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 £62.7 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 2000 the group had £53.5 million of floating rate borrowings, largely in the form of foreign currency loans to fund overseas operations (see page 57 in the PDF version of this document). A 1% change in all interest rates would have a 1.4% 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. Following the sale of EMD the group reduced its committed bank facilities to £40 million. None of these facilities was drawn down at 31st March 2000.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 57 in the PDF version of this document).

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 2000 are shown on page 59 [see the PDF version of this document].

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

[The Financial Review continues from the last page]