For the purposes of the disclosures that follow in this note, short-term debtors and creditors which arise directly from the Group’s operations have been excluded as permitted under FRS 13. The disclosures therefore, focus on those financial instruments which play a significant medium term role in the financial risk profile of the Group. Financial assets are separately disclosed in note 11.

 

A. Treasury management

The Group treasury function, as part of the Group finance function, operates as a centralised service which aims to ensure cost-efficient funding for the Group and to manage its financial risks. The main risks identified are interest rate, foreign exchange and liquidity risk. The activities of Group treasury are routinely reported to members of the Board and are subject to review by internal audit. Group treasury does not engage in speculative activity and undertakes its operations in a risk averse manner. The main financial instruments used to manage interest rate and foreign exchange risk arising from the Group’s operations are interest rate swaps and forward foreign exchange contracts and all derivatives are undertaken with appropriate counterparties.

 

B. Interest rate risk management

The interest rate risk profile of the Group’s financial liabilities as at 31 December was as follows:

All of the Group’s borrowings are in Euro. The amounts shown above take into account the effect of interest rate swaps used to manage interest rate exposures.

The Group seeks to have between 50% and 80% of its core debt fixed at all times however, under certain circumstances, as approved by the Board, it may fix a percentage outside of this band. At the end of 2009 56% of the Group’s debt was fixed (2008:61%).

Floating rate debt comprises bank borrowings bearing interest at rates fixed in advance for periods ranging from overnight to less than one year largely by reference to inter-bank interest rates (EURIBOR). The Group minimises cash balances.

This strategy ensures that a 1% increase in interest rates would cost the Group €788,000 (2008: €636,000) in additional interest charges per annum.

 

The maturity profiles of debt as at 31 December 2008 and 2009 are as follows:

The maturity profile is determined by reference to the earliest date on which payment can be required or on which the liability falls due.

The group had undrawn facilities of €18.8m (2008: €36.0m) as at 31 December 2009.

 

Fair value is the amount at which a financial instrument could be exchanged in an arms length transaction between informed and willing parties, other than in a forced or liquidation sale. The following table provides a comparison of the carrying amounts (book value) and fair value amounts of the Group’s financial assets and liabilities.

The fair value of fixed rate debt is estimated by discounting the future cash flows to net present values using market rates prevailing at the year end.

At 31 December 2009, the Group had entered into Euro / Stg£ foreign exchange contracts for the sale of the total principal amount of Stg £20.4 million at the rate of 0.89. There was a loss of €65,000 on sterling forward contracts marked to market at 31 December 2009.

At 31 December 2009, the Group had Euro / Stg £ foreign exchange options and collars for the sale of the total principal amount of Stg £8.3 million at the rate of 0.92. There was a loss of €21,000 on these instruments as at 31 December 2009.

 

The Group enters into forward interest rate swaps and foreign currency contracts to manage exposures that arise on interest rates and revenue and costs denominated in foreign currencies. Changes in the fair value of instruments used as hedges are not recognised in the financial statements until the hedged position matures.
An analysis of these unrecognised gains and losses is as follows:

• 18. Creditors 
• Notes to the Financial Statements
• 20. Provisions for liabilities and charges