Dave Forsey Chief Executive 19 July 2012 - Sports Direct International

78 / FINANCIAL STATEMENTS AND NOTES
notes to the Financial Statements
For the 53 weeks ended 29 April 2012
2. Critical accounting estimates and judgements Continued
Useful economic life of intangible assets
For intangible assets which have a finite life, the directors revisit
their estimate of useful economic life at each period end and
revise accordingly. Licences and trade marks typically have a life of
between 10 and 15 years.
Identification and valuation of acquired intangible assets
On acquisition, each material separable intangible asset is identified
and valued by the directors with assistance from a professional third
party. Any such calculation is judgemental in nature as it is based
on a valuation methodology.
Brand valuations are typically valued using the relief from royalty
valuation methodology.
The nature and carrying amounts of these assets are set out in
Note 15.
Provision for obsolete, slow moving or defective inventories
The directors have applied their knowledge and experience of
the sports retail industry in determining the level and rates of
provisioning required in calculating the appropriate inventory
carrying values. The nature and carrying amounts are set out in
Note 18.
Financial position of retirement benefit plans
The net defined benefit pension plan assets or liabilities are
recognised in the Group’s balance sheet. The determination of the
financial position requires assumptions to be made regarding inter
alia future salary increases, mortality, discount rates and inflation.
The key assumptions made in relation to the pension plan are set
out in Note 24.
3. Financial risk management
The Group’s current activities result in the following financial risks
and set out below are management’s responses to those risks
in order to minimise any resulting adverse effects on the Group’s
financial performance.
Foreign exchange risk
The Group is exposed to foreign exchange risk principally via:
a. Transactional exposure from the cost of future purchases of
goods for resale, where those purchases are denominated in a
currency other than the functional currency of the purchasing
company. Transactional exposures that could significantly
impact the income statement are hedged. These exposures
are hedged via forward foreign currency contracts which are
designated as cash flow hedges. The notional and fair value of
these contracts is shown in Note 27.
b. Net investment exposure, from the fair value of net investments
outside the UK. The Group hedges its international
investments via foreign currency transactions and borrowings
in matching currencies.
Provision for dilapidations and onerous lease contracts
The basis of the estimation of the provisioning for dilapidations
and onerous lease contracts is detailed in the provision accounting
policy and Note 26.
Estimates and judgements are continually evaluated and are based
on historical experience, external advice and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
Provision for costs relating to regulatory enquiries and other
legal disputes
Provision has been made for legal costs incurred in the current and
previous period relating to ongoing regulatory enquiries and other
legal disputes.
Calculation of Bonus Share Scheme charge
A share-based payment charge is recognised in respect of share
awards based on the Directors’ best estimate of the number of
shares that will vest. The charge is calculated based on the fair
value on the grant date, which is deemed to be the date on which
the entity and counterparty reached a shared understanding of the
scheme. The key details in respect of the share scheme charges
are set out in Note 21.
c. Loans to non-UK subsidiaries. These are hedged via foreign
currency transactions and borrowings in matching currencies,
which are not formally designated as hedges, as gains and
losses on hedges and hedged loans will naturally offset.
Interest rate risk
The Group has net borrowings, which are principally at floating
interest rates linked to bank base rates or LIBOR. The Group does
not use interest rate financial instruments to hedge its exposure to
interest rate movements. The Group regularly monitors and reacts
accordingly to any exposure to fluctuations in interest rates and the
impact on its monetary assets and liabilities.
Credit risk
The directors have a credit policy in place and the exposure to
credit risk is monitored on an ongoing basis. Credit evaluations are
performed on all customers requiring credit over a certain amount.
The Group does not require collateral in respect of financial assets.