Strong trading cash flow of £872m contributed most of the finance for the capital expenditure programme, the investment in Global and the cash element of the Wm Low purchase consideration. Further funding came from short term debt supported by committed bank facilities and from leasing facilities. Group net debt increased over the year as planned from £736m to £1,040m, resulting in year end gearing of 33.5%. This compares with 26.8% at the previous year end. Interest cover is strong at 9.6 times interest payable (gross of capitalised interest) - see Chart 5.

Our treasury activity is carefully controlled with policies regularly reviewed and operating parameters established under a formal Board authority. Dealing mandates have been issued to all banks with which deals are authorised. Treasury activity is regularly reviewed by members of the Board and is subject to regular reports by internal and external auditors.

The main treasury issues for the group are to arrange funding, limit our exposure to financial risk and reduce funding costs in the medium term. Changes in interest rates, illiquidity, exposure to default by dealing counterparties and currency exposure are our main financial risks.

Interest rates are managed by adopting an appropriate combination of fixed and floating rate borrowings, interest rate swaps and forward rate agreements which are restricted to hedging activities. At the year end, 73% of gross borrowings were at floating rates. In determining the mix, we have taken account of the cost of fixed rate debt, the relative risk of interest rates rising significantly and the expected cash inflows in the near term which should reduce the proportion of floating rate debt. The average interest rate paid on net borrowings during the year was 6.9%. Further details on interest costs are given in note 6 to the financial statements.

The risk of illiquidity is controlled by keeping gearing at conservative levels and by careful management of the mix, availability and repayment profile of our funding. The average maturity of the debt portfolio exceeds seven years and the £345m of committed bank facilities supporting our short term financing activities have three years remaining.

Counterparty risk is managed by limiting the principal value of transactions outstanding at any one time with each bank or other organisation with which treasury is authorised to deal. The limits are set with reference to the credit rating of the counterparties as determined by Moody's, Standard and Poor's or equivalent rating agencies.

We have hedged our investment in Catteau by swapping the appropriate level of borrowings into French Francs and so eliminating exposure to currency movements.