Financial review
Balance sheet
The Group’s balance sheet as at 31 December 2008 is set out in the financial statements and is summarised below:
Summary balance sheet
| 2008 £m |
2007** £m |
Change % |
Change at CER % |
|
|---|---|---|---|---|
| Fixed assets | 69.9 | 59.5 | 17.5 | 5.8 |
| Receivables | 574.4 | 443.2 | 29.6 | 8.1 |
| Cash | 62.2 | 88.8 | (30.0) | (36.9) |
| Borrowings | (434.3) | (370.8) | (17.1) | 1.1 |
| Other net liabilities | (13.4) | (17.1) | 21.6 | (5.3) |
| Equity | 258.8 | 203.6 | 27.1 | 5.9 |
| Equity to receivables | 45.1% | 45.9% | ||
| Gearing | 1.7x | 1.8x | ||
| Headroom on facilities | £229.5m | £208.6m* |
*At constant exchange rates.
**On a pro forma basis.
The key balance sheet ratios remain strong with equity at 45.1% of receivables and gearing at 1.7 times. Headroom on facilities increased to £229.5 million due to a small increase in the level of facilities available and a repayment of borrowings in the period.
A reconciliation of the movement in equity from 2007 to 2008 is included in note 26 of the financial statements. The underlying increase of 5.9% represents the post-tax profit of the Group offset by dividends payable, the purchase of shares for the employee trust and a loss on perfectly hedged derivative contracts as well as other small movements.
Receivables and our prudent provisioning methodology
An analysis of the receivables balance by market is included in note 14 of the financial statements. Receivables at 31 December 2008 increased by 8.1% to £574.4 million. The average period to maturity of the receivables book was 5.3 months (2007: 5.4 months) reflecting the short-term nature of our lending. From the total receivables book of £574.4 million, 96.1% is due within one year.
The receivables book is valued by discounting the expected future cash flows in respect of outstanding customer loans by the relevant effective interest rate. The expected future cash flows are adjusted to take account of our expectation of future credit losses based on the age of the debt, the number of missed payments and the historical performance of similar loans.
The following factors are relevant when considering how we provide for impairment against customer receivables:
Weekly assessment – we review customers’ collections every week and as soon as a customer misses a payment or any part of a payment then the expected future cash flows are reassessed and we make a provision against the outstanding balance.
Third party developed actuarial models – the expected future cash flows are derived from actuarial models which have been developed by an external actuarial firm and have been proved to be very predictive. Separate models exist for each product in each country, other than in Romania and Russia where there is insufficient customer credit history.
Regular formal review of provisions – the actuarial models used to derive the expected future cash flows are regularly reviewed to ensure they reflect current performance. During 2008 we formally reviewed or updated the models used to value around 75% of our receivables book.
Our prudent approach to provisioning means that a significant proportion of receivables reflects some level of impairment charge; 71.7% of receivables as at 31 December 2008 were classed as impaired (2007: 73.0%). No receivables were past due but not impaired either at the end of 2008 or 2007.