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Cash flow and balance sheet

2007 chash flow

2006 cash flow

2005 cahs flow


1A reconciliation of free cash flow is set out in note 31 of the financial statements.

As at 31 December 2007, the Group's net debt increased to £1.286 billion compared with £815 million at 31 December 2006, largely reflecting acquisition spend and share repurchases.

Net debt averaged £1,458 million in 2007, up £305 million from £1,153 million in 2006 (at 2007 exchange rates). These net debt figures compare with an equity market capitalisation at 31 March 2008 of approximately £7.1 billion and average net debt in the first quarter of 2008 of £1.7 billion, giving a total enterprise value of approximately £8.8 billion.

Cash flow strengthened as a result of improved working capital management and cash flow from operations. In 2007, headline operating profit before charges for non-cash share-based incentive plans was £950 million, capital expenditure £171 million, depreciation £144 million, tax paid £151 million, interest and similar charges paid £106 million and other net cash inflows of £32 million. Free cash flow available for debt repayment, acquisitions, share buybacks and dividends was therefore £698 million. This free cash flow was absorbed by £675 million in net acquisition payments and investments, share repurchases and cancellations of £415 million and dividends of £139 million. This resulted in a net outflow of £531 million.

Your Board continues to examine ways of deploying its EBITDA and substantial cash flow to enhance share owner value. In 2007 headline EBITDA was almost £1.1 billion (over $2 billion) and free cash flow was £698 million (almost $1.4 billion). As necessary capital expenditure, spent mainly on information technology and property, is expected to remain approximately equal to the depreciation charge in the long-term, the Company has concentrated on examining potential acquisitions and on returning excess capital to share owners in the form of dividends and/or share buy-backs.

Consistent with the objective, announced in 2006, of increasing the share buy-back program to 4-5% of the Group's share capital in 2007 and 2008, 59.19 million ordinary shares, equivalent to 4.7% of the share capital, were purchased at an average price of £7.03 per share and total cost of £415.4 million. Of these shares, 57.19 million were purchased in the market and subsequently cancelled. Such annual rolling share repurchases are believed to have a more significant impact in improving share owner value than sporadic buy-backs.

As noted above, your Board has also decided to increase the final dividend by 20% to 9.13p per share, taking the full year dividend to 13.45p per share.

As at 31 December 2007, net assets of £4,095 million compared with £3,918 million in 2006.