Carphone Warehouse 2014 Annual Report Download - page 76

Carphone Warehouse Group plc
Annual Report 2014
74
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
4 NON‑HEADLINE ITEMS continued
i) FRENCH OPERATIONS
In light of an increasingly challenging market context, CPW Europe commenced an exit from the French retail market in April . The exit costs
and results of this business during this process have been excluded from Headline earnings, with comparatives restated on the same basis.
During the year ended  March , a pre-tax charge of £m was booked in relation to redundancies, lease exit costs and other cash
restructuring costs relating to approximately  stores which the business had committed to exit at the year end. In addition, the goodwill
associated with the French business was written off during the same period, alongside various other non-current assets in the business.
Together with asset write-downs associated with store closures that were committed during the year, total non-cash asset write-downs of
£m were booked in the year. A tax credit of £m was booked against these charges, principally reflecting the de-recognition of deferred
taxliabilities.
CPW Europe’s French operations recorded an EBIT of £m in the year ended  March , against which a tax charge of £m was recognised.
The Group’s post-tax share of these restructuring costs, asset write-downs and operating results was £m.
In the year ended  March , prior to the CPW Europe Acquisition and in light of the commitment to exit the business, CPW Europe
recorded further non-cash asset write-downs of £m, and provided £m for estimated future exit costs, principally covering redundancies
and lease exit costs. Operating losses of £m were incurred prior to the CPW Europe Acquisition, resulting from the challenging environment
that prompted the decision to exit the French market, together with the effects of the announcement of this decision. A tax credit of £m was
recognised against these items. The Group’s post-tax share of these restructuring costs, asset write-downs and operating results was £m.
Since the CPW Europe Acquisition, the French business incurred further EBIT losses of £m, representing gross margin of £m and operating
expenses of £m.
Following our initial decision to exit the French retail market, it has become apparent that there is an opportunity to develop a new
Connected World Services business in France, focusing initially on leveraging our French insurance business, as we did following our exit
from retail operations in Belgium. Since the year end, we have put in place a team to develop this business, which has already secured its
first two third party clients and is actively engaged in tenders for other business. While the value of the run-off base, in the absence of the
retail infrastructure to support it, is clearly uncertain, we will aim to use it to grow the Connected World Services business as part of
continuing operations going forward and will present this within Headline results.
ii) CPW EUROPE ACQUISITION
The CPW Europe Acquisition gave rise to a number of exceptional items.
Operating expenses include banking and professional fees of £m in relation to the transaction. Additionally, as a result of the transaction,
a number of incentive schemes could not be maintained in their existing form, and they were either allowed to vest early or were replaced
during the year. This resulted in cash costs of £m and an acceleration of non-cash accounting charges of £m. A tax credit of £m has
been recognised in respect of these costs.
The CPW Europe Acquisition required the Group to fair value its existing % interest in CPW Europe, which was considered to be equal
tothe £m gross consideration for Best Buy’s % interest, giving rise to a non-cash gain of £m.
Arrangements with Best Buy allowed the Group to manage the disposal of the Consideration Shares issued to Best Buy, and to benefit from
any gain on disposal above a share price of £.. The Consideration Shares were placed at a price of £., resulting in a net cash gain of £m
for the Group. The gain implied by comparing the share price at completion, being £., and £., is treated as an adjustment to consideration
(see note ) and the remaining gain of £m is recorded in the income statement.
iii) CPW EUROPE REORGANISATION
During the prior year, CPW Europe undertook a review of its UK and group operations, with a view to simplifying group functions and giving
more autonomy and accountability to individual business units. CPW Europe also initiated plans to reduce its store portfolio and operating
cost base across certain Mainland European markets. As a result of this exercise, the business booked an exceptional charge of £m in
relation to redundancies, lease exit costs and other cash restructuring costs.
A tax credit of £m was recognised against these charges, principally in respect of relief anticipated on cash reorganisation costs and the
de-recognition of deferred tax liabilities.
The Group’s post-tax share of these charges was £m.
iv) AMORTISATION OF ACQUISITION INTANGIBLES
A charge of £m arose during the year in relation to acquisition intangibles arising on the CPW Europe Acquisition, against which a tax
credit of £m has been recognised.
Amortisation in the prior year within discontinued operations relates to acquisition intangibles within Virgin Mobile France which arose
onthe acquisition of Tele France in December .