Vodafone 2009 Annual Report Download - page 105

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Financials
Vodafone Group Plc Annual Report 2009 103
Liquidity risk
At 31 March 2009, the Group had US$9.1 billion committed undrawn bank facilities
and US$15 billion and £5 billion commercial paper programmes, supported by the
US$9.1 billion committed bank facilities, available to manage its liquidity. The Group
uses commercial paper and bank facilities to manage short term liquidity and
manages long term liquidity by raising funds on capital markets.
During the year, US$4.1 billion of the committed facilit y was ex tended from a maturity
of 24 June 2009 to 28 July 2011. The remaining US$5 billion has a maturity of 22 June
2012. Both facilities have remained undrawn throughout the financial year and since
year end and provide liquidity support.
The Group manages liquidity risk on long term borrowings by maintaining a varied
maturity profile with a cap on the level of debt maturing in any one calendar year,
therefore minimising refinancing risk. Long term borrowings mature between one
and 28 years.
Liquidity is reviewed daily on at least a 12 month rolling basis and stress tested on the
assumption that all commercial paper outstanding matures and is not reissued. The
Group maintains substantial cash and cash equivalents, which at 31 March 2009
amounted to £4,878 million (2008: £1,699 million).
Market risk
Interest rate management
Under the Group’s interest rate management policy, interest rates on monetary
assets and liabilities denominated in euros, US dollars and sterling are maintained
on a floating rate basis, unless the forecast interest charge for the next 12 months
is material in relation to forecast results, in which case rates are fixed. Where assets
and liabilities are denominated in other currencies, interest rates may also be
fixed. In addition, fixing is undertaken for longer periods when interest rates are
statistically low.
At 31 March 2009, 43% (2008: 77%) of the Group’s gross borrowings were fixed for a
period of at least one year. For each one hundred basis point fall or rise in market
interest rates for all currencies in which the Group had borrowings at 31 March 2009
there would be a reduction or increase in profit before tax by approximately £175 million
(2008: increase or reduce by £3 million), including mark-to-market revaluations of
interest rate and other derivatives and the potential interest on outstanding tax
issues. There would be no material impact on equity.
Foreign exchange management
As Vodafone’s primary listing is on the London Stock Exchange, its share price is
quoted in sterling. Since the sterling share price represents the value of its future
multi-currency cash flows, principally in euro, US dollars and sterling, the Group
maintains the currency of debt and interest charges in proportion to its expected
future principal multi-currency cash flows and has a policy to hedge external foreign
exchange risks on transactions denominated in other currencies above certain de
minimis levels. As the Group’s future cash flows are increasingly likely to be derived
from emerging markets, it is likely that more debt in emerging market currencies will
be drawn.
As such, at 31 March 2009, 117% of net debt was denominated in currencies other
than sterling (57% euro, 46% US dollar and 14% other), while 17% of net debt had
been purchased forward in sterling in anticipation of sterling denominated
shareholder returns via dividends. This allows euro, US dollar and other debt to be
serviced in proportion to expected future cash flows and, therefore, provides a
partial hedge against income statement translation exposure, as interest costs will
be denominated in foreign currencies. Yen debt is used as a hedge against the value
of yen assets as the Group has minimal yen cash flows. A relative weakening in the
value of sterling against certain currencies in which the Group maintains cash
and cash equivalents has resulted in an increase in cash and cash equivalents of
£371 million from currency translation differences in the year ended 31 March 2009
(2008: £129 million).
Under the Group’s foreign exchange management policy, foreign exchange
transaction exposure in Group companies is generally maintained at the lower
of €5 million per currency per month or €15 million per currency over a six
month period. The Group is exposed to profit and loss account volatility on the
retranslation of certain investments received upon the disposal of Vodafone Japan
to SoftBank which are yen denominated financial instruments but are owned by legal
entities with either a sterling or euro functional currency. In addition, a US dollar
denominated financial liability arising from the put rights granted over the Essar
Group’s interests in Vodafone Essar in the 2008 financial year and discussed on page
44, were granted by a legal entity with a euro functional currency. A 23%, 10% or 15%
(2008: 10%, 2% or 1%) change in the ¥/£, ¥/€ or US$/€ exchange rates would have
a £164 million, £136 million or £496 million (2008: £47 million, £17 million and
£23 million) impact on profit or loss in relation to these financial instruments.
The Group recognises foreign exchange movements in equity for the translation of
net investment hedging instruments and balances treated as investments in foreign
operations. However, there is no net impact on equity for exchange rate movements
as there would be an offset in the currency translation of the foreign operation.
The following table details the Group’s sensitivity of the Group’s operating profit to a
strengthening of the Group’s major currencies in which it transacts. The percentage
movement applied to each currency is based on the average movements in the
previous three annual reporting periods. Amounts are calculated by retranslating the
operating profit of each entity whose functional currency is either euro or US dollar.
2009
£m
Euro 12% change – Operating profit 347
US dollar 17% change – Operating profit 632
At 31 March 2008, sensitivity of the Group’s operating profit was analysed for euro 6%
change and US$ 7% change, representing £357 million and £177 million respectively.
Equity risk
The Group has equity investments, primarily in China Mobile Limited and Bharti
Infotel Private Limited, which are subject to equity risk. See note 15 for further details
on the carrying value of these investments.