Vodafone 2007 Annual Report Download - page 101

Vodafone Group Plc Annual Report 2007 99
Financials
Other investments
Other investments are recognised and derecognised on a trade date where a
purchase or sale of an investment is under a contract whose terms require
delivery of the investment within the timeframe established by the market
concerned, and are initially measured at cost, including transaction costs.
Other investments are classified as either held for trading or available-for-sale,
and are measured at subsequent reporting dates at fair value. Where
securities are held for trading purposes, gains and losses arising from changes
in fair value are included in net profit or loss for the period. For available-for-
sale investments, gains and losses arising from changes in fair value are
recognised directly in equity, until the security is disposed of or is determined
to be impaired, at which time the cumulative gain or loss previously
recognised in equity, determined using the weighted average costs method,
is included in the net profit or loss for the period.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and
other short term highly liquid investments that are readily convertible to a
known amount of cash and are subject to an insignificant risk of changes
in value.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Group are classified
according to the substance of the contractual arrangements entered into and
the definitions of a financial liability and an equity instrument. An equity
instrument is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities and includes no obligation to
deliver cash or other financial assets. The accounting policies adopted for
specific financial liabilities and equity instruments are set out below.
Capital market and bank borrowings
Interest bearing loans and overdrafts are initially measured at fair value
(which is equal to cost at inception), and are subsequently measured at
amortised cost, using the effective interest rate method, except where they
are identified as a hedged item in a fair value hedge. Any difference between
the proceeds net of transaction costs and the settlement or redemption of
borrowings is recognised over the term of the borrowing.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group’s activities expose it to the financial risks of changes in foreign
exchange rates and interest rates.
The use of financial derivatives is governed by the Group’s policies
approved by the Board of directors, which provide written principles on
the use of financial derivatives consistent with the Group’s risk
management strategy. Changes in values of all derivatives of a financing
nature are included within investment income and financing costs in the
income statement. The Group does not use derivative financial
instruments for speculative purposes.
Derivative financial instruments are initially measured at fair value on the
contract date and are subsequently re-measured to fair value at each
reporting date. The Group designates certain derivatives as either:
•hedges of the change of fair value of recognised assets and liabilities (“fair
value hedges”); or
•hedges of net investments in foreign operations.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting.
Fair value hedges
The Group’s policy is to use derivative instruments (primarily interest rate
swaps) to convert a proportion of its fixed rate debt to floating rates in order
to hedge the interest rate risk arising, principally, from capital market
borrowings. The Group designates these as fair value hedges of interest rate
risk with changes in fair value of the hedging instrument recognised in the
income statement for the period together with the changes in the fair value
of the hedged item due to the hedged risk, to the extent the hedge is
effective. The ineffective portion is recognised immediately in the income
statement.
Net investment hedges
Exchange differences arising from the translation of the net investment in
foreign operations are recognised directly in equity. Gains and losses on
those hedging instruments (which include bonds, commercial paper and
foreign exchange contracts) designated as hedges of the net investments
in foreign operations are recognised in equity to the extent that the
hedging relationship is effective. These amounts are included in exchange
differences on translation of foreign operations as stated in the statement
of recognised income and expense. Gains and losses relating to hedge
ineffectiveness are recognised immediately in the income statement for
the period. Gains and losses accumulated in the translation reserve are
included in the income statement when the foreign operation is disposed
of. During the year ended 31 March 2006, the Group adopted the
Amendments to IAS 21, “The Effect of Changes in Foreign Exchange
Rates”, with effect from 1 April 2004, being the date of transition to IFRS
for the Group.
Provisions
Provisions are recognised when the Group has a present obligation as a result
of a past event and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the directors’ best estimate of the
expenditure required to settle the obligation at the balance sheet date and
are discounted to present value where the effect is material.
Share-based payments
The Group issues equity-settled share-based payments to certain employ-
ees. Equity-settled share-based payments are measured at fair value
(excluding the effect of non market-based vesting conditions) at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of the shares that will eventually vest
and adjusted for the effect of non market-based vesting conditions.
Fair value is measured using a binomial pricing model which is calibrated
using a Black-Scholes framework. The expected life used in the model has
been adjusted, based on management’s best estimate, for the effects of non-
transferability, exercise restrictions and behavioural considerations.
Advertising costs
Expenditure on advertising is written off in the year in which it is incurred.