Carphone Warehouse 2006 Annual Report Download - page 65

20 Financial instruments
The Operating and Financial Performance Review on pages 9 to 16 provides an explanation of the role that financial instruments have in managing the Group’s
currency and interest rate risk.
Interest rate profile of financial assets and liabilities:
The interest rates on floating rate financial assets and liabilities are linked to market interest rates, mainly on an overnight basis or for one, two or three month
periods. Future cashflows arising from these financial assets and liabilities depend on interest periods agreed at the time of rollover and, as such, all financial assets
and liabilities are classified as floating rate.
The weighted average interest rate for loans and overdrafts was 3.28% (2005 – 3.53%), reflecting a high proportion of Euro borrowings.
The book value and fair value of the Group’s financial assets and liabilities is as follows:
2006 2005
Book value Fair value Book value Fair value
£’000 £’000 £’000 £’000
Financial assets
By instrument
Cash at bank and in hand 51,840 51,840 29,012 29,012
Short-term bank deposits and money market funds 46,253 46,253 12,564 12,564
Available-for-sale investments 5,153 5,153 60,468 62,613
Forward currency contracts 80 80 ––
Financial liabilities
By instrument
Bank overdrafts (21,136) (21,136) (22,224) (22,224)
Other uncommitted bank loans (20,039) (20,039) (90) (90)
Committed bank loans (320,054) (320,054) (128,494) (128,494)
Loan notes (15,558) (15,558) (19,680) (19,680)
Forward currency contracts ––– (167)
The fair value of available-for-sale investments has been provided by third-party fund managers. Other fair values have been arrived at by discounting future
cashflows, assuming no early redemption, or by revaluing forward currency contracts to period-end market rates or rates as appropriate to the instrument.
Foreign exchange derivatives:
The Group uses forward currency contracts to hedge transactional exposures. These are mainly denominated in Euros and US dollars and primarily cover stock
purchases. The Group also uses forward currency contracts to hedge balance sheet assets and liabilities and also for short-term liquidity management.
The Group currently holds no currency option contracts.
At 1 April 2006, the total notional principal amount of outstanding forward currency contacts was £129.4m (2005 – £50.6m).
All currency derivatives are shown in the financial statements at fair value and no currency derivatives are designated as cash flow hedges. The amount transferred
to income in respect of these currency derivatives was £0.2m (2005 – £nil).
The Group does not hedge the balance sheet translation risk of its foreign operations.
Functional currency:
The functional currency of individual companies within the Group varies with the territory in which they operate and the four currencies in which subsidiary
companies prepare their accounts are: Sterling, Euro, Swiss franc and Swedish krona. Material financial assets and financial liabilities held by Group companies
which differ from their functional currency are as follows:
2006 2005
Sterling Euro Other Total Sterling Euro Other Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Financial liabilities
By functional currency
of Group operation
Sterling – (213,664) 8,408 (205,256) – (103,894) 12,196 (91,698)
Other ––––218 2 – 220
Total – (213,664) 8,408 (205,256) 218 (103,892) 12,196 (91,478)
The financial assets are shown before the effect of hedging, which removes foreign exchange risk. The financial liabilities hedge net inter-company currency
exposures and, as such, do not create foreign exchange risk.
Embedded derivatives:
There are no contracts containing embedded derivatives that have been identified and accounted for separately as required by IAS39.
Notes to the Financial Statements continued www.cpwplc.com 61
Financial Statements