annington annual rep 2019-web - Page 66



Financial statements | Notes to the financial statements
Notes to the financial statements
18. PROVISIONS (CONTINUED)
Hedge accounting
2019
£’000
2018
£’000
Utilities provision
At 1 April
39,663
39,519
2,384
4,958
(1,789)
-
Unwinding of discount
Effect of change in discount rate
Amount charged/(credited) to
income statement
431
(4,069)
(680)
(745)
40,009
39,663
6,865
3,635
33,144
36,028
40,009
39,663
Utilised
At 31 March
Current provision
Non-current provision
Hedges of foreign currency exchange risk on firm commitments
are accounted for as cash flow hedges. The relationship
between the hedging instrument and the hedged item,
along with its risk management objective and its strategy
for undertaking hedge transactions, is documented at the
inception of the hedge relationship. Additionally, on an
ongoing basis, the Group documents whether the hedging
instrument is highly effective in offsetting changes in fair values
or cash flows of the hedged item attributed to the hedged
risk, which is when the hedging relationships meet all of the
following hedge effectiveness requirements:
there is an economic relationship between the hedged item
and the hedging instrument;
the effect of credit risk does not dominate the value changes
that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that
the Group actually hedges and the quantity of the hedging
instrument that the entity actually uses to hedge that
quantity of hedged item.
Cash flow hedges
There is a legal agreement to provide for the adoption of
private utilities on sites where there have been releases of
property that are currently dependent, for the supply of water
and/or certain sewage treatment, on adjacent MoD bases.
In addition, there is a constructive obligation to provide for
the adoption of certain utilities on certain sites which are not
base dependent. Full provision has been made on the base
dependent sites in accordance with the legal agreement
and for all obligations which have crystallised on non-base
dependent sites. The provision has been discounted in
accordance with the relevant borrowing costs of the Group.
There is a contingent liability (refer Note 29) in respect of base
dependent sites where properties have not been released.
19. DERIVATIVE FINANCIAL INSTRUMENTS
ACCOUNTING POLICY
The Group uses derivative financial instruments to reduce
exposure to foreign exchange rate risk. The Group does not
hold or issue derivative financial instruments for speculative
purposes.
Derivatives are initially recognised at fair value at the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet date.
Changes in the fair value are recognised in profit or loss
immediately unless the derivative is designated and effective
as a hedging instrument, in which event the timing of the
recognition in profit or loss depends on the nature of the
hedge relationship.
66 | Annington Limited Annual Report & Accounts 2019
The effective portion of changes in the fair value of derivatives,
that are designated and qualify as cash flow hedges, is
recognised in other comprehensive income (“OCI”) and
accumulated in the hedging reserve. The gain or loss relating
to the ineffective portion is recognised immediately in profit or
loss, and is included in the ‘other gains and losses’ line item.
Amounts previously recognised in OCI and accumulated in
equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss, in the same line of
the income statement as the recognised hedged item.
The Group discontinues hedge accounting only when the
hedging relationship ceases to meet the qualifying criteria.
Reconciliation of movements in derivative financial
(liabilities)/assets:
2019
£’000
Revaluation
adjustment
£’000
2018
£’000
Financial assets carried at fair value through OCI
Cross currency swaps that are in
designated hedge accounting
relationships
-
3,559
Financial liabilities carried at fair value through OCI
Cross currency swaps that are in
designated hedge accounting
relationships
4,647
2018
£’000
Annington Funding Plc
Cross currency
swaps
Total derivative
financial (liabilities)/
assets
Note
2019
£’000
2018
£’000
Trade and other receivables
14
3,107
55
Cash and cash equivalents
15
162,783
156,607
-
3,559
165,890
160,221
Financial assets
Cash and receivables:
(4,647)
(8,206)
3,559
Assets measured at fair value through OCI:
(4,647)
(8,206)
3,559
Cross currency swaps
19
Total financial assets
Further details of derivative financial instruments are provided
in Note 20.
Financial liabilities
Liabilities measured at amortised cost:
20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
ACCOUNTING POLICY
Financial assets and financial liabilities are recognised when
the Group becomes party to the contractual provisions of
the instrument. Financial assets and financial liabilities are
initially measured at fair value and net of directly attributable
transaction costs as appropriate.
Trade and other payables
16
37,310
32,649
Loans and borrowings
17
3,371,313
3,377,499
Liabilities measured at fair value through OCI:
Cross currency swaps
Total financial liabilities
19
4,647
-
3,413,270
3,410,148

Financial assets
Impairment of financial assets
The Group’s expected credit losses are updated at each
reporting date to reflect changes in credit risk since initial
recognition.
Financial liabilities
2019
£’000
The Group has the following financial instruments:
The Group’s financial liabilities include trade and other
payables, loans and borrowings and derivative financial
instruments.
Exposure to credit, liquidity, currency and interest rate risks
arise in the normal course of the Group’s business activities.
Derivative financial instruments are in place to manage
exposure to fluctuations in exchange rates but are not
employed for speculative purposes.
Credit risk
The Group’s principal financial assets are cash and cash
equivalents, and trade and other receivables.
The Group has an agreement with FTI Finance Limited,
trading as FTI Treasury, to manage and optimise the liquidity
resources and requirements of the Group. Credit risk on cash
and deposits is minimised by using a revolving panel of banks,
which have all been identified as low risk according to Credit
Agency ratings. The maximum amount of funds that can be
placed with any one institution is also limited. The banks and
criteria are reviewed and updated periodically to ensure they
reflect the prevailing market conditions.
-
Annington Limited Annual Report & Accounts 2019 | 67

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