BT Group plc Results For The Second Quarter And Half Year To 30 September 2012

BT Group plc Results For The Second Quarter And Half Year To 30 September 2012

PR Newswire

LONDON, Nov. 1, 2012

LONDON, Nov. 1, 2012 /PRNewswire/ --BT Group plc (BT.L) today announced its
results for the second quarter and half year to 30September2012.

Ian Livingston, Chief Executive, commenting on the results, said:

"We have delivered another solid quarter of growth in profit before tax
despite the economic conditions and regulatory impacts. We continue to make
significant investments in the future of our business and we are again
accelerating our fibre roll-out. We now expect fibre to be available to
two-thirds of UK premises during spring 2014, more than 18 months ahead of our
original schedule, and we are recruiting more than 1,000 engineers in 2012 to
help deliver this.

"Over the summer we helped to deliver the most connected Olympic and
Paralympic Games ever and I am proud of the part that our people played in its
success.

"Our confidence in the future of our business is demonstrated by the 15%
increase in the interim dividend."

Second quarter and half year results:

                                            Second quarter  Half year

                                            to 30 September to 30 September
                                           2012               2012
                                           £m       Change    £m       Change
Revenue^1                                  4,474    (9)%      8,958    (7)%
Underlying revenue excluding transit                (5)%               (4)%
EBITDA^1                                   1,497     flat    2,960    1%
Profit before tax^1                608      7%        1,186    8%
Earnings per share - adjusted^1         6.0p    7%        11.7p    8%
 -        7.2p    13%       13.0p    15%
reported
Interim dividend                                               15%
                                                              3.0p
Normalised^2 free cash flow                316      £(247)m   192      £(572)m
Net debt                                                      9,037    £720m

Key points:

  oMore than 12m premises passed by fibre with over 950,000 now connected and
    growing strongly
  o47% share of DSL, LLU and fibre broadband market net additions
  oFor the 2013 financial year we expect

       ounderlying revenue excluding transit to show an improved trend for
         the second half of the year compared with the first half, but not for
         the year as a whole
       oto grow adjusted EBITDA and deliver normalised free cash flow broadly
         level with 2012

^1 Before specific items
^2 Before specific items, pension deficit payments and the cash tax benefit of
pension deficit payments

RESULTS FOR THE SECOND QUARTER AND HALF YEAR TO 30 SEPTEMBER 2012

Group results

               Second quarter to 30    Half year to 30
              September                           September
              2012         2011            Change 2012      2011        Change
              £m            %      £m        £m          %
                           £m
Revenue
- adjusted^1  4,474        4,894           (9)    8,958     9,658       (7)
- reported
(see Note     4,389        4,484           (2)    8,873     9,248       (4)
below)
- underlying excluding                     (5)                          (4)
transit^2
EBITDA
- adjusted^1  1,497        1,495           flat   2,960     2,931       1
- reported
(see Note     1,362        1,428           (5)    2,823     2,798       1
below)
Operating
profit
- adjusted^1  775          742             4      1,515     1,439       5
- reported    640          675             (5)    1,378     1,306       6
Profit before
tax
- adjusted^1  608          570             7      1,186     1,103       8
- reported    602          552             9      1,186     1,069       11
Earnings per
share
- adjusted^1           7            8
              6.0p    5.6p                   11.7p     10.8p
- reported        13           15
              7.2p         6.4p                   13.0p     11.3p
Interim                                             15
dividend                                          3.0p      2.6p
Capital       596          652             (9)    1,218     1,234       (1)
expenditure
Free cash
flow
-             316          563             (44)   192       764         (75)
normalised^3
- adjusted^1  478          671             (29)   516       979         (47)
Net debt                                          9,037     8,317       9

Note: Reported revenue and EBITDA include a specific item charge of £85m and
£58m, respectively, in both the second quarter and half year to 30 September
2012 relating to the retrospective regulatory impact of the Court of Appeal
decision on ladder pricing. In the prior year reported revenue included a
specific item charge of £410m relating to a retrospective regulatory ruling in
Germany, which had no impact on profits or cash. See Group results – Specific
items for more details.

Line of business results^1

               Revenue                EBITDA              Operating cash
                                                         flow
Second quarter 2012    2011    Change 2012  2011  Change 2012   2011   Change
to
30 September   £m      £m      %      £m    £m    %      £m     £m     %
BT Global      1,757   2,014   (13)   130   159   (18)   (171)  (55)   n/m
Services
BT Retail      1,791   1,853   (3)    474   445   7      317    344    (8)
BT Wholesale   861     982     (12)   280   305   (8)    200    222    (10)
Openreach      1,269   1,280   (1)    582   567   3      246    350    (30)
Other and
intra-group    (1,204) (1,235) 3      31    19    63     (114)  (190)  40
items
Total          4,474   4,894   (9)    1,497 1,495 flat   478    671    (29)

^1 Before specific items. Specific items are defined below
^2 Underlying revenue excluding transit is defined below
^3 Before specific items, pension deficit payments and the cash tax benefit of
pension deficit payments
n/m = not meaningful

Notes:

1) Unless otherwise stated, any reference to revenue, operating costs,
earnings before interest, tax, depreciation and amortisation (EBITDA),
operating profit, profit before tax, earnings per share (EPS) and free cash
flow are measured before specific items. The commentary focuses on the trading
results on an adjusted basis being before specific items. This is consistent
with the way that financial performance is measured by management and is
reported to the Board and the Operating Committee and assists in providing a
meaningful analysis of the trading results of the group. The directors believe
that presentation of the group's results in this way is relevant to the
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. 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. Reported
revenue, reported EBITDA, reported operating profit, reported profit before
tax, reported EPS and reported free cash flow are the equivalent unadjusted or
statutory measures.

2) Underlying revenue, underlying costs and underlying EBITDA are measures
which seek to reflect the underlying performance of the group that will
contribute to long-term profitable growth and as such exclude the impact of
acquisitions and disposals, foreign exchange movements and any specific items.
We are focusing on the trends in underlying revenue excluding transit revenue
as transit traffic is low-margin and is significantly affected by reductions
in mobile termination rates.

3) Unless otherwise stated, the references 2011, 2012, 2013, 2014 and 2015
are the financial years to 31 March 2011, 2012, 2013, 2014 and 2015,
respectively, except in relation to our fibre roll-out plans and recruitment
plans which are based on calendar years.

A presentation for analysts and investors will be held in London at 9.00am
today and a simultaneous webcast will be available at www.bt.com/results

The third quarter results for 2013 are expected to be announced on Friday
1February 2013.

About BT

BT is one of the world's leading providers of communications services and
solutions, serving customers in more than 170 countries. Its principal
activities include the provision of networked IT services globally; local,
national and international telecommunications services to its customers for
use at home, at work and on the move; broadband and internet products and
services and converged fixed/mobile products and services.BT consists
principally of four lines of business: BT Global Services, BT Retail, BT
Wholesale and Openreach.

In the year ended 31 March 2012, BT Group's revenue was £18,897m with profit
before taxation of £2,445m.

British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group
plc and encompasses virtually all businesses and assets of the BT Group.BT
Group plc is listed on stock exchanges in London and New York.

For more information, visit www.btplc.com

BT Group plc

RESULTS FOR THE SECOND QUARTER TO 30 SEPTEMBER 2012

GROUP RESULTS

Operating results overview
This quarter a number of prior year and/or one-off items have impacted the
year on year revenue trends.

Our key revenue trend measure, underlying revenue excluding transit, was down
5.5% in the quarter, a larger decline than in recent quarters due to the
negative impact of the accelerated contract milestones recognised in the
second quarter of last year and the Court of Appeal decision on ladder pricing
(see Regulation below). Together these two items accounted for 1.9 percentage
points of the decline and excluding these, underlying revenue excluding
transit was down 3.6%, which is more in line with recent quarters. Our
underlying revenue continues to be impacted by the tough conditions in Europe
and the financial services sector, regulatory price reductions and lower
revenue from calls and lines.

Reported revenue of £4,389m was down only 2%, benefitting from lower specific
item charges to revenue compared with the prior year (see Specific items
below). Our adjusted revenue measure, which excludes specific items, was down
9% at £4,474m, which is a larger decline than in recent quarters due to the
negative impact of the contract milestones and ladder pricing noted above. The
adjusted revenue trend was also impacted by a £79m decline in transit revenue
(including mobile termination rate reductions of £48m), a £74m negative impact
from foreign exchange movements, and a £14m impact from disposals.

Underlying operating costs before depreciation and amortisation were down 10%,
abetter trend than in recent quarters, partly due to the costs associated
with the accelerated contract milestones in the prior year. Excluding these
costs, underlying operating costs before depreciation and amortisation were
down 9%. This reflects the impact of our cost efficiency programmes and
reduced cost of sales due to the decline in revenue, including lower payments
to other telecommunications operators. Excluding transit, underlying operating
costs before depreciation and amortisation were also down 9%. Total operating
costs before depreciation and amortisation and specific items decreased by
£435m, or 12%, to £3,063m.

Adjusted EBITDA was broadly flat at £1,497m. Excluding a £7m negative impact
from foreign exchange movements and a £4m impact from disposals, underlying
EBITDA was up 1%, or 3% excluding the impact of ladder pricing and accelerated
contract milestones recognised in the prior year.

Depreciation and amortisation of £722m was down 4%, largely due to the impact
of additional depreciation and amortisation recognised in the prior year
relating to some contract-specific assets and to lower overall capital
expenditure over the last three financial years. Adjusted net finance expense
was £169m, down 3%, and adjusted profit before tax was £608m, up 7%. Reported
profit before tax (after specific items) was £602m, up 9%.

Capital expenditure was £596m, down 9% due to timing, having been up 7% in the
first quarter.

Tax
The effective tax rate on the profit before specific items was 22.7% (Q2 2012:
24.1%) and is in line with our outlook of around 23% for the full year.

Regulation
In the quarter the Court of Appeal ruled that wholesale ladder termination
pricing should not be applied for 0800, 0845 and 0870 calls from mobile phones
terminating on our network. This overruled the Competition Appeal Tribunal
judgment in August 2011 that found in favour of ladder pricing. Ladder pricing
links the termination charge to the retail call prices charged by mobile
operators for retail prices above a certain threshold. We are seeking leave to
appeal the Court of Appeal decision and are supported by a number of other
fixed line operators.

In 2012 we recognised revenue of £56m from ladder pricing, of which £27m was
transit revenue arising from ladder pricing introduced by other communications
providers, and £29m of EBITDA. However, as a result of the ruling, we are not
recognising any revenue or profit from ladder pricing this year. This means
that in the quarter we have reversed the £24m of revenue, of which £13m was
transit revenue, and £11m of EBITDA which we had recognised in the first
quarter. As revenue and EBITDA from ladder pricing was recognised last year,
the year on year impact in the quarter has been to reduce revenue by £40m, of
which £18m was transit revenue, and EBITDA by £22m. In addition, we have
recognised a specific item charge of £85m against revenue and £58m against
EBITDA, as well as a specific item cash payment of £63m, relating to amounts
recognised from ladder pricing in the 2011 and 2012 financial years.

For 2013 we had expected ladder pricing to generate around £110m of revenue,
of which around £50m was transit revenue, and around £60m of EBITDA and cash.
The decision means that we now expect transit revenue for the group to decline
by £250m-£350m this year.

The charge controls for WLR, LLU and ISDN30 products which became effective in
April 2012 impacted revenue in the quarter. We continue to expect these to
have a negative impact of around £100m-£200m on group external revenue in 2013
with a further similar year on year impact in 2014.

The above regulatory decisions had a negative year on year impact of more than
£40m on both underlying revenue excluding transit and EBITDA in the quarter.

We expect Ofcom's final determination on disputes over historic Ethernet
pricing in the next few months. The draft determinations proposed that we
should repay up to £145m to other communications providers and if the final
determination upholds the drafts, in line with our accounting policy, we would
expect this payment to be treated as a specific item in revenue and free cash
flow.

Specific items
Specific items resulted in a net credit after tax of £95m (Q2 2012: £63m).

One-off charges of £85m and £58m were recognised against revenue and EBITDA,
respectively, following the ladder pricing decision relating to the 2011 and
2012 financial years. In 2012, a one-off charge of £410m was recognised
against revenue, with an equal reduction in operating costs, in relation to a
retrospective regulatory ruling in Germany.

During the quarter a profit of £121m was recognised on the disposal of a 14.1%
interest in Tech Mahindra. Our remaining 9.1% stake will now be accounted for
as an investment and recognised at market value on the balance sheet with
changes in market value being recognised in reserves.

We make provisions for legal or constructive obligations arising from
insurance, litigation and regulatory risks and this quarter we have increased
our provisions by £43m having reassessed potential claims relating to certain
historic matters. An impairment charge of £17m was recognised to write down
our total investment in OnLiveInc., after it entered into creditor protection
status. Specific operating costs also include BT Global Services restructuring
charges of £17m (Q2 2012: £20m). Net interest income on pensions was £8m (Q2
2012: £49m).

The UK Finance Bill, under which the UK corporation tax rate changes from 24%
to 23% on 1 April 2013, was enacted in the quarter. As a result, a specific
tax credit of £78m (Q2 2012: £82m) has been recognised for the re-measurement
of deferred tax balances.

Earnings per share
Adjusted EPS was 6.0p, up 7%, and reported EPS (after specific items) was
7.2p, up 13%. These are based on a weighted average number of shares in issue
of 7,839m (Q2 2012: 7,762m).

Free cash flow
Normalised free cash flow was an inflow of £316m, a decrease of £247m compared
with the prior year, principally reflecting the timing of customer billing and
receipts, increased tax and the timing of supplier payments.

Adjusted free cash flow, which includes a £162m tax benefit from pension
deficit payments (Q2 2012: £108m), was an inflow of £478m (Q2 2012: £671m).

The cash cost of specific items was £90m (Q2 2012: £42m). This comprised cash
payments of £63m following the ladder pricing decision relating to the 2011
and 2012 financial years, BT Global Services restructuring costs of £16m (Q2
2012: £27m) and property rationalisation costs of £11m (Q2 2012: £15m).

Net debt and liquidity
Net debt was £9,037m at 30 September 2012, £45m lower than at 31 March 2012.
The movement in the six months reflects the adjusted free cash inflow of
£516m, an inflow of £85m from the exercise of employee share options, and
disposal proceeds of £163m, of which £157m was from the disposal of our 14.1%
interest in Tech Mahindra. These inflows were offset by dividend payments of
£445m, an outflow of £154m for the purchase of 73m shares under our share
buyback programme and an outflow of £123m relating to specific items.

At 30September 2012 we had cash and current investment balances of £1.6bn and
available facilities of £1.5bn providing us with a strong liquidity and
funding position. During the quarter we repaid £0.3bn of debt which was funded
through cash and investments. During the second half of 2013 £1.4bn of term
debt and £0.6bn of short-term borrowings, including £0.3bn of commercial
paper, are repayable.

During the quarter we bought back 33m shares for a total consideration of
£72m. This forms part of our £300m share buyback programme this year to
counteract the dilutive effect of employee share plans. In the second half of
the year we expect to execute the remainder of the buyback of around £150m,
which may be through a combination of continued direct market purchases and
market purchases through an Employee Benefit Trust, which has the same
economic effect. This increases the flexibility in managing our various share
plans.

Fibre and broadband
We have passed more than 12m premises with our fibre broadband. Take-up is
growing strongly and we achieved around 190,000 connections in the quarter,
with over 950,000 premises now connected. We are again accelerating our fibre
roll-out and now expect fibre to be available to two-thirds of UK premises
during spring 2014, more than 18 months ahead of our original schedule.

We added 81,000 retail broadband customers in the quarter, representing 47% of
the broadband^1 market net additions of 174,000. We added around 160,000
retail fibre broadband customers and the retail fibre customer base is now
more than 875,000.

Pensions
The IAS 19 net pension position at 30 September 2012 was a deficit of £3.1bn
net of tax (£4.0bn gross of tax) compared with a deficit of £1.9bn at 31 March
2012 (£2.4bn gross of tax). The higher deficit reflects the impact on
liabilities of a reduction in the discount rate, partially offset by a
reduction in the RPI inflation assumption, and a reduction in the long-term
assumption for the CPI/RPI differential.

The IAS 19 accounting position and key assumptions for the liability valuation
are provided in Note 10.

IAS 19 'Employee Benefits (revised)' will impact our pensions accounting with
effect from 1 April 2013 as explained in 'Accounting standards,
interpretations and amendments not yet effective' in Note 3 to the 2012 Annual
Report & Form 20-F. Had this applied to the half year ended 30 September 2012,
operating costs would have been £18m higher and net finance income on
pensions, which is classified as a specific item, £75m lower.

Dividends
In line with our outlook for 10%-15% annual growth in dividends per share, the
Board has declared an interim dividend of 3.0p per share (Q2 2012: 2.6p), an
increase of 15%. The interim dividend amounts to £236m (Q2 2012: £202m) and
will be paid on 4 February 2013 to shareholders on the register on 28 December
2012. The ex-dividend date is 24 December 2012. The election date for
participation in BT's Dividend Investment Plan in respect of this dividend is
28 December 2012.

The final dividend for the year to 31 March 2012 of 5.7p per share, amounting
to £449m, was approved at the Annual General Meeting on 11 July 2012 and was
recognised in the second quarter.

Outlook
We expect an improved trend in underlying revenue excluding transit for the
second half of the year compared with the first half, helped by a better
trading performance. Due to the impact of the ladder pricing decision and the
tougher than expected conditions facing BT Global Services we do not expect an
improving trend in underlying revenue excluding transit for the year as a
whole compared with the previous year.

We are making progress on reducing BT Global Services' cost base but we do not
expect its EBITDA to grow this year. Despite this and the impact of ladder
pricing, our cost transformation initiatives mean that at the group level we
continue to expect to grow adjusted EBITDA for 2013 and to deliver normalised
free cash flow that is broadly level with 2012.

In 2014 we continue to expect an improving trend in underlying revenue
excluding transit, adjusted EBITDA to be broadly level with 2013 and
normalised free cash flow to be above £2.2bn. We continue to expect normalised
free cash flow to be around £2.5bn in 2015.

^1 DSL, LLU and fibre, excluding cable^

RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2012

Operating results overview
Our key revenue trend measure, underlying revenue excluding transit, was down
4.4% in the first half. The negative impact of the accelerated contract
milestones recognised in the second quarter of last year and the Court of
Appeal decision on ladder pricing together accounted for 0.9 percentage points
of the decline. Excluding these, underlying revenue excluding transit was down
3.5%. Reported revenue, which includes specific items, was down 4%. Our
adjusted revenue measure, which excludes specific items, was down 7% at
£8,958m partly due to the negative impact of the contract milestones and
ladder pricing. The adjusted revenue trend was also impacted by a £146m
decline in transit revenue (including mobile termination rate reductions of
£108m), a £130m negative impact from foreign exchange movements, and a £27m
impact from disposals.

Underlying operating costs before depreciation and amortisation were down 9%,
partly due to the costs associated with the accelerated contract milestones in
the prior year. Excluding these costs, underlying operating costs before
depreciation and amortisation were down 8%. This reflects the impact of our
cost efficiency programmes and reduced cost of sales due to the decline in
revenue, including lower payments to other telecommunications operators.
Excluding transit, underlying operating costs before depreciation and
amortisation were down 7%. Total operating costs before depreciation and
amortisation and specific items decreased by £752m, or 11%, to £6,172m.

Adjusted EBITDA of £2,960m was up 1%. Excluding a £14m negative impact from
foreign exchange movements and a £7m impact from disposals, underlying EBITDA
was up 2%, or 3% excluding the impact of ladder pricing and accelerated
contract milestones recognised in the prior year.

Depreciation and amortisation of £1,445m was down 3%, and with adjusted net
finance expense broadly flat at £338m, adjusted profit before tax increased by
8% to £1,186m. Reported profit before tax (after specific items) was £1,186m,
up 11%. Capital expenditure was down 1% at £1,218m.

Tax
The effective tax rate on profit before specific items was 22.7% (HY 2012:
24.1%).

Specific items
Specific items resulted in a net credit after tax of £99m (HY 2012: £44m).
One-off charges of £85m and £58m were recognised against revenue and EBITDA,
respectively, following the ladder pricing decision. In 2012, a one-off charge
of £410m was recognised against revenue, with an equal reduction in operating
costs, in relation to a retrospective regulatory ruling in Germany.

A profit of £121m was recognised on the disposal of a 14.1% interest in Tech
Mahindra. We also disposed of a non-core business in Italy resulting in a
profit of £6m. We have increased our provisions by £43m having reassessed
potential claims relating to certain historic matters. An impairment charge of
£17m was recognised to write down our total investment in OnLiveInc. and BT
Global Services restructuring charges of £25m (HY 2012: £42m) were incurred.
Net interest income on pensions was £16m (HY 2012: £99m). A specific item tax
credit of £78m (HY 2012: £82m) has also been recognised for the re-measurement
of deferred tax balances.

Earnings per share
Adjusted EPS was 11.7p, up 8%, and reported EPS (after specific items) was
13.0p, up 15%. These are based on a weighted average number of shares in issue
of 7,813m (HY 2012: 7,759m).

Free cash flow
Normalised free cash flow was an inflow of £192m, a decrease of £572m compared
with the prior year, principally reflecting the timing of supplier payments
and customer receipts, including contract-related receipts in BT Global
Services, and increased tax.

Adjusted free cash flow, which includes a £324m tax benefit from pension
deficit payments (HY 2012: £215m), was an inflow of £516m (HY 2012: £979m).
The cash cost of specific items was £123m (HY 2012: £103m). This comprised
cash payments of £63m following the ladder pricing decision relating to the
2011 and 2012 financial years, BT Global Services restructuring costs of £31m
(HY 2012: £73m) and property rationalisation costs of £29m (HY 2012: £28m).

Related party transactions
Transactions with related parties during the half year to 30 September 2012
are disclosed in Note 13.

Principal risks and uncertainties
A summary of the group's principal risks and uncertainties is provided in Note
14.

OPERATING REVIEW

BT Global Services

                         Second quarter to 30 September  Half year to 30
                                                        September
                         2012    2011     Change   2012  2011   Change
                         £m      £m      £m      %      £m    £m    £m    %
Revenue                  1,757   2,014   (257)   (13)   3,487 3,919 (432) (11)
- underlying                                  (9)                      (8)
excluding transit
Net operating costs^1    1,627   1,855   (228)   (12)   3,238 3,622 (384) (11)
EBITDA                   130     159     (29)    (18)   249   297   (48)  (16)
Depreciation &           153     190     (37)    (19)   308   365   (57)  (16)
amortisation
Operating loss           (23)    (31)    8       26     (59)  (68)  9     13
Capital expenditure      125     155     (30)    (19)   253   272   (19)  (7)
Operating cash flow      (171)   (55)    (116)   n/m    (486) (115) (371) n/m

^1 Net of other operating income
n/m = not meaningful

Revenue
Underlying revenue excluding transit decreased by 9%, or 6% excluding the
impact of accelerated contract milestones recognised in the prior year,
reflecting the tough conditions in Europe and the financial services sector.
Revenue was down 13%, including a £67m negative impact from foreign exchange
movements and a £14m impact from disposals.

Despite the tough conditions and the continued market trend towards lower
contract order values and longer lead times our total order intake was £1.3bn
in the quarter (Q1 2013: £1.1bn; Q2 2012: £1.4bn). In the quarter we signed
contracts with leading organisations around the world including: British
American Tobacco, for a global managed services agreement valued at more than
$100m, covering its global wide area network infrastructure across nearly
1,000 sites in 119 countries; Surrey County Council, to provide communications
infrastructure and cloud services; and the European Commission to provide
network and consultancy services to all major European Commission
institutions.

Operating results
Net operating costs reduced by 12% reflecting the reduction in revenue, lower
contract milestone-related costs and the impact of our cost transformation
programmes. Underlying operating costs excluding transit costs declined by 9%,
or 6% excluding the accelerated contract milestones recognised in the prior
year.

We are intensifying our efforts to transform our cost base. In the quarter we
completed the closure of a major legacy network and migrated the last of the
3,500 financial services customer sites to a new platform which provides
improved reliability and service. A review of our commercial arrangements and
processes for managing overseas access circuits is lowering the cost of
contract delivery and enabling price renegotiations for our circuits globally.
We are also working with suppliers of customer premises equipment to leverage
best practice and improve pricing across some of our major contracts. In
addition, the migration of contract management back-office functions into
shared service centres is leading to more efficient processes, lower costs and
better customer service.

EBITDA decreased by 18%, or 12% excluding foreign exchange movements and
disposals. Excluding the profit associated with the accelerated contract
milestones recognised in the prior year, underlying EBITDA was down 5%.
Operating losses were 26% lower due to a 19% reduction in depreciation and
amortisation reflecting the additional depreciation and amortisation
recognised in the prior year relating to some contract-specific assets and
lower overall capital expenditure over the last three financial years.

Capital expenditure reduced by 19% as the prior year included additional
customer contract-related capital expenditure. Operating cash flow was an
outflow of £171m compared with an outflow of £55m in the prior year. The
decline reflects the timing of contract-related receipts as expected, but also
a delay in some debtor receipts.

BT Retail

                      Second quarter to 30 September Half year to 30 September
                      2012    2011     Change     2012   2011    Change
                      £m      £m      £m      %      £m     £m     £m     %
Revenue               1,791   1,853   (62)    (3)    3,567  3,683  (116)  (3)
Net operating costs^1 1,317   1,408   (91)    (6)    2,617  2,792  (175)  (6)
EBITDA                474     445     29      7      950    891    59     7
Depreciation &        98      102     (4)     (4)    193    204    (11)   (5)
amortisation
Operating profit      376     343     33      10     757    687    70     10
Capital expenditure   99      109     (10)    (9)    194    203    (9)    (4)
Operating cash flow   317     344     (27)    (8)    564    638    (74)   (12)

^1 Net of other operating income

Revenue
Revenue declined by 3%, in line with the previous quarter, including an £8m
negative impact from foreign exchange movements.

Consumer revenue decreased by 3%, with lower calls and lines revenue partially
offset by growth in broadband, driven by an increasing contribution from
fibre. This growth contributed to an increase in consumer ARPU from £350 to
£355 in the quarter.

In the quarter we added 81,000 retail broadband customers, representing 47% of
the DSL, LLU and fibre broadband market net additions. We added around 160,000
retail fibre broadband customers with the majority of our new broadband
customers in enabled areas choosing fibre. The retail fibre customer base is
now more than 875,000, representing around 14% of our retail broadband
customer base. BT Wi-fi minutes trebled to reach 3bn minutes in the quarter,
helped by the impact of London 2012.

BT Vision added 21,000 customers in the quarter with the customer base now
over 750,000. Building on the Premier League football broadcast rights secured
in June, we have reached agreements for exclusive live rights with English
Premiership Rugby covering a four-year period and for the Top 14 French rugby
championship. We have also reached agreements to broadcast games from the top
football leagues of Italy, France, Brazil and the USA.

Business revenue showed an improving trend, and was down 3% largely due to our
withdrawal from low-margin IT hardware trade sales during the second quarter
last year. We have seen an improved revenue trend in voice and IT services,
particularly in BT iNet, our networked IT services division. 

BT Enterprises revenue decreased by 2%, reflecting slower growth in BT
Conferencing and BT Expedite and declines in BT Directories and BT Redcare.
We are developing our BT Conferencing propositions and have entered into a
technology partnership with Dolby Laboratories Inc., which will introduce the
next generation of conferencing services.

BT Ireland revenue increased by 1%, excluding the impact of foreign exchange
movements. In the quarter, we agreed a wholesale deal to provide Sky with
managed voice and broadband services, to support their launch in the Republic
of Ireland. Our fibre roll-out in Northern Ireland has now reached over 90%
coverage with more than 100,000 premises already using the service.

Operating results
Net operating costs decreased by 6% reflecting the impact of our cost
transformation initiatives and reduced cost of sales associated with the lower
revenue. EBITDA increased by 7% and with depreciation and amortisation
decreasing by 4%, operating profit was up 10%.

Capital expenditure decreased by 9%. Operating cash flow decreased by 8%
principally due to movements in working capital.

BT Wholesale

                            Second quarter to 30   Half year to 30
                           September                 September
                           2012 2011^2  Change 2012  2011^2  Change
                           £m   £m     £m      %     £m    £m     £m     %
Revenue                    861  982    (121)   (12)  1,784 1,986  (202)  (10)
- underlying excluding                      (5)                       (3)
transit
Net operating costs^1      581  677    (96)    (14)  1,204 1,374  (170)  (12)
EBITDA                     280  305    (25)    (8)   580   612    (32)   (5)
Depreciation &             147  149    (2)     (1)   295   301    (6)    (2)
amortisation
Operating profit           133  156    (23)    (15)  285   311    (26)   (8)
Capital expenditure        57   89     (32)    (36)  129   163    (34)   (21)
Operating cash flow        200  222    (22)    (10)  329   341    (12)   (4)

^1 Net of other operating income
^2 Prior year not restated for ladder pricing impact

Revenue
Underlying revenue excluding transit decreased by 5%, or 2% excluding ladder
pricing (see Group results - Regulation above), primarily due to the ongoing
migration of broadband lines to LLU. Revenue decreased by 12%, or 8% excluding
ladder pricing, including a £79m decline in transit revenue driven by both
mobile termination rate reductions and lower volumes.

Total order intake was around £300m compared with around £120m last year.In
the quarter we also extended our relationship with EE to provide increased
backhaul capacity at key base station sites to help underpin 4G services and
to help EE launch fibre-to-the-cabinet services to their customers. 

Our Mobile Ethernet Access Service is now available at more than 14,000 sites.
This coverage and a number of new technological innovations reinforce our
market-leading position. IP Exchange now has more than 160 wholesale customers
and continues to grow rapidly with voice minutes in the quarter increasing by
nearly 90% compared with last year.

Operating results
Net operating costs decreased by 14%, or 3% excluding transit costs,
reflecting lower managed service contract costs and a reduction in labour
costs. EBITDA decreased by 8%, or 1% excluding ladder pricing, and with
depreciation and amortisation reducing by 1%, operating profit declined by
15%, or 1% excluding ladder pricing.

Capital expenditure decreased by 36% primarily due to lower spend on Ethernet
as a result of improvements in capacity management and lower spend on our
Wholesale Broadband Connect network. Operating cash flow decreased by 10%
principally due to movements in working capital.

Openreach

                             Second quarter to 30  Half year to 30
                            September                 September
                            2012   2011    Change   2012  2011   Change
                            £m     £m     £m     %    £m    £m    £m     %
Revenue                     1,269  1,280  (11)   (1)  2,526 2,535 (9)    0
Net operating costs^1       687    713    (26)   (4)  1,391 1,430 (39)   (3)
EBITDA                      582    567    15     3    1,135 1,105 30     3
Depreciation & amortisation 243    232    11     5    487   464   23     5
Operating profit            339    335    4      1    648   641   7      1
Capital expenditure         278    251    27     11   564   504   60     12
Operating cash flow         246    350    (104)  (30) 455   527   (72)   (14)

^1 Net of other operating income

Revenue
Revenue was down 1%, with growth in Ethernet and fibre largely offsetting the
impact of regulatory price reductions for WLR, LLU and ISDN30 products.

The physical line base declined by 38,000 in the quarter due to the prolonged
adverse weather conditions which have resulted in more resources being
deployed on repair activity and an increase in provision lead times.

Our fibre broadband is now available to over 12m premises. We achieved around
190,000 connections in the quarter, with over 950,000 premises now connected.
We now expect fibre to be available to two-thirds of UK premises during spring
2014, more than 18 months ahead of our original schedule. We are recruiting
more than 1,000 engineers in 2012 to help deliver this and reduce our
provision lead times.

In the quarter we won the Broadband Delivery UK regional bids to deploy fibre
broadband in North Yorkshire and Surrey. We have already started work in North
Yorkshire where the first customers are expected to be connected within six
months of signing the contract. We were also awarded preferred bidder status
in Cumbria, Suffolk and Norfolk.

Operating results
Net operating costs reduced by 4%, partly due to lower leaver costs, despite
significant additional costs relating to the adverse weather. EBITDA increased
by 3% and with depreciation and amortisation increasing by 5%, reflecting the
investment in fibre broadband and Ethernet, operating profit was up 1%.

Capital expenditure increased by 11% reflecting investment in our fibre
roll-out programme. Operating cash flow decreased by 30% due to the timing of
debtor receipts and the increased capital expenditure.

FINANCIAL STATEMENTS

Group income statement
For the second quarter to 30 September 2012

                                               Before         Specific
                                               specific items items    Total
                                          Note £m             £m       £m
Revenue                                   2    4,474          (85)     4,389
Other operating income                         86             -        86
Operating costs                           3    (3,785)        (50)     (3,835)
Operating profit                               775            (135)    640
Finance expense                                (174)          (494)    (668)
Finance income                                 5              502      507
Net finance expense                            (169)          8        (161)
Share of post tax profits of associates        2              -        2
and joint ventures
Profit on disposal of interest in              -              121      121
associate
Profit before tax                              608            (6)      602
Tax                                            (138)          101      (37)
Profit for the period                          470            95       565
Attributable to:
Equity shareholders                            469            95       564
Non-controlling interests                      1              -        1
Earnings per share
- basic                                   9    6.0p                    7.2p
- diluted                                      5.7p                    6.9p
For the second quarter to 30 September 2011
                                               Before         Specific
                                               specific items items    Total
                                          Note £m             £m       £m
Revenue                                   2    4,894          (410)    4,484
Other operating income                         99             (19)     80
Operating costs                           3    (4,251)        362      (3,889)
Operating profit                               742            (67)     675
Finance expense                                (175)          (523)    (698)
Finance income                                 1              572      573
Net finance expense                            (174)          49       (125)
Share of post tax profits of associates        2              -        2
and joint ventures
Profit before tax                              570            (18)     552
Tax                                            (138)          81       (57)
Profit for the period                          432            63       495
Attributable to:
Equity shareholders                            431            63       494
Non-controlling interests                      1              -        1
Earnings per share
- basic                                   9    5.6p                    6.4p
- diluted                                      5.3p                    6.0p



Group income statement
For the half year to 30 September 2012

                                               Before         Specific
                                               specific items items    Total
                                          Note £m             £m       £m
Revenue                                   2    8,958          (85)     8,873
Other operating income                         174            7        181
Operating costs                           3    (7,617)        (59)     (7,676)
Operating profit                               1,515          (137)    1,378
Finance expense                                (346)          (987)    (1,333)
Finance income                                 8              1,003    1,011
Net finance expense                            (338)          16       (322)
Share of post tax profits of associates        9              -        9
and joint ventures
Profit on disposal of interest in              -              121      121
associate
Profit before tax                              1,186          -        1,186
Tax                                            (269)          99       (170)
Profit for the period                          917            99       1,016
Attributable to:
Equity shareholders                            916            99       1,015
Non-controlling interests                      1              -        1
Earnings per share
- basic                                   9    11.7p                   13.0p
- diluted                                      11.2p                   12.4p



Group income statement
For the half year to 30 September 2011

                                               Before         Specific
                                               specific items items    Total
                                          Note £m             £m       £m
Revenue                                   2    9,658          (410)    9,248
Other operating income                         197            (19)     178
Operating costs                           3    (8,416)        296      (8,120)
Operating profit                               1,439          (133)    1,306
Finance expense                                (346)          (1,046)  (1,392)
Finance income                                 4              1,145    1,149
Net finance expense                            (342)          99       (243)
Share of post tax profits of associates        6              -        6
and joint ventures
Profit before tax                              1,103          (34)     1,069
Tax                                            (267)          78       (189)
Profit for the period                          836            44       880
Attributable to:
Equity shareholders                            835            44       879
Non-controlling interests                      1              -        1
Earnings per share
- basic                                   9    10.8p                   11.3p
- diluted                                      10.2p                   10.7p



Group statement of comprehensive income
For the second quarter and half year to 30 September

                                        Second quarter Half year

                                        to 30 September  to 30 September
                                       2012        2011        2012    2011
                                       £m          £m          £m      £m
Profit for the period                  565         495         1,016   880
Other comprehensive income (loss)
Actuarial movements on defined benefit (1,507)     (1,017)     (1,479) (1,550)
pension schemes
Exchange losses on translation of      (34)        (26)        (56)    (10)
foreign operations
Fair value movements on cash flow
hedges
- fair value (losses) gains            (304)       165         (246)   212
- recycled and reported in net profit  157         66          187     32
Movement in available for sale reserve 30          (10)        30      (10)
Tax on components of other             365         196         296     336
comprehensive income
Other comprehensive loss for the       (1,293)     (626)       (1,268) (990)
period, net of tax
Total comprehensive loss for the       (728)       (131)       (252)   (110)
period
Attributable to:
Equity shareholders                    (727)       (134)       (251)   (113)
Non-controlling interests              (1)         3           (1)     3
                                       (728)       (131)       (252)   (110)



Group statement of changes in equity
For the half year to 30 September 2012

                                           Share            Non-        Total
                                           capital Reserves controlling
                                                            interests   equity
                                           £m      £m       £m          £m
At 1 April 2012                            408     889      11          1,308
Total comprehensive loss for the period    -       (251)    (1)         (252)
Share-based payment                        -       39       -           39
Net movement on treasury shares            -       (69)     -           (69)
Dividends on ordinary shares               -       (449)    -           (449)
At 30 September 2012                       408     159      10          577
For the half year to 30 September 2011
                                           £m      £m       £m          £m
At 1 April 2011                            408     1,517    26          1,951
Total comprehensive (loss) income for the  -       (113)    3           (110)
period
Share-based payment                        -       40       -           40
Net movement on treasury shares            -       8        -           8
Dividends on ordinary shares               -       (389)    -           (389)
Transactions with equity holders           -       -        (17)        (17)
At 30 September 2011                       408     1,063    12          1,483



Group cash flow statement
For the second quarter and half year to 30 September

                                       Second quarter   Half year

                                       to 30 September to 30 September
                                      2012         2011        2012    2011
                                      £m           £m          £m      £m
Profit before tax                     602          552         1,186   1,069
Depreciation and amortisation         722          753         1,445   1,492
Net finance expense                   161          125         322     243
Loss (profit) on disposal of          -            19          (7)     19
subsidiary
Profit on disposal of associate       (121)        -           (121)   -
Associates and joint ventures         (2)          (2)         (9)     (6)
Share-based payment                   19           19          39      40
Increase in working capital           (247)        (77)        (855)   (462)
Provisions, pensions and other        20           21          41      123
non-cash movements
Cash generated from operations        1,154        1,410       2,041   2,518
Tax paid                              (19)         (36)        (28)    (65)
Net cash inflow from operating        1,135        1,374       2,013   2,453
activities
Cash flow from investing activities
Interest received                     3            1           5       2
Dividends received from associates    1            4           1       4
Proceeds on disposal of property,     5            7           8       10
plant and equipment
Acquisition of subsidiaries, net of   (6)          (5)         (6)     (5)
cash acquired
Sale of subsidiaries, net of bank     -            13          17      13
overdrafts
Acquisition of joint ventures         (4)          -           (5)     -
Disposal of associates and joint      157          -           157     7
ventures
Purchases of property, plant and      (624)        (625)       (1,288) (1,246)
equipment and software
Sale of non-current asset investments -            -           1       -
Purchase of current financial assets  (2,144)      (1,877)     (4,707) (3,718)
Sale of current financial assets      2,418        1,555       3,956   3,036
Net cash used in investing activities (194)        (927)       (1,861) (1,897)
Cash flow from financing activities
Interest paid                         (132)        (132)       (347)   (347)
Equity dividends paid                 (444)        (384)       (445)   (385)
New borrowings                        1            -           796     -
Repayment of borrowings               (303)        -           (305)   (14)
Repayment of finance lease            (6)          (2)         (11)    (2)
liabilities
Cash flows from derivatives related   (91)         216         -       271
to net debt
Net proceeds (repayment) of           6            (16)        219     (69)
commercial paper
Proceeds on issue of treasury shares  81           8           85      8
Repurchase of ordinary share capital  (72)         -           (154)   -
Net cash used in financing activities (960)        (310)       (162)   (538)
Effect of exchange rate movements     (3)          (1)         (7)     1
Net (decrease) increase in cash and                                 
cash equivalents
                                      (22)         136         (17)    19
Cash and cash equivalents, net of                                   
bank overdrafts, at
 beginning of period               328          208         323     325
Cash and cash equivalents, net of                                   
bank overdrafts, at
end of period                     306          344         306     344

Group balance sheet

                                      30 September 30 September 31 March
                                      2012         2011         2012
                                      £m           £m           £m
Non-current assets
Intangible assets                     2,977        3,240        3,127
Property, plant and equipment         14,235       14,475       14,388
Derivative financial instruments      937          1,153        886
Investments                           181          60           68
Associates and joint ventures         30           158          153
Trade and other receivables           188          223          169
Deferred tax assets                   911          862          626
                                      19,459       20,171       19,417
Current assets
Inventories                           110          116          104
Trade and other receivables           3,193        3,568        3,307
Current tax receivables               -            -            139
Derivative financial instruments      82           89           137
Investments                           1,265        692          513
Cash and cash equivalents             311          350          331
                                      4,961        4,815        4,531
Current liabilities
Loans and other borrowings            2,700        939          2,887
Derivative financial instruments      125          57           89
Trade and other payables              4,956        5,809        5,962
Current tax liabilities               141          419          66
Provisions                            263          91           251
                                      8,185        7,315        9,255
Total assets less current liabilities 16,235       17,671       14,693
Non-current liabilities
Loans and other borrowings            8,291        9,131        7,599
Derivative financial instruments      948          723          757
Retirement benefit obligations        4,001        3,349        2,448
Other payables                        863          898          875
Deferred tax liabilities              1,016        1,190        1,100
Provisions                            539          897          606
                                      15,658       16,188       13,385
Equity
Ordinary shares                       408          408          408
Reserves                              159          1,063        889
Total parent shareholders' equity     567          1,471        1,297
Non-controlling interests             10           12           11
Total equity                          577          1,483        1,308
                                      16,235       17,671       14,693



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 Basis of preparation and accounting policies

These condensed consolidated financial statements ('the financial statements')
comprise the financial results of BT Group plc for the quarters and half years
to 30 September 2012 and 2011 together with the audited balance sheet at 31
March 2012. The financial statements for the half year to 30 September 2012
have been reviewed by the auditors and their review opinion is on page 24. The
financial statements have been prepared in accordance with the Disclosure and
Transparency Rules (DTR) of the Financial Services Authority and with IAS 34
Interim Financial Reporting as adopted by the European Union. The financial
statements should be read in conjunction with the annual financial statements
for the year to 31 March 2012.

After making enquiries, the directors have a reasonable expectation that the
group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing the half year financial statements.

Except as described below, the financial statements have been prepared in
accordance with the accounting policies as set out in the financial statements
for the year to 31 March 2012 and have been prepared under the historical cost
convention as modified by the revaluation of financial assets and liabilities
(including derivative financial instruments) at fair value. These financial
statements do not constitute statutory accounts within the meaning of Section
434 of the Companies Act 2006. Statutory accounts for the year to 31 March
2012 were approved by the Board of Directors on 9 May 2012, published on 25
May 2012 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified and did not contain any statement
under Section 498 of the Companies Act 2006.

Government grants
Our policy for the recognition of government grants was changed from 1 April
2012. Under the new policy, capital expenditure and operating costs are
recognised 'net' of government grants receivable. The net presentation is
considered a more appropriate policy than the previous 'gross' presentation as
it better presents the incremental costs to the business. The new policy has
been applied prospectively and comparative financial information has not been
restated on the basis of the immaterial impact of grant funding on prior
period financial information.

2 Operating results – by line of business^1

                                External Internal Group          Operating
                                revenue                   EBITDA
                                         revenue  revenue        profit (loss)
                                £m       £m       £m      £m     £m
Second quarter to 30 September
2012
BT Global Services              1,757    -        1,757   130    (23)
BT Retail                       1,657    134      1,791   474    376
BT Wholesale                    616      245      861     280    133
Openreach                       433      836      1,269   582    339
Other and intra-group items^2   11       (1,215)  (1,204) 31     (50)
Total                           4,474    -        4,474   1,497  775
Second quarter to 30 September
2011
BT Global Services              2,014    -        2,014   159    (31)
BT Retail                       1,729    124      1,853   445    343
BT Wholesale                    737      245      982     305    156
Openreach                       404      876      1,280   567    335
Other and intra-group items^2   10       (1,245)  (1,235) 19     (61)
Total                           4,894    -        4,894   1,495  742
Half year to 30 September 2012
BT Global Services              3,487    -        3,487   249    (59)
BT Retail                       3,303    264      3,567   950    757
BT Wholesale                    1,293    491      1,784   580    285
Openreach                       848      1,678    2,526   1,135  648
Other and intra-group items^2   27       (2,433)  (2,406) 46     (116)
Total                           8,958    -        8,958   2,960  1,515
Half year to 30 September 2011
BT Global Services              3,919    -        3,919   297    (68)
BT Retail                       3,437    246      3,683   891    687
BT Wholesale                    1,496    490      1,986   612    311
Openreach                       786      1,749    2,535   1,105  641
Other and intra-group items^2   20       (2,485)  (2,465) 26     (132)
Total                           9,658    -        9,658   2,931  1,439

^1 Before specific items.
^2 Elimination of intra-group revenue, which is included in the total revenue
of the originating business

3 Operating costs

                                            Second quarter   Half year

                                            to 30 September  to 30 September
                                            2012    2011    2012      2011
                                            £m      £m      £m        £m
Direct labour costs                         1,173   1,213   2,356     2,400
Indirect labour costs                       214     232     435       474
Leaver costs                                16      29      39        57
Total labour costs                          1,403   1,474   2,830     2,931
Capitalised labour                          (243)   (242)   (480)     (483)
Net labour costs                            1,160   1,232   2,350     2,448
Payments to telecommunications operators    653     786     1,350     1,611
Property and energy costs                   259     270     520       543
Network operating and IT costs              156     163     312       333
Other costs                                 835     1,047   1,640     1,989
Operating costs before depreciation and                            
specific items
                                            3,063   3,498   6,172     6,924
Depreciation and amortisation               722     753     1,445     1,492
Total operating costs before specific items 3,785   4,251   7,617     8,416
Specific items (Note 4)                     50      (362)   59        (296)
Total operating costs                       3,835   3,889   7,676     8,120

4 Specific items

The group separately identifies and discloses those items that in management's
judgement need to be disclosed by virtue of their size, nature or incidence
(termed 'specific items'). This is consistent with the way that financial
performance is measured by management and assists in providing a meaningful
analysis of the trading results of the group. Specific items may not be
comparable to similarly titled measures used by other companies.

                                               Second quarter  Half year

                                               to 30 September to 30 September
                                               2012    2011    2012    2011
                                               £m      £m      £m     £m
Specific revenue
Retrospective regulatory rulings               85      410     85      410
Specific other operating income
Loss (profit) on disposal of subsidiary        -       19      (7)     19
Retrospective regulatory rulings               (27)    (410)   (27)    (410)
BT Global Services restructuring charges       17      20      25      42
Property rationalisation charges               -       28      -       72
Provision for claims                           43      -       43      -
Impairment charge                              17      -       18      -
Specific operating costs                       50      (362)   59      (296)
EBITDA impact (Note 7)                         135     67      137     133
Net interest income on pensions                (8)     (49)    (16)    (99)
Profit on disposal of interest in associate    (121)   -       (121)   -
Net specific items charge before tax           6       18      -       34
Tax (credit) charge on specific items before   (23)    1       (21)    4
tax
Tax credit on re-measurement of deferred tax   (78)    (82)    (78)    (82)
Net specific items credit after tax            (95)    (63)    (99)    (44)

5 Free cash flow

Free cash flow is not a measure defined under IFRS but is a key indicator used
by management to assess operational performance.

                                          Second quarter       Half year

                                          to 30 September      to 30 September
                                          2012  2011           2012    2011
                                          £m     £m £m      £m
Cash generated from operations            1,154 1,410          2,041   2,518
Tax paid                                  (19)  (36)           (28)    (65)
Net cash inflow from operating activities 1,135 1,374          2,013   2,453
Included in cash flows from investing
activities
Net purchase of property, plant,                                    
equipment and software
                                          (619) (618)          (1,280) (1,236)
Dividends received from associates        1     4              1       4
Interest received                         3     1              5       2
Sale of non-current asset investments     -     -              1       -
Included in cash flows from financing
activities
Interest paid                             (132) (132)          (347)   (347)
Free cash flow                            388   629            393     876
Net cash outflow from specific items      90    42             123     103
Adjusted free cash flow                   478   671            516     979
Cash tax benefit of pension deficit       (162) (108)          (324)   (215)
payments
Normalised free cash flow                 316   563            192     764

6 Net debt

Net debt is not a measure defined under IFRS but is a key indicator used by
management to assess operational performance.

                                            30 September 30 September 31 March

                                            2012         2011         2012
                                            £m           £m           £m
Loans and other borrowings^1                10,991       10,070       10,486
Cash and cash equivalents                   (311)        (350)        (331)
Investments                                 (1,265)      (692)        (513)
                                            9,415        9,028        9,642
Adjustments:
To re-translate currency denominated
balances at                                 (34)         (400)        (228)
 swapped rates where hedged
To remove fair value adjustments and
accrued interest                            (344)        (311)        (332)
 applied to reflect the effective
interest method
Net debt                                    9,037        8,317        9,082

^1 Includes overdrafts of £5m at 30 September 2012 (30 September 2011: £6m; 31
March 2012: £8m)

7 Reconciliation of earnings before interest, taxation, depreciation and
amortisation

Earnings before interest, taxation, depreciation and amortisation (EBITDA) is
not a measure defined under IFRS, but is a key indicator used by management to
assess operational performance. A reconciliation of reported profit before tax
to adjusted EBITDA is provided below.

                                               Second quarter  Half year

                                               to 30 September to 30 September
                                               2012    2011    2012    2011
                                               £m      £m      £m      £m
Reported profit before tax                     602     552     1,186   1,069
Share of post tax profits of associates and    (2)     (2)     (9)     (6)
joint ventures
Profit on disposal of interest in associate    (121)   -       (121)   -
Net finance expense                            161     125     322     243
Operating profit                               640     675     1,378   1,306
Depreciation and amortisation                  722     753     1,445   1,492
Reported EBITDA                                1,362   1,428   2,823   2,798
Specific items (Note 4)                        135     67      137     133
Adjusted EBITDA                                1,497   1,495   2,960   2,931

8 Reconciliation of adjusted profit before tax

                            Second quarter Half year

                           to 30 September  to 30 September
                           2012     2011    2012    2011
                           £m       £m      £m      £m
Reported profit before tax 602      552     1,186   1,069
Specific items (Note 4)    6        18      -       34
Adjusted profit before tax 608      570     1,186   1,103

9 Reconciliation of adjusted earnings per share

                                    Second quarter Half year

                                   to 30 September  to 30 September
                                   2012     2011    2012    2011
                                   pence per share  pence per share
Reported basic earnings per share  7.2      6.4     13.0    11.3
Per share impact of specific items (1.2)    (0.8)   (1.3)   (0.5)
Adjusted earnings per share        6.0      5.6     11.7    10.8

10 Pensions

                             30 September 2012        31 March 2012
                             £bn                      £bn
IAS 19 liabilities - BTPS    (42.0)                   (40.6)
Assets - BTPS                38.2                     38.3
Other schemes                (0.2)                    (0.1)
IAS 19 deficit, gross of tax (4.0)                    (2.4)
IAS 19 deficit, net of tax   (3.1)                    (1.9)
Discount rate (nominal)      4.25%                    4.95%
Discount rate (real)         1.86%                    1.84%
RPI inflation                2.35%                    3.05%
                             0.75% below RPI for      0.75% below RPI for
                             three                    three
CPI inflation                years and 1.00% below    years and 1.20% below
                             RPI thereafter           RPI
                                                      thereafter

11 Share capital
In the half year to 30 September 2012 164m shares (HY 2012: 11m) were issued
from treasury to satisfy obligations under all-employee and executive share
plans at a weighted average cost of £454m (HY 2012: £38m).

12 Capital commitments
Capital expenditure for property, plant and equipment and software contracted
for at the balance sheet date but not yet incurred was £386m (31 March 2012:
£433m; 30 September 2011: £489m).

13 Related party transactions
During the half year to 30 September 2012, the group purchased services in the
normal course of business and on an arm's length basis from its associate,
Tech Mahindra Limited. The value of services purchased was £99m (HY 2012:
£127m). As a result of the disposal of a 14.1% interest in Tech Mahindra
during the second quarter, the group's interest reduced to 9.1% and
accordingly ceased to be accounted for as an associate.

14 Principal risks and uncertainties
We have processes for identifying, evaluating and managing our risks. Details
of our principal risks and uncertainties can be found on pages 32 to 37 of the
2012 Annual Report & Form 20-F and are summarised below. All of them have the
potential to impact our business, revenue, profits, assets, liquidity and
capital resources adversely.

  oThe risk that there could be a significant failure or interruption of data
    transfer as a result of factors outside our control
  oThe risks associated with complex and high value customer contracts
  oThe risks associated with a significant funding obligation in relation to
    a defined benefit pension scheme
  oThe risks arising from operating in markets which are characterised by
    high levels of competition
  oThe risks associated with some of our activities being subject to
    significant price and other regulatory controls
  oThe risks associated with failing to comply with a wide range of local and
    international legislative requirements
  oThe risk there could be a failure of any of our critical suppliers upon
    which we are dependent for the delivery of goods or services

There have been no significant changes to the principal risks and
uncertainties in the half year to 30September 2012, some or all of which have
the potential to impact our results or financial position during the remaining
six months of the financial year.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm, to the best of their knowledge, that this condensed set
of financial statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the Interim Management Report includes a fair
review of the information required by Rules 4.2.7 and 4.2.8 of the Disclosure
and Transparency Rules of the United Kingdom's Financial Services Authority.

The names and functions of the BT Group plc board can be found at:
http://www.btplc.com/thegroup/ourcompany/theboard/ourboard/index.htm

By order of the Board
Ian Livingston        Tony Chanmugam
Chief Executive       Group Finance Director
31 October 2012

Independent review report to BT Group plc on the half year interim financial
information

Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half year financial report for the six months ended 30
September 2012, which comprises the Group income statement, the Group
statement of comprehensive income, the Group statement of changes in equity,
the Group cash flow statement, the Group balance sheet and related notes. We
have read the other information contained in the half year financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.

Directors' responsibilities
The half year financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half year
financial report in accordance with the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority.

As disclosed in Note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half year financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half year financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the company for the purpose of the Disclosure and Transparency Rules of
the Financial Services Authority and for no other purpose. We do not, in
producing this report, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.

Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.

Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half year
financial report for the six months ended 30 September 2012 is not prepared,
in all material respects, in accordance with International Accounting Standard
34 as adopted by the European Union and the Disclosure and Transparency Rules
of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP
Chartered Accountants
London
31 October 2012

Notes:
The maintenance and integrity of the group's website is the responsibility of
the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.

Forward-looking statements – caution advised
Certain statements in this results release are forward-looking and are made in
reliance on the safe harbour provisions of the US Private Securities
Litigation Reform Act of 1995. These statements include, without limitation,
those concerning: current and future years' outlook, including revenue trends,
EBITDA and normalised free cash flow; the impact of regulation; continuing
cost transformation in our BT Global Services business; progressive dividends;
our fibre roll-out programme; effective tax rate; and liquidity and funding.

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; fluctuations in foreign
currency exchange rates and interest rates; 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; developments in the convergence of technologies; the
anticipated benefits and advantages of new technologies, products and
services, and demand for bundled services, not being realised; the timing of
entry and profitability of BT in certain communications markets; significant
changes in market shares for BT and its principal products and services; the
underlying assumptions and estimates made in respect of major customer
contracts proving unreliable; the aims of the BT Global Services restructuring
programme not being achieved; and general financial market conditions
affecting BT's performance and ability to raise finance. BTundertakes no
obligation to update any forward-looking statements whether as a result of new
information, future events or otherwise.

SOURCE BT Group plc

Website: http://www.btplc.com
Contact: Press office: Ross Cook, 020 7356 5369 or Investor relations:
Catherine Nash, 020 7356 4909