Experian 2010 Annual Report Download - page 44

Experian Annual Report 2010 Business review42
consists of a decit in the principal
Experian dened benet plan in the UK
of US$38m (2009: US$19m) and other
pension obligations of US$50m (2009:
US$39m). Further details are included
in note 30 to the Group nancial
statements.
Goodwill is allocated to cash generating
units. The assumptions used in the
cash ow projections underpinning the
impairment testing of goodwill include
assumptions in respect of protability
and future growth, together with
pre-tax discount rates specic to the
Group’s operating segments. These
assumptions are set out in further
detail in note 4 to the Group nancial
statements.
The assumptions in respect of the
valuation of the put option associated
with the remaining 30% stake of Serasa
Experian are set out in note 5 to the
Group nancial statements.
Financial risk management
The risks and uncertainties that are
specic to Experian’s business together
with more general risks are set out on
pages 34 to 37. As indicated therein,
the Group’s nancial risk management
focuses on the unpredictability of
nancial markets and seeks to minimise
potential adverse effects on the Group’s
nancial performance.
Experian seeks to reduce its exposures
to foreign exchange, interest rate and
other nancial risks and disclosures
in respect of such risks, as required by
IFRS 7, are included within the notes to
the Group nancial statements.
Foreign exchange risk
Reported prot can be signicantly
affected by currency movements. In
the year ended 31 March 2010 some 37%
(2009: 34%) of the Group’s EBIT from
continuing operations was earned in
currencies other than the US dollar,
of which some 15% (2009: 17%) was
attributable to sterling and 17% (2009:
13%) to the Brazilian real.
Experian is exposed to foreign
exchange risk from future commercial
transactions, recognised assets and
liabilities and investments in, and
loans between, entities with different
functional currencies. During the year,
such risk was managed, primarily within
entities whose functional currencies
are the US dollar, by borrowing in the
relevant foreign currencies and by using
forward foreign exchange contracts.
The principal transaction exposures
in the year have been to sterling and
the euro, with no signicant transaction
exposures in respect of the
Brazilian real.
Experian has investments in entities
with other functional currencies,
whose net assets are exposed to
foreign exchange translation risk. In
order to reduce the impact of currency
uctuations on the value of such
entities, a policy is in place to borrow
in US dollars, euros and sterling and
to enter into forward foreign exchange
contracts in the relevant currencies.
Interest rate risk
Interest rate exposure is managed by
the use of both xed and oating rate
borrowings and by the use of interest
rate swaps to adjust the balance of xed
and oating rate liabilities. The duration
of borrowings and interest rate swaps is
mixed to smooth the impact of interest
rate uctuations.
Credit risk
The exposure to credit risk is managed
by dealing only with banks and nancial
institutions with strong credit ratings,
within limits set for each organisation.
Dealing activity is closely controlled and
counterparty positions are monitored
regularly.
Liquidity risk
Experian maintains long-term
committed facilities to ensure it has
sufcient funds available for operations
and planned expansions. Rolling
forecasts of projected cash ows are
monitored to ensure that adequate
undrawn committed facilities are
available.
Capital risk management and
going concern
The objectives in managing capital
are to safeguard the ability to continue
as a going concern in order to provide
returns for shareholders and benets
for other stakeholders and to maintain
an optimal capital structure and cost
of capital.
Experian remains committed to a
prudent but efcient balance sheet,
with a target gearing ratio of 1.75-2.0x
EBITDA, consistent with a desire to
retain a strong investment grade credit
rating. There are put and call options
over the 30% minority stake in Serasa,
which are exercisable from June 2012. In
view of the proximity of the rst exercise
date, it is appropriate to adjust this ratio
to include the value of the put option
of US$661m at 31 March 2010. This
mirrors the approach taken by the rating
agencies and on this adjusted basis the
net debt/EBITDA ratio was 1.8x at 31
March 2010.
In order to maintain or adjust the
capital structure, Experian may
adjust the amount of dividends paid
to shareholders, return capital to
shareholders, issue new shares or
sell assets to reduce net debt. In view
of the continuing reduction in its net
debt, Experian intends to spend up to
US$350m on purchasing its own shares
over the coming year, subject to free
cash ow and acquisition expenditure,
in order to maintain an efcient capital
structure while continuing to meet its
prudent gearing target.
As part of its internal reporting
processes, capital employed is
monitored by operating segment. For
this purpose, capital employed excludes
net debt and tax balances.
Experian manages its working capital
in order to meet its target to convert at
least 90% of its EBIT into operating cash
ow. This target forms one of its key
performance indicators.
Financial review (continued)
136
100
104
34
101
102