197 Vodafone Group Plc Annual Report 2024 197
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Vodafone Group Plc Annual Report 2024
Market risk Interest rate management Under the Group’s interest rate management policy, interest rates on long-term monetary assets and liabilities are principally maintained on a fixed rate basis. At 31 March 2024 and after hedging, substantially all of our outstanding liabilities are held on a fixed interest rate basis in accordance with treasury policy. For each one hundred basis point rise in market interest rates for all currencies in which the Group had borrowings at 31 March 2024 there would be an increase in profit before tax by €13 million (2023: €27 million) including mark to market revaluations of interest rate and other derivatives and the potential interest on cash and short-term investments. There would be no material impact on equity. At 31 March 2024, the Group had limited exposure through interest rate derivatives and floating rate bonds referencing LIBOR and other interbank offered rates (IBORs). 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, South African rand and sterling, the Group maintains the currency of debt and interest charges in proportion to its expected future principal cash flows and has a policy to hedge external foreign exchange risks on transactions denominated in other currencies above a certain de minimis level. At 31 March 2024 6% of net debt was denominated in currencies other than euro (4% South African rand and 2% other). This allows South African rand to be serviced in proportion to expected future cash flows and therefore provides a partial economic hedge against income statement translation exposure. 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 2024 the Group held financial liabilities in a net investment hedge against the Group’s South African rand operations. Sensitivity to foreign exchange movements on the hedging liabilities, analysed against a strengthening of the South African rand by 10% (2023: 12%) would result in a decrease in equity of €154 million (2023: €267million) which would be fully offset by foreign exchange movements on the hedged net assets. In addition, cash flow hedges of principally US dollar borrowings would result in an increase in equity of €73 million (2023: €204 million) against a strengthening of US dollar by 3% (2023: 5%). The Group income statement is exposed to foreign exchange risk from both the generation of profits and losses in currencies other than euro and from the translation of balance sheet items not held in functional currency. The following table details the Group’s sensitivity to foreign exchange risk. The percentage movement applied to the currency is based on the average movements in the previous three annual reporting periods. 2024 2023 €m €m Increase/ (decrease) in Profit before taxation EGP 43% change (2023: 27%) 191 116 TRY 54% change (2023: 43%) 104 33 ZAR 10% change (2023: 12%) 60 87 GBP 2% change (2023: 3%) (50) (46) Equity risk As noted on page 201, the Group has an embedded derivative option with valuation inputs that include the quoted share prices for Indus Towers and Vodafone Idea. The Group’s sensitivity to a 40% increase / decrease in the combined share price input to the option valuation model would result in a decrease / increase in profit before tax of €19 million / €137 million (2023: €116m / €445 million). The percentage sensitivity applied is based on the 12month volatility of the combined share prices. There is no material equity risk relating to the Group’s equity investments which are detailed in note 13 ‘Other investments’.
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