British Telecom is assuring investors that early payment of a pension fund contribution won’t affect cash flow forecasts for its current financial year.
The UK incumbent paid the bulk of its third £525 million (€597 million) installment to the pension kitty nine months earlier than scheduled to maximize the amount of tax that is deductible from the payment, and to utilize current high levels of operating cash.
A total of 28% of the payment can currently be claimed back, however the figure is set to fall to 26% in BT’s 2011/12 financial year.
BT committed to making three payments of £525 million as part of a 17 year deal with the fund trustee agreed in 2008 in a bid to tackle a huge deficit in the pension pot. The third installment was due in December, but the firm chose to pay early after growing free cash flow 69% to £515 million in the three months to end-December – the firm’s fiscal 3Q10.
The plan seems to be working, with the pension fund shortfall cut from £5.7 billion net of tax at end March 2010, to £2.7 billion by the year end.
The telco predicts free cash flow will hit £2 billion in its current financial year, and EBITDA of around £5.8 billion.