Aim: to maintain strong free cash flow, defined as operating cash flow less capital expenditure, interest and taxation. In 2006, we generated underlying cash flow of £279m, representing an operating profit to cash conversion rate of 124%. Our underlying free cash flow increased by 21% to £154m. Our success reflects the strength of our business model and management approach, in particular:

• Securing timely payment terms for new contracts
• Focusing on cash generation
• Providing quality service to clients.

We use surplus cash to add further shareholder value in 3 main ways – through acquisitions, dividends and share buybacks:

Funding acquisitions where we see opportunities to add value.

In 2006, we invested £48min 11 acquisitions and our pipeline of potential businesses remains at a healthy level. We will continue to be extremely selective but, not with standing this, we anticipate a sustained volume of small transactions in 2007.

Distribution to shareholders through regular dividends.

A key element in the creation of shareholder value is a progressive dividend policy. Over the 5 years to 31 December 2006, we have grown Capita’s annual dividend at a compound rate of 32%. Our confidence in the strength and resilience of Capita’s business model allows us to reduce annual dividend cover for 2006 to 2.6 times.

Opportunistic share buybacks to maintain an efficient capital structure and minimise our long term cost of capital.

In 2006, we repurchased 53m shares (representing 7.9% issued share capital) at an average price of 464p