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notes to the finanCial statements for the 52 weeks ended 26 april 2009 Continued
2. CritiCal aCCountinG estimates and judGements
The critical accounting estimates and judgements made by the Group regarding
the future or other key sources of estimation, uncertainty and judgement that
may have a significant risk of giving rise to a material adjustment to the carrying
values of assets and liabilities within the next financial year are:
impairment of goodwill
The calculation for considering the impairment of the carrying amount of
goodwill requires a comparison of the present value of the cash generating
units to which the goodwill has been allocated, to the value of goodwill in the
balance sheet. The calculation of present values requires an estimation of the
future cash flows expected to arise from the cash generating units and the
selection of a suitable discount rate. The key assumptions made in relation to
the impairment review of goodwill are set out in Note 15.
impairment of other intangible assets
The calculation for considering the impairment of the carrying amount of other
intangible assets with an indefinite life, specifically brands, trade marks and
licences, requires a comparison of the present value of the cash generating
units to the value of the other intangible assets in the balance sheet. The
calculation of present value requires an estimation of the future cash flows
expected to arise from the other intangible assets and the selection of a suitable
discount rate. The key assumptions made in relation to the impairment review
of goodwill are set out in Note 15.
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 12 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 judgmental 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 26.
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 28.
Estimates and judgments 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.
3. finanCial risk manaGement
The Group’s current activities result in the following financial risks and
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 operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the US dollar
and Euro. Foreign exchange risk arises from future commercial transactions,
recognised assets and liabilities and net investment in foreign operations.
Management has set up a policy to require group companies to manage their
foreign exchange risk against their functional currency. To manage their foreign
exchange risk arising from future commercial transactions and recognised
assets and liabilities, entities in the Group use forward foreign exchange
contracts, transacted with group treasury. Foreign exchange risk arises
when future commercial transactions or recognised assets or liabilities are
denominated in a currency that is not the entity’s functional currency.
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Financial Statements
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.
At each balance sheet date, there were no significant concentrations of credit
risk. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet.
Investments of cash surpluses, borrowings and derivative instruments are made
through banks and companies which must fulfil credit rating and investment
criteria approved by the Board.
liquidity risk
The availability of adequate cash resources is managed by the Group through
utilisation of its revolving bank and other facilities together with equity and
retained profits thereby achieving continuity of funding and short-term flexibility.
Capital management
A description of the Group’s objectives, policies and processes for managing
capital are included in the financial review on page 25 of this report.