Final Results - Part 2
Vodafone Group Plc
30 May 2006
VODAFONE GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2006
PART 2
OTHER MOBILE OPERATIONS
-------------------------------------------------------------------------------------------------
Financial highlights Year ended 31 March
2006 2005 % change
£m £m £ Organic
Total revenue Subsidiaries 7,812 6,474 20.7
Joint ventures 1,470 1,184 24.2
Less: intra-segment revenue (32) (21) 52.4
---------- ----------
9,250 7,637 21.1 12.6
---------- ----------
Adjusted Subsidiaries 1,445 1,368 5.6
operating profit Joint ventures 363 305 19.0
Associated undertakings 695 671 3.6
---------- ----------
2,503 2,344 6.8 6.4
---------- ----------
Trading results Voice services 7,313 6,070 20.5
Non-voice services
- messaging 1,017 790 28.7
- data 200 113 77.0
---------- ----------
Total service revenue 8,530 6,973 22.3
Net other revenue(1) 137 110 24.5
Interconnect costs (1,698) (1,367) 24.2
Other direct costs (727) (568) 28.0
Net acquisition costs(1) (443) (393) 12.7
Net retention costs(1) (358) (267) 34.1
Payroll (624) (531) 17.5
Other operating expenses (1,531) (1,140) 34.3
---------- ----------
EBITDA 3,286 2,817 16.6 6.6
Acquired intangibles amortisation (157) -
Purchased licence amortisation (129) (100) 29.0
Depreciation and other amortisation (1,192) (1,044) 14.2
Share of result in associates 695 671 3.6
---------- ----------
Adjusted operating profit 2,503 2,344 6.8 6.4
---------- ----------
EBITDA margin 35.5% 36.9%
Share of result Operating profit 1,044 1,020 2.4
in associated Interest (20) (7) 185.7
undertakings Tax (329) (342) (3.8)
---------- ----------
695 671 3.6
---------- ----------
(1) Total revenue includes £583 million (2005: £554 million), which has been
excluded from net other revenue and deducted from acquisition and retention
costs in the trading results
See page 41 for definition of terms
-------------------------------------------------------------------------------------------------
Total revenue for the Group's Other Mobile Operations increased by 21.1%, or
12.6% on an organic basis. The net impact of acquisitions in the Czech Republic,
India, Romania and South Africa and the disposal of the Group's Swedish
operations during the year ended 31 March 2006 increased reported revenue growth
by 6.8%. Favourable exchange rate movements accounted for 1.7% of the remaining
difference between reported and organic growth. The increase in total service
revenue was principally driven by an increase in the average customer base of
26.5% excluding the impact of the acquisitions and disposal and of 44.0%
including the impact of the acquisitions and disposal. This effect was partially
offset by cuts in termination rates in certain markets, reduced ARPU from the
launch of more competitive tariffs and an increase in the number of lower usage
prepaid customers. Excluding the impact of termination rate cuts, service
revenue growth would have been 25.0%. Messaging and non-messaging data revenue
grew strongly, increasing by 18.6% and 74.1%, respectively, on an organic basis
and by 28.7% and 77.0%, respectively, including the impact of acquisitions,
disposals and exchange rate movements.
The EBITDA margin decreased by 1.4 percentage points, primarily as a result of
an increase in the Group's charge for the use of the brand and related
trademarks, which amounted to a 0.5 percentage point fall in the EBITDA margin,
and a reduction in margins in certain highly competitive markets, in particular
Australia and the Netherlands, though these factors were partially offset by the
higher margin contributed by acquisitions in the year and the impact of the
disposal of the Group's Swedish operations.
Adjusted operating profit increased by 6.8%, or 6.4% on an organic basis, over
the comparative period, with 0.5% of the difference due to the acquisitions and
disposal in the current financial year, offset by 0.9% resulting from favourable
foreign exchange rate movements. The reported growth in adjusted operating
profit in the year was a result of the increase in EBITDA offset by higher
depreciation and purchased licence amortisation, following the launch of 3G
services in Australia and New Zealand, and the amortisation of identifiable
intangible assets from the acquisitions in the current financial year.
Other Mobile subsidiaries
In Greece, service revenue grew by 9.4% when measured in local currency, due
primarily to a 13.6% rise in the average customer base. ARPU decreased by 3.7%
year-on-year, mainly due to a reduction in termination rates of 16.8% in
September 2004. In local currency, service revenue growth was 12.0% excluding
the termination rate cut. An increasing emphasis on retaining customers by
encouraging prepaid to contract customer migration resulted in churn decreasing
to 25.0% for the current financial year from 29.7% in the previous year.
Service revenue in Egypt, when measured in local currency, grew by 36.2%,
primarily as a result of an increase in the average prepaid customer base of
82.0% which was driven by new innovative tariffs improving access and
affordability in the market place. Revenue market share increased by 3.8
percentage points in the 2006 financial year to 51.8%.
Competition in Portugal intensified during the year with aggressively priced
no-frills offerings by competitors which, combined with cuts in the termination
rate which resulted in the average termination rate this year being 28.3% lower
than last year, led to local currency service revenue growth being restricted to
1.6%.
In the Netherlands, an increase of 3.5% in service revenue and a 10.0% growth in
the average customer base was achieved.
Vodafone Australia increased its customer base by 16.0%, and local currency
service revenue by 11.8% due to the popularity of its capped plans, which have
resulted in a significant increase in outgoing voice usage, whilst adversely
impacting outgoing voice revenue per minute and interconnect costs. 3G services
were launched on 31 October 2005, with strong uptake resulting in 171,000
consumer 3G devices being registered on the network by 31 March 2006.
New Zealand achieved service revenue growth of 8.5%, driven by a 12.3% growth in
the average customer base, due principally to the launch of competitive
promotions during the year. 3G services were launched on 10 August 2005, with
103,000 3G devices registered by the end of the financial year.
In Ireland, service revenue grew by 5.9%, primarily due to an increase of 9.2%
in total voice usage following a 5.9% increase in the average customer base.
Voice usage per customer in Ireland remains the highest of all Vodafone's
European subsidiaries.
On 5 January 2006, the Group announced that it had completed the sale of its
100% interest in Vodafone Sweden to Telenor, the pan-Nordic telecommunications
operator. Vodafone and Telenor have agreed the terms of a Partner Market
Agreement in Sweden, allowing Telenor's mobile customers in Sweden and Vodafone
customers to continue to benefit from Vodafone's global brand, products and
services in Sweden.
Service revenue growth in Hungary and Albania, when measured in local currency,
was 13.9% and 16.2% respectively. Vodafone Romania increased service revenue by
39.0% in local currency compared with the previous financial year, assuming the
Group's increased equity interest is reflected in the whole of the current and
prior financial year. Additionally, Vodafone's newly acquired subsidiaries in
the Czech Republic and Romania have performed ahead of the Group's expectations
at the time of the acquisition.
Other Mobile joint ventures
Average proportionate customers for the Group's joint ventures, excluding Italy,
grew organically by 43.4% in the year to 31 March 2006, with strong growth in
markets with relatively low penetration rates. The customer growth was the
primary reason for the 19.0% increase in adjusted operating profit for other
mobile joint ventures.
During the financial year, the Group completed the acquisition of a 10% economic
interest in Bharti Tele-Ventures Limited (now renamed Bharti Airtel Limited), a
leading national mobile operator in India.
The Group also increased its effective shareholding in its joint venture in
South Africa, Vodacom, from 35% to approximately 50% following the acquisition
of VenFin Limited.
Other Mobile associated undertakings
SFR, the Group's associated undertaking in France, reported strong growth in
revenue and operating profit, principally as a result of an 8.1% increase in
average customers compared with the previous financial year. Usage of both voice
and non-voice services increased in the year and SFR had a total of 5,268,000
Vodafone live! customers at 31 March 2006. SFR continues to grow its 3G base and
at 31 March 2006 had registered 1,352,000 3G devices on its network.
On 30 November 2005, the French competition authority fined SFR €220 million for
engaging in anti-competitive agreements that distorted market competition. SFR
is in the process of appealing this decision.
On 7 April 2006, the Swiss Competition Commission notified Swisscom Mobile, the
Group's associated undertaking in Switzerland, of its intention to impose a fine
of CHF489 million in relation to abusive pricing on the mobile wholesale call
termination market between 1 April 2004 and 31 May 2005.
Other Mobile investments
China Mobile, in which the Group has a 3.27% stake, and is accounted for as an
investment, grew its customer base by 21.9% in the year to 260.6 million at 31
March 2006. Dividends of £41 million were received in the year.
COMMON FUNCTIONS
---------------------------------------------------------------------------------------
Financial highlights Year ended 31 March
2006 2005 % change
£m £m £
Revenue 145 123 17.9
---------- ----------
EBITDA 275 (19)
Depreciation and other amortisation (72) (66)
Share of result in associated undertakings 8 -
---------- ----------
Adjusted operating profit/ (loss) 211 (85)
---------- ----------
See page 41 for definition of terms
---------------------------------------------------------------------------------------
Common functions include the results of Partner Markets and unallocated central
Group costs and charges. Adjusted operating profit increased primarily due to a
revision of the charges made to Vodafone operating companies for the use of the
Vodafone brand and related trademarks which took effect from 1 April 2005.
OTHER OPERATIONS
---------------------------------------------------------------------------------------
Financial highlights Year ended 31 March
2006 2005 % change
£m £m £
Revenue Germany 1,320 1,095 20.5
Other 19 -
---------- ----------
1,339 1,095 22.3
---------- ----------
Adjusted operating profit/(loss) Germany 139 64 117.2
Other (20) (45)
---------- ----------
119 19
---------- ----------
See page 41 for definition of terms
---------------------------------------------------------------------------------------
Other operations comprise interests in fixed line telecommunications businesses
in Germany, France and India.
Germany
In local currency, Arcor's revenue increased by 20.7%, primarily due to customer
and usage growth, partially offset by tariff decreases in the competitive
market. The incumbent fixed line market leader continues to drive this intensive
competition, although Arcor further strengthened its position as the main
competitor. Contract ISDN voice customers increased by 103% to 1,447,000 and DSL
(broadband internet) customers by 166% to 1,209,000 in the current financial
year. Arcor increased its share of the DSL market to 11%. Revenue growth and
cost efficiencies led to the substantial improvement in adjusted operating
profit.
Other
The merger of Cegetel, the Group's associated undertaking, and Neuf Telecom
closed on 22 August 2005, giving the Group a proportionate interest of 12.4% in
the leading alternative operator for fixed line telecommunications services in
France. The new entity, Neuf Cegetel, has the largest alternative broadband
network in France, with 70% population coverage.
DISCONTINUED OPERATIONS - JAPAN
---------------------------------------------------------------------------------------
Financial highlights Year ended 31 March
2006 2005 % change
£m £m £
Revenue 7,268 7,395 (1.7)
---------- ----------
Adjusted operating profit 455 664
Impairment loss (4,900) -
---------- ----------
Operating (loss)/profit (4,445) 664
Non-operating income and expense - 13
Net financing costs (3) (11)
Tax on (loss)/profit(1) (140) 436
---------- ----------
(Loss)/profit from discontinued operations (4,588) 1,102
---------- ----------
KPIs Closing customers ('000) 15,210 15,041 1.1
Average monthly ARPU JPY5,889 JPY6,148 (4.2)
(1) Included a deferred tax credit of £599 million in the year to 31 March 2005
in respect of losses in Vodafone Holdings K.K. which became eligible for
offset against profits of Vodafone K.K. following the merger of the two
entities on 1 October 2004.
See page 41 for definition of terms
---------------------------------------------------------------------------------------
On 17 March 2006, the Group announced that an agreement had been reached to sell
its 97.7% interest in Vodafone Japan to Softbank. This resulted in the Group's
operations in Japan being classified as an asset held for sale and being
presented as a discontinued operation. The disposal was completed on 27 April
2006.
Following the announcement on 17 March 2006, the Group recognised an impairment
loss of £4,900 million in respect of Vodafone Japan. The recoverable amount of
Vodafone Japan represented the fair value less costs to sell.
GLOBAL SERVICES
One Vodafone
The One Vodafone initiatives are aimed at achieving savings in operating
expenses and enhancing revenue for the Group's controlled mobile businesses and
the Group's jointly controlled mobile business in Italy, excluding the mobile
businesses acquired since the 2004 financial year. The Group has previously
targeted that, in the 2008 financial year, operating expenses, being the
aggregate of payroll, other operating expenses and capitalised fixed asset
additions, will be broadly similar to those for the 2004 financial year,
assuming no significant changes in exchange rates and after adjusting for
acquisitions and disposals.
The Group has also previously targeted mobile capitalised fixed asset additions
in the 2008 financial year to be 10% of mobile revenue as a result of the
initiatives.
Further, revenue enhancement initiatives have been expected to deliver benefits
equivalent to at least 1% additional revenue market share in the 2008 financial
year compared with the 2005 financial year, which the Group is measuring in
Germany, Italy, Spain and the UK against its principal competitors.
The Group has updated its One Vodafone targets to reflect both the new
organisational structure and additional cost saving initiatives.
Capitalised fixed asset additions are expected to be 10% of revenues in the 2008
financial year for the total of the Group's Europe region and its common
functions.
The Group now expects total payroll and other operating expenses alone to be
broadly stable in the 2008 financial year when compared with the 2006 financial
year for the total of the Group's Europe region and its common functions,
assuming no significant changes in exchange rates, after adjusting for
acquisitions and disposals and excluding the potential impact from its New
Businesses unit and any one off business restructuring costs.
The objective for the 2006 financial year has been to commence implementation of
the plans outlined last year. Significant benefits are expected in the 2007
financial year, with the full targets expected to be met in the 2008 financial
year.
The One Vodafone programme has focused on six key initiatives, as follows:
* The network and supply chain management initiative has driven prices down
over the last two years in the radio network area through competitive
bidding via e-auctions and standardising specifications for base stations,
accessories and operating costs. In core networks, the Group is advancing
towards an all IP based network, thereby simplifying and reducing the number
of component parts and leading to lower costs. Through increasing the amount
of self built transmission, both through microwave links and owned dark
fibre, costs are being reduced and future cost escalation will be limited as
the volume of data traffic grows.
* The service platforms initiative has created a shared service organisation
to host the European development and operations of services. The shared
service organisation is now providing a hosting service for the Vodafone
live! portal for seven of the Group's mobile operating subsidiaries, the
Group's joint venture in Italy and two Partner Markets. Other platforms are
also being migrated and new services are being implemented, for the first
time, solely on the shared service platform. The centralisation is designed
not only to reduce costs but also to increase revenue through reduced time
to market for new products and services.
* The IT initiative focuses on the two areas of data centres and application
development. For data centres, which host the servers to support billing and
customer relationship management systems, consolidation is underway, with
migrations of all of the Southern European, German and Dutch data centres
completed in the year, and work is progressing on the UK and Ireland data
centres following the completion of the planning phase in the 2006 financial
year. The remaining part of the IT effort is focused on driving efficiencies
in application development and maintenance, which will continue through to
2008 and beyond. Activities in both these areas are enabling the Group to
leverage its global purchasing power and drive operational excellence.
* The customer management programme is focused on driving segment and value
based service differentiation to improve customer satisfaction, generate
revenue and reduce churn. During the 2006 financial year, achievements
included the launch of a common customer management service strategy, the
implementation of a cross operating company network of specialised roaming
customer care teams to improve service for our roaming customers and the
roll out of a number of best practice activities to a number of operating
companies.
* The focus of the terminals programme is to provide an end to end process for
delivering terminals to our customers, driving benefits from scale and
reduced time to market. At present, the procurement of approximately four
out of five handsets in the Group's mobile operating subsidiaries and joint
venture in Italy are negotiated globally, providing the Group with scale
advantages. In addition, complexity in handsets is being reduced by
standardising components and the move to a smaller number of technology
platforms. It is expected that these activities, together with the launch of
exclusive Vodafone branded handsets, will drive incremental revenue
benefits, as well as cost savings, through reduced churn and higher ARPU per
handset.
* Finally, the focus of the roaming initiative is to transform customers'
roaming experience, primarily through reducing barriers to usage by
providing better value when they travel abroad. In addition, providing the
best value inter-operator tariffs and consolidating certain roaming support
activities are key goals of the programme. Vodafone Passport has been
launched in 13 markets and over 6 million customers have signed up to the
service at 31 March 2006. Improvements in customer satisfaction and a higher
proportion of customers roaming on to Vodafone networks have been observed.
PRODUCTS AND SERVICES
Summary of the availability of the Group's key product and services
Number of markets at 31 March 2006 At 31 March 2006
------------------------------------------------------------------
Number of
Markets devices/ customers on
launched Subsidiaries controlled and jointly
during and joint Partner controlled networks
the year ventures Associates Markets ('000)
Vodafone live!(1) 4 14 3 7 27,070
Vodafone live! with 3G(1) 5 11 3 3 7,721
Vodafone Mobile Connect
3G/GPRS data card(1) 8 13 3 8 648
BlackBerry from Vodafone(2) 7 13 3 9 426
Vodafone Wireless Office(2) 1 11 1 2 1,509
Vodafone Passport(2) 13 11 1 1 5,586
Vodafone Simply(1) 17 12 2 3 398
Notes:
(1) Device based measure
(2) Customer based measure
Vodafone live!
Vodafone live!, the Group's integrated communications and multimedia proposition
targeted primarily at the young adult segment, has continued to grow strongly.
During the 2006 financial year, 23 new devices have been added to the Vodafone
live! portfolio, with an increased emphasis on exclusive and customised devices.
Throughout the 2006 financial year, Vodafone has continued to develop standards
in the areas of terminals, platforms, games, digital rights management and MMS.
These initiatives are expected to lead to increased speed to market and better
services for customers.
Vodafone live! with 3G
Vodafone live! with 3G now has an expanded portfolio of 35 devices, with 17 new
3G devices having been added to the portfolio during the 2006 financial year.
An enhanced mobile experience gives Vodafone live! with 3G customers access to a
unique range of high quality content and communication services such as news
broadcasts, sports highlights, music videos, movie trailers and a host of other
video content. The Group continues to work with leading content partners to
enhance the mobile TV and film content offering. The 3G service also supports
full track music downloads, which allow customers to use their phone to listen
to music, choosing from a range that currently includes more than 600,000 music
tracks. Using the 3G service, customers can also download live performance
videos and stream clips direct to their mobiles. The line up of mobile games for
Vodafone live! with 3G customers to download is continually expanding.
In the coming year, Vodafone will continue to enhance the music offering with
the introduction of Vodafone Radio DJ, a personalised, interactive radio service
streamed to both 3G phones and PCs. Customers will have access to hundreds of
thousands of tracks and will be able to personalise radio channels to their
taste. This service will be offered on a monthly subscription, giving unlimited
listening time, and is due for release in more than 20 countries over the next
twelve months.
Vodafone Mobile Connect data cards
The Vodafone Mobile Connect data card provides simple and secure access to
existing business information systems such as email, corporate applications,
company intranets and the internet for customers on the move. Access speeds
range from up to 384 kilobits per second when connected to a 3G network to 1.2
megabits per second when connected to a network enabled with HSDPA technology
('3G broadband'). The Vodafone Mobile Connect with 3G broadband data card has
recently been launched in five markets, with other markets to follow, and
Vodafone Mobile Connect data cards continue to be available in an increasing
number of distribution channels.
During the 2006 financial year, Vodafone announced the launch of the Built-in 3G
broadband from Vodafone proposition with Acer, Dell and Lenovo notebooks. The
roll out of the notebooks will further enhance the choices available to Vodafone
customers for high speed mobile working.
Roaming
On 8 May 2006, the Group announced that average European roaming costs for
Vodafone customers will be cut by at least 40% by April 2007, when compared to
the period from June to August 2005. This is expected to benefit over 30 million
Vodafone customers who roam every year and will see the average cost of roaming
in Europe fall from over 90 eurocents to less than 55 eurocents per minute. The
average saving was determined by calculating the expected cost per minute for
all Vodafone's European customers who roam within the EU during the month of
April 2007 and comparing this to the average cost per minute for all European
customers who roamed within the EU during the period from June to August 2005.
Vodafone also announced that it will enter into reciprocal wholesale
arrangements with any other European operator at no more than 45 eurocents per
minute for voice calls within the EU from October 2006. This will enable both
Vodafone and other European mobile operators to continue to lower the cost of
roaming to customers outside of their own networks.
Vodafone Passport
Vodafone Passport introduced a new roaming pricing structure for calls made on
Vodafone and partner networks, enabling customers to 'take their home tariff
abroad' and offering greater price transparency and certainty to customers when
using roaming services abroad. Whilst abroad, customers can make calls using
their domestic tariff, in some cases including free minute bundles, and receive
calls at no charge, all for a one off connection fee per call.
Vodafone Simply
The Vodafone Simply proposition is predominantly targeted at the adult personal
user segment and has been developed to help customers who are less comfortable
with the full capabilities of mobile technology but still would like to access
the mobile experience. The proposition includes exclusively developed, 'easy to
use' mobile phones with uniquely developed user interfaces accompanied with
tariff plans and a tailored retail and customer support experience.
Vodafone Wireless Office
Vodafone Wireless Office offers companies the opportunity to reduce the number
of fixed desk phones, facilitating the move of voice minutes from the fixed to
the mobile network through a solution that includes elements that match or
better fixed line call costs, desk phone functionality and user experience. A
closed user group tariff, allowing employees to call each other for a flat
monthly fee and an option that allows users to drive their mobile phone from
their PC or laptop are key aspects of the offer.
Other Business Services
Demand for handheld solutions that allow real-time access to email, calendar,
contact and other applications, beyond the wireless enablement of notebook
computers has continued to increase with the BlackBerry from Vodafone
proposition.
FINANCIAL UPDATE
INCOME STATEMENT
Investment income and Financing costs
2006 2005
£m £m
Investment income 353 294
Financing costs (1,120) (880)
---------- ----------
(767) (586)
========== ==========
Analysed as:
- Net financing costs before dividends from investments (318) (293)
- Potential interest charges arising on settlement of
outstanding tax issues (329) (245)
- Changes in fair value of equity put rights and similar
arrangements (see note 5) (161) (67)
- Dividends from investments 41 19
---------- ----------
(767) (586)
========== ==========
Net financing costs before dividends from investments increased by 8.5% to £318
million as an increase in average net debt compared to the previous year was
partially offset by gains on mark to market adjustments on financial instruments
in the current financial year. At 31 March 2006, the provision for potential
interest charges arising on settlement of outstanding tax issues was £896
million.
Taxation
2006 2005
£m £m
Tax on (loss)/profit 2,380 1,869
Share of associated undertakings' tax 443 448
---------- ----------
Adjusted tax on (loss)/profit 2,823 2,317
========== ==========
(Loss)/profit before tax (14,853) 7,285
Less:
- Share of associated undertakings' non-operating income (17) -
- Impairment losses 23,515 475
- Other income and expense (15) -
- Non-operating income and expense 2 5
- Change in fair value of equity put rights and similar
arrangements 161 67
---------- ----------
Adjusted profit before tax 8,793 7,832
Add: Share of associated undertakings' tax and minority
interest 495 492
---------- ----------
Adjusted profit before tax for the purpose of
calculating adjusted effective tax rate 9,288 8,324
========== ==========
Adjusted effective tax rate 30.4% 27.8%
========== ==========
The adjusted effective tax rate for the year to 31 March 2006 is 30.4% compared
to 27.8% for the prior year. The Group's adjusted effective tax rate is lower
than the Group's weighted average tax rate as a result of the repurchase of
shares in Vodafone Italy and favourable tax settlements but has increased
compared to the previous year as the prior year benefited from the finalisation
of the reorganisation of the Group's German operations.
The effective tax rate for the year ending 31 March 2007 is expected to increase
by a similar amount to the increase for the 2006 financial year, primarily due
to one off restructuring benefits in the 2006 financial year.
The Group has previously indicated that in the three year period ending 31 March
2009 it expects a number of long standing tax issues to be resolved. The Group
estimates that tax payments of approximately £5 billion could be made over that
period, together with associated interest costs, including a potentially
material amount relating to CFC litigation.
(Loss)/earnings per share for continuing operations
Adjusted earnings per share increased by 13.0% from 8.95 pence to 10.11 pence
for the year to 31 March 2006. Basic earnings per share fell from 8.12 pence to
a loss per share of 27.66 pence for the 2006 financial year.
Adjusted earnings per share is stated before a charge of 37.56 pence per share
in relation to an impairment of the carrying value of goodwill, a further charge
of 0.26 pence for the change in fair value of equity put rights and similar
arrangements and a credit of 0.05 pence per share for the non-recurring amounts
relating to business acquisitions and disposals.
Total shareholder returns
Dividends
The Company has historically paid dividends semi-annually, with a regular
interim dividend in respect of the first six months of the financial year
payable in February and a final dividend payable in August. The Board expects
that the Company will continue to pay dividends semi-annually. In November 2005,
the Board declared an interim dividend of 2.20 pence per share, representing a
15% increase over last year's interim dividend.
In considering the level of dividends, the Board takes account of the outlook
for earnings growth, operating cash flow generation, capital expenditure
requirements, acquisitions and divestments, together with the amount of debt and
share purchases.
Consistent with this, and developments to the Group's strategy, the Board has
decided to target a 60% dividend pay out ratio taking effect for the 2006
financial year. The Board is, therefore, recommending a final dividend of 3.87
pence, representing a 79.2% increase over last year's final dividend and
bringing the total dividend for the year to 6.07 pence, an increase of 49.1% on
last year's total dividend. The dividend pay out ratio, being the declared
interim and proposed final dividends per share as a percentage of adjusted
earnings per share from continuing operations, in respect of the 2006 financial
year of 60%, compares favourably with a pay out ratio for the 2005 financial
year of 45%. It is the intention to grow future dividends on an annual basis in
line with underlying earnings growth, maintaining dividends per share at
approximately 60% of adjusted earnings per share.
The ex-dividend date is 7 June 2006 for ordinary shareholders, the record date
for the final dividend is 9 June 2006 and the dividend is payable on 4 August
2006.
Special distribution of £9 billion
On 17 March 2006, the Group stated that it will make a special distribution to
shareholders of approximately £6 billion in the 2007 financial year of the £6.9
billion cash received following the completion of the sale of Vodafone Japan.
Through targeting a lower credit rating, the Group now plans to return a further
£3 billion, resulting in a total distribution of approximately £9 billion.
This equates to 15 pence per ordinary share. Subject to shareholder approval,
the method of distribution will be in the form of a B share arrangement with a
share consolidation, which will reduce the Company's shares in issue. The B
share arrangement provides for shareholder flexibility as to when and how cash
is received, thereby allowing income tax and capital gains management for some
shareholders. The Company will post a circular to shareholders, with full
details of the B share arrangement and the consolidation, on or around 13 June
2006.
The consolidation, which will replace existing ordinary shares with fewer new
ordinary shares, is intended to maintain the share price, subject to normal
market movements, and, consequently, historic comparability. For non-US
shareholders, the B shares will be redeemed by default, with shareholders
receiving a capital distribution. They may, however, elect for certain
alternatives. Non-US shareholders can elect to receive the 15 pence as a one off
dividend or elect to receive the capital distribution over time at
pre-determined dates. Payment in respect of the initial redemption is intended
to be made on 11 August 2006 and for any shareholders electing to receive the
one off 15 pence per B share dividend payment is also intended to be made on 11
August 2006. We expect that US shareholders and ADR holders will only be
entitled to receive the return as a one off dividend.
Share purchases
When considering how increased returns to shareholders can be provided in the
form of share purchases, the Board reviews the free cash flow, anticipated cash
requirements, dividends, credit profile and gearing of the Group.
On 24 May 2005, the Board allocated £4.5 billion to the share purchase programme
for the year to 31 March 2006, which was subsequently increased to £6.5 billion.
For the period from 1 April 2005 to 31 March 2006, the Company purchased 4,848
million shares at a cost of £6.5 billion. No shares have been purchased since 31
March 2006. In addition to ordinary market purchases, the Company placed
irrevocable purchase instructions prior to the start of some of the close
periods and in advance of quarterly KPI announcements.
At its Annual General Meeting ('AGM') on 26 July 2005, the Company received
shareholder approval to purchase up to 6.4 billion shares of the Company. This
approval will expire at the conclusion of the Company's AGM on 25 July 2006.
Shares can be purchased on market on the London Stock Exchange at a price not
exceeding 105% of the average middle market quotation for such shares on the
five business days prior to the date of purchase and otherwise in accordance
with the rules of the Financial Services Authority. Purchases are made only if
accretive to adjusted earnings per share.
As a result of targeting a lower credit rating and the £9 billion special
distribution, the Group has no current plans for further share purchases or
other one off shareholder returns.
Treasury shares
The Companies Act 1985 permits companies to purchase their own shares out of
distributable reserves and to hold shares with a nominal value not to exceed 10%
of the nominal value of their issued share capital in treasury. If shares in
excess of this limit are purchased they must be cancelled. In the 2006 financial
year, 2,250 million treasury shares were cancelled. Whilst held in treasury no
voting rights or pre-emption rights accrue and no dividends are paid in respect
of treasury shares. Treasury shares may be sold for cash; transferred (in
certain circumstances) for the purposes of an employee share scheme; or
cancelled. If treasury shares are sold, such sales are deemed to be a new issue
of shares and will accordingly count towards the 5% of share capital which the
Company is permitted to issue on a non pre-emptive basis in any one year as
approved by its shareholders at the AGM. Distributable reserves are increased by
the proceeds of any sale of treasury shares up to the amount of the original
purchase price, whereas no increase would arise from the sale of non-treasury
shares. Any excess above the original purchase price must be transferred to the
share premium account. The movement in treasury shares during the financial year
is shown below:
Number
million £ million
1 April 2005 3,814 5,121
Repurchase of shares 4,848 6,500
Cancellation of shares (2,250) (3,053)
Re-issue of shares (279) (370)
---------- ----------
31 March 2006 6,133 8,198
========== ==========
CASH FLOWS AND FUNDING
During the year to 31 March 2006, the Group increased its net cash inflow from
operating activities by 7.9% to £11,841 million and generated £7,119 million of
free cash flow, as analysed in the following table:
2006 2005
£m £m % change
Net cash inflow from operating activities 11,841 10,979 7.9
---------------------------------------------------------------------------
- Continuing operations 10,190 9,240 10.3
- Discontinued operations 1,651 1,739 (5.1)
---------------------------------------------------------------------------
Add: Taxation 1,682 1,578 6.6
Purchase of intangible fixed assets (690) (699) (1.3)
Purchase of property, plant and equipment (4,481) (4,279) 4.7
Disposal of property, plant and equipment 26 68 (61.8)
---------- ----------
Operating free cash flow 8,378 7,647 9.6
---------------------------------------------------------------------------
- Continuing operations 7,695 6,344 21.3
- Discontinued operations 683 1,303 (47.6)
---------------------------------------------------------------------------
Taxation (1,682) (1,578) 6.6
Dividends received from associated undertakings(1) 835 1,896 (56.0)
Dividends paid to minority shareholders in
subsidiary undertakings (51) (32) 59.4
Dividends received from investments 41 19 115.8
Interest received 319 339 (5.9)
Interest paid (721) (744) (3.1)
---------- ----------
Free cash flow 7,119 7,547 (5.7)
========== ==========
---------------------------------------------------------------------------
- Continuing operations 6,418 6,592 (2.6)
- Discontinued operations 701 955 (26.6)
---------------------------------------------------------------------------
(1) Year to 31 March 2006 includes £511 million (2005: £616 million) from the
Group's interest in SFR and £195 million (2005: £923 million) from the
Group's interest in Verizon Wireless
Free cash flow decreased primarily as a result of lower dividends received from
associated undertakings, partially offset by an improved net cash inflow from
operating activities.
An analysis of net debt for continuing operations is as follows:
2006 2005
£m £m
Cash and cash equivalents (as presented in the
consolidated cash flow statement) 2,932 3,726
Bank overdrafts 18 43
Cash and cash equivalents for discontinued operations (161) -
---------- ----------
Cash and cash equivalents (as presented in the
consolidated balance sheet) 2,789 3,769
---------- ----------
Trade and other receivables(1) 310 408
Trade and other payables(1) (219) (79)
Short-term borrowings (3,448) (2,003)
Long-term borrowings (16,750) (13,190)
---------- ----------
(20,107) (14,864)
---------- ----------
Net debt as extracted from the consolidated balance
sheet (17,318) (11,095)
Net debt related to discontinued operations - 920
---------- ----------
Net debt related to continuing operations (17,318) (10,175)
========== ==========
(1) Certain mark to market adjustments on financing instruments are included
within trade and other receivables and trade and other payables
Consistent with development of its strategy, the Group is now targeting low
single A long term credit ratings from Moody's, Fitch Ratings and Standard &
Poor's having previously managed the capital structure at single A credit
ratings. Credit ratings are not a recommendation to purchase, hold or sell
securities, in as much as ratings do not comment on market price or suitability
for a particular investor, and are subject to revision or withdrawal at any time
by the assigning rating organisation. Each rating should be evaluated
independently.
In aggregate, the Group has committed facilities of approximately £7,833
million, of which £6,362 million was undrawn and £1,471 million drawn at 31
March 2006. The undrawn facilities include a $5.0 billion Revolving Credit
Facility that matures in June 2012 and a $5.9 billion Revolving Credit Facility
that matures in June 2009. Both facilities support US and Euro commercial paper
programmes of up to $15 billion and £5 billion respectively. At 31 March 2006,
$696 million (£400 million) was drawn under the US commercial paper programme
and £285 million and $80 million (£46 million) were drawn under the Euro
commercial paper programme. Other undrawn facilities of £65 million are specific
to the Group's subsidiary in Egypt.
The drawn facilities above include a JPY259 billion term credit facility,
maturing in March 2011, entered into by Vodafone Finance K.K. in December 2005
that was used to repay a JPY225 billion term credit facility, due to mature in
January
2007.
In the year to 31 March 2006, bonds with a nominal value of £5.2 billion were
issued under the US Shelf and the Euro Medium Term Note Programme, to bring the
nominal value of the total amount of bonds outstanding to £15,389 million at 31
March 2006, including $207 million of bonds that were assumed as part of the
acquisition of MobiFon S.A. and Oskar Mobil a.s. on 31 May 2005. The bonds
issued during the 2006 financial year were as follows:
US shelf programme
or Euro Medium
Amount Term Note (EMTN)
Date bond issued Maturity of bond Currency million programme
8 August 2005 15 September 2015 USD 750 US Shelf
8 September 2005 8 September 2014 GBP 350 EMTN
29 November 2005 29 November 2012 EUR 750 EMTN
29 December 2005 29 June 2007 USD 1,850 US Shelf
29 December 2005 28 December 2007 USD 750 US Shelf
8 February 2006 17 July 2008 EUR 1,250 EMTN
16 March 2006 28 December 2007 USD 750 US Shelf
16 March 2006 15 June 2011 USD 1,100 US Shelf
16 March 2006 15 March 2016 USD 750 US Shelf
In addition to the facilities above, the Group's discontinued operation in Japan
had a JPY8 billion (£39 million) loan facility that was fully drawn at 31 March
2006. Vodafone Japan also had bonds outstanding at 31 March 2006 of JPY125
billion (£612 million). The loans and bonds were included in the disposal of
Vodafone Japan on 27 April 2006.
On 19 April 2005, the Board of directors of Vodafone Italy approved a proposal
to buy back issued and outstanding shares for approximately €7.9 billion (£5.4
billion), which was subsequently approved by the shareholders of Vodafone
Italy. The buy back took place in two tranches; the first occurred on 24 June
2005 and the second on 7 November 2005. As a result, Vodafone received €6.1
billion (£4.2 billion) and Verizon Communications Inc. received €1.8 billion
(£1.2 billion). After the transaction, Vodafone and Verizon Communications Inc.
shareholdings in Vodafone Italy remained at approximately 77% and 23%,
respectively. At 31 March 2006, Vodafone Italy had net cash on deposit with
Group companies of €2.3 billion (£1.6 billion).
SIGNIFICANT TRANSACTIONS
The Group invested a net £3,643 million(1) in acquisition and disposal
activities, including the purchase and disposal of investments, in the year to
31 March 2006 and an analysis of the significant transactions and the increases
to the Group's effective interest in the entities is shown below:
£m
Acquisitions:
Czech Republic (nil to 100%) and Romania (20.1% to 100%)(1) 1,840
South Africa (35.0% to 49.9%)(1) 1,444
India (nil to 10.0%)(1) 849
Disposals:
Sweden (100% to nil) (658)
Other net acquisitions and disposals, including investments 168
----------
3,643
==========
(1) Amounts are shown net of cash and cash equivalents acquired
The acquisitions in the Czech Republic, South Africa and India are discussed in
more detail on page 34. On 5 January 2006, the Group completed the sale of its
entire interest in Vodafone Sweden to Telenor Mobile Holding AS.
Subsequent events
On 17 March 2006, the Group announced an agreement to sell its 97.7% holding in
Vodafone Japan to Softbank. The transaction completed on 27 April 2006, with the
Group receiving cash of approximately JPY1.42 trillion (£6.9 billion) including
the repayment of intercompany debt of JPY0.16 trillion (£0.8 billion). In
addition, the Group received non-cash consideration with a fair value of
approximately JPY0.23 trillion (£1.1 billion), comprised of preferred equity and
a subordinated loan. Softbank also assumed debt of approximately JPY0.13
trillion (£0.6 billion).
On 13 December 2005, the Group announced it had agreed to acquire substantially
all the assets and business of Telsim Mobil Telekomunikasyon ('Telsim') from the
Turkish Savings Deposit and Investment Fund. The Group is not acquiring Telsim's
liabilities, including those related to Motorola and Nokia, with the exception
of certain minor employee-related liabilities. In addition to the consideration
price, the Group will be required to pay US$0.4 billion of VAT which will be
recoverable against Telsim's future VAT liabilities. Vodafone expects to recover
this payment over the short to medium term. The acquisition completed on 24 May
2006. The cash paid on this date was US$4.67 billion (£2.6 billion).
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 5 minutes ago Income & Growth VCT
- 22 minutes ago CMC Markets
- 29 minutes ago Kier Group
- 43 minutes ago Jardine Matheson Holdings Ltd (Singapore Reg)
- 1 hour ago M&G