549300OWFMSO9NYV4H90-2023-03-31-T01

Non-financial information statement

Our integrated approach to reporting means that we address the requirements of the Non-Financial Reporting Directive through the

Strategic report.

The overall strategy of British Telecommunications plc (“BT plc” or the “Company”) is part of that of BT Group plc which is outlined in BT

Group plc’s Annual Report 2023, which does not form part of this report.

How we're organised

BT plc is the principal trading subsidiary of BT Group plc ("BT Group"), which is the ultimate parent company.

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.

Customer-facing units

Our four customer-facing units (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.

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.

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 communications providers (CPs).

Global serves multinational companies and governments, with a presence in c. 180 countries. Our expertise helps customers with

connectivity, cloud and cyber security solutions.

Openreach operates with strategic and operational autonomy in line with our regulatory Commitments. 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.

Technology units

Our technology units (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.

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.

Corporate units

Our corporate units (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.

Strategic report

Key performance indicators

We use nine KPIs – five operational and four financial. We reconcile adjusted financial measures to the closest IFRS measure on page 143.

Operational

BT Group Net Promoter Score (NPS)

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.

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.

Total Openreach FTTP connections

This tracks how many premises are connected to Openreach’s full fibre (FTTP) network.

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.

Total 5G connections

This measures the number of BT retail connections to the 5G network.

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.

Percentage reduction in carbon emissions intensity

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 CO2e (carbon dioxide equivalent) per £m value added (adjusted EBITDAa plus employee costs).

Against our carbon emission intensity reduction target this year we achieved a 56% reduction from our baseline year (FY17) (FY22: 55%).

Cumulative number of people reached to help improve their digital skills

This measures the number of people we’ve reached with help to improve their digital skills.

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.

Financial

Reported revenue

This is our revenue as reported in our income statement.

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.

Adjusteda EBITDA

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.

Adjusteda EBITDA was £7,930m (FY22: £7,579m). 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.

Adjusteda EBITDA margin

This measures our margin, calculated using our adjustedb EBITDA as a percentage of adjusted revenue.

Adjusteda 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.

Reported capital expenditure

This measures additions to property, plant and equipment and intangible assets during the year.

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.

Strategic report continued

Group performance

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.

Summarised income statement (reported measures)


	2023	2022
Year ended 31 March	£m	£m
Revenue	20,681	20,850
Operating costs	(13,242)	(13,558)
Depreciation and amortisation	(4,818)	(4,405)
Operating profit	2,621	2,887
Net finance expense	(447)	(801)
Share of post tax profit (loss) of associates and joint ventures	(59)	—
Profit before tax	2,115	2,086
Tax	176	(689)
Profit for the year	2,291	1,397

Alternative performance measures

We assess the performance of the group using various alternative performance measures. As these measures 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 page

143. The alternative performance measures we use may not be directly comparable with similarly-titled measures used by other companies.

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.

You can find details of revenue by CFU in Note 4 of the consolidated financial statements. Note 5 to the consolidated financial statements

shows a full breakdown of reported revenue by all our major product and service categories.

Operating costs

Reported operating costs were £18,060m, 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.

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

Adjusteda EBITDA

Adjusteda EBITDA of £7,930m increased by 5% primarily due to our cost transformation programme and and the removal of BT Sport costs,

partially offset by cost inflation and decline in reported revenue.

Profit before tax

Reported profit before tax of £2,115m was up 1%, with decreases in net finance expense partially offset by increased operating costs and

losses of associates and joint ventures, and decreased revenue. The movement in net finance expense was mainly driven by increased finance

income on intra-group loan receivables, which is now calculated based on risk-free rates following IBOR reform and which reflects market

conditions..

Specific items

As we explain on page 143, 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 adjusteda results as presented in the

consolidated income statement. Adjusteda 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.

Taxation

The effective tax rate on reported profit was -8.3% (FY22: 33.0%) 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.

Strategic report continued

The effective tax rate on adjusteda profit was 4.9% (FY22: 14.1%) as we expect a large proportion of our capital spend on fibre rollout to

qualify for the Government’s super deduction scheme.

a Items presented as adjusted are stated before specific items. See page 143 for more information

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.

Note 10 to the consolidated financial statements shows further details of our tax expense, along with our key tax risks.

Dividends

In FY23 a dividend of £850m was paid to the parent company, BT Group Investments Limited (FY22: no dividends paid). The directors

recommend payment of a final dividend in respect of FY23 of £850m (FY22: £850m).

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 £6,725m, up 14%.

Summarised balance sheet


	2023	2022
At 31 March	£m	£m
Intangible assets	13,695	13,817
Property, plant & equipment	21,667	20,599
Right-of-use assets	3,981	4,429
Derivative financial instruments	1,479	1,091
Cash and cash equivalents	384	772
Investments	14,493	13,792
Trade and other receivables	3,590	2,988
Preference shares in joint ventures	555	—
Contract assets	1,934	1,915
Deferred tax assets	709	289
Other current and non-current assets	1,208	1,191
Total assets	63,695	60,883
Loans and other borrowings	18,521	16,770
Derivative financial instruments	383	870
Trade and other payables	7,402	6,735
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	38,156	35,032
Total equity	25,539	25,851

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.

Strategic report continued

Our stakeholders

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, our senior leadership

team, the BT Group Executive Committee, and the BT Group Board and its committees. The BT Group Board is the Board of our ultimate

parent undertaking.

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. Whilst for reasons of efficiency and effectiveness, much of this engagement takes place at a BT Group level, the

Board has regard for the interests of its key stakeholders as part of its decision-making.

Colleagues

Engaging with our over 99,000 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

The BT Group Board gets regular updates from the Chief Executive and Chief HR Officer – on colleagues, key people strategy initiatives,

culture and overall sentiment in the organisation.

The BT Group Board uses the Colleague Board to engage with our workforce under the UK Corporate Governance Code 2018.

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.

‘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).

Diversity and inclusion (D&I)

The BT Group 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. 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 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.

Health, safety and wellbeing

The wellbeing of our people has always been at the heart of how we do business. 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 at the workplace.

Strategic report continued

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 BT Group Executive

Committee and BT Group Board. Sickness absence rate was 3.87% and work related mental ill health was 8.3%, a 19% reduction over last

year.

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 BT Group Executive Committee and the BT Group Board monitor how we’re delivering for customers – regularly

tracking and reviewing metrics including NPS.

The BT Group 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.

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 KPIs (see

page 4).

We use customer surveys and reputation tracking to understand community perceptions of us and inform our focus areas and targets.

The BT Group Executive Committee reviews this feedback monthly and it’s shared with the BT Group Board quarterly.

The BT Group 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. (Source: ‘The Economic Impact of BT Group plc in the UK’ Report, 2023 edition,

based on FY22 data.)

Strategic report continued

We spend over £9.3bn a year with UK-based suppliers and support £1 in every £80 of UK Gross Value Added. (Source: ‘The Economic Impact

of BT Group plc in the UK’ Report, 2023 edition, based on FY22 data.)

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.

We give extra support to around 1m households through through our social tariffs and subsidised products.

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.

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’) cashflow 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. 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. 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.

UK Government

We add over £24bn to the UK economy each year (source: ‘The Economic Impact of BT Group plc in the UK’ Report, 2023 edition, based on

FY22 data). 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.

Strategic report continued

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 the 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 the BT Group 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 BT Group Board is updated on government discussions through the BT Group Chairman, Chief Executive and Executive Committee

members. The BT Group 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 result

We have a positive, open dialogue with Ofcom through the BT Group 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 BT Group 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 BT Group Board are regularly updated on any key meetings between Ofcom and the BT Group Chairman, Chief Executive and others.

Strategic report continued

The BT Group Manifesto

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

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 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.

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.

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.

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.

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.

Inclusive: future tech must be diverse and inclusive so that everyone benefits

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.

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 KPI target of 25m by the end of FY26.

Strategic report continued

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.

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 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 7.

Sustainable: tech must accelerate our journey to net zero emissions and to 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

CO2e 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 KPI (see page 4).

Strategic report continued

One of the biggest ways we can cut carbon comes from our energy usage. All of our electricity worldwide is renewably sourced1, 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 CO2e. In total, we have over 2,400 EVs in our fleet.

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 BREEAM2-

Excellent standard.

Our new Bristol Assembly building has now opened. We expect it to save more than 140 tonnes of CO2e 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.

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 CO2e this year. This is an increase on FY22, caused by additional

spend on carbon-intensive goods and services associated with our full fibre roll out.

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.

Strategic report continued

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.

2 Building Research Establishment’s Environmental Assessment Method, the world’s leading sustainability assessment for infrastructure.

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 handling3. 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 20264). 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 has 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 1,531,893m3, 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.

Human rights

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.

Our Human Rights Policy Commitment and our Modern Slavery Statement can be found at bt.com/ourpolicies

Research and development (R&D) and innovation

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.

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.

Strategic report continued

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.

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 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 a BT Group 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 focussed 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:

–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)

–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 their 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.

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 the BT Group long-term viability analysis, we’ve also considered the effects of sustained inflation on our

business.

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.

Strategic report continued


Supply management	Cyber security
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.	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 BT Group 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.

Strategic report continued

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 the BT Group viability analysis, put forward for each GRC, are also noted here. Each

GRC has a BT Group Executive Committee sponsor.

Strategic

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 BT Group Executive Committee and Board discusses key

strategic topics throughout the year

–the BT Group 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.

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

–our Manifesto 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.

Scenario considered in viability analysis/planning

Impact of potential changes in Government policy on investment

and commercial ambitions.

Strategic report continued

Financial

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, BT

Group 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 risks:

–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 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 risks:

–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.

Strategic report continued

Compliance

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 onto 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 risks:

–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.

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 risks:

–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 Artificial Intelligence.

Scenario considered in viability analysis/planning

A data breach leading to regulatory investigation, enforcement

action and reputational damage.

Strategic report continued

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 risks:

–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.

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 roll out

and projected revenue.

Strategic report continued

Operational

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.

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.

Strategic report continued

People

Sponsor: Chief HR 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

–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.

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 healthy, 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 risks:

–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.

Strategic report continued

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.

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 risks:

–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.

Strategic report continued

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 risks:

–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.

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 BT Group Executive

Committee and BT Group Board monthly

–we hold monthly BT Group 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 risks:

–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.

The strategic report was approved by the Board of Directors on 7 June 2023 and signed on its behalf by:

Simon Lowth

Director

Strategic report continued

In accordance with section 172 of the Companies Act 2006, each of our directors acts in the way he or she considers, in good faith, would most

likely promote the success of the company for the benefit of its members as a whole. Our directors have regard, amongst other matters, to

the:

•likely consequences of any decisions in the long-term;

•interests of the company’s employees;

•need to foster the company’s business relationships with suppliers, customers and others;

•impact of the company’s operations on the community and environment;

•desirability of the company maintaining a reputation for high standards of business conduct; and

•need to act fairly as between members of the company.

In discharging its section 172 duties the Company has regard to the factors set out above. The Company also has regard to other factors

which consider relevant to the decision being made. Those factors, for example, include the interests and views of its pensioners, Bondholders

and its relationship with Ofcom. The Company acknowledges that every decision it makes will not necessarily result in a positive outcome for

all of its stakeholders. By considering the Company’s purpose, vision and values together with its strategic priorities and having a process in

place for decision-making, the Company does, however, aim to make sure that its decisions are consistent and predictable.

As is normal for large companies, the Company delegates authority for day-to-day management of the Company to executives and then

engage management in setting, approving and overseeing the execution of the business strategy and related policies. The Company also

reviews other areas over the course of the financial year including the Company’s financial and operational performance; stakeholder-related

matters; diversity and inclusivity; and corporate responsibility matters. This is done through the consideration and discussion of reports which

are sent in advance of each Board meeting and through presentations to the Board.

The views and the impact of the Company’s activities on the Company’s stakeholders (including its workforce, customers and suppliers) are

an important consideration for it when making relevant decisions. While there are cases where the Board itself judges that it should engage

directly with certain stakeholder groups or on certain issues, the size and spread of both the stakeholders and the BT Group means that

generally stakeholder engagement best takes place at an operational or group level. The Company finds that as well as being a more efficient

and effective approach, this also helps it achieve a greater positive impact on environmental, social and other issues than by working alone as

an individual company. For details on the some of the engagement that has taken place with the Company’s stakeholders so as to help the

directors to understand the issues to which they must have regard, and the impact of that feedback on decisions, please see the stakeholders

section in the strategic report of BT Group plc’s 2023 Annual Report.

During the period the Company received information to help it understand the interests and views of the Company’s key stakeholders and

other relevant factors when making decisions. This information was distributed in a range of different formats including in reports and

presentations on the Company’s financial and operational performance, non-financial KPIs, risk, environmental, social and corporate

governance matters and the outcomes of specific pieces of engagement. As a result of this the Company has had an overview of engagement

with stakeholders and other relevant factors which allows it to understand the nature of the stakeholders’ concerns and to comply with its

section 172 duty to promote success of the company.

One example of how the Company has had regard to the matters set out in section 172(1)(a)-(f) when discharging its section 172 duties and

the effect of that on decisions taken by it, was the decision to enter into an agreement to create a new joint venture incorporating both the

Company’s BT Sport business and the Warner Bros Discovery Eurosport business in the UK & Republic of Ireland.

In making this decision the Board considered a range of factors. These included the Company’s financing requirements and the ongoing need

for strategic review. The Board further considered the needs and expectations of the Company’s stakeholders such as shareholders,

employees, suppliers, customers, pensioners and the Financial Conduct Authority.

Section 172 statement

The directors present their report and the audited financial statements of the Company, British Telecommunications plc, and the group,

which includes its subsidiary undertakings, for the year ended 31 March 2023. The audited consolidated financial statements are presented

on pages 37 to 106 and the audited entity only financial statements are presented on pages 107 to 136.

A statement by the directors of their responsibilities for preparing the financial statements is included in the Statement of directors’

responsibilities on page 30.

Principal activity

The Company is the principal trading subsidiary of BT Group plc ("BT Group"), which is the ultimate parent company.

BT Group is the UK’s leading provider of fixed and mobile telecommunications and related secure digital products, solutions and services. We

also provide managed telecommunications, security and network and IT infrastructure services to customers across 180 countries.

We’re responsible for building and operating networks and delivering the connectivity-based solutions that are essential to modern lives,

businesses and communities. We’re the UK’s largest provider of consumer mobile, fixed and converged communications solutions. We also

keep UK and Republic of Ireland businesses and public sector organisations connected and provide network solutions to UK communications

providers. Globally we integrate, secure and manage network and cloud infrastructure and services for multinational corporations.

Openreach runs the UK’s main fixed connectivity access network, connecting homes, mobile phone masts, schools, shops, banks, hospitals,

libraries, broadcasters, governments and big and small businesses to the world.

As well as being the principal trading subsidiary of BT Group plc, British Telecommunications plc directly or indirectly controls all other trading

subsidiaries of the BT Group.

Directors

Neil Harris, Edward Heaton, Simon Lowth and Daniel Rider served as directors throughout the year. Roger Eyre was appointed on 3 April

2023. Martin Smith served as a director until his resignation on 3 April 2023.

Critical accounting estimates, key judgements and significant accounting policies

Our critical accounting estimates and key judgements, and significant accounting policies conform with UK-adopted international

accounting standards and the requirements of the Companies Act 2006, and are set out on page 43 of the consolidated financial statements

and page 110 of the entity only financial statements. The directors have reviewed these policies and applicable estimation techniques, and

have confirmed 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 Companies Act 2006) that

has not been disclosed to the auditor. Each of the directors confirms that all steps have been taken that ought to have been taken to make

them aware of any relevant audit information and to establish that the auditor has been made aware of that information.

Dividend

A dividend of £850m was paid to the parent company, BT Group Investments Ltd (FY22: £nil) . The directors recommend payment of a final

dividend of £850m (FY22: £850m).

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 3 to 24 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 5 to 6 includes information on

our group financial results and balance sheet position. Notes 22, 24, 25 and 27 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 17 to 24 including details of each risk and how we manage and mitigate them. The

directors carried out a robust assessment of the emerging and principal risks affecting the group, including any that could threaten our

business model, future performance, insolvency or liquidity.

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 2023, which is consistent with the 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 emerging and principal risks.

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 year-end and are not subject to renewal until March 2027.

Directors’ and officers’ liability insurance and indemnity

For some years, BT Group plc has purchased insurance to cover the directors, officers and employees in positions of managerial supervision of

BT Group plc and its subsidiaries (including the Company). This is intended to protect against defence costs, civil damages and, in some

circumstances, civil fines and penalties following an action brought against them in their personal capacity. The policy also covers individuals

serving as directors of other companies or of joint ventures or on boards of trade associations or charitable organisations at BT Group plc’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 BT Group plc, subject to a retention, with cover against the cost of indemnifying a director or officer. One layer of insurance is

ringfenced for the directors of BT Group plc.

Report of the Directors

As at 7 June 2023, and throughout FY23, 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 the company’s Articles of Association, and to the extent permitted by law, BT Group indemnifies each of its directors and

other officers of the group 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 is currently in force.

Systems of risk management and internal control

The Board of BT Group plc is responsible for reviewing the group’s systems of risk management and internal control each year, and 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 achieving our business objectives and delivering our strategy. Any system can provide only reasonable, and not

absolute, assurance against material misstatement or loss.

The BT 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 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 on pages 15 to 16.

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 BT Group 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 BT Group Audit & Risk Committee, on behalf of the Board, reviews

the effectiveness of the systems of risk management and internal control across the group.

Capital management and funding

The capital structure of the Company is managed by BT Group plc. The policies described here apply equally to both BT Group plc and group

companies. 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, the BT Group plc

Board may issue or repay debt, issue new shares, repurchase shares, or adjust the amount of dividends paid to shareholders. The BT Group plc

Board manage the capital structure and make adjustments to it accordingly to reflect changes in economic conditions and the risk

characteristics of the group. The BT Group Board regularly reviews the capital structure. No changes were made to these objectives and

processes during FY23.

Financial instruments

Details of the group’s financial risk management objectives and policies of the group and exposure to interest risk, credit risk, liquidity risk and

foreign exchange are given in note 27 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, BT Group plc’s central treasury function monitors the credit quality across treasury counterparties and

actively manages any exposures that arise. Management within the business units also actively monitors any exposures arising from trading

balances.

Off-balance sheet arrangements

Other than the financial commitments and contingent liabilities disclosed in note 31 to the consolidated financial statements, there are no

off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on: our financial condition;

changes in financial condition; revenues or expenses; results of operations; liquidity; capital expenditure; or capital resources.

Post balance sheet events

Any material post balance sheet events have been disclosed in note 32 of the consolidated financial statements and note 23 of the entity only

financial statements.

Legal proceedings

The group is involved in various legal proceedings, including actual or threatened litigation and, government or regulatory investigations. For

further details of legal and regulatory proceedings to which the group is party please see note 18 to the consolidated financial statements.

Apart from the information disclosed in note 18 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 18, 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 of investigations are in early stages, no damages or remedies have been specified, and/or the

frequently slow pace of litigation.

Report of the Directors continued

Employee engagement

Engaging with our colleagues takes many forms including through our annual Your Say survey, union/employee representative engagement,

pulse surveys, the Colleague Board (established by BT Group plc) and regular colleague communications. Colleagues are kept well informed

on matters such as the strategy and performance of BT Group plc and its group, including after certain key events such as quarterly trading

updates.

Employees with disabilities

We are an inclusive employer and actively encourage the recruitment, development, promotion and retention of people with a disability. We

have well established global practices to support colleagues who have or acquire disabilities or health conditions during their employment.

Our disability practices also include those colleagues who are employed by the company who have caring responsibilities.

We have established a Disability Rapid Action Plan across our business to help us make faster progress as part of our Valuable 500

commitments on disability inclusion. The plan is amplifying colleagues’ voices through our Able2 People Network and helping us embed

disability inclusion right across our business.

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 the Company, and enhancing their understanding of BT.

During FY23, British Telecommunications plc paid the costs of colleagues joining corporate days 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.

Branches

Details of our branches outside the UK are set out on pages 137 to 142.

Governance Statement

The Board aspires to have and maintain good standards of corporate governance and has adopted a corporate governance code appropriate

for the company.

The Board has chosen not to adopt and report against the 2018 UK Corporate Governance Code, which in its view is designed, and is

therefore more appropriate, for premium listed companies. Whilst we support the introduction of the Wates Corporate Governance

Principles for Large Private Companies, we consider that they are less suitable for a wholly-owned subsidiary of a premium listed Company.

We have therefore adopted our own corporate governance code in the form of four overarching principles as set out below, which we believe

are appropriate for the company and are designed to ensure effective decision-making to promote the company’s long-term success.

The principles which underpin our corporate governance code and how these principles have been applied during the financial year ended

31st March 2023 are shown below:

Principle One: Leadership

“The Company is led by a Board of directors who promote the success of the Company for the benefit of its members, ensuring that it

operates with a clear sense of purpose that aligns with its values, strategy and culture.”

The strategy and culture of the Company is underpinned by a clear vision of the company’s purpose and overall values which are articulated

through the leadership of the Board (having reference to the BT Group’s strategy, culture and values). Given the importance of this, the

Board seeks to promote the values, strategy and culture at different levels within the business. Culture remains an area of focus, with the

Board promoting ethical leadership and accountability to achieve a dynamic and positive culture.

Principle Two: Board composition

“The Board has an appropriate composition and size to enable it to effectively lead the Company.”

The size and composition of the Board is appropriate and proportionate for the business of the Company. The directors have an appropriate

combination of technical, financial and commercial skills, collectively demonstrating a high-level understanding of the Company’s business

model and its impact on key stakeholders.

All appointments to the Board are based on merit and objective criteria. Diversity remains an area of focus as we continue to build a workforce

that reflects the diversity of our customers and the communities we serve.

Principle Three: Directors’ responsibilities

“Directors have a clear understanding of their accountability and responsibilities. The Board’s policies and practices should support effective

decision making and independent challenge.”

•On joining the Board, new directors receive information on the company, are offered advice from the company secretary, and can

request training tailored to their specific experience and knowledge, covering both their legal duties and the business of the

company.

•On an ongoing basis, directors update their skills, knowledge and familiarity with the company in a range of different ways by

meeting with senior management, visiting operations and by attending appropriate external and internal seminars and training

sessions. This helps by continuing to contribute to their informed and sound decision-making.

•Directors have a responsibility to declare any conflict of interest at the beginning of each Board meeting. Should a conflict arise, it

would be the responsibility of the chair in conjunction with the non-conflicted directors to agree whether the director may

participate and/or vote on the specific item.

Report of the Directors continued

The directors have equal voting rights when making decisions, except the chair, who has a casting vote. All directors have access to the advice

and services of the company secretary and may, if they wish, take professional advice at the company’s expense.

Principle Four: Stakeholder relationship and engagement

“The Board should build and maintain effective relationships with stakeholders.”

The Board seeks to understand the views of its key stakeholders, and the impact of its behaviour and business on employees, customers,

suppliers and society more broadly. Whilst for reasons of efficiency and effectiveness, much of this engagement takes place at a BT Group

level, the Board receives updates on its key stakeholders and the mechanisms and initiatives for engagement. For more information on group

level engagement with key stakeholders, see the BT Group plc 2022 Annual Report and the Section 172 statement.

When making decisions, the Board considers the potential impact on its key stakeholders, including the BT Pension Scheme and its

members.The Board aspires to have and maintain good standards of corporate governance and has adopted a corporate governance code

appropriate for the Company.

Cross reference to the Strategic report

We have chosen to include the following information in the Strategic report in line with the Companies Act 2006 (otherwise required by law to

be included in the Report of the Directors):

•An indication of likely future developments in the business of the Company and its group (pages 3 to 14)

•An indication of our research and development activities (page 14)

•Information on how the group (and BT Group plc) engages with colleagues, and how regard has been had to the interests of

colleagues and the need to foster business relationships with suppliers, customers and others, and the effect of that regard during

the year (pages 7 to 10)

•Anti-bribery and corruption (page 9)

•Social and community (pages 8 to 9)

•Human rights (page 14)

By order of the Board

Antony Gara

Secretary

7 June 2023

Report of the Directors continued

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 and a directors’ report that

comply with such law and regulation.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's

website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other

jurisdictions.

Responsibility statement of the Board in respect of the annual financial report

We confirm that, to the best of our knowledge:

–the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the

assets, liabilities, financial position and profit or loss of the 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 7 June 2023 and was signed on its behalf by

Simon Lowth

Director

7 June 2023

Statement of directors’ responsibilities

1. Our opinion is unmodified

We have audited the financial statements of British

Telecommunications plc (“the Company”) for the year ended 31

March 2023 which comprise the Group income statement, Group

statement of comprehensive income, Group balance sheet, Group

statement of changes in equity, Group cash flow statement,

company balance sheet, company statement of changes in equity,

and the related notes, including the accounting policies.

In our opinion:

–the financial statements give a true and fair view of the state of the

Group’s and of the Parent Company’s affairs as at 31 March 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 financial statements have been prepared in accordance with

the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards

on Auditing (UK) (“ISAs (UK)”) and applicable law. Our

responsibilities are described below. We believe that the audit

evidence we have obtained is a sufficient and appropriate basis for

our opinion. Our audit opinion is consistent with our report to the

board.

We were first appointed as auditor by the shareholders on 11 July

2018. The period of total uninterrupted engagement is for the five

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 Board has confirmed Jon Mills as

his successor. 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.

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 British Telecommunications plc’s 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 Board have

concurred with this view.

2. Key audit matters: our assessment of risks of

material misstatement

Key audit matters are those matters that, in our professional

judgement, were of most significance in the audit of the financial

statements and include the most significant assessed risks of

material misstatement (whether or not due to fraud) identified by us,

including those which had the greatest effect on: the overall audit

strategy; the allocation of resources in the audit; and directing the

efforts of the engagement team. We summarise below the key audit

matters), in decreasing order of audit significance, in arriving at our

audit opinion above, together with our key audit procedures to

address those matters and, as required for public interest entities,

our results from those procedures. These matters were addressed,

and our results are based on procedures undertaken, in the context

of, and solely for the purpose of, our audit of the financial statements

as a whole, and in forming our opinion thereon, and consequently are

incidental to that opinion, and we do not provide a separate opinion

on these matters.

2.1 Disposal of BT Sport And Re-Investment in Sports JV


	FY23	FY22
Profit on disposal after tax	£28m	£nil
Joint ventures and associates	£414m	£nil
Other Payables - Minimum guarantee from BT Sport Disposal	£712m	£nil

Our assessment of risk vs FY22


À	Not applicable - The disposal of BT Sport is a new transaction in the year Refer to pages 86 to 93 (financial disclosures note 21 and 23 divestments and joint venture)

The risk - 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 23.

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

21. 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 21.

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 21) disclose the sensitivity estimated by the

Group.

KPMG LLP's Independent Auditor's Report to the members of British

Telecommunications plc

Our response - our procedures 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.

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 arm’s 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.

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.

2.2 Valuation of unquoted investments in the BT Pension

Scheme (BTPS)


	FY23	FY22
Certain unquoted investments in the BTPS: included within the unquoted BTPS plan assets	£38.7bn	£53.5bn
Parent Company balance sheet only	£40.0bn	£54.9bn

Our assessment of risk vs FY22


ê	Decrease Refer to page 73 and 76 (note 19 accounting policy Retirement benefit plans) and pages 73 to 84 (disclosures note 19 Retirement benefit plans)

The risk - 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 19) 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 British

Telecommunications plc continued

Parent Company balance sheet only:

The Parent Company financial statements of British

Telecommunications plc have an additional unquoted plan asset, the

asset backed funding arrangement for which the key unobservable

inputs used to determine the fair value include the discount rate and

the probability of payment of each future cash flow, which depends

on the future funding position of the BTPS.

Our response - our procedures 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.

Parent Company balance sheet only: Asset backed funding

arrangement:

Along with assessing the valuer’s credentials and assessing the

transparency of disclosures we performed the following additional

procedures:

Comparing valuations: Challenging, with the support of our

valuation specialists, the fair value of the asset back funding

arrangement by comparing it to an independently developed fair

value using assumptions, such as the discount rate, based on

external data and projected future cash flows based on a replication

of management’s models of the probability of future cash flows.

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).

2.3 Valuation of defined benefit obligation of the BT

Pension Scheme (BTPS)


	FY23	FY22
Group balance sheet: BTPS obligation	£41.5bn	£54.3bn
Parent Company balance sheet: BTPS obligation	£41.6bn	£54.3bn

Our assessment of risk vs FY22


é	Increased Refer to page 73 and 77 (note 19 accounting policy Retirement benefits) and pages 73 to 84 (disclosures note 19 Retirement benefit plans).

The risk - subjective estimate

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 19) disclose the sensitivity of key

assumptions for the obligation estimated by the Group.

Our response - our procedures 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 Group 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.

Our results

We found the resulting estimate and related disclosures of the BTPS

defined benefit obligation to be acceptable (2022 result:

acceptable).

KPMG LLP's Independent Auditor's Report to the members of British

Telecommunications plc continued

2.4 Accuracy of revenue due to the complexity of billing

systems


	FY23	FY22
Certain revenue streams: included within the total revenue	£20.7bn	£20.9bn

Our assessment of risk vs FY22


çè	Unchanged Refer to pages 48 to 51 (financial disclosures note 5 Revenue)

The risk - processing error

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 of the

Group.

Our response - our procedures 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 details: Comparing a sample of revenue transactions,

including credit notes, to supporting evidence e.g. customer bills,

orders, price lists, contractual terms, proof of service 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.

Our results

We considered revenue relating to non-long-term contract revenue

to be acceptable (2022 result: acceptable).

3. Our application of materiality and an overview

of the scope of our audit

Materiality for the Group financial statements as a whole was set at

£95 million (2022: £85 million), determined with reference to a

benchmark of normalised profit before tax

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 £2.291bn. In FY22, we determined normalised profit

before tax of £2.512bn by averaging over the last 5 years due to

fluctuations as a result of Covid-19. In setting overall Group

materiality, we applied a percentage of 4.15% (2022: 3.4%) to the

benchmark.

Materiality for the Parent Company financial statements as a whole

was set at £80 million (2022: £85 million), determined with

reference to a benchmark of total net assets, of which it represents

0.52% (2022: 0.59%), and chosen to be lower than materiality for

the Group financial statements as a whole.

In line with our audit methodology, 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.

Performance materiality was set at 65% (2022: 65%) of materiality

for the financial statements as a whole, which equates to £62 million

(2022: £55 million) for the Group and £52 million (2022: £55

million) for the Parent Company. We applied this percentage in our

determination of performance materiality based on the level of

identified control deficiencies during the prior years.

We agreed to report the Board any corrected or uncorrected

identified misstatements exceeding £4 million (2022: £5 million), in

addition to other identified misstatements that warranted reporting

on qualitative grounds.

Consistent with prior year, we define components of the Group

based on legal entity. Of the Group’s 225 (2022: 234) reporting

components, we subjected 2 (2022: 4) to full scope audits and 1

(2022: Nil) to an audit of the payroll account balance. Testing of IT

Systems and Litigation and Claims was performed by the Group

audit team on behalf of the Group and component teams.

The components within the scope of our work accounted for the

following percentages:


	Group revenue	Group profit before tax	Group total assets
Audits for group reporting purposes	86%	78%	90%
2022	90%	83%	97%

The remaining 14% (2022: 10%) of total Group revenue, 22%

(2022: 17%) of Group profit before tax and 10% (2022: 3%) of total

Group assets is represented by 222 (2022: 229) reporting

components, none of which individually represented more than 5%

(2022: 6%) of any of total Group revenue, Group profit before tax or

total Group assets. For the residual components, we performed

analysis at an aggregated Group level to re-examine our assessment

that there were no significant risks of material misstatement within

these.

The work on all components, excluding the audit of EE Limited, was

performed by the Group audit team. The Parent Company was also

audited by the Group audit team. The Group team instructed the EE

component auditor as to the significant areas to be covered,

including the risks identified above and the information to be

reported back.

The Group team approved the component materialities, which

ranged from £35 million to £80 million (2022: £20 million to £85

million), having regard to the mix and size and risk profile of the

Group across components.

The Group audit team met frequently on video conference meetings

and had in person meetings with the EE component audit team as

part of the audit planning and completion stages to explain our audit

instructions and discuss the component auditor’s plans as well as

performing file reviews upon the completion of the component

auditor’s engagement.

At these meetings with component auditors, the findings reported to

the Group team were discussed in more detail, and any further work

required by the Group team was then performed by the component

auditor.

The scope of the audit work performed was predominately

substantive as we placed limited reliance upon the Group’s internal

control over financial reporting.

KPMG LLP's Independent Auditor's Report to the members of British

Telecommunications plc continued

4. Going concern

The directors have prepared the financial statements on the going

concern basis as they do not intend to liquidate the Group or the

Company or to cease their operations, and as they have concluded

that the Group’s and the 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”).

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.

We also assessed the completeness of the going concern disclosure.

Our conclusions based on this work

–we consider that the directors’ use of the going concern basis of

accounting in the preparation of the 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 Company's ability to continue as a going

concern for the going concern period;

–we found the going concern disclosure in note 1 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

Company will continue in operation.

5. Fraud and breaches of laws and regulations -

ability to detect

Identifying and responding to risks of material

misstatement due to fraud

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 board, 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 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.

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.

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.

We 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.

Identifying and responding to risks of material

misstatement due to non-compliance with laws and

regulations

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.

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.

KPMG LLP's Independent Auditor's Report to the members of British

Telecommunications plc continued

Firstly, the Group is subject to laws and regulations that directly

affect the financial statements including financial reporting

legislation (including related companies legislation), distributable

profits legislation, taxation legislation, and pension legislation and

we assessed the extent of compliance with these laws and

regulations as part of our procedures on the related financial

statement items.

Secondly, the Group is subject to many other laws and regulations

where the consequences of non-compliance could have a material

effect on amounts or disclosures in the financial statements, for

instance through the imposition of fines or litigation or the loss of the

Group’s licence to operate. We identified the following areas as

those most likely to have such an effect: anti-bribery, regulations

affecting telecommunication providers, and certain aspects of

company legislation recognising the financial and regulated nature

of the Group’s activities (including compliance with Ofcom

regulation) 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.

We discussed with the board 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 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. We have nothing to report on the other

information in the Annual Report

The directors are responsible for the other information presented in

the Annual Report together with the financial statements. Our

opinion on the financial statements does not cover the other

information and, accordingly, we do not express an audit opinion or,

except as explicitly stated below, any form of assurance conclusion

thereon.

Our responsibility is to read the other information and, in doing so,

consider whether, based on our financial statements audit work, the

information therein is materially misstated or inconsistent with the

financial statements or our audit knowledge. Based solely on that

work we have not identified material misstatements in the other

information.

Strategic report and directors' report

Based solely on our work on the other information:

–we have not identified material misstatements in the strategic

report and the directors’ report;

–in our opinion the information given in those reports for the

financial year is consistent with the financial statements; and

–in our opinion those reports have been prepared in accordance

with the Companies Act 2006.

7. We have nothing to report on the other matters

on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if,

in our opinion:

–adequate accounting records have not been kept by the Parent

Company, or returns adequate for our audit have not been

received from branches not visited by us; or

–the Parent Company financial statements and the part of the

directors’ Remuneration Report to be audited are not in

agreement with the accounting records and returns; or

–certain disclosures of directors’ remuneration specified by law are

not made; or

–we have not received all the information and explanations we

require for our audit.

We have nothing to report in these respects.

8. Respective responsibilities

Directors’ responsibilities

As explained more fully in their statement set out on page 27, 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.

9. The purpose of our audit work and to whom we

owe our responsibilities

This report is made solely to the Company’s members, as a body, in

accordance with Chapter 3 of Part 16 of the Companies Act 2006

and the terms of our engagement by the Company. Our audit work

has been undertaken so that we might state to the Company’s

members those matters we are required to state to them in an

auditor’s report and the further matters we are required to state to

them in accordance with the terms agreed with the Company, 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

7 June 2023

KPMG LLP's Independent Auditor's Report to the members of British

Telecommunications plc continued


		Before specific items ('Adjusted')	Specific itemsa	Total (Reported)
	Notes	£m	£m	£m
Revenue	4, 5	20,669	12	20,681
Operating costs	6	(17,492)	(568)	(18,060)
Of which net impairment losses on trade receivables and contract assetsb		(138)	—	(138)
Operating profit (loss)	4	3,177	(556)	2,621
Finance expense	26	(894)	(5)	(899)
Finance income		452	—	452
Net finance expense		(442)	(5)	(447)
Share of post tax profit (loss) of associates and joint ventures	23	(59)	—	(59)
Profit (loss) before taxation		2,676	(561)	2,115
Taxation	10	(132)	308	176
Profit (loss) for the year		2,544	(253)	2,291

Group income statement

Year ended 31 March 2022


		Before specific items ('Adjusted')	Specific itemsa	Total (Reported)
	Notes	£m	£m	£m
Revenue	4, 5	20,845	5	20,850
Operating costs	6	(17,671)	(292)	(17,963)
Of which net impairment losses on trade receivables and contract assetsb		(102)	19	(83)
Operating profit (loss)	4	3,174	(287)	2,887
Finance expense	26	(837)	(101)	(938)
Finance income		137	—	137
Net finance expense		(700)	(101)	(801)
Share of post tax profit (loss) of associates and joint ventures	23	—	—	—
Profit (loss) before taxation		2,474	(388)	2,086
Taxation	10	(349)	(340)	(689)
Profit (loss) for the year		2,125	(728)	1,397

aFor a definition of specific items, see page 143. An analysis of specific items is provided in note 9.

bImpairment losses have been presented separately in accordance with IAS 1.

Group income statement

Year ended 31 March 2023


		2023	2022
	Notes	£m	£m
Profit for the year		2,291	1,397
Other comprehensive income (loss)
Items that will not be reclassified to the income statement
Remeasurements of the net pension obligation	19	(2,876)	2,865
Tax on pension remeasurements	10	732	(399)
Items that have been or may be reclassified to the income statement
Exchange differences on translation of foreign operations	28	87	65
Fair value movements on assets at fair value through other comprehensive income	28	(3)	6
Movements in relation to cash flow hedges:
– net fair value gains (losses)	28	1,055	204
– recognised in income and expense	28	(713)	(54)
Tax on components of other comprehensive income that have been or may be reclassified	10, 28	(90)	(31)
Share of post tax other comprehensive loss in associates and joint ventures	23	(1)	—
Other comprehensive (loss) income for the year, net of tax		(1,809)	2,656
Total comprehensive income (loss) for the year		482	4,053

Group statement of comprehensive income

Year ended 31 March


		2023	2022
	Notes	£m	£m
Non-current assets
Intangible assets	12	13,695	13,817
Property, plant and equipment	13	21,667	20,599
Right-of-use assets	14	3,981	4,429
Derivative financial instruments	27	1,397	1,003
Investments	22	10,945	11,113
Joint ventures and associates	23	359	5
Trade and other receivables	16	503	337
Preference shares in joint ventures	23	542	—
Contract assets	5	369	361
Retirement benefit surplus	19	52	—
Deferred tax assets	10	709	289
		54,219	51,953
Current assets
Programme rights	15	—	310
Inventories		349	300
Trade and other receivables	16	3,087	2,651
Preference shares in joint ventures	23	13	—
Contract assets	5	1,565	1,554
Assets classified as held for sale	21	21	80
Current tax receivable		427	496
Derivative financial instruments	27	82	88
Investments	22	3,548	2,679
Cash and cash equivalents	24	384	772
		9,476	8,930
Current liabilities
Loans and other borrowings	25	1,772	873
Derivative financial instruments	27	86	51
Trade and other payables	17	6,508	6,137
Contract liabilities	5	859	833
Lease liabilities	14	800	795
Liabilities classified as held for sale	21	4	40
Current tax liabilities		78	90
Provisions	18	229	222
		10,336	9,041
Total assets less current liabilities		53,359	51,842
Non-current liabilities
Loans and other borrowings	25	16,749	15,897
Derivative financial instruments	27	297	819
Contract liabilities	5	193	170
Lease liabilities	14	4,559	4,965
Retirement benefit obligations	19	3,139	1,143
Other payables	17	894	598
Deferred tax liabilities	10	1,620	1,960
Provisions	18	369	439
		27,820	25,991
Equity
Share capital		2,172	2,172
Share premium		8,000	8,000
Other reserves	28	1,664	1,326
Retained earnings		13,703	14,353
Total equity		25,539	25,851
		53,359	51,842

The consolidated financial statements on pages 37 to 106 were approved by the Board of Directors on 7 June 2023 and were signed on its

behalf by:

Simon Lowth

Director

Group balance sheet

At 31 March


		Share capitala	Share premiumb	Other reservesc	Retained earnings (loss)	Total equity (deficit)
	Notes	£m	£m	£m	£m	£m
At 1 April 2021		2,172	8,000	1,143	10,378	21,693
Profit for the year		—	—	—	1,397	1,397
Other comprehensive income (loss) – before tax		—	—	275	2,865	3,140
Tax on other comprehensive income (loss)	10	—	—	(31)	(399)	(430)
Transferred to the income statement		—	—	(54)	—	(54)
Total comprehensive income (loss) for the year		—	—	190	3,863	4,053
Share-based payments	20	—	—	—	105	105
Tax on share-based payments	10	—	—	—	11	11
Transfer to realised profit		—	—	(7)	7	—
Other movementsd		—	—	—	(11)	(11)
At 31 March 2022		2,172	8,000	1,326	14,353	25,851
Adoption of amendments to IAS 37	1	—	—	—	(12)	(12)
At 1 April 2022		2,172	8,000	1,326	14,341	25,839
Profit for the year		—	—	—	2,291	2,291
Other comprehensive income (loss) – before tax		—	—	1,141	(2,879)	(1,738)
Tax on other comprehensive income (loss)	10	—	—	(90)	732	642
Transferred to the income statement		—	—	(713)	—	(713)
Total comprehensive income (loss) for the year		—	—	338	144	482
Dividends to parent company	11	—	—	—	(850)	(850)
Share-based payments	20	—	—	—	77	77
Tax on share-based payments	10	—	—	—	(9)	(9)
At 31 March 2023		2,172	8,000	1,664	13,703	25,539

aThe allotted, called up, and fully paid ordinary share capital of the company at 31 March 2023 was £2,172m comprising 8,689,755,905 ordinary shares of 25p each (31 March 2022:

£2,172m comprising 8,689,755,905 ordinary shares of 25p each).

bThe share premium account, comprising the premium on allotment of shares, is not available for distribution.

cFor further analysis of other reserves, see note 28.

dIn 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.

Group statement of changes in equity


		2023	2022
	Notes	£m	£m
Cash flow from operating activities
Profit before taxation		2,115	2,086
Share of post tax loss (profit) of associates and joint ventures		59	—
Net finance expense		447	801
Operating profit		2,621	2,887
Other non-cash charges		86	73
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		4,818	4,405
(Increase) decrease in inventories		(47)	(3)
Decrease (increase) in programme rights		7	(17)
(Increase) decrease in trade and other receivables		(285)	(53)
(Increase) decrease in contract assets		(17)	(51)
Increase (decrease) in trade and other payables		234	97
Increase (decrease) in contract liabilities		41	(93)
(Decrease) increase in other liabilitiesa		(919)	(1,169)
(Decrease) increase in provisions		(109)	(80)
Cash generated from operations		6,589	5,959
Income taxes refunded (paid)		136	(52)
Net cash inflow from operating activities		6,725	5,907
Cash flow from investing activities
Interest received		41	6
Dividends received from joint ventures, associates and investments		9	1
Proceeds on disposal of subsidiaries, associates and joint ventures		29	76
Outflow on non-current amounts owed by ultimate parent company		(888)	(398)
Proceeds on disposal of current financial assetsb		11,868	13,402
Purchases of current financial assetsb		(12,705)	(12,432)
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 assetsc		(5,307)	(4,607)
(Increase) decrease in amounts owed by joint ventures	22	(265)	—
Settlement of minimum guarantee liability with sports joint venture	21	(61)	—
Net cash outflow from investing activities		(7,284)	(3,958)
Cash flow from financing activities
Interest paid		(709)	(755)
Repayment of borrowingsd		(513)	(1,374)
Proceeds from bank loans and bonds		2,203	744
Payment of lease liabilities		(727)	(659)
Cash flows from collateral received		(17)	(29)
Changes in ownership interests in subsidiaries		—	(86)
Increase (decrease) in amounts owed to joint ventures	25	11	—
Net cash outflow from financing activities		248	(2,159)
Net decrease in cash and cash equivalents		(311)	(210)
Opening cash and cash equivalentse		687	893
Net decrease in cash and cash equivalents		(311)	(210)
Effect of exchange rate changes		(3)	4
Closing cash and cash equivalentse	24	373	687

aIncludes pension deficit payments of £994m (FY22: £1,121m).

bPrimarily consists of investment in and redemption of amounts held in liquidity funds.

cConsists of additions to property, plant and equipment, engineering stores and software of £5,056m (FY22: £4,807m) 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.

eNet of bank overdrafts of £11m (FY22: £85m).

Group cash flow statement

Year ended 31 March

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.

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.

These financial statements consolidate British Telecommunications

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

British Telecommunications 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.

We have assessed the impact of the standard on the group and the

BT 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 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)

Notes to the consolidated financial statements

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 BT

Group plc Board and the BT Group plc 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 of BT

Group plc.

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
12. Goodwill impairment		ü	ü
14. Reasonable certainty and determination of lease terms			ü
18. Contingent liabilities associated with litigation		ü	ü
18. Other provisions and contingent liabilities		ü	ü
19. Valuation of pension assets and liabilities	ü		ü
23. BT Sport joint venture	ü		ü

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 British Telecommunications 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

Notes to the consolidated financial statements continued

1. Basis of preparation continued

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 13.

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.

Notes to the consolidated financial statements continued

3. Significant accounting policies that apply to the overall 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 of BT Group plc, 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 of BT Group plc. 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.

Notes to the consolidated financial statements continued

Segment revenue and profit


	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2023	£m	£m	£m	£m	£m	£m
Segment revenue	9,737	4,962	3,328	5,675	27	23,729
Internal revenue	(57)	(113)	—	(2,890)	—	(3,060)
Adjusteda revenue from external customers	9,680	4,849	3,328	2,785	27	20,669
Adjusted EBITDAb	2,623	1,394	458	3,449	6	7,930
Depreciation and amortisationa	(1,397)	(842)	(317)	(2,059)	(138)	(4,753)
Adjusteda operating profit (loss)	1,226	552	141	1,390	(132)	3,177
Specific operating profit (loss) - see note 9						(556)
Operating profit						2,621
Net finance expensec						(447)
Share of post tax profit (loss) of associates and joint ventures						(59)
Profit before tax						2,115

	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2022	£m	£m	£m	£m	£m	£m
Segment revenue	9,858	5,157	3,362	5,441	27	23,845
Internal revenue	(83)	(105)	—	(2,812)	—	(3,000)
Adjusteda revenue from external customers	9,775	5,052	3,362	2,629	27	20,845
Adjusted EBITDAb	2,262	1,636	456	3,179	46	7,579
Depreciation and amortisationa	(1,421)	(724)	(355)	(1,876)	(29)	(4,405)
Adjusteda operating profit (loss)	841	912	101	1,303	17	3,174
Specific operating profit (loss) - see note 9						(287)
Operating profit						2,887
Net finance expensec						(801)
Share of post tax profit (loss) of associates and joint ventures						—
Profit before tax						2,086

aBefore specific items.

bAdjusted 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.

cNet finance expense includes specific item expense of £5m (FY22: £101m). See note 9.

Internal revenue and costs


	Internal cost recorded by
	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2023	£m	£m	£m	£m	£m	£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
	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2022	£m	£m	£m	£m	£m	£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

Notes to the consolidated financial statements continued

4. Segment information continued

Capital expenditure


	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2023	£m	£m	£m	£m	£m	£m
Intangible assetsa	530	257	81	87	63	1,018
Property, plant and equipmentb	663	351	171	2,709	144	4,038
Capital expenditure	1,193	608	252	2,796	207	5,056

	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2022	£m	£m	£m	£m	£m	£m
Intangible assetsa	444	249	82	99	70	944
Property, plant and equipmentb	754	320	119	2,449	221	3,863
Capital expenditure excluding spectrum	1,198	569	201	2,548	291	4,807
Purchase of spectruma	388	91	—	—	—	479
Capital expenditure	1,586	660	201	2,548	291	5,286

aAdditions to intangible assets as presented in note 12.

bAdditions to property, plant and equipment as presented in note 13, inclusive of movement on engineering stores.

Geographic segmentation

Revenue from external customers


Year ended 31 March	2023	2022
Year ended 31 March	£m	£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
Adjusteda revenue	20,669	20,845

aBefore specific items.

Non-current assets


At 31 March	2023	2022
At 31 March	£m	£m
UK	39,395	38,386
Europe, Middle East and Africa, excluding the UK	740	741
Americas	283	269
Asia Pacific	156	152
Non-current assetsa	40,574	39,548

aComprising 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.

Notes to the consolidated financial statements continued

4. Segment information continued

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.

Notes to the consolidated financial statements 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 14. 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 14. 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 16. 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).

Notes to the consolidated financial statements continued

5. Revenue continued

Disaggregation of external revenue

The following table disaggregates external revenue by our major service lines and by reportable segment.


	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2023	£m	£m	£m	£m	£m	£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 itemsa (note 9)						12
Revenue						20,681

	Consumer	Enterprise	Global	Openreach	Other	Total
Year ended 31 March 2022	£m	£m	£m	£m	£m	£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 itemsa (note 9)						5
Revenue						20,850

aRelates 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 14 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 16.

We provide for expected lifetime losses on contract assets following the policy set out in note 16.

Notes to the consolidated financial statements continued

5. Revenue continued

Contract assets and liabilities are as follows:


At 31 March	2023	2022
At 31 March	£m	£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%).

6. Operating costs


Year ended 31 March	Notes	2023	2022 (re-presented)a
Year ended 31 March	Notes	£m	£m
Operating costs by nature
Staff costs:
Wages and salaries		3,852	3,740
Social security costs		423	399
Other pension costs	19	590	591
Share-based payment expense	20	77	105
Total staff costs		4,942	4,835
Own work capitaliseda		(1,364)	(1,105)
Net staff costs		3,578	3,730
Net indirect labour costsa,b		381	470
Net labour costs		3,959	4,200
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 chargesc		354	879
Provision and installation		591	678
Marketing and sales		363	312
Net impairment losses on trade receivables and contract assetsd		138	102
Other operating costs		111	264
Other operating income		(243)	(241)
Depreciation and amortisation, including impairment charges		4,753	4,405
Total operating costs before specific items		17,492	17,671
Specific items	9	568	292
Total operating costs		18,060	17,963

Operating costs before specific items include the following:
Leaver costse		11	15
Research and development expendituref		683	604
Foreign currency (gains)/losses		(9)	3
Inventories recognised as an expense		2,311	2,297

aFY22 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.

bNet of capitalised indirect labour costs of £824m (FY22: £755m (re-presented, see footnote a)).

cTV programme rights charges relate to programme rights assets which were transferred to the sports joint venture in August 2022, see note 21.

dConsists 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).

eLeaver 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.

fResearch 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).

Notes to the consolidated financial statements continued

5. Revenue continued

Depreciation and amortisation, which includes impairment charges, is analysed as follows:


Year ended 31 March	Notes	2023	2022
Year ended 31 March	Notes	£m	£m
Depreciation and amortisation before impairment charges
Intangible assets	12	1,165	1,035
Property, plant and equipment	13	2,878	2,658
Right-of-use assets	14	689	676
Impairment charges
Intangible assets	12	—	13
Property, plant and equipment	13	11	11
Right-of-use assets	14	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 BT Group plc Executive Committee as

well as the directors of the company. It is the BT Group plc Executive Committee which has responsibility for planning, directing and

controlling the activities of the group.

Compensation of key management personnel is shown in the table below:


Year ended 31 March	2023	2022
Year ended 31 March	£m	£m
Short-term employee benefits	24.9	19.2
Post employment benefits	0.8	0.8
Share-based payments	7.4	7.3
	33.1	27.3

Information concerning directors' remuneration, pension entitlements and long-term incentive plans is shown in note 29.

7. Employees


	2023		2022
Number of employees in the groupa	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

aThese reflect the full-time equivalent of full- and part-time employees.

Notes to the consolidated financial statements continued

6. Operating costs continued

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.


	2023	2022
Year ended 31 March	£000	£000
Fees payable to the company’s auditors and its associates for:
Audit servicesa
The audit of the parent company and the consolidated financial statements	13,498	11,352
The audit of the company’s subsidiaries	6,257	5,996
	19,755	17,348
Audit related assurance servicesb	2,553	3,169
Other non-audit services
All other assurance services	55	127
Total services	22,363	20,644

aServices 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.

bIncludes 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:


	2023	2022
Year ended 31 March	£000	£000
Audit of financial statements of associates	1,622	1,602
Audit-related assurance services	14	16
Total services	1,636	1,618

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 BT Group plc

Board and the BT Group plc 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.

Notes to the consolidated financial statements continued


	2023	2022
Year ended 31 March	£m	£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 30. 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 23).

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.

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 23.

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.

Notes to the consolidated financial statements continued

9. Specific items continued

10. Taxation

Significant accounting policies that apply to taxation

Current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries

where the group’s subsidiaries, associates and joint ventures operate and generate taxable income. We 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.

Analysis of our taxation expense for the year


	2023	2022
Year ended 31 March	£m	£m
United Kingdom
Corporation tax at 19% (FY22: 19%)	—	—
Adjustments in respect of earlier yearsa	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 yearsa	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)

aIn 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.

Notes to the consolidated financial statements continued

Factors affecting our taxation expense for the year

The taxation expense on the profit for the year differs from the amount computed by applying the UK corporation tax rate to the profit before

taxation as a result of the following factors:


	2023	2022
Year ended 31 March	£m	£m
Profit before taxation	2,115	2,086
Expected taxation expense at UK rate of 19% (FY22: 19%)	(402)	(396)
Effects of:
(Higher)/lower taxes on non-UK profits	—	(4)
Net permanent differences between tax and accountinga	426	202
Adjustments in respect of earlier yearsb	126	40
Prior year non-UK losses used against current year profits	5	20
Non-UK losses not recognisedc	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)

aIncludes 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.

bReflects the differences between initial accounting estimates and tax returns submitted to tax authorities, including the release and establishment of provisions for uncertain tax positions.

cReflects losses made in countries where it has not been considered appropriate to recognise a deferred tax asset, as future taxable profits are not probable.

Tax components of other comprehensive income


	2023	2022
Year ended 31 March	Tax credit (expense) £m	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 credita	8	8
Deferred tax credit (expense)	634	(438)
Total tax recognised in other comprehensive income	642	(430)

aIncludes £nil (FY22: £nil) relating to cash contributions made to reduce retirement benefit obligations.

Tax (expense) credit recognised directly in equity


	2023	2022
Year ended 31 March	£m	£m
Tax (expense) credit relating to share-based payments	(9)	11

Notes to the consolidated financial statements continued

10. Taxation continued

Deferred taxation


	Fixed asset temporary differences	Retirement benefit obligationsa	Share- based payments	Tax losses	Other	Jurisdictional offset	Total
	£m	£m	£m	£m	£m	£m	£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)	(154)	—	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)	(154)	—	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

aIncludes 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.

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

Notes to the consolidated financial statements continued

10. Taxation continued

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. Dividends

What dividends have been paid and proposed?

A dividend of £850m was paid to the parent company, BT Group Investments Ltd (FY22: £nil). The directors recommend payment of a final

dividend in respect of FY23 of £850m (FY22: £850m).

12. 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.

Notes to the consolidated financial statements continued

10. Taxation continued


	Goodwill	Customer relationships and brandsa	Telecoms licences and otherb	Internally developed softwarec	Purchased softwarec	Total
	£m	£m	£m	£m	£m	£m
Cost
At 1 April 2021	7,846	3,383	3,013	4,753	1,135	20,130
Additionsd	—	—	479	793	151	1,423
Acquisitions	94	—	—	—	2	96
Disposals and adjustmentse	(7)	—	(3)	(239)	(272)	(521)
Transfers	—	—	1	45	(44)	2
Exchange differences	43	—	—	1	(1)	43
Transfers to assets held for salef	(51)	—	—	(7)	—	(58)
At 31 March 2022	7,925	3,383	3,490	5,346	971	21,115
Additions	—	—	—	815	203	1,018
Acquisitions	—	—	—	—	—	—
Disposals and adjustmentse	(21)	—	—	(466)	151	(336)
Transfers	—	—	—	30	(38)	(8)
Exchange differences	72	—	1	2	7	82
Transfer to assets held for salef	(13)	—	—	—	—	(13)
At 31 March 2023	7,963	3,383	3,491	5,727	1,294	21,858
Accumulated amortisation
At 1 April 2021	—	2,238	734	3,299	494	6,765
Amortisation charge for the yearg	—	231	179	529	96	1,035
Impairmentg	—	—	—	—	13	13
Disposals and adjustmentse	—	—	(5)	(229)	(278)	(512)
Transfers	—	—	—	(2)	2	—
Exchange differences	—	—	—	1	(1)	—
Transfers to assets held for salef	—	—	—	(3)	—	(3)
At 31 March 2022	—	2,469	908	3,595	326	7,298
Amortisation charge for the yearg	—	231	185	596	153	1,165
Impairmentg	—	—	—	—	—	—
Disposals and adjustmentse	—	—	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	7,925	914	2,582	1,751	645	13,817
At 31 March 2023	7,963	683	2,396	1,980	673	13,695

aThe remaining unamortised balance of customer relationships and brands relates to customer relationships recognised on acquisition of EE.

bTelecoms 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.

cIncludes a carrying amount of £1,125m (FY22: £1,046m) in respect of assets under construction, which are not yet amortised.

dAdditions 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.

eDisposals 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.

fFor a breakdown of assets held for sale see note 21.

gIn 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.

Notes to the consolidated financial statements continued

12. 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 BT Group plc 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.

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.


	Consumer	Legacy BT Consumer	Legacy EE	Enterprise	Global	Total
Cost	£m	£m	£m	£m	£m	£m
At 1 April 2021	—	1,183	2,768	3,475	420	7,846
Acquisitions and disposals	—	—	—	94	(7)	87
Transfer	3,951	(1,183)	(2,768)	—	—	—
Exchange differences	—	—	—	4	39	43
Transfer to assets held for salea	(51)	—	—	—	—	(51)
At 31 March 2022	3,900	—	—	3,573	452	7,925
Acquisitions and disposals	(26)	—	—	4	1	(21)
Exchange differences	—	—	—	4	68	72
Transfer to assets held for sale	—	—	—	(4)	(9)	(13)
At 31 March 2023	3,874	—	—	3,577	512	7,963

aAssets transferred to held for sale during FY22 relate to the sale of our BT Sport operations. See note 21.

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%.

Notes to the consolidated financial statements continued

12. Intangible assets continued

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.

13. 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 12.

Notes to the consolidated financial statements continued

12. Intangible assets continued



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 17.


	Land and buildings	Network infrastructure		Othera	Assets under construction	Total
	Land and buildings	Held by Openreach	Held by other units	Othera	Assets under construction	Total
	£m	£m	£m	£m	£m	£m
Cost
At 1 April 2021	946	29,108	25,488	1,520	990	58,052
Additionsb	87	—	111	89	3,548	3,835
Transfers	18	2,128	813	156	(3,117)	(2)
Disposals and adjustmentsc	(28)	40	(1,974)	(271)	29	(2,204)
Transfer to assets held for saled	—	—	—	(50)	(4)	(54)
Exchange differences	(1)	—	1	—	—	—
At 31 March 2022	1,022	31,276	24,439	1,444	1,446	59,627
Additionsb	7	—	129	7	3,947	4,090
Transferse	89	2,617	913	211	(3,822)	8
Disposals and adjustmentsc	31	(118)	(183)	(33)	(70)	(373)
Transfer to assets held for saled	—	—	(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 yearf	37	1,372	1,092	157	—	2,658
Impairmentf	—	—	—	11	—	11
Transfers	—	—	(1)	1	—	—
Disposals and adjustmentsc	(28)	28	(1,985)	(240)	—	(2,225)
Transfer to assets held for saled	—	—	—	(41)	—	(41)
Exchange differences	—	—	(2)	—	—	(2)
At 31 March 2022	621	17,476	20,050	1,025	—	39,172
Depreciation charge for the yearf	50	1,466	1,144	218	—	2,878
Impairmentf	—	—	—	11	—	11
Transferse	—	195	(192)	(4)	—	(1)
Disposals and adjustmentsc	32	(139)	(133)	(36)	—	(276)
Transfer to assets held for saled	—	—	(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

aOther mainly comprises motor vehicles, computers and fixtures and fittings.

b Net of government grants of £150m (FY22: £78m).

cDisposals 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.

dTransfers to assets held for sale are detailed in note 21.

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.

fIn 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.

Notes to the consolidated financial statements continued

13. 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:


	2023	2022
At 31 March	£m	£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.

14. 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

Notes to the consolidated financial statements continued

13. Property, plant and equipment continued

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 13 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.

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 stand-alone 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.

Notes to the consolidated financial statements continued

14. Leases continued

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.

Notes to the consolidated financial statements continued

14. 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	Network infrastructure	Motor vehicles	Other	Total
	£m	£m	£m	£m	£m
At 1 April 2021	4,332	145	375	11	4,863
Additionsa	249	13	110	1	373
Depreciation charge for the yearb	(526)	(31)	(115)	(4)	(676)
Impairmentb	(6)	(6)	—	—	(12)
Transfer to assets held for sale	(2)	—	—	—	(2)
Other movementsc	(106)	(11)	(1)	1	(117)
At 31 March 2022	3,941	110	369	9	4,429
Additionsa	203	16	150	2	371
Depreciation charge for the yearb	(521)	(32)	(131)	(5)	(689)
Impairmentb	(75)	—	—	—	(75)
Transfer to assets held for sale	(3)	—	—	—	(3)
Other movementsc	(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.

bIn 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.

cOther 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:


	2023	2022
Year ended 31 March	£m	£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 27 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.

Notes to the consolidated financial statements continued

14. 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:


	To be recognised as revenue (note 5)	To be recognised as other operating income (note 6)	Total
At 31 March 2023	£m	£m	£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

15. 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 31. Payments made to receive

commissioned or acquired programming in advance of the legal right to broadcast the programmes are classified as prepayments (see note

16). 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 21 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	—

Notes to the consolidated financial statements continued

14. Leases continued

16. 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.


	2023	2022
At 31 March	£m	£m
Current
Trade receivables	1,395	1,339
Amounts owed by ultimate parent company	26	27
Prepayments	545	523
Accrued income	158	150
Deferred contract costs	369	336
Finance lease receivablesa	29	3
Amounts due from joint ventures	268	—
Other assetsa,b	297	273
	3,087	2,651
Non-current
Deferred contract costs	211	226
Finance lease receivablesa	98	90
Other assetsa,b	194	21
	503	337

aIn previous years finance lease receivables were included within other receivables but are now presented separately. FY22 comparatives have been re-presented for comparability.

bOther assets comprise prepayments and £70m (FY22: £nil) of deferred cash consideration relating to the disposal of BT Sport, see note 21.

Amounts due from joint ventures relates to a sterling Revolving Credit Facility (RCF) provided to the Sports JV formed during the year, see

note 21. 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	2022
	£m	£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.

Notes to the consolidated financial statements continued

The expected credit loss allowance for trade receivables was determined as follows:


			Past due and not specifically impaired
	Not past due	Trade receivables specifically impaired net of provision	Between 0 and 3 months	Between 3 and 6 months	Between 6 and 12 months	Over 12 months	Total
At 31 March	£m	£m	£m	£m	£m	£m	£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
	2023	2022	2023	2022
At 31 March	£m	£m	£m	£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.

Notes to the consolidated financial statements continued

16. Trade and other receivables continued

The following table shows the movement on deferred costs:


	Deferred connection costs	Deferred contract acquisition costs - commissions	Deferred contract acquisition costs - dealer incentives	Transition and transformation	Total
	£m	£m	£m	£m	£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

17. 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.


	2023	2022
At 31 March	£m	£m
Current
Trade payables	4,196	4,143
Amounts owed to ultimate parent company	11	11
Other taxation and social security	581	573
Minimum guarantee from BT Sport disposala	195	—
Accrued expenses	458	549
Deferred incomeb	532	345
Other payablesc	535	516
	6,508	6,137
Non-current
Minimum guarantee from BT Sport disposala	465	—
Deferred incomeb	403	594
Other payablesc	26	4
	894	598

aSee note 21.

bDeferred 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.

cDuring FY23 we reclassified £132m payables to provisions (note 18) 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.

Notes to the consolidated financial statements continued

16. Trade and other receivables continued

18. 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.

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.

Notes to the consolidated financial statements continued


	Propertya	Network AROa	Regulatory	Litigation	Third party claimsb	Otherc,d	Total
	£m	£m	£m	£m	£m	£m	£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)
At 31 March 2022	142	181	65	85	92	96	661
IAS 37 opening balance adjustmente	—	—	—	—	—	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)
Transfersf	—	—	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.

bThird 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.

cNetwork 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.

dOther provisions include contract loss provisions of £8m (FY22: £1m) relating to the anticipated total losses in respect of certain contracts.

eOpening balance adjustment arising on adoption of the amendments to IAS 37, see note 1.

fTransfers into third party claims in FY23 relate to the reclassification of balances previously presented in other payables (note 17) following reassessment of the level of certainty over the

timing and amount of any outflow of resources.


	2023	2022
At 31 March	£m	£m
Analysed as:
Current	229	222
Non-current	369	439
	598	661

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 (on behalf of a Claim Representative) 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. On 1

June 2023 Mishcon de Reya notified us that they intend to file an updated claim. 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

Notes to the consolidated financial statements continued

18. Provisions & contingent liabilities continued

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.

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.

19. 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 80

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.

Notes to the consolidated financial statements continued

18. Provisions & contingent liabilities continued

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.


	2023	2022
Year ended 31 March	£m	£m
Recognised in the income statement before specific items (note 6)
– Service cost:
– DB plans	17	20
– DC plans	537	525
– Past service (credit) cost	(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 paymentsa for affected employees	13	14
– Interest on pensions deficit	18	93
Subtotal	31	107
Total recognised in the income statement	621	698

aAll 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.

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	Deficita £m	Assets £m	Liabilities £m	Deficita £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 ceilinga	—	—	—	—	—	—
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 ceilinga	—	—	—	—	—	—
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.


	2023	2022
At 31 March	£m	£m
Balance sheet position (net of tax)
(Deficit) surplus	(3,087)	(1,143)
Deferred tax asset (note 10)	618	190
Total (net of tax)	(2,469)	(953)

Notes to the consolidated financial statements continued

19. 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	Liabilities	Deficit
	£m	£m	£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 adjustmentsa	—	(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)	(1,143)
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 adjustmentsa	—	(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.

Notes to the consolidated financial statements continued

19. 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 82 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.

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).

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued


		2023		2022
		Total assetsa	of which quoted	Total assetsa	of which quoted
At 31 March		£bn	£bn	£bn	£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 Returnb	0.9	—	1.0	—
	Non Core Creditc	4.2	0.4	4.7	1.4
	Mature Infrastructure	1.2	—	1.4	—
Liability matching
Government bondsd	UK	13.2	13.1	15.1	15.1
Investment grade credit	Global	10.4	8.2	13.9	11.7
Secure income assetse		3.7	—	2.6	—
Cash, derivatives and other
Cash balances		3.0	—	2.9	—
Financial derivative contracts		(4.2)	—	0.6	—
Longevity insurance contractf		(0.8)	—	(1.0)	—
Otherg		0.8	—	(0.9)	—
Total		38.7	22.3	53.5	34.9

aAt 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.

bThis allocation seeks to generate a positive return in all market conditions.

cThis 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.

dAround 72% (2022: 83%) of these are index-linked gilts with the remainder in conventional gilts.

eThis allocation includes property, infrastructure and credit investments and provides the BTPS contractual income and expected return in excess of corporate bonds.

fThe 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.

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued

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.

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 are

within 0.05% of the figures shown in the table above.

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued

The table below summarises how these assumptions have been set, including key changes over the year.


	Detail
Discount rate	The discount rate assumption is calculated by applying the projected BTPS benefit cash flows to a corporate bond yield curve constructed by our external actuary based on the yield on AA-rated £-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 inflation	RPI inflation expectations are calculated by applying the projected BTPS benefit cash flows to an inflation curve derived 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 increases	Benefits are assumed to increase in line with the RPI or CPI inflation assumptions. Under the BTPS rules, benefit 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.

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:

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued


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.


Scenario	1-in-20 events
Scenario	2023	2022
1. Fall in bond yieldsa	1.2%	0.8%
2. Increase in credit spreadsb	0.9%	0.7%
3. Increase to average inflation expectations over the lifetime of the planc	1.1%	0.6%
4. Fall in growth assetsd	20.0%	20.0%
5. Increase to life expectancy	1.30 years	1.00 years

aScenario assumes a fall in the yields on both government and corporate bonds.

bScenario assumes an increase in the yield on corporate bonds, with no change to yield on government bonds.

cScenario assumes average RPI and CPI inflation expectations over the lifetime of the plan increase by the same amount.

dImpact 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).

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued

Impact of illustrative scenarios which might occur no more than once in every 20 years

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 ratea	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

aThe 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.

Notes to the consolidated financial statements continued

19. 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 80 on the 30 June 2022 interim assessment of the funding position.

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	610a	600b	600b	600b	600b	600b	600b	500b	—	—	—
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.

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.

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued

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.
Material corporate events	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.

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.

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued

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%).

20. Share-based payments

Significant accounting policies that apply to share-based payments

BT Group plc operates a number of equity-settled share-based payment arrangements, under which the group receives services from

employees in consideration for equity instruments (share options and shares) in BT Group plc. 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.


	2023	2022
Year ended 31 March	£m	£m
Employee saveshare plans	21	29
Yourshare	12	28
Executive share plans:
Incentive Share Plan (ISP)	—	13
Deferred Bonus Plan (DBP)	10	10
Retention and Restricted Share Plans (RSP)	34	25
	77	105

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.

Notes to the consolidated financial statements continued

19. Retirement benefit plans continued

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.

Employee Saveshare Plans

Movements in Employee Saveshare options are shown below.


	Number of share options		Weighted average exercise price
	2023	2022	2023	2022
Year ended 31 March	millions	millions	pence	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	59	18	44	121
Awards granted	—	6	21	27
Awards vested	—	(4)	(7)	(11)
Awards lapsed	(32)	(1)	(6)	(39)
Dividend shares reinvested	—	—	1	1
At 31 March 2022	27	19	53	99
Awards granted	—	5	27	32
Awards vested	(4)	(5)	(4)	(13)
Awards lapsed	(23)	(1)	(7)	(31)
Dividend shares reinvested	—	2	4	6
At 31 March 2023	—	20	73	93

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 Group plc’s historical volatility which is expected to reflect the BT Group plc 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).

Notes to the consolidated financial statements continued

20. Share-based payments continued

21. 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:


	2023a	2022
	£m	£m
Intangible assets (including goodwill)b	88	12
Property, plant and equipment	13	6
Right-of-use assets	1	1
Other assetsc	760	27
Liabilitiesc	(357)	(15)
Net assets of operations disposed	505	31
Recycling from translation reserve	—	(1)
Net financial liabilities recognisedd	534	—
Net impact on the consolidated balance sheet	1,039	30
Profit on disposal, after taxe	28	41
Net consideration	1,067	71

Satisfied by
Proceeds received in the year per the cash flow statement	29	76
Deferred cash considerationf	70	(2)
Investment in A preference shares in Sports JV (note 23)	428	—
Investment in C preference shares in Sports JV (note 23)g	161	—
Ordinary equity interest in Sports JV (note 25)	414	—
Transaction costs	(35)	(3)
Net consideration	1,067	71

aBalances in FY23 only include the BT Sport disposal.

bIncludes allocated goodwill of £83m (FY22: £7m).

cOther 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.

dFY23 balance comprises the fair value of BT's obligation under the minimum revenue commitment of £712m, less tax credit of £178m.

eProfit on disposal has been recognised as a specific item, refer to note 9.

fFY23 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.

gExpected 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.

Notes to the consolidated financial statements 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, 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 23 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.

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 £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.

Notes to the consolidated financial statements continued

21. Divestments and assets & liabilities classified as held for sale continued

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 plc 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 plc 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.

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.

Notes to the consolidated financial statements continued

21. Divestments and assets & liabilities classified as held for sale continued

The disposal groups held for sale comprised the following assets and liabilities:


	2023	2022
At 31 March	£m	£m
Assets
Intangible assetsa	13	55
Property, plant and equipment	4	13
Right-of-use assets	3	2
Inventories	—	—
Trade and other receivables	1	10
Assets held for saleb	21	80
Liabilities
Trade and other payables	1	38
Lease liabilities	3	2
Liabilities held for sale	4	40

aIntangible 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.

22. 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.


	2023	2022
At 31 March	£m	£m
Non-current assets
Fair value through other comprehensive income	23	34
Amounts owed by ultimate parent and parent company	10,916	11,079
Fair value through profit or loss	6	—
Total non-current asset investments	10,945	11,113
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).

Notes to the consolidated financial statements continued

21. Divestments and assets & liabilities classified as held for sale continued

Fair value estimation


Fair value hierarchy	Level 1	Level 2	Level 3	Total held at fair value
At 31 March 2023	£m	£m	£m	£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.

23. Joint ventures and associates


	2023	2022
At 31 March	£m	£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 joint venture (Sports JV) with Warner Bros. Discovery (WBD)

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 21.

Notes to the consolidated financial statements continued

22. Investments continued

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.

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 21).

•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 30) 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 15).

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 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 21. 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.


	2023
Year ended 31 March	£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.

Notes to the consolidated financial statements continued

23. Joint ventures and associates continued


	2023
Summarised statement of total comprehensive income for year ended 31 March	£m
Revenue	557
Loss for the yeara	(121)
Other comprehensive loss	(2)
Total comprehensive loss	(123)

	2023
Summarised balance sheet at 31 March	£m
Current assetsb	1,106
Non-current assetsc	1,236
Current liabilitiesd	(702)
Non-current liabilitiese	(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.

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 21) 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.


	2023	2022
At 31 March	£m	£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 21). 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 22 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.

Notes to the consolidated financial statements continued

23. Joint ventures and associates continued


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.

24. 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 25).


	2023	2022
At 31 March	£m	£m
Cash at bank and in hand	328	319
Cash equivalents
UK deposits	—	353
Indian rupee deposits	55	90
Other deposits	1	10
Total cash equivalentsa	56	453
Total cash and cash equivalents	384	772
Bank overdrafts (note 25)	(11)	(85)
Cash and cash equivalents per the cash flow statement	373	687

aTotal 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.

25. 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.

Capital management policy

The capital structure is managed by BT Group plc, the ultimate parent of the group. Its capital management policy is set out in the Report of

the Directors on page 27.

Notes to the consolidated financial statements continued

23. Joint ventures and associates continued

The table below shows the key components of external gross debt and of the increase of £1,327m (FY22: decrease of £991m).


	At 31 March 2022	Cash flows	Net lease additionsa	Foreign exchange	Transfer to within one year	Other movementsd	At 31 March 2023
	£m	£m	£m	£m	£m	£m	£m
Loans and other borrowings due within one yearb	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 swapsc	(234)	—	—	(585)	—	—	(819)
Removal of the accrued interest and fair value adjustments	(251)	—	—	—	—	(13)	(264)
Removal of loans with joint ventures	—	(11)	—	—	—	—	(11)
External gross debt	21,462	740	449	17	—	121	22,789

	At 31 March 2021	Cash flows	Net lease additionsa	Foreign exchange	Transfer to within one year	Other movementsd	At 31 March 2022
	£m	£m	£m	£m	£m	£m	£m
Loans and other borrowings due within one yearb	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 swapsc	(142)	—	—	(92)	—	—	(234)
Removal of the accrued interest and fair value adjustments	(242)	—	—	—	—	(9)	(251)
External gross debt	22,453	(1,470)	397	41	—	41	21,462

aNet 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.

bIncludes accrued interest and bank overdrafts.

cTranslation of debt balances at swap rates where hedged by cross-currency swaps.

dOther 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 21).

Notes to the consolidated financial statements continued

25. Loans and other borrowings continued

The table below gives details of the listed bonds and other debt.


	2023	2022
At 31 March	£m	£m
0.875% €500m bond due September 2023a,d	270	423
4.5% $675m bond due December 2023a	554	520
1% €575m bond due June 2024a,d	415	489
1% €1,100m bond due November 2024a,d	726	929
3.50% £250m index linked bond due April 2025	524	468
0.5% €650m bond due September 2025a	571	549
1.75% €1,300m bond due March 2026a	1,143	1,098
1.5% €1,150m bond due June 2027a	1,017	977
2.75% €600m bond due August 2027a	530	—
2.125% €500m bond due September 2028a	442	425
5.125% $700m bond due December 2028a	573	537
5.75% £600m bond due December 2028	669	680
1.125% €750m bond due September 2029a	657	631
3.25% $1,000m bond due November 2029a	812	762
9.625% $2,670m bond due December 2030a (minimum 8.625%b)	2,214	2,077
3.75% €800m bond due February 2031a	704	—
3.125% £500m bond due November 2031	503	503
3.375% €500m bond due August 2032a	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 2037a	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 2043a	61	—
3.625% £250m bond due November 2047	250	250
4.25% $500m bond due November 2049a	408	383
1.874% €500m bond due August 2080a,c	443	426
4.250% $500m Hybrid bond due November 2081a,c	404	383
4.875% $500m Hybrid bond due November 2081a,c	409	384
Total listed bonds	17,796	15,545
Other loanse	714	555
Bank overdrafts (note 24)	11	85
Amounts due to ultimate parent company	—	585
Total other loans and borrowings	725	1,225
Total loans and other borrowings	18,521	16,770

aDesignated in a cash flow hedge relationship.

bThe 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.

cIncludes 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.

Notes to the consolidated financial statements continued

25. Loans and other borrowings continued

Loans and other borrowings are analysed as follows:


	2023	2022
At 31 March	£m	£m
Current liabilities
Listed bonds	1,075	233
Amounts owed to joint ventures	11	—
Other loans and bank overdraftsa	686	640
Total current liabilities	1,772	873
Non-current liabilities
Listed bonds	16,722	15,312
Other loans and bank overdrafts	27	—
Amounts due to ultimate parent company	—	585
Total non-current liabilities	16,749	15,897
Total loans and other borrowings	18,521	16,770

aIncludes 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: £16,280m) and repayments fall due as

follows:


	2023			2022
	Carrying amount	Effect of hedging and interest	Principal repayments at hedged rates	Carrying amount	Effect of hedging and interest	Principal repayments at hedged rates
At 31 March	£m	£m	£m	£m	£m	£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	3,117	(64)	3,053
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	15,887	(247)	15,640
Total repayments	18,532	(1,090)	17,442	16,760	(480)	16,280
Non cash adjustmentsa	(11)			10
Total loans and other borrowings	18,521			16,770

aFair value adjustments and unamortised bond fees.

26. Finance expense and income


	2023	2022
Year ended 31 March	£m	£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	—
Interest payable on ultimate parent company borrowings	5	4
Total finance expense before specific items	894	837
Specific items (note 9)a	5	101
Total finance expense	899	938

aIncludes £13m credit (FY22: £8m charge) reclassification of cash flow hedge from other comprehensive income.

Notes to the consolidated financial statements continued

25. Loans and other borrowings continued


	2023	2022
Year ended 31 March	£m	£m
Finance income
Interest on investments held at amortised cost	63	12
Interest income on loans to immediate and ultimate parent company	389	125
Total finance income before specific items	452	137
Total finance income	452	137


	2023	2022
Year ended 31 March	£m	£m
Net finance expense before specific items	442	700
Specific items (note 9)a	5	101
Net finance expense	447	801

aIncludes £13m credit (FY22: £8m charge) reclassification of cash flow hedge from other comprehensive income.

27. Financial instruments and risk management

Risk management is performed by BT Group plc, the ultimate parent company of the group.

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 BT Group plc Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of

borrowing, investments and group-wide exposures. The BT Group plc 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 of BT Group plc.

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 BT Group plc Board, is to ensure that at least 70% of BT Group plc's 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 of BT Group plc who each have been

delegated such authority from the BT Group plc 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 BT Group plc 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 BT Group plc 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

of BT Group plc.

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.

Notes to the consolidated financial statements continued

26. Finance expense continued

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 dollars, euros, Indian rupees and Hungarian

forints. As a result, our exposure to foreign currency arises mainly on non-UK subsidiary investments and on residual currency trading flows.

We use cross-currency swaps to swap foreign currency borrowings into sterling. The table below reflects the currency and interest rate profile

of our loans and borrowings after the impact of hedging.


	2023			2022
	Fixed rate interest	Floating rate interest	Total	Fixed rate interest	Floating rate interest	Total
At 31 March	£m	£m	£m	£m	£m	£m
Sterling	15,210	1,773	16,983	13,515	2,326	15,841
Euro	—	443	443	—	436	436
Other	—	16	16	—	3	3
Total	15,210	2,232	17,442	13,515	2,765	16,280
Ratio of fixed to floating	87%	13%	100%	83%	17%	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:


	2023	2022
At 31 March	£m Increase (reduce)	£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 would have been a decrease of £104m (FY22: £93m).

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

BT Group plc continues 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 BT Group plc's 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.

BT Group plc's credit ratings were as detailed below:


At 31 March	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

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

Notes to the consolidated financial statements continued

27. Financial instruments and risk management continued

to assess funding adequacy for at least a 12-month period. On at least an annual basis the BT Group plc 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 25. 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 BT Group plc

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	Loans and other borrowings	Interest on loans and other borrowings	Trade and other payables	Provisions	Lease liabilities	Total
At 31 March 2023	£m	£m	£m	£m	£m	£m
Due within one year	1,512	643	5,395	3	800	8,353
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	5,395	11	6,031	35,629
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 sheeta,b	18,261	260	5,395	10	5,359	29,285

At 31 March 2022
Due within one year	635	573	5,219	4	788	7,219
Between one and two years	935	568	—	4	784	2,291
Between two and three years	1,415	542	—	3	729	2,689
Between three and four years	3,117	515	—	—	626	4,258
Between four and five years	379	477	—	—	589	1,445
After five years	10,041	2,809	—	—	2,983	15,833
	16,522	5,484	5,219	11	6,499	33,735
Interest payments not yet accrued	—	(5,246)	—	—	—	(5,246)
Fair value adjustment	10	—	—	—	—	10
Impact of discounting	—	—	—	—	(739)	(739)
Carrying value on the balance sheeta,b	16,532	238	5,219	11	5,760	27,760

aForeign 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.

bThe carrying amount of trade and other payables excludes £894m (FY22: £598m) 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.

Notes to the consolidated financial statements continued

27. 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 datea				Derivatives – Analysis based on holding instrument to maturity
Derivative financial liabilities	Net settled	Gross settled outflows	Gross settled inflows	Total	Net settled	Gross settled outflows	Gross settled inflows	Total
At 31 March 2023	£m	£m	£m	£m	£m	£m	£m	£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
Totalb	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
Totalb	664	10,270	(9,870)	1,064	664	10,270	(9,870)	1,064

aCertain 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.

bForeign 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 BT Group plc 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 BT Group plc 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.

Notes to the consolidated financial statements continued

27. Financial instruments and risk management continued

100

Exposures

The maximum credit risk exposure of the group’s financial assets at the balance sheet date is as follows:


		2023	2022
At 31 March	Notes	£m	£m
Derivative financial assets		1,479	1,091
Investments	22	14,493	13,792
Trade and other receivablesa	16	1,847	1,516
Contract assets	5	1,934	1,915
Cash and cash equivalents	24	384	772
Total		20,137	19,086

a The carrying amount excludes £503m (FY22: £337m) of non-current trade and other receivables which relate to non-financial assets, and £1,240m (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.


	2023	2022
Moody’s/S&P credit rating of counterparty	£m	£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 belowa	60	—
Totalb	5,083	4,223

aBaa2/BBB rated exposure represents the energy derivatives and carrying value of forward currency contracts with Sports JV.

bWe 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 16, 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.


Financial assets and liabilities		Related amounts not set off in the balance sheet
Financial assets and liabilities	Amounts presented in the balance sheet	Right of set off with derivative counterparties	Cash collateral	Net amount
At 31 March 2023	£m	£m	£m	£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.

Notes to the consolidated financial statements continued

27. Financial instruments and risk management continued

101

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 Group plc’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 Group

plc’s risk management strategy or if it no longer qualifies for hedge accounting.

BT Group plc 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

BT Group's 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.


	Current asset	Non-current asset	Current liability	Non-current liability
At 31 March 2023	£m	£m	£m	£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 22.

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 25).

We hedge forecast foreign currency purchases, principally denominated in US dollars, euros, Indian rupees and Hungarian forints 12 months

forward with certain specific transactions hedged further forward. The related cash flows are recognised in the income statement over this

period.

Notes to the consolidated financial statements continued

27. Financial instruments and risk management continued

102

The amounts related to items designated as hedging instruments were as follows:


Hedged items	Notional principal	Asset	Liability	Balance in cash flow hedge related reserves (gain)/loss	Fair value (gain)/loss recognised in OCI	Amount recycled from cash flow hedge related reserves to P&L
At 31 March 2023	£m	£m	£m	£m	£m	£m
Sterling, euro, US dollar and Japanese yen denominated borrowingsa	12,888	1,316	(290)	(316)	(887)	597
Step up interest on the 2030 US dollar bondb	115	—	(2)	(31)	(8)	6
Foreign currency purchases, principally denominated in US dollars, euros, Indian rupees and Hungarian forintsc	1,211	34	(24)	(35)	(75)	61
Energy contractsd		58	(1)	(64)	(85)	49
Total cash flow hedges	14,214	1,408	(317)	(446)	(1,055)	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 borrowingsa	11,688	889	(731)	(26)	(83)	61
Step up interest on the 2030 US dollar bondb	122	5	—	(29)	(6)	3
Foreign currency purchases, principally denominated in US dollars, euros and Indian rupeesc	946	30	(3)	(21)	(51)	(10)
Energy contractsd		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)

aSterling, 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.

bStep up interest on US dollar denominated borrowings are hedged using forward currency contracts. Amounts recycled to profit and loss are presented within finance expense.

cForeign currency purchases, principally denominated in US dollars, euros, Indian rupees and Hungarian forints 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.

dEnergy 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.

Notes to the consolidated financial statements continued

27. Financial instruments and risk management continued

103

28. Other reserves


	Other comprehensive income
	Cash flow reservea	Fair value reserve	Cost of hedging reserveb	Translation reservec,d	Merger and other reserves	Total
	£m	£m	£m	£m	£m	£m
At 1 April 2021	(90)	—	59	316	858	1,143
Exchange differencese	—	—	—	65	—	65
Net fair value gain (loss) on cash flow hedgesf	59	—	145	—	—	204
Movements in relation to cash flow hedges recognised in income and expenseg	(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 profith	—	(7)	—	—	—	(7)
At 31 March 2022	(148)	(1)	236	381	858	1,326
Reclassificationi	472	—	(472)	—	—	—
Exchange differencese	—	—	—	89	—	89
Net fair value gain (loss) on cash flow hedgesf	864	—	191	—	—	1,055
Movements in relation to cash flow hedges recognised in income and expenseg	(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	377	(4)	(37)	470	858	1,664

aThe 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.

bThe 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.

cThe 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.

dMovement in translation reserve includes £nil (FY22 : £1m) which relate to disposals (see note 21).

eExcludes £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 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 26).

hRealised profit includes profit on disposal of investments held at fair value through other comprehensive income.

iReclassification on cash flow hedges includes £472m (FY22: £nil) reclassification from cash flow hedge reserve to cost of hedging reserve.

29. Directors’ emoluments and pensions

Neil Harris, Edward Heaton, Daniel Rider, Martin Smith and Simon Lowth served as directors throughout the year.

For the year ended 31 March 2023 the aggregate emoluments of the directors excluding deferred bonuses of £502,000 (FY22: £623,000)

was £2,804,000 (FY22: £3,176,000). Deferred bonuses are payable in 5p ordinary shares of BT Group plc in three years’ time subject to

continuous employment.

No retirement benefits were accruing to directors (FY22: none) under a money purchase scheme.

During the year no directors exercised options (FY22: none) under BT Group share option plans. Five directors who held office for the whole

or part of the year (FY22: five) received or are entitled to receive 5p ordinary shares of BT Group plc under BT long-term incentive plans. The

aggregate value of BT Group plc shares which vested to directors during the year under BT long-term incentive plans was £418,000 (FY22:

£698,000).

The emoluments of the highest paid director excluding his deferred bonus of £656,000 (FY22: £883,000) were £845,000 (FY22: £868,000).

He is entitled to receive 4,342,436 BT Group plc 5p ordinary shares under BT long-term incentive plans subject to continuous employment

and in some cases to certain performance conditions being met.

Included in the above aggregate emoluments are those of Simon Lowth who is also a director of the ultimate holding company, BT Group plc.

The emoluments of the directors are calculated in accordance with the statutory provisions applicable to the company.

30. Related party transactions

Key management personnel comprise Executive and Non-Executive Directors and members of the BT Group plc 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 19.

Associates and joint ventures related parties include the Sports JV formed in August 2022 (see note 21). 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-

Notes to the consolidated financial statements continued

104

term borrowings. The outstanding balance under the RCF of £268m is treated as a loan receivable and held at amortised cost, see note 16.

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 25.

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:


	2023	2022
At 31 March	£m	£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.

British Telecommunications plc and certain of its subsidiaries act as a funder and deposit taker for cash related transactions for both its parent

and ultimate parent company. The loan arrangements described below with these companies reflect this. Cash transactions usually arise

where the parent and ultimate parent company are required to meet their external payment obligations or receive amounts from third

parties. These principally relate to the payment of dividends, the buyback of shares, the exercise of share options and the issuance of ordinary

shares. Transactions between the ultimate parent company, parent company and the group are settled on both a cash and non-cash basis

through these loan accounts depending on the nature of the transaction.

During FY23, a dividend of £850m (FY22: £nil) was settled with the parent company in respect of the year ended 31 March 2022. The

directors recommend payment of a final dividend in respect of FY23 of £850m. See note 11 and the group statement of changes in equity.

At 31 March 2022 other loan and deposit facilities were also in place between the company and its ultimate parent, which accrued interest at,

variously, LIBOR plus 37.5bp and 97.5bp.

In FY23, due to LIBOR discontinuation, the company switched to risk-free rates. The daily rate is the sum of the Risk-Free Rate (SONIA) plus

Baseline Credit Adjustment Spread (CAS) plus margin (37.5bp or 97.5bp); interest is capitalised daily. We started the interest model

transition from 1 April 2022. No material commercial impact has been identified on the parties.

As of 31 March 2023, there was only one balance between BT plc and the ultimate parent, which accrued interest at SONIA plus a margin of

97.5bp, plus baseline CAS 45.4.

The loan facility between the parent company and British Telecommunications plc accrues interest at a rate of SONIA plus 142.9 bp with an

overall limit of £35bn. The parent company currently finances its obligations on this loan as they fall due through dividends paid by the

company.

A summary of the balances with the parent and ultimate parent companies and the finance income or expense arising in respect of these

balances is set out below:


		2023		2022
		Asset (liability) at 31 March	Finance income (expense)	Asset (liability) at 31 March	Finance income (expense)
	Notes	£m	£m	£m	£m
Amounts owed by (to) parent company
Non-current assets investments	22, 26	10,613	385	11,079	125
Amounts owed by (to) ultimate parent company
Non-current assets investments	22, 26	303	4	—	—
Non-current liabilities loans	25, 26	—	(5)	(585)	(4)
Trade and other receivables	16	26	n/a	27	n/a
Trade and other payables	17	(11)	n/a	(11)	n/a

31. 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 21); 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 18, 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.

Legal and regulatory proceedings

See note 18 for contingent liabilities associated with legal and regulatory proceedings.

Notes to the consolidated financial statements continued

30. Related party transactions continued

105

32. Post balance sheet events

As disclosed in note 21, Pelipod Limited is classified as held for sale on the basis that the IFRS 5 criteria had been met at 31 March 2023,

notwithstanding an active Competition and Markets Authority (CMA) investigation into the proposed disposal at this date. On 31 May 2023

the CMA concluded their investigation and cleared the acquisition by the proposed buyer. The transaction is expected to complete during

FY24.

Notes to the consolidated financial statements continued

106


		2023	2022
At 31 March	Notes	£m	£m
Non-current assets
Intangible assets	4	2,407	2,283
Property, plant and equipment	5	19,242	17,968
Right-of-use assets	6	2,794	3,116
Derivative financial instruments	21	1,492	1,217
Investments in subsidiary undertakings, associates and joint ventures	7	16,246	16,685
Other investments	8	11,509	12,240
Trade and other receivables	10	290	177
Preference shares in joint venture	7	542	—
Contract assets		27	27
Retirement benefit surplus	18	15	609
Deferred tax assets		611	178
		55,175	54,500
Current assets
Programme rights	9	—	310
Inventories		195	116
Trade and other receivables	10	2,466	1,639
Preference shares in joint venture	7	13	—
Contract assets		188	215
Assets classified as held for sale	22	4	29
Current tax receivables		642	650
Derivative financial instruments	21	82	88
Other investments	8	4,733	3,356
Cash and cash equivalentsa		200	546
		8,523	6,949
Current liabilities
Loans and other borrowings	11	17,367	15,493
Derivative financial instruments	21	86	52
Trade and other payables	12	4,645	4,295
Contract liabilities		521	521
Liabilities classified as held for sale	22	—	40
Lease liabilities	6	508	490
Provisions	14	147	103
		23,274	20,994
Total assets less current liabilities		40,424	40,455
Non-current liabilities
Loans and other borrowings	11	16,722	15,897
Derivative financial instruments	21	297	819
Contract liabilities		129	94
Lease liabilities	6	3,587	3,863
Retirement benefit obligations	18	1,639	68
Other payables	13	1,646	1,251
Deferred taxation	14	810	1,313
Provisions	14	209	159
		25,039	23,464
Equity
Ordinary shares		2,172	2,172
Share premium		8,000	8,000
Other reserves	15	1,099	844
Retained earningsb		4,114	5,975
Equity shareholder’s funds		15,385	16,991
		40,424	40,455

aIncludes cash of £200m (FY22: £193m) and cash equivalents of £nil (FY22: £353m).

bAs permitted by Section 408(3) of the Companies Act 2006, no income statement of the company is presented. The company’s profit for the financial year including dividends received

from subsidiary undertakings was £1,159m (FY22: £352m) before dividends paid of £850m (FY22: £nil).

The financial statements of the company on pages 107 to 136 were approved by the Board of Directors on 7 June 2023 and were signed on

its behalf by:

Simon Lowth

Director

British Telecommunications plc company balance sheet

Registered number 01800000

107


		Share capitala	Share premium accountb	Other reservesc	Retained earnings (loss)	Total equity
	Notes	£m	£m	£m	£m	£m
At 1 April 2021		2,172	8,000	719	3,284	14,175
Profit for the yeard		—	—	—	352	352
Actuarial gain	18	—	—	—	2,624	2,624
Tax on actuarial gain		—	—	—	(377)	(377)
Share-based payments		—	—	—	80	80
Tax on share-based payments		—	—	—	12	12
Tax on items taken directly to equity	15	—	—	(30)	—	(30)
Net fair value loss on cash flow hedges	15	—	—	205	—	205
Transferred to the income statement	15	—	—	(56)	—	(56)
Fair value movement on assets at fair value through other comprehensive income	15	—	—	6	—	6
At 31 March 2022		2,172	8,000	844	5,975	16,991
Adoption of amendments to IAS 37		—	—	—	(11)	(11)
At 31 March 2022 (restated)		2,172	8,000	844	5,964	16,980
Profit for the yeard		—	—	—	1,159	1,159
Actuarial loss	18	—	—	—	(2,953)	(2,953)
Tax on actuarial loss		—	—	—	743	743
Share-based payments		—	—	—	59	59
Tax on share-based payments		—	—	—	(8)	(8)
Tax on items taken directly to equity	15	—	—	(89)	—	(89)
Net fair value gain on cash flow hedges	15	—	—	1,052	—	1,052
Dividendsd		—	—	—	(850)	(850)
Transferred to the income statement	15	—	—	(708)	—	(708)
At 31 March 2023		2,172	8,000	1,099	4,114	15,385

aThe allotted, called up and fully paid ordinary share capital of the company at 31 March 2023 and 31 March 2022 was £2,172m representing 8,689,755,905 ordinary shares of 25p each.

bThe share premium account, representing the premium on allotment of shares, is not available for distribution.

cA breakdown of other reserves is provided in note 15.

dAs permitted by Section 408(3) of the Companies Act 2006, no income statement of the company is presented. The company’s profit for the financial year including dividends received

from subsidiary undertakings was £1,159m (FY22: £352m) before dividends paid of £850m (FY22: £nil).

BT plc company statement of changes in equity

108

1. Basis of preparation

Preparation of the financial statements

The term ‘company’ refers to British Telecommunications plc (BT

plc). The consolidated group financial statements of BT plc have

been prepared in accordance with UK-adopted international

accounting standards and with the requirements of the Companies

Act 2006. The company meets the definition of a qualifying entity

under FRS 100. Accordingly, these company financial statements

have been prepared in accordance with FRS 101 “Reduced

disclosure framework”. FRS 101 involves the application of

International Financial Reporting Standards (IFRS) with a reduced

level of disclosure.

The financial statements are prepared on a going concern basis and

on the historical cost basis, except for certain financial and equity

instruments that have been measured at fair value. Refer to note 1 of

the consolidated notes to the accounts for further information. The

financial statements are presented in sterling, the functional

currency of the company.

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 company 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 an £11m 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 company 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 company:

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 company 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 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 company's net assets.

Other

The following changes have not had a significant impact on the

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

Exemptions

As permitted by Section 408(3) of the Companies Act 2006, the

company's income statement has not been presented.

The company has applied the exemptions available under FRS 101 in

respect of the following disclosures:

•The requirements of paragraphs 45(b) and 46 to 52 of

IFRS 2 ‘Share-based Payments’ in relation to group-

settled share- based payments.

•The requirements of IFRS 7 ‘Financial Instruments:

Disclosures’.

•The requirements of paragraphs 91 to 99 of IFRS 13 ‘Fair

Value Measurement’.

•The requirement in paragraph 38 of IAS 1 ‘Presentation of

Financial Statements’ to present comparative information

in respect of: (i) paragraph 79(a)(iv) of IAS 1 ‘Presentation

of Financial Statements’; (ii) paragraph 73(e) of IAS 16

‘Property, Plant and Equipment’; and (iii) paragraph

118(e) of IAS 38 ‘Intangible Assets’.

•The following paragraphs of IAS 1 ‘Presentation of

Financial Statements’:

◦10(d) (statement of cash flows);

◦10(f) (third statement of financial position);

◦16 (statement of compliance with all IFRS);

◦38A (requirement for minimum of two primary

statements including cash flow statements);

◦38B-D (additional comparative information);

◦40A-D (third statement of financial position);

◦111 (cash flow statement information); and

◦134 to 136 (capital management disclosures).

◦The requirements of IAS 7 ‘Statement of Cash Flows’.

◦The requirements of paragraph 17 of IAS 24 ‘Related

Party Disclosures’.

◦The requirements in IAS 24 ‘Related Party Disclosures’

to disclose related party transactions entered into

between two or more members of a group, provided

that any subsidiary which is a party to the transaction is

wholly owned by such a member.

◦The requirements of paragraphs 130(f)(ii), 130(f)(iii),

134(d) to 134(f) and 135(c) to 135(e) of IAS 36

Impairment of Assets’.

◦The requirements of paragraphs 30 and 31 of IAS 8

Accounting Policies, Changes in Accounting Estimates

and errors.

◦IFRS 13 fair value measurement.

◦The requirements of the second sentence of paragraph

110 and from paragraphs 113a,114,115,118,119(a) to

(c),120 to 127 and 129 of IFRS 15 ‘Revenue from

Contracts with Customers’.

◦The second sentence of paragraph 89, and paragraphs

90, 91 and 93 of IFRS 16 'Leases'.

Notes to the company financial statements

British Telecommunications plc company accounting policies

109

The company intends to continue to take advantage of these

exemptions in future years.

Where required, equivalent disclosures have been given in the

consolidated group financial statements of BT plc.

The financial statements have been prepared on a consistent basis

with the prior year.