Guidance
2012 financial year and medium-term guidance
| 2011 actual performance £bn | 2012 guidance £bn |
|
|---|---|---|
| Adjusted operating profit | 11.8 | 11.0 – 11.8 |
| Free cash flow | 7.0 | 6.0 – 6.5 |
2012 financial year
Adjusted operating profit is expected to be in the range of £11.0 billion to £11.8 billion, reflecting the loss of our £0.5 billion share of profits from SFR as a result of the disposal of our 44% stake.
Free cash flow is expected to be in the range of £6.0 billion to £6.5 billion, reflecting continued strong cash generation offset by the £0.3 billion reduction in dividends from China Mobile Limited and SFR in the 2012 financial year, and the more limited working capital improvements available going forward. Capital expenditure is expected to be at a similar level to last year on a constant currency basis.
Medium-term guidance
The execution of the updated strategy is targeted to achieve annual growth in organic service revenue of between 1% and 4% in the period to 31 March 2014. We expect that the Group EBITDA margin will stabilise by the end of this period.
As a result of the loss of £0.5 billion of cash dividends from our disposals of stakes in China Mobile Limited and SFR, we expect that annual free cash flow generation will now be in the £5.5 billion to £6.5 billion range in the period to March 2014, underpinning the three year 7% per annum dividend per share growth target issued in May 2010. We continue to expect that total dividends per share will be no less than 10.18 pence for the 2013 financial year.
The free cash flow target range excludes any incremental benefit that we derive from our strategy to generate liquidity or incremental cash flow from non-controlled interests of the Group such as Verizon Wireless and Polkomtel.
Assumptions
Guidance for the 2012 financial year and the medium-term is based on our current assessment of the global economic outlook and assumes foreign exchange rates of £1:€1.15 and £1:US$1.60. It excludes the impact of licence and spectrum purchases, material one-off tax related payments and restructuring costs and assumes no material change to the current structure of the Group.
With respect to the 7% per annum dividend per share growth target, as the Group’s free cash flow is predominantly generated by companies operating within the euro currency zone, we have assumed that the euro to sterling exchange rate remains within 10% of the above guidance exchange rate.
Actual exchange rates may vary from the exchange rate assumptions used. A 1% change in the euro to sterling exchange rate would impact adjusted operating profit and free cash flow by approximately £50 million and a 1% change in the dollar to sterling exchange rate would impact adjusted operating profit by approximately £50 million.
2011 financial year
| Adjusted operating profit £bn | Free cash flow £bn |
|
|---|---|---|
| Guidance – May 2010(1) | 11.2 – 12.0 | > 6.5 |
| Guidance – November 2010(1) | 11.8 – 12.2 | > 6.5 |
| 2011 performance on guidance basis(3) | 12.2 | 7.2 |
| Foreign exchange(1) | (0.3) | (0.2) |
| Verizon Wireless(2) | (0.1) | – |
| 2011 reported performance(3) | 11.8 | 7.0 |
- Notes:
- The Group’s guidance reflected assumptions for average exchange rates for the 2011 financial year of approximately £1:€1.15 and £1:US$1.50. Actual exchange rates were £1:€1.18 and £1:US$1.56.
- The Group’s guidance did not include the impact of the revenue recognition and Alltel related adjustments in Verizon Wireless.
- After Verizon iPhone launch cost.
