Notes to the financial statements
31 Financial instruments
An explanation of the Group’s financial instrument risk management objectives, policies and strategies are set out in the discussion of Treasury policies in Note 30.
Consolidated
Interest rate maturity profile of financial assets and liabilities
The following table sets out the carrying amount, by maturity of the Group’s financial assets and liabilities that are exposed to interest rate risk. No other financial assets and liabilities, other than those shown below, are exposed directly to interest rate risk.
|
< 1 year £m |
>1 <2 years £m |
>2 <3 years £m |
>3 <4 years £m |
>4 <5 years £m |
> 5 years £m |
Total £m |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
At 31 March 2014 |
|||||||||||||
|
Fixed rate |
|||||||||||||
|
Loan notes* |
(25.3) |
– |
(83.8) |
(11.6) |
(15.0) |
(33.8) |
(169.5) |
||||||
|
Finance leases |
(1.8) |
– |
– |
– |
– |
– |
(1.8) |
||||||
|
Forward currency contracts |
0.4 |
– |
– |
– |
– |
– |
0.4 |
||||||
|
Deferred consideration |
– |
1.4 |
– |
– |
– |
– |
1.4 |
||||||
|
Cross currency swaps |
(2.0) |
– |
5.4 |
(0.3) |
(1.4) |
(4.5) |
(2.8) |
||||||
|
Floating rate |
|||||||||||||
|
Bank loans |
– |
– |
(36.0) |
– |
– |
– |
(36.0) |
||||||
|
Option to sell 20% holding in WCL |
– |
– |
– |
– |
1.6 |
– |
1.6 |
||||||
|
Cash at bank and in hand |
67.3 |
– |
– |
– |
– |
– |
67.3 |
||||||
|
At 31 March 2013 |
|||||||||||||
|
Fixed rate |
|||||||||||||
|
Loan notes* |
(165.7) |
(26.0) |
– |
(91.0) |
(11.8) |
(53.6) |
(348.1) |
||||||
|
Finance leases |
(2.4) |
(3.1) |
– |
– |
– |
– |
(5.5) |
||||||
|
Forward currency contracts |
(0.1) |
– |
– |
– |
– |
– |
(0.1) |
||||||
|
Deferred consideration |
– |
– |
1.4 |
– |
– |
– |
1.4 |
||||||
|
Cross currency swaps |
7.4 |
– |
– |
12.9 |
– |
(3.9) |
16.4 |
||||||
|
Floating rate |
|||||||||||||
|
Option to sell 20% holding in WCL |
– |
– |
– |
– |
– |
1.6 |
1.6 |
||||||
|
Cash at bank and in hand |
276.1 |
– |
– |
– |
– |
– |
276.1 |
* Classified as fixed rate after taking into account the effect of interest rate swaps.
Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
Interest rate risk
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax through the impact on floating rate borrowings. There is no material impact on the Group’s equity resulting from movements in interest rates other than in relation to the $US/GBP and EUR/GBP cross-currency swaps used as a cash flow hedge on $US and EUR loan notes. The impact on equity is nil over the life of the instruments as these swaps comprise an effective hedge. At 31 March 2014 83% of Group borrowings were at fixed rates of interest (2013: 100%) (see Note 30).
The sensitivity analysis excludes all non-derivative fixed rate financial instruments carried at amortised cost but includes non-derivative floating rate financial instruments except those where interest rate swaps have been used as cash flow hedges. This is due to the fact that gains and losses on the hedging instrument offset losses and gains on the non-derivative floating rate financial instrument which are subject to the hedge and are matched in both profit and loss and cash terms. No non-derivative fixed rate financial instruments have profit and loss exposure due to floating rates as a result of interest rate swaps.
The 2014 analysis below reflects lower reasonably possible changes in interest rates to 2013 – upside LIBOR expectations assumed last year were not realised and the assumption is that base rates will increase less than anticipated at March 2013.
|
Increase/ decrease in basis points |
Effect on profit before tax £m |
Effect on equity £m |
||||
|---|---|---|---|---|---|---|
|
2014 |
||||||
|
Sterling |
+ 100 |
0.4 |
– |
|||
|
Sterling |
- 50 |
(0.2) |
– |
|||
|
2013 |
||||||
|
Sterling |
+ 50 |
– |
– |
|||
|
Dollar |
+ 50 |
– |
– |
|||
|
Sterling |
- 50 |
– |
– |
|||
|
Dollar |
- 50 |
– |
– |
Equity price risk
The Group holds no listed equity investments and is not subject to equity price risk other than through the pension scheme (Note 20).
Credit risk
There are no significant concentrations of credit risk within the Group unless otherwise disclosed. The maximum credit risk exposure relating to financial assets is represented by carrying value as at the balance sheet date (see Note 30).
Liquidity risk
The Group’s policy on managing its liquidity risk is set out in Note 30. The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2014 and 2013 based on contractual undiscounted payments of interest and principal.
|
< 1 year £m |
>1 <2 years £m |
>2 <3 years £m |
>3 <4 years £m |
>4 <5 years £m |
> 5 years £m |
Total £m |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
At 31 March 2014 |
|||||||||||||
|
Loan Notes |
(32.6) |
(7.3) |
(86.2) |
(13.4) |
(16.7) |
(37.3) |
(193.5) |
||||||
|
Cross-currency swaps (on loan notes): |
|||||||||||||
|
payment leg |
(33.3) |
(6.5) |
(73.0) |
(11.4) |
(18.1) |
(40.4) |
(182.7) |
||||||
|
receipt leg |
31.9 |
6.6 |
76.1 |
10.6 |
16.7 |
37.3 |
179.2 |
||||||
|
Bank loans |
– |
– |
(36.0) |
– |
– |
– |
(36.0) |
||||||
|
Finance leases |
(1.8) |
– |
– |
– |
– |
– |
(1.8) |
||||||
|
At 31 March 2013 |
|||||||||||||
|
Loan Notes |
(174.7) |
(33.8) |
(7.9) |
(93.6) |
(13.8) |
(59.4) |
(383.2) |
||||||
|
Cross-currency swaps (on loan notes): |
– |
||||||||||||
|
payment leg |
(106.6) |
(33.3) |
(6.0) |
(72.6) |
(2.3) |
(60.5) |
(281.3) |
||||||
|
receipt leg |
114.2 |
32.7 |
6.7 |
83.0 |
2.0 |
59.4 |
298.0 |
||||||
|
Finance leases |
(2.5) |
(3.2) |
– |
– |
– |
– |
(5.7) |
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments that are carried in the financial statements.
Fair values
|
Carrying amount |
Fair value |
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2014 £m |
|
2013 £m |
2014 £m |
|
2013 £m |
||
|
Financial assets |
||||||||
|
Current |
||||||||
|
Cash and cash equivalents (Note 18) |
67.3 |
276.1 |
67.3 |
276.1 |
||||
|
Forward currency contracts (Note 17) |
0.4 |
– |
0.4 |
– |
||||
|
Cross currency swaps (Note 17) |
– |
9.6 |
– |
9.6 |
||||
|
Non-current |
||||||||
|
Deferred consideration |
1.4 |
1.4 |
1.4 |
1.4 |
||||
|
Wexford Creamery Limited option (Note 17) |
1.6 |
1.6 |
1.6 |
1.6 |
||||
|
Cross currency swaps (Note 17) |
5.4 |
12.9 |
5.4 |
12.9 |
||||
|
Financial liabilities |
||||||||
|
Current |
||||||||
|
Current obligations under finance leases (Note 19) |
(1.8) |
(2.4) |
(1.8) |
(2.4) |
||||
|
Loan notes (Note 19) |
(25.3) |
(165.7) |
(25.3) |
(165.7) |
||||
|
Forward currency contracts (Note 19) |
– |
(0.1) |
– |
(0.1) |
||||
|
Cross currency swaps (Note 19) |
(2.0) |
(2.2) |
(2.0) |
(2.2) |
||||
|
Non-current |
||||||||
|
Non-current obligations under finance leases (Note 19) |
– |
(3.1) |
– |
(3.1) |
||||
|
Non-current instalments due on bank loans (Note 19) |
(36.0) |
– |
(36.0) |
– |
||||
|
Loan notes (Note 19) |
(144.2) |
(182.4) |
(142.9) |
(189.5) |
||||
|
Cross currency swaps (Note 19) |
(6.2) |
(3.9) |
(6.2) |
(3.9) |
||||
Cross currency swaps
The notional principal amount of the outstanding USD/GBP cross currency swap contracts at 31 March 2014 was $204.4 million (£122.4 million) (2013: $308.7 million, £181.9 million). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow hedges and meet the criteria for hedge accounting. At 31 March 2014 the fixed interest rates varied from 3.863% to 5.305% (2013: 3.863% to 5.315%). Any gains/losses arising from fair value adjustments deferred in equity will reverse in the income statement (finance costs) during the next one to eight years (being the life of the swaps).
The notional principal amount of the outstanding EUR/GBP cross currency swap contracts at 31 March 2014 was €41.3 million (£36.5 million) (2013: €75.0 million; £67.0 million). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow hedges and meet the criteria for hedge accounting. At 31 March 2014 the fixed interest rates varied from 4.955% to 5.600% (2013: 4.955% to 5.180%). The loss deferred in equity will reverse in the income statement (finance costs) during the next year (being the life of the swaps).
Forward currency contracts
The Group has entered into certain forward currency contracts in order to hedge the Sterling cost of currency-denominated future purchases and receipts. These forward currency purchases have been designated cash flow hedges and meet the criteria for hedge accounting. They all have a duration of less than one year and any gains or losses deferred will then be reclassified to the income statement (operating costs).
Borrowing facilities
The Group has undrawn committed long-term borrowing facilities available at 31 March 2014 of £208 million (2013: £297 million) in respect of which all conditions precedent had been met at that date. In April 2013, £51 million of the facilities were cancelled. Undrawn facilities expire in October 2016.
Company
Interest rate maturity profile of financial assets and liabilities
The following table sets out the carrying amount, by maturity of the Company’s financial assets and liabilities that are exposed to interest rate risk. No other financial assets and liabilities, other than those shown below, are exposed directly to interest rate risk.
|
At 31 March 2014 |
< 1 year £m |
>1 <2 years £m |
>2 <3 years £m |
>3 <4 years £m |
>4 <5 years £m |
> 5 years £m |
Total £m |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fixed rate |
|||||||||||||
|
Loan notes* |
(25.3) |
– |
(83.8) |
(11.6) |
(15.0) |
(33.8) |
(169.5) |
||||||
|
Intercompany receivables |
168.8 |
– |
– |
– |
– |
– |
168.8 |
||||||
|
Cross currency swaps |
(2.0) |
– |
5.4 |
(0.3) |
(1.4) |
(4.5) |
(2.8) |
||||||
|
Floating rate |
|||||||||||||
|
Intercompany payables |
(159.0) |
– |
– |
– |
– |
– |
(159.0) |
||||||
|
At 31 March 2013 |
|||||||||||||
|
Fixed rate |
|||||||||||||
|
Loan notes* |
(165.7) |
(26.0) |
– |
(91.0) |
(11.8) |
(53.6) |
(348.1) |
||||||
|
Intercompany receivables |
218.7 |
– |
– |
– |
– |
– |
218.7 |
||||||
|
Cross currency swaps |
7.4 |
– |
– |
12.9 |
– |
(3.9) |
16.4 |
||||||
|
Floating rate |
|||||||||||||
|
Cash at bank and in hand |
14.8 |
– |
– |
– |
– |
– |
14.8 |
||||||
|
Intercompany payables |
(49.4) |
– |
– |
– |
– |
– |
(49.4) |
* These have been classified as fixed rate after taking into account the effect of interest rate swaps.
Interest rate risk
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s profit before tax through the impact on floating rate borrowings. There is no impact on the Company’s equity resulting from movements in interest rates other than in relation to the $US/GBP and EUR/GBP cross-currency swaps used as a cash flow hedge on $US and EUR loan notes. The impact on equity is nil over the life of the instruments as these swaps comprise an effective hedge.
The sensitivity analysis excludes all non-derivative fixed rate financial instruments carried at amortised cost but includes non-derivative floating rate financial instruments except those where interest rate swaps have been used as cash flow hedges. This is due to the fact that gains and losses on the hedging instrument offset losses and gains on the non-derivative floating rate financial instrument which are subject to the hedge are matched in both profit and loss and cash terms. No non-derivative fixed rate financial instruments have profit and loss exposure due to floating rates as a result of interest rate swaps.
The 2014 analysis below reflects lower reasonably possible changes in interest rates to 2013 – upside LIBOR expectations assumed last year were not realised and the assumption is that base rates will increase less than anticipated at March 2013.
|
|
Increases/ decrease in basis points |
Effect on profit before tax £m |
Effect on equity £m |
|||
|---|---|---|---|---|---|---|
|
2014 |
||||||
|
Sterling |
+ 100 |
– |
– |
|||
|
Sterling |
- 50 |
– |
– |
|||
|
2013 |
||||||
|
Sterling |
+ 50 |
– |
– |
|||
|
Dollar |
+ 50 |
– |
– |
|||
|
Sterling |
- 50 |
– |
– |
|||
|
Dollar |
- 50 |
– |
– |
Equity price risk
The Company holds no listed equity investments and is not subject to equity price risk.
Credit risk
The maximum exposure to credit risk is the carrying amount of financial assets.
Liquidity risk
The Company’s policy on managing its liquidity risk is set out in Note 30. The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2014 and 2013 based on contractual undiscounted payments of interest and principal.
|
At 31 March 2014 |
< 1 year £m |
>1 <2 years £m |
>2 <3 years £m |
>3 <4 years £m |
>4 <5 years £m |
> 5 years £m |
Total £m |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Loan Notes |
(32.6) |
(7.3) |
(86.2) |
(13.4) |
(16.7) |
(37.3) |
(193.5) |
||||||
|
Cross-currency swaps (on loan notes): |
|||||||||||||
|
payment leg |
(33.3) |
(6.5) |
(73.0) |
(11.4) |
(18.1) |
(40.4) |
(182.7) |
||||||
|
receipt leg |
31.9 |
6.6 |
76.1 |
10.6 |
16.7 |
37.3 |
179.2 |
||||||
|
At 31 March 2013 |
|||||||||||||
|
Loan Notes |
(174.7) |
(33.8) |
(7.9) |
(93.6) |
(13.8) |
(59.4) |
(383.2) |
||||||
|
Cross-currency swaps (on loan notes): |
|||||||||||||
|
payment leg |
(106.6) |
(33.3) |
(6.0) |
(72.6) |
(2.3) |
(60.5) |
(281.3) |
||||||
|
receipt leg |
114.2 |
32.7 |
6.7 |
83.0 |
2.0 |
59.4 |
298.0 |
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts and fair values of all of the Company’s financial instruments that are carried in the financial statements.
|
Carrying amount |
Fair value |
|||||||
|---|---|---|---|---|---|---|---|---|
|
2014 £m |
2013 £m |
2014 £m |
2013 £m |
|||||
|
Financial assets |
||||||||
|
Current |
||||||||
|
Cash and cash equivalents (Note 18) |
– |
14.8 |
– |
14.8 |
||||
|
Other receivables (Note 16) |
9.9 |
169.3 |
9.9 |
169.3 |
||||
|
External cross currency swaps (Note 17) |
– |
9.6 |
– |
9.6 |
||||
|
Non-current |
||||||||
|
External cross currency swaps (Note 17) |
5.4 |
12.9 |
5.4 |
12.9 |
||||
|
Financial liabilities |
||||||||
|
Current |
||||||||
|
Loan notes (Note 19) |
(25.3) |
(165.7) |
(25.3) |
(165.7) |
||||
|
External cross currency swaps (Note 19) |
(2.0) |
(2.2) |
(2.0) |
(2.2) |
||||
|
Non-current |
||||||||
|
Loan notes (Note 19) |
(144.2) |
(182.4) |
(142.0) |
(189.5) |
||||
|
External cross currency swaps (Note 19) |
(6.2) |
(3.9) |
(6.2) |
(3.9) |
||||
|
No other financial assets and liabilities are exposed directly to interest rate risk. |
||||||||
Other receivables comprise the net of all intercompany balances with Dairy Crest Limited. All intercompany balances are repayable on demand and are subject to interest based on LIBOR plus a margin with the exception of one intercompany receivable from Dairy Crest Limited of £171.7 million (2013: £277.1 million) on which interest is receivable at 5.0% % (2013: 5.0%).
Cross currency swaps
External
The notional principal amount of the outstanding USD/GBP cross currency swap contracts at 31 March 2014 was $204.4 million (£122.4 million) (2013: $308.7 million, £181.9 million). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow hedges and meet the criteria for hedge accounting. At 31 March 2014 the fixed interest rates varied from 3.863% to 5.305% (2013: 3.863% to 5.315%). Any gains/losses arising from fair value adjustments deferred in equity will reverse in the income statement (finance costs) during the next one to eight years (being the life of the swaps).
The notional principal amount of the outstanding EUR/GBP cross currency swap contracts at 31 March 2014 was €41.3 million (£36.5 million) (2013: €75.0 million; £67.0 million). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow hedges and meet the criteria for hedge accounting. At 31 March 2014 the fixed interest rate varied from 4.955% to 5.600% (2013:4.955% to 5.180%). The loss deferred in equity will reverse in the income statement (finance costs) during the next year (being the life of the swaps).
Borrowing facilities
The Company has undrawn committed long-term borrowing facilities available at 31 March 2014 of £208 million (2013: £297 million) in respect of which all conditions precedent had been met at that date. These undrawn facilities expire in October 2016.