BT Group plc

Annual Report 2023

Good

For

Much done, much more to do

Connect

BT Group plc Annual Report 2023

We’re BT Group

Visit our online annual

review and see how we’re

connecting for good

bt.com/annualreview

We continue to invest in the UK’s

digital infrastructure, to connect

millions of people and generate

growth, productivity and innovation.

Despite the challenging economic

backdrop, the transformation of

BT Group continues for the benefit of

our stakeholders. We’re working hard

to create a better future for everyone.

We’re delivering on our strategy but

there is still more to do.

BT Group is one of the world’s leading

connectivity services providers. The

solutions we sell are integral to modern

lives, businesses and communities

in the UK and across the world. We

support millions of customers across

c. 180 countries and employ over

99,000 brilliant colleagues.

We manage some of the UK’s best-

known brands too. As the oldest

telecommunications company in the world,

we’ve been at the forefront of technology

innovation and progress for over 175 years.

We’ve seen a lot of change over that time,

and today the solutions we offer have never

been more important to our customers.

001Strategic report

Contents

Strategic report

A message from our Chairman 2

A message from our Chief Executive 4

Executive Committee 8

Our business model 10

Key trends influencing us 14

Our strategic framework 16

Progress against our strategic framework 18

Our people 32

Our Manifesto 36

Our stakeholders 40

Non-financial information 46

Our key performance indicators (KPIs) 48

Group performance 50

Regulatory update 58

A letter from the Chair of Openreach 60

Risk management 61

Our principal risks and uncertainties 63

Task Force on Climate-related Financial Disclosures 71

Viability statement 81

Corporate governance report 83

Financial statements 137

Additional information 233

This Strategic report was approved

by the Board on 17 May 2023.

By order of the Board.

Adam Crozier

Chairman

17 May 2023

Please see the cautionary statement regarding

forward-looking statements on page 236.

Pages 1 to 82 form the Strategic report. It includes

our business model, progress against our strategic

framework, our key performance indicators, group

performance and our principal risks and uncertainties.

The Corporate governance report on pages 83 to 136

forms the Report of the Directors and includes the

Report on directors’ remuneration.

In this document, references to ‘BT Group’ and ‘the group’

are to BT Group plc comprising its subsidiaries, customer-

facing units and internal corporate units. A reference to

a year expressed as FY23 is to the financial year ended

31 March 2023; FY22 is to the financial year ended

31 March 2022 and so on.

a Adjusted EBITDA is defined as the group profit or loss before specific items, net finance

expense, taxation, depreciation and amortisation and share of post tax profits or losses

of associates and joint ventures. See page 234.

b Normalised free cash flow as defined on page 234.

Reference to another

page in the report

Reference to further

reading online

Look out for these throughout the report

Cash flow from operating activities

£6.7bn 14%

(FY22: £5.9bn)

Normalised free cash flow

£1.3bn (5)%

(FY22: £1.4bn)

Basic earnings per share

19.4p 50%

(F Y22: 12.9p)

Capital expenditure

£5.1bn (4)%

(FY22: £5.3bn)

Adjusted

EBITDA

£7.9bn 5%

(FY22: £7.6bn)

Profit before tax

£1.7bn (12)%

(FY22: £2.0bn)

Revenue

£20.7bn (1)%

(FY22: £20.9bn)

002 BT Group plc Annual Report 2023

A message from

our Chairman

Resilience

enabling

a national

mission

£24bn

A report into our national and regional

economic impact in the UK

(FY22)

estimated that our activities provide a

£24bn boost to the economy every year

003Strategic report

We have a responsibility to transform. Everybody

at BT Group, across the Board, our managerial

and front-line colleagues, has a clear sense of

what we must do to deliver on our strategy to

transform this business for the benefit of all

our stakeholders.

Philip sets out the detail and vision for BT

Group’s future in his letter (pages 4 to 7),

and the Board and I have every confidence

that he and his Executive Committee have

the right plan and are the right team to lead

BT Group through its transformation.

As I wrote here last year, a transformation

of this size cannot be accomplished

overnight. However, there are clear signs

of progress at this stage in the multi-year

programme. And it is also clear that every

team across the business is tenaciously

pursuing our transformation agenda as we

move from copper to fibre, analogue to

digital, manual to automated.

The immense value that BT Group delivers

to the UK is hard, but not impossible,

to quantify. A report into our national

and regional economic impact in the

(FY22) estimated that our activities

provide a £24bn boost to the economy

every year, and the business supports a

total of 284,000 jobs across the country.

These calculations are a reminder of the

central role BT Group plays in the lives of

families and businesses up and down the

UK and globally. A role that brings great

responsibility: to continue delivering for

our customers no matter what. To do that

we need to enact one of the most radical

overhauls of a company and its product

offering in UK corporate history.

Investing for the long-term for our

customers and our shareholders

The team delivered another year of strong

financial and operational results in FY23,

despite some extremely challenging

conditions. This allowed us to declare an

FY23 final dividend of 5.39 pence per share

to be paid on 13 September 2023, bringing

the full year dividend to 7.7 pence per share.

As we continue through the most intensive

phase of our full fibre

investment

programme, capital expenditure will

remain high with a corresponding impact

on our normalised free cash flow. Despite

this short-term impact, the Board remains

convinced that the investments BT Group

is making today will be value enhancing,

benefiting our customers and generating

long-term growth.

includes social tariffs (subsidised rates for

those on low incomes), where we have both

broadband and mobile tariffs available to

eligible customers. Of all the consumers in

the UK on a broadband social tariff, 85%

are with BT.

Along with efforts to help children,

jobseekers, small businesses and the

elderly boost their digital skills (see our

Manifesto on page 36 for details), we are

making affordable services available to

those who need them most in line with

our purpose: we connect for good.

Board changes

At the AGM in July, we’ll bid farewell

to Ian Cheshire and Iain Conn when

they step down from the Board. I’d like

to thank them both for their wisdom

and valuable contributions they made

during their time on the Board and the

Committees they served.

As part of the comprehensive review of

the Board’s composition we undertook

last year, we recognised the need to

enhance the Board’s technology and digital

capabilities given the group’s focus on

digital and legacy platform transformation.

We therefore focused the search for

individuals with specific skills and expertise

and this led to us appointing Steven

Guggenheimer and Maggie Chan Jones

during the year. Ruth Cairnie joined the

Board on 6 April 2023. From the conclusion

of the AGM in July, she will succeed Iain

Conn as the Senior Independent Non-

Executive Director and Ian Cheshire as

Chair of the Remuneration Committee.

Following the AGM, the Board’s female

membership will stand at 45%, which

is in line with our Board Diversity and

Inclusion Policy (see page 100). Having

refreshed the composition of our Board,

we feel we now have the right diversity

and set of skills to take us forward in

pursuit of our strategic agenda.

Resilience enabling a national mission

BT Group’s transformation is now well

under way and it is starting to bear fruit,

with strong customer take-up on our

next generation networks. While there

remains a long way to go, the positive early

customer response proves our plan is the

right one.

We experienced challenges on many fronts

in FY23 and an economic climate that

has made things so much harder for our

customers, investors and for us. Of course,

this has required adaptability on our part,

but our strategy is not optional – it is a

national mission. This year, we’ve shown that

we have the resilience to get the job done.

Adam Crozier

Chairman

17 May 2023

Although our share price underperformed

this year compared to last, BT Group must

continue to drive its strategic agenda for

long-term growth, and to do that it must

take a long-term view on the investments

required to deliver it.

Competition driving

the right outcomes

The scale and speed of BT Group’s

investment in full fibre broadband are, in

part, down to the regulatory framework

set by our regulator, Ofcom. They have

incentivised new network build across

the country through a combination of

strong competition balanced by a regime

that allows fair returns. We remain

fully committed to working within this

framework and context set by Ofcom.

Building full fibre broadband is a national

mission and we will play our part. It will

create better outcomes for families and

businesses across the UK, as well as the

wider economy: a recently updated report

by the Centre for Economics and Business

Research estimated that Openreach’s

full fibre network is expected to deliver

a £72bn uplift to the output of the UK

economy in 2030.

Our duty to customers

Our role is about more than just building

new networks; we also have a duty to

provide access and opportunity for

customers, leaving no one behind.

Ofcom data shows that 10% of households

lack a broadband connection – a figure that

rises to 26% for the over 75s. Of course,

in some cases this is by choice rather than

the result of poverty, but in any event these

statistics equate to growing social and

economic exclusion. We need to tackle this,

ensuring that we are building for everyone.

While telecoms bills represent

a small proportion of household

running costs when compared to energy,

accommodation or transport, we have

nevertheless taken steps to protect our

lowest income customers during the

worst cost of living crisis for a generation.

In FY23 BT Group had 3m customers on

fixed line and pay-as-you-go tariffs that

were protected from price rises. This

1 ‘The Economic Impact of BT Group plc in the UK’, Hatch – 2023 Edition.

2 Fibre to the premises, also known as FTTP.

004 BT Group plc Annual Report 2023

10.3m

Openreach has now built full fibre

broadband to a total of 10.3m homes

and businesses across the UK

68%

We are also continuing to build EE’s

5G mobile network which now covers

68% of the UK population

A message

from our Chief

Executive

much

to do

Much

done,

005Strategic report

Thanks to the dedication and commitment of colleagues

right across the business, BT Group achieved its financial

outlook in FY23. For the first time in six years, we grew both

revenue and EBITDA on a pro forma basis, demonstrating

our determination to get on with the job in another

tumultuous year macro economically and geopolitically.

We have stayed true to our strategy over

the last four years. We’re building the UK’s

leading next generation fixed broadband and

mobile networks, and radically transforming

the way we operate to deliver for customers.

Building and connecting like fury

Openreach has now built full fibre

broadband to a total of 10.3m homes and

businesses across the UK, including 3.1m

in rural locations. Added to that, initial build

is underway for a further 6m premises.

The business is now more than 40% of

the way through the initial 25m premises

target, and the number of people taking up

full fibre is ahead of our expectations. Of

the total premises passed, nearly one third

had opted to upgrade to full fibre (c. 3.1m

end users) at the year-end.

The Government’s full expensing regime

introduced in the 2023 Spring Budget

will mean BT Group defers paying UK

corporation tax in fiscal years 24, 25 and

26. We will use this benefit to ensure

Openreach is able to offset inflation and

stick to its target of reaching 25m premises

by the end of 2026 as well as covering the

upfront costs of connecting customers

to full fibre at a faster rate than we had

originally expected.

We are also continuing to build EE’s 5G

mobile network which now covers 68%

of the UK population. Since launching

the UK’s first 5G network just four years

ago, we have grown our 5G connections

to an impressive 8.6m customers; and

RootMetrics named our 4G and 5G

networks as the UK’s best for the ninth

year in a row.

Next generation networks

The combined power of BT Group’s

next generation networks will deliver an

economic dividend for our customers

and the UK economy for many decades

to come. Fundamentally, that’s why we

remain laser focused on building them

and accelerating take-up.

This, however, requires significant

investment. While we fully understand

that price rises are rarely welcomed, they

are necessary to fund the transformation

of our networks which will create better

outcomes for customers and ensure we

remain competitive. The two things go

hand in hand.

That said, we still offer terrific value for

money for customers who rely on our

services today more than ever. Ofcom’s

pricing trends report 2022 showed that

the UK had the lowest standalone mobile

prices across Europe and in the mobile and

broadband markets, average UK prices are

well below the US.

Competition is good for BT Group

Of course, choice and competition in the

UK market – prompted by our regulator,

Ofcom – are big drivers of keen pricing, as

well as stimulating significant and rapid

investment in the UK’s full fibre networks.

Ofcom’s regulatory framework ensures

that all network builders have the freedom

to compete fairly, which is good for the UK,

the country’s telco industry and – most

importantly – for customers.

Standing by our customers

and our colleagues

Those same customers need us to stand

by them through the worst cost of living

crisis in a generation. Throughout the year,

supporting our customers in need has

been an overriding priority for me and my

leadership team. On page 3, our Chairman

outlines our approach to protecting those

customers who need it most.

It is also vital that we’re there for our

people. I was pleased that during FY23

we were able to award pay increases

equivalent to a 15% rise for our lowest paid

colleagues and agreed a way forward with

our union partners on a shared vision for

BT Group’s modernisation agenda.

The combined power of

BT Group’s next generation

networks will deliver an

economic dividend for

our customers and the

UK economy for many

decades to come.

much

to do

006 BT Group plc Annual Report 2023

A message from our Chief Executive continued

Transforming our business

Modernising the UK’s digital infrastructure

isn’t only about building new networks; it

also requires us to migrate customers off

our nearly obsolete and energy-hungry

legacy networks. In FY24 we will be

ramping up activity to smoothly migrate

customers onto newer technology through

the All IP and 3G sunsetting programmes,

among others.

Next generation networks need next

generation customer service. They

also need the very best products and

services running over them. Across the

business, we are partnering with some of

the world’s most innovative companies,

including AWS, Google, Microsoft and

TCS (Tata Consulting Services) to provide

leading products and services and drive

exceptional customer outcomes.

We are also radically changing the size

and shape of our business. During the

year we completed the BT Sport 50-50

joint venture with Warner Bros. Discovery

and we announced the creation of our

integrated Business unit with the merger

of our Enterprise and Global operations.

The new Business unit will be better

focused and better able to compete in

the market, serving enterprise customers

large and small.

The combined financial benefit from our

transformation programmes will result

in gross annualised cost savings of £3bn

by the end of FY25. We are well on track

to achieving this and by the end of FY23

we had made gross annualised savings

of £2.1bn.

New BT Group

The new BT Group will be a higher

margin, high-tech organisation built

on the UK’s best fixed and mobile

networks. It will be fully digitised and

highly automated with exceptional

products and services for customers.

By continuing to build and connect like

fury, digitise the way we work and simplify

our structure, towards the end of the 2020s

BT Group will rely on a much smaller total

workforce and a significantly reduced

cost base. New BT Group will be a leaner

company with a brighter future, and we will

get there by continuing to deliver our five

strategic priorities. (See table opposite.)

Our strategy for growth

Five strategic priorities:

Consumer will lead in full fibre

broadband, 5G and convergence

to win in UK households and build

deeper relationships with customers

by providing exceptional experiences.

Drive Consumer

growth through

converged solutions

Capitalise

on Business’

unrivalled assets

to restore growth

Deliver Openreach

growth and strong

returns on full

fibre broadband

Transform our cost

base and improve

productivity

Optimise our

business portfolio

and capital

allocation

We’ll keep reviewing ways to strengthen

our business portfolio by owning, selling

or partnering. We’ll allocate substantial

amounts of capital to next generation

networks and solutions to better meet

our customers’ current and future needs.

As we move beyond the peak of our full

fibre broadband build programme, we’ll

reduce capex by c. £1bn and realise value

from our investment.

Across BT Group we will fundamentally

change what we do and how we work. We’ll

automate, digitise and shut down legacy

systems, processes and networks. This

will cut costs, boost execution speed and

deliver better experiences for customers

and colleagues.

Openreach will build the UK’s largest

full fibre broadband network, offer

competitively priced wholesale services,

and upgrade customers to the new platform.

It will continue providing industry-leading

service and strengthen its relationship with

all communications providers.

The creation of our Business unit will create

a more competitive player in the B2B market

that will help its customers grow through

next generation converged connectivity

solutions, leading managed services and

outstanding customer experience.

007Strategic report

Much done, much more to do

Our progress during the year was made

possible by the support of our shareholders

and bondholders, and I would like to thank

them for their ongoing commitment.

Despite the relative under-performance

of our shares compared to the FTSE 100

in the year to 31 March 2023, they ended

the year on an improving trend.

Having returned BT Group to both pro

forma revenue and EBITDA growth for

the first time in six years, we are now

determined to maintain this momentum.

Over the coming years we will deliver

consistent and predictable revenue and

EBITDA growth which, combined with

the completion of our full fibre build and

move off legacy networks, will result in an

expansion to normalised free cash flow of

at least £1.5bn by the end of the decade.

BT Group has the right strategy to deliver

its purpose: we connect for good; and

the business has again proved its ability

to deliver in testing circumstances.

Everything we do starts and ends with our

customers; our success is built on enabling

theirs. We know there’s a long way to go

but our performance in FY23 shows that

we have the right plan, the right team and

the determination to achieve it.

Philip Jansen

Chief Executive

17 May 2023

£2.1bn

Gross annualised cost savings

to date, putting us well on track

to achieve our £3bn goal

8.6m

Since launching the UK’s first 5G

network just four years ago, our

brands have grown the number

of 5G connections to an impressive

8.6m customers

BT Group has the right strategy

to deliver its purpose: we connect

for good; and the business has again

proved its ability to deliver in

testing circumstances. Everything

we do starts and ends with our

customers; our success is built

on enabling theirs.

Visit our online annual

review and see how we’re

enabling customers’ success

bt.com/annualreview

008 BT Group plc Annual Report 2023

Executive Committee

The

Executive Committee

chaired by the Chief Executive.

So that there is a single point

of accountability, the Chief

Executive (or a delegate) takes

all the decisions.

The

Executive Committee

provides input and

recommendations to help

the Chief Executive:

– develop group strategy and budget

for Board approval

– execute the strategy once the

Board approves it

– assure the Board on overall

performance and how we’re

managing risks.

Key changes this year

The following changes to the Executive

Committee took place during the year:

– Debbie White ceased as Interim HR

Director on leaving BT Group

– Athalie Williams joined BT Group as

Chief Human Resources Officer

– Rob Shuter ceased as CEO, Enterprise.

Philip Jansen

Chief Executive

Simon Lowth

Chief Financial Officer

Marc Allera

CEO, Consumer

Bas Burger

CEO, Business

Sabine Chalmers

General Counsel, Company Secretary

& Director Regulatory Affairs

Appointed Chief Executive February 2019.

Appointed to the Board January 2019.

Appointed July 2016. Appointed September 2017. Appointed CEO, Global June 2017.

Appointed CEO, Business January 2023.

Appointed General Counsel April 2018.

Appointed Director Regulatory Affairs and

Company Secretary in May and September

2021 respectively.

From April 2013 until joining BT Group,

Philip was CEO of Worldpay. Before that

he was CEO then Chairman at Brakes

Group from 2010-2015. Philip spent the

previous six years at Sodexo where he

was group Chief Operating Officer and

Chief Executive, Europe, South Africa and

India. Before that he was Chief Operating

Officer at MyTravel Group from 2002-

2004 and Managing Director of Telewest

Communications (now Virgin Media O2)

from 2000-2002. He started his career

at Procter & Gamble.

Simon was CFO of BG Group before

the takeover by Royal Dutch Shell in

February 2016. Before that he was CFO

of AstraZeneca, and Finance Director

and Executive Director of ScottishPower.

Simon was also previously a Director of

McKinsey & Company.

Marc is also Chairman and a BT appointed

Director of the sports joint venture

between BT Group and Warner Bros.

Discovery. Marc was previously CEO of

EE – and EE Chief Commercial Officer from

2011-2015. He spent ten years at Three UK

as Sales and Marketing Director and Chief

Commercial Officer. Before that, Marc was

General Manager of Sega UK and Europe.

Bas was formerly President, BT in the

Americas, Global Services. He joined

BT Group in 2008 as CEO Benelux. Before

that he was Executive President and a

management committee member at

Getronics NV, where he ran global sales,

channels and partnerships, developing

the company’s international business. He

was also CEO and Managing Director of

KPN Entercom Solutions.

Before joining BT Group, Sabine was Chief

Legal and Corporate Affairs Officer and

Company Secretary of Anheuser-Busch

InBev for 12 years. She also held various

legal leadership roles at Diageo. Sabine

is qualified to practise law in England and

Wales and New York State. She is also a

member of the Court of Directors of the

Bank of England.

Harmeen Mehta

Chief Digital and Innovation Officer

Ed Petter

Corporate Affairs Director

Howard Watson

Chief Security and Networks Officer

Athalie Williams

Chief Human Resources Officer

Clive Selley Invitee

CEO, Openreach

Appointed March 2021. Appointed November 2016. Appointed Chief Technology and

Information Officer February 2016 and

became Chief Technology Officer March

2021. Appointed Chief Security and

Networks Officer September 2022.

Appointed December 2022. Appointed February 2016.

Harmeen is a global leader in incubating

new businesses and creating revenue

streams, with over 25 years’ experience

of digital transformation and running

technology-led businesses.

Before joining BT Group, Harmeen was

group CIO and Head of Cloud & Security

business at Bharti Airtel. Before that,

she was CIO at Bank of America Merrill

Lynch, BBVA and HSBC. Harmeen is a

Non-Executive Director of Lloyds Banking

Group, and board member of TM Forum

and Max Healthcare Institute Limited.

Ed was formerly Deputy Director of

Corporate Affairs at Lloyds Banking

Group. Before that he held corporate

affairs roles at McDonald’s Europe,

McKinsey & Company and the Blue

Rubicon communications consultancy.

He was previously a BBC News Producer

and Editor.

Howard’s expanded role puts security at

the core of our business. He was formerly

Chief Architect and Managing Director,

global IT systems and led the technical

teams behind the 2013 BT Sport launch.

Howard joined BT Group in 2011 and has

40 years of telecoms experience. This

includes time at Telewest Communications

(now Virgin Media) and Cartesian, a

telecommunications consultancy and

software company.

Before joining BT Group, Athalie was Chief

People Officer for BHP, the world’s largest

mining and resources company. She led

BHP’s organisation, people and culture

transformation agenda and shaped their

industry-leading inclusion and diversity

agenda. Before that Athalie was General

Manager, Cultural Transformation for

National Australia Bank. She also spent

14 years leading complex business

transformation and change programmes

in Australia and Asia as a consultant with

Accenture (formerly Andersen Consulting).

Clive was formerly CEO, Technology,

Service & Operations, CEO Innovate

& Design and before that President,

Global Services Portfolio & Service

Design. Under the provisions of the

Commitments, Openreach’s CEO cannot

be a member of the Executive Committee

(see page 45). Clive attends Executive

Committee meetings as appropriate.

009Strategic report

Philip Jansen

Chief Executive

Simon Lowth

Chief Financial Officer

Marc Allera

CEO, Consumer

Bas Burger

CEO, Business

Sabine Chalmers

General Counsel, Company Secretary

& Director Regulatory Affairs

Appointed Chief Executive February 2019.

Appointed to the Board January 2019.

Appointed July 2016. Appointed September 2017. Appointed CEO, Global June 2017.

Appointed CEO, Business January 2023.

Appointed General Counsel April 2018.

Appointed Director Regulatory Affairs and

Company Secretary in May and September

2021 respectively.

From April 2013 until joining BT Group,

Philip was CEO of Worldpay. Before that

he was CEO then Chairman at Brakes

Group from 2010-2015. Philip spent the

previous six years at Sodexo where he

was group Chief Operating Officer and

Chief Executive, Europe, South Africa and

India. Before that he was Chief Operating

Officer at MyTravel Group from 2002-

2004 and Managing Director of Telewest

Communications (now Virgin Media O2)

from 2000-2002. He started his career

at Procter & Gamble.

Simon was CFO of BG Group before

the takeover by Royal Dutch Shell in

February 2016. Before that he was CFO

of AstraZeneca, and Finance Director

and Executive Director of ScottishPower.

Simon was also previously a Director of

McKinsey & Company.

Marc is also Chairman and a BT appointed

Director of the sports joint venture

between BT Group and Warner Bros.

Discovery. Marc was previously CEO of

EE – and EE Chief Commercial Officer from

2011-2015. He spent ten years at Three UK

as Sales and Marketing Director and Chief

Commercial Officer. Before that, Marc was

General Manager of Sega UK and Europe.

Bas was formerly President, BT in the

Americas, Global Services. He joined

BT Group in 2008 as CEO Benelux. Before

that he was Executive President and a

management committee member at

Getronics NV, where he ran global sales,

channels and partnerships, developing

the company’s international business. He

was also CEO and Managing Director of

KPN Entercom Solutions.

Before joining BT Group, Sabine was Chief

Legal and Corporate Affairs Officer and

Company Secretary of Anheuser-Busch

InBev for 12 years. She also held various

legal leadership roles at Diageo. Sabine

is qualified to practise law in England and

Wales and New York State. She is also a

member of the Court of Directors of the

Bank of England.

Harmeen Mehta

Chief Digital and Innovation Officer

Ed Petter

Corporate Affairs Director

Howard Watson

Chief Security and Networks Officer

Athalie Williams

Chief Human Resources Officer

Clive Selley Invitee

CEO, Openreach

Appointed March 2021. Appointed November 2016. Appointed Chief Technology and

Information Officer February 2016 and

became Chief Technology Officer March

2021. Appointed Chief Security and

Networks Officer September 2022.

Appointed December 2022. Appointed February 2016.

Harmeen is a global leader in incubating

new businesses and creating revenue

streams, with over 25 years’ experience

of digital transformation and running

technology-led businesses.

Before joining BT Group, Harmeen was

group CIO and Head of Cloud & Security

business at Bharti Airtel. Before that,

she was CIO at Bank of America Merrill

Lynch, BBVA and HSBC. Harmeen is a

Non-Executive Director of Lloyds Banking

Group, and board member of TM Forum

and Max Healthcare Institute Limited.

Ed was formerly Deputy Director of

Corporate Affairs at Lloyds Banking

Group. Before that he held corporate

affairs roles at McDonald’s Europe,

McKinsey & Company and the Blue

Rubicon communications consultancy.

He was previously a BBC News Producer

and Editor.

Howard’s expanded role puts security at

the core of our business. He was formerly

Chief Architect and Managing Director,

global IT systems and led the technical

teams behind the 2013 BT Sport launch.

Howard joined BT Group in 2011 and has

40 years of telecoms experience. This

includes time at Telewest Communications

(now Virgin Media) and Cartesian, a

telecommunications consultancy and

software company.

Before joining BT Group, Athalie was Chief

People Officer for BHP, the world’s largest

mining and resources company. She led

BHP’s organisation, people and culture

transformation agenda and shaped their

industry-leading inclusion and diversity

agenda. Before that Athalie was General

Manager, Cultural Transformation for

National Australia Bank. She also spent

14 years leading complex business

transformation and change programmes

in Australia and Asia as a consultant with

Accenture (formerly Andersen Consulting).

Clive was formerly CEO, Technology,

Service & Operations, CEO Innovate

& Design and before that President,

Global Services Portfolio & Service

Design. Under the provisions of the

Commitments, Openreach’s CEO cannot

be a member of the Executive Committee

(see page 45). Clive attends Executive

Committee meetings as appropriate.

010 BT Group plc Annual Report 2023

Our business model

BT Group is one of the world’s

leading connectivity providers.

We build, own and operate

the largest fixed and mobile

networks in the UK. We serve a

wide variety of customers. They

range from individuals, families

and businesses to the UK public

sector and global companies. To

earn revenue, we design, build,

market, sell and support network

access, connectivity and related

solutions to our customers. We

sometimes do this with partners.

We reinvest a big part of what we earn to

maintain and improve our mobile and fixed

networks, market and sell our services, serve

our customers, and develop new connectivity

solutions. We also use some earnings to meet

our financial obligations like tax, interest, pension

fund contributions and to pay dividends to

shareholders in return for the capital they’ve

invested with us.

According to our Economic Impact report,

our activities contributed £24bn to the UK

economy last year and supported 284,000

jobs across the UK.

What we do

We sell a range of broadband, mobile and landline

services, along with home and cyber security solutions

to individuals and households. On top of that, we offer

related entertainment services like TV and cloud

gaming. These allow our customers to connect, work

and be entertained safely at home and on the go. The

majority of our consumer customers have 12 to 24

month contracts for mobile or broadband access.

Our business, public sector and government

customers in the UK and around the world rely on

us for connectivity, networking, cyber security,

collaboration tools, cloud connectivity and cloud

services. Our solutions allow them to run, grow and

protect their businesses and deliver their own digital

transformations. Small and medium-sized businesses

typically buy our services on 24 month contracts.

Larger companies and public sector customers often

opt for multi-year managed solution contracts or

one-off services focused on specific technologies

or outcomes.

We serve CPs through two channels: Enterprise

and Openreach. Through Enterprise, we wholesale

mobile network capabilities, voice services, broadband,

Ethernet, and other connectivity solutions on contracts

ranging from 1 to 5 years.

Through Openreach, we sell wholesale access to our

fixed access network infrastructure to over 680 CPs,

including our own Consumer and Enterprise units.

A lot of Openreach services are regulated.

Communications

Providers (CPs)

Business

customers

Consumer

customers

011Strategic report

Consumer

Serves individuals and

households. We help

people in over 14m

homes to communicate,

study, work, learn, play

and be entertained

through our EE, BT

and Plusnet brands.

Finance, strategy

& business

services

Global

Serves multinational

companies and

governments, with

a presence in c. 180

countries. Our expertise

helps customers with

connectivity, cloud and

cyber security solutions.

Legal, company

secretarial &

regulatory affairs

Enterprise

Serves over 1.2m UK

and Republic of Ireland

organisations with

connectivity solutions to

help them run, transform

and grow. Enterprise

serves small, medium

and large corporate

businesses, the public

sector and the UK

government. We also

wholesale some network

solutions to other CPs.

Human

resources

Openreach

Operates with strategic

and operational

autonomy in line with

the Commitments

(see page 45). It builds

and operates our fixed

wholesale access

network including

rolling out our next

generation full fibre

network. Openreach

serves over 680 CPs who

sell fixed access services

to their end customers

like homes, schools,

hospitals, libraries,

government buildings

and businesses across

the UK.

Corporate

affairs

Customer-facing

units (CFUs)

Our four CFUs design,

market, sell and service

tailored solutions to

different market segments.

By delivering excellent

customer service and

differentiated solutions,

they earn revenue and

drive growth. This year we

announced the merger of

Enterprise and Global into

Business to better serve our

business customers. Business

will formally begin reporting

as a single unit from 1 April

2023. So, for FY23 reporting

we have continued to cover

Enterprise and Global

separately.

Corporate units (CUs)

Our CUs support the CFUs

and TUs through sharing

common activities and

best practice to drive

efficiency benefits. They

also provide overall

group-level direction-

setting, management

and coordination.

BT Group is made up of customer-facing, technology, and

corporate units. In line with regulations, our Openreach

customer-facing unit operates independently. The rest of

the group operates through an integrated model. We share

resources like our mobile network, technology, shared

services such as billing and procurement, personnel

and brands to deliver the best outcomes for customers.

How we’re

organised

Digital

Leads our digital transformation, drives

innovation and delivers IT and digital

platforms to underpin the products and

services that our customers need, while also

helping to build new revenue platforms.

Networks

Designs, builds and runs the mobile, core and

global networks that we and our customers

rely on. Networks is now also responsible for

BT Group’s security, operational resilience

and health, safety and environment agenda.

Customers

UK individuals

and households

UK businesses, public

sector and CPs

Multinational

companies and

international businesses

CPs including

Consumer and

Enterprise

Following their merger, Enterprise and Global will

report as Business from 1 April 2023

Technology units (TUs)

Our TUs build, maintain

and manage our digital and

network assets (apart from

the fixed access network,

managed by Openreach).

They focus on modernising

BT Group to make us more

agile, efficient and help

deliver better solutions

for our customers. They

also drive our research &

development (R&D) and

support innovation.

012 BT Group plc Annual Report 2023

Our business model continued

We build, own, and operate the UK's

largest fixed and mobile networks. They let

us offer widespread coverage and superior

connectivity for retail and wholesale

customers. Our scale and experience

enables us to outperform competitors.

>32m

Premises can be served by our

fixed access network

Our fixed access network delivers speeds

of up to 900Mbps, with connections

available to more than 32m homes and

businesses. We’re building the UK’s largest

full fibre network, faster than anyone

else, serving both rural and urban areas.

It already has an over 30% take-up rate.

68%

Of the UK population covered

by our 5G network

For nine years, Rootmetrics has recognised

our mobile network as #1 in the UK. We

have the largest spectrum holdings of any

UK mobile network operator and continue

to extend our national coverage. Today

our 4G network covers 99.6% of the UK

population – and our 5G network already

covers 68%.

Leading

networks

Large customer

base

Our large and varied customer base gives

us strength in all our markets. Customers

typically take out multi-year subscriptions

or contracts. These trusted, established

long-term relationships give us valuable

insights into what customers want today and

tomorrow. This helps us create and deliver

the right new connectivity solutions and

experiences to meet their evolving needs.

>14m

UK households served

>1.2m

Business customers

We directly serve over 14m UK households

and our Enterprise and Global units

support over 1.2m business customers

from multinational corporations and

the public sector to small and medium

UK businesses.

>680

CPs served

Openreach serves over 680 CPs – 49

of whom have signed up to our Equinox

deal on our full fibre platform. Through

these CPs, Openreach serves over 23.9m

physical lines.

Setting us apart from the competition,

our unique set of assets helps us give

customers what they need and create

value for all our stakeholders.

Our sources

of competitive

advantage

013Strategic report

>99k

BT Group colleagues

Our colleagues are essential to us achieving

our goals and delivering for our customers

through their technical and commercial

knowledge, skills, expertise and behaviours.

They build and maintain our networks

and solutions and they serve and support

customers. We have a significant local

presence, covering service, support

and other resources to meet customers’

needs quickly and in a personalised way.

>29k

Openreach engineers

Over 29,000 Openreach engineers play a

crucial role in keeping the UK connected.

They build and connect customers to our

new full fibre network while maintaining

existing networks.

>450

Retail stores

We have a leading retail presence – over

450 stores – and over 13,500 sales and

service colleagues who help customers

get the most from our solutions.

c. 180

Countries we can serve

We can serve business customers in

c. 180 countries and have 13 accredited

global security operations centres. In the

UK we have a sales and service presence

in every region.

Colleagues and

local presence

Our four customer-facing brands

underpin our relationships with millions

of customers. The trust in these brands

means that customers look to us for

connectivity solutions, and more. This

year we announced EE will become our

flagship consumer brand, while Plusnet

continues to be our value brand. BT will be

our business brand in the UK and around

the world.

Well established

and trusted brands

Collaboration is vital in our business. We

work with partners and suppliers in every

part of our operations. We work closely

with them to create solutions that build

on both parties’ strengths, speed up our

transformation and benefit our customers.

For example, Openreach continues to

strengthen third-party contractor and

supplier relationships that are helping us

build and connect end customers to our full

fibre network at unrivalled pace and scale.

And its close engagement with CPs helps

Openreach provide the best experience for

end customers.

Strong partner

and supplier

relationships

Our rich data sets are derived from

customer, product, network and

operational sources. Applying appropriate

forms of artificial intelligence (AI) gives us

a unique perspective and understanding

of what’s important and what we can

improve on. It lets us create personalised

experiences for customers, build innovative

products and protect them through state-

of-the-art network monitoring.

As an example, our Active Intelligence

products analyse over 10bn daily data

points in the UK. This can provide

anonymous insights into footfall and

aggregate population movements.

Rich data

assets

Innovation is key to the group’s success.

We strive to deploy innovative uses of

technology to enhance our solutions,

processes and networks to better serve

our customers.

£683m

Expenditure on R&D

We recognised expenditure of nearly

£683m on R&D last year and hold over

5,400 patents and patent applications.

Our R&D centre at Adastral Park leads

our research into new technologies,

pushing connectivity boundaries in areas

like 5G. Openreach's innovations such

as subtended headends enable new full

fibre cables to be extended beyond their

normal reach. This helps to reduce build

and maintenance costs while improving

the network quality, thereby enhancing

the service we give to our CPs and further

differentiating against competitors.

R&D and

innovation

BT Group plc Annual Report 2023014

The cost of living

crisis and volatile

macroeconomic

environment

Everyone is facing a lot of economic

uncertainty. Inflation, geopolitics,

strikes, higher interest rates and fears

of a recession affect both us and our

customers. They put financial strain on

customers and directly impact us with

rising costs and supply chain challenges.

Unprecedented

demand for

connectivity

Technology and connectivity are ever

more entwined in our customers’ lives.

With more and more devices and machines

connected, both individuals and businesses

rely on high quality connectivity even more.

Digital activity is migrating to the cloud

and network edge as customers demand

better reliability, speeds and access.

Everyone wants seamless connectivity –

giving us a great opportunity to deliver

that for customers.

Ongoing

network

investment

Across the world (and particularly in the UK)

there’s huge investment in new network

technologies like full fibre and 5G. We’re

right in the thick of it. Our investment in

these networks will deliver long-term

benefits with better customer solutions and

more reliable, cost-efficient networks for us.

We operate in a rapidly changing

environment. By understanding

key trends, we can take advantage

of opportunities as they arise and

act quickly to reduce risks to our

business where necessary.

Overall growth in monthly

mobile traffic in our core

network from January 2019

to January 2023

Key trends influencing us

Strategic report 015Strategic report

Intense

competition

All our markets are still highly competitive.

In the UK, there is growing and ongoing

investment from alternative network

providers and established players in both

fixed and mobile markets. Lines between

traditional communications products and

digital services continue to blur. Which

means we face a wider set of competitors –

including new entrants.

Data, AI

and cyber

security

AI – combined with using the underlying

data – is developing fast. This will

undoubtedly unlock huge value for our

customers and our business. But it also

brings with it new challenges. Using AI

responsibly while protecting customers’

data privacy is crucial. Data breaches and

cyber attacks still pose big threats to our

customers. This gives trusted businesses

like ours a chance to help customers deal

with these challenges.

Growing environmental,

social and corporate

governance (ESG) focus

Colleagues, consumers, businesses

and our other stakeholders all rightly

want companies to behave responsibly,

sustainably, inclusively, and in ways that

benefit society and the planet. More than

ever, concerns about things like climate

change and inequality shape how our

stakeholders behave.

016 BT Group plc Annual Report 2023

Personal, Simple, Brilliant

Our values guide us in fulfilling our

purpose and achieving our goals.

These are supported by our code,

ten simple statements that outline

what we expect from our colleagues

and suppliers. Together they reflect

our accountability to society, set

high standards for our business,

colleagues and partners, and help

us be a positive influence and win

our stakeholders trust.

We connect for good

This drives everything we do. We

believe in the value of connections

– in our personal lives, at work and

increasingly between machines

and devices. We help individuals,

organisations, emergency services

and governments harness the

power of these connections and use

technology to improve their lives,

solve challenges, and deliver for

their stakeholders.

Why we exist

To be the world’s most trusted

connector of people, devices

and machines by 2030

We’re a trusted global company

connecting millions of customers,

households, businesses and

governments to their needs;

whether that’s staying connected

to loved ones and entertainment or

delivering for their stakeholders. We

aim to grow our customers’ trust in

us by proving that we’re dependable

and that we help them thrive in the

digital world.

Who we want to become

Long-term

value creation

What will guide us

Purpose

Ambition

Values

Our strategic framework

017Strategic report

Our strategic framework explains how we aim

to create value for all our stakeholders. This

translates to long-term, sustainable growth

through the five priorities set out in our

strategy for growth (see page 6).

Lead the way to a bright

sustainable future

We’re positioning our corporate

portfolio for growth. That means

optimising investments, reviewing

the assets we hold and picking

partners carefully.

We’re exploring new tech-driven

growth engines – with connectivity

providing a strong base. We’re

seeking out opportunities where

our assets, capabilities and expertise

position us to drive profitable growth

and create great outcomes for our

customers and country.

We’re creating a responsible,

inclusive and sustainable business.

We’re contributing to a better

world by investing in digital

skills, championing responsible

technology and tackling climate

challenges and inequality.

We’re building trusted partnering

relationships with our stakeholders.

As a diverse business, we have many

relationships – with customers,

colleagues, governments, regulators,

suppliers and communities. They’re

all critical to our success and we take

them seriously.

Create standout

customer experiences

We’re aiming to deliver outstanding

service and experience to our

customers. That means market-

leading customer service, brilliant

digital touchpoints, and trustworthy,

secure and personalised experiences.

We’re building smarter, differentiated

solutions and outcomes. Customers

don’t buy products; they buy

solutions to problems. We provide

the latest converged, intelligent

connectivity services to our

customers. And for businesses

and governments we also offer

differentiated service management

solutions. We want our solutions to

improve customers’ lives and deliver

them the outcomes they want.

We’re creating value through

commercial excellence – with

leading sales effectiveness, and

superior marketing and pricing

capabilities. We want customers

to feel like they are getting great

value from our solutions.

Build the strongest

foundations

We’re investing in the best

converged network. For us, that

means being market leader in new

full fibre and 5G networks – with

the broadest reach and enhanced

capabilities. These networks will

provide our customers with faster

and more dependable connections,

enabling them to do more.

We’re becoming a simpler, more

efficient and dynamic BT Group.

We’re simplifying our product

portfolio, transforming customer

journeys and modernising our digital

and network technology. We want to

be easier to work for and with – more

responsive to customers’ needs and

more efficient in delivering for them.

And we're building a culture where

people can be their best. This means

becoming more agile and providing

outstanding colleague experiences

while creating a diverse, inclusive

and future-ready workforce.

Strategy

018 BT Group plc Annual Report 2023

Market leader

in full fibre

The best

converged

network

We want to give customers the very

best connectivity. So this year we

continued to enhance our network

assets through our new 5G network

and our c. £15bn investment in full

fibre (aiming to reach 25m premises

including 6m in hard-to-reach

communities by the end of 2026).

Despite inflation and industrial

action we continue to make

excellent progress on upgrading

the UK’s digital infrastructure

for our customers.

Build the

strongest

foundations

Progress against our strategic framework

This year we made excellent progress against our

three strategic pillars. Next year we’ll do more.

Read more about our real world impact and

the wider social value created by the Group.

bt.com/annualreview

– This year we passed 3.1m homes and

businesses with our full fibre network,

19% more than last year and on

average 8.4k premises per day

– Despite inflationary pressure,

we maintained build costs at

£250-£350 per premises passed

– Over 3.1m customers are now

connected to our full fibre

network, up 76% on last year,

resulting in an overall take-up

rate of over 30%

– It was a record year for selling

full fibre – with 32.5k customers

connected a week

10.3m

We have now passed a total

of 10.3m homes and businesses with

full fibre including 3.1m rural premises

Braylsham Castle

The Universal Service

Obligation supports BT Group

to deliver fibre solutions in

rural areas beyond normal

commercial reach. Under

the programme, Openreach

fitted a new fibre solution

to Braylsham Castle. This

required overcoming a range

of unique challenges including

laying fibre through a moat!

019Strategic report

Earnings per share pence

93.2 88.8 86.4 83.6

EE Vodafone Three Virgin

Media O2

Market

leader in 5G

68%

Our 5G network now

covers 68% of the

population – with a target

to reach 90% by 2028

60%

We have 8.6m 5G

connections, increasing

over 60% on last year

We’re RootMetrics’ #1

UK network for the

ninth consecutive year

– We set up a private 5G

network at the Port of

Tyne while enhancing the

existing private 5G network

at Belfast Harbour to

revolutionise processes,

track assets and better

understand productivity

and sustainability

87%

Our mobile network now covers

99% of the UK population and

87% of UK geography, with

2,200km

added this year

An additional six London

Underground stations now

have 4G service available

>21m

More than 21m 4G and 5G

data customers have migrated

to our new Ericsson Mobile

Cloud Core hosted on our

Network Cloud for better,

more reliable performance

– We’re trialling High-Altitude

Platform Station aircraft and

satellites to bring mobile

coverage to the most hard-

to-reach locations

– We’ve signed a new

partnership with Ericsson

to deploy ultra-lightweight

Massive MIMO radio

technology which will deliver

up to 40% reduction in energy

consumption with improved

network performance

Broadest reach

and enhanced

capabilities

5G innovation

BT Group installed a 5G

network to support the

BBC’s coverage of the 2022

Commonwealth Games. This

was the first time 5G was

used at an event of this size.

The BBC used the private

network to send footage for

remote production which

meant they didn’t need any

on-site broadcasting trucks.

020 BT Group plc Annual Report 2023

Customise your package

Checkout now

Customise your package

Checkout now

Customise your package

Checkout now

A simpler, more

efficient and

dynamic BT Group

This year we’ve continued to

transform, delivering £0.7bn of cost

saving efficiencies this year. To

date, we have delivered 71% of our

£3bn cost savings target by March

2025, at a cost of £1.1bn. We further

simplified our products, processes,

digital and network technologies

and continued to build our new

strategic IT landscape. We made

progress, but there is more we

need to do.

Modern,

modular digital

architecture and

migrating to

strategic networks

Simplified product portfolio

and transformed customer

journeys and processes

– There are 50% fewer Consumer

mobile customers on 3G plans

since January 2021, and 229k

fewer 3G business subscribers

compared to March 2022

– We’re developing cloud and

AI led strategic technology

platforms to increase our agility

and reduce costs, as well as create

new products and platforms to

help revenue growth and create

brilliant customer experiences

and digital engagement

343

We stopped using 343

legacy applications in FY23

– AI powered intelligent

automation in Openreach

now supports leaner

operations across our desk

and field based teams, saving

us over £35m annually

– Our Making Finance Brilliant

programme has delivered

over £8m of total efficiencies

in FY23. The latest phase

involved migrating c. £60bn

of gross costs, over 220k

projects, c. 1m internal

orders and nearly 14m fixed

assets into SAP

– We simplified our HR

system landscape by

consolidating to one primary

system globally, resulting

in a £4.5m saving in annual

licences and standardising

over 100 HR processes

>2.3m

We cut the number of units

on legacy networks by over

2.3m in FY23, including a 19%

drop in the PSTN base

– 46% of our small and

medium business customers’

inbound service calls that are

offered the validation option

in our IVR system are now

automatically validated, up

from 15% last year

– The digital channel

conversion rate for our Global

solutions has almost tripled

– We cut our Global product

portfolio by nearly 8%,

helping to concentrate on

our new, strategic product

portfolio

– Openreach’s intelligent

scheduling system enables

us to send the right engineer,

equipped with the right skills,

at the right time, to each

customer. Saving £39m and 22

tonnes of CO

annually while

increasing on-the-day closure

of complex jobs by 35%

Progress against our strategic framework continued

Build the strongest foundations continued

30%

We cut the number of

Consumer tariffs by

30% – making it easier

for customers to pick the

right product for them

50%

By shortening our

Consumer broadband

journey to six steps, we cut

the time it takes to buy our

broadband by 50%

80%

We automated 80% of

our Enterprise back-end

manual billing activities

021Strategic report

A culture where

people can be

their best

Over 99,000 colleagues are central to

delivering our ambitions. Although

this year was difficult – especially

because of industrial action – we

made big progress in areas like

organisational development,

occupational health, wellbeing,

diversity, equity and inclusion. We

continue to invest in our people. But

we recognise there’s work still to do.

For information on our

workforce and gender and

ethnicity pay gap see page 34.

Award-winning

colleague

development

– This year we ran a number

of award-winning learning

programmes to support our

colleagues’ development

such as Digital Campus,

CAPSLOCK and Aspire,

a career development

programme in Consumer

(see page 32)

23,000

We trained over 23,000

Openreach engineers across

10 facilities – including our

award-winning real-life

‘Openstreet’ environment

26hrs

On average, our colleagues

completed 26 hours of learning

(this excludes self-directed and

micro learning)

Apprentice programme

As one of the largest

private sector employers of

apprentices and graduates

in the UK, we continue to

recruit and attract brilliant

people into our business.

We offer unparalleled

development opportunities

to those who join us, building

a future pipeline of talent

and developing our existing

workforce to help drive

growth across our business

and deliver great outcomes

for all our customers.

2,267

Apprentices hired

221

Graduates hired

022 BT Group plc Annual Report 2023

Progress against our strategic framework continued

Build the strongest foundations continued

A diverse and inclusive

workforce

– We improved both our

gender and ethnicity pay

gaps (see page 34)

– We’ve increased our

representation of female,

ethnic minority and disabled

colleagues since 2018

– We were a Gold Sponsor

of London PRIDE 2022

and partnered with many

other organisations such as

‘Code First Girls’ to support

diversity and inclusion (D&I)

(see page 33)

– We were nominated for the

British Diversity Awards 2023

Outstanding Ethnic Diversity

Network of The Year

78%

More than 78% of UK

colleagues gave us

better data to understand

our demographics

I’m pleased that BT Group has made

progress and narrowed our gender

pay gap this year. But we’re far from

perfect, and we recognise that we

still have more to do to make sure

we build a truly equitable and

inclusive culture across our business.

Athalie Williams

Chief Human Resources Officer

1,900

New trainee engineers

this year

17%

of them are

women

Openreach engineers

At Openreach, we’re

dedicated to building

an inclusive culture and

supporting our engineers’

development. We’ve been

working hard to recruit

a more diverse pool of

candidates by training our

hiring managers in the use

of inclusive recruitment

tools and launching

recruitment campaigns

aimed at individuals from

diverse backgrounds.

023Strategic report

Colleague

engagement,

health and

wellbeing

– Engagement is still above

external benchmarks but

went down 6 points in our

March 2023 Your Say survey

– driven by the cost of living

crisis and industrial action

– We launched our new

‘My HR’ system to simplify

and digitise our HR

technology landscape

and give colleagues a

better experience

– Driven by our Health, Safety

and Wellbeing Centre of

Expertise, we continued to

find ways to better support

our colleagues this year –

see page 35 for more detail

Top 10%

The CCLA report on mental

health for investors places us

in the top 10% of the FTSE 100

85%

Awarded to 85% of

our UK-based workforce

£1,500

Pay rise (for all UK

colleagues who previously

earned £50,000 or less)

Cost of living pay rise

To support our colleagues

during the cost of living

crisis we awarded a cost

of living pay rise to 85% of

our UK-based colleagues.

Together with the increase

in April 2022 this brings the

total pay rise for the lowest

paid colleagues to over 15%

in the year.

2,500

Bristol Assembly is designed

to cater to the needs of up to

2,500 colleagues

We’re hiring nearly 50

apprentices and

graduates in Bristol

Assembly Bristol

BT Group’s latest workspace,

Bristol Assembly, is designed to

cater to the needs of up to 2,500

colleagues, now and in the

future. It features colleague-

centric spaces including prayer

and parenting rooms.

The workspace is close to

public transport hubs, and

encourages active travel

through facilities like cycle

parking, lockers, changing

rooms and showers.

The building is designed to

support our sustainability

goals with features like lighting

designed to maximise energy

efficiency. These features have

resulted in a short-term CO

reduction of c. 140 tonnes per

year, this is anticipated to rise

to over 500 tonnes.

Additionally, we’re hiring nearly

50 apprentices and graduates

in Bristol to support the UK’s

digital sectors.

024 BT Group plc Annual Report 2023

Progress against our strategic framework continued

Create standout

customer

experiences

Outstanding

service and

experience

We’ve continued to invest in delivering

positive experiences for our customers.

This year, our overall performance was

good despite service levels being affected

by industrial action and customers’ cost

of living challenges.

Read more about our real world impact and

the wider social value created by BT Group.

bt.com/annualreview

025Strategic report

– There were 2 and 7

complaints to Ofcom per

100,000 customers for EE

mobile and EE broadband

respectively, both the second

best in the industry

– There were 10 complaints to

Ofcom per 100,000 customers

for BT broadband, a rate that

continues to be better than

the industry average

2.4m

Aimee, our in-app messaging

and automated assistant,

completed over 2.4m

conversations and delivered

a +2 rise in NPS

– The 2022 Samsung One

Awards named us Network

Operator of the Year

On average, EE blocks over

4m unwanted calls

and spam messages a week

– Perceptions of our

BT Consumer fixed and

EE Consumer mobile

networks remained broadly

flat across the year, despite

a 9.1% increase in demand

for fixed data and a 20%

increase for mobile data

– Our network fault rate in

Openreach (faults per 1,000

lines per annum) is 4.8%

lower year on year

– Openreach recorded a 13.5%

reduction in copper repair

volumes year on year

– Despite facing

unprecedented industrial

action, Openreach was

able to achieve 32 of the 35

regulated service measures

set by Ofcom for both the

business and residential

markets, narrowly missing

the remaining three

>91%

Customers rated over 91% of

our engineer visits 8 out of 10

or higher

This tool brings together all the

resources needed for our field

engineers to enhance service

quality and improve customer

experience. The investment

in our engineers has resulted

in more successful customer

visits and positive feedback

from customers.

Our engineer was very

knowledgeable and

polite, spending time

explaining things to

me. They were very

meticulous and checked

everything was as it

should be and replaced

what they could.

Customer testimonial

Improving the skills of our engineers

to improve customer experience

Over 29,000 of our engineers are able to use our

‘skills passport’ to better themselves, and improve

the levels of customer experience they provide.

– All of our brands were

winners in the 2023 USwitch

awards. EE won fastest

mobile network, BT won

most reliable broadband

and Plusnet was the best

broadband provider

– We were 2022 UK

Customer Experience

Awards winners for Best

Customer Experience and

Best Customer Experience

in a Crisis

– Our overall net promoter

score (NPS) marginally

decreased this year. The cost

of living challenges affected

our Consumer brands and the

wider market overall which

was partially balanced out by

positive perceptions from our

corporate customers

For more information

on our Group NPS see

page 48

026 BT Group plc Annual Report 2023

Progress against our strategic framework continued

Create standout customer experiences continued

Smarter,

differentiated

solutions and

outcomes

We want our solutions to improve

customers’ lives and deliver the

outcomes they want. This year we

continued to enhance our offering

as we seek to give our customers

the latest converged, intelligent

connectivity services.

180k

EE Basics and Home

Essentials is directly helping

nearly 180,000 customers

3m customers excluded from

April 2023 price increases

We’re helping our most

vulnerable customers

during these tough times.

Our research shows that

many British adults struggle

to improve their situation

without connectivity and

that is why we’re committed

to providing connectivity

support to those who need

it the most.

We offer our BT Home

Essentials broadband and

EE Basics mobile to eligible

customers which helped

almost 180,000 customers

this year. We also excluded

3m eligible customers,

including those on social and

discounted tariffs, from the

April 2023 price increase.

Social tariffs for

broadband and mobile

Many people are dealing

with financial uncertainty,

and we know it’s difficult.

We’re dedicated to

supporting our most

vulnerable customers

in the cost of living crisis.

027Strategic report

– EE was the first mobile

network globally to offer Apple

One exclusively as part of our

Full Works for iPhone offering

– BT TV is now available

aerial-free – the BT TV Box

Pro’s new internet mode

lets customers plug in and

connect to our Smart Hub to

start streaming via wi-fi

– We launched EE Security – a

smart security system powered

by Verisure and Norton

– We launched EE Supercharged

– a portfolio of leading gaming

consoles bundled with cloud

gaming access and unlimited

gaming data

– The SoHo distribution

network continues to grow –

with partnerships including

Barclaycard Payments,

Checkatrade and Just Eat

– We launched EE connected

laptops – making it easier

for sole traders and micro-

businesses to run and grow

their business online from

anywhere

– Our new multi-cloud

connectivity solutions extend

our network reach into

important carrier-neutral

facilities like Equinix. This

means our customers can

access a lot of different cloud-

based apps and services

without needing individual

connections for each one

999 call answering

Since 1937, BT Group has

been handling 999 calls in

the UK, providing support

to the emergency services

round the clock, every day of

the year.

Last year, our seven BT Group

999 call centres handled over

40m calls. Our 999 advisors

faced unprecedented

demand during major events

such as the Platinum Jubilee

celebrations, the passing of

Her Majesty the Queen and

the FIFA World Cup. Since

June 2022, our advisors have

supported ‘999 BSL’, a video

relay service enabling people

with hearing difficulties to

contact 999 in British Sign

Language through a mobile

app or website 24/7.

>50%

We were the first UK

internet provider to offer an

unbreakable wi-fi connection

at home that’s backed up by

the award-winning EE mobile

network with Halo 3+ – and our

subscriber base has grown over

50% year on year

>40m

Our 999 call centres handled

over 40m calls last year

028 BT Group plc Annual Report 2023

Progress against our strategic framework continued

Lead the way

to a bright,

sustainable

future

A portfolio

positioned

for growth

We’ve continued to simplify and

strengthen our business portfolio,

making sure we maximise the value

of our assets and partnerships.

– As part of our ongoing asset-

light strategy outside of the

UK, we’ve agreed the sale

of our fibre-optic networks

in Düsseldorf, Frankfurt,

Munich and Stuttgart

totalling 1,590km of fibre

– In an effort to simplify our

portfolio and maximise the

value of our partnerships,

we transferred 332 BT

employees under TUPE

to GXO Logistics Ltd –

supporting its warehouse,

transport and service

desk operations

Read more about our real world impact and

the wider social value created by BT Group.

bt.com/annualreview

– To enhance the sports-

related content available

to our customers, BT Sport

merged with Eurosport UK in

September 2022, forming a

50:50 joint venture (JV) with

Warner Bros. Discovery

– BT Sport has now transferred

its assets and people to

the new JV; both BT Sport

and Eurosport UK brands

will continue in the market

for now but will be brought

together as TNT Sports in

the future

029Strategic report

Incubating

new tech-driven

growth engines

We’re investing in the future

of connectivity. This year we’ve

continued to focus on innovation

and potential growth engines

in areas where we feel we have

a strong right to play.

– We saw 53% year-on-year

sales growth on our Digital

unit’s Active Intelligence

geospatial data insights

platform

– We set up a Clinical Advisory

Board with leading NHS

professionals to make sure

our new healthcare solutions

meet NHS needs and will

result in improved patient

outcomes

– We invested £5m in Altitude

Angel, the world’s most

trusted unified traffic

management technology

provider for drones

This year we...

£683m

Recognised £683m

expenditure on R&D...

And our Adastral Park R&D

facility made 94 inventions...

And published 56 key papers

BT Group is partnering

with Feebris and my

mhealth to provide virtual

ward, virtual care and

patient self-monitoring

technology to support

the NHS.

We’re also developing

a virtual care solution to

improve the impact of these

services for health providers.

This technology can be used

in hospitals, care homes

and community nursing

to monitor patients safely,

reduce hospital admissions,

and ease pressure on

frontline services. Virtual

ward has helped to reduce

readmission rates by 50%

and save £1,047 per patient.

Virtual Ward

50%

Virtual ward care

has helped to reduce

readmission rates by 50%

and save £1,047 per patient

94%

Of patients felt more

confident about being

able to manage their

condition from home

AMBULANCE

030 BT Group plc Annual Report 2023

Progress against our strategic framework continued

Lead the way to a bright, sustainable future continued

A responsible,

inclusive and

sustainable

business

We’ve made long-term commitments on

how we’ll contribute positively to our

country and society in the BT Group

Manifesto. This year we’ve continued to

deliver on our Manifesto commitments

to be a responsible, inclusive and

sustainable business.

You can read our full

Manifesto on page 36

– We now have over 2,400

electric vehicles (EVs) in our

fleet; over 1,000 were added

this year which has saved

over 2,200 tonnes of CO

(carbon dioxide equivalent

emissions)

– We helped customers avoid

over 935,000 tonnes of

carbon emissions

– We recovered nearly 2m

home hubs, set-top boxes

and mobile phones for

recycling and reuse

– We recovered, reused and

recycled 89% of our UK

operational waste this year

See pages 38 to 39 for more

information on our journey

to net zero emissions and a

circular economy

2030

We’re making investments to

convert the majority of our fleet

to electric or zero emissions

vehicles by 2030

Read more in our ESG

Addendum at bt.com/

esgaddendum

56%

We’ve reduced our carbon

emissions intensity by

56% since FY17

1 99.9% of the global electricity BT Group

consumes is from renewable sources.

The remaining 0.1% is where renewable

electricity is not available in the market.

100%

Of the electricity we

consume worldwide

is renewably sourced

031Strategic report

Skilling the nation

We’ve continued to champion

digital inclusion and skilling

the nation. This year we helped

4.6m people and over 465,000

businesses and their employees

in the UK improve their digital

skills – a total of 19.3m people

since FY15.

– We held 15 Skills for Work

bootcamps for nearly 500

11–13-year-old children

– We’re helping children

stay safe online with our

PhoneSmart licences (see

page 38) – we’ve issued over

1,300 since 2020

For more information on

how we’re helping the future

of tech be more diverse and

inclusive, see page 37

Hope United

We created Hope United

to combat online hate. It is

a team of elite footballers

that raises awareness of

different forms of hate,

promotes understanding,

and inspires action through

marketing campaigns and

our educational videos which

teach people how to block,

report, and mute online

hate. This contributes to our

goal of helping 25m people

and business improve their

digital skills by leveraging

EE’s sponsorship of the Home

Nations Football Associations.

7.4m

We’ve educated 7.4m

people on how to be

good digital citizens,

tackling online hate through

our Hope United campaign

and it offers networking

events in 10 different locations

through walks, gatherings and

mentoring sessions.

Netwalks

Everyone is facing a lot of

economic uncertainty and

small businesses need more

help than ever before. It’s not

easy to provide support but

BT Group and Small Business

Britain have a chance to make

a difference by supporting

small businesses through this

turbulent period.

This year we launched

Netwalks which offers self-

care, mental health support,

early intervention and

networking opportunities

for small businesses. Over

100 businesses have joined,

95%

Over 95% of attendees

would recommend

these walks

Over 40 walks organised in

two months, which helped

hundreds of people

4.6m

People in FY23

465k

Businesses and their employees

19.3m

People since FY15

BT Group plc Annual Report 2023032

Skills development

We have over 99,000 colleagues

supporting our customers and driving

BT Group forward. This year we hired

c. 15,000 people. c. 11,000 of them were

in the UK, including c. 2,000 apprentices

and c. 200 graduates. c. 17,000 colleagues

left the business – c. 14,000 through

natural attrition and c. 3,000 through

paid leaver programmes.

To help drive our business transformation,

this year we launched Digital Campus:

a one-stop-shop to build digital skills

and capabilities.

We also launched our reskilling programme

CAPSLOCK, training existing employees

for security roles. Everyone who graduated

now has a BT Group security job. And the

programme won the ‘Recruitment and

Workforce Planning Strategy’ award at the

2022 HR Excellence Awards.

We continue to invest

in our people. We want

to create a culture

where everyone who

works here sees the

value of curiosity and

lifelong learning – and

is equipped with the

skills and capabilities

we need for our

business to evolve.

Aspire career

development programme

In our Consumer unit we’ve run an award-

winning career development programme

called Aspire for the last five years.

This year, 696 colleagues joined the

programme on career pathways for retail,

contact centre and corporate roles.

Aspire supports colleagues with the

potential and desire to move into a wide

variety of new roles. These range from

frontline team management to corporate

and across marketing, HR, commercial,

digital and technology.

Each year at least 70% of Aspire

participants move into new roles at

the end of the programme, helping us

to nurture internal talent, drive down

external hiring costs and reduce our

time to hire.

Many Aspire participants follow an

apprenticeship programme as part of

their learning journey, supporting their

skill and capability development.

70%

Of Aspire participants

move into new roles at

the end of the programme

Our

people

033Strategic report

Diversity and inclusion

Our Manifesto includes bold targets for

diversity. We’re making progress in our

ethnic minority representation, with

notable gains against our targets. But we’re

clear there’s much more to be done. Our

UK declaration rates of more than 78%

mean we can use data to better understand

our demography and areas of concern.

In the Manifesto we state that a more

inclusive digital landscape will help us

drive productivity, innovation and growth

for our business and for the UK (see pages

36 to 39). Supporting that, we have created

a rich ecosystem of partners to help us

expand our reach into the community, create

awareness, and invest in, develop and open

up opportunities for the talent pools for the

future. Inside and outside our business, we’ve

continued to encourage inclusivity through

understanding other people’s lives better.

More broadly, we engage with colleagues

through the Colleague Board (see the

corporate governance report on pages

92 to 93) and we work with our highly

active, engaged and award-winning

People Networks. These colleague-driven

groups raise awareness and advocate for

change both inside and outside BT Group.

Our targets for 2025

Presented below is the progress made

for the year in review against our stated

Manifesto targets for gender, ethnic

minority and disability at various levels

of the organisation. Whilst we have made

progress across BT Group, we recognise

we have more to do to meet our ambitions.

Diversity data for all protected

characteristics and special category

data (as defined by UK employment law

and GDPR respectively or local laws as

relevant to other geographies) is collected

through voluntary disclosure directly into

SAP SuccessFactors (our nominated HR

system). Data is stored, reported and

used subject to local laws and advertised

employee privacy notices. Due to local

restrictions on capture and reporting of

ethnicity and disability, only information

relating to the UK is shown.

31 March 2022 31 March 2023 2025 Targets

BT Group

(excluding Openreach)

Men 65.1% 65.2% –

Women 34.9% 34.8% 46%

Ethnic minority 11. 9% 13.4% 16%

Disabled 6.9% 8.2% 14%

Openreach

Men 89.7% 89.7% –

Women 10.3% 10.3% 12%

Ethnic minority 9.4% 9.1% 10%

Disabled 6.0% 6.0% 6%

BT Group

Men 74.3% 74.3% –

Women 25.7% 25.7% 32%

Ethnic minority 10.8% 11.5% 13%

Disabled 6.5% 7.2% 10%

Board

Men 63.6% 66.6% –

Women 36.4% 33.4% 33%

Ethnic minority 2 members 2 members 2 members

Disabled 1 member 1 member –

Executive Committee

Men 63.6% 70.0% –

Women 36.4% 30.0% 33%

Ethnic minority 1 member 2 members 2 members

Disabled 0 members 0 members –

Senior leadership team

1 & 2

Men 73.9% 77.5% –

Women 26 .1% 22.5% 41%

Ethnic minority 8.0% 13.5% 15%

Black / Black heritage NR 1.0% 5%

Disability 5.3% 7.7% 10%

Senior management team

Men 64.7% 64.6% –

Women 35.3% 35.4% 41%

Ethnic minority 10.4% 9.0% 15%

Black / Black heritage 0.8% 2.3% 5%

Disability 4.5% 9.4% 10%

1 For the purpose of the UK Corporate Governance Code 2018, our leadership comprises the Executive Committee (excluding Executive Directors on the Board but including the

CEO, Openreach) and all of their direct reports (excluding admin roles). This totals 22 women (30%) and 51 men (70%).

2 For the purposes of the Companies Act 2006, our senior management comprises those employees responsible for planning, directing and controlling the activities of the group,

or a strategically important part of it (members of our senior leadership and senior management teams, and directors of the group’s subsidiaries but excluding directors on the

Board). This totals 256 women (34%) and 497 men (66%). Numbers presented include 60 subsidiary directors (39 men and 21 women) who are not otherwise members of our

leadership or senior management teams.

034 BT Group plc Annual Report 2023

Our people continued

Gender pay

This is the sixth year we’ve reported on

our gender pay gap. Our UK gender pay

gap figures have decreased favourably

this year.

Ethnicity pay

This is the third year we’ve reported

on our ethnicity pay gap. Publishing it

isn’t a legal requirement but underpins

our commitment to diversity, equity

and inclusion.

Median pay gap %

2018 20202019

Office for National

Statistics (ONS)

median

BT Group median

5.0

14.9%

4.8

17.4%

5.0

17.8%

2022

6.1

14.9%

2021

6.7

15.1%

– Our median pay gap is 6.1% (-0.6%).

– Our mean pay gap is 3.7% (-1.3%).

Both these figures continue to sit well below

the telecommunications industry 19.6%

and UK 14.9% median averages. Our figures

have improved because we’ve recruited

more women into senior roles and because

of the slight rise in female representation in

the upper 23.3% (0.3%) and lower middle

16.6% (1.3%) pay quartiles.

To close our gender pay gap we need more

balanced gender representation at all

levels, so we’re doing a lot more to attract,

hire and keep women. We’re focusing

particularly on sales and engineering roles.

You can find more examples of initiatives

– as well as pay quartile analysis, bonus

information and entity breakdowns –

in the ESG Addendum, available at

bt.com/esgaddendum

You can find more information in our

Gender Pay Gap 2022 Statement, available

at bt.com/genderpaygap

2022 2021

Mean Median Mean Median

Overall (0.3%) (1. 2%) (0.1%) (2.7%)

Asian (3.6%) (2.4%) (2.3%) (3.7%)

Black 6.6% (0.3%) 5.3% (2.7%)

Mixed 3.3% 5.2% 3.3% 6.0%

Other (6.2%) (9.3%) (8.0%) (13.8%)

– Our median UK ethnic pay gap

is -1.2%

this year compared to -2.7% in 2021.

– Our mean gap widened from -0.1% in

2021 to -0.3% this year.

The pay gaps by ethnicity (based on ONS

groups) reflect that we have low ethnic

minority representation at all levels.

Pay gaps presented are based on the

78.4% of our UK colleagues who chose

to disclose their ethnicity.

For Asian and other ethnic colleagues,

the pay gaps versus White colleagues

continues to be negative (favourable).

For Black colleagues, we’ve seen a slight

increase in median and mean pay gaps

versus White colleagues. The mean is 6.6%

(+1.3%) and the median is -0.3% (+2.4%).

For mixed ethnicity colleagues, pay gaps

are consistent with 2021, with both median

and mean in favour of White colleagues.

This is reflected by the fact there are

more Asian colleagues in higher paid

management roles, and more Black

colleagues in frontline roles such as our

engineers.

You can find more examples of initiatives

to improve representation – as well as pay

quartile analysis, bonus information and

entity breakdowns – in the ESG Addendum,

available at bt.com/esgaddendum

1 Our pay gap figures have been calculated in line

with legal obligations. They show the mean and

median pay gap (based on hourly rates of pay at

5 April 2022) and mean and median bonus gap

(based on bonuses paid in the 12 months to

5 April 2022).

Our partnerships

Purple Goat is one of the UK’s only

communications agencies run by

disabled people. We partnered with

them to deliver a series of videos

highlighting the experiences of

colleagues with a range of disabilities

– including diabetes, autism and visual

and hearing impairments.

We’ve also built relationships with

Code First Girls, Women Returners,

Black Girls Tech Summit and Girls

Talk London. These initiatives help

delegates develop their skills and

network with peers, creating more

opportunities for women to move into

technology careers.

And as lead sponsor of the Avado

FastFutures programme, we’re

helping upskill over 7,000 18-24 year

old learners from ethnically diverse

backgrounds. We want to help them

develop digital and data skills to unlock

opportunities and launch their careers.

7,000

18-24 year old learners

from ethnically diverse

backgrounds upskilled

035Strategic report

Taking care of our team

The wellbeing of our people has always

been at the heart of how we do business.

It’s in our code: “We always put wellbeing

and safety first”. It’s also in our Health and

Safety policy statement. Our strategy is

to build a team of fulfilled, safe, happy

and healthy employees in a culture where

everyone can thrive.

This year we published guidance on

fulfilling the physical, mental and cognitive

needs and expectations of our people in

relation to their work. We also launched a

psychological risk assessment tool to help

our managers and safety professionals

identify roles and ways of working that

could potentially harm our employees’

mental health. This was part of meeting our

obligations under the Health and Safety at

Work Act 1974, and aligns to the recently

published ISO45003 (‘Occupational health

and safety management - Psychological

health and safety at work’).

We’re a founder member of the World

Wellbeing Movement. This is a coalition of

global leaders from business, civil society

and academia who’ve committed to put

wellbeing at the heart of decision making

in both business and public policy. We’re

also an active member of the European

Telecommunications Network Operations

Association, inputting to the recently

announced commitment to protecting all

telecommunications workers from violence

and harassment in the workplace.

Support to colleagues

experiencing long Covid

Our Health, Safety and Wellbeing

Centre of Expertise headed up by our

Chief Medical Officer identified the

need to provide bespoke support to

colleagues experiencing the impact

of long Covid.

Working with our specialist

rehabilitation provider we created our

two-step ‘Covid Recovery Programme’

to help all employees manage the

effects of long Covid and improve

their health, wellbeing and functional

capabilities. The programme was

designed to support colleagues who

had ongoing Covid symptoms, but

not severe enough to enrol on an

NHS programme. At 4 weeks since

acute symptoms, step one provided

individuals with access to self-help

materials. At 12 weeks since acute

symptoms, a manager-initiated referral

to step two provided individuals with

access to a 4-12 week programme

offering bespoke management plans

and tailored support to facilitate

a return to work and full duties.

Between July 2021 and August 2022,

we referred 151 colleagues to step

two of the programme. The number

of those off work dropped from 46%

to 12%, and those on full duties rose

from 28% to 76%. Data taken from

validated questionnaires also indicated

a significant improvement in functional

capability, wellbeing and mental health.

151

Colleagues referred to step two of

our Covid Recovery Programme

12%

Those off work with long Covid

dropped from 46% to 12% after

referral to step two of the programme

76%

Those on full duties rose from

28% to 76% after referral to step

two of the programme

To minimise risks to our colleagues’

health and improve attendance, we have

strong health assessment processes

and safe systems of work in place. In line

with regulations, we run surveillance

programmes for colleagues doing jobs

that might affect their health, for example

around vibration and noise.

We continue to set targets for measures

of health and wellbeing, the performance

of which are reported to the Executive

Committee and Board. Sickness absence

rate was 3.87% and work-related mental

ill health was 8.3%, a 19% reduction over

last year.

Accelerating our pay award

As part of our 2023 pay review – and

following discussions with our unions –

we agreed to move forward a pay increase

from April to January to help support

colleagues facing increased living costs

from rising inflation and interest rates.

We also awarded a consolidated cost

of living pay rise of £1,500 to 85% of our

UK workforce – all our team member and

frontline grades and more than half of

UK managers.

We wanted to reach as many of our people as

possible with a genuinely meaningful raise.

Combined with the April 2022 increase, in

FY23 we delivered a total salary increase of

15% to our lowest-paid colleagues.

036 BT Group plc Annual Report 2023

Launched in 2021, the BT Group

Manifesto is our plan to accelerate

growth through responsible, inclusive

and sustainable technology.

It is rooted in our

purpose, to connect for

good, and it will help

us achieve our ambition

– to become the world’s

most trusted connector

of people, devices and

machines.

Our Manifesto includes

measurable commitments

to amplify our positive

impact for people and planet

– combined with a clear

commercial agenda.

Responsible

New tech must earn

people’s trust and

transform lives for

the better.

Inclusive

The future of tech must

be diverse and inclusive

for everyone to benefit.

Sustainable

Tech must accelerate

our journey to net

zero emissions and

a circular economy.

We will:

– invest in new growth tech to

help us live and work better

– apply responsible tech

principles across our

value chain

– partner to build a responsible

tech ecosystem that builds

trust and drives growth.

We will:

– build a diverse workforce

through our diversity and

inclusion targets

– pass 6.2m rural premises

with full fibre by the end of

2026 (as part of our 25m

build target)

– expand our 4G/5G mobile

networks across the UK,

including in rural locations

– help 25m people with digital

skills by the end of March 2026.

We will:

– be a net zero business by the

end of FY31, with suppliers

and customers net zero by

the end of FY41

– help customers avoid 60m

tonnes of CO

e by 2030

– build towards a circular

BT Group by 2030, and

a circular tech and telco

ecosystem by 2040, while

protecting nature and

biodiversity.

We contribute to the UN Sustainable Development Goals

Our

Manifesto

037Strategic report

Applying responsible tech

principles across our value chain

Our responsible tech principles help

us think about benefiting people and

minimising harm every time we develop,

buy, use and sell tech. They’re grounded

in the UN Guiding Principles on Business

and Human Rights and are part of our risk

management framework.

Our responsible tech principles are

For Good

We design and deliver tech to

empower people and improve

their lives

Accountable

We’re accountable for our

actions and take care to avoid,

and protect against, tech misuse

Fair

We work hard to ensure everyone

is treated fairly and with respect

Open

We listen, collaborate and are

transparent about our actions

Governance

Our Responsible Tech Steering Group

oversees how we implement the principles.

This year it continued looking into our

emerging risks and strategic growth

areas. It invited external experts to

help define our approach to topics like

children’s digital rights, evolving high risk

markets and customers, and new products

and innovation.

Developing new tech

We apply the principles right from the start

when we develop and design new tech.

This year we:

– launched an AI accelerator – shortening

new AI rollout time by over 90%, and

built with security and ethics in mind

– started embedding responsible tech by

design into new product development –

to build trust and drive growth

– carried out a group-wide digital child

rights impact assessment on how to

protect and empower children in their

digital lives, and made an action plan for

the year ahead.

Buying tech

Our procurement company, BT Sourced,

has responsibility and sustainability criteria

set into its processes – giving our buyers

clarity on supplier risks and opportunities.

This year we:

– started embedding our ‘Responsible

AI for Buyers’ guide into our supplier

onboarding processes

– continued to do due diligence

on our suppliers.

For details of onsite supplier audits

completed, refer to our Modern

Slavery Statement 2023 at

bt.com/modernslavery

Using tech

We want to make sure our products and

services are used for good. We focus on

protecting privacy and free expression

and helping to prevent online harms. We

support the Global Network Initiative (GNI)

Principles on Freedom of Expression and

Privacy. This year we:

– completed our first external GNI

assessment. They said we were “making

good faith efforts to implement the

GNI principles with improvement over

time” and also confirmed our strong

commitment. They also showed us

opportunities to improve our policies,

oversight in overseas jurisdictions and

related training and tools

– developed our data ethics standard.

It sets out how we use responsible tech

principles to determine what’s ‘right’ and

‘wrong’ when deciding why and how to

process data (personal or otherwise)

– created our Responsible AI standard for

building ethical AI. It will help mitigate

risk at every AI lifecycle stage – from

conception to real world monitoring.

Selling tech

We sell to customers around the world.

This year we:

– further enhanced sales due diligence

in our Global and Enterprise units. This

will help us better identify and address

potential human rights impacts of our

products and services

– delivered training to our sales

colleagues to help them understand

the enhanced process

– conducted assurance to check our

process was being followed. We

concluded it was, with some minor

exceptions which are being addressed

with additional training

– reviewed our approach to evolving

high risk markets and customers, and

strengthened our ability to respond

to them.

Responsible

New tech must earn people’s

trust and transform lives

for the better.

Inclusive

The future of tech must be

diverse and inclusive for

everyone to benefit.

Championing digital inclusion

We want to support families worst hit by

the cost of living crisis. We excluded a total

of 3m eligible customers from the April

2023 price increase. We’re the market

leader in social tariffs, currently helping

around 1m low-income and vulnerable

customers through affordable fibre

broadband and calls.

Our Home Essentials social tariff lets

customers on Universal Credit get

discounted broadband. And we’ve

launched EE Basics which mirrors the offer

for eligible mobile customers. Openreach’s

‘Connect the Unconnected’ scheme waives

connection fees for vulnerable customers,

via their communications provider. Working

with charity partner Home-Start UK, we’re

also supporting the most socially excluded

households with thousands of laptops,

mobiles and free broadband vouchers.

We’re working to develop the right digital

infrastructure so no one gets left behind.

Our full fibre broadband already passes

10.3m homes and businesses, including

3.1m in rural locations. We have the UK’s

largest and fastest 4G mobile network

and we’re rolling out 5G across the country.

See pages 18 to 19 for more.

Skilling the nation

This year we’ve helped 4.6m more UK

people and businesses improve their digital

skills – and a total of 19.3m people since

FY15. We’re on track to reach our Group

KPI target of 25m by the end of FY26

(see page 48).

Supporting small businesses

We’re helping businesses unlock their

potential through our free digital skills

programme:

– we’ve helped upskill a further 465k

businesses and their employees this year

– our webinar series provides businesses

with digital skills help and advice, on

topics from digital marketing and social

media strategy to cyber security

– our ‘Let’s Talk About’ video series

offered practical tips from successful

entrepreneurs

– we sponsored the 10th anniversary

Small Business Saturday Tour –

providing support through mentoring

sessions and webinars across the 23

UK locations visited.

038 BT Group plc Annual Report 2023

Our Manifesto continued

Sustainable

Tech must accelerate our

journey to net zero emissions

and a circular economy.

We’ve led on climate action for over 30

years. We’ve been ‘A’ rated on climate by

Carbon Disclosure Project (CDP) for the

last seven years running. But the transition

to a low carbon economy needs to happen

much faster. We’ve committed to being net

zero for our operations by the end of March

2031 and for our full value chain by the end

of March 2041. And we’ve also set goals

to help customers avoid 60m tonnes of

e and be a circular business by the end

of March 2030, building towards a circular

tech ecosystem by the end of March 2040.

Reducing carbon

emissions in our operations

We’ve cut our carbon emissions intensity

by 56%, against our science-based target

of an 87% cut by the end of March 2031

(compared to FY17 levels). This year our

performance improved due to a large

decrease in natural gas consumption. This

is also a Group KPI (see page 48).

One of the biggest ways we can cut

carbon comes from our energy usage. All

of our electricity worldwide is renewably

sourced

, powering our buildings estate,

shops and networks. This year we increased

the amount of electricity provided through

power purchase agreements – meeting

around 23% of our worldwide electricity

demand this year, and around 26% of the

UK total, supporting growth in the overall

UK grid renewables supply.

We have more to do to get to net zero.

We’ll get there by electrifying our vehicle

fleet, decarbonising our estate and

building more energy efficient networks.

Transition to electric vehicles

Over 80% of our operational emissions

come from our fleet of more than 34,000

vehicles. We’re making investments to

convert the majority of our commercial

fleet to electric or zero emission vehicles

by 2030.

Building our full fibre network has

increased emissions – from the supporting

(mainly diesel) vehicles. We’re working

hard to change the BT Group fleet and have

added more than 1,000 electric vehicles

(EVs) this year. Those EVs have travelled

more than 7.9m miles, saving over 2,200

tonnes of CO

e. In total, we have over

2,400 EVs in our fleet.

Employability skills

for young people

We're bridging the gap between education

and employment by making sure children

and young people are included in the UK's

digital skills agenda.

– 189 young people attended our work

experience events, learning the digital

and employability skills vital in today’s

workplaces. 124 of them went on to join

our apprenticeship scheme.

– Our colleague volunteers delivered

15 Skills for Work Bootcamps for

nearly 500 11-13 year-old school

pupils. The bootcamps support

teachers by encouraging STEM study

subjects and careers.

– We support the National Cyber Security

Centre’s CyberFirst programme. It aims

to encourage school pupils into cyber

and tech careers, hosting events for over

2,000 pupils in the UK.

Child online safety

With so many children and young adults

owning their own mobile phones, it

puts them at risk of harm. That’s why we

launched EE PhoneSmart – the first phone

safety licence for kids – with Internet

Matters and other experts. We’ve issued

more than 1,300 PhoneSmart licences

to children since launch. And over 3,800

children have signed up to the scheme’s

online educational training.

EE teamed up with Beano to create a series

of animated comics and videos on how kids

can learn to stay safe and be kind online.

These have already given advice to more

than 400k parents.

Tackling online hate

Our Hope United campaign is part of EE’s

ongoing commitment to delivering positive

societal change. Hope United is a team

of elite professional football players from

all four home nations brought together

to tackle online hate. So far, it’s helped

educate 7.4m people on how to be good

digital citizens. The award-winning “Not her

problem” campaign tackled sexist hate and

ran during the UEFA Women’s Euros 2022.

India skills partnership

With our partner The British Asian Trust, BT

India has reached over 1m girls since 2019

with digital skills, STEM career guidance

and job opportunities. We’ve also helped

launch a smartphone library and helped

match 12,000 mentors to mentees through

a BT-developed app.

UNICEF partnership

We’ve partnered with UNICEF to enable

digital skills development around the

world via the Digital Learning Passport.

The passport is a tech platform providing

schoolchildren with online and offline

access to quality educational resources.

Since its 2020 launch, it’s helped more

than 2m users in 23 countries.

Digital talent pipeline

We’re developing digital talent for

BT Group and the whole UK. We’re building

a Digital Campus (a one-stop learning shop

and community) so our people can be at

the cutting edge of digital tech.

Together with other big UK employers,

we’re an Avado FastFutures programme

partner. We’re helping a diverse range of

young people (ages 18-24) get into digital

roles, supporting the government’s skills

agenda. So far, it’s helped over 7,000

young people build their networks, gain

experience and accelerate their careers.

Our colleagues are involved – mentoring

over 300 participants this year. We’re now

the programme’s lead sponsor.

Diversity and inclusion

Embracing diversity and inclusion is core

to our people strategy and critical to

our growth. We’ve set big ambitions to

champion a more inclusive culture across

BT Group.

Read more on how we’re achieving this

on page 33.

1 99.9% of the global electricity BT Group

consumes is from renewable sources. The

remaining 0.1% is where renewable electricity

is not available in the market.

039Strategic report

We’re still pushing for policy measures

to support a wider UK EV transition as a

member of the UK Electric Fleets Coalition,

who this year published a seven-point

policy plan to encourage Government

momentum on EVs.

Decarbonising our

buildings estate

We cut our global energy consumption by

an extra 77GWh this year – a reduction of

nearly 3%. We’re decarbonising our estate

through our Better Workplace Programme

by consolidating hundreds of buildings to

around 30.

Our new and refurbished buildings are

designed with environmental impact firmly

in mind, with new-builds constructed to the

BREEAM

-Excellent standard.

Our new Bristol Assembly building has now

opened. We expect it to save more than

140 tonnes of CO

e a year to start with –

rising to over 500 tonnes as we reduce our

buildings estate in the area.

Building energy

efficient networks

We’re building more energy efficient

networks that are renewably powered,

whilst switching off our old networks. As

well as saving energy, full fibre networks can

better handle the effects of physical risks

like flooding and higher temperatures. That

means fewer faults or engineering visits.

See page 78 for more.

Cutting carbon emissions

across our value chain

Our Scope 3 carbon emissions account for

95% of our overall emissions. They come

mainly from our supply chain and from

customers using our products and services.

Decarbonising the grid and improving our

products’ energy efficiency will help cut

customer emissions.

Since FY17, we’ve cut our Scope 3 net

emissions by 21% to 3,289ktonnes of

e this year. This is an increase on FY22,

caused by additional spend on carbon-

intensive goods and services associated

with our full fibre rollout.

Helping suppliers cut carbon

We continue to work with suppliers to

cut carbon. We’ve cut supply chain

emissions by 20% since FY17, and we’re

targeting a 42% reduction target by FY31.

We’ve hardwired carbon reduction into

supplier contracts. Climate clauses commit

11 of our key suppliers to make measurable

carbon savings during the life of their

contracts with us.

We require suppliers with new contracts over

£25m to sign up to science-based net zero

targets. We encourage our key suppliers to

report to CDP to improve visibility and action

on emissions. Today more than 200 of them

are doing so. We have been recognised for

our supply chain leadership, through the

CDP supplier engagement leader board for

the sixth consecutive year.

We continued our collaboration with the

1.5°C Supply Chain Leaders initiative to drive

climate action across global supply chains,

and support small- and medium-sized

enterprises through the SME Climate Hub.

Helping customers cut carbon

There's huge potential to use our networks,

products and services to help customers

cut their emissions. We’ve set a target to

help customers avoid 60m tonnes of carbon

by the end of March 2030. They avoid

carbon by using new technologies like full

fibre broadband and mobile solutions, plus

growth technologies like cloud computing

and the Internet of Things (IoT).

This year we’ve:

– helped customers avoid over 935,000

tonnes of carbon, mainly through full

fibre broadband reducing personal or

work-related travel. As we develop more

products and services like IoT and AI we

expect this number to grow

– launched an AI-powered edge

computing solution in partnership with

QiO, helping business customers cut

carbon by optimising energy use across

their operations

– introduced real-time energy and carbon

dashboards for larger customers –

helping them estimate their network’s

carbon footprint and start to drive

emissions reductions

– continued working with tech scale-

up partners through our Green Tech

Innovation Platform – developing

breakthrough manufacturing tech to

support the race to net zero.

Circularity

Developing a circular economy is a vital

step in achieving a net zero economy.

Around 70% of global greenhouse gas

emissions come from material use and

handling

. We want to become a circular

business by 2030 – and build towards a

circular tech ecosystem by 2040.

For our operational waste, we’re aiming for

zero waste to landfill by 2030, by increasing

the amount we reuse and recycle. Globally,

we generated 80,665 tonnes of operational

waste this year, 83% more than in FY22. That

significant increase was largely due to the

increased network infrastructure build within

Openreach, which generated a high volume of

heavy material, such as soil and construction

spoils. Our UK recycling, reuse and recovery

rate was 89.4% (88.5% globally).

Our return rate for leased customer

premises equipment was 68.2% during

2022 – up 6.5% on 2021 (our target is 75%

by 2026

). Overall, customers returned

more than 1.8m home hubs and set-top

boxes to us and through our refurbishment

operation, we reused 83% and recycled

the rest. As well as promoting more

circularity, we also save on manufacturing

and shipping costs. We also collected over

190k mobile devices through consumer

and business trade-in schemes, all of which

were reused or recycled.

We rolled out our nationwide EE superfast

in-store phone repair service, with

customers able to get their phones fixed

in as little as two hours. We joined the

Eco Rating initiative for mobile devices,

providing an overall environmental impact

score to help customers make more

informed and sustainable choices.

We’re also launching more sustainably

designed new home hubs and TV boxes –

design features include up to 95% recycled

plastic in the casing, using fewer materials,

and reducing or completely removing plastic

packaging. This supports our policy to

reduce and remove single-use plastics while

using more recycled polymers by 2025.

A new partnership with Cisco is also letting

business customers return old network

devices for reuse and recycling. And 1,279

tonnes of network equipment have been

reused or recycled through our Exchange

Clearance Operations programme –

working with partners N2S and TXO.

Biodiversity

This year we ran a pilot to explore our

impact on nature, in line with the draft

Taskforce on Nature-related Financial

Disclosures framework. Openreach has

set up a working group to look at the

operational impacts of infrastructure build

on nature. Openreach has also joined the

UK Business and Biodiversity Forum.

Water consumption

Our UK water use rose by 7.6% this year to

1,531,893m

, due mainly to an increase in

adiabatic cooling during the above average

summer heat. Using water self-supply has

helped us save nearly £3m since 2019, and

has allowed us to improve how we monitor

water usage, pinpoint areas of concern and

fix leaks in order to minimise water wastage.

Our Task Force on Climate-related

Financial Disclosures statement

can be found on page 71, and our

detailed environmental data can

be viewed in the ESG Addendum

(bt.com/esgaddendum)

2 Building Research Establishment’s Environmental

Assessment Method, the world’s leading

sustainability assessment for infrastructure.

3 Circle Economy – The Circularity Gap Report 2022

https://circulareconomy.europa.eu/platform/en/

knowledge/circularity-gap-report-2022-five-years-

analysis-circle-economy.

4 This target only relates to equipment which is leased

to our consumers under their contract terms.

BT Group plc Annual Report 2023040

Our stakeholders

Our internal and external stakeholders play

a crucial part in our strategy of building the

strongest foundations, creating standout

customer experiences and leading the way

to a bright, sustainable future.

Colleagues, customers, shareholders, the

communities we do business in, suppliers,

UK Government and regulatory bodies are

all key stakeholders. We connect with them

at all levels of our business. That includes

frontline operations, CFUs, CUs and TUs,

senior leadership, the Executive Committee

and the Board and its committees.

We engage with them in lots of different

ways – from meetings and conferences

to reviews, forums and webcasts. To

understand how well we’re engaging

with different groups, the Board and

its committees get regular updates

from relevant parts of the business and

from stakeholders themselves. They

use them to make better decisions, give

feedback and constructively challenge

activities, programmes and initiatives

being considered.

Our stakeholder management group

risk category recognises just how

important they are to our business.

You can read more on page 63.

Our Section 172 statement on pages

94 to 95 gives examples of how the

Board and its committees took our

stakeholders’ interests into account

in decision making during the year.

Better

together

041Strategic report

Colleagues

Engaging with colleagues is

critical to creating a culture

where they can be their best

and contribute to our purpose,

ambition, strategy and

long-term success.

Our colleagues need us to

Create a work environment that helps

them be their best

Give them flexible and agile ways

of working

Provide brilliant training, development

and career opportunities

Reward performance with fair and

competitive pay and benefits.

How we engage with colleagues

– Our Board gets regular updates from

the Chief Executive and Chief Human

Resources Officer – on colleagues, key

people strategy initiatives, culture and

overall sentiment in the organisation.

– The Board uses the Colleague Board to

engage with our workforce under the UK

Corporate Governance Code 2018.

See pages 92 to 93 of the corporate

governance report for more details.

– Every year colleagues tell us how it

feels to work here through our Your Say

survey. We’ve expanded this to include

quarterly pulse surveys in several units.

– Our People Networks are colleague

groups that share opinions and ideas with

our leadership to make us more diverse

and inclusive. Each is supported by an

executive sponsor.

– We also formally engage with our

European Consultative Council and EE

employee representatives in the UK.

The results

– This year engagement fell six points

to 73% – just above the 70% external

benchmark but continuing the downward

trend from the last survey in 2021.

– The post-Covid return to work, cost of

living increases and industrial action

have led to a turbulent year where

engagement fell as a result, notably in

Openreach. In response and to address

areas of concern we continue to focus on

our leadership capability, in-unit change

management together with the cost of

living pay award and our D&I agenda

detailed further in the people section.

See pages 32 to 35.

– ‘Getting things done here is

straightforward’ at 42% still trails

behind other metrics. We’re working to

address this through our group-wide

modernisation programmes.

– Perceptions of management are still very

high with almost no change since 2022.

– We’re still getting high scores for

supporting colleagues to do the right

thing for customers (81%, down 3%

from 2022).

See pages 32 to 35 for more details on

what we’re doing for our colleagues

outside of direct engagement.

042 BT Group plc Annual Report 2023

Customers

Our goal is to offer standout

experiences to our customers

through outstanding service

and smarter, differentiated

solutions and outcomes.

We serve a wide range of customers with

differing needs, from individuals to multi-

national businesses and governments.

We actively engage with them to get a

deeper understanding of their current

and future needs.

Our customers need us to

Connect them to their digital worlds

through dependable, high-quality

solutions

Provide trustworthy experiences and

outcomes that align with their needs

Offer excellent service through in-store

support teams, call centres and

digital channels

Ensure the security and privacy of their data

Offer all the above at a price that’s great

value for money.

How we engage with customers

– We understand our customers’ needs

using research techniques and data

sources driven by our award-winning

insight centre of excellence.

– Our business units, the Executive

Committee and the Board monitor

how we’re delivering for customers

– regularly tracking and reviewing

metrics including NPS.

– The Chief Executive, Executive Committee

and senior management teams regularly

review customer complaints.

– Our Customer Inclusion Panel, Customer

Fairness Panel, our Global Advisory

Board and Security Advisory Board,

help us better understand customer

needs and experiences through direct

conversations with customers.

– Openreach engages its CP customers

through a transparent and compliant

consultation process.

The results

– Our panels and boards help us

understand our customers’ needs and

the challenges they face.

– Reviewing our performance against

customer experience metrics helps us

to identify and then address areas for

improvement.

– These insights inform our strategy,

drive operational improvements and

innovation and shape our brands.

See pages 24 to 25 for more information

on our customer experience

performance.

Shareholders

We have both equity and debt

investors. Our equity investors are

corporates and institutions (who

hold the biggest volume of shares)

and around 641k individuals.

Our debt investors are mainly financial

institutions who buy our publicly traded

bonds. They’re crucial to making sure we have

access to debt capital to finance our business.

We have an investment-grade credit rating

based on the strength of our balance sheet,

our scale and competitive market position.

Our shareholders need us to

Deliver a return on their investment

through dividends and capital growth

Perform well against our long-term

strategy and outlook.

How we engage with

shareholders and the results

– We engage with shareholders through

our investor relations activities, Annual

Report, financial results, AGM and other

documents and briefings.

– The AGM is a chance for Board directors

to meet shareholders. In 2022 it was

held in Birmingham with all resolutions

passed and published on bt.com/agm.

We’ll publish the arrangements for the

2023 AGM in the Notice of meeting (see

page 136).

– Individual shareholders interact with the

Company Secretary (or their delegate)

and also our share registrar Equiniti.

– Institutional and debt investors engage via

our investor relations team – through one-

to-one conversations, roadshows, group

meetings, conferences and industry events.

– The Chairman, directors, Chief Executive,

Chief Financial Officer, other executives

and our investor relations team had 320

investor meetings this year. Topics included:

– our strategy and competitive position

in key markets

– our financial and operational

performance (particularly in the

context of inflation, energy and pay

costs and CPI-linked pricing)

– capital investment (including

FTTP and 5G)

– our capital allocation policy

– prospective governmental and

regulatory policy decisions

– our pension fund valuation.

– The Board receives regular reports on top

shareholders, movements in the share

engagement with investors and analysts.

It discusses and considers issues with

management as part of its decision making.

Our stakeholders continued

043Strategic report

Communities

We’re at the heart of the

communities we serve, helping

bring them together.

We need them to trust us. Without that,

we couldn’t deliver our growth plans or

our purpose – to connect for good.

The communities

we serve need us to

Give them reliable and secure connections

Help local people and businesses get more

from the digital world

Provide direct and indirect employment

Do business ethically and responsibly and

protect the environment.

How we engage with communities

– Community members use our products

as part of their daily life and work.

– We provide support through our retail

stores and contact centres, and we offer

home visits to set up, install and maintain

our services.

– Our digital inclusion and wider societal

programmes bring digital skills training

to millions of UK people, and supports

one of our Group KPIs (see page 48).

– We use customer surveys and reputation

tracking to understand community

perceptions of us and inform our focus

areas and targets.

– Our Executive Committee reviews this

feedback monthly and it’s shared with

the Board quarterly.

– The Digital Impact & Sustainability

Committee

oversees our societal

programmes – tracking feedback and

performance through a dashboard

shared at each meeting.

The results

We make a significant economic

contribution to UK communities:

– We’re one of the UK’s biggest private

sector apprenticeship employers –

hiring more than 2,600 apprentices and

graduates over the past four years.

– We support a total of 284,000 UK full

time jobs indirectly.

– We spend over £9.3bn a year with UK-

based suppliers and support £1 in every

£80 of UK Gross Value Added.

– We’ve expanded our full fibre to 3.1m

rural homes and businesses as part of

our 6.2m aim by December 2026.

– We’re extending 4G coverage to rural

areas through the shared rural network

initiative, and we aim to reach 90% of the

UK’s geography with our 5G network by

2028 (see page 19).

– We give extra support to around 1m

households through our social tariffs

and subsidised products (see page 37).

– With our partner Home-Start UK,

we’ve supported the most socially

excluded households by donating

thousands of laptops, mobiles and

free broadband vouchers.

– We also donated over £1.5m to

1,156 charities through colleagues’

payroll contributions.

– Our colleagues volunteered more

than 61,000 hours of their time to our

charity partners and communities –

including sharing skills and expertise

through mentoring and digital skills

training programmes.

– We also support communities through

our Manifesto commitments, including

our digital skills help initiative which this

year reached a further 4.6m people (see

pages 37 to 38).

£9.3bn

We spend over £9.3bn

a year with UK-based suppliers

61,000

Our colleagues volunteered more

than 61,000 hours of their time to our

charity partners and communities

1 On 6 April 2023, the Digital Impact & Sustainability

Committee’s name changed to the Responsible

Business Committee.

2 ‘The Economic Impact of BT Group plc in the UK’,

Hatch – 2023 Edition, based on FY22 data.

044 BT Group plc Annual Report 2023

Our stakeholders continued

Suppliers

Good supplier relationships are

essential for our success. They

help us deliver the solutions

and propositions that create

standout customer experiences.

Our suppliers need us to

Pay them in line with agreed terms

Help them optimise their own supply chains

and cash flow management

Act ethically and transparently.

How we engage with suppliers

We need to know who we’re doing business

with and who’s acting on our behalf. So we:

– Choose suppliers based on principles that

make sure we act ethically and responsibly

– Undertake due diligence on suppliers

before and after we sign a contract,

which covers financial health, anti-

bribery and corruption. And whether

they meet our standards on areas such

as quality management, security and

data privacy

– Check the things we buy are made,

delivered and disposed of in a socially

and environmentally responsible way

– Measure suppliers’ energy use,

environmental impact and labour

standards, and work with them to

improve these.

In April 2021 we launched BT Sourced, a

standalone procurement company based

in Dublin. BT Sourced has been established

to challenge the traditional ways of

buying goods and services by simplifying

processes and introducing new technology

and partnership-based approaches to the

way we work with suppliers and start-ups.

Below are some of the key initiatives

BT Sourced has delivered this year.

– We partnered with Candex, a fintech

company, to simplify bringing on

board suppliers for small off-contract

purchases. It also gives us a better view

of the diversity of our suppliers.

– We deployed Globality’s AI-powered

platform for sourcing across a range of

business areas. We’re also working with

Globality to scope requirements more

precisely, find suppliers in real-time,

compare proposals and make better,

data-driven buying decisions.

– Responding to small and midsize

business’ (SMBs’) cash flow

management concerns, we implemented

C2FO’s early payment marketplace. It

gives our suppliers the working capital

they need to grow.

– We’ve put a big focus on supply and

procurement risk management this year

(see page 62). We’ve designed a new

risk management framework for supply

management and we’ve developed

our internal controls arrangements,

as part of our wider group key controls

framework (see page 61). This will

manage supply-related enduring risks

more consistently and efficiently and

make our supply chain more resilient.

– BT Sourced is investing in data science.

Our negotiation analytics teams are

creating custom-made predictive

analytics products which will help our

sourcing teams.

The results

– Our partnership with Candex has cut

a 7-day task to 7 minutes and allowed

suppliers to deliver what we need

faster. They get a simpler, more flexible

experience and get paid quicker too.

– In 2022, 50% of suppliers onboarded

by Candex have self-declared with a

diversity status (e.g. small business,

minority-owned).

– Our buyers have placed more than 400

projects on the Globality Platform.

BT Sourced used it to automate admin-

heavy tasks – cutting go-to-market

time for a typical sourcing project from

approximately 7-10 working days to 3-4.

– SMBs can now rely on efficient and

timely payment via the C2FO platform –

helping them free up cash to invest and

develop their business.

045Strategic report

UK Government

We add over £24bn to the UK

economy each year

. We support

vital services and work with

more than 1,250 public sector

customers.

Our networks make sure things like

welfare, tax, health, social care, police and

defence function, while protecting citizens’

personal data.

Our relationship with Government also

underpins our three strategic pillars,

allowing us to contribute to policies

and initiatives that promote the best

stakeholder outcomes.

Our Government stakeholders

need us to

Keep investing in our network

infrastructure

Provide the fastest, most reliable and

secure connection possible – to the widest

possible range of communities

Invest in the best products and services, at

fair prices, with brilliant customer service

Support vulnerable customers through

tough economic times.

How we engage with Government

and the results

– We run the UK’s critical national

infrastructure and support national

security. Our priority is fulfilling our

responsibilities and obligations to our

customers and country.

– Our policy and public affairs team

manages relationships with government

and politicians.

– Enterprise manages public sector

contracts and services like the

Emergency Services Network.

– Under the Communications Act 2003,

the Government can ask us (and

others) to run or restore services during

disasters. The Civil Contingencies Act

2004 also says that the Government can

impose obligations on us (and others) in

emergencies, or in connection with civil

contingency planning.

– We have an open dialogue with

Government through our Chairman,

Chief Executive and leaders – as well

as through consultation responses

and cross-industry initiatives. Those

conversations help us build support for

policies that will deliver good results for

the UK and our shareholders.

– Our public policy work with Government

covers a wide territory, including

infrastructure investment, national

security, regulating online harms and

trade and economic policy.

– This year we contributed to government

initiatives including wireless

infrastructure strategy, supply chain

diversification, data strategy, drones

and AI. We gave input and evidence

on key legislation including the Digital

Markets, Competition and Consumer

Bill, the Online Safety Bill, and the

Product Safety and Telecommunications

Infrastructure Act 2022.

– The Board is updated on government

discussions through the Chairman, Chief

Executive and Executive Committee

members. The Board provides views and

comments in response.

Regulators

Communications and TV

services are regulated.

These rules protect consumers

and promote competition.

Other ancillary services that we provide,

notably consumer finance products, are

also regulated.

If we don’t engage effectively with our

regulators, we risk unnecessary regulatory

intervention which could stand in the way

of us achieving our strategy.

Our main regulatory relationship is

with Ofcom in the UK. The main source

of Ofcom’s powers and duties is the

Communications Act 2003, which gives

it general economic and consumer

regulatory powers for the sector.

We also engage with other regulatory bodies

like the Competition and Markets Authority,

the Financial Conduct Authority and the

Information Commissioner’s Office.

Ofcom needs to

Advance citizens’ and consumers’

interests, often by promoting competition

Encourage investment and innovation

Support investment in the UK’s critical

digital infrastructure.

How we engage with Ofcom

and the results

– We have a positive, open dialogue with

Ofcom through our Chairman, Chief

Executive and senior leaders. Our

conversations focus on how regulation

can support its ambition for a world

class UK digital infrastructure and allow

efficient investment, while keeping the

market fair and competitive.

– In 2017, we put in place the

Commitments. These provide

Openreach with a greater degree of

strategic and operational independence,

in line with objectives set out in Ofcom’s

Digital Communications Review.

– On behalf of the Board, the BT Compliance

Committee checks that we’re adhering to

the Commitments – including in our culture

and colleagues’ behaviour. It hears from

a range of stakeholders. Ofcom is next

scheduled to attend a BT Compliance

Committee meeting in July 2023.

– We continue to engage with Ofcom

and CPs to reassure them we’re

adhering to both the letter and spirit

of the Commitments.

– The Board is regularly updated on any

key meetings between Ofcom and the

Chairman, Chief Executive and others.

1 ‘The Economic Impact of BT Group plc in the UK’,

Hatch – 2023 Edition, based on FY22 data.

046 BT Group plc Annual Report 2023

Colleagues

See pages 21 to 23, 32 to 35,

41, 91 to 93 and 94.

Environment

See pages 30, 38 to 39, 48,

71 to 80, 94 and 107.

Social & community

See pages 30 to 31, 36 to 39,

43, 48 and 94.

Human rights

See page 37.

Anti-bribery

& corruption

Policies

Employee wellbeing has always been at the

heart of what we do in BT. It’s in our code: We

always put wellbeing and safety first and

it’s also written into our Health, Safety and

Environment Group Policy. Our strategy is

to help build a team of fulfilled, safe, happy

and healthy employees in a culture where

everyone can thrive. We do this by providing

wellbeing programmes to support and

enhance employee performance, resilience,

happiness and engagement.

International standard ISO 45003

‘Psychological health and safety at work’

says that psychosocial risk management

must have commitment from all levels and

functions, especially top management.

We agree with the concepts raised in

the standard, and apply them to help

prevent work-related injuries or ill-health

in colleagues, and to promote positive

wellbeing at work.

Our Diversity and Inclusion Strategy is a

programmatic, evidence-based approach

to help us understand and remove bias

and other cognitive barriers from policies,

processes, systems and decision making.

It supports our aim to build the strongest

foundations by making sure we apply an

inclusion lens to everything we do and by

promoting a culture where colleagues

can thrive.

Our Health, Safety and Environment Group

Policy details how we’re protecting the

environment and building a more sustainable

future. It prioritises cutting carbon emissions

(our biggest environmental impact) and

being energy efficient.

It sets out our commitment to partnering

with stakeholders. It’s supported by our

environmental strategy and goals of

becoming a net zero and circular business.

Every year we report on how we’re doing in

our operations and wider value chain (see

pages 38 to 39).

The BT Group Manifesto is rooted in our purpose.

It’s supported by commitments on the themes of

responsible, inclusive and sustainable.

It recognises we’ll only succeed if we help solve some

of the problems faced by the societies and customers

we serve. In particular, our commitment to help give

people digital skills will benefit wider society.

Our BT Group charity approach explains how we

partner with charities and support our people’s

volunteering work.

Our Human Rights Policy explains how we respect

and champion human rights in our business and

relationships with others.

It’s supported by our responsible tech principles.

Our Manifesto reinforces these principles and our

respect for human rights.

Being trusted: our code sets out promises including

our zero-tolerance approach to bribery and

corruption. It’s supported by a specific Anti-Bribery

and Corruption (ABC) Standard.

The code describes our values and behaviours and

how we expect everyone who works here (or on our

behalf) to do business.

It also covers extra policy areas like human rights,

and equality and diversity. And it provides an

ethical framework for our ambition to become

the world’s most trusted connector of people,

devices and machines.

It shows – through our commitment to doing the

right thing – how stakeholders can depend on us.

Due

diligence

We plan against three aspirations – Promote,

Support and Restore.

From this we create focused, evidence-based

interventions and campaigns. These promote

the importance of wellbeing and ensure all

our people can access wellbeing support

and services.

We also work with stakeholders across

the business to make sure our wellbeing

approach is consistent, integrated and part

of our culture.

We review policies every year, updating them

when needed. We update the Board and

Executive Committee regularly.

We coordinate Health and Safety through

our Group Health, Safety & Environment

Sub-Committee and with our unions through

the Good Work Forum.

Our established governance processes

make sure we integrate D&I into decisions

and policy development.

We report to the Executive Committee on

our strategy’s relevance and effectiveness

and on progress against our diversity

targets. We also update the Board.

Our People Networks champion members’

concerns and are sponsored by Executive

Committee members or by the CEO,

Openreach. Our Colleague Board also helps

shape and influence D&I plans.

We review policies every year, updating

them when needed.

You can read more about the Colleague

Board on pages 92 to 93 and on other ways

we engage with colleagues on page 41.

We monitor and manage our environment

strategy and risks through the Group Health,

Safety & Environment Sub-Committee,

acting on the Executive Committee’s behalf.

The Digital Impact & Sustainability

Committee has overseen progress –

including our group KPI target to cut our

operations’ carbon emissions intensity by

87% by FY31 (see page 48).

We review and update this policy every year.

The Digital Impact & Sustainability Committee:

– has overseen our Manifesto commitments

and progress

– has reviewed our strategy and progress on

societal programmes and targets

– has monitored progress against our group KPI

of reaching 25m people with help to improve

their digital skills by FY26.

We have processes to identify and tackle

potential and actual human rights impacts across

our business. That includes checking we apply

responsible tech principles to developing, buying,

selling and using tech.

Our Responsible Tech Steering Group oversees

implementation of the principles. It reports to the

Digital Impact & Sustainability Committee at least

twice each year.

Respecting human rights is part of mandatory

annual training for colleagues. We also do targeted

training for teams most likely to encounter human

rights issues.

We identify, measure and tackle human rights

impacts through our Speak Up whistleblowing

service, and through risk assessments and

onsite audits.

We do due diligence on third parties, engage

external providers to assess higher risk areas, and

use an integrity risk dashboard to identify potential

focus areas.

We take a risk-based approach to our third party

due diligence. And we have enhanced approval,

due diligence and monitoring processes in place for

higher risk third parties.

Outcomes

There are details of what we’ve done to apply

our policy on page 35.

You’ll find information on absence rates

and other wellbeing metrics in our ESG

Addendum at bt.com/esgaddendum

Our strategy creates a culture that embraces

D&I and embeds it into our key decisions.

There are details of what we’ve done this

year to support our strategy, together with

the latest D&I statistics, on page 33.

You can read more on our plans and

performance, including progress on

becoming a net zero carbon emissions

business, on page 38 to 39 and in our ESG

Addendum at bt.com/esgaddendum

We report on how we invest in communities

on page 43.

You can read more on our Manifesto and what we’ve

achieved this year on pages 36 to 39. That includes

progress on helping people improve their digital

skills (a group KPI).

We’ve been externally assessed against the Global

Network Initiative (GNI) principles.

GNI said we were committed to the principles –

with an opportunity to improve policies, oversight,

training and tools.

We’ve further enhanced our Enterprise and Global

sales due diligence. This will help us better identify

and tackle potential human rights impacts from our

products and services.

We report on our responsible tech principles on

page 37.

All colleagues get mandatory training on our

code. We also publish communications that

reinforce policies.

Our annual employee engagement survey includes

questions on ethical perception, with results shared

with senior management.

Our whistleblowing service lets anyone who works

for (or with) us to confidentially report anything

that goes against our code. This includes bribery,

corruption, human rights violations, bullying or

harassment. Our whistleblowing service had

659 reports this year.

There are more details in our

Modern Slavery Statement at

bt.com/modernslavery

Risks

We reflect wellbeing as part of the people

and health, safety and environment group

risk categories on page 68.

We reflect D&I risks in our people group risk

category on page 68.

We consider the impact of environmental

and climate-related risks across our whole

business – including our stakeholder

management, supply management, health,

safety and environment, and operational

resilience group risk categories – on pages

63 to 70.

We’re acting to mitigate key physical climate

risks and our environmental impact in lots

of areas.

You can read more on pages 38 to 39 and in

our Task Force on Climate-related Financial

Disclosures statement on pages 71 to 80.

We consider digital inclusion risks as part of our

stakeholder management group risk category

on page 63.

We consider human rights risks as part of our

stakeholder management group risk category

on page 63.

We consider ABC and ethical conduct risks within

the legal compliance group risk category – where

risks apply across our operations generally. See

page 66.

Non-financial information

047Strategic report

Colleagues

See pages 21 to 23, 32 to 35,

41, 91 to 93 and 94.

Environment

See pages 30, 38 to 39, 48,

71 to 80, 94 and 107.

Social & community

See pages 30 to 31, 36 to 39,

43, 48 and 94.

Human rights

See page 37.

Anti-bribery

& corruption

Policies

Employee wellbeing has always been at the

heart of what we do in BT. It’s in our code: We

always put wellbeing and safety first and

it’s also written into our Health, Safety and

Environment Group Policy. Our strategy is

to help build a team of fulfilled, safe, happy

and healthy employees in a culture where

everyone can thrive. We do this by providing

wellbeing programmes to support and

enhance employee performance, resilience,

happiness and engagement.

International standard ISO 45003

‘Psychological health and safety at work’

says that psychosocial risk management

must have commitment from all levels and

functions, especially top management.

We agree with the concepts raised in

the standard, and apply them to help

prevent work-related injuries or ill-health

in colleagues, and to promote positive

wellbeing at work.

Our Diversity and Inclusion Strategy is a

programmatic, evidence-based approach

to help us understand and remove bias

and other cognitive barriers from policies,

processes, systems and decision making.

It supports our aim to build the strongest

foundations by making sure we apply an

inclusion lens to everything we do and by

promoting a culture where colleagues

can thrive.

Our Health, Safety and Environment Group

Policy details how we’re protecting the

environment and building a more sustainable

future. It prioritises cutting carbon emissions

(our biggest environmental impact) and

being energy efficient.

It sets out our commitment to partnering

with stakeholders. It’s supported by our

environmental strategy and goals of

becoming a net zero and circular business.

Every year we report on how we’re doing in

our operations and wider value chain (see

pages 38 to 39).

The BT Group Manifesto is rooted in our purpose.

It’s supported by commitments on the themes of

responsible, inclusive and sustainable.

It recognises we’ll only succeed if we help solve some

of the problems faced by the societies and customers

we serve. In particular, our commitment to help give

people digital skills will benefit wider society.

Our BT Group charity approach explains how we

partner with charities and support our people’s

volunteering work.

Our Human Rights Policy explains how we respect

and champion human rights in our business and

relationships with others.

It’s supported by our responsible tech principles.

Our Manifesto reinforces these principles and our

respect for human rights.

Being trusted: our code sets out promises including

our zero-tolerance approach to bribery and

corruption. It’s supported by a specific Anti-Bribery

and Corruption (ABC) Standard.

The code describes our values and behaviours and

how we expect everyone who works here (or on our

behalf) to do business.

It also covers extra policy areas like human rights,

and equality and diversity. And it provides an

ethical framework for our ambition to become

the world’s most trusted connector of people,

devices and machines.

It shows – through our commitment to doing the

right thing – how stakeholders can depend on us.

Due

diligence

We plan against three aspirations – Promote,

Support and Restore.

From this we create focused, evidence-based

interventions and campaigns. These promote

the importance of wellbeing and ensure all

our people can access wellbeing support

and services.

We also work with stakeholders across

the business to make sure our wellbeing

approach is consistent, integrated and part

of our culture.

We review policies every year, updating them

when needed. We update the Board and

Executive Committee regularly.

We coordinate Health and Safety through

our Group Health, Safety & Environment

Sub-Committee and with our unions through

the Good Work Forum.

Our established governance processes

make sure we integrate D&I into decisions

and policy development.

We report to the Executive Committee on

our strategy’s relevance and effectiveness

and on progress against our diversity

targets. We also update the Board.

Our People Networks champion members’

concerns and are sponsored by Executive

Committee members or by the CEO,

Openreach. Our Colleague Board also helps

shape and influence D&I plans.

We review policies every year, updating

them when needed.

You can read more about the Colleague

Board on pages 92 to 93 and on other ways

we engage with colleagues on page 41.

We monitor and manage our environment

strategy and risks through the Group Health,

Safety & Environment Sub-Committee,

acting on the Executive Committee’s behalf.

The Digital Impact & Sustainability

Committee has overseen progress –

including our group KPI target to cut our

operations’ carbon emissions intensity by

87% by FY31 (see page 48).

We review and update this policy every year.

The Digital Impact & Sustainability Committee:

– has overseen our Manifesto commitments

and progress

– has reviewed our strategy and progress on

societal programmes and targets

– has monitored progress against our group KPI

of reaching 25m people with help to improve

their digital skills by FY26.

We have processes to identify and tackle

potential and actual human rights impacts across

our business. That includes checking we apply

responsible tech principles to developing, buying,

selling and using tech.

Our Responsible Tech Steering Group oversees

implementation of the principles. It reports to the

Digital Impact & Sustainability Committee at least

twice each year.

Respecting human rights is part of mandatory

annual training for colleagues. We also do targeted

training for teams most likely to encounter human

rights issues.

We identify, measure and tackle human rights

impacts through our Speak Up whistleblowing

service, and through risk assessments and

onsite audits.

We do due diligence on third parties, engage

external providers to assess higher risk areas, and

use an integrity risk dashboard to identify potential

focus areas.

We take a risk-based approach to our third party

due diligence. And we have enhanced approval,

due diligence and monitoring processes in place for

higher risk third parties.

Outcomes

There are details of what we’ve done to apply

our policy on page 35.

You’ll find information on absence rates

and other wellbeing metrics in our ESG

Addendum at bt.com/esgaddendum

Our strategy creates a culture that embraces

D&I and embeds it into our key decisions.

There are details of what we’ve done this

year to support our strategy, together with

the latest D&I statistics, on page 33.

You can read more on our plans and

performance, including progress on

becoming a net zero carbon emissions

business, on page 38 to 39 and in our ESG

Addendum at bt.com/esgaddendum

We report on how we invest in communities

on page 43.

You can read more on our Manifesto and what we’ve

achieved this year on pages 36 to 39. That includes

progress on helping people improve their digital

skills (a group KPI).

We’ve been externally assessed against the Global

Network Initiative (GNI) principles.

GNI said we were committed to the principles –

with an opportunity to improve policies, oversight,

training and tools.

We’ve further enhanced our Enterprise and Global

sales due diligence. This will help us better identify

and tackle potential human rights impacts from our

products and services.

We report on our responsible tech principles on

page 37.

All colleagues get mandatory training on our

code. We also publish communications that

reinforce policies.

Our annual employee engagement survey includes

questions on ethical perception, with results shared

with senior management.

Our whistleblowing service lets anyone who works

for (or with) us to confidentially report anything

that goes against our code. This includes bribery,

corruption, human rights violations, bullying or

harassment. Our whistleblowing service had

659 reports this year.

There are more details in our

Modern Slavery Statement at

bt.com/modernslavery

Risks

We reflect wellbeing as part of the people

and health, safety and environment group

risk categories on page 68.

We reflect D&I risks in our people group risk

category on page 68.

We consider the impact of environmental

and climate-related risks across our whole

business – including our stakeholder

management, supply management, health,

safety and environment, and operational

resilience group risk categories – on pages

63 to 70.

We’re acting to mitigate key physical climate

risks and our environmental impact in lots

of areas.

You can read more on pages 38 to 39 and in

our Task Force on Climate-related Financial

Disclosures statement on pages 71 to 80.

We consider digital inclusion risks as part of our

stakeholder management group risk category

on page 63.

We consider human rights risks as part of our

stakeholder management group risk category

on page 63.

We consider ABC and ethical conduct risks within

the legal compliance group risk category – where

risks apply across our operations generally. See

page 66.

The table below (and the sections it refers to) form our non-financial information statement –

as required by sections 414CA and 414CB of the Companies Act 2006 (2006 Act).

048 BT Group plc Annual Report 2023

Percentage reduction in carbon

missions intensity % reduction

26% 43% 57% 55% 56% 87%

FY19 FY20 FY21 FY22 FY23 FY31

(target)

FY00

(target)

BT Group Net Promoter Score (NPS)

point increase (decrease)

6.5 5.5 7.8 2.3 (1.0)

FY19 FY20 FY21 FY22 FY23

0.0

3.1

Total Openreach FTTP connections

FY19

0.3 0.5 0.9 1.8 3.1

FY20 FY21 FY22 FY23

FY00

(target)

0.0

8.6

Total 5G connections

0.1 1.6 5.3 8.6

FY20 FY2 1 FY22 FY23

FY23

Cumulative number of people reached

to help improve their digital skills

2.8 10.1 14.7 19.3

FY20 FY21 FY22 FY23

25.0

FY26

(target)

FY23

Our key performance

indicators (KPIs)

Definition

This tracks changes in our customers’ perceptions

of BT Group since we launched the measure in April

2016. It’s a combined measure of ‘promoters’ minus

‘detractors’ across our business units. BT Group NPS

measures the net promoter score in our retail business

and net satisfaction in our wholesale business.

Link to strategy

Performance

BT Group NPS decreased by 1.0 point, (FY22: up 2.3

points) due to cost of living challenges and industrial

action affecting our consumer brands and the wider

telecoms market, although this was offset partially

by positive perceptions from corporate customers.

You can read more about these and our approach to

customer experience on pages 24 to 25.

Definition

This measures performance against our target to

cut carbon emissions intensity by 87% by the end of

March 2031 compared to FY17 levels. It’s measured

by reference to tonnes of CO

e (carbon dioxide

equivalent) per £m value added (adjusted

EBITDA

plus employee costs).

Link to strategy

Performance

Against our carbon emission intensity reduction

target this year we achieved a 56% reduction from

our baseline year (FY17) (FY22: 55%). You can find

more information on what we’re doing to tackle

environmental challenges and our journey to net

zero emissions on pages 38 to 39.

Definition

This tracks how many premises are connected

to Openreach’s full fibre (FTTP) network.

Link to strategy

Performance

3.1m customers were connected to Openreach’s

FTTP network at 31 March 2023 (FY22: 1.8m).

Openreach’s full fibre footprint reaches more than

10.3m homes and businesses including 3.1m rural

premises, and we’re on track to get to 25m premises

by the end of 2026. You can read more about the

full fibre rollout on page 18.

Definition

This measures the number of people we’ve reached

with help to improve their digital skills.

Link to strategy

Performance

At 31 March 2023 we had helped 19.3m people

improve their digital skills (FY22: 14.7m) and we

remain on track to reach our target of 25m by the

end of March 2026. You can read more about what

we’re doing to achieve this on pages 37 to 38.

Definition

This measures the number of BT retail connections

to the 5G network.

Link to strategy

Performance

8.6m BT retail customers are able to connect to

our 5G network at 31 March 2023 (FY22: 5.3m).

We continue to expand our 5G network which now

covers 68% of the UK population. You can read

more on our 5G coverage and rollout on page 19.

We use eleven KPIs – five operational and six financial.

We reconcile the financial measures to the closest IFRS

measure on pages 233 to 235.

Operational At 31 March

Link to strategy

Each KPI measures how we’re doing

against at least one of our strategic pillars.

You can read more about these, and our

progress against them, from page 17.

The annual bonus and long-term

incentive plans that comprise our

directors’ remuneration are each

linked to certain KPIs. See the

Report on directors’ remuneration

on pages 112 to 113.

Build the strongest

foundations

Create standout

customer experiences

Lead the way to a bright,

sustainable future

Link to directors’

remuneration

R R

049Strategic report

23428

Reported revenue

£m

23,428 22,905 21,331 20,850 20,681

FY19 FY2 0 FY21 FY22 FY23

FY00

(target)

7928

Adjusted

EBITDA

£m

7,392 7,907 7,415 7,577 7,928

FY19 FY2 0 FY21 FY22 FY23

FY00

(target)

Adjusted

EBITDA margin

32 35 35 36 38

FY19 FY2 0 FY21 FY22 FY23

FY00

(target)

2440

Normalised free cash flow

£m

2,440 2,011 1,459 1,392 1,328

FY19 FY2 0 FY21 FY22 FY23

FY00

(target)

5286

Reported capital expenditure

£m

3,963 3,960 4,216 5,286 5,056

FY19 FY2 0 FY21 FY22 FY23

FY00

(target)

0.0

10.2

Return On Capital Employed (ROCE)

10.2 8.6 8.7 8.3

FY20 FY2 1 FY22 FY23

FY23

Definition

This is our revenue as reported in our

income statement.

Link to strategy

1, 2, 3

Performance

Reported revenue was £20,681m (FY22:

£20,850m). The decrease was driven by the

removal of BT Sport revenue, legacy product

declines, lower equipment sales in Global and

the loss of an MVNO customer, partially offset

by indexation and improvement in product mix.

You can read details more about CFU performance

on pages 56 to 57.

Definition

This measures free cash flow (net cash inflow from

operating activities after capital expenditure) after

net interest paid and payment of lease liabilities,

before pension deficit payments (including the

cash tax benefit), payments relating to spectrum,

and specific items. It excludes certain cash flows

determined at a corporate level, see page 234.

Link to strategy

1, 2, 3

Performance

We generated £1,328m of normalised free cash

flow

. This was down 5% from last year and mainly

reflects higher cash capital expenditure and

adverse working capital movements, partially

offset by higher adjusted

EBITDA and a tax refund.

Definition

This measures our earnings before specific items,

net finance expense, taxation, depreciation and

amortisation and share of post tax profits or losses

of associates and joint ventures.

Link to strategy

1, 2, 3

Performance

Adjusted

EBITDA was £7,928m (FY22: £7,577m).

The increase was primarily due to our cost

transformation programme and the removal of

BT Sport costs, partially offset by cost inflation

and reported revenue decline. You can read more

on page 52. Lease payments are not included in

adjusted

EBITDA following adoption of IFRS 16

Leases in FY20.

Definition

This measures additions to property, plant and

equipment and intangible assets during the year.

Link to strategy

1, 2, 3

Performance

Reported capital expenditure was £5,056m (FY22:

£5,286m). The decrease was driven by the impact

of the investment in spectrum in FY22, offsetting

increased fixed network investment primarily in

Openreach for building, and connecting more

customers to, FTTP.

Definition

ROCE is adjusted earnings before interest and

tax as a percentage of equity, debt and debt-like

liabilities excluding balances associated with

tax and management of financial risk. For a full

definition and a reconciliation to the nearest IFRS

measure see page 233.

Link to strategy

1, 2, 3

Performance

ROCE for the year was 8.3% (FY22: 8.7%). This is

primarily attributable to increased capital employed

to fund our fibre build programme; with adjusted

earnings for the period being broadly in line with the

prior year.

Definition

This measures our margin, calculated using

our adjusted

EBITDA as a percentage of

adjusted revenue.

Link to strategy

1, 2, 3

Performance

Adjusted

EBITDA margin improved 2pp to 38%

(FY22: 36%). The increase is mainly driven by

our cost transformation programme and margin

improvements following the removal of BT Sport,

offset by cost inflation. You can read more on

page 52. Adjusted

EBITDA margin from FY20

is benefited by the adoption of IFRS 16.

Financial Year ended 31 March

a Includes our Consumer brands as well as Enterprise and Global segments,

excluding Wholesale.

b Adjusted EBITDA is defined as the group profit or loss before specific items, net

finance expense, taxation, depreciation and amortisation and share of post tax

profits or losses of associates and joint ventures, as explained on page 234.

c Normalised free cash flow as defined on page 234.

050 BT Group plc Annual Report 2023

Earnings per share pence

20.3 22.0 12.9 19.4

FY22 FY23 FY22 FY23

Adjusted EPS Reported EPS

Revenue £m

20,850 20,681

FY22 FY23

Adjusted

EBITDA £m

7,577 7,928

FY22 FY23

FY23 Capital expenditure

Network investment

51%

Customer driven

investment 26%

Systems and IT 18%

Non-network

investment 5%

Profit before tax £m

1,963 1,729

FY22 FY23

Normalised free cash flow

£m

1,392 1,328

FY22 FY23

Net debt

£m

18,009 18,859

FY22 FY23

Operating cash flow £m

5,910 6,724

FY22 FY23

Revenue £m

20,850 20,681

FY22 FY23

Adjusted

EBITDA £m

7,577 7,928

FY22 FY23

Profit before tax £m

1,963 1,729

FY22 FY23

Earnings per share pence

20.3 22.0 12.9 19.4

FY22 FY23 FY22 FY23

Adjusted EPS Reported EPS

Normalised free cash flow

£m

1,392 1,328

FY22 FY23

Operating cash flow £m

5,910 6,724

FY22 FY23

FY23 Capital expenditure

Network investment

51%

Customer driven

investment 26%

Systems and IT 18%

Non-network

investment 5%

Net debt

£m

18,009 18,859

FY22 FY23

Group performance

Introduction from our Chief Financial Officer

Alternative performance measures

We assess the performance of the group

using various alternative performance

measures. As these are not defined under

IFRS they are termed ‘non-GAAP’ or

‘alternative performance’ measures. We

reconcile these to the nearest prepared

measure in line with IFRS on pages 233

to 235. The alternative performance

measures we use may not be directly

comparable with similarly-titled measures

used by other companies.

£20,681m (1)%

£1,328m (5)% £6,724m 14%

£7,92 8 m 5% £1,729m (12)%

£18,859m £850m£5,056m (4)%

051Strategic report

a Adjusted measures exclude specific items, as explained on page 233.

b Adjusted EBITDA is defined as the group profit or loss before specific items, net finance expense, taxation, depreciation and amortisation and share of post tax profits or losses of

associates and joint ventures, as explained on page 234.

c Additions to property, plant and equipment and intangible assets in the period.

d Normalised free cash flow as defined on page 234.

e Financial outlook originally provided in May 2022 was updated in November 2022 to clarify revenue growth on a Sports JV pro forma basis and normalised free cash flow at the

lower end of the stated range, and increase capital expenditure guidance from around £4.8bn to c. £5.0bn.

f On 1 September 2022 BT Group and Warner Bros. Discovery announced completion of their transaction to form a 50:50 joint venture (JV) combining the assets of BT Sport and

Eurosport UK. Financial information stated as pro forma is unaudited and is presented to estimate the impact on the group as if trading in relation to BT Sport had been equity

accounted for in previous periods, akin to the JV being in place historically. Please refer to Additional Information on page 235 for a bridge between financial information on a

reported basis and a Sports JV pro forma basis.

g Loans and other borrowings and lease liabilities (both current and non-current), less current asset investments and cash and cash equivalents, including items which have been

classified as held for sale on the balance sheet. Currency denominated balances within net debt are translated into sterling at swapped rates where hedged. Fair value adjustments

and accrued interest applied to reflect the effective interest method are removed. Amounts due to joint ventures held within loans and borrowings are also excluded.

Performance

Financial outlook

Result

Performance in

line with or better

than financial

outlook

Adjusted

revenue Growth on a Sports

JV pro forma

basis

Up 1% In line

Adjusted

EBITDA At least £7.9bn £7.9bn In line

Capital expenditure

c. £5.0bn £5.1bn In line

Normalised free

cash flow

Lower end of the

£1.3bn-£1.5bn

range

£1.3bn In line

We delivered revenue and adjusted

EBITDA in line with our outlook

for FY23, despite significant headwinds; normalised free cash

flow was delivered at the lower end of our guidance range due to

increased cash capital expenditure, primarily in Openreach.

The heightened economic and geopolitical uncertainty

experienced over the past year have led to increased energy costs,

supply chain disruption and a cost of living crisis that has impacted

FY23 performance for the group and our competitors, customers

and suppliers. The impact of the resulting uncertainty has been a

key focus during the year, in particular inflationary pressures.

We are able to mitigate the impact through cost management,

our risk management framework and the proportion of inflation

linkage within our key revenue streams which helps offset the

impact of inflation and energy price rises. We are further protected

against energy price volatility with 91% of our costs hedged for the

next 12 months. Accordingly, we are comfortable that the group

will be able to navigate these challenges in the short, mid and long

term as reflected in our viability statement (pages 81 to 82).

Reported revenue was £20,681m, down 1%. Revenue growth

in Openreach has been more than offset by declines in other

units. Revenue decline reflects the removal of BT Sport revenue.

Revenue was up 1% on a Sports JV pro forma

basis.

Adjusted

EBITDA of £7,928m was up 5% due to our cost

transformation programme and the removal of BT Sport costs,

partially offset by cost inflation and reported revenue decline.

Adjusted

EBITDA was up 3% on a Sports JV pro forma

basis.

Reported profit before tax of £1,729m was down 12%, primarily

due to increased depreciation from network build and specific

items, partially offset by adjusted

EBITDA growth.

Capital expenditure of £5,056m was down 4%, mainly driven by

the impact of our prior-year investment in spectrum offsetting

increased fixed network investment.

Normalised free cash flow

was £1,328m, down 5% due to

increased cash capital expenditure and adverse working capital

movements offset by adjusted

EBITDA growth and a tax refund.

Financial outlook

FY24 outlook Beyond FY24

Change in

adjusted

revenue

Growth on a

Sports JV pro

forma

basis

Consistent growth

Adjusted

EBITDA Growth on a

Sports JV pro

forma

basis

Consistent growth

Capital expenditure

£5.0bn-

£5.1bn

£5.0bn-5.1bn from

FY24-FY26

>£1bn reduction post peak

fibre build in FY28

Normalised free

cash flow

£1.0bn-

£1.2bn

At least £1.5bn incremental

normalised free cash flow

by end of the decade

We expect to be a significant beneficiary of the UK Government’s

full expensing scheme from FY24-FY26 and expect to pay no

UK cash tax for the next three years. With demand for FTTP well

ahead of our expectations, we will reinvest this benefit into further

accelerating our FTTP connections and absorbing inflation whilst

remaining committed to our target of building to 25m premises by

the end of 2026, bringing our annual capital expenditure outlook

to £5.0bn – 5.1bn for FY24-FY26 inclusive. We expect take-up

to accelerate beyond 30% whilst maintaining our build cost

envelope of £250-£350 per premises.

FY24 Outlook: adjusted

revenue and adjusted

EBITDA growth

on a pro forma basis driven by CPI-linked pricing and the impact

of cost transformation; despite expected headwinds from cost of

living pressure, and cost inflation, including higher energy costs.

Normalised free cash flow

for FY24 is expected to be between

£1.0bn and £1.2bn as the tax benefit from full expensing will be offset

by higher capital expenditure. Cash capital expenditure in FY24 may

be up to £200m higher than reported capital expenditure of £5.0bn

to £5.1bn due to the repayment of government grants resulting from

higher than expected fibre take-up on the BDUK programmes.

Beyond FY24, we continue to expect consistent and predictable

adjusted

revenue and adjusted

EBITDA growth driven by CPI-

linked pricing and by cost transformation. We remain confident

in expanding normalised free cash flow by at least £1.5bn, when

compared with FY22, by the end of the decade. This comes from

lower capital and operating expenditure as we move past peak

capex and towards an all-fibre, all-IP network.

Dividend

We have declared a final dividend for FY23 of 5.39 pence per share

(FY22: 5.39 pence per share), bringing the full-year total to 7.70 pence

per share (FY22: 7.70 pence per share).

We reconfirm our progressive dividend policy which is to maintain or

grow the dividend each year whilst taking into consideration a number

of factors including underlying medium-term earnings expectations

and levels of business reinvestment.

The Board expects to continue with this policy for future years, and

to declare two dividends per year, with the interim dividend being

fixed at 30% of the prior year’s full year dividend.

Simon Lowth

Chief Financial Officer

17 May 2023

052 BT Group plc Annual Report 2023

Summarised income statement

Year ended 31 March

2023

£m

2022

£m

Revenue 20,681 20,850

Operating costs

(13,244) (13,560)

Depreciation and amortisation (4,818) (4,405)

Operating profit 2,619 2,885

Net finance expense (831) (922)

Share of post tax profit/(loss)

of associates and joint ventures (59) –

Profit before tax 1,729 1,963

Tax 176 (689)

Profit for the period 1,905 1,274

Revenue

Reported revenue was £20,681m, down 1%, driven by the removal

of BT Sport revenue, legacy product declines (including copper

products in Openreach and CPS products in Enterprise), lower

equipment sales in Global and the loss of an MVNO customer,

partially offset by indexation and improvement in product mix.

Revenue was up 1% on a Sports JV pro forma

basis.

You can find details of revenue by CFU on pages 56 to 57. Note 5

to the consolidated financial statements shows a full breakdown

of revenue by all our major product and service categories.

Operating costs

Reported operating costs were £18,062m, up 1%, primarily due to

increased depreciation and cost inflation partially offset by tight cost

control and the removal of BT Sport rights and production costs.

Our cost transformation programme, first announced in May 2020,

remains on track to complete by the end of FY25. In response to

cost inflation, during the year we revised the gross annualised

savings target to £3.0bn (previously £2.5bn), with a cost to achieve

of £1.6bn (previously £1.3bn). Since embarking on the programme

we have achieved gross annualised savings of £2.1bn and incurred

costs of £1.1bn.

Note 6 to the consolidated financial statements shows a detailed

breakdown of our operating costs.

Adjusted

EBITDA

Adjusted

EBITDA of £7,928m increased by 5% primarily due to our

cost transformation programme and the removal of BT Sport costs,

partially offset by cost inflation and decline in reported revenue.

Adjusted

EBITDA was up 3% on a Sports JV pro forma

basis.

You can find details of adjusted EBITDA by CFU

on pages 56 to 57.

Profit before tax

Reported profit before tax of £1,729m was down 12% due to

increased depreciation from our network build and specific items,

partially offset by adjusted

EBITDA growth.

Specific items

As we explain on page 233, we separately identify and disclose

those items that in management’s judgement need to be disclosed

by virtue of their size, nature or incidence. We call these specific

items. Specific items are used to derive the adjusted results as

presented in the consolidated income statement. Adjusted results

are consistent with the way that financial performance is measured

by management and assists in providing an additional analysis of

the reported trading results of the group.

Specific items resulted in a net charge after tax of £253m (FY22:

£728m). The main components were restructuring charges of

£300m (FY22: £347m), net charges associated with the disposal

of BT Sport of £155m and subsequent charge of £34m (FY22: £nil)

and property impairment charges of £65m (FY22: £nil), offset

by tax credit on specific items of £308m (FY22: net tax charge

of £340m). The net profit on disposal of BT Sport recognised in

specific items was £28m, representing the £155m charges and

£183m of the tax credit.

Note 9 to the consolidated financial statements shows the full details

of all revenues and costs that we have treated as specific items.

Group performance continued

13,268

13,500

13,000

12,500

12,000

(525)

(241) (87) 214 163 (51) 12,741

FY22

TV programme

rights charges

Labour

costs

Provision

and installation

OtherProperty and

energy costs

Product costs

and sales

commissions

FY23

Adjusted

operating costs before depreciation, amortisation and specific items

Year ended 31 March

£m

053Strategic report

Taxation

The effective tax rate on reported profit was -10.2% (FY22: 35.1%)

primarily driven by the impact of the super-deduction and the gain

on the disposal of BT Sport being exempt from UK tax. The FY22

rate was higher due to a tax charge on the revaluation of deferred

tax liabilities from 19% to the new 25% UK corporation tax rate.

The effective tax rate on adjusted profit was 5.8% (FY22: 14.8%)

as we expect a large proportion of our capital spend on fibre rollout

to qualify for the Government’s super-deduction scheme.

At the end of FY23, we had c. £8bn of carried forward UK tax losses.

We received a net income tax refund globally of £136m

(FY22: £52m paid) following the agreement of an outstanding

issue with HMRC during the prior period.

Our tax expense recognised in the income statement before

specific items was £132m (FY22: £349m). We also recognised a

£642m tax credit (FY22: £430m tax charge) in the statement of

comprehensive income, mainly relating to our pension scheme.

We expect our sustainable income statement effective tax rate

before specific items to be around the UK rate of corporation tax,

as we do most of our business in the UK.

Earnings per share

Reported earnings per share was 19.4p, up 6.5p, while adjusted

earnings per share was 22.0p, up 1.7p.

Capital expenditure

Capital expenditure was £5,056m (FY22: £5,286m). The decrease

was driven by the impact of our prior year investment in spectrum

which offset Openreach’s increased investment in fixed network

infrastructure.

Capital expenditure contracted but not yet spent was £1,480m at

31 March 2023 (FY22: £1,596m).

Cash flow

Net cash inflow from operating activities was £6,724m, up 14%.

Normalised free cash flow

was £1,328m, down 5% due to

increased cash capital expenditure and adverse working capital

movements, offset by EBITDA growth and a tax refund.

You can see a reconciliation to normalised free cash flow

from net

cash inflow from operating activities (the most directly comparable

IFRS measure) on page 234.

The net cash cost of specific items adjusted from normalised

free cash flow

was £404m (FY22: £606m), primarily relating to

restructuring payments.

Sports JV performance

In August 2022, we formed a sports joint venture (Sports JV) with

Warner Bros. Discovery (WBD), combining BT Sport and WBD’s

Eurosport UK business. Both joint venturers contributed, sub-

licensed or delivered the benefit of their respective sports rights

and distribution businesses for the UK & Ireland to the Sports JV.

Both parties each hold a 50% ordinary equity interest and equal

voting rights in the Sports JV.

On completion of the transaction, the group recorded an

investment in Sports JV for our ordinary shareholding at a fair value

of £414m and investments in two classes of preference shares in

the Sports JV, with a combined fair value of £589m. Subsequently

in FY23, we have recorded a £62m share of accounting loss of the

Sports JV, reducing the carrying value of our equity investment to

£352m at 31 March 2023, and a net decrease of £34m in the fair

value of the investment in preference shares – refer to note 25 of

the consolidated financial statements for more details.

As part of the transaction, we entered into a distribution agreement

with the Sports JV, which includes a minimum revenue guarantee

of £2bn for the first four years. This represents an off-market

arrangement on which we recorded a liability of £712m – refer to

note 23 of the consolidated financial statements for more details.

a Excluding depreciation and amortisation.

b Adjusted measures exclude specific items, as explained on page 233.

c Adjusted EBITDA is defined as the group profit or loss before specific items, net

finance expense, taxation, depreciation and amortisation and share of post tax

profits or losses of associates and joint ventures, as explained on page 234.

d Normalised free cash flow as defined on page 234.

e On 1 September 2022 BT Group and Warner Bros. Discovery announced completion

of their transaction to form a 50:50 joint venture combining the assets of BT Sport

and Eurosport UK. Financial information stated as pro forma is unaudited and is

presented to estimate the impact on the group as if trading in relation to BT Sport

had been equity accounted for in previous periods, akin to the JV being in place

historically. Please refer to Additional Information on page 235 for a bridge between

financial information on a reported basis and a Sports JV pro forma basis.

054 BT Group plc Annual Report 2023

Summarised balance sheet

At 31 March

2023

£m

2022

£m

Intangible assets 13,687 13,809

Property, plant and equipment 21,667 20,599

Right-of-use assets 3,981 4,429

Derivative financial instruments 1,479 1,091

Joint ventures and associates 359 5

Preference shares in joint ventures 555 –

Cash and cash equivalents 392 777

Investments 3,577 2,713

Trade and other receivables 3,563 2,961

Contract assets 1,934 1,915

Deferred tax assets 709 289

Other current and non-current assets 849 1,186

Total assets 52,752 49,774

Loans and other borrowings 18,521 16,185

Derivative financial instruments 383 870

Trade and other payables 7,484 6,766

Contract liabilities 1,052 1,003

Lease liabilities 5,359 5,760

Provisions 598 661

Retirement benefit obligations 3,139 1,143

Deferred tax liabilities 1,620 1,960

Other current and non-current liabilities 82 130

Total liabilities 38,238 34,478

Total equity 14,514 15,296

Pensions

The IAS 19 gross deficit has increased from £1.1bn at 31 March

2022 to £3.1bn at 31 March 2023. The £2.0bn increase reflects

negative asset returns mainly due to higher real gilt yields, partly

offset by an increase in the real discount rate reducing liabilities

and £1.0bn of deficit contributions paid over the period.

The movements in the deficit for the group’s defined benefit plans

are shown below:

1.0

0.1

0.1 (1.0) 15.0 (13.2) 1.1 2.5 0.6

Deficit at

31 March

2022

Costs

recognised

in income

statement

Contributions

from BT

Decrease

in liabilities

due to

changes in

assumptions

Increase

in liabilities

due to

experience

adjustments

Deficit at

31 March

2023

Return on

plan assets

below the

amount

included in

the income

statement

£bn

Net of deferred tax asset

Deferred tax asset

Note 20 to the consolidated financial statements gives more

information on our pension arrangements.

Net debt

and net financial debt

Net financial debt (which excludes lease liabilities) was £13.5bn

at 31 March 2023, compared to £12.2bn at 31 March 2022.

The increase was mainly due to pension scheme contributions;

normalised free cash flow was mostly offset by dividend payments

and cash specifics.

Net debt

(which includes lease liabilities) was £18.9bn at 31 March

2023, compared to £18.0bn at 31 March 2022. The difference to

the movement in net financial debt reflects lease movements.

At 31 March 2023 the group held cash and current investment

balances of £3.9bn. The current portion of loans and other

borrowings is £1.8bn.

Our £2.1bn revolving credit facility, which matures in March 2027,

remains undrawn at 31 March 2023.

We remain committed to our credit rating target of BBB+ and

minimum rating of BBB. During FY23, all of the major agencies

confirmed their ratings at BBB or equivalent.

a Primarily reflects the impact on the liabilities of actual inflation being higher than

assumed at the prior reporting date. There has been a broadly equivalent benefit

to inflation-linked assets from higher inflation.

b Loans and other borrowings and lease liabilities (both current and non-current),

less current asset investments and cash and cash equivalents, including items which

have been classified as held for sale on the balance sheet. Currency denominated

balances within net debt are translated to sterling at swapped rates where hedged.

Fair value adjustments and accrued interest applied to reflect the effective

interest method are removed. Amounts due to joint ventures held within loans

and borrowings are also excluded. Please refer to note 27 for reconciliation from

nearest IFRS measure.

Group performance continued

055Strategic report

Debt maturity

The graph below shows the maturity profile of our term debt.

Currency denominated balances are translated to sterling at

swapped rates where hedged:

528 276

1,152

516

372

2,012

28 1,523

29 599 446548

30 777 673

31 1,604

498 372 715

424

FY3

34 706

38 498

40 706

345

43 727 64

48 247

2.8%

1.6%

5.0%

4.2%

3.2%

3.8%

2.7%

9.5%

4.3%

4.4%

4.5%

6.4%

4.5%

5.9%

4.6%

3.7%

389 3.2%

Debt maturity profile

£m

$ debt swapped to ££ debt

€ swapped to £

JPY swapped to £

a Reflects exercise of call options attached to bonds maturing between 2080 and

2081. See note 27 to the consolidated financial statements for more details.

Note 27 to the consolidated financial statements gives more

information on our debt arrangements.

Contractual obligations and commitments

The table below shows our principal undiscounted contractual

financial obligations and commitments at 31 March 2023.

As at 31 March 2023

Total

£m

Less than

1 year

£m

Between

1 and 3

years

£m

Between

3 and 5

years

£m

More than

5 years

£m

Loans and other

borrowings

17,442 1,501 3,708 1,896 10,337

Pension deficit

obligations 6,755 823 1,591 1,561 2,780

Lease liabilities 6,031 800 1,450 1,252 2,529

Capital

commitments 1,480 1,331 146 3 –

Other

commitments 150 150 – – –

Total 31,858 4,605 6,895 4,712 15,646

We have unused committed borrowing facilities totalling £2.1bn.

We expect that these resources, combined with the future cash we

generate, will allow us to settle our obligations as they fall due.

Notes 15, 20, 27 and 32 to the consolidated financial statements

give further information on these items.

a Principal repayments at hedged rates.

Share buyback

We spent £138m (FY22: £184m) on our share buyback programme.

We received proceeds of £5m (FY22: £13m) from colleagues

exercising their share options.

056 BT Group plc Annual Report 2023

Group performance continued

Consumer

Adjusted

revenue Adjusted

operating profit

£9,737m (1)% £1,226m 46%

Change

Year ended 31 March

2023

£m

2022

£m £m %

Adjusted

revenue 9,737 9,858 (121) (1)

Adjusted

operating

costs 7,114 7, 596 (482) (6)

Adjusted

EBITDA 2,623 2,262 361 16

Depreciation &

amortisation 1,397 1,421 (24) (2)

Adjusted

operating

profit 1,226 841 385 46

Capital expenditure 1,193 1,198 (5) –

Normalised free

cash flow

1,147 917 230 25

Pro forma

adjusted

revenue 9,499 9,319 180 2

Pro forma

adjusted

EBITDA 2,694 2,467 227 9

Adjusted revenue was up 2% on a pro forma

basis, with a 3%

growth in service revenue driven by the 2022 annual contractual

price rise which was aided by a higher FTTP base and higher

roaming. Adjusted revenue was down 1% due to the BT Sport

disposal offsetting service revenue growth.

Adjusted EBITDA was up 9% on pro forma

basis, due to increased

postpaid mobile and broadband service revenue along with tight

cost management, including lower indirect mobile commissions.

Adjusted

EBITDA was up 16% due to rights and production cost

savings from the BT Sport disposal along with adjusted revenue

growth and tight cost management, including lower indirect

mobile commissions.

Normalised free cash flow was up due to adjusted EBITDA growth

and favourable device working capital movements, offset by

sports rights timing.

Capital expenditure was flat with continued mobile network,

equipment and digital investment.

Churn continues to remain stable in a competitive market with

Ofcom complaints in EE lower than or in line with industry average

for mobile, broadband and landline and in BT Ofcom complaints

were lower than or in line with industry average for broadband

and landline.

Enterprise

Adjusted

revenue Adjusted

operating profit

£4,962m (4)% £552m (39)%

Change

Year ended 31 March

2023

£m

2022

£m £m %

Adjusted

revenue 4,962 5,157 (195) (4)

Adjusted

operating

costs 3,568 3,521 47 1

Adjusted

EBITDA 1,394 1,636 (242) (15)

Depreciation &

amortisation 842 724 118 16

Adjusted

operating

profit 552 912 (360) (39)

Capital expenditure 608 569 39 7

Normalised free

cash flow

522 791 (269) (34)

Adjusted revenue was down, driven by the migration of an MVNO

customer, legacy contract exits and declines in legacy products.

This was partially offset by continued growth in SME and SoHo.

Adjusted EBITDA was down due to the flow through of lower

revenue and margin pressure from lower legacy product mix,

partly offset by the impact of ongoing cost transformation.

Depreciation and amortisation was up, driven by timing relating

to the registration of assets in the course of construction.

Capital expenditure was up, driven by digital investment in support

of our modernisation agenda.

Normalised free cash flow was down, reflecting adjusted EBITDA

decline partly offset by improved working capital management.

We have seen growth in both mobile and VoIP in the year, adding

61k connections to our mobile base and 110k connections to our

VoIP base. For the year, retail order intake increased 14% to £3.0bn

despite challenging market conditions.

Our customer-facing units

057Strategic report

Global

Adjusted

revenue Adjusted

operating profit

£3,328m (1)% £141m 40%

Change

Year ended 31 March

2023

£m

2022

£m £m %

Adjusted

revenue 3,328 3,362 (34) (1)

Adjusted

operating

costs 2,870 2,906 (36) (1)

Adjusted

EBITDA 458 456 2 –

Depreciation &

amortisation 317 355 (38) (11)

Adjusted

operating

profit 141 101 40 40

Capital expenditure 252 201 51 25

Normalised free

cash flow

63 131 (68) (52)

Adjusted revenue was down mainly due to lower equipment sales

and the impact of prior year divestments, partly offset by a £131m

positive foreign exchange movement. Adjusted revenue excluding

divestments, one-offs and foreign exchange was down 4%.

Adjusted EBITDA was flat with lower operating costs from ongoing

cost transformation and cost control offset by lower revenue and

inflationary pressures. Adjusted EBITDA excluding divestments,

one-offs and foreign exchange was flat.

Depreciation and amortisation was down mainly due to actions

taken to reduce capital intensity over the last few years, resulting

in strong growth in adjusted operating profit which was up 40%.

Capital expenditure was up £51m, mainly due to customer project

spend and investment in digital platforms.

Normalised free cash flow declined mainly due to higher capital

expenditure and adverse working capital, partially offset by higher

adjusted EBITDA.

On a rolling 12-month basis order intake was £3.1bn, down 15%.

Our growth product portfolio represents 53% of total orders won

in the year.

Openreach

Adjusted

revenue Adjusted

operating profit

£5,675m 4% £1,390m 7%

Change

Year ended 31 March

2023

£m

2022

£m £m %

Adjusted

revenue 5,675 5,441 234 4

Adjusted

operating

costs 2,226 2,262 (36) (2)

Adjusted

EBITDA 3,449 3,179 270 8

Depreciation &

amortisation 2,059 1,876 183 10

Adjusted

operating

profit 1,390 1,303 87 7

Capital expenditure 2,796 2,548 248 10

Normalised free

cash flow

211 448 (237) (53)

Adjusted revenue was up due to price increases and increased sales

of fibre-enabled products and Ethernet, partly offset by legacy

copper product declines and an expected decrease in chargeable

repairs due to lower repair volumes.

Adjusted EBITDA was up due to higher revenue and lower

operating costs driven by lower repair volumes and efficiencies,

partially offset by inflation.

Depreciation and amortisation was up, driven by increased

network build.

Capital expenditure was up due to higher FTTP build (including

WIP), higher FTTP connections and inflation; partly offset by lower

non-FTTP capital expenditure. Copper-based capital expenditure

was down 53% in the second half of the year.

Normalised free cash flow was down due to higher capital

expenditure and working capital timing, partly offset by higher

adjusted EBITDA.

Average monthly rental broadband ARPU grew by c. £1 year on

year (7.5%) due to increased volumes of FTTP.

a Adjusted measures exclude specific items, as explained on page 233.

b Adjusted EBITDA is defined as the group profit or loss before specific items, net finance expense, taxation, depreciation and amortisation and share of post tax profits or losses

of associates and joint ventures, as explained on page 234.

c Normalised free cash flow as defined on page 234.

d On 1 September 2022 BT Group and Warner Bros. Discovery announced completion of their transaction to form a 50:50 joint venture (JV) combining the assets of BT Sport and

Eurosport UK. Financial information stated as pro forma is unaudited and is presented to estimate the impact on the group as if trading in relation to BT Sport had been equity

accounted for in previous periods, akin to the JV being in place historically. Please refer to Additional Information on page 235 for a bridge between financial information on a

reported basis and a Sports JV pro forma basis.

058 BT Group plc Annual Report 2023

Regulatory update

Fibre build, the cost of living crisis, migrating off legacy

networks and net neutrality led our regulatory agenda this year.

In broadband, fixed and mobile retail markets, inflation and

investment commitments made consumer and business price rises

unavoidable. We’re transparent about pricing, while proactively

supporting those in financial difficulty. We’re looking to restart

our digital voice migration this summer after listening to feedback

and ensuring we protect the most vulnerable. In mobile, Ofcom’s

strategy review recognised the link between financial return and

market competitiveness. We’re also switching off our 3G network

next year, repurposing our spectrum on to the more efficient

4G/5G technologies.

Fibre builds and pricing:

competing fairly in a

thriving market

In 2021, Ofcom set out the regulatory

regime for full fibre investment in its

2021-26 Wholesale Fixed Telecoms

Market Review. Ofcom keeps monitoring

Openreach activities and the overall

market to make sure it is competitive

and delivers good customer outcomes.

Openreach continues to build full fibre and

connect customers at pace, while pricing

transparently. It also continues to deliver

on its commitment, under the regulatory

regime, delivering over 3 million rural

connections as part of its overall build.

In December 2022, it told Ofcom about

Equinox 2, a new wholesale fibre offer

introducing price discounts designed to

promote copper to fibre migration. Ofcom

is still reviewing whether Equinox 2 is

consistent with its goal of promoting fibre

market competition and is expected to

make a decision by end of May 2023.

In December 2022, Cityfibre raised

a Competition Act complaint about

Openreach to the Competition and

Markets Authority and Ofcom. Ofcom

is still considering whether to launch an

investigation on the back of this.

Openreach’s regulated quality

of service targets

Openreach attaches the highest priority to

delivering the best level of service for its

customers. In FY23, Openreach had very

strong service performance in Q1 and Q4

and continues to achieve high customer

satisfaction scores. Its performance

against Ofcom’s targets across the year

was impacted by industrial action in Q2 and

Q3 such that we have reported a narrow

miss against 3 of the total of 35 targets.

Living costs and pricing:

being transparent and

protecting the vulnerable

In December, Ofcom opened a cross-

industry enforcement programme on

‘in-contract price variation terms’. Its aim

is to check whether individual providers’

past pricing policies were prominent and

transparent enough to consumers who

signed contracts between March 2021

and June 2022.

In February, Ofcom launched a separate

policy review to check whether inflation linked

mid-contract price rises give customers

enough clarity on future pricing, especially

given the current inflationary environment.

We continue to be upfront and transparent

with all our customers on pricing, making

sure annual in-contract price rises are clear

and predictable when they buy a service

from us. We also contact customers by

email, post or text message well ahead of

a price change, explaining if and how it will

affect them.

During the year we boosted help for those

needing it most in paying for services:

– We have more customers on subsidised or

social tariffs than the rest of the industry

combined (c. 1m). Of those customers on

a social tariff, 85% are with BT.

– We continued providing affordable

broadband at £15 a month for

eligible customers.

– In November we launched EE Mobile

Basics – giving customers 5GB of data

for £12 a month.

– Through 2023, we’re freezing prices for

more than 3m social tariff, landline-only

and pay-as-you-go customers.

– We led the industry to develop the first

eligibility checker using Department

for Work and Pensions data – making

signing up to social tariffs easier for

those eligible.

– We have debt and disconnection policies

in place to support vulnerable consumers.

059Strategic report

Retiring legacy networks:

keeping customer experience

at the heart of migration

UK landlines will move from the legacy

Public Switched Telephone Network

(PSTN) to digital by the end of 2025. This

switch is vital to support future-proofed

networks, but is sensitive for customers.

It will affect many across society, including

vulnerable customers, as well as the UK’s

critical national infrastructure.

Following customer feedback, last year we

paused migrating consumer customers to put

in place extra measures to protect vulnerable

people. While voluntary digital switches

continued, during the pause we worked to

give better back-up options to those that

needed them, and we listened extensively

to our vulnerable customers’ needs.

In April 2023 we expanded our updated

digital voice migration trials beyond

Salisbury and Mildenhall (Openreach’s

PSTN switch-off trial locations) – aiming to

restart the migration in summer 2023. We’ll

continue to work closely with Government,

Ofcom, the industry and user groups to

minimise any disruption for all.

In the mobile market, 3G is quickly

becoming obsolete. It consumes 35% of

EE’s mobile network power but carries

less than 1% of total data. When we switch

off our 3G network in January 2024, it will

reduce our power consumption and carbon

footprint by 48,650 metric tonnes of CO

In February, Ofcom published what it expects

from mobile providers in managing this

switch. We’ll give customers lots of notice

about when they might need to upgrade

their mobiles to keep using data services.

Policymakers: mobile investment,

competition and coverage

Our 5G mobile network now covers 68%

of the UK population; over 500 small towns

and villages now have EE 5G signal for the

first time. Our 4G network ambition is to

pass 90% of UK landmass by mid-2020s

in part as a result of our contribution to the

Shared Rural Network.

In December Ofcom’s ‘Future approach

to mobile markets and spectrum’ set out a

vision for the industry. It found that mobile

investment and customer outcomes were

still good, with no need for extra consumer

protection regulation.

It also acknowledged that if mobile

network providers’ financial returns were

lower than capital costs for a long time this

would disincentivise investment and could

lead to “weaker competition and poorer

outcomes for customers”.

In April 2023 Government’s newly created

Department for Science, Innovation and

Technology also published its Wireless

Infrastructure Review which focuses on

improving the investment environment

and sets out a new ambition to deliver

nationwide coverage of standalone 5G to

all populated areas by 2030. Government

asked Ofcom to also review how well

spectrum pricing works.

Net neutrality and digital

markets: growing policy debate

The modern internet needs modern rules.

There is a growing global debate on how

to balance customers’ rights to internet

access with greater flexibility supporting

network efficiency and investment.

In October, Ofcom’s net neutrality

consultation proposed that internet service

providers should be able to differentiate

offerings – including premium internet for

gaming or specialised services – and use

traffic management to tackle network

congestion.

We welcome this proposal. We believe

there needs to be more commercial

flexibility to negotiate better efficiency,

improve content coordination and make

sure the heaviest traffic loaders don’t

affect everyone else’s online experience.

On digital markets, we continue to

contribute to Ofcom’s Digital Strategy work

programme. That includes its Cloud Services

Market Study and emerging work on over-

the-top communications services (NIICs).

060 BT Group plc Annual Report 2023

A letter from the Chair of Openreach

Without question, the last

12 months have been tough

for everyone.

Like other businesses, we’ve been hit by

rising inflation and supply chain challenges.

And we can see the pressures facing our

people, our communications provider (CP)

customers and households up and down

the country.

In that context, I’m proud that we’ve

achieved a solid year of progress at

Openreach. One of the main reasons

for that progress is that our purpose

and strategy remain crystal clear.

As the nation’s largest wholesale

broadband network, we keep the country

connected and we’re building the next

generation of digital infrastructure –

ultrafast, ultra-reliable full fibre to 25m

homes and businesses.

We’re laser focused on that goal. We know

it will deliver the best possible outcome

for our customers and help power the UK’s

growth and ambition for decades ahead.

Delivering on our ambition

This year we’ve continued to build our new

network at record pace.

Full fibre is now available to 10.3m homes

and businesses – including 3.1m in mainly

rural locations. We’ve kept a balanced

approach to build in rural and urban areas,

reaching more than 59k premises every

single week.

We remain focused on efficiency. We’ve

maintained a low cost of £250-£350 to

reach each premises despite inflationary

pressures, and without compromising on

quality or safety standards. And, most

importantly for our future, we’re winning

the real race – to upgrade customers and

all of our CPs on to that new network.

There’s a growing appetite for full fibre.

This year we’ve seen record order and

provision volumes and more than 3.1m

homes and businesses already reaping

the benefits of our fastest, most reliable

broadband connection.

And we’re not stopping there. We expect

substantial growth in customer numbers

next year – driven by sharper pricing offers

and the long-term certainty we’re giving CPs.

Investing in people, diversity

and inclusion

As always, our near 37,000 people are at

the heart of our business and purpose.

This year, we hired over 3,000 people and

we continue to invest heavily in training and

developing our existing workforce. We’ve

already retrained thousands of copper-

skilled engineers to work on our new

fibre network.

We also made good progress on becoming

more inclusive and diverse. This is a long

journey for a business and industry like

ours, but we’re committed to building

a workplace that fully represents the

communities we serve all over the UK.

More of our trainee engineer recruits were

women last year and our People Networks

– which champion diversity and inclusion –

grew to 7,500 members.

Given the financial challenges everyone’s

facing, it was also important that BT Group

was able to help as many of our colleagues

as possible through bringing forward the

2023 pay award to January.

Being safe and responsible

Openreach has a responsibility to both its

people and the planet.

The work we do comes with inherent risk,

so our safety practices are paramount.

I’m encouraged by the progress made

in further strengthening our safety

culture. But one injury is one too many.

So we’ll continue to invest in training and

innovations that encourage a stronger

safety culture for our people and the public.

We also understand we’re in a unique

position to deliver positive environmental

change. Our 29,000-strong van fleet

represents a big opportunity to cut our

atmospheric impact – and we’ve pledged

to switch most of it to electric or zero

emissions by 2030.

We’ve already invested in over 2,000

electric vans. But there are considerable

challenges to this programme, including

the lack of charging infrastructure and

supply chain. Next year we’ll continue to

work hard with stakeholders to overcome

these barriers.

Competing fairly

With the massive investment and

transformation happening across the

country, it’s no surprise to see increasing

scrutiny on the telecoms market and the

intense competition that’s playing out.

With that in mind, we understand our

legal and regulatory obligations inside

out and we’re committed to both

competing intensely and fairly and

supporting our industry. We’re clear.

Our job at Openreach is to maintain

a strong and sustainable business for

colleagues, shareholders and the nation.

Upgrading the UK to digital

phone lines

Responding to BT’s plan to retire the

analogue PSTN system is a critical

programme for Openreach. We’ve continued

our work this year to support CPs and the

industry to withdraw analogue services.

Our trials in Salisbury and Mildenhall

helped us test, understand and improve the

readiness of all kinds of customers for this

change. We’ve honed our ability to migrate

them smoothly and safely to futureproof

digital products.

We’ll continue to speed up this work next

year – when we also hope to see a step

change in awareness as CP migrations

ramp up.

Looking forward

Broadband usage hit record-breaking

levels in 2022, and we know that faster,

more reliable connectivity has become

a necessity for almost everyone.

With this in mind, next year’s focus will be

to keep building, delivering and upgrading.

The more customers we upgrade to our

full fibre network, the more everyone will

reap the benefits of an ultrafast, digitally

connected economy.

As ever, I thank all our people for their

dedication, resilience and the good

progress we’ve made towards fulfilling

our goals this year.

Mike McTighe

Chair, Openreach

17 May 2023

061Strategic report

Risk management

Risk management taken seriously and done simply

and consistently helps us make the best decisions

for our colleagues, customers, shareholders and

wider stakeholders in the face of uncertainty.

This helps protect BT Group and drive growth.

Strong foundations built on our

risk mindset aligned with strategy

Our business thrives on stakeholder

trust. That means we must manage risks

smartly to achieve our ambition, deliver our

strategy, support our business model and

protect our assets while leading the way to

a bright, sustainable future.

Our leaders promote a mindset of being

smart with risk when making bold choices.

Our code sets expected behaviours for all

our colleagues. We have ongoing training

and formally defined risk management

roles that help weave risk awareness into

our culture.

Risk management aligns with our internal

strategic framework, business planning

and performance management. This helps

integrate risk thinking into key decision-

making areas and makes sure we share

information in a joined-up way for the

biggest impact.

The ongoing risks we face

We divide our risk landscape into 16

Group Risk Categories (GRCs) of enduring

risks – like supply management and legal

compliance. These will always be important,

needing consistent, enduring structures to

manage them across the group.

Each GRC has an Executive Committee

sponsor. This provides accountability, tone

from the top and joined-up risk thinking.

GRCs set how we measure and manage our

risk exposure. They ensure we do what’s

needed to achieve and maintain our target

risk appetite and level of control.

This is facilitated through our risk

management framework. For each GRC,

we set our risk appetite – how much risk

we’re willing to take underpinned by

metrics with upper and lower boundaries

setting our tolerance. We manage these

risks through simple and clear policies,

underpinned by standards and controls.

We use a ‘three lines of defence’ model to

clarify and coordinate assurance activities

and to give confidence to stakeholders.

This year we focused on enhancing

our internal control arrangements. We

simplified all our corporate policies,

replacing them with new, much shorter

policies aligned to each of the 16 GRCs.

Each policy is supported by standards

clearly setting out who needs to do what

to comply with the policy.

Underpinning this, we also designed a

group-wide Key Control Framework.

This will help us manage all our enduring

risks consistently and efficiently across

the business – driving accountability and

letting us target assurance activities. Next

year, we’ll focus on further embedding

this Key Control Framework. We’ll replace

legacy activities and processes and make it

the bedrock of assessing and assuring how

effectively we’re managing enduring risks.

Dynamic risks we face

We’re also aware of and act on significant,

dynamic risks and uncertainties. There are

two types:

1. Point risks (risks which can’t be

managed properly through the

Key Control Framework, or that are

materially significant to us and need

to be separately managed)

2. Emerging risks (long-term uncertainties

which might be materially significant but

which we can’t currently fully define as

a point risk).

For these dynamic risks we assign

management ownership and identify and

execute appropriate actions.

We categorise dynamic risks by GRC based

on their causes and consequences. There

are examples in the following pages.

Connecting it all up

Each unit leadership team regularly reviews

its exposure across the GRCs and brings

together any point and emerging risks to

prioritise and act on. Categorising risks by

GRC helps us spot broad trends, so we can

understand potential impacts and respond

in a consistent and coordinated way.

Our risk management tool, ARTEMIS,

supports this with real-time access to risk

and assurance information. This helps us link

risk and control data and simplify reporting

– so we can spend more time on the right

behaviours, conversations and actions.

Our Emerging Risk Hubs consider the

more ambiguous and cross-group

uncertainties we face. They bring together

cross-functional representatives to share

intelligence, identify potential trade-offs

and agree actions.

062 BT Group plc Annual Report 2023

The context we operate in

This year a combination of economic

pressures, increased competitive intensity,

industrial action and supply chain disruption

have created a challenging environment.

Inside the group, our business model,

technology shifts and transformation

initiatives are changing the quantity, type

and location of skills and talent we need.

Outside the group, today’s inflationary

environment affects us across a number

of our GRCs. We’ve included some

examples of point risks in the following

pages. As part of our long-term viability

analysis, we’ve also considered the effects

of sustained inflation on our business

(see pages 81 to 82).

In the past 12 months, two GRCs which

have had a lot of focus are supply

management and cyber security.

We continue to develop our risk

management structures. This lets us

respond well to this volatile and complex

operating environment. Whether reviewing

and adjusting risk appetite, managing

new or emerging risks, strengthening our

controls or managing risks in programmes

and change initiatives, we’re always

learning to help us make smarter decisions

to protect ourselves and drive growth.

Risk management continued

Cyber security

We’re a high-profile provider of critical

national infrastructure. That makes us a

prominent target for hostile cyber actors

and we remain vigilant to this threat. This

year the Russia-Ukraine conflict was

a significant part of the cyber security

backdrop. We’ll keep monitoring short-

and medium-term implications.

Security is at the centre of our business.

We’ve brought together cyber, physical

and personnel security teams into one

function under a new expanded Executive

Committee role of Chief Security and

Networks Officer.

Our security stance continues to evolve.

This year we commissioned an external

review to assess and benchmark our

security maturity, and we used the results

to define and mobilise a new security

strategy. We’ve also made delivering the

requirements of the Telecommunications

(Security) Act 2021 a key multi-year cyber

security priority.

We’ll never stop working to protect

customers from cyber security-related

harms. A recent example is our initiative

to block international scam calls on

landlines – which blocked 10 million calls

in the first month.

Supply management

The level of risk in our supply chains is

high. We have to manage a combination

of energy volatility, inflation and supply

shortages (like semiconductors and fibre

optic cables).

These issues are happening against

a backdrop of increasing geopolitical

instability that will likely cause continued

disruption. During the year we reviewed

our risk appetite and supporting metrics

for this category, embedding them into key

decisions to get the right balance between

supply chain resilience and efficiency.

Geopolitical tensions in the South China

Sea increased during the year and China

continues to dominate our supply chain

emerging risks. We recently ran a crisis

simulation based on further escalation

in the region, to understand better our

exposure and critical supply options

and to test our preparedness for a major

supply chain event. From that, we created

a playbook defining our approach, process

and roles and responsibilities for managing

such a disruption – and integrated it

into our group-wide crisis management

process and governance structures.

We’re also monitoring progress and

further developments through our cross-

functional Geopolitical Risk Hub.

063Strategic report

Our principal risks and uncertainties

The risks set out in the following pages align with our Group Risk

Categories (GRCs). The categories are enduring. But each also contains

examples of point and emerging risks. Scenarios used for our viability

analysis, put forward for each GRC, are also noted here.

Stakeholder management

Sponsor: Corporate Affairs Director

What this category covers

Trusted stakeholder management is essential to us achieving our

ambitions. We listen to and communicate with stakeholders fairly

and transparently to build strong, sustainable relationships.

Some sensitive topics need extra focus. These include network

plans, customer fairness, net neutrality, using technology

responsibly, ESG and industrial relations.

Our appetite for risk in this category

We recognise the importance of strong stakeholder relationships

and consider them when setting strategy and making decisions.

At times this creates tensions when weighing up choices: price

rises to sustain investment, markets we operate in, who we buy

from and sell to, the way we use and develop technology and how

we use data.

We want to sustain our sector leadership on reputation and

trust among professional opinion formers, and our top quartile

position on ESG.

Examples of what we do to manage this category

– we monitor the media, and track our reputation across our

main stakeholder groups

– we engage with stakeholders to build stronger relationships.

See our stakeholder section on pages 40 to 45 for details

– our Manifesto (pages 36 to 39) sets out our commitment

to growth through responsible, inclusive and sustainable

technology. The Digital Impact & Sustainability Committee

provides Board-level governance

– our cross-organisational Responsible Technology Steering

Group and the Geopolitical Risk Hub bring together

representatives from across the group to share intelligence

and agree actions.

Dynamic risk examples in this category

Point risks:

– the impact of inflation and cost of living on customers which

may reduce demand or increase churn

– protecting our customers’ interests while migrating to digital

products and closing legacy networks.

Emerging risks:

– escalating geopolitical tensions

– climate change and perceptions of our sector’s role in carbon

emissions. See our Task Force on Climate-related Financial

Disclosures (pages 71 to 80).

Scenario considered in viability analysis/planning

Impact of potential changes in Government policy on investment

and commercial ambitions.

Strategy, technology and competition

Sponsor: Chief Financial Officer

What this category covers

While developing and executing a strategy to grow value for

stakeholders, we must manage risks from an uncertain economic

context, intensifying competition and rapid changes in customer

and technology trends.

Changes could affect our profit, shareholder value and

reputation. Similarly, pursuing the wrong strategy, not reflecting

strategy in business plans, or not executing against it could make

us less competitive and create less long-term sustainable value.

Our appetite for risk in this category

Our risk appetite sets our tolerance for managing ‘internal’ risks

associated with this category which include developing the

right strategy, ensuring it is reflected in the business plan and

executing against it.

We measure and track this through the performance of specific

metrics. We also qualitatively assess how clearly our strategy is

defined, the robustness of our strategic analysis and how closely

our business and financial plans reflect our strategy.

Doing this means we will make robust strategic choices and execute

them to stay competitive and grow value for all our stakeholders.

Examples of what we do to manage this category

– we extensively monitor, research and analyse economic,

customer, market, competitor and technology trends

– the Executive Committee and Board discusses key strategic

topics throughout the year

– the Executive Committee and Board frequently review

performance against our strategic priorities/targets.

Dynamic risk examples in this category

Point risks:

– uncertain economic outlook which may suppress demand,

increase customers’ price sensitivity and drive up costs

– intensifying competition in the retail broadband and fixed

wholesale access markets could increase churn and impact our

market share

– slower than expected progress on key programmes could limit

our ability to deliver our strategy and growth ambitions.

Emerging risk:

– ecosystem changes in the industry (like private 5G networks)

could reduce our revenue and increase customer churn.

Scenario considered in viability analysis/planning

Hyperscalers making direct moves into our markets.

Strategic

064 BT Group plc Annual Report 2023

Our principal risks and uncertainties continued

Financial control

Sponsor: Chief Financial Officer

What this category covers

We have financial controls in place to prevent fraud (including

misappropriation of assets) and to report accurately. If these

failed it could result in material financial losses or cause us to

misrepresent our financial position.

We might fail to apply the correct accounting principles and

treatment. This could result in financial misstatement, fines,

legal disputes and reputational damage.

Our appetite for risk in this category

We want our overall financial control framework to be effective

so that there is a less than remote likelihood of a material

financial misstatement in our reported numbers.

We have defined the proportion of our financial controls that

we aim to be preventative rather than detective, and automated

rather than manual.

We take a risk-based approach to compliance monitoring through

a combination of sample testing and financial data analytics.

Examples of what we do to manage this category

– we maintain financial controls that provide planning and

budgetary discipline, efficiency and accuracy while reducing

the risk of fraud, leakage or errors

– we continually enhance processes, systems and our operating

model to improve and automate accounting, financial

reporting and controls

– we’ve improved tax risk management processes and training.

Dynamic risk examples in this category

Point risks:

– not simplifying and modernising our finance processes and

operating model could reduce speed and quality of decision

making and reporting

– impact of complex legacy systems on our internal controls.

Emerging risk:

– higher chance of fraudulent behaviour from increasing

cost of living.

Scenario considered in viability analysis/planning

A material financial misstatement which could lead to

regulatory fines, lawsuits and reputational damage.

Financing

Sponsor: Chief Financial Officer

What this category covers

We rely on cash generated by business performance

supplemented by capital markets, credit facilities and cash

balances to finance operations, pension scheme, dividends

and debt repayments.

We might not be able to fund our business cash flows or

meet payment commitments to shareholders, lenders or

our pension schemes.

Our appetite for risk in this category

We fund based on business performance forecasts in our

medium term plans.

We rely on debt capital markets being open to investment grade

borrowers. We set our minimum credit rating at BBB. We invest

cash resources to preserve capital, not to generate returns.

We have an agreed plan to reduce investment risk in the

BT Pension Scheme by 2034, and plan to reduce real interest rate

and longevity risk further.

Examples of what we do to manage this category

– we review actual and forecast business performance

– we have formal treasury risk management processes, Board

oversight, delegated approvals and lender relationship

management

– we review our pension schemes’ funding positions and

investment performances and agree funding valuations.

Dynamic risk examples in this category

Point risks:

– increasingly volatile nominal interest rate and inflation

forecasts might affect the cost of new debt and pension

funding deficits

– macroeconomic and geopolitical events could lower actual

and forecast business performance.

Emerging risk:

– changes to pension funding regulations could risk higher

pension deficits or shorter recovery periods.

Scenarios considered in viability analysis/planning

An increase to BT’s funding obligations to the BT Pension Scheme.

Winter power shortages and unhedged energy costs.

UK and global markets experience a significant recession with

negative GDP growth.

Financial

065Strategic report

Data

Sponsor: Chief Digital and Innovation Officer

What this category covers

Our data strategy seeks to create value and enable efficiency

while providing a robust framework for data governance and

regulatory compliance.

We must follow today’s global data regulations while anticipating

and preparing for tomorrow’s.

Not following data protection laws or regulations could damage

our reputation and stakeholder trust, harm colleagues, customers

or suppliers and/or lead to litigation, fines and penalties.

Our appetite for risk in this category

We want to ethically protect the group, colleagues, customers,

partners and suppliers from breaches of data protection laws

and regulations. We also want to harness our data to support

and drive our objectives and realise opportunities.

We’ll only be able to achieve these aims with the right data

ethics, governance, security, protection and compliance systems,

processes and practices. Fulfilling our data objectives may

require appropriate interpretation of the varied global data

protection laws, regulations and standards.

Examples of what we do to manage this category

– we continuously run and improve our data governance

programme to tackle existing and future data regulatory risks

– to make sure we follow our own data protection standards we

review how we use personal data across the business

– horizon-scanning for evolving regulations, industry sector

developments and new technologies impacting our data risks,

controls and processes

– we provide data protection and handling training and tools to

help colleagues make more risk-aware day-to-day decisions.

Dynamic risk examples in this category

Point risk:

– international data transfers could be restricted or deemed

unlawful, which might affect business operations or lead to

fines, claims and/or reputational damage.

Emerging risks:

– there could be changes to data protection laws and regulations

where we do business

– there could be increased regulatory focus on governance and

ethics around data propositions and processes especially with

respect to generative AI.

Scenario considered in viability analysis/planning

A data breach leading to regulatory investigation, enforcement

action and reputational damage.

Communications regulation

Sponsor: General Counsel, Company Secretary

& Director Regulatory Affairs

What this category covers

We work with key regulators as they define clear, predictable

and proportionate regulations which protect customers and

society while ensuring service providers can compete fairly.

We must work in compliance with those regulations, maintain

trust and strong relationships while delivering on our vision and

sustainable value growth.

Areas of ongoing, industry-wide regulatory scrutiny include

billing accuracy, customer complaints, support for vulnerable

customers, migration away from legacy services and

management of major incidents.

Our appetite for risk in this category

Regulatory compliance is a fundamental part of our goals to be

trusted and deliver excellent customer experiences. Specific

actions to deliver our regulatory obligations will marry this with

our business imperatives and strategy.

Across the board we focus on ‘doing the basics’ well and

maintaining long-term predictability and stability in regulation.

Examples of what we do to manage this category

– we proactively engage with regulators and supply timely

and accurate information when required

– we focus on understanding our customers’ experiences,

like moving them on to new networks or managing

vulnerable customers

– we have processes to help us follow regulations, build trust

and enable future dialogue with policymakers

– we run a programme of compliance assurance activities.

Dynamic risk examples in this category

Point risks:

– there could be challenges shutting down our legacy

networks which might adversely impact service delivery,

lead to regulatory intervention and reputational damage

– we could fail to meet our roadmap for Telecommunications

(Security) Act 2021 compliance

– there could be negative regulatory sentiment around pricing.

Emerging risk:

– regulation might not keep pace with the changing value

chain economics, which could make us less competitive.

Scenario considered in viability analysis/planning

The impact that a more interventionist regulatory approach

could have on our commercial strategy.

Compliance

066 BT Group plc Annual Report 2023

Our principal risks and uncertainties continued

Compliance continued

Financial services

Sponsor: CEO, Consumer

What this category covers

Our exposure to financial services regulation increased in

2022 when EE launched a Financial Conduct Authority (FCA)

regulated mass-market proposition. We expect to continue

scaling-up and broadening such products and services over the

coming years, which means we must meet all applicable FCA

principles, rules and requirements.

Operating outside FCA rules, requirements or permissions could

harm customers and lead to fines, loss of FCA permissions, slow

service take-up and broader reputational damage.

Our appetite for risk in this category

We aim to minimise regulatory risk in two ways. First, by building

operational and organisational capabilities that help us develop

financial services activities compliantly. Second, by building and

maintaining a trusted relationship with the FCA.

We monitor a range of conduct risk metrics, complaints data and

customers in collections. These are early warning indicators of

customer harm which we can act on.

Examples of what we do to manage this category

– we review and update relevant standards every year, and

implement controls into operational procedures

– we run mandatory training on FCA regulations, aligned

to job roles

– we review financial services products and promotions when

we develop them and each year afterwards

– our ‘second line’ compliance team provides support and

oversight

– we scan the horizon, interpret new regulatory requirements

and regularly communicate with the regulator

– our proportionate governance framework provides clear

responsibility, accountability and reporting.

Dynamic risk examples in this category

Point risks:

– we might not have enough operational capability and

resources to support our financial services strategy

– we could fail to comply with new Consumer Duty regulation,

leading to regulatory scrutiny/challenge and brand damage.

Emerging risk:

– the extra FCA permissions needed to undertake new activities

will need us to comply with new regulatory framework areas.

We could fail to do that.

Scenario considered in viability analysis/planning

Failing to get full FCA permissions and the impact on product

rollout and projected revenue.

Legal compliance

Sponsor: General Counsel, Company Secretary

& Director Regulatory Affairs

What this category covers

We focus on remaining in compliance with all substantive

laws. Key areas of focus for this category are anti-bribery

and corruption, competition, trade sanctions, export controls

and corporate governance obligations.

Our appetite for risk in this category

We want to take advantage of commercial opportunities. So

we take considered, evidenced and defensible decisions around

how we comply with applicable laws.

We assess risk to support decisions about proposed actions. This

means looking at the nature of the risk, the costs of compliance,

the value of the proposed actions and the steps we could take to

bring them within our risk appetite.

In corporate governance, we determine the risks for a position

we take by considering things like our rules and policies, market

practice, investor expectations and our stakeholders’ views.

Examples of what we do to manage this category

– through our code we foster a culture where colleagues know

expected standards and speak up if something’s not right

– we regularly assess risks when giving legal or compliance

advice on strategic projects, signing new business and on our

commercial operations

– we train colleagues to know where legal and compliance risks

come from, how to handle them and when to get expert help

– we do assurance on day-to-day operations, regions, partners,

projects and suppliers. We investigate and fix anomalies and

share what we learn, where appropriate

– we scan the horizon to prepare and respond to legislative

changes.

Dynamic risk examples in this category

Point risks:

– new technologies being exploited in multiple countries

– working with third parties in multiple jurisdictions.

Emerging risk:

– there could be changes to existing or potential new laws,

or trade sanctions, put in place in response to geopolitical

dynamics or to address concerns in a particular area of law.

Scenario considered in viability analysis/planning

Breaches of sanctions or export controls imposed by UK, US

or EU nations potentially leading to regulatory investigation,

fines, debarring from public contracts and reputational damage.

067Strategic report

Cyber security

Sponsor: Chief Security and Networks Officer

What this category covers

Our aim is to protect the group, colleagues and customers

from harm and financial loss from cyber security events.

Because we run critical national infrastructure, a cyber

attack could disrupt both customers and the country and

compromise data.

A poorly managed cyber security event might cost us money,

damage our reputation and impact our market share. The

regulator might also impose fines or penalties.

Our appetite for risk in this category

Cyber risk is inherent to our business, and significant reputational

damage could be incurred by a major cyber event, but we

acknowledge that not all cyber risks can be eradicated.

Cyber events could be deliberate or unintentional, originate from

inside or outside the group, and we adapt our security posture

and controls accordingly to detect and respond robustly to the

evolving threat.

We prioritise the protection of our critical systems and networks,

and the data and information they contain.

Examples of what we do to manage this category

– we have leading best practice security standards, tools and

processes to protect our applications, systems and networks

– we monitor external threats and gather intelligence on

evolving cyber techniques, tactics and capabilities

– to quickly detect, assess and respond to cyber risks we

maintain a vigilant security stance

– we run communications, engagement and training

– we continue to invest in cyber defences and security tooling,

shifting to automation where appropriate

– we nurture partnerships with industry, government and

customers.

Dynamic risk examples in this category

Point risks:

– cyber attacks from nation states could target critical

national infrastructure which could lead to service disruption,

data loss, regulatory action and damage to our reputation

– exposure to suppliers with security vulnerabilities which

might result in compromised supply chains, increased costs,

loss of data or interrupted services

– relying on externally hosted cloud services potentially

impacting service delivery and customer experience.

Emerging risks:

– AI and machine learning could be weaponised

as security threats

– more connected home devices means more focus

on protecting customers.

Scenario considered in viability analysis/planning

We fall victim to cyber attacks and experience a major loss of

customer data which leads to a successful class action against us.

Operational resilience

Sponsor: Chief Security and Networks Officer

What this category covers

We want to deliver best-in-class performance across our fixed

and mobile networks and IT by managing all the risks that could

disrupt our services.

Service interruptions could be caused by things like bad weather

or accidental or deliberate damage to our assets.

Some service interruptions might depend on suppliers’ and

partners’ reliability – making picking the right ones important.

Our appetite for risk in this category

We want customers to get market-leading services, underpinned

by best-in-class network performance. To achieve that we must

prioritise our resources to maximise overall service and customer

experience, whilst aligning with our strategy.

We aim to deliver exceptional performance for high volume

(FTTC/4G) and strategic (FTTP/5G) products and maintain

reasonable performance for legacy services.

Examples of what we do to manage this category

– we continuously capacity plan, manage asset lifecycles and

monitor our network, assets and services

– we respond quickly and professionally to incidents, reducing

their impact through geographically dispersed emergency

response teams – while communicating with customers

– we have comprehensive testing and change

management processes

– we do regular business impact assessments that feed into

tested, up-to-date continuity and disaster recovery plans

– we ensure our operational estate has requisite levels of

physical security controls in place to assure service

– our operational planning improves network and IT resilience,

including handling more frequent and severe bad weather.

Dynamic risk examples in this category

Point risks:

– increasing flood risk at non-protected sites could lead to

flooding, interrupting services

– not creating robust contracts and/or managing relationships

with third parties might lead to gaps in support arrangements

and extended fix times, creating poor customer experience

and churn.

Emerging risk:

– failing to properly manage significant changes to our digital

estate could interrupt services and delay fix times.

Scenario considered in viability analysis/planning

Ongoing crisis in the energy sector leads to insufficient gas

supply and energy volatility.

Operational

068 BT Group plc Annual Report 2023

Our principal risks and uncertainties continued

Operational continued

Health, safety and environment

Sponsor: Chief Security and Networks Officer

What this category covers

We have diverse working environments in various locations,

some of which could pose a health or safety risk to colleagues,

partners or the public. We must make sure our colleagues and

partners are safe and healthy and can perform at their best while

managing hazards that could harm them.

Not maintaining or continually improving the right health, safety and

environmental management systems could impact our provision of

a safe and compliant business which protects colleagues.

Ineffective health, safety and environmental standards could

lead to legal or financial penalties, and reputational and

commercial damage.

Our appetite for risk in this category

It’s important that employees and partners follow appropriate

standards which support our business priorities. We aim to eliminate

all unacceptable risks. We apply proactive risk management to

identify, control and mitigate significant risks across the business

to a level deemed as low as reasonably practicable.

We consider our legal, regulatory and other requirements the

minimum obligation. We want to go beyond that – aiming for

zero avoidable harm, optimum physical and mental health and

minimal pollution.

Examples of what we do to manage this category

– our group policy is underpinned by standards and a safety

framework reflected in our code

– we train colleagues and make sure they’re clear on their roles

and responsibilities around health, safety and environment

– we monitor health and safety through colleague surveys,

focus groups and a dedicated portal

– our incident reporting system monitors and evaluates our

health, safety and environmental performance.

Dynamic risk examples in this category

Point risks:

– heightened risks from the extra civil and construction

work supporting the full fibre rollout including harm to

colleagues, increased regulatory scrutiny, legal claims

and reputational damage

– failure to manage contractors properly when they start

and during their contracts, potentially leading to harm to

colleagues, partners or the public, regulatory intervention

and legal claims

– failure to keep our sites clean, tidy and environmentally safe

could lead to increased fire risks or compliance breaches.

Emerging risk:

– complying with future health, safety and environment

regulation.

Scenario considered in viability analysis/planning

A new pandemic as severe as Covid-19 causes harm to

colleagues, disrupted service delivery and business operations.

People

Sponsor: Chief Human Resources Officer

What this category covers

Our people strategy is to enable a culture where all our

colleagues can be their best, and help deliver our ambition.

This means we must manage risk around our organisational

structure, skills and capabilities, engagement and culture,

wellbeing and diversity.

Our appetite for risk in this category

Our priority is making sure colleagues can work and perform at

their best. We avoid risks that could compromise critical business

priorities and minimise those which cannot be avoided to as low

as reasonably practicable. We avoid risks that could result in us

not complying with applicable employment legislation.

A relatively small number of roles have a disproportionate effect

on our success. For those roles we have a much lower tolerance

for the risk of not having the right capabilities, compared to other

roles in the organisation.

To deliver our transformation, we’re prepared to take carefully

managed short-term employee relations risks to achieve

our ambitions.

Examples of what we do to manage this category

– our group people strategy is supported by a workforce plan

– we share consistent performance goals and performance

management review processes – through clear organisation

structures, roles and job descriptions

– we assess skills and capabilities, invest in group-wide

workforce and talent planning and provide training,

development and wellbeing support – for specific roles,

future skills and succession planning

– our D&I strategy raises awareness, addresses bias and

promotes our People Networks and support (read more

about D&I and our people on pages 32 to 35)

– we engage with employees and maintain close relationships

with formal representative groups and unions

– we offer fair, competitive and sustainable remuneration to

promote smart risk taking, support engagement and retention

and help align colleagues’ and shareholders’ interests.

Dynamic risk examples in this category

Point risks:

– large-scale, escalated industrial action could increase

disruption, affect colleague engagement and damage

our reputation

– changes to our strategy, technology or business model could

affect what skills we need. Coupled with tightened talent

markets, higher pay and increased attrition, this could create

skills gaps.

Emerging risks:

– long-term social and workplace changes

– growing colleague activism on social or environmental topics.

Scenario considered in viability analysis/planning

Widespread lack of availability of frontline colleagues impacting

service delivery and leading to poor customer experience and

reputational harm.

069Strategic report

Customers, brand and product

Sponsor: CEO, Consumer (excluding Openreach, which has

separate GRC sponsorship and management)

What this category covers

We want to give customers standout service, building personal

and enduring relationships and taking extra care of vulnerable

customers. We aim to keep customer satisfaction high as we

continue to migrate customers from legacy products and

services to newer ones – while billing them accurately.

Not digitising or continually improving our customer experience

could affect customer satisfaction and retention, colleague pride

and advocacy, revenues and brand value.

Central to this is being accurate and competitive with our pricing,

billing and collection. We must also manage our product and

service lifecycles, inventory and supply chain, and comply with

our customer obligations and product and service standards.

Our appetite for risk in this category

We want to be below the industry average for Ofcom complaints

and continue to grow our NPS. We aim to maintain customer

satisfaction, launch new products and services that benefit them

and keep billing issues to a minimum.

We must serve customers through modern and cost-effective

platforms – with as few as possible on expensive and labour

intensive legacy and aging products and services. We also want

customers to feel they get personalised service through friction-

free channels.

Examples of what we do to manage this category

– we stick to our promises on the service levels customers

should expect and we track a range of customer experience

performance metrics

– we have clear and comprehensive brand usage guidelines

– we work with suppliers to manage ongoing relationships

and risks

– we pilot products and services to make sure they benefit

customers

– we have a colleague retention and skills development plan to

make sure we’re not short on key skills.

Dynamic risk examples in this category

Point risks:

– switching customers from old to new service platforms

could interrupt the service and cause customer churn and/or

regulator intervention

– failing to make sure we have the right current and future

skill sets to serve our customers could lead to not meeting

customer expectations, reputational damage and loss of

customers and market share.

Emerging risk:

– long-term changes in customer needs and expectations.

Scenario considered in viability analysis/planning

Wrongly billing customers leading to dissatisfaction, unforeseen

churn and possible regulatory investigation.

Major customer contracts

Sponsor: CEO, Business (excluding Openreach, which has

separate GRC sponsorship and management)

What this category covers

We offer and deliver a diverse mix of major contracts which

contribute to our business performance and growth.

We seek to win and retain major private and public sector

contracts in a highly competitive and dynamic environment.

We do that, while navigating customer relationships and risk

in complex agreements – delivering highly sensitive, critical

or essential services globally.

Customer contractual terms can be onerous and challenging

to meet which might lead to delays, penalties and disputes.

Delivery or service failures against obligations and commitments

could damage our brand and reputation, particularly for critical

infrastructure contracts or security and data protection services.

Not managing contract exits, migrations, renewals and disputes

could erode profit margins and affect future customer relationships.

Our appetite for risk in this category

We want a diverse mix of major contracts that will help our

business grow. To do that, we must build on our market share,

target the right customers, make beneficial commercial and legal

agreements and deliver services successfully.

As markets change, we need to proactively adjust our portfolio

of services, countries and customers to avoid concentration risk,

stagnation and legacy dependency.

We know this involves taking on some higher risk, complex

customer agreements with obligations we can’t fully meet

through standard portfolio, terms and conditions and/or delivery

process. We must manage this risk during the bid process and

contract lifecycle to minimise the overall impact.

Examples of what we do to manage this category

– we have a clear governance framework to assess new business

opportunities, manage bids and monitor in-life contract risks

– as part of bids, we check non-standard unfavourable terms

and conditions, mitigating them where we can

– our senior management, and a dedicated team, regularly

review our contracts

– we support frontline contract managers with contract and

obligation management tools.

Dynamic risk examples in this category

Point risks:

– inflationary pressures affecting our supply chain might not

be fully offset by adjusted prices given market challenges

or us not having leverage to negotiate

– new IT infrastructure challenges, skills shortages, scale or

complexity could stop us delivering our digital portfolio

transformation.

Emerging risks:

– increasing geopolitical tensions and East/West divide could

affect our multinational customers and our ability to provide

global connectivity

– it could be difficult to manage EU contracts if the UK and

EU don’t renew their data adequacy agreement.

Scenario considered in viability analysis/planning

Losing major public services contracts.

070 BT Group plc Annual Report 2023

Our principal risks and uncertainties continued

Operational continued

Transformation delivery

Sponsor: Chief Financial Officer

What this category covers

We’re accelerating transformation delivery to build a simpler,

more efficient and dynamic BT Group.

We’re modernising and streamlining our IT, simplifying and

refining our product portfolio, switching to next-generation

strategic networks, unlocking cost efficiencies through better

and more agile ways of working, improving our customers’

digital journeys, automating our processes and using AI.

Failing to transform could make us less efficient and damage

our financial performance and customer experience.

Our appetite for risk in this category

We’ve defined the level of risk we’re willing to tolerate for

simplifying and modernising our products, customer journeys

and technology. We track specific metrics to check we’re

achieving genuine, sustainable transformation outcomes and

not just cutting costs.

Delivering within our risk appetite will give us competitive

advantage, enable faster delivery, improve customer experience

and ensure our costs benchmark favourably with peers.

Examples of what we do to manage this category

– we invest in digital and data capabilities to cut costs and grow

revenue – prioritising it around making sure we have the right

resources to deliver sustainable change effectively

– we have strong governance, with senior leaders clearly

owning operational and financial outcomes to be delivered.

Each quarter we assess performance to allocate funding –

prioritising programmes delivering the most strategic value

– we share robust tracking and reporting (using financial and

non-financial measures) with the Executive Committee and

Board monthly

– we hold monthly Executive Committee transformation

sessions to accelerate delivery by managing dependencies,

making informed decisions and removing blocks.

Dynamic risk examples in this category

Point risks:

– managing complex interdependencies to complete migrating

customers and close legacy IT and networks

– delivering the volume of change at pace while still focusing

on cutting costs.

Emerging risk:

– the changing external environment could affect the size, scale

and speed of transformation needed to deliver our strategy.

Scenario considered in viability analysis/planning

The group is unable to execute transformation plans required

to deliver savings initiatives.

Supply management

Sponsor: Chief Financial Officer

What this category covers

Successfully selecting, bringing on board and managing suppliers

is essential for us to deliver quality products and services.

We have a lot of suppliers. We must make supplier decisions on

concentration, capability, resilience, security, costs and broader

issues that could impact our business and reputation.

Our appetite for risk in this category

Our appetite guides us when we make purchasing decisions. That

includes when we sole or dual source for products or services

that support key business aims or activities and where alternative

sources are not economically viable. To get the best commercial

rates and operational resilience we continuously engage with and

challenge key suppliers on pricing and supply chain diversity.

Working with so many third parties needs effective governance

to manage them properly. So, we have a low appetite for dealing

with suppliers outside our defined policies or processes.

We have to make sure third parties don’t expose our brands to

damage. That means avoiding – or stopping working with – any

that don’t meet our standards on things like human rights.

Examples of what we do to manage this category

– our sourcing strategy uses different approaches by category,

standard terms and conditions and controls so we can make

purchasing decisions efficiently and effectively

– we have comprehensive supplier due diligence, contract

management, on-boarding and in-life assessment processes

– we have robust supplier risk management, performance,

renewal and termination processes

– we do demand planning and forecasting, stock counts and

inventory management so we have supplies available

– we get assurance that the goods and services we buy are

made, delivered and disposed of responsibly. That includes

monitoring energy use, labour standards and environmental,

social and governance impacts.

Dynamic risk examples in this category

Point risks:

– rising energy prices, supply shortages, and inflationary pressures

could affect cost reduction targets and future investments

– an escalating Russia-Ukraine war and/or China-Taiwan

tensions could compound current supply chain challenges.

Emerging risk:

– long-term metal shortages could lead to much higher prices

– extreme climate conditions might disrupt supply chains.

Scenario considered in viability analysis/planning

Geopolitical uncertainty widens, with wholesale impact on the

China supply chain.

071Strategic report

Task Force on Climate-related Financial Disclosures

We analyse and report on what we’re doing to

understand and manage the impact of climate-

related risks and opportunities on the group.

This section details how we’re complying with the

recommendations of the Task Force on Climate-

related Financial Disclosures (TCFD) in this area

– our ‘TCFD statement’.

Table 1: TCFD Compliance Summary

– Under FCA Listing Rule 9.8.6(8) as a premium listed company

we have to explain how we’re complying (or not) with the TCFD

framework. This is our second year of mandatory disclosure –

but we’ve been doing it voluntarily since FY20.

– We consider the climate-related financial disclosures that

follow to be consistent with the TCFD framework and therefore

compliant with Listing Rule 9.8.6(8), save for certain items which

we summarise below in Table 1: TCFD Compliance Summary.

– Where relevant, we’ve accounted for TCFD guidance and the

recent Financial Reporting Council (FRC) recommendations on

materiality around governance, strategy, risk management, and

metrics and targets.

– We’ve integrated climate-related disclosures throughout the

Annual Report, so in some areas we’ve cross-referenced to

another section containing the relevant information.

– The information presented within this TCFD section has been

reviewed to a high level of assurance by LRQA Limited against

Accountability’s AA1000AS v3 assurance standard.

TCFD recommendation Compliance status Alignment Section reference

Governance

1 Board’s oversight of

climate-related risks

and opportunities

Full We discuss Board-level delegation

of climate-related responsibilities to

the Digital Impact & Sustainability

Committee. The Audit & Risk Committee

oversees climate risk management.

TCFD section: Our climate change

governance – Board oversight on climate

change (page 73)

Corporate governance report: Our

governance framework (page 85), and

Digital Impact & Sustainability Committee

Chair’s report (page 107)

2 Management’s role

in assessing and

managing climate-

related risks and

opportunities

Full We discuss that the Chief Executive

is ultimately responsible for climate-

related issues and that the Executive

Committee sets operational strategy

on climate change and sustainability,

and monitors associated progress,

performance and risks. Health, safety

and environment issues are managed

by a subcommittee that reports to the

Executive Committee.

TCFD section: Our climate change

governance – Management’s roles and

responsibilities (page 73)

Corporate governance report: Our

governance framework (page 85)

Strategy

3 Climate-related risks

and opportunities

(short, medium, long-

term)

Full We describe each short, medium and

long-term timeframe including for

decarbonisation as well as investments

built into our financial medium term

plan (MTP).

TCFD section: Risk management and

climate scenario analysis – Planning

climate risks and opportunities across

different time horizons (page 74)

4 Impact of climate-

related risks and

opportunities on the

business, strategy and

financial planning

Full We describe the impact of physical and

transition risks by climate scenario and

time horizon.

TCFD section: Risk management and

climate scenario analysis – The results

of our analysis (page 75)

Strategic report: Our Manifesto –

Sustainable (pages 38 to 39)

5 Resilience of the

organisation’s strategy,

considering different

climate-related

scenarios, including a

2°C or lower scenario

Full Climate adaptation and mitigation

activity is discussed further in sections

‘Responding to our main physical risks’

and ‘managing transition risks and

pursuing low carbon opportunities’.

TCFD section: Being resilient to climate

risks (page 78)

072 BT Group plc Annual Report 2023

TCFD recommendation Compliance status Alignment Section reference

Risk management

6 Processes for

identifying and

assessing climate-

related risks

Full We outline the process and framework

for identifying and assessing climate-

related risks, also linking out to our wider

risk management framework.

TCFD section: Risk management and

climate scenario analysis – A structured

and consistent approach to risk

management (page 74)

Strategic report: Risk management

(pages 61 to 62)

7 Processes for

managing climate-

related risks

Full We manage climate risks through Group

Risk Categories (GRCs) – including

stakeholder management (reputation),

operational resilience (physical assets)

and supply management (supply chain).

TCFD section: Risk management and

climate scenario analysis – A structured

and consistent approach to risk

management (page 74)

Strategic report: Risk management

(pages 61 to 62) and climate-related

GRCs (pages 63, 67, 70)

8 Identifying, assessing

and managing climate-

related risks, and

integration into overall

risk management

Full Climate risks are managed through BT

Group’s risk management framework

and processes. Risks are monitored and

reported to the Audit & Risk Committee.

TCFD section: Risk management and

climate scenario analysis – A structured

and consistent approach to risk

management (page 74)

Strategic report: Risk management

(pages 61 to 62)

Metrics and targets

9 Metrics to assess

climate-related risks

and opportunities

in line with strategy

and risk management

processes

Partial Our disclosure covers our climate

targets, ESG-related metrics and GHG

emissions. Over time as our modelling

and data capabilities mature, our metrics

and disclosures in this area will evolve to

introduce metrics related to physical risks

and products and services.

TCFD section: Our targets, metrics and

measurement (page 79), Our worldwide

energy use and greenhouse gas emissions

(page 80)

ESG Addendum: bt.com/esgaddendum

10 Disclose Scope

1, Scope 2 and, if

appropriate, Scope 3

GHG emissions, and the

related risks

Full We disclose Scope 1, 2 and 3 GHG

emissions and related risks and share a

summary table of figures at the end of

this section (page 80).

TCFD section: Our targets, metrics and

measurement (page 79), Our worldwide

energy use and greenhouse gas emissions

(page 80)

ESG Addendum: bt.com/esgaddendum

11 Targets used to

manage climate-

related risks and

opportunities, and

performance against

targets

Full We describe our operational and value

chain net zero targets and some of the

investments we’re making in order to

achieve them. We also link out to our

Carbon Reduction Plan which provides

further details of the targets and actions

we’re taking.

TCFD section: Climate change strategy

and planning – Embedding climate change

into our strategy (page 73)

Strategic report: Our Manifesto –

Sustainable (pages 38 to 39)

Task Force on Climate-related Financial Disclosures continued

Table 1: TCFD Compliance Summary

073Strategic report

Our climate change governance

We set out the internal governance bodies, processes

and ways in which we identify and manage climate-related

risks and opportunities within BT Group.

Read more on our climate strategy

and planning on pages 38 and 39.

Climate change

strategy and planning

Embedding climate

change into our strategy

Climate is a core part of our strategic

objective to lead the way to a bright,

sustainable future.

We have ambitious strategic and financial

targets which aim to ultimately reach net

zero and decarbonise our operations by

FY31 and value chain by FY41.

Our Carbon Reduction Plan (bt.com/

carbonreductionplan) explains what

we’re doing to reduce operational and

value chain emissions. We include our

investments on renewable electricity,

transforming our buildings estate,

energy efficiency and transitioning to

a low carbon fleet in our medium term

plan. Our medium term plan considers

both capital and operating expenditure

over a rolling five-year timeframe.

To reduce customer emissions, in 2021

we set a target to help our customers

avoid 60m tonnes of CO

e by FY30. This

is based on shifting them to technologies

like FTTP, 4G/5G, cloud computing and

IoT-based products.

Board oversight

on climate change

The Board

The Board has overall responsibility for

how we identify and manage climate-

related risks. Matters reserved to the

Board include items of significant

strategic importance, such as those

which have a direct impact on the group’s

funding position, reputation or integrity;

and/or ethical standards.

Digital Impact & Sustainability

Committee

Oversees our climate change strategy,

programme and goals. It’s chaired by

Non-Executive Director Sara Weller

and made up of four Independent

Non-Executive Directors. It’s attended

by our Chief Human Resources

Officer, Corporate Affairs Director,

Director of Digital Impact and External

Communications and the Sustainability

and Corporate Affairs Strategy Director.

The Deputy Company Secretary is

secretary to the Committee and attends

all meetings. The Committee meets at

least three times a year and monitors

progress on our long‐term digital impact

and sustainability goals, including

those on climate change. The Chair

reports to the Board on our climate-

related activities, including net zero.

To support the induction of Sara Weller,

as the new Chair of the Digital Impact

& Sustainability Committee, and other

senior leaders, a training session was held

on sustainability and climate change.

Audit & Risk Committee

Monitors and assesses our risk

management and internal control system

effectiveness on the Board’s behalf. That

includes climate change risks which sit

under a number of different GRCs, see

pages 63, 67 and 70.

Management’s roles and

responsibilities

Chief Executive

Our Chief Executive is ultimately

responsible for our environmental policy

and performance. That includes climate-

related issues. After consulting with the

Executive Committee the Chief Executive

recommended our target to become

a net zero carbon emissions business

by the end of FY31 for our operations

(Scopes 1 and 2) and by the end of FY41

for value chain (Scope 3) to the Digital

Impact & Sustainability Committee – who

then approved it in 2021.

Executive Committee

Sets operational strategy on climate

change and sustainability. It also monitors

associated progress, performance and

risks – supported by our digital impact

and sustainability team.

Our Group Health, Safety & Environment

Sub-Committee manages day-to-

day climate-related compliance and

risk issues on behalf of the Executive

Committee, reporting back regularly.

074 BT Group plc Annual Report 2023

Task Force on Climate-related Financial Disclosures continued

Assessing risks

We evaluate climate risks

against time horizon,

preparedness and likely degree

of impact. We calculate the

impact using quantitative

and qualitative measures

on revenue and market

capitalisation, customer

experience, and stakeholder

perception. This lets us

determine relative risk priority.

Managing and reporting

on risks

Our Group Health, Safety &

Environment (GHSE) Sub-

Committee manages a range

of risk and compliance issues

(including climate change)

on behalf of the Executive

Committee. It’s chaired by the

Chief Security and Networks

Officer – an Executive

Committee member – and

made up of senior leaders from

across the business.

In the UK, our most significant

environmental risks are

managed by the Environmental

Management Compliance

working group. It meets

each month and reports to

the GHSE every quarter. Its

members are senior managers

responsible for addressing

environmental risks and

improving performance

under our ISO 14001-

certificated environmental

management system.

Day to day, we manage climate

risks in the parts of our business

they might affect. For example,

our procurement team measures

suppliers’ energy use and

environmental impact. We

decide how to mitigate or control

a risk based on its likelihood and

impact, leading to investments

in areas such as flood defences

because more floods could have

a big effect on us.

Risk management and

climate scenario analysis

A structured and consistent

approach to risk management

Our risk management framework helps us assess, manage,

monitor and act on risks – including climate change – to deliver

on our strategic objectives. We track and report risks to the

Audit & Risk Committee and Executive Committee.

Planning climate

risks and opportunities

across different time

horizons

We think about climate risks

and opportunities over short-,

medium- and long-term

timeframes. We do that in line

with our risk management

framework and financial

planning processes – and

considering external legal

and regulatory changes.

Short-term horizon

Our short-term horizon

considers the chance of

events creating risk exposure

over the next three years.

We factor acute physical

risks like flooding and higher

temperatures into our annual

plans. This helps us to adapt

and reduce the impact on our

business and value chain.

Medium-term horizon

Our medium-term horizon

is aligned to our financial

planning process which uses a

five-year horizon and capital

expenditure is assessed over

the life of the asset.

Long-term horizon

Our long-term horizon matches

our investment timeframes for

strategic assets like networks

that are planned over longer

periods – sometimes up to 20

years. It also influences our

strategy, targets and plans for

responding to the bigger risks

and transitional implications of

climate change. We also think

about climate risks beyond

these timeframes. For example,

our long-term climate targets

extend to FY41, and TCFD

scenario analysis set out in the

following pages considers risks

in 2050.

Full detail on our risk management

framework can be found on pages 61 to 62

and we describe below how the framework

is applied to climate risks.

Identifying risks

We identify climate change

risks as part of our risk

management framework.

We manage them through

GRCs – including operational

resilience (physical assets),

stakeholder management

(reputation), and supply

management (supply chain).

Read more on pages 63,

67 and 70.

075Strategic report

Analysing climate scenarios

This year we focused on advancing our

climate scenario analysis and financial impact

modelling, in line with FRC expectations.

We updated our set of prioritised climate

risks and opportunities to focus on three

physical risks, three transition risks and

three opportunities.

The physical risks relevant to our sector

include more frequent and severe weather

events affecting infrastructure and service

provision. For example floods, heatwaves

or storms can result in service interruptions

and downtime.

The transition risks that could affect us

include changes to policy and regulations in

areas like carbon pricing. These could have

direct financial implications based on our

residual emissions, and changes in customers’

behaviour and preferences around

purchasing and choice of service provider.

We considered potential climate-related

opportunities for our sector, such as

improved energy efficiency and winning

new business by positioning ourselves as a

leader in our response to climate change.

We aimed to identify the risks and

opportunities that could have the most

material financial impact on our business

– for example on revenue and current and

future costs, including cost of capital.

We use different scenarios to assess our

climate risks and opportunities from

physical impacts and the move to a low-

carbon economy. We’ve based our scenarios

on the Intergovernmental Panel on Climate

Change (IPCC), Network for Greening the

Financial System and International Energy

Agency, among other sources.

Our analysis is based on a ‘middle-of-the-

road’ scenario of 2°C to 3°C warming. We

also reviewed ‘optimistic’ and ‘very warm’

transition and physical scenarios (1.5°C and

1 We mapped our physical risks to the IPCC’s Fifth

Assessment Report’s climate scenarios – known

as Representative Concentration Pathways. We

modelled transition risks using the Network for

Greening the Financial System version 3 and

International Energy Agency for the scenarios in

scope. We derived projections from the World

Climate Research Programme's Coupled Model

Intercomparison Project (versions 5 and 6/

CMIP5 and CMIP6) and the Coordinated Regional

Climate Downscaling Experiment. Other climate-

conditioned data sets include high precision flood

data. Where we didn’t have scenario data, we used

secondary literature proxies and assumptions.

2 NGFS Scenarios Portal.

3 TCFD: Implementing the Recommendations on the

Task Force on Climate-related Financial Disclosures.

Table 2: BT Group’s TCFD Climate Scenarios

Model scenarios

(transition risk)

Model scenarios

(physical risk)

BT Group temperature equivalent

scenarios (degree of warming by

2100 above pre-industrial levels) Scenario descriptions

Current

Policies

RCP 8.5 3.5 – 4.5°C High emissions

Emissions continue to rise at current

rates with no policy changes

Delayed

Transitions

RCP 6.0 2.5 – 3°C Intermediate emissions

Emissions peak around 2060

and then decline

RCP 4.5 2 – 2.5°C Intermediate emissions

Emissions stabilise at half

of today’s emissions by 2080

Net

Zero

RCP 1.9 /

RCP 2.6

1.5 – 2°C Low emissions

Emissions halved by 2050,

achieving net zero around 2075

4°C warming) to assess climate change’s

potential financial impact on BT Group in

2030, 2040 and 2050.

BT Group’s TCFD Climate Scenarios in

Table 2 below shows the different climate-

related scenarios

we’ve considered

to help us to test our organisational

strategy’s resilience. RCPs (Representative

Concentration Pathways) are IPCC

greenhouse gas trajectories representing

different climate scenarios.

The results of our analysis

We consider our strategy to be resilient to

climate risks in all modelled scenarios.

The Current Policies scenario assumes that

some climate policies are implemented,

but global efforts are not enough to stop

significant global warming.

The Delayed Transition scenario assumes

that annual emissions don’t fall until

2030, and climate policies are delayed or

different across countries and sectors.

The Net Zero scenario limits global

warming to 1.5°C and assumes that the

necessary policy changes are introduced

early and become more stringent over

time, achieving global net zero CO

around 2050.

Under a Current Policies scenario, we

expect physical risks to have a greater

impact than transition risks, as these

are driven by more frequent and severe

weather, particularly in the longer term.

We expect transition risks to have a greater

impact under the Delayed Transition and

Net Zero scenarios – because they’re driven

by changes in policy and regulation as well as

stakeholders’ behaviour (including customers).

Delayed Transition scenario trends are

similar to Net Zero – but with the impact on

the business realised sooner under Net Zero.

The summary of climate scenario analysis

results on the next two pages captures our

prioritised climate risks and opportunities

under a range of outcomes (fifth to 95th

percentile) for the different scenarios

we considered.

In line with TCFD guidance and

requirements

, we modelled the impact

on our current strategy and business plan

– using current decarbonisation plans and

the commitments in our latest medium

term plan.

Our results are global in scope. For most risks

and opportunities, the contribution from

non-UK geographies is relatively limited,

as most of our networks and estates are

based in the UK. We also operate primarily

in the ICT sector. Therefore, we present

global figures that are not disaggregated

by geography or sector.

We’ve treated each risk and opportunity

as a mutually exclusive event. We’ve

presented the final outputs in annualised

nominal terms, without applying social

discount factors to avoid double counting

with our financial models. We determined

relative financial effects using our risk

management framework.

076 BT Group plc Annual Report 2023

Task Force on Climate-related Financial Disclosures continued

Risk management and climate scenario analysis continued

Relative impact

Time horizon

at 2030 at 2040 at 2050

Prioritised risk or opportunity S M L Description Potential financial impact CP DT NZ CP DT NZ CP DT NZ How we’re responding:

Increase in flooding

Increase in frequency and severity

of flooding, resulting in increased

damage to group infrastructure.

– Increased costs to repair asset

damage.

– Reduced revenue due to network

disruption.

We’ve invested in flood defences. We continue to target mitigation and

maintenance activities, and plan future defence investments.

Increase in intensity,

duration and frequency

of heatwaves

Increase in temperature and

frequency of heatwaves impacting

the group’s operations and requiring

increased energy consumption for

cooling.

– Increased energy costs from cooling

demands for equipment and

operations during periods of high

temperatures.

– Reduced productivity due to labour

hours lost on account of heat stress.

We’ll continue to upgrade to equipment which has higher temperature

thresholds, and use fresh air and adiabatic cooling to reduce our energy

consumption.

Increase in intensity,

duration and frequency of

extreme weather events

Storms and extreme wind causing

repair to damaged assets affecting

our service, resulting in increased

maintenance costs and revenue loss.

– Increased costs to repair asset

damage as a result of extreme

weather events.

– Reduced revenue due to network

disruption.

We regularly monitor the increasing frequency and severity of extreme

weather events, which is tracked through our operational resilience GRC,

and reported to the Audit & Risk Committee and Executive Committee.

Our climate adaptation measures focus on key assets like investing in flood

protection and upgrading cooling systems at critical sites, as part of our

weather resilience strategy.

Changing consumer

preferences and

perceived reputation

Loss of customers as a result of

changing customer preferences and

expectations on climate action.

– Reduced revenue due to

customer churn as we fail to

align with rising customer

expectations on climate

targets.

B2C

We track customer sentiment and the influence of climate reputation on

their buying decisions. We consider these insights as part of our climate

plans and approach to engaging with customers and other stakeholders.

B2B

Increased costs

associated with

carbon pricing,

offsets and taxation

Regulatory and governmental policy

changes may introduce additional

operational costs in the form of

carbon pricing and taxation. Carbon

pricing might also affect some

supply chain players more strongly,

and at an earlier stage, and these

costs might be passed on to BT

Group by suppliers.

– Increased direct compliance costs

and indirect increases of production

costs passed on by suppliers.

Our net zero target and plan covers our own operations and value chain.

Our climate change procurement standard is mandatory in all our supplier

contracts. We apply a 15% weighting to all buying decisions based on

sustainability and related criteria. For all new contracts over £25m,

suppliers must have a net zero science-based target in place, or agree

to set one within six months.

More detail on our net zero target can be found on pages 38 to 39.

Increased cost of capital

due to insufficient climate

action by BT Group

Risk of reduced access to capital and

increased interest expense due to a

failure to make sufficient progress

in reducing carbon emissions

and a decline in our sustainability

credentials and reputation. This

could lead to an increase in the cost

of capital.

– Increased cost of capital due to drop

in sustainability credentials and

reputation.

We’ve implemented our net zero strategy and interim emissions reduction

targets to demonstrate our strong commitment to acting on climate. We

closely track our progress.

Improvement in

energy efficiency

Transitioning to energy efficient

technologies and focusing on

maintaining renewable electricity

consumption in our operations could

lead to lower operating costs as a

result of less reliance on expensive

fossil fuels.

– Reduced costs associated with

moving away from more expensive

and carbon-intensive sources of

energy.

We’ve made progress improving the energy efficiency of our buildings and

operations. We’re also focused on empowering our colleagues to cut their

energy use.

Strengthening BT Group’s

reputation as a climate

change leader

Enhanced revenue prospects for the

group by further differentiating itself

as a climate change leader.

– Increased revenue due to

improved reputation around

climate change.

B2C

We track changing customer preferences and reflect this in how we engage

with them, positioning our climate progress in customer communications

and bids.

B2B

Expanded service offerings/

leveraging technology for

climate action

Accelerate climate action for

customers by leveraging our

products, services and partnerships.

– Increased revenue from green

products as well as improved brand

reputation.

We’ve set a goal to help customers avoid 60m tonnes of carbon by FY30

by using our products and services.

See page 39 for further details of the carbon avoided under the goal.

Summary of climate scenario analysis results

1 Lines denote the time horizon under which individual climate risks or opportunities have been modelled. The squares denote the timeframe where impact is potentially

the greatest.

2 We produced high precision flood data for two epochs: 2030s (2021 to 2040) and 2050s (2041 to 2070) to capture the potential range of flood effects in the future. The results

presented show the effects of flooding for an average year in each of these epochs, to aid comparison with the other risks and opportunities that we’ve explored.

077Strategic report

Relative impact

Time horizon

at 2030 at 2040 at 2050

Prioritised risk or opportunity S M L Description Potential financial impact CP DT NZ CP DT NZ CP DT NZ How we’re responding:

Increase in flooding

Increase in frequency and severity

of flooding, resulting in increased

damage to group infrastructure.

– Increased costs to repair asset

damage.

– Reduced revenue due to network

disruption.

We’ve invested in flood defences. We continue to target mitigation and

maintenance activities, and plan future defence investments.

Increase in intensity,

duration and frequency

of heatwaves

Increase in temperature and

frequency of heatwaves impacting

the group’s operations and requiring

increased energy consumption for

cooling.

– Increased energy costs from cooling

demands for equipment and

operations during periods of high

temperatures.

– Reduced productivity due to labour

hours lost on account of heat stress.

We’ll continue to upgrade to equipment which has higher temperature

thresholds, and use fresh air and adiabatic cooling to reduce our energy

consumption.

Increase in intensity,

duration and frequency of

extreme weather events

Storms and extreme wind causing

repair to damaged assets affecting

our service, resulting in increased

maintenance costs and revenue loss.

– Increased costs to repair asset

damage as a result of extreme

weather events.

– Reduced revenue due to network

disruption.

We regularly monitor the increasing frequency and severity of extreme

weather events, which is tracked through our operational resilience GRC,

and reported to the Audit & Risk Committee and Executive Committee.

Our climate adaptation measures focus on key assets like investing in flood

protection and upgrading cooling systems at critical sites, as part of our

weather resilience strategy.

Changing consumer

preferences and

perceived reputation

Loss of customers as a result of

changing customer preferences and

expectations on climate action.

– Reduced revenue due to

customer churn as we fail to

align with rising customer

expectations on climate

targets.

B2C

We track customer sentiment and the influence of climate reputation on

their buying decisions. We consider these insights as part of our climate

plans and approach to engaging with customers and other stakeholders.

B2B

Increased costs

associated with

carbon pricing,

offsets and taxation

Regulatory and governmental policy

changes may introduce additional

operational costs in the form of

carbon pricing and taxation. Carbon

pricing might also affect some

supply chain players more strongly,

and at an earlier stage, and these

costs might be passed on to BT

Group by suppliers.

– Increased direct compliance costs

and indirect increases of production

costs passed on by suppliers.

Our net zero target and plan covers our own operations and value chain.

Our climate change procurement standard is mandatory in all our supplier

contracts. We apply a 15% weighting to all buying decisions based on

sustainability and related criteria. For all new contracts over £25m,

suppliers must have a net zero science-based target in place, or agree

to set one within six months.

More detail on our net zero target can be found on pages 38 to 39.

Increased cost of capital

due to insufficient climate

action by BT Group

Risk of reduced access to capital and

increased interest expense due to a

failure to make sufficient progress

in reducing carbon emissions

and a decline in our sustainability

credentials and reputation. This

could lead to an increase in the cost

of capital.

– Increased cost of capital due to drop

in sustainability credentials and

reputation.

We’ve implemented our net zero strategy and interim emissions reduction

targets to demonstrate our strong commitment to acting on climate. We

closely track our progress.

Improvement in

energy efficiency

Transitioning to energy efficient

technologies and focusing on

maintaining renewable electricity

consumption in our operations could

lead to lower operating costs as a

result of less reliance on expensive

fossil fuels.

– Reduced costs associated with

moving away from more expensive

and carbon-intensive sources of

energy.

We’ve made progress improving the energy efficiency of our buildings and

operations. We’re also focused on empowering our colleagues to cut their

energy use.

Strengthening BT Group’s

reputation as a climate

change leader

Enhanced revenue prospects for the

group by further differentiating itself

as a climate change leader.

– Increased revenue due to

improved reputation around

climate change.

B2C

We track changing customer preferences and reflect this in how we engage

with them, positioning our climate progress in customer communications

and bids.

B2B

Expanded service offerings/

leveraging technology for

climate action

Accelerate climate action for

customers by leveraging our

products, services and partnerships.

– Increased revenue from green

products as well as improved brand

reputation.

We’ve set a goal to help customers avoid 60m tonnes of carbon by FY30

by using our products and services.

See page 39 for further details of the carbon avoided under the goal.

Low Moderate High Very high

£5m-£50m £50m-£250m £250m-£1bn >£1bn

Relative risk impact

3 Climate scenario abbreviations CP= Current Policies, DT = Delayed Transition, NZ = Net Zero.

4 We’ll assess the opportunity value as we develop the roadmap for our carbon avoidance goal.

078 BT Group plc Annual Report 2023

Task Force on Climate-related Financial Disclosures continued

Risk management and climate scenario analysis continued

Physical risks

The biggest physical risk is flooding, with

the largest effects coming from indirect

losses from business disruption. Across

all three physical risks, the worst effects

happen under the Current Policies scenario

in 2050. More frequent and severe

heatwaves and extreme weather would

likely mean a need for extra cooling and

more business disruption.

Consumer preferences risk

There are financial risks from damage

to our reputation. These are based on

the level of our emissions and speed of

decarbonisation compared to the rest

of our industry. If we were a lot slower,

customers might go elsewhere.

Short-term, this isn’t a big risk as any gap

is likely to be limited in effect as customer

attitudes aren’t yet thought to drive

material changes. But that could change in

the medium to long term, particularly under

Net Zero and Delayed Transition scenarios.

Carbon pricing risk

Carbon pricing poses a more material risk

under Delayed Transition and Net Zero

scenarios – especially in the medium to

long-term as we’d expect carbon prices

to rise over time under these scenarios.

We’d expect prices to be a lot lower under

a Current Policies scenario, minimising

any financial impact. Any risk under other

scenarios should also be relatively limited,

given our plans to reduce emissions under

our net zero targets.

Cost of capital risk

We could find ourselves paying more

interest under a Net Zero scenario

from investors demanding a higher risk

premium because of slow progress on

climate targets. Investments in renewable

technologies and other policy mechanisms

to drive decarbonisation can impact

economic conditions in different climate

scenarios, thereby affecting our cost of

capital. This potential impact starts to

lessen under a Delayed Transition scenario,

reducing significantly from 2030-2040.

Energy efficiency opportunity

The chance to save money from energy

efficiency comes from cutting consumption

– by making our building estate and

networks more energy efficient. In all

scenarios and timeframes, the opportunity

for cost savings is minimal compared to

other opportunities. This is because we

don’t rely much on expensive and carbon-

intensive fossil fuels, because almost all of

our energy already comes from renewable

electricity.

Reputation opportunity

This financial opportunity comes from

us winning market share by lowering our

emissions and decarbonising quicker than

our competitors – resulting in customers

switching to us. Short-term, this isn’t a

big opportunity as any gap would have

limited effect as customer attitudes aren’t

yet thought to drive material changes.

But this could grow in the medium to long

term – particularly under a Current Policies

scenario where we’d expect the rest of the

industry to decarbonise slower.

Physical and transition risks impact by climate scenario and time horizon

Being resilient to climate risks

Based on our analysis, we don’t think climate risks have a material impact on our financial statements.

But we’ll closely monitor our prioritised risks and opportunities as part of continually assessing climate risks.

We’re acting to reduce risk across the various climate-related scenarios, with an emphasis on long-term resilience.

Responding to our main physical risks

Flooding

Last year we continued to analyse the

potential effects of flooding in our

UK estate. We ran a pilot covering 27

operational sites, using extra flood risk

data and a number of warming scenarios to

provide a more extreme view of potential

flood impacts from 2030-2050.

This year we widened our analysis, in

line with our future location strategy,

to understand possible flood risks from

climate change across different RCP

scenarios (2.6, 4.5, 6.0, 8.5). We’re doing

a gap analysis to review the level of

protection we already have. This will help

us target mitigation and maintenance and

plan future defence investments.

Heat

In most scenarios from 2030-2050 the UK

will see more extreme heat days. But the

risk of them damaging our core network

sites is low. Cooling system upgrades in

our large metronode sites allow them to

operate effectively in up to 45°C external

temperatures. We’ve invested £60m in these

upgrades so far. We expect to complete them

in FY24 – at a total cost of around £65m.

We’ve also finished upgrades in our

strategic data centres and invested over

£4m last year to upgrade cooling plants at

core mobile sites.

To minimise the effects of global warming,

all the cooling plants we install in our

exchanges are manufactured and tested

to confirm they work properly in extreme

ambient temperatures. Since 2015 we’ve

invested more than £104m on cooling

system upgrades for local exchanges,

covering the remainder of the estate.

The new adiabatic units installed in our

exchanges cool with fresh air and water

evaporation, making us less reliant on

refrigerant gases. They work best on

the hottest days – well suited to the

rising ambient temperatures of different

warming scenarios from 2030-2050.

Extreme weather

Our exposure to this risk will change over

time, as rolling out FTTP and closing the

PSTN network will mean fewer physical

network sites. This will cut our exposure

to physical climate change risks but does

mean more services going through fewer

operational locations.

Our flood and temperature mitigations help

cut risks around this smaller operational

footprint. On top of that, FTTP services

are more ‘passive’ (with no electronics

between exchanges and connected

properties), which further cuts the risk of

extreme weather damaging our equipment.

079Strategic report

Our targets, metrics

and measurement

Climate and net zero are core elements of

the BT Group Manifesto. You can find full

details on our targets, programmes and

performance on pages 36 to 39.

We publish a Carbon Reduction Plan

(bt.com/carbonreductionplan) showing

how we’re reducing our carbon emissions

footprint across all scopes. We’re also part

of the UK Government’s Transition Plan

Taskforce Sandbox Initiative to help develop

a new climate transition reporting framework.

In November, our Chief Executive led an ESG

business briefing with investors and financial

analysts. He gave an update on our Manifesto

– covering climate and environmental

targets, performance and plans.

Our sustainability and corporate affairs

strategy director meets regularly with

stakeholders to discuss our carbon

targets. This allows shareholders,

customers and colleagues to review

our approach and progress.

In FY23, 5% of the annual bonus available

to eligible managers was based on our

science-based target to cut the carbon

emissions intensity of our operations by

87% by FY31.

We’ll keep working on defining metrics

around our physical risks and products

and services as our modelling and

data capabilities evolve and become

more mature.

Managing transition risks and pursuing low carbon opportunities

We face risks from market, policy, regulatory and technological changes that will support the transition to a low

carbon economy. Our sustainability targets and supporting plans aim to reduce the potential impact of transition

risks and support the UK’s commitment to becoming a net zero economy by 2050.

Consumer preferences risk

There are lots of opportunities for

customers to reduce their carbon emissions

and associated climate change risks by

using our products and services. We offer

solutions that, for example, reduce the

need to travel, cut energy use and reduce

material and manufacturing needs.

Carbon pricing risk

We track carbon pricing developments

and prices in the UK and international

voluntary carbon offsets markets to

assess our climate risks. The carbon

prices we use in our TCFD climate scenario

analysis shape our understanding of costs

under different transition scenarios and in

certain jurisdictions.

Cost of capital risk

We’ve implemented our net zero strategy

and carbon emission reduction targets,

showing our commitment to reducing

our climate change risk exposure. We’re

making investments to meet our targets

by continuing to purchase renewables,

converting the majority of our vehicle

fleet to ultra-low emissions vehicles and

decarbonising our buildings.

Energy efficiency opportunity

Energy savings are part of our strategy

to transform our operating model. For

example, we’ve focused on reducing

energy consumption, while improving

the performance of the cooling systems

that protect our network equipment from

overheating. We’re also moving to fewer,

more efficient buildings. And longer term,

FTTP migration will reduce the number

of exchanges and other network sites

we need and cut our network’s overall

energy consumption.

Reputation opportunity

As well as opportunities from our strategy

and targets, action on climate change is

an increasing focus for the group to help

differentiate us from our competitors.

We were one of the first companies to

participate in initiatives like RE100, the

CDP supply chain programme, 1.5°C

Supply Chain Leaders and the We Mean

Business Coalition.

Recognising that supportive policy

environments are critical to both our company

and wider society to keep within the 1.5°C

warming limit, we work with regulators and

policymakers to advocate for policies and

regulation to create these enabling conditions.

We work with peers through associations like

GSMA, techUK, Joint Audit Cooperation and

the European Green Digital Coalition to build

knowledge and expertise on the potential

of our sector to help decarbonise other

sectors. We work closely with policymakers to

inspire others (like small and medium-sized

enterprises) to take climate action.

080 BT Group plc Annual Report 2023

Our worldwide energy use and greenhouse gas emissions

In the table below, we provide an overview of Scope 1, 2 and 3 greenhouse gas emissions. We report in line with the Greenhouse Gas

Protocol (ghgprotocol.org).

We will continue to develop our metrics and measurement approach to help us track climate-related risks and opportunities.

Year ended 31 March

FY21 FY22 FY23

UK Non-UK UK Non-UK UK Non-UK

Energy

GWh

Tonnes

Energy

GWh

Tonnes

Energy

GWh

Tonnes

Energy

GWh

Tonnes

Energy

GWh

Tonnes

Energy

GWh

Tonnes

Scope 1

(direct emissions)

Gas and Oil – heating 174 32,625 2 326 169 31,595 2 301 139 25,870 2 292

Gas and Oil – generators

36 8,318 0.3 80 30 6,842 0.1 30 15 3,463 0.1 31

Fugitive emissions –

refrigerants 1,151 2,433 3,087 1,501 522 281

Commercial fleet

(converted from litres fuel) 506 121,732 3 723 553 130,971 3 575 591 142,357 3 673

Commercial travel

(converted from mileage/

cost/litres fuel) 9 2,229 8 1,805 13 3,151 5 1,300 15 4,018 11 2,720

Total Scope 1 725 166,055 13 5,367 765 175,646 10 3,707 760 176,230 16 3,997

Scope 2

(electricity

including nuclear & CHP

)

Total consumption (LBM

) 2,335 544,280 233 77,165 2 ,311 490,704 210 63,599 2,287 442,261 201 56,041

MBM

renewable

consumption CO

adjustments

General consumption 2,335 (544,279) 233 (76,963) 2,309 (490,363) 210 (63,398) 2,283 (441,524) 201 (55,963)

Commercial fleet EV

consumption N/A N/A – – 1.5 (298) – – 3.3 (633) – –

Company car EV

consumption 0.005 (1) – – 0.2 (43) – – 0.4 (104) 0.1 (20)

Total Scope 2 CO

e MBM

adjusted – 202 – 201 – 58

Total Scopes 1 & 2 (MBM) 3,060 166,055 246 5,569 3,076 175,646 220 3,908 3,047 176,230 217 4,055

Worldwide Scopes 1 & 2

e (MBM) 171,624 179,554 180,285

% Change from baseline

year FY17 (baseline

404,780) (58)% (56)% (55)%

Scope 3

: Worldwide

emissions CO

e tonnes 3,071,241 3,135, 368 3, 289,171

Key climate targets:

Intensity metric Scope 1 &

2 worldwide emissions

tonnes CO

e per £m value

added (baseline 31.50) 13.47 14.19 13.74

Target

31 March 2031

% Change from baseline

year FY17 (57)% (55)% (56)% (87)%

SBTI supply chain

emissions GHG Scope 3

Upstream + Operational

(GHG Catg 1-8) kt

(baseline 3,217 kt) 2,321 2,423 2,588

Target

31 March 2031

% Change from baseline

year FY17 (28)% (25)% (20)% (42)%

N/A: Not available or not applicable

a Data presented has been reviewed to a high level of assurance by Lloyd’s Register Quality Assurance Limited against Accountability’s AA1000AS v3 assurance standard.

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

b Scope 1: direct emissions from our own operations (e.g. fleet/heating fuel combustion).

c Scope 2: indirect emissions from the generation of our consumed energy (mainly electricity) (excludes third-party consumption).

d Scope 3: including supply chain, customer use of our products, and other indirect emissions (such as employee commuting).

e For gas & oil based on GWh equivalent input value before combustion and gross calorific value.

f CO

e: carbon dioxide equivalent emissions.

g CHP: combined heat and power.

h LBM: location-based method for scope 2 emissions accounting – as defined in the Scope 2 Guidance amendment to the Corporate Standard (ghgprotocol.org).

i MBM: market-based method for Scope 2 emissions accounting – as defined in the Scope 2 Guidance amendment to the Corporate Standard (ghgprotocol.org).

j EV: electric vehicle.

You’ll find more information and data in our Manifesto section on pages 36 to 39 and the ESG Addendum (bt.com/esgaddendum)

Task Force on Climate-related Financial Disclosures continued

Our targets, metrics and measurements continued

081Strategic report

Viability statement

In accordance with provision 31 of the UK

Corporate Governance Code 2018, the

Directors have assessed the prospects and

viability of the group.

The assessment has been based on the

Company’s strategy, balance sheet and

financing position, including our £2.1bn

undrawn committed borrowing facility

which matures in March 2027, and the

potential impact of ‘Our principal risks and

uncertainties’ (pages 63 to 70).

The Board has chosen to conduct its review

for a period of five years to 31 March 2028.

The Board believe that this is an appropriate

timeframe as it aligns with the primary focus

of our business and financial planning.

The assessment of viability is based on

our medium term plan which forecasts

the group’s profitability, cash flows and

funding requirements, and is approved

by the Board at the end of each year. The

medium term plan is built from bottom-up

forecasts of each of our CFUs based on

some central macroeconomic assumptions

such as inflation and exchange rates. This

is then supplemented by items managed

at a group level. The macroeconomic

assumptions are informed by independent

third party forecasts. The performance

of the group and our CFUs against these

forecasts is monitored monthly and this

is supplemented each quarter through a

series of quarterly business reviews of each

unit conducted by the Chief Executive and

Chief Financial Officer.

Beyond our medium term plan horizon,

the group also makes investments that

have business cases covering a longer time

period, such as our network investments.

Significant capital expenditure investment

cases are approved by the Chief Executive

and, where appropriate, the Board, after

taking into account longer-term risks

and opportunities such as the economy,

technology and regulation.

Approach

Our medium term plan has been stress

tested in a series of individual severe

but plausible downside scenarios, each

aligned to our group risk categories as set

out on pages 63 to 70. This was followed

by stress testing our forecasts against

a combined scenario of correlated risks

using a stochastic model. Finally, we then

identified several mitigations that could

realistically be taken by the business

to avoid or reduce the impact of the

underlying risk.

Scenarios included in

our combined severe but

plausible stress test

Our hypothetical combined downside

scenario is based on the geopolitical

tensions between the West and Russia and

China intensifying. The combined effect

on energy security for Europe and supply

chain disruption drives up inflation, creating

a prolonged recession and intensifying the

cost of living crisis and increased cyber risk.

The individual scenarios selected for

inclusion in the combined scenario were

chosen based on their correlation and

the current headwinds BT Group and the

industry is facing.

Scenario Risk category Scenario modelled

China supply

chain disruption

Supplier

management

Geopolitical uncertainty widens, with wholesale

impact on the China supply chain.

Assumptions:

– Immediate closure of trade routes to Chinese

market with no notice

– Key product and engineering materials suppliers

experience disruption, in part mitigated by

diversification, impacting all industry participants

– FTTP build delayed due to shortages

Cyber attack

followed by a

class action

Cyber security BT falls victim to cyber attacks and experiences

major loss of customer data which leads to a

successful class action against BT Group.

Assumptions:

– GDPR breach detected and announced followed

by increased customer churn and EBITDA decline

– Fine from the Information Commissioner’s Office

– Class action claim from customers against the group

Winter power

shortages &

unhedged

energy costs

Operational

resilience and

Financing

Ongoing crisis in the energy sector leads to

insufficient gas supply and energy volatility.

Assumptions:

– 35% of Britain to experience daily outages

for up to 60 days

– Telecommunications companies not prioritised

for service

– Energy prices increase beyond the group’s

assumptions toward the upper end of projections

of power market price curves by independent

third-party forecasters

Recession Financing and

Communications

regulation

The UK and global markets experience a significant

recession with negative GDP growth. This

increases unemployment rates and reduces

household spend with increased regulation.

Assumptions:

– Severe curtailment of discretionary project

spend by enterprise customers

– Decline in consumer product ARPU due to

pressures on disposable income and customer

retention initiatives

– Regulatory impact on pricing

Missed cost

savings

Transformation

delivery

The group is unable to execute transformation

plans required to deliver savings initiatives.

Assumptions:

– Adverse overall performance across our

transformation programmes

– Inability to implement additional savings initiatives

Pension deficit Financing An increase to BT’s funding obligations to the

BT Pension Scheme (BTPS).

Assumptions:

– A decline in macroeconomic outlook and financial

markets increases the BTPS deficit in advance of

the 30 June 2023 triennial funding valuation

– The deficit is met through higher deficit payments

over the term of the existing recovery plan

082 BT Group plc Annual Report 2023

We have considered directly relevant

mitigations that we would employ if these

events occurred and included those

impacts in our calculations.

A summation of the full impact of each of

the individual scenarios in this stress test

would be an extremely unlikely outcome,

therefore we use a stochastic model to

develop a more realistic combined scenario.

We applied an 80th percentile confidence

interval which allows for a stress test of

the medium term plan with a plausible but

still severe combination of events, without

assuming the worst impact happens across

all scenarios at the same time.

We have reduced the confidence interval

from the 95th percentile applied last year,

which was considered to exaggerate the

severity of the combined exposure to an

implausible degree, largely driven by the

increase in the scenarios included within

the combined scenarios compared to

last year. However, had we used the more

severe 95th percentile the group would still

be viable.

Result

Applying our severe but plausible

combined scenario, and assuming

repayment of debt as it falls due, indicates

that if BT Group took no mitigating

actions, including debt refinancing, it

would experience a liquidity shortage

commencing in the third year. Our

mitigations, including cutting expenditures,

reducing dividends and refinancing debt,

could be applied to eliminate this liquidity

shortage. We would only need to adopt

around half of the available mitigations to

maintain positive cash flow over the full five

year period of the assessment.

The mitigations directly in our control

primarily revolve around reducing cash

outflow from the group. In addition, there

are also several mitigations which are

outside of our control like raising debt.

The Board believe that it is reasonable to

expect that it could continue to access

debt capital markets to refinance a portion

of our outstanding debt as it falls due, or

to renew our undrawn committed facility

(which expires in March 2027, before the

end of the viability period). If access to

debt markets wasn’t available, then equity

capital markets would be considered as an

alternative to raise funds.

Based on the results of this analysis, the

Directors have a reasonable expectation

that the group will be able to continue in

operation and meet its liabilities as they

fall due over the five year period of their

assessment.

Viability statement continued

083Corporate governance report

Corporate

governance

report

Chairman’s governance letter 84

Our governance framework 85

Board leadership and company purpose

– Board of directors and division of responsibilities 86

– Role of the Board 88

– Board focus in FY23 89

– The Colleague Board and Board engagement

with colleagues 92

Section 172 statement 94

Board composition, succession and evaluation

– FY23 Board and committee evaluation 96

– Board induction 97

– Nominations Committee Chair’s report 98

Audit, risk and internal control

– Audit & Risk Committee Chair’s report 101

BT Compliance Committee Chair’s report 106

Digital Impact & Sustainability Committee Chair’s report 107

Report on directors’ remuneration

– Committee Chair’s letter 108

– Focus on remuneration 111

– Directors’ Remuneration Policy 114

– Annual remuneration report 121

– Remuneration in context 129

Statement of directors’ responsibilities 131

Report of the directors 132

Contents

We’re committed to delivering on our ambition

to be the world’s most trusted connector of people,

devices and machines. We’re focused on growing

sustainable value for our stakeholders and the

communities we operate in, through effective

Board leadership, strong corporate governance

and building the strongest foundations.

1. Board leadership and company purpose

A: Leadership, long-term sustainable success, generating value

for shareholders and contributing to wider society 28–31, 36–39, 71–80, 107

B: Purpose, values, strategy and culture 84, 88–91, 94–95, 100, 104, 107

C: Resources and prudent and effective controls 48–49, 61–62, 90, 95,103, 107

D: Effective engagement with stakeholders 40–45, 92–93, 107

E: Workforce policies and practices 21–23, 46, 91, 92–93, 104

2. Division of responsibilities

F: Leadership of the Chairman* 84, 86, 88, 100

G: Board composition and clear division of responsibilities 85–88, 96

H: Role and time commitment of Non-Executive Directors 86–88, 99, 128

I: Policies, processes, information, time and resources,

and support of the Company Secretary 85, 86, 88, 99–100

3. Composition, succession and evaluation

J: Board appointment process and effective succession planning 85–100

K: Board and committee skills, experience and knowledge 86–87, 99–100

L: Annual Board and individual director evaluation 96, 100

4. Audit, risk and internal control

M: Independence and effectiveness of internal

and external audit functions 104–105

N: Fair, balanced and understandable assessment of

company’s position and prospects 90, 102, 131

O: Procedures to manage risk, oversee internal control framework

and determine nature and extent of principal risks 61–62,101-105, 133

5. Remuneration

P: Remuneration policies and practices 111

Q: Procedure for developing policy on executive,

director and senior management remuneration 108–130

R: Independent judgement and discretion

in remuneration outcomes 109, 112, 115, 122

Compliance with the 2018 UK

Corporate Governance Code (the Code)

In respect of the year ended 31 March 2023, BT Group plc

was subject to the Code, which was published by the Financial

Reporting Council (FRC) in July 2018 (available at frc.org.uk).

BT Group has applied all the principles and complied with all

the provisions of the Code throughout the year:

* Further details on the split of responsibilities of the Board

can be found on our website bt.com/governance

084 BT Group plc Annual Report 2023

Corporate Governance has always been given

prominence across the BT Group. Promoting

fairness, openness and transparency in its

responsibilities to stakeholders and generating

long-term, sustainable success has been, and will

continue to be, the Board’s primary objective.

The governance section of this Annual Report sets

out our approach to facilitate effective governance

and how it supports our strategy, and the decisions

we have made, whilst considering the interests of

our stakeholders and our contribution to society.

Simplification

BT Group is a complex group of businesses that operate in many

different markets, and they are all on simplification journeys. In

order to ensure that those journeys are smooth, we’ve sought to

explore all avenues to simplify the way the group is governed and

operated. That applies in the business units themselves but also

with the way the Board and committees oversee and input into

those activities.

During the year, we reviewed various aspects of the Board and

committees’ processes, including looking at the constitution,

frequency and responsibilities of the committees. As a result,

we’ve made a few changes in pursuance of efficiency and we’ve

made important changes to refresh the responsibilities of the

committees. In particular, the Board agreed to increase the

responsibilities of the Digital Impact & Sustainability Committee to

cover the full breadth of initiatives that are discussed and reported

in our Manifesto. For example, that means bringing into the scope of

that Committee issues such as modern slavery in the supply chain.

To recognise this change we’ve decided to move to a simpler, more

holistic Committee name: the Responsible Business Committee.

As discussed elsewhere in the Annual Report (including in our

section 172 statement on page 94), we also took the decision to

combine our Enterprise and Global units into a single B2B unit,

Business. A key advantage of the combined business will be to

enable simpler and more efficient governance and consistent

decision-making processes, increasing the agility of the business

and removing the potential for different approaches across two

separate B2B units.

Board changes

At the conclusion of the 2023 AGM, Iain Conn will be stepping

down after serving on the Board for nine years, and Ian Cheshire

will be stepping down from the Board following an increase in

other non-executive responsibilities. Iain and Ian have been

distinguished members of the Board and the committees they

serve. On behalf of the Board, I would like to thank both for their

wisdom and the valuable contributions they made to the Board.

In the comprehensive review of the Board’s composition we

undertook last year, we recognised that we needed to enhance

the Board’s technology and digital capabilities given the group’s

focus on digital and legacy platform transformation. We also

recognised that we’d cease to enjoy the benefit of Iain and Ian’s

skills following the 2023 AGM. We therefore focused the search for

individuals with digital and technology capabilities, transformation

experience, those who have had a focus on managing cultural

and people agendas, infrastructure and industrials expertise and

familiarity with UK corporate governance and market dynamics.

This led to us appointing Steven Guggenheimer and Maggie Chan

Jones on 1 October 2022 and 1 March 2023 respectively, and Ruth

Cairnie on 6 April 2023. From the conclusion of the 2023 AGM,

Ruth will succeed Iain as the Senior Independent Non-Executive

Director and Ian as Chair of the Remuneration Committee.

Diversity and inclusion

We continue to commit to the development of a diverse and

inclusive organisation. Our aim is for our workforce to be truly

representative of all sections of society, and against discrimination

of our customers or the public. We’re making good progress in

our ethnic minority representation, with notable gains against

the diversity targets set in our Manifesto launched in 2021. We

continue to encourage inclusivity inside and outside our business.

This year, we launched ‘Hope United – Not Her Problem’ to

challenge sexism in the workplace. To support our development of

a more inclusive digital landscape to drive productivity, innovation

and growth for our business and for the UK, a new and rich

ecosystem of partners was created to help us expand our reach

into the community to create awareness, invest in and open up

opportunities for the talent pool for the future.

The Board’s diversity targets are set out in our Board Diversity and

Inclusion Policy. As at 31 March 2023, our Board comprised 33%

female directors, two directors from an ethnic minority background,

and one who has a disability. The Board is cognisant that the female

membership of the Board is currently below our Board Diversity

and Inclusion Policy of 40%. However, taking into consideration the

changes at the 2023 AGM, the percentage of female membership

on the Board will stand at 45%.

These new appointments were carefully selected to complement

the existing skills on the Board, and means we have the right

diversity of viewpoints, skills and experience to support our

continued transformation and strategic journey.

Adam Crozier

Chairman

17 May 2023

Chairman’s governance letter

We have and will continue to ensure that

our governance processes and capabilities

support and complement the changes across

the wider group, focusing on simplified and

efficient delivery of oversight and decision

making that leverages a truly diverse set of

skills and viewpoints.

085Corporate governance report

Our governance framework

Audit & Risk Committee

Oversees, assesses and reviews our

financial and narrative reporting, internal

controls and risk management. This

includes internal and external audit and

pan-BT finance, control and compliance-

related transformation programmes.

The Board

Responsible for the stewardship of the group, overseeing its conduct and affairs to deliver

on our strategic objectives and creating long-term success to generate sustainable value

for our shareholders and the interests of other stakeholders. The Board has established

certain committees to assist it in discharging its responsibilities and delegates day-to-day

responsibilities to the Chief Executive.

Chief Executive

Responsible for running the business and setting and executing the group strategy.

National Security and Investigatory Powers Committee

Oversees our role in the use of official investigatory powers.

BT Compliance Committee

Oversees our adherence to the

Commitments we made as part of the

2017 Digital Communications Review

(DCR) with Ofcom and adherence to

consumer fairness principles.

BT Investment Sub-Committee

Provides input and recommendations

that support the Chief Executive’s

decision making on investment cases

and budgets.

Executive Committee

Assists the Chief Executive to develop and

execute the group strategy and budget,

and monitors overall performance and

how we’re managing risks.

Disclosure Sub-Committee

Ensures BT Group meets its disclosure

obligations and reviews and approves

regulatory and other announcements

before publication.

Nominations Committee

Considers the structure, size and

composition of the Board and its

committees and advises on succession

planning for the Board and the

Executive Committee. It ensures the

Board is diverse, with the appropriate

balance of skills, experience,

independence and knowledge.

Digital Impact &

Sustainability Committee

Provides oversight and direction to bring

the Manifesto to life through our digital

impact and sustainability strategy.

On 6 April 2023, the Committee’s name changed

to the Responsible Business Committee.

Remuneration Committee

Agrees the remuneration framework

for the Chairman, Executive Directors

and certain senior executives and

monitors remuneration practices and

policies for the wider workforce.

Colleague Board

Discusses and provides advisory

feedback on key proposals and

initiatives impacting our colleagues and

flags any hot topic areas raised by them.

Our Designated Non-Executive Director

for workforce engagement reports back

to the Board on its activities.

Matters reserved to the Board and its committees’ terms of reference can be found on our website at bt.com/governance

Each Committee Chair formally reports to the Board following their meetings and makes any recommendation to the Board in line with that committee’s terms of reference. Papers and

minutes are circulated to all Board and committee members as appropriate, other than to those with a potential conflict of interest. Deutsche Telekom’s nominated representative owes a

fiduciary duty to both BT Group and Deutsche Telekom. The Conflicted Matters Committee reviews all papers ahead of sharing these with him to identify potential or actual conflicts of interest.

Digital Impact & Sustainability

Committee Chair’s report on

page 107

BT Compliance Committee

Chair’s report on page 106

Colleague Board on

pages 92 and 93

Nominations Committee Chair’s

report on pages 98 to 100

Audit & Risk Committee Chair’s

report on pages 101 to 105

Board leadership and company purpose on pages 88 to 91

Remuneration Committee Chair’s

letter and Report on directors’

remuneration on pages 108 to 130

086 BT Group plc Annual Report 2023

Board of

directors

and division of

responsibilities

Adam Crozier

Chairman

Appointed Chairman December 2021

and to the Board and as Chairman

designate in November 2021.

Age: 59

Experience

Adam was previously Chairman of

ASOS, Stage Entertainment BV and

Vue International Cinema Group, and

a Non-Executive Director of Sony

Corporation. He has over 20 years’

experience as a CEO across four

different industries, most recently

as the CEO of ITV from 2010 to 2017.

Before joining ITV, Adam was Chief

Executive of Royal Mail, where over

seven years he led its modernisation

and transformation. Before Royal Mail

he was CEO of the Football Association

between 2000 and 2002 and joint CEO

of Saatchi & Saatchi from 1995 to 2000.

Relevant skills and contribution

to the Board

Significant experience in leading public

company boards, developing teams and

managing stakeholders and brings a

strong transformational and operational

track record in large-scale executive

roles. He has also built a strong track

record in turning around troubled

organisations and in building and

leading successful management teams.

External appointments

Chairman of Whitbread and Kantar Group.

Steven Guggenheimer

Independent Non-Executive Director

Appointed to the Board in October 2022.

Age: 57

Experience

Steven has more than 25 years of

experience at Microsoft, where he

held a variety of senior and large-scale

leadership roles between 1993 and

2020. The last 12 years he held the

position of Corporate Vice President

leading the OEM, Developer, and

AI/Partner organisations. Prior to

joining Microsoft, Steven worked

at Spectra-Physics Lasers.

Relevant skills and contribution

to the Board

Accomplished technology executive

with a strong track record of advising

businesses on digital transformation

and extensive insight into

technologies ranging from artificial

intelligence to cloud computing.

External appointments

Steven is a Non-Executive Director

of HSBC Holdings, Forrit, Software

Acquisition Group and Leupold &

Stevens. He is also an advisor to

the 5G Open Innovation Lab and

UC Davis – Department of Physics

and Tensility Venture Partners.

Philip Jansen

Chief Executive

Appointed Chief Executive February

2019. Appointed to the Board January

2019.

Age: 56

Experience

From April 2013 until joining BT Group,

Philip was CEO of Worldpay. Before that

he was CEO then Chairman at Brakes

Group between 2010 and 2015. Philip

spent the previous six years at Sodexo

where he was Group Chief Executive,

Europe, South Africa and India. Before

that he was Chief Operating Officer at

MyTravel Group from 2002 to 2004

and Managing Director of Telewest

Communications (now Virgin Media 02)

from 2000 to 2002. He started his career

at Procter & Gamble.

Relevant skills and contribution

to the Board

Extensive experience of leading and

growing large private and publicly

listed UK and international businesses,

delivering transformational change

and large technology programmes.

External appointments

Senior advisor at Bain Capital and

trustee of Wellbeing of Women.

Isabel Hudson

Independent Non-Executive Director

and Designated Non-Executive

Director for workforce engagement

Appointed to the Board November 2014.

Age: 63

Experience

Isabel was previously Non-Executive

Chair of the National House Building

Council until May 2020. She was

also previously Senior Independent

Director of RSA Insurance, Non-

Executive Director of The Pensions

Regulator, MGM Advantage, QBE

Insurance, Standard Life and an

Executive Director of Prudential

Assurance Company in the UK.

Relevant skills and contribution

to the Board

A wealth of experience in financial

services, in the life, non-life and

pensions industries as well as

risk, control, governance and

international business. Insight

and expertise in regulatory,

pensions and financial matters.

External appointments

Non-Executive Director and Chair of

the Audit Committee of Axa S.A. and

an ambassador for the disability charity,

SCOPE.

Simon Lowth

Chief Financial Officer

Appointed Chief Financial Officer and to

the Board July 2016.

Age: 61

Experience

Simon was CFO of BG Group before

its takeover by Royal Dutch Shell in

February 2016. Before that, he was

CFO of AstraZeneca from 2007 to

2013. He was an Executive Director

of ScottishPower from 2003 to 2007

having been appointed as the Finance

Director in 2005. Before 2003, Simon

was a director of McKinsey & Company.

Relevant skills and contribution

to the Board

A strong background in finance,

accounting, risk, corporate strategy

and mergers and acquisitions.

Simon has experience and a track

record of implementing cost

transformation and performance

improvement programmes.

External appointments

None

Matthew Key

Independent Non-Executive Director

Appointed to the Board October 2018.

Age: 60

Experience

Matthew held various positions at

Telefónica from 2007 to 2014 including

as Chairman and CEO of Telefónica

Europe and Chairman and CEO of

Telefónica Digital. From 2002 to 2004

he was the CFO, strategy and regulation

director of O2 UK before becoming CEO

in 2004. Matthew previously served

as Finance Director at Vodafone UK

and Chairman of Tesco Mobile. He has

previously held positions at companies

including Kingfisher, Coca-Cola

and Schweppes Beverages, Grand

Metropolitan and Dallaglio RugbyWorks.

Relevant skills and contribution

to the Board

Strong strategic skills and a wealth of

experience in finance and the telecoms

sector. Matthew is also a director of

the joint venture between BT Group

and Warner Bros. Discovery.

External appointments

Non-Executive Director and Audit

Committee chair of Burberry. Matthew

will step down from this role at the

Burberry AGM in July 2023.

Committee Chair

Membership key

Audit & Risk Committee

BT Compliance Committee

Colleague Board

Digital Impact &

Sustainability Committee

Executive Committee

National Security and Investigatory

Powers Committee

Nominations Committee

Remuneration Committee

C C

Our directors share

collective responsibility

for the activities of the

Board. There is a clear

division of responsibilities

between the Chairman

and the Chief Executive as

required under the Code.

The responsibilities of the

Chairman, Chief Executive,

Chief Financial Officer

and Senior Independent

Director and other key roles

within BT Group, along with

the matters reserved to the

Board, are set out on our

website at

bt.com/governance

C C

087Corporate governance report

Adel Al-Saleh

Non-Independent, Non-Executive

Director

Appointed to the Board May 2020.

Age: 59

Experience

Adel has been Chief Executive Officer

of T-Systems International GmbH

(a subsidiary of Deutsche Telekom

AG) since 2018 and is a member of

the Management Board of Deutsche

Telekom AG. Adel was Chief Executive

Officer of Northgate Information

Solutions from 2011 to 2017, and before

that held a variety of posts at both

IMS Health (now IQVIA) and IBM.

Relevant skills and contribution

to the Board

Extensive experience in leading global

private and public businesses across

many industries. Deep experience

in managing global technology

and IT services businesses. Strong

expertise in telecommunications

industry as a whole and particularly

B2B businesses. Led several large-

scale transformation and digitilisation

initiatives in complex environments.

External appointments

Member of the Boston University,

College of Engineering Advisory Board.

Allison Kirkby

Independent Non-Executive Director

Appointed to the Board March 2019.

Age: 55

Experience

Allison was appointed President &

CEO of Telia Company in May 2020.

She was previously President & Group

CEO of TDC Group until October 2019,

and President & Group CEO of Tele2

AB from 2015 to 2018, having been

Tele2 AB’s Group CFO from 2014. She

was Chair of the Audit Committee

and a Non-Executive Director of

Greggs until May 2019. She has also

held financial and operational roles

within 21st Century Fox, Virgin Media,

Procter & Gamble and Guinness.

Relevant skills and contribution

to the Board

Strong and recent experience in finance

and the international telecoms and

media sector, combined with strong

experience in driving performance,

improving customer service and

delivering shareholder value.

External appointments

President & CEO of Telia Company and

Non-Executive Director and member of

the Audit Committee at Brookfield

Asset Management.

Sir Ian Cheshire

Independent Non-Executive Director

Appointed to the Board March 2020

Age: 63

Experience

Ian was Chairman of Barclays Bank

UK until December 2020 and a Non-

Executive Director of Barclays until

May 2021. Ian was also previously

Group Chief Executive of Kingfisher

and Senior Independent Director

and Remuneration Committee Chair

of Whitbread. Ian held a variety of

posts whilst at Kingfisher from 1998

to 2014, including Chief Executive of

B&Q from 2005 to 2008 and Group

Chief Executive from 2008 to 2014.

He was also previously the Chairman

of Debenhams and the lead Non-

Executive Director for Government

and former Chairman of the Corporate

Leaders Group on Climate Change.

Relevant skills and contribution

to the Board

A wealth of listed company experience,

with a notable background in strategy,

international retail and e-commerce.

Extensive experience of government.

External appointments

Chairman of Channel 4, Spire

Healthcare Group and We Mean

Business and a Non-Executive Director

at Land Securities. Also Chairman of

Menhaden Resource Efficiency, a UK

investment trust and Chair of The Prince

of Wales’s Charitable Fund.

Ruth Cairnie

Independent Non-Executive

Director

Ruth joined the Board on 6 April 2023

as an Independent Non-Executive

Director. Ruth is a member of the

Audit & Risk, Nominations and

Remuneration Committees. From

the conclusion of the 2023 AGM,

Ruth will succeed Iain Conn as the

Senior Independent Non-Executive

Director and Ian Cheshire as Chair

of the Remuneration Committee.

See Board changes below.

Maggie Chan Jones

Independent Non-Executive Director

Appointed to the Board March 2023.

Age: 48

Experience

Maggie is the founder and Chief

Executive of Tenshey, a tech-enabled

executive coaching company that

focuses on elevating more women

and underrepresented people into

leadership roles and the boardroom.

This builds on a highly successful

career in marketing at several of the

world’s largest technology companies,

including Microsoft and SAP.

Relevant skills and contribution

to the Board

Deep international marketing and brand

experience. Maggie is a recognised

executive in business transformation,

ESG and as an industry thought-leader

in the marketing and technology sector.

External appointments

Maggie is the founder and Chief

Executive of Tenshey, Inc. and a Non-

Executive Director of Sage Group and

the United States Tennis Association

(non-profit). She is also a Non-

Executive advisor to Open Systems AG.

Sara Weller

Independent Non-Executive Director

Appointed to the Board July 2020.

Age: 61

Experience

Sara’s previous roles include managing

director of Argos and various senior

positions at J Sainsbury, including Deputy

Managing Director and serving on its

board between 2002 and 2004. Sara was

a Non-Executive Director of Lloyds

Banking Group until May 2021 and

United Utilities Group until July 2020. She

was also the lead Non-Executive Director

at the Department for Work and

Pensions until April 2020. She has also

previously been a Non-Executive

Director of Mitchells & Butlers and held

senior management roles at Abbey

National and Mars Confectionery.

Relevant skills and contribution

to the Board

A broad perspective coming from

a background in retail, fast moving

consumer goods and financial services,

as well as strong board experience at

both executive and non-executive level.

External appointments

Chair of The Money and Pensions

Service and Non-Executive Director of

Virgin Money UK and Clydesdale Bank

(a subsidiary of the Virgin Money Group).

Iain Conn

Senior Independent Non-Executive

Director

Appointed to the Board June 2014

Age: 60

Experience

Iain was Group Chief Executive of

Centrica for over five years from 2015

to 2020. Before that, Iain spent 29 years

at BP and was a Board Director for ten

years from 2004 to 2014 including as

Chief Executive Downstream from

2007 to 2014, and a member of the

Executive Committee from 2002 to

2014. Until May 2014, Iain was a Non-

Executive Director at Rolls-Royce for

nine years and Senior Independent

Director. Iain also served as a member

of Council of the Imperial College from

2010 to 2019 and was Chairman of the

advisory board of the Imperial College

Business School from 2004 to 2020.

Relevant skills and contribution

to the Board

Deep experience in the global energy

markets, industrial operations,

regulated consumer markets, and in

finance, technology and engineering.

Broad international experience.

External appointments

Non-Executive Director of Applegreen.

Senior adviser to Blackstone on energy,

infrastructure and sustainability and to

the Boston Consulting Group. Adviser to

Oxford Sciences Enterprises. Advisory

Board member of Columbia University

Center on Global Energy Policy.

Sabine Chalmers

General Counsel, Company

Secretary & Director Regulatory

Affairs.

Sabine joined BT Group in April

2018 as General Counsel and was

appointed as Company Secretary

in September 2021.

See page 9 for Sabine’s full biography.

Board changes

In line with our recent announcements, Ian Cheshire

and Iain Conn will not put themselves forward for re-election

at the 2023 AGM. Accordingly, they will both cease as

Independent Non-Executive Directors on the Board at the

conclusion of the 2023 AGM.

088 BT Group plc Annual Report 2023

Board leadership and company purpose

The Board is responsible for establishing the

group’s purpose, values, strategy and culture,

and for setting the tone at the top.

Further details on our purpose, values and strategy

are on pages 16 to 17

The Board monitors the indicators of our culture through:

– discussions with the Chief Executive

– reports from the Chief Human Resources Officer, including

progress on our people and cultural dashboard

– insights from our annual Your Say colleague engagement survey

– direct feedback and insights from the Colleague Board via our

Designated Non-Executive Director for workforce engagement.

More information on the Colleague Board and how the Board is

kept informed of colleague perspectives and the culture of the

organisation can be found on pages 92 to 93 and in the Strategic

report on page 41.

The Board also maintains oversight of the group’s operations,

performance and governance and compliance with statutory

and regulatory obligations. It determines the group’s risk appetite,

ensures that we have robust systems of risk management and

internal controls in place, and is responsible for ensuring that

the group has an effective leadership team in place to efficiently

execute the group’s strategy.

A number of key decisions and matters are reserved to the

Board and are not delegated to any of the committees, the

Chief Executive or management. These are set out in the

matters reserved to the Board and are available on our website:

bt.com/governance

Meetings and attendance

We held eight scheduled Board meetings and one strategy

meeting in FY23. The Chairman also held private sessions with the

Non-Executive Directors during the year. The Company Secretary

is Secretary to the Board, and she, or her nominated delegate,

attends all meetings and provides advice, guidance and support

as required.

Board and committee members are provided with papers in

advance of each meeting on a secure electronic portal. Directors

are expected to attend Board and relevant committee meetings of

which they are a member, unless prevented by prior commitments,

illness or a conflict of interest. If a director is unable to attend a

meeting, they usually give their comments to the Chairman or the

Committee Chair in advance so that these can be considered as

part of the discussion at the meeting.

Board meetings were held in person in our head office in London

to allow us to maintain constructive levels of engagement and

discussion, to challenge management and have robust debates

as part of decision making. Video conference was available for

invited attendees who were unable to join the Board in person.

Pre-Board meeting dinners were held for the Board as part of

informal interactions.

Meetings attended

Adam Crozier (Chairman) 8/8

Philip Jansen 8/8

Simon Lowth 8/8

Adel Al-Saleh 8/8

Maggie Chan Jones

a,b

0/0

Ian Cheshire 8/8

Iain Conn 8/8

Steven Guggenheimer

c,d

2/3

Isabel Hudson 8/8

Matthew Key 8/8

Allison Kirkby

7/8

Leena Nair

f,g

2/3

Sara Weller 8/8

a Maggie joined the Board as a Non-Executive Director on 1 March 2023.

b No scheduled Board meeting was held in March 2023.

c Steven joined the Board as a Non-Executive Director on 1 October 2022.

d Steven gave apologies for one meeting during the year due to other business

commitments.

e Allison gave apologies for one meeting during the year due to other business

commitments.

f Leena gave apologies for one meeting during the year due to other business

commitments.

g Leena stepped down from the Board at the conclusion of the AGM on 14 July 2022.

The Board focus in FY23 section sets out on the following

pages includes our Section 172 statement on pages 94

to 95.

Our Section 172 statement demonstrates our directors’

regard to the matters in section 172 of the Companies Act

2006 (2006 Act) in performing their duties.

See the Strategic report on pages 40 to 45 for additional

details of how we engage with our key stakeholders.

The Board and each of its committees always have regard

to wider stakeholder interests including and beyond those

of our shareholders as part of discussions and decision

making. On behalf of the Board, the Audit & Risk Committee

discussed our key stakeholder groups including their

expectations, our engagement and the risks associated

with managing these relationships as part of reviewing

the stakeholder management group risk category (GRC).

The Committee considered engagement with our key

stakeholder groups in light of broader developments in the

emerging risk landscape and new technologies.

For details of how our directors have engaged with our

colleagues during the year, and how they have had regard to

their interests and the need to foster business relationships

with suppliers, customers and others, together with a

summary including the Board’s principal decisions,

see pages 40 to 45 and 92 to 95.

Section 172 statement

and stakeholders

Role of the Board

089Corporate governance report

Board focus in FY23

Group

strategy

During the year, the Board:

approved strategic initiatives and items of

significant strategic importance in line with the

matters reserved to the Board including:

– combining Enterprise and Global units into a single

B2B unit, Business, to enhance value for all B2B

customers, strengthen the group’s competitive

position, and contribute to the group’s previously

announced target to deliver £3bn in gross

annualised savings

– maintaining the pace of FTTP build towards the

target of 25m premises by end of 2026 against the

challenging economic climate

– creating a new longer-term content deal with Sky

for the reciprocal supply of channels beyond 2030

– final approval and completion of the transaction to

form a 50:50 joint venture company with Warner

Bros. Discovery Inc., bringing together the sports

content offerings of BT Sport and Eurosport UK to

create a new premium sports offering for the UK

& Ireland

– outsourcing the management of the legacy

software estate to optimise commercial and

operational benefits.

held a full-day strategy meeting where

it considered with management:

– the group’s strategy and long-term growth

opportunities

– strategic priorities and how these are built into

the group’s medium term plan

– progress on key initiatives

– key challenges and risks to delivering our priorities

and plans to address or mitigate these.

received and discussed the Chief Executive’s report

at each meeting, which focused on:

– the group’s overall performance and operations

– progress against our strategic pillars and priorities

– the competitive and regulatory environment that

the group operates in

– engagement with, and the views of, our

stakeholders including our investors, our

colleagues, Ofcom and Government

– key business operations including matters

which are important to the group’s reputation,

as well as colleague, customer, supplier and

community considerations.

During the year, the Board also considered,

discussed and agreed to discontinue certain

proposed initiatives which were determined not to

be strategically important or beneficial to the group.

090 BT Group plc Annual Report 2023

Board leadership and company purpose continued

Board focus in FY23 continued

Risks, controls

and governance

During the year, the Board discussed:

– the group risk management framework twice, with

in-depth discussions on certain GRCs, including

the point and emerging risks and uncertainties

facing the group and our risk appetite for each

(see pages 61 to 70). The Board also received

regular updates from the Audit & Risk Committee,

who undertake detailed reviews of the group’s

risk management and internal controls systems,

including key controls and their effectiveness,

(see page 103), as well as GRCs not discussed by

the Board

– the management of our exposure to energy

price rises and the potential and actual impact

on the group’s financial performance and carbon

reduction ambitions

– the progress of the Simplify programmes

– the Annual Report, which was subsequently

approved on the recommendation of the Audit

& Risk Committee (see page 102), on the basis

that, taken as a whole, it is fair, balanced and

understandable and provides the information

necessary for shareholders to accurately assess

the group’s position and performance, business

model and strategy

– the themes and actions agreed as a result of

the internal Board and committee evaluation

(see page 96).

Performance and

execution of strategy

During the year, the Board discussed, reviewed and, as appropriate, approved:

– the financial statements at full and half year and

trading updates at each quarter, including any

external guidance. It also discussed the feedback

from investor meetings, including those post-

publication of each set of financial results. At each

meeting, the Board reviewed the current financial

and trading performance for the period against

budget and consensus, and the full year outlook

for each unit and the group as a whole

– the going concern and viability statements and

the group’s tax strategy

– reports, on a monthly basis, outlining share

relative to the market, investor relations activities

and engagement with shareholders. The Board

also spent time discussing the changing nature

of our shareholder register

– the medium term plan, having considered the

main opportunities and challenges, our strategic

priorities and KPIs

– the group’s financing strategy, having considered

different options for raising finance and

managing cash flow, in particular in light of the

macroeconomic challenges during the year

– the delivery of the group’s transformation

programmes against our objectives to drive

pan-BT efficiencies, opportunities, continued

cost reduction and our plan to reskill colleagues

with the skills required for the future needs of the

business and an increase in annualised savings

from £2.5bn to £3bn by the end of FY25

– customer experience for each CFU including

individual brand and customer segment NPS,

in particular the progress against our related

ambitions. As part of this, the Board was updated

on the initiatives and customer insights used to

drive improvement for our customers. Further

details on customer experience can be found

on pages 24 to 27

– any regulatory/competition investigations and

significant litigation, including our response and

the stakeholder and reputational impact of these.

091Corporate governance report

People and

culture agenda

During the year, the Board discussed:

– the progress made against our people and cultural

strategy. Our ambition is to build a culture where

people can be their best and make BT Group a

brilliant place to work

– skills and organisational development; diversity,

equity and inclusion; occupational health and

wellbeing, and colleague engagement

– the progress of delivery against our cultural

ambition and the related goals through the people

and cultural dashboard with the Chief Human

Resources Officer and her team

– each of the committees also monitored areas

within their remit that are important indicators of

the group’s culture, on which the Board is updated

by the Committee Chairs.

Our ambition is to

build a culture where

people can be their

best and make BT Group

a brilliant place to work.

092 BT Group plc Annual Report 2023

Colleague Board

Who is the Colleague Board

The Colleague Board is the Board’s chosen workforce engagement

mechanism under the Code. With diverse colleague experiences

and priorities across our units, the Board feels that this continues

to be the most effective option for the BT Group. Its aim is to bring

colleagues from across the group closer to the decision-making

process. It achieves this by providing the Board with invaluable,

direct insight into colleague sentiment and feedback on key

initiatives, programmes and communications, and helps shape

better outcomes.

The Colleague Board is chaired by the Chief Executive, and Isabel

Hudson, our Designated Non-Executive Director for workforce

engagement, is a member. Isabel was selected for this role due

to her breadth of understanding of, and interest in, employee

and wider stakeholder matters.

Sabine Chalmers, General Counsel, Director of Regulatory

Affairs & Company Secretary, and Athalie Williams, Chief Human

Resources Officer, are also invited and attend all formal meetings.

Other members of the Executive Committee attend meetings on

a rotating basis. The Deputy Company Secretary is secretary to the

Colleague Board and he or his delegate attends all meetings and

provides support, guidance and advice as required. The Chairman

and other Non-Executive Directors are also able to attend

meetings as observers.

Board leadership and company purpose continued

The Colleague Board and Board

engagement with colleagues

The last year has been a challenging year

for all our colleagues in the business and

the Colleague Board has continued to

contribute to the Board’s thinking with

probing questions around progress in the

business and a series of ‘hot topics’ brought

to each Colleague Board, representing

issues raised with them from throughout

the business. In a year of strikes and high

inflation, affecting both our customers

and everyone who works for BT Group,

and with the strong desire to progress

with our diversity and inclusion agenda,

the Colleague Board members have made

thoughtful contributions and helped us

to look at things from different angles.

Isabel Hudson, Designated Non-Executive Director for workforce

engagement and a member of the Colleague Board

Colleague Board focus in FY23

The Colleague Board held four formal meetings this year and a

number of informal sessions with internal teams. Through both

the Board and the senior leadership team, the Colleague Board’s

views were sought on pan-BT programmes (including how they

align with our values and culture) and how we communicate

these with our colleagues. The Colleague Board has continued to

successfully contribute to, and shape, some of our key initiatives

this year, by sharing their different views and perspectives.

The Colleague Board has helped the Board to understand the

perspectives of our colleagues on a range of different topics,

including the progress of our digital transformation and diversity

and inclusion initiatives, career development, colleague

retention, people framework, working from home arrangements

and the communications and support available for colleagues

throughout the cost of living crisis.

Key Colleague Board contributions

Topic Context

Cost of living Helping the Board to understand the

perspectives of our colleagues throughout

the cost of living crisis by having two-way

discussions and sharing their thoughts to

help refine approaches.

Colleague

Board squads

Formulated working groups focused on

culture to understand the perspectives of

colleagues over a range of topics in this

area such as diversity and inclusion.

Meetx Launching Meetx, BT Group’s equivalent

of TEDx talks. The Colleague Board has

started hosting an ongoing series with

senior leaders to explore their previous

experiences and views on topics such as

leadership, careers and culture. These are

hosted over a variety of our locations and

each month the Colleague Board collates

questions for the panellists to answer.

093Corporate governance report

Colleague engagement with the Board

At each formal meeting of the Colleague Board, management

and/or the Board (via Isabel Hudson) have the opportunity to

discuss topics that they would like the Colleague Board members’

perspectives on. The members also share perspectives on Hot

Topics raised by the wider colleague base that they believe should

be brought to the attention of the Board and/or management. The

Colleague Board has raised a variety of topics with management

and open discussions are subsequently held on these. Isabel

reports back to the Board and its committees, as appropriate, on

discussions with the Colleague Board. This has provided the Board

with a direct insight into colleague perspectives to help inform its

decision making on relevant topics. The meeting materials and

notes are made available to the full Board.

Whilst the Colleague Board is the Board’s formal chosen workforce

engagement method, it is used alongside other colleague

engagement mechanisms. For example the Chief Executive also

holds quarterly PJ Live events which provide all colleagues with the

opportunity to ask the Chief Executive questions on any subject in

an informal forum.

See page 93 for more information on how we engage

with colleagues.

Colleague Board communications with our colleagues

Colleague Board members feed back on the discussions from the

formal meetings to the wider workforce, as well as highlighting

points at Colleague Board meetings that have been raised by

other colleagues. Members are encouraged to connect with other

internal engagement channels including the People Networks and

by accessing the Your Say engagement survey results to gain an

increased understanding of the views of our colleagues on key issues.

Each Colleague Board member is supported by their respective

unit internal communications team, enabling a good rapport to

be built in-unit. The Director of Internal Communications attends

Colleague Board meetings and members are encouraged to give

their views on key internal communications.

I enjoy the teamwork and collaboration

that we have as a cohort with the common

goal of assisting leadership in making

BT Group the best place to work.

Jasmine Kaur, Colleague Board member

The second cohort of our Colleague Board

has now been in place a year and they have

built on the strong foundations laid by the

first set of members. As individuals, they

are well-connected in their units and have

found evermore effective ways of gathering

unfiltered views from thousands of their

colleagues. This insight is invaluable,

helping us to shape our approach to

important topics such as colleague

experience, address concerns and it has

also proven a useful challenge to more

conventional corporate thinking.

Philip Jansen, Chief Executive and Chair of the Colleague Board

I am really proud to be a member of the

Colleague Board. We represent all business

units, with a strong sense of integrity and

responsibility. It is inspiring to be able to

represent our amazing colleagues to share

both positive feedback and concerns so that

they feel genuinely heard.

Nick Persaud, Colleague Board member

094 BT Group plc Annual Report 2023

In their discussions and decisions during FY23, the directors of BT Group plc

have acted in the way that they consider, in good faith, would be most likely

to promote the success of the group for the benefit of its members as a whole

(having regard to stakeholders and the matters set out in sub-sections 172(1)

(a)–(f) of the 2006 Act).

The Board considers the matters set out in section 172 of the 2006

Act in all its discussions and decision making, including:

The likely consequence of

any decision in the long term:

The directors recognise that the decisions they make today will

affect the group’s long-term success. During the year, the Board

had particular regard to the long-term success of the group in

its discussions on group strategy (see page 89). Our purpose

and strategy demonstrate how we realise our ambition and grow

value for all our stakeholders. This in turn guides the Board’s

decisions, specifically the balance between short-and long-

term investments. The third pillar of our strategy, lead the way

to a bright, sustainable future, incorporates our aim to identify

and develop new business opportunities that will help us grow

sustainably in the future. More information on our strategy can

be found on pages 16 to 17.

The impact of the group’s operations

on the community and environment:

The Digital Impact & Sustainability Committee continues to

oversee the progress of our Manifesto. This aims to accelerate

growth through technology that is responsible, inclusive and

sustainable, ensuring the group can continue to build trust and

create value for its stakeholders. The Committee also monitors

progress on the digital impact and sustainability strategy and

oversees the progress of our related goals, including those in

respect of climate and the environment. In line with the ambitions

we have in this area, the Committee approved the acceleration

of BT Group’s net zero target for its own operations from 2045 to

the end of FY31 and a new net zero target for supply chain and

customer emissions to be achieved by the end of FY41.

For more information on this see page 48.

Information as to how we have addressed the recommendations

of the TCFD framework can be found on pages 71 to 72.

The desirability of maintaining a reputation

for high standards of business conduct:

The Board acknowledges its responsibility for setting and

monitoring the culture, values and reputation of the group. Our

colleagues are central to us achieving this ambition and we’re

building a culture where our colleagues can be their best. During

the year, the Board considered the group’s culture in its decision

making and discussions; further details on this can be found on

pages 88 to 91.

The Audit & Risk Committee also considered regular reports from

the Ethics and Compliance Director on our ethics and compliance

policies and programmes and reports on issues raised through

Speak Up, BT Group’s confidential, whistleblowing services (see

page 104).

The interests of our colleagues, and the

need to foster business relationships with

our key stakeholders:

The Board and its committees understand the strategic importance

of stakeholders to our business. When making decisions, the

directors have regard to the interests of colleagues, and the need

to foster business relationships with other key stakeholders. We

acknowledge that not every decision we make will necessarily

result in a positive outcome for all our stakeholders, so the Board

must balance competing interests in reaching its decisions.

While the Board engages directly with stakeholders on some

issues, the size and distribution of the BT Group and our

stakeholder groups means that stakeholder engagement often

happens below Board-level. However, the Board considers

information from across the organisation to help it understand

how our operations affect our stakeholders’ interests and views.

More details on how we engage with key stakeholders

(including customers and suppliers) on pages 40 to 44.

Our colleagues are key to our success, and they are always

considered as part of the Board’s discussions and decision

making. The Board and its committees have reviewed colleague

wellbeing, our diversity and inclusion ambitions, organisational

culture and the impact of our transformation programme on

them, as well as on employee relations (see page 91 for more

details). The Board engages with colleagues primarily through

the Colleague Board and through our Designated Non-

Executive Director for workforce engagement (see pages 92 to

93). In this role, Isabel Hudson provides feedback after each

formal Colleague Board meeting and also discusses any topics

raised by members at relevant Board and committee meetings.

Other colleague engagement channels are set out on page 41.

The need to act fairly as between

BT Group’s shareholders:

During FY23, the Chairman, Chief Executive, Chief Financial

Officer, other executives and the Investor Relations team held

320 meetings with investors (see page 42 for more detail on our

engagement with shareholders). These meetings gave investors

the opportunity to discuss views on financial and operational

performance, capital investment, in particular, the investment on

FTTP, competitive dynamics, pensions, capital allocation policy

and environmental, social and governance matters. The Board is

mindful of having two significant shareholders but considers any

decisions it makes in the interests of all shareholders.

Section 172 statement

095Corporate governance report

Decisions made during the year

The following are some of the decisions made by the Board this year which demonstrate how section 172 matters have been taken into

account as part of Board discussions and decision-making:

Decision What happened

Creation of Business The Board regularly reviews the operating model of the business and its focus on and exposure to all of

the markets in which it operates. Throughout the year, the Board considered with management whether

a combination of the Enterprise and Global units would enhance the group’s overall B2B offering.

Between September and December 2022, the Board considered the strategic proposition of the

businesses both as standalone units and if combined. In determining that the businesses should

be combined, the Board and management concluded there would be benefits for a number of

stakeholders. Externally, the Board particularly noted the shareholder value opportunity from the

simplification along with the continued needs of customers to have dedicated teams, drawing on

a larger pool of shared knowledge, best practice and expertise, to address their needs. Internally,

the combination will target greater clarity of prioritisation for our Networks and Digital units as

they support and increase the pace of the ongoing digital transformation of the group. The Board

will continue to have the opportunity to review and influence the future strategy of the combined

Business unit and each of its constituent parts, to ensure it optimises its focus on the best of the

strategic objectives of the two legacy units.

50:50 joint venture company

with Warner Bros. Discovery,

Inc. bringing together the

sports content offering of both

BT Sport and Eurosport UK

In February 2022 we announced that the preferred strategic option for the future of BT Sport, that

we were pursuing through a period of exclusive negotiations, was a joint venture with Warner Bros.

Discovery, Inc. The Board then considered the details of the negotiated deal in early FY23. This

included consideration of the proposed joint venture in the context of a number of key objectives

and risks and the way these were handled in the implementation of the transaction structure.

In particular, while noting that the transaction structure provided for the continuation of material

elements of the BT Sport business in the medium term, which would benefit customers, employees

of the business and close commercial partners, the Board also considered in detail the value

opportunity for shareholders. This is represented by the future payments that BT Group is forecast

to receive and the roadmap to a potential future exit from the business whilst, in the meantime,

reducing BT Group’s exposure to some of the costs and risks of the business. Also considered was

the extent of BT Group’s continued influence over key aspects of the business, including through

its appointed directors, one of whom, Matthew Key, is an Independent Non-Executive Director of

BT Group. As a result of all of these factors, the Board approved the entry into the transaction.

Restructuring of IT estate To support the acceleration of BT Group’s technology transformation, the Board considered the

possibility of restructuring the management of its IT estate, aiming to free up capacity to accelerate

the delivery of future technology and to promote efficiency.

The Board considered a number of options, one of which being identifying a third party supplier

to take on the support and build of certain digital legacy systems and to decommission outdated

and redundant systems. In considering the approach, the Board analysed the likely risks and how

the transition would impact its stakeholders such as customers, colleagues and its suppliers, and

mitigations available. It explored the financial and commercial implications and discussed

whether the transaction would best be executed with one or multiple suppliers. Working closely

with management, the Board challenged, provided feedback and gained a thorough understanding

of each phase of the project execution proposed.

At its meeting in November 2022, the Board was satisfied that shutting down obsolete applications

was financially advantageous to the group, and using a third party would improve performance and

support the delivery of the transformation programme, while enabling the group’s internal teams

to move their focus towards developing new digital systems. The Board provided its approval to

proceed with the restructuring project.

096 BT Group plc Annual Report 2023

Board composition, succession and evaluation

FY23 Board and

committee evaluation

In line with the Code, we annually undertake a

formal and rigorous evaluation of the performance

of the Board and its committees, the Chairman and

individual directors, which considers the Board’s

composition, diversity and effectiveness. We

undertook an internal evaluation this year. Given

an external evaluation was last completed in FY21,

we will carry out an external evaluation in FY24 to

fulfil our obligation that an external evaluation

be carried out every three years.

Process

Tailored questionnaires were circulated to members and attendees

of the Board and each of its committees. The evaluations focused

on composition, succession and how well-placed the Board is to

add value to the business, in terms of how it oversees strategy,

risk management, people, culture and performance. Focus was

also given to the Board’s decision-making processes, as well as

how well it considers stakeholders as part of its decision making

and discussions. The Senior Independent Director undertook

a discussion with the full Board (without the Chairman) and the

Company Secretary on their views of the Chairman’s performance.

The outcomes and recommendations were fed back to the

Chairman. The Non-Executive Directors also reviewed the

performance of the Chief Executive during the year.

Agreed areas of focus and actions

Overall, the Board and its committees are considered to be

effective. There were certain areas of focus which the Board felt

would continue to improve its performance and effectiveness.

Accordingly, the directors agreed on the following areas of focus

and action for FY24; progress shall be reviewed by the Board and/

or its committees as appropriate during the year, with any ongoing

areas feeding into next year’s evaluation process.

Key areas of focus Agreed actions

Non-Executive

Director skills

– training

To provide ongoing training beyond

the initial induction training received

focusing on key topics/areas that could

be coordinated to include all Non-

Executive Directors.

Board and

committee

agenda and

time

Review how the Board and committees

spend their time more effectively by

ensuring that items are not repeatedly

revisited and any unclear delineation

of responsibilities between Board

committees is reduced and improve

the clarity of papers to aid more fruitful

discussions on key strategic items.

HR strategy

and culture

To provide the Board with greater

understanding of the cultural challenges

that are facing BT Group as it continues

to transform itself.

Transformation

agenda

To ensure there is greater focus on the

progress with the transformation agenda.

Risk

management

To improve current risk reporting to

include greater details.

Key risks The Audit and Risk Committee will

continue its focus on strengthening risk

control with early debate held on key

risks identified.

Ad hoc

meetings

The Audit and Risk Committee will consider

whether it would be desirable to hold ad

hoc meetings for specific areas with ‘repeat

issues’ to gain an in-depth understanding

of the issues so as to provide guidance on

specific targeted actions.

Consumer

fairness

The BT Compliance Committee to

consider the optimal way of receiving

feedback from consumers/BT customers

on their experience of fairness and use

this for discussion with the wider

consumer representation stakeholders.

External

attendees

The BT Compliance Committee to

continue to invite external attendees

to strengthen relationships and hear

a breadth of views.

097Corporate governance report

Board induction

On appointment, directors undertake

a comprehensive induction programme

designed to give them a thorough overview

and understanding of the business.

This is tailored to take into account the director’s previous

experience, their responsibilities and, for each Non-

Executive Director, the specific responsibilities relevant to

their committee memberships. The programme includes

meetings with the Chairman, the Chief Executive, other

members of the Board and the Company Secretary, as

well as members of the Executive Committee and senior

management. Directors also receive key information

on our strategy and KPIs, governance framework, the

regulatory framework in which we operate, recent financial

performance, risk management and internal control systems

and the policies supporting our business practices.

Directors are encouraged to visit our different offices,

contact centres and BT/EE retail shops, as well as spending

a day with an Openreach engineer. Set out opposite

is the induction programme undertaken by Steven

Guggenheimer, who joined the Board in October 2022.

Steven joined the Board on 1 October 2022 as an

Independent Non-Executive Director, and as a member

of the Nominations and the Digital Impact & Sustainability

Committees. Ahead of his appointment, Steven received an

induction pack with key reference materials that provided a

thorough understanding of the BT Group, including the most

recent financial results, information on our strategy and each

of our business units, the governance framework, director

responsibilities, ethical policies and the Ofcom Commitments.

Steven held a number of induction meetings including with

the Chief Executive, Chief Financial Officer, and members of

the Executive Committee as well as other Board members and

key senior leaders including the Director of Risk, Compliance

& Assurance, the Director of Investor Relations, the Heads of

the business units as well as the CEO, Openreach.

Given his background in technology and software companies,

Steven held a deep-dive session with the Chief Security and

Networks Officer, the Chief Information Security Officer, and

the Chief Digital and Innovation Officer in December 2022,

and a series of deep-dive sessions in January 2023.

Steven will be visiting Adastral Park and our BT/EE retail

shops to gain a broader insight into customer journeys and

experiences, and into the work of our frontline colleagues.

Steven’s

induction

programme

The combination of high-quality

reading materials and tailored

meetings with colleagues provided

me with the information necessary to

be able to engage in a meaningful way

right from the start of my Board tenure.

Steven Guggenheimer

Independent Non-Executive Director

Maggie Chan Jones and Ruth Cairnie, who joined the

Board on 1 March 2023 and 6 April 2023 respectively,

are currently going through their induction and their

programmes will be reported in the 2024 Annual Report.

Ruth Cairnie

Independent

Non-Executive Director

Maggie Chan Jones

Independent

Non-Executive Director

098 BT Group plc Annual Report 2023

Board composition, succession and evaluation continued

Nominations Committee Chair’s report

Committee role

The Committee is responsible on behalf of the Board for:

– reviewing the structure, size and composition of the Board

and its committees to ensure an appropriate balance of skills,

experience, diversity, independence and knowledge

– reviewing succession planning for the Board and

recommending the appointment of Executive and

Non-Executive Directors and the Chairman

– reviewing succession planning and performance of

the Executive Committee.

The Committee’s key responsibilities are set out in its terms

of reference available at bt.com/governance

Committee membership and attendance

All Non-Executive Directors are members, with the Chief

Executive attending meetings where appropriate. The Deputy

Company Secretary is secretary to the Committee and he, or his

delegate, attends all meetings and provides guidance, advice

and support as required.

Committee members and attendees do not attend discussions

where a conflict exists. During the year, five scheduled

Committee meetings were held. After each meeting, the Chair

reported back to the Board on the Committee’s activities.

Meetings attended

Adam Crozier (Chair) 5/5 Isabel Hudson

4/5

Adel Al-Saleh 5/5 Matthew Key 5/5

Maggie Chan Jones

a,b

0/0 Allison Kirkby

4/5

Ian Cheshire 5/5 Leena Nair

f,g

0/2

Iain Conn 5/5 Sara Weller 5/5

Steven Guggenheimer

2/2

a Maggie joined the Board and the Committee on 1 March 2023.

b No scheduled Nominations Committee meeting was held in March 2023.

c Steven joined the Board and the Committee on 1 October 2022.

d Isabel gave apologies for one meeting during the year due to other business

commitments.

e Allison gave apologies for one meeting during the year due to other business

commitments.

f Leena stepped down from the Board and the Committee at the conclusion

of the AGM on 14 July 2022.

g Leena gave apologies for two meetings during the year due to other business

commitments.

Adam Crozier

Chair of the Nominations

Committee

17 May 2023

Committee focus in FY23

Board succession and appointments

The Committee’s main focus was on searching for additional Non-

Executive Directors. Given the tenure of longer-serving directors

and Leena Nair stepping down from the Board on 14 July 2022,

the Committee was also planning to address future anticipated

changes as a result of upcoming director departures. Russell

Reynolds Associates, an independent external search consultant,

who has no other connection to the BT Group, and a signatory of

the Voluntary Code of Conduct for Executive Search Firms, was

engaged to assist with the search. The Committee recognised

that, given the group’s continued focus on digital and legacy

platform transformation, at least one director should have digital

and technology capabilities and transformation expertise. As in all

searches, diversity was a key consideration. Russell Reynolds was

tasked with enabling us to make appointments that meet the aims

and targets of our Board Diversity and Inclusion Policy and related

targets and succession planning. In line with that brief, Russell

Reynolds prepared a longlist of candidates which comprised a

diverse range of candidates, including female candidates and

those from ethnic minority backgrounds.

The Committee agreed a shortlist of candidates who were formally

approached by Russell Reynolds for consideration for the role

and assessment. Further to a comprehensive assessment and

interview process which included meetings with the Non-Executive

Directors, feedback was discussed by the Committee at each stage

to shortlist candidates based on the criteria and brief.

The Committee identified Steven Guggenheimer, an accomplished

technology executive, with a strong track record of advising

businesses on digital transformation and extensive insight

into technologies ranging from artificial intelligence to cloud

computing, as a preferred candidate to complement and

enhance the Board’s technology and digital capabilities. The

Committee was confident that Steven’s significant experience of

digital transformation, AI and cloud computing, would bring an

invaluable perspective to the Board. Following the Committee’s

recommendation, Steven joined the Board and the Nominations

and Digital Impact & Sustainability Committees on 1 October 2022.

As part of the succession planning, the Committee continued with

the search for two further Non-Executive Directors. Maggie Chan

Jones, with a wealth of experience following a highly successful

career in marketing at several of the world’s largest technology

companies, including Microsoft and SAP, joined the Board and the

Nominations and Digital Impact & Sustainability Committees on

1 March 2023 following the Committee’s recommendation.

The Committee further recommended the appointment of Ruth

Cairnie, who holds extensive experience gained from a broad

range of executive and non-executive roles at leading UK and

international industrial companies, including Royal Dutch Shell.

Ruth joined the Board and the Audit & Risk, Nominations and

This year we recruited new Non-Executive

Directors, including our new Senior

Independent Director, who were carefully

selected to complement the existing

skills on the Board which gives us the

right diversity of viewpoints, skills and

experience to support BT Group’s continued

transformation and strategic journey.

099Corporate governance report

Remuneration Committees on 6 April 2023. Ruth will succeed

Iain Conn, who will be stepping down at the conclusion of the

2023 AGM, after serving on the Board for nine years as Senior

Independent Director, and Ian Cheshire, who has decided to step

down at the conclusion of the 2023 AGM following an increase in

non-executive responsibilities as Chair of Land Securities Group,

as Remuneration Committee Chair.

The Committee is confident that Maggie and Ruth will add a

significant breadth of experience and diversity of expertise and

thought to the Board, and both will be key in supporting BT Group’s

broad agenda of strategic priorities.

Time commitment

On accepting their appointment, directors must confirm they are

able to allocate sufficient time to discharge their responsibilities

effectively. Directors are expected to attend meetings of the Board

and any committees of which they are members, as well as the

AGM and Board offsites. Directors are also expected to devote

sufficient time to prepare for each meeting and to participate in

other site or office visits to understand the business better. Before

accepting new external appointments, directors are required to

obtain the prior approval of the Board.

Before recommending the Board approve the appointments

of Steven Guggenheimer, Maggie Chan Jones and Ruth Cairnie

as Independent Non-Executive Directors, the Committee

considered their other commitments and whether they would

be able to allocate sufficient time to their roles. The Committee

was comfortable that their other commitments would not be

detrimental to their ability to perform their duties as Independent

Non-Executive Directors of BT Group.

Sara Weller joined the boards of Virgin Money UK, (Virgin

Money) and Clydesdale Bank, part of the Virgin Money Group as

a Non-Executive Director in October 2022, and Allison Kirkby

became an Independent Non-Executive Director of Brookfield

Asset Management in February 2023. Ahead of their respective

appointments, the Board considered the proposed appointments

in line with the time commitment required for BT Group and Sara

and Allison’s other roles. On balance, the Board felt this would

not be detrimental to their ability to perform their duties as an

Independent Non-Executive Director of BT Group. The Board also

considered the total appointments held by Sara and Allison and was

satisfied that they are within the overboarding guidelines published

by proxy agencies.

Election and re-election of directors

The Committee considered, in respect of each director, their

skills and experience, time commitment and tenure as part of

its recommendation to the Board in relation to the directors

put forward for election and re-election at the AGM. The Board

believes that each director it has recommended to shareholders

for election or re-election at the 2023 AGM brings considerable

knowledge, wide-ranging skills and experience to the Board,

makes an effective and valuable contribution and continues to

demonstrate commitment to their role.

On recommendation from the Committee, the Board also

considered the continued independence of Non-Executive

Directors as part of its consideration of the re-election

recommendations. The Board continues to consider all Non-

Executive Directors as being independent in line with the

Code, with the exception of Deutsche Telekom’s nominated

representative. The Chairman was judged to be independent

at the time of his appointment.

Details of directors’ contracts or letters of appointment are in

the Annual remuneration report on page 128.

Training and development

The Chairman and the Company Secretary keep the training and

development needs of directors under review. Non-Executive

Directors meet with management, enhancing their understanding

of the business through briefing sessions. We encourage all

directors to keep their skills and knowledge up-to-date and to

ask for any support they need. As part of ongoing development,

the Company Secretary (or her delegate) briefs the Board and

its committees at each meeting, as relevant, on any key legal,

regulatory and corporate governance developments. During the

year, these briefings included updates on the institutional investor

guidelines, environmental, social and governance considerations

and governance publications. Directors are updated as required on

developments in the environment in which the business operates

and internal and external advisers are invited to meetings to

provide updates as necessary.

Openreach Limited Board succession

Under its remit, the Committee has a responsibility to consider

changes to the Openreach Limited Board and recommend

any changes to the BT Group Board for approval. Following

Liz Benison’s indication of her intention to step down from the

Openreach Limited Board in 2022, a search for her successor

was commenced. On the recommendation of the Committee,

the BT Group Board approved Natalie Ceeney’s appointment

and Natalie joined the Openreach Limited Board on 1 May 2022.

Liz Benison stepped down on 30 April 2022.

Executive Committee succession planning and talent

Throughout the year, the Committee has kept under review:

– the performance and succession planning of Executive

Committee members. In particular, the Committee discussed

with the Chief Executive potential successor candidates to the

HR Director. Given the transformation and people agenda, and

the group’s key priorities, the Committee considered the impact

of the different options on the organisation and its stakeholders,

and which candidate would best support this. After an extensive

search and a comprehensive assessment, the Committee

approved the appointment of Athalie Williams as the permanent

Chief Human Resources Officer from 1 December 2022. The

Committee continues to focus on broader Executive Committee

succession planning, including oversight of the talent pipeline

with a focus on diversity

– key talent at senior leadership level. The Committee reflected on

the importance of identifying critical roles and building stronger

and broader diversity of experience, gender and ethnicity, as well

as commercial, technology and transformation capabilities, both

through potential external candidates and through our internal

talent pipeline

– the external appointments of Executive Committee members, in

line with our policy on external interests for Executive Committee

members (including Executive Directors) and the CEO, Openreach.

Under this policy, proposed external directorships and other

significant external interests must not be to an organisation that is a

BT Group competitor/major supplier to BT Group, create a conflict

of interest for the individual with their role at BT Group, involve

significant amounts of BT Group working hours or impede the

ability of the individual to perform their BT Group role, or involve

disproportionate incentives or remuneration, with reference to the

time commitment of the role. Any fees or other incentives arising

from such appointments may be retained by the individual, subject

to the amount being proportionate.

100 BT Group plc Annual Report 2023

Diversity and inclusion

The Board Diversity and Inclusion Policy sets out our approach to

diversity on the Board and our aim to have a well-balanced Board

with the appropriate skills, knowledge, experience and diversity to

meet our business needs and support our strategic aim of building

the strongest foundations (see bt.com/governance). Following the

recent publications and the changes to the Listing Rules, we have

reviewed and updated this policy during FY23. The policy ensures we:

– apply an inclusion lens to all our decision-making processes

– monitor the impact of our decisions on diverse populations

– value and communicate the benefits that difference brings and

are unapologetic in our pursuit of a diverse workforce at all levels

– actively seek out opportunities across the business to enhance

and strengthen our approach to inclusion.

Whilst we appoint candidates based on merit, we continue to

challenge our external search consultants to ensure that all forms

of diversity, in particular ethnicity and gender, are considered when

drawing up candidate lists. This is a key consideration for our searches.

Diversity is considered in the broadest sense and all forms of

difference are considered, including age, gender, nationality,

independence, professional background, social and ethnic

backgrounds, business and geographic experience, as well as

cognitive and personal strengths. These are considered in reviewing

the composition of the Board and, where possible, are appropriately

balanced. We believe a key driver in delivering our diversity

commitments across the organisation is through a Board which has

this balance of skills, experience, diversity and knowledge.

As at 31 March 2023, four of our 12 Board directors were female

(33%) and two directors were from an ethnic minority background

(17%), and in addition, one director has a disability. Furthermore,

with the appointment of Ruth Cairnie on 6 April 2023, and taking

into account the changes to the Board at the 2023 AGM, this will

bring the female membership of the Board to 45% and therefore

within the targets of the Board Diversity and Inclusion Policy of 40%.

Ruth’s appointment as Senior Independent Director will ensure

that we meet the requirements of the Listing Rules to have female

representation in at least one of the four senior board positions.

Details of our diversity and inclusion strategy, including its

objectives, implementation and progress can be found on

page 33.

Board composition, succession and evaluation continued

Nominations Committee Chair’s report continued

Chairman and Non-Executive Directors’ tenure

As at 31 March 2023

0–2 years 3 30%

2–4 years 3 30%

4–6 years 2 20%

6–8 years 0 0%

8+ years 2 20%

0–2 years 4 45%

2–4 years 2 22%

4–6 years 2 22%

6–8 years 0 0%

8+ years 1 11%

Post 2023 AGM

Diversity and ethnicity

Number of

Board members

Percentage

of the Board

Number of senior

positions on the Board,

CEO, CFO, SID and Chair

Number

in executive

management

Percentage

of executive

management

Diversity

Male

at 31 March 2023

66.7% 70%

Female

at 31 March 2023

33.3% 30%

Male

Post 2023 AGM

54.6% n/a n/a

Female

Post 2023 AGM

45.4% n/a n/a

Ethnicity

(at 31 March 2023)

White British

or other White

(including minority-white groups)

10 83% 4 8 80%

Mixed/Multiple

Ethnic Groups

1 8.5% 1 10%

Asian/Asian British 1 8.5% 1 10%

Black/African/

Caribbean/ Black British

0 0

Other ethnic group,

including Arab

0 0

101Corporate governance report

Audit, risk and internal control

Audit & Risk Committee Chair’s report

This year, the Committee continued

to focus on reviewing our systems of

risk management and internal control,

particularly on the operational risks we

faced including data, cyber security and

supply chain.

Committee focus in FY23

The Committee met five times this year. As Committee Chair,

I met with the KPMG lead audit partner, the internal auditor and

management as appropriate ahead of meetings to discuss specific

items of focus to report to the Committee. After each meeting,

I also reported back to the Board on the Committee’s activities,

the main issues discussed and matters of particular relevance,

with the Board receiving copies of the Committee’s meeting

papers and minutes.

Financial reporting

During the year, the Committee considered the full year and half

year results, and the Q1 and Q3 trading updates. It reviewed the

quality of accounting policies and practices, as well as critical

accounting estimates and judgements.

The Committee considered, and was satisfied with:

– the processes supporting the preparation and consolidation

of the financial statements, including consistent application

of the accounting policies, and the ongoing verification by

management and the external auditor

– management’s accounting judgements and the appropriate

application of the accounting policies, having also discussed

these with the external auditor.

More information on BT Group’s significant

accounting policies is set out on page 157

The Committee exercised its judgement when considering matters

related to the financial statements, and recommended approval

by the Board of each of our full year and half year results, Q1 and

Q3 trading updates and the Annual Report.

Committee role

The Committee is responsible on behalf of the Board for:

– monitoring the integrity of the financial statements and

overseeing the financial reporting process

– reviewing the effectiveness of the group’s systems of risk

management and internal control

– reviewing the effectiveness of the internal audit function

– approving the appointment, reappointment, remuneration

and removal of the external auditor, as well as the terms

of the engagement and the provision of any non-audit

services, overseeing the external auditor’s independence

and effectiveness in delivering a quality audit.

The Committee’s key responsibilities are set out

in its terms of reference available at bt.com/governance

Committee membership and attendance

The Committee members are all Independent Non-Executive

Directors with a range of skills, and the Committee as a whole

has experience relevant to the sector and acts independently

of management. Allison and I have recent and relevant business

and financial experience (as set out in our biographies on pages

86 to 87) in line with the Code. The Deputy Company Secretary

is secretary to this Committee and he, or his delegate, attends all

meetings and provides guidance, advice and support as required.

The Chairman, Chief Executive and Chief Financial Officer attend

Committee meetings as required.

Private Committee sessions with the internal and external

auditor were held at each meeting without management being

present. The external auditor was not present at meetings where

their performance and/or their remuneration was discussed.

Meetings attended

Matthew Key (Chair) 5/5 Allison Kirkby 5/5

Ian Cheshire 5/5 Sara Weller 5/5

Iain Conn 5/5

Other attendees (x Regular attendee • Attends as required)

Chief Executive ×

Chief Financial Officer ×

Director, Group Finance ×

Director of Risk, Compliance & Assurance ×

General Counsel, Company Secretary & Director Regulatory Affairs ×

Director of External Reporting and Financial Control ×

Internal Audit Director ×

Risk Director •

Ethics and Compliance Director •

Details on the FY23 evaluation of the Committee’s

effectiveness can be found on page 96.

Matthew Key

Chair of the Audit & Risk

Committee

17 May 2023

102 BT Group plc Annual Report 2023

Audit, risk and internal control continued

Audit & Risk Committee Chair’s report continued

Overview of the year

Focus Considered by the Committee

2022 2023

May Jul Sep Oct Jan

Financial reporting:

– Results/trading updates and accounting judgements

– Annual Report 2022

– Regulatory financial statements 2022

– Going concern assessment

– Viability statement

Major contentious matters

Internal controls over financial reporting

Finance transformation programme

Data programme progress update

GRCs and CFU risk reviews: point and emerging risks

Report from Openreach board, audit, risk & compliance Committee chair on the risks in Openreach

Compliance with Code requirements – risk management framework

Ethics & compliance:

– Ethics & compliance programmes

– Speak Up (whistleblowing) reports

Internal audit:

– Internal audit report

– FY23 group internal audit plan and approach

– Group internal audit charter

– International audits coverage and analysis

External audit – KPMG:

– External audit report

– External audit plan

– Audit and non-audit fees

– Effectiveness

– Independence and reappointment

Fair, balanced and understandable

In May 2023, the Committee reviewed the Annual Report 2023

having previously fed back on earlier drafts. The Committee

concluded that the Annual Report 2023, taken as a whole,

was fair, balanced and understandable and provided the

information necessary for shareholders to assess the group’s

position, performance, business model and strategy, and the

potential impact on forward-looking assumptions supporting

going concern and viability assessments. In its assessment, it

considered that the following had been carried out and this

formed the basis of its recommendation to the Board:

– a verification process covering the factual content reviewed by

the internal audit team

– comprehensive reviews by different levels of management,

including the Executive Committee, to consider the messaging

and ensure consistency and overall balance.

103Corporate governance report

Significant matters related to the financial

statements and how these were addressed

Group accounting policies, critical and key accounting

estimates and significant judgements

The Committee considered the accounting policies and disclosures

in the consolidated financial statements regarding critical and key

accounting estimates and significant judgements as summarised

in note 2 of the consolidated financial statements. These relate

to the valuation of our pensions assets and liabilities, taxation,

contingent liabilities associated with litigation, provisions, our

goodwill impairment model, determination of lease terms including

reasonable certainty, and judgements and estimates associated

with our BT Sport joint venture. More detail on the Committee’s

oversight of these matters is set out below where appropriate.

Going concern assessment

The Committee considered management’s forecasts of group cash

flows and net debt, as well as the group’s liquidity requirements and

borrowing facilities, including downside scenarios from the viability

model as discussed below. Following this review and a discussion

of the sensitivities, it confirmed that the going concern basis of

accounting continues to be an appropriate basis of preparation for the

financial statements and recommended it for approval by the Board.

See page 132

Viability statement

The Committee reviewed the process and assessment of the group’s

prospects, taking into account the group’s current position and principal

risks. The Committee also considered the group risks in management’s

stress testing model, including the review of downside scenarios

and a combined ‘severe but plausible’ scenario where multiple

inter-connected risks materialise. The Committee was satisfied that

the viability statement could be provided and the approach to its

development, and recommended it for approval by the Board.

See pages 81 to 82

BT Sport joint venture

The Committee reviewed the judgements and estimates made

in relation to the formation of the new sports joint venture with

Warner Bros. Discovery, Inc. including the assessment of joint

control, the valuation of contingent consideration, the valuation

of the minimum revenue guarantee in BT Group’s distribution

agreement with the joint venture, the valuation of BT Group’s

equity interest in the JV and the discounting of applicable cash

flows. The Committee was satisfied with the judgements made.

Pensions

The Committee considered the assumptions underlying the

valuation of the pension assets and liabilities in the financial

statements, as summarised in note 20 to the consolidated financial

statements, the sensitivities around the assumptions and the

impact of the assumptions on the balance sheet, income statement

and related disclosures.

Finance transformation

Throughout the year, the Committee was regularly updated on our

finance transformation programme, including the implementation

of a new central finance system and group accounting book of

record at the start of the financial year and the preparation for the

second phase of the programme to replace the UK sub ledgers

and fixed asset register at the start of the next financial year. The

Committee considered in particular the impact on published

financial information and the group’s control environment.

Goodwill impairment

The Committee received and discussed the key assumptions,

including operating cash flow forecasts, resulting headroom and

the sensitivity analysis performed by management. The Committee

considered and was satisfied with the key assumptions and agreed

that no goodwill impairment charges were required for FY23.

Divestments

The Committee reviewed the judgements made in relation to

the group’s divestments, including on whether the held for sale

criteria had been satisfied, and how goodwill should be allocated

to divested or held for sale entities.

Regulatory finance reporting

The Committee supported the processes and systems

enhancements that were implemented to ensure that the

group met its 2022 regulatory financial reporting obligations.

Other matters

The Committee reviewed specific items quarterly, and considered

and agreed that they were appropriately categorised. It considered

management’s view of the quality of earnings and of the effective

tax rate. It also challenged the phasing of working capital within

normalised free cash flow. At each quarter, it considered a detailed

assessment of provisions, and the Committee was satisfied with

the analysis provided in relation to the results.

Risk management and internal controls systems

The group has continued to enhance and further embed its

framework of risk management, controls and assurance for

dealing with its landscape of risks.

This framework provides the tools to enable us to be smart with

risk and improve operational and ethical discipline. The risk

management processes identify and monitor the risks facing the

group and the risk landscape is divided into areas of enduring

risk called Group Risks Categories (GRC), which cover strategic,

financial, operational and compliance risks.

Further information on our risk management framework and

principal risks can be found on pages 61 to 64.

The Board monitored the effectiveness of the group’s systems of

risk management and internal controls through detailed reviews

of the GRCs and consideration of reports from management, as

well as from internal audit and other assurance functions. Much

of this work was undertaken by this Committee on the Board’s

behalf. Given that the Board is ultimately responsible for the

group’s systems of risk management and internal controls, as

Chair, I subsequently reported the key matters from each of these

sessions to the Board.

The activities listed overleaf, carried out during the year,

collectively enable the Committee to confirm that the group’s

systems of risk management and internal control have been

appropriately reviewed. Where required, targeted improvements

have been agreed to continue to transform our control and systems

environment. As part of its drive for continuous improvement,

the Committee has overseen ongoing enhancements to the risk

management framework. These included the development by

management of a simplified suite of corporate policies and a

group-wide key control framework to ensure all enduring risks

are managed consistently and efficiently across the group, with

clear accountabilities and enabling targeted assurance activities.

Further information on improvements being made to the overall

risk management framework, as well as specific actions taken to

manage our principal risks can be found on pages 61 to 62.

104 BT Group plc Annual Report 2023

Audit, risk and internal control continued

Audit & Risk Committee Chair’s report continued

Activities carried out during the year:

The Committee held discussions on the GRCs with the Executive

Committee risk owners to understand current and anticipated risk

developments, and reviewed how effectively the risks are being

managed. It considered the risk appetite and its supporting metrics

for the GRCs, the effectiveness of the controls, mitigation activities

and any areas for improvement. The Committee robustly assessed

both current, specific concerns (point risks) and uncertainties

that may materialise in the future (emerging risks), particularly

as a consequence of adverse changes to the economic, social,

regulatory, political or technology environment, or as an unintended

consequence of new products and services being offered or

developed by the group. The Committee agreed with management

any actions required to manage or mitigate these risks effectively.

Given the legal and security risks associated with the data we

manage, the importance to our colleagues, customers and the

group’s ambition, as well as the ever-increasing regulatory scrutiny

in this space, the Committee has received a number of updates

on the management of this GRC, and monitored progress against

any agreed enhancements. In addition, the Committee continues

to monitor the cyber security GRC closely and has received the

outcomes of an independent external cyber security review.

As well as the rolling programme of reviewing the GRCs (during

the year this included the Financial Services, Major Customer

Contracts, Supply Management, Legal Compliance and

Communications Regulation GRCs), the Committee received

updates on specific matters including the progress on FCA

permissions and next steps given the importance of this for product

rollout and projected revenues; financial market turbulence during

Autumn 2022 and impacts on the BT pensions schemes; and power

resilience and potential energy shortages or rationing.

The Committee considered management’s approach to managing

emerging risks within the risk management framework and in

each of the GRCs and units. Management also brings together

representatives from across the Group in its emerging risk hubs

to consider the emerging risk profile and landscape and to share

intelligence and agree actions. The Committee reviews the outcomes

of all of these management activities on a six-monthly basis.

In addition, with the CFU CEOs, the Committee undertakes unit

risk reviews, which cover how the GRCs are being managed in the

respective units, and the significant point and emerging risks.

During the year, these included reviews of the Global, Consumer

and Openreach units.

As part of the reviews of the GRCs, CFUs and other matters, where

relevant, the impacts of sustained higher rates of inflation and

wider costs of living matters on BT Group colleagues, customers

and suppliers have been considered.

The Committee also monitored the outcome of the Department for

Business, Energy & Industrial Strategy (BEIS) consultation paper

and how this may impact our current controls development strategy.

Ethics and compliance

The Committee considered regular reports on our ethics and

compliance policies, and programmes and related learnings and

culture. It spent time discussing the enhancement programme

in relation to international trade, anti-bribery and corruption, as

well as communications regulation compliance in line with the

respective GRC.

Each quarter, the Committee received and reviewed reports

on issues raised through Speak Up, BT Group’s confidential,

whistleblowing services operated by an independent company, 24

hours a day, in multiple languages, for both written and telephone

reports. The Committee ensures that arrangements are in place

for the proportionate and independent investigation of these and

other matters via the ethics and compliance team. The procedures

for Speak Up are reviewed annually with input from the specialists in

Speak Up, HR and Legal, to ensure best practice is maintained and

that procedures remain compliant. On receipt, any whistleblowing

reports are triaged by specialist resource, assigned a priority and,

where appropriate, are directed to an investigator from security,

HR or Legal with appropriate assistance from subject matter

experts and/or independent line management. On completion of

any investigation, the Speak Up team ensures the investigation has

been thorough and fair. High priority cases are reviewed by a multi-

disciplinary panel for completeness before closure. The Committee

discussed any themes identified across the cases received, the

outcomes of these cases and the overall rates of substantiation.

Internal audit

Internal audit provides independent, objective and timely assurance

to senior management and the Board, through this Committee,

over the design and operational effectiveness of key processes and

controls that manage the risks across the organisation.

During the year, the Committee:

– reviewed and approved the group internal audit annual plan,

ensuring it aligned to the principal risks of the business

– reviewed and, taking into account the current needs of the

group, approved the internal audit charter, which establishes

internal audit’s independence, authority, remit and reporting

lines to conduct its work

– received regular reports from internal audit on its activities and

progress against the group internal audit plan, allowing the

Committee to monitor delivery against the plan

– held in-depth discussions with management on all internal

audit reports where controls were assessed as ‘inadequate’, and

action plans to address these. The actions were tracked by the

Committee, including the responsiveness of management to the

findings and recommendations, and the progress of closing any

overdue actions.

During the year, the Committee carried out its annual assessment

of the performance and effectiveness of internal audit, including

whether the activities, structure, expertise, objectivity and quality

of the function were appropriate for the business. The Committee

concluded that internal audit continues to add value in the

context of the group’s overall assurance framework. An external

effectiveness review of internal audit was previously conducted in

FY19 by the Chartered Institute of Internal Auditors in accordance

with our five-year cycle of such reviews.

External audit

The Committee is responsible for making recommendations

to the Board on the reappointment of the external auditor,

determining their independence from the group and its

management and agreeing the scope and fee for the audit.

The Committee concluded that the reappointment of KPMG

should be recommended to shareholders at the 2023 AGM.

Following the audit tender in FY17, KPMG was appointed as

BT Group’s external auditor from the conclusion of the 2018 AGM.

The FY23 audit is KPMG’s fifth audit of BT Group. John Luke was

appointed as the KPMG lead audit partner for the BT Group in

FY21, having been the audit partner for Openreach Limited since

FY19. Recognising the rotational requirements for the lead audit

partner and taking into account both his tenure at Openreach and

BT Group, FY23 will be John Luke’s final year as lead audit partner.

The Committee Chair has discussed John Luke’s succession with

the Chief Executive of KPMG in the UK, and following a thorough

review of potential candidates put forward by KPMG to succeed

John, the Committee approved the appointment of Jon Mills to

replace John Luke as the lead audit partner for the FY24 audit.

During the year, the Committee:

– considered and approved the proposed external audit fees for

the year ended 31 March 2023, including one-off fees, as well as

105Corporate governance report

the recurring audit fee for the regulatory financial statements

and the interim review fee (see the Independent auditor’s

report on pages 138 to 149 for more details)

– reviewed with the external auditor, and subsequently approved,

the external auditor’s scope of work, audit plan and strategy

for FY23

– approved the engagement letter of the external auditor

– recommended approval by the Board of management’s letters

of representation

– reviewed the annual findings of the FRC’s Audit Quality Review in

respect of KPMG’s audits. The Committee discussed the findings

and the applicability to the BT Group and are discussing this

further with KPMG

– reviewed a joint plan by KPMG and management which

addressed debrief points from last years audit to ensure

improvements were made on both sides for this year.

As part of my year-end report to the Board, I informed the Board

of the outcome of the external audit.

BT Group confirms that it complies with the EU Regulation on Audit

Reform and the Competition and Markets Authority’s Statutory Audit

Services Order with regard to mandatory auditor rotation and tendering.

Independence and non-audit services

The Committee discussed the external auditor’s independence

and potential areas that could give rise to a conflict of interest, and

considered the safeguards in place to prevent compromising their

independence and objectivity. BT Group’s non-audit services policy

sets out the non-audit services that can be provided by the external

auditor, in line with the latest ethical standards. The external auditor is

not permitted to perform any work which they may later be required

to audit, or which might affect their objectivity and independence, or

create a conflict of interest. Internal procedures describe the approval

process for work performed by the external auditor, and these

applied to KPMG throughout the year. The Committee monitored

compliance with the policies and procedures and considered

business relationships with the external auditor, and the level and

appropriateness of non-audit services and fees. The Committee will

continue to keep under review BT Group’s non-audit services policy.

Our non-audit services policy can

be found at bt.com/governance

The Committee reviewed the confirmation and information received

from the external auditor on the arrangements that it has in place

to safeguard auditor independence and objectivity, which are

consistent with the ethical standards published by the FRC, including

specific safeguards where they provide permissible non-audit

services to the group. The nature of the non-audit services carried

out by the external auditor during the year are described in note 8

to the consolidated financial statements on page 166. These were

carried out due to either legal or regulatory obligations, contractual

requirements, or represented areas of assurance work where it was

materially more efficient for the external auditor to be engaged,

as opposed to another third party due to the work completed in

relation to the audit, and which were permitted to be performed

by an auditor under the Revised Ethical Standard 2019. The Board

assessed any potential threats to independence that were self-

identified and reported by KPMG, all of which were regarded by the

Committee as being adequately addressed. Audit-related assurance

services, including the audit of the regulatory financial statements,

as well as any approved non-audit services performed by KPMG, are

considered a low threat to auditor independence. The largest non-

audit service included providing comfort letters for bond issuances.

This work fell within the scope of limited permissible services, which

are closely related to existing audit work that KPMG provide. The

proportion of ‘other non-audit services’ to ‘total services’ carried

out by the external auditor is therefore considered the most suitable

measure of the non-audit services provided. These represented

0.2% of the total fees (FY22: 0.6%).

External auditor

effectiveness and quality

Scope

The Committee assesses the effectiveness of the external

audit process and the qualifications, expertise, resources,

independence and objectivity of the external auditor,

including the nature and extent of non-audit services

throughout the year, focusing on:

– the quality of the audit and the financial reporting

process, including how effective the external auditor is at

identifying and addressing matters that could compromise

the quality of BT Group’s reporting

– the service of the external auditor and the relationships

with the Committee, key members of management and

the internal auditor

– whether the external auditor has demonstrated

professional scepticism

– whether the external auditor has challenged

management’s assumptions where necessary.

Review process

The Committee reviewed the audit scope and plan at the start

of the year and received regular audit reports from the external

auditor. This enabled the Committee to assess the quality of

audit work. The Committee had the opportunity to interact

with the external auditor at meetings as well as to observe the

communication and interactions between the external auditor

with management and the internal auditor. The Committee

reviewed and monitored management’s responsiveness to the

external auditor’s requests for information, and its findings and

recommendations. The Committee Chair also regularly met

with the lead audit partner.

During the year, a questionnaire was also completed by

the Committee members and management to gather their

perspectives on the effectiveness and quality of the external

auditor’s work.

The Committee also reviewed the key findings from the FRC’s

Audit Quality Review in respect of KPMG’s audits. Whilst

the FRC review did not cover the BT Group audit, the report

provided a basis for the Committee to challenge KPMG

over any actions proposed as a result of the report, and any

weakness identified in audit quality. The Committee discussed

the findings and the applicability to the BT Group (with and

without KPMG) and will continue to keep this under review.

Conclusion

In conclusion, the Committee agreed that:

– the audit contributed to the integrity of the group’s

financial reporting

– the relationship between KPMG and both the Committee

and management continues to be effective

– KPMG demonstrated an appropriate degree of professional

scepticism and deployed a team with the required level of

skill and expertise to enable an effective audit

– the audit strategy and plan was appropriately scoped,

communicated and executed

– KPMG continues to be independent, and recommended to

the Board that the reappointment of KPMG, as our external

auditor, be put to our shareholders for approval at the 2023

AGM (this was subsequently approved by the Board).

106 BT Group plc Annual Report 2023

Committee role

The Committee is responsible on behalf of the Board for:

– monitoring BT Group’s compliance with the letter and

spirit of the Commitments made as part of the 2017 Digital

Communications Review (DCR) with Ofcom

– assessing whether Openreach can act with appropriate

independence while BT Group is able to fulfil its parent

company duties

– overseeing consumer fairness matters on behalf of the Board

by monitoring whether BT Group is living up to Ofcom’s

Fairness for Customers commitments

– reviewing how BT Group is delivering appropriate outcomes

for stakeholders across the Commitments and consumer

fairness.

The Committee’s key responsibilities are set out in its terms

of reference available at bt.com/governance

Committee membership and attendance

During the year, the Committee met four times. The Committee

comprises Independent Non-Executive Directors only. The

Deputy Company Secretary is secretary to this Committee, and

he or his delegate attends all meetings and provides guidance,

advice and support as required. The Chair of the Board,

General Counsel, Company Secretary & Director Regulatory

Affairs, Commitments Assurance Office Director (CAO), and

Openreach’s Commitments Monitoring Office Director also

attend meetings as invitees.

Meetings attended

Isabel Hudson (Chair) 4/4 Allison Kirkby 4/4

Ian Cheshire 4/4 Sara Weller 4/4

I report to the Board after each meeting on the Committee’s

activities and the main issues discussed, with the Board receiving

copies of the Committee’s meeting papers and minutes. Ofcom

also receives copies of minutes.

Details on how we engage with Ofcom can be found

on page 45

Details on the FY23 evaluation of the Committee’s

effectiveness can be found on page 96

Committee focus in FY23

Compliance with the Commitments

The Committee’s monitoring in the last year has focused upon:

– the adherence of BT Group’s leadership with the Commitments

– stakeholder perceptions by engagement with industry

stakeholders, including CPs, Ofcom and Openreach

– the CAO’s reviews of the annual financial planning, strategy

development and commercial pricing and product processes

– targeted reviews of governance for pan-BT programmes,

including exchange closures

– the outcomes of CAO compliance reviews, decisions on potential

Commitments breaches and, where appropriate, remedial

actions. Breaches continue to remain at a low level

– BT Group and Openreach’s progress on wider DCR outcomes.

With the current macroeconomic environment, the Committee

was mindful that this does not lead to a loss of focus on the

Commitments. A training session including Commitments

compliance was provided to the Executive Committee to

reinforce the importance of adhering to the Commitments.

Consumer fairness matters

The Committee remain focused in monitoring the group’s

adherence to the consumer fairness principles for a fair outcome

for customers. In the year ended 31 March 2023, the Committee

focused on:

– the transition to All IP and the migration of Digital Voice (see

page 59). The Committee spent significant time addressing key

issues of the programme with management including customer

impacts and the related communications

– a review of the shutting down of the 3G network to ensure

lessons were learned from the challenges of Digital Voice

– the decision to proceed with our planned consumer price

increase, noting current inflation rates and the continued

engagement with key stakeholders and customers ahead of this

– reviewing the introduction of charging for mobile roaming

in Europe

– the provision of social tariffs, how the group addresses loyalty-

related issues, the cap on out-of-contract price rises, and the

broader efforts to support vulnerable and less technically able

customers

– year-on-year consumer fairness trends as well as outputs from

the group’s consumer fairness panel meetings.

BT Compliance Committee Chair’s report

The Committee is vigilant on the

monitoring of the culture and behaviour

of the BT people to ensure that they

are conducive to the delivery of our

commitments and governance protocol,

as well as to the adherence of the

consumer fairness principles in the

delivery of key outcomes.

Isabel Hudson

Chair of the BT Compliance

Committee

17 May 2023

107Corporate governance report

Committee role

The Committee is responsible on behalf of the Board for:

– agreeing the strategy for responsible business, as enshrined

in our Manifesto

– overseeing progress of our Manifesto, with a particular focus

on the group’s activities and goals as a responsible, inclusive

and sustainable business.

The Committee’s key responsibilities are set out in its terms

of reference available at bt.com/governance

BT Group has continued to support customers, colleagues,

families and businesses during what continues to be a difficult

time for so many. Throughout the year, the Committee has given

direction, challenge and encouragement to support the delivery

of the Manifesto plans across the business.

Our Manifesto is a core part of our strategy and ESG metrics remains

an important element of both our short-term and long-term

incentives (see page 122). During the year the Committee noted

the changes to the annual bonus scorecard for FY24 (see page 110)

and provided a recommendation to the Remuneration Committee

in respect of the new restricted share plan underpin (see page 110),

including a robust framework for assessing performance.

Committee membership and attendance

The Committee members are all Independent Non-Executive

Directors. The Deputy Company Secretary is secretary to this

Committee, and he or his delegate attends all meetings and

provides guidance, advice and support as required.

The Chief Human Resources Officer, Corporate Affairs Director,

CEO Consumer, Sustainability & Corporate Affairs Strategy

Director, and Director of External Communications & Digital

Impact also attend meetings as invitees.

During the year, the Committee held three scheduled meetings.

Meetings attended

Sara Weller (Chair) 3/3 Isabel Hudson 3/3

Maggie Chan Jones

a,b

0/0 Leena Nair

1/1

Steven Guggenheimer

1/1

a Maggie joined the Board and the Committee on 1 March 2023.

b No scheduled Digital Impact & Sustainability Committee meeting was held in

March 2023.

c Steven joined the Board and the Committee on 1 October 2022.

d Leena stepped down from the Board and the Committee on 14 July 2022.

I report to the Board after each meeting on the Committee’s

activities and the main issues discussed, with the Board receiving

copies of the Committee’s meeting papers and minutes.

Details on the FY23 evaluation of the Committee’s

effectiveness can be found on page 96

Committee focus in FY23

Manifesto for a bright, sustainable future

Following on from last year’s launch of our Manifesto (see pages

36 to 39 for detail), the focus this year has been to review how it

is being embedded across the business. Progress was tracked

through our Manifesto dashboard, which was shared externally

at the ESG Business Briefing in November 2022.

Responsible: Responsible tech and human rights. The Committee:

– considered emerging tech risks and how these are being managed

– provided challenge to explore how management of data privacy

and ethics can build trust and support growth

– assessed how responsible tech principles and human rights

are being embedded in the new business process

– endorsed BT Group’s human rights policy.

The human rights policy is available at

bt.com/humanrightspolicy

Inclusive: Digital skills and social impact. The Committee:

– oversaw performance against our digital skills goal (Group

KPI and one of seven metrics in the FY23 bonus scorecard,

(see page 112) through campaigns in Consumer and Business)

– supported work to build a diverse digital talent pipeline for

the UK and BT Group through the FastFutures programme,

encouraging the management team to pursue even greater

diversity through future cohorts

– considered cost of living support for vulnerable customers

and suggested ways to ensure it reaches those most in need

– reviewed and supported the approach to demonstrating our

contribution to social value in our work with the public sector.

Sustainable: Climate and the environment. The Committee:

– approved BT Group’s climate strategy and related KPIs (see

pages 38 to 39)

– appraised progress in decarbonising our operations, including

the further adoption of electric vehicles into the commercial

vehicle fleet, noting some of the challenges faced given a lack

of vehicle supply, charging infrastructure and cuts to subsidies

– monitored energy reduction efforts across our networks

– tested progress on the plans to make BT Group a more

circular business, with debate and agreement on the use of

a measurement tool and set of KPIs to track performance

– heard how sustainability is driving growth for Business through

new value propositions and how this could be scaled-up across

the business.

Stakeholder engagement

The Committee discussed the group’s approach to understanding

the interests of key stakeholders and how this is reflected in

our responsible business and sustainability strategy, external

reporting, and engagement with stakeholders (including our

shareholders) in a landscape of increasing focus on environmental,

social and governance factors.

BT Sourced

The Committee oversaw progress and the risk management

approach in place within our supply chain, including how we

ensure that the group remains a responsible business through

its procurement activities.

Digital Impact & Sustainability

Committee Chair’s report

It has been great for the Committee to

provide direction and support to the delivery

of the Manifesto, to further strengthen BT

Group’s position as a responsible business.

Sara Weller

Chair of the Digital Impact &

Sustainability Committee

17 May 2023

108 BT Group plc Annual Report 2023

Report on directors’ remuneration

Committee Chair’s letter

Committee role

The Committee is responsible on behalf of the Board for:

– Determining the salary and benefits for the Chairman, Executive

Directors, members of the Executive Committee and the

Company Secretary, and monitoring remuneration practices and

policies for the wider workforce

– Setting the performance targets for the annual bonus scheme

for senior executives for the year ahead

– Determining awards under the annual bonus scheme and the

group’s long-term incentive plans for senior executives

– Reviewing and approving the Report on directors’ remuneration

– Reviewing and approving the Policy including seeking shareholder

approval, on a binding basis, at least every three years

– Ensuring that all remuneration decisions are made within the

parameters of the approved Policy and align with our reward

philosophy and our values. No senior executive is involved in any

decision about their own remuneration.

After each meeting, I report back to the Board on the Committee’s

activities and the main issues discussed.

The Committee’s key responsibilities are set out in its terms

of reference available at bt.com/governance

This report sets out information on the Committee’s activities during

the year, our remuneration framework and its implementation.

I have also provided further context on the performance of the

business throughout the year and the environment in which the

Committee made decisions on executive pay.

Stakeholder context

Wider workforce pay and conditions

In April 2022 we provided a salary increase of £1,500 to all UK

frontline colleagues. Despite facing growing cost pressures,

we really wanted to support our colleagues and we believe

we delivered the best pay review we could afford at the time.

Regretfully, we were not able to reach agreement on this with the

CWU and FY23 saw eight days of industrial action. I am immensely

grateful for the hard work of all colleagues who stepped up to

ensure we kept our customers and the country connected during

this challenging time.

Since April, colleagues across the globe have continued to be

impacted by rising inflation and the cost of living squeeze. We

again sought to support our colleagues as best we could, and we

took the following actions:

– We delivered a £1,500 consolidated salary increase from

1 January 2023 to all UK colleagues earning a £50,000 full-time

equivalent salary or below – more than 85% of our UK workforce,

including all of our team member and frontline colleagues, and

half of our UK manager population. Combined with the increase

offered in April 2022, our lowest-paid colleagues received

a total increase of 15% year on year. This one-off award was

The Committee understands the current

cost pressures our colleagues face and is

fully supportive of the actions taken during

the year to help as best we could. Once again

we have ensured that any remuneration

decisions taken during the year were in line

with our Directors’ Remuneration Policy.

Contents

Committee Chair’s letter

Review of the year; Committee decisions; key outturns and plans

for the year ahead – pages 108 to 110.

Focus on remuneration

The key aspects of our remuneration structure, outcomes for

FY23 and implementation of the Directors’ Remuneration Policy

in FY24 – pages 111 to 113.

Directors’ Remuneration Policy (Policy)

We’re proposing a new Policy at the 2023 AGM, with minimal

changes from the previous Policy – pages 114 to 120.

Annual remuneration report

More detail on how we have implemented the Policy during

FY23 including the single figure of remuneration for each

director – pages 121 to 128.

Remuneration in context

How we take account of remuneration conditions across the

group – pages 129 to 130.

Committee membership and attendance

The Committee members are all Independent Non-Executive

Directors. The Deputy Company Secretary or his appointed

delegate acts as secretary to the Committee, and attends all

meetings and provides advice, guidance and support as required.

The Chairman, Chief Executive, Chief Human Resources

Officer and Director of Group Reward are typically invited to

attend meetings. They do not attend meetings where their own

remuneration is discussed or in other circumstances where their

attendance would not be appropriate.

Deloitte LLP, as the independent remuneration adviser to the

Committee, also attends meetings.

The Committee held six scheduled meetings during the year and

one ad hoc meeting.

Meetings attended

Ian Cheshire (chair) 6/6 Matthew Key 6/6

Iain Conn 6/6 Leena Nair

0/2

Isabel Hudson 6/6

a Leena gave apologies for two meetings during the year due to other business

commitments. Leena stepped down from the Board and the Committee at the

conclusion of the AGM on 14 July 2022.

Sir Ian Cheshire

Chair of the Remuneration

Committee

17 May 2023

109Corporate governance report

recommended by both the CWU and Prospect, and supported

by their memberships in consultative ballots, bringing an end to

the CWU’s industrial action

– Outside of the UK we assessed the need to deliver similar

interventions, taking account of salary increases delivered in

2022, inflation levels and other local factors. As a result, a similar

increase was provided in the Republic of Ireland and we paid a

one-off allowance to colleagues in Hungary

– In terms of enhanced benefit provision, we rolled out additional

support for business-needs drivers and colleagues travelling

overnight; and launched our Benefitness campaign to help

colleagues understand how our range of flexible benefits could

best support them through these difficult economic times.

The Committee understands that our colleagues continue to

face cost pressures and it receives regular updates on pay and

conditions across the business throughout the year.

Isabel Hudson, as the Designated Non-Executive Director for

workforce engagement, also feeds back to the Committee on

a regular basis the comments and sentiments on remuneration

matters which are raised by the Colleague Board. These issues

are front-of-mind for the Committee as it makes decisions on

executive pay throughout the year.

Customer context

The whole country has been impacted by the cost of living crisis

and we have provided support for our customers as well as our

colleagues. In June 2021 we were the first to launch a social

tariff, Home Essentials, which provides discounted broadband to

support customers claiming certain benefits. Although some of our

competitors have now followed suit, BT Group still has more social

tariff customers than the rest of the market combined. We made

the decision to freeze our pricing in 2023 for one million social tariff

and landline-only customers, as well as for two million Pay As You

Go mobile customers.

We continue to build our fibre network at pace, delivering next-

generation connectivity to the country: more than 10m premises

are now covered by our network, with more than 3m connections.

As noted below, our NPS scores have fallen this year. Delivering

strong customer experience is a core pillar of our strategy and in

order to bring extra focus on this in FY24, we will be doubling the

weighting on NPS in our bonus scorecard from 10% to 20%.

Shareholder context

Our share price performance during the year has again been

volatile, but an upward trend in 2023 reflects improving market

confidence in our strategy, as we start to see the benefits of our

huge investment projects materialise. We’re confident that we

will deliver for our shareholders over the longer term. As planned,

we reinstated our dividend for FY22 and have continued to pay

dividends in FY23.

Performance and executive remuneration outcomes

for FY23

Annual bonus

For FY23, annual bonus performance was based on a scorecard of

seven key financial and non-financial measures that align to our

strategic priorities. Financial performance accounted for 70% of

the bonus scorecard and comprised the following measures:

– Adjusted EBITDA (35%) – despite the challenging economic

backdrop and inflationary headwinds, we have delivered on our

promise of £7.9bn in EBITDA for the year

– Normalised free cash flow (35%) – free cash flow was depressed

during the year as we continued to build at pace, but by the end

of Q4 we delivered normalised free cash flow of £1.3bn, in line

with our guidance.

Our non-financial measures accounted for 30% of the bonus

scorecard and comprised the following:

– Cus tomer (10%) – customer sentiment in the year was impacted

by the cost of living crisis, and our ability to support customers

was affected by the industrial action. Although NPS scores were

strong in Enterprise, at Group level we failed to meet our NPS

threshold target

– Converged networks (10%) – we have continued to drive sales

and delivery of the latest network technologies throughout the

year, with both FTTP and 5G metrics landing between target

and stretch

– Digital impact & sustainability (10%)

– Skills for tomorrow (5%) – we continue to deliver support

for our customers, families and small businesses, reaching

more than 920,000 people across the country during the year.

Performance was between target and stretch

– Carbon emissions intensity (5%) – strong progress was

made in the year on energy efficiency and reduction in energy

consumption across our estate, meaning performance was

above our stretch goal for the year. However, it also benefited

from unforeseen events outside of management’s control,

or strategic decisions such as a reduction to our recruitment

plans agreed part-way through the year. For scorecard

purposes, we removed the impact of these unforeseen

events, with the underlying result in line with threshold.

Further detail on the FY23 annual bonus scorecard can be found

on page 122.

The overall formulaic outcome of the bonus scorecard was 72.9%

of target. Taking account of the broader context described above,

the Committee agreed that this result was a fair and reasonable

reflection of the wider performance of the business and that

therefore no discretion needed to be exercised. Philip and Simon

will therefore be awarded bonuses of £962,590 and £656,440

respectively, half of which will be deferred into shares for three

years.

2020 Restricted Share Plan awards

The Committee carried out an assessment of the two underpins

applying to the 2020 Restricted Share Plan (RSP) awards (relating

to ROCE performance and ESG/reputational damage) and

determined that both had been satisfied.

The Committee is also cognisant of the need to avoid unreasonable

windfall gains: however, the 2020 RSP awards were reduced in

value by 20% at the point of grant to account for a fall in share price

prior to award, and accordingly the Committee agreed that the

potential vesting value of these awards remains appropriate and

that no further adjustment was required.

All three tranches of the 2020 RSP awards will therefore vest in full

in August 2023, 2024 and 2025 respectively. Tranches one and two

remain subject to a holding requirement until August 2025.

Policy review

Our Directors’ Remuneration Policy was last approved by

shareholders at the 2020 AGM and is therefore due to be put to a

binding vote again at the 2023 AGM in July.

A number of significant changes were made to the Policy in 2020,

including the introduction of the RSP, which were supported by

95% of shareholders. Following a thorough review, the Committee

has determined that the Policy remains fit for purpose, is well

aligned with our strategy and appropriately incentivises and

motivates senior executives to deliver shareholder value. We see

no reason to move away from the RSP model at this time and we’re

also comfortable that the Policy maxima remain appropriately

market-aligned.

110 BT Group plc Annual Report 2023

Whilst no changes to the Policy itself are proposed, we’re

proposing some changes to how the Policy will be implemented in

FY24, in particular increasing our focus on customer and diversity

and inclusion metrics within the annual bonus scorecard.

As part of the Policy review, we took the opportunity to engage

with some of our largest shareholders and proxy voting agencies,

and held a number of meetings with our shareholder community. As

always, the Committee and I are grateful for the valuable feedback.

Policy implementation in FY24

Base salary

Philip’s salary was fixed for five years on appointment and

therefore no increase will be made in FY24. Philip has also

volunteered to waive any salary increases beyond FY24.

As part of the delivery of the cost of living pay rise, it was agreed

that our regular annual salary review for UK managers will take

place in September rather than June. The Committee will therefore

consider any salary increase for Simon nearer this time when rates

for the wider workforce are known and this will be confirmed in the

2024 Report on directors’ remuneration.

Annual bonus

The annual bonus scorecard has been simplified for FY24, with an

increased focus on customer and diversity and inclusion:

– Unchanged on the prior year, financial measures will account

for 70% of the annual bonus scorecard, split equally between

Adjusted EBITDA and normalised free cash flow

– The remaining 30% of the annual bonus scorecard will be

designated as a transformation scorecard, emphasising key in-

year priorities. For FY24 the following ESG metrics are proposed:

– Group Net Promoter Score, with an increased weighting of

20%, reflecting the critical importance of providing strong

customer experience, and

– Diversity and inclusion, weighted 10%. D&I is fundamental to

our purpose as a business, and ensuring our colleagues reflect

the diversity of our customer base is critical to delivering our

growth plans. We firmly believe that diversity and inclusion

are intrinsically linked: an inclusive culture, driven by a

diverse and inclusive management team, will attract diverse

candidates into the business, and vice versa, so we will be

introducing both a diversity and an inclusion metric (each

equally weighted at 5% each)

Our diversity metric will measure representation of female,

ethnic minority and disabled colleagues within our senior

management population, alongside an inclusion index,

which will use a set of four questions from our employee

engagement survey to measure improvement in inclusion

sentiment over time.

Network (FTTP and 5G) and Skills for Tomorrow metrics will no

longer form part of the bonus: we have made significant progress

in these areas and they are now well-embedded in the business.

We believe it is the right time to prioritise new measures.

The Committee also believes that climate-related metrics are

better suited to longer-term measurement and so while carbon

emissions intensity no longer features in the annual bonus

scorecard, we’re introducing a new sustainability underpin

for future RSP awards.

The annual bonus remains subject to a health and safety underpin

and, if triggered, the Committee retains the discretion to reduce

the pay-out as it considers appropriate. The EBITDA underpin

which applied in FY23 was intended to apply for a single year

only and will be removed for FY24.

No changes are proposed to the structure of the bonus plan itself:

the on-target and maximum opportunity will remain at 120% and

200% of salary for both Philip and Simon, with 50% deferred into

shares for a period of three years.

RSP

Due to the deferral of our annual salary review described

above, the annual grant of RSP awards will also be delayed until

September. Our normal Policy grant level for Executive Directors is

200% of salary. The Committee will consider the actual grant value

for the 2023 awards nearer the time of grant, taking into account

the share price at the time. If the share price is materially lower than

the share price used to determine the 2022 awards, the Committee

will consider whether it is appropriate to reduce awards to mitigate

the risk of windfall gains.

As in prior years, these awards will vest in three equal tranches in

June 2026, 2027 and 2028, with all tranches subject to a holding

requirement until June 2028.

RSP awards are subject to two underpins, which have been revised

for 2023, measured over the initial three-year vesting period:

1. ROCE – average return on capital employed must be at least 7%

2. Sustainability – the business must have made sufficient progress

over the vesting period towards meeting our sustainability

commitments (this could include carbon emissions, carbon

abatement and circularity).

In relation to the ROCE underpin, the Committee concluded that in

light of the impact of market volatility on our WACC methodology,

it was appropriate to set the underpin as a fixed ROCE figure rather

than relative to WACC as in prior years.

In setting the level of ROCE at 7%, the Committee took into

account (1) the purpose of the underpin, being to avoid payment

for failure rather than representing a ‘target’ for success; and

(2) our expected ROCE performance over the next three years. The

latter factors in our decision to expand and accelerate connections

alongside our ambition to reach 25m premises with full fibre by

the end of 2026, a once-in-a-generation capital investment of

approximately £15bn that will both support the upgrade of the

UK’s digital economy into the future, and position BT Group to

deliver long-term returns to our shareholders.

Responsibility for assessing the sustainability underpin sits with

the Digital Impact & Sustainability Committee, which will provide

a recommendation to the Committee at the end of the underpin

period for their consideration. The Digital Impact & Sustainability

Committee has agreed a framework which will enable a robust

assessment of performance versus our specific sustainability

commitments.

Chairman and Non-Executive Director fees

No changes will be made to the fees payable to the Chairman and

Non-Executive Directors for FY24.

Finally, I will be stepping down from the BT Group Board at

the conclusion of the AGM in July, and will be succeeded in my

role as Chair of this Committee by Ruth Cairnie. I would like to

thank you for your support over the last three years. As always,

the Committee and I wish to maintain an open dialogue on

remuneration matters with our investors and I would welcome their

comments or feedback, and support, at the forthcoming AGM.

Sir Ian Cheshire

Chair of the Remuneration Committee

17 May 2023

Report on directors’ remuneration continued

Committee chair’s letter continued

111Corporate governance report

Focus on remuneration

Our remuneration principles are to maintain a

competitive remuneration package that promotes

the long-term success of the business, avoids

excessive or inappropriate risk taking and aligns

management’s interests with those of shareholders.

Below is how remuneration is aligned

with the principles of the Code.

Clarity

– Our remuneration framework is structured to support the

financial and strategic objectives of the group, aligning

the interests of our Executive Directors with those of

our shareholders

– We’re committed to transparent communication with

all stakeholders, including our shareholders

– The same annual performance framework applies to

all our management colleagues, including Executive

Directors, with aligned group and divisional metrics to

ensure a consistent focus.

Predictability

– The long-term RSP reflects that we operate in a tightly

regulated environment, ensuring a narrower but more

predictable range of reward and performance outcomes

to align with our business model.

Simplicity

– We operate a simple but effective remuneration

framework which is applied on a consistent basis

for all employees

– The annual bonus rewards performance against key

performance indicators, while the RSP provides long-

term sustainable alignment with our shareholders

– There is clear line of sight for management and

shareholders.

Risk

– Our incentives are structured to align with the group’s

risk management framework

– Three-year deferral under the annual bonus and a

five-year release period on RSP awards create long-

term alignment, as do our in- and post-employment

shareholding requirements

– The annual bonus, deferred bonus and RSP also

incorporate malus and clawback provisions, and there

is overarching Remuneration Committee discretion to

adjust formulaic outcomes.

Proportionality

– There is clear alignment between group performance,

strategic progress, and remuneration outcomes for our

Executive Directors

– Target total compensation levels are set competitively

compared to other companies of similar size and

complexity to ensure we can attract and retain the

executives needed to deliver the business strategy.

Maximum total compensation levels are typically set

lower than typical market practice to reflect the narrower

and more predictable range of performance outcomes for

BT Group

– Formulaic incentive outcomes are reviewed by the

Remuneration Committee and may be adjusted after

considering overall group performance and wider

workforce remuneration policies and practices.

Alignment to culture

– When considering performance, the Remuneration

Committee takes account of BT Group’s values

– The Remuneration Committee receives regular updates

on remuneration practices and policies for the wider

workforce, and colleagues may provide feedback to

the Board via the Colleague Board and the Designated

Non-Executive Director for workforce engagement

– We encourage all of our colleagues to become

shareholders in the business through the operation

of all-employee share plans.

112 BT Group plc Annual Report 2023

Focus on remuneration continued

FY23

£000

FY22

£000

Base salary 1,100 1,100

Pension allowance 110 110

Benefits 113 100

Total fixed pay 1,323 1,310

FY23

£000

FY22

£000

Annual bonus (shares)

481 660

Annual bonus (cash) 481 660

ISP (shares)

n/a 720

RSP (shares)

803 n/a

Total variable pay

1,766 2,040

Total 3,089 3,350

FY23

£000

FY22

£000

Annual bonus (shares)

328 441

Annual bonus (cash) 328 442

ISP (shares)

n/a 421

RSP (shares)

537 n/a

Total variable pay 1,193 1,304

Total 2,039 2 ,171

FY23

£000

FY22

£000

Base salary 748 735

Pension allowance 75 110

Benefits 23 22

Total fixed pay 846 867

Remuneration earned in FY23

Performance outcomes in FY23

Philip Jansen

Chief Executive

£000

Simon Lowth

Chief Financial Officer

£000

F F

V V

Annual bonus FY23

2020 RSP

Measure Payout (% of max)

Adjusted EBITDA 45%

Normalised free cash flow

41%

Group Net Promoter Score (NPS) 0%

5G customers

77%

FTTP connections

90%

Carbon emissions

30%

Skills for tomorrow

72%

a In line with the Policy, 50% of the annual bonus is deferred into shares

for three years.

b Performance against the adjusted cash flow measure was mid-way between

target and stretch, whilst performance against both the TSR and adjusted revenue

measures was below threshold. Accordingly, 19.1% of the total award vested in

August 2022. Further detail is set out on page 125.

c Both underpins have been satisfied for the 2020 RSP award and therefore all three

tranches of the 2020 RSP award will vest in full in August 2023, 2024 and 2025

respectively. Further detail is set out on page 122.

d The total variable pay for Philip does not cast due to roundings.

– Bonus was subject to seven measures of financial and

non-financial performance

– In line with the Policy, 50% of the annual bonus will be

deferred into shares for three years

– Both EBITDA and normalised free cash flow were

between threshold and target, and in line with our

guidance for the year

– NPS was below our Group threshold target

– Performance against our network and digital impact

metrics was stronger, ending the year above target

– Finally, our underlying carbon emissions performance

was in line with threshold.

– A conditional share award subject to two underpins over the initial three-year vesting period

– The Committee assessed the two underpins at the end of the restricted period and confirmed that both had been satisfied

– Accordingly, all three tranches of the 2020 RSP award will vest in full in August 2023, 2024 and 2025 respectively.

Tranches two and three are subject to a holding period until August 2025. Further detail is set out on page 122.

500

1,000

3,500

3,000

2,500

1,323

1,766

1,310

2,040

1,500

2,000

500

1,000

3,500

3,000

2,500

846

1,193

867

1,304

1,500

2,000

113Corporate governance report

Implementation of the Policy in FY24

Illustration of Policy

Fixed pay

Annual bonus

RSP

Philip Jansen

Chief Executive

Salary – £1,100,000

Benefits

Pension allowance –

10% of salary

Max. opportunity –

200% of salary

Target opportunity –

120% of salary

2023 award – 200% of salary

Simon Lowth

Chief Financial Officer

Salary – £750,147

Benefits

Pension allowance –

10% of salary

Max. opportunity –

200% of salary

Target opportunity –

120% of salary

2023 award – 200% of salary

Performance

measures

n/a – Adjusted EBITDA (35%)

– Normalised free cash flow (35%)

– Customer experience (20%)

– Diversity and inclusion (10%)

An underpin applies which allow the

Committee to exercise its discretion

to reduce the scorecard result if

there is a significant breach in health

and safety.

Awards subject to two underpins over

the initial three-year vesting period:

– Average ROCE must be at least 7%

– Sufficient progress is made

towards meeting our sustainability

commitments.

Framework n/a – 50% of any bonus payment for

FY24 will be deferred into shares

for three years

– Malus and clawback provisions

apply

– Full Committee discretion

available.

– Awards vest in three equal tranches

after three, four and five years; no

shares can be sold until year five

– Malus and clawback provisions

apply

– Full Committee discretion available.

FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31

Fixed pay

Base salary

Pension allowance

Benefits

Annual bonus

50% cash

50% deferred shares

RSP awards

Tranche 1

50% of the bonus deferred for three years

No shares

may be sold

until year five

Tranche 3

Underpins apply over three years

Malus and clawback up to two years after vesting of each tranche

a All of the annual bonus measures are linked to our key performance indicators (KPIs) as set out on pages 48 to 49.

114 BT Group plc Annual Report 2023

Directors’ Remuneration Policy

Directors’ Remuneration Policy (Policy)

This section of the report sets out our Policy which will be put

forward for shareholder approval at the AGM on 13 July 2023.

Subject to approval, this Policy will become effective on that date.

The Committee has carried out a full review of all elements of the

Policy and has determined that it remains fit for purpose, aligned

with our strategy, and appropriately incentivises and motivates

senior executives to deliver shareholder value. As such, no material

changes to the Policy are being proposed at this time.

Further details on the review and implementation are included

in the Committee Chair’s letter on pages 109 to 110.

Details on how the Policy will be implemented in FY24 are

provided on page 113.

Executive Directors

Base salary

Purpose – a core element of

remuneration, used to attract and

retain Executive Directors of

the calibre required to develop

and deliver our long-term

business strategy.

Operation

Salaries are reviewed annually, although an out-of-cycle review may be conducted if the

Remuneration Committee determines it appropriate.

A review may not necessarily lead to an increase in salary.

Salaries are normally paid monthly in cash.

The Remuneration Committee takes into account a number of factors when setting salaries,

including (but not limited to):

– the size and scope of the individual’s responsibilities

– the individual’s skills, experience and performance

– typical salary levels for comparable roles within appropriate pay comparators; and

– pay and conditions for our wider employee population.

Maximum opportunity

Whilst there is no maximum salary level, any increase will typically not exceed the range of increases

awarded to our wider employee population.

Higher increases may be made under certain circumstances, such as:

– increase in the scope and/or responsibility of the individual’s role on either a permanent or

temporary basis

– development of the individual within their role

– where an Executive Director has been appointed to the Board at a lower than typical level of

salary, for example to reflect a lower level of experience, larger increases may be awarded to

move them closer to the market rate as their experience develops

– where there has been a significant change in market practice, or the size and scope of

BT Group plc, and

– other exceptional circumstances.

Performance measures

None

Benefits

Purpose – to support health and

wellbeing and provide employees

with a market-competitive

level of benefits, ensuring the

attraction and retention of key

talent to deliver our strategy.

Operation

Executive Directors receive benefits which typically include (but are not limited to) car benefits

(which may include any of a company car, cash allowance in lieu, fuel allowance, and driver), personal

telecommunication facilities and home security, medical and dental cover for the directors and

their immediate family, life cover, professional subscriptions, personal tax advice and a financial

counselling allowance of up to £5,000 (excluding VAT) a year.

Where Executive Directors are required to relocate, the Remuneration Committee may offer one-

off or ongoing relocation benefits, and additional expatriate benefits, if considered appropriate.

Expenses incurred in the performance of an Executive Director’s duties for BT Group may be

reimbursed (including any relevant taxes due thereon) or paid directly by BT Group, as appropriate.

BT Group plc purchases directors’ and officers’ liability insurance to cover the directors, and has

in place a directors’ and officers’ indemnity. The insurance operates to protect the directors in

circumstances where, by law, BT Group cannot provide the indemnity.

Further details of the directors’ and officers’ liability insurance and indemnity are set out on

page 132.

Maximum opportunity

While no maximum level of benefits is prescribed, they are generally set at an appropriate market-

competitive level determined by the Remuneration Committee, taking into account a number of

factors including:

– the jurisdiction in which the employee is based

– the level of benefits provided for other employees within the group; and

– market practice for comparable roles within appropriate pay comparators in that jurisdiction.

The Remuneration Committee keeps the benefit policy and benefit levels under regular review.

Performance measures

None

115Corporate governance report

Pension

Purpose – to attract and retain

Executive Directors of the right

calibre by providing market

competitive post-retirement

income, ensuring the attraction

and retention of key talent to

deliver our strategy.

Operation

Executive Directors currently receive a cash allowance in lieu of pension. The Remuneration

Committee may determine that alternative pension provisions will operate. When determining

pension arrangements for new appointments, the Remuneration Committee will give regard to:

– pension arrangements received elsewhere in the group; and

– relevant market practice including in the jurisdiction in which the Executive Director is based.

Maximum opportunity

The maximum cash allowance (or equivalent contribution to an Executive Director’s pension, or

combination of the two) may not exceed the equivalent level of pension contribution offered to

the majority of the workforce in their local jurisdiction (currently 10% of salary in the UK).

Performance measures

None

Annual bonus

Purpose – to incentivise and

reward delivery of our business

plan on an annual basis.

Operation

Executive Directors are eligible for an annual bonus.

Awards are based on performance in the relevant financial year, and are not pensionable.

Up to half of any bonus earned will normally be paid in cash, with the remainder granted in the form

of deferred share awards to further strengthen the alignment of management’s interests with the

long-term interests of shareholders. Deferred share awards will normally vest, subject to continued

employment, after three years.

Both cash and deferred elements are subject to BT Group’s malus and clawback provisions, which

are described in more detail on page 120.

Maximum opportunity

The maximum annual bonus opportunity for the Executive Directors is 200% of base salary.

Up to 25% of the maximum under each element is payable for threshold performance and 60%

of the maximum is normally payable for target performance.

Performance measures

The Remuneration Committee sets annual bonus performance measures and targets each year,

taking into account key strategic priorities and the approved budget for the year.

Measures used typically include, but are not limited to:

– financial performance measures – these are chosen carefully to ensure alignment between reward

and underlying financial performance. As an example, such measures may include normalised free

cash flow and EBITDA, and

– non-financial performance measures – these reflect key BT Group strategic goals. For example,

such measures may include network, transformation, customer experience and other ESG goals.

Financial measures will typically account for at least 50% of the total annual bonus.

The Remuneration Committee ensures that targets set are appropriately stretching in the context

of the corporate plan, as well as other internal and external factors, and that there is an appropriate

balance between incentivising Executive Directors to meet targets, while ensuring that they do not

drive unacceptable levels of risk or inappropriate behaviours.

The Remuneration Committee has full discretion to adjust outcomes under the annual bonus plan

up or down where:

– the formulaic outcome does not reflect the underlying financial or non-financial performance

of BT Group plc

– the payout level is not appropriate in the context of circumstances that were unexpected or

unforeseen at the start of the year; and/or

– there exists any other reason why an adjustment to the level of bonus payout is appropriate.

116 BT Group plc Annual Report 2023

Directors’ Remuneration Policy continued

Executive Directors continued

Restricted

Share Plan (RSP)

Purpose – to provide a simple,

long-term element of reward

which creates alignment with our

shareholders.

Operation

Executive Directors are eligible to participate in the RSP, which forms the long-term variable

element of executive remuneration.

Awards are discretionary and normally vest, subject to continued employment, in three equal tranches

after three, four and five years. The net number of shares vesting (i.e. after tax and other statutory

deductions) under the first two tranches are subject to a further holding period until year five.

Maximum opportunity

Under normal circumstances, awards granted to Executive Directors in respect of any financial year

may be no higher than 200% of salary.

Under exceptional circumstances, for example on recruitment, a higher limit of 250% of salary applies.

Performance measures

RSP awards are subject to one or more underpins over a period which is normally three financial

years commencing with the year in which the awards were granted.

These underpins are designed with the protection of BT Group in mind, to ensure an acceptable

threshold level of performance is achieved and that vesting is warranted. The underpins applying

to each award will be determined by the Remuneration Committee each year, and may be a

combination of financial and non-financial assessments.

If the underpins are not met, the Remuneration Committee may consider a reduction to the final

vesting level of the RSP awards (including to nil).

Even where the underpins are met, the Remuneration Committee has discretion to adjust the

number of shares vesting up or down where:

– the vesting outcome does not reflect the underlying financial or non-financial performance of

BT Group plc

– the vesting level is not appropriate in the context of circumstances that were unexpected or

unforeseen at the point the awards were granted; and/or

– there exists any other reason why an adjustment to the level of vesting of the award is appropriate.

Vested and unvested RSP awards are subject to BT Group’s malus and clawback provisions, which

are described in more detail on page 120.

All-employee

share plans

Purpose – to encourage wider

employee share ownership.

Operation

Executive Directors may participate in any all-employee share plans operated by BT Group plc

on the same basis as other eligible employees.

Maximum opportunity

All participants may participate up to the limits operated by BT Group plc at the time, which are

set in line within any relevant statutory limits.

Performance measures

None

Shareholding requirement

Purpose – to ensure that

Executive Directors build and

hold a stake in BT Group plc,

providing alignment with

shareholders’ interests.

Operation

Executive Directors are required to build up and maintain a shareholding equivalent to 500% of

their annual salary. It is expected that this requirement is met within five years of an executive’s

appointment to the Board.

Shares counted towards satisfaction of the requirement include:

– beneficially-owned shares

– vested share awards subject to a holding period

– unvested Deferred Bonus Plan (DBP) awards, counted on a net-of-tax basis; and

– unvested RSP awards subject to underpins, also counted on a net-of-tax basis.

Until such time that the requirement has been satisfied, Executive Directors will not be permitted

to sell any vesting incentive awards (other than to satisfy tax or other statutory liabilities on vesting,

or at the discretion of the Remuneration Committee in exceptional circumstances).

The shareholding requirement will continue to apply for a period of two years post-cessation of

employment, to the same value as the in-employment requirement (or the total number of shares

held immediately prior to cessation of employment, if lower).

Maximum opportunity

N/A

Performance measures

None

117Corporate governance report

Chairman and Independent Non-Executive Directors

Chair of the Board

Chair fee is a core element of

remuneration, paid for fulfilling

the relevant role. Set at a level

to ensure that we’re able to

attract and retain a high-calibre

individual appropriate for the role.

Operation

The Chair of the Board receives a single all-encompassing fee for their role, which is normally

inclusive of any additional responsibility fees, paid monthly in cash. In exceptional circumstances

additional fees may be introduced to reflect additional time commitments.

The Chair may also be eligible for certain benefits in line with those which may be offered to

Executive Directors, other than any pension benefits, annual bonus or share incentives.

Expenses incurred in the performance of non-executive duties for BT Group may be reimbursed

(including any relevant taxes due thereon) or paid directly by BT Group, as appropriate.

Opportunity

The fee is set at a level which is considered appropriate to attract and retain an individual of the

necessary calibre.

The fee level is normally set by reference to the level of fees paid to board chairs of similarly-sized,

UK-listed companies, taking into account the size, responsibility and time commitment required of

the role.

The fee may be reviewed (but not necessarily increased) on an annual basis.

The current fee level can be found in the Annual Report on Remuneration on page 126.

BT Group plc’s Articles of Association limit the maximum aggregate fees payable to all independent

Non-Executive Directors.

Other Independent Non-

Executive Directors

Fees paid to Independent Non-

Executive Directors are a core

element of remuneration, paid for

fulfilling the relevant role. Set at

a level to ensure that we’re able

to attract and retain high-calibre

individuals appropriate for the role.

Operation

Independent Non-Executive Directors receive a basic fee, paid monthly in cash, in respect of their

Board duties.

Further fees may be paid for additional responsibilities, or additional time commitments, including

but not limited to: chairing or membership of Board committees, for the role of Senior Independent

Director, or for holding the role of Designated Non-Executive Director for workforce engagement.

Additional fees of up to £6,000 may also be payable to Independent Non-Executive Directors

undertaking regular intercontinental travel to attend Board and committee meetings.

Independent Non-Executive Directors are not eligible for annual bonus, share incentives, pensions

or other benefits.

Reasonable expenses incurred in the performance of non-executive duties for BT Group may be

reimbursed (including any relevant taxes due thereon) or paid directly by BT Group, as appropriate.

Opportunity

Fees are set at a level which is considered appropriate to attract and retain Independent Non-

Executive Directors of the necessary calibre.

Fee levels are normally set by reference to the level of fees paid to Independent Non-Executive

Directors serving on boards of similarly-sized, UK-listed companies, taking into account the size,

responsibility and time commitment required of the role.

Fees may be reviewed (but not necessarily increased) on an annual basis.

Current fee levels can be found in the Annual Report on Remuneration on page 126.

BT Group plc’s Articles of Association limit the maximum aggregate fee payable to all Independent

Non-Executive Directors. The maximum is based on non-executive director fees benchmarked as at

1 April 1999 with increases linked to the Retail Price Index.

Notes to the Policy table

1 For further information on the performance measures and underpins applicable to the annual bonus and RSP see page 126.

2 In the event of death, the Chief Financial Officer receives a dependent pension provision of 30% of salary (capped), as a legacy provision payable under a previous Policy.

3 Common award terms

Awards under any of BT Group plc’s share plans referred to in this report may:

– incorporate the right to receive the value of dividends that would have been paid on the shares subject to an award that vests, which may be calculated assuming the shares were

reinvested in shares on a cumulative basis. This value will normally be delivered in the form of additional shares, but may be paid in cash in exceptional circumstances

– be granted as conditional share awards, nil-cost options or in such other form that the Remuneration Committee determines has the same economic effect

– have any performance conditions applicable to them varied or substituted by the Remuneration Committee if an event occurs which causes the Remuneration Committee to

determine that the performance conditions no longer achieve their original purpose, provided that the varied or substituted performance condition would not be materially less

difficult to satisfy; and

– be adjusted in the event of any variation of BT Group plc’s share capital or any demerger, special dividend or other event that may affect the current or future value of awards.

118 BT Group plc Annual Report 2023

Recruitment

Our recruitment policy is based on a number of key principles:

– we aim to provide a remuneration package which is sufficient to

attract, retain and motivate key talent, while at all times ensuring

that we pay no more than is necessary, with due regard to the

best interests of BT Group plc and our shareholders

– the Remuneration Committee will take a number of factors into

account in determining an appropriate remuneration package.

For example, these may typically include the candidate’s

experience and calibre, their circumstances, external market

influences and arrangements for existing Executive Directors

– the ongoing remuneration package offered to new Executive

Directors will only include those elements listed within the

Policy table

– the Remuneration Committee may also consider providing one-

off or ongoing relocation benefits, as well as additional benefits

to expatriate appointments, where appropriate; and

– the Remuneration Committee will provide full details of the

recruitment package for new Executive Directors in the Annual

Report on Remuneration and will provide shareholders with the

rationale for the decisions that were taken.

The maximum level of variable pay (excluding buyouts, for which

see below) which may be awarded in respect of a recruitment

event (internal or external), will not exceed 450% of base salary,

representing the aggregated maximum award under the annual

bonus and RSP.

In addition, to facilitate recruitment, the Remuneration Committee

may make awards to buy out remuneration or contractual

entitlements which the individual would forfeit at their current

employer. The Remuneration Committee will give consideration to

any relevant factors, typically including the form of the award (e.g.

cash or shares), the proportion of the performance/vesting period

outstanding and the potential value of the forfeited remuneration,

including performance conditions attached to the awards, the

likelihood of those conditions being met, and the timing of any

potential payments.

In making buyout awards, the Remuneration Committee may

grant awards under our existing incentive arrangements or use the

relevant provision in the Listing Rules. This allows for the granting

of awards specifically to facilitate the recruitment of an Executive

Director, without seeking prior shareholder approval. In doing

so, the Remuneration Committee will comply with the relevant

provisions in force at the time.

Where an Executive Director is appointed from within the

organisation, BT Group will honour any legacy arrangements

in line with their original terms and conditions.

In the event of the appointment of a new Non-Executive Director,

remuneration arrangements will be in line with those detailed

on page 126.

Payment for loss of office

In a departure event, the Remuneration Committee will typically

consider:

– whether any element of annual bonus should be paid for the

financial year. Any bonus which is paid will normally be limited

to the period served during the financial year in which the

departure occurs

– whether any outstanding deferred bonus awards should be

preserved either in full or in part; and

– whether any awards under the RSP or LTI scheme should be

preserved either in full or in part and, if relevant, whether the

post-vesting holding period should apply.

The Remuneration Committee has historically maintained a

discretionary approach to the treatment of leavers, on the basis

that the facts and circumstances of each case are unique. This

provides the Remuneration Committee with the maximum

flexibility to review the facts and circumstances of each case,

allowing differentiation between good and bad leavers and

avoiding payment for failure.

When considering a departure event, there are a number of

factors which the Remuneration Committee takes into account in

determining appropriate treatment for outstanding incentive awards.

These include:

– the position under the relevant plan documentation or any

contractual entitlements

– the individual circumstances of the departure

– the performance of BT Group plc/the individual during the year

to date; and

– the nature of the handover process.

DBP

Good

leaver

Retained in full, normally vesting on their usual

timeframe.

In the case of death, awards are accelerated such

that they vest on the date of death.

Bad leaver Forfeit on cessation, subject to discretion.

RSP

Good

leaver

Retained, subject to pro-ration for portion of the

three-year initial vesting period served, vesting on

the normal timeframe, subject to the satisfaction of

any performance conditions or underpins. The post-

vesting holding period usually continues to apply as

normal. On death, awards are accelerated such that

they vest on the date of death. All retained awards

are subject to pro-ration for the portion of the

initial three-year vesting period served, and subject

to the Remuneration Committee’s assessment

of satisfaction of any performance conditions or

underpins applying, measured at or close to the date

of death.

Bad leaver Forfeit on cessation, subject to discretion.

In some cases, the treatment is formally prescribed

under the rules of the relevant plan so that where

there are ‘good leaver’ circumstances, including

death, injury, ill-health, disability, redundancy or sale

of BT Group plc or business.

The Remuneration Committee considers the leaver

circumstances along a continuum, ranging from ‘bad

leaver’ scenarios such as termination of employment

for gross misconduct or resignation, through to the

‘good leaver’ scenarios outlined above.

Accordingly, subject to the relevant plan rules, the

Remuneration Committee may apply (or disapply)

such performance conditions or underpins or time

pro-rating to awards vesting in these circumstances

as it considers appropriate.

Directors’ Remuneration Policy continued

119Corporate governance report

All-employee plans

The treatment of awards under BT Group plc’s all-employee plans

on leaving is as determined under the respective HMRC-approved

rules. For saveshare, someone who ceases to be an employee in

special circumstances (for example injury, disability, death, or

following sale of BT Group plc or business where they work) may

exercise the option within six months after leaving (or 12 months

in the case of death) or the relevant corporate event. If someone

leaves for a reason not falling within special circumstances, the

option lapses on the date the individual leaves.

Change of control

In the event of a takeover or scheme of arrangement involving

BT Group plc, DBP and RSP awards will vest, at a minimum, to

the extent that any applicable performance measures have been

satisfied at the time (subject to the Remuneration Committee’s

discretion to determine the appropriate level of vesting, having

regard to such relevant factors as it decides to take into account). If

the acquiring company offers to exchange awards over BT Group plc

shares for awards over its shares (or shares in another company),

awards may, if the Remuneration Committee determines, be

exchanged and continue under the rules of the relevant plan.

In the event of a voluntary winding up of BT Group plc, awards

may vest on the members’ resolution to voluntarily wind-up

BT Group plc being passed.

Executive Director service contracts

The other key terms of the service contracts for the current

Executive Directors are set out below. The termination provisions

described above are without prejudice to BT Group’s ability in

appropriate circumstances to terminate in breach of the notice

period referred to above, and thereby be liable for damages to the

Executive Director. In the event of termination by BT Group plc,

each Executive Director may have entitlement to compensation in

respect of his or her statutory rights under employment protection

legislation in the UK.

Where appropriate, BT Group may also meet a director’s

reasonable legal expenses in connection with either his or her

appointment or termination. BT Group plc may, where appropriate

and reasonable, cover the cost of outplacement services.

There are no other service agreements, letters of appointment or

material contracts, existing or proposed, between BT Group plc

and the Executive Directors.

Notice period

12 months’ notice by BT Group plc, six months’ notice by the

Executive Director (there is no fixed expiry date).

Termination payment

– In lieu of giving an Executive Director 12 months’ notice,

BT Group plc may terminate the director’s contract and make a

payment in lieu of notice to which the director was entitled if he

or she had received salary and to the extent no longer payable

the value of contractual benefits for the period; and

– the payments in lieu will be payable in equal monthly instalments

until the date on which the notice period would have expired

or (if earlier) the date on which the director secures alternative

employment with the same or higher basic salary or fee. In the

event that the director secures alternative employment at a

basic salary of £30,000 or higher, but lower than their salary,

payment in lieu will be reduced by the amount of the new lower

salary received. The Board retains the right to lower the payment

in lieu of the director’s new employment if it considers the new

employment terms of the director are not appropriately balanced

between basic salary and other elements, and may cease making

payments entirely where the Board is not satisfied the director is

making reasonable efforts to secure alternative employment.

Remuneration and benefits

– Participation in the annual bonus, long-term incentive and other

share plans, is non-contractual.

– Other benefits which typically include (but are not limited

to) car benefits (which may include any of a company car,

cash allowance in lieu, fuel allowance, and driver), personal

telecommunication facilities and home security, medical and

dental cover for the directors and their immediate family, life

cover, professional subscriptions, personal tax advice and

financial counselling up to a maximum of £5,000 (excluding VAT)

a year.

Illustration of Executive Director pay scenarios

Our Policy aims to ensure that a significant proportion of pay is

dependent on the achievement of stretching performance targets.

The Remuneration Committee has considered the level of total

remuneration that would be payable under different performance

scenarios and is satisfied that, as the graphs illustrate, executive

pay is appropriate in the context of the performance required and

is aligned with shareholders’ interests.

The illustrative scenarios below set out the total remuneration that

might be achieved by each Executive Director for different levels of

performance, based on our Policy.

The minimum reflects base salary, benefits and pension only which

are not performance-related.

Fixed pay

All scenarios Consists of total fixed pay – base

salary, benefits and pension

– Base salary – salary effective

as at 1 June 2023

– Benefits – value of benefits

provided to each director in

FY23

– Pension – cash allowance

effective 1 April 2023,

being 10% of salary for both

Executive Directors.

Variable

pay

Minimum – No payout under the annual

bonus

– No vesting under the RSP

On target – On-target payout under the

annual bonus of 120% of salary

– Full vesting of the RSP at 200%

of salary

Maximum – Maximum payout under the

annual bonus of 200% of salary

– Full vesting of the RSP at 200%

of salary.

Maximum

+50% share

price increase

– Maximum payout under the

annual bonus of 200% of salary

– Full vesting of the RSP at 200%

of salary, with a 50% share

price increase applied.

Fixed pay is calculated as follows:

£000 Salary Benefits Pension

Total fixed

pay

Chief Executive 1,100 113 110 1,323

Chief Financial Officer 750 23 75 848

120 BT Group plc Annual Report 2023

RSP awards have been shown at face value, with no share price

growth or discount rate assumptions, other than the fourth

scenario which includes an uplift of 50% on the restricted share

awards. All-employee plans have been excluded, as have any

legacy awards held by Executive Directors.

Philip Jansen

Minimum

Maximum

+50% SP increase

On-target

£5,723

£6,823

£4,843

Annual bonusFixed pay RSP

£1,323

£000

Simon Lowth

Minimum

Maximum

+50% SP increase

On-target

£3,849

£4,599

£3,249

Annual bonusFixed pay RSP

£848

£000

Malus and clawback

Both annual bonus and long-term incentive arrangements are

subject to malus and clawback. Under the malus provision, the

Remuneration Committee may apply its discretion to reduce

(including to nil) any DBP or RSP award prior to the award vesting,

if circumstances arise which justify a reduction.

Under the clawback provision, the Remuneration Committee has

discretion to require an employee to pay back to BT Group plc

part or all of the cash part of the annual bonus within one year of

payment. The Remuneration Committee also has discretion to

require an employee to pay back part or all of a vested long-term

incentive plan award within two years of the award or respective

tranche vesting.

The circumstances in which the Remuneration Committee may

consider it appropriate to apply clawback and/or malus include,

but are not limited to those summarised below:

– behaviour by a participant which fails to reflect BT Group’s

governance and business values

– the extent to which any condition was satisfied was based on an

error, or on inaccurate or misleading information or assumptions

which resulted either directly or indirectly in an award being

granted or vesting to a greater extent than would have been

the case had that error not been made

– material adverse change in the financial performance of

BT Group plc or any division in which the participant works

and/or worked

– a material financial misstatement of BT Group plc’s audited

financial accounts (other than as a result of a change in

accounting practice)

– any action which results in or is reasonably likely to result in

reputational damage to BT Group plc

– a material failure in risk management

– corporate failure

– negligence or gross misconduct of a participant; and/or

– fraud effected by or with the knowledge of a participant.

Other elements of remuneration are not subject to malus and

clawback provisions.

Consideration of remuneration arrangements

throughout the group

The Remuneration Committee considers the pay and conditions

of employees throughout BT Group when determining the

remuneration arrangements for Executive Directors, and is

provided with relevant information and updates by the Chief Human

Resources Officer. Whilst we do not consult directly with colleagues

on executive remuneration arrangements, the Committee receives

regular updates from the Colleague Board via the Designated Non-

Executive Director for workforce engagement.

Further detail on pay conditions within BT Group are provided in

Remuneration in context on page 129.

Consideration of shareholder views

The Remuneration Committee is strongly committed to an open

and transparent dialogue with shareholders on remuneration

matters. We believe that it is important to meet regularly with our

key shareholders to understand their views on our remuneration

arrangements and discuss our approach going forward.

The Remuneration Committee will continue to engage with

shareholders and will aim to consult on any material changes

to the Policy or other relevant matters.

Summary of decision-making process

and changes to the Policy

During the year, the Remuneration Committee undertook a review of

the Policy and its implementation to ensure that the Policy supports

the execution of strategy and the delivery of sustainable long-term

shareholder value. Throughout the review process, the Remuneration

Committee took into account the 2018 UK Corporate Governance

Code, wider workforce remuneration and emerging best practice

in relation to Executive Director remuneration, as well as input from

management and its independent advisors. The Remuneration

Committee considers that the overall remuneration framework remains

appropriate to continue to incentivise management to drive long-term

sustainable performance for shareholders and as such, no significant

changes are proposed to the Policy.

Minor changes have been made to the wording of the Policy to aid

operation and to increase clarity. The Remuneration Committee

believes that the proposed Policy is clear and transparent and

aligned with our culture and considers that it complies with

Provision 40 of the 2018 UK Corporate Governance Code.

Legacy matters

The Remuneration Committee can make remuneration payments

and payments for loss of office outside of the Policy set out

above where the terms of the payment were agreed (i) before

the Policy set out in this report came into effect, provided that

the terms of the payment were consistent with any applicable

policy in force at the time they were agreed; or (ii) at a time when

the relevant individual was not a director of BT Group plc (or

another person to whom the Policy set out above applies) and

that, in the opinion of the Remuneration Committee, the payment

was not in consideration for the individual becoming a director

of BT Group plc (or taking on such other applicable position).

This includes the exercise of any discretion available to the

Remuneration Committee in connection with such payments. For

these purposes, payments include the Remuneration Committee

satisfying awards of variable remuneration and, in relation to an

award over shares, the terms of the payment are agreed at the time

the award is granted.

Minor amendments

The Remuneration Committee may make minor amendments to

the arrangements for the directors as described in the Policy, for

regulatory, exchange control, tax or administrative purposes, or

to take account of a change in legislation.

Directors’ Remuneration Policy continued

121Corporate governance report

Annual remuneration report

This section summarises all elements of the directors’ remuneration in FY23.

References to ‘audited’ refer to an audit performed in accordance with UK statutory reporting requirements.

Single total figure of remuneration (audited)

The following table sets out all emoluments received by directors for FY23 and FY22, including bonus and deferred bonus, long-term

incentive plans and pension arrangements.

Fixed pay

Variable pay

Basic salary

and fees

£000

Benefits

£000

Pension

£000

Total

fixed pay

£000

Annual bonus

£000

Long-term

incentives

£000

Total

variable pay

£000

Total

£000

FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23

FY22

FY23 FY22 FY23 FY22

Chairman

Adam Crozier 700 292 12 1 712 293 712 293

Executive Directors

Philip Jansen 1,100 1,100 113 100 110 110 1,323 1,310 963 1,320 803 720 1,766 2,040 3,089 3,350

Simon Lowth 748 735 23 22 75 110 846 867 656 883 537 421 1,193 1,304 2,039 2,171

Non-Executive Directors

Adel Al-Saleh

0 0 0 0

Maggie Chan Jones

8 8 – – 8 0

Ian Cheshire 155 144 155 144 – – 155 144

Iain Conn 163 162 163 162 – – 163 162

Steven

Guggenheimer

h,i,j

48 15 63 – – 63 0

Isabel Hudson

146 145 1 1 147 146 – – 147 146

Matthew Key

150 137 1 151 137 – – 151 137

Allison Kirkby

125 124 8 133 124 – – 133 124

Sara Weller 138 131 138 131 – – 138 131

Sub-total 3,481 2,970 173 124 185 220 3,839 3,314 1,619 2,203 1,340 1,141 2,959 3,344 6,798 6,658

Former directors

Leena Nair

39 116 39 116 39 116

Total 3,520 3,086 173 124 185 220 3,878 3,430 1,619 2,203 1,340 1,141 2,959 3,344 6,837 6,774

a Benefits provided to the Executive Directors and the Chairman typically include (but are not limited to) car benefits (which may include any of a company car, cash allowance

in lieu, fuel allowance, and driver), personal telecommunication facilities and home security, medical and dental cover for the directors and their immediate family, life cover,

professional subscriptions, personal tax advice and financial counselling up to a maximum of £5,000 (excluding VAT) a year. For Philip, the value includes a company provided car

and personal driver to the value of c. £86,000 (FY22: £70,000).

b Pension allowance paid in cash for the financial year – see ‘Pension allowance’ on page 122.

c Annual bonus shown includes both the cash and deferred share element. The deferred element of the FY23 bonus includes the value of deferred shares to be granted in June

2023. Further details of the deferred element are set out on page 122.

d Value shown represents the estimated value of the first tranche of the RSP awards granted in 2020 that will vest in full in August 2023. The estimate is based on a three-month

average share price from 1 January 2023 to 31 March 2023 of 135.88p. Further details are provided on page 122.

e 19.1% of the total ISP 2019 granted in June 2019 vested in August 2022. Further details are provided on page 125.

f Adel was appointed as a director on 15 May 2020. Under the terms of the Relationship Agreement between BT Group and Deutsche Telekom and Adel’s letter of appointment, no

remuneration is payable for this position.

g Maggie was appointed as a director on 1 March 2023 and the figure represents her pro-rated remuneration during the year.

h Steven was appointed as a director on 1 October 2022 and the figure represents his pro-rated remuneration during the year.

i Includes an additional fee for regular intercontinental travel to attend Board and Board Committee meetings in line with the Policy.

j Value shown relates to reimbursement of reasonable travelling and other expenses (including any relevant tax) incurred in carrying out their duties.

k Leena stepped down as a Director at the conclusion of the AGM on 14 July 2022 and the figure represents her pro-rated remuneration during the year.

Additional disclosures relating to the single figure table (audited)

Salaries and fees

Executive Directors’ salaries are reviewed annually, with any increases typically effective from 1 June. A 2% increase to Simon Lowth’s

salary was agreed from 1 June 2022 in line with increases for our UK senior management team, bringing Simon’s salary to £750,147. Philip’s

salary of £1,100,000 was fixed for five years at the time of his appointment in January 2019.

Adam joined on 1 November 2021 as a Non-Executive Director and Chairman designate and became Chairman on 1 December 2021. The

Committee agreed a fee of £700,000 per year on appointment. The Chairman volunteered to waive any fee increase during FY23.

The fees for Non-Executive Directors reflect committee-related or other additional responsibilities, including on a pro-rated basis for any

appointments during the year. A full breakdown of Non-Executive Director fees is set out on page 126.

122 BT Group plc Annual Report 2023

For scorecard purposes, the EBITDA result assumes an on-target

bonus payout for all colleagues. Actual post-bonus EBITDA for

FY23 is £7,928m.

As part of its normal process, the Committee agreed

appropriate adjustments to the EBITDA and normalised free

cash flow target ranges to account for items not included in the

targets at the start of the year, including the tax super-deduction

and sale of BT Sport (including changes to accounting treatment).

These amendments had the impact of reducing the formulaic

outcome of the bonus scorecard.

The formulaic outcome under the carbon emissions metric was a

56% reduction. Strong progress was made in the year on energy

efficiency and reduction in energy consumption across our estate.

However, we also benefited from unforeseen events outside of

management’s control, or strategic decisions such as a reduction

to our recruitment plans agreed part-way through the year. For

scorecard purposes, the Committee removed the impact of these

unforeseen events, with the underlying result in line with threshold

at a 50% reduction.

When determining the overall performance and bonus pay-outs,

the Committee also considers a number of other factors including

share price performance, the external environment and overall

affordability. The Committee agreed that the formulaic outcome

of 72.9% of target was a fair reflection of performance in the year

and that no further adjustments were warranted.

The final bonus outturns for the Executive Directors are set out in

the table below:

Formulaic

outcome

% of

max Value

Philip Jansen 72.9% of target 43.7% £962,590

Simon Lowth 72.9% of target 43.7% £656,440

As per the Policy, 50% of the FY23 annual bonus will be deferred

into shares for three years.

2020 RSP

The RSP is a conditional share award. Two underpins applied over

the initial three-year vesting period:

– ROCE is equal to or exceeds the WACC over the same period

– there must have been no ESG issues which have resulted in

material reputational damage for the group.

The Committee assessed performance against the two underpins at

the end of the financial year and agreed that both had been satisfied.

The Committee also considered share price performance over the

vesting period and the absolute value of vesting awards. Noting that

a 20% reduction to the award values was made at the point of grant,

the Committee agreed that the value of the 2020 RSP awards was

appropriate and that no further adjustment was required.

As a result, all three tranches of the 2020 RSP award will vest in full

in August 2023, 2024 and 2025 respectively. Tranches one and two

remain subject to a holding requirement until August 2025.

Pension allowance

Executive Directors receive an annual cash allowance, which can be put towards the provision of retirement benefits.

Both Executive Directors received an annual allowance of 10% of salary. This is aligned with the contribution rate available to the majority

of our UK employees. We also provide death in service cover consisting of a lump sum equal to four times salary, and for Simon Lowth only,

a dependants’ pension equal to 30% of his capped salary.

Annual bonus

Both Executive Directors were eligible for an on-target bonus in respect of FY23 of 120% of salary with a maximum opportunity of 200%

of salary. The annual bonus is based on performance against a scorecard of seven key financial and non-financial measures linked to our

KPIs as set out on pages 48 to 49.

Category Measure Weighting Threshold Target Stretch Actual Payout (% of max)

Financial Adjusted EBITDA (£m) 35% 7,747 7,947 8,247 7,848 45%

Normalised free cash flow (£m) 35% 1,252 1,452 1,752 1,328

41%

Customer Group NPS 10% 0 100 200 0 0%

Converged networks 5G customers (000s) 5% 7,436 8,262 9,088 8,606

77%

FTTP connections (000s) 5% 2,617 2,908 3,199 3,124

90%

Digital impact

& sustainability

Reduction in carbon emissions (%) 5% (50) (52) (54) (50)

30%

Skills for Tomorrow (000s) 5% 600 800 1,200 920

72%

Formulaic outcome 43.7% of max (72.9% of target)

Annual remuneration report continued

123Corporate governance report

Awards granted during the year (audited)

2022 RSP

The 2022 RSP awards were made in June 2022 as set out below

and on page 125. An award of 200% of salary was made to both

Executive Directors in line with the normal Policy level. The face

value was based on the BT Group plc share price at the date of

grant of 184.35p. The grant price is calculated using the average

middle-market price of a BT Group plc share for the three dealing

days prior to grant.

Director Date of award

RSP award

(shares)

Face value

of award

Philip Jansen 24 June 2022 1,195,652 £2,200,000

Simon Lowth 24 June 2022 815,376 £1,500,294

These awards are conditional share awards. Two underpins apply

over the initial three-year vesting period:

– ROCE is equal to or exceeds WACC over the same period

– there must have been no ESG issues which have resulted in

material reputational damage for the group.

Should one or both underpins not be met, the Committee may at its

discretion reduce the number of shares vesting, including to nil.

Awards will vest in three equal tranches after three, four and five

years, with an additional holding period such that no shares may be

sold until year five. At vesting, additional shares representing the

value of reinvested dividends on the underlying shares are added.

Malus and clawback provisions apply as set out in the Policy, and

the Committee retains the ultimate discretion to adjust vesting

levels to ensure alignment with our overall performance.

Details of all interests under the RSP are set out on page 125.

2022 deferred shares

In line with the Policy, 50% of the bonus awarded for FY22 was

deferred into shares. The awards were made under the deferred

bonus plan (DBP) in June 2022 as set out below and on page 125.

The face value was based on the BT Group plc share price at the

date of grant of 184.35p. The grant price is calculated using the

average middle-market price of a BT Group plc share for the three

dealing days prior to grant.

Director Date of award

DBP award

(shares)

Face value

of award

Philip Jansen 24 June 2022 358,695 £660,000

Simon Lowth 24 June 2022 239,816 £441,263

Deferred shares are not subject to performance conditions and

have a three-year vesting period. At vesting, additional shares

representing the value of reinvested dividends on the underlying

shares are added.

Malus and clawback provisions apply as set out in the Policy, and

the Committee retains the ultimate discretion to adjust vesting

levels to ensure alignment with our overall performance.

Details of all interests under the DBP are set out on page 125.

Payments for loss of office (audited)

No payments were made to directors during the year for loss

of office.

Former directors (audited)

No payments were made to former directors during the year.

Directors’ share ownership (audited)

The Committee believes that the interests of the Executive

Directors should be closely aligned with those of shareholders. The

aim is to encourage the build-up of a meaningful shareholding in

BT Group plc over time by retaining net shares received through

the executive share plans or from market purchases.

The shareholding requirement for both Executive Directors under

the Policy is 500% of salary. Executive Directors are expected

to meet this requirement within five years of the approval of the

Policy or, in the case of any new Executive Directors appointed,

within five years of their date of appointment.

The shareholding requirement continues to apply in full for two

years post-cessation of employment (or the total number of shares

held at cessation, if lower). The post-cessation shareholding

requirement will be calculated and expressed as a fixed number

of shares by reference to the closing BT Group plc share price on

the day immediately prior to the cessation date. The requirement

is fixed as this number of shares for a period of two years and

compliance will be measured at cessation and annually thereafter.

In enforcing continued compliance post-cessation, the Committee

may request that the Executive Director transfers any shares

subject to the shareholding requirement which we will hold in trust

until such time that they no longer need to be retained.

We encourage the Chairman and Independent Non-Executive

Directors to purchase, on a voluntary basis, BT Group plc shares

with an aggregate value of £5,000 on average each year (based on

acquisition price) to further align the interests of Non-Executive

Directors with those of our shareholders. They are asked to hold

these shares until they cease being a member of the Board.

This policy does not apply to the Deutsche Telekom nominated

representative director appointed to the Board as a Non-

Independent, Non-Executive Director under the terms of the

EE acquisition in January 2016. This helps avoid any conflict

of interest.

124 BT Group plc Annual Report 2023

Shareholding guideline (500% of salary)

0% 200% 400% 600% 800% 1,000% 1,400%1,200% 1,600%

1,449%

Philip Jansen

Simon Lowth

686%

Shareholding (% of salary)

DBP awards (net)Beneficial holding RSP awards (net)

Options unvested and subject

to continued employment

Directors’ interests at 31 March 2023 or

on cessation (audited)

The following tables show the beneficial interests in BT Group plc

shares of directors and persons closely associated as at 31 March

2023 (or at the point of leaving for directors who left during the year).

The first table includes interests held by the Executive Directors

under BT Group plc’s share plans. The numbers represent the

maximum possible vesting levels. Full details of all DBP and RSP

awards, including restricted periods and vesting conditions, are

set out on page 125.

For Executive Directors we use the average BT Group plc

share price over the preceding 12 months (or the share price

at acquisition/vesting date if higher) to determine whether the

minimum shareholding requirement has been reached.

During the period 1 April 2023 to 17 May 2023, there were no

movements in directors’ beneficial holdings or other interests in

shares. The directors, as a group, beneficially own less than 1%

of BT Group plc’s shares.

Annual remuneration report continued

Executive Directors

Number of shares

owned outright at

31 March 2023

RSP and

DBP

Options

Shareholding

requirement

(% of salary)

Current

shareholding

(% of salary)

Philip Jansen 6,412,792 3,335,872 247 500% 1,449%

Simon Lowth 924,170 2,247,211 11,222 500% 686%

a Subject to continued employment and, for the RSP, two underpins over the initial three-year period.

b Includes interests in saveshare, a HMRC-approved all-employee plan and yourshare, a HMRC-approved share incentive plan.

Beneficial holding owned

outright at 1 April 2022

Beneficial holding owned

outright at 31 March 2023

Chairman

Adam Crozier 62,500 62,500

Non-Executive Directors

Adel Al-Saleh 0 0

Maggie Chan Jones

– 0

Ian Cheshire 19,646 19,646

Iain Conn 69,442 69,442

Steven Guggenheimer

– 0

Isabel Hudson 24,090 24,090

Matthew Key 161,686 161,686

Allison Kirkby 75,000 75,000

Sara Weller 37,000 37,000

Former directors

Leena Nair

50,000 50,000

Total 499,364 499,364

a Maggie was appointed as a director on 1 March 2023.

b Steven was appointed as a director on 1 October 2022.

c Leena stepped down as a Director at the conclusion of the AGM on 14 July 2022 and the number reflects her holding at that date.

125Corporate governance report

Outstanding share awards at 31 March 2023 (audited)

1 April 2022

Awarded/

granted

Dividends

re-invested Vested Lapsed

Total

number of

award

shares at 31

March 2023 Vesting date

Price at

grant

Market price

at date of

vesting

Market price

at date of

exercise

Monetary

value of

vested

award

£000

Philip Jansen

DBP 2019 65,735 – – 65,735 – – 01/08/2022 207.45p 160.46p – 105

DBP 2020 1,119,999 – 62,365 – – 1,182,364 01/08/2023 119.27p – – –

DBP 2021 657,4 82 – 36,610 – – 694,092 24/06/2024 203.16p – – –

DBP 2022

– 358,695 19,972 – – 378,667 24/06/2025 184.35p

ISP 2019

2,347,782 – – 448,426 1,899,356 – 31/03/2022 207.45p 160.46p – 720

RSP 2020

1,678,492 – 93,463 – – 1,771,955 03/08/2023 10 6.11p – – –

RSP 2021

1,095,804 – 61,017 – – 1,156, 821 24/06/2024 203.16p – – –

RSP 2022

– 1,195,652 66,578 – – 1,262,230 24/06/2025 184.35p – – –

yourshare

2021

247 – – – – 247 24/06/2024 202.70p – – –

Simon Lowth

DBP 2019 174,578 – – 174,578 – – 01/08/2022 207.45p 160.46p – 280

DBP 2020 763,785 – 42,529 – – 806,314 01/08/2023 119.27p – – –

DBP 2021 439,579 – 24,476 – – 464,055 24/06/2024 203.16p – – –

DBP 2022

– 239,816 13,353 – – 253,169 24/06/2025 184.35p

ISP 2019

1,373,469 – – 262,333 1,111,13 6 – 31/03/2022 207.45p 160.46p – 421

RSP 2020

1,122,206 – 62,488 – – 1,184,694 03/08/2023 10 6 .11p – – –

RSP 2021

732,632 – 40,794 – – 773,426 24/06/2024 203.16p – – –

RSP 2022

– 815,376 45,402 – – 860,778 24/06/2025 184.35p

saveshare

(2019)

10,975 – – – – 10,975 01/08/2024 163.92p – – –

yourshare

2021

247 – – – – 247 24/06/2024 202.70p – – –

a Awards granted on 24 June 2022. The number of shares subject to awards was calculated using the average middle-market price of a BT Group plc share for the three days prior

to grant.

b Awards granted on 19 June 2019. The number of shares subject to award was calculated using the average middle-market price of a BT Group plc share for the three dealing days

prior to grant. 40% of each award was linked to TSR compared with a group of 16 companies, 40% was linked to a three-year normalised free cash flow measures and 20% to a

measure of underlying revenue growth (including transit) over three years. The award vested at 19.1% in August 2022 as disclosed in last year’s remuneration report.

c Awards granted on 3 August 2020. The number of shares subject to awards was calculated using the average middle market price of a BT Group plc share for the three dealing

days prior to grant. Awards will vest in three equal tranches after three, four and five years. A holding period will apply such that no shares may be sold until year five. Two

underpins will apply over the initial three-year vesting period as set out on page 122. The Committee assessed performance against the two underpins at the end of the financial

year and agreed that both had been satisfied. As a result, all three tranches of the 2020 RSP award will vest in full in August 2023, 2024 and 2025 respectively. Tranches one and

two remain subject to a holding requirement until August 2025.

d Awards granted on 24 June 2021. The number of shares subject to awards was calculated using the average middle market price of a BT Group plc share for the three dealing days

prior to grant. Awards will vest in three equal tranches after three, four and five years. A holding period will apply such that no shares may be sold until year five. Two underpins will

apply over the initial three-year vesting period as set out on page 122.

e Awards granted on 24 June 2022. The number of shares subject to awards was calculated using the average middle market price of a BT Group plc share for the three dealing days

prior to grant. Awards will vest in three equal tranches after three, four and five years. A holding period will apply such that no shares may be sold until year five. Two underpins will

apply over the initial three-year vesting period as set out on page 122.

f Awards granted on 24 June 2021 under the free share element of the BT Group plc Employee Share Investment Plan in which all eligible employees of the group were granted

£500 worth of shares.

g Option granted on 14 June 2019 under the employee saveshare scheme, in which all eligible employees of the group are entitled to participate.

126 BT Group plc Annual Report 2023

Implementation of Policy in FY24

Base salary

Philip’s base salary of £1,100,000 was agreed on appointment in

January 2019 and is fixed for five years. Philip has also volunteered

to waive any salary increases beyond FY24.

Our annual salary review for the UK management population will

take place in September rather than June. As such, any change in

base salary for Simon will be considered at that time and reported

in the 2024 Report on directors’ remuneration.

Benefits

For Executive Directors, the Committee has set benefits in line

with the Policy. No changes are proposed to the benefit framework

for FY24.

Pension allowance

In line with the rate offered to the majority of our UK workforce,

both Executive Directors receive an annual allowance equal to 10%

of salary in lieu of pension provision.

Annual bonus

Both Executive Directors are eligible for an on-target and

maximum bonus payment of 120% and 200% of salary. In line with

the Policy, 50% of any bonus payable will be deferred into shares

for three years.

The Committee has reviewed in full the measures, weightings and

targets used in the annual bonus scorecard. As set out on page 110

we’re proposing a simplified annual bonus scorecard for FY24 with

an improved focus customer and diversity and inclusion metrics.

The FY24 annual bonus structure measures and weightings are set

out below.

Category Measure Weighting

Financial Adjusted EBITDA 35%

Normalised free cash flow 35%

Transformation

scorecard

NPS 20%

Diversity & inclusion 10%

All of the annual bonus measures are linked to our KPIs as set out

on pages 48 to 49.

In addition to the annual bonus scorecard, a health and safety

underpin applies which allows the Committee to exercise its

discretion to reduce the annual bonus pay-out result if there is

a significant breach in health and safety.

We do not publish details of the targets in advance as these are

commercially confidential. Targets will be disclosed in full in the

2024 Report on directors’ remuneration.

RSP

Given the annual salary review will take place in September rather

than June, the annual grant of RSP awards will also be deferred to

that time. Our normal Policy grant level for Executive Directors is

200% of salary. The Committee will consider the actual grant value

for the 2023 awards nearer the time of grant, taking into account

the share price at the time. If the share price is materially lower than

the share price used to determine the 2022 awards, the Committee

will consider whether it is appropriate to reduce awards to mitigate

the risk of windfall gains.

The Committee has agreed the following two underpins for the

2023 RSP awards which will be measured over the initial three-year

vesting period:

– Average ROCE must be at least 7%

– The business must have made sufficient progress over the vesting

period towards meeting our sustainability commitments (which

could include carbon emissions, carbon abatement and circularity).

Awards will vest in three equal tranches after three, four and five

years, with an additional holding period such that no shares may be

sold until year five. At vesting, additional shares representing the

value of reinvested dividends on the underlying shares are added.

Malus and clawback provisions and overarching Committee

discretion applies, as set out in the Policy.

Chairman and Non-Executive Director remuneration

The base fee for Non-Executive Directors is unchanged for FY24

at £78,540 per year. The Chairman receives a single all-inclusive

fee for his role. No increase has been awarded for FY24 and this will

remain at £700,000.

There are additional fees for membership and chairing a Board

committee, details of which are set out in the table below. The fees

are unchanged versus the prior year:

Committee Chair’s fee Member’s fee

Audit & Risk £35,000 £25,000

BT Compliance £25,000 £12,000

Digital Impact & Sustainability £14,000 £8,000

National Security and

Investigatory Powers n/a

£8,000

Nominations n/a

£10,000

Remuneration £30,000 £15,000

a Where the Chairman or Chief Executive acts as Chair of a Board committee,

no additional Committee Chair fee is payable.

Other fees payable include:

– an additional fee of £27,000 per annum to the Senior

Independent Non-Executive Director

– an additional fee of £10,000 per annum to the Designated

Non-Executive Director for workforce engagement

– an additional fee of £20,000 per annum to the Director

appointed to the joint venture between BT Group and

Warner Bros. Discovery.

No element of Non-Executive Director remuneration is

performance-related. Neither the Chairman nor the Non-

Executive Directors participate in our bonus or employee

share plans and nor are they members of any of the group

pension schemes.

Annual remuneration report continued

127Corporate governance report

Other remuneration matters

Advisers

During the year, the Committee received independent advice on

executive remuneration matters from Deloitte LLP. The Committee

is satisfied that the advice provided by Deloitte has been objective

and independent. The Deloitte partner who provides remuneration

advice to the Committee does not have any connections with

BT Group plc that may impact their independence. Deloitte

received £147,415 (excluding VAT) in fees for these services.

The fees are charged on a time-spent basis in delivering advice.

That advice materially assisted the Committee in its consideration

of matters relating to executive remuneration and the Policy.

Deloitte is a founder member of the Remuneration Consultants

Group and as such, voluntarily operates under the code of conduct

in relation to executive remuneration consulting in the UK.

In addition, during FY23, Deloitte provided the group with advice

on corporate and indirect taxes, assistance with regulatory, risk

and compliance issues, accounting advice, help with delivering

on the making finance better transformation and additional

consultancy services.

Dilution

We use both treasury shares and shares purchased by the

BT Group Employee Share Ownership Trust (the Trust) to satisfy

our all-employee share plans and executive share plans. Shares

held in the Trust do not have any voting rights.

As at 31 March 2023, shares equivalent to 3.03% (FY22: 4.16%)

of the issued share capital (excluding treasury shares) would be

required to satisfy all outstanding share options and awards.

Of these, we estimate that for FY24, shares equivalent to

approximately 0.87% (FY23: 0.53%) of the issued share capital

(excluding treasury shares) will be required to satisfy the all-

employee share plans.

Previous AGM voting outcomes

The table below sets out the previous votes cast at the AGM in

respect of the Annual remuneration report and the Policy.

For % of votes cast/

Number

Against % of votes

cast/ Number

Withheld votes/

Number

Report on

directors’ 93.58 6.42

remuneration at

the 14 July 2022

AGM 6,408,190,533 439,625,354 58,845,040

Policy at the 95.04 4.96

16 July 2020

AGM 6,036,920,089 315,057,559 4,101,574

Withheld votes are not counted when calculating voting outcomes.

Committee evaluation FY23

This year we undertook an internal Board and committee

evaluation, details of which can be found on page 96.

Comparison of Chief Executive remuneration

to TSR (unaudited)

TSR is the measure of the returns that a company has provided for

its shareholders, reflecting share price movements and assuming

reinvestment of dividends. The graph below illustrates the

performance of BT Group plc measured by TSR relative to a broad

equity market index over the past ten years. We consider the FTSE

100 to be the most appropriate index against which to measure

performance, as BT Group plc has been a member of the FTSE 100

throughout the ten-year period.

BT Group plc’s TSR performance vs the FTSE 100

120

160

200

BT FTSE 100

Apr

Source: Datastream.

History of Chief Executive remuneration

Year end Chief Executive

Total

remuneration

£000

Annual bonus

(% of max)

ISP/ RSP

vesting

(% of max)

2023 Philip Jansen 3,089 43.7% 100%

2022 Philip Jansen 3,460 60% 19.1%

2021 Philip Jansen 2,628 60% 0%

2020 Philip Jansen 3,248 50% n/a

2019 Philip Jansen

725 56% n/a

Gavin Patterson

1,719 28% 0%

2018 Gavin Patterson 2,307 54% 0%

2017 Gavin Patterson 1,345 0% 0%

2016 Gavin Patterson 5,396 45% 82.0%

2015 Gavin Patterson

4,562 58% 67.4%

2014 Gavin Patterson

2,901 62% 78.7%

Ian Livingston

4,236 35% 63.4%

a Philip was appointed as a director on 1 January 2019 and became Chief Executive

from 1 February 2019. His first ISP award was granted in February 2019.

b Gavin stood down as Chief Executive at midnight on 31 January 2019 and Philip took

over from 1 February 2019.

c The total remuneration figure includes the ISP award as CEO BT Retail and the first

award as Chief Executive, granted in 2013.

d Ian stepped down on 10 September 2013 and Gavin took over from that date.

128 BT Group plc Annual Report 2023

As announced on 2 February 2023, Ruth Cairnie joined the Board

as an Independent Non-Executive Director on 6 April 2023. In

addition, Ian Cheshire and Iain Conn will step down from the Board

at the conclusion of the AGM on 13 July 2023.

There are no other service agreements, letters of appointment or

material contracts, existing or proposed, between BT Group plc

and any of the directors. There are no arrangements or

understandings between any director or executive officer and any

other person pursuant to which any director or executive officer

was selected to serve. There are no family relationships between

the directors.

Independent Non-Executive Directors’ letters

of appointment

Each Independent Non-Executive Director has an appointment

letter setting out the terms of his or her appointment. We ask each

Non-Executive Director to allow a minimum commitment of 22

days each year, subject to committee responsibilities, and to allow

slightly more in the first year in order to take part in the induction

programme. The actual time commitment required in any year may

vary depending on business and additional time may be required

during periods of increased activity.

Inspection by the public

The service agreements and letters of appointment are available

for inspection by the public at BT Group plc’s registered office.

Annual remuneration report continued

Directors’ service agreements and letters of appointment

The following table sets out the dates on which directors’ service agreements/initial letters of appointment commenced and termination

provisions:

Executive Directors

Commencement date Termination provisions

Philip Jansen 1 January 2019 Directors’ service agreements do not contain fixed term

periods and are terminable by BT Group plc on 12 months’

notice and by the director on six months’ notice.

Simon Lowth 6 July 2016

Chairman and Independent Non-Executive Directors

Commencement date Termination provisions

Adam Crozier 1 November 2021 The letter of appointment does not contain a fixed term period and is terminable by

BT Group plc on 12 months’ notice and by the director on six months’ notice.

Maggie Chan Jones 1 March 2023

Letters of appointment do not contain fixed term periods and

are terminable by either party by three months’ written notice.

Ian Cheshire 16 March 2020

Iain Conn 1 June 2014

Steven Guggenheimer 1 October 2022

Isabel Hudson 1 November 2014

Matthew Key 25 October 2018

Allison Kirkby 15 March 2019

Leena Nair 10 July 2019

Sara Weller 16 July 2020

Non-Independent, Non-Executive Director

Commencement date Termination provisions

Adel Al-Saleh 15 May 2020 Appointed as a Non-Independent, Non-Executive Director under the terms of

the Relationship Agreement between BT Group plc and Deutsche Telekom.

The appointment is terminable immediately by either party.

129Corporate governance report

Consideration of colleague and stakeholder views

Our colleagues are vital to our business and we believe in

fairness throughout the group. There are several general

reward principles which we apply at all levels:

– We will provide a competitive package with reference to the

relevant market for each colleague

– We will ensure colleagues can share in the success of the

business, and through the operation of all-employee share

plans encourage colleagues to become shareholders

– Where appropriate, variable remuneration is provided to

incentivise employees towards driving the strategic aims

of the business. Performance is based on both individual

performance and the performance of the group, using a

consistent framework for our senior management team and

the majority of other colleagues

– We offer a range of employee benefits, many of which are

available to all colleagues

– We aim for transparency and a fair cascade of remuneration

throughout the group

– Employment conditions for all colleagues reflect our values

and are commensurate with those of a large publicly listed

company, including high standards of health and safety, a

strong commitment to diversity and inclusion and wellbeing.

The Committee supports fairness and transparency of

remuneration arrangements and the Policy has been designed

to align with the remuneration philosophy and principles that

underpin remuneration across the wider group. To support this,

the Committee receives regular updates on HR policies and

reward practices for the wider workforce as well as updates on

employee relations.

Whilst the Committee does not directly consult with our

employees as part of the process of determining executive pay,

the Board does receive feedback from employee surveys that

take into account remuneration throughout the organisation.

The Designated Non-Executive Director for workforce

engagement also updates the Committee on sentiments being

raised by our colleagues in relation to the remuneration of our

workforce and related decisions, as raised by the Colleague Board

through their ‘hot topics’ discussions.

When setting Executive Directors’ remuneration, the Committee

considers the remuneration of other senior managers and

colleagues in the group more generally to ensure that

arrangements for Executive Directors are appropriate in this

context. When determining salary increases for Executive

Directors, the Committee considers the outcome of the wider

pay review for the group.

Chief Executive pay ratio

The table below sets out the Chief Executive pay ratios as at

31 March 2023, as well as those reported in respect of the prior

four years. This report will build up over time to show a rolling

ten-year period.

The ratios compare the single total figure of remuneration of

the Chief Executive with the equivalent figures for the UK lower

quartile (P25), median (P50) and upper quartile (P75) employees.

A significant proportion of the Chief Executive’s remuneration is

delivered through long-term incentives, where awards are linked to

share price movements over the longer term. This means that the

ratios will depend significantly on long-term incentive outcomes

and may fluctuate from year to year – for example, a higher total

remuneration ratio was exhibited in 2020 due to the vesting of

the Chief Executive’s Worldpay buyout award and in 2022 due to

the partial vesting of the 2019 ISP award, while a lower ratio was

exhibited in FY23 due to a reduced bonus pay-out. We believe that

these ratios are appropriate given the size and complexity of the

business, and are a fair reflection of our remuneration principles

and practices.

We have used the ‘Option B’ methodology (based on gender

pay reporting), as the most robust way to identify the individual

reference points within an organisation with multiple operating

segments.

Remuneration in context

Total remuneration

Employee remuneration Pay ratio

Chief Executive P25 P50 P75 P25 P50 P75

2019 £2,444,000 £34,281 £41,477 £51,594 71:1 59:1 47:1

2020 £3,248,000 £34,881 £42,173 £51,351 93:1 77:1 63:1

2021 £2,628,000 £35,569 £41,600 £50,391 74:1 63:1 52:1

2022 £3,350,000 £35,722 £40,059 £49,488 94:1 84:1 68:1

2023 £3,089,000 £36,960 £40,095 £50,999 84:1 77:1 61:1

Base salary

Employee remuneration Pay ratio

Chief Executive P25 P50 P75 P25 P50 P75

2019 £1,222,000 £30,090 £35,918 £41,740 37:1 31:1 27:1

2020 £1,100,000 £31,144 £37,321 £42,800 35:1 29:1 26:1

2021 £1,100,000 £31,842 £35,606 £42,836 35:1 31:1 26:1

2022 £1,100,000 £31,637 £35,017 £43,908 35:1 31:1 25:1

2023 £1,100,000 £33,144 £35,948 £44,986 33:1 31:1 24:1

The P25, P50 and P75 employees were identified from our gender pay reporting data, based on the April snapshot period at the start of

each respective year. We then identified the 80 employees above and below each of the ‘P’ points to form enlarged groups. This approach

is thought to be an appropriate representation – while there is a reasonable level of consistency given the size of the UK population, this

methodology reduces volatility in the underlying data, and helps account for differences in the gender pay and pay ratio calculation

methodologies. Other than the exclusion of a small number of data points for leavers and divestments, no other adjustments were made

to the underlying data.

130 BT Group plc Annual Report 2023

Relative importance of the spend on pay

The table below shows the percentage change in total

remuneration paid to all employees compared to expenditure on

dividends and share buybacks.

Area FY23 (£m) FY22 (£m) % change

Remuneration paid to all

employees 4,952 4,845 2%

Dividends/share buybacks

940 437 115%

a Includes share purchases by the Trust as set out in note 21 to the consolidated

financial statements.

Diversity and inclusion

Embracing diversity, inclusion, accessibility and equality is core to

our people strategy and critical to our growth. Our Diversity and

Inclusion Strategy is a programmatic, evidence-based approach to

help us understand and remove bias and other cognitive barriers

from policies, processes, systems and decision-making.

It supports our aim to build the strongest foundations by making

sure we apply an inclusion lens to everything we do and by

promoting a culture where colleagues can thrive.

More details on our Diversity and Inclusion Strategy can be

found on page 33.

Gender pay gap reporting

At a group-level, our median hourly pay gap between male and

female colleagues has decreased to 6.1% (6.7% in 2021). This

remains favourably below the high-tech industry median of 11.9%,

and the UK national median of 14.9% (ONS provisional).

Our Gender Pay Gap statement sets out the key information

required under legislation and is available on our website

bt.com/genderpaygap

Sir Ian Cheshire

Chair of the Remuneration Committee

17 May 2023

The total FTE remuneration paid during the year in question for

each employee in each of the groups was then calculated, on the

same basis as the information set out in the ‘single figure’ table for

the Chief Executive. Bonus payments in respect of each year have

been determined based on the latest available information at the

time of analysis. The median total remuneration figure for each

group was then used to determine the three ratios.

Percentage change in remuneration of the Executive

and Non-Executive Directors and all employees

BT Group plc, our parent company, employs our Chairman,

Executive and Non-Executive Directors only, and as such no

meaningful comparison can be drawn based on the parent

company alone, as is required by the reporting regulations.

Instead, we have chosen to present a comparison with our UK

management and technical employee population, comprising

around 22,000 colleagues.

We believe this is the most meaningful comparison given the

nature of our workforce, as this group has similar performance-

related pay arrangements as our Executive Directors. This is also

consistent with prior year disclosures.

The salary/fee levels set out in the table below are in accordance

with the Policy. Any increase in fees paid to the Non-Executive

Directors represents a change in role (and accordingly fees

payable) over the relevant period.

FY23 (% change) FY22 (% change) FY21 (% change)

Salary/fees Benefits Annual bonus Salary/fees Benefits Annual bonus Salary/fees Benefits Annual bonus

Chairman

Adam Crozier 0% 1,100% – – – –

Executive Directors

Philip Jansen 0% 13% (27)% 0% 2% 0% 0% (14)% 0%

Simon Lowth 2% 5% (26)% 0% (4)% 0% 0% (5)% (2)%

Non-Executive Directors

Adel Al-Saleh

– – – – – – – – –

Maggie Chan Jones

– – –

Ian Cheshire 8% – – 8% 0% – 19% – –

Iain Conn 1% – – 0% 0% – 33% – –

Steve Guggenheimer

– – –

Isabel Hudson 1% 0% – 0% 0% – 4% (66)% –

Matthew Key 9% 100% – 2% 0% – 13% – –

Allison Kirkby 1% 100% – 0% 0% – 6% – –

Leena Nair

0% – – 0% 0% – 3% – –

Sara Weller 5% – – 0% 0% – – – –

UK management

colleagues 3% 0% (25)% 0% 0% 0% 0% 0% 18%

a Under the terms of the Relationship Agreement between BT Group plc and Deutsche Telekom and Adel’s letter of appointment, no remuneration is payable for this position.

b The director joined during FY23 and so no relevant comparison can be presented.

c Leena left during the year and the reduction reflects the pro-rated remuneration.

131Corporate governance report

Statement of directors’ responsibilities in respect

of the Annual Report and the financial statements

The directors are responsible for preparing

the Annual Report and the group and parent

company financial statements in accordance

with applicable law and regulations.

Company law requires the directors to prepare group and parent

company financial statements for each financial year. Under that

law they are required to prepare the group financial statements in

accordance with UK-adopted international accounting standards

and with the requirements of the Companies Act 2006.

Under company law the directors must not approve the financial

statements unless they are satisfied that they give a true and fair

view of the state of affairs of the group and parent company, and

of the group’s profit or loss for that period. In preparing each of the

group and parent company financial statements, the directors are

required to:

– select suitable accounting policies and apply them consistently

– make judgements and estimates that are reasonable, relevant,

reliable and prudent

– state whether the group financial statements have been

prepared in accordance with the UK-adopted international

accounting standards

– state whether applicable UK accounting standards have

been followed with regards to the parent company financial

statements, subject to any material departures disclosed and

explained in the parent company financial statements

– assess the group and parent company’s ability to continue as a

going concern and disclose, as applicable, matters related to

going concern

– use the going concern basis of accounting unless they either

intend to liquidate the group or the parent company or to cease

operations or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the parent

company’s transactions and disclose with reasonable accuracy,

at any time, the financial position of the parent company, and

enable them to ensure that its financial statements comply with

the 2006 Act. They are responsible for such internal control as

they determine is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due

to fraud or error. They have general responsibility for taking such

steps as are reasonably open to them to safeguard the assets of the

group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also

responsible for preparing an annual strategic report, directors’

report, report on directors’ remuneration and corporate

governance statement that comply with such law and regulation.

The directors are responsible for the maintenance and integrity of

the corporate and financial information included on the BT Group

website. Legislation in the UK governing the preparation and

dissemination of financial statements may differ from legislation

in other jurisdictions.

Responsibility statement of the Board in respect

of the annual financial report

We confirm, to the best of our knowledge that:

– the financial statements, prepared in accordance with the

applicable set of accounting standards, give a true and fair view

of the assets, liabilities, financial position and profit or loss of the

group and the undertakings included in the consolidation taken

as a whole

– the Strategic report and the Report of the directors include a

fair review of the development and performance of the business

and the position of the group and the undertakings included in

the consolidation taken as a whole, together with a description

of the principal risks and uncertainties that they face.

We consider that the annual report and accounts, taken as a whole,

is fair, balanced and understandable and provides the information

necessary for shareholders to assess the group’s position,

performance, business model and strategy.

This responsibility statement was approved by the Board on

17 May 2023 and was signed on its behalf by:

Philip Jansen Simon Lowth

Chief Executive Chief Financial Officer

132 BT Group plc Annual Report 2023

The directors present the Report of the directors,

together with audited financial information for

the year ended 31 March 2023. The Report of the

directors also encompasses the entirety of our

Corporate governance report on pages 83 to 136 for

the purpose of section 463 of the Companies Act

2006 (the 2006 Act). The Report of the directors

together with the Strategic report on pages 1 to 82

form the Management Report for the basis of

DTR 4.1.5R.

In accordance with DTR 4.1.14R, the financial

statements will form part of the annual financial

report prepared using the single electronic

reporting format under the TD ESEF Regulation.

The auditor’s report on these financial statements

provides no assurance over the ESEF format.

Critical accounting estimates, key judgements and

significant accounting policies

Our critical accounting estimates, key judgements and significant

accounting policies conform with IFRSs as adopted by the EU and

IFRSs issued by the International Accounting Standards Board

(IASB) and are set out on pages 156 and 157 of the consolidated

financial statements. The directors have reviewed these policies

and applicable estimation techniques and have confirmed that

they are appropriate for the preparation of the FY23 consolidated

financial statements.

Disclosure of information to the auditor

As far as each of the directors is aware, there is no relevant audit

information (as defined by section 418(3) of the 2006 Act) that

hasn’t been disclosed to the auditor. Each of the directors confirms

that all steps have been taken that ought to have been to make

them aware of any relevant audit information and to establish that

the auditor has been made aware of that information.

Going concern

In line with IAS 1 ‘Presentation of financial statements’, and revised

FRC guidance on ‘risk management, internal control and related

financial and business reporting’, management has taken into

account all available information about the future for a period of at

least, but not limited to, 12 months from the date of approval of the

financial statements when assessing the group’s ability to continue

as a going concern.

The Strategic report on pages 1 to 82 includes information on the

group structure, strategy and business model, the performance

of each customer-facing unit and the impact of regulation and

competition. The Group performance section on pages 50 to

57 includes information on our group financial results, financial

outlook, cash flow and net debt, and balance sheet position. Notes

24, 26, 27 and 29 of the consolidated financial statements include

information on the group’s investments, cash and cash equivalents,

borrowings, derivatives, financial risk management objectives,

hedging policies and exposure to interest, foreign exchange,

credit, liquidity and market risks.

Our principal risks and uncertainties are set out on pages 63 to

70 including details of each risk and how we manage them. The

directors carried out a robust assessment of the principal risks

affecting the group, including any that could threaten our business

model, future performance, insolvency or liquidity.

This assessment is consistent with the assessment of our viability,

as set out on pages 81 to 82, in estimating the financial impact

for a severe but plausible outcome for each risk, both individually

and in combination through stochastic risk modelling. This stress

testing confirmed that existing projected cash flows and cash

management activities provide us with adequate headroom over

the going concern assessment period.

Having assessed the principal and emerging risks, the directors

considered it appropriate to adopt the going concern basis

of accounting when preparing the financial statements. This

assessment covers the period to May 2024, which is consistent

with FRC guidance. When reaching this conclusion, the directors

took into account the group’s overall financial position (including

trading results and ability to repay term debt as it matures without

recourse to refinancing) and the exposure to principal risks

(including severe but plausible downsides, refer to the Viability

statement on pages 81 to 82).

At 31 March 2023, the group had cash and cash equivalents of

£0.4bn and current asset investments, of £3.5bn. The group also

had access to committed borrowing facilities of £2.1bn. These

facilities were undrawn at the period-end and are not subject to

renewal until March 2027.

Independent advice

The Board has a procedure that allows directors to seek

independent professional advice at our expense. All directors also

have access to the advice and services of the Company Secretary

and her nominated delegate.

Directors’ and officers’ liability

insurance and indemnity

We routinely buy insurance cover for directors, officers and

employees in positions of managerial supervision of BT Group plc

and its subsidiaries. This is intended to protect against defence

costs, civil damages and, in some circumstances, civil fines

and penalties following an action brought against them in their

personal capacity. The policy also covers individuals serving as

directors of other companies or of joint ventures, or on boards

of trade associations or charitable organisations at the group’s

request. The insurance protects the directors and officers directly

in circumstances where, by law, BT Group plc cannot provide an

indemnity. It also provides the group, subject to a retention, with

cover against the cost of indemnifying a director or officer. One

layer of insurance is ring-fenced for the directors of BT Group plc.

As at 17 May 2023, and throughout FY23, BT Group plc’s wholly-

owned subsidiary, British Telecommunications plc, has provided an

indemnity for a group of people similar to the group covered by the

above insurance. Neither the insurance nor the indemnity provides

cover where the individual is proven to have acted fraudulently or

dishonestly.

As permitted by BT Group plc’s Articles of Association, and to the

extent permitted by law, the group indemnifies each of its directors

and other officers against certain liabilities that may be incurred

as a result of their positions within the group. The indemnity was

in force throughout the tenure of each director during the last

financial year, and remains in force.

Report of the directors

133Corporate governance report

Interest of management in certain transactions

During and at the end of FY23, none of BT Group plc’s directors

were materially interested in any material transaction in relation

to the group’s business. None are materially interested in any

currently proposed material transactions.

Power to authorise conflicts

All directors have a duty under the 2006 Act to avoid a situation in

which he or she has, or can have, a direct or indirect interest that

conflicts, or possibly may conflict, with the interests of the group.

BT Group plc’s Articles of Association include provisions for dealing

with directors’ conflicts of interest in accordance with the 2006

Act. The group has procedures in place, which it follows, to deal

with such situations. These require the Board to:

– consider each conflict situation separately on its particular facts

– consider the conflict situation in conjunction with its other duties

under the 2006 Act

– keep records and Board minutes on any authorisations granted

by directors and the scope of any approvals given

– regularly review conflict authorisation.

The Company Secretary maintains a conflicts of interest register.

The Conflicted Matters Committee identifies to what extent Board

and Committee materials are likely to refer to a potential or actual

conflict of interest between BT Group plc and Deutsche Telekom

and, as a result, what materials should be shared with our Non-

Independent, Non-Executive Director and Deutsche Telekom

nominated representative. He owes duties to both BT Group plc

and Deutsche Telekom, and the Conflicted Matters Committee

helps him comply with his fiduciary duties, although ultimate

responsibility rests with him.

Systems of risk management and internal control

The Board is responsible for reviewing the group’s systems of risk

management and internal control each year, and for ensuring their

effectiveness, including in respect of relevant assurance activities.

These systems are designed to manage, rather than eliminate,

risks we face that may prevent us from achieving our business

objectives and delivering our strategy. Any system can provide

only reasonable, and not absolute, assurance against material

misstatement or loss.

Our group risk management framework is simple and consistent,

and defines our (1) risk mindset and culture, (2) risk process and

activities; and finally (3) governance. The framework:

– provides the business with the tools to take on the right risks and

make smart risk decisions

– supports the identification, assessment and management of the

principal risks and uncertainties faced by the group

– is an integral part of BT Group’s annual strategic review cycle.

The framework was designed in accordance with the FRC guidance

on risk management, internal control and related financial and

business reporting and has been in operation throughout the

year and up to the date on which this document was approved.

The framework was reviewed in FY23 and was deemed effective.

Enhancements were made to simplify and standardise the group-

wide policies and key controls to ensure all our enduring risks are

managed consistently and effectively across our business, driving

accountability, and enabling targeted assurance activities.

More information on our group risk management framework can

be found under the section Risk management on pages 61 to 62.

Internal audit carry out periodic assessments of the quality of risk

management and control, promote effective risk management

across all our units and report to management and the Audit

& Risk Committee on the status of specific areas identified for

improvement. We do not cover joint ventures and associates not

controlled by the group in the scope of our group risk management

framework. Such third parties are responsible for their own internal

control assessment.

Furthermore, the Audit & Risk Committee, on behalf of the Board,

reviews the effectiveness of the systems of risk management and

internal control across the group. Further details on how the Audit &

Risk Committee fulfils these duties can be found on pages 101 to 105.

Capital management and funding policy

The objective of our capital management policy is to target an

overall level of debt consistent with our credit rating objectives,

while investing in the business, supporting our pension schemes

and meeting our distribution policy.

The Board regularly reviews the group’s capital structure.

Management proposes actions and produces analyses which

reflect the group’s investment plans and risk characteristics, as

well as the macroeconomic conditions in which we operate.

Our funding policy is to raise and invest funds centrally to meet the

group’s anticipated requirements. We use a combination of capital

market bond issuance and committed borrowing facilities to fund

the group. When issuing debt, in order to avoid refinancing risk,

group treasury will take into consideration the maturity profile of

the group’s debt portfolio, financial market conditions as well as

forecast cash flows.

See note 29 to the consolidated financial statements for details of

our treasury policy.

Financial instruments

Details of the group’s financial risk management objectives,

policies of the group and exposure to interest risk, credit risk,

liquidity risk and foreign exchange are given in note 29 to the

consolidated financial statements.

Credit risk management policy

We take proactive steps to minimise the impact of adverse market

conditions on our financial instruments. In managing investments

and derivative financial instruments, group treasury monitors the

credit quality across treasury counterparties and actively manages

any exposures that arise. Management within the business units

also actively monitors any exposures arising from trading balances.

Off-balance sheet arrangements

Other than the financial commitments and contingent liabilities

disclosed in note 32 to the consolidated financial statements,

there are no off-balance sheet arrangements that have, or are

reasonably likely to have, a current or future material effect on:

– our financial condition

– changes in financial condition

– revenues or expenses

– results of operations

– liquidity

– capital expenditure

– capital resources.

We use a supply chain financing programme with a limited number

of suppliers with short payment terms to extend them a more

typical payment term. More details are disclosed in note 18 to the

consolidated financial statements.

134 BT Group plc Annual Report 2023

Report of the directors continued

Legal proceedings

The group is involved in various legal proceedings, including

actual or threatened litigation and government or regulatory

investigations. For further details of legal and regulatory

proceedings to which the group is party to, please see note 19 to

the consolidated financial statements.

Apart from the information disclosed in note 19 to the consolidated

financial statements, the group does not currently believe that there

are any legal proceedings, government or regulatory investigations

that may have a material adverse impact on the operations or

financial condition of the group. In respect of each of the claims

described in note 19, the nature and progression of such proceedings

and investigations can make it difficult to predict the impact they

will have on the group. Many factors prevent us from making these

assessments with certainty, including that the proceedings or

investigations are in early stages, no damages or remedies have been

specified, and/or the frequently slow pace of litigation.

Other information – Listing Rules

For the purposes of the Listing Rule (LR) 9.8.4R, the information

below is disclosed as follows:

Section information Page

LR 9.8.4R(4) 50

LR 9.8.4R(12) See below

LR 9.8.4R(13) See below

In respect of LR 9.8.4R(12) and (13), the trustee of the BT Group

Employee Share Ownership Trust (the Trust) agrees to waive

dividends payable on the BT Group plc shares it holds for satisfying

awards under the group’s executive share plans.

Under the rules of these share plans, the dividends are reinvested

in BT Group plc shares that are added to the relevant share awards.

No other information is required to be disclosed pursuant to

LR 9.8.4R.

Other statutory information – the 2006 Act

Certain provisions of the 2006 Act (or regulations made pursuant

thereto) require us to make additional disclosures within the

Report of the directors. The disclosures referred to below are

included elsewhere in this Annual Report and incorporated by

reference into the Report of the directors:

Section information Page

Future developments 1 to 82

Particulars of any important events affecting BT Group

or any of its subsidiary undertakings which have

occurred since the end of the financial year n/a

Research and development activities 13

How the directors have engaged with UK employees,

had regard to UK employee interests, and the effect

of that regard, including on principal decisions

during the year

23, 41

and

92 to 93

How the directors have had regard to the need to

foster business relationships with suppliers, customers

and others, and the effect of that regard, including on

principal decisions during the year

24 to 27,

40 to 45

and

94 to 95

Greenhouse gas emissions, energy consumption and

energy efficiency action

39, 72

and 80

Structure of BT Group plc’s share capital (including the

rights and obligations attaching to the shares) 153

Section information Page

Significant agreements to which BT Group plc is a

party that take effect, alter or terminate upon a

change of control following a takeover n/a

Branches 228 to 232

The following disclosures are not covered elsewhere in this

Annual Report:

– BT Group has two employee share ownership trusts that hold

BT Group plc shares for satisfying awards under our various

employee share plans

– the trustee of the BT Group Employee Share Investment Plan

may invite participants, on whose behalf it holds shares, to direct

it how to vote in respect of those shares. If there is an offer for

the shares or another transaction that would lead to a change of

control, such participants may direct the trustee to accept the

offer or agree to the transaction

– in respect of shares held in the Trust, the trustee abstains

from voting those shares if there is an offer for the shares. The

trustee does not have to accept or reject the offer but will have

regard to the interests of the participants, may consult with the

participants to obtain their views on the offer, and may otherwise

take any action with respect to the offer that it thinks is fair

– EasyShare is the group’s corporate sponsored nominee

service, which allows UK and European Economic Area resident

shareholders to hold BT Group plc shares electronically.

EasyShare is administered by Equiniti Financial Services Limited.

As at 17 May 2023, 390m shares were held in EasyShare (3.91%

of the issued share capital (3.93% excluding treasury shares)) on

behalf of BT Group plc shareholders

– no person holds securities carrying special rights with regard to

control of the group

– our share registrar, Equiniti, must receive proxy appointment

and voting instructions not less than 48 hours before any general

meeting (see also page 136)

– the business of BT Group is managed by the Board. The directors

may exercise all the powers of BT Group plc, subject to the

Articles of Association, legislation and regulation. This includes

the ability to exercise the authority to allot or purchase BT Group

plc shares pursuant to shareholders passing an ordinary

resolution at the Annual General Meeting (AGM)

– we have no agreements with directors providing for

compensation for loss of office or employment as a result of a

takeover. Similarly, there is no provision for this in our standard

employee contracts

– we’re not aware of any agreements between shareholders

that may result in restrictions on the transfer of shares or on

voting rights.

Articles of Association

BT Group plc’s current Articles of Association were adopted

pursuant to a resolution passed at the AGM of BT Group plc held on

15 July 2021 and contain, amongst others, provisions on the rights

and obligations attaching to BT Group plc’s shares.

The Articles of Association may only be amended by special

resolution at a general meeting of the shareholders in accordance

with applicable legislation.

A copy of the current Articles of Association is available at

bt.com/articles

135Corporate governance report

Directors’ appointment, retirement and removal

The Articles of Association regulate the appointment and removal

of directors, as does the 2006 Act and related legislation. The

Board, and shareholders (by ordinary resolution), may appoint

a person who is willing to be elected as a director, either to fill a

vacancy or as an additional director. At every AGM, all directors

must automatically retire. A retiring director is eligible for election

or re-election, as applicable. In addition to any power of removal

under the 2006 Act, the shareholders can pass an ordinary

resolution to remove a director.

Adel Al-Saleh is appointed as a Non-Independent, Non-Executive

Director under the terms of the Relationship Agreement between

BT Group plc and Deutsche Telekom. His appointment is

terminable immediately by either party.

Share rights

(a) Voting rights

On a show of hands, every shareholder present in person or by

proxy at any general meeting has one vote and, on a poll, every

shareholder present in person or by proxy has one vote for each

share which they hold.

There are no restrictions on exercising voting rights except in

situations where BT Group plc is legally entitled to impose such a

restriction (for example where a notice under section 793 of the

2006 Act has been served).

(b) Variation of rights

If the share capital of BT Group plc were to be split into different

classes of shares by special resolution, the special rights attached

to any of those classes can be varied or withdrawn either: (i) with

the sanction of a special resolution passed at a separate meeting

of the holders of the shares of that class; or (ii) with the consent in

writing of the holders of at least 75% in nominal value of the issued

shares of that class. BT Group plc can issue new shares and attach

any rights and restrictions to them, as long as this is not restricted

by special rights previously given to holders of any existing shares.

Subject to this, the rights of new shares can take priority over the

rights of existing shares, or existing shares can take priority over

them, or the new shares and the existing shares can rank equally.

BT Group plc currently has one class of shares.

Transfer of shares

There is no specific restriction on the transfer of BT Group

plc shares in the group, which is governed by the Articles of

Association and prevailing legislation.

Political donations

Our policy is that no company in the group will make contributions

in cash or in kind to any political party, whether by gift or loan.

However, the definition of political donations used in the 2006 Act

is significantly broader than the sense in which these words are

ordinarily used. The 2006 Act’s remit could cover making members

of Parliament and others in the political world aware of key industry

issues and matters affecting BT Group plc, and enhancing their

understanding of the group.

The authority for political donations requested at the 2023 AGM

is not intended to change this policy. It does, however, ensure that

the group continues to act within the provisions of the 2006 Act,

requiring companies to obtain shareholder authority before they

make donations to political parties and/or political organisations

as defined in the 2006 Act. During FY23, BT Group plc’s wholly

owned subsidiary, British Telecommunications plc, paid the costs

of attending events at (i) the Labour party conference; (ii) the

Conservative party conference; and (iii) the Liberal Democrats

Business day. These costs totalled £5,848 (FY22: £6,205). No

company in the BT Group made any loans to any political party.

Substantial shareholdings

As at 31 March 2023, BT Group plc had received notice, under the

DTRs, in respect of the following holdings of 3% or more of the

voting rights in its issued ordinary share capital:

Date of notification Shares

% of total

voting rights

Altice UK S.à r.l. 13 December 2021 1,785,476,188 18.0%

T-Mobile

Holdings 23 March 2018 1,196,175,322 12.06%

BlackRock, Inc. 1 June 2022 584,662,245 5.88%

As at 17 May 2023, BT Group had not received any further such

notices under the DTRs.

Colleague engagement

Engaging with our colleagues is critical to creating a culture where

they can be their best and contribute to our purpose, ambition,

strategy and long-term success.

Engaging with our colleagues takes many forms, including through:

– the Board receiving regular updates from the Chief Executive

and Chief Human Resources Officer on colleagues, key people

strategy initiatives, culture and overall sentiment in the

organisation

– the Colleague Board, our workforce engagement mechanism

– the annual Your Say colleague engagement survey

– regular colleague communications.

Colleagues are kept well informed on matters such as the strategy

and performance of the group, including after certain key events

such as results and trading updates. We work with our highly active,

engaged and award-winning People Networks. These colleague-

driven groups raise awareness and advocate for change both inside

and outside BT Group.

Colleague engagement is still above the external benchmark of

70% but went down six points in this year’s Your Say survey. This

was driven by the cost of living crisis and industrial action.

We encourage all of our colleagues to become shareholders in the

business through the operation of all-employee share plans. We

annually consider which all-employee plans to offer, both in the UK

and globally.

136 BT Group plc Annual Report 2023

Employees with disabilities

We’re an inclusive employer and actively encourage the

recruitment, development, promotion and retention of

disabled people.

Purple Goat is one of the UK’s only communications agencies run

by disabled people. During the year we partnered with them to

deliver a series of videos highlighting the experiences of colleagues

with a range of disabilities – from diabetes and visual and hearing

impairments to autism.

We’re a member of Valuable 500, a global business collective

made up of 500 CEOs and their companies that are committed

to disability inclusion. At the disability summit held December

2022, we renewed our commitment to three priorities: Workplace

adjustment; Disability advocacy; and Career progression of our

junior managers.

These priorities support our Valuable 500 commitment: To

accelerate the pace of progress we’re making for disabled and

neurodiverse colleagues, and those that have an impairment, or a

long-term health condition. We renewed our status as a Disability

Confident Leader and continue to work with several teams across

the business, our Able2 People Network and external partner the

Business Disability Forum.

Read more on diversity and inclusion

at bt.com/diversity-and-inclusion

AGM

Resolutions

At the 2023 AGM, shareholders will be asked to vote on all

resolutions including the Annual Report, the Report on directors’

remuneration, the directors’ remuneration policy, the election/

re-election of directors, the reappointment of KPMG LLP as our

external auditor and to authorise the Audit & Risk Committee to

agree its remuneration, giving authority to the directors to allot

BT Group plc shares and disapply pre-emption rights.

Before the AGM, our share registrar, Equiniti, will count the proxy

votes for and against each resolution, as well as votes withheld. We

will make the results available as soon as reasonably practicable

following the conclusion of the meeting. As at previous AGMs, we

will take votes on all matters at the 2023 AGM on a poll.

The separate Notice of meeting 2023, which we send to all

shareholders who have requested shareholder documents by

post, contains the resolutions (with explanatory notes) which

we will propose at the 2023 AGM on 13 July 2023. We notify all

shareholders of the publication of these documents which are

available on our website at bt.com/annualreport

Authority to purchase shares

The authority given at the 2022 AGM for BT Group plc to purchase

in the market 992m of its shares, representing 10% of BT Group

plc’s issued share capital (excluding treasury shares), expires at

the conclusion of the 2023 AGM. We will ask shareholders to give

a similar authority at the 2023 AGM.

During FY23 and up to 17 May 2023, no shares were purchased

under this authority.

At the start of the year, 41.5m shares (having a total nominal value

of £2m, and constituting 0.4% of the issued share capital (0.4%

excluding treasury shares)) were held as treasury shares. During

FY23, 5.2m treasury shares (having a nominal value of £262,000,

and constituting 0.05% of the issued share capital (0.05%

excluding treasury shares)) were transferred to meet BT Group

plc’s obligations under its employee share plans. At 31 March 2023,

a total of 36.1m shares (having a total nominal value of £1.8m, and

constituting 0.36% of the issued share capital (0.36% excluding

treasury shares)) were held as treasury shares (see note 21 to the

consolidated financial statements).

Since 31 March 2023 (up to and including 17 May 2023),

554,286 treasury shares (having a nominal value of £27,700, and

constituting 0.005% of the issued share capital (0.005% excluding

treasury shares)) have been transferred to meet BT Group plc’s

obligations under its employee share plans.

At 17 May 2023, a total of 35.6m shares (having a nominal value of

£1.8m, and constituting 0.36% of the issued share capital (0.36%

excluding treasury shares)) were held as treasury shares.

In addition, during FY23 and up to 17 May 2023 the Trust

purchased 48.1m BT Group plc shares for a total consideration

of £88m. The Trust held 138.8m shares both at 31 March 2023

and 17 May 2023.

Cross-reference to the Strategic report

We have chosen to include the following information in the

Strategic report in line with the 2006 Act (otherwise required

by law to be included in the Report of the directors):

– the final dividend proposed by the Board (page 51)

– an indication of likely future developments in the business of

BT Group plc and its group (pages 1 to 82)

– an indication of our research and development activities

(page 13)

– information about how the directors engaged with UK

employees, had regard to UK employee interests, and the effect

of that regard, including on principal decisions during the year

(pages 23, 41 and 92 to 93)

– information about how the directors have had regard to the

need to foster business relationships with suppliers, customers

and others, and the effect of that regard, including on principal

decisions during the year (pages 24 to 27, 40 to 45 and 94 to 95)

– information about greenhouse gas emissions, energy

consumption and energy efficiency action (pages 39, 72 and 80).

By order of the Board

Sabine Chalmers

Group General Counsel, Company Secretary

& Director Regulatory Affairs

17 May 2023

Report of the directors continued

137Financial statements

Financial

statements

Independent auditor’s report 138

Group income statement 150

Group statement of comprehensive income 151

Group balance sheet 152

Group statement of changes in equity 153

Group cash flow statement 154

Notes to the consolidated financial statements

Basis of preparation 155

Critical & key accounting estimates

and significant judgements 156

Significant accounting policies that apply

to the overall financial statements 157

Segment information 158

Revenue 161

Operating costs 164

Employees 165

Audit, audit related and other non-audit services 166

Specific items 166

Taxation 168

Earnings per share 171

Dividends 171

Intangible assets 172

Property, plant and equipment 176

Leases 179

Programme rights 183

Trade and other receivables 184

Trade and other payables 186

Provisions & contingent liabilities 187

Retirement benefit plans 190

Own shares 200

Share-based payments 201

Divestments and assets & liabilities classified as held for sale 203

Investments 206

Joint ventures and associates 207

Cash and cash equivalents 210

Loans and other borrowings 210

Finance expense 214

Financial instruments and risk management 215

Other reserves 222

Related party transactions 223

Financial commitments 223

Post balance sheet events 223

Financial statements of BT Group plc 224

Related undertakings 228

Additional information 233

Contents

Significant

accounting policies

Critical & key accounting estimates and

significant judgements

Look out for these throughout the report

138 BT Group plc Annual Report 2023

1. Our opinion is unmodified

In our opinion:

– the financial statements of BT Group plc give a true and fair view of

the state of the Group’s and of the Parent Company’s affairs as at

31 March 2023, and of the Group’s profit for the year then ended;

– the Group financial statements have been properly prepared in

accordance with UK-adopted international accounting standards;

– the Parent Company financial statements have been properly

prepared in accordance with UK accounting standards, including

FRS 101 Reduced Disclosure Framework; and

– the Group and Parent Company financial statements have been

prepared in accordance with the requirements of the Companies

Act 2006.

What our opinion covers

We have audited the Group and Parent Company financial statements

of BT Group plc (“the Company”) for the year ended 31 March 2023

(FY23) included in the Annual Report, which comprise:

Group (BT Group plc and its subsidiaries) Parent Company (BT Group plc)

Group income statement

Group statement of

comprehensive income

Group balance sheet

Group statement of changes in

equity

Group cash flow statement

Notes 1 to 33 to the Group

financial statements, including

the accounting policies in the

respective notes

Company balance sheet

Company statement of changes

in equity

Notes 1 to 3 to the Parent

Company financial statements,

including the accounting policies

in note 1

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.

Our responsibilities are described below. We believe that the audit

evidence we have obtained is a sufficient and appropriate basis for

our opinion. Our audit opinion and matters included in this report

are consistent with those discussed and included in our reporting

to the Audit and Risk Committee (“ARC”).

We have fulfilled our ethical responsibilities under, and we

remain independent of the Group in accordance with, UK ethical

requirements including the FRC Ethical Standard as applied to

listed public interest entities.

2. Overview of our audit

Audit and Risk Committee interaction

During the year, the ARC met five times. KPMG are invited to

attend all ARC meetings and are provided with an opportunity

to meet with the ARC in private sessions without the Executive

Directors being present. For each Key Audit Matter, we have set

out communications with the ARC in section 4, including matters

that required particular judgement for each.

The matters included in the Audit and Risk Committee Chair’s

report on pages 101 to 105 are materially consistent with our

observations of those meetings.

Our independence

We have fulfilled our ethical responsibilities and remain

independent of the Group in accordance with UK ethical

requirements, including the FRC Ethical Standard as applied

to listed public interest entities.

Apart from the matters noted below, we have not performed

any non-audit services during the year ended 31 March 2023 or

subsequently which are prohibited by the FRC Ethical Standard.

During 2023, we identified that certain KPMG member firms had

provided preparation of local financial statement services and

foreign language translation services during the periods ended

31 March 2018 to 31 March 2023 to some entities not in scope for

the group audit. The services, which have been terminated, were

administrative in nature and did not involve any management

decision-making or bookkeeping. The work in each case was

undertaken after the group audit opinion was signed by KPMG LLP

for each of the related financial years and had no direct or indirect

effect on BT Group plc’s consolidated financial statements.

In our professional judgment, we confirm that based on our

assessment of the breaches, our integrity and objectivity as

auditor has not been compromised and we believe that an

objective, reasonable and informed third party would conclude

that the provision of these services would not impair our integrity

or objectivity for any of the impacted financial years. The Audit

and Risk Committee have concurred with this view.

We were first appointed as auditor by the shareholders for the

year ended 31 March 2019. The period of total uninterrupted

engagement is for the 5 financial years ended 31 March 2023.

The Group engagement partner is required to rotate every 5 years.

As this is the fifth year of John Luke’s involvement in the Group

audit, he will be required to rotate off after the FY23 audit. The

Audit and Risk Committee has confirmed Jon Mills as his successor.

The average tenure of partners responsible for component audits

as set out in section 7 below is 3 years.

Total audit fee £19.8m

Audit related fees (including interim review) £2.6m

Other services £0.1m

Non-audit fee as a % of total audit

and audit related fee % 11.6%

Date first appointed 11 July 2018

Uninterrupted audit tenure 5 years

Next financial period which requires a tender 2029

Tenure of Group engagement partner 5 years

Average tenure of component signing partners 3 years

Materiality

(Item 6 below)

The scope of our work is influenced by our view of materiality

and our assessed risk of material misstatement.

Group Materiality is determined with reference to a benchmark

of Group profit before tax normalised by adding back the one-

off operating cost arising from the BT Sport disposal (FY22:

normalised by averaging over the last 5 years due to fluctuations

as a result of Covid-19). We have determined overall materiality for

the Group financial statements as a whole at £95m (FY22: £100m)

and for the Parent Company financial statements as a whole at

£90m (FY22: £95m).

KPMG LLP’s Independent Auditor’s Report

to the members of BT Group plc

139Financial statements

Consistent with FY22, we determined that normalised profit

before tax remains the benchmark for the Group as BT Group plc is

publicly traded and a profit seeking entity and the profitability and

prospects for future net cash inflows is important to the users of

the financial statements. In FY22, we determined normalised profit

before tax by averaging over the last 5 years due to fluctuations

as a result of Covid-19. Users including existing and potential

investors and analysts are interested in this metric as it shows

the company profitability from its operations. As such, we based

our Group Materiality on normalised profit before tax, of which it

represents 4.95% (FY22: 4.4%).

Materiality for the Parent Company financial statements was

determined with reference to a benchmark of Parent Company

Total Assets of which it represents 0.80% (FY22: 0.80%).

Materiality levels used in our audit

Group

HCM

PCM

AMPT

LCM

GPM

FY23 £mFY22 £m

100

4.75

61.7

Group Group Materiality

GPM Group Performance Materiality

HCM Highest Component Materiality

PCM Parent Company Materiality

LCM Lowest Component Materiality

AMPT Audit Misstatement Posting Threshold

Group scope

(Item 7 below)

We have performed risk assessment and planning procedures to

determine which of the Group’s components are likely to include

risks of material misstatement to the Group financial statements,

the type of procedures to be performed at these components and

the extent of involvement required from our component auditor.

The total number of components in scope for FY23 is three,

reduced from four from FY22. The decrease is due to the exclusion

of BT Italy and BT America, which comprise 0.8% and 2.6%

respectively of the group’s FY23 revenue and 1.86% in aggregate

of the group’s normalised profit before tax and the inclusion of

Openreach Limited. The below factors were considered before

reaching a judgement to remove the two components from the

Group audit scope:

– Reduction in the size and complexity of the underlying

operations of the business, which is partly attributable to the

recent divestment activities in the BT Italy and BT America

components

– Audit evidence obtained from procedures performed in the

prior year shows both components have a reducing risk profile

in terms of errors and fraud.

The components within the scope of our work accounted for

the percentages illustrated below.

In addition, we have performed group level analysis on the

remaining components to determine whether further risks

of material misstatement exist in those components.

We consider the scope of our audit, as communicated to the Audit

and Risk Committee, to be an appropriate basis for our audit opinion.

Coverage of Group financial statements

Profit before tax

Total assets

Revenue

Full scope audits

Remaining

components

78%

22%

90%

10%

86%

14%

The impact of climate change on our audit

In planning our audit, we considered the potential impacts of climate

change on the Group’s business and its financial statements.

The Group has pledged in the Strategic report to be a net-zero

business by 2030 and has also outlined several shorter-term

climate change targets. Furthermore, the Group has mentioned

its commitment to implementing the recommendations of the

Task Force on Climate-related Financial Disclosures (TCFD). As a

part of our audit, we have performed a risk assessment, including

enquiries of management, to understand how the impact of

commitments made by the Group in respect of climate change,

as well as the physical and transition risks of climate change, may

affect the financial statements and our audit.

The potential impacts of these matters relate to the forward-

looking estimates, which include projections for impairment

assessment of goodwill, useful economic life of vehicle fleet and

infrastructure impacting on future depreciation charges, and

significant assumptions used in pension asset valuations. Taking

into account our risk assessment procedures, the headroom on

goodwill, the remaining useful economic lives of relevant assets

and the nature of the assumptions used in the pension valuation,

we have assessed that there is not a significant risk to the balances

in the financial statements as a result of climate change. Therefore,

there was no material impact on the Group’s critical accounting

estimates and our key audit matters.

We have read the disclosures of climate related information in

the Annual Report and considered their consistency with the

financial statements and our audit knowledge. We have not been

engaged to provide assurance over the accuracy of the climate risk

disclosures in the Annual Report.

140 BT Group plc Annual Report 2023

3. Going concern, viability and principal risks

and uncertainties

The Directors have prepared the financial statements on the going

concern basis as they do not intend to liquidate the Group or the

Parent Company or to cease their operations, and as they have

concluded that the Group’s and the Parent Company’s financial

position means that this is realistic. They have also concluded that

there are no material uncertainties that could have cast significant

doubt over their ability to continue as a going concern for at least

a year from the date of approval of the financial statements (“the

going concern period”).

Going concern

We used our knowledge of the Group, its industry, and the general

economic environment to identify the inherent risks to its business

model and analysed how those risks might affect the Group’s and

Company’s financial resources or ability to continue operations

over the going concern period. The risks that we considered most

likely to adversely affect the Group’s and Company’s available

financial resources over this period were:

– The impact of rising energy prices, supply shortages, and

inflationary pressures;

– The impact of significant supply chain disruptions driven by

geo-political factors;

– The impact of plans to deliver new initiatives required to meet

savings commitments not being mobilised and executed;

– The impact of an increased level of financial market volatility and

deterioration of BT’s covenant triggers on the funding obligation

of the BT Pension Scheme;

– The likelihood of existing legal matters/claims crystallising

within the going concern period.

We also considered less predictable but realistic second order

impacts, such as a large scale cyber breach or adverse changes

to telecoms regulation, which could result in a rapid reduction of

available financial resources.

We considered whether these risks could plausibly affect the

liquidity in the going concern period by comparing severe but

plausible downside scenarios that could arise from these risks

individually and collectively against the level of available financial

resources indicated by the Group’s financial forecasts.

Our procedures also included an assessment of whether the going

concern disclosure in note 1 to the financial statements gives a

complete and accurate description of the Directors’ assessment

of going concern.

Accordingly, based on those procedures, we found the Directors’

use of the going concern basis of accounting without any material

uncertainty for the Group and Parent Company to be acceptable.

However, as we cannot predict all future events or conditions and

as subsequent events may result in outcomes that are inconsistent

with judgements that were reasonable at the time they were made,

the above conclusions are not a guarantee that the Group or the

Parent Company will continue in operation.

Our conclusions

– We consider that the Directors’ use of the going concern

basis of accounting in the preparation of the Group and

Parent Company’s financial statements is appropriate;

– We have not identified, and concur with the Directors’

assessment that there is not, a material uncertainty related to

events or conditions that, individually or collectively, may cast

significant doubt on the Group’s or Parent Company’s ability

to continue as a going concern for the going concern period;

– We have nothing material to add or draw attention to in relation

to the Directors’ statement in note 1 to the financial statements

on the use of the going concern basis of accounting with no

material uncertainties that may cast significant doubt over

the Group and Parent Company’s use of that basis for the going

concern period, and we found the going concern disclosure in

note 1 to be acceptable; and

– The related statement under the Listing Rules set out on

page 132 is materially consistent with the financial statements

and our audit knowledge.

Disclosures of emerging and principal risks and

longer-term viability

Our responsibility

We are required to perform procedures to identify whether there

is a material inconsistency between the Directors’ disclosures in

respect of emerging and principal risks and the Viability statement,

and the financial statements and our audit knowledge.

Based on those procedures, we have nothing material to add or

draw attention to in relation to:

– the Directors’ confirmation within the Viability statement on

page 81 that they have carried out a robust assessment of the

emerging and principal risks facing the Group, including those

that would threaten its business model, future performance,

solvency and liquidity;

– the Principal Risks and Uncertainties disclosures describing

these risks and how emerging risks are identified and explaining

how they are being managed and mitigated; and

– the Directors’ explanation in the Viability statement of how they

have assessed the prospects of the Group, over what period

they have done so and why they considered that period to be

appropriate, and their statement as to whether they have a

reasonable expectation that the Group will be able to continue in

operation and meet its liabilities as they fall due over the period

of their assessment, including any related disclosures drawing

attention to any necessary qualifications or assumptions.

We are also required to review the Viability statement set out on

page 81 under the Listing Rules.

Our work is limited to assessing these matters in the context of only

the knowledge acquired during our financial statements audit. As

we cannot predict all future events or conditions and as subsequent

events may result in outcomes that are inconsistent with judgements

that were reasonable at the time they were made, the absence of

anything to report on these statements is not a guarantee as to the

Group’s and Parent Company’s longer-term viability.

Our reporting

We have nothing material to add or draw attention to in relation

to these disclosures.

We have concluded that these disclosures are materially consistent

with the financial statements and our audit knowledge.

4. Key audit matters

What we mean

Key audit matters are those matters that, in our professional

judgment, were of most significance in the audit of the financial

statements and include the most significant assessed risks of

material misstatement (whether or not due to fraud) identified

by us, including those which had the greatest effect on:

– the overall audit strategy;

– the allocation of resources in the audit; and

– directing the efforts of the engagement team.

We include below the Key Audit Matters (KAM) in decreasing

order of audit significance together with our key audit procedures

KPMG LLP’s Independent Auditor’s Report to the members of BT Group plc continued

141Financial statements

to address those matters and our results from those procedures.

These matters were addressed, and our results are based on

procedures undertaken, for the purpose of our audit of the

financial statements as a whole. We do not provide a separate

opinion on these matters.

4.1 Disposal of BT Sport and re-investment in Sports JV

Financial Statement Elements

At the date of disposal

Profit on disposal after tax £28m

Joint ventures and associates £414m

Other Payables – Minimum guarantee from BT Sport

Disposal £712m

Our assessment of risk vs FY22



The disposal of BT Sport is a new transaction in the year

Our results

FY23: Acceptable

FY22: N/A

Description of the Key Audit Matter

Accounting Judgement and Subjective Valuation

BT have classified the Sports JV (“JV”) as a joint venture and have

therefore deconsolidated BT Sport from the group as described in

note 25.

Assessment of joint control

There is significant judgement involved in determining joint control

due to the complex structure of the transaction. This includes the

unequal size of businesses contributed to the JV by BT and Warner

Bros. Discovery (WBD) and the unequal split of cash distribution

during the first four years of operation.

Valuation of BT’s equity interest in the JV and the off-

market element of the minimum guarantee contract with JV

There is significant estimation uncertainty over the valuation of

consideration on the disposal in relation to two main areas which

have initially been recognised at fair value.

The valuation of BT’s equity interest in the JV as described in note

23. A change in the methodology applied or a small change in key

assumptions around forecast cashflows, exit multiple or discount

rate can significantly impact the valuation.

The valuation of the off-market element of the wholesale

distribution minimum guarantee contract between BT and the

JV. A small change in the assumption of market price or market

minimum volume commitment can significantly impact the

valuation as described in note 23.

Overall assessment

Due to the level of judgement and estimation uncertainty in

relation to the BT Sport disposal as a whole, there is increased

susceptibility to management bias, resulting in a significant risk

of fraud or error.

The effect of these matters is that, as part of our risk assessment, we

determined that the profit on disposal has a high degree of estimation

uncertainty, with a potential range of reasonable outcomes greater

than our materiality for the financial statements as a whole, and

possibly many times that amount. The financial statements (note 23)

disclose the sensitivity estimated by the Group.

Our response to the risk

Our procedures to address the risk included:

Assessment of joint control

Our accounting expertise: We evaluated and challenged the

assessment of control with reference to IFRS 10 by taking into

account a number of operational, economic and legal factors

including:

– Jointly controlled board and voting rights and pre-agreed

business plan

– Unequal value of business contributed and unequal exposure

to variable returns

– WBD’s options to purchase BT’s shares at set points in the first

4 years and its interaction with the timing of key decisions over

material activities of the JV.

Inspection of transaction documents: We inspected legal

agreements between BT, WBD and the JV, including the Joint

Venture agreement, master service agreement and loan facility

documents.

Valuation of BT’s equity interest in the JV

Our valuation expertise: We challenged, with the support of our

own valuation specialists, the valuation methodology applied

including developing our own independent assessment of key

assumptions including, the determination of comparator group

of companies, discount rate and multiple applied.

Benchmarking assumptions: We challenged the accuracy

of cashflow forecasts, including any growth rates and risk

adjustments applied with reference to historic trends in the

industry and wider economic forecasts. We inspected and

challenged sensitivity analysis over the forecasts by considering

plausible downside scenarios, including the impact of the ongoing

economic downturn and the potential loss of key sports rights.

Test of details: We compared forecast cashflows with contractual

arrangements in place over revenues and costs.

Historical comparisons: We compared historic results such as

subscriber numbers and revenues to underlying data sources and

compared historic trends with those forecast.

Re-performance: We inspected valuation calculations and

recalculated for mathematical accuracy and internal consistency.

Sensitivity analysis: We performed sensitivity analysis on key

assumptions of forecast cashflows, exit multiple and discount

rate applied.

Valuation of the off-market element of the minimum

guarantee contract with JV

Benchmarking assumptions: We compared the Group’s estimate

of a market price and market volume commitment to contractual

evidence from other market participants recent and historic

transactions with BT or the Sports Joint Venture.

Comparing valuations: We developed an independent

expectation of the range of fair values based on the limited

evidence of market pricing available. In doing so, we considered

the relevance and reliability of alternative price points, giving

more weight to external evidence. Having found the estimate

to be at the high end of the range we consider to be acceptable,

we exercised judgement to determine the acceptability of the

amount recognised, taking into account the limited number of

market participants, and the clarity of the associated disclosure

of estimation uncertainty.

142 BT Group plc Annual Report 2023

Re-performance: We recalculated BT’s internal pricing model

including whether the assumptions and data inputs were

consistently applied.

Sensitivity analysis: We performed sensitivity analysis on key

assumptions of discount rate, market volume commitment and

associated market price.

Overall assessment

Inspection and inquiry: We made inquiries of JV board members

and inspected JV board minutes.

Assessing bias: We considered the impact on the profit on disposal

after tax and future profit trends as a result of potential bias in

the preparation of the judgements and estimates, particularly

the estimate of arms length commercial terms for the minimum

guarantee liability.

Assessing transparency: We assessed whether the Group’s

disclosures about the sensitivity of the profit on disposal to changes

in key assumptions reflected the risks inherent in the valuation of

consideration. We also assessed whether the key judgements in

respect of deconsolidation were appropriately disclosed.

We performed the detailed tests above rather than seeking to

rely on any of the Group’s controls because our knowledge of the

design of these controls indicated that we would not be able to

obtain the required evidence to support reliance on controls.

Communications with BT Group plc’s Audit

and Risk Committee

Our discussions with and reporting to the Audit and Risk

Committee included:

– Our definition of the KAM and related audit approach.

– Our assessment of the key judgments impacting the control

assessment including the timing of key decisions over material

activities in the JV and their interaction with WBD’s options to

purchase the business and the unequal contributions and cash

distributions during the first four years.

– Our assessment of the key valuation judgements over BT’s

equity interest in the JV including key assumptions over the

cashflow forecasts, discount rate and EBITDA multiples, and

our acceptable range of possible outcomes.

– Our assessment of the key estimates within the valuation of

the minimum guarantee contract with the JV including the

key assumptions of market price and related market volume

commitment, and our acceptable range of possible outcomes.

– Our assessment of management bias in the preparation of the

estimate.

– Our assessment of the adequacy of the proposed disclosures.

Areas of particular auditor judgement

We identified the following as the areas of particular auditor

judgement:

– A number of factors formed part of the control assessment. Taken

individually these factors could result in a different outcome, so

significant judgement was required to assess the different factors,

before weighting them and reaching an overall conclusion.

– The appropriateness of the valuation of BT’s equity interest

in the Joint Venture, particularly the selection of comparable

market data inputs and valuation model. The balance is sensitive

to a number of assumptions and the overall estimate could fall

within a range of reasonable amounts.

– The appropriateness of the valuation of the off-market element

of the minimum guarantee contract with the JV given the limited

number of market based valuation points. Having found the

estimate of the off-market element of the minimum guarantee

contract with the JV to be at the high end of the range we consider

to be acceptable, we exercised judgement to determine the

acceptability of the amount recognised, taking into account the

clarity of the associated disclosure and potential for management

bias due to the impact on future reported underlying profit.

Our results

We found the Group’s classification of the JV as a joint venture to be

acceptable. We found the estimate of consideration, related balance

sheet amounts and recognised profit on disposal to be acceptable.

Further information in the Annual Report and Accounts

See the Audit and Risk Committee Report on page 103 for details

on how the Audit and Risk Committee considered the Disposal

of BT Sport and Re-investment in the Sports JV as an area of

significant attention, and note 23 and 25 for the accounting policy

on divestments and joint ventures and financial disclosures.

4.2 Valuation of unquoted investments in the BT pension

scheme (group)

Financial Statement Elements

FY23 FY22

Certain unquoted investments in the

BTPS: included within the unquoted BTPS

plan assets £16.4bn £18.6bn

Our assessment of risk vs FY22



Decreased

Refer to pages 190 to 200 (financial disclosures note 20

Defined Benefit Obligation)

Our results

FY23: Acceptable

FY22: Acceptable

Description of the Key Audit Matter

Subjective Valuation

The BTPS has unquoted plan assets in property, mature

infrastructure assets and a longevity insurance contract which are

classified as fair value level three assets.

Significant judgement is required to determine the value of a

portion of these unquoted investments, which are valued based

on inputs that are not directly observable. BT engage valuation

experts to value these assets.

The key unobservable inputs used to determine the fair value of

these plan assets includes estimated rental value and price inflation

(for properties), discount rates and comparable transactions (for

mature infrastructure assets), discount rate, model and projected

future mortality (for the longevity insurance contract).

The effect of these matters is that, as part of our risk assessment, we

determined that the valuation of unquoted plan assets in the BTPS

has a high degree of estimation uncertainty, with a potential range

of reasonable outcomes greater than our materiality for the financial

statements as a whole, and possibly many times that amount.

The financial statements (note 20) disclose as part of sensitivities

of growth assets the key sensitivities of key assumptions for the

valuation of unquoted plan assets.

The valuation risk arising from private equity, secure income and

non-core credit assets has decreased on the prior year as the impact

of geo-political events is now embedded in market valuations and is

no longer considered a significant risk for our audit.

KPMG LLP’s Independent Auditor’s Report to the members of BT Group plc continued

143Financial statements

Our response to the risk

Our procedures to address the risk included:

Assessing valuers’ credentials: Evaluating the scope,

competencies and objectivity of the Group’s external experts who

assisted in determining the key unobservable inputs and market

indices listed above.

Benchmarking assumptions: Challenging, with the support of

our own valuation specialists, the key unobservable inputs, such

as estimated rental value and market value, used in determining

the fair value of a sample of UK and overseas property assets, and

discount rates used in determining the mature infrastructure and

certain secure income assets by comparing them to discount rates

for comparable external assets.

Comparing valuations: Developing, with the support of our own

valuation specialists, an independent expectation of the fair value for a

sample of UK and overseas property based on changes in valuation for

the relevant geography and asset type obtained from external market

data and the historical valuation for each property. Challenging,

with the support of our own actuarial specialists, the fair value of the

longevity insurance contract by comparing it to an independently

developed range of fair values using assumptions, such as the discount

rate and projected future mortality, based on external data.

Test of details: Comparing the Group’s fund managers’ historical

estimated net asset values to the latest audited financial

statements of those funds to assess the Group’s ability to accurately

estimate the fair value of private equity and non-core credit assets.

Assessing transparency: Considering the adequacy of the Group’s

disclosures in respect of the sensitivity of the asset valuations to

these assumptions.

We performed the detailed tests above rather than seeking to

rely on any of the Group’s controls because our knowledge of the

design of these controls indicated that we would not be able to

obtain the required evidence to support reliance on controls.

Communications with the BT Group plc’s Audit

and Risk Committee

Our discussions with and reporting to the Audit and Risk

Committee included:

– Our definition of the Key Audit Matter relating to the valuation

of the BTPS unquoted plan assets.

– We have also discussed our audit response to the Key Audit

Matter which included the use of specialists to challenge key

aspects of management’s third party asset valuations.

Areas of particular auditor judgement

We identified the following as the areas of particular auditor

judgement:

– Subjective and complex auditor judgement was required in

evaluating the key assumptions used by the group (including

discount rate, inflation and gearing).

Our results

Based on the risk identified and our procedures performed we

consider the valuation of the unquoted pension plan assets in

respect of the BTPS and the related disclosures to be acceptable

(2022 Result: Acceptable).

Further information in the Annual Report and Accounts

See the Audit and Risk Committee Report on page 103 for details

on how the Audit and Risk Committee considered the valuation of

the unquoted investments in the BT Pension Scheme as an area

of significant attention, page 193 for the accounting policy on

Retirement benefit plans, and note 20 for the financial disclosures.

4.3 Valuation of defined benefit obligation of the

BT Pension Scheme (BTPS) (Group)

Financial Statement Elements

FY23 FY22

BTPS Obligation £41.6bn £54.3bn

Our assessment of risk vs FY22



Increased

Refer to pages 190 to 200 (financial disclosures note 20

Defined Benefit Obligation)

Our results

FY23: Acceptable

FY22: Acceptable

Description of the Key Audit Matter

Subjective Valuation

The valuation of the BTPS defined benefit obligation is complex

and requires a significant degree of estimation in determining

the assumptions. It is dependent on key actuarial assumptions,

including the discount rate, retail price index (RPI) and mortality

assumptions. A change in the methodology applied or small

changes in the key actuarial assumptions may have a significant

impact on the measurement of the defined benefit obligation.

The inherent risk levels have increased from prior year levels due

to the increased volatility of the discount rate and price inflation

assumptions since March 2022.

The effect of these matters is that, as part of our risk assessment,

we determined the valuation of the BTPS defined benefit

obligation had a high degree of estimation uncertainty, with

a potential range of reasonable outcomes greater than our

materiality for the financial statements as a whole, and possibly

many times that amount. The financial statements (note 20)

disclose the sensitivity of key assumptions for the obligation

estimated by the Group.

Our response to the risk

Our procedures to address the risk included:

Evaluation of management’s expert: Evaluating the scope,

competency and objectivity of the Group’s external experts

who assisted in determining the actuarial assumptions used

to determine the defined benefit obligation.

Our actuarial expertise: We involved our own actuarial

professionals in the following:

– Evaluating the judgements made and the appropriateness

of methodologies used by management and management’s

actuarial expert in determining the key actuarial assumptions;

– Comparing the assumptions used by BT Group plc to our

independently compiled expected ranges based on market

observable indices and our market experience.

Assessing transparency: Considering the adequacy of the Group’s

disclosures in respect of the sensitivity of the obligation to these

assumptions.

We performed the tests above rather than seeking to rely on any of

the Group’s controls because the nature of the balance is such that

we would expect to obtain audit evidence primarily through the

detailed procedures described.

144 BT Group plc Annual Report 2023

Communications with the BT Group plc’s Audit

and Risk Committee

Our discussions with and reporting to the Audit and Risk

Committee included:

– Our definition of the Key Audit Matter relating to the valuation

of the defined benefit pension obligation.

– We also discussed our audit response to the key audit matter

which included the use of specialists to challenge key aspects

of management’s actuarial valuation.

Areas of particular auditor judgement

We identified the following as the areas of particular auditor

judgement:

– Subjective and complex auditor judgement was required in

evaluating the key actuarial assumptions used by the Group

(including the discount rate, retail price index and mortality

assumptions).

Our results

Based on the risk identified and our procedures performed we

consider the valuation of the defined benefit pension obligation in

respect of the BTPS and the related disclosures to be acceptable

(2022 result: acceptable).

Further information in the Annual Report and Accounts

See the Audit and Risk Committee Report on page 103 for details

on how the Audit and Risk Committee considered Valuation of the

BTPS Defined Benefit Obligation of the BT Pension Scheme as

an area of significant attention, and page 194 for the accounting

policy on Retirement Benefit Plans (note 20) for the financial

disclosures.

4.4 Accuracy of revenue due to the complexity of the

billing systems (Group)

Financial Statement Elements

FY23 FY22

Certain revenue streams: included within

the total revenue £20.7bn £20.9bn

Our assessment of risk vs FY22



Same

Refer to pages 161 to 164 (financial disclosures note 5

Revenue)

Our results

FY23: Acceptable

FY22: Acceptable

Description of the Key Audit Matter

BT non-long-term contract revenue consists of a large number of

low value transactions. The Group operates a number of distinct

billing systems and the IT landscape underpinning revenue and

linking the billing systems together is complex.

There are multiple products sold at multiple rates with varying price

structures in place. Products represent a combination of service

based products, such as fixed line telephony, as well as goods, such as

the provision of mobile handsets. There are monthly tariff charges.

The revenue recognition of non-long-term contract revenue is

not subject to significant judgement. However, due to the large

number of transactions and complexity of the billing systems, this

is considered to be an area of most significance in our audit.

Our response to the risk

Our procedures to address the risk included:

Process Understanding: Obtaining an understanding of the

revenue processes by observing transactions from customer

initiation to cash received for certain revenue streams.

Test of Detail: Comparing a sample of revenue transactions,

including credit notes, to supporting evidence e.g., customer

bills, orders, price lists and cash received (all where applicable).

We performed an assessment of whether the overstatements of

revenue identified through these procedures were material, taking

into account findings from other areas of the audit and qualitative

aspects of the financial statements as a whole.

We performed the detailed tests above rather than seeking to rely

on the Group’s controls because our knowledge of the design of

these controls indicated that we would be unlikely to obtain the

required evidence to support reliance on controls.

Communications with the BT Group plc’s Audit and Risk

Committee

Our discussions with and reporting to the Audit and Risk

Committee included:

– Our definition of the Key Audit Matter and our audit approach,

including the extent of our planned control reliance.

– The findings from our substantive testing. We performed an

assessment of whether the overstatements of revenue identified

through these procedures were material, taking into account

findings from other areas of the audit and qualitative aspects of

the financial statements as a whole.

Areas of particular auditor judgement

We identified the following as the areas of particular auditor

judgement:

– We continued to update our risk assessment in light of the

findings from our substantive testing.

Our results

We considered revenue relating to non-long-term contract

revenue to be acceptable (2022: acceptable).

Further information in the Annual Report and Accounts

Refer to pages 161 to 162 for the accounting policy on Revenue

and note 5 for the financial disclosures.

4.5 Recoverability of parent company investment in

subsidiaries

Financial Statement Elements

FY23 FY22

Investment in subsidiary £11. 3bn £11.2bn

Our assessment of risk vs FY22



Same

Refer to page 227 (Company financial statements note 2)

Our results

FY23: Acceptable

FY22: Acceptable

KPMG LLP’s Independent Auditor’s Report to the members of BT Group plc continued

145Financial statements

Description of the Key Audit Matter

The carrying amount of the parent company investment in

subsidiary represents 100% (2022: 93%), of the company’s total

assets.

Their recoverability is not considered a significant risk or subject

to significant judgement. However, due to their materiality in

the context of the parent company financial statements, this is

considered to be the area that had the greatest effect on our

overall parent company audit.

Our response to the risk

Our procedures to address the risk included:

Test of Detail: Comparing the carrying amount of the parent

company’s investment with the relevant subsidiary balance sheet

to identify whether its net assets, being an approximation of their

minimum recoverable amount, was in excess of its carrying amount

and assessing whether that subsidiary group has historically been

profit-making.

Comparing valuations: Comparing the carrying amount of the

parent company’s investment and loans to Group undertakings,

with the market capitalisation of the Group.

We performed the tests above rather than seeking to rely on any of

the Company’s controls because the nature of the balance is such

that we would expect to obtain audit evidence primarily through

the detailed procedures described.

Communications with the BT Group plc’s

Audit and Risk Committee

Our discussions with and reporting to the Audit and Risk Committee

included our definition of the Key Audit Matter and our findings.

Areas of particular auditor judgement

We did not identify any areas of particular auditor judgement.

Our results

We found the carrying amounts of the investment in subsidiary to

be acceptable (2022: acceptable).

Further information in the Annual Report and Accounts

Refer to page 226 for the accounting policy on Investment

in Subsidiaries Undertakings and page 227 for the financial

disclosures.

5. Our ability to detect irregularities,

and our response

Fraud – identifying and responding to risks of material

misstatement due to fraud

Fraud risk assessment

To identify risks of material misstatement due to fraud (“fraud

risks”) we assessed events or conditions that could indicate an

incentive or pressure to commit fraud or provide an opportunity to

commit fraud. Our risk assessment procedures included:

– enquiring of Directors, the Audit and Risk Committee, internal

audit and inspection of policy documentation as to the Group’s

high-level policies and procedures to prevent and detect fraud,

including the internal audit function, and the Group’s channel for

“whistleblowing”, as well as whether they have knowledge of any

actual, suspected or alleged fraud;

– reading Board, Remuneration Committee and Executive

Committee minutes;

– considering significant unusual transactions, such as the

BT Sport disposal;

– considering remuneration incentive schemes and performance

targets for management and Directors including the EPS target

for management remuneration;

– using analytical procedures to identify any unusual or

unexpected relationships.

Risk communications

We communicated identified fraud risks throughout the audit

team and remained alert to any indications of fraud throughout the

audit. This included communication from the Group to full scope

component audit teams of relevant fraud risks identified at the

Group level and request to full scope component audit teams to

report to the Group audit team any instances of fraud that could

give rise to a material misstatement at Group.

Fraud risks

As required by auditing standards, and taking into account

possible pressures to meet profit targets, recent revisions to

guidance and our overall knowledge of the control environment,

we performed procedures to address the risk of management

override of controls, in particular the risk that Group and

component management may be in a position to make

inappropriate accounting entries.

On this audit we do not believe there is a fraud risk related to

revenue recognition because non-long-term contract revenues

are not judgemental and consist of a high number of low value

transactions, and long-term contracts are generally low in

complexity with most having a revenue recognition profile

aligned to billing.

We also identified a fraud risk related to the BT Sport disposal in

response to possible pressures to meet strategic objectives and

future profit targets.

Procedures to address fraud risks

In determining the audit procedures, we took into account the

results of our evaluation and test of operating effectiveness of

some of the Group-wide fraud risk management controls.

We also performed procedures including:

– identifying journal entries to test for all full scope components

based on risk criteria and comparing the identified entries to

supporting documentation. These included those posted by

senior finance management, those posted and approved by the

same user and those posted to unusual or seldom used accounts;

– assessing whether the judgements made in making accounting

estimates are indicative of a potential bias;

– evaluating the business purpose for significant unusual transactions

Laws and regulations – identifying and responding to

risks of material misstatement relating to compliance

with laws and regulations

Laws and regulations risk assessment

We identified areas of laws and regulations that could reasonably

be expected to have a material effect on the financial statements

from our general commercial and sector experience, through

discussion with the Directors and other management (as required

by auditing standards), and from inspection of the Group’s

regulatory and legal correspondence and discussed with the

Directors and other management the policies and procedures

regarding compliance with laws and regulations.

As the Group is regulated, our assessment of risks involved gaining

an understanding of the control environment including the Group’s

procedures for complying with regulatory requirements.

146 BT Group plc Annual Report 2023

KPMG LLP’s Independent Auditor’s Report to the members of BT Group plc continued

Risk communications

We communicated identified laws and regulations throughout

our team and remained alert to any indications of non-compliance

throughout the audit. This included communication from the

Group to full-scope component audit teams of relevant laws

and regulations identified at the Group level, and a request for

full scope component auditors to report to the Group team any

instances of non-compliance with laws and regulations that could

give rise to a material misstatement at Group.

The potential effect of these laws and regulations on the financial

statements varies considerably.

Direct laws context and link to audit

Firstly, the Group is subject to laws and regulations that directly

affect the financial statements including financial reporting

legislation (including related companies legislation), distributable

profits legislation, taxation legislation, and pension legislation

and we assessed the extent of compliance with these laws and

regulations as part of our procedures on the related financial

statement items.

Most significant indirect law/ regulation areas

Secondly, the Group is subject to many other laws and regulations

where the consequences of non-compliance could have a material

effect on amounts or disclosures in the financial statements, for

instance through the imposition of fines or litigation or the loss of

the Group’s licence to operate. We identified the following areas as

those most likely to have such an effect: anti-bribery, regulations

affecting telecommunication providers (including compliance with

Ofcom regulation), and certain aspects of company legislation

recognising the nature of the Group’s activities and its legal form.

Auditing standards limit the required audit procedures to identify

non-compliance with these laws and regulations to enquiry of the

Directors and other management and inspection of regulatory and

legal correspondence, if any. Therefore if a breach of operational

regulations is not disclosed to us or evident from relevant

correspondence, an audit will not detect that breach.

Known actual or suspected matters

For the legal matters discussed in note 19 we assessed disclosures

against our understanding from legal correspondence.

Significant actual or suspected breaches discussed

with ARC

We discussed with the Audit and Risk Committee other matters

related to actual or suspected breaches of laws or regulations, for

which disclosure is not necessary, and considered any implications

for our audit.

Context

Context of the ability of the audit to detect fraud or

breaches of law or regulation

Owing to the inherent limitations of an audit, there is an unavoidable

risk that we may not have detected some material misstatements

in the financial statements, even though we have properly planned

and performed our audit in accordance with auditing standards.

For example, the further removed non-compliance with laws and

regulations is from the events and transactions reflected in the

financial statements, the less likely the inherently limited procedures

required by auditing standards would identify it. In addition, as with

any audit, there remained a higher risk of non-detection of fraud,

as these may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal controls. Our audit

procedures are designed to detect material misstatement. We are

not responsible for preventing non-compliance or fraud and cannot

be expected to detect non-compliance with all laws and regulations.

6. Our determination of materiality

The scope of our audit was influenced by our application of

materiality. We set quantitative thresholds and overlay qualitative

considerations to help us determine the scope of our audit and the

nature, timing and extent of our procedures, and in evaluating the

effect of misstatements, both individually and in the aggregate, on

the financial statements as a whole.

£95m (FY22: £100m)

Materiality for the group financial statements as a whole

What we mean

A quantitative reference for the purpose of planning and

performing our audit.

Basis for determining materiality and judgements applied

Materiality for the Group financial statements as a whole was set

at £95m (FY22: £100m). This was determined with reference to a

benchmark of normalised profit before tax.

Consistent with FY22, we determined that normalised profit before

tax remains the main benchmark for the Group as BT Group plc

is publicly traded and a profit seeking entity and the profitability

and prospects for future net cash inflows is important to the users

of the financial statements. Users including existing and potential

investors and analysts are interested in this metrics as it shows the

company profitability from its operations.

We normalised by adding back adjustments that do not represent

the normal, continuing operations of the Group. The items we

adjusted for were BT Sport related items as disclosed in note 9. As

such, we based our Group materiality on Group normalised profit

before tax of £1.905bn. In FY22, we determined normalised profit

before tax of £2.265bn by averaging over the last 5 years due to

fluctuations as a result of Covid-19.

Our Group materiality of £95m was determined by applying a

percentage to the normalised profit before tax. When using a

benchmark of normalised profit before tax to determine overall

materiality, KPMG’s approach for listed entities considers a

guideline range 3% – 5% of the measure. In setting overall Group

materiality, we applied a percentage of 4.99% (FY22: 4.4%) to

the benchmark.

Materiality for the Parent Company financial statements as a whole

was set at £90m (FY22: £95m), determined with reference to a

benchmark of Parent Company Total Assets of which it represents

0.80% (FY22: 0.80%).

£61.70m (FY22: £65.00m)

Performance materiality

What we mean

Our procedures on individual account balances and disclosures

were performed to a lower threshold, performance materiality,

so as to reduce to an acceptable level the risk that individually

immaterial misstatements in individual account balances add up

to a material amount across the financial statements as a whole.

Basis for determining performance materiality and

judgements applied

We have considered performance materiality at a level of 65%

(FY22: 65%) of materiality for BT Group plc Group financial

statements as a whole to be appropriate.

The Parent Company performance materiality was set at £58.5m

(FY22: £61.75m), which equates to 65% (FY22: 65%) of materiality

for the Parent Company financial statements as a whole.

147Financial statements

We applied this percentage in our determination of performance

materiality based on the level of identified misstatements and

control deficiencies during the prior period.

£4.75m (FY22: £5.00m)

Audit misstatement posting threshold

What we mean

This is the amount below which identified misstatements are

considered to be clearly trivial from a quantitative point of view.

We may become aware of misstatements below this threshold

which could alter the nature, timing and scope of our audit

procedures, for example if we identify smaller misstatements

which are indicators of fraud.

This is also the amount above which all misstatements identified

are communicated to BT Group plc’s Audit and Risk Committee.

Basis for determining the audit misstatement posting

threshold and judgements applied

We set our audit misstatement posting threshold at 5% (FY22:

5%) of our materiality for the Group financial statements. We

also report to the Audit and Risk Committee any other identified

misstatements that warrant reporting on qualitative grounds.

The overall materiality for the Group financial statements of £95m (FY22: £100m) compares as follows to the main financial statement

caption amounts:

Total Group Revenue

Group normalised profit

before tax Total Group Assets

FY23 FY22 FY23 FY22 FY23 FY22

Financial statement Caption £20,681m £20,850m £1,905m £2,265m £52,752m £49,774m

Group Materiality as % of caption 0.46% 0.48% 4.99% 4.4% 0.18% 0.20%

7. The scope of our audit

Group scope

What we mean

How the Group audit team determined the procedures to be performed across the Group.

The Group has 226 (FY22: 234) reporting components. In order to determine the work performed at the reporting component level, we

identified those components which we considered to be of individual financial significance, those which were significant due to risk and

those remaining components on which we required procedures to be performed to provide us with the evidence we required in order to

conclude on the group financial statements as a whole.

We determined individually financially significant components as those contributing at least 10% (FY22: 10%) of revenue or total assets.

We selected revenue and total assets because these are the most representative of the relative size of the components. We identified 2

(FY22: 2) components as individually financially significant components and performed full scope audits on these components.

In addition, to enable us to obtain sufficient appropriate audit evidence for the group financial statements as a whole, we selected 1

component where we performed an audit of payroll account balances (2022: 2 components on which we performed full scope audits).

The components within the scope of our work accounted for the following percentages of the Group’s results, with the prior year

comparatives indicated in brackets:

Scope Number of components Range of materiality applied Group revenue Group PBT Group total assets

Full scope audits 2 (4) £60m – £80m (£20m – £85m) 86% (90%) 78% (83%) 90% (97%)

Audit of account

balances 1 (0) £35m (£nil) 0% (0%) 0% (0%)

0% (0%)

For the residual components, we performed analytical reviews at an aggregated group level to re-examine our assessment that there were

no significant risks of material misstatement within those.

The work on 1 of the 3 in scope components (2022: 1 of the 4 in scope components) was performed by component auditors and the rest,

including the audit of the parent company, was performed by the Group team.

The Group audit team has also performed audit procedures on the following areas on behalf of the components:

– Testing of IT Systems

– Litigation and Claims

These items were audited by the Group team because of efficiency reasons, where the Group team has direct access to the underlying

information. The Group team communicated the results of these procedures to the component teams.

The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and

the information to be reported back. The Group team approved the component materialities, as detailed in the table above, having regard

to the mix of size and risk profile of the Group across the components.

The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group’s internal control

over financial reporting.

The Parent company audit was undertaken by the Group audit team.

148 BT Group plc Annual Report 2023

Group audit team oversight

What we mean

The extent of the Group audit team’s involvement in component

audits.

In working with component auditors, we:

– Held planning calls and had in person meetings with component

audit teams to discuss the significant areas of the audit relevant

to the components

– Issued group audit instructions to component auditors on the

scope of their work,

– Held risk assessment update discussions with component audit

teams before the commencement of the final phases of the audit

led by the Group engagement partner and engagement quality

control partner

– Inspection of component audit team’s key work papers (in

person or using remote technology capabilities) to evaluate

the quality of execution of the audits of the components.

8. Other information in the annual report

The Directors are responsible for the other information presented in

the Annual Report together with the financial statements. Our opinion

on the financial statements does not cover the other information and,

accordingly, we do not express an audit opinion or, except as explicitly

stated below, any form of assurance conclusion thereon.

All other information

Our responsibility

Our responsibility is to read the other information and, in doing so,

consider whether, based on our financial statements audit work,

the information therein is materially misstated or inconsistent with

the financial statements or our audit knowledge.

Our reporting

Based solely on that work we have not identified material

misstatements or inconsistencies in the other information.

Strategic report and directors’ report

Our responsibility and reporting

Based solely on our work on the other information described above

we report to you as follows:

– we have not identified material misstatements in the Strategic

report and the Directors’ report;

– in our opinion the information given in those reports for the

financial year is consistent with the financial statements; and

– in our opinion those reports have been prepared in accordance

with the Companies Act 2006.

Directors’ remuneration report

Our responsibility

We are required to form an opinion as to whether the part of the

Directors’ Remuneration Report to be audited has been properly

prepared in accordance with the Companies Act 2006.

Our reporting

In our opinion the part of the Directors’ Remuneration Report to

be audited has been properly prepared in accordance with the

Companies Act 2006.

Corporate governance disclosures

Our responsibility

We are required to perform procedures to identify whether there is

a material inconsistency between the financial statements and our

audit knowledge, and:

– the Directors’ statement that they consider that the Annual

Report and financial statements taken as a whole is fair,

balanced and understandable, and provides the information

necessary for shareholders to assess the Group’s position and

performance, business model and strategy;

– the section of the annual report describing the work of the Audit

and Risk Committee, including the significant issues that the

Audit and Risk Committee considered in relation to the financial

statements, and how these issues were addressed; and

– the section of the annual report that describes the review of

the effectiveness of the Group’s risk management and internal

control systems.

Our reporting

Based on those procedures, we have concluded that each of these

disclosures is materially consistent with the financial statements

and our audit knowledge.

Our responsibility

We are also required to review the part of the Corporate Governance

Statement relating to the Group’s compliance with the provisions of

the UK Corporate Governance Code specified by the Listing Rules

for our review.

Our reporting

We have nothing to report in this respect.

Other matters on which we are required to report

by exception

Our responsibility

Under the Companies Act 2006, we are required to report to you if,

in our opinion:

– adequate accounting records have not been kept by the

Parent Company, or returns adequate for our audit have

not been received from branches not visited by us; or

– the Parent Company financial statements and the part of

the Directors’ Remuneration Report to be audited are not

in agreement with the accounting records and returns; or

– certain disclosures of Directors’ remuneration specified by

law are not made; or

– we have not received all the information and explanations

we require for our audit.

Our reporting

We have nothing to report in these respects.

KPMG LLP’s Independent Auditor’s Report to the members of BT Group plc continued

149Financial statements

9. Respective responsibilities

Directors’ responsibilities

As explained more fully in their statement set out on page 131,

the Directors are responsible for: the preparation of the financial

statements including being satisfied that they give a true and fair

view; such internal control as they determine is necessary to enable

the preparation of financial statements that are free from material

misstatement, whether due to fraud or error; assessing the Group

and Parent Company’s ability to continue as a going concern,

disclosing, as applicable, matters related to going concern; and

using the going concern basis of accounting unless they either

intend to liquidate the Group or the Parent Company or to cease

operations, or have no realistic alternative but to do so.

Auditor’s responsibilities

Our objectives are to obtain reasonable assurance about

whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue our

opinion in an auditor’s report. Reasonable assurance is a high level

of assurance but does not guarantee that an audit conducted

in accordance with ISAs (UK) will always detect a material

misstatement when it exists. Misstatements can arise from fraud

or error and are considered material if, individually or in aggregate,

they could reasonably be expected to influence the economic

decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s

website at www.frc.org.uk/auditorsresponsibilities.

The Company is required to include these financial statements

in an annual financial report prepared using the single electronic

reporting format specified in the TD ESEF Regulation. This

auditor’s report provides no assurance over whether the annual

financial report has been prepared in accordance with that format.

10. The purpose of our audit work and to whom we

owe our responsibilities

This report is made solely to the Company’s members, as a body, in

accordance with Chapter 3 of Part 16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the

Company’s members those matters we are required to state to

them in an auditor’s report and for no other purpose. To the fullest

extent permitted by law, we do not accept or assume responsibility

to anyone other than the Company and the Company’s members,

as a body, for our audit work, for this report, or for the opinions we

have formed.

John Luke

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

15 Canada Square

London

E14 5GL

17 May 2023

150 BT Group plc Annual Report 2023

Group income statement

Year ended 31 March 2023

Notes

Before

specific items

(‘Adjusted’)

£m

Specific

items

£m

Total

(Reported)

£m

Revenue 4, 5 20 ,66 9 12 2 0 , 6 81

Operating costs 6 (17, 4 9 4) (5 6 8) (18 , 0 6 2)

Of which net impairment losses on trade receivables and contract assets

(13 8) – (1 3 8)

Operating profit (loss) 4 3 ,17 5 (5 5 6) 2 , 619

Finance expense 28 (8 8 9) (5) (8 9 4)

Finance income 63 – 63

Net finance expense (82 6) (5) (8 31)

Share of post tax profit (loss) of associates and joint ventures 25 (5 9) – (5 9)

Profit (loss) before taxation 2, 2 90 (5 61) 1, 72 9

Taxation 10 (1 3 2) 30 8 17 6

Profit (loss) for the year 2 ,1 5 8 (2 5 3) 1, 9 05

Earnings per share 11

Basic 22. 0p (2 . 6)p 19 .4p

Diluted 2 1.4p (2 . 5)p 18 . 9p

Group income statement

Year ended 31 March 2022

Notes

Before

specific items

(‘Adjusted’)

£m

Specific

items

£m

Total

(Reported)

£m

Revenue 4, 5 20, 8 45 5 20 ,8 50

Operating costs 6 (1 7, 6 7 3) (2 92) (1 7, 9 6 5)

Of which net impairment losses on trade receivables and contract assets

(1 0 2) 19 (8 3)

Operating profit (loss) 4 3 ,17 2 (2 8 7) 2 , 88 5

Finance expense 28 (8 33) (1 0 1) (93 4)

Finance income 12 – 12

Net finance expense (8 2 1) (1 0 1) (9 22)

Share of post tax profit (loss) of associates and joint ventures 25 – – –

Profit (loss) before taxation 2 , 3 51 (3 8 8) 1, 963

Taxation 10 (3 4 9) (3 4 0) (6 8 9)

Profit (loss) for the year 2 , 0 02 (7 2 8) 1 , 2 74

Earnings per share 11

Basic 20.3p (7. 4)p 12 . 9p

Diluted 19 .7p (7. 2)p 12 . 5p

a For a definition of specific items, see page 233. An analysis of specific items is provided in note 9.

b Impairment losses have been presented separately in accordance with IAS 1.

151Financial statements

Group statement of comprehensive income

Year ended 31 March

Notes

2023

£m

2022

£m

Profit for the year 1, 9 0 5 1 , 2 74

Other comprehensive income (loss)

Items that will not be reclassified to the income statement

Remeasurements of the net pension obligation 20 (2 , 876) 2, 865

Tax on pension remeasurements 10 732 (3 9 9)

Items that have been or may be reclassified to the income statement

Exchange differences on translation of foreign operations 30 87 65

Fair value movements on assets at fair value through other comprehensive income 30 (3) 6

Movements in relation to cash flow hedges:

– net fair value gains (losses) 30 1, 0 5 5 20 4

– recognised in income and expense 30 (713) (5 4)

Tax on components of other comprehensive income that have been or may be reclassified 10, 30 (9 0) (31)

Share of post tax other comprehensive loss in associates and joint ventures 25 (1) –

Other comprehensive (loss) income for the year, net of tax (1, 8 0 9) 2,656

Total comprehensive income (loss) for the year 96 3 , 930

152 BT Group plc Annual Report 2023

Group balance sheet

At 31 March

Notes

2023

£m

2022

£m

Non-current assets

Intangible assets 13 13 , 6 8 7 13 , 80 9

Property, plant and equipment 14 21, 6 6 7 20 ,59 9

Right-of-use assets 15 3 , 9 81 4 , 429

Derivative financial instruments 29 1, 3 97 1, 0 0 3

Investments 24 29 34

Joint ventures and associates 25 359 5

Trade and other receivables 17 503 3 37

Preference shares in joint ventures 25 542 –

Contract assets 5 369 3 61

Retirement benefit surplus 20 52 –

Deferred tax assets 10 70 9 28 9

43 , 295 40, 866

Current assets

Programme rights 16 – 310

Inventories 349 300

Trade and other receivables 17 3,060 2 , 624

Preference shares in joint ventures 25 13 –

Contract assets 5 1, 5 6 5 1, 5 5 4

Assets classified as held for sale 23 21 80

Current tax receivable 427 496

Derivative financial instruments 29 82 88

Investments 24 3,548 2 ,679

Cash and cash equivalents 26 392 777

9, 4 57 8,908

Current liabilities

Loans and other borrowings 27 1 ,772 873

Derivative financial instruments 29 86 51

Trade and other payables 18 6,5 64 6 ,14 2

Contract liabilities 5 859 8 33

Lease liabilities 15 800 79 5

Liabilities classified as held for sale 23 4 40

Current tax liabilities 78 90

Provisions 19 22 9 222

10 , 3 92 9,04 6

Total assets less current liabilities 42 ,3 60 4 0, 728

Non-current liabilities

Loans and other borrowings 27 1 6 , 74 9 15 , 312

Derivative financial instruments 29 297 819

Contract liabilities 5 19 3 17 0

Lease liabilities 15 4 , 559 4 ,9 65

Retirement benefit obligations 20 3 ,13 9 1 ,1 4 3

Other payables 18 92 0 624

Deferred tax liabilities 10 1,6 20 1 ,960

Provisions 19 369 439

27, 8 4 6 25 , 4 32

Equity

Share capital 499 499

Share premium 1 , 0 51 1 , 0 51

Own shares 21 (4 2 2) (2 74)

Merger reserve 998 998

Other reserves 30 957 619

Retained earnings 11 , 4 3 1 12 , 4 0 3

Total equity 14 , 514 15 , 2 9 6

42 ,3 60 4 0, 728

The consolidated financial statements on pages 150 to 232 were approved by the Board of Directors on 17 May 2023 and were signed on

its behalf by:

Adam Crozier Philip Jansen Simon Lowth

Chairman Chief Executive Chief Financial Officer

153Financial statements

Group statement of changes in equity

Notes

capital

£m

premium

£m

Own

£m

Merger

reserve

£m

Other

reserves

£m

Retained

(loss)

earnings

£m

Total

equity

(deficit)

£m

At 1 April 2021 499 1, 0 51 (14 3) 998 436 8, 83 8 11 , 6 7 9

Profit for the year – – – – – 1 , 2 74 1 , 2 74

Other comprehensive income (loss) –

before tax – – – – 275 2, 865 3 ,14 0

Tax on other comprehensive income

(loss) 10 – – – – (3 1) (3 9 9) (4 3 0)

Transferred to the income statement – – – – (5 4) – (5 4)

Total comprehensive income (loss) for

the year – – – – 19 0 3 , 74 0 3, 930

Dividends to shareholders 12 – – – – – (22 7) (2 2 7)

Unclaimed dividend over 10 years – – – – – 2 2

Share-based payments 22 – – – – – 10 8 10 8

Tax on share-based payments 10 – – – – – 11 11

Net buyback of own shares 21 – – (13 1) – – (6 5) (1 9 6)

Transfer to realised profit – – – – (7) 7 –

Other movements

– – – – – (11) (11)

At 31 March 2022 499 1, 0 51 (2 74) 9 98 61 9 12 , 4 0 3 15 , 2 9 6

Adoption of amendments to IAS 37 1 – – – – – (12) (12)

At 1 April 2022 499 1, 0 51 (2 74) 9 98 61 9 12 , 3 9 1 15 , 2 8 4

Profit for the year – – – – – 1, 9 0 5 1, 9 0 5

Other comprehensive income (loss) –

before tax – – – – 1 ,1 41 (2 , 87 9) (1 , 7 3 8)

Tax on other comprehensive income

(loss) 10 – – – – (9 0) 732 6 42

Transferred to the income statement – – – – (7 13) – (713)

Total comprehensive income (loss) for

the year – – – – 338 (2 42) 9 6

Dividends to shareholders 12 – – – – – (75 3) (75 3)

Share-based payments 22 – – – – – 80 80

Tax on share-based payments 10 – – – – – (9) (9)

Net buyback of own shares 21 – – (14 8) – – (3 4) (1 8 2)

Other movements – – – – – (2) (2)

At 31 March 2023 499 1, 0 51 (4 2 2) 998 957 11 , 4 31 14 , 514

a The allotted, called up, and fully paid ordinary share capital of BT Group plc at 31 March 2023 was £49 9m comprising 9,968,127,681 ordinary shares of 5p each (FY22: £499m

comprising 9,968,127,681 ordinary shares of 5p each).

b The share premium account, comprising the premium on allotment of shares, is not available for distribution.

c For further analysis of own shares, see note 21.

d The merger reserve balance at 1 April 2021 includes £998m related to the group reorganisation that occurred in November 2001 and represented the difference between the

nominal value of shares in the new parent company, BT Group plc, and the aggregate of the share capital, share premium account and capital redemption reserve of the prior

parent company, British Telecommunications plc. In addition, on 29 January 2016, the company issued 1,594,900,429 ordinary shares of 5p at 470.7p per share. These shares

were used as part consideration for the acquisition of EE. As a result of this transaction the merger reserve was credited with £7,424m net of £3m issue costs. In FY21, following

settlement of intercompany loans by qualifying consideration of £1 ,57 4m, equivalent balances were transferred from merger reserve to realised profit.

e For further analysis of other reserves, see note 30.

f In June 2021, BT exercised an option to purchase the minority shareholding in a subsidiary (BT Communications South Africa). The obligation to purchase the subsidiary’s equity

instruments is accounted for as a financial liability with a corresponding debit to equity. Non-controlling interests are not material to the group so are not accounted for separately.

154 BT Group plc Annual Report 2023

Group cash flow statement

Year ended 31 March

Notes

2023

£m

2022

£m

Cash flow from operating activities

Profit before taxation 1,7 2 9 1, 9 6 3

Share of post tax (profit) loss of associates and joint ventures 59 –

Net finance expense 8 31 922

Operating profit 2 , 61 9 2 , 885

Other non-cash charges 89 76

Loss (profit) on disposal of businesses 157 (37)

Loss (profit) on disposal of property, plant and equipment and intangible assets 2 –

Depreciation and amortisation, including impairment charges 4,8 1 8 4, 405

(Increase) decrease in inventories (47) (3)

Decrease (increase) in programme rights 7 (17)

(Increase) decrease in trade and other receivables (2 8 5) (5 3)

(Increase) decrease in contract assets (17) (51)

Increase (decrease) in trade and other payables 232 99

Increase (decrease) in contract liabilities 41 (9 3)

(Decrease) increase in other liabilities

(919) (1 , 1 6 9)

(Decrease) increase in provisions (10 9) (8 0)

Cash generated from operations 6, 5 88 5 , 9 62

Income taxes refunded (paid) 13 6 (5 2)

Net cash inflow from operating activities 6, 724 5 , 910

Cash flow from investing activities

Interest received 41 6

Dividends received from joint ventures, associates and investments 9 1

Acquisition of subsidiaries – 76

Proceeds on disposal of subsidiaries, associates and joint ventures 29 –

Proceeds on disposal of current financial assets

11 , 8 6 8 13 , 4 0 2

Purchases of current financial assets

(12 , 7 0 5) (1 2 , 4 3 2)

Net (purchase) disposal of non-current asset investments (5) (8)

Proceeds on disposal of property, plant and equipment and intangible assets – 2

Purchases of property, plant and equipment and intangible assets

(5 , 3 07) (4 , 6 0 7)

(Increase) decrease in amounts owed by joint ventures 24 (26 5) –

Settlement of minimum guarantee liability with sports joint venture 23 (61) –

Net cash outflow from investing activities (6 , 3 9 6) (3 , 5 6 0)

Cash flow from financing activities

Equity dividends paid (7 51) (22 8)

Interest paid (7 0 9) (75 5)

Repayment of borrowings

(513) (1 , 3 74)

Proceeds from bank loans and bonds 2, 2 03 74 4

Payment of lease liabilities (727) (65 9)

Cash flows from collateral received (17) (2 9)

Changes in ownership interests in subsidiaries – (8 6)

Proceeds from issue of own shares 5 13

Repurchase of ordinary share capital (13 8) (18 4)

Increase (decrease) in amounts owed to joint ventures 27 11 –

Net cash outflow from financing activities (6 3 6) (2 , 5 5 8)

Net decrease in cash and cash equivalents (3 0 8) (2 0 8)

Opening cash and cash equivalents

692 89 6

Net decrease in cash and cash equivalents (3 0 8) (2 0 8)

Effect of exchange rate changes (3) 4

Closing cash and cash equivalents

26 3 81 692

a Includes pension deficit payments of £994m (FY22: £1, 1 2 1m).

b Primarily consists of investment in and redemption of amounts held in liquidity funds.

c Consists of additions to property, plant and equipment, engineering stores and software of £5 ,0 56m (FY22: £4 ,8 07m) and movements in capital accruals of £251m (FY22: £23m)

less net refund in respect of spectrum acquisition of £nil (FY22: £223m).

d Repayment of borrowings includes the impact of hedging.

e Net of bank overdrafts of £1 1m (FY22: £8 5m).

155Financial statements

1. Basis of preparation

Preparation of the financial statements

The consolidated financial statements have been prepared in

accordance with UK-adopted international accounting standards

and with the requirements of the Companies Act 2006.

The consolidated financial statements are prepared on a going

concern basis.

This assessment is consistent with the assessment of our viability,

as set out on pages 81 to 82, in estimating the financial impact of

a severe but plausible outcome for each risk, both individually, in

combination and through stochastic risk modelling. This stress

testing confirmed that existing projected cash flows and cash

management activities provide us with adequate headroom over

the going concern assessment period.

Having assessed the principal and emerging risks, the directors

considered it appropriate to adopt the going concern basis of

accounting when preparing the group and parent company

financial statements. This assessment covers the period to May

2024, which is consistent with the FRC guidance. When reaching

this conclusion, the directors took into account the group’s and

parent company’s overall financial position (including trading

results and ability to repay term debt as it matures without

recourse to refinancing) and the exposure to principal risks.

In preparing the financial statements, the directors have

considered the impact of climate change, particularly in

the context of the risks identified in the TCFD disclosure on

pages 71 to 80 this year. There has been no material impact

identified on the financial reporting judgements and estimates.

These financial statements consolidate BT Group plc, the parent

company, and its subsidiaries (together the ‘group’, ‘us’, ‘we’ or ‘our’).

The consolidated financial statements are prepared on the

historical cost basis, except for certain financial and equity

instruments that have been measured at fair value. The

consolidated financial statements are presented in sterling,

the functional currency of BT Group plc.

These financial statements cover the financial year from 1 April

2022 to 31 March 2023 (‘FY23’), with comparative figures for the

financial year from 1 April 2021 to 31 March 2022 (‘FY22’).

New and amended accounting standards effective

during the year

The following amended standards were effective during the year:

Amendments to IAS 37 for onerous contracts

The group adopted Onerous Contracts – Costs of Fulfilling a

Contract (Amendments to IAS 37) from 1 April 2022. This resulted

in a change in accounting policy for performing an onerous

contracts assessment. Previously, only incremental costs to fulfil

a contract were included when determining whether that contract

was onerous. The revised policy is to include both incremental

costs and an allocation of other costs directly attributable to the

fulfilment of a contract.

The amendments apply prospectively to contracts existing at

the date when the amendments are first applied. We analysed

contracts existing at 1 April 2022 and identified the cumulative

effect of applying the revised policy to be a £12m increase in the

onerous contract provision. This has been recorded as an opening

balance adjustment to retained earnings. Comparative figures

have not been restated.

IFRS Interpretations Committee agenda decisions

The IFRS Interpretations Committee (IFRIC) periodically issues

agenda decisions which explain and clarify how to apply the

principles and requirements of IFRS standards. Agenda decisions are

authoritative and may require the group to revise accounting policies

or practice to align with the interpretations set out in the decision.

We regularly review IFRIC updates and assess the impact

of agenda decisions. The following were identified as being

potentially significant to the group:

Demand Deposits with Restrictions on Use arising from a

Contract with a Third Party

In its agenda decision, the IFRIC concluded that restrictions on the

use of demand deposits arising from a contract with a third party

do not result in the deposits being declassified as cash and cash

equivalents, unless those restrictions change the nature of the

deposit in a way such that it would no longer meet the definition

of cash in IAS 7. Application of this agenda decision to deposits

held by the group identified one bank account with restrictions

on use that nonetheless meets the IAS 7 definition of cash. This

bank account was subsequently recognised on the group balance

sheet and is now reflected in the cash and cash equivalents balance

presented throughout the financial statements. An equal and

opposite amount was recognised in trade payables.

The balance on this account was £96m at 31 March 2023 and

£148m at 31 March 2022. Prior period comparatives have not been

restated as the impact is not considered material, having regard

to the fact that a corresponding liability is recognised within trade

payables and therefore has no bearing on the group’s net assets.

The impact on the cash flow statement is not considered to be

material and recognition of the balance is presented as an increase

in trade and other payables. Cash flows relating to the account

which have already been accounted for within normalised cash flow

(including its initial recognition) will be excluded from this metric.

Other

The following changes have not had a significant impact on our

consolidated financial statements:

– Property, Plant and Equipment: Proceeds before Intended Use

(Amendments to IAS 16)

– Annual Improvements to IFRS Standards 2018-2020

– Reference to the Conceptual Framework – Amendments to IFRS 3

New and amended accounting standards that have been

issued but are not yet effective

The following new or amended standards and interpretations are

applicable in future periods:

IFRS 17 Insurance Contracts

BT adopted IFRS 17 with retrospective application on 1 April 2023.

It is therefore effective from FY24 onwards.

The standard establishes principles for the recognition,

measurement, presentation and disclosure of insurance contracts.

The measurement method for insurance contracts required by

IFRS 17 is a probability weighted discounted cash flow model,

including a best estimate and an adjustment for non-financial risk

calculated for groups of similar contracts.

IFRS 17 primarily impacts insurance entities, however as it applies

to individual contracts it is possible that non-insurers could

issue contracts that are in scope of the standard such as product

breakdown contracts or warranties.

Notes to the consolidated financial statements

156 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

1. Basis of preparation continued

We have assessed the impact of the standard on the group and

the BT Group plc legal entity, and concluded that its impact is not

material. Contracts in scope of the standard entered into by the

group are restricted to intragroup insurance arrangements, and

the group does not issue external insurance contracts. Contracts

in scope of the standard entered into by the BT Group plc legal

entity are restricted to parent company guarantees, which we have

assessed to have no material impact.

The following are not expected to have a significant impact on the

consolidated financial statements:

– Classification of Liabilities as Current or Non-current

(Amendments to IAS 1)

– Disclosure of Accounting Policies (Amendments to IAS 1 and

IFRS Practice Statement 2)

– Definition of Accounting Estimate (Amendments to IAS 8)

– Deferred Tax related to Assets and Liabilities arising from a

Single Transaction (Amendments to IAS 12)

– Non-Current Liabilities with Covenants (Amendments to IAS 1)

– Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)

Presentation of specific items

Our income statement and segmental analysis separately identify

trading results before specific items (‘adjusted’). The directors

believe that presentation of our results in this way is relevant to an

understanding of our financial performance, as specific items are

identified by virtue of their size, nature or incidence.

This presentation is consistent with the way that financial

performance is measured by management and reported to the

Board and the Executive Committee and assists in providing a

meaningful analysis of our trading results. In determining whether

an event or transaction is specific, management considers

quantitative as well as qualitative factors such as the frequency or

predictability of occurrence.

Specific items may not be comparable to similarly titled measures

used by other companies. Examples of charges or credits

which meet the above definition include significant business

restructuring programmes such as the current group-wide cost

transformation and modernisation programme, acquisitions

and disposals of businesses and investments, charges or

credits relating to retrospective regulatory matters, property

rationalisation programmes, significant out of period contract

settlements, net interest on our pension obligation, and the impact

of remeasuring deferred tax balances. In the event that other items

meet the criteria, which are applied consistently from year to year,

they are also treated as specific items. Any releases to provisions

originally booked as a specific item are also classified as specific.

Conversely, when a reversal occurs in relation to a prior year item

not classified as specific, the reversal is not classified as specific in

the current year.

Specific items for the current and prior year are disclosed in note 9.

2. Critical & key accounting estimates and

significant judgements

The preparation of financial statements in conformity with IFRS

requires the use of accounting estimates and assumptions. It also

requires management to exercise its judgement in the process

of applying our accounting policies. We continually evaluate

our estimates, assumptions and judgements based on available

information and experience. As the use of estimates is inherent in

financial reporting, actual results could differ from these estimates.

Our critical accounting estimates are those estimates that carry

a significant risk of resulting in a material adjustment to the

carrying amount of assets and liabilities within the next financial

year. We also make other key estimates when preparing the

financial statements, which, while not meeting the definition of a

critical estimate, involve a higher degree of complexity and can

reasonably be expected to be of relevance to a user of the financial

statements. Management has discussed its critical and other key

accounting estimates and associated disclosures with the Audit

and Risk Committee.

Significant judgements are those made by management in

applying our significant accounting policies that have a material

impact on the amounts presented in the financial statements.

We may exercise significant judgement in our critical and key

accounting estimates.

Our critical and key accounting estimates and significant

judgements are described in the following notes to the financial

statements. They can be identified by the following symbol

Note

Critical

estimate

Key

estimate

Significant

judgement

10. Current and deferred

income tax ü ü

13. Goodwill impairment ü ü

15. Reasonable certainty and

determination of lease terms ü

19. Contingent liabilities

associated with litigation ü ü

19. Other provisions and

contingent liabilities ü ü

20. Valuation of pension assets

and liabilities ü ü

25. BT Sport joint venture ü ü

157Financial statements

3. Significant accounting policies that apply to the

overall financial statements

The significant accounting policies applied in the preparation of

our consolidated financial statements are set out below. Other

significant accounting policies applicable to a particular area are

disclosed in the most relevant note. They can be identified by the

following symbol

We have applied all policies consistently to all the years presented,

unless otherwise stated.

Basis of consolidation

The group financial statements consolidate the financial

statements of BT Group plc and its subsidiaries, and include its

share of the results of associates and joint ventures using the

equity method of accounting. The group recognises its direct

rights to (and its share of) jointly held assets, liabilities, revenues

and expenses of joint operations under the appropriate headings

in the consolidated financial statements.

All business combinations are accounted for using the acquisition

method regardless of whether equity instruments or other assets

are acquired.

A subsidiary is an entity that is controlled by another entity, known

as the parent or investor. An investor controls an investee when

the investor is exposed, or has rights, to variable returns from its

involvement with the investee and has the ability to affect those

returns through its power over the investee.

Non-controlling interests in the net assets of consolidated

subsidiaries, which consist of the amounts of those interests at

the date of the original business combination and non-controlling

share of changes in equity since the date of the combination, are

not material to the group’s financial statements.

The results of subsidiaries acquired or disposed of during the year

are consolidated from and up to the date of change of control.

Where necessary, accounting policies of subsidiaries have been

aligned with the policies adopted by the group. All intra-group

transactions including any gains or losses, balances, income or

expenses are eliminated on consolidation.

When the group loses control of a subsidiary, the profit or loss on

disposal is calculated as the difference between (i) the aggregate

of the fair value of the consideration received and the fair value

of any retained interest and (ii) the previous carrying amount of

the assets (including goodwill), and liabilities of the subsidiary

and any non-controlling interests. The profit or loss on disposal

is recognised as a specific item.

Associates are those entities in which the group has significant

influence, but not control or joint control, over the financial and

operating policies.

A joint venture is an arrangement in which the group has joint

control, whereby the group has rights to the net assets of the

arrangement, rather than rights to its assets and obligations for

its liabilities. Joint control is the contractually agreed sharing of

control of an arrangement, which exists only when decisions about

the activities that significantly affect the returns of the arrangement

require the unanimous consent of the parties sharing control.

Interests in associates and joint ventures are initially recognised

at cost (including transaction costs) except where they relate

to a retained non-controlling interest in a former subsidiary,

which is initially recognised at a deemed cost being the fair value

of the retained interest. Subsequent to initial recognition, the

consolidated financial statements include the group’s share of the

profit or loss and other comprehensive income of equity-accounted

investees, until the date on which significant influence or joint

control ceases.

Inventories

Network maintenance equipment and equipment to be sold to

customers are stated at the lower of cost or net realisable value,

taking into account expected revenue from the sale of packages

comprising a mobile handset and a subscription. Cost corresponds

to purchase or production cost determined by either the first in

first out (FIFO) or average cost method.

Government grants

Government grants are recognised when there is reasonable

assurance that the conditions associated with the grants have

been complied with and the grants will be received.

Grants for the purchase or production of property, plant and

equipment are deducted from the cost of the related assets and

reduce future depreciation expense accordingly. Grants for the

reimbursement of operating expenditure are deducted from the

related category of costs in the income statement. Estimates and

judgements applied in accounting for government grants received

in respect of Building Digital UK (BDUK) and other rural superfast

broadband contracts are described in note 14.

Once a government grant is recognised, any related deferred

income is treated in accordance with IAS 20 ‘Accounting for

Government Grants and Disclosure of Government Assistance’.

Foreign currencies

Foreign currency transactions are translated into the functional

currency using the exchange rates prevailing at the date of the

transaction. The functional currency of the group is sterling.

Foreign exchange gains and losses resulting from the settlement

of transactions and the translation of monetary assets and

liabilities denominated in foreign currencies at period end

exchange rates are recognised in the income statement line which

most appropriately reflects the nature of the item or transaction.

On consolidation, assets and liabilities of foreign undertakings are

translated into sterling at year end exchange rates. The results

of foreign undertakings are translated into sterling at the rates

prevailing on the transaction dates. Foreign exchange differences

arising on the retranslation of foreign undertakings are recognised

directly in a separate component of equity, the translation reserve.

In the event of the disposal of an undertaking with assets and

liabilities denominated in a foreign currency, the cumulative

translation difference associated with the undertaking in the

translation reserve is charged or credited to the gain or loss on

disposal recognised in the income statement.

Research and development

Research expenditure is recognised in the income statement

in the period in which it is incurred. Development expenditure,

including the cost of internally developed software, is recognised

in the income statement in the period in which it is incurred unless

it is probable that economic benefits will flow to the group from

the asset being developed, the cost of the asset can be reliably

measured and technical feasibility can be demonstrated, in which

case it is capitalised as an intangible asset on the balance sheet.

Capitalisation ceases when the asset being developed is ready for

use. Research and development costs include direct and indirect

labour, materials and directly attributable overheads.

Termination benefits

Termination benefits (leaver costs) are payable when employment is

terminated before the normal retirement date, or when an employee

accepts voluntary redundancy in exchange for these benefits.

We recognise termination benefits when they are demonstrably

committed to the affected employees leaving the group.

158 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

4. Segment information

Significant accounting policies that apply to segment information

Operating and reportable segments

Our operating segments are reported based on financial information provided to the Executive Committee, which is the key

management committee and represents the ‘chief operating decision maker’.

Our organisational structure reflects the different customer groups to which we provide communications products and services via

our customer-facing units (CFUs). The CFUs are our reportable segments and generate substantially all of our revenue.

With effect from 1 January 2023 we formed the new Business unit, but its components, Global and Enterprise, continued to be

managed separately and reported separately to the Executive Committee. At 31 March 2023 the group had four CFUs: Consumer,

Enterprise, Global and Openreach. From 1 April 2023 Business will be a single unit and financial information for this unit will be

provided to the Executive Committee on a consolidated basis only. From FY24 our CFUs will be Business, Consumer and Openreach.

The CFUs are supported by technology units (TUs) comprising Digital and Networks; and corporate units (CUs) including procurement

and property management. TUs and CUs are not reportable segments as they did not meet the quantitative thresholds as set out in

IFRS 8 ‘Operating Segments’ for any of the years presented.

We aggregate the remaining operations and include within the ‘Other’ category to reconcile to the consolidated results of the group.

The ‘Other’ category includes unallocated TU costs and our CUs.

Allocation of certain items to segments

Provisions for the settlement of significant legal, commercial and regulatory disputes, which are negotiated at a group level, are

initially recorded in the ‘Other’ segment. On resolution of the dispute, the full impact is recognised in the results of the relevant CFU

and offset in the group results through the utilisation of the provision previously charged to the ‘Other’ segment. Settlements which

are particularly significant or cover more than one financial year may fall within the definition of specific items as detailed in note 9.

The costs incurred by TUs and CUs are recharged to the CFUs to reflect the services provided to them. Depreciation and amortisation

incurred by TUs in relation to the networks and systems they manage and operate on behalf of the CFUs is allocated to the CFUs based

on their respective utilisation. Capital expenditure incurred by TUs for specific projects undertaken on behalf of the CFUs is allocated

based on the value of the directly attributable expenditure incurred. Where projects are not directly attributable to a particular CFU,

capital expenditure is allocated between them based on the proportion of estimated future economic benefits.

Specific items are detailed in note 9 and are not allocated to the reportable segments as this reflects how they are reported to the

Executive Committee. Finance expense and income are not allocated to the reportable segments, as the central treasury function

manages this activity, together with the overall net debt position of the group.

Measuring segment performance

Performance of each reportable segment is measured based on adjusted EBITDA. Adjusted EBITDA is defined as the group profit

or loss before specific items, net finance expense, taxation, depreciation and amortisation and share of post tax profits or losses

of associates and joint ventures. Adjusted EBITDA is considered to be a useful measure of the operating performance of the CFUs

because it approximates the underlying operating cash flow by eliminating depreciation and amortisation and also provides a

meaningful analysis of trading performance by excluding specific items, which are disclosed separately by virtue of their size, nature

or incidence. We also increasingly track adjusted operating profit which reflects the growing depreciation expense arising from our

elevated network investment.

Revenue recognition

Our revenue recognition policy is set out in Note 5.

Internal revenue and costs

Most of our internal trading relates to Openreach and arises on rentals, and any associated connection or migration charges, of the

UK access lines and other network products to the other CFUs, including the use of BT Ireland’s network. This occurs both directly,

and also indirectly, through TUs which are included within the ‘Other’ segment. Enterprise internal revenue arises from Consumer for

mobile Ethernet access and TUs for transmission planning services. Internal revenue arising in Consumer relates primarily to employee

broadband and wi-fi services. Intra-group revenue generated from the sale of regulated products and services is based on market

price. Intra-group revenue from the sale of other products and services is agreed between the relevant CFUs and therefore the

profitability of CFUs may be impacted by transfer pricing levels.

Geographic segmentation

The UK is our country of domicile and is where we generate the majority of our revenue from external UK customers. The geographic

analysis of revenue is based on the country in which the customer is invoiced. The geographic analysis of non-current assets, which

excludes derivative financial instruments, investments, preference shares in joint ventures, retirement benefit schemes in surplus

and deferred tax assets, is based on the location of the assets.

159Financial statements

4. Segment information continued

Segment revenue and profit

Year ended 31 March 2023

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

Segment revenue 9,737 4,962 3,328 5,675 27 23,729

Internal revenue (57) (113) – (2,890) – (3,060)

Adjusted

revenue from external customers 9,680 4,849 3,328 2,785 27 20,669

Adjusted EBITDA

2,623 1,394 458 3,449 4 7,928

Depreciation and amortisation

(1,397) (842) (317) (2,059) (138) (4,753)

Adjusted

operating profit (loss) 1,226 552 141 1,390 (134) 3,175

Specific operating profit (loss) – see note 9

(556)

Operating profit 2,619

Net finance expense

(831)

Share of post tax profit (loss) of associates and joint ventures (59)

Profit before tax 1,729

Year ended 31 March 2022

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

Segment revenue 9,858 5,157 3,362 5,441 27 23,845

Internal revenue (83) (105) – (2,812) – (3,000)

Adjusted

revenue from external customers 9,775 5,052 3,362 2,629 27 20,845

Adjusted EBITDA

2,262 1,636 456 3,179 44 7, 577

Depreciation and amortisation

(1,421) (724) (355) (1,876) (29) (4,405)

Adjusted

operating profit (loss) 841 912 101 1,303 15 3,172

Specific operating profit (loss) – see note 9

(287)

Operating profit 2,885

Net finance expense

(922)

Share of post tax profit (loss) of associates and joint ventures –

Profit before tax 1,963

a Before specific items.

b Adjusted EBITDA, defined as profit or loss before specific items, net finance expense, taxation, depreciation and amortisation and share of post tax profits or losses of associates

and joint ventures.

c Net finance expense includes specific item expense of £5m (FY22: £101m). See note 9.

Internal revenue and costs

Internal cost recorded by

Year ended 31 March 2023

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

Internal revenue recorded by

Consumer – 40 16 – 1 57

Enterprise 26 – 32 – 55 113

Global – – – – – –

Openreach 1,805 888 184 – 13 2,890

Total 1,831 928 232 – 69 3,060

Internal cost recorded by

Year ended 31 March 2022

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

Internal revenue recorded by

Consumer – 47 18 – 18 83

Enterprise 19 – 26 – 60 105

Global – – – – – –

Openreach 1,649 937 212 – 14 2,812

Total 1,668 984 256 – 92 3,000

160 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

4. Segment information continued

Capital expenditure

Year ended 31 March 2023

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

Intangible assets

530 257 81 87 63 1,018

Property, plant and equipment

663 351 171 2,709 144 4,038

Capital expenditure 1,193 608 252 2,796 207 5,056

Year ended 31 March 2022

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

Intangible assets

444 249 82 99 70 944

Property, plant and equipment

754 320 119 2,449 221 3,863

Capital expenditure excluding spectrum 1,198 569 201 2,548 291 4,807

Purchase of spectrum

388 91 – – – 479

Capital expenditure 1,586 660 201 2,548 291 5,286

a Additions to intangible assets as presented in note 13.

b Additions to property, plant and equipment as presented in note 14, inclusive of movement on engineering stores.

Geographic segmentation

Revenue from external customers

Year ended 31 March

2023

£m

2022

£m

UK 18,154 18,470

Europe, Middle East and Africa, excluding the UK 1,372 1,315

Americas 684 620

Asia Pacific 459 440

Adjusted

revenue 20,669 20,845

a Before specific items.

Non-current assets

Year ended 31 March

2023

£m

2022

£m

UK 39,387 38,378

Europe, Middle East and Africa, excluding the UK 740 741

Americas 283 269

Asia Pacific 156 152

Non-current assets

40,566 39,540

a Comprising the following balances presented in the group balance sheet: intangible assets, property, plant and equipment, right-of-use assets, joint ventures and associates

and trade and other receivables and contract assets.

161Financial statements

5. Revenue

Significant accounting policies that apply to revenue

Revenue from contracts with customers in scope of IFRS 15

Most revenue recognised by the group (excluding Openreach, where most revenue is recognised under the scope of IFRS 16) is in

scope of IFRS 15 and is subject to the following revenue recognition policy.

On inception of the contract we identify a “performance obligation” for each of the distinct goods or services we have promised to

provide to the customer. The consideration specified in the contract with the customer is allocated to each performance obligation

identified based on their relative standalone selling prices, and is recognised as revenue as they are satisfied.

The table below summarises the performance obligations we have identified for our major service lines and provides information on

the timing of when they are satisfied and the related revenue recognition policy. Also detailed in this note is revenue expected to be

recognised in future periods for contracts in place at 31 March 2023 that contain unsatisfied performance obligations.

Service line Performance obligations Revenue recognition policy

Information and

communications

technology (ICT)

and managed

networks

Provision of networked IT services, managed network

services, and arrangements to design and build

software solutions. Performance obligations are

identified for each distinct service or deliverable for

which the customer has contracted, and are considered

to be satisfied over the time period that we deliver

these services or deliverables. Commitments to

provide hardware to customers that are distinct from

the other promises are considered to be satisfied at

the point in time that control passes to the customer.

Revenue for services is recognised over time using a

measure of progress that appropriately reflects the

pattern by which the performance obligation is satisfied.

For time and materials contracts, revenue is recognised

as the service is received by the customer. Where

performance obligations exist for the provision of

hardware, revenue is recognised at the point in time that

the customer obtains control of the promised asset. For

long-term fixed price contracts revenue recognition will

typically be based on the satisfaction of performance

obligations in respect of the achievement of contract

milestones and customer acceptance, which is the best

measure of progress towards the completion of the

performance obligation.

Fixed access

subscriptions

Provision of broadband, TV and fixed telephony

services including national and international calls,

connections, line rental and calling features.

Performance obligations exist for each ongoing service

provided to the customer and are satisfied over the

period that the services are provided. Installation

services are recognised as distinct performance

obligations if their relationship with the other services

in the contract is purely functional. These are satisfied

when the customer benefits from the service.

Connection services are not distinct performance

obligations and are therefore combined with the

associated service performance obligation.

Fixed subscription charges are recognised as revenue

on a straight-line basis over the period that the

services are provided. Upfront charges for non-distinct

connection and installation services are deferred as

contract liabilities and are recognised as revenue over

the same period. Variable charges such as call charges

are recognised when the related services are delivered.

Where installation activities are distinct performance

obligations, revenue is recognised at the point in time

that the installation is completed.

Mobile

subscriptions

Provision of mobile postpaid and prepaid services,

including voice minutes, SMS and data services.

Performance obligations exist for each ongoing service

provided to the customer and are satisfied over the

period that the services are provided.

Subscription fees, consisting primarily of monthly

charges for access to internet or voice and data services,

are recognised as the service is provided. One-off

services such as calls outside of plan and excess data

usage are recognised when the service is used.

Equipment and

other services

Provision of equipment and other services, including

mobile phone handsets and hardware such as set-

top boxes and broadband routers provided as part

of customer contracts. Performance obligations are

satisfied at the point in time that control passes to the

customer. For other services, performance obligations

are identified based on the distinct goods and services

we have committed to provide.

Revenue from equipment sales is recognised at the

point in time that control passes to the customer.

Where payment is not received in full at the time of the

sale, such as with equipment provided as part of mobile

and fixed access subscriptions, contract assets are

recognised for the amount due from the customer that

will be recovered over the contract period. Revenue

to be recognised is calculated by reference to the

relative standalone selling price of the equipment. For

other services, revenue is recognised when the related

performance obligations are satisfied, which could be

over time, in line with contract milestones, or at a point

in time depending on the nature of the service.

162 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

5. Revenue continued

We recognise revenue based on the relative standalone selling price of each performance obligation. Determining the standalone

selling price often requires judgement and may be derived from regulated prices, list prices, a cost-plus derived price or the price of

similar products when sold on a standalone basis by BT or a competitor. In some cases it may be appropriate to use the contract price

when this represents a bespoke price that would be the same for a similar customer in a similar circumstance.

The fixed access and mobile subscription arrangements sold by our Consumer business are typically payable in advance, with any

variable or one-off charges billed in arrears. Contracts are largely inflation-linked with price increases recognised when effective.

Payment is received immediately for direct sales of equipment to customers. Where equipment is provided to customers under mobile

and fixed access subscription arrangements, payment for the equipment is received over the course of the contract term. For sales by

our enterprise businesses, invoices are issued in line with contractual terms. Payments received in advance are recognised as contract

liabilities; amounts billed in arrears are recognised as contract assets.

We are applying the practical expedient to recognise revenue “as-invoiced” for certain fixed access and mobile subscription services

revenues. Where we have a right to invoice at an amount that directly corresponds with performance to date, we recognise revenue at

that amount. We have also adopted the practical expedient not to calculate the aggregate amount of the transaction price allocated

to the performance obligations that are unsatisfied for these contracts.

We do not have any material obligations in respect of returns, refunds or warranties. Where we act as an agent in a transaction, such

as insurance services offered, we recognise commission net of directly attributable costs. Where the actual and estimated costs to

completion of the contract exceed the estimated revenue, a loss is recognised immediately.

We exercise judgement in assessing whether the initial set-up, transition and transformation phases of long-term contracts are

distinct from the other services to be delivered under the contract and therefore represent distinct performance obligations. This

determines whether revenue is recognised in the early stages of the contract, or deferred until delivery of the other services promised

in the contract begins.

We recognise immediately the entire estimated loss for a contract when we have evidence that the contract is unprofitable. If these

estimates indicate that any contract will be less profitable than previously forecast, contract assets may have to be written down to

the extent they are no longer considered to be fully recoverable. We perform ongoing profitability reviews of our contracts in order

to determine whether the latest estimates are appropriate. Key factors reviewed include:

– Transaction volumes or other inputs affecting future revenues which can vary depending on customer requirements, plans, market

position and other factors such as general economic conditions.

– Our ability to achieve key contract milestones connected with the transition, development, transformation and deployment phases

for customer contracts.

– The status of commercial relations with customers and the implications for future revenue and cost projections.

– Our estimates of future staff and third party costs and the degree to which cost savings and efficiencies are deliverable.

Revenue from lease arrangements in scope of IFRS 16

Some consumer broadband and TV products and arrangements to provide external communications providers with exclusive use

of Openreach’s fixed-network telecommunications infrastructure meet the definition of operating leases under IFRS 16.

At inception of a contract, we determine whether the contract is, or contains, a lease following the accounting policy set out in note

15. Arrangements meeting the definition of a lease in which we act as lessor are classified as operating or finance leases at lease

inception based on an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to ownership

of the underlying asset. If this is the case then the lease is a finance lease; if not, it is an operating lease. For sub-leases, we make this

assessment by reference to the characteristics of the right-of-use asset associated with the head lease rather than the underlying

leased asset.

Income from arrangements classified as operating leases is presented as revenue where it relates to our core operating activities,

for example leases of fixed-line telecommunications infrastructure to external communications providers and leases of devices to

consumer customers as part of fixed access subscription products. Operating lease income from other arrangements is presented

within other operating income (note 6).

We recognise operating lease payments as income on a straight-line basis over the lease term. Any upfront payments received, such as

connection fees, are deferred over the lease term. Determining the lease term is subject to the significant judgements set out in note 15.

Where the contract contains both lease and non-lease components, the transaction price is allocated between the components on

the basis of relative standalone selling price.

Where an arrangement is assessed as a finance lease we derecognise the underlying asset and recognise a receivable equivalent

to the net investment in the lease. Finance lease receivables are presented in note 17. The receivable is measured based on future

payments to be received discounted using the interest rate implicit in the lease, adjusted for any direct costs. Any difference between

the derecognised asset and the finance lease receivable is recognised in the income statement. Where the nature of services delivered

relates to our core operating activities it is presented as revenue. Where it relates to non-core activities it is presented within other

operating income (note 6).

163Financial statements

5. Revenue continued

Disaggregation of external revenue

The following table disaggregates external revenue by our major service lines and by reportable segment.

Year ended 31 March 2023

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

ICT and managed networks – 1,676 1,676 – – 3,352

Fixed access subscriptions 4,059 1,625 268 2,716 – 8,668

Mobile subscriptions 3,351 1,074 86 – – 4 ,511

Equipment and other services 2,270 474 1,298 69 27 4,138

Revenue before specific items 9,680 4,849 3,328 2,785 27 20,669

Specific items

(note 9) 12

Revenue 20,681

Year ended 31 March 2022

Consumer

£m

Enterprise

£m

Global

£m

Openreach

£m

Other

£m

Total

£m

ICT and managed networks – 1,715 1,672 – – 3,387

Fixed access subscriptions 3,991 1,696 268 2,564 – 8,519

Mobile subscriptions 3,247 1,176 87 – – 4,510

Equipment and other services 2,537 465 1,335 65 27 4,429

Revenue before specific items 9,775 5,052 3,362 2,629 27 20,845

Specific items

(note 9) 5

Revenue 20,850

a Relates to regulatory matters classified as specific. See note 9.

Revenue expected to be recognised in future periods for performance obligations that are not complete (or are partially complete) as

at 31 March 2023 is £12,792m (FY22: £13,502m). Of this, £6,592m (FY22: £7,108m) relates to ICT and managed services contracts and

equipment and other services which will substantially be recognised as revenue within three years. Fixed access and mobile subscription

services typically have shorter contract periods and so £6,200m (FY22: £6,394m) will substantially be recognised as revenue within

two years.

Revenue recognised this year relating to performance obligations that were satisfied, or partially satisfied, in previous years was not

material. Revenue related to customers’ unexercised rights (for example, unused amounts on prepaid SIM cards) was not material.

Lease income

Presented within revenue is £2,909m (FY22: £2,745m) income from arrangements classified as operating leases under IFRS 16 and which

represent core business activities for the group. Income relates predominantly to Openreach’s leases of fixed-line telecommunications

infrastructure to external communications providers, classified as fixed access subscription revenue in the table above, and leases of

devices to Consumer customers as part of fixed access subscription offerings, classified as equipment and other services.

During the year we also recognised:

– £29m (FY22: £33m) operating lease income from non-core business activities which is presented in other operating income (note 6).

Note 15 presents an analysis of payments to be received across the remaining term of operating lease arrangements.

– £58m (FY22: £44m) revenue in relation to upfront gains from arrangements meeting the definition of a finance lease. These

arrangements meet the criteria for revenue recognition as they concern leases and sub-leases of telecommunications infrastructure

that represent core business activities of the group.

£69m (FY22: £68m) of this income relates to the sub-leasing of right-of-use assets. These are primarily operating sub-leases of unutilised

properties, and finance sub-leases of telecommunications infrastructure.

Contract assets and liabilities

Significant accounting policies that apply to contract assets and liabilities

We recognise contract assets for goods and services for which control has transferred to the customer before we have the right to

bill. These assets mainly relate to mobile handsets provided upfront but paid for over the course of a contract. Contract assets are

reclassified as receivables when the right to payment becomes unconditional and we have billed the customer.

Contract liabilities are recognised when we have received advance payment for goods and services that we have not transferred to the

customer. These primarily relate to fees received for connection and installation services that are not distinct performance obligations.

Where the initial set-up, transition or transformation phase of a long-term contract is considered to be a distinct performance

obligation we recognise a contract asset for any work performed but not billed. Conversely a contract liability is recognised where

these activities are not distinct performance obligations and we receive upfront consideration. In this case eligible costs associated

with delivering these services are capitalised as fulfilment costs, see note 17.

We provide for expected lifetime losses on contract assets following the policy set out in note 17.

164 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

6. Operating costs

Year ended 31 March Notes

2023

£m

2022

£m

(re-presented)

Operating costs by nature

Staff costs:

Wages and salaries 3,858 3,746

Social security costs 424 400

Other pension costs 20 590 591

Share-based payment expense 22 80 108

Total staff costs 4,952 4,845

Own work capitalised

(1,364) (1,105)

Net staff costs 3,588 3,740

Net indirect labour costs

a,b

381 470

Net labour costs 3,969 4,210

Product costs 3,368 3,166

Sales commissions 589 628

Payments to telecommunications operators 1,354 1,346

Property and energy costs 1,242 1,028

Network operating and IT costs 913 904

TV programme rights charges

354 879

Provision and installation 591 678

Marketing and sales 363 312

Net impairment losses on trade receivables and contract assets

138 102

Other operating costs 103 256

Other operating income (243) (241)

Depreciation and amortisation, including impairment charges 4,753 4,405

Total operating costs before specific items 17, 494 17,673

Specific items 9 568 292

Total operating costs 18,062 17, 965

Operating costs before specific items include the following:

Leaver costs

11 15

Research and development expenditure

683 604

Foreign currency (gains)/losses (9) 3

Inventories recognised as an expense 2,311 2,297

a FY22 comparatives have been re-presented to reclassify £116m capitalised labour from net indirect labour costs to own work capitalised. This change results from a recent

system change and improved analysis which affords better visibility of the nature of capitalised labour costs.

b Net of capitalised indirect labour costs of £824m (FY22: £755m (re-presented, see footnote a)).

c TV programme rights charges relate to programme rights assets which were transferred to the sports joint venture in August 2022, see note 23.

d Consists of net impairment losses on trade receivables and contract assets in Consumer of £94m (FY22: £86m), in Enterprise of £30m (FY22: £5m), in Global of £2m (FY22: £7m),

in Openreach of £5m (FY22: £3m) and in Other of £1m (FY22: £1m).

e Leaver costs are included within wages and salaries, except for leaver costs of £129m (FY22: £170m) associated with restructuring costs, which have been recorded as specific items.

f Research and development expenditure includes amortisation of £632m (FY22: £543m) in respect of capitalised development costs and operating expenses of £51m (FY22:

£61m). In addition, the group capitalised software development costs of £503m (FY22: £601m).

5. Revenue continued

Contract assets and liabilities are as follows:

At 31 March

2023

£m

2022

£m

Contract assets

Current 1,565 1,554

Non-current 369 361

1,934 1,915

Contract liabilities

Current 859 833

Non-current 193 170

1,052 1,003

£903m of the contract liability at 31 March 2022 was recognised as revenue during the year (FY22: £880m). Impairment losses of £46m

were recognised on contract assets during the year (FY22: £48m).

The expected credit loss provisions recognised against contract assets vary across the group due to the nature of our customers; the

expected loss rate at 31 March 2023 was 3% (FY22: 3%).

165Financial statements

6. Operating costs continued

Depreciation and amortisation, which includes impairment charges, is analysed as follows:

Year ended 31 March Notes

2023

£m

2022

£m

Depreciation and amortisation before impairment charges

Intangible assets 13 1,165 1,035

Property, plant and equipment 14 2,878 2,658

Right-of-use assets 15 689 676

Impairment charges

Intangible assets 13 – 13

Property, plant and equipment 14 11 11

Right-of-use assets 15 10 12

Total depreciation and amortisation before specific items 4,753 4,405

Impairment charges classified as specific items 9

Intangible assets – –

Property, plant and equipment – –

Right-of-use assets 65 –

Total depreciation and amortisation 4,818 4,405

Who are our key management personnel and how are they compensated?

Key management personnel comprise Executive and Non-Executive Directors and members of the Executive Committee.

Compensation of key management personnel is shown in the table below:

Year ended 31 March

2023

£m

2022

£m

Short-term employee benefits 23.0 17.7

Post employment benefits

0.7 0.7

Share-based payments 6.7 6.7

30.4 25.1

a Post employment benefits include cash pension allowances paid to the Chief Executive and Chief Financial Officer. The group does not contribute to defined contribution or

defined benefit pension schemes on behalf of key management personnel.

Key management personnel are compensated solely in the form of cash and share-based payments. During the current and prior years,

key management personnel made no gains from exercise of share options.

7. Employees

2023 2022

Number of employees in the group

Year end

'000

Average

'000

Year end

'000

Average

'000

UK 77.6 79.7 79.9 80.2

Non-UK 19.5 19.1 18.5 18.8

Total employees 97.1 98.8 98.4 99.0

Consumer 16.4 16.5 16.6 17. 2

Enterprise 11.4 11.6 11. 5 11. 4

Global 12.6 13.0 13.2 13.8

Openreach 36.6 37.6 37.3 36.4

Other 20.1 20.1 19.8 20.2

Total employees 97.1 98.8 98.4 99.0

a These reflect the full-time equivalent of full- and part-time employees.

166 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

9. Specific items

Significant accounting policies that apply to specific items

Our income statement and segmental analysis separately identify trading results on an adjusted basis, being before specific items. The

directors believe that presentation of the group’s results in this way is relevant to an understanding of the group’s financial performance

as specific items are those that in management’s judgement need to be disclosed by virtue of their size, nature or incidence.

This presentation is consistent with the way that financial performance is measured by management and reported to the Board and

the Executive Committee and assists in providing an additional analysis of our reporting trading results. Specific items may not be

comparable to similarly titled measures used by other companies.

In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors. Examples

of charges or credits meeting the above definition and which have been presented as specific items in the current and/or prior years

include significant business restructuring programmes such as the current group-wide cost transformation and modernisation

programme, acquisitions and disposals of businesses and investments, charges or credits relating to retrospective regulatory matters,

property rationalisation programmes, significant out of period contract settlements, net interest on our pension obligation, and the

impact of remeasuring deferred tax balances. In the event that items meet the criteria, which are applied consistently from year to

year, they are treated as specific items. Any releases to provisions originally booked as a specific item are also classified as specific.

Conversely, when a reversal occurs in relation to a prior year item not classified as specific, the reversal is not classified as specific in

the current year.

In FY20 we included the impacts of Covid-19 on various balance sheet items as at 31 March 2020 as specific. Any releases to this

provision have been released through specific items in subsequent periods.

Current and future movements relating to the sports joint venture (Sports JV) with Warner Bros. Discovery (WBD), such as fair

value gains or losses on the A and C preference shares or impairment charges on the equity-accounted investment, will be classified

as specific as they are deemed to be related to the divestment of BT Sport operations and linked to the overall fair value of the

transaction. Refer to note 25 for further detail.

8. Audit, audit related and other non-audit services

The following fees were paid or are payable to the company’s auditors, KPMG LLP and other firms in the KPMG network.

Year ended 31 March

2023

£000

2022

£000

Fees payable to the company’s auditors and its associates for:

Audit services

The audit of the parent company and the consolidated financial statements 13,558 11,40 0

The audit of the company’s subsidiaries 6,274 6,009

19,832 17, 40 9

Audit related assurance services

2,553 3,169

Other non-audit services

All other assurance services 55 127

Total services 22,440 20,705

a Services in relation to the audit of the parent company and the consolidated financial statements. This also includes fees payable for the statutory audits of the financial

statements of subsidiary companies.

b Includes services that are required by law or regulation to be carried out by an appointed auditor and services that support us to fulfil obligations required by law or regulation.

This includes fees for the review of interim results and the accrued fee for the audit of the group’s regulatory financial statements. In FY23 this included fees of £1,000,000 to

support divestment transactions (FY22: £789,000).

Fees payable to auditors other than KPMG for audits of certain overseas subsidiaries were £171,000 (FY22: £163,000).

The BT Pension Scheme is an associated pension fund as defined in the Companies (Disclosure of Auditor Remuneration and Liability

Limitation Agreements) (Amendment) Regulations 2011. In FY23 KPMG LLP received total fees from the BT Pension Scheme of £1.6m

(FY22: £1.6m) in respect of the following services:

Year ended 31 March

2023

£000

2022

£000

Audit of financial statements of associates 1,622 1,602

Audit-related assurance services 14 16

Total services 1,636 1,618

167Financial statements

9. Specific items continued

Year ended 31 March

2023

£m

2022

£m

Revenue

Retrospective regulatory matters (12) (5)

Specific revenue (12) (5)

Operating costs

Restructuring charges 300 347

BT Sport disposal 155 –

Sports JV – subsequent movements 34 –

Retrospective regulatory matters 12 –

Other divestment-related items 2 (36)

Covid-19 – (19)

Specific operating costs before depreciation and amortisation 503 292

Impairment charges due to property rationalisation 65 –

Specific operating costs 568 292

Specific operating loss 556 287

Net finance expense

Finance expense relating to BT Sport disposal (13) 8

Interest expense on retirement benefit obligation 18 93

Specific net finance expense 5 101

Net specific items charge before tax 561 388

Taxation

Tax credit on specific items above (308) (80)

Tax charge on re-measurement of deferred tax – 420

(308) 340

Net specific items charge after tax 253 728

Retrospective regulatory matters

We recognised net nil impact in relation to historic regulatory matters, with £12m credits recognised in revenue offset by £12m charges

recognised within operating costs (FY22: net credit of £5m). These items represent movements in provisions relating to various matters.

Restructuring charges

We have incurred charges of £300m (FY22: £347m) relating to projects associated with our group-wide cost transformation and

modernisation programme. Costs primarily relate to leaver costs, consultancy costs, and staff costs associated with colleagues working

exclusively on programme activity. The net cash cost of restructuring activity during the year was £326m (FY22: £370m).

The programme was first announced in May 2020 and runs until the end of FY25. In response to cost inflation, during the year we revised

the gross annualised savings target to £3.0bn (previously £2.5bn), with a cost to achieve of £1.6bn (previously £1.3bn). Since embarking

on the programme we have achieved gross annualised savings of £2.1bn and incurred costs of £1.1bn.

BT Sport disposal

During FY23 we completed the disposal of BT Sport operations. We recognised a profit on disposal of £28m in specific items, made up

of £155m charges recognised within operating costs net of £183m tax credits. We also recognised a £13m credit within finance costs as

specific (FY22: £8m charge), relating to a foreign exchange hedging arrangement with the Sports JV, see note 31. Further details on the

BT Sport disposal can be found in note 23.

Sports JV subsequent movements

Subsequent to the disposal, we have recorded a net fair value movement of £34m on the A and C preference shares in the Sports JV

(see note 25).

Other divestment-related items

We recognised a £2m charge (FY22: £36m credit) relating to ongoing divestment projects.

Covid-19

In FY20 we recognised one-off charges of £95m relating to the impact of Covid-19 on various balance sheet items. Any releases

of this provision have also been booked as a specific item. At 31 March 2023 these provisions had been fully released or utilised.

Impairment charges due to property rationalisation

During FY23, we recognised a £65m impairment charge as specific (FY22: £nil), in relation to an ongoing property rationalisation

programme.

168 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

10. Taxation

S ignificant accounting policies that apply to taxation

Current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the

countries where the group’s subsidiaries, associates and joint ventures operate and generate taxable income. We evaluate positions

taken in tax returns where tax regulation is subject to interpretation, and establish provisions if appropriate based on the amounts

likely to be paid to tax authorities.

Deferred tax is recognised, using the liability method, in respect of temporary differences between the carrying amount of our assets

and liabilities and their tax base. Deferred tax is determined using tax rates that are expected to apply in the periods in which the asset

is realised or liability settled, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred and current income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets

and liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority

where there is an intention to settle the balances on a net basis. Any remaining deferred tax asset is recognised only when, on the basis

of all available evidence, it is probable that there will be suitable taxable profits against which the deductible temporary difference

can be utilised. Deferred tax balances for which there is a right of offset within the same jurisdiction are presented net on the face of

the group balance sheet as permitted by IAS 12, with the exception of deferred tax related to our pension schemes which is disclosed

within deferred tax assets.

Key accounting estimates and significant judgements made in accounting for taxation

We seek to pay tax in accordance with the laws of the countries where we do business. However, in some areas these laws are unclear,

and it can take many years to agree an outcome with a tax authority or through litigation. We estimate our tax on country-by-country

and issue-by-issue bases. Our key uncertainties are whether our intra-group trading model will be accepted by a particular tax

authority; whether intra-group payments are subject to withholding taxes and the deductibility of certain compensation payments

made in prior years. We provide for the predicted outcome where an outflow is probable, but the agreed amount can differ materially

from our estimates. Approximately 75% by value of the provisions are under active tax authority examination and are therefore likely

to be re-estimated or resolved in the coming 12 months. £104m (FY22: £194m) is included in current tax liabilities or offset against

current tax assets where netting is appropriate.

Under a downside case an additional amount of £174m could be required to be paid. This amount is not provided as we don’t consider

this outcome to be probable.

Deciding whether to recognise deferred tax assets is judgemental. We only recognise them when we consider it is probable that they

can be recovered. In making this judgement we consider evidence such as historical financial performance, future financial plans and

trends, the duration of existing customer contracts and whether our intra-group pricing model has been agreed by the relevant tax

authority.

The value of the group’s income tax assets and liabilities is disclosed on the group balance sheet. The value of the group’s deferred tax

assets and liabilities is disclosed below.

9. Specific items continued

Interest expense on retirement benefit obligation

During the year we incurred £18m (FY22: £93m) of interest costs in relation to our defined benefit pension obligations.

Tax on specific items

A tax credit of £308m (FY22: £80m) was recognised in relation to specific items. Of this, £183m relates to the BT Sport disposal. Further

details can be found in note 25.

Remeasurement of deferred tax balances

In FY22 we remeasured our deferred tax balances following the enactment of the new UK corporation tax rate of 25% from April 2023.

The corresponding adjustment comprised a net tax charge of £420m in the income statement and a non-recurring tax credit of £298m

in the statement of comprehensive income. This was classified as a specific item due to its size and the out-of-period nature of this charge.

169Financial statements

10. Taxation continued

Analysis of our taxation expense for the year

Year ended 31 March

2023

£m

2022

£m

United Kingdom

Corporation tax at 19% (FY22: 19%) – –

Adjustments in respect of earlier years

63 223

Non-UK taxation

Current (67) (78)

Adjustments in respect of earlier years 9 7

Total current taxation (expense) 5 152

Deferred taxation

Origination and reversal of temporary differences 102 (102)

Adjustments in respect of earlier years

56 (190)

Impact of change in UK corporation tax rate to 25% (FY22: 19%) – (420)

Remeasurement of temporary differences 13 (129)

Total deferred taxation credit (expense) 171 (841)

Total taxation (expense) 176 (689)

a In FY22, certain prior period tax issues were resolved at a net tax cost of £69m, comprising a £263m deferred tax charge and a £194m current tax credit.

Factors affecting our taxation expense for the year

The taxation expense on the profit for the year differs from the amount computed by applying the UK corporation tax rate to the profit

before taxation as a result of the following factors:

Year ended 31 March

2023

£m

2022

£m

Profit before taxation 1,729 1,963

Expected taxation expense at UK rate of 19% (FY22: 19%) (328) (373)

Effects of:

(Higher)/lower taxes on non-UK profits – (4)

Net permanent differences between tax and accounting

352 179

Adjustments in respect of earlier years

126 40

Prior year non-UK losses used against current year profits 5 20

Non-UK losses not recognised

9 (2)

Re-measurement of deferred tax balances 12 (549)

Total taxation credit (expense) 176 (689)

Exclude specific items (note 9) (308) 340

Total taxation expense before specific items (132) (349)

a Includes income that is not taxable or UK income taxable at a different rate, and expenses for which no tax relief is received. In both FY22 and FY23 this included the benefit

of the UK super-deduction. In FY23 it also includes the non-taxable profit on the disposal and revaluation of BT Sport.

b Reflects the differences between initial accounting estimates and tax returns submitted to tax authorities, including the release and establishment of provisions for uncertain

tax positions.

c Reflects losses made in countries where it has not been considered appropriate to recognise a deferred tax asset, as future taxable profits are not probable.

170 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

10. Taxation continued

Tax components of other comprehensive income

Year ended 31 March

2023

Tax credit

(expense)

£m

2022

Tax credit

(expense)

£m

Taxation on items that will not be reclassified to the income statement

Pension remeasurements 732 (399)

Tax on items that have been or may be reclassified subsequently to the income statement

Exchange differences on translation of foreign operations – –

Fair value movements on cash flow hedges

– net fair value gains or (losses) (90) (31)

– recognised in income and expense – –

Total tax recognised in other comprehensive income 642 (430)

Current tax credit

8 8

Deferred tax credit (expense) 634 (438)

Total tax recognised in other comprehensive income 642 (430)

a Includes £nil (FY22: £nil) relating to cash contributions made to reduce retirement benefit obligations.

Tax (expense) credit recognised directly in equity

Year ended 31 March

2023

£m

2022

£m

Tax (expense) credit relating to share-based payments (9) 11

Deferred taxation

Fixed asset

temporary

differences

£m

Retirement

benefit

obligations

£m

Share-

based

payments

£m

Tax

losses

£m

Other

£m

Jurisdictional

offset

£m

Total

£m

At 1 April 2021 1,587 (926) (20) (66) (135) – 440

Expense (credit) recognised in the income statement 1,326 (33) (5) (434) (13) – 841

Expense (credit) recognised in other comprehensive

income – 764 – (354) 28 – 438

Exchange differences – – (11) – – – (11)

Acquisition of subsidiary – – – (3) – – (3)

Transfer from current tax – – – – (34) – (34)

At 31 March 2022 2,913 (195) (36) (857) (15 4) – 1,671

Non-current

Deferred tax asset – (195) (36) (857) (154) 953 (289)

Deferred tax liability 2,913 – – – – (953) 1,960

At 31 March 2022 2,913 (195) (36) (857) (15 4) – 1,671

Expense (credit) recognised in the income statement 886 (18) (13) (1,022) (4) – (171)

Expense (credit) recognised in other comprehensive

income – (413) – (311) 90 – (634)

Expense (credit) recognised in equity – – 9 – – – 9

Exchange differences – – – (4) (3) (7)

Transfer to held for sale – – – – 2 – 2

Transfer to current tax – – – – 41 – 41

At 31 March 2023 3,799 (626) (40) (2,194) (28) – 911

Non-current

Deferred tax asset – (626) (40) (2,194) (28) 2,179 (709)

Deferred tax liability 3,799 – – – – (2,179) 1,620

At 31 March 2023 3,799 (626) (40) (2,194) (28) – 911

a Includes a deferred tax asset of £8m (FY22: £5m) arising on contributions payable to defined contribution pension plans.

The majority of the deferred tax assets and liabilities noted above are anticipated to be realised after more than 12 months.

What factors affect our future tax charges?

We expect a large proportion of our capital spend on fibre roll-out to be eligible for the Government’s super-deduction regime, which

allows for enhanced and accelerated tax relief for qualifying capital expenditure. These enhanced deductions are available for FY22

and FY23, driving a projected UK tax loss and no UK tax payments for these periods. Together with trading losses and pension deficit

contribution deductions, these result in c. £8bn of tax losses expected to be carried forward from FY23 to be utilised against UK taxable

profit from FY24 onwards. These are represented by a net c. £2.0bn deferred tax asset which is disclosed within the £2,194m deferred tax

asset relating to tax losses in the table above.

171Financial statements

10. Taxation continued

What are our unrecognised tax losses and other temporary differences?

At 31 March 2023 we had operating losses and other temporary differences carried forward in respect of which no deferred tax assets

were recognised amounting to £3.7bn (FY22: £3.8bn). Our other temporary differences have no expiry date restrictions. The expiry date

of operating losses carried forward is dependent upon the tax law of the various territories in which the losses arose. A summary of expiry

dates for losses in respect of which restrictions apply is set out below:

At 31 March 2023 £m Expiry

Restricted losses

Europe – 2024 – 2027

Americas 365 2024 – 2045

Other 3 2024 – 2030

Total restricted losses 368

Unrestricted operating losses 3,073 No expiry

Other temporary differences 266 No expiry

Total 3,707

At 31 March 2023 we had UK capital losses carried forward in respect of which no deferred tax assets were recognised amounting to

£16.8bn (FY22: £16.8bn). These losses have no expiry date, but we consider the future utilisation of significant amounts of these losses

to be remote.

At 31 March 2023 the undistributed earnings of non-UK subsidiaries were £2.5bn (FY22: £1.9bn). No deferred tax liabilities have

been recognised in respect of these unremitted earnings because the group is in a position to control the timing of any dividends from

subsidiaries and hence any tax consequences that may arise. Under current tax rules, tax of £41m (FY22: £35m) would arise if these

earnings were to be repatriated to the UK.

11. Earnings per share

How is earnings per share calculated?

Basic earnings per share is calculated by dividing the profit after tax attributable to equity shareholders by the weighted average number

of shares in issue after deducting the own shares held by employee share ownership trusts and treasury shares.

In calculating the diluted earnings per share, share options outstanding and other potential shares have been taken into account where

the impact of these is dilutive.

Year ended 31 March 2023 2022

Basic weighted average number of shares (millions) 9,803 9,866

Dilutive shares from share options (millions) 83 105

Dilutive shares from share awards (millions) 171 165

Diluted weighted average number of shares (millions) 10,057 10,136

Basic earnings per share 19.4p 12.9p

Diluted earnings per share 18.9p 12.5p

The earnings per share calculations are based on profit after tax attributable to equity shareholders of the parent company which excludes

non-controlling interests. Profit after tax was £1,905m (FY22: £1,274m) and profit after tax attributable to non-controlling interests was

£4m (FY22: £2m). Profit attributable to non-controlling interests is not presented separately in the financial statements as it is not material.

12. Dividends

What is the group’s dividend policy?

We have a progressive dividend policy to maintain or grow the dividend each year whilst taking into consideration a number of factors

including underlying medium-term earnings expectations and levels of business reinvestment.

What dividends have been paid?

A final dividend of 5.39p per share amounting to approximately £534m is proposed in respect of the year ended 31 March 2023 (FY22:

final dividend of 5.39p per share amounting to £527m paid in respect of the year ended 31 March 2022). An interim dividend of 2.31p per

share amounting to £226m was paid on 6 February 2023 (FY22: interim dividend of 2.31p per share amounting to £227m paid). This value

may differ from the amount shown for equity dividends paid in the group cash flow statement, which represents the actual cash paid in

relation to dividend cheques that have been presented over the course of the financial year.

2023 2022

Year ended 31 March

pence per

share £m

pence per

share £m

Final dividend in respect of the prior year 5.39 527 – –

Interim dividend in respect of the current year 2.31 226 2.31 227

7.70 753 2.31 227

172 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

13. Intangible assets

Significant accounting policies that apply to intangible assets

We recognise identifiable intangible assets where we control the asset, it is probable that future economic benefits attributable to the

asset will flow to the group, and we can reliably measure the cost of the asset. We amortise all intangible assets, other than goodwill,

over their useful economic life. The method of amortisation reflects the pattern in which the assets are expected to be consumed.

If the pattern cannot be determined reliably, the straight-line method is used.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the identifiable net assets

(including intangible assets) of the acquired business. Our goodwill impairment policy is set out later in this note.

Acquired intangible assets – customer relationships and brands

Intangible assets such as customer relationships or brands acquired through business combinations are recorded at fair value at

the date of acquisition and subsequently carried at amortised cost. Assumptions are used in estimating the fair values of these

relationships or brands and include management’s estimates of revenue and profits to be generated by them.

Telecommunications licences

Licence fees paid to governments, which permit telecommunications activities to be operated for defined periods, are initially recorded

at cost and amortised from the time the network is available for use to the end of the licence period or where our usage can extend

beyond the initial licence period, over the period we expect to benefit from the use of the licences, which is typically 20 years. Licences

acquired through business combinations are recorded at fair value at the date of acquisition and subsequently carried at amortised

cost. The fair value is based on management’s assumption of future cash flows using market expectations at acquisition date.

Computer software

Computer software comprises computer software licences purchased from third parties, and also the cost of internally developed

software. Computer software licences purchased from third parties are initially recorded at cost. We only capitalise costs directly

associated with the production of internally developed software, including direct and indirect labour costs of development, where

it is probable that the software will generate future economic benefits, the cost of the asset can be reliably measured and technical

feasibility can be demonstrated, in which case it is capitalised as an intangible asset on the balance sheet. Costs which do not meet

these criteria and research costs are expensed as incurred.

Our development costs which give rise to internally developed software include upgrading the network architecture or functionality

and developing service platforms aimed at offering new services to our customers.

Other

Other intangible assets include website development costs and other licences. Items are capitalised at cost and amortised on

a straight-line basis over their useful economic life or the term of the contract.

Estimated useful economic lives

The estimated useful economic lives assigned to the principal categories of intangible assets are as follows:

– Computer software 2 to 10 years

– Telecommunications licences 2 to 20 years

– Customer relationships and brands 1 to 15 years

Impairment of intangible assets

Intangible assets with finite useful lives are tested for impairment if events or changes in circumstances (assessed at each reporting

date) indicate that the carrying amount may not be recoverable. When an impairment test is performed, the recoverable amount

is assessed by reference to the higher of the net present value of the expected future cash flows (value in use) of the relevant cash

generating unit and the fair value less costs to dispose.

Goodwill is reviewed for impairment at least annually as described below. Impairment losses are recognised in the income statement,

as a specific item. If a cash generating unit is impaired, impairment losses are allocated firstly against goodwill, and secondly on a

pro-rata basis against intangible and other assets.

173Financial statements

13. Intangible assets continued

Goodwill

£m

Customer

relationships

and brands

£m

Telecoms

licences

and other

£m

Internally

developed

software

£m

Purchased

software

£m

Total

£m

Cost

At 1 April 2021 7, 838 3,383 3,013 4,753 1,135 20,122

Additions

– – 479 793 151 1,423

Acquisitions 94 – – – 2 96

Disposals and adjustments

(7) – (3) (239) (272) (521)

Transfers – – 1 45 (44) 2

Exchange differences 43 – – 1 (1) 43

Transfers to assets held for sale

(51) – – (7) – (58)

At 31 March 2022 7,917 3,383 3,490 5,346 971 21,107

Additions – – – 815 203 1,018

Acquisitions – – – – – –

Disposals and adjustments

(21) – – (466) 151 (336)

Transfers – – – 30 (38) (8)

Exchange differences 72 – 1 2 7 82

Transfer to assets held for sale

(13) – – – – (13)

At 31 March 2023 7,955 3,383 3,491 5,727 1,294 21,850

Accumulated amortisation

At 1 April 2021 – 2,238 734 3,299 494 6,765

Amortisation charge for the year

– 231 179 529 96 1,035

Impairment

– – – – 13 13

Disposals and adjustments

– – (5) (229) (278) (512)

Transfers – – – (2) 2 –

Exchange differences – – – 1 (1) –

Transfers to assets held for sale

– – – (3) – (3)

At 31 March 2022 – 2,469 908 3,595 326 7,298

Amortisation charge for the year

– 231 185 596 153 1,165

Impairment

– – – – – –

Disposals and adjustments

– – 1 (389) 79 (309)

Transfers – – – (56) 56 –

Exchange differences – – 1 1 7 9

At 31 March 2023 – 2,700 1,095 3,747 621 8,163

Carrying amount

At 31 March 2022 7,917 914 2,582 1,751 645 13,809

At 31 March 2023 7,955 683 2,396 1,980 673 13,687

a The remaining unamortised balance of customer relationships and brands relates to customer relationships recognised on acquisition of EE.

b Telecoms licences and other primarily represents spectrum licences. These include 2100 MHz licence with book value of £643m (FY22: £693m), 1800 MHz with book value

of £590m (FY22: £636m), 700Mhz with book value of £281m (FY22: £297m), 3400 MHz with book value of £242m (FY22: £258m) and 2600 MHz with book value of £206m

(FY22: £227m). Spectrum licences are being amortised over a period between 11 and 19 years.

c Includes a carrying amount of £1,125m (FY22: £1,046m) in respect of assets under construction, which are not yet amortised.

d Additions to telecoms licences and other assets in FY22 include £479m recognised in relation to spectrum which represents the amount paid to Ofcom to secure the spectrum

bands together with the related interference mitigation provision.

e For a breakdown of assets held for sale see note 23.

f Disposals and adjustments include the removal of assets from the group’s fixed asset registers following disposals and the identification of fully amortised assets (including

through operation of the group’s annual asset verification exercise). They also include adjustments between gross cost and accumulated amortisation following review of fixed

asset registers. These adjustments do not impact the net carrying amount of any asset class.

g In previous years impairment charges were included within the amortisation charge for the year but are now presented separately. FY22 comparatives have been re-presented

for comparability.

174 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

13. Intangible assets continued

Impairment of goodwill

Significant accounting policies that apply to impairment of goodwill

We perform an annual goodwill impairment review.

Goodwill recognised in a business combination does not generate cash flows independently of other assets or groups of assets. As a

result, the recoverable amount, being the value in use, is determined at a cash generating unit (CGU) level. These CGUs represent the

smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other groups of

assets. Our CGUs are deemed to be Consumer, Enterprise and Global.

We allocate goodwill to each of the CGUs that we expect to benefit from the business combination. Each CGU to which goodwill is

allocated represents the lowest level within the group at which the goodwill is monitored for internal management purposes.

The value in use of each CGU is determined using cash flow projections derived from financial plans approved by the Board covering

a five-year period. They reflect management’s expectations of revenue, EBITDA growth, capital expenditure, working capital and

operating cash flows, based on past experience and future expectations of business performance. Cash flows beyond the fifth year

have been extrapolated using perpetuity growth rates.

Significant judgements and key accounting estimates made in reviewing goodwill for impairment

Determining our CGUs

The determination of our CGUs is judgemental. The identification of CGUs involves an assessment of whether the asset or group of

assets generate largely independent cash inflows. This involves consideration of how our core assets are operated and whether these

generate independent revenue streams. Our determination of CGUs is unchanged from FY22.

From 1 April 2023 the existing Enterprise and Global units will be managed and reported as a single unit, Business, and we will review

the impact this has on our determination of CGUs in FY24. In FY22 we brought together the Legacy BT Consumer and Legacy EE CGUs

into a combined ‘Consumer’ CGU.

Estimating value in use

Our value in use calculations require estimates in relation to uncertain items, including management’s expectations of future

revenue growth, operating costs, profit margins, operating cash flows and the discount rate for each CGU. Future cash flows used in

the value in use calculations are on a nominal basis and based on our latest Board-approved five-year financial plans, representing

management’s best estimate of future growth. This includes the direct and indirect impacts of inflation and associated mitigations.

Expectations about future growth reflect the expectations of growth in the markets to which the CGU relates and consideration of

the overall variability relating to individual assumptions at the unit level. The future cash flows are discounted using a pre-tax nominal

discount rate that reflects current market assessments of the time value of money. The discount rate used in each CGU is adjusted for

the risk specific to the asset, including the countries in which cash flow will be generated, for which the future cash flow estimates have

not been adjusted.

175Financial statements

13. Intangible assets continued

We tested our goodwill for impairment as at 31 March 2023. The carrying value of goodwill and the key assumptions used in performing

the annual impairment assessment and sensitivities are disclosed below.

Cost

Consumer

£m

Legacy BT

Consumer

£m

Legacy EE

£m

Enterprise

£m

Global

£m

Total

£m

At 1 April 2021 – 1,183 2,768 3,475 412 7, 838

Acquisitions and disposals – – – 94 (7) 87

Transfer 3,951 (1,183) (2,768) – – –

Exchange differences – – – 4 39 43

Transfer to assets held for sale

(51) – – – – (51)

At 31 March 2022 3,900 – – 3,573 444 7,917

Acquisitions and disposals (26) – – 4 1 (21)

Transfer – – – – – –

Exchange differences – – – 4 68 72

Transfer to assets held for sale – – – (4) (9) (13)

At 31 March 2023 3,874 – – 3,577 504 7,955

a Assets transferred to held for sale during FY22 relate to the sale of our BT Sport operations. See note 23.

What discount rate have we used?

The pre-tax discount rates applied to the cash flow forecasts are derived from our post-tax weighted average cost of capital. The

assumptions used in the calculation of the group’s weighted average cost of capital are benchmarked to externally available data. The

pre-tax discount rate used in performing the value in use calculation in FY23 was 9.4% (FY22: 7.6%). We have used the same discount rate

for all CGUs except Global where we have used 9.7% (FY22: 7.9%) reflecting higher risk in some of the countries in which Global operates.

In FY23 we changed the calculation methodology of the group’s weighted average cost of capital. The most significant change relates to

the nominal interest rate for debt which we previously benchmarked to a 5-year historic average. We now use a spot rate to better reflect

the recent significant increases in interest rates by the Bank of England, and the increase in our discount rate is largely attributable to this.

The pre-tax discount rate calculated under the previous methodology would have been 7.8%.

What growth rates have we used?

The perpetuity growth rates are determined based on the forecast market growth rates of the regions in which the CGU operates, and

reflect an assessment of the long-term growth prospects of that market. The growth rates have been benchmarked against external data

for the relevant markets. None of the growth rates applied exceed the expected average long-term growth rates for those markets or

sectors. We used a perpetuity growth rate of 2.4% (FY22: 2.3%) for Global and 2.0% (FY22: 2.0%) for Enterprise and Consumer.

What sensitivities have we applied?

There is significant headroom in our Enterprise and Consumer CGUs. For Global, the value in use exceeds the carrying value of the CGU

by approximately £0.7bn (FY22: £3.9bn) due mainly to market conditions and the increased weighted average cost of capital. Any of the

following changes in assumptions in isolation would cause the recoverable amount for the CGU to equal its carrying amount:

– A reduction in the perpetuity growth rate from our 2.4% assumption to a revised assumption of a perpetuity decline rate of 3.9%;

– An increase in the discount rate from our 9.7% assumption to a revised assumption of 14.4%; or

– Shortfalls in trading performance against forecast resulting in operating cash flows decreasing by 41% each year and in perpetuity.

176 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

14. Property, plant and equipment

Significant accounting policies that apply to property, plant and equipment

Our property, plant and equipment is included at historical cost, net of accumulated depreciation, government grants and any

impairment charges. Property, plant and equipment acquired through business combinations is initially recorded at fair value and

subsequently accounted for on the same basis as our existing assets. We derecognise items of property, plant and equipment on

disposal or when no future economic benefits are expected to arise from the continued use of the asset. The difference between the

sale proceeds and the net book value at the date of disposal is recognised in operating costs in the income statement.

Included within the cost of network infrastructure and equipment are direct and indirect labour costs, materials and directly

attributable overheads.

We depreciate property, plant and equipment on a straight-line basis from the time the asset is available for use, to write off the asset’s

cost over the estimated useful life taking into account any expected residual value. Freehold land is not depreciated.

Estimated useful economic lives

The estimated useful lives assigned to principal categories of assets are as follows:

Land and buildings

– Freehold buildings 14 to 50 years

– Short-term leasehold improvements Shorter of 10 years or lease term

– Leasehold land and buildings Shorter of unexpired portion of lease or 40 years

Network infrastructure

Transmission equipment

– Duct 40 years

– Cable 3 to 25 years

– Fibre 5 to 20 years

Exchange equipment 2 to 13 years

Other network equipment 2 to 20 years

Other assets

– Motor vehicles 2 to 10 years

– Computers and office equipment 3 to 7 years

Residual values and useful lives are reassessed annually and, if necessary, changes are recognised prospectively.

Network share assets

Certain assets have been contributed to a network share arrangement by both EE and Hutchison 3G UK Limited, with legal title

remaining with the contributor. This is considered to be a reciprocal arrangement. Our share of the assets on acquisition of EE was

recognised at fair value within tangible assets, and depreciated in line with policy. Subsequent additions are recorded at cost.

Impairment of property, plant and equipment

We test property, plant and equipment for impairment if events or changes in circumstances (assessed at each reporting date)

indicate that the carrying amount may not be recoverable. When an impairment test is performed, we assess the recoverable amount

by reference to the higher of the net present value of the expected future cash flows (value in use) of the relevant asset and the fair

value less costs to dispose. If it is not possible to determine the recoverable amount for the individual asset then we assess impairment

by reference to the relevant cash generating unit as described in note 13.

Building Digital UK (BDUK) government grants

We receive government grants in relation to BDUK and other rural superfast broadband contracts. Where we have achieved certain

service levels, or delivered the network more efficiently than anticipated, we have an obligation to either re-invest or repay grant

funding. Where this is the case, we recognise deferred income in respect of the funding that will be re-invested or repaid, and make

a corresponding adjustment to the carrying amount of the related property, plant and equipment.

Assessing the timing of whether and when we change the estimated take-up assumption is judgemental as it involves considering

information which is not always observable. Our consideration on whether and when to change the base case assumption is dependent

on our expectation of the long-term take-up trend.

Our assessment of how much grant income to defer includes consideration of the difference between the take-up percentage agreed

with the local authority and the likelihood of actual take-up. The value of the government grants deferred is disclosed in note 18.

177Financial statements

14. Property, plant and equipment continued

Land

and

buildings

£m

Network infrastructure

Other

£m

Assets under

construction

£m

Total

£m

Held by

Openreach

£m

Held by

other units

£m

Cost

At 1 April 2021 946 29,108 25,488 1,520 990 58,052

Additions

87 – 111 89 3,548 3,835

Transfers 18 2,128 813 156 (3 ,117) (2)

Disposals and adjustments

(28) 40 (1,974) (271) 29 (2,204)

Transfer to assets held for sale

– – – (50) (4) (54)

Exchange differences (1) – 1 – – –

At 31 March 2022 1,022 31,276 24,439 1,444 1,446 59,627

Additions

7 – 129 7 3,947 4,090

Transfers

89 2,617 913 211 (3,822) 8

Disposals and adjustments

31 (118) (183) (33) (70) (373)

Transfer to assets held for sale

– – (108) (13) – (121)

Exchange differences 16 – 99 6 1 122

At 31 March 2023 1,165 33,775 25,289 1,622 1,502 63,353

Accumulated depreciation

At 1 April 2021 612 16,076 20,946 1,137 – 38,771

Depreciation charge for the year

37 1,372 1,092 157 – 2,658

Impairment

– – – 11 – 11

Transfers – – (1) 1 – –

Disposals and adjustments

(28) 28 (1,985) (240) – (2,225)

Transfer to assets held for sale

– – – (41) – (41)

Exchange differences – – (2) – – (2)

At 31 March 2022 621 17,476 20,050 1,025 – 39,172

Depreciation charge for the year

50 1,466 1,144 218 – 2,878

Impairment

– – – 11 – 11

Transfers

– 195 (192) (4) – (1)

Disposals and adjustments

32 (139) (133) (36) – (276)

Transfer to assets held for sale

– – (106) (11) – (117)

Exchange differences 13 – 91 7 – 111

At 31 March 2023 716 18,998 20,854 1,210 – 41,778

Carrying amount

At 31 March 2022 401 13,800 4,389 419 1,446 20,455

Engineering stores – – – – 144 144

Total at 31 March 2022 401 13,800 4,389 419 1,590 20,599

At 31 March 2023 449 14,777 4,435 412 1,502 21,575

Engineering stores – – – – 92 92

Total at 31 March 2023 449 14,777 4,435 412 1,594 21,667

a Other mainly comprises motor vehicles, computers and fixtures and fittings.

b Net of government grants of £150m (FY22: £78m).

c Disposals and adjustments include the removal of assets from the group’s fixed asset registers following disposals and the identification of fully depreciated assets (including

through operation of the group’s annual asset verification exercise). They also include adjustments between gross cost and accumulated depreciation following review of fixed

asset registers, and adjustments resulting from changes in assumptions used in calculating lease-end obligations where the corresponding asset is capitalised.

d Transfers to assets held for sale are detailed in note 23.

e Following review of fixed asset registers during the year we transferred £195m accumulated depreciation relating to Openreach network infrastructure that was historically

recorded against other units. Prior year comparatives have not been restated as the impact is not qualitatively material. There is no impact on the segmentation of the profit and

loss depreciation charge as disclosed in note 4.

f In previous years impairment charges were included within the depreciation charge for the year but are now presented separately. FY22 comparatives have been re-presented

for comparability.

178 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

14. Property, plant and equipment continued

Included within the above disclosure are assets used in arrangements which represent core business activities for the group and which

meet the definition of operating leases:

– £14,777m (FY22: £13,800m) of the carrying amount of the network infrastructure asset class represents Openreach’s network infrastructure.

The majority of the associated assets are used to deliver fixed-line telecommunications services that have been assessed as containing

operating leases, to both internal and external communications providers. Network infrastructure held by Openreach is presented

separately in the table above; however it is not practicable to separate out infrastructure not used in operating lease arrangements.

– Other assets includes devices with a carrying amount of £163m (FY22: £169m) that are made available to retail customers under

arrangements that contain operating leases. These are not presented separately in the table above as they are not material relative

to the group’s overall asset base.

The carrying amount of land and buildings, including leasehold improvements, comprised:

At 31 March

2023

£m

2022

£m

Freehold 80 92

Leasehold 369 309

Total land and buildings 449 401

Network infrastructure

Some of our network assets are jointly controlled by EE Limited with Hutchison 3G UK Limited. These relate to shared 3G network and

certain elements of network for 4G rural sites. The net book value of the group’s share of assets controlled by its joint operation MBNL is

£721m (FY22: £562m) and is recorded within network infrastructure. Included within this is £66m (FY22: £73m), being the group’s share

of assets owned by its joint operation MBNL.

Within network infrastructure are assets with a net book value of £10.9bn (FY22: £10.3bn) which have useful economic lives of more than

18 years.

179Financial statements

15. Leases

Significant accounting policies that apply to leases

Identifying whether a lease exists

At inception of a contract, we determine whether the contract is, or contains, a lease. A lease exists if the contract conveys the right to

control the use of an identified asset, for a period of time, in exchange for consideration. In making this assessment, we consider whether:

– The contract involves the use of an identified asset, either explicitly or implicitly. The asset must be physically distinct or represent

substantially all the capacity of a physically distinct asset. Assets that a supplier has a substantive right to substitute are not

considered distinct.

– The lessee (either the group, or the group’s customers) has the right to obtain substantially all the economic benefits from the use of

the asset throughout the period of use; and

– The lessee has the right to direct the use of the asset, in other words, has the decision-making rights that are most relevant to

changing how and for what purpose the asset is used.

Where practicable, and by class of underlying asset, we have elected to account for leases containing a lease component and one or

more non-lease components as a single lease component. Where this election has been taken, it has been applied to the entire asset.

Lessee accounting

We recognise a lease liability and right-of-use asset at the commencement of the lease.

Lease liabilities are initially measured at the present value of lease payments that are due over the lease term, discounted using the

group’s incremental borrowing rate.

The lease term is the non-cancellable period of the lease adjusted for the impact of any extension options that we are reasonably

certain that the lessee will exercise, or termination options that we are reasonably certain that the lessee will not exercise.

The incremental borrowing rate is the rate that we would have to pay for a loan of a similar term, and with similar security, to obtain an

asset of similar value.

Lease payments include:

– fixed payments

– variable lease payments that depend on an index or rate

– amounts expected to be paid under residual value guarantees

– the exercise price of any purchase options that we are reasonably certain to exercise

– payments due over optional renewal periods where we are reasonably certain to renew

– penalties for early termination of the lease where we are reasonably certain to terminate early

Lease liabilities are subsequently measured at amortised cost using the effective interest method. They are remeasured if there is a

change in future lease payments, including changes in the index or rate used to determine those payments, or the amount we expect to

be payable under a residual value guarantee.

We also remeasure lease liabilities where the lease term changes. This occurs when the non-cancellable period of the lease

changes, or on occurrence of a significant event or change in circumstances within the control of the lessee and which changes our

initial assessment in regard to whether the lessee is reasonably certain to exercise extension options or not to exercise termination

options. Where the lease term changes we remeasure the lease liability using the group’s incremental borrowing rate at the date

of reassessment. Where a significant event or change in circumstances does not occur, the lease term remains unchanged and the

carrying amounts of the lease liability and associated right-of-use asset will decline over time.

Right-of-use assets are initially measured at the initial amount of the corresponding lease liabilities, adjusted for any prepaid lease

payments, plus any initial direct costs incurred and an estimate of any decommissioning costs that have been recognised as provisions,

less any lease incentives received. They are subsequently depreciated using the straight-line method to the earlier of the end of the

useful life of the asset or the end of the lease term. Right-of-use assets are tested for impairment following the policy set out in note 14

and are adjusted for any remeasurement of lease liabilities.

We have elected not to recognise lease liabilities and right-of-use assets for short-term leases that have a lease term of 12 months or

less, and leases of low-value assets with a purchase price under £5,000. We recognise payments for these items as an expense on a

straight-line basis over the lease term.

Any variable lease payments that do not depend on an index or rate, such as usage-based payments, are recognised as an expense in

the period to which the variability relates.

180 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

Lessor accounting

At inception or on modification of a contract that contains a lease component, we allocate the consideration in the contract to each

lease component on the basis of their relative standalone prices.

When we act as a lessor, we determine at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, we make an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to

ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this

assessment, we consider certain indicators such as whether the lease is for the major part of the economic life of the asset.

When we are an intermediate lessor, we account for our interests in the headlease and the sublease separately. We assess the lease

classification of a sublease with reference to the right-of-use asset arising from the headlease, not with reference to the underlying

asset. If a headlease is a short-term lease to which we apply the exemption described above, then we classify the sublease as an

operating lease.

If an arrangement contains lease and non-lease components, then we apply IFRS 15 to allocate the consideration in the contract.

We apply the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. We further regularly review

estimated unguaranteed residual values used in calculating the gross investment in the lease.

We recognise lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other

revenue’.

Significant judgements made in accounting for leases

The lease term is a key determinant of the size of the lease liability and right-of-use asset recognised where the group acts as lessee;

and the deferral period for any upfront connection charges where the group acts as lessor. Determining the lease term requires

judgement to evaluate whether we are reasonably certain the lessee will exercise extension options or will not exercise termination

options. Key facts and circumstances that create an incentive to exercise those options are considered; these include:

– Our anticipated operational, retail and office property requirements in the mid and long term.

– The availability of suitable alternative sites.

– Costs or penalties associated with exiting lease arrangements relative to the benefits to be gained, including costs of removing

leasehold improvements or relocating, and indirect costs such as disruption to business.

– Significant investments in leased sites, in particular those with useful lives beyond the lease term.

– Costs associated with extending lease arrangements including rent increases during secondary lease periods.

Our definition of ‘reasonable certainty’, and therefore the lease term, will often align with the judgements made in our medium-term

plan, in particular for leases of non-specialised property and equipment on rolling (or ‘evergreen’) arrangements that continue until

terminated and which can be exited without significant penalty.

Following initial determination of the lease term, we exercise judgement in evaluating whether events or changes in circumstances are

sufficiently significant to change the initial assessment of whether we are reasonably certain the lessee will exercise extension options

or will not exercise termination options; and in the subsequent reassessment of the lease term.

Key judgements exercised in setting the lease term

The quantum of the lease liability and right-of-use asset currently recognised on our balance sheet is most significantly affected by the

judgement exercised in setting the lease term for the arrangement under which the bulk of our operational UK property estate is held.

Setting the lease term for our leased cell sites has also involved the use of judgement, albeit to a lesser degree.

15. Leases continued

181Financial statements

UK operational property portfolio

Substantially all of our leased property estate is held under an arrangement which can be terminated in 2031, at which point we may

either vacate some or all properties or purchase the entire estate. If neither option is taken the lease continues to the next unilaterally

available break point in 2041. The lease liability recognised for the arrangement reflects a lease end date of 2031.

On initial recognition we concluded that, although the majority of these properties are expected to be needed on a long-term basis,

we couldn’t be reasonably certain that we wouldn’t exercise the termination option or that we would exercise the purchase option. In

coming to this conclusion, we had due regard to material sub-lease arrangements relating to the estate.

As time progresses our assessment may change; if this happens, we will remeasure the lease liability and right-of-use asset to reflect

either the rentals due for any properties we will continue to occupy, or the cost of purchasing the estate, using an updated discount

rate. There would be no overall impact on net assets.

If the assessment were to change at the balance sheet date 31 March 2023:

– Exercising the purchase option would lead to an estimated increase in the lease liability and right-of-use asset of between £3bn

and £5bn

– Continuing to lease the estate beyond 2031 until the next available break in 2041 would lead to an estimated increase in the lease

liability and right-of-use asset of between £1bn and £2bn

Our assessment will be directly linked to future strategic decisions, which will be resolved at some time prior to 2031, around the

development of the fixed network and the associated rationalisation of our exchange estate. The breadth of the ranges reflects the

significant uncertainty around key variables used to determine cash outflows, especially future inflation and which properties the

group will be able to exit prior to or in 2031.

Estimates are based on discounted cash outflows and do not reflect the likely and significant impact of cash inflows generated from

the disposal, repurposing or subleasing of properties retained post-2031.

We are permitted to hand a limited number of properties back to the lessor prior to 2031. On initial adoption of IFRS 16 we were not

reasonably certain which properties would be handed back and as such the lease term did not reflect the exercise of these options.

Subsequently we exercise judgement in identifying significant events that trigger reassessment of our initial conclusion. We exercise

similar judgement in identifying events triggering reassessment of whether we are reasonably certain we will not exercise termination

options associated with other leased properties.

In doing so we consider decisions associated with our ongoing workplace rationalisation programme, in particular decisions to exit

a particular location or lease an alternative property. Generally we remain reasonably certain that we will not exercise a termination

option until implementation of the associated business plan has progressed to a stage that we are committed to exiting the property.

At that point we reassess the lease term by reference to the time we expect to remain in occupation of the property and any notice

period associated with exercise of the option.

Cell sites

Most of the liability recognised in respect of leased cell sites relates to multi-site arrangements with commercial providers. The fixed-

term nature of these arrangements means it has not been necessary to exercise significant judgement when determining the lease

term. Where the arrangements offer extension options we have been required to conclude whether the options are reasonably certain

to be exercised. Although the balance sheet could be materially affected by the conclusion reached in regard to these options, we

have not been required to exercise a significant degree of judgement in arriving at the lease term having regard to the period of time

covered by the options, the difficulty in predicting the group’s long-term network requirements, and the relatively high threshold that

‘reasonably certain’ represents.

A smaller proportion of the cell site liability relates to arrangements with individual landlords which are either rolling or can be exited

with notice. When setting the initial lease term for these arrangements we exercised significant judgement in establishing the period

that we are reasonably certain to require use of the site. We broadly aligned lease terms with our medium-term planning horizon after

assessing the relative strengths of the following factors:

– Long-term economic incentives to remain on sites including existing capital improvements;

– A need to maintain flexibility in our ability to develop and manage our network infrastructure to react quickly to technological

developments and evolving capacity requirements; and

– Incentives to renegotiate arrangements in the medium term to gain more security over sites to support future capital investment.

Although significant judgement has been exercised in determining the lease term, reaching an alternative conclusion would not have

a material impact on the balance sheet having regard to the most feasible alternative lease terms.

Subsequently, we consider key events that trigger reassessment of lease terms to be developments which resolve uncertainty around

our economic incentive to remain on individual sites in the long term. These are primarily lease renegotiations and significant capital

investments, for example that associated with our 5G rollout and other capital refresh programmes.

15. Leases continued

182 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

15. Leases continued

Right-of-use assets

Most of our right-of-use assets are associated with our leased property portfolio, specifically our office, retail and exchange estate. We

also lease a significant proportion of our network infrastructure, including mobile cell and switch sites.

Land and

buildings

£m

Network

infrastructure

£m

Motor

vehicles

£m

Other

£m

Total

£m

At 1 April 2021 4,332 145 375 11 4,863

Additions

249 13 110 1 373

Depreciation charge for the year (526) (31) (115) (4) (676)

Impairment

(6) (6) – – (12)

Transfer to assets held for sale (2) – – – (2)

Other movements

(106) (11) (1) 1 (117)

At 31 March 2022 3,941 110 369 9 4,429

Additions

203 16 150 2 371

Depreciation charge for the year (521) (32) (131) (5) (689)

Impairment

(75) – – – (75)

Transfer to assets held for sale (3) – – – (3)

Other movements

(49) 1 (3) (1) (52)

At 31 March 2023 3,496 95 385 5 3,981

a Additions comprise increases to right-of-use assets as a result of entering into new leases, and upwards remeasurement of existing leases arising from lease extensions or

reassessments and increases to lease payments.

b In previous years impairment charges were included within the depreciation charge for the year but are now presented separately. FY22 comparatives have been re-presented for

comparability. Impairment charge in FY23 relates primarily to the early exit of leases as a result of ongoing property rationalisation activity.

c Other movements primarily relate to terminated leases and downwards remeasurements of right-of-use assets arising from reductions or reassessments of lease terms and

decreases in lease payments.

Lease liabilities

Lease liabilities recognised are as follows:

Year ended 31 March

2023

£m

2022

£m

Current 800 795

Non-current 4,559 4,965

5,359 5,760

The following amounts relating to the group’s obligations under lease arrangements were recognised in the income statement in the year:

– Interest expense of £133m (FY22: £133m) accrued on lease liabilities.

– Variable lease payments of £38m (FY22: £24m) which are not dependent on an index or rate and which have not been included in the

measurement of lease liabilities.

Expenses relating to leases of low-value assets and short-term leases for which no right-of-use asset or lease liability has been recognised

were not material.

The total cash outflow for leases in the year was £860m (FY22: £792m). Our cash flow statement and normalised free cash flow

reconciliation present £727m (FY22: £659m) of the cash outflow as relating to the principal element of lease liability payments, with the

remaining balance of £133m (FY22: £133m) presented within interest paid.

Note 29 presents a maturity analysis of the payments due over the remaining lease term for lease liabilities currently recognised on the

balance sheet. This analysis only includes payments to be made over the reasonably certain lease term. Cash outflows are likely to exceed

these amounts as payments will be made on optional periods that we do not currently consider to be reasonably certain, and in respect of

leases entered into in future periods.

183Financial statements

15. Leases continued

Other information relating to leases

At 31 March 2023 the group was committed to future minimum lease payments of £145m in respect of leases which have not yet

commenced and for which no lease liability has been recognised (31 March 2022: £39m).

The following table analyses cash payments to be received across the remaining term of operating lease arrangements where BT is lessor:

At 31 March 2023

To be

recognised

as revenue

(note 5)

£m

To be

recognised

as other

operating

income

(note 6)

£m

Total

£m

Less than one year 416 19 435

One to two years 131 15 146

Two to three years 46 15 61

Three to four years 13 14 27

Four to five years 10 13 23

More than five years – 20 20

Total undiscounted lease payments 616 96 712

At 31 March 2022

Less than one year 446 20 466

One to two years 148 13 161

Two to three years 40 12 52

Three to four years 3 12 15

Four to five years 3 12 15

More than five years – 24 24

Total undiscounted lease payments 640 93 733

16. Programme rights

Significant accounting policies that apply to programme rights

Programme rights are recognised on the balance sheet from the point at which the legally enforceable licence period begins. They are

accounted for as inventory and held at the lower of cost and net realisable value. They are initially recognised at cost and are consumed

from the point at which they are available for use, on a straight-line basis over the programming period, or the remaining licence term,

as appropriate, which is generally 12 months.

Additions reflect TV programme rights for which the legally enforceable licence period has started during the year.

Rights for which the licence period has not started are disclosed as contractual commitments in note 32. Payments made to receive

commissioned or acquired programming in advance of the legal right to broadcast the programmes are classified as prepayments (see

note 17). No contractual commitments or prepayments exist in respect of programme rights at 31 March 2023 following the BT Sport

divestment during the year.

Programme rights were disposed in year as part of the BT Sport divestment, see note 23 for further details.

Total

£m

At 1 April 2021 328

Additions 861

Release (879)

At 1 April 2022 310

Additions 676

Release (354)

Disposal (632)

At 31 March 2023 –

184 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

17. Trade and other receivables

Significant accounting policies that apply to trade and other receivables

Trade receivables are recognised where the right to receive payment from customers is conditional only on the passage of time. We

initially recognise trade and other receivables at fair value, which is usually the original invoiced amount. They are subsequently carried

at amortised cost using the effective interest method. The carrying amount of these balances approximates to fair value due to the

short maturity of amounts receivable.

We provide services to consumer and business customers, mainly on credit terms. We know that certain debts due to us will not

be paid through the default of a small number of our customers. Because of this, we recognise an allowance for doubtful debts on

initial recognition of receivables, which is deducted from the gross carrying amount of the receivable. The allowance is calculated

by reference to credit losses expected to be incurred over the lifetime of the receivable. In estimating a loss allowance we consider

historical experience and informed credit assessment alongside other factors such as the current state of the economy and particular

industry issues. We consider reasonable and supportable information that is relevant and available without undue cost or effort.

Once recognised, trade receivables are continuously monitored and updated. Allowances are based on our historical loss experiences

for the relevant aged category as well as forward-looking information and general economic conditions. Allowances are calculated by

individual CFUs in order to reflect the specific nature of the customers relevant to that CFU.

The group utilises factoring arrangements for selected trade receivables. Trade receivables that are subject to debt factoring

arrangements are derecognised if they meet the conditions for derecognition detailed in IFRS 9 ‘Financial instruments’.

Contingent assets such as any insurance recoveries which we expect to recoup, have not been recognised in the financial statements

as these are only recognised within trade and other receivables when their receipt is virtually certain.

At 31 March

2023

£m

2022

£m

Current

Trade receivables 1,395 1,339

Prepayments 545 523

Accrued income 158 150

Deferred contract costs 369 336

Finance lease receivables

29 3

Amounts due from joint ventures 268 –

Other assets

a,b

296 273

3,060 2,624

Non-current

Deferred contract costs 211 226

Finance lease receivables

98 90

Other assets

a,b

194 21

503 337

a In previous years finance lease receivables were included within other receivables but are now presented separately. FY22 comparatives have been re-presented for comparability.

b Other assets comprise prepayments and £70m (FY22: £nil) of deferred cash consideration relating to the disposal of BT Sport, see note 23.

Amounts due from joint ventures relates to a sterling Revolving Credit Facility (RCF) provided to the Sports JV formed during the year, see

note 23. The RCF is in place to provide short-term liquidity required by the Sports JV to fund working capital and commitments to sports

rights holders, up to a maximum of £300m (expected to decrease to £200m during FY24). Amounts drawn down by the Sports JV under

the RCF accrue interest at a market reference rate, consistent with group’s external short-term borrowings, and is held as a financial asset

at amortised cost. The expected loss provision is immaterial.

Trade receivables are stated after deducting allowances for doubtful debts, as follows:

2023

£m

2022

£m

At 1 April 223 378

Expense 84 35

Utilised (142) (189)

Exchange differences 3 (1)

At 31 March 168 223

Included within the movements above are certain items which have been classified as a specific item (see note 9). In FY23, £nil of expected

credit loss provisions recognised as a specific item were released (FY22: £19m release) reflecting lower than expected credit losses.

185Financial statements

17. Trade and other receivables continued

The expected credit loss allowance for trade receivables was determined as follows:

Past due and not specifically impaired

At 31 March

Not past due

£m

Trade

receivables

specifically

impaired net

of provision

£m

Between

0 and

3 months

£m

Between

3 and

6 months

£m

Between

6 and

12 months

£m

Over

12 months

£m

Total

£m

2023

Expected loss rate % 1% 75% 10% 46% 41% 52% 11%

Gross carrying amount 1,030 20 265 48 59 141 1,563

Loss allowance (8) (15) (26) (22) (24) (73) (168)

Net carrying amount 1,022 5 239 26 35 68 1,395

2022

Expected loss rate % 1% 84% 12% 24% 33% 69% 14%

Gross carrying amount 946 20 280 63 70 183 1,562

Loss allowance (8) (17) (34) (15) (23) (126) (223)

Net carrying amount 938 3 246 48 47 57 1,339

Trade receivables not past due and accrued income are analysed below by CFU.

Trade receivables

not past due Accrued income

At 31 March

2023

£m

2022

£m

2023

£m

2022

£m

Consumer 309 324 82 76

Enterprise 180 168 2 –

Global 533 446 – –

Openreach – – 70 71

Other – – 4 3

Total 1,022 938 158 150

Given the broad and varied nature of our customer base, the analysis of trade receivables not past due and accrued income by CFU is

considered the most appropriate disclosure of credit concentrations.

Deferred contract costs

Significant accounting policies that apply to deferred contract costs

We capitalise certain costs associated with the acquisition and fulfilment of contracts with customers and amortise them over the

period that we transfer the associated services.

Connection costs are deferred as contract fulfilment costs because they allow satisfaction of the associated connection performance

obligation and are considered recoverable. Sales commissions and other third party contract acquisition costs are capitalised as

costs to acquire a contract unless the associated contract term is less than 12 months, in which case they are expensed as incurred.

Capitalised costs are amortised over the minimum contract term. A portfolio approach is used to determine contract term.

Where the initial set-up, transition and transformation phases of long-term contractual arrangements represent distinct performance

obligations, costs in delivering these services are expensed as incurred. Where these services are not distinct performance obligations,

we capitalise eligible costs as a cost of fulfilling the related service. Capitalised costs are amortised on a straight-line basis over the

remaining contract term, unless the pattern of service delivery indicates a more appropriate profile. To be eligible for capitalisation,

costs must be directly attributable to specific contracts, relate to future activity, and generate future economic benefits. Capitalised

costs are regularly assessed for recoverability.

186 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

17. Trade and other receivables continued

The following table shows the movement on deferred costs:

Deferred

connection

costs

£m

Deferred

contract

acquisition

costs –

commissions

£m

Deferred

contract

acquisition

costs – dealer

incentives

£m

Transition

and

transformation

£m

Total

£m

At 1 April 2021 32 94 348 85 559

Additions 17 98 291 50 456

Amortisation (14) (78) (308) (33) (433)

Impairment (1) (5) (10) (11) (27)

Other (10) 15 3 (1) 7

At 31 March 2022 24 124 324 90 562

Additions 15 100 285 70 470

Amortisation (15) (94) (276) (67) (452)

Impairment – (1) (1) – (2)

Other (2) 2 (2) 4 2

At 31 March 2023 22 131 330 97 580

18. Trade and other payables

Significant accounting policies that apply to trade and other payables

We initially recognise trade and other payables at fair value, which is usually the original invoiced amount. We subsequently carry them

at amortised cost using the effective interest method.

We use a supply chain financing programme to extend payment terms with a limited number of suppliers to a more typical payment

term. We also use a separate supply chain financing programme to allow suppliers to receive funding earlier than the invoice due date.

We assess these arrangements against indicators to assess if debts which vendors have sold to the funder under the supplier financing

schemes continue to meet the definition of trade payables or should be classified as borrowings. At 31 March 2023 the payables met

the criteria of trade payables. Cash flows are presented in cash flows from operating activities.

At 31 March

2023

£m

2022

£m

Current

Trade payables 4,196 4,143

Other taxation and social security 581 573

Minimum guarantee from BT Sport disposal

195 –

Accrued expenses 458 549

Deferred income

532 345

Other payables

602 532

6,564 6,142

Non-current

Minimum guarantee from BT Sport disposal

465 –

Deferred income

403 594

Other payables

52 30

920 624

a See note 23.

b Deferred income includes £258m (FY22: £96m) current and £169m (FY22: £392m) non-current liabilities relating to Building Digital UK, for which grants received by the

group may be subject to re-investment or repayment depending on the level of take-up.

c During FY23 we reclassified £132m payables to provisions (note 19) following reassessment of the level of certainty over the timing and amount of any outflow of resources.

Current trade and other payables at 31 March 2023 include:

– £348m (31 March 2022: £89m) of trade payables that have been factored by suppliers in a supply chain financing programme. These

programmes are used with a limited number of suppliers with short payment terms to extend them to a more typical payment term.

– £169m (31 March 2022: £93m) of trade payables in a separate supply chain financing programme that allows suppliers the opportunity

to receive funding earlier than the invoice due date. Financial institutions are used to support this programme but we continue to

recognise the underlying payables as we continue to cash settle the supplier invoices in accordance with their terms.

187Financial statements

19. Provisions & contingent liabilities

Our provisions principally relate to obligations arising from property rationalisation programmes, restructuring programmes, asset

retirement obligations, network assets, third party claims, litigation and regulatory risks. Contingent liabilities primarily arise from

litigation and regulatory matters that are not sufficiently certain to meet the criteria for recognition as provisions.

Significant accounting policies that apply to provisions & contingent liabilities

We recognise provisions when the group has a present legal or constructive obligation as a result of past events, it is probable that

an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

Where these criteria are not met we disclose a contingent liability if the group has a possible obligation, or has a present obligation

with an outflow that is not probable or which cannot be reliably estimated.

Provisions are determined by discounting the expected future cash flows at a nominal pre-tax rate that reflects current market

assessments of the time value of money and the risks specific to the liability. Cash flows are adjusted for the effect of inflation where

appropriate.

Key accounting estimates and significant judgements made in accounting for provisions

& contingent liabilities

We exercise judgement in determining the quantum of all provisions to be recognised. Our assessment includes consideration of

whether we have a present obligation, whether payment is probable and if so whether the amount can be estimated reliably.

As part of this assessment, we also assess the likelihood of contingent liabilities occurring in the future. Contingent liabilities are not

recognised as liabilities on our balance sheet. By their nature, contingencies will be resolved only when one or more uncertain future

events occur or fail to occur. We assess the likelihood that a potential claim or liability will arise and also quantify the possible range of

financial outcomes where this can be reasonably determined.

In estimating contingent liabilities we make key judgements in relation to applicable law and any historical and pending court rulings,

and the likelihood, timing and cost of resolution.

Key accounting estimates applied in accounting for provisions and contingent liabilities

Other provisions may involve the use of key (but not critical) estimates as explained below.

When measuring provisions we reflect the impact of inflation as appropriate particularly in relation to our property, asset retirement

obligation and third party claims provisions. Although this involves a degree of estimation it does not represent a significant source of

estimation uncertainty having regard to the quantum of the balances in question and the anticipated timing of outflows.

Property provisions relate to obligations arising in relation to our property portfolio, in particular costs to restore leased properties

on vacation where this is required under the lease agreement. In measuring property provisions, we have made estimates of the costs

associated with the restoration of properties by reference to any relevant guidance such as rate cards. Cash outflows occur as and

when properties are vacated and the obligations are settled.

Asset retirement obligations (AROs) relate to obligations to dismantle equipment and restore network sites on vacation of the site.

The provision represents the group’s best estimate of the costs to dismantle equipment and restore the sites. Obligations are settled

as and when sites are vacated and the timing is largely influenced by the group’s network strategy.

188 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

Our regulatory provision represents our best estimate of the cost to settle our present obligation in relation to historical regulatory

matters. The charge/credit for the year represents the outcome of management’s re-assessment of the estimates and regulatory risks

across a range of issues, including price and service issues. The prices at which certain services are charged are regulated and may be

subject to retrospective adjustment by regulators. When estimating the likely value of regulatory risk we make key judgements, including

in regard to interpreting Ofcom regulations and past and current claims. The precise outcome of each matter depends on whether it

becomes an active issue, and the extent to which negotiation or regulatory and compliance decisions will result in financial settlement.

The ultimate liability may vary from the amounts provided and will be dependent upon the eventual outcome of any settlement.

Litigation provisions represent the best estimate to settle present obligations recognised in respect of claims brought against the

group. The estimate reflects the specific facts and circumstances of each individual matter and any relevant external advice received.

Provisions recognised are inherently judgemental and could change over time as matters progress.

Establishing contingent liabilities associated with litigation brought against the group may involve the use of key estimates and

assumptions, in particular around the ability to form a reliable estimate of any probable outflow. We provide further information in

relation to specific matters in the ‘contingent liabilities’ section below.

Third party claims provisions (previously described as insurance provisions) represent our exposure to claims from third parties,

with latent disease claims from former colleagues and motor vehicle claims making up the majority of the balance. We engage an

independent actuary to provide an estimate of the most likely outcomes in respect of latent disease and third party motor vehicle

accident claims, and our in-house insurance teams review our exposure to other risks.

Other provisions do not include any individually material provisions.

For all risks, the ultimate liability may vary materially from the amounts provided and will be dependent upon the eventual outcome

of any settlement.

Property

£m

Network

ARO

£m

Regulatory

£m

Litigation

£m

Third party

claims

£m

Other

c,d

£m

Total

£m

At 1 April 2021 138 158 96 109 91 123 715

Additions 17 25 14 7 6 22 91

Unwind of discount – 1 – – – – 1

Utilised (9) (3) (26) – (5) (11) (54)

Released (2) – (18) (31) – (38) (89)

Transfers (2) – (1) – – – (3)

Exchange differences – – – – – – –

At 31 March 2022 142 181 65 85 92 96 661

IAS 37 opening balance adjustment

– – – – – 12 12

At 1 April 2022 142 181 65 85 92 108 673

Additions 43 – 16 6 35 15 115

Unwind of discount 1 3 – – – – 4

Utilised (8) (4) (1) (41) (30) (7) (91)

Released (37) (87) (16) (9) (43) (42) (234)

Transfers

– – 4 – 132 (11) 125

Exchange differences 1 – – 3 1 1 6

At 31 March 2023 142 93 68 44 187 64 598

a Timing of expected cash flows associated with property and network ARO provisions varies depending on the exit dates of individual properties and sites. Provision releases

during FY23 primarily relate to the remeasurement of provisions using increased discount rates that reflect an increase in risk-free rates.

b Third party claims described as insurance in prior periods, relabelled to better reflect the nature of the underlying exposures. Within this balance £77m held in respect of

our gross exposure to latent disease claims from former colleagues and £30m for motor vehicle claims, with no individually material items in the remaining balance.

c Network share provisions were previously presented separately but are now presented within Other provisions due to their relative immateriality. FY22 comparatives have

been restated for comparability. Network share provisions were £5m at 31 March 2022 and £5m at 31 March 2023.

d Other provisions include contract loss provisions of £8m (FY22: £1m) relating to the anticipated total losses in respect of certain contracts.

e Opening balance adjustment arising on adoption of the amendments to IAS 37, see note 1.

f Transfers into third party claims in FY23 relate to the reclassification of balances previously presented in other payables (note 18) following reassessment of the level of

certainty over the timing and amount of any outflow of resources.

At 31 March

2023

£m

2022

£m

Analysed as:

Current 229 222

Non-current 369 439

598 661

19. Provisions & contingent liabilities continued

189Financial statements

19. Provisions & contingent liabilities continued

Contingent liabilities and legal proceedings

In the ordinary course of business, we are periodically notified of actual or threatened litigation, and regulatory and compliance matters

and investigations. We have disclosed below a number of such matters including any matters where we believe a material adverse impact

on the operations or financial condition of the group is possible and the likelihood of a material outflow of resources is more than remote.

Where the outflow of resources is considered probable, and a reasonable estimate can be made of the amount of that obligation,

a provision is recognised for these amounts and reflected in the table above. Where an outflow is not probable but is possible, or a

reasonable estimate of the obligation cannot be made, a contingent liability exists.

In respect of each of the claims below, the nature and progression of such proceedings and investigations can make it difficult to predict

the impact they will have on the group. There are many reasons why we cannot make these assessments with certainty, including, among

others, that they are in early stages, no damages or remedies have been specified, and/or the often slow pace of litigation.

Class action claim

In January 2021, law firm Mishcon de Reya applied to the Competition Appeal Tribunal to bring a proposed class action claim for damages

they estimated at £608m (inclusive of compound interest) or £589m (inclusive of simple interest) on behalf of our landline customers

alleging anti-competitive behaviour through excessive pricing by BT to customers with certain residential landline services. Ofcom

considered this topic more than five years ago. At that time, Ofcom’s final statement made no finding of excessive pricing or breach of

competition law more generally. The claim seeks to hold against us the fact that we implemented a voluntary commitment to reduce

prices for customers that have a BT landline only and not to increase those prices beyond inflation (CPI). At the reporting date we are not

aware of any evidence to indicate that a present obligation exists such that any amount should be provided for. In September 2021 the

Competition Appeal Tribunal certified the claim to proceed to a substantive trial on an opt-out basis (class members are automatically

included in the claim unless they choose to opt-out). We appealed the opt-out nature of that decision and in May 2022 the Court of Appeal

determined that the claim should proceed on an opt-out basis. A hearing window has been set for January – April 2024. BT intends to

defend itself vigorously.

Italian business

Milan Public Prosecutor prosecutions: in February 2019 the Milan Public Prosecutor served BT Italia S.P.A. (BT Italia) with a notice (which

named BT Italia, as well as various individuals) to record the Prosecutor’s view that there is a basis for proceeding with its case against

BT Italia for certain potential offences, namely the charge of having adopted, from 2011 to 2016, an inadequate management and control

organisation model for the purposes of Articles 5 and 25 of Legislative Decree 231/2001. BT Italia disputes this and maintains in a defence

brief filed in April 2019 that: (a) BT Italia did not gain any interest or benefit from the conduct in question; and (b) in any event, it had a

sufficient organisational, management and audit model that was circumvented/overridden by individuals acting in their own self-interest.

However, following a series of committal hearings in Autumn 2020, on 10 November 2020, the Italian court agreed (as is the normal

process unless there are limitation or other fundamental issues with the claim) that BT Italia, and all but one of the individuals, should be

committed to a full trial. The trial commenced on 26 January 2021 and is ongoing. On 23 April 2021, the Italian court allowed some parties

to be joined to the criminal proceedings as civil parties (‘parte civile’) – a procedural feature of the Italian criminal law system. These

claims are directed at certain individual defendants (which include former BT/ BT Italia employees). Those parties have now successfully

joined BT Italia as a respondent to their civil claims (‘responsabile civile’) on the basis that it is vicariously responsible for the individuals’

wrongdoing. If successful, the quantum of those claims is not anticipated to be material.

Accounting misstatement claims: a law firm acting on behalf of a group of investors has made claims under s.90A of the Financial Services

& Markets Act 2000, alleging that untrue or misleading statements were made in relation to the historical irregular accounting practices

in BT’s Italian business (which have been the subject of previous disclosures). No value is stated and the matter is in the very early stages.

As mentioned in our earlier reports, the accounting issues in Italy have previously been the subject of class actions in the US that were

dismissed by the US courts.

Phones 4U

Since 2015 the administrators of Phones 4U Limited have made allegations that EE and other mobile network operators colluded to

procure Phones 4U’s insolvency. Legal proceedings for an unquantified amount were issued in December 2018 by the administrators.

The trial on the question of liability/breach ran from May to July 2022. The parties are now awaiting judgment, and the court has not yet

indicated when it will be delivered. A second trial on quantum would be required in the event of a finding for the claimant. We continue

to dispute these allegations vigorously.

UK Competition and Markets Authority (CMA) investigation

On 12 July 2022 the CMA opened a competition law investigation into BT and other companies involved in the purchase of freelance

services for the production and broadcasting of sports content in the UK. The investigation is focused on BT Sport. In February 2023, the

CMA extended its investigation to include suspected breaches of competition law in relation to the employment of staff supporting the

production and broadcasting of sports content in the UK. The CMA has said no assumption should be made at this stage that competition

law has been infringed. BT is cooperating with the investigation.

190 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

20. Retirement benefit plans

Background to BT’s pension plans

The group has both Defined Benefit and Defined Contribution retirement benefit plans. The group’s main plans are in the UK:

– The BT Pension Scheme (BTPS) is the largest UK Defined Benefit plan. It was closed to future benefit accrual in 2018 for the majority

of members, and has 62,000 deferred members and 208,000 pensioners. All BTPS members receive pensions benefits at retirement

based on salary and years of service, and some members also receive a lump sum payment at retirement. Increases for the majority of

benefits are linked to either the Retail Price Index (RPI) or the Consumer Price Index (CPI). The scenarios on page 196 illustrate how

sensitive the BTPS liabilities are to inflation expectations. The BTPS constitutes 97% of BT Group’s IAS 19 liability.

– The EE Pension Scheme (EEPS) has a Defined Benefit section that was closed to future benefit accrual in 2014 and a Defined

Contribution section. The Defined Benefit section constitutes 2% of BT Group’s IAS 19 liability.

– The BT Retirement Saving Scheme (BTRSS) is a Defined Contribution, contract-based, plan operated by Standard Life which new

UK employees join. There are around 65,000 employees building benefits in the BTRSS.

The group also has retirement arrangements around the world in line with local markets and culture.

Types of retirement benefit plans

Defined benefit (“DB”) plans

DB plan benefits are determined by the plan rules, typically dependent on factors such as age, years of service and pensionable

pay, but not on the value of actual contributions made by the company and members. The group is exposed to investment and other

experience risks and may need to make additional contributions where it is estimated that the benefits will not be met from regular

contributions, expected investment income and assets held.

The net defined benefit liability, or deficit, is the present value of all expected future benefit cash flows to be paid by each plan,

calculated using the projected unit credit method by professionally qualified actuaries (also known as the Defined Benefit Obligation

(DBO) or liabilities) less the fair value of the plan assets.

Defined contribution (“DC”) plans

DC plan benefits are linked to the value of each member’s fund, which is based on contributions paid and the performance of each

individual’s chosen investments. The group has no exposure to investment and other experience risks.

Amounts in the financial statements

Group income statement

The expense arising from the group’s retirement benefit arrangements recognised in the group income statement is shown below.

Year ended 31 March

2023

£m

2022

£m

Recognised in the income statement before specific items (note 6)

– Service cost:

– DB plans 17 20

– DC plans 537 525

– Past service cost/(credit) (2) (1)

– Administration expenses and PPF levy 38 47

Subtotal 590 591

Recognised in the income statement as specific items (note 9)

– Costs to close BTPS and provide transition payments

for affected employees 13 14

– Interest on pensions deficit 18 93

Subtotal 31 107

Total recognised in the income statement 621 698

a All employees impacted by the closure of the BTPS were eligible for transition payments from the date of closure into their BTRSS pot for a period linked to the employee’s age.

191Financial statements

20. Retirement benefit plans continued

Group balance sheet

The net defined benefit liability in respect of defined benefit plans reported in the group balance sheet are set out below. EEPS is in a surplus

position in FY23 (FY22: deficit position) so assets and liabilities are presented within non-current assets (FY22: non-current liabilities).

2023 2022

At 31 March

Assets

£m

Liabilities

£m

Deficit

£m

Assets

£m

Liabilities

£m

Deficit

£m

Recognised in non-current liabilities

BTPS 38,673 (41,575) (2,902) 53,465 (54,309) (844)

EEPS n/a n/a n/a 1,004 (1,017) (13)

Unfunded plans – (92) (92) – (115) (115)

Other funded plans 65 (210) (145) 468 (639) (171)

Asset ceiling

– – – – – –

Total 38,738 (41,877) (3,139) 54,937 (56,080) (1,143)

Recognised in non-current assets

EEPS 749 (713) 36 – – –

Funded plans 321 (305) 16 – – –

Asset ceiling

– – – – – –

Total 1,070 (1, 018) 52 – – –

a In the context of IFRIC 14, BT is not required to limit any pension surplus or recognise additional pensions liabilities in individual plans as economic benefits are available in the

form of either future refunds or reductions to future contributions. In particular, a refund of surplus is available following the gradual settlement of the liabilities over time when

there are no members remaining in the BTPS or EEPS.

The table below shows the group’s defined benefit liability net of tax.

At 31 March

2023

£m

2022

£m

Balance sheet position (net of tax)

Surplus/(deficit) (3,087) (1,143)

Deferred tax asset (note 10) 618 190

Total (net of tax) (2,469) (953)

192 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

Movements in defined benefit plan assets and liabilities

The table below shows the movements in the defined benefit plan assets and liabilities and shows where they are reflected in the

financial statements.

Assets

£m

Liabilities

£m

Deficit

£m

At 31 March 2021 54,612 (59,708) (5,096)

Service cost (including administration expenses and PPF levy) (47) (20) (67)

Past service credit – 1 1

Interest on net pension deficit 1,095 (1,188) (93)

Included in the group income statement (159)

Return on plan assets above the amount included in the group income statement 780 – 780

Actuarial gain arising from changes in financial assumptions – 2,932 2,932

Actuarial gain arising from changes in demographic assumptions – 804 804

Actuarial (loss) arising from experience adjustments

– (1,651) (1,651)

Included in the group statement of comprehensive income 2,865

Regular contributions by employer 114 – 114

Deficit contributions by employer 1,121 – 1,121

Included in the group cash flow statement 1,235

Contributions by employees 1 (1) –

Benefits paid (2,748) 2,748 –

Other (e.g. foreign exchange) 9 3 12

Other movements 12

At 31 March 2022 54,937 (56,080) (1,14 3)

Service cost (including administration expenses and PPF levy) (38) (17) (55)

Past service credit – 2 2

Interest on net pension deficit 1,480 (1,498) (18)

Included in the group income statement (71)

Return on plan assets below the amount included in the group income statement (14, 911) – (14 , 911)

Actuarial gain arising from changes in financial assumptions – 12,279 12,279

Actuarial gain arising from changes in demographic assumptions – 891 891

Actuarial (loss) arising from experience adjustments

– (1,135) (1,135)

Included in the group statement of comprehensive income (2,876)

Regular contributions by employer 22 – 22

Deficit contributions by employer 994 – 994

Included in the group cash flow statement 1,016

Contributions by employees 1 (1) –

Benefits paid (2,686) 2,686 –

Other (e.g. foreign exchange) 9 (22) (13)

Other movements (13)

At 31 March 2023 39,808 (42 ,895) (3,087)

a Primarily reflects the impact on the liabilities of actual inflation being higher than assumed at the prior reporting date. There has been a broadly equivalent benefit to inflation-

linked assets from higher inflation.

How is the BTPS governed and managed?

BT Pension Scheme Trustees Limited (the Trustee) has been appointed by BT as an independent trustee to administer and manage the

BTPS on behalf of the members in accordance with the terms of the BTPS Trust Deed and Rules and relevant legislation (principally the

pensions acts of 1993, 1995, 2004 and 2021). The Trustee’s key powers include setting the investment strategy of BTPS (after consultation

with BT) and agreeing with BT the actuarial assumptions to be used when assessing the BTPS funding position and the resulting

contributions that will be paid.

There are nine Trustee directors, all of whom are appointed by BT, as illustrated below. Trustee directors are usually appointed for a three-

year term but are then eligible for re-appointment.

Chairman of the Trustee directors

Appointed by BT after consultation

with, and with the agreement of,

the relevant trade unions.

Employer nominated Trustee directors

Appointed by BT. Two normally hold

senior positions within the group and

two normally hold (or have held) senior

positions in commerce or industry.

Member nominated Trustee directors

Appointed by BT based on

nominations by trade unions.

193Financial statements

20. Retirement benefit plans continued

BTPS IAS 19 assets

Critical accounting estimates and significant judgements made when valuing the BTPS assets

Under IAS 19, plan assets are measured at fair value at the balance sheet date and include quoted and unquoted investments.

Valuation of main quoted investments

– Equities listed on recognised stock exchanges are valued at closing bid prices.

– Bonds that are regularly traded are valued using broker quotes.

– Exchange traded derivative contracts are valued based on closing bid prices

Valuation of main unquoted investments

A portion of unquoted investments are valued based on inputs that are not directly observable, which require more judgement.

The assumptions used in valuing unquoted investments are affected by market conditions.

– Equities are valued using the International Private Equity and Venture Capital (IPEVC) guidelines where the most significant

assumptions are the discount rate and earnings assumptions.

– Property investments are valued on the basis of open market value by an independent valuer using RICS guidelines. The significant

assumptions used in the valuation are rental yields and occupancy rates.

– Bonds, including those issued by BT, that are not regularly traded are valued by an independent valuer using pricing models making

assumptions for credit risk, market risk and market yield curves.

– Holdings in investment funds are typically valued at the Net Asset Value provided by the fund administrator or investment manager.

The significant assumption used in the valuation is the Net Asset Value.

– Infrastructure investments are valued by an independent valuer using a model-based valuation such as a discounted cash flow

approach, or at the price of recent market transactions if they represent fair value. Where a discounted cash flow model is used,

the significant assumptions used in the valuation are the discount rate and the expected cash flows.

– Over the counter derivatives are valued by an independent valuer using cash flows discounted at market rates. The significant

assumptions used in the valuation are the yield curves and cost of carry.

– The longevity insurance contract is measured by discounting the projected cash flows payable under the contract (projected by

an actuary, consistent with the terms of the contract). The significant assumptions used to value the asset are the discount rate

(including adjustments to the risk free rate) and the mortality assumptions.

£6.4bn of unquoted investments that are formally valued periodically by the investment manager have a latest valuation that precedes

the balance sheet date. These assets consist of: £3.7bn non-core credit; £1.2bn mature infrastructure; £1.1bn private equity; £0.2bn

secure income; and £0.2bn overseas property. These valuations have been adjusted for cash movements between the previous

valuation date and 31 March 2023. The valuation approach and inputs for these investments would only be approximately updated

where there were indications of significant movements, for example implied by market indicators. No such adjustment was required

at 31 March 2023.

Asset-backed funding arrangement

The asset-backed funding arrangement, issued to the BTPS in May 2021, has a fair value of £1.3bn at 31 March 2023 (2022: £1.4bn)

calculated as the present value of the future stream of payments, allowing for the probability of the BTPS becoming fully funded

and therefore the payments to the BTPS ending early. It is not recognised as a pension asset when measuring the group’s IAS 19 net

defined benefit liability as it is a non-transferable financial instrument issued by the group.

How are the BTPS assets invested?

The Trustee regularly reviews the allocation of assets between different investment classes, taking into account current market conditions

and trends. The allocations reflect the Trustee’s views on a range of areas, including: i) the balance between seeking returns and incurring

risk; ii) the extent to which the assets should be allocated to match movements in the liabilities due to changes in interest rates, inflation

and/or longevity (i.e. liability-driven investments, or LDI); iii) the extent to which the assets should provide cash flows to meet expected

payments to beneficiaries; and iv) liquidity needed to meet benefit payments and collateral requirements for derivatives contracts.

Financial derivatives (e.g. swaps) are used to reduce the mismatch between movements in the liabilities and the assets from changes in

interest rates, inflation, and exchange rates. This provides greater stability in the funding position, and therefore the deficit contributions

that may be required from BT. The sensitivity chart on page 198 shows how the use of some of these derivatives adjusts outcomes for the

BTPS. While the use of derivatives reduces funding risk, it increases the Scheme’s liquidity requirements which is factored into the overall

investment strategy. Following the impact of the September 2022 mini-budget on derivatives, the Bank of England and the Pensions

Regulator issued guidance on the minimum level of collateral pension schemes should hold. At 31 March 2023, the BTPS held more

collateral than these minimum levels.

194 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

The table below analyses the fair value of the BTPS assets by asset category, subdivided by valuations based on a quoted market price in

an active market, and those that are not (such as investment funds).

2023 2022

At 31 March

Total

assets

£bn

of which

quoted

£bn

Total

assets

£bn

of which

quoted

£bn

Growth

Equities UK 0.1 – 0.3 0.2

Overseas developed 1.7 0.6 6.5 5.6

Emerging markets – – 1.0 0.9

Private Equity 1.1 – 1.2 –

Property UK 2.6 – 3.4 –

Overseas 0.8 – 0.8 –

Other growth assets Absolute Return

0.9 – 1.0 –

Non Core Credit

4.2 0.4 4.7 1.4

Mature Infrastructure 1.2 – 1.4 –

Liability matching

Government bonds

UK 13.2 13.1 15.1 15.1

Investment grade credit Global 10.4 8.2 13.9 11.7

Secure income assets

3.7 – 2.6 –

Cash, derivatives and other

Cash balances 3.0 – 2.9 –

Financial derivative contracts (4.2) – 0.6 –

Longevity insurance contract

(0.8) – (1.0) –

Other

0.8 – (0.9) –

Total 38.7 22.3 53.5 34.9

a At 31 March 2023, the BTPS held nil (FY22: nil) equity issued by the group and £1,550m (FY22: £1,930m) of bonds issued by the group.

b This allocation seeks to generate a positive return in all market conditions.

c This allocation includes a range of credit investments, including emerging market, sub-investment grade and unrated credit. The allocation seeks to exploit investment

opportunities within credit markets using the expertise of a range of specialist investment managers.

d Around 72% (2022: 83%) of these are index-linked gilts with the remainder in conventional gilts.

e This allocation includes property, infrastructure and credit investments and provides the BTPS contractual income and expected return in excess of corporate bonds.

f The value reflects experience to date on the contract from higher than expected deaths; This partly offset a corresponding reduction in BTPS’s liabilities over the same period.

g Other balances comprise net amounts receivable / (payable) by the BTPS, including investment balances due to and from brokers.

BTPS IAS 19 Liabilities

Critical accounting estimates and significant judgements made when valuing our pension liabilities

The measurement of the service cost and the liabilities involves judgement about uncertain events including the life expectancy

of members, price inflation and the discount rate used to calculate the net present value of the future pension payments. We use

estimates for all of these uncertain events. Our assumptions reflect historical experience, market expectations (where relevant),

actuarial advice and our judgement regarding future expectations at the balance sheet date.

What are the forecast benefits payable from the BTPS?

There are c 270,000 members, and their dependents, who will be receiving benefits from the BTPS for the remainder of their lives.

Members currently receiving pension benefits make up around 69% of the liability and 77% of the membership. Forecasting the benefit

payments involves judgement about uncertain events. While assumptions are made for these events, actual benefit payments in a given

year may be higher or lower than the assumption, for example if members retire sooner or later than assumed. The liabilities are the

present value of the future expected benefit payments.

The chart below illustrates how the forecast benefits payable from the BTPS, and IAS 19 liabilities, projected using the IAS 19 assumptions

evolve over time. While benefit payments are expected to increase in the early years, as non-pensioners retire, the value of the liabilities is

expected to reduce.

Financialstatements195

20. Retirement benefit plans continued

Forecast benefits payable by BTPS at 31 March 2023 (unaudited)

3.0

2.5

2.0

1.5

1.0

0.5

2023 2043 2063 2083

Forecast benefit payments (left axis)

IAS 19 Defined Benefit Obligations (right axis)

The estimated duration of the BTPS liabilities, which is an indicator of the weighted average term of the discounted future payments, is 12

years (2022: 14 years) using the IAS 19 assumptions. The duration is sensitive to the assumptions and has reduced following the increase in

bond yields, and therefore discount rate, over the year.

What are the most significant assumptions, and how have they been set?

The most significant financial assumptions used to calculate the IAS 19 liabilities for the BTPS are the discount rate and inflation. The most

significant demographic assumption used is how life expectancy will evolve over time which is illustrated as forecast life expectancies for

members aged 60 in the table below.

At 31 March 2023 2022

Discount rate 4.85% 2.75%

Inflation – average increase in RPI 3.35% 3.70%

Inflation – average increase in CPI 2.85% 3.25%

Life expectancy – male in lower pension bracket 24.7 years 25.2 years

Life expectancy – male in higher pension bracket 26.9 years 27.3 years

Life expectancy – female 27.5 years 27.8 years

Average additional life expectancy for a male member retiring at age 60 in 10 years’ time 0.4 years 0.4 years

While the financial assumptions are typically scheme specific, the average financial assumptions weighted by liabilities across all schemes

Benefit payments (£bn)

are within 0.05% of the figures shown in the table above.

The table below summarises how these assumptions have been set, including key changes over the year.

Detail

Discount

The discount rate assumption is calculated by applying the projected BTPS benefit cash flows to a corporate bond yield

rate

curve constructed by our external actuary based on the yield on AA-rated £-denominated corporate bonds at the balance

sheet date. In setting the yield curve, judgement is required on the selection of appropriate bonds to be included in the

universe and the approach used to then derive the yield curve.

The increase in the discount rate over the year reflects changes in the market yield of corporate bonds.

RPI and CPI

RPI inflation expectations are calculated by applying the projected BTPS benefit cash flows to an inflation curve derived

inflation

from market yields on UK government bonds, and making a deduction for an inflation risk premium (to reflect the extra

premium paid by investors for inflation linked assets) of 0.2% pa before 2030 and 0.3% pa thereafter.

CPI inflation expectations are set with reference to the RPI inflation assumption taking into account market data and

independent estimates of the expected difference. Before 2030, CPI inflation is assumed to be 1.0% lower than RPI

inflation (2022: 1.0%). RPI will be aligned with CPIH from 2030, and we assume a nil gap between CPI and CPIH inflation

as historically these measures have been broadly comparable.

Pension

Benefits are assumed to increase in line with the RPI or CPI inflation assumptions. Under the BTPS rules, benefit increases

increases

prior to retirement are primarily linked to CPI capped at 5%, and the majority of benefits increase after retirement linked

to either CPI for Sections A and B or RPI with a 5% cap for Section C.

Longevity The longevity assumption takes into account:

– the actual mortality experience of the BTPS pensioners, based on a formal review carried out for the 2020 triennial

funding valuation

– future improvements in longevity based on the CMI’s 2021 Mortality Projections model published by the UK actuarial

profession

There is significant uncertainty as to the impact of the Covid-19 pandemic on future life expectancy. We continue to

assume that following the pandemic there is a short-term increase in deaths compared to the assumptions adopted prior

to the pandemic and we have fully allowed for population mortality data from 2022, but not data from 2020 and 2021.

Allowing for the 2022 data reduced the BTPS liabilities by £0.7bn.

We continue to assume mortality will improve in the long term by 1% per year.

IAS 19 liabilities (£bn)

196 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

Risks underlying the BTPS deficit

Background

A large increase in our pension scheme obligations could stop us from being able to fund our business cash flows or meet our payment

commitments. Things like future low investment returns, high inflation, longer life expectancy and regulatory changes may all mean the

BTPS becomes more of a financial burden to BT.

Changes in external factors, such as bond yields, can have an impact on the IAS 19 and funding assumptions, impacting the measurement

of BTPS liabilities. These factors can also impact the BTPS assets. A summary is set out in the table below:

Change in Impact

Government

bond yields

A fall in government bond yields will:

– increase the IAS 19 liabilities, driven by the fall in the discount rate.

– increase the assets, driven by an increase in the value of government bonds, corporate bonds and interest rate

derivatives held by the BTPS.

Credit

spreads

A fall in credit spreads will lead to a fall in corporate bond yields, and therefore an increase in the IAS 19 liabilities and

a corresponding but smaller increase in both asset values and funding liabilities.

Inflation

expectations

A significant proportion of the benefits paid to members are currently increased in line with RPI or CPI inflation.

Changes in average inflation expectations over the lifetime of the plan

An increase in average inflation expectations will:

– increase the IAS 19 liabilities

– increase the value of index-linked bonds, other inflation linked assets and inflation derivatives held by the BTPS

Changes in inflation over the next year

If inflation over the next year is lower or higher than assumed, it would lead to a fall or increase in the IAS 19 liabilities. We

estimate the change in asset values will broadly offset the movement in both the IAS 19 liabilities and funding liabilities.

If inflation is higher than the caps that apply to benefits, the assets will increase by more than the liabilities. Similarly, in a

deflationary environment, the asset values are expected to fall by more than the IAS 19 liabilities and funding liabilities

since the payments on index-linked gilts would be reduced but pensions paid by the BTPS would not.

Growth

assets

A significant proportion of the BTPS assets are invested in growth assets, such as equities and property. Although the BTPS

has temporary hedges in place to partly offset the impact of a fall in equity markets, and adopts a diverse portfolio, a fall in

these growth assets will increase the IAS 19 and funding deficit.

Life

expectancy

An increase in the life expectancy of members will result in benefits being paid out for longer, leading to an increase in the

IAS 19 liabilities and funding liabilities.

The BTPS holds a longevity insurance contract which covers around 20% of the BTPS’s total exposure to improvements

in longevity, providing long-term protection and income to the BTPS in the event that members live longer than currently

expected.

Other risks include: changes in legislation or regulation which impact the value of the liabilities or assets; and member take-up of options

before and at retirement to reshape their benefits. The scale of the BTPS means that investment changes and any future de-risking

actions need to be planned and executed carefully, potentially over an extended timeframe or multiple transactions.

Scenario analysis

The potential negative impact of these risks is illustrated by the following five scenarios. These have been assessed by BT’s independent

actuary as scenarios that might occur no more than once in every 20 years. The scenarios have been updated to reflect market experience

over the last year.

1-in-20 events

Scenario 2023 2022

1. Fall in bond yields

1.2% 0.8%

2. Increase in credit spreads

0.9% 0.7%

3. Increase to average inflation expectations over the lifetime of the plan

1.1% 0.6%

4. Fall in growth assets

20.0% 20.0%

5. Increase to life expectancy 1.30 years 1.00 years

a Scenario assumes a fall in the yields on both government and corporate bonds.

b Scenario assumes an increase in the yield on corporate bonds, with no change to yield on government bonds.

c Scenario assumes average RPI and CPI inflation expectations over the lifetime of the plan increase by the same amount.

d Impact includes the potential impact of temporary equity hedges held by the BTPS. Scenario considers combinations of changes to the key inputs used to value the growth assets,

leading to a 20% fall in the aggregate value of the growth assets prior to temporary hedges held by the BTPS.

The impact shown under each scenario looks at each event in isolation. In practice a combination of events could arise, and the effects are

not additive nor are they linear (e.g. doubling the change in bond yields assumed will not exactly double the impact).

197Financial statements

20. Retirement benefit plans continued

Impact of illustrative scenarios which might occur no more than once in every 20 years

6.1

£bn

(2)

(4)

(6)

2.3

5.0

(3.7) (0.8) 4.2 2.0

2.8

0.0 0.3

(2.5)

1.9 0.4

1.2 percentage point

fall in bond yields

0.9 percentage point

increase in credit spreads

1.1 percentage point

increase to inflation rate

20% fall in

growth assets

1.30 year

increase in life

expectancy

Increase/(decrease) in liabilities

Increase/(decrease) in assets – Physical assets

Increase/(decrease) in assets – Derivatives / synthetic assets

Scenario analysis – IAS 19 position at 31 March 2023

The sensitivities have been prepared using the same approach as FY22 which involves calculating the liabilities and assets allowing for

the change in market conditions assumed under the scenario. The change in impact from FY22 is due to a combination of: changes in the

scenarios, the significant fall in asset and liability values over the year, and changes in the scheme’s investment strategy in line with the

agreed de-risking plan.

BTPS funding

Triennial funding valuation

A funding valuation is carried out for the Trustee by a professionally qualified independent actuary at least every three years. The funding

valuation assesses the ongoing financial health of the Scheme. If there are insufficient assets to meet the estimated future benefit

payments to members (i.e. a funding deficit), BT and the Trustee agree the amount and timing of additional cash contributions. It is

prepared using the principles set out in UK Pension legislation, such as the 2004 and 2021 pensions acts, and uses a prudent approach

overall when setting the actuarial assumptions. Some of the key differences compared to the IAS 19 deficit are set out in the table below.

IAS 19 Funding

Purpose Balance sheet in BT plc accounts Assessing the ongoing financial health and setting cash payments

Regulation IFRS 2004 and 2021 pensions acts

Frequency Semi-annually At least every three years

Key assumptions

Determined by BT BT and BTPS agreement

Discount rate Yield curve based on AA corporate bonds Yield curve reflecting prudent return expected from BTPS assets

Other assumptions Best estimate Prudent overall approach

The different purpose and principles lead to different assumptions being used, and therefore a different estimate for the liabilities and deficit.

The next funding valuation is scheduled to take place as at 30 June 2023. The latest funding valuation was performed as at 30 June 2020 and

the results are shown below.

30 June 2020

£bn

Funding liabilities (65.3)

Assets 57.3

BTPS Funding deficit (8.0)

Percentage of accrued benefits covered by the BTPS assets at valuation date 88%

Key assumptions at valuation date:

Discount rate

1.4%

Inflation – average increase in RPI 3.2%

Inflation – average increase in CPI 2.4%

Life expectancy – 60 year old male in lower pension bracket 25.8 years

Life expectancy – 60 year old male in higher pension bracket 28.0 years

Life expectancy – 60 year old female 28.5 years

Average additional life expectancy for a male member retiring at age 60 in 10 years’ time 0.9 years

a The discount rate at 30 June 2020 was derived from prudent return expectations that reflect the investment strategy over time, allowing for the BTPS to de-risk to a portfolio

consisting predominantly of bond and bond-like investments by 2034.

198 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

20. Retirement benefit plans continued

Interim updates of the funding position (unaudited)

The Scheme Actuary carried out an interim assessment as at 30 June 2022, estimating the BTPS’s funding position to have improved from

a deficit of £8.0bn to £4.4bn, predominantly reflecting £3.5bn of contributions from BT. BT and the Trustee will agree cash contributions in

the usual way at the next full triennial funding valuation, scheduled to take place as at 30 June 2023.

The impact of changes in market conditions on the funding liabilities differs to the impact on the IAS 19 liabilities. For example, the funding

liabilities use a discount rate linked to a risk-free rate and a fixed margin which is reviewed at each triennial valuation, whereas the IAS 19

liabilities use a discount rate based on corporate bond yields (and so are affected by changes in credit spreads). The chart below illustrates

the impact of the scenarios set on page 196 on the 30 June 2022 interim assessment of the funding position.

£bn

(2)

(4)

(6)

1.2 percentage point

fall in bond yields

0.9 percentage point

increase in credit spreads

1.1 percentage point

increase to inflation rate

20% fall in

growth assets

1.30 year

increase in life

expectancy

Increase/(decrease) in liabilities

Increase/(decrease) in assets – Physical assets

Increase/(decrease) in assets – Derivatives / synthetic assets

Scenario analysis – Funding position at 30 June 2022

9.6 3.8

5.2

0.0 (1.0) 7.6 2.7

3.0

0.0 0.7

(3.9)

2.3 0.5

The figures shown in the table apply to the BTPS assets and funding liabilities as at 30 June 2022; an increase in the assets or funding

liabilities will increase the impact of the scenarios shown.

Deficit payments from the Group

The 2020 funding valuation showed a deficit of £8.0bn, which was agreed to be met as follows:

– £2bn of the deficit met through an Asset Backed Funding arrangement (ABF), providing cash payments of £180m pa which are secured

on EE Limited. The BTPS is entitled to the full value of these future payments in the unlikely event that BT becomes insolvent. If the BTPS

reaches full funding at any 30 June, the payments to the BTPS will cease.

– Annual cash contributions until June 2023 paid directly to the BTPS

– Annual cash contributions from July 2023 to June 2030 paid either to the BTPS directly, or to a co-investment vehicle where they will

be invested as if part of the overall BTPS investment strategy.

These payments are summarised in the table below:

Year to 31 March 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Payments from BT plc 610

600

500

– – –

Payments from ABF 180 180 180 180 180 180 180 180 180 180 180

Total 790 780 780 780 780 780 780 680 180 180 180

a £500m due by 30 June.

b £490m of each payment due by 30 June. £10m is directly payable to the BTPS, and BT has the option to pay remaining amounts into the co-investment vehicle.

ABF

The future payments from the ABF have a present value of £1.4bn at 31 March 2023. The fair value of the ABF is £1.3bn at 31 March 2023

and allows for the probability of the BTPS becoming fully funded, and therefore the payments to the BTPS ending early.

The fair value of the ABF is included in the assets of the BTPS when assessing the funding deficit. Payments from the ABF to BTPS are

treated in the same way as coupon payments from bonds, and do not affect the funding deficit when they are paid.

The fair value of the ABF is not included in the assets of the BTPS when assessing the IAS 19 deficit in the group consolidated accounts,

as it is a non-transferable asset issued by the group. Payments from the ABF to BTPS are treated as deficit contributions, and reduce the

IAS 19 deficit, when they are paid.

199Financial statements

20. Retirement benefit plans continued

Co-investment vehicle

At 31 March 2023, the fair value of assets in the co-investment vehicle was less than £1m (2022: less than £1m). The fair value of assets

in the co-investment vehicle are included in the assets of the BTPS when assessing the IAS 19 and funding deficits.

The co-investment vehicle provides BT with some protection against the risk of overfunding by allowing money to be returned to BT if

not needed by the BTPS, enabling BT to provide upfront funding with greater confidence.

To the extent there is a funding deficit at 30 June 2034, the co-investment vehicle will pay funds to the BTPS. BT will receive tax relief on

funds paid at this point, rather than in the year when funds are paid from BT into the vehicle. Any remaining funds in the co-investment

vehicle will then be returned to BT in three annual payments in 2035, 2036 and 2037, unless the BTPS has subsequently moved into

funding deficit or the Trustee, acting prudently but reasonably, decides to defer or reduce these payments.

Protections for BTPS (going concern)

BT has agreed to provide the Trustee with certain protections. These will predominantly be in place until 2035, or until the Protections

Deficit (which is calculated in line with the funding liabilities but with an adjustment to the discount rate) has reduced below £2bn. A £2bn

deficit on this measure is currently broadly equivalent to a nil funding deficit. The protections include:

Feature Detail

Future funding

commitment

BT will provide additional contributions, of between £150m pa and £200m pa, should the funding deficit fall more

than £1bn behind plan at any 30 June interim assessment.

The payments will stop once an interim assessment shows the funding deficit is back on plan, i.e. the recovery plan

agreed at the last triennial valuation is sufficient to meet the funding deficit.

The next annual test will be carried out as at 30 June 2023.

Shareholder

distributions

BT will provide additional payments to the BTPS by the amount that shareholder distributions exceed a threshold.

For the three years following the 2020 valuation, the threshold allows for 10% per year dividend per share growth

based on dividends restarting at 7.7p per share in FY22.

BT has agreed to implement a similar protection at each subsequent valuation, with the terms to be negotiated

at the time.

BT will consult with the Trustee if:

– it considers share buybacks for any purpose other than relating to employee share awards;

– it considers making any shareholder distributions in any of the next 3 years if annual normalised free cash flow

of the group is below £1bn in the year and distributions within the year would be in excess of 120% of the above

threshold; or

– it considers making a special dividend.

Material corporate

events

In the event that BT generates net cash proceeds greater than a threshold from disposals (net of acquisitions) in any

financial year, BT will make additional contributions to the BTPS. The threshold is £750m until 30 June 2023, and

£1bn thereafter (increased by CPI from 30 June 2020).

The amount payable is one third of the total net cash proceeds, or the amount by which the Protections Deficit

exceeds £2bn if lower.

BT will consult with the Trustee if:

– it considers making acquisitions with a total cost of more than £1.0bn in any 12-month period;

– it considers making any disposal of more than £1.0bn;

– it considers making a Class 1 transaction which will have a material impact on the BTPS (acquisition or disposal);

– it is likely to be subject to a takeover offer; or

– there is any other corporate or third party events which may have a material detrimental impact on BT’s covenant

to the BTPS, and BT will use best endeavours to agree appropriate mitigation

This obligation is ongoing until otherwise terminated.

Negative pledge A negative pledge that future creditors will not be granted superior security to the BTPS in excess of a £0.5bn

threshold, to cover any member of the BT Group. Business as usual financing arrangements are not included

within the £0.5bn threshold.

No additional contributions were triggered during FY23.

200 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

21. Own shares

Significant accounting policies that apply to own shares

Own shares are recorded at cost and deducted from equity. When shares held for the beneficial ownership of employees vest

unconditionally or are cancelled they are transferred from the own shares reserve to retained earnings at their weighted average cost.

Treasury

Employee share

ownership trust

Total

millions £m millions £m millions £m

At 1 April 2021 51 (132) 9 (11) 60 (14 3)

Own shares purchased

– – 114 (210) 114 (210)

Yourshare issue (1) 2 (18) 34 (19) 36

Share options exercised

(9) 22 – – (9) 22

Share awards vested – – (11) 21 (11) 21

At 31 March 2022 41 (108) 94 (16 6) 135 (274)

Own shares purchased

– – 114 (187) 114 (187)

Share options exercised

(5) 14 – – (5) 14

Share awards vested – – (14) 25 (14) 25

At 31 March 2023 36 (94) 194 (328) 230 (422)

a At 31 March 2023, 36,190,551 shares (FY22: 41,429,938) with an aggregate nominal value of £2m (FY22: £2m) were held at cost as treasury shares and 193,798,578 shares (FY22:

94,120,883) with an aggregate nominal value of £10m (FY22: £5m) were held in the Trust.

b See group cash flow statement. The cash paid for the repurchase of ordinary shares was £138m (FY22: £184m). 40m shares (FY22: 15m) were purchased via forward contracts.

The cash received from proceeds on the issue of treasury shares was £5m (FY22: £13m).

The treasury shares reserve represents BT Group plc shares purchased directly by the group. The BT Group Employee Share Ownership

Trust (the Trust) also purchases BT Group plc shares.

The treasury shares and the shares in the Trust are being used to satisfy our obligations under employee share plans, further details of

which are provided in note 22.

20. Retirement benefit plans continued

Protections for BTPS (insolvency)

The Scheme Actuary assumes that in the highly unlikely event that the group were to become insolvent, the Trustee would continue to

run the Scheme with a low-risk, closely-matched investment strategy including additional margins for risk. On this basis and assuming no

further contribution from BT, it was estimated that at 30 June 2020 the assets of the Scheme would have met around 71% of the liabilities.

Were this to occur, BTPS members would benefit from the following additional protections:

Feature Detail

Crown Guarantee The Crown Guarantee was granted by the Government when the group was privatised in 1984 and would only come

into effect upon the insolvency of BT. In July 2014, the courts established that:

– the Crown Guarantee covers BT’s funding obligation in relation to the benefits of members of the BTPS who

joined post-privatisation as well as those who joined pre-privatisation (subject to certain exceptions)

– the funding obligation to which the Crown Guarantee relates is measured with reference to BT’s obligation to pay

deficit contributions under the rules of the BTPS.

The Crown Guarantee is not taken into account for the purposes of the actuarial valuation of the BTPS and is an

entirely separate matter, only being relevant in the highly unlikely event that BT became insolvent.

Pension Protection

Fund (PPF)

Further protection is also provided by the PPF which is the fund responsible for paying compensation in schemes

where the employer becomes insolvent.

EEPS funding valuation

The most recent triennial valuation of the defined benefit section was performed as at 31 December 2021 and agreed in March 2023. This

showed a funding deficit of £218m. The group is scheduled to contribute £1.7m each month until 31 July 2025 plus a one-off contribution

of £11.7m in April 2023. A further payment of up to £80m is payable by 31 March 2026, subject to the results of the 2024 triennial valuation.

£13.3m (FY22: £40.0m) of deficit contributions were paid by the group to the EEPS during the year.

At the triennial valuation date, the EEPS had a diversified investment strategy, investing scheme assets in: global equities (25%), property

& illiquid alternatives (20%), an absolute return portfolio (24%) and a liability-driven investment portfolio (31%). The asset allocation at

31 March 2023 was: global equities (1%), property & illiquid alternatives (36%), an absolute return portfolio (7%) and a liability-driven

investment portfolio (56%).

201Financial statements

22. Share-based payments

Significant accounting policies that apply to share-based payments

We operate a number of equity-settled share-based payment arrangements, under which we receive services from employees in

consideration for equity instruments (share options and shares) of the group. Equity-settled share-based payments are measured

at fair value at the date of grant. Market-based performance criteria and non-vesting conditions (for example, the requirement for

employees to make contributions to the share purchase programme) are reflected in this measurement of fair value. The fair value

determined at the grant date is recognised as an expense on a straight-line basis over the vesting period, based on the group’s

estimate of the options or shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair

value is measured using either the Binomial options pricing model or Monte Carlo simulations, whichever is more appropriate to the

share-based payment arrangement.

Service and performance conditions are vesting conditions. Any other conditions are non-vesting conditions which are taken into

account to determine the fair value of equity instruments granted. In the case that an award or option does not vest as a result of a failure

to meet a non-vesting condition that is within the control of either counterparty, this is accounted for as a cancellation. Cancellations are

treated as accelerated vesting and all remaining future charges are immediately recognised in the income statement. As the requirement

to save under an employee saveshare arrangement is a non-vesting condition, employee cancellations, other than through a termination

of service, are treated as an accelerated vesting.

No adjustment is made to total equity for awards that lapse or are forfeited after the vesting date.

Year ended 31 March

2023

£m

2022

£m

Employee saveshare plans 21 29

Yourshare 12 28

Executive share plans:

Incentive Share Plan (ISP) – 14

Deferred Bonus Plan (DBP) 12 11

Retention and Restricted Share Plans (RSP) 35 26

80 108

What share incentive arrangements do we have?

Our plans include savings-related share option plans for employees and those of participating subsidiaries and several share plans for

executives. All share-based payment plans are equity-settled. Details of these plans are set out below.

Employee Saveshare Plans

Under HMRC-approved savings-related share option plans, employees save on a monthly basis, over a three- or five-year period,

towards the purchase of shares at a fixed price determined when the option is granted. This price is set at a 20% discount to the market

price for five-year plans and 10% for three-year plans. The options must be exercised within six months of maturity of the savings contract,

otherwise they lapse. Similar plans operate for our overseas employees. The scheme did not operate in FY23 or FY22.

Yourshare

In FY22 and FY21, all eligible employees of the group were awarded £500 of BT shares. The shares are held in trust for a three-year vesting

period after which they will be transferred to employees, providing they have been continuously employed during that time. A similar plan

operates for overseas employees.

Under the terms of Yourshare and the executive share plans, dividends are reinvested in shares that are added to the relevant share awards.

Incentive Share Plan (ISP)

Participants are entitled to shares under the ISP in full at the end of a three-year period only if the group has met the relevant pre-

determined corporate performance measures and if the participants are still employed by the group. The last ISP award was granted in

2019 and vested in 2022. For this award, 40% of each award is linked to a total shareholder return (TSR) target for a comparator group of

companies from the beginning of the relevant performance period; 40% is linked to a three-year cumulative normalised free cash flow

measure; and 20% to growth in underlying revenue.

Deferred Bonus Plan (DBP)

Awards are granted annually to selected employees. Shares in the group are transferred to participants at the end of three years if they

continue to be employed by the group throughout that period.

Retention and Restricted Share Plans (RSP)

Awards are granted to selected employees. Shares in the group are transferred to participants at the end of a specified retention or

restricted period if they continue to be employed by the group throughout that period.

202 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

22. Share-based payments continued

Employee Saveshare Plans

Movements in Employee Saveshare options are shown below.

Number of

share options

Weighted average

exercise price

Year ended 31 March

2023

millions

2022

millions

2023

pence

2022

pence

Outstanding at 1 April 342 414 113 121

Granted – – – –

Forfeited (42) (41) 130 127

Exercised (5) (9) 96 152

Expired (26) (22) 208 229

Outstanding at 31 March 269 342 102 113

Exercisable at 31 March – – – –

The weighted average share price for all options exercised during FY23 was 153p (FY22: 185p).

The following table summarises information relating to options outstanding and exercisable under Employee Saveshare plans

at 31 March 2023.

Normal dates of vesting and exercise (based on calendar years)

Exercise

price

per share

Weighted

average

exercise

price

Number of

outstanding

options

millions

Weighted

average

remaining

contractual

life (months)

2023 82p – 170p 107p 87 10

2024 164p 164p 37 22

2025 82p 82p 145 34

Total 102p 269 25

Executive share plans

Movements in executive share plan awards are shown below:

Number of shares (millions)

ISP DBP RSP Total

At 1 April 2021 66 20 47 133

Awards granted – 7 23 30

Awards vested – (4) (7) (11)

Awards lapsed (35) (1) (6) (42)

Dividend shares reinvested – – 1 1

At 31 March 2022 31 22 58 111

Awards granted – 6 29 35

Awards vested (5) (5) (4) (14)

Awards lapsed (26) (1) (7) (34)

Dividend shares reinvested – 2 4 6

At 31 March 2023 – 24 80 104

Fair values

There were no grants under Employee Saveshare or the ISP in FY22 or FY23.

Employee Saveshare grants are valued using a Binomial options pricing model. Awards under the ISP were valued using Monte Carlo

simulations. TSRs are generated for BT and the comparator group at the end of the three-year performance period, using each company’s

volatility and the cross correlation between pairs of stocks.

Volatility has been determined by reference to BT’s historical volatility which is expected to reflect the BT share price in the future. An

expected life of six months after vesting date is assumed for Employee Saveshare options. For all other awards the expected life is equal

to the vesting period. The risk-free interest rate is based on the UK gilt curve in effect at the time of the grant, for the expected life of the

option or award.

The fair values for the DBP and RSP were determined using the market price of the shares at the grant date. The weighted average share

price for DBP awards granted in FY23 was 188p (FY22: 203p) and for RSP awards granted in FY23 was 183p (FY22: 201p).

203Financial statements

23. Divestments and assets & liabilities classified as held for sale

Significant accounting policies that apply to divestments and assets & liabilities classified

as held for sale

We classify non-current assets or a group of assets and associated liabilities, together forming a disposal group, as ‘held for sale’ when

their carrying amount will be recovered principally through disposal rather than continuing use and the sale is highly probable. Sale is

considered to be highly probable when management are committed to a plan to sell the asset or disposal group and the sale should be

expected to qualify for recognition as a completed divestment within one year from the date of classification. We measure non-current

assets or disposal groups classified as held for sale at the lower of their carrying amount and fair value less costs of disposal. Intangible

assets, property, plant and equipment and right-of-use assets classified as held for sale are not depreciated or amortised.

Upon completion of a divestment, we recognise a profit or loss on disposal calculated as the difference between (i) the aggregate

of the fair value of the consideration received and the fair value of any retained interest less costs incurred in disposing of the asset

or disposal group and (ii) the carrying amount of the asset or disposal group (including goodwill). The profit or loss on disposal is

recognised as a specific item, see note 9.

In the event that non-current assets or disposal groups held for sale form a separate and identifiable major line of business, the results

for both the current and comparative periods are reclassified as ‘discontinued operations’.

Divestments

During the year, we completed the disposal of BT Sport operations through forming a sports joint venture (Sports JV) with Warner Bros.

Discovery (WBD). We recognised a profit on disposal after tax of £28m, see below for further details. We disclosed a profit on disposal

after tax of £3m in our Q2 results which has subsequently been adjusted to £28m for FY23. The difference is driven by a £33m increase in

the profit on disposal before tax, as a result of correcting certain errors in the provisional calculation of the minimum guarantee liability

completed at Q2, offset by an £8m decrease in the related deferred tax credit recorded on the same liability. The difference is not

quantitatively material and does not impact qualitative disclosures of our KPIs.

In FY22 we completed the disposals of Diamond IP, a non-core software business in America, and certain business units in Italy serving

customers in the public administration and SME sectors, recording a combined net gain of £35m.

The disposals in the current or prior year have not been reclassified as discontinued operations as they do not meet our definition of a

separate major line of business.

The net consideration recognised on completion of these divestments was as follows:

2023

£m

2022

£m

Intangible assets (including goodwill)

88 12

Property, plant and equipment 13 6

Right-of-use assets 1 1

Other assets

760 27

Liabilities

(357) (15)

Net assets of operations disposed 505 31

Recycling from translation reserve – (1)

Net financial liabilities recognised

534 –

Net impact on the consolidated balance sheet 1,039 30

Profit on disposal, after tax

28 41

Net consideration 1,067 71

Satisfied by

Proceeds received in the year per the cash flow statement 29 76

Deferred cash consideration

70 (2)

Investment in A preference shares in Sports JV (note 25) 428 –

Investment in C preference shares in Sports JV (note 25)

161 –

Ordinary equity interest in Sports JV (note 25) 414 –

Transaction costs (35) (3)

Net consideration 1,067 71

a Balances in FY23 only include the BT Sport disposal.

b Includes allocated goodwill of £83m (FY22: £7m).

c Other assets includes £632m of capitalised programme rights (note 16) and £104m prepayments relating to rights payments made for licence periods that had not yet started.

Liabilities include £351m relating to outstanding trade payables to broadcast rights holders for the current licence period.

d FY23 balance comprises the fair value of BT’s obligation under the minimum revenue commitment of £712m, less tax credit of £178m.

e Profit on disposal has been recognised as a specific item, refer to note 9.

f FY23 deferred cash consideration balance relates to the discounted cash flows due to BT from fixed consideration payable by WBD in instalments over the next three years.

g Expected to be sold to WBD at the end of BT’s earn-out entitlement in consideration for any programme rights funded by BT and is therefore akin to deferred consideration for

pre-funded programme rights contributed by BT in to the Sports JV at formation.

204 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

23. Divestments and assets & liabilities classified as held for sale continued

BT Sport

In August 2022 the group formed a sports joint venture (Sports JV) with Warner Bros. Discovery (WBD) combining BT Sport and WBD’s

Eurosport UK business. As part of the transaction, the group’s wholly owned subsidiary, British Telecommunications plc (BT plc or BT) and

WBD has each contributed, sub-licensed or delivered the benefit of their respective sports rights and distribution businesses for the UK &

Ireland to the Sports JV. Both parties each hold a 50% interest and equal voting rights in the Sports JV.

BT Sport’s distribution agreement with Virgin Media has transferred to the Sports JV, and the Sports JV has also entered into a new

agreement with Sky extending beyond 2030 to provide for its distribution of the Sports JV’s combined sports content.

The production and operational assets of BT Sport have transferred to WBD who will manage and operate the production of the Sports

JV’s sport content.

BT plc has entered into a distribution agreement with the Sports JV to procure the sport content required to continue to supply our

broadband, TV and mobile customers. BT plc’s agreement with the Sports JV will extend beyond 2030 and for the first four years includes

a minimum revenue guarantee of approximately £500m per annum, after which the agreement will change to a fully variable arrangement.

At completion of the transaction, BT no longer has control of the BT Sport operations based on the assessment of ownership and joint

control over the key decisions of the Sports JV (50/50 with WBD) established through the Sports JV agreement. The group’s retained

ordinary equity interest in the combined business has been classified as a joint venture under IFRS 11.

WBD will have the option to acquire BT plc’s 50% interest in the Sports JV at specified points during the first four years of the Sports JV

(Call Option). The price payable under the Call Option will be 50% of the fair market value of the Sports JV to be determined at the time of

the exercise, plus any unpaid fixed consideration and remaining earn-out as described below. If the Call Option is not exercised, BT plc will

have the ability to exit its shareholding in the Sports JV either through a sale or IPO after the initial four-year period.

Critical & key accounting estimates and significant judgements made in accounting

for the BT Sport disposal

Assessment of whether BT has joint control over the Sports JV

See note 25 for assessment on control.

Valuation of investment in A preference shares (akin to contingent consideration)

BT will receive an earn-out from the Sports JV (subject to liquidity and usual UK company law requirements), which will end at the

earliest of:

– four years post completion of the transaction;

– the exercise by WBD of the Call Option; and

– if the earn-out reaches an agreed cap.

The earn-out cash flows to BT are dependent on the cash profit generation of the Sports JV over the earn-out period and is therefore

akin to contingent consideration, initially recorded at a fair value of £428m reflecting the present value of expected cash flows. The

valuation of the earn-out consideration is supported by a jointly-agreed business plan and internal valuation model.

The key assumptions within the jointly-agreed business plan and internal valuation model are:

– approximately 50% of revenues and 80% of costs during the four years of the jointly-agreed business plan are contractually

committed;

– material contracts are renewed at an economic value no less than current terms;

– the total premium sports subscriber base does not materially grow or decline over the earn-out period; and

– revenue growth and production costs are driven by contractual terms.

We have also assumed that the earn-out period ends at four years post completion of the transaction; however given the mechanics

of the deal arrangements if there is an earlier exercise by WBD of their Call Option this would also not materially impact the amounts

disclosed in the financial statements.

Subsequent to the initial recognition, the group’s carried forward investment in A preference shares will be remeasured to fair value

at each reporting date in accordance with IFRS 9, see note 25.

205Financial statements

Valuation of the minimum revenue guarantee in BT’s distribution agreement with the Sports JV

BT plc’s obligation under the minimum revenue guarantee of c. £2bn over the first four years of the Sports JV represents both a

trading arrangement on market terms and a financing arrangement for the off-market element of the revenue guarantee, which has

been recorded as a financial liability within trade and other payables on the balance sheet. The liability will be held at amortised cost

and will unwind through payments made to the Sports JV over the next four years on the minimum revenue guarantee.

The valuation of this financial liability, and what a fair cost-per-subscriber would be, is sensitive to a number of assumptions on volumes

and price, and there is a range of outcomes which we could have arrived at. Alternative scenarios considered, based on the different

prices and terms used with other market participants, could have resulted in a liability ranging from £543m to £837m, and we initially

recognised a financial liability of £712m.

The key assumptions in calculating the financial liability are in estimating what is a market wholesale price at market volume

commitment that is supported by the forecast volumes for the related revenue streams. The volumes used are consistent with those

included in the jointly-agreed business plan as described above. We note that the bottom of the range disclosed above is based on

the price that we will pay after four years when the minimum revenue guarantee has ended, however we do not believe that is an

appropriate rate from the outset due to existing volume commitments.

Valuation of BT’s equity interest in the Sports JV

WBD will have the option to acquire BT plc’s 50% interest in the Sports JV at specified points during the first four years of the Sports

JV. If the Call Option is not exercised, BT will have the ability to exit its shareholding in the JV either through a sale or IPO.

The group has valued its interest in the Sports JV based on the estimated fair value at exit and using the following key assumptions:

– BT expect to realise its interest in the Sports JV through exit rather than ongoing value in use;

– BT expect WBD to exercise its option to acquire BT’s 50% interest in the Sports JV at the end of the first four years of the Sports JV; and

– An earnings multiple has been applied to the expected year 5 EBITDA per the jointly-agreed business plan – the multiple is at

the lower end of a possible range identified from comparable peers and transactions in the premium sports subscription and

broadcasting market.

As the group’s interest is recorded on a point in time valuation, based on forecast earnings and current market returns on similar

investments, it carries both upside and downside risk from changes in micro- and macroeconomic factors affecting the sports content

subscription market and risk appetite of investors in that market.

We have applied the following sensitivities on these risk factors:

– EBITDA impact from revenue loss due to ongoing cost of living pressures or changes in the Sports JV’s rights portfolio;

– An increase or decrease in the valuation multiple achieved; and

– An increase or decrease in the discount rate applied.

None of these sensitivities individually resulted in a material change to the investment value. All downside or upside factors in

combination could lead to a £70m decrease or £200m increase in the fair value respectively. However, in our view, combining all

downside factors is not a reasonable scenario given the financial and commercial levers available to both the JV and BT to mitigate the

impact; and we have taken a prudent approach in not recognising a higher investment value upfront based on possible but uncertain

changes in market conditions in the future.

The investment will be subsequently accounted for using the equity method and will be subject to impairment testing at each

reporting period, with any impairment losses recognised through specific items, see note 25.

Discounting of cash flows

All cash flows expected to be received or paid over time have been discounted at a rate applicable to the risks associated with the cash flows:

– Deferred payments due to BT from WBD have been discounted at an appropriate post-tax cost of debt (3.3%);

– BT’s earn-out from the Sports JV has been discounted at the weighted average cost of capital for the Sports JV at completion date

(6.7%); and

– BT’s commitments under the minimum guarantee have been discounted at the group’s post-tax cost of debt (2.8%).

We do not consider the net present value of the transaction would be materially affected by a reasonable change in the discount rate.

Assets and liabilities held for sale

Assets and liabilities held for sale at 31 March 2023 relate to certain city fibre networks and associated infrastructure assets in Germany

and Pelipod Limited, a connected-locker business used in our UK supply chain operations. The Competition and Markets Authority (CMA)

formally opened its investigation into the proposed disposal of Pelipod Limited on 29 March 2023 which we expect to conclude by 31 May

2023. We have classified the business as held for sale on the basis that the IFRS 5 criteria have been met at 31 March 2023.

In FY22, the group had one disposal group held for sale, BT Sport.

The assets of the disposal groups have been tested for impairment under existing relevant standards immediately prior to classification

as held for sale with no impairment recognised. As the estimated fair value from the transactions, net of any costs incurred or liabilities

recognised, is higher than the carrying value of the disposal group, no impairment has been recognised subsequent to classification as

held for sale.

23. Divestments and assets & liabilities classified as held for sale continued

206 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

23. Divestments and assets & liabilities classified as held for sale continued

Where the group is disposing of 100% of underlying operations and assets, we used the selling price agreed with the prospective

purchaser as the fair value for the impairment test, which was classified as Level 3 on the fair value hierarchy. For the BT Sport transaction,

we used the discounted cash flows due to BT over the first four years of the Sports JV, plus a potential exit value from the sale of the

group’s equity interest, as total gross consideration; BT’s obligation under the minimum revenue guarantee in the distribution agreement

has been treated as a reduction to the fair value of the consideration in the impairment test. The inputs into the fair value calculation are

classified as Level 3 on the fair value hierarchy and supported by internal valuation models over which we have applied sensitivities on the

future cash flows from the Sports JV and the trading multiples for the exit valuation.

These operations have not been reclassified as a discontinued operation as it does not meet our definition of a separate major line of business.

The disposal groups held for sale comprised the following assets and liabilities:

At 31 March

2023

£m

2022

£m

Assets

Intangible assets

13 55

Property, plant and equipment 4 13

Right-of-use assets 3 2

Inventories – –

Trade and other receivables 1 10

Assets held for sale

21 80

Liabilities

Trade and other payables 1 38

Lease liabilities 3 2

Liabilities held for sale 4 40

a Intangible assets includes goodwill of £13m (FY22: £51m) that has been allocated to the disposal group.

b £310m of programme rights relating to sports broadcasting rights acquired for the BT Sport operations were not reclassified to held for sale in FY22 as the carrying amount of

these assets were principally recovered through continuing use before completion of the transaction.

24. Investments

Significant accounting policies that apply to investments

Investments classified as amortised cost

These investments are measured at amortised cost. The carrying amount of these balances approximates to fair value. Any gain or loss

on derecognition is recognised in the income statement.

Investments classified as fair value through profit and loss

These investments are initially recognised at fair value plus direct transaction costs. They are re-measured at subsequent reporting

dates to fair value and changes are recognised directly in the income statement.

Equity instruments classified as fair value through other comprehensive income

We have made an irrevocable election to present changes in the fair value of equity investments that are not held for trading in other

comprehensive income. All gains or losses are recognised in other comprehensive income and are not reclassified to the income

statement when the investments are disposed of, aside from dividends which are recognised in the income statement when our right to

receive payment is established. Equity investments are recorded in non-current assets unless they are expected to be sold within one year.

At 31 March

2023

£m

2022

£m

Non-current assets

Fair value through other comprehensive income 23 34

Fair value through profit or loss 6 –

Total non-current asset investments 29 34

Current assets

Investments held at amortised cost 3,548 2,679

Current asset investments 3,548 2,679

Investments held at amortised cost relate to money market investments denominated in sterling of £3,094m (FY22: £2,225m), in euros

of £446m (FY22: £436m) and in US dollars of £8m (FY22: £18m). Within these amounts are investments in liquidity funds of £3,491m

(FY22: £1,912m), £48m collateral paid on swaps (FY22: £67m), Interest on investments of £9m (FY22: £nil ) and repurchase agreements

£nil (FY22: £700m).

207Financial statements

25. Joint ventures and associates

At 31 March

2023

£m

2022

£m

Interest in joint ventures 354 2

Interest in associates 5 3

Total 359 5

The £352m movement in joint ventures relates to the disposal of BT Sport and creation of a new sports joint venture (Sports JV) with

Warner Bros. Discovery (WBD), see below. This is the only material equity-accounted investment held by the group.

Sports JV with Warner Bros. Discovery

In August 2022, we formed the Sports JV with WBD, combining BT Sport and WBD’s Eurosport UK business. Further details on the

BT Sport transaction are provided in note 23.

Significant judgements made in accounting for the sports joint venture

Assessment of whether BT has joint control over the Sports JV

The Sports JV is classified as a joint venture and hence has been deconsolidated from the group based on an assessment under IFRS

10 and 11 of the ownership, voting power and joint control established through the joint venture agreement between BT and WBD.

Factors relevant to our assessment:

– Equal voting rights over the activities that most significantly impact the returns of the Sports JV, namely decisions around new

or existing sports rights and distribution arrangements.

– Unequal cash distribution during the first four years due to the earn-out mechanism and relative size of businesses contributed

into the Sports JV.

– Revolving credit facility (RCF) provided by BT to fund short-term liquidity required by the Sports JV for working capital and

commitments to sports rights holders.

– WBD’s call option to acquire BT’s 50% interest in the Sports JV is not exercisable before key decisions over material activities

of the Sports JV are made such that joint control still applies at the outset.

The assessment whether joint control remains in place is reviewed at each reporting period .

24. Investments continued

Fair value estimation

Fair value hierarchy

At 31 March 2023

Level 1

£m

Level 2

£m

Level 3

£m

Total held at

fair value

£m

Non-current and current investments

Fair value through other comprehensive income – – 23 23

Fair value through profit or loss 6 – – 6

Total 6 – 23 29

At 31 March 2022

Non-current and current investments

Fair value through other comprehensive income 4 – 30 34

Total 4 – 30 34

The three levels of valuation methodology used are:

– Level 1 – uses quoted prices in active markets for identical assets or liabilities.

– Level 2 – uses inputs for the asset or liability other than quoted prices that are observable either directly or indirectly.

– Level 3 – uses inputs for the asset or liability that are not based on observable market data, such as internal models or other

valuation methods.

Level 3 balances consist of investments classified as fair value through other comprehensive income of £23m (FY22: £30m) which

represent investments in a number of private companies. If specific market data is not available, these investments are held at cost,

adjusted as necessary for impairments, which approximates to fair value.

208 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

Accounting policies adopted by the Sports JV

The Sports JV has a financial year-end of 31 July and therefore has not yet prepared its first set of audited financial statements. In

order to recognise our share of the Sports JV’s results for our equity-accounted investment, we have prepared the Sports JV’s financial

information disclosed below based on management accounts for the period ending 31 March 2023 after making certain adjustments

to comply with IFRS.

Significant judgements made in preparing the Sports JV’s financial information:

– IFRS 3 acquisition accounting should be applied by the Sports JV over the business combination achieved through the transfer of the

BT Sport and Eurosport UK businesses from BT and WBD respectively, recognising acquired intangibles on the current and future

value of programme rights, and goodwill.

– Revenues from the minimum guarantee in the Sports JV’s distribution agreement with BT should be adjusted to reflect a trading

agreement on market terms with a separate financing arrangement for the off-market portion accounted for under IFRS 9 – this

mirrors the accounting treatment applied by BT (see note 23).

– A and C preference shares issued by the Sports JV to BT should be classified as a financial liability at fair value through profit or loss

under IFRS 9.

– Hedge accounting should be applied on the Sports JV’s forward contracts with BT (see note 31) with fair value movements on the

derivatives recognised in other comprehensive income and held in the cash flow hedge reserve until recycle on settlement of the

forward contracts.

– Programme rights should be recognised on the balance sheet from the point at which the licence period begins and are consumed

by the Sports JV on a straight-line basis over the programming period which is generally 12 months – this is consistent with the

group’s accounting policy (see note 16).

Accounting policies in other areas are consistent with those applied by the group.

Ordinary equity shares

On completion of the BT Sport transaction, the group recorded an investment in joint venture at an initial fair value of £414m, relating to

our retained ordinary equity interest in the Sports JV entity, in accordance with IFRS 10 and IAS 28. The group has valued this interest in

the Sports JV at the estimated fair value at exit, see note 23. Consistent with our accounting policy on associates and joint ventures, we will

recognise our share of the change in the Sports JV’s net assets under the equity method of accounting.

Year ended 31 March

2023

£m

Group's equity-accounted investment in the Sports JV at formation 414

Share of total comprehensive loss (62)

Dividends received during the year –

Carrying amount at the end of the year 352

As required by IAS 36, we have assessed the investment for impairment. There is no impairment at 31 March 2023 as the fair value less

costs to sell is higher than the carrying amount of the investment. See below for sensitivities we have applied in determining the fair value

less costs to sell.

The following is summarised and unaudited financial information for the Sports JV prepared in accordance with IFRS and including

adjustments required to align with the group’s accounting policies and provisional fair value adjustments. These results are subject to

true-up within the 12 months from Sports JV formation, however any adjustments are not expected to materially impact our share of

the Sports JV’s results recorded in the period.

Summarised statement of total comprehensive income for year ended 31 March

2023

£m

Revenue 557

Loss for the year

(121)

Other comprehensive loss (2)

Total comprehensive loss (123)

Summarised balance sheet at 31 March

2023

£m

Current assets

1,106

Non-current assets

1,236

Current liabilities

(702)

Non-current liabilities

(543)

Net assets 1,097

a Includes amortisation of £56m on acquired intangibles based on provisional fair value adjustments, net finance income of £6m, and tax income of £17m (current tax charge

of £4m less deferred tax credit of £21m).

b Includes cash and cash and cash equivalents of £11m.

c Includes goodwill and acquired intangibles of £645m.

d Includes current financial liabilities (excluding trade and other payables and provisions) of £(281)m of which £(268)m relates to the outstanding liability on the RCF provided

by BT (see note 24).

e Includes non-current financial liabilities (excluding trade and other payables and provisions) of £(416)m.

25. Joint ventures and associates continued

209Financial statements

25. Joint ventures and associates continued

The Sports JV’s accounting loss for the year reflects amortisation of acquired intangibles from the BT Sport and Eurosport

business transfers, reduced revenues from IFRS 15 adjustments for the off-market minimum guarantee with BT (see note 23) and

underperformance against business plan. Underperformance has been driven by cost of living pressures affecting the premium sports

subscription market and impacts from a prolonged winter break in European club football from the World Cup. Underlying trading, before

accounting adjustments, is expected to recover in the medium to long term as wider macroeconomic and inflationary pressures ease and

through the Sports JV reducing its cost base to mitigate any future revenue loss.

Preference shares

In addition to BT’s ordinary shareholding, BT held the following investments in preference shares in the Sports JV that have not been

included within the equity-accounted interest above.

At 31 March

2023

£m

2022

£m

Investment in A preference shares 429 –

Investment in C preference shares 126 –

Total 555 –

– A preference shares – we expect these shares to be redeemed by the Sports JV over the 4-year earn-out period in order to effect the

distribution of cash to BT under our earn-out entitlement. The fair value of the shares is driven by the underlying cash profit generation

of the Sports JV and therefore have been classified as a fair value through profit or loss (FVTPL) financial asset under IFRS 9. In our view,

the cash flows due to BT from the A preference shares are akin to contingent consideration and therefore the fair value of £428m on

initial recognition has been included in the consideration within the profit on disposal recognised on the BT Sport transaction (see note

23). Subsequent to the initial recognition, £1m of fair value gain has been recognised through specific items (see note 9) driven by an

increase in forecasted cash flows offset by an increase in the discount rate applied to cash flows.

– C preference shares – these shares are expected to be sold to WBD at the end of BT’s earn-out entitlement in consideration for any

sports rights funded by BT at that point and have been recognised as a financial asset held at FVTPL under IFRS 9. In our view, the

cash flows due to BT from the C preference shares are akin to deferred consideration and therefore the fair value of £161m on initial

recognition has been included in the consideration within the profit on disposal recognised on the BT Sport transaction (see note

23). Subsequent to the initial recognition, £35m of fair value loss has been recognised through specific items (see note 9) driven by

an expected reduction in the Sports JV’s cost base to mitigate short- to medium-term revenue loss, which will reduce the expected

payment to BT for pre-funded sports rights.

The preference shares are held at Level 3 on the fair value hierarchy, reflecting a valuation methodology that does not use inputs based on

observable market data. See note 24 for further details on fair value estimation. See below for sensitivities we have applied in determining

the fair value.

Sensitivities

The group’s ordinary equity and preference share investments in the Sports JV, carry both upside and downside risk from changes in micro

and macroeconomic factors affecting the sports content subscription market and risk appetite of investors in that market.

We have applied the following sensitivities to these risk factors:

– EBITDA decline from loss of material sports rights or a significant decline in the Sports JV’s revenues from ongoing cost of living

pressures;

– EBITDA improvement from outperformance against revised forecasts, particularly with respect to wholesale revenues;

– an increase or decrease in the valuation multiple achieved; and

– an increase or decrease in the discount rate applied.

Sensitivity

Fair value of A and C preference

shares in Sports JV

Headroom on impairment test over

equity-accounted investment

5% increase or decrease in EBITDA +/- £32m +/- £26m

10pp increase or decrease in discount rate +/- £8m +/- £15m

10% change in valuation multiple – +/- £52m

None of these sensitivities generated an impairment on the group’s equity-accounted investment in the Sports JV. Headroom on the

investment has increased since formation of the Sports JV driven by an expected increase in long-term value from the Sports JV reducing

its cost base.

210 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

26. Cash and cash equivalents

Significant accounting policies that apply to cash and cash equivalents

Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions, which are readily

convertible to cash, are subject to insignificant risk of changes in value and have an original maturity of three months or less. All are

held at amortised cost on the balance sheet, equating to fair value.

For the purpose of the consolidated cash flow statement, cash and cash equivalents are as defined above net of outstanding bank

overdrafts. Bank overdrafts are included within the current element of loans and other borrowings (note 27).

At 31 March

2023

£m

2022

£m

Cash at bank and in hand 336 324

Cash equivalents

UK deposits – 353

Indian rupee deposits 55 90

Other deposits 1 10

Total cash equivalents

56 453

Total cash and cash equivalents 392 777

Bank overdrafts (note 27) (11) (85)

Cash and cash equivalents per the cash flow statement 381 692

a Total cash equivalents have fallen in line with our treasury strategy.

Cash and cash equivalents include restricted cash of £131m (FY22: £24m), of which £23m (FY22: £22m) was held in countries where local

capital or exchange controls currently prevent us from accessing cash balances. The remaining balance of £108m (FY22: £2m) was held in

escrow accounts, or in commercial arrangements akin to escrow.

Following an IFRIC agenda decision relating to demand deposits the group identified one bank account with restrictions on use that

nonetheless meets the IAS 7 definition of cash. This bank account, which has a balance of £96m (FY22: £148m) is now reflected in cash and

cash equivalents. Comparatives have not been restated as the impact is not considered material. Please see note 1 for further information.

27. Loans and other borrowings

Significant accounting policies that apply to loans and other borrowings

We initially recognise loans and other borrowings at the fair value of amounts received net of transaction costs. They are subsequently

measured at amortised cost using the effective interest method and, if included in a fair value hedge relationship, are re-valued to

reflect the fair value movements on the associated hedged risk. The resulting amortisation of fair value movements, on de-designation

of the hedge, is recognised in the income statement.

What’s our capital management policy?

The objective of our capital management policy is to target an overall level of debt consistent with our credit rating target while investing

in the business, supporting the pension scheme and meeting our distribution policy. In order to meet this objective, we may issue or repay

debt, issue new shares, repurchase shares, or adjust the amount of dividends paid to shareholders. We manage the capital structure and

make adjustments to it accordingly to reflect changes in economic conditions and the risk characteristics of the group. The Board regularly

reviews the capital structure. No changes were made to these objectives and processes during FY23. For details of share issues and

repurchases in the year see note 21.

Our capital structure consists of net debt and shareholders’ equity. The analysis below summarises the components which we manage

as capital.

At 31 March

2023

£m

2022

£m

Net debt 18,859 18,009

Total parent shareholders’ equity

14,490 15,274

Capital structure 33,349 33,283

a Excludes non-controlling interests of £24m (FY22: £22m).

211Financial statements

27. Loans and other borrowings continued

Net debt and net financial debt

Net debt consists of loans and other borrowings and lease liabilities, less current asset investments and cash and cash equivalents,

including items which have been classified as held for sale on the balance sheet.

Currency denominated balances within net debt are translated to sterling at swapped rates where hedged. Fair value adjustments and

accrued interest applied to reflect the effective interest method are removed. Amounts due to joint ventures held within loans and

borrowings are also excluded. Net financial debt is net debt excluding lease liabilities.

Net debt and net financial debt are considered to be alternative performance measures as they are not defined in IFRS. The most directly

comparable IFRS measure is the aggregate of loans and other borrowings and lease liabilities (current and non-current), current asset

investments and cash and cash equivalents. A reconciliation from these IFRS measures to net debt and net financial debt is given below.

At 31 March Notes

2023

£m

2022

£m

Loans and other borrowings

18,521 16 ,185

Lease liabilities 15 5,359 5,760

Net lease liabilities classified as held for sale

23 3 2

Less:

Cash and cash equivalents 26 (392) (777)

Current asset investments 24 (3,548) (2,679)

19,943 18,491

Adjustments:

To retranslate debt balances at swap rates where hedged by currency swaps

(819) (234)

To remove accrued interest applied to reflect the effective interest method

and fair value adjustments (254) (248)

Loans with joint ventures 31 (11) –

Net debt 18,859 18,009

Lease liabilities 15 (5,359) (5,760)

Lease liabilities classified as held for sale

(3) (2)

Net financial debt 13,497 12,247

a Includes overdrafts of £11m at 31 March 2023 (FY22: £85m).

b There are lease liabilities classified as held for sale, refer to note 23.

c The translation difference between spot rate and hedged rate of loans and borrowings denominated in foreign currency.

212 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

27. Loans and other borrowings continued

The table below shows the key components of net debt and the increase of £850m this year.

31 March

2022

£m

Cash flows

£m

Net lease

additions

£m

Foreign

exchange

£m

Transfer

to within

one year

£m

Other

movements

£m

31 March

2023

£m

Loans and other borrowings due within one year

873 (136) – 65 943 27 1,772

Lease liabilities due within one year 795 (859) – 1 863 – 800

Loans and other borrowings due after one year 15,312 1,746 – 525 (943) 109 16,749

Lease liabilities due after one year 4,965 – 449 11 (863) (3) 4,559

Liabilities classified as held for sale 2 – – – – 1 3

Impact of cross-currency swaps

(234) – – (585) – – (819)

Removal of the accrued interest and fair value adjustments (251) – – – – (13) (264)

Removal of loans with joint ventures – (11) – – – – (11)

Gross debt 21,462 740 449 17 – 121 22,789

Less:

Cash and cash equivalents (777) 379 – 3 – 3 (392)

Current asset investments (2,679) (885) – (21) – 37 (3,548)

Removal of accrued interest

3 – – – – 7 10

Net debt 18,009 234 449 (1) – 168 18,859

31 March

2021

£m

Cash flows

£m

Net lease

additions

£m

Foreign

exchange

£m

Transfer to

within one

year

£m

Other

movements

£m

31 March

2022

£m

Loans and other borrowings due within one year

911 (1,421) – 59 1,341 (17) 873

Lease liabilities due within one year 730 (792) – – 857 – 795

Loans and other borrowings due after one year 15,774 743 – 71 (1,341) 65 15,312

Lease liabilities due after one year 5,422 – 397 3 (857) – 4,965

Liabilities classified as held for sale – – – – – 2 2

Impact of cross-currency swaps

(142) – – (92) – – (234)

Removal of the accrued interest and fair value adjustments (242) – – – – (9) (251)

Gross debt 22,453 (1,470) 397 41 – 41 21,462

Less:

Cash and cash equivalents (1,000) 226 – (3) – – (777)

Current asset investments (3,652) 970 – 3 – – (2,679)

Removal of accrued interest

1 – – – – 2 3

Net debt 17,802 (274) 397 41 – 43 18,009

a Net lease additions are net non-cash movements in lease liabilities during the period, and primarily comprise new and terminated leases, remeasurements of existing leases and

lease interest charges.

b Includes accrued interest and bank overdrafts.

c Translation of debt balances at swap rates where hedged by cross-currency swaps.

d Other movements include removal of accrued interest applied to reflect the effective interest rate method, removal of fair value adjustments and movements relating to held for

sale assets and liabilities (see note 23).

Cash flows from gross debt of £740m outflow (FY22: £1,470m outflow) include repayment of borrowings £513m (FY22: £1,374m outflow),

proceeds from bank loans and bonds £2,203m inflow (FY22: £744m), cash flows from collateral received £17m outflow (FY22: £29m

outflow), payment of lease liabilities £727m outflow (FY22: £659m outflow), interest paid on lease liabilities £143m outflow (FY22: £133m

outflow), increase in amounts owed to joint venture £11m (FY22: £nil), and change in bank overdraft £74m outflow (FY22: £19m outflow).

213Financial statements

27. Loans and other borrowings continued

The table below gives details of the listed bonds and other debt.

At 31 March

2023

£m

2022

£m

0.875% €500m bond due September 2023

a,d

270 423

4.5% $675m bond due December 2023

554 520

1% €575m bond due June 2024

a,d

415 489

1% €1,100m bond due November 2024

a,d

726 929

3.50% £250m index linked bond due April 2025 524 468

0.5% €650m bond due September 2025

571 549

1.75% €1,300m bond due March 2026

1,143 1,098

1.5% €1,150m bond due June 2027

1,017 977

2.75% €500m bond due August 2027

530 –

2.125% €600m bond due September 2028

442 425

5.125% $700m bond due December 2028

573 537

5.75% £600m bond due December 2028 669 680

1.125% €750m bond due September 2029

657 631

3.25% $1,000m bond due November 2029

812 762

9.625% $2,670m bond due December 2030

(minimum 8.625%

) 2,214 2,077

3.75% €800m bond due February 2031

704 –

3.125% £500m bond due November 2031 503 503

3.375% €500m bond due August 2032

445 –

3.64% £330m bond due June 2033 339 339

1.613% £330m index linked bond due June 2033 380 362

6.375% £500m bond due June 2037

523 523

3.883% £330m bond due June 2039 340 340

1.739% £330m index linked bond due June 2039 381 363

5.75% £350m bond due February 2041 347 –

3.924% £340m bond due June 2042 350 350

1.774% £340m index linked bond due June 2042 392 374

2.08% JPY10,000m bond due February 2043

61 –

3.625% £250m bond due November 2047 250 250

4.25% $500m bond due November 2049

408 383

1.874% €500m bond due August 2080

a,c

443 426

4.250% $500m Hybrid bond due November 2081

a,c

404 383

4.875% $500m Hybrid bond due November 2081

a,c

409 384

Total listed bonds 17,796 15,545

Other loans

714 555

Bank overdrafts (note 26) 11 85

Total other loans and borrowings 725 640

Total loans and other borrowings 18,521 16,185

a Designated in a cash flow hedge relationship.

b The interest rate payable on this bond attracts an additional 0.25% for rating category downgrade by either Moody’s or Standard & Poor’s to the group’s senior unsecured

debt below A3/A– respectively. In addition, if Moody’s or Standard & Poor’s subsequently increase the ratings then the interest rate will be decreased by 0.25% for each rating

category upgrade by either rating agency. In no event will the interest rate be reduced below the minimum rate reflected in the above table.

c Includes call options between 2.5 years and 8.5 years.

d Bond partially redeemed in February 2023.

e Includes £100m relating to an asset monetisation programme, further details below.

Unless previously designated in a fair value hedge relationship, all loans and other borrowings are carried on our balance sheet and in the

table above at amortised cost. The fair value of listed bonds is £16,979m (FY22: £16,750m).

The fair value of our listed bonds is estimated on the basis of quoted market prices (Level 1).

The carrying amount of other loans and bank overdrafts equates to fair value due to the short maturity of these items (Level 3).

The interest rates payable on loans and borrowings disclosed above reflect the coupons on the underlying issued loans and borrowings

and not the interest rates achieved through applying associated cross-currency and interest rate swaps in hedge arrangements.

During the period the group entered into the sale of cash flows related to contract assets related to mobile handsets where the

performance obligations have been substantially delivered to the customer in the amount of £100m (FY22: £nil). The right to receive cash

is dependent on the group’s further performance in relation to airtime and so a financial liability has been recognised and the related cash

flows have been included within financing activities in the cash flow statement.

214 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

28. Finance expense

Year ended 31 March

2023

£m

2022

£m

Finance expense

Interest on:

Financial liabilities at amortised cost and associated derivatives 753 628

Lease liabilities 133 133

Derivatives 9 4

Fair value movements on derivatives not in a designated hedge relationship 1 4

Reclassification of cash flow hedge from other comprehensive income (21) 64

Unwinding of discount on provisions and other payables 14 –

Total finance expense before specific items 889 833

Specific items (note 9)

5 101

Total finance expense 894 934

a Includes £13m credit (FY22: £8m charge) reclassification of cash flow hedge from other comprehensive income.

27. Loans and other borrowings continued

Loans and other borrowings are analysed as follows:

At 31 March

2023

£m

2022

£m

Current liabilities

Listed bonds 1,075 233

Amounts owed to joint ventures 11 –

Other loans and bank overdrafts

686 640

Total current liabilities 1,772 873

Non-current liabilities

Listed bonds 16,722 15,312

Other loans and bank overdrafts

27 –

Total non-current liabilities 16,749 15,312

Total loans and other borrowings 18,521 16,185

a Includes collateral received on swaps of £557m (FY22: £555m).

The carrying values disclosed in the above table reflect balances at amortised cost adjusted for accrued interest and fair value adjustments

to the relevant loans or borrowings. These do not reflect the final principal repayments that will arise after taking account of the relevant

derivatives in hedging relationships which are reflected in the table below. All borrowings as at 31 March 2023 were unsecured.

The principal repayments of loans and borrowings at hedged rates amounted to £17,442m (FY22: £15,700m) and repayments fall due

as follows:

2023 2022

At 31 March

Carrying

amount

£m

Effect of

hedging and

interest

£m

Principal

repayments

at hedged

rates

£m

Carrying

amount

£m

Effect of

hedging and

interest

£m

Principal

repayments

at hedged

rates

£m

Within one year, or on demand 1,772 (271) 1,501 873 (233) 640

Between one and two years 1,165 15 1,180 935 43 978

Between two and three years 2,669 (141) 2,528 1,415 76 1,491

Between three and four years 404 (33) 371 2,532 (59) 2,473

Between four and five years 1,539 (14) 1,525 379 (8) 371

After five years 10,983 (646) 10,337 10,041 (294) 9,747

Total due for repayment after more than one year 16,760 (819) 15,941 15,302 (242) 15,060

Total repayments 18,532 (1,090) 17,442 16,175 (475) 15,700

Non cash adjustments

(11) 10

Total loans and other borrowings 18,521 16,185

a Fair value adjustments and unamortised bond fees.

215Financial statements

29. Financial instruments and risk management

We issue or hold financial instruments mainly to finance our operations; to finance corporate transactions such as share buybacks and

acquisitions; for the temporary investment of short-term funds; and to manage currency and interest rate risks. In addition, various

financial instruments, for example trade receivables and payables arise directly from operations.

How do we manage financial risk?

Our activities expose us to a variety of financial risks: market risk (including interest rate risk and foreign exchange risk), credit risk and

liquidity risk.

Treasury operation

We have a centralised treasury operation whose primary role is to manage liquidity and funding requirements as well as our exposure

to associated market risks, and credit risk.

Treasury policy

Treasury policy is set by the Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of borrowing,

investments and group-wide exposures. The Board has delegated authority to operate these policies to a series of panels responsible for

the management of key treasury risks and operations. Appointment to and removal from the key panels requires approval from two of the

following: the Chairman, the Chief Executive or the Chief Financial Officer.

There has been no change in the nature of our risk profile between 31 March 2023 and the date of approval of these financial statements.

How do we manage interest rate risk?

Management policy

Interest rate risk arises primarily from our long-term borrowings. Interest cash flow risk arises from borrowings issued at variable rates,

partially offset by cash held at variable rates. Fair value interest rate risk arises from borrowings issued at fixed rates.

Our policy, as set by the Board, is to ensure that at least 70% of ongoing net debt is at fixed rates. Short-term interest rate management

is delegated to the treasury operation while long-term interest rate management decisions require further approval by the chief financial

officer, the corporate finance director or the group treasury director who each have been delegated such authority from the Board.

Hedging strategy

In order to manage our interest rate profile, we enter into cross-currency and interest rate swap agreements to vary the amounts and periods

for which interest rates on borrowings are fixed. The duration of the swap agreements matches the duration of the debt instruments. The

majority of the group’s long-term borrowings are subject to fixed sterling interest rates after applying the impact of these hedging instruments.

How do we manage foreign exchange risk?

Management policy

Foreign currency hedging activities protect the group from the risk that changes in exchange rates will adversely affect future net

cash flows.

The Board’s policy for foreign exchange risk management defines the types of transactions typically covered, including significant

operational, funding and currency interest exposures, and the period over which cover should extend for each type of transaction.

The Board has delegated short-term foreign exchange management to the treasury operation and long-term foreign exchange

management decisions require further approval from the chief financial officer, the corporate finance director or the group

treasury director.

Hedging strategy

A significant proportion of our external revenue and costs arise within the UK and are denominated in sterling. Our non-UK operations

generally trade and are funded in their functional currency which limits their exposure to foreign exchange volatility.

We enter into forward currency contracts to hedge foreign currency capital purchases, purchase and sale commitments, interest expense

and foreign currency investments. The commitments hedged are principally denominated in US dollar, euro, Indian rupees and Hungarian

forint. As a result, our exposure to foreign currency arises mainly on non-UK subsidiary investments and on residual currency trading flows.

216 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

29. Financial instruments and risk management continued

We use cross-currency swaps to swap foreign currency borrowings into sterling. The table below reflects the currency and interest rate

profile of our loans and borrowings after the impact of hedging.

2023 2022

At 31 March

Fixed rate

interest

£m

Floating rate

interest

£m

Total

£m

Fixed rate

interest

£m

Floating rate

interest

£m

Total

£m

Sterling 15,210 1,773 16,983 13,515 1,746 15,261

Euro – 443 443 – 436 436

Other – 16 16 – 3 3

Total 15,210 2,232 17, 4 42 13,515 2,185 15,700

Ratio of fixed to floating 87% 13% 100% 86% 14% 100%

Weighted average effective fixed interest rate – sterling 4.0% 3.9%

The floating rate loans and borrowings and committed facilities bear interest rates fixed in advance for periods up to one year, primarily

by reference to RPI, CPI and ARRs where applicable.

Sensitivity analysis

The income statement and shareholders’ equity are exposed to volatility arising from changes in interest rates and foreign exchange rates.

To demonstrate this volatility, management has concluded that the following are reasonable benchmarks for performing sensitivity analysis:

– For interest, a 1% increase in interest rates and parallel shift in yield curves across sterling, US dollar and euro currencies.

– For foreign exchange, a 10% strengthening of sterling against other currencies.

The impact on equity, before tax and excluding any impact related to retirement benefit plans, of a 1% increase in interest rates and a 10%

strengthening of sterling against other currencies is as detailed below:

At 31 March

2023

£m

Increase

(reduce)

2022

£m

Increase

(reduce)

Sterling interest rates 579 666

US dollar interest rates (371) (429)

Euro interest rates (284) (247)

Sterling strengthening (169) (203)

A 1% decrease in interest rates and 10% weakening of sterling against other currencies would have broadly the same impact in the

opposite direction.

The impact of a 1% change in interest rates on the group’s annual net finance expense and our exposure to foreign exchange volatility

in the income statement, after hedging, (excluding translation exposures) would not have been material in FY23 and FY22.

Credit ratings

We continue to target a BBB+/Baa1 credit rating over the cycle, with a BBB/Baa2 floor. We regularly review the liquidity of the group and

our funding strategy takes account of medium-term requirements. These include the pension deficit and shareholder distributions.

Our December 2030 bond contains terms that require us to pay higher rates of interest when our credit ratings are below A3 in the case of

Moody’s or A– in the case of Standard & Poor’s (S&P). Additional interest of 0.25% per year accrues for each ratings category downgrade

by each agency below those levels effective from the next coupon date following a downgrade. Based on the total notional value of

debt outstanding of £2.2bn at 31 March 2023, our finance expense would increase/decrease by approximately £11m a year if the group’s

credit rating were to be downgraded/upgraded, respectively, by one credit rating category by both agencies.

Our credit ratings were as detailed below:

2023 2022

At 31 March Rating Outlook Rating Outlook

Rating agency

Fitch BBB Stable BBB Stable

Moody’s Baa2 Stable Baa2 Negative

Standard & Poor’s BBB Stable BBB Stable

217Financial statements

29. Financial instruments and risk management continued

How do we manage liquidity risk?

Management policy

We maintain liquidity by entering into short and long-term financial instruments to support operational and other funding requirements,

determined by using short- and long-term cash forecasts. These forecasts are supplemented by a financial headroom analysis which is

used to assess funding adequacy for at least a 12-month period. On at least an annual basis the Board reviews and approves the long-term

funding requirements of the group and on an ongoing basis considers any related matters. We manage refinancing risk by limiting the

amount of borrowing that matures within any specified period and having appropriate strategies in place to manage refinancing needs

as they arise. The maturity profile of our loans and borrowings at 31 March 2023 is disclosed in note 27. We have term debt maturities of

£0.8bn in FY24.

Our treasury operation reviews and manages our short-term requirements within the parameters of the policies set by the Board. We hold

cash, cash equivalents and current investments in order to manage short-term liquidity requirements. At 31 March 2023 we had undrawn

committed borrowing facilities of £2.1bn (FY22: £2.1bn) maturing in March 2027.

The following table provides an analysis of the remaining cash flows including interest payable for our non-derivative financial liabilities

on an undiscounted basis, which may therefore differ from both the carrying value and fair value.

Non-derivative financial liabilities

At 31 March 2023

Loans and

other

borrowings

£m

Interest

on loans

and other

borrowings

£m

Trade and

other

payables

£m

Provisions

£m

Lease

liabilities

£m

Total

£m

Due within one year 1,512 643 5,451 3 800 8,409

Between one and two years 1,165 637 – 2 774 2,578

Between two and three years 2,669 616 – 2 676 3,963

Between three and four years 404 575 – 2 640 1,621

Between four and five years 1,539 558 – 2 612 2,711

After five years 10,983 2,891 – – 2,529 16,403

18,272 5,920 5,451 11 6,031 35,685

Interest payments not yet accrued – (5,660) – – – (5,660)

Fair value adjustment (11) – – – – (11)

Impact of discounting – – – (1) (672) (673)

Carrying value on the balance sheet

a,b

18,261 260 5,451 10 5,359 29,341

At 31 March 2022

Due within one year 640 568 5,224 4 788 7, 224

Between one and two years 935 564 – 4 784 2,287

Between two and three years 1,415 538 – 3 729 2,685

Between three and four years 2,532 515 – – 626 3,673

Between four and five years 379 477 – – 589 1,445

After five years 10,041 2,809 – – 2,983 15,833

15,942 5,471 5,224 11 6,499 33,147

Interest payments not yet accrued – (5,238) – – – (5,238)

Fair value adjustment 10 – – – – 10

Impact of discounting – – – – (739) (739)

Carrying value on the balance sheet

a,b

15,952 233 5,224 11 5,760 27,18 0

a Foreign currency-related cash flows were translated at closing foreign exchange rates as at the relevant reporting date. Future variable interest cash flows were

calculated using the most recent interest or indexation rates at the relevant balance sheet date.

b The carrying amount of trade and other payables excludes £920m (FY22: £624m) of non-current trade and other payables which relates to non-financial liabilities,

and £1,113m (FY22: £918m) of other taxation, social security and deferred income.

Trade and other payables are held at amortised cost. The carrying amount of these balances approximates to fair value due to the

short maturity of amounts payable.

218 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

29. Financial instruments and risk management continued

The following table provides an analysis of the contractually agreed cash flows in respect of the group’s derivative financial instruments.

Cash flows are presented on a net or gross basis in accordance with settlement arrangements of the instruments.

Derivatives –

Analysed by earliest payment date

Derivatives –

Analysis based on holding instrument to maturity

Derivative financial liabilities

At 31 March 2023

Net settled

£m

Gross settled

outflows

£m

Gross settled

inflows

£m

Total

£m

Net settled

£m

Gross settled

outflows

£m

Gross settled

inflows

£m

Total

£m

Due within one year 47 2,184 (2,088) 143 47 2,184 (2,088) 143

Between one and two years 47 1,125 (1,058) 114 47 1,125 (1,058) 114

Between two and three years 94 939 (882) 151 46 939 (882) 103

Between three and four years 111 381 (364) 128 46 381 (364) 63

Between four and five years 16 161 (135) 42 46 161 (135) 72

After five years 47 2,127 (2,011) 163 130 2,127 (2,011) 246

Total

362 6,917 (6,538) 741 362 6,917 (6,538) 741

At 31 March 2022

Due within one year 300 940 (873) 367 77 940 (873) 144

Between one and two years 247 1,615 (1,508) 354 77 1,615 (1,508) 184

Between two and three years 18 1,679 (1,566) 131 77 1,679 (1,566) 190

Between three and four years 17 736 (685) 68 77 736 (685) 128

Between four and five years 17 511 (513) 15 77 511 (513) 75

After five years 65 4,789 (4,725) 129 279 4,789 (4,725) 343

Total

664 10,270 (9,870) 1,064 664 10,270 (9,870) 1,064

a Certain derivative financial instruments contain break clauses whereby either the group or bank counterparty have the right to terminate the swap on certain dates. If the break

clause was exercised, the mark to market position would be settled in cash.

b Foreign currency-related cash flows were translated at closing foreign exchange rates as at the relevant reporting date. Future variable interest rate cash flows were calculated

using the most recent rate applied at the relevant balance sheet date.

How do we manage energy price risk?

Management policy

UK (excluding Northern Ireland) and European energy prices continue to be exposed to volatility driven by fears of reduced gas supply as

Europe continues the shift from Russian gas to LNG and renewables (which themselves are subject to short-term fluctuations given their

intermittent nature). In order to manage our exposure to fluctuating energy prices, we have a target for UK (excluding Northern Ireland)

energy demand to be at least 80% hedged one quarter before the start of the next financial year, and 50% hedged for the following

financial year. We achieve this through forward over the counter hedges and a mixture of new and existing power purchase agreements

(PPAs) and derivative virtual PPAs (vPPAs).

Hedging strategy

In each financial year our strategy is to build our PPA and vPPA portfolio, exploring opportunities with 5-10 year contracts delivering

favourable net present values. We complement this by monitoring the markets and forward purchasing electricity (power) when the

market is favourable. In the forthcoming financial year (FY24) the aim is to be 95% hedged, which allows for headroom for increased

outputs from the renewable sources should weather conditions prevail.

How do we manage credit risk?

Management policy

Our exposure to credit risk arises from financial assets transacted by the treasury operation (primarily derivatives, investments, cash and

cash equivalents) and from trading-related receivables.

For treasury-related balances, the Board’s defined policy restricts exposure to any one counterparty by setting credit limits based on the

credit quality as defined by Moody’s and Standard & Poor’s. The minimum credit ratings permitted with counterparties in respect of new

transactions are A3/A– for long-term and P1/A1 for short-term investments. If counterparties in respect of existing transactions fall below

the permitted criteria we will take action where appropriate.

The treasury operation continuously reviews the limits applied to counterparties and will adjust the limit according to the nature and credit

standing of the counterparty, and in response to market conditions, up to the maximum allowable limit set by the Board.

Operational management policy

Our credit policy for trading-related financial assets is applied and managed by each of the customer-facing units (CFUs) to ensure

compliance. The policy requires that the creditworthiness and financial strength of customers are assessed at inception and on an ongoing

basis. Payment terms are set in accordance with industry standards. Where appropriate, we may minimise risks by requesting securities

such as deposits, guarantees and letters of credit. We take proactive steps including constantly reviewing credit ratings of counterparties

to minimise the impact of adverse market conditions on trading-related financial assets.

219Financial statements

29. Financial instruments and risk management continued

Exposures

The maximum credit risk exposure of the group’s financial assets at the balance sheet date is as follows:

At 31 March Notes

2023

£m

2022

£m

Derivative financial assets 1,479 1,091

Investments 24 3,577 2,713

Trade and other receivables

17 1,821 1,489

Contract assets 5 1,934 1,915

Cash and cash equivalents 26 392 777

Total 9,203 7, 985

a The carrying amount excludes £503m (FY22: £337m) of non-current trade and other receivables which relate to non-financial assets, and £1,239m (FY22: £1,135m) of

prepayments, deferred contract costs, finance lease receivables and other assets.

The credit quality and credit concentration of cash equivalents, current asset investments and derivative financial assets are detailed

in the tables below. Where the opinion of Moody’s and Standard & Poor’s (S&P) differ, the lower rating is used.

Moody’s/S&P credit rating of counterparty

2023

£m

2022

£m

Aa2/AA and above 3,498 1,946

Aa3/AA– 115 1,118

A1/A+ 957 768

A2/A 400 269

A3/A– 53 122

Baa1/BBB+ – –

Baa2/BBB and below

60 –

Total

5,083 4,223

a Baa2/BBB rated exposure represents the energy derivatives and carrying value of forward currency contracts with Sports JV.

b We hold cash collateral of £557m (FY22: £555m) in respect of derivative financial assets with certain counterparties.

The concentration of credit risk for our trading balances is provided in note 17, which analyses outstanding balances by CFU. Where multiple

transactions are undertaken with a single financial counterparty or group of related counterparties, we enter into netting arrangements to

reduce our exposure to credit risk by making use of standard International Swaps and Derivatives Association (ISDA) documentation. We

have also entered into credit support agreements with certain swap counterparties whereby, on a daily, weekly and monthly basis, the fair

value position on notional £2,024m (FY22: £2,024m) of long-dated cross-currency swaps and interest rate swaps is collateralised.

Offsetting of financial instruments

The table below shows our financial assets and liabilities that are subject to offset in the group’s balance sheet and the impact of

enforceable master netting or similar agreements.

Related amounts not set off in the balance sheet

Financial assets and liabilities

At 31 March 2023

Amounts

presented in the

balance sheet

£m

Right of set off

with derivative

counterparties

£m

Cash

collateral

£m

Net

amount

£m

Derivative financial assets 1,479 (323) (557) 599

Derivative financial liabilities (383) 323 48 (12)

Total 1,096 – (509) 587

At 31 March 2022

Derivative financial assets 1,091 (431) (555) 105

Derivative financial liabilities (870) 431 67 (372)

Total 221 – (488) (267)

Derivatives and hedging

We use derivative financial instruments mainly to reduce exposure to foreign exchange and interest rate risks. Derivatives may qualify as

hedges for accounting purposes if they meet the criteria for designation as cash flow hedges or fair value hedges in accordance with IFRS 9.

220 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

29. Financial instruments and risk management continued

Significant accounting policies that apply to derivatives and hedge accounting

All of our derivative financial instruments are held at fair value on the balance sheet.

Derivatives designated in a cash flow hedge

The group designates certain derivatives in a cash flow hedge relationship. Where derivatives qualify for hedge accounting, recognition

of any resultant gain or loss depends on the nature of the hedge. To qualify for hedge accounting, hedge documentation must be

prepared at inception, the hedge must be in line with BT’s risk management strategy and there must be an economic relationship based

on the currency, amount and timing of the respective cash flows of the hedging instrument and hedged item. This is assessed at inception

and in subsequent periods in which the hedge remains in operation. Hedge accounting is discontinued when it is no longer in line with BT’s

risk management strategy or if it no longer qualifies for hedge accounting.

The group targets a one-to-one hedge ratio. The economic relationship between the hedged item and the hedging instrument is

assessed on an ongoing basis. Ineffectiveness can arise from subsequent change in the forecast transactions as a result of altered

timing, cash flows or value.

When a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a

highly probable transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity.

For cash flow hedges of recognised assets or liabilities, the associated cumulative gain or loss is removed from equity and recognised

in the same line of the income statement and in the same period or periods that the hedged transaction affects the income statement.

Any ineffectiveness arising on a cash flow hedge is recognised immediately in the income statement.

Other derivatives

Our policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting, some derivatives

may not qualify for hedge accounting, or may be specifically not designated as a hedge because natural offset is more appropriate. We

effectively operate a process to identify any embedded derivatives within revenue, supply, leasing and financing contracts, including

those relating to inflationary features. These derivatives are classified as fair value through profit and loss and are recognised at fair value.

Any direct transaction costs are recognised immediately in the income statement. Gains and losses on re-measurement are recognised

in the income statement in the line that most appropriately reflects the nature of the item or transaction to which they relate.

Where the fair value of a derivative contract at initial recognition is not supported by observable market data and differs from the

transaction price, a day one gain or loss will arise which is not recognised in the income statement. Such gains and losses are deferred

and amortised to the income statement based on the remaining contractual term and as observable market data becomes available.

The fair values of outstanding swaps and foreign exchange contracts are estimated using discounted cash flow models and market

rates of interest and foreign exchange at the balance sheet date.

At 31 March 2023

Current

asset

£m

Non-current

asset

£m

Current

liability

£m

Non-current

liability

£m

Designated in a cash flow hedge 78 1,330 62 255

Other 4 67 24 42

Total derivatives 82 1,397 86 297

At 31 March 2022

Designated in a cash flow hedge 77 878 25 712

Other 11 125 26 107

Total derivatives 88 1,003 51 819

All derivative financial instruments are categorised at Level 2, with the exception of the energy contracts which are categorised at Level 3

of the fair value hierarchy as defined in note 24.

Instruments designated in a cash flow hedge include interest rate swaps and cross-currency swaps hedging euro, US dollar and Japanese

yen- denominated borrowings. Forward currency contracts are taken out to hedge step-up interest on currency denominated borrowings

relating to the group’s 2030 US dollar bond. The hedged cash flows will affect the group’s income statement as interest and principal

amounts are repaid over the remaining term of the borrowings (see note 27).

We hedge forecast foreign currency purchases, principally denominated in US dollar, euro, Indian rupees and Hungarian forint 12 months

forward with certain specific transactions hedged further forward. The related cash flows are recognised in the income statement over

this period.

221Financial statements

29. Financial instruments and risk management continued

The amounts related to items designated as hedging instruments were as follows:

Hedged items

At 31 March 2023

Notional

principal

£m

Asset

£m

Liability

£m

Balance in

cash flow

hedge

reserves

(gain)/loss

£m

Fair value

(gain)/loss

recognised

in OCI

£m

Amount

recycled

from cash

flow hedge

reserves to

P&L

£m

Sterling, euro, US dollar and Japanese yen denominated

borrowings

12,888 1,316 (290) (316) (887) 597

Step up interest on the 2030 US dollar bond

115 – (2) (31) (8) 6

Foreign currency purchases, principally denominated in US

dollar, euro, Indian rupees and Hungarian forint

1, 211 34 (24) (35) (75) 61

Energy contracts

58 (1) (64) (85) 49

Total cash flow hedges 14,214 1,408 (317) (446) (1,0 55) 713

Deferred tax – – 106

Derivatives not in a designated hedge relationship 71 (66) –

Carrying value on the balance sheet 1,479 (383) (340)

At 31 March 2022

Sterling, euro and US dollar denominated borrowings

11,688 889 (731) (26) (83) 61

Step up interest on the 2030 US dollar bond

122 5 – (29) (6) 3

Foreign currency purchases, principally denominated in US

dollar, euro and Indian rupees

946 30 (3) (21) (51) (10)

Energy contracts

31 (3) (28) (64) –

Total cash flow hedges 12,756 955 (737) (104) (204) 54

Deferred tax – – 16

Derivatives not in a designated hedge relationship 136 (133) –

Carrying value on the balance sheet 1,091 (870) (88)

a Sterling, euro, US dollar and Japanese yen denominated borrowings are hedged using cross-currency swaps and interest rate swaps. Amounts recycled to profit and loss are

presented within operating costs and finance expense.

b Step up interest on US dollar denominated borrowings are hedged using forward currency contracts. Amounts recycled to profit and loss are presented within finance expense.

c Foreign currency purchases, principally denominated in US dollar, euro, Indian rupees and Hungarian forint are hedged using forward currency contracts. Amounts recycled to

profit and loss are presented within cost of sales, operating costs or fixed assets, in line with the underlying hedged item.

d Energy contracts are hedged using contracts for difference and virtual power purchase agreements in order to provide long-term power cost certainty. Amounts recycled to

profit and loss are presented within operating costs.

All hedge relationships were fully effective in the period.

222 BT Group plc Annual Report 2023

Notes to the consolidated financial statements continued

30. Other reserves

Other comprehensive income

Capital

redemption

reserve

£m

Cash flow

reserve

£m

Fair value

reserve

£m

Cost of

hedging

reserve

£m

Translation

reserve

c,d

£m

Total

£m

At 1 April 2021 27 (90) – 59 440 436

Exchange differences

– – – – 65 65

Net fair value gain (loss) on cash flow hedges

– 59 – 145 – 204

Movements in relation to cash flow hedges recognised in income

and expense

– (86) – 32 – (54)

Fair value movement on assets at fair value through other

comprehensive income – – 6 – – 6

Tax recognised in other comprehensive income – (31) – – – (31)

Transfer to realised profit

– – (7) – – (7)

At 31 March 2022 27 (14 8) (1) 236 505 619

Reclassification

– 472 – (472) – –

Exchange differences

– – – – 89 89

Net fair value gain (loss) on cash flow hedges

– 864 – 191 – 1,055

Movements in relation to cash flow hedges recognised in income

and expense

– (721) – 8 – (713)

Fair value movement on assets at fair value through other

comprehensive income – – (3) – – (3)

Tax recognised in other comprehensive income – (90) – – – (90)

At 31 March 2023 27 377 (4) (37) 594 957

a The cash flow reserve is used to record the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions

that have not yet occurred.

b The cost of hedging reserve reflects the gain or loss on the portion excluded from the designated hedging instrument that relates to the currency basis element of our

cross-currency swaps and forward points on certain foreign exchange contracts. It is initially recognised in other comprehensive income and accounted for similarly to

gains or losses in the cash flow reserve.

c The translation reserve is used to record cumulative translation differences on the net assets of foreign operations. The cumulative translation differences are recycled

to the income statement on disposal of the foreign operation.

d Movement in translation reserve includes £nil (FY22: £1m) which relate to disposals (see note 23).

e Excludes £2m (FY22: £1m) of exchange differences in relation to retained earnings attributed to non-controlling interests.

f The large swing in the year of £1,055m (FY22: £204m) was due to large fluctuations in interest rates, energy prices and foreign exchange rates.

g Movements in cash flow hedge-related reserves recognised in income and expense of £713m (FY22: £54m) include a net charge to other comprehensive income of £679m

(FY22: £126m) which have been reclassified to operating costs, and a net charge of £34m (FY22: credit of £72m) which have been reclassified to finance expense (see note 28).

h Realised profit includes profit on disposal of investments held at fair value through other comprehensive income.

i Reclassification on cash flow hedges includes £472m (FY22: £nil) reclassification from cash flow hedge reserve to cost of hedging reserve.

223Financial statements

31. Related party transactions

Key management personnel comprise Executive and Non-Executive Directors and members of the Executive Committee. Compensation

of key management personnel is disclosed in note 6.

Amounts paid to the group’s retirement benefit plans are set out in note 20.

Associates and joint ventures related parties include the Sports JV formed in August 2022 (see note 23). Sales of services to the Sports JV

during FY23 were £23m and purchases from the Sports JV were £176m. The amount receivable from the Sports JV as at 31 March 2023

was £10m and the amount payable to the Sports JV was £123m.

As part of the BT Sport transaction, the group has committed to providing the Sports JV with a sterling Revolving Credit Facility (RCF), up

to a maximum for £300m, for short-term liquidity required by the Sports JV to fund its working capital and commitments to sports rights

holders. Amounts drawn down by the Sports JV under the RCF accrue interest at a market reference rate, consistent with the group’s

external short-term borrowings. The outstanding balance under the RCF of £268m is treated as a loan receivable and held at amortised

cost, see note 17. The capacity of the RCF is expected to reduce to £200m during FY24. There is also a loan payable to the Sports JV of

£11m, see note 27.

The Sports JV has a foreign exchange hedging arrangement with the group to secure Euros required to meet its commitments to certain

sports rights holders; the group has external forward contracts in place to purchase the Euros at an agreed sterling rate in order to mitigate

its exposure to exchange risk. The group holds a £14m derivative liability in respect of forward contracts provided to the Sports JV.

Transactions from commercial trading arrangements with associates and joint ventures, including the Sports JV, are shown below:

At 31 March

2023

£m

2022

£m

Sales of services to associates and joint ventures 29 5

Purchases from associates and joint ventures 216 44

Amounts receivable from associates and joint ventures 10 2

Amounts payable to associates and joint ventures 124 1

Other related party transactions include the purchase of energy from an entity owned by the BT Pension Scheme. Total purchases during

the year were £13m (FY22: £12m). £1m was due to the other party as at 31 March 2023 (FY22: £1m). The balance is unsecured and no

guarantees have been given.

32. Financial commitments

Financial commitments as at 31 March 2023 include capital commitments of £1,480m (FY22: £1,596m) and device purchase

commitments of £217m (FY22: £295m). TV programme rights commitments were £nil (FY22: £997m) as these were transferred to the

Sports JV formed with Warner Bros. Discovery (WBD) during FY23 (see note 23); both the group and WBD have guaranteed the Sports

JV’s obligations under certain programme rights commitments but we consider the risk of these guarantees being called as remote.

Other than as disclosed below and in note 19, there were no contingent liabilities or guarantees at 31 March 2023 other than those arising

in the ordinary course of the group’s business and on these no material losses are anticipated. We have insurance cover to certain limits for

major risks on property and major claims in connection with legal liabilities arising in the course of our operations. Otherwise, the group

generally carries its own risks.

Guarantees

BT plc

From March 2019 a formal guarantee was put in place by BT Group plc to fully and unconditionally guarantee the obligations of its wholly

owned subsidiary British Telecommunications plc (“BT plc”) under its corporate bonds. This guarantee has been given in respect of all

bonds issued since that date and was retrospectively applied to bonds issued prior to that date. It applies to all bonds issued in BT plc’s

Yankee, Euro Medium Term Note and hybrid bond programmes, and under the BT plc £600m 5.75% bonds due in 2028.

Legal and regulatory proceedings

See note 19 for contingent liabilities associated with legal and regulatory proceedings.

33. Post balance sheet events

No material post balance sheet events have been identified.

224 BT Group plc Annual Report 2023

BT Group plc company balance sheet

Registered number 4190816

At 31 March Notes

2023

£m

2022

£m

Non-current assets

Investment in subsidiary undertaking 2 11, 278 11, 201

Other investments

– 585

11, 278 11,786

Current assets

Cash and cash equivalents 8 5

8 5

Current liabilities

Trade and other payables

80 32

Total assets less current liabilities 11, 20 6 11,759

Non-current liabilities

Loans and other borrowings

303 –

Other payables

26 26

329 26

Equity

Ordinary shares 499 499

Share premium 1,051 1,051

Capital redemption reserve 27 27

Own shares (422) (274)

Profit and loss account

9,722 10,430

Total equity 10,877 11,733

11, 20 6 11,759

a Other investments consists of loan to group undertakings of £nil (FY22: £580m) and accrued interest of £nil (FY22: £5m). In FY22 the loan attracted interest of LIBOR plus

37.5 basis points and was measured at amortised cost using the effective interest rate method. The expected credit loss provision against long-term loan to group undertakings

is immaterial.

b Current trade and other payables consists of loans from group undertakings of £15m (FY22: £16m) and other payables of £65m (FY22: £16m). Other payables (current and

non-current) mostly comprise the obligation to purchase own shares into trust via a forward contract.

c Loans and other borrowings consist of a loan from group undertakings of £303m (FY22: £nil). The loan attracts interest of SONIA plus 60 basis points.

d As permitted by Section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The loss for the financial year, dealt with in the profit and

loss account of the company was £1m (FY22: profit of £2m).

The financial statements of the company on pages 224 to 227 were approved by the Board of Directors on 17 May 2023 and were signed

on its behalf by:

Adam Crozier Philip Jansen Simon Lowth

Chairman Chief Executive Chief Financial Officer

225Financial statements

BT Group plc company statement

of changes in equity

Called up

capital

£m

premium

account

£m

Capital

redemption

reserve

£m

Own shares

£m

Profit

and loss

account

b,c

£m

Total

£m

At 1 April 2021 499 1,051 27 (14 3) 10,610 12,044

Profit for the financial year – – – – 2 2

Dividends paid – – – – (227) (227)

Unclaimed dividends over 10 years – – – – 2 2

Share-based payments – – – – 3 3

Capital contribution in respect of share-based payments – – – – 105 105

Net buyback of own shares – – – (131) (65) (196)

At 31 March 2022 499 1,051 27 (274) 10,430 11,733

Loss for the financial year – – – – (1) (1)

Dividends paid – – – – (753) (753)

Share-based payments – – – – 3 3

Capital contribution in respect of share-based payments – – – – 77 77

Net buyback of own shares – – – (148) (34) (182)

At 31 March 2023 499 1,051 27 (422) 9,722 10,877

a The allotted, called up and fully paid ordinary share capital of the company at 31 March 2023 was £499m (31 March 2022: £499m), representing 9,968,127,681

(31 March 2022: 9,968,127,681) ordinary shares of 5p each.

b In FY23, 18,984,595 shares (FY22: 19,672,628) were issued from Own shares to satisfy obligations under employee share schemes and executive share awards at a cost of

£38m (FY22: £43m). At 31 March 2023, 36,190,551 shares (FY22: 41,429,938) with an aggregate nominal value of £2m (FY22: £2m) were held at cost as treasury shares and

193,798,578 shares (FY22: 94,120,883) with an aggregate nominal value of £10m (FY22: £5m) were held in the Trust.

c As permitted by Section 408(3) of the Companies Act 2006, no profit and loss account of the company is presented. The loss for the financial year, dealt with in the profit

and loss account of the company was £1m (FY22: profit of £2m).

226 BT Group plc Annual Report 2023

Notes to the company financial statements

1. BT Group plc accounting policies

Principal activity

The principal activity of the company is to act as the ultimate

holding company of the BT Group.

Accounting basis

As used in these financial statements and associated notes, the term

‘company’ refers to BT Group plc (a public company limited by shares).

These separate financial statements are prepared in accordance with

Financial Reporting Standard 101 Reduced Disclosure Framework

(FRS 101). In preparing these financial statements, the Company

applies the recognition, measurement and disclosure requirements

of UK-adopted international accounting standards, but makes

amendments where necessary in order to comply with Companies

Act 2006 and has set out below where advantage of the FRS 101

disclosure exemptions has been taken.

Financial statements

The financial statements are prepared on a going concern basis

and under the historical cost convention. Refer to page 155 for

further details of this assessment.

As permitted by Section 408(3) of the Companies Act 2006, the

company’s profit and loss account has not been presented.

New and amended accounting standards effective

during the year

BT adopted IFRS 17 with retrospective application on 1 April 2023.

It is therefore effective from FY24 onwards.

The standard establishes principles for the recognition,

measurement, presentation and disclosure of insurance contracts.

The measurement method for insurance contracts required by IFRS

17 is a probability weighted discounted cash flow model, including

a best estimate and an adjustment for non-financial risk calculated

for groups of similar contracts.

IFRS 17 primarily impacts insurance entities, however as it applies

to individual contracts it is possible that non-insurers could

issue contracts that are in scope of the standard such as product

breakdown contracts or warranties.

We have assessed the impact of the standard on the BT Group plc

legal entity, and concluded that its impact is not material. Contracts

in scope of the standard are restricted to parent company

guarantees, which we have assessed to have no material impact.

Exemptions

As permitted by FRS 101, the company has taken advantage of the

disclosure exemptions available under that standard in relation

to business combinations, share-based payments, non-current

assets held for sale, financial instruments, capital management,

and presentation of comparative information in respect of certain

assets, presentation of a cash flow statement, standards not yet

effective, impairment of assets and related party transactions.

The company intends to continue to take advantage of these

exemptions in future years. Further detail is provided below.

Where required, equivalent disclosures have been given in the

consolidated financial statements of BT Group plc.

The BT Group plc consolidated financial statements for the year

ended 31 March 2023 contain a consolidated cash flow statement.

Consequently, as permitted by IAS 7 ‘Statement of Cash flows’, the

company has not presented its own cash flow statement.

The BT Group plc consolidated financial statements for the

year ended 31 March 2023 contain related party disclosures.

Consequently, the company has taken advantage of the exemption

in IAS 24 ‘Related Party Disclosures’ not to disclose transactions

with other members of the BT Group.

The BT Group plc consolidated financial statements for the year

ended 31 March 2023 contain financial instrument disclosures

which comply with IFRS 7 ‘Financial Instruments: Disclosures’.

Consequently, the company is exempt from the disclosure

requirements of IFRS 7 in respect of its financial instruments.

Investment in subsidiary undertaking

Investment in subsidiary undertaking is stated at cost and reviewed

for impairment if there are indicators that the carrying value may not

be recoverable. An impairment loss is recognised to the extent that

the carrying amount cannot be recovered either by selling the asset

or by continuing to hold the asset and benefiting from the net present

value of the future cash flows (value in use) of the investment.

Investment impairment is assessed at each reporting date.

Estimating value in use and key assumptions used (discount rate

and growth rate) in performing the impairment assessment are

in line with how we assess the group’s goodwill in note 13 to the

consolidated group financial statements. There is significant

headroom between the carrying value of the investment and the

calculated value in use.

Taxation

Full provision is made for deferred taxation on all temporary

differences which have arisen but not reversed at the balance

sheet date. Deferred tax assets are recognised to the extent that

it is regarded as more likely than not that there will be sufficient

taxable profits from which the underlying timing differences can

be deducted. The deferred tax balances are not discounted.

Dividends

Dividend distributions are recognised as a liability in the year in

which the dividends are approved by the company’s shareholders

for final dividends. Interim dividends are recognised when they are

paid. Dividend income is recognised on receipt.

Share capital

Ordinary shares are classified as equity. Repurchased shares of the

company are recorded in the balance sheet as part of Own shares

and presented as a deduction from shareholders’ equity at cost.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and current

balances with banks and similar institutions, which are readily

convertible to cash and are subject to insignificant risk of changes

in value and have an original maturity of three months or less.

Share-based payments

The issuance by the company of share options and awards to

employees of its subsidiaries represents additional capital

contributions to its subsidiaries. An addition to the company’s

investment in subsidiaries is recorded with a corresponding increase

in equity shareholders’ funds. The additional capital contribution

is determined based on the fair value of options and awards at the

date of grant and is recognised over the vesting period.

227Financial statements

2. Investment in subsidiary undertaking

Cost

Total

£m

At 1 April 2021 11, 096

Additions 105

At 31 March 2022 11, 201

Additions 77

At 31 March 2023 11,278

Additions of £77m (FY22: £105m) comprise capital contributions

in respect of share-based payments.

The company held a 100% investment in BT Group Investments

Limited, a company registered in England and Wales, throughout

FY23 and FY22.

3. Other information

Dividends

An interim dividend of 2.31p per share amounting to £226m was

paid on 6 February 2023 (FY22: interim dividend of 2.31p per

share amounting to £227m paid). A final dividend of 5.39p per

share amounting to approximately £534m is proposed in respect

of the year ended 31 March 2023 (FY22: final dividend of 5.39p

per share amounting to £527m paid in respect of the year ended

31 March 2022).

Employees and directors

The Chairman and Executive and Non-Executive Directors

of BT Group plc were the only employees and directors of the

company during FY23 and FY22. The costs relating to qualifying

services provided to the company’s principal subsidiary, British

Telecommunications plc, are recharged to that company.

228 BT Group plc Annual Report 2023

Related undertakings

Company name

Group

interest in

allotted

capital

class

Held directly

United Kingdom

1 Braham Street, London, E1 8EE,

United Kingdom

BT Group Investments

Limited 100% ordinary

BT Group Nominees

Limited 100% ordinary

Held via other group companies

Algeria

20 Micro zone d’Activités Dar El Madina, Bloc B,

Loc N01 Hydra, Alger, 16000, Algeria

BT Algeria

Communications SARL 100% ordinary

Argentina

Maipu No 1210, piso 8 (C1006), Buenos Aires,

Argentina

BT Argentina S.R.L. 100% ordinary

Australia

Level 20, 420 George Street, Sydney, NSW

2000, Australia

BT Australasia Pty

Limited 100% ordinary

100% preference

Austria

Louis-Häfliger-Gasse 10, 1210, Wien, Austria

BT Austria GmbH 100% ordinary

Azerbaijan

AZ 1025 The Azure Business Center, 20th Floor,

c/o BDO Azerbaijan LLC, Z1025, Khatai district,

Afiyaddin Jalilov 26, apt.177, Azerbaijan

BT Azerbaijan Limited,

Limited Liability

Company 100% ordinary

Bahrain

Suite #2216, Building No. 2504, Road 2832, Al

Seef, P.O. BOX 18259, Bahrain

BT Solutions Limited

(Bahrain Branch)

100% –

Bangladesh

UTC Building, 19th Floor, Kawran Bazar, Dhaka,

1215, Bangladesh

BT Communications

Bangladesh Limited 100% ordinary

Barbados

3rd Floor, The Goddard Building, Haggatt Hall,

St. Michael, BB11059, Barbados

BT (Barbados) Limited 100% ordinary

Belarus

58 Voronyanskogo St, Office 89, Minsk 220007,

Belarus

BT BELRUS Foreign

Limited Liability

Company 100% ordinary

Belgium

Telecomlaan 9, 1831 Diegem, Belgium

BT Global Services

Belgium BV 100% ordinary

Global Security Europe

Limited – Belgian

Branch

100% –

Company name

Group

interest in

allotted

capital

class

Rue de L’Aêropostale 8, 4460 Grâce-Hollogne,

Belgium

IP Trade SA 100% ordinary

Bermuda

Century House, 16 Par-la-Ville Road, Hamilton,

HM08, Bermuda

Communications

Global Network

Services Limited 100% ordinary

Bolivia

Avda. 6 de Agosto N° 2700, Torre Empresarial

CADECO, Piso 4, La Paz, Bolivia

BT Solutions Limited

Sucursal Bolivia

100% –

Bosnia and Herzegovina

Trg Heroja 10/1, Sarajevo, 71000, Bosnia

and Herzegovina

BTIH Teleconsult

Drustvo sa

organicenom

odgovornoscu za

posredovanje i

zastupanje d.o.o.

Sarajevo 100% –

Botswana

Deloitte House, Fairgrounds Office Park, Plot

64518, Gaborone, PO BOX 1839, Botswana

BT Global Services

Botswana (Proprietary)

Limited 100% ordinary

Brazil

Avenida Dr. Ruth Cardoso, 4777 – 14 andar,

Pinheiros, São Paulo, SP, 05477-000, Brazil

BT Communications do

Brasil Limitada 100% quotas

BT Global

Communications do

Brasil Limitada 100% quotas

Bulgaria

51B Bulgaria Blvd., fl. 4, Sofia, 1404, Bulgaria

BT Bulgaria EOOD 100% ordinary

BT Global Europe B.V.

– Bulgaria branch

100% –

Canada

Regus Brookfield Place, 161 Bay Street 26th

and 27th Floors, Toronto ON M5J 2S1, Canada

BT Canada Inc. 100% common

Chile

Rosario Norte 407, Piso 6, Las Condes, Santiago,

Chile

Servicios de

Telecomunicaciones

BT Global Networks

Chile Limitada 100% ordinary

China

Building 16, 6th Floor, Room 602-B, No. 269

Wuyi Road, Hi-tech Park, Dalian, 116023, China

BT Technology (Dalian)

Company Limited 100% registered

No. 3 Dong San Huan Bei Lu, Chao Yang District,

Beijing, 100027, China

BT Limited, Beijing

Office

100% –

Company name

Group

interest in

allotted

capital

class

Room 2101-2103, 21/F, International Capital

Plaza, No. 1318 North Sichuan Road, Hong Kou

District, Shanghai, 200080, China

BT China Limited-

Shanghai Branch

Office

100% –

1502-1503, AVIC Center, No. 1008, Huafu Road,

Futian District, Shenzhen, 518000, China

BT China Limited –

Shenzhen Branch

100% –

Room 3, 4, F7, Tower W3, Oriental Plaza, 1 East

Chang An Avenue, Dongcheng District, Beijing,

100738, China

BT China Limited 100% registered

Unit 1537B, Floor 15th, No. 55, Xili Road,

Shanghai Free Trade Zone, Shanghai, China

BT China

Communications

Limited 50% ordinary

Colombia

Calle 113, 7-21, Torre A Oficina 1015 Teleport

Business, Bogota, Colombia

BT Colombia Limitada 100% quotas

Costa Rica

Heredia-Belen La Ribera, Centro Corporativo

El Cafeta, Edificio B, segundo piso, Oficinas de

Deloitte, San José, Costa Rica

BT Global Costa Rica

SRL 100% ordinary

Côte d’Ivoire

Abidjan Plateau, Rue du commerce, Immeuble

Nabil 1er étage, 01 BP 12721 Abidjan 01, Côte

d’Ivoire

BT Cote D'Ivoire 100% ordinary

Cyprus

Hadjianastassiou, Ioannides LLC, DELOITTE

LEGAL, Maximos Plaza, Tower 3, 2nd Floor, 213

Arch. Makariou III Avenue, Limassol, 3030,

Cyprus

BT Solutions Limited

100% –

Arch. Makarios III, 213, Maximos Plaza, Tower 3,

Floor 2, Limassol, 3030, Cyprus

BT Global Europe B.V.

100% –

Czech Republic

Pujmanové 1753 / 10a, Nusle, 140 00, Prague, 4,

Czech Republic

BT Global Europe B.V.,

odštěpný závod

100% –

Denmark

Havneholmen 29, 1561, Kobenhavn V,

Copenhagen, Denmark

BT Denmark ApS 100% ordinary

Dominican Republic

Av. Abraham Lincoln Esq. Jose Amado Soler,

Edif. Progresso, Local 3-A, Sector Ens.

Serralles, Santo Domingo, Dominican Republic

BT Dominican

Republic, S. A. 100% ordinary

Ecuador

Av. Amazonas N21-252 y Carrión, Edificio

Londres, 4° Piso, Quito, Ecuador

BT Solutions Limited

(Sucursal Ecuador)

100% –

229Financial statements

Company name

Group

interest in

allotted

capital

class

Egypt

95 C st. El Sayed El Mirghany, Heliopolis Cairo,

Egypt

BT Telecom Egypt LLC 100% stakes

El Salvador

Edificio Avante Penthouse Oficina, 10-01 Y

10-03 Urbanizacion, Madre Selva, Antiguo

Cuscatlan, La Libertad, El Salvador

BT El Salvador,

Limitada de Capital

Variable 100% ordinary

Finland

Mannerheimvägen 12 B 6, 00100 Helsinki,

Finland

BT Nordics Finland Oy 100% ordinary

France

Tour Ariane, 5 place de la Pyramide, La Defense

Cedex, 92088 PARIS, France

BT France S.A.S. 100% ordinary

Germany

Barthstraße 4, 80339, Munich, Germany

BT (Germany) GmbH &

Co. oHG 100% ordinary

BT Deutschland GmbH 100% ordinary

BT Garrick GmbH 100% ordinary

Frankfurter Straße 21-25, Eschborn, 65760,

Frankfurt am Main, Germany

IP Trade Networks

GmbH 100% ordinary

Widdersdorfer Strasse 252, 50933, Cologne,

Germany

Global Security Europe

Limited – Germany

Branch

100% –

Ghana

5th Floor, Vivo Place, Cantonments City,

Rangoon Lane, P.O. Box MB 595, Accra, Ghana

BT Ghana Limited 100% ordinary

Greece

75 Patision Street, Athens, 10434, Greece

BT Solutions Limited-

Greek Branch

100% –

Guatemala

5ta avenida 5-55 zona 14, Edificio Europlaza

World Business Center, Torre IV, nivel 7, oficina

702, Guatemala City, Guatemala

BT Guatemala S.A. 100% unique

Honduras

Colonia Pueblo Nuevo, Edificio Torre Morazán,

Torre No. 1, Piso 9, Municipio del Distrito

Central, Departamento de, Francisco Morazán,

Tegucigalpa, 10918, Honduras

BT Sociedad De

Responsabilidad

Limitada 100% –

Hong Kong

Unit 31-105, 31/F, Hysan Place, 500 Hennessy

Road, Causeway Bay, Hong Kong

BT Hong Kong Limited 100% ordinary

Infonet China Limited 100% ordinary

Company name

Group

interest in

allotted

capital

class

Hungary

1112 Budapest, Boldizsár utca 4., Hungary

BT Global Europe B.V.

Magyarorszagi

Fioktelepe

100% –

BT Limited

Magyarorszagi

Fioktelepe

100% –

BT ROC Kft 100% business

India

11th Floor, Eros Corporate Tower, Opp.

International Trade Tower, Nehru Place,

New Delhi, 110019, India

BT (India) Private

Limited 100% ordinary

BT e-Serv (India)

Private Limited 100% equity

BT Global Business

Services Private

Limited 100% ordinary

BT Global

Communications India

Private Limited 100% ordinary

BT Telecom India

Private Limited 100% ordinary

A-47, Hauz Khas, New Delhi, Delhi-DL, 110016,

India

Orange Services India

Private Limited 100% ordinary

Indonesia

Menara Astra, 37F. JI. Jendral Sudirman Kav

5-6, Jakarta Pusat, Jakarta, 10220, Indonesia

PT BT Indonesia 100% ordinary

PT BT Communications

Indonesia 95% ordinary

Isle of Man

Third Floor, St Georges Court, Upper Church

Street, Douglas, IM1 1EE, Isle of Man

Belmullet Limited 100% ordinary

Communicator

Insurance Company

Limited 100% ordinary

Priestgate Limited 100% ordinary

Israel

Beit Oz, 14 Abba Hillel Silver Rd, Ramat Gan,

52506, Israel

B.T. Communication

Israel Ltd 100% ordinary

Italy

Strada Santa Margherita, 6 / A, 43123, Parma,

Italy

BT Enìa

Telecomunicazioni

S.P.A. 99% ordinary

Via Mario Bianchini 15, 00142 Roma, Italy

BT Global Services

Limited

100% –

Via Tucidide 14, 20134, Milano, Italy

Atlanet SpA 99% ordinary

Basictel SpA 99% ordinary

BT Italia S.p.A. 99% ordinary

Jamaica

Suite #6, 9A Garelli Avenue, Half way tree, St.

Andrew, Kingston 10, Jamaica

BT Jamaica Limited 100% ordinary

Company name

Group

interest in

allotted

capital

class

Japan

ARK Mori Building, 12-32 Akasaka, 1-Chome,

Minato-Ku, Tokyo, 107 – 6024, Japan

BT Japan Corporation 100% ordinary

Jersey

26 New Street, St Helier, JE2 3RA, Jersey

Ilford Trustees (Jersey)

Limited 100% ordinary

PO Box 264, Forum 4, Grenville Street, St Helier,

JE4 8TQ, Jersey

BT Jersey Limited 100% ordinary

Jordan

Wadi AlSer – Dahiet Prince Rashid – King

Abdullah Street, Building No. 391 – 3rd Floor,

Jordan

BT (International)

Holdings Limited

(Jordan) 100% ordinary

Kazakhstan

No 201, 2nd Floor, Building 1a, Business Centre

Nurly-Tau, 5 Al-Farabi Avenue, Almaty, 050057,

Kazakhstan

BT Kazakhstan LLP 100% –

Kenya

L R No, 1870/ 1/176, Aln House, Eldama Ravine

close, off Eldama Ravine Road, Westlands, P O

Box 764, Sarit Centre, Nairobi, 00606, Kenya

BT Communications

Kenya Limited 70% ordinary

P.O. BOX 10032-00100, Nairobi, Kenya

Telecommunications

Kenya Limited 100% ordinary

Korea

8th Floor, KTB Building, 66 Yeoui-daero,

Yeongdeungpo-gu, Seoul, 07325, Korea

BT Global Services

Korea Limited 100% common

Latvia

Muitas iela 1A, Riga, LV-1010, Latvia

BT Latvia Limited,

Sabiedriba ar

ierobezotu atbildibu 100% ordinary

Lebanon

Abou Hamad, Merheb, Nohra & Chedid Law

Firm, Chbaro Street, 22nd Achrafieh Warde

Building, 1st Floor, Beirut, P.O.BOX 165126,

Lebanon

BT Lebanon S.A.L. 100% ordinary

Lithuania

Aludariu str 2-33, LT-01113 Vilnius, Lithuania

UAB BTH Vilnius 100% ordinary

Luxembourg

12 rue Eugene Ruppert, L 2453, Luxembourg

BT Global Services

Luxembourg SARL 100% ordinary

BT Broadband

Luxembourg Sàrl 100% ordinary

Malawi

KEZA Office Park Blocks 3, First Floor, Near

Chichiri, Shopping Mall, Blantyre, Malawi

BT Malawi Limited 100% ordinary

230 BT Group plc Annual Report 2023

Related undertakings continued

Company name

Group

interest in

allotted

capital

class

Malaysia

Level 5, Tower 3, Avenue 7, Bangsar South,

No.8, Jalan Kerinchi, 59200 Kuala Lumpur,

Malaysia

BT Global Technology

(M) Sdn. Bhd. 100% ordinary

BT Systems (Malaysia)

Sdn Bhd 100% ordinary

Malta

Level 1, LM Complex, Brewery Street, Zone 3,

Central Business District, Birkirkara CBD, 3040,

Malta

BT Solutions Limited

100% –

Mauritius

c/o Deloitte, 7th Floor Standard Chartered

Tower, 19-21 Bank Street, Cybercity, Ebène,

72201, Mauritius

BT Global

Communications

(Mauritius) Limited 100% ordinary

Mexico

Boulevard Manuel Avila Camacho No. 32,

6th Floor, Lomas de Chapultepec III Section,

Miguel Hidalgo, Mexico City CP11000

BT LatAm México, S.A.

de C.V. 100% common

Montenegro

Vasa Raickovica 4b, Podgorica, Podgorica,

Montenegro

BT Montenegro DOO 100% –

Morocco

Bd. Abdelmoumen, Immeuble Atrium, n 374,

Lot. Manazyl Al Maymoune, 5eme etage,

Casablanca, 20390, Morocco

BT Solutions Limited

– Morocco Branch

100% –

Mozambique

Avenida Kenneth Kaunda, number 660,

Sommershield, Maputo City, Mozambique

BT Mozambique,

Limitada 100% quotas

Namibia

Unit 3, 2nd floor, Ausspann Plaza, Dr Agostinho

Neto Road, Ausspannplatz, Windhoek, Private

Bag, 12012, Namibia

BT Solutions Limited

100% –

Netherlands

Herikerbergweg 2, 1101 CM, Amsterdam,

Netherlands

BT Global Europe B.V. 100% ordinary

BT (Netherlands)

Holdings B.V. 100% ordinary

BT Nederland N.V. 100% ordinary

BT Professional

Services Nederland

B.V. 100% ordinary

Global Security Europe

Limited

100% –

New Zealand

c/o Deloitte, Level 18, 80 Queen Street,

Auckland Central, Auckland, 1010,

New Zealand

BT Australasia Pty

Limited – New Zealand

Branch

100% –

Company name

Group

interest in

allotted

capital

class

Nicaragua

De donde fué el Restaurante Marea Alta Ahora

quesillos, El Pipe, 2 cuadras al este, 10 Metros al

norte, frente al, Hotel El Gran Marquez, Casa

#351, Nicaragua, 2815, Nicaragua

BT Nicaragua S.A. 100% capital

Nigeria

Civic Towers, Plot GA1, Ozumba Mbadiwe

Avenue, Victoria Island, Lagos, Nigeria

BT (Nigeria) Limited 100% ordinary

North Macedonia

Str. Dame Gruev no.8, 5th floor, Building “Dom

na voenite invalidi”, SKOPJE 1000, North

Macedonia

BT Solutions Limited

Branch Office in

Skopje

100% –

Norway

Munkedamsveien 45, Oslo, 0121, Norway

BT Solutions Norway AS 100% ordinary

Oman

Maktabi Building, Building No. 458, Unit No.

413 4th Floor, Road No – R41, Block No. 203,

Plot No. 107, Zone No. SW41, Complex No. 271,

Al Watiyah, Bausher, Muscat, Sultanate of

Oman, Oman

BT International

Holdings Limited & Co.

LLC 100% ordinary

Pakistan

Cavish Court, A-35, Block 7&8, KCHSU,

Shahrah-e-Faisal, Karachi, 75350, Pakistan

BT Pakistan (Private)

Limited 100% ordinary

Panama

50th and 74th Street, San Francisco, PH 909,

15th and 16th Floor, Panama City, Panama

BT de Panama, S.R.L. 100% ordinary

Paraguay

Av. Brasilia N° 767 casi Siria, Asunción,

Paraguay

BT Paraguay S.R.L. 100% quotas

Peru

Urb. Jardin Av. Las Begonias No. 441, San Isidro,

Lima, Peru

BT Peru S.R.L. 100% ordinary

Philippines

11th Floor, Page One Building, 1215 Acacia Ave

Madrigal Business Park, Ayala Alabang,

Muntinlupa, Metro Manila, 1780, Philippines

IT Holdings, Inc 100% ordinary

40th Floor, PBCom Tower 6795, Ayala Avenue

cor. Rufino St, Makati City, 1226, Philippines

BT Communications

Philippines

Incorporated 100% ordinary

c/o Sun Microsystems Phil Inc., 8767 Paseo de

Roxas, Makati City, Philippines

PSPI-Subic, Inc 51% ordinary

Company name

Group

interest in

allotted

capital

class

Poland

126/134 Marszalkowska St., Room 128, 00-008

WARSAW, Warsaw, Poland

BT Poland Spółka Z

Ograniczoną

Odpowiedzialnością 100% ordinary

Portugal

Rua D. Francisco Manuel de Melo 21-1,

1070-085 Lisboa, Portugal

BT Portugal –

Telecomunicaçöes,

Unipessoal Lda 100% ordinary

Puerto Rico

Corporation Service Company Puerto Rico Inc.,

c/o RVM Professional Services LLC, A4 Reparto

Mendoza, Humacao, 00791, Puerto Rico

BT Communications

Sales, LLC Puerto Rico

branch

100% –

Qatar

1413, 14th Floor, Al Fardan Office Tower, Doha,

31316, Qatar

BT Global Services

(North Gulf) LLC 49% ordinary

Republic of Ireland

BDO Block 3 Miesian Plaza, 50-58 Baggot

Street Lower, Dublin 2, DUBLIN, Ireland D02

Y754

BT Global

Communications

(Ireland) Limited 100% ordinary

5th Floor, 2 Grand Canal Plaza, Upper Grand

Canal Street, Dublin 4, Ireland

The Faraday

Procurement Company

Limited 100% ordinary

2 Grand Canal Plaza, Upper Grand Canal Street,

Dublin 4, Republic of Ireland

BT Communications

Ireland Limited 100% ordinary

BT Communications

Ireland Group Limited 100% ordinary

BT Communications

Ireland Holdings

Limited 100% ordinary

Whitestream Industries

Limited 100% ordinary

Romania

Cladirea A1, Biroul Nr. 52, Nr 35-37, Str.

Oltenitei, Sector 4, Bucharest, Romania

BT Global Services

Limited Londra

Sucursala Bucuresti

100% –

Russia

Room 62, prem xx, Floor 2, Pravdy, 26, 127137,

Moscow, Russian Federation

BT Solutions Limited

Liability Company 100% –

Serbia

Dimitrija Georgijevica Starike 20, Belgrade,

11070, Serbia

BT Belgrade d.o.o 100% ordinary

Sierra Leone

84 Dundas Street, Freetown, Sierra Leone

BT (SL) Limited 100% ordinary

231Financial statements

Company name

Group

interest in

allotted

capital

class

Singapore

Level 3, #03-01/02 & #03-04, Block B,

Alexandra Technopark, 438B Alexandra Road,

Singapore, 119968

BT (India) Private

Limited Singapore

Branch

100% –

BT Global Solutions

Pte. Ltd. 100% ordinary

BT Singapore Pte. Ltd. 100% ordinary

Slovakia

Pribinova 10, 811 09, Bratislava, mestskó èast'

Staré Mesto, Slovakia

BT Global Europe B.V.,

o.z.

100% –

BT Slovakia s.r.o. 100% ordinary

Slovenia

Cesta v Mestni Log 1, Ljubljana, 1000, Slovenia

BT GLOBALNE

STORITVE,

telekomunikacijske

storitve, obdelava

podatkov, podatkovnih

baz; d.o.o. 100% ordinary

South Africa

BT Building, Woodmead North Office Park, 54

Maxwell Drive, Woodmead, Johannesburg,

2191, South Africa

BT Communications

Services South Africa

(Pty) Limited 70% ordinary

BT Limited

100% –

Spain

C/ María Tubau, 3, 28050 de Madrid, Spain

BT Global ICT Business

Spain SLU 100% ordinary

Sri Lanka

Level 03, No 11, Castle Lane, Colombo, 04, Sri

Lanka

BT Communications

Lanka (Private) Limited 100% ordinary

Sudan

Alskheikh Mustafa Building, Parlman Street,

Khartoum, Sudan

Newgate

Communication

(Sudan) Co. Ltd 100% ordinary

Sweden

Box 30005, 104 25, Stockholm, Sweden

BT Nordics Sweden AB 100% ordinary

Switzerland

Richtistrasse 5, 8304 Wallisellen, Switzerland

BT Switzerland AG 100% ordinary

Taiwan

Shin Kong Manhattan Building, 14F, No. 8, Sec.

5, Xinyi Road, Taipei, 11049, Taiwan

BT Limited Taiwan

Branch

100% –

Company name

Group

interest in

allotted

capital

class

Tanzania

Region Dar Es Salaam, District Kinondoni, Ward

Msasani, Street Msasani Peninsula, Road 1 Bains

Singh Avenue, Plot number 1403/1, Ground

Floor, 14111, United Republic of Tanzania

BT Solutions Limited

– Tanzania Branch

100% –

Thailand

No.63 Athenee Tower, 23rd Floor (CEO Suite,

Room No.38), Wireless Road, Kwaeng Lumpini,

Khet Pathumwan, Bangkok, 10330, Thailand

BT Siam

Communications Co.,

Ltd 49% class B

BT Siam Limited 69% preference

Trinidad and Tobago

2nd Floor CIC Building, 122-124 Frederick

Street, Port of Spain, Trinidad and Tobago

BT Solutions Limited

100% –

Tunisia

Rue de I', Euro Immeuble Slim, Block A-2nd

floor-Les berges du Lac, Tunis, 1053, Tunisia

BT Tunisia S.A.R.L 100% ordinary

Turkey

Acıbadem Mahallesi Çeçen Sk. Akasya A, Kule

Kent Etabı Apt. No: 25 A/28-, Üsküdar, Istanbul,

Turkey

BT Bilisim Hizmetleri

Anonim Şirketi 100% ordinary

BT Telekom Hizmetleri

Anonim Şirketi 100% common

Uganda

Engoru, Mutebi Advocates, Ground Floor,

Rwenzori House, 1 Lumumba Avenue, Kampala,

22510, Uganda

BT Solutions Limited

100% –

Ukraine

Office 702, 34 Lesi Ukrainky Boulevard, Kyiv

01042, Ukraine

BT Ukraine Limited

Liability Company 100% stakes

United Arab Emirates

Office No G03, Ground Floor, EIB Building No

04, Dubai, United Arab Emirates

BT MEA FZ-LLC 100% ordinary

Office no.206 BLOCK B, Diamond Business

Center 1, Al Barsha South Third, Dubai, P.O.

BOX 25205, United Arab Emirates

BT UAE Limited –

Dubai Branch (1)

100% –

BT UAE Limited –

Dubai Branch (2)

100% –

United Kingdom

1 Braham Street, London, E1 8EE, United

Kingdom

Autumnwindow

Limited 100% ordinary

Autumnwindow No.2

Limited 100% ordinary

Autumnwindow No.3

Limited 100% ordinary

Belmullet (IoM)

Limited

100% –

BPSLP Limited 100% ordinary

Company name

Group

interest in

allotted

capital

class

British

Telecommunications

plc 100% ordinary

Bruning Limited 100% ordinary

BT (International)

Holdings Limited 100% ordinary

BT (RRS LP) Limited 100% ordinary

BT Communications

Ireland Group Limited

– UK Branch

100% –

BT Corporate Trustee

Limited 100%

limited by

guarantee

BT European

Investments Limited 100% ordinary

BT Fifty-One 100% ordinary

BT Fifty-Three Limited 100% ordinary

BT Global Security

Services Limited 100% ordinary

BT Global Services

Limited 100% ordinary

BT Holdings Limited 100% ordinary

BT IoT Networks

Limited 100% ordinary

BT Limited 100% ordinary

BT Ninety-Seven

Limited 100% ordinary

BT Nominees Limited 100% ordinary

BT OnePhone Limited 100% ordinary

BT Property Holdings

(Aberdeen) Limited 100% ordinary

BT Property Limited 100% ordinary

BT Sixty-Four Limited 100% ordinary

BT SLE Euro Limited 100% ordinary

BT SLE USD Limited 100% ordinary

BT Solutions Limited 100% ordinary

BT UAE Limited 100% ordinary

Communications

Global Network

Services Limited – UK

Branch

100% –

Communications

Networking Services

(UK) 100% ordinary

EE (Group) Limited 100% ordinary

EE Group Investments

Limited 100% ordinary

EE Limited 100% ordinary

EE Pension Trustee

Limited 100% ordinary

ESAT

Telecommunications

(UK) Limited 100% ordinary

Extraclick Limited 100% ordinary

Global Security Europe

Limited 100% ordinary

Mainline

Communications

Group Limited 100% ordinary

Mainline Digital

Communications

Limited 100% ordinary

Newgate Street

Secretaries Limited 100% ordinary

Numberrapid Limited 100% ordinary

Orange Furbs Trustees

Limited 100% ordinary

Orange Home UK

Limited 100% ordinary

Orange Personal

Communications

Services Limited 100% ordinary

Pelipod Ltd 100% ordinary

Radianz Limited 100% ordinary

Southgate

Developments Limited 100% ordinary

232 BT Group plc Annual Report 2023

Related undertakings continued

Company name

Group

interest in

allotted

capital

class

Tudor Minstrel 100% ordinary

Alexander Bain House, 15 York Street, Glasgow,

Lanarkshire, G2 8LA, Scotland

BT Corporate Limited 99% ordinary

BT Falcon 1 LP 51% –

Holland House

(Northern) Limited 100% ordinary

BDO LLP, 5 Temple Square, Temple Street,

Liverpool, L2 5RH, United Kingdom

BT Lancashire Services

Limited 100% ordinary

BDO LLP, 55 Baker Street, London, W1U 7EU,

United Kingdom

BT Centre Nominee 2

Limited 100% ordinary

BT Facilities Services

Limited 100% ordinary

BT Managed Services

Limited 100% ordinary

EE Finance Limited 100% ordinary

groupBT Limited 100% ordinary

Kelvin House, 123 Judd Street, London, WC1H

9NP, United Kingdom

Openreach Limited 100% ordinary

The Balance, 2 Pinfold Street, Sheffield, S1

2GU, United Kingdom

Plusnet plc 100% ordinary

United States

c/o Corporation Service Company, 251 Little

Falls Drive, Wilmington DE 19808, United States

BT Americas Holdings

Inc. 100% common

BT Americas Inc. 100% common

BT Communications

Sales LLC 100% units

BT Federal Inc. 100% common

BT Procure L.L.C. 100% units

BT United States L.L.C. 100% units

Infonet Services

Corporation 100% common

Uruguay

Rincón 487 Piso 11, Montevideo, ZIP CODE

11.000, Uruguay

BT Solutions Limited

Sucursal Uruguay

100% –

Venezuela

Edificio Parque Cristal, Torre Oeste, Piso 5,

Oficina 5, Avenida Francisco de Miranda,

Urbanización Los Palos Grandes, Caracas 1060,

Venezuela

BT LatAm Venezuela,

S.A. 100% ordinary

Vietnam

16th Floor Saigon Tower, 29 Le Duan Road,

District 1, Ho Chi Minh City, 710000, Socialist

Republic of Vietnam

BT (Vietnam) Co. Ltd. 100% ordinary

Zambia

Plot No. 11058, Haile Selassie Avenue,

Zimbabwe, Lusaka, Lusaka Province, 34972,

Zambia

BT Solutions Limited

100% –

Zimbabwe

3 Baines Avenue, Box 334, Harare, Zimbabwe

Numberrapid Limited

100% –

Associates (note 25)

Company name

Group

interest in

allotted

capital

class

Held via other group companies

Mauritius

IFS Court, Bank Street, TwentyEight Cybercity,

Ebene, 72201, Mauritius

Mahindra –

BT Investment

Company (Mauritius)

Limited 43% ordinary

Philippines

32F Philam Life Tower, 8767 Paseo de Roxas,

Makati City, Philippines

ePLDTSunphilcox JV,

Inc 20% ordinary

SunPhilcox JV, Inc 20% ordinary

United Kingdom

24/25 The Shard, 32 London Bridge Street,

London, SE1 9SG, United Kingdom

Digital Mobile

Spectrum Limited 25% ordinary

10 Stadium Business Court, Millennium Way,

Pride Park, Derby, DE24 8HP, United Kingdom

Midland

Communications

Distribution Limited 35% ordinary

Phoneline (M.C.D)

Limited 35% ordinary

2nd Floor, Aldgate Tower, 2 Leman Street,

London, E1 8FA, United Kingdom

Youview TV Limited 14% voting

Joint ventures (note 25)

Company name

Group

interest in

allotted

capital

class

Held via other group companies

United Kingdom

Chiswick Park Building 2, 566 Chiswick High

Road, London, W4 5YB, United Kingdom

BT Ninety-Five

Limited

50% ordinary

6th Floor, One London Wall, London, EC2Y 5EB,

United Kingdom

Internet Matters

Limited 25% -

St Helen’s 1 Undershaft, London, EC3P 3DQ,

United Kingdom

Rugby Radio Station

(General Partner)

Limited 50% ordinary

Rugby Radio Station

(Nominee) Limited 50% ordinary

Rugby Radio Station

LP 50% -

All joint ventures are governed by a joint

venture agreement.

Joint operations

Company name

Group

interest in

allotted

capital

class

Held via other group companies

United Kingdom

450 Longwater Avenue, Green Park, Reading,

Berkshire, RG2 6GF, United Kingdom

Mobile Broadband

Network Limited 50% ordinary

EE Limited and Hutchison 3G UK Limited

(together ‘the Companies’) each have a

50% share in the joint operation Mobile

Broadband Network Limited (‘MBNL’).

MBNL’s ongoing purpose is the operation

and maintenance of radio access sites

for mobile networks through a sharing

arrangement. This includes: (i) the efficient

management of shared infrastructure and

a 3G network on behalf of the Companies,

(ii) acquiring certain network elements

for shared use, and (iii) coordinating the

deployment of new infrastructure and

networks on either a shared or a unilateral

basis (unilateral elements being network

assets or services specific to one company

only). The group is committed to incurring

50% of costs in respect of restructuring the

shared MBNL network, a broadly similar

proportion of the operating costs (which

varies in line with usage), and 100% of any

unilateral elements.

MBNL is accounted for as a joint operation.

Guarantees for the joint operation are

given by British Telecommunications plc

and CK Hutchison Holdings Limited.

The principal place of business of the joint

operation is in the UK.

a The proportion of voting rights held corresponds

to the aggregate interest in percentage held by the

holding company and subsidiaries undertaking.

b No shares issued for a branch.

c Sports joint venture formed with Warner Bros.

Discovery following the sale of BT Sport transaction.

In addition to the 50% ordinary A shares we also hold

A preference shares and C preference shares, see

notes 23 and 25 for more details.

233Financial statements

Additional information

Alternative performance measures

Introduction

We assess the performance of the group using a variety of

alternative performance measures that are not defined under IFRS

and are therefore termed non-GAAP measures. The non-GAAP

measures we use are: adjusted revenue, adjusted operating costs,

adjusted finance expense, adjusted EBITDA, adjusted operating

profit, adjusted profit before tax, adjusted earnings per share,

return on capital employed, normalised free cash flow and net

debt. We also reference adjusted revenue and adjusted EBITDA

on a Sports JV pro forma basis. The rationale for using these

measures, along with a reconciliation from the nearest measures

prepared in accordance with IFRS, is presented below.

The alternative performance measures we use may not be

directly comparable with similarly titled measures used by

other companies.

Specific items

Our income statement and segmental analysis separately identify

trading results on an adjusted basis, being before specific items.

The directors believe that presentation of the group’s results in

this way is relevant to an understanding of the group’s financial

performance as specific items are those that in management’s

judgement need to be disclosed by virtue of their size, nature

or incidence.

This presentation is consistent with the way that financial

performance is measured by management and reported to the

Board and the Executive Committee and assists in providing an

additional analysis of our reporting trading results.

In determining whether an event or transaction is specific,

management considers quantitative as well as qualitative factors.

Examples of charges or credits meeting the above definition

and which have been presented as specific items in the current

and/or prior years include significant business restructuring

programmes such as the current group-wide cost transformation

and modernisation programme, acquisitions and disposals

of businesses and investments, charges or credits relating to

retrospective regulatory matters, property rationalisation

programmes, significant out of period contract settlements, net

interest on our pension obligation, and the impact of remeasuring

deferred tax balances. In the event that items meet the criteria,

which are applied consistently from year to year, they are treated

as specific items. Any releases to provisions originally booked as

a specific item are also classified as specific. Conversely, when

a reversal occurs in relation to a prior year item not classified as

specific, the reversal is not classified as specific in the current year.

Details of items meeting the definition of specific items in the

current and prior year are set out in note 9.

Reported revenue, reported operating costs, reported operating

profit, reported net finance expense, reported profit before tax

and reported earnings per share are the equivalent IFRS measures.

A reconciliation from these can be seen in the group income

statement on page 150.

Net debt and net financial debt

Net debt consists of loans and other borrowings, lease liabilities

(both current and non-current) less current asset investments

and cash and cash equivalents, including items which have been

classified as held for sale on the balance sheet.

Currency-denominated balances within net debt are translated to

sterling at swap rates where hedged. Fair value adjustments and

accrued interest applied to reflect the effective interest method

are removed. Amounts due to joint ventures held within loans and

borrowings are also excluded.

Net debt is a measure of the group’s net indebtedness that

provides an indicator of overall balance sheet strength. It is a

key indicator used by management to assess both the group’s

cash position and its indebtedness. The use of the term ‘net

debt’ does not necessarily mean that the cash included in the net

debt calculation is available to settle the liabilities included in this

measure.

Net financial debt is net debt excluding lease liabilities. It allows

for the comparison to net debt measures reported before the

introduction of IFRS 16 on 1 April 2019, and reflects a view that

lease liabilities are operational debt in substance, rather than

financing transactions.

Net debt and net financial debt are considered to be alternative

performance measures as they are not defined in IFRS. A

reconciliation from loans and other borrowings, lease liabilities,

cash and cash equivalents, and current asset investments, the most

directly comparable IFRS measures to net debt and net financial

debt, is set out in note 27.

Return on Capital Employed

We use a return on capital employed (ROCE) measure that serves

as an indicator of how efficiently we generate returns from the

capital invested in the business. It is a group KPI that is directly

relatable to the outcome of investment decisions.

ROCE represents the group’s returns as percentage of capital

employed.

Returns are defined as adjusted earnings before interest and tax.

We use an adjusted measure (before specific items) for the reasons

explained in the ‘specific items’ section above.

Capital employed represents equity, debt and debt-like liabilities.

We net the derivative financial instruments and cash and cash

equivalent balances that we use to manage financial risk against

gross debt, and exclude current and deferred tax balances as the

measure is determined on a pre-tax basis.

While our long-term capital investment programmes such as our

full fibre rollout deliver value-creating long-term returns, they

suppress ROCE in the short-to medium-term.

234 BT Group plc Annual Report 2023

The following table sets out the calculation of our ROCE measure.

In doing so it reconciles returns to operating profit, the most

directly comparable IFRS measure, and presents the components

of capital employed.

Year ended 31 March

2023

£m

2022

£m

Reported operating profit for the period 2,619 2,885

Share of post tax profits (losses) of

associates and joint ventures (59) –

Specific items (non-finance and tax) 556 287

Return for the period 3,116 3,172

Equity, debt and debt-like liabilities

Loans and other borrowings 18,521 16,185

Lease liabilities 5,359 5,760

Retirement benefit obligations 3,139 1,143

BDUK grant funding deferral 427 488

Total equity 14,514 15,296

Adjust for balances used to

hedge financial risk

Cash and cash equivalents (392) (777)

Investments (3,577) (2,713)

Net derivative financial instruments (1,096) (221)

Adjust for tax balances

Net deferred tax liabilities 911 1,671

Net current tax receivable (349) (406)

Capital employed 37, 457 36,426

Return on capital employed 8.3% 8.7%

Adjusted EBITDA

In addition to measuring financial performance of the group and

customer-facing units based on adjusted operating profit, we

also measure performance based on adjusted EBITDA. Adjusted

EBITDA is defined as the group profit or loss before specific items,

net finance expense, taxation, depreciation and amortisation and

share of post tax profits or losses of associates and joint ventures.

We consider adjusted EBITDA to be a useful measure of our

operating performance because it approximates the underlying

operating cash flow by eliminating depreciation and amortisation.

Adjusted EBITDA is not a direct measure of our liquidity, which is

shown by our cash flow statement, and needs to be considered in

the context of our financial commitments.

A reconciliation of reported profit for the period, the most directly

comparable IFRS measure, to adjusted EBITDA, is set out below.

Year ended 31 March

2023

£m

2022

£m

Reported profit for the period 1,905 1,274

Tax (176) 689

Reported profit before tax 1,729 1,963

Net finance expense 831 922

Depreciation and amortisation, including

impairment charges 4,818 4,405

Share of post tax losses (profits) of

associates and joint ventures 59 –

Specific revenue (12) (5)

Specific operating costs before

depreciation and amortisation 503 292

Adjusted EBITDA 7,928 7, 577

Normalised free cash flow

Normalised free cash flow is one of the group’s key performance

indicators by which our financial performance is measured. It is

primarily a liquidity measure. However, we also believe it is an

important indicator of our overall operational performance as

it reflects the cash we generate from operations after capital

expenditure and financing costs, both of which are significant

ongoing cash outflows associated with investing in our

infrastructure and financing our operations.

Normalised free cash flow is defined as free cash flow (net cash

inflow from operating activities after net capital expenditure) after

net interest paid and payment of lease liabilities, before pension

deficit payments (including their cash tax benefit), payments

relating to spectrum, and specific items. It excludes cash flows

that are determined at a corporate level independently of ongoing

trading operations such as dividends paid, share buybacks,

acquisitions and disposals, and repayment and raising of debt,

cash flows relating to short-term funding arrangements with joint

ventures, and cash flows relating to the Building Digital UK (BDUK)

demand deposit account which have already been accounted for

within normalised free cash flow. For non-tax related items the

adjustments are made on a pre-tax basis.

Normalised free cash flow is not a measure of the funds that are

available for distribution to shareholders.

A reconciliation from cash inflow from operating activities, the

most directly comparable IFRS measure, to free cash flow and

normalised free cash flow, is set out below.

Year ended 31 March

2023

£m

2022

£m

Cash generated from operations 6,588 5,962

Tax paid 136 (52)

Net cash inflow from operating activities 6,724 5,910

Net purchase of property, plant and

equipment and intangible assets (5,307) (4,607)

Free cash flow 1,417 1,303

Interest received 41 6

Interest paid (709) (755)

Payment of lease liabilities (727) (659)

Dividends received from joint ventures,

associates and investments 9 1

Net purchase of non-current asset

investments (5) (8)

Add back pension deficit payments 994 1,121

Remove cash tax benefit of pension deficit

payments – –

Add back net cash flow from specific items 404 606

Add back refund in respect of spectrum

licence auction – (223)

Remove cash flows relating to the BDUK

demand deposit account (96) –

Normalised free cash flow 1,328 1,392

Additional information continued

235Financial statements

Reported basis

Sports JV pro forma

adjustment Sports JV pro forma basis

Year ended 31 March

2023

£m

2022

£m

2023

£m

2022

£m

2023

£m

2022

£m

Change

Adjusted revenue

Consumer 9,737 9,858 (238) (539) 9,499 9,319 2

BT Group 20,669 20,845 (238) (539) 20,431 20,306 1

Adjusted EBITDA

Consumer 2,623 2,262 71 205 2,694 2,467 9

BT Group 7,928 7,577 71 205 7,999 7,782 3

Below we reconcile normalised free cash flow by unit:

Year ended 31 March

2023

£m

2022

£m

Consumer 1,147 917

Enterprise 522 791

Global 63 131

Openreach 211 448

Other (615) (895)

Normalised free cash flow 1,328 1,392

From FY24 we are updating our normalised free cash flow metric

to reflect the ongoing evolution of the business:

– We will include the sale of cash flows of contract assets related

to mobile handsets where the performance obligations have

been substantially delivered to the customer. This is a financing

cash flow in the cash flow statement as certain performance

obligations in the contract need to be fulfilled before the

right to consideration is unconditional, but we believe that it is

appropriate to include these cash flows in our normalised free

cash flow metric because the sale of these cash flows is part of

our working capital management, as handset costs are incurred

up front but recovered throughout the customer contract

term. The corresponding operating cash inflow received from

customers will be excluded from normalised free cash flow if

it has previously been included at the time of the sale of the

contract assets.

– We will include monies received as prepayment for the forward

sale of future redundant copper. This is a financing cash flow in

the cash flow statement as certain benefits of the asset have

not yet been transferred to the buyer, but we believe that it is

appropriate to include these cash flows in our normalised free

cash flow metric because the forward sale of this asset is in line

with our operating activities and is similar in nature to cash flows

arising from the net purchase of property, plant and equipment

which are already included within normalised free cash flow.

Sports JV pro forma basis

On 3 September 2022 BT Group and Warner Bros. Discovery

announced completion of their transaction to form a 50:50 sports

joint venture (Sports JV) combining the assets of BT Sport and

Eurosport UK. On 18 October 2022 we published unaudited pro

forma financial information estimating the impact on the group as

if trading in relation to BT Sport had been equity accounted for in

previous periods, akin to the Sports JV being in place historically.

Within this Annual Report we reference pro forma information

relating to the years ended 31 March 2023 and 2022. The table

below provides a bridge between financial information on a

reported basis and a Sports JV pro forma basis.

236 BT Group plc Annual Report 2023

Cautionary statement regarding

forward-looking statements

Certain information included in this Annual Report and Accounts is

forward looking and involves risks, assumptions and uncertainties

that could cause actual results to differ materially from those

expressed or implied by forward looking statements. Forward

looking statements cover all matters which are not historical facts

and include, without limitation, projections relating to results of

operations and financial conditions and the Company’s plans and

objectives for future operations. Forward looking statements can be

identified by the use of forward looking terminology, including terms

such as ‘believes’, ‘estimates’, ‘anticipates’, ‘expects’, ‘forecasts’,

‘intends’, ‘plans’, ‘projects’, ‘goal’, ‘target’, ‘aim’, ‘may’, ‘will’,

‘would’, ‘could’ or ‘should’ or, in each case, their negative or other

variations or comparable terminology. Forward looking statements

in this Annual Report and Accounts are not guarantees of future

performance. All forward looking statements in this Annual Report

and Accounts are based upon information known to the Company

on the date of this Annual Report and Accounts. Accordingly, no

assurance can be given that any particular expectation will be met

and readers are cautioned not to place undue reliance on forward

looking statements, which speak only at their respective dates.

Additionally, forward looking statements regarding past trends or

activities should not be taken as a representation that such trends

or activities will continue in the future. Other than in accordance

with its legal or regulatory obligations (including under the UK

Listing Rules and the Disclosure Guidance and Transparency Rules

of the Financial Conduct Authority), the Company undertakes

no obligation to publicly update or revise any forward looking

statement, whether as a result of new information, future events

or otherwise. Nothing in this Annual Report and Accounts shall

exclude any liability under applicable laws that cannot be excluded

in accordance with such laws.

Please recycle

BT Group plc

Registered office:

1 Braham Street, London E1 8EE

Registered in England and Wales

No. 4190816

Produced by BT Group

PHME 87984

Printed in England by Pureprint Group

Design by emperor.works

Printed on Revive 50 Silk which is made

from 50% de-inked, post-consumer

waste and 50% virgin fibre

bt.com

We’re committed to taking

action on sustainability.

This annual report contains important

information on our financial and operating

performance which can also be found online.

To do your bit for sustainability, switch your

shareholder communications to digital.

Scan to switch