FINANCIAL INSTRUMENTS (continued)

(b) Interest rate risk

Interest rate risk is the risk of increased net financing costs due to increases in market interest rates. The Group finances its operations and acquisitions through a mixture of retained profits, bank borrowings and equity; the Group’s main interest rate risk therefore comes from its bank borrowings, which the Group borrows principally in Sterling and Euros.

The Group policy is to undertake interest rate hedging to protect itself against adverse movements in interest rates (see note 9(g)). Any surplus cash is invested in short-term bank deposits at the prevailing rates of interest in order to achieve the market rate of return.

At 30 April 2014, the Group had interest rate hedges in place to reduce its exposure to changes in interest rates. Hedging contracts are in place fixing approximately two thirds of the Group’s interest rate exposure for the next 3 financial years. The need for further interest rate hedges is reviewed by the Board of Directors annually. This is set out in detail in note 9(g).

At the period end the interest rate profile of the Group’s interest-bearing financial instruments was:

2014 2013

£m £m

Variable rate instruments

Secured bank loans 882.4 911.6

As noted above, interest rate hedges are in place to manage the risk from changing interest rates affecting the cost of these bank loans.

2014 2012

£m £m

Fixed rate instruments

Finance lease liabilities 22.5 28.5

(c) Foreign exchange risk

The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the functional currency and on the translation of the balance sheet and income statement of foreign operations into sterling. The currencies giving rise to this risk are primarily US dollars and Euros. The Group has both cash inflows and outflows in these currencies that create a natural hedge.

In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s cash inflows and outflows in a foreign currency. The Group also hedges any material foreign currency transaction exposure. The Group has treated €360m of the long term funding of a subsidiary as a net investment hedge. At 30 April 2013 exchange rates the long term funding was £295.3m (2013: £304.4m) and the net investment shown in goodwill was £295.3m (2013: £304.4m).

Over the longer term permanent changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. It is estimated that a general increase of one percentage point in the value of sterling against other currencies would have reduced the Group’s loss before tax by approximately £0.3m (2012: (reduced) £0.2m).

Financial Section continued

Notes to the consolidated accounts for the year ended 30 April 2014 (continued)

9. FINANCIAL INSTRUMENTS (continued)

(d) Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial commitments as they fall due.

The Group‘s objective is to ensure that adequate facilities are available through use of bank loans and finance leases. The Group manages liquidity risk through regular cash flow forecasting and monitoring of cash flows, management review and regular review of working capital and costs.

The Group regularly monitors its available headroom under its borrowing facilities. At 30 April 2014, £99.0m (2013: £101.6m) of undrawn facilities were available (see note 9(e)).

In respect of the Group’s financial liabilities including estimated interest where applicable, the table below includes details (at the balance sheet date) of the periods in which they mature.

Future cash Less than

Book value flows 1 year 1-2 years 2-3 years 3-4 years 4-5 years

30 April 2014 Notes £m £m £m £m £m £m £m

Secured bank loans 5 (882.4) (1,125.0) (67.3) (69.9) (53.2) (588.9) (345.7) Finance lease liabilities * 5 (22.5) (22.5) (9.7) (6.4) (4.4) (1.6) (0.4)

Trade and other payables (47.8) (47.8) (47.8) - - -

-Interest rate collars/SWAPS 9(f) (5.3) (5.3) - (3.4) - (1.9)

-Other financial liabilities 9(f) (11.0) (11.0) (6.2) (2.9) (1.4) (0.5) -

(969.0) (1,211.6) (131.0) (82.6) (59.0) (592.9) (346.1)

Future cash Less than

Book value flows 1 year 1-2 years 2-3 years 3-4 years 4-5 years

30 April 2013 Notes £m £m £m £m £m £m £m

Secured bank loans 5 (911.6) (1,212.3) (67.3) (87.8) (295.2) (295.2) (466.8)

Finance lease liabilities * 5 (28.5) (28.5) (11.7) (9.4) (4.8) (2.6)

-Trade and other payables (36.0) (36.0) (36.0) - - -

-Interest rate collars/SWAPS 9(f) (10.5) (10.5) (2.4) (2.4) (5.7) -

-Other financial liabilities 9(f) (8.3) (8.3) (4.0) (2.7) (1.3) (0.3)

-(994.9) (1,295.6) (121.4) (102.3) (307.0) (298.1) (466.8)

*These liabilities bear interest at a fixed rate

Financial Section continued

Notes to the consolidated accounts for the year ended 30 April 2014 (continued)

9. FINANCIAL INSTRUMENTS (continued)

(e) Borrowing facilities

The Group has syndicated Senior and Subordinated facility agreements with a number of banks and investment companies providing £660 million and €360 million of available funding. These facilities were amended and extended in July 2013. Of these facilities, the Group has the following available committed floating rate borrowing facilities and cash at 30 April 2014 in respect of which all conditions precedent had been met at that date:

2014 2013

£m £m

Expiring between 2 and 10 years 99.0 101.6

In addition the Group has a facility secured on UK and US trade receivables, providing up to £27.5m of additional liquidity. In July 2013 the Group completed an amendment to the Senior and Subordinated Facilities. This extended the debt maturity profile of majority of the Group’s loans, with only 5% of bank facilities due to be repaid before 2017.

(f) Fair values of financial assets and financial liabilities

The fair values, together with the carrying amounts shown in the balance sheet, are as follows:

Carrying amount Fair value Notes

2014 2013 2014 2013

£m £m £m £m

Trade and other receivables 89.3 84.6 89.3 84.6

Other receivables (long-term trade debtors) 5.7 9.0 5.7 9.0

Cash and cash equivalents 68.0 93.7 68.0 93.7

Secured bank loans 5 (882.4) (911.6) (882.4) (911.6)

Finance lease liabilities 5 (22.5) (28.5) (22.5) (28.5)

Other financial liabilities – current

Interest rate collars/SWAPs - Liabilities - (2.4) - (2.4)

Other financial liabilities (6.2) (4.0) (6.2) (4.0)

(6.2) (6.4) (6.2) (6.4)

Other financial liabilities – non-current

Other financial liabilities (4.8) (4.3) (4.8) (4.3)

Interest rate collars/SWAPs – Liabilities (5.3) (8.1) (5.3) (8.1)

(10.1) (12.4) (10.1) (12.4)

(758.2) (771.6) (758.2) (771.6)

Included in other financial liabilities are assets of £11.0m secured by other financial liabilities of £4.8m due under a year and £6.2m due over a year (2013: £8.3m secured by other financial liabilities of £4.0m due under a year and £4.3m due over a year).

Estimation of fair values

Financial Section continued

Notes to the consolidated accounts for the year ended 30 April 2014 (continued)

9. FINANCIAL INSTRUMENTS (continued)

(g) Hedging

In respect of our overall borrowings this covers approximately 66% of our interest exposure in 2015/16 and 2016/17. The average rate of interest fixed over the period is in the range 1.02% to 2.01% for Sterling and 0.87% to 2.01% for Euros plus margin. The effect of the arrangement is to limit any detrimental interest rate moves over the period to the amount of debt not covered by these instruments. These positions are reviewed annually by the Board.

The Group also hedges any material foreign currency transaction exposure. Transaction exposures are reviewed periodically and hedged.

The Group undertakes interest rate hedging to protect itself against adverse movements in interest rates. Hedging is put in place when significant amounts of borrowing are incurred. A summary of the Group’s interest rate hedging position (including interest rate hedges taken on as part of the “acquired group”) is given in note 9(d). The figures quoted represent total interest costs including funding margin.

Note 9(d) gives details of the carrying value and expected future cash flows associated with the interest rate hedges. The Group has not applied hedge accounting to the interest rate hedges. The fair value of the interest rate hedges is determined by valuations provided by the issuing financial institution of those instruments and is taken through the income statement.

(h) Capital Management

The Group’s objectives when managing capital (retained profits and bank borrowings) are to safeguard the Group’s ability to continue as a going concern support the growth of the business and to maintain an optimal capital structure to reduce the cost of borrowing. The Group finances its operations through a combination of retained profits, equity and bank borrowings (see note 5).