Notes to the Financial Statements continued for the year ended 31 May 2021
25 Financial instruments continued Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net cash/(debt) 1 divided by total capital. Net cash/(debt) 1 is calculated as total borrowings as shown in the Consolidated Balance Sheet, less cash and cash equivalents. Total capital is calculated as equity, as shown in the Consolidated Balance Sheet, plus net debt 1 . As at 31 May 2021 the Group’s gearing ratio was (45.5)% (2020: 1.9%). Financial instruments policy All instruments utilised by the Company and Group are for financing purposes. The financial management and treasury activities of the Group are controlled centrally for all operations with local finance teams responsible for day-to-day banking activities. Fair value of financial instruments As at 31 May 2021 the Group and Company had no other financial instruments other than those disclosed below. In addition, no embedded derivatives have been identified. There have been no transfers between levels in the year. The following table presents the Group’s financial assets and liabilities that are measured at fair value by level of fair value hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) • Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3) Borrowings are held at amortised cost which is considered to equate to fair value. All other assets and liabilities are held at either fair value or their carrying value which approximates to fair value.
2021
2020
Level 1 £m
Level 2 £m
Level 3 £m
Level 1 £m
Level 2 £m
Level 3 £m
– –
0.3
– –
Financial assets at fair value through profit or loss Derivative financial instruments – cash flow hedge
– –
0.3
– –
(0.8)
–
–
(0.5)
–
Total financial instruments
–
0.3
–
Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Exposure to credit risk The carrying value of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Group 2021 £m
Company 2021 £m
Group 2020 £m
Company 2020 £m
35.2
– – –
Trade receivables Other receivables Accrued income
41.6
– – –
1.9
0.9
22.9
18.0 95.0
116.5
0.6
Cash and cash equivalents
6.8
Total
176.5
0.6
155.5
6.8
The maximum exposure to credit risk for trade receivables and other receivables at the reporting date by geographic region was:
Group 2020 (restated) 2 £m
Group 2021 £m 17.0 11.0
Company 2021 £m
Company 2020 £m
Debtors by geographical segment
– – –
UK and APAC * North America
21.9 13.5
– – –
9.1
Europe
7.1
Total
37.1
–
42.5
–
* With the continuing growth and formation of a European division we have changed geographical segments in line with how this information is reported to the Board and managed on an ongoing basis and have restated prior year figures on a like-for-like basis. The APAC division was previously included within the segment Europe and APAC.
174
NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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