30th May 2006 07:02
Vodafone Group Plc30 May 2006 VODAFONE GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2006PART 2 OTHER MOBILE OPERATIONS -------------------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 % change £m £m £ Organic Total revenue Subsidiaries 7,812 6,474 20.7 Joint ventures 1,470 1,184 24.2 Less: intra-segment revenue (32) (21) 52.4 ---------- ---------- 9,250 7,637 21.1 12.6 ---------- ---------- Adjusted Subsidiaries 1,445 1,368 5.6 operating profit Joint ventures 363 305 19.0 Associated undertakings 695 671 3.6 ---------- ---------- 2,503 2,344 6.8 6.4 ---------- ---------- Trading results Voice services 7,313 6,070 20.5 Non-voice services - messaging 1,017 790 28.7 - data 200 113 77.0 ---------- ---------- Total service revenue 8,530 6,973 22.3 Net other revenue(1) 137 110 24.5 Interconnect costs (1,698) (1,367) 24.2 Other direct costs (727) (568) 28.0 Net acquisition costs(1) (443) (393) 12.7 Net retention costs(1) (358) (267) 34.1 Payroll (624) (531) 17.5 Other operating expenses (1,531) (1,140) 34.3 ---------- ---------- EBITDA 3,286 2,817 16.6 6.6 Acquired intangibles amortisation (157) - Purchased licence amortisation (129) (100) 29.0 Depreciation and other amortisation (1,192) (1,044) 14.2 Share of result in associates 695 671 3.6 ---------- ---------- Adjusted operating profit 2,503 2,344 6.8 6.4 ---------- ---------- EBITDA margin 35.5% 36.9% Share of result Operating profit 1,044 1,020 2.4 in associated Interest (20) (7) 185.7 undertakings Tax (329) (342) (3.8) ---------- ---------- 695 671 3.6 ---------- ---------- (1) Total revenue includes £583 million (2005: £554 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------------------------------------------------------------------------------------------------- Total revenue for the Group's Other Mobile Operations increased by 21.1%, or12.6% on an organic basis. The net impact of acquisitions in the Czech Republic,India, Romania and South Africa and the disposal of the Group's Swedishoperations during the year ended 31 March 2006 increased reported revenue growthby 6.8%. Favourable exchange rate movements accounted for 1.7% of the remainingdifference between reported and organic growth. The increase in total servicerevenue was principally driven by an increase in the average customer base of26.5% excluding the impact of the acquisitions and disposal and of 44.0%including the impact of the acquisitions and disposal. This effect was partiallyoffset by cuts in termination rates in certain markets, reduced ARPU from thelaunch of more competitive tariffs and an increase in the number of lower usageprepaid customers. Excluding the impact of termination rate cuts, servicerevenue growth would have been 25.0%. Messaging and non-messaging data revenuegrew strongly, increasing by 18.6% and 74.1%, respectively, on an organic basisand by 28.7% and 77.0%, respectively, including the impact of acquisitions,disposals and exchange rate movements. The EBITDA margin decreased by 1.4 percentage points, primarily as a result ofan increase in the Group's charge for the use of the brand and relatedtrademarks, which amounted to a 0.5 percentage point fall in the EBITDA margin,and a reduction in margins in certain highly competitive markets, in particularAustralia and the Netherlands, though these factors were partially offset by thehigher margin contributed by acquisitions in the year and the impact of thedisposal of the Group's Swedish operations. Adjusted operating profit increased by 6.8%, or 6.4% on an organic basis, overthe comparative period, with 0.5% of the difference due to the acquisitions anddisposal in the current financial year, offset by 0.9% resulting from favourableforeign exchange rate movements. The reported growth in adjusted operatingprofit in the year was a result of the increase in EBITDA offset by higherdepreciation and purchased licence amortisation, following the launch of 3Gservices in Australia and New Zealand, and the amortisation of identifiableintangible assets from the acquisitions in the current financial year. Other Mobile subsidiaries In Greece, service revenue grew by 9.4% when measured in local currency, dueprimarily to a 13.6% rise in the average customer base. ARPU decreased by 3.7%year-on-year, mainly due to a reduction in termination rates of 16.8% inSeptember 2004. In local currency, service revenue growth was 12.0% excludingthe termination rate cut. An increasing emphasis on retaining customers byencouraging prepaid to contract customer migration resulted in churn decreasingto 25.0% for the current financial year from 29.7% in the previous year. Service revenue in Egypt, when measured in local currency, grew by 36.2%,primarily as a result of an increase in the average prepaid customer base of82.0% which was driven by new innovative tariffs improving access andaffordability in the market place. Revenue market share increased by 3.8percentage points in the 2006 financial year to 51.8%. Competition in Portugal intensified during the year with aggressively pricedno-frills offerings by competitors which, combined with cuts in the terminationrate which resulted in the average termination rate this year being 28.3% lowerthan last year, led to local currency service revenue growth being restricted to1.6%. In the Netherlands, an increase of 3.5% in service revenue and a 10.0% growth inthe average customer base was achieved. Vodafone Australia increased its customer base by 16.0%, and local currencyservice revenue by 11.8% due to the popularity of its capped plans, which haveresulted in a significant increase in outgoing voice usage, whilst adverselyimpacting outgoing voice revenue per minute and interconnect costs. 3G serviceswere launched on 31 October 2005, with strong uptake resulting in 171,000consumer 3G devices being registered on the network by 31 March 2006. New Zealand achieved service revenue growth of 8.5%, driven by a 12.3% growth inthe average customer base, due principally to the launch of competitivepromotions during the year. 3G services were launched on 10 August 2005, with103,000 3G devices registered by the end of the financial year. In Ireland, service revenue grew by 5.9%, primarily due to an increase of 9.2%in total voice usage following a 5.9% increase in the average customer base.Voice usage per customer in Ireland remains the highest of all Vodafone'sEuropean subsidiaries. On 5 January 2006, the Group announced that it had completed the sale of its100% interest in Vodafone Sweden to Telenor, the pan-Nordic telecommunicationsoperator. Vodafone and Telenor have agreed the terms of a Partner MarketAgreement in Sweden, allowing Telenor's mobile customers in Sweden and Vodafonecustomers to continue to benefit from Vodafone's global brand, products andservices in Sweden. Service revenue growth in Hungary and Albania, when measured in local currency,was 13.9% and 16.2% respectively. Vodafone Romania increased service revenue by39.0% in local currency compared with the previous financial year, assuming theGroup's increased equity interest is reflected in the whole of the current andprior financial year. Additionally, Vodafone's newly acquired subsidiaries inthe Czech Republic and Romania have performed ahead of the Group's expectationsat the time of the acquisition. Other Mobile joint ventures Average proportionate customers for the Group's joint ventures, excluding Italy,grew organically by 43.4% in the year to 31 March 2006, with strong growth inmarkets with relatively low penetration rates. The customer growth was theprimary reason for the 19.0% increase in adjusted operating profit for othermobile joint ventures. During the financial year, the Group completed the acquisition of a 10% economicinterest in Bharti Tele-Ventures Limited (now renamed Bharti Airtel Limited), aleading national mobile operator in India. The Group also increased its effective shareholding in its joint venture inSouth Africa, Vodacom, from 35% to approximately 50% following the acquisitionof VenFin Limited. Other Mobile associated undertakings SFR, the Group's associated undertaking in France, reported strong growth inrevenue and operating profit, principally as a result of an 8.1% increase inaverage customers compared with the previous financial year. Usage of both voiceand non-voice services increased in the year and SFR had a total of 5,268,000Vodafone live! customers at 31 March 2006. SFR continues to grow its 3G base andat 31 March 2006 had registered 1,352,000 3G devices on its network. On 30 November 2005, the French competition authority fined SFR €220 million forengaging in anti-competitive agreements that distorted market competition. SFRis in the process of appealing this decision. On 7 April 2006, the Swiss Competition Commission notified Swisscom Mobile, theGroup's associated undertaking in Switzerland, of its intention to impose a fineof CHF489 million in relation to abusive pricing on the mobile wholesale calltermination market between 1 April 2004 and 31 May 2005. Other Mobile investments China Mobile, in which the Group has a 3.27% stake, and is accounted for as aninvestment, grew its customer base by 21.9% in the year to 260.6 million at 31March 2006. Dividends of £41 million were received in the year. COMMON FUNCTIONS ---------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 % change £m £m £ Revenue 145 123 17.9 ---------- ---------- EBITDA 275 (19) Depreciation and other amortisation (72) (66) Share of result in associated undertakings 8 - ---------- ---------- Adjusted operating profit/ (loss) 211 (85) ---------- ---------- See page 41 for definition of terms--------------------------------------------------------------------------------------- Common functions include the results of Partner Markets and unallocated centralGroup costs and charges. Adjusted operating profit increased primarily due to arevision of the charges made to Vodafone operating companies for the use of theVodafone brand and related trademarks which took effect from 1 April 2005. OTHER OPERATIONS ---------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 % change £m £m £ Revenue Germany 1,320 1,095 20.5 Other 19 - ---------- ---------- 1,339 1,095 22.3 ---------- ---------- Adjusted operating profit/(loss) Germany 139 64 117.2 Other (20) (45) ---------- ---------- 119 19 ---------- ---------- See page 41 for definition of terms--------------------------------------------------------------------------------------- Other operations comprise interests in fixed line telecommunications businessesin Germany, France and India. Germany In local currency, Arcor's revenue increased by 20.7%, primarily due to customerand usage growth, partially offset by tariff decreases in the competitivemarket. The incumbent fixed line market leader continues to drive this intensivecompetition, although Arcor further strengthened its position as the maincompetitor. Contract ISDN voice customers increased by 103% to 1,447,000 and DSL(broadband internet) customers by 166% to 1,209,000 in the current financialyear. Arcor increased its share of the DSL market to 11%. Revenue growth andcost efficiencies led to the substantial improvement in adjusted operatingprofit. Other The merger of Cegetel, the Group's associated undertaking, and Neuf Telecomclosed on 22 August 2005, giving the Group a proportionate interest of 12.4% inthe leading alternative operator for fixed line telecommunications services inFrance. The new entity, Neuf Cegetel, has the largest alternative broadbandnetwork in France, with 70% population coverage. DISCONTINUED OPERATIONS - JAPAN ---------------------------------------------------------------------------------------Financial highlights Year ended 31 March 2006 2005 % change £m £m £ Revenue 7,268 7,395 (1.7) ---------- ---------- Adjusted operating profit 455 664 Impairment loss (4,900) - ---------- ---------- Operating (loss)/profit (4,445) 664 Non-operating income and expense - 13 Net financing costs (3) (11) Tax on (loss)/profit(1) (140) 436 ---------- ---------- (Loss)/profit from discontinued operations (4,588) 1,102 ---------- ---------- KPIs Closing customers ('000) 15,210 15,041 1.1 Average monthly ARPU JPY5,889 JPY6,148 (4.2) (1) Included a deferred tax credit of £599 million in the year to 31 March 2005 in respect of losses in Vodafone Holdings K.K. which became eligible for offset against profits of Vodafone K.K. following the merger of the two entities on 1 October 2004.See page 41 for definition of terms--------------------------------------------------------------------------------------- On 17 March 2006, the Group announced that an agreement had been reached to sellits 97.7% interest in Vodafone Japan to Softbank. This resulted in the Group'soperations in Japan being classified as an asset held for sale and beingpresented as a discontinued operation. The disposal was completed on 27 April2006. Following the announcement on 17 March 2006, the Group recognised an impairmentloss of £4,900 million in respect of Vodafone Japan. The recoverable amount ofVodafone Japan represented the fair value less costs to sell. GLOBAL SERVICES One Vodafone The One Vodafone initiatives are aimed at achieving savings in operatingexpenses and enhancing revenue for the Group's controlled mobile businesses andthe Group's jointly controlled mobile business in Italy, excluding the mobilebusinesses acquired since the 2004 financial year. The Group has previouslytargeted that, in the 2008 financial year, operating expenses, being theaggregate of payroll, other operating expenses and capitalised fixed assetadditions, will be broadly similar to those for the 2004 financial year,assuming no significant changes in exchange rates and after adjusting foracquisitions and disposals. The Group has also previously targeted mobile capitalised fixed asset additionsin the 2008 financial year to be 10% of mobile revenue as a result of theinitiatives. Further, revenue enhancement initiatives have been expected to deliver benefitsequivalent to at least 1% additional revenue market share in the 2008 financialyear compared with the 2005 financial year, which the Group is measuring inGermany, Italy, Spain and the UK against its principal competitors. The Group has updated its One Vodafone targets to reflect both the neworganisational structure and additional cost saving initiatives. 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 its commonfunctions. The Group now expects total payroll and other operating expenses alone to bebroadly stable in the 2008 financial year when compared with the 2006 financialyear for the total of the Group's Europe region and its common functions,assuming no significant changes in exchange rates, after adjusting foracquisitions and disposals and excluding the potential impact from its NewBusinesses unit and any one off business restructuring costs. The objective for the 2006 financial year has been to commence implementation ofthe plans outlined last year. Significant benefits are expected in the 2007financial year, with the full targets expected to be met in the 2008 financialyear. The One Vodafone programme has focused on six key initiatives, as follows: * The network and supply chain management initiative has driven prices down over the last two years in the radio network area through competitive bidding via e-auctions and standardising specifications for base stations, accessories and operating costs. In core networks, the Group is advancing towards an all IP based network, thereby simplifying and reducing the number of component parts and leading to lower costs. Through increasing the amount of self built transmission, both through microwave links and owned dark fibre, costs are being reduced and future cost escalation will be limited as the volume of data traffic grows. * The service platforms initiative has created a shared service organisation to host the European development and operations of services. The shared service organisation is now providing a hosting service for the Vodafone live! portal for seven of the Group's mobile operating subsidiaries, the Group's joint venture in Italy and two Partner Markets. Other platforms are also being migrated and new services are being implemented, for the first time, solely on the shared service platform. The centralisation is designed not only to reduce costs but also to increase revenue through reduced time to market for new products and services. * The IT initiative focuses on the two areas of data centres and application development. For data centres, which host the servers to support billing and customer relationship management systems, consolidation is underway, with migrations of all of the Southern European, German and Dutch data centres completed in the year, and work is progressing on the UK and Ireland data centres following the completion of the planning phase in the 2006 financial year. The remaining part of the IT effort is focused on driving efficiencies in application development and maintenance, which will continue through to 2008 and beyond. Activities in both these areas are enabling the Group to leverage its global purchasing power and drive operational excellence. * The customer management programme is focused on driving segment and value based service differentiation to improve customer satisfaction, generate revenue and reduce churn. During the 2006 financial year, achievements included the launch of a common customer management service strategy, the implementation of a cross operating company network of specialised roaming customer care teams to improve service for our roaming customers and the roll out of a number of best practice activities to a number of operating companies. * The focus of the terminals programme is to provide an end to end process for delivering terminals to our customers, driving benefits from scale and reduced time to market. At present, the procurement of approximately four out of five handsets in the Group's mobile operating subsidiaries and joint venture in Italy are negotiated globally, providing the Group with scale advantages. In addition, complexity in handsets is being reduced by standardising components and the move to a smaller number of technology platforms. It is expected that these activities, together with the launch of exclusive Vodafone branded handsets, will drive incremental revenue benefits, as well as cost savings, through reduced churn and higher ARPU per handset. * Finally, the focus of the roaming initiative is to transform customers' roaming experience, primarily through reducing barriers to usage by providing better value when they travel abroad. In addition, providing the best value inter-operator tariffs and consolidating certain roaming support activities are key goals of the programme. Vodafone Passport has been launched in 13 markets and over 6 million customers have signed up to the service at 31 March 2006. Improvements in customer satisfaction and a higher proportion of customers roaming on to Vodafone networks have been observed. PRODUCTS AND SERVICES Summary of the availability of the Group's key product and services Number of markets at 31 March 2006 At 31 March 2006 ------------------------------------------------------------------ Number of Markets devices/ customers on launched Subsidiaries controlled and jointly during and joint Partner controlled networks the year ventures Associates Markets ('000) Vodafone live!(1) 4 14 3 7 27,070Vodafone live! with 3G(1) 5 11 3 3 7,721Vodafone Mobile Connect 3G/GPRS data card(1) 8 13 3 8 648BlackBerry from Vodafone(2) 7 13 3 9 426Vodafone Wireless Office(2) 1 11 1 2 1,509Vodafone Passport(2) 13 11 1 1 5,586Vodafone Simply(1) 17 12 2 3 398Notes:(1) Device based measure(2) Customer based measure Vodafone live! Vodafone live!, the Group's integrated communications and multimedia propositiontargeted primarily at the young adult segment, has continued to grow strongly.During the 2006 financial year, 23 new devices have been added to the Vodafonelive! portfolio, with an increased emphasis on exclusive and customised devices. Throughout the 2006 financial year, Vodafone has continued to develop standardsin the areas of terminals, platforms, games, digital rights management and MMS.These initiatives are expected to lead to increased speed to market and betterservices for customers. Vodafone live! with 3G Vodafone live! with 3G now has an expanded portfolio of 35 devices, with 17 new3G devices having been added to the portfolio during the 2006 financial year. An enhanced mobile experience gives Vodafone live! with 3G customers access to aunique range of high quality content and communication services such as newsbroadcasts, sports highlights, music videos, movie trailers and a host of othervideo content. The Group continues to work with leading content partners toenhance the mobile TV and film content offering. The 3G service also supportsfull track music downloads, which allow customers to use their phone to listento music, choosing from a range that currently includes more than 600,000 musictracks. Using the 3G service, customers can also download live performancevideos and stream clips direct to their mobiles. The line up of mobile games forVodafone live! with 3G customers to download is continually expanding. In the coming year, Vodafone will continue to enhance the music offering withthe introduction of Vodafone Radio DJ, a personalised, interactive radio servicestreamed to both 3G phones and PCs. Customers will have access to hundreds ofthousands of tracks and will be able to personalise radio channels to theirtaste. This service will be offered on a monthly subscription, giving unlimitedlistening time, and is due for release in more than 20 countries over the nexttwelve months. Vodafone Mobile Connect data cards The Vodafone Mobile Connect data card provides simple and secure access toexisting business information systems such as email, corporate applications,company intranets and the internet for customers on the move. Access speedsrange from up to 384 kilobits per second when connected to a 3G network to 1.2megabits per second when connected to a network enabled with HSDPA technology("3G broadband"). The Vodafone Mobile Connect with 3G broadband data card hasrecently been launched in five markets, with other markets to follow, andVodafone Mobile Connect data cards continue to be available in an increasingnumber of distribution channels. During the 2006 financial year, Vodafone announced the launch of the Built-in 3Gbroadband from Vodafone proposition with Acer, Dell and Lenovo notebooks. Theroll out of the notebooks will further enhance the choices available to Vodafonecustomers for high speed mobile working. Roaming On 8 May 2006, the Group announced that average European roaming costs forVodafone customers will be cut by at least 40% by April 2007, when compared tothe period from June to August 2005. This is expected to benefit over 30 millionVodafone customers who roam every year and will see the average cost of roamingin Europe fall from over 90 eurocents to less than 55 eurocents per minute. Theaverage saving was determined by calculating the expected cost per minute forall Vodafone's European customers who roam within the EU during the month ofApril 2007 and comparing this to the average cost per minute for all Europeancustomers who roamed within the EU during the period from June to August 2005. Vodafone also announced that it will enter into reciprocal wholesalearrangements with any other European operator at no more than 45 eurocents perminute for voice calls within the EU from October 2006. This will enable bothVodafone and other European mobile operators to continue to lower the cost ofroaming to customers outside of their own networks. Vodafone Passport Vodafone Passport introduced a new roaming pricing structure for calls made onVodafone and partner networks, enabling customers to "take their home tariffabroad" and offering greater price transparency and certainty to customers whenusing roaming services abroad. Whilst abroad, customers can make calls usingtheir domestic tariff, in some cases including free minute bundles, and receivecalls at no charge, all for a one off connection fee per call. Vodafone Simply The Vodafone Simply proposition is predominantly targeted at the adult personaluser segment and has been developed to help customers who are less comfortablewith the full capabilities of mobile technology but still would like to accessthe mobile experience. The proposition includes exclusively developed, 'easy touse' mobile phones with uniquely developed user interfaces accompanied withtariff plans and a tailored retail and customer support experience. Vodafone Wireless Office Vodafone Wireless Office offers companies the opportunity to reduce the numberof fixed desk phones, facilitating the move of voice minutes from the fixed tothe mobile network through a solution that includes elements that match orbetter fixed line call costs, desk phone functionality and user experience. Aclosed user group tariff, allowing employees to call each other for a flatmonthly fee and an option that allows users to drive their mobile phone fromtheir PC or laptop are key aspects of the offer. Other Business Services Demand for handheld solutions that allow real-time access to email, calendar,contact and other applications, beyond the wireless enablement of notebookcomputers has continued to increase with the BlackBerry from Vodafoneproposition. FINANCIAL UPDATE INCOME STATEMENT Investment income and Financing costs 2006 2005 £m £m Investment income 353 294Financing costs (1,120) (880) ---------- ---------- (767) (586) ========== ==========Analysed as: - Net financing costs before dividends from investments (318) (293)- Potential interest charges arising on settlement of outstanding tax issues (329) (245)- Changes in fair value of equity put rights and similar arrangements (see note 5) (161) (67)- Dividends from investments 41 19 ---------- ---------- (767) (586) ========== ========== Net financing costs before dividends from investments increased by 8.5% to £318million as an increase in average net debt compared to the previous year waspartially offset by gains on mark to market adjustments on financial instrumentsin the current financial year. At 31 March 2006, the provision for potentialinterest charges arising on settlement of outstanding tax issues was £896million. Taxation 2006 2005 £m £m Tax on (loss)/profit 2,380 1,869Share of associated undertakings' tax 443 448 ---------- ----------Adjusted tax on (loss)/profit 2,823 2,317 ========== ========== (Loss)/profit before tax (14,853) 7,285 Less: - Share of associated undertakings' non-operating income (17) -- Impairment losses 23,515 475- Other income and expense (15) -- Non-operating income and expense 2 5- Change in fair value of equity put rights and similar arrangements 161 67 ---------- ----------Adjusted profit before tax 8,793 7,832 Add: Share of associated undertakings' tax and minority interest 495 492 ---------- ----------Adjusted profit before tax for the purpose of calculating adjusted effective tax rate 9,288 8,324 ========== ==========Adjusted effective tax rate 30.4% 27.8% ========== ========== The adjusted effective tax rate for the year to 31 March 2006 is 30.4% comparedto 27.8% for the prior year. The Group's adjusted effective tax rate is lowerthan the Group's weighted average tax rate as a result of the repurchase ofshares in Vodafone Italy and favourable tax settlements but has increasedcompared to the previous year as the prior year benefited from the finalisationof the reorganisation of the Group's German operations. The effective tax rate for the year ending 31 March 2007 is expected to increaseby a similar amount to the increase for the 2006 financial year, primarily dueto one off restructuring benefits in the 2006 financial year. The Group has previously indicated that in the three year period ending 31 March2009 it expects a number of long standing tax issues to be resolved. The Groupestimates that tax payments of approximately £5 billion could be made over thatperiod, together with associated interest costs, including a potentiallymaterial amount relating to CFC litigation. (Loss)/earnings per share for continuing operations Adjusted earnings per share increased by 13.0% from 8.95 pence to 10.11 pencefor the year to 31 March 2006. Basic earnings per share fell from 8.12 pence toa loss per share of 27.66 pence for the 2006 financial year. Adjusted earnings per share is stated before a charge of 37.56 pence per sharein relation to an impairment of the carrying value of goodwill, a further chargeof 0.26 pence for the change in fair value of equity put rights and similararrangements and a credit of 0.05 pence per share for the non-recurring amountsrelating to business acquisitions and disposals. Total shareholder returns Dividends The Company has historically paid dividends semi-annually, with a regularinterim dividend in respect of the first six months of the financial yearpayable in February and a final dividend payable in August. The Board expectsthat the Company will continue to pay dividends semi-annually. In November 2005,the Board declared an interim dividend of 2.20 pence per share, representing a15% increase over last year's interim dividend. In considering the level of dividends, the Board takes account of the outlookfor earnings growth, operating cash flow generation, capital expenditurerequirements, acquisitions and divestments, together with the amount of debt andshare purchases. Consistent with this, and developments to the Group's strategy, the Board hasdecided to target a 60% dividend pay out ratio taking effect for the 2006financial year. The Board is, therefore, recommending a final dividend of 3.87pence, representing a 79.2% increase over last year's final dividend andbringing the total dividend for the year to 6.07 pence, an increase of 49.1% onlast year's total dividend. The dividend pay out ratio, being the declaredinterim and proposed final dividends per share as a percentage of adjustedearnings per share from continuing operations, in respect of the 2006 financialyear of 60%, compares favourably with a pay out ratio for the 2005 financialyear of 45%. It is the intention to grow future dividends on an annual basis inline with underlying earnings growth, maintaining dividends per share atapproximately 60% of adjusted earnings per share. The ex-dividend date is 7 June 2006 for ordinary shareholders, the record datefor the final dividend is 9 June 2006 and the dividend is payable on 4 August2006. Special distribution of £9 billion On 17 March 2006, the Group stated that it will make a special distribution toshareholders of approximately £6 billion in the 2007 financial year of the £6.9billion cash received following the completion of the sale of Vodafone Japan.Through targeting a lower credit rating, the Group now plans to return a further£3 billion, resulting in a total distribution of approximately £9 billion. This equates to 15 pence per ordinary share. Subject to shareholder approval,the method of distribution will be in the form of a B share arrangement with ashare consolidation, which will reduce the Company's shares in issue. The Bshare arrangement provides for shareholder flexibility as to when and how cashis received, thereby allowing income tax and capital gains management for someshareholders. The Company will post a circular to shareholders, with fulldetails of the B share arrangement and the consolidation, on or around 13 June2006. The consolidation, which will replace existing ordinary shares with fewer newordinary shares, is intended to maintain the share price, subject to normalmarket movements, and, consequently, historic comparability. For non-USshareholders, the B shares will be redeemed by default, with shareholdersreceiving a capital distribution. They may, however, elect for certainalternatives. Non-US shareholders can elect to receive the 15 pence as a one offdividend or elect to receive the capital distribution over time atpre-determined dates. Payment in respect of the initial redemption is intendedto be made on 11 August 2006 and for any shareholders electing to receive theone off 15 pence per B share dividend payment is also intended to be made on 11August 2006. We expect that US shareholders and ADR holders will only beentitled to receive the return as a one off dividend. Share purchases When considering how increased returns to shareholders can be provided in theform of share purchases, the Board reviews the free cash flow, anticipated cashrequirements, dividends, credit profile and gearing of the Group. On 24 May 2005, the Board allocated £4.5 billion to the share purchase programmefor the year to 31 March 2006, which was subsequently increased to £6.5 billion.For the period from 1 April 2005 to 31 March 2006, the Company purchased 4,848million shares at a cost of £6.5 billion. No shares have been purchased since 31March 2006. In addition to ordinary market purchases, the Company placedirrevocable purchase instructions prior to the start of some of the closeperiods and in advance of quarterly KPI announcements. At its Annual General Meeting ("AGM") on 26 July 2005, the Company receivedshareholder approval to purchase up to 6.4 billion shares of the Company. Thisapproval will expire at the conclusion of the Company's AGM on 25 July 2006.Shares can be purchased on market on the London Stock Exchange at a price notexceeding 105% of the average middle market quotation for such shares on thefive business days prior to the date of purchase and otherwise in accordancewith the rules of the Financial Services Authority. Purchases are made only ifaccretive to adjusted earnings per share. As a result of targeting a lower credit rating and the £9 billion specialdistribution, the Group has no current plans for further share purchases orother one off shareholder returns. Treasury shares The Companies Act 1985 permits companies to purchase their own shares out ofdistributable reserves and to hold shares with a nominal value not to exceed 10%of the nominal value of their issued share capital in treasury. If shares inexcess of this limit are purchased they must be cancelled. In the 2006 financialyear, 2,250 million treasury shares were cancelled. Whilst held in treasury novoting rights or pre-emption rights accrue and no dividends are paid in respectof treasury shares. Treasury shares may be sold for cash; transferred (incertain circumstances) for the purposes of an employee share scheme; orcancelled. If treasury shares are sold, such sales are deemed to be a new issueof shares and will accordingly count towards the 5% of share capital which theCompany is permitted to issue on a non pre-emptive basis in any one year asapproved by its shareholders at the AGM. Distributable reserves are increased bythe proceeds of any sale of treasury shares up to the amount of the originalpurchase price, whereas no increase would arise from the sale of non-treasuryshares. Any excess above the original purchase price must be transferred to theshare premium account. The movement in treasury shares during the financial yearis shown below: Number million £ million 1 April 2005 3,814 5,121Repurchase of shares 4,848 6,500Cancellation of shares (2,250) (3,053)Re-issue of shares (279) (370) ---------- ----------31 March 2006 6,133 8,198 ========== ========== CASH FLOWS AND FUNDING During the year to 31 March 2006, the Group increased its net cash inflow fromoperating activities by 7.9% to £11,841 million and generated £7,119 million offree cash flow, as analysed in the following table: 2006 2005 £m £m % change Net cash inflow from operating activities 11,841 10,979 7.9--------------------------------------------------------------------------- - Continuing operations 10,190 9,240 10.3- Discontinued operations 1,651 1,739 (5.1)--------------------------------------------------------------------------- Add: Taxation 1,682 1,578 6.6 Purchase of intangible fixed assets (690) (699) (1.3)Purchase of property, plant and equipment (4,481) (4,279) 4.7Disposal of property, plant and equipment 26 68 (61.8) ---------- ---------- Operating free cash flow 8,378 7,647 9.6--------------------------------------------------------------------------- - Continuing operations 7,695 6,344 21.3- Discontinued operations 683 1,303 (47.6)--------------------------------------------------------------------------- Taxation (1,682) (1,578) 6.6Dividends received from associated undertakings(1) 835 1,896 (56.0)Dividends paid to minority shareholders in subsidiary undertakings (51) (32) 59.4Dividends received from investments 41 19 115.8Interest received 319 339 (5.9)Interest paid (721) (744) (3.1) ---------- ---------- Free cash flow 7,119 7,547 (5.7) ========== ========== --------------------------------------------------------------------------- - Continuing operations 6,418 6,592 (2.6)- Discontinued operations 701 955 (26.6)---------------------------------------------------------------------------(1) Year to 31 March 2006 includes £511 million (2005: £616 million) from the Group's interest in SFR and £195 million (2005: £923 million) from the Group's interest in Verizon Wireless Free cash flow decreased primarily as a result of lower dividends received fromassociated undertakings, partially offset by an improved net cash inflow fromoperating activities. An analysis of net debt for continuing operations is as follows: 2006 2005 £m £m Cash and cash equivalents (as presented in the consolidated cash flow statement) 2,932 3,726Bank overdrafts 18 43Cash and cash equivalents for discontinued operations (161) - ---------- ----------Cash and cash equivalents (as presented in the consolidated balance sheet) 2,789 3,769 ---------- ---------- Trade and other receivables(1) 310 408Trade and other payables(1) (219) (79)Short-term borrowings (3,448) (2,003)Long-term borrowings (16,750) (13,190) ---------- ---------- (20,107) (14,864) ---------- ----------Net debt as extracted from the consolidated balancesheet (17,318) (11,095)Net debt related to discontinued operations - 920 ---------- ----------Net debt related to continuing operations (17,318) (10,175) ========== ==========(1) Certain mark to market adjustments on financing instruments are included within trade and other receivables and trade and other payables Consistent with development of its strategy, the Group is now targeting lowsingle A long term credit ratings from Moody's, Fitch Ratings and Standard &Poor's having previously managed the capital structure at single A creditratings. Credit ratings are not a recommendation to purchase, hold or sellsecurities, in as much as ratings do not comment on market price or suitabilityfor a particular investor, and are subject to revision or withdrawal at any timeby the assigning rating organisation. Each rating should be evaluatedindependently. In aggregate, the Group has committed facilities of approximately £7,833million, of which £6,362 million was undrawn and £1,471 million drawn at 31March 2006. The undrawn facilities include a $5.0 billion Revolving CreditFacility that matures in June 2012 and a $5.9 billion Revolving Credit Facilitythat matures in June 2009. Both facilities support US and Euro commercial paperprogrammes of up to $15 billion and £5 billion respectively. At 31 March 2006,$696 million (£400 million) was drawn under the US commercial paper programmeand £285 million and $80 million (£46 million) were drawn under the Eurocommercial paper programme. Other undrawn facilities of £65 million are specificto the Group's subsidiary in Egypt. The drawn facilities above include a JPY259 billion term credit facility,maturing in March 2011, entered into by Vodafone Finance K.K. in December 2005that was used to repay a JPY225 billion term credit facility, due to mature inJanuary2007. In the year to 31 March 2006, bonds with a nominal value of £5.2 billion wereissued under the US Shelf and the Euro Medium Term Note Programme, to bring thenominal value of the total amount of bonds outstanding to £15,389 million at 31March 2006, including $207 million of bonds that were assumed as part of theacquisition of MobiFon S.A. and Oskar Mobil a.s. on 31 May 2005. The bondsissued during the 2006 financial year were as follows: US shelf programme or Euro Medium Amount Term Note (EMTN)Date bond issued Maturity of bond Currency million programme 8 August 2005 15 September 2015 USD 750 US Shelf8 September 2005 8 September 2014 GBP 350 EMTN29 November 2005 29 November 2012 EUR 750 EMTN29 December 2005 29 June 2007 USD 1,850 US Shelf29 December 2005 28 December 2007 USD 750 US Shelf8 February 2006 17 July 2008 EUR 1,250 EMTN16 March 2006 28 December 2007 USD 750 US Shelf16 March 2006 15 June 2011 USD 1,100 US Shelf16 March 2006 15 March 2016 USD 750 US Shelf In addition to the facilities above, the Group's discontinued operation in Japanhad a JPY8 billion (£39 million) loan facility that was fully drawn at 31 March2006. Vodafone Japan also had bonds outstanding at 31 March 2006 of JPY125billion (£612 million). The loans and bonds were included in the disposal ofVodafone Japan on 27 April 2006. On 19 April 2005, the Board of directors of Vodafone Italy approved a proposalto buy back issued and outstanding shares for approximately €7.9 billion (£5.4billion), which was subsequently approved by the shareholders of VodafoneItaly. The buy back took place in two tranches; the first occurred on 24 June2005 and the second on 7 November 2005. As a result, Vodafone received €6.1billion (£4.2 billion) and Verizon Communications Inc. received €1.8 billion(£1.2 billion). After the transaction, Vodafone and Verizon Communications Inc.shareholdings in Vodafone Italy remained at approximately 77% and 23%,respectively. At 31 March 2006, Vodafone Italy had net cash on deposit withGroup companies of €2.3 billion (£1.6 billion). SIGNIFICANT TRANSACTIONS The Group invested a net £3,643 million(1) in acquisition and disposalactivities, including the purchase and disposal of investments, in the year to31 March 2006 and an analysis of the significant transactions and the increasesto the Group's effective interest in the entities is shown below: £mAcquisitions:Czech Republic (nil to 100%) and Romania (20.1% to 100%)(1) 1,840South Africa (35.0% to 49.9%)(1) 1,444India (nil to 10.0%)(1) 849Disposals:Sweden (100% to nil) (658)Other net acquisitions and disposals, including investments 168 ---------- 3,643 ==========(1) Amounts are shown net of cash and cash equivalents acquired The acquisitions in the Czech Republic, South Africa and India are discussed inmore detail on page 34. On 5 January 2006, the Group completed the sale of itsentire interest in Vodafone Sweden to Telenor Mobile Holding AS. Subsequent events On 17 March 2006, the Group announced an agreement to sell its 97.7% holding inVodafone Japan to Softbank. The transaction completed on 27 April 2006, with theGroup receiving cash of approximately JPY1.42 trillion (£6.9 billion) includingthe repayment of intercompany debt of JPY0.16 trillion (£0.8 billion). Inaddition, the Group received non-cash consideration with a fair value ofapproximately JPY0.23 trillion (£1.1 billion), comprised of preferred equity anda subordinated loan. Softbank also assumed debt of approximately JPY0.13trillion (£0.6 billion). On 13 December 2005, the Group announced it had agreed to acquire substantiallyall the assets and business of Telsim Mobil Telekomunikasyon ("Telsim") from theTurkish Savings Deposit and Investment Fund. The Group is not acquiring Telsim'sliabilities, including those related to Motorola and Nokia, with the exceptionof certain minor employee-related liabilities. In addition to the considerationprice, the Group will be required to pay US$0.4 billion of VAT which will berecoverable against Telsim's future VAT liabilities. Vodafone expects to recoverthis payment over the short to medium term. The acquisition completed on 24 May2006. The cash paid on this date was US$4.67 billion (£2.6 billion). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Vodafone