Government and Ofcom for BT 
to invest at scale whilst delivering a fair 
shareholder return.

In January, Ofcom’s Wholesale Fixed 
Telecoms Market Review was a step in 
the right direction on the regulatory 
framework required.

That commitment to rural communities is 
something we believe in strongly. Making 
sure funding for the final 10% is structured 
in the right way will be key to achieving the 
Government’s ambition. 

Today around a quarter of our full fibre 
footprint sits outside of cities and major 
urban conurbations. In January we set 
out plans to reach 250,000 homes and 
businesses in more than 200 villages, 
market towns and hard-to-reach areas. 

The way forward – working together
We’re working with communications 
providers to drive rapid full fibre take-up. 
This is a journey the whole industry needs 
to go on. We all have a part to play in 
getting the balance right between urban 
and rural areas. 

Delivering full fibre as far and wide as 
possible should be a priority for the 
private and public sectors. It’s very clear 
that businesses and government need to 
work well together over the coming years 
to achieve the bold ambitions we’ve set 
ourselves. 

   Our next goal is to reach 4.5m 
premises by end of March 2021. It’s too 
early to know for certain what the impact 
of Covid-19 might be on this, but we are 
working hard to make sure we have plans 
in place to minimise the impact. In the 
meantime we will continue to diligently 
carry out work where it is possible to safely 
and responsibly do so.

We continue to lead the charge on the 
Government’s 2025 ambition, and we are 
raring to deliver for our shareholder, our 
customers and the UK. 

Mike McTighe
Chair, Openreach
6 May 2020

The intense debate on connectivity in the 
UK showed no signs of abating this year. 
But while everyone knew the general 
election would be dominated by a  
‘B’ word as people went to the polling 
booths, it was probably a surprise that it 
was ‘broadband’ rather than Brexit.

With all the major parties outlining huge 
ambitions for Britain’s digital network, we 
were reminded again just how important 
Openreach and our engineers are to this 
country’s future prosperity.

And it’s a challenge we’re relishing across 
our network.

Progress on service
Delivering better customer service will 
always be our number one priority. 

Despite some periods of extremely 
challenging weather, we’ve cut fault 
volumes on our copper network by 3.4% 
and missed appointments are at 2%. 
That’s helped us meet or beat all 42 of 
Ofcom’s quality service levels on voice and 
broadband, including FTTC. 

Meanwhile our ambitions and 
commitments on service improvements 
and extending network coverage haven’t 
wavered. Our fibre broadband network 
is the largest in the UK – available to over 
28m homes and businesses and 69% of all 
broadband lines are now fibre based.

Full fibre faster
We’ve continued building a strong, 
dependable and sustainable business for 
our shareholder, BT, our colleagues and 
our customers.

As part of that, we’re leading the charge 
in helping the Government get gigabit 
capable broadband to every home and 
business by 2025.

We believe we can build full fibre faster 
than anyone else, and to a very high 
quality. We’ve already passed 2.6m 
homes and businesses and given current 
progress, we now plan to accelerate FTTP 
build to 4.5m premises passed by the end 
of March 2021.

BT Group plc Annual Report 2020Strategic report 52

How we manage risk

Our global risk framework enables a 
consistent approach to how we identify, 
assess, manage and monitor the risks and 
uncertainties to the successful delivery of 
our strategic objectives.

How we identify our principal risks
The principal risks draw upon the priority risks recorded in 
each of the customer-facing units and corporate units and the 
ongoing input from our senior leaders and respective oversight 
committees. The principal risks are reviewed by the Group Risk 
Panel, a forum comprised of senior representation from across 
the business, before being approved by the Executive Committee 
and the Board.

Management and oversight of the principal risks
Each principal risk is assigned an Executive Committee owner 
who is responsible for monitoring the exposure and nature of the 
risk, deciding how it should be managed and taking the necessary 
action to achieve the desired target level. 

Oversight of the individual principal risks is carried out via:
•  Detailed reviews into each risk at Executive Committee, 
Audit & Risk Committee and Board meetings. Detailed 
reviews involve the Executive Committee owner providing 
an overview of the risk, relevant developments, how we are 
currently managing it and areas for improvement. There is 
also a summary of related assurance results that inform how 
effectively the risk is being managed. 

•  Collective review of the risks on a quarterly basis at the Group 
Risk Panel and every six months at the Executive Committee 
and annually by the Board. 

Enhancing our risk framework
We are implementing a new framework to provide our leaders 
with increased confidence, comfort, knowledge and capability to 
manage the risks to the delivery of our strategy. 

A key part of our new approach is focused on using metrics to 
enhance our articulation of risk appetite and clearly articulate the 
tolerance limits within which we wish to operate. 

This clarity on the nature and extent of the risks we are willing 
to take to achieve our strategic objectives will refine the way we 
define policy, set our controls and carry out assurance over them.

 Covid-19 impact

The Covid-19 pandemic is having, and  
will continue to have, an impact across our 
entire risk landscape. We have incorporated 
Covid-19 commentary into each principal 
risk and have included a separate Covid-19 
risk which gives an overview of the related 
uncertainties, potential impacts on the  
group and our responses.

Key

Trend versus prior year 
indicates our perception  
of pre-mitigation risk

   Increasing/worsening
     Lessening/improving

   At a similar level

Link to business model

Link to 2020/21 KPIs

F   Financial strength
P   Colleagues
C   Customers
N    Networks and physical assets

B    Our brands
R   Retail footprint

I   Innovation

S   Suppliers and partners 

Link to strategy 

1    Differentiated customer experience
2   Best converged network

3    Simplified, lean and agile business

1     Brand NPS
2    Total Openreach FTTP connections
3    Total 5G connections
4    % reduction in CO2 emissions intensity
5    Cumulative number of people reached 
to help improve their digital skills

6    Reported revenue
7    Adjusted EBITDA
8     Normalised free cash flow
9     Organic EBITDA margin
10     Reported capital expenditure
11    Organic ROCE

BT Group plc Annual Report 2020Our principal risks and uncertainties

53

  Covid-19 pandemic

•  Covid-19 is impacting our colleagues, 
operations, suppliers and customers, 
with the extent dependent on factors 
including, but not limited to, length of 
UK and international lockdowns, levels 
of employee absence, virus recurrence, 
insolvency rates, unemployment levels, 
nature and extent of any government 
interventions, severity of economic 
effects and the speed and nature of the 
recovery.

Link to business model

F     P     C     N     B     R     I     S

Link to strategy

1     2     3

Link to KPIs

1     2     3      5     6     7     8    11

Movement             

How this could impact our strategy or business model

•  Adverse impacts on sales activity and demand, including reduced roaming and 

continued suspension of sport; impacts are likely to be partially offset by reduced churn 
and increasing use of connectivity products. 

•  Disruption to our ability to deliver products and services to customers in the event 

of supply shortages and/or widespread loss of key employee resource, with adverse 
impacts on customer volumes and experience. 

•  Prolonged economic downturn could materially increase our pension deficit and 

associated contributions.

•  Material bad debts if a significant number of our SME and large corporate customers 

experience financial distress or insolvency.

•  Adverse impacts on our cash position and ability to fund investment projects and 

ongoing operations.

Examples of how we manage this risk

•  An Executive Committee Command group meet regularly to identify emerging 

exposures and review our ability to manage them, defining and agreeing actions as 
required. The group is supported by an operational working group, and equivalent 
command groups in each customer-facing and corporate unit.

•  Introduction of various measures to protect the health and safety of our colleagues, 
ensuring continuity of critical services, and our customers; measures are continually 
evaluated and adjusted to reflect World Health Organisation, Public Health England, 
European Centre for Disease Prevention and Control and UK Government guidelines.

•  Response planning to manage any prolonged unavailability of key resources in our 
network and field engineering teams, maintaining existing network resilience levels.

•  Close dialogue with our critical suppliers, with sufficient inventories held to deal with 

anticipated scenarios. 

•  Provision of flexible arrangements to vulnerable households and businesses that are at 

risk of harm and/or financial distress to ensure they remain connected.

Focus areas for 2020/21

•  Continued modelling of Covid-19 scenarios to identify and evaluate financial impacts, 

with an assessment of potential liquidity mitigation options. 

•  Conduct risk assessments for each customer-facing unit to identify potential strategic, 

operational, regulatory and colleague related exposures.

•  Define 2020/21 assurance activities.

•  Review our Covid-19 response for ‘lessons learned’, implementing identified 

opportunities to strengthen our crisis management capability. 

BT Group plc Annual Report 2020Strategic report  
54

Our principal risks and uncertainties continued

Strategic risks

Competition

•  Failure to respond effectively 

How this could impact our strategy or business model

Movement              

to intensifying competition and 
technology developments, and 
develop product propositions in line 
with changing market dynamics and 
expectations. 

•  Potential challenges include 

emergence of competitors enabled 
by disruptive technologies, reduced 
market differentiation, unanticipated 
changes in market structures and 
boundaries (M&A), government 
restrictions on vendor choices and 
changes in regulation or customer 
behaviours.

Link to business model

F     N     B     

Link to strategy

1     2     3

Link to KPIs

1     2     3     6     7     8     9     11

Political risk

•  Reduction in our market share, revenue and/or profit could impact our ability to invest 

in growing and increasing the value of the business.

•  Significant economic decline in specific industries could impact the group’s ability to 

continue to attract and retain customers in that industry (e.g. retail).

•  New technology developments could lead to accelerated shifts that affect our current 
propositions, an increase in investment requirements and/or a deterioration in our 
competitive position.

Examples of how we manage this risk

•  Delivering a differentiated customer experience.

•  Focusing on relevant product development.

•  Investing in securing network leadership.

•  Expanding into adjacent or new markets in pursuit of revenue and profit growth.

•  Phasing out legacy services and technologies.

•  Monitoring technology developments and competitor activity.

Focus areas for 2020/21

•  Deliver on key programmes that enhance customer experience, network 

 leadership and transformation. 

•  Ensure that we are meeting the KPIs that underpin our strategy. 

•  Identify and focus on the right type and mix of products.

Movement              

•  Perceived issues in deployment and 

How this could impact our strategy or business model

connectivity of broadband and mobile 
coverage could escalate into larger 
political campaigns and regulatory 
intervention. 

•  Failure to manage Covid-19 related 

challenges around network resilience, 
colleague and customer support, and 
data sharing (e.g. government data 
requests) could create political pressure 
on the company. 

Link to business model

   F     C     N  

Link to strategy

1     2     

Link to KPIs

2     3     4     8

•  Potential to undermine future strategy and investor confidence.

•  Our USO and SRN commitments, and wider ambitions around network rollout, may 
be impacted by a prolonged Covid-19 lockdown and associated civil engineering 
restrictions beyond our control; the current impact is too early to determine, but may 
be mitigated by any relaxation of delivery expectations by Government and/or Ofcom.

Examples of how we manage this risk

•  Building partnerships with the Government to address key priorities, (e.g. full fibre 

investment, USO, SRN, supply chain security, online regulation and consumer fairness).

•  Working with business organisations including CBI, techUK and Chatham House to 
ensure alignment on key industry issues that matter to BT (e.g. post-Brexit policy 
positions).

•  Proactive approach with representatives from across the political spectrum on areas 

such as climate change, smart cities and innovation.

•  Close, regular, direct involvement with all relevant strands of the Government response 

to Covid-19 to provide the necessary support to Government, colleagues and 
customers.

Focus areas for 2020/21

•  Fulfil USO and SRN commitments, providing greater connectivity to underserved parts 

of the UK.

•  Continued dialogue with government and other industry players on protecting 

consumers online ensuring any interventions are fair and proportionate.

•  Further assess the practical and logistical impact of the Covid-19 related lockdown on 
our network and coverage commitments to Government and Ofcom , including impact 
on pushing for FTTP fibre enablers. 

BT Group plc Annual Report 202055

Communications industry regulation 

Movement              

•  Failure to comply with existing 

How this could impact our strategy or business model

regulations and/or material regulatory 
change could impact the way we 
operate and compete in terms of our 
pricing, the standards we must meet 
and the services we provide. 

Link to business model

   F     C     N

Link to strategy

2     3

Link to KPIs

1     2     3     6     7  

•  A lack of supportive or disruptive regulation would impact our ability to invest at 

pace and scale in ultrafast networks and converged connectivity, and the flexibility to 
innovate whilst doing so. 

•  An inflexible approach to regulation during the Covid-19 pandemic could stretch the 
delivery capability of our colleagues at a time when they’re focused on maintaining 
critical services and meeting customers’ needs.

Examples of how we manage this risk

•  Encouraging clear, predictable and proportionate regulation. 

•  Building stakeholder trust through consistent, collaborative and straightforward 

engagement.

•  Anticipating and embedding new regulatory rules and fostering a compliance culture.

•  Enhancing organisational agility to respond to fast-changing competitive and 

regulatory environment. 

•  Continued focus on our Fairness Commitments, with regular Covid-19 stakeholder 

briefings.

Focus areas for 2020/21

•  Engage with Ofcom on sector competitive dynamics, regulatory implications and 

deadline expectations.

•  Support pro-investment changes to the regulatory framework for fixed access 

regulation for 2021-26.

•  Support a clear customer migration strategy for the 2025 PSTN closure.

•  Assess any substantive updates to Ofcom’s 2020/21 annual plan and review our 

regulatory priorities accordingly.

•  Work with Ofcom as its Customer Fairness Framework evolves to ensure any 

interventions are proportionate and enhance the customer experience, prioritising 
support to customers during the Covid-19 pandemic.

•  Develop our position, accounting for Covid-19 delays, on the future regulatory model 

for digital platforms.

•  Assess Covid-19 impacts on the format and/or timescale of the upcoming spectrum 

auction.

BT Group plc Annual Report 2020Strategic report  
56

Our principal risks and uncertainties continued

Operational risks

Cyber security

•  Cyber security risks could arise from 

How this could impact our strategy or business model

Movement              

colleagues inside BT or from external 
sources, with any failure to effectively 
manage these exposures presenting a 
material threat to our reputation as a 
leader in cyber security.

•  External adversaries, including 

hacktivists, criminals, terrorists and/or 
nation states, could attempt to disrupt 
service availability through the use 
of hacking tools, phishing scams and 
disruptive malware.

•  Covid-19 related work from home 
requirements could introduce 
additional security vulnerabilities, with 
any sickness-related absence of key 
employees potentially impacting our 
ability to defend against cyber attacks.

Link to business model

   F     P     C     N     B  

Link to strategy

1     2     

Link to KPIs

1     6     7     8   

Supply chain

•  Potential financial loss, long-term reputational damage, loss of market share, contract 

terminations, regulatory sanctions and fines. 

•  A cyber attack could disrupt our business or lead to data being compromised at a time 

when communications are vital to the global response to Covid-19. 

Examples of how we manage this risk

•  Adopting an intelligence-led, risk-based response to cyber threats, underpinned by 
robust business continuity plans that mitigate the absence of key employees (e.g. 
geographically dispersed operations).

•  Liaising with governments and other companies on emerging cyber threats.

•  Monitoring and logging our networks and systems to rapidly detect and respond to 

threats to service availability.

•  Testing our defences using our own ethical hacking teams and externally conducted 

assessments to identify and remediate vulnerabilities. 

•  Raising security awareness and promoting good security hygiene among our 

colleagues through campaigns, training and phishing tests.

Focus areas for 2020/21

•  Sharing intelligence and keeping pace with evolving threats.

•  Continued investment in our defences.

•  Maintaining cyber hygiene.

•  Protecting BT and its customers in responding to the pandemic.

Movement              

•  A failure in the supplier selection and/or 

How this could impact our strategy or business model

in-life management process. 

•  Selecting the wrong supplier for our requirements and/or over-dependence on certain 

•  Restrictions in our ability to engage with 
perceived high-risk vendors following 
the UK Government’s Telecoms Supply 
Chain Review.

•  Disruptions to supply continuity where 
suppliers are materially impacted by 
Covid-19. 

suppliers could result in poor commercial terms, with a detrimental impact on our 
strategic, market and competitive position.

•  Failing to effectively manage suppliers and sub-suppliers could result in business 

disruption, regulatory fines and/or brand damage, through, for example, the failure 
of suppliers to meet key regulatory obligations such as General Data Protection 
Regulation (GDPR) or human rights.

Examples of how we manage this risk

•  Clear definition of our operational and business requirements, against which suppliers 

Link to business model

are assessed. 

   F     B     S  

Link to strategy

2     3

Link to KPIs

7     8     9      10     11

•  Due diligence checks at selection for all third parties, covering adverse media, financial 
health and bribery and corruption, along with other compliance checks tailored to the 
goods/services being procured.

•  Regular in-life supplier due-diligence, heightened in response to Covid-19, and 

monitoring of operational performance and compliance across key risks areas (e.g. 
information security, data privacy, anti-bribery and corruption, human rights, health 
and safety, business continuity, financial insolvency and location).

•  Providing commercial flexibility to suppliers impacted by Covid-19 (e.g. relaxation 
service level agreements and accelerated payments) and establishing alternative 
sources of supply in key areas to promote supply continuity. 

Focus areas for 2020/21

•  Launching a new digital source to contract platform to deliver global standardisation in 

our supplier selection process. 

•  Assessing digital capabilities that will enhance our in-life risk management capability.

•  Developing responses to external factors that could generate significant supply chain 

risk including GDPR non-compliance, Brexit, Huawei ban, cyber security risk and, more 
recently, Covid-19.

BT Group plc Annual Report 202057

Change management

•  We are moving into the next phase 
of our transformation programme 
that will transform our customers’ 
and colleagues’ experience through 
the simplification of our products, 
processes, IT systems and networks. 

•  Our next phase of transformation 

requires a new set of capabilities and 
enablers; in order to stay competitive 
we must redefine our approach to 
change management to focus on 
removing obstacles to improve BT’s 
efficiency and productivity.

•  We are currently managing the 

operational impacts Covid-19 is  
having on our transformation (e.g. 
resource availability, remote working).

Link to business model

   F     P     C  

Link to strategy

1     2     3

Link to KPIs

1     7     8     9      10     11

Major contracts

Movement              

How this could impact our strategy or business model

•  Failure to realise the benefits of our transformation and manage the impacts of Covid-

19 could negatively impact customer experience and our operational efficiency, as well 
as our ability to make future investments. 

•  Covid-19 is delaying our ability in some parts of the business to immediately realise the 

benefits of transformation.

Examples of how we manage this risk

•  Establishing a clear transformation management structure, underpinned by agile 

delivery principles, which assigns ownership for major transformation activities with the 
senior leaders of the business.

•  Monitoring performance in each of the operational areas of our plan using measures to 

ensure we deliver true business transformation.

•  Leveraging the use of collaboration tools to maintain our ability to work effectively, 

despite Covid-19 related restrictions on the colocation of our colleagues. 

Focus areas for 2020/21

•  Developing and implementing the transformation delivery governance model, 

implementing programme management tools and continuing to develop the skills of 
our colleagues.

•  Tracking progress of the financial and non-financial measures of the transformation.

•  Continue to drive to identify and implement more transformation initiatives across the 

business.

Movement              

•  Failure to successfully manage our 

How this could impact our strategy or business model

large, complex and high-value national 
and multinational customer contracts 
(including the Emergency Services 
Network and the Building Digital 
UK programme) and deliver the 
anticipated benefits. 

•  Covid-19 related challenges, including 

employee absenteeism, supplier 
disruption, and changing customer 
demands, could impact our ability 
to deliver on all aspects of our major 
contracts.

Link to business model

   F     C     B

Link to strategy

1     2     3

Link to KPIs

•  Failure to meet our contractual commitments and/or respond to changing customer 

needs, budgets or strategy could adversely impact expected future revenue, 
profitability and cash generation. 

•  Our brand and reputation may be damaged by service failures, particularly those 
associated with critical infrastructure contracts and security and data protection 
services.

•  Covid-19 could inhibit our ability to meet our contracted delivery timescales and 

service levels. Additionally, profits could be impacted where customers experience 
shrinkage, consolidation and/or financial failure. 

Examples of how we manage this risk

•  Governance, assurance, risk management and reporting processes against a clearly 

defined framework to manage out risk in-life.

•  Assurance review activity over individual contracts by an independent review team.

Focus areas for 2020/21

•  Developing skills across contract management teams to better identify and manage 

risk.

•  Adopt a clear approach to understanding Covid-19 impacts on contracts and 

implement effective strategies to manage and recover them.

•  Utilisation of enhanced contract management tools to further support frontline 

1     6     7     8     9     11

contract managers. 

•  Deploying artificial intelligence capability to enhance analysis of contractual risks and 

obligations. 

BT Group plc Annual Report 2020Strategic report 58

Our principal risks and uncertainties continued

Customer experience

• 

 Failure to transform the customer 
experience so that it is brand enhancing 
and drives sustainable profitable 
revenue growth.

How this could impact our strategy or business model

•  Any failure to transform could adversely impact our brand value, employee pride and 
advocacy, customer retention, group revenues, and/or regulatory compliance and 
associated financial penalties.

Movement              

Link to business model

Examples of how we manage this risk

   F     P     C     N     B

Link to strategy

1     2     3

Link to KPIs

1   

Service interruption

• 

• 

 Any major or repeated failure to 
maintain the continuity of end-to-
end customer services (e.g. network 
connectivity and performance, and IT 
systems and service platforms).

 A failure could be caused by natural 
perils, pandemics, network and system 
faults, malicious acts, supply chain 
failure, and software or infrastructure 
outages. 

Link to business model

   F     C     N     B

Link to strategy

1     2     

Link to KPIs

1     6     7     8     9     11

•  Closely tracking a range of customer experience metrics to drive improvement and 

maintain high performing areas. 

•  Launching innovative propositions (e.g. BT Halo and answering all BT consumer calls in 

the UK).

•  Investing in our network, including programmes which aim to increase network 

resilience through proactive maintenance and weather-proofing. 

•  Focus on maintaining customer experience during the Covid-19 pandemic through:
•  employee redeployment, as required, to support service levels for critical services; 

•  comprehensive planning to underpin network and IT availability, and broadband 

performance; and

•  prioritising and supporting vulnerable and distressed customers and critical 

industries, with changes to product packages and payment plans.

Focus areas for 2020/21

•  Rapid rollout of FTTP and 5G networks.
•  Continued development and launch of innovative product and service propositions.
•  Migrating homes and businesses to superfast broadband at no extra cost to them.
•  Maintaining network performance and customer experience during the Covid-19 

pandemic. 

Movement              

How this could impact our strategy or business model

•  Regulatory breaches, financial penalties, reduced productivity and potential harm to 

individuals.

•  Damage to reputation, especially during the Covid-19 outbreak when the country is so 

reliant on our connectivity, and our ability to retain and grow our customer base.

Examples of how we manage this risk

•  Close monitoring of our IT, fixed and mobile network performance and maintaining 

controls for incident, change and problem management.

•  Implementation of lessons-learned from our continual war-gaming and analysis of real 

incidents.

•  Weather resilience improvement programmes for our key network assets (e.g. flood, 

lightning, wind, heat).

•  Mobile, geographically dispersed Emergency Response Teams to mitigate incident 

impacts.

Focus areas for 2020/21

•  Improved change management processes through strengthening our testing 

capability and driving greater accountability across third-party changes. 

•  Initiation of projects aimed at mitigating the longer-term risk to our estate posed by 

climate change and associated extreme weather events. 

•  Planning to manage near and longer-term service risks related to a transition from the 

pandemic lockdown back to a normal trading model.

•  Heightened monitoring and service protection measures across all services and 

platforms in response to Covid-19, with increased call capacity between mobile and 
fixed lines to handle increased demand.

BT Group plc Annual Report 2020Colleague engagement

59

Movement              

•  Negative reaction to change or 

How this could impact our strategy or business model

poor consultation adversely impacts 
colleague engagement and subsequent 
ability to achieve our strategic 
objectives.

•  Covid-19 and associated lockdown 

reduces employee availability and our 
ability to operate effectively.

•  Loss of talent and skills could impact our recruitment costs and ability to deliver our 

strategic objectives.

•  Poor engagement could slow our change agenda, and/or lead to industrial unrest and 

action.

•  Reduced employee attendance, engagement, and discretionary effort, with 

subsequent impact on customer experience, in the event we fail to support employee 
needs during the Covid-19 pandemic.

Examples of how we manage this risk

•  Our Colleague Board with representation from across our business, gives colleagues a 

louder voice. 

•  Streamlining management structures to move decision making and colleague 

engagement closer to the front line. 

•  Close engagement and consultation with the recognised trade unions and impacted 
employees to deliver our market aligned, streamlined organisation structure – the 
People Framework.

•  Comprehensive employee engagement programme to deliver the retraining, reskilling, 

redeployment and redundancy plans underpinning our transformation agenda.

•  Enabling our colleagues to work from home where possible and highlighting guidance 

and support mechanisms available to them. 

•  Deployed policies, aligned to Government, Public Health England and medical advice, 
that support and protect employees delivering critical national services and those 
unable to work during the Covid-19 pandemic.

Focus areas for 2020/21

•  Robustness of our business continuity plans to enable rapid adaption to changing 

circumstances. 

•  Continued extensive communication with our colleagues and taking of steps to 

safeguard their wellbeing.

•  Investment in direct employee engagement and our Colleague Board, alongside our 

formal employee representative structures.

Movement              

How this could impact our strategy or business model

•  Additional cash contributions to the BTPS could reduce our ability to invest in our 

business and/or pay dividends.

•  A rise in the BTPS deficit could negatively affect our share price and/or credit rating 

making it harder and more expensive to access funding.

Examples of how we manage this risk

•  Regularly reviewing the BTPS’s funding position and investment performance.

•  Agreeing an investment strategy with the BTPS Trustee, which reduces investment risk 
over time, including hedging of the exposure to changes in interest rates, inflation and 
life expectancy. 

Focus areas for 2020/21

•  Agree the next triennial valuation of the BTPS, as at June 2020, which will set the 

contributions we need to make for the next three years. 

•  Review and prepare response to relevant consultations, including those relating to RPI 
reform and the funding regime for defined benefit pension schemes, to support the 
Pensions Regulator’s aim of being clearer, quicker and tougher.

Link to business model

   F     P     C     B

Link to strategy

1     3

Link to KPIs

2     3     6     7     8     9  

Financial risks

Pension scheme

•  Our defined benefit pension schemes, 
in particular the BT Pension Scheme 
(BTPS), could become more of a 
financial burden as a result of future low 
investment returns, changes in inflation 
expectations, longer life expectancies, 
a more prudent approach being taken 
(e.g. if BT’s financial strength is viewed 
as having worsened) and/or regulatory 
changes.

•  The risk has increased due to the 

forthcoming review of contributions 
for the BTPS as at 30 June 2020 and 
recent market movements following the 
Covid-19 outbreak.

Link to business model

   F     I

Link to strategy

3

Link to KPIs

N/A

BT Group plc Annual Report 2020Strategic report 60

Our principal risks and uncertainties continued

Financial risk 

• 

 Exposure to funding and liquidity 
risks, including those arising from 
our underlying business operations, 
and also to financial risks such as 
interest rate, foreign exchange and 
counterparty risks. 

•  Any failure to properly anticipate future 
tax changes and/or comply with the 
tax rules of the countries in which we 
operate. 

Link to business model

   F     I

Link to strategy

  3

Link to KPIs

6     7     8     9      10     11  

Compliance risks

Health, safety & wellbeing

• 

 Any failure to look after the health, 
safety and wellbeing of our colleagues 
and/or members of the public, 
especially in light of Covid-19 related 
exposures, with potential breaches of 
health and safety laws and regulations.

Link to business model

   F     P     C     N     B    

Link to strategy

   2    

Link to KPIs

N/A

Movement              

How this could impact our strategy or business model

•  Interest and foreign exchange rate movements could negatively affect our profitability, 
cash flow and balance sheets (see note 28 to the consolidated financial statements).

•  Counterparty risks could negatively impact our liquidity and profitability.

•  Tax risks could expose us to poor business decisions (e.g. under-pricing contract bids), 

financial penalties and reputational damage.

•  Funding and liquidity risks could impact our viability and ability to continue as a going 
concern, including a downturn in our business operations for unexpected factors, e.g. 
Covid-19.

Examples of how we manage this risk

•  The Board has set a long-term credit rating target of BBB+/Baa1, with a BBB floor, 
and approves an annual five-year funding plan that identifies liquidity and funding 
requirements.

•  Management of our liquidity and funding requirements and financial risks through 
a centralised treasury function, which is required to maintain minimum amounts of 
committed stand-by liquidity and pre-funding debt maturities up to 18 months in 
advance.

•  Tax risks are managed through our Tax Control Framework. 

•  Enhanced counterparty credit risk management procedures in response to Covid-19.

Focus areas for 2020/21

•  Taking action, as required, to maintain our current credit rating at BBB. 

•  Monitoring the development of the OECD’s proposals to update international tax rules 

to deal with the digitalisation of economies. 

•  Managing any increased volatility in foreign exchange and counterparty risks 

associated with the expected end of the transitional Brexit period and Covid-19.

•  Maintain sufficient funding and liquidity for our updated annual business plans, 

especially in light of Covid-19 related uncertainty.

Movement              

How this could impact our strategy or business model

•  Potential injury of our colleagues and/or members of the public, financial penalties, 

disruption to our operations, and associated reputational damage.

Examples of how we manage this risk

Our goal is to achieve zero incidents of avoidable harm and to enable leading 
performance in standards of health, safety and wellbeing for our colleagues, achieved by:

•  training all of our colleagues in basic health, safety and wellbeing;

•  monitoring the health, safety and wellbeing of our colleagues through survey and 

focus groups, supported by a dedicated Your Wellbeing portal and a mental health 
awareness training programme for line managers;

•  monitoring performance levels across our operations using a global incident reporting 

system; and

•  risk-based oversight of supplier compliance with BT minimum safety standards. 

Focus areas for 2020/21

•  Rollout of our fall-arrest harness training programme. 

•  Continue to assess public perceptions on the UK-wide 5G rollout and ensure 

compliance with European and industry guidance.

•  Strengthening our assurance and oversight functions.

•  Monitoring potential Covid-19 impacts on our colleagues, and complying with global 
and government public health guidance, assessments and measures; this also informs 
our business continuity planning activity. 

BT Group plc Annual Report 202061

Significant control failure

•  Any failure of our financial controls to 
prevent and/or detect fraud, financial 
misstatement or other financial loss.

Link to business model

   F   

Link to strategy

2     3

Link to KPIs

7     8     9     11

Privacy and data protection

•  Breach of data privacy laws through 
misuse of, or failure to secure and 
protect, customer and employee data.

•  Potential additional Covid-19 related 
security risks in relation to increased 
working from home arrangements.

Link to business model

   F     P     C     B     S

Link to strategy

  2    

Link to KPIs

  2     3     6     7     9

Movement              

How this could impact our strategy or business model

•  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.

Examples of how we manage this risk

•  Implementation of a financial controls framework with appropriate policies, processes, 
checks and balances – including quarterly certifications over key controls by senior 
leaders.

•  Training of our colleagues on financial controls assurance and fraud awareness and 

implementing best practice, awareness and understanding of controls.

•  Carrying out effective first, second and third-line assurance activities.

•  While not complete, management have made good progress in remediating the 

matters we concluded to be material weaknesses (as defined by the Sarbanes Oxley 
Act) in the prior year, in relation to IT general controls and risk assessment. 

Focus areas for 2020/21

•  Continue our control enhancement programme, in particular an ongoing focus on the 
remediation of the material weaknesses in IT general controls and risk assessment.

•  Ongoing implementation of technology enablers, including SAP Governance Risk and 

Compliance (GRC) module and expanding our use of data analytic procedures.

Movement              

How this could impact our strategy or business model

•  Regulatory enforcement action that could result in an order to cease data processing, 
significant fines, class-action legal suits and/or prison sentences. Other impacts may 
include material reputational damage, disruption of business operations and increased 
customer churn.

Examples of how we manage this risk

•  Review of activity across the business that utilises personal data to ensure compliance 

with our data policies.

•  Provision of data handling training and tools to help our colleagues make better, risk-

based decisions in their day-to-day activities.

•  Due diligence activity over third parties’ data-handling and security arrangements.

•  Agree of Binding Corporate Rules with the UK data regulator to guide and support our 

business operations.

•  Implement Brexit contingency planning to maintain required data flows.

•  Additional privacy impact assessments undertaken and security measures 

implemented to mitigate against potential risk associated with high volumes of 
colleagues working from home.

Focus areas for 2020/21

•  Continued development of our operating model to ensure regulatory requirements 

and compliance expectations are consistently and appropriately ascertained, 
communicated and monitored across our business. 

•  Evaluating and enhancing systems related to our evolving data processing operations.

•  Developing new and targeted employee training and engagement. 

•  Further enhancing the clarity and consistency of our data governance and assurance 

programmes. 

BT Group plc Annual Report 2020Strategic report 62

Our principal risks and uncertainties continued

Ethical culture

• 

 The prevailing culture in BT leads to 
a failure to promptly recognise and 
report wrongdoing by our colleagues 
and/or those working on our behalf, 
which could include a breach of our 
internal policies and procedures, and/
or applicable laws (e.g. anti-bribery and 
corruption, trade sanctions and human 
rights). 

Link to business model

   F     P     C     B     S

Link to strategy

1     2     3

Link to KPIs

N/A

Movement              

How this could impact our strategy or business model

•  Unethical or inappropriate behaviour could result in fraud or a breach of regulation 

or legislation , exposing BT to significant penalties, criminal prosecution, reputational 
damage and/or loss of customers and revenue.

Examples of how we manage this risk

•  Setting appropriate policies and monitoring their implementation and compliance 

through assurance reviews, data analytics and our integrity risk dashboard. 

•  Employee awareness communication and training.

•  Due diligence over business changes and suppliers and monitoring key metrics. 

•  Operation of a confidential SpeakUp channel, which anyone can use to call out 

wrongdoings.

Focus areas for 2020/21

•  Continued focus on our due-diligence, monitoring and review activities on higher 
risk areas and third parties, (e.g. agents, resellers, distributors, joint ventures and 
subsidiaries). 

•  A new and targeted approach to senior manager training and engagement on ethics 

and compliance.

•  Implementing our one BT Integrity and Compliance programme to enhance the clarity, 

consistency and governance around how we set and govern policy, and ensure our 
organisational culture is ‘fit for purpose’ everywhere that we operate. 

BT Group plc Annual Report 202063

In response, we have pledged to become 
a net zero carbon emissions business 
by 2045. We plan to meet this target 
through the purchase of 100% renewable 
electricity, converting our vehicle fleet 
to ultra-low emissions vehicles and to 
continue to decarbonise our buildings. We 
are also considering our global response 
to physical climate impacts, building 
on work in the UK to implement flood 
defences and minimise service disruption. 

   See Digital impact and sustainability on page 
36 for further information on our response to 
climate change.

Emerging risks

We face a number of uncertainties 
that have the potential to be materially 
significant to our long-term strategy but 
cannot be fully defined as a specific risk 
at present, and therefore cannot be fully 
assessed or managed. These emerging 
risks typically have a long time horizon, 
such as climate change, certain new 
technologies and long-term geopolitical 
trends.

Our enhanced risk management 
framework places greater emphasis on 
the identification of emerging risks, so that 
we can pro-actively monitor them and 
ensure they inform our strategic planning 
and resilience activities. 

A focus on climate change:
The physical impacts of climate change 
and the actions taken by governments 
and society to try and limit global warming 
to well below 2°C by 2100 may impact 
our assets in the UK and globally, as well 
as our ability to source raw materials. As 
our customers seek to reduce their own 
emissions, demand for our propositions 
and services may also change. 

We have conducted an analysis of the 
potential future climate-related impacts 
on BT; the main threats and opportunities 
identified are as follows:

Physical impacts:
•  the impacts of extreme weather 

events, in particular of flooding and 
chronic increases in temperature, on 
our suppliers, operational assets and 
vehicle fleet.

Policy decisions and low carbon transition 
risks:
•  potential carbon price increasing the 

operating cost of our assets

•  potential policy changes that impact 
our ability to use our existing vehicle 
fleet

•  increased costs of sourcing renewable 
energy due to changes in demand

•  potential policy changes around end-
of-life obligations and rights to repair 
relevant to our propositions.

Opportunities:
•  the potential to recover and reuse 

infrastructure and product materials 
which can contribute to a low carbon, 
circular economy

•  increasing demand for our propositions 
to support customers to move to a net 
zero society.

BT Group plc Annual Report 2020Strategic report  
64

Viability statement

In accordance with the Code, the 
Directors have assessed the prospects 
and viability of the group. 

into account our longer-term obligations, 
including the funding of our defined 
benefit pension schemes. 

The assessment has been based on the 
company’s strategy, balance sheet and 
financing position, including our £2.1bn 
undrawn committed borrowing facility 
which matures in March 2025, and the 
potential impact of Our principal risks 
and uncertainties including the impact 
of Covid-19. The Board has chosen to 
conduct its 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, the underpinning time 
cycles of a number of our principal risks: 
for example the pension scheme funding 
valuation and Ofcom’s current market 
review cycles as well as significant business 
factors such as the interval between 
significant sports rights auctions. Our 
business and financial planning also takes 

The assessment of viability is based on 
our medium term plan which forecasts 
the group’s profitability, cash flows and 
funding requirements, and is approved 
by the Board at the end of each year. This 
timing allowed for the inclusion of an 
impact of the Covid-19 pandemic. The 
medium term plan is built from 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 customer-facing and corporate unit 
conducted by the chief executive and 
chief financial officer.

Beyond our medium term plan 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 
and, where appropriate, the Board, after 
taking into account longer-term risks 
and opportunities such as the economy, 
technology and regulation. 

In support of our viability statement we’ve 
stress tested our forecast cash flows by 
assessing the impacts of Our principal 
risks and uncertainties, as set out on pages 
52 to 63, could have on our forecasts. In 
this assessment we’ve adopted a number 
of assumptions designed to stress test 
our resilience, in particular, we have not 
automatically assumed that, should the 
need arise, we would be able to raise new 
debt; we have instead considered this as 
part of any mitigating action. 

Our assessment considered the following:

Individual  
risk modelling

What: potential financial impact of severe but plausible scenarios quantified for each of our principal risks and uncertainties

Why: test of viability under any individual risk and uncertainty 

How: scenario produced for each risk, including a highly severe Covid-19 scenario based on very prolonged lockdowns above the level 
forecast in our medium term plan

Outcome: stress testing confirmed that existing projected cash flows and cash management activities provide us with a buffer against 
the impact of any individual risk

Combined  
risk modelling

What: combination of the full financial impact of individual scenarios materialising  simultaneously

Why: test of viability should a combination of multiple risks materialise in parallel

How: we combined the full financial impact of our highly severe Covid-19 scenario with our political risk from a disorderly Brexit, 
alongside supply chain risk from a complete ban on certain high-risk vendors

Outcome: in this most extreme combined scenario we would need to take further action to mitigate the negative cash flow impact and 
ensure additional liquidity

Mitigations: should we be able to raise new debt in line with our normal treasury funding policies we would fully mitigate any downside

Should this not be possible other actions management could take include limiting or delaying discretionary capital expenditure and 
marketing activities, and adjusting our distribution policy. A reasonable combination of these actions would also fully mitigate any 
downside

Probabilistic 
risk modelling

What: model estimating the impacts of the individual severe but plausible scenarios

Why: test of viability under multiple occurrences of severe scenarios

How: modelling a probabilistic analysis of the potential financial impact of each individual risk if they materialise together with their 
likelihood of occurrence

Outcome: In extreme probabilistic modelled scenarios we would need to take further action to mitigate the negative cash flow impact 
and ensure additional liquidity

Mitigations: similar to the combined risks modelling above, should we be able to raise new debt in line with our normal treasury funding 
policies we would fully mitigate any downside

Should this not be possible other actions management could take include limiting or delaying discretionary capital expenditure and 
marketing activities, and adjusting our distribution policy. A reasonable combination of these actions would also fully mitigate any 
downside

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.

BT Group plc Annual Report 2020BT Group plc Annual Report 2020
BT Group plc Annual Report 2020

We believe that strong corporate 
governance is critical to delivering our 
strategy and creating long-term value  
for our shareholders. We also recognise  
the importance to our wider stakeholders  
in delivering our strategy and achieving 
sustainability within our business.

Corporate 
governance 
report 

Further information on compliance  
with the Code can be found as follows:

Board leadership and company purpose
70 to 75
Board leadership 
17
Purpose, values and strategy 
24 to 29, 34
Stakeholder engagement 
Our colleagues  
30 to 33
Composition, succession and evaluation  74 to 77
78 to 81
Audit, risk and internal control 
52 to 63
Risk 
Viability statement 
64
Remuneration
Directors’ remuneration policy 
Annual remuneration report 

90 to 97
98 to 107

Corporate governance
Corporate governance report
65
65

Contents
Corporate governance report
66
Chairman’s governance letter 
67
Our governance framework 
68
Board of directors 
70
Board leadership 
76
Nominations Committee chair’s report 
Audit & Risk Committee chair’s report  
78
BT Compliance Committee chair’s report  82
Digital Impact & Sustainability Committee 
chair’s report 
Report on directors’ remuneration
•  Remuneration Committee chair’s letter   84
88
•  Focus on remuneration 
90
•  Directors’ remuneration policy 
98
•  Annual remuneration report  
110
Directors’ information  
112
General information  

83

Financial statements 
Additional information  

117
208

The UK Corporate Governance Code 2018 
(the Code)
In respect of the year ended 31 March 2020,  
BT Group plc was subject to the Code published 
in July 2018 (available at frc.org.uk). We have 
complied in full with the principles and provisions 
set out in the Code throughout the year. To keep 
this governance report concise, we focus on 
key governance issues and have included some 
cross-references to other relevant sections of 
the Annual Report where more information can 
be found. 

During the year, we have undertaken  
a comprehensive review of the matters  
reserved to the Board. The current matters 
reserved to the Board and each committee’s 
terms of reference can be found on our website 
at bt.com/about

New York Stock Exchange delisting and 
US Securities and Exchange Commission 
deregistration
During the year ended 31 March 2020,  
BT Group plc delisted from the New York Stock 
Exchange (NYSE) and terminated its American 
depositary receipts (ADR) programme. As we 
have not yet deregistered from the US Securities 
and Exchange Commission (SEC), we are 
required to produce a Form 20-F, which can be 
accessed from the SEC’s EDGAR database.

  For more information visit  
our website at bt.com/about

66

Chairman’s governance letter

non-executive director and Deutsche 
Telekom’s nominated representative, 
replacing Tim Höttges.

Jasmine Whitbread stepped down 
from the Board on 6 December 2019 
after almost nine years as a non-
executive director. Leena succeeded 
Jasmine as chair of the Digital Impact 
& Sustainability Committee. Further to 
Nick Rose deciding to step down from 
the Board at the conclusion of the 2020 
AGM, we have announced that Iain 
Conn will be appointed as the Senior 
Independent Director, Ian Cheshire as 
chair of the Remuneration Committee and 
Matthew Key as chair of the Audit & Risk 
Committee. I would like to thank Jasmine, 
Tim and Nick for their invaluable support 
to BT and the Board. 

Diversity
Diversity and inclusion continue to 
be a key focus on the UK governance 
agenda. BT fully recognises the benefits 
of a diverse Board and the importance 
of diversity, in all forms, across the 
organisation. The Nominations Committee 
considered diversity as part of its 
non-executive director appointment 
discussions. BT has a good track record 
of female representation on the Board. 
Leena Nair and Isabel Hudson are chairs 
of two of our committees and Isabel is also 
our designated non-executive director for 
workforce engagement. After the 2020 
AGM, 33% of our Board will comprise 
women. 

Stakeholders
Strengthening the voice of our colleagues 
at Board-level has been a focus this year. 
We established the Colleague Board as 
our formal mechanism for the Board to 
ensure effective engagement with our 
colleagues (see pages 32 to 33). As our 
designated non-executive director for 
workforce engagement, Isabel Hudson 
is a member of the Colleague Board and 
she reports back to the Board on key 
discussions with its members.

We recognise the importance of our wider 
stakeholders in delivering our strategy and 
business sustainability. We are conscious 
about our responsibilities and duties to 
our stakeholders under section 172 of the 
Companies Act 2006 and have detailed 
our stakeholders, their importance to our 
business and our engagement with them 
in the Strategic report.

In 2019, alongside the launch of our new 
corporate brand purpose, Beyond Limits, 
we launched our Skills for Tomorrow 

programme which is designed to 
empower 10m people by giving them 
the skills they need to flourish in a digital 
world. The Digital Impact & Sustainability 
Committee monitored the progress of this 
programme in the lead up to its launch.

The Remuneration Committee spent 
considerable time reviewing the 
remuneration structure for our senior 
executives. Accordingly, Nick Rose, chair 
of the Remuneration Committee, engaged 
extensively with our shareholders in 
relation to the proposed changes to the 
Directors’ Remuneration Policy (provided 
in the report on directors’ remuneration) 
which will be put before shareholders for 
their approval at our 2020 AGM. 

The Audit & Risk Committee continued 
to monitor internal control and risk 
management. Alongside the Board, it 
undertook detailed reviews of some of  
our principal risks throughout the year.

The BT Compliance Committee is 
responsible for monitoring whether the 
governance model for Openreach is 
working as expected and achieving the 
outcomes for consumers and industry. 
It continued to review the operation 
of the financial planning and strategy 
development processes and monitored 
the behaviours and engagement of both 
the group and Openreach in the context 
of the Commitments. 

This year the Board undertook an internal 
effectiveness evaluation of the Board 
and its committees. There was positive 
feedback on the relationships between 
directors and between the Board and 
management, highlighting shared 
understanding, constructive challenge 
and high levels of trust. Recent Board 
changes have resulted in a better-
balanced Board with reference to all forms 
of diversity including gender, skills and 
experience.

I would like to thank the Board and the 
executive team for their ongoing support, 
particularly during the Covid-19 crisis. 
Details of our upcoming AGM on 16 July 
2020 will be included in the Notice of 
meeting.

Jan du Plessis
Chairman 
6 May 2020

The Board continues to believe that 
strong corporate governance is critical to 
delivering our strategy. It is responsible 
for the leadership of the group, ensuring 
our actions are in keeping with the values 
that shape our culture and in delivering 
long-term, sustainable value for all our 
stakeholders. This Corporate Governance 
report for the year ended 31 March 2020 
includes an insight into how governance 
supports our business and the decisions 
we make whilst considering the interests 
of all our stakeholders. 

Purpose, strategy and values
Central to the long-term delivery of 
our strategy is the group’s culture, 
underpinned by the values and behaviours 
expected of our colleagues. Therefore, 
we continually consider how our culture 
is aligned with our purpose, values and 
strategic objectives. 

Changes to the Board
Board succession planning was a 
key priority in 2019/20. Through the 
Nominations Committee, we focus on 
Board succession and composition and 
ensuring we have the right balance of 
skills, independence, experience and 
diversity in line with the needs of the 
group. 

During the year, we welcomed Leena Nair 
and Ian Cheshire as independent non-
executive directors. Leena has brought a 
valuable understanding of the strategic 
and practical challenges of driving 
large-scale transformation. Ian brings 
a wealth of listed company experience, 
with a notable background in strategy, 
international retail and e-commerce. We 
also announced that Sara Weller will join 
as a non-executive director before the 
2020 annual general meeting (AGM). Sara 
brings a broad perspective to the Board 
having a background in retail, fast-moving 
consumer goods and financial services. 
As announced on 1 May 2020, Adel Al-
Saleh will join the Board with effect from 
15 May 2020 as a non-independent, 

BT Group plc Annual Report 2020Our governance framework

67

The Board

Responsible for the stewardship of the group, overseeing its conduct and affairs to create long-term sustainable success  
in order to generate value for shareholders and other stakeholders. The Board has established certain committees  
to assist it in discharging its responsibilities and delegates day-to-day responsibilities to the chief executive.

  Board leadership on pages 70 to 73

Audit & Risk Committee
Oversees, assesses and reviews 
our financial and narrative 
reporting, internal controls and risk 
management, including internal and 
external audit and pan-BT finance, 
control and compliance-related 
transformation programmes. 

Nominations Committee
Considers the structure, size and 
composition of the Board and its 
committees and advises on succession 
planning for the Board and the 
Executive Committee. It ensures the 
Board is diverse, with the appropriate 
balance of skills, experience, 
independence and knowledge.  

Remuneration Committee 
Agrees the remuneration framework 
for the chairman, executive directors 
and certain senior executives and 
monitors remuneration practices and 
policies for the wider workforce. 

  Audit & Risk Committee  

  Nominations Committee  

  Report on directors’ remuneration 

chair’s report on pages 78 to 81

chair’s report on pages 76 and 77

on pages 84 to 109

BT Compliance Committee
As a sub-committee of  
the Audit & Risk Committee,  
it oversees our adherence  
to the Commitments we made 
as part of the 2017 Digital 
Communications Review  
with Ofcom. 

  BT Compliance Committee 
chair’s report on page 82

Digital Impact &  
Sustainability Committee
Provides oversight and  
direction to bring our purpose  
to life through our digital impact 
 and sustainability strategy. 

Colleague Board
Discusses and inputs into significant 
proposals and initiatives impacting 
our colleagues, as well as other 
engagement mechanisms. Our 
designated non-executive director  
for workforce engagement reports 
back to the Board on its activities.  

  Digital Impact & Sustainability 
Committee chair’s report on page 83

  Colleague Board on pages 32 and 33

Investigatory Powers  
Governance Committee
Oversees our role in the use  
of official investigatory powers.

Chief executive
Responsible for running the business and setting and executing our strategy.

Executive Committee
Provides input and recommendations 
to assist the chief executive in the  
day-to-day management of the 
business and its operations. 

BT Investment Board
Provides input and recommendations 
that support the chief executive’s 
decision making on investment 
budgets and cases.

Disclosure Committee
Ensures the company meets its 
disclosure obligations and reviews 
and approves regulatory and other 
announcements before publication.

 Matters reserved to the Board and its committees’ terms of reference can be found on our website at bt.com/about

Each Board committee chair formally reports to the Board following their meetings and makes any recommendations to the Board in line with its terms  
of reference. Papers and minutes for all meetings are circulated to all Board and committee members (as relevant) other than those who may be deemed 
to have a potential conflict of interest. Deutsche Telekom’s nominated representative owes a fiduciary duty to both BT and Deutsche Telekom. 
The Conflicted Matters Committee reviews all papers ahead of sharing these with him to identify potential or actual conflicts of interest. 

BT Group plc Annual Report 2020Corporate governance report 
 
 
 
 
 
 
 
68

Board of  
directors

Jan du Plessis
Chairman 
Appointed chairman in November 
2017 and to the Board in June 2017. 
Age 66.

Experience 
Jan was chairman of Rio Tinto from 
2009 to 2018 and chairman of 
SABMiller from 2015 until 2016. He 
was also a director and later senior 
independent director of Marks & 
Spencer from 2008 until 2015. Before 
that he served as chairman or non-
executive director of a number of 
public companies. Prior to that, until 
2004, Jan was group finance director 
of Richemont.

Relevant skills and contribution to 
the Board 
Significant experience serving as 
chairman and as a non-executive 
director on the boards of FTSE 100 
companies across varying sectors. 
Jan has the knowledge and insight 
to lead an effective board and an in-
depth understanding of UK corporate 
governance requirements.

External appointments
None.

Philip Jansen
Chief executive 
Appointed chief executive in February 
2019 and to the Board in January 
2019. Age 53.

Experience 
From April 2013 until joining BT, 
Philip was CEO of Worldpay. 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 executive, Europe, South Africa 
and India. Prior to that he was chief 
operating officer at MyTravel Group 
from 2002 to 2004 and managing 
director of Telewest Communications 
(now Virgin Media) from 2000 to 
2002 after initially starting his career 
at Procter & Gamble.

Relevant skills and contribution to 
the Board 
Extensive experience of leading 
and growing large private 
and publicly-listed UK and 
international businesses, delivering 
transformational change and large 
technology programmes.

External appointments
Senior advisor at Bain Capital and 
trustee of Wellbeing of Women.

Simon Lowth
Chief financial officer
Appointed chief financial officer and 
to the Board in July 2016. Age 58.

Experience 
Simon was CFO of BG Group before 
the takeover by Royal Dutch Shell in 
February 2016. Prior to that, he was 
CFO of AstraZeneca from 2007 to 
2013. He was an executive director 
of ScottishPower from 2003 to 
2007 having been appointed as the 
finance director in 2005. Before 2003, 
Simon was a director of McKinsey & 
Company.

Relevant skills and contribution to 
the Board
A strong background in finance, 
accounting, risk, corporate strategy 
and mergers and acquisitions. Simon’s 
experience and implementation of 
cost transformation and performance 
improvement programmes provide 
valuable expertise.

External appointments
None.

Mike Inglis
Independent non-executive director
Appointed to the Board in September 
2015. Age 60.

Matthew Key
Independent non-executive director
Appointed to the Board in October 
2018. Age 57.

Allison Kirkby
Independent non-executive director
Appointed to the Board in March 
2019. Age 52.

Experience
Mike served as non-executive 
chairman of Ilika until January 
2019 and was on the board of ARM 
Holdings from 2002 to 2013. His roles 
at ARM included chief commercial 
officer, 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.

Relevant skills and contribution to 
the Board 
Significant experience in the 
technology industry and expertise 
in marketing, management and 
operations. 

External appointments
None. 

Experience 
Matthew held various positions 
at Telefónica from 2007 to 2014 
including as chairman and CEO of 
Telefónica Europe and chairman and 
CEO of Telefónica 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 finance director 
at Vodafone UK and chairman of 
Tesco Mobile. He has previously 
held positions at companies 
including Kingfisher, Coca-Cola and 
Schweppes Beverages and Grand 
Metropolitan.

Relevant skills and contribution to 
the Board 
Strong strategic skills and a wealth 
of experience in finance and the 
telecoms sector. 

External appointments
Non-executive director and audit 
committee chair of Burberry and 
chairman of Dallaglio Rugbyworks.

Experience
Allison was appointed President & 
CEO of Telia Company in May 2020. 
Allison was previously President 
& Group CEO of TDC Group until 
October 2019, and President & Group 
CEO of Tele2 AB from 2015 to 2018, 
having been Tele2 AB’s Group CFO 
from 2014. She was chair of the audit 
committee and a non-executive 
director of Greggs until May 2019. 
She has also held financial and 
operational roles within 21st Century 
Fox, Virgin Media, Procter & Gamble 
and Guinness.

Relevant skills and contribution to 
the Board 
Valuable and recent experience in 
the international telecoms sector 
combined with strong experience 
in driving performance, improving 
customer service and delivering 
shareholder value.

External appointments 
President and CEO of Telia Company. 

Membership key

A  Committee chair

 Audit & Risk Committee
 BT Compliance Committee
 Colleague Board
  Digital Impact & Sustainability 
Committee
 Executive Committee
  Investigatory Powers 
Committee
 Nominations Committee
 Remuneration Committee

Our directors share collective 
responsibility for the activities 
of the Board. There is a clear 
division of responsibilities 
between the chairman 
and the chief executive. 
The responsibilities of the 
chairman, chief executive, 
senior independent director, 
and other key roles are set out 
on our website at bt.com/about 

BT Group plc Annual Report 2020 
 
 
 
 
 
 
 
 
 
 
 
69

Sir Ian Cheshire
Independent non-executive director
Appointed to the Board in March 
2020. Age 60.

Experience 
Ian was previously group chief 
executive of Kingfisher and 
senior independent director and 
remuneration committee chair of 
Whitbread. Ian held a variety of 
posts whilst at Kingfisher from 1998 
to 2014, including chief executive 
of B&Q from 2005 to 2008 and 
group chief executive from 2008 
to 2014. He was also previously 
the chairman of Debenhams and 
the lead non-executive director for 
HM Government.

Relevant skills and contribution to 
the Board
A wealth of listed company 
experience, with a notable 
background in strategy, international 
retail and e-commerce.

External appointments
Chair of Barclays Bank UK and a non-
executive director of Barclays and 
chair of Menhaden, a UK investment 
trust. 

Iain Conn
Independent non-executive director 
Appointed to the Board in June 2014. 
Age 57. 

Experience
Iain was group chief executive of 
Centrica for over five years from 
2015 to 2020. Prior to that, Iain 
spent 29 years at BP and was a board 
director for ten years from 2004 to 
2014 including as chief executive 
Downstream from 2007 to 2014, 
and a member of the executive 
committee from 2002-2014. Until 
May 2014, Iain was a non-executive 
director of Rolls-Royce for nine years 
and senior independent director. Iain 
also served as a member of Council 
of the Imperial College from 2010 
to 2019. 

Relevant skills and contribution to 
the Board 
Deep experience in the global energy 
markets, industrial operations, 
regulated consumer markets, and in 
technology and engineering. Broad 
international experience.

External appointments 
Member of the European Round 
Table for Industry, the CBI President’s 
Committee, and chairman of the 
advisory board of the Imperial 
College Business School.

Tim Höttges
Non-independent, non-executive 
director
Appointed to the Board in January 
2016. Age 57.

Experience
Tim has been CEO of Deutsche 
Telekom since January 2014, and with 
the company since 2000. From 2009 
to 2014, he was a member of the 
board of management responsible for 
finance and controlling. From 2006 to 
2009 he was a member of the board 
of management responsible for the 
T-Home unit and in charge of fixed 
network and broadband business 
and integrated sales and service in 
Germany.

Relevant skills and contribution to 
the Board 
Significant experience in international 
telecoms providing valuable 
knowledge in product development, 
cost savings and financial control. 

External appointments
Chairman of T-Mobile US and 
supervisory board member of FC 
Bayern München AG and Henkel 
AG & Co. KGaA. Tim will join the 
supervisory board of Daimler AG 
subject to shareholder approval at its 
annual general meeting. 

Isabel Hudson
Independent non-executive director
Appointed to the Board in November 
2014. Age 60.

Experience
Isabel was previously senior 
independent director of RSA 
Insurance, non-executive director 
of The Pensions Regulator, MGM 
Advantage, QBE Insurance, Standard 
Life and an executive director of 
Prudential Assurance Company in 
the UK.

Relevant skills and contribution to 
the Board 
A wealth of experience in financial 
services, in the life, non-life and 
pensions industries as well as risk, 
control, governance and international 
business. Insight and expertise in 
regulatory, pensions and financial 
matters.

External appointments 
Non-executive chair of National 
House Building Council (until May 
2020). Isabel is also an ambassador 
for the disability charity, SCOPE, 
and an advisory council member of 
University College Lady Margaret 
Hall, Oxford. Isabel will join Axa S.A. 
as a non-executive director subject 
to shareholder approval as its annual 
general meeting.

Nick Rose
Senior independent director and 
independent non-executive director
Appointed to the Board in January 
2011. Age 62.

Experience
Nick was chief financial officer of 
Diageo prior to his retirement in 
December 2010, having joined the 
board in 1999. Nick was appointed as 
senior independent director of BT in 
March 2014.

Relevant skills and contribution to 
the Board 
Brings to the board a strong 
background in finance, risk, control, 
governance and international 
business. He also has significant 
experience in procurement, strategy 
and IT on a global basis. 

External appointments 
Chairman of Williams Grand Prix 
Holdings and director of BAE 
Systems. 

Leena Nair
Independent non-executive director
Appointed to the Board in July 2019. 
Age 50.

Experience 
Since 2016, Leena has been the chief 
human resources officer at Unilever. 
She is responsible for Unilever's 
global people agenda, working across 
160 markets to help deliver Unilever's 
business financial performance as 
well as its environmental and social 
impact objectives. Leena joined 
Unilever in 1992 and has held a wide 
variety of HR roles throughout her 
career, including senior vice president 
for leadership and organisational 
development and global head 
of diversity, executive director of 
Hindustan Unilever and vice president 
HR South Asia.

Relevant skills and contribution to 
the Board 
A deep understanding of the strategic 
and practical challenges of driving 
large-scale cultural transformation.

External appointments
Non-executive director at the  
UK Department for Business,  
Energy and Industrial Strategy.

Sara Weller CBE
Independent non-executive 
director

Rachel Canham 
Company secretary &  
general counsel, governance 

Sara will join the Board on 16 July 
2020, immediately before the 
2020 AGM, as an independent 
non-executive director. She will 
be a member of the Audit & Risk, 
Nominations and Digital Impact & 
Sustainability Committees.

Rachel joined BT in 2011 and was 
appointed company secretary & 
general counsel, governance in 
November 2018. 

Other Board and committee changes
The following are announced Board 
and committee changes that will take 
effect from the conclusion of the 2020 
AGM:

•  Nick Rose will step down from the 
Board as a non-executive director
and senior independent director

• 

Iain Conn will become the senior 
independent director and a 
member of the Remuneration 
Committee

•  Matthew Key will chair the Audit & 

Risk Committee

• 

Ian Cheshire will chair the 
Remuneration Committee and 
become a member of the BT
Compliance Committee

•  Mike Inglis will cease being a 

member of the Remuneration 
Committee.

Adel Al-Saleh
Non-independent, non-
executive director

Adel Al-Saleh will join the 
Board on 15 May 2020 as 
a non-independent, non-
executive director replacing Tim 
Höttges as Deutsche Telekom’s 
nominated representative. 
Adel will be a member of the 
Nominations Committee.

BT Group plc Annual Report 2020Corporate governance reportCase Study:
The Board’s visit to Adastral Park 

During the year, the Board visited 
Adastral Park, Ipswich, our global 
research and development headquarters, 
to gain a more in-depth understanding 
of what we do there. They learned about 
the technologies we are developing in 
relation to converged networks, cyber 
security and artificial intelligence, as 
well as our work in relation to converged 
solutions and innovation to best serve our 
customers. This visit not only facilitated 
increased knowledge of how research 
contributes value to our operations and 
services, but also provided the Board 
with visibility of talent at different levels in 
different parts of the business. The Board 
also gained an insight into the culture 
across the group and a glimpse of the 
wider innovation ecosystem that has built 
up around Adastral Park.

70

Board 
leadership

The Board is ultimately 
responsible for overseeing the 
performance of the group. The 
Board’s focus is on strategy, 
growing shareholder value, 
oversight and control and 
corporate governance.

Attendance
We held ten scheduled Board meetings 
and two ad hoc Board meetings in 
2019/20. Board and committee 
members are provided with papers 
in a timely manner in advance of 
each meeting on a secure electronic 
portal. In addition, the chairman holds 
private sessions with our independent 
non-executive directors before Board 
meetings. Dinners are held for all Board 
members to have informal discussions 
on business matters. If directors are 
unable to attend a meeting, they 
typically give their views and comments 
to the chairman in advance. 

Member

Jan du Plessis 
(chairman)

Philip Jansen

Simon Lowth

Ian Cheshirea

Iain Conn

Tim Höttges

Isabel Hudson

Mike Inglis

Matthew Key

Allison Kirkby

Leena Nairb

Nick Rose

Jasmine Whitbreadc

Attended

Eligible
to attend

10

10

10

1

10

8

10

10

10

10

6

10

6

10

10

10

1

10

10

10

10

10

10

7

10

7

a  Ian was appointed to the Board on 16 March 2020
b  Leena was appointed to the Board on 10 July 2019
c  Jasmine stepped down from the Board on  

6 December 2019.

Due to prior business commitments, Tim was unable 
to attend two Board meetings and Jasmine was 
unable to attend one. Leena was unable to attend a 
Board meeting due to a prior business commitment 
which she had notified us of prior to her appointment 
to the Board. 

BT Group plc Annual Report 202071

Stakeholders and key strategic 
decisions
See pages 24 to 29 of the Strategic  
report for more details on our key 
stakeholders. Examples of some 
of the decisions the Board and its 
committees have taken throughout 
the year and how stakeholder interests 
and the directors’ section 172 duties  
have been considered in reaching 
those decisions are also set out in the 
Strategic report on page 34.

Key responsibilities

The Board is responsible for establishing the group’s purpose and values 
and satisfying itself that these align to our culture and the group’s strategic 
direction, long-term objectives and development. The Board also maintains 
oversight of the group’s operations, performance and governance and ensures 
compliance with statutory and regulatory obligations. It also determines the 
group’s risk appetite and ensures that we have in place a robust system of 
internal control and risk management, and is responsible for ensuring that 
the group has the necessary leadership team in place to efficiently execute 
its strategy.

The matters reserved to the Board can be found on our website bt.com/about

Activities in 2019/20

Below are some of the matters that the Board discussed during the year:

Strategy and operations

Chief executive’s 
report

The chief executive provides an update at every Board meeting to give directors a good understanding 
of operational issues and the competitive and regulatory environment that affects BT and the wider 
communications industry. He also discusses the progress against our strategic priorities and transformation 
programmes, as well as performance, investor relations matters, sustainability and stakeholder updates.

Strategy and 
strategic priorities

The Board discussed the group’s strategy with management in detail at two full-day strategy meetings. This 
included reviewing the ambitions in each of the customer-facing units and Technology, taking into account 
the long-term future for the business, investment priorities and impacts on different stakeholder groups. 
Throughout the year, the Board received updates from each customer-facing unit CEO on their strategic 
priorities, progress on key initiatives and the plans for addressing key issues and material risks to deliver them. 
As part of our ongoing transformation of the Global unit, the Board was provided with updates on potential 
divestments, which were discussed and approved as appropriate (see page 34).

Transformation

The Board discussed with management the group’s transformation and simplification plans, progress made to 
date and further ways in which we will continue to drive efficiencies and simplification.

Covid-19

The Board received updates in relation to Covid-19, including the work undertaken to protect our colleagues, 
support the NHS and other stakeholders and manage the potential impacts for our business.

Corporate rebrand

In advance of the BT brand relaunch, the Board and management discussed our corporate rebrand and 
the corporate purpose, Beyond Limits, alongside our digital impact and sustainability programme, Skills for 
Tomorrow. Regular updates on the various underlying initiatives and feedback from different stakeholders were 
provided.

FTTP

The Board discussed and evaluated the group’s investment business case for FTTP build throughout the year, 
reviewing various scenarios, and balancing the interests and impact for both Openreach, the group and different 
stakeholder groups. Consequently, the Board supported our increased ambition for our full fibre build to reach 
20m premises by the mid-to-late 2020s subject to the required critical enablers.

Building Digital 
UK (BDUK) 
submissions

The Board considered and approved BDUK tender submission bids by Openreach, for example the bid strategy 
and investment in relation to the R100 programme to deliver superfast broadband in Scotland, which was 
subsequently successful.

Shared rural 
network

The Board considered and approved our participation in the joint mobile operator initiative that enables greater 
mobile connectivity in rural areas in the UK.

Wholesale Fixed 
Telecoms Market 
Review 2021-26 
(WFTMR) 

Ofcom’s WFTMR consultation was released in January 2020 which provided additional clarity on the regulatory 
enablers for any investment in fibre. The Board discussed our position in relation to each regulatory enabler and 
our engagement with Ofcom as part of our response to the consultation.

BT Group plc Annual Report 2020Corporate governance report72

Activities in 2019/20 continued

Spectrum

The Board considered the bid strategy and overall spend for the upcoming spectrum auction, balancing short-
term investment spend for the business with the long-term benefits in relation to delivering on our strategy.

Sports rights

Suppliers 

The Board evaluated several scenarios in relation to bidding for exclusive sports rights to UEFA Champions 
League, UEFA Europa League and UEFA Europa Conference League until 2024, taking into account the overall 
investment cost and the benefit to the business and consequently approved the bid strategy.

The Board received updates on any notable points in relation to key suppliers from the chief executive. During 
the year, it was also updated by relevant members of management on the Government’s review of high-risk 
vendors (including Huawei) and planning for potential decisions by the Department for Digital, Culture, Media & 
Sport (DCMS) including the impact to BT of the DCMS announcement in January 2020.

Customers

The Board discussed with each of the customer-facing units, the current performance, ambitions and areas
for improvement, and the priorities for continuously improving our customer experience performance.

BT Halo

Having discussed the proposal, the Board approved the investment in the BT Halo product, a hybrid solution to 
enable a better service for our customers. 

Finance and risk 

Financial 
performance

The chief financial officer provides an update on BT’s financial performance and outlook at every meeting. The 
Board discussed and approved the financial statements and results announcements at year-end, half-year and 
at each quarter, as well as the group’s tax strategy.

Distribution policy

In May 2020, having considered the various stakeholder interests, in particular the long-term interests of our 
shareholders, the Board concluded the prudent decision was to suspend the final dividend for 2019/20 and 
all dividends for 2020/21, and to re-base future dividends to a more sustainable level. This decision will create 
capacity for BT to invest in long-term, value-enhancing opportunities, including our strategic intent for an 
accelerated FTTP build and our transformation and modernisation programme, coupled with the shorter-term 
impact of Covid-19. The Board expects to continue with a progressive dividend policy from this re-based level 
for future years (see page 44).

Group funding

The Board considered and approved the annual funding plan in May 2019, BT Group plc acting as guarantor 
to the Euro Medium Term Note programme in July 2019, the US 144A programme in November 2019 and the 
hybrid bond issuance in February 2020 in line with the group’s funding strategy.

Risk management

The Board commented on and approved the group risk register, having discussed the principal risks and 
uncertainties facing the group. Both the Board and the Audit & Risk Committee held detailed reviews into several 
of our principal risks. Further details on our principal risks are set out on pages 52 to 63. On behalf of the Board, 
the Audit & Risk Committee also undertook detailed reviews of BT’s risk management and internal control 
systems and provided regular updates to the Board.

 Pensions

In preparation for the next triennial funding valuation of the BT Pension Scheme, the Board was updated on the 
funding position and changes in the external environment.

Investor 
perceptions and 
shareholder 
relations, 
consideration of 
analysts’ reports

The Board received regular reports outlining share register movement, relative share price performance, investor 
relations activities and engagement with shareholders. The Board considered feedback from this and also 
discussed with the brokers the telco market, performance and our share price relative to the market. As part of 
changes to our Directors’ Remuneration Policy (the Policy), the Remuneration Committee chair engaged with 
a number of our investors (see page 84), taking account of their feedback as part of the new Policy being put to 
shareholders for approval at the 2020 AGM (see pages 90 to 97).

BT Group plc Annual Report 202073

Colleagues

Culture and talent

Engagement

The Board discussed the group’s culture including reviewing our purpose, values, behaviours and workforce 
policies and how they align with our culture, aspirations and initiatives, including the consideration of any key 
indicators to monitor progress. The Board was updated on diversity, our initiatives in this area and current 
progress made to meet our targets. 

Having considered various options for the mechanism by which the Board could better engage with our 
colleagues, it established the Colleague Board with the aim of strengthening our understanding of colleagues’ 
views (see pages 32 and 33). Feedback from the Colleague Board is shared and discussed with the Board by 
Isabel Hudson, our designated non-executive director for workforce engagement. The Board also received 
updates on the various other mechanisms and initiatives that we use across the business to engage with our 
colleagues (see page 25). This included updates on progress in relation to BT’s strategic sites and hub locations 
in the UK as part of our Better Workplace Programme.

Health, safety and 
wellbeing

The Board received reports on the health, safety and wellbeing of our colleagues across the business including 
those in Openreach and discussed the measures being taken and any systems in place to mitigate the risk of 
incidents. 

Governance

Secretary’s report

NYSE delisting, 
ADR programme 
termination and 
SEC deregistration

At every Board meeting, the company secretary reports on key corporate governance developments, such as 
institutional investor guidelines and updates, and any governance recommendations for consideration, approval 
or information.

The Board considered and approved the proposal and rationale for delisting from the NYSE, termination of the 
ADR programme and the deregistration from the SEC, including any related actions and communications (see 
page 34). 

Annual Report 
2020

The Board reviewed and approved the Annual Report on the recommendation of the Audit & Risk Committee, 
having considered that taken as a whole, it is fair, balanced and understandable and provides the information 
necessary for shareholders to assess the group’s position and performance, business model and strategy. 

AGM

The Board approved the AGM resolutions for recommendation to shareholders including the Directors’ 
Remuneration Policy and updated share plan rules (on recommendation from the Remuneration Committee). 

Committee 
reports

The committee chairs reported back to the Board on matters discussed at each of their committee meetings. 
Details of their key activities can be found in each committee’s respective report.

Board, committee 
and directors’ 
evaluations

During the year, we carried out an internal evaluation of the Board and its committees. The details of this for the 
Board can be found on page 75 and for each committee in their respective reports. The chairman held individual 
discussions with each director to make sure they continue to contribute effectively and were committed to their 
roles. The senior independent director led the evaluation of the chairman’s performance, taking into account the 
views of the other directors.

Matters reserved 
to the Board and 
committee terms 
of reference

The Board carried out a comprehensive review and approved the updated matters reserved to the Board. An 
annual review of the terms of reference for each Board committee was also undertaken to ensure they continued 
to be fit for purpose and reflected best practice.

BT Group plc Annual Report 2020Corporate governance reportTime commitment
By accepting their appointment, 
directors must confirm they are able to 
allocate sufficient time to discharge their 
responsibilities effectively. 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 offsites or away days. Directors are 
also expected to devote sufficient time to 
prepare for each meeting and to take part 
in at least one visit to one of our offices or 
other sites each year. Before accepting 
external appointments, directors are 
required to obtain the prior approval of 
the Board.

74

Composition, succession and evaluation

Board induction
When appointed, directors have a 
comprehensive induction programme 
to give them a thorough overview and 
understanding of the business. This is 
tailored to take into account a director’s 
previous experience, their responsibilities 
and, for non-executive directors, specific 
committee responsibilities relevant to 
their committee memberships. The 
programme includes meetings with 
the chairman, chief executive, senior 
independent director and the company 
secretary, as well as other Board and 
Executive Committee members and 
senior management. Directors are 
encouraged to visit our offices and sites, 
including contact centres and BT/EE 
shops, as well as spending a day with 
an Openreach engineer. Directors also 
receive key information on our governance 
framework, recent financial data and the 
policies supporting our business practices, 
including our ethics code.

Training and development
The chairman reviews training and 
development needs with all directors. 
Non-executive directors regularly 
meet with management, enhancing 
their understanding of the business 

through briefing sessions. We encourage 
all directors to keep their skills and 
knowledge up-to-date and ask for any 
support they need. As part of ongoing 
development, the company secretary 
briefs the Board and committees on 
any significant legal, regulatory and 
governance developments. During the 
year, these briefings included updates 
on the UK Stewardship Code 2020, 
updated institutional investor guidelines, 
the Brydon Review and the FRC’s Annual 
Review of the Code. Directors are 
updated as required on developments 
in the environment in which the business 
operates and internal and external 
advisers are invited to provide updates as 
necessary.

Each director may obtain independent 
professional advice at the company’s 
expense as required. Each committee is 
supported by the company secretary and 
her team.

We encourage all directors to visit our 
sites and offices to meet our colleagues 
and broaden their understanding of the 
business. In 2020, this included a visit to 
Adastral Park (see page 70).

Leena’s induction
Leena’s induction comprised:
•  introductory meetings with members of the 
Executive Committee and other members of 
senior management

•  a series of meetings with key members of the 
digital impact & sustainability and reward 
teams, as well as with our remuneration 
advisers, given Leena became a member of the 
Remuneration Committee and Digital Impact
& Sustainability Committee on appointment 
to the Board and thereafter chair of the 
Digital Impact & Sustainability Committee in 
December

•  introductory meetings with Tony Cates, 

lead audit partner, KPMG

•  a visit to Adastral Park to gain an insight into 

BT’s research and development focus and gain 
a broader insight to our business 

•  attending one of Openreach’s training schools 

in Peterborough with Clive Selley, CEO 
Openreach.

BT Group plc Annual Report 2020Election and re-election of directors
The Nominations Committee considers, 
in respect of each director, their skills and 
experience, time commitment, tenure 
and independence as part of the Board’s 
recommendation to shareholders for 
the election or re-election of directors. 
The Board believes that each director 
who is being put forward for election 
or re-election at the 2020 AGM brings 
considerable knowledge, wide-ranging 
skills and experience to the Board, makes 
an effective and valuable contribution and 
continues to demonstrate commitment to 
their role. 

Further to the changes to the Board 
announced on 1 May 2020, the Board 
recommends to shareholders at the 2020 
AGM the election of Adel Al-Saleh, Ian 
Cheshire, Leena Nair and Sara Weller, 
and the re-election of all other directors, 
with the exception of Nick Rose and Tim 
Höttges.

   Details of all directors’ contracts or letters of 
appointment are in the Report on directors’ 
remuneration on page 107.

75

Board evaluation
Internal evaluation 2019/20
During 2019/20 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, covering topics such 
as composition, requirements of stakeholders, the monitoring of culture, the 
quality of support provided to the Board and succession planning. The output of 
the evaluation was discussed and debated by the Board and each committee. 
The agreed actions for each committee are set out in the respective committee 
reports. 

There was positive feedback on the relationships between Board members  
and between the Board and management, highlighting shared understanding, 
good challenge and high levels of trust and discussion. The Board is considered 
to be well balanced with reference to all forms of diversity including gender,  
skills and experience. 

Our key areas of focus for 2020/21 are:

Key areas of focus

Agreed actions

Talent management 
and succession 
planning for 
executives

Greater time should be spent on senior executive 
succession planning during 2020/21. Consider 
alternate ways in which Board members can meet 
and engage with key talent.

Review the 
effectiveness  
of material past 
decisions

Board papers and 
information

The Board should consider the most effective 
way in which it can spend time reviewing the 
effectiveness of material past decisions and 
capturing lessons learned.

Further improve papers through better 
signposting and ensuring they are clearer in 
identifying the key issues and the asks of the 
Board.

Board and committee  
discussion time

Review the agendas and duration of topics with 
presenters to allow for increased discussion time 
as appropriate.

In line with the Code, in 2020/21, the Board and committee evaluation will be 
externally facilitated.

Internal evaluation 2018/19
The progress against the agreed key actions in relation to our 2018/19 internal 
evaluation (disclosed in last year’s report) are set out below:

Agreed key areas of focus

Progress during 2019/20

Strategy setting and 
strategic priorities

Cultural 
transformation

Talent management 
and succession 
planning for 
executives

Biannual Board strategy days held in which 
the Board and management considered and 
discussed the market and the future business for 
BT to set strategic priorities and focus.

Our cultural transformation was discussed by the 
Board and its committees several times during 
the year. Cultural alignment with brand, values 
and behaviours is continuously considered by 
management. The Board’s visit to Adastral Park 
during the year provided an opportunity for the 
Board to engage with colleagues at different 
levels within the organisation.

The Board discussed succession planning during 
the year and this was also considered in detail 
by the Nominations Committee. The Board and 
its committees have had increased visibility of 
colleagues below Executive Committee level 
through presentations during the year.

BT Group plc Annual Report 2020Corporate governance report76

Nominations 
Committee
Chair’s report

The focus for this  
committee this year was 
appointing new executive 
directors with appropriate 
skills and experience, with 
Board diversity continuing  
to be a priority.

Membership and key responsibilities
We are responsible, on behalf of the 
Board, for keeping under review the 
succession planning of executive and 
non-executive directors, together with 
the composition of the Board and its 
committees. All non-executive directors 
are members of the committee. The 
chief executive attends meetings where 
appropriate. The company secretary is 
secretary to the committee and attends 
all meetings. No committee member 
or attendee attends when their own 
performance is discussed.

Attendance

Member

Attended

Eligible to 
attend

Jan du Plessis (chair)

Ian Cheshirea

Iain Conn

Tim Höttges

Isabel Hudson

Mike Inglis

Matthew Key

Allison Kirkby 

Leena Nairb

Nick Rose

Jasmine Whitbreadc

7

1

7

4

7

7

7

7

6

7

4

7

1

7

7

7

7

7

7

6

7

4

a   Ian joined the committee on 16 March 2020
b  Leena joined the committee on 10 July 2019
c  Jasmine stepped down from the committee on  

6 December 2019.

Tim was unable to attend two committee meetings 
due to prior business commitments and one due to 
illness.

The committee’s key responsibilities 
are set out in its terms of reference 
available on our website bt.com/about

Jan du Plessis
Chair of the Nominations Committee  
6 May 2020

Activities in 2019/20
The committee held seven meetings 
during the year. The committee 
considered, with subsequent 
recommendation to the Board for 
approval as appropriate:

•  Board composition and a review of 

the skills, experience, independence, 
knowledge and diversity requirements 
in line with the current and future needs 
of the business

•  potential candidates for appointments 

to the Board and changes to the 
membership of committees 

•  the independence of non-executive 

directors and the proposals for election 
or re-election of directors at the 2020 
AGM

•  the letters of appointment of the 

independent non-executive directors,
following which the Board decided to 
amend these to be on a rolling basis 
subject to three months’ notice being 
served by either party, in line with the 
Code

•  changes to the composition of the 

board of Openreach Limited

•  the performance and development 
areas and the succession plans for 
members of the Executive Committee.

New non-executive director 
appointments
As stated in our 2019 Annual Report, it 
was expected that Jasmine Whitbread 
and Nick Rose would step down from 
the Board by the end of the 2020 AGM. 
During 2019/20, we announced three 
non-executive appointments to the 
Board: Leena Nair, Ian Cheshire and Sara 
Weller. Below is a summary of the process 
we followed in appointing them:

Candidate requirements
The committee identified and 
discussed the capabilities and 
experience of potential new 
non-executive directors, considering 
the composition of the Board and the 
experience and skills needed to drive 
the future success of the business. 
Diversity of background and opinion 
was also recognised as important.

Search process
The process was led by the chairman. 
MWM Consulting, an independent 
external search agency, who 
had no other connection to BT, 
facilitated the process. The chairman 
considered a list of candidates with 
MWM Consulting. A shortlist of 
candidates were invited to interview.

Interviews
The chairman, chief executive 
and some committee members 
interviewed the shortlisted 
candidates. 

New non-executive directors 
appointed
All interviewers provided feedback on 
the candidates to the chairman. As a 
committee we discussed the relative 
merits of each candidate based on 
the criteria for each appointment. 
We proposed Leena, Ian and Sara’s 
appointments to the Board which 
were subsequently approved. 

On 1 May 2020, the committee 
recommended to the Board the approval 
of Adel Al-Saleh’s appointment as a non-
independent, non-executive director 
and Deutsche Telekom’s nominated 
representative to replace Tim Höttges 
with effect from 15 May 2020. Adel will 
also be a member of the Nominations 
Committee.

BT Group plc Annual Report 2020Non-executive directors’ tenure
As at 6 May 2020

0-1 years

2-3 years

4-6 years 

7-9 years

9+ years

Post 2020 AGM

0-1 years

2-3 years

4-6 years 

7-9 years

9+ years

No.

4

1

4

-

1

No.

6

1

3

-

-

%

40

10

40

-

10

%

60

10

30

-

-

Diversity and independence
As at 6 May 2020

Chairman*
1

Executive directors
2

Non-independent, 
non-executive directors
1

Independent 
non-executive directors
8

Post 2020 AGM

Chairman*
1

Executive directors
2

Non-independent, 
non-executive directors
1

Independent 
non-executive directors
8

As at 6 May 2020
Male  
Female  

9 
3 

(75%)
(25%)

Post 2020 AGM
8 
Male  
4 
Female  

(67%)
(33%)

* Independent on appointment to role

Independence of directors
The majority of the Board are 
independent non-executive directors. The 
chairman was judged to be independent 
at the time of his appointment and 
all other non-executive directors are 
considered to be independent under the 
terms of the Code, with the exception 
of Deutsche Telekom’s nominated 
representative. He owes fiduciary duties 
to both BT and Deutsche Telekom. Our 
Conflicted Matters Committee identifies 
potential or actual conflicts of interest and 
helps him comply with his fiduciary duties 
but the ultimate responsibility rests with 
the nominated representative.

Given Nick Rose began his nine year 
tenure as a non-executive director on  
1 January 2011, the committee and the 
Board undertook a thorough review of his 
independence. The committee considered 
his personal qualities and circumstances, 
including any business or relationships 
that could materially interfere with 
his ability to exercise objective or 
independent judgement or his ability to 
act in the best interests of the group. The 
committee and the Board concluded 
that he continues to be independent of 
management and a valuable director, 
with experience in the areas of finance, 
risk, control and governance. Given 
appointments of new non-executive 
directors during the last year and a half, 
and the resignation of Jasmine Whitbread 
in December 2019, it was felt that Nick 
offered consistency and experience over 
this period of transition. Changes at chief 
executive level also mean that Nick does 
not have long-standing relationships 
with senior management, and Nick holds 
other directorships outside of BT further 
supporting his independence. As stated 
in my governance letter, Nick has decided 
to step down at the conclusion of the July 
2020 AGM.

77

Diversity
Diversity was a key factor in reviewing the 
Board’s composition and recommending 
appointments. We are keen to have a 
Board with a diversity of skills, gender, 
social and ethnic backgrounds, 
cognitive and personal strengths, with 
appointments based on merit. We 
continue to challenge our external search 
consultants where necessary to ensure 
that diversity is always considered when 
drawing up candidate shortlists.

At the date of this report, we have three 
female Board members out of 12, 
equivalent to 25% female. At the end of 
the 2020 AGM, we will have reached our 
current Board diversity target of having 
33% female representation on the Board 
(four out of 12).

We believe that diversity and inclusion are 
important throughout the group and at 
all role levels within the business. During 
the year, the Board reviewed BT’s diversity 
commitments and progress made in this 
area. Gender diversity across our senior 
leadership team has improved this year, 
with 29% of our Executive Committee and 
their direct reports being female.

Details of our approach to inclusion and 
diversity are on pages 30 and 31. 

Succession planning
During the year, we reviewed Executive 
Committee members’ performance and 
focused on succession planning. The chief 
executive, with the support of the group 
HR director, is responsible for developing 
succession plans for executives and senior 
management, and these were considered 
by the committee. 2019/20 has been a 
year of significant change in the business 
as we continued to transform BT. The 
committee and the Board discussed the 
importance of identifying critical roles 
within the business to ensure we retain 
and motivate key talent and have the 
necessary skills for the future.

Committee evaluation 2019/20
During 2019/20, we carried out an internal evaluation of the committee led by the 
chairman and the company secretary. Members and regular attendees completed 
questionnaires and the responses and key findings were discussed by the committee. 
The committee has agreed these key areas of focus for 2020/21:

Key areas of focus

Agreed actions

Board diversity

Information to  
the committee

Continue to focus on Board diversity, specifically in 
relation to gender. 

Ensure all committee members are kept updated on 
the progress of searches ahead of any final 
recommendation for new non-executive directors 
being proposed to the committee.

BT Group plc Annual Report 2020Corporate governance reportBT Group plc Annual Report 2020

78

Audit & Risk 
Committee
Chair’s report

This year we continued 
to monitor the quality, 
reliability and resilience 
of our key controls and 
undertook detailed  
reviews of a selection  
of principal risks.

Nick Rose
Chair of the Audit & Risk Committee  
6 May 2020

Attendance

Member

Nick Rose (chair)

Iain Conn

Mike Inglisa

Matthew Key

Allison Kirkby

Jasmine Whitbreadb

Attended

Eligible to 
attend

9

8

3

9

9

6

9

9

3

9

9

7

a  Mike joined the committee on 1 November 2019
b  Jasmine stepped down from the committee on 

6 December 2019.

Iain and Jasmine were each unable to attend 
one committee meeting due to prior business 
commitments.

Other attendees

Regular
attendee

Attends as
required

•

•

•

•

•

Chief financial officer

Director, group finance

Director of risk, 
compliance & 
assurance

External auditors

Group general 
counsel

External reporting & 
financial controls 
director

Group risk director

Internal audit director

Ethics & compliance 
director

•

•

•

•

The committee’s key responsibilities are set 
out in its terms of reference available on our 
website bt.com/about

This will be my last report as chair of the 
Audit & Risk Committee as I will step down 
from the Board at the conclusion of the 
2020 AGM. Over the last ten years, this 
committee has dealt with some significant 
challenges, most notably the accounting 
irregularities in Italy. Consequently, the 
number and length of meetings has 
been substantial. I am indebted to my 
long-standing members, Iain Conn and 
Jasmine Whitbread, for their time and 
counsel. Recently we have strengthened 
the committee with new additions of 
Matthew Key, Allison Kirkby and Mike 
Inglis. Matthew will succeed me as chair 
at the conclusion of the 2020 AGM. I am 
confident that I leave the committee well 
resourced in numbers and capability.

Membership and key responsibilities
The committee acts independently 
of the executive. Our members are all 
independent non-executive directors, 
with a range of skills and the committee 
as a whole has experience relevant to 
the sector. Matthew, Allison and I have 
recent and relevant financial experience, 
as required by the Code, and we are the 
designated financial experts for Sarbanes-
Oxley Act purposes.

The company secretary is secretary to the 
committee and attends all meetings. The 
chairman and chief executive attended 
most committee meetings during the year.

The committee met nine times during the 
year, in line with the financial reporting 
timetable. As chair of the committee, I 
meet with the regular attendees ahead 
of meetings to discuss the key areas of 
focus. After each meeting, I report back to 
the Board on the committee’s activities, 
the main issues discussed and matters 
of particular relevance, with the Board 
receiving copies of the committee’s 
minutes. The external auditors were 
not present at meetings where their 

performance and/or remuneration was 
discussed. During the year, we held several 
private sessions with BT’s internal and 
external auditors, without management 
being present.

Activities in 2019/20
Sarbanes-Oxley and internal controls
Management is responsible for 
establishing and maintaining an adequate 
system of internal control, while the 
committee is responsible for overseeing 
the effectiveness of these controls. 
Last year, I reported on management’s 
implementation of the group-wide 
Sarbanes-Oxley control enhancement 
programme led by our second line of 
defence financial controls and assurance 
team with support from Deloitte and Ernst 
& Young. 

This year, the committee has continued to 
monitor the ongoing implementation of 
this enhancement programme, including 
overseeing the key risk areas. During 
the year, management has made good 
progress in remediating the areas of 
material weakness identified in the prior 
year in relation to IT general controls and 
risk assessment but we still have more to 
do. 

In 2019/20, for IT general controls, 
management enhanced the controls 
supporting the additional applications 
brought into scope in 2018/19, 
introduced a process to ensure changes to 
IT controls receive an appropriate level of 
approval testing, and made improvements 
to the strength of passwords in legacy 
systems and the timely removal of 
application access for leavers. Within EE, 
management ensured SAP privileged user 
access for development activity was no 
longer granted.

For risk assessment, management have 
completed the identification and mapping 
of transactional process risk points to 
their related controls for the majority of 
group processes, completed substantial 
documentation and testing over 
‘Information Produced by the Entity’ and 
have appropriately addressed the risks of 
material misstatement associated with 
the key outsourced service organisations 
identified last year. 

Despite these improvements, remediation 
and testing of all remediating plans 
was not complete at 31 March 2020. 
Following a thorough review with the 
external auditors and the committee, 
management has concluded that, 
although good progress has been made 
in narrowing the material weaknesses, our 
internal control over financial reporting 
remained ineffective as at 31 March 2020, 
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 plc Annual Report 202079

in financial year 2020/21. The committee 
will continue to monitor management’s 
progress in their remediation activities.

The committee has also overseen the 
steps taken to conclude that these 
material weaknesses do not result in any 
identified material misstatements in the 
current period financial statements nor 
any prior year financial statements. These 
include the introduction of data analytic 
testing as part of the programme of 
detailed balance sheet reviews performed 
by the group financial controls and 
compliance team. These reviews included 
our operations outside the UK and our 
major contracts and did not identify 
significant issues or areas of concern. 

For 2020/21, management has 
implemented the SAP Governance, Risk 
and Compliance module to support the 
end-to-end monitoring of our financial 
controls. 

The committee continues to focus on 
monitoring and overseeing management 
on these improvements to governance, 
compliance and financial safeguards.

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. Our risk management processes, 
which have been in place throughout the 
period under review, identify and monitor 
the risks facing the group. The Executive 
Committee, the Board and this committee 
regularly review the risks we consider to be 
material.

During the year, in reviewing the 
management of our risks, the committee 
undertook detailed reviews of some of our 
principal risks (with others being discussed 
by the Board). These sessions focused 
on the committee holding open and 
honest discussions with the risk owners to 
understand current and anticipated risk 
developments and how management is 
managing them. The committee used these 
discussions to assess the effectiveness of 
our control and mitigation activities and 
any areas for improvement. I subsequently 
reported the outcome of each of these risk 
sessions to the Board. 

   Further information on risk management 
can be found in the How we manage risk 
section on pages 52 to 63.

During the year, the committee also 
reviewed and inputted into the proposed 
enhancements to the risk management 
framework, including the definition of 
a new pan-BT risk landscape. This will 
support the way risk management is 
structured and rolled out across the 
organisation.

Key matters considered by the Audit & Risk Committee

April 2019 (two meetings) 
•  External audit and non-audit fees
•  Committee and external auditors’ 

effectiveness
•  Pensions and tax
•  Sarbanes-Oxley update
•  Full year results and Annual Report 

2019
•  Goodwill
•  Viability and going concern 

statements

October 2019
•  External auditors’ non-audit fees
•  External auditors’ engagement letter
•  Sarbanes-Oxley update
•  2019/20 half year results
•  Internal and external auditors’ reports
•  Going concern
•  Ethernet backhaul direct service level

guarantee payment

•  One BT Integrity & Compliance 

programme

•  Internal control requirements under 

•  Technology risk compliance and 

the Code 

security programme 

•  One BT Integrity & Compliance 

•  Corporate income tax accounting.

programme

•  Internal and external auditors’ 

year-end reports

•  Internal audit plan and internal audit 

December 2019
•  Privacy and data protection risk
•  BT Compliance Committee chair 

charter 

•  Ethics & compliance and Speak 

Up cases.

June 2019
•  NYSE delisting, ADR programme 

report

•  Sarbanes-Oxley update
•  Ethics & compliance, regional 

governance committees update and
Speak Up cases

•  International audit coverage and 

termination and SEC deregistration

trend analysis.

•  Regulatory financial statements 

2018/19

•  Ethics & compliance, including Speak 

Up cases

•  M&A financial commitments and 

potential liabilities register.

July 2019
•  Year-end review of external auditors
•  Openreach board audit, risk and
compliance committee’s annual 
update

•  First quarter trading update
•  Internal audit report
•  Regulatory financial statements 

2018/19

•  Sarbanes-Oxley update
•  Audit quality review
•  External auditors’ non-audit fees
•  Consumer commercial policies
•  M&A financial commitments and 

potential liabilities register

•  Major contentious matters report.

September 2019
•  Risk landscape and principal risks
•  Consideration of management of 

significant financial controls

•  Finance transformation
•  Procurement supply chain risk
•  2019/20 external audit plan and 

strategy

January 2020
•  Third quarter trading update
•  Sarbanes-Oxley update
•  External and internal audit reports
•  Update on the Brydon Review
•  Non-audit fees policy
•  External auditor’s fees and non-audit 

fees

•  Major contentious matters report.

March 2020
•  Sarbanes-Oxley update
•  External auditor’s report
•  Draft Annual Report 2020 and the 

Form 20-F 2020

•  Year-end accounting policies
•  Reporting developments and pension 

matters

•  Group internal audit plan
•  Service interruption risk
•  Ethics & compliance report risk and 

Speak Up report
•  Terms of reference
•  Corporate income tax accounting.

April 2020 
•  External auditors’ fees and non-
audit fees, effectiveness and re-
appointment

•  Sarbanes-Oxley update
•  Full year results and draft Annual 

•  Supplier risk and assurance KPIs.

Report 2020 and the Form 20-F 2020

•  Viability and going concern 

statements

•  Internal and external auditors’

year-end reports

•  Group internal control requirements 

under the Code

•  Group internal audit charter
•  Major contentious matters report
•  Duty to Report – payment practices.

BT Group plc Annual Report 2020Corporate governance report80

Audit & Risk Committee chair’s report continued

The Board is ultimately responsible for 
the group’s system of risk management 
and internal control. See US Regulation 
on page 112 for details on our internal 
controls assessment for the purposes of 
the Sarbanes-Oxley Act.

One BT Integrity & Compliance programme
As I reported last year, the risk, compliance 
and assurance (RCA) function launched 
a programme called One BT Integrity & 
Compliance. The aim of this programme 
is to design, build and operate a stronger, 
simpler and clearer risk, controls and 
assurance framework. This is supported by 
the right culture and capabilities to provide 
the confidence to take on risk smartly and 
safely and to deliver a more valuable and 
resilient BT for all of our stakeholders.

The One BT Integrity & Compliance 
programme delivered improvements 
throughout the year including:

•  Enhancements to the quarterly 

customer-facing and corporate units’ 
audit & risk committees (ARCs), making 
them more streamlined and action 
focused. The ARCs highlight significant 
risk, compliance and assurance issues, 
and the actions required to fix them, 
including those requiring escalation to 
the chief executive or this committee

•  An effective RCA operating model 
with a new group RCA leadership 
team supported by both specialists 
in a central team, and a deployed 
team across the customer-facing and 
corporate units

•  The appointment in the year of new 

senior leaders such as our risk director, 
ethics and compliance director, and 
internal audit director; along with 
enhanced management in each of 
these teams

Finance transformation programme
The committee discussed delivery and 
implementation of the end-to-end 
finance transformation programme 
which has the objective of modernising 
our key reporting and transactional 
processes, systems and controls. The 
committee received updates on progress 
and provided challenge in order to 
monitor and support the success of the 
programme. Management, through a 
combination of external recruitment 
and internal training of colleagues, has 
sufficient resource to implement the new 
finance process design. A new group-wide 
finance transformation director has been 
appointed to lead the implementation 
and each customer-facing and corporate 
unit has a senior transformation lead. 
Progress in the year includes the definition 
of our pan-BT standard information 
model, standard definitions of our key 
transactional processes, go live of our 
travel and expense, data and new controls 
systems, as well as front end sourcing.

Financial reporting
The committee considered and assessed:

•  the full year and half year results, 
and quarterly trading updates 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.

•  Articulation of a new simple, clear and 
robust risk management framework.

Significant issues considered  
in relation to the financial statements

•  Development and use of enhanced 
risk deep dive templates to provide 
consistency to our reviews of principal 
risks.

The focus next year will be to continue 
to implement the risk management 
framework, and a revised policy 
landscape, embedding the output 
from this work into the day-to-day 
management and organisational 
capabilities and culture of BT. The 
committee will continue to monitor 
progress against these deliverables.

Covid-19

The committee considered the 
judgements made in evaluating the 
impact of Covid-19 on the financial 
statements, including the impact 
on expected credit losses on trade 
receivables and contracts assets, contract 
loss provisions and programme rights 
assets and commitments.

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 implementation of IFRS 
16 Leases, and the impact of Covid-19 on 
the financial statements. 

Going concern

The committee considered 
management’s forecasts of group cash 
flows and net debt, as well as our liquidity 
requirements and borrowing facilities, 
including downside scenarios reflecting 
the full financial impact of our highly 
severe Covid-19 scenario with our political 
risk from a disorderly Brexit, alongside 
supply chain risk from a complete ban on 
certain high-risk vendors. 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 our going concern assessment is 
set out on page 110.

Viability statement

The committee assessed 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. The committee also 
considered the group risks included in 
management’s stress testing model, 
including downside scenarios reflecting 
the full financial impact of our highly 
severe Covid-19 scenario with our political 
risk from a disorderly Brexit, alongside 
supply chain risk from a complete ban on 
certain high-risk vendors. 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 64.

Regulatory reporting

The committee supported the continued 
changes across people, processes and 
systems that were put in place to ensure 
that we met our 2019/20 regulatory 
financial reporting obligations.

BT Group plc Annual Report 2020provisions of the Competition 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 
their letter of engagement. The committee 
approved KPMG’s audit plan and 
management’s letter of representation. The 
committee also considered the proposed 
external audit fees for the year ended 31 
March 2020, as well as the recurring audit 
fee for the regulatory financial statements, 
the interim review fee and the one-off audit 
fee relating to the implementation of IFRS 
16, and subsequently approved these fees. 
Further information can be found in the 
Independent auditors’ report on pages 
118 to 123.

Auditors’ independence, objectivity  
and effectiveness
The committee discussed the auditors’ 
independence and areas that could give 
rise to a conflict of interest, and looked 
at safeguards that they have in place to 
prevent compromising their independence 
and objectivity. We have a policy in place 
detailing non-audit services that can be 
provided by the external auditors, which 
has been updated in line with the latest 
ethical standards. 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. 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 8 
to the consolidated financial statements. 

81

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 2% of the 
total fees (2018/19: 6%).

The committee also reviewed the quality 
of the audit and the performance of the 
external auditors throughout the year. The 
committee concluded that the external 
auditors continue to be independent 
and recommended to the Board that 
KPMG be put to our shareholders for re-
appointment at the 2020 AGM.

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.

Governance and compliance
We received and considered reports 
from management on BT’s ethics and 
compliance priorities, including Speak Up, 
our confidential hotline. In particular, the 
committee discussed BT’s management of 
allegations of misconduct. The committee 
ensures 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 2019/20
During 2019/20, we carried out an internal evaluation of the committee led by the 
chairman and the company secretary. Members, attendees and KPMG, completed 
questionnaires and the committee discussed the responses and key findings. The 
committee agreed the following key actions for 2020/2021:
Key areas of focus

Agreed actions

Internal control 
environment

Increase focus and scrutiny of internal controls, including IT 
general controls and information used in controls. Further 
time to be spent on the IT and technology landscape to 
understand what changes are required and to monitor and 
challenge progress.

Major 
transformation 
projects

Closely monitor major finance, control and compliance 
transformation projects including the One BT Integrity 
& Compliance programme and the progress of finance 
transformation.

Detailed risk 
reviews

Continue with and enhance detailed reviews into pan-BT key 
risks and other critical areas.

Pensions

The committee considered the 
assumptions underlying the valuation 
of the pension liabilities in the financial 
statements, 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. 
This included updates to the valuation 
of certain pension assets to reflect the 
impact of Covid-19.

Goodwill impairment

The committee considered and was 
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. The 
committee was satisfied that Covid-19 did 
not have a material impact on the goodwill 
impairment judgements. 

Major contracts

The performance of major contracts 
in Enterprise and Global were 
considered, including 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 committee looked at the results 
of management’s annual asset life 
review, asset verification exercise and 
review of fully depreciated assets and 
the committee was satisfied that the 
judgements taken and the methodology 
applied were appropriate.

Divestments

The committee reviewed the judgements 
made in relation to the group’s 
divestments, including on whether the 
held for sale criteria had been satisfied 
and how goodwill should be allocated to 
divested or held for sale entities.

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, the half 
year and the full year, and the committee 
was satisfied with the analysis provided in 
relation to the results.

External audit
Last year, I reported that KPMG had been 
appointed as our external auditors at the 
conclusion of the 2018 AGM. Tony Cates is 
the lead audit partner for KPMG and began 
his tenure when we appointed KPMG. The 
company confirms that it complied with the 

BT Group plc Annual Report 2020Corporate governance reportBT Group plc Annual Report 2020

82

BT Compliance 
Committee
Chair’s report

The year has seen  
significant bedding 
down of the governance 
arrangements between  
BT and Openreach which  
can now be regarded as 
‘business as usual’. 

Membership and key responsibilities
This committee is a sub-committee 
of the Audit & Risk Committee. The 
committee comprises independent 
non-executive directors only. The
company secretary is secretary to the
committee and attends all meetings.
The chairman, group director regulatory
affairs, group general counsel and the
directors of the Commitments 
Assurance Office (CAO) and 
Openreach’s commitments monitoring 
office also attend all meetings.

We are responsible for monitoring 
whether the governance model for 
Openreach is working as expected and 
achieving appropriate outcomes for 
consumers and industry. Central to this 
is ensuring that Openreach is able to act 
with appropriate independence while 
BT is properly able to fulfil its parent 
company duties. 

Attendance

Member

Isabel Hudson 
(chair)

Mike Inglis 

Allison Kirkbya 

Jasmine Whitbreadb

Attended

Eligible to 
attend

4

4

2

3

4

4

2

3

a  Allison joined the committee on 1 November 

2019

b  Jasmine stepped down from the committee on 

6 December 2019.

The committee’s key responsibilities 
are set out in its terms of reference 
available on our website bt.com/about

•  the cultures and behaviours that 
support the delivery of the DCR 
objectives and seeing these become 
increasingly embedded as the standard
way of working, by hearing from senior 
management in risk, compliance and 
assurance, strategy & transformation, 
group finance and the customer-facing 
units

•  broadband universal service and duct 
and pole access, two new areas which 
are important to consumers and 
industry, to ensure they are established 
and progressing in line with DCR 
expectations. We have also increased 
our engagement with external 
stakeholders to understand their 
perspectives of progress to date 

•  how Openreach and BT share 

commercial information. We have 
supported management’s efforts to 
improve both the way this information 
is reported and the assurance of the 
quality of reporting. We now have 
significantly greater clarity here

•  CAO compliance “quick checks” 
and potential breaches and non-
conformances with policy notified 
to the committee via the CAO and 
decided each case accordingly (and 
where appropriate discussed remedial
actions). The number and nature of 
breaches and non-conformances 
remains at a low level. 

Committee evaluation 2019/20
During 2019/20 we carried out an 
internal evaluation of the committee 
led by the chairman and the company 
secretary. Members and regular 
attendees completed questionnaires, 
and the committee discussed the 
responses and key findings. The 
responses were positive, with a 
consensus that the committee is 
effective in discharging its duties. The 
committee agreed these key areas of 
focus for 2020/21:

Key areas of focus

Agreed actions

Engagement  
with 
communication
providers

Reporting

Build on committee 
engagement with 
key communication 
providers (internal 
and external), 
alternative 
networks and 
industry 
stakeholders.

Review whether 
further 
improvements can 
be made to 
reporting in order 
to make papers 
more focused and 
concise, focusing 
on the key issues 
and their impact.

Isabel Hudson
Chair of the BT Compliance Committee
6 May 2020

The committee reviews BT’s compliance
with the letter and spirit of the
Commitments (the Commitments)
made as part of Ofcom’s 2017 Digital
Communications Review (DCR).
We also review the behaviours and
culture of colleagues and the progress
being made in the areas of greatest
importance to industry and other
stakeholders. We are supported in our 
work by a dedicated CAO.

The Board receives copies of the 
committee’s minutes and I report on the 
main issues discussed at each committee 
meeting. We are also accountable to 
Ofcom, who receive copies of our minutes 
and the annual review we publish each 
year (available on our website). Further 
details on how we engage with Ofcom can 
be found in the Strategic report on page 
29.

Activities in 2019/20
The committee met four times this year. 
We have continued to focus on the spirit 
of the Commitments, and not just the 
letter, and on conducting detailed reviews 
into key decisions so we can see how the 
Commitments are working in practice. 
We have taken a risk-based approach to 
our monitoring, with our main focus being 
on the operation of the processes that 
may affect the balance of Openreach’s 
independence and BT's parent company 
oversight. We discussed:

•  the CAO’s detailed reviews of the 
financial planning and strategy 
development processes and were 
pleased to observe considerable 
maturing of the operation of these 

•  BT’s agreement of a new commercial 
processes guidance note defining 
which pricing and portfolio decisions 
Openreach can take itself and which it 
needs to refer to BT

BT Group plc Annual Report 2020

Digital Impact 
& Sustainability 
Committee
Chair’s report

Being appointed chair is 
an exciting opportunity to 
continue to elevate the  
great progress BT has 
already made on its bold 
ambitions. 

Membership and key responsibilities
The committee currently comprises 
three independent non-executive 
directors and the chairman. The group 
HR director, director of corporate 
affairs and director of digital impact & 
sustainability attend the meetings. The 
company secretary is secretary to the 
committee and attends all meetings. 
In April 2019, as part of a review of the 
entire board and committee structure, 
the committee was renamed the Digital 
Impact & Sustainability Committee 
(previously the Committee for 
Sustainable and Responsible Business) 
and its composition and remit were 
refreshed. 

The committee is responsible, on behalf 
of the Board, for agreeing the digital 
impact and sustainability strategy 
for the group. We monitor progress 
on our long‐term digital impact and 
sustainability goals, including those 
relating to digital skills, human and 
digital rights, climate change, the 
environment and social issues, such as 
fundraising and volunteering.

Attendance

Member

Leena Nair (chair)a

Jan du Plessis 

Isabel Hudsonb

Mike Inglis c

Jasmine Whitbreadd

Attended

Eligible to 
attend

3

4

4

4

3

3

4

4

4

3

a  Leena joined the committee on 10 July 2019 and 
became committee chair on 6 December 2019

b  Isabel joined the committee on 3 April 2019
c  Mike joined the committee on 3 April 2019
d  Jasmine stepped down from the committee  
and as committee chair on 6 December 2019.

83

Climate
•  The group’s climate strategy and our 
public decarbonisation commitment 
for 2030. To give the committee a 
better understanding of the external 
environment and assess BT’s areas of 
focus going forward, an external expert 
briefing on climate took place.

Human and digital rights
•  Our human and digital rights 

programme including our work to 
combat modern slavery and responsible 
use of artificial intelligence. As part of 
enhancing the committee’s knowledge, 
we also had an external expert briefing 
on human and digital rights, as it relates 
to our business. 

Accessibility 
•  Consumer’s accessibility, inclusion 

and vulnerability programme and the 
ongoing work in this area.

   Further information on our digital impact 
and sustainability work can be found on 
pages 36 to 39.

Committee evaluation 2019/20
During 2019/20 we carried out 
an internal evaluation led by the 
chairman and the company secretary. 
Members and regular attendees 
completed questionnaires, and the 
committee discussed the responses 
and key findings. The respondents 
felt that the committee had improved 
significantly in the last couple of 
years through having a clearer focus 
in terms of responsibilities, with 
meetings involving open and effective 
discussions supplemented by good 
quality information. The committee 
agreed these key areas of focus for 
2020/21:

Key areas of focus

Agreed actions

Skills for 
Tomorrow 

Further align 
committee 
work with 
BT’s broader 
corporate 
strategy 

Climate  
change

Further monitor the 
progress and impact 
of the Skills for 
Tomorrow 
programme.  

Increase focus on 
the link between the 
work of the 
committee and BT’s 
commercial growth 
and wider strategies. 

Further progress 
and enhance the 
monitoring of 
climate-related 
work at each 
committee meeting.

Leena Nair
Chair of the Digital Impact  
& Sustainability Committee
6 May 2020

This is my first report since taking over as 
chair in December 2019. I see enormous 
potential to build on BT’s strong track 
record through integrating sustainability 
even further into core business processes, 
products and services and in deepening 
engagement with customers, colleagues 
and our communities to create a more 
sustainable future, not just for BT, but for 
society as a whole. 

Activities in 2019/20
The committee met four times during the 
year and discussed:

Digital impact and sustainability
•  The progress in the lead up to the 
launch of Skills for Tomorrow, our 
digital skills programme. Since launch, 
the committee has monitored the 
programme’s reach and impact 
externally, as well as the focus on the 
internal reskilling of our people

•  Our young people strategy, including 

Barefoot, our partnership with 
Computing at School, and our Work 
Ready programme and their impacts

•  The broader digital impact and 
sustainability strategy, including 
Openreach’s contribution in areas such 
as climate and digital skills.

The committee’s key responsibilities 
are set out in its terms of reference 
available on our website bt.com/about

Corporate governance report 
84

Report on 
directors’ 
remuneration
Committee chair’s 
letter

This year our focus 
has been on engaging 
with shareholders 
on a broad range of 
remuneration issues 
including a new 
remuneration policy.

Attendance

Member

Nick Rose (chair)

Ian Cheshirea

Isabel Hudson

Mike Inglis

Matthew Keyb

Leena Nairc

Attended

Eligible to 
attend

9

1

9

9

4

5

9

1

9

9

4

5

a  Ian joined the committee on 16 March 2020
b  Matthew joined the committee on 3 October 2019
c  Leena joined the committee on 10 July 2019. 

Contents

Committee chair’s letter
Review of the year; committee 
decisions; key outturns and plans for the 
year ahead – pages 84 to 87

Focus on remuneration
The key aspects of our remuneration 
structure, outcomes for 2019/20 and 
implementation of the Remuneration 
Policy in 2020/21 – pages 88 and 89

Remuneration Policy (Policy)
We are proposing a new Policy at the 
2020 AGM – pages 90 to 97

Annual Remuneration Report
More detail on how we have applied our 
current Policy during 2019/20 including 
the single figure of remuneration for 
each director. How we intend to apply 
the new Policy in 2020/21 – pages 98 
to 107

Remuneration in context
How we take account of remuneration 
conditions across the business –  
pages 108 and 109

I will step down from the Board at 
the conclusion of the July 2020 AGM 
following more than nine years’ service. 
During my tenure, BT has had its ups and 
downs like any other organisation, but one 
thing that has always been consistent is 
the vital role that BT plays in our society.  

As the world deals with the human and 
economic impact of Covid-19, BT is 
doing all it can to keep its customers and 
businesses connected across the mobile, 
broadband and fixed line networks.  It’s 
at times like this that BT steps up and 
delivers value for the country beyond what 
we report as profit or that is reflected in 
our share price. Despite the challenges we 
have faced this year, the team has worked 
incredibly hard to deliver progress in many 
financial and strategic areas. Looking 
forward, I am optimistic about BT’s 
future as it works collaboratively with the 
Government, the regulator, and the wider 
industry to deliver the full fibre broadband 
infrastructure that the UK needs, on the 
assumption we obtain the required critical 
enablers. 

This is a longer letter than I would normally 
write but I think it is important to explain 
the changes we are proposing and the 
rationale for these changes in the current 
environment. Before getting into the body 
of the letter, I would like to register three 
other important points. 

First, during the year we welcomed two 
new members to the committee, Matthew 
Key and Leena Nair, and we were further 
strengthened by the addition of Sir Ian 
Cheshire who joined us in March. It has 
been a busy year for the committee, and I 
am grateful to my colleagues for their time 
commitment, challenge and counsel. 

Second, I am also very grateful to 
shareholders for their engagement on 
a broad range of remuneration issues 
including of course our new Policy. 

Third, in the current environment, I feel 
that the use of discretion and judgement 
will be ever more important.  To this end, 
the committee used its discretion this year 
to reduce the annual bonus and long-term 
incentive awards to executive directors. 
We also decided to freeze executive 
director salaries and to defer this year’s 
and next year’s full annual bonus into 
shares for a further three years. These 
are difficult judgements to make but the 
committee felt it appropriate given BT’s 
share price performance and the Board’s 
decision to suspend and re-base future 
dividends. That said, while the Board 
recognises that dividends are important 
to many shareholders, it believes the 
dividend decision will create capacity for 
BT to invest in long-term value-enhancing 
opportunities as well as give us confidence 
to manage the business through the 

Membership and key responsibilities
•  Determines the salary and benefits for 

the executive directors, members of the 
Executive Committee and the company 
secretary, and monitors remuneration 
practices and policies for the wider 
workforce

•  Operation of the annual bonus scheme 
for senior executives, including setting 
performance targets and objectives for 
the year ahead

•  Determines awards under the annual 
bonus scheme for senior executives 

•  Governance of the company’s long-

term incentive plans 

•  Reviews and approves the Annual 

Remuneration Report for inclusion in 
the Annual Report 

•  Reviews and approves the Policy 

including seeking shareholder approval, 
on a binding basis, at least every three 
years

•  Ensures that all remuneration decisions 

are made within the parameters of 
the approved Policy and align with our 
reward philosophy and our values.

In addition to the committee members, 
the chairman, chief executive, group 
HR director and director of reward are 
typically invited to attend meetings, 
except in instances where their own 
remuneration is discussed or other 
circumstances where their attendance 
would not be appropriate. Deloitte 
LLP, as the remuneration adviser to the 
committee, also attends all meetings.

The company secretary is secretary to the 
committee and attends all meetings.

BT Group plc Annual Report 2020Covid-19 crisis without compromising 
our credit rating. For example, our FTTP 
investment should realise pre-tax nominal 
returns of between 10% to 12%. 

At this year’s AGM, we will be asking 
shareholders to vote on two remuneration 
resolutions:
•  Our new Policy, which outlines the 
remuneration framework that will 
apply to our executive directors, non-
executive directors and the chairman of 
the Board over the next three years; and

•  Our Annual Report on Remuneration, 
which summarises the outcomes for 
2019/20 and explains how we intend to 
apply the new Policy from 2020/21.

New Policy
During the year the committee conducted 
a comprehensive review of BT’s current 
Policy. The review is timely as Philip 
Jansen has completed his first year 
as chief executive, and this is a great 
opportunity to reinforce his vision for BT 
with a new Policy.

BT plays an important role in society – 
as an employer, a taxpayer, as well as 
connecting and protecting people and 
businesses in the UK and overseas. This 
was evidenced when all the main political 
parties in the last UK general election 
highlighted that broadband was a key area 
of focus for the country. Furthermore, the 
Government announced that they (and 
the UK telecoms industry) would need to 
make significant investments to ensure 
gigabit-capable broadband extends to 
the hardest to reach places in the UK. 
To ensure BT continues to play its part 
in realising this ambition, the committee 
believes our new Policy should help foster 
BT as a purposeful company that benefits 
all stakeholders, while also ensuring 
executive reward aligns with shareholders’ 
long-term interests. Therefore, the new 
Policy is designed to:
•  Be simpler and more transparent

•  Reward performance against a 

balanced scorecard of financial and 
non-financial stakeholder metrics

•  Encourage long-term share ownership

•  Reflect that we operate in a tightly 
regulated environment, ensuring a 
narrower but more predictable range of 
reward and performance outcomes that 
align with our business model 

•  Recognise that BT is faced with several 

near-term substantial investment 
decisions and that it may take some 
time to realise the full benefits for BT 
and its shareholders

•  Comply with corporate governance 

best practice.

Shareholder consultation
During the year, we consulted extensively 
with our largest shareholders and their 
representative bodies. I would like to 
thank those that engaged with us for 
their helpful feedback. This helped 
shape the committee’s thinking and the 
development of the new Policy.  

Policy proposals and implementation in 
2020/21
We are proposing several changes under 
our new Policy. The most significant 
change is to replace our current long-term 
Incentive Share Plan (ISP) with a new 
long-term Restricted Share Plan (RSP). 
Under the new RSP, we will grant a smaller 
award of shares every year that vest over 
a longer period without any performance 
targets but with simple underpins.

a) Long-term incentives
Customers want fast, secure, seamless 
and reliable connectivity to enable their 
digital lives and businesses. Therefore, 
at the heart of our business strategy, is 
the need to deliver the best converged 
network in the UK through our rollout 
of Fibre-To-The-Premises (FTTP) and 
5G. The technology and infrastructure 
build that this requires are complex 
and will take many years to deliver. 
We must also navigate multiple and 
sometimes conflicting requirements from 
different stakeholder groups (e.g. the 
Government, the regulator, customers, 
other communication providers, and 
shareholders). To ensure we support the 
right management behaviours to do the 
right things in a considerate way for all 
stakeholders we believe we need a new 
long-term incentive plan. We recognise 
that restricted share plans are still a 
relatively new type of long-term incentive 
that are emerging in the UK, but we 
believe restricted share plans are the right 
approach for BT at this particular time for 
the following reasons:
•  Conventional three-year financial or 

total shareholder return (TSR) targets 
may not support the right management 
behaviours to do the right thing for all 
stakeholders given the longer-term 
nature of our FTTP investment plans 

•  Setting even longer-term performance 
targets (beyond three years) would be 
particularly difficult in today’s Covid-19 
world

•  Restricted share awards are lower than 

our current Incentive Share Plan awards, 
which recognises growing sentiment in 
society to see a reduction in executive 
pay 

85

•  The potential payouts from restricted 

shares are less extreme and less 
variable than conventional long-term 
incentives. This is more appropriate 
given that BT operates in a tightly 
regulated environment with a more 
limited potential range of performance 
outcomes than in many other companies

•  Our restricted share awards will have a 
longer phased vesting with additional 
holding periods. This aligns with our 
longer-term business model and 
investment cycle, particularly true 
now as we intend to enter a period 
of sustained strategic investment to 
support the Government’s plans for 
the UK

•  We intend to make restricted 

shares available for three layers of 
management below executive directors 
to ensure consistency and alignment  

•  Restricted shares are simpler and more 

transparent. 

In determining the appropriate level of 
award, we modelled the potential payouts 
under different performance and share 
price scenarios, with the aim of providing 
a similar level of on-target compensation 
as the current Policy but significantly 
reducing the maximum compensation. 
As a result, we are proposing restricted 
share awards for the chief executive that 
are 50% of the face value of his current 
ISP awards. We are also taking the 
opportunity to harmonise award levels for 
the chief financial officer, such that both 
executive directors will be eligible for a 
normal award of 200% of salary. 

Subject to shareholder approval of the 
new Policy, we expect to make the first 
RSP awards in August 2020. When 
considering grant levels each year, the 
committee will take account of share 
price performance over the preceding 
year. Noting the share price performance 
during the year prior to the Covid-19 
crisis and the dividend decision, the first 
RSP award for executive directors will 
not exceed 175% of salary though the 
committee will make a final decision on 
the award level closer to the grant date 
in August 2020, taking into consideration 
several factors including the share price 
performance between now and then. 
Details of the awards granted will be 
disclosed at the point of grant. In addition 
to this, the committee will specifically look 
at the outcomes of the first RSP award to 
assess whether any “windfall gains” have 
been realised as a result of any Covid-19 
“bounce back”. 

BT Group plc Annual Report 2020Corporate governance report86

Report on directors’ remuneration  
Committee chair’s letter continued

proposal to defer their full annual bonus 
for 2020/21 into shares for a further 
three-years, to the extent that any 
annual bonus is payable.  This means 
that the executive directors will not take 
any cash bonuses for two consecutive 
years 

•  Changing the annual bonus measures 

for 2020/21 as follows:

 - Increasing the weighting on financial 
performance from 60% to 70% of 
the bonus, which will be split equally 
between adjusted EBITDA (35%) 
and normalised free cash flow (35%). 
We have increased the weighting on 
financial performance in the annual 
bonus to balance the move towards 
long-term restricted shares

 - Adjusted EBITDA is felt to be the best 
profitability measure for capturing 
our transformation to become a 
simpler and more agile company 
without penalising management for 
making the investment required to 
achieve this. Adjusted EBITDA also 
aligns with the profit measure used in 
the annual bonus plans for employees 
further down the organisation

 - Normalised free cash flow is an 

important measure that we have used 
for several years, representing the 
cash available to cover specific items, 
pension deficit repair payments 
and shareholder distributions 
in a company, after accounting 
for all operational expenses and 
investments in capital

 - Linking 30% of the bonus to three 
equally weighted non-financial 
measures consistent with our 
strategic priorities and broader 
stakeholder responsibilities:

Customer experience: differentiated 
customer experience remains at the 
heart of everything we do. We will be 
simplifying our current approach by 
moving to a single metric based on 
absolute improvements in our Group 
Net Promotor Score

Converged networks: as we roll out 
the latest technologies and work 
towards creating a single converged 
network, we will measure success 
in terms of the total number of 
customers connected to FTTP and 
the number of customers connected 
to 5G 

Digital impact and sustainability: 
we recognise the importance of 
the contribution that BT can make 
to society. The metrics will be 
focused on progress towards our 
public ambition of reducing carbon 
emissions intensity by 87% by 2030, 
and progress towards our ambition to 
reach 10m people in the UK with help 
to improve their digital skills by 2025.

c) Pension
In line with corporate governance best 
practice, we will reduce the pension 
allowances for executive directors to align 
with the pensions provided to most of 
the UK workforce. The chief executive’s 
pension allowance will be reduced from 
15% of salary to 10% of salary in 2020/21, 
while the chief financial officer’s pension 
allowance will reduce from 30% of salary 
to 20% of salary in 2020/21, 15% of salary 
in 2021/22 and 10% of salary in 2022/23 
(effective from 1 April at the start of each 
financial year).

d) Shareholding requirement
To complement the move to restricted 
shares, and emphasise the focus on long-
term share ownership, the shareholding 
requirement for both executive directors 
will be increased to 500% of salary. 
Executive directors must achieve this 
guideline within five years of the approval 
of the new Policy or, in the case of any 
new executive directors appointed, within 
five years of their date of appointment. 
We believe this to be at the upper end of 
FTSE market practice and that it further 
strengthens the alignment between 
executives and shareholders.

Reflecting the provisions of the Code, 
we are extending this requirement for 
a period of two years post-cessation of 
employment. Executive directors will be 
required to retain shares to the value of 
500% of salary, or the shares held at the 
date of leaving if lower, for a period of two 
years following their departure.

Both the chief executive and the chief 
financial officer have invested significantly 
in BT shares during their year and 
have therefore been aligned with the 
shareholder experience.

Awards will vest over three to five years, 
subject to underpins and over-arching 
committee discretion. All vested shares 
cannot be sold (other than to meet tax 
obligations) until year five. The underpins 
will apply over the first three years of each 
award. For the awards scheduled to be 
granted in August 2020, the underpins 
will be: 
•  The average adjusted Group Return 

on Capital Employed (ROCE) over the 
three-year period is equal to or exceeds 
the Weighted Average Cost of Capital 
(WACC) over the same period. This is 
a meaningful metric for the business 
as economic value is created when we 
earn a return above our cost of capital. 
Setting the threshold at WACC means 
that management are not discouraged 
from making important investments 
in the short-term (such as FTTP and 
5G networks) with the aim to create 
sustainable value for shareholders and 
the country over the longer term

•  There should be no environmental, 

social or governance issues occurring 
which result in significant reputational 
damage to BT including but not limited 
to workplace fatalities, regulatory 
fines or sanctions, or significant 
environmental incidents.

Should either of the underpins not be met, 
the committee would consider whether a 
discretionary reduction in the number of 
shares vesting was required. In addition, 
the committee will always have over-
arching discretion to adjust the vesting 
outcome if considered appropriate.

b) Annual bonus
We are making some changes to how the 
annual bonus operates:
•  Harmonising the annual bonus 

opportunity for both executive directors 
by decreasing the chief executive’s 
maximum bonus from 240% of salary to 
200% of salary and increasing the chief 
financial officer’s maximum bonus from 
180% of salary to 200% of salary

•  Increasing the proportion of annual 

bonus deferred into shares from 33% 
to 50% of any bonus paid. This will 
strengthen the link between short-
term performance and sustainable 
long-term value creation. In addition, 
in recognition of the current economic 
environment and the dividend 
decision, the executive directors have 
agreed to defer their full bonus for the 
2019/20 financial year into shares for 
a further three years. The committee 
also welcomed and agreed the chief 
executive and chief financial officer’s 

BT Group plc Annual Report 2020Remuneration outcomes for 2019/20
Overall, BT has delivered significant 
progress in many financial and strategic 
areas despite challenging market 
headwinds and continuing regulatory 
complexity. 
•  Revenue was just outside our guidance, 
and reflected the impact of regulation, 
declines in legacy products and 
divestments, partly offset by growth in 
new products and services and higher 
rental bases of fibre-enabled products 
and Ethernet. It was also partly due to 
a strategic decision to withdraw from a 
relatively sizeable customer contract, 
which had a c. £55m impact on revenue. 
We did not adjust the targets to reflect 
this decision and therefore no bonus 
was earned on this measure

•  EBITDA was in line with guidance 

despite lower revenue, as operating 
costs came in lower year-on-year 
mainly driven by savings from our 
ongoing transformation programmes, 
partially offset by increased business 
rates, investment in customer 
experience and increased salary costs 
in Openreach to support FTTP rollout 
and better service. Regulatory pricing 
reductions had an impact of c. £347m 
and cost inflation (including the effect 
of cumulo rate increases) had an 
impact of c. £217m. A decline in fixed 
voice was partly offset by IP voice with 
an aggregate impact of c. £137m. 
Earnings per share (EPS) performance 
was close to around our stretch goal, 
principally due to lower than expected 
interest payments 

•  Normalised free cash flow was within 

guidance despite year-on-year 
increased cash capex to support faster 
FTTP rollout, lower EBITDA, the deposit 
for UEFA club football rights, partially 
offset by one-off cash flows. We did not 
adjust the targets to reflect any of these 
impacts

•  We achieved c. £1.6bn of annualised 

benefits a year early from our 
transformation programme. We have 
also announced c. £2bn of planned 
gross cost savings over the next five 
years 

•  We performed strongly on network 

build - FTTP footprint doubled in the 
year to 2.6m premises and we continue 
to aim for an average cost per premises 
passed of £300-£400; and EE was the 
first to launch 5G in the UK and at the 
end of 2019/20 was live in 78 cities and 
large towns.

•  Customer complaints to Ofcom were 
reduced by 41% for BT consumer 
broadband on a year-on-year basis. We 
also exited the 2019/20 financial year 
strongly on our customer Net Promoter 
Score, which was up 5.5 points in Q4. EE 
has retained the ‘best mobile network’ 
position for the sixth consecutive year in 
the 2019 RootMetrics survey

•  We responded quickly and effectively 
to the Covid-19 crisis, protecting our 
people and implementing operational 
contingency plans, and with a firm focus 
on supporting the national response 
to the crisis. The work we are doing 
for customers and the country has 
been recognised extensively by the 
Government and Ofcom, including the 
brilliant work of our teams to support 
the NHS and to keep the network 
running for millions of people that 
suddenly found themselves needing to 
work from home during the lockdown.

As a result of our performance, the 
formulaic outturn under the business 
performance measures was 103.8% 
of target. However, given the overall 
performance of BT including our share 
price performance during the year and the 
dividend decision, the committee applied 
its discretion to reduce the formulaic 
outcome under the business measures to 
85% of target. This resulted in an annual 
bonus of £1.32m (or 50% of maximum) 
for the chief executive and £900,176 (or 
68% of maximum) for the chief financial 
officer. The committee welcomed and 
agreed the chief executive and chief 
financial officer’s proposal to defer their 
full annual bonus into shares for a further 
three years. 

The chief executive and chief financial 
officer will not receive a salary increase 
in 2020 in line with the management 
population (non-managers will receive a 
salary increase, which will be 1.5% in the 
UK). 

The ISP award granted in 2017 will lapse 
in full in May 2020 as we did not meet the 
performance targets over the last three 
years.

Following the announcement that all 
awards had vested in full upon completion 
of the Worldpay acquisition by FIS, Philip 
Jansen’s buyout award vested on 20 
March 2020. Philip voluntarily agreed to 
hold these shares for a further year.

87

Looking ahead to 2020
Given the significant changes that are 
being proposed this year, the focus of 
the committee during the 2020/21 
financial year will be to ensure that the 
new Policy is successfully embedded into 
the business and operates as intended. 
The new Group scorecard for 2020/21 
and the RSP will be used for all managers 
in BT (except in Openreach) that are 
eligible to participate in an annual bonus 
and long-term incentive plan. Due to 
commitments to the regulator and to 
maintain Openreach’s independence, 
Openreach managers will use a similar 
scorecard and RSP structure but linked to 
Openreach performance and payments 
will be made in cash rather than BT shares. 
As a committee we seek to make decisions 
which effectively align remuneration 
outcomes with performance, balancing 
all relevant factors. Looking forward, we 
are confident that the changes to our 
new Policy will allow us to strengthen this 
alignment by ensuring that our colleagues 
are focused on continuing to deliver the 
transformation needed to make BT a 
stronger and more purposeful company 
that benefits all our stakeholders.

As outlined above, our new Policy 
positions us well against the new 
provisions of the UK Corporate 
Governance Code (Code) 2018. We 
will of course continue to assess how 
shareholders’ views evolve in various areas 
and monitor any developments in the 
remuneration landscape more generally. 
During 2020/21, we will continue to 
broaden our view of wider workforce 
pay and conditions and the amount and 
quality of the information which we see. 

Finally, I am delighted to say that Sir Ian 
Cheshire will succeed me as the chair of 
the committee, and I am confident that he 
will oversee a successful implementation 
of our new Policy.

I hope the committee has your support 
for our new Policy and our Report 
on directors’ remuneration at the 
forthcoming AGM.

Nick Rose
Chair of the Remuneration Committee
6 May 2020

BT Group plc Annual Report 2020Corporate governance report88

Focus on remuneration

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. Below is how remuneration is aligned with the 
principles of the Code.

Clarity
• 

 Our remuneration framework is 
structured to support the financial 
and strategic objectives of the 
company, aligning the interests of our 
executive directors with those of our 
shareholders
 We are committed to transparent 
communication with all our 
stakeholders, including our 
shareholders
 From 2020/21, performance for 
senior management and all other 
employees will be measured against 
a single consistent scorecard.

• 

• 

Predictability
• 

 The introduction of the RSP reflects 
that we operate in a tightly-regulated 
environment, ensuring a narrower 
but more predictable range of reward 
and performance outcomes to align 
with our business model. 

Simplicity
• 

 We operate a simple, but effective 
remuneration framework, which is 
applied on a consistent basis for all 
employees

• 

• 

 The annual bonus rewards 
performance against key 
performance indicators, while the 
RSP provides long-term sustainable 
alignment with our shareholders
 There is clear line of sight for 
management and shareholders.

Proportionality
• 

• 

• 

 There is clear alignment between 
the performance of the company, 
the business strategy, and the reward 
paid to executive directors
 Target total compensation levels 
are set competitively compared to 
other companies of similar size and 
complexity, to ensure we can attract 
and retain the executives needed 
to deliver the business strategy. 
However, the maximum total 
compensation levels are set lower than 
typical market practice to reflect the 
narrower and more predictable range 
of performance outcomes for BT
 Formulaic incentive outcomes are 
reviewed by the committee and may 
be adjusted having consideration to 
overall group performance and wider 
workforce remuneration policies and 
practices.

Risk
• 

 Our incentives are structured to align 
with the company’s risk management 
framework
 Three-year deferral under the annual 
bonus and no release of RSP awards 
until five years from the date of 
award create long-term alignment, 
as do our in- and post-employment 
shareholding requirements
 The annual bonus, deferred bonus 
and RSP also incorporate malus and 
clawback provisions, and overarching 
committee discretion to adjust 
formulaic outcomes.

Alignment to culture
• 

 When considering performance, the 
committee takes account of BT’s 
values
 The committee receives regular 
updates on pay conditions across the 
business, and colleagues may provide 
feedback to the Board directly via the 
Colleague Board 
 All-employee share plans help 
encourage our colleagues to become 
shareholders in the business.

• 

• 

• 

• 

Look out for these icons in the 
Report on directors’ remuneration to 
distinguish the different types of pay.

F

Fixed pay 
Base salary
Pension allowance
Benefits

V

Variable
Annual bonus
Restricted share awards

89

Remuneration earned in 2019/20
Philip Jansen 
Chief executive
£000

Simon Lowth  
Chief financial officer
£000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

F

V

Base Salary
Pension
Benefits

Annual bonus (shares)
Annual bonus (cash)
RSP (shares)b

9
6
8
1

,

9
7
3
1

,

2019/20
£000
1,100
165
114

1,320
0
549

 370
 355
2018/19a
£000
275
41
39

123
247
n/a

3,500

3,000

2,500

2,000

1,500

1,000

500

0

F

V

Base Salary
Pension
Benefits

Annual bonus (shares)
Annual bonus (cash)
ISP (shares)

2
8
9

2
5
9

2018/19
£000
715
214
23

327
655
0

0
0
9

6
7
9

2019/20c
£000
732
220
24

900
0
0

a  The figure is pro‐rated to reflect Philip’s service in the year
b  The buyout award granted to Philip on appointment to compensate him for his loss in shares forfeited from Worldpay. Philip’s first ISP award was made in February 2019
c  The group returned below threshold performance against all of the performance measures for the 2017 ISP. No payment was made.

Performance outcomes in 2019/20
Annual bonus 
• 

 Bonus was subject to five measures of business and personal 
performance
 The EPS result was close to our stretch target, while cash flow  
and customer experience were between threshold and target

• 

•  Revenue performance was below the threshold level
• 

 This resulted in a formulaic outcome of 103.8% of target for the 
business objectives
 Both executive directors displayed strong leadership and  
delivered successfully on their strategic objectives for the year
 However, in light of the overall financial performance of the 
business, including our share price, the committee made a 
discretionary adjustment and reduced the outcome under  
the business objectives to 85% of target
 The executive directors have agreed to defer all their bonus for 
2019/20 into shares for a further three years. 

• 

• 

• 

Incentive Share Plan
•  Awards subject to three performance measures
• 

 Performance was below threshold, so awards will lapse in full  
and no payment will be made. 

Implementation of the Policy in 2020/21

Annual bonus 2019/20 
Measure

Adjusted EPS

Normalised free cash flow

Revenue (including transit)

0%

Customer experience

38%

39%

Payout (% of max)

97%

Strategic objectives

Chief executive

Chief financial officer

80%

93%

2017 ISP
Measure

Total shareholder return 

Normalised free cash flow 

Underlying revenue growth (excluding transit)

Payout (% of max)

0%

0%

0%

Illustration of new Policy

Fixed pay

Base salary

Pension allowance

Benefits

Annual bonus

50% cash

50% deferred shares

Restricted  
share plan  
awards

Tranche 1

Tranche 2

Tranche 3

2020/21

2021/22

2022/23

2023/24

2024/25

2025/26

2026/27

2027/28

F
Fixed pay

V
Annual bonus

V
Restricted Share Plan

50% of the bonus deferred for three years

All tranches may not be sold until year five

Underpins apply over three years

Malus and clawback up to two years after vesting of each tranche

Philip Jansen 
(Chief executive)

Simon Lowth 
(Chief financial officer)

Salary – £1,100,000
Benefits
Pension – 10% of salary

Salary – £735,438
Benefits
Pension – 20% of salary

Performance measures

n/a

Framework

n/a

Max. opportunity – 200% of salary
Target opportunity – 120% of salary

Max. opportunity – 200% of salary
Target opportunity – 120% of salary

2020 award – will not exceed 175% of salary

2020 award – will not exceed 175% of salary

Adjusted EBITDA (35%)
Normalised free cash flow (35%)
Customer experience (10%)
Converged networks (10%)
Digital impact & sustainability (10%)

•  100% of any bonus payment in 2020/21 
will be deferred into shares for three 
years

•  Malus and clawback provisions apply
•  Full committee discretion available

Awards subject to two underpins over the initial 
three-year vesting period:
•  ROCE in excess of WACC; and
•  No environmental, social or governance issues 

resulting in material reputational damage. 

•  Awards vest in three tranches over three to five 

years; no shares released before year five

•  Malus and clawback provisions apply
•  Full committee discretion available

BT Group plc Annual Report 2020BT Group plc Annual Report 2020Corporate governance report 
90

Remuneration Policy 

This section of the report sets out our directors’ remuneration 
policy (Policy), which will be put forward for shareholder 
approval at the 2020 AGM on 16 July 2020. Subject to approval, 
this Policy will become effective on that date. 

•  Reduction in pension allowances for new appointments to align 
with the majority workforce level of contribution (currently 10% 
of salary in the UK). We have also reduced pension rates for 
existing executive directors

The key changes to executive director remuneration between this 
Policy and the previous Policy approved by shareholders at the 
2017 AGM are as follows:

•  Replacement of the performance-linked Incentive Share Plan 

(ISP) with the Restricted Share Plan (RSP), under which awards 
of restricted shares will be granted

•  Reduction in the maximum bonus opportunity from 240% to 

200% of salary

•  Increase in the minimum bonus deferral amount from one third 

to 50%

Executive directors

F

Operation

•  Increase in the executive director shareholding requirement to 
500% of salary, to further strengthen the alignment between 
the executive directors and shareholders

•  Extension of the shareholding requirement for a period of 
two years post-cessation of employment, to align with the 
requirements of the Code.

   Further details on the proposed changes are described in the 
committee chair’s letter on pages 84 to 87. Details on how the Policy 
will be implemented in the coming financial year are provided on 
page 104.

Base salary 
Purpose – a core element 
of remuneration, used 
to attract and retain 
executive directors of 
the calibre required to 
develop and deliver our 
business strategy

Salaries are reviewed annually, although an out-of-cycle review may be conducted if the committee determines it appropriate. 
A review may not necessarily lead to an increase in salary. 

Salaries are paid monthly in cash.

The committee takes into account a number of factors when setting salaries, including (but not limited to):

•  size and scope of the individual’s responsibilities

•  the individual’s skills, experience and performance

•  typical salary levels for comparable roles within appropriate pay comparators; and

•  pay and conditions for our wider employee population. 

Maximum opportunity

Whilst there is no maximum salary level, any increase will typically be broadly in line with our wider employee population.

Higher increases may be made under certain circumstances, such as:

• 

increase in the scope and/or responsibility of the individual’s role

•  development of the individual within their role; and

•  where an executive director has been appointed to the Board at a lower than typical level of salary, for example to reflect 
a lower level of experience, larger increases may be awarded to move them closer to the market rate as their experience 
develops.

F

Benefits
Purpose – to support 
health and wellbeing and 
provide employees with a 
market-competitive level 
of benefits

Performance measures

None

Operation

Executive directors receive benefits which typically include (but are not limited to) car benefits (which may include any of a 
company car, cash allowance in lieu, fuel allowance, and driver), personal telecommunication facilities and home security, 
medical and dental cover for the directors and their immediate family, life cover, professional subscriptions, personal tax advice 
and financial counselling up to a maximum of £5,000 (excluding VAT) a year.

Where executive directors are required to relocate, the committee may offer reasonable and limited relocation benefits, and 
additional expatriate benefits, if considered appropriate.

Expenses incurred in the performance of an executive director’s duties for the company may be reimbursed (including any 
relevant taxes due thereon) or paid directly by the company, as appropriate.

The company purchases directors’ and officers’ liability insurance to cover the directors, and has in place a directors’ and officers’ 
indemnity. The insurance operates to protect the directors in circumstances where, by law, BT cannot provide the indemnity.

Further details of the directors’ and officers’ liability insurance and indemnity are set out on page 111.

Maximum opportunity

While no maximum level of benefits is prescribed, they are generally set at an appropriate market-competitive level 
determined by the committee, taking into account a number of factors including:

•  the jurisdiction in which the employee is based

•  the level of benefits provided for other employees within the group; and

•  market practice for comparable roles within appropriate pay comparators in that jurisdiction.

The committee keeps the benefit policy and benefit levels under regular review.

Performance measures

None

BT Group plc Annual Report 202091

F

Operation

Pension
Purpose – to attract 
and retain executive 
directors of the right 
calibre by providing 
market competitive post-
retirement income.

V

Annual bonus 
Purpose – to incentivise 
and reward delivery of 
our business plan on an 
annual basis

Executive directors currently receive a cash allowance in lieu of pension. The committee may determine that alternative 
pension provisions will operate for new appointments to the Board. When determining pension arrangements for new 
appointments, the committee will give regard to:

•  the cost of the arrangements

•  pension arrangements received elsewhere in the group; and

•  relevant market practice.

Maximum opportunity

For newly-appointed executive directors, the maximum cash allowance (or equivalent contribution to an executive director’s 
pension) may not exceed the equivalent level of pension contribution offered to the majority of the workforce in their local 
jurisdiction (currently 10% of salary in the UK). 

Existing executive directors were eligible for higher level of pension allowance under the terms of the previous Policy. The chief 
executive’s allowance has been reduced to 10% of salary from 2020/21, while the chief financial officer’s allowance has been 
reduced from 30% to 20% of salary for 2020/21, and will be further reduced to 15% of salary for 2021/22 and to 10% of salary 
for 2022/23. 

Performance measures

None

Operation

Executive directors are eligible for an annual bonus. 

Awards are based on performance in the relevant financial year, and are not pensionable.

Up to half of any bonus earned will be paid in cash, with the remainder granted in the form of deferred shares to further 
strengthen the alignment of management's interests with the long-term interests of shareholders. Deferred share awards will 
vest, subject to continued employment, after three years. 

The committee has full discretion to adjust outcomes under the annual bonus plan up or down where:

•  the formulaic outcome does not reflect the underlying financial or non-financial performance of the company

•  the payout level is not appropriate in the context of circumstances that were unexpected or unforeseen at the start of the 

year; and/or

•  there exists any other reason why an adjustment to the level of bonus payout is appropriate.

Both cash and deferred elements are subject to the company’s malus and clawback provisions, which are described in more 
detail on page 97.

Maximum opportunity

The maximum annual bonus opportunity for the executive directors is 200% of base salary.

25% of the maximum under each element is payable for threshold performance.

Performance measures

The committee sets annual bonus performance measures and targets each year, taking into account key strategic priorities 
and the approved budget for the year.

Measures used typically include, but are not limited to:

•  financial performance measures – these are chosen carefully to ensure alignment between reward and underlying financial 

performance. As an example, such measures may include free cash flow and EBITDA; and

•  non-financial performance measures – these reflect key company and strategic goals. For example, such measures may 

include customer, network and sustainability goals.

Financial measures will typically account for at least 50% of the total annual bonus.

The committee ensures that targets set are appropriately stretching in the context of the corporate plan, as well as other 
internal and external factors, and that there is an appropriate balance between incentivising executive directors to meet 
targets, while ensuring that they do not drive unacceptable levels of risk or inappropriate behaviours.

BT Group plc Annual Report 2020Corporate governance report92

Remuneration Policy continued

Executive directors continued

V

Restricted Share Plan 
(RSP) 
Purpose – to provide 
a simple, long-term 
element of reward which 
creates alignment with 
our shareholders.

All-employee  
share plans
Purpose – to encourage 
wider employee share 
ownership.

Shareholding 
requirement
Purpose – to ensure 
that executive directors 
build and hold a 
stake in the company, 
providing alignment with 
shareholders’ interests. 

Operation

Executive directors are eligible to participate in the RSP, which forms the long-term variable element of executive 
remuneration.

Awards are discretionary and normally vest, subject to continued employment, in three equal tranches after three, four and five 
years. The net number of shares vesting (i.e. after tax and other statutory deductions) under the first two tranches are subject 
to a further holding period until year five.

The committee has full discretion to adjust the number of shares vesting up or down where:

•  the vesting outcome does not reflect the underlying financial or non-financial performance of the company

•  the vesting level is not appropriate in the context of circumstances that were unexpected or unforeseen at the start of the 

year; and/or

•  there exists any other reason why an adjustment to the level of vesting of the award is appropriate.

Vested and unvested RSP awards are subject to the company’s malus and clawback provisions, which are described in more 
detail on page 97.

Maximum opportunity

Under normal circumstances, awards granted to executive directors in respect of any financial year may be no higher than 
200% of salary. 

Under exceptional circumstances, for example on recruitment, a higher limit of 250% of salary applies.

Performance measures

RSP awards are subject to one or more underpins over a period of three financial years commencing with the year in which the 
awards were granted.

These underpins are designed with the protection of the company in mind, to ensure an acceptable threshold level of 
performance is achieved and that vesting is warranted. The underpins applying to each award will be determined by the 
committee each year, but may include for example a return on capital threshold, or assurance that there has been no 
environmental, social or governance issue resulting in material reputational damage.

If the underpins are not met, the committee may consider a reduction to the final vesting level of the RSP awards (including to 
nil). Even if met, the committee retains discretion to reduce the vesting level in exceptional circumstances, should it not be an 
accurate reflection of the underlying performance of the business over the relevant period.

Operation

Executive directors may participate in any all-employee share plans operated by the company on the same basis as other 
eligible employees.

Maximum opportunity

All participants may participate up to the limits operated by the company at the time set in line with statutory limits.

Performance measures

None.

Operation

Executive directors are required to build up and maintain a shareholding equivalent to 500% of their annual salary. This should 
be achieved within five years of adoption of this Policy, or appointment to the Board (whichever is later). 

Shares counted towards satisfaction of the requirement include all beneficially-owned shares, vested share awards subject to a 
holding period, and all incentive awards that are subject to continued service only (including Deferred Bonus Plan (DBP), and 
RSP awards subject to underpins), counted on a net-of-tax basis. 

Until such time that the requirement has been satisfied, executive directors will not be permitted to sell any vesting incentive 
awards (other than to satisfy tax or other statutory liabilities on vesting, or at the discretion of the committee in exceptional 
circumstances). 

The shareholding requirement will continue to apply for a period of two years post-cessation of employment, to the same 
value as in employment (or the total number of shares held immediately prior to cessation of employment, if lower).

Maximum opportunity

N/A

Performance measures

None

BT Group plc Annual Report 202093

Chairman and non-executive directors 

Chairman fees

Operation

Chairman 
Core element of 
remuneration, paid for 
fulfilling the relevant role.

The chairman of the Board receives a single all-encompassing fee for his role, inclusive of any additional responsibility fees, 
paid monthly in cash. 

The chairman is also eligible for certain benefits in line with those which may be offered to executive directors, other than any 
pension benefits, and may receive a lump sum death in service benefit of £1m. 

Expenses incurred in the performance of non-executive duties for the company may be reimbursed (including any relevant 
taxes due thereon) or paid directly by the company, as appropriate.

The chairman is eligible to participate in any all-employee share plans operated by the company on the same basis as other 
eligible employees.

Opportunity

The fees are set at a level which is considered appropriate to attract and retain a chairman of the necessary calibre.

Fee levels are normally set by reference to the level of fees paid to Board chairs of similarly-sized, UK-listed companies, taking 
into account the size, responsibility and time commitment required of the role.

Fee may be reviewed (but not necessarily increased) on an annual basis. 

Current fee levels can be found in the Annual Report on Remuneration on page 105.

The company’s Articles of Association provide the maximum aggregate fee payable. The maximum is based on non-executive 
director fees benchmarked as at 1 April 1999 with increases linked to the Retail Price Index.

Other non-executive director fees

Other  
non-executive 
directors
Core element of 
remuneration, paid for 
fulfilling the relevant role.

Operation

Non-executive directors receive a basic fee, paid monthly in cash in respect of their Board duties.

Further fees may be paid for additional responsibilities, including chairmanship or membership of Board committees, or for the 
role of senior independent director or for holding the role of designated non-executive director for workforce engagement.

Additional fees of up to £6,000 may also be payable to non-executive directors undertaking regular intercontinental travel to 
attend Board and committee meetings.

Non-executive directors are not eligible for annual bonus, share incentives, pensions or other benefits.

Reasonable expenses incurred in the performance of non-executive duties for the company may be reimbursed (including any 
relevant taxes due thereon) or paid directly by the company, as appropriate.

Opportunity

Fees are set at a level which is considered appropriate to attract and retain non-executive directors of the necessary calibre.

Fee levels are normally set by reference to the level of fees paid to non-executive directors serving on boards of similarly-sized, 
UK-listed companies, taking into account the size, responsibility and time commitment required of the role.

Fees may be reviewed (but not necessarily increased) on an annual basis. 

Current fee levels can be found in the Annual Report on Remuneration on page 105.

The company’s Articles of Association provide the maximum aggregate fee payable. The maximum is based on non-executive 
director fees benchmarked as at 1 April 1999 with increases linked to the Retail Price Index.

Notes to the Policy table
1. For further information on the performance measures and underpins applicable to the annual bonus and RSP see page 104.
2. In the event of death, the chief financial officer receives a dependent pension provision of 30% of salary (capped), as a legacy provision payable under the previous Policy.
3. Common award terms
Awards under any of the company’s share plans referred to in this report may:
•  

incorporate the right to receive the value of dividends that would have been paid on the shares subject to an award that vests, which may be calculated assuming the shares 
were reinvested in shares on a cumulative basis. This value will normally be delivered in the form of additional shares 

•   be granted as conditional share awards, nil cost options or in such other form that the committee determines has the same economic effect
•  

 have any performance conditions applicable to them varied or substituted by the committee if an event occurs which causes the committee to determine that the 
performance conditions no longer achieve their original purpose, provided that the varied or substituted performance condition would be not be materially less difficult to 
satisfy; and

•   be adjusted in the event of any variation of the company’s share capital or any demerger, special dividend or other event that may affect the current or future value of 

awards.

BT Group plc Annual Report 2020Corporate governance report 
 
 
94

Remuneration Policy continued

Recruitment
Our recruitment policy is based on a number of key principles: 
•  we aim to provide a remuneration package which is sufficient 
to attract, retain and motivate key talent, while at all times 
ensuring that we pay no more than is necessary, with due regard 
to the best interests of the company and our shareholders 

•  the committee will take a number of factors into account 
in determining the appropriate remuneration package. 
For example, these may typically include the candidate’s 
experience and calibre, their circumstances, external market 
influences and arrangements for existing executive directors 

•  the ongoing remuneration package offered to new executive 
directors will only include those elements listed within the 
Policy table 

•  the committee may also consider providing reasonable and 
limited relocation benefits, as well as additional benefits to 
expatriate appointments, where appropriate; and 

•  the committee will provide full details of the recruitment 

package for new executive directors in the Annual Report on 
Remuneration and will provide shareholders with the rationale 
for the decisions that were taken.

The maximum level of variable pay (excluding buyouts, for which 
see below) which may be awarded in respect of a recruitment 
event (internal or external), will not exceed 450% of base salary, 
representing the current maximum award under the annual bonus 
and RSP.

In addition, to facilitate recruitment, the committee may make 
awards to buy out variable incentives which the individual 
would forfeit at their current employer. The committee will give 
consideration to any relevant factors, typically including the 
form of the award (e.g. cash or shares), the proportion of the 
performance/vesting period outstanding and the potential value 
of the forfeited remuneration, including performance conditions 
attached to the awards, the likelihood of those conditions being 
met, and the timing of any potential payments.

In making buyout awards, the committee may use the relevant 
provision in the Listing Rules. This allows for the granting of awards 
specifically to facilitate, in unusual circumstances, the recruitment 
of an executive director, without seeking prior shareholder 
approval. In doing so, the committee will comply with the relevant 
provisions in force at the time.

Where an executive director is appointed from within the 
organisation, the company will honour legacy arrangements in 
line with the original terms and conditions.

In the event of the appointment of a new non-executive director, 
remuneration arrangements will be in line with those detailed on 
page 93.

Payment for loss of office
In a departure event, the committee will typically consider: 
•  whether any element of annual bonus should be paid for the 
financial year. Any bonus paid will normally be limited to the 
period served during the financial year in which the departure 
occurs 

•  whether any of the share element of deferred bonus awarded in 

prior years should be preserved either in full or in part; and 

•  whether any awards under the RSP or other legacy share plans 
(such as the ISP) should be preserved either in full or in part 
and, if relevant, whether the post-vesting holding period should 
apply.

The committee has historically maintained a discretionary 
approach to the treatment of leavers, on the basis that the facts 
and circumstances of each case are unique.

This provides the committee with the maximum flexibility 
to review the facts and circumstances of each case, allowing 
differentiation between good and bad leavers and avoiding 
‘payment for failure’.

When considering a departure event, there are a number of 
factors which the committee takes into account in determining 
appropriate treatment for outstanding incentive awards. 

These include: 
•  the position under the relevant plan documentation or any 

contractual entitlements

•  the individual circumstances of the departure

•  the performance of the company/individual during the year to 

date; and 

•  the nature of the handover process.

Plan

DBP 

RSP

Good leaver

Retained in full, vesting on normal timeframe.

In the case of death, awards are accelerated such that they vest on the date of death.

Retained, subject to pro-ration for portion of the three-year initial vesting period served, vesting on the normal 
timeframe, subject to the satisfaction of any performance conditions or underpins. The post-vesting holding 
period continues to apply as normal.

On death, awards are accelerated such that they vest on the date of death. All retained awards are subject 
to pro-ration for the portion of the three-year initial vesting period served, and subject to the committee's 
assessment of satisfaction of any performance conditions or underpins applying, measured at or close to the 
date of death. 

Bad leaver

Forfeit on cessation, 
subject to discretion

Forfeit on cessation, 
subject to discretion

BT Group plc Annual Report 202095

In some cases, the treatment is formally prescribed under the 
rules of the relevant plan so that where there are ‘good leaver’ 
circumstances, including death, injury, ill-health, disability, 
redundancy or sale of the company or business. 

The committee considers the leaver circumstances along 
a continuum, ranging from ‘bad leaver’ scenarios such as 
termination of employment for gross misconduct or resignation, 
through to the ‘good leaver’ scenarios outlined above. 
Accordingly, the committee may apply (or disapply) such 
performance conditions or underpins or time pro-rating to 
awards vesting in these circumstances as it considers appropriate.

All-employee plans 
The treatment of awards under the company’s all-employee 
plans on leaving is as determined under the respective HMRC-
approved rules. For saveshare, someone who ceases to be an 
employee in special circumstances (for example injury, disability, 
death, or following sale of the company or business where they 
work) may exercise the option within six months after leaving 
(or 12 months in the case of death) or the relevant corporate 
event. If someone leaves for a reason not falling within special 
circumstances, the option lapses on the date the individual leaves.

Change of control
In the event of a takeover or scheme of arrangement involving 
the company, long-term incentive and DBP awards will vest, 
at a minimum, to the extent that any applicable performance 
measures have been satisfied at the time (subject to the 
committee’s discretion to determine the appropriate level of 
vesting, having regard to such relevant factors as it decides to 
take into account). If the acquiring company offers to exchange 
awards over BT shares for awards over its shares (or shares in 
another company), awards may be exchanged and continue 
under the rules of the relevant plan. If within 12 months of a 

change of control, a participant’s employment is terminated 
by their employer other than for misconduct or performance 
or they resigned as a result of a reduction of their duties or 
responsibilities constituting a material breach of the individual’s 
contract, the participant is entitled to receive an amount equal to 
the difference between the value they received on the change of 
control and the amount they would have received if the relevant 
performance condition had been met in full. 

In the event of a voluntary winding up of the company, awards 
may vest on the members’ resolution to voluntarily wind-up the 
company being passed.

Executive director and chairman service contracts
The other key terms of the service contracts for the current 
executive directors and the chairman are set out below. The 
termination provisions described above are without prejudice to 
BT’s ability in appropriate circumstances to terminate in breach 
of the notice period referred to above, and thereby be liable for 
damages to the executive director or chairman.

In the event of termination by BT, each executive director and the 
chairman may have entitlement to compensation in respect of his 
or her statutory rights under employment protection legislation 
in the UK.

Where appropriate, BT may also meet a director’s reasonable 
legal expenses in connection with either his or her appointment or 
termination of his or her appointment. The company may, where 
appropriate and reasonable, cover the cost of outplacement 
services.

There are no other service agreements, letters of appointment or 
material contracts, existing or proposed, between the company 
and the executive directors.

Notice period 

Termination 
payment

•  12 months’ notice by the company, six months’ notice by the executive director or chairman (there is no fixed expiry date).

• 

• 

In lieu of giving an executive director or the chairman 12 months’ notice, BT may terminate the director’s contract and make 
a payment in lieu of notice to which the director was entitled if he or she had received salary and the value of contractual 
benefits for the period

In respect of the executive directors, the payments in lieu will be payable in equal monthly instalments until the date on which 
the notice period would have expired or (if earlier) the date on which the director secures alternative employment with the 
same or higher basic salary or fee. In the event that the director secures alternative employment at a basic salary of £30,000 or 
higher, but lower than their salary, payment in lieu will be reduced by the amount of the new lower salary received. The Board 
retains the right to lower the payment in lieu of the directors new employment if it considers the new employment terms of the 
director are not appropriately balanced between basic salary and other elements, and may cease making payments entirely 
where the Board is not satisfied the director is making reasonable efforts to secure alternative employment

• 

In respect of the chairman, the payment in lieu will be payable in equal monthly instalments until the earlier of 12 months from 
the date of termination or the date the chairman secures alternative equivalent employment.

Remuneration  
and benefits

•  Participation in the annual bonus, long-term incentive and other share plans, is non-contractual. The chairman does not 

participate in the long-term incentive plans, DBP or any annual bonus

•  Other benefits which typically include (but are not limited to) car benefits (which may include any of a company car, cash 

allowance in lieu, fuel allowance, and driver), personal telecommunication facilities and home security, medical and dental 
cover for the directors and their immediate family, life cover, professional subscriptions, personal tax advice and financial 
counselling up to a maximum of £5,000 (excluding VAT) a year. The chairman does not receive pension benefits but is entitled 
to all other benefits

•  The chairman receives an all-inclusive fee for the role.

BT Group plc Annual Report 2020Corporate governance report96

Remuneration Policy continued

Illustration of executive director pay scenarios
Our Policy aims to ensure that a significant proportion of pay 
is dependent on the achievement of stretching performance 
targets. The committee has considered the level of total 
remuneration that would be payable under different performance 
scenarios and is satisfied that, as the graphs opposite illustrate, 
executive pay is appropriate in the context of the performance 
required and is aligned with shareholders’ interests. 

The illustrative scenarios below set out the total remuneration 
that might be received by each executive director for different 
levels of performance, based on our Policy. 

Fixed pay is calculated as follows:

£000

Chief executive

Chief financial officer 

Salary

Benefits

Pension

1,100

735

114

24

110

147

Total
fixed pay

1,324

906

RSP awards have been shown at face value, with no share price 
growth or discount rate assumptions, other than the fourth 
scenario which includes an uplift of 50% on the restricted share 
awards. All-employee share plans have been excluded, as have 
any legacy awards held by executive directors.

The minimum reflects base salary, benefits and pension only 
which are not performance-related.

Chief executive

F

Fixed  
pay 

V

Variable 
pay

All scenarios

Consists of total fixed pay – base salary, 
benefits and pension:

£000

Minimum

0  

2,000

4,000

6,000

8,000

1,324

•  Base salary – salary effective as at 1 June 

On-target

2020

•  Benefits – value of benefits provided to 

each director in 2019/20

•  Pension – cash allowances effective  

1 April 2020 (10% of salary for the chief 
executive and 20% of salary for the chief 
financial officer).

Maximum

Maximum  
+50% share price increase

4,844

5,724

6,824

  Fixed pay

  Annual bonus

  RSP

Minimum

•  No payout under the annual bonus

Chief financial officer

•  No vesting under the RSP.

On-target

•  On-target payout under the annual 

£000

0  

2,000

4,000

6,000

8,000

bonus of 120% of salary

•  Full vesting of the RSP at 200% of salary.

Maximum 

•  Maximum payout under the annual 

bonus of 200% of salary

•  Full vesting of the RSP at 200% of salary.

Maximum 
+50% share price 
increase

•  Maximum payout under the annual 

•  Full vesting of the RSP at 200% of salary, 
with a 50% share price increase applied.

906

Minimum

On-target

Maximum

Maximum  
+50% share price increase

3,260

3,848

4,584

bonus of 200% of salary

  Fixed pay

  Annual bonus

  RSP

BT Group plc Annual Report 2020 
97

Consideration of shareholder views
The committee is strongly committed to an open and transparent 
dialogue with shareholders on remuneration matters. We believe 
that it is important to meet regularly with our key shareholders to 
understand their views on our remuneration arrangements and 
discuss our approach going forward.

The committee will continue to engage with shareholders and 
will aim to consult on any material changes to the Policy or other 
relevant matters.

Legacy matters
The committee can make remuneration payments and payments 
for loss of office outside of the Policy set out above where the 
terms of the payment were agreed (i) before the Policy set out 
in this report came into effect, provided that the terms of the 
payment were consistent with any applicable policy in force at 
the time they were agreed; or (ii) at a time when the relevant 
individual was not a director of the company (or another person 
to whom the Policy set out above applies) and that, in the opinion 
of the committee, the payment was not in consideration for the 
individual becoming a director of the company (or such other 
person). This includes the exercise of any discretion available 
to the committee in connection with such payments. For these 
purposes, payments include 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.

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.

Malus and clawback
Both annual bonus and long-term incentive arrangements are 
subject to malus and clawback. 

Under the malus provision, the committee may apply its 
discretion to reduce (including to nil) any DBP, ISP or RSP 
award prior to the award vesting, if facts become known to the 
committee which justify a reduction. 

Under the clawback provision, the committee has discretion to 
require an employee to pay back to the company part or all of the 
cash part of the annual bonus within one year of payment. The 
committee also has discretion to require an employee to pay back 
part or all of a vested long-term incentive plan award within two 
years of the award or respective tranche vesting.

The circumstances in which the committee may consider it 
appropriate to apply clawback and/or malus include, but are not 
limited to: 

•  behaviour by a participant which fails to reflect the company's 

governance and business values

•  the extent to which any condition was satisfied was based 
on an error, or on inaccurate or misleading information or 
assumptions which resulted either directly or indirectly in an 
award being granted or vesting to a greater extent than would 
have been the case had that error not been made

•  material adverse change in the financial performance of the 

company or any division in which the participant works and/or 
worked

•  a material financial misstatement of the company's audited 

financial accounts (other than as a result of a change in 
accounting practice)

•  any action which results in or is reasonably likely to result in 

reputational damage to the company

•  a material failure in risk management

•  corporate failure

•  negligence or gross misconduct of a participant; and/or

•  fraud effected by or with the knowledge of a participant. 

Other elements of remuneration are not subject to malus and 
clawback provisions.

Consideration of remuneration arrangements  
throughout the group
The committee considers the pay and conditions of employees 
throughout the company when determining the remuneration 
arrangements for executive directors, and is provided with 
relevant information and updates by the group HR director.

   Further detail on pay conditions within the company are provided in 
Remuneration in context on page 108.

BT Group plc Annual Report 2020Corporate governance report98

Annual remuneration report

This section summarises all elements of the directors’ remuneration in 2019/20.
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 2019/20 and 2018/19, including bonus and deferred 
bonus, long-term incentive plans and pension arrangements.

Fixed pay

Variable pay

Basic salary  
and fees £000

Benefitsa £000

Pension  
£000

Annual bonusc  
£000

Long-term  
incentives £000

Total  
£000

2019/20 2018/19 2019/20 2018/19 2019/20b 2018/19 2019/20 2018/19 2019/20d,e 2018/19f 2019/20 2018/19

Chairman

Jan du Plessis

Executive directors

Philip Jansen

Simon Lowth

Non-executive directors

Ian Cheshireg

Iain Conn

Tim Höttgesh

Isabel Hudsoni

Mike Inglisi

Matthew Keyi

Allison Kirkby

Leena Nairj

Nick Rosei

Sub-total

Former directors

700

700

18

24

718

724

1,100

732

275

715

114

24

39

23

165

220

41

1,320

214

900

370

982

549

–

3,248

725

1,876

1,934

4

112

124

–

139

132

119

117

82

178

–

157

126

39

3

171

3

3

1

2

3

2

1

1

4

0

112

124

0

142

135

120

117

82

180

0

160

128

40

3

0

172

3,415

2,310

165

93

385

255

2,220

1,352

549

0

6,734

4,010

Jasmine Whitbreadk

94

134

94

134

Total

3,509

2,444

165

93

385

255

2,220

1,352

549

0

6,828

4,144

a  Benefits provided to the executive directors and the chairman typically include (but are not limited to) car benefits (which may include any of a company car, cash allowance 
in lieu, fuel allowance, and driver), personal telecommunication facilities and home security, medical and dental cover for the directors and their immediate family, life cover, 
professional subscriptions, personal tax advice and financial counselling up to a maximum of £5,000 (excluding VAT) a year. For the chief executive, the value for 2019/20 
includes a company provided car and personal driver to the value of c. £82,000

b  Pension allowance paid in cash for the financial year - see 'Total pension entitlement' on pages 98 and 99
c  Annual bonus shown includes both the cash and deferred share element. As agreed by the committee, 100% of the 2019/20 bonus will be deferred into shares to be granted 

in June 2020

 The ISP 2016 granted in June 2016 lapsed in full in May 2019

d  The RSP 2019 granted on Philip's appointment vested on 20 March 2020. Further details are provided on page 103
e  The ISP 2017 granted in June 2017 will lapse in full. Further details are provided on page 103
f 
g  Ian was appointed as a director on 16 March 2020 and the figure represents his pro-rated remuneration during the year
h  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
i  Value shown relates to reimbursement of reasonable travelling and other expenses (including any relevant tax) incurred in carrying out their duties
j  Leena was appointed as a director on 10 July 2019 and the figure represents her pro-rated remuneration during the year
k  Jasmine stepped down as a director on 6 December 2019.

Additional disclosures relating to the single figure table (audited)
Salaries and fees
Executive directors’ salaries are reviewed annually, with any increases typically effective from 1 June. A 2.5% increase to Simon Lowth’s 
salary was agreed for 1 June 2019, in line with increases for the UK management population and lower than the increase given to 
team members. Simon’s new base salary was £735,438. Philip Jansen’s salary of £1,100,000 was fixed for five years at the time of his 
appointment in January 2019.

The fees for non-executive directors reflect committee-related or other additional responsibilities, including on a pro-rated basis for any 
appointments during the year. Full remuneration details are set out on page 105. 

Total pension entitlements
We closed the BT Pension Scheme (BTPS) for most members on 30 June 2018. None of the executive directors participate in future 
service accrual in the BTPS.

BT Group plc Annual Report 202099

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 their salary each year which can be put towards the provision of retirement benefits.

During the year, Philip Jansen received an annual allowance equal to 15% of salary in lieu of pension provision as set out in the table on 
page 98. BT also provides death in service cover consisting of a lump sum equal to four times his salary.

During the year Simon Lowth received an annual allowance equal to 30% of salary in lieu of pension provision as set out in the table on page 
98. BT also provides death in service cover consisting of a lump sum equal to four times his salary plus a dependent’s pension equal to 30% 
of his capped salary.

Annual bonus
Both executive directors were eligible for an on-target bonus in respect of 2019/20 of 120% of salary. The maximum bonus payable to the 
chief executive and chief financial officer respectively was 240% and 180% of salary. The annual bonus is based on performance against 
key financial and non-financial metrics, and strategic objectives. The tables below show the outturn against each measure applying to 
the executive directors in 2019/20. For the 20% of the bonus based on strategic objectives, the personal performance of both executive 
directors was measured versus a set of defined objectives. 

For Philip Jansen, the assessment of personal performance was carried out by the chairman in discussion with the independent non-
executive directors. The Nominations Committee with recommendations from Philip Jansen reviewed the performance of the Executive 
Committee members, including Simon Lowth. 

Strategic objectives Philip Jansen

Category & objectives

Assessment of performance

Network
•  Deliver our ambition of an integrated 

corporate, network and product strategy, 
including rollout of key investment 
programmes such as FTTP and 5G. 

Reputation 
•  Continue to build trust, confidence and 

reputation with the regulator, Government 
and other stakeholders. 

ESG 
•  Launch a new national digital skills 

programme (Skills for Tomorrow) to help 
customers, colleagues and communities to 
improve their digital skills 

•  Tackle climate change

•  Met ‘first to 5G’ target ; live in 78 cities and large towns

•  Doubled FTTP premises passed in the year to 2.6m 

•  Launched BT Halo converged propositions to Consumer & Enterprise customers

•  EE retained ‘best mobile network’ for the sixth consecutive year in 2019 RootMetrics survey.

•  Customer complaints to Ofcom reduced by 41% year-on-year for BT consumer broadband

• 

Improvements in reputation with key stakeholders: Overall Favourability up from 47% in 2017 to 
51% in 2019; Trust up from 55% to 67% and BT Heading in the Right Direction up from 47% to 
63% (2019 independent Populus research).

•  Skills for Tomorrow successfully launched during 2019 with the ambition to reach 10m people in 
the UK with help to improve their digital skills by 2025. It builds on our longstanding programmes 
such as Barefoot Computing which has reached more than 2.8m children since 2014

•  Delivered a 42% reduction in carbon intensity since 2016/17, as part of our target to cut carbon 

emissions intensity by 87% by 2030a.

Colleague 
•  Transform BT’s operating model, culture and 
capabilities to the benefit of all colleagues. 

•  Engagement rose 2% over 2019/20 with a 4% improvement in colleagues recommending BT

•  Set up operating model to deliver multi year Simplify programme 

•  Launched Colleague Board with members drawn from across our customer-facing and corporate units. 

Leadership
•  Support, challenge and develop the Executive 

Committee

•  Develop succession pipeline for key senior roles.

•  Strengthened key commercial and corporate functions pipelines 

Final outcome: 

160% of target (80% of maximum)

Strategic objectives Simon Lowth

Category & objectives

Assessment of performance

Financial
•  Delivery of financial year 2019/20 budget 

and development of value-creating medium 
term plan and financing strategy for financial 
years 2020/21 - 2024/25.

•  Financial performance in line with market guidance with the exception of revenue due to a strategic 

decision to withdraw from a large customer contract

•  Strong leadership and planning for ongoing challenges such as the Government’s announcement 

on high-risk vendors and Covid-19

•  Successfully delivered FY20 financing strategy to maintain strong balance sheet, including issuance 

of BT's inaugural hybrid bond

•  Delivered commitment of £1.6bn of annualised benefits from transformation one year early.

Customer
•  Meet function’s customer experience targets 
and support the business with timely and 
accurate reporting. 

•  Strong advocacy of customer experience as a priority across the business; targeted investment 

decisions to support delivery

•  Delivered service objectives in Shared Service operations and enhanced facilities management 

(ie cleaning) through Covid-19.

Strategic
•  Define and support delivery of Better 

Workplace Programme

•  Deliver procurement savings in excess of 

medium term plan.

•  Successfully undertook non-core divestments in challenging markets (BT Fleet Solutions, Tikit, 

BT España, France and certain domestic operations in Latin America) 

•  Completed sale of BT Centre and finalised arrangements for new HQ at One Braham. Secured and 

announced Better Workplace strategic hubs in the UK

•  Outperformed on delivery of targeted procurement savings in 2019/20.

Colleague
•  Progress ongoing transformation of finance 

and business services functions

•  Significant and proactive improvements to finance and risk management function, including 
successful implementation of first phase of finance function transformation, enhanced risk 
management processes, and improved financial and risk modelling capabilities

•  Further improve functional engagement levels.

•  Finance function engagement scores improved by seven percentage points.

Final outcome: 

140% of target (93% of maximum)

a Scope 1 & 2 greenhouse gases per unit of gross value added.

BT Group plc Annual Report 2020Corporate governance report100

Annual remuneration report continued

Measure

Weighting

Threshold

Target

Stretch

Actual

Payout (% of max)

Adjusted EPS (p)

25%

20.9

22.0

23.6

23.5

97%

Normalised free cash flow (£m)

25%

1,956

2,059

2,265

2,011

Revenue (incl. transit) (£m)

10%

22,833

23,064

23,410

22,824

0%

Customer experience

20%

50

100

200

78

38%

39%

EPS performance was close to the stretch target, while cash flow 
and customer experience were between threshold and target. 
Revenue performance was below the threshold. The total formulaic 
outcome for the business objectives (collectively accounting for 
80% of the bonus) was therefore 103.8% of target. However, 
when considering the final bonus outcome, the committee took 
account of the overall financial and operational performance of the 
business during the year, including the fall in share price, and used 
its discretion to adjust the outcome under the business objectives 
to 85% of target. 

In addition, in recognition of the current economic environment 
and the dividend decision, the executive directors have agreed to 
defer all their bonus for 2019/20 into shares for a further
three years. Deferred share awards will be granted in June 2020 
and will vest after three years subject to continued employment 
only. By default, the exceptional element of the deferred award (i.e. 
anything in excess of the normal deferral level of one third) will be 
retained on cessation of employment.

The final bonus outturns for the executive directors are set out 
below:

Business  
performance (80%)

Formulaic 
outcome

Following 
discretion

103.8%
of target

85%
of target

103.8%
of target

85%
of target

Strategic  
objectives 
(20%)

Outcome

160%
of target

140%
of target

Overall bonus

% of 
target

% of 
max

Value

100% 50% £1,320,000

102% 68% £900,176

Philip 
Jansen

Simon 
Lowth

2017 ISP
The ISP is a conditional share award. The committee assesses the 
performance conditions to 31 March 2020 and the awards would 
ordinarily vest in May 2020. The performance conditions are based 
40% on relative total shareholder return (TSR), 40% on normalised 
free cash flow, and 20% on growth in underlying revenue (excluding 
transit) over a three-year performance period from 1 April 2017 to 
31 March 2020.

As set out in the table below, the threshold performance target in 
respect of each measure was not met and therefore the awards 
lapsed in full and no payment was made.

Measure

Weighting Threshold Maximum

Actual

40%

11th

6th

21st

40% £7.92bn £8.92bn £7.86bn

Payout  
(% of max) 

0%

0%

Total shareholder 
return (rank)

Normalised free cash 
flow (£) 

Underlying revenue 
growth (excluding 
transit) (%)

20%

1.8%

4.0% (3.2)%

0%

Awards granted during the year (audited)
2019 ISP
The 2019 ISP awards were made in June 2019 as set out below 
and on page 103. An award of 400% of salary was made to Philip 
Jansen and 350% of salary to Simon Lowth. The face value is based 
on the share price at the date of grant of 207.45p. The grant price is 
calculated using the average middle-market price of a BT share for 
the three days prior to grant. 

Director

Date of award

ISP award  
(shares)

Face value  
of award

Philip Jansen

19 June 2019

2,120,993

£4,400,000

Simon Lowth

19 June 2019

1,240,796

£2,574,031

These awards are conditional share awards. Performance 
conditions attached to the awards are based on 40% relative TSR, 
40% normalised free cash flow, and 20% growth in underlying 
revenue including transit, each measured over a three-year 
performance period from 1 April 2019 to 31 March 2022. The 
tables below set out targets and vesting levels for the three 
performance measures.

Relative TSR (40%)

TSR position

Proportion vesting  
(of TSR portion of award)

Proportion vesting 
(of overall award)

1-4

5

6

7

8

9-16

100%

95%

75%

55%

35%

0%

40%

38%

30%

22%

14%

0%

Following the acquisition of Sky, which had previously been 
included, by Comcast Inc., it was removed from the TSR 
comparator group. The group applying to the 2019 award is 
therefore as follows:

Centrica

Orange

Telecom Italia

Deutsche Telekom

Proximus

KPN

Liberty Global

National Grid

SSE

Swisscom

TalkTalk

Telefónica

Telenor

Telia Company

Vodafone

BT Group plc Annual Report 2020101

Financial targets
Measure
2019/20–2021/22

Threshold

Level of 
vesting Maximum

Level of 
vestinga

Normalised free cash flow (40%)

£5.9bn

25% £7.2bn

100%

Underlying revenue growth 
(including transit) (20%)

(1.0)%

25%

2%

100%

a  Vesting levels between threshold and maximum will be on a straight line basis.

Directors’ share ownership (audited)
The committee believes that the interests of the executive directors 
should be closely aligned with those of shareholders. 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.

When setting the targets, the committee takes into account the 
budget, medium term plan and market 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 that vest 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.

2019 deferred shares
We awarded one third of the 2018/19 annual bonus in deferred 
shares. The table below provides further details.

Director

Date of award

Philip Jansen

19 June 2019

Simon Lowth

19 June 2019

Number of  
deferred shares

59,387

157,715

Face value  
of awarda

£123,198

£327,180

a 

 Face value based on share price at grant of 207.45p. The grant price is calculated using 
the average middle-market price of a BT share for the three days prior to grant.

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 103.

When deferred share awards vest, additional shares representing 
the value of reinvested dividends on the underlying shares are 
added.

Payments for loss of office (audited)
No payments were made during the year for loss of office. 

Former directors (audited)
No payments were made to former directors during the year.

Under the existing shareholding requirement, the chief executive is 
required to build up a shareholding equal to 300% of salary, and the 
chief financial officer 250% of salary. 

Subject to the approval of the new Policy, the shareholding 
requirement for both executive directors will be increased to 500% 
of salary as set out in the table below. 

Director

Philip Jansen

Simon Lowth

Shareholding requirement % of salary

Current Policy

New Policy

300%

250%

500%

500%

Executive directors must achieve the increased shareholding 
guideline within five years of the approval of the new Policy or, in 
the case of any new executive directors appointed, within five years 
of their date of appointment. 

Under the new Policy, executive directors will be required to retain 
shares to the value of 500% of salary or, the shares held at the 
date of leaving if lower, for a period of two years post-cessation of 
employment.

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 (based 
on acquisition price) 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 the Deutsche Telekom representative 
director who has appointed to the Board as a non-independent, 
non-executive director under the terms of the EE acquisition in 
January 2016. This helps avoid any conflict of interest.

BT Group plc Annual Report 2020Corporate governance report102

Annual remuneration report continued

Directors’ interests at 31 March 2020 or on cessation (audited)
The following table shows the beneficial interests in the company’s 
shares of directors and their families as at 31 March 2020 (or at the 
point of leaving for directors who left during the year).

For executive directors 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 includes interests held by the executive directors under 
the company’s share plans. 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 103.

During the period 1 April 2020 to 6 May 2020, there were no 
movements in directors’ beneficial holdings or other interests in 
shares. The directors, as a group, beneficially own less than 1% of 
the company’s shares.

Director

Philip Jansen

Simon Lowth

Jan du Plessis

Ian Cheshiree

Iain Conn

Tim Höttges

Isabel Hudson

Allison Kirkby

Mike Inglis

Matthew Key

Leena Nairf

Nick Rose

Beneficial holding 
owned outright at  
1 April 2019

Beneficial holding 
owned outright at 
31 March 2020

Unvested interests in share plans

DBPa

ISPb

Otherc

Total shareholding 
at 31 March 2020d

Percentage of 
salary held

771,313

3,059,481

64,959

3,896,440

-

3,093,909

157,379

582,436

391,881

3,804,576

10,975

790,133

501,599

502,475

n/a

0

19,442

19,442

0

24,090

0

29,091

31,000

n/a

0

24,090

25,000

29,091

115,933

0

400,000

400,000

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

502,475

0

19,442

0

24,090

25,000

29,091

115,933

0

400,000

11,832

520%

199%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Jasmine Whitbreadg

11,832

11,832

Total

1,945,746

4,769,780

456,840

7,701,016

10,975

5,011,905

a  Subject to continued employment
b  Subject to performance
c  Interests in saveshare, an HMRC-approved all-employee plan
d  The value of shares held for the purpose of satisfaction of the shareholding guideline. This includes all beneficial holdings, plus outstanding share awards that are subject to 

continued employment only included on a net-of-tax basis, using a 12-month average share price of £1.8507

e  Ian was appointed as a director on 16 March 2020
f  Leena was appointed as a director on 10 July 2019
g  Jasmine stepped down as a director on 6 December 2019 and the number reflects her holding at that date.

BT Group plc Annual Report 2020103

Outstanding share awards at 31 March 2020 (audited)
The table below sets out share awards granted to the executive directors

1 April 2019

Awarded/
granted

Dividends 
re-invested

Vested

Lapsed

Total number 
of award 
shares at 31 
March 2020

Vesting date

Price at 
grant

Market price 
at date of 
vesting

Market price 
at date of 
exercise

Monetary 
value of 
vested 
award  
£000

-

59,387

5,572

1,441,160

-

135,244

- 2,120,993

199,043

-

-

-

-

64,959 01/08/2022

207.45p

- 1,576,404 31/03/2021

233.56p

- 2,320,036 31/03/2022

207.45p

-

-

-

378,221

-

35,493

413,714

- 20/03/2020

214.6p

132.63p

47,435

153,113

-

4,451

14,367

-

157,715

14,800

710,100

965,855

1,271,520

-

-

-

-

90,639

119,325

- 1,240,796

116,441

-

-

-

-

-

-

-

-

-

51,886 01/08/2020

286.40p

167,480 01/08/2021

211.01p

172,515 01/08/2022

207.45p

710,100

- 31/03/2019

405.38p

 -   1,056,494 31/03/2020

286.4p

 -   1,390,845 31/03/2021

211.01p

- 1,357,237 31/03/2022

207.45p

-

10,975 01/08/2024

164p

-

-

-

-

-

saveshare 2019h

-

10,975

-

a  Awards granted on 19 June 2019. 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 

grant

b  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

c  Awards granted on 19 June 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 207.45p. 40% of each award is linked to TSR compared with a group of 16 companies, 40% is linked to a three-year normalised free cash flow measure and 20% to a 
measure of underlying revenue growth (including transit) over three years

d  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 241.6p. This was a buyout award to compensate Philip for the loss in shares that he forfeited on leaving Worldpay to join BT

e  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 233.56p. 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. Performance against the TSR, normalised free cash flow and revenue targets was below the 
threshold level and none of the shares vesting under the 2016 ISP. The award lapsed in full in May 2019

f  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

g  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

h  Option granted on 14 June 2019 under the HMRC-approved employee saveshare scheme, under which all employees of the company are entitled to participate.

Philip Jansen

DBP 2019a

ISP 2018b

ISP 2019c

RSP 2018d

Simon Lowth 

DBP 2017

DBP 2018

DBP 2019a

ISP 2016e

ISP 2017f

ISP 2018g

ISP 2019c

-

-

-

549

-

-

BT Group plc Annual Report 2020Corporate governance report104

Annual remuneration report continued

Implementation of new Policy in 2020/21 
Base salary
Philip Jansen’s base salary of £1,100,000 was agreed on 
appointment and is fixed for five years. Therefore, there is no 
increase for 2020/21.

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 2021 Report on directors’ remuneration so 
shareholders can evaluate performance against those targets.

Restricted share plan (RSP)
Subject to the approval of the Policy and the relevant plan rules at 
our 2020 AGM, awards will be granted to executive directors under 
the RSP in August 2020. 

When considering grant levels each year, the committee will take 
account of share price performance over the preceding year. 
Noting the share price performance during the year prior to the 
Covid-19 crisis and the dividend decision, the first RSP award for 
executive directors will not exceed 175% of salary, though the 
committee will make a final decision on the award level closer to 
the grant date in August 2020 taking into consideration several 
factors including the share price performance between now and 
then. Details of the awards granted will be disclosed at the point of 
grant.

This award will vest in three equal tranches after three, four and five 
years. A holding period will apply such that no shares may be sold 
until year five. 

Two underpins will apply over the initial three-year vesting period, 
as follows:
•  the average return on capital employed must exceed the 

weighted average cost of capital over the same period; and

•  there must have been no environmental, social or governance 
issues which have resulted in material reputational damage for 
the company. 

Should one or both of the underpins not be met, the committee 
may at its discretion reduce the number of shares vesting, including 
to nil. RSP awards are subject to malus and clawback provisions 
as set out in the Policy, and the committee retains the ultimate 
discretion to adjust vesting levels in exceptional circumstances, 
should they not reflect the overall performance of the business over 
the vesting period, or for any other reason. 

Chairman and non-executive director remuneration
The fees for non-executive directors were reviewed during the year 
by the chairman and executive directors, taking into consideration 
the role and requirements of BT, together with the fees paid to non-
executive directors at companies of a similar size and complexity, 
previous years’ increases and no salary increases for the UK 
management population. It was agreed that there would be no 
increase in fees. 

In line with the agreed approach for our UK management 
population, Simon Lowth will not receive a salary increase effective 
1 June 2020. 

Director

Philip Jansen

Simon Lowth

2020/21

Base salary

% change

£1,100,000

£735,438

0%

0%

Benefits
For executive directors, the committee has set benefits in line with 
the new Policy. No changes are proposed to the benefit framework 
for 2020/21.

Pension
In line with the new Policy, the executive directors will have a 
reduced pension provision for 2020/21.

Director

Philip Jansen

Simon Lowtha

% of salary

10% in lieu of pension provision

20% in lieu of pension provision

a  This will further reduce to 15% of salary in 2021/22 and 10% of salary in 2022/23 

(effective from 1 April at the start of each financial year).

Annual bonus
The executive directors are eligible for an on-target and maximum 
bonus payment of 120% and 200% of salary respectively.

The committee welcomed and agreed the chief executive and 
chief financial officer’s proposal to defer their full annual bonus 
for 2020/21 into shares, to the extent that any annual bonus is 
payable. This means that the executive directors will not take any 
cash bonuses for two consecutive years.  

The 2020/21 annual bonus structure measures and weightings are 
set out below.

Category

Measure

Weighting

Financial

Adjusted EBITDA

Normalised free cash flow

Customer

Group Net Promoter Score

Converged 
networks

5G customers – the number of customers 
on our 5G network

FTTP connections – the number of 
connections in the Openreach FTTP 
network 

Digital impact  
& sustainability

Carbon emissions – progress towards 
an 87% reduction in carbon emissions 
intensity by 2030

Skills for Tomorrow – progress towards 
our ambition to reach 10m people in the 
UK with help to improve their digital skills 
by 2025 

35%

35%

10%

5%

5%

5%

5%

BT Group plc Annual Report 2020105

Of these, we estimate that for 2020/21, shares equivalent to 
approximately 0.26% (2019/20: 0.39%) of the issued share capital 
(excluding treasury shares) will be required for the all-employee 
share plans.

External appointments held by executives
The Nominations Committee determines the policy, and if 
thought fit recommends to the Board for approval the taking up 
of external appointments including directorships by members of 
the Executive Committee, including the executive directors, and 
other senior direct reports to the chief executive. 

Previous Annual General Meeting (AGM) voting outcomes
The table below sets out the previous votes cast at the AGM in 
respect of the Annual Remuneration Report and the Directors’ 
Remuneration Policy.

For % of  
votes cast 
Number 

Against % of  
votes cast 
Number

Withheld  
votes 
Number

Annual Remuneration  
Report at the 2019 AGM

Directors’ remuneration 
policy at the 2017 AGM

91.90
6,011,286,559

96.12
6,654,431,173

8.10
530,098,249

3.88
268,487,768

30,829,140

14,886,907

Withheld votes are not counted when calculating voting 
outcomes.

Committee evaluation 2019/20
During 2019/20 we carried out an internal evaluation of the 
committee led by the chairman and the company secretary. 
Members, attendees and Deloitte completed questionnaires and 
the committee discussed the responses and key findings. The 
committee agreed the following key actions for 2020/21:

Key areas of focus

Agreed actions

Remuneration 
advisers

Increasing  
knowledge of 
committee members 

Papers

Given Deloitte have been the 
committee’s remuneration advisers 
for a number of years, consider an 
external market review of advisers 
during 2020/21.

Consider whether any specific 
updates on external benchmarking 
and general market trends should be 
presented to the committee at an 
appropriate meeting or as part of 
specific agenda items.

Review whether further 
improvements to papers can be 
made.

The basic fee for non-executive directors is £77,000 per year. 
There are additional fees for membership and chairing a Board 
committee, details of which are set out in the table below: 

Committee

Audit & Risk

BT Compliancea

Chair’s fee

Member’s fee

£35,000

£25,000

£ 25,000

£12,000

Digital Impact & Sustainability

£14,000

Investigatory Powers Governance

Nominations

Remuneration

£8,000

£8,000

£10,000

n/ab

n/ab

£30,000

£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 per annum.

The designated non-executive director for workforce  
engagement on the Colleague Board receives an additional 
fee of £10,000 per annum.  

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.

The committee agreed a fee of £700,000 per year, fixed for five 
years on the chairman’s appointment in November 2017 and 
therefore no review of his fee was undertaken.

Other remuneration matters
Advisers
During the year, the committee received independent advice 
on executive remuneration matters from Deloitte LLP. Deloitte 
received £206,745 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 and the new Policy.

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 2019/20, Deloitte provided the company with 
advice on corporate and indirect taxes, assistance with regulatory, 
risk and compliance issues and additional consultancy services.

Dilution
We use both treasury shares and shares purchased by the BT Group 
Employee Share Ownership Trust (the Trust) to satisfy our all 
employee share plans and executive share plans. Shares held in the 
Trust do not have any voting rights. 

At the end of 2019/20, shares equivalent to 2.32% (2018/19: 
2.83%) of the issued share capital (excluding treasury shares) 
would be required for all share options and awards outstanding.

BT Group plc Annual Report 2020Corporate governance report106

Annual remuneration report continued

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 below 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 ten-year period.

BT’s TSR performance vs the FTSE 100

History of chief executive remuneration

500
450
400
350
300
250
200
150
100
50
0

Mar
10

Mar
11

Mar
12

Mar
13

Mar
14

Mar
15

Mar
16

Mar
17

Mar
18

Mar
19

Mar
20

  BT

  FTSE 100

Source: Datastream
The graph shows the relative TSR performance of BT and the FTSE 100 
over the past ten years.

Year end

Chief Executive

Total 
remuneration
£000

Annual bonus
(% of max)

ISP vesting
(% of max)

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

Philip Jansena

Philip Jansena

Gavin Pattersonb

Gavin Patterson

Gavin Patterson

Gavin Patterson

Gavin Pattersonb

Gavin Pattersonc

Ian Livingstond

Ian Livingston

Ian Livingston

Ian Livingston

2010

Ian Livingston

3,248

725

1,719

2,307

1,345

5,396

4,562

2,901

4,236

9,402

8,520

4,009

3,556

50%

56%

28%

54%

0%

N/A

N/A

0%

0%

0%

45%

82.01%

58%

62%

35%

65%

73%

79%

71%

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.

BT Group plc Annual Report 2020107

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 
termination provisions:

Chairman and executive directors

Commencement date

Termination provisions

Jan du Plessis

1 June 2017

Philip Jansen

1 January 2019

Simon Lowth

6 July 2016

Terminable by the company on 12 months’ notice  
and by the director on six months’ notice.

Independent non-executive directors

Commencement date

Termination provisions

Ian Cheshire

16 March 2020

Iain Conn

1 June 2014

Isabel Hudson

1 November 2014

Mike Inglis

1 September 2015

Matthew Key

25 October 2018

Allison Kirkby

15 March 2019

Leena Nair

10 July 2019

Nick Rose

1 January 2011

Letter of appointment on a rolling basis terminable  
by either party by three months’ written notice.

Non-independent, non-executive director

Commencement date

Termination provisions

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.

As announced on 16 March 2020, Sara Weller will join the Board as an independent non-executive director. Sara’s appointment 
becomes effective on 16 July 2020, immediately before the 2020 AGM. Also, as announced on 1 May 2020, Adel Al-Saleh will join the 
Board with effect from 15 May 2020, as a non-independent, non-executive director and Deutsche Telekom’s nominated representative, 
replacing Tim Höttges.

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.

Non-executive directors’ letters of appointment
Each independent non-executive director has an appointment letter setting out the terms of his or her appointment. 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 and additional time may be required during periods of increased activity.

During the year, following the recommendation of the Nominations Committee, the Board agreed an amendment to the term and 
notice period for the current and new independent non-executive directors such that they are now on a rolling basis subject to a mutual 
three-month notice period and annual election/re-election by shareholders at the AGM.

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. Adel Al-Saleh has also 
been appointed on the same basis.

Inspection by the public
The service agreements and letters of appointment are available for inspection by the public at BT’s registered office.

BT Group plc Annual Report 2020Corporate governance report108

Remuneration in context

Consideration of colleague  
and stakeholder views

Our employees are vital to our business.  
At BT, we believe in fairness throughout  
the company. The group operates a number  
of general principles applied to all levels:

•  We will provide a competitive package  
with reference to the relevant market  
for each colleague

•  We will ensure colleagues can share in the  

success of the business, and operate a variety  
of all-employee share plans, encouraging 
colleagues to become shareholders

•  Where appropriate, variable remuneration is 

provided to incentivise employees towards driving 
the strategic aims of the business. Performance 
is based on both individual performance and 
the performance of the company as a whole, 
measured on a consistent basis for senior 
executives and all other employees

•  We offer a range of employee benefits,  

many of which are available to all colleagues
•  We aim for transparency and a fair cascade  

of remuneration throughout the group

The committee supports fairness and transparency of 
remuneration arrangements and the Policy has been designed 
to align with the remuneration philosophy and principles that 
underpin remuneration across the wider group. To support 
this, the committee receives regular updates on remuneration 
practices across the group. 

Whilst the committee does not directly consult with our 
employees as part of the process of determining executive pay, 
the Board does receive feedback from employee surveys that 
takes into account remuneration throughout the organisation, 
as well as feedback from the Colleague Board, which is fed back 
to the committee by the designated non-executive director for 
workforce engagement.

When setting executive directors’ remuneration, the committee 
considers the remuneration of other senior managers and 
colleagues in the group more generally to ensure that 
arrangements for executive directors are appropriate in this 
context. When determining salary increases for executive 
directors, the committee considers the outcome of the wider pay 
review for the group.

Chief executive pay ratio
The table below sets out the chief executive pay ratios as at  
31 March 2020, as well as those reported in respect of the prior 
year. The report will build up over time to show a rolling ten-year 
period.

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.

•  Employment conditions for all employees reflect 
our values and are commensurate with a large 
publicly-listed company, including high standards 
of health and safety and equal opportunities. 

A significant proportion of the chief executive’s remuneration is 
delivered through long-term incentives, where awards are linked 
to 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. 

Total remuneration

Employee remuneration

Pay ratio

Chief Executive

P25

P50

P75

2019

2020

£2,444,000

£3,248,012

£34,281

£34,881

£41,477

£42,173

£51,594

£51,351

Base salary

Chief Executive

P25

P50

P75

Employee remuneration

2019

2020

£1,222,000

£1,100,000

£30,090

£31,144

£35,918

£37,321

£41,740

£42,800

P25

71:1

93:1

P25

37:1

35:1

P50

59:1

77:1

P50

31:1

29:1

Pay ratio

P75

47:1

63:1

P75

27:1

26:1

BT Group plc Annual Report 2020 
109

Gender pay gap reporting
This is the third year in which we have published our Gender Pay 
Gap results. Our 2019 report, including contextual information 
and detail on the initiatives we have underway to close our gender 
pay gap, can be viewed on our website.

At a group level, our median hourly pay difference between male 
and female colleagues is 4.8% (reduced from 5.0% in 2018). 
This compares favourably with the telecommunications industry 
median of 12% (ONS provisional), and the UK national median of 
17.3%. While we have made progress in addressing our gender 
pay gap, the gap remains as we have fewer women than men 
at senior and leadership levels, and fewer women generally 
throughout our organisation. We will continue to monitor and 
address this issue, drawing on research from around the world.

Our Gender Pay Gap report is available on our website  
bt.com/genderpaygap

Nick Rose
Chair of the Remuneration Committee
6 May 2020

We have used the ‘Option B’ methodology (based on gender 
pay reporting), as the most robust way to identify the individual 
reference points within an organisation with multiple operating 
segments. 

The P25, P50 and P75 employees were identified from the 
company’s gender pay reporting data, based on the April 
snapshot period at the start of each respective year. We then 
identified the 80 employees above and below each of the ‘P’ 
points to form enlarged groups. This approach is thought to be 
an appropriate representation – while the underlying data is fairly 
consistent given the size of the UK population, this methodology 
reduces volatility in the underlying data, and helps account 
for differences in the gender pay and pay ratio calculation 
methodologies. Other than the exclusion of a small number of 
data points for leavers and divestments, no other adjustments 
were made to the underlying data.

The total FTE remuneration paid during the year in question for 
each employee in each of the groups was then calculated, on the 
same basis as the information set out in the ‘single figure’ table for 
the chief executive. Bonus payments in respect of each year have 
been determined based on the latest available information at the 
time of analysis. The median total remuneration figure for each 
group was then used to determine the three ratios.

Percentage change in remuneration of the chief executive  
and all employees
The table below illustrates the increase in salary, benefits and 
annual bonus for 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 25,495 people. 
We believe this broad group provides the most meaningful 
comparison as they have similar performance-related pay 
arrangements as our executive directors.

Salary

Benefitsa

Bonusa

% Change in chief executive remuneration

0% (26.7)% (10.7)%

% Change in comparator group

2.5%

0% (26.1)%

a   As he was appointed on 1 February 2019, the increase in benefits and annual 

bonus for the chief executive has been determined on a full-year equivalent basis 
to ensure a like-for-like comparison.

Relative importance of the spend on pay
The table below shows the percentage change in total 
remuneration paid to all employees compared to expenditure on 
dividends and share buybacks.

Area

2019/20 
(£m)

2018/19 
(£m)

% change

Remuneration paid to all employees

5,327

5,382

(1)%

Dividends/share buybacks

1,607

1,513

6%

BT Group plc Annual Report 2020Corporate governance report110

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 the directors have elected to prepare the 
company financial statement in accordance with UK accounting 
standards, including FRS 101 Reduced Disclosure Framework.

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

•  for the group financial statements, state whether they have 

been prepared in accordance with IFRSs as adopted by the EU

•  for the parent company financial statements, state whether 
applicable UK accounting standards have been followed, 
subject to any material departures disclosed and explained in 
the parent company financial statements.

•  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 comply with such law and regulation.

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 EU and 
IFRSs issued by the International Accounting Standards Board 
(IASB), and are set out on pages 132 and 133 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 2019/20 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
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 plc Annual Report 2020111

As at 6 May 2020, and throughout 2019/20, 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.

Interest of management in certain transactions
During and at the end of 2019/20, 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.

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.

The company secretary maintains a conflicts register. 

The Conflicted Matters Committee identifies to what extent 
Board and committee materials are likely to refer to a potential 
or actual conflict of interest between BT and Deutsche Telekom 
and as a result what materials should be shared with our non-
independent, non-executive director. He owes duties to both BT 
and Deutsche Telekom, and the Conflicted Matters Committee 
helps him comply with his fiduciary duties, although ultimate 
responsibility rests with him.

The Strategic report on pages 1 to 64 includes information on the 
group structure, strategy and business model, the performance 
of each customer-facing unit and the impact of regulation and 
competition. The Group performance section on pages 43 to 
50 includes information on our group financial results, financial 
outlook, cash flow and net debt, and balance sheet position. 
Notes 24, 25, 26 and 28 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.

Our principal risks and uncertainties are set out on pages 52 
to 63 including details of each risk and how we manage and 
mitigate them. 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. 

This assessment is consistent with the assessment of our viability, 
as set out on page 64, in estimating the financial impact for a 
severe but plausible outcome for each risk, including a highly 
severe Covid-19 scenario based on very prolonged lockdowns, 
both individually, in combination and through probabilistic risk 
modelling. This stress testing confirmed that existing projected 
cash flows and cash management activities provide us with 
adequate headroom over the going concern assessment period. 

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 2021, 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 
ringfenced for the main Board directors of the company.

BT Group plc Annual Report 2020Corporate governance report112

General information

US regulation
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 Audit & Risk Committee includes Nick Rose, Allison Kirkby 
and Matthew Key who, in the opinion of the Board, are the 
designated 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.

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
Management’s report on internal control over financial reporting 
as of 31 March 2020
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, there is a risk that material 
misstatements will not be prevented or detected on a timely 
basis by internal control over financial reporting. However, these 
inherent limitations are known features of the financial reporting 
process. Therefore, it is possible to design into the process 
safeguards to reduce, though not eliminate, this risk. Therefore, 
even those systems determined to be effective can provide only 
reasonable assurance that transactions are recorded as necessary 
to permit preparation of financial statements in accordance with 
IFRS as issued by the IASB and as adopted by the EU, and that 
receipts and expenditures of the company are being made only 
in accordance with authorisations of management and directors 
of the company; and provide reasonable assurance regarding 
prevention or timely detection of unauthorised acquisition, use, 
or disposition of the company’s assets that could have a material 
effect on the financial statements. 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 2020 
based on the criteria established in “Internal Control – Integrated 
Framework” (2013) issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (COSO).

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, which were reported as material 
weaknesses in 2018/19. While management have made good 
progress in remediating these material weaknesses during 
2019/20, the remediation activity had not fully been completed 
in the year. Therefore management has concluded that our 
internal control over financial reporting was not effective as of 
31 March 2020 due to the material weaknesses in relation to IT 
general controls and risk assessment, described below.

These material weaknesses did not result in any identified 
material 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; however it created a reasonable possibility 
that a material misstatement would not have been prevented or 
detected on a timely basis as at or during the year ended  
31 March 2020.

Material weaknesses in IT general controls and risk assessment
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 2019/20, including as part of our activities 
to remediate previously disclosed control deficiencies, 
management identified additional IT applications which 
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 related to these additional 
applications to operate effectively by 31 March 2020

•  Management also identified instances of privileged access 

revalidation for applications, operating systems and databases 
for which relevant controls were not operated effectively during 
2019/20.

Risk assessment
In the prior and current year management identified aspects of 
our risk assessment processes requiring remediation. Specifically:
•  During the year 2019/20, management have addressed 
the key control gaps identified in the year 2018/19 that 
contributed to the material weakness reported in 2018/19 
relating to certain outsourced service organisations, including 
pension asset valuation services and a significant IT outsourced 
provider. However management have identified additional 
outsourced service organisations related to new IT applications 
brought in to scope and one which changed provider in 
2019/20 where there is a risk related to our ability to rely on 
the controls performed at the outsourced service organisations 
due to the timing of attestation reports from these service 
organisations and lack of sufficient compensating controls 

BT Group plc Annual Report 2020 
113

•  Whilst substantial documentation and testing has been 

completed over ‘Information Produced by the Entity’ (being 
information presented in reports used in the operation of a 
control), exceptions were noted during both the remediation 
programme and through management testing that indicated 
that certain instances were not yet subject to sufficient testing 
or controls to ensure that such information was complete and 
accurate

•  In a number of areas, most significantly specific revenue 

streams, and our overseas Global operations, management 
have not yet completed our identification and mapping of 
all transactional process risk points to their related controls 
including management review controls.

Although good progress has been made in narrowing the material 
weaknesses and these control deficiencies did not result in any 
material 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 consequence of these matters, they 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 2020. While remediation activities related to the 
above issues continued during the year ended 31 March 2020, 
management concluded that these material weaknesses were 
not remediated as of 31 March 2020. 

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 in 
this Annual Report, has expressed an adverse opinion on our 
internal control over financial reporting, as stated in their report as 
of 31 March 2020, which is included elsewhere in the Form 20-F.

Changes in internal control over financial reporting
Changes in our internal control over financial reporting that 
occurred during the year ended 31 March 2020, which have 
materially affected, or are reasonably likely to materially affect, 
our internal control over financial reporting are described 
in “Progress in remediating material weaknesses reported 
in 2018/2019” and “Ongoing remediation of the material 
weaknesses in IT general controls and risk assessment” below.

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.

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 2020, our disclosure 
controls and procedures were not effective to provide reasonable 
assurance 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.

Progress in remediating material weaknesses reported in 
2018/19
Management has made good progress in remediating the areas 
of material weakness identified in 2018/19. Specifically, action 
was taken to address control deficiencies that contributed to 
material weaknesses in the areas of:

IT general controls: 
•  During 2018/19, IT applications were brought into the scope 
of management’s framework of internal control over financial 
reporting; however these additional IT applications were 
not identified for inclusion with sufficient time to allow the 
IT general controls supporting these additional applications 
to operate in accordance with COSO 2013. During 2019/20 
management enhanced the IT general controls supporting 
these additional applications brought into the scope in 
2018/19. However, remediation is an ongoing process that we 
have not yet completed and our work in this area continues 

•  Within EE, management ensured SAP privileged user access 

related to development activity was no longer granted thereby 
removing the risk that logs of activity free from potential 
manipulation by these users were not retained and changes 
implemented by privileged users were not directly monitored 

•  Management introduced a process to ensure changes to 
IT dependent business process controls now receive an 
appropriate level of approval testing

•  Management also made improvements to the strength 

of passwords in legacy systems and the timely removal of 
application access for leavers.

Risk assessment: 
•  Management has appropriately addressed the risks of 

material misstatement associated with key outsourced service 
organisations identified in 2018/19, including pension asset 
valuation services and a significant IT outsourced provider. 
However, remediation is an ongoing process that we have not 
yet completed and our work in this area continues including 
related to new IT applications brought into scope and one 
which changed provider in 2019/20

•  Management has implemented a remediation programme to 

support the design and operation of effective controls over the 
completeness and accuracy of information produced by the 
entity; however this has not fully completed

•  Management has not yet completed the identification and 
mapping of transactional process risk points to their related 
controls including management review controls, most 
significantly specific revenue streams, and our overseas Global 
operations.

Ongoing remediation of the material weaknesses in IT general 
controls and risk assessment
Management has been implementing, and continues to 
implement, measures designed to ensure that control 
deficiencies contributing to the remaining material weaknesses 
in the areas of IT general controls and risk assessment are 
remediated, and that these controls are designed, implemented, 
and operating effectively. Remaining procedures to remediate 
these deficiencies are:

IT general controls: 
•  Implementing processes to identify all, and monitor for 
required changes to, relevant IT general controls and 
enhancing the IT general controls supporting additional 
applications brought into the scope in 2019/20 with sufficient 
time to allow the IT general controls supporting these 
additional applications to operate effectively

•  Enhancing the design and operational effectiveness in relation 

to privileged access revalidation controls.

BT Group plc Annual Report 2020Corporate governance report114

General information continued

Risk assessment:
•  Implementing processes to identify all, and monitor for 

required changes to, service organisations and designing and 
implementing alternative business process compensating 
controls for IT applications dependant on third-party service 
organisation assurance reports where reports are not received 
on a timely basis for our financial year-end

•  Continuation of our remediation programme to support 
the design and operation of effective controls over the 
completeness and accuracy of information produced by 
the entity and identification and mapping the remaining 
transactional process risk points to relevant controls.

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 112. The Board also takes account of significant social, 
environmental and ethical matters that relate to BT’s businesses. 
We describe our workplace practices, specific environmental, 
social and ethical risks and opportunities, and details of 
underlying governance processes on pages 1 to 64 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.

The key features of our enterprise-wide risk management and 
internal control process (covering strategic, 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 
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 
2019/20 

•  the Audit & Risk Committee, on behalf of the Board, reviews the 
effectiveness of risk management arrangements across the 
group.

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 
132 and 133. The consistent application of these policies is 
subject to ongoing verification through management review and 
independent review by the 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 2019/20 are set out on pages 78 to 81.

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 
meeting our distribution policy.

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 28 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 28 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.

BT Group plc Annual Report 2020115

Off-balance sheet arrangements
Other than the financial commitments and contingent liabilities 
disclosed in note 31 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 31 to the 
consolidated financial statements on pages 191 and 192.

Apart from the information disclosed in note 31 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 31, 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.

Other information - Listing Rules (LR)
For the purposes of LR 9.8.4R, no information is required to be 
disclosed other than in respect of shareholder waiver of dividends 
and future dividends (LR 9.8.4R(12) and (13)) as follows. 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 – the 2006 Act
Certain provisions of the 2006 Act require us to make additional 
disclosures. These are described on the pages listed below:

Section information

Structure of BT’s share capital (including the  
rights and obligations attaching to the shares)

Page

127,
115 and 116

Restrictions on the transfer of BT shares and voting rights 115 and 116

Significant direct or indirect shareholdings

Appointment and replacement of directors 

116

75, 107 and 
115

Significant agreements to which BT Group plc is a party 
that take effect, alter or terminate upon a change of control 
following a takeover

n/a

Branches

197 to 203

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. 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

•  if there is an offer for the shares, the Trustee does not have to 
accept or reject the offer but will have regard to the interests 
of the participants, may consult them to obtain their views on 
the offer, and may otherwise take 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 page 116)

•  any amendment of BT’s Articles of Association requires 

shareholder approval in accordance with applicable legislation 

•  the powers of BT’s directors are determined by UK legislation 

and BT’s 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 AGM 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 election or 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
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.

There are no restrictions on exercising voting rights except in 
situations where the company is legally entitled to impose such a 
restriction (for example where a notice under section 793 of the 
2006 Act has been served). 

(b) Variation of rights
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.

BT Group plc Annual Report 2020Corporate governance report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 (excluding treasury shares), expires on 16 July 2020. 
We will ask shareholders to give a similar authority at the 2020 
AGM.

During 2019/20, we purchased 40m shares of 5p under this 
authority (0.40% of the share capital) for a consideration of 
£80m, at an average price of £1.96 per share. During 2019/20, 
we transferred 131,073 treasury shares to meet BT’s obligations 
under our employee share plans. At 4 May 2020, we held a total of 
85.9m shares as treasury shares.

In addition, the BT Group Employee Share Ownership Trust (the 
Trust) purchased 237,000 BT shares for a total consideration 
of £314,307. The Trust continued to hold 6.9m shares at 4 May 
2020. In connection with the termination of our ADR programme 
during the year, JPMorgan Chase Bank, N.A., the ADR Depositary, 
transferred 3.7m ordinary shares that were designated for use in 
our share plans in the United States into the Trust.

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):

•  Dividend decisions made by the Board (page 44)

•  An indication of likely future developments in the business of 

the company (pages 1 to 64) 

•  An indication of our R&D activities (pages 15 and 21)

•  Information about our people (pages 25 and 30 to 33)

•  Information about greenhouse gas emissions (pages 39).

By order of the Board

Rachel Canham
Company Secretary & General Counsel, Governance
6 May 2020

116

General information continued

Transfer of shares
There are no specific restrictions on the transfer of shares in the 
company, which is governed by the Articles of Association and 
prevailing legislation. 

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 2019/20, the 
company’s wholly owned subsidiary, British Telecommunications 
plc, paid the costs of attending corporate days at (i) the Liberal 
Democrats party conference; (ii) the Labour party conference; (iii) 
the Scottish National party conference; and (iv) the Conservative 
party conference. These costs totalled £9,967 (2018/19: £4,616). 
No company in the BT Group made any loans to any political party.

Substantial shareholdings
At 6 May 2020, 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. 27 January 2020 512,002,221 5.18%

In addition, T-Mobile Holdings holds 1,196,175,322 shares 
representing 12% of total voting rights.

AGM
Resolutions
At our AGM, we give our shareholders the opportunity to vote on 
every important issue by proposing a separate resolution for each. 

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 2020 AGM on a poll, except procedural 
issues.

The separate Notice of meeting 2020, which we send to all 
shareholders who have requested shareholder documents by 
post, contains the resolutions (with explanatory notes) which we 
will propose at the 2020 AGM on 16 July in London. We notify all 
shareholders of the publication of these documents which are 
available on our website at bt.com/annualreport

At the AGM we will propose resolutions to re-appoint KPMG LLP 
as BT’s auditors and to authorise the Audit & Risk Committee to 
agree their remuneration. We will also ask shareholders to vote 
on the Annual Report, the Report on directors’ remuneration, 
the directors’ remuneration policy, allotment of shares in the 
company, the disapplication of pre-emption rights, our all-
employee and executive share plan rules and new Articles of 
Association. 

BT Group plc Annual Report 2020Contents

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 

117

118
124

125
126
127
128

Notes to the consolidated financial statements
Basis of preparation 
129
Critical accounting estimates and key judgements 132
Significant accounting policies that apply
132
to the overall financial statements  
133
Segment information 
137
Revenue 
141
Operating costs 
142
Employees 
Audit, audit related and other non-audit services 142
143
Specific items 
145
Taxation 
148
Earnings per share 
148
Dividends 
149
Intangible assets 
152
Property, plant and equipment 
154
Leases 
157
Programme rights 
157
Trade and other receivables 
159
Trade and other payables 
160
Provisions 
161
Retirement benefit plans 
172
Own shares 
173
Share-based payments 
175
Assets and liabilities held for sale 
175
Investments 
177
Cash and cash equivalents 
177
Loans and other borrowings 
181
Finance expense 
Financial instruments and risk  
management  
Other reserves 
Related party transactions 
Financial commitments  
and contingent liabilities 

181
190
190

191

Financial statements of BT Group plc 

Related undertakings  

Additional information 

193

197

204

Financial 
statements

BT Group plc Annual Report 2020Financial statements118

Independent auditors’ report to the members  
of BT Group plc 

1. Our opinion is unmodified 

We have audited the financial statements of BT Group plc (“the 
Company”) for the year ended 31 March 2020 which comprise 
the group income statement, 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 
2020 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; 

•  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 period of total uninterrupted engagement is for the 2 
financial years ended 31 March 2020. 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. 

2. Key audit matters: our assessment  
of risks of material misstatement

Key audit matters are those matters that, in our professional 
judgment, 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. 

Valuation of certain unquoted investments  
in the BT Pension Scheme (BTPS) 
Risk vs 2019: 

   Refer to page 78 (Audit & Risk Committee Report), page 162 (note 
20 accounting policy Retirement benefit plans) and pages 161 to 172 
(disclosures note 20 Retirement benefit plans). 

The risk
Subjective estimate
The BTPS has unquoted plan assets in private equity, UK and 
overseas property, mature infrastructure, longevity insurance 
contracts and non-core credit assets. Significant judgment is 
required in determining the value of a portion of these unquoted 
investments which are valued based on inputs that are not directly 
observable. 

In addition, for certain private equity and non-core credit assets 
the latest asset valuations preceded the negative impact of the 
Covid-19 pandemic on financial markets, and as such significant 
judgment is required to evaluate the market indices used by 
management to estimate adjustments to those asset valuations.

The key unobservable inputs used to determine the fair value 
of these plan assets includes estimated rental yields for UK and 
overseas property, discount rates for mature infrastructure, 
discount rate and projected future mortality for the longevity 
insurance contract and estimated net asset values for private 
equity and non-core credit assets. 

The effect of these matters is a potential range of reasonable 
outcomes greater than our materiality for the financial 
statements as a whole, and possibly many times that amount. 
The financial statements (note 20) disclose the sensitivities of key 
assumptions for the valuation of unquoted plan assets estimated 
by the Group. 

BT Group plc Annual Report 2020119

Our response – our procedures included:
Benchmarking assumptions: Challenging, with the support of 
our own actuarial specialists, the life expectancy of the members, 
price inflation and discount rates used to determine the defined 
benefit obligation against independently developed assumptions 
using external market data. 

Assessing actuaries’ credentials: Evaluated the scope, 
competency and objectivity of the Group’s experts who assisted 
in determining the actuarial assumptions used to determine the 
defined benefit obligation. 
Assessing transparency: Considering the adequacy of the Group’s 
disclosures in respect of the sensitivity of the obligation to these 
assumptions.

Our results
We found the resulting estimate of the BTPS defined benefit 
obligation to be acceptable (2019: acceptable). 

Accuracy of revenue due to the complexity  
of the billing systems
Risk vs 2019:  

  Refer to pages 137 to 140 (financial disclosures note 5 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.

The revenue recognition of non-long term contract revenue is 
not subject to significant judgement. However, due to the large 
number of transactions and complexity of the billing systems, 
these are considered to be the areas that have the greatest effect 
on our audit. 

Our response
Our procedures included: 
Process understanding: We obtained an understanding of the 
revenue processes by observing transactions from customer 
initiation to cash received for certain revenue streams.
Test of details: Comparing a sample of revenue transactions, 
including credit notes, to supporting evidence eg customer bills, 
orders, price lists and cash received (all where applicable).

Our results:
We considered revenue relating to non-long-term contract 
revenue to be acceptable (2019: acceptable). 

Our response – our procedures included:
Assessing valuers’ credentials: Evaluated the scope, 
competency and objectivity of the Group’s external experts who 
assisted in determining the key unobservable inputs and market 
indices listed above. 

Longevity insurance contract
Comparing valuations: Challenging, with the support of our 
own actuarial specialists, the fair value of the longevity insurance 
contract by comparing it to an independently developed range 
of fair values using assumptions, such as the discount rate and 
projected future mortality, based on external data.

Property/infrastructure
Benchmarking assumptions: Challenging, with the support of 
our own valuation specialists, the key unobservable inputs, such 
as estimated rental value and market value, used in determining 
the fair value of a sample of UK and overseas property assets, 
and discount rate used in determining the mature infrastructure 
assets, by comparing them to discount rates for comparable 
assets. 

Comparing valuations: Developed an independent expectation 
for a sample of the fair value of UK and overseas property based 
on changes in valuation for the relevant geography and asset type 
obtained from external market data and the historical valuation 
for each property. 

Private equity and non-core credit assets
Benchmarking assumptions: Challenging, with the support of 
our own valuation specialists, the appropriateness of certain 
market indices used in determining the fair value of private 
equity and non-core credit assets that were initially valued by 
management’s experts before the year end, based on the industry 
and location of the underlying investments. 
External confirmations: Compared the estimated net 
asset values for private equity and non-core credit asset to 
confirmation obtained directly from third parties. 
Test of details: Compared the Group’s fund managers’ historical 
estimated net asset values to the latest audited financial 
statements of those funds to assess the Group’s ability to 
accurately estimate the fair value of private equity and non-core 
credit assets.

Our results
We consider the valuation of the BTPS unquoted plan assets to be 
acceptable (2019: acceptable). 

Valuation of defined benefit obligation  
of the BT Pension Scheme (BTPS) 
BTPS obligation: £53.0 billion (2019: £58.9 billion)  
Risk vs 2019: 

   Refer to page 78 (Audit & Risk Committee Report), page 162 (note 
20 accounting policy Retirement benefits) and pages 161 to 172 
(disclosures note 20 Retirement benefit plans). 

The risk
Subjective estimate:
Small changes in certain key actuarial assumptions used to 
determine the BTPS defined benefit obligation, including the 
life expectancy of the members, price inflation and discount 
rates, can have a significant impact on the BTPS defined benefit 
obligation. 

The effect of these matters is a potential range of reasonable 
outcomes greater than our materiality for the financial 
statements as a whole, and possibly many times that amount. 
The financial statements (note 20) disclose the sensitivity of key 
assumptions for the obligation estimated by the Group. 

BT Group plc Annual Report 2020Financial statements120

Independent auditors’  
report to the members  
of BT Group plc continued

Adequacy of regulatory provisions
Regulatory provision £79 million (2019: £182 million)  
Risk vs 2019:   

Recoverability of parent company’s investment  
in subsidiaries and loans to group undertakings
Investment in subsidiary £11,024 million (2019: £10,952 million)

   Refer to page 195 (accounting policy Investments) and page 195 
(financial disclosures note 2 Investments)

Loans to group undertakings £4,234 million (2019: £5,657 
million)

   Refer to page 78 (Audit & Risk Committee Report), pages 160 and 161 
(financial disclosures note 19 Provisions)

  Refer to page195 (accounting policy Impairment of financial assets)

The risk
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 is inherently subjective. The key 
assumptions and judgements relate to the interpretation of the 
applicable Ofcom regulations, historical and pending claims, and 
the estimation of the likelihood and cost of settlement. As a result 
of the provision reducing in the current year following settlement 
of historic matters, the related risk has decreased. 

The effect of these matters is that, as part of our risk assessment, 
we determined that the regulatory provision 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. 

Our response
Our procedures included: 
Our regulatory expertise: Challenging, with the support of our 
own regulatory specialists, the Group’s estimate of the future 
economic outflow. Inspecting the Group’s correspondence with, 
and external information from, Ofcom relating to regulatory 
matters and inspecting a sample of underlying claims.

Historical comparison: Compared the Group’s historical 
regulatory provisions to actual settlements to assess the Group’s 
ability to accurately estimate cost of settlement. 

Sensitivity analysis: Performed sensitivity analyses on the 
estimation of the likelihood and cost of resolution used by the 
group to estimate regulatory provisions.

Assessing transparency: Assessing whether the Group’s 
disclosures detailing significant regulatory matters adequately 
disclose the potential liabilities of the Group. 

Our results
We consider the provisions recognised to be acceptable (2019: 
acceptable).

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 72% and 28% respectively (2019: 66% and 34% 
respectively), of the company’s total assets as at 31 March 2020. 

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 had the greatest effect on our 
overall parent company audit. 

Our response
Our procedures included: 
Test of detail: Comparing the carrying amount of the parent 
company’s investment and loans to group undertakings, with the 
relevant subsidiary 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 found the carrying amounts of the investment in subsidiaries 
and debt due from group entities to be acceptable (2019: 
acceptable). 

We continue to perform procedures over the adequacy of 
litigation provisions, long-term customer contracts in Global 
and Enterprise and useful economic lives assigned to internally 
generated intangible assets. However, as there have not been 
significant changes in the judgements taken in the current year 
with regard to each of these areas, we have not assessed these 
as one of the most significant risks in our current year audit and, 
therefore, they are not separately identified in our report this year. 

BT Group plc Annual Report 2020121

3. Our application of materiality and  
an overview of the scope of our audit 

4. We have nothing to report  
on going concern 

Materiality for the group financial statements as a whole was set 
at £115 million (2019: £115 million), determined with reference 
to a benchmark of Group profit before tax from continuing 
operations, of which it represents 4.9% (2019: 4.3%). 

Materiality for the parent company financial statements as a 
whole was set at £75 million (2019: £110 million), determined 
with reference to a benchmark of total assets, of which it 
represents 0.5% (2019: 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 
(2019: £5.5 million), in addition to other identified misstatements 
that warranted reporting on qualitative grounds. 

Scope of our audit
Of the Group’s seven (2019: seven) reporting components (one 
being the parent company), all (2019: 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

2019

Group revenue

Group profit 
before tax

Group total 
assets

98%

99%

97%

97%

100%

100%

The group team instructed component auditors as to the 
significant areas to be covered, including the relevant risks 
identified 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 balance on behalf of the 
Group and component teams. 

The Group team approved the component materialities, which 
ranged from £40 million to £110 million (2019: £40 million to 
£110 million), having regard to the mix of size and risk profile of 
the Group across the components. 

The work on all 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.

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”). 

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 highly severe Covid-19 on the Group’s 

customers;

•  The impact of a disorderly Brexit;

•  The impact of a complete ban on certain high-risk vendors.

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 significant service 
interruptions, a large scale cyber breach or adverse changes to 
telecoms regulation. 

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 

110 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. 

BT Group plc Annual Report 2020Financial statements122

Independent auditors’  
report to the members  
of BT Group plc continued

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 

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 judgments 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 
provisions of the UK Corporate Governance Code specified by the 
Listing Rules for our review. 

financial year is consistent with the financial statements; and 

We have nothing to report in these respects. 

•  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. 

Disclosures of emerging and 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 Viability statement on 

page 64 that they have carried out a robust assessment of the 
emerging and 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. 

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 110, 
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.  

BT Group plc Annual Report 2020123

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 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 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
6 May 2020

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. 

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, 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. Through these procedures, 
we became aware of actual or suspected non-compliance and 
considered the effect as part of our procedures on the related 
financial statement items. 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. 

BT Group plc Annual Report 2020Financial statementsBT Group plc Annual Report 2020
124

Group income statement
Year ended 31 March 2020

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 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

a For a definition of specific items, see page 204. An analysis of specific items is provided in note 9.

Notes

4, 5
6

4

27

10

11

Notes

4, 5
6

4

27

10

11

Before
specific
items
(‘Adjusted’)
£m

22,824
(19,213)

3,611

(796)
39

(757)
6

2,860
(536)

2,324

23.5p
23.3p

Before
specific
items
(‘Adjusted’)
£m

23,459
(19,613)

3,846

(651)
34

(617)
1

3,230
(619)

2,611

26.3p
26.1p

Specific
itemsa
£m

Total
(Reported)
£m

81
(409)

(328)

(145)
5

(140)
(39)

(507)
(83)

(590)

22,905
(19,622)

3,283

(941)
44

(897)
(33)

2,353
(619)

1,734

(6.0)p
(5.9)p

17.5p
17.4p

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

(4.5)p
(4.5)p

21.8p
21.6p

BT Group plc Annual Report 2020

Financial statements
125

Group income statement
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 204. An analysis of specific items is provided in note 9.

Notes

4, 5

6

4

27

10

11

Before
specific
items
(‘Adjusted’)
£m

23,746

(19,755)

3,991

(558)
12

(546)
(1)

3,444
(671)

2,773

27.9p
27.8p

Specific
itemsa
£m

Total
(Reported)
£m

(23)

(587)

(610)

(218)
–

(218)
–

(828)
87

(741)

(7.4)p
(7.4)p

23,723

(20,342)

3,381

(776)
12

(764)
(1)

2,616
(584)

2,032

20.5p
20.4p

Group statement of comprehensive income
Year ended 31 March

Notes

2020
£m

1,734

2019
£m

2,159

2018
£m

2,032

4,853
(808)

(2,102)
384

1,684
(263)

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

20
10

29
29

29

29
29

40
–

(5)

854
(382)

reclassified

10, 29

(84)

Other comprehensive income (loss) for the year, net of tax

Total comprehensive income (loss) for the year

4,468

6,202

(1,534)

625

64
–

3

176
(18)

(41)

(188)
11

–

(368)
277

1

1,154

3,186

BT Group plc Annual Report 2020
126

Group balance sheet
At 31 March

Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assetsa
Derivative financial instruments
Investments
Associates and joint ventures
Trade and other receivables
Contract assets
Deferred tax assets

Current assets
Programme rights
Inventories
Trade and other receivables
Contract assets
Assets classified as 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 liabilities
Lease liabilitiesa
Liabilities classified as held for sale
Current tax liabilities
Provisions

Total assets less current liabilities

Non-current liabilities
Loans and other borrowings
Derivative financial instruments
Contract liabilities
Lease liabilitiesa
Retirement benefit obligations
Other payables
Deferred tax liabilities
Provisions

Equity
Share capital
Share premium
Own shares
Merger reserve
Other reserves
Retained earnings

Total equity

Notes

2020
£m

2019
£m

2018
£m

13
14
15
28
24

17
5
10

16

17
5
23

28
24
25

26
28
18
5
15
23

19

26
28
5
15
20
18
10
19

21

29

13,889
18,474
5,391
2,229
20
12
481
279
300

41,075

310
300
2,704
1,442
268
67
260
5,092
1,549

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

11,992

10,444

2,842
46
5,794
972
812
211
21
288

10,986

42,081

16,492
966
179
5,748
1,140
754
1,608
431

27,318

499
1,051
(237)
2,572
1,119
9,759

14,763

42,081

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

14,447
17,000
–
1,312
53
38
317
–
1,326

34,493

272
239
4,014
–
–
77
197
3,022
528

8,349

2,281
50
7,168
–
–
–
83
603

10,185

32,657

11,994
787
–
–
6,847
1,326
1,340
452

22,746

499
1,051
(186)
6,647
534
1,366

9,911

32,657

a Right-of-use assets and lease liabilities arise following adoption of IFRS 16 on 1 April 2019. See note 1 to the consolidated financial statements.

The consolidated financial statements on pages 124 to 203 were approved by the Board of Directors on 6 May 2020 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 2020

Financial statements
127

Group statement of changes in equity

At 1 April 2017

499

1,051

(96)

6,647

Share
capital
£m

a

Share
premium
£m

b

Own
shares
£m

c

Merger
reserve
£m

d

Other
reserves
£m

e

Notes

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
Transfers to realised profit

At 31 March 2018
IFRS 15 & 9 opening balance adjustmentf
Tax on IFRS 15 & 9 opening balance adjustmentf

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

At 31 March 2019
IFRS 16 opening balance adjustmentf
Tax on IFRS 16 opening balance adjustmentf

At 1 April 2019
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

10

12
22
10
21

10

12

22
10
21

10

12

22
10
21

Retained
(loss)
earnings
£m

Total
equity
(deficit)
£m

(650)

8,335

2,032
1,684
(263)
–

3,453
(1,524)
84
(2)
(78)
83

2,032
1,139
(262)
277

3,186
(1,524)
84
(2)
(168)
–

884

–
(545)
1
277

(267)
–
–
–
–
(83)

–
–
–
–

–
–
–
–
–
–

–
–
–
–

–
–
–
–
–
–

–
–
–
–

–
–
–
–
(90)
–

–
–
–
–

–
–
–
–
–
–

499

1,051

(186)

6,647

534

1,366

9,911

–
–

499
–
–
–
–

–
–
–
–
–
–
–
–

499
–
–

499
–
–
–
–

–
–
–
–
–
–
–
–

–
–

1,051
–
–
–
–

–
–

(186)
–
–
–
–

–
–
–
–
–
–
–
–

1,051
–
–

1,051
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
19
–
–

(167)
–
–

(167)
–
–
–
–

–
–
–
–
–
(70)
–
–

–
–

6,647
–
–
–
–

–
–
–
–
–
–
(2,500)
–

4,147
–
–

4,147
–
–
–
–

–
–
–
–
–
–
(1,575)
–

–
–

534
–
243
(41)
(18)

184
–
–
–
–
–
–
–

718
–
–

718
–
889
(84)
(382)

423
–
–
–
–
–
(22)
–

1,308
(248)

2,426
2,159
(2,102)
384
–

441
(1,503)
14
67
–
(23)
2,500
(3)

3,919
(87)
16

3,848
1,734
4,853
(808)
–

5,779
(1,521)
2
72
–
(14)
1,597
(4)

1,308
(248)

10,971
2,159
(1,859)
343
(18)

625
(1,503)
14
67
–
(4)
–
(3)

10,167
(87)
16

10,096
1,734
5,742
(892)
(382)

6,202
(1,521)
2
72
–
(84)
–
(4)

At 31 March 2020

499

1,051

(237)

2,572

1,119

9,759

14,763

a The allotted, called up, and fully paid ordinary share capital of BT Group plc at 31 March 2020 was £499m comprising 9,968,127,681 ordinary shares of 5p each (2019:

£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 2017 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 £1,575m and (2018/19: £2,500m), equivalent balances were transferred from merger reserve to realised
profit.

e For further analysis of other reserves, see note 29.
f Opening retained earnings adjusted following adoption of IFRS 15 & 9 on 1 April 2018 and IFRS 16 on 1 April 2019. See note 1 to the consolidated financial statements for

further detail on the impact of adopting IFRS 16.

BT Group plc Annual Report 2020
128

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 chargesa
Loss (profit) on disposal of businesses
Profit on disposal of property, plant and equipment
Depreciation and amortisation
Decrease (increase) in inventories
Decrease (increase) in programme rights
Decrease (increase) in trade and other receivablesb
Decrease (increase) in contract assets
Increase (decrease) in trade and other payables
Decrease in contract liabilities
Decrease in other liabilitiesc
Decrease 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 associates and joint ventures
Proceeds on disposal of current financial assetse
Purchases of current financial assetse
Proceeds on disposal of non-current asset investmentsf
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 paidg
Repayment of borrowingsh
Proceeds from bank loans and bonds
Payment of lease liabilitiesg
Cash flows from derivatives related to net debt
Proceeds from issue of own shares
Repurchase of ordinary share capital

Net cash inflow (outflow) from financing activities

Net increase (decrease) in cash and cash equivalents
Opening cash and cash equivalentsi
Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes
Closing cash and cash equivalentsi

Notes

2020
£m

2019
£m

2018
£m

2,353
33
897

3,283
209
36
(115)
4,274
69
33
163
(119)
144
(236)
(1,182)
(78)

6,481

(210)

6,271

30
1
–
60
(8)
12,000
(13,877)
33
216
(4,105)

(5,650)

(1,520)
(736)
(1,111)
2,843
(651)
452
2
(86)

(807)

(186)

1,594
(186)
1

1,409

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)

(3,800)

(1,504)
(531)
(1,423)
3,972
–
124
5
(9)

634

1,090

499
1,090
5

1,594

2,616
1
764

3,381
33
(1)
–
3,514
(14)
(34)
(156)
–
(345)
–
(775)
(203)

5,400

(473)

4,927

7
–
(16)
2
(9)
11,134
(12,629)
19
21
(3,362)

(4,833)

(1,523)
(555)
(1,401)
3,760
–
(188)
53
(221)

(75)

19

511
19
(31)

499

25

a Other non-cash charges include £58m goodwill impairment charge on assets associated with our domestic operations in France and selected domestic operations and

infrastructure in 16 countries in Latin America that were classified as held for sale during the period. See note 23.

b Includes a prepayment of £nil (2018/19: £nil, 2017/18: £325m) in respect of the acquisition of Spectrum.
c Includes pension deficit payments of £1,274m (2018/19: £2,024m, 2017/18: £872m).
d Acquisitions and disposals of subsidiaries are shown net of cash acquired or disposed of.
e Primarily consists of investment in and redemption of amounts held in liquidity funds.
f Relates to sale of a fair value through equity investment in 2019/20 and 2018/19, and assets held for sale classified within trade and other receivables in 2017/18.
g Payment of lease liabilities relates to the principal element of lease liabilities recognised following adoption of IFRS 16 on 1 April 2019. Interest on lease liabilities is included

within ‘Interest paid’. See note 1 to the consolidated financial statements.

h Repayment of borrowings includes the impact of hedging and repayment of finance lease liabilities in 2018/19 and 2017/18.
i Net of bank overdrafts of £183m (2018/19: £72m, 2017/18: £29m).

BT Group plc Annual Report 2020

Financial statements
129

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
We adopted IFRS 16 ‘Leases’ for the first time on 1 April 2019.
The standard has had a significant impact on the financial
statements.

Background
IFRS 16 replaces IAS 17 ‘Leases’ and related interpretations. The
standard requires lessees to recognise right-of-use assets and
lease liabilities for all leases meeting the lease definition set out
by the standard unless certain exemptions are available.
Accounting for lessors is largely unchanged.

We have recognised arrangements previously disclosed as
operating lease commitments at 31 March 2019 on the balance
sheet. The key driver is our portfolio of leased land and buildings,
the majority of which were previously 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. We have also recognised lease liabilities in
respect of certain arrangements that were previously accounted
for as service contracts because they did not meet the IAS 17
lease definition. These relate predominantly to dark fibre and
data centre capacity.

Transition
We chose to adopt IFRS 16 on a modified retrospective basis. On
transition, we recognised lease liabilities by discounting
remaining payments payable under lease arrangements using an
appropriate incremental borrowing rate. We recognised
right-of-use assets equivalent to the corresponding lease
liabilities, adjusted for pre-existing prepaid lease payments,
accrued lease expenses, and related onerous lease and
decommissioning provisions.

We have recognised the cumulative effect of initially applying
the standard as an adjustment to the opening balance of
retained earnings at 1 April 2019, i.e. the date of initial
application. Prior year comparatives have not been restated for
the effect of IFRS 16 and continue to be reported under IAS 17.

Practical expedients and exemptions
We have elected to make use of the following practical
expedients and exemptions available under IFRS 16:
• Where appropriate, onerous lease provisions in existence at the
date of initial adoption have been derecognised and applied
against the corresponding right-of-use assets as a proxy for
impairment.

• Initial direct costs have been excluded when measuring

right-of-use assets recognised on initial adoption.

• Hindsight has been used in assessing the lease term on initial

adoption.

• Low-value leases and short-term leases are excluded from the

IFRS 16 accounting model, i.e. they are accounted for as
operating expenditure.

• Leases of intangible assets such as software continue to be

accounted for under IAS 38 ‘Intangible Assets’.

• Where practicable, and by class of underlying asset,

arrangements containing both lease components and
non-lease components are accounted for as though they
comprise a single lease component.

Financial Impact
BT as lessee
In the prior year Annual Report we estimated that lease liabilities
totalling £5.6bn – £6.6bn would be recognised on adoption of
IFRS 16. Actual liabilities recognised on transition were £6.1bn
(£6.3bn including pre-existing finance leases), which were
measured by discounting remaining lease payments using the
group’s incremental borrowing rate. The weighted-average rate
applied was 2.2%.

The corresponding right-of-use assets recognised were £5.2bn.
The difference to lease liabilities predominantly relates to
accruals for rent inflation associated with operating leases which
were previously classified as trade and other payables, but which
have been reclassified to the corresponding right-of-use assets
on transition to IFRS 16.

The reconciliation of operating lease commitments disclosed at
31 March 2019 to lease liabilities recognised at 1 April 2019 is as
follows:

Operating lease commitments disclosed as at

31 March 2019a

Arrangements not considered to be a lease under

IAS 17 & IFRIC 4

Adjustments as a result of different treatment of

extension & termination options

Short-term & low value leases recognised as an

expense on a straight-line basis

Effect of discounting under the group’s incremental

borrowing rate

Otherb

Additional lease liabilities recognised as a result of

IFRS 16

Existing finance leases

Total lease liabilities recognised as at 1 April 2019

£m

6,619

74

437

(8)

(901)
(158)

6,063

206

6,269

a BT Group plc Annual Report 2019, note 30 (page 171).
b Other primarily represents leases between BT Group plc and MBNL, of which BT’s
share is eliminated for consolidation purposes, but which had been shown gross in
operating lease commitments disclosed as at 31 March 2019.

BT Group plc Annual Report 2020
130

Notes to the consolidated financial statements continued

1. Basis of preparation continued

Application of IFRS 16 to lessee accounting resulted in an
immaterial adjustment to retained earnings at 1 April 2019. This
adjustment related to the impairment of right-of-use assets that
were impaired on transition, and the release of onerous lease
provisions previously recognised in respect of these arrangements.

We have presented right-of-use assets and the current and
non-current elements of lease liabilities on the face of the
consolidated balance sheet. Additionally, to support the additional
lessee accounting disclosure requirements introduced by IFRS 16
we have added a dedicated note (note 15) which explains
movements in the right-of-use assets during the year, along with
other relevant disclosures, accounting policies and judgements.

The cash flow statement has been revised to present the
element of cash lease payments attributable to lease interest
expense and the element attributable to repayment of lease
liabilities within cash flows from financing activities.

BT as lessor
Lessor accounting is substantially unchanged under IFRS 16 and
adoption of the standard has not had a material impact on the
accounting for arrangements previously identified as leases.

The revised lease definition introduced by IFRS 16 has however
required us to evaluate whether there are any arrangements that
are now in scope of the standard and should therefore be
accounted for as leases. The areas requiring the greatest
judgement concern arrangements to provide external
communications providers (CPs) with use of the group’s fixed-
line telecommunications infrastructure. We have concluded that
arrangements that provide CPs with the exclusive use of the
underlying infrastructure generally contain leases. This primarily
includes “last mile” connections used by Openreach to provide
CPs with connectivity to their customers’ premises, along with
other fibre products such as Ethernet. It also includes wholesale
fixed network access arrangements sold by Enterprise.

The accounting for ongoing rentals is unchanged under IFRS 16,
however upfront connections fees are now deferred over the
lease term rather than the contractual period.

For Openreach’s last mile arrangements, the lease term is longer
than the current contractual deferral period as it also covers the
duration that we are ‘reasonably certain’ that CPs will retain the
use of the line beyond the initial contractual period. Based on
evaluation of historic connection churn rates we have assessed
this period as being 6 months for all last mile arrangements
except for FTTP, which is 12 months. Additional deferred income
has been recognised in respect of active arrangements at the
transition date, and a corresponding adjustment has been made
to retained earnings. This has not had a material impact on the
balance sheet or income statement.

The introduction of IFRS 16 has not had a material impact on the
deferral of connection fees in regard to Openreach’s other fibre
products and Enterprise’s wholesale fixed network access
arrangements.

We continue to present income from these arrangements within
revenue in the income statement as they relate to the group’s
core business activities. We have included additional disclosures
in the revenue note (note 5) clarifying our accounting policy for
operating lease income and the proportion of our revenue
generated from arrangements that meet the definition of
operating leases.

Products sold to end users by our consumer and enterprise units
which make use of fixed-line telecommunications infrastructure
are not considered to contain leases because the customer does
not control the use of the underlying infrastructure.

Opening balance adjustments
The transition method we have chosen in adopting IFRS 16 means
we do not restate comparative information for the impact of the
standard. We have instead adjusted the 1 April 2019 balance
sheet to reflect the impact on opening retained earnings.

Set out below is the impact on the balance sheet of the transition
to IFRS 16.

Non-current assets
Right-of-use assets
Intangible assetsa
Property, plant and

equipmenta

Deferred tax assetsb
Other non-current assets

Current assets
Trade and other receivablesc
Other current assets

Current liabilities
Lease liabilities
Loans and other borrowingsa
Trade and other payablesd
Contract liabilitiesd
Provisionsf
Other current liabilities

Total assets less current

liabilities

Non-current liabilities
Lease liabilities
Loans and other borrowingsa
Contract liabilitiesd
Other payablesd,e
Provisionsf
Other non-current liabilities

Equity
Retained earningsg
All other reserves and equity
Total equity

At
31 March
2019
£m

–
14,385

17,835
1,347
2,276
35,843

3,222
7,222
10,444

–
2,100
5,790
1,225
424
63
9,602

IFRS 16
opening
balance
adjustment
£m

At
1 April
2019
£m

5,155

5,155
(70) 14,315

(34) 17,801
1,349
2,276
40,896

2
–
5,053

(50)
–

3,172
7,222
(50) 10,394

725
(16)
91
(34)
(17)
–
749

725
2,084
5,881
1,191
407
63
10,351

36,685

4,254

40,939

–
14,776
200
1,479
582
9,481
26,518

3,919
6,248
10,167

36,685

5,544
5,544
(190) 14,586
188
654
390
9,481
30,843

(12)
(825)
(192)
–
4,325

(71)
–

3,848
6,248
(71) 10,096

4,254

40,939

a Finance lease assets and liabilities reclassified to right-of-use asset and lease

liabilities respectively.

b Deferred tax recognised on retained earnings adjustment for deferral of connection

fees associated with ‘last mile’ arrangements.

c Trade and other receivables adjusted to reclassify lease prepayments to the

corresponding right-of-use assets.

d Contract liabilities recognised in respect of ‘last mile’ arrangements reclassified to

trade and other payables.

e Other payables adjusted to reclassify accruals for rent inflation associated with

operating leases to the corresponding right-of-use assets.

f Onerous lease provisions reclassified to the corresponding right-of-use assets or

released to retained earnings.

g Retained earnings adjusted to recognise deferred income in respect of connection

fees received for ‘last mile’ arrangements, and to reflect impairment of right-of-use
assets and release of corresponding onerous lease provisions.

BT Group plc Annual Report 2020

Financial statements
131

1. Basis of preparation continued

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.

• IFRIC 23 Uncertainty over Income Tax Treatments.

• Prepayment Features with Negative Compensation

(Amendments to IFRS 9).

• Long-term Interests in Associates and Joint Ventures

(Amendments to IAS 28).

• Plan Amendment, Curtailment or Settlement (Amendments to

IAS 19).

• Annual Improvements to IFRS Standards 2015-2017 Cycle –

various standards.

New and amended accounting standards that have been issued
but are not yet effective
The following new or amended standards and interpretations are
applicable in future periods but are not expected to have a
significant impact on the consolidated financial statements.

• Amendments to References to Conceptual Framework in IFRS

Standards.

• Definition of a Business (Amendments to IFRS 3).

• Definition of Material (Amendments to IAS 1 and IAS 8).

• 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 Executive Committee and 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.

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. We have also
included the impacts of Covid-19 on various balance sheet items
as at 31 March 2020 as specific. The impact of Covid-19 on
underlying trading is recognised in our underlying (adjusted)
results and not as a specific item.

Specific items for the current and prior years are disclosed in
note 9.

Adjustments to prior year disclosures due to internal
reorganisations
We have restated prior year comparatives presented in the
segment information and revenue notes (notes 4 and 5) for the
following organisational changes.

From 1 April 2019 we changed the allocation of group overhead
costs and transferred the Emergency Services Network contract
from Consumer to Enterprise. This has had the following impact
on 2019 and 2018 comparatives:

• Segment revenue increased by £104m and £64m in Enterprise
in the years ended 31 March 2019 and 2018 respectively, with
corresponding decreases in Consumer. All revenue related to
the equipment and other services classification.

• Adjusted EBITDA increased by £321m in Openreach and £23m

in Other and decreased by £203m in Consumer, £80m in
Enterprise and £61m in Global in the year ended 31 March
2019; and increased by £318m in Openreach and decreased by
£171m in Consumer, £82m in Enterprise, £60m in Global and
£5m in Other in the year ended 31 March 2018.

• Depreciation and amortisation decreased by £70m in

Openreach and increased by £6m in Consumer, £56m in
Enterprise and £8m in Global in the year ended 31 March 2019;
and decreased by £71m in Openreach and increased by £21m
in Consumer, £41m in Enterprise, £8m in Global and £1m in
Other in the year ended 31 March 2018.

• Operating profit increased by £391m in Openreach and £23m

in Other and decreased by £209m in Consumer, £136m in
Enterprise and £69m in Global in the year ended 31 March
2019; and increased by £389m in Openreach and decreased by
£192m in Consumer, £123m in Enterprise, £68m in Global and
£6m in Other in the year ended 31 March 2018.

• Intangible assets decreased by £4m and £12m in Consumer in

the years ended 31 March 2019 and 31 March 2018
respectively; with corresponding increases in Enterprise.

• Property, plant and equipment decreased by £46m and £93m
in Consumer in the years ended 31 March 2019 and 31 March
2018 respectively; with corresponding increases in Enterprise.

On 1 October 2018 we transferred our Northern Ireland
Networks business from Enterprise to Openreach, and at the
same time we reclassified certain internal revenues generated
by our Ventures businesses as segmental revenue rather than
an internal recovery of cost. This had the following impact on
2018 comparatives:

• Segment revenue, Adjusted EBITDA and Operating profit in

Openreach increased by £155m, £95m, and £54m and
segment revenue, Adjusted EBITDA and Operating profit in
Enterprise decreased by £117m, £95m and £54m respectively.

• Segment revenue and internal revenue increased by £224m in
Enterprise as a result of reclassification of internal revenues
generated by our Ventures businesses as segmental revenue
rather than as internal recovery of cost.

• Internal revenue increased by £38m in Openreach.

• Property, plant and equipment in Enterprise decreased by

£41m; with a corresponding increase in Openreach.

BT Group plc Annual Report 2020
132

Notes to the consolidated financial statements continued

2. 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 Audit and Risk
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 10 (E, J).

• Goodwill impairment, see note 13 (E, J).

• Government grants relating to Building Digital UK (BDUK)

contracts, see note 14 (J).

• Reasonable certainty and determination of lease terms, see

note 15 (J).

• Provisions and contingent liabilities, see note 19 (E, J).

• Pension obligations, see note 20 (E, J).

Judgements made in assessing the impact of Covid-19 on the
financial statements
We have exercised judgement in evaluating the impact of
Covid-19 on the financial statements. A number of areas have
been recognised as being potentially affected. These are
identified throughout the notes by the following symbol

.

• The impact on our contract loss provisions, see notes 5, 19 & 31.

• Impairment of contract assets, see note 5.

• One-off charges arising from Covid-19 meeting the criteria for

classification as specific items, see note 9.

• Impact on future cash flows included within our value in use
calculations used in impairment assessments, see note 13.

• Impact on reasonable certainty used in determining the lease

term, see note 15.

• Retirement benefit plans, see note 20.

• Programme rights assets and commitments affected by

postponement or cancellation of events, see notes 16 & 31.

• Assumptions within our expected credit losses on trade

receivables, see note 17.

• Impact on hedge effectiveness for any cash flow hedges if cash

flows are no longer ‘highly probable’, see note 28.

• Contingent liabilities, see note 31.

3. 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 14.

BT Group plc Annual Report 2020

Financial statements
133

3. Significant accounting policies that
apply to the overall financial
statements continued

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.

4. Segment information

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.

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.

Significant accounting policies that apply to segment information

Operating and reportable segments
Our operating segments are reported based on financial information provided to the Executive Committee, 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 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 9.

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.

BT Group plc Annual Report 2020
134

Notes to the consolidated financial statements continued

4. Segment information continued

Specific items are detailed in note 9 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.

Segment revenue and profit
As explained in note 1, from 1 April 2019 we changed the allocation of group overhead costs and transferred the Emergency Services
Network contract from Consumer to Enterprise. The prior year comparatives presented in this note have been restated to reflect
these changes.

Year ended 31 March 2020 (IFRS 15 & 16)

Segment revenue
Internal revenue
Revenue from external customersa
Adjusted EBITDAb
Depreciation and amortisationa
Operating profit (loss)a

Specific items (note 9)

Operating profit
Net finance expensec
Share of post tax profit (loss) of associates and joint

ventures

Profit before tax

Consumer
£m

Enterprise
£m

10,388
(102)

10,286

2,426
(1,278)

1,148

6,093
(276)

5,817

1,965
(719)

1,246

Global
£m

4,361
–

4,361

634
(479)

155

Openreach
£m

Other
£m

5,112
(2,753)

2,359

2,858
(1,712)

1,146

1
–

1

24
(108)

(84)

Total
£m

25,955
(3,131)

22,824

7,907
(4,296)

3,611

(328)

3,283
(897)

(33)

2,353

a Before specific items.
b Adjusted EBITDA, defined as EBITDA before specific items, net non-interest related finance expense, and share of profits or losses of associates and joint ventures.
c Net finance expense includes specific item expense of £140m (2018/19: £139m, 2017/18: £218m). See note 9.
d 2018 and 2019 comparatives have been restated to reflect the change in allocation of group overhead costs and transfer of the Emergency Services Network contract from

Consumer to Enterprise on 1 April 2019; and 2018 comparatives have also been restated for the transfer of our Northern Ireland Networks business from Enterprise to
Openreach and reclassification of internal revenue generated by our Ventures business from 1 October 2018. See note 1.

BT Group plc Annual Report 2020

Financial statements
135

4. Segment information continued

Year ended 31 March 2019 (restated

) (IFRS 15 & IAS 17)

d

Segment revenue
Internal revenue
Revenue from external customersa
Adjusted EBITDAb
Depreciation and amortisationa
Operating profit (loss)a

Specific items (note 9)

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 & IAS 17)

d

Segment revenue
Internal revenue
Revenue from external customersa
Adjusted EBITDAb
Depreciation and amortisationa
Operating profit (loss)a

Specific items (note 9)

Operating profit
Net finance expensec
Share of post tax profit (loss) of associates and

joint ventures

Profit before tax

d

Consumer
£m

d

Enterprise
£m

d

Global
£m

d

Openreach
£m

d

Other
£m

10,591
(107)

10,484

2,331
(1,030)

1,301

6,396
(359)

6,037

1,910
(690)

1,220

4,735
–

4,735

444
(378)

66

5,075
(2,875)

2,200

2,744
(1,398)

1,346

3
–

3

(37)
(50)

(87)

d

Consumer
£m

d

Enterprise
£m

d

Global
£m

d

Openreach
£m

d

Other
£m

10,296
(103)

10,193

2,205
(1,013)

1,192

6,711
(441)

6,270

1,995
(676)

1,319

5,013
–

5,013

374
(432)

(58)

5,278
(3,016)

2,262

2,933
(1,330)

1,603

8
–

8

(2)
(63)

(65)

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

a Before specific items.
b Adjusted EBITDA, defined as EBITDA before specific items, net non-interest related finance expense, and share of profits or losses of associates and joint ventures.
c Net finance expense includes specific item expense of £140m (2018/19: £139m, 2017/18: £218m). See note 9.
d 2018 and 2019 comparatives have been restated to reflect the change in allocation of group overhead costs and transfer of the Emergency Services Network contract from

Consumer to Enterprise on 1 April 2019; and 2018 comparatives have also been restated for the transfer of our Northern Ireland Networks business from Enterprise to
Openreach and reclassification of internal revenue generated by our Ventures business from 1 October 2018. See note 1.

Internal revenue and costs

Year ended 31 March 2020

Internal revenue recorded by
Consumer
Enterprise
Global
Openreach

Total

Year ended 31 March 2019

Internal revenue recorded by
Consumer
Enterprise
Global
Openreach

Total

Consumer
£m

Enterprise
£m

Global
£m

Openreach
£m

Internal cost recorded by

–
64
–
846

910

63
–
–
379

442

21
54
–
97

172

–
86
–
–

86

Consumer
£m

Enterprise
£m

Global
£m

Openreach
£m

Internal cost recorded by

–
63
–
920

983

69
–
–
401

470

20
51
–
112

183

–
177
–
–

177

Other
£m

18
72
–
1,431

1,521

Other
£m

18
68
–
1,442

1,528

Total
£m

102
276
–
2,753

3,131

Total
£m

107
359
–
2,875

3,341

BT Group plc Annual Report 2020
136

Notes to the consolidated financial statements continued

4. Segment information continued

Year ended 31 March 2018 (restated

a
)

Internal revenue recorded by
Consumer
Enterprisea
Global
Openreacha

Total

Consumer
£m

Enterprise
£m

Global
£m

Openreach
£m

Internal cost recorded by

–
130
–
896

1,026

65
–
–
480

545

20
51
–
125

196

–
173
–
–

173

Other
£m

18
87
–
1,515

1,620

Total
£m

103
441
–
3,016

3,560

a 2018 comparatives have been restated to reflect the transfer of our Northern Ireland Networks business from Enterprise to Openreach and reclassification of internal

revenue generated by our Ventures business from 1 October 2018. See note 1.

Capital expenditure

Year ended 31 March 2020

Intangible assetsa
Property, plant and equipmentb

Capital expenditure

Year ended 31 March 2019 (restated

c
)

Intangible assetsa,c
Property, plant and equipmentb,c

Capital expenditure
Acquisition of spectruma

Capital expenditure including spectrum

Year ended 31 March 2018 (restated

c
)

Intangible assetsa,c
Property, plant and equipmentb,c

Capital expenditure

Consumer
£m

Enterprise
£m

291
657

948

218
283

501

Consumer
£m

Enterprise
£m

272
672

944

–

944

184
367

551

–

551

Consumer
£m

Enterprise
£m

224
590

814

192
405

597

Global
£m

123
100

223

Global
£m

93
152

245

–

245

Global
£m

92
186

278

Openreach
£m

103
2,005

2,108

Openreach
£m

82
1,999

2,081

–

2,081

Openreach
£m

70
1,629

1,699

Other
£m

55
125

180

Other
£m

49
93

142

304

446

Other
£m

64
70

134

Total
£m

790
3,170

3,960

Total
£m

680
3,283

3,963

304

4,267

Total
£m

642
2,880

3,522

a Additions to intangible assets as presented in note 13.
b Additions to property, plant and equipment as presented in note 14, inclusive of movement on engineering stores.
c 2018 and 2019 comparatives have been restated to reflect the transfer of the Emergency Services Network contract from Consumer to Enterprise on 1 April 2019; and 2018

comparatives have also been restated for the transfer of our Northern Ireland Networks business from Enterprise to Openreach from 1 October 2018. See note 1.

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

2020
£m

19,401
1,904
924
595

22,824

2019
£m

19,683
2,280
936
560

2018
£m

19,687
2,489
996
574

23,459

23,746

2020
£m

35,597
2,347
384
198

38,526

2019
(restatedb)
£m

30,295
2,218
338
110

2018
£m

28,835
2,527
331
109

32,961

31,802

a Comprising the following balances presented in the group balance sheet: intangible assets; property, plant and equipment; right-of-use assets; investments in associates and

joint ventures; trade and other receivables and contract assets.

b 2019 comparatives restated to include contract assets totalling £249m.

BT Group plc Annual Report 2020

5. Revenue

Financial statements
137

Significant accounting policies that apply to revenue

Revenue from contracts with customers in scope with IFRS 15
Most revenue recognised by the group is in scope of IFRS 15 and is subject to the following revenue recognition policy.

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 2020 that contain unsatisfied performance obligations.

Service line

Performance obligations

Revenue recognition policy

ICT and
managed
networks

Fixed access
subscriptions

Mobile
subscriptions

Equipment
and other
services

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.

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.

BT Group plc Annual Report 2020
138

Notes to the consolidated financial statements continued

5. Revenue continued

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.

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.

• Whether Covid-19 will have an impact on the assumptions listed above, including our future revenue projections, our ability
to complete our contractual work on time, and our assessment of whether our force majeure contract clauses will prevent any
contract penalties.

Revenue from lease arrangements in scope of IFRS 16

As set out in note 1, some arrangements to provide external communications providers with exclusive use of fixed-network
telecommunications infrastructure previously accounted for as service contracts under IFRS 15 now meet the definition of
operating leases under IFRS 16. During the year we changed the terms and conditions of some consumer broadband and TV
products which resulted in devices such as routers provided to customers now meeting the definition of operating leases.
Associated income continues to be classified as revenue as these arrangements are core business activities.

At inception of a contract, we determine whether the contact is, or contains a lease following the accounting policy set out in
note 15. Arrangements meeting the definition of a lease in which we act as lessor are classified as operating or finance leases at
lease inception based on an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to
ownership of the underlying asset. If this is the case then the lease is a finance lease; if not, it is an operating lease.

Income from arrangements classified as operating leases is presented as revenue where it relates to our core operating
activities, for example leases of fixed-line telecommunications infrastructure to external communications providers and leases
of devices to consumer customers as part of fixed access subscription products. Operating lease income from other
arrangements is presented within other operating income (note 6).

We recognise lease payments as income on a straight-line basis over the lease term. Any upfront payments received, such as
connection fees, are deferred over the lease term. Determining the lease term is subject to the significant judgements set out in
note 15.

Where the contract contains both lease and non-lease components, the transaction price is allocated between the components
on the basis of relative stand-alone selling price.

Income from arrangements classified as finance leases is not material to the group.

BT Group plc Annual Report 2020

5. Revenue continued

Financial statements
139

Disaggregation of revenue
The following table disaggregates revenue by our major service lines and by reportable segment. The 2018 comparatives have not
been restated for the adoption of IFRS15 in 2019 and are presented under IAS 18.

Year ended 31 March 2020 (IFRS 15)

ICT and managed networks
Fixed access subscriptions
Mobile subscriptions
Equipment and other services

Revenue before specific items

Specific items (note 9)

Revenue

Year ended 31 March 2019 (restated) (IFRS 15)

ICT and managed networks
Fixed access subscriptions
Mobile subscriptions
Equipment and other services

Revenue before specific items

Specific items (note 9)

Revenue

Consumer
£m

Enterprise
£m

–
4,443
3,807
2,036

10,286

2,207
2,007
1,199
404

5,817

a

Consumer
£m

a

Enterprise
£m

–
4,564
3,866
2,054

10,484

2,236
2,181
1,277
343

6,037

Global
£m

2,199
352
84
1,726

4,361

Global
£m

2,613
362
130
1,630

4,735

Openreach
£m

Other
£m

–
2,293
–
66

2,359

–
–
–
1

1

Openreach
£m

Other
£m

–
2,135
–
65

2,200

–
–
–
3

3

Total
£m

4,406
9,095
5,090
4,233

22,824

81

22,905

Total
£m

4,849
9,242
5,273
4,095

23,459

(31)

23,428

a On 1 April 2019 we transferred the Emergency Services Network contract from Consumer to Enterprise which resulted in a decrease in revenue in Consumer; and a

corresponding increase in Enterprise. 2019 comparatives have been restated to reflect this transfer, see note 1.

Year ended 31 March 2018 (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 9)

Revenue

£m

5,530
4,655
6,451
5,126
265
1,719

23,746

(23)

23,723

Revenue expected to be recognised in future periods for performance obligations that are not complete (or are partially complete)
as at 31 March 2020 is £13,750m (31 March 2019: £14,296m). Of this, £8,191m (31 March 2019: £9,425m) relates to ICT and
managed services contracts and equipment and other services which will substantially be recognised as revenue within 3 years. Fixed
access and mobile subscription services typically have shorter contract periods and so £5,559m (31 March 2019: £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. Revenue related to customers’ unexercised rights (for example, unused amounts on prepaid SIM cards) was not material.

Operating lease income
Presented within revenue is £2,297m income from arrangements classified as operating leases under IFRS 16 and which represent
core business activities for the group. Income relates predominantly to Openreach’s leases of fixed-line telecommunications
infrastructure to external communications providers which is classified as fixed access subscription revenue in the table above.

During the year we also recognised £41m operating lease income from non-core business activities which is presented in other
operating income (note 6). This income relates primarily to sub-leases of unutilised properties.

Note 15 presents an analysis of payments to be received across the remaining term of operating lease arrangements.

BT Group plc Annual Report 2020
140

Notes to the consolidated financial statements continued

5. Revenue continued

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.

Contract assets and liabilities recognised are as follows:

Year ended 31 March

Contract assets
Current
Non-current

Contract liabilities
Currenta
Non-currenta

2020
£m

1,442
279
1,721

972
179
1,151

2019
£m

1,353
249
1,602

1,225
200
1,425

a Contract liabilities recognised at 31 March 2019 include balances relating to Openreach, the majority of which are now presented as trade and other payables following

adoption of IFRS 16 on 1 April 2019, see note 1.

£1,094m of the contract liability recognised at 31 March 2019 was recognised as revenue during the year (2018/19: £1,216m).
Impairment losses of £59m were recognised on contract assets during the year (2018/19: £36m).

These impairment losses included £21m of impairments to contract assets recognised at 31 March 2020 reflecting increased
expected credit losses above our standard provisioning policies as a result of Covid-19. This increase above our standard contract
loss provisioning policies was recorded as a specific item (note 9).

BT Group plc Annual Report 2020

Financial statements
141

6. 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 commissionsf
Payments to telecommunications operators
Property and energy costs
Network operating and IT costs
TV programme rights charges
Provision and installationf
Marketing and salesf
Other operating costsf
Other operating income
Depreciation of property, plant and equipment:

Owned assets
Right-of-use assetsd,e
Held under finance leasesd
Amortisation of intangible assets
Total operating costs before specific items
Specific items
Total operating costs
Operating costs before specific items include the following:

Leaver costsb
Research and development expenditurec
Operating lease chargesd
Foreign currency gains
Inventories recognised as an expense
Government grants

Notes

2020
£m

2019
£m

2018
£m

20
22

14
15

13

9

4,203
426
626
72
5,327
(903)
4,424
354
4,778
4,440
1,749
1,004
898
870
604
303
494
(223)

2,452
671
–
1,173
19,213
409
19,622

15
662
–
(12)
2,447
–

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
19,755
587
20,342

50
632
732
–
2,588
(3)

a Net of capitalised indirect labour costs of £675m (2018/19: £672m, 2017/18: £612m).
b Leaver costs are included within wages and salaries, except for leaver costs of £197m (2018/19: £257m, 2017/18: £168m) associated with restructuring costs, which have

been recorded as specific items.

c Research and development expenditure reported in the income statement includes amortisation of £599m (2018/19: £581m, 2017/18: £573m) in respect of capitalised

development costs and operating expenses of £63m (2018/19: £62m, 2017/18: £59m). In addition, the group capitalised software development costs of £476m (2018/19:
£472m, 2017/18: £450m).

d Depreciation on right-of-use assets recognised following adoption of IFRS 16 on 1 April 2019, see note 1. Depreciation recognised in the current year includes depreciation

on assets held under finance lease in previous years, which have been reclassified as right-of-use assets on transition to IFRS 16.

e Excludes £22m reversal of impairment on right-of-use assets presented as a specific item which relate to assets impaired on adoption of IFRS16.
f Included within ‘other operating costs’ in 2017/18 were costs relating to product costs and commissions; provision and installation; and marketing and sales. These are presented

separately in 2018/19 and 2019/20. The ‘other operating costs’ comparative for 2017/18 has been re-presented for consistency, consistent with the 2019 Annual Report.

Who are our key management personnel and how are they compensated?
Key management personnel comprise executive and non-executive directors and members of the Executive Committee.

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

2020
£m

9.6
1.0
7.1
–
17.7

2019
£m

13.5
1.2
5.0
0.6
20.3

2018
£m

11.8
1.3
6.2
2.2
21.5

a Post employment benefits comprise cash pension allowances paid to the chief executive 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. No cash bonuses were awarded in 2019/20
(2018/19 £3.8m, 2017/18: £3.2m) as these have been deferred and will be issued in shares in 2021.

BT Group plc Annual Report 2020
142

Notes to the consolidated financial statements continued

7. Employees

Number of employees in the group

a

UK
Non-UK

Total employees

Number of employees in the group

a

Consumer
Enterpriseb
Global
Openreachb
Other

Year end
000

82.6
22.7

105.3

Year end
000

19.6
12.2
16.3
35.0
22.2

2020

Average
000

82.8
22.6

105.4

2020

Average
000

19.7
12.8
16.5
34.1
22.3

Year end
000

84.3
22.4

106.7

Year end
000

19.7
13.4
16.6
33.2
23.8

2019

Average
000

83.4
23.1

106.5

2019

Average
000

19.0
13.8
16.8
31.9
25.0

Year end
000

82.2
23.6

105.8

Year end
000

18.2
13.2
16.9
31.2
26.3

2018

Average
000

82.5
23.7

106.2

2018

Average
000

18.0
13.5
17.3
31.1
26.3

Total employees

105.3

105.4

106.7

106.5

105.8

106.2

a These reflect the full-time equivalent of full and part-time employees.
b The 2018 comparative was restated in the prior year to reflect the change in segments and the transfer of Northern Ireland Networks, as described in note 1.

8. 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 years
ended 31 March 2020 and 2019. Figures in the table below for the year ended 31 March 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
The audit of the parent company and the consolidated financial statements
The audit of the company’s subsidiaries

Audit related assurance servicesb

Other non-audit services
All other assurance servicesc
All other servicesd

Total services

2020
£000

2019
£000

2018
£000

10,546
6,315

16,861

8,165
6,061

5,418
5,877

14,226

11,295

2,416

2,236

1,771

228
247

475

748
210

958

211
592

803

19,752

17,420

13,869

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 £20,000 (2018/19: £32,000).

b 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 fees for reporting associated with the group’s US debt shelf registration
before de-registration from the New York Stock Exchange in November 2019.

c All other assurance services in 2018/19 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 PricewaterhouseCoopers LLP audit.

d Fees payable for all non-audit services not included above, principally comprising other advisory services. This does not include fees for BT’s I4 forum membership, which is

facilitated by KPMG but not considered to be a service.

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 2020 KPMG LLP received total fees from the
BT Pension Scheme of £0.8m (2018/19: £1.1m, PricewaterhouseCoopers LLP: 2017/18: £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

2020
£000

819
9
–
–
2
830

2019
£000

1,005
53
–
–
62
1,120

2018
£000

345
–
153
1,074
565
2,137

BT Group plc Annual Report 2020

Financial statements
143

9. Specific items

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 124. Adjusted results are consistent with the way that financial performance
is measured by management and assist in providing an additional analysis of the reporting of the 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. We

have also included the impacts of Covid-19 on various balance sheet items as at 31 March 2020 as specific. The impact of Covid-
19 on underlying trading is recognised in our underlying (adjusted) results and not as a specific item.

Year ended 31 March

Revenue
Retrospective regulatory matters

Operating costs
Restructuring charges
Divestment-related items
Covid-19
Property rationalisation
Spectrum annual licence fee refund
Retrospective regulatory matters
Italian business investigation
Provision for claims
Pension equalisation costs
EE acquisition warranty claims

Operating loss

Net finance expense
Interest expense on retirement benefit obligation
Interest on spectrum annual license fee refund

Associates and joint ventures
Net specific items charge before tax

Taxation
Tax credit on specific items above
Tax charge on re-measurement of deferred tax

Net specific items charge after tax

2020
£m

(81)
(81)

322
199
95
(131)
(82)
9
2
(5)
–
–
409
328

145
(5)
140
39
507

(73)
156
83
590

2019
£m

31
31

386
5
–
36
–
(4)
(55)
–
26
–
394
425

139
–
139
–
564

(112)
–
(112)
452

2018
£m

23
23

287
(1)
–
28
–
26
22
–
–
225
587
610

218
–
218
–
828

(87)
–
(87)
741

BT Group plc Annual Report 2020
144

Notes to the consolidated financial statements continued

Retrospective regulatory matters
We have recognised a net credit of £(72)m (2018/19: charge
£27m, 2017/18: charge £49m) in relation to regulatory matters.
This reflects the settlement of various matters. Of this, £(81)m
credit is recognised in revenue and £9m charge in operating
costs.

Italian business investigation
During the year we recognised £2m costs relating to the
historical investigation in our Italian business (2018/19: a credit
of £(55)m, 2017/18: a charge of £22m).

Provision for claims
We have recognised a credit of £5m (2018/19: £nil) in relation to
release of provisions for claims created through specific items in
2012/13 which have now been fully settled.

Pension equalisation costs
During 2018/19 we recognised a charge of £26m in relation to
the high court requirement to equalise pension benefits between
men and women due to guaranteed minimum pension (GMP).

EE acquisition warranty claims
In 2017/18 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.

Interest expense on retirement benefit obligation
During the year we incurred £145m (2018/19: £139m, 2017/18:
£218m) of interest costs in relation to our defined benefit
pension obligations. See note 20 for more details.

Associates and joint ventures
Following renegotiation of a contract, an amount of £39m
(2018/19: £nil, 2017/18: £nil) owed by an associate has been
determined irrecoverable. The resulting impairment has been
recognised as a specific item.

Tax on specific items
A net tax charge of £83m (2018/19: credit of £112m, 2017/18:
credit of £87m) was recognised in relation to specific items.
During the period, legislation was enacted to maintain the UK
corporation tax rate at 19% (see note 10). Accordingly the group
has re-measured its deferred tax balances which has resulted in a
charge of £156m.

9. Specific items continued

Restructuring charges
During the year we incurred charges of £322m (2018/19:
£386m, 2017/18: £287m), primarily relating to leaver costs.
These costs reflect projects within our group-wide cost
transformation programme. Of this £8m (2018/19: £29m;
2017/18: £46m) relates to the completion of our EE integration
activities and £22m (2018/9: £23m; 2017/2018: nil) costs to
close the BT Pension Scheme and provide transition payments to
affected employees.

Divestment-related items
During the year we entered into agreements to sell our domestic
operations in France, our domestic operations in Spain and
selected domestic operations and infrastructure in 16 countries
in Latin America. These divestments are expected to complete in
financial year 2020/21. We have classified the assets and
liabilities of these operations as held for sale at the lower of their
carrying amount and fair value less costs to sell, which has
resulted in an impairment charge of £127m relating to the
France and Latin America divestments. See note 23.

In addition we have recognised losses on disposal of £36m
(2018/19: £5m) relating to the completed divestments of BT
Fleet Solutions and Tikit, and £36m of costs relating to ongoing
divestment projects.

Covid-19

During the year we recognised one-off charges of £95m relating
to the impact of Covid-19 on various balance sheet items as at
31 March 2020. This comprises an £88m increase in our
expected credit loss provisions for receivables due from
customers and contract assets, and £7m contract loss provisions
in respect of revenue contracts that are expected to become
loss-making as a result of Covid-19 impacts.

Should we recover the amounts owed, for which we have
provided, this recovery would be reversed back through the
income statement as a specific item.

Property rationalisation costs
We have recognised a net credit of £(131)m (2018/19: charge
£36m, 2017/18: charge £28m) relating to the rationalisation of
the group’s property portfolio under our Better Workplace
Programme including the gain on sale of BT Centre of £115m.

Spectrum annual licence fee refund
In May 2019 we received a payment of £87m from Ofcom,
relating to overpaid fees that were charged during the period
2015-2017 under the previous 2015 fees regulation that was
quashed by the Court of Appeal in 2017. Ofcom obtained
permission to appeal the judgment to the Court of Appeal and in
February 2020 the Court of Appeal ruled in our favour. Ofcom
have informed us that they are not planning to pursue an appeal
to the Supreme Court and we have therefore released our £87m
provision and recognised this in the income statement as a
specific item including interest on the refund of £5m.

BT Group plc Annual Report 2020

10. Taxation

Financial statements
145

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 predicted outcome where an outflow is probable, but the agreed amount can differ
materially from our estimates. Approximately 82% 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. £191m (2018/19: £252m) 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 126. The value of the
group’s deferred tax assets and liabilities is disclosed below.

Analysis of our taxation expense for the year

Year ended 31 March

United Kingdom
Corporation tax at 19% (2018/19: 19%, 2017/18: 19%)
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 19% (2018/19: 17%, 2017/18: 17%)
Remeasurement of temporary differences

Total deferred taxation (expense) credit

Total taxation expense

2020
£m

(495)
41

(58)
(1)

(513)

55
–
(156)
(5)

(106)

(619)

2019
£m

(434)
(9)

(74)
15

(502)

(20)
2
–
13

(5)

2018
£m

(578)
37

(66)
23

(584)

46
(57)
–
11

–

(507)

(584)

BT Group plc Annual Report 2020
146

Notes to the consolidated financial statements continued

10. Taxation continued

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% (2018/19: 19%, 2017/18: 19%)
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 9)

Total taxation expense before specific items

2020
£m

2,353

(447)

(5)
(40)
40
11
(17)
–
–
(161)
–

(619)
83

(536)

2019
£m

2,666

(506)

(7)
(36)
8
21
–
–
–
13
–

(507)
(112)

(619)

2018
£m

2,616

(497)

(8)
(100)
3
16
(9)
–
–
11
–

(584)
(87)

(671)

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 remeasurements

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 credita
Deferred tax (expense) credit

a Includes £271m (2018/19: £391m, 2017/18: £212m) relating to cash contributions made to reduce retirement benefit obligations.

Tax (expense) credit recognised directly in equity

Year ended 31 March

Tax (expense) credit relating to share-based payments

2020
£m

–

2020
Tax
credit
(expense)
£m

2019
Tax credit
(expense)
£m

2018
Tax credit
(expense)
£m

(808)

384

(263)

(4)
–
(80)
–

(892)

267
(1,159)

(892)

(4)
–
(37)
–

343

395
(52)

343

2019
£m

–

(9)
–
57
(47)

(262)

203
(465)

(262)

2018
£m

(2)

Fixed asset
temporary
differences
£m

Retirement
benefit
obligations
£m

a

Share-based
payments
£m

Tax losses
£m

Other
£m

Jurisdictional
offset
£m

1,460

(1,166)

(7)

(183)

(90)

BT Group plc Annual Report 2020

10. Taxation continued

Deferred taxation

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 1 April 2019

Non-current
Deferred tax asset
Deferred tax liability
Tax on IFRS 16 opening balance adjustment

Deferred tax asset
Deferred tax liability

At 1 April 2019

Expense (credit) recognised in the income

statement

Expense (credit) recognised in other comprehensive

income

Exchange difference
Transfer to held for sale (note 23)
Transfer from current tax

(60)

(59)

–
–
–

15
–
–

1,400

(1,210)

(27)
1,427
(2)

(29)
1,427

1,398

(1,210)
–
–

(1,210)
–

(1,210)

191

(46)

–
1
–
–

1,079
1
–
–

1

–
(1)
1

(6)

(6)
–
–

(6)
–

(6)

(1)

–
–
–
–

Financial statements
147

Total
£m

14

(5)

52
(1)
–

60

–

–

–
–
–

–

114

(1)

–
–
(1)

37
–
–

(70)

(54)

(70)
–
–

(70)
–

(70)

2

–
2
–
–

(54)
–
–

(54)
–

(54)

(40)

80
(1)
(4)
(14)

(33)

(33)

(33)

20
(20)
–

20
(20)

(1,347)
1,407
(2)

(1,349)
1,407

–

–

–
–
–
–

–

58

106

1,159
3
(4)
(14)

1,308

(1)
1

–

(300)
1,608

1,308

At 31 March 2020

Non-current
Deferred tax asset
Deferred tax liability

At 31 March 2020

1,590

(176)

(7)

(66)

(17)
1,607

1,590

(176)
–

(176)

(7)
–

(7)

(66)
–

(66)

a Includes a deferred tax asset of £1m (2018/19: £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?
A UK corporation tax rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted
reduction in the rate from 19% to 17%. 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 2020have been calculated at the rate at which the relevant balance is expected
to be recovered or settled. The impact to the income statement is £156m charge, and £110m credit to other comprehensive income.

What are our unrecognised tax losses and other temporary differences?
At 31 March 2020 we had operating losses and other temporary differences carried forward in respect of which no deferred tax
assets were recognised amounting to £4.2bn (2018/19: £4.2bn). 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 2020

Restricted losses
Europe
Americas
Other

Total restricted losses

Unrestricted operating losses

Other temporary differences

Total

£m

Expiry

2019-2038
2019-2038
2019-2038

1
256
3

260

3,827

No expiry

98

No expiry

4,185

BT Group plc Annual Report 2020
148

Notes to the consolidated financial statements continued

10. Taxation continued

At 31 March 2020 we had UK capital losses carried forward in respect of which no deferred tax assets were recognised amounting to
£16.9bn (2018/19: £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 2020 the undistributed earnings of non-UK subsidiaries were £2.5bn (2018/19: £2.5bn). 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 £19.9m (2018/19: £18.2m) would
arise if these earnings were to be repatriated to the UK. On 31 January 2020, the United Kingdom withdrew from the European Union
and entered into a transition period, during which the United Kingdom will apply all EU laws and rules which formed part of the
withdrawal agreement. Depending upon the outcome of negotiations, at the end of the transition period, the UK could cease to
benefit from the EU’s Parent Subsidiary directive on dividends paid by our EU subsidiaries. In this event, additional tax of up to
£23.1m could arise if the undistributed earnings of EU subsidiaries of £878m were to be repatriated to the UK.

11. Earnings per share

How is 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 (2018/19: 36m shares, 2017/18: 23m 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

2020

9,885
–
80

9,965

17.5p
17.4p

2019

9,912
6
57

9,975

21.8p
21.6p

2018

9,911
2
48

9,961

20.5p
20.4p

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 £1,734m (2018/19: £2,159m, 2017/18: £2,032m) and profit after tax
attributable to non-controlling interests was £2m (2018/19: £3m, 2017/18: £4m). Profit attributable to non-controlling interests is
not presented separately in the financial statements as it is not material.

12. Dividends

What dividends have been paid?
No final dividend is proposed in respect of the year ended 31 March 2020 (2018/19: 10.78p). An interim dividend of 4.62p per share
amounting to £457m was paid on 3 February 2020 (2018/19: full year dividend 15.4p amounting to approximately £1,527m,
2017/18: full year dividend 15.4p amounting to approximately £1,524m).

The amount of £1,521m (2018/19: £1,503m, 2017/18: £1,524m) for total dividends paid in the year 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

pence
per share

10.78
4.62

15.40

2020

£m

1,064
457

1,521

pence
per share

10.55
4.62

15.17

2019

£m

1,045
458

1,503

pence
per share

10.55
4.85

15.40

2018

£m

1,044
480

1,524

BT Group plc Annual Report 2020

13. Intangible assets

Financial statements
149

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 2020
150

Notes to the consolidated financial statements continued

13. Intangible assets continued

Cost
At 1 April 2018
Additions
Disposals and adjustmentsb
Transfers
Exchange differences
At 31 March 2019
Reclassification of assets held under finance leasesc
At 1 April 2019
Additions
Disposals and adjustmentsb
Transfers
Exchange differences
Transfer to assets held for saled
At 31 March 2020

Accumulated amortisation
At 1 April 2018
Charge for the year
Disposals and adjustmentsb
Transfers
Exchange differences
At 31 March 2019
Reclassification of assets held under finance leasesc
At 1 April 2019
Charge for the year
Disposals and adjustmentsb
Transfers
Exchange differences
Transfer to assets held for saled
At 31 March 2020

Carrying amount
At 31 March 2020
At 31 March 2019

Customer
relationships
and brands
£m

Telecoms
licences and
other
£m

Internally
developed
softwarea
£m

Purchased
software
£m

Goodwill
£m

7,945
–
(2)
–
63
8,006
–
8,006
–
(30)
–
52
(83)
7,945

–
–
–
–
–
–
–
–
–
–
–
–
–
–

7,945
8,006

3,410
–
–
–
7
3,417
–
3,417
–
(28)
–
8
–
3,397

1,191
377
–
–
3
1,571
–
1,571
373
(22)
–
8
–
1,930

1,467
1,846

2,951
304
(3)
4
(4)
3,252
(185)
3,067
–
(34)
(2)
1
–
3,032

421
142
(3)
3
(3)
560
(115)
445
177
(49)
–
1
–
574

4,822
520
(945)
120
1
4,518
–
4,518
598
(765)
14
2
(13)
4,354

3,680
525
(941)
(43)
–
3,221
–
3,221
538
(786)
(15)
1
(8)
2,951

1,574
160
(141)
(80)
(8)
1,505
–
1,505
192
(541)
(3)
10
(45)
1,118

963
110
(147)
43
(8)
961
–
961
85
(529)
15
9
(39)
502

Total
£m

20,702
984
(1,091)
44
59
20,698
(185)
20,513
790
(1,398)
9
73
(141)
19,846

6,255
1,154
(1,091)
3
(8)
6,313
(115)
6,198
1,173
(1,386)
–
19
(47)
5,957

2,458
2,692

1,403
1,297

616
544

13,889
14,385

a Includes a carrying amount of £538m (2018/19: £668m) in respect of assets in course of construction, which are not yet amortised.
b 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 £1.1bn (2018/19: £1.0bn).

c On adoption of IFRS 16 on 1 April 2019, assets held under finance leases were reclassified as right-of-use assets. See note 1.
d Assets transferred to held for sale during 2019/20 relate to our domestic operations in France, our domestic operations in Spain and selected domestic operations and

infrastructure in 16 countries in Latin America. On reclassification to held for sale, goodwill associated with the France and Latin America disposals was impaired by £58m, and
other intangible assets associated with these disposals were impaired by £1m. See note 23.

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.

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.

BT Group plc Annual Report 2020

Financial statements
151

13. Intangible assets continued

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. The legacy BT Consumer and EE CGUs remain as two separate CGUs due to their
having independent cash flows.

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 which reflect the
anticipated impact of Covid-19. 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 March 2020. The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed below.

Cost

At 1 April 2018
Transfer
Exchange differences
Acquisitions and disposals
At 31 March 2019
Exchange differences
Acquisitions and disposals
Transfer to assets held for sale
At 31 March 2020

Legacy BT
Consumer
£m

Legacy EE
£m

Enterprise
£m

Business and
Public Sector
£m

Wholesale
and
Ventures
£m

1,183
–
–
–
1,183
–
–
–
1,183

2,768
–
–
–
2,768
–
–
–
2,768

–
3,504
5
–
3,509
4
(30)
–
3,483

2,562
(2,562)
–
–
–
–
–
–
–

942
(942)
–
–
–
–
–
–
–

Global
£m

490
–
58
(2)
546
48
–
(83)
511

Total
£m

7,945
–
63
(2)
8,006
52
(30)
(83)
7,945

In connection with disposals of BT Fleet Ltd and Tikit Ltd, £30m of goodwill in the Enterprise CGU has been eliminated. As discussed
in note 23, we have recorded the net assets of certain Global businesses as held for sale. As a result, goodwill impairment charges of
£58m in respect of France and Latin America have been recorded, and £25m of goodwill related to Spain has been reclassified. There
are no reasonably possible changes to our assumptions that would result in the carrying value exceeding the value in use.

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 2019/20 was 8.0% (2018/19: 8.2%). We’ve used the
same discount rate for all CGUs except Global where we have used 8.6% (2018/19: 8.7%) reflecting higher risk in some of the
countries in which Global 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% (2018/19: 2.4%) for Global and 2.0% (2018/19:
2.0%) for Enterprise and our legacy BT Consumer and EE CGUs.

Has Covid-19 had a material impact on the impairment assessment?

Covid-19 is not considered to have a significant impact on the assessment of impairment. Its impact on the group is considered to be
short-term, and it is not anticipated to have a significant impact on the terminal year which is a key driver of our value in use calculations.

BT Group plc Annual Report 2020
152

Notes to the consolidated financial statements continued

14. Property, plant and equipment

Significant accounting policies that apply to 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.

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

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 13.

Key judgements made in accounting for our BDUK contracts

We receive government grants in relation to the Building Digital 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.

BT Group plc Annual Report 2020

Financial statements
153

14. Property, plant and equipment continued

Cost
At 31 March 2018
Additionsc
Transfers
Disposals and adjustments (restated)d
Transfer to assets held for saled
Exchange differences

At 31 March 2019
Reclassification of assets held under finance leasesa

At 1 April 2019
Additionsc
Transfers
Disposals and adjustmentsd
Transfer to assets held for salee
Exchange differences

At 31 March 2020

Accumulated depreciation
At 31 March 2018
Charge for the year
Transfers
Disposals and adjustments (restated)d
Transfer to assets held for saled
Exchange differences

At 31 March 2019
Reclassification of assets held under finance leasesa

At 1 April 2019
Charge for the year
Transfers
Disposals and adjustmentsd
Transfer to assets held for salee
Exchange differences

At 31 March 2020

Carrying amount
At 31 March 2020
Engineering stores

Total at 31 March 2020

At 31 March 2019
Engineering stores

Total at 31 March 2019

Land
and
buildings
£m

a

Network
infrastructure
£m

b

Other
£m

Assets in
course of
construction
£m

1,262
12
13
4
(182)
(2)

1,107
(81)

1,026
7
25
(55)
(69)
11

945

773
51
1
(11)
(93)
(1)

720
(47)

673
49
1
(68)
(55)
10

610

335
–

335

387
–

387

50,783
97
2,988
(1,943)
–
(32)

51,893
–

51,893
83
3,244
(1,132)
(255)
60

53,893

35,790
2,236
(4)
(1,940)
–
(30)

36,052
–

36,052
2,318
–
(1,128)
(216)
54

37,080

16,813
–

16,813

15,841
–

15,841

1,914
119
18
(333)
–
4

1,722
–

1,722
69
17
(130)
(24)
8

1,662

1,558
105
–
(296)
–
4

1,371
–

1,371
85
(1)
(91)
(22)
8

1,350

312
–

312

351
–

351

1,118
3,034
(3,063)
102
–
–

1,191
–

1,191
2,978
(3,295)
42
–
–

916

–
–
–
–
–
–

–
–

–
–
–
–
–
–

–

916
98

1,014

1,191
65

1,256

Total
£m

55,077
3,262
(44)
(2,170)
(182)
(30)

55,913
(81)

55,832
3,137
(9)
(1,275)
(348)
79

57,416

38,121
2,392
(3)
(2,247)
(93)
(27)

38,143
(47)

38,096
2,452
–
(1,287)
(293)
72

39,040

18,376
98

18,474

17,770
65

17,835

a The carrying amount of the land and buildings class of asset recognised at 31 March 2019 included £34m in respect of assets held under finance leases. The depreciation

expense on those assets in 2018/19 was £2m. On adoption of IFRS 16 on 1 April 2019 these assets were reclassified to right-of-use assets. See note 1

b Other mainly comprises motor vehicles, computers and fixtures and fittings.
c Net of grant deferral of £98m (2018/19: £63m).
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 £0.7bn (2018/19: £1.9bn). Disposals and adjustments include adjustments
resulting from changes in assumptions used in calculating lease-end obligations where the corresponding asset is capitalised. The 2018/19 comparative has been
re-presented to split out the reclassification of the carrying amount of BT Centre property to ‘transfer to assets held for sale’ (£89m) presented within ‘disposals and
adjustments’ in the prior period.

e Transfers to assets held for sale during 2019/20 relate to our domestic operations in France, our domestic operations in Spain and selected domestic operations and

infrastructure in 16 countries in Latin America. On reclassification to held for sale, assets associated with the France and Latin America disposals were impaired by £18m. See
note 23.

BT Group plc Annual Report 2020
154

Notes to the consolidated financial statements continued

14. Property, plant and equipment continued

Included within the above disclosure are assets used in arrangements which represent core business activities for the group and
which meet the definition of operating leases:
• £12,284m of the carrying amount of the network infrastructure asset class represents Openreach’s network infrastructure. The

majority of the associated assets are used to deliver fixed-line telecommunications services that have been assessed as containing
operating leases, to both internal and external Communications Providers.

• Other assets includes devices with a carrying amount of £33m that are made available to retail customers under arrangements that

contain operating leases.

At 31 March

The carrying amount of land and buildings, including leasehold improvements, comprised:
Freehold
Leasehold

Total land and buildings

2020
£m

105
230

335

2019
£m

158
229

387

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 £600m (2018/19: £584m) and is recorded within network infrastructure. Included within this is £112m (2018/19: £125m),
being the group’s share of assets owned by its joint operation MBNL.

Within network infrastructure are assets with a net book value of £10bn (2018/19: £9bn) which have useful economic lives of more
than 18 years.

15. Leases

Significant accounting policies that apply to leases

We adopted IFRS 16 for the first time on 1 April 2019 using the modified retrospective transition option. Comparative information
is not restated under this transition option, therefore the disclosures presented in this note concern the 2019/20 period only.

IFRS 16 lease accounting policy applicable to the current year
Identifying whether a lease exists
At inception of a contract, we determine whether the contract is, or contains a lease. A lease exists if the contract conveys the right
to control the use of an identified asset, for a period of time, in exchange for consideration. In making this assessment, we consider
whether:
• The contract involves the use of an identified asset, either explicitly or implicitly. The asset must be physically distinct or

represent substantially all the capacity of a physically distinct asset. Assets that a supplier has a substantive right to substitute
are not considered distinct.

• The lessee (either the group, or the group’s customers) has the right to obtain substantially all the economic benefits from the

use of the asset throughout the period of use; and

• The lessee has the right to direct the use of the asset, in other words, has the decision-making rights that are most relevant to

changing how and for what purpose the asset is used.

Where practicable, and by class of underlying asset, we have elected to account for leases containing a lease component and
one or more non-lease components as a single lease component. Where this election has been taken, it has been applied to the
entire asset.

Lessee accounting
We recognise a lease liability and right-of-use asset at the commencement of a lease.

Lease liabilities are initially measured at the present value of lease payments that are due over the lease term, discounted using
the group’s incremental borrowing rate. This is the rate that we would have to pay for a loan of a similar term, and with similar
security, to obtain an asset of similar value. Lease payments include:
• fixed payments
• variable lease payments that depend on an index or rate
• amounts expected to be paid under residual value guarantees
• the exercise price of any purchase options that we are reasonably certain to exercise

• payments due over optional renewal periods where we are reasonably certain to renew
• penalties for early termination of the lease where we are reasonably certain to terminate early

Lease liabilities are subsequently measured at amortised cost using the effective interest method. It is remeasured if there is a
change in future lease payments or the amount we expect to be payable under a residual value guarantee, or if we change our
assessment of whether we will exercise a purchase, renewal or termination option.

BT Group plc Annual Report 2020

15. Leases continued

Financial statements
155

Right-of-use assets are initially measured at the initial amount of the corresponding lease liabilities, adjusted for any prepaid lease
payments, plus any initial direct costs incurred and an estimate of any decommissioning costs that have been recognised as
provisions, less any lease incentives received. They are subsequently depreciated using the straight-line method to the earlier of
the end of the useful life of the asset or the end of the lease term. Right-of-use assets are tested for impairment following the
policy set out in note 14 and are adjusted for any remeasurement of lease liabilities.

We have elected not to recognise lease liabilities and right-of-use assets for short-term leases that have a lease term of
12 months or less, and leases of low-value assets with a purchase price under £5,000. We recognise lease payments associated
with these items as an expense on a straight-line basis over the lease term.

Any variable lease payments that do not depend on an index or rate, such as usage-based payments, are recognised as an
expense in the period to which the variability relates.

IAS 17 lease accounting policy applicable to the 2017/18 and 2018/19 financial reporting periods

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 and are presented within property, plant and equipment (note 14). 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 risk 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 and are presented within operating costs
(note 6).

Key judgements made in accounting for leases

The following represent key judgements made in accounting for leases under IFRS 16 during the 2019/20 financial year.

Determining the lease term including reasonable certainty

Lease accounting requires determination of the lease term, which is defined as the noncancellable period of the lease adjusted
for the impact of any extension, termination and purchase options that we consider the lessee to be reasonably certain to take.
The lease term is a key determinant of the size of the lease liability and right-of-use asset recognised where the group acts as
lessee; and the deferral period for any upfront connection charges where the group acts as lessor.

Determining the lease term requires judgement to evaluate whether the lessee is reasonably certain to exercise any options.
Where the group acts as lessee, in particular in regard to our portfolio of property and network infrastructure arrangements that
potentially have terms beyond the medium-term planning horizon, we consider key facts and circumstances that would give us
an incentive to exercise any extension and termination options when setting the lease term. These include:

• Our anticipated operational, retail and office property requirements in the mid and long-term.

• The need to maintain flexibility in our ability to develop and manage our network infrastructure to react quickly to technological

developments and evolving capacity requirements.

• The availability of suitable alternative sites.

• Costs or penalties associated with exiting lease arrangements relative to the benefits to be gained, including costs of removing

leasehold improvements or relocating, and indirect costs such as disruption to business.

• Costs associated with extending lease arrangements including rent increases during secondary lease periods.

Our definition of ‘reasonable certainty’, and therefore the lease term, will often align with the judgements made in our medium-
term plan, in particular for rolling (or ‘evergreen’) leases that continue until terminated. It will generally be the case that we
cannot be reasonably certain to require the use of the underlying asset beyond the medium-term planning horizon, unless
specific evidence exists to the contrary.

Assumptions made in our medium term plan reflect the anticipated impact of Covid-19. Including the cost of exiting leases in
the short-term, Covid-19 is not considered to have any material impact on our assessment of reasonable certainty. In particular
we do not consider the lease term of our retail stores to be materially affected because the closure is only expected to be for a
temporary duration. Additionally, although the stores are closed to usual operations, a significant number continue to be used to
operate customer service operations.

BT Group plc Annual Report 2020
156

Notes to the consolidated financial statements continued

15. Leases continued

Right-of-use assets
Most of our right-of-use assets are associated with our leased property portfolio, specifically our office, retail and exchange estate.
We also lease a significant proportion of our network infrastructure, including mobile cell and switch sites.

At 1 April 2019
Additionsb
Depreciation charge for the year
Other movementsc

At 31 March 2020

Land and
buildings
£m

Network
infrastructure
£m

4,628
942
(513)
(203)

4,854

189
59
(37)
(32)

179

a

Other
£m

338
475
(99)
(356)

358

Total
£m

5,155
1,476
(649)
(591)

5,391

a Other mainly comprises motor vehicles.
b Additions comprise increases to right-of-use assets as a result of entering into new leases and upwards remeasurement of existing leases arising from lease extensions or

reassessments and increases to lease payments.

c Other movements relate to terminated leases and downwards remeasurements of right-of-use assets arising from reductions or reassessments of lease terms and decreases

in lease payments. Other movements in 2019/20 include reclassification of right-of-use assets with a carrying amount of £65m to held-for-sale, see note 23. On
reclassification to held for sale, assets associated with the France and Latin America disposals were impaired by £31m.

Lease liabilities
Lease liabilities recognised at 31 March 2020 total £6,560m. £812m of this balance is classified as current, with the remaining
£5,748m classified as non-current. Note 28 presents a maturity analysis of the payments due over the remaining lease term for these
liabilities.

During the year we reclassified lease liabilities with a carrying amount of £62m to held-for-sale, see note 23.

The following amounts relating to the group’s obligations under lease arrangements were recognised in the income statement in the
year to 31 March 2020:

• Interest expense of £140m accrued on lease liabilities.

• Variable lease payments of £29m which are not dependent on an index or rate and which have not been included in the

measurement of lease liabilities.

Expenses relating to leases of low-value assets and short-term leases for which no right-of-use asset or lease liability has been
recognised were immaterial.

The total cash outflow for leases in the year was £791m.

Other information relating to leases
During the year we recognised net gains of £115m from sale and leaseback transactions, substantially all of which relates to the
disposal of our BT Centre headquarters. We shall continue to occupy the property under a lease arrangement until our new
headquarters is ready for occupation.

At 31 March 2020 the group was committed to future minimum lease payments of £274m in respect of leases which have not yet
commenced and for which no lease liability has been recognised.

The following table analyses payments to be received across the remaining term of operating lease arrangements where BT is lessor:

At 31 March 2020

Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years

Total undiscounted lease payments

To be recognised as
revenue (note 5)
£m

To be recognised as
other operating
income (note 6)
£m

310
130
34
1
–
–

475

52
16
10
9
7
11

105

Total
£m

362
146
44
10
7
11

580

BT Group plc Annual Report 2020

16. Programme rights

Financial statements
157

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 13.

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 31. 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).

At 1 April 2018
Additions
Amortisation

At 1 April 2019
Additions
Amortisation

At 31 March 2020

Total
£m

272
879
(841)

310
870
(870)

310

£310m of programme rights recognised on the balance sheet at 31 March 2020 relate to sporting events postponed as a result of
Covid-19. These are not considered to be impaired at the balance sheet date as sporting governing bodies, for example the Premier
League and UEFA, are still determining how, or if, to complete the current season. Whether and how the seasons are completed
could have an impact on whether there is any impairment. The majority of programme rights assets affected by Covid-19 relate to
domestic and European football leagues which are amortised over 12 months from August and which will be fully amortised by July
2020. If any impairment is recognised in future periods we would also seek compensation in respect of rights which have not been
fulfilled. Until this is established any potential recoveries would represent contingent assets and would not meet the criteria for
recognition until this is virtually certain.

Covid-19 is not anticipated to have an impact on commissioned or acquired programming for which we have made an advance
payment. At 31 March 2020 these total £110m and are classified as prepayments within trade and other receivables (note 17).

17. Trade and other receivables

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, this
includes the impact of Covid-19. Allowances are calculated by individual customer-facing units in order to reflect the specific
nature of the customers relevant to that customer-facing unit.

Following the outbreak of Covid-19 we have reassessed our expected loss provisions including assessing the risk factors

associated with various industry sectors and applying a risk weighting to each sector.

Contingent assets such as any insurance recoveries, or prepaid programme rights which we expect to recoup, have not been
recognised in the financial statements as these are only recognised within trade and other receivables when their receipt is
virtually certain.

BT Group plc Annual Report 2020
158

Notes to the consolidated financial statements continued

17. Trade and other receivables continued

At 31 March

Current
Trade receivables
Prepaymentsa
Accrued income
Deferred contract costs
Other receivables

At 31 March

Non-current
Other assetsb
Deferred contract costs

2020
£m

1,375
607
57
422
243
2,704

2020
£m

222
259
481

2019
£m

1,732
698
34
417
341
3,222

2019
£m

173
272
445

2018
£m

1,741
1,103
777
–
393
4,014

2018
£m

317
–
317

a 2017/18 includes £325m in respect of the acquisition of Spectrum.
b 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 (2018/19: £nil, 2017/18: £145m), which are presented within deferred contract costs following adoption of IFRS 15.

Trade receivables are stated after deducting allowances for doubtful debts, as follows:

At 1 April
Expense
Utilised
Exchange differences
At 31 March

2020
£m

299
213
(189)
6
329

2019
£m

375
95
(165)
(6)
299

2018
£m

303
129
(61)
4
375

Included within the 2019/20 expense is a £67m increase reflecting increased expected credit losses above our standard

provisioning policies as a result of Covid-19. This increase above our standard provisioning policies was recorded as a specific item
(note 9).

Note 28 provides further disclosure regarding the credit quality of our gross trade receivables. Trade receivables are due as follows:

Trade
receivables
specifically
impaired net
of provision
£m

25
34
61

Not past due
£m

903
1,229
1,251

Past due and not specifically impaired

Between
0 and 3
months
£m

308
371
293

Between
3 and 6
months
£m

45
42
44

Between
6 and 12
months
£m

49
40
25

Over 12
months
£m

45
16
67

At 31 March

2020
2019
2018

Gross trade receivables which have been specifically impaired amounted to £34m (2018/19: £57m, 2017/18: £124m).

Trade receivables not past due and accrued income are analysed below by customer-facing unit.

At 31 March

Consumer
Enterprise
Global
Openreach
BT Consumer
EE
Business and Public Sector
Wholesale and Ventures
Other
Total

Trade receivables not past due

Accrued income

2020
£m

353
139
409
–
–
–
–
–
2
903

2019
£m

457
274
498
–
–
–
–
–
–
1,229

2018
£m

–
–
477
61
157
206
253
92
5
1,251

2020
£m

2019
£m

1
3
–
51
–
–
–
–
2
57

32
2
–
–
–
–
–
–
–
34

Total
£m

1,375
1,732
1,741

2018
£m

–
–
222
67
86
122
134
145
1
777

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 £nil (2018/19: £9m, 2017/18: £6m).

BT Group plc Annual Report 2020

Financial statements
159

17. Trade and other receivables continued

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.

The following table shows the movement on deferred costs:

At 1 April 2019
Additions
Amortisation
Impairment
Other

At 31 March 2020

18. Trade and other payables

Deferred
connection
costs
£m

Deferred contract
acquisition costs-
commissions
£m

Deferred contract
acquisition costs-
dealer incentives
£m

Transition
and
transformation
£m

31
10
(9)
(1)
1

32

86
86
(75)
(4)
1

94

432
451
(426)
(7)
(1)

449

140
21
(27)
(21)
(7)

106

Total
£m

689
568
(537)
(33)
(6)

681

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

2020
£m

3,889
562
498
545
300

5,794

2020
£m

18
736

754

2019
£m

4,141
564
387
630
68

5,790

2019
£m

873
606

1,479

2018
£m

3,991
704
456
492
1,525

7,168

2018
£m

871
455

1,326

a Deferred income recognised at 31 March 2020 includes connection fee income recognised on transition to IFRS 16 on 1 April 2019, see note 1. The amount recognised at
31 March 2018 was substantially reclassified to contract liabilities on adoption of IFRS 15 on 1 April 2018. Deferred income includes £94m (2018/19: £51m, 2017/18:
£132m) current and £525m (2018/19: £586m, 2017/18: £404m) non-current liabilities relating to the Building Digital 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 recognised in prior years included accruals for rent inflation associated with operating leases. These were reclassified to right-of-use assets on transition to

IFRS 16 on 1 April 2019, see note 1.

BT Group plc Annual Report 2020
160

Notes to the consolidated financial statements continued

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. Where these
criteria are not met we disclose a contingent liability if the group has a possible obligation, or has a present obligation with an
outflow that is not probable or which cannot be reliably estimated. Contingent liabilities are disclosed in note 31.

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.

Critical accounting estimates and key judgements made in accounting for provisions

We exercise judgement in determining the 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. Contingent liabilities are
not recognised as liabilities on our balance sheet; they are disclosed in note 31. 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. In estimating
contingent liabilities we make key judgements in relation to applicable law and any historical and pending court rulings, and the
likelihood, timing and cost of resolution.

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.

In measuring property provisions, we have 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/credit 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. When estimating the likely value of regulatory risk
we make key judgements, including in regard to interpreting Ofcom regulations and past and current claims.

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 2018
Additions
Unwind of discount
Utilised or released
Transfers
Exchange differences

At 31 March 2019
IFRS 16 adjustmenta
At 1 April 2019

Additions
Unwind of discount
Utilised or released
Transfersb
Exchange differences

31 March 2020

Restructuring
£m

Property
£m

Network
ARO
£m

Network
share
£m

Regulatory
£m

Litigation
£m

12
–
–
–
(12)
–

–
–

–
–
–
–
–

–

294
84
11
(71)
21
–

339
(183)

156

18
1
(31)
–
–

144

71
102
2
(13)
–
–

162
(14)

148

52
1
(22)
–
–

179

33
2
1
(9)
–
–

27
(12)

15

88
–
(91)
–
–

12

320
58
–
(196)
–
–

182
–

182

26
–
(129)
–
–

79

64
3
–
(9)
27
(1)

84
–

84

7
–
(14)
11
–

88

Other
£m

261
66
–
(109)
(7)
1

212
–

212

70
–
(77)
11
1

217

Total
£m

1,055
315
14
(407)
29
–

1,006
(209)

797

261
2
(364)
22
1

719

a On transition to IFRS 16 on 1 April 2019, all onerous lease provisions were either reclassified to the corresponding right-of-use assets as a proxy for impairment, or were

otherwise released to equity as a transition adjustment. See note 1.

b Transfers include £5m on provisions associated with held-for-sale assets during the period. See note 23.

BT Group plc Annual Report 2020

19. Provisions continued

At 31 March

Analysed as:
Current
Non-current

Financial statements
161

2020
£m

288
431

719

2019
£m

424
582

1,006

2018
£m

603
452

1,055

Included within ‘Other’ provisions are contract loss provisions of £10m (2018/19: £25m) relating to the anticipated total losses in
respect of certain contracts.

Covid-19 has been considered when identifying and measuring contract loss provisions in line with the accounting policy set out in

note 5. We identified £7m of contract loss provisions in respect of revenue contracts that are expected to become loss-making as a
result of Covid-19 impacts. This increase above our standard contract loss provisioning policies is recorded as a specific item (note 9).

It is expected that the majority of contract loss 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 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.

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 were able to join the BTRSS or the BT Hybrid Scheme (BTHS) for future pension
accrual. The BTHS, which combines elements of both defined benefit and defined contribution pension schemes, was set up in April
2019 for non-management employees impacted by the closure of the BTPS and was closed to new entrants on 30 September 2019.

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.

What are they?

How do they impact BT’s financial statements?

Defined
contribution
plans

Benefits in a defined contribution plan are linked to:
• contributions paid

• the performance of each individual’s chosen

investments

The operating charge in respect of defined
contribution plans represents the contribution payable
by the group (usually a fixed percentage of each
employee’s pay).

• the form in which individuals choose to take their

benefits.

The group has no exposure to investment and other
experience risks.

Defined
benefit plans

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 operating charge reflects the increase in the
liability 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.

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.

BT Group plc Annual Report 2020
162

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

Significant accounting policies that apply to retirement benefit plans

Defined benefit plans
The Retirement Benefit Obligations in respect of defined benefit plans is the liability (the present value of all expected future
obligations) 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 liability 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.

• The net finance income or expense reflects the interest on the Retirement Benefit Obligations recognised in the group balance

sheet, based on the discount rate at the start of the year.

Remeasurements of the Retirement Benefit Obligations are recognised in full in the group statement of comprehensive income
in the year in which they arise. These comprise the impact on the liabilities 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.

Defined contribution plans
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 and PPF levy):

– defined benefit plans
– defined contribution plans

– Past service credita
Subtotal

Recognised in the income statement as specific items (note 9)
– Costs to close BT Pension Scheme and provide transition paymentsb for affected employees
– Cost to equalise benefits between men and womenc
– Net interest expense on pensions deficit included in specific items
Subtotal

Total recognised in the income statement

2020
£m

2019
£m

2018
£m

86
540
–
626

22
–
145
167

793

135
476
–
611

23
26
139
188

799

376
265
(17)
624

–
–
218
218

842

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 2018, a High Court judgement 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 Retirement Benefit Obligations in respect of defined benefit plans reported in the group balance sheet are set out below.

At 31 March

BTPS
EEPS
Other plansb
Retirement Benefit Obligations (gross of tax)
Deferred tax asset

Retirement Benefit Obligations (net of tax)

Assets
£m

52,240
820
411

53,471

2020

Liabilities
£m

(53,010)
(879)
(722)

(54,611)

Assets
£m

52,186
816
362

53,364

2019

Liabilities
£m

(58,855)
(997)
(694)

(60,546)

a

Deficit
£m

(770)
(59)
(311)

(1,140)
175

(965)

a

Deficit
£m

(6,669)
(181)
(332)

(7,182)
1,208

(5,974)

a BT is not required to limit any pension 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.

b Included in the liabilities of other plans is £150m (2018/19: £101m) related to unfunded pension arrangements. As at 31 March 2020, £8m of pension liabilities in France

have been classified as held for sale. Refer to note 23.

Included within trade and other payables in the group balance sheet is £43m (2018/19: £42m) in respect of contributions payable to
defined contribution plans.

BT Group plc Annual Report 2020

Financial statements
163

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.

At 31 March 2018
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
Other (e.g. foreign exchange)

Other movements

At 31 March 2019

Service cost (including administration expenses and PPF levy)
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 gain arising from changes in demographic assumptionsa
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
Other (e.g. foreign exchange)

Other movements

At 31 March 2020

Assets
£m

50,956
(49)
(6)

–
1,356

1,607
–
–
–

43
2,024

1
(2,564)
(4)

Liabilities
£m

(57,803)
(86)
–

(26)
(1,495)

–
(3,920)
247
(36)

–
–

(1)
2,564
10

Deficit
£m

(6,847)
(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)

(66)
1,246

(20)
(1,391)

249
–
–
–

160
1,274

–
(2,764)
8

–
3,746
498
360

–
–

–
2,764
(22)

(86)
(145)

(231)

249
3,746
498
360

4,853

160
1,274

1,434

–
–
(14)

(14)

53,471

(54,611)

(1,140)

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 Retirement Benefit Obligations are measured as the present value of the estimated future benefit cash flows to be paid by each
plan, calculated using the projected unit credit method. These calculations are performed 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.

BT Group plc Annual Report 2020
164

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

Overview and governance of the BTPS
What is the profile of the BTPS?
At 30 June 2019, the date of the membership data used to value the liabilities, there were 286,000 members in 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

–
–

–
–b

7.2
12.8

20.0

28.7
4.3

33.0

81,000

205,000

286,000

Total

35.9
17.1

53.0

n
o
i
t
a
g

i
l

b
o
t
i
f
e
n
e
b
d
e
n
i
f
e
d
e
h
t
f
o
e
u
a
v
t
n
e
s
e
r
P

l

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 30 June 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 15 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 benefit payable by BTPS at 31 March 2020 (unaudited)

s
t
n
e
m
y
a
p
t
i
f
e
n
e
B

£m
3,000

2,500

2,000

1,500

1,000

500

0

2020

2040

2060

  Forecast benefit payments (left axis)

  Liabilities (right axis)

£m
60,000

50,000

40,000

30,000

20,000

10,000

0

2080

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.

Section Ba

Section C

Active members

Deferred members

Pensioners

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.

 
 
 
 
 
 
 
BT Group plc Annual Report 2020

Financial statements
165

20. Retirement benefit plans continued

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

Critical accounting judgements and key estimates made when valuing our pension assets

Under IAS19, plan assets must be valued at the bid market value at the balance sheet date. Our pension assets include quoted
and unquoted investments. A portion of unquoted investments are valued based on inputs that are not directly observable,
which require more judgement. 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.

Valuation of main quoted investments

• Equities listed on recognised stock exchanges are valued at closing bid prices.

• Bonds that are regularly traded are valued using broker quotes.

• Exchange traded derivative contracts are valued based on closing bid prices.

Valuation of main unquoted investments (prior to estimated adjustments)

• Equities are valued using the IPEVC guidelines where the most significant assumptions are the discount rate and earnings

assumptions.

•

Property investments are valued on the basis of open market value by an independent valuer. The significant assumptions
used in the valuation are rental yields and occupancy rates. In light of the negative impact of the Covid-19 pandemic on financial
markets, the independent valuers included material uncertainty clauses in respect of £2bn of the UK Property asset valuations.
The directors still consider these valuations to be the best estimate of the valuation of the Property investments, but there is a
higher degree of uncertainty compared to previous years.

• Bonds that are not regularly traded are valued by an independent valuer using pricing models making assumptions for credit

risk, market risk and market yield curves.

• Over the counter derivatives are valued by an independent valuer using cashflows discounted at market rates. The significant

assumptions used in the valuation are the yield curves and cost of carry.

• Holdings in investment funds are valued at fair value which is typically the Net Asset Value provided by the fund administrator or

investment manager. The significant assumption used in the valuation is the Net Asset Value.

• Infrastructure investments are valued by an independent valuer using a model-based valuation such as a discounted cash flow

approach. The significant assumptions used in the valuation are the discount rate and the expected cash flows.

• 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). The significant assumptions used to
value the asset are the discount rate and the mortality assumptions.

Estimated adjustments to the valuation of main unquoted investments

Under IAS 19, around £6bn of these unquoted assets have been initially measured using the most recent valuations, adjusted

for cash movements between the last valuation date and 31 March 2020. As the latest valuations for these assets precede the
negative impact of the Covid-19 pandemic on financial markets, we have applied an estimated adjustment by reference to either
market indices or estimated 31 March 2020 valuations provided by the portfolio investment manager.

BT Group plc Annual Report 2020
166

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

The overall effect of this adjustment has reduced the valuation of illiquid assets by £0.5bn, and is reflected in the final IAS 19 position
at 31 March 2020. Whilst intended to capture material market driven asset valuation movements in the period to 31 March 2020, the
calculation of this estimated adjustment contains additional uncertainty over that of the formal valuation process for these 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.

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).

a

2020

a

2019

Assets
prior to
estimated
adjustments
£bn

Total
assets
£bn

b

of which
quoted
£bn

c

Total
%

Total
assets
£bn

of which
quoted
£bn

c

Total
%

Growth
Equities

Private Equity
Property

Other growth assets

UK
Overseas developed
Emerging markets

UK
Overseas
Absolute Returnd
Non Core Credite
Mature Infrastructure

0.3
6.7
1.0
1.6
3.5
1.1
1.2
4.4
1.5

0.3
6.7
1.0
1.3
3.5
1.1
1.2
4.2
1.5

Liability matching
Government bonds
Investment grade credit

UK
Global

Cash, derivatives and other
Cash balances
Longevity insurance contractf
Otherg
Total

13.9
14.4

13.9
14.4

2.3
(0.8)
1.6
52.7

2.3
(0.8)
1.6
52.2

0.3
5.6
1.0
–
–
–
–
1.0
–

13.9
10.1

–
–
–

31.9

1
13
2
2
7
2
2
8
3

27
28

4
(2)
3
100

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

–
–
–

33.2

1
15
2
3
7
2
2
7
3

25
27

5
(1)
2
100

a At 31 March 2020, the Scheme did not hold any equity issued by the group (2018/19: nil). The Scheme also held £1,867m (2018/19: £2,154m) of bonds issued by the group.
b Includes an estimated adjustment to assets where the latest valuation precedes the negative impact of the Covid-19 pandemic on financial markets. The calculation of this

estimated adjustment contains additional uncertainty over that of the formal valuation process for these assets.

c Assets with a quoted price in an active market.
d 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.

e 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.

f 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 has been recognised in the Scheme’s liabilities.

g Includes collateral posted in relation to derivatives held by the Scheme.

BTPS Liabilities

Critical accounting judgements and key estimates made when valuing our pension liabilities

The measurement of the service cost and the liabilities involves judgements about uncertain events including the life expectancy
of the members, price inflation and discount rates used to calculate the net present value of the future pension payments. We use
estimates for all of these uncertain events. Our assumptions reflect historical experience, external advice and our judgement
regarding future expectations at the balance sheet date.

BT Group plc Annual Report 2020

Financial statements
167

20. Retirement benefit plans continued

The table below summarises the approach used to set the key IAS 19 assumptions for the BTPS.

Approach to set the assumption

Discount rate

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.

RPI and CPI inflation 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 we currently assume
to be 20bps.

CPI is assessed at a margin below RPI taking into account market forecasts and independent estimates of
the expected difference.

A consultation on the future of Retail Prices Index (RPI) launched in March 2020 has created uncertainty
around future expectations of RPI and CPI and therefore the measurement of the pension liabilities at
31 March 2020. The consultation considers aligning RPI with CPIH at a point between 2025 and 2030. We
estimate that 60% of the impact of aligning RPI with CPIH from 2030 is reflected in the value of RPI-linked
assets at 31 March 2020 and we have amended our long-term RPI and CPI assumptions accordingly.
Additional developments could lead to further changes to our inflation assumptions and/or asset valuations
at future reporting dates.

Pension increases

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.

Longevity

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 2018 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

2020

2019

2018

2020

2019

2018

Nominal rates (per year)

Real rates (per year)

a

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 0.4% lower until 31 March 2030.
c Assumed to be 0.1% lower until 31 March 2023.
d Assumed to be 0.1% higher until 31 March 2023.

2.45%
2.60%
2.10%b

2.35%
3.25%
2.25%c

2.65%
3.10%
2.00%d

(0.15)%
–%
(0.5)%b

(0.87)%
–%
(1.0)%c

(0.44)%
–%
(1.1)%d

The BTPS represents over 97% of the group’s pension liabilities. While the financial assumptions may vary for each scheme, the
nominal financial assumptions weighted by liabilities across all schemes 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

2020

2019

Number of
years

Number of
years

25.4
26.7
28.1

28.1
28.4

0.7

25.7
27.0
28.5

28.5
28.7

0.7

BT Group plc Annual Report 2020
168

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

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 59.

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 corporate
and government 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 growth
assets

A significant proportion of the BTPS assets are invested in growth assets, such as equities and
property. Although the BTPS has temporary hedges in place to partly offset the impact of a fall in
equity markets, a fall in these growth assets will lead to a worsening of the IAS 19 deficit.

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 future of RPI

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.

If RPI is aligned with CPIH in the future it could lead to a fall in long-term RPI of around 1%. At
31 March 2020, we estimate that 60% of the impact of aligning RPI with CPIH from 2030 is reflected
in the value of RPI-linked assets. Full alignment from 2030 would therefore reduce RPI inflation
expectations from 2030 by 0.4%.

This change would reduce the value of the RPI-linked pension liabilities by around £0.4bn. However,
the value of the scheme’s RPI-linked assets would also be negatively impacted (assuming no
compensation is provided to asset holders) by around £1.4bn. The result would be a net increase in
the IAS 19 deficit of around £1bn.

If the alignment of RPI with CPIH is carried out earlier, the impact on the deficit will be greater.

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.

Scenario analysis
The potential negative impact of the key risks is illustrated as the following five scenarios. These have been assessed by BT’s
independent actuary as scenarios that might occur no more than once in every 20 years.

Scenario

1. Fall in bond yieldsa
2. Increase in credit spreads only
3. Increase to inflation rateb
4. Fall in growth assets c
5. Increase to life expectancy

1-in-20 events

2020

1.1%
0.7%
0.7%
20.0%
1.25 years

2019

1.1%

N/A

0.7%

N/A
1.25 years

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 Impact includes the potential impact of temporary equity hedges held by the Scheme.

The impact shown under each scenario looks at each event in isolation – in practice a combination of events could arise.

BT Group plc Annual Report 2020

Financial statements
169

20. Retirement benefit plans continued

Impact of illustrative scenarios which might occur no more than once in every 20 years

Scenario analysis

  Increase/(decrease) in liabilities

  Increase/(decrease) in assets

£bn

14

12

10

8

6

4

2

0

-2

-4

-6

11.8

9.2

4.4

4.9

(0.8)

(4.8)

0.0

(3.6)

2.7

0.6

-6

-6

-6

-6

-6

1.1 percentage point 
fall in bond yields

0.7 percentage point 
increase in credit 
spreads only

0.7 percentage point
 increase to inflation rate

20% fall in 
growth assets

1.25 year increase to 
life expectancy

The sensitivities have been prepared using the same approach as 2018/19 which involves calculating the liabilities and assets
assuming the change in market conditions assumed under the scenario occurs.

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

Key assumptions – funding valuation
These valuations were determined using the following prudent long-term assumptions.

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%

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.

Nominal rates (per year)

Real rates (per year)

a

June
2017
valuation
%

June
2014
valuation
%

June
2017
valuation
%

June
2014
valuation
%

2.6
3.4
2.4

4.5
3.5
2.5

(0.8)
–
(1.0)

1.0
–
(1.0)

 
BT Group plc Annual Report 2020
170

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

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 risk-free 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

June
2017
assumptions

June
2014
assumptions

25.9
27.2
28.6

28.6
28.9

0.9

26.1
27.5
29.0

28.9
29.2

1.3

Changes in the funding position
The impact of changes in market conditions on the funding liabilities may differ from the impact on the IAS 19 liabilities. The
estimated impact of the scenarios illustrated on page 169 on the funding liabilities is shown in the chart below.

13.1

£bn

14

12

10

8

6

4

2

0

7.1

Increase in liabilities

3.1

1.1 percentage point 
fall in discount rate

0.7 percentage point
increase to inflation rate

1.25 year increase to 
life expectancy

Payments made to the BTPS

Year ended 31 March

Ordinary contributions
Deficit contributions

Total contributions in the year

2020
£m

2019
£m

118
1,250

33
2,000

1,368

2,033

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 £400m payable by 30 June 2020.
b £200m payable by 30 June 2021.

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

900a 900b 907

907

907

907

907

907

907

907

Based on the 2017 funding valuation agreement, the group expects to make contributions of approximately £960m to the BTPS in
2020/21, comprising of contributions of approximately £60m for expenses and future accrual and deficit contributions of £900m.

 
BT Group plc Annual Report 2020

Financial statements
171

20. Retirement benefit plans continued

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

Material
corporate events

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.

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

Crown
Guarantee

Pension
Protection Fund
(PPF)

Detail

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 judgement 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.

Further protection is also provided by the Pension Protection Fund which is the fund responsible for
paying compensation in schemes where the employer becomes insolvent.

BT Group plc Annual Report 2020
172

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

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.

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 £0.9bn, and a defined contribution section with around 9,000 members.

At 31 March 2020, the defined benefit section’s assets are invested across a number of asset classes including global equities (20%),
property & illiquid alternatives (25%), an absolute return portfolio (23%) and a liability driven investment portfolio (32%).

The most recent triennial valuation of the defined benefit section was performed as at 31 December 2018 and agreed in March 2020.
This showed a funding deficit of £161m. The group is scheduled to contribute £3.3m each month until 31 July 2022.

BTRSS
The BTRSS is the largest defined contribution plan maintained by the group with around 67,000 active members. In the year to
31 March 2020, £460m of contributions were payable by the group to the BTRSS.

BTHS
The BTHS combines elements of both defined benefit and defined contribution pension schemes. It was set up in April 2019 for
non-management employees impacted by the closure of the BTPS and was closed to new entrants on 30 September 2019. At
31 March 2020 it had liabilities of around £12m.

21. Own shares

Significant accounting policies that apply to own shares

Own shares are recorded at cost and deducted from equity. When shares held for the beneficial ownership of employees vest
unconditionally or are cancelled they are transferred from the own shares reserve to retained earnings at their weighted average
cost.

At 31 March 2018
Own shares purchasedb
Share options exercisedb
Executive share awards vested

At 1 April 2019
Own shares purchasedb
Share options exercisedb
Executive share awards vested
Conversion of ADR sharesc
At 31 March 2020

Treasury shares

a

Employee share
ownership
trusta

Total

millions

£m

millions

£m

millions

£m

46
–
(1)
–

45

41
–
–
–

86

(145)
–
2
–

(143)

(80)
–
–
–

(223)

12
5
–
(8)

9

3
–
(8)
3

7

(41)
(9)
–
26

(24)

(6)
–
22
(6)

(14)

58
5
(1)
(8)

54

44
–
(8)
3

93

(186)
(9)
2
26

(167)

(86)
–
22
(6)

(237)

a At 31 March 2020, 85,921,056 shares (2018/19: 45,308,559) with an aggregate nominal value of £4m (2018/19: £2m) were held at cost as treasury shares and 7,255,789

shares (2018/19: 9,021,714) with an aggregate nominal value of £nil (2018/19: £nil) were held in the Trust.

b See group cash flow statement on page 128. The cash paid for the repurchase of ordinary shares was £86m (2018/19: £9m). The cash received for proceeds on the issue of

treasury shares was £2m (2018/19: £5m).

c Conversion of American depositary receipts to ordinary shares following delisting from the NYSE and termination of BT’s ADR programme from the US Securities Exchange

Commission registration.

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 these plans are provided in note 22.

BT Group plc Annual Report 2020

22. Share-based payments

Financial statements
173

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 save share 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

2020
£m

2019
£m

2018
£m

36

16
7
9
4

72

38

6
6
17
–

67

42

16
4
21
1

84

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.

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 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.

Yourshare
We have announced a new share incentive plan under which people who were employees of the group at 31 December 2019 will be
awarded £500 of BT shares in June 2020. The shares will be held in trust for a 3 year vesting period after which they will be transferred
to employees, providing they have been continuously employed during that time.

Incentive Share Plan (ISP)
Under the ISP, participants are entitled to the 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
2019/20, 2018/19 and 2017/18: 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.

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.

BT Group plc Annual Report 2020
174

Notes to the consolidated financial statements continued

22. Share-based payments continued

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

Number of share options

Weighted average exercise price

2020

2019

2018

millions

millions

millions

190
107
(50)
–
(33)

214

–

175
80
(44)
(1)
(20)

190

–

189
69
(41)
(30)
(12)

175

–

2020

pence

254
168
251
174
318

202

319

2019

pence

306
175
298
247
294

254

249

2018

pence

313
250
328
169
353

306

320

The weighted average share price for all options exercised during 2019/20 was 203p (2018/19: 249p, 2017/18: 311p).

The following table summarises information relating to options outstanding and exercisable under Employee Saveshare plans at
31 March 2020.

Normal dates of vesting and exercise (based on calendar years)

2020
2021
2022
2023
2024

Total

Exercise price
per share

243p – 397p
170p – 376p
164p – 353p
170p
164p

Executive share plans
Movements in executive share plan awards during 2019/20 are shown below:

Weighted
average
exercise
price

Number of
outstanding
options
millions

302p
228p
200p
170p
164p

202p

Weighted
average
remaining
contractual
life

10 months
22 months
34 months
46 months
58 months

26
34
58
35
61

214

34 months

At 31 March 2019
Awards granted
Awards vested
Awards lapsed
Dividend shares reinvested

At 31 March 2020

Number of shares (millions)

DBP

RSP

Total

8
5
(2)
–
1

12

11
8
(6)
(1)
1

13

93
47
(8)
(26)
10

116

ISP

74
34
–
(25)
8

91

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 2019/20, 2018/19 and 2017/18.

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

2020

Employee
Saveshare

39p
206p

ISP

152p
202p

2019

Employee
Saveshare

41p
208p

ISP

156p
211p

2018

Employee
Saveshare

56p
296p

ISP

202p
281p

168p
n/a
4.16% – 5.01%
n/a
0.2%
0.55% – 0.63%
25.0% – 28.1% 24.3% 23.3% – 25.8% 23.5% 23.1% – 24.3% 23.6%

175p
3.47% – 3.83%
0.7% 0.74% – 1.07%

250p
3.12% – 3.21%
0.1% – 0.2%

n/a
n/a
0.7%

n/a
n/a

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.

BT Group plc Annual Report 2020

Financial statements
175

22. Share-based payments continued

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 six 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 2019/20 was 195p (2018/19: 209p, 2017/18: 282p) and for RSP awards granted in 2019/20
177p (2018/19: 217p, 2017/18: 282p).

23. Assets and liabilities classified as held for sale

Assets and liabilities held for sale at 31 March 2020 relate to our domestic operations in France, our domestic operations in Spain and
selected domestic operations and infrastructure in 16 countries in Latin America. All of these divestments are part of the Global
segment and are expected to complete in financial year 2020/21. The disposal of these operations is in line with our strategy.

The disposals do not meet the definition of a discontinued operation per IFRS 5.

For operations that are classified as held for sale, impairment testing requires management to determine whether the carrying value
of the disposal groups can be supported by the fair value less costs to sell. For each of the transactions which have been classified as
‘held for sale’ at 31 March 2020 we have agreed a selling price with a prospective purchaser which we have used as the fair value for
the impairment test, which is classified as Level 3 on the fair value hierarchy. An impairment charge of £37m was recognised in
relation to the France divestment and a charge of £90m was recognised in relation to the Latin America divestment. These
impairment charges have been recognised as a specific item, see note 9. Our domestic operations in Spain are expected to be sold at
a profit and therefore no impairment has been recognised on classification as held for sale.

The disposal groups were stated at fair value less costs to sell and comprised the following assets and liabilities:

At 31 March 2020

Assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Contract assets
Deferred tax assets
Inventories
Current tax receivable
Cash and cash equivalents

Assets held for sale

Liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Current tax liabilities
Retirement benefit obligations
Provisions

Liabilities held for sale

24. Investments

£m

35
37
34
87
8
4
1
19
43

268

104
28
62
4
8
5

211

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.

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.

BT Group plc Annual Report 2020
176

Notes to the consolidated financial statements continued

24. Investments continued

IFRS 9 was applied for the first time on 1 April 2018 and introduced 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 reclassified them as fair value through other comprehensive income, fair value through profit or loss, and
amortised cost. The current year and 2019 figures in the following tables reflect the classifications under IFRS 9, and the 2018 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
Available-for-sale
Investments held at amortised cost
Loans and receivables

2020
£m

2019
£m

2018
£m

9
–
11

20

–
5,092
–

5,092

48
–
6

54

–
3,214
–

3,214

–
46
7

53

2,575
–
447

3,022

Investments held at amortised cost consist of investments previously classified as loans and receivables and relate to money market
investments denominated in sterling of £4,181m (2018/19: £2,687m, 2017/18: £416m), in US dollars of £29m (2018/19: £26m,
2017/18: £27m) in euros of £882m (2018/19: £499m, 2017/18: £nil) and in other currencies £nil (2018/19: £2m, 2017/18: £4m).
Within these amounts are investments in liquidity funds of £4,209m (2018/19: £2,522m). In 2017/18, investments in liquidity funds
of £2,575m were classified as available-for-sale.

Fair value estimation

Fair value hierarchy
At 31 March 2020

Non-current and current investments
Fair value through other comprehensive income
Fair value through profit or loss

Total

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

Fair value hierarchy
At 31 March 2018

Non-current and current investments
Available-for-sale
Fair value through profit or loss

Total

Level 1
£m

Level 2
£m

Level 3
£m

–
11

11

–
–

–

9
–

9

Level 1
£m

Level 2
£m

Level 3
£m

38
6

44

–
–

–

10
–

10

Level 1
£m

Level 2
£m

Level 3
£m

Total held at
fair value
£m

9
11

20

Total held at
fair value
£m

48
6

54

Total held at
fair value
£m

32
7

39

2,575
–

2,575

14
–

14

2,621
7

2,628

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.

Level 1 investments, classified as fair value through other comprehensive income, were sold in 2019/20. The fair value gain was
reclassified from fair value reserve to profit and loss reserve after disposal, see note 29.

BT Group plc Annual Report 2020

24. Investments continued

Financial statements
177

Level 2 balances disclosed in 2018 consist of investments classified as available-for-sale and relating to liquidity funds denominated
in sterling of £2,180m, and in euros of £395m. 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 (classified as available-for-sale
in 2018) of £9m (2018/19: £10m, 2017/18: £14m) 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.

25. 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, 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 26).

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. The current year and 2019 figures in the following tables reflect the classifications under IFRS 9, and the 2018 figures
reflect the previous classifications under IAS 39. 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
UK deposits
US deposits
Other deposits
Total cash equivalents

Total cash and cash equivalents
Bank overdrafts (note 26)
Cash and cash equivalents classified as held for sale (note 23)
Cash and cash equivalents per the cash flow statement

2020
£m

463

1,043
8
35
1,086

1,549
(183)
43
1,409

2019
£m

495

1,132
3
36
1,171

1,666
(72)
–
1,594

2018
£m

446

31
26
25
82

528
(29)
–
499

Cash and cash equivalents include restricted cash of £42m (2018/19: £44m, 2017/18: £32m), of which £29m (2018/19: £40m,
2017/18: £29m) was held in countries where local capital or exchange controls currently prevent us from accessing cash balances.
The remaining balance of £13m (2018/19: £4m, 2017/18: £3m) was held in escrow accounts, or in commercial arrangements akin to
escrow.

26. 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 meeting our distribution policy. 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 2019/20. 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 debta
Total parent shareholders’ equityb

a Net debt at 31 March 2020 includes lease liabilities recognised following adoption of IFRS 16 on 1 April 2019, refer to note 1.
b Excludes non-controlling interests of £22m (2018/19: £27m, 2017/18: £34m).

2020
£m

17,969
14,741
32,710

2019
£m

11,035
10,140
21,175

2018
£m

9,627
9,877
19,504

BT Group plc Annual Report 2020
178

Notes to the consolidated financial statements continued

26. Loans and other borrowings continued

Net debt
Net debt consists of loans and other borrowings and lease liabilities (both current and non-current), less current asset investments
and cash and cash equivalents, including items which have been classified as held for sale on balance sheet. Loans and other
borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the debt. Lease liabilities are
initially measured based on lease payments that are due over the lease term discounted at the group’s incremental borrowing rate,
and subsequently measured at amortised cost. Current asset investments and cash and cash equivalents are measured at amortised
cost. 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.

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 and lease liabilities (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
Lease liabilitiesa
Net liabilities classified as held for saleb

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

2020
£m

19,334

6,560

19

2019
£m

2018
£m

16,876

14,275

–

–

–

–

(1,549)
(5,092)

19,272

(1,666)
(3,214)

11,996

(528)
(3,022)

10,725

(1,049)

(701)

(874)

(254)

(260)

17,969

11,035

(224)

9,627

a Lease liabilities recognised following adoption of IFRS 16 on 1 April 2019, refer to note 1.
b Net liabilities classified as held for sale include lease liabilities of £62m less cash and cash equivalents of £43m, refer to note 23.

The table below shows the key components of net debt and of the increase of £6,934m this year.

At 31 March
2019
£m

IFRS 16 lease
liabilities
£m

a

At
1 April
2019
£m

Issuance/
(maturities)
£m

Net lease
additions
£m

a

Foreign
exchange
£m

Transfer
to
within
one year
£m

Other
movements
£m

At 31 March
2020
£m

2,100

(16)

2,084

(629)

–

725

725

(791)

14,776

(190) 14,586

2,843

–

–

–

33

1,326

28

2,842

–

897

(19)

812

398 (1,326)

(9)

16,492

–

5,544

5,544

–

1,139

5

(897)

(43)

5,748

(701)

(263)

–

–

(701)

81

(263)

–

–

–

Gross debt

15,912

6,063 21,975

1,504

1,139

Less:
Cash and cash equivalents
Current asset investments
Removal of the accrued

interestd

Net debt

(1,666)
(3,214)

3

–
–

–

(1,666)
(3,214)

75
(1,877)

3

–

–
–

–

11,035

6,063 17,098

(298)

1,139

(429)

–

7

(2)
(1)

–

4

–

–

–

–
–

–

–

–

(1,049)

68

25

44
–

(195)

24,650

(1,549)
(5,092)

(43)

26

(40)

17,969

a Lease liabilities recognised on adoption of IFRS 16 on 1 April 2019, refer to note 1. £206m finance lease liabilities previously included in loans and other borrowings were

reclassified to lease liabilities on adoption of IFRS16. Net lease additions comprise non-cash movements in lease liabilities during the period primarily new and terminated
leases, and remeasurements of existing leases.
b Including accrued interest and bank overdrafts.
c Translation of debt balances at swap rates where hedged by cross currency swaps.
d Other movements include removal of accrued interest applied to reflect the effective interest rate method, removal of fair value adjustments and inclusion of held for sale

assets and liabilities (see note 23).

Loans and other borrowings

due within one yearb

Lease liabilities due within one

year

Loans and other borrowings

due after one year

Lease liabilities due after one

year

Impact of cross-currency

swapsc

Removal of the accrued
interest and fair value
adjustmentsd

BT Group plc Annual Report 2020

Financial statements
179

26. Loans and other borrowings continued

The table below gives details of the listed bonds and other debt.

At 31 March

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
0.5% €650m bond due September 2025a
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
1.125% €750m bond due September 2029a
3.25% US$1,000m bond due November 2029a
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
4.25% US$500m bond due November 2049a
1.874% €500m bond due August 2080c

Total listed bonds
Finance leasesd
Other loans
Bank overdrafts (note 25)

Total other loans and borrowings

Total loans and other borrowings

2020
£m

–
–
–
–
–
1,326
509
972
442
551
512
970
445
574
1,149
1,020
445
570
700
658
807
2,203
502
339
343
522
340
343
350
354
250
407
441

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
–
–

18,044

15,953

13,491

–
1,107
183

1,290

206
645
72

717

223
532
29

561

19,334

16,876

14,275

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.

c Includes put option at 5.5 years.
d On adoption of IFRS 16 on 1 April 2019 finance leases were reclassified to lease liabilities which are presented on the face of the balance sheet, refer to note 1.

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 is £20,088m (2018/19: £17,785m, 2017/18: £14,878m). The fair
value of finance leases was £251m (2018/19) and £253m (2017/18).

The fair value of our listed bonds is estimated on the basis of quoted market prices (Level 1).

The carrying amount of other loans and bank overdrafts equates to fair value due to the short maturity of these items (Level 3).

BT Group plc Annual Report 2020
180

Notes to the consolidated financial statements continued

26. Loans and other borrowings continued

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.

Loans and other borrowings are analysed as follows:

At 31 March

Current liabilities
Listed bonds
Finance leasesa
Other loans and bank overdraftsb

Total current liabilities

Non-current liabilities
Listed bonds
Finance leasesa

Total non-current liabilities

Total

2020
£m

1,552
–
1,290

2,842

16,492
–

16,492

19,334

2019
£m

1,367
16
717

2,100

14,586
190

14,776

16,876

2018
£m

1,702
18
561

2,281

11,789
205

11,994

14,275

a On adoption of IFRS 16 on 1 April 2019 finance leases were reclassified to lease liabilities which are presented on the face of the balance sheet, refer to note 1.
b Includes collateral received on swaps of £1,091m (2018/19: £638m, 2017/18: £525m).

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. All borrowings as at
31 March 2020 were unsecured.

The principal repayments of loans and borrowings at hedged rates amounted to £18,028m (2018/19: £15,912m, 2017/18:
£13,175m) 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

2020

Effect of
hedging
and
interest
£m

(406)

–
(125)
(9)
9
(770)

Principal
repayments
at hedged
rates
£m

Carrying
amount
£m

2019

Effect of
hedging
and
interest
£m

Principal
repayments
at hedged
rates
£m

2,436

2,100

(264)

1,836

–
1,357
978
1,491
11,766

1,309
15
1,463
964
10,975

(133)
–
(89)
33
(461)

1,176
15
1,374
997
10,514

Carrying
amount
£m

2,842

–
1,482
987
1,482
12,536

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

Carrying
amount
£m

2,272

1,192
1,332
18
1,489
7,899

16,487

(895)

15,592

14,726

(650)

14,076

11,930

(736)

11,194

19,329 (1,301)

18,028

16,826

(914)

15,912

14,202 (1,027)

13,175

Fair value adjustments

5

Total loans and other borrowings

19,334

50

16,876

73

14,275

Finance leases were reclassified to lease liabilities following adoption of IFRS 16 on 1 April 2019. A maturity analysis of lease liabilities
is presented in note 28.

BT Group plc Annual Report 2020

27. Finance expense

Year ended 31 March

Finance expense
Interest on:

Financial liabilities at amortised cost and associated derivatives
Lease liabilitiesa
Finance leasesa
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 9)

Total finance expense

Financial statements
181

2020
£m

2019
£m

608
140
–
3
(3)
46
2

796

145

941

582
–
13
–
(3)
45
14

651

139

790

2018
£m

478
–
16
14
1
34
15

558

218

776

a Lease liabilities were recognised following adoption of IFRS 16 on 1 April 2019, refer to note 1. Finance lease liabilities recognised at this date were reclassified to lease

liabilities.

28. 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 2020 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.

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.

BT Group plc Annual Report 2020
182

Notes to the consolidated financial statements continued

28. Financial instruments and risk management continued

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
USD
Total

Ratio of fixed to floating
Weighted average effective fixed

Fixed
rate
interest
£m

15,289
–
–
15,289

2020

Floating
rate
interest
£m

1,757
888
94
2,739

Total
£m

17,046
888
94
18,028

Fixed
rate
interest
£m

13,556
–
–
13,556

2019

Floating
rate
interest
£m

1,767
589
–
2,356

Total
£m

15,323
589
–
15,912

Fixed
rate
interest
£m

11,990
–
–
11,990

2018

Floating
rate
interest
£m

676
509
–
1,185

Total
£m

12,666
509
–
13,175

85%

15%

100%

85%

15%

100%

91%

9%

100%

interest rate – sterling

3.9%

4.0%

4.4%

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 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

2020
£m
Increase
(reduce)

2019
£m
Increase
(reduce)

2018
£m
Increase
(reduce)

989
(610)
(451)
(289)

672
(350)
(399)
(219)

628
(267)
(401)
(236)

A 1% decrease in interest rates and 10% weakening of sterling against other currencies would have broadly the same impact in the
opposite direction.

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 2019/20,
2018/19 and 2017/18.

BT Group plc Annual Report 2020

Financial statements
183

28. Financial instruments and risk management continued

Credit ratings
We continue to target a BBB+/Baa1 credit rating over the cycle, with a BBB floor. 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 £2.2bn at 31 March 2020, our finance expense would increase/decrease by approximately
£11m 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

2020

2019

2018

Rating

Outlook

Rating

Outlook

Rating

Outlook

Baa2
BBB

Negative
Stable

Baa2
BBB

Stable
Stable

Baa2
BBB+

Stable
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 2020 is disclosed in
note 26. We have term debt maturities of £1.3bn in 2020/21.

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 2020 we had
undrawn committed borrowing facilities of £2.1bn (2018/19: £2.1bn, 2017/18: £2.1bn) maturing in March 2025.

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 2020 the payables met the
criteria of trade payables.

Maturity analysis
The following table provides an analysis of the remaining 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 2020

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 sheetb,c

Loans and other
borrowings
£m

d

Interest on loans
and other
borrowings
£m

d

Trade and
other
payables
£m

Provisions
£m

Lease
liabilities
£m

a

2,602
–
1,482
987
1,482
12,536

19,089

–
5
–

566
562
562
548
520
3,740

6,498

(6,258)
–
–

4,932
–
–
–
–
–

4,932

–
–
–

19,094

240

4,932

5
3
3
4
2
–

17

–
–
(1)

16

Total
£m

8,904
1,348
2,809
2,263
2,668
20,028

38,020

799
783
762
724
664
3,752

7,484

–
–
(924)

(6,258)
5
(925)

6,560

30,842

BT Group plc Annual Report 2020
184

Notes to the consolidated financial statements continued

28. Financial instruments and risk management continued

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 sheetb,c

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 sheetb,c

Loans and other
borrowingsd
£m

Interest on loans
and other
borrowingsd
£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

–
–
–

2,120
1,192
1,332
18
1,489
7,899

14,050

–
73
–

452
404
365
357
355
2,714

4,647

(4,495)
–
–

4,939
–
–
–
–
–

4,939

–
–
–

–
–
(29)

(5,850)
50
(29)

Total
£m

7,624
1,847
547
1,973
1,458
14,645

28,094

Total
£m

7,565
1,630
1,722
418
1,863
10,810

24,008

39
33
35
14
12
127

260

54
34
25
43
19
197

372

–
–
(72)

(4,495)
73
(72)

16,662

214

5,158

231

22,265

Loans and other
borrowingsd
£m

Interest on loans
and other
borrowingsd
£m

Trade and
other
payables
£m

Provisions
£m

14,123

152

4,939

300

19,514

a Lease liabilities were recognised following adoption of IFRS 16 on 1 April 2019, refer to note 1.
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.

c The carrying amount of trade and other payables excludes £754m (2018/19: £1,479m, 2017/18: £1,326m) of non-current trade and other payables which relates to

non-financial liabilities, and £862m (2018/19: £632m, 2017/18: £2,229m) of other taxation and social security and deferred income.

d The cash flows related to index-linked bonds have not been adjusted for inflation.

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 2020

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 – Analysis based on holding
instrument to maturity

Net
settled
£m

80
109
240
227
21
110

787

Gross
settled
outflows
£m

671
88
171
524
1,054
1,842

4,350

Gross
settled
inflows
£m

(608)
(36)
(131)
(476)
(1,003)
(1,759)

Total
£m

143
161
280
275
72
193

(4,013)

1,124

Net
settled
£m

80
74
74
74
75
410

787

Gross
settled
outflows
£m

671
88
171
524
1,054
1,842

4,350

Gross
settled
inflows
£m

(608)
(36)
(131)
(476)
(1,003)
(1,759)

Total
£m

143
126
114
122
126
493

(4,013)

1,124

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.

BT Group plc Annual Report 2020

Financial statements
185

28. Financial instruments and risk management continued

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 – Analysis based on holding
instrument to maturity

Gross
settled
outflows
£m

1,007
541
131
633
1,095
3,790

7,197

Gross
settled
inflows
£m

(950)
(489)
(96)
(591)
(1,042)
(3,660)

Total
£m

224
180
166
205
260
173

(6,828)

1,208

Net
settled
£m

82
77
71
71
71
467

839

Gross
settled
outflows
£m

1,007
541
131
633
1,095
3,790

7,197

Gross
settled
inflows
£m

(950)
(489)
(96)
(591)
(1,042)
(3,660)

Total
£m

139
129
106
113
124
597

(6,828)

1,208

Derivatives – Analysed by earliest
payment datea

Derivatives – Analysed based on holding
instrument to maturity

Gross
settled
outflows
£m

587
183
442
52
52
2,234

3,550

Gross
settled
inflows
£m

(547)
(166)
(446)
(29)
(29)
(2,149)

Total
£m

180
152
152
166
184
376

Net
settled
£m

91
91
85
80
80
599

(3,366)

1,210

1,026

Gross
settled
outflows
£m

587
183
69
68
68
2,575

3,550

Gross
settled
inflows
£m

(547)
(166)
(47)
(47)
(47)
(2,512)

Total
£m

131
108
107
101
101
662

(3,366)

1,210

Net
settled
£m

167
128
131
163
207
43

839

Net
settled
£m

140
135
156
143
161
291

1,026

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.

BT Group plc Annual Report 2020
186

Notes to the consolidated financial statements continued

28. Financial instruments and risk management continued

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

24
17
5
25

2020
£m

2,489
5,112
1,432
1,721
1,549

12,303

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

a The carrying amount excludes £481m (2018/19: £445m, 2017/18: £317m) of non-current trade and other receivables which relate to non-financial assets, and £1,272m

(2018/19: £1,456m, 2017/18: £1,496m) 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

2020
£m

4,210
971
1,363
1,437
–
100
585

8,666

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

a We hold cash collateral of £1,091m (2018/19: £638m, 2017/18: £492m) 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 £2,836m of long dated cross-currency swaps and interest rate
swaps is collateralised. The related net cash inflow during the year was £460m (2018/19: inflow £129m, 2017/18: outflow £220m).
The collateral paid and received is recognised within current asset investments and loans and other borrowings, respectively.

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 2020

Derivative financial assets
Derivative financial liabilities

Total

Financial assets and liabilities
At 31 March 2019

Derivative financial assets
Derivative financial liabilities

Total

Related amounts not set off in the
balance sheet

Amounts
presented in the
balance sheet
£m

Right of set off
with derivative
counterparties
£m

Cash
collateral
£m

Net
amount
£m

2,489
(1,012)

1,477

(948)
948

(1,091)
83

–

(1,008)

450
19

469

Related amounts not set off in the
balance sheet

Amounts
presented in the
balance sheet
£m

Right of set off
with derivative
counterparties
£m

Cash
collateral
£m

Net
amount
£m

1,592
(940)

652

(802)
802

–

(638)
90

(548)

152
(48)

104

BT Group plc Annual Report 2020

Financial statements
187

28. Financial instruments and risk management continued

Financial assets and liabilities
At 31 March 2018

Derivative financial assets
Derivative financial liabilities

Total

Related amounts not set off in the
balance sheet

Amounts
presented in the
balance sheet
£m

Right of set off
with derivative
counterparties
£m

Cash
collateral
£m

Net
amount
£m

1,509
(837)

672

(754)
754

–

(492)
60

(432)

263
(23)

240

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. This
includes any ineffectiveness as a result of changes in our hedged forecast cash flows as a result of Covid-19.

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.

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.

BT Group plc Annual Report 2020
188

Notes to the consolidated financial statements continued

28. Financial instruments and risk management continued

At 31 March 2020

Designated in a cash flow hedge
Other

Total derivatives

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

Current
asset
£m

Non-current
asset
£m

Current
liability
£m

Non-current
liability
£m

250
10

260

1,954
275

2,229

36
10

46

740
226

966

Current
asset
£m

Non-current
asset
£m

Current
liability
£m

Non-current
liability
£m

102
9

111

1,228
253

1,481

40
8

48

689
203

892

Current
asset
£m

Non-current
asset
£m

Current
liability
£m

Non-current
liability
£m

187
10

197

1,061
251

1,312

41
9

50

587
200

787

All derivative financial instruments are categorised at Level 2 of the fair value hierarchy as defined in note 24.

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 26).

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.

We have considered the impact of Covid-19 on our cash flow hedges to determine if the hedged forecast cash flows remain
‘highly probable’. We do not believe that there is any ineffectiveness as a result of Covid-19. If there was a reduction in payments in
future periods under our UEFA contract this may lead to some ineffectiveness being recognised in the Income Statement, however
any future ineffectiveness is not envisaged to be material.

The amounts related to items designated as hedging instruments were as follows:

Hedged items
At 31 March 2020

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

Fallago Rigg Energy Contract

Total cash flow hedges

Deferred tax
Derivatives not in a designated hedge relationship

Notional
principal
£m

Asset
£m

Liability
£m

13,464
159

2,142
7

2,480

55
–

16,103

2,204

–
285

(744)
–

(11)
(21)

(776)

–
(236)

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

(490)
(45)

(57)
21

(828)
(11)

(36)
21

(571)

(854)

103
–

386
4

(8)
–

382

Carrying value on the balance sheet

2,489

(1,012)

(476)

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.

BT Group plc Annual Report 2020

Financial statements
189

28. Financial instruments and risk management continued

Hedged items
At 31 March 2019

Sterling, euro and US dollar denominated borrowingsa,d
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

Hedged items
At 31 March 2018e

Sterling, euro and US dollar denominated borrowingsa,d
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

Asset
£m

Liability
£m

11,431
145

1,311
3

(702)
(1)

1,821

16

(26)

13,397

1,330

(729)

–
262

–
(211)

1,592

(940)

Notional
principal
£m

Asset
£m

Liability
£m

10,417
143

1,222
–

(608)
(6)

1,989

26

(14)

12,549

1,248

(628)

–
261

–
(209)

1,509

(837)

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

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 The notional principal for the 2017/18 and 2018/19 years has been re-presented to exclude £2,087m related to the notional principal of non-hedge accounted swaps

previously included.

e We have presented comparatives to this information, now required by IFRS 7 following the adoption of IFRS 9, for 31 March 2018.

All cash flow hedges were fully effective in the period.

BT Group plc Annual Report 2020
190

Notes to the consolidated financial statements continued

29. Other reserves

Other comprehensive income

Capital
redemption
reserve
£m

Cash flow
reserve
£m

a

Fair
value
reserve
£m

b

Cost of
hedging
reserve
£m

c

Translation
reserve
£m

d

At 1 April 2017
Exchange differencese
Net fair value gain (loss) on cash flow hedges
Movements in relation to cash flow hedges recognised in income and

expensef

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

expensef

Fair value movement on assets at fair value through other

comprehensive income

Tax recognised in other comprehensive income

At 1 April 2019
Exchange differencese
Net fair value gain (loss) on cash flow hedges
Movements in relation to cash flow hedges recognised in income and

expensef

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 2020

27
–
–

–
–
–
–

27

–

27
–
–

–

–
–

27

–
–

–

–
–
–

27

127
–
(368)

277
–
10
(83)

(37)

81

44
–
168

(31)

–
(37)

144

–
823

(411)

–
(80)
–

476

13
–
–

–
11
–
–

24

–

24
–
–

–

3
–

–
–
–

–
–
–
–

–

(81)

(81)
–
8

13

–
–

27

(60)

–
–

–

(5)
–
(22)

–

–
31

29

–
–
–

–

Total
£m

884
(188)
(368)

277
11
1
(83)

534

–

534
64
176

717
(188)
–

–
–
(9)
–

520

–

520
64
–

–

(18)

–
(4)

580

40
–

3
(41)

718

40
854

–

(382)

–
(4)
–

(5)
(84)
(22)

616

1,119

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.

b The fair value reserve (2017/18: 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: available-for-sale financial assets). The cumulative gains and losses are recycled to the income statement on disposal of the assets. Level 1
investments, classified as fair value through other comprehensive income, were sold in 2020. The fair value gain was reclassified from fair value reserve to profit and loss
reserve after disposal.

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 £(1)m (2018/19: £(2)m, 2017/18: £1m) of exchange differences in relation to retained earnings attributed to non-controlling interests.
f Movements in cash flow hedges recognised in income and expense include a net charge to other comprehensive income of £428m (2018/19: charge of £63m, 2017/18:
credit of £243m) which have been reclassified to operating costs, and a net credit to the cash flow reserve of £46m (2018/19: £45m, 2017/18: £34m) which have been
reclassified to finance expense (see note 27).

30. Related party transactions

Key management personnel comprise executive and non-executive directors and members of the Executive Committee.
Compensation of key management personnel is disclosed in note 6.

Amounts paid to the group’s retirement benefit plans are set out in note 20.

BT Group plc Annual Report 2020

31. 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

Financial statements
191

2020
£m

–
2,434
1,234
228

3,896

2019
£m

6,619
2,113
1,432
253

10,417

Operating lease commitments are no longer disclosed following adoption of IFRS 16, which resulted in the balance sheet recognition
of lease liabilities for all operating leases meeting the IFRS 16 lease definition. Note 1 provides a reconciliation of operating lease
commitments disclosed at 31 March 2019 to lease liabilities recognised at 1 April 2019.

TV programme rights commitments, mainly relating to football broadcast rights, are those for which the licence period has not yet
started. Payments made to receive programming in advance of the licence period are classified as prepayments in note 17.

Other than as disclosed below, there were no contingent liabilities or guarantees at 31 March 2020 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.

Covid-19
Contract losses
Included within other provisions in note 19 are provisions for contracts we expect to become loss making as a result of Covid-19. We
have also identified other contracts that may become onerous as a result of Covid-19 but which do not meet the criteria for
recognition of provisions, for example because the probability of a net outflow is not considered sufficiently probable.

Programme rights
At the reporting date no unrecognised programme rights commitments were affected by cancellations or postponements arising
from Covid-19 and did not meet the criteria for disclosure as contingent liabilities.

Commitments and guarantees
BT plc
In 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 its Yankee 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 Building Digital 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 and regulatory proceedings
The group is involved in various 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.

Italian business
US securities class action complaints: The Plaintiffs filed a fourth amended complaint in August 2019. We filed a motion to dismiss
this complaint in October 2019 and briefs on that motion were completed in December 2019. On 24 April 2020, the US Federal Court
Judge granted our motion and dismissed, with prejudice, all claims against BT and the named individual defendants. The Plaintiffs
have 30 days in which to file any appeal.

BT Group plc Annual Report 2020
192

Notes to the consolidated financial statements continued

31. Financial commitments and contingent liabilities continued

Milan Public Prosecutor prosecutions: 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).

Following a Request for Indictment from the Milan Public Prosecutor, BT Italia and the 23 named Defendants are attending
preliminary hearings to determine whether or not they should be committed to trial. The first two hearings took place on 9 and
16 December 2019. Further hearings that were scheduled for February and March 2020 have been adjourned until at least May 2020
due to the effect of the Covid-19 pandemic in Italy.

Phones 4U
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. Legal proceedings for an unquantified amount were issued in December 2018 by the administrators
and in April 2019 we submitted our defence to this claim. We continue to dispute these allegations vigorously.

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. The judicial process is likely to take many years.

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. The judicial process is likely to take many years.

Currently we have 33 ICMS cases with an updated potential value of £147m. This is the assessed amount for all cases spanning the
period from 1998 to 2015 (plus one outlier case for the period 2013 to 2016 in the state of Minas Gerais). An ICMS assessment worth
approximately £25m was cancelled by the Administrative Court in Brasilia in January 2020.

There are currently 62 FUST/FUNTTEL cases in dispute with a known overall liability of £18m.

During the quarter BT signed an agreement to sell BT Latam Inc. and its subsidiaries to CIH Telecommunications Americas LLC (CIH).
When the sale is completed (anticipated to be during the 2020 calendar year), the entities liable for the major part of the lawsuits,
administrative proceedings and/or assessments related to ICMS, FUST and FUNTTEL (the IFF Matters) will no longer be part of BT
Group plc and therefore primary liability for those matters will cease to be for BT Group plc to cover.

The current value of cases accruing to the retained business is around £6m for FUST/FUNTTEL and £14m for ICMS. Other than these
BT Group retains no material direct exposures.

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
In the ordinary course of business, we are periodically notified of 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 2020

Financial statements
193

Financial Statements of BT Group plc
BT Group plc company balance sheet
Registered number 4190816

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

Notes

2

3

2020
£m

2019
£m

11,024
3,063

14,087

1,171
5

1,176

107

107

10,952
4,540

15,492

1,117
2

1,119

96

96

15,156

16,515

3,177

3,177

499
1,051
27
1,574
(237)
9,065

3,029

3,029

499
1,051
27
3,149
(167)
8,927

11,979

15,156

13,486

16,515

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 £1,082m (2018/19: £1,061m) repayable on 31 January 2058 and £1,981m (2018/19: £3,479m) repayable on 21 December 2064. The
loans attract interest of LIBOR plus 102.5 basis points (2018/19: LIBOR plus 102.5 basis points). Included in current trade and other receivables are loans to group
undertakings of £1,074m (2018/19: £997m) and accrued interest of £97m (2018/19: £120m).

b Trade and other payables consists of loans from group undertakings of £82m (2018/19: £60m) and other creditors of £25m (2018/19: £36m).
c Loans and other borrowings consist of a loan from group undertakings of £3,177m (2018/19: £3,029m). The loan is repayable on 31 January 2058 and attracts interest of

LIBOR plus 102.5 basis points (2018/19: LIBOR plus 102.5 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 £24m (2018/19: £44m).

The financial statements of the company on pages 193 to 196 were approved by the Board of Directors on 6 May 2020 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 2020
194

BT Group plc company statement of changes in equity

Called up
share
capital
£m

a

Share
premium
account
£m

Capital
redemption
reserve
£m

Note

Merger
reserve
£m

b

Own shares
£m

Profit
and loss
account
£m

b,c

Total
£m

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 1 April 2019
Profit for the financial year
Transfer to realised profit
Dividends paid
Capital contribution in respect of share-based

3

payments

Net buyback of own shares
Unclaimed dividends over 10 years

At 31 March 2020

499
–
–
–

–
–
–

499
–
–
–

–
–
–

1,051
–
–
–

–
–
–

1,051
–
–
–

–
–
–

27
–
–
–

–
–
–

27
–
–
–

–
–
–

5,649
–
(2,500)
–

(186)
–
–
–

7,833 14,873
44
44
2,500
–
(1,503) (1,503)

–
–
–

3,149
–
(1,575)
–

–
–
–

–
19
–

(167)
–
–
–

–
(70)
–

67
(23)
9

67
(4)
9

8,927 13,486
24
24
1,575
–
(1,521) (1,521)

72
(14)
2

72
(84)
2

499

1,051

27

1,574

(237)

9,065 11,979

a The allotted, called up and fully paid ordinary share capital of the company at 31 March 2020 was £499m (31 March 2019: £499m), representing 9,968,127,681 (31 March

2019: 9,968,127,681) ordinary shares of 5p each.

b In 2019/20, 8,642,708 shares (2018/19: 9,066,942) were issued from Own shares to satisfy obligations under employee share schemes and executive share awards at a cost

of £22m (2018/19: £28m). At 31 March 2020, 85,921,056 shares (2018/19: 45,308,559) with an aggregate nominal value of £4m (2018/19: £2m) were held at cost as
treasury shares and 7,255,789 shares (2018/19: 9,021,714) with an aggregate nominal value of £nil (2018/19: £nil) were held in the Trust.

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 £24m (2018/19: £44m).

BT Group plc Annual Report 2020

Financial statements
195

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 2020 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 2020 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 2020 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 1 April 2018
Additions

At 31 March 2019

Additions

At 31 March 2020

Total
£m

10,885
67

10,952

72

11,024

Additions of £72m (2018/19: £67m) comprise capital
contributions in respect of share-based payments.

The company held a 100% investment in BT Group Investments
Limited, a company registered in England and Wales,
throughout 2019/20 and 2018/19.

BT Group plc Annual Report 2020
196

Notes to the company financial statements continued

3. Merger reserve

4. Other information

Dividends
No final dividend is proposed in respect of the year ended
31 March 2020 (2018/19: 10.78p). An interim dividend of 4.62p
per share amounting to £457m was paid on 3 February 2020
(2018/19: full year dividend 15.4p amounting to approximately
£1,527m, 2017/18: 15.4p amounting to approximately
£1,524m).

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 2019/20 and
2018/19. The costs relating to qualifying services provided to
the company’s principal subsidiary, British Telecommunications
plc, are recharged to that company.

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 2019/20, £1,575m (2018/19: £2,500m) of merger
reserve was transferred to realised profit following the
settlement of an intercompany loan by qualifying consideration.

Related undertakings

Subsidiaries

Company name

Held directly

United Kingdom

Group 
interest in 
allotted 
capitala Share class

Company name

Belarus

197

Group 
interest in 
allotted 
capitala Share class

Company name

Group 
interest in 
allotted 
capitala Share class

100%

ordinary

Telecomlaan 9, 1831 Diegem, Belgium

British Virgin Islands

81 Newgate Street, London, EC1A 7AJ, United 
Kingdom

BT Group Investments 
Limited

BT Group Nominees 
Limited

100%

ordinary

Held via other group companies

Albania

Rr. Murat Toptani, Eurocol Center, Kati 8, 
Tirana, Albania

BT Albania Limited 
SH.P.K

Algeria

100%

ordinary

20 Micro zone d’Activités Dar El Madina,  
Bloc B, Loc N01 Hydra, Alger, 16000, Algeria

BT Algeria 
Communications SARL

Argentina

100%

ordinary

Av. Luis Maria Campos 877, Piso 10, Ciudad 
Autonoma de, Buenos Aires, C1426, Argentina

BT Argentina S.R.L.

BT Latam Argentina S.A

100%

100%

ordinary

common

Australia

Level 1, 76 Berry Street, North Sydney NSW 
2060, Australia

BT Australasia Pty 
Limited

Austria

100%

ordinary

100% preference

Louis-Häfliger-Gasse 10, 1210, Wien, Austria

BT Austria GmbH

100%

ordinary

Azerbaijan

The Landmark III Building, 8th Floor, c/o 
Deloitte & Touche, 96 Nizami Street, Baku, AZ 
1010, Azerbaijan

BT Azerbaijan Limited, 
Limited Liability 
Company

Bahrain

100%

ordinary

Brazil

Suite #659, 6th floor, Building No. 247, Road 
1704, Diplomat Area 317, Bahrain

BT Solutions Limited 
(Bahrain Branch)b

Bangladesh

100%

–

JHK Windcel, Level 4, KA-90 Progoti Sarani, 
Kuril, Dhaka, Bangladesh, 1229, Bangladesh

BT Communications 
Bangladesh Limited

Barbados

100%

ordinary

3rd Floor, The Goddard Building, Haggatt 
Hall, St. Michael, BB11059, Barbados

BT (Barbados) Limited

100%

ordinary

58 Voronyanskogo St, Office 89, Minsk 
220007, Belarus

BT BELRUS Foreign 
Limited Liability 
Company

Belgium

100%

ordinary

Rodovia Jornalista Francisco Aguirre 
Proença, Km 9, Unidade 27, Bloco Beta - 
Distrito Industrial, Condomínio Tech Town, 
Chácaras Assay, Hortolândia, São Paulo, CEP 
13186-904, Brasil

BT Brasil Serviços de 
Telecomunicações Ltda

BT LatAm Brasil Ltda.

100%

100%

quotas

quotas

BT Global Services 
Belgium BV

BT Professional Services 
(Holdings) N.V.

Rue de L’Aêropostale 8, 4460  
Grâce-Hollogne, Belgium

100%

ordinary

Sea Meadow House, P.O. Box 116, Road Town, 
Tortola, British Virgin Islands

100%

ordinary

BT LatAm (BVI) 
Corporation

Bulgaria

100%

common

IP Trade SA

Bermuda

100%

ordinary

51B Bulgaria Blvd., fl. 4, Sofia, 1404, Bulgaria

BT Bulgaria EOOD

100%

ordinary

Century House, 16 Par-la-Ville Road, 
Hamilton, HM08, Bermuda

Communications Global 
Network Services 
Limited

Bolivia

100%

ordinary

BT Canada Inc.

100%

common

Cabo Verde

Avda. 6 de Agosto N° 2700, Torre Empresarial 
CADECO, Piso 4, La Paz, Bolivia

Avenida Andrade Corvo, 30, Praia, CP63,  
Cabo Verde

Canada

Regus Brookfield Place, 161 Bay Street,  
26th and 27th Floors, Toronto, Ontario,  
M5J 2S1, Canada

100%

–

China

BT Solutions Limited 
Sucursal Boliviab

Bosnia and Herzegovina

100%

–

Skenderpasina 33, Sarajevo, 71000, Bosnia 
and Herzegovina

BTIH Teleconsult 
Drustvo sa organicenom 
odgovornoscu za 
posredovanje i 
zastupanje d.o.o. 
Sarajevo

Botswana

Deloitte House, Plot 64518, Fairgrounds, 
Gaborone, PO Box 1839, Botswana

BT Global Services 
Botswana (Proprietary) 
Limited

100%

ordinary

Avenida Doutora Ruth Cardoso, nº 4777, 14º 
andar, parte, Jardim Universidade - Pinheiros, 
na Cidade de, São Paulo- SP- CEP,  
05477- 000, Brasil

BT Global 
Communications do 
Brasil Limitada

BT LatAm Holdings 
Brasil Ltda

100%

common

Avenida das Nações Unidas nº 4777 – 14º, 
andar- Jardim Universidade -  
São Paulo- SP - CEP, 05477-000, Brasil

BT Communications do 
Brasil Limitada

100%

quotas

B. Telecomunicações, 
Cabo Verde, Sociedade 
Unipessoal, SA

Chile

100%

ordinary

Rosario Norte 407, Piso 6, Las Condes, 
Santiago, Chile

Servicios de 
Telecomunicaciones BT 
Global Networks Chile 
Limitada

100%

ordinary

Building 16, 6th Floor, Room 602-B, No. 269 
Wuyi Road, Hi-tech Park, Dalian, 116023, 
China

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%

–

No. 31 Software Park Road, Tower A, Science 
& Technology Building, Dalian Software Park, 
Dalian, 116023, China

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%

–

100%

quotas

BT Global Services 
(Dalian) Co. Ltd.

100% registered

BT Group plc Annual Report 2020Financial statements198

Related undertakings continued

Company name

Group 
interest in 
allotted 
capitala Share class

Room 4B, 7/F, Tower W3, Oriental Plaza, 1 
East Chang An Avenue, Dong Cheng District, 
Beijing, P. R. China

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

BT China Limited

100% registered

Unit 1537B, Floor 15th, No. 55, Xili Road, 
Shanghai Free Trade Zone, Shanghai, China

BT China 
Communications 
Limited

Colombia

50%

ordinary

Calle 113 # 7-21, Torre A oficina 1112, 
Teleport Business Park, Bogota, Colombia

Company name

Denmark

Group 
interest in 
allotted 
capitala Share class

Company name

Ghana

Group 
interest in 
allotted 
capitala Share class

Infonet Primalliance 
Beijing Co. Ltd.

66%

ordinary

Dominican Republic

Havnegade 39, 1058, Kobenhavn K, Denmark

BT Denmark ApS

100%

ordinary

Av. Abraham Lincoln Esq. Jose Amado 
Soler, Edif. Progresso, Local 3-A, Sector Ens. 
Serralles, Santo Domingo, Dominican Republic

100%

ordinary

Guatemala

100%

common

Av. Amazonas N21-252 y Carrión, Edificio 
Londres, 4° Piso, Quito, Ecuador

100%

–

Honduras

Edificio Avante Penthouse Oficina, 10-01 Y 
10-03 Urbanizacion, Madre Selva, Antiguo 
Cuscatlan, La Libertad,El Salvador

BT Dominican Republic, 
S. A.

BT LatAm Dominicana, 
S.A.

Ecuador

BT Solutions Limited 
(Sucursal Ecuador)b

El Salvador

BT El Salvador, Limitada 
de Capital Variable

BT LatAm El Salvador, 
S.A. de CV

Egypt

100%

ordinary

100%

common

Edificio Plaza Azul, Piso 2 do Nivel, Local No. 
26, Colonia Lomas del Guijarro Sur, Avenida 
Paris, Calle Viena, Tegucigalpa, Honduras

5th Floor, Vivo Place, Cantonments City, 
Rangoon lane, Accra, P.O. Box MB 595, Ghana

BT Ghana Limited

100%

ordinary

Greece

75 Patision Street, Athens, 10434, Greece

BT Solutions Limited-
Greek Branchb

100%

–

5ta avenida 5-55 zona 14, Edificio Europlaza 
World Business Center, Torre IV, nivel 7, 
oficina 702, Guatemala

BT Guatemala S.A.

100%

unique

BT LatAm Guatemala, 
S.A.

100%

common

Edificio Plaza América, 5to piso, Colonia, 
Florencia Norte, Tegucigalpa, Honduras

BT Sociedad De 
Responsabilidad 
Limitada

100%

–

BT LatAm Honduras, 
S.A.

Hong Kong

100%

common

38th Floor Dorset House, Taikoo Place, 979 
King’s Road, Island East, Hong Kong

BT Hong Kong Limited

39%

ordinary

61% preference

Infonet China Limited

100%

ordinary

IP Trade Networks 
Limited

Hungary

100%

ordinary

Budafoki U. 91-93, Budapest, 1117, Hungary

BT Limited 
Magyarorszagi 
Fioktelepeb

BT ROC Kft

Iceland

100%

100%

–

business

BDO ehf, Skutuvogi 1E, 104 Reykjavik, Iceland

BT Solutions Limited 
Útibú á Íslandib

India

100%

–

602, Tower B, RMZ Infinity, Municipal No. 
3, Old Madras Road, Benninganahalli, 
Bengaluru, Karnataka, 560016, India

BT Professional Services 
(India) Private Limited

100%

ordinary

América Inalámbrica 
S.A.

BT Colombia Limitada

BT LatAm Colombia S.A.

BT LatAm Holdings 
(Colombia) S.A.

Costa Rica

100%

100%

100%

common

quotas

common

100%

common

1 Wadi El Nile St., Mohandessin, Giza, Cairo, 
Egypt

BT Telecom Egypt LLC

100%

stakes

Estonia

A.H. Tammsaare tee 47, Tallinn, 11316, 
Estonia

BT Global Costa Rica 
SRL

BT LatAm Costa Rica, 
S.A.

Côte d’Ivoire

100%

ordinary

Mannerheimvägen 12 B 6, 00100 Helsinki, 
Finland

100%

common

BT Nordics Finland Oy

100%

ordinary

Abidjan Plateau, Rue du commerce, Immeuble 
Nabil 1er étage, 01 BP 12721 Abidjan 01,  
Côte d’Ivoire

BT Côte d’Ivoire

100%

ordinary

BT Newco France S.A.S.

France

Tour Ariane, 5 place de la Pyramide, La 
Defense Cedex, 92088 PARIS, France

BT France S.A.S.

BT Services S.A.S

Georgia

100%

100%

100%

ordinary

ordinary

ordinary

–

–

N74 Ilia Chavchavadze Avenue, Vake district, 
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%

100%

100%

ordinary

ordinary

ordinary

Croatia

Savska 64, 10 000 Zagreb, Croatia

BT Solutions Limited 
Podruznica Hrvatskab

100%

Cyprus

Hadjianastassiou, Ioannides LLC, DELOITTE 
LEGAL, Maximos Plaza, Tower 3, 2nd Floor, 
213 Arch. Makariou III Avenue, Limassol, 
3030, Cyprus

BT Solutions Limitedb

100%

Czech Republic

Katerinska 466/40, Nove Mesto, Prague 2, 120 
00, Czech Republic

Franfurterstrasse 21-25, 65760, Eschborn 
Taunus, Germany

BT Limited, organizacni 
slozkab

100%

–

IP Trade Networks 
GmbH

100%

ordinary

Heredia-Belen La Ribera, Centro Corporativo 
El Cafeta, Edificio B, segundo piso, Oficinas 
de Deloitte, San José, Costa Rica

BT Solutions Limited 
Eesti Filiaalb

Finland

100%

–

Room 1102, Lee Garden One, 33 Hysan 
Avenue, Causeway Bay, Hong Kong

BT Group plc Annual Report 2020199

Company name

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

11th Floor, Eros Corporate Tower, Opp. 
International Trade Tower, Nehru Place, New 
Delhi, 110019, India

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

100%

ordinary

100%

equity

100%

ordinary

74%

ordinary

74%

ordinary

A-47, Hauz Khas, New Delhi, Delhi-DL, 
110016, India

Via Tucidide 56, Torre 7, 20134, Milano, Italy

Lebanon

Basictel SpA

BT Italia S.p.A.
BT Nederland N.V.b

Nuova Societa di 
Telecomunicazioni SpA

Jamaica

99%

99%

100%

ordinary

ordinary

–

99%

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

Lithuania

26 Beechwood Avenue, Cross Roads, St. 
Andrew, Kingston 5, Jamaica

Aludariu str 2-33, LT-01113 Vilnius, Lithuania

UAB BTH Vilnius

100%

ordinary

BT Jamaica Limited

100%

ordinary

Luxembourg

Japan

12 rue Eugene Ruppert, L 2453, Luxembourg

ARK Mori Building, 12-32 Akasaka, 1-Chome, 
Minato-Ku, Tokyo, 107 - 6024, Japan

BT Global Services 
Luxembourg SARL

100%

ordinary

Orange Services India 
Private Limited

Indonesia

BT Global Japan 
Corporation

100%

ordinary

BT Japan Corporation

Jersey

100%

100%

ordinary

ordinary

World Trade Centre 5, Lantai. 13, Jl. Jend. 
Sudirman Kav. 29-31, Kel. Karet Setiabudi, 
Jakarta Selatan, Jakarta, 12920, Indonesia

PT BT Indonesia

100%

ordinary

26 New Street, St Helier, JE2 3RA, Jersey

Ilford Trustees (Jersey) 
Limited

100%

ordinary

PO Box 264, Forum 4, Grenville Street, St 
Helier, JE4 8TQ, Jersey

95%

ordinary

BT Jersey Limited

100%

ordinary

Macao

60%

ordinary

Jordan

BT Professional Services 
(Luxembourg) S.A.

100%

ordinary

BT Broadband 
Luxembourg Sàrl

Macedonia

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%

–

Avenida da.Praia Grande, No. 367-371, Keng 
Ou Building, 15th andar C, em Macao, Macau, 
Macao

BT Hong Kong Ltd. – 
Macau Branchb

Malawi

100%

–

KEZA Office Park Blocks 3, First Floor, Near 
Chichiri, Shopping Mall, 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

Office 13, Verdala Business Centre, Level 1, 
LM Complex, Brewery Street, Zone 3, Central 
Business District, Birkirkara CBD, 3040, Malta

Mauritius

7th-8th Floor, Standard Chartered Tower, 
19-21, Bank Street, Cybercity, Ebène, 72201, 
Mauritius

100%

common

BT Solutions Limitedb

100%

–

100%

–

BT Global 
Communications 
(Mauritius) Limited

100%

ordinary

100%

ordinary

6th Floor, Virtual Offices, Morningside Office 
Park, Ngong Road, Nairobi, Kenya

PT BT Communications 
Indonesia

PT Sun Microsystems 
Indonesia

Isle of Man

Third Floor, St Georges Court, Upper Church 
Street, Douglas, IM1 1EE, Isle of Man

Belmullet Limited

100%

ordinary

Communicator 
Insurance Company 
Limited

Priestgate Limited

Israel

99%

100%

ordinary

ordinary

Beit Oz, 14 Abba Hillel Silver Rd, Ramat Gan, 
52506, Israel

B.T. Communication 
Israel Ltd

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

BT Global Services 
Limitedb

100%

–

Via Pianezza n° 123, Torino, Italy

Atlanet SpA

99%

ordinary

Al  Gardens  Area  (Tlaa  Al  Ali),  Al  Salheen 
Neighborhood, Building #185, 7th Floor, Wasfi 
Al Tal Street, Amman, 962178, Jordan

BT (International) 
Holdings Limited 
(Jordan)

Kazakhstan

100%

ordinary

36 Al Farabi Ave., Bldg. B, Almaty Financial 
District, Almaty, Republic of Kazakhstan, 
050059, Kazakhstan

BT Kazakhstan LLP

100%

–

Kenya

BT Communications 
Kenya Limited

100%

ordinary

P.O. BOX 10032-00100, Nairobi, Kenya

BT Telecommunications 
Kenya Limited

100%

ordinary

Korea

8th Floor, KTB Building, 66 Yeoui-daero, 
Yeongdeungpo-gu, Seoul, 07325, Korea

BT Global Services Korea 
Limited

Kuwait

BT Solutions Limited – 
Kuwait Branchb

Latvia

Block 2-A, 9th Floor, Ahmad Al Jaber Street, 
Sharq, Kuwait

Muitas iela 1A, Riga, LV-1010, Latvia

BT Latvia Limited, 
Sabiedriba ar ierobezotu 
atbildibu

100%

ordinary

BT Group plc Annual Report 2020Financial statements200

Related undertakings continued

Company name

Mexico

Group 
interest in 
allotted 
capitala Share class

Company name

Niger

Group 
interest in 
allotted 
capitala Share class

Company name

Poland

Group 
interest in 
allotted 
capitala Share class

Av. Renato Leduc 321, Col. Toriello Guerra, 
14050 Mexico D.F.

BT LatAm México, S.A. 
de C.V.

Moldova

100%

common

IPTEH Building, 65 Stefan cel Mare Blvd,  
Office 806, Chisinau, Republic of Moldova

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

BT MDV Limited

100%

ordinary

Norway

Montenegro

Vasa Raickovica 4b, Podgorica, Podgorica, 
Montenegro

Munkedamsveien 45, c/o BDO AS, 0121 Oslo, 
Norway

BT Solutions Norway AS

100%

ordinary

BT Montenegro DOO

100%

Oman

–

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

Avenida Kenneth Kaunda, number 660, 
Sommershield, Maputo City, Mozambique

BT Mozambique, 
Limitada

Namibia

100%

quotas

Panama

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

Pakistan

100%

ordinary

Qatar

Deloitte Yousuf Adil, Chartered Accountants, 
Cavish Court, A-35, Block 7&8, KCHSU, 
Shahrah-e-Faisal, Karachi, 75350, Pakistan

BT Pakistan (Private) 
Limited

100%

ordinary

Edificio Credicorp Bank, Piso 3, Oficina 301, 
Cuidad de Panama, Panama

BT de Panama, S.R.L.

BT LatAm Panama, Inc.

100%

100%

ordinary

common

Paraguay

Av. Brasilia N° 767 casi Siria, Asunción, 
Paraguay

BT Paraguay S.R.L.

100%

quotas

Peru

Al. Armii Ludowej 14, 00-638 Warszawa, 
International Business Center, Poland

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%

–

1413, 14th Floor, Al Fardan Office Tower, 
Doha, 31316, Qatar

BT Global Services 
(North Gulf) LLC

Republic of Ireland

49%

ordinary

5th Floor, Beaux Lane House, Mercer Street 
Lower, Dublin 2, D02 DH60, Ireland

BT Communications 
Ireland Group Limited

BT Communications
Ireland Holdings Limited

100%

ordinary

100%

ordinary

BT Global 
Communications 
(Ireland) Limited

Canal Capital Investment 
Limited

Whitestream Industries 
Limited

100%

ordinary

100%

ordinary

100%

ordinary

Unit 3, 2nd floor, Ausspann Plaza, Dr 
Agostinho Neto Road, Ausspannplatz, 
Windhoek, Private Bag, 12012, Namibia 

BT Solutions Limitedb

100%

–

Netherlands

Minerva & Mercurius building, 
Herikerbergweg 2, 1101CM, Amsterdam 
Zuidoost, Netherlands

BT (Netherlands) 
Holdings B.V.

BT Nederland N.V.

BT Professional Services 
Nederland B.V.

New Zealand

100%

100%

ordinary

ordinary

100%

ordinary

c/o Deloitte, Level 18, 80 Queen Street, 
Auckland Central, Auckland, 1010, NZ, New 
Zealand

BT Australasia Pty 
Limited – New Zealand 
Branchb

100%

Nicaragua

De donde fué el Restaurante Marea Alta 
(Ahora quesillos EL PIPE) 2 cuadras al este, 
10 Metros al norte, frente al Hotel El Gran 
Marquez, Casa # 351, Nicaragua, Zip code: 
2815

BT LatAm Nicaragua, 
S.A.

BT Nicaragua S.A.

100%

100%

common

capital

Calle Martir Olaya, 129 of 1901, Miraflores, 
Lima, Peru

2 Grand Canal Plaza, Upper Grand Canal 
Street, Dublin 4, Republic of Ireland

100%

100%

common

ordinary

BT Communications 
Ireland Limited

100%

ordinary

BT LatAm Peru S.A.C.

BT Peru S.R.L.

Philippines

11th Floor, Page One Building, 1215 Acacia 
Ave Madrigal Business Park, Ayala Alabang, 
Muntinlupa, Metro Manila, 1780, Philippines

IT Holdings, Inc

100% ordinary

–

Sun Microsystems 
Philippines, Inc

51%

common

Russia

Romania

35-37 Oltenitei Str., Cladirea A1, Biroul Nr. 52, 
Bucharest, Sector 4, Romania

BT Global Services 
Limited Londra 
Sucursala Bucurestib

100%

18th Floor, Philamlife Tower, 8767 Paseo de 
Roxas, Makati City, 1226, Philippines

Room 62, prem xx, Floor 2, Pravdy, 26, 
127137, Moscow, Russian Federation

BT Communications 
Philippines Incorporated

100%

ordinary

BT Solutions Limited 
Liability Company

100%

c/o Sun Microsystems Phil Inc., 8767 Paseo de 
Roxas, Makati City, Philippines

PSPI-Subic, Inc

51%

ordinary

Serbia

Dimitrija Georgijevica Starike 20, Belgrade, 
11070, Serbia

BT Belgrade d.o.o

100%

ordinary

–

–

BT Group plc Annual Report 2020201

Company name

Sierra Leone

Group 
interest in 
allotted 
capitala Share class

Company name

Sudan

Group 
interest in 
allotted 
capitala Share class

Company name

United Arab Emirates

Group 
interest in 
allotted 
capitala Share class

84 Dundas Street, Freetown, Sierra Leone

BT (SL) Limited

100%

ordinary

Alskheikh Mustafa Building, Parlman Street, 
Khartoum, Sudan

Office No G03, Ground Floor, EIB Building No 
04, Dubai, United Arab Emirates

Singapore

Level 3, #03-01/02 & #03-04, Block B, 
Alexandra Technopark, 438B Alexandra 
Road, Singapore, 119968

Newgate 
Communication (Sudan) 
Co. Ltd

Sweden

100%

ordinary

Box 30005, 104 25, Stockholm, Sweden

BT Nordics Sweden AB

100%

ordinary

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%

–

Switzerland

100%

ordinary

100%

100%

60%

ordinary

ordinary

ordinary

BT MEA FZ-LLC

100%

ordinary

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

100%

100%

–

–

81 Newgate Street, London, EC1A 7AJ, United 
Kingdom

Autumnwindow Limited

100%

ordinary

Richtistrasse 5, 8304 Wallisellen, Switzerland

United Kingdom

BT Switzerland AG

100%

ordinary

CESTA V MESTNI LOG 1, 1000 LJUBLJANA, 
Slovenia

BT Solutions Limited – 
Tanzania Branchb

100%

Taiwan

Shin Kong Manhattan Building, 14F, No. 8, 
Sec. 5, Xinyi Road, Taipei, 11049, Taiwan

BT Limited Taiwan 
Branchb

Tanzania

100%

BDO East Africa, 1st Floor-Wing B, Infotech 
Place, Mwai Kibaki Road, Dar es Salaam, 
Tanzania

–

–

Thailand

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

49%

class B

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

Dvorakovo nabrezie 4, 811 02, Bratislava, 
Slovakia

BT Slovakia s.r.o.

100%

ordinary

Slovenia

BT GLOBALNE 
STORITVE, 
telekomunikacijske 
storitve, obdelava 
podatkov, podatkovnih 
baz; d.o.o.

South Africa

100%

ordinary

24-18th Street, Menlo Park, Pretoria, 0081, 
South Africa

EE Communications 
(South Africa) 
Proprietary Limited

100%

ordinary

BT Building, Woodmead North Office Park, 
54 Maxwell drive, Woodmead,  
South Africa

BT Communications 
Services South Africa 
(Pty) Limited

70%

ordinary

BT Tunisia S.A.R.L

100%

ordinary

First Floor, Culross Court North, 16 Culross 
Road, Bryanston, South Africa, 2021

BT Limitedb

Spain

100%

Calle Isabel Colbrand 8, 3rd Floor, 28050, 
Madrid, Spain

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

100%

ordinary

100%

common

BT Global ICT Business 
Spain SLU

100%

ordinary

Uganda

C/ Isabel Colbrand 6-8, 28050, Madrid, Spain

Engoru, Mutebi Advocates, Ground Floor, 
Rwenzori House, 1 Lumumba Avenue, 
Kampala, 22510, Uganda

BT ESPAÑA, Compañia 
de Servicios Globales de 
Telecommunicaciones,  
S.A

Sri Lanka

100%

ordinary

Ukraine

BT Solutions Limitedb

100%

–

BT Nominees Limited

Level 03, No.11, Castle Lane, Sri Lanka, 
Colombo, 04, Sri Lanka

BT Communications 
Lanka (Private) Limited

100%

ordinary

BT Ukraine Limited 
Liability Company

Office 702, 34 Lesi Ukrainky Boulevard, Kyiv 
01042, Ukraine

100%

stakes

BT SLE Euro Limited

BT SLE USD Limited

BT Solutions Limited

–

BT European 
Investments Limited

Autumnwindow No.2 
Limited

Autumnwindow No.3 
Limited
Belmullet (IoM) Limitedb

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

BT Cornwall Limited

BT Corporate Trustee 
Limited

BT Facilities Services 
Limited

BT Fifty-One

BT Fifty-Three Limited

BT Global Security 
Services Limited

BT Global Services 
Limited

BT Holdings Limited

BT IoT Networks Limited

BT Lancashire Services 
Limited

BT Limited

BT Managed Services 
(No.2) Limited

BT Managed Services 
Limited

BT Property Holdings 
(Aberdeen) Limited

BT Property Limited

BT Sixty-Four Limited

100%

ordinary

100%

100%

100%

100%

100%

100%

100%

ordinary

–

ordinary

ordinary

ordinary

ordinary

ordinary

100%

ordinary

100%

100%

100%

–

ordinary 

limited by 
guarantee

100%

ordinary

100%

100%

100%

ordinary

ordinary

ordinary

100%

ordinary

100%

100%

100%

100%

100%

ordinary

ordinary

ordinary

ordinary

ordinary

100%

ordinary

100%

100%

100%

100%

100%

100%

100%

100%

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

BT Group plc Annual Report 2020Financial statements202

Related undertakings continued

Company name

Orange Furbs Trustees 
Limited

Orange Home UK 
Limited

–

Orange Personal 
Communications 
Services Limited

United States

Group 
interest in 
allotted 
capitala Share class

100%

ordinary

100%

ordinary

Group 
interest in 
allotted 
capitala Share class

Company name

Zambia

Plot No. 11058, Haile Selassie Avenue, 
Zimbabwe, Lusaka, Lusaka Province, 34972, 
Zambia

BT Solutions Limitedb

100%

–

100%

ordinary

Zimbabwe

3 Baines Avenue, Box 334, Harare, Zimbabwe

Numberrapid Limitedb

100%

–

Company name

BT UAE Limited

Group 
interest in 
allotted 
capitala Share class

100%

ordinary

Communications Global 
Network Services 
Limited – UK Branchb

100%

Communications 
Networking Services 
(UK)

ESAT 
Telecommunications 
(UK) Limited

Extraclick Limited

Global Security Europe 
Limited

groupBT Limited

Newgate Street 
Secretaries Limited

Numberrapid Limited

Pelipod Ltd

Radianz Limited

Southgate 
Developments Limited

Tudor Minstrel

100%

ordinary

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

ordinary

Alexander Bain House, 15 York Street, 
Glasgow, G2 8LA Scotland

Holland House 
(Northern) Limited

100%

ordinary

BDO LLP, 55 Baker Street, London, W1U 7EU, 
United Kingdom

100%

100%

100%

ordinary

ordinary

ordinary

100%

ordinary

100%

ordinary

100%

ordinary

BT Fifty

BT IT Services Limited

BT LGS Limited

BT Moorgate One 
Limited

BT Moorgate Two 
Limited

BT Property Holdings 
(Oxford) Limited

BT South Tyneside 
Limited

BTexact Technologies 
Limited

BTexact Venturing 
Limited

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

BT Americas Holdings 
Inc.

BT Americas Inc.

BT Communications 
Sales LLC

BT Conferencing Video 
Inc.

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

Radianz Americas Inc.

100%

100%

common

common

100%

units

100%

100%

common 

common

100%

common

100%

common

100%

100%

100%

100%

100%

100%

100%

common

common

common

units

units

common 

common

100%

ordinary

Uruguay

100%

ordinary

Rincón 487 Piso 11, Montevideo, ZIP CODE 
11.000, Uruguay

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

Trident Place, Mosquito Way, Hatfield, 
Hertfordshire, AL10 9BW, United Kingdom

EE (Group) Limited

EE Finance Limited

EE Limited

EE Pension Trustee 
Limited

Mainline 
Communications Group 
Limited

Mainline Digital 
Communications 
Limited

100%

100%

100%

ordinary

ordinary

ordinary

100%

ordinary

100%

ordinary

100%

ordinary

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.

Vietnam

100%

ordinary

100%

ordinary

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

BT Group plc Annual Report 2020203

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.

Associates 

 Joint Ventures and Joint 
operationsc

Company name

Group 
interest in 
allotted 
capitala

Share 
class

Company name

Group 
interest in 
allotted 
capitala

Share 
class

Held via other group companies

United Kingdom 

Sixth Floor, Thames Tower, Station Road, 
Reading, RG1 1LX, United Kingdom
Mobile Broadband 
Network Limited

50% ordinary

6th Floor, One London Wall, London, EC2Y 
5EB, United Kingdom 
Internet Matters Limited

25% –

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

50% ordinary

Rugby Radio Station 
(Nominee) Limited

50% ordinary

Rugby Radio Station LP

50%

–

Held via other group companies

Italy

Piazzale Luigi Sturzo, 23, 00144, Roma, Italy
25% ordinary
QXN S.c.p.A.

Mauritius

IFS Court, Bank Street, TwentyEight 
Cybercity, Ebene, 72201, Mauritius
Mahindra – BT 
Investment Company 
(Mauritius) Limited

43% ordinary

Philippines

32F Philam Life Tower, 8767 Paseo de Roxas, 
Makati City, Philippines
ePLDTSunphilcox JV, Inc

20% ordinary

SunPhilcox JV, Inc

United Kingdom

20% ordinary

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

35% ordinary

Phoneline (M.C.D) 
Limited

35% ordinary

10 Lower Thames Street, Third Floor, 
London, EC3R 6YT, United Kingdom 

The principal place of business of the joint 
operation is in the UK.

Youview TV Limited 

14%

voting

a   

b   
c   

The proportion of voting rights held corresponds to 
the aggregate interest in percentage held by the 
holding company and subsidiaries undertaking.
No shares issued for a branch. 
All joint ventures are governed by a joint venture 
agreement or shareholder agreement. MBNL is 
accounted for as a joint operation.

BT Group plc Annual Report 2020Financial statements 
BT Group plc Annual Report 2020
204

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: adjusted revenue, adjusted operating costs, adjusted
finance expense, adjusted EBITDA, adjusted operating profit, adjusted profit before tax, 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 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
Executive Committee and assists in providing an additional analysis of the reporting 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. We have also included the impacts of Covid-19 on various balance sheet items as at 31
March 2020 as specific. The impact of Covid-19 on underlying trading is recognised in our adjusted results and not as a specific item.

Reported revenue, reported operating costs, reported operating profit, reported net finance expense, reported profit before tax and
reported earnings per share are the equivalent IFRS measures. A reconciliation from these can be seen in the Group income
statement on page 124.

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 post-tax profits or losses of associates andjoint 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 items
Net other finance expense
Share of post tax losses (profits) of associates and joint ventures

Adjusted EBITDA

2020a
£m

1,734
619

2,353
750
4,274

7,377
350
147
33

7,907

a

2019
£m

2,159
507

2,666
606
3,546

6,818
425
150
(1)

2018a
£m

2,032
584

2,616
530
3,514

6,660
610
234
1

7,392

7,505

a Following adoption of IFRS16 on 1 April 2019, operating lease charges previously included within EBITDA and adjusted EBITDA have been replaced with depreciation on

right-of-use assets and interest expense on lease liabilities. See note 1 for further information.

BT Group plc Annual Report 2020

Net debt

Financial statements
205

Net debt consists of loans and other borrowings, lease liabilities and net liabilities held for sale, 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.

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 a key indicator
used by management 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.

Net debt is considered to be an alternative performance measure as it is not defined in IFRS. A reconciliation from loans and other
borrowings, lease liabilities, 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
Lease liabilitiesb
Net liabilities classified as held for salec
Cash and cash equivalents
Current investments

Adjustments:
To retranslate currency denominated balances at swapped rates where hedgedd
To remove fair value adjustments and accrued interest applied to reflect the effective

interest methode

Net debt

Lease liabilities
Lease liabilities classified as held for salec
Net financial debtf

2020
£m

19,334
6,560
19
(1,549)
(5,092)

19,272

2019
£m

16,876
–
–
(1,666)
(3,214)

11,996

2018
£m

14,275
–
–
(528)
(3,022)

10,725

(1,049)

(701)

(874)

(254)

17,969

(6,560)
(62)

11,347

(260)

11,035

–
–

(224)

9,627

–
–

11,035

9,627

a Includes overdrafts of £183m at 31 March 2020 (31 March 2019: £72m, 31 March 2018: £29m).
b Lease liabilities recognised on adoption of IFRS 16 on 1 April 2019. See note 1 for further information.
c Net liabilities classified as held for sale comprise cash and cash equivalents of £43m and lease liabilities of £62m. See note 23 for further information.
d The translation difference between spot rate and hedged rate of loans and borrowings denominated in foreign currency.
e Includes remaining fair value adjustments made on certain loans and other borrowings and accrued interest at the balance sheet date.
f Net financial debt includes finance leases of £206m in 2018/19 and £223m in 2017/18. These have been reclassified to lease liabilities on adoption of IFRS 16 on 1 April

2019.

BT Group plc Annual Report 2020
206

Additional Information continued

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 activities after net capital expenditure) after
net interest paid and payment of lease liabilities, 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
Dividends from associates
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 payment of lease liabilitiesa
Remove cash tax benefit of pension deficit payments

Normalised free cash flow

2020
£m

6,481
(210)

6,271
(3,889)

2,382
30
(736)
1,274
1
112
33
–
–
(651)
(434)

2,011

a Payments relating to lease liabilities recognised on adoption of IFRS16 on 1 April 2019, see note 1 for further information.

Summary group balance sheet

At 31 March

a

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

2020
£m

13,889
18,474
8,712

41,075
1,006

42,081
(16,492)
(1,140)
(9,686)

14,763

499
1,051
(237)
2,572
1,119
9,759

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

14,763

10,167

2018
£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

2019
£m

4,687
(431)

4,256
(3,637)

619
23
(531)
2,024
–
598
1
–
(21)
–
(273)

2,440

2017
£m

15,029
16,498
3,970

35,497
(4,050)

31,447
(10,081)
(9,088)
(3,943)

8,335

499
1,051
(96)
6,647
884
(650)

8,335

2018
£m

5,400
(473)

4,927
(3,341)

1,586
7
(555)
872
–
828
19
325
–
–
(109)

2,973

2016
£m

15,450
15,971
2,997

34,418
(3,103)

31,315
(11,025)
(6,382)
(3,796)

10,112

499
1,051
(115)
8,422
685
(430)

10,112

a Certain measures may not be comparable due to the modified retrospective adoption of IFRS 16 from 1 April 2019 and IFRS 15 and 9 from 1 April 2018.

BT Group plc Annual Report 2020

Financial statements
207

Summary group income statement

Year ended 31 March

a

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 shareb
Dividends per share, US centsb,c

2020
£m

2019
£m

2018
£m

2017
£m

2016
£m

22,824
81

22,905

(19,213)
(409)

(19,622)

3,611
(328)

3,283

(757)
(140)

(897)

6

(39)

(33)

2,860
(507)

2,353

(536)
(83)

(619)

2,324
(590)

1,734

23,459
(31)

23,428

23,746
(23)

23,723

24,082
(20)

24,062

18,879
133

19,012

(19,613)
(394)

(19,755)
(587)

(19,947)
(948)

(15,051)
(348)

(20,007)

(20,342)

(20,895)

(15,399)

3,846
(425)

3,421

(617)
(139)

(756)

1

–

1

3,230
(564)

2,666

(619)
112

(507)

2,611
(452)

2,159

3,991
(610)

3,381

(546)
(218)

(764)

(1)

–

(1)

3,444
(828)

2,616

(671)
87

(584)

2,773
(741)

2,032

4,135
(968)

3,167

(594)
(210)

(804)

(9)

–

(9)

3,532
(1,178)

2,354

(663)
217

(446)

2,869
(961)

1,908

3,828
(215)

3,613

(483)
(229)

(712)

6

–

6

3,351
(444)

2,907

(607)
166

(441)

2,744
(278)

2,466

23.5p

(6.0)p

17.5p

26.3p

(4.5)p

21.8p

27.9p

(7.4)p

20.5p

28.9p

(9.7)p

19.2p

31.8p

(3.3)p

28.5p

9,885

9,965
17.4p
4.62p
5.73c

9,912

9,975
21.6p
15.4p
20.1c

9,911

9,961
20.4p
15.4p
21.6c

9,938

8,619

9,994
19.1p
15.4p
19.3c

8,714
28.2p
14.0p
20.1c

a Certain measures may not be comparable due to the modified retrospective adoption of IFRS 16 from 1 April 2019 and IFRS 15 and 9 from 1 April 2018.
b 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.

c Based on actual dividends paid and/or year end exchange rate on proposed dividends.

BT Group plc Annual Report 2020
208

Cautionary statement regarding forward-looking statements

unfavourable regulatory changes; attacks on our infrastructure
and assets by people inside BT or by external sources like
hacktivists, criminals, terrorists or nation states; a failure in the
supplier selection process or in the ongoing management of a
third-party supplier in our supply chain, including failures arising
as a result of Covid-19; risks relating to our BT transformation
plan; failure to successfully manage our large, complex and high-
value national and multinational customer contracts (including
the Emergency Services Network and the Building Digital UK
(BDUK) programme) and deliver the anticipated benefits;
changes to our customers’ needs, budgets or strategies that
adversely affect our ability to meet contractual commitments or
realise expected revenues, profitability or cash generation;
customer experiences that are not brand enhancing nor drive
sustainable profitable revenue growth; pandemics, natural perils,
network and system faults, malicious acts, supply chain failure,
software changes or infrastructure outages that could cause
disruptions or otherwise damage the continuity of end-to-end
customer services including network connectivity, network
performance, IT systems and service platforms; insufficient
engagement from our people; adverse developments in respect
of our defined benefit pension schemes; risks related to funding
and liquidity, interest rates, foreign exchange, counterparties
and tax; failures in the protection of the health, safety and
wellbeing of our employees or members of the public or
breaches of health and safety law and regulations; 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; failure to recognise or promptly report wrongdoing
by our people or those working for us or on our behalf (including
a failure to comply with our internal policies and procedures or
the laws to which we are subject); and the potential impacts of
climate change on our business. 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 52 to 63. 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 provision under which a member of the group has an
obligation entitlement which is, or may be, material to BT or such
other member of the group.

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: the potential impact of Covid-19 on
our people, operations, suppliers and customers; current and
future years’ outlook; revenue and revenue trends; EBITDA and
profitability; free cash flow; capital expenditure; return on capital
employed; 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 rollout 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; the investment in converged
network; improvements to the customer experience; our
investment in TV, enhancing our TV service and BT Sport; 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; 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: the duration and severity of Covid-19 impacts
on our people, operations, suppliers and customers; failure to
respond effectively to intensifying competition and technology
developments; failure to address the lingering perception of slow
pace and connectivity in broadband and mobile coverage, which
continues to be raised at a UK parliamentary level; undermining
of our strategy and investor confidence caused by an adversarial
political environment; challenges presented by Covid-19 around
network resilience, support for staff and customers, data sharing
and cyber security defence;

B

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BT Beyond Limits Brand Launch, London, Wembley Arena. 
October 2019. BT launched its new brand ambition – Beyond 
Limits – with an epic World Record-breaking indoor drone 
show coded by school children from St Joseph’s School, 
Islington.

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