Peachtree 2012 Annual Report Download - page 65

Financial risk management
The Group’s exposure to and management of capital, liquidity, credit, interest
rate and foreign currency risk are summarised below. Further detail can be
found in note 13.2 of the accounts.
Capital risk
The Group’s objectives when managing capital (dened as net debt plus
equity) are to safeguard the Group’s ability to continue as a going concern in
order to provide returns to shareholders and benets for other stakeholders,
while optimising return to shareholders through an appropriate balance of debt
and equity funding. 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 one times net debt to EBITDA and are working towards achieving this.
Further detail is provided in the Financial review on pages 28 and 30.
Liquidity risk
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 ow 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
businesses in order to minimise external borrowings.
Credit risk
The Group’s credit risk primarily arises from trade and other receivables. 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
signicant 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.
Interest rate risk
The Group is exposed to interest rate risk on oating rate deposits and
borrowings. The US private placement loan notes, which comprise 93% of
borrowings, are at xed interest rates and bank debt, which comprises 7%
of borrowings, are at oating interest rates. At 30 September 2012, the Group
had £61.6m of cash and cash equivalents.
The Group regularly reviews forecast debt, cash and cash equivalents and
interest rates to monitor this risk. Interest rates on debt and deposits are xed
when management decides this is appropriate. At 30 September 2012, the
Group’s principal borrowings comprised US private placement loan notes
of £185.8m (2011: £192.6m), which have an average xed interest rate of
4.58% and bank debt of £15.0m (2011: £nil), which has an average oating
interest rate of 1.73%.
Foreign currency risk
Although a substantial proportion of the Group’s revenue and prot is earned
outside the UK, subsidiaries generally only trade in their own currency. The
Group is therefore not subject to any signicant foreign exchange transactional
exposure within these subsidiaries. The Group’s principal exposure to foreign
currency, therefore, lies in the translation of overseas prots into Sterling.
This exposure is partly hedged to the extent that these prots are offset by
interest charges in the same currency arising from the nancing of the
investment cost of overseas acquisitions by borrowings in the same currency.
The Group is also exposed to a foreign exchange transaction exposure from
the conversion of surplus cash generated by its principal overseas subsidiaries,
which would be hedged where appropriate.
The Group’s US Dollar denominated borrowings are designated as a hedge
of the net investment in its subsidiaries in the US. The foreign exchange
movements on translation of the borrowings into Sterling have been
recognised in the translation reserve.
The Group’s other currency exposures comprise only those exposures that
give rise to net currency gains and losses to be recognised in the income
statement. Such exposures reect the monetary assets and liabilities of the
Group that are not denominated in the operating (or “functional”) currency of
the entity involved. At 30 September 2011 and 30 September 2012, these
exposures were immaterial to the Group.
By Order of the Board
M J Robinson, Secretary
5 December 2012
Overview
Performance
GovernanceFinancial statements
63
The Sage Group plc | Annual Report & Accounts 2012