12th Jul 2005 07:01
Vodafone Group Plc12 July 2005 Vodafone Group Plc Embargo: Not for publication before 07:00 hours 12 July 2005 PART I 12 July 2005 IFRS RESULTS FOR THE YEAR ENDED 31 MARCH 2005 Following the announcement of results under UK GAAP for the year ended 31 March2005 by Vodafone Group Plc ("Vodafone") on 24 May 2005, Vodafone today publishesfurther information for that year under IFRS. There are no additional significant differences arising between UK GAAP and IFRSfrom those previously reported for the six months ended 30 September 2004. Detailed reconciliations between UK GAAP and IFRS for certain of the Group'sprimary financial statements, together with supplemental financial informationcontaining segmental analysis for the Group and trading results for the Group'smobile business and principal mobile operations are available on the Group'swebsite at www.vodafone.com/investorrelations/ifrs. Vodafone will report solely under IFRS for the six months ending 30 September2005 and present its first Annual Report under IFRS for the year ending 31 March2006. For further information: Vodafone Group Simon Lewis, Group Corporate Affairs DirectorTel: +44 (0) 1635 673310 Investor Relations Media RelationsCharles Butterworth Bobby LeachDarren Jones Ben PadovanSarah MoriartyTel: +44 (0) 1635 673310 Tel: +44 (0) 1635 673310 VODAFONE GROUP PLCIFRS RESULTS FOR THE YEAR ENDED 31 MARCH 2005 CONTENTS PagePART IIIntroduction 3 Consolidated IFRS Primary StatementsIncome Statement 4Statement of Recognised Income and Expense 5Balance Sheet 6Cash Flow Statement 7 Notes to IFRS Financial Information 8Impact of IFRS on One Vodafone 13Audit Report From Deloitte & Touche LLP on the IFRS Financial Information 14Unaudited Proportionate Financial Information 15Forward Looking Statements 16 PART IIIReconciliations from UK GAAP to IFRS for Key Performance Measures 17 Detailed reconciliations between UK GAAP and IFRS for certain of theGroup's primary financial statements and supplemental IFRS financialinformation on segmental analyses and mobile trading results are availableon the Group's website at www.vodafone.com/investorrelations/ifrs. PART II INTRODUCTION Background Vodafone Group Plc and its subsidiaries (together, "the Group") are preparingfor the adoption of International Financial Reporting Standards ("IFRS")(1) asits primary accounting basis, following the adoption of Regulation No. 1606/2002by the European Parliament on 19 July 2002. IFRS will apply for the first time in the Group's Annual Report for the yearending 31 March 2006. Consequently, the Group's financial results for the sixmonth period ending 30 September 2005 will be prepared under IFRS. The Group provided an update of its adoption of IFRS on 20 January 2005, whichincluded IFRS financial information for the six months ended 30 September 2004and for the year ended 31 March 2004 on a pro forma basis. Additional IFRSsegmental information was provided on 18 March 2005. This press release explains how certain of the Group's previously reported UKGAAP financial information for the year ended 31 March 2005 is reported underIFRS. The 'IFRS Financial Information' includes: * the Group's consolidated income statement, consolidated statement of recognised income and expense and consolidated cash flow statement, for the year ended 31 March 2005; * the Group's consolidated balance sheet at 31 March 2005; and * related notes. Reconciliations of key performance measures between UK GAAP and IFRS areprovided in Part III of this press release. Detailed reconciliations to assistin the understanding of the nature and quantum of differences between UK GAAPand IFRS for certain of the Group's primary financial statements and furthersupplemental IFRS financial information are available on the Group's website atwww.vodafone.com/investorrelations/ifrs. Principal Differences The principal differences between UK GAAP and IFRS were set out in the Group'spress release issued on 20 January 2005. There are no additional significant reconciling differences between UK GAAP andIFRS included in the IFRS Financial Information as a result of the issue of newstandards or pronouncements. Basis of Preparation Detailed guidance on the basis of preparation of this IFRS FinancialInformation, and the pro forma information included for the year ended 31 March2004 is included on pages 8 and 9. On 14 April 2005, the SEC announced it had adopted proposed amendments to Form20-F which will allow the Group, in the first year of IFRS adoption, to providetwo years of statements of income, changes in shareholders' equity and cashflows prepared in accordance with IFRS, rather than the three years previouslyrequired. The Group's financial information prepared on the basis of IFRSprovided on 20 January 2005 and 18 March 2005 had been prepared on theassumption that this rule change would be adopted. Audit Opinion The consolidated balance sheet as at 31 March 2005, the consolidated incomestatement, consolidated statement of recognised income and expense andconsolidated cash flow statement for the year ended 31 March 2005, as preparedon the basis set out in "Basis of preparation" on pages 8 and 9, have beenaudited by Deloitte & Touche LLP. Their audit report to the Board of Directorsof the Company is set out on page 14. (1) References to IFRS throughout this document refer to the application ofInternational Financial Reporting Standards ("IFRS"), including InternationalAccounting Standards ("IAS") and interpretations issued by the InternationalAccounting Standards Board ("IASB") and its committees, and as interpreted byany regulatory bodies applicable to the Group. CONSOLIDATED INCOME STATEMENT For the years ended 31 March 2005 2004 (Unaudited) ---------------------------------------------------- ------------ UK GAAP IFRS IFRS IFRS format adjustments IFRS (pro forma) £m £m £m £m Revenue 34,133 (60) 34,073 32,492 Cost of sales (20,753) (711) (21,464) (19,245) -------- -------- -------- --------Gross profit 13,380 (771) 12,609 13,247 Selling anddistributionexpenses (2,031) (15) (2,046) (2,065)Administrativeexpenses (16,338) 12,812 (3,526) (3,529)Share of result inassociatedundertakings 404 1,576 1,980 1,915Other incomeand expense (315) (160) (475) 35 -------- -------- -------- --------Operating (loss)/profit (4,900) 13,442 8,542 9,603 Non-operatingincome and expense 8 (2) 6 13Investment income 602 195 797 579Financing costs (995) (399) (1,394) (1,182) -------- -------- -------- --------(Loss)/profiton ordinary activitiesbefore taxation (5,285) 13,236 7,951 9,013 Tax on (loss)/profit on ordinaryactivities (1,698) 265 (1,433) (2,828) -------- -------- -------- --------(Loss)/profitfor the year on continuingoperations (6,983) 13,501 6,518 6,185 Loss ondiscontinuedoperations - - - - (73) -------- -------- -------- --------(Loss)/profitfor the year (6,983) 13,501 6,518 6,112 ======== ======== ======== ======== Attributableto:- Minority interests 557 (449) 108 259- Equity shareholders (7,540) 13,950 6,410 5,853 (Loss)/earnings per share:From continuingoperations(1)- Basic 9.68p 8.70p- Diluted 9.65p 8.68p Fromcontinuing anddiscontinuedoperations- Basic (11.39p) 9.68p 8.60p- Diluted (11.39p) 9.65p 8.58p (1) Not provided under UK GAAP. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 March 2005 UK GAAP IFRS IFRS format adjustments IFRS £m £m £m Gains on revaluation of available-for-sale investments - 106 106Exchange differences on translation offoreign operations 1,451 37 1,488 Actuarial losses on defined benefitpension schemes - (102) (102)Tax on items taken directly to equity - 45 45 -------- ------- --------Net income recognised directly in equity 1,451 86 1,537 (Loss)/profit for the year (6,983) 13,501 6,518 -------- ------- --------Total recognised (losses)/gains relatingto the year (5,532) 13,587 8,055 ======== ======= ======== Attributable to:- Equity shareholders (6,073) 14,051 7,978- Minority interests 541 (464) 77 CONSOLIDATED BALANCE SHEETAs at 31 March 2005 UK GAAP IFRS IFRS format adjustments IFRS £m £m £mNon-current assetsIntangible assets 83,464 13,675 97,139Property, plant and equipment 18,398 (947) 17,451Investments in associated undertakings 19,398 836 20,234Other investments 852 329 1,181Deferred tax assets 1,541 100 1,641Trade and other receivables 249 (28) 221 -------- -------- -------- 123,902 13,965 137,867 -------- -------- --------Current assetsInventory 430 10 440Taxation recoverable 268 (230) 38Trade and other receivables 5,334 115 5,449Cash and cash equivalents 3,666 103 3,769 -------- -------- -------- 9,698 (2) 9,696 -------- -------- -------- Total assets 133,600 13,963 147,563 ======== ======== ======== EquityCalled up share capital 4,286 - 4,286 Share premium account 52,284 - 52,284Own shares held (5,121) - (5,121)Other reserve 99,556 84 99,640Retained losses (51,688) 14,399 (37,289) -------- -------- --------Total equity shareholders' funds 99,317 14,483 113,800 Minority interests 2,818 (2,970) (152) -------- -------- --------Total equity 102,135 11,513 113,648 -------- -------- -------- Non-current liabilitiesLong-term borrowings 11,613 1,577 13,190Deferred tax liabilities 3,938 1,368 5,306Post employment benefits(1) (183) 307 124Provisions for other liabilities andcharges 317 2 319Other payables 749 (359) 390 -------- -------- -------- 16,434 2,895 19,329 -------- -------- --------Current liabilitiesShort-term borrowings 392 1,611 2,003Current taxation liabilities 4,759 (406) 4,353Trade payables and other payables 9,686 (1,684) 8,002Provisions for other liabilities andcharges 194 34 228 -------- -------- -------- 15,031 (445) 14,586 -------- -------- -------- Total equity and liabilities 133,600 13,963 147,563 ======== ======== ======== (1) UK GAAP post employment benefit prepayment and provision presented net, consistent with the IFRS presentation. CONSOLIDATED CASH FLOW STATEMENTFor the years ended 31 March 2005 2004 (unaudited) -------------------------------------------- ----------- UK GAAP IFRS IFRS IFRS format adjustments IFRS (pro forma) £m £m £m £mNet cash flowsfrom operating activities 11,097 (118) 10,979 10,839 -------- -------- -------- --------Cash flowsfrom investingactivities Purchase ofinterests insubsidiaryundertakings,net of cashacquired (2,461) - (2,461) (2,054) Disposal ofinterests insubsidiaryundertakings,net of cashdisposed 444 - 444 737 Disposal ofinterests inassociatedundertakings - - - 5 Purchase ofintangible fixed assets (59) (640) (699) (679) Purchase ofproperty, plant andequipment (4,890) 611 (4,279) (3,853) Purchase ofinvestments (19) - (19) (43) Disposal ofproperty, plant andequipment 70 (2) 68 156 Disposal ofinvestments 22 - 22 123 Loans repaidby associatedundertakings (2) - (2) 24 Loans tobusinessessold oracquiredbusinessesheld for sale 110 - 110 - Dividendsreceived fromassociatedundertakings 2,020 (124) 1,896 1,739 Dividendsreceived frominvestments 19 - 19 25 Interestreceived 746 (11) 735 942 -------- -------- -------- --------Net cash flowsfrom investing activities (4,000) (166) (4,166) (2,878) -------- -------- -------- --------Cash flowsfrom financingactivities Issue ofordinary sharecapital 115 - 115 69(Decrease)/increase indebt (2,170) 346 (1,824) 717 Purchase oftreasuryshares (4,053) - (4,053) (1,032) Purchase ofown sharesin relation toemployeeshare schemes - - - (17) Equity dividends paid (1,991) - (1,991) (1,258) Dividends paidto minority shareholders insubsidiaryundertakings (74) 42 (32) (53) Interest paid (1,074) (58) (1,132) (988) Interest element of finance leases (8) - (8) (10) -------- -------- -------- --------Net cash flowsfrom financing activities (9,255) 330 (8,925) (2,572) -------- -------- -------- -------- -------- -------- -------- --------Net cash flowsin cash andcashequivalents(1) (2,158) 46 (2,112) 5,389 Cash and cashequivalents atbeginning of the year 5,748 61 5,809 794 Exchange gain/(loss) oncash and cashequivalents 29 - 29 (374) -------- -------- -------- -------- Cash and cashequivalents atend of the year 3,619 107 3,726 5,809 ======== ======== ======== ======== Net cash flowsin cash andcashequivalents(1) (2,158) 46 (2,112) 5,389 Decrease/(increase) indebt 2,170 (346) 1,824 (717) -------- -------- -------- --------Decrease indebtresulting fromcash flows 12 (300) (288) 4,672 Net debtacquired onacquisition ofsubsidiaryundertakings (2) - (2) (7) Net debtdisposed ondisposal of subsidiaryundertakings - (7) (7) 194 Translationdifference 143 (8) 135 317 Premium onrepayment ofdebt - - - (56) Other movements (4) (339) (343) (335) -------- -------- -------- --------Movement innet debt inthe year 149 (654) (505) 4,785 Opening netdebt (8,488) (2,102) (10,590) (15,375) -------- -------- -------- --------Closing netdebt (1) (8,339) (2,756) (11,095) (10,590) ======== ======== ======== ======== (1) Net debt is defined as long-term borrowings, short term borrowings and mark to market adjustments on financing instruments less cash and cash equivalents NOTES TO THE IFRS FINANCIAL INFORMATION 1) Basis of Preparation The IFRS Financial Information presented in this document has been prepared bythe Group using its best knowledge of the expected International FinancialReporting Standards ("IFRS") (including International Accounting Standards("IAS") and interpretations issued by the International Accounting StandardsBoard ("IASB") and its committees, and as interpreted by any regulatory bodiesapplicable to the Group ) and accounting policies that will be applied when theGroup prepares its first set of IFRS financial statements as at 31 March 2006. Therefore, until such time, the possibility that the preliminary opening balancesheet and the IFRS Financial Information presented may require amendment beforeconstituting the final opening balance sheet and final IFRS Financialinformation cannot be excluded. On 19 November 2004, the European Commission endorsed an amended version of IAS39, "Financial Instruments: Recognition and Measurement" rather than the fullversion as previously published by the IASB. In accordance with guidance issuedby the UK Accounting Standards Board, the full version of IAS 39, as issued bythe IASB, has been adopted in the preparation of this financial information. IFRS 1 exemptions IFRS 1, "First-time Adoption of International Financial Reporting Standards"sets out the procedures that the Group must follow when it adopts IFRS for thefirst time as the basis for preparing its consolidated financial statements. TheGroup is required to establish its IFRS accounting policies as at 31 March 2006and, in general, apply these retrospectively to determine the IFRS openingbalance sheet at its date of transition, 1 April 2004. This standard provides a number of optional exceptions to this generalprinciple. The most significant of these are set out below, together with adescription in each case of the exception adopted by the Group. a. Business combinations that occurred before the opening IFRS balance sheet date (IFRS 3, "Business Combinations") The Group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place before the date of transition. As a result, in theopening balance sheet, goodwill arising from past business combinations(£96,931m) remains as stated under UK GAAP at 31 March 2004. b. Employee Benefits - actuarial gains and losses (IAS 19, "Employee Benefits") The Group has elected to recognise all cumulative actuarial gains and losses inrelation to employee benefit schemes at the date of transition. The Group hasrecognised actuarial gains and losses in full in the period in which they occurin the statement of recognised income and expense in accordance with theamendment to IAS 19, issued on 16 December 2004. c. Share-based Payments (IFRS 2, "Share-based Payment") The Group has elected to apply IFRS 2 to all relevant share based paymenttransactions granted but not fully vested at 1 April 2004. d. Financial Instruments (IAS 39, "Financial Instruments : Recognition and Measurement" and IAS 32, "Financial Instruments: Disclosure and Presentation") The Group has applied IAS 32 and IAS 39 for all periods presented and hastherefore not taken advantage of the exemption in IFRS 1 that would enable theGroup to only apply these standards from 1 April 2005. Pro forma financial information for the year ended 31 March 2004 The pro forma financial information for the year ended 31 March 2004 has beenprepared for illustrative purposes only. It has been prepared on the basis thatthe IFRS transition date is 1 April 2003, with the exception that, other thanthe reversal of goodwill amortisation reported in the UK GAAP financialstatements, the full requirements of accounting for business combinations underIFRS 3 have not been applied. If IFRS 3 had been adopted in full for the year ended 31 March 2004 and businesscombinations occurring in the period from 1 April 2003 to 31 March 2004 had beenreported accordingly, additional intangible fixed assets and related deferredtax liabilities would have been recognised with a corresponding reduction ingoodwill. The income statement would have included amortisation expense, inrelation to the recognised finite lived intangible assets and the relateddeferred tax effects. Furthermore, were the IFRS transition date to be 1 April 2003, then theseadditional intangible fixed assets, deferred tax liabilities and relatedamortisation charge and tax credits would have similarly impacted theconsolidated income statement for the year ended 31 March 2005, and theconsolidated balance sheet at 31 March 2005. As a result of the above, the pro forma financial information for the year ended31 March 2004 is not presented in full accordance with IFRS. Presentation of financial information The primary statements within the IFRS Financial Information contained in thisdocument have been presented in accordance with IAS 1, "Presentation ofFinancial Statements". However, this format and presentation may requiremodification when the Group presents its first set of IFRS Financial Statementsas at 31 March 2006, in the event that further guidance is issued and aspractice develops. 2) Operating Profit Analysis Pro forma Year ended Year ended 31 March 31 March 2005 2004 (unaudited) (4) £m £m Subsidiary and share of joint venture undertakingsoperating profit(1) 7,139 7,507Acquired intangible asset amortisation (2) (102) -Share of associate undertakings operating profit 2,667 2,434Share of associate undertakings interest, tax andminority interest (687) (519) ------- ------- 9,017 9,422Items not reflecting underlying businessperformance (3) (475) 181 ------- -------Operating profit 8,542 9,603 ======= ======= (1) Stated before acquired intangible asset amortisation and items not reflecting underlying business performance. (2) Acquired intangible asset amortisation relates to intangible assets recognised on acquisitions that occurred after 1 April 2004 in accordance with IFRS 3, 'Business Combinations'. These amounts primarily relate to the purchase of minority interests in Vodafone Japan. (3) Under UK GAAP, for the year ended 31 March 2005, an impairment charge of £315m was recognised in relation to the impairment of goodwill relating to Vodafone Sweden. The impairment charge increases to £475m under IFRS, principally due to the non amortisation of goodwill between the Group's transition date to IFRS (1 April 2004) and 31 March 2005 (4) Please refer to the 'Basis of Preparation' section above. 3) Adjusted Group operating profit Pro forma Year ended Year ended 31 March 31 March 2005 2004 (unaudited) £m £m Operating profit 8,542 9,603 Items not related to underlying business performance: - Other income and expense 475 (35)- Expected recoveries and provision releases in relation to a contribution tax levy on Vodafone Italy - (269)- Reorganisation costs - 123 ------- -------Adjusted Group operating profit 9,017 9,422 Share of result in associated undertakings (1,980) (1,915)Depreciation of property, plant and equipment andamortisation of computer software assets 4,494 4,343Amortisation of other intangible assets 1,023 191Loss on disposal of property, plant and equipment 161 86EBITDA in discontinued operations - 66 ------- -------Group EBITDA (1) 12,715 12,193 ======= ======= (1) Group EBITDA is not a measure recognised under IFRS but is presented in order to highlight operational performance of the Group. It is stated before items not reflecting underlying business performance. 4) Adjusted earnings per share Pro forma Year ended Year ended 31 March 31 March 2005 2004 (unaudited) £m £m Weighted average number of shares for basic EPS (millions) 66,196 68,096Weighted average number of shares for diluted EPS (millions) 66,427 68,249 Basic earnings per share 9.68p 8.60pDiluted basic earnings per share 9.65p 8.58p Basic earnings per share from continuing operations 9.68p 8.70pDiluted basic earnings per share from continuingoperations 9.65p 8.68p Adjusted basic earnings per share from continuingoperations 9.62p 8.52pAdjusted diluted basic earnings per share fromcontinuing operations 9.59p 8.51p NOTES TO THE IFRS FINANCIAL INFORMATION (continued) 4) Adjusted earnings per share (continued) Pro forma Year ended Year ended 31 March 31 March 2005 2004 (unaudited) £m £m Earnings for basic and diluted earnings per share 6,410 5,853 Less: result in respect of discontinued operations - 73 ------- -------Earnings for basic and diluted earnings per sharefrom continuing operations 6,410 5,926 Items not related to underlying business performance:- Other income and expense (1) 475 (35)- Non-operating income and expense (6) (13)- Expected recoveries and provision releases in relation to a contribution tax levy on Vodafone Italy - (269)- Reorganisation costs - 123- Net financing costs in relation to the put option held by Telecom Egypt (2) 67 -- Deferred tax asset recognised on shareholder and regulatory approval of the merger of Vodafone K.K. and Vodafone Holdings K.K. (599) -- Tax on items not related to underlying business performance 3 72 - Items not related to underlying business performance attributable to minority interests 21 1 ------- ------- Earnings for adjusted earnings per share 6,371 5,805 ======= ======= (1) The amount recognised for the year ended 31 March 2004 relates to the recognition of negative goodwill in the income statement, which is held on the balance sheet under UK GAAP. See Note 2, footnote 3 for explanation of other income and expense for the year ended 31 March 2005. (2) During the 2005 financial year, the Group sold 16.9% of Vodafone Egypt to Telecom Egypt, reducing the Group's effective interest to 50.1%. It was also agreed that the Group and Telecom Egypt would each contribute a 25.5% interest in Vodafone Egypt shares to a newly formed 50:50 joint venture. This joint venture is expected to be formed in the first half of the 2006 financial year. As part of the transaction, Telecom Egypt was granted an option over its 25.5% indirect interest in Vodafone Egypt, giving Telecom Egypt the right to put its shares back to the Group at fair market value. This right remains for as long as the Group owns in excess of 20% of Vodafone Egypt. Under IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, 'Financial Instruments: Recognition and Measurement' the put option held by Telecom Egypt is classified as a financial liability held at fair value on the Group's consolidated balance sheet, with movements recognised in the consolidated income statement. Fair value movements are determined by the reference to the quoted share price of Vodafone Egypt. For the year ended 31 March 2005, a liability of £356m was established at the inception of the option which has been classified as forming part of net debt and a further charge of £67m has been recognised within financing costs in the income statement. The valuation of this option is inherently unpredictable and changes in the fair value of this financial liability could have a significant impact on the future results and financial position of Vodafone. As the item does not reflect the underlying business performance of the Group it is excluded from the adjusted EPS calculation. 5) Free cash flow(1) Pro forma Year ended Year ended 31 March 31 March 2005 2004 (unaudited) £m £m Net cash flow from operating activities(2) 10,979 10,839Add: Taxation 1,578 1,180 Net capital expenditure on intangibleassets and property, plant and equipment (4,910) (4,376)--------------------------------------------------------------------------------Purchase of intangible assets (699) (679)Purchase of property, plant and equipment (4,279) (3,853)Disposal of property, plant and equipment 68 156-------------------------------------------------------------------------------- Operating free cash flow 7,647 7,643 Dividends received from associatedundertakings 1,896 1,739Taxation (1,578) (1,180)Net cash outflow for returns on investment (418) (84)--------------------------------------------------------------------------------Net interest on group net debt (405) (56)Dividends received from investments 19 25Dividends paid to minority interests (32) (53)--------------------------------------------------------------------------------Free cash flow 7,547 8,118 ======= ======= (1) Free cash flow is defined as net cash from operating activities less net cash flow arising from the purchase and sale of tangible and intangible fixed assets, plus dividends received from associated undertakings, less taxation cash flows and net cash outflows for returns on investments and servicing of finance. (2) Net cash flow from operating activities is presented after net taxation paid in accordance with IAS 7, 'Cash Flow Statements'. IMPACT OF IFRS ON ONE VODAFONE The Group has previously provided expectations for its One Vodafone programme inaccordance with UK GAAP. These expectations were in respect of benefits to bedelivered from the Group's subsidiary undertakings under UK GAAP (the 'OneVodafone companies'). Under IFRS, taking into account the proportionate consolidation of VodafoneItaly, the One Vodafone initiatives are targeted at achieving £2.4 billion ofannual pre-tax operating free cash flow improvements in the Group's mobilebusinesses on a statutory basis by the year ending 31 March 2008 ("2008financial year"). Cost initiatives are anticipated to generate improvements of£1.3 billion, with a further £1.1 billion from revenue based improvements. Under UK GAAP, the Group expected that for the One Vodafone companies, in the2008 financial year, the aggregate of mobile operating expenses and capitalisedfixed asset additions would be £11.7 billion, broadly similar to those for the 2004 financial year, assuming no significant changes in exchange rates and after adjusting for acquisitions and disposals. For these companies, under IFRS, the aggregate costs are expected to be approximately £0.3 billion lower than underUK GAAP in the 2008 financial year at £11.4 billion, primarily as a result of the proportionate consolidation of Vodafone Italy. On an IFRS statutory basis, mobile operating expenses and capitalised fixedasset additions include such costs for subsidiary undertakings and theappropriate share of costs for joint ventures. Vodafone Italy is the only jointventure within the One Vodafone programme and therefore the costs for the otherjoint ventures will be excluded when presenting progress against the OneVodafone expectations. Revenue based initiatives are expected to deliver benefits equivalent to atleast 1% additional revenue market share for the One Vodafone companies in the2008 financial year compared with the 2005 financial year. The Group willmeasure the revenue benefits in its five principal mobile markets compared toits established competitors. The Group continues to expect mobile capitalised fixed asset additions in the2008 financial year to be no more than 10% of mobile revenue for the OneVodafone companies. INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF VODAFONE GROUP PLC ONTHE PRELIMINARY IFRS FINANCIAL INFORMATION We have audited the accompanying preliminary International Financial ReportingStandards consolidated financial information of Vodafone Group Plc ("theCompany") and its subsidiaries (together "the Group") for the year ended31 March 2005 which comprises the consolidated balance sheet, consolidatedincome statement, consolidated cash flow statement, consolidated statement ofrecognised income and expense and the related Notes 1 to 5 (hereinafter referredto as "the IFRS Financial Information"). This report is made solely to the Board of Directors, in accordance with ourengagement letter and solely for the purpose of assisting with the transition toIFRS. Our audit work will be undertaken so that we might state to the Company'sboard of directors those matters we are required to state to them in anauditors' report and for no other purpose. To the fullest extent permitted bylaw, we will not accept or assume responsibility to anyone other than theCompany for our audit work, for our report, or for the opinions we have formed The Company's directors are responsible for ensuring that the Company and theGroup maintains proper accounting records and for the preparation of the IFRSFinancial Information on the basis set out in Note 1, which describes how IFRSwill be applied under IFRS 1, including the assumptions the directors have madeabout the standards and interpretations expected to be effective, and thepolicies expected to be adopted, when the Company prepares its first completeset of IFRS financial statements as at 31 March 2006. Our responsibility is toaudit the IFRS Financial Information in accordance with relevant United Kingdomlegal and regulatory requirements and auditing standards and report to you ouropinion as to whether the IFRS Financial Information is prepared, in allmaterial respects, on the basis set out in Note 1. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standardsissued by the Auditing Practices Board. An audit includes examination, on a testbasis, of evidence relevant to the amounts and disclosures in the IFRS FinancialInformation. It also includes an assessment of the significant estimates andjudgements made by the directors in the preparation of the IFRS FinancialInformation and of whether the accounting policies are appropriate to thecircumstances of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the IFRS FinancialInformation is free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion, we also evaluated the overalladequacy of the presentation of information in the IFRS Financial Information. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that Note 1 explains why there is a possibility that the accompanying IFRSFinancial Information may require adjustment before constituting the finalcomparative IFRS financial information. Moreover, we draw attention to the factthat, under IFRS, only a complete set of financial statements comprising abalance sheet, income statement, statement of recognised income and expense,cash flow statement, together with comparative financial information andexplanatory notes, can provide a fair presentation of the company's financialposition, results of operations and cash flows in accordance with IFRS. Opinion In our opinion the IFRS Financial Information is prepared, in all materialrespects, in accordance with the basis set out in Note 1, which describes howIFRS will be applied under IFRS 1, including the assumptions the directors havemade about the standards and interpretations expected to be effective, and thepolicies expected to be adopted when the company prepares its first complete setof IFRS financial statements as at 31 March 2006. Deloitte & Touche LLP Chartered AccountantsLondon 12 July 2005 UNAUDITED PROPORTIONATE FINANCIAL INFORMATION Basis of preparation The tables of financial information below are presented on a proportionatebasis. Proportionate presentation is not a measure recognised under UK GAAP orIFRS and is not intended to replace the consolidated financial statementsprepared in accordance with UK GAAP or IFRS. However, since significant entitiesin which the Group has an interest are not consolidated, proportionateinformation is provided as supplemental data to facilitate a more detailedunderstanding and assessment of the consolidated financial statements preparedin accordance with UK GAAP and IFRS. UK GAAP requires consolidation of entities controlled by the Group and theequity method of accounting for entities in which the Group has significantinfluence but not a controlling interest. IFRS requires consolidation ofentities in relation to which the Group has the power to control and allowseither proportionate consolidation or equity accounting for joint ventures. IFRSalso requires equity accounting for interests in which the Group has significantinfluence but not a controlling interest. Proportionate presentation is a pro rata consolidation, which reflects theGroup's share of turnover and expenses in entities, both consolidated andunconsolidated, in which the Group has an ownership interest. Proportionateresults are calculated by multiplying the Group's ownership interest in eachentity by each entity's results. Proportionate presentation of financial information differs in material respectsto the proportionate consolidation adopted by the Group under IFRS for its jointventures, as detailed within the Group's update on the adoption of IFRS providedon 20 January 2005. Proportionate information includes results from the Group's joint ventures,equity accounted investments and other investments. The Group may not havecontrol over the turnover, expenses or cash flows of these investments and mayonly be entitled to cash from dividends received from these entities. Proportionate turnover is stated net of intercompany turnover. ProportionateEBITDA represents the Group's ownership interests in the respective entities'EBITDA. As such, proportionate EBITDA does not represent EBITDA available to theGroup. Year ended Year ended 31 March 2005 31 March 2004 (Pro forma) ------------------------------------ --------------------------------- IFRS IFRS Adjust- Adjust- UK GAAP ments IFRS UK GAAP ments IFRS £m £m £m £m £m £mRevenue Mobile 42,762 - 42,762 37,969 - 37,969Other 840 - 840 1,477 - 1,477 ------- ------- ------- ------- ------- -------Group 43,602 - 43,602 39,446 - 39,446 ======= ======= ======= ======= ======= ======= EBITDA(1) Mobile 16,483 (82) 16,401 14,826 (149) 14,677Other 158 1 159 288 (3) 285 ------- ------- ------- ------- ------- -------Group 16,641 (81) 16,560 15,114 (152) 14,962 ======= ======= ======= ======= ======= ======= MobileEBITDA(1)margin 38.5% (0.1%) 38.4% 39.0% (0.3%) 38.7% (1) Proportionate EBITDA and proportionate EBITDA margin is stated beforeexceptional items under UK GAAP and before items not reflecting underlyingbusiness performance under IFRS. FORWARD LOOKING STATEMENTS This press release contains "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group's financial condition, results of operations and businesses and certain of the Group's plans and objectives. In particular, such forward-looking statements include the statements under "Impact of IFRS on One Vodafone" regarding Vodafone's expectations for pre-tax operating free cash flow improvements in the Group's mobile operations by the year ending 31 March 2008 based on improvements from cost initiatives and revenue based improvements, mobile operating expense and capitalised fixed asset additions in the 2008 financial year, and benefits from revenue based initiatives and expectations formobile capitalised fixed asset additions as a percentage of mobile revenues. These forward-looking statements are made on the basis of certain assumptions which Vodafone believes to be reasonable in light of Vodafone's operating experience in recent years. The principal assumptions on which these statementsare based relate to exchange rates, customer numbers, usage and pricing, take-upof new services, termination and interconnect rates, customer acquisition and retention costs, network opening and operating costs and the availability of handsets. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events anddepend on circumstances that will occur in the future. There are a number offactors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Thesefactors include, but are not limited to, the following: changes ineconomic or political conditions in markets served by operations of the Groupthat would adversely affect the level of demand for mobile services; greaterthan anticipated competitive activity requiring changes in pricing models and/ornew product offerings or resulting in higher costs of acquiring new customers orproviding new services; the impact on capital spending from investment innetwork capacity and the deployment of new technologies, or the rapidobsolescence of existing technology; slower customer growth or reduced customerretention; the possibility that technologies, including mobile internetplatforms, and services, including 3G services, will not perform according toexpectations or that vendors' performance will not meet the Group'srequirements; changes in the projected growth rates of the mobiletelecommunications industry; the Group's ability to realise expected synergiesand benefits associated with 3G technologies and the integration of ouroperations and those of acquired companies; future revenue contributions of bothvoice and non-voice services offered by the Group; lower than expected impact ofGPRS, 3G and Vodafone live! and the Group's business offerings on the Group'sfuture revenue, cost structure and capital expenditure outlays; the ability ofthe Group to harmonise mobile platforms and any delays, impediments or otherproblems associated with the roll-out and scope of 3G technology and servicesand Vodafone live! and the Group's business or service offerings in new markets;the ability of the Group to offer new services and secure the timely delivery ofhigh-quality, reliable GPRS and 3G handsets, network equipment and other keyproducts from suppliers; greater than anticipated prices of new mobile handsets;the ability to realise benefits from entering into partnerships for developingdata and internet services and entering into service franchising and brandlicensing; the possibility that the pursuit of new, unexpected strategicopportunities may have a negative impact on one or more of the measurements ofour financial performance or the level of dividends; any unfavourableconditions, regulatory or otherwise, imposed in connection with pending orfuture acquisitions or dispositions; changes in the regulatory framework inwhich the Group operates, including possible action by regulators in markets inwhich the Group operates or by the European Commission regulating rates theGroup is permitted to charge; the Group's ability to develop competitive datacontent and services which will attract new customers and increase averageusage; the impact of legal or other proceedings against the Group or othercompanies in the mobile telecommunications industry; the possibility that newmarketing campaigns or efforts are not an effective expenditure; the possibilitythat the Group's integration efforts do not increase the speed-to-market of newproducts or improve the Group's cost position; changes in exchange rates,including particularly the exchange rate of pound sterling to the euro, USdollar and the Japanese yen; the risk that, upon obtaining control of certaininvestments, the Group discovers additional information relating to thebusinesses of that investment leading to restructuring charges or write-offs orwith other negative implications; changes in statutory tax rates and profit mixwhich would impact the weighted average tax rate; changes in tax legislation inthe jurisdictions in which the Group operates; final resolution of open issueswhich might impact the effective tax rate; timing of any tax payments relatingto the resolution of open issues; and loss of suppliers or disruption of supplychains. Furthermore, a review of the reasons why actual results and developments maydiffer materially from the expectations disclosed or implied withinforward-looking statements can be found under "Risk Factors" contained in ourAnnual Report on Form 20-F with respect to the financial year ended 31 March2005. All subsequent written or oral forward-looking statements attributable tothe Company or any member of the Group or any persons acting on their behalf areexpressly qualified in their entirety by the factors referred to above. No assurance can be given that the forward-looking statements in this documentwill be realised. Neither Vodafone Group nor any of its affiliates intends toupdate these forward-looking statements. PART III - RECONCILIATIONS BETWEEN UK GAAP AND IFRS (UNAUDITED) a) Revenue Pro forma Year ended Year ended 31 March 2005 31 March 2004 £m £m UK GAAP 34,133 33,559Presentational adjustments: Proportionate consolidation of joint ventures: - Italy (1,291) (1,233) - Others 1,202 934 Discontinued operations - (818) Other 29 50 ----------- ----------IFRS 34,073 32,492 =========== ========== b) Group EBITDA (1) Pro forma Year ended Year ended 31 March 2005 31 March 2004 £m £mUK GAAP 13,041 12,640Presentational adjustments: Proportionate consolidation of joint ventures: - Italy (690) (644) - Others 442 343Accounting adjustments: Share based payments (95) (142)Other 17 (4) ----------- ----------IFRS 12,715 12,193 =========== ========== (1) Group EBITDA is not a measure recognised under IFRS but is presented in order to highlight operational performance of the Group. It is stated before items not reflecting underlying business performance. c) Operating (loss)/profit Pro forma Year ended Year ended 31 March 2005 31 March 2004 £m £m UK GAAP (4,111) (4,230)Goodwill amortisation 14,700 15,207Exceptional operating items 315 (228) ----------- ----------UK GAAP adjusted operating profit 10,904 10,749 Presentational adjustments:Accounting for associates (789) (565)Proportionate consolidation of joint ventures (418) (428)Discontinued operations - (66)Accounting adjustments:Licence amortisation (503) (88)Acquired intangibles amortisation (102) -Related Shares:
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