115
Annual Report and Accounts 2014
4.4.2.4
Impairment provisions for trade receivables
The ageing of trade receivables at the reporting date was:
2014
2013
Gross Impairment
Gross Impairment
£m
£m
£m
£m
Not past due
273.1
(0.5)
251.4
(0.2)
Past due 1-30 days
26.8
(0.6)
24.5
(0.1)
Past due 31-90 days
13.8
(0.6)
12.6
(0.1)
Past due over 90 days
11.4
(5.4)
13.1
(7.7)
Total
325.1
(7.1)
301.6
(8.1)
The net movement in the allowance for impairment in respect of trade
receivables during the year was as follows:
2014
2013
£m
£m
Net balance at 1 January
8.1
11.4
Utilised during the year
(1.5)
(1.5)
Charged to the income statement
2.3
2.4
Released
(1.1)
(3.3)
Transfer to assets held for sale
-
(1.1)
Exchange
(0.7)
0.2
Net balance at 31 December
7.1
8.1
The net impairment charge recognised of £1.2m (2013: gain of £0.9m) relates
to the movement in the Group’s assessment of the risk of non-recovery from
a range of customers across all of its businesses.
4.4.2.5
Managing credit risk arising
from counterparties
A group of relationship banks provides the bulk of the banking services,
with pre-approved credit limits set for each institution. Financial derivatives
are entered into with these core banks and the underlying credit exposure
to these instruments is included when considering the credit exposure to
the counterparties. At the end of 2014 credit exposure including cash
deposited did not exceed £7.5m with any single institution (2013: £13.0m).
4.4.3
Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and commodity prices will affect the Group’s
income and cash flows or the value of its financial instruments. The objective
of market risk management is to manage and control market risk exposures
within acceptable parameters.
Under the management of the central treasury function, the Group enters
into derivatives in the ordinary course of business and also manages financial
liabilities in order to mitigate market risks. All such transactions are carried
out within the guidelines set by the Board and are undertaken only if they
relate to underlying exposures.
4.4.3.1
Foreign exchange risk
The Group publishes consolidated accounts in Sterling but conducts much
of its global business in other currencies. As a result it is subject to the risks
associated with foreign exchange movements affecting transaction costs
(‘transactional risk’), translation of foreign profits (‘profit translation risk’)
and translation of the underlying net assets of foreign operations
(‘asset translation risk’).
a) Management of transactional risk
The Group’s wide geographical spread both in terms of cost base and customer
locations helps to reduce the impact on profitability of swings in exchange
rates as well as creating opportunities for central netting of exposures. It is the
Group’s policy to minimise risk to exchange rate movements affecting sales and
purchases by economically hedging or netting currency exposures at the time
of commitment, or when there is a high probability of future commitment, using
currency instruments (primarily forward exchange contracts). A proportion of
forecast exposures are hedged depending on the level of confidence and hedging
is topped up following regular reviews. On this basis up to 50% of the Group’s
annual exposures are likely to be hedged at any point in time and the Group’s
net transactional exposure to different currencies varies from time to time.
As discussed in the commentary on the consolidated statement of
comprehensive income the Group used a deal-contingent forward to hedge
the foreign exchange exposure on the US denominated proceeds for the
Retail Dispense businesses resulting in a net pre-tax gain of £8.2m.
b) Management of profit translation risk
The Group is exposed to the translation of profits denominated in foreign
currencies into the Sterling-based income statement. The interest cost related
to the currency liabilities hedging the asset base provides a partial hedge to this
exposure. Short-term currency option contracts may be used to provide limited
protection against Sterling strength on an opportunistic basis. The translation
of US Dollar and Euro-based profits represent the most significant translation
exposures for the Group.
c) Management of asset translation risk
The Group hedges its net investments in its major overseas operations by way
of external currency loans and forward currency contracts. The intention is to
manage the Group’s exposure to gains and losses in Group equity resulting
from retranslation of currency net assets at balance sheet dates.
To the extent that an instrument used to hedge a net investment in a foreign
operation is determined to be an effective hedge, the gain or loss arising is
recognised directly in reserves. Any ineffective portion is recognised immediately
in the income statement.
