Net cash inflow from operating activities of £5,898 million in the 2005 financial year compares with £5,389 million in the 2004 financial year and £6,023 million in the 2003 financial year. Special and deficiency contributions to the main pension fund, described below, of £6 million in the 2005 financial year compared to £742 million in the 2004 financial year and £329 million in the 2003 financial year, consequently reducing the net cash inflow by these amounts. The pension payments in the 2004 financial year include early payment of £380 million deficiency contributions to the BT Pension Scheme, which represents most of the deficiency contributions for the 2005 and 2006 financial years.
     The net cash outflow for returns on investments and servicing of finance amounted to £878 million, £527 million and £1,506 million in the 2005, 2004 and 2003 financial years, respectively. The increased outflow of £351 million in the 2005 financial year reflects the receipt of £420 million of funds on restructuring part of the group’s swap portfolio in the 2004 financial year. This effect was offset by lower interest payments due to certain bonds maturing during the 2005 financial year. The reduction in the 2004 financial year outflow of £979 million includes the effect of the restructuring of the group’s swap portfolio. In addition, the 2003 financial year included the payment of a £293 million premium on closing out £2.6 billion of fixed interest rate swaps, following receipt of the Cegetel sale proceeds.
     Tax paid in the 2005 financial year totalled £332 million compared with £317 million in the 2004 financial year and £434 million paid in the 2003 financial year. The lower tax paid in the 2005 and 2004 financial year reflects the lower current tax charge and the level of payments made on account.
     The net cash outflow of £2,408 million for capital expenditure and financial investment in the 2005 financial year included £3,056 million of capital expenditure on property, plant and equipment, offset by £650 million received on the sale of fixed assets. In the 2004 financial year the net cash outflow of £2,477 million for capital expenditure and financial investment included £2,684 million of capital expenditure on property, plant and equipment, offset by £208 million received on the sale of fixed assets. Capital expenditure is higher than the 2004 financial year as a result of expenditure to support the rapid growth in broadband and the transformation of the group’s network. In the 2003 financial year the net cash outflow of £2,381 million for capital expenditure and financial investment included £2,580 million of capital expenditure on plant and equipment, offset by £200 million received on the sale of fixed assets.
     The net cash outflow from acquisitions less disposals in the 2005 financial year totalled £418 million. The principal cash outflow for acquisitions was mainly due to the purchase of Infonet Services Corporation and Albacom SpA. The net cash outflow from acquisitions less disposals in the 2004 financial year totalled £60 million. The principal cash outflow for acquisitions was due to the purchase of a controlling interest in BT Expedite Limited (formerly NSB Retail plc) and Transcomm plc. In the 2003 financial year the net cash inflow from disposals less acquisitions totalled £2,842 million. Cash proceeds from disposals amounted to £2,919 million and principally comprised £2,603 million from the sale of the investment in Cegetel.
     Equity dividends paid in the 2005 financial year totalled £784 million whilst those paid in the 2004 and 2003 financial years totalled £645 million and £367 million, respectively.
     The resulting cash inflow for the 2005 financial year, before management of liquid resources and financing, of £1,080 million, together with inflows from current asset investments, were mainly applied to long term borrowing repayments of £1,297 million. The cash inflow for the 2004 financial year of £1,366 million was mainly applied in repaying long-term borrowings with total borrowings of £3,627 million being repaid. In addition, the group issued new loans of £1,326 million. The new loans included a US$172 million 0.75% exchangeable bond due in 2008, exchangeable into ordinary shares of LG Telecom, BT’s Korean based associate and a sale and leaseback of circuit switches which had no effect on net debt but increased gross debt and cash by around £1 billion. The cash inflow for the 2003 financial year of £4,183 million was applied in repaying short-term borrowings and investing in short-term investments, with total borrowings of £2,535 million being repaid.
     The cash inflow for the 2005 financial year resulted in net debt reducing by a further £639 million to £7,786 million having reduced by £1,148 million to £8,425 million in the 2004 financial year.
     During the 2005 financial year the group further restructured some of its swaps portfolio to mitigate credit risk to and with certain counterparties. As a result, the group terminated £2.9 billion of cross-currency and sterling interest rate swaps with some swaps being replaced with new swaps which had the same economic hedging effect. This resulted in the group paying £107 million in reducing gross debt and receiving a net £14 million of interest receipts. The group also restructured some of its swap portfolio during the 2004 financial year to mitigate credit risk to certain counterparties. As a result, the group terminated £7 billion of cross-currency interest rate swaps and replaced these with new swaps which had the same economic hedging effect. This resulted in the group paying £445 million in reducing gross debt and receiving £420 million of interest receipts. The interest receipts and payments on restructuring for the 2005 and 2004 financial years have been included within deferred income and other debtors, respectively on the balance sheet and will be amortised to the profit and loss account over the term of the underlying hedged debt.
     During the 2005 financial year the share buyback programme continued with the group repurchasing 101 million shares for consideration of £195 million. During the 2004 financial year the group repurchased 81 million shares for consideration of £144 million.

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