Experian 2013 Annual Report Download - page 116
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8. Financial risk management (continued)
Market risk
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk from future commercial transactions, recognised assets and
liabilities and investments in, and loans between, undertakings with different functional currencies. The Group manages such risk, primarily
within undertakings whose functional currencies are US dollars, by borrowing in the relevant currencies and using forward foreign exchange
contracts. The principal transaction exposures are to sterling and the euro and an indication of the sensitivity to foreign exchange risk is given in
note 10.
Interest rate risk
The Group’s interest rate risk arises principally from its net debt and the portions thereof at variable rates which expose the Group to such risk.
The Group has a policy of normally maintaining between 50% and 100% (previously between 30% and 70%) of net funding at rates that are
fixed for more than six months. Net funding for this purpose is the total funding less freely available unrestricted cash. The Group’s interest rate
exposure is managed by the use of fixed and floating rate borrowings and by the use of interest rate swaps and cross currency interest rate
swaps to adjust the balance of fixed and floating rate liabilities. The Group also mixes the duration of its borrowings to smooth the impact of
interest rate fluctuations. Further information in respect of the Group’s net finance costs for the year and an indication of the sensitivity to interest
rate risk is given in note 15.
Price risk
The Group is exposed to price risk in connection with investments classified as available-for-sale financial assets and an indication of the
sensitivity to price risk is given in note 31.
Credit risk
In the case of derivative financial instruments, deposits and trade receivables, the Group is exposed to credit risk from the non-performance of
contractual agreements by the contracted party.
The credit risk for derivative financial instruments and deposits is minimised by a policy under which the Group only enters into such contracts
with banks and financial institutions with strong credit ratings, within limits set for each organisation. Dealing and deposit activity is closely
controlled and counterparty positions are monitored regularly. The general credit risk on derivative financial instruments utilised and deposits
held by the Group is therefore not considered to be significant. The Group does not anticipate that any losses will arise from non-performance
by these counterparties. Further information in respect of the Group’s derivative financial instruments at the balance sheet dates is given in note
32 and information in respect of amounts recognised in the Group income statement is given in note 15. Further information in respect of the
Group’s deposits at the balance sheet dates is given in note 27.
In order to minimise credit risk for trade receivables, the Group has implemented policies that require appropriate credit checks on potential
clients before granting credit. The maximum credit risk in respect of such financial assets is the carrying value of the assets. Further information
in respect of the Group’s trade receivables is given in note 26.
Liquidity risk
The Group maintains long-term committed borrowing facilities to ensure it has sufficient funds available for operations and planned
expansions. The Group monitors rolling forecasts of projected cash flows to ensure that it will have adequate undrawn committed facilities
available.
Details of the facilities available to the Group and their utilisation at the balance sheet date are given in note 29. The maturity analysis of financial
liabilities is given in note 34.
(b) Capital risk management
The Group’s definition and management of capital focuses on capital employed and the Group’s capital employed is reported in the net assets
summary table set out in the financial review and analysed further in note 9.
The Group’s objectives in managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure and cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue or purchase shares or sell assets to reduce net debt.
As part of its internal reporting processes the Group monitors capital employed by operating segment. The Group manages its working capital
and capital expenditure with the aim of converting at least 90% of EBIT into operating cash flow and has exceeded this target in the current and
prior year.
Notes to the Group financial statements continued