Vodafone 2011 Annual Report Download - page 114

112 Vodafone Group Plc Annual Report 2011
Notes to the consolidated nancial statements continued
21. Capital and nancial risk management continued
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. In addition, a US dollar denominated financial liability
arising from the options granted over the Essar Group’s interests in Vodafone
Essar in the 2008 financial year and as discussed on page 51, was held by a
legal entity with a euro functional currency. A 14% (2010: 12%) change in
US$/€ exchange rates would have a £436 million (2010: £393 million)
impact on profit or loss in relation to this financial instrument.
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.
2011
£m
Euro 4% change – Operating profit 230
US dollar 13% change – Operating profit 594
At 31 March 2010 sensitivity of the Group’s operating profit was analysed for
euro 12% change and US dollar 15% change, representing £804 million and
£617 million respectively.
Equity risk
The Group has equity investments, primarily in Bharti Infotel Private
Limited, which is subject to equity risk. See note 15 to the consolidated
financial statements for further details on the carrying value of this
investment. The Group disposed of its 3.2% interest in China Mobile Limited
on 10 September 2010.
Fair value of nancial instruments
The table below sets out the valuation basis of financial instruments held at fair value by the Group at 31 March 2011.
Level 1(1) Level 2(2) Total
2011 2010 2011 2010 2011 2010
£ m £ m £ m £ m £ m £ m
Financial assets:
Derivative financial instruments:
Interest rate swaps – – 1,946 1,996 1,946 1,996
Foreign exchange contracts – – 99 132 99 132
Interest rate futures – – 31 20 31 20
– – 2,076 2,148 2,076 2,148
Financial investments available-for-sale:
Listed equity securities(3) 1 4,072 – – 1 4,072
Unlisted equity securities(3) – – 703 623 703 623
1 4,072 703 623 704 4,695
1 4,072 2,779 2,771 2,780 6,843
Financial liabilities:
Derivative financial instruments:
Interest rate swaps – – 395 365 395 365
Foreign exchange contracts – – 153 95 153 95
– – 548 460 548 460
Notes:
(1) Level 1 classification comprises financial instruments where fair value is determined by unadjusted quoted prices in active markets for identical assets or liabilities.
(2) Level 2 classification comprises where fair value is determined from inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Fair values for unlisted
equity securities are derived from observable quoted market prices for similar items. Derivative financial instrument fair values are present values determined from future cash flows discounted at
rates derived from market sourced data.
(3) Details of listed and unlisted equity securities are included in note 15 “Other Investments”.