Annual Report for the year ended 31 December 2008

2. FinanCial instRUments and RisK manaGement (CONTINuED)
Interest rate risk
The Group has interest bearing assets in mainly cash and cash equivalents. The Group has a policy of maintaining excess funds in cash and short-term
deposits and is exposed to short-term interest rate risk. At the year end, all of the Group’s excess funds were invested in cash and short-term deposits.
The Group does not use any derivatives to hedge interest rate risk.
At 31 December 2008 if liBor market interest rates had been 100 basis points higher/lower with all other variables held constant, profit for the year would
have been £1,026,000 (2007: £504,000) higher and £1,026,000 (2007: £504,000) lower respectively.
(b) Management of Credit Risk
The Group has exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Group by failing to discharge an obligation. credit
risk exposure is generated primarily from the settlement risk on equities and fixed income. This is principally the risk that counterparty fails to settle a trade thereby
forcing the Group to close out the trade at a possible loss. it is important to note that the potential loss is not the value of the trade, but the difference between
the prices at which the trade was executed and the current price. This is termed the mark-to-market value. The Group is also exposed to credit risk on outstanding
receivables; exposure to this risk is managed by taking into account financial position, past experience and other factors for the customers. The Group does
not lend money nor does it trade in oTc derivatives and the longest dated transactions are limited to trade date plus twenty five business days.
Credit Risk Control
counterparty receivables represent monies due from institutional trading counterparts. The risk Department undertakes a credit review of all new accounts
and periodically reviews all existing counterparties. As part of the review, each counterparty is assigned a credit limit according to the guidelines in the credit
limit Book. limits are based on either the amount of assets under management or risk assessments from a third party provider. Where data is not available the
limit is based on the net assets and profitability of the counterparty. new accounts cannot begin to trade until the credit review has been completed and the
counterparty assessed as credit worthy.
The chart below summarises the credit quality of the Group's financial assets by third party credit ratings (if available):
2008 %
1. AAA-A rATeD
2. un-rATeD – privATe clienT cusToDiAn %
61
priMe BroKers
3. un-rATeD – invesTMenT BAnKinG
4
insTiTuTionAl clienTs 19
4. un-rATeD 16
The ratings noted above have been derived using source information from standard & poor and Moody's. All financial assets over an “A” rating are
consolidated under the “AAA-A” category and include as cash and cash equivalents, trade debtors and counterparties. Where an asset is un-rated, that is,
there is no recognised external rating applicable to the asset, we have created sub-divisions to further distinguish the asset classes. All un-rated assets have
undergone a thorough credit review and have been allocated internal ratings based on this review.
each day the risk Department prepares a counterparty exposure report that shows all credit risk exposures, potential future exposures and limits. credit limit
breaches are annotated and investigated. The risk committee reviews all credit limit breaches and authorises mitigating action when deemed necessary.
The Group has £101.7m of its cash balance deposited with a single AA rated uK Bank. however there are no significant concentrations of credit risk with
unrated counterparties. All items classified as neither past due nor impaired, following the credit reviews described above, are considered to be recoverable
and therefore of a credit quality that do not require impairment.
The table below of financial assets analyses amounts due by ageing:
Neither past Past due but not impaired Greater than Carrying
due nor impaired 0-3 months 3-6 months 6-9 months 1 year Impaired value
31 December 2008 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Trade receivables 4,002 685 798 42 60 (384) 5,203
counterparty receivables 32,246 6,273 99 950 892 (1,454) 39,006
other receivables 5,832 57 48 – 24 – 5,961
Available-for-sale financial assets 1,056 – – – – – 1,056
Trading portfolio assets 5,034 – – – – – 5,034
cash and cash equivalents 103,639 – – – – – 103,639
Amounts owed from Group undertakings 693 – – – – – 693
152,502 7,015 945 992 976 (1,838) 160,592
notes to tHe FinanCial statements CONTINuED
FOR THE YEAR ENDED 31 DECEMBER 2008
52 The evoluTion Group plc AnnuAl reporT & AccounTs 2008
2007 %
1. AAA-A rATeD
2. un-rATeD – privATe clienT cusToDiAn %
60
priMe BroKers
3. un-rATeD – invesTMenT BAnKinG
2
insTiTuTionAl clienTs 35
4. un-rATeD 3