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76 Financial Statements
Notes to the Financial Statements
Continued
The Group’s primary exposure to foreign exchange rate risk on unhedged financial instruments arises mainly in respect of movements
between the US dollar (including dollar-pegged currencies) and sterling and between the euro and sterling. At 31 March 2008, if sterling
had strengthened/weakened by 9% against the US dollar then profit after tax would be lower/higher by approximately £0.3m (2007: £0.2m)
and equity would be £0.3m lower/higher (2007: £0.2m). If sterling had strengthened/weakened by 20% against the euro then profit
after tax would be lower/higher by approximately £1.3m (2007: £0.4m) and equity would be £1.3m lower/higher (2007: £0.4m).
The Group’s investments in foreign operations are subject to foreign currency translation risk. A proportion of this risk has been
managed by taking out foreign currency loans in the relevant currency and, in one instance, by maintaining a substantial sterling bank
account balance in the local business. Following a review of hedging policy undertaken during the year, it was decided not to hedge
the Group’s net investment in foreign operations and as a consequence the foreign currency loans were repaid.
ii) Interest rate risk
The Group’s exposure to interest rate risk arises from loan notes, cash and cash equivalents and financial assets at fair value through
profit or loss which are all interest bearing, offset in part by interest bearing borrowings. The majority of items included in the above are
at floating rates of interest or fixed deposits for periods of less than six months; changes in the interest rate result in changes in interest
related cash flow. No interest rate hedging is currently undertaken by the Group or its subsidiaries. If interest rates for the year to
31 March 2008 were 10 basis points higher/lower, then profit after tax for the year would have been approximately £0.1m
(2007: £0.1m) higher/lower, principally due to increased interest received on short-term bank deposits.
iii) Price risk
The Group does not have any equity securities in its balance sheet and is not materially exposed to commodity price risk. Certain longer
term project and framework contracts include indexation clauses that are applied to unit rates to offset the effect of inflation on input
costs over the duration of the agreement. The Group is exposed to price risk to the extent that inflation differs from the index used and
forecast project outcomes that form the basis of revenue recognition include an estimate of this risk where it is present.
b) Credit risk
Credit risk is the risk that the Group will suffer financial loss as a result of counterparties defaulting on their contractual obligations. The
risk arises on financial instruments at fair value through profit or loss, cash and cash equivalents and trade and other receivables, with
the maximum exposure to risk equivalent to 100% of the carrying value disclosed in the Group’s balance sheet at 31 March. The Group
does not hold any collateral as security. The majority of the Group’s cash deposits are placed with its relationship banks, which carry at
least an AA credit rating. For deposits and money-market investments placed with banks and financial institutions, only independently
rated parties with a minimum rating of A are accepted. Investments carry a minimum credit rating of A1/P1. Cash and investments are
not concentrated with any one counterparty.
For trade and other receivables, an assessment of credit quality of the customer is made where appropriate using a combination of
external rating agencies, past experience and other factors. In circumstances where credit information is unavailable or poor, the risk
is mitigated by use of advance payments and, by exception, through credit risk insurance. Group policy is not to apply individual credit
limits, although exposure and payment performance are monitored closely both at individual project and client level, with a series of
escalating debt recovery actions taken where necessary. The Group’s customer base is broad and dispersed; there are no concentrations
of credit risk that would cause concern.
c) Liquidity risk
The Group funds its activities through cash generated from its operations and, where necessary, bank borrowings and finance leases.
The Group’s banking facilities include cash facilities and bank guarantees. Cash flow forecasts are prepared covering various periods
from short to long-term to ensure that sufficient funds are available to meet the Group’s commitments as they fall due.
The table below analyses the maturity profile of the Group’s non-derivative financial liabilities. Figures shown are undiscounted.
On demand Between Between
or within 1 and 2 and Over 5 Carrying
2008 1 year 2 years 5 years years Discount value
Hire purchase and finance leases 4.4 4.7 5.3 1.8 (2.2) 14.0
Loan notes 4.3 2.9 0.7 – (0.5) 7.4
Trade payables 52.0 – – – – 52.0
On demand Between Between
or within 1 and 2 and Over 5 Carrying
2007 1 year 2 years 5 years years Discount value
Bank loans – 17.3 – – – 17.3
Hire purchase and finance leases 3.9 4.6 8.1 0.4 (2.3) 14.7
Loan notes 0.4 2.7 3.1 – – 6.2
Trade payables 39.1 – – – – 39.1
Amounts due to Joint Ventures 19.6 – – – – 19.6
WS Atkins plc Annual Report 2008