91
Annual Report and Accounts 2014
COMMENTARY ON THE CONSOLIDATED
CASH FLOW STATEMENT
Reconciliation of EBITDA to movement in net debt
The Group’s consolidated statement of cash flows is shown on the opposite
page, which reconciles the operating profit for the year to the change in cash
and overdrafts in the balance sheet as required for financial reporting purposes.
However, because the Group’s debt financing also includes other interest-
bearing liabilities, it is more insightful to consider the effect of the transactions
in the year on the net debt in the balance sheet. Accordingly, a reconciliation
between EBITDA and net debt is shown in the column opposite, upon which
this section provides commentary.
Operating cash flow
The operating cash flow for continuing operations was £205m (2013: £283m).
This represents a conversion rate of total Group segmental operating profit after
restructuring costs of £287m into operating cash flow of 71% (2013: 92%).
Net working capital balances increased by £51m (2013: £26m) during the year.
Payables decreased by £19m (2013: £17m) due to the timing of payments
to suppliers, receivables increased by £38m (2013: £10m) and inventories
decreased by £6m (2013: £1m) as the benefits of lean activities start to
accrue in the business.
Cash spent on property, plant and equipment and other non-acquired
intangibles in the year was £71m (2013: £53m) which was equivalent to
1.9 times (2013: 1.2 times) depreciation and amortisation thereon.
Continuing research and development spend including capitalised intangible
development costs of £6m (2013: £3m) totalled £52m (2013: £53m).
In 2014 the Group paid tax of £67m (2013: £42m) which was 109%
(2013: 64%) of the underlying tax charge for the year. This reflects the timing
of estimated tax payments on account. In addition, there was a £37m cash
inflow (2013: outflow £6m) following the settlement of currency derivatives
hedging the balance sheet.
After payment of interest and tax, the free cash flow generated from operations
was £154m (2013: £285m).
Free cash flow before corporate activity
As noted in the balance sheet commentary, £70m of pension contributions
were made into the UK Pension Funds and a further £17m payment was
also made in Sweden. Free cash flow before corporate activity was £67m
(2013: £250m).
Net cash outflow (excluding debt movements)
Dividends paid to shareholders totalled £98m (2013: £106m) and there was a
cash outflow of £29m (2013: £23m) for net share purchases to satisfy employee
share options. Disposal of subsidiaries resulted in cash inflows of £725m which
were primarily used to fund the return of cash of £620m and the £70m UK
pension contribution.
The total net cash inflow (excluding debt movements) was £41m
(2013: outflow of £56m).
Closing net debt
The opening net debt was £199m (2013: £144m). There were exchange
rate losses of £12m (2013: £3m gains), principally on US dollar-denominated
borrowings. After the net cash inflow in the year of £41m (2013: £56m outflow)
and cash disposed of £29m closing net debt was £200m (2013: £199m).
Movement in Net Debt
2014
£m
2013
£m
EBITDA* from continuing operations
370.9
331.5
Working capital movements
(50.8)
(16.5)
Capital and development expenditure
(70.8)
(45.0)
Gain on disposal of subsidiaries
(34.2)
-
Gain on special pension events
(7.0)
-
Other
(3.0)
13.0
Operating cash flow from continuing operations
205.1
283.0
EBITDA from discontinued operations
1.0
79.6
Working capital movements
-
(9.1)
Capital and development expenditure
-
(8.4)
Other
(7.6)
(0.2)
Operating cash flow from
discontinued operations
(6.6)
61.9
Operating cash flow**
198.5
344.9
Tax paid
(67.2)
(41.7)
Interest/derivatives
22.2
(18.2)
Operating cash flow after interest and tax
153.5
285.0
Additional pension scheme funding - UK
(70.0)
(33.6)
Additional pension scheme funding - overseas
(17.0)
(1.7)
Free cash flow before corporate activity
66.5
249.7
Acquisitions
-
(7.8)
Dividends paid to equity shareholders
and non-controlling interest
(97.5)
(106.3)
Return of cash
(620.3)
-
Disposal of subsidiaries
725.3
-
Payment to non-controlling interest
(4.4)
(4.4)
Share buyback programme
-
(164.3)
Net purchase of own shares
(28.8)
(22.6)
Net cash flow (excluding debt movements)
40.8
(55.7)
Opening net debt
(199.4)
(143.8)
Net cash disposed
(29.0)
-
Debt acquired
-
(2.5)
Foreign exchange translation
(12.4)
2.6
Closing net debt
(200.0)
(199.4)
* Earnings before interest (£24m), tax (£53m), depreciation (£33m), amortisation
(£25m) and impairment (£44m).
** Operating cash flow is the cash generated from the operations shown in
the consolidated statement of cash flows less cash spent acquiring property,
plant and equipment, other non-acquired intangible assets and investments;
plus cash received from the sale of property, plant and equipment and the
sale of investments.
