Franchise Brands plc Annual Report and Accounts 2018 61 Financial Statements Governance Strategic Report Categories of financial instruments Group 2018 £’000 2017 Restated £’000 Financial assets at amortised cost Cash and cash equivalents 2,940 3,245 Trade and other receivables 9,950 7,276 Financial liabilities at amortised cost Trade and other payables (7,777) (6,036) Loans and borrowings including finance leases (7,911) (9,505) Company 2018 £’000 2017 £’000 Financial assets at amortised cost Cash and cash equivalents 6 232 Trade and other receivables 2,601 2,950 Financial liabilities at amortised cost Trade and other payables (247) (191) Loans and borrowings (7,839) (9,419) Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables approximates to their fair value. Financial and market risk management objectives It is the Group’s policy not to use or trade in derivative financial instruments. The Group’s financial instruments comprise its cash and cash equivalents and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of the financial assets and liabilities is to provide finance for the Group’s operations in the year. The Group is exposed to interest rate risk as the Group borrows funds at variable interest rates. Interest rate sensitivity The effect on both income and equity, based on exposure to non-derivative floating rate instruments at the balance sheet date, is shown in the table below. The Group arranged a £12m term loan during 2017 in order to fund the acquisition of Metro Rod. At 31 December 2018 £5.4m of this term loan was outstanding, offset in the financial statements by £0.1m of loan arrangement fee. The loan currently carries a variable interest rate of 2.95%, based on both LIBOR and a margin based on leverage, and is repayable in instalments until 2022. The Group had also utilised £2.5m of its £5m Revolving Credit Facility, which runs until April 2023 and carries the same interest rate as the term loan, and currently matures on the 8 March 2019. Note that in the table below the 2017 sensitivity relates to the nearly nine months which the Group had a term loan. Sensitivity income 2018 £’000 Sensitivity equity 2018 £’000 Sensitivity income 2017 £’000 Sensitivity equity 2017 £’000 0.25% increase in interest rates (22) (22) (22) (22) 0.25% decrease in interest rates 22 22 22 22 Credit risk management The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities after assessing credit quality using independent rating agencies and if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group’s exposure is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is limited because the counterparties are banks with high credit-rating assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, which is net of expected credit risk losses, represents the Group’s maximum exposure to credit risk. Liquidity risk management The Group’s policy throughout the year has been to ensure continuity of funds. The Group manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities.