Experian 2011 Annual Report Download - page 47

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Business review Financial review 45
Accounting policies, estimates and
assumptions
The principal accounting policies used
are shown in note 5 to the Group financial
statements. Details of critical accounting
estimates and assumptions are shown in
note 6(a) to those financial statements.
The most significant of these relate to tax,
pension benefits, goodwill and financial
instruments and the key features can be
summarised as follows:
•Estimates made in respect of tax assets
and liabilities include the consideration
of transactions in the ordinary course
of business for which the ultimate tax
determination is uncertain.
•The recognition of pension benefits
involves the selection of appropriate
actuarial assumptions. Changes therein
may impact on the amounts disclosed in
the Group balance sheet and the Group
income statement.
•The assumptions used in the cash flow
projections underpinning the impairment
testing of goodwill include assumptions
in respect of profitability and future
growth, together with pre-tax discount
rates specific to the Group’s operating
segments.
•The assumptions in respect of the
valuation of the put option associated
with the remaining 30% stake of Serasa
are the equity value of Serasa, the
future P/E ratio of Experian at the date
of exercise, the respective volatilities of
Experian and Serasa and the risk free rate
in Brazil.
Financial risk management
The risks and uncertainties that are
specific to Experian’s business together
with more general risks are set out on
pages 38 to 41. As indicated therein,
the Group’s financial risk management
focuses on the unpredictability of financial
markets and seeks to minimise potentially
adverse effects on the Group’s financial
performance.
2010 EBIT by currency
US dollar
Sterling
Brazilian real
Experian seeks to reduce its exposures to
foreign exchange, interest rate and other
financial risks. Detailed disclosures in
respect of such risks are included within
the notes to the Group financial statements
and the key features are summarised below.
Foreign exchange risk is managed by:
•Use of forward foreign exchange
contracts for future commercial
transactions;
•Swapping the proceeds of bonds issued
in sterling and euros into US dollars;
•Denominating internal loans in relevant
currencies to match the currencies of
assets and liabilities in entities with
different functional currencies; and
•Entering into forward foreign exchange
contracts in the relevant currencies in
respect of investments in entities with
other functional currencies, whose net
assets are exposed to foreign exchange
translation risk.
Interest rate risk is managed by:
•Use of both fixed and floating rate
borrowings;
•Use of interest rate swaps to adjust
the balance of fixed and floating rate
liabilities; and
•Mix of duration of borrowings and interest
rate swaps to smooth the impact of
interest rate fluctuations.
2011 Net debt by interest rate
Fixed
Floating
2010 Net debt by interest rate
Fixed
Floating
2011 EBIT by currency
US dollar
Sterling
Brazilian real