Vodafone 2007 Annual Report Download - page 128

126 Vodafone Group Plc Annual Report 2007
Notes to the Consolidated Financial Statements
continued
24. Borrowings continued
The Group has investments in preferred equity and a subordinated loan
received as part of the disposal of Vodafone Japan to SoftBank in the 2007
financial year. The carrying value of those investments at 31 March 2007 was
£1,046 million.
The deposits shown in the table equate to the principal of the amount
deposited. The foreign exchange transactions and interest rate swaps shown
in the table have been marked-to-market.
In respect of financial instruments used by the Group’s treasury function,
the aggregate credit risk the Group may have with one counterparty is
31 March of the previous year. The Group has chosen to recognise actuarial
gains and losses in the period in which they arise through the statement of
recognised income and expense. Payments to defined contribution schemes
are charged as an expense as they fall due.
In the UK, the majority of the UK employees are members of the Vodafone
Group Pension Scheme (the “main scheme”), which was closed to new
entrants from 1 January 2006. This is a tax approved final salary defined
benefit scheme, the assets of which are held in an external trustee-
administered fund. The investment policy and strategy of the scheme is the
responsibility of the plan trustees, who are required to consult with the
Company as well as take independent advice on key investment issues. In
setting the asset allocation, the trustees take into consideration a number of
criteria, including the key characteristics of the asset classes, expected risk
and return, the structure and term of the member liabilities, diversification of
assets, minimum funding and solvency requirements, as well as the
Company’s input on contribution requirements. The plan has a relatively low
level of pensioner liabilities already in payment, meaning that the overall
duration of plan liabilities is long term. The plan’s target asset allocation is
80% in equity investments (half of which is to be in UK equities) and 20% in
corporate bonds.
The main scheme is subject to quarterly funding updates by independent
actuaries and to formal actuarial valuations at least every three years. The
most recent formal triennial valuation of this scheme was carried out as at 31
March 2004. The triennial valuation of the scheme as at 31 March 2007 is
currently in progress.
limited by reference to the long term credit ratings assigned for that
counterparty by Moody’s, Fitch Ratings and Standard & Poor’s. While these
counterparties may expose the Group to credit losses in the event of non-
performance, it considers the possibility of material loss to be acceptable
because of this policy.
The Group targets low single A long term credit ratings. Credit ratings are not
a recommendation to purchase, hold or sell securities, in as much as ratings
do not comment on market price or suitability for a particular investor, and
are subject to revision or withdrawal at any time by the assigning rating
organisation. Each rating should be evaluated independently.
25. Post employment benefits
Background
As at 31 March 2007, the Group operated a number of pension plans for the
benefit of its employees throughout the world, which vary depending on the
conditions and practices in the countries concerned. The Group’s pension
plans are provided through both defined benefit and defined contribution
arrangements. Defined benefit schemes provide benefits based on the
employees’ length of pensionable service and their final pensionable salary
or other criteria. Defined contribution schemes offer employees individual
funds that are converted into benefits at the time of retirement.
The principal defined benefit pension scheme of the Group is in the United
Kingdom. In addition, the Group operates defined benefit schemes in
Germany, Greece, Ireland, Italy, Turkey and the United States. Defined
contribution pension schemes are provided in Australia, Egypt, Germany,
Greece, Hungary, Ireland, Italy, Malta, the Netherlands, New Zealand, Portugal,
Spain, the United Kingdom and the United States. There is a post retirement
medical plan in the United States for a small closed group of participants. The
Group also operated a defined benefit scheme for employees of its operation
in Japan. Both the Japanese operation and the related pension obligations
were disposed of on 27 April 2006.
The Group accounts for its pension schemes in accordance with IAS 19,
Employee Benefits (“IAS19”). Scheme liabilities are assessed using the
projected unit funding method and applying the principal actuarial
assumptions set out below. Assets are valued at market value.
The measurement date for the Group’s pension assets and obligations is
31 March. The measurement date for the Group’s net periodic cost is
Income statement expense
2007 2006 2005
£m £m £m
Defined contribution schemes 32 28 18
Defined benefit schemes 62 52 52
Total amount charged to the income statement (note 34) 94 80 70