Annual Report & Accounts 2013 - Pinewood Studios

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88 Pinewood Shepperton plcAnnual Report & Accounts 2013Notes to the consolidated financial statements continued28. Related party disclosures continuedAudit exemptionPinewood Shepperton plc has given statutory guarantees against all the outstanding liabilities of the below listed whollyownedsubsidiaries at 31 March 2013 under Section 479C of the Companies Act 2006, thereby allowing these subsidiariesto be exempt from the annual audit requirement for the year ended 31 March 2013.Although the Company does not anticipate the guarantees to be called upon, the book values of the guaranteed liabilities,excluding intercompany balances, for each relevant subsidiary at 31 March 2013 are set out below. At 31 March 2012,no such guarantees were in place.Book valueof liabilitiesCompany nameCompanyRegistrationNumber31 March2013£’000Pinewood Shepperton Facilities Limited 07527390 –Baltray No.1 Limited 05776674 342Baltray No.2 Limited 05778635 –Shepperton Management Limited 05907027 43Pinewood PSB Limited(previously Project Pinewood Property Limited) 06300755 485Saul’s Farm Limited 06233879 –Pinewood Malaysia Limited 07074446 152Pinewood Germany Limited 07079399 –Pinewood Dominican Republic Limited 07096246 26Pinewood Films Limited 07660856 2629. Financial risk management, objectives and policiesThe Group’s principal financial liabilities, other than derivatives, comprise loans and borrowings, chattel mortgages,finance leases and trade and other payables. The main purpose of these financial liabilities is to provide finance for theGroup’s operations. The Group has financial assets such as trade and other receivables and cash that arise directly fromits operations.The Group is exposed to market risk, credit risk and liquidity risk. The Board of Directors oversee the management ofthese risks and are supported by the appropriate members of the Executive Management Team together with specialistadvisors as required. All derivative activities for risk management purposes are carried out with specialists involved whohave the appropriate skills and experience. It is the Group’s policy that no trading in derivatives for speculative purposesshall be undertaken.The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.Market riskMarket risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changesin market prices. Market prices comprise three types of risk: interest rate risk, currency risk and other price risk, suchas equity risk. The Group’s financial instruments affected by market risk include loans and borrowings and derivativefinancial instruments.
Pinewood Shepperton plc 89Annual Report & Accounts 2013Notes to the consolidated financial statements continued29. Financial risk management, objectives and policies continuedInterest rate riskInterest rate risk is the risk that the fair value or future values of a financial instrument will fluctuate because of changesin market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to theGroup’s long-term debt obligations with floating interest rates. In order to manage its interest rate risk the Group’s policyis to have 50% (31 March 2012: 50%) of its borrowings at fixed rates of interest. To manage this, the Group entersinto interest rate swaps, in which the Group agrees to exchange, at specific intervals, the difference between fixedand variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swapsare designated to hedge debt obligations and are monitored to ensure continued effectiveness.At 31 March 2013, the Group had the following interest rate swaps in place to minimise the volatility in cash flowsfrom a change in LIBOR:Effective interest rate %MaturityYearended31 March2013£00015 monthsended31 March2012£000Cash flow hedge 2.89% + variable margin 28 May 2012 – 1,700Cash flow hedge 5.195% + variable margin 28 May 2012 – 3,400Cash flow hedge 2.89% + variable margin 1 July 2013 – 5,800Cash flow hedge 5.195% + variable margin 1 July 2013 – 11,600Cash flow hedge 2.27% + variable margin 1 July 2013 7,500 –Cash flow hedge 1.66% + variable margin 28 November 2016 15,000 –22,500 22,500The interest rate swaps held are determined to be effective hedges and the interest swap finance costs are charged to theGroup income statement when they are payable. These are payable on a quarterly basis in March, June, September andDecember. The change in the fair value is recognised in Other Comprehensive Income.At 31 March 2013, £30,460,000 of the Group’s revolving facility and overdraft facility (31 March 2012: £37,000,000including pre-let development facility) and £12,002,000 (31 March 2012: £12,002,000) of the joint venture loan had beendrawn (Note 23). £19,502,000 (31 March 2012: £26,502,000) of drawn facility is at a floating interest rate of LIBOR plusa margin, or UK Bank base rate plus a margin, and is therefore subject to market risk through interest rate fluctuations.The remaining drawn loan of £22,500,000 (31 March 2012: £22,500,000) has been converted to a fixed rate with interestrate swaps.The Group has entered asset financing facilities over a fixed term with fixed monthly payments and which are securedover identifiable assets of an equal value. These assets are classified as ‘Fixtures, fittings and equipment’ within ‘Property,plant and equipment’ on the statement of financial position. At 31 March 2013, the balance payable was £2,592,000(31 March 2012: £1,313,000).Taking into consideration the fixed rate instruments in place, a one percentage point increase in LIBOR would increasethe interest charge, and reduce the Group profit before taxation, by £195,000 (31 March 2012: £265,000).At 31 March 2013, after taking into account the effect of interest rate swaps and the asset finance facility, approximately56% (31 March 2012: 48%) of the Group’s borrowings are at a fixed rate of interest.Following the renewal of its banking facilities the Company is reviewing appropriate hedging in line with its hedging policy.
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Annual Report & Accounts 2013 - Pinewood Studios

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