Edgar Filing: VODAFONE GROUP PUBLIC LTD CO

Prepared and filed by St Ives Financial

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

OR

	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: March 31, 2006

OR

	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: to

OR

	SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report:

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.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

	Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

	Ordinary Shares of $0.10 each	60,118,575,455
	7% Cumulative Fixed Rate Shares of £1 each	50,000

	Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes No

	If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes No

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

	Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer Accelerated filer Non-accelerated filer


	Indicate by check mark which financial statements item the registrant has elected to follow:

Item 17

Item 18

	If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

	Yes No




	To enrich our customers’ lives through the unique, expanding power of mobile communication.








	This constitutes the Annual Report on Form 20-F (the “20-F”) of Vodafone Group Plc (the “Company”) in accordance with the requirements of the US Securities and Exchange Commission (the “SEC”) and is dated 14 June 2006. This document contains the information set out within the Company’s Annual Report in accordance with International Financial Reporting Standards (“IFRS”) and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS, dated 30 May 2006, as updated or supplemented at the time of filing of the 20-F with the SEC, which may be later amended if necessary. References to IFRS refer to the application of International Financial Reporting Standards, including International Accounting Standards (“IAS”) and interpretations issued by the International Accounting Standards Board (“IASB”) and its committees, and as interpreted by any regulatory bodies applicable to the Group and adopted for use in the European Union (“EU”). Financial information for the year ended 31 March 2005, presented as comparative figures in this report, has been restated from UK GAAP in effect at 31 March 2004 in accordance with IFRS. The content of the Group’s website (www.vodafone.com) should not be considered to form part of this Annual Report or the Company’s Annual Report on Form 20-F. 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. In the discussion of the Group’s reported financial position and results for the year ended 31 March 2006, information in addition to that contained within the Consolidated Financial Statements is presented on the basis that it provides readers with additional financial information regularly reviewed by management. This information is provided to assist investor assessment of the Group’s performance from period to period. However,		the additional information presented is not uniformly defined by all companies in the Group’s industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Definitions of the terms presented are shown on page 49. In presenting and discussing the Group’s reported financial position, operating results and cash flows, certain information is derived from amounts calculated in accordance with IFRS but this information is not itself an expressly permitted GAAP measure. Such non-GAAP measures should not be viewed in isolation as an alternative to the equivalent GAAP measure. An explanation as to the use of these measures and reconciliations to their nearest equivalent GAAP measure can be found on pages 47 to 48. The Report of the Directors, incorporating the Business Review, covers pages 6 to 70 of this Annual Report. This Annual Report contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group’s financial condition, results of operations and business management and strategy, plans and objectives for the Group. For further details, please see “Cautionary Statement Regarding Forward-Looking Statements” and “Outlook and Risk Factors” for a discussion of the risks associated with these statements. Vodafone, Vodafone live!, Vodafone Mobile Connect, Vodafone Wireless Office, Vodafone Simply, Vodafone Passport, Vodafone Zuhause, Vodafone Casa, Oficina Vodafone, Stop the Clock and Vodafone Radio DJ are trademarks of the Vodafone Group. Other product and company names mentioned herein may be the trademarks of their respective owners.

	Highlights for the Year

	Financial performance:

	•	Group revenue of £29.4 billion from continuing operations. Mobile telecommunications revenue increased to £28.1 billion, representing growth of 9.3%

	•	Loss before taxation for the year was £14.9 billion after impairment losses of £23.5 billion

	•	Free cash flow of £6.4 billion, and net cash inflow from operating activities, after net taxation paid of £1.7 billion, up 10.3% to £10.2 billion from continuing operations

	Operational highlights:

	•	Net proportionate customer additions of 21.5 million in the year

	•	Closing proportionate customer base of 170.6 million, with organic growth of 14.9% in the year

	•	Non-messaging data revenue grew by 61.2% to £0.8 billion, with organic growth of 60.4%

	•	Mobile voice usage increased by 24.6% to 178.3 billion minutes, with organic growth of 18.9%

	Increasing returns to shareholders:

	•	Total dividends per share increased by 49%, to 6.07 pence, with a final dividend per share of 3.87 pence, giving a dividend pay out ratio of 60% on underlying earnings per share and a total pay out of £3.7 billion for the financial year

	•	£6.5 billion expended on the share purchase programme in the 2006 financial year, reducing shares in issue by 7.5%

	•	£9.0 billion to be returned to shareholders in the 2007 financial year via “ B” share arrangement, including an additional £3 billion announced on 30 May 2006

	•	Total returns to shareholders announced over the year of £19.2 billion


	Highlights

	Financial Highlights	2

	Group at a Glance	4



	Strategy

	Chairman’s Statement	6

	Chief Executive’s Review	8





	Business

	Business Overview	12

	Regulation	21




	Performance

	Introduction	25

	Critical Accounting Estimates	26

	Key Performance Indicators	29

	Operating Results	30

	Financial Position and Resources	38

	Risk Factors, Trends and Outlook	43

	Cautionary Statement Regarding
	Forward-Looking Statements	46

	Non-GAAP Information	47

	Definition of Terms	49


	Governance

	Board of Directors
	and Group Management	50

	Corporate Governance	53

	Employees	58

	Corporate Responsibility
	and Environmental Issues	59

	Board’s Report to Shareholders
	on Directors’ Remuneration	61

	Directors’ Statement of Responsibility	70



	Financials

	Consolidated Financial Statements	71

	Report of Independent Registered
	Public Accounting Firm on the
	Consolidated Financial Statements	131

	Company Financial Statements
	of Vodafone Group Plc	132

	Report of Independent Registered
	Public Accounting Firm on the
	Company Financial Statements	139



	Shareholder information

	Investor Information	140

	Form 20-F Cross Reference Guide	146

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Financial Highlights

The selected financial data set out on the following pages is derived from the Consolidated Financial Statements of the Company on pages 71 to 130 and as such should be read in conjunction with them. Certain trends within the financial data presented below have been impacted by business acquisitions and disposals, the most significant of which are described in “Business Overview – History and Development of the Company”.

The Consolidated Financial Statements are prepared in accordance with IFRS, on the basis set out in note 1 to the Consolidated Financial Statements, which differ in certain significant respects from US GAAP. For further details, see note 38 to the Consolidated Financial Statements, “US GAAP information”. Solely for convenience, amounts represented below in dollars have been translated at $1.7393: £1, the Noon Buying Rate on 31 March 2006.

									At/year ended 31 March

	2006		2006		2005		2004		2003		2002
	$m		£m		£m		£m		£m		£m

Consolidated Income Statement Data

IFRS
Revenue	51,048		29,350		26,678
Operating (loss)/profit	(24,496	)	(14,084	)	7,878
Adjusted operating profit (Non-GAAP measure)⁽¹⁾	16,348		9,399		8,353
(Loss)/profit before taxation	(25,833	)	(14,853	)	7,285
(Loss)/profit for the financial year from continuing operations	(29,973	)	(17,233	)	5,416

US GAAP
Revenue	41,319		23,756		21,370		19,637		15,487		13,447
Net loss⁽²⁾⁽³⁾	(23,081	)	(13,270	)	(13,752	)	(8,105	)	(9,072	)	(16,769	)

Consolidated Cash Flow Data⁽⁴⁾

IFRS
Net cash flows from operating activities	17,723		10,190		9,240
Net cash flows from investing activities	(11,573	)	(6,654	)	(4,112	)
Net cash flows from financing activities	(7,896	)	(4,540	)	(7,242	)
Free cash flow (Non-GAAP measure)⁽¹⁾	11,163		6,418		6,592

Consolidated Balance Sheet Data

IFRS
Total assets	220,435		126,738		147,197
Total equity	148,383		85,312		113,648
Total equity shareholders’ funds	148,580		85,425		113,800
Total liabilities	72,052		41,426		33,549

US GAAP
Shareholders’ equity	151,291		86,984		107,295		129,141		140,580		141,016

2	Vodafone Group Plc Annual Report 2006

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	Highlights

At/year ended 31 March

2006

2005

2004

2003

2002

Earnings Per Share (“EPS”)⁽⁵⁾

Weighted average number of shares (millions)

– Basic

62,607

66,196

68,096

68,155

67,961

– Diluted

62,607

66,427

68,096

68,155

67,961

IFRS

Basic (loss)/earnings per ordinary share

– Continuing

(48.11

)¢

(27.66

8.12

– Discontinued

(12.78

)¢

(7.35

1.56

Diluted (loss)/earnings per ordinary share

– Continuing

(48.11

)¢

(27.66

8.09

– Discontinued

(12.78

)¢

(7.35

1.56

Basic (loss)/earnings per ADS

– Continuing

(481.1

)¢

(276.6

81.2

– Discontinued

(127.8

)¢

(73.5

15.6

Diluted (loss)/earnings per ADS

– Continuing

(481.1

)¢

(276.6

80.9

– Discontinued

(127.8

)¢

(73.5

15.6

US GAAP⁽²⁾⁽³⁾

Basic and diluted loss per ordinary share

(36.87

)¢

(21.20

(20.77

(11.90

(13.31

(24.67

Basic and diluted loss per ADS

(368.7

)¢

(212.0

(207.7

(119.0

(133.1

(246.7

Cash Dividends⁽⁵⁾⁽⁶⁾

Amount per ordinary share

10.56

6.07

4.07

2.0315

1.6929

1.4721

Amount per ADS

105.6

60.7

40.7

20.315

16.929

14.721

Other Data

IFRS

Ratio of earnings to fixed charges⁽⁷⁾

–

7.0

Deficit

$(28,733

£(16,520

–

US GAAP

Ratio of earnings to fixed charges⁽⁷⁾

–

Deficit⁽⁸⁾

$(24,133

£(13,875

£(9,756

£(9,059

£(8,436

£(14,425

Notes:
(1)	Refer to “Non-GAAP Information” on pages 47 to 48 for a reconciliation of this non-GAAP measure to the most comparable GAAP measure and a discussion of this measure.
(2)	2005 net loss includes the cumulative effect of accounting changes related to intangible assets and post employment benefits that increase net loss by £6,372 million or 9.63p per ordinary share. Net loss and shareholders’ equity for 2005, 2004, 2003 and 2002 have been restated to give effect to the modified retrospective adoption of SFAS No. 123 (Revised 2004). See note 38 to the Consolidated Financial Statements for further details on these changes in accounting policy.
(3)	2002 net loss includes the cumulative effect of accounting changes related to derivative financial instruments reducing net loss by £17 million or 0.02p per ordinary share.
(4)	Amounts reported refer to continuing operations.
(5)	See note 8 to the Consolidated Financial Statements, “(Loss)/earnings per share”. Earnings per American Depository Share (“ADS”) is calculated by multiplying earnings per ordinary share by ten, the number of ordinary shares per ADS. Dividend per ADS is calculated on the same basis.
(6)	The final dividend for the year ended 31 March 2006 was proposed by the directors on 30 May 2006.
(7)	For the purposes of calculating these ratios, earnings consist of profit before tax adjusted for fixed charges, dividend income from associated undertakings, share of profits and losses from associated undertakings and profits and losses on ordinary activities before taxation from discontinued operations. Fixed charges comprise one-third of payments under operating leases, representing the interest element of these payments, interest payable and similar charges and preferred share dividends.
(8)	The deficits for the 2002, 2003 and 2004 financial years are presented on the same basis as the Form 20-F for the year ended 31 March 2004. These deficits have not been restated for the effect of discontinued operations, because the UK GAAP information, which forms the basis of the US GAAP information presented, has not been restated. Even if any such adjustments were made, it is expected that the ratio of earnings to fixed charges would still show a deficit.

Vodafone Group Plc Annual Report 2006

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Group at a Glance

Vodafone is the world’s leading mobile
telecommunications company with
mobile operations in 26 countries
around the world and Partner Network
agreements in a further 32 countries.

Germany	Italy	Spain

Closing proportionate
customers
(‘000)

29,191

18,490

13,521

Average proportionate
customer growth
(%)

8.4%

6.8%

18.5%

3G devices
(‘000)

2,025

2,250

902

Average
monthly
ARPU

€23.3

€28.5

€35.6

Non-voice revenue
as a percentage of
service revenue (%)

20.2%

16.7%

14.4%

Revenue
(£m)

5,754

4,363

3,995

Operating
(loss)/profit⁽¹⁾
(£m)

(17,904)

(1,928)

968

Total assets
(£m)

25,029

20,310

13,039

Employees
(000s)

10,124

7,123

4,052


Note:
(1)	The operating (loss)/profit in Germany, Italy and Other Mobile Operations is stated after impairment charges of £19,400 million, £3,600 million and £515 million, respectively.

4	Vodafone Group Plc Annual Report 2006

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	Highlights

	UK		US		Other Mobile Operations		Total Mobile

16.304

23,530

69,535

170,571

7.8%

17.0%

34.0%

18.8%

1,033

–

1,511

7,721

£24.0

$51.4

–

20.3%

8.9%

14.3%

17.0%

5,048

–

9,250

28,137

698

1,732

2,008

(14,203)

9,486

17,898

23,937

111,722

10,620

–

22,895

57,442

Vodafone Group Plc Annual Report 2006

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Chairman’s Statement







Lord MacLaurin of Knebworth, DL

It has been my privilege
to be the Chairman of a
company that has proved
to be one of the outstanding international success stories
of the last decade.

My last year as Chairman of Vodafone has been a watershed in the history of your Company. We have been undergoing significant change whilst operating in the most challenging market environment the telecommunications sector has seen. Nevertheless, our ability to deliver good growth in the face of increasing competition reflects the unique characteristics of our business, compared to many other mobile operators, particularly the benefits derived from our increasing exposure to faster-growing markets and the opportunity to generate further benefits from our scale.

We maintained strong customer growth across many of our markets and grew our proportionate mobile customer base to over 170 million, representing organic growth of 15% since last year. Importantly, we achieved our 10 million 3G target, which included Japan, during March, which was ahead of plan.

Over the year, we have announced total returns to shareholders of £19.2 billion. We have purchased over 4.8 billion shares in the Company at a cost of £6.5 billion and are paying out £3.7 billion in dividends for the year, including the proposed final dividend of 3.87 pence per share. We are also returning £9.0 billion to shareholders, including £6.0 billion following the sale of our Japanese business. Full details are in the documentation accompanying this Report.

When I became Chairman in July 1998 we had fewer than 6 million customers in 12 countries producing some £2.5 billion of turnover. In the summer of 1999, we acquired AirTouch of the US, followed in 2000 by the acquisition of Mannesmann in Germany. This was a period of huge expansion which formed the basis of the transformation of Vodafone into the world’s leading mobile telecommunications group that has equity interests in 26 countries across five continents with over 170 million proportionate customers worldwide, as well as 32 partner networks, generating turnover this year from our ongoing businesses of over £29 billion. Not only have we extended our geographic reach but we have also transformed our industry by becoming a leader in innovation, introducing groundbreaking services such as Vodafone live! with 3G, thereby setting standards for the mobile industry as a whole. It has been a remarkable achievement.

6	Vodafone Group Plc Annual Report 2006

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	Strategy

However, the Group now faces many challenges, particularly of competition, regulation and new technology. During the year, we conducted, in the face of these challenges, a review of the future growth prospects for the Group and our analysis indicated a lower view of growth, particularly in the medium to long term, and led to an impairment of the Group’s goodwill by £23.5 billion, the majority of which is attributable to Vodafone Germany. This charge does not impact this year’s reported cash flows or distributable reserves, out of which we are making returns to shareholders.

However, in this challenging market the Chief Executive has spent a great deal of time reviewing the management structure and future planning required to take the Company forward. In April he announced his new management team and in May they produced a clear forward-looking strategy. I believe that through this statement the Chief Executive sets out a clear vision for the future. I congratulate him on these changes and wish him and his impressive team well.

It has been my privilege to be the Chairman of a company that has proved to be one of the outstanding international success stories of the last decade. The development and expansion of the Group has been made possible by the excellence of the management team whose flair and vision has enabled us to identify international opportunities for profitable growth while at the same time introducing technological advances to enhance the mobile experience for our customers.

It was announced earlier this year that Sir Julian Horn-Smith had decided to retire from the Board following the Annual General Meeting in July. Julian has been with Vodafone for 22 years and a Board member for 10 years. He has had an outstanding career, being a major contributor to the creation of the UK network and subsequently leading the early development of our international presence. More recently he was Group Chief Operating Officer and then Deputy Chief Executive, with responsibility for our affiliates and business development. I am sure all shareholders will join with me in wishing him well for the future.

Peter Bamford, Chief Marketing Officer, who left the Company in early April, was instrumental in developing our brand both within the UK and internationally and developing a number of major initiatives, including the launch of Vodafone live! with 3G. I wish him well and thank him for his contribution to the success of the Company.

At the AGM, we say farewell to Paul Hazen, our Deputy Chairman, who has served with distinction as a non-executive director since 1999. We also say goodbye to Penny Hughes, a fine non-executive director for eight years and who was an exceptional Remuneration Committee Chair for five years. Her contribution cannot be overstated. Paul and Penny leave with our best wishes. Taking Paul’s place as Deputy Chairman and senior independent director will be John Buchanan, who has been a non-executive director since April 2003, shortly after his retirement from BP p.l.c. I am sure that John will discharge his new duties very effectively.

During the year, we welcomed two new non-executive directors to the Board. In September, Philip Yea, Chief Executive Officer of 3i Group plc, was appointed and he was joined in November by Anne Lauvergeon, the Chairman of the Executive Board of AREVA, the leading French energy company. On 1 May, we welcomed Anthony Watson to the Board. Until his recent retirement, he was Chief Executive of Hermes Pensions Management Limited. I know that their collective experience in their different areas of business will be of great benefit to the Company.

Finally I come to my own retirement. As I have said, it has been a great privilege for me to have been Chairman of a truly outstanding British company. I have, however, been particularly saddened this year by the nature of some of the media coverage and particularly by the suggestion of boardroom splits. There are no factions within the Board and any claim that your Board is not united is unfounded. I leave with the knowledge that Vodafone, which is now very different to the company which I first chaired, is well placed to continue to enjoy an exciting and profitable future. I wish Sir John Bond, my successor, Arun Sarin, your Chief Executive, and everyone at Vodafone the very best for the future and thank you all for your support during the last eight years as your Chairman.

Lord MacLaurin of Knebworth, DL
Chairman

Vodafone Group Plc Annual Report 2006

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Chief Executive’s Review

Arun Sarin

We delivered another set
of robust financial and
operational results amidst a
more competitive landscape
and announced returns to
shareholders over the year
of £19.2 billion.

Review of the year
We have delivered another year of robust financial performance against a backdrop of increasing competition and regulation, meeting our expectations for revenue, EBITDA margin and free cash flow.

Proportionate customer growth was strong with nearly 22 million organic net additions in the year taking the closing proportionate customer base to over 170 million across 26 countries. Our unrivalled presence provides the platform for the next stage of our strategy.

These results have enabled us to significantly increase returns to shareholders. We have increased dividends per share by 49% to 6.07 pence, purchased £6.5 billion of our shares and announced a special distribution of £9.0 billion.

Financial review
Statutory revenue increased by 10% to £29.4 billion, with over 9% growth in our mobile operations. Excluding the net benefit from acquisitions, disposals and exchange rate movements, we achieved organic revenue growth of 7% in mobile and 8% for the Group as a whole. Strong performances in Spain and several of our emerging markets, including South Africa, Egypt and Romania, helped offset lower growth this year in several of our more established markets. Notwithstanding this lower growth, we outperformed substantially all of our principal competitors in our major markets on revenue and EBITDA growth.

Our focus on profitability delivered an 11% organic increase in adjusted operating profit, with 13% growth in total. The competitive environment led to a necessary increase in net customer acquisition and retention costs but this was mitigated by our ongoing success in delivering operating efficiencies. A key part of this growth has been the strong overall performance from our associates, increasing by over 20% this year, and in particular from Verizon Wireless in the US, growing by nearly 28% as it consolidated its market leadership.

Capital expenditure on fixed assets was £4.0 billion as we continue to invest in broadening our 3G presence. Free cash flow of £6.4 billion was slightly lower than last year as expected, with increases in capital expenditure and lower dividends from Verizon Wireless offsetting an increase of £1.0 billion in net cash flow from operating activities.

Operational highlights
We have been focused on six strategic goals, including delighting our customers and leveraging scale and scope.

A core part of delighting our customers is our 3G offering. When we launched 3G late in 2004, we targeted 10 million consumers by the end of March 2006, including Japan. We reached this during March, shortly before we agreed to sell our Japanese operation.

8	Vodafone Group Plc Annual Report 2006

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	Strategy



	We have updated our strategy to reflect our changing environment

3G brings an enhanced mobile experience to our customers, who want more speed, greater personalisation and richer content, and provides the platform for our future growth. For consumers, we launched mobile TV capability during the year and will further enhance our music offering during 2006 with the launch of Vodafone Radio DJ, a personalised, interactive radio service streamed to both 3G phones and PCs.

For our business customers, we increased the number of mobile email solutions and range of email devices available. 3G broadband through HSDPA technology was launched in the year offering an enhanced data experience through greater speeds than 3G and faster access to the network. This will improve our already successful Vodafone Mobile Connect offering for laptop users, who have more choice with mobile capability now being built in to the laptop.

Another key part of delighting our customers is measuring customer satisfaction and brand preference. With rising customer expectations and a tougher competitive environment, we are pleased that we continue to outperform our principal competitors in terms of customer satisfaction and that customers continue to show preference for the Vodafone brand.

The second strategic area of focus has been leveraging our scale and scope which delivers benefits through our One Vodafone programme, details of which we set out last year.

We are beginning to deliver real benefits in network supply chain management, as standardised designs lead to a reduced number of vendors and better terms. Our shared service platforms, which centrally host services such as Vodafone live!, are also now established.

Our strategic goals are ultimately designed to deliver shareholder value. With respect to Japan, given the relative competitive position of the business there, the reduced prospects for superior long term returns and an attractive offer from SoftBank, we decided to sell our 97.7% stake based on a value for the business of £8.9 billion. The sale completed in April, with Vodafone receiving £6.9 billion in cash, £6.0 billion of which we are returning to shareholders as part of the £9.0 billion special distribution.

Rapidly changing environment
Overall, we have performed strongly during the last year, meeting our expectations and delivering on our strategic objectives. We have continued to outperform our principal competitors on revenue and EBITDA growth, as well as customer satisfaction. We have established a strong brand around our customer base and increased returns to shareholders significantly. However, our marketplace is changing and we need to change to ensure we can leverage our unique position and continue to outperform our competitors.

There are several key drivers to the changing environment. Competition is increasing not only from established mobile operators but also from new entrants, particularly mobile virtual network operators (MVNOs). There are also new types of competitor. Established fixed line operators are increasingly combining fixed and mobile service offerings. In addition, internet based companies are extending their services to include telecommunications. All of these factors are putting pressure on pricing.

The regulatory environment also remains challenging, with continued regulator-imposed rate reductions on incoming calls across many markets, ongoing pressure to provide access to MVNOs to our networks and a high level of focus on the costs of roaming.

Developments in technology also mean that our customers have far more choice and have changing communication needs, but at the same time they demand simplicity and value for money. In addition to the core benefits of mobility, customers want greater personalisation, faster data speed and richer applications through services centred on the home and the office.

Finally, our growth historically has principally come from developed markets, particularly in Europe. With average penetration now around 100%, these markets are maturing and delivering lower growth. Whilst growth in these markets has slowed, significant growth is now coming from emerging markets where average penetration is below 30%. This is creating greater diversity between our markets than previously. Transactions over the last year in Turkey, South Africa, India and Romania have combined with existing operations in markets such as Egypt to provide us now with greater exposure to this growth potential.

Developing our strategy
These factors require our strategy to evolve so that we can continue to maintain our strong performance and deliver value to customers and shareholders. We have established five key strategic objectives:

•	In Europe, to focus on both cost reduction and revenue stimulation;

•	To deliver strong growth in emerging markets;

•	To satisfy our customer needs and extend our current mobile only offering by innovating and delivering total communications solutions;

•	To actively manage our portfolio to maximise returns; and

•	To align our financial policies regarding capital structure and shareholder returns to support our strategy.

Vodafone Group Plc Annual Report 2006

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Chief Executive’s Review
continued

In order to deliver on these objectives, we have reorganised ourselves into three key business units.

In our European businesses, where competition is most intense, we will be focused on leveraging our regional scale to deliver cost reduction and revenue stimulation.

The principal focus in the Eastern Europe, Middle East, Africa, Asia Pacific and Affiliates (EMAPA) region is to deliver strong growth from our businesses in emerging markets.

The new objective of our third business unit, New Businesses, is to enable us to serve the total communications needs of our customers by taking advantage of evolving technology and new opportunities to deliver new services.

Cost reduction
Our primary objective here is to leverage our regional scale and reduce our cost structure in Europe through several approaches in order to maintain our competitiveness.

We will outsource further, particularly for IT development of billing and customer management systems, as a key means to reduce our costs. We will also continue to drive scale benefits, either at a global level, in areas such as network supply chain management as we achieve greater standardisation across the Group, or regionally, such as through the establishment of regional data centres to support our European operations. As the size of the Group evolves, we need to ensure the appropriate balance between local and group, particularly in respect of central functions, and this is expected to result in over 400 fewer group positions.

Revenue stimulation
In Europe, our customers use their mobiles on average for only four minutes a day and approximately two-thirds of voice traffic continues to travel across fixed lines. We therefore aim to stimulate additional voice usage and substitute fixed line usage for mobile in a way that enhances both customer value and revenue.

For our consumers, we will seek to enhance revenues by continuing to deliver innovative bundles and tariffs to stimulate usage, building on success in areas such as 3G bundles, targeted promotions, family plans that focus on community groups and roaming through Vodafone Passport.

We are already targeting fixed to mobile substitution in the home through offerings such as Vodafone Zuhause in Germany and Vodafone Casa in Italy and aim to target office communications by building on our success in business with leading edge services, such as Oficina Vodafone in Spain, and applications through the benefits of broadband.

Deliver strong growth in emerging markets
A source of growth is through emerging markets. Our focus here is to build on our strong track record of creating value in emerging markets, having delivered strong performances over time in markets such as Egypt and South Africa. Our aim is to outperform not only our competitors but also our acquisition business plans. For example, since we achieved control in Romania last year, the business has performed strongly and ahead of our original expectations.

We will seek selective opportunities to increase our emerging markets footprint as well as taking opportunities to increase our stakes in existing markets, with a view to gaining control where possible over time.

Delivering our customers’ total communication needs
Customers have access to new technologies, devices and services. As a complement to mobility, they want Vodafone to provide a number of new services within the home and the office.

We will extend our reach into the home and the office to deliver richer business applications and integrated fixed and mobile services, such as higher speed internet access. We will use technologies such as HSDPA, DSL and WiFi to do this. Later this year, we will be enhancing our Vodafone Zuhause offering to incorporate DSL.

Developments in technology will also enable us to provide integrated mobile and PC offerings to give customers a consistent experience whether they are at home or on the move, with core services such as VOIP and instant messaging. We also aim to extend our business model to generate revenue from advertising in ways that customers find attractive.

We will continue to pursue a mobile centric approach, focusing on the core benefits to customers of mobility and personalisation, and will resell fixed line technologies only according to customer needs.

Actively managing our portfolio
We seek to invest only where we can generate superior returns for our shareholders in markets that offer a strong local position, with focus on specific geographic regions. It is our policy to apply strict investment criteria to ensure that transactions yield a return above the cost of capital within three to five years and overall create substantial value for our shareholders. Equally, we will consider exiting businesses which do not meet our performance requirements or provide an opportunity to create shareholder value.

There has been much speculation about our position in the US. Verizon Wireless is the market leader on nearly all key metrics and has significant local and regional scale, with over 50 million customers. We will always consider the most appropriate way to deliver shareholder value. However, we expect continued strong growth in the US and are therefore happy to remain with our existing stake.

10	Vodafone Group Plc Annual Report 2006

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	Strategy



	We have a significant opportunity to deliver value to both our customers and shareholders.

Financial implications
Our One Vodafone programme, which primarily has been focused on our mature mobile markets in Europe, delivers efficiencies in operating costs, being payroll and other operating expenses, and in capital expenditures. We have previously targeted keeping these total costs broadly stable between the 2004 and 2008 financial years, with operating costs expected to rise at a lower rate than revenue. Through our new strategic objectives, we now expect underlying operating costs alone to be broadly stable between the 2006 and 2008 financial years for the total of our European operations and central costs.

On the same basis, we continue to target expenditures on fixed assets to be 10% of revenue for the 2008 financial year. We also continue to expect at least 1% additional revenue market share between the 2005 and 2008 financial years, measured against our established principal competitors in Germany, Italy, Spain and the UK.

Our strategic changes also have implications on returns to shareholders and our capital structure. We have previously indicated an intention to pay out approximately 50% of adjusted earnings per share for the 2007 financial year onwards. We now consider it appropriate to target a 60% payout ratio, with effect for the full 2006 financial year, with a view to growing the dividend per share in line with underlying earnings per share thereafter. Dividends per share have, therefore, increased by 49% to 6.07 pence for the year.

As we enter a new phase in our development, we believe that the most appropriate capital structure, which meets the needs of both the business and shareholders, is one that reflects a higher level of gearing. The incremental borrowing capacity this provides enables an additional return of £3.0 billion to shareholders, which will be combined with the £6.0 billion return of cash from the sale of Japan in early August. As a result, we do not currently plan any further share purchases or other one-off returns to shareholders.

This £9.0 billion one-off return, together with the £6.5 billion share purchase programme completed during the last year and £3.7 billion of dividends, gives an overall return to shareholders of £19.2 billion.

Prospects for the year ahead
While we are delivering on cost reduction, revenue stimulation and emerging market growth in the shorter term, the potential benefits from serving our customers’ total communications needs will materialise over a longer timeframe.

For the year ahead, we expect operating conditions to remain challenging, with a continued intense competitive environment and further regulatory pressure, but nevertheless see continued growth in Group revenue. We are anticipating higher customer investment, pricing pressures and further termination rate reductions to impact growth in adjusted operating profit, however initiatives to deliver further cost efficiencies are expected to mitigate this effect.

Capital expenditure on fixed assets is expected to be in the range of £4.2 billion to £4.6 billion, higher than last year due to the investment needs for recent acquisitions and the wider rollout of HSDPA. Free cash flow is anticipated to be in the range of £4.0 billion to £4.5 billion. Higher tax payments, including around £1.2 billion, with interest costs, from settling some long standing disputes, increased capital expenditure and higher financing costs from our increased borrowing, are expected to offset continued growth in underlying operating cash flows.

Executing our strategy
We have a good track record of delivering against our plans and demonstrating outperformance against the majority of our principal competitors. However, our environment is changing and we need to adapt to ensure we continue to meet our customer needs and deliver superior returns to shareholders.

We have established clear strategic objectives: cost reduction and revenue stimulation in Europe; innovating and delivering total communications solutions; delivering strong growth in emerging markets; actively managing our portfolio to maximise returns; and aligning our financial policies to our strategy. We have reorganised the business as we begin to deliver against these objectives.

Vodafone is well placed to execute on this strategy. Our scale makes us the clear partner of choice for others and we have a track record for innovation. We have a strong brand and an unrivalled customer reach. As customer demands evolve and technology converges, we remain focused on the core benefits of mobility and personalisation as we seek to deliver total communications solutions. We have a significant opportunity to deliver value to both our customers and shareholders.

On a final note, on behalf of the Board, I would like to express sincere thanks to Ian MacLaurin, who is retiring as Chairman, for his service and support to the Company since 1997. We wish him continued success.

Arun Sarin
Chief Executive

Vodafone Group Plc Annual Report 2006

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	Contents
		Page

	Business Overview	12
	– Introduction	12
	– Mobile Telecommunications	12
	– Non-mobile Telecommunications	19
	– History and Development of the Company	19

	Regulation	21

Business Overview

Introduction
Vodafone Group Plc is the world’s leading mobile telecommunications company, with a significant presence in Europe, the Middle East, Africa, Asia Pacific and the United States through the Company’s subsidiary undertakings, joint ventures, associated undertakings and investments.

The Group’s mobile subsidiaries and joint venture in Italy operate under the brand name “Vodafone”. In the United States, the Group’s associated undertaking operates as Verizon Wireless. During the last two financial years, the Group has also entered into arrangements with a number of its associated undertakings and with network operators in countries where the Group does not hold an equity stake. Under the terms of these Partner Market agreements, the Group and its Partner Markets co-operate in the development and marketing of certain services, often under dual brand logos. This has expanded the Group’s global footprint in Europe, Asia Pacific and, most recently, South America.

The Group provides a wide range of voice and data mobile telecommunications services, including text messages (“SMS”), picture messages (“MMS”) and other data services, and is continually developing and enhancing service offerings, particularly through third generation (“3G”) mobile technology which is being deployed in the majority of the Group’s operations. Services are provided to both consumers and corporate customers, through a variety of both prepaid and contract tariff arrangements.

The Group’s mobile services are currently offered over a Global System for Mobile Communications (“GSM”) network, on which a General Packet Radio Service (“GPRS”) service is also provided and, in certain operations, over a Wideband Code Division Multiple Access (“W-CDMA”) 3G network. The Group’s discontinued operation in Japan operated a different technology to GSM. Where licences have been issued, the Group has secured 3G licences in all jurisdictions in which it operates through its subsidiary undertakings and continues to roll out mobile 3G network infrastructure. Vodafone offered 3G services in 11 of its controlled operations at 31 March 2006.

The Group is managed and organised by business and geography. The Group has mobile and fixed line telecommunications businesses, with the latter referred to as Other Operations. Vodafone’s principal mobile operations are located in Germany, Italy, Spain, the UK and the US with the Group’s Other Mobile Operations covering operations in Europe, the Middle East, Africa and Asia Pacific. In addition, there are a number of central functions which provide services to the mobile operations and allow the Group to leverage its scale and scope and manage risk effectively. Other Operations principally consists of the Group’s controlling interest in a fixed line telecommunications business in Germany. On 1 May 2006, changes to the organisational structure were effected with the objective of focusing the Group’s mobile businesses according to different market and customer requirements.

The Company’s ordinary shares are listed on the London Stock Exchange and the Company’s ADSs are listed on the New York Stock Exchange (“NYSE”). The Company had a total market capitalisation of approximately £72 billion at 26 May 2006, making it the fifth largest company in the Financial Times Stock Exchange 100 index and the twenty second largest company in the world based on market capitalisation at that date.

Mobile Telecommunications
Local operations
The Company has equity interests in 26 countries, through its subsidiary undertakings, joint ventures, associated undertakings and investments. Partner Market arrangements extend the Group’s footprint to a further 32 countries.

At 31 March 2006, based on the registered customers of mobile telecommunications ventures in which it had equity interests at that date, the Group had approximately 170.6 million customers, calculated on a proportionate basis in accordance with the Group’s percentage interest in these ventures, and 518.0 million registered venture customers. The table on the following page sets out a summary of the Company’s worldwide mobile operations at 31 March 2006 and venture customer growth in the year then ended (the “2006 financial year”).

Competition
The Group faces a high degree of competition in each of its geographic markets. It 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 existing mobile telecommunications network operators and MVNOs who do not operate a mobile telecommunications network. There are also new types of competitors, such as fixed line operators offering combined fixed and mobile service offerings, and internet based companies extending their services to include telecommunications. Competitive pressures have adversely impacted the level of customer churn, although this has been managed by reductions in tariffs and a continued focus on customer acquisition and retention initiatives.

The Group expects that competition will continue from existing operators as well as from a number of new market entrants, including those arising following the award of new 3G licences and MVNOs. The scope of this increased competition, and the impact on the results of operations, is discussed further in “Performance – Risk Factors, Trends and Outlook”.

Many of Vodafone’s key markets are highly penetrated with over 100% penetration rates in some, largely due to a number of customers owning more than one subscriber identity module (“SIM”), which is, broadly, the Group’s basis for defining a customer. The Group has estimated penetration rates at 31 December 2005 for its principal markets as follows:

Market	Penetration (%)

Germany	96
Italy	122
Spain	98
UK	109
US	69

A summary of the significant mobile competitors in its markets at 31 March 2006 is also provided in the following table.

12	Vodafone Group Plc Annual Report 2006

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	Business

Summary of Group mobile telecommunications businesses at 31 March 2006⁽¹⁾

							Registered
			Venture		Venture		proportionate	Registered
	Percentage		customers	⁽⁴⁾	customer		customers	prepaid
Country by region⁽²⁾	ownership	⁽³⁾	(’000)		growth (%)	⁽⁵⁾	(’000)	prepaid (%)	⁽⁶⁾	Names of significant mobile competitors	⁽⁷⁾

Germany	100.0		29,191		7.2		29,191	53.3		E-Plus, O₂, T-Mobile
Italy⁽⁸⁾	76.9		24,056		6.9		18,490	92.2		TIM, Wind, 3
Spain	100.0		13,521		17.9		13,521	50.4		Amena, Telefónica Móviles, Xfera	⁽⁹⁾
UK	100.0		16,304		6.4		16,304	61.1		Orange, O₂, T-Mobile, 3, Virgin Mobile

US⁽¹⁰⁾	44.4		53,020		16.7		23,530	5.5		National operators⁽¹¹⁾: Cingular Wireless,
										Sprint Nextel, T-Mobile

Other mobile operations
Subsidiaries
Albania	99.9		773		19.1		772	96.8		AMC
Australia	100.0		3,177		16.3		3,177	74.0		Optus, Telstra, 3
Czech Republic	100.0		2,214		–		2,214	47.5		T-Mobile, Eurotel Praha
Egypt	50.1		6,615		59.9		3,314	90.4		MobiNil
Greece	99.8		4,479		11.9		4,471	66.4		Cosmote, Q-Telecom, TIM
Hungary	100.0		2,063		18.9		2,063	68.9		Pannon GSM, T-Mobile
Ireland	100.0		2,075		6.3		2,075	73.7		Meteor, O₂, 3
Malta	100.0		175		4.8		175	89.8		Go Mobile
Netherlands	99.9		3,913		3.2		3,909	52.4		KPN Mobile, Orange, T-Mobile, Telfort	⁽¹²⁾
New Zealand	100.0		2,068		9.4		2,068	77.6		Telecom
Portugal	100.0		4,276		19.2		4,276	79.7		Optimus, TMN
Romania	100.0		6,384		27.1		6,384	64.9		Orange, Cosmorom, Zapp

TOTAL			38,212		28.8		34,898	71.8

Other joint ventures
Fiji	49.0		206		32.9		101	94.0		–
India	10.0		19,579		–		1,958	82.8		Hutch, Idea, BSNL/MTNL, Reliance Infocom,
										Tata Teleservices
Kenya	35.0		3,944		56.9		1,380	98.2		Celtel	⁽¹³⁾
Poland	19.6		9,779		32.9		1,918	56.5		Orange, ERA
South Africa⁽¹⁴⁾	49.9		23,520		51.9		10,968	89.5		Cell C, MTN

TOTAL			57,028		123.6		16,325	82.2

Other associates and investments
Belgium	25.0		4,338		1.0		1,085	57.7		BASE (KPN), Mobistar (Orange)
China	3.3		260,645		20.9		8,523	76.0		China Netcom, China Telecom, China Unicom
France	44.0		17,282		8.2		7,612	44.0		Bouygues, Orange
Switzerland	25.0		4,370		10.2		1,092	39.0		Orange, Sunrise, Tele2

TOTAL			286,635		19.5		18,312	73.2

GROUP TOTAL			517,967		24.2		170,571	65.9

Notes:
(1)	The above information is presented for continuing operations only. Japan is classified as a discontinued operation and had 15,210,000 venture customers and14,858,000 registered proportionate customers at 31 March 2006.
(2)	All controlled networks and the jointly controlled network in Italy operate under the Vodafone brand, with the exception of Vodafone Romania, which operates under the dual brand Connex Vodafone. Networks in which the Company does not have a controlling interest operate under the following brands: Belgium – Proximus; China – China Mobile; Fiji – Vodafone; France – SFR; India – Airtel; Kenya – Safaricom; Poland – Plus GSM; South Africa – Vodacom; Switzerland – Swisscom Mobile; US – Verizon Wireless.
(3)	All ownership percentages are stated as at 31 March 2006 and exclude options, warrants or other rights or obligations of the Group to increase or decrease ownership in any venture as detailed in “Financial Position and Resources – Liquidity and Capital Resources – Option agreements” Ownership interests have been rounded to the nearest tenth of one percent.
(4)	See page 49 for a definition of a customer.
(5)	Venture customer growth is for the year to 31 March 2006.
(6)	Prepaid customer percentages are calculated on a venture basis at 31 March 2006.
(7)	Includes significant MVNOs which do not operate a mobile telecommunications network.
(8)	Vodafone Italy is a joint venture.
(9)	Licensed network operator, scheduled to commence commercial service during the 2007 financial year.
(10)	The Group’s ownership interest in Verizon Wireless is 45.0%. However, the Group’s proportionate customer base has been adjusted for Verizon Wireless’s proportionate ownership of its customer base across all its network interests of approximately 98.6%, at 31 March 2006. In the absence of acquired interests, this proportionate ownership will vary slightly from period to period depending on the underlying mix of net additions across each of these networks.
(11)	This is not a full list of US network operators. In the United States, in addition to the national operators shown, there are several regional and numerous local operators.
(12)	Telfort was acquired by KPN Mobile during the financial year but still operates its own network.
(13)	The Kenyan Government has awarded a third licence but the operator had not commenced service at 30 May 2006.
(14)	On 20 April 2006, the Group’s ownership percentage increased to 50%.

Vodafone Group Plc Annual Report 2006

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Business Overview
continued

Partner Markets
Partner Markets are operations in which the Group has entered into a partnership agreement with a local mobile operator, enabling a range of Vodafone’s global products and services to be marketed in that operator’s territory. The Group’s Partner Market strategy enables the Group to implement its global services in new territories, extend its brand reach into new markets and create additional revenue without the need for equity investment.

Similar agreements also exist with a number of the Group’s associated undertakings.

Details of the partnership agreements in place as at 31 March 2006 are provided on the Group’s website.

Licences and network infrastructure
Licences
The Group is dependent on the licences it holds to operate mobile telecommunications services. Further detail on the issue and regulation of licences can be found in “Regulation”. The table below summarises the significant licences held by the Group’s mobile operating subsidiaries and the Group’s joint venture in Italy:

				Date of
Country by	Licence	Licence expiry	Network	commencement of
region	type	date	type	commercial service

Germany	2G	December 2009	GSM/GPRS	June 1992
	3G	December 2020	W-CDMA	February 2004

Italy	2G	January 2015	GSM/GPRS	December 1995
	3G	December 2021	W-CDMA	February 2004

Spain	2G	July 2023⁽¹⁾	GSM/GPRS	October 1995
	3G	April 2020	W-CDMA	February 2004

UK	2G	See note⁽²⁾	GSM/GPRS	December 1991
	3G	December 2021	W-CDMA	February 2004

Other mobile operators
Albania	2G	June 2016	GSM	August 2001
Australia	2G	June 2017⁽³⁾	GSM/GPRS	September 1993
	3G	October 2017	W-CDMA	October 2005
Czech Republic	2G	November 2020	GSM/GPRS	March 2000
	3G	February 2025	W-CDMA	See note⁽⁴⁾
Egypt	2G	May 2013	GSM/GPRS	November 1998
Greece	2G	September 2012	GSM/GPRS	July 1993
	3G	August 2021	W-CDMA	July 2004
Hungary	2G	July 2014⁽⁵⁾	GSM/GPRS	November 1999
	3G	December 2019	W-CDMA	December 2005
Ireland	2G	December 2014	GSM/GPRS	March 1993
	3G	October 2022	W-CDMA	May 2003
Malta	2G	September 2010	GSM/GPRS	July 1997
	3G	August 2020	W-CDMA	–
Netherlands	2G	February 2013⁽¹⁾	GSM/GPRS	September 1995
	3G	December 2016	W-CDMA	February 2004
New Zealand	2G	See note⁽⁶⁾	GSM/GPRS	July 1993
	3G	March 2021⁽⁶⁾	W-CDMA	August 2005
Portugal	2G	October 2006	GSM/GPRS	October 1992
	3G	January 2016	W-CDMA	February 2004⁽⁷⁾
Romania	2G	December 2011	GSM/GPRS	April 1997
	3G	March 2020	W-CDMA	April 2005

Notes:
(1)	Date relates to 1800MHz spectrum licence. Vodafone Netherlands and Vodafone Spain also have separate 900MHz spectrum licences which expire in March 2010 and February 2020, respectively.
(2)	Indefinite licence with a one year notice of revocation.
(3)	Date refers to 900MHz spectrum licence. Various licences are held for 1800MHz licences, which are issued by specific regional regulators. The earliest expires in June 2013 and the latest in March 2015.
(4)	Planned for the 2007 financial year.
(5)	There is an option to extend this licence for seven years.
(6)	Vodafone New Zealand owns three GSM 900 licences (2x21MHz) and one GSM1800 licence (2x15MHz). The GSM900 licences expire in November 2011, July 2012 and September 2021. The GSM1800 licence expires in March 2021.
(7)	Portugal launched the Vodafone Mobile Connect 3G/GPRS data card in February 2004, and the launch of 3G voice services took place in May 2005.

Mobile network infrastructure
Network infrastructure is fundamental to the Group being able to provide mobile services. The mobile network enables the Group’s customers to place and receive voice calls and allows the Group to provide other services, such as text messaging.

When a voice call or data transmission is made on a mobile device, voice or data is sent from the device and transmitted by low powered radio signals to the nearest base station, which in turn is connected to the Group’s network. Each base station provides coverage over a given geographic area, often referred to as a cell. Cells can be as small as an individual building or as large as 20 miles across. Each cell is equipped with its own radio transmitter and receiver antenna. This network of cells provides, within certain limitations, coverage over the service area. When a customer using a mobile device approaches the boundary of one cell, the mobile network senses that the signal is becoming weak and automatically hands over the call to the transmission unit in the next cell into which the device is moving.

If the voice call or data transmission is intended for delivery to another device which is not on the Vodafone network, the information is delivered through a public or private fixed line telephone network or the internet.

In a second generation (“2G”) network, each cell contains a base station using a number of radio frequencies or channels. A group of base stations is connected to a base station controller, which in turn is connected to a mobile switching centre and then via a gateway support node for access to a fixed line network or the internet.

In a 3G network, voice or data traffic is passed through a node B, being similar to a base station in a 2G network, to a radio network controller, which is then connected to a mobile switching centre, similar to a 2G network.

Base stations and node Bs form a core element of a mobile network and an insufficient number of base stations can result in loss of service for customers. In addition, the correct deployment of the right base stations is instrumental in achieving the network quality and coverage that are crucial to customer satisfaction.

2G
Vodafone operates 2G networks in all its mobile operating subsidiaries, principally through GSM networks, offering customers services such as voice, text messaging and basic data services. In addition, all of the Group’s controlled networks, with the exception of Albania, operate GPRS, often referred to as 2.5G. GPRS allows mobile devices to be used for sending and receiving data over an internet protocol (“IP”) based network, enabling wireless access to data networks like the internet.

The GPRS data service offering includes internet and e-mail access allowing the customer to be always connected at download speeds slightly below a dial-up modem. Vodafone also offers a great variety of services on its Vodafone live! portal, such as picture and video messaging, download of ringtones, news and many other services.

3G
Vodafone’s 3G networks, operating the W-CDMA standard, provide customers with mobile broadband data access, allowing data download speeds of up to 384 kilobits per second (“kbps”), which is up to seven times faster than a dial-up modem. Vodafone has expanded its service offering on 3G networks with high speed internet and e-mail access, video telephony, full track music downloads, mobile TV and other data services in addition to existing voice and data services.

The Group has secured 3G licences in all jurisdictions in which it operates through its subsidiary undertakings and in which such licences have been awarded to date, as well as in Italy through its joint venture. 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.

Roll out of the 3G network infrastructure has continued throughout the 2006 financial year across the Group’s mobile operations, with additions to property, plant and equipment and computer software amounting to approximately £4.0 billion during the financial year, including approximately £1.1 billion expenditure on 3G network infrastructure. By the end of March 2006, over 33,000 node B’s were in operation in the Group’s controlled operations and the Group’s joint venture in Italy. In many of the Group’s markets, Vodafone has achieved the leading position on 3G coverage and quality of service.

14	Vodafone Group Plc Annual Report 2006

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	Business

High Speed Downlink Packet Access (“HSDPA”)
After successful field tests, Vodafone has started to upgrade existing 3G networks with HSDPA.

HSDPA enables data transmission speeds of up to two megabits per second (“Mbps”) in the first phase, with up to 14.4 Mbps achievable with later releases. This will provide customers with faster access speeds than experienced on existing 3G networks.

HSDPA is enabled through the deployment of new software in the 3G radio network and expanding the processing capabilities of the node B. Significant performance benefits are achieved by using mechanisms that use the radio interface more effectively and are further adapted to ‘bursty’ packet based data traffic using IP. A Vodafone Mobile Connect data card which supports HSDPA is available commercially, and compatible Vodafone live! handsets will be launched in the summer of 2006.

HSDPA has been launched commercially by a number of the Group’s mobile operations, including Germany and Portugal, and will be launched by other operating companies in the Group during the 2007 financial year.

While HSDPA focuses on downlink (network to mobile), Vodafone is also working on improving the data speeds in the uplink (mobile to network) to achieve speeds of up to 384kbps.

Global services
Supply chain management
Handsets, network equipment, marketing and IT services account for the majority of Vodafone’s purchases, with the bulk of these purchases from global suppliers. The Group’s Global Supply Chain Management (“GSCM”) team is responsible for managing most of the Group’s relationships with these suppliers.

As GSCM has expanded its scope of activities, Vodafone has seen significant progress in reducing per unit capital and operational expenditures, by leveraging the Group’s scale.

GSCM works with more than 250 strategic suppliers. A consistent supplier performance management process has been implemented across the Group’s mobile operations and Vodafone is actively managing a growing number of key suppliers in this way. Key suppliers are evaluated across six areas, covering aspects of financial stability, technological and commercial criteria, delivery and quality management requirements and corporate responsibility. This process is also being applied to consider relationships with new suppliers, and recently several Chinese suppliers have been qualified for business through GSCM’s China Sourcing Initiative.

GSCM also strives to identify best practice across the Group’s mobile operations with the aim of harmonising business processes, which will bring the benefits of further reducing procurement costs and reducing time to market.

Global suppliers are required to comply with the Group’s Code of Ethical Purchasing which sets out the labour and environmental standards the Group expects suppliers to meet. The Code is based on the Group’s values and international standards, including the Universal Declaration of Human Rights and the International Labour Organisation Conventions on Labour Standards.

A business-to-business electronic commerce strategy is currently being implemented to further increase transparency and control. In the 2006 financial year, purchases of more than £0.8 billion have been effected through e-auctions, driving significant cost savings.

More recently, a global demand management application has been implemented as part of the One Vodafone programme. This web-based application has been developed to provide improved co-ordination of the global purchase of handsets, providing benefits such as the reduction of inventory and obsolescence risk, improved availability and improved effectiveness to allow the Group to respond better to market changes.

It is the Group’s policy to agree terms of transactions, including payment terms, with suppliers and it is the Group’s 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 suppliers at the year end as a proportion of the amounts invoiced by suppliers during the year, was 36 days (2005: 35 days) in aggregate for the Group.

Products and services
Voice services
Revenue from voice services makes up the largest portion of the Group’s revenue and the Group is undertaking a wide range of activities to encourage growth in the usage of these services. In increasingly competitive local markets where value for money is an important consideration, improving use of existing products and developing a range of new offerings for customers has helped the Group to continue to grow total voice revenue.

Value for money is an important factor for customers when choosing a mobile phone network and is also important in encouraging usage of services whilst maximising revenue and margins. Two main charging or payment models exist in the mobile market – contract and prepaid. Contract customers are usually governed by a written contract and credit facilities are granted to them to enable access to mobile network services. In most cases, contracts have a term of 12 to 24 months with monthly payments for services and, in many of the Group’s mobile operations, the option of purchasing a subsidised handset. A prepaid customer pays in advance in order to gain access to voice and other services. The take-up of these models in the markets in which the Group operates varies significantly, from the US, where the vast majority of customers are on contract plans, to Italy and Egypt, where the market is predominantly prepaid.

The Group has made pricing more customer friendly and value inclusive in a number of its mobile operations. In many cases, these new price structures include large minute bundles that allow customers to talk more for longer. These larger bundle packages and promotions have driven significant usage growth in many of the markets in which the Group operates, although the price per minute is falling across most markets.

Revenue is generated by incoming as well as outgoing calls. Interconnect revenue is received when a customer of a fixed line or other mobile operator network calls a Vodafone customer. Approximately a fifth of mobile voice revenue is derived from incoming calls.

The Group continues to invest in providing enhanced network coverage for services in response to Group-wide customer feedback. In parallel, the Group is improving network service quality to ensure that customers can use their mobile phone whenever and wherever they want.

Social products
Work has continued this year on making mobile services more accessible to people with special communication needs. Vodafone has undertaken significant research to better understand the levels of exclusion relating to use of mobile technology, which is helping to inform relevant areas of the business.

A new Social Investment Fund has been formed to provide incremental resources going forward and to seed initiatives that can demonstrate high social value. One of the initiatives likely to benefit from this is M-pesa, an innovative mobile micro-finance service now on trial in Kenya. This service, run in conjunction with a local bank and Vodafone’s Kenyan joint venture, Safaricom, enables customers to move money in and out of accounts, between other customers and to withdraw cash, all using secure mobile messaging.

Non-voice services
Messaging services
All of the Group’s mobile operations offer SMS, which allows customers to send and receive text messages using mobile handsets and various other devices. SMS usage continued to grow in the 2006 financial year and is the largest contributor to total messaging revenues. MMS, which offers customers the ability to send and receive multiple media, such as pictures, music, sound, video and text, to and from other compatible devices is also available in all Group mobile operations, with the exception of Albania. MMS has enjoyed strong revenue growth in the 2006 financial year across the Group.

Vodafone’s mobile instant messaging service (“Vodafone Messenger”) was re-launched during November 2005 in Italy, Spain and the Netherlands and is currently available in 11 countries. The service has full compatibility with Microsoft’s MSN Messenger in order to address growing customer needs for instant communications.

Vodafone live!
Vodafone live!, the Group’s integrated communications and multimedia proposition initially launched in October 2002, has continued to grow strongly. The proposition, targeted primarily at the young adult (“young active fun”) segment, has been launched in four new markets since 31 March 2005, bringing the total number of countries now offering Vodafone live! to 24. The new markets added in the 2006 financial year were Luxembourg, Iceland, Cyprus and South Africa. At 31 March 2006, there were 27.1 million Vodafone live! active devices on the Group’s controlled and jointly controlled networks, with an additional 5.9 million devices connected in the Group’s associated undertakings.

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Vodafone has continued to develop the Vodafone live! proposition by offering a new range of services, content, handsets and tariffs. The design of the Vodafone live! portal, through which customers can access a range of online services – including games, ringtones, news, sports and information – is being continually enhanced to provide richer content and to make it easier for customers to find and purchase content.

The important ringtones market has continued to develop with mass market adoption of ‘real-tones’ where customers are able to purchase samples of real music recordings as ringtones from artists signed to labels including EMI, Sony BMG Music Entertainment, Universal Music and Warner Music.

Tariff structures have been updated, with a range of messaging and content based bundles now available to customers. These have delivered improved customer value, particularly when offered in conjunction with a handset purchase. In addition, browsing charges for accessing the mobile internet have been simplified in many markets, making it more attractive for customers to browse the web using their mobile phones.

23 new 2.5G phones have been added to the Vodafone live! portfolio in the 2006 financial year, with an increased emphasis on exclusive and customised devices. The new handsets have offered improved camera capabilities, better connectivity, with a significant proportion of devices now offering ‘Bluetooth’ (a wireless link function), and increased memory card storage to enable customers to save content on their devices.

Throughout the 2006 financial year, Vodafone has continued to develop standards in the areas of terminals, platforms, games, digital rights management and MMS. These initiatives are expected to lead to increased speed to market and better services for customers.

Vodafone live! with 3G
In November 2004, the Group launched Vodafone live! with 3G across 13 markets, with an initial portfolio of 10 devices. Vodafone live! with 3G is now available in 10 controlled markets, two joint venture markets, three associated company markets and three Partner Markets. At 31 March 2006, there were 7.1 million devices registered on the controlled and jointly controlled networks capable of accessing the Vodafone live! with 3G portal, and the portfolio of Vodafone live! with 3G devices had expanded to 35. 17 new 3G phones have been added to the portfolio during the 2006 financial year.

An enhanced mobile experience gives Vodafone live! with 3G customers access to a range of high quality content and communication services. Vodafone live! with 3G customers can now experience news broadcasts, sports highlights, music videos, movie trailers and other video content at a quality approaching that of digital television.Vodafone continues to work with leading content partners, including HBO, Eurosport, MTV, UEFA Champions League, Fox and Discovery, to enhance the mobile TV and film content offering. The wide bandwidth of 3G supports access to sophisticated 3D games and the portfolio of mobile games is continually expanding.

The 3G service also supports full track music downloads which allow customers to use their phone to listen to music, choosing from a range that currently includes more than 600,000 music tracks. Vodafone has secured music from some of the world’s greatest artists through agreements with EMI, Sony BMG Music Entertainment, Universal Music, Warner Music and other independent record labels. Using the 3G service, customers can also download live performance videos and stream clips direct to their mobiles.

In the coming year, Vodafone will continue to enhance the music offering with the introduction of Vodafone Radio DJ, a personalised, interactive radio service streamed to both 3G phones and PCs. Customers will have access to hundreds of thousands of tracks and will be able to personalise radio channels to their taste. This service will be offered on a monthly subscription, giving unlimited listening time, and is due for release in more than 20 countries over the next year.

In February 2006, a deal was signed with Google giving Vodafone customers access to the Google search engine via the Vodafone live! portal. The addition of the Google search engine (to be available from October 2006) will help customers access content more easily both on-portal and on the wider ‘mobile internet’. The agreement also sees the introduction of a new advertising based revenue stream to Vodafone live! by incorporating relevant sponsored links within customer search results. The partnership provides a future framework for other innovative collaborations between Vodafone and Google, bringing new opportunities to further expand consumer offerings by incorporating other existing Google products.

Content standards
Vodafone has continued to provide a leadership role in content standards with the launch of a global access control programme and an off-net filter. The access control programme demonstrates Vodafone’s commitment to deliver content responsibly and provides the capability for parents to restrict access to content that may be inappropriate for younger users. Ensuring that the mobile needs of parents and their children are satisfied will remain a priority during the 2007 financial year.

As new media channels evolve, a number of Vodafone initiatives are designed to ensure protection for our customers from inappropriate content, contact and commercialism. These include providing supporting guidelines around the marketing of content to customers, signing up to the codes of practice on spam content and the development of editorial guidelines to provide more robust parental controls.

Vodafone Mobile Connect data cards
First launched in April 2003, the Vodafone Mobile Connect data card provides simple and secure access to existing business information systems such as email, corporate applications, company intranets and the internet for customers on the move. Access speeds vary depending on which technology the data card is using but typically ranges from 384 kbps when connected to a 3G network up to 1.2 Mbps when connected to a network enabled with HSDPA technology. The Vodafone Mobile Connect with 3G broadband data card, which utilises HSDPA technology, has been launched in five markets, with other markets to follow during the 2007 financial year.

The Vodafone Mobile Connect 3G/GPRS data card has now been rolled out across 11 controlled markets, two joint venture markets, three associated companies markets and ten Partner Markets. Vodafone Mobile Connect data cards are available in an increasing number of distribution channels.

During the 2006 financial year, Vodafone announced the launch of built-in 3G broadband connectivity with Acer, Dell and Lenovo notebooks. The roll out of the notebooks will further enhance the choices available to Vodafone customers for high speed mobile working.

The product portfolio was enhanced during the financial year with the launch of an EV-DO data card allowing customers to connect with Verizon Wireless’ high speed data network whilst travelling in the US. In addition, Vodafone also launched a 3G router in conjunction with Cisco and Linksys, which enables mobile connectivity for groups of employees.

At 31 March 2006, there were 0.7 million registered Vodafone Mobile Connect data cards in the Group’s controlled and jointly controlled markets.

Vodafone Wireless Office
Vodafone Wireless Office offers companies the opportunity to reduce the number of fixed desk phones they have and facilitates the move of voice minutes from the fixed to the mobile network through a solution that includes elements that can match or better fixed line call costs, desk phone functionality and user experience. A closed user group tariff, allowing employees to call each other for a flat monthly fee, is a key part of the offer. Another optional element allows a customer to control their mobile phone from their PC or laptop.

At 31 March 2006, Vodafone Wireless Office was available in 14 markets and had over 1.5 million customers.

Other business services
Beyond the wireless enablement of notebook computers, there is an increasing demand for handheld solutions that allow real-time access to email, calendar, contact and other applications. During 2004, Vodafone launched its BlackBerry^®from Vodafone proposition, which is now available in 11 controlled markets, two joint venture markets, three associated company markets and nine Partner Markets.

There were 0.4 million BlackBerry from Vodafone customers on the Group’s controlled and jointly controlled networks as at 31 March 2006.

On 21 April 2005, the Group announced the roll out of Vodafone Push email, a service providing real-time, secure and remote access to email, contacts and calendar direct to a range of business-focused mobile devices. The service has been rolled out in six controlled markets, one joint venture market, two associated company markets and two Partner Markets. At 31 March 2006, the service was supported by ten global devices and a varied number of local devices in the controlled markets.

Roaming services
When travelling abroad roaming allows mobile phone users to make and receive calls using another mobile network in the visited country. The Group continued to expand its roaming coverage and services during the 2006 financial year. The focus of the year, however, was to provide reduced, clearer and easier to understand prices to our customers under the Vodafone Travel Promise roaming campaign launched in May 2005.

On 8 May 2006, the Group announced that average European roaming costs for Vodafone customers will be cut by at least 40% by April 2007, when compared to the period from June to August 2005. This is expected to benefit over 30 million Vodafone customers who roam every year, and will see the average cost of roaming in Europe fall from over 90 eurocents per minute to less than 55 eurocents per minute. The average

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saving was determined by calculating the expected cost per minute for all Vodafone’s European customers who roam within the EU during the month of April 2007 and comparing this to the average cost per minute for all European customers who roamed within the EU during the period from June to August 2005 (see “Regulation”).

Vodafone also announced that it will enter into reciprocal wholesale arrangements with any other European operator at no more than 45 eurocents per minute for voice calls within the EU from October 2006. This will enable both Vodafone and other European mobile operators to continue to lower the cost of roaming to customers outside of their own networks.

Vodafone Passport
Vodafone Passport introduced a new roaming pricing architecture for calls made on Vodafone and Partner Networks, enabling customers to “take their home tariff abroad”. The Vodafone Passport price architecture offers greater price transparency and certainty to customers when using roaming services abroad. Whilst abroad, customers can make calls using their domestic tariff, in some cases including free minute bundles, and receive calls at no charge – for a one-off connection fee per call.

Vodafone Passport is now available in 10 controlled markets, one joint venture market, one associated company market and one Partner Market. By 31 March 2006, the service had attracted 5.6 million customers in the Group’s controlled and jointly controlled operations and a further 0.4 million customers in one of the Group’s associated undertakings and a Partner Market. Results show that on average, customers are both talking more and paying less per call when abroad. In addition, Vodafone’s cost per minute for roaming customers fell by over 30% from summer 2004 compared with summer 2005.

Wholesale strategy
During the year, the commercial management of the Group’s business with its main roaming partners has been consolidated in order to better leverage the scale and scope of the Group’s branded footprint. This arrangement has successfully secured a number of important wholesale roaming discount agreements with other networks on behalf of the Group. These provide cost structures that support the development of our roaming customer propositions, promote the mutual development of roaming services with our Partner Markets, and deliver significant cost savings.

Managed roaming, the network technology that automatically directs Vodafone customers to the networks of Partner Markets, is now operating in ten markets, delivering a strong Vodafone customer experience and allowing the Group to benefit from an improved cost structure.

Data propositions
Several actions were taken to complement Vodafone Passport by providing simplicity, price predictability and value for money across data services. Vodafone Group took the initiative to reduce substantially – up to 66% in some markets – the cost per megabyte for standard data usage across its controlled markets. This move was followed by most joint ventures, associated companies and Partner Markets, enabling customers to benefit from a conveniently priced data platform across a wide footprint of 30 markets.

In addition, after pioneering flat monthly data roaming tariffs with its BlackBerry from Vodafone offer in 2004, Vodafone launched a monthly bundle for its Vodafone Mobile Connect 3G/GPRS data card in August 2005, which eliminated price uncertainty and further reduced the nominal cost per megabyte by over 80%. This has significantly increased usage and contributed to the revenue growth in data services seen over the 2006 financial year.

Vodafone Simply
The Vodafone Simply proposition, launched in May 2005, is predominantly targeted at the adult personal user segment. The integrated proposition has been developed to help customers who are less comfortable with mobile technology but would still like to access the mobile experience. The proposition includes exclusively developed, ‘easy to use’ mobile phones with uniquely developed user interfaces accompanied with tariff plans and a tailored retail and customer support experience.

At 31 March 2006, Vodafone Simply was available in a total of 17 markets, with 0.4 million Vodafone Simply enabled devices registered on the Group’s controlled and jointly controlled networks.

Marketing and brand
Brand
Brand marketing focuses on defining a superior, consistent and differentiated experience for our customers. A programme has been undertaken to identify the heart of the Vodafone brand, that is, Vodafone’s brand essence – which evokes passion, dependability and a constant striving for improvement. The brand essence has been used to bring the Vodafone brand to life for Vodafone employees, so that they can do the same for customers in every interaction.

Customer communications
Communication to drive brand preference and service usage is facilitated through various integrated advertising media including radio, television, print and outdoor sites. Global advertising has been developed to communicate the brand essence and to drive revenue growth by encouraging our customers to ‘make the most of Now’. Advertising is supported by strong sponsorship relationships, such as those with Ferrari and the UEFA Champions League, which have global exposure and allow for benefits to be realised at the local level. Media activity is based on customer insight, and is designed to ensure a consistent and effective brand experience across Vodafone’s footprint.

Customer strategy and management
Vodafone uses a customer management system called ‘customer delight’ to measure customer satisfaction in the Group’s controlled markets and the jointly controlled market in Italy at a local and global level. This is a proprietary diagnostic system which tracks customer satisfaction across all the points of interaction with Vodafone, and identifies the drivers of customer delight and their relative impact. This information is used to optimise satisfaction and maximise the financial benefit from differentiated marketing propositions and programmes.

Distribution
The Group distributes its products and services through a wide variety of direct and indirect channels, with different approaches used in the consumer and business sectors.

Products and services are available directly to both consumer and business customers in the majority of markets. Over 1,000 stores are directly owned and managed by Vodafone, with an additional 6,500 Vodafone branded stores. In addition, local websites offer products and services online and local sales forces are in place to discuss terms with business customers.

The extent of indirect distribution varies between markets but may include using third party service providers, independent dealers, agencies and mass marketing. 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.

Vodafone’s engagement with IT resellers and distributors has strengthened during the year, with global and local partnerships now fully operational in 12 countries across the Vodafone footprint. In support of this channel capability, Vodafone has launched a channel marketing programme to engage with the IT reseller community via the internet. The programme allows Vodafone marketing and communication access to the IT channel and incentivisation for the sale of Vodafone data products. The programme is operational in eight controlled markets and will be extended across the rest of the Vodafone footprint during the 2007 financial year. This engagement with the IT channel considerably extends Vodafone’s ability to sell to small and medium enterprises and small business customers as well as providing a key platform to support the launch of notebooks with built in 3G broadband during the coming year.

The last few years have seen the growth of MVNOs who buy access to existing networks and re-sell them to customers under a different brand name and proposition. Where such a relationship generates profitable use of network capacity and does not impact the Vodafone brand, a mobile operating subsidiary may consider entering into a partnership with an MVNO.

Multinational corporates (“MNC”)
In April 2005, Vodafone launched the first global business unit aimed at serving a specific customer segment – the multinational corporate market. The MNC business unit currently serves many of the world’s largest enterprises with a differentiated global MNC proposition. The sales and service teams are located across the globe, aligned with the customers’ locations. Customers of the business unit also benefit from a central service unit to develop specific propositions and pricing specifically targeted to meet the needs of a global Chief Information Officer, helping to purchase, manage, monitor and administer mobile telecommunications centrally within a global organisation.

The Vodafone MNC unit’s initial focus is on providing consistency across Vodafone markets for existing corporate solutions, together with dedicated global customer service and global account management. The MNC vision is “worldwide communications made easy for global businesses”. In the year since launch, the Vodafone MNC unit can offer a consistent BlackBerry from Vodafone solution in 12 markets, a Master Service Agreement covering nine countries, a global helpdesk offering third line support to the administrator of the global accounts, account and service management at a global and local level in over 20 markets with full support from a technical team to implement existing solutions, and help develop tailored solutions.

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Summary of Group products and services
The following table summarises the availability of the Group’s most significant products and services as at 31 March 2006. Only the markets in which Vodafone products and services are available to customers are represented below:

				Vodafone
			Vodafone	Mobile
			Mobile	Connect	Black-
		Vodafone	Connect	3G/GPRS	Berry	Vodafone	Vodafone
	Vodafone	live!	data	data	from	Push	Wireless	Vodafone	Vodafone
Country	live!	with 3G	card	card	Vodafone	Email	Office	Passport	Simply

Subsidiaries⁽¹⁾

Germany	•	•	•	•	•		•	•	•

Spain	•	•	•	•	•	•	•	•	•

UK	•	•	•	•	•	•	•	•	•

Albania			*					•

Australia	•	•	•	•	•		•		•

Egypt	•		•		•

Greece	•	•	•	•	•	•	•	•	•

Hungary	•	*	•	•	•		•	•	•

Ireland	•	•	•	•	•	•	•	•	•

Malta	•		•			•		•	•

Netherlands	•	•	•	•	•	•	•	•	•

New Zealand	•	•	•	•	•		•		•

Portugal	•	•	•	•	•		•	•	•

Romania				•

Joint Ventures

Fiji			•

Italy	•	•	•	•	•	•	•	•	•

South Africa	•	•		•	•

Associates

France	•	•	•	•	•	•	•	•	•

Belgium	•	•		•	•	•

Switzerland	•	•		•	•				•

Partner Markets

Austria	•	•		•	•				•

Bahrain			•	•

Croatia	•	•	•	•	•

Cyprus	•			*

Denmark			•	•	•

Estonia			•			•	•

Finland			•	•		•

Hong Kong				•	•

Iceland	•		•		•				•

Kuwait			•

Luxembourg	•			•	•

Singapore				*	•

Slovenia	•		•		•

Sweden	•	•	•	•	•		•	•	•

Total markets	24	17	24	26	25	12	14	13	17

Note:
(1)	The following information is presented for continuing operations only. Japan is classified as a discontinued operation.

Key:
•	Available throughout the 2006 financial year
•	Launched in the 2006 financial year
*	Launched since 31 March 2006

One Vodafone
The One Vodafone initiatives are aimed at achieving cost savings and enhancing revenue for the Group’s controlled mobile businesses and the Group’s jointly controlled mobile business in Italy. The Group has previously targeted that, in the 2008 financial year, the total of operating expenses (being the aggregate of payroll and other operating expenses) and capitalised fixed asset additions, would be broadly similar to those for the 2004 financial year, assuming no significant changes in exchange rates and after adjusting for acquisitions and disposals.

The Group has also previously targeted mobile capitalised fixed asset additions in the 2008 financial year to be 10% of mobile revenue as a result of the initiatives.

Further, revenue enhancement initiatives were expected to deliver benefits equivalent to at least 1% additional revenue market share in the 2008 financial year compared with the 2005 financial year, which the Group is measuring in Germany, Italy, Spain and the UK against its principal competitors.

The Group has updated its One Vodafone targets to reflect both the new organisational structure and additional cost saving initiatives.

Capitalised fixed asset additions are expected to be 10% of revenues in the 2008 financial year for the total of the Group’s Europe region and its common functions.

The Group now expects the aggregate of payroll and other operating expenses to be broadly stable in the 2008 financial year when compared to the 2006 financial year for the total of the Group’s Europe region and its common functions, assuming no significant changes in exchange rates, after adjusting for acquisitions and disposals, and excluding the potential impact from its New Businesses unit and any one off business restructuring costs.

The objective for the 2006 financial year has been to commence implementation of the plans outlined last year. Significant benefits are expected in the 2007 financial year, with the full targets expected to be met in the 2008 financial year.

The One Vodafone programme has focused on six key initiatives, as follows:

•	The network and supply chain management initiative has driven prices down over the last two years in the radio network area through competitive bidding via e-auctions and standardising specifications for base stations, accessories and operating costs. In core networks, the Group is advancing towards an all IP based network, thereby simplifying and reducing the number of component parts and leading to lower costs. Through increasing the amount of self built transmission, both through microwave links and owned dark fibre, costs are being reduced and future cost escalation will be limited as the volume of data traffic grows.

•	The service platforms initiative has created a shared service organisation to host the European development and operations of services. The shared service organisation is now providing a hosting service for the Vodafone live! portal for seven of the Group’s mobile operating subsidiaries, the Group’s joint venture in Italy and two Partner Markets. Other platforms are also being migrated and new services are being implemented, for the first time, solely on the shared service platform. The centralisation is designed not only to reduce costs but also to increase revenue through reduced time to market for new products and services.

•	The IT initiative focuses on the two areas of data centres and application development. For data centres, which host the servers to support billing and customer relationship management systems, consolidation is underway, with migrations of all of the Southern European, German and Dutch data centres completed in the year, and work is progressing on the UK and Ireland data centres following the completion of the planning phase in the 2006 financial year. The remaining part of the IT effort is focused on driving efficiencies in application development and maintenance, which will continue through to 2008 and beyond. Activities in both these areas are enabling the Group to leverage its global purchasing power and drive operational excellence.

•	The customer management programme is focused on driving segment and value based service differentiation to improve customer satisfaction, generate revenue and reduce churn. During the 2006 financial year, achievements included the launch of a common customer management service strategy, the implementation of a cross operating company network of specialised roaming customer care teams to improve service for our roaming customers and the roll out of a number of best practice activities to a number of operating companies.

•	The focus of the terminals programme is to provide an end to end process for delivering terminals to our customers, driving benefits from scale and reduced time to market. At present, the procurement of approximately four out of five handsets in the Group’s mobile operating subsidiaries and joint venture in Italy is negotiated globally, providing the Group with scale advantages. In addition, complexity in handsets is being reduced by standardising components and the move to a smaller number of technology platforms. It is expected that these activities, together with the launch of

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	exclusive Vodafone branded handsets, will drive incremental revenue benefits, as well as cost savings, through reduced churn and higher ARPU per handset.

•	Finally, the focus of the roaming initiative is to transform customers’ roaming experience, primarily through reducing barriers to usage by providing better value when they travel abroad. In addition, providing the best value inter-operator tariffs and consolidating certain roaming support activities are key goals of the programme. Vodafone Passport has been launched in 13 markets and over 6 million customers have signed up to the service at 31 March 2006. Improvements in customer satisfaction and a higher proportion of customers roaming on to Vodafone networks have been observed.

Research and Development (“R&D”)
The Group’s R&D function comprises an international and multicultural team for applied research in mobile telecommunications and its applications. The majority of the Group’s R&D function is undertaken through the Group’s centres of excellence, located in Newbury, Maastricht, Munich, California, Milan and Madrid, and in an associate centre in Paris belonging to Vodafone’s associated undertaking in France, SFR. In the 2006 financial year, the R&D Centre in Tokyo was re-absorbed into the Japanese operation and ceased to engage in research and development for the Vodafone Group. The work of the centre in California was refocused to activities where a presence in the US was essential in order to carry them out and the size of the centre reduced accordingly. Early in 2006, the Group’s R&D function was given full responsibility for intellectual property across the Vodafone Group.

The Group’s R&D function provides technical leadership, and a programme of research support, into technology that will typically start to be used in the business in three years and beyond. Governance is provided by the Group R&D Board which is chaired by the Group R&D Director and consists of the chief technology officers from four of the mobile operating subsidiaries, together with the heads of Future Products, Business Strategy, Terminals and Technology Development.

The Group’s R&D function focuses on applied research that is positioned between the basic research undertaken by universities and commercial product development. The emphasis of the Group’s R&D work programme is on providing technology analysis and vision that can contribute directly to business decisions, enabling new applications of mobile telecommunications, using new technology for new services, and research for improving operational efficiency and quality of the Group’s networks. The work programme is organised into technology research and application research. The technology research is concerned with core radio, network and service enabling technologies. It includes business modelling techniques, application of social science and analysis of disruptive technologies. The application research is concerned with developing new business applications of radio based technologies for commercial launch. Both areas of research are directed to expanding business boundaries and opportunities through advances in technology, science and business practice.

The work of the Group’s R&D function is delivered through a series of programmes with a substantial number of trials, demonstrations and protoypes. All work is set in a business and social context. There is growing emphasis on work that secures intellectual property rights or can otherwise lead to Vodafone having stronger influence on the technology it will deploy in the future. In addition, the Group’s R&D function provides leadership for funding research into health and safety aspects of mobile telecommunications and technical leadership for the Group’s spectrum strategy.

The main themes currently being researched are the evolution of 3G, new application areas for mobile communications and convergence with the internet. The basis of the Group’s 3G radio technology is W-CDMA and enhancements to provide a higher speed version, usually referred to as HSDPA, or High-Speed Uplink Packet Access (“HSUPA”), are currently being rolled out. The focus over the last year has been on setting scientifically justifiable targets for the long term evolution of the 3G radio interface and establishing these within the industry. Evolutions to the core network based on ubiquitous use of internet protocols and web services complement this, and are leading to a convergence of internet and mobile technologies. Several internet based or converged services have been prototyped and demonstrated within the Vodafone community. Significant R&D effort has also been dedicated to transferring previous research results in mobile TV to the Group’s marketing and technology functions to provide the basis for the Vodafone’s mobile TV programme. Applications of mobile telecommunications to health and well being, intelligent transport systems and the digital home are also being researched.

Much of the work of the Group’s R&D function is done in collaboration with others, both within the Group and externally. Joint R&D facilities have been set up with three major infrastructure suppliers. Infrastructure and handset suppliers work with the Group’s R&D function on many of its projects, from providing equipment for trials, through coauthoring research reports, to being a partner in some of the R&D programmes. At the more academic end of the spectrum of applied research, the Group’s R&D function continues to develop relationships with a number of universities. These relationships include sponsoring research students, collaboration in European research activities, funding specialised research centres and working with Vodafone funded chairs and readerships. This year, the Group’s R&D function hosted an Academic Conference where

it brought together its academic partners to consolidate its academic research programme.

The R&D programme provides the Group with long term technical policy, strategy and leadership, as well as providing technical underpinning for the Group’s public policies and government relations, and is shared with all of the Group’s mobile operations and common functions. They are able to influence the programme through working relationships that are designed to allow delivery of the results of the programme directly into the business units where they are needed.

The Group expensed £206 million in the 2006 financial year on R&D, compared with £198 million in the 2005 financial year, and capitalised development costs of £10 million (2005: nil). Besides the core R&D outlined above, this expenditure was incurred principally on developing new products and services, billing systems and network development.

Non-mobile Telecommunications
The Group’s non-mobile telecommunications businesses comprise interests in Arcor, Neuf Cegetel and Bharti Airtel (“Bharti”), previously named Bharti Tele-Ventures.

Arcor is the second largest fixed line telecommunications provider in Germany. Based on its own Germany-wide voice and data network, Arcor offers its customers a range of services for voice and data transfer, with a focus on direct access based broadband and internet protocol enabled virtual private network (“IP-VPN”) products. The Group’s ownership interest in Arcor is 73.7% and it is accounted for as a subsidiary.

The merger of Cegetel and Neuf Telecom completed on 22 August 2005, creating the leading alternative operator for fixed telecommunication services in France, offering a wide range of fixed line telephone services to residential and business customers as well as special corporate services ranging from internet and customer relations management to internet and intranet hosting services. The new entity, Neuf Cegetel, has the largest alternative broadband network in France, with 70% population coverage. The Group’s indirect ownership interest in Neuf Cegetel is 12.4% and it is accounted for as an associated undertaking. In May 2006, the Group’s indirect ownership interest increased to 15.4%.

Bharti is an Indian based mobile fixed line telecommunications operation with three strategic business units: mobility, enterprise services and broadband. The Group’s ownership interest in Bharti is 10% and it is accounted for as a joint venture.

History and Development of the Company
The Company was incorporated under English law on 17 July 1984 as Racal Strategic Radio Limited (registered number 1833679), as a subsidiary of Racal Electronics Plc, and changed its name to Racal Telecommunications Group Limited in September 1985. In September 1988, it became Racal Telecom Limited then re-registered as Racal Telecom Plc, a public limited company. In October 1988, approximately 20% of the Company’s capital was offered to the public. The Company 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.

Between 1991 and 1999, the Group consolidated its position in the United Kingdom and enhanced its international interests through a series of transactions. At 31 March 1999, the Group had subsidiary mobile network operating companies (“mobile operating subsidiaries”) in six countries (the UK, the Netherlands, Greece, Malta, Australia and New Zealand), as well as equity interests in a further seven countries, and a proportionate mobile customer base of 10.4 million.

The Group completed a number of business transactions between 1999 and 31 March 2003, which transformed the Company into the world’s leading international mobile telecommunications company. The most significant transactions were:

•	The merger with AirTouch Communications, Inc. (“AirTouch”), which completed on 30 June 1999. The Company changed its name to Vodafone AirTouch Plc in June 1999. The combined Group had mobile operating subsidiaries in 10 countries, (adding Sweden, Portugal, Egypt and the US) and equity interests in an additional 12 countries.

•	The acquisition of Mannesmann AG (“Mannesmann”), which completed on 12 April 2000. Through this transaction the Group acquired subsidiaries in two of Europe’s most important markets, Germany and Italy, and increased the Group’s indirect holding in SFR, a French mobile telecommunications operator. Subsequent to the acquisition, the Group sold a number of non-core businesses acquired as part of the Mannesmann transaction. Following approval by its shareholders at the Annual General Meeting (“AGM”), the Company reverted to its former name, Vodafone Group Plc, on 28 July 2000.

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Business Overview
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•	The combination of the Group’s US mobile operations with those of Bell Atlantic Corporation and GTE Corporation to form the Cellco Partnership, which operates under the name “Verizon Wireless”, on 10 July 2000. The Group owns 45% of Verizon Wireless and accounts for it as an associated undertaking.

•	The acquisition of Airtel Móvil S.A., a mobile network operator in Spain, which became a subsidiary of the Group in December 2000.

•	The acquisition of Eircell Limited, a mobile network operator in Ireland, following a public offer for shares which closed in May 2001.

•	The acquisition of the Group’s operations in Japan. The Group’s initial investment in Japan resulted from the AirTouch merger and between the date of the merger and October 2001, the Group increased its effective interest in the Japanese mobile telecommunications company, J-Phone Co. Ltd to 69.76% through a number of transactions. The Group also acquired a 66.7% stake in the fixed line operator, Japan Telecom Co., Ltd (“Japan Telecom”).

By 31 March 2003, the Group controlled mobile operations in 16 countries and held equity investments in mobile operations in a further 12 countries. The proportionate mobile customer base was 119.7 million at that date.

Transactions since 31 March 2003
Acquisitions
Subsidiary undertakings
Turkey
On 13 December 2005, the Group announced it had agreed to acquire substantially all the assets and business of Telsim Mobil Telekomunikasyon (“Telsim”) from the Turkish Savings Deposit and Investment Fund. The transaction was completed on 24 May 2006, with cash paid of $4.67 billion (£2.6 billion). Telsim was consolidated as a subsidiary undertaking from that date.

Czech Republic and Romania
On 31 May 2005, the Company announced that its wholly owned subsidiary, Vodafone International Holdings B.V., had completed a transaction with Telesystem International Wireless Inc. of Canada to acquire:

•	79.0% of the share capital of MobiFon S.A. (“MobiFon”) in Romania, increasing the Group’s ownership in MobiFon to approximately 99.1%; and,

•	99.9% of the share capital of Oskar Mobil a.s. (“Oskar”) in the Czech Republic

for cash consideration of approximately $3.5 billion (£1.9 billion) which was funded from the Group’s cash resources. In addition, the Group assumed approximately $1.0 billion (£0.6 billion) of net debt. The remaining 0.9% of MobiFon was acquired in a separate transaction in the 2006 financial year.

On 1 February 2006, Oskar was renamed Vodafone Czech Republic.

Egypt
On 16 May 2003, the Group increased its shareholding in Vodafone Egypt from 60.0% to 67.0%. Subsequently, the Group has reduced its effective interest in Vodafone Egypt to 50.1%. Further details are provided in “Performance – Financial Position and Resources – Option agreements and similar arrangements” on page 42.

Greece
On 1 December 2003, following the purchase of a 9.433% stake in Vodafone Greece from Intracom S.A., the Group announced a public offer for all remaining shares not held by the Group. As a result of the offer and subsequent market purchases, the Group increased its effective interest in Vodafone Greece to 99.4% at 31 March 2004. The total aggregate cash consideration paid in the 2004 financial year was £815 million.

Vodafone Greece’s shares were delisted from the Athens and London Stock Exchanges on 15 July 2004 and 20 August 2004 respectively.

Between 24 January 2005 and 31 March 2005, the Group acquired a further 0.4% interest in Vodafone Greece through private transactions at a price equal to the price paid in the public offer.

Hungary
On 10 June 2003, the Group increased its stake in Vodafone Hungary to 87.9% by subscribing for Antenna’s share of an issue of ‘C’ shares.

In the first half of the 2005 financial year, the Group subscribed for HUF 89,301 million (£248 million) shares in Vodafone Hungary, increasing the Group’s stake to 92.8%. On 24 September 2004, the Group entered into a sale and purchase agreement to acquire the remaining 7.2% shareholding from Antenna. This transaction completed on 12 January 2005 with the effect that Vodafone Hungary became a wholly owned subsidiary of the Group.

Japan
During the 2004 financial year, the Group sold its interest in Japan Telecom, as described under “Disposals”. In addition, J-Phone Co., Ltd was renamed Vodafone K.K. on 1 October 2003 and Japan Telecom Holdings Co., Ltd. was renamed Vodafone Holdings K.K. on 10 December 2003.

On 25 May 2004, the Group’s wholly owned subsidiary, Vodafone International Holdings B.V., announced offers for the shares not held by the Group in Vodafone Holdings K.K. and Vodafone K.K. As a result of these offers, the Group increased its effective shareholding in Vodafone K.K. to 98.2% and its stake in Vodafone Holdings K.K. to 96.1% for a total consideration of £2.4 billion. On 1 October 2004, the merger of Vodafone K.K. and Vodafone Holdings K.K. was completed and the Group held a 97.7% stake in the merged company, which was renamed Vodafone K.K. Subsequently, on 1 August 2005, shares in Vodafone K.K. were delisted from the Tokyo Stock Exchange.

Vodafone K.K was subsequently sold on 27 April 2006. Further details are provided in the section on “Disposals” below.

Malta
On 1 August 2003, the Group increased its shareholding in Vodafone Malta from 80% to 100% by purchasing Maltacom Plc’s 20% interest in Vodafone Malta for cash consideration of €30 million.

The Netherlands
During the 2004 financial year, the Group increased its effective interest in Vodafone Netherlands to 99.9% as a result of private transactions. The Group has exercised its rights under Dutch law and initiated compulsory acquisition procedures in order to acquire the remaining shares. Following these procedures, Vodafone Netherlands will become a wholly owned subsidiary of the Group. Vodafone Netherlands’ shares have been de-listed from the Euronext Amsterdam Stock Exchange.

Portugal
Having achieved an effective interest of greater than 90% at the start of the 2004 financial year, the Group implemented compulsory acquisition procedures to acquire the remaining shares, which became effective on 21 May 2003, for a further consideration of £74 million. As a result, Vodafone Portugal became a wholly owned subsidiary of the Group.

Sweden
Under compulsory acquisition procedures, on 15 March 2004, Vodafone Holdings Sweden AB obtained advanced access to an aggregate of 2,377,774 shares in Vodafone Sweden, giving the Group ownership of, and title, to these shares.

On 31 March 2004, the Group increased its effective interest in Vodafone Sweden to 100% by the purchase of 1,320,000 shares which were held in treasury by Vodafone Sweden.

Vodafone Sweden was subsequently sold on 5 January 2006. Further details are given on page 115.

UK
On 22 September 2003, the Group acquired 100% of Singlepoint (4U) Limited for a consideration of £417 million. In addition, as a result of a recommended cash offer announced on 5 August 2003, the Group acquired 98.92% of Project Telecom plc, after the offer was declared unconditional on 19 September 2003, and subsequently acquired the remaining 1.08% in November 2003, for a total consideration of £164 million. These businesses have been integrated into the Group’s UK operations.

Joint ventures
India
On 18 November 2005, the Group acquired a 5.61% direct interest in Bharti from Warburg Pincus LLC and, on 22 December 2005, the Group acquired a further 4.39% effective shareholding in Bharti by subscribing for convertible debentures in Bharti Enterprises Private Limited, bringing the Group’s effective shareholding in Bharti to 10.0%. Bharti is a national mobile operator in India which also provides fixed-line services. The total consideration paid for these transactions was Rs. 67 billion (£858 million).

South Africa
On 26 January 2006, the Group announced that its offer to acquire a 100% interest in VenFin Limited (“VenFin”) had become wholly unconditional. VenFin’s principal asset was a 15% stake in Vodacom Group (Pty) Limited (“Vodacom”) and VenFin has disposed of substantially all of its assets other than its stake in Vodacom for a cash consideration of R5 billion (£0.5 billion) to a new company owned by certain of the former shareholders in VenFin. At 31 March 2006, the Group held an effective economic interest in VenFin of 98.7% and an effective voting interest of 99.3%. On 20 April 2006, the Group completed the compulsory acquisition of the remaining minority shareholdings in VenFin, from which date the Group holds 100% of the issued share capital of VenFin. As a result the Group holds 50% of the share capital of Vodacom.

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	Business

Associates
SFR and Cegetel
In December 2003, in order to optimise cash flows between Cegetel Group and its shareholders, SFR was merged into Cegetel Group and this company was renamed SFR. The fixed line businesses, Cegetel S.A. and Télécom Développement, previously controlled by SNCF, were merged to form Cegetel S.A.S. (“Cegetel”), a company in which SFR had a 65% stake, giving the Group an effective interest of 28.5% at that date. The Group’s interest in SFR remained at approximately 43.9% as a result of this reorganisation.

On 11 May 2005, SFR announced an agreement to merge its fixed line business, Cegetel, with Neuf Telecom, subject to competition and regulatory authority and employee council approvals which were received, and the transaction completed, on 22 August 2005. Under the agreement, SFR purchased SNCF’s 35% minority interest in Cegetel, according to a pre-existing contract, and then contributed 100% of the capital of Cegetel to Neuf Telecom. In return, SFR received a 28% interest in the combined entity, Neuf Cegetel, together with a €380 million bond to be issued by Neuf Cegetel, bringing the Group’s effective shareholding in Neuf Cegetel to 12.4%.

Disposals
During the three year period ended on 31 March 2006, the Group has also disposed of interests in a number of Group companies.

Japan
On 14 November 2003, Vodafone Holdings K.K. completed the disposal of its 100% interest in Japan Telecom. The Group ceased consolidating the results of Japan Telecom from 1 October 2003. Receipts resulting from this transaction were ¥257.9 billion (£1.4 billion), comprising ¥178.9 billion (£1.0 billion) of cash, ¥32.5 billion (£0.2 billion) of transferable redeemable preferred equity and ¥46.5 billion (£0.2 billion) recoverable withholding tax, which was received during the 2005 financial year. In October 2004, the preferred equity was sold to the original purchaser for ¥33.9 billion (£0.2 billion).

On 17 March 2006, the Group announced an agreement to sell its 97.7% holding in Vodafone Japan to SoftBank. The transaction completed on 27 April 2006 for cash consideration of approximately ¥1.42 trillion (£6.9 billion) including the repayment of intercompany debt of ¥0.16 trillion (£0.8 billion). In addition, the Group received non-cash consideration with a fair value of approximately ¥0.23 trillion (£1.1 billion), comprised of preferred equity and a subordinated loan. SoftBank also assumed debt of ¥0.13 trillion (£0.6 billion).

Sweden
On 5 January 2006, the Group completed the disposal of its 100% interest in Vodafone Sweden to Telenor Mobile Holding AS (“Telenor”). Net cash proceeds after assumption of net debt by Telenor were €970 million (£678 million).

Other disposals
During the 2004 financial year, the Group disposed of its interests in its associated undertakings in Mexico, Grupo Iusacell, and India, RPG Cellular.

On 26 January 2005, the Group completed the disposal of a 16.9% stake in Vodafone Egypt to Telecom Egypt, reducing the Group’s effective interest to 50.1%.

Regulation

Introduction
The Group’s operating companies are generally subject to regulation governing the operation of their business activities. Such regulation typically 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 to facilitate market entry and establish regulatory frameworks. The following section describes the regulatory framework and the key regulatory developments in the EU and selected countries in which the Group has significant interests. Many of the regulatory developments reported in the following section involve ongoing proceedings or consideration of potential proceedings that have not reached a conclusion. Accordingly, the Group is unable to attach a specific level of financial risk to the Group’s performance from such matters.

European Union
Although most Member States of the EU (“Member States”) have now implemented the EU Regulatory Framework for the communications sector (“the EU Framework”), which was adopted in 2002, there remain both ongoing and new infringement proceedings against a number of Member States for late or inadequate implementation.

The EU Framework consists of four principal Directives outlining matters such as the objectives to be pursued by national regulatory authorities (“NRAs”), the way in which telecommunications operators 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 operators interconnect and provide access to each other.

The EU 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 at a wholesale level, for ‘voice call termination on individual mobile networks’ (the “call termination market”), the ‘wholesale national market for international roaming’ (the “roaming market”) and the wholesale market for ‘access and call origination’ (the “access market”) on public mobile networks (together the “relevant markets”). NRAs may, with the Commission’s consent, also propose markets not included in the Recommendation. The Commission will periodically review the Recommendation and the Commission has said it expects to complete the first such review by the end of 2006. This review may lead to an increase or a decrease in the number and scope of markets subject to sector specific regulation. Changes to the Recommendation are expected to become effective at the conclusion of the review,

while any changes to the framework would become effective following their transposition into national law, from approximately 2010 onwards. So far, the Commission has signalled that only minor changes to the regulatory framework will be considered. Whether the reviewed regulatory framework will increase or decrease the regulatory burden on the Group will depend on the changes being adopted by the EU, the manner in which revised directives are subsequently implemented in Member States and how the revised regulatory framework will be applied by the respective NRAs.

Regulation, under the EU Framework, can only be applied to undertakings with significant market power (“SMP”) (either individually or collectively) in the relevant markets, subject to the Commission’s consent. SMP under the EU 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 previous framework required only a 25% share of the relevant market. The Commission published SMP Guidelines in July 2002, which set out principles for use by NRAs in the analysis of markets to determine if undertakings have SMP under the EU Framework.

Spectrum
In September 2005, the Commission published proposals for spectrum reform across the EU, including proposals to allow holders of spectrum greater flexibility on the use to which it is put, to allow holders to trade spectrum within a spectrum market and to improve harmonisation of certain bands. The Commission has proposed that these reforms be enacted by 2010 and has commenced a number of actions to pursue its proposals, principally through the work of the Radio Spectrum Policy Group, a spectrum policy working group comprising the Commission and Member States.

Data retention
In 2005, the European Parliament passed a new Directive on the retention of electronic communications data for law enforcement purposes. Member States must now proceed with national implementation. The Directive sets out the data that network operators and service providers must store and, if requested, make available to law enforcement authorities for the purpose of the prevention, investigation, detection and prosecution of serious criminal offences. The initial investment and recurring annual operating costs to the Group of this data retention requirement may be material. It depends on how it is implemented nationally and the extent to which the total of such costs are compensated.

International Roaming
In February 2006, the Commission announced that it is proposing to enact new legislation by way of a regulation under Article 95 of the EU Treaty (which would have immediate effect) to reduce what it considers to be excessive prices charged by mobile network operators for international roaming services. The Commission has concluded its consultation on proposals for a regulation which it proposed would include both retail price regulation aimed at ensuring that the costs of calls when roaming are no more than equivalent domestic calls and the regulation of wholesale prices charged between mobile operators for roaming services.

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Regulation
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On 12 June 2006, the Commission announced that it had ‘fine tuned’ its proposals so as to set the maximum wholesale roaming charge for a local call (within the visited country) at twice the average EU mobile termination rate and that the price of international calls (from the visited country) will be set at three times the mobile termination rate. Retail prices would be capped at wholesale rates plus an allowance for retail costs of 20-30%. These proposals are now subject to consultation within the European Commission before being presented for consideration by the European Parliament and Member States, expected in July. The Commission expects the regulation to become law during 2007. In July 2005, the Commission, supported by the European Regulation Group (“ERG”), a body established under the EU Framework and comprising all EU NRA’s, also called for greater transparency of roaming tariffs and in October 2005 launched a website to inform the public about roaming tariffs within the EU. The website was updated in March 2006.

Anti-trust proceedings in relation to international roaming continue. In July 2004, the Commission issued a statement of objections, a document detailing its proposed findings, following its investigation into the UK market for wholesale international roaming and, in January 2005, the Commission issued a statement of objections following its investigation of the German market. In both cases, the statement of objections was addressed to both the national mobile operating subsidiaries and to the Company and, in both cases, Vodafone has responded both in writing and in oral proceedings.

The Commission’s proposed findings are that Vodafone has monopoly power over its wholesale customers in both the UK and Germany. Vodafone UK and Vodafone Germany are alleged to have engaged in excessive or unfair pricing. The Commission alleges that the abuse occurred from 1997 to at least September 2003 in the UK and from 2000 to December 2003 in Germany. In the event the Commission finds that there has been a breach of competition law, it may impose a fine on any addressee who had committed the breach.

Separately, the roaming market is one of the relevant markets in the Recommendation. In May 2005, the ERG adopted a common position on international roaming and several NRAs have since then commenced their reviews of the roaming market but no NRA has proposed any regulation in this market. NRAs in Finland and Italy have concluded their market analysis and found no operator to have SMP. The French regulator has concluded that no operator has SMP in the traditional sense but has proposed an extended definition of joint SMP which, if approved, could lead to a finding that all three French operators are jointly dominant. In addition, it has asked the Commission to take action using instruments outside of the existing Framework.

Germany
Germany enacted a law implementing the EU Framework in June 2004. Vodafone Germany agreed to and subsequently reduced its mobile call termination rate with Deutsche Telekom for incoming calls from Deutsche Telekom’s network in December 2004 from14.32 eurocents to 13.2 eurocents and in December 2005 to 11.0 eurocents. The NRA has found all mobile network operators to have SMP in the call termination market and has announced that it will now propose ex-ante price regulation in the absence of agreement to further reductions amongst the mobile network operators.

In February 2004, the NRA decided to award licences for 450MHz spectrum for the provision of public access mobile radio services. Vodafone Germany is appealing this decision.

The NRA has concluded that it will seek to harmonise the expiry of all 2G licences in 2016 and it will extend the terms of all licences ceasing prior to this date, including the licence held by Vodafone subject to agreement on fees. The NRA has also decided to award certain 900MHz frequencies to O2 and EPlus. The NRA is now developing proposals to license new spectrum at 2.6 GHz, often referred to as the 3G extension band, and is considering the auction of unused 3G spectrum at 2 GHz at the same time.

Italy
Italy enacted national law implementing the EU Framework in September 2003.

The NRA has concluded that all mobile network operators have SMP in the call termination market and has imposed obligations on Vodafone Italy of cost orientation, non-discrimination and transparency. In September 2005, Vodafone Italy reduced its rates by 19% from 14.95 eurocents to 12.10 eurocents. The NRA foresees further reductions to 11.20 eurocents from 1 July 2006 and by 13% below the retail prices index on both 1 July 2007 and 1 July 2008. Vodafone Italy has appealed the NRA’s decision.

The NRA concluded its review of the access market in February 2006 and found that no operator had SMP but has said it will keep the market under review.

In March 2005, the National Competition Authority (“NCA”) in Italy conducted unannounced inspections of the offices of mobile network operators in Italy, including Vodafone Italy, seeking evidence of collusion following complaints by resellers and potential MVNOs about alleged anti-competitive conduct. In November 2005, Vodafone Italy received a further request for information from the NCA. In February 2006, the NCA decided to prolong the duration of the proceeding until December 2006. If the NCA were to decide that there had been a breach of competition law, it would be able to impose a fine on any operator who had committed the breach.

In March 2006, the NRA published for consultation the draft analysis of the roaming market and found no operator to have SMP.

Spain
Legislation implementing the EU Framework was enacted in November 2003, and the main sections of secondary legislation were approved during 2004 and 2005.

In September 2005, the NRA announced a 10.57% reduction in Vodafone’s mobile termination rates, which was implemented by Vodafone Spain in November 2005. On 23 February 2006, the Spanish NRA found all mobile network operators to have SMP in the call termination market and imposed obligations including non-discrimination, cost orientation and accounting separation on Vodafone Spain. A further reduction in rates is expected on 1 September 2006.

In February 2006, the NRA found that the three mobile network operators held a position of joint SMP in the access markets. This decision was reviewed by the European Commission and the NRA allowed to proceed. The NRA has decided to impose a wholesale network access obligation at reasonable prices facilitating the entry of firms including MVNOs. Vodafone has appealed the decision of the NRA to find Vodafone as holding SMP in the Spanish courts and has appealed the decision of the European Commission to allow the NRA to proceed to the Court of First Instance at Luxembourg.

United Kingdom
The new Communications Act, implementing the EU Framework, was enacted in July 2003.

The NRA conducted and concluded its review of the access market and found that no operator had SMP. The NRA found that all mobile network operators have SMP in the call termination market and required Vodafone UK to reduce its termination charge for calls conveyed over the 2G network, with effect from September 2004, to a target average charge of 5.6 pence per minute. In December 2005, the NRA decided to maintain this price control until 31 March 2007. The NRA has now embarked upon consultation on proposals to regulate the call termination market in respect of calls conveyed over both 2G and 3G networks from April 2007.

The NRA has proposed that 2G mobile frequencies will be tradable in 2007. The NRA is assessing whether holders of 2G spectrum can use it to provide 3G services. The NRA is also consulting on a specific proposal to liberalise spectrum usage rights more generally.

United States
The Federal Communications Commission (“FCC”), the United States’ NRA, commenced a Notice of Inquiry in 2004 into the level of termination rates charged by foreign mobile network operators to US international operators. The FCC sought inputs on the status of foreign mobile termination rates, including actions taken to date by foreign regulators to address the issue. This proceeding remains pending.

The NRA plans to award spectrum via auction in the 1.7 and 2.1 GHz bands beginning in June 2006.

Other Mobile Operations
Subsidiaries
Albania
In March 2006, the NRA issued for consultation to the operators its analysis of the mobile market in Albania, where the NRA proposed to designate the mobile networks operators including Vodafone Albania as having SMP in two markets: the call termination market and “the market of mobile services to end users”. As a result, the NRA proposes obligations of transparency, non-discrimination and access obligations. The NRA may also impose retail price controls.

Vodafone Albania has submitted its comments and objections on the NRA’s market analysis. In addition, Vodafone Albania has been notified by the NCA of an investigation into alleged excessive pricing of mobile services. In May 2006, a Parliamentary Investigation Commission was established to investigate the two mobile operators and to prepare recommendations for liberalisation of the market.

Australia
The NCA released its final decision on the regulation of mobile termination in June 2004. In its review, it proposed that all mobile network operators have market power with respect to mobile termination and proposed a pricing principle that requires mobile call termination rates to fall from 21 Australian cents per minute to 12 Australian cents per minute. Vodafone Australia’s appeal of this decision was rejected. In addition, Vodafone Australia lodged an “access undertaking” proposing alternative rates, which the NCA has rejected. Vodafone Australia is now appealing that decision. The NCA has also received various requests for adjudication of disputes between Vodafone Australia and certain other operators, the results of which will apply from the date the dispute was lodged with the NCA.

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	Business

Czech Republic
In February 2005, Vodafone Czech Republic was awarded a 3G licence. There have been one or more complaints that the award may have breached EU competition law and the Commission is investigating the award process.

In May 2005, a new law implementing the EU Framework came into effect. Mobile number portability was implemented in January 2006.

Egypt
Egypt enacted a new telecommunications law in 2003, which gave new powers to the NRA and imposed new obligations on licensees, including obligations in relation to universal service provision. During 2004, Vodafone Egypt finalised an agreement with the NRA that covered most of these new obligations while obtaining additional spectrum in the 1800MHz range to facilitate business expansion.

In February 2005, the NRA announced proposals to award a third mobile licence. The licence will be technology neutral and enable both 2G and 3G services. The licence is expected to be awarded by September 2006. The NRA is planning to negotiate the award of 3G licences to the two existing mobile network operators by September 2006. Mobile number portability and national roaming are expected to be implemented in Egypt by April 2007.

Greece
Greece enacted national law implementing the EU Framework in February 2006. Vodafone Greece agreed to reduce its mobile termination rate from approximately 17.0 eurocents to 14.5 eurocents per minute on 1 October 2004. The NRA has found all firms to have SMP in the call termination market and has developed a Long Run Incremental Cost model (“LRIC model”) to determine cost oriented mobile call termination rates. Vodafone Greece will reduce its rate to 12.0 eurocents on 1 June 2006 and further reductions to approximately 10.0 eurocents will be made in one or more steps prior to 1 June 2007.

In August 2005, each of the mobile network operators was fined €500,000 for failing to implement mobile number portability.

In March 2006, the three largest mobile network operators were found by the NRA to have colluded in the setting of retail SMS prices and were fined €1 million each. Vodafone Greece has filed an administrative appeal.

In April 2005, the Council of State issued a judgement that base stations erected by mobile operators prior to August 2002 did not meet legal requirements. The new law seeks to remedy this but also prohibits the installation of base stations in schools and hospitals and decreases EMF exposure limits.

In March 2005, Vodafone Greece was made aware of a security issue in its network. Software foreign to the network, and capable of performing interception, had been installed in the network without Vodafone’s knowledge. The software was created, supported and maintained by an external supplier. The foreign software was removed without delay and the Greek authorities promptly informed. The authorities conducted investigations and subsequently made the matter public in February 2006. Since then, further investigations have taken place and continue. Vodafone Greece is co-operating with the Greek authorities.

Hungary
Hungary implemented the EU Framework in January 2004 as part of its preparations for joining the EU on 1 May 2004. In its review of the call termination market, the NRA has proposed that all mobile network operators have SMP and has imposed obligations of cost orientation, non-discrimination, accounting separation and transparency. Vodafone Hungary has appealed this finding. In May 2005, Vodafone Hungary complied with a requirement to reduce its call termination rates by 16%. Vodafone Hungary has appealed the decision. In its review of the access market the NRA found that no mobile network operator had SMP.

Ireland
Regulations implementing the EU Framework were adopted in June 2003. In December 2005, an appeal court annulled the NRA’s finding that Vodafone and O₂have joint SMP in the access market.

In its review of the call termination market, the NRA has found that all mobile network operators have SMP. The NRA has imposed obligations of cost orientation and non-discrimination on all operators and accounting separation and transparency on Vodafone and O₂. The NRA is also considering the use of price controls. Vodafone Ireland has agreed to reduce its rates by 11% below the retail price index per annum for the 24 months commencing January 2006.

In February 2006, the NRA withdrew a 3G licence it had awarded to Smart Telecom in November 2005. Smart Telecom is appealing this decision.

Malta
Legislation implementing the EU Framework in Malta was enacted during 2004. In the call termination market, the NRA has found both mobile network operators as having SMP and has imposed obligations on Vodafone Malta of cost orientation, non-discrimination, accounting separation and transparency. Vodafone Malta reduced its mobile termination rates by 5% from 11.5 eurocents per minute to 10.9 eurocents per minute in January 2006. The NRA is consulting on proposals to find Vodafone and Go Mobile, the two Maltese mobile network operators, as having joint SMP in the access market, with obligations to offer cost based access to MVNOs and indirect access to other parties.

Vodafone Malta and Go Mobile were awarded 3G licences in August 2005. The third 3G licence remains unassigned. In October 2005, Vodafone Malta was awarded a Broadband Wireless Access frequency licence to operate a nationwide network.

Number portability was implemented on 31 March 2006.

The Netherlands
The Netherlands implemented the EU Framework during 2004. In December 2003, mobile network operators reached agreement with the NRA and the NCA to reduce mobile call termination rates on 1 December 2004 from 15.4 eurocents per minute to 13.0 eurocents per minute, and on 1 December 2005 to 11.0 eurocents per minute. In addition, the NRA has finalised its review of the call termination market and has found that all operators have SMP and proposes remedies of cost orientation, non-discrimination and transparency.

In its review of the access market, the NRA found that no mobile network operator had SMP.

The Government is consulting on the extension or renewal of the existing 2G 900 MHz licences which expire in 2010.

New Zealand
The NRA released a report proposing regulation of mobile termination rates, including a rate reduction of 44% from 27 New Zealand cents per minute to 15 New Zealand cents per minute and reducing further to 12 New Zealand cents per minute by 2010/2011. These proposals were submitted to the Minister for approval, who has requested the NRA to reconsider them. The NRA has done so and published a further position in which its key findings remain essentially unchanged. These will now be resubmitted to the Minister.

The NRA is also reviewing regulation of national roaming and co-location and disputes submitted by Vodafone in relation to certain local interconnection services. It has also recently announced a review to determine whether further regulation or changes to existing regulation are necessary to promote competition in the mobile services market.

The NRA has approved industry plans for the introduction of mobile number portability and has set a date of April 2007 for its introduction.

The government is in the process of determining the price for renewal of 2G licences which expire in 2011.

Portugal
Portugal enacted national law implementing the EU Framework in February 2004. Following its review of the call termination market, the NRA found all three mobile network operators as having SMP and it has imposed obligations on Vodafone Portugal including cost orientation, non-discrimination, accounting separation and transparency. Vodafone Portugal reduced its mobile termination rates in July 2005 to 13.0 eurocents per minute and in January 2006 to 12.5 eurocents per minute.

Vodafone Portugal has requested the renewal of its 2G licence, which is due to expire in October 2006, and the Government has proposed terms which remain largely unchanged from those which already apply to the licence.

Romania
In March 2003, the NRA determined MobiFon, the Group’s subsidiary in Romania, as having SMP in the national interconnection market so, under national law, MobiFon’s mobile termination rates were reduced from 12.0 US cents to 10.0 US cents. In March 2005, the NRA granted a 3G licence to MobiFon.

Number portability will be implemented in Romania during the 2007 financial year, with the obligation for all mobile and fixed operators to provide number portability to customers no later than June 2007.

Vodafone Group Plc Annual Report 2006

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Regulation
continued

Joint ventures
Fiji
Vodafone Fiji has been required to make wholesale and retail price reductions of between from 15% to 70% for a range of services. In December 2005, Vodafone Fiji issued proceedings to prevent the government from issuing a second licence in breach of Vodafone’s exclusivity rights.

India
From 1 March 2006, a new Interconnection Usage Charge regulation became effective. Interconnection charges remained at Rs.0.30 per minute. However, changes were made to reduce by 33% the total access deficit charge paid by operators to BSNL. It is proposed that the charge be removed by the 2008 financial year.

In March 2006, the NRA recommended to the Department of Telecommunications that mobile number portability should be implemented by 1 April 2007.

In November 2005, the government announced a lifting of the foreign direct investment ceiling from 49% to 74% in the telecom sector, subject to certain preconditions. The deadline for compliance is 2 July 2006.

The Department of Telecommunications is expected to issue a new national spectrum policy before the end of 2006. The new policy is expected to include plans for allocation of 3G spectrum.

Kenya
In March 2006, the Kenyan Government issued a new Information and Communications Bill for public comment. The new legislation will replace the Communication Act 1998, and is expected to be finalised before the end of 2006.

In April 2006, the NRA commenced a review of interconnection and retail prices, which may result in new interconnection and retail price regulations.

Safaricom, Vodafone’s joint venture, has been given until December 2006 to relinquish 2.5MHz of paired 900 MHz spectrum in return for the allocation of 1800MHz spectrum. It is proposed that the relinquished 900 MHz spectrum will be given to a new third mobile licensee. In September 2005, Safaricom filed an application for permanent 3G spectrum.

Poland
Legislation implementing the EU Framework in Poland, which joined the EU on 1 May 2004, was enacted during 2004 and the Polish NRA has commenced its market reviews. The NRA, in its review of the call termination market, proposes to find all mobile network operators to have SMP and to impose obligations of cost orientation, transparency and non-discrimination.

The NRA awarded a fourth 3G licence in 2005, which Polkomtel is appealing. In November 2005, the President of the NRA initiated the process to issue a new 2G licence. In January 2006, three companies submitted offers which are now under consideration.

Mobile number portability for contract customers was implemented by the mobile network operators in January 2006.

South Africa
A new Electronic Communications Bill was adopted by Parliament in November 2005, and is awaiting signature of the President. The new Bill will replace current telecommunications and broadcasting legislation.

An Information Communication Technologies Black Economic Empowerment Charter (the “Charter”) is expected to be finalised in 2006. The Charter will set targets to evaluate a company’s contribution to Broad-Based Black Economic Empowerment, which is the Government policy to increase economic empowerment of historically disadvantaged individuals in South Africa. Targets will be set in terms of equity ownership, management and control, employment, skills development, procurement, enterprise development and corporate social investment.

In May 2005, the NRA commenced an investigation to assess whether Vodacom, the Group’s joint venture in South Africa, has major operator status, which is similar to SMP, in the interconnection market. Vodacom has challenged the grounds for this investigation in court, with a hearing expected before the end of 2006.

In 2005, the NRA commenced investigations on mobile pricing and handset subsidies. Separately, in May 2005, the NCA commenced an investigation into alleged excessive pricing of mobile termination rates. These investigations remain ongoing. Vodafone has been notified of the commencement of judicial review proceedings of the decision under competition law approving its acquisition of VenFin.

Associated undertakings and investments
Belgium
Belgium implemented the EU Framework during 2005. The NRA has commenced its market reviews and in the call termination market proposes to find all operators as having SMP and has commenced a process to develop a LRIC model to set rates. The proposals include decreases of mobile termination rates of each firm by around 12% every six months from July 2006 to July 2008, and confirms the existing degree of asymmetric termination rates between the three network mobile operators.

The NRA held an initial consultation on the renewal of Vodafone’s associated undertaking, Proximus’, 2G licence which expires in 2010.

In January 2006, the NCA conducted unannounced inspections of the offices of Proximus seeking evidence of anti-competitive behaviour in relation to the market for corporate customers following a complaint by a competitor. These enquiries are continuing. If the NCA decides that there had been a breach of competition law, it would be able to impose a fine on any operator who had committed the breach.

China
The Chinese Government is expected to award 3G licences in 2006 and to implement related changes to its telecommunications regulatory framework.

France
France implemented the EU Framework during 2004. In its review of the call termination market, the NRA concluded that all mobile network operators have SMP and imposed obligations of cost orientation, non-discrimination, accounting separation and transparency. It set a price cap for Vodafone’s associated undertaking, SFR, of 9.5 eurocents per minute from 1 January 2006. During 2006, the NRA commenced work on a new price cap for the period from 1 January 2007.

In December 2003, a French consumers association lodged a complaint with the NCA alleging collusion amongst the three French mobile operators on SMS retail pricing. The NCA is still investigating this complaint. Independently, the NRA has commenced a review of SMS termination and is consulting on proposals for wholesale price regulation and the notification of a wholesale SMS market to the Commission under the EU Framework. If it proceeds, the French NRA would be the first to do so in Europe. In its consultation, the NRA proposes a price cap for wholesale termination of no greater than 2.5 eurocents per minute. In addition, following two complaints against SFR and Orange France, the NRA ordered Bouygues and SFR, and Bouygues and Orange, respectively, to reduce their symmetric wholesale SMS termination rates to 4.3 eurocents per message with effect from 1 July 2005.

In December 2005, the NCA decided that SFR and the other mobile network operators had contravened competition law during the period from 1997 to 2003 by sharing information and during the period from 2000 to 2002 by entering into an agreement aimed at stabilising the development of market shares. SFR has been fined €220 million. SFR has appealed against this decision.

Following the NRA’s review of the access market, the NRA proposed that all three mobile network operators, including SFR, had joint SMP in the market and it proposed access obligations as a remedy. The proposals were notified to the Commission in April 2005 but the NRA has subsequently withdrawn its proposals.

Switzerland
In April 2005, the Swiss NCA issued proposals finding that Swisscom Mobile, Vodafone’s associated undertaking, had abused a dominant position in the call termination market. In April 2006, the NCA announced that it intends to fine Swisscom Mobile CHF489 million (£216 million). Additional interconnection disputes between Swisscom Mobile and its mobile competitors are pending.

In July 2005, the Swiss NCA started a preliminary investigation concerning access to mobile networks. At the end of November 2005, the Swiss NRA commenced a process to award three licences for broadband wireless access and Swisscom Mobile is participating in an auction which will take place in the summer of 2006.

24	Vodafone Group Plc Annual Report 2006

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	Performance

Contents
	Page

Performance Introduction	25

Critical Accounting Estimates	26

Key Performance Indicators	29

Operating Results	30
– Group Overview	30
– Review of Operations	32
– US GAAP Reconciliation	36
– Summary of Key Performance Indicators for Principal Markets	37

Financial Position and Resources	38
– Balance Sheet	38
– Equity Dividends	38
– Contractual Obligations	39
– Contingencies	39
– Liquidity and Capital Resources	39

Risk Factors, Trends and Outlook	43

Cautionary Statement Regarding Forward-Looking Statements	46

Non-GAAP Information	47

Definition of Terms	49

Introduction
The following discussion is based on the Consolidated Financial Statements included elsewhere in this Annual Report.

On 19 July 2002, the European Parliament adopted Regulation No. 1606/2002 requiring listed companies in the Member States of the European Union to prepare their Consolidated Financial Statements in accordance with IFRS from 2005. This is the first time the Company’s Annual Report has been prepared under IFRS. Consequently, financial information for the year ended 31 March 2005, presented as comparative figures in this report, has been restated from UK GAAP in accordance with IFRS, as disclosed in note 40 to the Consolidated Financial Statements.

The Consolidated Financial Statements, which are prepared in accordance with IFRS, differ in certain significant respects from US GAAP. Reconciliations of the material differences in the IFRS Consolidated Financial Statements to US GAAP are disclosed in note 38 to the Consolidated Financial Statements, “US GAAP information”.

The Group faces a number of significant risks that may impact on its future performance and activities. Please see “Risk Factors, Trends and Outlook”.

Foreign Currency Translation
The Company publishes its Consolidated Financial Statements in pounds sterling. However, the majority of the Company’s subsidiaries, joint ventures and associated undertakings report their revenue, costs, assets and liabilities in currencies other than pounds sterling and the Company translates the revenue, costs, assets and liabilities of those subsidiaries, joint ventures and associated undertakings into pounds sterling when preparing its Consolidated Financial Statements. Consequently, fluctuations in the value of pounds sterling versus other currencies could materially affect the amount of these items in the Consolidated Financial Statements, even if their value has not changed in their original currency.

The following table sets out the pounds sterling exchange rates of the other principal currencies of the Group, being: “euros”, “€” or “eurocents”, the currency of the EU Member States which have adopted the euro as their currency, and “US dollars”, “$”, “cents” or “¢”, the currency of the United States.

	At / year ended 31 March		Change

Currency (=£1)	2006	2005	%

Average:

Euro	1.47	1.47	–

US dollar	1.79	1.84	(2.7	)

At 31 March:

Euro	1.43	1.46	(2.1	)

US dollar	1.74	1.89	(7.9	)

Merely for convenience, this Annual Report contains translations of certain pounds sterling amounts into US dollars at specified rates. These translations should not be construed as representations that the pounds sterling 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 sterling into US dollars have been made at $1.7393: £1.00, the Noon Buying Rate in the City of New York for cable transfers in sterling amounts as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on 31 March 2006. The Noon Buying Rate on 26 May 2006 was $1.8566: £1.00.

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: £1.00, to two decimal places.

Years ended 31 March	Period end	Average	High	Low

2002	1.42	1.43	1.48	1.37

2003	1.58	1.54	1.65	1.43

2004	1.84	1.69	1.90	1.55

2005	1.89	1.85	1.96	1.75

2006	1.74	1.79	1.92	1.71


Month	High	Low

November 2005	1.78	1.71

December 2005	1.78	1.72

January 2006	1.79	1.74

February 2006	1.78	1.73

March 2006	1.76	1.73

April 2006	1.82	1.74

May 2006⁽¹⁾	1.89	1.83

Note:
(1)	In respect of May 2006, for the period from 1 May to 26 May 2006, inclusive.

Inflation
Inflation has not had a significant effect on the Group’s results of operations and financial condition during the two years ended 31 March 2006.

Presentation of Information
In the discussion of the Group’s reported financial position and results, information in addition to that contained within the Consolidated Financial Statements is presented. Refer to page 49 for definition of terms.

Vodafone Group Plc Annual Report 2006

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Critical Accounting Estimates

The Group prepares its Consolidated Financial Statements in accordance with IFRS, the application of which often requires judgements to be made by management when formulating the Group’s financial position and results. Under IFRS, the directors are required to adopt those accounting policies most appropriate to the Group’s circumstances for the purpose of presenting fairly the Group’s financial position, financial performance and cash flows. The Group also prepares a reconciliation of the Group’s revenue, net profit and shareholders’ equity between IFRS and US GAAP.

In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy, accounting estimate or assumption to be followed could materially affect the reported results or net asset position of the Group should it later be determined that a different choice would be more appropriate.

Management considers the accounting estimates and assumptions discussed below to be its critical accounting estimates and, accordingly, provides an explanation of each below. Where it is considered that the Group’s US GAAP accounting policies differ materially from the IFRS accounting policy, a separate explanation is provided.

The discussion below should also be read in conjunction with the Group’s disclosure of significant IFRS accounting policies, which is provided in note 2 to the Consolidated Financial Statements, “Significant accounting policies” and with the “Summary of differences between IFRS and US GAAP” provided in note 38 to the Consolidated Financial Statements.

Management has discussed its critical accounting estimates and associated disclosures with the Company’s Audit Committee.

Impairment reviews
Asset recoverability is 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 the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters, as noted below.

IFRS requires management to undertake an annual test for impairment of indefinite lived assets, and for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Group management currently undertakes an annual impairment test covering goodwill and other indefinite lived assets, and also reviews finite lived assets and investments in associated undertakings at least annually to consider whether a full impairment review is required. In the year to 31 March 2006, the Group has recognised impairment losses amounting to £23,515 million relating to the Group’s mobile operations in Germany, Italy and Sweden, of which £23,000 million was recognised following completion of the annual impairment test.

US GAAP
Under US GAAP, the requirements for testing the recoverability of intangible assets and property, plant and equipment differ from IFRS. US GAAP requires the carrying value of such assets with finite lives to be compared to undiscounted future cash flows over the remaining useful life of the primary asset of the asset group being tested for impairment, to determine if the asset or asset group is recoverable. If the carrying value exceeds the undiscounted cash flows, the carrying value is not recoverable and the asset or asset group is written down to the net present value of future cash flows derived in a manner similar to IFRS.

For purposes of goodwill impairment testing under US GAAP, the fair value of a reporting unit including goodwill is compared to its carrying value. If the fair value of a reporting unit is lower than its carrying value, the fair value of the goodwill within that reporting unit is compared with its respective carrying value, with any excess carrying value written off as an impairment. The fair value of the goodwill is the difference between the fair value of the reporting unit and the fair value of the net assets of the reporting unit.

Following the issuance of EITF Topic D-108, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill”, in the year ended 31 March 2005, the Group, in respect of the indefinite lived licences in Verizon Wireless, was required to perform a transitional impairment test on indefinite lived intangible assets other than goodwill by comparing the carrying amount with the fair value of the asset determined on a standalone basis. In the year ended 31 March 2005, the cumulative effect on net loss of adopting this standard was £6,177 million, net of taxes of £5,239 million.

Assumptions
There are a number of assumptions and estimates involved in calculating the net present value of future cash flows from the Group’s businesses including management’s expectations of:

•	growth in EBITDA, calculated as adjusted operating profit before depreciation and amortisation;

•	timing and quantum of future capital expenditure;

•	uncertainty of future technological developments;

•	long term growth rates; and

•	the selection of discount rates to reflect the risks involved.

The Group prepares and internally approves formal ten-year plans for its businesses and uses these as the basis for its impairment reviews. Management uses the initial five years of the plans, except in markets which are forecast to grow ahead of the long term growth rate for the market. In such cases, further years will be used until the forecast growth rate trends towards the long term growth rate, up to a maximum of ten years.

For mobile businesses, a long term growth rate into perpetuity has been determined as the lower of:

•	the nominal GDP rates for the country of operation, using forecast nominal GDP rates from external sources; and

•	the long term compound annual growth rate in EBITDA implied by the business plan.

For non-mobile businesses, no growth is expected beyond management’s plans for the initial five year period.

Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group’s results. The Group’s review includes the key assumptions related to sensitivity in the cash flow projections.

The following changes to the assumptions used in the impairment review would have (increased)/decreased the combined impairment loss recognised in the year ended 31 March 2006 in respect of the Group’s mobile operations in Germany and Italy:

	Increase by ¹/₂%		Decrease by ¹/₂%
	£bn		£bn

Discount rate	(2.2	)	2.4
Budgeted EBITDA⁽¹⁾	0.3		(0.3	)
Capital expenditure⁽²⁾	(0.2	)	0.2
Long term growth rate	2.9		(2.5	)

Notes:
(1)	Represents the compound annual growth rate for the initial five years of the Group’s approved financial plans.
(2)	Represents capital expenditure as a percentage of revenue in the initial five years of the Group’s approved plans.

These assumption changes in isolation would not have resulted in an impairment loss in any other of the Group’s continuing operations.

US GAAP
Under US GAAP, the assumptions and estimates involved in reviewing for impairment are similar to IFRS, with the exception of the requirement to determine the primary asset of an asset group. For asset groups represented by the Group’s operating companies, the primary asset is determined as the 3G licence, except for operating companies where no 3G licence has been acquired, in which case the 2G licence is the primary asset. If the primary asset of the Group’s mobile operations in Germany were the 2G rather than the 3G licence, the carrying value would exceed the undiscounted cash flows and result in a significant impairment loss.

Business combinations
Goodwill only arises in business combinations. The amount of goodwill initially recognised is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management’s judgement.

Allocation of the purchase price affects the results of the Group as finite lived intangible assets are amortised whereas indefinite lived intangible assets, including goodwill, are not amortised, and could result in differing amortisation charges based on the allocation to indefinite lived and finite lived intangible assets.

On the acquisition of mobile network operators, the identifiable intangible assets may include licences, customer bases and brands. The fair value of these assets is

26	Vodafone Group Plc Annual Report 2006

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	Performance

determined by discounting estimated future net cash flows generated by the asset, assuming no active market for the assets exist. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets.

IFRS
On transition to IFRS, the Group has elected not to apply IFRS 3, “Business Combinations”, retrospectively as the difficulty in applying these requirements to the large number of business combinations completed by the Group from incorporation through to 1 April 2004 exceeded any potential benefits. Goodwill arising before the date of transition to IFRS, after adjusting for items including the impact of proportionate consolidation of joint ventures, amounted to £78,753 million.

If the Group had elected to apply the accounting for business combinations retrospectively, it may have led to an increase or decrease in goodwill and increase in licences, customer bases, brands and related deferred tax liabilities recognised on acquisition.

US GAAP
For acquisitions prior to 29 September 2004, the key difference from IFRS is that for the acquisition of mobile network businesses, the excess of purchase price over the fair value of the identifiable assets and liabilities acquired other than licences (“the residual”) was allocated to licences, as opposed to goodwill. However, subsequent to this date and due to the prohibition of this method of accounting following the issuance of EITF Topic D-108 licences are valued using a direct valuation approach, with the residual being allocated to goodwill. For other acquisitions, the residual has been and will continue to be allocated to goodwill.

Intangible assets, excluding goodwill
Other intangible assets include the Group’s aggregate amounts spent on the acquisition of 2G and 3G licences, customer bases, brands, computer software and development costs. These assets arise from both separate purchases and from acquisition as part of business combinations.

The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives and basis of amortisation critical to the Group’s financial position and performance.

At 31 March 2006, intangible assets, excluding goodwill, amounted to £16,512 million (2005: £16,149 million) and represented 13.0% (2005: 11.0%) of the Group’s total assets.

Estimation of useful life
The useful life used to amortise intangible assets relates to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset. The basis for determining the useful life for the most significant categories of intangible assets is as follows:

Licences and spectrum fees
The estimated useful life is, generally, the term of the licence, unless there is a presumption of renewal at negligible cost. Using the licence term reflects the period over which the Group will receive economic benefit. For technology specific licences with a presumption of renewal at negligible cost, the estimated useful economic life reflects the Group’s expectation of the period over which the Group will continue to receive economic benefit from the licence. The economic lives are periodically reviewed, taking into consideration such factors as changes in technology. Historically, any changes to economic lives have not been material following these reviews.

Customer bases
The estimated useful life principally reflects management’s view of the average economic life of the customer base and is assessed by reference to customer churn rates. An increase in churn rates may lead to a reduction in the useful life and an increase in the amortisation charge. Historically, changes to churn rates have been insufficient to impact the useful life.

Capitalised software
The useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. For computer software licences, the useful life represents management’s view of expected benefits over which the Group will receive benefits from the software, but not exceeding the licence term. For unique software products controlled by the Group, the life is based on historical experience with similar products as well as anticipation of future events, which may impact their life, such as changes in technology.

Historically, changes in useful lives have not resulted in material changes to the Group’s amortisation charge.

Property, plant and equipment
Property, plant and equipment also represent a significant proportion of the asset base of the Group and hence the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Group’s financial position and performance.

Estimation of useful life
The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the Group’s income statement.

The useful lives of Group assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology. Furthermore, network infrastructure cannot be depreciated over a period that extends beyond the expiry of the associated licence under which the operator provides telecommunications services.

Historically, changes in useful lives have not resulted in material changes to the Group’s depreciation charge.

Cost capitalisation
Cost includes the total purchase price and labour costs associated with the Group’s 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. For the year ended 31 March 2006, internal costs capitalised represented approximately 7% of expenditure on property, plant and equipment and computer software and approximately 1% of total operating expenses.

Taxation
The Group’s tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of the Group’s total tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of some of these items may give rise to material profit and loss and/or cash flow variances. See “Financial Position and Resources”.

The growth in complexity of the Group’s structure following its rapid expansion geographically 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 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 income statement and tax payments.

Significant items on which the Group has exercised accounting judgement include a provision in respect of an enquiry from UK HM Revenue and Customs with regard to the Controlled Foreign Companies tax legislation (see note 31 to the Consolidated Financial Statements), legal proceedings to recover VAT in relation to 3G licence fees (see “Contingencies” on page 39) and potential tax losses in respect of a write down in the value of investments in Germany (see note 6 to the Consolidated Financial Statements). The amounts recognised in the Consolidated Financial Statements in respect of each matter are derived from the Group’s best estimation and judgement, as described above. However, the inherent uncertainty regarding the outcome of these items means eventual resolution could differ from the accounting estimates and therefore impact the Group’s results and cash flows.

Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised.

Historical differences between forecast and actual taxable profits have not resulted in material adjustments to the recognition of deferred tax assets.

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Critical Accounting Estimates
continued

Revenue recognition and presentation
Revenue from mobile telecommunications comprises amounts charged to customers in respect of monthly access charges, airtime charges, messaging, the provision of other mobile telecommunications services, including data services and information provision, fees for connecting users of other fixed line and mobile networks to the Group’s network, revenue from the sale of equipment, including handsets, and revenue arising from the Group’s Partner Market agreements.

Deferral period
Customer connection fees, when combined with related equipment revenue, in excess of the fair value of the equipment are deferred and recognised over the expected life of the customer relationship. The life is determined by reference to historical customer churn rates. An increase in churn rates would reduce the customer relationship life and accelerate revenue recognition. Historically, changes in churn rates have been insufficient to impact the expected customer relationship life.

Any excess upgrade or tariff migration fees over the fair value of equipment provided are deferred over the average upgrade or tariff migration period as appropriate. This time period is calculated based on historical activity of customers who upgrade or change tariffs. An increase in the time period would extend the period over which revenue is recognised.

Presentation
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 party’s respective role in the transaction.

Where the Group’s 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 Group’s role in a transaction is that of an agent, revenue is recognised on a net basis, with turnover representing the margin earned.

Allowance for bad and doubtful debts
The allowance for bad and doubtful debts reflects management’s estimate of losses arising from the failure or inability of the Group’s customers to make required payments. The estimate is based on the ageing of customer accounts, customer credit worthiness and the Group’s historical write-off experience.

Changes to the allowance may be required if the financial condition of the Group’s customers improves or deteriorates. An improvement in financial condition may result in lower actual write-offs.

Historically, changes to the estimate of losses have not been material to the Group’s financial position and results.

28	Vodafone Group Plc Annual Report 2006

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	Performance

Key Peformance Indicators

The Board and the Executive Committee monitor the Group’s progress against its strategic objectives and the financial performance of the Group’s operations on a regular basis. Performance is assessed against the strategy, budgets and forecasts using financial and non-financial measures.

The following details certain of the most significant Key Performance Indicators (KPIs) used by the Group, their purpose, the basis of calculation and the source of the underlying data. Definitions of certain of the terms are provided on page 49.

Financial
The Group uses the following primary measures to assess the performance of the Group and its individual businesses. A number of these measures at a Group level are presented on an organic basis, which provides an assessment of underlying growth excluding the effect of business acquisitions and disposals and changes in exchange rates. Financial measures presented on an organic basis are non-GAAP financial measures. For more information on these measures and the basis of calculation of organic growth see “Non-GAAP Information” on pages 47 to 48.

Revenue
Revenue and its growth for the Group, and its principal markets, covering the 2006 and 2005 financial year, is provided in “Operating Results” on pages 30 to 37.

Revenue and revenue growth are used for internal performance analysis and by investors to assess progress against outlook statements provided externally by the Group.

Adjusted operating profit
Adjusted operating profit is used by the Group for internal performance analysis as it represents the underlying operating profitability of the Group’s businesses. The measure is presented both for the Group and its principal markets, covering the 2006 and 2005 financial years, in “Operating Results” on pages 30 to 37. The basis of calculation, along with an analysis of why the Group believes it is a useful measure, is provided in the section titled “Non-GAAP Information” on pages 47 to 48.

Free cash flow
Free cash flow provides an evaluation of the Group’s liquidity and the cash generated by the Group’s operations. The calculation of free cash flow, along with an analysis of why the Group believes it is a useful measure, is provided in the section titled “Non-GAAP Information” on pages 47 to 48. The Group has provided an outlook for free cash flow in the 2007 financial year on page 45.

Adjusted earnings per share
Adjusted earnings per share is calculated as basic earnings per share from continuing operations excluding items such as impairment losses, non-recurring amounts related to business acquisitions and disposals and changes in the fair value of equity put rights and similar arrangements. The items excluded from basic earnings per share for the 2006 and 2005 financial years and the per share impact are detailed in note 8 to the Consolidated Financial Statements.

Operational
Certain operational measures relating to customers and revenue for the Group’s mobile telecommunications business and its principal makets, covering the 2006 and 2005 financial years, are provided in “Operating Results” on pages 30 to 37, with the exception of customer delight. These measures are commonly used in the mobile telecommunications industry.

Customers
The Group highly values its customers and strives to delight them. As a result, customer based KPIs are important measures for internal performance analysis. Management also believes that certain of these measures provide useful information for investors regarding the success of the Group’s customer acquisition and retention activities. For customer numbers and churn, the data used to calculate the KPIs is derived from the customer relationship management systems of each of the Group’s operations.

Customer numbers
The Group prepares customer numbers on a venture and proportionate basis for its mobile operations. A summary of the customer numbers on both bases is presented in “Business – Business Overview – Summary of Group mobile telecommunications businesses at 31 March 2006” on page 13.

Churn
Churn represents the disconnection rate of customers in each of the Group’s mobile operations. It is calculated as the total gross customer disconnections in the period

divided by the average total customers in the period. Churn rates stated in this Annual Report are calculated for the entire financial year.

Customer delight
The Group uses a proprietary ‘customer delight’ system to track customer satisfaction across its controlled markets and jointly controlled market in Italy. More information on the benefits of the system are provided in “Business – Business Overview – Products and services – Customer strategy and management” on page 17.

Customer delight is measured by an index based on the results of surveys performed by an external research company which cover all aspects of service provided by Vodafone and incorporates the results of the relative satisfaction of the customers of competitors. An overall index for the Group is calculated by weighting the results for each of the Group’s operations based on service revenue.

Increased customer expectations are putting a downward pressure on customer satisfaction for the Group and many of its competitors. Despite this trend, the Group outperformed its target for customer delight in the 2006 financial year and the index was broadly stable compared to the previous financial year.

Revenue based measures
Management believes that revenue based measures provide useful information for investors regarding trends in customer revenue derived from mobile telecommunications services and the extent to which customers use mobile services.

The data used to calculate these KPIs is derived from a number of sources. Financial information, such as service revenue, is extracted from the Group’s financial systems, whilst operational information, including customer and usage metrics, is derived from the customer relationship management and billing systems of each of the Group’s operations.

Average revenue per user (“ARPU”)
ARPU represents the average revenue by customers over a period and is calculated as service revenue, being total revenue excluding equipment revenue and connection fees, divided by the weighted average number of customers during the period. ARPU disclosed in this Annual Report is presented on a monthly basis and represents the total ARPU for the financial year divided by twelve.

Voice usage
Voice usage is the total number of minutes of voice use on the Group’s mobile networks, including calls made by the Group’s customers, often referred to as outgoing usage, and calls received by the Group’s customers, often referred to as incoming usage.

Messaging and data revenue
Messaging and data revenue represent the non-voice element of service revenue. In recent years, these revenues have grown at a faster rate than voice revenue as customers increasingly use these services and new products and services have been launched. As competition has intensified in many of the markets in which the Group operates and penetration rates have increased, the ability of the Group to grow messaging and data revenue has become an increasingly important factor, internally and for investors.

Costs
One Vodafone
The One Vodafone initiatives are targeted at achieving savings in operating expenses and capital expenditure and are discussed in more detail on pages 18 to 19. Reporting on performance against these targets will be disclosed in the Annual Report for the year ending 31 March 2008, including reconciliations to amounts included in the Consolidated Financial Statements.

Capitalised fixed asset additions as a percentage of mobile revenue
In the mobile telecommunications industry, significant investment is required to roll out network infrastructure in order to improve service capacity. This performance indicator is used by Vodafone management to compare capitalised fixed asset additions to prior periods and internal forecasts. Management believes that this measure provides useful information for investors to measure the capital investment required to support revenue growth.

This measure is calculated as capitalised fixed asset additions for the mobile telecommunications business (note 3 to the Consolidated Financial Statements) as a percentage of the revenue of the mobile telecommunications businesses (note 3 to the Consolidated Financial Statements). In the 2006 financial year, capitalised fixed asset additions as a percentage of mobile revenue was 13.7% compared with 16.4% for the previous financial year.

Vodafone Group Plc Annual Report 2006

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Operating Results

Group Overview

	Years ended 31 March

	2006		2005
	£m		£m

Revenue
Mobile telecommunications	28,137		25,740
Other operations	1,339		1,095
Less: revenue between mobile and other operations	(126	)	(157	)

	29,350		26,678

Operating (loss)/profit	(14,084	)	7,878
Mobile telecommunications⁽¹⁾	9,280		8,334
Other operations⁽¹⁾	119		19

Adjusted operating profit⁽¹⁾	9,399		8,353
– Impairment of intangible assets	(23,515	)	(475	)
– Other	15		–
– Non-operating income in associated undertakings	17		–
Non-operating income and expense	(2	)	(7	)
Investment income	353		294
Financing costs	(1,120	)	(880	)

(Loss)/profit before taxation	(14,853	)	7,285
Tax on profit	(2,380)		(1,869	)

(Loss)/profit for the financial year from continuing operations	(17,233	)	5,416
Loss)/profit for the financial year from discontinued operations	(4,588	)	1,102

(Loss)/profit for the financial year	(21,821	)	6,518

Note:
(1)	Before impairment losses and non-recurring amounts related to business acquisitions and disposals.

2006 financial year compared to 2005 financial year
Revenue increased by 10.0% to £29,350 million in the year to 31 March 2006, resulting from organic growth of 7.5%, favourable movements in exchange rates of 0.5% and a further 2.0% from the acquisitions in the Czech Republic, India, Romania and South Africa, partially offset by the impact of the disposal of the Group’s operations in Sweden.

The Group recorded an impairment charge to the carrying value of goodwill in the Group’s operations in Germany (£19,400 million) and Italy (£3,600 million) reflecting a revision of the Group’s view of the prospects for these businesses, particularly in the medium to long term, and a further £515 million was recorded in respect of the Swedish business following the announcement of its disposal. This was the primary reason for the operating loss of £14,084 million in the current financial year compared with an operating profit of £7,878 million in the previous financial year. Adjusted operating profit increased by 12.5% to £9,399 million, with organic growth of 11.4%, following organic growth of 10.3% in the Group’s mobile business. Favourable exchange rate movements benefited reported growth for the Group by 1.0% whilst the net impact of acquisitions and disposals improved reported growth by 0.1%.

Mobile telecommunications
	Years ended 31 March

	2006		2005		Change
	£m		£m		%

Total service revenue	25,881		23,547		9.9
Other revenue⁽¹⁾	2,256		2,193		2.9

	28,137		25,740		9.3

Trading results
Voice services	21,493		19,888		8.1
Non-voice services
– Messaging	3,556		3,143		13.1
– Data	832		516		61.2

Total service revenue	25,881		23,547		9.9
Net other revenue⁽¹⁾	532		546		(2.6	)
Interconnect costs	(4,210	)	(3,815	)	10.4
Other direct costs	(1,936	)	(1,756	)	10.3
Net acquisition costs⁽¹⁾	(1,541	)	(1,446	)	6.6
Net retention costs⁽¹⁾	(1,444	)	(1,234	)	17.0
Payroll	(2,127	)	(2,009	)	5.9
Other operating expenses	(3,625	)	(3,264	)	11.1
Acquired intangibles amortisation	(157	)	–
Purchased licence amortisation	(947	)	(919	)	3.0
Depreciation and other amortisation	(3,581	)	(3,341	)	7.2
Share of operating profit in associated undertakings	2,435		2,025		20.2

Adjusted operating profit⁽²⁾	9,280		8,334		11.4

Notes:
(1)	Revenue for the mobile telecommunications business includes revenue of £1,724 million (2005: £1,647 million) which has been deducted from acquisition and retention costs and excluded from other revenue in the trading results.
(2)	Before impairment losses and non-recurring amounts related to acquisitions and disposals.

30	Vodafone Group Plc Annual Report 2006

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	Performance

Revenue
Revenue in the mobile business increased by 9.3%, or 6.7% on an organic basis, for the year to 31 March 2006 due to a 7.2% increase in service revenue on an organic basis offset by lower growth in other revenue. Service revenue growth reflected a 15.2% organic increase in the average customer base of the controlled mobile networks and the Group’s share of jointly controlled mobile networks, offset by the impact of lower ARPU in a number of the Group’s markets. Competitive pressures have intensified recently following a significant number of new market entrants and greater competition from incumbents, specifically in the mature markets of Western Europe. Many of these markets have penetration rates over 100% which, together with termination rate cuts and a higher proportion of lower spending prepaid customers across the Group, have led to the decline in ARPU. The estimated impact of termination rate cuts on the growth in service revenue in the current financial year is as follows:

		Impact of	Service revenue
		termination	growth excluding
	Reported growth	rate cut on	the impact of
	in service	service revenue	termination rate
	revenue	growth	cuts
	%	%	%

Germany	1.4	1.7	3.1
Italy	1.9	3.4	5.3
Spain	22.0	2.9	24.9
UK	1.6	1.6	3.2
Other Mobile Operations	22.3	2.7	25.0
Mobile telecommunications business	9.9	2.4	12.3

Voice revenue increased by 8.1%, or by 5.3% on an organic basis, due to by the growth in average customers and a successful usage stimulation programme leading to 24.6% growth in total minutes, or 18.9% on an organic basis, offset by tariff declines from competition and termination rate cuts. Revenue from outgoing calls was the primary driver of voice revenue growth, whilst incoming voice revenue increased marginally as a significant increase in the proportion of incoming calls from other mobile networks was offset by the impact of termination rate cuts, particularly in the second half of the current financial year.

Messaging revenue rose by 13.1%, or 10.6% on an organic basis, as an increase in the average customer base and the number of messages sent per customer was offset by tariff declines.

The success of 3G, Vodafone live! and offerings in the business segment, including Vodafone Mobile Connect data cards and BlackBerry from Vodafone, were the main contributors to a 61.2% increase, or 60.4% on an organic basis, in non-messaging data revenue. An additional 6,321,000 3G devices were registered on the Group’s networks in the current financial year, bringing the total to 7,721,000 at 31 March 2006, including 660,000 business devices such as Vodafone Mobile Connect 3G/GPRS data cards. Prior to the announcement of the disposal of Vodafone Japan in March 2006, the Group registered its ten millionth consumer 3G device, when including 100% of the devices in Italy.

Other revenue increased to £2,256 million, principally due to growth in revenue related to acquisition and retention activities in Spain, partially offset by a reduction in net other revenue, resulting principally from to a fall in the number of customers connected to non-Vodafone networks in the UK. A 32.5% rise in the number of gross customer additions, partially offset by a fall in the average revenue for handset sales to new prepaid customers and a 24.3% increase in the number of upgrades, led to a 4.7% growth in revenue related to acquisition and retention activities to £1,724 million.

Adjusted operating profit
Adjusted operating profit increased by 11.4% to £9,280 million, comprising organic growth of 10.3% and favourable exchange rate movements of 1.1%.

Interconnect costs increased by 7.2% on an organic basis, as strong growth in outgoing voice usage was partially offset by cuts in termination rates in a number of markets and an increased proportion of outgoing traffic being to other Vodafone customers, which does not result in interconnect expense. The rise in the number of upgrades and the increased cost of upgrading customers to 3G were the primary contributors to an 9.4% organic growth in acquisition and retention costs, net of attributable revenue, to £2,985 million. Payroll and other operating expenses as a percentage of service revenue continued to fall, reaching 22.2% for the year to 31 March 2006 compared to 22.4% for the previous financial year.

The charge relating to the amortisation of acquired intangible assets was £157 million following acquisitions in the Czech Republic, India, Romania and South Africa in the current financial year. Depreciation and other amortisation increased, principally due to the net impact of the acquisitions and disposal in the current financial year and the ongoing expansion of 3G networks.

The Group’s share of the result in associated undertakings, before non-recurring amounts related to business acquisitions and disposals, grew by 20.2% after the deduction of interest, tax and minority interest, and 16.8% before the deductions, primarily due to growth at Verizon Wireless in the US. The Group’s share of the result in Verizon Wireless increased by 25.5% to £2,112 million, before deduction of interest, tax and minority interest, with a particularly strong performance in the second half of the current financial year.

Non-mobile telecommunications
Revenue from Other Operations increased by 22.3% to £1,339 million for the current financial year, principally due to growth in Arcor, the Group’s non-mobile operation in Germany. Adjusted operating profit increased to £119 million from £19 million in the previous financial year as a result of the revenue growth and cost efficiencies in Arcor and a reduced loss in the Group’s other non-mobile operations.

Impairment losses
The Group recorded an impairment charge to the carrying value of goodwill in the current financial year of £23,515 million in respect of the Group’s operations in Germany (£19,400 million) and Italy (£3,600 million) reflecting a revision of the Group’s view of the prospects for these businesses, particularly in the medium to long term, and a further £515 million in respect of the Swedish business following the announcement of its disposal. An impairment loss was recognised in the previous financial year of £475 million in respect of the Group’s Swedish operations and reflected fierce competition along with onerous 3G licence obligations.

Investment income and financing costs
	Years ended 31 March

	2006		2005		Change
	£m		£m		%

Net financing costs before dividends from investments	(318	)	(293	)	8.5
Potential interest charges arising on settlement of outstanding tax issues	(329	)	(245	)	34.3
Changes in the fair value of equity put rights and similar arrangements	(161	)	(67	)	140.3
Dividends from investments	41		19		115.8

Net financing costs	(767	)	(586	)	30.9

Net financing costs before dividends from investments increased by 8.5% to £318 million as an increase in average net debt compared to the previous year was partially offset by gains on mark-to-market adjustments on financial instruments in the current financial year.

Potential interest charges arising on the settlement of outstanding tax issues represents the Group’s estimate of any interest that may be due to tax authorities when the issues are settled. This charge varies due to the interest rates applied by the tax authorities, the timing of tax payments and status of discussions on tax issues with the relevant tax authorities. At 31 March 2006, the provision for potential interest charges arising on settlement of outstanding tax issues was £896 million.

The change in the fair value of equity put rights and similar arrangements comprises the fair value movement in relation to the potential put rights held by Telecom Egypt over its 25.5% interest in Vodafone Egypt and the fair value of a financial liability in relation to the minority partners of Arcor, the Group’s non-mobile operation in Germany. Further details in respect of these arrangements are provided in the section titled “Liquidity and Capital Resources – Option agreements” and in note 24 to the Consolidated Financial Statements.

Taxation
The effective tax rate for the year to 31 March 2006 is (16.0)% compared to 25.7% for the prior year. The negative effective tax rate arises as a result of the £23,515 million impairment losses recognised in the current financial year. These losses are not expected to be deductible for tax purposes so are not expected to create a future benefit. The effective tax rate, exclusive of the impairment losses, is 27.5% for the current financial year, which is lower than the Group’s weighted average tax rate as a result of the repurchase of shares in Vodafone Italy and favourable tax settlements, but has increased compared to the previous year as the prior year benefited from finalising the reorganisation of the Group’s German operations.

Basic loss per share
Basic earnings per share from continuing operations fell from 8.12 pence to a loss per share of 27.66 pence for the current year. The basic loss per share is after a charge of 37.56 pence per share in relation to an impairment of the carrying value of goodwill, a further charge of 0.26 pence per share for the change in fair value of equity put rights and similar arrangements, and a credit of 0.05 pence per share for non-recurring amounts relating to business acquisitions and disposals.

Vodafone Group Plc Annual Report 2006

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Operating Results
continued

(Loss)/profit for the financial year from discontinued operations

	Years ended 31 March

	2006		2005		Change
	£m		£m		%

Revenue⁽¹⁾	7,268		7,396		(1.7	)

Adjusted operating profit	455		664
Impairment loss	(4,900	)	–

Operating (loss)/profit	(4,445	)	664
Non-operating income and expense	–		13
Net financing costs	(3	)	(11	)

(Loss)/profit before taxation	(4,448	)	666
Tax on (loss)/profit⁽¹⁾	(140	)	436

(Loss)/profit for the financial year	(4,588	)	1,102

Note
(1)	Included a deferred tax credit of £599 million in the year to 31 March 2005 in respect of losses in Vodafone Holdings K.K. which became eligible for offset against profits of Vodafone K.K. following the merger of the two entities on 1 October 2004.

On 17 March 2006, the Group announced that an agreement had been reached to sell its 97.7% interest in Vodafone Japan to SoftBank. This resulted in the Group’s operations in Japan being classified as an asset held for sale and being presented as a discontinued operation. The disposal was completed on 27 April 2006.

Following the announcement on 17 March 2006, the Group recognised an impairment loss of £4,900 million in respect of Vodafone Japan. The recoverable amount of Vodafone Japan was the fair value less costs to sell.

On completion of the disposal of Vodafone Japan in April 2006, a loss on disposal was recognised as the difference between the final sale proceeds less costs to sell and the carrying value at the date of disposal. The loss on disposal includes, among other items, the cumulative exchange differences in respect of Vodafone Japan previously recognised in equity from 1 April 2004 through to completion.

Review of Operations
Please refer to the Summary of Key Performance Indicators for Principal Markets on page 37 and note 3 to the Consolidated Financial Statements.

Mobile businesses
Vodafone operating companies are licensed on an arm’s length basis to use the Vodafone brand and related trademarks. These arrangements have been reviewed and the charges for the use of the Vodafone brand and related trademarks were revised with effect from 1 April 2005 to reflect the positioning of the brand in the current markets. There is no material impact on the Group’s overall operating profit. The impact of the change is to reduce individual operating company profitability with a corresponding increase in the profit attributable to the common functions segment, which forms part of the mobile telecommunications business.

In April 2006, the Group announced changes to the organisational structure of its operations, effective from 1 May 2006. The following results are presented in accordance with the organisation structure in place for the year to 31 March 2006.

Germany

	Years ended 31 March						Local
							currency
	2006		2005		Change		change
	£m		£m		%		%

Revenue⁽¹⁾	5,754		5,684		1.2		1.2

Trading results
Voice services	4,304		4,358		(1.2	)	(1.3	)
Non-voice services
– Messaging	836		800		4.5		4.6
– Data	254		162		56.8		56.8

Total service revenue	5,394		5,320		1.4		1.4
Net other revenue⁽¹⁾	114		122		(6.6	)	(6.9	)
Interconnect costs	(732	)	(734	)	(0.3	)	(0.3	)
Other direct costs	(281	)	(314	)	(10.5	)	(10.3	)
Net acquisition costs⁽¹⁾	(366	)	(348	)	5.2		5.2
Net retention costs⁽¹⁾	(349	)	(330	)	5.8		5.6
Payroll	(412	)	(425	)	(3.1	)	(3.0	)
Other operating
expenses	(665	)	(646	)	2.9		3.1
Purchased licence
amortisation	(342	)	(342	)	–		–
Depreciation and other
amortisation⁽²⁾	(865	)	(830	)	4.2		4.3

Adjusted operating
profit⁽²⁾	1,496		1,473		1.6		1.3

Notes:
(1)	Revenue includes revenue of £246 million (2005: £242 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results.
(2)	Before impairment losses

The German market has seen recent intensification in price competition, principally from new market entrants, together with high levels of penetration and further reductions in termination rates. Despite this, Vodafone has continued to lead the market in the number of 3G customers, and has launched innovative products such as mobile TV and Vodafone Zuhause, which allows users to replace fixed line networks installed in their homes. In addition, Vodafone launched HSDPA technology in March 2006.

Total revenue increased by 1.2% as the benefits of a larger customer base and an increase in non-voice service revenue were partly offset by reduced voice pricing, in response to aggressive competition, and a further termination rate cut in December 2005 from 13.2 to 11.0 eurocents per minute. The average customer base grew by 8.4% due to the attractiveness of promotions, including an offer which allowed prepaid customers to pay a fixed charge for calls to fixed lines and other Vodafone customers, which was taken up by more than one and a quarter million customers, and new products such as Vodafone Zuhause, which had 448,000 registered customers at 31 March 2006. New prepaid tariffs, including a low priced internet only offer, and ongoing promotional activity, particularly in the last four months of the year, contributed to total voice usage increasing by 13.7%. Excluding the termination rate cut in December 2005, service revenue growth would have been 3.1% in local currency. A further cut in termination rates is currently expected by the end of 2006.

Non-voice service revenue increased by 13.4% in local currency, driven primarily by strong growth of 56.8% in non-messaging data revenue. Vodafone maintained its leadership in the 3G market, demonstrated by Vodafone live! with 3G customers generating over 3.1 million full track music downloads in the current financial year for Vodafone, more than any other mobile network operator in Germany. The number of active Vodafone live! devices continued to increase, with 28.3% growth in the year. In the business segment, there were 241,000 Vodafone Mobile Connect 3G/GPRS data cards and 226,000 wireless push e-mail enabled devices registered on the network at 31 March 2006. Messaging revenue increased 4.6%, in local currency, mainly as a result of promotional activities.

Overall cost efficiencies, counteracted by investments in customer acquisition and retention and an increase in Group charges for the use of the brand and related trademarks, which represented 1.1% of service revenue, lead to an increase in adjusted operating profit of 1.3% in local currency to £1,496 million. Growth in 3G customers and increased gross additions, partially offset by a rise in the proportion of low subsidy prepaid

32	Vodafone Group Plc Annual Report 2006

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	Performance

additions, led to a 5.2% increase in net acquisition costs. Interconnect costs decreased by 0.3%, as the termination rate cuts in the current and previous financial years more than offset the effect of higher voice usage. An increase in the number of customer upgrades resulted in a 5.6% increase in net retention costs. Adjusted operating profit was further impacted by additional depreciation charges from continued 3G network deployment.

Italy

	Years ended 31 March						Local
							currency
	2006		2005		Change		change
	£m		£m		%		%

Revenue⁽¹⁾	4,363		4,273		2.1		2.0

Trading results
Voice services	3,472		3,492		(0.6	)	(0.7	)
Non-voice services
– Messaging	600		532		12.8		12.9
– Data	98		67		46.3		45.2

Total service revenue	4,170		4,091		1.9		1.8
Net other revenue⁽¹⁾	15		14		7.1		2.8
Interconnect costs	(681	)	(701	)	(2.9	)	(3.1	)
Other direct costs	(241	)	(232	)	3.9		3.8
Net acquisition costs⁽¹⁾	(78	)	(71	)	9.9		9.6
Net retention costs⁽¹⁾	(93	)	(74	)	25.7		25.1
Payroll	(250	)	(250	)	–		–
Other operating
expenses	(572	)	(497	)	15.1		15.1
Purchased licence
amortisation	(74	)	(74	)	–		–
Depreciation and other
amortisation⁽³⁾	(524	)	(512	)	2.3		2.0

Adjusted operating
profit⁽³⁾	1,672		1,694		(1.3	)	(1.3	)

Notes
(1)	Revenue includes revenue of £178 million (2005: £168 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results.
(2)	Italy is a joint venture and is proportionately consolidated by the Group and hence the results reported represent the Group’s average effective interest, being 76.8%.
(3)	Before impairment losses

Competition in Italy has continued to intensify with the mobile network operators competing aggressively on subsidies and, increasingly, on price, particularly in the second half of the year. Vodafone achieved average customer growth of 6.9% driven by successful promotions despite the competitive environment and a market penetration rate well in excess of 100% due to customers having more than one SIM.

In local currency, total revenue rose by 2.0%, reflecting the increase in service revenue which was driven primarily by continuing growth in non-voice services as voice revenue declined marginally following an average 20.5% reduction in termination rates from September 2005. Excluding the impact of the termination rate cut, service revenue increased by 5.2% in local currency. Strong promotional activities, for example free calls after the first minute and free text messages for a small activation fee which were taken up by more than ten million customers, and the increase in the customer base led to a rise of 5.1% in voice usage and a 41.7% increase in messaging, including a 261% growth in MMS usage. An increase in the number of SIMs per user and competitive pressures led to a reduction in activity rates, especially in the second half of the year, and an increase in blended churn from 17.2% to 18.7%.

Non-voice service revenue rose by 16.5% in local currency, primarily driven by a 12.9% rise in messaging revenue. Increased penetration of 3G devices, a focus on retaining high value customers, increased usage of Vodafone live! and Vodafone Mobile Connect data cards and attractive data promotions were the main contributors to 45.2% growth in non-messaging data revenue.

In local currency, adjusted operating profit fell by 1.3% due to the impact of an increase in Group charges for the use of brand and related trademarks, which represented approximately 1.1% of service revenue, investment in customer acquisition and retention and higher marketing spend in response to the competitive pressures, along with the increased costs from the continued roll out of the 3G network. Strong upgrade

activities and a focus on high value customers in response to aggressive competition led to the rise in retention costs, whilst handset promotions adversely impacted acquisition costs, especially in the first half of the year. Interconnect costs fell due to the cut in termination rates combined with promotions focusing on calls to other Vodafone and fixed-line numbers, which incur lower interconnect costs, especially in the second half of the year. Other direct costs increased 3.8%, primarily as a result of an increase in content provision costs arising from the increase in data service usage.

Spain

	Years ended 31 March					Local
						currency
	2006		2005		Change	change
	£m		£m		%	%

Revenue⁽¹⁾	3,995		3,261		22.5	22.6

Trading results
Voice services	3,093		2,558		20.9	20.9
Non-voice services
– Messaging	417		340		22.6	23.0
– Data	105		65		61.5	62.1

Total service revenue	3,615		2,963		22.0	22.0
Net other revenue⁽¹⁾	6		2
Interconnect costs	(634	)	(540	)	17.4	17.5
Other direct costs	(329	)	(263	)	25.1	25.4
Net acquisition costs⁽¹⁾	(274	)	(246	)	11.4	11.7
Net retention costs⁽¹⁾	(249	)	(172	)	44.8	45.3
Payroll	(151	)	(140	)	7.9	7.8
Other operating
expenses	(611	)	(468	)	30.6	30.7
Purchased licence
amortisation	(69	)	(69	)	–	–
Depreciation and other
amortisation	(336	)	(292	)	15.1	14.8

Adjusted operating
profit	968		775		24.9	24.6

Note
(1)	Revenue includes revenue of £374 million (2005: £296 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results.

Vodafone continued to perform strongly in Spain, in revenue growth and profitability, despite an increasingly competitive market, through promotions and competitive tariffs attracting new customers and encouraging prepaid customers to migrate to contract tariffs.

Total revenue for the financial year increased by 22.6% in local currency, due principally to a rise in service revenue achieved from an 18.5% growth in the average customer base and an improvement in ARPU, notwithstanding a 10.6% cut in the termination rate in November 2005. The launch of attractive tariffs, successful promotional campaigns and the offer of an appealing handset portfolio increased the average customer base and encouraged a further increase in the proportion of contract customers from 46.9% at 31 March 2005 to 49.6% at 31 March 2006. These factors contributed to a 34.0% increase in total voice usage compared with the previous financial year and a reduction in blended churn from 21.9% at 31 March 2005 to 20.9% at 31 March 2006.

The principal driver behind the 23.0% growth in messaging revenue in local currency was a 23.1% increase in messaging usage due to the higher customer base and targeted promotions. The growth of 62.1% in non-messaging data revenue was due to an increase of 814,000 in the number of registered 3G devices and the success of data solutions, which have contributed to Vodafone leading the 3G market in Spain, along with an 84.3% increase in the number of Vodafone live! devices.

Adjusted operating profit increased as a percentage of service revenue, as cost reductions were only partially offset by the impact of the increased Group charge for use of the brand and related trademarks. Interconnect costs fell as a proportion of service revenue, due to promotions which encouraged calls to be made to Vodafone and fixed-line numbers, which incur lower interconnect costs, and the cut in termination rates. A higher proportion of prepaid gross customer additions, which have a lower per unit acquisition cost, particularly in the first half of the financial year led to acquisition costs

Vodafone Group Plc Annual Report 2006

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Operating Results
continued

falling as a proportion of service revenue compared to the previous financial year. These relative cost reductions were offset by the cost of upgrading customers to 3G handsets, migrating prepaid customers to contract tariffs and a larger customer base, reflected in a 45.3% increase in net retention costs. Other direct costs increased mainly due to increased content provision costs resulting from higher usage of the expanded offering on the Vodafone live! platform.

United Kingdom

	Years ended 31 March

	2006		2005		Change
	£m		£m		%

Revenue⁽¹⁾	5,048		5,065		(0.3	)

Trading results
Voice services	3,642		3,672		(0.8	)
Non-voice services
– Messaging	705		684		3.1
– Data	221		142		55.6

Total service revenue	4,568		4,498		1.6
Net other revenue⁽¹⁾	135		177		(23.7	)
Interconnect costs	(862	)	(771	)	11.8
Other direct costs	(355	)	(367	)	(3.3	)
Net acquisition costs⁽¹⁾	(380	)	(388	)	(2.1	)
Net retention costs⁽¹⁾	(395	)	(391	)	1.0
Payroll	(391	)	(403	)	(3.0	)
Other operating expenses	(697	)	(646	)	7.9
Purchased licence amortisation	(333	)	(333	)	–
Depreciation and other amortisation	(592	)	(597	)	(0.8	)

Adjusted operating profit	698		779		(10.4	)

Note
(1)	Revenue includes revenue of £345 million (2005: £390 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results.

Vodafone UK continued to see strong growth in its customer base, without a corresponding increase in acquisition and retention investment, despite the UK being one of the most competitive markets in which the Group operates, with mobile penetration rates in excess of 100%. Enhanced data offerings led to strong growth in non-messaging data revenue and Vodafone now has over 1 million registered 3G devices.

Total revenue fell by 0.3%, as a 1.6% increase in service revenue was offset by a fall in equipment and other revenue. Service revenue grew by 3.2%, excluding the effect of the September 2004 termination rate cut, benefiting from an increase in average customers of 7.8%, partially offset by falling ARPU, notwithstanding a rise in usage. New customer offerings, including Stop the Clock, helped to stimulate a 10.1% increase in total voice usage, but this was offset by changes in prices during the year to improve competitiveness in the market, leading to an overall 0.8% decrease in voice revenue, which grew by 1.2% excluding the effect of the termination rate cut. A continuing focus on customer retention and an increasing proportion of customers on 18 month contracts had a positive impact on contract customer churn which fell from 22.7% to 21.5%, although blended churn increased to 32.1%, including the effect of increased prepaid customer self-upgrades, consistent with market trends.

Non-voice service revenue increased by 12.1%, driven largely by the success of enhanced data offerings. Growth of 843,000 over the financial year in registered 3G devices and the continued success of Vodafone Mobile Connect data cards and wireless push e-mail devices contributed to non-messaging data revenue increasing by 55.6%. Combined voice and messaging promotions led to an 18.1% increase in total messaging usage, although this was partially offset by a decline in the average price per message, and resulted in a 3.1% rise in messaging revenue.

The rise in interconnect costs and the cost of one-off call centre closures, as well as an increase in Group charges for use of the brand and related trademarks, which represented approximately 1.1% of service revenue, were partially offset by efficiencies in overheads and acquisition and retention costs, leading to a fall in adjusted operating profit of 10.3%. Interconnect costs increased by 11.8%, following an increase in total usage, combined with an increase in the proportion of voice calls made to customers of other mobile network operators, as customers optimise cross-network bundled tariffs, partially offset by the termination rate cut. Despite higher gross additions and upgrades, especially in the first half of the year, and a higher proportion of 3G connections, acquisition and retention costs were kept stable with the prior year, mainly due to an

increase in direct sales activity, SIM only promotions and a higher proportion of prepaid additions with lower subsidies. Payroll was 3% lower than the prior year and other operating expenses were lower than the prior year, excluding one-off call centre closures and the increase in Group charges for use of the brand and related trademarks, driven by the continued benefits of a structured cost reduction plan.

US – Verizon Wireless

	Years ended 31 March					Local
						currency
	2006		2005		Change	change
	£m		£m		%	%

Adjusted operating
profit	1,732		1,354		27.9	23.8

Share of result in
associated
undertaking
Operating profit	2,112		1,683		25.5	21.5
Interest	(204	)	(187	)	9.1	5.4
Tax	(116	)	(91	)	27.5	22.5
Minority interest	(60	)	(51	)	17.6	14.9

	1,732		1,354		27.9	23.8

The US mobile telecommunications market has seen continued significant growth in customer numbers over the last twelve months, with penetration reaching an estimated 72% at 31 March 2006. In this environment, Verizon Wireless continued to increase its market share and improve its market leading margin performance.

Verizon Wireless outperformed its competitors with record net additions, increasing the proportionate customer base by 16.6% over the financial year to 23,530,000 and improving customer market share to approximately 25% whilst also maintaining the proportion of contract customers at 94.5% of the total customer base at 31 March 2006. The strong customer performance benefited from continuing improvements in customer loyalty, with a reduction in blended churn of 2.5 percentage points to 14.7% compared with the previous financial year, the lowest in the US mobile telecommunications industry.

In local currency, Verizon Wireless’ revenue increased by 14.9% due to the strong customer growth, partially offset by a fall in ARPU of 1.9%. The ARPU decline primarily resulted from an increase in the proportion of family share customers and voice tariff pricing changes implemented early in 2005, which included increases in the size of bundled minute plans.

Non-voice service revenue increased by more than 100% compared with the previous financial year and represented 8.9% of service revenue for the current year. Continued increases in messaging revenues were augmented by strong growth from data products, including Verizon Wireless’ consumer broadband multimedia offering, wireless email and broadband data card service. Verizon Wireless’ next-generation EV-DO network is currently available to about 150 million people, approximately half the US population. This investment has paved the way for the launch of innovative new data services in areas such as full track music downloads and location based services.

In local currency, the Group’s share of Verizon Wireless’ operating profit increased by 21.5%, driven by revenue growth and maintaining a leading cost efficiency position in the US market. The Group’s share of the tax attributable to Verizon Wireless of £116 million for the year ended 31 March 2006 relates only to the corporate entities held by the Verizon Wireless partnership. The tax attributable to the Group’s share of the partnership’s pre-tax profit is included within the Group tax charge.

Vodafone and Verizon Wireless are engaged in a number of joint projects, predominantly focusing upon bringing global services to their customers. The financial year saw the introduction of two new data roaming services for Verizon Wireless customers, in addition to the launch of new handsets for the global phone proposition, all of which leverage the Vodafone footprint.

Verizon Wireless continued to strengthen its spectrum position with the completion of the purchase of several key spectrum licences, including licences from Nextwave, Leap Wireless and Metro PCS and through participation in the FCC’s Auction 58, which took place in February 2005, with licences being granted in May 2005.

34	Vodafone Group Plc Annual Report 2006

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	Performance

Other Mobile Operations


	Years ended 31 March						Local
							currency
	2006		2005		Change		change
	£m		£m		%		%

Total revenue
Subsidiaries	7,812		6,474		20.7
Joint ventures	1,470		1,184		24.2
Less: intra-segment revenue	(32	)	(21	)	52.4

	9,250		7,637		21.1		12.6

Adjusted operating
profit⁽²⁾
Subsidiaries	1,445		1,368		5.6
Joint ventures	363		305		19.0
Associated
undertakings	695		671		3.6

	2,503		2,344		6.8		6.4

Trading results
Voice services	7,313		6,070		20.5
Non-voice services
– Messaging	1,017		790		28.7
– Data	200		113		77.0

Total service revenue	8,530		6,973		22.3
Net other revenue⁽¹⁾	137		110		24.5
Interconnect costs	(1,698	)	(1,367	)	24.2
Other direct costs	(727	)	(568	)	28.0
Net acquisition costs⁽¹⁾	(443	)	(393	)	12.7
Net retention costs⁽¹⁾	(358	)	(267	)	34.1
Payroll	(624	)	(531	)	17.5
Other operating
expenses⁽²⁾	(1,531	)	(1,140	)	34.3
Acquired intangibles
amortisation	(157	)	–
Purchased licence
amortisation	(129	)	(100	)	29.0
Depreciation and other
amortisation⁽²⁾	(1,192	)	(1,044	)	14.2
Share of result in
associates⁽²⁾	695		671		3.6

Adjusted operating profit⁽²⁾	2,503		2,344		6.8		6.4

Share in result of associates
Operating profit⁽²⁾	1,044		1,020		2.4
Interest	(20	)	(7	)	185.7
Tax	(329	)	(342	)	(3.8	)

	695		671		3.6

Notes:
(1)	Revenue includes revenue of £583 million (2005: £554 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results.
(2)	Before impairment losses and non-recurring amounts related to acquisitions and disposals.

Total revenue for the Group’s Other Mobile Operations increased by 21.1%, or 12.6% on an organic basis. The net impact of acquisitions in the Czech Republic, India, Romania and South Africa and the disposal of the Group’s Swedish operations during the year ended 31 March 2006 increased reported revenue growth by 6.8%. Favourable exchange rate movements accounted for 1.7% of the remaining difference between reported and organic growth. The increase in total service revenue was principally driven by an increase in the average customer base of 26.5% excluding the impact of the acquisitions and disposal and of 44.0% including the impact of the acquisitions and disposal. This effect was partially offset by cuts in termination rates in certain markets, reduced ARPU from the launch of more competitive tariffs and an increase in the number of lower usage prepaid customers.

Excluding the impact of termination rate cuts, service revenue growth would have been 25.0%. Messaging and non-messaging data revenue grew strongly, increasing by 18.6% and 74.1%, respectively, on an organic basis and by 28.7% and 77.0%, respectively, including the impact of acquisitions, disposals and exchange rate movements.

Adjusted operating profit increased by 6.8%, or 6.4% on an organic basis, over the comparative period, with 0.5% of the difference due to the acquisitions and disposal in the current financial year, offset by 0.9% resulting from favourable foreign exchange rate movements. The reported growth in adjusted operating profit in the year was impacted by a reduction in the profitability of certain highly competitive markets, in particular Australia and the Netherlands, though these factors were partially offset by the profit contributed by acquisitions in the year and the impact of the disposal of the Group’s Swedish operations, as well as higher depreciation and purchased licence amortisation, following the launch of 3G services in Australia and New Zealand, and the amortisation of identifiable intangible assets from the acquisitions in the current financial year.

Other Mobile subsidiaries
In Greece, service revenue grew by 9.4% when measured in local currency, due primarily to a 13.6% rise in the average customer base. ARPU decreased by 3.7% year-on-year, mainly due to a reduction in termination rates of 16.8% in September 2004. In local currency, service revenue growth was 12.0% excluding the termination rate cut. An increasing emphasis on retaining customers by encouraging prepaid to contract customer migration resulted in churn decreasing to 25.0% for the current financial year from 29.7% in the previous year.

Service revenue in Egypt, when measured in local currency, grew by 36.2%, primarily as a result of an increase in the average prepaid customer base of 82.0% which was driven by new innovative tariffs improving access and affordability in the market place. Revenue market share increased by 3.8 percentage points in the 2006 financial year to 51.8%.

Competition in Portugal intensified during the year with aggressively priced no-frills offerings by competitors which, combined with cuts in the termination rate which resulted in the average termination rate this year being 28.3% lower than last year, led to local currency service revenue growth being restricted to 1.6%.

In the Netherlands, an increase of 3.5% in service revenue and a 10.0% growth in the average customer base was achieved.

Vodafone Australia increased its customer base by 16.0%, and local currency service revenue by 11.8% due to the popularity of the capped plans, which have resulted in a significant increase in outgoing voice usage, whilst adversely impacting outgoing voice revenue per minute and interconnect costs. 3G services were launched on 31 October 2005, with strong uptake resulting in 171,000 consumer 3G devices being registered on the network by 31 March 2006.

New Zealand achieved service revenue growth of 8.5%, driven by a 12.3% growth in the average customer base, due principally to the launch of competitive promotions during the year. 3G services were launched on 10 August 2005, with 103,000 3G devices registered by the end of the financial year.

In Ireland, service revenue grew by 5.9%, primarily due to an increase of 9.2% in total voice usage following a 5.9% increase in the average customer base. Voice usage per customer in Ireland remains the highest of all Vodafone’s European subsidiaries.

On 5 January 2006, the Group announced that it had completed the sale of its 100% interest in Vodafone Sweden to Telenor, the pan-Nordic telecommunications operator. Vodafone and Telenor have agreed the terms of a Partner Market Agreement in Sweden, allowing Telenor’s mobile customers in Sweden and Vodafone customers to continue to benefit from Vodafone’s global brand, products and services in Sweden.

Service revenue growth in Hungary and Albania, when measured in local currency, was 13.9% and 16.2% respectively. Vodafone Romania increased service revenue by 39.0% in local currency compared with the previous financial year, assuming the Group’s increased equity interest is reflected in the whole of the current and prior financial year. Additionally, Vodafone’s newly acquired subsidiaries in the Czech Republic and Romania have performed ahead of the Group’s expectations at the time of the acquisition.

Other Mobile joint ventures
Average proportionate customers for the Group’s joint ventures, excluding Italy, grew organically by 43.4% in the year to 31 March 2006, with strong growth in markets with relatively low penetration rates. The customer growth was the primary reason for the 19.0% increase in adjusted operating profit for other mobile joint ventures.

During the financial year, the Group completed the acquisition of a 10% economic interest in Bharti Tele-Ventures Limited (now renamed Bharti Airtel Limited), a leading national mobile operator in India.

Vodafone Group Plc Annual Report 2006

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Operating Results
continued

The Group also increased its effective shareholding in its joint venture in South Africa, Vodacom, from 35% to approximately 50% following the acquisition of VenFin.

Other Mobile associated undertakings
SFR, the Group’s associated undertaking in France, reported strong growth in revenue and operating profit, principally as a result of an 8.1% increase in average customers compared with the previous financial year. Usage of both voice and non-voice services increased in the year and SFR had a total of 5,268,000 Vodafone live! customers at 31 March 2006. SFR continues to grow its 3G base and at 31 March 2006 had registered 1,352,000 3G devices on its network.

On 30 November 2005, the French competition authority fined SFR €220 million for engaging in anti-competitive agreements that distorted market competition. SFR is in the process of appealing this decision.

On 7 April 2006, the Swiss Competition Commission notified Swisscom Mobile, the Group’s associated undertaking in Switzerland, of its intention to impose a fine of CHF489 million in relation to abusive pricing on the mobile wholesale call termination market between 1 April 2004 and 31 May 2005.

Other Mobile investments
China Mobile, in which the Group has a 3.27% stake, and is accounted for as an investment, grew its customer base by 21.9% in the year to 260.6 million at 31 March 2006. Dividends of £41 million were received in the year.

Common functions

	Years ended 31 March

	2006	2005		Change
	£m	£m		%

Revenue	145	123		17.9

Adjusted operating profit/(loss)	211	(85	)

Common functions include the results of Partner Markets and unallocated central Group costs and charges. Adjusted operating profit increased primarily due to a revision of the charges made to Vodafone operating companies for the use of the Vodafone brand and related trademarks which took effect from 1 April 2005.

Other operations

	Years ended 31 March

	2006		2005		Change
	£m		£m		%

Revenue
Germany	1,320		1,095		20.5
Other	19		–

	1,339		1,095		22.3

Adjusted operating profit/(loss)
Germany	139		64		117.2
Other	(20	)	(45	)	(55.6	)

	119		19		526.3

Other operations comprise interests in fixed line telecommunications businesses in Germany, France and India.

Germany
In local currency, Arcor’s revenue increased by 20.7%, primarily due to customer and usage growth, partially offset by tariff decreases in the competitive market. The incumbent fixed line market leader continues to drive this intensive competition, although Arcor further strengthened its position as the main competitor. Contract ISDN voice customers increased by 103% to 1,447,000 and DSL (broadband internet) customers by 166% to 1,209,000 in the current financial year. Arcor increased its share of the DSL market to 11%. Revenue growth and cost efficiencies led to the substantial improvement in adjusted operating profit.

Other
The merger of Cegetel, the Group’s associated undertaking, and Neuf Telecom closed on 22 August 2005, giving the Group a proportionate interest of 12.4% in the leading alternative operator for fixed line telecommunications services in France. The new entity, Neuf Cegetel, has the largest alternative broadband network in France, with 70% population coverage.

US GAAP Reconciliation
The principal differences between US GAAP and IFRS, as they relate to the Consolidated Financial Statements, are the accounting for goodwill and intangible assets before 29 September 2005, the accounting for income taxes, the capitalisation of interest and the timing of recognition of connection revenue and expenses.

In the year ended 31 March 2006, revenue from continuing operations under US GAAP was £23,756 million compared with revenue from continuing operations under IFRS of £29,350 million for the same period. The difference relates to the equity accounting of Vodafone Italy under US GAAP, the treatment of Vodafone Sweden as discontinued under US GAAP and the release of connection revenue deferred prior to the adoption of EITF 00-21 on 1 October 2003, which is required to be recognised over the period a customer is expected to remain connected to the network under US GAAP.

Net loss under US GAAP for the year ended 31 March 2006 was £13,310 million, compared with a loss for the financial year under IFRS of £21,821 million for the same period. The lower net loss under US GAAP was mainly driven by higher amortisation charges of other intangible assets and share of result in equity method investments, more than offset by income taxes and the reversal of impairment losses.

The reconciliation of the differences between IFRS and US GAAP is provided in note 38 to the Consolidated Financial Statements.

36	Vodafone Group Plc Annual Report 2006

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	Performance

Summary of Key Performance Indicators
for Principal Markets

	2006	2005

Germany
Customers (’000s)⁽¹⁾	29,191	27,223
Prepaid (%)	53.3	52
Activity level (%)⁽¹⁾⁽²⁾	90.6	93.7
Churn (%)⁽¹⁾	20.2	18.3
Average monthly ARPU (€)⁽¹⁾
– Prepaid	8.5	9.8
– Contract	39.2	39.9
– Blended	23.3	24.9
Total voice minutes (millions)	26,787	23,560
Vodafone live! active devices (’000)	6,214	4,845
3G devices (’000)⁽¹⁾	2,025	358


	2006	2005

Italy
Customers (’000s)⁽¹⁾	18,490	17,280
Prepaid (%)	92.2	92
Activity level (%)⁽¹⁾	91.2	92.3
Churn (%)⁽¹⁾	18.7	17.2
Average monthly ARPU (€)⁽¹⁾⁽²⁾
– Prepaid	24.3	25.4
– Contract	74.7	76.8
– Blended	28.5	29.9
Total voice minutes (millions)	29,604	28,170
Vodafone live! active devices (’000)	4,097	2,113
3G devices (’000)⁽¹⁾	2,250	511


	2006	2005

Spain
Customers (’000s)⁽¹⁾	13,521	11,472
Prepaid (%)	50.4	53
Activity level (%)⁽¹⁾	94.3	94.6
Churn (%)⁽¹⁾	20.9	21.9
Average monthly ARPU (€)⁽¹⁾⁽²⁾
– Prepaid	15.1	15.1
– Contract	56.9	57.4
– Blended	35.6	34.5
Total voice minutes (millions)	23,835	17,793
Vodafone live! active devices (’000)	5,514	2,992
3G devices (’000)⁽¹⁾	902	88

	2006	2005

United Kingdom
Customers (’000s)⁽¹⁾	16,304	15,324
Prepaid (%)	61.1	61
Activity level (%)⁽¹⁾	88.4	90.3
Churn (%)⁽¹⁾	32.1	29.7
Average monthly ARPU (£)⁽¹⁾⁽²⁾
– Prepaid	9.4	10.3
– Contract	45.7	47.4
– Blended	24.0	25.5
Total voice minutes (millions)	28,059	25,486
Vodafone live! active devices (’000)	4,181	3,443
3G devices (’000)⁽¹⁾	1,033	190


	2006	2005

US – Verizon Wireless
Customers (’000s)⁽¹⁾	23,530	20,173
Churn (%)⁽¹⁾	14.7	17.2
Average monthly ARPU ($)⁽¹⁾⁽²⁾
– Blended	51.4	52.4
Acquistion and retention costs as a percentage of service revenue (%)	12.4	12.9

Notes:
(1)	See page 49 for definitions.
(2)	During the year ended 31 March 2006, the definition of an active customer was revised to one who either pays a monthly fee or has made or received a chargeable event in the last three months. The information for the year ended 31 March 2005 has been restated using this revised definition.

Vodafone Group Plc Annual Report 2006

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Financial Position and Resources

Balance Sheet
	Years ended 31 March

	2006	2005	Change
	£m	£m	%

Non-current assets
Intangible assets	69,118	97,148	(28.9	)
Property, plant and equipment	13,660	17,442	(21.7	)
Investments in associated undertakings	23,197	20,234	14.6
Other non-current assets	2,639	2,962	(10.9	)

	108,614	137,786	(21.2	)
Current assets	7,532	9,411	(20.0	)
Assets included in disposal group
held for sale	10,592	–	–

Total assets	126,738	147,197	(13.9	)

Total equity	85,312	113,648	(24.9	)

Non-current liabilities
Long-term borrowings	16,750	13,190	27.0
Deferred tax liabilities	5,670	4,849	16.9
Other non-current liabilities	951	893	6.5

	23,371	18,932	23.4

Current liabilities
Short-term borrowings	3,448	2,003	72.1
Current taxation liabilities	4,448	4,353	2.2
Other current liabilities	7,616	8,261	(7.8	)

	15,512	14,617	6.1

Liabilities included in disposal
group held for sale	2,543	–	–

Total equity and liabilities	126,738	147,197	(13.9)

Non-current assets
Intangible assets
At 31 March 2006, the Group’s intangible assets were £69.1 billion, with goodwill comprising the largest element at £52.6 billion (2005: £81.0 billion). The balance has decreased from £97.1 billion (£88.1 billion excluding discontinued operations) at 31 March 2005 mainly as a result of a £23.5 billion impairment charge in the 2006 financial year in respect of the carrying value of goodwill of Germany, Italy and Sweden. Refer to note 10 to the Consolidated Financial Statements for further information on the impairment losses. Other movements resulted from £4.7 billion of intangible assets arising on acquisitions in the 2006 financial year, £0.6 billion of additions, primarily in relation to computer software, £1.0 billion of exchange movements, partially offset by £1.6 billion of amortisation charges and £0.2 billion of disposals, mainly in relation to the goodwill related to Vodafone Sweden.

Property, plant and equipment
The most significant component of property, plant and equipment is network infrastructure, which is fundamental to the Group being able to provide its services. Property, plant and equipment decreased from £17.4 billion (£12.9 billion excluding Japan) at 31 March 2005 to £13.7 billion at 31 March 2006 as a result of £3.4 billion of additions during the year and £0.9 billion of additions arising on acquisition as well as £0.3 billion of foreign exchange movements, partially offset by £3.1 billion of depreciation charges and £0.7 billion of disposals including £0.6 billion in relation to the sale of the Group’s operations in Sweden. At 31 March 2006, network infrastructure assets of £10.1 billion (2005: £14.1 billion) represented 73.6% (2005: 80.8%) of total property, plant and equipment.

Investments in associated undertakings
The Group’s investments in associated undertakings increased from £20.2 billion at 31 March 2005 to £23.2 billion at 31 March 2006, mainly as a result of £2.4 billion from the Group’s share of the results of its associates after the deductions of interest, tax and minority interest, and favourable exchange rate movements of £1.4 billion, offset by £0.8 billion of dividends received.

Other non-current assets
Other non-current assets mainly relates to other investments held by the Group, which totalled £2.1 billion at 31 March 2006 compared to £1.2 billion at 31 March 2005, with the movement representing an increase in the listed share price of China Mobile in which the Group has an equity investment and foreign exchange movements, offset by a

£0.5 billion decrease in deferred tax assets, excluding discontinued operations – see non-current liabilities below.

Current assets
Current assets decreased to £7.5 billion at 31 March 2006 from £9.4 billion at 31 March 2005, mainly as a result of a £1.0 billion reduction in cash and liquid investments and the reclassification of Vodafone Japan as discontinued operations.

Equity shareholders’ funds
Total equity shareholders’ funds decreased from £113.8 billion at 31 March 2005 to £85.4 billion at 31 March 2006. The decrease comprises of the loss for the year of £21.9 billion, equity dividends of £2.8 billion, purchases of the Company’s own shares of £6.5 billion, a loss on the re-issue of treasury shares of £0.1 billion and £0.1 billion of other movements, partially offset by £0.4 billion of own shares released on vesting of share awards, issue of new share capital of £0.2 billion, a £0.1 billion share-based payments charge and £2.3 billion of other accumulated other recognised income and expense.

Non-current liabilities
Non-current liabilities increased to £23.4 billion at 31 March 2006 from £18.9 billion at 31 March 2005, mainly due to the increase in borrowings, which is discussed further in “Liquidity and Capital Resources”. The deferred tax liability increased from £4.8 billion at 31 March 2005 to £5.7 billion at 31 March 2006, which together with the £0.5 billion decrease in deferred tax assets, arose primarily from a net £0.4 billion in relation to acquisitions and disposals in the year, £0.6 billion additional tax charges to the income statement and £0.2 billion of foreign exchange movements – refer to note 6 to the Consolidated Financial Statements. Non-current liabilities also includes £0.1 billion (2005: £0.1 billion) in relation to the deficit on defined benefit pension schemes – refer to note 25 to the Consolidated Financial Statements.

Current liabilities
Current liabilities increased to £15.5 billion from £14.6 billion.

Equity Dividends
The table below sets out the amounts of interim, final and total cash dividends paid or, in the case of the final dividend for the 2006 financial year, proposed in respect of each financial year indicated both in pence per ordinary share and translated, solely for convenience, into cents per ordinary share at the Noon Buying Rate on each of the respective payment dates for such interim and final dividends.

	Pence per ordinary share				Cents per ordinary share
Year ended
31 March	Interim	Final		Total	Interim	Final		Total

2002	0.7224	0.7497		1.4721	1.0241	1.1422		2.1663
2003	0.7946	0.8983		1.6929	1.2939	1.4445		2.7384
2004	0.9535	1.0780		2.0315	1.7601	1.9899		3.7500
2005	1.91	2.16		4.07	3.60	4.08		7.68
2006	2.20	3.87	⁽¹⁾	6.07	3.83	6.73	⁽¹⁾	10.56

Note:
(1)	The final dividend for the year was proposed on 30 May 2006 and is payable on 4 August 2006 to holders of record as of 7 June 2006. This dividend has been translated into US dollars at the Noon Buying Rate at 31 March 2006 for ADS holders, but will be payable in US dollars under the terms of the deposit agreement.

The Company has historically paid dividends semi-annually, with a regular interim dividend in respect of the first six months of the financial year payable in February and a final dividend payable in August. The Board expects that the Company will continue to pay dividends semi-annually. In November 2005, the Board declared an interim dividend of 2.20 pence per share, representing a 15.2% increase over last year’s interim dividend.

In considering the level of dividends, the Board takes account of the outlook for earnings growth, operating cash flow generation, capital expenditure requirements, acquisitions and divestments, together with the amount of debt and share purchases.

Consistent with this, and developments to the Group’s strategy, the Board has decided to target a 60% dividend pay out ratio taking effect for the 2006 financial year. The Board is therefore recommending a final dividend of 3.87 pence, representing a 79.2% increase over last year’s final dividend and bringing the total dividend for the year to 6.07 pence, an increase of 49.1% on last year’s total dividend. The dividend pay out ratio, being the declared interim and proposed final dividends per share as a percentage of adjusted earnings per share from continuing operations, in respect of the 2006 financial year of 60%, compared favourably with a pay-out ratio for the 2005 financial year of 45%. It is the intention to grow future dividends on an annual basis in line with underlying earnings growth, maintaining dividends per share at approximately 60% of adjusted earnings per share.

Cash dividends, if any, will be paid by the Company in respect of ordinary shares in

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	Performance

pounds sterling or, to holders of ordinary shares with a registered address in a country which has adopted the euro as its national currency, in euro, unless shareholders wish to elect to continue to receive dividends in sterling, are participating in the Company’s 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 Company’s Articles of Association, the sterling: euro exchange rate will be determined by the Company shortly before the payment date.

The Company will pay the ADS Depositary, The Bank of New York, its dividend in US dollars. The sterling: US dollar exchange rate for this purpose will be determined by the Company shortly before the payment date. Cash dividends to ADS holders will be paid by the ADS Depositary in US dollars.

Contractual Obligations
A summary of the Group’s principal contractual financial obligations is shown below. Further details on the items included can be found in the notes to the Consolidated Financial Statements.

	Payments due by period £m

Contractual obligations⁽¹⁾	Total	<1 year	1-3 years	3-5 years	>5 years

Borrowings⁽²⁾	28,101	4,308	6,175	7,373	10,245
Operating lease commitments⁽³⁾	3,644	654	956	742	1,292
Capital commitments⁽⁴⁾	813	813	–	–	–
Purchase commitments⁽⁵⁾	1,159	855	187	89	28
Telsim asset acquisition agreements	2,600	2,600	–	–	–

Total contractual cash obligations⁽¹⁾	36,317	9,230	7,318	8,204	11,565

Notes:
(1)	The above table of contractual obligations excludes commitments in respect of options over interests in Group businesses held by minority shareholders (see “Option agreements and similar arrangements”) and obligations to pay dividends to minority shareholders (see “Dividends from associated undertakings and dividends to minority interests”). Disclosures required by Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, are provided in note 31 to the Consolidated Financial Statements. The table also excludes obligations under post employment benefit schemes, details of which are provided in note 25 to the Consolidated Financial Statements. The table also excludes contractual obligations relating to the Group’s discontinued operations in Japan, which were disposed of on 27 April 2006.
(2)	See note 24 to the Consolidated Financial Statements.
(3)	See note 30 to the Consolidated Financial Statements.
(4)	Primarily related to network infrastructure.
(5)	Predominantly commitments for handsets.

Contingencies
Details of the Group’s contingent liabilities are included in note 31 to the Consolidated Financial Statements.

A number of Vodafone subsidiaries acquired 3G licences through auctions in 2000 and 2001. An appeal was filed by Vodafone Group Services Limited on behalf of Vodafone Limited, along with appeals filed by other UK mobile network operators which were granted a 3G licence, with the VAT and Duties Tribunal on 18 October 2003 for recovery of VAT on the basis that the amount of the licence fee was inclusive of VAT. The amount claimed by Vodafone Limited is approximately £888 million. In August 2004, these claims were referred, jointly, to the ECJ and a hearing took place on 7 February 2006. A decision by the ECJ is expected within the next 12 to 15 months. The Group has not recognised any amounts in respect of this matter to date. In addition, the Group has made a claim for recovery of VAT in relation to 3G licence fees in Portugal, the Netherlands, Germany and Ireland. The Group may also pursue similar claims in certain other European jurisdictions.

Liquidity and Capital Resources
Cash flows
The major sources of Group liquidity for the 2006 financial year have been cash generated from operations, dividends from associated undertakings, borrowings through short term and long term issuances in the capital markets and asset disposals. For the year ended 31 March 2005, sources of Group liquidity were from cash generated from operations and dividends from associates. The Group does not use off-balance sheet special purpose entities as a source of liquidity or for other financing purposes.

The Group’s 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. Additionally, the Group has a put option in relation to its interest in Verizon Wireless which, if exercised, could provide a material cash inflow. Please see “Option agreements and similar arrangements” at the end of this section.

The Group’s liquidity and working capital may be affected by a material decrease in cash flow due to factors such as reduced operating cash flow resulting from further possible business disposals, increased competition, litigation, timing of tax payments and the resolution of outstanding tax issues, regulatory rulings, delays in development of new services and networks, inability to receive expected revenue from the introduction of

new services, reduced dividends from associates and investments or dividend payments to minority shareholders. Please see the section titled “Risk Factors, Trends and Outlook”, on pages 43 to 45. The Group anticipates a significant increase in cash tax payments and associated interest payments over the next three years due to the resolution of long standing tax issues. The Group is also party to a number of agreements that may result in a cash outflow in future periods. These agreements are discussed further in “Option agreements and similar arrangements” at the end of this section.

Wherever possible, surplus funds in the Group (except in Albania, Romania and Egypt) are transferred to the centralised treasury department through repayment of borrowings, deposits and dividends. These are then on-lent or contributed as equity to fund Group operations, used to retire external debt or invested externally.

Decrease in cash in the year
During the 2006 financial year, the Group increased its net cash inflow from operating activities by 7.9% to £11,841 million, including a 10.3% increase to £10,190 million from continuing operations. The Group generated £6,418 million of free cash flow from continuing operations, a reduction of 2.6% on the previous financial year, and an additional £701 million from discontinued operations. Free cash flow from continuing operations decreased from the prior financial year due to a reduction in the dividends received from associated undertakings, principally Verizon Wireless, and an increase in capital expenditure which more than offset the increase in the net cash inflow from operating activities.

The Group holds its cash and liquid investments in accordance with the counterparty and settlement risk limits of the Board approved treasury policy. The main forms of liquid investments at 31 March 2006 were money market funds and bank deposits.

	2006		2005
	£m		£m

Net cash flows from operating activities	11,841		10,979
– Continuing operations	10,190		9,240
– Discontinued operations	1,651		1,739
Taxation	1,682		1,578
Purchase of intangible fixed assets	(690	)	(699	)
Purchase of property, plant and equipment	(4,481	)	(4,279	)
Disposal of property, plant and equipment	26		68

Operating free cash flow	8,378		7,647
Taxation	(1,682	)	(1,578	)
Dividends from associated undertakings	835		1,896
Dividends paid to minority shareholders in
subsidiary undertakings	(51	)	(32	)
Dividends from investments	41		19
Interest received	319		339
Interest paid	(721	)	(744	)

Free cash flow	7,119		7,547
– Continuing operations	6,418		6,592
– Discontinued operations	701		955
Net cash outflow from acquisitions and disposals	(3,587	)	(2,017	)
Other cash flows from investing activities	(56	)	113
Equity dividends paid	(2,749	)	(1,991	)
Other cash flows from financing activities	(1,555	)	(5,764	)

Decrease in cash in the year	(828	)	(2,112	)

Capital expenditure
During the 2006 financial year, £4,481 million was spent on property, plant and equipment, an increase of 4.7% from the previous financial year. From continuing operations, the amount spent increased to £3,634 million.

The cash outflow in intangible assets reduced from £699 million in the previous financial year to £690 million in the current financial year, with the largest element being expenditure on computer software.

Dividends from associated undertakings and investments and dividends to minority shareholders
Dividends from the Group’s associated undertakings and investments are generally paid at the discretion of the board of directors or shareholders of the individual operating

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Financial Position and Resources
continued

companies and Vodafone has no rights to receive dividends, except where specified within certain of the companies’ shareholders’ agreements, such as with SFR, the Group’s associated undertaking in France. Similarly, the Group does not have existing obligations under shareholders’ agreements to pay dividends to minority interest partners of Group subsidiaries, except as specified below.

Included in the dividends received from associated undertakings and investments was an amount of £195 million received from Verizon Wireless. Until April 2005, Verizon Wireless’ distributions were determined by the terms of the partnership agreement distribution policy and comprised income distributions and tax distributions. Since April 2005, tax distributions have continued and a new distribution policy is expected to be set in the future by the Board of Representatives of Verizon Wireless. Current projections forecast that tax distributions will not be sufficient to cover the US tax liabilities arising from the Group’s partnership interest in Verizon Wireless until 2015 and, in the absence of additional distributions above the level of tax distributions during this period, will result in a net cash outflow for the Group. Under the terms of the partnership agreement, the board of directors has no obligation to provide for additional distributions above the level of the tax distributions. It is the expectation that Verizon Wireless will re-invest free cash flow in the business and reduce indebtedness for the foreseeable future.

During the year ended 31 March 2006, cash dividends totalling £511 million were received from SFR in accordance with the shareholders’ agreement.

Verizon Communications Inc. (“Verizon Communications”) has an indirect 23.1% shareholding in Vodafone Italy and, under the shareholders’ agreement, can request dividends to be paid, provided that such dividends would not impair the financial condition or prospects of Vodafone Italy including, without limitation, its credit rating. No dividends were proposed or paid by Vodafone Italy during or since the year ended 31 March 2006 but a share purchase programme occurred during the financial year, further details of which are provided on page 41.

Acquisitions and disposals
The Group invested a net £3,643 million in acquisition and disposal activities, including a net cash outflow of £56 million from the purchase and disposal of investments, in the year to 31 March 2006. The acquisitions are described in more detail under “Business Overview – History and Development of the Company”.

An analysis of the main transactions in the 2006 financial year, including the changes in the Group’s effective shareholding, is shown below:

		£m

Acquisitions:
Czech Republic (nil to 100%) and Romania (20.1% to 100%)⁽¹⁾		1,840
South Africa (35.0% to 49.9%)⁽¹⁾		1,444
India (nil to 10.0%)⁽¹⁾		849
Disposals:
Sweden (100% to nil)		(658	)
Other net acquisitions and disposals, including investments		168

		3,643

Note:
(1)	Amounts are shown net of cash and cash equivalents acquired.

On 17 March 2006, the Group announced an agreement to sell its 97.7% holding in Vodafone Japan to SoftBank. The transaction completed on 27 April 2006 with the Group receiving cash of approximately ¥1.42 trillion (£6.9 billion), including the repayment of intercompany debt of ¥0.16 trillion (£0.8 billion). In addition, the Group received non-cash consideration with a fair value of approximately ¥0.23 trillion (£1.1 billion), comprised of preferred equity and a subordinated loan. SoftBank also assumed external debt of approximately ¥0.13 trillion (£0.6 billion).

Special distribution of £9 billion
On 17 March 2006, the Group stated that it will make a special distribution of approximately £6 billion in the 2007 financial year of the £6.9 billion cash received following the completion of the sale of the Group’s interest in Vodafone Japan. Through targeting a lower credit rating, the Group now plans to return a further £3 billion, resulting in a total distribution of approximately £9 billion.

This equates to 15p per ordinary share. Subject to shareholder approval, the method of distribution will be in the form of a B share arrangement with a share consolidation, which will reduce the Company’s shares in issue. The B share arrangement provides for shareholder flexibility as to when and how cash is received, thereby allowing income tax and capital gains management for some shareholders. The Company will post a circular to shareholders, with full details of the B share arrangement and the consolidation, on or around 13 June 2006.

The consolidation, which will replace existing ordinary shares with fewer new ordinary shares, is intended to maintain the share price, subject to normal market movements, and, consequently, historic comparability. For non-US shareholders, the B shares will be redeemed by default, with shareholders receiving a capital distribution. They may, however, elect for certain alternatives. Non-US shareholders can elect to receive the 15 pence as a one off dividend or elect to receive the capital distribution over time at pre-determined dates. Payment in respect of the initial redemption is intended to be made on 11 August 2006 and for any shareholders electing to receive the one off 15 pence per B share dividend payment is also intended to be made on 11 August 2006. It is expected that US shareholders and American Depositary Receipt (“ADR”) holders will only be entitled to receive the return as a one off dividend.

Share purchase programme
When considering how increased returns to shareholders can be provided in the form of share purchases, the Board reviews the free cash flow, anticipated cash requirements, dividends, credit profile and gearing of the Group.

On 24 May 2005, the Board allocated £4.5 billion to the share purchase programme for the year to 31 March 2006, which was subsequently increased to £6.5 billion. For the period from 1 April 2005 to 31 March 2006, the Company purchased 4,848 million shares at a cost of £6.5 billion. The average share price paid, excluding transaction costs, was 133.37 pence, compared with the average volume weighted price over the same period but excluding the period when shares could not be purchased, due to the announcement of the discussions which led to the disposal of Vodafone Japan, of 133.87 pence. No shares have been purchased since 31 March 2006. In addition to ordinary market purchases, the Company placed irrevocable purchase instructions prior to the start of some of the close periods and in advance of quarterly KPI announcements.

At its AGM on 26 July 2005, the Company received shareholder approval to purchase up to 6.4 billion shares of the Company. This approval will expire at the conclusion of the Company’s AGM on 25 July 2006. Shares can be purchased on market on the London Stock Exchange at a price not exceeding 105% of the average middle market quotation for such shares on the five business days prior to the date of purchase and otherwise in accordance with the rules of the Financial Services Authority. Purchases are only made if accretive to adjusted earnings per share.

As a result of targeting a lower credit rating and the £9 billion special distribution, the Group has no current plans for further share purchases or other one off shareholder returns.

Details of shares purchased under the programme are shown below:

			Total
			number of
			shares
		Average	purchased
		price	under		Maximum
		paid per	publicly		value of
	Total	share,	announced		shares
	number of	inclusive of	share		purchased
	shares	transaction	purchase		under the
	purchased	costs	programme	⁽¹⁾	programme	⁽²⁾
Date of share purchase	’000	Pence	‘000		£m

1 – 30 April 2005	321,000	139.33	321,000		4,053
1 – 23 May 2005	84,500	139.00	405,500		3,935
24 – 31 May 2005	110,000	139.49	515,500		3,782
1 – 30 June 2005	508,500	136.80	1,024,000		3,086
1 – 10 July 2005	145,500	137.23	1,169,500		2,887
11 – 27 July 2005	225,700	144.32	1,395,200		2,561
28 – 31 July 2005	–	–	1,395,200		2,561
1 – 31 August 2005	297,900	150.57	1,693,100		2,112
1 – 30 September 2005	273,900	151.21	1,967,000		1,698
1 – 31 October 2005	368,000	146.76	2,335,000		1,158
1 – 14 November 2005	71,500	150.83	2,406,500		3,050
15 – 30 November 2005	564,000	128.23	2,970,500		2,327
1 – 31 December 2005	362,500	126.49	3,333,000		1,868
1 – 9 January 2006	165,500	129.63	3,498,500		1,654
10 – 24 January 2006	504,000	124.99	4,002,500		1,024
25 – 31 January 2006	76,500	121.17	4,079,000		931
1 – 28 February 2006	411,000	119.84	4,490,000		439
1 – 31 March 2006	358,000	122.42	4,848,000		–

Total	4,848,000	134.07	4,848,000		–

Notes:
(1)	No shares were purchased outside the publicly announced share purchase programmes.
(2)	On 24 May 2005, the Company announced it was allocating £4.5 billion to the share purchase programme to cover the year to 31 March 2006, including those shares purchased between 1 April 2005 and 23 May 2005 under irrevocable purchase instructions. This superseded the £4 billion programme announced in November 2004. On 15 November 2005, the Company announced that it was increasing the allocation to £6.5 billion completing by March 2006.

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	Performance

Treasury shares
The Companies Act 1985 permits companies to purchase their own shares out of distributable reserves and to hold shares with a nominal value not to exceed 10% of the nominal value of their issued share capital in treasury. If shares in excess of this limit are purchased they must be cancelled. Whilst held in treasury, no voting rights or preemption rights accrue and no dividends are paid in respect of treasury shares. Treasury shares may be sold for cash, transferred (in certain circumstances) for the purposes of an employee share scheme, or cancelled. If treasury shares are sold, such sales are deemed to be a new issue of shares and will accordingly count towards the 5% of share capital which the Company is permitted to issue on a non pre-emptive basis in any one year as approved by its shareholders at the AGM. The proceeds of any sale of treasury shares up to the amount of the original purchase price, calculated on a weighted average price method, is attributed to distributable profits which would not occur in the case of the sale of non-treasury shares. Any excess above the original purchase price must be transferred to the share premium account.

Shares purchased are held in treasury in accordance with section 162 of the Companies Act 1985. The movement in treasury shares during the financial year is shown below:

	Number
	million		£m

1 April 2005	3,814		5,121
Repurchase of shares	4,848		6,500
Cancellation of shares	(2,250	)	(3,053	)
Re-issue of shares	(279	)	(370	)

31 March 2006	6,133		8,198

Vodafone Italy share purchase
On 19 April 2005, the board of directors of Vodafone Italy approved a proposal to buy back issued and outstanding shares for approximately €7.9 billion (£5.4 billion), which was subsequently approved by the shareholders of Vodafone Italy. The buy back took place in two tranches, the first on 24 June 2005 and the second on 7 November 2005. As a result, Vodafone received €6.1 billion (£4.2 billion) and Verizon Communications received €1.8 billion (£1.2 billion). After the transaction, Vodafone and Verizon Communications shareholdings in Vodafone Italy remained at approximately 77% and 23%, respectively. At 31 March 2006, Vodafone Italy had net cash on deposit with Group companies of €2.3 billion (£1.6 billion).

Funding
The Group’s consolidated net debt position for continuing operations is as follows:

	2006		2005
	£m		£m

Cash and cash equivalents (as presented in the
consolidated cash flow statement)	2,932		3,726
Bank overdrafts	18		43
Cash and cash equivalents for discontinued operations	(161	)	–

Cash and cash equivalents (as presented in
the consolidated balance sheet)	2,789		3,769

Trade and other receivables⁽¹⁾	310		408
Trade and other payables⁽¹⁾	(219	)	(79	)
Short-term borrowings	(3,448	)	(2,003	)
Long-term borrowings	(16,750	)	(13,190	)

	(20,107	)	(14,864	)

Net debt as extracted from the consolidated balance sheet	(17,318	)	(11,095	)
Net debt related to discontinued operations	–		920

Net debt related to continuing operations	(17,318	)	(10,175	)

Note:
(1)	Trade and other receivables and payables include certain derivative financial instruments (see notes 17 and 27).

Net debt increased to £17,318 million, from £10,175 million at 31 March 2005, principally as a result of the cash flow items noted above, share purchases, equity dividend payments and £34 million of foreign exchange movements. This represented approximately 24% of the Group’s market capitalisation at 31 March 2006 compared with 11% at 31 March 2005. Average net debt at month end accounting dates over the 12 month period ended 31 March 2006 was £13,391 million, and ranged between £9,551 million and £17,318 million during the year.

Consistent with development of its strategy, the Group is now targeting low single A long term credit ratings from Moody’s, Fitch Ratings and Standard & Poor’s having previously managed the capital structure at single A credit ratings. 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 Group’s credit ratings enable it to have access to a wide range of debt finance, including commercial paper, bonds and committed bank facilities.

Commercial paper programmes
The Group currently has US and euro commercial paper programmes of $15 billion and £5 billion, respectively, which are available to be used to meet short term liquidity requirements and which were undrawn at 31 March 2005. At 31 March 2006, $696 million (£400 million) was drawn under the US commercial paper programme and $80 million (£46 million) and £285 million were drawn under the euro commercial paper programme. The commercial paper facilities are supported by $10.9 billion (£6.3 billion) of committed bank facilities, comprised of a $5.9 billion Revolving Credit Facility that matures on 24 June 2009 and a $5.0 billion Revolving Credit Facility that matures on 22 June 2012. At 31 March 2006 and 31 March 2005, no amounts had been drawn under either bank facility.

Bonds
The Group has a €15 billion Euro Medium Term Note programme, a $12 billion US shelf programme and a ¥600 billion Japanese shelf programme, which are used to meet medium to long term funding requirements. At 31 March 2006, the total amounts in issue under these programmes split by currency were $13.4 billion, £1.5 billion, €8.7 billion and ¥3 billion. In addition, the Group’s discontinued operation in Japan had bonds in issue of ¥125 billion, which were transferred to SoftBank following completion of the sale of Vodafone Japan.

In the year to 31 March 2006, bonds with a nominal value £5.2 billion were issued under the US Shelf and the Euro Medium Term Note programme. The bonds issued during the year were:

				US Shelf / Euro
				Medium Term
				Note (“EMTN”)
Date of bond issue	Maturity of bond	Currency	Amount Million	programme

8 August 2005	15 September 2015	USD	750	US Shelf
8 September 2005	8 September 2014	GBP	350	EMTN
29 November 2005	29 November 2012	EUR	750	EMTN
29 December 2005	29 June 2007	USD	1,850	US Shelf
29 December 2005	28 December 2007	USD	750	US Shelf
8 February 2006	17 July 2008	EUR	1,250	EMTN
16 March 2006	28 December 2007	USD	750	US Shelf
16 March 2006	15 June 2011	USD	350	US Shelf
16 March 2006	15 June 2011	USD	750	US Shelf
16 March 2006	15 March 2016	USD	750	US Shelf

At 31 March 2006, the Group had bonds in issue with a nominal value of £15,389 million, including $207 million of bonds that were assumed as part of the acquisition of MobiFon S.A. and Oscar Mobil a.s. on 31 May 2005, plus a further ¥125 billion bonds in the Group’s discontinued operations in Japan.

On 7 June 2006, the Company agreed to issue €1 billion of bonds due on 13 January 2012 and €300 million of bonds due on 14 June 2016 under the Euro Medium Term Note programme. The bonds were issued on 14 June 2006.

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Financial Position and Resources
continued

Committed facilities
The following table summarises the committed bank facilities available to the Group at 31 March 2006:

Committed Bank Facilities		Amounts drawn

24 June 2004
$5.9 billion Revolving Credit Facility, maturing 24 June 2009.		No drawings have been made against this facility. The facility supports the Group’s commercial paper programmes and may be used for general corporate purposes including acquisitions.
24 June 2005
$5.0 billion Revolving Credit Facility, maturing 22 June 2012.		No drawings have been made against this facility. The facility supports the Group’s commercial paper programmes and may be used for general corporate purposes including acquisitions.
21 December 2005
¥259 billion Term Credit Facility, maturing 16 March 2011, entered into by Vodafone Finance K.K. and guaranteed by the Company.		The facility was drawn down in full on 21 December 2005. The facility is available for general corporate purposes, although amounts drawn must be on-lent to the Company.

Under the terms and conditions of the $10.9 billion committed bank facilities, lenders have the right, but not the obligation, to cancel their commitments and have outstanding advances repaid no sooner than 30 days after notification of a change of control of the Company. The facility agreements provide 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 Vodafone Finance K.K.’s ¥259 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 2006, the Company was the sole guarantor.

In addition, Vodafone Japan has a fully drawn bilateral facility totalling ¥8 billion (£39 million) which expires in January 2007 and which was included in the sale of Vodafone Japan.

Furthermore, three of the Group’s subsidiary undertakings are funded by external facilities which are non-recourse to any member of the Group other than the borrower, due to the level of country risk involved. These facilities may only be used to fund their operations. Vodafone Egypt has a partly drawn (EGP250 million (£25 million)) syndicated bank facility of EGP900 million (£90 million) that fully expires in September 2007. On 1 April 2006 the undrawn EGP 650 million (£65 million) element of the facility lapsed. Vodafone Albania has a fully drawn (€60 million (£42 million)) syndicated bank facility that expires at various dates up to and including October 2012. Vodafone Romania has a fully drawn € 200 million syndicated bank facility that expires at various dates up to October 2010.

In aggregate, the Group has committed facilities of approximately £7,833 million, of which £6,362 million was undrawn and £1,471 million was drawn at 31 March 2006.

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 Group’s gross borrowings at 31 March 2006 are included in note 24 to the Consolidated Financial Statements.

Financial assets and liabilities
Analyses of financial assets and liabilities, including the maturity profile of debt, currency and interest rate structure, are included in notes 18 and 24 to the Consolidated Financial Statements. Details of the Group’s treasury management and policies are included within note 24 to the Consolidated Financial Statements.

Option agreements and similar arrangements
Potential cash inflows
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 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 during certain periods up to August 2007, dependent on the value of the Company’s 45% stake in Verizon Wireless. This represents a potential source of liquidity to the Group.

Exercise of the option could have occurred in either one or both of two phases. The Phase I option expired in August 2004 without being exercised. 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 2006 and 10 July 2007. The Phase II option also limits the aggregate amount paid to $20 billion and caps the payments under single exercises to $10 billion. Determination of the market value of the Company’s 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 appraisal. If an initial public offering takes place and the common stock trades in a regular and active market, the market value of the Company’s interest will be determined by reference to the trading price of common stock.

Potential cash outflows
In respect of the Group’s interest in the Verizon Wireless partnership, an option granted to Price Communications, Inc. by Verizon Communications is exercisable at any time up to and including 15 August 2006. The option gives Price Communications, Inc. the right to exchange its preferred limited partnership interest in Verizon Wireless of the East LP for either equity of Verizon Wireless (if an initial public offering of such equity occurs), or common stock of Verizon Communications. If the exercise occurs, Verizon Communications has the right, but not the obligation, to contribute the preferred interest to the Verizon Wireless partnership, diluting the Group’s interest. However, the Group also has the right to contribute further capital to the Verizon Wireless partnership in order to maintain its percentage partnership interest at the level just prior to the exercise of the option. Such amount is expected to be $1.0 billion.

During the 2005 financial year, the Group sold 16.9% of Vodafone Egypt to Telecom Egypt, reducing the Group’s effective interest to 50.1%. Both parties also signed a shareholder agreement setting out the basis under which the Group and Telecom Egypt would each contribute a 25.5% interest in Vodafone Egypt to a newly formed company to be 50% owned by each party. Within this shareholder agreement, Telecom Egypt was granted a put option over its entire interest in Vodafone Egypt giving Telecom Egypt the right to put its shares back to the Group at fair market value. On 31 October 2005, the shareholder agreement between Telecom Egypt and Vodafone expired and the associated rights and obligations contained in the shareholder agreement terminated, including the aforementioned put option. However, the original shareholders agreement contained an obligation on both parties to use reasonable efforts to renegotiate a revised shareholder agreement for their direct shareholding in Vodafone Egypt on substantially the same terms as the original agreement, which may or may not lead to a new agreement containing a put option under the terms described above. As of 31 March 2006, the parties have not agreed to abandon such efforts and as such, the financial liability relating to the initial shareholder agreement has been retained in the Group’s balance sheet at 31 March 2006.

In respect of Arcor, the Group’s non-mobile operation in Germany, the capital structure provides all partners, including the Group, the right to withdraw capital from 31 December 2026 onwards and this right in relation to the minority partners has been recognised as a financial liability.

Off-balance sheet arrangements
The Group does not have any material off-balance sheet arrangements, as defined by the SEC. Please refer to notes 30 and 31 to the Consolidated Financial Statements for a discussion of the Group’s commitments and contingent liabilities.

Quantitative and qualitative disclosures about market risk
A discussion of the Grou