Management review

Cash flow

EBITDA from continuing operations increased by seven per cent to £249.2 million (2006: £232.9 million). A working capital outflow of £1.0 million (2006: outflow from continuing operations £73.2 million), reduced by an inflow from the commencement of the CrossCountry franchise of £6.7 million, contributed to net cash inflow from continuing operations for the year of £248.2 million, up 55 per cent (2006: £159.7 million).

Net capital expenditure was £145.2 million, compared to £118.2 million in 2006 (after adjusting for the impact of the 2006 investment in new trains that was subsequently refinanced through an operating lease), excluding expenditure in the discontinued vehicle rental division. The increase in net capital expenditure of £27.0 million was mainly due to bus and rail expansion in mainland Europe.

Expenditure on acquisitions, including the absorption of net debt, in 2007 was £73.5 million (2006: £66.8 million). In March, through an 86 per cent owned venture, we acquired 85 per cent of Osthannoversche Eisenbahnen AG (OHE) in Lower Saxony, Germany for £28.2 million including net debt assumed. Goodwill on the acquisition was £6.4 million. In August, we completed the acquisition of Veolia’s bus business in Denmark for £29.7 million including net debt. Goodwill on the acquisition was £9.1 million. Expenditure, on the same basis, on other smaller acquisitions in Spain, Czech Republic and Italy was £11.9 million with goodwill of £7.6 million. In the UK, we acquired Chase Coaches in February 2007, and in August we acquired additional bus operations in Darlington, for a total consideration of £3.7 million (including net debt assumed).

Subsequent to the year end, the group acquired Tellings Golden Miller Group plc for £10.3 million, plus net debt assumed of £19.4 million. In January the group also acquired a further 10 per cent interest in Barraqueiro, for a consideration of €50 million in cash (£37 million), taking our total stake to 31.5 per cent.

Interest and dividend payments absorbed £59.4 million (2006: £52.6 million), whilst there were substantially reduced corporation tax payments during the year of £5.4 million (2006: £24.9 million). New shares issued on exercise of share options generated £1.3 million (2006: £1.2 million). There was an increase in net debt to £448.5 million (2006: £378.4 million), reflecting the impact of acquisition and investment activity and the £36.1 million impact of translating overseas debt into sterling at £0.73 to the euro (2006: £0.67 to the euro).