22. Financial risk management

The Group has exposure to the following risks from its use of financial instruments:

(i)credit risk

(ii)liquidity risk

(iii)market risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

(i) Credit risk

Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from clients and investment securities. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.

At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Trade and other receivables

Total trade receivables (net of allowances) held by the Group at 31 December 2007 amounted to £160.9m (2006: £118.2m).

An initial credit period is made available on invoices. No interest is charged on trade receivables from the date of the invoice during this credit period. Thereafter, interest is charged on the outstanding balance. The Group has provided fully for all receivables over 150 days because historical experience is such that receivables past due beyond 150 days are generally not recoverable. Trade receivables below 150 days are provided for based on estimated irrecoverable amounts from the provision of our services, determined by reference to past default experience.

Included in the Group's trade receivable balance are debtors with a carrying amount of £77.7m (2006: £55 .9m) that are past due at the reporting date for which the Group has not provided as the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 54 days in excess of the initial credit period (2006: 51 days).

The aging of trade receivables at the reporting date was:

	Gross receivables 2007 £'000	Provision 2007 £'000	Gross receivables 2006 £'000	Provision 2006 £'000
Not past due	83,486	178	62,360	41
Past due 0-30 days	46,554	467	37,681	460
Past due 31-150 days	32,261	784	19,514	809
More than 150 days	2,304	2,304	1,960	1,960
	164,605	3,733	121,515	3,270

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each client. The demographics of the Group's client base, including the country in which clients operate, also has an influence on credit risk. Less than 5% of the Group's revenue is attributable to sales transactions with a single client. The geographic diversification of the Group's revenue also reduces the concentration of credit risk.

The majority of the Group's clients have been transacting with the Group for several years, with losses rarely occurring. In monitoring client credit risk, clients are grouped according to their credit characteristics, including geographic location, industry, aging profile, maturity and existence of previous financial difficulties.

Movement in the allowance for doubtful debts

	2007 £'000	2006 £'000
Balance at beginning of the year	3,270	2,328
Impairment losses recognised on receivables	5,682	3,923
Amounts written off as uncollectable	(1,244)	(431)
Amounts recovered during the year	(1,638)	(1,177)
Impairment losses reversed	(2,337)	(1,373)
Balance at end of the year	3,733	3,270

The majority of the allowance for doubtful debts are individually impaired trade receivables with a balance of £1.1m (2006: £0.8m) which have been placed in litigation, as well as a further provision for debts of 150 days and over.

The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over these balances.

Exposure to credit risk

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

	Carrying amount
	2007 £'000	2006 £'000
EMEA	84,324	53,964
United Kingdom	55,097	50,270
Asia Pacific	12,978	9,234
Americas	8,473	4,777
	160,872	118,245

The maximum exposure to credit risk for accrued income at the reporting date by geographic region was:

	Carrying amount
	2007 £'000	2006 £'000
EMEA	456	150
United Kingdom	14,195	12,108
Asia Pacific	4,729	3,387
Americas	1,963	852
	21,343	16,497

The entire accrued income balance is not past due. The fair values of trade and other receivables are not materially different to those disclosed above.

(ii)Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management framework that aims to ensure that the Group has sufficient cash or credit facilities at all times to meet all current and forecast liabilities as they fall due. It is the Directors' intention to continue to finance the activities and development of the Group from retained earnings and to operate the Group's business while maintaining the net cash/debt position within a relatively narrow band.

Cash surpluses are invested in short-term deposits, with any working capital requirements being provided from Group cash resources, Group facilities, or by local overdraft facilities. Cash generated in excess of these requirements will be used to buy back the Company's shares. The Group also operates a multi-currency notional cash pool to facilitate interest and balance compensation of cash and bank overdrafts.

The following are the contractual maturities of financial liabilities.

	Carrying amount
2007	Less than 1 month £'000	1-3 months £'000	3-12 months £'000	More than 12 months £'000
Trade payables	5,030	970	1,067	150
Accruals and other payables	51,725	24,257	19,061	4,023
Bank overdraft	47,433	–	–	–

	Carrying amount
2006	Less than 1 month £'000	1-3 months £'000	3-12 months £'000	More than 12 months £'000
Trade payables	4,800	318	157	355
Accruals and other payables	40,065	7,118	21,177	2,815
Bank overdraft	43	–	–	–

(iii) Market risk and sensitivity analysis

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates, but these risks are not deemed to be material. However, a sensitivity analysis showing hypothetical fluctuations in Pounds Sterling against the Group's main exposure currencies is shown below. There has been no material change in the Group's exposure to market risks or the manner in which it manages and measures the risk.

For additional information on market risk, refer to 'Treasury management and currency risk' in the Financial Review.

Interest rate risk management

Borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Group does not consider this risk as significant. The benchmark rates for determining floating rate liabilities are based on relevant national LIBOR equivalents.

The average interest rates paid were as follows:

	2007	2006
Bank overdrafts	6.40%	4.26%
Bank loans	6.22%	5.40%

Currency rate risk

We publish our results in Pounds Sterling and conduct our business in many foreign currencies. As a result, we are subject to foreign currency exchange risk due to exchange rate movements. We are exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currencies of some of our subsidiaries and the translation of the results and underlying net assets of our foreign subsidiaries.

The main functional currencies of the Group are Sterling, Euro and Australian Dollar. The Group does not have material transactional currency exposures, nor is there a material exposure to foreign denominated monetary assets and liabilities. The Group is exposed to foreign currency translation differences in accounting for its overseas operations although our policy is not to hedge this exposure.

In certain cases, where the Group gives or receives short-term loans to and from other Group companies with different reporting currencies, it may use foreign exchange swap derivative financial instruments to manage the currency and interest rate exposure that arises on these loans. It is the Group's policy not to seek to designate these derivatives as hedges.

Sensitivity analysis - currency risk

A 10 percent strengthening of sterling against the following currencies at 31 December would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis is applied currency by currency in isolation, i.e. ignoring the impact of currency correlation, and assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2006.

The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from those projected, due to developments in the global financial markets which may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the table below, which therefore should not be considered a projection of likely future events and losses.

	2007 Equity £'000	PBT £'000
Euro	(7,060)	(4,617)
Australian Dollar	(1,530)	(796)
Swiss Franc	(572)	(257)
Hong Kong Dollar	(523)	(324)
Brazilian Real	(509)	(442)
United States Dollar	(330)	3
Other	(945)	(245)

	2006 Equity £'000	PBT £'000
Euro	(3,049)	(2,168)
Australian Dollar	(756)	(424)
Swiss Franc	(174)	(107)
Hong Kong Dollar	(267)	(160)
Brazilian Real	(175)	(247)
United States Dollar	116	64
Other	(439)	(181)

A 10 percent weakening of sterling against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

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