The primary responsibilities of the central treasury function are to procure the Group’s capital resources, maintain an efficient capital structure, and manage the Group’s liquidity, foreign exchange, interest rate, insurance and pensions risks on a Group-wide basis.

The central treasury function operates within strict policies and guidelines approved by the Board. Compliance with these policies and guidelines is monitored through the regular reporting of treasury activities.

A key element of our treasury philosophy is that funding, interest rate and currency risk decisions and the location of cash and debt balances are determined independently from each other. For example, the Group’s debt requirements are met by raising funds in the most favourable markets, with the desired currency profile of net debt being achieved by entering into foreign exchange contracts where necessary. Similarly, the desired interest rate maturity of net debt is achieved by taking account of all debt and cash balances together with any foreign exchange transactions used to manage the currency profile of net debt. We operate systems to ensure that all relevant assets and liabilities are taken into account on a Group-wide basis when making these decisions. This portfolio approach to financial risk management enables our activities in these areas to be carried out effectively and efficiently and with a high degree of visibility.

Borrowing facilities

Borrowing facilities are monitored against forecast requirements and timely action is taken to put in place, renew or replace credit lines. Our policy is to reduce financing risk by diversifying our funding sources and by staggering the maturity of our borrowings.

It is our policy to retain sufficient liquidity throughout the capital expenditure cycle to maintain our financial flexibility and to preserve our investment grade credit rating. We do not anticipate any material long-term deterioration in our overall liquidity position in the foreseeable future.

Two bonds have been drawn under the Group’s Euro Medium Term Note (“EMTN”) Programme. Our initial £150 million bond has a 10-year maturity and is due in December 2011. In September 2003, we issued a further £250 million bond with a 12-year maturity. Our committed bank borrowing facility is a multi-currency revolving credit facility of £400 million, which matures in August 2010.

Details of our committed and uncommitted borrowing facilities are set out below:

Headroom under committed and uncommitted credit facilities

As at 29 December 2007	Facility £ million	Drawings £ million	Headroom £ million
Bond issues	400.0	(400.0)	-
Multi-currency revolving credit facility	400.0	(18.0)	382.0
Finance leases	4.8	(4.8)	-
Total committed facilities	804.8	(422.8)	382.0
Uncommitted credit facilities	254.7	(22.5)	232.2
Bonds, standby letters of credit, bank guarantees	-	(92.4)	(92.4)
Total uncommitted facilities	254.7	(114.9)	139.8
Total headroom	1,059.5	(537.7)	521.8
Less uncommitted facilities			(254.7)
Total committed (minimum) headroom			267.1
Cash balances			151.2

Credit rating

In December 2001, we established long-term credit ratings with Moody’s and Standard & Poor’s. Our current ratings are Baa3 Stable and BBB Stable respectively. They cover our EMTN Programme and the two bonds issued thereunder. We also have a short-term rating of P-3 with Moody’s. Our aim is to manage the Group’s capital structure to maintain investment grade credit ratings.

Levels of borrowing and seasonality

During 2007, our gross borrowings (excluding convertible cumulative preference shares) and our net borrowings decreased with gross debt of £448.2 million and net debt of £296.8 million on 29 December 2007 (2006: £583.3 million and £403.0 million respectively). The peak level of net debt during the year was £426.5 million. Cash flows during the year are detailed in the table in the Cash Flow section under Other financial items and in note 16 of the Group financial statements. As the majority of the Group’s debt is denominated in currencies other than sterling, reported net debt also increased by £12.1 million, largely as a result of the strengthening of the Canadian dollar during the period.

Our weighted average cost of net debt at 29 December 2007 was 7.7% (2006: 7.0%).

We operate in a wide range of markets and geographic locations and as a result the seasonality of our borrowing requirements is low. Underlying cyclicality before capital expenditure is driven principally by the timing of our ordinary dividends and interest payments.

Funding requirements for investment commitments and authorisations

Our present policy is to fund new investments first from existing cash resources and then from borrowings sourced centrally. It is our intention to maintain surplus undrawn borrowing facilities sufficient to enable our investment grade credit ratings to be maintained and to enable us to manage the Group’s liquidity through the operating and investment cycle. We maintain a regular dialogue with the rating agencies, and the potential impact on our credit rating is taken into consideration when making capital allocation decisions.

Maximising returns on cash balances

Our central treasury function is responsible for maximising the return on surplus cash balances within liquidity and counterparty credit constraints imposed by our Board-approved liquid funds policy. This is done, where practical, by controlling directly all surplus cash balances and pooling arrangements on an ongoing basis and by reviewing the efficiency of all other cash balances across the Group on a weekly basis.

Our policy is to apply funds from one part of the Group to meet the obligations of another part wherever possible, to ensure maximum efficiency of the Group’s funds. No material restrictions apply that limit the application of this policy. It is anticipated that surplus cash in excess of that required for operating purposes held in operating companies will be repatriated or reinvested in new investments during 2008.

At 29 December 2007, our total cash and investments were £151.2 million (including collateralised cash and before interest accruals), of which £138.2 million was interest earning. Of the total cash and investments balance, £37.4 million was invested in short-term deposits by our treasury department, £4.4 million of cash was held in our captive insurance company, Tomkins Insurance Limited, £32.1 million of cash was held in our Asian Unitta companies and £77.3 million of cash was held in centrally controlled pooling arrangements and with local operating companies. At 29 December 2007, £57.0 million of our cash balance was under the direct control of Group treasury.

Interest earned on bank deposits during 2007 was £4.2 million (2006: £4.8 million).

Foreign currency translation exposures

The majority of the Group’s activities are transacted in US dollars but the reporting currency of the Group is sterling. This gives rise to potential currency translation exposures in the balance sheet, income statement and cash flow. The currency profile of the Group’s net borrowings is actively managed to align with the currencies in which the Group’s assets are denominated, thereby hedging the foreign currency translation exposure arising from the Group’s overseas investments. The proportion of overseas investments effectively funded by shareholders’ equity is not hedged.

We do not hedge foreign currency profit and loss translation exposures and the reported results may therefore be affected by currency fluctuations.

The impact on reported earnings per share is partly offset to the extent that interest arises on foreign currency net borrowings.

Interest payments on foreign currency net borrowings are funded with cash flows generated by the corresponding foreign currency investments. The main potential impact of a movement in the US dollar/sterling exchange rate is the effect on dividends. The majority of the Group’s cash flow is generated in US dollars from the cash flows generated by overseas investments.

Information on our use of derivatives and financial instruments is given in note 31 to the Group financial statements, and the year end and average exchange rates for selected currencies are set out in note 49 in the Group financial statements.

Foreign currency transaction exposures

The foreign currency transaction exposures in the business are protected with forward currency purchases and sales. These are put in place when foreign currency trading transactions are committed or when there is a high likelihood of such transactions arising. All foreign exchange contracts are carried out by our central treasury function, except in cases where this is prohibited by local regulations. In these cases, local transactions are reported to central treasury on a systematic basis.

Our principal net currency transaction exposures arising during 2007 included US dollar to sterling (£48.4 million), euro to sterling (£26.5 million) and euro to Polish zloty (£27.4 million).

Interest rate risk management

Our central treasury function manages the Group’s interest rate profile within the policy established by the Board. This is achieved by considering the portfolio of all of our interest-bearing assets and liabilities across the Group. Our net desired interest rate profile in each currency is then managed by entering into interest rate swaps, options and forward rate agreements. At 29 December 2007, the interest rate maturity profile of our Canadian dollar, euro and sterling net debt was less than three months and £32.6 million of our US dollar net debt was fixed until December 2009.

Borrowing covenants

We are subject to covenants, representations and warranties commonly associated with investment grade borrowings on our committed 2010 £400 million multi-currency revolving credit facility, our £150 million 2011 bond and our £250 million 2015 bond.

We are subject to two financial covenants under our committed £400 million multi-currency revolving credit facility. The ratio of net debt to consolidated EBITDA must not exceed 2.5 times and the ratio of consolidated profit from operations to consolidated net interest charge must not be less than 3.0 times. Throughout 2007, we have been comfortably within these limits. These financial covenants are calculated by applying UK GAAP extant as at 31 December 2002 and are therefore unaffected by the subsequent transition to IFRS.

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