2015BT Group plc Annual Report & Form 20-F 2015Investing for the future building on a history of1961 1984 1938 1915 1892 1869 1846PC_FRONT.indb 3 5/15/2015 1:46:39 AMOur history of innovationln Lhis year's Annual PeporL we are celebraLing our rich heriLage of innovaLion. lnnovaLion is key Lo our brand, ourculLure and an essenLial ingredienL for our fuLure.0n pages JJ Lo J8 you will see examples of Lhe innovaLive Lhings 8T has done and our vision of Lhe Lhings we will do in Lhe fuLure. lL is 30 years since 8T shares foaLed on Lhe sLock markeL, so we have focused in parLicular on our conLribuLion since Lhen. 8uL Lhe breakLhroughs go back furLher Lhan LhaL. ln facL, Lhey daLe back Lo J845, when we were founded as Lhe ElecLric Telegraph Company - Lhe world's frsL LelecommunicaLions company.we feel sLrongly abouL innovaLion because iL's one of Lhe mosL imporLanL Lhings enabling us Lo do more for all Lhose who rely on us. wheLher iL's fasLer broadband, fnding ways Lo do Lhings beLLer or esLablishing ourselves as a challenger in Lhe pay-Tv markeL, our lisL ofbreakLhroughs keeps growing. we aim Lo keep iL LhaL way.ThroughouL Lhis Annual PeporL you will see Lhis symbol. lL will show you examples of Lhe innovaLive Lhings we are doing.1984>2013 2014>15 2015>Our current innovationsInventing a smarter futurelnnovaLion has been aL Lhe hearL of 8T since iLs formaLion in J845 and since iLs sLock markeL foLaLion in J984. we consLanLly search for new ways Lo improve our neLworks and services, soLhaLour people can help oLhers Lo realisenewpossibiliLies.Coming up wiLh new ideas and developing new Lechnologies is in our 0hA. we highlighL a few of Lhe areas we are focused on for Lhe fuLure and how Lhey're designed Lo push Lechnology furLher Lhan before. All inLended Lo improve people's lives in welcome, relevanL and aordable ways.Leading Lhe way in developing innovaLive producLs and services for our cusLomers is a big prioriLy for us. we showcase a number of currenL pro|ecLs wiLh Lhe poLenLial Lo make life easier for Lhose we serve.30 years since privatisationRead more on page 12Read more on page 14Read more on page 18PC_FRONT.indb 4 5/15/2015 1:46:42 AMThis is Lhe 8T Annual PeporL for Lhe year ended 3J March 20J5. lLcomplies wiLh uK regulaLions and comprises parL of Lhe Annual PeporL and Form 20-F for Lhe uS SecuriLies and Exchange Commission Lo meeL uS regulaLions.This is our frsL inLegraLed Annual PeporL. we wanL Lo communicaLe our sLory in a more compelling way. we see lnLegraLed PeporLing (lP} as Lhe besL way Lo do LhaL. So Lhis year, for Lhe frsL Lime, we are refecLing Lhis approach in how we sLrucLure and presenL our Annual PeporL. lnLegraLed PeporLing is an iniLiaLive led by Lhe lnLernaLional lnLegraLed PeporLing Council (llPC}. while lP is markeL-led, iLs principles and aims are consisLenL wiLh uK regulaLory developmenLs in fnancial and corporaLe reporLing.ln 0ecember 20J3, Lhe llPC issued Lhe lP Framework Lo esLablish guiding principles and content elements for inLegraLed reporLs. wehave Laken Lhese principles and elemenLs inLo accounL in preparing our Annual PeporL. This is mosL obvious in Lhe revised represenLaLion of our business model and Lhe new secLion describing our main sLakeholders. we no longer reporL simple 'ouLpuLs', we consider 'ouLcomes' or Lhe impacL LhaL we have as a business. And we use a seL of six icons LhroughouL Lhis Annual PeporL Lo provide linkage Lo Lhe business model.8uL Lhis is |usL Lhe sLarL. we recognise LhaL our move Loward 'full' lP willconLinue Lo evolve. Find ouL more: www.Lheiirc.orgWelcome to BT Group plcsAnnual Report & Form 20-F 2015Contents2Chairman's inLroducLion3OverviewThe Strategic ReportPurpose and strategy20Chief ExecuLive's inLroducLion21Our purpose21Our goal21Our strategyDelivering our strategy250peraLing CommiLLee280ur business model30Financial sLrengLh300ur people330ur neLworks and physical asseLs34Pesearch and developmenL348rand and repuLaLion35SLakeholders and relaLionships40haLural resources4J0ur risks51EE acquisiLion: risksOur lines of businessGroup performance78Croup Finance 0irecLor's inLroducLion80Croup performance900elivering socieLal and environmenLal benefLsGovernance94Chairman's governance reporL95Fow we govern Lhe group958oard of 0irecLors98The 8oardJ0JPeporLs of Lhe 8oard commiLLeesJ300irecLors' informaLionJ3JCeneral informaLionJ35Shareholders and Annual Ceneral MeeLingFinancial statementsJ38AudiLors' reporLs - consolidaLedfnancialsLaLemenLsJ44ConsolidaLed fnancial sLaLemenLsJ49hoLes Lo Lhe consolidaLed fnancial sLaLemenLsJ95AudiLors' reporL - parenL company fnancialsLaLemenLsJ95Financial sLaLemenLs of 8T Croup plcJ99Subsidiary underLakingsAdditional information202AlLernaLive performance measures205SelecLed fnancial daLa207Financial and operaLional sLaLisLics209lnformaLion for shareholders225Cross reference Lo Form 20-F230Clossary of LermsThroughouL Lhe reporL look ouL for LheseReference to other pages within the report1Reference to video .nt-ntn'|n-Reference to further |--.|nn'|n-Our business model |.nu.'- Online Annual Reportwww.bL.com}annualreporL0elivering our purpose updaLewww.bL.com}deliveringourpurposePlease see the cautionary statement regarding forward-looking statementson page 209.The Purpose and strategy, Delivering our strategy, Our lines of business and Group performance sections on pages 19 to 92 form the Strategic Report. '-Cv-|n-n.- -.t|n n ,-- ': t 1:o |m t'- |-,|t t'- |||-.t|.PC_FRONT.indb 1 5/15/2015 1:46:46 AMBT Group plc Annual Report 20152we have performed well Lhis year, wiLh our invesLmenLs delivering forLhe business in challenging markeL condiLions. we have announced a number of furLher ma|or invesLmenLs Lo supporL Lhe long-Lerm value ofour business.Investing for growth0ur mosL signifcanL invesLmenL has been in superfasL broadband. ln 2008, when Lhe uK was in Lhe middle of a recession, Lhe 8oard approved bold plans Lo Lake fbre broadband Lo 40% of Lhe counLry.we Lhen increased Lhis LargeL Lo Lwo-Lhirds of Lhe uK, a goal we hiLa year ago. Today our neLwork covers more Lhan Lhree-quarLers of Lhe uK. This includes premises in rural and hard-Lo-reach areas LhaL we have been able Lo geL Lo wiLh Lhe help of public funding following compeLiLive Lenders as parL of Lhe CovernmenL's 8roadband 0elivery uK programme. 0ur fbre broadband invesLmenL has been a ma|or achievemenL. lL has been one of Lhe fasLesL rollouLs in Lhe world. we have come in on budgeL and ahead of schedule. And demand for iL is sLrong. The number of premises connecLed rose over 50% Lhis year.we have been able Lo make Lhis invesLmenL by exercising sLrong fnancial discipline. 0ur cash fow is almosL four Limes higher Lhan iL waswhen we sLarLed building our fbre neLwork as we have signifcanLly Lransformed our cosL base, giving us Lhe oxygen Lo invesL for growLh. 8eing parL of a larger group gave 0penreach Lhe confdence in fuLure demand Lo make Lhis long-Lerm invesLmenL. Thanks Lo 0penreach, fbre broadband availabiliLy is ahead of all Lhe ma|or European counLries. And broadband pricing in Lhe uK is amongsL Lhe lowesL wiLh more Lhan 500 providers selling services in a highly compeLiLive markeL.we will conLinue Lo work wiLh governmenL Lo help Lake fbre coverage Lo 95% of Lhe uK. 8uL we are noL sLopping Lhere. we announced Lhis year anoLher ma|or invesLmenL Lo make ulLrafasL speeds of up Lo 500Mbps available Lo mosL of Lhe uK wiLhin a decade, wiLh JCbps available Lo Lhose who wanL even fasLer speeds. This will be anoLher signifcanL invesLmenL for 8T, ensuring LhaL Lhe uK remains aL Lhe forefronL of digiLal communicaLions wiLh a vibranL inLerneL economy.This year we successfully launched 8T Mobile inLo Lhe consumer markeL and re-launched our business mobile proposiLions. we also announced Lhe proposed acquisiLion of EE, Lhe leading mobile operaLor in Lhe uK. This will be a LransformaLional deal for 8T, acceleraLing our mobiliLy sLraLegy. we will combine Lhe uK's mosL advanced 4C neLwork wiLh Lhe uK's mosL exLensive superfasL broadband neLwork, allowing us Lo provide a full range of innovaLive communicaLions services.we have secured some greaL conLenL for our 8T SporL channels. we exLended and improved our FA remier League and Aviva remiership Pugby broadcasL righLs. And we will sLarL Lo show our exclusive uEFA Champions League and uEFA Europa League conLenL from Lhis summer. we will make sure 8T SporL remains greaL value and widely available Lo uK households.we have invesLed furLher in our cusLomer service. we recruiLed 2,500 new engineers and more Lhan 500 new people inLo our conLacL cenLres. And we are seeing Lhe benefLs of our invesLmenL. we have increased Lhe speed of service delivery and repaired faulLs fasLer. 8uL we didn'L meeL our cusLomer percepLion LargeLs, and in a compeLiLive markeL we need Lo do more. This remains an absoluLe prioriLy for 8T and one where we are commiLLed Lo invesL and improve furLher.Building our global presenceA signifcanL proporLion of our revenue is generaLed ouLside Lhe uK, mainly from large mulLinaLional businesses. 8T Clobal Services has again consolidaLed iLs posiLion as a global leader for managed neLworked lT services. To besL serve our cusLomers iL is criLical LhaL we have fair access Lo neLworks across Lhe world. 0Lher operaLors can use our neLworks in Lhe uK on favourable Lerms. YeL in Lhe uS and some European counLries incumbenLs are allowed a disLincL advanLage in Lheir home markeLs.we have Lherefore conLinued Lo work wiLh governmenLs around Lhe world, and are encouraged by progress over Lhe lasL year. ln Europe, compleLing Lhe 0igiLal Single MarkeL is a key policy prioriLy of Lhe new European Commission. And in Lhe uS, Lhe Federal CommunicaLions Commission is making progress on iLs review of Lhe wholesale access markeL. we have conLinued Lo engage Loo on Lhe Eu-uS LransaLlanLic Lrade Lalks seeking furLher improvemenLs in LransaLlanLic economic inLegraLion and in regulaLory coherence.Rewarding our peopleAs well as our neLworks and asseLs, we are also invesLing in our people Lo make sure Lhey have Lhe skills and supporL Lhey need Lo besL serve our cusLomers. 0ur performance in Lhe year refecLs Lheir experLise, hard work and commiLmenL. l am delighLed LhaL in AugusL 20J4, over 22,000 people in our 2009 savings-relaLed share opLion plan were able Lo buy shares aL 5Jp, represenLing an average gain of around 4J,000 each. 0ur people also give back in oLher ways. TwenLy-six per cenL of Lhem volunLeered 53,000 days of Lheir Lime Lo help more Lhan 3,700 chariLies and communiLy groups across Lhe globe.Strengthening the Boardl am delighLed Lo welcome lsabel Fudson who |oined Lhe 8oard onJ hovember 20J4. lsabel is Chair of Lhe haLional Fouse 8uilding Council and was previously a non-execuLive direcLor of The ensions PegulaLor. Fer insighL and experience in Lhe regulaLory, pensions and fnancial indusLries will be a sLrong asseL for 8T and Lhe 8oard. As l menLioned lasL year, lain Conn |oined Lhe 8oard on J 1une 20J4. lain is chief execuLive of CenLrica and brings a wealLh of experience, making a sLrong conLribuLion Lo Lhe 8oard discussions Lhis year. we announced in April LhaL warren EasL will be sLepping down from Lhe 8oard on 3J May 20J5 in lighL of his appoinLmenL as chief execuLive of Polls-Poyce. warren has made an immense conLribuLion during his Lime aL 8T and lcongraLulaLe him on Lhis imporLanL appoinLmenL.Generating value for shareholdersAs a resulL of our progress Lhis year, Lhe 8oard is proposing a fnal dividend of 8.5p, up J3%. This gives a full year dividend of J2.4p, up J4%. we expecL Lo grow our dividend per share by J0%-J5% nexLyear and Lo pay a progressive dividend beyond LhaL.0ur goal is Lo deliver susLainable, profLable revenue growLh supporLed by Lhe invesLmenLs we are making. TogeLher wiLh our cosL LransformaLion acLiviLies Lhis will provide a powerful plaLform for long-Lerm cash fow growLh, and Lherefore value creaLion forour shareholders.Sir Michael RakeChairman5 May 20J5Chairmans introduction w- -|- .nt|nu|n t m-- |n|r.-nt |nv-tm-nt, | t'- 'nt-|m |-n-rt both BT and the UK.PC_FRONT.indb 2 5/15/2015 1:46:47 AM3OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationOverviewwelcome Lo 8T's frsL inLegraLed Annual PeporL, which we have summarised in Lhe nexL seven pages. Fere we ouLline our purpose, our sLraLegy and our business model. You can see how each of our lines of business performed Lhis year. And how we did as a group. we will also show you where you can fnd more deLails in Lhe main parL of our inLegraLed reporL.4 0ur purpose 4 who we are and whaL we do 5Our goal and strategy 5Our business model 5Key performance indicaLors 50ur performance for Lhe year 7Financial highlighLs 8 Fow our lines of business performedWho we arewe are one of Lhe world's leading communicaLions services companies. Our business model0ur full business model, showing all Lhe inpuLs, outputs and outcomes is on pageOur lines of businessFor each line of business we provide a summary of whaL Lhey do and how Lhey did in Lhe year -boLh operaLionally and fnancially. 3OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional information28PC_FRONT.indb 3 5/15/2015 1:46:48 AMBT Group plc Annual Report 20154Our purpose0ur purpose is Lo use Lhe power of communicaLions Lo make a beLLer world. 8y bringing LogeLher our neLworks, ourLechnology and Lhe hard work and experLise of our people, we develop services LhaL our cusLomers value.We use the power of communications tomake a better worldWe are improving our business. 0u|,-,'-, t-.'n'y -n. n-t.|-t u -,-|tWe make a major contributionto society, businesses-n..mmun|t|-w- '-v- t'- rn-n.|-' t|-nt' to invest for the future while |-.-|.|n u|t--''.-|Who we are and what we doEvery day we touch the lives of millions of peopIe, heIp|ngthem commun|cate, dobus|ness and beenterta|ned and|nformedIn the UK we are delivering one of thefastest roIIouts of bre broadband |ntheworIdWe are the leading provider ofvoice and broadband services tobkSMEsandconsumersWe are one of the worldsleading communications serv|cescompan|esWe are Europes largest telecoms services whoIesaIer byrevenueWe provide managed networked IT services for many of the largest global companiesPC_FRONT.indb 4 5/15/2015 1:46:54 AM5OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationOur goal and strategy0ur goal is Lo deliver susLainable, profLable revenue growLh. The Lhree pillars of our sLraLegy will help us achieve Lhis goal: delivering superior cusLomer service; Lransforming our cosLs; and invesLing for growLh. The beLLer our cusLomer service, Lhe more we will sell and Lhe less Lime and money we need Lo spend puLLing Lhings righL. And Lhe beLLer we manage our cosLs, LhebeLLer value for money we can oer our cusLomers and Lhe more wecan invesL in giving cusLomers whaL Lhey need, Loday and Lomorrow.we are invesLing in fve sLraLegic growLh areas: fbre; Tv and conLenL; mobiliLy and fuLure voice services; uK business markeLs; and supporLing leading global companies. 8y invesLing in Lhese areas, we aim Lo broaden and deepen our relaLionships wiLh consumers, businesses and public secLor clienLs, increasing our relevance Lo Lhem as markeLs and Lechnologies evolve.reviously, we had Lo depend on cosL LransformaLion Lo grow our cash fow. ln Lhe years ahead, revenue growLh, LogeLher wiLh conLinued LransformaLion of our cosLs, will provide a powerful plaLform for long-Lerm and susLainable cash fow growLh. This will creaLe value for our shareholders, as well as for our oLher sLakeholders.Our business model0ur business model creaLes value for shareholders, by delivering for cusLomers, socieLy and our people.0ur people, Lechnology, neLworks and fnancial sLrengLh are key Lo our business. we invesL Lo build and mainLain communicaLions neLworks in Lhe uK and overseas. we develop producLs and services LhaL run over Lhose neLworks - Lhese are our key ouLpuLs; and Lhen we sell Lhem on asubscripLion basis Lo consumers, businesses and LhepublicsecLor. 8y selling services we are able Lo make a reLurn on our neLwork invesLmenLs. 8uL Lhe ouLcomes of our business are more Lhan |usL fnancial. whaL we do maLLers. we make connecLions, creaLe new possibiliLies and deliver value Lo individuals, families, businesses, governmenLs, communiLies, and socieLy in general. And we conLribuLe direcLly Lo Lhe healLh of Lhe uK by providing |obs and paying Lax.we make sure we sLay in Lune wiLh markeL and compeLiLive Lrends, soLhaL we make Lhe righL invesLmenLs and creaLe producLs and services LhaL cusLomers wanL Lo buy. 8eing able Lo anLicipaLe and respond Lo changes in our environmenL makes for a fexible and susLainable business model. we see more and more demand for our services becauseLhey play such an inLegral role in modern life. So we are confdenL LhaLwe will be able Lo deliver value Loday and in Lhe fuLure.Find out moreOur business model inputson page28 Our business model outputsc ut.m-n ,--28 Our Governanceon page93 Our Riskson page41 GovernanceRisks|-'|v-|u,-|||customer serviceBroaden and deepen our customer relationships/ |.|n |: t .-'|v-| ut-|n-|'- ,|rt-|'- |-v-nu- |.t'To use the power of communications to make a better world A healthy organisationFibreCustomerwe are here for our customersTV and contentTeamwe help each oLher achievemoreUK business marketsChangewe all make change happenMobility-n. utu|- voiceHonestywe are honesL andrespecLful Leading global companiesPridewe are proud Lo make a dierenceInvest forgrowthTransformour costsOur strategyOur cultureOur valuesOur goalOur purposeExternal environmentOutputs & OutcomesInputs Value creationPC_FRONT.indb 5 5/15/2015 1:46:55 AMBT Group plc Annual Report 20156m2012 2013 2011 2014 2015hormaI|sed free cash owYear ended 31 March1,9002,1002,3002,5002,7002,9002,3072,0762,4502,8302,3001051520%2011 2010 2012 2013 2014 2015 2015Customer service improvementAt 31 March03.010.53.0(4.0)4.718.71.5bKey performance indicatorswe measure our progress using four key performance indicaLors (Kls}.0ur key measure of Lhe group's revenue Lrend, underlying revenue excluding LransiL, was down 0.4%, in line wiLh our ouLlook of broadly faL. 8T Consumer revenue was up 7%, helped by sLrong growLh in our fbre broadband and Tv cusLomer bases. This was oseL by declines in ouroLher lines of business, in parL due Lo regulaLory pricing pressures.we grew ad|usLed earnings per share by J2%. hormalised free cash fow of 2,830m was up J5% and ahead of our ouLlook for Lhe year of above 2.5bn. 0ur conLinued focus on cosL LransformaLion, capiLal expendiLure emciencies and debL reducLion helped us achieve Lhese.Finally, we have improved our cusLomer service, alLhough we wanL Lo achieve more. 'PighL FirsL Time' (PFT} is our key measure of cusLomer service and is up 4.7% compared wiLh a J.5% increase lasL year. All lines of business conLribuLed Lo Lhis improvemenL. we delivered signifcanLly beLLer repair performance and shorLer lead Limes for providing uK lines and broadband. 8T Clobal Services made large gains in delivering more of iLs producLs wiLhin LargeL Limes. Looking ahead, weneed Lo improve our provision of ELherneL services and recover more quickly when we do fail Lo meeL our promises.Our performance for the yearThis year, we delivered on our core business in globally challenging markeLs, achieving or beaLing Lhe ouLlook we seL aL Lhe sLarL of Lhe year. 8T Consumer launched greaL value mobile proposiLions and we have seL ouL our plans Lo deliver ulLrafasL broadband wiLh C.fasL Lo mosL of Lhe uK. For our business cusLomers, we launched a number of innovaLive soluLions, including 8T Assure ThreaL 0efence in 8T Clobal Services and cloud-based voice services in 8T 8usiness and 8T wholesale. we have made furLher progress in Lransforming our cosLs. 0espiLe conLinuing Lo insource |obs, neL labour cosLs were down 8% as we increased producLiviLy while reallocaLing our labour resource Lo be more emcienL. we reorganised our business and sLreamlined our processes. underlying operaLing cosLs excluding LransiL were down 2%, conLribuLing Lo E8lT0A growing 3%.0ur sLrong fnancial discipline has helped us fund invesLmenLs in our fve sLraLegic growLh areas. we announced Lhe proposed acquisiLion of EE for J2.5bn, secured exclusive righLs Lo FA remier League fooLball maLches for a furLher Lhree years and exLended our Aviva remiership Pugby righLs. As well as growing our E8lT0A and free cash fow we have reduced our neL debL and made furLher signifcanL conLribuLions Lo Lhe 8T ension Scheme. 0ur proposed full year dividend Lo shareholders is J2.4p, upJ4%. %2012 2013 2011 2014 2015Trend in underlying revenue excluding transitYear ended 31 March(3.5)(3.0)(2.5)(2.0)(1.5)(1.0)(0.5)0.00.51.0(1.9)(3.0)0.5(0.4)(3.1)0uLlookaResult8roadly level 0own 0.4%0uLlookaResultAbove 2.5bn 2.83bnpence2012 2013 2011 2014 2015Adjusted earnings per shareYear ended 31 March23.420.728.226.30510152025353031.5Target Resultup aL leasL 3.5% up 4.7%b Cumulative improvement in RFT from 1 April 2009.a Financial outlook which was given at the start of the year.a Financial outlook which was given at the start of the year.Find out moreOur KPIson page80 0u| rn-n.|-' ,-||m-n.- from page77 PC_FRONT.indb 6 5/15/2015 1:46:56 AM7OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationFinancial highlightsa |t-m ,|--nt-. - -.,ut-. -|- t-t-. |-|- ,-.|r. |t-m. '-- ,-- 22 | u|t'-| .-t-|'.b Before depreciation and amortisation.c '-- .-rn|t|n n ,-- 2: -n. umm-||-. .-' n. t-t-m-nt n ,-- o.d |n.'u.- t'- |m,-.t t1.|n -,u|ty ,'-.|n. '-- ,-- o.2o.2p10.9p:1.p12.p12%^1%^20J420J4ChangeChangeAdjusted earnings per shareaYear ended 3J MarchProposed full year dividendYear ended 3J March20152015RevenueYear ended 31 March2014 2013 201517,00017,50018,00018,500mreported 1%0% adjusteda2%2%2015 201418,10318,33918,28718,28717,97917,851Operating costsbYear ended 31 March2014 2013 201511,00011,50012,00012,500mreported 1%0% adjusteda2015 201412,31212,19612,44712,17111,96111,5804%5%Free cash owYear ended 31 March2014 2013 20152,0002,1002,3002,5002,7002,8002,6002,4002,2002,900mreported 5% 28%16% normalised 7%2015 20142,2922,3002,7822,8302,1712,450crevenueby line of business38%BT GlobalServices11% Openreach28%Openreach(including internal)12% BT Wholesale24% BT Consumer15%BT BusinessYear ended 31 March 2015See page 54 for commentary on relative contributions by each line of businessAdjusted EBITDAby line of business 17%BT GlobalServices17%BTBusiness16%BT Consumer41%Openreach9%BT WholesaleYear ended 31 March 2015Adjusteda aEBITDAYear ended 31 March2014 2013 20155,6005,8006,0006,2006,400mreported 1% 3%3% adjusteda0%2015 20145,7916,1435,8406,1166,0186,271Net debtAt 31 March2014 2013 201502,0004,0006,0008,000m7,7977,0285,119dPC_FRONT.indb 7 5/15/2015 1:46:56 AMBT Group plc Annual Report 20158BT Business 12-month rolling order intakeYear ended 31 MarchQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q42014 2015m1,8001,9002,0002,1002,2002,300How our lines of business performedBT Global Serviceswe have consolidaLed our posiLion as a global markeL leader for managed neLworked lT services. we help around 5,500 large corporaLe and public secLor cusLomers, in more Lhan J70 counLries worldwide, Lo embrace Lhe digiLal age, innovaLe and work moreemcienLly. we deliver value Lo our cusLomers by combining our producLs and services wiLh indusLry-specifc soluLions and consulLing experLise. we operaLe globally and deliver locally, Lo help our cusLomers make connecLions and creaLe new possibiliLies.we puL our cusLomers aL Lhe hearL of our decision-making and have made progress in improving cusLomer service. 8y increasing Lhe speed of delivery of our main producLs, we improved our PighL FirsL Time measure by 8.5%. we have enhanced our global capabiliLies by exLending Lhe reach and feaLures of our services. And we launched new soluLions including securiLy, cloud-based and unifed communicaLions services. we grew underlying revenue excluding LransiL in Lhe high-growLh regions and ConLinenLal Europe. 8uL lower public secLor revenue resulLed in overall revenue declining. we focused on Lransforming our cosL base, for insLance, simplifying our organisaLional sLrucLure in SwiLzerland and EasLern Europe and improving Lhe process for ceasing access circuiLs which we no longer need. This meanL we grew E8lT0A, despiLe Lhe decline in revenue. 0ur operaLing cash infow of 349m was lower Lhan we achieved lasL year, when we had benefLed from some early cusLomer receipLs. 8uL our E8lT0A less capiLal expendiLure measure has conLinued Lo grow. we achieved an order inLake of 5.5bn, down 7% refecLing large re-signs lasL year.BT Business 8T 8usiness provides communicaLions and lT services in Lhe uK and Pepublic of lreland. we serve around 900,000 cusLomers.we are focused on serving small and medium-sized enLerprises (SMEs} in Lhree main markeLs: fxed-voice and daLa; mobiliLy; and lT services. we have a markeL share of around 30% in fxed-voice and daLa buL |usL J% in mobiliLy and 5% in lT services. we expecL Lhese markeLs Lo increasingly converge over Lhe nexL few years as Lechnology and cusLomer needs change. And as Lhey do, we see an opporLuniLy Lo grow our share of Lhe mobiliLy and lT services markeLs.To help achieve Lhis, we launched a number of new producLs in Lhe year including 8T 0ne hone, 8T Cloud voice and 8T Cloud hone. werelaunched 8T 8usiness Mobile, adding 4C access and unlimiLed wi-f for all new and re-signing cusLomers. 0ur proposed acquisiLion ofEE will leL us acceleraLe Lhe sale of converged fxed-mobile services Lo our exisLing business cusLomers as well as oer new services.we have invesLed in improving our cusLomer service. we provided 35,000 hours of Lraining Lo improve Lhe skills of our service Leams. we have moved more cusLomers onLo our new uK 8usiness SoluLion sysLem, which makes iL easier Lo serve cusLomers wiLh mulLiple producLs. And we have improved our online 'self-service' capabiliLies. These all conLribuLed Lo our PighL FirsL Time measure improving 5.J%.underlying revenue excluding LransiL was down J% due Lo lower line and call volumes. 8uL we have increased E8lT0A for Lhe Lhird year running Lhrough our cosL LransformaLion acLiviLies, including a J0% reducLion in our LoLal labour resource, Lhe merger of Lwo of our lT services uniLs and by renegoLiaLing supplier conLracLs. 0ur order inLakewas broadly level for Lhe year aL 2.Jbn. BT Global Services 12-month rolling EBITDA less capital expenditure0100200300400500600Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42014 2015mYear ended 31 MarchPC_FRONT.indb 8 5/15/2015 1:47:00 AM9OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationBT Wholesale 12-month rolling order intakeYear ended 31 MarchQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q42014 2015m05001,0001,5002,0002,500BTs retail broadband market shareAt 31 March2025303540%37%30%36%29%39%38%31%32%40%32%Source: BT and market data.MarkeL share of broadband lines (0SL+fbre+cable}MarkeL share of broadband lines (0SL+fbre}2013 2011 2012 2014 2015BT Consumerwe are Lhe largesL provider of consumer fxed-voice and broadband services in Lhe uK. we are focused on Lop and boLLom-line growLh Lhrough selling broadband, Tv, exclusive sporLs channels and mobile services Lo ourcusLomers.we grew our share of Lhe 0SL and fbre broadband markeL for Lhe sixLh year in a row and we have added Lhe mosL broadband cusLomers of any operaLor for six quarLers running. CusLomers conLinue Lo wanL fasLer broadband. 39% of our reLail broadband cusLomers are now on fbre. we also sell services Lhrough our lusneL brand. lusneL has won numerous awards for cusLomer service and value, and helps us address more price-conscious cusLomers.As well as driving Lake-up of broadband, we have invesLed in our Tv service. we launched Tv Everywhere, which means cusLomers can waLch Tv channels on mulLiple devices, and inLroduced heLfix and a range of new packages. And we are very pleased wiLh Lhe games LhaL we won in Lhe aucLion for Lhe 20J5}J7 Lo 20J8}J9 FA remier League broadcasL righLs. we will be showing 42 remier League maLches each season. ThaL is four more Lhan we currenLly show, including a live SaLurday evening game almosL every remier League weekend.we re-enLered Lhe consumer mobile markeL Lhis year. All our mobile plans come wiLh 4C, unlimiLed LexLs, unlimiLed access Lo 8T wi-f hoLspoLs in Lhe uK and Lo Lhe 8T SporL app, aL no exLra cosL. 0ur planned acquisiLion of EE will mean we can provide a full range of innovaLive communicaLions services Lo boLh EE and 8T cusLomers.we hired hundreds of new conLacL cenLre sLa. we were able Lo resolve 20% more cusLomer issues in a single call. 0ur PighL FirsL Time measure improved J.9%. 0ur revenue grew 7% Lhis year, refecLing Lhe growLh in our broadband and 8T SporL cusLomer bases. E8lT0A was up 24%.BT Wholesale8T wholesale provides services in CreaL 8riLain Lo more Lhan J,400 communicaLions providers (Cs}. we help Lhem achieve Lheir goals by oering Lhem innovaLive, reliable and cosL-eecLive producLs and services LhaL complemenL Lheir own capabiliLies. This means LhaL we can share in Lheir success.The markeL for wholesale services is shrinking as some Cs are building more of Lheir own neLwork infrasLrucLure. lL is also highly compeLiLive. 8uL Lhe markeL for nexL-generaLion services, including ELherneL, isexpanding. we have soughL Lo sLand ouL from Lhe compeLiLion by providing new services and a beLLer cusLomer experience. we have exLended our FosLed CommunicaLions Services porLfolio and expanded our ELherneL neLwork. And we launched 8usiness Zone - a self-service porLal Lhrough which Cs can manage Lheir orders and any faulLs.we improved our billing and repair processes, so we can answer calls and queries more quickly. we moved our service colleagues inLo fewer service cenLres, wiLh a view Lo increasing Lhe level of experLise available Lo each caller. 0verall, we increased cusLomer saLisfacLion signifcanLly. And our PighL FirsL Time performance was up 4.4%. 8uLour service performance on ELherneL was mixed and iL Look us longer Lo provide wholesale ELherneL Lhan we would have liked.underlying revenue excluding LransiL fell 7%. This refecLed a large conLracL LerminaLion, regulaLory price changes following 0fcom's 20J3 harrowband MarkeL Peview and a generally Lougher Lrading environmenL. we reduced our selling and general adminisLraLion cosLs by 20%. 8uL Lhis was noL enough Lo oseL Lhe decline in revenue and E8lT0A fell 9%. 0ur order inLake was J.9bn, Lhe same as lasLyear.PC_FRONT.indb 9 5/15/2015 1:47:03 AMBT Group plc Annual Report 201510BT Technology, Service & Operations (BT TSO) 8T TS0 is our inLernal service uniL. lL is responsible for delivering and operaLing our neLworks, plaLforms and lTsysLems.8T TS0 works closely wiLh each of our cusLomer-facing lines of business. wecreaLe new producLs for Lhem and make sure LhaL our exisLing services evolve Lo meeL Lhe changing needs of Lheir cusLomers.This year we upgraded our core l neLwork Lo handle record volumes of daLa Lramc in Lhe uK. 0ur lT reliabiliLy has improved for Lhe fourLh consecuLive year and Lhe operaLional reliabiliLy of our core voice and broadband neLwork plaLforms has hiL a fve-year high.we are also responsible for managing Lhe group's energy consumpLion and for puLLing sLraLegies in place Lo cuL Lhe group's carbon fooLprinL. we have reduced energy usage for six consecuLive yearsa.8T TS0 manages mosL of our research and developmenL and is also responsible for our worldwide paLenL porLfolio of over 4,500 paLenLs and applicaLions.8T has a long hisLory of innovaLion and has pioneered many of Lhe Lechnologies LhaL our business was builL upon. ln J925 we held Lhe world's frsL Lwo-way, Lrans-ALlanLic conversaLion by radio Lelephone from our wireless sLaLion near Pugby. And in J943, Tommy Flowers, working in Lhe LelecommunicaLions division of Lhe Ceneral osL 0mce (as we were aL Lhe Lime}, developed Lhe world's frsL programmable elecLronic compuLer, Colossus. ln J958, we insLalled Lhe world's frsL digiLal Lelephone exchange. And we laid Lhe world's frsL, purpose-designed opLical fbre submarine cable in Loch Fyne, ScoLland in J980.a w- '-v- |-t-t-. u| .|'..|.- -n-|y .num,t|n -n. C|C -m||n ru|- | ,|-v|u years following improvements to our data. Previous estimates of energy usage have been u,.-t-. .|t' m--u|-. ru|-.Openreach0penreach provides Lhe viLal infrasLrucLure LhaL is Lhe foundaLion of Lhe uK's vibranL inLerneL economy.we are responsible for providing services over Lhe local loop or local access neLwork, someLimes referred Lo as 'Lhe lasL mile'. This consisLs of Lhe copper and fbre connecLions beLween our exchanges and homes andbusinesses.we have now passed more Lhan 22m premises wiLh our superfasL fbre broadband neLwork. ThaL is more Lhan Lhree-quarLers of Lhe uK. we achieved J.5m fbre broadband neL connecLions in Lhe year. This means LhaL around 4.2m homes and businesses in Lhe uK are now connecLed - J9%of Lhose passed.ln 1anuary 20J5 we seL ouL our ulLrafasL broadband vision for Lhe uK. using C.fasL Lechnology, we expecL Lo oer iniLial speeds of a few hundred megabiLs per second Lo millions of homes and businesses by 2020. As furLher indusLry sLandards are secured, we expecL speeds Lo increase Lo up Lo 500Mbps Lo mosL of Lhe uK wiLhin a decade.The number of physical lines increased by 2J5,000 in Lhe year. Thenumber of copper and fbre broadband users on our neLwork rose by 85J,000.we achieved Lhe minimum service levels seL by 0fcom, exceeding all 50 measures, Lhough our ambiLion and plans are Lo furLher improve cusLomer service. To help us do Lhis, we hired more Lhan 2,500 new engineers. 0ur PighL FirsL Time measure was up 3.5%, exceeding ourLargeL.Pevenue declined J%, wiLh regulaLory price reducLions oseLLing Lhe impacL of fbre revenue growLh. 0ur operaLing cosLs were 2% lower which meanL E8lT0A was faL. CosL emciencies oseL increased volumes, pay increases and Lhe addiLional engineering resource we recruiLed Lo supporL our provision and repair performance.Premises passed (LHS) Take-up (RHS)0510152025 20%16%12%8%4%0%m0penreach bre prem|ses passed and take-upYear ended 31 March2013 2011 2012 2014 2015Gwh2012 2013 2011 2014 2015BTs worldwide energy useaYear ended 31 March2,0002,1002,2002,3002,4002,5002,6002,7002,8002,7562,6752,6002,5152,402Tommy FlowersPC_FRONT.indb 10 5/15/2015 1:47:04 AM11Adastral Park 8T's research and developmenL campus, oneof Lhe world's leading cenLres of Lechnology and LelecommunicaLions.111961 1938 1915 1892 1869 18461984Developing and investing in new technologies, attracting and keeping the best people, leading markets and competing freely: innovation drives everything we do and has |n.- .- t-|t-. |n 1oo. '- n-t pages highlight some of our more recent achievements following u|t.m-|-t '|t|n |nPC_FRONT.indb 11 5/15/2015 1:47:08 AM12 BT Group plc Annual Report 2015o%of the UK population had access to Cellnet after the rst year1stBT international omce opened |nhew York170+countries now part of an|nternat|onaI network1MbpsRevolutionary opt|caI bre cabIespeedThe frsL sLock markeL foLaLion of a ma|or uLiliLy helped Lo creaLe a new Lype of share ownership - one where anyone could |oin in. lL gave 8T Lhe freedom Lo invesL, innovaLe and develop Lo beLLer meeL Lhe demands of Lhe markeL andofcusLomers.Ihe worId's rst commerc|aI s|ngIe-mode opt|caI bre I|nkBringing nations closer.Ihe worId's rst |nternat|onaI, opt|caI bre undersea cabIePunning beLween LuLon and MilLon Keynes, Lhese revoluLionary J40 MegabiLs per second opLical fbre cables replaced LradiLional copper. LighLer and Lhinner, Lhey carried more informaLion over longer disLances. Fibre cables are also easier to install and mainLain, Lhislink Laking |usL 38days Lo geL up and running.0ur cableship AlerL laid Lhe submarine cable beLween 8roadsLairs in KenL and 0sLend in 8elgium. 8y allowing direcL communicaLion, iL did away wiLh Lhe delays and echoes LhaL plagued saLelliLe calls. And by LransmiLLing far more informaLion aL much higher speeds, iLLransformed Lhe likes of Europe's fnancial secLor. A shorL sLep across Lhe Channel, buL Lhe frsL in whaL's now a global neLwork of underseafbre cables.: y--| |nnv-t|n:rn.|n - |-tt-| .-y .|n t'|n 1984 19861985Open for business.Three billion British Telecomshares went on sale 3 DecemberIts good to talk whereveryouare0n 7 1anuary J985, LogeLher wiLh Securicor, we launched CellneL, Lhe frsL commercial cellular radio service. uniquely, wecombined our neLwork experLise wiLh our parLner's handseL skills Lo be Lhe frsL Lo oer someLhing more, useful and new. how 30 years on, we have our 8T Mobile service and announced our proposed acquisiLion of EE.PC_FRONT.indb 12 5/15/2015 1:47:12 AM13The facLs Lell Lhe sLory: 4 billion people waLching, 27,500 |ournalisLs reporLing, J4,700 aLhleLes conLacLing home. Around four Limes Lhe daLa needs of Lhe 8ei|ing Cames in 2008. 8uL unlike Lhose Cames, 20J2 was run from one inLegraLed neLwork. wiLh 80,000 connecLions, J5,500 phone lines and J4,000 cable Tv ouLleLs in 94 locaLions. ThaL was our innovaLive and resilienL soluLion for Lhe ulLimaLe 'righL frsL Lime' challenge. Like everyone involved, we're proud Lohave been parL of iL.Switched on as alwaysArguably Lhe biggesL sLep change in day-Lo-day communicaLions, 'always on' 8T8roadband was launched in April 2002. ForLhose wiLh a phone line, iLwas Lhe simple, one sLop shop and - |usL over a decade ago - amassive change in how we all kepL in Louch, did business and enLerLained ourselves. whaL's more, all iL needed was a 'plug and play' seL-up LhaL anyone could insLall.The biggest, best and mostconnected yet. The London 2012Olympic and Paralympic games.199020022012The frsL such ma|or LransiLion in Lhe world, 8T's long disLance neLwork Lurned compleLely digiLal on 3 1uly afLer fve years of inLense work. rocessors now conLrolled Lhe exchanges, generaLing relevanL, real-Lime daLa and conLinuously feeding iL Lo Lhe neLwork managers. So problems could be idenLifed and remedied, ofLen before cusLomers became aware of Lhem. Ihe worId's rst fuIIy d|g|taI Iongd|stance network Find out more about BTs history at www.btplc.com/Thegroup/BTsHistory lnnovaLion has always been aL Lhe hearL of our business. 0ur desire Lo fnd Lhe nexL new Lhing doesn'L change. 8reakLhroughs in equipmenL, neLworks and services help Lo improve lives, someLhing LhaL goes Lo Lhe core purpose of our company.PC_FRONT.indb 13 5/15/2015 1:47:16 AM14 BT Group plc Annual Report 2015Todays tools to improve productivityFanded a smarLphone loaded wiLh Lhe 0penreach hexL-CeneraLion Field Apps, our engineers can geL Lo Lhe nexL|ob quicker, spend more Lime wiLh Lhe cusLomer andcompleLe reporLs in real Lime.Contr|but|ng to greater sta sat|sfact|on Since launch, Lhe quarLerly 0penreach employee survey has seen an increase in Lhe number of engineers agreeing Lhey have Lhe Lools and equipmenL needed Lo do Lheir |obs well. Assignments received on the goEasy to contact the customer in advance of the visitEngineers can quickly report progress during the working dayCustomers can provide feedback on the engineer visitAll engineers can keep connected with peers and company news2014>15Connecting more of us to the customer journey0penreach has disLribuLed J5,000 devices - 2,000Lo managers and supervisors and J4,000 Lo feldengineers. Making sure our Leams are up Lo daLe andup Lospeed.Delivering real customer satisfactionThe Enhanced CusLomer 1ourney App helps engineers puL Lhe cusLomer aL Lhe cenLre of Lhe |ob from Lask assignmenL Lhrough Lo |ob closure.Watch the video online at www.bt.com/annualreport 14Speeding up t'-|--' .|'." we fundamenLally proved in our experimenLs LhaL we can geL 50% more Lramc over a single piece of fbre Lhan we previously LhoughL possible. A greaL resulL. we'reimmensely proud ofLhaL achievemenL "BT Group plc Annual Report 2015:TbpsThereal-world super channel speed achievedGrowth in higher bandwidth demand every year:%SeLLing Lhe record for Lhe fasLesL daLa Lransmission speed over an operaLional opLical fbre link.This year 8T and Fuawei achieved a super channel speed of 3 TerabiLs per second. An incredible feaL made even more impressive by being seL over an exisLing fbre link, using commercial grade hardware and sofLware in a real-world operaLing environmenL. To puL LhaL speed inLo a real conLexL, iL's Lhe equivalenL of LransmiLLing around J00F0flms in a single second.we Lhink Lhis record shows how our core fbre opLic infrasLrucLure iscapable of working even more emcienLly in Lhe fuLure. Thedemandfor higher bandwidLh grows by around 35% every year.From flm sLreaming Lo mobile apps, Lhe dierenL ways we consume enLerLainmenL, sLay in Louch and do business, all puL pressure on inLerneL serviceproviders.The high speeds we've achieved across exisLing infrasLrucLure mean our cusLomers can en|oy superfasL broadband wiLhouL inLerrupLions ordelays, and wiLhouL paying much more for iL eiLher. Find ouL more abouL 3T8 super channel speed Lrials aL www.bLplc.com}lnnovaLion}lnnovaLionnews}Fuawei3T8 Dr. Kevin SmithTransmission, FuLures and lnnovaLion Technology, based aL AdasLral ark, has been wiLh 8T for Lhe lasL 25 years. Fis Leam were insLrumenLal in seLLing Lhe record breaking daLa Lransmission speed.PC_FRONT.indb 14 5/15/2015 1:47:20 AM15The Openreach |-tC-n-|-t|n ||-'. /,,Tomasz Kulawinski Field engineer" lL improves my working life and speeds Lhings up. And my customers love iL Loo."Find out more about this story andOpenreach at www.openreach.co.uk wiLh millions of cusLomers Lo supporL, geLLingLhe righL engineer, wiLh Lhe righL skills, LoLhe righL locaLion, aL Lhe righL Lime, can be a ma|orchallenge.To dispense wiLh Lhe enormous amounLs of paperwork each |ob used Lo generaLe, we creaLed our 0penreach hexL-CeneraLion Field Apps. Loaded onLo smarLphone devices, now issued Lo J4,000 of our feld engineers, Lhey make sure each engineer has Lhe informaLion needed Lo do a greaL |ob for Lheir cusLomers.Field engineer Tomasz Kulawinski insLalls and repairs Lelecoms services across a large urban area. Fe has over 20 years' experience. Fanded a device loaded wiLh our |ob managemenL sofLware, Tomasz now receives new assignmenLs on Lhe move, compleLes reporLs in real Lime, and geLs Lo |obs fasLer using in-builL saLnav. 8y making his life easier, Lhe Apps ensure he also geLs more work done. Tomasz says he's proud of Lhis new device: "l pull iL from my pockeL and pick up new |obs |usL like LhaL. lL improves my working life and speeds Lhings up. And my cusLomers love iL Loo."Since iLs launch, Lhe suiLe of Field Apps has Lransformed our operaLional emciency while showing LhaL we're always ready Lo embrace new Lechnology and Lhinking, givingour Leam of engineers Lhe exLra Lime and space Lhey need for each cusLomer.15QWhats changed most during your time at BT? A we've always done really cool research. The aim of Lhis has shifLed so LhaL we're making sure we develop ideas and soluLions LhaL can apply Lo our neLwork.Q You set the record for the fastest data transm|ss|on over bre. 0ther than speed, what does this capability allow people to do? A we are incredibly proud of LhaL achievemenL buL iL's noL |usL abouL seLLing records. lL's abouL enhanced cusLomer experience, Lhe abiliLy Lo do all Lhe Lhings LhaL you're used Lo doing online buL much easier, much fasLer andmuch quicker.QWith increasing consumer and business demands, whats next in terms of technological advances? A we need Lo keep pushing our abiliLy Lo maximise capaciLy and innovaLe Lo go beyond LhaL capaciLy. l Lhink whaL we'll see is a more agile opLical world which is a very exciLing and pioneering area Lobein.waLch my video online aL www.bL.com}annualreporL PC_FRONT.indb 15 5/15/2015 1:47:23 AM16 BT Group plc Annual Report 201516 BT Group plc Annual Report 2015Click on happinesswe're working wiLh Coca-Cola Lo bring free inLerneL access Lo impoverished communiLies in SouLh Africa.Like all good ideas, iL's simple. Coca-Cola's dispensing machines are everywhere, so where beLLer Lo fnd web access Lhan alongside yourcolddrink? The piloL pro|ecL was launched in umLaLa in Lhe EasLern Cape province and helspruiL in Lhe Mpumalanga province. LocaLions were carefully chosen for Lheir accessibiliLy and populariLy - near Laxi ranks, schoolsorfoodsLores - Lo maximise use. Coca-Cola is insLalling Lhe drinks dispensing coolers, while we're doing whaL we do besL - Lhe design and supporL, Lhe connecLiviLy andinLerneL access oered for free via wi-f Lhrough every machine. There's no charge from us; no need Lo buy a can of coke; and everyone can access Lhe inLerneL for as long as Lhey wanL. Coca-Cola SouLh Africa, Coca-Cola ForLune and 8T Clobal Services hope Lo grow Lhe pro|ecL and insLall whaL we're calling wi-f coolers wherever Lhey're needed across SouLh Africa. Felping Lo supporL andgrow more susLainable communiLies.Find out more about this story andBT Global Services at www.globalservices.bt.com Jean-Marc FrangosManaging 0irecLor ExLernal lnnovaLion, 8TTechnology, Service& 0peraLions2014>15" 8y giving people access Lo free wi-f, we help Lhem build Lhe knowledge crucial Lo Lhe fuLure of Lheir communiLies. MakingiL easier Lo geL onlinealso helps businesses Lo spread prosperiLy where iL's mosLneeded"PC_FRONT.indb 16 5/15/2015 1:47:25 AM17w'-t' n \ n-t`These days we expecL Lo be able Lo waLch whaLever programmes we wanL, when we wanL and wherever we wanL.0f course, more choice doesn'L always mean beLLer opLions. lL can meanwe |usL have more decisions Lo make before we fnd someLhing we wanL Lo waLch. 8uL iL's in Lhe area of making an informed choice LhaLLhe Lechnological sLory and Lhe human aspecL merge. According Lo a 'J0-year ouLlook' reporL compiled by our research and Lechnology Leam, Lhe way we inLeracL wiLh and view Lelevision will change even more radically over Lhe nexL decade. TvconLenL will be broadband-driven and consumpLion of iL will be on smarL Tvs, closer Lo compuLers Lhan Lelevisions. So, we'll have Lhe world Lo choose from, buLeven greaLer scope Lo individualise Lhe way we view iL. 8uL while Tv schedules decline in imporLance, research suggesLs Lhere is sLill greaL demand for some kind of guide Lo all Lhe conLenL LhaL's available. The LrusLed voice who'll direcL us Lowards whaL's relevanL and good. lL's a role being Laken on by recommendaLion enginesand social neLwork siLes. AndLo be noLiced, Lhe esLablished Lelevision neLworks willhaveLo be onLhem.0f course, we're in Lhe Lhick of Lhis. we use Lhe power of broadband Lo help people geL Lhe Tv Lhey wanL, in Lhe manner Lhey wanL. we need Lo help conLenL providers, ranging from programme-makers Lo inLeracLive games-makers, Lo oer opLions for people aL home or on Lhe move.we're noL sure if iL's whaL Logie 8aird had in mind. 8uL as an innovaLor himself, we Lhink he'd appreciaLe whaL we've done wiLh his invenLion.Find out more about this story and BT Consumerat www.productsandservices.bt.comWhat you want, whenyou want |t8T Tv is our Tv service, oering 3 greaL Tv packages for our cusLomers - each wiLh up Lo 70 Freeview Tv and radio channels.Brilliant set- top boxes0ur Youview+ box lets customers pause live Tv and record up Lo 300 hours of programmes wiLh 7 days of caLch-up Tv.Extraordinary TV foreveryoneYouview combines Lhe power of high-speed broadband wiLh Lhe world of choosing, waLching and recording conLenL.Delia BushellManaging 0irecLor of8T Tv and 8T SporL People are spending more time online and less time on sLandard linear Tv viewing, so are now less willing Lo pay 'full faL' Tv pricing. Thisgives 8T Tv a sLrong growLh opporLuniLy from oering a selecLion of high-end sporL and entertainment at great value prices."PC_FRONT.indb 17 5/15/2015 1:47:27 AM18 BT Group plc Annual Report 2015We never stand still18 SmarL CiLy programmeAs ciLies grow Lhey risk ouLsLripping Lhe infrasLrucLures Lhey rely on. The MilLon Keynes SmarL CiLy programme is pioneering a solution wiLh Lhe MK 0aLa Fub. using cloud and big daLa Lechnology, iLsources informaLion from energy, LransporL, waLer use and weaLher Lo creaLe a fuller picLure of Lhe ciLy's real-Lime needs, so resources can be managed beLLer and moresusLainably.Coming up wiLh new ideas and developing new Lechnologies is core Lo whaL we do aL 8T.This page gives you an idea of Lhe range of Lhose ideas, designed Lo push Lechnology furLher Lhanbefore. All inLended Lo improve people'slives in welcome, relevanL and aordable ways.BT Group plc Annual Report 20152015>Dr. Tim WhitleyManaging 0irecLor,Peseach & lnnovaLionand AdasLral ark" lnnovaLion has always been in 8T's 0hA. Today, we bring Lhe besL of our creaLive Lhinking LogeLher Lhrough Lhe '8T lngenious' programme"Find out more about this atwww.btplc.com/InnovationWatch the video online at www.bt.com/annualreport C.fasL TechnologyLasL summer, we conducLed Lhe frsL Lechnical Lrials of C.fasL Lechnology. ThisulLrafasL broadband has Lhe poLenLial Lo deliver speeds of up Lo 500Mbps Lo mosL homes wiLhin a decade. lLkeeps us ahead of much of Europe and means we |oin Lhe ranks of world leaders such as 1apan and SouLh Korea. we're also currenLly expanding our fbre neLwork by working wiLh Lhe public secLor across Lhe uK Lo help achieve an esLimaLed superfasL broadband coverage of95%in LhenexL few years.The lnLerneL of Things"There are now more devices connecLed Lo Lhe lnLerneL Lhan people" says 1ohn 0avies, a chief researcher aL 8T. 8y providing Lhe neLworks LhaL connecL all Lhese devices, 8T is also developing ways Lo analyse and combine Lhe daLa Lhey produce, creaLing an amazing fund of informaLion Lo drive Lhe developmenL of new services. The number of connecLed ob|ecLs is expecLed Lo reach 50 billion by 2020 - meaning a LransformaLion in how we live in our ciLies, Lravel, manage our lives susLainably and draw on dierenL services.Taking a quanLum leaphormal compuLers keep billions of biLs of daLa in |usL one of Lwo defniLe sLaLes. TheoreLically quanLum compuLers could evaluaLe all Lhis daLa in every possible combinaLion, which means Lhey could solve vasL numbers of problems aLLhe same Lime - even including Lhings oLher compuLers can'L answer.we're exploring whaL quanLum Lechnology can do in our world. Can we creaLe ulLrafasL communicaLions, disLribuLed across Lhe counLry and made LoLally secure by fundamenLal physics? Andcan we provide a quanLum signaLure, making iL impossible Lo impersonaLe you? we're working on iL.Find out more about BT Technology, Service c0,-|-t|n -t ....|t,'...m/'-|u,/ Ourcompany/Groupbusinesses/BTTSOPC_FRONT.indb 18 5/15/2015 1:47:29 AM19OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationPurpose and strategyThis secLion is abouL our purpose and Lhe sLraLegy we are following Lo achieve iL.lL explains how improving our cusLomer service and Lransforming our cosLs go hand-in-hand. And LhaL cosL LransformaLion gives us Lhe 'oxygen' Lo invesL in fve sLraLegic growLh areas, so LhaL we can broaden and deepen our cusLomer relaLionships.19Our purpose0ur purpose is Lo use Lhe power of communicaLions Lo make a beLLer world. Our goal0ur goal is Lo deliver susLainable profLable revenue growLh. This will supporL cash fow growLh over Lhe long Lerm, which we will use Lo reward our shareholders and oLher sLakeholders. Our culture8ecoming a healLhier organisaLion will help us Lo deliver our sLraLegy. lL will ensure we can be resilienL and agile in a changing world. OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional information20Chief Executives introduction21Our purpose21Our goal21Our strategy220eliver superior cusLomer service23Transform our cosLs24lnvesL for growLh24Our cultureln lasL year's Annual PeporL, we Lalked abouL our fuLure plans in Lerms of Lhe six sLraLegic prioriLies LhaL were parL of our 'beLLer business wiLh a beLLer fuLure' sLraLegy. Since Lhis sLraLegy has now evolved, we no longer reporL againsL Lhose prioriLies. 8uL Lhe line of business secLion does have deLails of our progress and Lhe invesLmenLs we have made inLhose areas (from page 53}.This SLraLegic PeporL was approved byLhe 8oard on 5 May 20J5.8y order of Lhe 8oardDan Fitz Group General Counsel &CompanySecretary 5 May 20J5PC_FRONT.indb 19 5/15/2015 1:47:29 AMBT Group plc Annual Report 201520AL 8T our purpose is Lo use Lhe power of communicaLions Lo make a beLLer world. we're proud our Lechnologies have changed whaL's possible and allow people Lo do new Lhings, and LhaL we play a meaningful role in socieLy Lhrough Lhe producLs and services we deliver every day. 0ur achievemenLs are rooLed in innovaLion. ThaL was Lrue when we were formed in J845. And iL's more Lrue Lhan ever Loday, afLer 30 years as a lisLed company. ThaL is why we are celebraLing Lhis Lheme in Lhis, ourfrsL inLegraLed Annual PeporL.lL's been a ground-breaking year for 8T. we've made some key decisions and announced some ma|or invesLmenLs. we've delivered on Lhe ouLlook we seL aL Lhe sLarL of Lhe year and have delivered sLrong growLh in cash fow and profLs. This year we reached an agreemenL Lo buy EE, Lhe leading uK mobile operaLor. lL will be a LransformaLional deal for 8T. we will combine Lhe besL fxed neLwork wiLh Lhe besL mobile neLwork, oering our cusLomers new, innovaLive and seamless services. And we will invesL in our neLworks and cusLomer service Lo provide Lhem wiLh a greaL experience, wherever Lhey are. we expecL Lo generaLe subsLanLial synergies - boLhin Lerms of cosL savings and addiLional revenue - and are confdenL LhaL Lhe combinaLion will generaLe signifcanL shareholder value.we're delighLed LhaL Lhe acquisiLion has now been approved by our shareholders. while we awaiL regulaLory clearance, we have pushed ahead wiLh our own mobiliLy plans, launching our 8T Mobile consumer service, in addiLion Lo our successful business mobile proposiLions. we also announced plans Lo Lransform Lhe uK's fbre broadband landscape from superfasL Lo ulLrafasL. using C.fasL Lechnology, we will be able Lo oer speeds of up Lo 500Mbps Lo mosL of Lhe uK wiLhin a decade. lL is Lhanks Lo our research labs LhaL we have developed innovaLive new ways Lo use Lhis Lechnology and we will sLarL cusLomer Lrials Lhis summer. we will also be oering a JCbps service Lo Lhose who wanL even fasLer speeds. This will be anoLher large and mulLi-year invesLmenL by 0penreach LhaL will require Lhe righL invesLmenL and regulaLory environmenL. lL will be Lhe righL Lhing for boLh 8T and Lhe uK, providing even fasLer speeds in an already compeLiLive markeL. 0ur 8T SporL Tv channels conLinue Lo prove popular wiLh cusLomers and we're pleased Lo have secured FA remier League fooLball righLs for a furLher Lhree years, and an exLension wiLh Aviva remiership Pugby for a furLher four years. wiLh exclusive live fooLball from Lhe uEFA Champions League and uEFA Europa League, we'll be showing even more Lop sporLing acLion from Lhis summer. 8T Tv now oers access Lo heLfix, Lhe world's largesL inLerneL Tv neLwork. we became Lhe uK's frsL Tv plaLform Lo oer buy-Lo-keep flms and Tv shows on mulLiple devices, and we've added funcLionaliLy such as Tv Everywhere so you can geL 8TTv in a second room or waLch on Lhe go wiLh Lhe 8T Tv mobile app.For our business cusLomers, we launched a number of innovaLive services such as 8T Assure ThreaL 0efence, 8T 0ne hone and 8T Cloud voice. we are helping companies Lo beLLer idenLify and reacL Lo sophisLicaLed cyber securiLy LhreaLs. 0ur cloud-based services give our cusLomers even more funcLionaliLy and fexibiliLy. And we enhanced a number of our core producLs and services like our audio conferencing service in parLnership wiLh 0olby, which enables ouLsLanding sound clariLy.while we expecL Lo face conLinuing declines in Lhe revenue we earn from Lhe uK public secLor due Lo lower levels of expendiLure, we won new public secLor conLracLs in Lhe year and our invesLmenLs overseas conLinued Lo deliver, wiLh good growLh in Asia and Lhe Middle EasL as wesupporL leading global companies. we have conLinued Lo improve Lhe service we provide Lo our cusLomers. we recruiLed 2,500 new engineers and more Lhan 500 new employees inLo our conLacL cenLres around Lhe uK. Each of our lines of business made improvemenLs. we increased Lhe speed of service delivery, repaired faulLs fasLer and fxed more cusLomer issues frsL Lime.8uL we recognise we're noL yeL where we wanL Lo be and Lhis will be a key prioriLy for us in Lhe years ahead. These days, life and work is builL around connecLiviLy. Through us, millions of individuals connecL Lo friends and family, and have a wealLh of informaLion and enLerLainmenL aL Lheir fngerLips. we help companies Lo work smarLer and compeLe in global markeLs. And we enable essenLial public services Lo be delivered. CusLomer expecLaLions are rising and we recognise how imporLanL iL is Lo improve Lhe service we provide.8y improving our service and providing Lhe producLs our cusLomers need, we can broaden and deepen relaLionships and deliver our goal ofsusLainable profLable revenue growLh for Lhe business.we made greaL progress over Lhe lasL year. 0ur resulLs, and Lhe invesLmenLs we are making, posiLion us well for Lhe fuLure and wehaveincreased our free cash fow ouLlook for Lhe coming year. we have a sLrong plaLform Lo build on and a Leam l know will deliver. weare looking forward Lo Lhe year ahead.Gavin PattersonChief Executive5 May 20J5Chief Executives introduction Its been a ground-breaking year for BT.Weve announced some major investmentsand launched a number of innovativenew services.Watch my video online at www.bt.com/annualreportFind out morePC_FRONT.indb 20 5/15/2015 1:47:31 AM21OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationOur purpose8T's purpose is Lo use Lhe power of communicaLions Lo make a beLLer world.we are here Lo meeL Lhe needs of our cusLomers, delivering Lhe experience, producLs and services LhaL maLLer Lo Lhem. Millions of individuals connecL Lhrough us Lo Lheir friends and family, and have huge amounLs of informaLion and enLerLainmenL aL Lheir fngerLips. ThesmallesL companies righL Lhrough Lo mulLinaLional corporaLions use our services every day Lo conducL Lheir business and compeLe in Lhe global markeLplace. Many public services rely on our Lechnologies, and in Lhe uK Lhe Lelecoms indusLry operaLes across our neLworks. 0ursuccess as a business depends on delivering value Lo all our cusLomers, enabling Lhem Lo fulfl Lheir needs and aspiraLions.The connecLiviLy we provide every day plays an essenLial role in modern socieLy and economies. 0ur core business represenLs a signifcanL parL ofLhe social infrasLrucLure in Lhe places where we operaLe.lL is because we recognise how imporLanL connecLiviLy is Loday LhaL we also work Lo exLend Lhe value we can add Lo communiLies where we operaLe and Lo socieLy aL large by fnding new ways LhaL our producLs and services can bring social and economic benefLs. we are commiLLed Lo using our Lechnologies Lo respond Lo Lhe climaLe change challenge.And we enable our people Lo conLribuLe Lheir skills and energies Lo make a posiLive impacL in areas of social need.lL is by creaLing value for our cusLomers and socieLy LhaL we will saLisfy Lhe needs of our shareholders - and deliver susLainable profLable revenue growLh.Our goal0ur goal is Lo deliver susLainable profLablerevenue growLh.reviously, we had Lo depend on cosL LransformaLion Lo grow our cash fows. ln Lhe years ahead, revenue growLh, combined wiLh conLinued LransformaLion of our cosLs, will provide a powerful plaLform for long-Lerm and susLainable cash fow growLh.we will reinvesL some of Lhe cash we generaLe back inLo Lhe business, Lo enable us Lo grow over Lhe long Lerm. AvirLuous circle. And we will also use iL Lo reward our shareholders andoLhersLakeholders.Our strategyOur strategy is founded on broadening and deepening ourcusLomer relaLionships.To deliver susLainable profLable revenue growLh, we need sLronger relaLionships wiLh our cusLomers. ThaL means making sure we sLay relevanL Lo Lhem as markeLs, lifesLyles and Lechnologies change.The Lhree pillars of our sLraLegy help us do LhaL: delivering superior cusLomer service; Lransforming our cosLs; and invesLing for growLh. The beLLer our cusLomer service, Lhe more we will sell and Lhe less Lime and money we need Lo spend puLLing Lhings righL. And Lhe beLLer we manage our cosLs, Lhe beLLer value for money we can oer our cusLomers and Lhe more we can invesL in giving cusLomers whaL Lhey need, Loday and Lomorrow. And Lhese principles inLurn drive our business model (see page 28}.Our business model on page28 Find out more|-'|v-|u,-|||customer serviceBroaden and deepen our customer relationships/ |.|n |: t .-'|v-| ut-|n-|'- ,|rt-|'- |-v-nu- |.t'To use the power of communications to make a better world A healthy organisationFibreTV and contentUK business marketsMobility-n. utu|- voiceLeading global companiesInvest forgrowthTransformour costsOur strategyOur cultureOur goalOur purposeThe diagram below shows how our sLraLegy supporLs our goal and purpose. lL siLs aL Lhe cenLre of our business model.PC_FRONT.indb 21 5/15/2015 1:47:31 AMBT Group plc Annual Report 201522Deliver superior customer serviceEvery day we Louch Lhe lives of millions, providing services LhaL help people geL Lhe mosL ouL of Lheir working and personal lives. werecognise how imporLanL iL is Lo improve service as Lhe impacL when Lhings go wrong is greaLer Lhan ever before. CeLLing Lhe cusLomer experience righL will noL only benefL our cusLomers, iL will make our business more cosL eecLive Loo. CusLomer service and cosL LransformaLion go hand-in-hand.To make sure we are equipped Lo meeL Lhe changing and growing demands of consumers and businesses, a group-wide LransformaLion, Lo puL Lhe 'CusLomer FirsL', is underway. You can fnd ouL more on page 3J.PighL FirsL Time (PFT} is our key measure of cusLomer service and Lracks how ofLen we keep Lhe promises we make Lo our cusLomers. 0ur overall improvemenL of 4.7% (20J3}J4: J.5%} refecLs posiLive conLribuLions from each of our cusLomer-facing lines of business. we achieved signifcanLly beLLer repair performance and delivery Limes forproviding uK lines and broadband. wiLhin 8T Clobal Services, we made large improvemenLs Lo our speed of delivery. 8uL we sLill wanL Lo do beLLer. You can fnd more deLails in Lhe line of business secLion on operaLing performance.RFT improvementYear ended 31 March 2015 %0123456789BTGlobalServicesBTBusinessBTConsumerBTWholesaleOpenreach BT GroupCusLomer service is one of Lhe facLors used in deLermining Lhe annual bonus of execuLives. lL is made up of Lhe PFT meLric and a new cusLomer percepLion measure (see page JJ3}.ln lasL year's Annual PeporL we ouLlined a number of specifc areas LhaL we would focus on Lhis year, including invesLmenL in our neLwork, improving our online capabiliLy and changing some of Lhe key processes relaLing Lo insLallaLions and when cusLomers move house.we have made some good progress in Lhese and oLher areas, including:-recruiLing 2,500 new engineers; -over J,000 sysLem and process changes Lo make iL easier for our cusLomers Lo deal wiLh us and Lo help our people supporL Lhem. Thisincludes improving our websiLes so LhaL iL is more sLraighLforward Lo make and Lrack orders, and fnd informaLion and help more easily;-invesLing in our neLwork Lo make iL more resilienL Lo exLreme weaLher condiLions (in boLh summer and winLer};-specialisL diagnosLic equipmenL, alarms and new handheld devices Lo help our engineers fnd faulLs quickly, increasing Lheir abiliLy Lo geL Lo Lhe rooL of Lhe maLLer and fx more issues in one go; and-deploying a new appoinLmenL booking sysLem for calling cusLomers back and providing Lraining in communicaLion skills for our advisers.8uL we sLill wanL Lo do beLLer. Looking ahead, we are focusing on fve key areas:Acting on insightwe are using Lhe insighL of our cusLomers, our people and oLher companies Lo guide decision-making and creaLe producLs and services based on Lhe changing demands and prioriLies of our cusLomers. And as we explain below, we are developing a new way Lo analyse Lhe eecLiveness of our processes from Lhe cusLomer's perspecLive. we will use Lhis insighL Lo improve Lhe way we do Lhings.Keeping our customers connectedwe are making our producLs and neLworks more resilienL. MoniLoring our neLworks and ordering sysLems will help us idenLify issues sooner - inmanycases before Lhe cusLomer is even aware Lhere is anissue.Creating great tools and systemswe are improving Lhe way we keep cusLomers informed. we conLinue Lo develop our websiLes, oering more self-help feaLures and online supporL. Engineers are leLLing Lhe cusLomer know Lhey are on Lhe way before arriving aL Lhe premises. Andwe are Lrialling an app Lo help cusLomers Lrack Lhe whereabouLs of Lheir engineer before a visiL.Working better across our organisationwe are changing Lhe way our cusLomer-facing Leams are organised so LhaL our people can Lake greaLer ownership when Lhey are dealing wiLh cusLomers' enquiries. wehave adopLed a new approach Lo help us analyse and improve how we perform in Lypical cusLomer inLeracLions, like ordering a service from us or reporLing a faulL. And furLher analysis of our repair process is helping us Lo undersLand whaL we need Lo do Lo make Lhe cusLomer experience beLLer.Supportingour peopleAs well as redesigning processes, sysLems and policies, we are urging our people Lo puL Lhemselves in Lheir cusLomers' shoes, Lake personal ownership of issues and make iL easy for our cusLomers Lo order and use our producLs and Lo conLacL us when Lhey need Lo.The wellbeing of our people is imporLanL Lo us and helps Lhem deliver a good service Lo our cusLomers. This is parLicularly Lrue in 0penreach which has experienced a rise in sickness absence raLes among some of our older workers. we are focusing on early inLervenLion Lo address Lhis and we provide supporL services Lo help our people reLurn Lo Lheir roles. You can fnd more deLails on page 32.PC_FRONT.indb 22 5/15/2015 1:47:31 AM23OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationTransform our costswe run large and complex cosL LransformaLion programmes which are led by a Leam of inLernal consulLanLs. They are 8T people. This makes sense because Lhey know our business beLLer Lhan anyone.Their approach is based on a meLhodology honed over Len years and underpinned by forensic daLa analysis, sLrong governance and Lhe supporL of senior managemenL Lo make change happen quickly and susLainably. This year, our underlying operaLing cosLs excluding LransiL were down 2%, refecLing an 8% reducLion in neL labour cosLs and lower paymenLs Lo oLher LelecommunicaLions operaLors. These were parLly oseL by increased programme righLs charges refecLing a full year of 8T SporL. we reduced our operaLing cosLs by around 500m Lhis year. 0ver Lhe lasL six years we have reduced our operaLing cosLs and capiLal expendiLure by around 5.5bn.0ur largesL cosL LransformaLion acLiviLies are driven 'Lop-down'. They mighL be end-Lo-end programmes spanning mulLiple lines of business or complex changes conLained wiLhin a single line of business. ConLinuous lmprovemenL (Cl} provides a complemenLary 'boLLom-up' approach. Clmakes small buL imporLanL changes Lo how we do Lhings every day and has Lhe added benefL of improving employee engagemenL.To sLrengLhen cosL LransformaLion (CT} and iLs applicaLion LhroughouL Lhe business we have an in-house CT Academy. The CT Academy is responsible for Lhe conLinued developmenL of our change professionals. This year alone iL has Lrained and coached more Lhan J,800 people. 8T is Lhe only uK organisaLion currenLly licensed by Lhe 8riLish 0ualiLy FoundaLion Lo cerLify qualifcaLions Lo Lhe mosL advanced levels in Lean, Six Sigma and Change ManagemenL meLhodologies on such a scale.rogrammes Lhis year included:-Laking Lried-and-LesLed meLhods from Lhe uK and using Lhem overseas Lo reduce cosL of failure, improve emciency, sLreamline organisaLional sLrucLure and geL beLLer value for money from suppliers;-idenLifying how we can improve Lhe uLilisaLion of our engineering Leams and sLandardise Lhe way Lhey work. we can reduce Lhe number of engineers required aL a parLicular locaLion by invesLing in Lheir Lraining Lo make sure Lhey are mulLi-skilled. This programme has idenLifed opporLuniLies Lo reduce cosLs while shorLening delivery Limes on core producLs like ELherneL;-LighLening up our conLacL cenLre operaLions by closing down small, inemcienL cenLres, sLandardising Lechnology and processes and rebalancing and reprioriLising acLiviLies beLween Lhe uK and overseas. (8eLLer Lools, Lraining and uLilisaLion of our service colleagues have made Lhem more producLive and helped Lhem answer enquiries from cusLomers more eecLively};-reducing Lhe cosL of failure across Lhe lifecycle of our lT sysLems. 8ydesigning and developing Lhem beLLer, Lhey fail less ofLen,improving service and reducing cosL; and-launching our new group-wide CenLral 8usiness Services capabiliLy, (eecLively a shared service cenLre}, Lo supporL conLracL managemenL and accounLing, procuremenL, fnancial services and FP. This simplifes Lhe way we work and means we can share besL pracLice Loimprove emciency and service.Looking ahead, we are focused on a number of areas including:-reviewing Lhe eecLiveness of our sales Leams: Lo reduce adminisLraLive eorL and focus people on whaL really maLLers - selling Lo cusLomers; ensuring we have Lhe righL people, wiLh Lhe righL skills, aligned Lo Lhe besL opporLuniLies in Lhe markeL; and by revising our incenLive schemes Lo beLLer align wiLh desired ouLcomes;-large end-Lo-end programmes specifcally focused on improving cusLomer experience in a number of delivery and repair |ourneys Lhrough reducing wasLe in Lhe process and making iL easier for our cusLomers Lo inLeracL wiLh us;-raLionalising and sLandardising our producLs, neLworks, applicaLions and plaLforms Lo remove complexiLy and reduce Lhe cosL of failure; and-reviewing Lhe eecLiveness and emciency of Lhe back-omce Leams LhaL supporL our cusLomer-facing people.we benchmark whaL iL cosLs us Lo do business againsL oLher large LelecommunicaLions companies. we keep making progress buL we can sLill see more LhaL we can do. we also look beyond Lhe world of communicaLions Lo see whaL lessons we can learn from oLher indusLries. we are confdenL LhaL Lhere are plenLy of opporLuniLies Lo reduce cosLsfurLher.You can read abouL cosL LransformaLion wiLhin our lines of business from page 53. And Lhe group's performance on operaLing cosLs is described on page 82.Cost transformation withinour lines of business from page53 Find out morePC_FRONT.indb 23 5/15/2015 1:47:31 AMBT Group plc Annual Report 201524Invest for growthwe are invesLing in fve sLraLegic areas. These are Lhe Lhings we believe will deliver susLainable profLable revenue growLh - which will deliver value for our shareholders:Fibre CusLomers are asking for fasLer broadband. we are delivering LhaL wiLh our superfasL fbre broadband deploymenL. lL covers more Lhan Lhree-quarLers of Lhe uK and we are working Lo exLend iLs reach even furLher (see page 7J}.we have long been aL Lhe forefronL of fbre innovaLion and invesLmenL and we aim Lo keep iL LhaL way. ln 1anuary, we seL ouL our vision for ulLrafasL broadband. wiLh Lhe righL regulaLory and invesLmenL environmenL, we plan Lo Lransform Lhe uK broadband landscape Lhrough Lhe widespread deploymenL of C.fasL. we expecL C.fasL Lo deliver speeds of a few hundred Mbps by 2020 and up Lo 500Mbps Lo mosL of Lhe uK wiLhin a decade. we will also inLroduce a JCbps premium fbre broadband service (see page 75}.TV and content we have improved our Tv proposiLion Lhis year. we redesigned iLs look and feel and enhanced Lhe service - adding Lhings like Tv Everywhere, buy-Lo-keep movies and Tv shows, heLfix and Lhe 8T SporL ExLra red buLLon. we also launched Sky SporLs J and 2 on Youview.we won Lhe righLs Lo show more live FA remier League fooLball maLches for Lhree years from AugusL 20J5, and exLended our Aviva remiership Pugby righLs Lo Lhe end of Lhe 2020}2J season.This summer, 8T SporL will become Lhe new home of uEFA Champions League and uEFA Europa League fooLball for Lhe nexL Lhree seasons.Pead more abouL Lhese developmenLs in Lhe 8T Consumer secLion on page 54.Mobility and future voice20J4}J5 was a waLershed year for us. we launched Lhree new producLs in our business l voice porLfolio (see page 5J}, reLurned Lo Lhe consumer mobile markeL (see page 55} and agreed defniLive Lerms Lo acquire EE. As explained below, Lhis deal will make us Lhe uK's leading converged communicaLions provider.UK business marketsThere are clear opporLuniLies for us Lo grow our share of Lhe uK business markeL and increase Lhe revenue we geL from each cusLomer.So we have improved our producL porLfolio and are focusing on selecLed areas of lT services where we can grow, such as daLa cenLres, cloud, managed hosLing and securiLy (see page 5J}.Leading global companieswe are invesLing in our services, neLwork and experLise Lo increase our share of spending by our large mulLinaLional cusLomers. 8y exLending our global neLwork and daLa cenLre fooLprinL (see page 58}, we are expanding Lhe reach and feaLures of our services, making Lhem more fexible and beLLer aL working LogeLher. weare helping our cusLomers address Lheir challenges in Lhe world of digiLal business, from cloud and collaboraLion, Lo mobiliLy and securiLy. 8y invesLing in cusLomer service and global accounL managemenL capabiliLies, weconLinue Lo supporL leading global companies as Lhey expand inLo new markeLs. And we help public secLor organisaLions Lo beLLer serve ciLizens.Proposed acquisition of EEln February 20J5 we announced LhaL we had agreed defniLive Lerms Lo buy EE, Lhe leading mobile neLwork operaLor in Lhe uK, for a purchase price of J2.5bn.The deal, which is sLill sub|ecL Lo merger clearance, will be LransformaLional for 8T. lL will allow us Lo acceleraLe our mobiliLy sLraLegy. And iL will increase our capaciLy for fuLure invesLmenL and innovaLion in neLworks and services, as we conLinue Lo build world-class digiLal infrasLrucLure in Lhe uK.we believe Lhe deal will generaLe considerable value for shareholders. we expecL neL cosL synergies Lo be worLh 3.0bn (afLer inLegraLion cosLs} and we expecL Lo generaLe revenue synergies wiLh a LoLal neL presenL value of approximaLely J.5bna.TheLransacLion should be accreLive Lo free cash fow per share in Lhe frsL full year posL compleLion of Lhe deal.8y combining EE wiLh 8T, we will be able Lo provide cusLomers wiLh innovaLive, seamless services LhaL combine Lhe power of fbre broadband wiLh wi-f and advanced mobile capabiliLies.Our cultureTo deliver sLrong performance we have Lo be healLhy. A healLhy organisaLion is made by Lhe sLrucLures and processes LhaL help people doLheir |obs eecLively; and Lhe aLLiLudes and acLions of all individuals.we have defned our values Lo guide how we wanL Lo work. we have idenLifed Lhe changes we need Lo make: puLLing Lhe cusLomer frsL in everyLhing we do, simplifying how we work and developing a leadership sLyle which helps Lo drive change and gives people Lhe confdence Lo Lake responsibiliLy. we believe people wanL Lo work wiLh a company LhaL recognises whaL Lhey have Lo oer, supporLs Lheir abiliLy Lo grow and is a posiLive force in wider socieLy. 8y making all of Lhis happen we will creaLe an environmenL LhaL brings Lhe besL ouL of our people.8ecoming a healLhy organisaLion will enable us Lo deliver our sLraLegy.lL is abouL ensuring we can be resilienL and agile in a changing world and, aL Lhe same Lime, make 8T an exciLing place where our people can all be proud Lo work.a For the assumptions underlying our synergies estimates, see Additional Information on page 222.PC_FRONT.indb 24 5/15/2015 1:47:32 AM25OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationDelivering our strategyThis secLion explains how we deliver our sLraLegy. we describe our business model and Lhe imporLance of our people, asseLs and Lhe research and developmenL we do. we reporL on Lhe sLaLus of our brand and ouLline our relaLionships wiLh our main sLakeholders.we also explain our approach Lo human righLs and describe Lhe regulaLory environmenL and risks LhaL aecL us. 26Operating Committee28Our business model30Financial strength30Our people33Our networks and physical assets33heLwork plaLforms33Service plaLforms33lT sysLems33roperLies34Research and development34Brand and reputation35Stakeholders and relationships350ur cusLomers35CommuniLies and socieLy as a whole350ur shareholders350ur lenders350ur pension schemes350ur suppliers37Fuman righLs380ur relaLionship wiLh FM CovernmenL38PegulaLion38European union regulaLion38uK regulaLion380verseas regulaLion39lmpacL of regulaLion40haturaI resources41Our risks4Jrincipal risks and uncerLainLies4JFow we manage risk4JChanges over Lhe year420ur principal risks50Pisk case-sLudies51EE acquisition: risks25Our peopleTheir commiLmenL, experLise and diversiLy arekey Lo Lhe success of our business. Many of Lhemdo volunLeer work, benefLing chariLies and communiLy groups. 30 32Our global reachwe oer services in more Lhan J70 counLries. 0ur fbre broadband neLwork in Lhe uK is a key asseL. 55 73Our research activitieswe invesL exLensively in P&0 Lo fnd beLLer ways of doing Lhings and Lo oer new services. lnnovaLion is an imporLanL parL of our hisLory and key Lo our brand and our fuLure. 34 OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationPC_FRONT.indb 25 5/15/2015 1:47:32 AM26 BT Group plc Annual Report 2015Operating CommitteeThe key managemenL commiLLee, which meeLs weekly andis chaired by Lhe Chief ExecuLive. 8riefdeLails of iLs members are seL ouL on Lhese pages.The 0peraLing CommiLLee has collecLive responsibiliLy for running our business end Lo end and delivering our sLraLegy. lL moniLors Lhe group's fnancial, operaLional and cusLomer service performance and has cross-business oversighL of Lhe lines of business. lL also reviews Lhe group's key risks and considers Lhe poLenLial LhreaLs Lo and opporLuniLies for Lhebusiness.The 0peraLing CommiLLee: -develops 8T's sLraLegy and budgeLs for Lhe 8oard's approval; -recommends Lo Lhe 8oard capiLal expendiLure and invesLmenL budgeLs; -allocaLes resources across 8T wiLhin plans agreed by Lhe 8oard; -prepares and delivers ma|or programmes; and -reviews Lhe senior LalenL base and succession arrangemenLs. lL can approve, up Lo cerLain limiLs which are seL by Lhe 8oard, capiLal expendiLure, disposals of fxed asseLs, invesLmenLs and divesLmenLs. lL has delegaLed some of Lhese approvals Lo sub-commiLLees, such as Lhe 0esign Council, and Lo senior execuLives. TheCompany SecreLary aLLends all meeLings.Alison wilcox will |oin Lhe business in 1uly 20J5 as Croup FP 0irecLor and an 0peraLing CommiLLee member, following Lhe deparLure of ClareChapman in March 20J5. Gavin PattersonaChief ExecutiveAppoinLed as Chief ExecuLive in SepLember 20J3 and on Lhe 8oard since 1une 2008.Cavin was previously CE0, 8T PeLail and from 2004 Lo 2008 was Managing 0irecLor, 8T Consumer, 8T PeLail. 8efore |oining 8T, Cavin was managing direcLor of Lhe consumer division of TelewesL (now virgin Media}. rior Lo LhaL, he spenL nine years aL rocLer & Camble, rising Lo become European markeLing direcLor. Tony ChanmugamaGroup Finance DirectorAppoinLed Lo Lhe 8oard as Croup Finance 0irecLor in 0ecember 2008.Tony was formerly CF0, 8T PeLail, and Managing 0irecLor, 8T EnLerprises and, from J997 Lo 2004, he was CF0 and Lhen Chief 0peraLing 0mcer of 8T Clobal SoluLions. Fe qualifed as a CharLered ManagemenL AccounLanL. Luis AlvarezCEO, BT Global ServicesAppoinLed CE0, 8T Clobal Services in 0cLober 20J2.Luis was formerly presidenL of Lhe European, Middle EasL, Africa and LaLin America operaLions of 8T Clobal Services serving some of our biggesL global cusLomers. Luis also led 8T Clobal Services Telecom MarkeLs uniL, managing business wiLh carriers and operaLors ouLsideLhe uK.8efore |oining 8T, Luis worked aL Ericsson, l8M and Croup SanLander. Luis has a LelecommunicaLions engineering degree. John PetterCEO, BT ConsumerAppoinLed CE0, 8T Consumer in SepLember 20J3.1ohn was formerly Managing 0irecLor, 8T Consumer, 8T PeLail and prior Lo LhaL Chief 0peraLing 0mcer in 8T Consumer. 1ohn was appoinLed chairman of Lhe lusneL 8oard in 2008 and has overseen iLsdevelopmenL as a key parL of 8T's sLraLegy.rior Lo |oining 8T, 1ohn held roles as markeLing and commercial direcLor aL TelewesL (now virgin Media} and brand manager aL rocLer & Camble. 1ohn graduaLed in modern hisLory from 0xford universiLy.a |||-.t| | C|u, ,'.. +u .|'' rn. t'-|| u'' |||-,'|- n ,-- 'o -n. '.PC_FRONT.indb 26 5/15/2015 1:47:40 AM27OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationb +u .|'' rn. m|- |n|m-t|n n t'- |n.-|t-|n n ,-- :o. Clive Selley CEO, BT Technology, Service & Operations and Group CIOAppoinLed CE0, 8T Technology, Service & 0peraLions when iL was formed in 1anuary 20J3.Clive was formerly CE0, 8T lnnovaLe & 0esign and prior Lo LhaL residenL, 8T Clobal Services orLfolio & Service 0esign where his focus was Lo increase profLabiliLy and increase cusLomer saLisfacLion for8T Clobal Services.Clive was also formerly Managing 0irecLor, 8T Clobal laLforms in lndia and has also held posiLions as Cl0 8T wholesale and 0irecLor CPM for8T PeLail. Clive has an ElecLronic Engineering 0egree. h|geI StaggCEO, BT WholesaleAppoinLed CE0, 8T wholesale in SepLember 20JJ.higel was formerly Managing 0irecLor, 8T 8usiness, 8T PeLail and prior Lo LhaL Managing 0irecLor, CusLomer Service, 8T PeLail.higel was also Managing 0irecLor, 8T EnLerprises comprising six sLandalone businesses leveraging Lhe 8T brand and CE0 8T Conferencing Lurning iL inLo one of Lhe Lop audio and video conferencing businessesglobally.higel has also held roles in 8T as 0irecLor of PeLail roducL ManagemenL and Ceneral Manager of 8T Consumer roducLs 0ivision.AppoinLed CE0, 0penreach in February 20J4. 8efore |oining 8T, 1oewas head of Lhe uK bank aL FS8C. 1oe has exLensive experience in cusLomer service and programme delivery. The CE0 of 0penreach cannoL be a member of Lhe 0peraLing CommiLLee under Lhe provisions of Lhe underLakings.bJoe Garner InviteeCEO, Openreach Graham SutherlandCEO, BT BusinessAppoinLed CE0, 8T 8usiness in SepLember 20J3.Craham was formerly Managing 0irecLor, 8T 8usiness, 8T PeLail responsible for Lhe small and medium-sized enLerprises uniL wiLhin 8TPeLail and prior Lo LhaL CE0 of 8T lreland.8efore |oining 8T, Craham held a number of senior managemenL posiLions including managing direcLor of hTL in Lhe Pepublic of lreland. Craham holds an AccounLancy and Finance degree and qualifed as a CharLered ManagemenL AccounLanL. Alison WilcoxGroup HR Director (from July 2015)Alison will |oin 8T in 1uly 20J5 as Croup FP 0irecLor.Alison was formerly Pegional FP 0irecLor for vodafone Europe and prior Lo LhaL Pegional FP 0irecLor for vodafone's Africa, Middle EasL and Asia acifc fooLprinL. Alison |oined vodafone in 2005 as Croup 0irecLor of Leadership following a career in consulLing.0an is Lhe Croup Ceneral Counsel & Company SecreLary of 8TCroup plc. Fe |oined 8T in April 20J0 as iLs Croup Ceneral Counsel and was appoinLed Company SecreLary in hovember 20J2. 0anpreviously spenL six years aL Misys and J2 years aL Cable&wireless. A 8riLish and uS dual naLional, age 55.Dan FitzCompany SecretaryPC_FRONT.indb 27 5/15/2015 1:47:50 AM28 BT Group plc Annual Report 2015Our business model0ur business creaLes value for shareholders, by delivering for cusLomers, socieLy and our people.we invesL Lo build and mainLain communicaLions neLworks in Lhe uK and overseas; we develop producLs and services LhaL run over Lhose neLworks; and Lhen we sell Lhem on a subscripLion basis Lo consumers, businesses and Lhe public secLor. 8y selling services, we are able Lo make a reLurn on our neLwork invesLmenLs and creaLe value for our sLakeholders. This means we can reinvesL in Lhe business Lo keep creaLing value over Lhe shorL, medium and long Lerm. A virLuous circle.The way we describe our business model is evolving. This year, for Lhe frsL Lime, we include elemenLs of Lhe llPC's lnLegraLed PeporLing (lP} Framework. ln Lhe Framework, Lhe resources used and Lhe relaLionships aecLed by an organisaLion are collecLively referred Lo as 'Lhe capiLals'. The llPC defnes Lhe capiLals as: fnancial, manufacLured, inLellecLual, human, social, and naLural. we have adopLed a similar approach by using a common seL of icons for Lhe inpuLs, ouLpuLs and ouLcomes of our business model, alLhough we describe Lhem in Lerms LhaL are mosL meaningful Lo our business.Inputs0ur business model sLarLs wiLh Lhe Lhings LhaL seL us aparL from our compeLiLors. we have a sLrong combinaLion of people, Lechnology, neLworks and oLher physical asseLs. 0ur research and developmenL acLiviLies supporL innovaLive new ways of doing Lhings and advancemenLs in our Lechnology. And we have Lhe fnancial sLrengLh LoinvesL in Lhese areas Lo sLay ahead of Lhe compeLiLion.Then Lhere are Lhe relaLionships we have wiLh our sLakeholders, suchasour cusLomers, and Lhe naLural resources we consume as parL ofdoingbusiness.Find ouL more abouL Lhe key inpuLs Lo our business via Lhe page references in Lhe business model graphic.OutputsThe main ouLpuL of our business is our porLfolio of producLs and services. we make money by selling Lhese in Lhe uK and around Lhe world Lhrough our cusLomer-facing lines of business. we sell Lhrough a range of channels including online, conLacL cenLres and desk or feld-based accounL managers. 0ur revenue is mosLly subscripLion or conLracL-based. eople, households and SMEs pay for sLandalone or bundled services monLhly, quarLerly or annually (Lypically on J2 Lo 24 monLh conLracLs}. Large corporaLe and public secLor cusLomers usually buy managed neLworked lT services on conLracLs spanning several years. 0ur wholesale cusLomer conLracLs range from one monLh in lengLh for regulaLed producLs, Lo fve years or more for ma|or managed services deals.lmproving Lhe skills and experLise of our people, boLh Lhrough on-Lhe-|ob experience and our invesLmenL in Lheir Lraining and developmenL, isanoLher ouLpuL of our business. we also generaLe inLellecLual properLy like paLenLs. Finally, Lhe wasLe and emissions produced by our operaLions are considered Lo be ouLpuLs (more deLails of whaL we are doing Lo minimise Lhese can be found on page 40}. OutcomesThe fnancial ouLcome of whaL we do hinges on Lhe performance of our lines of business. TogeLher Lhey conLribuLe Lo Lhe overall performance and key performance indicaLors (Kls} of Lhe group.8uL Lhere is more Lo whaL we do Lhan |usL fnancial value. whaL we do maLLers. we help millions of people communicaLe, be enLerLained, dobusiness and generally live Lheir lives. we help our cusLomers reduce Lheir carbon fooLprinL, for example by providing conferencing faciliLies which mean Lhey do noL have Lo Lravel as much. And we conLribuLe direcLly Lo communiLies and Lhe healLh of Lhe uK by providing |obs, working wiLh suppliers and paying Lax.All of which conLribuLe Lo Lhe sLrengLh of our brand - a key asseL for us as iL can infuence wheLher a poLenLial cusLomer buys from us or one of our compeLiLors.Our strategyOur cultureOur valuesOur goalOur purposevalue creaLionInputs FinancialsLrengLh Our people heLworks & physicalasseLs Pesearch & developmenL SLakeholders & relaLionships haLuralresourcesInputs Financial sLrengLhwe are very focused on growing our cash fow over Lhe long Lerm. TogeLher wiLh a prudenL fnancial policy and a sLrong balance sheeL, we can invesL in our business and inLhe Lhings LhaL seL us aparL from our compeLiLors.Read moreon page 30 Our peoplewe have almosL 90,000 people. Their commiLmenL, experLise and diversiLy are key Lo Lhe success of our business.Read moreon page 30 heLworks & physicalasseLs0ur neLworks and plaLforms are Lhe foundaLions of Lhe producLs and services LhaL we sell. we conLinue Lo invesL inLhese Lo improve Lhe service we oer our cusLomers.Read moreon page 33 Pesearch & developmenLwe are one of Lhe largesL invesLors in research and developmenL in Lhe uK.Read moreon page 34 SLakeholders & relaLionshipsThey include: cusLomers, communiLies, shareholders, lenders, our pension schemes, suppliers, governmenL andregulaLors.Read moreon page 35 haLural resourceswe use some naLural resources in doing business. 0urenergy use has declined for Lhe sixLh consecuLive year.Read moreon page 40PC_FRONT.indb 28 5/15/2015 1:47:50 AM29OverviewThe Strategic Report Purpose and strategy Delivering our strategy 0ur lines of business Group performance Governance Financial statements Additional informationGovernanceRisks|-'|v-|u,-|||customer serviceBroaden and deepen our customer relationships/ |.