Confirming facilities
Spanish confirming facilities of £541,000 (2014 – £814,000) are unsecured and all fall due within one year. It is common practice in Spain for businesses to have a bank facility which enables their suppliers to be paid earlier than under normal credit terms. When this is the case the supplier pays to Northgate España’s bank a discount fee for early settlement. When invoices fall due for payment, Northgate España settles such invoices with its bank. The Group pays no interest on confirming.
Total borrowing facilities
The Group has various borrowing facilities available to it. The undrawn committed facilities at the balance sheet date, in respect of which all conditions precedent had been met at that date, are as follows:
2015
£000 2014£000
Less than one year 5,723 8,172
In one year to five years 169,571 64,617
175,294 72,789 The total amount permitted to be borrowed by the Company and its subsidiary undertakings in terms of the Articles of Association shall not exceed six times the aggregate of the issued share capital of the Company and Group reserves, as defined in those Articles.
Analysis of consolidated net debt
An analysis of movements in the Group’s consolidated net debt is as follows:
At 1 May 2014 £000 Cash flow£000 Other non-cash changes £000 Foreign exchange movements £000 At 30 April 2015 £000
Cash at bank and in hand (19,056) 8,036 – 1,344 (9,676)
Bank loans 363,819 14,317 (1,597) (30,124) 346,415
Cumulative Preference shares 500 – – – 500
Confirming facilities 814 – (273) – 541
Consolidated net debt 346,077 22,353 (1,870) (28,780) 337,780
The Group calculates gearing to be net borrowings as a percentage of shareholders’ funds less goodwill and the net book value of intangible assets, where net borrowings comprise borrowings less cash at bank. At 30 April 2015, the gearing of the Group amounted to 80.7% (2014 – 90.7%) where net borrowings are £337,780,000 (2014 – £346,077,000) and shareholders’ funds less goodwill and the net book value of intangible assets are £418,426,000 (2014 – £381,677,000).
Financial instruments (see also Note 36)
financial assets
The Group’s principal financial assets are cash and bank balances, and trade and other receivables.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The credit risk associated with trade receivables in Spain is more concentrated in larger customers than the UK and, consequently, as in the UK the Group has a credit insurance policy in place to mitigate this risk.
Notes to the accounts
CONTINUED
20 Borrowings continued
Treasury policies and the management of risk
The function of Group Treasury is to mitigate financial risk, to ensure sufficient liquidity is available to meet foreseeable requirements, to secure finance at minimum cost and to invest cash assets securely and profitably. Treasury operations manage the Group’s funding, liquidity and exposure to interest rate risks within a framework of policies and guidelines authorised by the Board of Directors.
The Group uses derivative financial instruments for risk management purposes only. Consistent with Group policy, Group Treasury does not engage in speculative activity and it is policy to avoid using more complex financial instruments. Further details regarding derivative financial instruments are shown in Note 21.
The policy followed in managing credit risk permits only minimal exposures, with banks and other institutions meeting required standards as assessed normally by reference to major credit rating agencies. Deals are authorised only with banks with which dealing mandates have been agreed and which maintain an A rating. Individual aggregate credit exposures are limited accordingly.
Financing and interest rate risk
The Group’s policy is to finance operating subsidiary undertakings by a combination of retained earnings and medium term bank loans.
Cash at bank, and on deposit, yields interest based principally on interest rate indices applicable to periods of less than three months, those indices being LIBOR for Sterling denominated cash and EURIBOR for Euro denominated cash. The Group’s exposure to interest rate fluctuations on its borrowings is managed through the use of interest rate derivatives as detailed in Note 21. These derivatives are also used to manage the Group’s desired mix of fixed and floating rate debt. The policy is to fix or cap a substantial element of the interest cost on outstanding debt. At 30 April 2015 75.5% (2014 – 79.8%) of net borrowings were at fixed rates of interest comprising interest rate swaps of £105,000,000 and €206,500,000, £500,000 of Preference shares and £541,000 of confirming facilities (30 April 2014 – interest rate swaps of £105,000,000 and €206,500,000, £500,000 of Preference shares and £814,000 of confirming facilities).
Foreign currency exchange risk
The Group maintains borrowings in the same currency as its cash requirements, with the exception of borrowings maintained in Euros as net investment hedges against its Euro denominated investments (Note 21).
An analysis of the Group’s borrowings by currency is given below:
Group Sterling £000 £000Euro Total £000
At 30 April 2015
Bank loans 114,903 231,512 346,415
Cumulative Preference shares 500 – 500
Confirming facilities – 541 541
115,403 232,053 347,456
Group Sterling £000 £000Euro £000Total
At 30 April 2014
Bank loans 125,000 238,819 363,819
Cumulative Preference shares 500 – 500
Confirming facilities – 814 814