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BAKKAVOR ANNUAL REPORT AND ACCOUNTS 2012 notes to the consolidated financial statements continued 29 FINANCIAL INSTRUMENTS CONTINUED Externally imposed capital requirement The Group is subject to externally imposed capital requirements on capital expenditure as a result of bank covenants, which we have fully complied with throughout the period (see note 23, Borrowings). Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of Financial Instruments 29 December 31 December £m 2012 2011 Financial assets Fair value through profit and loss: Derivative financial instruments 0.6 0.4 Loans and receivables at amortised cost: Trade receivables 158.4 161.6 Deferred consideration 0.1 – Other receivables 13.1 10.7 Cash and cash equivalents 30.5 30.1 202.7 202.8 Financial liabilities Fair value through profit and loss: Derivative financial instruments 10.1 17.9 Other Financial liabilities at amortised cost: Trade payables 190.6 197.1 Deferred consideration 0.1 0.3 Other payables 30.5 31.4 Borrowings 594.0 618.9 Finance leases 0.4 2.6 825.7 868.2 The fair value of the financial assets approximates to their carrying value due to the short term nature of the receivables. Fair values have been determined as level 2 under IFRS 7. The fair value of other financial liabilities at amortised cost approximates to their carrying value. The trade and other payables approximate to their fair value due to the short term nature of the payables. The finance lease fair value approximates to the carrying value based on discounted future cash flows. Financial risk management The Group is exposed to a number of financial risks such as access to and cost of funding, interest rate exposure, currency exposure and working capital management. The Group seeks to minimise these risks where possible and does this by constantly monitoring, reviewing, effectively managing and using derivative financial instruments as detailed in the Directors’ report. Use of financial instruments is governed by Group policies which are approved by the Board of Directors. The treasury function does not operate as a profit centre, makes no speculative transactions and only enters into or trades financial instruments to manage specific exposures. To ensure the management of those financial risks faced by the Group remain effective, it is very important that any new businesses that are acquired by the Group are immediately integrated. This means the new business is providing timely and accurate information to the central Treasury department, so they can produce group reports on key financial risks that reflect the ultimate position of the Group at that time. Further details on financial risks are provided within the Our Risks section on page 49 and 50. PAGE 87 VIEW THE FULL REPORT AT ANNUALREPORT12.BAKKAVOR.COM
BAKKAVOR ANNUAL REPORT AND ACCOUNTS 2012 notes to the consolidated financial statements continued 29 FINANCIAL INSTRUMENTS CONTINUED Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: • Forward foreign exchange contracts to hedge the exchange rate risk arising on revenues and purchases in foreign currencies. • Interest rate swaps to mitigate the risk of rising interest rates. Market risk exposures are supplemented by sensitivity analysis. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. Foreign currency risk management Foreign currency risk management occurs at a transactional level on revenues and purchases in foreign currencies and at a translational level in relation to the translation of overseas operations. Board policy is for Group Treasury to hedge a rolling 12 month forecast of transactional exposures using forward foreign exchange contracts and foreign exchange options. The Group monitors foreign exchange rates to assess the potential impact on group profits if exchange rates move significantly and a summary of hedges in place are reported monthly to the Board of Directors. The Group’s main foreign exchange risk is to the Euro and US dollar. During the 52 week period to 29 December 2012, the Euro weakened against Sterling by 2.1%, with the closing rate at €1.2219 compared to €1.1972 at the prior period end. The average rate for the 52 week period to 29 December 2012 was €1.2335, a weakening of the Euro of 7.0% versus prior year. In the same period the US dollar, weakened against Sterling by 4.0%, with the closing rate at $1.6155 compared to $1.5541 at the prior period end. The average rate for the period to 29 December 2012 was $1.5851, a 1.2% strengthening of the US dollar versus the prior year. The net foreign exchange impact on profit from transactions is a gain of £0.4 million (2011: loss of £0.3 million). Foreign currency sensitivity analysis A sensitivity analysis has been performed on the financial assets and liabilities to a sensitivity of 10% increase/decrease in the exchange rates. A 10% increase/decrease has been used, and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit where Sterling strengthens 10% against the relevant currency. Profit or (loss) Profit or (loss) 10% Strengthening 10% Weakening 29 December 31 December 29 December 31 December £m 2012 2011 2012 2011 Euro (1.4) (1.1) 1.8 1.2 USD (1.3) (1.0) 1.6 1.1 RMB (0.1) 0.1 0.1 (0.1) ZAR (0.2) (0.2) 0.2 0.2 PAGE 88 VIEW THE FULL REPORT AT ANNUALREPORT12.BAKKAVOR.COM
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Annual report AND accounts 2012
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BAKKAVOR ANNUAL REPORT AND ACCOUNTS
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welcome to our Bakkavor 'Fast Read'
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usiness segments united kingdom mar
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key performance indicators WE USE A
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3 4 5 assets Our commitment to cont
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leading customer service leading ma
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growing our product pipeline Within
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corporate governance how we manage
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