4.5 Financial instruments

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Damian Hunter
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1 Stock code: OCDO instruments Accounting policies assets and financial liabilities are recognised on the balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group classifies its financial instruments in the following categories: z Available-for-sale; z Loans and receivables; z Other financial amortised cost; and z assets and fair value through the profit or loss. The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determines the classification of its financial instruments at initial recognition or in certain circumstances on modification. Offsetting financial instruments assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Impairment of financial assets Assets carried at amortised cost The Group assesses whether there is objective evidence that a financial asset is impaired at the end of each reporting period. A financial asset is impaired and an impairment loss recognised if there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset and the loss event has an impact on the estimated future cash flows of the financial assets that can be reliably estimated. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include but are not limited to: z difficulty indicators; z Breach of contract such as missed payments; z Fraud; z Bankruptcy; and z Disappearance of an active market. The amount of the loss is measured as the difference between the asset s carrying value and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The asset s carrying value is reduced and the loss recognised in the income statement. If, in a subsequent period, the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the income statement. Available-for-sale financial assets Equity investments classified as available-for-sale and held at cost are reviewed annually to identify if an impairment loss has occurred. The amount of the impairment loss is measured as the difference between the carrying value of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses recognised in the income statement on equity investments are not reversed Fair value of financial instruments instruments carried at fair value in the balance sheet comprise the derivative assets and liabilities, see Note The Group uses the following hierarchy for determining and disclosing the fair value of these financial instruments: z Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) z Inputs other than quoted prices included within level 1 that are observable for the asset and liability, either directly or indirectly (level 2) z Inputs for the assets or liabilities that are not based on observable market data (that is unobservable inputs) (level 3) The Group s derivative assets and liabilities are classified as Level 2. to the consolidated financial statements overnance our financials our responsibilities about ocado Our performance

2 96 Ocado Group plc Annual report and accounts for the 52 weeks ended to the consolidated financial statements continued Fair value of financial instruments continued Set out below is a comparison by category of carrying values and fair values of all financial instruments that are included in the financial statements: value Fair value value Fair value assets Cash and cash equivalents ,102 92, , ,639 Short-term investment ,000 30,000 Trade receivables ,872 11,872 6,956 6,956 Other receivables (incl. accrued income, excl. prepayments) ,749 19,749 7,979 7,979 Derivative asset Available-for-sale financial asset Total financial assets 124, , , ,441 liabilities Trade payables (50,771) (50,771) (34,645) (34,645) Accruals (17,774) (17,774) (14,801) (14,801) Borrowings (49,063) (44,741) (12,056) (11,739) Finance lease obligations (62,204) (62,204) (62,058) (62,058) Derivative liability (318) (318) Total financial liabilities (180,130) (175,808) (123,560) (123,243) to the consolidated financial statements The derivative asset relates to forward foreign exchange contracts, the fair value of which was determined with reference to the forward rate to the date of maturity for all such contracts at period end. The derivative liability relates to forward foreign exchange contracts and interest rate swaps. The fair value of the forward foreign exchange contracts was determined with reference to the forward rate to the date of maturity for all outstanding forward foreign exchange contracts at period end. The fair value of the interest rate swaps was determined with reference to the fixed rate to the date of maturity for all outstanding interest rate swaps at period end. The Group s only available-for-sale financial asset consists of an unlisted equity investment of which the fair value cannot be reliably determined, and which is therefore measured at cost. There has been no movement in this investment during the period. The fair values of cash and cash equivalents, the short-term investment, receivables, payables and accruals and borrowings of a maturity of less than one financial period are assumed to approximate to their carrying values but for completeness are included in this analysis. The interest rate used to discount borrowings is based on a LIBOR plus margin measure blended for the type of security offered and was calculated as 5% (: 5%). The fair values of all other financial assets and liabilities have been calculated by discounting the expected future cash flows at prevailing market interest rates Credit risk The Group s exposures to credit risk arise from holdings of cash and cash equivalents, a short-term investment, trade and other receivables (excluding prepayments) and derivative assets. Exposure to credit risk The carrying value of these financial assets, as set out in Note 4.5.1, represents the maximum credit exposure. No collateral is held as security against these assets. Cash and cash equivalents and short-term investment The Group s exposure to credit risk on cash and cash equivalents and the short-term investment is managed by investing in banks and financial institutions with strong credit ratings and by regular review of counterparty risk in light of the current economic climate. The Group s guideline is to maintain transactional bank accounts and term deposits with financial institutions which carry a Moody s rating of Aa3/P1 for long-term and short-term deposits.

3 Stock code: OCDO Credit risk continued Trade and other receivables Trade and other receivables at the period end comprise mainly monies due from suppliers, which are considered of a good credit quality. The Group provides for doubtful receivables in respect of monies due from suppliers. The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity and the Group s effective controls over this area. The Group has provided for doubtful receivables in respect of consumer sales by reviewing the ageing profile and, based on prior experience, assessing the recoverability of overdue balances. Movements in the provision for the impairment of trade and other receivables are as follows: At the beginning of the period (234) (189) Increase in provision for impairment of receivables (251) (304) Uncollectible amounts written off Recovery of amounts previously provided 42 At the end of the period (270) (234) Liquidity risk To manage the working capital needs of the business, the Group is reliant on being able to negotiate sufficient financing arrangements. To achieve this, the Group maintains a mixture of short and medium-term debt and lease finance arrangements that are designed to ensure it has sufficient available funds to finance its operations. During the period the Group cancelled its committed standby bank overdraft facility of 5 million and replaced it with a Group composite account facility with the requirement that the aggregate of favourable cash balances offset adverse cash balances, with a limit of 5 million adverse balance on any one account within the Group. The Group monitors its liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. For further details see Note 4.8. The table below analyses the Group s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the carrying values and undiscounted contractual cash flows. value Contractual cash flows 1 year or less More than 5 liabilities Trade payables (34,645) (34,645) (34,645) Accruals (14,801) (14,801) (14,801) Secured loans (11,919) (12,891) (2,580) (4,033) (6,278) Unsecured loans (137) (141) (141) Obligations under finance leases (62,058) (72,668) (20,087) (18,576) (24,546) (9,459) (123,560) (135,146) (72,254) (22,609) (30,824) (9,459) to the consolidated financial statements overnance our financials our responsibilities about ocado Our performance

4 98 Ocado Group plc Annual report and accounts for the 52 weeks ended to the consolidated financial statements continued Liquidity risk continued value Contractual cash flows 1 year or less More than 5 liabilities Trade payables (50,771) (50,771) (50,771) Accruals (17,774) (17,774) (17,774) Secured loans (49,063) (54,825) (5,999) (5,764) (43,062) Obligations under finance leases (62,204) (71,229) (23,072) (20,217) (20,019) (7,921) Derivative liabilities (318) (318) (315) (3) (179,812) (190,322) (95,653) (24,023) (62,725) (7,921) Market risk Currency risk The Group has foreign currency exposure in relation to its foreign currency trade payables and a portion of its cash and cash equivalents. Foreign currency trade payables arise principally on purchases of plant and equipment. Euro bank accounts are maintained in order to minimise the Group s exposure to fluctuations in the euro relating to current and future purchases of plant and equipment. Forward foreign exchange contracts are entered into to hedge future purchases of plant and equipment in Euro. The Group s exposure to currency risk is based on the following amounts: Cash and cash equivalents Euro 507 5,318 Trade payables at period end Euro (768) (1,254) Derivative (liability)/asset (forward foreign exchange contracts) Euro (255) 472 (516) 4,536 The table below shows the Group s sensitivity to changes in foreign exchange rates on its Euro-related financial instruments: to the consolidated financial statements Increase/ Increase/ Increase/ Increase/ (decrease) in (decrease) in (decrease) in (decrease) in income equity income equity 10% appreciation of the euro 143 2, ,453 10% depreciation of the euro (130) (2,471) (734) (1,324) A strengthening of the euro, as indicated, against sterling at would have increased/(decreased) equity and profit or loss by the amounts detailed above. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the period. The analysis assumes that all other variables remain constant.

5 Stock code: OCDO Market risk continued Interest rate risk The Group is exposed to interest rate risk on its floating rate interest bearing borrowings and floating rate cash and cash equivalents. The Group s interest rate risk policy seeks to minimise finance charges and volatility by structuring the interest rate profile into a diversified portfolio of fixed rate and floating rate financial assets and liabilities. Interest rate risk on significant floating rate interest bearing borrowings is managed using interest rate swaps. At the balance sheet date the interest rate profile of the Group s interest bearing financial instruments was: Fixed rate instruments assets 41,737 79,628 liabilities (62,204) (62,195) Variable rate instruments assets 50,366 75,011 liabilities (49,063) (11,919) Sensitivity analysis An increase of 100 basis points (1.0%) in interest rates at the balance sheet date will increase equity and profit or loss by the amounts shown below. A rate of 100 basis points was deemed appropriate, considering the current short-term interest rate outlook. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. This analysis assumes that all other variables remain constant and considers the effect on financial instruments with variable interest rates. Equity Gain Income Gain to the consolidated financial statements overnance our financials our responsibilities about ocado Our performance

6 100 Ocado Group plc Annual report and accounts for the 52 weeks ended to the consolidated financial statements continued instruments by category The Group has categorised its financial instruments as follows: Availablefor-sale Loans and receivables amortised cost assets and fair value through profit and loss Total As at assets as per the balance sheet Cash and cash equivalents , ,639 Trade and other receivables (excluding prepayments) ,935 44,935 Available-for-sale financial asset Derivative asset , ,441 liabilities as per the balance sheet Trade payables ,645 34,645 Accruals ,801 14,801 Borrowings ,056 12,056 Obligations under finance leases ,058 62, , ,560 to the consolidated financial statements Availablefor-sale Loans and receivables amortised cost assets and fair value through profit and loss Total As at assets as per the balance sheet Cash and cash equivalents ,102 92,102 Trade and other receivables (excluding prepayments) ,621 31,621 Available-for-sale financial asset Derivative asset , ,129 liabilities as per the balance sheet Trade payables ,771 50,771 Accruals ,774 17,774 Borrowings ,063 49,063 Obligations under finance leases ,204 62,204 Derivative liability , ,130

Company Number: IMPERIAL BRANDS FINANCE PLC. Annual Report and Financial Statements 2017

Company Number: IMPERIAL BRANDS FINANCE PLC. Annual Report and Financial Statements 2017 Company Number: 03214426 IMPERIAL BRANDS FINANCE PLC Annual Report and Financial Statements 2017 Board of Directors J M Jones N J Keveth (resigned 31 March 2017) D I Resnekov O R Tant M A Wall (appointed