BAE-annual-report-2014

Financial statements
28. FINANCIAL RISK MANAGEMENT continued
Borrowing facilities
The Group’s objective is to maintain adequate undrawn committed borrowing facilities.
At 31 December 2014, the Group had a committed Revolving Credit Facility (RCF) of £2bn (2013 £2bn). The RCF is contracted
until 2018 at £2bn and from 2018 to 2019 at £1.8bn. The RCF was undrawn throughout the year.
Cash management
Cash flow forecasting is performed by the businesses on a monthly basis. The Group monitors a rolling forecast of its liquidity
requirements to ensure that there is sufficient cash to meet operational needs and maintain adequate headroom.
Surplus cash held by the businesses over and above balances required for working capital management is loaned to the Group’s
centralised treasury department. Surplus cash is invested in interest bearing current accounts, term deposits, money market deposits
and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as
determined by cash forecasts.
The Group’s objective is to monitor and control counterparty credit risk and credit limit utilisation. The Group adopts a conservative
approach to the investment of its surplus cash. It is deposited with financial institutions with the strongest credit ratings for short
periods. The cash and cash equivalents balance at 31 December 2014 of £2,308m (2013 £2,222m) was invested with 30 (2013 27)
financial institutions. A credit limit is allocated to each institution taking account of its market capitalisation, credit rating and credit
default swap price. The Group has no exposure to Greek, Irish, Italian, Portuguese or Spanish banks. Additionally, the Group monitors
its exposure to banks which have exposure to these countries.
The cash and cash equivalents of the Group are invested in non-speculative financial instruments which are usually highly liquid, such
as short-term deposits. The Group, therefore, believes it has reduced its exposure to counterparty credit risk through this process.
Currency risk
The Group’s objective is to reduce its exposure to transactional volatility in earnings and cash flows from movements in foreign currency
exchange rates, mainly the US dollar, Euro and Saudi Riyal.
The Group is exposed to movements in foreign currency exchange rates in respect of foreign currency denominated transactions. All
material firm transactional exposures are hedged and the Group aims, where possible, to apply hedge accounting to these transactions.
The Group is exposed to movements in foreign currency exchange rates in respect of the translation of net assets and income statements of
foreign subsidiaries and equity accounted investments. The Group does not hedge the translation effect of exchange rate movements on the
income statements or balance sheets of foreign subsidiaries and equity accounted investments it regards as long-term investments.
Credit risk
The Group has material receivables due from the UK, US and Saudi Arabian governments where credit risk is not considered an issue.
For the remaining trade receivables, a provision for bad debts has been calculated taking into account individual assessments based on
past credit history and prior knowledge of debtor insolvency or other credit risk, and no one counterparty constitutes more than 7% of the
balance (2013 5%).
The ageing of trade receivables is detailed below:
Gross
£m
2014 2013
Provision
£m
Net
£m
Gross
£m
Provision
£m
Not past due and not impaired 611 – 611 919 – 919
Up to 180 days overdue and not impaired 266 – 266 153 – 153
Up to 180 days overdue and impaired – – – 1 (1) –
Past 180 days overdue and not impaired 58 – 58 66 – 66
Past 180 days overdue and impaired 28 (28) – 26 (26) –
963 (28) 935 1,165 (27) 1,138
Movements on the provision for bad debts are as follows:
At 1 January 27 31
Created 15 14
Utilised (4) (2)
Released (11) (16)
Foreign exchange adjustments 1 –
At 31 December 28 27
2014
£m
Net
£m
2013
£m
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
BAE Systems
Annual Report 2014
151