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Group Treasury Policy

A. GENERAL

The Finance Committee, Chief Financial Officer and Head of Treasury and Tax shall be responsible for implementing the Group policy on financial risk management in accordance with the Group procedures manual. They will also be responsible for determining the most appropriate financial instruments to achieve the desired objective, together with the timing of transactions depending on market conditions. Financial instruments are to be used for hedging purposes only and are not to be traded where trading is defined as:

i) Taking positions where the Group has no natural underlying exposure.

ii) The reversing of a previous hedge with the intention of reinstating it at a later stage on some anticipated favourable market movement.

Although the following will apply in normal circumstances, the Board recognises that in exceptional circumstances it may not always be possible to comply with them fully eg as a result of acquisitions, disposals or during very turbulent times in the financial markets. If these conditions arise the Board should ideally be informed beforehand of an expected breach of one of the policies or immediately after occurrence with an explanation of the conditions causing the breach.

B. RISK CATEGORIES

1. Liquidity Risk
Committed funding will exceed projected net debt at all times during the next 12 months by at least £100m unless agreed otherwise by the Board. The funding should have maturities spread over several years or the ability to terminate early at little or no cost to the Group. The weighted average maturity of the funding deemed to cover the Group’s net debt should not be less than two years.

2. Credit Risk
No dealings shall be undertaken with institutions having a long term credit rating as determined by Moody’s of less than A3 for instruments with a maturity of greater than 1 year, and not less than investment grade (Baa3) for instruments with a maturity of 1 year or less.

3. Interest Rate Risk
All borrowings in excess of net debt should be floating rate unless the matching deposits have been fixed. In respect of borrowings reflecting the Group’s core net debt, at least 25% should be fixed or capped and the actual period for which the first 25% is fixed or capped should exceed two years.

4. Foreign Exchange Risk
a) Transaction
The Group’s exposure will be hedged in accordance with the following parameters:

Minimum cover in place at all times:
70% of next 12 months’ anticipated aggregate exposure
Discretionary additional hedging:-
Current year    remaining 30%
Years 2-5          0-100%

Anticipated exposure is the total of firm orders, contracts won and expected orders and contracts.

No hedging beyond five years will be undertaken without specific Board approval.

b) Translation – Balance Sheet
Borrowings should be predominately in foreign currency to act as a hedge against the Group’s net overseas assets.

c) Translation – Overseas Profits
Overseas profits may be hedged to the extent remittance may be required to meet external dividends.

5. Other Risks
Within its authority limits, the Finance Committee will be responsible for approving the hedging of any other financial risks should they arise.

Net debt excludes IFRS 16, mark to market adjustments, interest accruals and any other non-cash items.

Approved by the Board of Directors on 2 August 2018.


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