Cosalt plc Annual report & financial statements 2008

Business review
The main Group scheme was closed to future accrual on
31 December 2006 and current members were offered a
defi ned contribution stakeholder arrangement in return. Whilst
the effect of this will reduce the potential volatility for future
service cost, the issues associated with past service remain
and the Group continues to make an annual cash injection
of £1.2 million to eliminate the Plan’s defi cit.
Financial risks
The main fi nancial risks faced by the Group relate to the
availability of funds to meet business needs, the risk of default
by counter-parties in fi nancial transactions, and fl uctuations in
interest and foreign exchange rates. These risks are managed
as described below.
Funding and liquidity
The Group’s operations are primarily fi nanced from retained
earnings, bank fi nance and leasing. It is the Group’s policy
not to trade in or enter into speculative transactions. The Group
refi nanced in August 2008 and as a result of adverse cash fl ows
from trading in Holiday Homes and a reduction in expected sale
proceeds further facilities were negotiated in February 2009
amounting to £39 million on a fully secured basis.
Debt is principally raised centrally and the Group aims
to maintain a balance between fl exibility and continuity of
funding by having a range of maturities on its borrowings.
The refi nancing in August 2008 and subsequent additional
facilities negotiated in February 2009 include 364-day facilities,
revolving credit facilities with maturity of 3 years and term
loans with scheduled repayments through to February 2012.
Interest rate and foreign exchange risk management
The Group’s policy is to maintain a mixture of fl oating and
fi xed rate borrowings. In order to provide protection against
signifi cant interest rate rises in the future, the Board purchased
a cap. The amount covered by the cap reduces in line with
the repayments on the term loan. A fl oor transaction was taken
out at the same time and on the same basis in order to minimise
the up front premium for this cover. The Group’s exposure to
foreign currency fl uctuations has increased with the acquisition
of businesses in mainland Europe and Norway in the last two
years. The Group’s policy is to eliminate currency exposure
by the use of forward currency contracts and foreign currency
borrowings as a natural hedge against foreign investment value.
Financial review
Mike Reynolds
Finance Director
Credit risk
The objective is to reduce the risk of loss arising from default
by parties to fi nancial transactions across an approved list
of counterparties of high credit quality. The Group’s position
with these counterparties and their credit ratings are routinely
monitored, however, as highlighted by the global fi nancial
crisis there is the risk of sudden and unexpected changes
in circumstances.
The Group mitigates the risk of losses on transactions with
trade receivables by credit agency checks and credit insurance
wherever possible.
On behalf of the Board
Mike Reynolds Mark Lejman
Finance Director Chief Executive
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Cosalt plc Annual report & fi nancial statements 2008
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