2007 Financial Year Compared to the 2006 Financial Year
Group
| Common | Group | Group | ||||||
|---|---|---|---|---|---|---|---|---|
| Europe | EMAPA | Functions(2) | Eliminations | 2006 | 2007 | % change | ||
| £m | £m | £m | £m | £m | £m | £ | Organic | |
| Voice revenue(1) | 17,261 | 5,077 | – | (70) | 22,268 | 21,304 | ||
| Messaging revenue | 2,925 | 667 | – | (5) | 3,587 | 3,289 | ||
| Data revenue | 1,300 | 138 | – | (10) | 1,428 | 1,098 | ||
| Fixed line revenue(1) | 1,493 | 87 | – | – | 1,580 | 1,391 | ||
| Other service revenue | 8 | – | – | – | 8 | – | ||
| Service revenue | 22,987 | 5,969 | – | (85) | 28,871 | 27,082 | 6.6 | 4.7 |
| Acquisition revenue | 1,004 | 381 | – | – | 1,385 | 1,295 | ||
| Retention revenue | 354 | 21 | – | – | 375 | 448 | ||
| Other revenue | 247 | 70 | 168 | (12) | 473 | 525 | ||
| Revenue | 24,592 | 6,441 | 168 | (97) | 31,104 | 29,350 | 6.0 | 4.3 |
| Interconnect costs | (3,668) | (1,045) | – | 85 | (4,628) | (4,463) | ||
| Other direct costs | (1,914) | (784) | (66) | 3 | (2,761) | (2,096) | ||
| Acquisition costs | (2,604) | (677) | – | – | (3,281) | (2,968) | ||
| Retention costs | (1,543) | (212) | – | – | (1,755) | (1,891) | ||
| Operating expenses | (5,462) | (1,472) | 206 | 9 | (6,719) | (6,166) | ||
| Acquired intangibles amortisation | (22) | (392) | – | – | (414) | (157) | ||
| Purchased licence amortisation | (849) | (43) | – | – | (892) | (947) | ||
| Depreciation and other amortisation | (2,888) | (779) | (181) | – | (3,848) | (3,674) | ||
| Share of result in associates(3) | 517 | 2,207 | 1 | – | 2,725 | 2,411 | ||
| Adjusted operating profit | 6,159 | 3,244 | 128 | – | 9,531 | 9,399 | 1.4 | 4.2 |
| Adjustments for: | ||||||||
| Impairment losses | (11,600) | (23,515) | ||||||
| Other income and expense | 502 | 15 | ||||||
| Non-operating income of associates | 3 | 17 | ||||||
| Operating loss | (1,564) | (14,084) | ||||||
| Non-operating income and expense | 4 | (2) | ||||||
| Investment income | 789 | 353 | ||||||
| Financing costs | (1,612) | (1,120) | ||||||
| Loss before taxation | (2,383) | (14,853) | ||||||
| Income tax expense | (2,423) | (2,380) | ||||||
| Loss for the financial year from continuing operations | (4,806) | (17,233) | ||||||
| Loss for the financial year from discontinued operations | (491) | (4,588) | ||||||
| Loss for the financial year | (5,297) | (21,821) | ||||||
| Notes: | |
|---|---|
| (1) | Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and fixed broadband. All prior periods have been adjusted accordingly. |
| (2) | Common functions represents the results of partner markets and the net result of unallocated central Group costs and recharges to the Group’s operations, including royalty fees for use of the Vodafone brand. |
| (3) | During the year ended 31 March 2008, the Group changed its organisational structure and the Group’s associated undertaking in France, SFR, is now managed within the Europe region and reported within Other Europe. The results for all periods are presented in accordance with the new organisational structure. |
Revenue
Revenue increased by 6.0% to £31,104 million in the year to 31 March 2007, with organic growth of 4.3%. The net impact of acquisitions and disposals contributed 3.3 percentage points to revenue growth, offset by unfavourable movements in exchange rates of 1.6 percentage points, with both effects arising principally in the EMAPA region.
The Europe region recorded organic revenue growth of 1.4%, while the EMAPA region delivered organic revenue growth of 21.1%. As a result, the EMAPA region accounted for more than 70% of the organic growth in Group revenue. Strong performances were recorded in Spain and a number of the Group’s emerging markets.
An increase in the average mobile customer base and usage stimulation initiatives resulted in organic revenue growth of 2.5% and 7.0% in voice and messaging revenue, respectively. Data revenue is an increasingly important component of Group revenue, with organic growth of 30.7%, driven by increasing penetration from 3G devices and growth in revenue from business services.
The Europe region and common functions contributed 79% of Group revenue, of which approximately 63% was euro denominated, with the remaining 16% being denominated in sterling. The remaining 21% was generated in the EMAPA region where no single currency was individually significant.
Operating result
Adjusted operating profit increased by 1.4% to £9,531 million, with organic growth of 4.2%. The net impact of acquisitions and disposals and unfavourable exchange rate movements reduced reported growth by 0.3 percentage points and 2.5 percentage points, respectively, with both effects arising principally in the EMAPA region. The Europe region declined 3.7% on an organic basis, while the EMAPA region recorded organic growth of 27.4%. Strong performances were delivered in Spain, the US and a number of emerging markets.
Adjusted operating profit is stated after charges in relation to regulatory fines in Greece of £53 million and restructuring costs within common functions, Vodafone Germany, Vodafone UK and Other Europe of £79 million. The EMAPA region accounted for all of the Group’s reported and organic growth in adjusted operating profit.
Adjusted operating profit for the 2007 financial year was principally denominated in euro (55%), US dollar (22%) and sterling (5%), with the remaining 18% being denominated in other currencies.
The acquisitions and stake increases led to the rise in acquired intangible asset amortisation, and these acquisitions, combined with the continued expansion of network infrastructure in the EMAPA region, resulted in higher depreciation charges.
The Group’s share of results from associates increased by 13.0%, mainly due to Verizon Wireless which reported record growth in net additions and increased ARPU. The growth in Verizon Wireless was offset by a reduction in the Group’s share of results from its other associated undertakings, which fell due to the disposals of Belgacom Mobile S.A. and Swisscom Mobile A.G. as well as the impact of reductions in termination rates and intense competition experienced by SFR in France.
Operating loss was £1,564 million compared with a loss of £14,084 million in the 2006 financial year following lower impairment charges. In the year ended 31 March 2007, the Group recorded an impairment charge of £11,600 million (2006: £23,515 million) in relation to the carrying value of goodwill in the Group’s operations in Germany (£6,700 million) and Italy (£4,900 million). The impairment in Germany resulted from an increase in long term interest rates, which led to higher discount rates, along with increased price competition and continued regulatory pressures in the German market. The impairment in Italy resulted from an increase in long term interest rates and the estimated impact of legislation cancelling the fixed fees for the top up of prepaid cards and the related competitive response in the Italian market. The increase in interest rates accounted for £3,700 million of the reduction in value during the 2007 financial year.
Certain of the Group’s cost reduction and revenue stimulation initiatives are managed centrally within common functions. Consequently, operating and capital expenses are incurred centrally and recharged to the relevant countries, primarily in Europe. This typically results in higher operating expenses with a corresponding reduction in depreciation for the countries concerned.
Other income and expense for the year ended 31 March 2007 included the gains on disposal of Belgacom Mobile S.A. and Swisscom Mobile A.G., amounting to £441 million and £68 million, respectively.
Investment income and financing costs
| 2007 £m |
2006 £m |
|
|---|---|---|
| Investment income | 789 | 353 |
| Financing costs | (1,612) | (1,120) |
| (823) | (767) | |
| Analysed as: | ||
| Net financing costs before dividends from investments(1) | (435) | (318) |
| Potential interest charges arising on settlement of outstanding tax issues | (406) | (329) |
| Dividends from investments | 57 | 41 |
| Foreign exchange(2) | (41) | – |
| Changes in the fair value of equity put rights and similar arrangements(3) | 2 | (161) |
| Net financing costs | (823) | (767) |
| Notes: | |
|---|---|
| (1) | Includes a one off gain of £86 million related to the Group renegotiating its investments in SoftBank. |
| (2) | Comprises foreign exchange differences reflected in the Consolidated Income Statement in relation to certain intercompany balances and the foreign exchange differences on financial instruments received as consideration in the disposal of Vodafone Japan to SoftBank, which completed in April 2006. |
| (3) | Includes the fair value movement in relation to the put rights and similar arrangements held by minority interest holders in certain of the Group’s subsidiaries. The valuation of these financial liabilities is inherently unpredictable and changes in the fair value could have a material impact on the future results and financial position of Vodafone. Details of these options can be found in Liquidity and Capital Resources. |
Net financing costs before dividends from investments increased by 36.8% to £435 million as increased financing costs, reflecting higher average debt and interest rates, and losses on mark to market adjustments on financial instruments more than offset higher investment income resulting from new investments in SoftBank, which arose on the sale of Vodafone Japan during the 2007 financial year, including an £86 million gain related to the renegotiation of these investments. At 31 March 2007, the provision for potential interest charges arising on settlement of outstanding tax issues was £1,213 million.
Taxation
The effective tax rate, exclusive of impairment losses, was 26.3% (2006: 27.5%), which was lower than the Group’s weighted average tax rate due to the resolution of a number of historic tax issues with tax authorities and additional tax deductions in Italy. The 2006 financial year benefited from the tax treatment of a share repurchase in Vodafone Italy and favourable tax settlements.
A significant event in the 2007 financial year was a European Court decision in respect of the UK CFC legislation, following which Vodafone has not accrued any additional provision in respect of the application of UK CFC legislation to the Group.
The effective tax rate including impairment losses was (101.7)% compared to (16.0)% for the 2006 financial year. The negative tax rates arose from no tax benefit being recorded for the impairment losses of £11,600 million (2006: £23,515 million).
Loss per share
Adjusted earnings per share increased by 11.4% from 10.11 pence to 11.26 pence for the year to 31 March 2007. Basic loss per share from continuing operations decreased from 27.66 pence to 8.94 pence for the year ended 31 March 2007.
| 2007 £m |
2006 £m |
|
|---|---|---|
| Loss from continuing operations attributable to equity shareholders | (4,932) | (17,318) |
| Adjustments: | ||
| Impairment losses(1) | 11,600 | 23,515 |
| Other income and expense | (502) | (15) |
| Share of associated undertakings’ non-operating income | (3) | (17) |
| Non-operating income and expense | (4) | 2 |
| Investment income and financing costs(2) | 39 | 161 |
| Tax on the above items | 13 | – |
| Adjusted profit from continuing operations attributable to equity shareholders | 6,211 | 6,328 |
| Weighted average number of shares outstanding | ||
| Basic and diluted(3) | 55,144 | 62,607 |
| Notes: | |
|---|---|
| (1) | See note 10 to the Consolidated Financial Statements. |
| (2) | See note 2 and 3 in investment income and financing costs. |
| (3) | In the year ended 31 March 2007, 215 million (2006: 183 million) shares have been excluded from the calculation of diluted loss per share as they are not dilutive. |