25. Post employment benefits - Notes to the consolidated financial statements - Financials

Financials

Notes 21-25

25. Borrowings

Carrying value and fair value information

	2009			2008
	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	893	5,159	6,052	806	2,669	3,475
Bank overdrafts	32	−	32	47	–	47
Redeemable preference shares	–	1,453	1,453	–	985	985
Commercial paper	2,659	−	2,659	1,443	−	1,443
Bonds	515	8,064	8,579	1,125	4,439	5,564
Other liabilities⁽¹⁾	1,015	4,122	5,137	306	3,005	3,311
Bonds in fair value hedge relationships	4,510	12,951	17,461	805	11,564	12,369
	9,624	31,749	41,373	4,532	22,662	27,194

Note:

(1): At 31 March 2009, amount includes £691 million (2008: £nil) in relation to collateral support agreements.

The fair value and carrying value of the Group’s short term borrowings is as follows:

	Sterling equivalent nominal value		Fair value		Carrying value
	2009 £m	2008 £m	2009 £m	2008 £m	2009 £m	2008 £m
Financial liabilities measured at amortised cost	5,131	3,731	5,108	3,715	5,114	3,727
Bonds in fair value hedge relationships:	4,320	802	4,397	800	4,510	805
4.25% euro 1,859 million bonds due May 2009	1,720	−	1,722	−	1,780	−
4.75% euro 859 million bond due May 2009	794	−	798	−	831	−
7.75% US dollar 2,582 million bond due February 2010	1,806	−	1,877	−	1,899	−
5.5% euro 400 million bond due July 2008	−	37	−	37	−	39
6.25% sterling 400 million bond due July 2008	−	400	−	400	−	397
6.65% US dollar 500 million bond due May 2008	−	126	−	126	−	130
4.0% euro 300 million bond due January 2009	−	239	−	237	−	239
Short term borrowings	9,451	4,533	9,505	4,515	9,624	4,532

The fair value and carrying value of the Group’s long term borrowings is as follows:

	Sterling equivalent nominal value		Fair value		Carrying value
	2009 £m	2008 £m	2009 £m	2008 £m	2009 £m	2008 £m
Financial liabilities measured at amortised cost:
Bank loans	4,993	2,640	5,159	2,669	5,159	2,669
Redeemable preference shares	1,237	906	1,453	985	1,453	985
Bonds:	6,976	4,368	6,559	4,256	8,064	4,439
Euro floating rate note due February 2010	−	239	−	237	−	240
US dollar floating rate note due June 2011	245	176	227	227	245	176
Euro floating rate note due January 2012	1,203	1,035	1,136	1,007	1,218	1,046
US dollar floating rate note due February 2012	350	252	322	236	350	253
Czech Krona floating rate note due June 2013	18	−	18	−	18	−
Euro floating rate note due September 2013	786	676	714	644	788	679
Euro floating rate note due June 2014	1,157	995	1,029	930	1,158	998
5.125% euro 500 million bond due April 2015	463	398	470	397	495	427
5% euro 750 million bond due June 2018	694	597	699	578	721	620
7.875% US dollar 750 million bond due February 2030⁽¹⁾	525	−	577	−	876	−
6.25% US dollar 495 million bond due November 2032⁽¹⁾	346	−	333	−	485	−
6.15% US dollar 1,700 million bond due February 2037⁽¹⁾	1,189	−	1,034	−	1,710	−
Other liabilities⁽²⁾	4,314	3,262	4,186	3,044	4,122	3,005
Bonds in fair value hedge relationships:	11,823	10,863	11,982	10,823	12,951	11,564
4.25% euro 1,900 million bond due May 2009	−	1,512	−	1,509	−	1,543
4.75% euro 859 million bond due May 2009	−	683	−	695	−	709
7.75% US dollar 2,725 million bond due February 2010	−	1,372	−	1,466	−	1,492
5.875% euro 1,250 million bond due June 2010	1,157	−	1,195	−	1,258	−
5.5% US dollar 750 million bond due June 2011	525	378	544	386	575	410
5.35% US dollar 500 million bond due February 2012	350	252	357	255	385	271
3.625% euro 750 million bond due November 2012	694	597	689	564	726	584
3.625% euro 250 million bond due November 2012	231	−	230	−	241	−
6.75% Australian dollar 265 million bond due January 2013	128	122	127	121	140	119
5.0% US dollar 1,000 million bond due December 2013	699	503	713	532	786	541
6.875% euro 1,000 million bond due December 2013	925	−	1,005	−	973	−
4.625% sterling 350 million bond due September 2014	350	350	352	319	381	347
4.625% sterling 525 million bond due September 2014	525	−	526	−	519	−
2.15% Japanese yen 3,000 billion bond due April 2015	21	−	22	−	22	−
5.375% US dollar 900 million bond due January 2015	630	453	632	461	711	483
5.0% US dollar 750 million bond due September 2015	525	378	516	419	598	406
6.25% euro 1,250 million bond due January 2016	1,157	−	1,208	−	1,182	−
5.75% US dollar 750 million bond due March 2016	525	378	527	375	614	415
4.75% euro 500 million bond due June 2016	463	398	448	378	512	409
5.625% US dollar 1,300 million bond due February 2017	909	654	904	640	1,070	716
4.625% US dollar 500 million bond due July 2018	350	252	315	227	392	257
8.125% sterling 450 million bond due November 2018	450	−	535	−	483	−
5.375% euro 500 million bond June 2022	463	398	433	374	534	420
5.625% sterling 250 million bond due December 2025	250	250	234	220	287	259
6.6324% euro 50 million bond due December 2028	46	−	46	−	50	−
7.875% US dollar 750 million bond due February 2030⁽¹⁾	−	378	−	409	−	514
5.9% sterling 450 million bond due November 2032	450	450	424	410	512	458
6.25% US dollar 495 million bond due November 2032⁽¹⁾	−	249	−	258	−	275
6.15% US dollar 1,700 million bond due February 2037⁽¹⁾	−	856	−	805	−	936
Long term borrowings	29,343	22,039	29,339	21,777	31,749	22,662

Notes:

(1): During the year ended 31 March 2009, fair value hedge relationships relating to bonds with nominal value US$2,945 million (£2,060 million) were de-designated.
(2): Amount at 31 March 2009 includes £3,606 million (2008: £2,476 million) 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 ZAR6.1 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 ZAR6.4 billion, being the carrying value of the bank loan at 31 March 2009 (2008: ZAR7.5 billion). Bank loans also include INR130 billion of loans held by Vodafone Essar Limited (‘VEL’) and its subsidiaries (the ‘VEL Group’). 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 within the VEL Group 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	Commercial Paper £m	Bonds £m	Other liabilities £m	Loans in fair value hedge relationships £m	Total £m
Within one year	950	127	2,670	787	1,053	5,222	10,809
In one to two years	2,361	97	–	283	3,663	1,808	8,212
In two to three years	665	59	–	2,105	25	1,443	4,297
In three to four years	525	59	–	269	314	1,589	2,756
In four to five years	1,345	59	–	1,064	252	2,118	4,838
In more than five years	342	1,517	–	7,360	71	8,928	18,218
	6,188	1,918	2,670	11,868	5,378	21,108	49,130
Effect of discount/financing rates	(136)	(465)	(11)	(3,289)	(209)	(3,647)	(7,757)
31 March 2009	6,052	1,453	2,659	8,579	5,169	17,461	41,373

Within one year	838	43	1,457	1,368	343	1,443	5,492
In one to two years	369	104	–	464	122	4,168	5,227
In two to three years	1,490	77	–	214	2,744	398	4,923
In three to four years	346	43	–	1,671	12	1,016	3,088
In four to five years	142	43	–	139	234	1,082	1,640
In more than five years	423	1,132	–	2,990	163	9,459	14,167
	3,608	1,442	1,457	6,846	3,618	17,566	34,537
Effect of discount/financing rates	(133)	(457)	(14)	(1,282)	(260)	(5,197)	(7,343)
31 March 2008	3,475	985	1,443	5,564	3,358	12,369	27,194

The maturity profile of the Group’s financial derivatives (which include interest rate and foreign exchange swaps), using undiscounted cash flows, is as follows:

	2009		2008
	Payable £m	Receivable £m	Payable £m	Receivable £m
Within one year	9,003	9,231	14,931	14,749
In one to two years	592	668	433	644
In two to three years	739	609	378	441
In three to four years	765	603	399	430
In four to five years	743	577	380	406
In more than five years	7,062	5,129	3,662	4,637
	18,904	16,817	20,183	21,307

The currency split of the Group’s foreign exchange derivatives, all of which mature in less than one year, is as follows:

	2009		2008
	Payable £m	Receivable £m	Payable £m	Receivable £m
Sterling	−	6,039	2,126	8,262
Euro	5,595	13	10,111	–
US dollar	2,527	1,127	2,076	4,992
Japanese yen	214	20	27	15
Other	81	1,285	42	797
	8,417	8,484	14,382	14,066

Payables and receivables are stated separately in the table above as settlement is on a gross basis. The £67 million net receivable (2008: £316 million net payable) in relation to foreign exchange financial instruments in the table above is split £37 million (2008: £358 million) within trade and other payables and £104 million (2008: £42 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:

	2009 £m	2008 £m
Within one year	10	9
In two to five years	42	37
In more than five years	18	24

Interest rate and currency of borrowings

Currency	Total borrowings £m	Floating rate borrowings £m	Fixed rate borrowings⁽¹⁾ £m	Other borrowings⁽²⁾ £m
Sterling	2,549	2,549	−	−
Euro	15,126	13,605	1,521	−
US dollar	17,242	10,565	3,071	3,606
Japanese yen	2,660	2,660	−	−
Other	3,796	3,323	473	−
31 March 2009	41,373	32,702	5,065	3,606

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

Notes:

(1): The weighted average interest rate for the Group’s euro denominated fixed rate borrowings is 5.1% (2008: 5.1%). The weighted average time for which the rates are fixed is 6.7 years (2008: 8.8 years). The weighted average interest rate for the Group’s US dollar denominated fixed rate borrowings is 6.6%. The weighted average time for which the rates are fixed is 25.4 years. The Group had no US dollar fixed rate borrowings in 2008. The weighted average interest rate for the Group’s other currency fixed rate borrowings is 10.1%. The weighted average time for which the rates are fixed is 2.5 years. The Group had no other currency fixed rate borrowings in 2008.
(2): Other borrowings of £3,606 million (2008: £2,476 million) are the liabilities arising under put options granted over direct and indirect interests in Vodafone Essar.

The figures shown in the tables above take into account interest rate swaps used to manage the interest rate profile of financial liabilities. Interest on floating rate borrowings is generally based on national LIBOR equivalents or government bond rates in the relevant currencies.

At 31 March 2009, the Group had entered into foreign exchange contracts to decrease its sterling and other currency borrowings above by amounts equal to £6,039 million and £1,204 million respectively and to increase its euro, US dollar and Japanese yen borrowings above by amounts equal to £5,582 million, £1,400 million and £194 million respectively.

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.

Further protection from euro and Indian rupee interest rate movements on debt is provided by interest rate swaps and cross currency swaps, respectively. At 31 March 2009, the Group had euro denominated interest rate swaps for amounts equal to £4,626 million and Indian rupee denominated cross currency swaps for amounts equal to £125 million. The average effective rate which has been fixed, is 2.99% in relation to euro denominated interest rate swaps and 6.89% in relation to Indian rupee denominated cross currency swaps.

The Group has entered into euro and US dollar denominated interest rate futures. The euro denominated interest rate futures cover the period June 2009 to September 2009, September 2009 to December 2009 and December 2009 to March 2010 for amounts equal to £6,845 million (2008: £5,887 million), £6,061 million (2008: £nil) and £3,931 million (2008: nil), respectively. The average effective rate which has been fixed, is 3.96%. The US dollar denominated interest rate futures cover the period June 2009 to September 2009, September 2009 to December 2009 and December 2009 to March 2010 for amounts equal to £7,003 million (2008: £5,040 million), £7,871 million (2008: £nil) and £9,333 million (2008: £nil), respectively. The average effective rate which has been fixed, is 3.47%.

Borrowing facilities

At 31 March 2009, the Group’s most significant committed borrowing facilities comprised two bank facilities of US$4,115 million (£2,878 million) and US$5,025 million (£3,514 million) both expiring between two and five years (2008: two bank facilities of US$6,125 million (£3,083 million) and US$5,200 million (£2,617 million)), a ¥259 billion (£1,820 million, 2008: ¥259 billion (£1,306 million)) term credit facility, which expires between one and two years and two loan facilities of €400 million (£370 million) and €350 million (£324 million) expiring between two and five years and in more than five years, respectively (2008: one loan facility of €400 million (£318 million)). 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 and €350 million loan facilities were fully drawn on 14 February 2007 and 12 August 2008, respectively.

Under the terms and conditions of the US$4,115 million and US$5,025 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 agreements provide 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 2009, 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 US$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.

The terms and conditions of the €350 million loan facility are similar to those of the US dollar bank facilities, with the addition that, should the Group’s Italian operating company spend less than the equivalent of €1,500 million on capital expenditure, the Group will be required to repay the drawn amount of the facility that exceeds 18% of the capital expenditure.

In addition to the above, certain of the Group’s subsidiaries had committed facilities at 31 March 2009 of £4,725 million (2008: £2,548 million) in aggregate, of which £1,571 million (2008: £473 million) was undrawn. Of the total committed facilities, £675 million (2008: £1,031 million) expires in less than one year, £2,275 million (2008: £743 million) expires between two and five years, and £1,775million (2008: £774 million) expires in more than five years. The increase in 2009 is predominantly due to additional Vodafone Essar facilities totalling £1,875 million.

Redeemable preference shares

Redeemable preference shares comprise class D and E preferred shares issued by Vodafone Americas, Inc. An annual dividend of US$51.43 per class D and E preferred share is payable quarterly in arrears. The dividend for the year amounted to £51 million (2008: £42 million). The aggregate redemption value of the class D and E preferred shares is US$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 US$1,000 per share plus all accrued and unpaid dividends.

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Annual Report For the year ended 31 March 2009