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Taxation
The group's total tax charge rose by £7.0 million to £52.3
million. Excluding exceptionals, the average tax rate increased
by just under 1% to 29.0% reflecting a change in the geographic
mix of profits.
Cash Flow
Johnson Matthey's net cash inflow from operations was £156.5
million, which was 20% better than last year, despite an £82.0
million cash outflow to fund increased debtors. The rise in debtors
reflected increased sales volumes and higher prices for palladium
and platinum. However the group managed to reduce inventories, despite
the higher metal prices, which limited the overall increase in working
capital to £58.0 million.
Capital expenditure rose to £104.4 million, which is 65%
up on last year's figure of £63.3 million (excluding the expenditure
of £11.4 million by EMD), and represents two and a half times
depreciation. The cash element of this expenditure in the year was
£98.8 million (the remainder being accrued). We plan to further
increase capital expenditure in 2001/02 with major investments in
new technology and increased capacity to meet growing demand for
new products.
As a consequence of the high level of capital expenditure in 2000/01
net cash flow for the group was negative at £16.0 million.
After taking into account the effects of exchange translation on
the group's US dollar borrowings, net cash fell by £25.9 million
to £139.9 million at 31st March 2001. Shareholders' funds
increased by £95.6 million to £851.0 million.
Financial Risk Management
The group uses financial instruments, in particular forward currency
contracts and currency swaps, to manage the financial risks associated
with the group's underlying business activities and the financing
of those activities. The group does not undertake any trading activity
in financial instruments. Our Treasury department is run as a service
centre rather than a profit centre.
Interest Rate Risk
Following the sale of EMD the group used the proceeds to repay borrowings
and deposited the remainder with a range of high quality international
banks. The deposits are mainly held in sterling with relatively
short maturities. The group occasionally uses interest rate swaps
to generate the desired interest profile. The group has £70.3
million (US$100 million) of long term fixed rate borrowings in the
form of an issue of US dollar bonds which carry an interest coupon
of 6.36%. At 31st March 2001 the group had £27.2 million of
floating rate borrowings, largely in the form of foreign currency
loans to fund overseas operations. A 1% change in all interest rates
would have a 1.2% impact on group profit before tax. This is well
within the range the group regards as acceptable.
Liquidity Risk
The group's policy on funding capacity is to ensure that we always
have sufficient long term funding and committed bank facilities
in place to meet foreseeable peak borrowing requirements. The group
has committed bank facilities of £100 million. None of these
facilities was drawn down at 31st March 2001. The group also has
a number of uncommitted facilities and overdraft lines.
Foreign Currency Risk
Johnson Matthey's operations are global in nature with the majority
of the group's operating profits earned outside the UK. The group
has operations in 34 countries with the largest single investment
being in the USA. In order to protect the group's sterling balance
sheet and reduce cash flow risk, the group finances most of its
US investment by US dollar borrowings. Although most of this funding
is obtained by directly borrowing US dollars, some is achieved by
using currency swaps to reduce costs and credit exposure. The group
also uses local currency borrowings to fund its operations in other
countries (see page 52).
The group uses forward exchange contracts to hedge foreign exchange
exposures arising on forecast receipts and payments in foreign currencies.
Currency options are occasionally used to hedge foreign exchange
exposures, usually when the forecast receipt or payment amounts
are uncertain. Details of the contracts outstanding on 31st March
2001 are shown on page 54.
Precious Metals Prices
Fluctuations in precious metal prices can have a significant impact
on Johnson Matthey's financial results. Our policy for all our manufacturing
businesses is to limit this exposure by hedging against future price
changes where such hedging can be done at acceptable cost. The group
does not take material exposures on metal trading.
All the group's stocks of gold and silver are fully hedged by leasing
or forward sales. Currently the majority of the group's platinum
group metal stocks are unhedged because of the lack of liquidity
in the platinum metal markets.
John Sheldrick
Group Finance Director
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