Carphone Warehouse 2007 Annual Report Download - page 20

Acquisitions and organic growth in both Distribution
and Telecoms Services are reflected in an increase
in trade and other receivables from £554.5m to
£743.9m. Correspondingly, there is a year-on-year
increase in trade and other payables from £642.0m
to £922.2m.
Provisions have decreased from £123.5m to £109.9m
during the year, principally reflecting the utilisation of
Onetel reorganisation provisions.
Net deferred tax assets have increased from £34.9m
to £51.7m, primarily reflecting an increase in unutilised
tax losses and a reduction in deferred tax liabilities
on acquisition intangibles.
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 term loan facility of
£375m to assist with the acquisition of AOL’s UK
business. This facility, which has an initial term of five
years ending in October 2011, was arranged by HSBC
plc, ING Bank NV, London Branch, and The Royal
Bank of Scotland PLC. The terms of the new facility
are similar to our other committed bank facilities and
the covenant packages are identical. The Group was
in compliance with the covenant conditions of all
facility agreements at the period end.
In addition to committed facilities, 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. Cash and investments held for
insurance purposes of approximately £79.8m (2006:
£77.0m) are not immediately available to the Group
to offset borrowings. These funds are invested to
maximise returns whilst ensuring at all times that such
investments are within acceptable risk parameters.
Funding of our subsidiaries is arranged centrally with
an emphasis on tight cash control and efficient cash
management. 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. In some
circumstances, particularly for highly volatile currencies,
the Group also hedges future currency commitments,
which are accounted for as cashflow hedges.
Treasury policy permits the use of long-term derivative
treasury products for the management of currency
and interest rate risk and the Group’s interest rate
exposures are monitored regularly. The Group does
not trade or speculate in any financial instruments.
Return on capital employed
Total shareholders’ funds at March 2007 were
£689.6m, compared to £619.0m at March 2006.
After taking into account average net debt, and
adjusting for the amortisation of acquisition intangibles
and goodwill arising on historic minority acquisitions,
the Group generated a return on capital employed
of 12.1% (2006: 16.9%), the decrease reflecting the
start-up losses in the period on Free Broadband and
Virgin Mobile France.
Assuming a weighted average cost of capital for
the period of 6.8% (2006: 6.6%), this represents
an economic value added of £56.6m (2006: 69.4m)
or 5.4% (2006: 10.3%).
Roger Taylor,
Chief Financial Officer
Operating and Financial Performance continued
The Carphone Warehouse Group PLC Annual Report 2007
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