Funding and overview

David Broadbent
Finance Director

 

Core funding in place to 2011

A major ingredient in the global credit crunch has been the significant tightening of banks’ funding as they seek to repair their balance sheets. This, in turn, has resulted in many corporate borrowers having to renegotiate facilities and in some cases to cease trading.

Against this backdrop, we were delighted to extend successfully £422.8 million of our bank facilities by 18 months, underlining the excellent support we continue to enjoy from our main banking partners. This provides the core funding for our existing operations through to October 2011. There were no changes in financial covenants and the margin increased by 90 bps to 225 bps above the local reference rate.

In total, we have some £663.8 million of bank facilities with significant headroom. At 31 December 2008, these facilities were only 65% drawn, with outstanding borrowings of £434.3 million. Importantly, these facilities are denominated in the same local currencies in which we lend to our customers.

The indications are that the major economies, including our markets, will continue to experience a sharp slowdown in the year ahead. This means that we expect liquidity and bank funding to remain in scarce supply and that securing additional funding will continue to be extremely difficult. Our focus in the coming year will be to maintain the strong relationships we have with our banking partners and to continue to examine a range of options for securing new funding as and when the markets start to reopen.

The fact that we were able to extend our facilities during the current global liquidity crisis reflects the strength of the business and in particular:

• a strong trading performance, with profit before tax increasing by 40.3% to £70.3 million and earnings per share increasing by 44.5% to 19.73 pence;
• a strong balance sheet with equity at 45.1% of receivables and gearing, calculated as borrowings divided by equity, low at 1.7 times. We borrow over long periods, usually over three years, and lend to customers short-term, usually for a year or less;
• established businesses which are generating cash and capital. This means that our profitable Central European markets can help us to fund growth in our pilot and developing markets while they move up the J-curve; and
• a resilient business model with short-term lending to customers meaning that customers repay their outstanding balances quickly, with the average period to maturity of receivables less than six months at any point in time.

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