Notes to the Financial Statements continued for the year ended 31 May 2022
25 Financial instruments continued Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages and minimises liquidity risk by using global cash management solutions and actively monitoring both actual and projected cash outflows to ensure that it will have sufficient liquidity to meet its liabilities when due and have headroom to provide against unforeseen obligations. In response to Covid-19, the Group has undertaken regular detailed reviews of both the potential short-term effects of the pandemic on working capital and the longer-term forecast liquidity position. Cash collections have remained strong. The Ukraine conflict is not considered to have a direct material impact on liquidity risk in the short term due to Group having limited direct exposure in the affected region. Longer term, the Group has assessed its liquidity forecast as part of the viability assessment and its ability to continue trading as a going concern.
For further detail on the Group’s assessment of liquidity risk refer to the Viability Statement on page 72. The following are the contractual maturities of financial liabilities, including interest payments, of the Group:
Carrying amount £m
Contractual cash flows £m
1–2 years £m
2+ years £m
5+ years £m
<1 year £m
At 31 May 2022
(125.6)
(110.7)
(19.7)
(19.7)
(71.3) (13.4)
–
Borrowings
(32.6) (48.3)
(36.4) (48.3)
(6.5)
(5.5)
(11.0)
Lease liabilities
(48.3)
–
–
–
Trade and other payables
At 31 May 2021
Borrowings
(33.2) (34.4) (45.2)
(34.7) (39.6) (45.2)
(0.3) (6.3)
(0.3) (5.7)
(34.1) (12.8)
–
Lease liabilities
(14.8)
Trade and other payables
(45.2)
–
–
–
The contractual cash flows for borrowings disclosed above relate to the Group’s RCF facility, which terminates in June 2024, and new Term Loan Facility Agreement. The contractual cash flows include an estimate of the interest payable based on the assumption that the borrowings remain drawn based upon 31 May 2022 levels, except that the term loan is repayable over its term. Interest is calculated based on SONIA/SOFR plus a margin based on the current leverage ratio. Currency risk The Group is exposed to currency risk on sales, purchases, cash and borrowings that are denominated in a currency other than the respective functional and presentational currency of the Group. The Group’s management reviews the size and probable timing of settlement of all financial assets and liabilities denominated in foreign currencies. The Group’s exposure to currency risk is as follows:
2022
2021
Sterling £m
EUR £m
USD £m
Other £m
Total £m
Sterling £m
EUR £m
USD £m
Other £m
Total £m
12.9
11.7 15.9
0.1 0.1
40.6
Trade receivables Other receivables Cash and cash equivalents
14.8
9.1 10.4
0.9 35.2
0.5
–
0.6
1.2
0.8
–
0.6
0.5
1.9
26.4
2.4 42.4 – (99.4)
2.0 73.2 – (125.6)
85.0 16.1
7.3
8.1 116.5 – (33.2)
(26.2) (21.4) (28.1)
Borrowings
(30.4) (21.5) (27.3)
–
(2.8) (8.6) (6.9)
(2.0) (9.0)
(7.3) (8.9)
(1.9) (2.3)
(32.6) (48.3)
Lease liabilities
(2.1) (7.6)
(2.2) (3.4)
(34.4) (45.2)
Trade and other payables
Total
(35.9)
3.1 (56.7)
(2.0)
(91.5)
21.4 15.5
–
3.9 40.8
A change in exchange rate of 10% would have an impact of £19.0m (2021: £15.2m) on revenue, £4.2m (2021: £2.7m) on operating profit, £43.6m (2021: £8.1m) on net assets and £9.9m (2021: £0.3m) on borrowings. The Group’s risk management policy is to hedge foreign currency exposure in respect of significant material transactions that may arise from time to time. At 31 May 2021, the Group had entered into one cash flow hedge in respect of funds to be used as part of the acquisition of the IPM Software Resilience business. No such hedges were in place at 31 May 2022. The Group uses forward exchange contracts to hedge its currency risk, which are short term in nature to match the maturity of the hedged item. These contracts are generally designated as cash flow hedges. The Group designates the spot element of forward foreign exchange contracts to hedge its currency risk and applies a hedge ratio of 1:1. The forward elements of forward exchange contracts are excluded from the designation of the hedging instrument and are separately accounted for as a cost of hedging, which is recognised in equity in a cost of hedging reserve. The Group’s policy is for the critical terms of the forward exchange contracts to align with the hedged item. The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flows. Given the short-term nature of these hedges there is limited risk of ineffectiveness.
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NCC Group plc — Annual report and accounts for the year ended 31 May 2022
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