Carphone Warehouse 2012 Annual Report Download - page 80

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Carphone Warehouse Group plc Annual Report 201276
17 Financial risk management and derivative financial instruments continued
Interest rate risk
The Group’s interest rate risk arises primarily on cash, cash equivalents and loans to joint ventures, all of which are at floating rates of
interest and which therefore expose the Group to cash flow interest rate risk. These floating rates are linked to LIBOR and other interest
rate bases as appropriate to the instrument and currency. Future cash flows arising from these financial instruments depend on interest
periods agreed at the time of rollover. Group policy permits the use of long‑term interest rate derivatives in managing the risks associated
with movements in interest rates although the Group holds none of these products at present.
Cash and borrowings, as well as some foreign exchange products, are sensitive to movements in interest rates. This sensitivity can be
analysed through calculating the effect on the income statement of a 1% movement in the interest rate in relation to cash, cash equivalents
and loans to joint ventures. This analysis has been prepared on the assumption that the year‑end positions prevail throughout the year,
and therefore may not be representative of fluctuations in levels of deposits and borrowings. A 1% movement in the interest rate would
result in a£1.0m (2011: £1.2m) movement in profit before taxation.
Liquidity risk
The Group manages its exposure to liquidity risk by regularly reviewing the long‑term and short‑term cash flow projections for the
business against the resources available to it. Regular reports are made to the Audit Committee assessing the adequacy of these
resources and reports are routinely circulated to senior management showing the Group’s net funds. Headroom is assessed based
onhistorical experience as well as by assessing current business risks, including foreign exchange movements.
Credit risk
The Group’s exposure to credit risk is regularly monitored and the Group’s policy updated as appropriate. Deposits and foreign exchange
transactions are spread amongst a number of institutions, all of which have credit ratings appropriate to the Group’s policies and exposures.
Embedded derivatives
No contracts with embedded derivatives have been identified and accordingly no such derivatives have been accounted for separately.
18 Provisions
2012 2011
£m £m
Opening balance 13.2 13.6
Released in the year (4.3) (0.4)
Closing balance 8.9 13.2
Provisions relate principally to warranties provided in relation to the Best Buy Europe Joint Venture Transaction.
19 Share capital
2012 2011 2012 2011
million million £m £m
Allotted, called‑up and fully paid ordinary shares of 0.1p each 472.8 457.1 0.5 0.5
B shares – redeemable preference shares of 172p each 19.2 —32.9 —
Deferred shares of 0.01p each 129.7 ———
NOTES TO THE FINANCIAL STATEMENTS CONTINUED