bat plc annual report 2007 - Financial review (3 of 4)
Total equity
Total equity was £410 million higher at £7,098 million. The profit retained after payment of dividends exceeded the impact of the share buy-back by £182 million. In addition, exchange movements had a £312 million positive impact on shareholders’ funds, reflecting the general weakness of sterling at the end of 2007 compared to 2006.
Cash flow
The IFRS cash flow includes all transactions affecting cash and cash equivalents, including financing. The alternative cash flow below is presented to illustrate the cash flows before transactions relating to borrowings. The growth in underlying operating performance, as well as the timing of working capital movements and higher dividends from associates, resulted in a £361 million increase in cash flow before restructuring costs and taxation to £3,656 million.
| 2007 £m | 2006 £m | |
|---|---|---|
| Net cash from operating activities before restructuring costs and taxation | 3,656 | 3,295 |
| Restructuring costs | (190) | (220) |
| Taxation | (866) | (713) |
| Net cash from operating activities | 2,600 | 2,362 |
| Net interest | (280) | (263) |
| Net capital expenditure | (436) | (419) |
| Dividends to minority interests | (173) | (139) |
| Free cash flow | 1,711 | 1,541 |
| Dividends paid to shareholders | (1,198) | (1,008) |
| Share buy-back | (750) | (500) |
| Other net flows | 152 | (5) |
| Net cash flows | (85) | 28 |
| IFRS cash flow | ||
| Net cash from operating activities | 2,600 | 2,362 |
| Net cash from investing activities | (122) | (315) |
| Net cash from financing activities | (2,621) | (2,339) |
| Net cash flows | (143) | (292) |
Although there was a £153 million increase in tax outflows reflecting higher profits and the timing of payments, with the above operating cash flows and lower restructuring costs, the Group’s net cash flow from operating activities was £238 million higher at £2,600 million.
With higher net interest flows, net capital expenditure and dividends to minority interests, the free cash flow was £170 million higher than 2006 at £1,711 million. However, with the step up in dividends and share buy-back in 2007, the total cash outlay on dividends to shareholders and share buy-back exceeds the free cash flow by £237 million.
Free cash flow is the Group’s cash flow before dividends, share buy-back and investing activities. The ratio of free cash flow per share to adjusted diluted earnings per share was 77 per cent (2006: 76 per cent), with free cash flow per share increasing by 13 per cent.
The other net flows in 2007 principally reflect the sale of the Belgian cigar factory and associated brands, as well as the disposal of pipe tobacco business as described under Exceptional items. The comparative figure for 2006 largely relates to the purchase of minority interests in Chile and shares for the Group’s share-based compensation plans, largely offset by the sale of Toscano in Italy and the disposal of brands.
The above flows resulted in net cash outflow of £85 million compared to an inflow of £28 million in 2006. After taking account of transactions related to borrowings, the above flows resulted in a net decrease of cash and cash equivalents of £143 million compared to a net decrease of £292 million in 2006, as shown in the IFRS cash flow.
These cash flows, after a positive exchange impact of £47 million, resulted in cash and cash equivalents, net of overdrafts, decreasing by £96 million to £1,180 million in 2007 (2006: £388 million decrease).
Borrowings, excluding overdrafts but taking into account derivatives relating to borrowings, were £6,836 million compared to £6,401 million as at 31 December 2006. The increase principally reflected the impact of exchange movements.
Current available-for-sale investments at 31 December 2007 were £75 million (2006: £128 million).
As a result of the above net debt, comprising borrowings, cash, cash equivalents and current available-for-sale investments, was £5,581 million (2006: £4,996 million).