Experian 2013 Annual Report Download - page 114
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Please find page 114 of the 2013 Experian annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.112 Experian Annual Report 2013 Financial statements
6. Critical accounting estimates and judgments (continued)
Fair value of derivatives and other financial instruments (note 32)
The fair value of derivatives and other financial instruments that are not traded in an active market (for example, over-the-counter derivatives)
is determined using valuation techniques. The Group uses its judgment to select a variety of methods and makes assumptions, or uses
observable market based inputs, that are mainly based on market conditions at each balance sheet date.
Share incentive plans (note 35)
The assumptions used in determining the amounts charged in the Group income statement include judgments in respect of performance
conditions and length of service together with future share prices, dividend and interest yields and exercise patterns.
Pension benefits (note 36)
The present value of the defined benefit assets and obligations and net pension costs depend on factors that are determined on an actuarial
basis using a number of assumptions. These include the expected rate of return on the plan assets and the discount rate. Any changes in these
assumptions may impact on the amounts disclosed in the Group financial statements.
The expected return on plan assets is calculated by reference to the plan investments at the balance sheet date and is a weighted average of the
expected returns on each main asset type based on market yields available on these asset types at the balance sheet date.
The Group determines the appropriate discount rate at the end of each year. This is the interest rate used to calculate the present value of
estimated future cash outflows expected to be required to settle the defined benefit obligations. In determining the discount rate, the Group
has considered the prevailing market yields of high-quality corporate bonds that are denominated in the currency in which the benefits will be
paid, and that have terms to maturity consistent with the estimated average term of the related pension liability. Management has accordingly
determined the appropriate discount rate by consideration of an AA rated corporate bond yield curve and the estimated future cash outflows.
Other key assumptions for defined benefit obligations and pension costs are based in part on market conditions at the relevant balance sheet
dates and additional information is given in note 36.
(b) Critical judgments
Management has made judgments in the process of applying the Group’s accounting policies that have a significant effect on the amounts
recognised in the Group financial statements. These judgments include the classification of transactions between the Group income statement
and the Group balance sheet.
The most significant of these judgments is in respect of intangible assets where certain costs incurred in the developmental phase of an
internal project are capitalised if a number of criteria are met. Management has made judgments and assumptions when assessing whether
a project meets these criteria, and on measuring the costs and the economic life attributed to such projects. On acquisition, specific intangible
assets are identified and recognised separately from goodwill and then amortised over their estimated useful lives. These include such items
as brand names and customer lists, to which value is first attributed at the time of acquisition. The capitalisation of these assets and the related
amortisation charges are based on judgments about the value and economic life of such items. The economic lives for intangible assets
are estimated at between three and ten years for internal projects, which include databases, internal use software and internally generated
software, and between two and twenty years for acquisition intangibles. Further details of the amounts of, and movements in, such assets are
given in note 22.
7. Use of non-GAAP measures in the Group financial statements
The Group has identified certain measures that it believes assist understanding of the performance of the business. The measures are not
defined under IFRS and they may not be directly comparable with other companies’ adjusted measures. The non-GAAP measures are not
intended to be a substitute for, or superior to, any IFRS measures of performance but management has included them as they consider them to
be key measures used within the business for assessing performance.
The following are the key non-GAAP measures used in the Group financial statements. The only additions to this list of definitions since the
annual report for the year ended 31 March 2012 are definitions of EBITDA, the Benchmark tax charge and rate, free cash flow and cash flow
conversion. These definitions have been added for the sake of completeness.
Benchmark profit before tax (‘Benchmark PBT’)
Benchmark PBT is defined as profit before amortisation of acquisition intangibles, acquisition expenses, goodwill impairments, adjustments
to contingent consideration, charges in respect of the demerger-related share incentive plans, exceptional items, financing fair value
remeasurements, tax and discontinued operations. It includes the Group’s share of continuing associates’ pre-tax results.
Earnings before interest and tax (‘EBIT’)
EBIT is defined as profit before amortisation of acquisition intangibles, acquisition expenses, goodwill impairments, adjustments to contingent
consideration, charges in respect of the demerger-related share incentive plans, exceptional items, net finance costs, tax and discontinued
operations. It includes the Group’s share of continuing associates’ pre-tax results.
Notes to the Group financial statements continued