Page 52 - Paragon Annual Report 2

48 | Group financial statements
Directors’ report (continued) Currency risk
The Group has significant operations within the euro area but also operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Sterling. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, unrecognised firm commitments and investments in foreign operations.
To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward contracts, where necessary. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Group Treasury is responsible for managing the net position in each currency via foreign exchange contracts transacted with financial institutions.
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group’s policy is to manage the currency exposure arising from the net assets of the Group’s foreign operations primarily through borrowings denominated in the relevant foreign currencies.
The Group’s policy is not to hedge net investments in subsidiaries or the translation of profits or losses generated in overseas subsidiaries.
Interest rate risk
All material financial assets and liabilities are maintained at floating rates of interest. Where necessary, floating to fixed interest rate swaps can be used to fix the interest rate.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Geographically, there is no concentration of credit risk.
The Group has established a credit policy that ensures that sales are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions and the Group has policies that limit the amount of credit exposure to any one financial institution.
Financial instruments
The Group finances its activities with a combination of bank loans, debtor finance, finance leases and cash.
Overdrafts are used to satisfy short term cash flow requirements. Other financial assets and liabilities, such as trade receivables and trade payables, arise directly from the Group’s operating activities. The Group also enters into derivative transactions, principally including interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. Financial instruments give rise to foreign currency, interest rate, credit, price and liquidity risk.
Use of derivatives
The Group uses forward foreign currency contracts to reduce exposure to the variability of foreign exchange rates by fixing the rate of any material payments in a foreign currency. The Group also uses interest rate swaps to adjust interest rate exposures in order to guarantee fixed interest payments where payments are variable and hence exposed to interest rate movements.
Research and development
The Group carries out research and development both internally and through a number of international arrangements and collaborations.
Events since the Consolidated Statement of
Financial Position
On 27 October 2017 the Group acquired the entire share capital of Document Management Solutions Limited.
On 2 November 2017 the Group concluded an additional £25,000,000 credit facility bearing an interest rate of 3 months LIBOR plus 0.9%.
On 6 November 2017 the Group acquired the entire share capital of docsellent GmbH.
In the directors’ opinion there were no other post balance sheet events.
Directors liabilities
The Company has granted an indemnity to one or more of its directors against liability in respect of proceedings brought by third parties, subject to the conditions set out in section 234 of the Companies Act 2006. Such qualifying third party indemnity provision remains in force as at the date of approving the directors report.
Paragon Group Limited – 05258175