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Annual Report and Form 20-F 2005
Growth through transformation

Table of contents

  • Page 1
    Growth through transformation Annual Report and Form 20-F 2005

  • Page 2
    ... Risk factors Additional information for shareholders Glossary of terms and US equivalents Cross reference to Form 20-F Index BT Group plc is a public limited company registered in England and Wales, with listings on the London and New York stock exchanges. This is the annual report for the year...

  • Page 3
    ... r Dividends of 10.4 pence per share for the year, up 22% Years ended 31 March In £ million unless otherwise stated 2005 2004a 2003a Group turnover Exceptional operating costs Total operating profit Profit on sale of fixed asset investments Loss on sale of group undertakings Profit on sale...

  • Page 4
    ...strategy for transformation and growth, your Board gave backing during the year for a targeted series of acquisitions that will help to build our capabilities as one of the world's foremost global networked IT services companies. These acquisitions offered value for money, had a compelling strategic...

  • Page 5
    ...in us. We now have a track 4 BT Group plc Annual Report and Form 20-F 2005 record of meeting the needs of public and private sector customers in, for example, the financial services and government arenas. Our networked IT services order intake for the year was over £7 billion. Broadband Broadband...

  • Page 6
    ... time as establishing our BT brand in new markets, all the while driving down customer dissatisfaction. I am constantly amazed by their commitment and by what they have achieved. Ben Verwaayen Chief Executive 18 May 2005 Chief Executive's statement BT Group plc Annual Report and Form 20-F 2005...

  • Page 7
    ... All customer numbers are given as at 31 March 2005, unless stated otherwise. The definition, reconciliation and reasons for disclosing EBITDA (earnings before interest, taxation, depreciation and amortisation) are discussed in the Financial review. 6 BT Group plc Annual Report and Form 20-F 2005

  • Page 8
    ... as calls, analogue/digital lines and private circuits. New wave revenue generation is focused on networked IT services, broadband and mobility. In the UK wholesale market, we provide network services and solutions to over 600 communications companies, including fixed and mobile network operators...

  • Page 9
    ... BT Global Services addresses the networked IT services needs of multi-site organisations including major companies with significant global requirements and large organisations in target local markets. Group turnover by customer segment year ended 31 March 2005 24% Consumer Business Major corporate...

  • Page 10
    ... by mobility, not only in the UK but also globally. Our strategy in the major corporate market is to continue to migrate from traditional voice-only services to networked IT services. This enables us to build closer, more integrated, long-term, high-value relationships with our customers, enabling...

  • Page 11
    ...to provide ubiquitous, bespoke data housing solutions. Our plans for our twenty-first century network (21CN) will enable the delivery of further integrated network and communications solutions to our customers and their end-user customers. 10 BT Group plc Annual Report and Form 20-F 2005 UK region...

  • Page 12
    ... the UK access to VOIP (voice over IP) services and enables them to use their broadband connections to reduce costs for multiple business lines. On average, BT Broadband Voice offers customers savings of more than 60% compared with second line rental. Create convergent mobility solutions In...

  • Page 13
    ... BT Local Business initiative helped to secure BT's position as a key player in the SME market. At the end of the 2005 financial year, BT Local Business was active in 83 locations around the country, managing £1.2 billion of annual billed turnover. Traditional services for wholesale customers In...

  • Page 14
    ... right to expect that we will understand their needs and live our brand values. This presents the 102,100 people employed by BT at 31 March 2005 with opportunities to develop innovative solutions, generate new business, drive efficiencies, and experience personal growth. BT Group plc Annual Report...

  • Page 15
    ...customers to much tighter timescales and much higher levels of 'right first time' delivery. We are also developing new highquality online ways for customers to deal with us, in an intuitive and comprehensive manner. 14 BT Group plc Annual Report and Form 20-F 2005 Operating and financial review

  • Page 16
    ... strategy for BT. GCTO includes a global technology intelligence scouting unit, teams focused on innovative new wave service opportunities, an innovation design and media team, strategic technology analysis units, a network and systems architecture team and world-class research and venturing...

  • Page 17
    ...markets in the UK: wholesale local access services. The Communications Act allows Ofcom to review markets for end-user apparatus and impose conditions on any provider designated with SMP. The conditions which may be imposed are limited to conditions relating to accounting separation, cost accounting...

  • Page 18
    ... 2005 financial year, compared with 82% and 83% in the 2004 and 2003 financial years, respectively. The growth in cable operators' networks in the UK has historically had an adverse effect on BT's share of the residential market. Current and future wholesale line rental arrangements will allow BT...

  • Page 19
    .... Fixed network competitors are generally not subject to direct price controls, although there are some controls on mobile network operators. Retail price controls We are subject to two sets of UK retail price controls, one on certain public-switched telephony call charges and exchange line rentals...

  • Page 20
    ... terms and for charges to be cost-orientated. Wholesale access charge control The charges for wholesale access services (both analogue and digital) are also subject to price control. The charges for the line rental (residential and business products), line transfer and new line installations...

  • Page 21
    ... others place 20 BT Group plc Annual Report and Form 20-F 2005 restrictions on market entrants, such as the extent to which foreign ownership is permitted, or restrictions on the services which may be provided. The extent to which the national incumbent operator is effectively regulated also varies...

  • Page 22
    ...conditions require the company to provide Ofcom annually with a certificate that, in the company board's BT Group plc Annual Report and Form 20-F 2005 21 Cost of copper Ofcom issued two consultation documents, in late 2004 and early 2005, concerning the valuation of the local access network assets...

  • Page 23
    ..., the commercial relationship between BT as a supplier and the UK Government as customer has been on a normal customer and supplier basis. We can, however, be required by law to do certain things and provide certain services for the UK Government. General conditions made under the Communications Act...

  • Page 24
    ... tax charge (credit) g Group's share of operating profit (loss) of associates and joint ventures includes exceptional costs (release) Based on actual dividends paid and/or year end exchange rate on proposed dividends Operating and financial review BT Group plc Annual Report and Form 20-F 2005...

  • Page 25
    ... £m 2005 £m Net cash ï¬,ow from operating activities Dividends from associates and joint ventures Returns on investments and servicing of finance Taxation paid Capital expenditure and financial investment Acquisitions and disposals Equity dividends paid Cash (outï¬,ow) inï¬,ow before management...

  • Page 26
    ... Group results Line of business results BT Retail BT Wholesale BT Global Services Other operating income Operating costs Group operating profit (loss) Associates and joint ventures Total operating profit (loss) Profit on sale of group undertakings and fixed asset investments Interest charge...

  • Page 27
    ... Financial review. The operating results by line of business are discussed in addition to the overall group results as we believe the activities and markets they serve are distinct and this analysis provides a greater degree of insight to investors. 26 BT Group plc Annual Report and Form 20-F 2005...

  • Page 28
    ... financial year Basic earnings (loss) per share: Before goodwill amortisation and exceptional items Goodwill amortisation Exceptional items a Restated following adoption of UITF17 and UITF38 (see note 1 on page 81) Operating and financial review BT Group plc Annual Report and Form 20-F 2005 27

  • Page 29
    .... Major corporate (UK and international) turnover increased by 4% to £6,101 million in the 2005 financial year (2% excluding the effect of acquisitions and the impact of regulatory reductions to mobile termination Operating and financial review 326,81 915,81 28 BT Group plc Annual Report and...

  • Page 30
    ...voice only services to managed ICT solutions contracts from which turnover grew by 19% to £2,546 million in the 2004 financial year. Wholesale (UK and global carrier) turnover in the 2005 financial year increased by 9% (16% excluding the impact of regulatory reductions to mobile termination rates...

  • Page 31
    ... lines of business for the 2005 financial year. The majority of the internal trading is BT Wholesale selling calls, access lines and other network products to BT Retail. This trading relationship also reï¬,ects the pass through of termination charges on other telecom operator networks and the sale...

  • Page 32
    ... programmes in the 2005 financial year generated selling, general and administration cost savings of £124 million before leaver costs in the traditional business (£27 million net of new wave investment). The savings in the year were driven by cost BT Group plc Annual Report and Form 20-F 2005...

  • Page 33
    ... and solutions within the UK. Its customers include communications companies, fixed and mobile network operators, internet and other service providers. The customer base includes BT's lines of business, BT Retail and BT Global Services. The majority of BT Wholesale's turnover is internal (2005 - 58...

  • Page 34
    ... (local area network), WAN (wide area network) and IPVPN (internet protocol virtual private network) services; managed mobility; applications hosting; storage and security services; and business transformation and change management services. In the 2005 financial year BT Global Services' turnover...

  • Page 35
    ... our networked IT services delivery capabilities outside the UK, higher marketing costs and higher subscriber acquisition costs. 34 BT Group plc Annual Report and Form 20-F 2005 In the 2005 financial year £59 million of exceptional property rationalisation charges were recognised in relation to...

  • Page 36
    ... in total operating profit reï¬,ects the reduction in associates' and joint ventures' profits offset by cost efficiency savings, the strong performance of BT Global Services and lower leaver costs. Profit on sale of group undertakings and fixed asset investments During the 2005 financial year...

  • Page 37
    ... Equity dividends paid Cash inï¬,ow before management of liquid resources and financing Management of liquid resources Net cash outï¬,ow from financing Increase (decrease) in cash in the year Decrease in net debt in the year resulting from cash ï¬,ows 36 BT Group plc Annual Report and Form...

  • Page 38
    ... million, respectively. The resulting cash inï¬,ow for the 2005 financial year, before management of liquid resources and financing, of £1,080 million, together with inï¬,ows from current asset Operating and financial review investments, were mainly applied to long term borrowing repayments of...

  • Page 39
    ...'s net assets. The group also enters into forward foreign exchange contracts to hedge investment, interest expense and purchase and sale commitments. The commitments hedged are 38 BT Group plc Annual Report and Form 20-F 2005 principally US dollar and euro denominated. As a result of these policies...

  • Page 40
    ... will be performed as at 31 December 2005. The group's ordinary contribution rate increased to 12.2% of employees' pensionable pay with effect from April 2003. The contribution rate was 11.6% for the 2003 financial year. In addition, the company agreed to make annual deficiency contributions...

  • Page 41
    ... and any shortfall arising from the sub lease rental income being lower than the lease costs being borne by BT. We enter into long term customer contracts which can extend over a number of financial years. During the Operating and financial review 40 BT Group plc Annual Report and Form 20-F 2005

  • Page 42
    ...to BT's accounting policies used to prepare the financial results for 2005 financial year. Whilst some of the changes required by IFRS will impact BT's reported profits and net assets this has no impact on the cash ï¬,ows generated by the business or the cash resources available for investment or...

  • Page 43
    ... charged in 2005 financial year of £16 million under UK GAAP will be reversed. During the year BT has undertaken a number of acquisitions, detailed in note 15 to the accounts. Events after the balance sheet date Under UK GAAP, the dividend charge is recognised in the profit and loss account...

  • Page 44
    ...also establishes fair value as the measurement method in accounting for share-based payments to employees. BT adopted SFAS 123R on 1 April 2005 using the modified prospective transition method. BT estimates the application of the expensing provisions of SFAS 123R will result in a pre-tax expense of...

  • Page 45
    ..., including employees, customers and 44 BT Group plc Annual Report and Form 20-F 2005 suppliers. We engage with these stakeholders in a number of ways, including consumer liaison panels, an annual employee survey and a supplier relationship management programme. Our CSR team co-ordinates...

  • Page 46
    ... to increase skills and access to communications technology in deprived communities and to increase the understanding of the causes and effects of the digital divide and how they can be addressed at a national level. Operating and financial review BT Group plc Annual Report and Form 20-F 2005 45

  • Page 47
    ...a Chartered Accountant and also a non-executive director of Hilton Group. Aged 40. 46 BT Group plc Annual Report and Form 20-F 2005 Andy Green Chief Executive, BT Global Servicesa Andy Green was appointed to the Board on 19 November 2001. He was appointed as Chief Executive of BT Global Services in...

  • Page 48
    ...: a b c d e f Operating Audit Remuneration Nominating Community Support Pension Scheme Performance Review Group All the non-executive directors are considered independent of the management of the company. Board of directors and Operating Committee BT Group plc Annual Report and Form 20-F 2005 47

  • Page 49
    .... It is BT's current policy to make payments for other purchases within 30 working days of the invoice date, provided that the relevant invoice is presented to the company in a timely fashion and is complete. BT's payment terms are printed 48 BT Group plc Annual Report and Form 20-F 2005 on the...

  • Page 50
    ... separate Notice of Annual General Meeting sent to all shareholders. By order of the Board Larry Stone Secretary 18 May 2005 Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England and Wales No. 4190816 Report of the directors BT Group plc Annual Report and Form 20-F 2005...

  • Page 51
    ... shareholders are known to the Board and considered appropriately. He represents the company in specified strategic and Government relationships, as agreed with the Chief Executive, and generally acts as the bridge between the Board and the 50 BT Group plc Annual Report and Form 20-F 2005 Company...

  • Page 52
    ... on changes to the legal, accounting and governance requirements upon the company and themselves as directors. During the 2005 financial year, for example, they have attended a presentation on the effects of the introduction of international financial reporting standards on the Group's results and...

  • Page 53
    ...report. The Audit Committee monitors and reviews the standards of risk management and internal control, the effectiveness of internal control, financial reporting, accounting policies and procedures, and the company's statements on internal controls before they are agreed by the Board for each year...

  • Page 54
    ... promotes effective risk management in the lines of business operations. & the Audit Committee, on behalf of the Board, considers the effectiveness of the operation of internal control processes and procedures in the group during the financial year, including the review of reports from the internal...

  • Page 55
    ... Report and Form 20-F, have concluded that, as of such date, BT's disclosure controls and procedures were effective to ensure that material information relating to BT was made known to them by others within the group. The Chief Executive and Group Finance Director have also Corporate governance

  • Page 56
    ...the Audit Committee. These include the independence of Audit Committee members and procedures for the treatment of complaints regarding accounting or auditing matters. The company is already fully compliant with these requirements. Corporate governance BT Group plc Annual Report and Form 20-F 2005...

  • Page 57
    ... management team, comprising the executive directors, members of the Operating Committee (OC) and other senior executives reporting to the Chief Executive. This includes approving changes to the company's long-term incentive plans, recommending to the Board those plans which require shareholder...

  • Page 58
    ... and dividend payments that occur during the performance period. Share options The price at which shares may be acquired under the Global Share Option Plan (GSOP) is the market price at the date of grant. Other than for new recruits, the size of BT Group plc Annual Report and Form 20-F 2005 57...

  • Page 59
    ... the BT Employee Share Ownership Scheme), on the same basis as other employees. There are further details of these plans in note 31 to the accounts. (iii) Annual package - financial year 2005/06 The Remuneration Committee does not expect there to be any general increase in base pay for executive...

  • Page 60
    ...company. The Committee will keep this policy under review as best practice develops. Pension provision for all executives is based on salary alone - bonuses, other elements of pay and long-term incentives are excluded. Report on directors' remuneration BT Group plc Annual Report and Form 20-F 2005...

  • Page 61
    ...Board. This policy is not mandatory. No element of non-executive 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. 60 BT Group plc Annual Report and Form 20-F 2005 Report...

  • Page 62
    ... a non-beneficial interest in 139,029 shares (2004 - 141,864) held in trust by Halifax Corporate Trustees Limited for participants in the Employee Share Investment Plan. d At date of appointment - 7 February 2005. Report on directors' remuneration BT Group plc Annual Report and Form 20-F 2005 61

  • Page 63
    ... illustrates, as required by the Companies Act 1985, the performance of BT Group plc measured by TSR (adjusted for the rights issue and the demerger of BT's mobile business in the financial year 2001/02) relative to a broad equity market index over the past five years. The FTSE 100 is considered...

  • Page 64
    ... is not a member of any of the company pension schemes, but the company has agreed to pay an annual amount equal to 30% of his salary towards pension provision, increased from 20% and effective on 1 January 2005. The company paid £30,600 into his personal pension plan plus a cash payment of £126...

  • Page 65
    ... with annual remuneration, as it is not money the individual is entitled to receive. The equivalent transfer value but calculated as at 31 March 2004 on the assumption that the director left service at that date. The increase in pension built up during the year, net of inflation. The transfer value...

  • Page 66
    ... grant was linked to performance. Options granted on 21 December 2001 under the Employee Sharesave Scheme, in which all employees of the company are eligible to participate. Date of appointment - 7 February 2005. Report on directors' remuneration BT Group plc Annual Report and Form 20-F 2005 65

  • Page 67
    ...of service, 28 February 2005. Share awards under long-term incentive schemes held during the year ended 31 March 2005 Details of the company's ordinary shares provisionally awarded to directors, as participants under the ISP and RSP are as follows: 1 April 2004 (or date of appointment) Total number...

  • Page 68
    ...-year deferred period if those participants are still employed by BT Group. Total number of award shares 31 March 2005 Monetary value of vested award £000 1 April 2004 (or at date of appointment) a Awarded b Vested Dividends re-invested Lapsed Expected vesting date Price at grant Market...

  • Page 69
    ...BT Employee Share Ownership Scheme on 30 July 2001 vested on 30 July 2004. On 2 August 2004, the first dealing day after that date, the market price of a BT Group share was 190p. The market price on the date of award was 482p. c Date of appointment, 7 February 2005. a 18 May 2005 68 BT Group plc...

  • Page 70
    ... and of the profit or loss and cash ï¬,ows of the group for that period. The directors consider that, in preparing the financial statements for the year ended 31 March 2005, on pages 71 to 122 the company has used appropriate accounting policies, consistently applied and supported by reasonable...

  • Page 71
    ..., the United States Opinion Report of Independent Registered Public Accounting Firm to the board of directors and shareholders of BT Group plc In our opinion, the accompanying group profit and loss account, group balance sheet, group cash ï¬,ow statement, group statement of total recognised gains...

  • Page 72
    ... in shareholders' funds Related party transactions Financial commitments and contingent liabilities Pension costs Directors' emoluments People employed Employee share plans Auditors Financial instruments and risk management Company balance sheet Post balance sheet events BT Group plc Annual Report...

  • Page 73
    ...loss account at the time the call is made over the group's networks. Turnover from rentals is recognised evenly over the period to which the charges relate. Turnover from equipment sales is recognised at the point of sale. Prepaid call card sales are deferred until the customer uses the stored value...

  • Page 74
    ...first financial year after acquisition. An impairment loss is recognised to the extent that the carrying amount cannot be recovered either by selling the asset or by the discounted future cash ï¬,ows from operating the assets. Accounting policies BT Group plc Annual Report and Form 20-F 2005 73

  • Page 75
    ...as debtors and creditors. Instruments that form hedges against future fixed-rate bond issues are marked to market. Gains or losses are deferred until the bond is issued when they are recognised evenly over the term of the bond. 74 BT Group plc Annual Report and Form 20-F 2005 Accounting policies

  • Page 76
    ... Operating costs Group operating profit (loss) Group's share of operating loss of joint ventures Group's share of operating profit of associates Total operating profit (loss) Profit on sale of fixed asset investments Profit on sale of property fixed assets Interest receivable Interest payable...

  • Page 77
    ... of associates' turnover Group turnover Other operating income Operating costs Group operating profit (loss) Group's share of operating loss of joint ventures Group's share of operating profit of associates Total operating profit (loss) Profit on sale of fixed asset investments Loss on sale of...

  • Page 78
    ...' turnover Group turnover Other operating income Operating costs Group operating profit (loss) Group's share of operating profit (loss) of joint ventures Group's share of operating profit (loss) of associates Total operating profit (loss) Profit on sale of fixed asset investments Loss on sale...

  • Page 79
    ... arising on consolidation of non-UK: Subsidiaries Joint ventures Associates Tax on foreign exchange gains taken to reserves Total recognised gains and losses for the financial year Prior year adjustment (note 1) Total recognised gains and losses since last annual report 1,861 (46) 6 1,821 24...

  • Page 80
    ...Equity dividends paid Cash inï¬,ow before management of liquid resources and financing Management of liquid resources Financing Issue of ordinary share capital Amounts received in respect of employee share plans Repurchase of ordinary share capital New loans Repayment of loans Net decrease in short...

  • Page 81
    Group balance sheet as at 31 March 2005 Notes 2005 £m Restated 2004 £m Fixed assets Intangible assets Tangible assets Investments in joint ventures: Share of gross assets and goodwill Share of gross liabilities Total investments in joint ventures Investments in associates Other investments ...

  • Page 82
    ... private services, the sale and rental of customer premises equipment to the group's UK customers and other lines of business and from its narrowband and broadband internet access products. & BT Wholesale derives its turnover from providing network services and solutions to communications companies...

  • Page 83
    ... continued Turnover External £m Internal £m Group total £m Operating profit (loss) of associates and joint ventures £m Year ended 31 March 2003 Depreciation and amortisation £m Total operating profit (loss) a £m BT Retail BT Wholesale BT Global Services Other Intra-group Group totals...

  • Page 84
    ... £m Share of operating (losses) profits of associates and joint ventures, including goodwill amortisation UK Europe, excluding the UK Americas Asia and Pacific Total - (43) - 18 (25) (1) (48) - 15 (34) (2) 305 (1) 27 329 Notes to the financial statements BT Group plc Annual Report and Form...

  • Page 85
    ... operating assets (liabilities) comprise tangible and intangible fixed assets, stocks, debtors less creditors (excluding loans and other borrowings), and provisions for liabilities and charges (excluding deferred tax). 3. Turnover Group's share of associates' and joint ventures' turnover comprised...

  • Page 86
    ... an exceptional credit of £34 million in the year ended 31 March 2004 being one off interest recognised on full repayment of loan notes received as part of the original consideration from the disposal of Yell. Notes to the financial statements BT Group plc Annual Report and Form 20-F 2005 85

  • Page 87
    ... on the group's share of results of associates and joint ventures Prior year adjustments Total current taxation Deferred taxation (credit) charge at 30% Origination and reversal of timing differences Prior year adjustments Total deferred taxation Total tax on profit (loss) on ordinary activities...

  • Page 88
    ...associates and joint ventures Release of surplus exit costs Profit on sale of fixed asset investments Loss on sale of group undertakings Finance cost of novating interest rate swaps Interest receivable on Yell loan notes Premium on repurchasing bonds Tax credit Minority interest Net credit (charge...

  • Page 89
    ...36 Total £m Year ended 31 March 2003 Consideration: Cash Carrying value of Concert global venture Total - 338 338 13 - 13 13 338 351 In addition, net cash of £56 million was received in settlement of the unwind of the Concert global venture. 88 BT Group plc Annual Report and Form 20-F 2005...

  • Page 90
    ... 2005 the group acquired Infonet Services Corporation for total consideration of £520 million, including acquisition costs, (£315 million net of cash in the business). This gave rise to goodwill of £264 million. Book value £m Fair value adjustments £m Fair value £m Fixed assets Current assets...

  • Page 91
    ... businesses and the consideration given comprised: Book value and fair value £m Fixed assets Current liabilities Group's share of original book value and fair value of net assets Goodwill Total cost 1 (1) - 13 13 Acquisition of associates and joint ventures On 31 July 2003 the group's effective...

  • Page 92
    ... 31 March 2005 £m Analysis of net debt Cash in hand and at bank Overnight deposits Bank overdrafts Other current asset investments Short-term investments and cash, less bank overdrafts Debt due within one year, excluding bank overdrafts Debt due after one year Total debt, excluding bank overdrafts...

  • Page 93
    ...network equipment Computers and office equipment Motor vehicles and other Land and buildings Increase in engineering stores Total expenditure on tangible fixed assets 1,488 143 648 312 349 64 3,004 7 3,011 1,324 150 585 205 316 73 2,653 20 2,673 92 BT Group plc Annual Report and Form 20-F 2005...

  • Page 94
    19. Fixed asset investments b Interests in associates and joint ventures Shares £m Loans £m Share of post acquisition losses £m Other c investments £m Total £m Cost 1 April 2004 as previously stated Prior period adjustment (note 1) 1 April 2004 as restated Additions Disposals Transfer to...

  • Page 95
    ... of an exceptional credit of £23 million, 2003 - £264 million). b Falling due after more than one year. 21. Current asset investments 2005 £m 2004 £m Listed investments Other short-term deposits and investmentsa Total current asset investments Market value of listed investments a 1,106 3,491...

  • Page 96
    ... certain timing differences. BT does not discount the provision. Balance at 1 April 2004 Charge against profit for the year Total deferred tax provisions at 31 March 2005 2005 £m £m 2,191 (17) 2,174 2004 £m Tax effect of timing differences due to: Excess capital allowances Pension prepayment...

  • Page 97
    ... Operating lease payments payable within one year of the balance sheet date were in respect of leases expiring: Within one year Between one and five years After five years Total payable within one year 735 879 11 43 321 375 8 29 330 367 96 BT Group plc Annual Report and Form 20-F 2005...

  • Page 98
    ... short-term investments. At 31 March 2005, the UK equities included 17 million (2004 - 33 million, 2003 - 37 million) ordinary shares of the company with a market value of £36 million (2004 - £58 million, 2003 - £58 million). Notes to the financial statements BT Group plc Annual Report and Form...

  • Page 99
    ... of the active members' pensionable salaries, is expected to increase as the members of the scheme approach retirement. Despite the scheme being closed to new entrants, the projected payment profile extends over more than 60 years. 98 BT Group plc Annual Report and Form 20-F 2005 Notes to the...

  • Page 100
    ... position of pension schemes. The accounting requirements under FRS 17 are broadly as follows: & scheme assets are valued at market value at the balance sheet date; & scheme liabilities are measured using a projected unit method and discounted at the current rate of return on high quality corporate...

  • Page 101
    ... 34 30 14 8 15 (1) 100 The long-term expected rate of return on investments does not affect the level of the deficit but does affect the level of the expected return on assets within the net finance cost charged to the profit and loss account under FRS 17. The net pension deficit set out below...

  • Page 102
    ...: 2005 £m 2004 £m Analysis of amounts that would be charged to operating profit on an FRS 17 basis Current service cost Past service cost Total operating charge Amount that would be charged (credited) to net interest payable on an FRS 17 basis Expected return on pension scheme assets Interest...

  • Page 103
    ... option over British Telecommunications plc shares in order to give the number of BT Group shares under the new option. The option prices of the original options were also adjusted to take account of the different number of shares under option. 102 BT Group plc Annual Report and Form 20-F 2005...

  • Page 104
    31. Employee share plans continued In the year ended 31 March 2005, options over 31 million shares were granted under the BT Group Global Share Option Plan. The options will be exercisable subject to continued employment and meeting corporate performance targets, on the third anniversary of the date...

  • Page 105
    ...to double the shares conditionally awarded. The corporate performance measure is BT's total shareholder return (TSR) measured against a group of companies from the European Telecom Sector at the beginning of the relevant performance period. The ISP was operated in the 2005 financial year with 1,406...

  • Page 106
    ...2001 the BT Group Employee Share Investment Plan (ESIP) has been in operation. The ESIP, which has been approved by HM Revenue & Customs, gives UK employees an opportunity to purchase shares (partnership shares) monthly out of pre-tax salary up to a maximum value of £1,500 per year. During the 2005...

  • Page 107
    ..., forward sales of UK government long-dated treasury stock were entered into for periods of up to one year. This hedge effectively fixed in the interest on part of the group's then future borrowings, all of which have now been taken on. At 31 March 2005, the group had outstanding interest rate swap...

  • Page 108
    ...value, using appropriate discount rates in effect at the balance sheet dates, of affected future cash flows translated, where appropriate, into pounds sterling at the market rates in effect at the balance sheet dates. Notes to the financial statements BT Group plc Annual Report and Form 20-F 2005...

  • Page 109
    ...of 4.4% (2004 - 4.5%) for a weighted average period of 22 months (2004 - 22 months). The ï¬,oating rate financial assets bear interest at rates fixed in advance for periods up to one year by reference to LIBOR. 108 BT Group plc Annual Report and Form 20-F 2005 Notes to the financial statements

  • Page 110
    ... at 31 March 2005 totalled approximately £145 million (2004 - £145 million), which was in support of a commercial paper programme or other borrowings. These lines of credit are available for up to one year. Notes to the financial statements BT Group plc Annual Report and Form 20-F 2005 109

  • Page 111
    ... statements of the company on pages 110 to 111 were approved by the board of directors on 18 May 2005 and were signed on its behalf by Sir Christopher Bland Chairman Ben Verwaayen Chief Executive Hanif Lalani Group Finance Director 110 BT Group plc Annual Report and Form 20-F 2005 Notes to the...

  • Page 112
    ... for the business plus any cash remaining on the balance sheet, net of working capital adjustments, at completion date. Regulatory clearance was received in April and the transaction completed on 29 April 2005. Notes to the financial statements BT Group plc Annual Report and Form 20-F 2005 111

  • Page 113
    ... options Consolidated statements of cash ï¬,ows Current asset investments Pension costs Income statement in US GAAP format US GAAP developments Supplemental unaudited pro forma information relating to businesses acquired during the year ended 31 March 2005 112 BT Group plc Annual Report and Form...

  • Page 114
    ... GAAP, trading securities and available-for-sale securities are carried at market value with appropriate valuation adjustments recorded in profit and loss and shareholders' equity, respectively. United States Generally Accepted Accounting Principles BT Group plc Annual Report and Form 20-F 2005 113

  • Page 115
    ... on equity investments held as availablefor-sale securities for the year ended 31 March 2005 was £19 million (2004 - £5 million, 2003 - £22 million). (h) Employee share plans Certain share options have been granted under BT save-as-you-earn plans at a 20% discount. Under UK GAAP, the share issues...

  • Page 116
    ... the separate elements to be delivered is unavailable. There was no impact on net income. Total deferred revenue and costs not recorded in UK GAAP at 31 March 2005 was £239 million (2004 - £77 million). United States Generally Accepted Accounting Principles BT Group plc Annual Report and Form 20...

  • Page 117
    ... applicable to shareholders under UK GAAP as previously reported Adjustment for: Sale and leaseback of properties Pension costs Redundancy charges Capitalisation of interest, net of related depreciation Goodwill Intangible asset amortisation Financial instruments Impairment Employee share plans...

  • Page 118
    ... cash at bank and in hand reported under UK GAAP. 2005 £m 2004 £m 2003 £m Net cash provided by operating activities Net cash (used) provided by investing activities Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Effect of exchange rate changes on cash...

  • Page 119
    ...Actuarial movement Other changes Benefits paid or payable Benefit obligation at the end of the year 32,448 507 1,745 50 - 943 7 (1,364) 34,336 30,277 388 1,657 148 1 1,428 5 (1,456) 32,448 118 BT Group plc Annual Report and Form 20-F 2005 United States Generally Accepted Accounting Principles

  • Page 120
    ... 63 16 9 12 100 Target % Year ended 31 December 2003 Fair value £bn % Equities Fixed interest bonds Index linked securities Property 17.1 3.9 2.1 3.2 26.3 65 15 8 12 100 65 15 8 12 100 United States Generally Accepted Accounting Principles BT Group plc Annual Report and Form 20-F 2005 119

  • Page 121
    ... effective for fiscal years beginning after 15 June 2005. BT does not believe that the implementation of this standard will have a material impact on its financial position, results of operations or cash ï¬,ows. 120 BT Group plc Annual Report and Form 20-F 2005 United States Generally Accepted...

  • Page 122
    ... the beginning of the years presented or that may be obtained in the future. 2005 £m 2004 £m Turnover Profit for the financial year Earnings per share 19,069 1,187 13.9p 19,262 698 8.1p United States Generally Accepted Accounting Principles BT Group plc Annual Report and Form 20-F 2005 121

  • Page 123
    ... group of companies. In April 2005, Esat Telecommunications Limited changed its name to BT Communications Ireland Limited. Share capital bn = billions m = millions Activity a Issued Percentage owned Country of b operations Joint Ventures LG Telecom Mobile cellular telephone system provider...

  • Page 124
    ... profit Group's share of operating (loss) profit of associates and joint ventures Total operating profit Profit (loss) on sale of fixed asset investments and group undertakings Profit on sale of property fixed assets Net interest payable Profit on ordinary activities before taxation Tax on...

  • Page 125
    ... employed is represented by total assets, excluding goodwill, less current liabilities, excluding corporate taxes and dividends payable, and provisions other than those for deferred taxation. Year-end figures are used in the computation of the average, except in the case of short-term investments...

  • Page 126
    ... growth in absolute call minutes. 2001 2002 2003 2004 2005 UK exchange line connections Business ('000) % growth (decline) over previous year Residential ('000) % growth (decline) over previous year Service providers ('000) % growth (decline) over previous year Total exchange line connections ('000...

  • Page 127
    ... life expectancy, all of which are outside the control of BT. In the event that investment returns decline or life expectancy increases, the cash funding cost to BT may increase and may have a significant effect on the financial resources of BT. 126 BT Group plc Annual Report and Form 20-F 2005

  • Page 128
    ...) Rights issue Demerger of O2 Analysis of shareholdings Dividends Dividend mandate Dividend investment plan Global Invest Direct Total shareholder return Results announcements Individual savings accounts (ISAs) ShareGift Unclaimed Assets Register Exchange rates Share buy back Memorandum and Articles...

  • Page 129
    ...others in the UK and other international communications markets; selection by BT and its lines of business of the appropriate trading and marketing models for its products and services; technological innovations, including the cost of developing new products and the need to increase expenditures for...

  • Page 130
    ... pound sterling price of the company's ordinary shares on the London Stock Exchange and, as a result, are likely to affect the market price of the ADSs on the New York Stock Exchange. Capital gains tax (CGT) The rights issue in June 2001 and the demerger of O2 in November 2001 adjusted the value for...

  • Page 131
    ...to approval at the annual general meeting. The US dollar amount of the final dividend of 65 pence per ADS to be paid to holders of ADSs will be based on the exchange rate in effect on 5 September 2005, the date of payment to holders of ordinary shares. As dividends paid by the company are in pounds...

  • Page 132
    ... the 1999 interim dividend. Under the dividend investment plan, cash from participants' dividends is used to buy further BT Group shares in the market. Shareholders could elect to receive additional shares in lieu of a cash dividend for the following dividends: Date paid Price per share pence 2000...

  • Page 133
    ... date for this annual report, the Noon Buying Rate was US$1.85 to £1.00. Share buy back The following table gives details of the purchase by BT of its own shares during the 2005 financial year. Total number of shares purchased as part of publicly announced plans or programmes Maximum number...

  • Page 134
    ...paid on any class of shares on the dates stated for the payments of those dividends. The directors can offer ordinary shareholders the right to choose to receive new ordinary shares, which are credited as fully paid, instead of some or all of their cash dividend. Before they can do this, the company...

  • Page 135
    ... or executive position in the company or any of its subsidiary undertakings, or to relations or dependants of, or people connected to, those directors or former directors, if the shareholders approve this by passing an ordinary resolution. 134 BT Group plc Annual Report and Form 20-F 2005 Additional...

  • Page 136
    ... or being a shareholder of that company); (iii) hold a position (other than auditor) in BT or another company in which BT has an interest on terms and conditions decided by the Board; and (iv) alone (or through some firm with which the director is associated) do paid professional work (other than...

  • Page 137
    ... to any UK withholding tax on IRS Form 8833 (Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)). For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares or ADSs will be treated as income from sources outside the United States and generally will...

  • Page 138
    ..., US-domiciled holders of ordinary shares and/or ADSs will not generally be subject to UK inheritance tax on a gift of ordinary shares and/or ADSs if the gift is subject to US federal gift tax. Similarly, Additional information for shareholders BT Group plc Annual Report and Form 20-F 2005 137

  • Page 139
    ... and environment report at www.bt.com/betterworld Document Publication date Annual Review including summary financial statement Annual Report and Form 20-F Quarterly results releases Current Cost Financial Statements for the Businesses and Activities and Statement of Standard Services (as required...

  • Page 140
    ...TSB Registrars maintain BT Group's share register and the separate BT Group EasyShare register. They also provide a Shareholder Helpline service on Freefone 0808 100 4141. Institutional investors and analysts Institutional investors and equity research analysts may contact Investor Relations on: Tel...

  • Page 141
    ... plans Finance lease Financial year Fixed asset investments Freehold Gearing Inland calls Interests in associates and joint ventures Investment in own shares Loans to associates and joint ventures Net book value Operating profit Other debtors Own work capitalised Profit Profit and loss account...

  • Page 142
    ...-balance sheet arrangements Financial review Capital resources BT Group plc Annual Report and Form 20-F 2005 3A Selected financial data 23 132 3B Capitalisation and indebtedness 3C Reasons for the offer and use of proceeds 3D Risk factors 4 Information on the company 4A History and development...

  • Page 143
    ... costs Directors' emoluments Employee share plans Board of directors and Operating Committee Report of the directors Directors Corporate governance Report on directors' remuneration Financial review Group results Consolidated financial statements Notes to the financial statements People employed...

  • Page 144
    ...nancial statements Auditors Corporate governance Audit Committee Additional information for shareholders Share buy back Not applicable Report of the independent auditors Consolidated financial statements United States Generally Accepted Accounting Principles Quarterly analysis of turnover and pro...

  • Page 145
    ... payment policy 48 Tangible fixed assets 73, 92, 124 Taxation 36, 74, 75-77, 86 Taxation (US Holders) 135-138 Total shareholder return 57, 62, 131 Treasury policy 37 Turnover 2, 8, 23, 27, 28, 30, 72, 75-77, 81-84, 123 US GAAP 24, 43, 112-121 144 BT Group plc Annual Report and Form 20-F 2005

  • Page 146
    ...81 Newgate Street, London EC1A 7AJ Registered in England and Wales No. 4190816 Produced by BT Group Designed by Paufï¬,ey Ltd, London Typeset by St Ives Financial Printed in England by Pindar plc Printed on elemental chlorine-free paper sourced from sustainably managed forests www.bt.com PHME 47821