Carphone Warehouse 2015 Annual Report Download - page 129

Dixons Carphone plc Annual Report and Accounts 2014/15
Financial statements
127
23 Merger and acquisition continued
2013/14 CPW Europe Acquisition continued
(i) The fair value of trade and other receivables represents gross contractual amounts receivable of £1,135 million, less amounts not
considered collectable of £23 million.
(ii) Provisions include the recognition of contingent liabilities of £8 million in relation to legal claims and other potential exposures. It is expected
that any costs associated with these contingent liabilities will be incurred over the next four years.
(iii) The goodwill of £484 million arising on the acquisition reflects the fact that CPW Europe’s value is based on its cash generating potential
rather than its existing assets, and the fact that many of its key strengths, such as its scale and expertise, do not represent intangible assets
as defined by IFRS. None of the goodwill is expected to be deductible for income tax purposes.
(iv) IFRS 3 ‘Business Combinations’ requires that the Group’s existing 50% interest in CPW Europe be revalued to its fair value as part of the
acquisition accounting process. The fair value of this interest is considered to be equal to the gross consideration of £500 million paid by the
Group to acquire Best Buy’s 50% interest in CPW Europe. As the carrying value of the Group’s investment in CPW Europe was £499 million
at the acquisition date, a gain of £1 million was recognised in Non-Headline operating expenses in respect of this revaluation.
(v) Gross cash consideration of £370 million was settled on completion, offset by payments from Best Buy of £29 million in respect of the
prepayment or termination of the Group’s other interests with Best Buy.
(vi) The £50 million of deferred cash consideration, which bears interest at 2.5% per annum, is payable to Best Buy in two equal instalments of
£25 million in June 2014 and June 2015.
(vii) A further £80 million of consideration was provided through the issue on completion of 42.1 million shares to Best Buy, at a price of £1.90
per share. The Group had the right to place the Consideration Shares on Best Buy’s behalf during the 12 month period to June 2014, and to
retain any upside on disposal. The value of the Consideration Shares on completion was £101 million, based on a share price at that date of
£2.38, and this value is recorded as consideration, with the value associated with the right to place the Consideration Shares recognised as
a derivative financial asset of £21 million. The Consideration Shares were placed in July 2013 at an average price of £2.44, resulting in a net
cash gain of £23 million for the Group. The difference between the disposal proceeds and the value of the derivative financial asset has
been recognised as a gain of £2 million in Non-Headline operating expenses.
As part of the transaction, the Group agreed to satisfy Best Buy’s obligations in relation to certain incentive schemes. Shares
with a value of £12 million were issued in respect of Best Buy’s obligations and have been included in consideration.
d) Other information
The results of CPW Europe have been consolidated into the Group’s income statement from 26 June 2013, contributing
£2,561 million of revenue and a profit before tax of £61 million in the period to 29 March 2014. If the acquisition had completed
on 1 April 2013, being the first day of the financial year, the Group’s revenue would have been £3,402 million and the Group’s
profit before tax would have been £46 million.
Transaction-related charges of £18 million, comprising banking and professional fees of £7 million and cash and non-cash
charges relating to incentive schemes of £11 million have been included in Non-Headline operating expenses. A tax credit of
£3 million was also recognised in respect of these costs.
e) Share of results from joint ventures
The Group’s share of results of joint ventures within continuing operations relate to CPW Europe prior to its acquisition on
26 June 2013 and is analysed as follows:
29 March
2014
£million
Headline revenue 777
Headline EBIT† 12
Net finance costs (2)
Taxation on Headline results (5)
Headline profit after taxation 5
Group share of Headline profit after taxation 3
Group share of French operations (in process of closure) (post-tax) (23)
Group share of loss after taxation (20)
† Headline EBIT includes the unwinding of discounting for the time value of money on network commissions receivable over the life of the
customer. This unwinding had a value of £3 million for the period to 26 June 2013 and is treated as finance income in the joint venture’s
statutory results.