Annual Report 2016

45A5A81B-4BAF-4723-BFB4-09983CA05A23 Created with sketchtool.

29. Financial Instruments and risk management

(a) Accounting classifications and fair value

Carrying AmountFair Value
Loans and receivablesLiabilities at amortised costFair value hedging instrumentsTotal carrying amountLevel 1Level 2Level 3Total
€’000€’000€’000€’000€’000€’000€’000€’000
30 March 2016
Trade receivables41,996--41,996----
Cash and cash equivalents98,174--98,174----
Accrued revenue23,700--23,700----
Other receivables7,562--7,562----
Trade payables-(65,760)-(65,760)----
Other payables-(29,776)-(29,776)----
Swap derivatives--37,74937,749-37,749-37,749
Unsecured loan note-(241,881)-(241,881)----
Overdrafts-(29,006)-(29,006)----
25 March 2015
Trade receivables57,194--57,194----
Cash and cash equivalents96,369--96,369----
Accrued revenue18,133--18,133----
Other receivables4,474--4,474----
Trade payables-(59,231)-(59,231)----
Other payables-(32,428)-(32,428)----
Swap derivatives--48,88248,882-48,882-48,882
Unsecured loan note-(249,526)-(249,526)----
Overdrafts-(24,739)-(24,739)----
27 March 2014
Trade receivables55,646--55,646----
Cash and cash equivalents173,250--173,250----
Accrued revenue13,723--13,723----
Other receivables3,376--3,376----
Trade payables-(84,017)-(84,017)----
Other payables-(33,400)-(33,400)----
Swap derivatives--(6,892)(6,892)-(6,892)(6,892)
Unsecured loan note-(238,739)-(238,739)----
Overdrafts-(667)-(667)----

Estimation of fair values

The principal methods and assumptions used in estimating the fair values of financial assets and liabilities are explained below.

Cash and cash equivalents including the short-term bank deposits

For short term bank deposits and cash and cash equivalents, all of which have a maturity of less than three months, the carrying value is deemed to reflect a reasonable approximation of fair value.

Trade and other receivables/payables

For the receivables and payables with a remaining term of less than one year or demand balances, the carrying amount less impairment allowances, where appropriate, is a reasonable approximation of fair value.

Loans

For private placement debt and borrowings the fair value is calculated based on discounted future principal and interest cash flows.

Interest rate swaps

For interest rate swaps the fair value is calculated based on discounted cash flow techniques.

(b) Financial risk management

The Group’s operations expose each to various financial risks that include credit risk, liquidity risk and market risk. The Group has a risk management framework in place which seeks to limit the impact of these risks on the financial performance of the Group. It is the policy of the Group to manage these risks in a non-speculative manner.

This note presents information about the Group’s exposure to each of the above risks and the objectives, policies and processes for measuring and managing the risks. Further quantitative and qualitative disclosures are included throughout this note.

The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Risk and Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Risk and Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Risk and Audit Committee.

(c) Credit risk

Exposure to credit risk

Credit risk arises from granting credit to customers and from investing cash and cash equivalents with banks and financial institutions.

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investments in debt securities.

Trade and other receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate.

The Group has established a credit policy under which each new customer is vetted individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, if they are available, and in some cases bank references. Credit limits are established for each customer and reviewed quarterly. Credit limits in excess of €200,000 are reviewed on a semi annual basis between the businesses and senior management in group.

In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or a legal entity, whether they are a wholesale, retail or end-user customer, their geographic location, industry and existence of previous financial difficulties.

Impairment of receivables is provided for on individual receivable accounts when the overdue debt exceeds certain time limits.

Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not otherwise require collateral in respect of trade and other receivables. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.

30 March 2016
€’000
25 March 2015
€’000
27 March 2014
€’000
Group
Ireland27,09643,06141,717
UK12,63812,21912,163
Rest Of Europe4,2395,7675,817

The ageing of Trade Receivables was as follows:

Gross €’000Impairment €’000Net Receivables €’000
At 30 March 2016 Group
Not past due40,131-40,131
Past due < 90 days2,7028981,804
Past due > 90 days1,1411,08061
At 25 March 2015 Group
Not past due55,053-55,053
Past due < 90 days3,6291,7611,868
Past due > 90 days2,3652,092273
At 27 March 2014 Group
Group53,167-53,167
Not past due3,3541,1932,161
Past due < 90 days3,1762,858318

Management believes that the carrying amounts are collectable in full.

The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:

€’000
Balance at 27 March 20144,051
Impairment loss recognised62
Utilisation of the provision(260)
Balance at 25 March 20153,853
Impairment loss reversal(909)
Utilisation of the provision(966)

Cash and short term bank deposits

The Group is exposed to credit risk from the counterparties with whom it places its bank deposits. The Group is satisfied that the credit risk associated with its deposits is not significant. The carrying amount of financial assets, net of impairment provisions, represents the group’s maximum credit exposure.

The cash and cash equivalents are held with Bank of Ireland, AIB, KBC Bank Ireland and RaboDirect who have a credit rating of B or higher.

(d) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Unsecured loan notes

Interest of €17.3 million was charged on €203.6 million of average unsecured loan notes in 2016. In 2015, interest of €16.2 million was charged on average unsecured loan notes of €224.5 million.

Available liquidity

The group has the following undrawn overdraft and loan facilities:

FacilityDrawn amount at 30 March 2016Total of facilityAvailable Headroom
Revolving credit facility-50,00050,000
Bank overdraft29,00640,00010,994

The Company and certain subsidiary companies have entered into a ‘’Cashpool Agreement’’ with their principal bankers. The Cashpool Agreement includes guarantees and a master netting agreement in respect of specified accounts contained within that agreement.

Contractual Maturities

The following are the contractual maturities of the Group financial liabilities, including estimated interest payments.

Carrying AmountContractual Cash FlowsLess than 1 Year1-2 Years2-5 YearsMore than 5 Years
€’000€’000€’000€’000€’000€’000
At 30 March 2016 Borrowings:
Unsecured loan notes241,881(276,469)(90,180)(50,137)(136,152)-
Related derivatives(37,481)45,86313,85710,13921,867-
Other contractual maturities:
Trade and other payables95,536(95,536)(95,536)---
Bank overdraft29,006(29,006)(29,006)---
At 25 March 2015 Borrowings:
Unsecured loan notes249,526(302,042)(17,865)(92,138)(192,039)-
Related derivatives(45,288)59,1654,79416,61537,756-
Other contractual maturities:
Trade and other payables91,659(91,659)(91,659)---
Bank overdraft24,739(24,739)(24,739)---
At 27 March 2014 Borrowings:
Unsecured loan notes238,739(297,009)(56,931)(13,722)(226,356)-
Related derivatives6,051(141)2,0201,289(3,450)-
Other contractual maturities:
Trade and other payables117,417(117,417)(117,417)---
Bank overdraft667(667)(667)---

(e) Market risk

Market risk is the risk that changes in market prices and indices, such as foreign exchange rates, and interest rates will affect the Group and Company’s income or the value of its holdings of financial instruments.

Commodity price risk

The Group entered into a fuel hedging contract and fixed the price for road and tractor diesel. The contract expired on 30 March 2016.

Foreign exchange rate risk

The Group is exposed to translation foreign exchange rate risk on its UK operations, transaction exchange rate risk on purchases and sales and transaction exchange rate risk on its unsecured loan note. The effect of the translation of foreign operation risk and transaction exchange rate risk on purchase and sales are not considered material to the Group.

The effect of the foreign exchange transaction rate risk on the unsecured loan notes is, however, material. On 30 March 2016 the group had US$273 million fixed rate debt arising from two US private placement transactions, which were completed on 22nd June 2006 (US$125 million) and 6 August 2009 (US$205 million). The Group has entered into swap agreements to mitigate this risk entirely. The private placement debt in place is at fixed interest rates and the group has entered into derivatives that swap the US$ interest and principal repayments into fixed euros. Therefore, in relation to the debt the Group has in substance no exposure to movements in foreign exchange rate movements or interest rate movements.

30 March 2016
€’000
25 March 2015
€’000
27 March 2014
€’000
Foreign exchange impact
Unsecured loan notes7,806(51,340)6,052
Effect of derivative financial instruments(7,806)51,340(6,052)
30 March 201625 March 2015
€’000€’000€’000€’000
USDGPBUSDGPB
Trade receivables497,8872347,048
Trade payables(126)(3,146)(123)(3,432)
Net balance sheet exposure
Net six months forecast sales-18,245-17,755
Next six months forecast purchases-(10,549)-(9,926)
Net forecast transaction exposure-7,696-7,829
Forward exchange contracts----

The following significant exchange rates have been applied during the year:

Average rateYear end spot
2016201520162015
USD1.10321.27251.13241.0985
GPB0.73210.78660.78580.7365

Sensitivity analysis

The Group have no material exposure to movements in US dollars. A reasonably possible strengthening (weakening) of the Sterling against Euros at 30 March 2016 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

Profit or lossEquity, net of tax
StrengtheningWeakeningStrengtheningWeakening
30 March 2016
GBP (+/-5% Movement)317(288)--
25 March 2015
GBP (+/-5% Movement)151(341)--