Risk management policies

12 Months Ended

Dec. 31, 2023

Disclosure of risk management strategy related to hedge accounting [abstract]

24. Risk management policies

Foreign currency risk

The Group’s results in pounds sterling are subject to fluctuation as a result of exchange rate movements. The Group does not hedge this translation exposure to its earnings but does partially hedge the currency element of its net assets using foreign currency borrowings, cross-currency swaps, forward foreign exchange contracts and non-deliverable forward foreign exchange contracts.

The Group effects these currency net asset hedges by borrowing in the same currencies as the operating (or “functional”) currencies of its main operating units. The majority of the Group’s debt is therefore denominated in US dollars, pounds sterling and euros. The Group’s borrowings (including cross currency swaps) at 31 December 2023 were primarily made up of $1,874 million, £1,094 million and €2,100 million (2022: $1,667 million, £1,094 million and €2,350 million). The Group’s average gross debt during the course of 2023 was $2,511 million, £1,173 million and €2,321 million (2022: $1,667 million, £1,094 million, €2,404 million).

The Group’s operations conduct the majority of their activities in their own local currency and consequently the Group has no significant transactional foreign exchange exposures arising from its operations. Any significant cross-border trading exposures are hedged by the use of forward foreign-exchange contracts. No speculative foreign exchange trading is undertaken.

Interest rate risk

The Group is exposed to interest rate risk on both interest-bearing assets and interest-bearing liabilities. The Group has a policy of actively managing its interest rate risk exposure while recognising that fixing rates on all its debt eliminates the possibility of benefiting from rate reductions and similarly, having all its debt at floating rates unduly exposes the Group to increases in rates.

Including the effect of interest rate and cross-currency swaps, 100% of the year-end US dollar debt is at fixed rates averaging 4.62% for an average period of 66 months; 100% of the sterling debt is at a fixed rate of 2.97% for an average period of 130 months; and 100.0% of the euro debt is at fixed rates averaging 2.12% for an average period of 48 months.

Going concern and liquidity risk

In considering going concern and liquidity risk, the Directors have reviewed the Group’s future cash requirements and earnings projections. The Directors believe these forecasts have been prepared on a prudent basis and have also considered the impact of a range of potential changes to trading performance. The Company modelled a range of revenue less pass-through costs compared with the year ended 31 December 2023 and a number of mitigating cost actions that are available to the Company. Considering the Group’s liquidity headroom taking into account the suspension of share buybacks, dividends and acquisitions, and cost mitigation actions which could be implemented, show that the Company and the Group would be able to operate with appropriate liquidity and be able to meet its liabilities as they fall due. The Company modelled a range of revenue less pass-through cost declines up to 31% compared with the year ended 31 December 2023. The likelihood of such a decline is considered remote as compared to Company expectations and external benchmarks. The modelling in this extreme scenario includes cost mitigations of 70% of the decline in revenue less pass-through costs and the suspension of the share buyback programme and dividend. Further measures that were not included in the modelling, should the Company face such an extreme scenario, include the reduction of capital expenditure and acquisitions. Based on the outcome of the above assessments, the Directors have concluded that it is reasonable to expect that the Group will be able to operate within its current facilities for the period of assessment and are therefore comfortable that the Company will be a going concern for at least

12 months from the date of signing the Group's consolidated financial statements. As such, it is appropriate to prepare the financial statements of the Group on a going concern basis.

At 31 December 2023, the Group has access to £6.4 billion of committed facilities with maturity dates spread over the years 2024 to 2046 as illustrated below:


		2024	2025	2026	2027	2028	+
		£m	£m	£m	£m	£m
£ bonds £400m (2.875% 2046)	400.0					400.0
US bond $220m (5.625% 2043)	172.7					172.7
US bond $93m (5.125% 2042)	72.9					72.9
£ bonds £250m (3.75% 2032)	250.0					250.0
Eurobonds €600m (1.625% 2030)	520.2					520.2
Eurobonds €750m (4.125% 2028)	650.2					650.2
Eurobonds €750m (2.375% 2027)	650.2				650.2
Eurobonds €750m (2.25% 2026)	650.2			650.2
Bank revolver ($2,500m 2026)	1,963.7			1,963.7
Eurobonds €500m (1.375% 2025)	433.5		433.5
US bond $750m (3.75% 2024)	589.1	589.1
Total committed facilities available	6,352.7	589.1	433.5	2,613.9	650.2	2,066.0
Drawn down facilities at 31 December 2023	4,389.0	589.1	433.5	650.2	650.2	2,066.0
Undrawn committed credit facilities	1,963.7

Given its debt maturity profile and available facilities, the Directors believe the Group has sufficient liquidity to match its requirements for the foreseeable future.

Treasury activities

Treasury activity is managed centrally from London, New York and Hong Kong, and is principally concerned with the monitoring of working capital, managing external and internal funding requirements and the monitoring and management of financial market risks, in particular interest rate and foreign exchange exposures.

The treasury operation is not a profit centre and its activities are carried out in accordance with policies approved by the Board of Directors and subject to regular review and audit.

The Group manages liquidity risk by ensuring continuity and flexibility of funding even in difficult market conditions. Undrawn committed borrowing facilities are maintained in excess of peak net-borrowing levels and debt maturities are closely monitored. Targets for average debt less cash position are set on an annual basis and, to assist in meeting this, working capital targets are set for all the Group’s major operations.

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 10, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity and in notes 26 and 27.

Credit risk

The Group’s principal financial assets are cash and short-term deposits, trade and other receivables and other investments, the carrying values of which represent the Group’s maximum exposure to credit risk in relation to financial assets, as shown in note 25.

The Group’s credit risk is primarily attributable to its trade receivables. The majority of the Group’s trade receivables are due from large national or multinational companies where the risk of default is considered low. The amounts presented in the consolidated balance sheet are net of expected credit losses, estimated by the Group’s management based on expected losses, prior experience and their assessment of the current economic environment. A relatively small number of clients make up a significant percentage of the Group’s debtors, but no single client represents more than 6% of total trade receivables as at 31 December 2023 or 31 December 2022.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are high-rated (AAA) funds, banks with high credit ratings assigned by international credit-rating agencies or banks that have been financed by their government.

Effects of Hedge Accounting on the Financial Position and Performance

The effects of the hedging instruments on the Group's financial position and performance are as follows:


	2023		2022
(i) Cash flow hedges of foreign currency risk1
Carrying amount of derivative hedging instruments2	£(16.5)m		£(6.6)m
Notional amount of hedged items	€1,250.0m		€1,000.0m
Notional amount of hedging instruments	€1,250.0m		€1,000.0m
Maturity date	2025-2028		2023-2025
Hedge ratio	1:1		1:1
Change in value of hedged item used to determine hedge effectiveness for outstanding hedging instruments	£(32.4)m		£38.5m
Change in value of hedging instruments used to determine hedge effectiveness for outstanding hedging instruments	£29.6m		£(41.4)m
Hedge ineffectiveness (revaluation and retranslation of financial instruments)	£2.7m		£2.9m
Weighted average hedged rate for outstanding hedging instruments	4.4	%	3.2	%
(ii) Net investment hedges of foreign currency risk
Carrying amount of derivative hedging instruments2	£48.2m		£(46.9)m
Carrying amount of non-derivative hedging instruments (bonds)	£(835.0)m		£(879.5)m
Notional amount of hedging instruments	$1,873.9m		$1,666.8m
Notional amount of hedged net assets	$1,873.9m		$1,666.8m
Hedge ratio	1:1		1:1
Change in value of hedged item used to determine hedge effectiveness	£108.2m		£(141.5)m
Change in value of hedging instrument used to determine hedge effectiveness	£(110.1)m		£141.5m
Hedge ineffectiveness (revaluation and retranslation of financial instruments)	£1.9m		£0.0
Weighted average hedged rate for the year (USD/GBP)	1.2731		1.2083

Notes

1Relates to cross currency swaps designated as cash flow hedges

2This amount is presented in trade and other receivables, and trade and other payables. The use of derivatives may entail a derivative transaction qualifying for more than one hedge type designation under IFRS 9. Therefore, the carrying amounts are grossed up by hedge type, whereas they are presented at an instrument level in the balance sheet.

Sensitivity analysis

The following sensitivity analysis addresses the effect of currency and interest rate risks on the Group’s financial instruments. The analysis assumes that all hedges are highly effective.

Currency risk

A 10% weakening of sterling against the Group’s major currencies would result in the following impacts on the income statement and equity, which would arise on the retranslation of foreign currency-denominated monetary items. A 10% strengthening of sterling would have an equal and opposite effect.


	Impact on income statement		Impact on equity
	2023	2022	2023	2022
	£m	£m	£m	£m
US dollar	(41.0)	(179.6)	(18.0)	34.6
Euro	(185.8)	78.9	—	(11.3)

Interest rate risk

A one percentage point increase in market interest rates for all currencies in which the Group had cash and borrowings at 31 December 2023 would increase profit before tax by approximately £18.6 million (2022: £19.9 million). A one percentage point decrease in market interest rates would have an equal and opposite effect. This has been calculated by applying the interest rate change to the Group’s variable rate cash and borrowings. Note that in practice, the Group has a cyclical cash profile throughout the year.