Experian 2016 Annual Report Download - page 130

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Notes to the Group financial statements continued
for the year ended 31 March 2016
Financial statements •Notes to the Group nancial statements
7. Financial risk management
(a) Financial risk factors
The Group’s activities expose it to a variety of financial risks. These are market risk, including foreign exchange risk and interest
rate risk, credit risk, and liquidity risk. These risks are unchanged from those reported in the annual report for the year ended
31 March 2015. The numeric disclosures in respect of financial risks are included within later notes to the financial statements,
to provide a more transparent link between financial risks and results.
Financial risks represent part of the Group’s risks in relation to its strategy and business objectives. There is a full discussion of
the most significant risks in the Principal risks section of this Annual Report. 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.
The Group seeks to reduce its exposure to financial risks and uses derivative financial instruments to hedge certain risk exposures.
However the Group does not, nor does it currently intend to, borrow in the Brazilian real or the Colombian peso.
The Group also ensures surplus funds are prudently managed and controlled.
Market risk
Foreign exchange risk
The Group is exposed to foreign exchange risk from future commercial transactions, recognised assets and liabilities and
investments in, and loans between, Group undertakings with different functional currencies. The Group manages such risk, primarily
within undertakings whose functional currencies are US dollars, by:
• entering into forward foreign exchange contracts in the relevant currencies in respect of investments in entities with functional
currencies other than US dollars, whose net assets are exposed to foreign exchange translation risk;
• swapping the proceeds of certain 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
• using forward foreign exchange contracts for certain future commercial transactions.
The principal transaction exposures are to sterling and the euro. An indication of the sensitivity to foreign exchange risk is given in note 9.
Interest rate risk
The Group’s interest rate risk arises principally from its net debt and the amounts at variable rates.
The Group has a policy of normally maintaining between 50% and 100% of net funding at rates that are fixed for more than six
months. The Group manages its interest rate exposure by:
• using fixed and floating rate borrowings and interest rate swaps and cross currency interest rate swaps to adjust the balance
between the two; and
• mixing the duration of borrowings and interest rate swaps 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 14.
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.
Credit risk is managed by:
• only entering into contracts for derivative financial instruments and deposits with banks and financial institutions with strong
credit ratings, within limits set for each organisation; and
• closely controlling dealing activity and regularly monitoring counterparty positions.