Vodafone 2003 Annual Report Download - page 47

Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 45
this agreement, dated 3 April 2000, the Company has the right to require Verizon
Communications or Verizon Wireless to acquire interests in the Verizon Wireless
partnership from the Company with an aggregate market value of up to $20
billion between July 2003 and July 2007 dependent on the value of the
Company’s 45% stake in Verizon Wireless. This represents a further potential
source of liquidity to the Group.
Exercise of the option may occur in either one or both of two phases. The
Phase I Option may be exercised during the periods commencing 30 days before
and ending 30 days after either one or both of 10 July 2003 and 10 July 2004,
and provides for the aggregate amount paid to not exceed $10 billion. The Phase
II Option may be exercised during the periods commencing 30 days before and
ending 30 days after any one or more of 10 July 2005, 10 July 2006 and
10 July 2007. The Phase II Option also limits the aggregate amount paid to
$20 billion, less any amounts paid under Phase I, and also limits payment in
respect of any single exercise to $10 billion. Determination of the market value
of the Company’s interests will be by mutual agreement of the parties to the
transaction or, if no such agreement is reached within 30 days of the valuation
date, by arbitrators. If an initial public offering takes place and the common stock
trades in a regular and active market, the market value of the Company’s interest
will be determined by reference to the trading price of common stock.
On 26 November 2002, an option was granted to France Telecom over
43,561,703 shares (representing a 10.85% stake) in Vodafone Greece, following
the purchase by the Group of 58,948,830 shares in Vodafone Greece from
France Telecom. France Telecom may exercise this option (in whole or in part) at
any time until maturity on 29 November 2004, at which time the Group would
pay in cash the excess of Vodafone Greece’s share price over 114.29 per share.
At 31 March 2003 Vodafone Greece’s share price was 15.02 per share. The
option also expires when none of France Telecom’s exchangeable notes maturing
on 29 November 2004 with regard to Vodafone Greece remain outstanding.
With respect to interests in Vodafone Hungary, Antenna Hungaria RT has been
granted call options (exercisable in whole or in part at any time until 9 October
2003) over shares issued in connection with equity injections in October 2001,
April 2002 and June 2003, for which the contribution relating to Antenna
Hungaria RT’s pre October 2001 interest of 30% was made by a Group
company. An option (also expiring on 9 October 2003), was granted to Antenna
Hungaria RT on 23 January 2003 over certain of the shares acquired from RWE
on this date, representing a maximum interest of 2.91%. If all of these options
were to be exercised, Antenna Hungaria RT’s stake in Vodafone Hungary would
increase from 12.1% to 32.9%.
A call option has been granted to Alkan Ltd. over the 6 million shares (5% stake)
of Vodafone Egypt acquired by the Group in a transaction with Alkan Ltd. that
completed on 24 April 2003. The option is exercisable in whole or in part
(subject to a minimum purchase in any one exercise of one-fifth of the total of
6 million shares) on any one or more occasions at anytime during the period
from 24 April 2004 to 23 April 2005. The acquisition of the 6 million shares will
not be accounted for as an acquisition of an equity stake. Hence, should the
option be exercised by Alkan Ltd., the Group’s effective ownership in Vodafone
Egypt will be unaffected. Should the option not be exercised, at expiry of the
option period on 23 April 2005, the acquisition cost will be accounted for as an
increase in the Group’s ownership in Vodafone Egypt.
A summary of the Group’s principal contractual financial obligations is shown
below. Further details on the items included can be found in the Notes to the
Consolidated Financial Statements, as indicated in the table.
Payments due by period £m (years)
Contractual obligations Total <1 1-4 4-5 >5
Short term debt (note 18) 1,430 1,430 –––
Long term debt (notes 19 and 20) 13,175 – 5,883 805 6,487
Capital commitments (note 28) 1,014 1,007 7
Operating lease commitments
(note 27) 2,706 531 969 217 989
Total contractual cash
obligations 18,325 2,968 6,859 1,022 7,476
The above table excludes commitments in respect of options over certain
interests in Group businesses held by minority shareholders, as described above.
Disclosures required by FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others”, are provided in note 29 to the Consolidated Financial
Statements, “Contingent liabilities”.
Financial assets and liabilities
Details of the Group’s treasury management and policies are set out below in
“Quantitative and Qualitative Disclosures About Market Risk”. Analyses of
financial assets and liabilities, including the maturity profile of debt, currency and
interest rate structure, are included in notes 20 and 21 to the Consolidated
Financial Statements “Financial liabilities and assets” and “Financial instruments”
included in this Annual Report.
Quantitative and Qualitative Disclosures
About Market Risk
The Group’s treasury function provides a centralised service to the Group for
funding, bank relationship management, investment management, foreign
exchange, interest rate management and counterparty risk management.
Treasury operations are conducted within a framework of policies and guidelines
authorised and reviewed annually by the Company’s Board of directors. The
Group accounting function provides regular update reports of treasury activity to
the Board of directors. The Group uses a number of derivative instruments that
are transacted, for risk management purposes, by specialist treasury personnel.
The internal control environment is reviewed regularly by the Group’s internal and
external auditors. There has been no significant change during the financial year,
or since the end of the year, to the types of financial risks faced by the Group or
the Group’s approach to the management of those risks.
Funding and liquidity
The Group’s policy is to borrow centrally, using a mixture of long term and short
term capital market issues and borrowing facilities, to meet anticipated funding
requirements. These borrowings, together with cash generated from operations,
are lent or contributed as equity to some subsidiaries. The Board of directors has
approved three debt protection ratios, being: net interest to operating cash flow
(plus dividends from associated undertakings); retained cash flow (operating
cash flow plus dividends from associated undertakings less interest, tax,
dividends to minorities and equity dividends) to net debt; and operating cash flow
(plus dividends from associated undertakings) to net debt. For each of these
ratios, net debt includes financial guarantees and redeemable preference shares.
These internal ratios establish levels of debt which the Group should not exceed
other than for relatively short periods of time and are shared with Moody’s,
Standard and Poor’s and Fitch.