Carphone Warehouse 2005 Annual Report Download - page 21

Roger Taylor, Chief Financial Officer
movements in interest rates will have a limited impact
on Group profits. The Group does not trade or
speculate in any financial instruments.
Accounting policies
The accounting policies applied during the period are
consistent with those applied in the prior year and
are set out in note 1 to the financial statements.
International financial reporting standards
The Group will be required to adopt International
Reporting Standards (IFRS) for the period ending
1 April 2006. We will continue to assess the impact
of adopting IFRS on an ongoing basis until then.
Return on capital employed
Total shareholders’ funds at March 2005 were
£502.9m, compared to £471.8m at March 2004.
After taking into account average net debt, and
adjusting for goodwill amortisation and goodwill arising
on historic minority acquisitions, the Group generated
a return on capital employed of 18.7% (2004: 17.6%).
Assuming a weighted average cost of capital for the
period ended 2 April 2005 of 6.9% (2004: 7.1%), this
represents an increase in economic value added from
£37.8m to £54.4m, being 10.5% and 11.8% respectively.
Financing and treasury
The Group’s operations are financed by committed
bank facilities, retained profits and equity. During the
period, the Group agreed a new £300m revolving credit
facility to replace the previous £180m facility, which was
due to expire in August 2005. This refinancing also took
advantage of the significant reduction in bank loan
margins that occurred during 2004. We also took this
opportunity to renegotiate the terms of the £120m term
loan facility, which was signed in July 2003. The new
facility was arranged by HSBC Bank PLC, ING Bank
NV and The Royal Bank of Scotland PLC. The Group
was in compliance with the covenant conditions of both
facilities throughout the period.
Net borrowings peaked late in 2004, in line with the
normal annual cycle as the Group invests in inventory
ahead of the Christmas trading season. The Group
seeks to maintain comfortable headroom on committed
facilities at all times.
In addition to the revolving credit facility and term loan,
the Group has a number of uncommitted loan facilities,
overdrafts and guarantee lines, all technically repayable
on demand, which enable it to optimise cash
management efficiency particularly at times of peak
working capital requirements.
Funding of our subsidiaries is arranged centrally. All
cross-border funding is provided on an arm’s length
basis and currency risk is hedged using foreign exchange
swaps or currency borrowings, as appropriate, at all
times. Other than through inter-company loans and
capital funding, balance sheet translational risk is not
hedged against adverse movements in exchange rates
and the results of any such movements are taken to
reserves. The Group is exposed to limited cross-border
transactional commitments and where significant, these
are hedged at inception using forward currency contracts.
Treasury policy permits the use of long-term derivative
treasury products for the management of currency and
interest rate risk; however, with the current low levels
of Group debt, all debt is liable to floating rate interest.
The interest cover covenant was comfortably exceeded
at the year end and, whilst low levels of debt persist,
Operating and Financial Review continued www.cpwplc.com 17
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