2008 Financial Year Compared to the 2007 Financial Year
Group
| Europe | EMAPA | Common functions(2) |
Eliminations | Group 2008 |
Group 2007 |
% Change | ||
|---|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | £ | organic | |
| Voice revenue(1) | 17,485 | 7,486 | – | (92) | 24,879 | 22,268 | ||
| Messaging revenue | 3,262 | 824 | – | (7) | 4,079 | 3,587 | ||
| Data revenue | 1,827 | 359 | – | (6) | 2,180 | 1,428 | ||
| Fixed line revenue(1) | 1,827 | 48 | – | (1) | 1,874 | 1,580 | ||
| Other service revenue | 29 | 1 | – | – | 30 | 8 | ||
| Service revenue | 24,430 | 8,718 | – | (106) | 33,042 | 28,871 | 14.4 | 4.3 |
| Acquisition revenue | 1,039 | 450 | – | (1) | 1,488 | 1,385 | ||
| Retention revenue | 355 | 34 | – | – | 389 | 375 | ||
| Other revenue | 257 | 143 | 170 | (11) | 559 | 473 | ||
| Revenue | 26,081 | 9,345 | 170 | (118) | 35,478 | 31,104 | 14.1 | 4.2 |
| Interconnect costs | (3,980) | (1,391) | – | 106 | (5,265) | (4,628) | ||
| Other direct costs | (2,064) | (1,354) | 76 | – | (3,342) | (2,761) | ||
| Acquisition costs | (2,872) | (939) | – | 1 | (3,810) | (3,281) | ||
| Retention costs | (1,756) | (259) | – | – | (2,015) | (1,755) | ||
| Operating expenses | (5,719) | (2,257) | 97 | 11 | (7,868) | (6,719) | ||
| Acquired intangibles amortisation | (78) | (648) | – | – | (726) | (414) | ||
| Purchased licence amortisation | (846) | (63) | – | – | (909) | (892) | ||
| Depreciation and other amortisation | (2,985) | (1,154) | (205) | – | (4,344) | (3,848) | ||
| Share of result in associates(3) | 425 | 2,449 | 2 | – | 2,876 | 2,725 | ||
| Adjusted operating profit | 6,206 | 3,729 | 140 | – | 10,075 | 9,531 | 5.7 | 5.7 |
| Adjustments for: | ||||||||
| Impairment losses | – | (11,600) | ||||||
| Other income and expense | (28) | 502 | ||||||
| Non-operating income of associates | – | 3 | ||||||
| Operating profit/(loss) | 10,047 | (1,564) | ||||||
| Non-operating income and expense | 254 | 4 | ||||||
| Investment income | 714 | 789 | ||||||
| Financing costs | (2,014) | (1,612) | ||||||
| Profit/(loss) before taxation | 9,001 | (2,383) | ||||||
| Income tax expense | (2,245) | (2,423) | ||||||
| Profit/(loss) for the financial year from continuing operations | 6,756 | (4,806) | ||||||
| Loss for the financial year from discontinued operations | – | (491) | ||||||
| Profit/(loss) for the financial year | 6,756 | (5,297) | ||||||
| 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 the 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 are presented in accordance with the new organisational structure. |
Revenue
Revenue increased by 14.1% to £35,478 million for the year ended 31 March 2008, with organic growth of 4.2%. The impact of acquisitions and disposals was 6.5 percentage points, primarily from acquisitions of subsidiaries in India in May 2007 and Turkey in May 2006 as well as the acquisition of Tele2’s fixed line communication and broadband operations in Italy and Spain in December 2007. Favourable exchange rate movements increased revenue by 3.4 percentage points, principally due to the 4.2% change in the average euro/£ exchange rate, as 60% of the Group’s revenue for the 2008 financial year was denominated in euro.
Revenue grew in the Europe and EMAPA regions by 6.1% and 45.1%, respectively, with growth in the EMAPA region benefiting from a 27.5 percentage point impact from acquisitions and disposals. On an organic basis, Europe recorded growth of 2.0%, while EMAPA delivered an increase of 14.5%. EMAPA accounted for 62.1% of the organic growth for the Group.
Organic revenue growth was driven by the higher customer base and successful usage stimulation initiatives, partially offset by ongoing price reductions and the impact of regulatory driven reductions. Growth in data revenue was particularly strong, up 40.6% on an organic basis to £2,180 million, reflecting an increasing penetration of mobile PC connectivity devices and improved service offerings.
Operating result
Operating profit increased to £10,047 million for the year ended 31 March 2008 from a loss of £1,564 million for the year ended 31 March 2007. The loss in the 2007 financial year was mainly the result of the £11,600 million of impairment charges that occurred in the year, compared with none in the 2008 financial year.
Adjusted operating profit increased to £10,075 million, with 5.7% growth on both a reported and organic basis. The net impact of acquisitions and disposals reduced reported growth by 0.8 percentage points. The net impact of foreign exchange rates was to increase adjusted operating profit by 0.8 percentage points, as the impact of the 4.2% increase in the average euro/£ exchange rate was partially offset by 5.7% and 7.2% decreases in the average US$/£ and ZAR/£ exchange rates, respectively. 59%, 25% and 4% of the Group’s adjusted operating profit for the 2008 financial year was denominated in euro, US$ and ZAR, respectively.
On an organic basis, the EMAPA region generated all of the Group’s growth in adjusted operating profit, with the 20.9% increase in the region driven by a higher customer base and the resulting increase in service revenue. Europe’s adjusted operating profit declined by 1.5% on an organic basis compared to the 2007 financial year, resulting from the continuing challenges of highly penetrated markets, regulatory activity and continued price reductions.
In Europe, adjusted operating profit was stated after a £115 million benefit from the release of a provision following a revised agreement in Italy relating to the use of the Vodafone brand and related trademarks, which is offset in common functions, and was also impacted by higher interconnect, acquisition and retention costs and the impact of the Group’s increasing focus on fixed line services, including the acquisition of Tele2 in Italy and Spain.
In the EMAPA region, adjusted operating profit was impacted by the investment in growing the customer base and the impact of the acquisition in India during the year and the inclusion of Turkey for a whole year. Both Vodafone Essar and Turkey generated lower operating profits than the regional average, partially as a result of the investment in rebranding the businesses to Vodafone, increasing the customer base and improving network quality in Turkey.
Business acquisitions led to the increase in acquired intangible asset amortisation and these acquisitions, combined with the continued investment in network infrastructure, resulted in higher depreciation charges.
The Group’s share of results from associates grew by 5.5%, or 15.1% on an organic basis. The organic growth was partially offset by a 5.5 percentage point impact from the disposal of the Group’s interests in Belgacom Mobile S.A. and Swisscom Mobile A.G. during the 2007 financial year and a 4.1 percentage point impact from unfavourable exchange rate movements. The organic growth was driven by 24.8% growth in Verizon Wireless.
Other income and expense for the year ended 31 March 2007 included the gains on disposal of Belgacom S.A. and Swisscom Mobile A.G., amounting to £441 million and £68 million, respectively.
Investment income and financing costs
| 2008 £m |
2007 £m |
|
|---|---|---|
| Investment income | 714 | 789 |
| Financing costs | (2,014) | (1,612) |
| (1,300) | (823) | |
| Analysed as: | ||
| Net financing costs before dividends from investments | (823) | (435) |
| Potential interest charges arising on settlement of outstanding tax issues | (399) | (406) |
| Dividends from investments | 72 | 57 |
| Foreign exchange(1) | (7) | (41) |
| Changes in fair value of equity put rights and similar arrangements(2) | (143) | 2 |
| (1,300) | (823) |
| Notes: | |
|---|---|
| (1) | 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. |
| (2) | Includes the fair value movement in relation to 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. Also includes a charge of £333 million representing the initial fair value of the put options granted over the Essar Group’s interest in Vodafone Essar, which has been recorded as an expense. Further details of these options are provided in Liquidity and Capital resources. |
Net financing costs before dividends from investments increased by 89.2% to £823 million due to increased financing costs, reflecting higher average debt and effective interest rates. After taking account of hedging activities, the net financing costs before dividends from investments are substantially denominated in euro. At 31 March 2008, the provision for potential interest charges arising on settlement of outstanding tax issues was £1,577 million (2007: £1,213 million).
Taxation
The effective tax rate is 24.9% (2007: 26.3% exclusive of impairment losses). The rate is lower than the Group’s weighted average statutory tax rate due to the structural benefit from the ongoing enhancement of the Group’s internal capital structure and the resolution of historic issues with tax authorities. The 2008 financial year tax rate benefits from the cessation of provisioning for UK Controlled Foreign Company (“CFC”) risk as highlighted in the 2007 financial year. The 2007 financial year additionally benefited from one-off additional tax deductions in Italy and favourable tax settlements in that year.
The 2007 effective tax rate including impairment losses was (101.7)%. The negative tax rate arose from no tax benefit being recorded for the impairment losses of £11,600 million.
Earnings/(loss) per share
Adjusted earnings per share increased by 11.0% from 11.26 pence to 12.50 pence for the year to 31 March 2008, primarily due to increased adjusted operating profit and the lower weighted average number of shares following the share consolidation which occurred in July 2006. Basic earnings per share from continuing operations were 12.56 pence compared to a basic loss per share from continuing operations of 8.94 pence for the year to 31 March 2007.
| 2008 £m |
2007 £m |
|
|---|---|---|
| Profit/(loss) from continuing operations attributable to equity shareholders | 6,660 | (4,932) |
| Adjustments: | ||
| Impairment losses | – | 11,600 |
| Other income and expense(1) | 28 | (502) |
| Share of associated undertakings’ | ||
| non-operating income and expense | – | (3) |
| Non-operating income and expense(2) | (254) | (4) |
| Investment income and financing costs(3) | 150 | 39 |
| Taxation | 44 | 13 |
| Adjusted profit from continuing operations attributable to equity shareholders | 6,628 | 6,211 |
| Weighted average number of shares outstanding | ||
| Basic | 53,019 | 55,144 |
| Diluted(4) | 53,287 | 55,144 |
| Notes: | |
|---|---|
| (1) | The amount for the 2008 financial year represents a pretax charge offsetting the tax benefit arising on recognition of a pre-acquisition deferred tax asset. |
| (2) | The amount for the 2008 financial year includes £250 million representing the profit on disposal of the Group’s 5.60% direct investment in Bharti Airtel Limited (“Bharti Airtel”). |
| (3) | See notes 1 and 2 in investment income and financing costs. |
| (4) | In the year ended 31 March 2007, 215 million shares have been excluded from the calculation of diluted loss per share as they are not dilutive. |