Carphone Warehouse 2009 Annual Report Download - page 25

Directors’ Report – Business Review
www.cpwplc.com 21
The Group no longer has any material
exposure to movements in the Swiss
Franc.
Finally, the Group fully impaired its
legacy wireless internet investments,
resulting in a non-cash charge of £5m
through exceptional operating expenses.
Amortisation of acquisition
intangibles
The amortisation charge in respect
of acquisition intangibles amounted
to £71m (2008: £75m), primarily in
relation to AOL.
Interest and taxation
Net interest of £4m was payable during
the year, a substantial reduction in the
charge for 2007-08 of £45m, as a result
of the proceeds from the transaction
with Best Buy. The effective tax rate
on Headline prots from continuing
operations excluding joint ventures was
17% (2008: 50%). The tax rate beneted
from the recognition of previously
unrecognised tax assets.
Earnings per share (“EPS”)
Headline EPS was 12.6p, a reduction
of 18% year-on-year (2008: 15.2p).
Statutory EPS was 61.6p (2008: 8.1p),
reecting the gain on the transaction
with Best Buy.
Group cash flow
2009 2008
£m £m
TalkTalk Group 40 (44)
Best Buy Europe
Gross disposal proceeds 1,041 –
Other cash movements (106) 140
Exceptionals
(cash element) (20) (15)
Acquisitions (net) (76) (68)
Tax and interest (4) (45)
Dividends and shares (89) (17)
Other (16) (20)
Net cash flow 770 (69)
Opening net debt (843) (618)
Foreign exchange (86) (156)
Closing underlying
net debt (159) (843)
The Group had underlying net debt at
the year-end of £159m. In addition, the
Group had used its committed facilities
to provide funding of £293m to Best Buy
Europe at the end of March, and total net
debt including Group borrowings to fund
these loans was therefore £452m.
The loans were provided under a £475m
revolving credit facility, half of which is
guaranteed by Best Buy Co., Inc.
Best Buy Europe had net debt of £47m
at the end of the year, comprising loans
from the Group of £293m and net cash
and other borrowings of £246m; Best
Buy Europe’s net cash and other
borrowings are not consolidated into
our Group results. The Group’s effective
net debt, including the Group’s share
of Best Buy Europe net debt, was
therefore £182m.
The principal components of TalkTalk
Group’s operating cash ows are
detailed above.
The Group received gross proceeds of
£1,041m from the transaction with Best
Buy. Other cash movements reect
operating cash ows prior to the
transaction (shown in the Group cash
ow as discontinued operations), the
removal from Group debt of Best Buy
Europe’s cash and debt, and share
capital invested in the business since
June. In the prior year, other cash
movements reect Best Buy Europe’s
operating free cash ow, together with
net disposal proceeds of £34m.
The principal acquisition cost in the year
was the nal deferred consideration
payment of £70m for the AOL acquisition.
Tax and interest reects a sharp
reduction in year-on-year interest costs,
and continuing minimal tax payments,
reecting the substantial tax losses
available to TalkTalk Group.
Dividends and shares include the
acquisition of 24m Group shares into our
Employee Benet Trust earlier in the year
to avoid future dilution from the exercise
of share options, at a cost of £53m.
Dividends
We are proposing a nal dividend of
3.00p per share (2008: 3.00p), taking
the total dividend for the year to 4.35p,
which represents an increase of 2% on
last year, and which against Headline
earnings provides dividend cover of
2.9 (2008: 3.7).
Balance sheet
The transaction with Best Buy has
resulted in the deconsolidation of the
Best Buy Europe balance sheet and the
Group’s share of Best Buy Europe is now
shown in interests in joint ventures and
associates.
Group net assets have increased from
£651m to £1,116m. Goodwill, other
intangible assets, property plant and
equipment, current assets and current
liabilities have all reduced signicantly
year-on-year as a result of the
deconsolidation. Loans to Best Buy
Europe are shown separately in the
balance sheet.
Foreign exchange
A large proportion of the Group’s
borrowings at the start of the year were
held in Euros and Swiss Francs, as a
hedge against non-Sterling assets. The
part-disposal of the Euro-denominated
businesses within Best Buy Europe has
substantially reduced the Group’s
requirement for Euro hedges, although
some hedges remain in respect of the
Group’s investment in and funding to
Virgin Mobile France and on cash ow
hedges for TalkTalk Group.
The further weakening of Sterling during
the year caused signicant currency
outows in relation to Swiss Francs.
However, the change in the functional
currency of the Group’s brand company
from Swiss Francs to Sterling during
the year and redenomination of its
borrowings have materially eliminated
the Group’s exposure to Swiss Francs by
the end of the year.
Financing and treasury
The Group’s operations are nanced by
committed bank facilities, retained prots
and equity. The Group’s committed bank
facilities are a £550m revolving credit
facility (“RCF”), which is used for working
capital purposes, and a £375m term loan.
The facilities mature in March 2013 and
October 2012 respectively. The terms
of both facilities are similar and the
covenant packages are identical.
The Group was in compliance with
the covenant conditions of both facilities
at the year end.
Most uncommitted money market loans
have been terminated as a result of
banks’ credit constraints, although some
overdraft facilities are still in use to
provide working capital exibility.