Cash flow and treasury
Adjusted cash from operations is a measure of the cash flow generated from our companies over which the local management have control. A reconciliation between this and statutory operating cash flow can be found in Note 2 to the Financial Statements.
Adjusted cash from operations fell by £4.8 million to £238.1 million (2018: £242.9 million) representing 84% cash conversion. If we exclude the capital spend on the new Aflex facility this would rise to 90%.
Movements in working capital are discussed above.
Capital additions increased by £19.0 million. The most significant addition in the year was the £15.7 million spend on the construction of a new purpose-built factory in the UK for Aflex Hose, which will consolidate the existing four locations into a single facility, giving capacity for future growth while increasing efficiencies and providing a dedicated production line for Pharmaceutical products.
It is estimated that a further £6 million will be spent in 2020 in completing the project.
Looking forward, we would expect capital expenditure in 2020 to be at a similar level of approximately £65 million as we finish the Aflex facility but increase spending on project OPAL, the implementation of a global IT system for the Steam Specialties business. We generate significant cash and our first priority is to reinvest in the business, taking opportunities to generate good returns from increased efficiency, reduced costs and flexibility.
Tax paid in the year increased by £16.8 million to £78.4 million as tax rates rose and the Group grew. Free cash flow, defined in the table below, fell to £154.3 million (2018: £174.6 million) as a result of the increase in capital expenditure and tax.
Dividend payments were £76.3 million, including payments to minorities (2018: £67.3 million) and represent the final dividend for 2018 and the interim dividend for 2019.
There was a cash outflow, including fees, of £137.6 million on the acquisition of Thermocoax, as well as an additional £0.9 million outflow relating to the acquisition of various distribution rights. The net of share purchases and new shares issued for the Group’s various employee share schemes gave a cash outflow of £12.5 million (2018: £5.0 million) reflecting the move to acquire shares on the open market rather than issue new equity.
Due to the acquisition of Thermocoax, net debt increased from £235.8 million to £295.2 million at 31st December 2019, an expansion of £59.4 million. This equates to a net debt to EBITDA ratio of 0.9 times (2018: 0.8 times) excluding IFRS 16. EBITDA is defined in Note 2 and the components of net debt are disclosed in Note 24.
The Group’s Income Statement and Statement of Financial Position are exposed to movements in a wide range of different currencies.
This stems from our direct sales business model, with a large number of local operating units. These currency exposures and risks are managed through a rigorously applied Treasury Policy, typically using centrally managed and approved simple forward contracts to mitigate exposures to known cash flows and avoiding the use of complex derivative transactions. The largest exposures are to the euro, US dollar, Chinese renminbi and Korean won. Whilst currency effects can be significant, the structure of the Group provides some mitigation through our regional manufacturing presence, diverse spread of geographic locations and through the natural hedge of having a high proportion of our overhead costs in the local currencies of our direct sales operating units.
Capital structure
The Board keeps the capital requirements of the Group under regular review, maintaining a strong financial position to protect the business and provide flexibility of funding for growth. The Group earns a high return on capital, which is reflected in strong cash generation over time. Our capital allocation policy remains unchanged. Our first priority is to maximise investment in the business to generate further good returns in the future, aligned with our strategy for growth and targeting improvement in our key performance indicators. Next, we prioritise finding suitable acquisitions that can expand our addressable market through increasing our geographic reach, deepening our market penetration or broadening our product range. Acquisition targets need to exhibit a good strategic fit and meet strict commercial, economic and return on investment criteria. When cash resources significantly exceed expected future requirements, we would look to return capital to shareholders, as evidenced by special dividends declared in respect of 2010, 2012 and 2014. However, in the near term, we will look to reduce our financial leverage prior to considering new returns of capital to shareholders.
Table:
 | 2019 | 2018
Cash flow | £m | £m
Adjusted operating profit | 282.7 | 264.9
Depreciation and amortisation (excluding IFRS 16) | 34.3 | 32.9
Depreciation of leased assets | 11.3 | –
Cash payments to pension schemes more than the charge to adjusted operating profit | (5.2) | (4.6)
Equity settled share plans | 6.2 | 5.7
Working capital changes | (21.4) | (22.5)
Repayments of principal under lease liabilities | (11.2) | –
Capital additions (including software and development) | (62.4) | (43.4)
Capital disposals | 3.8 | 9.9
Adjusted cash from operations | 238.1 | 242.9
Net interest | (5.4) | (6.7)
Income taxes paid | (78.4) | (61.6)
Free cash flow | 154.3 | 174.6
Net dividends paid | (76.3) | (67.3)
Purchase of employee benefit trust shares/Proceeds from issue of shares | (12.5) | (5.0)
(Acquisitions)/Disposals of subsidiaries (including costs) | (138.5) | 48.8
Cash flow for the year | (73.0) | 151.1
Exchange movements | 13.6 | (13.3)
Opening net debt | (235.8) | (373.6)
Net debt at 31st December (excluding IFRS 16) | (295.2) | (235.8)
IFRS 16 lease liability | (38.9) | –
Net debt and lease liability at 31st December | (334.1) | (235.8)


Question: What led to the increase in net debt in 2019?
Answer: the acquisition of Thermocoax