Carphone Warehouse 2015 Annual Report Download - page 135

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Dixons Carphone plc Annual Report and Accounts 2014/15
Financial statements
133
25 Financial risk management and derivative financial instruments continued
e) Credit risk
Credit risk is the risk of financial loss to the Group if a bank fails to meet its contractual obligations, and arises principally from
the Group’s receivables from customers. The Group’s exposure to credit risk is regularly monitored and the Group’s policy is
updated as appropriate.
The majority of the Group’s trade receivables are balances due from MNOs, which are generally major multi-national enterprises
with whom the Group has well-established relationships and are consequently not considered to add significantly to the Group’s
credit risk exposure. The Group's trade receivables also include balances due from equipment manufacturers, dealers and
Connected World Services customers, business to business customers and consumer credit receivables. Where it is considered
appropriate, the Group obtains credit insurance on accounts receivable. Provision is made for any receivables that are
considered to be irrecoverable. Details of trade receivables which are past due but not impaired are provided in note 13.
The credit risks on cash and cash equivalents and derivative financial instruments are closely monitored and credit ratings are
used in determining maximum counterparty credit risk.
The Group’s funding is reliant on its £875 million bank facilities, which are provided by nine banks; these institutions are
considered to be adequately capitalised to continue to meet their obligations under the facility.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the
Group's maximum exposure to credit risk.
f) Capital risk
The Group manages its capital to ensure that entities within the Group will be able to continue as going concerns, whilst
maximising the return to shareholders through a suitable mix of debt and equity. The capital structure of the Group consists of
cash and cash equivalents, loans and other borrowings and equity attributable to equity holders of the Company, comprising
issued capital, reserves and accumulated profits. Except in relation to minimum capital requirements in its insurance business,
the Group is not subject to any externally imposed capital requirements. The Group monitors its capital structure on an ongoing
basis, including assessing the risks associated with each class of capital.
g) Derivatives
Derivative financial instruments comprise forward foreign exchange contracts, foreign exchange swaps and interest rate swaps.
The Group has designated financial instruments under IAS 39 as follows:
Cash flow hedges
At 2 May 2015 the Group had forward and swap foreign exchange contracts in place with a notional value of £1,487 million
(2014: £nil) that were designated and effective as cash flow hedges. These contracts are expected to cover exposures ranging
from one month to one year.
Interest rate swaps
The Group also held interest rate swaps with a notional value of £280 million (2014: £280 million) whereby the Group receives
a floating rate of interest based on LIBOR and pays a fixed interest rate. This contract matures in April 2017.