66 Finsbury Food Group Annual Report & Accounts 2017


21. Financial Risk Management


The main purpose of the Group’s financial instruments is to finance the Group’s operations. The financial instruments comprise of bank term loans, invoice discounting facility, hire purchase, finance leases, interest rate swaps, foreign currency forwards, cash and liquid resources and various items arising directly from its operations, such as trade receivables and trade payables, the main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Group’s policies on the management of liquidity, credit, interest rate and foreign currency risks are set out below and the main risks are also referred to in the Strategic Report on pages 14 to 15.


a) Fair Values of Financial Instruments All financial assets and liabilities are held at amortised cost apart from forward exchange contracts and interest rate swaps, which are held at fair value, with changes going through the Consolidated Statement of Profit and Loss. The Group has not disclosed the fair values for financial instruments such as short-term trade receivables and payables, because their carrying amounts are a reasonable approximation of fair values.


The fair values of forward exchange contracts and interest rate swaps are determined using a market comparison valuation technique. The fair values are based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments. The fair values relating to these instruments represent level 2 in the fair value hierarchy which relates to the extent the fair value can be determined by reference to comparable market values. The classifications range from level 1 where instruments are quoted on an active market through to level 3 where the assumptions used to arrive at fair value do not have comparable market data.


b) Liquidity The Group’s policy is to ensure that it has sufficient facilities to cover its future funding requirements. Short-term flexibility is available through the existing bank facilities and the netting off of surplus funds. The carrying amounts are the amounts due if settled at the period end date. The contractual undiscounted cash flows include estimated interest payments over the life of these facilities. The estimated interest payments are based on interest rates prevailing at the 1 July 2017.


Contractual cashflows including estimated interest At year ended 1 July 2017


Non-derivative financial liabilities Secured bank loans


Finance lease liabilities Invoice discounting Trade creditors


Carrying amount £000


Total £000


1 year or less £000


1 to 2 years £000


2 to 5 years £000


5 years and over £000


(8,683) (57)


(11,646) (36,663)


(57,049)


(9,162) (58)


(11,646) (36,663)


(57,529)


(3,110) (58)


(11,646) (36,663)


(51,477) At year ended 2 July 2016


Non-derivative financial liabilities Secured bank loans


Finance lease liabilities Invoice discounting Trade creditors


Derivative financial liabilities Interest rate swaps liabilities


Carrying amount £000


Total £000


1 year or less £000


(3,042) - - -


(3,042)


1 to 2 years £000


(2,390) - - -


(2,390) Contractual cashflows including estimated interest


2 to 5 years £000


5 years and over £000


(620) - - -


(620)


(11,555) (190)


(10,824) (38,049)


(140) (60,758) The carrying amount relating to interest rate swaps is the fair value.


The information relating to the interest rate swaps shown in the tables above indicate the cash flows associated with these instruments. This also reflects the expected effect on the future profit. These amounts will change as interest rates change. Short-term flexibility is available through existing bank facilities and the netting off of surplus funds.


(12,401) (194)


(10,824) (38,049)


(108) (61,576)


(3,202) (136)


(10,824) (38,049)


(108) (52,319)


(3,128) (58) - -


- (3,186)


(5,063) - - -


- (5,063)


(1,008) - - -


- (1,008)


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