annington annual rep 2019-web - Page 69



Financial statements | Notes to the financial statements
20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(CONTINUED)
Credit risk (continued)
The Group has a low credit risk as the Retained Estate portfolio
is leased on a 200-year Underlease to the MoD. All properties
under these arrangements continue to be maintained by, and
remain entirely under the control of, the MoD dependent
upon their operational needs. The rent is payable quarterly
in advance and, to date, has always been received by the
due date.
The Group’s credit risk is attributed primarily to its trade
and other receivables, which consists principally of amounts
due under property disposals, agreed dilapidations claims
outstanding and rents due from tenants. The balance is low
compared to the scale of the balance sheet.
Tenant receivables relate to properties let to third parties. Let
properties include those released and returned from the MoD
(where a rental strategy is being pursued), and properties
that are rented to residential tenants. The Group employs a
managing agent to actively pursue arrears and this policy has
resulted in minimal bad debts to date.
The Group also holds cross currency swaps with Barclays Bank
plc, JP Morgan Securities plc, Goldman Sachs Bank USA and
Banco Santander SA (London Branch). The swap with Banco
Santander SA was novated by Santander UK plc on 14 May
2018. The Group’s exposure to counter party credit risk with
respect to these derivatives is assessed as low, as each of the
counterparties holds at least an upper medium grade rating.
Other than amounts due from the joint venture companies
and dilapidations claims outstanding, the Group has no other
significant concentration of credit risk. Trade receivables are
presented net of allowances for impairment are made where
appropriate, as set out in Note 14.
The carrying amount of financial assets recorded in the financial
statements represents the Group’s maximum exposure to
credit risk.
Debt management
The Group’s borrowings are through the issue of various
classes of unsecured corporate bonds as well as an unsecured
term loan.
Notes to the financial statements
Capital risk management
Currency risk sensitivity analysis
Capital is managed so that entities in the Group will be able
to continue as going concerns while leveraging the return to
stakeholders through the optimisation of the debt and equity
balance. The capital structure of the Group consists of debt
and equity. Net debt includes loans and borrowings (Note 17)
offset by cash and cash equivalents, while equity comprises
equity attributable to equity holders of the Company, being
issued share capital, reserves and retained earnings (Notes
21 - 25).
The impact of a hypothetical strengthening/weakening of pound sterling against the Euro for the cross currency swap, with all
other variables constant, would have increased/(decreased) equity and prot by the amounts shown below:
The debt has a number of covenants to comply with under
both the bonds and loan facility. The covenants attaching to
the debt are:
Covenant
Test
Limit for Bonds
Limit for Loans
Limitation on
Debt
Total debt /
total assets

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