The principal financial risks managed by the group are foreign currency, interest and liquidity. The group's exposure to commodity risk is perceived to be small by virtue of the nature of the businesses.

Foreign exchange transaction risk is managed principally through forward contracts covering up to 75% of forecast forward exposures for up to eighteen months ahead. Foreign exchange translation risk, which results from converting foreign currency to sterling, is not hedged but is actively managed through natural hedging by matching invoicing and purchasing currencies as far as is commercially practical. In addition, it is the aim where possible to hedge foreign currency investments with borrowings in the same currency. In order to minimise interest cost and maximise interest income, companies are required to pass surplus funds to Group Treasury through inter-company loans. Where possible zero balance pools are in place to centralise cash automatically.

The long-term aim with regard to interest rate risk is to have a balance between fixed and floating rate debt. Interest rate swaps are considered to achieve this balance.

The group manages its liquidity risk through the use of regularly updated cash flow forecasts and liquidity headroom analysis to determine its funding requirements. The group maintains sufficient lines of credit from high quality investment grade lenders to cover expected cash requirements and provide reasonable headroom. The facilities are described in detail in the Financial Review.

Spectris' business is focused on the design and manufacture of technologically advanced products and applications and the group makes significant investment in research and development. As a consequence, the group owns and protects patents, trademarks, trade secrets, copyright information and intellectual property licenses. Although these are important to growth as a whole, no single patent, trade secret or trademark is sufficiently important to present a material risk to the success of the company. Appropriate measures are taken to protect the company's intellectual property rights and to minimise the risk of infringement by third parties. Spectris is prepared to initiate legal action if necessary to safeguard its interests. Inadvertent infringement of third-party rights also presents a risk and Spectris has procedures in place requiring its operating companies to maintain a watching brief on new applications and to undertake specific reviews prior to commencing new product development programmes, acquisitions or licenses.

Spectris depends on timely and reliable information from key software applications to aid day-to-day operational management and to provide accurate financial information for its head office. Whilst the company endeavours to ensure the continuous availability and operation of these systems and software, any disruption could delay or otherwise impact day-to-day decision making. Disaster recovery plans to maintain business-critical processes and activities in the event of a significant interruption to the normal course of business are in place throughout the group and are regularly tested.

Assessment of risk to the business is carried out on a continuous basis to determine any potential effects on the environment resulting both from product manufacture and operation of our products at the customer's site. Each operating company is required to produce a risk register which identifies possible hazardous risks to their business. For each risk the likelihood of the occurrence is documented, together with the possible consequences, the actions required to minimise the probability of the event occurring, and responsibility assigned to a member of the company's management team. The risk register is reviewed regularly by the group's internal audit function.

The company has no contractual or other arrangements which are essential to the business of the company, nor any key customers or major suppliers upon which it is dependent.