Annual Review and Notice of Meeting 28 May 2008 Peter White In Hi…

Annual Review and Notice of Meeting
28 May 2008

Peter White
In


Hi there! My name is Peter White. Welcome to highlights from this year's
Annual Review and Notice of Meeting.


I will begin by giving you details about this year's annual general meeting then
read a cautionary note about forward looking statements contained in the
review before updating you on BT's Board of Directors.


Next, I will read the Chairman's message, follow this with financial highlights
and then come to a review of the year.


All references to `BT Group', `BT', `the group', `the company', `we' or `our' are to
BT Group plc (which includes the activities of British Telecommunications plc)
and its subsidiaries or any of them as the context may require.


This year's Annual General Meeting is to be held at 10.30 am on 16 July 2008
at the Barbican Centre, Silk Street, London EC2Y 8DS. There are 15
resolutions to consider which I will outline later.




Now here is the cautionary statement.


This audio, and the related summary financial statement, upon which it is

based, contain certain statements that are forward-looking and are made in

reliance on the safe harbour provisions of the US Private Securities Litigation




                                         1
Reform Act of 1995. These statements include, without limitation, are those

concerning: expected continued growth in revenue, EBITDA (earning before

interest, tax, depreciation and amortisation) and earnings per share (both

before specific items and leaver costs); and levels of free cash flow; and

increased dividends per share.

Although BT believes that the expectations reflected in these forward-looking

statements are reasonable, it can give no assurance that these expectations

will prove to have been correct. Because these statements involve risks and

uncertainties, actual results may differ materially from those expressed or

implied by these forward-looking statements.

Factors that could cause differences between actual results and those implied

by the forward-looking statements include, but are not limited to: material

adverse changes in economic conditions in the markets served by BT; future

regulatory actions and conditions in BT's operating areas, including

competition from others; selection by BT of the appropriate trading and

marketing models for its products and services; technological innovations,

including the cost of developing new products, networks and solutions and the

need to increase expenditures for improving the quality of service; prolonged

adverse weather conditions resulting in a material increase in overtime, staff

or other costs; timing of entry and profitability of BT in certain communications

markets; developments in the convergence of technologies; the anticipated

benefits and advantages of new technologies, products and services,

including broadband and other new wave initiatives, not being realised;

significant changes in market shares for BT and its principal products and

services; fluctuations in foreign currency exchange rates and interest rates;


                                        2
and general financial market conditions affecting BT's performance and ability

to raise finance. BT undertakes no obligation to update any forward-looking

statements whether as a result of new information, future events or otherwise.



Shareholders who would like more detailed information may obtain a copy of

the full Annual Report for 2008 and/or future years, free of charge, by calling

our Shareholder Helpline on Freefone 0808 100 4141 (+44 121 415 7178

from outside the UK) or can view it online at www.bt.com/annualreport




This is the BT Board of Directors:


Chairman


Sir Michael Rake,
Appointed to the Board as Chairman on 26 September 2007. He was formerly
chairman of KPMG International from 2002 until 2007. He is chairman of the
UK Commission for Employment and Skills, and a director of Barclays,
McGraw Hill, and the Financial Reporting Council. Other appointments
include: vice-president of the RNIB, a member of the board of the
TransAtlantic Business Dialogue, a member of the CBI International Advisory
Board, the Chartered Management Institute, and BERR's US/UK Regulatory
Taskforce. He was knighted in 2007 for his services to accounting.




Executive Directors:



                                       3
Ben Verwaayen, Chief Executive
A Dutch national, appointed to the Board on 14 January 2002 and Chief
Executive on 1 February 2002. Ben will step down as Chief Executive on 31
May and will leave the Board on 30 June. Formerly vice chairman of the
management board of Lucent Technologies in the US from October 1999.
In 2006, he was created an Officer of the Order of Orange-Nassau and
appointed a Chevalier de la Légion d'Honneur in June 2006. He was
appointed an honorary KBE in 2007 in recognition of his services to the
communications industry. Other appointments: non-executive director of UPS.


François Barrault, Chief Executive, BT Global Services
A French national, appointed to the Board as Chief Executive, BT Global
Services on 24 April 2007. Previously President BT International, BT Global
Services, and was formerly president, Lucent Technologies. Other
appointments: non-executive director of eServGlobal (an Australian
corporation).


Hanif Lalani, OBE, Group Finance Director
Appointed to the Board as Group Finance Director on 7 February 2005. A
Chartered Management Accountant, he was formerly Chief Financial Officer
for BT Wholesale. He was awarded the OBE in 2003 for services to business
in Northern Ireland.


Ian Livingston, Chief Executive, from 1 June 2008
Chief Executive, BT Retail, from 7 February 2005 until 1 May 2008, Ian
becomes Chief Executive on 1 June 2008. A Chartered Accountant, he was
Group Finance Director from April 2002. Formerly group finance director of
Dixons Group, a non-executive director of Ladbrokes (previously Hilton
Group) and also a director of Freeserve from its inception. He is a non-
executive director of Celtic.


Non-executive Directors:


Maarten van den Bergh, Deputy Chairman


                                       4
A Dutch national, appointed to the Board on 1 September 2000. He was
appointed Deputy Chairman on 1 October 2006. He is the senior independent
director. Before retiring in 2000, he was president of the Royal Dutch
Petroleum Company and vice chairman of its committee of managing
directors. He is a former chairman of Lloyds TSB Group. Other appointments:
chairman of Akzo Nobel Supervisory Board; non-executive director of British
Airways, and of Royal Dutch Shell.


Matti Alahuhta
A Finnish national, appointed to the Board on 1 February 2006. President of
Kone Corporation since January 2005, president and CEO since 2006 and a
director since 2003. Formerly president Nokia mobile phones and president
Nokia telecommunications. Other appointments: foundation board chairman of
International Institute of Management Development; non-executive
director of UPM-Kymmene Corporation, member of the Board of Helsinki
University of Technology and chairman of the Centennial Foundation of the
Finland Technology Industries .


Clayton Brendish
Appointed to the Board on 1 September 2002. Previously executive deputy
chairman of CMG. Other appointments: non-executive chairman of Anite,
Close Beacon Investment Fund and Echo Research; non-executive director of
Herald Investment Trust; trustee of Economist Newspapers and Foundation
for Liver Research.


J Eric Daniels
A US national, appointed to the Board on 1 April 2008. Group chief executive
of Lloyds TSB Group since 2003 and a director since 2001. He worked for
Citibank from 1975-2000 becoming chief operating officer of Citibank's
consumer bank, then chairman and CEO of Travelers Life and Annuity
following its merger with Citibank. After that, he was chairman and CEO of
Zona Financiera before joining Lloyds TSB Group.


Rt Hon Patricia Hewitt MP


                                       5
A British and Australian dual national, appointed to the Board on 24 March
2008. Labour MP for Leicester West, she was Secretary of State for Health
from 2005 to 2007 and previously for Trade and Industry from 2001 to 2005
and Cabinet Minister for Women. Before entering Parliament, she was
director of research EMEA at Andersen Consulting (now Accenture) and
deputy director of the Institute for Public Policy Research. A senior adviser to
Cinven and a special consultant to Alliance Boots.


Phil Hodkinson
Appointed to the Board on 1 February 2006. Formerly group finance director
of HBOS. A Fellow of the Institute of Actuaries, he was formerly chairman
of Insight Investment, Clerical Medical Investment Group, Halifax Financial
Services and the HBOS Foundation . Other appointments: non-executive
director of Business in the Community and Travelex, and a trustee of
Christian Aid.


Deborah Lathen
A US national, appointed to the Board on 1 February 2007. A US attorney,
president of Lathen Consulting. Formerly chief of the Cable Services Bureau
at the Federal Communications Commission. She was previously director of
national consumer affairs and managing counsel at Nissan Motor Corporation
USA.


Carl G Symon
A US national, appointed to the Board on 14 January 2002. Formerly
chairman and chief executive officer of IBM UK. Other appointments:
chairman of HMV Group and Clearswift Systems; non-executive director of
Rexam; an advisory board member of Cross Atlantic Capital Partners, and
formerly a non-executive director of Rolls-Royce.




                                        6
Gavin Patterson, Chief Executive, BT Retail
Joins the Board on 1 June 2008. Appointed Chief Executive, BT Retail on 1
May 2008. Gavin joined BT in January 2004 as Managing Director, Consumer
Division, BT Retail. Before joining BT, he was managing director of the
consumer division of Telewest. He joined Telewest in 1999 and held a
number of commercial and marketing roles, after working for Procter &
Gamble since 1990.




Now here is Chairman Sir Michael Rake's message to shareholders.


Welcome to our combined Annual Report and Notice of Meeting. I am looking
forward to my first AGM and hope that you can join Ian Livingston and me at
the Barbican Centre on Wednesday 16 July.


I am pleased to report that we are recommending a full year dividend of 15.8
pence, up 5% from last year, reflecting the group's strong performance and
the Board's continued confidence in the future of the business.




Your vote is important to the good governance of your company. If you are not
going to be at the meeting, and you want to vote on any of the resolutions,
please complete and return the proxy form to our Registrars, Equiniti.




Before saying anything else, I want to pay tribute to your Chief Executive of
the past six and a half years, Ben Verwaayen, who will be stepping down on
1 June 2008. Ben has been a truly exceptional Chief Executive. His courage,
determination, vision and energy have transformed BT. When he arrived in
2002; BT was a deeply troubled organisation with huge debts and an
uncertain future. Since then, under his leadership, BT has delivered



                                       7
Broadband Britain, built a successful and fast growing global operation and
changed the regulatory landscape in the UK through the creation
of Openreach.


This has enabled the most competitive broadband market in the world to
flourish. Ben has also ­ and I'll return to this ­ overseen the creation
of a diverse and hugely impressive talent pool in BT at executive team level
and throughout our many operations and specialist businesses around the
world. He has restored pride in BT and I know that he feels that in many ways
this will prove to be his most important legacy. Great credit is also due to my
predecessor Sir Christopher Bland who stepped down in September. He was
an outstanding Chairman to whom I and the rest of BT owe a tremendous
debt of gratitude.




I've been at BT for eight months and have enjoyed my time here enormously.
Having had a chance to meet BT people and get a first hand view of
operations, I am convinced that we have the right strategy and, just as
importantly, the right team to take it forward. That team consistently
demonstrates that it has the imagination and agility to deliver for our
customers.


We need to drive standards higher for the whole of the industry. Being
number one for service in our own sector is simply no longer good enough.
We have to make outstanding customer service a differentiator for BT. That
will enable us to build on our position as Britain's favourite broadband
provider, grow our wholesale and global businesses, and drive down the costs
we incur when things go wrong. The transformation that Ben and Christopher
initiated continues.




                                        8
It is vitally important for companies to be responsible and contributing
members of the communities in which they operate. BT has an enviable track
record when it comes to living up to its social and environmental
responsibilities and I am delighted that BT won Business in the Community's
prestigious Company of the Year award for our positive impact on society.
The award goes to the company judged to be improving its business and its
overall impact on society, in the marketplace, the workplace, the environment
and the community, through leadership and integration of responsible
business practices.


We were also the top telecommunications company in the Dow Jones
Sustainability Index for the seventh year in a row. The importance of such
awards is that they highlight all the hard work, imagination and commitment
throughout our organization that is focused on operating in an ethical,
sustainable and socially responsible way. Around one third of BT people are
involved with corporate social responsibility related activities. We provide the
manpower and technology for major charity appeals including Children in
Need and Comic Relief, and we are working closely with children's charity
Childline on a campaign to ensure that no call for help goes unheard.


As we increasingly operate globally, so the emphasis is on being good
citizens of the world and making a difference worldwide. For example, when
your Board recently held a meeting in India, we were able to see the
marvellous work that the Katha IT and E-commerce School or KITES as it is
known - which BT supports - is doing for kids in one of Delhi's slums. We
recognise that we have a responsibility to the environment and aim to be a
leader in the new low-carbon economy. Ben Verwaayen chaired a recent CBI
task force which was set up to make recommendations on combating climate
change.


And we are very conscious of the importance of reducing our emissions and
reducing waste in-house. Our CO2 emissions in the UK are 58% lower than
they were in 1996 and we aim to improve this to 80% by 2016. Our contract to
purchase green energy is one of the largest in the world and we are


                                        9
developing wind powered projects which should meet up to 25% of our UK
electricity needs by 2016.




The creation of a genuinely competitive environment, wherever we operate

around the world, is fundamental to our continued ability to meet our

customers' needs.


In the UK, it is vital that the regulatory environmment should enable us to
make the necessary investments in the next generation of the UK's
communications infrastructure with confidence. In the European Union we
are also looking for a level playing field that allows BT access to other
markets.




I'm delighted that Ian Livingston is taking over from Ben as your Chief
Executive. He has delivered brilliantly for BT, both as group finance director
and CEO of BT Retail. He was the unanimous choice of the Board after a
rigorous international search process. He leads a team of executive directors
of exceptional talent: Hanif Lalani, who was recently named the 2008 Real
FD/CBI finance director of the year (FTSE 100); François Barrault, CEO of BT
Global Services; and Gavin Patterson, who has been CEO of
BT Retail since 1 May 2008.


I'd like to thank Andy Green and Paul Reynolds both of whom stepped down
as executive directors during the year. They provided first-class support for
Ben over a number of years and I wish them well in their new careers. My
thanks also to Larry Stone who provided excellent support to the Board as
Company Secretary for the past six years, and who moves on to
become BT's President of Group Public and Government Affairs. He is
replaced by Andrew Parker who was previously General Counsel, BT Retail.




                                       10
There have also been a number of changes to your non-executive team
during the year. Baroness Margaret Jay and John Nelson both left after six
years of invaluable service to BT. In their place, I would like to welcome two
new non-executive directors, both of whom bring a wide range of skills and
experience with them. In addition to a distinguished political career, Patricia
Hewitt has extensive business and international experience.


Eric Daniels is group CEO of Lloyds TSB. In addition, his years as chairman
and CEO of Zona Financiera, a leading Latin American financial portal, will be
of great value to us as we seek to build further our presence in the region.


One of the directors proposed for re-election this year is an independent non-
executive director, Carl Symon. I am pleased to confirm to shareholders that,
following formal performance evaluation, we continue to regard Carl as a very
effective non executive director. He demonstrates the highest commitment to
the role and makes a valuable contribution in Board deliberations and as
chairman of the Equality of Access Board.


Directors appointed since the last AGM have to retire at this meeting and Eric
Daniels and the Rt Hon Patricia Hewitt, who both joined the Board earlier
this year, will automatically retire at the AGM and be proposed for election, as
I shall have to myself. Gavin Patterson, Chief Executive of BT Retail, joins the
Board on 1 June and has to retire at the AGM, where he will be proposed for
election. Gavin was formerly Group Managing Director of BT Retail's
Consumer Division


I'm very proud to report that in March 2008 we announced that BT had been
selected as the official communications services partner for the London 2012
Olympic Games and Paralympic Games. As a company committed to the
proposition that better communications can mean better lives and a better
world, we will be providing the communications services infrastructure for one
of the world's greatest sporting events and putting the BT brand at the heart of
`a Games for the Digital Age'.



                                       11
The partnership will be a fantastic opportunity to showcase BT and our
capabilities ­ who we are, what we believe in and what we can do ­ in the
context of a key event in the life of the nation. I'm also delighted that BT is
giving a boost to Team GB athletes by helping fund their journey to the Beijing
Olympic Games in August. From our perspective, the countdown to London
2012 has already started.


Looking to the future, BT will continue to deliver on its strategy

and to create new and exciting ways for our customers to

communicate and collaborate. That strategy is creating value for

our shareholders. In 2009, we expect to deliver continued growth

in revenue, EBITDA and earnings per share (both before specific items and

leavers costs) as we continue our transformation from a fixed-line business

into a software-driven communications company. We also expect our free

cash flow to be at a similar level to 2008 and to increase dividends

per share in 2009. I believe that we have the right team in place

and the right culture throughout the organisation ­ an absolute

commitment to the customer and a determination to get it right

first time. There is every reason for optimism.



That concludes your Chairman's letter to shareholders.




Now let tell you about BT's Financial highlights for the 2008 year ended 31st
March:

       ·   Revenue of £20,704 million, up 2%


                                        12
      ·   EBITDA before specific items of £5,784 million, up 3%
      ·   Profit before taxation and specific items of £2,506 million
      ·   Earnings per share before specific items of 23.9 pence, up 5%
      ·   Free cash flow of £1,503 million, up 11%
      ·   Full year proposed dividend of 15.8 pence per share up 5%


I now come to the year in review.


BT is one of the world's leading communications services companies and
serves customers in over 170 countries. Our vision is to be dedicated to
helping customers thrive in a changing world.


We are meeting the needs of our different customer groups ­ major
corporates, government and financial institutions, consumers, small and
medium-sized enterprises, and other communications providers ­ through
four customer-facing lines of business -- BT Global Services, BT Retail, BT
Wholesale and Openreach ­ supported by two internal functional units, BT
Design and BT Operate.


BT Global Services serves corporate, carrier and government organisations
across the world, providing high-performance managed networked IT
services, applications management, professional services and outsourcing
solutions. Highlights for 2008 are that over 60% of Fortune Global 500
companies and over 65% of FTSE 100 companies are our customers and
with EBITDA (before specific items and leaver costs) margins of 11.2%, we
are making progress towards our 15% target.


BT Retail serves consumer customers as well as small and medium-sized
enterprises in the UK, providing a range of innovative products and services.
It also comprises BT Ireland and our Enterprises division. 2008 highlights
BT is the UK's most popular broadband retailer, and around 1 million
businesses rely on us.




                                      13
BT Wholesale brings economies of scale to 700+ UK communications
companies through a diverse portfolio ranging from nationally available
broadband, voice and data connectivity services and interconnect, to
bespoke, fully managed network outsourcing and value-added solutions.
Highlights of 2008 [puase] a four-year outsourcing deal with the Post Office
and provision of voice network management services to Virgin Media.


Openreach is responsible for the crucial `first mile' connecting
communications providers' customers to their local telephone exchange,
giving them equal, open and economic access to the UK network.         In 2008
we achieved significant progress in enhancing the competitive environment in
the UK communications services market with 4.3 million unbundled non-BT
lines in the UK and a 40% improvement in service provision lead times.


BT Design is responsible for the design and deployment of the platforms,
systems and processes which support our products and services, and BT
Operate is responsible for their operation.


Our strategy, is based on long-term partnerships with our customers and
leveraging our Global 21CN platform to, grow new-wave products and
services and defend traditional business with increased focus on providing
global, real-time and open platforms and putting the customer at the heart of
everything we do.




Our ongoing commitment is to increase shareholder returns by:
   ·   driving profitable growth in new wave products and services such as
       global networked IT services, broadband and convergent mobility
       solutions




                                       14
   ·   maximising the potential of our traditional business through a
       combination of enhanced quality of service, creative marketing,
       innovative pricing and cost efficiency


   ·   transforming our networks, systems and services for the 21st century,


   ·   and creating long-term partnerships with our customers.


Our achievements include £7.6 billion paid out to shareholders in the past five
years, nine per cent growth in new wave revenue in 2008 , £1.5 billion cost
savings achieved in the past three years, 40% of core 21 CN infrastructure
built and £1.8 billion projected value of wholesale managed network services
contracts signed in 2008.


The key performance indicators against which we measured the success of
our strategy in 2008 were customer service, earnings per share before
specific items, and free cash flow. In customer service there was an increase
of 9 % in `right first time', earnings per share before specific items rose to 23.9
pence and free cash flow reached £1,503 million, up11%.
Other targets we set for 2008 financial year
In addition to our stated key performance indicators, we also achieved what
we said we would aim to do in 2008:
   ·   continue to grow revenue and EBITDA before specific items
   ·   accelerate the strategic transformation of our business
   ·   introduce a two-year £2.5 billion share buy back programme
   ·   maintain our solid investment grade credit rating
   ·   invest in the growth of the business




In 2008, 40% of external revenue was earned by BT Retail, 38% by BT Global
Services, 18% by BT Wholesale and 4% by Openreach.



                                        15
Our capabilities range from:
   ·   the provision of a single, domestic telephone line to the development of
       an innovative network infrastructure for the twenty-first century
   ·   mission critical global networked IT services for multinationals to
       broadband packages for the home
   ·   next-generation TV to Voice over IP services
   ·   innovative calls packages for homes and businesses to value-added
       services such as online trading communities and comprehensive IT
       support


In order to be where our customers need us to be, we are growing our global
busiuness organically and through acquisitions... Our non UK regional
revenues comprised Europe (excluding UK) ­ 15%; Americas ­ 19%; Asia
Pacific ­ 66%.


Ethics and integrity are core to the way we work, our values are:
   ·   Trustworthy: we do what we say we will
   ·   Helpful: we work as one team
   ·   Inspiring: we create new possibilities
   ·   Straightforward: we make things clear
   ·   Heart: we believe in what we do


In 2008, BT was ranked as the top company in the telecommunications sector
in the Dow Jones Sustainability Index for the seventh year in a row. Our UK
CO2 emissions are 58% below their 1996 levels and we are committed to
achieving an 80% reduction from our 1996 baseline by 2016.
We commit a minimum of 1% of our UK pre-tax profits in cash and
in kind to activities which support society. We have ISO 9001 certification
for most of our operations in the UK and around the world.
Your company also holds current awards for `Company of the Year - Business
in the Community `, Dow Sustainability Index and Queens Award for
Enterprise ­ Sustainable Development.



                                       16
The company's financial statements for the year ended 31 March 2008 have
been prepared on a going concern basis as, after making appropriate enquiries,
the directors have a reasonable expectation that the group has adequate
resources to continue in operational existence for the foreseeable future.


The company's auditors PricewaterhouseCoopers LLP have reported that in
their opinion the Summary financial statement is consistent with the full annual
financial statements, the Report of the Directors and the Report on Director's
remuneration of BT Group plc for the year ended 31 March 2008 and complies
with the applicable requirements of Section 251 of the Companies Act 1985,
and the regulations made there under that section. The full statement of the
auditors can be read in the printed or in the online version of these Summary
financial statements at www.bt.com/annualreport




The Annual Review and Notice of Meeting contain a number of financial
tables and a summary report on directors' remuneration, as well as other
detailed information for shareholders. Full details can again be found online
at www.bt.com/annualreport


Finally I come to the 15 resolutions to be considered at the AGM. These are:


     Resolution 1: to receive the report and accounts;


     Resolution 2: to approve the remuneration policy contained in the report
     on directors' remuneration


     Resolution 3: to declare payable the final dividend of 10.4 pence per
     share recommended by the directors on 15 September 2008 to holders of
     ordinary shares registered at the close of business on 22 August 2008.


                                       17
Resolutions 4 to 5: to re-elect the following directors:
 Hanif Lalani
 Carl Symon


Resolution 6 to 9: to elect the following directors:
 Sir Michael Rake
 Gavin Patterson
 J Eric Daniels
 The Rt Hon Patricia Hewitt MP


Resolution 10: to re-appoint PricewaterhouseCoopers as auditors of the
company.


Resolution 11: to authorize the directors to decide the auditors'
remuneration.


Resolution 12: (to be proposed as an ordinary resolution) to renew the
authority and power conferred on the directors in relation to the Section 80
Amount by Article 74 of the company's articles until 15 October 2009 and
for that period the Section 80 amount will be £ 127 million.


Resolution 13 (to be proposed as a special resolution): to extend the
authority and power conferred on the directors by Article 74 of the
Company's articles of association to any sale of shares which the
company may hold as treasury shares and to renew it until 15 October
2009 and for that period the Section 89 Amount shall be £21 million.


Resolution 14 (also to be proposed as a special resolution): to authorize
the company to make market purchases -as defined in Section
163 of the Companies Act 1985 - of shares of 5p each in the company,
subject to certain conditions.




                                 18
Resolution 15 to authorise British Telecommunications plc, a wholly-
owned subsidiary of the Company, to make political donations to political
(a) parties and/or independent election candidates not exceeding
£75,000 in total; and (b) organisations other than political parties not
exceeding £25,000 in total, during the period beginning with the date of
the 20008 Annual General Meeting ­ that is 16 July 2008 ­ and ending
at the conclusion of the day on which the 2009 Annual General Meeting
is held.
The Company's continuing policy is that no company in the group will
make contributions tin cash or kind to any political party. However the
definitions of political donations used in the new Companies Act 2006 is
very much broader that the sense in which these words are ordinarily
used.




This is Peter White signing off and saying `thank you' for listening.




                                  19