Vodafone 1999 Annual Report Download - page 22

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Financial Review
Maturities of committed facilities
Analysis by year of expiry Committed
bank facilities Bonds Total
£m £m £m
Within 1 year 50.0 – 50.0
Between 1-2 years 495.0 250.0 745.0
Between 2-5 years 1,023.6 250.0 1,273.6
–––––– –––––– ––––––
1,568.6 500.0 2,068.6
–––––– –––––– ––––––
Syndication has commenced on a facility for $10.0 billion to finance the merger with AirTouch. The facility is split into
three tranches. Tranche A is a $4 billion revolving loan facility and Tranche B is a $2.5 billion term loan facility, each of
which is available for 364 days with the option to extend the repayment of advances under those tranches for a further
year. Tranche C is a $3.5 billion revolving loan facility, available for five years. Advances may be drawn in US Dollars,
Sterling or Euros.
Foreign exchange management
Foreign currency exposures on known future transactions are hedged, including those resulting from the repatriation of
international dividends and loans. Forward foreign exchange contracts are the derivative instrument most used for this
purpose.
The Group’s policy is not to hedge its international net assets with respect to foreign currency balance sheet translation
exposure, since net assets represent a small proportion of the market value of the Group and international operations
provide risk diversity. However, 52% of gross borrowings were denominated in currencies other than sterling in
anticipation of dividend streams from profitable international operations and this provides a partial hedge against profit
and loss account translation exposure.
Interest rate management
The Group’s main interest rate exposure is to Sterling, Euro and Australian Dollar interest rates.
Under the Group’s interest rate management policy, interest rates are fixed when net interest is forecast to have a
significant impact on profits. The term structure of interest rates is managed within limits approved by the Board, using
derivative financial instruments such as interest rate swaps, futures and forward rate agreements.
At the end of the year, 51% of the Group’s gross borrowings were fixed for a period of at least one year. A one percent
rise in market interest rates would affect profits before tax by less than one percent.
Counterparty risk management
Cash deposits and other financial instrument transactions give rise to credit risk on the amounts due from counterparties.
The Group regularly monitors these risks and the credit rating of its counterparties and, by policy, limits the aggregate
credit and settlement risk it may have with any one counterparty. Whilst the Group may be exposed to credit losses in the
event of non-performance by these counterparties, it considers the possibility of material loss to be minimal because of
these control procedures.
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