Notes to the Consolidated Financial Statements
Notes 21-25
- 21. Transactions with equity shareholders
- 22. Movements in accumulated other recognised income and expense
- 23. Movements in retained losses
- 24. Borrowings
- 25. Post employment benefits
24. Borrowings
Financial risk management
The Group’s treasury function provides a centralised service to the Group for funding, 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, most recently on 25 September 2007. A Treasury Risk Committee, comprising of the Group’s Chief Financial Officer, Group General Counsel and Company Secretary, Group Treasurer and Director of Financial Reporting, meets at least annually to review treasury activities and its members receive management information relating to treasury activities on a quarterly basis. In accordance with the Group treasury policy, a quorum for meetings is four members and either the Chief Financial Officer or Group General Counsel and Company Secretary must be present at each meeting. The Group accounting function, which does not report to the Group Treasurer, provides regular update reports of treasury activity to the Board. The Group’s internal auditors review the internal control environment regularly.
The Group uses a number of derivative instruments that are transacted, for risk management purposes only, by specialist treasury personnel. 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.
Capital management
The following table summarises the capital of the Group:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Cash and cash equivalents | (1,699) | (7,481) |
| Derivative financial instruments | (348) | (85) |
| Borrowings | 27,194 | 22,615 |
| Net debt | 25,147 | 15,049 |
| Equity | 76,471 | 67,293 |
| Capital | 101,618 | 82,342 |
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 on-lent or contributed as equity to certain subsidiaries. The Board 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. These internal ratios establish levels of debt that the Group should not exceed other than for relatively short periods of time and are shared with the Group’s debt rating agencies, being Moody’s, Fitch Ratings and Standard & Poor’s. The Group complied with these ratios throughout the financial year.
Credit risk
The Group considers its exposure to credit risk at 31 March to be as follows:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Bank deposits | 451 | 827 |
| Repurchase agreements | 478 | – |
| Money market fund investments | 477 | 5,525 |
| Commercial paper investments | 293 | 1,129 |
| Derivative financial instruments | 892 | 304 |
| Other investments – debt and bonds | 1,376 | 1,066 |
| Trade receivables | 3,598 | 2,886 |
| 7,565 | 11,737 |
Investments in commercial paper and money market deposits are in accordance with established internal Treasury policies which dictate that an investment’s long term credit rating is no lower than single A. Additionally, the Group invests in AAA unsecured money market mutual funds where the investment is limited to 10% of each fund.
The Group has investments in repurchase agreements which are fully collateralised investments. The collateral is Sovereign and Supranational debt of major EU countries denominated in euros and US dollars and can be readily converted to cash. In the event of any default, ownership of the collateral would revert to the Group. Detailed below is the value of the collateral held by the Group at 31 March 2008:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Sovereign | 418 | – |
| Supranational | 60 | – |
| 478 | – |
The majority of the Group’s trade receivables are due for maturity within 90 days and largely comprise amounts receivable from consumers and business customers. At 31 March 2008, £1,546 million (2007: £1,084 million) of trade receivables were not yet due for payment. Total trade receivables consisted of £2,881 million (2007: £1,997 million) relating to the Europe region and £717 million (2007: £890 million) relating to the EMAPA region. Accounts are monitored by management and provisions for bad and doubtful debts raised where it is deemed appropriate.
The following table presents ageing of receivables that are past due and are presented net of provisions for doubtful receivables that have been established.
| 2008 £m |
2007 £m |
|
|---|---|---|
| 30 days or less | 1,714 | 1,559 |
| Between 31 – 60 days | 117 | 72 |
| Between 61 – 180 days | 115 | 111 |
| Greater than 180 days | 106 | 60 |
| 2,052 | 1,802 |
Concentrations of credit risk with respect to trade receivables are limited given that the Group’s customer base is large and unrelated. Due to this, management believes there is no further credit risk provision required in excess of the normal provision for bad and doubtful receivables. Amounts charged to administrative expenses during the year ended 31 March 2008 were £293 million (2007: £201 million, 2006: £168 million) (see note 17).
The Group has other 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 2008 was £1,346 million (2007: £1,046 million).
In respect of financial instruments used by the Group’s treasury function, the aggregate credit risk the Group may have with one counterparty is 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.
Liquidity risk
At 31 March 2008, the Group had $11.3 billion committed undrawn bank facilities and $15 billion and £5 billion commercial paper programmes, supported by the $11.3 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.
Market risk
Interest rate management
Under the Group’s interest rate management policy, interest rates on monetary assets and liabilities denominated in euros, sterling and US dollars are maintained on a floating rate basis, unless the forecast interest charge for the next 18 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 2008, 77% (2007: 29%) of the Group’s gross borrowings were fixed for a period of at least one year. A one hundred basis point fall or rise in market interest rates for all currencies in which the Group had borrowings at 31 March 2008 would reduce or increase profit before tax by approximately £3 million (2007: increase or reduce by £24 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, sterling and US dollars, 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 2008, 119% of net debt was denominated in currencies other than sterling (80% euro, 27% US dollar and 12% other), while 19% 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 £129 million from currency translation differences.
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 below, were granted by a legal entity with a euro functional currency. A 10%, 2% or 1% (2007: 2%, 5% or nil) change in the ¥/£, ¥/€ or US$/€ exchange rates would have a £47 million, £17 million or £23 million (2007: £8 million, £33 million and nil) 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 adjusted 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. The analysis has been performed based on the movement occurring at the start of the reporting period and is calculated by retranslating the adjusted operating profit of each entity whose functional currency is either euro or US dollar.
| 2008 £m |
|
|---|---|
| Euro 6% change – Adjusted operating profit | 357 |
| US dollar 7% change – Adjusted operating profit | 177 |
At 31 March 2007, sensitivity of the Group’s adjusted operating profit was analysed for euro 3% change and US$ 8% change, representing £175 million and £176 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.
Carrying value and fair value information
| 2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|
| Short term borrowings £m |
Long term borrowings £m |
Total £m |
Short term borrowings £m |
Long term borrowings £m |
Total £m |
||
| Financial liabilities measured at amortised cost: | |||||||
| Bank loans | 806 | 2,669 | 3,475 | 94 | 2,086 | 2,180 | |
| Bank overdrafts | 47 | – | 47 | 23 | – | 23 | |
| Redeemable preference shares | – | 985 | 985 | – | 818 | 818 | |
| Finance lease obligations | 9 | 60 | 69 | 7 | 59 | 66 | |
| Bonds | 1,125 | 4,439 | 5,564 | 1,648 | 3,953 | 5,601 | |
| Other liabilities | 1,740 | 2,945 | 4,685 | 2,202 | 156 | 2,358 | |
| Loans and bonds in fair value hedge relationships | 805 | 11,564 | 12,369 | 843 | 10,726 | 11,569 | |
| 4,532 | 22,662 | 27,194 | 4,817 | 17,798 | 22,615 | ||
The fair value and carrying value of the Group’s short term borrowings is as follows:
| Fair value | Carrying value | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Financial liabilities measured at amortised cost | 3,715 | 3,972 | 3,727 | 3,974 | |
| Loans in fair value hedge relationships: | |||||
| 4.161% US dollar 150m bond due November 2007 | – | 76 | – | 77 | |
| 3.95% US dollar 500m bond due January 2008 | – | 252 | – | 254 | |
| 4.625% euro 250m bond due January 2008 | – | 170 | – | 171 | |
| 4.625% euro 500m bond due January 2008 | – | 341 | – | 341 | |
| 5.5% euro 400m bond due July 2008 | 37 | – | 39 | – | |
| 6.25% sterling 250m bond due July 2008 | 250 | – | 249 | – | |
| 6.25% sterling 150m bond due July 2008 | 150 | – | 148 | – | |
| 6.65% US dollar 500m bond due May 2008 | 126 | – | 130 | – | |
| 4.0% euro 300m bond due January 2009 | 237 | – | 239 | – | |
| Short term borrowings | 4,515 | 4,811 | 4,532 | 4,817 | |
The fair value and carrying value of the Group’s long term borrowings is as follows:
| Fair value | Carrying value | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Financial liabilities measured at amortised cost: | |||||
| Bank loans | 2,669 | 2,086 | 2,669 | 2,086 | |
| Redeemable preference shares | 985 | 818 | 985 | 818 | |
| Finance lease obligations | 60 | 59 | 60 | 59 | |
| Bonds: | |||||
| Euro FRN due July 2008 | – | 849 | – | 858 | |
| Euro FRN due February 2009 | – | 102 | – | 102 | |
| Euro FRN due February 2010 | 237 | 204 | 240 | 205 | |
| US dollar FRN due June 2011 | 227 | 224 | 176 | 178 | |
| Euro FRN due January 2012 | 775 | 683 | 805 | 685 | |
| Euro FRN due January 2012 | 232 | 205 | 241 | 197 | |
| US dollar FRN due February 2012 | 236 | 254 | 253 | 255 | |
| Euro FRN due September 2013 | 644 | 582 | 679 | 579 | |
| Euro FRN due June 2014 | 930 | – | 998 | – | |
| 5.125% euro 500m bond due April 2015 | 397 | 350 | 427 | 365 | |
| 5% euro 750m bond due June 2018 | 578 | 515 | 620 | 529 | |
| Other liabilities(1) | 2,984 | 156 | 2,945 | 156 | |
| Loans in fair value hedge relationships: | |||||
| 5.5% euro 400m bond due July 2008 | – | 32 | – | 34 | |
| 6.25% sterling 250m bond due July 2008 | – | 251 | – | 249 | |
| 6.25% sterling 150m bond due July 2008 | – | 151 | – | 149 | |
| 6.65% US dollar 500m bond due May 2008 | – | 129 | – | 132 | |
| 4.0% euro 300m bond due January 2009 | – | 203 | – | 204 | |
| 4.25% euro 1.4bn bond due May 2009 | 1,112 | 950 | 1,135 | 965 | |
| 4.25% euro 500m bond due May 2009 | 397 | 339 | 408 | 348 | |
| 4.75% euro 3bn bond due May 2009 | 695 | 596 | 709 | 602 | |
| 7.75% US dollar 2.75bn bond due February 2010 | 1,466 | 1,480 | 1,492 | 1,467 | |
| 5.5% US dollar 750m bond due June 2011 | 386 | 385 | 410 | 390 | |
| 5.35% US dollar 500m bond due February 2012 | 255 | 255 | 271 | 256 | |
| 3.625% euro 750m bond due November 2012 | 564 | 487 | 584 | 492 | |
| 6.75% Australian dollar 265m bond due January 2013 | 121 | 108 | 119 | 110 | |
| 5.0% US dollar 1bn bond due December 2013 | 532 | 464 | 541 | 502 | |
| 4.625% sterling 350m bond due September 2014 | 319 | 321 | 347 | 334 | |
| 5.375% US dollar 500m bond due January 2015 | 256 | 250 | 268 | 249 | |
| 5.375% US dollar 400m bond due January 2015 | 205 | 200 | 215 | 199 | |
| 5.0% US dollar 750m bond due September 2015 | 419 | 423 | 406 | 375 | |
| 5.75% US dollar 750m bond due March 2016 | 375 | 384 | 415 | 384 | |
| 4.75% euro 300m bond due June 2016 | 227 | 204 | 245 | 209 | |
| 4.75% euro 200m bond due June 2016 | 151 | 136 | 164 | 140 | |
| 5.625% US dollar 1.3bn bond due February 2017 | 640 | 650 | 716 | 661 | |
| 4.625% US dollar 500m bond due July 2018 | 227 | 231 | 257 | 235 | |
| 5.375% euro 500m bond June 2022 | 374 | – | 420 | – | |
| 5.625% sterling 250m bond due December 2025 | 220 | 242 | 259 | 253 | |
| 7.875% US dollar 750m bond due February 2030 | 409 | 441 | 514 | 481 | |
| 5.9% sterling 450m bond due November 2032 | 410 | 454 | 458 | 451 | |
| 6.25% US dollar 495m bond due November 2032 | 258 | 250 | 275 | 252 | |
| 6.15% US dollar 1.2bn bond due February 2037 | 568 | 609 | 665 | 603 | |
| 6.15% US dollar 500m bond due February 2037 | 237 | – | 271 | – | |
| Long term borrowings | 21,777 | 17,712 | 22,662 | 17,798 | |
| Note: | |
|---|---|
| (1) | Amount at 31 March 2008 includes £2,476 million (2007 : £nil) in relation to the written put options disclosed in note 12 and written put options granted to the Essar Group that, if exercised, would allow the Essar Group to sell its 33% shareholding in Vodafone Essar to the Group for US$5 billion or to sell between US$1 billion and US$5 billion worth of Vodafone Essar shares at an independently appraised fair market value. |
Fair values are calculated using discounted cash flows with a discount rate based upon forward interest rates available to the Group at the balance sheet date.
Banks loans include a ZAR7.2 billion loan held by Vodafone Holdings SA Pty Limited (“VHSA”), which directly and indirectly owns the Group’s 50% interest in Vodacom Group (Pty) Limited. VHSA has pledged its 100% equity shareholding in Vodafone Investments SA (“VISA”) as security for its loan obligations. The terms and conditions of the pledge mean that should VHSA not meet all of its loan payment and performance obligations, the lenders may sell the equity shareholding in its subsidiary VISA at market value to recover their losses, with any remaining sales proceeds being returned to VHSA. Vodafone International Holdings B.V. and VISA have also guaranteed this loan with recourse only to the VHSA and Vodafone Telecommunications Investment SA (“VTISA”) shares they have respectively pledged. The terms and conditions of the security arrangement mean the lenders may be able to sell these respective shares in preference to the VISA shares held by VHSA. An arrangement has been put in place where the Vodacom Group (Pty) Limited shares held by VHSA and VTISA are held in an escrow account to ensure the shares cannot be sold to satisfy the pledge made by both companies. The maximum collateral provided is ZAR7.5 billion, being the carrying value of the bank loan at 31 March 2008 (2007: ZAR8.6 billion).
Bank loans also include INR66 billion of loans held by Vodafone Essar Limited (“VEL”) and its subsidiaries (the “VEL Group”, a total of eight legal entities), which form the operating companies in India. The VEL Group has a number of security arrangements supporting its secured loan obligations comprising its physical assets and certain share pledges of the shares under VEL. The terms and conditions of the security arrangements mean that should members of the VEL Group not meet all of their loan payment and performance obligations, the lenders may sell the pledged shares and/or assets to recover their losses, with any remaining sales proceeds being returned to the VEL Group. Six of the eight legal entities provide cross guarantees to the lenders.
Maturity of borrowings
The maturity profile of the anticipated future cash flows including interest in relation to the Group’s non-derivative financial liabilities on an undiscounted basis, which, therefore, differs from both the carrying value and fair value, is as follows:
| Bank loans £m |
Redeemable preference shares £m |
Finance lease obligations £m |
Bonds £m |
Other liabilities £m |
Loans in fair value hedge relationships £m |
Total £m |
|
|---|---|---|---|---|---|---|---|
| Within one year | 838 | 43 | 12 | 1,368 | 1,788 | 1,443 | 5,492 |
| In one to two years | 369 | 104 | 12 | 464 | 110 | 4,168 | 5,227 |
| In two to three years | 1,490 | 77 | 12 | 214 | 2,732 | 398 | 4,923 |
| In three to four years | 346 | 43 | 12 | 1,671 | – | 1,016 | 3,088 |
| In four to five years | 142 | 43 | 11 | 139 | 223 | 1,082 | 1,640 |
| In more than five years | 423 | 1,132 | 26 | 2,990 | 137 | 9,459 | 14,167 |
| 3,608 | 1,442 | 85 | 6,846 | 4,990 | 17,566 | 34,537 | |
| Effect of discount/financing rates | (133) | (457) | (16) | (1,282) | (258) | (5,197) | (7,343) |
| 31 March 2008 | 3,475 | 985 | 69 | 5,564 | 4,732 | 12,369 | 27,194 |
| Within one year | 116 | 43 | 11 | 1,853 | 2,225 | 1,464 | 5,712 |
| In one to two years | 142 | 43 | 11 | 1,100 | 21 | 1,346 | 2,663 |
| In two to three years | 153 | 43 | 10 | 334 | – | 3,802 | 4,342 |
| In three to four years | 1,265 | 43 | 10 | 123 | 51 | 355 | 1,847 |
| In four to five years | 265 | 43 | 9 | 1,430 | – | 979 | 2,726 |
| In more than five years | 384 | 1,187 | 32 | 1,707 | 84 | 9,140 | 12,534 |
| 2,325 | 1,402 | 83 | 6,547 | 2,381 | 17,086 | 29,824 | |
| Effect of discount/financing rates | (145) | (584) | (17) | (946) | – | (5,517) | (7,209) |
| 31 March 2007 | 2,180 | 818 | 66 | 5,601 | 2,381 | 11,569 | 22,615 |
The maturity profile of the Group’s financial derivatives (which include interest rate and foreign exchange swaps), using undiscounted cash flows, is as follows:
| 2008 | 2007 | ||||
|---|---|---|---|---|---|
| Payable £m |
Receivable £m |
Payable £m |
Receivable £m |
||
| Within one year | 14,931 | 14,749 | 15,163 | 15,163 | |
| In one to two years | 433 | 644 | 611 | 626 | |
| In two to three years | 378 | 441 | 503 | 587 | |
| In three to four years | 399 | 430 | 403 | 398 | |
| In four to five years | 380 | 406 | 400 | 387 | |
| In more than five years | 3,662 | 4,637 | 3,577 | 3,596 | |
| 20,183 | 21,307 | 20,657 | 20,757 | ||
The currency split of the Group’s foreign exchange derivatives, all of which mature in less than one year, is as follows:
| 2008 | 2007 | ||||
|---|---|---|---|---|---|
| Payable £m |
Receivable £m |
Payable £m |
Receivable £m |
||
| Sterling | 2,126 | 8,262 | 1,000 | 5,477 | |
| Euro | 10,111 | – | 7,204 | – | |
| US dollar | 2,076 | 4,992 | 6,178 | 8,166 | |
| Japanese yen | 27 | 15 | – | 106 | |
| Other | 42 | 797 | 84 | 747 | |
| 14,382 | 14,066 | 14,466 | 14,496 | ||
Payables and receivables are stated separately in the table above as settlement is on a gross basis. The £316 million net payable (2007: £30 million net receivable) in relation to foreign exchange financial instruments in the table above is split £358 million (2007: £48 million) within trade and other payables and £42 million (2007: £78 million) within trade and other receivables.
The present value of minimum lease payments under finance lease arrangements under which the Group has leased certain of its equipment is analysed as follows:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Within one year | 9 | 7 |
| In two to five years | 37 | 30 |
| In more than five years | 24 | 29 |
Interest rate and currency of borrowings
| Currency | Total borrowings £m |
Floating rate borrowings £m |
Fixed rate borrowings(1) £m |
Other borrowings £m |
|---|---|---|---|---|
| Sterling | 1,563 | 1,563 | – | – |
| Euro | 10,787 | 9,673 | 1,114 | – |
| US dollar | 10,932 | 8,456 | – | 2,476 |
| Japanese yen | 1,516 | 1,516 | – | – |
| Other | 2,396 | 2,396 | – | – |
| 31 March 2008 | 27,194 | 23,604 | 1,114 | 2,476 |
| Sterling | 1,520 | 1,520 | – | – |
| Euro | 9,295 | 8,382 | 913 | – |
| US dollar | 9,687 | 9,687 | – | – |
| Japanese yen | 1,118 | 1,118 | – | – |
| Other | 995 | 995 | – | – |
| 31 March 2007 | 22,615 | 21,702 | 913 | – |
| Note: | |
|---|---|
| (1) | The weighted average interest rate for the Group’s euro denominated fixed rate borrowings is 5.1% (2007: 5.1%). The weighted average time for which the rates are fixed is 8.8 years (2007: 9.8 years). |
Other borrowings of £2,476 million are the liabilities arising under put options granted over interests in Vodafone Essar.
Interest on floating rate borrowings is generally based on national LIBOR equivalents or government bond rates in the relevant currencies.
The figures shown in the tables above take into account interest rate swaps used to manage the interest rate profile of financial liabilities.
At 31 March 2008, the Group had entered into foreign exchange contracts to decrease its sterling, US dollar and other currency borrowings above by amounts equal to £6,136 million, £2,916 million and £755 million respectively and to increase its euro and Japanese Yen borrowings above by amounts equal to £10,111 million and £12 million respectively.
At 31 March 2007, the Group had entered into foreign exchange contracts to decrease its sterling, US dollar, Japanese yen and other currency borrowings above by amounts equal to £4,477 million, £1,988 million, £106 million and £663 million respectively and to increase its euro borrowings above by amounts equal to £7,204 million.
Further protection from euro and Japanese yen interest rate movements on debt is provided by interest rate swaps. At 31 March 2008, the Group had euro denominated interest rate swaps for amounts equal to £796 million. The average effective rate which has been fixed, is 2.62%. In addition, the Group has entered into euro denominated forward starting interest rate swaps for amounts equal to £3,183 million and £796 million, which cover the periods June 2008 to June 2009 and September 2008 to September 2009, respectively. The effective rates, which have been fixed, range from 2.87% per annum to 3.02% per annum.
Borrowing facilities
At 31 March 2008, the Group’s most significant committed borrowing facilities comprised two bank facilities of $6,125 million (£3,083 million) and $5,200 million (£2,617 million) expiring between two and five years and in more than five years, respectively (2007: two bank facilities of $5,925 million (£3,010 million) and $5,025 million (£2,553 million)), a ¥259 billion (£1,306 million, 2007: ¥259 billion (£1,117 million)) term credit facility, which expires between two and five years and a €400 million (£318 million, 2007: €400 million (£272 million)) loan facility, which expires in more than five years. The US dollar bank facilities remained undrawn throughout the financial year, the ¥259 billion term credit facility was fully drawn down on 21 December 2005 and the €400 million loan facility was fully drawn down on 14 February 2007.
Under the terms and conditions of the $6,125 million and $5,200 million bank facilities, lenders have the right, but not the obligation, to cancel their commitment 30 days from the date of notification of a change of control of the Company and have outstanding advances repaid on the last day of the current interest period.
The facility agreement provides for certain structural changes that do not affect the obligations of the Company to be specifically excluded from the definition of a change of control. This is in addition to the rights of lenders to cancel their commitment if the Company has committed an event of default.
Substantially the same terms and conditions apply in the case of Vodafone Finance K.K.’s ¥259 billion term credit facility, although the change of control provision is applicable to any guarantor of borrowings under the term credit facility. Additionally, the facility agreement requires Vodafone Finance K.K. to maintain a positive tangible net worth at the end of each financial year. As of 31 March 2008, the Company was the sole guarantor.
The terms and conditions of the €400 million loan facility are similar to those of the US dollar bank facilities, with the addition that, should the Group’s Turkish operating company spend less than the equivalent of $800 million on capital expenditure, the Group will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure.
In addition to the above, certain of the Group’s subsidiaries had committed facilities at 31 March 2008 of £2,548 million (2007: £1,030 million) in aggregate, of which £473 million (2007: £278 million) was undrawn. Of the total committed facilities, £1,031 million (2007: £99 million) expires in less than one year, £743 million (2007: £574 million) expires between two and five years, and £774 million (2007: £357 million) expires in more than five years. The increase in 2008 is predominantly due to the inclusion of Vodafone Essar facilities totalling £1,736 million.
Redeemable preference shares
Redeemable preference shares comprise class D and E preferred shares issued by Vodafone Americas, Inc. An annual dividend of $51.43 per class D and E preferred share is payable quarterly in arrears. The dividend for the year amounted to £42 million (2007: £45 million). The aggregate redemption value of the class D and E preferred shares is $1.65 billion. The holders of the preferred shares are entitled to vote on the election of directors and upon each other matter coming before any meeting of the shareholders on which the holders of ordinary shares are entitled to vote. Holders are entitled to vote on the basis of twelve votes for each share of class D or E preferred stock held. The maturity date of the 825,000 class D preferred shares is 6 April 2020. The 825,000 class E preferred shares have a maturity date of 1 April 2020. The class D and E preferred shares have a redemption price of $1,000 per share plus all accrued and unpaid dividends.