The Group’s operations expose it to a variety of financial risks that include credit risk, liquidity risk, foreign currency risk and interest rate risk.
The Group operates a central treasury function, headed by the Chief Financial Officer, which is responsible for all debt and liquidity management, foreign exchange and interest rate management. The Group does not undertake speculative financial transactions or utilise off balance sheet financing vehicles.
The Group regularly monitors the credit status of its customers both new and existing. It also applies, in accordance with Group internal control policies, appropriate credit limits to each customer to ensure that exposure to any particular customer is not excessive.
The Group actively maintains a mixture of long term and short term debt finance that is designed to ensure the Group has sufficient funds available to fund both its operations and organic growth. The Group’s day to day funding is accommodated through its facilities with its bankers, NatWest Bank PLC. The Group’s bankers have also provided long term secured debt finance.
Foreign currency risk
The Group has exposure to foreign currency risk from both translational and transactional movements. Exposure to translational risk comes from the conversion of the Group’s US and German subsidiaries’ results into sterling. To offset the potential currency exposure the Group principally borrows in US Dollars. Investments in US subsidiaries have been traditionally part financed with US Dollar borrowings. While each foreign acquisition is viewed on a stand-alone basis from a funding perspective the Group endeavours to hedge the currency risk associated with its overseas investments by funding the investments in local currencies. Exposure to transactional risk comes from the majority of the Group’s UK derived revenue being denominated in US Dollars. To offset this foreign currency exposure the Group seeks to contract with its significant suppliers in US Dollars wherever possible.
The Company enters into contracts to sell US Dollars at specific points in the future in order to hedge the volatility in the exchange rate.
Interest rate risk
The Group has both interest bearing assets and interest bearing liabilities. Interest bearing assets comprise cash deposits, all of which earn interest at variable rates. Interest bearing liabilities comprise the Group’s Working Capital and Acquisition Facilities, and some lease financing. The Group has a policy of using the most commercially suitable financing options and exercises control over future interest payments by entering into interest rate hedges when considered appropriate. Factors that would be considered are the prevailing interest rates and the level of debt in the business.