BT : Strategic report 2024

BT Group plc Annual Report 2024

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Strategic report

Contents

Revenue

£20.8bn 1%

(FY23: £20.7bn)

Profit before tax

£1.2bn (31)%

(FY23: £1.7bn)

Adjusteda EBITDA

£8.1bn 2%

(FY23: £7.9bn)

Cash flow from operating activities

£6.0bn (11)%

(FY23: £6.7bn)

Normalised free cash flowb

£1.3bn (4)%

(FY23: £1.3bn)

Basic earnings per share

8.7p (55)%

(FY23: 19.4p)

Capital expenditure

£4.9bn (3)%

(FY23: £5.1bn)

• Adjusted EBITDA is group profit or loss before specific items, net finance expense, taxation, depreciation and amortisation and share of post tax profits or losses of associates and joint ventures. See page 232.

• We define normalised free cash flow on page 232.

Strategic report

A message from our Chairman	2
A message from our Chief Executive	4
Executive Committee	8
Our business model	10
Trends shaping our industry and business	16
Our strategic framework	18
Progress against our strategic framework	20
Our people	30
Our Manifesto	34
Our stakeholders	40
Non-financial and sustainability information statement	46
Our key performance indicators (KPIs)	48
Group performance	50
Regulatory update	58
A message from the Chair of Openreach	60
Risk management	61
Our principal risks and uncertainties	63
Task Force on Climate-related Financial Disclosures	71
Viability statement	81
Corporate governance report	83
Financial statements	131
Additional information	231

This Strategic report was approved by the Board on 15 May 2024 and signed on its behalf by the Chairman.

Adam Crozier

Chairman

15 May 2024

You can find our cautionary statement on forward-looking statements on page 234.

Pages1 to 82are the Strategic report. It includes our business model, progress against our strategic framework, our key performance indicators, group performance and our principal risks and uncertainties.

You can find our Corporate governance report on pages 83 to 130. It includes the Directors' report and information on our directors' remuneration.

When we say 'BT Group' and 'the group' in this document we mean BT Group plc - made up of our subsidiaries, customer-facing units and internal corporate units. When we say 'FY24' we mean the financial year that ended on 31 March 2024, and we use the same approach for any other years.

Look out for these throughout the report

Reference to another page in the report

Reference to further reading online

BT Group plc Annual Report 2024

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Strategic report

A message from our Chairman

Connecting the UK while transforming our business.

BT Group has made good progress in the last few years and yet we still have an enormous transformation ahead of us if we're to truly modernise the way we operate for the benefit of all our stakeholders. As our investment expenditure reduces and as Allison's leadership brings renewed focus and accelerated delivery, I'm confident that the long-term prospects for BT Group are extremely strong.

Adam Crozier

Chairman

The connections that we provide are more critical than ever, and our customers' needs and demands are constantly evolving.

Keeping the UK's homes, public services and businesses connected places a huge responsibility on BT Group - one that we've continued to meet successfully in FY24, while sustainably growing our business and continuing to transform our operations.

We've also achieved this while facing significant change across the organisation, including the appointment of our new Chief Executive.

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Strategic report

Thank you to Philip

After five years as Chief Executive of BT Group, Philip Jansen stood down at the end of January 2024. Philip achieved a huge amount during his time, most notably setting our vision to provide full fibre connections to 25m premises across the UK by December 2026 - a target we are well over halfway towards completing.

Philip's tenure was also marked by a number of exceptional external challenges. Covid-19 caused immediate changes to everyday life and lasting shifts in how businesses and society operate, and BT Group successfully adapted to both under Philip's leadership. He also steered the business through the impacts of events such as the cost-of-living crisis, high inflation rates and the invasion of Ukraine.

I'd like to take the opportunity to again thank Philip personally, and on behalf of the Board, for everything he delivered for BT Group and the foundation he's set for our future success. I wish him all the best with his future endeavours.

Welcoming Allison

In February 2024, we welcomed Allison Kirkby as our new Chief Executive. She is a proven leader, with deep sector experience and a history of transforming businesses.

Having served as a member of our Board since 2019, Allison already has a full understanding of our long-term strategic objectives. On the following pages, she sets out how she's shaping this strategy to deliver for our customers and stakeholders better and faster.

This will be achieved by focusing on building and connecting customers to our networks, and accelerating the transformation of BT Group to improve our customer service and for the benefit of all our stakeholders. The Board and I look forward to supporting this agenda and Allison's leadership in her new executive capacity.

Moving beyond peak investment

We've steadily accelerated the delivery of our unprecedented investment programme, creating the UK's digital backbone and enabling growth in its economy and businesses. Building and connecting faster hastens the delivery of returns to our shareholders.

FY24 is the year in which we passed the peak of our capital expenditure on this programme, enabling us to see greater normalised free cash flow over the coming years. This gives us confidence to increase the full year dividend to 8.0 pence per share while reaffirming our progressive dividend policy for our loyal investors.

Enabling better outcomes for the UK

While change both inside and outside BT Group is now constant, our purpose endures: We Connect for Good. Our network investments, alongside our Manifesto commitments to deliver responsible, inclusive and sustainable technology, create a foundation for greater inclusivity and wider benefits to society.

We're committed to ensuring that the networks we provide, and the essential services they enable, are accessed and utilised as widely as possible across the UK. In 2021, we set an ambitious goal to reach 25m people in the UK with digital skills by March 2026, and we're on track to hit that target. We also continue to move forward on our wider sustainability goals, with a commitment to build towards a circular BT Group by the end of March 2030, and a circular tech ecosystem by end of March 2040.

We've continued to make clear progress on reducing our environmental impact, with a 61% reduction in operational carbon emissions intensity (compared to FY17 levels) - but we want to go further too, both in our own operations but also within the wider ecosystem we enable. That's why we've set a target to achieve net zero carbon emissions in our operations by the end of March 2031, and for supply chain and customer carbon emissions by the end

of March 2041.

Engaging with our stakeholders

The massive investments we've been making, amid highly challenging economic conditions and constantly increasing data usage and demand, have created inflationary pressures on our business. This has an unavoidable impact on the prices we must charge our customers. We know these rises are never welcome, which is why it's critical that the rationale behind them is fully explained and understood.

Our Consumer business was the first in the industry to incorporate Ofcom's latest proposals on pricing, moving to a 'pounds and pence' structure so that customers have a clear view of costs across their contracted period. We've also continued to protect our social tariff and pay as you go customers from price increases, to ensure everyone is able to remain online.

We're engaging with a broad range of stakeholders, including Ofcom, UK Government, the Digital Voice Advisory Board and Telecare Action Board, as we progress the switch from analogue to digital landlines. Along with other communications providers, we paused all non-voluntary migrations in December 2023, and we now expect to have migrated

all customers off the public switched telephone network (PSTN) by the end of January 2027, allowing us to align the programme with full fibre broadband customer upgrades where available. This timescale will ensure we get this right while delivering this essential programme to ensure the long-term resilience of our networks and services.

Board changes

In January 2024 we welcomed Raphael Kübler, Chief Operating Officer at Deutsche Telekom, to our Board. Raphael replaced Adel Al-Saleh as Deutsche Telekom's nominated Board representative, and we look forward to working with him going forward.

In May of this year we also welcomed Tushar Morzaria to the Board as an Independent Non-Executive Director. Tushar brings a wealth of strategic financial management experience gained over 25 years of overseeing transformation programmes and strengthening risk and control frameworks in complex global organisations.

Ian Cheshire and Iain Conn stepped down from the BT Group Board in July 2023, with Ruth Cairnie succeeding them in the roles of both Senior Independent Non- Executive Director and Chair of the Remuneration Committee.

I'm confident that the collective expertise and varied backgrounds of our Board members mean we have the right range of skills and experience to progress BT Group's ambitions, while also meeting best practice and the guidelines set out in our Board Diversity and Inclusion Policy.

Looking ahead

BT Group has made good progress in the last few years and yet we still have an enormous transformation ahead of us if we are to truly modernise the way we operate for the benefit of all our stakeholders.

While we've a long way to go, our strategy is beginning to deliver, creating the next generation networks that connect the UK, while seeing clear improvements in operational efficiency and financial returns.

As our investment expenditure reduces and as Allison's leadership brings renewed focus and accelerated delivery, I'm confident that the long-term prospects for BT Group are extremely strong.

Adam Crozier

Chairman

15 May 2024

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Strategic report

A message from our Chief Executive

Sharpening our focus.

Since her appointment as Chief Executive, Allison has visited BT Group sites across the UK, including:

BT Group built and connected customers to our next generation networks at record speed and efficiency over the past year, while continuing to grow revenue and EBITDA.

Allison Kirkby

Chief Executive

Watch our CEO reflect on

her first few months in office.

bt.com/annualreview

Full fibre rollout: now at 13.8m premises

13.8m

Normalised free cash flow: raising targets to c.£3.0bn by 2030

c.£3.0bn

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Strategic report

Sharpening our focus on being the best we can be for our customers, for our shareholders and for the UK.

Having passed peak capex on our full fibre broadband rollout and achieved our £3bn cost and service transformation programme a year ahead of schedule, we've now reached the inflection point on our long-term strategy.

Early reflections

I've spent the last few months meeting as many of our customers and stakeholders as possible. Every interaction has confirmed to me that connectivity is the lifeblood of the UK's society and economy. We provide the digital backbone for the nation; without us, life as we know it stops. That might sound dramatic, but it's true - and it's why everything we do has to be focused on supporting the customers who rely on us and living up to our purpose, to connect for good.

I've now visited close to 20 BT Group sites in the UK to meet with colleagues across our operations, and it's been fantastic to see their commitment and passion for what we do. As they're the people who connect with our customers most often, hearing their perspectives on our strengths, opportunities and challenges has also been invaluable as I've shaped my thinking.

These conversations have deepened my appreciation of the fantastic assets that make us unique. We're unrivalled in our experience of operating critical national infrastructure, our breadth of private and public sector customer relationships, our research and development credentials, our partnerships with the world's leading technology firms, and above all our brilliant people who underpin everything we do.

We must harness these strengths as we move into the next phase of BT Group's transformation. We're over the peak of our investment in fibre-to-the-premises ('FTTP' or 'full fibre'); take-up of 5G and FTTP is growing; and we're seeing higher customer satisfaction across the business as our networks and services provide ever- improving experiences. But we can and must go faster in utilising the full power of our networks. We'll do this by sharpening our focus on being the best we can be for our customers, for our shareholders and for the UK.

Our financial performance

Over the past year we delivered a solid operating and financial performance, with growth in both adjusted revenue and EBITDA. We passed peak capex on our full fibre broadband rollout and achieved £3bn of annualised cost savings a

year ahead of schedule.

This means we've now reached the inflection point where we emerge from the most capital-intensive phase of our investment programme. It also gives us the confidence to provide new guidance that significantly increases our short-term cash flow and sets out a path to more than double our normalised free cash flow over the next five years. This enhanced cash flow allows us to increase our dividend for FY24 by 3.9% to 8.0 pence per share. We're also setting an additional £3bn

of gross annualised cost savings to be reached by the end of FY29.

I know BT Group's share price has underperformed in recent years, but we now have a clear, positive path that aims to drive significant value for all stakeholders going forward.

Connecting the UK

Our full fibre rollout has delivered the UK's largest private national infrastructure programme, on time and on budget. It will deliver huge benefits to the UK, with nationwide full fibre broadband predicted to increase national GDP by £72bn - or about 2% - by 2030.

We've built at record speed and efficiency this past year, with an additional 3.5m premises passed, taking us to 13.8m premises covered - equivalent to well over 40% of UK homes. In fact, we're currently the fastest builder of fibre anywhere in Europe, and at a lower cost than our major competitors in the UK. More importantly, we're also seeing industry-leading customer take up of our FTTP networks at 34% - and this is even stronger where we built two or more years ago, with take up of over 50%.

We've continued our rollout of 5G, which now covers 75% of the UK population, and grown our 5G-ready customer base to 11m. Our overall mobile network has increased to 88% of the UK by geography, including new mobile connectivity in 33 London Underground stations. We're also the only network provider to have hit our Shared Rural Network commitment to Government, bringing mobile coverage to many parts of the country for the first time. The customer experience uplift is evident from the scale of traffic increase that we see when new locations are connected.

In remote parts of Scotland, for example, we have seen this drive new commerce for businesses, enable people to use online services for the first time, and connect emergency services in the most remote locations.

We're not just providing brilliant fixed and mobile networks - we're also combining them with the key services our customers need to live, work, game and learn. For example, we launched EE Fibre 1.6Gbps, offering the fastest home broadband speeds of any major provider, and a new EE TV app and set-top box, fully integrated with Apple TV 4K. For businesses, we announced Global Fabric, which will enable organisations to seamlessly and securely connect to multiple clouds and seize the advantages of digital automation and artificial intelligence (AI), and we've also launched new customer solutions via collaborations with companies such as Google, SAP and Microsoft. These are reflected in strong customer satisfaction metrics across the business, and external accolades such as EE being named as RootMetrics' number 1 mobile network for the 21st time.

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A message from our Chief Executive continued

Our strategy for growth

To deliver long-term sustainable growth, we've set ourselves five priorities within our overall strategic framework:

Grow Consumer through converged solutions

Led by EE, Consumer will win more

UK households by creating deeper relationships on the back of leadership in full fibre broadband, 5G and convergence.

Transform our cost base and be more productive

Across BT Group we will fundamentally change what we do and how we work. We'll automate, digitise and close old systems, processes and networks. This will cut costs, help us do things faster and bring better experiences to our customers and colleagues.

Optimise our company portfolio and capital allocation

We will keep strengthening our portfolio by buying, selling or partnering to push our strategy forward. We'll invest in next generation networks and solutions to meet customers' needs and deliver shareholder returns. As we finish rolling out full fibre broadband, we'll reduce capital expenditure by c.£1bn and increase normalised free cash flow.

Strategic report

Capitalise on Business' unrivalled assets to restore growth

Business will help customers grow through next generation connectivity solutions, leading managed services and outstanding customer experience.

Grow Openreach and get strong returns on full fibre broadband

Openreach is building the UK's largest full fibre broadband network. It will get cost advantage from this scale, upgrade customers to the new platform, continue to provide industry-leading service and strengthen all its communications provider relationships.

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Strategic report

As we move into the next phase of BT Group's transformation, we are sharpening our focus to be better for our customers and the country, by accelerating the modernisation of our operations, and by exploring options to optimise our global business.

Strategy

This year's Annual Report provides many more examples of how our long-term strategy is delivering: we're building and connecting our customers to next generation networks at pace; we're creating standout customer experiences; and we're leading the way to a bright and sustainable future.

While building our next generation IT and network infrastructure, we're proactively moving customers off legacy platforms that don't deliver the full benefits of digital connectivity. We recently completed the sunsetting of our 3G mobile network, and we're continuing to move customers onto digital IP-based services. We now expect to have completed this shift by January 2027.

We are also radically simplifying our product and customer journeys by partnering with leading technology players and responsibly adopting new technologies such as AI to enable customer benefits and business growth.

In October, we launched our new integrated EE digital platform to drive convergence. This included new connectivity propositions, building on our FTTP and 5G leadership, improved products and services and a simpler, better set of customer journeys. Overall this is driving a better customer experience, with those that have migrated showing a higher rate of convergence and NPS.

Our strategy is delivering, and when BT Group wins, the UK wins. But the world around us is moving at pace, and so must we. I will set out more on this in the coming months, but I am already clear that my ambition for BT Group is to be the UK's most trusted connector of people, devices and machines.

The digital opportunity for the UK

Having spent the last decade running telecoms companies in Scandinavia, I've seen first-hand how much more digital and connected those nations are. For example, Sweden's equivalent FTTP take-up rate is over 80%, and they have far greater adoption of the new services that this connectivity enables. Digital platforms are embedded and aligned across all aspects of everyday life, with online banking, payment, public services and healthcare apps used at much higher rates than in the UK.

What I saw in Sweden is a clear example of how a better-connected society can unlock huge benefits for both governments and citizens. As well as reducing costs, bureaucracy, fraud and complexity, these digital services also have great potential to help society decarbonise, and to underpin the creation of new, technology-based models that empower businesses to compete in an increasingly digital, global marketplace.

That's why I'm committed to ensuring BT Group plays a key role in helping the UK catch up and realise the benefits of a fully connected society. This isn't something that's nice to do - it's critical to the UK's future.

Having made huge investments into UK infrastructure and services, we must ensure everyone now benefits from them. And all the right foundations are in place to enable this. As well as our own networks, we have regulatory stability, government policy that incentivises further investment, and strong competition spurring all of us in the industry to keep innovating.

I know from my years of experience in the industry that the most successful telcos around the world are national champions who leverage their history, their assets and technology leadership to create value for all. Building on the progress we have made, and with the transformation of BT Group now accelerating, we are moving into a phase where the full potential of our brands, networks, products and services can be realised. This will unlock benefits for UK citizens, businesses and the economy as a whole - and I personally can't wait to start delivering for all our stakeholders.

Allison Kirkby

Chief Executive

15 May 2024

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Strategic report

Executive Committee

The Executive Committee is chaired by the Chief Executive. So that there is a single point of accountability, the Chief Executive (or a delegate) takes all the decisions.

The Executive Committee provides input and recommendations to help the Chief Executive:

• develop group strategy and budget for Board approval
• execute the strategy once the Board approves it
• assure the Board on overall performance and how we're managing risks.

Key changes this year

The following changes to the Executive Committee took place during the year:

• Philip Jansen stood down as Chief Executive.
• Allison Kirkby was appointed as Chief Executive.
• Ed Petter stood down as Corporate Affairs Director on leaving BT Group.
• Tom Engel was appointed Corporate Affairs Director (Interim).

Allison Kirkby

Chief Executive

Appointed Chief Executive February 2024. Appointed to the Board March 2019.

From May 2020 until becoming BT Group Chief Executive, Allison was President & CEO of Telia Company. She was previously President & Group CEO of TDC Group until October 2019, and President

• Group CEO of Tele2 AB from 2015 to 2018, having been Tele2 AB's Group CFO from 2014.

Harmeen Mehta

Chief Digital and Innovation Officer

Appointed March 2021.

Harmeen is a global leader in incubating new businesses and creating revenue streams, with over 25 years' experience of digital transformation and running technology-led businesses.

Before joining BT Group, Harmeen was group CIO and Head of Cloud & Security business at Bharti Airtel. Before that, she was CIO at Bank of America Merrill Lynch, BBVA and HSBC. Harmeen is a Non- Executive Director of Lloyds Banking Group, and a board member of TM Forum.

Simon Lowth

Chief Financial Officer

Appointed July 2016.

Simon was CFO of BG Group before the takeover by Royal Dutch Shell in February 2016. Before that he was CFO of AstraZeneca, and Finance Director and Executive Director of ScottishPower. Simon was also previously a Director of McKinsey & Company.

Tom Engel

Corporate Affairs Director (Interim)

Appointed December 2023.

Before BT Group, Tom held communications leadership positions at DFID, DWP and the Natural History Museum. He has worked in the UK and South African parliaments and served as a Special Adviser in the Blair government. Consulting roles have seen Tom work for a wide range of clients, from pop groups to multinationals, trade bodies to charities. Whilst based in Hong Kong, he helped to grow and sell a private PR company.

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Marc Allera

CEO, EE and Consumer

Appointed September 2017.

Marc is also Chairman and a BT appointed Director of the sports joint venture between BT Group and Warner Bros. Discovery. Marc was previously CEO of EE, and EE Chief Commercial Officer from 2011to 2015. He spent ten years at Three UK as Sales and Marketing Director and Chief Commercial Officer. Before that, Marc was General Manager of Sega UK and Europe. Marc is Chair of Jagex Limited.

Howard Watson

Chief Security and Networks Officer

Appointed Chief Technology and Information Officer February 2016 and became Chief Technology Officer March 2021. Appointed Chief Security and Networks Officer September 2022.

Howard's expanded role puts security at the core of our business. He was formerly Chief Architect and Managing Director, global IT systems and led the technical teams behind the 2013 BT Sport launch. Howard joined BT Group in 2011 and has 40 years of telecoms experience. This includes time at Telewest Communications (now Virgin Media) and Cartesian, a telecommunications consultancy and software company.

Bas Burger

CEO, Business

Appointed CEO, Business January 2023. Appointed CEO, Global June 2017.

Bas was formerly President, BT in the Americas, Global Services. He joined BT Group in 2008 as CEO Benelux. Before that he was Executive President and a management committee member at Getronics NV, where he ran global sales, channels and partnerships, developing the company's international business. He was also CEO and Managing Director of KPN Entercom Solutions.

Athalie Williams

Chief Human Resources Officer

Appointed December 2022.

Before joining BT Group, Athalie was Chief People Officer for BHP, the world's largest mining and resources company. She led BHP's organisation, people and culture transformation agenda and shaped their industry-leading inclusion and diversity agenda. Before that Athalie was General Manager, Cultural Transformation for National Australia Bank. She also spent 14 years leading complex business transformation and change programmes in Australia and Asia as a consultant with Accenture (formerly Andersen Consulting).

Sabine Chalmers

General Counsel, Company Secretary & Director Regulatory Affairs

Appointed General Counsel April 2018. Appointed Director Regulatory Affairs and Company Secretary in May and September 2021 respectively.

Before joining BT Group, Sabine was Chief Legal and Corporate Affairs Officer and Company Secretary of Anheuser-Busch InBev for 12 years. She also held various legal leadership roles at Diageo. Sabine is qualified to practise law in England and Wales and New York State. She is also a member of the Court of Directors of the Bank of England.

Clive Selley

CEO, Openreach

Appointed February 2016.

Clive was formerly CEO, Technology, Service & Operations, CEO Innovate & Design and before that President, Global Services Portfolio & Service Design. Under the provisions of the Commitments, Openreach's CEO cannot be a member of the Executive Committee. Clive attends Executive Committee meetings as appropriate.

BT Group plc Annual Report 2024

Our business model

The UK's leading provider

10	Strategic report

BT Group is the UK's leading fixed and mobile communications provider. We build and run the biggest fixed and mobile networks in the country.

We operate in both wholesale and retail markets. Our customers include consumers, small, medium and large businesses, public sector organisations and other communications providers.

We create value by designing, building, marketing, selling and supporting network access, connectivity and related products to customers. We provide many of the fixed, mobile and converged connectivity solutions integral to modern life. They include broadband, mobile, TV, networking and IT services. We also sell other things - like handsets, gaming and insurance - to help our customers connect, communicate, share, be entertained and do business.

A significant amount of what we earn goes back into maintaining and enhancing our fixed and mobile networks, improving customer service and developing new connectivity solutions - which bring value to customers and returns to shareholders. Through paying tax, interest, pension contributions and shareholder dividends, we contribute financially to a wide range of stakeholders.