Vodafone 2016 Annual Report Download - page 139

Overview Strategy review Performance Governance Financials Additional information
Vodafone Group Plc
Annual Report 2016
137
Liquidity risk
At 31 March 2016 the Group had €4.0 billion and US$4.1 billion syndicated committed undrawn bank facilities which support the US$15 billion and
£8 billion commercial paper programme available to the Group. The Group uses commercial paper and bank facilities to manage short-term liquidity
and manages long-term liquidity by raising funds in the capital markets.
The euro syndicated committed facility has a maturity date of 28 March 2021. From 28 March 2020 the facility will be downsized to €3.9 billion
as one lender did not exercise the option to extend the facility for a further year as requested by the Company. The US$ syndicated committed
facility has a maturity date of 27 February 2021 with each lender having the option to extend the facility for a further year prior to the second
anniversary of the facility, if requested by the Company. From 27 February 2020 the facility will be downsized to US$3.9 billion as one lender did
not exercise the option to extend the facility for a further year as requested by the Company. Both facilities have remained undrawn throughout
thenancial year and since year end and provide liquidity support.
The Group manages liquidity risk on long-term borrowings by maintaining a varied maturity prole with a cap on the level of debt maturity in any
one calendar year, therefore minimising renancing risk. Long-term borrowings mature between one and 29 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 2016 amounted to £10,218 million
(2015: £6,882 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 oating rate basis except for periods up to six years where interest rate xing has to be undertaken in accordance with treasury
policy. Where assets and liabilities are denominated in other currencies interest rates may also be xed. In addition, xing is undertaken for longer
periods when interest rates are statistically low.
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 2016 there
would be an increase or decrease in prot before tax by approximately £23 million (2015: increase or decrease by £36 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 ows, principally in euro, South African rand, Indian rupee and sterling, the Group maintains the currency of debt
and interest charges in proportion to its expected future principal multi-currency cash ows and has a policy to hedge external foreign exchange
risks on transactions denominated in other currencies above certain de minimis levels.
At 31 March 2016, 109% of net debt was denominated in currencies other than sterling (59% euro, 26% India rupee, 10% US dollar and 14% other)
while 9% 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 ows and therefore provides a partial hedge against income
statement translation exposure, as interest costs will be denominated in foreign currencies.
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 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 on net investment hedging
instruments as there would be an offset in the currency translation of the foreign operation. At 31 March 2016 the Group held nancial liabilities
in a net investment against the Group’s consolidated euro net assets. Sensitivity to foreign exchange movements on the hedging liabilities, analysed
against a strengthening of the euro by 8% (2015: 5%) would result in a decrease in equity of £1,350 million (2015: £876 million) which would be fully
offset by foreign exchange movements on the hedged net assets.
The following table details the Group’s sensitivity of the Group’s adjusted operating prot to a strengthening of the Group’s major currency in which
it transacts. The percentage movement applied to the currency is based on the average movements in the previous three annual reporting periods.
Amounts are calculated by retranslating the operating prot of each entity whose functional currency is euro.
2016 2015
£m £m
Euro 8% (2015: 5%) change – Operating prot1109 81
Note:
1 Operating prot before impairment losses and other income and expense.
At 31 March 2016 the Group’s sensitivity to foreign exchange movements, analysed against a strengthening of the US dollar by 8% (2015: 9%) on its
external US dollar exposure, would decrease the prot before tax by £60 million (2015: £71 million). Foreign exchange on certain internal balances
analysed against a strengthening of the US dollar of 8% (2015: 9%) and euro of 8% (2015: 5%) would increase the prot before tax by £0.8 million
(2015:decrease prot by £65 million) and decrease prot before tax by £318 million (2015: £186 million) for US dollar and euro respectively.
Equity risk
There is no material equity risk relating to the Group’s equity investments which are detailed in note 13 “Other investments”.
The Group has hedged its exposure under the subordinated mandatory convertible bonds to any future movements in its share price
by an option strategy designed to hedge the economic impact of share price movements during the term of the bonds. As at 31 March 2016 the
Group’s sensitivity to a movement of 5% in its share price would result in an increase or decrease in prot before tax of approximately £144 million.