Carphone Warehouse 2008 Annual Report Download - page 32

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20 The Carphone Warehouse Group PLC Annual Report 2008
Directors’ Report: Business Review
Operating Review continued
This was arranged by HSBC Bank plc, ING Bank NV, London Branch,
Barclays PLC and The Royal Bank of Scotland Group PLC and was
syndicated amongst the Group’s core bank group. The terms of both
new facilities are similar and the covenant packages are identical.
The Group was in compliance with the covenant conditions of all
facilities at the period end.
In addition to committed credit facilities, which are set out in full
in note 20 to the financial statements, 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.
Within cash and cash equivalents, £65.7m(2007: £79.5m)is held by the
Group’s insurance business, of which £55.0m (2007: £46.0m)is required
to cover regulatory reserve requirements. As such, these funds are not
available to offset other Group borrowings.
Funding of our subsidiaries, both in the United Kingdom and elsewhere,
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 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 and the Group’s
interest rate exposures are monitored regularly. More generally, the Group
treasury function seeks to follow treasury best practice as recommended
by the Association of Corporate Treasurers and adheres at all times
to their Ethical Code. The Group does not trade or speculate in any
financial instruments.
“Cash generation remains a prime objective of
the Group and we expect to generate significant
levels of free cash flow in the future, allowing
us to re-invest in the growth of the business
and pursue a progressive dividend policy”
Return on capital employed
Total shareholders’ funds at March 2008 were £735.0m,compared to
£689.6mat March 2007.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 14.9% (2007: 12.1%).
Assuming a weighted average cost of capital for the period of
6.6% (2007: 6.8%),this represents an economic value added
of £121.0m (2007: £56.6m)or 8.3% (2007: 5.4%).
Roger Taylor,
Chief Financial Officer
Roger Taylor, Chief Financial Officer