NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2026
26. Financial risk management continued
27. Financial assets and liabilities Fair values
Management of foreign exchange risk The Group’s Shareholders’ equity, earnings and cash flows are exposed to foreign exchange risks, due to the mismatch between the currencies in which it purchases inventory and the final currency of sale to its customers. It is Group policy to hedge identified significant foreign exchange exposure on its committed operating cash flows. This is carried out centrally based on forecast orders and sales. The US Dollar and Euro represent the main foreign exchange translational exposures for the Group. The following table demonstrates the sensitivity of the Group’s profit before tax to a 10% strengthening of Sterling against US Dollar and Euro.
The Group’s principal non-derivative financial instruments comprise bank loans and overdrafts, cash and short-term borrowings. The Group also holds other financial instruments such as trade receivables and trade payables that arise directly from the Group’s trading operations. Derivative financial instruments are represented by short-term foreign currency forward contracts placed by the Group with external banks as part of the Group’s cash management and foreign currency risk management activities. The fair value of derivative foreign exchange instruments is determined on initial recognition at forward market exchange rates at inception of the contract and subsequently remeasured based on forward market exchange rates at the balance sheet date. As at 31 March 2026, the gross value of these contracts was £29.6m, mainly in Euro and US Dollar (2025: £31.9m). The fair value of these derivatives included within trade and other receivables was an asset of £0.2m (2025: £nil) and included within trade and other payables was a liability of £0.2m (2025: £0.2m). The carrying values of the Group’s trade and other receivables and trade and other payables are disclosed in notes 20 and 28. The carrying value of these items approximates book value due to the short maturity of these instruments. The carrying values of the Group’s other financial assets and financial liabilities are set out below by category. Carrying values for all financial assets and liabilities are equivalent to fair values.
2026 £m
2025 £m
Impact on profit before tax – (loss) 10% strengthening of Sterling against Euro 10% strengthening of Sterling against US Dollar
(2.6) (1.9)
(1.9) (1.1)
Management of credit risk Credit risk exists in relation to customers, banks and insurers. Exposure to credit risk is mitigated by maintaining credit control procedures across a wide customer base. The Group is exposed to credit risk that is primarily attributable to its trade and other receivables. This is minimised by dealing with recognised creditworthy third parties who have been through a credit verification process. The maximum exposure to credit risk is limited to the carrying value of trade and other receivables. As well as credit risk exposures inherent within the Group’s outstanding receivables, the Group is exposed to counterparty credit risk arising from the placing of deposits and entering into derivative financial instrument contracts with banks and financial institutions. The Group manages exposure to this credit risk by entering into financial instrument contracts only with highly credit-rated authorised counterparties, which are reviewed and approved annually by the Board. Counterparties’ positions are monitored on a regular basis to ensure that they are within the approved limits and that there are no significant concentrations of credit risks. The Group’s largest customer is approximately 6% (2025: 7%) of Group sales. Management of liquidity risk The Group manages its exposure to liquidity risk and maximises its flexibility in meeting changing business needs through the cash generation of its operations, combined with bank borrowings and access to long-term debt. In its funding strategy, the Group’s objective is to maintain a balance between the continuity of funding and flexibility through the use of overdrafts, bank loans and facilities. At 31 March 2026, the Group had net cash of £29.0m (2025: £43.7m). The Group had total working capital facilities available of £246.8m (2025: £245.6m) with a number of major UK and overseas banks, of which £240m (2025: £240m) were committed facilities. The Group had drawn £111.9m against total facilities at 31 March 2026 (2025: £139.3m). In addition, the Group has an £80m accordion facility that it can use to extend the total facility up to £320m. The syndicated facility is available both for acquisitions and for working capital purposes. The facilities are subject to certain financial covenants, which had significant headroom at 31 March 2026. Management of capital The Group’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain robust capital ratios to support the development of the business with a view to providing strong returns to Shareholders. In order to maintain or adjust the capital structure, the Group increases bank borrowings, issues new shares or changes the amount of dividends paid to Shareholders. In respect of this objective, the Group had a target gearing range last year of between 1.5x and 2.0x. During this year, as part of the Group’s banking facility extension, the associated gearing covenant was increased from 3.0x to 3.5x. This provides us with additional flexibility to operate temporarily our gearing range above 2.0x to optimise execution of our acquisition pipeline. Proforma gearing at 31 March 2026 (assuming the acquisitions of Trival and 3G had been completed before the year-end) was 2.2x and this is expected to reduce to 1.8x by the end of the year ending 31 March 2027. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash and cash equivalents in note 21 and equity attributable to Shareholders.
Carrying amount 2026 £m
Fair value 2026 £m
Carrying amount 2025 £m
Fair value 2025 £m
Financial assets at amortised cost Cash at bank and in hand
125.3
125.3
139.3
139.3
–
–
Deferred consideration
0.3
0.3
Financial liabilities at amortised cost Bank overdrafts and short-term borrowings Non-current interest-bearing loans and borrowings: Floating rate borrowings
(96.3)
(96.3)
(95.6)
(95.6)
(109.5) (34.0)
(109.5) (34.0)
(138.0) (27.4)
(138.0) (27.4)
Lease liabilities
Financial liabilities at fair value through profit and loss (“FVTPL”) Contingent consideration
(3.0)
(3.0)
(9.3)
(9.3)
The methods and assumptions used to determine the fair value of financial assets and liabilities are set out below. All material changes in fair value of financial instruments as at the balance sheet date have been recognised in the consolidated Statement of Profit or Loss. Impairment reviews did not identify any material impairment of financial assets from carrying values as reported at the balance sheet date and, as such, no material impairments are included in the consolidated Statement of Profit or Loss. Fair value methods and assumptions Forward foreign exchange contracts (“forwards”) – the fair value of forward foreign currency contracts is determined with reference to observable yield curves and foreign exchange rates at the reporting date. The FX contracts outstanding with banks at the year-end had a maturity of one year or less. Loans and borrowings – the fair value of loans and borrowings has been calculated by discounting future cash flows, where material, at prevailing market interest rates. Fair value hierarchy For financial assets and financial liabilities measured at fair value, as set out in the tables above, the fair value measurement techniques are based upon applying unadjusted, quoted market rates or prices or inputs other than quoted prices that are observable for the assets or liabilities either directly or indirectly. IFRS 13 Fair Value Measurement requires financial instruments measured at fair value to be analysed into a fair value hierarchy based upon the valuation technique used to determine fair value. The highest level in this hierarchy is Level 3 within which inputs that are not based on observable market data for the asset or liability are applied. The valuation techniques used by the Group for the measurement of derivative financial instruments, loans and deferred consideration are considered to be within Level 2, which includes inputs other than quoted prices included within Level 1 that are observable either directly or indirectly.
190
191
discoverIE Group plc Innovative Electronics
Annual Report and Accounts for the year ended 31 March 2026
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