Cash flow and balance sheet

A summary of the Group’s unaudited cash flow statement and balance sheet and notes as at 30 June 2009 are provided in this report.

In the first half of 2009, operating profit was £199 million, depreciation, amortisation and impairment £242 million, non-cash share-based incentive charges £31 million, net interest paid £105 million, tax paid £95 million, capital expenditure £129 million and other net cash outflows £11 million. Free cash flow available for working capital requirements, debt repayment, acquisitions and share re-purchases was, therefore, £132 million. This free cash flow was absorbed by £93 million in net cash acquisition payments and investments (of which £18 million was for new net acquisition payments, £38 million was for earnout payments and £37 million for investments), and by £9 million in share re-purchases, a total outflow of £102 million. This resulted in a net cash inflow of £30 million, before any changes in working capital.

Average net debt in the first six months of 2009 rose by £1.251 billion to £3.507 billion, compared to £2.256 billion in 2008, at 2009 exchange rates. On 30 June 2009 net debt was £3.447 billion, against £1.857 billion on 30 June 2008, an increase of £1.590 billion. These figures reflect the net acquisition costs of TNS and other smaller acquisitions and earnout payments and debt acquired on the acquisition of TNS. Your Board continues to examine ways of deploying its EBITDA, (of over £1.2 billion or almost $2 billion for the preceding 12 months) and substantial free cash flow (of almost £600 million or approximately $1.0 billion per annum, also for the previous 12 months), to enhance share owner value. The cost of the acquisition of TNS was funded principally by debt and at the time of the transaction it was announced that, for the following two years, acquisitions would be limited up to £100 million per annum, the Group’s share buy-back program would be targeted up to 1% per annum and dividend growth at up to 15% per annum, using surplus cash generated to reduce debt.

In the first half of 2009, the Group continued to make small-sized acquisitions or investments in high-growth geographical or functional areas. In the first six months of this year, acquisitions and increased equity stakes have been focused on Advertising and Media Investment Management in Italy, Portugal, South Africa and Australia; on Consumer Insight in the US, the UK and Russia; on Public Relations & Public Affairs in Poland and on direct, internet and interactive in the US, France and Hong Kong.

The Company continues to focus on examining the relative merits of dividends and share buy-backs and maintained the first interim dividend at 5.19p per share. In the first half, 2.4 million ordinary shares, equivalent to 0.2% of the share capital, were purchased at an average price of £3.92 per share and total cost of £9.5 million. All of these shares were purchased in the market and held in treasury.

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