Peachtree 2012 Annual Report Download - page 109

Overview
Performance
Governance
Net debt and capital structure continued
13 Financial instruments
Numerical financial instruments disclosures are set out below and also in note 12.
13.1 Fair values of financial instruments
For the following financial assets and liabilities: long-term borrowings, short-term borrowings, trade and other payables excluding tax and social security, trade
and other receivables excluding prepayments and accrued income, short-term bank deposits, cash at bank and in hand and other financial liabilities, the carrying
amount approximates the fair value of the instrument with the exception of long-term borrowings due to these bearing interest at fixed rates which are currently
higher than floating rates.
2012 2011
Note
Book
value
£m
Fair
value
£m
Book
value
£m
Fair
value
£m
Long-term borrowings 12.4 (200.8) (218.1) (192.4) (207.6)
Fair value of other financial assets and financial liabilities
Financial instruments held or issued to finance the Group’s operations:
Short-term borrowings 12.4 (8.4) (8.4) (1.7) (1.7)
Trade and other payables excluding other tax and social security 7.3 (194.7) (194.7) (196.2) (196.2)
Trade and other receivables excluding prepayments and accrued income 7.2 285.1 285.1 265.1 265.1
Short-term bank deposits 12.3 0.3 0.3 118.5 118.5
Cash at bank and in hand 12.3 61.3 61.3 64.3 64.3
Other financial liabilities 13.5 (128.3) (128.3) (50.0) (50.0)
13.2 Risk management
The Group’s Treasury function seeks to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available to meet the
foreseeable needs of the Group and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments and
transacts only in relation to underlying business requirements. The Group’s treasury policies and procedures are periodically reviewed and approved by the
Audit Committee and are subject to regular Group Internal Audit review.
Capital risk
The Group’s objectives when managing capital (defined as net debt (note 12.2) plus equity) are to safeguard the Group’s ability to continue as a going concern
in order to provide returns to shareholders and benefits for other stakeholders, while optimising return to shareholders through an appropriate balance of debt
and equity funding. The Group has net debt of £161.5m (2011: £24.9m) and access to undrawn credit facilities of £323.3m (2011: £358.3m). The Group regularly
reviews net debt and its ratio to earnings before interest, tax, depreciation and amortisation (EBITDA) to ensure that it does not exceed the covenant contained
within the Group’s banking facilities and senior loan notes, being 3.0 times. At 30 September 2012 this ratio was 0.4 times (2011: 0.1 times). The Group manages
its capital structure and makes adjustments to it, with respect to changes in economic conditions and the strategic objectives of the Group. The Group have set a
minimum leverage target of 1 times net debt to EBITDA and are working towards achieving this.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its exposure to liquidity risk by
reviewing the cash resources required to meet its business objectives through both short and long-term cash flow forecasts. The Group has committed facilities
which are available to be drawn for general corporate purposes including working capital.
The Group’s Treasury function has a policy of optimising the level of cash in the business in order to minimise external borrowings.
Credit risk
Credit risk is the risk that a counterparty may default on their obligation to the Group in relation to lending, settlement and other financial activities.
The Group’s credit risk primarily arises from trade and other receivables. The amounts included 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 cash flows. The Group has a very low operational credit risk due to the transactions being principally of a high volume, low value and short
maturity. The Group has no significant concentration of operational credit risk, with the exposure spread over a large number of counterparties and customers.
Continued strong credit control ensured that in the year ended 30 September 2012 the Group did not see deterioration in days’ sales outstanding. The credit risk
on liquid funds is considered to be low, as the Audit Committee approved Group Treasury Policy limits the value that can be invested with each approved
counterparty to minimise the risk of loss. All counterparties must meet minimum credit rating requirements.
Financial statements
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The Sage Group plc | Annual Report & Accounts 2012