Final Results - Part 1

29th May 2007 07:03

Vodafone Group Plc29 May 2007 Vodafone Group Plc Preliminary Results for year ended 31 March 2007PART 1 Embargo: Not for publication VODAFONE ANNOUNCES RESULTS FOR before 07:00 hoursTHE YEAR ENDED 31 MARCH 2007 29 May 2007 Key highlights: * The Group has delivered against its financial and operating targets and made good progress on executing against its five strategic objectives * Voice and data usage growth offset competitive and regulatory pressures in Europe * Continued strong performance in emerging markets, with the recent acquisition in India significantly increasing its presence in high growth markets * The Group remains confident of delivering its stated capital and operating expenditure targets in Europe in the 2008 financial year, with core cost reduction initiatives well on track Financial performance(1)(2): * Group revenue of £31.1 billion, with organic growth of 4.3% * Adjusted basic earnings per share increased by 11.4% to 11.26 pence. Basic loss per share was 8.94 pence, with loss before taxation for the year of £2.4 billion, after impairment charges of £11.6 billion * Free cash flow of £6.1 billion and net cash inflow from operating activities of £10.2 billion, after net taxation paid of £2.2 billion Increasing returns to shareholders: * Total dividends per share increased by 11.4% to 6.76 pence, with a final dividend per share of 4.41 pence, giving a dividend payout ratio of 60% and a total payout of £3.6 billion for the financial year * In recognition of the earnings dilution arising from the Hutchison Essar transaction, the Board is targeting modest increases in dividend per share in the near term until the payout ratio returns to 60% in accordance with current policy. (1) See page 4 for Group Financial and Operational Highlights and page 30 for use of non-GAAP financial information. (2) From continuing operations. Arun Sarin, Chief Executive, commented: "These results show we have made good progress in the execution of our strategy.We have implemented core cost reduction measures, introduced targeted revenuestimulation initiatives in Europe and launched a number of services focusing onour customers' total communications needs. The last year has also seen a furtherreshaping of Vodafone's portfolio, with our acquisitions in Turkey and Indiafurther increasing the Group's exposure to the exciting growth opportunities inemerging markets. We are well placed to continue delivering on our strategy." Chief Executive's Statement We have met or exceeded our stated financial expectations for the year in allareas and made good progress executing the strategy we set out in May 2006. Robust cash generation continues to support returns to our shareholders, withdividends per share increasing by 11.4% to 6.76 pence per share, representing apayout of 60% of our adjusted earnings per share of 11.26p. Our customer franchise was further strengthened through organic growth andacquisition and now exceeds 206 million proportionate customers. Proportionate mobile revenue increased by 6.3% on an organic basis. The Europeregion, where competitive and regulatory pressure is most intense, deliveredorganic proportionate revenue growth of 1.4%. Continued strong progress in Spain, which delivered another year of double digit revenue growth was offset by year on year declines in Germany and Italy. Our EMAPA region delivered another year of strong growth with organic proportionate revenue growth of 14.9%, with strong performances in many emerging markets and revenue growth of 17% in local currency from Verizon Wireless in the US. Proportionate mobile EBITDA margins were slightly lower year on year in line with our outlook statement, with lower margins in Europe offsetting stable margins in EMAPA. We invested £4.2 billion in capital expenditure during the year and have nowachieved the core level of 3G and HSDPA coverage across our European networksnecessary for the wider uptake of high speed data services. Free cash generationremains strong at £6.1 billion, after £0.4 billion of payments in respect oflong standing tax issues but benefiting from £0.5 billion of timing differencesand the deferral of payments originally expected in the year. Pricing intervention on top-up fees in Italy in the second half of the year ledto a further impairment of £3.5 billion to the carrying value of goodwill inaddition to the £8.1 billion recorded in the first half of the year for Germanyand Italy. In May 2006, we introduced five new strategic objectives to ensure our continuedsuccess. Our focus on executing this strategy throughout the year has generatedpositive results across a number of areas. Revenue stimulation and cost reduction in Europe In Europe, our focus is to drive additional usage and revenue from core voiceand messaging services and to reduce our cost base thereby positioning ourselveswell for the future. Central to stimulating revenue is driving mobile usage through larger minutebundles, innovative tariffs, prepaid to contract migrations and targetedpromotions. We are also focused on leveraging our market leading position in thebusiness segment which represents around 25% of European service revenue.However, pricing pressure is expected to remain strong in the year ahead andimproving price elasticity is core to our revenue stimulation objective inEurope. Over 11 million customers now benefit from lower roaming pricing throughVodafone Passport and our European customers are now benefiting from ourcommitment to reduce roaming prices by 40% compared to summer 2005. We expectroaming revenues to be lower year on year in 2008 due to the combined effect ofVodafone's own initiatives and direct regulatory intervention. During the year, we began implementing the core cost reduction programmes wedeveloped last year. We have successfully outsourced IT application developmentand maintenance to EDS and IBM and are well on track to deliver the expectedunit cost savings. We also made faster than expected progress on data centreconsolidation in Europe and completed the centralisation of network supply chainmanagement in April 2007. In addition, we are seeking to reduce the longer termcost of ownership of our networks through network sharing arrangements and haveannounced initiatives in Spain and the UK. Innovate and deliver on our customers' total communications needs There are several key initiatives underway in this area and we expect these toincrease in significance throughout the next financial year. Taken together ourtotal communications initiatives are expected to represent an additional 10% ofGroup revenue in three years. As part of our drive to substitute fixed line usage for mobile, we have launchedseveral fixed location pricing plans offering customers fixed prices when theycall from within or around their home or office. We now have over 3 millionVodafone At Home customers and over 2 million Vodafone Office customers. Complementary to our high speed (HSDPA) mobile broadband offerings, Vodafone isnow offering fixed broadband services (DSL) in 5 markets. Various businessmodels exist for the provision of DSL. Whilst we continue to favour the resaleapproach, in some of our markets it will make more sense to use a mixed approachof wholesale and our own infrastructure. We are also developing products and services to integrate the mobile and PCenvironments by enhancing our Vodafone live! service and forming partnershipswith leading internet players. In the coming months, our customers will be ableto experience PC to mobile instant messaging with Yahoo! and Microsoft and usetheir mobiles to search with Google, participate in mobile auctions via eBay,watch videos through YouTube and use MySpace for social networking. Theseinitiatives are expected to enhance our data revenue, which increased by 30% inthe year to £1.4 billion. Mobile advertising is also a potentially significant future revenue stream forour business. We have signed agreements with Yahoo! in the UK and leadingproviders in Germany and Italy to enter into this new business through bannerand content based advertising. Deliver strong growth in emerging markets Our focus is to build on our strong track record of creating value in emergingmarkets. We have delivered further strong performances in our existingoperations with organic revenue growth of 41% in Egypt, 28% in Romania and 22%in South Africa. Our recent acquisition in Turkey has performed ahead of ourbusiness plan at the time of the acquisition with strong year on year revenuegrowth of around 37% in local currency and better than expected profitability. Gaining control of Hutchison Essar in India significantly increases our presencein emerging markets. With market penetration still around 14% and with apopulation of over 1.1 billion, India provides a very significant opportunityfor future growth. A key priority for the year ahead is to continue theexpansion of the network and capture the growth opportunity in the market. Actively manage our portfolio to maximise returns In line with this strategy, we executed a number of transactions during theyear. We sold our non-controlling interests in Belgium and Switzerland atattractive valuations, with cash proceeds of £1.3 billion and £1.8 billionrespectively. More recently, we increased our exposure to emerging markets withan additional 4.8% interest in Vodafone Egypt and gained control in India for£5.5 billion in May 2007. Align capital structure and shareholder returns policy to strategy In May 2006, we outlined a new capital structure and returns policy consistentwith the operational strategy of the business, resulting in a targeted annual60% payout of adjusted earnings per share in the form of dividends. We alsomoved to a low Single A credit rating and, having returned over £19 billion toshareholders excluding dividends for the two previous financial years, includinga £9 billion one-off return in August 2006, we have no current plans for furthershare purchases or one-time returns. The Board remains committed to its existing policy of distributing 60% ofadjusted earnings per share by way of dividend. However, in recognition of theearnings dilution arising from the Hutchison Essar acquisition, it has decidedthat it will target modest increases in dividend per share in the near termuntil the payout ratio returns to 60%. Prospects for the year ahead We expect market conditions to remain challenging for the year ahead in Europe,notwithstanding continued positive operating trends in data revenue and voiceusage. Overall growth prospects for the EMAPA region remain strong due toincreasing market penetration and are further enhanced by the recent acquisitionin India. Against this background, Group revenue is expected to be in the range of £33.3billion to £34.1 billion, with adjusted operating profit in the range of £9.3billion to £9.8 billion. Capital expenditure on fixed assets is anticipated tobe in the range of £4.7 billion to £5.1 billion, including in excess of £1.0billion in India. Free cash flow is expected to be £4.0 billion to £4.5 billion,after taking into account £0.6 billion of payments related to long standing taxissues, a net cash outflow of £0.8 billion in respect of India and a £0.5billion outflow from items rolling over from 2007. Summary We are well placed to continue executing our strategy in the year ahead todeliver the core benefits of mobility to our customers and to generate superiorreturns for our shareholders. Arun Sarin GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS ----------------------------------------------------------------------------------------- 2007 2006 Change % --------------------Continuing operations(1): Page £m £m Reported Organic-----------------------------------------------------------------------------------------Financial information Revenue 7 31,104 29,350 6.0 4.3Operating loss 7 (1,564) (14,084) Loss before taxation 23 (2,383) (14,853) Loss for the financial year 23 (4,806) (17,233) Basic loss per share (pence) 23 (8.94)p (27.66)p Capitalised fixed asset additions 4,208 4,005 5.1 Net cash flow from operating activities 20 10,193 10,190 - ----------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------Performance reporting(2) Group EBITDA 7 11,960 11,766 1.6 0.2Adjusted operating profit 7 9,531 9,399 1.4 4.2Adjusted profit before tax 9 8,747 8,793 (0.5) Adjusted effective tax rate 9 30.5% 30.4% Adjusted profit for the yearattributable to equity shareholders 9 6,211 6,328 (1.8) Adjusted basic earnings per share(pence) 9 11.26p 10.11p 11.4 Free cash flow 20 6,127 6,418 (4.5) Net debt at 31 March 20 15,049 17,318 (13.1) ----------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------Operational Mobile voice usage (billion minutes) (3)(4)(5) 37 245.0 177.3 38.2 20.5Data revenue (£m) 7 1,428 1,098 30.1 30.7Mobile non-voice service revenue as a % of mobile service revenue(6) 18.3% 17.0% 3G registered devices (million)(3)(4)(5) 33 15.9 7.9 101.3 Vodafone Mobile Connect data card - registered devices (million)(3)(4) 1.4 0.7 100.0 Vodafone live! - active devices (million)(3)(4) 33 32.3 27.1 19.2 ----------------------------------------------------------------------------------------- This results announcement contains certain information on the Group's resultsand cash flows that has 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 30.----------------------------------------------------------------------------------------- See page 30 for definition of terms. Notes:(1) Excluding the results of the discontinued operations in Japan. The results of the Group's disposed associated undertakings in Belgium and Switzerland are included until the date of the announcement of disposal. (2) Where applicable, these measures are stated excluding non-operating income of associates, impairment losses and other income and expense, changes in the fair value of equity put rights and similar arrangements and certain foreign exchange differences. (3) Cumulative number at 31 March. (4) Figures represent 100% of subsidiary information and a pro-rata share in joint ventures. (5) Prior year amounts have been adjusted. See Key Performance Indicator section beginning on page 32 for further details. (6) Service revenue from the mobile telecommunications businesses excludes fixed line operators and DSL revenue and other service revenue. GROUP PROPORTIONATE INFORMATION 2007 2006 Change % ------------------- £m £m £ Organic--------------------------------------------------------------------------------------Financial information Revenue Europe - Germany 5,443 5,754 (5.4) - Italy 4,245 4,363 (2.7) - Spain 4,500 3,995 12.6 - UK 5,124 5,048 1.5 - Arcor 1,061 972 9.2 - Other Europe 4,309 4,735 (9.0) Less: revenue between Europe operations (451) (458) -------- -------- 24,231 24,409 (0.7) -------- -------- EMAPA - Subsidiaries and joint ventures 6,021 4,234 42.2 - Associated undertakings and investments 13,338 12,694 5.1 Less: revenue between EMAPA operations (35) (16) -------- -------- 19,324 16,912 14.3 -------- -------- Common functions 168 145 15.9 Eliminations (110) (111) -------- -------- Group - Continuing operations 43,613 41,355 5.5 6.4 ======== ========Mobile operations - Continuing operations 42,273 40,217 5.1 6.3 ======== ======== EBITDA Europe - Germany 2,429 2,703 (10.1) - Italy 2,149 2,270 (5.3) - Spain 1,567 1,373 14.1 - UK 1,459 1,623 (10.1) - Arcor 197 169 16.6 - Other Europe 1,533 1,650 (7.1) -------- -------- 9,334 9,788 (4.6) -------- --------EMAPA - Subsidiaries and joint ventures 2,035 1,485 37.0 - Associated undertakings and investments 5,201 4,828 7.7 -------- -------- 7,236 6,313 14.6 -------- --------Common functions 312 279 11.8 -------- --------Group - Continuing operations 16,882 16,380 3.1 4.1 ======== ========Mobile operations - Continuing operations 16,592 16,186 2.5 3.8 ======== ======== Percentage PercentageEBITDA margin Points pointsEurope - Germany 44.6% 47.0% (2.4) - Italy 50.6% 52.0% (1.4) - Spain 34.8% 34.4% 0.4 - UK 28.5% 32.2% (3.7) - Arcor 18.6% 17.4% 1.2 - Other Europe 35.6% 34.8% 0.8 -------- -------- 38.5% 40.1% (1.6) -------- --------EMAPA - Subsidiaries and joint ventures 33.8% 35.1% (1.3) - Associated undertakings and investments 39.0% 38.0% 1.0 -------- -------- 37.4% 37.3% 0.1 -------- --------Group EBITDA margin - Continuing operations 38.7% 39.6% (0.9) (0.8) ======== ========Mobile operations - Continuing operations 39.2% 40.2% (1.0) (0.9) ======== ======== Proportionate information is presented and calculated on the basis described on page 27. See page 30 for definition of terms. ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- 2007 2006 Change % --------------------- Million Million Reported OrganicMobile customers Net proportionate customer additions(1) 28.2 21.5 31.2 Proportionate customers at 31 March 206.4 170.6 21.0 16.5% Note: (1) Excludes additions from acquisitions and stake changes and the impact of changes in the application of the disconnection policy. Further analysis provided on page 32. Customers are presented for continuing operations. See page 30 for definition of terms. ----------------------------------------------------------------------------------------- OUTLOOK ---------------------------------------------------------------------------------------------- 2008 2007 2007 Financial year Financial year financial year Outlook(1) Actual performance Outlook Revenue £33.3 to £34.1 billion £31.1 billion n/a Adjusted operating profit £9.3 to £9.8 billion £9.5 billion n/a Capitalised fixed asset additions £4.7 to £5.1 billion £4.2 billion £4.2 to £4.6 billion Free cash flow £4.0 to £4.5 billion £6.1 billion(2) £4.7 to £5.2 billion Organic proportionate mobile revenue growth(3) n/a 6.3% 5% to 6.5% Organic proportionate 0.9 percentage Around 1 mobile EBITDA margin(3) n/a points lower percentage point than 2006 lower than 2006 financial year financial year Notes: (1) Includes assumption of average foreign exchange rates for the 2008 financial year of approximately Euro 1.47:£1 and US$1.98:£1. A substantial majority of the Group's revenue, adjusted operating profit, capitalised fixed asset additions and free cash flow is denominated in currencies other than sterling, the Group's reporting currency. (2) The amount for the 2007 financial year includes £0.5 billion benefit from timing differences and the deferral of payments originally expected in the year and is stated after £0.4 billion of tax payments, including associated interest, in respect of a number of long standing tax issues. (3) 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 year ending 31 March 2008 ("2008 financial year") The Group's outlook statement now reflects only statutory financial measures.Following completion of the Hutchison Essar Limited ("Hutch Essar") transaction in India on 8 May 2007, its results will be fully consolidated into the Group's results from that date and are therefore reflected in the outlook measures set out below. The Group's outlook ranges reflect current expectations for average foreign exchange rates for the 2008 financial year. Operating conditions are expected to continue to be challenging in Europe, withcompetition remaining intense and ongoing regulatory pressure, notwithstandingcontinued positive trends in data revenue and voice usage growth. Increasingmarket penetration continues to result in overall strong growth prospects forthe EMAPA region. Group revenue is expected to be in the range of £33.3 billion to £34.1 billion.Adjusted operating profit is expected to be in the range of £9.3 billion to £9.8billion, with the Group EBITDA margin lower year on year. Total depreciation andamortisation charges are anticipated to be around £5.8 billion to £5.9 billion,higher than the 2007 financial year, primarily as a result of the Hutch Essar acquisition. The Group expects capitalised fixed asset additions to be in the range of £4.7billion to £5.1 billion, including in excess of £1.0 billion in India. Reported free cash flow is expected to be in the range of £4.0 billion to £4.5billion. This is after taking into account £0.6 billion of expected tax paymentsand associated interest in respect of the potential settlement of a number oflong standing tax issues, a net cash outflow of approximately £0.8 billionanticipated in respect of India and £0.5 billion from deferred payments and thereversal of certain timing differences that benefited the 2007 financial year. The outlook for free cash flow is stated including the impact of known spectrumor licence payments only. The Group still expects that significant cash tax and associated interestpayments may be made in the next two years in respect of long standing taxissues, although the timing of such payments remains uncertain. Within thistimeframe, the Group continues to anticipate possible resolution to theapplication of the UK Controlled Foreign Company legislation to the Group. The adjusted effective tax rate percentage is expected to be in the low 30s,slightly higher than the 2007 financial year and consistent with the Group'slonger term expectations. Revenue stimulation and cost reduction in Europe The Group continues to target delivering benefits equivalent to at least 1%additional revenue market share in the year compared with the 2005 financialyear. Capitalised mobile fixed asset additions are expected to be 10% of mobilerevenue for the year for the total of the Europe region and common functions. The Group also expects mobile operating expenses to be broadly stable for thetotal of the Europe region and common functions when compared with the 2006financial year on an organic basis, excluding the potential impact fromdeveloping and delivering new services and from any business restructuringcosts. CONTENTS PageGroup results 7Regional results 10Cash flows and funding 20Total shareholder returns 21Significant transactions 21Subsequent events 22Financial statements 23Key performance indicators 32 GROUP RESULTS During the year ended 31 March 2007, the Group changed the organisationalstructure of its operations. The following results are presented for continuingoperations in accordance with the new organisational structure. Europe includesthe results of the Group's mobile operations in Western Europe and its fixedline business in Germany, while EMAPA includes the Group's operations in EasternEurope, the Middle East, Africa and Asia and the Pacific area and the Group'sassociates and investments. Common Europe(1) EMAPA Functions Eliminations 2007 2006 % change ----------- £m £m £m £m £m £m £ Organic Voice revenue 17,357 5,089 - (70) 22,376 21,405 Messaging revenue(2) 2,925 667 - (5) 3,587 3,289 Data revenue(2) 1,300 138 - (10) 1,428 1,098 Fixed line operators and DSL revenue 1,397 75 - - 1,472 1,290 Other service revenue 8 - - - 8 - ---------------------------------------------------------Total service revenue 22,987 5,969 - (85) 28,871 27,082 6.6 4.7Acquisition revenue 1,004 381 - - 1,385 1,295 Retention revenue 354 21 - - 375 448 Other revenue 247 70 168 (12) 473 525 ---------------------------------------------------------Total revenue 24,592 6,441 168 (97) 31,104 29,350 6.0 4.3Interconnect 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) ---------------------------------------------------------EBITDA 9,401 2,251 308 - 11,960 11,766 1.6 0.2Acquired 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 5 2,719 1 - 2,725 2,411 ---------------------------------------------------------Adjusted operating profit 5,647 3,756 128 - 9,531 9,399 1.4 4.2Adjustments for: - Non-operating income of associates - 3 - - 3 17 - Impairment losses (11,600) - - - (11,600) (23,515) - Other income and expense 1 508 (7) - 502 15 ---------------------------------------------------------Operating loss (5,952) 4,267 121 - (1,564) (14,084) ========================================================= Notes:(1) Within the Europe region, certain revenue and costs relating to Arcor have been reclassified. All prior periods have been adjusted accordingly. The reclassification had no effect on total revenue, EBITDA or adjusted operating profit. (2) Certain revenue relating to content delivered by SMS and MMS has been reclassified from messaging revenue to data revenue to provide a fairer presentation of messaging and data revenue. Revenue Revenue increased by 6.0% to £31,104 million in the year to 31 March 2007, withorganic growth of 4.3%. The net impact of acquisitions and disposals contributed3.3 percentage points to revenue growth, offset by unfavourable movements inexchange rates of 1.6 percentage points, with both effects arising principallyin the EMAPA region. The Europe region recorded organic revenue growth of 1.4%, whilst the EMAPAregion delivered organic revenue growth of 21.1%. As a result, the EMAPA regionaccounted for more than 70% of the organic growth in Group revenue. Strongperformances were recorded in Spain and a number of the Group's emergingmarkets. An increase in the average mobile customer base and usage stimulationinitiatives resulted in organic revenue growth of 2.5% and 7.0% in voice andmessaging revenue, respectively. Data revenue is an increasingly importantcomponent of Group revenue, with organic growth of 30.7%, driven by increasingpenetration from 3G devices and growth in revenue from business services. Operating result Adjusted operating profit increased by 1.4% to £9,531 million, with organicgrowth of 4.2%. The net impact of acquisitions and disposals and unfavourableexchange rate movements reduced reported growth by 0.3 percentage points and 2.5percentage points, respectively, with both effects arising principally in theEMAPA region. The Europe region declined 4.7% on an organic basis, whilst theEMAPA region recorded organic growth of 24.3%. Strong performances weredelivered in Spain, the US and a number of emerging markets. Group EBITDA was £11,960 million (2006: £11,766 million) and is stated aftercharges in relation to regulatory fines in Greece of £53 million andrestructuring costs within common functions, Vodafone Germany, Vodafone UK andOther Europe of £79 million. The EMAPA region accounted for all of the Group'sreported and organic growth in EBITDA. Certain of the Group's cost reduction and revenue stimulation initiatives aremanaged centrally within common functions. Consequently, operating and capitalexpenses are incurred centrally and recharged to the relevant countries,primarily in Europe. This typically results in higher operating expenses with acorresponding reduction in depreciation for the countries concerned. Europe's EBITDA margin declined to 38.2% (2006: 39.8%), reflecting the increasein other direct costs and operating expenses, the latter primarily driven by theestablishment of central data centres, which results in a correspondingreduction in depreciation and amortisation for the Europe region. The EBITDA margin fell by 1.5 percentage points in the EMAPA region to 34.9%,principally due to the lower margin of the recently acquired Telsim business inTurkey. The acquisitions and stake increases led to the rise in acquired intangibleasset amortisation, and these acquisitions, combined with the continuedexpansion of network infrastructure in the region, resulted in higherdepreciation charges. The Group's share of results from associates increased by 13.0% mainly due toVerizon Wireless, which reported record growth in net additions and increasedARPU. The growth in Verizon Wireless was offset by a reduction in the Group'sshare of results from its other associated undertakings, which fell due to thedisposals of Belgacom Mobile SA and Swisscom Mobile AG as well as the impact ofreductions in termination rates and intense competition experienced by SFR inFrance. Statutory operating loss was £1,564 million compared with a loss of £14,084million in the previous financial year following lower impairment charges. Inthe year ended 31 March 2007, the Group recorded an impairment charge of £11,600million (2006: £23,515 million) in relation to the carrying value of goodwill inthe 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 andcontinued regulatory pressures in the German market. The impairment in Italyresulted from an increase in long term interest rates and the estimated impactof legislation cancelling the fixed fees for the top up of prepaid cards and therelated competitive response in the Italian market. The increase in interestrates accounted for £3,700 million of the reduction in value during the year. Other income and expense for the year ended 31 March 2007 included the gains ondisposal of Proximus and Swisscom Mobile, amounting to £441 million and £68million, respectively. Investment income and financing costs 2007 2006 £m £m Investment income 789 353Financing 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 -------- -------- (784) (606)- Foreign exchange(2) (41) -- Changes in fair value of equity put rights and similar arrangements 2 (161) -------- -------- (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 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. Net financing costs before dividends from investments increased by 36.8% to £435million as increased financing costs, reflecting higher average debt andinterest rates, and losses on mark to market adjustments on financialinstruments, more than offset higher investment income resulting from newinvestments in SoftBank, which arose on the sale of Vodafone Japan during theyear, including an £86 million gain related to the renegotiation of theseinvestments. At 31 March 2007, the provision for potential interest chargesarising on settlement of outstanding tax issues was £1,213 million. Taxation 2007 2006 £m £mIncome tax expense: - United Kingdom (79) 598- Overseas 2,502 1,782 -------- -------- 2,423 2,380Share of associated undertakings' tax 398 443Tax on adjustments to derive adjusted profit before tax (13) - -------- --------Adjusted income tax expense 2,808 2,823 ======== ======== Loss before tax (2,383) (14,853)Adjustments to derive adjusted profit before tax(1) 11,130 23,646 -------- --------Adjusted profit before tax 8,747 8,793Share of associated undertakings' tax and minority interest 459 495 -------- --------Adjusted profit before tax for the purpose of calculating adjusted effective tax rate 9,206 9,288 ======== ========Adjusted effective tax rate 30.5% 30.4% ======== ======== Note:(1) See loss per share from continuing operations The adjusted effective tax rate for the year to 31 March 2007 was 30.5% comparedto 30.4% for the prior year. The rate is lower than the Group's weighted averagetax rate due to the resolution of a number of historic tax issues with taxauthorities and additional tax deductions in Italy. The prior year benefitedfrom the tax treatment of a share repurchase in Vodafone Italy and favourabletax settlements. A significant event in the year was a European Court decision in respect of theUK Controlled Foreign Company ("CFC") legislation, following which Vodafone hasnot accrued any additional provision in respect of the application of UK CFClegislation to the Group. The adjusted effective tax rate percentage for the year ending 31 March 2008 isexpected to be in the low 30s. Loss per share from continuing operations Adjusted earnings per share increased by 11.4% from 10.11 pence to 11.26 pencefor the year to 31 March 2007. Basic loss per share decreased from 27.66 penceto 8.94 pence for the year to 31 March 2007. 2007 2006 £m £mLoss for the financial year attributable to equity shareholders (5,426) (21,916)Loss from discontinued operations attributable to equity shareholders(1) 494 4,598 --------- ---------Loss from continuing operations (4,932) (17,318) --------- ---------Adjustments: - Impairment losses 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- Changes in the fair value of equity put rights and similar arrangements (2) 161- Foreign exchange(2) 41 - --------- --------- 11,130 23,646 --------- ---------- Tax on the above items 13 - --------- ---------Adjusted profit from continuing operations 6,211 6,328 ========= =========Weighted average number of shares outstanding - basic and diluted(3) 55,144 62,607 Notes:(1) On 27 April 2006, the Group completed the sale of its 97.7% interest in Vodafone Japan to SoftBank. The Group's operations in Japan are presented as discontinued operations. (2) See note 2 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. REGIONAL RESULTS Europe Germany Italy Spain UK Arcor Other Elimin- Europe % change ations --------------- £m £m £m £m £m £m £m £m £ OrganicYear ended 31 March 2007 Voice revenue 3,995 3,329 3,435 3,621 - 3,320 (343) 17,357 (2.6) Messaging revenue 746 563 380 760 - 501 (25) 2,925 3.1 Data revenue 413 189 247 295 - 194 (38) 1,300 27.1 Fixed line operator and DSL revenue 1 - - - 1,419 3 (26) 1,397 9.9 Other service revenue 1 2 - 5 - - - 8 ---------------------------------------------------------------Total service revenue 5,156 4,083 4,062 4,681 1,419 4,018 (432) 22,987 0.1 2.0Acquisition revenue 172 124 307 274 22 108 (3) 1,004 (1.4) Retention revenue 40 36 124 52 - 102 - 354 (18.4) Other revenue 75 2 7 117 - 47 (1) 247 (23.8) ---------------------------------------------------------------Total revenue 5,443 4,245 4,500 5,124 1,441 4,275 (436) 24,592 (0.6) 1.4Interconnect costs (645) (628) (675) (1,001) (338) (813) 432 (3,668) (1.9) Other direct costs (332) (242) (352) (452) (262) (275) 1 (1,914) 14.9 Acquisition costs (560) (249) (642) (677) (178) (301) 3 (2,604) 4.1 Retention costs (351) (107) (398) (372) - (315) - (1,543) (11.9) Operating expenses (1,126) (870) (866) (1,163) (396) (1,041) - (5,462) 4.2 ---------------------------------------------------------------EBITDA 2,429 2,149 1,567 1,459 267 1,530 - 9,401 (4.4) (3.4)Acquired intangibles amortisation - - - (11) - (11) - (22) Purchased licence amortisation (340) (75) (37) (333) - (64) - (849) Depreciation and other amortisation (735) (499) (430) (604) (96) (524) - (2,888) Share of result in associates - - - - - 5 - 5 ---------------------------------------------------------------Adjusted operating profit 1,354 1,575 1,100 511 171 936 - 5,647 (5.1) (4.7) ===============================================================EBITDA margin 44.6% 50.6% 34.8% 28.5% 18.5% 35.8% 38.2% Year ended 31 March 2006 Voice revenue 4,304 3,472 3,093 3,642 - 3,672 (356) 17,827 Messaging revenue 815 526 328 674 - 507 (14) 2,836 Data revenue 275 172 194 252 - 170 (40) 1,023 Fixed line operator and DSL revenue - - - - 1,305 - (34) 1,271 ---------------------------------------------------------------Total service revenue 5,394 4,170 3,615 4,568 1,305 4,349 (444) 22,957 Acquisition revenue 185 94 269 285 15 170 - 1,018 Retention revenue 61 84 105 60 - 124 - 434 Other revenue 114 15 6 135 - 54 - 324 ---------------------------------------------------------------Total revenue 5,754 4,363 3,995 5,048 1,320 4,697 (444) 24,733 Interconnect costs (732) (681) (634) (862) (368) (906) 444 (3,739) Other direct costs (281) (241) (329) (355) (187) (273) - (1,666) Acquisition costs (551) (172) (543) (665) (147) (423) - (2,501) Retention costs (410) (177) (354) (455) - (356) - (1,752) Operating expenses (1,077) (822) (762) (1,088) (390) (1,104) - (5,243) ---------------------------------------------------------------EBITDA 2,703 2,270 1,373 1,623 228 1,635 - 9,832 Acquired intangibles amortisation - - - - - (2) - (2) Purchased licence amortisation (342) (74) (69) (333) - (66) - (884) Depreciation and other amortisation (865) (524) (336) (592) (89) (594) - (3,000) Share of result in associates - - - - - 5 - 5 ---------------------------------------------------------------Adjusted operating profit 1,496 1,672 968 698 139 978 - 5,951 ===============================================================EBITDA margin 47.0% 52.0% 34.4% 32.2% 17.3% 34.8% 39.8% Change at constant exchange rates % % % % % % Voice revenue (6.7) (3.6) 11.8 (0.6) - (9.2) Messaging revenue (7.8) 7.6 16.8 12.8 - (0.6) Data revenue 51.2 10.8 27.5 17.1 - 15.1 Fixed line operator and DSL revenue - - - - 9.5 - -----------------------------------------------Total service revenue (3.9) (1.5) 13.1 2.5 9.5 (7.2) Acquisition revenue (6.4) 33.1 14.5 (3.9) 45.7 (35.7) Retention revenue (34.1) (57.2) 18.8 (13.3) - (17.2) Other revenue (33.5) (89.8) 22.5 (13.3) - (15.7) -----------------------------------------------Total revenue (4.8) (2.2) 13.3 1.5 9.8 (8.6) Interconnect costs (11.4) (7.2) 7.0 16.1 (7.6) (9.7) Other direct costs 18.9 0.8 7.6 27.3 41.6 1.0 Acquisition costs 2.2 46.1 18.8 1.8 21.3 (28.6) Retention costs (13.8) (39.3) 13.1 (18.2) - (11.2) Operating expenses 5.1 6.6 14.2 6.9 2.3 (5.5) -----------------------------------------------EBITDA (9.6) (4.9) 15.0 (10.1) 17.2 (5.9) Acquired intangibles amortisation - - - - - 423.8 Purchased licence amortisation - 1.5 (45.4) - - (3.5) Depreciation and other amortisation (14.4) (4.5) 28.9 2.0 6.8 (11.2) Share of result in associates - - - - - - -----------------------------------------------Adjusted operating profit (9.0) (5.3) 14.4 (26.8) 24.0 (3.7) ===============================================EBITDA margin movement (pps) (2.4) (1.5) 0.5 (3.7) 1.1 1.1 Germany Italy Spain UK Other EuropeMobile telecommunication KPIs Closing customers ('000) - 2007 30,818 21,034 14,893 17,411 17,007 101,163 - 2006 29,191 18,490 13,521 16,304 15,692 93,198 Average monthly ARPU - 2007 €21.2 €25.9 €35.2 £23.6 £20.1 - 2006 €23.3 €28.5 €35.6 £24.0 £22.0 Annualised blended churn (%) - 2007 21.8% 20.6% 26.4% 33.8% 26.6% - 2006 20.2% 18.7% 20.9% 32.1% 24.2% Closing 3G devices ('000) - 2007 3,720 3,762 2,890 1,938 2,353 14,663 - 2006 2,025 2,250 902 1,033 1,230 7,440 Voice usage (millions of minutes) - 2007 33,473 32,432 30,414 31,736 28,491 156,546 - 2006 26,787 29,604 23,835 28,059 27,648 135,933 See page 30 for definition of terms The Europe region, where market penetration exceeds 100%, continues toexperience intense competition from established mobile operators and new marketentrants as well as ongoing regulator imposed rate reductions on incoming calls.As part of the implementation of the Group's strategy, the current year'sperformance saw a strong focus on stimulating additional usage in a way thatenhances value to the customer and revenue, including significant tariffrepositioning to maintain competitiveness in the UK and Germany. On the costside, the centralisation of global service platform operations was completed inthe year, with good progress made in the consolidation and harmonisation of thedata centres, and a number of new initiatives to reduce the cost structure wereimplemented. Revenue Total revenue decreased slightly by 0.6% for the year ended 31 March 2007,consisting of a 1.4% organic increase in revenue, offset by a 0.5 percentagepoint adverse impact from exchange rate movements and a 1.5 percentage pointdecrease resulting from the disposal of the Group's operations in Sweden inJanuary 2006. The organic revenue growth was mainly due to the increase inorganic service revenue. Service revenue growth was 0.1% for the Europe region. Organic growth of 2.0%was driven by a 7.7% increase in the average mobile customer base in the year,together with a 17.0% increase in total voice usage and 27.1% reported growth indata revenue, driven by innovative products and services, successful promotionsand competitive tariffs in the marketplace, although in turn organic growth waslargely offset by the downward pressure on voice pricing and termination ratecuts in certain markets. The estimated impact of termination rate cuts and otheradjustments on the growth in service revenue and total revenue in the year isshown below. Estimated impact of Impact of termination rate exchange Impact of cuts and other Growth Reported rates disposal adjustments(1) excluding growth Percentage Percentage on revenue growth these items % points points Percentage points % Service revenue Germany (4.4) 0.5 - 3.4 (0.5)Italy (2.1) 0.6 - 5.1 3.6Spain 12.4 0.7 - 5.2 18.3UK 2.5 - - 0.5 3.0Arcor 8.7 0.8 - - 9.5Other Europe (7.6) 0.4 7.3 4.7 4.8Europe 0.1 0.5 1.4 3.5 5.5 Total revenue Europe (0.6) 0.5 1.5 3.2 4.6 Note:(1) Revenue for certain arrangements is now presented net of associated direct costs. Customer growth in the region was strong in most markets, including 21.7% and16.9% growth in the closing contract customer base in Spain and Italy,respectively. The UK reported a 7.7% growth in the closing contract basefollowing a much improved performance in the second half of the year. Contractchurn across the region was stable or falling in most markets due to thecontinued focus on retention and longer contract terms being offered, whilstprepaid churn rose due to intensified competition and customer self-upgrades.Prepaid markets remained vibrant, with prepaid net additions accounting foraround 65% of the total net additions reported for the region. Within the Europe region, Spain and Arcor contributed strong service revenuegrowth, partly offset by declines in Germany, Italy and Other Europe. In Spain,despite the increasing challenge in the marketplace from existing competitors,the launch of a fourth operator and branded resellers, local currency servicerevenue growth of 13.1% was achieved. This growth was mainly due to a 14.2%increase in the average mobile customer base in the period following successfulpromotions and competitive tariffs, particularly in relation to contractcustomers, which now account for 54.8% of the customer base, compared to 49.6%last year. Arcor also achieved strong growth in service revenue compared to theprior year, driven primarily by a 60.0% increase in DSL customers to 2,081,000customers, with the launch of new competitive tariffs leading to particularlygood growth since January 2007. Despite high competition and structural pricedeclines, service revenue growth in the UK accelerated throughout the year,driven by a higher contract customer base and increased usage resulting fromrefreshed tariff offerings. In Other Europe, reported service revenue decreasedby 7.6%, whilst underlying service revenue increased by 4.8% following anincrease in the average mobile customer base, and particularly strong growth inmessaging and data revenue in the Netherlands and Portugal where new tariffs andVodafone Mobile Connect data card initiatives proved particularly successful. Germany and Italy reported declines in local currency service revenue of 3.9%and 1.5% respectively, largely as a result of termination rate cuts. Underlyingservice revenue in Italy grew by 3.6%, with acceleration in the second half ofthe year due in particular to increasing messaging and voice volumes, achievedthrough new tariffs and offers targeted to specific segments, and despite therevenue loss incurred in March 2007 following the Italian Government's decisionto eliminate the top up fee on prepaid cards. In Germany, underlying servicerevenue declined slightly as a result of the intensely competitive market inGermany and the launch of new tariffs in October 2006. Voice revenue Voice revenue decreased by 2.6%, or by 0.7% on an organic basis, with stronggrowth in voice usage offset by pressures on pricing resulting from competitionand from termination rate cuts. Across the Europe region, outgoing voice minutes increased by 20.7%, or by 22.3%on an organic basis, driven by the increased customer base and various usagestimulation initiatives and competitive tariff ranges. In Germany, outgoingvoice usage increased by 35.7%, with continued success from the Vodafone Zuhauseproduct, which promotes fixed to mobile substitution in the home and whichachieved 2.4 million registered customers as at 31 March 2007. Additionally, newtariffs were launched in Germany in October 2006, which provided improved valuebundles for customers allowing unlimited calls to other Vodafone customers andfixed line customers, all of which significantly contributed to increasingoutgoing voice usage. In Italy, the increase in outgoing voice usage of 12.1%was mainly driven by demand stimulation initiatives such as fixed price per calloffers and focus on high value customers and business customers. In Spain, theimproved customer mix and success of both consumer and business offeringsassisted in increasing outgoing voice usage by 34.2%. New and more competitivetariffs launched in the UK in July 2006 and September 2006 and various promotionsspecifically aimed at encouraging usage contributed to the 16.7% increase inVodafone UK's outgoing voice usage. Offsetting the organic growth in outgoing voice usage was the impact of pricingpressures in all markets due to increased competition, which has led to outgoingvoice revenue per minute decreasing by 16.8% in the year ended 31 March 2007. Termination rate cuts were the main factor in the 7.4% decline in organicincoming voice revenue, with all markets except the UK experiencing terminationrate cuts during the year. Announced termination rate cuts since 30 September2006 include a cut of 7% to 11.35 eurocents per minute in Spain effective fromOctober 2006 and a 20% cut to 8.8 eurocents per minute in Germany effective fromNovember 2006. The impact of the termination rate cuts in the Europe region wasto reduce the average effective incoming price per minute by around 13% toapproximately 7 pence. Further termination rate cuts of 0.87 eurocents every sixmonths will occur in Spain with effect from April 2007, reducing the rate to 7.0eurocents by April 2009, whilst in Italy reductions in July 2007 and July 2008of 13% below the retail price index have also been announced. The success of Vodafone Passport, a competitively priced roaming propositionwith over 11 million customers as at 31 March 2007, contributed to increasingthe volume of organic roaming minutes by 15.8%. Around 50% of the Group'sroaming minutes within Europe are now on Vodafone Passport. Organic roamingrevenue increased by 1.2% as the higher usage was largely offset by pricereductions, due to increasing adoption of Vodafone Passport and also the Group'scommitment to reduce the average cost of roaming in the EU by 40% by April 2007when compared to summer 2005. On 23 May 2007, the European Parliament voted to introduce regulation on retailand wholesale roaming prices. We expect roaming revenues to be lower year onyear in 2008 due to the combined effect of Vodafone's own initiatives and thisdirect regulatory intervention. Non-voice revenue Messaging revenue increased by 3.1%, or by 4.6% on an organic basis, mainly dueto growth in Italy, Other Europe and particularly Spain and the UK, partlyoffset by declines in Germany. In Spain, the increase was driven by the largercustomer base, while in the UK, SMS volumes increased by 25.0% following higherusage per customer. The growth in Italy was driven by an increase in SMS usageof 9.5%, with sharp acceleration in the second half of the year followingsuccessful demand stimulation initiatives. In Germany, messaging volumesdeclined, resulting from the attraction of bigger voice bundles and the factthat promotional activity that had occurred relating to messaging in theprevious financial year was not repeated in the 2007 financial year. Data revenue grew by 27.1%, or by 29.5% on an organic basis, with the growthbeing stimulated by the 97.1% increase in registered 3G enabled devices on theGroup's networks as at 31 March 2007, encouraged by an expanded portfolio andcompetitively priced offerings. Strong growth was experienced in all Europe'ssegments, though Germany demonstrated particularly strong growth of 50% as aresult of attractive tariff offerings, including flat rate tariff options, andthe benefit of improved coverage of the HSDPA technology enabled network,facilitating superior download speeds for data services. Growth in Italy, Spainand the UK has been assisted by the roll-out of HSDPA network coverage andincreased penetration of Vodafone Mobile Connect data cards, of which 74%, 64%and 53% were sold during the year as HSDPA enabled devices in each of thesemarkets respectively. The launch of a modem which provides wireless internetaccess for personal computers has also made a positive contribution to datarevenue. In Other Europe, successful Vodafone Mobile Connect data cardsinitiatives in the Netherlands and Portugal were the primary cause of growth indata revenue. Fixed line operator and DSL revenue increased by 9.9%, due to Arcor's increasedcustomer base. Adjusted operating profit Adjusted operating profit fell by 5.1%, or by 4.7% on an organic basis, with thedisposal of the Group's operations in Sweden being the main difference. TheEBITDA margin decreased by 1.6 percentage points, or by 1.9 percentage points onan organic basis, mainly a result of the growth in operating expenses and otherdirect costs, including the charge in relation to a regulatory fine in Greece of£53 million. Interconnect costs remained stable for the year, once the effect of the disposalof Sweden was excluded, with the increased outgoing call volumes to othernetworks offset by the cost benefit from the impact of the termination ratecuts. Reported acquisition and retention costs for the region decreased by 2.5%, butremained stable on an organic basis, when compared to the prior year. In Spain,the main drivers of the increased costs were the higher volumes of grossadditions and upgrades, especially with regard to the higher proportion ofcontract gross additions which are being achieved with higher costs per customeras competition has intensified. In Italy, costs have increased slightly due toan increased focus on acquiring high value contract customers and an increasedvolume of prepaid customers. In Germany, retention costs declined as the costper upgrade was reduced and volumes slightly decreased. The UK saw a reductionin retention costs resulting from a change in the underlying commercial modelwith indirect distribution partners, where a portion of commissions are nowrecognised in other direct costs. Acquisition costs in Other Europe decreased,primarily as a result of lower gross contract additions in Greece and areduction in cost per gross addition in the Netherlands. Other direct costs increased by 14.9%, or by 16.7% on an organic basis, primarilycaused by the regulatory fine in Greece and commissions in the UK discussedabove. Arcor saw an increase in direct access charges primarily as a result ofhaving a higher customer base. Operating expenses increased by 4.2%, or by 7.4% on an organic basis, primarilycaused by increased intercompany recharges, a result of the centralisation ofdata centre and service platform operations, which were offset by acorresponding reduction in depreciation expense, and a 14.2% increase in localcurrency in Spain's operating expenses as a result of the growth in thisoperating company, but which only slightly increased as a percentage of servicerevenue. Increased publicity spend in the UK, Italy and Greece, andrestructuring costs in Germany, the UK and Ireland, also adversely affectedoperating expenses during the year. As many of the cost reduction initiatives are centralised in common functions,as described earlier, the Group's target in respect of operating expenses forthe total of the Europe region (excluding Arcor) includes common functions butexcludes the developing and delivering of new services and businessrestructuring costs. On this basis, these costs grew by 3.5% in the 2007 financial year for the reasons outlined in the preceding paragraph. Cost reduction initiatives The Group has set targets in respect of operating expenses and capitalised fixedasset additions. The operating expense and capitalised fixed asset additionstargets relate to the Europe region (excluding Arcor) and common functions in aggregate. The targets are detailed in the Outlook on page 6. During the 2007 financial year, the implementation of a range of Group wide initiatives and cost saving programmes commenced, designed to deliver savings in the 2008 financial year and beyond. The key initiatives are as follows: * The application development and maintenance initiative is focusing on driving cost and productivity efficiencies through outsourcing the application development and maintenance for key IT systems. In October 2006, the Group announced that EDS and IBM had been selected to provide application development and maintenance services to separate groupings of operating companies within the Group. The initiative is currently in the execution phase and is progressing ahead of plan, with a number of operating companies already having commenced service with their respective vendors. The Group currently anticipates that this initiative will result in greater economies of scale and improved quality of software produced, as well as greater flexibility, leading to the faster rollout of more varied services to customers. The Group currently expects to meet its savings target of 25-30% of IT application development and maintenance unit costs within two to four years. * The supply chain management initiative focuses on centralising supply chain management activities and leveraging Vodafone's scale in purchasing activities. Through the standardisation of designs and driving scale strategies in material categories, the Group is aiming to increase the proportion of purchasing performed globally. The alignment of all objectives and targets across the entire supply chain management was completed during the year. The Group currently expects to meet its savings target of 8% of £3.3 billion external network spend this coming year, as planned. * The IT operations initiative has created a shared service organisation to support the business with innovative and customer focused IT services. This organisation will consolidate localised data centres into regionalised northern and southern European centres and consolidate hardware, software, maintenance and system integration suppliers to provide high quality IT infrastructure, services and solutions. Consolidation is progressing well, with the centre in Southern Europe complete and the centre in Northern Europe expected to be complete by April 2008. The Group currently expects to meet its cost savings target of 25-30% of data centre spend within one to two years. * The Group has commenced a three year business transformation programme to implement a single integrated operating model, supported by a single enterprise resource planning ("ERP") system covering human resources, finance and supply chain functions. The programme is expected to provide improved information for decision making and reduced operating costs in the longer term, though additional investment, including restructuring expenditure, will be required. * The network team continues to focus on network sharing deals in a number of operating companies, with the principal objectives of cost saving and faster network rollout. Implementation is under way in Spain with Orange, the UK has announced its intention to sign a deal with Orange and other deals are being explored and evaluated in a number of other European operating companies. * Many of the Group's operating companies have participated in external cost benchmarking studies and are using the results to target local cost reductions. Initiatives that have been implemented to date include reductions to planned network rollout, outsourcing and off-shoring of customer services operations, property rationalisation, replacing leased lines with owned transmission, network site sharing and renegotiation of supplier contracts and service agreements. EMAPA Middle East Associates Eastern Africa & ---------------- Europe Asia Pacific US Other EMAPA % change --------------- £m £m £m £m £m £m £ OrganicYear ended 31 March 2007 Voice revenue 2,051 2,096 942 5,089 40.0 Messaging revenue 271 142 254 667 46.9 Data revenue 70 26 42 138 60.5 Fixed line operator and DSL revenue - 68 7 75 294.7 ----------------------------------------------------------Total service revenue 2,392 2,332 1,245 5,969 42.3 20.4Acquisition revenue 53 223 105 381 37.5 Retention revenue 19 - 2 21 50.0 Other revenue 13 10 47 70 2.9 ----------------------------------------------------------Total revenue 2,477 2,565 1,399 6,441 41.4 21.1Interconnect costs (433) (364) (248) (1,045) 31.6 Other direct costs (314) (246) (224) (784) 77.4 Acquisition costs (219) (291) (167) (677) 45.0 Retention costs (78) (84) (50) (212) 52.5 Operating expenses (614) (509) (349) (1,472) 39.8 ----------------------------------------------------------EBITDA 819 1,071 361 2,251 35.7 20.9Acquired intangibles amortisation (285) (105) (2) (392) 152.9 Purchased licence amortisation (19) (17) (7) (43) (31.7) Depreciation and other amortisation (331) (255) (193) (779) 29.4 Share of result in associates - - - 2,077 642 2,719 13.4 ----------------------------------------------------------Adjusted operating profit 184 694 159 2,077 642 3,756 16.0 24.3 ==========================================================EBITDA margin 33.1% 41.8% 25.8% 34.9% Year ended 31 March 2006 Voice revenue 1,176 1,503 957 3,636 Messaging revenue 146 91 217 454 Data revenue 36 12 38 86 Fixed line operator and DSL revenue - 19 - 19 ----------------------------------------------------------Total service revenue 1,358 1,625 1,212 4,195 Acquisition revenue 54 147 76 277 Retention revenue 13 - 1 14 Other revenue 10 12 46 68 ----------------------------------------------------------Total revenue 1,435 1,784 1,335 4,554 Interconnect costs (296) (251) (247) (794) Other direct costs (77) (159) (206) (442) Acquisition costs (148) (198) (121) (467) Retention costs (51) (48) (40) (139) Operating expenses (335) (359) (359) (1,053) ----------------------------------------------------------EBITDA 528 769 362 1,659 Acquired intangibles amortisation (121) (33) (1) (155) Purchased licence amortisation (13) (34) (16) (63) Depreciation and other amortisation (218) (179) (205) (602) Share of result in associates - - - 1,732 666 2,398 ----------------------------------------------------------Adjusted operating profit 176 523 140 1,732 666 3,237 ==========================================================EBITDA margin 36.8% 43.1% 27.1% 36.4% Change at constant exchange rates % % % % % Voice revenue 80.3 56.7 5.3 Messaging revenue 88.7 74.8 25.4 Data revenue 100.1 142.6 17.2 Fixed line operator and DSL revenue - 294.3 - ---------------------------Total service revenue 81.7 61.2 10.0 Acquisition revenue 1.4 78.0 43.0 Retention revenue 50.0 - 217.5 Other revenue 15.4 (7.8) 12.8 ---------------------------Total revenue 78.0 62.1 12.1 Interconnect costs 49.8 62.3 7.1 Other direct costs 316.4 73.2 15.8 Acquisition costs 53.9 70.8 45.0 Retention costs 59.3 106.7 31.1 Operating expenses 88.4 61.0 3.4 ---------------------------EBITDA 60.6 55.5 8.1 Acquired intangibles amortisation 135.5 222.2 78.6 Purchased licence amortisation 48.0 (47.1) (49.8) Depreciation and other amortisation 55.9 56.1 1.6 Share of result in associates - - - 27.6 (2.3) ----------------------------------------------Adjusted operating profit 12.1 49.8 25.4 27.6 (2.3) ==============================================EBITDA margin movement (pps) (3.6) (1.7) (0.8) 2007 2006 ----------------------------------- ---------------------------------------- Middle Middle East East Eastern Africa Eastern Africa Europe & Asia Pacific EMAPA Europe & Asia Pacific EMAPAKPIs Closing customers ('000) 28,975 27,160 5,750 61,885 12,579 21,884 5,346 39,809Average monthly ARPU £8.1 £7.3 £18.8 £10.8 £9.0 £19.7 Annualised blended churn (%) 28.1% 38.8% 38.7% 23.6% 34.6% 39.2% 3G devices ('000) 347 65 758 1,170 135 - 281 416Voice usage (millions of minutes) 39,658 37,449 11,371 88,478 13,302 18,300 9,811 41,413 See page 30 for definition of terms A part of Vodafone's strategy is to build on the Group's track record ofcreating value in emerging markets. Vodafone has continued to execute on thisstrategy, with strong performances in the Czech Republic, Egypt, Romania andSouth Africa. The Group is successfully building its emerging markets portfolio throughacquisitions in Turkey and, subsequent to the year end, India. Since itsacquisition on 24 May 2006, Vodafone Turkey has shown a performance in excess ofthe acquisition plan. The Group has made a further significant step indelivering its strategic objective of delivering strong growth in emergingmarkets with the acquisition on 8 May 2007 of companies with interests inHutch Essar, a leading operator in the fast growingIndian mobile market, following which the Group controls Hutch Essar. The Groupalso signed a memorandum of understanding with Bharti Airtel Limited ("BhartiAirtel"), the Group's former joint venture in India, on infrastructure sharingand has granted an option to a Bharti group company to buy its 5.60% directinterest in Bharti Airtel. On 9 May 2007, a Bharti group company agreed toacquire the Group's 5.60% direct interest in Bharti Airtel (see subsequentevents on page 22). Following the completion of this sale, the Group willcontinue to hold an indirect stake of 4.39% in Bharti Airtel. In December 2006, the Group increased its equity interest in Vodafone Egypt from50.1% to 54.9%, positioning the Group to capture further growth in this lowerpenetrated market. The Group also entered into a new strategic partnership withTelecom Egypt, the minority shareholder in Vodafone Egypt, to increasecooperation between both parties and jointly develop a range of products andservices for the Egyptian market. EMAPA's growth has benefited from the prior year acquisitions in the CzechRepublic and the stake in Bharti Airtel in India, as well as the stake increasesin Romania and South Africa and the current year acquisition in Turkey. BhartiAirtel was accounted for as a joint venture until 11 February 2007, followingwhich it has been accounted for as an investment. Revenue Total revenue increased by 41.4%, or 21.1% on an organic basis, driven byorganic service revenue growth of 20.4%. The impact of acquisitions, disposaland exchange rates on EMAPA's service revenue and total revenue growth is shownbelow. Impact of Impact of acquisitions Organic exchange rates and disposal(1) Reported growth Percentage Percentage growth % points points %Service revenue Eastern Europe 20.0 (5.6) 61.7 76.1Middle East, Africa and Asia 27.7 (17.7) 33.5 43.5Pacific 10.0 (7.3) - 2.7EMAPA 20.4 (10.9) 32.8 42.3 Total revenue EMAPA 21.1 (11.2) 31.5 41.4 Note: (1) Impact of acquisitions and disposal includes the impact of the change in consolidation status of Bharti Airtel from a joint venture to an investment. Organic service revenue growth was driven by the 30.2% organic increase in theaverage mobile customer base and the success of usage stimulation initiatives,partially offset by declining ARPU in a number of markets due to the higherproportion of lower usage prepaid customer additions. Particularly strongcustomer growth was achieved in Eastern Europe and the Middle East, Africa andAsia, where markets are typically less penetrated than in Western Europe or thePacific area. Non-service revenue increased by 31.5%, or 28.9% on an organic basis, primarilydue to an increase in the level of gross additions in a number of countries. Eastern Europe In Eastern Europe, service revenue grew by 76.1%, with the key driver of growthbeing the acquisitions in the Czech Republic and Turkey, as well as the stakeincrease in Romania. Good customer growth in all Eastern European marketscontributed to the organic service revenue growth. Organic service revenue growth in Eastern Europe was principally driven byRomania. As a result of the growth in the customer base and a promotional offerof lower tariffs, which led to higher voice usage, local currency servicerevenue in Romania grew by 29.3%, calculated by applying the Group's currentequity interest to the whole of the 2006 financial year. The continued expansionof 3G network coverage, the successful launch of 3G broadband, together withintroductory promotional offers, and increased sales of Vodafone Mobile Connectdata cards, resulted in data revenue growth of 64.9% in local currency. In the Czech Republic, a focus on existing customers, including a Christmascampaign of free weekend text messages available to all existing as well as newcustomers, and the success of a business offering allowing unlimited on and offnet calls within a customers' virtual private network for a fixed monthly fee,had a positive impact on gross additions and drove the increase in averagemobile customers. This led to growth of 11.1% in local currency service revenue,calculated by applying the Group's current equity interest to the whole of the2006 financial year. Vodafone Turkey has performed ahead of the expectations the Group had at thetime of the completion of the acquisition, with customer numbers, usage andadjusted operating profit ahead of plan. Improvements in network reliability andcoverage have contributed to strong customer growth and allowed an increase inprepaid tariffs, resulting in service revenue growth. Telsim was rebranded toVodafone in March 2007, with the launch of a new tariff with inclusive on andoff net calls, a first for the Turkish market. Middle East, Africa and Asia The service revenue growth of 43.5% in the Middle East, Africa and Asia resultedprimarily from the stake increases in South Africa in February 2006 and Egypt inDecember 2006, together with the acquisition of the Group's interest in BhartiAirtel in India in December 2005, offset by an adverse movement in exchangerates. Strong organic growth was achieved in all markets, particularly in Egyptand South Africa, driven by the 40.2% increase in the average mobile customerbase compared to the prior year. Strong customer growth, driven by prepaid tariff reductions, the availability oflower cost handsets and high customer satisfaction with the Vodafone service,contributed to the 39.5% local currency service revenue growth in Egypt. Innovative new products and services, including a new hybrid tariff offeringguaranteed airtime credit every month with the ability to top up as required,and successful promotions, led to an increase in the average mobile customerbase and 21.9% local currency organic service revenue growth in South Africa,whilst the continued rollout of the 3G network led to strong growth in datarevenue. Bharti Airtel continued to perform well with strong growth in customers andrevenue, demonstrating the growth potential in the Indian market. Pacific Service revenue increased by 2.7%, with the impact of adverse foreign exchangemovements reducing reported growth by 7.3 percentage points. In Australia, acontinued focus on higher value customers delivered local currency servicerevenue growth of 13.7%, with improvements in both prepaid and contract ARPU.The performance in Australia more than offset the reduced growth in localcurrency service revenue in New Zealand, where local currency service revenuegrowth was 2.6% following a cut in termination rates, which reduced reportedservice revenue growth by 4.1%. After the negative impact of foreign exchangemovements, reported service revenue in New Zealand declined by 7.9%. Adjusted operating profit The impact of acquisitions, disposal and exchange rates on EMAPA's EBITDA andadjusted operating profit is shown below. Impact of Impact of acquisitions Organic exchange rates and disposal(1) Reported growth Percentage Percentage growth % points points %EBITDA Eastern Europe 19.7 (5.5) 40.9 55.1Middle East, Africa and Asia 27.0 (16.0) 28.3 39.3Pacific 8.1 (8.4) - (0.3)EMAPA 20.9 (11.1) 25.9 35.7 Adjusted operating profit Eastern Europe 49.2 (7.6) (37.1) 4.5Middle East, Africa and Asia 18.5 (16.9) 31.1 32.7Pacific 25.4 (11.8) - 13.6EMAPA 24.3 (7.2) (1.1) 16.0 Note:(1) Impact of acquisitions and disposal includes the impact of the change in consolidation status of Bharti Airtel from a joint venture to an investment. The reported EBITDA margin fell by 1.5 percentage points, principally due to thelower margin of the recently acquired Vodafone Turkey business. Adjusted operating profit increased by 16.0%. On an organic basis growth was24.3%, as the acquisitions and stake increases led to the rise in acquiredintangible asset amortisation reducing reported growth in operating profit.These acquisitions, combined with the continued expansion of networkinfrastructure in the region, resulted in higher depreciation charges. Organicgrowth in adjusted operating profit was driven by a strong performance inRomania, Egypt, South Africa and the Group's associated undertaking in the US. Eastern Europe The acquisition of operations with lower margins, combined with significantinvestment in improving network quality, customer care and the introduction ofsegmented customer propositions in Turkey, led to a 3.7 percentage pointdecrease in the EBITDA margin in Eastern Europe. Interconnect costs increased by 46.3%, or 23.8% on an organic basis, principallyas a result of the higher usage in Romania. An ongoing regulatory fee in Turkeyamounting to 15% of revenue has increased other direct costs compared to the2006 financial year. Acquisition costs fell as a percentage of service revenue throughout most ofEastern Europe, with increased investment in the direct distribution channel inRomania resulting in lower subsidies on handsets. Retention costs decreased as apercentage of service revenue, but increased on an organic basis due to a focuson retaining customers through loyalty programmes in response to the increasingcompetition in Romania, which had a positive impact on contract and prepaidchurn. Operating expenses increased by 1.0 percentage point as a percentage of servicerevenue, primarily as a result of inflationary pressures in Romania andinvestment in Turkey. Middle East, Africa and Asia The impact of the acquisitions and adverse exchange rate movements bothcontributed to the 1.3 percentage point fall in EBITDA margin in Middle East,Africa and Asia. Interconnect costs increased by 45.0%, or 26.8% on an organic basis, due to theusage stimulation initiatives throughout the region. Acquisition costs remained stable as a percentage of service revenue, whilstretention costs increased, principally due to increased investment in retainingcustomers in Egypt ahead of the forthcoming launch of services by a new operatorand in South Africa in response to the introduction of mobile number portabilityduring the year, with the provision of 3G and data enabled device upgrades forcontract customers and a loyalty point scheme. Operating expenses remainedstable as a percentage of service revenue. Pacific The EBITDA margin in the Pacific area fell 1.3 percentage points, as theimproved margin in Australia was more than offset by the lower margin in NewZealand resulting from the increased cost of telecommunications serviceobligation regulation and the acquisition of ihug which, together with adverseforeign exchange rates, reduced New Zealand's EBITDA by 13.1%. Acquisition and retention costs increased as a percentage of service revenue dueto the investment in higher value customers in Australia, which also had afavourable impact on contract churn, and were partially offset by savings innetwork costs and operating expenses. Associates 2007 2006 % change ------------------------ ----------------------- ------------------- Verizon Verizon Verizon Verizon Wireless Other Total Wireless Other Total Wireless Wireless £m £m £m £m £m £m £ $Share of result of associates Operating profit 2,442 940 3,382 2,112 1,010 3,122 15.6 22.9Interest (179) (27) (206) (204) (23) (227) (12.3) (7.0)Tax (125) (271) (396) (116) (329) (445) 7.8 14.6Minority interest (61) - (61) (60) 8 (52) 1.7 6.7 ------------------------ ----------------------- 2,077 642 2,719 1,732 666 2,398 19.9 27.6 ======================== =======================Verizon Wireless (100% basis) Total revenue (£m) 20,860 18,875 10.5 17.4EBITDA margin (%) 38.5% 37.9% Closing customers('000) 60,716 53,020 Average monthly ARPU ($) 52.5 51.4 Blended churn (%) 13.9% 14.7% Mobile non-voice service revenue as a percentage of mobile service revenue (%) 14.4% 8.9% Verizon Wireless produced another year of record growth in organic netadditions, increasing its customer base by 7.7 million in the year ended 31March 2007. The performance was particularly robust in the higher value contractsegment and was achieved in a market where the estimated closing mobilepenetration reached 80%. The strong customer growth was achieved through a combination of higher grossadditions and improvements in Verizon Wireless's customer loyalty, with thelatter evidenced through lower levels of churn. The 15.4% growth in the averagemobile customer base combined with a 2.1% increase in ARPU resulted in a 17.8%increase in service revenue. ARPU growth was achieved through the continuedsuccess of data services, driven predominantly by data cards, wireless e-mailand messaging services. Verizon Wireless improved its EBITDA margin due toefficiencies in other direct costs and operating expenses, partly offset by ahigher level of customer acquisition and retention activity. Verizon Wireless continued to lay the foundations for future data revenue growththrough the launch of both CDMA EV-DO Rev A, an enhanced wireless broadbandservice, and broadcast mobile TV services during the first calendar quarter of2007. In addition, Verizon Wireless consolidated its spectrum position duringthe year with the acquisition of spectrum through the FCC's Advanced WirelessServices auction for $2.8 billion. The Group's share of the tax attributable to Verizon Wireless for the year ended31 March 2007 relates only to the corporate entities held by the VerizonWireless partnership. The tax attributable to the Group's share of thepartnership's pre-tax profit is included within the Group tax charge. The Group's other associated undertakings in EMAPA have been impacted by intensecompetition and reduction in termination rates, similar to the experiences ofthe Group's controlled businesses in the Europe region, which have had anegative impact on revenue. The Group disposed of its associated undertakings inBelgium and Switzerland on 3 November 2006 and 20 December 2006, respectively,for a total cash consideration of £3.1 billion. The results of the Group'sdisposed associated undertakings in Belgium and Switzerland are included untilthe respective dates of the announcement of disposal. SFR, the Group's associated undertaking in France, achieved an increase of 3.5%in its customer base, higher voice usage and strong growth in data services.However, service revenue was stable in local currency as the impact of theseitems was offset by a 5.7% decline in ARPU due to the increase in competitionand significant termination rate cuts imposed by the regulator. The voicetermination rate was cut by 24% to 9.5 eurocents per minute with effect from 1January 2006 and by a further 21% to 7.5 eurocents per minute with effect from 1January 2007. France is the first European Union country to impose regulation onSMS termination rates, which were cut by 19% with effect from 1 January 2006 anda further 30% with effect from mid September 2006 to 3 eurocents per SMS. SFR'sEBITDA margin improved 1.4 percentage points to 36.7%, primarily as a result oftermination rate cuts benefiting interconnect costs. With effect from July 2007, SFR will be governed by the Europe regionalmanagement team. Accordingly, for the 2008 financial year onwards SFR will bereported as part of the Europe region. Investments China Mobile, in which the Group has a 3.27% stake and is accounted for as aninvestment, increased its customer base by 21.3% in the period to 316.1 million.Dividends of £57 million were received by the Group in the 2007 financial year. COMMON FUNCTIONS 2007 2006 % £m £m change Revenue 168 145 15.9Other direct costs (66) - -Operating expenses 206 130 58.5 ---------------EBITDA 308 275 12.0Depreciation and amortisation (181) (72) 151.4Share of result in associated undertakings 1 8 (87.5) ---------------Adjusted operating profit 128 211 (39.3) =============== Common functions represent the results of Partner Markets and the net result ofcentral Group costs less charges to the Group's operations. Adjusted operatingprofit has been impacted in the 2007 financial year by restructuring costsincurred in the central functions, principally marketing and technology, whichamounted to £36 million. CASH FLOWS AND FUNDING During the year to 31 March 2007, the Group decreased its net cash inflow fromoperating activities by 12.8% to £10,328 million and generated £6,119 million offree cash flow, as analysed in the following table: 2007 2006 % £m £m change Net cash inflow from operating activities 10,328 11,841 (12.8)--------------------------------------------------------------------------------------- Continuing operations 10,193 10,190 -- Discontinued operations 135 1,651 (91.8)--------------------------------------------------------------------------------------Add: Taxation(1) 2,243 1,682 33.4Purchase of intangible fixed assets (899) (690) 30.3Purchase of property, plant and equipment (3,633) (4,481) (18.9)Disposal of property, plant and equipment 34 26 30.8 -------- --------Operating free cash flow 8,073 8,378 (3.6)--------------------------------------------------------------------------------------- Continuing operations 8,081 7,695 5.0- Discontinued operations (8) 683 --------------------------------------------------------------------------------------Taxation(1) (2,243) (1,682) 33.4Dividends received from associated undertakings(2) 791 835 (5.3)Dividends paid to minority shareholders in subsidiary undertakings (34) (51) (33.3)Dividends received from investments 57 41 39.0Interest received 526 319 64.9Interest paid (1,051) (721) 45.8 -------- --------Free cash flow 6,119 7,119 (14.0) ======== ========--------------------------------------------------------------------------------------- Continuing operations 6,127 6,418 (4.5)- Discontinued operations (8) 701 -------------------------------------------------------------------------------------- Note:(1) Year to 31 March 2007 includes £nil (2006: £(31) million) related to discontinued operations. (2) Year to 31 March 2007 includes £450 million (2006: £511 million) from the Group's interest in SFR and £328 million (2006: £195 million) from the Group's interest in Verizon Wireless. Free cash flow decreased primarily as a result of lower net cash inflow fromoperating activities, higher net interest and £0.4 billion of tax payments,including associated interest, in respect of a number of long standing taxissues, partly offset by lower capital expenditure during the year. An analysis of net debt for continuing operations is as follows: 2007 2006 £m £mCash and cash equivalents (as presented in the consolidated cash flow statement) 7,458 2,932Bank overdrafts 23 18Cash and cash equivalents for discontinued operations - (161) ------- -------Cash and cash equivalents (as presented in the consolidated balance sheet) 7,481 2,789 ------- -------Trade and other receivables(1) 304 310Trade and other payables(1) (219) (219)Short-term borrowings (4,817) (3,448)Long-term borrowings (17,798) (16,750) ------- ------- (22,530) (20,107) ------- -------Net debt (15,049) (17,318) ======= =======Note:(1) Mark to market adjustments on financing instruments are included within trade and other receivables and trade and other payables. At 31 March 2007 the Group had £7.5 billion of cash and cash equivalents, withthe increase since 31 March 2006 being due to the funding requirements inrelation to the completion of the Hutch Essar transaction, which occurred on 8May 2007. In aggregate, the Group has committed facilities of approximately £7.9billion, of which £5.8 billion were undrawn at 31 March 2007. The Group targets low single A long term credit ratings from Moody's, FitchRatings and Standard & Poor's, respectively. Following the acquisition of HutchEssar, Moody's downgraded their long-term credit rating for the Group from A3 toBaa1 on 16 May 2007. Credit ratings are not a recommendation to purchase, holdor sell securities, in as much as ratings do not comment on market price orsuitability for a particular investor, and are subject to revision or withdrawalat any time by the assigning rating organisation. Each rating should beevaluated independently. TOTAL SHAREHOLDER RETURNS Dividends The Board remains committed to its existing policy of distributing 60% ofadjusted earnings per share by way of dividend. However, in recognition of theearnings dilution arising from the Hutch Essar acquisition, it has decidedthat it will target modest increases in dividend per share in the near termuntil the payout ratio returns to 60%. The directors are proposing a final dividend of 4.41 pence per share,representing a 14% increase over last year's final dividend. This is in linewith the previously announced target dividend payout ratio at approximately 60%of adjusted earnings per share. The ex-dividend date is 6 June 2007 for ordinary shareholders, the record datefor the final dividend is 8 June 2007 and the dividend is payable on 3 August2007. Special distribution of £9 billion At an Extraordinary General Meeting of the Company on 25 July 2006, shareholdersapproved a distribution of approximately £9 billion in the form of a B sharearrangement. This equated to 15 pence per B share for each ordinary share inissue at 28 July 2006. Payment in respect of redemption of the B sharearrangement was made in August 2006 and February 2007 and all but £20 million ofthe total amount payable had been settled as at 31 March 2007. During such timethat the remaining B shares are outstanding, they will accrue a non-cumulativedividend at the rate of 75% of sterling LIBOR, payable semi-annually in arrearsuntil redemption. The Company has the right to redeem all remaining B shares by5 August 2008. SIGNIFICANT TRANSACTIONS The Group received a net £6,989 million cash and cash equivalents fromacquisition and disposal activities, including the purchase and disposal ofinvestments, in the year to 31 March 2007 and an analysis of the significanttransactions and the changes to the Group's effective interest in the entitiesis shown below. £mAcquisitions: Telsim Mobil Telekomunikasyon Hizmetleri (from nil to 100% of tradeand assets) (2,569) Disposals: Vodafone Japan (from 97.7% to nil) (1) 6,810Proximus (from 25% to nil) 1,343Swisscom Mobile (from 25% to nil) 1,776 Other net acquisitions and disposals, including investments(1) (371) -------Total 6,989 ======= Note:(1) Amounts are shown net of cash and cash equivalents acquired or disposed. On 27 April 2006, the Group completed the sale of its entire interest inVodafone Japan to SoftBank, following which it retains investments in SoftBankin the form of subordinated loans and preference shares. On 24 May 2006, the Group acquired substantially all the assets and business ofTelsim Mobil Telekomunikasyon Hizmetleri ("Telsim") from the Turkish Savings andDeposit Insurance Fund for consideration of US$4.7 billion. In addition to theconsideration price, the Group paid US$0.4 billion of VAT in April 2007, whichis recoverable against Telsim's future VAT liabilities. The Group did notacquire Telsim's liabilities, other than certain minor employee-relatedliabilities and outstanding service credits to be fulfilled. On 3 November 2006, the Group sold its 25% interest in Belgacom Mobile S.A., theGroup's associated undertaking in Belgium. On 20 December 2006, the Group sold its 25% interest in Swisscom Mobile A.G.,the Group's associated undertaking in Switzerland. SUBSEQUENT EVENTS On 8 May 2007, the Group completed its acquisition from Hutchison Telecom International Limited's ("HTIL") of companies with interests in Hutch Essar. Following this acquistion, Vodafone controls Hutch Essar. Vodafone has paid US$10.9billion (£5.5 billion) in cash to HTIL, reflecting retention and closing adjustments agreed between Vodafone and HTIL. In conjunction with the acquisition of Hutch Essar, the Group entered into ashare sale and purchase agreement with a Bharti group company regarding theGroup's 5.60% direct shareholding in Bharti Airtel. On 9 May 2007, the Bhartigroup company irrevocably agreed to purchase this shareholding and the Groupexpects to receive $1.6 billion in cash consideration for such shareholding byNovember 2008. The shareholding will be transferred in two tranches, the firstbefore 31 March 2008 and the second by November 2008. Following the completionof this sale, the Group will continue to hold an indirect stake of 4.39% inBharti Airtel. On 23 May 2007, the European Parliament voted to introduce regulation on retailand wholesale roaming prices. The Group expects roaming revenues to be loweryear on year in 2008 due to the combined effect of Vodafone's own initiativesand this direct regulatory intervention. This information is provided by RNS The company news service from the London Stock Exchange

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