Cash flow and balance sheet
A summary of the Group’s unaudited cash flow statement and balance sheet and notes as at 30 June 2011 are provided in the Interim financial statements section.
In the first half of 2011, operating profit was £431 million, depreciation, amortisation and impairment £185 million, non-cash share-based incentive charges £38 million, net interest paid £107 million, tax paid £126 million, capital expenditure £107 million and other net cash inflows £3 million. Free cash flow available for working capital requirements, debt repayment, acquisitions, share repurchases and dividends was, therefore, £317 million. This free cash flow was absorbed by £229 million in net cash acquisition payments and investments (of which £54 million was for earnout payments and loan note redemptions with the balance of £175 million for investments and new acquisition payments net of disposal proceeds) and £98 million in share repurchases, a total outflow of £327 million. This resulted in a net cash outflow of £10 million, before any changes in working capital.
Average net debt in the first six months of 2011 fell by £513 million to £2.558 billion, compared to £3.071 billion in 2010, at 2011 exchange rates. On 30 June 2011 net debt was £2.879 billion, against £3.029 billion on 30 June 2010, a decrease of £150 million. Your Board continues to examine ways of deploying its EBITDA, (of £1.5 billion or over $2.4 billion for the preceding 12 months) and substantial free cash flow (of over £900 million or approximately $1.4 billion per annum, also for the previous 12 months), to enhance share owner value. The Group's current market value implies an EBITDA multiple of 5 times, on the basis of the trailing 12 months' EBITDA to 30 June 2011.
As mentioned in the Group's 2010 Preliminary Results Announcement, the average net debt to headline EBITDA ratio at 31 December 2010 had improved to 2.1 times, a year ahead of the schedule outlined at the time of the TNS acquisition in October 2008. Based on the 12 months to 30 June 2011, the average net debt to headline EBITDA fell further to 1.8 times. At the time of the TNS transaction, it was announced that, for the following two years, acquisitions would be limited to £100 million per annum, the Group's share buy-back programme would be targeted at up to 1% per annum and dividend growth at up to 15% per annum, using surplus cash generated to reduce average net debt to around 2 times headline EBITDA.
There is a very significant pipeline of reasonably priced small and medium sized potential acquisitions. As a result, deals done continue to be of small and medium sized companies, focused on new markets, new media and consumer insight, and will not now be limited to £100 million per annum, but will more likely total around £400 million this year. We will continue to seize opportunities in line with our strategy. In the first half of 2011, the Group continued to make 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 the US, France, Germany, the Netherlands, Bahrain, South Africa, Brazil, China and Korea; in consumer insight in the US, Ireland, Germany, Russia, Lithuania and Kenya; in public relations in the UK; in direct, digital and interactive in the US, Austria, Brazil, China and Singapore and in specialist communications in the US.
Following the strong first-half results your Board raised the dividend by 25%, around 5 percentage points faster than the growth in diluted headline earnings per share, a payout ratio in the first half of 33%. As indicated in the AGM statement in June 2011, the dividend payout ratio will be increased over time to approximately 40% from the 2010 rate of 31%.
Share buy-backs will continue to be targeted to absorb any share dilution from issues of options or restricted stock, although the Company does also have considerable free cash flow to take advantage of any anomalies in market values, which we believe we have seen particularly in the last few weeks. During the first six months of 2011, 12.5 million shares, or 1.0% of the issued share capital, were purchased at a cost of £98.5 million and an average price of £7.88 per share.