Carphone Warehouse 2008 Annual Report Download - page 78

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Notes to the Financial Statements continued
66 The Carphone Warehouse Group PLC Annual Report 2008
20 Cash and cash equivalents, loans and other borrowings (continued)
Fair value of financial liabilities:
The book values and fair values of the Group’s loans and other borrowings are as follows:
2008 2007
Book value Fair value Book value Fair value
£m £m £m £m
Bank overdrafts 20.0 20.0 12.2 12.2
Other uncommitted bank loans 18.6 18.6 10.0 10.0
Loan notes ––0.5 0.5
Committed bank loans 894.2 894.2 707.6 707.6
Total 932.8 932.8 730.3 730.3
Securities and guarantees:
None of the borrowings is secured over Group assets. Although some guarantees are given by Group companies, these are to cover commercial
obligations and, as such, no additional credit risk is created.
Functional currency:
The functional currency of individual companies within the Group varies with the territory in which they operate and the five currencies in which subsidiary
companies prepare their accounts are: Sterling, Euro, South African Rand, Swiss Franc and Swedish Krona. Only Sterling denominated companies have
material financial liabilities in other currencies and these are disclosed in the currency borrowings table above.
21 Financial risk management and derivative financial instruments
The book values and fair values of the Group’s financial assets, liabilities and derivative financial instruments, excluding the Group’s loans and other
borrowings shown above, are as follows:
2008 2007
Book value Fair value Book value Fair value
£m £m £m £m
Cash and cash equivalents 87.9 87.9 111.1 111.1
Trade and other receivables 812.5 812.5 743.8 743.8
Non-current asset investments 4.8 4.8 14.5 14.5
Available-for-sale investments 2.2 2.2 2.3 2.3
Forward currency contracts – fair value hedges (3.1) (3.1) (0.3) (0.3)
Forward currency contracts – cash flow hedges (0.6) (0.6) ––
Trade and other payables (1,087.9) (1,087.9) (991.5) (991.5)
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.
Forward currency contracts – fair value hedges:
The Group 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.
Forward currency contracts – cash flow hedges:
The Group also uses forward currency contracts to hedge transactional exposures. These contracts are mainly denominated in Euro, South African Rand
and US Dollar and primarily cover stock purchases and operating expenses.
At 29 March 2008, the total notional principal amount of outstanding currency contracts was £333.0m (2007 – £168.7m). Within this balance, £31.3m
(2007 – £6.0m) is held in relation to cash flow hedges, for which the associated fair value gains and losses will be transferred to the income statement
when the transactions occur over the next 12 months. The remainder of the outstanding currency contracts relates to investments in and loans to the
Group’s non-Sterling operations. The amount transferred to income in respect of forward currency contracts was an expense of £3.1m (2007 – income
of £0.3m) which has been offset by the foreign exchange movements of the financial assets that they hedge. All cashflow hedges will reverse within the
next two financial years.
Embedded derivatives:
No contracts with embedded derivatives have been identified and accordingly no such derivatives have been accounted for separately.
The Group’s activities expose it to a variety of financial risks including market risk (such as currency risk and interest rate risk), credit risk and liquidity risk.
The Group Treasury function, which operates under approved treasury policies, uses certain financial instruments to mitigate potentially adverse effects
on the Group’s financial performance from these risks. These financial instruments primarily consist of bank loans and deposits, spot and forward foreign
exchange contracts, and foreign exchange swaps. Other products, such as interest rate swaps and currency options, can also be used depending on
the risks to be covered. The Group does not trade or speculate in any financial instruments.