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Performance during the year
Financial results
We report our financial results and position in accordance with International Financial Reporting Standards (IFRS) as adopted in the European Union.
Continuing and discontinued operations
The financial results of our business segments (as described in Businesses and segments) and of other activities are presented within continuing operations.
The results of our UK and US wireless infrastructure operations, which have been sold or we have agreed to sell since the end of the financial year and the Basslink electricity interconnector in Australia that we plan to sell, are included within discontinued operations. As a consequence, comparative results for these businesses for the years ended 31 March 2006 and 2005 have been reclassified from continuing to discontinued operations. Discontinued operations in previous years also include the four gas distribution networks in the UK that we sold on 1 June 2005.
Measurement of financial performance and use of adjusted profit measures
In considering the financial performance of our businesses and segments, we analyse each of our primary financial measures of operating profit, profit before tax, profit for the year attributable to equity shareholders and earnings per share into two components, comprising firstly ‘business performance’ which excludes exceptional items and remeasurements and secondly ‘exceptional items and remeasurements’. Exceptional items and remeasurements are excluded from the measures of business performance used by management to monitor financial performance as they are considered to distort the comparability of our reported financial performance from year to year.
Measures of business performance are referred to in this Annual Report as adjusted profit measures in order to clearly distinguish them from the comparable total profit measures of which they are a component. Adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share differ from total operating profit, profit before tax, profit for the year attributable to equity shareholders and earnings per share respectively by the exclusion of exceptional items and remeasurements.
Exceptional items and remeasurements are items of income and expenditure that, in the judgement of management, should be disclosed separately on the basis that they are material, either by their nature or their size, and are relevant to an understanding of our financial performance. Items of income or expense that are considered by management for designation as exceptional items include such items as significant restructurings, write-downs or impairments of non-current assets, material changes in environmental or decommissioning provisions, integration of acquired businesses and gains or losses on disposals of businesses or investments. Remeasurements comprise gains or losses recorded in the income statement arising from changes in the fair value of commodity contracts and of derivative financial instruments. These fair values increase or decrease as a consequence of changes in commodity and financial indices and prices over which we have no control.
Adjusted profit measures are limited in their usefulness compared with the comparable total profit measures as they exclude important elements of our underlying financial performance, namely exceptional items and remeasurements. We believe that in separately presenting financial performance in two components it is easier to read and interpret financial performance between periods, as adjusted profit measures are more comparable by excluding the distorting effect of exceptional items and remeasurements, and exceptional items and remeasurements are more clearly understood if separately identified and analysed. The presentation of these two components of financial performance is additional to, and not a substitute for, the comparable total profit measures presented.
Management uses adjusted profit measures as the basis for monitoring financial performance and in communicating financial performance to investors in external presentations and announcements of financial results. Internal financial reports, budgets and forecasts are primarily prepared on the basis of adjusted profit measures, although planned exceptional items, such as significant restructurings, are also reflected in budgets and forecasts. Management compensates for the limitations inherent in the use of adjusted profit measures through the separate monitoring and disclosure of exceptional items and remeasurements as a component of our overall financial performance.
Operating financial performance
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Revenue | 8,695 | 8,868 | 7,174 |
| Other operating income | 83 | 80 | 67 |
| Operating costs excluding exceptional items and remeasurements | (6,324) | (6,491) | (4,840) |
| Adjusted operating profit | 2,454 | 2,457 | 2,401 |
| Exceptional items | (22) | (34) | (250) |
| Remeasurements | 81 | (49) | (38) |
| Total operating profit | 2,513 | 2,374 | 2,113 |
The following tables set out the consolidated revenue, adjusted operating profit and operating profit by business segment. As a consequence of our decision to return to shareholders $1.9 billion (£1 billion) with respect to US stranded cost recoveries, we also present the totals for adjusted operating profit and operating profit excluding US stranded cost recoveries.
Revenue by business segment
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Transmission - UK | 2,816 | 2,710 | 1,995 |
| Transmission - US | 270 | 310 | 284 |
| Gas Distribution - UK | 1,193 | 1,222 | 1,113 |
| Gas Distribution - US | 638 | 571 | 427 |
| Electricity Distribution - US | 3,004 | 3,134 | 2,633 |
| US stranded cost recoveries | 426 | 517 | 436 |
| Other activities | 567 | 701 | 734 |
| Total segmental revenues | 8,914 | 9,165 | 7,622 |
| Less: sales between business segments | (219) | (297) | (448) |
| Total | 8,695 | 8,868 | 7,174 |
Segmental operating profit before exceptional items and remeasurements
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Transmission - UK | 946 | 844 | 859 |
| Transmission - US | 108 | 127 | 126 |
| Gas Distribution - UK | 409 | 483 | 424 |
| Gas Distribution - US | 71 | 47 | 33 |
| Electricity Distribution - US | 364 | 317 | 342 |
| US stranded cost recoveries | 423 | 489 | 465 |
| Other activities | 133 | 150 | 152 |
| Adjusted operating profit | 2,454 | 2,457 | 2,401 |
| Total excluding stranded cost recoveries | 2,031 | 1,968 | 1,936 |
Segmental total operating profit
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Transmission - UK | 936 | 843 | 857 |
| Transmission - US | 107 | 127 | 119 |
| Gas Distribution - UK | 412 | 432 | 333 |
| Gas Distribution - US | 67 | 47 | 17 |
| Electricity Distribution - US | 355 | 317 | 241 |
| US stranded cost recoveries | 504 | 440 | 427 |
| Other activities | 132 | 168 | 119 |
| Total operating profit | 2,513 | 2,374 | 2,113 |
| Total excluding stranded cost recoveries | 2,009 | 1,934 | 1,686 |
Details of the financial results of business segments, including information on exceptional items and remeasurements, are included in the business overviews.
Exchange rates
Our financial results reflect decreases in revenue, operating costs and operating profit from 2005/06 to 2006/07, and increases from 2004/05 to 2005/06, arising from exchange on US operations reflecting the movement in the average US dollar to sterling exchange rate from $1.87: £1 in 2004/05 to $1.79: £1 in 2005/06 to $1.91: £1 in 2006/07.
If adjusted operating profit and total operating profit for 2005/06 had been translated using the same exchange rates prevailing in 2006/07 they would have been £62 million and £64 million lower respectively. Similarly, if adjusted operating profit and operating profit for 2004/05 had been translated using the same exchange rates prevailing in 2005/06 they would have been £44 million and £36 million higher respectively.
The effect of movements in the US dollar exchange rate on adjusted operating profit and operating profit are mitigated by changes in the opposite direction to net interest charges and tax. This includes the impact of debt and derivative financial instruments that are denominated in US dollars. After reflecting these impacts, adjusted profit for the year and profit for the year from continuing operations for 2005/06 would have been £29 million and £27 million lower respectively if they had been translated using the same exchange rates prevailing in 2006/07 (2004/05: £23 million and £19 million higher respectively using 2005/06 average exchange rates).
2006/07 compared to 2005/06
Changes in revenue and other operating income, operating costs and operating profit for 2006/07 compared with 2005/06 can be summarised as follows:
| Revenue and other operating income £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2005/06 results | 8,948 | (6,574) | 2,374 |
| Add back 2005/06 exceptional items and remeasurements | - | 83 | 83 |
| 2005/06 adjusted results | 8,948 | (6,491) | 2,457 |
| Exchange on US operations | (282) | 220 | (62) |
| 2005/06 constant currency results | 8,666 | (6,271) | 2,395 |
| Transmission - UK | 112 | (10) | 102 |
| Transmission - US | (21) | 10 | (11) |
| Gas Distribution - UK | (27) | (47) | (74) |
| Gas Distribution - US | 103 | (76) | 27 |
| Electricity Distribution - US | 65 | 2 | 67 |
| US stranded cost recoveries | (59) | 24 | (35) |
| Other activities | (137) | 120 | (17) |
| Sales between businesses | 76 | (76) | - |
| 2006/07 adjusted results | 8,778 | (6,324) | 2,454 |
| 2006/07 exceptional items and remeasurements | - | 59 | 59 |
| 2006/07 results | 8,778 | 6,265 | 2,513 |
Revenue and other operating income was £170 million lower than in 2005/06, reflecting a £282 million decrease as a result of exchange on US operations and a £112 million increase in operating revenues on a constant currency basis. Operating costs excluding exceptional items and remeasurements decreased by £167 million, reflecting a £220 million decrease as a result of exchange on US operations and a £53 million increase in operating costs on a constant currency basis.
Significant movements in operating revenues and costs relate to higher allowed revenues in Transmission in the UK, reduced volumes in Gas Distribution in the UK as a result of warmer weather, revenues and costs from the acquired gas distribution network in Rhode Island, higher commodity costs in Electricity Distribution in the US passed through to customers and lower connections revenues and costs in other activities relating to the regional gas distribution networks sold in 2005/06. There was an increase of £3 million in other operating income, which primarily relates to gains on the sales of property by our property management business in the UK.
As a consequence, adjusted operating profit in 2006/07 was £3 million lower than 2005/06, comprising a £62 million decrease as a result of exchange on US operations and an increase of £59 million from operations on a constant currency basis.
Net operating exceptional charges of £22 million in 2006/07 related to restructuring costs incurred in the UK and US, including the establishment of a UK shared services function, the business process review undertaken in Transmission and the integration of the acquired Rhode Island gas distribution network into our Gas Distribution business.
Operating remeasurement gains of £81 million (2005/06: losses of £49 million, 2004/05: losses of £38 million) relate to changes in the value of commodity contracts in the US carried in the balance sheet at fair value, arising from movements in energy prices.
As a consequence of the above, total operating profit rose by £139 million from 2005/06 to 2006/07, resulting from a decrease in adjusted operating profit of £3 million and a movement in operating exceptional charges and remeasurements of £142 million as compared with 2005/06.
2005/06 compared with 2004/05
Changes in revenue and other operating income, operating costs and operating profit for 2005/06 compared with 2004/05 can be summarised as follows:
| Revenue and other operating income £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2004/05 results | 7,241 | (5,128) | 2,113 |
| Add back 2004/05 exceptional items and remeasurements | - | 288 | 288 |
| 2004/05 adjusted results | 7,241 | (4,840) | 2,401 |
| Exchange on US operations | 169 | (125) | 44 |
| 2004/05 constant currency adjusted results | 7,410 | (4,965) | 2,445 |
| Transmission - UK | 715 | (730) | (15) |
| Transmission - US | 13 | (18) | (5) |
| Gas Distribution - UK | 113 | (54) | 59 |
| Gas Distribution - US | 125 | (112) | 13 |
| Electricity Distribution - US | 386 | (426) | (40) |
| US stranded cost recoveries | 61 | (59) | 2 |
| Other activities | (26) | 24 | (2) |
| Sales between businesses | 151 | (151) | - |
| 2004/05 adjusted results | 8,948 | (6,491) | 2,457 |
| 2004/05 exceptional items and remeasurements | - | (83) | (83) |
| 2005/06 results | 8,948 | (6,574) | 2,374 |
The most significant increases in revenue, other operating income and in operating costs in 2005/06 compared with 2004/05 arose in Transmission - UK, including increased revenues and operating costs in respect of operating the Scottish electricity transmission networks following our appointment as Great Britain System Operator and increased pass-through costs in Transmission - UK, Gas Distribution - US, Electricity Distribution - US and US stranded cost recoveries. Revenue and costs also increased in Gas Distribution - UK, but this was offset by savings in controllable costs. Other operating income, principally gains on property sales, was £13 million higher.
As a consequence of the above, adjusted operating profit in 2005/06 was up £12 million on a constant currency basis compared with 2004/05. This was driven by favourable results from UK capacity auctions in liquefied natural gas (LNG) storage and the French interconnector, a continued focus on efficiencies, particularly in Gas Distribution - UK, and sustained volume growth in the US. These factors more than offset an increase in depreciation charges in Transmission - UK, lower system operator incentive profits also in Transmission - UK and the timing of the recovery of certain pass-through costs in the US.
Net operating exceptional charges of £34 million in 2005/06 were £216 million lower than the £250 million in 2004/05, consisting of £55 million of restructuring costs, primarily cost reduction programmes in Gas Distribution - UK, and £21 million of gains relating to the disposals of joint venture investments, compared with 2004/05 when there was £108 million in restructuring costs (£82 million in Gas Distribution - UK, £23 million in our US businesses and £3 million in other businesses), £41 million in exceptional pension charges in the US and £101 million of increases in environmental provisions. Operating remeasurements of £49 million in 2005/06 (2004/05: £38 million) related to changes in the value of commodity contracts in the US carried in the balance sheet at fair value arising from movements in energy prices.
In 2005/06, total operating profit was £261 million higher resulting from an increase in adjusted operating profit of £56 million, and a decrease in operating exceptional charges and remeasurements of £205 million as compared with 2004/05.
Earnings from continuing operations
Adjusted earnings
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Adjusted operating profit | 2,454 | 2,457 | 2,401 |
| Net finance costs excluding exceptional items and remeasurements | (547) | (602) | (704) |
| Share of post-tax results of joint ventures | 2 | 3 | 3 |
| Adjusted profit before taxation | 1,909 | 1,858 | 1,700 |
| Taxation excluding tax on exceptional items and remeasurements | (611) | (565) | (424) |
| Adjusted profit from continuing operations | 1,298 | 1,293 | 1,276 |
| Pence | Pence | Pence | |
| Adjusted earnings per share from continuing operations | 47.7 | 45.5 | 41.4 |
Earnings
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Total operating profit | 2,513 | 2,374 | 2,113 |
| Net finance costs | (764) | (659) | (704) |
| Share of post-tax results of joint ventures | 2 | 3 | 3 |
| Profit before taxation | 1,751 | 1,718 | 1,412 |
| Taxation | (441) | (535) | (306) |
| Profit from continuing operations | 1,310 | 1,183 | 1,106 |
| Pence | Pence | Pence | |
| Earnings per share from continuing operations | 48.1 | 41.6 | 35.9 |
Net finance costs
Net interest excluding exceptional finance costs and remeasurements in 2006/07 decreased by £55 million compared with 2005/06, primarily as a consequence of a reduction in the interest charge related to pensions, the weaker US dollar in 2006/07 and income from short-term investments partially offset by higher average debt.
Net interest excluding exceptional finance costs and remeasurements decreased by £102 million from 2004/05 to 2005/06. This was primarily explained by use of available cash following the sales of four regional gas distribution networks and a reduction in the interest charge related to pensions. This decrease was partially offset by the impact of a stronger US dollar in 2005/06.
Exceptional finance costs and remeasurements
Exceptional finance costs of £45 million related to the early repayment of UK debt, compared with exceptional finance costs of £49 million in 2005/06 and nil in 2004/05. Exceptional finance costs in 2005/06 related to £39 million on the early repayment of debt and £10 million relating to the issue of B shares, as part of the return of capital to shareholders. The issue of the B shares was accounted for as debt, and the associated issue costs recorded as an exceptional finance cost.
Financial remeasurements relate to net losses on derivative financial instruments of £153 million (2005/06: gains of £6 million, 2004/05: nil) and the financial element of commodity contract revaluations, totalling £19 million in 2006/07 (2005/06: £14 million, 2004/05: nil). Net losses on derivative financial instruments in 2006/07 include £126 million of pre-tax losses, which offset at the post-tax level. Net gains on derivative financial instrument remeasurements after tax are £16 million.
Taxation
A net charge of £441 million arose in 2006/07, compared with £535 million in 2005/06 and £306 million in 2004/05. This reflects net tax credits amounting to £170 million, £30 million and £118 million in respect of exceptional items and remeasurements in 2006/07, 2005/06 and 2004/05 respectively. The effective tax rate was 25% for 2006/07, 31% for 2005/06 and 22% for 2004/05.
Excluding the effect of net tax credits on exceptional items and remeasurements, the effective tax rate for 2006/07, 2005/06 and 2004/05 was 32%, 30% and 25% respectively, compared with a standard UK corporation tax rate of 30% for all three years. This reflected credit adjustments in respect of prior periods equivalent to 3%, 1% and 2% respectively.
A reconciliation of the main components giving rise to the difference between the relevant effective tax rate and the UK standard corporation tax rate is shown in note 10 to the accounts.
Profit for the year from continuing operations
Profit for the year from continuing operations increased from £1,183 million in 2005/06 to £1,310 million in 2006/07 (from £1,106 million in 2004/05 to £1,183 million in 2005/06) as a consequence of the above changes.
Adjusted profit measures
The following tables reconcile the adjusted profit measure to the corresponding total profit measure in accordance with IFRS.
a) Reconciliation of adjusted operating profit to total operating profit
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Adjusted operating profit | 2,454 | 2,457 | 2,401 |
| Exceptional items | (22) | (34) | (250) |
| Commodity contract remeasurements | 81 | (49) | (38) |
| Total operating profit | 2,513 | 2,374 | 2,113 |
Adjusted operating profit is presented on the face of the income statement under the heading ‘Operating profit before exceptional items and remeasurements’.
b) Reconciliation of adjusted profit before taxation to profit before taxation
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Adjusted profit before taxation | 1,909 | 1,858 | 1,700 |
| Exceptional items | (67) | (83) | (250) |
| Commodity contract remeasurements | 62 | (63) | (38) |
| Derivative financial remeasurements | (153) | 6 | - |
| Total profit before taxation | 1,751 | 1,718 | 1,412 |
Adjusted profit before taxation is presented on the face of the income statements under the heading ‘Profit before taxation before exceptional items and remeasurements’.
c) Reconciliation of adjusted earnings to earnings (profit for the year from continuing operations attributable to equity shareholders of the parent)
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 £m |
2006 £m |
2005 £m |
| Adjusted earnings | 1,296 | 1,291 | 1,276 |
| Exceptional items | (41) | (61) | (147) |
| Commodity contract remeasurements | 37 | (38) | (23) |
| Derivative financial remeasurements | 16 | (11) | - |
| Earnings | 1,308 | 1,181 | 1,106 |
Adjusted earnings is presented in note 13 to the accounts, under the heading ‘Adjusted earnings’.
Earnings per share from continuing operations
The following table sets out the adjusted basic earnings per share and basic earnings per share from continuing operations for 2006/07, 2005/06 and 2004/05 and reconciles the differences between them.
| Years ended 31 March | |||
|---|---|---|---|
| Continuing operations | 2007 pence |
2006 pence |
2005 pence |
| Adjusted basic earnings per share | 47.7 | 45.5 | 41.4 |
| Exceptional items | (1.5) | (2.2) | (4.8) |
| Commodity contract remeasurements | 1.3 | (1.3) | (0.7) |
| Derivative financial remeasurements | 0.6 | (0.4) | - |
| Earnings per share – continuing operations | 48.1 | 41.6 | 35.9 |
Adjusted basic earnings per share for 2006/07 increased by 2.2 pence, an increase of 5% compared with 2005/06 (2005/06: increased by 4.1 pence, an increase of 10% compared with 2004/05).
This reflected the increase in adjusted profit for the year from continuing operations, the effects of the share buy-back programme and the share consolidation in August 2005 following the £2 billion return of value to shareholders (2005/06: the increase in adjusted profit for the year from continuing operations and the share consolidation in August 2005).
Earnings per share from continuing operations increased from 41.6 pence per share in 2005/06 to 48.1 pence per share in 2006/07 reflecting the increase in adjusted earnings per share, combined with lower net exceptional items and remeasurements on a per share basis (2005/06: increase from 35.9 pence per share in 2004/05 to 41.6 pence per share reflecting the increase in adjusted earnings per share, combined with lower exceptional items and remeasurements on a per share basis).
Diluted earnings per share from continuing operations were 47.8 pence per share in 2006/07, 0.3 pence lower than basic earnings per share, compared with 41.4 pence per share in 2005/06 (0.2 pence lower) and 35.7 pence per share in 2004/05 (0.2 pence lower). The principal reason for the dilution in 2006/07, 2005/06 and 2004/05 relates to employee share option schemes.
Discontinued operations
| Years ended 31 March | |||
|---|---|---|---|
| Discontinued operations | 2007 £m |
2006 £m |
2005 £m |
| Revenue | 383 | 493 | 1,313 |
| Operating costs before exceptional items | (266) | (362) | (761) |
| Adjusted operating profit | 117 | 131 | 552 |
| Exceptional items | (55) | (20) | (87) |
| Operating profit | 62 | 111 | 465 |
| Finance income - remeasurements | 37 | - | - |
| Finance costs | (2) | (4) | (2) |
| Share of post-tax results of joint venture | - | - | (5) |
| Profit from discontinued operations before tax | 97 | 107 | 458 |
| Taxation | (11) | (45) | (153) |
| Profit from discontinued operations | 86 | 62 | 305 |
| Gain on disposal of discontinued operations | - | 2,605 | 13 |
| Profit for the year | 86 | 2,667 | 318 |
Subsequent to our announcement in November 2006 of our strategic decisions to exit our wireless infrastructure operations in the UK and the US and the Basslink electricity interconnector in Australia, they were classified as businesses held for sale prior to 31 March 2007. As a consequence, the results of these operations for 2006/07, 2005/06 and 2004/05 have been included within discontinued operations. Further information on the results of these operations is included under Discontinued operations.
The results of discontinued operations for 2005/06 and 2004/05 also include the four regional gas distribution networks that we sold on 1 June 2005. Revenues, operating costs before exceptional items and adjusted operating profit in 2005/06 are substantially lower than for 2004/05 as they relate to a two month period rather than a full year. In addition, revenue for those two months is proportionally lower due to seasonality. The exceptional charge of £20 million in 2005/06 arose from the payment of a £15 million fine relating to one of the sold networks and £5 million of restructuring costs. The exceptional items in 2004/05 related to costs incurred in preparation for the disposal of the networks and to reorganisations, primarily due to cost reduction programmes.
Our share of the post-tax results of joint ventures in 2005/06 and 2004/05 related to Copperbelt Energy Corporation, which was sold during 2006/07, and to Citelec, which was sold in August 2004. The gain on disposal of discontinued operations in 2005/06 relates to the sales of gas distribution networks and in 2004/05 to Citelec.
Earnings per share from discontinued operations in 2006/07 was 3.2 pence per share, compared with 94.0 pence per share in 2005/06 (which included 91.8 pence per share relating to the gain on disposal of four regional gas distribution networks) and with 10.3 pence per share in 2004/05.
Net profit and total earnings per share for the year
Net profit from both continuing and discontinued operations was £1,396 million in 2006/07, compared with £3,850 million in 2005/06 and £1,424 million in 2004/05.
Total earnings per share from both continuing and discontinued operations were 51.3 pence per share in 2006/07, 135.6 pence per share in 2005/06 and 46.2 pence per share in 2004/05.
Cash flows
Cash flows from operating activities
Cash generated from continuing operations was £3,090 million in 2006/07, compared with £2,973 million in 2005/06 and £2,820 million in 2004/05. This includes cash outflows of continuing operations relating to exceptional items of £86 million, £115 million and £113 million respectively.
After reflecting cash flows relating to discontinued operations and tax paid, net cash inflow from operating activities was £2,958 million, compared with £2,971 million in 2005/06 and £3,308 million in 2004/05.
This included net corporate tax payments amounting to £313 million in 2006/07, £140 million in 2005/06 and £150 million in 2004/05.
Cash flows from investing activities
Cash outflows from investing activities were £4,277 million in 2006/07, compared with an inflow of £3,922 million in 2005/06 and an outflow of £2,975 million in 2004/05. This reflected £354 million spent on acquiring businesses in 2006/07 compared with nil in 2005/06 and £1,122 million in 2004/05, a £1,725 million net investment in financial investments (2005/06: net divestment of £25 million, 2004/05: net investment of £59 million) and disposal proceeds from discontinued operations of £27 million in 2006/07 (2005/06: £5,750 million, 2004/05: nil).
Excluding acquisitions, disposals and financial investments, cash outflows increased in 2006/07 compared with 2005/06 as a result of increased purchases of property, plant and equipment within continuing operations amounting to £2,185 million (2005/06: £1,657 million, 2004/05: £1,300 million). Investing activities of discontinued operations in the period resulted in a cash outflow of £47 million in 2006/07 (2005/06: £209 million, 2004/05: £450 million).
Cash flows from financing activities
Net cash raised by financing activities of £1,494 million in 2006/07 compared with £5,712 million used in 2005/06 and £325 million used in 2004/05. This included £26 million in 2006/07 and £1,957 million in 2005/06 in respect of the £2 billion return of value to shareholders, and £169 million in 2006/07 with respect to share buy-backs.
Payments to providers of finance, in the form of net interest and dividends, totalled £1,372 million in 2006/07 compared with £1,498 million in 2005/06 and £1,390 million in 2004/05.
Net interest cash outflows reduced from £753 million in 2005/06 to £642 million in 2006/07. The decrease in 2006/07 reflected lower average net debt during the year, the weaker US dollar and the beneficial impact of refinancing debt. The reduction in 2005/06 to £753 million from £762 million in 2004/05 reflected the beneficial impact of refinancing debt, lower short-term interest rates, the weaker US dollar and receipt of £5.8 billion proceeds from the four network sales.