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The doc explains topics like recommendation for a treasury structure and operations for multinatinals,key risks,fair value hedges,fund management,banking relationships
INFM Assignment 3 Vodafone Treasury Structure
Recommendation for a Treasury structure and operations for multinational Vodafone
Executive Summary
This project work, focuses on the operations of Vodafone Plc and its treasury structure. The first half of the project describes the key operations of Vodafone, segmented into its five business units. We tried to analyze its operations in terms of its strategy, understanding the market in terms of mature or developing. The rationale behind this was that, we wanted to design the treasury structure accordingly. We believe that emerging markets would require more investments and more working capital. In our study we found out that Asia pacific and Africa were emerging markets for Vodafone, while USA and Europe are mature markets. Hence accordingly we suggested a separate treasury unit in these emerging markets, while giving less importance (or having a centralized control) for treasury in mature markets. We also mapped the key risks of Vodafone on a risk map. These risk were important in our study in order to understand the exact treasury requirements for the company.
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Contents
Executive Summary....................................................................................................................................... 2 Introduction .................................................................................................................................................. 4 Organization structure .................................................................................................................................. 4 Vodafone Europe ...................................................................................................................................... 5 Vodafone Africa ........................................................................................................................................ 5 Vodafone Middle East ............................................................................................................................... 6 Vodafone Asia-Pacific ............................................................................................................................... 7 Vodafone Americas ................................................................................................................................... 8 Key Risks identified ....................................................................................................................................... 9 Recommended Treasury structure ............................................................................................................. 13 Management of Collection and disbursement of funds ......................................................................... 14 Cash Management .................................................................................................................................. 14 Fund management .................................................................................................................................. 15 Management of Receivables & Payables ................................................................................................ 15 Banking Relationships ............................................................................................................................. 16 Conclusion ................................................................................................................................................... 16 Appendix 1 .................................................................................................................................................. 17 Appendix 2 .................................................................................................................................................. 19
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Introduction
Vodafone Plc was formed in the year 1984 as a subsidiary of Racal Electronics Plc. It has come a long way since then, Vodafone Group Plc is now the world's leading mobile telecommunications company, with a significant presence in Europe, the Middle East, Africa, Asia Pacific and the United States through the Company's subsidiary undertakings, joint ventures, associated undertakings and investments. Vodafone Group has also entered into arrangements with network operators in countries where the Group does not hold an equity stake. Under the terms of these Partner Market Agreements, Vodafone and its partner operators co-operate in the marketing of global products and services with varying levels of brand association. This strategy enables Vodafone to implement services in new territories and to create additional value to their partners' customers and to Vodafone's travelling customers without the need for equity investment in these countries. Vodafone Plc can be broadly divided into five business units, ? ? ? ? ? Europe Middle East Africa Asia Pacific United States
Organization structure
Looking at the organization structure chart (refer appendix 2), we infer that each of this business unit has a CEO who directly reports to the group company?s CEO. It is also noticed that there are many countries under each business units. These countires have their own CEO, managing its operational activities. The group also has one CFO, who looks into all the regulatory and legal environment, strategic planning etc. We will now look into the operations of each of these business units separately,
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Vodafone Europe
Vodafone European Business unit has 20 subsidiaries (refer appendix 1) in Europe. The company has presence in the following countries in Europe, Czech Republic France Germany Greece Hungary Ireland Italy Malta Netherlands Portugal Romania Spain UK
Vodafone?s operations in Europe include the following services, Voice service: Revenue from voice services, earned when customers make and receive calls. Voice service continues to make the largest portion of the group?s revenues. Messaging service: All of the Group?s mobile operations offer messaging services, allowing customers to send and receive messages using mobile handsets and various other devices. Data services: The Group offers a number of products and services to enhance customers? access to data services. These include services supporting access to the internet via laptops and PCs and access to the internet, music, games and television services through the Vodafone live! portal on customer handsets Hand Devices: To enable customers to utilise the services that Vodafone offers, the Group also offers a wide range of devices to access those services, such as handsets, the Vodafone Mobile Connect card with 3G broadband and the Vodafone Mobile Connect USB modem. In May 2008, Vodafone signed an agreement with Apple to sell the iPhone in ten markets – Australia, Czech Republic, Egypt, Greece, Italy, India, Portugal, New Zealand, South Africa and Turkey. Michel Combes is the CEO, Vodafone Europe
Vodafone Africa
In Africa Vodafone has presence in Egypt, South Africa, Tanzania, Ghana, Mozambique, Democratic Republic of Congo and Lesotho. In Egypt Vodafone has a stake of 54.9% in Vodafone Egypt with the remaining 45.1% owned by Telecom Egypt. Vodafone Egypt is a total telecommunications provider, covering a wide array of voice and data exchange services, as well as 3G services like visual communication and song downloads, ADSL and broadband Internet services (Vodafone Mobile Connect Card, the USB modem, the Little Box for wireless internet services (Wi-Fi) for large corporations and businessmen and broadband internet access for individuals and corporations.). Vodafone also owns 97.5% stake in Raya Telecom in Egypt.
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Through this acquisition Vodafone provides corporate communication services thus serving different Egyptian businesses and companies. Vodafone also runs its call centres in Egypt and thus providing services to customers in Australia, U.K. and New Zealand. Vodafone also has a 65% stake in Vodacom, which is the chief telecom operator in South Africa, Tanzania, Mozambique, Democratic Republic of Congo and Lesotho. Together with Vodacom the company delivers end-to-end converged solutions, extending from mobile to fixed line voice and data, managed data networks, Voice over IP (VoIP) solutions, hosted facilities and applications, security and managed hosting solutions. Vodafone presently has 70% stake in Ghana Telecom. In Ghana Vodafone is the only total communications solutions provider - mobile, fixed lines, internet, voice and data. The company also offers high speed access to the internet, such as Vodafone ISDN and Vodafone Leased Line Services.
Vodafone Middle East
In Middle East, is an attractive emerging market for Vodafone and it will try to focus its energy in consolidating in this market. At the same time it will be cautious while expanding further in this market. The focus as of now will be to get good results from the existing markets. As of now in Middle East it has operations in countries Qatar, Turkey, Bahrain and UEA. Qatar Vodafone Qatar received mobile networks and services license in the state of Qatar on 28 June 2008. Within eight months it could start its operations on its mobile network. As of today it provides many products like voicemail, MMS, Device Manager, etc. The shareholding pattern of Vodafone Qatar Q. S. C. is as explained; around 45% stake is with Vodafone and Qatar Foundation LLC. In this 51% is held by Vodafone Group Plc and the rest 49% is with Qatar Foundation. Around 15% of Vodafone Qatar Q. S. C. is with Qatari Institutional Investors appointed by Qatari government. The remaining 40% of Vodafone Qatar Q. S. C. is with local and foreign investors and is listed on Qatar Exchange. Turkey It is the second largest mobile operator in Turkey after Turkcell. It has around 16 million subscribers with approximately 25% of market share. It could expand its size after acquiring Telsim for around $ 4.5 billion.
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Bahrain In Bahrain it operates along with Zain group and is popularly known as Zain Bahrain. Around 40% of share are owned by Bahraini investors. UAE In UAE it operates under the partnership of du, Vodafone Plc does not have any equity holding in this partnership. As of mid 2009 it had around 2.9 million subscribers. It provides services like fixed telephone, mobile telephony, broadband connectivity and IPTV services. To business buyers along with the above mentioned it also provides carrier services.
Vodafone Asia-Pacific
Vodafone has significant operational presence in Asia-Pacific. All of its subsidiaries in this region earn revenues in different currencies. Over the last few years, looking at the balance sheets of the group company, it can be noticed that the company is getting more businesses from emerging markets, hence there is a possibility that more debt is raised from these markets in the emerging market currencies. Vodafone operates in many countries in the Asia-Pacific region. At 31 March 2009, approximately 54.3% of the Company?s shares were held in the UK, 30.3% in North America, 11.9% in Europe (excluding the UK) and 3.5% in the rest of the world which includes Asia-Pacific, Middle East and Africa. Vodafone Australia In 1992, Vodafone Group Plc won the third mobile license in Australia, establishing Vodafone Australia. Vodafone Australia began actively marketing its digital mobile service in 1993. In June 2009, Vodafone Australia and 3 mobile merged businesses through a 50:50 joint venture between Vodafone Group and Hutchison 3G Australia, operating under Vodafone Hutchison Australia (VHA). Vodafone had 6.3 million customers in Australia, as on 30 September, 2009. It provides 3G coverage in Australia, including innovative 3G services, such as internet and email on mobile phone, or laptop via Vodafone Mobile Broadband, on-the-move. Vodafone New Zealand Vodafone Group acquired its New Zealand business (previously known as BellSouth New Zealand) in November 1998. As on 31 December 2009, Vodafone New Zealand had a customer base of 2.5 million customers. Vodafone New Zealand offers various 3G-enabled products and services, TXT and PXT messaging, voice and data roaming, caller ID, wireless internet, etc. In October 2006, Vodafone bought fixed-line ISP ihug.
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Vodafone India Vodafone Essar is the Indian subsidiary of Vodafone Group and commenced operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. The company now has operations across the country with over 94.14 million customers (as per Cellular Operators Association of India, January 31, 2010.) Vodafone Fiji Vodafone Fiji is the subsidiary of Vodafone Group in Fiji. Vodafone Fiji?s network went live in July 1994. The Vodafone group owns 49 % stake in Vodafone Fiji. Partner Market Agreements During the last few years, Vodafone Group has entered into arrangements with network operators in countries where the Group does not hold an equity stake. Under the terms of these Partner Market Agreements, the Group and its partner operators co-operate in the development and marketing of global products and services, with varying levels of brand association. Apart from India (Vodafone Essar), it has presence in Russia (MTS), Afghanistan (Roshan), Hong Kong (SmarTone- Vodafone), Japan (Softbank), Malaysia (Celcom), Singapore (M1), Singapore (Dialog), Taiwan (Chunghwa Telecom), Thailand (dtac), Turkmenistan (MTS) and Uzbekistan (MTS).
Vodafone Americas
It operates via partnership with Digicel in Caribbean, Honduras and Panama and with partnership1 with Entel in Chile. In the United States, Vodafone owns 45% of Verizon Wireless, the country's largest mobile carrier after their merger with Alltel. Verizon Communications owns the remaining 55% of Verizon Wireless. Vodafone is currently looking for opportunities for buying majority ownership in any of the exisiting US players (including Verizon Communications' stake and AT&T Wireless (failed bid in 2004))2.
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http://www.vodafone.com/start/about_vodafone/partner_markets.html http://en.wikipedia.org/wiki/Vodafone#The_Americas
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Key Risks identified
Although the company Vodafone faces a lot of risks from its business operations, due to the scope of this assignment, we will only broadly define and place these risk on the risk map. It is to be noted that, this inference is only subjective based on our opinion. Risk Map Likelihood of frequency remote low extreme Severity of consequence high
medium
low
medium New service risk, M&A risk regulatory and legal risk, supply chain risk software administrative risk, credit risk interest rate risk
high
Probable technology risk
competition risk
Health hazard risk
Foreign exchange risk
negligible
From the treasury point of view, we will only focus on credit risk, interest rate risk and Foreign exchange risk in our discussions. Credit Risk Credit risk or exposure is the risk when the counterparty does not settle an obligation either in full value or in partial when the time is due or thereafter (Gallati Reto, 2001) The group's exposure to credit risk has changed from £7565m (2008) to £13506m (2009). Although this might seem a huge change, the group has invested in AAA unsecured money market mutual funds (with a cap of 10% each). The group has other investments in preferred equity and subordinated loans received in Vodafone Japan. Overall the credit risk is low. (Vodafone Annual report 2009 notes 21-25)
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Interest rate risk Interest rate risk substantially affects the value of the assets and liabilities of most corporations and is often a dominant factor in the risk map. (Crouchy Micheal, 2004) According to the group's interest rate policy, all interest rate on monetary assets and liabilities is maintained on floating rate basis mainly held in Euros, USD and sterling currencies. As on march 2009, 43% of the group's gross borrowings were fixed for one year and above period. Sensitivity analysis For each 1% increase or decrease market interest rates, for all the three currencies mentioned above. The Profit before tax (PBIT) will increase or decrease £175m accordingly.(Vodafone, Annual report 2009) Foreign Exchange risk In accordance to the group's objectives, the group envisages most of its future cash flow from emerging markets, under the groups foreign exchange management policy, its exposure to foreign exchange is generally maintained at a lower of £5 m per currency per month. The other three major currencies (¥/£, ¥/€ or US$/€) can also be analyzed similarly. A 23%, 10% or 15% in 2009 change in the ¥/£, ¥/€ or US$/€ exchange rates would have a £164 million, £136 million or £496 million respectively impact on profit or loss due to the financial instrument derivatives. However it is out of the scope of this report to clearly depict these impact all the Group have invested in various derivative instruments around the globe.(Vodafone AR 2009) Since Vodafone has significance operational presence in United states of America (through Verizon Wireless), Europe, Africa, Middle East and Asia Pacific. It has transactions in different currencies. All of its subsidiaries earn revenues in different currencies. We know that Vodafone?s primary listing is in London Stock Exchange(LSE), hence its share prices are quoted in pounds. Since this pounds , single currency share prices represents the value of its future multi-currency cash flows, mostly in euro, US dollars and sterling, 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 minimum levels. “Transaction exposure stems from the possibility of incurring future exchange gains or losses on transactions already entered into and denominated in a foreign currency” (Shapiro, 1999). Over the last few years, looking at the balance sheets of the group company, it can be noticed that the company is getting more businesses from emerging markets, hence there is a possibility that more debt is raised from these markets in the emerging market currencies. As such, looking at the annual report of the group ,at 31 March 2009, 117% of net debt was denominated in currencies other than sterling
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(57% euro, 46% US dollar and 14% other), while 17% 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. It is also noticed that the group had minimum cash flows in Yen, hence Yen debt is used as a hedge against the value of yen assets. 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 £371 million from currency translation differences in the year ended 31 March 2009 (2008: £129 million). Also in order to control the foreign exchange risk, the group had formed a policy called the „Foreign Exchange Management policy?. Under which, the foreign exchange transaction exposure in group companies is maintained below, €5 million per currency per month or €15 million per currency over a six month period. “The effect of volatile price changes in the exchange rate on the cash flows in relation with the company?s liabilities and the assets is known as the Operating exposure”. (Pantzalis et al, 2001).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 group is mainly exposed to two main kinds of financial risk ? ? Foreign exchange risk Interest rate risk
The company controls these risk mainly through derivates, which is governed by the Group?s policies and approved by the board of directors. Going in lines with its objectives, the group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date and are subsequently re-measured to fair value at each reporting date. Vodafone has designated derivatives into two forms: ? ? Fair value hedges Hedges of net investment in foreign operations
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Fair Value hedges The Group?s policy is to use derivative instruments (primarily interest rate swaps) to convert a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk arising, principally, from capital market borrowings. “In this technique the parties in the contract interchange some benefits in relation to their financial instrument and this also dependent upon the type of financial instrument concerned. Specifically, the parties in the contract swap the stream of their cash flows with another stream. These streams are called the legs of the swap”(www.wikipedia.org). The Group designates these as fair value hedges of interest rate risk with changes in fair value of the hedging instrument recognised in the income statement for the period together with the changes in the fair value of the hedged item due to the hedged risk, to the extent the hedge is effective.
Net investment hedges These include, bond, commercial papers and foreign exchange contracts used by Vodafone. The exchange difference arising out of profits from foreign operations are reflected directly in equity. During the year ended 31 March 2006, the Group adopted the Amendments to IAS 21, “The Effect of Changes in Foreign Exchange Rates”, with effect from 1 April 2004, being the date of transition to IFRS for the Group. (www.vodafone.com) . The group has issued Put option. Let us look at the put option arrangement followed by Vodafone. Put option arrangements An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares ( www.investopedia.com) Provisions When the group, have obligations presently due, because of past payments and in all probability the group will be required to settle those obligations, for such purposes provisions are made by estimates of directors and are discounted to present value where the effect is material. Share- based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (Fair value is measured using a binomial pricing model, being a lattice-based option valuation model, which is calibrated using a Black-Scholes
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framework) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group?s estimate of the shares that will eventually vest and adjusted for the effect of non marketbased vesting conditions. We see that Vodafone, has a Resilience view on risk control. As most risk for Vodafone arises from a chain of causation, it can only be identified in the hindsight. As far as the overall risk control technique used by Vodafone, as see that, they mainly use safety audits, open exchange of views and ‘no blame’ safety culture. I have also noticed that, Vodafone, does not have a disaster recovery plan, in the event of disaster scenario.
Recommended Treasury structure
We recommend the treasury structure based on the current organization structure, operations of five business units, the key risk identified for the company and its day-to-day working capital requirements. The recommended structure is shown below:
Vodafone Group Plc Treasury-HO
SBU-Treasury Asia Pacific
SBU-Treasury Africa
…
Country Treasury India
…
Country Treasury Australia
…
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Management of Collection and disbursement of funds
The management of collection and disbursement of funds is also an important function of the treasury department. Routine disbursements such as payment of salaries, rent payables, debt installment repayment can be handled by the subsidiary itself. Any new disbursement in the form of funds mobilization for new acquisition or for introduction of new product or service especially in emerging markets like Asia Pacific, Africa and Middle East can be handled by the treasury department of the respective SBU as the float money is huge in volume. While disbursement of such huge cash outflows the treasury department needs know which bank provides a wide range of services and credit. The central treasury at the SBU should also consider the interest money earned with the float. The collection of funds can be handled by the treasury departments of the subsidiary units. It is necessary that this function is handled by the treasury of the local subsidiary as the subsidiary is in direct contact with the customer and can thus ensure timely payment from the customer rather than the central treasury keeping track of every customer. Moreover the role of the treasury while cash collection is also to ensure that the time lag between the date when the customer remits payment and the date when bank clears funds is as minimum as possible. This can be effectively handled by local subsidiaries rather than the central treasury department keeping a tab on every receivable.
Cash Management
As it is already mentioned Vodafone Plc is divided into four Separate Business Units namely Europe, Africa and Central Europe, Verizon Wireless (USA) and Asia Pacific and Middle East. The nature of markets of each of this SBU is different like Europe is a mature market whereas Asia Pacific and Middle East is a growing market. Taking this into consideration the nature of investment in Europe will be comparatively less than that in Asia Pacific and Middle East. Also, the revenue generated in Europe is the highest with Asia Pacific and Middle East on the lower side. This imbalance will be better managed if Cash Management is centrally done at headquarters in UK. The planning of cash like expected cash flow over future days should be done de-centrally. The individual SBU will be more accurately able to predict the cash flow then the headquarters because of information advantage. In this each SBU will have to plan their individual cash projection according to the sales, accounts receivable and accounts payable. Each SBU will have different days sales outstanding and days payable outstanding of cash. The SBU with higher days sales outstanding will need cash more frequently than the one with lower sales outstanding. Also, the SBU with lower days payable outstanding will need cash more urgently than with higher days-payable outstanding. Taking this into consideration each SBU should be allowed to keep a certain amount of cash with them depending on the ratios and working capital. The rest of the cash should be remitted to the headquarters directly. The headquarters will be better able to manage this fund it will have larger pool which it can invest in a country which give better returns.
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The centrally managed cash is also advantageous as a SBU with lesser cash might need cash urgently for investment like infrastructure, license renewal, acquisition, etc. In this case the headquarters will be able to divert cash from other SBU?s to the SBU that require cash urgently. As Vodafone is planning to expand more in Asia Pacific and Middle East and Africa and Central Europe, it will need cash frequently in these areas. Another advantage of centrally managed cash will be the amount of cash kept as precautionary measure will be lower compared to de-centralized managed cash. In case if need of cash for a particular SBU is greater than cash available plus precautionary cash then the headquarter will be able to borrow funds with from a country with lower interest rate. This will reduce the overall borrowing rate for the company as a whole.
Fund management
Long term funds management by the treasury will have a 2 tier structure. The central treasury function in UK will take care of the major long term funding requirements. London is the financial capital of the world and hence the treasury can source its funds at competitive rates. Vodafone is also listed in UK. This again is an advantage for raising long term funds. The London treasury will be responsible for long term funds greater than a certain amount. If the funds are less than this, it can be handled by the treasury function at the different Strategic Business Units. This is to ensure faster decision making and provide a certain level of autonomy to the SBUs. The CEO of the Strategic Business Units will be the approving authority. The countries which come under a strategic business unit will seek assistance from the SBU treasuries for long term funding. Short term and medium term funding will be taken care by the SBU treasuries and the country specific on the basis of the amount to be funded. Working capital management would be the responsibility of the treasury function in a particular country. This is to ensure smooth functioning of the daily activities.
Management of Receivables & Payables
Receivables management under treasury function aids the company?s cash flow by collecting and depositing payments quickly and efficiently. Similarly the payables management manages and processes its payments more efficiently. Vodafone is the world's largest mobile telecommunication network company based on revenue, with operations in 31 countries and partner networks in a further 40 countries. Globalization and cross-border expansion results in more customers, more suppliers, more employees, more currencies and more complex business-wide account structures to manage. As it is a large organization with wide operations, it can take advantage of the enormous growth opportunities
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presented by its global operations. Vodafone can manage its receivables and payables more efficiently by centralizing the function. As per the 2009 annual report, majority of the Group?s trade receivables comprise amounts receivable from consumers and business customers. Total trade receivables consisted of £2,798 million relating to the Europe region, £561 million relating to the Africa and Central Europe region and £448 million relating to the Asia Pacific and Middle East region. The other current liabilities of the Group increased from £12.3 billion at 31 March 2008 to £13.8 billion at 31 March 2009, primarily due to foreign exchange differences arising on translation of liabilities in foreign subsidiaries and joint ventures. Also, the Group trade payables at 31 March 2009 increased to 38 days (2008: 37 days) outstanding. Centrally streamlining the payables and receivable management of all the SBU?s will result in cash and liquidity optimization to enhance working capital efficiency. Centrally monitoring the function can enable the company to benchmark the payables and receivables cycles of all its subsidiaries. This will also aid in more efficient inter-company funding, paying down external debt or investment in a variety of potentially yield-enhancing instruments. A major benefit of centralized management of receivables and payables is the complete visibility of global cash flows. This will also help the company in effective management of business expenses.
Banking Relationships
Many of the board of directors have been or currently are directors of banks. For instance Chairman Sir John Bond was director of HSBC and also has been associated with Bank of England. Such past relationships can be leveraged for international banking. Currently Vodafone has relationships with banks such as Citibank N.A. (Debt securities) and The Bank of New York Mellon (ADR depository). Based on these, for international sourcing of funds for long term investments and depending on the country?s regulations Treasury-HO can source funds to maintain the required capital structure and cost. For other short term needs and lower amounts the Treasury-country/SBU can use its relationships with local banks to source the funds. For other banking relationships, like employee salaries, also local banks would be preferable.
Conclusion
In conclusion we recommend a mix of centralized and de-centralized form of structure for treasury. This conclusion was reached after looking deeply into their operations, subsidiaries, key risks and overall company strategy. While the European market for Vodafone seems mature, they are on focusing on emerging markets like Africa and countries in Asia Pacific. Hence accordingly we designed the treasury structure, to leverage on these opportunities.
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Appendix 1
At 31 March 2008, the Company had the following principal subsidiary undertakings carrying on businesses which affect the profits and assets of the Group. Unless otherwise stated, the Company?s principal subsidiary undertakings all have share capital consisting solely of ordinary shares and are indirectly held. The country of incorporation or registration of all subsidiary undertakings is also their principal place of operation. Country of Principal activity incorporation or registration Fixed line operator Germany Mobile network Albania operator Holding company USA Mobile network Czech Republic operator Mobile network Germany operator Mobile network Egypt operator Mobile network Spain operator Mobile network India operator Holding company Netherlands Global products and England services provider Holding company Germany Holding company Spain Mobile network Hungary operator Netherlands Luxembourg Ireland Netherlands England Percentage shareholdings 73.7 99.9 100.0 100.0 100.0 54.9 100.0 51.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Name Arcor AG & Co. KG Vodafone Albania Sh.A. Vodafone Americas Inc. Vodafone Czech Republic a.s. Vodafone D2 GmbH Vodafone Egypt Telecommunications S.A.E. Vodafone España S.A. Vodafone Essar Limited Vodafone Europe B.V. Vodafone Group Services Limited
Vodafone Holding GmbH Vodafone Holdings Europe S.L. Vodafone Hungary Mobile Telecommunications Limited Vodafone International Holdings Holding company B.V. Vodafone Investments Luxembourg Holding company S.a.r.l. Mobile network Vodafone Ireland Limited operator Mobile network Vodafone Libertel B.V. operator Mobile network Vodafone Limited operator
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Country of Principal activity incorporation or registration Mobile network Vodafone Malta Limited Malta operator Provider of partner Vodafone Marketing S.a.r.l. Luxembourg network services Mobile network Vodafone Network Pty Limited Australia operator Mobile network Vodafone New Zealand Limited New Zealand operator Vodafone-Panafon Hellenic Mobile network Greece Telecommunications Company S.A. operator Vodafone Portugal-Comunicações Mobile network Portugal Pessoais, S.A. operator Mobile network Vodafone Romania S.A. Romania operator Mobile network Vodafone Telekomunikasyon A.S. Turkey operator Name
Percentage shareholdings 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0
Principal joint ventures Unless otherwise stated, the Company?s principal joint ventures all have share capital consisting solely of ordinary shares, which are indirectly held, and the country of incorporation or registration is also their principal place of operation. Name Indus Towers Limited Polkomtel S.A. Safaricom Limited Vodacom Group (Pty) Limited Vodafone Fiji Limited Principal activity Tower company Mobile network operator Mobile network operator Holding company Country of incorporation or registration India Poland Kenya South Africa Fiji Netherlands Percentage(1) shareholdings 21.7(2) 19.6 35.0(5) 50.0 49.0(5) 76.9(7
Mobile network operator Mobile network Vodafone Omnitel N.V. operator
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Appendix 2
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doc_246847595.docx
The doc explains topics like recommendation for a treasury structure and operations for multinatinals,key risks,fair value hedges,fund management,banking relationships
INFM Assignment 3 Vodafone Treasury Structure
Recommendation for a Treasury structure and operations for multinational Vodafone
Executive Summary
This project work, focuses on the operations of Vodafone Plc and its treasury structure. The first half of the project describes the key operations of Vodafone, segmented into its five business units. We tried to analyze its operations in terms of its strategy, understanding the market in terms of mature or developing. The rationale behind this was that, we wanted to design the treasury structure accordingly. We believe that emerging markets would require more investments and more working capital. In our study we found out that Asia pacific and Africa were emerging markets for Vodafone, while USA and Europe are mature markets. Hence accordingly we suggested a separate treasury unit in these emerging markets, while giving less importance (or having a centralized control) for treasury in mature markets. We also mapped the key risks of Vodafone on a risk map. These risk were important in our study in order to understand the exact treasury requirements for the company.
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Contents
Executive Summary....................................................................................................................................... 2 Introduction .................................................................................................................................................. 4 Organization structure .................................................................................................................................. 4 Vodafone Europe ...................................................................................................................................... 5 Vodafone Africa ........................................................................................................................................ 5 Vodafone Middle East ............................................................................................................................... 6 Vodafone Asia-Pacific ............................................................................................................................... 7 Vodafone Americas ................................................................................................................................... 8 Key Risks identified ....................................................................................................................................... 9 Recommended Treasury structure ............................................................................................................. 13 Management of Collection and disbursement of funds ......................................................................... 14 Cash Management .................................................................................................................................. 14 Fund management .................................................................................................................................. 15 Management of Receivables & Payables ................................................................................................ 15 Banking Relationships ............................................................................................................................. 16 Conclusion ................................................................................................................................................... 16 Appendix 1 .................................................................................................................................................. 17 Appendix 2 .................................................................................................................................................. 19
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Introduction
Vodafone Plc was formed in the year 1984 as a subsidiary of Racal Electronics Plc. It has come a long way since then, Vodafone Group Plc is now the world's leading mobile telecommunications company, with a significant presence in Europe, the Middle East, Africa, Asia Pacific and the United States through the Company's subsidiary undertakings, joint ventures, associated undertakings and investments. Vodafone Group has also entered into arrangements with network operators in countries where the Group does not hold an equity stake. Under the terms of these Partner Market Agreements, Vodafone and its partner operators co-operate in the marketing of global products and services with varying levels of brand association. This strategy enables Vodafone to implement services in new territories and to create additional value to their partners' customers and to Vodafone's travelling customers without the need for equity investment in these countries. Vodafone Plc can be broadly divided into five business units, ? ? ? ? ? Europe Middle East Africa Asia Pacific United States
Organization structure
Looking at the organization structure chart (refer appendix 2), we infer that each of this business unit has a CEO who directly reports to the group company?s CEO. It is also noticed that there are many countries under each business units. These countires have their own CEO, managing its operational activities. The group also has one CFO, who looks into all the regulatory and legal environment, strategic planning etc. We will now look into the operations of each of these business units separately,
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Vodafone Europe
Vodafone European Business unit has 20 subsidiaries (refer appendix 1) in Europe. The company has presence in the following countries in Europe, Czech Republic France Germany Greece Hungary Ireland Italy Malta Netherlands Portugal Romania Spain UK
Vodafone?s operations in Europe include the following services, Voice service: Revenue from voice services, earned when customers make and receive calls. Voice service continues to make the largest portion of the group?s revenues. Messaging service: All of the Group?s mobile operations offer messaging services, allowing customers to send and receive messages using mobile handsets and various other devices. Data services: The Group offers a number of products and services to enhance customers? access to data services. These include services supporting access to the internet via laptops and PCs and access to the internet, music, games and television services through the Vodafone live! portal on customer handsets Hand Devices: To enable customers to utilise the services that Vodafone offers, the Group also offers a wide range of devices to access those services, such as handsets, the Vodafone Mobile Connect card with 3G broadband and the Vodafone Mobile Connect USB modem. In May 2008, Vodafone signed an agreement with Apple to sell the iPhone in ten markets – Australia, Czech Republic, Egypt, Greece, Italy, India, Portugal, New Zealand, South Africa and Turkey. Michel Combes is the CEO, Vodafone Europe
Vodafone Africa
In Africa Vodafone has presence in Egypt, South Africa, Tanzania, Ghana, Mozambique, Democratic Republic of Congo and Lesotho. In Egypt Vodafone has a stake of 54.9% in Vodafone Egypt with the remaining 45.1% owned by Telecom Egypt. Vodafone Egypt is a total telecommunications provider, covering a wide array of voice and data exchange services, as well as 3G services like visual communication and song downloads, ADSL and broadband Internet services (Vodafone Mobile Connect Card, the USB modem, the Little Box for wireless internet services (Wi-Fi) for large corporations and businessmen and broadband internet access for individuals and corporations.). Vodafone also owns 97.5% stake in Raya Telecom in Egypt.
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Through this acquisition Vodafone provides corporate communication services thus serving different Egyptian businesses and companies. Vodafone also runs its call centres in Egypt and thus providing services to customers in Australia, U.K. and New Zealand. Vodafone also has a 65% stake in Vodacom, which is the chief telecom operator in South Africa, Tanzania, Mozambique, Democratic Republic of Congo and Lesotho. Together with Vodacom the company delivers end-to-end converged solutions, extending from mobile to fixed line voice and data, managed data networks, Voice over IP (VoIP) solutions, hosted facilities and applications, security and managed hosting solutions. Vodafone presently has 70% stake in Ghana Telecom. In Ghana Vodafone is the only total communications solutions provider - mobile, fixed lines, internet, voice and data. The company also offers high speed access to the internet, such as Vodafone ISDN and Vodafone Leased Line Services.
Vodafone Middle East
In Middle East, is an attractive emerging market for Vodafone and it will try to focus its energy in consolidating in this market. At the same time it will be cautious while expanding further in this market. The focus as of now will be to get good results from the existing markets. As of now in Middle East it has operations in countries Qatar, Turkey, Bahrain and UEA. Qatar Vodafone Qatar received mobile networks and services license in the state of Qatar on 28 June 2008. Within eight months it could start its operations on its mobile network. As of today it provides many products like voicemail, MMS, Device Manager, etc. The shareholding pattern of Vodafone Qatar Q. S. C. is as explained; around 45% stake is with Vodafone and Qatar Foundation LLC. In this 51% is held by Vodafone Group Plc and the rest 49% is with Qatar Foundation. Around 15% of Vodafone Qatar Q. S. C. is with Qatari Institutional Investors appointed by Qatari government. The remaining 40% of Vodafone Qatar Q. S. C. is with local and foreign investors and is listed on Qatar Exchange. Turkey It is the second largest mobile operator in Turkey after Turkcell. It has around 16 million subscribers with approximately 25% of market share. It could expand its size after acquiring Telsim for around $ 4.5 billion.
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Bahrain In Bahrain it operates along with Zain group and is popularly known as Zain Bahrain. Around 40% of share are owned by Bahraini investors. UAE In UAE it operates under the partnership of du, Vodafone Plc does not have any equity holding in this partnership. As of mid 2009 it had around 2.9 million subscribers. It provides services like fixed telephone, mobile telephony, broadband connectivity and IPTV services. To business buyers along with the above mentioned it also provides carrier services.
Vodafone Asia-Pacific
Vodafone has significant operational presence in Asia-Pacific. All of its subsidiaries in this region earn revenues in different currencies. Over the last few years, looking at the balance sheets of the group company, it can be noticed that the company is getting more businesses from emerging markets, hence there is a possibility that more debt is raised from these markets in the emerging market currencies. Vodafone operates in many countries in the Asia-Pacific region. At 31 March 2009, approximately 54.3% of the Company?s shares were held in the UK, 30.3% in North America, 11.9% in Europe (excluding the UK) and 3.5% in the rest of the world which includes Asia-Pacific, Middle East and Africa. Vodafone Australia In 1992, Vodafone Group Plc won the third mobile license in Australia, establishing Vodafone Australia. Vodafone Australia began actively marketing its digital mobile service in 1993. In June 2009, Vodafone Australia and 3 mobile merged businesses through a 50:50 joint venture between Vodafone Group and Hutchison 3G Australia, operating under Vodafone Hutchison Australia (VHA). Vodafone had 6.3 million customers in Australia, as on 30 September, 2009. It provides 3G coverage in Australia, including innovative 3G services, such as internet and email on mobile phone, or laptop via Vodafone Mobile Broadband, on-the-move. Vodafone New Zealand Vodafone Group acquired its New Zealand business (previously known as BellSouth New Zealand) in November 1998. As on 31 December 2009, Vodafone New Zealand had a customer base of 2.5 million customers. Vodafone New Zealand offers various 3G-enabled products and services, TXT and PXT messaging, voice and data roaming, caller ID, wireless internet, etc. In October 2006, Vodafone bought fixed-line ISP ihug.
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Vodafone India Vodafone Essar is the Indian subsidiary of Vodafone Group and commenced operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. The company now has operations across the country with over 94.14 million customers (as per Cellular Operators Association of India, January 31, 2010.) Vodafone Fiji Vodafone Fiji is the subsidiary of Vodafone Group in Fiji. Vodafone Fiji?s network went live in July 1994. The Vodafone group owns 49 % stake in Vodafone Fiji. Partner Market Agreements During the last few years, Vodafone Group has entered into arrangements with network operators in countries where the Group does not hold an equity stake. Under the terms of these Partner Market Agreements, the Group and its partner operators co-operate in the development and marketing of global products and services, with varying levels of brand association. Apart from India (Vodafone Essar), it has presence in Russia (MTS), Afghanistan (Roshan), Hong Kong (SmarTone- Vodafone), Japan (Softbank), Malaysia (Celcom), Singapore (M1), Singapore (Dialog), Taiwan (Chunghwa Telecom), Thailand (dtac), Turkmenistan (MTS) and Uzbekistan (MTS).
Vodafone Americas
It operates via partnership with Digicel in Caribbean, Honduras and Panama and with partnership1 with Entel in Chile. In the United States, Vodafone owns 45% of Verizon Wireless, the country's largest mobile carrier after their merger with Alltel. Verizon Communications owns the remaining 55% of Verizon Wireless. Vodafone is currently looking for opportunities for buying majority ownership in any of the exisiting US players (including Verizon Communications' stake and AT&T Wireless (failed bid in 2004))2.
1 2
http://www.vodafone.com/start/about_vodafone/partner_markets.html http://en.wikipedia.org/wiki/Vodafone#The_Americas
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Key Risks identified
Although the company Vodafone faces a lot of risks from its business operations, due to the scope of this assignment, we will only broadly define and place these risk on the risk map. It is to be noted that, this inference is only subjective based on our opinion. Risk Map Likelihood of frequency remote low extreme Severity of consequence high
medium
low
medium New service risk, M&A risk regulatory and legal risk, supply chain risk software administrative risk, credit risk interest rate risk
high
Probable technology risk
competition risk
Health hazard risk
Foreign exchange risk
negligible
From the treasury point of view, we will only focus on credit risk, interest rate risk and Foreign exchange risk in our discussions. Credit Risk Credit risk or exposure is the risk when the counterparty does not settle an obligation either in full value or in partial when the time is due or thereafter (Gallati Reto, 2001) The group's exposure to credit risk has changed from £7565m (2008) to £13506m (2009). Although this might seem a huge change, the group has invested in AAA unsecured money market mutual funds (with a cap of 10% each). The group has other investments in preferred equity and subordinated loans received in Vodafone Japan. Overall the credit risk is low. (Vodafone Annual report 2009 notes 21-25)
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Interest rate risk Interest rate risk substantially affects the value of the assets and liabilities of most corporations and is often a dominant factor in the risk map. (Crouchy Micheal, 2004) According to the group's interest rate policy, all interest rate on monetary assets and liabilities is maintained on floating rate basis mainly held in Euros, USD and sterling currencies. As on march 2009, 43% of the group's gross borrowings were fixed for one year and above period. Sensitivity analysis For each 1% increase or decrease market interest rates, for all the three currencies mentioned above. The Profit before tax (PBIT) will increase or decrease £175m accordingly.(Vodafone, Annual report 2009) Foreign Exchange risk In accordance to the group's objectives, the group envisages most of its future cash flow from emerging markets, under the groups foreign exchange management policy, its exposure to foreign exchange is generally maintained at a lower of £5 m per currency per month. The other three major currencies (¥/£, ¥/€ or US$/€) can also be analyzed similarly. A 23%, 10% or 15% in 2009 change in the ¥/£, ¥/€ or US$/€ exchange rates would have a £164 million, £136 million or £496 million respectively impact on profit or loss due to the financial instrument derivatives. However it is out of the scope of this report to clearly depict these impact all the Group have invested in various derivative instruments around the globe.(Vodafone AR 2009) Since Vodafone has significance operational presence in United states of America (through Verizon Wireless), Europe, Africa, Middle East and Asia Pacific. It has transactions in different currencies. All of its subsidiaries earn revenues in different currencies. We know that Vodafone?s primary listing is in London Stock Exchange(LSE), hence its share prices are quoted in pounds. Since this pounds , single currency share prices represents the value of its future multi-currency cash flows, mostly in euro, US dollars and sterling, 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 minimum levels. “Transaction exposure stems from the possibility of incurring future exchange gains or losses on transactions already entered into and denominated in a foreign currency” (Shapiro, 1999). Over the last few years, looking at the balance sheets of the group company, it can be noticed that the company is getting more businesses from emerging markets, hence there is a possibility that more debt is raised from these markets in the emerging market currencies. As such, looking at the annual report of the group ,at 31 March 2009, 117% of net debt was denominated in currencies other than sterling
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(57% euro, 46% US dollar and 14% other), while 17% 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. It is also noticed that the group had minimum cash flows in Yen, hence Yen debt is used as a hedge against the value of yen assets. 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 £371 million from currency translation differences in the year ended 31 March 2009 (2008: £129 million). Also in order to control the foreign exchange risk, the group had formed a policy called the „Foreign Exchange Management policy?. Under which, the foreign exchange transaction exposure in group companies is maintained below, €5 million per currency per month or €15 million per currency over a six month period. “The effect of volatile price changes in the exchange rate on the cash flows in relation with the company?s liabilities and the assets is known as the Operating exposure”. (Pantzalis et al, 2001).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 group is mainly exposed to two main kinds of financial risk ? ? Foreign exchange risk Interest rate risk
The company controls these risk mainly through derivates, which is governed by the Group?s policies and approved by the board of directors. Going in lines with its objectives, the group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date and are subsequently re-measured to fair value at each reporting date. Vodafone has designated derivatives into two forms: ? ? Fair value hedges Hedges of net investment in foreign operations
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Fair Value hedges The Group?s policy is to use derivative instruments (primarily interest rate swaps) to convert a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk arising, principally, from capital market borrowings. “In this technique the parties in the contract interchange some benefits in relation to their financial instrument and this also dependent upon the type of financial instrument concerned. Specifically, the parties in the contract swap the stream of their cash flows with another stream. These streams are called the legs of the swap”(www.wikipedia.org). The Group designates these as fair value hedges of interest rate risk with changes in fair value of the hedging instrument recognised in the income statement for the period together with the changes in the fair value of the hedged item due to the hedged risk, to the extent the hedge is effective.
Net investment hedges These include, bond, commercial papers and foreign exchange contracts used by Vodafone. The exchange difference arising out of profits from foreign operations are reflected directly in equity. During the year ended 31 March 2006, the Group adopted the Amendments to IAS 21, “The Effect of Changes in Foreign Exchange Rates”, with effect from 1 April 2004, being the date of transition to IFRS for the Group. (www.vodafone.com) . The group has issued Put option. Let us look at the put option arrangement followed by Vodafone. Put option arrangements An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares ( www.investopedia.com) Provisions When the group, have obligations presently due, because of past payments and in all probability the group will be required to settle those obligations, for such purposes provisions are made by estimates of directors and are discounted to present value where the effect is material. Share- based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (Fair value is measured using a binomial pricing model, being a lattice-based option valuation model, which is calibrated using a Black-Scholes
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framework) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group?s estimate of the shares that will eventually vest and adjusted for the effect of non marketbased vesting conditions. We see that Vodafone, has a Resilience view on risk control. As most risk for Vodafone arises from a chain of causation, it can only be identified in the hindsight. As far as the overall risk control technique used by Vodafone, as see that, they mainly use safety audits, open exchange of views and ‘no blame’ safety culture. I have also noticed that, Vodafone, does not have a disaster recovery plan, in the event of disaster scenario.
Recommended Treasury structure
We recommend the treasury structure based on the current organization structure, operations of five business units, the key risk identified for the company and its day-to-day working capital requirements. The recommended structure is shown below:
Vodafone Group Plc Treasury-HO
SBU-Treasury Asia Pacific
SBU-Treasury Africa
…
Country Treasury India
…
Country Treasury Australia
…
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Management of Collection and disbursement of funds
The management of collection and disbursement of funds is also an important function of the treasury department. Routine disbursements such as payment of salaries, rent payables, debt installment repayment can be handled by the subsidiary itself. Any new disbursement in the form of funds mobilization for new acquisition or for introduction of new product or service especially in emerging markets like Asia Pacific, Africa and Middle East can be handled by the treasury department of the respective SBU as the float money is huge in volume. While disbursement of such huge cash outflows the treasury department needs know which bank provides a wide range of services and credit. The central treasury at the SBU should also consider the interest money earned with the float. The collection of funds can be handled by the treasury departments of the subsidiary units. It is necessary that this function is handled by the treasury of the local subsidiary as the subsidiary is in direct contact with the customer and can thus ensure timely payment from the customer rather than the central treasury keeping track of every customer. Moreover the role of the treasury while cash collection is also to ensure that the time lag between the date when the customer remits payment and the date when bank clears funds is as minimum as possible. This can be effectively handled by local subsidiaries rather than the central treasury department keeping a tab on every receivable.
Cash Management
As it is already mentioned Vodafone Plc is divided into four Separate Business Units namely Europe, Africa and Central Europe, Verizon Wireless (USA) and Asia Pacific and Middle East. The nature of markets of each of this SBU is different like Europe is a mature market whereas Asia Pacific and Middle East is a growing market. Taking this into consideration the nature of investment in Europe will be comparatively less than that in Asia Pacific and Middle East. Also, the revenue generated in Europe is the highest with Asia Pacific and Middle East on the lower side. This imbalance will be better managed if Cash Management is centrally done at headquarters in UK. The planning of cash like expected cash flow over future days should be done de-centrally. The individual SBU will be more accurately able to predict the cash flow then the headquarters because of information advantage. In this each SBU will have to plan their individual cash projection according to the sales, accounts receivable and accounts payable. Each SBU will have different days sales outstanding and days payable outstanding of cash. The SBU with higher days sales outstanding will need cash more frequently than the one with lower sales outstanding. Also, the SBU with lower days payable outstanding will need cash more urgently than with higher days-payable outstanding. Taking this into consideration each SBU should be allowed to keep a certain amount of cash with them depending on the ratios and working capital. The rest of the cash should be remitted to the headquarters directly. The headquarters will be better able to manage this fund it will have larger pool which it can invest in a country which give better returns.
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The centrally managed cash is also advantageous as a SBU with lesser cash might need cash urgently for investment like infrastructure, license renewal, acquisition, etc. In this case the headquarters will be able to divert cash from other SBU?s to the SBU that require cash urgently. As Vodafone is planning to expand more in Asia Pacific and Middle East and Africa and Central Europe, it will need cash frequently in these areas. Another advantage of centrally managed cash will be the amount of cash kept as precautionary measure will be lower compared to de-centralized managed cash. In case if need of cash for a particular SBU is greater than cash available plus precautionary cash then the headquarter will be able to borrow funds with from a country with lower interest rate. This will reduce the overall borrowing rate for the company as a whole.
Fund management
Long term funds management by the treasury will have a 2 tier structure. The central treasury function in UK will take care of the major long term funding requirements. London is the financial capital of the world and hence the treasury can source its funds at competitive rates. Vodafone is also listed in UK. This again is an advantage for raising long term funds. The London treasury will be responsible for long term funds greater than a certain amount. If the funds are less than this, it can be handled by the treasury function at the different Strategic Business Units. This is to ensure faster decision making and provide a certain level of autonomy to the SBUs. The CEO of the Strategic Business Units will be the approving authority. The countries which come under a strategic business unit will seek assistance from the SBU treasuries for long term funding. Short term and medium term funding will be taken care by the SBU treasuries and the country specific on the basis of the amount to be funded. Working capital management would be the responsibility of the treasury function in a particular country. This is to ensure smooth functioning of the daily activities.
Management of Receivables & Payables
Receivables management under treasury function aids the company?s cash flow by collecting and depositing payments quickly and efficiently. Similarly the payables management manages and processes its payments more efficiently. Vodafone is the world's largest mobile telecommunication network company based on revenue, with operations in 31 countries and partner networks in a further 40 countries. Globalization and cross-border expansion results in more customers, more suppliers, more employees, more currencies and more complex business-wide account structures to manage. As it is a large organization with wide operations, it can take advantage of the enormous growth opportunities
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presented by its global operations. Vodafone can manage its receivables and payables more efficiently by centralizing the function. As per the 2009 annual report, majority of the Group?s trade receivables comprise amounts receivable from consumers and business customers. Total trade receivables consisted of £2,798 million relating to the Europe region, £561 million relating to the Africa and Central Europe region and £448 million relating to the Asia Pacific and Middle East region. The other current liabilities of the Group increased from £12.3 billion at 31 March 2008 to £13.8 billion at 31 March 2009, primarily due to foreign exchange differences arising on translation of liabilities in foreign subsidiaries and joint ventures. Also, the Group trade payables at 31 March 2009 increased to 38 days (2008: 37 days) outstanding. Centrally streamlining the payables and receivable management of all the SBU?s will result in cash and liquidity optimization to enhance working capital efficiency. Centrally monitoring the function can enable the company to benchmark the payables and receivables cycles of all its subsidiaries. This will also aid in more efficient inter-company funding, paying down external debt or investment in a variety of potentially yield-enhancing instruments. A major benefit of centralized management of receivables and payables is the complete visibility of global cash flows. This will also help the company in effective management of business expenses.
Banking Relationships
Many of the board of directors have been or currently are directors of banks. For instance Chairman Sir John Bond was director of HSBC and also has been associated with Bank of England. Such past relationships can be leveraged for international banking. Currently Vodafone has relationships with banks such as Citibank N.A. (Debt securities) and The Bank of New York Mellon (ADR depository). Based on these, for international sourcing of funds for long term investments and depending on the country?s regulations Treasury-HO can source funds to maintain the required capital structure and cost. For other short term needs and lower amounts the Treasury-country/SBU can use its relationships with local banks to source the funds. For other banking relationships, like employee salaries, also local banks would be preferable.
Conclusion
In conclusion we recommend a mix of centralized and de-centralized form of structure for treasury. This conclusion was reached after looking deeply into their operations, subsidiaries, key risks and overall company strategy. While the European market for Vodafone seems mature, they are on focusing on emerging markets like Africa and countries in Asia Pacific. Hence accordingly we designed the treasury structure, to leverage on these opportunities.
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Appendix 1
At 31 March 2008, the Company had the following principal subsidiary undertakings carrying on businesses which affect the profits and assets of the Group. Unless otherwise stated, the Company?s principal subsidiary undertakings all have share capital consisting solely of ordinary shares and are indirectly held. The country of incorporation or registration of all subsidiary undertakings is also their principal place of operation. Country of Principal activity incorporation or registration Fixed line operator Germany Mobile network Albania operator Holding company USA Mobile network Czech Republic operator Mobile network Germany operator Mobile network Egypt operator Mobile network Spain operator Mobile network India operator Holding company Netherlands Global products and England services provider Holding company Germany Holding company Spain Mobile network Hungary operator Netherlands Luxembourg Ireland Netherlands England Percentage shareholdings 73.7 99.9 100.0 100.0 100.0 54.9 100.0 51.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Name Arcor AG & Co. KG Vodafone Albania Sh.A. Vodafone Americas Inc. Vodafone Czech Republic a.s. Vodafone D2 GmbH Vodafone Egypt Telecommunications S.A.E. Vodafone España S.A. Vodafone Essar Limited Vodafone Europe B.V. Vodafone Group Services Limited
Vodafone Holding GmbH Vodafone Holdings Europe S.L. Vodafone Hungary Mobile Telecommunications Limited Vodafone International Holdings Holding company B.V. Vodafone Investments Luxembourg Holding company S.a.r.l. Mobile network Vodafone Ireland Limited operator Mobile network Vodafone Libertel B.V. operator Mobile network Vodafone Limited operator
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Country of Principal activity incorporation or registration Mobile network Vodafone Malta Limited Malta operator Provider of partner Vodafone Marketing S.a.r.l. Luxembourg network services Mobile network Vodafone Network Pty Limited Australia operator Mobile network Vodafone New Zealand Limited New Zealand operator Vodafone-Panafon Hellenic Mobile network Greece Telecommunications Company S.A. operator Vodafone Portugal-Comunicações Mobile network Portugal Pessoais, S.A. operator Mobile network Vodafone Romania S.A. Romania operator Mobile network Vodafone Telekomunikasyon A.S. Turkey operator Name
Percentage shareholdings 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0
Principal joint ventures Unless otherwise stated, the Company?s principal joint ventures all have share capital consisting solely of ordinary shares, which are indirectly held, and the country of incorporation or registration is also their principal place of operation. Name Indus Towers Limited Polkomtel S.A. Safaricom Limited Vodacom Group (Pty) Limited Vodafone Fiji Limited Principal activity Tower company Mobile network operator Mobile network operator Holding company Country of incorporation or registration India Poland Kenya South Africa Fiji Netherlands Percentage(1) shareholdings 21.7(2) 19.6 35.0(5) 50.0 49.0(5) 76.9(7
Mobile network operator Mobile network Vodafone Omnitel N.V. operator
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Appendix 2
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doc_246847595.docx