3A. Delivering value to shareholders
Through maintaining a strong structure and controls, focusing on clear financial KPIs and applying consistent, careful risk management, we succeed in creating sustainable growth and delivering healthy investor returns.
We use surplus cash to deliver further shareholder value in three main ways – through acquisitions, dividends and share buybacks:
I. Funding acquisitions where we see opportunities to add value
In 2007, we invested £114m in 12 acquisitions and investments and our pipeline of potential target acquisitions remains at a healthy level. While continuing to be extremely selective, we anticipate a similar volume of small to medium sized transactions in 2008.
II. Distribution to shareholders through dividends
The Group dividend strategy is to return surplus cash to shareholders through a combination of progressive dividends and, when appropriate, capital returns.
Regular dividends: A key element in the creation of shareholder value is a progressive dividend policy. Over the five years to 31 December 2007 we grew our dividend at a compound annual rate of 32%. Our confidence in the strength and resilience of our business model has allowed us to reduce annual dividend cover gradually: for 2007 we continued this trend, reducing cover to 2.35 times.
| Dividends |
2002 |
2003 |
2004 |
2005 |
2006 |
2007* |
| Interim dividend (p) |
1.00 |
1.30 |
1.75 |
2.10 |
2.70 |
4.00 |
| Final dividend (p) |
2.00 |
2.70 |
3.60 |
4.90 |
6.30 |
8.00 |
| Total dividend (p) |
3.00 |
4.00 |
5.35 |
7.00 |
9.00 |
12.00 |
| Dividend cover |
3.5x |
3.3x |
2.9x |
2.7x |
2.6x |
2.35x |
| *before special dividend |
Special dividends: Taking account of the Company's strong cash flows, potential acquisition pipeline and other potential investment opportunities, in July 2007 the Board declared a special dividend of 25p per share – effectively returning some £155m of surplus capital to shareholders. This was paid in addition to the interim dividend on 19 October 2007, to shareholders on the register at the close of business on 14 September 2007.
We also undertook a share consolidation, issuing 30 new shares for every 31 old shares. The principal purpose of this was to ensure that (subject to normal market movements) the market price of each new ordinary share matched what the share price would have been if the special dividend had not been paid.This means that earnings per share and share prices can still be compared fairly with previous financial periods.
Group interest cover for the year ended 31 December 2007 was 8 times.
| Special dividends |
2007 |
| Special dividend (p) |
25 |
| Total returned to shareholders (£m) |
155 |
| Shares cancelled (m) |
20 |
| % of shares cancelled |
3.2 |
III. Opportunistic share buybacks
We have continued to undertake share buy backs opportunistically, when market conditions allow, to maintain an efficient capital structure and minimise our long term cost of capital.
In 2007 we repurchased 6.6m shares (representing 1.1% of the issued share capital) at an average price of 665p.
| Share buybacks |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
| % of share capital authorized to repurchase |
- |
10 |
10 |
10 |
10 |
10 |
| No of shares repurchased (m) |
- |
5.2 |
8.9 |
13.3 |
52.9 |
6.6 |
| Total cost (£m) |
- |
12.2 |
27.7 |
49.9 |
246 |
44 |
| Average price (p) |
- |
235 |
311 |
375 |
465 |
665 |
| Issued share capital at year end (m) |
- |
667 |
671 |
671 |
617 |
609 |
| % of share capital repurchased |
- |
0.8 |
1.3 |
1.9 |
7.9 |
1.1 |