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Keepmoat Annual Report 2020

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Keepmoat has released its Group financial results for the year ending 31 October 2020.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 – Financial instruments (continued) The ageing of trade receivables (see note 12) is as follows: 31 October 2020 Restatement 31 October 2019 Gross trade receivables Provision for impairment Gross trade receivables Provision for impairment £’000 £’000 £’000 £’000 Number of days past due date: Not past due 14,092 - 4,016 - Past due 1 to 30 days 778 - 5,569 - Past due 31 to 90 days 742 - 1,280 - Past due 91 to 365 days 284 237 2,100 - Past due greater than one year 62 - 1,521 787 Total 15,958 237 14,486 787 The Group applies the simplified approach under IFRS 9 to measure expected credit losses (“ECL”) associated with trade and other receivables. The carrying value of receivables is reduced at each reporting date for any increase in the lifetime ECL with an impairment loss recognised in the statement of comprehensive income. The Directors are of the opinion that there is a significant concentration of credit risk for those balances past due greater than 90 days. Trade receivables with a carrying amount of £1.9m (31 October 2019: £10.5m) are past due at the reporting date and £0.2m are impaired (31 October 2019: £0.8m). b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. An ageing profile of the Group’s loans and borrowings is presented in note 16. The Group’s objective is to manage liquidity by ensuring that it will always have sufficient liquidity to meet its liabilities as they become due. This will be assessed under normal and stress conditions, without incurring losses or risking damage to the Group’s reputation. Following securing additional financing the Group has increased its revolving credit facility to £75m, releasing a further £20m of liquidity. The Group has rigorous cash management processes. Cash balances are reported daily with detailed analysis of variances to short term cash forecasts. Short term cash forecasts are updated monthly and are for a period of 26 weeks with the first 8 weeks on a daily basis and the remaining 18 weeks on a weekly basis. These complement a minimum of four long term quarterly cash forecasts each year which are compared to the annual cash flow budget and to previous quarterly forecasts. These facilitate management’s assessments of the Group’s expected cash performance and the associated comparison to available facilities and the Group’s covenants. Key risks to liquidity and cash balances are a decrease in the value of open market sales, a downturn in the UK housing market, deterioration in credit terms obtainable in the market from suppliers and subcontractors, a downturn in the profitability of work, delayed receipt of cash from customers and a general decline in the ability of local authorities to fund urban regeneration projects. In order to mitigate this risk, the Group continually monitors open market house sales volumes and prices; working capital levels and contract profitability; and both client and supplier credit references and credit terms with clients and suppliers to ensure they continue to be appropriate. The Group does not have any derivative financial liabilities. 102 KEEPMOAT.COM

FINANCIAL REVIEW 22 – Financial instruments (continued) c) Market risk Market risk is the risk that changes in market prices such as interest rates, house prices and foreign exchange rates will affect the Group income or the value of the Group’s financial instruments. Interest rate risk Interest rate risk relates to the impact of interest rate increases on the Group’s floating rate borrowing. Following the refinancing during the year, the Group now holds facilities at floating interest rates at a margin over the London Interbank Borrowing Rate (LIBOR). This new financing has increased the liquidity of the Group but also the Group’s exposure to the risk of interest rate fluctuations. Whilst the risk of an increase in interest rate is beyond the Group’s control, management continually keeps this exposure under review. Housing market risk The Group is affected by price fluctuations in the UK housing market. The market is impacted by consumer demand and employment levels and is dependent on the availability of mortgage finance. Furthermore, Government incentives, such as the “Help to Buy” scheme, have helped to stimulate consumer demand. Whilst these risks are beyond the Group’s ultimate control, risk is spread across differing business activities undertaken by the Group and the geographical regions in which it operates. Currency risk The Group operates entirely in the United Kingdom and all of the Group’s revenue is generated in the United Kingdom and is denominated in pounds sterling. Consequently, the Group has very limited exposure to currency risk. Fair values of financial instruments Trade and other receivables The fair value of trade and other receivables, excluding contract assets, is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. The carrying amount of trade and other receivables is a reasonable approximation of their fair value. Trade and other payables The fair value of development land payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. The carrying amount of trade and other payables and contract liabilities are a reasonable approximation of their fair value. Cash and cash equivalents The fair value of cash and cash equivalents is estimated at its carrying amount where the cash is repayable on demand. Loans and borrowings Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. ANNUAL REPORT & FINANCIAL STATEMENTS 2020 103