Cash flow and balance sheet
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.