30th May 2006 07:02
Vodafone Group Plc30 May 2006 Vodafone Group PlcPreliminary Results for the year ended 31 March 2006 PART 1 VODAFONE GROUP PLC Embargo: Not for publicationVODAFONE ANNOUNCES RESULTS FOR before 07:00 hoursTHE YEAR ENDED 31 MARCH 2006 30 May 2006 Financial performance: * Group revenue of £29.4 billion from continuing operations, with organic growth(1) of 7.5%. Mobile telecommunications revenue increased to £28.1 billion, with organic growth of 6.7% * Adjusted basic earnings per share(1) increased by 13.0% to 10.11 pence. Basic loss per share was 27.66 pence. Loss before taxation for the year was £14.9 billion after impairment charges of £23.5 billion * Free cash flow(1) of £6.4 billion and net cash inflow from operating activities up 10.3% to £10.2 billion, after net taxation paid of £1.7 billion Operational highlights: * Net proportionate customer additions of 21.5 million in the year * Closing proportionate customer base of 170.6 million, with organic growth of 14.9% in the year * Non-messaging data revenue grew by 61.2% to £0.8 billion, with organic growth of 60.4% * Mobile voice usage increased by 24.6% to 178.3 billion minutes, with organic growth of 18.9% Increasing returns to shareholders: * Total dividends per share increased by 49%, to 6.07 pence, with a final dividend per share of 3.87 pence, giving a dividend pay out ratio of 60% and a total pay out of £3.7 billion for the financial year * £6.5 billion expended on the share purchase programme in the 2006 financial year, reducing shares in issue by 7.5% * £9 billion to be returned to shareholders in the 2007 financial year in the form of a "B" share arrangement, including an additional £3 billion announced today * Total returns to shareholders announced over the year of £19.2 billion (1) See page 3 for Group Financial and Operating Highlights and page 40 for useof non-GAAP financial information. Arun Sarin, Chief Executive, commented: "Vodafone has met or exceeded expectations, outperforming its competitors in anincreasingly challenging marketplace. We have restructured the Group and updatedour strategy and we will seize the opportunities provided by new technologies tocontinue delivering innovative services to our customers. In the past year, we have announced returns of £10.2 billion to shareholdersthrough dividends and buybacks and the dividend pay out ratio has been increasedto 60% of earnings. We have also committed to a further £9 billion return via a"B" share arrangement. We will continue to focus on delivering value andsuperior returns to shareholders." CHIEF EXECUTIVE'S STATEMENT Vodafone has delivered another year of robust financial performance against abackdrop of increasing competition and ongoing regulation, meeting or exceedingexpectations for revenue, margin and free cash flow and declaring returns toshareholders of over £19 billion. We have further enhanced our unique customer franchise through adding a net 22million organic proportionate mobile customers in the year, taking the totalproportionate base to over 170 million. This represents organic growth of 15%,with strong performances across all regions. We continue to drive productinnovation and deliver value to customers by stimulating usage and revenueacross our base through offerings such as Vodafone Zuhause in Germany, Stop theClock in the UK and Vodafone Passport. We also reached our 10 million 3G target ahead of plan before the end of March.Excluding Japan, we closed the year with 7.7 million devices, generating over 5%of total Group revenue during the year. With coverage now approaching 60%, our3G networks, which are being further enhanced with the launch of HSDPA, provideus with a very important platform for delivering high quality and innovativeservices to our customers. The first tangible evidence of HSDPA usage is likelyto come from our laptop users, either using Vodafone Mobile Connect or throughbuilt-in capability. Organic proportionate mobile revenue growth of 9% reflects the breadth of ourfootprint. Strong performances in Spain, the US and our emerging markets helpedoffset lower growth in several of our more established markets, as the impact ofhigher penetration and increasing competition took effect. Despite thesepressures, we continue to outperform substantially all of our principalcompetitors. EBITDA margins were slightly down year on year on an organicproportionate mobile basis. During the last financial year, we sought to optimise our portfolio of assets,either disposing of assets where we believed we could not earn a superior returnor investing in businesses we believe Vodafone can create substantial additionalvalue for shareholders. The most significant transaction saw the sale ofVodafone Japan for an enterprise fair value of £8.9 billion announced inMarch. This is an attractive price and will result in £6 billion of the cashproceeds from the sale being returned directly to shareholders as part of alarger £9 billion cash return we are announcing today. Vodafone also announcedacquisitions during the year in the Czech Republic, Romania, India, South Africaand Turkey, which enable us to increase our exposure to fast growing emergingmarkets. We are confident that we can deliver value through these acquisitionsand they are all already exceeding the plans we made at the time of making ourpurchase decision. However, alongside issues such as competition and regulation, our environment ischanging. Our customers' needs are evolving as technology changes provide fargreater choice in services. Furthermore, we are seeing changes to thecompetitive landscape as not only incumbent operators are seeking to offer fixedmobile convergence, but also new internet based players are seeking to expandtheir communications offerings. We need to ensure we continue to leverageVodafone's unique customer franchise and continue to outperform our competitors. The result of these new realities is that Vodafone has five key strategicobjectives to deliver. First, in our more mature European markets to focuson both cost reduction and revenue stimulation. Second, to capture stronggrowth in emerging markets. Third, to meet customers' needs by extendingour current mobile only offering to deliver total communications solutions.Fourth, to actively manage our portfolio to maximise returns and, fifth,continue to align our financial policies regarding capital structure andshareholder returns to our strategy. Vodafone continues to execute on its One Vodafone programme and remains on trackto deliver the benefits of scale. As a result of our review of strategy, we arereiterating our expectations for revenue market share gains, continuing totarget 10% capital efficiency and introducing a separate operating expensetarget. As a result, we are announcing a new dividend policy with a targeted 60% payoutof adjusted earnings per share and are therefore declaring a final dividend of3.87 pence, bringing the full year dividend to 6.07 pence. In the future, weexpect to grow dividends per share in line with underlying earnings per share.Linked also to our strategy, we have announced our new target of a low single Acredit rating, one notch below our existing target rating. This provides greaterflexibility to increase leverage and, in addition to the £6 billion return ofcash from the Japan sale, we are returning a further £3 billion to shareholders.The total £9 billion will be returned via a B share arrangement shortly afterour AGM. We currently have no plans for further share purchases or otherone off returns to shareholders. With no let up in intensity in recent months, the operating environment willremain challenging. We see organic growth for next year in proportionate mobilerevenue in the range of 5% to 6.5% with underlying proportionate organic mobileEBITDA margins around 1 percentage point lower than the 2006 financial year.Free cash flow is expected to be in the range of £5.2 billion to £5.7 billionbefore around £1.2 billion of tax payments, with interest, from settling longstanding disputes, giving an expected range of £4.0 billion to £4.5 billion forreported free cash flow. Vodafone is well positioned to deliver on its strategy. Our regional scale,strong brand and unrivalled customer reach provides a significant opportunity todeliver value to both our customers and shareholders. Arun Sarin GROUP FINANCIAL AND OPERATING HIGHLIGHTS Year ended 31 March 2006 2005 Change % -------------------Continuing operations(1): Page £m £m £ Organic-----------------------------------------------------------------------------------------------Financial information Revenue 6 29,350 26,678 10.0 7.5Operating (loss)/profit 6 (14,084) 7,878 (Loss)/profit before taxation 25 (14,853) 7,285 (Loss)/profit for the financial year 25 (17,233) 5,416 Basic (loss)/earnings per share (pence) 32 (27.66)p 8.12p Capitalised fixed asset additions 4,005 4,227 (5.3) Net cash flow from operating activities 23 10,190 9,240 10.3 ----------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------Performance reporting(2) Group EBITDA 37 11,766 10,740 9.6 6.9Adjusted operating profit 6 9,399 8,353 12.5 11.4Adjusted profit before tax 21 8,793 7,832 12.3 Adjusted effective tax rate 21 30.4% 27.8% Adjusted profit for the year attributable to equity shareholders 32 6,328 5,925 6.8 Adjusted basic earnings per share (pence) 32 10.11p 8.95p 13.0 Free cash flow 23 6,418 6,592 (2.6) Net debt at 31 March 23 17,318 10,175 70.2 ----------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------Operational Vodafone live! - active devices (million)(3)(4) 43 27.1 17.4 55.7 3G registered devices (million)(3)(4) 43 7.7 1.4 450.0 Vodafone Mobile Connect data card - registered devices (million)(3)(4) 0.7 0.2 250.0 Mobile voice usage (billion minutes)(3)(4) 47 178.3 143.1 24.6 18.9Non-voice services as a % of service revenue 6 17.0% 15.5% ----------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------The full year results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") (including International AccountingStandards ("IAS") and interpretations issued by the International AccountingStandards Board ("IASB") and its committees, and as interpreted by anyregulatory bodies applicable to the Group) and adopted for use in the EuropeanUnion ("EU"). This results announcement contains certain information on the Group's resultsand cash flows that have been derived from amounts calculated in accordance withIFRS but are not themselves IFRS measures. They should not be viewed inisolation as alternatives to the equivalent IFRS measure and should be read inconjunction with the equivalent IFRS measure. Further disclosures are providedunder "Use of Non-GAAP Financial Information" on page 40.-------------------------------------------------------------------------------- See page 41 for definition of terms(1) Excluding the results of the discontinued operations in Japan in the 2005 and 2006 financial years.(2) These measures are stated excluding impairment losses, non-recurring amounts related to business acquisitions and disposals and changes in the fair value of equity put rights and similar arrangements(3) Cumulative number at 31 March(4) Figures represent 100% of subsidiary information and a pro-rata share in joint ventures GROUP PROPORTIONATE INFORMATION Year ended 31 March 2006 2005 Change % ------------------- £m £m £ Organic-----------------------------------------------------------------------------------------------Financial Revenue Mobile telecommunications - Germany 5,754 5,684 1.2 - Italy 4,363 4,273 2.1 - Spain 3,995 3,261 22.5 - UK 5,048 5,065 (0.3) - Other mobile operations(1) 8,947 7,482 19.6 - Common functions(2) 145 127 14.2 Less: revenue between mobile operations (442) (333) ---------- ---------- 27,810 25,559 8.8 6.4- Associated undertakings and investments 12,407 10,475 18.4 ---------- ---------- 40,217 36,034 11.6 9.0Other operations 1,275 1,094 16.6 Less: revenue between mobile and other operations (137) (269) ---------- ---------- Continuing operations 41,355 36,859 12.2 9.6 ========== ========== Discontinued operations - Japan 7,100 6,743 5.3 EBITDA(3) Mobile telecommunications - Germany 2,703 2,645 2.2 - Italy 2,270 2,280 (0.4) - Spain 1,373 1,136 20.9 - UK 1,623 1,709 (5.0) - Other mobile operations(1) 3,117 2,726 14.3 - Common functions(2) 279 (15) ---------- ---------- 11,365 10,481 8.4 6.1- Associated undertakings and investments 4,821 4,146 16.3 ---------- ---------- 16,186 14,627 10.7 8.2Other operations 194 134 44.8 ---------- ---------- Continuing operations 16,380 14,761 11.0 8.5 ========== ========== Discontinued operations - Japan 1,562 1,799 (13.2) Percentage PercentageEBITDA margin(3) Points PointsMobile telecommunications - Germany 47.0% 46.5% 0.5 - Italy 52.0% 53.4% (1.4) - Spain 34.4% 34.8% (0.4) - UK 32.2% 33.7% (1.5) - Other mobile operations(1) 34.8% 36.4% (1.6) ---------- ---------- 40.9% 41.0% (0.1) - Associated undertakings and investments 38.9% 39.6% (0.7) ---------- ---------- Mobile EBITDA margin(3) - Continuing operations 40.2% 40.6% (0.4) (0.3) - Discontinued operations 22.0% 26.7% (4.7) (1) Excludes the results of associated undertakings and investments.(2) Common functions represent revenue from Partner Markets and unallocated central Group income and expenses.(3) Charges for the use of the Vodafone brand and trademark were revised with effect from 1 April 2005. The impact of the change was to reduce individual operating company EBITDA margins by up to 1.0 percentage point in the year to 31 March 2006 though there was no material impact on mobile or Group EBITDA or EBITDA margin. See page 8 for details.Proportionate information is presented and calculated on the basis described onpage 37. See page 41 for definition of terms.----------------------------------------------------------------------------------------------- 2006 2005 Change % ------------------- Million Million Reported Organic-----------------------------------------------------------------------------------------------Customers Net proportionate customer additions(1) 21.5 16.2 32.7 Proportionate customers at 31 March 170.6 140.1 21.8 14.9 (1) Excludes additions from acquisitions and stake changes. Analysis provided on page 42.Customers are presented for continuing operations. See page 41 for definition ofterms.----------------------------------------------------------------------------------------------- OUTLOOK Please see "Forward-Looking Statements" on page 39 and definition of terms onpage 41.------------------------------------------------------------------------------------------------------ 2007 financial year 2006 financial year 2006 financial year Outlook Actual performance Outlook(2) Organic proportionate mobile revenue growth(1) 5% to 6.5% 9.0% 8% to 9% Organic proportionate mobile Around 1 percentage 0.3 percentage points Higher end of flat toEBITDA margin(1) point lower than 2006 lower than 2005 1 percentage points financial year financial year lower than 2005 financial year Free cash flow* £4.0 to £4.5 billion £6.4 billion £5.8 to £6.3 billion Capitalised fixed asset additions £4.2 to £4.6 billion £4.0 billion £3.8 to £4.2 billion * Stated after an estimated £1.2 billion of tax payments, including associated interest, in respectof a number of long standing tax issues------------------------------------------------------------------------------------------------------(1) Assumes constant exchange rates and excludes the impact of business acquisitions and disposals for the financial measures and adjusted to reflect like-for-like ownership levels in both years for the proportionate measures(2) As reported in the Group's interim results announcement issued on 15 November 2005 and updated in the Group press release issued on 17 March 2006 for the sale of Vodafone Japan The Group continues to expect organic growth in proportionate mobile revenue tobe in the range of 5% to 6.5%, lower than the 2006 financial year, reflectingthe increasingly intense competitive environment, continued regulatoryreductions in termination rates and the one off beneficial impact from theintroduction of mobile to mobile termination rates in France in the 2006financial year. Proportionate mobile EBITDA margins are expected to be around 1 percentage pointlower than the 2006 financial year on an organic basis, with the impact ofpricing pressures, additional customer investment and changes in terminationrates offsetting initiatives to drive further cost efficiencies, excluding theimpact of any one off business restructuring costs. Group capitalised fixed asset additions are expected to be in the range of £4.2billion to £4.6 billion, which is higher than the 2006 financial year due to theeffect of recently completed acquisitions and disposals and the Group's rolloutof HSDPA. The effective tax rate for the year is expected to increase by a similar amountto the increase in the 2006 financial year due to one off benefits in the 2006financial year. Free cash flow is expected to be in the range of £5.2 billion to £5.7 billionbefore an estimated £1.2 billion of tax payments, including associatedinterest, in respect of the potential unfavourable resolution of a number oflong standing tax issues, giving an expected range of £4.0 billion to £4.5billion for reported free cash flow. The Group currently forecasts a furthersignificant increase in cash tax and associated interest payments in the 2008financial year, including a potentially material amount related to the CFClitigation which could be paid should the litigation be resolved unfavourably inthat year. In order to simplify its financial reporting and improve understanding of itsresults, the Group will be moving to a single basis of statutory reporting andwill no longer provide proportionate financial information with effect from the2008 financial year. The Group's outlook statement will also change to reflectonly statutory financial measures. In addition, starting with the outlook forthe 2008 financial year, the Group will no longer provide an initial outlook forthe following financial year with its interim results in November. The outlookwill only be provided with the preliminary results of the preceding financialyear in May. One Vodafone The One Vodafone initiatives are aimed at achieving cost savings and enhancingrevenue for the Group's controlled mobile businesses and the Group's jointlycontrolled mobile business in Italy. The Group remains on track to deliver onits original expectations. The Group is announcing today that it has updated itsOne Vodafone targets to reflect both the new organisation structure andadditional cost saving initiatives. The Group continues to anticipate delivering benefits equivalent to at least 1%additional revenue market share in the 2008 financial year compared with the2005 financial year. The Group will continue to measure its progress againstthis target by tracking its performance in Germany, Italy, Spain and the UKagainst its principal competitors. With respect to costs, the Group is separating its expectations for capitalisedfixed asset additions and the aggregate of payroll and other operating expenses('operating expenses'), both of which now relate to its Europe region. Capitalised fixed asset additions are expected to be 10% of revenues in the 2008financial year for the total of the Group's Europe region and common functions,which will require reducing expenditure in that year by approximately £400million to £500 million when compared to the 2006 financial year. Assuming no significant changes in exchange rates and after adjusting foracquisitions and disposals, the Group now expects operating expenses alone to bebroadly stable in the 2008 financial year when compared to the 2006 financialyear for the total of its Europe region and common functions, excluding thepotential impact from its New Businesses unit and any one off businessrestructuring costs. BUSINESS REVIEW ----------------------------------------------------------------------------------------------- Year ended 31 March 2006 2005 Change %Continuing operations: £m £m £ Organic Revenue Mobile telecommunications - Total service revenue 25,881 23,547 9.9 7.2 - Other revenue(1) 2,256 2,193 2.9 ---------- ---------- 28,137 25,740 9.3 6.7 Other operations 1,339 1,095 22.3 Less: revenue between mobile and other operations (126) (157) (19.7) ---------- ---------- 29,350 26,678 10.0 7.5 ========== ========== Operating Adjusted operating profit (loss)/ profit - Mobile telecommunications 9,280 8,334 11.4 10.3 - Other operations 119 19 ---------- ---------- 9,399 8,353 12.5 11.4 - Impairment losses (23,515) (475) - Other 15 - - Non-operating income in associated undertakings 17 - ---------- ---------- Operating (loss)/profit (14,084) 7,878 ========== ========== Mobile telecommunications Trading results Voice services 21,493 19,888 8.1 5.3 Non-voice services - messaging 3,556 3,143 13.1 10.6 - data 832 516 61.2 60.4 ---------- ---------- Total service revenue 25,881 23,547 9.9 7.2 Net other revenue(1) 532 546 (2.6) Interconnect costs (4,210) (3,815) 10.4 Other direct costs (1,936) (1,756) 10.3 Net acquisition costs(1) (1,541) (1,446) 6.6 Net retention costs(1) (1,444) (1,234) 17.0 Payroll (2,127) (2,009) 5.9 Other operating expenses (3,625) (3,264) 11.1 ---------- ---------- EBITDA 11,530 10,569 9.1 6.4 Acquired intangibles amortisation (157) - Purchased licence amortisation (947) (919) 3.0 Depreciation and other amortisation (3,581) (3,341) 7.2 Share of result in associated undertakings 2,435 2,025 20.2 ---------- ---------- Adjusted operating profit 9,280 8,334 11.4 10.3 ========== ========== (1) Total mobile revenue includes £1,724 million (2005: £1,647 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----------------------------------------------------------------------------------------------- GROUP RESULTS Revenue increased by 10.0% to £29,350 million in the year to 31 March 2006,resulting from organic growth of 7.5%, favourable movements in exchange rates of0.5% and a further 2.0% from the acquisitions in the Czech Republic, India,Romania and South Africa, partially offset by the impact of the disposal of theGroup's operations in Sweden. Adjusted operating profit increased by 12.5% to £9,399 million, with organicgrowth of 11.4%, following organic growth of 10.3% in the Group's mobilebusiness. Favourable exchange rate movements benefited reported growth for theGroup by 1.0% whilst the net impact of acquisitions and disposals improvedreported growth by 0.1%. The Group recorded an impairment charge to the carryingvalue of goodwill in the Group's operations in Germany (£19,400 million) andItaly (£3,600 million) reflecting a revision of the Group's view of theprospects for these businesses, particularly in the medium to long term, and afurther £515 million was recorded in respect of the Swedish business followingthe announcement of its disposal. This was the primary reason for the operatingloss of £14,084 million in the current financial year compared with an operatingprofit of £7,878 million in the previous financial year. MOBILE TELECOMMUNICATIONS RESULTS Revenue Revenue in the mobile business increased by 9.3%, or 6.7% on an organic basis,for the year to 31 March 2006 due to a 7.2% increase in service revenue on anorganic basis offset by lower growth in other revenue. Service revenue growthreflected a 15.2% organic increase in the average customer base of thecontrolled mobile networks and the Group's share of jointly controlled mobilenetworks, offset by the impact of lower ARPU in a number of the Group's markets.Competitive pressures have intensified recently following a significant numberof new market entrants and greater competition from incumbents, specifically inthe mature markets of Western Europe. Many of these markets have penetrationrates over 100% which, along with termination rate cuts and a higher proportionof lower spending prepaid customers across the Group, have led to the decline inARPU. The estimated impact of termination rate cuts on the growth in servicerevenue in the current financial year is as follows: Estimated impact of Service revenue termination rate cuts growth excluding the Reported growth on service revenue estimated impact of in service revenue growth termination rate cuts % % % Germany 1.4 1.7 3.1Italy 1.9 4.4 6.3Spain 22.0 2.9 24.9United Kingdom 1.6 1.6 3.2Other Mobile Operations 22.3 2.7 25.0Mobile telecommunications business 9.9 2.6 12.5 Voice revenue increased by 8.1%, or by 5.3% on an organic basis, due to thegrowth in average customers and a successful usage stimulation programme leadingto a 24.6% growth in total minutes, or 18.9% on an organic basis, offset bytariff declines from competition and termination rate cuts. Revenue fromoutgoing calls was the primary driver of voice revenue growth, whilst incomingvoice revenue increased marginally as a significant increase in the proportionof incoming calls from other mobile networks was offset by the impact oftermination rate cuts, particularly in the second half of the current financialyear. Messaging revenue rose by 13.1%, or 10.6% on an organic basis, as an increase inthe average customer base and the number of messages sent per customer wasoffset by tariff declines. The success of 3G, Vodafone live! and offerings in the business segment,including Vodafone Mobile Connect data cards and BlackBerry(R) from Vodafone,were the main contributors to a 61.2% increase, or 60.4% on an organic basis, innon-messaging data revenue. An additional 6,321,000 3G devices were registeredon the Group's networks in the current financial year, bringing the total to7,721,000 at 31 March 2006, including 660,000 business devices such as VodafoneMobile Connect 3G/GPRS data cards. Prior to the announcement of the disposal ofVodafone Japan in March 2006, the Group registered its ten millionth consumer 3Gdevice, when including 100% of the devices in Italy. Other revenue increased to £2,256 million, principally due to growth in revenuerelated to acquisition and retention activities in Spain, partially offset by areduction in net other revenue, resulting principally from a fall in the numberof customers connected to non-Vodafone networks in the UK. A 32.5% rise in thenumber of gross customer additions, partially offset by a fall in the averagerevenue for handset sales to new prepaid customers and a 24.3% increase in thenumber of upgrades, led to a 4.7% growth in revenue related to acquisition andretention activities to £1,724 million. Adjusted operating profit Adjusted operating profit increased by 11.4% to £9,280 million, comprisingorganic growth of 10.3% and favourable exchange rate movements of 1.1%. Interconnect costs increased by 7.2% on an organic basis, as strong growth inoutgoing voice usage was partially offset by cuts in termination rates in anumber of markets and an increased proportion of outgoing traffic being to otherVodafone customers, which does not result in interconnect expense. The rise inthe number of upgrades and the increased cost of upgrading customers to 3G werethe primary contributors to an 9.4% organic growth in acquisition and retentioncosts, net of attributable revenue, to £2,985 million. Payroll and otheroperating expenses as a percentage of service revenue continued to fall,reaching 22.2% for the year to 31 March 2006 compared to 22.4% for the previousfinancial year. The charge relating to the amortisation of acquired intangible assets was £157million following acquisitions in the Czech Republic, India, Romania and SouthAfrica in the current year. Depreciation and other amortisation increased,principally due to the net impact of the acquisitions and disposal in thecurrent financial year and the ongoing expansion of 3G networks. The Group's share of the result in associated undertakings, before non-recurringamounts related to business acquisitions and disposals, grew by 20.2% after thededuction of interest, tax and minority interest, and 16.8% before thedeductions, primarily due to growth at Verizon Wireless in the US. The Group'sshare of the result in Verizon Wireless increased by 25.5% to £2,112 million,before deduction of interest, tax and minority interest, with a particularlystrong performance in the second half of the current financial year. MOBILE TELECOMMUNICATIONS - REVIEW OF OPERATIONS Vodafone operating companies are licensed on an arm's length basis to use theVodafone brand and related trademarks. These arrangements have been reviewedand the charges for the use of the Vodafone brand and related trademarks wererevised upwards with effect from 1 April 2005 to reflect the positioning of thebrand in the current markets. There is no material impact on the Group's overalloperating profit or EBITDA margin. The impact of the change is to reduceindividual operating company margins by up to 1.0 percentage point, depending onthe operating company, with a corresponding increase in the profit attributableto the common functions segment, which forms part of the mobiletelecommunications business. In April 2006, the Group announced changes to the organisational structure ofits operations, effective from 1 May 2006. The following results are presentedin accordance with the organisation structure in place for the year to 31 March2006. Pro forma segmental results for the new structure for the year to 31 March2006 and the six months to 30 September 2005 are provided on page 48. GERMANY -----------------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 Change % £m £m £ • Total revenue(1) 5,754 5,684 1.2 1.2 ---------- ---------- Trading results Voice services 4,304 4,358 (1.2) (1.3) Non-voice services - messaging 836 800 4.5 4.6 - data 254 162 56.8 56.8 ---------- ---------- Total service revenue 5,394 5,320 1.4 1.4 Net other revenue(1) 114 122 (6.6) (6.9) Interconnect costs (732) (734) (0.3) (0.3) Other direct costs (281) (314) (10.5) (10.3) Net acquisition costs(1) (366) (348) 5.2 5.2 Net retention costs(1) (349) (330) 5.8 5.6 Payroll (412) (425) (3.1) (3.0) Other operating expenses (665) (646) 2.9 3.1 ---------- ---------- EBITDA 2,703 2,645 2.2 2.1 Purchased licence amortisation (342) (342) - - Depreciation and other amortisation (865) (830) 4.2 4.3 ---------- ---------- Adjusted operating profit 1,496 1,473 1.6 1.3 ---------- ---------- EBITDA margin 47.0% 46.5% KPIs Closing customers ('000) 29,191 27,223 7.2 Average monthly ARPU €23.3 €24.9 (6.4) Vodafone live! active devices ('000) 6,214 4,845 28.3 3G devices ('000) 2,025 358 (1) Total revenue includes £246 million (2005: £242 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading resultsSee page 41 for definition of terms----------------------------------------------------------------------------------------------- The German market has seen recent intensification in price competition,principally from new market entrants, together with high levels of penetrationand further reductions in termination rates. Despite this, Vodafone hascontinued to lead the market in the number of 3G customers and has launchedinnovative products such as mobile TV and Vodafone Zuhause, which allows usersto replace fixed line networks installed in their homes. In addition, Vodafonelaunched HSDPA technology in March 2006. Total revenue increased by 1.2% as the benefits of a larger customer base and anincrease in non-voice service revenue were partly offset by reduced voicepricing, in response to aggressive competition, and a further termination ratecut in December 2005 from 13.2 to 11.0 eurocents per minute. The averagecustomer base grew by 8.4% due to the attractiveness of promotions, including anoffer which allowed prepaid customers to pay a fixed charge for calls to fixedlines and other Vodafone customers, which was taken up by more than one and aquarter million customers, and new products such as Vodafone Zuhause, which had448,000 registered customers at 31 March 2006. New prepaid tariffs, including alow priced internet only offer, and ongoing promotional activity, particularlyin the last four months of the year, contributed to total voice usage increasingby 13.7%. Excluding the termination rate cut in December 2005, service revenuegrowth would have been 3.1% in local currency. A further cut in terminationrates is currently expected by the end of 2006. Non-voice service revenue increased by 13.4% in local currency, driven primarilyby strong growth of 56.8% in non-messaging data revenue. Vodafone maintained itsleadership in the 3G market, demonstrated by Vodafone live! with 3G customersgenerating over 3.1 million full track music downloads in the current financialyear for Vodafone, more than any other mobile network operator in Germany. Thenumber of active Vodafone live! devices continued to increase, with 28.3% growthin the year. In the business segment, there were 241,000 Vodafone Mobile Connect3G/GPRS data cards and 226,000 wireless push email enabled devices registeredon the network at 31 March 2006. Messaging revenue increased 4.6% in localcurrency, mainly as a result of promotional activities. The EBITDA margin increased to 47.0% as overall cost efficiencies were partlycounteracted by investments in customer acquisition and retention and anincrease in Group charges for the use of the brand and related trademarks, whichrepresented 1.0 percentage point in EBITDA margin. Growth in 3G customers andincreased gross additions, partially offset by a rise in the proportion of lowsubsidy prepaid additions, led to a 5.2% increase in net acquisition costs. Anincrease in the number of customer upgrades resulted in a 5.6% increase in netretention costs. Interconnect costs decreased by 0.3%, as the termination ratecuts in the current and previous financial years more than offset the effect ofhigher voice usage. Adjusted operating profit was further impacted by additionaldepreciation charges from continued 3G network deployment. ITALY -------------------------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 Change % £m £m £ • Total revenue(1)(2) 4,363 4,273 2.1 2.0 ---------- ---------- Trading results(2) Voice services 3,472 3,492 (0.6) (0.7) Non-voice services - messaging 600 532 12.8 12.9 - data 98 67 46.3 45.2 ---------- ---------- Total service revenue 4,170 4,091 1.9 1.8 Net other revenue(1) 15 14 7.1 2.8 Interconnect costs (681) (701) (2.9) (3.1) Other direct costs (241) (232) 3.9 3.8 Net acquisition costs(1) (78) (71) 9.9 9.6 Net retention costs(1) (93) (74) 25.7 25.1 Payroll (250) (250) - - Other operating expenses (572) (497) 15.1 15.1 ---------- ---------- EBITDA 2,270 2,280 (0.4) (0.5) Purchased licence amortisation (74) (74) - - Depreciation and other amortisation (524) (512) 2.3 2.0 ---------- ---------- Adjusted operating profit 1,672 1,694 (1.3) (1.3) ---------- ---------- EBITDA margin 52.0% 53.4% KPIs Closing customers ('000)(2) 18,490 17,280 7.0 Average monthly ARPU €28.5 €29.9 (4.7) Vodafone live! active devices('000)(2) 4,097 2,113 93.9 3G devices ('000)(2) 2,250 511 (1) Total revenue includes £178 million (2005: £168 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading results(2) The results presented are the Group's proportionate share as a result of Vodafone Italy's classification as a joint ventureSee page 41 for definition of terms------------------------------------------------------------------------------------------------------- Competition in Italy has continued to intensify with the mobile networkoperators competing aggressively on subsidies and, increasingly, on price,particularly in the second half of the year. Vodafone achieved average customergrowth of 6.9% driven by successful promotions, despite the competitiveenvironment and a market penetration rate well in excess of 100% due tocustomers having more than one SIM. In local currency, total revenue rose by 2.0%, reflecting the increase inservice revenue which was driven primarily by continuing growth in non-voiceservices as voice revenue declined marginally following an average 20.5%reduction in termination rates from September 2005. Excluding the impact of thetermination rate cut, service revenue increased by 5.2% in local currency.Strong promotional activities, for example free calls after the first minute andfree text messages for a small activation fee which were taken up by more thanten million customers, and the increase in the customer base, led to a rise of5.1% in voice usage and a 41.7% increase in messaging, including a 261% growthin MMS usage. An increase in the number of SIMs per user and competitivepressures led to a reduction in activity rates, especially in the second half ofthe year, and an increase in blended churn from 17.2% to 18.7%. Non-voice service revenue rose by 16.5% in local currency, primarily driven by a12.9% rise in messaging revenue. Increased penetration of 3G devices, a focus onretaining high value customers, increased usage of Vodafone live! and VodafoneMobile Connect data cards and attractive data promotions were the maincontributors to 45.2% growth in non-messaging data revenue. The EBITDA margin for the current financial year decreased by 1.4 percentagepoints, which includes the impact of an increase in Group charges for the use ofbrand and related trademarks, recognised in the second half of the financialyear in other operating expenses, which resulted in a 1.0 percentage point fall.Investment in customer acquisition and retention and higher marketing spend inresponse to the competitive pressures, along with the increased costs from thecontinued roll out of the 3G network, led to a 0.4 percentage point decrease inthe EBITDA margin. Strong upgrade activities and a focus on high value customersin response to aggressive competition led to the rise in retention costs, whilsthandset promotions adversely impacted acquisition costs, especially in the firsthalf of the year. Interconnect costs fell due to the cut in termination ratescombined with promotions focusing on calls to other Vodafone and fixed-linenumbers, which incur lower interconnect costs, especially in the second half ofthe year. Other direct costs increased 3.8%, primarily as a result of anincrease in content provision costs arising from the increase in data serviceusage. SPAIN -------------------------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 Change % £m £m £ • Total revenue(1) 3,995 3,261 22.5 22.6 ---------- ---------- Trading results Voice services 3,093 2,558 20.9 20.9 Non-voice services - messaging 417 340 22.6 23.0 - data 105 65 61.5 62.1 ---------- ---------- Total service revenue 3,615 2,963 22.0 22.0 Net other revenue(1) 6 2 Interconnect costs (634) (540) 17.4 17.5 Other direct costs (329) (263) 25.1 25.4 Net acquisition costs(1) (274) (246) 11.4 11.7 Net retention costs(1) (249) (172) 44.8 45.3 Payroll (151) (140) 7.9 7.8 Other operating expenses (611) (468) 30.6 30.7 ---------- ---------- EBITDA 1,373 1,136 20.9 20.6 Purchased licence amortisation (69) (69) - - Depreciation and other amortisation (336) (292) 15.1 14.8 ---------- ---------- Adjusted operating profit 968 775 24.9 24.6 ---------- ---------- EBITDA margin 34.4% 34.8% KPIs Closing customers ('000) 13,521 11,472 17.9 Average monthly ARPU €35.6 €34.5 3.2 Vodafone live! active devices ('000) 5,514 2,992 84.3 3G devices ('000) 902 88 (1) Total revenue includes £374 million (2005: £296 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading resultsSee page 41 for definition of terms------------------------------------------------------------------------------------------------------- Vodafone continued to perform strongly in Spain, maintaining a broadly stableEBITDA margin, despite an increasingly competitive market, through promotionsand competitive tariffs attracting new customers and encouraging prepaidcustomers to migrate to contract tariffs. Total revenue for the financial year increased by 22.6% in local currency, dueprincipally to a rise in service revenue achieved from an 18.5% growth in theaverage customer base and an improvement in ARPU, notwithstanding a 10.6% cut inthe termination rate in November 2005. The launch of attractive tariffs,successful promotional campaigns and the offer of an appealing handset portfolioincreased the average customer base and encouraged a further increase in theproportion of contract customers from 46.9% at 31 March 2005 to 49.6% at 31March 2006. These factors contributed to a 34.0% increase in total voice usagecompared with the previous financial year and a reduction in blended churn from21.9% at 31 March 2005 to 20.9% at 31 March 2006. The principal driver behind the 23.0% growth in messaging revenue in localcurrency was a 23.1% increase in messaging usage due to the higher customer baseand targeted promotions. The growth of 62.1% in non-messaging data revenue wasdue to an increase of 814,000 in the number of registered 3G devices and thesuccess of data solutions, which have contributed to Vodafone leading the 3Gmarket in Spain, along with an 84.3% increase in the number of Vodafone live!devices. The EBITDA margin for the current financial year increased by 0.5 percentagepoints before the impact of the increased Group charge for use of the brand andrelated trademarks, which resulted in a 0.9 percentage point fall in the EBITDAmargin. Interconnect costs fell as a proportion of service revenue, due topromotions which encouraged calls to be made to Vodafone and fixed-line numbers,which incur lower interconnect costs, and the cut in termination rates. A higherproportion of prepaid gross customer additions, which have a lower per unitacquisition cost, particularly in the first half of the financial year, led toacquisition costs falling as a proportion of service revenue compared to theprevious financial year. These relative cost reductions were offset by the costof upgrading customers to 3G handsets, migrating prepaid customers to contracttariffs and a larger customer base, reflected in a 45.3% increase in netretention costs. Other direct costs increased mainly due to increased contentprovision costs resulting from higher usage of the expanded offering on theVodafone live! platform. UNITED KINGDOM -----------------------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 Change % £m £m Total revenue(1) 5,048 5,065 (0.3) ---------- ---------- Trading results Voice services 3,642 3,672 (0.8) Non-voice services - messaging 705 684 3.1 - data 221 142 55.6 ---------- ---------- Total service revenue 4,568 4,498 1.6 Net other revenue(1) 135 177 (23.7) Interconnect costs (862) (771) 11.8 Other direct costs (355) (367) (3.3) Net acquisition costs(1) (380) (388) (2.1) Net retention costs(1) (395) (391) 1.0 Payroll (391) (403) (3.0) Other operating expenses (697) (646) 7.9 ---------- ---------- EBITDA 1,623 1,709 (5.0) Purchased licence amortisation (333) (333) - Depreciation and other amortisation (592) (597) (0.8) ---------- ---------- Adjusted operating profit 698 779 (10.4) ---------- ---------- EBITDA margin 32.2% 33.7% KPIs Closing customers ('000) 16,304 15,324 6.4 Average monthly ARPU £24.0 £25.5 (5.9) Vodafone live! active devices ('000) 4,181 3,443 21.4 3G devices ('000) 1,033 190 (1) Total revenue includes £345 million (2005: £390 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading resultsSee page 41 for definition of terms----------------------------------------------------------------------------------------------------- Vodafone UK continued to see strong growth in its customer base, without acorresponding increase in acquisition and retention investment, despite the UKbeing one of the most competitive markets in which the Group operates, withmobile penetration rates in excess of 100%. Enhanced data offerings led tostrong growth in non-messaging data revenue and Vodafone UK now has over 1million registered 3G devices. Total revenue fell by 0.3%, as a 1.6% increase in service revenue was offset bya fall in equipment and other revenue. Service revenue grew by 3.2%, excludingthe effect of the September 2004 termination rate cut, benefiting from anincrease in average customers of 7.8%, partially offset by falling ARPU,notwithstanding a rise in usage. New customer offerings, including Stop theClock, helped to stimulate a 10.1% increase in total voice usage, but this wasoffset by changes in prices during the year to improve competitiveness in themarket, leading to an overall 0.8% decrease in voice revenue, which grew by 1.2%excluding the effect of the termination rate cut. A continuing focus on customerretention and an increasing proportion of customers on 18 month contracts had apositive impact on contract customer churn, which fell from 22.7% to 21.5%,although blended churn increased to 32.1%, including the effect of increasedprepaid customer self-upgrades, consistent with market trends. Non-voice service revenue increased by 12.1%, driven largely by the success ofenhanced data offerings. Growth of 843,000 over the financial year in registered3G devices and the continued success of Vodafone Mobile Connect data cards andwireless push email contributed to non-messaging data revenue increasing by55.6%. Combined voice and messaging promotions led to an 18.1% increase in totalmessaging usage, although this was partially offset by a decline in the averageprice per message, and resulted in a 3.1% rise in messaging revenue. The rise in interconnect costs and the cost of one off call centre closures werepartially offset by efficiencies in overheads and acquisition and retentioncosts, leading to a fall in EBITDA margin of 0.5 percentage points, with afurther 1.0 percentage point fall being due to an increase in Group charges forthe use of brand and related trademarks, within other operating expenses.Interconnect costs increased by 11.8% following an increase in total usage,combined with an increase in the proportion of voice calls made to customers ofother mobile network operators, as customers optimised cross-network bundledtariffs, partially offset by the termination rate cut. Despite higher grossadditions and upgrades, especially in the first half of the year, and a higherproportion of 3G connections, acquisition and retention costs were kept stablewith the prior year, mainly due to an increase in direct sales activity, SIMonly promotions and a higher proportion of prepaid additions with lowersubsidies. Payroll was 3.0% lower than the prior year and other operatingexpenses were also lower than the prior year, excluding one off call centreclosures and the increase in Group charges for the use of brand and relatedtrademarks, driven by the continued benefits of a structured cost reductionplan. US - Verizon Wireless -------------------------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 Change % £m £m £ $ Adjusted operating profit 1,732 1,354 27.9 23.8 ---------- ---------- Share of result in Operating profit 2,112 1,683 25.5 21.5associated Interest (204) (187) 9.1 5.4undertakings Tax (116) (91) 27.5 22.5 Minority interest (60) (51) 17.6 14.9 ---------- ---------- 1,732 1,354 27.9 23.8 ---------- ---------- Proportionate revenue 8,298 6,884 20.5 16.4 Proportionate EBITDA margin 38.0% 37.5% KPIs Closing proportionate customers ('000) 23,530 20,173 16.6 Average monthly ARPU $51.4 $52.4 (1.9) Acquisition and retention costs as a percentage of service revenue 12.4% 12.9% See page 41 for definition of terms------------------------------------------------------------------------------------------------------- The US mobile telecommunications market has seen continued significant growth incustomer numbers over the last twelve months, with penetration reaching anestimated 72% at 31 March 2006. In this environment, Verizon Wireless continuedto increase its market share and improve its market leading margin performance. Verizon Wireless outperformed its competitors with record net additions,increasing the proportionate customer base by 16.6% over the financial year to23,530,000 and improving customer market share to approximately 25% whilst alsomaintaining the proportion of contract customers at 94.5% of the total customerbase at 31 March 2006. The strong customer performance benefited from continuingimprovements in customer loyalty, with a reduction in blended churn of 2.5percentage points to 14.7% compared with the previous financial year, the lowestin the US mobile telecommunications industry. In local currency, proportionate service revenue increased by 14.9% due to thestrong customer growth, partially offset by a fall in ARPU of 1.9%. The ARPUdecline primarily resulted from an increase in the proportion of family sharecustomers and voice tariff pricing changes implemented early in 2005, whichincluded increases in the size of bundled minute plans. Non-voice service revenue increased by more than 100% compared with the previousfinancial year and represented 8.9% of service revenue for the current year.Continued increases in messaging revenues were augmented by strong growth fromdata products, including Verizon Wireless' consumer broadband multimediaoffering, wireless email and broadband data card service. Verizon Wireless'next-generation EV-DO network is currently available to about 150 millionpeople, approximately half the US population. This investment has paved the wayfor the launch of innovative new data services in areas such as full track musicdownloads and location based services. EBITDA margins continued to improve, with a 0.5 percentage point increase in thecurrent financial year to 38.0%, maintaining a leading cost efficiency positionin the US market. In local currency, the Group's share of Verizon Wireless'operating profit increased by 21.5%. The Group's share of the tax attributableto Verizon Wireless of £116 million for the year ended 31 March 2006 relatesonly to the corporate entities held by the Verizon Wireless partnership. The taxattributable to the Group's share of the partnership's pre-tax profit isincluded within the Group tax charge. Vodafone and Verizon Wireless are engaged in a number of joint projects,predominantly focusing upon bringing global services to their customers. Thefinancial year saw the introduction of two new data roaming services for VerizonWireless customers, in addition to the launch of new handsets for the globalphone proposition, all of which leverage the Vodafone footprint. Verizon Wireless continued to strengthen its spectrum position with thecompletion of the purchase of several key spectrum licences, including licencesfrom Nextwave, Leap Wireless and Metro PCS, and through participation in theFCC's Auction 58, which took place in February 2005, with licences being grantedin May 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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