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BT Group plc
Annual Report & Form 20-F 2016
BT Group plc
Annual Report & Form 20-F 2016
Broadening and
deepening our
customer relationships

Table of contents

  • Page 1
    BT Group plc Annual Report & Form 20-F 2016 Broadening and deepening our customer relationships

  • Page 2
    ...more customer service calls within the UK. This is one part of the investment we're making to deliver superior customer service and to grow our business. More than 25m businesses and homes now have access to superfast broadband and the UK has seen a massive increase in average broadband speed - from...

  • Page 3
    ... report - parent company financial statements Financial statements of BT Group plc Related undertakings Additional information Alternative performance measures Selected financial data Financial and operational statistics Information for shareholders Cross reference to Form 20â€'F Glossary of terms...

  • Page 4
    2 BT Group plc Annual Report 2016 An introduction from our Chairman This has been a landmark year for BT. We have completed the acquisition of EE, helped take superfast broadband to 90% of the country and delivered our best revenue growth in more than seven years. Investing in digital Britain This ...

  • Page 5
    ... The Strategic Report Governance Financial statements Additional information 3 BT in focus Inside BT in focus 4 Who we are and what we do 5 Our lines of business 6 Year in review 8 Our performance in the year 9 Progress on our investments Broadening and deepening our customer relationships...

  • Page 6
    ...Our new values embody this: Personal; Simple; Brilliant. They will help us deliver our goal and strategy, and fulfil our purpose. Adjusted revenue by line of business Year ended 31 March 2016 11% Openreach 27% Openreach (including internal) 34% BT Global Services a 11% BT Wholesale 5% EE 24% BT...

  • Page 7
    Overview The Strategic Report Governance Financial statements Additional information 5 Our lines of business BT Global Services We help around 6,200 corporate and public sector customers. We've consolidated our position as a leading global business communications provider. This year we grew ...

  • Page 8
    ... UK's leading mobile operator. Apr May Jun 100,000 We signed a new six-year deal with Emirates to upgrade and manage the next generation of the airline's contact centre technology. This will let Emirates' global contact centre agents interact seamlessly through different channels with customers...

  • Page 9
    ... innovation. The work of BT Labs has transformed the communications landscape in the UK and across the world. We are one of the largest investors in R&D in the UK and globally in the telecoms sector. We became the first UK TV service to offer Netflix in Ultra HD. Giving customers access to some of...

  • Page 10
    ...and BT Consumer are returning contact centre work to the UK. Adjusted earnings per share Year ended 31 March pence 35 (1.9) (1) (2) (3) (4) (0.4) 20 15 10 (3.1) 2012 2013 2014 2015 2016 5 0 2012 2013 2014 2015 2016 Outlooka Up 1%-2% Resultb Up 2.0% Normalised free cash flow Year ended...

  • Page 11
    ... leading UK mobile operator Creating a more integrated portfolio Expanding network (internet gateways, data centres, PoPs) premises connected, 23% of those passed Strong demand from all providers 1.5m >5m BT Sport homes BT TV subscribers 15m EE 4G subscribers +62% growth in IP lines growth...

  • Page 12
    10 BT Group plc Annual Report 2016 Overview The Strategic Report Governance Financial statements Additional information 11 Samad Hussain Customer care apprentice Samad Hussain is one of our customer care apprentices. We've invested in broadening our contact centre agents' skills, so they can...

  • Page 13
    12 BT Group plc Annual Report 2016 Overview The Strategic Report Governance Financial statements Additional information 13 60% of sales through homeofmillican.com VoIP a 'plug and play' phone system Better connections for better business We're helping hundreds of thousands of the UK's ...

  • Page 14
    ...-year strategic technology partnership, the Williams Martini Racing Formula One team uses BT's high performance network services globally, providing secure, high-speed communication and collaboration, wherever the team is operating in the world. This means teams in Oxfordshire can get instant access...

  • Page 15
    ... the UK's connected future. The world is changing and our customers need access to the internet on their terms. This deal is about greater customer choice, and the ability to deliver services seamlessly, keeping people connected at home, in the office and on the move. As fixed and mobile networks...

  • Page 16
    18 BT Group plc Annual Report 2016 360° LED light display Largest of its type in the world Celebrating a London landmark A London landmark recognised the world over, the BT Tower was completed 50 years ago, opening on 8 October 1965. At 189 metres in height (and built from 13,000 tonnes of ...

  • Page 17
    ...fitable revenue growth. This will support cash flow growth over the long term, which we will use to reward our shareholders and other stakeholders. Our culture We want to build and sustain a culture that helps us respond quickly and effectively to changes in our markets. This Strategic Report was...

  • Page 18
    20 BT Group plc Annual Report 2016 Chief Executive's introduction 2015/16 has been a landmark year for us. Our lives and work are now built around connectivity - and our expectations are constantly rising. Our customers' demand for data is increasing exponentially, and we want to be able to access...

  • Page 19
    ... smallest companies, right through to multinational corporations, use our services every day to conduct their business. Many public services rely on our technologies. And in the UK, most of the telecoms industry operates across our networks - we help more than 500 other communications providers to...

  • Page 20
    22 BT Group plc Annual Report 2016 Deliver superior customer service Every day we touch the lives of millions, providing services that help people get the most out of their working and personal lives. Our customers' experience is affected by the quality, reliability and value of our products and ...

  • Page 21
    ... a new operating model to govern how we serve the UK business market. By consolidating our sales and marketing teams, we'll reduce administrative effort and duplication, and focus our people on what really matters - selling to customers; • consolidating our IT functions to improve data security...

  • Page 22
    ... customers. On 1 April 2016, we created a new line of business, 'Business and Public Sector'. It will serve businesses - large and small - as well as the public sector in the UK and the Republic of Ireland. Leading global companies We're investing in our products, network and expertise to increase...

  • Page 23
    ... of the Operating Committee, its members and their responsibilities. 26 Operating Committee 28 Our business model 31 Financial strength 31 Our people 34 34 35 35 36 Our networks and physical assets Network platforms Service platforms IT systems Properties 36 Research and development 37 Brand...

  • Page 24
    26 BT Group plc Annual Report 2016 Overview The Strategic Report Governance Financial statements Additional information 27 Operating Committee This is our key management committee. It meets weekly and is chaired by the Chief Executive. Brief details of its members are set out on these pages. ...

  • Page 25
    28 BT Group plc Annual Report 2016 29 Overview The Strategic Report Governance Financial statements Additional information Our business model We create value for shareholders by developing and selling services that are important to our customers and that benefit communities, the environment and ...

  • Page 26
    30 BT Group plc Annual Report 2016 Who we are We're one of the world's leading communications services companies. Where we operate Some investments, such as sports rights, have a lifespan of just a few years. Other investments, such as our fibre broadband network, are much longer term and can ...

  • Page 27
    ... consistent for a number of years: Deliver sustainable profitable revenue growth Grow EBITDA Grow free cash flow Invest in business Reduce net debt Support pension fund Pay progressive dividends Our peoplea Every day our people touch the lives of millions, providing products and services which are...

  • Page 28
    ... supports a number of communities we call 'professions', providing both structured learning and ways to connect and share with others. 2014 2015 2016 We're very pleased with how the Academy has done in its first full year. Across the world employees used the Academy website over 400,000 times...

  • Page 29
    .... It helps us develop a focused people strategy and support action planning at a local level. Engagement levels have remained stable for the last two years at just over 3.8 (out of a maximum of 5, with a telecoms benchmark of 3.95). We keep our people informed about company results, major business...

  • Page 30
    ... EE business shares our passion for making a difference. It supports several charities through volunteering such as 'Apps for Good', in which young people use new technologies to design and make products that can make a difference to their world, gaining confidence and skills at the same time. Our...

  • Page 31
    ... services to UK consumers. To meet the demand from businesses, we're continuing to expand the availability of Ethernet. And when our customers are away from their home or office, they can use one of more than 5.6m BT Wiâ€'fi hotspots. Our research shows that over the last five years, at peak times...

  • Page 32
    ...simplifying how we manage our UK property portfolio. Outside the UK, our offices in Gurgaon, Kolkata and Bengaluru in India are now home to our Central Business Services organisation. This provides support to our lines of business. As part of our strategy of investing in highâ€'growth regions, we've...

  • Page 33
    ... Report Governance Financial statements Additional information Open innovation We bring together expertise and resources (both our own and thirdâ€'party) at our eight global development centres. Adastral Park in the UK is our technology headquarters. It's an innovation campus which we share...

  • Page 34
    ..., broadband, mobility, networking and IT services. In both the UK and globally we offer managed networked IT services to multinational corporations, domestic businesses and public sector organisations. Some of our customers are also our competitors. This is because we sell wholesale products and...

  • Page 35
    ...In the UK, we provide discounted calls and line rental charges to members of The Charities Club, saving those charities £1.2m on their phone bills. We see sport as a positive vehicle for change in young people's lives. Through the donations of BT Sport customers, The Supporters Club funded nine new...

  • Page 36
    .... Number of on-site supplier assessments Year ended 31 March 60 54 50 49 40 30 20 10 0 2013 2014 2015 2016 Human rights The human rights of our employees, people working in our supply chain, our customers and members of the communities where we operate could be affected by the way we do business...

  • Page 37
    ... The Strategic Report Governance Financial statements Additional information We're developing an enhanced human rights due diligence tool for our global sales team. We've also undertaken detailed human rights impact assessments on a number of potential business opportunities. As a result, we...

  • Page 38
    ... access to this infrastucture, including an online database of its location, condition and capacity. Our wholesale fibre broadband product, GEA, is not currently subject to price regulation. This will be reviewed again in Ofcom's Wholesale Local Access market review, expected to begin later in 2016...

  • Page 39
    ... in the pay-TV market, where Sky has held a dominant position for more than a decade. Broadband USO In March 2016, the UK Government began a consultation on a broadband Universal Service Obligation (USO) that will require a minimum line speed of 10Mbps to be provided. In April 2016, at the...

  • Page 40
    ... with measured figures. b EE data is excluded, in line with the GHG protocol below, pending next year's report when we will provide new baseline numbers. c We use the GHG Protocol Corporate Accounting and Reporting Standard, with UK Government GHG Conversion Factors for Company Reporting 2015...

  • Page 41
    ...contribution to the group this year, but we'll provide new baseline numbers in our 2016/17 Annual Report. Our 2020 ambitions Our 2020 ambitions Supporting charities and communities Use our skills and technology to help generate more than £1bn for good causes 2014/15 performance 2015/16 performance...

  • Page 42
    ... the key risks to their business. They record the risks in a register for their leadership teams to review. Audit & risk committees in each line of business, BT TSO and our group functions, ensure this process is effective. Group Risk Panel The Group Risk Panel supports the Board and the Operating...

  • Page 43
    ..., as the dividing lines between industries keep blurring. There are also regulatory risks that could threaten revenue growth - particularly Ofcom's 'Business Connectivity Market Review' and 'Wholesale Must Offer' statement on pay-TV sports channels. Trend indicates management's perception of how...

  • Page 44
    ... strategy and business model • Transform our costs Trend: • Invest for growth What's changed over the last year? The last funding valuation of the BTPS, as at 30 June 2014, provided certainty over what we need to pay until the next triennial valuation is concluded. Things like financial market...

  • Page 45
    ...put at risk where we weren't able to provide services or personal data was misappropriated. Our revenues, new business and cash flow could suffer, and restoring our reputation and re-building our market share might take an extended period of time. How we're mitigating the risks We use encryption to...

  • Page 46
    ... report them to management. How we're mitigating the risks At both group and line of business-level we have governance, risk management and reporting processes in place. Independent audits and the checks and balances in individual contracts provide assurance through an independent review programme...

  • Page 47
    ... the way we manage contracts in their early stages. That helps make sure the in-life contract team has the level of planning and implementation capability it needs. The result, and what we learned There's a strong link between contracts beginning well and us meeting our customers' expectations. So...

  • Page 48
    ...the way we process personal data is legal, fair and in line with customers' rights and wishes. As a communications provider we operate under a stringent 24-hour reporting regime to tell the UK Information Commissioner's Office (ICO) if we become aware of a personal data security breach. We must also...

  • Page 49
    ... work with electricity or high off the ground. We're building a plan to further embed health and safety into our operations. In the past year, we've seen major legislative change - particularly with the UK introducing Construction, Design and Management Regulations which place new responsibilities...

  • Page 50
    54 BT Group plc Annual Report 2016 Wherever we do business around the world, we put in place policies and programmes to make sure we stick to our own standards and that those standards meet or exceed minimum legal requirements. Advice is provided to help management teams understand and control ...

  • Page 51
    ... EE charges for its mobile services and is expected to lead to further declines in pricing in the future. Competition could also lead to a reduction in the rate at which we add new mobile customers, a decrease in the size of our mobile market share and a decline in the group's service revenue as...

  • Page 52
    ... roaming services provided by EE; processes for consumer switching and nonâ€' geographic numbering call services. This regulation may affect the group's market share, competitive position, future profitability and cash. As technology and market dynamics develop and as the mobile business of...

  • Page 53
    ... and we report on their operational and financial performance in the year. Looking ahead, we list their key priorities. The lines of business are supported by BT TSO, our internal service unit. We describe its role and responsibilities and provide case studies on two important work programmes. The...

  • Page 54
    ...BT Group plc Annual Report 2016 Our lines of business Our business is structured to best serve our customers - responding to their needs and delivering value to them. How we are organised People overview Over 30% of our people work in Openreach. Many of them are engineers, responsible for building...

  • Page 55
    ... Strategic Report Governance Financial statements Additional information BT Global Services We're a leading global business communications provider. We help around 6,200 corporate and public-sector customers across 180 countries embrace the digital age, innovate and work more efficiently. We help...

  • Page 56
    ...14 ^ % Yearly growth of unified communications as a service between 2014 and 2018 46 ^ % BT Global Services revenue by region Year ended 31 March 2016 13% High-growth regions 13% US and Canada 42% UK Sources: Gartnera,b and IDC c Hybrid cloud, a mix of public and private cloud services, is fast...

  • Page 57
    ... response to demand. BT Connect Network services are at the core of our Cloud of Clouds strategy. They connect our customers to their people, to their own customers, to the cloud and to the world. We offer a range of flexible, intelligent and secure IP, Ethernet and internet virtual private network...

  • Page 58
    ...the year, in line with our strategy to grow our share of our customers' network and IT spend. Key deals with our top global customers continue to make up a large part overall. Contracts we won this year include: Customer AIA Group (BT Connect) Contract Providing managed network and security services...

  • Page 59
    ... Strategic Report Governance Financial statements Additional information Deliver superior customer service Customer experience is at the heart of the way we do business. We gather feedback from our customers through our global account management teams and by using third-party surveys. And this year...

  • Page 60
    64 BT Group plc Annual Report 2016 Our core products and services We've made it easier for our customers to connect securely to third-party providers including Microsoft's cloud-based Office 365 suite, HP Enterprise Helion Managed Cloud Services and Salesforce.com. We've also made it simpler for ...

  • Page 61
    ... Ireland Public sector, corporates and wholesale in the Republic of Ireland BT Ireland We're the leading UK provider of fixed business communications and IT services and represent 15% of BT's revenue. We support communities through volunteering and play a critical role in society through managing...

  • Page 62
    66 BT Group plc Annual Report 2016 In the Republic of Ireland we provide networked IT services for the public sector and large businesses and we provide wholesale services to other communications providers. We have a 46% market share of business lines (excluding VoIP), broadly level with last year...

  • Page 63
    67 Overview The Strategic Report Governance Financial statements Additional information Products and services We offer a wide choice of fixed, mobile and IT services. These range from standalone products to managed services and customised solutions, suiting the needs of customers from small start-...

  • Page 64
    ...together lines, mobiles, hosted contact centres and inbound call service into one managed service contract. We're providing a global WAN, wi-fi, LAN, security and conferencing service which forms part of a strategic transformation programme for Old Mutual Wealth as it builds the UK's leading retail...

  • Page 65
    ... to resolve issues to the customer's satisfaction at first point of contact, and this measure has increased 4%. During the year we: • increased the number of customers on our 'UK Business Solution' system to 93% of the total. This platform brings all the core products and services that we sell in...

  • Page 66
    70 BT Group plc Annual Report 2016 Financial performance Year ended 31 March Revenue Underlying revenue excluding transit Operating costs EBITDA Depreciation and amortisation Operating profit Capital expenditure Operating cash flow 2016 £m 3,130 2015 £m 3,145 2014 £m 3,213 Key priorities ...

  • Page 67
    ... BT Consumer employs over 6,000 people, with over 70% directly helping our customers through our contact centres. We buy access to the Openreach network to sell fixedâ€'line and broadband services. We've secured exclusive rights to broadcast sports content to our customers. We provide connectivity...

  • Page 68
    ..., and discounted calls to mobiles. We're in the process of developing a free service aimed at blocking the majority of nuisance calls made to our home phone customers. We'll launch this in 2016. TV and content TV market segmentation At 31 December 2015 42% Freeview or Freesat 58% Pay-TV Broadband...

  • Page 69
    ... BT Mobile in March 2015, focusing initially on the SIMâ€' only part of the market. All our plans come with access to 4G, unlimited use of BT Wiâ€'fi, unlimited text messages and free access to BT Sport 1. We provide three packages offering a variety of data and call allowances. BT Mobile customers...

  • Page 70
    ... the best customer satisfaction of all BT Consumer products. Key features include discounts for BT Broadband customers; UK contact centres; the BT Mobile app; and spend controls that help people avoid 'billâ€'shock'. 2014 2015 2016 a Data excludes EE's fixedâ€'line and broadband business. For...

  • Page 71
    ... lowest level of line losses for over eight years, new pricing and the launch of BT Mobile. Broadband and TV revenue was up 17% (2014/15: 16%) including the impact of the launch of our European football proposition, continued growth in broadband and our bestâ€'ever year for adding new TV customers...

  • Page 72
    ... to supporting over 30 MVNOs and selling fixed broadband products. Our new My EE app is helping to improve customer experience. Outputs Outcomes We're the largest mobile operator in the UK, rated as the best network in independent testing. In the Sunday Times Best Big Companies to Work For 2016...

  • Page 73
    ... and Business We also sell 4G mobile services to business customers. • Small business plans (up to 50 employees) are for 12 or 24 months, and most come with unlimited voice and text use. Options include the ability to share data allowances across a number of devices, access to doubleâ€'speed 4G...

  • Page 74
    78 BT Group plc Annual Report 2016 Performance in the period Revenue for the two months from 29 January 2016, when EE was acquired by the BT Group, to 31 March 2016 was £1,055m with an EBITDA margin of 25%. We had 30.6m total connections at the end of the year and our 4G customer base reached 15....

  • Page 75
    ... Services Network contract will also benefit consumer and business mobile customers. Key priorities Over the coming year we plan to further integrate the new EE line of business into the group, in line with the reorganisation that took effect from 1 April 2016, and begin to realise the revenue...

  • Page 76
    ... Group plc Annual Report 2016 BT Wholesale We provide network products and services to Communications Providers (CPs) operating in Great Britain. We also offer services for media companies and broadcasters. We do this by combining BT's core network and IT platforms with Openreach's access products...

  • Page 77
    ..., we offer Managed Broadband. This includes the necessary connectivity and internet access together with full endâ€'toâ€'end service management. Managed solutions Ethernet We supply CPs with Ethernet connections linking their core network to their customers' business premises. Ethernet services are...

  • Page 78
    ...to lead the local market as a provider of wholesale connectivity, communications, and media services, and...continues to invest in relevant areas, including 4K video and optical transport." Current Analysis, October 2015. 20 15 11 10 6 5 0 2013 2014 2015 2016 19 The total number of broadband lines...

  • Page 79
    ... year) which offers highâ€'bandwidth data connectivity. We enabled Wholesale Hosted Centrex and Skype for Business to work together. This means Skype users can get all the features of our Centrex platform, such as the ability to call people who are not on their corporate network. Wholesale Broadband...

  • Page 80
    ... and a 23% increase in Ethernet connections. Managed solutions revenue grew 3% and accounted for 39% of total revenue, up from 37% last year. Calls, lines and circuits revenue fell 14%, mainly because of lower volumes and customers switching to newer IP technologies. Broadband revenue was 12% lower...

  • Page 81
    ... which means the same products, prices and levels of service. Our CP customers use our network to deliver services ranging from broadband, television and telephony for the home, to high-speed data connections for businesses of all sizes. Openreach local access network Exchange FTTC PCP DP Openreach...

  • Page 82
    ... products offer dedicated fibre connections with speeds up to 100Gbps. CPs use them to complete their own networks and to provide high-quality, high-bandwidth services to businesses and the public sector. • Ethernet Access Direct (EAD) 10Gbps Standard and Local Access were launched in Autumn 2015...

  • Page 83
    ...or around 85% of the UK. Including other service providers, 90% of the UK is able to enjoy fibre broadband speeds. Under the BDUK programme we're investing alongside public funding to bring fibre broadband to rural communities. We're also working with the government through the Superfast Extension...

  • Page 84
    ... accountable to fix problems Coverage We aspire to go beyond the UK Government's 95% target for fibre broadband. With new initiatives and new technologies, we'll keep working to get Britain connected Openreach performance against service responsibilities Movement Home New lines installed on time...

  • Page 85
    ... businesses and some rural areas. We invested 54% more than last year on connecting new sites and providing Ethernet. We continue to invest to extend, upgrade and maintain our copper network which underpins most of the services we provide in the UK. We've increased preventative maintenance spend...

  • Page 86
    ... We design, build and operate BT's global networks and systems. And we make sure they're reliable and resilient. We work closely with each of the lines of business, creating new products for them and making sure that services evolve with the changing needs of their customers. We manage BT's research...

  • Page 87
    ... should work. And in December 2015, we worked with BT Global Services to introduce NFV capabilities into its BT Cloud Connect portfolio. A multinational customer is already using this technology to provide a virtualised wide area network acceleration function, using standard data centre hardware...

  • Page 88
    92 BT Group plc Annual Report 2016 50% Broadband traffic has grown at around 50% a year Case study: Evolving our IP network Over recent years, the needs of our customers have evolved from PSTN services, leased lines and early mobile data services to superfast broadband, TV, mobile data and ...

  • Page 89
    ...strong financial results this year, our customer service was not good enough. 94 Group Finance Director's introduction 95 Financial highlights 96 96 96 98 98 100 101 102 104 105 106 107 108 Group performance Progress against our KPIs Outlook Our acquisition of EE Income statement Dividends Cash flow...

  • Page 90
    ... EBITDA and free cash flow growth, in line with the outlook we set at the start of the year. BT Consumer revenue was up 7% reflecting 17% growth in broadband and TV revenue, benefiting from our investments in BT Sport and BT Mobile. Openreach revenue was up 2% with fibre broadband growth more than...

  • Page 91
    ...312 2,000 1,500 1,000 500 0 2014 reported adjusted a Earnings per share Year ended 31 March pence 35 31.5 30 26.5 25 20 15 10 2015 2015 Proposed full year dividend Year ended 31 March 29.9 33.2 2016 2015 2016 2016 2014 reported adjusted a 2015 2015 2016 2016 Change 14% 12% 15% 9% 3% 12...

  • Page 92
    ... cash we generate from our operations, less capital expenditure and finance costs. It represents the cash available to invest in the business, repay debt, support the pension scheme and pay dividends to our shareholders. Normalised free cash flow excludes significant non-operational payments and...

  • Page 93
    ... increase in calls and lines. And the marketâ€'wide demand for fibre broadband led to a 2% increase in Openreach revenue. This was despite regulatory price impacts of around £130m. Underlying revenue excluding transit was up 1% in BT Wholesale and down 2% in BT Global Services, whilst BT Business...

  • Page 94
    ...fic items: Year ended 31 March Specific revenue Retrospective regulatory matters Fair value adjustment to deferred revenue on acquisition of EE (203) 70 (133) Specific operating costs (128) - (128) - - - 2016 £m 2015 £m 2014 £m 4% Programme rights charges 5% Network & IT 8% Property & energy...

  • Page 95
    ... believe that a policy of paying progressive dividends is the most appropriate. The Board believes this best aligns with the group's financial objectives of growing sustainable profitable revenue growth and transforming the cost base in order to drive longâ€'term growth in cash flows. In reaching...

  • Page 96
    ... Working capital movements Other non-cash and non-current liabilities movements Normalised free cash flow Cash tax benefit of pension deficit payments Specific items Reported free cash flow Pension deficit payments Dividends Disposals and acquisitions Share buyback programme Proceeds from issue...

  • Page 97
    ... and TV content, supporting our pension fund and funding our share buyback programme. We've also paid progressive dividends to our shareholders. We regularly review the liquidity of the group and our funding strategy takes account of what we'll need in the medium term, like funding the pension de...

  • Page 98
    103 Overview The Strategic Report Governance Financial statements Additional information Maturity profile of gross debt (excluding leasing) and average coupon rate Year ended 31 March 9.5% 3.9% £m 1,800 1,500 1,200 900 600 300 0 5.2% 5.5% 3.7% 6.6% 2.3% 2.7% 3.3% 2024 2025 2036 2037 ...

  • Page 99
    ... our pension schemes and also from EE's historic tax losses. Additionally, we paid nonâ€'UK corporate income taxes of £56m (2014/15: £84m), which primarily reflects the fact that most of our business is UKâ€'based. This year the total taxes we both paid and collected for the UK Government totalled...

  • Page 100
    ...ficant investments in our strategic growth areas and to improve our customer service. The Design Council is responsible for BT delivering an efficient and optimised investment plan, meeting the strategic needs of the group to help drive sustainable profitable revenue growth. Capital expenditure...

  • Page 101
    106 BT Group plc Annual Report 2016 In recent years we've prioritised our capital expenditure to underpin our growth strategy, and in particular to expand and enhance our next generation access network, which includes both fibre and Ethernet. Ongoing investments this year to support our strategy ...

  • Page 102
    ... in equity of the group at 31 March 2016 compared with the prior year. Pensions Overview We provide a number of retirement plans for our employees: • The BT Pension Scheme (BTPS), a defined benefit plan in the UK, is the largest of these plans. Although closed to new members, the BTPS still has...

  • Page 103
    108 BT Group plc Annual Report 2016 A 16â€'year deficit contribution plan was agreed reflecting BT's longâ€'term and sustainable cash flow generation. Under this plan, we made deficit payments of £875m in March 2015, £625m in April 2015 and £250m in March 2016. A further payment of £250m will...

  • Page 104
    ...BT Pensions Committee Chair's report 126 Committee for Sustainable and Responsible Business Chairman's report 127 Technology Committee Chairman's report 128 Report on Directors' Remuneration 149 Directors' information 150 General information 154 Shareholders and Annual General Meeting Our directors...

  • Page 105
    110 BT Group plc Annual Report 2016 Chairman's governance report This has been a very full year for BT with a number of major developments and some big decisions. It has been another very busy year for Board members who have made themselves available to support and engage with the management team,...

  • Page 106
    ... executives. Remuneration Committee Read more on page 128 BT Pensions Committee The BT Pensions Committee principally focuses on oversight of the BT Pension Scheme (BTPS). Read more on page 125 The Committee for Sustainable and Responsible Business provides strategic oversight of the direction...

  • Page 107
    ..., Hi5 Networks and Convercent. Other appointments include Director of HackerRank, Exponent and AYASDI. Key to membership of Board committees A B Operating Audit & Risk C D Remuneration Nominating & Governance E F Sustainable and Responsible Business BT Pensions H G I Equality of Access Board...

  • Page 108
    ... in key strategic and government relationships. The Company Secretary's appointment and removal is a matter for the whole Board. What we have done The Chief Executive The Chief Executive's role is to: lead the group's performance and management; propose strategies, business plans and policies...

  • Page 109
    ...reports Financial reports Strategy Line of business updates Risk management Dividend policy Investor relations Health, safety and well-being Succession planning Board evaluation Regulation Governance and compliance Approach to tax Annual Report & Form 20-F Group communications overview Customer...

  • Page 110
    ... and understanding of the business. They receive information about BT including financial data and the key policies supporting BT's business practices. We also give new directors details on: the role of the Board, its terms of reference, membership of the main Board committees and the matters...

  • Page 111
    ... industry, group and line of business performance, strategy, investor relations and corporate responsibility. The Chairman also provides a weekly written update to the nonâ€'executive directors on key business activities, high level meetings, regulation and relevant sector highlights. The Company...

  • Page 112
    118 BT Group plc Annual Report 2016 Reports of the Board committees Audit & Risk Committee Chairman's report On behalf of the committee I would like to thank Paul for his contribution over the years. The Board has agreed that I have recent and relevant financial experience as required by the ...

  • Page 113
    ...BT's whistleblowing confidential hotline. Activities during the year Financial reporting We: • reviewed the Annual Report & Form 20â€'F, together with annual, half-year and quarterly results announcements for recommendation to the Board; • considered updates to the UK Corporate Governance Code...

  • Page 114
    120 BT Group plc Annual Report 2016 External audit We: • considered and approved the auditors' group audit plan - this followed discussion with the auditors on the scope of the work to be undertaken as well as their consideration of risk informing their plan; • reviewed reports on external ...

  • Page 115
    ... are reviewed regularly by the Operating Committee and the Board. During the year we heard from the Chief Executive on the enterpriseâ€'wide risk management process and the key risks facing the group as a whole. Each line of business CEO presented the key risks in their part of the business as...

  • Page 116
    122 BT Group plc Annual Report 2016 Nominating & Governance Committee Chairman's report We met twice this year. This is fewer times than in previous years, because the Board approved the transfer of oversight of certain nonâ€'financial risks from the Nominating & Governance Committee to the Audit...

  • Page 117
    ..., in line with the UK Corporate Governance Code statement that any term beyond six years for a non-executive director should be subject to a particularly rigorous review. Tony brings international business expertise, in addition to financial, operational, sales and marketing experience. Having...

  • Page 118
    124 BT Group plc Annual Report 2016 As part of our internal Board review in March 2015, we evaluated the effectiveness of the committee. Committee members, the Chief Executive and the Group General Counsel & Company Secretary completed an online questionnaire based on the committee's terms of ...

  • Page 119
    ... The Strategic Report Governance Financial statements Additional information BT Pensions Committee Chair's report Allocation of time 8% Funding 39% 9% BTPS administration Risk management and investment strategy 13% Other 31% Pensions legislation and governance " "This year the committee has...

  • Page 120
    ... Group plc Annual Report 2016 Committee for Sustainable and Responsible Business Chairman's report Business approach which has helped to maximise the social and environmental value we deliver for our customers, and for society as a whole. The CSRB meets twice a year to provide strategic direction...

  • Page 121
    ... of time 11% Technology investment 14% Governance 17% Future technology " 21% Technology risk 37% Technology strategy "From defining the next generation of ultrafast broadband technologies, to delivering global IT solutions via our BT Cloud of Clouds or protecting our people and customers from...

  • Page 122
    128 BT Group plc Annual Report 2016 Report on Directors' Remuneration As a result, the annual bonus for the Chief Executive was 45% of maximum and for the Group Finance Director was 43% of maximum. In both cases bonuses are lower than last year, reflecting the above mentioned poor customer service...

  • Page 123
    ... vested in May 2015 at a share price of £4.69. The value shown last year of £1,812 for the Chief Executive and £1,767 for the Group Finance Director were based on an estimated share price of £4.35. d Pension allowance paid in cash for the financial year - see 'Total pension entitlement' on page...

  • Page 124
    ... 43% of the maximum opportunity (2014/15: 54%). The deferred shares will be granted in June 2016. Bonus award and proportion of value 20% Normalised free cash flow Element of bonus Adjusted EPS Normalised free cash flow Revenue growth Customer service Personal contribution Gavin Patterson 39.40...

  • Page 125
    ...in service lump sum of four times salary. All new employees are eligible to join the defined contribution BT Retirement Saving Scheme (BTRSS). The BTRSS is a group personal pension plan. For executive directors, the company agrees to pay a fixed percentage of the executive's salary each year which...

  • Page 126
    ..., under preâ€'existing arrangements, a pension of £477,038 in 2015/16 (2014/15: £469,526). Baroness Jay retired as a non-executive director on 13 January 2008 but continues to be a member of the Committee for Sustainable and Responsible Business, for which she receives an annual fee of £10...

  • Page 127
    ...salary, and the Group Finance Director 150% of salary. The aim of this personal shareholding policy is to encourage the build up of a meaningful shareholding in the company over time by retaining shares which they have received under an executive share plan (other than shares sold to meet a National...

  • Page 128
    ... approved plan that allows BT employees to buy shares out of gross pay. Prior to 2008 BT awarded free shares to UK employees (UK allshare). b Warren East retired on 31 May 2015 and the number reflects his holding at that date. c Phil Hodkinson retired on 31 January 2016 and the number reflects his...

  • Page 129
    ... a group of 24 companies, 40% is linked to a threeâ€'year normalised free cash flow measure and 20% to a measure of underlying revenue growth (excluding transit) over three years. The market price at vesting is an estimate of the value using the three-month average share price from 1 January 2016 to...

  • Page 130
    136 BT Group plc Annual Report 2016 Comparison of Chief Executive remuneration to Total Shareholder Return This graph illustrates the performance of BT Group plc measured by TSR relative to a broad equity market index over the past seven years. We consider the FTSE100 to be the most appropriate ...

  • Page 131
    ... per share; normalised free cash flow; and revenue excluding transit have a direct impact on shareholder value. Customer service (measured through our RFT and the customer perception measure) is vital to the company's long-term health and growth. All four of these measures are KPIs for BT and...

  • Page 132
    138 BT Group plc Annual Report 2016 The target ranges for the normalised free cash flow and underlying revenue growth excluding transit revenue are set out below: Measure 2016/17-2018/19 Normalised free cash flowb Revenue growthc a b c Chairman and non-executive director remuneration The fees for ...

  • Page 133
    ... shares and shares purchased by the BT Group Employee Share Ownership Trust (the Trust) for share option exercises, and shares purchased by the Trust for the vesting of executive share awards in 2016/17. At the end of 2015/16, shares equivalent to 1.98% (2014/15: 3.81%) of the issued share capital...

  • Page 134
    140 BT Group plc Annual Report 2016 Directors' service agreements and letters of appointment The dates on which directors' service agreements/initial letters of appointment commenced and the current expiry dates are as follows: Chairman and executive directors Sir Michael Rake Gavin Patterson Tony ...

  • Page 135
    ... & Form 20-F 2014. The Policy, as approved, is also available online at bt.com/downloadcentre We are repeating the Policy this year because we think that it is helpful when reading the Annual Remuneration Report. Legacy matters The committee may make remuneration payments and payments for loss of...

  • Page 136
    142 BT Group plc Annual Report 2016 Remuneration Policy Executive Directors and Chairman Policy Element 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. Operation and ...

  • Page 137
    ... The Strategic Report Governance Financial statements Additional information Policy Element Incentive Share Plan (ISP) Purpose - to incentivise executive directors over the longer-term, by rewarding delivery of stretching targets linked to our strategy and long-term value creation. Operation and...

  • Page 138
    144 BT Group plc Annual Report 2016 Policy Element Pension Purpose - to attract and retain executive directors of the right calibre by providing market competitive post-retirement income. Operation and Opportunity Executive directors currently receive a cash allowance in lieu of pension. ...

  • Page 139
    ... directors, are paid by reference to the market rate; • performance for managers is measured and rewarded through a number of performance-related bonus schemes across the group; • business unit performance measures are cascaded down through the organisation; • BT offers employment conditions...

  • Page 140
    ... executive pay, the Board does receive feedback from employee surveys that takes into account remuneration in general. The committee also receives updates from the Group People Director. Executive director and Chairman service contracts The other key terms of the service contracts for the current...

  • Page 141
    ...ISP awards have been shown at face value, with no share price growth or discount rate assumptions. All-employee share plans (saveshare and directshare) have been excluded, as have any legacy awards held by executive directors. Other Remuneration Policies Malus Under the terms of the DBP and ISP, if...

  • Page 142
    148 BT Group plc Annual Report 2016 Non-executive director fees Element/purpose and link to strategy Operation • NEDs receive a basic fee, paid monthly in respect of their board duties. • Further fees may be paid for chairmanship or membership of Board committees or to the Senior Independent ...

  • Page 143
    .... The Board considers, on the advice of the Audit & Risk Committee that 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. Critical accounting...

  • Page 144
    ... BT Group plc Annual Report 2016 Independent advice The Board has a procedure for directors, in carrying out their duties, to take independent professional advice if necessary, at BT's expense. All directors also have access to the advice and services of the Company Secretary. General information...

  • Page 145
    ... by the Board; • the lines of business and BT TSO 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 their opinion...

  • Page 146
    152 BT Group plc Annual Report 2016 Capital management and funding policy The objective of our capital management and funding policy is to reduce net debt while investing in the business, supporting the pension fund and paying progressive dividends. The Board reviews the group's capital structure ...

  • Page 147
    ...directors providing for compensation for loss of office or employment that occurs because of a takeover. There is similarly no provision for this in standard contracts for employees. • We are not aware of any agreements between shareholders that may result in restrictions on the transfer of shares...

  • Page 148
    154 BT Group plc Annual Report 2016 Shareholders and Annual General Meeting The Chief Executive and Group Finance Director, as well as other senior executives, hold meetings with BT's institutional shareholders and prospective shareholders to discuss BT's strategy and financial performance. The ...

  • Page 149
    ...treasury shares were transferred to meet BT's obligations under our employee share plans. At 29 April 2016, we held a total of 6.9m shares as treasury shares. All of those shares were purchased in an onâ€'market buy back programme from May 2015 to March 2016. In addition, the BT Group Employee Share...

  • Page 150
    156 BT Group plc Annual Report 2016

  • Page 151
    ... policies 181 Segment information 185 Operating costs 186 Employees 186 Audit, audit related and other non-audit services 187 Specific items 188 Taxation 191 Earnings per share 191 Dividends 192 Intangible assets 194 Property, plant and equipment 195 Business combinations 196 Programme rights...

  • Page 152
    ... are listed below: • Acquisition accounting for EE Limited under IFRS 3 'Business Combinations' • Major contracts in BT Global Services and BT Wholesale • Accuracy of revenue due to complex billing systems • Pension scheme obligations and unquoted investments in the BT Pension Scheme and...

  • Page 153
    ... and board minutes which supported our final conclusions in respect of the acquisition accounting. Major contracts in BT Global Services and BT Wholesale We focused on this area as it involves significant judgements in respect of: • the determination and timing of recognition of contract profits...

  • Page 154
    ... with those commonly used in the industry and appropriately reflected technological developments. We assessed the key assumptions (primarily the forecast level of end users) applied by the directors to calculate the level of capital grants attributable to superfast broadband deployment in rural...

  • Page 155
    ... reference to market data and verified the long term growth rate to market data. We assessed the sufficiency of the sensitivity analysis performed by the directors and performed further sensitivity analyses, primarily focused on changes in operating cash flows. As a result of our work we determined...

  • Page 156
    ... of the UK Corporate Governance Code (the Code), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the group's position and performance, business model and strategy is materially inconsistent...

  • Page 157
    ...parent company financial statements of BT Group plc for the year ended 31 March 2016 and on the information in the Report on Directors' Remuneration that is described as having been audited. Paul Barkus (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants...

  • Page 158
    ... in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As described in the second paragraph of Internal control over financial reporting in the Report of the Directors, General information, of the BT Group plc Annual Report & Form 20-F 2016, management has...

  • Page 159
    ... The Strategic Report Governance Financial statements Additional information Group income statement Year ended 31 March 2016 Revenue Operating costs Operating profit (loss) Finance expense Finance income Net finance expense Share of post tax profit of associates and joint ventures Profit (loss...

  • Page 160
    166 BT Group plc Annual Report 2016 Group income statement Year ended 31 March 2014 Revenue Operating costs Operating profit (loss) Finance expense Finance income Net finance expense Share of post tax loss of associates and joint ventures Loss on disposal of interest in associates and joint ...

  • Page 161
    167 Overview The Strategic Report Governance Financial statements Additional information Group balance sheet At 31 March Non-current assets Intangible assets Property, plant and equipment Derivative financial instruments Investments Associates and joint ventures Trade and other receivables Deferred...

  • Page 162
    ... Annual Report 2016 Group statement of changes in equity Notes At 1 April 2013 Profit for the year Other comprehensive loss - before tax Tax on other comprehensive loss Transferred to the income statement Total comprehensive (loss) income for the year Dividends to shareholders Share-based payments...

  • Page 163
    ... The Strategic Report Governance Financial statements Additional information Group cash flow statement Year ended 31 March Cash flow from operating activities Profit before taxation (Profit) loss on disposal of interest in associates and joint ventures Share of post tax (profit) loss of associates...

  • Page 164
    ... January 2018, following the July 2015 decision to delay the effective date by one year. For the group, transition to IFRS 15 will take place on 1 April 2018. Quarterly results in the 2018/19 financial year will be IFRS 15 compliant, with the first Annual Report and Form 20-F published in accordance...

  • Page 165
    .... The value of the net pension obligation at 31 March 2016, the key financial assumptions used to measure the obligation, the sensitivity of the IAS 19 pension liability at 31 March 2016, and Long-term customer contracts Longâ€'term customer contracts can extend over a number of financial years...

  • Page 166
    ... this assessment, management uses the expectations of future revenue growth, operating costs, and profit margins assumed in the latest financial plans. Management also considers whether transfer pricing arrangements have been explicitly agreed with local tax authorities. Changes in assumptions which...

  • Page 167
    ... management's expectations of future revenue growth, operating costs, profit margins, operating cash flows, and discount rate for each CGU. The future cash flows used in the value in use calculations are based on the latest Board approved three-year financial plans and are adjusted for risks...

  • Page 168
    ... it relates. Revenue from calls is recognised at the time the call is made over the group's network. Subscription fees, consisting primarily of monthly charges for access to broadband and other internet access or voice services, are recognised as revenue as the service is provided. Revenue from the...

  • Page 169
    ..., BT Consumer, EE, BT Wholesale and Openreach. The customer-facing lines of business are supported by an internal service unit: BT Technology, Service & Operations (BT TSO). The customer-facing lines of business are the group's reportable segments and generate substantially all the group's revenue...

  • Page 170
    176 BT Group plc Annual Report 2016 3. Significant accounting policies continued Retirement benefits The group's net obligation in respect of defined benefit pension plans is the present value of the defined benefit obligation less the fair value of the plan assets. The calculation of the ...

  • Page 171
    ... 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...

  • Page 172
    ... 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 cost to sell. Goodwill is reviewed for impairment at least annually. Impairment losses are recognised in the income statement, as a specific...

  • Page 173
    ... availableâ€'forâ€'sale investments and are initially recognised at fair value plus direct transaction costs and then re-measured at subsequent reporting dates to fair value, with unrealised gains and losses (except for changes in exchange rates for monetary items, interest, dividends and impairment...

  • Page 174
    180 BT Group plc Annual Report 2016 3. Significant accounting policies continued 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 ...

  • Page 175
    ... The Strategic Report Governance Financial statements Additional information 4. Segment information The definition of the group's operating and reportable segments is provided on page 175. EE was acquired on 29 January 2016 and up to 31 March 2016 has been reported as a separate line of business to...

  • Page 176
    182 BT Group plc Annual Report 2016 4. Segment information continued Year ended 31 March 2015 Segment revenue Internal revenue Revenue from external customersa EBITDAb Depreciation and amortisation Operating profit (loss)a Specific items (note 8) Operating profit Net finance expensec Share of post ...

  • Page 177
    ...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 lines of business and therefore line of business profitability may be impacted by transfer pricing levels...

  • Page 178
    184 BT Group plc Annual Report 2016 4. Segment information continued Revenue by products and services Year ended 31 March ICT and managed networks Broadband, TV and convergence Mobility Calls, lines and connectivity Transit Other products and services Revenueb a 2016 £m 6,193 3,535 1,326 5,920 ...

  • Page 179
    ...directors and members of the Operating Committee. Compensation of key management personnel is shown in the table below: Year ended 31 March Short-term employee benefits Post employment benefits Share-based payments Termination benefits 2016 £m 9.4 1.1 5.5 0.6 16.6 2015 £m 9.7 1.1 5.7 0.5 17.0 2014...

  • Page 180
    186 BT Group plc Annual Report 2016 6. Employees Number of employees in the groupa UK Non-UK Total employees Year end 000 81.4 21.1 102.5 2016 Average 000 71.8 19.2 91.0 2016 Average 000 18.2 8.0 6.3 2.0 1.4 32.1 23.0 91.0 Year end 000 70.9 17.6 88.5 2015 Average 000 72.2 16.5 88.7 2015 Average ...

  • Page 181
    187 Overview The Strategic Report Governance Financial statements Additional information 8. Specific items Year ended 31 March Revenue Retrospective regulatory matters Impact of fair value adjustment to deferred revenue on acquisition of EE 2016 £m (203) 70 (133) 2015 £m (128) - (128) 75 19 - ...

  • Page 182
    188 BT Group plc Annual Report 2016 9. Taxation Analysis of taxation expense for the year Year ended 31 March United Kingdom Corporation tax at 20% (2014/15: 21%, 2013/14: 23%) Adjustments in respect of earlier years Non-UK taxation Current Adjustments in respect of earlier years Total current tax ...

  • Page 183
    ... (110) 20 Includes £217m (2014/15: £220m, 2013/14: £122m) relating to cash contributions made to reduce retirement benefit obligations. Tax credit recognised directly in equity Year ended 31 March Tax credit relating to share-based payments 2016 £m 12 Fixed asset Retirement temporary benefit...

  • Page 184
    190 BT Group plc Annual Report 2016 9. Taxation continued Factors affecting future tax charges The rate of UK corporation tax will change from 20% to 19% on 1 April 2017 and to 18% on 1 April 2020. As deferred tax assets and liabilities are measured at the rates that are expected to apply in the ...

  • Page 185
    ...current year pence per share 8.5 4.4 12.9 2016 £m 710 368 1,078 pence per share 7.5 3.9 11.4 2015 £m 609 316 925 pence per share 6.5 3.4 9.9 2014 £m 512 269 781 The Board recommends that a final dividend in respect of the year ended 31 March 2016 of 9.6p per share will be paid to shareholders...

  • Page 186
    192 BT Group plc Annual Report 2016 12. Intangible assets Customer relationships Goodwill and brands £m £m 1,331 - - - - 65 1,396 6,430 - - - 52 7,878 394 - - - - 5 399 3,012 - - - 5 3,416 323 15 - - (2) 336 78 - 4 418 Telecoms licences and other £m 415 1 - - - (26) 390 2,524 1 - - 15 2,930 ...

  • Page 187
    ...Report Governance Financial statements Additional information 12. Intangible assets continued Goodwill impairment review The group performs an annual goodwill impairment review, based on its cash generating units (CGUs). The CGUs that have associated goodwill are BT Global Services, BT Business, BT...

  • Page 188
    194 BT Group plc Annual Report 2016 13. Property, plant and equipment Land and Network buildingsa infrastructurea £m £m Cost At 1 April 2014 Additionsc Transfers Disposals and adjustmentsd Exchange differences At 31 March 2015 Acquisitions Additionsc Transfers Disposals and adjustmentsd Exchange ...

  • Page 189
    ... UK's best 4G mobile network with the largest superfast fixed network. The enlarged group will be the UK's leading communications provider which means we're best placed to meet the demand we expect for converged products and services. We did not make any other material acquisitions in the year ended...

  • Page 190
    ... note 17). TV programme rights commitments are disclosed in note 30. 16. Inventories At 31 March Consumables Work in progress Finished goods 2016 £m 26 11 152 189 2015 £m 25 10 59 94 Inventories recognised as an expense during the year ended 31 March 2016 amounted to £1,220m (2014/15: £924m...

  • Page 191
    ... Governance Financial statements Additional information 17. Trade and other receivables At 31 March Non-current Other assetsa a 2016 £m 233 2015 £m 184 Other assets includes costs relating to the initial set-up, transition or transformation phase of long-term networked IT services contracts...

  • Page 192
    ... UK programme, for which grants received by the group may be subject to re-investment or repayment depending on the level of take-up. 19. Provisions Restructuringa £m At 31 March 2014 Income statement expense Unwind of discount Utilised or released Transfers Exchange differences At 31 March 2015...

  • Page 193
    ...fund. The income statement charge in respect of defined contribution plans represents the contribution payable by the group based upon a fixed percentage of employees' pay. The company has no exposure to investment and other experience risks. Defined benefit plans A defined benefit plan is a pension...

  • Page 194
    ... by employer Included in the group cash flow statement Contributions by employees Benefits paid Foreign exchange Other movements At 31 March 2015 Current service cost (including administration expenses and PPF levy) Interest on pension deficit Included in the group income statement Return on plan...

  • Page 195
    ... and to manage inflation risk, interest rate risk, longevity risk, liquidity risk and foreign currency risk. Under IAS 19, plan assets must be valued at the bid market value at the balance sheet date. For the main asset categories - securities listed on recognised stock exchanges are valued at...

  • Page 196
    ... Group plc Annual Report 2016 20. Retirement benefit plans continued The fair value of the assets of the BTPS analysed by asset category are shown below. These are subdivided by assets that have a quoted market price in an active market and those that do not (such as investment funds). 2016a Total...

  • Page 197
    ... The Strategic Report Governance Financial statements Additional information 20. Retirement benefit plans continued IAS 19 liabilities: Key assumptions The key financial assumptions used to measure the liabilities of the BTPS under IAS 19 are shown below. Nominal rates (per year) 2016 2015 2014...

  • Page 198
    ...at the 2014 valuation date, the low interest rate environment resulted in a higher value being placed on the Scheme's liabilities which more than offset the improvements in the Scheme's assets. Key assumptions - funding valuation These valuations were determined using the following prudent long-term...

  • Page 199
    ... current employed members increased from 13.5% to 16.0% of pensionable salaries (including employee contributions) from 1 April 2015 through to the next valuation date. Other protections The 2014 funding agreement with the Trustee included additional features for BT to provide support to the Scheme...

  • Page 200
    .... The scheme's assets are invested across a number of asset classes including UK listed equities and unit trusts (25%), property (16%), alternative assets (35%) and fixed income assets (24%). A funding valuation of the EEPS is being carried out as at 31 December 2015. The group is currently paying...

  • Page 201
    ... free cash flow measure, and 20% to growth in underlying revenue excluding transit. Deferred Bonus Plan (DBP) Under the DBP, awards are granted annually to selected employees of the group. Shares in the company are transferred to participants at the end of three years if they continue to be employed...

  • Page 202
    ... fair values and key assumptions used for valuing grants made under the Employee Saveshare plans and ISP in 2015/16, 2014/15 and 2013/14. 2016 Year ended 31 March Weighted average fair value Weighted average share price Weighted average exercise price Expected dividend yield Risk free rates Expected...

  • Page 203
    209 Overview The Strategic Report Governance Financial statements Additional information 23. Investments At 31 March Non-current assets Available-for-sale Fair value through profit or loss 2016 £m 39 7 46 Current assets Available-for-sale Loans and receivables 2,878 40 2,918 2015 £m 36 8 44 3,133...

  • Page 204
    ... over time whilst investing in the business, supporting the pension scheme and paying progressive dividends. In order to meet this objective, the group may issue or repay debt, issue new shares, repurchase shares, or adjust the amount of dividends paid to shareholders. The group manages the capital...

  • Page 205
    211 Overview The Strategic Report Governance Financial statements Additional information 25. Loans and other borrowings continued Net debt Net debt consists of loans and other borrowings (both current and non-current), less current asset investments and cash and cash equivalents. Loans and other ...

  • Page 206
    ... BT Group plc Annual Report 2016 25. Loans and other borrowings continued Unless previously designated in a fair value hedge relationship, all loans and other borrowings are carried in the group balance sheet and the table above at amortised cost. The fair value of listed bonds and other long-term...

  • Page 207
    ... five years Less: future finance charges Total finance lease obligations Minimum lease payments £m £m 13 107 270 390 (150) 240 29 101 269 399 (161) 238 Assets held under finance leases mainly consist of buildings and network assets. The group's obligations under finance leases are secured by...

  • Page 208
    214 BT Group plc Annual Report 2016 27. Financial instruments and risk management The group issues or holds financial instruments mainly to finance its operations; to finance corporate transactions such as dividends, share buybacks and acquisitions; for the temporary investment of short-term funds;...

  • Page 209
    ...Moody's Rating BBB Baa2 2016 Outlook Positive Positive Rating BBB Baa2 2015 Outlook Stable Positive Liquidity risk management Management policy The group ensures its liquidity is maintained by entering into short-, medium- and long-term financial instruments to support operational and other funding...

  • Page 210
    ...Group plc Annual Report 2016 27. Financial instruments and risk management continued Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters of the policies set by the Board. The group holds cash, cash equivalents and current investments...

  • Page 211
    ..., and in response to market conditions, up to the maximum allowable limit set by the Board. Operational management policy The group's credit policy for trading-related financial assets is applied and managed by each of the lines of business to ensure compliance. The policy requires that the...

  • Page 212
    218 BT Group plc Annual Report 2016 27. Financial instruments and risk management continued Moody's/S&P credit rating of counterparty Aa2/AA and above Aa3/AA- A1/A+ A2/Aa A3/A- Baa1/BBB+ Baa2/BBB and below The credit quality and credit concentration of cash equivalents, current asset investments ...

  • Page 213
    ... 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. Derivatives At 31 March 2016 Designated in a cash flow hedge Other Total derivatives Current Non-current asset...

  • Page 214
    220 BT Group plc Annual Report 2016 28. Other reserves Capital redemption reserve £m At 1 April 2013 Exchange differences Net fair value loss on cash flow hedges Recognised in income and expense Fair value movement on available-for-sale assets Tax recognised in other comprehensive income At 1 ...

  • Page 215
    ... on the financial position or operations of the group. 31. Subsequent events From 1 April 2016, the group has reorganised and the reporting segments will change. The group will have the following six customerfacing lines of business: • BT Global Services has been renamed Global Services and is...

  • Page 216
    ...31 March 2016; • the BT Group plc company reconciliation of movement in equity shareholders' funds for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework...

  • Page 217
    .... As required by FRS 101, BT Group plc notified its shareholders of the proposed change at the Annual General Meeting in July 2014. Financial statements The BT Group plc consolidated financial statements for the year ended 31 March 2016 contain a consolidated cash flow statement. Consequently, as...

  • Page 218
    ... BT Group plc Annual Report 2016 Other information Dividends The Board recommends that a final dividend in respect of the year ended 31 March 2016 of 9.6p (2014/15: 8.5p) will be paid to shareholders on 5 September 2016, taking the full year proposed dividend in respect of 2015/16 to 14.0p (2014...

  • Page 219
    225 Overview The Strategic Report Governance Financial statements Additional information BT Group plc company balance sheet At 31 March Fixed assets Investments in subsidiary undertakings Loans to group undertakingsa Total fixed assets Current assets Amounts owed by group undertakingsa Cash at bank...

  • Page 220
    ... BT Group plc Annual Report 2016 BT Group plc company statement of changes in equity Called up share capitala £m At 1 April 2014 Profit for the financial year Dividends paid Capital contribution in respect of share-based payments Issue of new shares Net buyback of own shares At 1 April 2015 Profit...

  • Page 221
    ...share-based payments. The company held a 100% investment in BT Group Investments Limited, a company registered in England and Wales, throughout 2015/16 and 2014/15. 2. Merger reserve On 29 January 2016, the company issued 1,594,900,429 ordinary shares of 5p at 470.7p per share resulting in a total...

  • Page 222
    228 BT Group plc Annual Report 2016 Related undertakings Subsidiaries Company name Held directly BT Group Investments Limited Held via other group companies British Telecommunications plc BT Group Nominees Limited Albacom Holdings América Inalámbrica S.A. Atlanet SpA Autumnwindow Limited ...

  • Page 223
    ...The Strategic Report Governance Financial statements Additional information Company name BT Bilisim Hizmetleri Anonim Şirketi Activity Communications related services, systems integration and products provider BT Brasil Serviços de Telecomunicações Ltda Communications related services, systems...

  • Page 224
    ... for US government services Finance company Finance company Holding company Finance company Finance company Fleet management Holding company Communications related services, systems integration and products provider BT Fresca Limited E-commerce software design, build and management BT Frontline...

  • Page 225
    ... The Strategic Report Governance Financial statements Additional information Company name BT Hong Kong Limited BT Hong Kong Ltd. - Macau Branchb BT IT Services Limitedc BT Italia S.p.A. BT Jamaica Limited BT Japan Corporation BT Jersey Limited BT Kazakhstan LLP BT Lancashire Services Limited BT...

  • Page 226
    232 BT Group plc Annual Report 2016 Company name BT Limited, organizacni slozkab Activity Communications related services, systems integration and products provider BT Luxembourg Investment Holdings Sarl Holding company BT Malawi Limited Communications related services, systems integration and ...

  • Page 227
    ... Branchb BT Telecom Egypt LLC BT Telecom India Private Limited BT Telecommunications Kenya Limited BT Telekom Hizmetleri Anonim Åžirketi BT Tunisia S.A.R.L Activity Finance company Communications related services, systems integration and products provider Communications related services, systems...

  • Page 228
    ... ordinary ordinary ordinary Investment company Insurance Dormant In liquidation Technology equipment retailer In liquidation Communications related services, systems integration and products provider EE (Group) Limited Dormant EE Communications (South Africa) Proprietary Provision of call centre...

  • Page 229
    ... Pension trustee company Orange Home UNITED KINGDOM Limited Dormant Orange Personal Communications Services Holding company Limited Orange Services India Private Limited Provision of call centre services Plusnet plc Broadband service provider Postgate Holding Company Investment/holding company...

  • Page 230
    ...Broadband Network Limited Activity Communications related services and products provider Joint venture between EE and Hutchison 3G UK Limited to manage network Group interest in allotted capitala 70% ordinary 50% ordinary Country of incorporation UK UK Financial year end 31 March 31 December Address...

  • Page 231
    ...them to manage any potential liability by arrangements between themselves. The principal place of business of the joint operation is in the UK. Associates Company name Held via other group companies British Telecom Al-Saudia Limited BT Global Services (North Gulf) LLC BT Siam Communications Co. Ltd...

  • Page 232
    238 BT Group plc Annual Report 2016

  • Page 233
    ... also provide information for shareholders on subjects such as dividends and location. We have also included a glossary of terms we use in this report. 240 Alternative performance measures 243 Selected financial data 245 Financial and operational statistics 248 Information for shareholders 264 Cross...

  • Page 234
    .... This presentation is consistent with the way that financial performance is measured by management and reported to the Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. In determining whether an event or transaction is specific...

  • Page 235
    ...Strategic Report Governance Financial statements Additional information EBITDA In addition to measuring financial performance of the group and lines of business based on operating profit, we also measure performance based on EBITDA and adjusted EBITDA. EBITDA is defined as the group profit or loss...

  • Page 236
    ... BT Group plc Annual Report 2016 A reconciliation from net cash inflow from operating activities, the most directly comparable IFRS measure, to reported and normalised free cash flow, is set out below. Year ended 31 March Net cash inflow from operating activities Add back pension deficit payments...

  • Page 237
    243 Overview The Strategic Report Governance Financial statements Additional information Selected financial data Summary group income statement Year ended 31 March Revenue Adjusted Specific items Operating costs Adjusted Specific items Operating profit Adjusted Specific items Net finance expense ...

  • Page 238
    244 BT Group plc Annual Report 2016 Summary group balance sheet At 31 March Intangible assets Property, plant and equipment Other non-current assets Total non-current assets Current assets less current liabilities Total assets less current liabilities Non-current loans and other borrowings ...

  • Page 239
    245 Overview The Strategic Report Governance Financial statements Additional information Financial and operational statistics Financial statistics Year ended 31 March (Increase) decrease in underlying revenue excluding transita,b Adjusted EBITDAa,b Free cash flowa Normalised Reported Net debt at 31...

  • Page 240
    ... 1.5 13.4 2016 2015 2014 2013 2012 a The ratio is based on profit before taxation and net finance expense to capital employed. Capital employed is represented by total assets less current liabilities (excluding corporation tax, current borrowings, b Before specific items. c The number of times net...

  • Page 241
    ...Strategic Report Governance Financial statements Additional information Operational statisticsa All values in thousands unless otherwise stated. Year ended 31 March BT Global Services Order intake (£m) BT Business Order intake (£m) BT Consumer Average revenue per user (ARPU)b (£) Active lines BT...

  • Page 242
    ...our broadband-based service and strategy; our investment in TV, enhancing our TV service and BT Sport; the BT Pension Scheme recovery plan, operating charge, regular cash contributions and interest expense; effective tax rate; growth opportunities in networked IT services, the pay-TV services market...

  • Page 243
    ...close of business on 30 November 2015 received two ADRs for every one ADR held. There was no change to the underlying ordinary shares. Share and ADS prices Pence per ordinary share High Low pence pence Financial years ended 31 March 2012 2013 2014 2015 2016 Financial year ended 31 March 2015 1 April...

  • Page 244
    250 BT Group plc Annual Report 2016 Analysis of shareholdings at 31 March 2016 Ordinary shares of 5p each Percentage Number of Percentage Number of of total shares held of total holdings % millions % 320,874 218,768 160,581 120,822 4,722 679 331 195 826,972 38.80 26.45 19.42 14.62 0.57 0....

  • Page 245
    ... Strategic Report Governance Financial statements Additional information Dividends A final dividend in respect of the year ended 31 March 2015 was paid on 7 September 2015 to shareholders on the register on 13 August 2015, and an interim dividend in respect of the year ended 31 March 2016 was paid...

  • Page 246
    252 BT Group plc Annual Report 2016 Dividend investment plan Under the Dividend investment plan, cash from participants' dividends is used to buy further BT shares in the market. Shareholders could elect to receive additional shares in lieu of a cash dividend for the following dividends: Date paid ...

  • Page 247
    ... for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate). Year ended 31 March Period end Averagea High Low a The average of the Noon Buying Rates in effect on the last day of each month during the relevant period. 2016 1.44 1.50 1.59 1.39 2015 1.49 1.61 1.72 1.47 2014...

  • Page 248
    ... pay interim dividends on any class of shares of the amounts and on the dates and for the periods they decide. Fixed dividends will be 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...

  • Page 249
    ... whose shares are sold following this process will not be able to claim the proceeds of the sale. BT will be able to use the proceeds in any way the Board from time to time thinks fit. (h) General meetings of shareholders Every year the company must hold an annual general meeting. The Board can call...

  • Page 250
    ... interests in shares Under the Financial Services and Markets Act 2000 and the UK Disclosure and Transparency Rules there is a statutory obligation on a person who acquires or ceases to have a notifiable interest in the relevant share capital of a public company like BT to notify the company of that...

  • Page 251
    ... Strategic Report Governance Financial statements Additional information and approvals, compliance with laws, condition and sufficiency of its network and assets, tax, material contracts, related party arrangements, litigation, IP and IT systems, employees and benefit arrangements, pension schemes...

  • Page 252
    ... of their group members will, directly or indirectly, offer, sell, contract to sell, grant or sell options over, purchase any option or contract to sell, transfer, charge, pledge, grant any right or warrant or otherwise transfer, lend or dispose of any shares in BT or any securities convertible into...

  • Page 253
    ...Pursuant to the Orange CP Contract, prior to an intended Disposal to Financial Investors, the relevant selling entity is obliged to issue a notice to BT specifying the number of Ordinary Shares proposed to be sold or transferred. BT has nine Business Days within which to make an offer for all of the...

  • Page 254
    ... BT Group plc Annual Report 2016 can acquire by exercise of its rights of first offer is approximately 14% of BT's share capital on an enlarged basis post-Acquisition. The price at which Ordinary Shares can be bought back shall be no more than the higher of the closing price of the Ordinary Shares...

  • Page 255
    ...(if any) between the US Dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of ordinary shares or ADS traded on an established securities market that are sold by a cash basis US Holder (or an...

  • Page 256
    262 BT Group plc Annual Report 2016 The above statements are intended as a general guide to the current position. Certain categories of person (including recognised market makers, brokers and dealers) may not be liable to stamp duty or SDRT or may, although not liable for the tax, be required to ...

  • Page 257
    ... and environmental performance. Document Notice of meeting Annual Report & Form 20-F Delivering our purpose report EAB Annual Report Expected quarterly results releases Current Cost Financial Statements The Way We Work, a statement of business practice Publication date May May May May July, October...

  • Page 258
    ... Capital management and funding policy Performance in the year Our purpose Our goal Our strategy Our culture Our networks and physical assets Research and development Brand and reputation Our lines of business Stakeholders and relationships Our markets and customers Our suppliers Human Rights...

  • Page 259
    ... The Strategic Report Governance Financial statements Additional information Required item in Form 20-F Item 5 5A Operating and financial review and prospects Operating results Where information can be found in this Annual Report Section Page 5B Liquidity and capital resources 5C Research and...

  • Page 260
    ...10D 10E 10F 10G 10H 10I 11 Plan of distribution Markets Selling shareholders Dilution Expenses of the issue Additional information Share capital Memorandum and articles of association Material contracts Exchange controls Taxation Dividends and paying agents Statement by experts Documents on display...

  • Page 261
    ... services Reports of the Board Committees Audit & Risk Committee Chairman's report Information for shareholders Share buyback Not applicable General information US Regulation New York Stock Exchange Not applicable Report of the independent auditors - Consolidated financial statements United States...

  • Page 262
    268 BT Group plc Annual Report 2016 Glossary of terms • 2G: the second generation of mobile telephony systems. It uses digital transmission to support voice, low-speed data communications and short messaging services. 3G: the third generation of mobile systems. It provides high-speed data ...

  • Page 263
    ... by BT Wholesale which provides high-speed, high-performance broadband services. WLR: wholesale line rental - a product supplied by Openreach which is used by other CPs to offer telephony services using their own brand, pricing structure and billing, but using BT's network. R RFT: 'Right First Time...

  • Page 264
    Notes

  • Page 265
    Notes

  • Page 266
    Notes

  • Page 267
    ... are to BT Group plc (which includes the activities of British Telecommunications plc) and its subsidiaries and lines of business, internal service unit, or any of them as the context may require. A reference to a year expressed as 2015/16 is to the financial year ended 31 March 2016 and a reference...

  • Page 268
    BT Group plc Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England and Wales No. 4190816 Produced by BT Group PHME 77553 Printed in England by Pindar Scarborough Ltd Design by mslgroup.co.uk Typeset by RR Donnelley Printed on Amadeus 50 Silk which is made from 50% de-inked, ...