Report of the Directors
Business Review

Treasury Policies and Going Concern

Financial Risk Management and Treasury Policies

The group uses financial instruments, in particular forward currency contracts and currency swaps, to manage the financial risks associated with its underlying business activities and the financing of those activities. The group does not undertake any speculative trading activity in financial instruments. Our treasury department is run as a service centre rather than a profit centre.

Funding and 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. On 16th August 2012 the group issued $150.0 million and £65.0 million of private placement notes for ten and 12 year maturities respectively. On 19th November 2012 the group agreed a further €124 million of funding from the European Investment Bank (EIB) for a period of seven years. On 5th June 2013 the group closed a further $475.0 million and €20.0 million of funding in the private placement market with maturities out to 15 years.

At 31st March 2013 the group had cash and deposits of £70.0 million and £364.7 million of undrawn committed bank facilities available to meet future funding requirements. The group also has a number of uncommitted facilities, including overdrafts and metal lease lines, at its disposal. The maturity dates of the group’s debt and borrowing facilities are illustrated in the table in the Financial Review and the chart above.

Of the committed facilities, £426.4 million falls due to be repaid in the 15 months to 30th June 2014 (the going concern period). £329.6 million of this has already been pre-financed through the private placement issues in June 2013; £50.0 million was renewed in early April 2013 for two years and the remainder is expected to be renewed with long term relationship banks closer to maturity.

Going Concern

The directors have assessed the future funding requirements of the group and the company and compared it to the level of long term debt and committed bank facilities for the 15 months from the balance sheet date. The assessment included a sensitivity analysis on the key factors which could affect future cash flow and funding requirements. Having undertaken this work the directors are of the opinion that the group has adequate resources to fund its operations for the foreseeable future and so determine that it is appropriate to prepare the accounts on a going concern basis.

Interest Rate Risk

At 31st March 2013 the group had net borrowings of £835.2 million of which 74% was at fixed rates with an average interest rate of 3.7%. The remaining 26% of the group’s net borrowings was funded on a floating rate basis. A 1% change in all interest rates would have a 0.5% impact on underlying profit before tax. This is within the range the board regards as acceptable.

Foreign Currency Risk

Johnson Matthey’s operations are located in over 30 countries, providing global coverage. The significant amount of its profit is earned outside the UK. In order to protect the group’s sterling balance sheet and reduce cash flow risk the group has financed most of its investment in the USA and Europe by borrowing US dollars and euros respectively. 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 in a bid situation. Details of the contracts outstanding on 31st March 2013 are shown in note 27.

Precious Metal Prices

Fluctuations in precious metal prices can have a significant impact on Johnson Matthey’s financial results. Our policy for all 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 stocks are unhedged because of the lack of liquidity in the platinum market.

Credit Risk

The group is exposed to credit risk on its commercial activities and treasury risk management activities. In both cases counterparties are assessed against the appropriate credit ratings, trading experience and market position. Credit limits are then defined and exposures monitored against these limits. In treasury and precious metal management, these exposures include the mark to market of outstanding transactions and potential settlement risks.

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