The Group's activities expose it to capital risk, currency risk (including both transactional and translational currency risk), interest rate risk, credit risk and liquidity risk. The Group seeks to minimise adverse effects from the unpredictability of financial markets on the Group's financial performance.

(a) Capital risk

The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 21, cash and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in Note 24.

The Board reviews the capital structure of the business and considers the cost of capital and risks associated with each class of capital. The Group aims to balance its overall capital structure through the payment of dividends, new share issues and share buyback as well as the issue of new debt or the redemption of existing debt.

(b) Currency risk

The Group operates in North America, Europe and Asia and its activities expose it to transactional risks resulting from changes in foreign currency exchange rates. The Group monitors and manages these transactional foreign exchange risks relating to the operations of the Group through internal reports analysing major currency exposures. Where possible, the Group seeks to offset exposures by matching monetary asset and liability exposures in like currencies against each other, often using its bank facilities to square off or reduce exposures. To manage the currency risk, the Group manages the overall currency exposure mainly through currency forwards.

The Group's risk management policy is to hedge 100% of highly probable forecast transactions for Europe sales in the next 12 months.

The risk is measured through a forecast of highly probable EUR sales and tracking of firm commitment in EUR. The objective of the hedges is to minimise the volatility of the Group's currency cost of highly probable transactions and firm commitment. In order to achieve these objectives, the Group entered into cash flow hedges for highly probable sale transactions. The foreign exchange forwards are denominated in the same currency as the highly probable sale transactions, therefore the hedge ratio is 1:1.

Hedge effectiveness

Hedge effectiveness is determined at the inception of the hedging relationship, and through periodic prospective effective assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.

The Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and so a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness.

Hedge ineffectiveness may occur due to changes in the credit risk of the derivative counterparty or the Group. There was no ineffectiveness during 2018 in relation to the revenue hedge.

In addition, the Group is exposed to translation risk when the results of its various operations are translated from their local functional currencies to Sterling, the Group's reporting currency. In particular a significant proportion of the Group's revenues and earnings are derived in US Dollars. The Group is therefore exposed to risk when these US Dollar revenue streams are translated into Sterling for Group reporting purposes. The Group regards this as a fundamental consequence of operating in markets which are dominated by US Dollar transactions. The Group does not hedge this translational risk as there is no underlying mismatch of foreign currencies as the translation is merely performed for reporting the Group's results in Sterling.

The Group's transactional currency exposure based on the information provided to key management is as follows:

At 31 December 2018     
Financial assets     
Cash and cash equivalents1.
Trade receivables2.42.427.80.433.0
Other current assets0.
ESOP loan to employees0.20.2
Financial liabilities
Trade and other payables(2.3)(0.6)(18.7)(0.5)(22.1)
Other financial liabilities(0.6)(0.8)(1.4)
Net financial assets/(liabilities)0.92.8(47.0)1.7(41.6)
Add: Firm commitments and highly probable forecast transactions in foreign currency12.612.6
Currency forwards15.0(10.8)4.2
Currency profile excluding non-financial
assets and liabilities
Less: Financial assets/(liabilities) denominated in the respective entities' functional currencies1.42.0(53.6)1.4(48.8)
Currency exposure of financial assets14.
At 31 December 2017
Financial assets
Cash and cash equivalents0.80.811.51.915.0
Trade receivables1.62.319.60.323.8
Other current assets0.
ESOP loan to employees0.30.3
Financial liabilities
Trade and other payables(2.4)(0.7)(17.7)(0.6)(21.4)
Other financial liabilities(0.6)(0.8)(1.4)
Net financial assets/(liabilities)(0.2)2.4(9.8)0.9(6.7)
Add: Firm commitments and highly probable forecast transactions in foreign currency10.910.9
Currency forwards5.9(7.8)(1.9)
Currency profile excluding non-financial assets and liabilities5.75.5(9.8)0.92.3
Less: Financial assets/(liabilities) denominated in the respective entities' functional currencies1.01.9(15.0)1.4(10.7)
Currency exposure of financial assets4.73.65.2(0.5)13.0

If the US Dollar and Euro change against Sterling by 5% and 1% respectively (2017: US Dollar 7%, Euro 8%) with all other variables, including tax rates, being held constant, the effects arising from the net financial asset/(liability) position will be as follows:

£ Millions2018
Profit after tax
Profit after tax
EUR against GBP 
– strengthened*0.3
– weakened*(0.3)
USD against GBP
– strengthened0.30.3
– weakened(0.3)(0.3)

* Balances are less than £100,000.

The impact of the currency risk on the other comprehensive income is not significant.

(c) Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As the Group has no significant interest-bearing assets, the Group's income is substantially independent of changes in the market interest rates.

All of the Group's borrowings are at variable interest rates and are denominated in US Dollars. If the average interest rates on these borrowings increased/decreased by 0.5% (2017: 0.5%) with all other variables, including tax rates, being held constant, the profit tax will be lower/higher by £317,000 (2017: £123,000) as a result of higher/lower interest expense on these borrowings.

(d) Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a financial loss to the Group. For trade receivables the Group adopts a policy of only dealing with customers of appropriate credit history or rating. For other financial assets, the Group adopts the policy of only dealing with high credit quality counterparties.

The Group uses a provision matrix to measure the lifetime expected credit loss allowance for trade receivables. In measuring the expected credit loss, trade receivables are grouped based on shared credit risk characteristics and days past due.

In calculating the expected credit loss rates, the Group considers historical loss rates for each category of customers and adjusts to reflect current and forward macro-economic factors affecting the ability of the customers to settle the receivables. The Group has identified gross domestic product (GDP) and the public policy of the countries in which it sells goods as the most relevant factors.

Trade receivables are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group. The Group considers a financial asset as in default if the counterparty fails to make contractual payments within 90 days when they fall due and writes off the financial asset when a debtor is in significant financial difficulties and have defaulted on payment which is usually greater than 120 days past due. Where receivables are written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognised in profit or loss.

The Group's credit risk exposure in relation to trade receivables under IFRS 9 are set out in the provision matrix as follows:

Asia region

Past due
£ MillionsCurrent1 -30 days31 – 60 days61 – 90 days91 – 120 days> 120 daysTotal
At 31 December 2018
North America region
Expected loss rate0.0%0.1%0.2%0.2%0.3%21.8%
Trade receivables13.
Loss allowance*****#
Europe region
Expected loss rate0.0%0.1%0.2%0.2%0.3%36.9%
Trade receivables5.*8.2
Loss allowance*****#
Asia region
Expected loss rate0.0%0.0%0.0%0.0%0.0%0.0%
Trade receivables2.
Loss allowance
Past due
£ MillionsCurrent1 -30 days31 – 60 days61 – 90 days91 – 120 days> 120 daysTotal
At 1 January 2018
North America region
Expected loss rate0.0%0.1%0.2%0.2%0.3%21.8%
Trade receivables9.
Loss allowance*****#
Europe region
Expected loss rate0.0%0.1%0.2%0.2%0.3%36.9%
Trade receivables5.71.60.5**7.8
Loss allowance****#
Asia region
Expected loss rate0.0%0.0%0.0%0.0%0.0%0.0%
Trade receivables1.
Loss allowance

* Balances are less than £100,000.

Total # approximates £100,000.

The movement in the allowance for impairment of trade receivables is as follows:

£ Millions20182017
Beginning of financial year(0.5)(0.4)
Application of IFRS 90.4
Restated allowance for impairment under IFRS 9(0.1)(0.4)
Loss allowance(a) recognised in profit or loss during the year on:
– Assets acquired/originated(0.1)(0.2)
Receivables written off as uncollectible0.1
Foreign currency translation0.1
End of the financial year(0.1)(0.5)

(a) Loss allowance measured at lifetime ECL.

Previous accounting policy for impairment of trade receivables

Prior to 1 January 2018, the impairment of financial assets was assessed based on the incurred loss impairment model. Individual receivables which were known to be uncollectible were written off by reducing the carrying amount directly. The other receivables were assessed collectively, to determine whether there was objectives evidence that an impairment had been incurred but not yet identified.

The Group's business is highly fragmented, reducing the credit exposure to any one customer. At 31 December 2017, no individual trade receivable represented more than 11% of the total trade receivables balance.

The credit risk for trade receivables, which are all with non-related parties, by geographical area is as follows:

£ Millions2017
By geographical areas
North America13.4

Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit-ratings assigned by international credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially with companies with a good collection track record with the Group.

The age analysis of trade receivables past due and/or impaired is as follows:

£ Millions2017
Past due 0 – 2 months6.5
Past due 3 – 4 months0.6
Past due over 4 months0.3

(e) Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities (Note 21) and the ability to close out market positions at a short notice. At the balance sheet date, assets held by the Group and the Company for managing liquidity risk included cash and short-term deposits as disclosed in Note 15.

The table below analyses the maturity profile of the Group's non-derivative financial liabilities at the balance sheet date based on contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts as the impact of discounting is not significant.

£ MillionsLess than
1 year
Between 1
and 2 years
Between 2
and 5 years
5 years
At 31 December 2018
Trade and other payables22.422.4
Accrued consideration0.
Borrowings, including interest2.82.665.570.9
At 31 December 2017
Trade and other payables21.421.4
Accrued consideration1.00.41.4
Borrowings, including interest0.70.625.126.4

The Group manages the liquidity risk by maintaining sufficient cash and bank facilities to enable it to meet its normal operating commitments.

(f) Fair value measurements

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

  1. Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
  2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and
  3. Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

The following table presents the assets and liabilities measured at fair value at 31 December 2018.

£ Millions
 Level 1Level 2Level 3Total
Derivative financial instruments**
Derivative financial instruments(0.2)(0.2)
Derivative financial instruments0.20.2
Derivative financial instruments(0.2)(0.2)

*Balances are less than £100,000.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. These derivative financial instruments are included in Level 2.

(g) Offsetting financial assets and financial liabilities

The Group has no financial instruments subject to enforceable master netting arrangements.