directors report and accounts 2006 - Financial



The Group’s subsidiary undertakings operate over 120 active retirement  benefit arrangements worldwide. These arrangements have been developed in accordance with local practices in the countries concerned. The majority of employees belong to defined benefit schemes, most of which are funded externally, although the Group operates a number of defined contribution schemes. The contributions to the Group’s defined benefit schemes and their valuations are determined in accordance with the advice of independent, professionally qualified actuaries. Changes in asset returns, salary increases, inflation, long term interest rates and other actuarial assumptions could have an adverse impact on the Group.

Funding and liquidity risks expose the Group to shortages of cash and cash equivalents needed in the Group’s operations and for refinancing of existing debt. The Group cannot be certain that it will at all times have access to the bank and capital markets and that the failure to achieve such access will not have an adverse effect on the Group’s funding and liquidity position and on its credit ratings.

The Group is exposed to changes in currency rates on the translation of the net assets of overseas subsidiaries into the Group’s reporting currency, sterling. The Group is also exposed to currency changes from the translation of profits earned in overseas subsidiaries; these exposures are not normally hedged. Exposures also arise from the foreign currency denominated trading transactions undertaken by subsidiaries and dividend flows. The Group maintains both floating and fixed rate debt. Where appropriate, the Group also uses derivatives, primarily interest rate swaps, to vary the fixed to floating mix. Changes in currency values and interest rates could have an adverse impact on the financial condition or operations of the Group.

Cash deposits and other financial instruments give rise to credit risk on the amounts due from counterparties. The failure of any counterparty to meet its obligations to the Group could have an adverse effect on the financial condition or operations of the Group.

See further details on the Group’s financial management and treasury operations.