BOC Report and accounts 2005 - Alle jaarverslagen

56 The BOC Group plc Annual report and accounts 2005 Financial review
Cash flow from operationsTotal cash generated by operating activities in 2005 was £466.6 million compared to
£648.2 million in 2004.The decrease was associated with a lower net cash inflow from operating activities of
£665.5 million (2004: £758.5 million) primarily as a result of an approximate £70 million impact of the disposal of
the Afrox hospitals business part way through the year. Returns on investment and servicing of finance increased
significantly in 2005 compared with 2004.The 2005 total included approximately £54 million for the minority
interest element of the special dividend paid by African Oxygen Limited following the disposal of its majority
shareholding in Afrox Healthcare Limited in March 2005.The 2005 tax paid includes approximately £15 million
in connection with this transaction. In 2004, the increase in cash provided by operating activities to £648.2 million
(2003: £550.0 million) was driven by higher operating profit before exceptional items of £576.9 million in 2004
(2003: £505.6 million) and improved working capital management offsetting the impact of higher contributions
to the UK pension scheme. Higher dividends from joint ventures and associates in 2004 of £79.1 million
(2003: £35.0 million), which included a second dividend from Japan Air Gases, also helped to improve cash flows.
Investing Cash used by investing activities was £170.9 million in 2005 (2004: £111.7 million).The increase in capital
expenditure and financial investment over the prior year reflects a higher level of expenditure in new supply
scheme projects, principally in Asia/Pacific and the Americas.The higher net cash inflow from acquisitions and
disposals in 2005 reflects the proceeds from the sale by African Oxygen Limited of its majority shareholding in
Afrox Healthcare Limited in March 2005. In 2004, the reduction in cash used by investing activities to £111.7 million
(2003: £345.3 million) reflected a lower level of expenditure on acquisitions in 2004 compared to 2003, proceeds
from the divestment of the US packaged gas business in July 2004 and receipts of £53.0 million from capital
restructuring of Japan Air Gases Ltd.
Financing Overall, net debt decreased by £122.7 million as a result of a net cash inflow of £91.6 million,
a £9.6 million inflow from the issue of shares, an inflow of £34.7 million for the net debt acquired/disposed on
business acquisitions and disposals and £(13.2) million for the effect of exchange rate and inception of finance
leases. Decreases in debt in 2005 principally relate to the repayment of £168.6 million of medium term notes.
In 2004, net debt decreased by £405.7 million as a result of a net cash inflow of £339.2 million, a £12.4 million
inflow from the issue of shares, an outflow of £4.7 million for the net debt acquired/disposed on business
acquisitions and disposals and £58.8 million for the effect of exchange rate and other movements. Decreases in
debt in 2004 principally related to the repayment of £125.0 million of 6.75% bonds due in 2004 and £42.6 million
net repayment of commercial paper.
The Group has access to a range of funding. Debt finance is raised by issuing bonds, commercial paper, other
obligations to investors and through borrowings from banks.
As well as medium and long-term borrowings, the Group maintains short-term borrowings, principally
in the form of commercial paper and bank borrowings.At 30 September 2005, the Group had US$450 million
(£254 million) of committed multi-currency facilities with a group of relationship banks maturing in 2008.
In October 2005 these facilities were replaced with US$600 million (£339 million) of committed multi-currency
facilities maturing in 2010.These facilities provide back-up for the issue of commercial paper as well as general
liquidity for the Group.Additional committed facilities are maintained by the principal operating units in the Group.
At 30 September 2005, the gearing ratio (net debt including finance leases as a percentage of capital
employed) was 25.6 per cent compared with 29.9 per cent in 2004 and 37.4 per cent in 2003.The net debt/equity
ratio was 40.9 per cent, compared with 51.2 per cent in 2004 and 73.4 per cent in 2003.
The Group has access to a diverse range of debt finance including commercial paper, public bonds and bank
borrowings which, it believes, will be available to meet long-term financing needs.The Group has sufficient facilities
to cover likely borrowing needs. Management anticipates that capital expenditure in 2006 will be at a higher level
than in 2005 and will be covered by cash inflow from operating activities and existing sources of financing.
Management of financial risks
The board of directors sets the treasury policies and objectives of the Group which include controls over the
procedures used to manage currency, interest rate and credit risk.The approach to managing risk is set out below.
This approach is expected to continue during the next financial year. On a day-to-day basis, Group treasury carries
out these policies, with regular review meetings with the Group finance director. Specific and significant activities
need approval from the finance committee, which includes any two directors of the company.
The Group does not undertake any trading activity in financial instruments nor does it enter into any
leveraged derivative transactions.
Currency riskThe Group faces currency risk principally on its net assets, most of which are in currencies other
than sterling. Currency movements can therefore have a significant effect on the Group’s balance sheet when
translating these foreign currency assets into sterling. In order to reduce this effect the Group manages its
borrowings, where practicable and cost effective, to hedge its foreign currency assets.
Where possible, hedging is done using direct borrowings in the same currency as the assets being hedged or
through the use of other hedging methods such as currency swaps. Group borrowings are currently held in a wide
range of currencies and, after swaps, 79 per cent of net debt (2004: 82 per cent) is denominated in the principal
currencies affecting the Group: US dollars,Australian dollars, Japanese yen, South African rand and sterling.
The aggregate of the notional principal values of currency swaps was £341.7 million (2004: £593.1 million)
spread over a range of currencies.The fair value of such swaps is included in note 21 b) i) to the financial
statements.