At the Annual General Meeting of Scotlay Ltd, the managing director made the following statement:

Although the year was one characterised by poor sales performance, Scotlay Ltd maintained strong operating cash flows. Operating profit for the year was $1 million, and net operating cash flows were $4 million. The difference between operating profit and operating cash flows is primarily explained by depreciation charges of $3 million. Scotlay’s continuing investment program will ensure that operating cash flows are even higher next year, as depreciation charges are expected to increase to $5 million.

a. Explain how depreciation charges can create a difference between operating profit after tax and net cash flow from operating activities.

b. Briefly comment on the validity of the managing director's prediction of an increase in operating cash flows next year.