SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
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OR |
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: March 31, 2003 |
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OR |
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TRANSITION REPORT PURSUANT
TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: to |
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Commission file number: 1-10086 |
VODAFONE GROUP PUBLIC LIMITED
COMPANY
(formerly VODAFONE AIRTOUCH PUBLIC LIMITED COMPANY)
(Exact name of Registrant as specified in its charter)
England
(Jurisdiction of incorporation or organization)
Vodafone House, The Connection, Newbury, Berkshire RG14 2FN,
England
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
Ordinary shares of $0.10 each | New York Stock Exchange* |
* | Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Ordinary Shares of $0.10
each |
68, 179, 382, 971 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: |
Yes No |
Indicate by check mark which financial statements item the registrant has elected to follow: |
Item 17 Item 18 |
Vodafone Group Plc
Annual Report & Accounts and Form 20-F
For the year ended 31 March 2003
CONTENTS |
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 1
CONTENTS Continued |
This Annual Report & Accounts and Form 20-F (the Annual Report), constitutes the Annual Report of Vodafone Group Plc in accordance with United Kingdom requirements and its Annual Report on Form 20-F in accordance with the requirements of the US Securities and Exchange Commission (the SEC). References to the Group or Vodafone are references to the Company and its subsidiary undertakings and, where the context requires, its interests in joint ventures and associated undertakings.
This Annual Report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to the Groups financial condition, results of operation and business management and strategy, plans and objectives for the Group. For further details, please see Cautionary Statement Regarding Forward-Looking Statements on page 24 and Risk Factors on pages 25 and 26 for a discussion of the risks associated with these statements.
2 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
INFORMATION ON THE COMPANY |
History and Development of the Company
Vodafone Group Plc provides an extensive range of mobile telecommunications services, including voice and data communications, and is the worlds largest mobile telecommunications company, with a significant presence in Continental Europe, the United Kingdom, the United States and the Far East through the Companys subsidiary undertakings, associated undertakings and investments. The Group presently operates in 28 countries worldwide. The Groups mobile subsidiaries operate under the brand name Vodafone with the exception of its business in Japan, which currently operates as J-Phone Vodafone. In the United States the Groups associated undertaking operates as Verizon Wireless. During the last two financial years, the Group has also entered into arrangements with five network operators in countries where the Group does not hold an equity stake. Under the terms of these Partner Network Agreements, the Group and its partner networks co-operate in the development and marketing of global services under dual brand logos. Through these agreements, the Group has extended its brand reach into eight further countries.
At 31 March 2003, based on the registered customers of mobile telecommunications ventures in which it had ownership interests at that date, the Group had approximately 119.7 million customers, excluding paging customers, calculated on a proportionate basis in accordance with the Companys percentage interest in these ventures, and 296.0 million registered venture customers, as described in Business Overview Business activities Mobile telecommunications.
Following the completion of a number of major business transactions during the last three years, the Group acquired controlling interests in certain non-mobile telecommunications businesses, including Arcor AG & Co KG (Arcor), following the acquisition of Mannesmann AG (Mannesmann), and Japan Telecom Co., Ltd. (Japan Telecom), following a tender offer in October 2001.
The Company was formed in 1984 as a subsidiary of Racal Electronics Plc. Then known as Racal Telecom Limited, approximately 20% of the Companys capital was offered to the public in October 1988. It was fully demerged from Racal Electronics Plc and became an independent company in September 1991, at which time it changed its name to Vodafone Group Plc. Following its merger with AirTouch Communications, Inc. (AirTouch), the Company changed its name to Vodafone AirTouch Plc on 29 June 1999 and, following approval by the shareholders in General Meeting, reverted to its former name, Vodafone Group Plc, on 28 July 2000. The Company is a public limited company incorporated in England and Wales. Its registered office is Vodafone House, The Connection, Newbury, Berkshire, RG14 2FN England. Its principal telephone number is +44 (0)1635 33251.
The Companys ordinary shares are listed on the London Stock Exchange and the Frankfurt Stock Exchange and the Companys American Depositary Shares (ADSs) are listed on the New York Stock Exchange. The Company had a total market capitalisation of approximately £86 billion at 23 May 2003, making it the second largest company in the Financial Times Stock Exchange 100 index, or FTSE 100, and the eleventh largest company in the world based on market capitalisation at that date.
The Group has completed a number of major business transactions over the past three years, the most significant of which were the acquisition of Mannesmann, the acquisition of further interests in Japan Telecom and the J-Phone Group and the acquisition of Airtel Móvil S.A. (Vodafone Spain). In addition, during the year ended 31 March 2003, the Group increased its equity interests in certain
existing Group companies through a series of transactions. These transactions are described in more detail below. When combined with others, most notably the merger with AirTouch (which completed on 30 June 1999 and created one of the worlds largest mobile telecommunications companies), these transactions increased the geographic footprint and substantially increased the customer base of the Groups mobile operations, and significantly impacted the results of operations.
Acquisition of Mannesmann
On 12 April 2000, the Company received conditional European Commission consent to the acquisition of Mannesmann, following the receipt of valid acceptances representing approximately 98.62% of Mannesmanns issued share capital and 99.72% of its convertible bonds in issue. The completion of the Mannesmann acquisition had a major impact on the Groups results, bringing in both Mannesmann Mobilfunk GmbH in Germany and Omnitel Pronto Italia S.p.A in Italy as subsidiaries in two of Europes most important markets for mobile telecommunications. The businesses have since been rebranded and now operate as Vodafone. Mannesmann has also been renamed Vodafone Holding GmbH.
Subsequently, the Group has increased its ownership interest in Vodafone Holding GmbH to 100% through the buy-out of the remaining minority shareholders in Vodafone Holding GmbH, which was completed on 21 August 2002 for £281 million.
Through the Mannesmann acquisition, the Group also acquired beneficial ownership of Orange plc (Orange), then one of four mobile telecommunications operators in the UK, Infostrada S.p.A. (Infostrada) a fixed line telecommunications business in Italy, as well as interests in Mannesmanns non-telecommunications businesses. The Group subsequently sold its interests in Orange, Infostrada and certain other acquired Mannesmann businesses, as described below under Sales of businesses.
Mannesmann synergies
Mannesmann has been integrated into the Group and the expected synergies for the year ended 31 March 2003 announced at the time of the acquisition have been achieved, exceeding the target set mainly as a result of higher savings on capital expenditure.
Acquisition of additional interests in the J-Phone Group
The Groups initial investment in Japan, following the merger with AirTouch, comprised direct shareholdings in nine regional mobile telecommunications companies, with ownership interests ranging from 4.5% to 15%. On 7 October 1999, the Company announced a series of transactions that resulted in the Company increasing its equity interests to more than 20% in each of these companies, and becoming the second largest shareholder in each venture. The total consideration paid for the increased ownership interests in the three Digital Phone and six Digital Tu-Ka companies was £342 million. Subsequently, in an agreement with Japan Telecom and British Telecommunications plc (BT), the Group agreed to restructure its interests in Japan. This resulted in J-Phone Communications Co., Ltd. (J-Phone Communications), in which the Group had a 26% stake, acquiring a controlling interest of approximately 50% in each of the existing operating companies, becoming collectively known as the J-Phone Group. The Groups effective ownership interests were largely unchanged by this reorganisation. The nine regional operating companies were subsequently reorganised into three new regional companies, J-Phone East, J-Phone West and J-Phone Central.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 3
INFORMATION ON THE COMPANY Continued |
On 2 May 2001, the Company announced that it had agreed to acquire, for a cash consideration of approximately £3.7 billion, BTs ownership interests in the J-Phone Group and Japan Telecom, see Acquisition of interests in Japan Telecom below, comprising BTs combined shareholdings of 20% in Japan Telecom and 20% in J-Phone Communications for £3.1 billion, and BTs aggregate interest of approximately 4.9% in the J-Phone operating companies for a further £0.6 billion. The transaction completed on 1 June 2001, except for the acquisition of BTs interests in the operating subsidiaries of J-Phone Communications, which did not complete until 12 July 2001. As a result of these transactions, the Group had a 46% interest in J-Phone Communications, not including its indirect interest through Japan Telecom, and interests of 18.9%, 15.2% and 14.9%, respectively, in J-Phone Communications regional mobile companies J-Phone East, J-Phone West and J-Phone Central, excluding the Companys indirect interests through Japan Telecoms and J-Phone Communications holdings in these companies. On 24 August 2001, the Company announced the proposed merger of J-Phone Communications and the J-Phone operating companies into a new company, J-Phone Co., Ltd.
The merger became effective on 1 November 2001 and, as a result, the Group held a 39.67% ownership interest in the new company. Finally, following completion of the Groups tender offer for Japan Telecom, described below, the Groups effective interest in the J-Phone Group, which has since been rebranded and now operates as J-Phone Vodafone, is now approximately 69.7%.
Acquisition of interests in Japan Telecom
During the two year period ended 31 March 2002, as a result of a series of separate transactions, described below, the Group acquired a controlling 66.7% shareholding in the Japanese fixed line operator Japan Telecom.
An initial payment of ¥124.6 billion (£0.7 billion) was made on 31 January 2001 and, following the second payment of ¥125.1 billion (£0.8 billion) on 12 April 2001, the acquisition of a 15% stake in Japan Telecom from West Japan Railway Company and Central Japan Railway Company was completed. On 27 April 2001, the Group completed the acquisition of a further 10% stake in Japan Telecom from AT&T Corporation for a cash consideration of $1.35 billion (£0.9 billion), bringing the Groups interest in Japan Telecom to 25% at that time.
On 1 June 2001, the Company acquired a further 20% interest in Japan Telecom from BT. The acquisition was part of a transaction that also resulted in the Company acquiring a further interest in the J-Phone Group and Vodafone Spain, as described above and below under their respective headings. On 20 September 2001, the Company announced an agreed tender offer by its subsidiary, Vodafone International Holdings B.V., to acquire up to 693,368 Japan Telecom ordinary shares, representing 21.7% of the ordinary shares of Japan Telecom, for a cash consideration of up to ¥312 billion (£1.8 billion). The offer successfully completed in October 2001, bringing the Groups total interest to 66.7%.
On 31 July 2002, Japan Telecom announced that it had established a wholly owned subsidiary, Japan Telecom Co., Ltd., and that Japan Telecom was to be renamed Japan Telecom Holdings Co., Ltd. The existing fixed line business was transferred to Japan Telecom Co., Ltd. All of these changes took effect from 1 August 2002. This created a telecommunications service group comprising two core businesses of mobile and fixed telecommunications, namely J-Phone Vodafone and Japan Telecom.
The Group is currently in discussions that may or may not lead to a disposal of the Japan Telecom fixed line operations.
Acquisition of Vodafone Spain
On 29 December 2000, the Company completed its acquisition of a total of 4,061,948 shares in Vodafone Spain, representing approximately 52.1% of the issued share capital of Vodafone Spain. The acquisition increased the Groups interest in Vodafone Spain to 73.8%. The Company issued 3,097,446,624 new listed ordinary shares to the transferring shareholders, representing a value of approximately £7.9 billion for the acquired shares.
On 2 May 2001, the Company announced that it had agreed to acquire BTs 17.8% shareholding in Vodafone Spain for a cash consideration of £1.1 billion, increasing its ownership interest in Vodafone Spain to approximately 91.6%. The acquisition was completed on 29 June 2001, following the receipt of regulatory approval.
On 2 April 2002, the Company acquired a further 2.2% interest in Vodafone Spain for £0.4 billion, following the exercise of a put option held by Torreal, S.A., increasing the Groups interest to 93.8%.
On 21 January 2003, the Company announced that it had acquired the remaining 6.2% interest in Vodafone Spain for approximately €2.0 billion (£1.4 billion) following the deemed exercise of a put option held by Acciona, S.A. and Tibest Cuatro, S.A. under the terms of an agreement originally made in January 2000. The transaction completed on 27 January 2003 at which time Vodafone Spain became a wholly owned subsidiary of the Group.
Acquisition of interests in China Mobile (Hong Kong) Limited (China Mobile)
In an offering that closed on 3 November 2000, the Group acquired newly issued shares representing approximately 2.18% of China Mobiles share capital for a cash consideration of $2.5 billion. On 27 February 2001, the Company and China Mobile signed a strategic alliance agreement, setting out the principal terms for a strategic alliance and co-operation between the two parties in mobile services, technology, operations and management.
On 18 June 2002, the Group invested a further $750 million (£513 million) in China Mobile and obtained the right to appoint a non-executive director to the China Mobile board. The Groups stake in China Mobile increased to approximately 3.27% as a result of this transaction.
Acquisition of interests in Société Française du Radiotéléphone (SFR) and Cegetel Groupe S.A. (Cegetel)
Prior to the acquisition of Mannesmann, the Group had a 20% interest in SFR. Through the acquisition of Mannesmann, the Group acquired an approximate 15% interest in Cegetel, the French telecommunications group and the remaining 80% shareholder in SFR, taking the Groups effective interest in SFR to approximately 31.9%.
On 16 October 2002, the Group announced that it had agreed to acquire BTs 26% interest in Cegetel and SBC Communications Inc.s (SBCs) 15% interest in Cegetel for €4.0 billion cash and $2.27 billion cash, respectively. Vivendi Universal S.A. (Vivendi) had preemption rights in connection with the Cegetel shares held by SBC and BT. At the same time, the Group announced that it had made a non-binding cash offer of €6.8 billion to Vivendi for its 44% interest in Cegetel.
4 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
On 29 October 2002, the Board of Vivendi announced it had decided not to accept the Groups offer to purchase its 44% interest in Cegetel and, accordingly, the offer lapsed. On 3 December 2002, Vivendi also announced its intention to exercise its preemption rights to acquire BTs 26% interest in Cegetel.
On 21 January 2003, the Company announced that its subsidiary, Vodafone Holding GmbH, completed the acquisition of SBCs 15% interest in Cegetel for a cash consideration of $2.27 billion (£1.4 billion), increasing the Groups effective interest in SFR to approximately 43.9%.
Other significant transactions completed in the year ended 31 March 2003
Purchase of additional minority stakes in existing subsidiary undertakings
In line with the Groups strategy of increasing its shareholding in existing operations where it believes opportunities arise to enhance value for the Companys shareholders, the Group purchased minority stakes in certain of the Groups subsidiary undertakings in order to be able to more closely align the respective businesses to the Groups business.
Europolitan Vodafone AB (Vodafone Sweden)
During September 2002, the Group increased its effective interest in its listed subsidiary Vodafone Sweden by 3.6% to 74.7% through a series of market purchases.
In January 2003, the Company entered into discussions with the board of Vodafone Sweden concerning a possible tender offer to acquire, for cash, all remaining shares not held by the Group. A recommended offer was announced on 5 February 2003. As a result of shares bought in the offer and in the market, the Company increased its effective shareholding in Vodafone Sweden to approximately 99.1%. The total aggregate cash consideration paid was £391 million. Compulsory acquisition procedures have commenced to acquire the remaining shares. Completion is expected during the first half of the 2004 financial year, as a result of which Vodafone Sweden will become a wholly owned subsidiary of the Group. Vodafone Swedens shares have been de-listed from the O-list, Attract 40, of the Stockholm Exchange. The last day of trading for Vodafone Swedens shares was 28 March 2003.
Vodafone Libertel N.V. (Vodafone Netherlands)
On 27 November 2002, the Group announced the purchase for cash of an additional 7.6% interest in Vodafone Netherlands, increasing the Groups interest from 70% to 77.6%.
In January 2003, the Company entered into discussions with the boards of Vodafone Netherlands concerning a possible tender offer to acquire, for cash, all remaining shares not held by the Group. An offer was announced on 12 February 2003 and was declared unconditional on 28 March 2003. As a result of the offer at that time and market purchases, the Company increased its effective interest in Vodafone Netherlands to 97.2% as at 31 March 2003. The total aggregate cash consideration paid in the 2003 financial year was £486 million, with a further £110m paid in April 2003. Following a post-closing acceptance period, the Company, as a result of the offer and market purchases, increased its effective interest in Vodafone Netherlands to 98.2%. The Company has further increased its effective interest to 99.7%. The Group intends to initiate squeeze-out procedures in order to acquire the remaining shares following the successful completion of which Vodafone Netherlands will become a wholly owned subsidiary of the Group. Vodafone Netherlands shares have been de-listed from the Euronext Amsterdam Stock Exchange.
Vodafone Telecel-Comunicações Pessoais, S.A. (Vodafone Portugal)
During September 2002, the Group increased its effective interest in its listed subsidiary Vodafone Portugal to 61.4% through market purchases.
In January 2003, the Company entered into discussions with the board of Vodafone Portugal concerning a possible tender offer to acquire, for cash, all remaining shares not held by the Group. The offer was announced on 28 February 2003. Following completion of the offer, the Companys effective interest in Vodafone Portugal increased to approximately 94.4% as a result of shares purchased in the offer and in the market. The total aggregate cash consideration paid in the 2003 financial year was £184 million, with a further £336 million paid in April 2003. The Company has completed compulsory acquisition procedures to acquire the remaining shares. Vodafone Portugal is now a wholly owned subsidiary of the Group. De-listing of the shares occurred on 22 May 2003.
Vodafone-Panafon Hellenic Telecommunications Company S.A. (Vodafone Greece)
On 27 November 2002, the Group announced an agreement to acquire from France Telecom S.A. (FT) its 10.85% interest in Vodafone Greece for £216 million cash. The transaction completed on 3 December 2002 and increased the Groups effective shareholding in Vodafone Greece from 51.88% to 62.73%. In addition, the Company granted FT a cash settled call option to cover certain of FTs obligations under its 4.125% Exchange Notes due 29 November 2004, which are convertible into Vodafone Greece shares. Exercise of this option will not change the Companys effective interest. During the period the Group also made additional market purchases which increased the Groups effective interest in Vodafone Greece to 64.0%.
Other subsidiaries
On 3 May 2002, the Group completed the purchase of the 4.5% minority interest in Vodafone Australia Limited (Vodafone Australia), formerly Vodafone Pacific Limited, for a cash consideration of £43 million, as a result of which Vodafone Australia became a wholly owned subsidiary.
On 23 January 2003, the Group increased its stake in V.R.A.M. Telecommunications Limited, now called Vodafone Hungary Mobile Telecommunications Limited (Vodafone Hungary), to 83.8% by purchasing RWE Com GmbH & Co OHGs 15.565% interest in Vodafone Hungary for an undisclosed cash consideration. An option over certain of these shares was also granted on this date. See Operating and Financial Review and Prospects Liquidity and Capital Resources.
Acquisition of remaining 50% interest in Vizzavi
On 29 August 2002, the Group acquired Vivendis 50% stake in the Vizzavi joint venture, which operates a mobile content business, for a cash consideration of €143 million (£91 million). As a result of this transaction, the Group owns 100% of Vizzavi, with the exception of Vizzavi France, which is now wholly owned by Vivendi. The Group plans to continue focusing Vizzavis operations on providing multi-media entertainment-led consumer content aimed at increasing customer usage and to further integrate these operations into the Group. The acquired assets also form an integral part of the Groups strategy in providing differentiated services to its customers and form part of the Groups consumer service offering, Vodafone live!. Vizzavi has since been renamed Vodafone Content Services and services are provided under the Vodafone brand.
Acquisition of additional interest in associated companies
During December 2002, the Group completed the purchase of an additional 3.5% indirect equity stake in its South African associated undertaking, Vodacom Group (Pty) Limited (Vodacom), for a sum the sterling equivalent of which was £78 million. The transaction increased the Groups effective interest in Vodacom to 35%.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 5
INFORMATION ON THE COMPANY Continued |
On 10 January 2003, under an agreement with Mobitelea Ventures Limited, the Group completed the purchase of a 5% indirect equity stake in the Groups Kenyan associated undertaking, Safaricom Limited (Safaricom), for approximately $10 million (£7 million), increasing the Groups effective interest in Safaricom to 35%.
As a consequence of certain of the acquisitions described above, the Group also acquired interests in companies that were either outside the Companys core business, or in which the Company was prevented from retaining interests due to regulatory restrictions. The Group has also undertaken a series of transactions to facilitate the orderly disposal of such interests, as described below.
Disposal of Mannesmann businesses
Following the acquisition of Mannesmann, the Group has completed the sale of a number of Mannesmann businesses. The Group used the proceeds from these divestments to reduce its indebtedness.
Disposal of interests in Atecs Mannesmann AG (Atecs)
In April 2000, Mannesmann reached an agreement with Siemens AG and Robert Bosch GmbH for the sale of a controlling interest in Atecs, its engineering and automotive business. The transaction valued Atecs at approximately €9.6 billion, including pension and non-trading financial liabilities to be assumed on closing. On 29 September 2000, a payment of approximately €3.1 billion (£1.9 billion) plus interest was made to Mannesmann in exchange for the transfer of a 50% plus two shares stake in Atecs, which was completed on 17 April 2001, following approval from the relevant European and US regulatory authorities. Atecs also repaid Group loans of €1.55 billion (£1.0 billion) in March 2001.
On 15 January 2002, Vodafone announced that it had exercised put options to sell its remaining stake in Atecs to Siemens AG. The proceeds from this disposal amounted to €3.66 billion (£2.2 billion), and were received on 4 March 2002.
Disposal of Orange
As a condition to its approval of the Companys acquisition of Mannesmann, the European Commission required the Group to dispose of its interest in Orange, which Mannesmann acquired in 1999. Orange became a subsidiary of the Company as a result of the Mannesmann acquisition. On 30 May 2000, the Company and Mannesmann announced they had reached an agreement to sell Orange to France Telecom. The transaction was completed on 22 August 2000, following the receipt of conditional approval by the European Commission and approval by the shareholders of France Telecom. The consideration comprised a cash payment of approximately €21.4 billion (£13.2 billion), a €2.2 billion (£1.4 billion) France Telecom loan note and 113,846,211 France Telecom shares, representing 9.87% of the outstanding share capital of France Telecom. France Telecom granted the Company put rights relating to the France Telecom share consideration. In addition, France Telecom assumed Oranges existing debts, and its financial obligation regarding its UK 3G licence, totalling £4.1 billion. The loan note was redeemed in March 2001 and realised proceeds of £1.4 billion. The Group also renegotiated and exercised its put options over France Telecom shares for a total value of approximately €11.6 billion (£7.2 billion), of which €6.7 billion (£4.2 billion) was received in March 2001. On 19 April 2001, the remaining cash payment of €4.9 billion that was due to be received from France Telecom in March 2002 was monetised for €4.7 billion (£2.9 billion). The Group no longer holds any shares in France Telecom.
Disposal of Mannesmann tubes and watches businesses
On 9 October 2000, Mannesmann completed the sale of its tubes business to Salzgitter for a nominal consideration. In the period prior to completion, Mannesmann made capital contributions to the tubes business totalling €271 million.
Mannesmann also completed the sale of Les Manufactures Horlogères, its luxury watches business, to Richemont S.A. in December 2000, for a cash consideration of approximately €1.8 billion (£1.1 billion).
Disposal of Infostrada
The Group reached an agreement for the sale of its interest in Infostrada, Mannesmanns fixed line telecommunications operator in Italy, to Enel S.p.A. in October 2000. On 29 March 2001, the Group completed the sale of the entire issued share capital of Infostrada to Enel S.p.A. and received total proceeds of €7.4 billion (approximately £4.7 billion). Enel S.p.A. also assumed Infostradas net debt, including €0.8 billion (£0.5 billion) of debt owed to the Group that was repaid on acquisition.
Disposal of Arcor rail business
On 25 January 2002, the Group announced that Arcor, the Groups German fixed line business, had agreed terms for the sale of its railway-specific business, Arcor DB Telematik GmbH (Telematik), to the German rail operator Deutsche Bahn, for €1.15 billion (£709 million), €1 billion of which was received on 26 March 2002. The sale completed in April 2002 following receipt of all necessary approvals and registration in the German commercial register. On completion, Arcor sold 49.9% of Telematiks equity to Deutsche Bahn and entered into a put / call arrangement governing the remaining 50.1% equity interest, exercisable from 1 July 2002. Deutsch Bahn exercised its option to purchase the remaining 50.1% equity interest on 1 July 2002.
Disposal of tele.ring Telekom Service GmbH (tele.ring)
On 8 May 2001, the Group announced that agreement had been reached to sell its 100% equity stake in the Austrian telecommunications company, tele.ring, to Western Wireless International Corporation. The transaction completed on 29 June 2001, following receipt of regulatory approval. The value of net assets disposed of represented less than 1% of the Groups net assets at the date of disposal.
Disposal of holding in Ruhrgas AG
On 30 October 2001, the Group announced that it had reached agreement with E.ON AG for the sale of the Groups 23.6% stake in Bergemann GmbH, through which it held an 8.2% stake in Ruhrgas AG. The transaction completed on 8 July 2002, realising cash proceeds of €0.9 billion.
Disposal of Shinsegi Telecom, Inc. (Shinsegi)
On 24 August 2001, the Group announced that agreement had been reached to sell its 11.7% equity stake in the Korean mobile operator, Shinsegi, for an undisclosed amount to SK Telecom, Ltd. The value of net assets disposed of represented less than 1% of the Groups net assets at the date of disposal.
6 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
On 3 April 2000, the first stage of the transaction for the combination of the US cellular operations of the Company, Bell Atlantic Corporation (Bell Atlantic) and GTE Corporation (GTE) was completed. The combined entity, which initially consisted of the US cellular operations of AirTouch and Bell Atlantic, was launched as Verizon Wireless. Following completion of the merger of Bell Atlantic and GTE to form Verizon Communications, the second stage of the transaction was completed by the contribution of the US cellular operations of GTE to Verizon Wireless on 10 July 2000. The Group owns 45% of Verizon Wireless.
The formation of Verizon Wireless resulted in net proceeds to the Group of approximately £2.5 billion relating to the assumption of Group debt agreed with the other parties. Further proceeds of £1.8 billion and £0.2 billion were realised during the 2001 and 2002 financial years, respectively, following the disposal of overlapping properties in the US, such disposals being a condition of the regulatory approval of the transaction. No further proceeds were received during the 2003 financial year.
The following table shows consolidated Group turnover and consolidated total Group operating loss for the three years ended 31 March 2003, by geographic region.
Years ended 31 March | ||||||||||||||
Group turnover | Total Group operating (loss)/profit | |||||||||||||
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2003 |
2002 |
2001 |
2003 |
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2002 |
2001 |
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£m |
£m |
£m |
£m |
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£m |
£m |
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Mobile telecommunications: | ||||||||||||||
Northern Europe | 6,057 | 5,432 | 4,511 | 1,148 | 757 | 618 | ||||||||
Central Europe | 4,775 | 4,177 | 4,031 | (5,027 | ) | (4,833 | ) | (4,991 | ) | |||||
Southern Europe | 8,051 | 6,743 | 4,479 | (1,839 | ) | (1,971 | ) | (2,076 | ) | |||||
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|
|
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Europe | 18,883 | 16,352 | 13,021 | (5,718 | ) | (6,047 | ) | (6,449 | ) | |||||
Americas | 5 | 12 | 9 | (138 | ) | (555 | ) | (210 | ) | |||||
Asia Pacific | 8,364 | 4,072 | 713 | 704 | (198 | ) | (92 | ) | ||||||
Middle East and Africa | 290 | 306 | 308 | 170 | 131 | 181 | ||||||||
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|
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27,542 | 20,742 | 14,051 | (4,982 | ) | (6,669 | ) | (6,570 | ) | ||||||
Other operations: | ||||||||||||||
Europe | 854 | 998 | 953 | (214 | ) | (4,733 | ) | (419 | ) | |||||
Asia Pacific | 1,979 | 1,105 | | (255 | ) | (432 | ) | | ||||||
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|
|
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30,375 | 22,845 | 15,004 | (5,451 | ) | (11,834 | ) | (6,989 | ) | ||||||
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Other operations analysed in the above table principally comprise the results of the Groups interests in fixed line telecommunications businesses in Germany (Arcor), France (Cegetel) and Japan (Japan Telecom).
Total Group operating losses of £5,451 million for the year ended 31 March 2003 (2002: £11,834 million, 2001: £6,989 million) include exceptional operating costs of £576 million (2002: £5,408 million, 2001: £320 million) and goodwill amortisation of £14,056 million (2002: £13,470 million, 2001: £11,873 million). See note 3 to the Consolidated Financial Statements, Segmental analysis for a further analysis of business segment information.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 7
INFORMATION ON THE COMPANY Continued |
Business activities Mobile telecommunications
Geographic operations
The Company has interests in 28 countries across five continents. Based on ownership interests at 31 March 2003, the Company, through its subsidiary undertakings, associated undertakings and investments, had approximately 119.7 million registered customers, excluding paging customers, calculated on a proportionate basis in accordance with the Companys percentage interest in its ventures. There were approximately 296.0 million registered customers in ventures in which the Company either has control or invests.
On 1 April 2001, in response to the expansion of the Group, the Company implemented a reorganisation of its overall management structure into five main regions: Northern Europe, Middle East and Africa; Central Europe; Southern Europe; Americas and Asia; and Pacific. On 18 December 2001, the Company announced a further change to its regional structure. With effect from 1 January 2002, the Groups interests in Japan, China and India were formed into a new Asia region. All of the Groups other regions remained unchanged.
On 25 November 2002, the Company announced that the Groups Asia region and Pacific region, comprising the Groups interests in Japan, Australia, New Zealand, China, India and Fiji, were to be merged to form the Asia Pacific region. Brian Clark, previously Chief Executive of the Pacific region, was appointed Chief Executive of the Asia Pacific region with effect from 1 January 2003. Bill Keever, formerly Chief Executive of the Asia region, stood down as Chief Executive of that region and subsequently retired. As a result, the composition of the Groups Executive Committee changed. The Groups segmental analysis of its financial results was not changed.
The Company does not believe that these changes to its division of operations will materially affect the way in which it conducts business across geographic lines or the manner in which it manages its world-wide interests. The description of each regions business activities below is based on the geographical division of the Companys operations at 31 March 2003.
The table on the next page sets out a summary of the Companys world-wide cellular operations at 31 March 2003, and venture customer growth in the year then ended.
8 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Summary of mobile telecommunications customer information at 31 March 2003
Country by region |
Operator |
Percentage
ownership |
(1) |
Venture
customers
(thousands) |
Venture
customer
growth (%) |
(2) |
Registered
proportionate
customers (thousands) |
Registered
prepaid (%) |
(3) |
Total
controlled
active (%) |
(4) |
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|
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||
Northern Europe | ||||||||||||||
UK | Vodafone |
100.0 | 13,300 | 1 | 13,300 | 59 | 91 | |||||||
Ireland | Vodafone |
100.0 | 1,740 | 2 | 1,740 | 71 | 100 | |||||||
Netherlands(5) | Vodafone |
97.2 | 3,273 | | 3,183 | 59 | 93 | |||||||
Sweden | Vodafone |
99.1 | 1,325 | 14 | 1,313 | 30 | 95 | |||||||
Others | 17,579 | 6 | 6,909 | 52 | ||||||||||
|
|
|||||||||||||
TOTAL | 37,217 | 4 | 26,445 | 55 | 92 | |||||||||
|
|
|||||||||||||
Central Europe | ||||||||||||||
Germany | Vodafone |
100.0 | 22,940 | 7 | 22,940 | 53 | 92 | |||||||
Hungary | Vodafone |
83.8 | 954 | 72 | 799 | 88 | 90 | |
||||||
Others | 8,474 | 20 | 1,858 | 45 | ||||||||||
|
|
|||||||||||||
TOTAL | 32,368 | 11 | 25,597 | 52 | 92 | |||||||||
|
|
|||||||||||||
Southern Europe | ||||||||||||||
Italy(6) | Vodafone |
76.8 | 19,412 | 10 | 14,908 | 92 | 95 | |||||||
Greece | Vodafone |
64.0 | 3,383 | 14 | 2,166 | 71 | 75 | |||||||
Malta | Vodafone |
80.0 | 163 | 7 | 130 | 92 | 98 | |||||||
Portugal(5) | Vodafone |
94.4 | 3,085 | 9 | 2,912 | 73 | 88 | |||||||
Spain | Vodafone |
100.0 | 9,096 | 15 | 9,096 | 57 | 96 | |||||||
Albania | Vodafone |
82.4 | 391 | 130 | 322 | 97 | 94 | |||||||
Others | 2,673 | 23 | 537 | 65 | ||||||||||
|
|
|||||||||||||
TOTAL | 38,203 | 13 | 30,071 | 78 | 93 | |||||||||
|
|
|||||||||||||
Americas | ||||||||||||||
United States | Verizon
Wireless |
(7) |
44.4 | 33,324 | 13 | 14,792 | 7 | |||||||
Mexico | Iusacell |
34.5 | 2,036 | 2 | 703 | 83 | ||||||||
|
|
|||||||||||||
TOTAL | 35,360 | 12 | 15,495 | 11 | ||||||||||
|
|
|||||||||||||
Asia Pacific | ||||||||||||||
Japan | J-Phone Vodafone |
69.7 | 13,912 | 14 | 9,702 | 6 | 98 | |||||||
Australia | Vodafone |
100.0 | 2,564 | 19 | 2,564 | 50 | 93 | |||||||
New Zealand | Vodafone |
100.0 | 1,289 | 18 | 1,289 | 78 | 98 | |||||||
Others(8) | 124,047 | 66 | 4,129 | 60 | ||||||||||
|
|
|||||||||||||
TOTAL | 141,812 | 58 | 17,684 | 55 | 98 | |||||||||
|
|
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Middle East and Africa | ||||||||||||||
Egypt | Vodafone |
60.0 | 2,263 | 32 | 1,358 | 84 | 97 | |
||||||
Others | 8,739 | 25 | 3,059 | 86 | ||||||||||
|
|
|||||||||||||
TOTAL | 11,002 | 26 | 4,417 | 86 | 97 | |||||||||
|
|
|||||||||||||
|
|
|||||||||||||
GROUP TOTAL | 295,962 | 29 | 119,709 | 53 | 93 | |||||||||
|
|
|||||||||||||
Notes: | |
(1) | All ownership percentages are stated as at 31 March 2003 and, subject to (5) below, exclude options, warrants or other rights or obligations of the Group to increase or decrease ownership in any venture. Ownership interests have been rounded to the nearest tenth of one percent. |
(2) | Venture customer growth is for the twelve month period to 31 March 2003. |
(3) | Registered prepaid percentages are calculated on a total venture customer basis. |
(4) | Active customers are defined as customers who have made or received a chargeable event in the last three months or, where information is not available, defined as customers who have made a chargeable event in the last three months (indicated by ). |
(5) | Includes interests which the Company was irrevocably committed to purchase. |
(6) | Italy migrated to the single Vodafone brand in May 2003. |
(7) | The Groups ownership interest in Verizon Wireless is 45.0%. However, the Groups proportionate customer base has been adjusted for Verizon Wirelesss proportionate ownership of its customer base of approximately 98.6%. In the absence of acquired interests, proportionate ownership will vary slightly each period dependent on the underlying mix of net additions across each of these networks. |
(8) | Principally comprises China Mobile. |
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 9
INFORMATION ON THE COMPANY Continued |
The reasons for the changes in the year to the Companys effective percentage ownership interests in the Netherlands, Sweden, Germany, Hungary, Greece, Portugal, Spain and Australia are discussed in the description of each regions business activities below, or under Information on the Company History and Development of the Company.
Northern Europe
The Groups interests in Northern Europe comprise subsidiary undertakings in the United Kingdom, Ireland, the Netherlands and Sweden, and associated undertakings in Belgium and France.
Below is a summary of the Groups business activities in its major mobile telecommunications markets in Northern Europe.
United Kingdom
Vodafone UK Limited (Vodafone UK) is one of five cellular network operators in the United Kingdom and, according to the latest quarterly review of the UK telecommunications regulator (Oftel), Vodafone UK is the largest in terms of mobile service revenue share for outbound calls, with a lead of seven percentage points over its nearest competitor.
At 31 March 2003, Vodafone UK had 13,300,000 registered customers, an increase of 1% since 31 March 2002. Of the total registered customer base, 9% were inactive customers, the majority of whom were prepaid customers.
Vodafone UK continued to focus on the acquisition of high value customers and increased the contract customer base by 474,000 in the year to 5,488,000 at 31 March 2003, compared with 5,014,000 at 31 March 2002. At 31 March 2003, Vodafone UKs in-house service provider companies accounted for 57% of the contract customer base, which includes 370,000 customers arising from the acquisition of Cellular Operations Limited during the year.
Vodafone UK continually invests in its network infrastructure to improve network quality and maintain its position as the leading network, in terms of customer satisfaction. Vodafone UK continues to be recognised in Oftel surveys as the leading UK network, with a call success rate of 98.3%.
At 31 March 2003, Vodafones UK digital network consisted of 108 mobile switching centres (MSCs), 8,524 digital base station controllers (BSCs) and 20,817 base transceiver stations (BTSs) in service, giving declared population coverage of 99% of the UK.
Vodafone UK has now been operating its nationwide GPRS network for over two years, offering an enhanced range of products and services. GPRS provides a range of services for business customers to enable access to corporate systems such as e-mail and their company intranet. More generic services allowing access to the Internet from either the handset or through a Personal Digital Assistant or PDA, or laptop computer enable all customers to gain access to the Internet at speeds which are typically faster than standard home or office telephone lines. In November 2002, Vodafone UK launched Vodafone live!, part of a Group-wide programme designed to offer the customer an integrated experience of handset and services. Through Vodafone live!, Vodafone UK is now able to offer its customers additional services such as multimedia messaging, allowing users to send and receive graphics and pictures. Further details on Vodafone live! can be found under Strategic Developments Global services elsewhere in this document.
Vodafone UK was awarded one of the five twenty year 3G licences in the auction conducted by the UK government in April 2000 and, following a period of network investment and construction, plans to open its 3G network for service later in 2003. During the 2003 financial year, Vodafone UK invested in excess of £100 million in its 3G infrastructure.
Ireland
Vodafone Ireland Limited (Vodafone Ireland) is the leading provider of mobile telecommunications services in Ireland, with 1,740,000 registered customers at 31 March 2003, maintaining its leadership position in a highly penetrated market with an estimated market share of 56%.
Vodafone Ireland offers a range of voice and data services to its prepaid and contract customers and also offers a wide-area paging service through its wholly owned subsidiary, Eirpage.
At 31 March 2003, Vodafone Irelands mobile network consisted of a GSM 900/1800 digital network comprising 15 MSCs, 25 BSCs and 1,957 BTSs, providing population coverage of approximately 98.9%. All of Vodafone Irelands infrastructure assets are held on a freehold basis.
Vodafone Ireland was awarded one of four 3G licences, with a twenty year duration period, via a beauty contest in July 2002. In accordance with the licence commitments, Vodafone Ireland commenced 3G services on 1 May 2003, providing coverage to approximately 33% of the population. In accordance with the licence terms, Vodafone Ireland is required to provide population coverage of 53% and 85% by September 2004 and December 2007, respectively. Accordingly, Vodafone Ireland continues to invest in its 3G network.
The Netherlands
As at 31 March 2003 the Group had a 97.2% shareholding in Vodafone Netherlands, a digital GSM network operator.
During the year ended 31 March 2003, Vodafone Netherlands maintained its position as the second largest mobile network operator by number of registered customers in the Dutch market. One of five GSM operators in the Netherlands, its total registered customer base stood at 3,273,000 at 31 March 2003. Prepaid customers made up 59% of the registered customer base at 31 March 2003, with the proportion of active customers estimated to be 93%.
At 31 March 2003, Vodafone Netherlands mobile network consisted of a GSM 900/1800 digital network comprising 24 MSCs, 28 BSCs and 2,241 BTSs providing population coverage of approximately 99%. All of Vodafone Netherlands infrastructure assets are held on a freehold basis.
In 2001, Vodafone Netherlands was successful in winning one of five fifteen year 3G licences in the Netherlands. Under the terms of the licence, population coverage must be at least 12% by 1 April 2004.
Sweden
The Group has a 99.1% interest in Vodafone Sweden, Swedens third largest mobile network operator. During the year, Vodafone Swedens registered customer base increased by 14% to 1,325,000, 70% of which were connected on the more profitable contract tariffs.
At 31 March 2003, Vodafone Swedens mobile network consisted of a GSM 900/1800 digital network comprising 10 MSCs, 42 BSCs and 2,400 BTSs, providing population coverage of approximately 96%, despite land mass coverage of only 57%.
During the 2001 financial year, Vodafone Sweden was awarded a fifteen year 3G licence, for no fee, in a beauty contest. The extensive infrastructure rollout requirements are being satisfied primarily through a network build programme which Vodafone Sweden has undertaken as a joint venture with Hutchison Investor 3G Access AB and Orange Sverige AB, other 3G licence holders in Sweden. It is expected that the joint venture company will build and operate the infrastructure to provide coverage for up to 70% of the population, with Vodafone Sweden building and operating infrastructure to provide coverage for a further 30% of the population. However, Orange Sverige AB has announced its intention
10 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
to withdraw from the Swedish market and the 3G joint venture described above. As a result, Vodafone Sweden may have to invest more in the network in order to achieve the national coverage required under the terms of its licence. Full commercial launch of 3G services is expected on 1 January 2004, at which time the licence terms require population coverage of 99.98%.
France
At 31 March 2003, the Groups effective ownership interest in SFR was approximately 43.9%, comprising a direct holding of 20% and an indirect holding through the Groups interest in Cegetel.
SFR has the second largest customer base of the three mobile carriers in the French market, with an estimated market share of 35%. During the 2003 financial year, SFR expanded its customer base by 7% to 13,324,000 registered customers at 31 March 2003. During the 2002 financial year SFR opened its GPRS network for service.
Central Europe
The Groups interests in Central Europe comprise subsidiary undertakings in Germany and Hungary and associated undertakings in Poland and Switzerland.
Below is a summary of the Groups business activities in its mobile telecommunications markets in Central Europe.
Germany
Following the buy-out of the remaining minority shareholders in Vodafone Holding GmbH on 21 August 2002, the Group has an effective 100% interest in Vodafone D2 GmbH (Vodafone Germany).
Customer growth in the German cellular market was over 5% in the year to 31 December 2002, compared with over 16% growth in the previous calendar year. Germany is the largest mobile market in Europe based on customer numbers and is one of the Groups leading European networks in terms of messaging and data revenues, which represented 16.4% of total monthly service revenues for the 2003 financial year.
At 31 March 2003, Vodafone Germany had 22,940,000 registered customers, representing growth of over 7% in the year. This growth was principally attributable to contract customers, which increased 15% and now represent 47% of the closing customer base, up from 43% at 31 March 2002. The continued removal of inactive prepaid customers from the total customer base also resulted in active customers representing 92% of the total registered customer base at 31 March 2003, compared with 91% at 31 March 2002.
During the year, Vodafone Germany continued to make significant investments in its network which, at 31 March 2003, consisted of 148 MSCs in service and over 19,000 base stations, giving declared population coverage of over 99%.
Germany participated in the Groups Vodafone live! launch and became the first network operator in Germany to launch a combined camera phone and online portal. By the end of March 2003, 405,000 Vodafone live! handsets had been activated. In April 2002, Vodafone Germany became the first German operator to launch MMS services. Initially available to contract customers only, in November 2002 the service was made available for prepaid customers.
Following the acquisition of a twenty year 3G licence in Germany, the 3G network infrastructure rollout is proceeding according to plan and in accordance with the licence obligation to provide at least 25% population coverage by the end of 2003. During the 2003 financial year, Vodafone Germany successfully completed voice and data calls on its pilot 3G networks.
Hungary
The Group currently has an effective 83.8% interest in Vodafone Hungary, the smallest operator in Hungary.
At 31 March 2003, Vodafone Hungarys registered venture customers amounted to 954,000, representing growth of over 71% in the year and increasing its market share from 10.5% at 31 March 2002 to 13.4% at 31 March 2003.
During the 2003 financial year, Vodafone Hungary has also improved its network coverage, despite the cancellation of the National Roaming Agreement by a competitor during December 2002. In an accelerated infrastructure roll-out programme, Vodafone Hungary has constructed a further 297 sites during the year, taking the total at 31 March 2003 to 1,461 sites.
Vodafone Hungary launched GPRS services on 15 July 2002, MMS services on 9 December 2002 and Vodafone live! on 3 February 2003.
Switzerland
The Group has a 25% interest in Swisscom Mobile S.A. (Swisscom Mobile), the largest mobile telecommunications company in Switzerland, with an estimated market share of 65%. At 31 March 2003, Swisscom Mobile had 3,635,000 customers compared with 3,428,000 customers at 31 March 2002.
Poland
The Group has a 19.6% interest in Polkomtel S.A. (Polkomtel), the second largest operator in Poland with an estimated market share of 33% and a customer base of 4,839,000 at 31 March 2003.
Southern Europe
The Groups interests in Southern Europe comprise subsidiary undertakings in Italy, Albania, Greece, Malta, Portugal and Spain, and an associated undertaking in Romania. At 31 March 2003, the Groups subsidiaries in Greece and Portugal were also listed on public stock exchanges. However, Vodafone Portugals shares were de-listed from the Euronext Lisbon exchange on 22 May 2003.
Below is a summary of the Groups business activities in its major mobile telecommunications markets in Southern Europe.
Italy
In November 2002, Vodafone Omnitel S.p.A. and certain other group companies were merged into a single entity, Vodafone Omnitel N.V. (Vodafone Italy). The Group has an effective ownership interest of 76.8% in Vodafone Italy, the second largest of three operators in Italy. On 7 October 2002, Vodafone Italy purchased certain assets from the former operator, Blu, which exited the market through a break up.
The Italian market is characterised by a high level of prepaid product and one of the highest penetration rates (nearly 97%) in any country in the world. Vodafone Italys registered customer base grew by 10% in the year and was 19,412,000 at 31 March 2003, of which 92% was on prepaid tariffs. At 31 March 2003, Vodafone Italy had a market share of approximately 35.6%, in terms of registered customers and 95% of the registered customer base was active.
At 31 March 2003, Vodafone Italys network consisted of 123 MSCs and 9,353 base stations, giving population coverage of 99%. During the 2002 financial year Vodafone Italy launched its GPRS service in both the corporate and consumer markets. The services were initially provided free of charge, with services charged from June 2001 for corporate customers and February 2002 for other consumers.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 11
INFORMATION ON THE COMPANY Continued |
In November 2000, Vodafone Italy was awarded one of five fifteen year licences to offer third generation mobile services. In August 2002, the term was extended to twenty years. The deployment of the UMTS network has currently reached coverage of 14% of the population. Commercial launch is planned for later in 2003, subject to availability of handsets.
Greece
As at 31 March 2003, the Group had a 64.0% interest in Vodafone Greece, the second largest of four cellular operators in Greece in terms of number of customers with an estimated market share at 31 March 2003 of 34.7%. Its shares are listed on the Athens Stock Exchange and its Global Depositary Shares are listed on the London Stock Exchange and quoted on NASDAQ. At 31 March 2003, it had a market capitalisation of approximately £1.9 billion ($3.0 billion).
Vodafone Greece increased its registered customer base by 14% to 3,383,000 during the year to 31 March 2003, of which 71% were connected to prepaid services and 75% were considered active.
As a result of acquisitions of service provider companies completed in prior periods, at 31 March 2003, Vodafone Greece owned an extensive distribution network, providing direct access to 84% of its registered customer base.
The GSM network of Vodafone Greece uses both 900 and 1800 MHz spectrum, providing population coverage of 98.7%. At 31 March 2003, the network comprised 2,062 base stations connected to 32 BSCs, 16 MSCs, 3 transit switching centres and 7 stand alone HLRs. All of Vodafone Greeces infrastructure assets are held on a freehold basis.
Vodafone Greece launched GPRS service in April 2001, with service now available for both retail and corporate customers. In July 2001, Vodafone Greece was awarded one of three 3G licences. In addition, it acquired extra 2G spectrum, allowing Vodafone Greece to continue to improve the quality of service for its customers. Vodafone Greece plans to launch its 3G network within the 2004 financial year.
Malta
The Group has an 80% shareholding in Vodafone Malta Limited (Vodafone Malta), the largest operator in Malta in terms of total customers.
During the 2003 financial year, Vodafone Malta increased its registered customer base by 7% to 163,000 at 31 March 2003 with 92% of the customer base connected to its prepaid tariffs.
GPRS services were launched in October 2001, with the service available to both retail and corporate customers. In September 2000, Vodafone Malta was awarded a 3G licence and is expected to launch 3G services by the end of the 2006 financial year.
Portugal
Vodafone Portugal is the second largest of three operators in Portugal, both in terms of total customers and service revenues. During the 2003 financial year, Vodafone Portugal maintained its market leadership position in the contract and corporate segments and increased its registered customer base by 9% to 3,085,000 at 31 March 2003, of which 88% were active.
Vodafone Portugal operates a nationwide GSM mobile network (currently in the 900 MHz and 1800 MHz bands) covering approximately 100% of the population of mainland Portugal and the Autonomous Regions of Azores and Madeira. At 31 March 2003, the network consisted of around 2,800 base stations.
In December 2000, Vodafone Portugal was granted one of the three 3G licences. However, commercial launch of UMTS services in Portugal has been postponed and is not expected until 31 December 2003.
Spain
Vodafone Spain is the second largest of three operators in Spain. At 31 March 2003, Vodafone Spain had 9,096,000 registered customers, representing growth of 15% in the year, with 57% of the customer base connected to prepaid tariffs and 96% of the customer base considered active.
At 31 March 2003, Vodafone Spains network consisted of 57 MSCs, 172 BSCs and 7,063 BTSs, giving population coverage of 98.9%.
In November 2001, Vodafone Spain launched its GPRS service in both the corporate and the consumer markets and, during the 2003 fiscal year, continued the development of the GPRS network, adapting the existing infrastructure to support the growth in data traffic.
In March 2000, Vodafone Spain was awarded one of four 3G licences by the Spanish government. The deployment of the UMTS network is proceeding according to plan, consisting of 850 UMTS base stations at 31 March 2003. Vodafone Spain currently expects to launch 3G services later in the 2004 financial year.
Albania
The Group has an effective 82.4% interest in Vodafone Albania Sh.A. (Vodafone Albania), the second largest cellular operator in Albania in terms of number of customers. Vodafone Albania launched GSM services on 3 August 2001 and, as at 31 March 2003, had a registered customer base of 391,000, of which 97% was connected to prepaid services.
Americas
The Groups interests in the Americas comprise a 45% ownership interest in Verizon Wireless, which was formed at the beginning of the 2001 financial year by the combination of the US cellular operations of the Company, Bell Atlantic and GTE, and a 34.5% interest in Grupo Iusacell (Iusacell).
United States
The Group owns 45% of Verizon Wireless and designates three of the seven members of Verizon Wireless board, while Verizon Communications designates the four other members.
The mobile telecommunications market in the United States currently consists of six nationwide competitors and a number of regional and smaller rural carriers. Verizon Wireless has maintained its position as the leading mobile telecommunications provider in the United States in terms of number of customers, network coverage and revenues.
Due to the continued difficult economic conditions and increased market penetration in the US, net customer growth has slowed considerably from prior years. However, Verizon Wireless increased its customer base by 13% over the 2002 financial year and ended the year with a registered customer base of 33,324,000, of which 93% were on contract plans.
During August 2002, Verizon Wireless combined the business operations of Price Communications Wireless Inc. with certain Verizon Wireless assets in a transaction valued at $1.7 billion, including $550 million in net debt that was assumed and subsequently redeemed. Under the agreement, a partnership was formed which Verizon Wireless controls and manages. Price Communications partnership interest will be exchangeable into common stock of Verizon Wireless Inc. (if an initial public offering of such stock occurs), subject to specified
12 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
conditions. Price Communications Wireless provided 800 MHz wireless service to approximately 411,000 customers in the South East of the United States.
In December 2002, Verizon Wireless signed an agreement with Northcoast Communications LLC, to purchase 50 Personal Communications (PCS) (1800MHz 1900MHz) licences and related network assets, for approximately $750 million in cash. The licences cover portions of the East Coast and Midwest, and serve approximately 47.2 million people. The transaction completed in May 2003.
Verizon Wireless was the first major US carrier to launch CDMA2000 1XRTT technology in major metropolitan markets and during the 2003 financial year Verizon Wireless continued to roll-out its network, extending total coverage to approximately 85% of the Verizon Wireless footprint, with coverage expected to reach nearly 100% later in the year.
During the year ended 31 March 2003, Verizon Wireless continued to focus on gaining and retaining high value customers through new customer additions, the migration of existing analogue customers to digital price plans and churn management programmes. Next generation services are expected to provide business customers with the functionality to use the Verizon Wireless network as an extension of their corporate Local Area Network or intranet, allowing them to work from any location where there is coverage. The services will also allow for a range of multimedia services to be offered, including services such as video and audio streaming and interactive gaming.
In January 2003, Verizon Wireless withdrew its Registration Statement with the SEC relating to a proposed initial public offering of a minority stake in the partnership, stating that it currently has no significant funding needs that would require it to proceed with the offering. On 10 July 2002, the Cellco Partnership, doing business as Verizon Wireless, and Verizon Wireless Capital LLC, a wholly owned subsidiary of the Cellco Partnership, filed a registration statement on Form S-4 to exchange $4 billion privately placed notes for a new issue of notes with identical terms registered under the US Securities Act of 1933. The exchange offer closed on 12 November 2002.
In December 2002, the Federal Communications Commission (FCC) refunded the remaining $261 million on deposit, which represented 15% of the initial deposit made in relation to the re-auction of licences for 1.9GHz spectrum and relieved Verizon Wireless of its remaining obligations with respect to the auction.
Mexico
On 4 April 2001, the Group acquired a 34.5% interest in Iusacell. Iusacell currently provides wireless services in seven of Mexicos nine regions, covering a population of 90 million people and representing approximately 90% of the countrys total population. Roaming is provided in the two remaining regions.
Mexicos cellular market has continued to expand, with customer growth largely driven by prepaid products. At 31 March 2003, Iusacell had 2,036,000 registered customers, an increase of 2% since 31 March 2002. Of the total registered customer base, 83% were prepaid customers.
Iusacells financial performance continued to decline in the year despite a modest increase in its customer base and managements efforts to restructure the business through substantial headcount reductions and tight cost and cash management.
In order to alleviate certain of the resulting financial pressures, Iusacell began a debt restructuring effort in December 2002 and, in May 2003, secured a temporary waiver related to its $266 million secured bank credit facility. Iusacell will continue to work with its financial advisor to restructure the terms and payment schedules of its various debt agreements and instruments. It is likely
that Iusacell will require additional funding in order to grow its operations. However, there is no assurance that such funding could be obtained at all or, if obtainable, on terms which would be acceptable to Iusacell.
As a result of Iusacells deteriorating financial performance, the Group has written off its investment and is currently considering its options with respect to its investment, including disposal.
Globalstar
In August 2002, the sale of two Globalstar service provider companies, Globalstar US and Globalstar Caribbean, was finalised. In November 2002, the Globalstar service provider, Globalstar de Mexico, was sold.
Asia Pacific
The Groups interests in the Asia Pacific region comprise subsidiary undertakings in Japan, Australia and New Zealand, associated undertakings in Fiji and India, and the Groups interests in China.
Below is a description of the business developments and activities of the Groups business activities in the major telecommunications markets in the Asia Pacific region.
Japan
Through a series of transactions undertaken during the last two financial years, the Group has an effective 69.7% interest in J-Phone Vodafone.
Japans mobile telecommunications market remained robust as mobile services continued to expand, with market penetration increasing by five percentage points to 59% at 31 March 2003, compared with 54% at 31 March 2002.
At 31 March 2003, J-Phone Vodafone had approximately 13,912,000 registered customers and a market share of over 18%. J-Phone Vodafone continued to capture monthly market share above its cumulative share, with 1,727,000 net customer additions recorded in the year ended 31 March 2003. One of the key drivers of this recent growth has been the increase in J-Sky web usage and content revenue, together with the continued success of J-Phone Vodafones other data offerings, Sha-mail, the popular photo-messaging service and the video-clip messaging service movie sha-mail.
At 31 March 2003, J-Phone Vodafones PDC (2G) network comprised 101 MSCs and 13,890 base stations, giving population coverage of 99.7%.
On 30 June 2000, the Ministry of Post and Telecommunications awarded one of three 3G licences to J-Phone Vodafone (then called J-Phone Communications). No fees were required by the Japanese government for the licences. J-Phone Vodafone was the first network operator in the Group to open its 3G network for service, having commenced nationwide service on 20 December 2002. J-Phone Vodafones 3G network is compatible with the global W-CDMA standard, providing capability of international W-CDMA and GSM SIM enabled roaming to Japan for the first time. At 31 March 2003, J-Phone Vodafone had concluded 69 roaming agreements in 62 countries and regions.
The use of micro cell technology has allowed the rapid and cost effective deployment of J-Phone Vodafones 3G network. As at 31 March 2003, J-Phone Vodafone had 3,644 operational 3G base stations covering over 71% of the population. By the second half of the 2003 calendar year, J-Phone Vodafone aims to have 13,275 operational 3G base stations covering over 95% of the population.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 13
INFORMATION ON THE COMPANY Continued |
Australia and New Zealand
On 3 May 2002, the Group completed its purchase of the remaining 4.5% minority interest in Vodafone Australia, as a result of which the Groups effective interest in its Australian operations increased from 95.5% to 100%.
Network operations in Australia and New Zealand, both of which operate under the Vodafone brand name, increased their registered customer base by an aggregate 19% in the 2003 financial year to 3,853,000 registered venture customers at 31 March 2003. In Australia, Vodafones customer base increased by 418,000 net new customers, giving a market share of over 18%, compared with 17% at 31 March 2002. In New Zealand, strong growth continued with an 18% increase in the registered customer base to 1,289,000, resulting in a 51% market share.
Australia and New Zealand operate digital networks based on the GSM technical standard, providing coverage to approximately 92% and 97% of the population, respectively. At 31 March 2003, the Australian and New Zealand networks comprised 13 and 4 MSCs and 2,276 and 866 base stations, respectively.
Australia and New Zealand have commenced plans to roll out 3G infrastructure and expect to introduce 3G services by 2005.
India
Since 31 March 2003 the Group has entered into an agreement, subject to conditions, to sell its entire interest in RPG Cellular Services Limited.
China
The Group has a stake in China Mobile of approximately 3.27%. The Group also owns a 9.99% interest in Aspire Holdings Limited, China Mobiles subsidiary set up to develop its mobile Internet service delivery platform and take responsibility for mobile data research and development.
At 31 March 2003, China Mobile had approximately 123,778,000 registered customers.
Middle East and Africa
The Groups operations and ownership interests in the Middle East and Africa Region comprise the subsidiary company Vodafone Egypt Telecommunications Company SAE (Vodafone Egypt) and two associated undertakings, Safaricom in Kenya and Vodacom in South Africa.
Egypt
Vodafone Egypt is Egypts second largest mobile operator, with an estimated market share of 48%, and operates under the brand name Vodafone. Since its launch in November 1998, it has increased the number of customers connected to its network to approximately 2,263,000 by 31 March 2003.
In Egypt, Vodafone offers both contract and prepaid services, with prepaid customers representing approximately 84% of the customer base.
At 31 March 2003, Vodafone Egypts mobile network consisted of a GSM 900 digital network comprising 13 MSCs, 19 BSCs and 1,636 BTSs, providing population coverage of approximately 98.5%, although providing land mass coverage of only 12%.
South Africa
The Group has a 35% interest in Vodacom, South Africas largest mobile operator with an estimated market share of 58%. Its customer base increased by 20% in the 2003 financial year to 7,874,000 registered customers, of whom approximately 85% are connected to the prepaid service.
Vodacom also has a licence to operate in Tanzania and, in December 2001, formed a joint venture in the Democratic Republic of the Congo.
Revenue streams from messaging data and other data services (data revenues) increased 73% to £3,622 million for the 2003 financial year, and represented over 14.6% of service revenues in the Groups controlled subsidiaries during the year. For the month of March 2003, data revenues as a percentage of service revenues increased to over 15.6%, compared with 13.5% for the month of March 2002.
Growth in data revenues has been primarily driven by the continued popularity of SMS and benefited from the launch of a number of SMS-based products and services by the Group during the period. The Group is also starting to generate revenues from GPRS services. These results also include a first time contribution from Vodafone live!, which was launched in late November 2002 although many data services were initially offered free of charge to customers.
Further details on the Groups strategy and plans for the development of data services can be found in Strategic developments Global services below.
Third generation licences and network infrastructure
The Group has secured 3G licences in all jurisdictions in which it operates and in which such licences have been awarded to date. Further details can be found in Information on the Company Business Overview Business activities Mobile telecommunications.
Cumulative expenditure on 3G licences was £13.5 billion at 31 March 2003 and was funded from the Groups existing facilities. Most of this expenditure (£13.1 billion) occurred during the 2001 financial year. During the 2003 financial year, the Groups cash expenditure on intangible fixed assets was £99 million, which included the acquisition of a 3G licence in Ireland, a further licence in Portugal and additional GSM spectrum in Italy. Vodafone expects to participate in additional 3G licence allocation procedures in other jurisdictions in which it operates. No assurances can be given that the Group will be successful in obtaining any 3G licences for which it intends to apply or bid.
The construction of 3G network infrastructure has continued throughout the 2003 financial year, with tangible fixed asset additions on 3G network infrastructure amounting to approximately £1.7 billion. The Group presently expects capitalised tangible fixed asset additions to be approximately £5.0 billion in the 2004 financial year, 40% of which is expected to be in respect of 3G network infrastructure. This expenditure is expected to be financed through operating cash flows and existing borrowing facilities. The Group has entered into contracts with four key suppliers for the delivery of 3G network infrastructure.
Further details on the Groups 3G plans can be found in Strategic developments Global services below.
Strategic developments Global services
The Groups vision is to be the worlds mobile communications leader. A major focus of the Groups strategy is to offer innovative services within Vodafone-branded, end-to-end customer propositions, which utilise the Groups global footprint and global brand to offer customers a unique mobile experience and seamless international services.
These programmes, such as Vodafone live!, are based on compelling customer propositions and have been packaged together for a specific target market. Vodafone live! is an easy-to-use consumer service, bringing customers a world of colour, sound and pictures, enabling them to use picture messaging, download polyphonic ringtones and colour games, and browse branded infotainment from integrated camera phones through an easy to use icon driven menu.
14 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Vodafone live! and Mobile Office from Vodafone
Vodafone live! was launched on 24 October 2002 and by 31 March 2003 the Group had connected more than one million active live! customers in 10 countries. Of the Vodafone live! customers, Germany had over 405,000, Italy 227,000 and the UK 240,000. Since 31 March 2003, Vodafone live! has also been launched in Australia, Egypt and New Zealand. The service has also attracted critical acclaim from the industry, including recent awards from the GSM Association for best consumer application, advertising and mobile handset.
The acquisition of the remaining 50% stake in Vizzavi and its rapid integration into the Group has supported the creation of Vodafone live!, which is expected to continue to drive a significant part of the Groups growth in future years. It is intended that the Vodafone live! experience will continue to be updated, integrating the most up to date services and technologies as well as broadening the range of handsets available to cover more market segments. The next release of Vodafone live! will include access to picture messaging libraries and improved download speeds.
Mobile Connect Card, the first of Vodafones global business services to be offered under Mobile Office from Vodafone, was launched in twelve countries during the period. Mobile Connect Card, a high speed data card enabling customers to access their normal business applications when out of the office, is aimed at all business users, from large corporate customers to those in the small and medium sized enterprise sector, and is marketed and sold through the Groups direct sales, retail and e-channels as well as partner channels for leading personal computer brands. Mobile Office from Vodafone will offer a range of global and local mobile business services to customers, with more global services to be introduced later this year.
Vodafone live! and Mobile Office from Vodafone are already demonstrating their importance to the Groups strategy of deriving increased revenues from data services, with games downloads, picture messaging and other content services proving particularly popular and generating extra revenue.
3G
Together, Vodafone live! and Mobile Office from Vodafone lay the foundations for the Groups next stage of growth, as it is planned that both will create the demand for new data services against which the Group will construct its 3G networks. Both currently use 2.5G technology and will be upgraded to 3G, enabling faster download speeds, which will enhance customer experience and productivity.
In December 2002, J-Phone Vodafone became the first subsidiary in the Group to launch 3G services commercially. Furthermore, J-Phone Vodafone customers with an enabled handset, can not only use 3G services within Japan, but can also roam internationally on 2G networks with the convenience of being able to use the same telephone number as they do at home.
In Europe, the Groups 3G programme continues, with networks being rolled out according to plan and technical testing underway. The availability of suitable handsets remains a key issue and supplies of these are expected to be limited until 2004. 3G services are expected to be available to customers before the end of the 2004 financial year, dependent on when networks and handsets are of sufficient quality to offer the Groups customers a good service.
Brand
The strength of the Vodafone brand continues to improve. For example, in countries where the Group has migrated to the Vodafone brand, brand awareness and preference continues to grow. During the year, the Group continued with its high profile sponsorship of the Manchester United Football
Club and the Ferrari Formula 1 team, backed up with individual sponsorship contracts which, when combined with the continued brand rollout and other marketing communications programmes, has significantly improved awareness and perception of the brand. In Italy, Vodafone Omnitel migrated to the single brand in May 2003 and migration to the single Vodafone brand is also underway in Japan. Having a consistently implemented brand across the Groups markets greatly assisted the execution of the Vodafone live! campaign and Vodafone live! is already significantly contributing to the brand in terms of brand equity and positioning. The brand is also being rolled out in networks where Vodafone does not have equity stakes, through the partner networks programme, which licenses the global brand and key global services.
Partner Network Agreements
The Groups partner network strategy is becoming increasingly attractive to operators in which it does not currently hold an equity stake. During the year ended 31 March 2003, the Group signed a further four Partner Network Agreements, with Mobilkom Austria Group, si.mobil in Slovenia, VIPnet in Croatia and Radiolinja Eesti in Estonia. The Group now has eight partner networks following the latest agreement with Islandssimi hf in Iceland announced on 16 April 2003. By partnering with leading mobile operators the Group is able to market its global services in new territories, extend its brand reach into new markets and create additional revenue without the need for equity investment.
Marketing
The Groups marketing activities can be categorised as brand marketing and local marketing.
Brand marketing
Brand marketing is designed to increase general public awareness of the
Vodafone brand or other local Group brands its values, products and services and marketing specifically directed at certain distribution channels. Brand communications include sponsorships and advertising on radio, television, in general circulation newspapers, in magazines and in specialised publications.
Having improved its brand awareness as a result of the Groups brand rollout programme and the continuing How are you? advertising campaign, the Groups brand marketing is now focused on turning brand awareness into brand preference.
The Group believes that the adoption of a single Vodafone brand in all markets will maximise the return from the Groups investment in marketing and application development and will increase customer loyalty. During the 2003 financial year the Group has continued to implement its strategy to introduce the Vodafone brand into all businesses where it has control. At 31 March 2003, all subsidiaries other than those in Italy and Japan had migrated to the single Vodafone brand. Omnitel Vodafone was rebranded Vodafone Omnitel in June 2002 and migrated to the single brand in May 2003. In Japan, J-Phone Vodafone is to migrate to the single brand by December 2003.
Further details on how the Group has developed the global brand during the 2003 financial year can be found in Strategic developments Global services above.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 15
INFORMATION ON THE COMPANY Continued |
Local marketing
In addition to the Groups initiatives to establish a global Vodafone brand, marketing is also performed on a local market basis. Customer database marketing is widely used to communicate directly and, linked with customer service, provides a strong basis for building customer relationships. Loyalty schemes, such as the OmniOne loyalty programme in Italy, are beginning to be used as a way of increasing customer satisfaction and reducing customer churn. In the UK, the Group, along with other companies from various industries, became a sponsor of the Nectar card loyalty points scheme during the 2003 financial year.
Associated companies are generally marketed under their local brands.
Distribution
Distribution is achieved through a wide variety of direct and third party channels, with different approaches used to attract the consumer and business sectors.
Products and services are available directly to both consumer and business customers in the majority of markets. Directly-owned stores are becoming increasingly popular in most markets. The look and feel of these stores, particularly in Italy, Greece and the UK, has become more user-experience orientated during the year, with customers invited to try out service offerings such as Vodafone live!. Local Internet sites offer products and services online and sales forces are in place to discuss terms with business customers.
Indirect distribution includes using third-party service providers, independent dealers, agencies and mass marketing. Service providers are prevalent in some markets, most notably the UK. Marketing to third-party service providers includes maintaining a competitive tariff structure, providing technical and other training to their staff and providing financial incentives for service providers, their dealers and sales people. It also entails providing assistance on advertising campaigns and supporting the development of both specialist retail outlets and programmes with multiple retailers. Service providers receive discounts on the Groups airtime rates for each tariff. Service providers also receive financial incentives from the Group related to their success in attracting new customers to the network. These comprise gross connection bonuses, airtime growth awards and other specific incentives. Independent dealers are used in the majority of markets, with own-branded stores, business store-within-stores and kiosks becoming increasingly popular. Supermarket chains and multiple retailers are also used to achieve mass distribution of prepaid products, with top-up vouchers available in a wide selection of outlets such as petrol stations, newsagents and local stores.
In the United States, Verizon Wireless sells its service directly to customers through its own sales force and stores, telemarketing centres and the Internet, and indirectly through arrangements with independent agents such as consumer electronic stores, specialised cellular stores, automobile dealers, department stores and other retail stores. In certain areas, mobile services are sold through resellers who, pursuant to FCC requirements, are allowed to purchase blocks of mobile telephone numbers and to access mobile services at wholesale rates for resale to the public. In the past twelve months, however, the use of resellers has been reduced.
Traditionally, the Christmas period sees a higher volume of customer connections contributing to higher equipment and connection revenues in the second half of the financial year. Ongoing airtime revenues also demonstrate signs of seasonality, with revenues generally lower during February, which is a shorter than average month, and revenues from roaming charges higher during the summer months as a result of increased travel by customers.
There is no assurance that these trends will continue in the future.
Business activities Non-mobile telecommunications
The Companys non-mobile telecommunications businesses mainly comprise interests in Arcor, Cegetel and Japan Telecom.
Arcor provides fixed network services in Germany. The German fixed line market remains intensely competitive although Arcor has retained its position as the leading private operator and the strongest competitor to Deutsche Telekom, the market leader. Turnover from voice, data and Internet businesses increased in the period, compensating for the reduction in carrier business caused by the competitive market. During the period the contract voice customer base increased by approximately 10% to 2,600,000 customers. Total traffic volumes increased by 20% compared to the same period in 2002 to 25.3 billion minutes.
As described in more detail under Information on the Company History and Development of the Company Sales of businesses, in January 2002 a contract with Deutsche Bahn AG was signed to carve out Arcor´s railway specific telecommunication and service business into the company Arcor DB-Telematik GmbH. Following completion of the sale in April 2001, the remaining 50.1% share of Telematik was sold to Deutsche Bahn AG in July 2002.
Cegetel is the second largest fixed line operator in France and the remaining 80% shareholder in SFR. The company offers broadband services in addition to fixed line services. During the 2003 financial year, the Group increased its interest in Cegetel to 30%.
The Group owns an effective 66.7% interest in Japan Telecom, the third largest fixed line telecommunications operator in Japan, offering both voice and data services. Since the Company gained control in October 2001, Japan Telecoms profitability has improved significantly as the benefits of managements transformation plan start to be realised.
The fixed line market in Japan remains extremely competitive following the lifting of market entry restrictions and the maintenance of market share continues to be a challenge in the customer voice segment. During the period the main focus of the business has been on high-growth business opportunities and the delivery of innovative data products and services. The corporate customer base continues to expand due to the uptake of Internet Protocol (IP) data related services, with the next-generation IP network PRISM, using optical fibres, being particularly successful.
Additional functionality, such as new connectivity regarding IP-Virtual Private Network accessibility via the Internet and network expansion for Ethernet services, has been added to the network to enhance data services.
16 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
The Group faces a high degree of competition in each of its geographic markets. As with other telecommunications operators, the Group is subject to indirect competition from providers of other telecommunications services in the domestic markets in which it operates in addition to direct competition from other current operators of mobile telecommunications services. Competitive pressures have led to reductions in tariffs, together with other retention initiatives, in order to manage the level of customer churn.
The Group expects that competition will continue from existing operators as well as from a number of new market entrants following the award of new 3G licences. Please see Operating and Financial Review and Prospects Trend Information and Outlook for additional information. The scope of this increased competition, and the extent of the impact on the results of operations, depends on a variety of factors, the outcome of which is currently uncertain.
As at 31 March 2003, the Company had an investment in either the number one or number two operator in 22 out of the 28 mobile markets in which it operates, based on registered customer numbers. A summary of the Companys competition in its main markets (defined as having greater than 500,000 registered proportionate customers) at 31 March 2003 is provided in the following table.
Country |
Service
name |
Number
of additional network operators |
(1) | Names
of additionalnetwork operators |
Northern Europe | ||||
United Kingdom | Vodafone |
4 |
Orange
,O2, T-Mobile, 3 |
|
Ireland | Vodafone |
2 |
O2,
Meteor |
|
Netherlands | Vodafone |
4 |
KPN,
O2, Dutchtone, T-Mobile |
|
Sweden | Vodafone |
2 |
Telia,
Tele2 |
|
Belgium | Proximus |
2 |
Orange,
BASE (KPN) |
|
France | SFR |
2 |
Bouygues,
Orange |
|
Central Europe | ||||
Germany | Vodafone |
3 |
T-Mobil,
E-Plus, O2 |
|
Hungary | Vodafone |
2 |
Westel,
Pannon GSM |
|
Poland | Plus
GSM |
2 |
Centertel,
ERA |
|
Switzerland | Swisscom
Mobile |
2 |
Sunrise,
Orange |
|
Southern Europe | ||||
Italy(2) | Vodafone |
3 |
TIM,
Wind, 3 |
|
Greece | Vodafone |
3 |
Cosmote,
Stet Hellas, Q-Telecom |
|
Portugal | Vodafone |
2 |
TMN,
Optimus |
|
Spain | Vodafone |
2 |
Movistar,
Amena |
|
Romania | Mobifon |
3 |
Orange,
Cosmorom, Telemobil |
|
Americas | ||||
United States | Verizon Wireless |
5 national
operators |
AT&T
Wireless, Cingular Wireless, Nextel, |
|
Sprint
PCS, T-Mobile |
||||
4 regional
operators |
Alltel,
Leap Wireless, Nextel Partners, US Cellular |
|||
Mexico | Iusacell
Digital |
4 |
Telcel,
Telefonica Moviles, Unefon, Nextel |
|
Asia Pacific | ||||
Australia | Vodafone |
3 |
Telstra,
Optus, Orange |
|
New Zealand | Vodafone |
1 |
Telecom
Corporation |
|
Japan | J-Phone
Vodafone |
3 |
NTT DoCoMo,
au, Tuka |
|
China | China
Mobile |
3 |
China
Unicom, China Telecom, China Netcom |
|
Middle East and Africa | ||||
Egypt | Vodafone |
1 |
Mobinil |
|
South Africa | Vodacom |
2 |
MTN,
Cell C |
|
Notes: | |
(1) | Table excludes competitors who do not operate a mobile telecommunications network. |
(2) | Vodafone Omnitel now operates as Vodafone, having migrated to the single Vodafone brand in May 2003. |
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 17
INFORMATION ON THE COMPANY Continued |
The Groups operating companies are generally subject to regulation governing the operation of their business activities. Such regulation generally takes the form of industry-specific law and regulation covering telecommunications services and general competition (anti-trust) law applicable to all activities. Some regulation implements commitments made by Governments under the Basic Telecommunications Accord of the World Trade Organisation (WTO) to facilitate market entry and establish regulatory frameworks. The following section describes the regulatory framework and key regulatory developments in the European Union and selected countries in which the Group has significant interests.
European Union
New framework
The European Union (EU) has adopted a new regulatory framework for the communications sector which replaces much of the existing EU regulatory framework introduced when the sector was first liberalised in the 1990s. The new framework consists of four principal Directives outlining matters such as the objectives to be pursued by national regulatory authorities (NRAs), the way in which undertakings are to be licensed, measures to be taken to protect consumers and ensure universal provision of certain telecommunications services and the terms and basis upon which undertakings interconnect and provide access to each other (the new framework). Member States must implement the new framework into national law by 24 July 2003.
The new framework introduces a number of important changes to the previous framework. It is intended to align the techniques for defining where sector specific regulation may be applied and the threshold for when such regulation can be applied, with those already employed in EU competition law. It is also intended to ensure greater consistency of approach amongst NRAs within the Member States. All NRAs are required to take utmost account of the list of markets which are specified by the European Commission (the Commission) in a Recommendation when deciding which markets to investigate. The first such Recommendation was published by the Commission in February 2003 and includes markets for voice call termination on individual mobile networks, wholesale national market for international roaming and access and call origination on mobile networks. NRAs may, with the Commissions consent, also propose markets not included in the Recommendation. The Commission will periodically review the Recommendation, with the first such review expected in June 2004.
Regulation can only then be applied to undertakings with significant market power (SMP) (either individually or collectively) in the markets so identified, subject to the Commissions consent. SMP under the new framework accords with the concept of dominance under existing EU competition law. This generally implies a market share of at least 40%, although other factors may also be taken into consideration. The SMP threshold under the existing EU regulatory framework required only a 25% share of the relevant market.
The form of such regulation may vary and is expected to be the subject of further consultation during 2003. Appeal rights for undertakings are also strengthened by the introduction of a right to appeal on the merits of any NRA decision.
However, the practical consequences of the new framework for the Group will depend upon how the Commission seeks to interpret further the application of the relevant Directives, how Member States and NRAs choose to implement such guidance and how the Member States implement the relevant Directives into national law.
Roaming charges
Officials of the Commission conducted unannounced inspections of the offices of
mobile network operators in the United Kingdom and Germany, including Group subsidiaries, in July 2001 in connection with its sectoral enquiry into roaming charges. The Commission said it was seeking evidence of collusion and/or excessive prices, in relation to both retail and wholesale roaming charges and the Commission has subsequently sought, or been provided with, additional information about roaming charges. The Commission has yet to indicate how, when or if it may proceed in these specific matters or in relation to its general enquiries into the roaming market.
Wholesale roaming is a market defined for the purposes of review by NRAs under the new framework but at least one NRA has indicated that they will await the outcome of the Commissions investigations before undertaking such reviews.
In February 2001, certain Group operating companies notified the Commission of the agreements between them established to support the Eurocall flat rate roaming tariff. During 2002 the Group clarified certain matters concerning the interpretation of the Mannesmann Undertakings (the Undertakings) with the Commission. The Undertakings were given by the Group in connection with its acquisition of control over Mannesmann and concerned the Groups obligations, inter alia, to third parties in the provision of certain wholesale roaming services. As a consequence of such clarifications, the Group launched the Eurocall Platinum flat rate roaming tariff in September 2002. The Commission is seeking clarification of certain aspects of the Platinum arrangements. The Undertakings terminated on 12 April 2003 on the expiry of their three year term.
Northern Europe Region
United Kingdom
The UK Government has announced that the existing NRA, the Office of Telecommunications, (Oftel) will be replaced by the Office of Communications (OFCOM), a regulatory body which will oversee media and other communications industries as well as telecommunications. A chairman, chief executive and other board members of OFCOM were appointed in late 2002/early 2003 and it is currently anticipated that OFCOM will assume Oftels responsibilities in late 2003.
The Communications Bill defines OFCOMs duties and modes of operation. This received its second reading in the House of Commons in December 2002 and the Government intends that the Bill receives Royal Assent by July 2003.
The Communications Bill is to be used to implement the new framework, although it is anticipated that certain measures which are required to be implemented by 25 July 2003, such as the conduct of market reviews to determine whether regulation may be needed, will be taken by secondary legislation in the form of a Statutory Instrument. It will also be used to implement certain aspects of an Independent Spectrum Management Review, which reported in March 2002. The reports principal recommendations, which the Government has accepted, were that the Government should introduce spectrum trading, which would allow firms to trade spectrum with each other rather than seeking assignments from the Government, at the earliest opportunity and that administrative pricing should be applied to spectrum which was not tradable, particularly that held by public institutions. The Government is now consulting further on certain aspects of spectrum trading.
In September 2001, the Director General of Oftel concluded his review of the mobile market and, in particular, his review of charges for the termination of calls onto the networks of all mobile operators. Amongst other things, the Director General concluded that charges for call termination should be reduced by 12% less than the UKs Retail Prices Index, i.e. RPI minus 12%, in each year for the period from April 2002 to March 2006. The Director General proposed licence modifications to all four operators pursuant to these proposals. Vodafone UK and
18 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
the other mobile operators rejected the Director Generals proposed modifications in November 2001 and, in January 2002, the Director General confirmed that he had referred the matter to the Competition Commission. Oftel published the Competition Commissions conclusions in January 2003 and its full report was published in February 2003.
The Competition Commission concluded that charges for call termination to all four operators should reduce by 15% by 24 July 2003 and, in findings which it claimed should have persuasive effect, that charges for call termination to Vodafone UK and O2 should fall by RPI minus 15% for the period July 2003 to 31 March 2004, the year ending March 2005 and the year ending March 2006. The Competition Commission found that charges for call termination to Orange and T-Mobile should fall by RPI minus 14% during the same periods. The Director General is required to take the utmost account of the Competition Commissions findings under the Telecommunications Act, which is to apply until July 2003, and the Director General has made licence modifications, which implement the Competition Commissions findings in respect of the period to July 2003. The Director General is required to comply with the provisions of the new framework in framing measures for the period after July 2003, but he has said that he will take utmost account of the Competition Commissions findings in doing so. Proposals in respect of the period after July 2003 are subject to the appeals provisions embodied in the new framework, as implemented by the Communications Bill.
The Competition Commissions findings are themselves subject to Judicial Review and Vodafone UK, Orange and T-Mobile have announced their intention to seek permission to review from the High Court. It is not at this stage clear whether such permission will be granted. The application is to be heard in June 2003.
In August 2002, the Government sought views on the possible introduction of a specific offence to prohibit the use of any hand-held mobile phone or similar device by drivers. The Government also invited comment on whether the proposed offence should include hands-free and whether there should be any exemptions from the proposed offence and indicated that it expected to announce its conclusions in the first half of 2003.
Other countries
A number of NRAs have recently considered or are considering the regulation of charges for the termination of calls to mobile networks. Existing European regulation requires that operators designated as having SMP in the national market for interconnection must offer cost-orientated charges for such services and NRAs may also determine charges pursuant to interconnection disputes. NRAs in Belgium and France have reached decisions during 2001/02 which both resulted in reductions of approximately 15% in call termination charges in 2002 and further proposed reductions in 2003. The NRA in the Netherlands had its decisions seeking to do so dismissed by the Court of Rotterdam, but the Dutch Competition Authority continued to investigate call termination charges.
In addition, the Commission continues to investigate complaints against KPN and Vodafone Netherlands, initiated in 1999. The Commission has issued a Statement of Objections outlining its case against KPN, but not Vodafone Netherlands. Some of the matters detailed in the KPN Statement of Objections are specific to KPN but some, in relation to price squeezing in certain retail markets, may be of more general applicability. A decision on this case is expected in 2003.
In 2002, mobile operators in the Netherlands were investigated by the Dutch competition authority, NMa, for alleged collusion in retail pricing. The operators were found guilty and fined a total of €88 million. Vodafone Netherlands was fined €24 million, which is currently the subject of an appeal.
The Swedish NRA published guidelines in April 2003 which may result in a
re-examination of 3G rollout obligations, but it is unclear at this stage how they will be applied.
Central Europe Region
Germany
Current German telecommunications regulation requires all network operators to allow interconnection of their public telecommunications networks with those of other carriers. Cost orientation of interconnection prices applies only to dominant operators in the relevant market. To date, the German NRA has not considered any mobile operator to be dominant.
Other countries
Poland and Hungary, as EU accession countries, are required to implement EU legislation into national law. To meet accession criteria, these countries are in the process of implementing the current EU regulatory framework. The Commission has advised EU accession countries that they will also be required to implement the new framework.
In Hungary, an investigation into alleged collusion in setting mobile termination rates has been extended. Vodafone Hungary filed their submission to the Hungarian competition authority in January 2003. The final report is expected to be issued by the end of August 2003.
Switzerland, although not part of the EU, is considering implementing parts of the new regulatory framework for the purposes of European compatibility. In June 2002, the Swiss NRA removed certain roll out obligations from 3G licences. In October 2002, the Swiss competition authority commenced an investigation of mobile termination charges to assess potential collusion between mobile operators.
Southern Europe Region
Italy
In July and September 2002, respectively, the Italian Competition Authority and Commission approved the division of certain assets held by Blu amongst the remaining mobile operators Vodafone Italy, TIM and WIND.
TIM and Vodafone Italy have been designated as operators with SMP in both the mobile and interconnection markets since 1999. In December 2001, the Italian NRA directed the mobile operators to prepare a cost accounting model based on fully allocated costs for the years 1999 and 2000 as an intermediate step for the adoption of a long run incremental cost model to set call termination charges. In February 2003 it announced that Vodafone Italy and TIM would each be required to reduce their call termination rates by 12% on 1 June 2003, with further reductions being expected in subsequent years. In August 2002, the Italian authorities extended the term of the 2G and 3G licences held by all operators from fifteen to twenty years.
Other countries
Mobile termination charges are subject to regulatory activity elsewhere in the Southern Europe region. In January 2002, the Portuguese NRA issued a decision, which reduced fixed to mobile termination charges to be applied by mobile operators by 15% in 2002. The Portuguese NRA will reassess call termination rates for 2003 in the light of market conditions. In Spain the NRA required a reduction of 17% in call termination rates from 1 August 2002. Subsequently, in December 2002, the Spanish competition authority conducted unannounced inspections of the offices of Vodafone Spain and Telefonica investigating allegations of price squeezing in the corporate market and excessive call termination charges. The investigation is ongoing. The Greek NRA
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 19
INFORMATION ON THE COMPANY Continued |
in March 2002 outlined three conditions to be applied to Vodafone and Cosmote, designated as having SMP in the mobile market. These included non-discrimination between fixed and mobile operators when terminating traffic, termination rates to be lower than on-network retail prices and discount policies to be transparent and non-discriminatory.
The Portuguese NRA has postponed 3G roll-out obligations and the Spanish Government substantially reduced deposits for 3G licences following commitments that commercial services would be available by 2004.
Romania and Malta, as EU accession countries, are currently implementing EU legislation into national law.
Americas Region
United States
US mobile and Personal Communication Services (PCS) licences are issued and regulated by the FCC. In addition, US mobile operations are subject to regulation in the states in which service is provided and to local regulations. States are pre-empted from regulating mobile and PCS prices and market entry but may regulate certain other terms and conditions of service.
In January 2001, the FCC sought to auction 422 PCS licences, covering spectrum that either had not been sold in previous auctions or had been reclaimed from licensees failing to make payments. Verizon Wireless was the winning bidder of 113 licences with bids totalling approximately $8.8 billion, and made a down payment of approximately $1.7 billion for these licences. Thirty-three of these licences have been granted to Verizon Wireless. Eighty of these licences, however, related to spectrum that was reclaimed from NextWave Personal Communications Inc. and related companies (NextWave) or from Urban Comm-North Carolina, Inc. (Urban Comm), both of which were under Chapter 11 bankruptcy protection at the time of revocation. NextWave challenged the FCCs revocation of its licences and in January 2003 the U.S. Supreme Court ruled that US bankruptcy law prohibits the FCC from revoking licences. The FCC dismissed Verizon Wirelesss applications for the former NextWave and Urban Comm spectrum and subsequently refunded the remainder of Verizon Wirelesss $1.7 billion down payment. The NextWave and Urban Comm licences now remain part of their respective estates in bankruptcy.
The FCC is currently considering changes to its method of calculating the liability of US carriers for Universal Service Obligation (USO) contributions, which may result in an increase in the USO costs of Verizon Wireless.
Mexico
Legislation has been introduced into the Mexican parliament with a view to introducing a new telecommunications-specific regulatory framework. The legislation is intended to redress perceived flaws in the current regulatory environment. It is uncertain whether such legislation will be forthcoming. The US government has also commenced WTO dispute resolution against the Mexican government alleging that Mexicos current regulatory regime does not comply with its WTO commitments.
Asia Pacific Region
Japan
In 2001, the Japanese government embarked on a two-year programme of economic reform, underpinned by review obligations contained in the Telecommunications Business Law, including fixed line interconnection charges on NTTs networks, regulation of the mobile sector, competition guidelines, administrative arrangements and universal service.
In November 2002, the Japanese competition authority conducted unannounced
inspections of a number of J-Phone Vodafone offices in Japan in connection with alleged resale price maintenance in breach of the Japanese Anti-Monopoly Act. The Japanese competition authority has not yet issued any findings in respect of the ongoing investigation but is expected to do so during the course of 2003.
The Japanese regulator will require changes to the charging structure and prices for calls from non-dominant fixed line operators to Japanese mobile networks from July 2003. It is possible that these changes will also apply to calls from NTT although the timing of further changes remains uncertain.
China
The Chinese government has announced that it is considering licensing further mobile operators when it allocates 3G spectrum, and has set aside spectrum which could be made available, but has not provided detail as to the nature and timing of the 3G licensing process.
Middle East and Africa Region
South Africa
A new Telecommunications Amendment Act was introduced in South Africa in November 2001. The Government is considering amendments to the method of calculation of universal service contributions and allocation of 1800 MHz spectrum. Mobile termination rates are under review.
Kenya
The Kenyan Communications Commission has announced a tender process for the award of a third mobile licence, which is expected to be awarded in July 2003.
Egypt
The Egyptian government has issued a third mobile licence, including the rights to all currently available 1800Mhz spectrum, to Telecom Egypt, which has been looking for a strategic partner to assist in the deployment and operation of a mobile network. The existing two mobile network operators have entered into negotiations with Telecom Egypt with a view, inter alia, to acquiring this 1800Mhz spectrum and Telecom Egypt taking a stake in one of the two operators. Any such transaction would be subject to Egyptian regulatory approval, operator shareholder approvals, as well as approvals from other authorities.
Property, plants and equipment
The Groups principal tangible fixed assets comprise properties and equipment in respect of its mobile telecommunications network infrastructure. Network equipment includes base stations and switch equipment, which is connected by fixed microwave transmission links or fixed cable links.
The properties of the Group comprise, amongst other things, computerised mobile telephone exchanges, operator centres and ancillary commercial centres suitable for the operation of its cellular networks and related businesses, together with related accommodation, including retail premises. At 31 March 2003, the Groups properties were either freehold or held under long term or short term leases with approximately 37% by book value owned and approximately 5% held under leases running for 50 years or longer (31 March 2002: 46% and 4%, respectively). The Groups corporate head office is in Newbury, United Kingdom. The tangible fixed assets purchased by the Group during the financial year principally relate to network infrastructure additions, including those relating to the Groups 3G networks. Further information on any environmental issues associated with the use of the Groups assets can be found under Corporate Social Responsibility Environmental Issues elsewhere in this Annual Report.
20 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Save as disclosed below, the Company and its subsidiaries are not involved in any legal or arbitration proceedings (including any governmental proceedings which are pending or known to be contemplated) which are expected to have, or have had in the twelve months preceding the date of this document, a significant effect on the financial position or profitability of the Company and its subsidiaries.
The Company is a defendant in four actions in the United States alleging personal injury, including brain cancer, from mobile phone use. In another pre-existing action, based on similar allegations, the plaintiff has filed a motion to amend its complaint to include the Company as a defendant. In each case, various other carriers and mobile phone manufacturers are also named as defendants. These actions are at an early stage and no accurate quantification of any losses which may arise out of the claims can therefore be made at the date of this Annual Report. The Company is not aware that the health risks alleged in such personal injury claims have been substantiated and will be vigorously defending such claims.
Between 18 September 2002 and 29 November 2002, nine complaints were filed in the United States District Court for the Southern District of New York against the Company and Lord MacLaurin, the Chairman of the Company, and Sir Christopher Gent, Julian Horn-Smith and Ken Hydon, executive officers of the Company. The complaints, filed as purported class actions, allege, among other things, that certain public statements made by or attributed to the defendants and the timing of the Companys decision to write down the value of goodwill and certain impaired assets in the financial year ended 31 March 2002 violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints seek, among other things, unspecified damages on behalf of the purchasers of the Companys securities during the period between 7 March 2001 and 28 May 2002. The Court has consolidated these actions and designated lead plaintiffs and lead plaintiffs counsel. The plaintiffs filed a consolidated amended class action complaint on 6 June 2003, which contains allegations and claims that are substantially similar to the original complaints. The defendants intend to defend the actions vigorously.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 21
INFORMATION ON THE COMPANY Continued |
The selected financial data set out on the following pages should be read in conjunction with the Consolidated Financial Statements of the Company for the three years ended 31 March 2003, which appear elsewhere in this Annual Report. The Consolidated Financial Statements of the Company for the year ended 31 March 2003, prepared in accordance with the Companys statutory obligations under the laws of the United Kingdom (UK), will be delivered to the UKs Registrar of Companies. The selected consolidated financial data for the five years ended 31 March 2003 are derived from the Consolidated Financial Statements of the Company included in this Annual Report. Solely for convenience, amounts represented below in dollars have been translated at $1.5790:£1, the noon buying rate on 31 March 2003.
Year
ended and at 31 March |
||||||||||||||
2003 |
2003 |
2002 |
(1) |
2001 |
(1)(7) |
2000 |
(2)(7) |
1999 |
(7) |
|||||
$ |
|
£ |
|
£ |
£ |
£ |
£ |
|||||||
|
(in millions,
except per ordinary share and ADS amounts and ratio of earnings to fixed
charges) |
|||||||||||||
Consolidated Profit and Loss Account Data | ||||||||||||||
UK GAAP(3) | ||||||||||||||
Group turnover |
47,962 |
30,375 |
22,845 |
15,004 |
7,873 |
3,360 |
||||||||
|
|
|
|
|||||||||||
Of which in respect of: | continuing operations | 47,962 | 30,375 | 17,940 | 6,637 | 4,498 | 3,302 | |||||||
acquisitions | | | 4,905 | 8,367 | 3,375 | 58 | ||||||||
|
|
|
|
|||||||||||
Total Group operating (loss)/profit | (8,607 | ) | (5,451 | ) | (11,834 | ) | (6,989 | ) | 798 | 963 | ||||
(Loss)/profit for the financial year | (15,504 | ) | (9,819 | ) | (16,155 | ) | (9,885 | ) | 542 | 594 | ||||
Basic (loss)/earnings per ordinary share(4) | (0.23 | ) | (0.14 | ) | (0.24 | ) | (0.16 | ) | 0.02 | 0.04 | ||||
Diluted (loss)/earnings per ordinary share(4) | (0.23 | ) | (0.14 | ) | (0.24 | ) | (0.16 | ) | 0.02 | 0.04 | ||||
Basic (loss)/earnings per ADS(4) | (2.27 | ) | (1.44 | ) | (2.38 | ) | (1.61 | ) | 0.20 | 0.38 | ||||
Cash dividends per ordinary share(5) | 0.03 | 0.02 | 0.01 | 0.01 | 0.01 | 0.01 | ||||||||
Cash dividends per ADS(5) | 0.27 | 0.17 | 0.15 | 0.14 | 0.13 | 0.13 | ||||||||
US GAAP(3) | ||||||||||||||
Group turnover | 38,281 | 24,244 | 17,639 | 11,103 | 7,873 | 3,360 | ||||||||
(Loss)/profit for the financial year | (14,298 | ) | (9,055 | ) | (16,688 | ) | (7,071 | ) | 553 | 510 | ||||
Basic (loss)/earnings per ordinary share(4) | (0.21 | ) | (0.13 | ) | (0.25 | ) | (0.12 | ) | 0.02 | 0.03 | ||||
Diluted (loss)/earnings per ordinary share | (0.21 | ) | (0.13 | ) | (0.25 | ) | (0.12 | ) | 0.02 | 0.03 | ||||
Basic (loss)/earnings per ADS(4) | (2.10 | ) | (1.33 | ) | (2.46 | ) | (1.15 | ) | 0.20 | 0.33 | ||||
Consolidated Balance Sheet Data | ||||||||||||||
UK GAAP(3) | ||||||||||||||
Total assets | 257,819 | 163,280 | 162,900 | 172,390 | 153,546 | 3,681 | ||||||||
Long term obligations | 21,722 | 13,757 | 13,118 | 11,235 | 6,374 | 1,179 | ||||||||
Equity shareholders funds | 203,171 | 128,671 | 130,573 | 145,007 | 140,594 | 512 | ||||||||
Non-equity minority interests | 1,603 | 1,015 | 1,128 | 1,129 | 1,004 | 4 | ||||||||
US GAAP(3) | ||||||||||||||
Total assets | 359,666 | 227,781 | 206,666 | 215,123 | 167,259 | 4,719 | ||||||||
Long term obligations | 26,532 | 16,803 | 14,897 | 12,291 | 6,382 | 1,187 | ||||||||
Equity shareholders funds | 221,748 | 140,436 | 140,887 | 155,522 | 146,334 | 1,858 | ||||||||
Non-equity minority interests | 1,603 | 1,015 | 1,128 | 1,129 | 1,004 | 4 | ||||||||
Other Data | ||||||||||||||
Weighted average number of shares(4) | ||||||||||||||
Basic | 68,155 | 67,961 | 61,439 | 27,100 | 15,445 | |||||||||
Diluted | 68,155 | 67,961 | 61,439 | 27,360 | 15,510 | |||||||||
US dollar equivalent dividends per ordinary share(5) | $0.03 | $0.02 | $0.02 | $0.02 | $0.02 | |||||||||
Consolidated Cash Flow Data | ||||||||||||||
Net cash inflow from operating activities | 17,593 | 11,142 | 8,102 | 4,587 | 2,510 | 1,045 | ||||||||
Increase/(decrease) in cash | 621 | 393 | 11 | (55 | ) | 116 | (7 | ) | ||||||
Other Data | ||||||||||||||
UK GAAP | ||||||||||||||
Ratio of earnings to fixed charges(6) | (2.7 | ) | (2.7 | ) | (8.9 | ) | (4.2 | ) | 4.0 | 6.7 | ||||
Deficit | (8,053 | ) | (5,100 | ) | (11,695 | ) | (6,947 | ) | | | ||||
US GAAP | ||||||||||||||
Ratio of earnings to fixed charges(6) | (7.0 | ) | (7.0 | ) | (15.2 | ) | (6.6 | ) | 3.9 | 6.4 | ||||
Deficit | (17,228 | ) | (10,911 | ) | (19,119 | ) | (10,038 | ) | | |
22 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Notes: | |
(1) | The Groups interest in Verizon Wireless is accounted for as an associated undertaking and the results of Verizon Wireless have been included in the consolidated profit and loss account on the equity basis of accounting from 3 April 2000. The results of Mannesmann have been included in the consolidated profit and loss account from 12 April 2000. The results of Vodafone Spain have been fully consolidated with effect from 29 December 2000 under UK GAAP. The results of Vodafone Ireland and Japan Telecom and the J-Phone Group have been fully consolidated with effect from 14 May 2001 and 12 October 2001, respectively. Prior to the acquisition of a controlling interest, the Groups interests in Vodafone Spain, Japan Telecom and the J-Phone Group were accounted for as associated undertakings. Japan Telecom was accounted for as a trade investment for the period up to 1 June 2001. See Information on the Company History and Development of the Company Acquisitions of businesses for further details on these transactions. |
(2) | The Consolidated Financial Statements for the year ended 31 March 2000 include the results of AirTouch from 30 June 1999. |
(3) | The Consolidated Financial Statements are prepared in accordance with UK GAAP, which differ in certain significant respects from US GAAP. For further details, see note 37 to the Consolidated Financial Statements, US GAAP information. |
(4) | See note 10 to the Consolidated Financial Statements, Loss per share. Loss per ADS is calculated by multiplying loss per ordinary share by ten, the number of ordinary shares per ADS. Loss per share and dividend information has been restated for the capitalisation (bonus) issue on 30 September 1999. |
(5) | The final dividend for the year ended 31 March 2003 was proposed by the directors on 26 May 2003. |
(6) | For the purposes of calculating these ratios, earnings consist of income on ordinary activities before taxation, adjusted for fixed charges, dividend income from associated undertakings and share of profits and losses from associated undertakings. Fixed charges comprise one-third of rental expense, including the portion of rental expense representative of interest and interest expense as reported in the Consolidated Financial Statements elsewhere in this Annual Report. |
(7) | Restated to reflect the adoption of FRS 19, Deferred tax, during the year ended 31 March 2002. |
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 23
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS |
This document contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Groups financial condition, results of operations and businesses and certain of the Groups plans and objectives with respect to these items. In particular, forward-looking statements include statements with respect to Vodafones expectations as to launch and roll-out dates for products and services, including, for example, 3G services, Vodafone live! and Mobile Office from Vodafone; the ability to integrate operations throughout the Group in the same format and on the same technical platform; the development and impact of new mobile technology, including the expected benefits of GPRS, 3G and other services and demand for such services; the completion of Vodafones brand migration programme and the results of its brand awareness and brand preference campaigns; growth in customers and usage, including improvements in customer mix; future performance, including turnover, ARPU, cash flows, costs, capital expenditures and improvements in margin, non-voice services and their revenue contribution; the rate of dividend growth by the Group or its existing investments; expected effective tax rates and expected tax payments; the ability to realise synergies through cost savings, revenue generating services, benchmarking and operational experience; future acquisitions, including increases in ownership in existing investments and pending offers for investments; future disposals; mobile penetration and coverage rates; expectations with respect to long term shareholder value growth; our ability to be the mobile market leader, overall market trends and other trend projections.
Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as anticipates, aims, could, may, should, expects, believes, intends, plans or targets. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following:
| changes in economic or political conditions in markets served by operations of the Group that would adversely affect the level of demand for mobile services; |
| greater than anticipated competitive activity requiring changes in pricing models and/or new product offerings or resulting in higher costs of acquiring new customers or providing new services, or slower customer growth or reduced customer retention; |
| the impact on capital spending from investment in network capacity and the deployment of new technologies, or the rapid obsolescence of existing technology; |
| slower customer growth or reduced customer retention; |
| the possibility that technologies, including mobile Internet platforms, and services, including 3G services, will not perform according to expectations or that vendors performance will not meet the Groups requirements; |
| changes in the projected growth rates of the mobile telecommunications industry; |
| the Groups ability to realise expected synergies and benefits associated with 3G technologies, the integration of our operations and those of recently acquired companies, the completion of the Groups brand migration programme and the consolidation of IT systems; |
| future revenue contributions of both voice and non-voice services offered by the Group; |
| lower than expected impact of GPRS, 3G and Vodafone live! and Mobile Office from Vodafone on the Groups future revenues, cost structure and capital expenditure outlays; |
| the ability of the Group to harmonise mobile platforms and any delays, impediments or other problems associated with the roll-out and scope of 3G technology and services and Vodafone live! and Mobile Office from Vodafone in new markets; |
| the ability of the Group to offer new services and secure the timely delivery of high-quality, reliable GPRS and 3G handsets, network equipment and other key products from suppliers; |
| greater than anticipated prices of new mobile handsets; |
| the ability to realise benefits from entering into partnerships for developing data and Internet services and entering into service franchising and brand licensing; |
| the possibility that the pursuit of new, unexpected strategic opportunities may have a negative impact on one or more of the measurements of the Groups financial performance and may affect the level of dividends; |
| any unfavourable conditions, regulatory or otherwise, imposed in connection with pending or future acquisitions or dispositions; |
| changes in the regulatory framework in which the Group operates, including possible action by the European Commission regulating rates the Group is permitted to charge; |
| the Groups ability to develop competitive data content and services which will attract new customers and increase average usage; |
| the impact of legal or other proceedings against the Group or other companies in the mobile telecommunications industry; |
| changes in exchange rates, including particularly the exchange rate of the pound to the euro, US dollar and the Japanese yen; |
| the risk that, upon obtaining control of certain investments, the Group discovers additional information relating to the businesses of that investment leading to restructuring charges or write-offs or with other negative implications; and |
| loss of suppliers or disruption of supply chains. |
Furthermore, a review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found under Risk Factors below. All subsequent written or oral forward-looking statements attributable to the Company or any member of the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above.
24 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
RISK FACTORS |
Regulatory decisions and changes in the regulatory environment could adversely affect the Groups business.
Because the Group has ventures in a large number of geographic areas, it must comply with an extensive range of requirements that regulate and supervise the licensing, construction and operation of its telecommunications networks and services. In particular, there are agencies which regulate and supervise the allocation of frequency spectrum and which monitor and enforce regulation and competition laws which apply to the mobile telecommunications industry. Decisions by regulators regarding the granting, amendment or renewal of licences, to the Group or to third parties, could adversely affect the Groups future operations in these geographic areas. The Group cannot provide any assurances that governments in the countries in which it operates will not issue telecommunications licences to new operators whose services will compete with it. In addition, other changes in the regulatory environment concerning the use of mobile phones may lead to a reduction in the usage of mobile phones or otherwise adversely affect the Group. Additionally, decisions by regulators could further adversely affect the pricing for services the Group offers. Further details on the regulatory framework in certain regions in which the Group operates can be found in Business Overview Regulation above.
Increased competition may reduce market share or revenues.
The Group faces intensifying competition. Competition could lead to a decrease in the rate at which the Group adds new customers and to a decrease in the size of the Groups market share as customers choose to receive mobile services from other providers.
The focus of competition in many of the Companys markets continues to shift from customer acquisition to customer retention as the market for mobile telecommunications has become increasingly penetrated. Customer deactivations are measured by the Groups churn rate. There can be no assurance that the Group will not experience increases in churn rates, particularly as competition intensifies. An increase in churn rates could adversely affect profitability because the Group would experience lower revenues and additional selling costs to replace customers, although such costs would have a future revenue stream to mitigate the impact.
Increased competition has also led to declines in the prices the Group charges for its mobile services and is expected to lead to further price declines in the future. Competition could also lead to an increase in the level at which the Group must provide subsidies for handsets. Additionally, the Group could face increased competition should there be an award of additional 3G licences in jurisdictions in which a member of the Group already has a 3G licence.
Delays in the development of handsets and network compatibility and components may hinder the deployment of new technologies.
The Groups operations depend in part upon the successful deployment of continuously evolving mobile telecommunications technologies. The Group uses technologies from a number of vendors and makes significant capital expenditures in connection with the deployment of such technologies. There can be no assurance that common standards and specifications will be achieved, that there will be inter-operability across Group and other networks, that technologies will be developed according to anticipated schedules, that they will perform according to expectations or that they will achieve commercial acceptance. Commercially viable 3G handsets may not be available in the timeframe required, which may delay commercial launch of 3G services. The introduction of software and other network components may also be delayed. The failure of vendor performance or technology performance to meet the Groups expectations or the failure of a technology to achieve commercial
acceptance could result in additional capital expenditures by the Group or a reduction in profitability.
The Groups business could be adversely affected by the non-supply of equipment and support services by a major supplier.
Companies within the Group source their mobile network infrastructure and related support services from a limited number of third party suppliers. The departure from the market of one or more of these third party suppliers could adversely affect the Groups operations and may result in additional capital expenditures by the Group.
The Companys strategic objectives may be impeded by the fact that it does not have a controlling interest in some of its ventures.
Some of the Groups interests in mobile licences are held through entities in which it is a significant but not controlling owner. Under the governing documents for some of these partnerships and corporations, certain key matters such as the approval of business plans and decisions as to the timing and amount of cash distributions require the consent of the partners. In others, these matters may be approved without the Companys consent. The Company may enter into similar arrangements as it participates in ventures formed to pursue additional opportunities. Although the Group has not been materially constrained by the nature of its mobile ownership interests, no assurance can be given that its partners will not exercise their power of veto or their controlling influence in any of the Groups ventures in a way that will hinder the Groups corporate objectives and reduce any anticipated cost savings or revenue enhancement resulting from these ventures.
Expected benefits from investment in networks, licences and new technology may not be realised.
The Group has made substantial investments in the acquisition of 3G licences and in its mobile networks, including the rollout of 3G networks. The Group expects to continue to make significant investments in its mobile networks due to increased usage and the need to offer new services and greater functionality afforded by 3G technology. Accordingly, the rate of the Groups capital expenditures in future years could remain high or exceed that which it has experienced to date.
Please see Business Overview Third generation licences and network infrastructure for more information on expenditures in connection with the acquisition of 3G licences and expected expenditure in connection with the rollout of 3G services. There can be no assurance that the commercial launch of 3G services will proceed according to anticipated schedules or that the level of demand for 3G services will justify the cost of setting up and providing 3G services. Failure or a delay in the completion of networks and the launch of new services, or increases in the associated costs, could have a material adverse effect on the Groups operations.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 25
RISK FACTORS Continued |
The Group may experience a decline in revenues per customer notwithstanding its efforts to increase revenues from the introduction of new services.
As part of its strategy to increase usage of its networks, the Group will continue to offer new services to its existing customers, and to increase non-voice service revenues as a percentage of total service revenue. However, the Group may not be able to introduce commercially these new services, or may experience significant delays due to problems such as the availability of new mobile handsets or higher than anticipated prices of new handsets. In addition, even if these services are introduced in accordance with expected time schedules, there is no assurance that revenues from such services will increase average revenue per customer.
The Groups business and its ability to retain customers and attract new customers may be impaired by actual or perceived health risks associated with the transmission of radiowaves from mobile telephones, transmitters and associated equipment.
Concerns have been expressed in some countries where the Group operates, particularly the UK and the US, that the electromagnetic signals emitted by mobile telephone handsets and base stations may pose health risks at exposure levels below existing guideline levels, and interfere with the operation of electronic equipment. In addition, as described under Legal Proceedings above, several mobile industry participants, including the Company and Verizon Wireless, have had lawsuits filed against them alleging various health consequences as a result of mobile phone usage, including brain cancer. While the Company is not aware that such health risks have been substantiated, there can be no assurance that the actual, or perceived, risks associated with radiowave transmission will not impair its ability to retain customers and attract new customers, reduce mobile telecommunications usage or result in further litigation. In such event, because of the Groups strategic focus on mobile telecommunications, its business and results of operations may be more adversely affected than that of other companies in the telecommunications sector.
26 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Introduction
The following discussion is based on
the Consolidated Financial Statements included elsewhere in this Annual Report.
Such Consolidated Financial Statements are prepared in accordance with Generally
Accepted Accounting Principles in the United Kingdom, or UK GAAP, which differ
in certain significant respects from US GAAP. Reconciliations of the material
differences in such Consolidated Financial Statements to US GAAP are set forth
in note 37 to the Consolidated Financial Statements, US GAAP information.
The directors have endeavoured to follow the principles set out in the Accounting Standards Boards Statement, Operating and Financial Review, which was issued in January 2003. The information in this regard is provided in this section or elsewhere in this Annual Report.
Foreign
Currency Translation
The Company publishes its Consolidated
Financial Statements in pounds sterling. However, many of the Companys
subsidiary and associated undertakings report their turnover, costs, assets
and liabilities in currencies other than pounds sterling and the Company translates
the turnover, costs, assets and liabilities of those subsidiary and associated
undertakings into pounds sterling when preparing its consolidated financial
statements. Consequently, fluctuations in the value of the pound sterling
versus other currencies could materially affect the amount of these items
in the Companys Consolidated Financial Statements, even if their value
has not changed in their original currency.
In this Annual Report, references to US dollars, $, cents or ¢ are to United States currency and references to pounds sterling, £, pence or p are to UK currency. References to euros or € are to the currency of the European Union, which, prior to 1 January 2002, was used only in paperless transactions. Euro banknotes and coins were issued on 1 January 2002. References to yen or ¥ are to the currency of Japan. Merely for convenience, this Annual Report contains translations of certain pounds sterling, euro and yen amounts into US dollars at specified rates. These translations should not be construed as representations that the pounds sterling, euro or yen amounts actually represent such US dollar amounts or could be converted into US dollars at the rate indicated or at any other rate. Unless otherwise indicated, the translations of pounds ste rling and euro amounts into US dollars have been made at $1.5790 per £1.00, $1.0900 per €1.00 and ¥118.07 per $1.00, the Noon Buying Rate in the City of New York for cable transfers in pounds sterling, euro and yen amounts as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) on 31 March 2003. The Noon Buying Rates on 23 May 2003 were $1.6376 per £1.00, $1.1786 per €1.00 and ¥116.89 per $1.00. See Exchange rate information below for information regarding the Noon Buying Rates for the financial years ended 31 March 1999 through 31 March 2003, and for the period from 1 November 2002 to 23 May 2003.
As described under Business Overview Business activities Mobile telecommunications Geographic operations, the Group adopts the following segments for the presentation of its geographical analysis of results: Europe (further sub-analysed between Northern Europe, Central Europe and Southern Europe); Americas; Asia Pacific; and Middle East and Africa. See note 3 to the Consolidated Financial Statements, Segmental analysis, for further details.
Critical
Accounting Policies
UK
GAAP
The Group prepares its Consolidated
Financial Statements in accordance with UK GAAP, the application of which
often requires judgements to be made by management when formulating the Groups
financial position and results. Under UK GAAP, the directors are required
to adopt those accounting policies most appropriate to the Groups circumstances
for the purposes of giving a true and fair view and to review them regularly.
In determining and applying these policies, judgement is often required in
respect of items where the choice of specific policy to be followed can materially
affect the reported results or net asset position of the Group.
The Company considers the Groups accounting policies in respect of goodwill and other intangible assets, tangible fixed assets, taxation, revenue recognition and presentation and retirement benefits to be its critical accounting policies and, accordingly, provides an explanation of each below. The discussion below should also be read in conjunction with the Groups disclosure of material accounting policies, which is provided in note 2 to the Consolidated Financial Statements, Accounting policies elsewhere in this Annual Report.
Senior management has discussed the selection of its critical accounting policies and associated disclosures with the Groups Audit Committee.
Fixed assets
Goodwill and intangible assets
Goodwill
Goodwill is calculated as the surplus of cost over fair value attributed to the net assets (excluding goodwill) of acquired subsidiary undertakings, joint ventures and associated undertakings.
For acquisitions made before the adoption of FRS 10, Goodwill and Intangible Assets, on 1 April 1998, goodwill was written off directly to reserves. For acquisitions made after the financial year ended 31 March 1998, goodwill is capitalised and held as a foreign currency denominated asset, where applicable, and is thus subject to exchange rate fluctuations.
In the event of impairment, see Impairment below, a charge is made to the profit and loss account in the period in which the impairment occurs, with a corresponding write down in the carrying value of goodwill. Goodwill written off directly to reserves is also reinstated in the profit and loss account when the related business is sold.
At 31 March 2003, goodwill, including that attributable to the acquisition of interests in associated undertakings, amounted to £115,449 million (2002: £116,665 million), and represented 75% (2002: 76%) of the Groups total fixed assets. In addition, a further £1,190 million of goodwill is carried in reserves (2002: £1,190 million).
Once capitalised, in accordance with UK GAAP, goodwill is amortised on a straight line basis over its estimated useful economic life. However, the size of the Groups goodwill assets makes the choice of amortisation period critical to the Groups results. The majority of goodwill relates to the purchase of cellular network businesses and is therefore amortised over the shorter of the unexpired period of the associated licences under which the network operator provides telecommunications services or twenty-five years. In respect of other acquisitions, the amortisation period for goodwill is typically between five and ten years and is determined by management. Applying these lives to the Groups goodwill asset has resulted in the amortisation charge as stated below.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 27
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
Goodwill, including associated charges for amortisation, affects all of the Groups reported segments. However, given that the majority of the current goodwill asset arose in connection with the Mannesmann acquisition, the Groups results for Central Europe and Southern Europe are most affected, representing £6,643 million and £4,334 million, respectively, of the £14,056 million total charge for goodwill amortisation.
The charge for goodwill amortisation is included within operating profit as a separate category of administrative expenses. However, goodwill amortisation represents a non-cash charge and therefore does not affect the Groups cash flows and ability to pay dividends.
Other intangible assets
Other intangible assets represent
the Groups aggregate amounts spent on the acquisition of 2G and 3G licences,
stated after deduction of related amortisation charges.
Amortisation of capitalised licences begins either when the related network commences commercial service, or earlier under certain circumstances. As networks are typically brought into service over a period of time, the charge for amortisation is initially calculated by reference to the capacity of the network compared to capacity at network maturity. For this purpose, network maturity is reached after a maximum period of five years from service launch. Thereafter, amortisation is on a straight line basis over the period remaining until the licence expires.
Tangible fixed assets
Tangible fixed assets are included on the Groups balance sheet at cost and stated after accumulated depreciation charges. Cost includes the total purchase price and labour costs associated with the Groups own employees to the extent that they are directly attributable to construction costs, or where they comprise a proportion of a department directly engaged in the purchase or installation of a fixed asset. Management judgement is involved in determining the appropriate internal costs to capitalise and the amounts involved. As at 31 March 2003, internal costs capitalised represented approximately 4% of expenditure on tangible fixed assets in the year and less than 4% of total operating expenses, excluding goodwill amortisation.
Finance costs are not capitalised under the Groups UK GAAP accounting policies but, under US GAAP, the interest cost on borrowings used to finance the construction of network assets is capitalised during the period of construction until the date the asset is placed in service. Interest costs on borrowings to finance the acquisition of the related cellular licences necessary to operate the network are also capitalised until the date the network is commercially launched.
Once capitalised, tangible assets are subject to periodic depreciation which also requires management judgement.
The charge in respect of periodic depreciation, which is reported either as part of cost of sales or administrative expenses, depending on the nature of the underlying fixed asset, is derived after determining an estimate of an assets expected useful life and the expected residual value at the end of its life. Results for all segments include charges for depreciation. Increasing an assets expected life or its residual value would result in a reduced depreciation charge in the Groups profit and loss account.
The useful economic lives of Group assets are determined by management and regularly reviewed for appropriateness. However, asset lives are often also subject to other criteria, for example network infrastructure cannot be depreciated over a period that extends beyond the expiry of the associated licence under which the operator provides telecommunications services.
Impairment
Asset recoverability is also an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of future cash flows, certain assumptions are required to be made in respect of highly uncertain matters, for example: expected cash flows from the Groups businesses; managements expectations for growth in revenues, including those relating to achievement of the Groups strategy on data products and services; timing and quantum of future capital expenditures; and uncertainty of future technological developments, all of which are discounted at a rate to reflect the risks involved.
UK GAAP, in the form of FRS 11, Impairment of fixed assets and goodwill, requires management to undertake regular reviews of the carrying value of its fixed assets, including goodwill. Group management currently undertakes a review of its goodwill and intangible assets at least annually, during which the assumptions underpinning the valuations are subject to detailed review and challenge.
Changing the assumptions selected by management to determine the level if any of impairment including, in particular, the discount rates or growth rate assumptions used in the cash flow projections, could significantly affect the Groups results. In discussing the results of the Groups review of the carrying value of its fixed assets with the Audit Committee, particular focus is given to those material assets where growth rates used are in excess of expected relevant country growth in nominal GDP in the short term.
The Group has undertaken a review at 31 March 2003 which assessed whether the carrying value of its assets could be supported by the net present value of future cash flows derived from assets using cash flow projections for each asset in respect of the period to 31 March 2013. The results of the review indicated that, whilst no impairment charge was necessary in respect of the Groups controlled mobile businesses, impairment charges totalling £810 million were necessary in respect of non-controlled mobile and non-mobile businesses. For further details of the results of this impairment review, see Operating Results 2003 financial year compared to 2002 financial year Exceptional operating items below, and note 14 to the Consolidated Financial Statements, Impairment.
Taxation
The Groups tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of the Groups total tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until a formal resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process.
The growth in complexity of the Groups structure following its rapid expansion geographically over the past few years has made the degree of estimation and judgement more challenging. The resolution of issues is not always within the control of the Group and it is often dependent on the efficiency of the legal processes in the relevant taxing jurisdictions in which the Group operates. Issues can, and therefore often do, take many years to resolve. Payments in respect of tax liabilities for an accounting period result from payments on account and on the final resolution of open items. As a result there can be substantial differences between the tax charge in the profit and loss account and tax payments.
Under UK GAAP, FRS 19, Deferred tax, permits a choice of calculating deferred taxation assets or liabilities on a discounted or undiscounted basis. It is the Groups accounting policy to measure deferred taxation on an undiscounted basis. If deferred taxation liabilities were calculated using discounting techniques, the Groups net deferred taxation liability would be lower.
28 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Revenue recognition and presentation
Turnover from mobile telecommunications comprises amounts charged to customers in respect of monthly access charges, airtime usage, messaging, the provision of other mobile telecommunication services, including data services and information provision, fees for connecting customers to a mobile network and revenues from the sale of equipment, including handsets. Turnover is reported for all segments, including Other operations which primarily comprises amounts charged to customers of the Groups fixed line businesses, principally in respect of access charges and line usage.
When determining the amount of revenue to record in any period, the overriding principle followed is to match revenues with the provision of service. When deciding the most appropriate basis for presenting revenue or costs of revenue, both the legal form and substance of the agreement between the Group and its business partners are reviewed to determine each parties respective roles in the transaction.
Where the Groups role in a transaction is that of principal, revenue is recognised on a gross basis. This requires turnover to comprise the gross value of the transaction billed to the customer, after trade discounts, with any related expenditure charged as an operating cost.
Where the Groups role in a transaction is that of an agent, revenue is recognised on a net basis, with turnover representing the margin earned and no entries made to operating costs.
Revenues generated through the provision of voice or messaging services are measured according to the appropriate tariff structure and accounted for gross of any amounts payable to third parties for interconnect fees or other similar charges. Such revenues principally comprise amounts charged to contract customers for monthly access charges, which are invoiced and recorded as part of a periodic billing cycle, and airtime, either from contract customers as part of the invoiced amount, or prepaid customers through the sale of prepaid top up cards. Revenue is recorded in the period in which the customer uses the service. Unbilled turnover resulting from mobile services provided to contract customers from the billing cycle date to the end of each period is accrued. Unearned monthly access charges relating to periods after each accounting period are deferred.
Turnover from a customer for the purchase of a handset or other equipment is recognised upon delivery to the customer. Connection revenues are recognised upon connection of the customer to the network. A customer, whether prepaid or contract, is recognised as such upon activation of the handset or SIM card for use by the end user customer. Costs of connecting a customer to a network are also taken to the profit and loss account at the point when the customer connects to the network.
Retirement benefits
The Group accounts for retirement benefits in accordance with SSAP 24, Accounting for pension costs, and provides additional disclosures as required by FRS 17, Retirement benefits. Application of SSAP 24 requires the exercise of judgement in relation to assumptions for expected rates of inflation, expected asset returns, salary and pension increases and a suitable rate at which liabilities can be discounted. These assumptions used are derived following discussion with a firm of independent actuaries. Accordingly, they are subject to periodic review and change.
Accounting for pensions under SSAP 24 allows certain gains and losses to be spread over the average service lives of employees, thereby reducing the impact of changes in actuarial assumptions on the periods reported profit or loss. However, pensions schemes are subject to periodic review by independent actuaries which, typically, also result in assumptions being changed to take into account any economic and demographic changes.
The Groups total pension charge for the year, which is shown as part of other administrative costs, amounted to £95 million (2002: £64 million, 2001: £47 million). Most countries in which the Group operates have pension schemes and so all segments are affected, albeit to a lesser or greater extent dependent on the relative size and nature of the various schemes.
SSAP 24 is expected to be replaced by FRS 17 (or its international equivalent, IAS 19, Employee benefits) and will result in pension scheme assets being accounted for at market values. Liabilities will continue to be subject to discounting. However, any resultant gains or losses will be reported in the profit and loss account or statement of total recognised gains and losses, depending on their nature, as they are identified and will therefore increase volatility in the profit and loss account.
The Group also prepares a reconciliation of the Groups revenues, net loss, shareholders equity and total assets between UK GAAP and US GAAP, involving the application of adjustments in conformity with accounting policies compliant with US GAAP. Of these policies, the policies on revenue recognition and goodwill and other intangibles are considered critical and are discussed below. This discussion should also be read in conjunction with the description of the Groups US GAAP accounting policies and other US GAAP-related disclosures provided in note 37 to the Consolidated Financial Statements, US GAAP information.
Revenue recognition
Under US GAAP, whilst the accounting treatment of revenue follows similar principles to those followed under UK GAAP, US Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, results in the Groups connection revenues being accounted for in a different way to that prescribed under UK GAAP and described above. SAB 101 specifies that performance is viewed from the perspective of the customer and takes place over the life of the customer relationship.
Deferring connection revenues and associated costs over the estimated life of the customer relationship, using the methodology required under SAB 101, results in the Groups revenues for the 2003, 2002 and 2001 financial years being reduced by £1,760 million, £1,044 million and £492 million, respectively. Profits are materially unaffected by this adjustment as a broadly equal amount of costs would also be deferred.
Goodwill and other intangibles
Under US GAAP, the accounting treatment for goodwill and other intangible assets is different to that required by UK GAAP and described above and represents the most significant adjustment made to the Groups results and financial position under UK GAAP when reconciling to US GAAP.
The difference can be attributed to three separate items: a) the difference in goodwill arising as a result of the different basis by which the purchase price is derived under US GAAP; b) the allocation of the resultant purchase price to a series of identifiable intangible assets under US GAAP as opposed to only goodwill under UK GAAP; and c) the US GAAP deferred tax treatment of intangible assets which increases acquisition liabilities. Of these three adjustments, the only one to involve management judgement is b). Allocation of the purchase price affects the future results of the Group under US GAAP as the requirements for separate identification of intangible assets is more prescriptive under US GAAP.
Once capitalised, goodwill and other indefinite-lived intangible assets are not amortised but are reviewed annually for impairment. Other intangible assets are amortised over their estimated useful economic life under the basis described for
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 29
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
UK GAAP, above. Determining the life of an intangible asset, including assessing whether that life is indefinite, involves a degree of management judgement.
Concurrent with the adoption of SFAS No. 142, Goodwill and Intangible Assets, the Group reviewed its goodwill and intangible assets and concluded that in a number of the Groups previous business acquisitions, the primary assets acquired were licences to provide mobile telecommunications services. As a result, as at 1 April 2002, £33,664 million of goodwill was reclassified as licences and a related deferred tax liability and a corresponding increase to licence value of £19,077 million has been recognised. This reclassification, including the related impact on deferred taxes, had no impact on the Groups previously reported net income or shareholders equity under US GAAP.
The Consolidated Financial Statements consolidate the financial statements of the Company and its subsidiary undertakings and include the Groups share of the results of its joint ventures and associated undertakings for financial statements made up to 31 March 2003. A listing of the Groups principal subsidiary undertakings, joint ventures and associated undertakings is provided in note 36 to the Consolidated Financial Statements, Principal subsidiary undertakings, associated undertakings and investments.
The Groups interest in Verizon Wireless, which was formed on 3 April 2000, is accounted for using equity accounting. In the year ended 31 March 2000, turnover of £2,585 million and operating losses of £100 million (after goodwill amortisation) in respect of the Groups US businesses were fully consolidated.
The results and net assets of Mannesmann have been consolidated in the Companys financial statements with effect from 12 April 2000, the date the acquisition was completed, following conditional European Commission consent. Businesses sold following the acquisition of Mannesmann, including Atecs, Orange, Mannesmanns watches and tubes businesses, Infostrada and tele.ring, have not been consolidated in the results for the year ended 31 March 2001. See Information on the Company Sales of businesses. Up until 15 January 2002, the Groups remaining interest in Atecs was treated as an asset held for resale.
The results and net assets of Vodafone Spain have been fully consolidated with effect from 29 December 2000. Prior to the acquisition of a controlling interest, the Groups 21.7% interest in Vodafone Spain was accounted for as an associated undertaking within continuing operations under the equity accounting method.
The operating results and net assets of Vodafone Ireland have been consolidated from 14 May 2001. The Groups interest in Iusacell has been accounted for as an associated undertaking from 4 April 2001.
The Groups interest in the J-Phone Group has been accounted for as an associated undertaking up to 11 October 2001. The Groups interest in Japan Telecom has also been accounted for as an associated undertaking from 1 June 2001 to 11 October 2001. Prior to 1 June 2001, the Groups interest in Japan Telecom was accounted for as a fixed asset investment. The results and net assets of Japan Telecom and the J-Phone Group were fully consolidated in the Groups financial statements with effect from 12 October 2001.
30 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
The statutory consolidated profit and loss account presented on page 72, and the accompanying notes, have been prepared on the basis required by UK GAAP and are summarised below.
Years ended 31 March | ||||||
2003 |
2002 |
2001 |
||||
£m |
£m |
£m |
||||
Income and expense items | ||||||
Turnover | 30,375 | 22,845 | 15,004 | |||
Cost of sales, selling, distribution and administrative expenses | ||||||
(including goodwill amortisation) | (35,670 | ) | (33,222 | ) | (21,443 | ) |
|
|
|
||||
Operating loss | (5,295 | ) | (10,377 | ) | (6,439 | ) |
Share of loss of joint ventures and associated undertakings | (156 | ) | (1,457 | ) | (550 | ) |
|
|
|
|
|
|
|
Total Group operating loss | (5,451 | ) | (11,834 | ) | (6,989 | ) |
Total Group operating
profit, before goodwill amortisation and exceptional items |
9,181 | 7,044 | 5,204 | |||
Goodwill amortisation | (14,056 | ) | (13,470 | ) | (11,873 | ) |
Exceptional operating costs | (576 | ) | (5,408 | ) | (320 | ) |
|
|
|
|
|
|
|
(5,451 | ) | (11,834 | ) | (6,989 | ) | |
Exceptional non-operating items | (5 | ) | (860 | ) | 80 | |
Net interest expense | (752 | ) | (845 | ) | (1,177 | ) |
Taxation | (2,956 | ) | (2,140 | ) | (1,426 | ) |
|
|
|
||||
Loss on ordinary activities after taxation | (9,164 | ) | (15,679 | ) | (9,512 | ) |
|
|
|
||||
Loss for the financial year | (9,819 | ) | (16,155 | ) | (9,885 | ) |
|
|
|
||||
2003 financial year compared to 2002 financial year
Turnover
Turnover increased 33% in the 2003 financial year. Growth from existing operations was £2,440 million, an increase of 11%, and growth in respect of acquired businesses was £5,090 million, mainly comprising J-Phone Vodafone and Japan Telecom, which both became subsidiaries from October 2001. Changes in exchange rates also beneficially impacted the reported growth in total turnover as a result of a stronger euro partly offset by a weaker yen. Translating the results of overseas companies at exchange rates prevailing in the prior year would reduce reported growth by £171 million.
Mobile telecommunications
Year ended 31 March | Increase/ |
|||||
2003 | 2002 | (decrease) |
||||
£m |
£m |
% |
||||
Northern Europe | 6,057 |
5,432 |
12 |
|||
Central Europe | 4,775 | 4,177 | 14 | |||
Southern Europe | 8,051 | 6,743 | 19 | |||
Americas | 5 | 12 | (58 | ) | ||
Asia Pacific | 8,364 | 4,072 | 105 | |||
Middle East and Africa | 290 | 306 | (5 | ) | ||
|
||||||
27,542 | 20,742 | 33 | ||||
|
The £6,800 million increase in turnover from mobile telecommunications comprises £2,584 million growth from existing operations and £4,216 million from the full year inclusion of J-Phone Vodafone. Mobile service revenue increased 32% to £24,823 million for the 2003 financial year, as a result of greater usage of voice services, increased penetration of data products and services and the benefit of a full years service revenues from J-Phone Vodafone. Revenues from voice services for the year ended 31 March 2003 were £21,201 million, representing an increase of 27% over the comparable period. The Group achieved a sustained improvement in ARPU in many key markets in Europe, compared with the year ended 31 March 2002, as benefits from the Groups continued focus on high value customers led to increased penetration of the contract customer segment and initiatives to stimulate usage, including the launch of new and innovative products, were realised.
Another key driver of the growth in turnover and improved ARPU position was the continued success of the Groups data product and service offerings. Revenues from data services increased 73% to £3,622 million for the year ended 31 March 2003 from £2,093 million for the year ended 31 March 2002, to represent 14.6% of service revenues in the Groups controlled mobile subsidiaries, compared with 11.1% for the 2002 financial year. See Data revenues below for further discussion.
Mobile service revenue growth was adversely affected both by reductions in interconnect rates in a number of the Groups markets, mainly in Europe, and the effect of increased competitive activity in certain key European markets by existing competitors looking to attract market share and generate customer loyalty.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 31
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
Mobile equipment and other turnover increased 36% to £2,719 million for the year ended 31 March 2003, compared with £2,003 million for the year ended 31 March 2002, largely attributable to the volume of gross customer connections and upgrades in the year, the effects of the reduction in handset subsidies, in line with the Groups strategy, and the full year impact of J-Phone Vodafone.
Northern Europe
The increase in turnover in the Northern Europe Region comprised 7% growth in revenues in Vodafone UK, from £3,763 million for the year ended 31 March 2002 to £4,026 million for the year ended 31 March 2003, and a 22% increase in revenues in the other markets in the region.
The revenue increase in Vodafone UK was as a result of a larger customer base and improved customer mix, activity levels and ARPU. The UKs customer base grew by 1% to stand at 13,300,000 customers at 31 March 2003, of which the proportion of contract customers improved from 38% at 31 March 2002 to 41% at 31 March 2003 as a result of the Groups commercial policy to focus on high value customers. Customer activity levels also improved in the 2003 financial year, with total active customers increasing to 91% at 31 March 2003, compared with 89% at 31 March 2002. ARPU grew by 6% to £292 for the year ended 31 March 2003 reflecting the improved customer mix and increased usage. Contract ARPU fell from £555 for the year ended 31 March 2002 to £532 for the year ended 31 March 2003 due to the continued migration of higher value prepaid customers to contract tariffs. However, this is showing signs of stabilising, having fallen only £4 since 30 September 2002. Despite this migration, ARPU for the prepaid customer base for the twelve months to 31 March 2003 increased to £125 from £118 for the twelve months to 31 March 2002, due in part to the disconnection of inactive customers. Churn increased from 27.3% for the year ended 31 March 2002 to 30.0% for the year ended 31 March 2003 as a result of prepaid churn increasing to 34.5%. Contract churn reduced from 26.2% for the year ended 31 March 2002 to 23.1% for the year ended 31 March 2003.
The rest of the Northern Europe Region saw turnover increase from £1,669 million for the 2002 financial year to £2,031 million for the 2003 financial year, partly due to the increased customer base, but mainly as a result of improved customer usage, particularly of data services. In Ireland, strong growth in data revenues resulted in data revenues representing 19.1% of service revenues for the year ended 31 March 2003 and have exceeded 20% of service revenues since December 2002. As a result of this growth in data usage, and continued high levels of voice usage, ARPU in Ireland continues to be amongst the highest in the Groups European businesses.
Central Europe
Revenues for the Central Europe Region comprise those in respect of Vodafone Germany and Vodafone Hungary.
Turnover in Vodafone Germany increased 13% (8% when measured in local currency) to £4,646 million for the year ended 31 March 2003 from £4,112 million for the year ended 31 March 2002, driven by the improved mix in the customer base and higher usage of both voice and data services. At 31 March 2003, Vodafone Germany had a customer base of 22,940,000, representing an increase of 7% compared with 31 March 2002. The proportion of contract customers rose by 4 percentage points over the 2003 financial year and represented 47% of the total customer base at 31 March 2003. Customer activity levels increased to 92% at 31 March 2003 compared to 91% at 31 March 2002, and customer churn decreased from 23.5% for the year ended 31 March 2002 to 21.2% for the year ended 31 March 2003 following a significantly reduced contract churn rate, which decreased from 18.3% to
16.8%, for 2002 and 2003, respectively, and a decrease in the prepaid churn rate from 27.1% to 24.8% for 2002 and 2003, respectively. ARPU improved from €298 for the year ended 31 March 2002 to €313 for the year ended 31 March 2003, although contract ARPU decreased from €559 to €519 for the same period as a result of higher contract penetration, including customer migration from prepaid to contract tariffs. Prepaid ARPU increased from €110 for the year ended 31 March 2002 to €130 for the year ended 31 March 2003, reflecting higher usage levels.
In Vodafone Hungary, revenues improved 98% from £65 million for the year ended 31 March 2002 to £129 million for the year ended 31 March 2003, as a result of a combination of a 72% increase in customer numbers as the operation continued to invest in the expansion of its digital network, and increased usage.
Southern Europe
The Southern Europe Region saw turnover growth of 19% for the year ended 31 March 2003, comprising an 18% increase in revenues in Vodafone Italy (13% increase when measured in local currency) from £3,711 million for the year ended 31 March 2002 to £4,371 million for the year ended 31 March 2003 and 21% growth from the Groups other interests in the region.
In Italy, Vodafone Italys turnover increased, driven almost entirely by a 16% growth for the year ended 31 March 2003 in service revenues (11% when measured in local currency). In addition, equipment sales also increased 36% for the year ended 31 March 2003 as the benefits from increased handset prices more than offset the lower gross customer additions. The increase in service revenues was generated by the continued growth in the customer base, improved customer retention and increased ARPU, as the effect of higher usage levels more than offset the voluntary reduction in termination rates. The increase in blended ARPU from €345 for the year ended 31 March 2002 to €347 for the year ended 31 March 2003 reflects growth in contract ARPU from €769 to €818 and growth in prepaid ARPU from €297 to €298 for the same period. Data revenues increased 50% largely as a result of increases in SMS messaging, and represent 11.3% of service revenues at 31 March 2003.
At 31 March 2003, Vodafone Italys customer base stood at 19,412,000, representing an increase of almost 10% from 31 March 2002. Of the total customer base at 31 March 2003, 92% were connected to prepaid tariffs and 5% were considered inactive, compared to 91% and 6%, respectively, at 31 March 2002. Churn decreased from 18.9% for the year ended 31 March 2002 to 17.3% for the year ended 31 March 2003, primarily as a result of commercial offers and incentives focussed on customer loyalty.
Turnover in the Groups other interests in the Southern Europe Region increased 21% from £3,032 million at 31 March 2002 to £3,680 million at 31 March 2003, driven by growth in Vodafone Spain and Vodafone Greece, which saw turnover increase by 21% and 35%, respectively, (16% and 29%, respectively, when measured in local currency) as a result of growth in the customer base, with venture customer numbers in controlled operations increasing by 15% since 31 March 2002, and improved ARPU. The Southern Europe Region also experienced higher roaming revenues and significant growth in data revenues from increased SMS activity during the financial year ended 31 March 2003.
Americas
The Americas Region predominantly comprises the Groups interests in Verizon Wireless and Iusacell, both of which are accounted for using equity accounting. Accordingly, the turnover from these operations are not included in the Groups statutory profit and loss account.
32 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Asia Pacific
In the Asia Pacific Region, turnover from mobile telecommunications businesses increased mainly from the full year inclusion of turnover from J-Phone Vodafone, which became a subsidiary of the Group on 11 October 2001. Turnover relating to J-Phone Vodafone increased from £3,323 million for the year ended 31 March 2002 to £7,539 million for the year ended 31 March 2003. At 31 March 2003, J-Phone Vodafone had 13,912,000 customers, representing an increase of 14% from 31 March 2002. J-Phone Vodafone continues to produce the highest ARPU in the Group and, although voice ARPU declined as expected, data and content revenues continued to improve and, in March 2003, data revenues represented 21.7% of services revenues, compared to 19.8% in March 2002. This increase was largely driven by the increase in J-Sky web usage and content revenue, together with the continued success of J-Phone Vodafones other data offerings, Sha-mail and Movie Sha-mail.
The remaining increase of £76 million for the Asia Pacific Region arose from the Groups businesses in Australia and New Zealand.
Middle East and Africa
In the Middle East and Africa Region, turnover, which represents the Groups operations in Egypt, decreased as a result of the continuing devaluation of the Egyptian pound. When measured in local currency, turnover increased 17% for the year ended 31 March 2003, largely attributable to growth in the customer base, which increased over 31% to 2,263,000 at 31 March 2003.
Data revenues
In the 2003 financial year, mobile data, including SMS, data and Internet services and GPRS services, accounted for 14.6% of service revenues in the Groups controlled businesses, compared with 11.1% for the 2002 financial year. The 14.6% comprised 11.0% from messaging services and 3.6% from other data services. In the month of March 2003, data service revenues reached 15.6% of service revenues, an increase of 2.1 percentage points from March 2002. The increase in data revenues reflects the continued success of the Groups data products and service offerings, including, in particular, increased SMS usage in the Groups controlled networks.
During the period, Vodafone live! and Mobile Office from Vodafone, were launched in most of the Groups European markets, both of which are expected to generate further growth in non-voice service revenues through games downloads, picture messaging and other content and information services. Further details on these two new service offerings can be found under Strategic Developments Global services elsewhere in this document.
The Groups main markets of Germany, Italy, the United Kingdom and Japan, all experienced increases in mobile data revenues, with SMS revenues continuing to be the principal component of these revenue streams, except in J-Phone Vodafone in Japan where Internet data remains the principal component due to the high proportion of J-Phone Vodafones customer base with Internet-capable phones. An analysis of data revenues as a percentage of total service revenues in the Groups main markets is shown in the tables below.
Year to 31 March 2003 | ||||||
Market |
Messaging |
Data |
Total |
|||
United Kingdom | 13.4 | % | 1.0 | % | 14.4 | % |
Germany | 15.6 | % | 0.8 | % | 16.4 | % |
Italy | 10.8 | % | 0.5 | % | 11.3 | % |
Japan | 7.5 | % | 12.8 | % | 20.3 | % |
March 2003 (month only) | ||||||
|
||||||
Market |
Messaging |
Data |
Total |
|||
United Kingdom | 14.0 | % | 1.2 | % | 15.2 | % |
Germany | 15.6 | % | 1.0 | % | 16.6 | % |
Italy | 11.2 | % | 0.6 | % | 11.8 | % |
Japan | 7.7 | % | 14.0 | % | 21.7 | % |
Other operations
Turnover from other operations, which comprises turnover relating to the Groups interests in its fixed line businesses in Japan (Japan Telecom) and Germany (Arcor), and turnover from Vodafone Information Systems GmbH, a German IT and data services business, increased from £2,103 million for the year ended 31 March 2002 to £2,833 million for the year ended 31 March 2003, primarily as a result of the full year inclusion of Japan Telecom following completion of the Groups acquisition of a controlling stake in October 2001.
Total Group operating profit, before goodwill amortisation and exceptional items
Before goodwill amortisation and exceptional items, total Group operating profit increased 30% from £7,044 million for the year ended 31 March 2002 to £9,181 million for the year ended 31 March 2003, due to a combination of the full year inclusion of results from businesses acquired in the previous period, and growth in other businesses. Changes in exchange rates beneficially impacted the reported growth in the Groups operating profit, before goodwill amortisation and exceptional items, as a result of a stronger euro offset by a weaker US dollar and yen. Translating the results of overseas companies at exchange rates prevailing in the prior year would reduce reported growth by £25 million.
After goodwill amortisation and exceptional items, the Group reported an operating loss of £5,451 million for the year ended 31 March 2003, compared with £11,834 million for the year ended 31 March 2002 and is discussed below.
Mobile telecommunications
Year ended 31 March | Increase/ |
|||||
2003 |
2002 |
(decrease) |
||||
£m |
£m |
% |
||||
Northern Europe | 2,222 | 1,685 | 32 | |||
Central Europe | 1,616 | 1,543 | 5 | |||
Southern Europe | 2,495 | 2,072 | 20 | |||
Americas | 1,219 | 1,317 | (7 | ) | ||
Asia Pacific | 1,421 | 589 | 141 | |||
Middle East and Africa | 197 | 161 | 22 | |||
|
||||||
9,170 | 7,367 | 24 | ||||
|
Northern Europe
Total Group operating profit, before goodwill amortisation and exceptional items, for the Northern Europe Region, increased mainly due to Vodafone UK, where total Group operating profit, before goodwill amortisation and exceptional items, improved by 19% from £941 million for the year ended 31 March 2002 to £1,120 million for the year ended 31 March 2003 as a result of the increased turnover, as described in more detail above, and a continued focus on cost efficiencies. In the UK, the average cost to connect decreased from £67 to £56, within which contract cost to connect increased in the same period from £116 to £117 and prepaid cost to connect decreased from £26 to £10, reflecting continued efforts to reduce handset subsidies.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 33
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
In the Northern Europe Regions other operations, total Group operating profit, before goodwill amortisation and exceptional items increased by 48% from £744 million to £1,102 million for the year ended 31 March 2003, including £500 million from associated undertakings. The Northern Europe Region also benefited from the first full year inclusion of Vodafone Ireland, which became a subsidiary of the Group in May 2001, and the increase in the Groups effective stake in SFR from 32.0% to approximately 43.9% in January 2003.
Central Europe
In Germany, total Group operating profit, before goodwill amortisation and exceptional items, increased from £1,429 million for the year ended 31 March 2002 to £1,435 million for the year ended 31 March 2003 as the effect of the growth in turnover, as described above, was almost entirely offset by increased costs, predominantly due to higher acquisition costs, and a higher depreciation charge as a consequence of the expenditure on network infrastructure and IT system improvements in the 2002 financial year.
The Groups other interests in the Central Europe Region, including the Groups interests in Swisscom and Polkomtel, reported a 59% increase in total Group operating profit, before goodwill amortisation and exceptional items, to £181 million for the year ended 31 March 2003.
Southern Europe
Growth in total Group operating profit, before goodwill amortisation and exceptional items, in the Southern Europe Region, increased primarily due to a 25% increase in Vodafone Italy, to £1,588 million for the year ended 31 March 2003. The improvement in Vodafone Italy was principally driven by the growth in turnover, as described above, and the continued focus on controlling acquisition and retention costs. Cost to connect decreased from €35 to €25 as a result of strict management of commercial policies.
Total Group operating profit, before goodwill amortisation and exceptional items, in the Groups other interests in Southern Europe increased by 13% from £805 million for the year ended 31 March 2002 to £907 million for the year ended 31 March 2003, principally reflecting increases in Vodafone Spain and Vodafone Greece.
Americas
The results of the Americas Region, which largely reflect the Groups interest in Verizon Wireless, were adversely affected by the relative strength of sterling against the US dollar. In Verizon Wireless, total Group operating profit, before goodwill amortisation and exceptional items, decreased by 5% from £1,332 million for the year ended 31 March 2002 to £1,270 million for the year ended 31 March 2003. However, when measured in local currency, total Group operating profit, before goodwill amortisation and exceptional items, increased 5%, driven by customer growth and improved usage, particularly in data revenues, which increased by 106% over the comparable period to £136 miilion. At 31 March 2003, Verizon Wireless total customer base stood at 33,324,000, a 12.6% increase on the prior year. Annual ARPU increased from $576 to $584 due to a focus on selling plans with higher access price points, also reflected in an increase in cost to connect from $125 to $139.
The total Group operating loss, before goodwill amortisation and exceptional items, for the other interests of the Group in the Americas Region, increased from a loss of £15 million for the year ended 31 March 2002 to a loss of £51 million for the year ended 31 March 2003, due to the deterioration in the financial performance of Iusacell.
Asia Pacific
Total Group operating profit, before goodwill amortisation and exceptional items, for the Asia Pacific Region increased principally as a result of J-Phone Vodafone becoming a subsidiary undertaking on 12 October 2001. Prior to this date, J-Phone Vodafone was accounted for as an associated undertaking. J-Phone Vodafones total Group operating profit, before goodwill amortisation and exceptional items, increased from £523 million for the year ended 31 March 2002 to £1,310 million for the year ended 31 March 2003, as a result of the stake changes and the benefits of increased turnover and corporate efficiency initiatives. Average cost to connect reduced from ¥34,145 to ¥32,519 as a result of lower customer acquisition subsidies and more cost efficient purchasing. However, the increase in total Group operating profit, before goodwill amortisation and exceptional items, as a result of these measures was partially offset by an increase in the depreciation charge as a result of the launch of 3G services.
The Groups other operations in the Asia Pacific Region reported a 68% growth in total Group operating profit, before goodwill amortisation and exceptional items, to £111 million for the year ended 31 March 2003, principally as a result of a focus on operational efficiencies in Vodafone Australia and Vodafone New Zealand.
Middle East and Africa
In the Middle East and Africa Region, notwithstanding the Egyptian pounds continued devaluation, total Group operating profit, before goodwill amortisation and exceptional items, increased largely as a result of the Groups Egyptian subsidiary, which focused on cost effectiveness to improve margins. The Groups South African associate, Vodacom, reported improved results as its operations in Tanzania, Lesotho and the Democratic Republic of Congo continued to grow. Safaricom also improved its profitability in the year.
Other operations
The Groups other operations reported a total Group operating profit, before goodwill amortisation and exceptional items, of £11 million for the year ended 31 March 2003, compared with a loss of £323 million for the year ended 31 March 2002. Japan Telecom, which became a subsidiary of the Group in October 2001, accounted for a total Group operating profit, before goodwill amortisation and exceptional items, of £149 million for the year ended 31 March 2003, compared with a loss of £17 million in the prior year, as the benefits of managements transformation plan start to be realised. The Groups European non-mobile businesses, principally Arcor and Cegetel, also reported reduced losses, from £306 million for the year ended 31 March 2002 to £138 million for the year ended 31 March 2002.
Consolidated cost of sales
Consolidated costs of sales increased from £13,446 million in the year ended 31 March 2002 to £17,896 million in the year ended 31 March 2003 representing 58.9% of turnover for both periods.
The Groups cost of sales consist primarily of financial incentives to service providers and dealers, payments to landline and mobile operators for delivering calls outside the Groups networks and for providing landline or microwave links, depreciation of network infrastructure, the cost of customer equipment sold and network operating costs.
Excluding J-Phone Vodafone, the Groups equipment costs and cost of providing financial incentives to service providers and dealers for acquiring and retaining customers declined to 13.8% of turnover from mobile telecommunications, compared with 14.7% for the prior year, demonstrating the continued focus on
34 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
gaining and retaining high-value customers in the most cost-efficient manner. Inclusive of J-Phone Vodafone, equipment costs and financial incentives amounted to 21.1% of turnover from mobile telecommunications, as costs to connect and retain customers, although reducing, remain higher in Japan than in the Groups other key markets.
Consolidated sales and administrative expenses, excluding goodwill amortisation and exceptional items
Consolidated sales and administrative expenses, excluding goodwill amortisation and exceptional items, increased from £4,328 million, or 18.9% of turnover, for the year ended 31 March 2002 to £5,403 million, or 17.8% of turnover, for the year ended 31 March 2003, the increase being almost entirely attributable to the effects of the full year inclusion of J-Phone Vodafone and Japan Telecom.
Depreciation increased by £1,099 million for the year ended 31 March 2002 to £3,979 million for the year ended 31 March 2003 primarily as a result of the full year inclusion of J-Phone Vodafone and Japan Telecom. In Japan, depreciation also increased as a result of a charge in respect of its UMTS network, which was opened for commercial service in December 2002, and in Germany, depreciation increased as a result of the prior year expenditure on network infrastructure improvements.
Operating loss
The total Group operating loss of £5,451 million for the year ended 31 March 2003 compares with a total Group operating loss of £11,834 million for the year ended 31 March 2002. The results for the year ended 31 March 2003 are stated after goodwill amortisation charges of £14,056 million compared to £13,470 million for the year ended 31 March 2002, and after charging exceptional operating costs of £576 million compared to £5,408 million for the year ended 31 March 2002.
Goodwill amortisation
The charge for goodwill amortisation increased from £13,470 million for the year ended 31 March 2002 to £14,056 million for the year ended 31 March 2003 as a result of a full years charge for prior year acquisitions, charges in respect of current year acquisitions and the impact of foreign exchange. These charges for goodwill amortisation do not affect the cash flows of the Group or the ability of the Company to pay dividends.
Exceptional operating items
Exceptional operating costs of £576 million for the year ended 31 March 2003 comprise impairment charges of £405 million and £80 million for the Groups interest in Japan Telecom and Iusacell, respectively. The remaining exceptional operating items reflect additional costs incurred as a result of the integration of Vizzavi into the Group, following the acquisition of the remaining 50% interest in August 2002, and related restructuring of the Groups Global mobile platform business.
For the 2002 financial year, exceptional operating costs of £5,408 million comprised impairment charges of £5,100 million in relation to the carrying value of goodwill for Arcor, Cegetel, Iusacell and Japan Telecom, and £222 million representing the Groups share of exceptional items of its associated undertakings and joint ventures, comprising £107 million of, principally, asset write downs in J-Phone Vodafone and £115 million of reorganisation costs in Verizon Wireless and Vizzavi. A further £86 million of reorganisation costs was also incurred in the 2002 financial year, principally in respect of the Groups operations in Australia and the UK.
In accordance with applicable accounting standards, the Group regularly
monitors the carrying value of its fixed assets. A review was undertaken at 31 March 2003 to assess whether the carrying value of assets was supported by the net present value of future cash flows derived from assets using cash flow projections for each asset in respect of the period to 31 March 2013.
Cash flow projections for the mobile businesses reflect investment in network infrastructure to provide enhanced voice services and a platform for new data products and services, enabled by GPRS and 3G technologies, which are forecast to be significant drivers of future revenue growth. Capital expenditure is heaviest in the early years of the projections but in most countries is expected to fall to below 10% of revenues by the year ended 31 March 2008. Revenue growth is forecast from a combination of new customers and richer customer propositions. Data revenue is expected to increase significantly to 2009 but grow at more modest rates to 2013. Voice ARPU is forecast to benefit in the longer term from new services and traffic moving from fixed networks to mobile networks following a period of stabilisation reflecting the impact of price declines.
Accordingly, the directors believe that it is appropriate to use projections in excess of five years as growth in cash flows for the period to 31 March 2013 is expected to exceed relevant country growth in nominal GDP.
For the years beyond 1 April 2013, forecast growth rates at nominal GDP have been assumed for mobile businesses and below nominal GDP for non-mobile businesses. The discount rates for the major markets reviewed were based on company specific pre-tax weighted average cost of capital percentages and ranged from 7.5% to 10.0% for mobile businesses.
In respect of the Groups investment in China Mobile the review assessed the carrying value against external analysts price targets.
The results of the review indicated that, whilst no impairment charge was necessary in respect of the Groups controlled mobile businesses, impairment charges totalling £810 million were necessary in respect of non-controlled mobile and non-mobile businesses as detailed below.
Company |
2003
£m |
|
Japan Telecom | 430 | |
Iusacell | 80 | |
China Mobile | 300 | |
|
||
810 | ||
|
The charge in respect of China Mobile and £25 million of the charge for Japan Telecom are included within non-operating exceptional items.
Pension costs
The Group operates a number of pension schemes for the benefit of its employees throughout the world. The Group accounts for its pension schemes under SSAP 24, Accounting for pension costs, and provides additional disclosures as required by FRS 17, Retirement benefits. A charge of £95 million has been made in the profit and loss account during the year ended 31 March 2003 (2002: £64 million) in respect of these schemes. During the year ended 31 March 2003 the Group contributed £273 million into funded pensions schemes, including £100 million into the German schemes which were substantially unfunded prior to 31 March 2002. At 31 March 2003 net pension liabilities, net of deferred tax, totalled £35 million (2002: £99 million), representing less than 0.1% of the Groups net assets (2002: less than 0.1%).
SSAP 24 is due to be replaced by FRS 17, or its international equivalent International Accounting Standard 19, Employee Benefits, and is expected to first become effective for the Group in the 2006 financial year. The bases of calculation under FRS 17 are significantly different to SSAP 24, requiring the use
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 35
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
of a different set of underlying assumptions and more frequent updates of asset valuations. If the Group had adopted FRS 17 at 31 March 2003, net pension liabilities, net of deferred tax, would be £257 million (2002: £228 million), representing 0.2% of the Groups net assets (2002: 0.2%).
Loss on ordinary activities before interest
During the year ended 31 March 2003, the Group reported a loss on ordinary activities before interest of £5,456 million, compared with a loss for the year ended 31 March 2002 of £12,694 million. The principal items that resulted in the decreased loss are improved total Group operating profit, before goodwill amortisation and exceptional items, which increased from £7,044 million for the year ended 31 March 2002 to £9,181 million for the year ended 31 March 2003 and the decrease in exceptional operating items and exceptional non-operating items, which decreased from £5,408 million for the year ended 31 March 2002 to £576 million for the year ended 31 March 2003 and £860 million for the year ended 31 March 2002 to £5 million for the year ended 31 March 2003, respectively, which were partially offset by the increased charge in respect of goodwill amortisation from £13,470 million for the year ended 31 March 2002 to £14,056 million for the year ended 31 March 2003.
Exceptional non-operating items
Net exceptional non-operating items amounted to £5 million for the year ended 31 March 2003. Exceptional non-operating items during the 2003 financial year principally include impairment charges of £300 million in respect of the Groups interest in China Mobile and £25 million in respect of certain investments held by Japan Telecom, offset by a profit on disposal of fixed asset investments of £255 million, principally relating to the disposal of the Groups interest in Bergemann GmbH, through which the Groups 8.2% stake in Ruhrgas AG was held, and £55 million representing the Groups share of the profit on disposal for cash of AOL Europe shares by Cegetel.
The 2002 financial year exceptional non-operating costs of £860 million principally comprise an impairment charge of £900 million in respect of the Groups investment in China Mobile, partly offset by an aggregate profit of £60 million on the disposal of fixed assets, businesses and fixed asset investments, principally relating to the reduction in the Groups interest in Vodafone Greece from 55% to 51.9%, the disposal of the Groups interest in the Korean mobile operator, Shinsegi, offset by a net loss on disposal of certain other operations.
Net interest payable
Total Group net interest payable, including the Groups share of the net interest expense of joint ventures and associated undertakings, decreased from £845 million for the year ended 31 March 2002 to £752 million for the year ended 31 March 2003. Net interest costs in respect of the Groups net borrowings decreased from £503 million for the year to 31 March 2002 to £457 million for the year ended 31 March 2003, reflecting the reduction in average net debt levels. The Groups share of the net interest expense of joint ventures and associated undertakings decreased from £342 million for the year ended 31 March 2002 to £295 million for the year ended 31 March 2003 partly as a result of the consolidation of the Groups former associated undertakings, Japan Telecom and J-Phone Vodafone, from October 2001, and of Vizzavi from 29 August 2002, and reduced levels of indebtedness in SFR.
Taxation
The effective rate of taxation for the year ended 31 March 2003 is (47.6)% (2002: (15.8)%). This rate includes the impact of goodwill amortisation and exceptional items, which may not be deductible for tax purposes. The tax rate has benefited from the reorganisation of the Groups Italian operations and a one-off benefit in Germany arising from the
reorganisation of the German group of companies following the acquisition of the remaining minorities in the year ended 31 March 2003. In the prior year, the effective tax rate benefited from a one-off tax credit received in Germany arising from the distribution of earnings and also the Visco Law incentive scheme in Italy. The Visco Law has subsequently been replaced by a less favourable tax regime.
Basic loss per share
Basic loss per share, after goodwill amortisation and exceptional items, decreased from a loss of 23.77p for the year ended 31 March 2002 to a loss per share of 14.41p for the year ended 31 March 2003. The loss per share of 14.41p includes an increase in the charge for the amortisation of goodwill from 19.82p per share for the year ended 31 March 2002, to a charge of 20.62p per share for the year ended 31 March 2003, offset by a decrease in the charge for exceptional items from 9.10p per share for the year ended 31 March 2002 to 0.60p per share for the year ended 31 March 2003.
2002 financial year compared to 2001 financial year
Turnover
The Groups turnover increased by £7,841 million from £15,004 million for the year ended 31 March 2001 to £22,845 million for the year ended 31 March 2002, reflecting a combination of growth in turnover from existing operations, which increased £1,610 million, and a further £6,231 million in respect of businesses acquired during the 2002 financial year. Of the businesses acquired during the 2002 financial year, J-Phone Vodafone, Japan Telecom and Vodafone Ireland contributed £3,323 million, £1,105 million and £477 million, respectively. Vodafone Spain, which was acquired in the second half of the 2001 financial year, contributed the remaining £1,326 million.
Mobile telecommunications
Year ended 31 March | Increase/ |
|||||
2002 £m |
2001 £m |
(decrease) % |
||||
Northern Europe | 5,432 | 4,511 | 20 | |||
Central Europe | 4,177 | 4,031 | 4 | |||
Southern Europe | 6,743 | 4,479 | 51 | |||
Americas | 12 | 9 | 33 | |||
Asia Pacific | 4,072 | 713 | 471 | |||
Middle East and Africa | 306 | 308 | (1 | ) | ||
20,742 | 14,051 | 48 | ||||
36 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Northern Europe
In Northern Europe, turnover increased 20% to £5,432 million in the 2002 financial year from £4,511 million in the 2001 financial year. In addition to the increase resulting from the first time inclusion of Vodafone Ireland, the growth in turnover primarily reflects increases in revenues in the United Kingdom, which grew 9% from £3,444 million for the year ended 31 March 2001 to £3,763 million for the year ended 31 March 2002, as a result of increases in revenues from data services and in the proportion of higher spending contract customers.
In the United Kingdom, the customer base grew 7% to stand at 13,186,000 customers at 31 March 2002 and includes the effect of the action taken during the period to disconnect inactive customers, which represented 11% of the total registered customer base at 31 March 2002 compared to 12% in the previous period. 79% of customer growth was in respect of contract customer connections.
Both contract and prepaid ARPU stabilised in the United Kingdom during the course of the 2002 financial year. ARPU for the contract customer base for the twelve months to 31 March 2002 increased marginally to £555 compared to £550 for the year to 31 March 2001. This movement was in part favourably affected by Vodafone UK developing the ability to accurately allocate inbound calls to contract or prepaid customer segments during the year. ARPU for the prepaid customer base for the twelve months to 31 March 2002 declined from £156 to £118, due, in part, to the allocation of incoming revenues explained above. Both contract and prepaid ARPU also suffered dilution as a result of the migration of higher-value prepaid customers to contract tariffs. Compared to 31 March 2001, blended ARPU decreased from £306 to £276.
Central Europe
Of the increase in turnover in Central Europe, £107 million relates to an increase in Germany, reflecting the inclusion of a first full years results from Vodafone Germany (formerly D2 Vodafone). Turnover for the 2001 financial year included only amounts from 12 April 2000, being the date of completion of the Mannesmann acquisition. Turnover in Germany also benefited from a 5% increase in service revenues, in particular, messaging and data revenues, which grew by 18%. However, the effect of this was largely offset by reduced levels of equipment and connection revenues as a result of lower customer growth, particularly in the prepaid customer segment.
In Germany, Vodafone ended the 2002 financial year with a registered customer base of 21,489,000, representing an increase of over 2%, compared to the 2001 financial year. Growth in the customer base was restricted as, similar to the United Kingdom, steps were taken to disconnect inactive customers. As a result, inactive customers represented 9% of the total customer base at 31 March 2002. Contract customers increased 9% and represented 43% of total customers at 31 March 2002.
Both contract and prepaid ARPU declined in Germany, compared to the 2001 financial year, falling from €611 to €559 and from €151 to €110, respectively. Blended ARPU decreased from €378 to €298.
Southern Europe
Included in turnover for the year ended 31 March 2002 is £1,770 million in respect of a full years contribution from Vodafone Spain, compared to only £444 million of turnover in the year ended 31 March 2001, being turnover from 29 December 2000, the date Vodafone Spain became a subsidiary undertaking of the Group. Prior to 29 December 2000, Vodafone Spain was accounted for as an associated undertaking. In Italy, turnover from Vodafone Italy increased 25% from £2,967 million for the year ended 31 March 2001 to £3,711 million for the year ended 31 March 2002, principally as a result of the enlarged customer base.
In Italy, Vodafone Italy increased its registered customer base by 13% to 17,711,000, 7% of which were considered inactive at 31 March 2002. Blended
ARPU decreased in Italy from €378 to €345. Contract ARPU increased from €756 to €769 due to the policy of targeting high value customers, while prepaid ARPU remained relatively stable during the year as the effect of the increased customer base was in part offset by the effect of lower revenues per minute, influenced by the voluntary reduction in fixed-to-mobile rates.
Americas
In the Americas Region, Verizon Wireless is accounted for using equity accounting and its turnover is not included in the Groups statutory profit and loss account. Due to the economic slowdown in the US, net customer growth slowed considerably from prior years. However, Verizon Wireless increased its customer base by 9% over the 2002 financial year, and ended the year with a registered customer base of 29,585,000, of whom 94% were on contract plans. At 31 March 2002, the Groups proportionate share of the customer base stood at 13,081,000 customers, compared with 11,570,000 at 31 March 2001. ARPU increased from $551 to $576 for the twelve months ended 31 March 2002 as the migration to digital price plans helped to reduce the effect of competitive pressures. Roaming revenues declined in the second half of the 2002 financial year, principally due to the reduction of travel within and to the United States in the wake of September 11, 2001. Successful intercarrier roaming rate renegotiations reduced both roaming revenues and roaming cost of service year on year, also contributing to the decline.
Asia Pacific
Of the total increase in turnover in Asia Pacific, £3,323 million arises from the inclusion of turnover from J-Phone Vodafone from 12 October 2001 when it became a subsidiary undertaking. Previously, J-Phone Vodafone was accounted for as an associated undertaking. During the 2002 financial year, J-Phone Vodafone continued to capture additional market share, with 2,219,000 net customer additions in the period. One of the key drivers of the recent growth, and the levels of turnover experienced, was the success of sha-mail, J-Phone Vodafones photo-messaging service which contributed to increases in data and SMS revenues. As a result, data and SMS revenues increased from 11% of service revenues in April 2001 to 20% for March 2002. Overall, blended ARPU declined in the period as the increased revenues that resulted from the enlarged customer base and new products and services such as sha-mail were offset by reductions in mobile to mobile connection fees.
The remaining increase of £36 million for Asia Pacific arose in the Groups businesses in Australia and New Zealand, representing growth of 5%. During the 2002 financial year, the number of venture customers increased 8% to 3,241,000 at 31 March 2002. Blended ARPU, however, declined compared to the 2001 financial year.
Middle East and Africa
In the Middle East and Africa Region, turnover decreased as the revenues arising from the continued strong growth in the registered customer base, which increased 47% from 1,171,000 at 31 March 2001 to 1,718,000 customers at 31 March 2002, were offset by the Egyptian pounds devaluation.
Mobile data revenues
In the year ended 31 March 2002, mobile data, including SMS, data and Internet services and, for the first time, GPRS services, accounted for 11.1% of service revenues in the Companys controlled subsidiaries, compared with 8.1% for the 2001 financial year. The 11.1% comprised 9.5% from messaging services and 1.6% from other data services. In the month of March 2002, data service revenues reached 13.5% of service revenues, an increase of 4.2% over March 2001. The increase in data revenues reflects the continued increase in SMS usage in the Groups controlled networks helped, in part, by the launch during the period of a number of new SMS-based services including games and quizzes.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 37
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
The Groups main markets of Germany, Italy, the United Kingdom and, since October 2001, Japan, all experienced increases in mobile data revenues, with SMS revenues continuing to be the principal component of these revenue streams. In J-Phone Vodafone, Internet data remains the principal component due to the high proportion of J-Phone Vodafones customer base with Internet-capable phones. Growth in J-Phone Vodafones data revenues were also boosted by the launch during the period of sha-mail. An analysis of data revenues as a percentage of total service revenues in the Groups main markets is shown in the tables below.
Year to 31 March 2002 | ||||||
Market |
Messaging |
Data |
Total |
|||
The United Kingdom | 10.6 | % | 1.2 | % | 11.8 | % |
Germany | 13.9 | % | 0.5 | % | 14.4 | % |
Italy | 8.5 | % | 0.2 | % | 8.7 | % |
Japan | 5.6 | % | 9.5 | % | 15.1 | % |
March
2002 (month only) |
||||||
Market | Messaging |
Data |
Total |
|||
The United Kingdom | 12.3 | % | 1.1 | % | 13.4 | % |
Germany | 14.5 | % | 0.7 | % | 15.2 | % |
Italy | 9.5 | % | 0.3 | % | 9.8 | % |
Japan | 6.6 | % | 13.2 | % | 19.8 | % |
Other operations
Turnover for other operations in the 2002 financial year was £2,103 million compared with £953 million in the 2001 financial year, primarily as a result of a £1,105 million contribution from Japan Telecom following completion of the Groups acquisition of a controlling stake in October 2001. Turnover from other operations comprised turnover relating to the Groups interests in its fixed line businesses, principally Arcor in Germany and Japan Telecom, and turnover from Vodafone Information Systems GmbH (formerly Vodafone Telecommerce GmbH) a German IT and data services business.
Total Group operating profit, before goodwill amortisation and exceptional items
Before goodwill amortisation and exceptional items, total Group operating profit increased 35% from £5,204 million for the year ended 31 March 2001 to £7,044 million for the year ended 31 March 2002 due to a combination of the first time inclusion of results from businesses acquired in the period, and organic growth in other businesses.
Mobile businesses
Total Group operating profit, before goodwill amortisation and exceptional items, for mobile businesses by region was:
Year ended 31 March | Increase/ |
|||||
2002 £m |
2001 £m |
(decrease) % |
||||
Northern Europe | 1,685 | 1,284 | 31 | |||
Central Europe | 1,543 | 1,097 | 41 | |||
Southern Europe | 2,072 | 1,449 | 43 | |||
Americas | 1,317 | 1,237 | 6 | |||
Asia Pacific | 589 | 205 | 187 | |||
Middle East and Africa | 161 | 213 | (24 | ) | ||
7,367 | 5,485 | 34 | ||||
Northern Europe
In Northern Europe the increase in operating profit, before goodwill amortisation and exceptional items, includes the increase resulting from Vodafone Ireland. Vodafone UK increased its total Group operating profit, before goodwill amortisation and exceptional items, from £795 million for the year ended 31 March 2001 to £941 million for the year ended 31 March 2002 as it delivered a re-balancing of resources into new product development, product management and customer development activities as well as a 10% reduction in headcount.
In the UK, the average cost to connect for contract customers rose slightly from £114 for the year to 31 March 2001 to £116, reflecting the impact of the increased proportion of higher value customers connected in the year. The average cost to connect for prepaid customers fell from £53 to £26 for the year to 31 March 2002, as a result of the decision to reduce distribution incentives to improve the profitability of this market segment.
Central Europe
The majority of the increase in total Group operating profit, before goodwill amortisation and exceptional items, in Central Europe arose in Germany, principally as a result of the increase in service revenues and reduction in equipment subsidies and lower connection commissions payable due to lower customer growth. Results for Central Europe also benefited from inclusion of a full years results from Swisscom Mobile.
In Germany, following the reduction in equipment subsidies and reduced commissions, the total average cost to connect decreased to €81, with the cost to connect for prepaid customers decreasing to €24. The cost to connect for contract customers decreased to €156.
Southern Europe
In Southern Europe, the improvement in total Group operating profit, before goodwill amortisation and exceptional items, includes the effect of increases resulting from the Groups increased ownership interest in Vodafone Spain. In Italy, total Group operating profit, before goodwill amortisation and exceptional items, increased 25%, in line with growth in turnover.
In Italy, the average cost to connect for customers, already very low, slightly declined from €37 to €35.
Americas
The increase in total Group operating profit, before goodwill amortisation and exceptional items, in the Americas Region reflected the profitable trading of Verizon Wireless during the period, the first time inclusion of results from Iusacell, and reduced losses in the Groups Globalstar service provider operations in North America.
Asia Pacific
All of the increase in total Group operating profit, before goodwill amortisation and exceptional items, in the Asia Pacific Region relates to J-Phone Vodafone and is due to a combination of organic growth in J-Phone Vodafone and as a result of J-Phone Vodafone becoming a subsidiary undertaking of the Group on 12 October 2001. Prior to 12 October 2001, J-Phone Vodafone was accounted for as an associated undertaking. Total Group operating profit, before goodwill amortisation and exceptional items, in the Groups businesses in Australia, New Zealand and Fiji remained stable at £66 million. Vodafone Australia faced particularly challenging market conditions, with customer growth slowing from the levels experienced in previous years. To address these challenges, the business was restructured to improve operational efficiency, involving significant reductions in both capital and operating expenditure, including a 28% reduction in the workforce.
38 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
In Japan, total average costs to connect reduced from ¥39,047 to ¥34,145 following the reduction in acquisition incentives and equipment subsidies.
Middle East and Africa
The reduction in total Group operating profit, before goodwill amortisation and exceptional items, in the Middle East and Africa region was attributable to the Groups Egyptian subsidiary which experienced difficult trading conditions during the period as a result of the Egyptian pounds devaluation, and a weakening of the South African rand.
Non-mobile businesses
The Groups other operations reported an operating loss, before goodwill amortisation and exceptional items, of £323 million for the year ended 31 March 2002, compared with £281 million for the year ended 31 March 2001. The results for the 2002 financial year included increased losses within Arcor, due in part to the inclusion of a full years results, and the first time inclusion of the statutory losses of Japan Telecom.
Consolidated cost of sales
Consolidated costs of sales increased from £8,702 million for the year ended 31 March 2001 to £13,446 million for the year ended 31 March 2002, including £3,554 million in respect of acquisitions completed during the year, principally the acquisitions of J-Phone Vodafone and Japan Telecom. Cost of sales in respect of continuing operations, £9,892 million, represented 55% of turnover from continuing operations for the year ended 31 March 2002, compared with 58% for the year ended 31 March 2001.
The Groups cost of sales consisted primarily of financial incentives to service providers and dealers, payments to landline and mobile operators for delivering calls outside the Groups networks and for providing landline or microwave links, depreciation of network infrastructure, the cost of customer equipment sold and network operating costs.
The Groups cost of sales as a proportion of turnover decreased slightly in the 2002 financial year due primarily to the reduction in the proportion of turnover spent on equipment costs and the costs of providing financial incentives to dealers. This is discussed below.
The Groups equipment costs and cost of providing financial incentives to service providers and dealers for obtaining new customers amounted to £4,160 million, or 18.2% of turnover, for the year ended 31 March 2002, compared with £3,364 million, or 22.4% of turnover, for the year ended 31 March 2001. This decrease reflects the Groups realigned strategy to focus on gaining and retaining higher value customers. Total acquisition costs reduced in the majority of the Groups major markets, particularly in respect of the prepaid customer segment.
Consolidated sales and administrative expenses, excluding goodwill amortisation and exceptional items
Sales and administrative expenses, excluding goodwill amortisation and exceptional items, increased from £2,980 million for the year ended 31 March 2001 to £4,328 million for the year ended 31 March 2002. These costs represented 18.9% of turnover for the year ended 31 March 2002 compared with 19.9% for the year ended 31 March 2001.
Operating loss
The total Group operating loss of £11,834 million for the year ended 31 March 2002 compared with a total Group operating loss of £6,989 million for the year ended 31 March 2001. The results for the year ended 31 March 2002 are stated after goodwill amortisation charges of £13,470 million compared to £11,873 million for the year ended 31 March 2001 and after charging
exceptional operating costs of £5,408 million compared to £320 million for the year ended 31 March 2001.
Goodwill amortisation
The increase in the goodwill amortisation charge from £11,873 million for the year ended 31 March 2001 to £13,470 million for the year ended 31 March 2002 was primarily due to the amortisation of goodwill arising on the acquisitions made in the period, most notably the acquisitions of Vodafone Ireland, Japan Telecom and J-Phone Vodafone and to a full periods charge for amortisation of goodwill in respect of the Mannesmann acquisition. These charges for goodwill amortisation do not affect the cash flows of the Group or the ability of the Company to pay dividends.
Exceptional operating items
Exceptional operating costs of £5,408 million for the year ended 31 March 2002 comprised impairment charges of £5,100 million in relation to the carrying value of goodwill for Arcor, Cegetel, Iusacell and Japan Telecom, and £222 million representing the Groups share of exceptional items of its associated undertakings and joint ventures, comprising £107 million of, principally, asset write downs in J-Phone Vodafone and £115 million of reorganisation costs in Verizon Wireless and Vizzavi. A further £86 million of reorganisation costs was also incurred, principally in respect of the Groups operations in Australia and the UK.
In accordance with applicable accounting standards, the Group regularly monitors the carrying value of its fixed assets. At 30 September 2001, the review resulted in an impairment charge of £4,750 million. A further review was undertaken at 31 March 2002 at a time when certain companies in the telecommunications sector were showing signs of deteriorating performance in difficult market conditions.
The review assessed whether the carrying value of assets was supported by the net present value of future cash flows derived from assets using cash flow projections for each asset in respect of the period to 31 March 2011.
For mobile businesses, projections reflect investment in network infrastructure to provide enhanced voice services and a platform for new data products and services, enabled by GPRS and 3G technologies, which are forecast to be significant drivers of future revenue growth. Capital expenditure is heaviest in the early years of the projections but in most countries is expected to fall to below 10% of revenues by the year ending 31 March 2008. Revenue growth was forecast from a combination of new data products and services and strong underlying voice ARPU. Data revenue is expected to increase significantly to 2006 but grow at more modest rates to 2011. Voice ARPU is forecast to benefit from new services and traffic moving from fixed networks to mobile networks and reflects the impact of price declines. Accordingly, the directors believed that it was appropriate to use projections in excess of five years as growth in cash flows for the period to 31 March 2011 was expected to exceed relevant country growth in nominal GDP.
For the years beyond 1 April 2011, forecast growth rates at nominal GDP were assumed for mobile businesses and below nominal GDP for non-mobile businesses. The discount rates for the major markets reviewed were based on company specific pre-tax weighted average cost of capital percentages and ranged from 8.8% to 11.5%.
In respect of the Groups investment in China Mobile the review assessed the carrying value against external analysts market valuations.
The results of the review indicated that, whilst no impairment charge was necessary in respect of the Groups controlled mobile businesses, further
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 39
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
impairment charges totalling £1,250 million were necessary in respect of non-controlled mobile and non-mobile businesses. This brought the total charge for the 2002 financial year to £6,000 million, as detailed below.
Total
charge for year ended |
||
31
March 2002 |
||
Company | £m |
|
Arcor | 4,000 | |
Japan Telecom | 400 | |
Cegetel | 250 | |
Iusacell | 450 | |
China Mobile | 900 | |
6,000 | ||
The charge in respect of China Mobile was included within non-operating exceptional items.
Loss on ordinary activities before interest
During the year ended 31 March 2002, the Group reported a loss on ordinary activities before interest of £12,694 million, compared with a loss for the year ended 31 March 2001 of £6,909 million. The principal items that resulted in the increased loss are: the increase in exceptional operating items and exceptional non-operating items, which increased from £320 million for the year ended 31 March 2001 to £5,408 million for the year ended 31 March 2002, and a credit of £80 million for the year ended 31 March 2001 to a charge of £860 million for the year ended 31 March 2002, respectively; the increased charge in respect of goodwill amortisation from £11,873 million for the year ended 31 March 2001 to £13,470 million for the year ended 31 March 2002; partly offset by improved operating profit, before goodwill amortisation and exceptional items, which increased from £5,204 million for the year ended 31 March 2001 to £7,044 million for the year ended 31 March 2002.
Exceptional non-operating items
Exceptional non-operating items of £860 million for the year ended 31 March 2002 comprised an impairment charge of £900 million in respect of the Groups investment in China Mobile, partly offset by an aggregate profit of £60 million on the disposal of fixed assets, businesses and fixed asset investments, principally relating to the reduction in the Groups interest in Vodafone Greece from 55% to 51.9%, the disposal of the Groups interest in the Korean mobile operator, Shinsegi, offset by a net loss on disposal of certain other operations.
The exceptional non-operating items for the 2001 financial year of £80 million profit comprised of predominantly a profit on termination of a hedging instrument of £261 million offset by an impairment charge of £193 million in relation to the Groups interests in Globalstar and Shinsegi.
Net interest payable
Total Group net interest payable, including the Groups share of the net interest expense of joint ventures and associated undertakings, decreased from £1,177 million for the year ended 31 March 2001 to £845 million for the year ended 31 March 2002. Net interest costs in respect of the Groups net borrowings decreased from £850 million in the year to 31 March 2001 to £503 million in the year ended 31 March 2002, reflecting the reduction in average net debt levels, primarily due to proceeds received from the disposal of assets held for resale during the second half of the 2001 financial year. The Groups share of the net interest expense of joint ventures and associated undertakings increased from £327 million for the year ended 31 March 2001 to £342 million for the year ended 31 March 2002 due primarily to the inclusion of interest costs from the Groups then newly acquired interest in Iusacell.
Taxation
The effective rate of taxation for the year ended 31 March 2002 was (15.8)% (2001: (17.6)%) and benefited from a one-off German tax refund arising from the distribution of retained earnings.
Basic loss per share
Basic loss per share, after goodwill amortisation and exceptional items, increased from a loss of 16.09p for the year ended 31 March 2001 to a loss per share of 23.77p for the year ended 31 March 2002. The loss per share of 23.77p includes an increase in the charge for the amortisation of goodwill from 19.32p per share for the year ended 31 March 2001, to a charge of 19.82p per share for the year ended 31 March 2002, and an increase in the charge for exceptional items from 0.31p per share for the year ended 31 March 2001 to 9.10p per share for the year ended 31 March 2002.
Total fixed assets increased from £153,462 million as at 31 March 2002 to £154,689 million at 31 March 2003.
Other fixed asset investments at 31 March 2003 totalled £1,205 million (2002: £1,407 million), and include the Groups equity interest in China Mobile.
Tangible fixed assets increased from £18,541 million at 31 March 2002 to £19,574 million at 31 March 2003, of which network infrastructure assets of £16,243 million (2002: £14,744 million) represented approximately 83% (2002: 80%) of the total. Additions to network infrastructure in the year totalled £3,363 million. The fair value of tangible fixed assets acquired as part of acquisitions of businesses, primarily Vizzavi, amounted to £79 million.
Current asset investments with an aggregate value of £291 million (2002: £1,792 million) include liquid investments with a value of £291 million (2002: £1,789 million).
Total equity shareholders funds decreased from £130,573 million at 31 March 2002 to £128,671 million at 31 March 2003. The decrease comprises the loss for the year of £9,819 million (which includes goodwill amortisation of £14,056 million and exceptional items, net of tax and minority interests, of £404 million), dividends of £1,154 million, offset by net currency translation gains of £9,039 million, the issue of new share capital of £31 million and £1 million of other movements.
The table on the following page sets out the amounts of interim, final and total cash dividends paid and proposed in respect of each financial year indicated both in pounds sterling per ordinary share and translated, solely for convenience, into US dollars per ordinary share at the Noon Buying Rate on each of the respective payment dates for such interim and final dividends, in both cases, where relevant, net of the associated advance corporation tax.
40 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Translated into US dollars per | ||||||||||||
Pounds per ordinary share | ordinary share | |||||||||||
Year ended | ||||||||||||
31 March | Interim |
Final |
Total |
Interim |
Final |
Total |
||||||
1999 |
0.013 | (1) | | 0.013 | 0.020 | (1) | | 0.020 | ||||
2000 |
0.006 | 0.007 | 0.013 | 0.010 | 0.010 | 0.020 | ||||||
2001 |
0.007 | 0.007 | 0.014 | 0.010 | 0.010 | 0.020 | ||||||
2002 |
0.007 | 0.008 | 0.015 | 0.010 | 0.011 | 0.021 | ||||||
2003 |
0.008 | 0.009 | (2) | 0.017 | 0.013 | 0.015 | (3) | 0.028 |
Notes: | |
(1) | In 1999 there were two interim dividends, the first of £0.006 per ordinary share and the second of £0.007 per ordinary share. There was no final dividend. |
(2) | The final dividend for the year was proposed on 26 May 2003 payable on 8 August 2003 to holders of record as of 6 June 2003. |
(3) | The final dividend will be payable in US dollars to ADS holders under the terms of the Deposit Agreement. |
The Company has historically paid dividends semi-annually, with the regular interim dividend with respect to the first six months of the Companys financial year payable in February and the regular final dividend with respect to the second six months of the Companys financial year payable in August. The directors expect that the Company will continue to pay dividends semi-annually.
In considering the level of dividend to declare and recommend, the Board takes account of the outlook for earnings growth, operating cash flow generation, capital expenditure requirements, acquisitions and divestments together with the possibilities for debt reductions and share buy-backs. Accordingly, the directors are recommending a final dividend of 0.8983 pence per share bringing the total for the year to 1.6929 pence per share, representing a 15% increase over last years total dividend per share. The Board expects progressively to increase the payout ratio in the future.
On 5 February 2003, the Group announced that, with effect from the payment of its final dividend payment in respect of the 2003 financial year, holders of ordinary shares with a registered address in a country which has adopted the Euro as the national currency will receive their cash dividend in euros, unless they wish to elect to continue to receive dividends in sterling, are participating in the Companys Dividend Reinvestment Plan, or have mandated their dividend payment to be paid directly into a bank or building society account in the United Kingdom. In accordance with the Companys Articles of Association, the sterling:euro exchange rate will be determined by the Company shortly before the payment date.
Inflation has not had a significant effect on the Groups results of operations and financial condition during the three years ended 31 March 2003.
Movements in exchange rates had no material impact on the total Group operating profit, before goodwill amortisation and exceptional items, in any of the three years ended 31 March 2003. The effect of translating the results of overseas subsidiaries, joint ventures and associated undertakings at exchange rates prevailing in the year ended 31 March 2002, would have been to reduce total Group operating profit, before goodwill amortisation and exceptional items, for the year ended 31 March 2003 by £25 million.
Retranslating the goodwill amortisation charge for the year ended 31 March 2003 at the average exchange rates applicable for the year ended 31 March
2002 would have reduced the charge by £365 million to £13,691 million, with a corresponding reduction in total Group operating loss.
As disclosed above, cash dividends, if any, will be paid by the Company in respect of ordinary shares in pounds sterling or euros, and exchange rate fluctuations will affect the US dollar amounts received by holders of ADSs on conversion by the ADS Depositary of all such cash dividends paid. Moreover, fluctuations in the exchange rate between pounds sterling and the US dollar will affect the US dollar equivalent of the pound sterling price of the ordinary shares on The London Stock Exchange and, as a result, will affect the market price of the ADSs in the United States.
The following table sets out, for the periods and dates indicated, the period end, average, high and low Noon Buying Rates for pounds sterling expressed in US dollars per £1.00, to two decimal places.
Years ended | |||||||
31 March | Period
end |
Average(1) |
High |
Low |
|||
1999 | 1.60 |
1.65 |
1.72 |
1.60 |
|||
2000 | 1.59 |
1.61 |
1.68 |
1.55 |
|||
2001 | 1.42 |
1.47 |
1.60 |
1.40 |
|||
2002 | 1.42 |
1.43 |
1.48 |
1.37 |
|||
2003 | 1.58 |
1.54 |
1.65 |
1.43 |
|||
Month | High |
Low |
|||||
November 2002 | 1.59 |
1.54 |
|||||
December 2002 | 1.61 |
1.56 |
|||||
January 2003 | 1.65 |
1.60 |
|||||
February 2003 | 1.65 |
1.57 |
|||||
March 2003 | 1.61 |
1.56 |
|||||
April 2003 | 1.60 |
1.55 |
|||||
May 2003(2) | 1.64 |
1.59 |
Notes: | |
(1) | The average of the Noon Buying Rates on the last day of each full month during the year. |
(2) | In respect of May 2003, for the period from 1 May to 23 May 2003, inclusive. The Noon Buying Rate was $1.6376 per £1.00 on 23 May 2003. |
The following table sets out the average exchange rates of other principal currencies of the Group.
Year to 31 March | Change |
||||||
Currency | 2003 |
|
2002 |
% |
|||
Euro | 1.56 | 1.63 | (4.3 | ) | |||
Japanese yen | 188.2 | 179.4 | 4.9 |
FRS 17 issued in November 2000, replaces SSAP 24 and changes existing accounting and disclosure requirements for defined benefit pension schemes. When fully implemented, the principal changes will be the inclusion of pension scheme surpluses or deficits on the balance sheet, analysis of components of the pension charge between operating profit and net interest and the reporting of actuarial gains and losses in the statement of total recognised gains and losses. On 25 November 2002, the ASB announced that it was deferring the mandatory requirement for its full adoption as a result of which the requirements of FRS 17 will first become mandatory for the Company for its accounting period beginning 1 April 2005. Until such time the existing transitional rules have been extended. Disclosures required by FRS 17 can be found in note 34 to the Consolidated Financial Statements, Pensions.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 41
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
Net loss under US GAAP for the year ended 31 March 2003 was £9,055 million (2002: £16,688 million). This compares with a net loss of £9,819 million (2002: £16,155 million) under UK GAAP. The principal differences between US GAAP and UK GAAP, as they relate to the determination of net loss, are the methods of accounting for acquisitions, capitalisation of interest and taxation.
In the year to 31 March 2003, revenues under US GAAP were £24,244 million compared with revenues under UK GAAP of £30,375 million. In the year to
31 March 2002, revenues under US GAAP were £17,639 million compared with revenues under UK GAAP of £22,845 million. The difference in both periods relates primarily to the non-consolidation of subsidiaries, being Vodafone Italy and Vodafone Spain until 29 June 2001, the date of completion of the Groups acquisition of a further 17.8% shareholding in Vodafone Spain, following which Vodafone Spain was fully consolidated under both US GAAP and UK GAAP. For both undertakings, the existence of significant participating rights of minority shareholders has required the equity method of accounting to be adopted under US GAAP rather than the full consolidation of results under UK GAAP. This has not affected the net income of the Group.
For a further explanation of the differences between UK GAAP and US GAAP, including a summary of the impact of recently issued US accounting standards, see note 37 to the Consolidated Financial Statements, US GAAP information.
Liquidity and Capital Resources
The major sources of Group liquidity over the three years ended 31 March 2003 have been cash generated from operations, borrowings through long term and short term issuance in the capital markets, borrowings drawn from committed bank facilities, monetisation of assets, asset disposals and, for the year ended 31 March 2002 only, the proceeds from a share issuance. The Group does not use off-balance sheet special purpose entities as a source of liquidity or for other financing purposes.
The Groups key sources of liquidity for the foreseeable future are likely to be cash generated from operations and borrowings through long term and short term issuances in the capital markets as well as committed bank facilities. The Groups liquidity and working capital may be affected by a material decrease in cash flow due to factors such as increased competition, litigation, timing of tax payments, regulatory rulings, delays in development of new services and networks, or inability to receive expected revenues from the introduction of new services. See Risk Factors elsewhere in this document.
Increase in cash in the year
During the year ended 31 March 2003, the Group increased its net cash inflow from operating activities by 38% to £11,142 million and generated £393 million of net cash flow, as analysed in the table below:
Year
ended |
Year
ended |
|||
31
March |
31
March |
|||
2003 |
2002 |
|||
£m |
£m |
|||
Net cash inflow from operating | ||||
activities (note 30) | 11,142 | 8,102 | ||
Purchase of intangible fixed assets | (99 | ) | (325 | ) |
Purchase of tangible fixed assets | (5,289 | ) | (4,145 | ) |
Disposal of tangible fixed assets | 109 | 75 | ||
Net capital expenditure on intangible | ||||
and tangible fixed assets | (5,279 | ) | (4,395 | ) |
5,863 | 3,707 | |||
Dividends received from joint ventures | ||||
and associated undertakings | 742 | 139 | ||
Taxation | (883 | ) | (545 | ) |
Interest on Group debt | (475 | ) | (854 | ) |
Dividends from investments | 15 | 2 | ||
Dividends paid to minority interests | (91 | ) | (84 | ) |
Net cash outflow for returns on | ||||
investments and servicing of finance | (551 | ) | (936 | ) |
|
||||
5,171 | 2,365 | |||
Other net capital expenditure and | ||||
financial investment | (94 | ) | (52 | ) |
Net cash outflow from acquisitions | ||||
and disposals | (4,880 | ) | (7,691 | ) |
Equity dividends paid | (1,052 | ) | (978 | ) |
Management of liquid resources | 1,384 | 7,042 | ||
Net cash outflow from financing | (136 | ) | (675 | ) |
|
||||
Increase in cash in the year | 393 | 11 | ||
|
Capital expenditure and financial investment
The increase in net cash outflow for capital expenditure and financial investment from £4,447 million for the year ended 31 March 2002 to £5,373 million for the year ended 31 March 2003 was due primarily to increased expenditure on tangible fixed assets (see below) and increased expenditure on investments as a result of the Groups purchase of an additional stake in China Mobile for $750 million.
During the year ended 31 March 2003, £99 million was spent on intangible fixed assets, principally in respect of a 3G licence in Ireland, a further licence in Portugal and additional GSM spectrum in Italy.
The Groups expenditure on tangible fixed assets increased by £1,144 million to £5,289 million during the 2003 financial year, including approximately £1,861 million spent in Japan (for which the prior period does not represent a full year) and £894 million in Germany.
The Group expects capitalised tangible fixed asset additions to be approximately £5 billion in the next financial year. Incremental expenditure on 3G infrastructure in the 2004 financial year is expected to represent approximately 40% of total capital expenditure.
42 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Acquisitions and disposals
Net cash outflow from acquisitions and disposals of £4,880 million in the 2003 financial year arose primarily in respect of the acquisitions of additional stakes in certain existing subsidiary undertakings, all of which are described in more detail under Information on the Company History and Development of the Company and Information on the Company Business Overview Business activities Mobile telecommunications above, and the acquisition of Vivendis 50% stake in
the Vizzavi joint venture, offset by amounts received on the disposal of the Groups stake in Ruhrgas AG and Arcors Telematiks business.
An analysis of the main transactions in the year ended 31 March 2003 is shown below. Solely for convenience, the amounts presented have been translated into US dollars and pounds sterling at actual rates for dollar denominated transactions or, otherwise, at the respective exchange rates on 31 March 2003.
Impact on net debt | ||||
£billion |
$billion |
|||
Stake increases in subsidiary undertakings: | ||||
Acquisition of Acciona S.A.s 6.2% stake and a further 2.2% stake in Vodafone Spain | 1.8 | 2.8 | ||
Vodafone Netherlands | 0.5 | 0.8 | ||
Vodafone Sweden | 0.4 | 0.6 | ||
Vodafone AG (now Vodafone Holding GmbH) | 0.3 | 0.5 | ||
Vodafone Portugal | 0.2 | 0.3 | ||
Vodafone Greece | 0.2 | 0.3 | ||
Others | 0.1 | 0.2 | ||
Purchase of remaining 50% interest in Vizzavi | 0.1 | 0.2 | ||
Acquisition of further stakes in associated undertakings: | ||||
Purchase of SBC Communication Incs 15% stake in Cegetel Groupe S.A. | 1.4 | 2.2 | ||
Other associated undertakings | 0.1 | 0.2 | ||
Purchase of a further 1.1% stake in China Mobile | 0.5 | 0.8 | ||
Disposal of holding in Ruhrgas AG, and disposal of Arcors Telematik business | (0.7 | ) | (1.1 | ) |
4.9 | 7.8 | |||
As a result of the items discussed above and £826 million of foreign exchange movements, the Groups consolidated net debt position at 31 March 2003 increased to £13,839 million, from £12,034 million at 31 March 2002. This represented approximately 18% of the Groups market capitalisation at 31 March 2003 compared with 14% at 31 March 2002. Average net debt over the twelve month period ended 31 March 2003 was £11,783 million and ranged between £10,079 million and £13,839 million.
A further analysis of net debt, including a full maturity analysis, can be found in note 31 to the Consolidated Financial Statements, Analysis of net debt.
The Group remains committed to maintaining a solid credit profile, as currently demonstrated by its stable credit ratings of P-1/F1/A-1 short term and A2/A/A long term from Moodys, Fitch Ratings and Standard and Poors, respectively. Credit ratings are not a recommendation to purchase, hold or sell securities, in as much as ratings do not comment on market price or suitability for a particular investor, and are subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be evaluated independently.
The Groups credit ratings help it to have access to a wide range of debt finance including commercial paper, bonds and committed bank facilities. The Group currently has US and euro commercial paper programmes of $15 billion and £5 billion, respectively, which are used to meet short term liquidity requirements. The commercial paper facilities are supported by a $11.025 billion committed bank facility which, during the period up to and including 26 June 2003, may be
drawn down in full or in part for a period up to and including 27 June 2004. This facility replaced the Groups previous $13.7 billion committed bank facility and as at 31 March 2003 no amounts had been drawn under it. Additionally, the Group has a €15 billion Medium Term Note programme (€6.2 billion available to draw) and an $8 billion US shelf programme ($4.8 billion available to draw), both of which are used to meet medium to long term funding requirements.
The Group also has a ¥225 billion committed bank facility which was fully drawn down on 15 October 2002 and which matures on 15 January 2007. A €3.5 billion bank term loan, maturing in January 2006, which the Group put in place to fund the acquisition of interests in Cegetel Groupe S.A., was cancelled on 9 December 2002. At 31 March 2003, the Group had approximately £11.7 billion (pounds sterling equivalent) of capital market debt in issue, with maturities from April 2003 to November 2032, £2.5 billion (pounds sterling equivalent) of term funding and £0.2 billion of short term funding.
The following table provides both a summary of the Groups bond issues, each of which have been undertaken since 1 April 2002 for general corporate purposes, including working capital, and a summary of committed bank facilities currently available to the Group.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 43
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
Bond issues during 2003 financial year |
20 November 2002
$150m 4.161% bond with maturity 30 November 2007
26 November 2002
$495m 6.25% bond with maturity 30 November 2032
£450m 5.9% bond with maturity 26 November 2032
29 November 2002
€500m
4.625% bond with maturity 31 January 2008
18 December 2002
$500m 3.95% bond with maturity 30 January 2008
$400m 5.375% bond with maturity 30 January 2015
6 February 2003
€1,400m
4.25% bond with maturity 27 May 2009
25 February 2003
€500m
4.25% bond with maturity 27 May 2009
Bond issues since end of the 2003 financial year
10
April 2003
€250m 4.625% bond with maturity
31 January 2008, representing a reopening of the existing €500m
transaction from 29 November 2002, bringing the new bond size to €750m
€500m 5.125% bond with maturity 10 April 2015
$500m 5.375% bond with maturity 30 January 2015, representing a reopening of the existing $400m transaction from 18 December 2002, bringing the new bond size to $900m
28 May 2003
€750m
5% bond with maturity 4 June 2018
£150m 6.25% bond with maturity 10 July 2008, representing a reopening of the existing £250m transaction from 10 July 2001, bringing the new bond size to £400m
On 9 January 2003, a cash tender offer was announced to purchase three bonds issued by the Groups wholly owned subsidiary Vodafone Finance BV (previously Mannesmann Finance BV) and guaranteed by Vodafone Holding GmbH, also wholly owned. The offer resulted in a total cash payment of €3,782 million to acquire 50.0%, 54.1% and 71.4% of the 2004, 2005 and 2009 issues, respectively.
On 1 April 2003, the Group announced a cash tender offer to purchase $1,100 million of US dollar bonds and DEM 400 million bonds issued by its wholly owned subsidiary Vodafone Americas Inc. (previously AirTouch Communications, Inc.) and guaranteed by the Company. The offers expired on 11 April 2003 and, on 17 April 2003, the Group announced that, pursuant to these offers, it had purchased bonds in the principal amounts of $569,987,000 and DEM 308,360,000. With respect to the US dollar bonds, the offer resulted in a total cash payment of $658 million to acquire 68.9%, 45.6% and 50.0% of the 2005, 2006 and 2008 issues, respectively. With respect to the DEM bond, the offer resulted in a total cash payment of €175 million to acquire 77.1% of the issue.
Committed
Bank Facilities |
Amounts
drawn |
||
29 November 2001 | |||
¥225 billion term credit
facility maturing 15 January 2007, entered into by J-Phone Finance Co., Ltd. The term credit facility was available for drawing until 28 November 2002. |
The term credit facility
was drawn down in full on 15 October 2002. The facility is available for general corporate purposes, although amounts drawn must be on-lent to the Company. |
||
27 June 2002 | |||
$11.025 billion
364-day bank facility (with a one year term-out). The bank facility was increased from $10.65 billion to $11.025 billion on 26 July 2002 through the accession of a new lender. |
As of 31 March 2003, no
amounts had been drawn from the bank facility. The bank facility is available for general corporate purposes, including working capital, and serves as a back-up to the Group s commercial paper programmes. |
Under the terms and conditions of the $11.025 billion bank facility, lenders would have the right, but not the obligation, to cancel their commitment 30 days from the date of notification of a change of control of the Company and have outstanding advances repaid on the last day of the current interest period. The facility agreement provides for certain structural changes that do not affect the obligations of the Company to be specifically excluded from the definition of a change of control. This is in addition to the rights of lenders to cancel their commitment if the Company has committed an event of default.
Substantially the same terms and conditions apply in the case of J-Phone Finance Co., Ltds ¥225 billion term credit facility, although the change of control provision is applicable to any guarantor of borrowings under the term credit facility. As of 31 March 2003, the Company was the sole guarantor.
In addition, Japan Telecom Co., Ltd. and J-Phone Co., Ltd. have fully drawn bilateral facilities totalling ¥32,203 million (£172 million) and ¥77,655 million (£414 million), respectively. These bilateral bank facilities expire at various dates up until January 2009. During December 2002 to February 2003 Vodafone Holding GmbH in Germany repaid all of its fully drawn bilateral facilities totalling €562 million (£369 million), which had been due to expire in 2004 and 2006.
Furthermore, certain of the Groups subsidiary undertakings have committed facilities that may only be used to fund their operations. Vodafone Egypt has a partly drawn syndicated bank facility of EGP2.4 billion (£263 million) that expires on various dates between March 2004 and September 2007 and Vodafone Hungary has a partly drawn syndicated bank facility of €350 million (£237 million) that fully expires in 2008. In aggregate, the Group has committed bank facilities of approximately £9,262 million, of which £7,065 million was undrawn at 31 March 2003.
The Group believes that it has sufficient funding for its expected working capital requirements. Further details regarding the maturity, currency and interest rates of the Groups gross borrowings at 31 March 2003 are included in note 20 to the Consolidated Financial Statements, Financial liabilities and assets, included in this Annual Report.
As part of the agreements entered into upon the formation of Verizon Wireless, the Company entered into an Investment Agreement with Verizon Communications, formerly Bell Atlantic Corporation, and Verizon Wireless. Under
44 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
this agreement, dated 3 April 2000, the Company has the right to require Verizon Communications or Verizon Wireless to acquire interests in the Verizon Wireless partnership from the Company with an aggregate market value of up to $20 billion between July 2003 and July 2007 dependent on the value of the Companys 45% stake in Verizon Wireless. This represents a further potential source of liquidity to the Group.
Exercise of the option may occur in either one or both of two phases. The Phase I Option may be exercised during the periods commencing 30 days before and ending 30 days after either one or both of 10 July 2003 and 10 July 2004, and provides for the aggregate amount paid to not exceed $10 billion. The Phase II Option may be exercised during the periods commencing 30 days before and ending 30 days after any one or more of 10 July 2005, 10 July 2006 and 10 July 2007. The Phase II Option also limits the aggregate amount paid to $20 billion, less any amounts paid under Phase I, and also limits payment in respect of any single exercise to $10 billion. Determination of the market value of the Companys interests will be by mutual agreement of the parties to the transaction or, if no such agreement is reached within 30 days of the valuation date, by arbitrators. If an initial public offering takes place and the common stock trades in a regular and active market, the market value of the Companys interest will be determined by reference to the trading price of common stock.
On 26 November 2002, an option was granted to France Telecom over 43,561,703 shares (representing a 10.85% stake) in Vodafone Greece, following the purchase by the Group of 58,948,830 shares in Vodafone Greece from France Telecom. France Telecom may exercise this option (in whole or in part) at any time until maturity on 29 November 2004, at which time the Group would pay in cash the excess of Vodafone Greeces share price over €14.29 per share. At 31 March 2003 Vodafone Greeces share price was €5.02 per share. The option also expires when none of France Telecoms exchangeable notes maturing on 29 November 2004 with regard to Vodafone Greece remain outstanding.
With respect to interests in Vodafone Hungary, Antenna Hungaria RT has been granted call options (exercisable in whole or in part at any time until 9 October 2003) over shares issued in connection with equity injections in October 2001, April 2002 and June 2003, for which the contribution relating to Antenna Hungaria RTs pre October 2001 interest of 30% was made by a Group company. An option (also expiring on 9 October 2003), was granted to Antenna Hungaria RT on 23 January 2003 over certain of the shares acquired from RWE on this date, representing a maximum interest of 2.91%. If all of these options were to be exercised, Antenna Hungaria RTs stake in Vodafone Hungary would increase from 12.1% to 32.9%.
A call option has been granted to Alkan Ltd. over the 6 million shares (5% stake) of Vodafone Egypt acquired by the Group in a transaction with Alkan Ltd. that completed on 24 April 2003. The option is exercisable in whole or in part (subject to a minimum purchase in any one exercise of one-fifth of the total of 6 million shares) on any one or more occasions at anytime during the period from 24 April 2004 to 23 April 2005. The acquisition of the 6 million shares will not be accounted for as an acquisition of an equity stake. Hence, should the option be exercised by Alkan Ltd., the Groups effective ownership in Vodafone Egypt will be unaffected. Should the option not be exercised, at expiry of the option period on 23 April 2005, the acquisition cost will be accounted for as an increase in the Groups ownership in Vodafone Egypt.
A summary of the Groups principal contractual financial obligations is shown below. Further details on the items included can be found in the Notes to the Consolidated Financial Statements, as indicated in the table.
Payments
due by period £m (years) |
||||||||||
Contractual
obligations |
Total |
<1 |
1-4 |
4-5 |
>5 |
|||||
Short term debt (note 18) | 1,430 | 1,430 | | | | |||||
Long term debt (notes 19 and 20) | 13,175 | | 5,883 | 805 | 6,487 | |||||
Capital commitments (note 28) | 1,014 | 1,007 | 7 | |||||||
Operating lease commitments | ||||||||||
(note 27) | 2,706 | 531 | 969 | 217 | 989 | |||||
Total contractual cash | ||||||||||
obligations | 18,325 | 2,968 | 6,859 | 1,022 | 7,476 | |||||
The above table excludes commitments in respect of options over certain interests in Group businesses held by minority shareholders, as described above. Disclosures required by FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, are provided in note 29 to the Consolidated Financial Statements, Contingent liabilities.
Financial assets and liabilities
Details of the Groups treasury management and policies are set out below in Quantitative and Qualitative Disclosures About Market Risk. Analyses of financial assets and liabilities, including the maturity profile of debt, currency and interest rate structure, are included in notes 20 and 21 to the Consolidated Financial Statements Financial liabilities and assets and Financial instruments included in this Annual Report.
Quantitative and Qualitative Disclosures About Market Risk
The Groups treasury function provides a centralised service to the Group for funding, bank relationship management, investment management, foreign exchange, interest rate management and counterparty risk management. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed annually by the Companys Board of directors. The Group accounting function provides regular update reports of treasury activity to the Board of directors. The Group uses a number of derivative instruments that are transacted, for risk management purposes, by specialist treasury personnel. The internal control environment is reviewed regularly by the Groups internal and external auditors. There has been no significant change during the financial year, or since the end of the year, to the types of financial risks faced by the Group or the Groups approach to the management of those risks.
Funding and liquidity
The Groups policy is to borrow centrally, using a mixture of long term and short term capital market issues and borrowing facilities, to meet anticipated funding requirements. These borrowings, together with cash generated from operations, are lent or contributed as equity to some subsidiaries. The Board of directors has approved three debt protection ratios, being: net interest to operating cash flow (plus dividends from associated undertakings); retained cash flow (operating cash flow plus dividends from associated undertakings less interest, tax, dividends to minorities and equity dividends) to net debt; and operating cash flow (plus dividends from associated undertakings) to net debt. For each of these ratios, net debt includes financial guarantees and redeemable preference shares.
These internal ratios establish levels of debt which the Group should not exceed other than for relatively short periods of time and are shared with Moodys, Standard and Poors and Fitch.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 45
OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued |
Interest rate management
The Groups main interest rate exposures are to euro and yen and, to a lesser extent, dollar and sterling interest rates. Under the Groups interest rate management policy, interest rates on monetary assets and liabilities are maintained on a floating rate basis, unless the forecast interest charge for the next eighteen months is material in relation to forecast results in which case interest rates are fixed. In addition, fixing may be undertaken for longer periods when interest rates are statistically low. Therefore, the term structure of interest rates is managed within limits approved by the Board, using derivative financial instruments such as swaps, futures, options and forward rate agreements. At the end of the year, 9% (2002: 38%) of the Groups gross financial liabilities were fixed for the twelve month period ending 31 March 2004. Based on all interest rate sensitive instruments, a one hundred basis point rise in market interest rates for all currencies in which the Group had borrowings at 31 March 2003 would affect profit before taxation by approximately £90 million. The interest rate management policy has remained unaffected by the acquisitions completed during the financial year.
Foreign exchange management
The Groups policy is not to hedge its international assets with respect to foreign currency balance sheet translation exposure, since net tangible assets represent a small proportion of the market value of the Group and international operations provide risk diversity. However, 95% of net borrowings were denominated in currencies other than sterling (49% euro, 36% yen, 8% USD and 2% others) in anticipation of cash flows from profitable international operations and this provides a partial hedge against profit and loss account translation exposure. A relative weakening in the value of sterling against certain currencies of countries where the Group operates has resulted in a currency translation adjustment of £9,039 million credit to Group reserves in the year ended 31 March 2003 (2002: £2,263 million charge).
Foreign currency exposures on known future transactions are hedged, including those resulting from the repatriation of international dividends and loans above a certain de-minimus level. Forward foreign exchange contracts are the derivative instrument most used for this purpose.
A 10% strengthening of sterling against all currencies in which the Groups international net earnings are denominated would reduce the 2003 total Group operating loss by £595 million (2002: £1,156 million reduction).
Counterparty risk management
Cash deposits and other financial instrument transactions give rise to credit risks on the amounts due from counterparties. The Group regularly monitors these risks and the credit ratings of its counterparties and, by policy, limits the daily settlement and aggregate credit risk it may have with one counterparty. While the Group may be exposed to credit losses in the event of non-performance by these counterparties, it considers the possibility of material loss to be acceptable because of these control procedures. Additional information is set out in notes 20 and 21 to the Consolidated Financial Statements Financial liabilities and assets and Financial instruments.
Research and Development, Patents and Licences, etc.
The Group Research and Development (R&D) function was formed in April 2001 out of the Vodafone research and development teams in Newbury, Maastricht, Vodafone Pilotentwicklung in Munich and the Strategic Technology team in Walnut Creek, USA. Since then, centres of excellence in Milan and Madrid have been added, and the addition of a centre of excellence in Tokyo is being finalised, thereby creating an international and multicultural team for applied research in mobile communications and its applications.
The work of the Group R&D function is divided broadly into four categories. These categories are technical leadership and research support for the work of Group Strategy, research into technology that will typically start to be used in Vodafones business in three or more years time, leadership for the Groups work in international standards, and tactical development work largely on behalf of Global Products and Services. The Group R&D Steering Committee provides governance of Group R&D. The Group Strategy Director chairs this committee, and, along with the Group R&D Director, consists of the Chief technology officers from seven of the operating companies, together with the heads of Global Products and Services functions.
Group R&D focuses on applied research that is positioned between the basic research undertaken by universities and commercial product development. Since the Group is primarily a user of technology, rather than a developer of it, the emphasis of the Group R&D work programme is on enabling new applications of mobile telecommunications, using new technology for new services, research for improving operational efficiency and quality of the Groups networks, and providing technology vision and leadership that can contribute directly to business decisions. The work of the function is organised into five main streams: applied research; strategic technology studies; standards and industry fora; intellectual property development; and publicity and communications. The applied research and strategic technology studies are concerned with expanding business boundaries, customer behaviour, service development, telematics, terminals and smart cards, mobile telecommunications health and safety, radio technologies, network performance and optimisation, network architectures security and computing technologies.
Much of the work of Group R&D is done in collaboration with others, both within the Group and external to it. Group R&D also provides leadership for the Groups involvement with international standards, but many delegates and contributions are drawn from the operating companies. Group R&D provides the means to protect the Groups intellectual property, but the innovations that are protected come from across the operations and global functions. Whilst some projects within the research and development programme are carried out within the operating companies, infrastructure and handset suppliers work with Group R&D on many of its projects from providing equipment for trials, co-authoring research reports to being an integral part of and equal partner in some of the research and development programmes. At the more academic end of the spectrum of applied research, Group R&D is developing relationships with a number of universities. This includes sponsoring research students, collaboration in European research activities such as the forthcoming 6th Framework Programme, and funding specialised research activities such as the Smart Card Centre at Royal Holloway, University of London.
46 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
The research and development programme is shared with all subsidiaries of the Company and Group functions. They are able to influence the programme through the governance mechanism, management processes and working interfaces that are designed to allow delivery of the results of the programme directly into the business units where they are needed. An important aspect of the delivery process is the transfer of staff from the Group R&D function into other Group functions and the operating companies. This process has continued over the last year. The research and development programme provides the Group with long term technical policy, strategy and leadership, as well as providing technical underpinning for the Groups public policies and government relations.
The Group spent £164 million in the 2003 financial year on research and development, compared with £110 million in 2002 and £72 million in 2001. This expenditure was incurred principally on developing new products and services, billing systems and on network development.
This section contains certain management estimates and other forward-looking statements. See Cautionary Statement Regarding Forward-Looking Statements.
In the coming year, the Group anticipates growth of over 10% in average proportionate customers leading to growth in statutory revenues in the 2004 financial year compared with the 2003 financial year. The Group currently expects the loss per share in the 2004 financial year to be reduced compared with the loss per share for the 2003 financial year.
For the 2004 financial year, capitalised tangible fixed asset additions are anticipated to be approximately £5.0 billion, slightly higher than the £4.8 billion for the year ended 31 March 2003, mainly due to deferred investment from that year. The Group also expects to achieve a continued increase in net cash inflows from its operating activities.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 47
THE BOARD OF DIRECTORS AND THE GROUP EXECUTIVE COMMITTEE |
Directors and Senior Management
The business of the Company is managed by its Board of directors. The Companys Articles of Association provide that, until otherwise determined by ordinary resolution, the number of directors will not be less than three.
Biographical details of the directors and senior management are as follows:
Chairman
Lord MacLaurin of Knebworth, DL, aged 66, has been a member of the Board of directors since January 1997. He is Chairman of the Nominations Committee and a member of the Remuneration Committee. He was Chairman of Tesco Plc from 1985 to 1997, and has been a director of Enterprise Oil Plc, Guinness Plc, National Westminster Bank Plc and Whitbread Plc. Lord MacLaurin is a member of the Supervisory Board of Vodafone Holding GmbH.
Deputy Chairman
Paul Hazen, aged 61, has been a member of the Board of directors since June 1999 and became Deputy Chairman and the Boards nominated senior non-executive director in May 2000. He is Chairman of the Audit Committee and a member of the Nominations Committee. He became a director of AirTouch in April 1993. In 2001, he retired as Chairman and Chief Executive Officer of Wells Fargo & Company and its principal subsidiary, Wells Fargo Bank, NA. Mr Hazen is also a director of Safeway Inc., Phelps Dodge Corporation, Xstrata AG and E.piphany and he is Chairman of Accel-KKR.
Executive directors
Sir Christopher Gent, Chief Executive, aged 55, has been a member of the Board of directors since August 1985 and the Chief Executive of the Company since January 1997. He is a member of the Nominations Committee. He was the Managing Director of Vodafone Limited, the UK network operator, from January 1985 to December 1996. He is Chairman of the Supervisory Board of Vodafone Holding GmbH, a member of the Board of Representatives of the Verizon Wireless partnership, and a non-executive director of China Mobile (Hong Kong) Limited. Sir Christopher will retire as Chief Executive after the Annual General Meeting on 30 July 2003.
Arun Sarin, Chief Executive Designate, aged 48, has been a member of the Board of directors since June 1999 and was Chief Executive Officer fo the United States and Asia Pacific region until 15 April 2000, when he became a non-executive director. He was a director of AirTouch from July 1995 and was President and Chief Operating Officer from February 1997 to June 1999. He is presently a director of The Gap, Inc., The Charles Schwab Corporation and Cisco Systems, Inc. but will relinquish these directorships before the end of 2003. Arun Sarin joined the Executive Committee on 1 April 2003 and will succeed Sir Christopher Gent as Chief Executive after the Annual General Meeting on 30 July 2003.
Julian Horn-Smith, Group Chief Operating Officer, aged 54, has been a member of the Board of directors since June 1996. He was appointed Group Chief Operating Officer on 1 April 2001, having been Chief Executive of Vodafones Continental Europe businesses and a director of several of the Groups overseas operating companies. He is the Chairman of the Management Board of Vodafone Holding GmbH. He is also a non-executive director of Smiths Group Plc.
Peter Bamford, Chief Executive, Northern Europe, Middle East and Africa Region, aged 49, has been a member of the Board of directors since April 1998. He has responsibility for the Groups Northern Europe, Middle East and Africa businesses. He was Managing Director of Vodafone UK Limited until April 2001. Before joining Vodafone in 1997, Mr Bamford was a director of WH Smith Group Plc.
Vittorio Colao, Chief Executive, Southern Europe Region, aged 41, joined the Board of directors on 1 April 2002. He has had responsibility for the Groups businesses in Southern Europe since April 2001. He spent the early part of his career at McKinsey & Co, where he was a Partner, before joining Omnitel Pronto Italia SpA as its Chief Operating Officer. In 1999, he became the Chief Executive Officer of Omnitel Pronto Italia SpA (now operating as Vodafone). He is currently a member of the Aspen Institute and a non-executive director of RAS Insurance in Italy.
Thomas Geitner, Chief Executive, Global Products and Services, aged 48, has been a member of the Board of directors since May 2000. He is responsible for Vodafones initiatives on brand, global products, multinational accounts, technology, supply chain and the achievement of revenue and cost synergies between the operating companies. Prior to joining the Group, he was a member of the Management Board of RWE AG. He is Deputy Chairman of the Management Board of Vodafone Holding GmbH and a non-executive board member of Singulus Technologies AG.
Ken Hydon, Financial Director, aged 58, has been a member of the Board of directors since 1985. He is a Fellow of the Chartered Institute of Management Accountants, the Association of Chartered Certified Accountants and the Association of Corporate Treasurers. He is a director of several subsidiaries of the Company, a member of the Supervisory Board of Vodafone Holding GmbH and a member of the Board of Representatives of the Verizon Wireless partnership in the United States.
Non executive directors
Dr Michael Boskin, aged 57, has been a member of the Board of directors since June 1999 and is a member of the Remuneration Committee and the Audit Committee. He was a director of AirTouch from August 1996 to June 1999. He has been a Professor of Economics at Stanford University since 1971 and was Chairman of the Presidents Council of Economic Advisers from February 1989 until January 1993. He is also a director of Exxon Mobil Corporation, First Health Group Corp. and Oracle Corporation.
Professor Sir Alec Broers, aged 64, is the Vice-Chancellor of Cambridge University and President of the Royal Academy of Engineering. He first joined the Board of directors in January 1998. He is a member of the Nominations Committee and chairs the Vodafone Group Foundation and the Companys UK pension trustee company. He spent many years with IBM and is a Fellow of the Royal Society, the Institute of Electrical Engineers and the Institute of Physics. He is also a Foreign Associate of the US National Academy of Engineering.
Dr John Buchanan, aged 60, joined the Board on 1 April 2003. He is a member of the Audit Committee. He retired from the Board of BP plc in November 2002 after a long career with BP culminating in his appointment, in 1996, as Group Chief Financial Officer. He was a member of the United Kingdom Accounting Standards Board from 1997 to 2001 and is an independent director of AstraZeneca plc, BHP Billiton and Boots Group PLC.
Penny Hughes, aged 43, has been a member of the Board of directors since September 1998, and is the Chairman of the Remuneration Committee. Mrs Hughes has held posts with The Coca-Cola Company, Next Plc and Body Shop Plc and is currently a non-executive director of Scandinaviska Enskilda Banken AB, Trinity Mirror plc, The Gap, Inc. and Chairman of Web-Angel plc.
48 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Sir David Scholey CBE, aged 67, has been a member of the Board of directors since March 1998. He is a member of the Nominations Committee, Remuneration Committee and Audit Committee. He is Chairman of Close Brothers Group plc, a director of Anglo American plc and Chubb Corporation, USA and is an advisor to UBS Warburg, Mitsubishi Corporation and IBCA-Fitch. Sir David was formerly a director of the Bank of England and J Sainsbury Plc and a Governor of the British Broadcasting Corporation.
Jürgen Schrempp, aged 58, has been a member of the Board of directors since May 2000 and is a member of the Nominations Committee and Remuneration Committee. He has been Chairman of the Board of Management of DaimlerChrysler AG since 1998. From 1995 until 1998 he was Chairman of the Board of Management of Daimler-Benz AG. He serves on the supervisory board of Allianz AG and is a member of the Board of directors of the New York Stock Exchange and Sasol Ltd. He was a member of the Supervisory Board of Mannesmann AG until May 2000.
Members of the Group Executive Committee who are not also executive directors are regarded as senior managers of the Company. As at, and for the year ended, 31 March 2003, the Group Executive Committee comprised the executive directors, details of whom are shown above (with the exception of Arun Sarin who joined the Group Executive Committee on 1 April 2003) and the senior managers listed below. Bill Keever was also a member of the Group Executive Committee until 31 December 2002 when he stepped down as Chief Executive, Asia Region. Further details of the Group Executive Committee can also be found under Corporate Governance Directors and Organisation below.
Brian Clark, Chief Executive, Asia Pacific Region, aged 54, was appointed to this position on 1 January 2003. He joined the Group in 1997. He is now based in Japan, having led the Groups Pacific Region from Sydney until his recent move. Prior to joining the Group he was Managing Director and Chief Executive Officer of Telkom SA Ltd, South Africa. He is also a director of National Australia Bank Limited.
Alan Harper, Group Strategy Director, aged 46, joined Vodafone in 1995 as Group Commercial Director and he subsequently became Managing Director of Vodafone Limited, the UK network operating company. He was appointed Group Strategy Director in July 2000. Prior to joining the Group he held the post of Business Strategy Director with Mercury One2One and senior roles with Unitel and STC Telecoms. He is also a member of the Group Policy Committee.
Tomas Isaksson, Chief Executive, Americas Region, aged 49, was appointed to this position on 1 January 2002. Previously, from February 2000, he was President, Global Platform and Internet Services. Prior to that appointment he was Chief Executive of Europolitan Holdings AB (since renamed Europolitan Vodafone AB), Vodafones Swedish operating company. He is a member of the Board of Representatives of the Verizon Wireless partnership and a director of Grupo lusacell.
Jurgen von Kuczkowski, Chief Executive, Central Europe Region, aged 62, was appointed to this position on 1 April 2001. He joined Mannesmann Mobilfunk GmbH in October 1990 as Director of Sales and Distribution and was Chairman of the Board of Management.
Stephen Scott, Group General Counsel and Company Secretary, aged 49, was appointed to this position in the Group in 1991, prior to which he was employed in the Racal Group legal department, having moved into industry in 1980 from private law practice in London. He is a director of the Groups UK pension trustee company and insurance companies and is a member of the Group Policy Committee.
Phil Williams, Group Human Resources Director, aged 52, was appointed to this position in the Group in 1989. He is a director of several Group companies, a director of the Groups UK pension trustee company and a trustee of the Vodafone Group Foundation and is a member of the Group Policy Committee. Prior to joining the Group, he was Personnel Director with Costain and Burmah Castrol.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 49
DIRECTORS REPORT |
Review of the Groups Business
The Group is involved principally in the provision of mobile telecommunications services. A review of the development of the business of the Company and its subsidiary, joint venture and associated undertakings is contained elsewhere in this Annual Report. Details of the Companys principal subsidiary undertakings, associated undertakings and investments can be found on pages 120 and 121 of this Annual Report.
Future developments
The Group is currently involved in the expansion and development of its mobile telecommunications and related businesses as described elsewhere in this Annual Report.
Corporate governance
The directors are committed to business integrity and professionalism. As an essential part of this commitment the Board supports high standards of corporate governance and its statement on Corporate Governance is set out on pages 53 to 55 of this Annual Report. The Boards Report to Shareholders on Directors Remuneration on pages 56 to 66 of this Annual Report will be proposed for approval at the Companys Annual General Meeting on 30 July 2003.
Share capital
A statement of changes in the share capital of the Company is set out in note 23 to the Consolidated Financial Statements, Called up share capital on pages 104 and 105.
Purchase by the Company of its own shares
At the Annual General Meeting of the Company held on 31 July 2002, shareholders gave the Company permission, until the conclusion of the Annual General Meeting to be held in 2003 or until 31 October 2003, whichever is the earlier, to purchase up to 3,000,000,000 ordinary shares of the Company. A resolution for permission for the Company to renew and increase its authority to purchase its own shares will be proposed at the Annual General Meeting of the Company to be held on 30 July 2003.
The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the Regulations) will allow companies to hold such shares acquired by way of market purchase in treasury, rather than having to cancel them. The Regulations will come into force on 1 December 2003. Once the Regulations take effect, the Company would consider holding any of its own shares that it purchases pursuant to the authority as treasury stock. This may give the Company the ability to re-issue treasury shares quickly and cost-effectively, and could provide the Company with additional flexibility in the management of its capital base. The Financial Services Authority has commenced a consultation procedure to review any changes that may need to be made to the Listing Rules in the light of the Regulations. The Company will adhere to any changes which are made to the Listing Rules as a result of this process.
No dividends will be paid on shares whilst held in treasury and no voting rights will attach to the treasury shares. Whilst in treasury, the shares will be treated as if cancelled.
Results and dividends
The consolidated profit and loss account is set out on page 72 of this Annual Report.
The directors have proposed a final dividend for the year of 0.8983p per ordinary share, payable on 8 August 2003 to shareholders on the register of members at close of business on 6 June 2003. An interim dividend of 0.7946p per ordinary share was paid during the year, producing a total for the year of 1.6929p per ordinary share, a total dividend payment of approximately £1,154 million. The Company operates a dividend reinvestment plan, further details of which can be found on page 144 in this Annual Report.
Subsequent events
Details of material subsequent events are included in note 35 to the Consolidated Financial Statements, Subsequent events included in this Annual Report.
Charitable contributions
During the 2002 financial year, the Vodafone Group Foundation was created to consolidate and strengthen the commitment to local communities around the world. Professor Sir Alec Broers serves as Chairman of the trustees.
During the year ended 31 March 2003, the Company made cash charitable donations of £10.0 million to the Vodafone Group Foundation. In addition, operating companies donated a further £4.2 million to local Vodafone Foundations and a further £2.6 million directly to a variety of causes, including £1.0 million to the Italian earthquake victims. These donations total £16.8 million and include donations of £3.2 million made as required by the terms of certain network operating licences.
More details regarding the activities of the Vodafone Group Foundation and local Vodafone Foundations can be found in the Companys separate report on corporate social responsibility.
Political donations
At the Annual General Meeting on 31 July 2002, the directors sought and obtained shareholders approval to enable the Company to make donations to EU Political Organisations or incur EU Political Expenditure, under the relevant provisions of the Political Parties, Elections and Referendums Act 2000 (the Act). The approval given restricted such expenditure to an aggregate limit of £100,000 in the period of 12 months following the date of the Annual General Meeting. Although the Company had, and has, no intention of changing its current practice of not making political donations and will not do so without the specific endorsement of shareholders, the directors sought the approval on a precautionary basis, to avoid any possibility of unintentionally breaching the Act.
The Company has made no political donations during the year.
The directors propose, again on a precautionary basis, to seek a renewal of shareholders approval at the Annual General Meeting to be held on 30 July 2003.
Creditor payment terms
It is the Groups policy to agree terms of transactions, including payment terms, with suppliers and, provided suppliers perform in accordance with the agreed terms, it is the Groups normal practice that payment is made accordingly.
The number of days outstanding between receipt
of invoices and date of payment, calculated by reference to the amount owed
to trade creditors at the year end as a proportion of the amounts invoiced by
suppliers during the year, was 24 days (2002: 36 days) in aggregate for the
Group. The Company did not have any trade creditors at 31 March 2003.
50 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Research and development
The Group continues to pursue an active research and development programme for the enhancement of mobile telecommunications. Full details as to the Groups research and development programme and activities can be found under Operating and Financial Review and Prospects Research and Development, Patents and Licences, etc. elsewhere in this Annual Report.
Directors’ interests in the shares of the Company
The Boards Report to Shareholders on Directors Remuneration on pages 56 to 66 details the directors interests in the shares of the Company.
Directors’ interests in contracts
None of the current directors had a material interest in any contract of significance to which the Company or any of its subsidiary undertakings was a party during the financial year.
Employee involvement
The Boards aim is that employees understand the Companys strategy and are committed to the Vodafone Vision and Values.
The Groups vision is to be the worlds mobile communications leader enriching customers lives, helping individuals, businesses and communities be more connected in a mobile world.
Its values are:
• | Passion for customers. Our customers have chosen to trust us. In return, we must strive to anticipate and understand their needs and delight them with our service. |
• | Passion for our people. Outstanding people working together make Vodafone exceptionally successful. |
• | Passion for results. We are action-oriented and driven by a desire to be the best. |
• | Passion for the world around us. We will help the people of the world to have fuller lives both through the services we provide and through the impact we have on the world around us. |
Together, the Vision and Values provide a common understanding of where the Group is going and a common way of doing things. The Company is determined that they will flourish across every operating company, challenging everyone to understand them, own them and contribute to their delivery and a range of initiatives have been introduced to ensure this.
During the year, the Chief Executive, Sir Christopher Gent, and Group Chief Operating Officer, Julian Horn-Smith, have hosted a series of Your Call sessions. These are designed to demonstrate how the Vodafone Values are being applied across the business and give employees the opportunity to talk to Sir Christopher and Julian about the ways in which the Vision and Values have made a difference to their working lives. At 31 March 2003, Your Call had visited Australia, New Zealand, the United States, Germany, Italy, Spain, the UK and Portugal, with further visits planned to other countries.
The Board places a high priority on effective employee communications to promote the Values and other important messages and a wide range of mechanisms is used to achieve this. These include management presentations, in-house publications, team briefings, e-mail, intranet sites, employee focus groups and conferences.
The Group is implementing a global team briefing process for effectively sharing
information with all employees on key performance indicators for the business
and progress towards achieving our strategic objectives. Within our European
subsidiaries, employee representatives meet annually in a consultative forum
with representatives of the central management team to discuss the progress
of the Group and transnational issues.
The effectiveness of the Groups communications policies and the Groups standing as an employer is measured via Group wide surveys of employees conducted at regular intervals.
Employee education, training and development
Learning and development continue to be important elements in ensuring the future success of the Group. Policies to assist employees in reaching their full potential and a wide variety of learning opportunities are in place. This has been reinforced by the establishment of the Vodafone Global Campus, (a virtual corporate university) designed to align training and development to the business needs of the Group, to provide a global learning management system and to share training resources and best practices around the world.
Programmes of business-related further education and management development are sponsored by the Group. Over 50 early in their careers managers are now in the Global Leadership programme, studying for a Masters of Business Administration, or MBA, and, for some of the five-year programme, working in other countries and functions as part of their development. Other programmes are provided to help employees meet the training requirements of their chosen professional institution, thereby continuing to raise the level of professionalism in the Group.
Employment policies
The Groups employment policies are consistent with the principles of the United Nations Universal Declaration of Human Rights and the International Labour Organisation Core Conventions and are developed to reflect local legal, cultural and employment requirements. High standards are maintained wherever the Group operates as we aim to ensure that the Group is recognised as an employer of choice. Employees at all levels and in all companies are encouraged to make the greatest possible contribution to the Groups success.
The Group considers its relations with its employees to be good.
Equal opportunities
The Group operates an equal opportunities policy for all aspects of employment regardless of race, nationality, sex, marital status, disability or religious or political belief. In practice this means that the Group will select the best people available for positions on the basis of merit and capability, making the most effective use of the talents and experience of people in the business, providing them with the opportunity to develop and realise their potential.
The disabled
The directors are conscious of the special difficulties experienced by the disabled. In addition to giving disabled people full and fair consideration for all vacancies for which they offer themselves as suitable candidates, efforts are made to meet their special needs, particularly in relation to access and mobility. Where possible, modifications to workplaces have been made to provide access and, therefore, job opportunities for the disabled. Every effort is made to continue the employment of people who become disabled, not only by the provision of additional facilities but also training where appropriate.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 51
DIRECTORS' REPORT Continued |
Health, safety and wellbeing
The directors remain committed to ensuring the health, safety and wellbeing of employees at work and apply high standards throughout the organisation in the management and control of operations. These standards are designed to ensure that the Group properly safeguards those who work for it and those who may be affected by the Groups business including customers, contractors and local communities.
During 2003 financial year, the Company has strengthened its statement of Group Health and Safety policy to incorporate more specific requirements in respect of standards and responsibilities.
Each operating company reports annually to the Board on health and safety performance. During the year, there were no deaths due to building, maintenance or the Groups other work activities. Sadly, two employees were killed in road traffic accidents, one going to their normal workplace and the other while travelling on Vodafone business.
Standardised systems for recording and reporting accidents have been developed and introduced. These will enable the Group to measure safety performance on a consistent basis and to share the lessons and examples of best practice from around the Group.
Its health and safety professionals around the world are working together to build on the successes already achieved and helping to ensure the Group is able to properly safeguard everyone who may be affected by its activities.
Corporate social responsibility
A summary of the Companys corporate social responsibility policy is contained on pages 26 and 27 of the Annual Review and Summary Financial Statement, and on page 67 of this Annual Report. Further details are contained in the Companys separate report on corporate social responsibility.
Auditors
The Audit Committee has recommended the reappointment of Deloitte & Touche as auditors to the Company and, in accordance with section 384 of the Companies Act 1985, a resolution proposing their appointment will be put to the Annual General Meeting.
In addition to their statutory duties, Deloitte & Touche are also employed where, as a result of their position as auditors, they either must, or are best placed to, perform the work in question. This is primarily work in relation to matters such as shareholder circulars, Group borrowings, regulatory filings and business acquisitions and disposals. Other work is awarded on the basis of competitive tender.
During the year Deloitte & Touche charged £15 million (2002: £22 million) for non-audit assignments. An analysis of these fees can be found in note 5 to the Consolidated Financial Statements, Operating loss.
In their assessment of the independence of the auditors and in accordance
with the US Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, the Audit Committee receives in writing
details of relationships between Deloitte & Touche and the Company that
may have a bearing on their independence and receives confirmation that they
are independent of the Company within the meaning of the Securities Acts administered
by the Securities and Exchange Commission.
In addition, the Audit Committee reviews both the level of the audit fee against other comparable companies, including those in the telecommunications industry, and the level and nature of non-audit fees, as part of its review of the adequacy and objectivity of the audit process.
In a further measure to ensure auditor independence is not compromised, policies have been adopted to provide for the pre-approval by the Audit Committee of all audit and permitted non-audit services and fees by Deloitte & Touche. Should there be a requirement for audit or permitted non-audit services to be provided by Deloitte & Touche which have not previously been pre-approved by the Audit Committee, the policies provide that the Group Audit Director will consult with the Chairman of the Audit Committee, and in his absence another Audit Committee member, for pre-approval.
Deloitte & Touche have informed the directors that they are intending to transfer their business to a limited liability partnership incorporated under the Limited Liability Partnerships Act 2000. Other major accountancy firms are already limited liability partnerships.
Major shareholders
The Bank of New York, as custodian of the Companys American Depositary Receipt (ADR) programme, held approximately 11.01% of the Companys ordinary shares of $0.10 each at 23 May 2003 as nominee. The total number of ADRs outstanding at 23 May 2003 was 750,458,369. At this date, 985 holders of record of ordinary shares had registered addresses in the United States and in total held approximately 0.005% of the ordinary shares of the Company. The directors have been notified by The Capital Group Companies, Inc. that it is a holding company for several companies engaged in investment management, the clients of which, as at 23 May 2003, had an interest of 5.22% of the ordinary shares of the Company. The directors are not aware, as at 23 May 2003, of any other interest of 3% or more in the ordinary share capital of the Company. The Company is not directly or indirectly owned or controlled by any foreign government or any other legal entity. There are no arrangements known to the Company that could result in a change of control of the Company.
Going concern
After reviewing the Groups and Companys budget for the next financial year, and other longer term plans, the directors are satisfied that, at the time of approving the financial statements, it is appropriate to adopt the going concern basis in preparing the financial statements.
52 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
CORPORATE GOVERNANCE |
The Combined Code on corporate governance appended to and forming part of the UK Listing Authoritys Listing Rules requires companies listed on the London Stock Exchange to make a disclosure statement on the application of the principles of and compliance with the provisions of good governance set out in the Code.
The Company has been in compliance with the Combined Code provisions throughout the year ended 31 March 2003.
On 20 January 2003, the Higgs Review, (the Review) on the role and effectiveness of non-executive directors was published. The Review has continued the comply or explain philosophy of earlier UK corporate governance reports. The Review has published suggested revisions to the Combined Code (which also incorporate the recommendations of the separate Report of Sir Robert Smith in relation to audit committees) that are expected to be implemented later in 2003 after consideration by the Financial Reporting Council.
The Companys American Depositary Shares are listed on the New York Stock Exchange (NYSE) and the Company is therefore subject to the rules of the NYSE as well as US securities laws and the rules of the US Securities and Exchange Commission (SEC). In July 2002, the US Congress passed the Sarbanes-Oxley Act of 2002 which, together with consequent adoption of new rules by the SEC, has introduced a number of changes to the corporate governance requirements on both US domestic companies and non-US registered issuers such as the Company. Some of the changes are already in force. During the year, the Company established a Disclosure Committee with responsibility for reviewing and approving controls and procedures over the public disclosure of financial and related information, and other procedures necessary to enable the Chief Executive and Financial Director to provide their certifications of the Annual Report. The Company has also adopted a corporate code of ethics for senior financial officers.
The Board has reviewed all of the changes and proposed changes to compliance requirements and has concluded that the Company is in compliance with all those provisions which are currently in force. The Board is continuing to monitor closely developments in corporate governance.
The Companys Board of directors presently consists of fifteen directors, fourteen of whom served throughout the year ended 31 March 2003. As at 31 March 2003, in addition to the Chairman, Lord MacLaurin, there were six executive directors and seven non-executive directors. Paul Hazen is the nominated senior independent director.
Vittorio Colao joined the Board as an executive director on 1 April 2002. Dr John Buchanan joined the Board as a non-executive director on 1 April 2003. The Company considers all its present non-executive directors to be fully independent. The executive directors are Sir Christopher Gent (Chief Executive), Arun Sarin (Chief Executive Designate), Julian Horn-Smith, Peter Bamford, Vittorio Colao, Thomas Geitner and Ken Hydon. Sir Christopher will retire as Chief Executive after the Annual General Meeting on 30 July 2003. He will be succeeded as Chief Executive by Arun Sarin, who joined the Executive Committee on 1 April 2003.
The Companys Articles of Association provide that every director who was elected or last re-elected at or before the Annual General Meeting held in the third calendar year before the current year shall automatically retire. Accordingly, Lord MacLaurin, Ken Hydon, Thomas Geitner, Sir Alec Broers and Jürgen Schrempp will be retiring and, being eligible, will offer themselves for re-election
at the Companys Annual General Meeting to be held on 30 July 2003. Sir
Christopher Gent will be retiring but is not offering himself for re-election.
The Companys Articles of Association also provide that every director
appointed to the Board since the last Annual General Meeting shall retire.
Therefore, Dr John Buchanan will retire and, being eligible, will offer himself
for re-election.
The Board met on eight occasions in the financial year to 31 March 2003. Individual directors attendance was: Lord MacLaurin (8), Paul Hazen (7), Sir Christopher Gent (8), Julian Horn-Smith (8), Peter Bamford (8), Vittorio Colao (7), Thomas Geitner (8), Ken Hydon (8), Dr Michael Boskin (5), Sir Alec Broers (8), Penny Hughes (8), Arun Sarin (8), Sir David Scholey (8) and Jürgen Schrempp (5). In addition to the regular Board meetings, there were a number of other meetings to deal with specific matters.
The Board provides the effective leadership and control required for a listed company. Actual financial results are presented to each meeting, together with reports from the executive directors in respect of their areas of responsibility. The Chief Executive presents his report to each meeting which deals, amongst other things, with investor relations, giving Board members an opportunity to develop an understanding of the views of major investors. From time to time, the Board receives detailed presentations from non-Board members on matters of significance or on new opportunities for the Group. Financial plans, including budgets and forecasts, are regularly discussed at Board meetings. The non-executive directors periodically visit different parts of the Group and are provided with briefings and information to assist them in performing their duties. The non-executive directors (including the Chairman) regularly meet without executives present.
The Board is confident that all its members have the knowledge, talent and experience to perform the functions required of a director of a listed company. On appointment, all directors are provided with appropriate training and guidance as to their duties, responsibilities and liabilities as a director of a public and listed company and also have the opportunity to discuss organisational, operational and administrative matters with the Chairman, the Chief Executive and the Company Secretary. When considered necessary, more formal training is provided.
The Board has a formal schedule of matters specifically referred to it for decision, including the approval of Group commercial strategy, major capital projects, the adoption of any significant change in accounting policies or practices and material contracts not in the ordinary course of business. The directors have access to the advice and services of the Company Secretary and have resolved to ensure the provision, to any director who believes it may be required in the furtherance of his or her duties, of independent professional advice at the cost of the Company.
Performance evaluation of the Board, its committees and individual directors takes place on an annual basis.
The executive directors, together with certain other Group functional heads and regional Chief Executive Officers, meet on ten occasions each year as the Group Executive Committee under the chairmanship of the Chief Executive. This Committee is responsible for the day-to-day management of the Groups businesses, the overall financial performance of the Group in fulfilment of strategy, plans and budgets and Group capital structure and funding. It also reviews major acquisitions and disposals.
Two management committees, the Group Operational Review Committee and the Group Policy Committee, oversee, together with the Group Executive Committee, the execution of the Boards strategy and policy.
The Group Operational Review Committee, which meets ten times a year under the chairmanship of the Group Chief Operating Officer, comprises other executive directors, certain Group functional heads and regional Chief Executive Officers.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 53
CORPORATE GOVERNANCE Continued |
This Committee is responsible for the operational performance and achievement of targets of the Groups business, with a focus on the enhancement of voice services and growth of non-voice services, new global products and services, brand development, technology and other cost and revenue synergies within the Groups regions.
The Group Policy Committee, which meets eight times each year, is chaired by the Chief Executive. The Financial Director and the Group Chief Operating Officer, together with certain other Group functional heads, join him on the Committee, which is responsible for the determination of policy and the monitoring of non-operational areas of activity which are important to the Group overall, including strategy, finance, human resources, legal, regulatory and corporate affairs.
The standing Board committees are the Audit Committee, the Nominations Committee and the Remuneration Committee. The Constitution and terms of reference of these committees are published on the Companys website at www.vodafone.com.
The Audit Committee, which met on five occasions in the year, is comprised of financially literate members having the necessary ability and experience to understand financial statements. The Committee is chaired by Paul Hazen (5) and the other members of the Committee are Dr Michael Boskin (5), Dr John Buchanan and Sir David Scholey (5). Arun Sarin (4) served on the Committee during the year and resigned on 1 April 2003. Dr Buchanan joined the Committee on 1 April 2003.
Under its terms of reference the Committee is required, amongst other things, to oversee the relationship with the external auditors, to review the Companys preliminary results, interim information and annual financial statements, to monitor compliance with statutory and listing requirements for any exchange on which the Companys shares are quoted, to review the scope, extent and effectiveness of the activity of the Group Internal Audit Department and to investigate any activity within its terms of reference. At least twice a year the Audit Committee meets separately with the external auditors and the Group Audit Director without management being present. Further details on the oversight of the relationship with the external auditors can be found under Auditors on page 52.
The Nominations Committee met five times in the year and is chaired by Lord MacLaurin (5). The other members of the Committee are Sir Alec Broers (5), Sir Christopher Gent (5), Sir David Scholey (5) and Jürgen Schrempp (3). Paul Hazen joined the Committee on 1 April 2003. The Committee, which provides a formal and transparent procedure for the appointment of new directors to the Board, generally engages external consultants to advise on prospective Board appointees. This year, the Committee has been faced with the need to appoint a new Chief Executive and has also recommended the appointment of a further non-executive director. In both cases, detailed job profiles were agreed by the Committee before external search consultants were engaged to prepare shortlists of potentially suitable candidates. Only after a rigorous interview process were the appointments recommended to the Board.
The Remuneration Committee met six times in the year. The Committee is chaired by Penny Hughes (6). The other members of the Committee are Lord MacLaurin (6), Sir David Scholey (6), Dr Michael Boskin (4) and Jürgen Schrempp (5). The Boards Report to Shareholders on Directors Remuneration on pages 56 to 66 provides further information on this Committee.
Attendance is shown in parenthesis after each respective Committee member.
Internal Control and Disclosure Controls and Procedures
Introduction
The Board has established procedures that implement in full the Turnbull Guidance, Internal Control: Guidance for Directors on the Combined Code, for the year under review and to the date of approval of the Annual Report. These procedures, which are subject to regular review, provide an ongoing process for identifying, evaluating and managing the significant risks faced by the Group.
Responsibility
The Board has overall responsibility for the system of internal control. A sound system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The process of managing the risks associated with social, environmental and ethical impacts is discussed under Corporate Social Responsibility, below.
Control structure
The Board sets the policy on internal control that is implemented by management. This is achieved through a clearly defined operating structure with lines of responsibility and delegated authority. The Group Executive Committee, chaired by the Chief Executive, manages this on a day-to-day basis.
Written policies and procedures have been issued which clearly define the limits of delegated authority and provide a framework for management to deal with areas of significant business risk. These policies and procedures are reviewed and, where necessary, updated at the Group Policy Committee meetings, chaired by the Chief Executive.
Control environment
The Groups operating procedures include a comprehensive system for reporting information to the directors. This system is properly documented and regularly reviewed.
Budgets are prepared by subsidiary management and subject to review by both regional management and the directors. Forecasts are revised on a quarterly basis and compared against budget. When setting budgets and forecasts, management identifies, evaluates and reports on the potential significant business risks.
The Group Operational Review Committee and the Board review management reports on the financial results and key operating statistics.
Emphasis is placed on the quality and abilities of the Groups employees with continuing education, training and development actively encouraged through a wide variety of schemes and programmes. The Group has adopted a set of values to act as a framework for its people to exercise judgement and make decisions on a consistent basis.
Directors are appointed to associated undertakings and joint ventures and attend the board meetings and review the key financial information of those undertakings. Clear guidance is given to those directors on the preparation that should take place before these board meetings and their activity at the board meeting. It is the Groups policy that its auditors are appointed as auditors of associated companies and joint ventures, where possible.
The acquisition of any business requires a rigorous analysis of the financial and operational implications of the acquisition. A sensitivity analysis takes place of
54 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
the key assumptions made in the analysis.
Post investment appraisals of the Groups investments are conducted on
a periodic and timely basis. A Treasury Report is distributed electronically
on a daily basis that reports on treasury borrowings and investments. The Board reviews a half-yearly report detailing
any significant legal actions faced by Group companies. The Group Policy Committee monitors legal,
environmental and regulatory matters and approves appropriate responses or
amendments to existing policy. Monitoring and review activities There are clear processes for monitoring
the system of internal control and reporting any significant control failings
or weaknesses together with details of corrective action. A formal annual confirmation is provided
by the chief executive officer and chief financial officer of each Group company
detailing the operation of their control systems and highlighting any weaknesses.
Regional management, the Audit Committee and the Board review the results
of this confirmation. The Chief Executive and the Financial Director
undertake a review of the quality and timeliness of disclosures that includes
formal annual meetings with the regional chief executives and the Companys
Disclosure Committee. A Group Internal Audit Department, reporting
directly to the Audit Committee, undertakes periodic examination of business
processes on a risk basis and reports on controls throughout the Group. Reports from the external auditors, Deloitte
& Touche, on certain internal controls and relevant financial reporting
matters, are presented to the Audit Committee and management. Review of effectiveness The directors, the Chief Executive and the
Financial Director consider that the Groups internal controls and procedures
provide reasonable assurance that problems are identified on a timely basis
and dealt with accordingly. In reaching this conclusion, the directors, the
Chief Executive and the Financial Director have evaluated within the past
90 days the effectiveness of the system of internal control and the disclosure
controls and procedures through the monitoring process set out above. They
are not aware of any significant weakness or deficiency in the design or operation
of internal controls. The directors, the Chief Executive and the Financial Director have
concluded that the disclosure controls and procedures are effective for the
year under review and to the date of approval of the Annual Report. No matter how well designed and operated,
the directors, the Chief Executive and the Financial Director consider that
any controls and procedures can provide only reasonable and not absolute assurance
of achieving the desired control objectives. The Groups management is
required to apply judgement in evaluating the risks facing the Group in achieving
its objectives, in determining the risks that are considered acceptable to
bear, in assessing the likelihood of the risks concerned materialising, in
identifying the companys ability to reduce the incidence and impact
on the business of risks that do materialise and in ensuring the costs of
operating particular controls are proportionate to the benefit. There were no significant changes in the
Companys internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their most recent evaluation. The Company holds briefing meetings with
its major institutional shareholders in the UK, the US and in Continental
Europe, usually twice each year after the interim and preliminary final results
announcements, to ensure that the investing community receives a balanced
and complete view of the Groups performance and the issues faced by
the business. Telecommunications analysts of stockbrokers are also invited
to presentations of the financial results. The Company, through its Investor
Relations team, responds to enquiries from institutional shareholders. The principal communication with private
investors is through the provision of the Annual Review & Summary Financial
Statement, the interim results and the Annual General Meeting, an occasion
which generally is attended by all the Companys directors and at which
all shareholders present are given the opportunity to question the Chairman
and the Board as well as the Chairmen of the Audit, Remuneration and Nominations
Committees. All resolutions at the Companys Annual General Meetings
are decided on a poll. The proxy votes cast in relation to all resolutions
are disclosed to those in attendance at the meeting and the results of the
poll are published in national newspapers in the UK, US and Ireland. Financial
and other information is made available on the Companys web site, www.vodafone.com,
which is regularly updated. Vodafone
Group Plc Annual Report & Accounts
and Form 20-F 2003 55 The Board has delegated to the Remuneration
Committee the assessment and recommendation of policy on remuneration for
executive directors. At the 2002 Annual General Meeting (AGM)
shareholders approved a new remuneration policy (the Policy) the
key principles of which are as follows: The Policy was finalised only after extensive
consultation with shareholders and institutional bodies in 2001 and 2002.
Earlier this year the Chairman and the Chairman of the Remuneration Committee
again discussed remuneration matters with the Companys major shareholders
and relevant institutions to keep them informed of the Companys position.
The Policy provides a strong link between incentives and the Companys
strategy and sets a framework for remuneration that is consistent with the
Companys scale and scope. As at 23 May 2003, the Company was the eleventh
largest company in the world by market capitalisation, with operations in
five continents. The business has developed over fifteen years as a public
company and now serves almost 120 million proportionate registered customers
in 28 countries. The distribution of statutory total Group operating profit,
before goodwill amortisation and exceptional items, from mobile telecommunications
businesses at 31 March 2003 was as follows: At the 2003 AGM, shareholders will be invited
to vote on the Boards report to shareholders on directors remuneration.
The chart that follows shows the performance of the Company relative to the
FTSE 100 index and the FTSE Global Telecommunications index, which are the
most relevant indices for the Company. It should be noted that the performance
of the Company shown by the graph is not indicative of vesting levels under
the Companys various incentive plans. The performance of the Company during the
2003 financial year has been strong, with excellent growth announced on all
measures, as described elsewhere in this Annual Report. For example, Group
turnover, statutory total Group operating profit, before goodwill amortisation
and exceptional items, and profit before taxation, goodwill amortisation and
exceptional items, all increased by 30% or more over the prior year. The Remuneration Committee consists of independent
non-executive directors. Penny Hughes (Chairman), Dr Michael Boskin, Lord
MacLaurin, Sir David Scholey and Jürgen Schrempp all continue as members. The Chief Executive attends meetings of the
Remuneration Committee, except when his own remuneration is being discussed.
The Remuneration Committee met on six occasions during the year. The review of remuneration for 2003/04 has
included an extended consultation with a larger number of shareholders and
institutional bodies. The Remuneration Committee appointed and received advice
from Towers Perrin (market data and advice on market practice and governance)
and Kepler Associates (performance analysis and advice on performance measures
and market practice) and received advice from the Group Human Resources Director
and the Group Compensation and Benefits Director. As a result of this review,
the Remuneration Committee has concluded that the existing policy will remain
in place for the year ending 31 March 2004. It will be subject to regular
review in subsequent years and shareholders will be consulted on, and informed
of, any policy developments, as appropriate. The Policy was approved by shareholders in
2002. The Policy is set out below: The overriding objective of the Policy
on incentives is to ensure that Vodafone is able to attract, retain
and motivate executives of the highest calibre essential to the successful
leadership and effective management of a global company at the leading
edge of the telecommunications industry. To achieve this objective, Vodafone,
from the context of its UK domicile, takes into account both the UK
regulatory framework, including best practice in corporate governance,
shareholder views, political opinion and the appropriate geographic
and nationality basis for determining competitive remuneration, recognising
that this may be subject to change over time as the business evolves. The total remuneration will be benchmarked
against the relevant market. Vodafone is one of the largest companies
in Europe and is a global business; 56 Vodafone
Group Plc Annual Report & Accounts
and Form 20-F 2003 Vodafones policy will be to
provide executive directors with remuneration generally at levels that
are competitive with the largest companies in Europe. A high proportion of the total remuneration
will be awarded through performance-related remuneration, with phased
delivery over the short, medium and long term. For executive directors,
approximately 80% of the total expected remuneration will be performance-related. Performance measures will be balanced
between absolute financial measures and sector comparative measures
to achieve maximum alignment between executive and shareholder objectives. All medium and long term incentives
are delivered in the form of Vodafone shares and options. Executive
directors are required to comply with share ownership guidelines. The structure of remuneration for executive
directors under the Policy (excluding pensions) and the performance elements
on which they are based is illustrated below: Under the Policy, approximately 20% of the
potential remuneration of executive directors (excluding pensions) is comprised
of base salary and approximately 80% of incentive payments, which depend both
on the operational performance of the Group and the Companys share price,
reflecting the Companys commitment to ensuring strong linkage between
pay and performance. Therefore, the only guaranteed payment to executive directors
is their base salary. To set the performance conditions, the Committee
reviews the Companys strategy and selects the performance measures that
best align the incentive awards with achievement of the strategic goals. The
measures selected explicitly incentivise achievement of all the Groups
key financial performance indicators. The principles of the Policy are cascaded,
where appropriate, to employees in all subsidiary companies. Base salaries
and short term incentives (total cash) are benchmarked against relevant peer
companies in each market and are targeted to deliver total cash that is at
between median and top 25% in the relevant market. Incentive payments conditional
on business performance are provided to employees at levels that are competitive
in each local market. As described further below, substantially all employees
of subsidiary companies received options over shares in the Company in 2002. Report
on 2002/03 Executive Directors Remuneration and Subsequent Periods Total remuneration levels
Under the Policy, total remuneration levels
are benchmarked against other large European domiciled companies, using externally
provided pay data. Total remuneration for these purposes means the sum of
base salary, short, medium and long term incentives. The European focus was
selected because Europe is currently Vodafones major market and the
Company is one of the top ten companies in Europe by market capitalisation. Award levels for the Chief Executive were
set to deliver target total remuneration that is between the top 25% and the
top 10% of the remuneration levels of other chief executives of large European
companies. This range was selected to reflect Vodafones relative size
in this region and to recognise that Vodafone also has significant interests
outside of the region. The monetary values of the market data for this range,
based on theoretical expected value calculations, were from £3.4 million
to £9.3 million per annum for chief executives of large European companies.
Awards of short, medium and long term incentives were determined so that this
positioning would only be attained if the Company achieves exceptionally demanding
performance levels. The total remuneration levels of other executive
directors were set at approximately 65% of the Chief Executive level for the
Group Chief Operating Officer and at approximately 50% of the Chief Executive
level for the other executive directors. A similar approach is being undertaken to
determine total remuneration levels for the 2004 financial year. The monetary
values of the market data based on theoretical expected value calculations
for the same range are now from £5.6 million to £9.3 million per
annum for chief executives of large European companies. The change from the
prior year was not considered material when setting target remuneration levels
for the 2004 financial year. Components of executive directors
remuneration Overview Executive directors receive salary, short/medium
term incentives, medium/long term incentives and pension benefits. These are
explained further below. The vesting of all short, medium and long
term incentives is subject to the achievement of performance targets which
are set by the Remuneration Committee before the awards are granted. Salary Salaries are reviewed annually with effect
from 1 July and adjustments may be made to reflect competitive national pay
levels, the prevailing level of salary reviews within the Group, changes in
responsibilities and Group performance. Only base salary is used to determine
pension entitlement. Incentive awards Short/medium term incentive
Annual deferred share bonus This short/medium term incentive is aimed
at focusing executive directors on the business priorities for the next financial
year and is provided through the Vodafone Group Short Term Incentive Plan
(STIP). Vodafone
Group Plc Annual Report & Accounts
and Form 20-F 2003 57 The STIP comprises two elements: a base award
earned by achievement of one-year performance targets and an enhancement award.
The base award is delivered in the form of shares, receipt of which is deferred
for a further two years. An enhancement award of 50% of the number of shares
comprised in the base award may be payable, subject to the achievement of a
subsequent two-year performance target following the initial twelve-month period.
Release of the base award and the enhancement award after the total three-year
period is dependent upon the continued employment of the participant. Demanding base award performance targets are
set annually and are linked to business strategy. The performance measures for
2002/03 related to EBITDA, free cash flow and ARPU. The targets are not disclosed,
as they would give clear indication of the Companys business targets,
which are commercially sensitive. In 2003/04 data as a percentage of service
revenues and a customer satisfaction measure will be added to the above performance
measures. The target level for base awards granted to
executive directors for the year ended 31 March 2003 was 100% of salary with
a maximum of 200% of salary. Payments earned for the year total on average 133%
of salary, reflecting the excellent results which exceeded expectations. For enhancement shares, performance targets
are related to achievement of earnings per share (EPS) growth targets.
For the two years from 1 April 2002, the performance target was that the growth
in earnings per share, before goodwill amortisation and exceptional items, must
exceed the growth in the UK retail price index (UK RPI) by six percentage
points over the two year period. The Remuneration Committee has agreed that
for the two years from 1 April 2003, the required rate of growth over the UK
RPI will increase to 5% per annum. STIP awards from the 1999/2000 base performance
year vested in 2002. Details of STIP awards are given in the table on page 63. The Group may, at its discretion, pay a cash
sum of up to the value of the base award in the event that an executive director
declines the base award of shares. In these circumstances, the executive director
will not be eligible to receive the enhancement award. Medium/long term incentives
The Companys TSR performance is compared
to that of other companies in the FTSE Global Telecommunications index over
a three-year performance period to reward out-performance against the Companys
main competitors. Shares will vest only if the Company ranks
in the top half of the table with maximum vesting only if the Company is in
the top 20%, as the Remuneration Committee views performance in the bottom 50%
of this peer group as unacceptable to shareholders and performance in the top
20% as excellent. Vesting will also be conditional on underlying improvement
in the performance of the Company. Awards will only vest to the extent that
the performance condition has been satisfied at the end of the three-year performance
period and no retesting is permitted. The following graph illustrates the basis
on which the performance shares will vest:
The constituents of the FTSE Global Telecommunications index
as at July 2002, (applicable to 2002 awards), excluding the Company, were: Previously disclosed restricted share awards
granted in 1999 and 2000 vested in 2002.
Details are given in the table on page 63. Share options Share options are granted each year to executive
directors. The Vodafone Group Plc 1999 Long Term Stock Incentive Plan is the
vehicle for the provision of these incentive awards. The price at which shares
can be acquired on option exercise will be no lower than the market value
of the shares on the day prior to the date of grant of the options (or than
the average of the market values for the immediately preceding month in respect
of directors domiciled in Italy). Therefore, the share price has to rise above
the price at which the option was granted before option exercise is of value
to the executive director. Exercise of the options is subject to the achievement
of a performance condition. To focus executive directors on generating real
earnings growth and cash flow, EPS must grow by amounts in excess of the growth
in the UK RPI. EPS is defined as EPS, before goodwill amortisation and exceptional
items. One quarter of the option award will vest for achievement of EPS growth
of RPI plus 5% p.a. rising to full vesting for achievement of EPS growth of
RPI plus 15% p.a. over the performance period. The Remuneration Committees
advisers have confirmed that these targets are amongst the most demanding
of those set by large UK based companies as well as by the standards of the
Companys peers in Europe 58 Vodafone
Group Plc Annual Report & Accounts
and Form 20-F 2003
BOARDS
REPORT TO SHAREHOLDERS ON DIRECTORS REMUNERATION
•
the expected value of total
remuneration must be benchmarked against the relevant market;
•
a high proportion of total
remuneration is to be delivered through performance-related payments;
•
performance measures must
be balanced between absolute financial measures and sector comparative
measures to achieve maximum alignment between executive and shareholder
objectives;
•
the majority of performance-related
remuneration is to be provided in the form of equity; and
•
share ownership requirements
are to be applied to executive directors.
BOARDS
REPORT TO SHAREHOLDERS ON DIRECTORS REMUNERATION Continued
Performance shares
Performance shares are awarded to executive
directors each year. The Vodafone Group Plc 1999 Long Term Stock Incentive
Plan is the vehicle for the provision of these incentive awards. Vesting of
the performance shares depends upon the Companys relative TSR performance.
TSR measures the change in value of a share and reinvested dividends over
the period of measurement.
Alltel
Orange
AT&T
Qwest Communications International
AT&T Wireless Services
SBC Communications
BCE
Singapore Telecommunications
BellSouth
Sprint Corp-FON Group
BT Group
Sprint Corp-PCS Group
China Mobile (Hong Kong)
Swisscom
China Unicom
Telecom Italia
Deutsche Telekom
Telecom Italia Mobile
France Telecom
Telefonica
Japan Telecom
Telia
KDDI
Telstra Corp
Nippon Telegraph & Telephone
Verizon Communications
NTT Docomo
WorldCom Inc-WorldCom Group
Olivetti
<
and the US. Options will have a ten-year term and vesting will be after three years with the opportunity to measure performance again after years four and five from a fixed base year. To the extent that the performance condition has not been satisfied at the end of the five-year performance period, the options will lapse. The following graph illustrates the basis on which share options vest:
Illustration
Based on the analysis of externally provided market data on the total remuneration levels of chief executives of major European companies, the Chief Executive received in 2002 performance shares with a face value of one and three quarters-times salary and options with a face value of seven-times salary. The graph below illustrates the approximate pre-tax long term incentive gains to the Chief Executive that would be achieved based on various Company growth, EPS and TSR performance scenarios:
For example, if the Companys share price increases by over 60% from 120 pence to approximately 193 pence, the Companys value increases by £50 billion, and there is 50% vesting of long term incentives, the Chief Executive would have a pre-tax gain of just under £4 million, representing less than 0.008% of the total increase in shareholder value.
The awards of performance shares and share options were made to executive directors following the 2002 AGM on 31 July 2002.
It is intended that awards of performance shares and share options will be granted to executive directors on a similar basis in 2003.
Awards are delivered in the form of ordinary shares of the Company. All awards are made under plans that incorporate dilution limits that are set out in the Guidelines for Share Incentive Schemes published by the Association of British Insurers. The current estimated dilution from subsisting awards, including executive and all-employee share awards, is approximately 2.0% of the Companys share capital at 31 March 2003.
Share ownership guidelines
Executive directors participating in these long term incentive plans must comply with the Companys share ownership guidelines. These guidelines, which were first introduced in 2000, require the Chief Executive to have a shareholding in the Company of four times base salary and other executive directors to have a shareholding of three times base salary.
It is intended that these ownership levels will be attained within five years from the director first becoming subject to the guidelines and be achieved through the retention of shares awarded under long term incentive plans.
Pensions
Sir Christopher Gent, Julian Horn-Smith, Ken Hydon and Peter Bamford, being UK-based directors, are contributing members of the Vodafone Group Pension Scheme, which is a scheme approved by the Inland Revenue.
Peter Bamford, whose benefits under the Scheme are restricted by Inland Revenue earnings limits, also participates in the defined contribution Vodafone Group Funded Unapproved Retirement Benefits Scheme to enable pension benefits to be provided on his basic salary above the Inland Revenue earnings cap. Thomas Geitner participates in the Essener Verband Retirement Scheme. Vittorio Colao will receive retirement benefits in accordance with Italian National Collective Agreements. A contribution is made to a defined contribution plan for dirigenti in Vodafone Italy which includes the supplementary dirigenti contribution required under the national collective agreements. No other pension benefits are provided. Further details of the pension benefits earned by the directors in the year to 31 March 2003 can be found on page 62. Liabilities in respect of the pension schemes in which the executive directors participate are funded to the extent described in note 34 to the Consolidated Financial Statements, Pensions.
Other remuneration matters
All-employee share incentive schemes
GEM Options
In July 2002, share options were granted to all employees of subsidiary companies in all countries in which the Company operates, other than Japan and Sweden. A key objective of the grant was to promote the Vodafone vision, values and brand across the enlarged Group and to reinforce membership of the Groups worldwide employee community. Executive directors did not receive GEM options. Vittorio Colao received GEM options in 2001 prior to his appointment to the Board.
Sharesave Options
The Vodafone Group 1998 Sharesave Scheme is an Inland Revenue approved scheme open to all UK permanent employees.
The maximum that can be saved each month is £250 and savings plus interest may be used to acquire shares by exercising the related option. The options have been granted at up to a 20% discount to market value. UK based executive
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 59
BOARDS REPORT TO SHAREHOLDERS ON DIRECTORS REMUNERATION Continued |
directors are eligible to participate in the scheme and details of their participation are given in the table on page 65.
Share Incentive Plan
The Vodafone Share Incentive Plan (SIP) is an Inland Revenue approved plan open to all UK permanent employees. Eligible employees may contribute up to £125 each month and the trustee of the plan uses the money to buy shares on their behalf. An equivalent number of shares is purchased with contributions from the employing company. UK based executive directors are eligible to participate in the SIP and details of their share interests under these plans are given in the table on page 66.
Non-executive directors remuneration
The remuneration of non-executive directors is established by the whole Board, but the non-executive directors do not participate in the decision on their own remuneration. Basic fee levels were last increased in 2000. From 1 July 2002, an additional fee of £10,000 p.a. became payable for the responsibility of chairing a principal Board Committee, i.e. the Audit, Remuneration or Nominations Committee. Details of each non-executive directors remuneration are included in the table on the following page.
Non-executive directors are not eligible to receive awards under any of the Companys share schemes or other employee benefit schemes, nor does the Company make any contribution to their pension arrangements.
Certain non-executive directors held share options relating to their service with AirTouch. No options have been granted to non-executive directors in their capacity as non-executive directors of the Company.
Service contracts and appointments of directors
The Remuneration Committee has determined that, after an initial term that may be of up to two years duration, executive directors contracts should thereafter have rolling terms and be terminable on no more than one years notice. No payments should normally be payable on termination other than the salary due for the notice period and such entitlements under incentive plans and benefits that are consistent with the terms of such plans.
Details of the contract terms of the executive directors follow:
Current contract | Unexpired | Notice | ||||
start date | term | period | ||||
Sir Christopher Gent | 1 January 1997 | Indefinite | One year (retires | |||
31 December 2003) | ||||||
Peter Bamford | 1 April 1998 | Indefinite | One year | |||
Vittorio Colao | 22 July 1996 | Indefinite | Up to one year | |||
Thomas Geitner | 1 June 2001 | To 31 May | One year from | |||
2005 and then | June 2004 | |||||
indefinite | ||||||
Julian Horn-Smith | 4 June 1996 | Indefinite | One year | |||
Ken Hydon | 1 January 1997 | Indefinite | One year | |||
|
|
|
|
|
|
At the time of his appointment to the Board, Thomas Geitner was employed under a fixed term five-year service contract with Mannesmann AG (now Vodafone Holding GmbH) which was the normal contract arrangement for Mannesmann AG board members. Mr Geitner agreed, without recompense, to accept new terms such that from June 2004 his contract will be indefinite and terminable on one years notice.
There are no specific provisions for termination
payments under the terms of any of the executive directors service contracts.
In accordance with the National Collective Labour Agreement for dirigenti for industrial companies in Italy, Vittorio Colao is entitled to receive an end of service indemnity.
The appointment of the Chairman is subject to the terms of an agreement between the Company and Lord MacLaurin with an initial three-year term that began on 23 May 2000. In March 2003, the Chairman accepted the invitation of the Nominations Committee and the Board to continue in office. His appointment therefore continues on the terms of the original agreement, but may now be terminated by either party on one years notice. The Chairman is entitled to the provision of a car or car allowance.
In respect of non-executive directors, the policy is for the appointments to be for three year terms. Fees cease to be payable immediately upon termination of any appointments for any reason and no compensation is payable in respect of such termination.
Non-executive directors, other than the Chairman, but including the Deputy Chairman, Paul Hazen, are engaged on letters of appointment that set out their duties and responsibilities and confirm their remuneration in line with the policy described above.
John Buchanan was appointed to the Board as a non-executive director with effect from 1 April 2003 and he holds office on the same terms as other non-executive directors.
Appointment
of new Chief Executive and
retirement of current Chief Executive
On 18 December 2002, the Company announced the appointment of Arun Sarin as the new Chief Executive from after the 2003 Annual General Meeting on 30 July 2003. He commenced employment as Chief Executive Designate on 1 April 2003.
Arun Sarin will receive a basic salary of £1.1 million and the incentives and benefits that will form the remainder of his remuneration package will be consistent with the existing executive director remuneration policy described previously and comparable in quantum to that received by Sir Christopher Gent for the year ended 31 March 2003.
Arun Sarin has entered into a service contract that can be terminated by the Company at the end of an initial term of two years or at any time thereafter on one years notice. He is required to give the Company one years notice if he wishes to terminate the contract. There are no specific provisions for termination payments under the terms of the service contract.
Sir Christopher Gent will formally step down as Chief Executive at the end of the 2003 AGM on 30 July 2003 and, to enable an orderly transition, will retire from the Company on 31 December 2003. Sir Christopher will not receive a severance payment and his entitlements under the various incentive and retirement plans in which he participates will be determined by the standard rules applicable to retirement under each of these plans. All awards under the new remuneration policy and global market-related options granted under the previous policy provide for awards to be pro-rated for time and performance. Sir Christopher will not receive a salary increase, performance shares or share option awards in 2003.
60 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Audited information
Remuneration for the year to 31 March 2003
The remuneration of the directors for the year to 31 March 2003 was as follows:
Salary/fees |
Incentive
schemes |
Benefits |
Total |
|||||||||||||
2003 | 2002 | 2003 | (1) | 2002 | 2003 | (2) | 2002 | 2003 | 2002 | |||||||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Chairman | ||||||||||||||||
Lord MacLaurin | 432 | ` | 425 | | | 31 | 55 | 463 | 480 | |||||||
Deputy Chairman | ||||||||||||||||
Paul Hazen(3) | 105 | 98 | | | | | 105 | 98 | ||||||||
Chief Executive | ||||||||||||||||
Sir Christopher Gent | 1,270 | 1,192 | 1,586 | 1,184 | 40 | 40 | 2,896 | 2,416 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Executive directors | ||||||||||||||||
Peter Bamford | 691 | 649 | 843 | 644 | 31 | 32 | 1,565 | 1,325 | ||||||||
Vittorio Colao(4) | 469 | | 695 | | 9 | | 1,173 | | ||||||||
Thomas Geitner(4) | 556 | 500 | 694 | 499 | 23 | 22 | 1,273 | 1,021 | ||||||||
Julian Horn-Smith | 846 | 795 | 1,057 | 789 | 37 | 23 | 1,940 | 1,607 | ||||||||
Ken Hydon | 691 | 649 | 863 | 644 | 28 | 34 | 1,582 | 1,327 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-executive directors | ||||||||||||||||
Dr Michael Boskin | 65 | 65 | | | | | 65 | 65 | ||||||||
Professor Sir Alec Broers | 65 | 65 | | | | | 65 | 65 | ||||||||
Penny Hughes | 72 | 65 | | | | | 72 | 65 | ||||||||
Arun Sarin(5) | 65 | 65 | | | | 8 | 65 | 73 | ||||||||
Sir David Scholey | 65 | 65 | | | | | 65 | 65 | ||||||||
Jürgen Schrempp | 65 | 65 | | | | | 65 | 65 | ||||||||
Former directors(6) | | 79 | | | 510 | 535 | 510 | 614 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
5,457 | 4,777 | 5,738 | 3,760 | 709 | 749 | 11,904 | 9,286 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Notes: |
(1) |
These figures are the cash equivalent value of the base share awards under the Vodafone Group Short Term Incentive Plan applicable to the year ended 31 March 2003. These awards are in relation to the performance achievements above targets in EBITDA, before exceptional items, ARPU and free cash flow for the 2003 financial year. |
(2) | Benefits principally comprise cars and private health insurance. |
(3) | In January 2003, Paul Hazen received a deferred compensation payment of $88,851, which related to fees earned prior to the dissolution of the AirTouch board in 1999. |
(4) | Salary and benefits for Vittorio Colao and Thomas Geitner have been translated at the average exchange rate for the year of €1.5570:£1. |
(5) | Benefits for Arun Sarin have been translated at the average exchange rate for the year of $1.5446:£1. |
(6) |
Under the terms of an agreement, Sam Ginn, a former director of the Company, provides consultancy services to the Group and is entitled to certain benefits. The estimated value of benefits received by him to 31 March 2003 was £221,000, translated at the average exchange rate for the year of $1.5446:£1. Payments totalling £289,000 were made to a former director in the year pending recovery of the sum under the terms of an insured long term disability plan; a settlement in respect of sums claimed has been reached and no further payments will be made. |
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 61
BOARDS REPORT TO SHAREHOLDERS ON DIRECTORS REMUNERATION Continued |
The aggregate remuneration paid by the Company to its senior management* as a group for services in all capacities for the year ended 31 March 2003, is set out below. The aggregate number of senior management in the year ended 31 March 2003 was 7, compared to 8 in the year ended 31 March 2002.
2003 | 2002 | |||
£000 | £000 | |||
|
|
|||
Salaries and fees | 2,502 | 2,552 | ||
Incentive schemes** | 5,339 | 2,781 | ||
Benefits | 213 | 176 | ||
|
|
|||
8,054 | 5,509 | |||
|
|
* |
Aggregate remuneration for senior management is in respect of those individuals who were members of the Executive Committee as at or during the year ended 31 March 2003, other than executive directors. |
** |
Comprises incentive scheme information for senior management given on an equivalent basis to that disclosed for directors in the table on page 61. Details of share incentives awarded to directors and senior management are included in footnotes to the Short Term Incentive, Long Term Incentives and Share Options tables on pages 63 and 64. |
Pensions
Pension benefits earned by the directors in the year to 31 March 2003 were:
Total
accrued
benefit at
31 March
2003
|
(1) |
Change in
accrued
benefit over
the year
|
(1) |
Transfer
value at
31 March
2002
|
(2) |
Transfer
value at
31 March
2003
|
(2) |
Change in
transfer value
over year
less member
contributions
|
Change in
accrued
benefit
in excess
of inflation
|
Transfer
value
of change
in accrued
benefit net
of member
contributions
|
||||
Name of director | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||||
Sir Christopher Gent | 662.0 |
136.8 |
7,083.8 |
10,388.9 |
3,262.6 |
120.0 |
1,840.7 |
|||||||
Peter Bamford(3) | 19.0 |
3.6 |
147.2 |
217.4 |
66.8 |
3.1 |
32.3 |
|||||||
Thomas Geitner(4) | 45.5 |
21.1 |
228.4 |
510.7 |
282.3 |
20.3 |
227.3 |
|||||||
Julian Horn-Smith | 397.1 |
88.2 |
3,972.9 |
5,962.4 |
1,961.1 |
78.3 |
1,147.6 |
|||||||
Ken Hydon | 424.6 |
69.0 |
5,749.3 |
7,864.1 |
2,091.6 |
57.6 |
1,043.4 |
|||||||
Notes: |
(1) | The pension benefits earned by the directors are those which would be paid annually on retirement, on service to the end of the year, at the normal retirement age. Salaries have been averaged over three years where necessary in order to compare with Inland Revenue regulations. The increase in accrued pension excludes any increase for inflation. |
(2) | The transfer values have been calculated on the basis of actuarial advice in accordance with the Faculty and Institute of Actuaries Guidance Note GN11. No director elected to pay additional voluntary contributions. |
(3) | Contributions paid to a funded unapproved retirement benefit scheme for the benefit of Peter Bamford amounted to £141,075 in the year. |
(4) | In respect of Thomas Geitner the amounts as at the end of the previous year have been translated at an exchange rate for the year of €1.5570:£1. Other amounts have been translated at the year-end exchange rate of €1.4486:£1. |
In respect of Vittorio Colao, a contribution is made to a defined contribution plan for dirigenti in Italy which includes the supplementary dirigenti contribution required under the National Collective Agreements. In the 2003 financial year the contribution amounted to £4,939. This amount has been translated at the average exchange rate for the year of €1.5570:£1. No other pension benefits are provided.
In respect of senior management, the Group has made aggregate contributions of £457,617 into pension schemes.
62 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Directors interests in the shares of the Company
Short Term Incentive
Conditional awards of ordinary shares made to executive directors under the STIP, and dividends on those shares paid under the terms of the Companys scrip dividend scheme and dividend reinvestment plan, are shown below. STIP shares which vested and were sold or transferred during the year ended 31 March 2003 are also shown below.
Total interest in STIP at 1 April 2002 |
|
Shares conditionally
awarded during the
year as base award in
respect of 2001/2002
STIP awards |
Shares
conditionally
awarded during the
year as enhancement
shares in respect
of 2001/2002
STIP awards |
|
Number of shares
added during the
year through dividend
reinvestment |
|
Number
of
shares sold or
transferred during
the year in respect
of 1999/2000
STIP awards(1) |
|
Total interest in STIP
as
at 31 March 2003
|
|||||||||||||
In | Number | Number | ||||||||||||||||||||
Total | Value at | Value at | In | respect of | of | of | ||||||||||||||||
number | date of | date of | Total | respect | enhance- | base | enhance- | Total | ||||||||||||||
of | award | (2)(3) | award | (3) | number of | of base | ment | award | ment | value | (4) | |||||||||||
shares | Number | £000 | Number | £000 | shares | awards | shares | shares | shares | £000 | ||||||||||||
Sir Christopher Gent | 860,760 | | | | | 12,141 | 53,133 | 26,566 | 528,800 | 264,402 | 896 | |||||||||||
Peter Bamford | | 700,609 | 644 | 350,304 | 322 | 7,296 | | | 705,473 | 352,736 | 1,196 | |||||||||||
Thomas Geitner | | 202,971 | 187 | 101,486 | 93 | 2,113 | | | 204,380 | 102,190 | 346 | |||||||||||
Julian Horn-Smith | 469,731 | | | | | 6,618 | 29,665 | 14,832 | 287,903 | 143,949 | 488 | |||||||||||
Ken Hydon | 467,619 | | | | | 6,601 | 28,245 | 14,123 | 287,906 | 143,946 | 488 | |||||||||||
Notes: | |
(1) | Shares in respect of 1999/2000 STIP awards were transferred on 1 July 2002 and 13 November 2002. |
(2) | Previously disclosed within directors emoluments for the year ended 31 March 2002. |
(3) | Value at date of award is based on the purchase price of the Companys ordinary shares on 19 June 2002 of 91.97p. |
(4) | The value at 31 March 2003 is calculated using the closing middle market price of the Companys ordinary shares at 31 March 2003 of 113p. |
The aggregate number of shares conditionally awarded during the year as base award and enhancement shares to the Company’s senior management is 634,837. For a description of the performance and vesting conditions, see Short/medium term incentive on pages 57 and 58.
Long Term Incentives
Conditional awards of ordinary shares made to executive directors under the Vodafone Group Long Term Incentive Plan and Vodafone Group Plc 1999 Long Term Stock Incentive Plan, and dividends on those shares paid under the terms of the Companys scrip dividend scheme and dividend reinvestment plan, are shown below. Long Term Incentive shares that vested and were sold or transferred during the year ended 31 March 2003 are also shown below.
Total
interest in
Long Term Incentives
at 1 April
2002 |
|
Number of shares
conditionally awarded
during the year |
|
Number of
shares added
during the
year through
dividend
reinvestment |
|
Number of
shares forfeited
in respect of
1999/2000
and 2000/2001
awards |
|
Number
of
shares sold or
transferred in
respect of
1999/2000 and
2000/2001
awards |
|
Total interest in
Long Term Incentives
at 31 March 2003 |
|
|||||||
Value at | ||||||||||||||||||
date of | Number | Total | ||||||||||||||||
award | (3) | of | value | (5) | ||||||||||||||
Plan (1)(2) | Number | Number | £000 | Number | Number | Number | (4) | shares | £000 | |||||||||
Sir Christopher Gent | 1 |
936,024 | 2,192,010 | 2,126 | 27,684 | 128,467 | 64,233 | 2,963,018 | 3,348 | |||||||||
2 |
1,620,793 | | | 12,564 | | 1,633,357 | | | ||||||||||
Peter Bamford | 1 |
504,036 | 1,022,938 | 992 | 13,844 | 66,196 | 33,098 | 1,441,524 | 1,629 | |||||||||
Vittorio Colao | 1 |
| 689,237 | 669 | 4,785 | | | 694,022 | 784 | |||||||||
Thomas Geitner | 1 |
224,454 | 783,118 | 760 | 8,747 | | | 1,016,319 | 1,148 | |||||||||
Julian Horn-Smith | 1 |
577,344 | 1,336,082 | 1,296 | 17,041 | 71,725 | 35,863 | 1,822,879 | 2,060 | |||||||||
2 |
648,316 | | | 5,025 | | 653,341 | | | ||||||||||
Ken Hydon | 1 |
507,164 | 1,022,938 | 992 | 13,869 | 68,298 | 34,149 | 1,441,524 | 1,629 | |||||||||
2 |
648,317 | | | 5,025 | | 653,342 | | | ||||||||||
Notes: | |
(1) | Restricted share awards under the Vodafone Group Long Term Incentive Plan. |
(2) | Restricted share awards under the Vodafone Group Plc 1999 Long Term Stock Incentive Plan. |
(3) | The value of awards under the Vodafone Group Plc 1999 Long Term Incentive Plan is based on the purchase price of the Companys ordinary shares on 1 August 2002 of 97p. |
(4) | Shares in respect of 1999/2000 and 2000/2001 awards were sold or transferred on 1 July 2002 and 13 November 2002. |
(5) | The value at 31 March 2003 is calculated using the closing middle market price of the Companys ordinary shares at 31 March 2003 of 113p. |
The aggregate number of shares conditionally awarded during the year to the Company’s senior management is 2,199,083 shares. For a description of the performance and vesting conditions see Medium/long term incentives on pages 58 and 59.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 63
BOARD’S REPORT TO SHAREHOLDERS ON DIRECTORS’ REMUNERATION Continued |
Share options
The following information summarises the directors options under the Vodafone Group Plc Savings Related Share Option Scheme, the Vodafone Group 1998 Sharesave Scheme, the Vodafone Group Plc Executive Share Option Scheme and the Vodafone Group 1998 Company Share Option Scheme, which are all Inland Revenue approved schemes. The table also summarises the directors options under the Vodafone Group Plc Share Option Scheme, the Vodafone Group 1998 Executive Share Option Scheme, the AirTouch Communications, Inc. 1993 Long Term Stock Incentive Plan and the Vodafone Group Plc 1999 Long Term Stock Incentive Plan, which are not Inland Revenue approved. No other directors have options under any of these schemes. Only under the Vodafone Group 1998 Sharesave Scheme may shares be offered at a discount in future grants of options.
Weighted | ||||||||||||||||
Options held at | Options |
Options | average | Earliest | ||||||||||||
1 April 2002 | granted |
exercised | Options | Options | exercise | date from | Latest | |||||||||
or date of | during |
during the | lapsed during | held at | price at | which | expiry | |||||||||
appointment | the year |
(1) | year | the year | 31 March 2003 | 31 March 2003 | exercisable | date | ||||||||
Number | Number | Number | Number | Number | Pence | |||||||||||
Sir Christopher Gent | 16,085,639 | 9,294,123 | 14,375 | | 25,365,387 | 166.8 | Jul 00 | Jul
12 |
||||||||
Peter Bamford | 7,861,728 | 4,350,652 | | 7,627 | 12,204,753 | 166.0 | Jul 00 | Jul 12 |
||||||||
Vittorio Colao(2) | 100,146 | 2,911,465 | | | 3,011,611 | 99.2 | Jul 04 | Jul 12 |
||||||||
Thomas Geitner | 7,689,301 | 3,507,178 | | | 11,196,479 | 173.2 | Jul 03 | Jul 12 |
||||||||
Julian Horn-Smith | 10,352,949 | 5,776,841 | 330,375 | 5,314 | 15,794,101 | 151.7 | Jul 00 | Jul 12 |
||||||||
Ken Hydon | 8,363,852 | 4,350,652 | 14,375 | 4,576 | 12,695,553 | 159.6 | Jul 00 | Jul 12 |
||||||||
Arun Sarin(3),(4) | 11,250,000 | | | | 11,250,000 | 194.2 | Jun 99 | Jul 06 |
||||||||
61,703,615 | 30,190,911 | 359,125 | 17,517 | 91,517,884 | ||||||||||||
Notes: | |
(1) | The weighted average exercise price of options over shares in the Company granted during the year and listed above is 97 pence. The earliest date from which they are exercisable is August 2005 and the latest expiry date is July 2012. For a description of the performance and vesting conditions see Medium/long term incentives on pages 58 and 59. |
(2) | On 4 November 2002, as a consequence of a financial restructuring of the Groups holding companies, the vesting of options over Vodafone Italy shares granted to Vittorio Colao prior to his appointment to the Board was accelerated and the options became exercisable and were exercised. One third of the net proceeds of €3,433,914 arising on exercise was used to buy shares in Vodafone Group Plc. To redress the shortened option term, Vittorio Colao was granted a further option on 17 December 2002 over 10,355 shares in Vodafone Omnitel N.V., at an exercise price of €1,381.02, which will vest and become exercisable on 30 June 2003, the original vesting date of the Vodafone Italy options. These options will lapse on 1 July 2003 if not exercised. All future option grants to Vittorio Colao will be made over Vodafone Group Plc shares. |
(3) | All options held by Arun Sarin are held in the form of American Depositary Shares, each representing ten ordinary shares of the Company, which are traded on the New York Stock Exchange. The number of ADSs over which Arun Sarin holds options is 1,125,000. |
(4) | The terms of Arun Sarins share options allow exercise until the earlier of the date on which Arun Sarin ceases to be a director of the Company and the seventh anniversary of the respective dates of grant. The weighted average exercise price of options held by Arun Sarin has been translated at the average exchange rate for the year of $1.5446:£1. |
The aggregate number of options granted during the year to the Companys senior management is 18,487,814. The weighted average exercise price of the options granted to senior management during the year is 93.1 pence. The earliest date from which they are exercisable is 1 July 2005 and the latest expiry date is 31 July 2012. The weighted average exercise price of options granted to US-based senior management has been translated at the average exchange rate for the year of $1.5446:£1.
Further details of options outstanding at 31 March 2003 are as follows:
Exercisable |
Exercisable |
Not yet
exercisable |
|||||||||||||||
Market
price greater than
option price(1) |
Option
price greater than
market price(1) |
||||||||||||||||
Options
held |
Weighted
average
exercise
price |
Latest
expiry
date |
Options
held |
Weighted
average
exercise
price |
Latest
expiry
date |
Options
held |
Weighted
average
exercise
price |
Earliest
date
from which
exercisable |
|||||||||
Number |
Pence |
Number |
Pence |
Number |
Pence |
||||||||||||
Sir Christopher Gent | 178,000 | 58.7 | Jul 04 |
1,052,500 | 192.3 | Jul 09 |
24,134,887 | 166.5 | Jul 03 | ||||||||
Peter Bamford | 150,500 | 58.7 | Jul 04 |
563,500 | 181.5 | Jul 09 |
11,490,753 | 166.7 | Jul 03 | ||||||||
Vittorio Colao | | | |
| | |
3,011,611 | 99.2 | Jul 04 | ||||||||
Thomas Geitner | | | |
| | |
11,196,479 | 173.2 | Jul 03 | ||||||||
Julian Horn-Smith | 1,254,500 | 58.7 | Jul 04 | 320,000 | 189.3 | Jul 09 |
14,219,601 | 159.1 | Jul 03 | ||||||||
Ken Hydon | 1,044,000 | 58.7 | Jul 04 | 348,500 | 191.0 | Jul 09 |
11,303,053 | 168.0 | Jul 03 | ||||||||
Arun Sarin(2) | 5,000,000 | 104.40 | Apr 05 | 6,250,000 | 266.09 | Jul 06 |
| | | ||||||||
7,627,000 | 8,534,500 | 75,356,384 | |||||||||||||||
Notes: | |
(1) | The market price is the closing middle market price of the Companys ordinary shares at 31 March 2003 of 113p. |
(2) | Arun Sarins share options are in respect of American Depositary Shares, each representing ten ordinary shares in the Company, which are traded on the New York Stock Exchange. The number and option price have been converted into the equivalent amounts for the Companys ordinary shares, with the option price being translated at the average exchange rate for the year of $1.5446:£1. |
64 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
The Companys register of directors interests (which is open to inspection) contains full details of directors shareholdings and options to subscribe. These options by exercise price were:
Option
price |
Options |
|||||||||||
held
at |
Options |
Options |
Options |
Options |
||||||||
1
April 2002 |
granted |
exercised |
lapsed |
held
at |
||||||||
or
date of |
during
the |
during
the |
during
the |
31
March |
||||||||
appointment |
year |
year |
year |
2003 |
||||||||
Pence |
Number |
Number |
Number |
Number |
Number |
|||||||
Vodafone
Group Plc Executive Share Option Scheme (Approved 1988) |
||||||||||||
Vodafone
Group Plc Share Option Scheme (Unapproved 1988) |
||||||||||||
Vodafone
Group 1998 Company Share Option Scheme (Approved) |
||||||||||||
Vodafone
Group 1998 Executive Share Option Scheme (Unapproved) |
||||||||||||
48.3 | 316,000 | 316,000 | | |||||||||
58.7 | 2,627,000 | 2,627,000 | ||||||||||
155.9 | 1,520,500 | 1,520,500 | ||||||||||
164.49 | 100,146 | 100,146 | ||||||||||
255.0 | 764,000 | 764,000 | ||||||||||
282.3 | 1,522,500 | 1,522,500 | ||||||||||
Vodafone Group Plc Savings Related Share
Option Scheme (1988) Vodafone Group 1998 Sharesave Scheme |
||||||||||||
48.0 | 43,125 | 43,125 | | |||||||||
70.92 | | 50,126 | 50,126 | |||||||||
127.0 | 17,517 | 17,517 |
| |||||||||
AirTouch Communications, Inc. 1993 Long Term Incentive Plan(1) | ||||||||||||
104.23 | 5,000,000 | 5,000,000 | ||||||||||
Vodafone Group Plc 1999 Long Term Stock Incentive Plan | ||||||||||||
97.0 | | 30,140,785 | 30,140,785 | |||||||||
151.56 | 2,796,100 | 2,796,100 | ||||||||||
157.5 | 24,943,043 | 24,943,043 | ||||||||||
266.09 | 6,250,000 | 6,250,000 | ||||||||||
291.5 | 15,803,684 | 15,803,684 | ||||||||||
61,703,615 | 30,190,911 | 359,125 | 17,517 |
91,517,884 | ||||||||
Note: | |
(1) | These share options are in respect of American Depositary Shares, each representing ten ordinary shares in the Company, which are traded on the New York Stock Exchange. The number and option price have been converted into the equivalent amounts for the Companys ordinary shares, with the option price being translated at the average exchange rate for the year of $1.5446:£1. |
Details of the options exercised by directors of the Company in the year to 31 March 2003, are as follows:
Options exercised | Market price | Gross | ||||||
during the | Option | at date of | pre-tax | |||||
year | price | exercise | gain | |||||
|
||||||||
Number | Pence | Pence | £000 | |||||
|
||||||||
Sir Christopher Gent | 14,375 | 48.0 | 84.25 | 5.2 | ||||
Julian Horn-Smith | 14,375 | 48.0 | 98.5 | 7.3 | ||||
316,000 | 48.3 | 114.5 | 209.2 | |||||
Ken Hydon | 14,375 | 48.0 | 84.25 | 5.2 | ||||
|
||||||||
359,125 | 226.9 | |||||||
|
Note: |
The aggregate gross pre-tax gain made on the exercise of share options in the year by the above Companys directors was £226,873 (2002: £129,328). The closing middle market price of the Companys shares at the year end was 113p, its highest closing price in the year having been 131.25p and its lowest closing price having been 80.5p. |
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 65
BOARD’S REPORT TO SHAREHOLDERS ON DIRECTORS’ REMUNERATION Continued |
Beneficial interests
The directors beneficial interests in the ordinary shares of the Company, which includes interests in the Vodafone Group Profit Sharing Scheme and the Vodafone Share Incentive Plan, but which excludes interests in the Vodafone Group Share Option Schemes, the Vodafone Group Short Term Incentive or in the Vodafone Group Long Term Incentives, are shown below:
23 May 2003 | 31 March 2003 | 1 April 2002 or date of appointment |
||||
Lord MacLaurin | 94,495 | 94,495 | 87,170 | |||
Sir Christopher Gent | 3,340,951 | 3,340,951 | 2,199,552 | |||
Peter Bamford | 258,748 | 258,336 | 218,199 | |||
Vittorio Colao(1) | 643,848 | 643,848 | Nil | |||
Thomas Geitner | 12,350 | 12,350 | 12,350 | |||
Julian Horn-Smith | 1,448,841 | 1,448,427 | 858,890 | |||
Ken Hydon | 1,836,232 | 1,835,818 | 1,348,483 | |||
Paul Hazen(2) | 360,900 | 360,900 | 422,450 | |||
Dr Michael Boskin(3) | 212,500 | 212,500 | 212,500 | |||
Professor Sir Alec Broers | 19,099 | 19,099 | 19,024 | |||
Dr John Buchanan(4) | Nil | N/a | N/a | |||
Penny Hughes | 22,500 | 22,500 | 22,500 | |||
Arun Sarin(5) | 4,832,560 | 4,832,560 | 4,832,560 | |||
Sir David Scholey | 50,000 | 50,000 | 50,000 | |||
Jürgen Schrempp | Nil | Nil | Nil | |||
Notes: | |||
(1) | These shares are held in escrow and will be released on 30 June 2003. | ||
(2) | Paul Hazens interest reduced as previously held family beneficial interests over 61,550 shares are no longer held. | ||
(3) | On 14 August 1996, prior to the Companys merger with AirTouch, Dr Michael Boskin entered into an agreement with AirTouch to provide him with a $100,000 unsecured promissory note facility for the purpose of financing the purchase of AirTouch common stock pursuant to the 1993 Long Term Incentive Plan, bearing interest at a market rate. On 8 January 2003, Dr Michael Boskin repaid the loan and accumulated interest in full. | ||
(4) | John Buchanan was appointed to the Board on 1 April 2003. | ||
(5) | Arun Sarin also has a non-beneficial interest as the trustee of two family trusts, each holding 5,720 shares. |
In July 2000, Sir Christopher Gent undertook to acquire and maintain a shareholding of two million shares within twelve months and Julian Horn-Smith and Ken Hydon each undertook to maintain a shareholding of not less than 500,000 shares. The directors have complied with these undertakings.
Changes to the interests of the directors of the Company in the ordinary shares of the Company during the period 1 April 2003 to 23 May 2003 relate to shares acquired either through Vodafone Group Personal Equity Plans or the Vodafone Share Incentive Plan. As at 31 March 2003 and during the period 1 April 2003 to 23 May 2003, no director had any interest in the shares of any subsidiary company except for Julian Horn-Smith who owned 18,000 ordinary shares of Vodafone Greece, and Vittorio Colao and Thomas Geitner who each owned 10 ordinary shares of Vodafone Portugal.
Other than those individuals included in the table above who were Board members as at 31 March 2003, members of the Groups Executive Committee, other than executive directors, as at 31 March 2003, had an aggregate beneficial interest in 1,455,118 ordinary shares of the Company and, as at 23 May 2003, had an aggregate beneficial interest in 1,461,894 ordinary shares of the Company, none of whom had an individual beneficial interest amounting to greater than 1% of the Companys ordinary shares.
Interests in share options of the Company at 23 May 2003
At 23 May 2003, there had been no change to the directors interests in share options from 31 March 2003.
Other than those individuals included in the table above, as at 23 May 2003, members of the Groups Executive Committee, other than executive directors, as at 31 March 2003, held options for 28,141,475 ordinary shares at prices ranging from 48.3 pence to 291.5 pence per ordinary share, with a weighted average exercise price of 156.9 pence per ordinary share exercisable at dates ranging from July 1999 to August 2012, and options for 2,011,659 ADSs at prices ranging from $13.65 to $58.69 per ADS, with a weighted average exercise price of $24.99 per ADS, exercisable at dates ranging from June 1999 to July 2012.
Lord MacLaurin, Paul Hazen, Dr Michael Boskin, Professor Sir Alec Broers, Dr John Buchanan, Penny Hughes, Sir David Scholey and Jürgen Schrempp held no options at 23 May 2003.
The number and option price of the outstanding share options at 23 May 2003 have been converted into the equivalent amounts of the Companys ordinary shares with the option price being translated at $1.6376 per £1.00, the Noon Buying Rate in the City of New York for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York on 23 May 2003.
66 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL ISSUES |
Business success is based on the ability to create and maintain meaningful relationships with key stakeholder groups. These groups include customers, shareholders, employees, suppliers, regulators and local communities. These groups have interests that extend beyond short term financial results and are influenced by social and environmental issues in a broad context.
The Group recognises these issues and regards a strong corporate social responsibility, (CSR) programme as an important part of achieving sustainable business success. This is recognised in the establishment of one of the four corporate Values, Passion for the world around us and in the personal commitment made by the Chief Executive and Group Chief Operating Officer in taking the message directly to over 27,000 managers and staff since the launch of these Values.
Members of the Board are involved in aspects of CSR in several different ways. For example, CSR policy-related matters are managed through the Group Policy Committee, chaired by the Chief Executive. Seven high priority initiatives on environmental and other CSR-related issues have been approved. Each of the initiatives is sponsored by an operating company chief executive officer, or senior Group executive, and they are monitored on a regular basis by the Group Operational Review Committee, chaired by the Group Chief Operating Officer. The Groups Council Member on the World Business Council for Sustainable Development is the Group Strategy Director.
The basis of the Groups approach to CSR is a thorough understanding of how and why CSR-related issues have significance for the Group. This is developed through the expertise of dedicated managers at Group and operating company level and through broad consultation with both internal and external stakeholder groups. Engagement has included in depth survey work, and meetings with prominent members of the socially responsible investment community and certain non-governmental organisations.
The Company is publishing its third separate CSR Report. CSR web pages can be found at www.vodafone.com. The CSR Report covers many of the issues set out in this section in more detail and provides an update on progress against commitments made last year.
For example:
• | The Group has organised a major conference for its key global suppliers with the purpose of developing closer co-operation on CSR-related matters. |
• | The Group and operating companies have implemented new environmental and community data gathering systems and procedures and these will be used to underpin monitoring and reporting of performance against commitments. |
• | An organisational learning strategy for CSR is being developed. This will address learning at all levels within the business, including further integration of CSR matters into global management development programmes. At the same time, CSR features in the global competency framework that has been established to support the development of people across the Group. |
• | A preliminary model of how to assess and measure the social and environmental value that comes from certain mobile applications has been developed and tested in the UK with a view to extending it to other operations. |
• | The Vodafone Group Foundation was formally launched in June 2002 and has implemented a programme of grant making activity in accordance with its mission statement published last year. There are now twelve local foundations across the Group to support local communities at country level. Twenty-one global projects and numerous national level projects have now been funded and launched. Further details of the Vodafone Group Foundations activities are available in the CSR Report. |
• | The Company has retained its position in both the FTSE4Good and Dow Jones Sustainability Indices. |
• | Last year the Group reported the publication of its Business Principles. This year has seen the roll-out of these across the Group and the continuing |
development of a process to gain assurance that these principles are at the centre of business activities. |
To progress towards more detailed assurance in relation to CSR reporting, Deloitte & Touche has carried out an assessment of the environmental, occupational health and safety and community data gathering and collation processes at Group level. Their findings can be found within the Companys CSR Report. They have also reviewed this statement to check for consistency with the findings of their work. The London Benchmarking Group has also issued an assurance report in relation to our charitable giving and community engagement.
In addition to the CSR report, Vodafone Italy has also published its own CSR report and the Company will be encouraging other operating companies to do so in the future.
The next years will see a strong focus on further delivery against our commitments and increasing the integration of CSR into our core business processes.
The Group recognises that most business activities have an interaction with the natural environment and that any associated negative impacts are a legitimate concern for society as a whole. The negative impacts that arise from mobile telecommunications companies are, arguably, less significant than those that arise in certain other sectors. Nevertheless, the Group is committed to identifying and minimising these impacts in an appropriate manner.
Over the last twelve months, the Company has put in place a series of programmes that address significant environmental issues. These include addressing the concerns related to the perceived link between radio frequencies (EMF) and health, the use of energy across the Groups operations, the reuse and recycling of handsets and accessories, the management of waste and the use of ozone depleting substances used in our operations. Progress is being made across all of these projects.
For example:
• | All operating companies now provide information about radio frequency levels on request. In addition, seven operating companies are now running field monitoring schemes based on the success of a project in Cassiopea, Italy. Best practice in relation to communication about radio frequency levels will be further promoted. |
• | Schemes to re-use and recycle handsets and accessories are now in place across over 90% of the customer base. A target has been set of achieving a 10% increase in the number of handsets returned for reuse or recycling by 2005. |
• | A series of operational improvements for saving energy have now been identified by cross-functional teams in the operating companies. |
• | An independent review of management practices in relation to waste and ozone depleting substances is underway in three operating companies and best practices will be promoted across the Group. |
In relation to radio frequencies, the Group continues to recognise concerns relating to potential health risks and has continued to monitor any scientific developments in this area. The Group has also committed €8 million to independent research in this area at both the international and national levels.
The Group commits to disclosing any information that comes to its knowledge that clearly demonstrates that any of its products and services breach internationally accepted safety standards or guidelines.
Further details of these initiatives, and progress against environment-related commitments made last year, are provided in the Companys 2002/03 CSR Report.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 67
STATEMENT OF DIRECTORS RESPONSIBILITIES |
United Kingdom company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to:
• | select suitable accounting policies and apply them consistently; |
• | make judgements and estimates that are reasonable and prudent; |
• | state whether applicable accounting standards have been followed; and |
• | prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. |
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors Report signed by Order of the Board
Stephen Scott
Secretary
27 May 2003
68 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 69
REPORT OF INDEPENDENT AUDITORS |
|
Independent auditors report to the members of the Company
We have audited the Consolidated Financial Statements of Vodafone Group Plc for the year ended 31 March 2003, which comprise the consolidated and Company balance sheets at 31 March 2003 and 2002, the consolidated profit and loss accounts, the consolidated cash flow statements, the consolidated statements of total recognised gains and losses and the movement in total equity shareholders funds for the three years ended 31 March 2003 and the related notes 1 to 37. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the part of the Boards Report to Shareholders on Directors Remuneration that is described as having been audited.
Respective responsibilities of directors and auditors
As described in the Statement of Directors Responsibilities, the Companys directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. They are also responsible for the preparation of the other information contained in the Annual Report & Accounts and Form 20-F including the Boards Report to Shareholders on Directors Remuneration. Our responsibility is to audit the financial statements and the part of the Boards Report to Shareholders on Directors Remuneration described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards.
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Boards Report to Shareholders on Directors Remuneration described as having been audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors remuneration and transactions with the Company and other members of the Group is not disclosed.
We review whether the Corporate Governance statement reflects the Companys compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Boards statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Groups corporate governance procedures or its risk and control procedures.
We read the Directors Report and the other information contained in the Annual Report & Accounts and Form 20-F for the year ended 31 March 2003 as described in the contents section, including the unaudited part of the Boards Report to Shareholders on Directors Remuneration and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.
Basis of audit opinions
We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board and with generally accepted auditing standards in the United States of America. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Boards Report to Shareholders on Directors Remuneration described as having been audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Boards Report to Shareholders on Directors Remuneration described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Boards Report to Shareholders on Directors Remuneration described as having been audited.
70 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
REPORT OF INDEPENDENT AUDITORS |
|
Opinions
UK opinion
In our opinion:
• | the financial statements give a true and fair view of the state of affairs of the Company and the Group at 31 March 2003 and of the loss of the Group for the year then ended; and |
• | the financial statements and that part of the Boards Report to Shareholders on Directors Remuneration described as having been audited have been properly prepared in accordance with the Companies Act 1985. |
US opinion
In our opinion the financial statements present fairly, in all material respects, the consolidated financial position of the Group at 31 March 2003 and 2002 and the consolidated results of its operations and cash flows for each of the three years in the period ended 31 March 2003 in conformity with accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net loss for each of the three years ended 31 March 2003 and the determination of shareholders equity at 31 March 2003 and 2002 to the extent summarised in note 37 to the financial statements.
Deloitte & Touche
Chartered Accountants and Registered Auditors
London, England
27 May 2003
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 71
CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED 31 MARCH |
2003 | 2003 | 2002 | 2001 | |||||||
Note | $m | £m | £m | £m | ||||||
Total Group turnover | ||||||||||
Group and share of joint ventures and associated undertakings | 61,821 | 39,152 | 33,541 | 23,993 | ||||||
Less: Share of joint ventures | (13 | ) | (8 | ) | (3 | ) | (98 | ) | ||
Share of associated undertakings | (13,846 | ) | (8,769 | ) | (10,693 | ) | (8,891 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
3 | 47,962 | 30,375 | 22,845 | 15,004 | ||||||
|
|
|
|
|
|
|
|
|
||
Group turnover | 3 | 47,962 | 30,375 | 22,845 | 15,004 | |||||
|
|
|
|
|||||||
Operating loss | 3, 5 | (8,361 | ) | (5,295 | ) | (10,377 | ) | (6,439 | ) | |
Share of operating loss in joint ventures and associated undertakings | (246 | ) | (156 | ) | (1,457 | ) | (550 | ) | ||
|
|
|
|
|||||||
Total Group operating loss | ||||||||||
Group and share of joint ventures and associated undertakings | 3 | (8,607 | ) | (5,451 | ) | (11,834 | ) | (6,989 | ) | |
Exceptional non-operating items | 6 | (9 | ) | (5 | ) | (860 | ) | 80 | ||
|
|
|
|
|||||||
Loss on ordinary activities before interest | 3 | (8,616 | ) | (5,456 | ) | (12,694 | ) | (6,909 | ) | |
Net interest payable and similar items | 7 | (1,187 | ) | (752 | ) | (845 | ) | (1,177 | ) | |
Group | (721 | ) | (457 | ) | (503 | ) | (850 | ) | ||
Share of joint ventures and associated undertakings | (466 | ) | (295 | ) | (342 | ) | (327 | ) | ||
|
|
|
|
|||||||
Loss on ordinary activities before taxation | (9,803 | ) | (6,208 | ) | (13,539 | ) | (8,086 | ) | ||
Tax on loss on ordinary activities | 8 | (4,667 | ) | (2,956 | ) | (2,140 | ) | (1,426 | ) | |
Group | (4,143 | ) | (2,624 | ) | (1,925 | ) | (1,195 | ) | ||
Share of joint ventures and associated undertakings | (524 | ) | (332 | ) | (215 | ) | (231 | ) | ||
|
|
|
|
|||||||
Loss on ordinary activities after taxation | (14,470 | ) | (9,164 | ) | (15,679 | ) | (9,512 | ) | ||
Equity minority interests | (936 | ) | (593 | ) | (415 | ) | (314 | ) | ||
Non-equity minority interests | (98 | ) | (62 | ) | (61 | ) | (59 | ) | ||
|
|
|
|
|||||||
Loss for the financial year | (15,504 | ) | (9,819 | ) | (16,155 | ) | (9,885 | ) | ||
Equity dividends | 9 | (1,822 | ) | (1,154 | ) | (1,025 | ) | (887 | ) | |
|
|
|
|
|||||||
Retained loss for the Group and its share of joint ventures and associated undertakings | 24 | (17,326 | ) | (10,973 | ) | (17,180 | ) | (10,772 | ) | |
|
|
|
|
|||||||
Basic and diluted loss per share | 10 | (22.75 | )¢ | (14.41 | )p | (23.77 | )p | (16.09 | )p | |
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
The unaudited US dollar amounts are prepared on the basis set out in note 1.
72 Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
BALANCE SHEETS AT 31 MARCH |
Group | Company | |||||||||||
2003 | 2003 | 2002 | 2003 | 2002 | ||||||||
Note | $m | £m | £m | £m | £m | |||||||
Fixed assets | ||||||||||||
Intangible assets | 11 | 170,667 | 108,085 | 105,944 | | | ||||||
Tangible assets | 12 | 30,907 | 19,574 | 18,541 | | | ||||||
Investments | 42,680 | 27,030 | 28,977 | 104,655 | 103,299 | |||||||
Investments in joint ventures: | ||||||||||||
Loans to joint ventures | 13 | | | 321 | | 321 | ||||||
Investments in associated undertakings | 13 | 40,777 | 25,825 | 27,249 | | 9 | ||||||
Other investments | 13 | 1,903 | 1,205 | 1,407 | 104,655 | 102,969 | ||||||
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244,254 | 154,689 | 153,462 | 104,655 | 103,299 | ||||||||
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Current assets | ||||||||||||
Stocks | 15 | 576 | 365 | 513 | | | ||||||
Debtors | 16 | 11,779 | 7,460 | 7,053 | 44,699 | 33,190 | ||||||
Investments | 17 | 460 | 291 | 1,792 | 287 | | ||||||
Cash at bank and in hand | 750 | 475 | 80 | 215 | | |||||||
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13,565 | 8,591 | 9,438 | 45,201 | 33,190 | ||||||||
Creditors: amounts falling due within one year | 18 | (22,569 | ) | (14,293 | ) | (13,455 | ) | (76,087 | ) | (70,073 | ) | |
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Net current liabilities | (9,004 | ) | (5,702 | ) | (4,017 | ) | (30,886 | ) | (36,883 | ) | ||
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Total assets less current liabilities | 235,250 | 148,987 | 149,445 | 73,769 | 66,416 | |||||||
Creditors: amounts falling due after more than one year | 19 | (21,722 | ) | (13,757 | ) | (13,118 | ) | (8,171 | ) | (5,725 | ) | |
Provisions for liabilities and charges | (5,836 | ) | (3,696 | ) | (2,899 | ) | | | ||||
Investments in joint ventures: | ||||||||||||
Share of gross assets | | | 76 | | | |||||||
Share of gross liabilities | | | (345 | ) | | | ||||||
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13 | | | (269 | ) | | | ||||||
Other provisions | 22 | (5,836 | ) | (3,696 | ) | (2,630 | ) | | | |||
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207,692 | 131,534 | 133,428 | 65,598 | 60,691 | ||||||||
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Capital and reserves | ||||||||||||
Called up share capital | 23 | 6,750 | 4,275 | 4,273 | 4,275 | 4,273 | ||||||
Share premium account | 24 | 82,223 | 52,073 | 52,044 | 52,073 | 52,044 | ||||||
Merger reserve | 24 | 156,206 | 98,927 | 98,927 | | | ||||||
Capital reserve | | | | 88 | 88 | |||||||
Other reserve | 24 | 1,331 | 843 | 935 | 843 | 935 | ||||||
Profit and loss account | 24 | (43,339 | ) | (27,447 | ) | (25,606 | ) | 8,319 | 3,351 | |||
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Total equity shareholders funds | 203,171 | 128,671 | 130,573 | 65,598 | 60,691 | |||||||
Equity minority interests | 2,918 | 1,848 | 1,727 | | | |||||||
Non-equity minority interests | 25 | 1,603 | 1,015 | 1,128 | | | ||||||
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207,692 | 131,534 | 133,428 | 65,598 | 60,691 | ||||||||
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The financial statements on pages 72 to 138 were approved by the Board of directors on 27 May 2003 and were signed on its behalf by:
SIR CHRISTOPHER GENT | Chief Executive |
K J HYDON | Financial Director |
The accompanying notes are an integral part of these Consolidated Financial Statements. The unaudited US dollar amounts are prepared on the basis set out in note 1.
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 73
CONSOLIDATED CASH FLOWS FOR THE YEARS ENDED 31 MARCH |
2003 | 2003 | 2002 | 2001 | |||||||
Note |