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4.4.3.3
Commodity risk
The commodity inputs to the Group’s production process typically consist
of base metals. Commodity risk for the Group is the risk that the prices of
these inputs could rise, thus reducing Group profits.
a) Overview
Including the discontinued businesses, the Group’s operating companies
purchase metal and metal components with an annual base metal material
value of approximately £31m (2013: £35m).
b) Management of commodity risk
The Group manages this exposure through a centralised process hedging
copper, zinc and aluminium using a combination of financial contracts and local
supply agreements designed to minimise the volatility of short-term margins.
4.4.3.4
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as they fall due.
a) Management of liquidity risk
The Group’s approach to managing liquidity is to ensure, as far as possible,
that it will always have adequate resources to meet its liabilities when they
fall due, with sufficient headroom to cope with abnormal market conditions.
This position is reviewed on a quarterly basis.
Funding for the Group is co-ordinated centrally by the treasury function and
comprises committed bilateral facilities with a core group of banks, and a series
of US loan note issues. The level of facilities is maintained such that facilities
and term loans exceed the forecast peak gross debt of the Group over a rolling
12 month view by an appropriate amount taking into account market conditions
and corporate activity, including acquisitions, organic growth plans and share
buybacks. In addition, we undertake rigorous and regular covenant compliance
reviews to ensure that we remain fully within those covenant limits. At the end
of 2014 the Group had undrawn committed facilities totalling £272m (2013:
£215m) and was holding cash and cash equivalents of £44m (2013: £100m).
There are no significant seasonal funding requirements or capital intensive
investment areas for the Group.
4.4.4
Capital management
Capital management concerns the decision as to how the Group’s activities
are financed and specifically, how much of the Group capital is provided by
borrowings (or debt) and how much of it is financed with equity raised from
the issue of share capital.
The Board’s policy is to maintain a balance sheet with a broad capital
base and the strength to sustain the future development of the business
including acquisitions. This section discusses how the Board views the
capital base of the Group and the impact on leverage, distribution policy
and investment policy.
b) Interest rate risk profile
The following table shows how much of our cash, interest-bearing liabilities and exchange contracts attract both fixed and floating rate interest charges,
and how this is analysed between currencies:
Weighted
Debt and Cash and
Weighted average
exchange exchange
Floating
Fixed average
period
contracts contracts
rate
rate
fixed for which
2014
2014
2014
2014 interest rate rate is fixed
£m
£m
£m
£m
% years
Sterling
-
343
343
-
US Dollar
(218)
106
106
(218)
6.8
3.4
Euro
(303)
6
(297)
-
Other
(172)
38
(134)
-
Total
(693)
493
18
(218)
Weighted
Debt and Cash and
Weighted
average
exchange exchange
Floating
Fixed
average
period
contracts
contracts
rate
rate
fixed for which
2013
2013
2013
2013 interest rate rate is fixed
£m
£m
£m
£m
% years
Sterling
(60)
515
455
-
US Dollar
(243)
3
(34)
(206)
6.8
4.4
Euro
(327)
16
(311)
-
Other
(164)
61
(103)
-
Total
(794)
595
7
(206)
