Annual Report and Accounts 2010

Other risks

Principal risks and uncertainties are outlined here of section 3 ‘Our performance’. Additional risks are set out below.

Other risks Mitigating factors
Changes in students’ buying and distribution behaviour put downward pressure on price. We are continuing to improve our pricing strategies, product bundling and contract terms. We are monitoring the development of rental programs.
Our professional services and school assessment businesses involve complex contractual relationships with both government agencies and commercial customers for the provision of various testing services. Our financial results, growth prospects and/or reputation may be adversely affected if these contracts and relationships are poorly managed. In addition to the internal business procedures and controls implemented to ensure we successfully deliver on our contractual commitments, we also seek to develop and maintain good relationships with our customers to minimise associated risks. We also look to diversify our portfolio to minimise reliance on any single contract.
We operate in markets which are dependent on Information Technology (IT) systems and technological change. We mitigate these IT risks by establishing strong IT policies and operational controls, employing project management techniques to manage new software developments and/or system implementations and have implemented an array of security measures to protect our IT assets from attacks or failures that could impact the confidentiality, availability or integrity of our systems.
Failure to generate anticipated revenue growth, synergies and/or cost savings from acquisitions could lead to goodwill and intangible asset impairments. We perform pre-acquisition due diligence and closely monitor the post-integration performance to ensure we are meeting operational and financial targets. Any divergence from these plans will result in management action to improve performance and minimise the risk of any impairments. Executive management and the board receive regular reports on the status of acquisition performance.
Expected benefits from our finance transformation programme initiatives may not be realised. We monitor the programme performance closely and seek to mitigate this risk through strong project management techniques and developed project plans. The project is managed by an executive committee and governance programmes have been established with our outsource providers.
Changes in our tax position can significantly affect our reported earnings and cash flows. We employ internal tax professionals in the UK and the US who review all significant arrangements around the world and respond to changes in tax legislation. They work closely with local management and external tax advisors.
We generate a substantial proportion of our revenue in foreign currencies particularly the US dollar, and foreign exchange rate fluctuations could adversely affect our earnings and the strength of our balance sheet. The Group’s policy on managing foreign currency risk is described in note 19 to the financial statements.
The inherent volatility of advertising could adversely affect the profitability of our newspaper business. The diversification of the FT Group into other business models and revenue streams, e.g. subscription based businesses, digital revenues, business to business products, conferences, in addition to its global reach, offsets reliance on newspaper print advertising and circulation revenue streams.
A significant deterioration in Group profitability and/or cash flow caused by a severe economic depression could reduce our liquidity and/or impair our financial ratios, and trigger a need to raise additional funds from the capital markets and/or renegotiate our banking covenants. The Group’s approach to funding is described here and the Group’s approach to the management of financial risks is set out in note 19 to the financial statements.
Social, environmental and ethical risk. We consider social, environmental and ethical (SEE) risks no differently to the way we manage any other business risk. Our 2009 risk assessment did not identify any significant under-managed SEE risks, nor have any of our most important SEE risks, many concerned with reputational risks, changed year-on-year. These are: journalistic/author integrity, ethical business behaviour, intellectual copyright protection, compliance with UN Global Compact standards, environmental impact, people and data privacy. For more information, see the Pearson corporate responsibility report ‘Live and Learn: Our Impact on Society’. The web link is available at