Form 6-K

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Report of Foreign Private Issuer

 

Pursuant to Rules 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

Dated May 25, 2005

 

VODAFONE GROUP

PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

 

 

VODAFONE HOUSE, THE CONNECTION, NEWBURY, BERKSHIRE, RG14 2FN, ENGLAND
(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F__ü___

 

Form 40-F_____

 

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes______

 

No__ü___

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82_______________

 



 

This Report on Form 6-K contains a news release issued by Vodafone Group Plc on May 24, 2005, entitled “VODAFONE GROUP PLC ANNOUNCES FULL YEAR RESULTS”.

 



 


VODAFONE GROUP PLC

VODAFONE ANNOUNCES FULL YEAR RESULTS

Embargo:

Not for publication

before 07:00 hours

24 May 2005

 

Vodafone today announces preliminary results for the year ended 31 March 2005, which meet or exceed stated targets for the Group’s global operations across every metric.  The highlights of the results are:

 

Strong financial performance:

 

                       Group turnover of £34.1 billion.  Mobile telecommunications turnover increased to £33.2 billion, with organic growth of 5%(1)

 

                       Earnings per share, before goodwill amortisation and exceptional items, increased by 14% to 10.41 pence.  Basic loss per share was 11.39 pence.  Loss for the financial year was £7.5 billion after goodwill amortisation of £14.7 billion

 

                       Free cash flow(1) of £7.8 billion.  Net cash inflow from operating activities up 3% to £12.7 billion

 

Delivering results through strong customer focus:

 

                       Net organic proportionate customer additions in the year of 16.3 million, representing organic growth of 12%(1).  Closing proportionate customer base of 154.8 million in 26 markets

 

                       Vodafone live! active devices increased to 30.9 million

 

                       Increasing adoption of 3G services, with 2.4 million devices at year end

 

                       Launch of Vodafone Simply, a new, easy to use service for customers who want to use voice and text services with minimum complexity

 

                       Introduction of Vodafone Passport, a new voice roaming price plan which provides customers with greater price clarity when using mobile voice services abroad

 

Increasing returns to shareholders:

 

                       Total dividends per share increased by 100% to 4.07 pence, giving a total dividend payout of £2.7 billion

 

                       £4.5 billion share purchase target for the 2006 financial year.  £4 billion expended on the share purchase programme in the 2005 financial year, reducing shares in issue by 4%

 

(1)                  See page 38 for definition of terms.

 

 

Arun Sarin, Chief Executive, commented:

 

These strong results highlight both our operational and financial strength.  We have met or exceeded all of our stated targets and significantly increased returns to shareholders.  Whilst competitive pressures are increasing, there is clear evidence that our global scale and scope is enabling us to deliver innovative customer propositions and to produce superior results.

 



 

Chief Executive’s Statement

 

Vodafone Group has posted a strong set of annual results, highlighting both operational and financial strength. I am pleased to report that the Group met or exceeded our stated targets on every metric.

 

We exceeded 12% organic growth in proportionate customers, bringing the total in our 26 markets to over 154 million by the end of the year. Following the successful launch of 3G in November, we are able to report 2.4 million registered 3G devices on our networks at the year end as our customers increasingly enjoy the benefits of enhanced services.

 

Organic revenue growth for the year was 6% on a statutory basis and 9% on a proportionate basis.  Particularly strong markets included the US and Spain, which both grew revenues at more than 20% year on year. In our core European markets, good performances were also recorded by Italy and Germany and the UK performed well despite a very competitive backdrop. We were disappointed with our performance in Japan, where we are working to improve further our service proposition.  We are committed to improving our competitive position in this market and are executing on a business improvement plan in the year ahead.

 

Many of the mobile markets in which we operate are highly penetrated and competitive pressures are increasing, with new players entering our markets. Vodafone’s response is to focus on addressing customer needs with segmented propositions. Our biggest commercial launch for the year occurred in November with the introduction of Vodafone live! with 3G. Through an end-to-end service encompassing industry leading handsets, new and exciting products and services, enhanced portal access and robust quality 3G networks, we have leveraged our unique scale and scope advantages.

 

Last week we introduced Vodafone Simply, to appeal to those users who want a simple, basic service. Equally important is the launch of our new roaming price plan, Vodafone Passport, which leverages our unrivalled footprint and delivers roaming tariffs that are better value for money and easier to understand.

 

Together with new and innovative product offerings, we see the traditional lines between mobile and fixed line communications increasingly breaking down. Given the power of mobility and the additional capacity afforded to us by 3G networks, we are pursuing many opportunities, both in the consumer and business environments, to take more minutes from fixed line networks.

 

The platform for Vodafone to deliver a differentiated service at the lowest cost is the driving force behind the “One Vodafone” programme. We are on track to derive significant benefits from the “One Vodafone” programme and to deliver £2.5 billion additional pre-tax operating free cash flow by the 2008 financial year.

 

“One Vodafone” focuses on a combination of standardising designs and processes, reducing duplication, centralising certain functions and sharing best practice. The plans are now established and work streams already well advanced, such as the roaming initiative we announced recently and service platform hosting centres that are already built in Germany and Italy.

 

As we indicated to you in November, we are proposing to double the final dividend for the year. This step change in dividend payout underlines our confidence in the future prospects for the Group. We were also able to complete a share purchase programme of £4 billion, reducing our shares in issue by 4%. The total return of £6.7 billion is a significant increase on the previous year and as a result Vodafone has one of the highest total return yields in the industry.

 

Looking forward to current financial year, we are targeting a further buyback of £4.5 billion and, having rebased dividends in the year, to grow our dividend in line with underlying earnings. The Board continues to believe that the Group’s balance sheet capacity provides Vodafone with the appropriate flexibility to consider selective acquisitions, whilst progressively increasing returns to shareholders.

 

Shortly we expect to complete acquisitions from the TIW Group, which will add controlled businesses in both Romania and the Czech Republic. These two businesses are an excellent geographic fit and have attractive growth prospects that, we believe, are value enhancing for our shareholders.

 

We live in a challenging world. However, significant opportunities exist for Vodafone to continue to deliver superior shareholder returns by executing on our strategic goals.

 

 

Arun Sarin

 

2



 

GROUP FINANCIAL HIGHLIGHTS

 

 

 

Year ended 31 March

 

 

 

 

 

 

 

2005

 

 

2004

 

Change %

 

 

 

£m

 

 

£m

 

£

 

Organic(1)

 

 

 

 

 

 

 

 

 

 

 

 

Statutory

 

 

 

 

 

 

 

 

 

 

Turnover

 

 

 

 

 

 

 

 

 

 

- continuing operations

 

34,133

 

 

32,741

 

4

 

6

 

- discontinued operations

 

 

 

818

 

 

 

 

 

 

 

34,133

 

 

33,559

 

2

 

6

 

 

 

 

 

 

 

 

 

 

 

 

Group EBITDA, before exceptional items

 

13,041

 

 

12,640

 

3

 

7

 

 

 

 

 

 

 

 

 

 

 

 

Total Group operating profit, before goodwill amortisation and exceptional items

 

10,904

 

 

10,749

 

1

 

5

 

 

 

 

 

 

 

 

 

 

 

 

Profit on ordinary activities before taxation, goodwill amortisation and exceptional items

 

10,300

 

 

10,035

 

3

 

 

 

Goodwill amortisation

 

(14,700

)

 

(15,207

)

(3

)

 

 

Net exceptional items

 

(302

)

 

125

 

 

 

 

 

Loss on ordinary activities before taxation

 

(4,702

)

 

(5,047

)

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the financial year

 

(7,540

)

 

(9,015

)

(16

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate before goodwill amortisation and exceptional items

 

27.5

%

 

30.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proportionate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

 

 

 

 

 

 

 

 

 

 

- mobile telecommunications

 

42,762

 

 

38,157

 

12

 

9

 

- other operations

 

1,178

 

 

1,789

 

(34

)

 

 

Less: turnover between mobile and other operations

 

(338

)

 

(500

)

(32

)

 

 

 

 

43,602

 

 

39,446

 

11

 

9

 

EBITDA before exceptional items

 

 

 

 

 

 

 

 

 

 

- mobile telecommunications

 

16,483

 

 

14,826

 

11

 

10

 

- other operations

 

158

 

 

288

 

(45

)

 

 

 

 

16,641

 

 

15,114

 

10

 

9

 

 

 

 

 

 

 

 

 

 

 

 

Mobile EBITDA margin(2)

 

38.5%

 

 

38.9%

 

 

 

 

 

Mobile EBITDA margin excluding Japan stake change(2)(3)

 

39.0%

 

 

38.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proportionate information is presented and calculated on the basis described on page 33.

 

 

 

 

 

 

 

 

 

 

 

Cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash inflow from operating activities

 

12,713

 

 

12,317

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free cash flow

 

7,847

 

 

8,521

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net debt at 31 March

 

(8,339

)

 

(8,488

)

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information

 

Pence

 

 

Pence

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per share

 

 

 

 

 

 

 

 

 

 

- before goodwill amortisation and exceptional items

 

10.41

 

 

9.10

 

14

 

 

 

- after goodwill amortisation and exceptional items

 

(11.39

)

 

(13.24

)

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

4.07

 

 

2.0315

 

100

 

 

 

 

This results announcement contains certain information on the Group’s results and cash flows that have been derived from amounts calculated in accordance with UK Generally Accepted Accounting Principles, (“UK GAAP”), but are not themselves UK GAAP measures.  They should not be viewed in isolation as alternatives to the equivalent UK GAAP measure and should be read in conjunction with the equivalent UK GAAP measure.  Further disclosures are also provided under “Use of Non-GAAP Financial Information” on page 37.

 

 

(1)             See page 38 for definition of terms

(2)             Before exceptional items

(3)             See page 33 for a reconciliation of proportionate turnover and proportionate EBITDA, before exceptional items, excluding the impact of the Japan stake change

 

3



 

GROUP OPERATING HIGHLIGHTS

 

 

 

Year ended / at 31 March

 

 

 

 

 

2005

 

2004

 

% change

 

 

 

 

 

 

 

 

 

Vodafone live! – closing active devices (million)(1)(2)

 

30.9

 

6.8

 

354

 

 

 

 

 

 

 

 

 

Vodafone Mobile Connect data card

 

 

 

 

 

 

 

– registered cards (million)(1)

 

0.5

 

0.2

 

150

 

– including 3G/GPRS cards (million)(1)

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

Registered 3G devices (million)(1)(3)

 

2.4

 

 

 

 

 

 

 

 

 

 

 

 

Mobile voice usage (billion minutes)

 

170.7

 

154.8

 

10

 

Non-voice services as% of service revenue

 

17.0%

 

16.1%

 

 

 

 

 

 

 

 

 

 

 

Tangible fixed assets

 

 

 

 

 

 

 

Group additions (£ billion)

 

5.1

 

4.8

 

6

 

Mobile additions (£ billion)

 

4.9

 

4.6

 

7

 

Mobile additions as a percentage of mobile turnover

 

14.8%

 

14.4%

 

 

 

 

 

 

(1)

On a controlled venture basis

 

(2)

With effect from 31 December 2004, Vodafone live! active devices in Japan have been included in the closing total as the service in Japan has become aligned with the Vodafone live! experience in other countries

 

(3)

Includes all registered devices capable of accessing 3G data services

 

See page 38 for definition of terms

 

 

OUTLOOK

 

Please see “Forward-Looking Statements” on page 36.

 

For the year ending 31 March 2006(1)(“2006 financial year”)

 

These expectations for the 2006 financial year have been prepared on the basis of International Financial Reporting Standards (“IFRS”).  Financial information for the year ended 31 March 2005 (“2005 financial year”) under IFRS will be announced in July 2005.  These expectations do not include the impact of the proposed acquisition of interests in MobiFon in Romania and Oskar in the Czech Republic, which are subject to certain conditions.

 

The Group considers the organic increase in proportionate mobile revenue to be the key growth indicator.  As a result of increasing multiple SIM usage and differences in customer number measurement between mobile operators, the Group will no longer provide customer growth guidance.  The Group will, however, continue to report customer number information on a quarterly basis.

 

The Group expects to deliver organic growth in proportionate mobile revenue in the 6% to 9% range.  Proportionate mobile EBITDA margin is expected to be in the range of flat to 1 percentage point lower than that achieved in the 2005 financial year, after taking into account the effect of declines in interconnect rates and increased competition.

 

Capitalised fixed asset additions(2) are anticipated to be similar to the levels for the 2005 financial year at around £5 billion, as the Group continues the roll out of its 3G networks.

 

Free cash flow is expected to be in the £6.5 billion to £7.0 billion range.  This is expected to be lower than that to be reported under IFRS for the 2005 financial year as the benefit of higher operating cash flow is more than offset by:

 

                                          the expectation that dividends received from Verizon Wireless will be approximately £0.7 billion lower; and

 

                                          higher payments on fixed assets and tax.

 

Share purchases by Vodafone Group Plc are currently targeted to be approximately £4.5 billion in the financial year.  Vodafone Italy shareholders are expected to approve the re-purchase of €7.9 billion of shares in that company at a meeting on 26 May 2005.

 

The adjusted effective tax rate(3) is expected to be slightly higher than in the 2005 financial year.  The absence of the benefits arising in the 2005 financial year from the German reorganisation are expected to be partially offset by the part reversal of deferred tax provisions on unremitted earnings and anticipated tax settlements.  However, the adjusted effective tax rate and tax payments are subject to the resolution of open issues, planning opportunities, corporate acquisitions and disposals and changes in tax legislation.

 

4



 

The Group is not currently aware of any developments to IFRS accounting standards and related interpretations that would result in the reconciling items between UK GAAP and IFRS to be reported for the year ended 31 March 2005 being significantly different from those previously reported for the six months ended 30 September 2004.

 

The Group’s outlook statement is prepared on the basis of IFRS.  If the Group had prepared an outlook statement on the basis of UK GAAP, there would be no material differences to its expectations for proportionate mobile revenue growth and change in proportionate mobile EBITDA margin between the two bases.

 

Other

 

The section of this Preliminary Announcement press release entitled “One Vodafone” on page 17 provides additional outlook statements in relation to the expected future benefits of One Vodafone initiatives on pre-tax operating free cash flow, capital expenditure and operating expenditure.

 

(1)          Comparisons to the 2005 financial year are prepared on the basis of IFRS and, where appropriate, using constant exchange rates and after adjusting for business acquisitions and disposals and items not reflecting underlying business performance.

 

(2)          Capitalised fixed asset additions represents the aggregate of capitalised property, plant and equipment additions and capitalised software costs.

 

(3)          The adjusted effective tax rate is calculated excluding items not reflecting underlying business performance and reflecting the Group’s share of its associated undertakings tax on profit on ordinary activities as a component of the total tax charge and not as a deduction from the share of results in associated undertakings which is included in profit on ordinary activities before taxation.

 

5



 

BUSINESS REVIEW

 

 

 

 

Year ended 31 March

 

 

 

 

 

 

2005

 

 

2004(4)

 

 

% change

 

 

 

 

£m

 

 

£m

 

£

 

Organic

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

Mobile telecommunications

 

 

 

 

 

 

 

 

 

 

 

- Total service revenue

 

29,322

 

 

28,249

 

4

 

5

 

 

- Other revenue(1)

 

3,862

 

 

3,666

 

5

 

 

 

 

 

 

33,184

 

 

31,915

 

4

 

5

 

 

Other operations

 

1,108

 

 

2,128

 

(48

)

 

 

 

Less: turnover between mobile and other operations

 

(159

)

 

(484

)

(67

)

 

 

 

 

 

34,133

 

 

33,559

 

2

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Group operating

Mobile telecommunications

 

10,875

 

 

10,729

 

1

 

4

 

profit/(loss)(2)(3)

Other operations

 

29

 

 

20

 

45

 

 

 

 

 

 

10,904

 

 

10,749

 

1

 

5

 

Goodwill amortisation

 

(14,700

)

 

(15,207

)

(3

)

 

 

Exceptional operating items

 

(315

)

 

228

 

 

 

 

 

Total Group operating loss

 

(4,111

)

 

(4,230

)

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading results

Voice services

 

24,349

 

 

23,708

 

3

 

 

 

 

Non-voice services

 

4,973

 

 

4,541

 

10

 

 

 

 

Total service revenue

 

29,322

 

 

28,249

 

4

 

5

 

 

Net other revenue(1)

 

557

 

 

512

 

9

 

 

 

 

Interconnect costs

 

(4,311

)

 

(4,137

)

4

 

 

 

 

Other direct costs

 

(1,975

)

 

(2,004

)

(1

)

 

 

 

Net acquisition costs(1)

 

(2,051

)

 

(1,897

)

8

 

 

 

 

Net retention costs(1)

 

(1,914

)

 

(1,638

)

17

 

 

 

 

Payroll(2)

 

(2,091

)

 

(2,016

)

4

 

 

 

 

Other operating expenses(2)

 

(4,693

)

 

(4,802

)

(2

)

 

 

 

EBITDA(2)

 

12,844

 

 

12,267

 

5

 

6

 

 

Depreciation and amortisation(3)

 

(4,971

)

 

(4,197

)

18

 

 

 

 

Share of operating profit in associated undertakings(2)(3)

 

3,002

 

 

2,659

 

13

 

 

 

 

Total Group operating profit(2)(3)

 

10,875

 

 

10,729

 

1

 

4

 

 

 

 

(1)

Turnover for the mobile telecommunications (“mobile”) business includes revenue of £3,305 million (2004: £3,154 million) which has been deducted from acquisition and retention costs and excluded from other revenue in the trading results

 

(2)

Before exceptional items

 

(3)

Before goodwill amortisation

 

(4)

Consistent with the presentation adopted for the interim results for the six months ended 30 September 2004, the Group has amended its segmental disclosure of turnover to a gross of intercompany turnover basis, rather than a net of intercompany turnover basis as previously disclosed, in order to facilitate analysis of the performance of the Group and as part of the Group’s preparations for the introduction of IFRS. There is no impact on total Group turnover, which continues to be stated on a net of intercompany turnover basis. In addition, a more detailed analysis of the trading results of the Group’s mobile business and certain key markets has been provided, on a basis consistent with internal measures, to facilitate management’s discussion of the results

 

See page 38 for definition of terms

 

 

GROUP RESULTS

 

Turnover increased by 2% to £34,133 million in the year ended 31 March 2005, comprising organic growth of 6%, offset by unfavourable movements in exchange rates of 2% and the net effect of acquisitions and disposals, principally the disposal of Japan Telecom, of 2%.  The foreign exchange impact primarily arose due to the relative strength of sterling in the first half of the financial year compared to the prior period, partially offset by a relative weakening in the second half.

 

Before goodwill amortisation and exceptional items, total Group operating profit increased by 1% to £10,904 million, with underlying organic growth of 5%, broadly in line with the growth in turnover.  Unfavourable exchange rate movements represented 3% of the difference between reported and organic growth, whilst acquisitions and disposals reduced reported growth by a further 1%.

 

After goodwill amortisation and exceptional items, the Group reported a total operating loss of £4,111 million, compared with a loss of £4,230 million for the prior year.  The charges for goodwill amortisation, which do not affect the cash flows of the Group or the ability of the Company to pay dividends, fell by 3% to £14,700 million,

 

6



 

principally as a result of the impact of foreign exchange movements.  Following the Group’s transition to IFRS in the 2006 financial year, no goodwill amortisation charges will be incurred.  Exceptional operating items moved from a £228 million net credit in the prior financial year, due principally to expected recoveries and provision releases in relation to a contribution tax levy on Vodafone Italy, to a £315 million charge in the 2005 financial year due to an impairment of the carrying value of the goodwill relating to Vodafone Sweden.

 

MOBILE TELECOMMUNICATIONS RESULTS

 

Turnover

 

Turnover in the mobile business increased by 4%, or 5% on an organic basis, for the year ended 31 March 2005.  The increase in turnover was driven principally by organic service revenue growth, at constant exchange rates, of 5%, which improved principally as a result of a 9% increase in the Group’s average controlled customer base and 10% growth in total voice usage compared to the prior year, offset by the effect of regulatory and competitive pressures on pricing and the increase in the proportion of prepaid customers across the Group.

 

Voice revenue improved by 4% on an organic basis, following an increase in voice usage, partially offset by tariff reductions due to increased competition and lower termination rates.

 

Non-voice service revenue increased to £4,973 million for the year ended 31 March 2005, or by 11% on an organic basis.  Messaging revenue continued to represent the largest component of non-voice revenue at £3,589 million for the financial year, a 7% increase over the previous financial year.  Non-messaging data revenue increased by 17% to £1,384 million as the Group continued to drive adoption of consumer services, such as Vodafone live! and Vodafone live! with 3G, and business offerings, including the Vodafone Mobile Connect data card and BlackBerry® from Vodafone.  Japan generates the highest level of non-messaging data revenue in the Group and, following the loss of higher value customers and an increased proportion of prepaid customers with access to only basic data services, its non-messaging data revenue reduced by 7% to £816 million in the 2005 financial year.

 

Other revenue increased to £3,862 million, principally due to growth in revenue related to acquisition and retention activities to £3,305 million, being 7% on an organic basis.  The increase has arisen principally from higher levels of gross additions and upgrades in the year, partially offset by a reduction in the average handset sales price.

 

Group operating profit before goodwill amortisation and exceptional items

 

Total Group operating profit, before goodwill amortisation and exceptional items, increased by 1% to £10,875 million, comprising organic growth of 4% offset by unfavourable exchange rate movements, particularly the strengthening of sterling against the euro and the US dollar.

 

Acquisition and retention costs, net of attributable revenue, increased by 12% to £3,965 million.  The increase was primarily driven by higher customer growth in the UK and Spain and increased investment in retention activities in the UK and Japan.  Other operating expenses as a percentage of service revenue reduced from 17.0% to 16.0% as the Group continued to realise cost efficiencies, particularly in network and IT costs.

 

Depreciation and licence amortisation charges increased by 18% following the commencement of 3G services in a number of the Group’s controlled mobile businesses.  Licence amortisation amounted to £412 million in the year compared to £98 million in the prior year.

 

The Group’s share of operating profit, before goodwill amortisation and exceptional items, in associated undertakings grew strongly, primarily due to growth at Verizon Wireless in the US.

 

MOBILE TELECOMMUNICATIONS – REVIEW OF OPERATIONS

 

In October 2004, the Group announced changes to the regional structure of its operations, effective from 1 January 2005.  The following results are presented in accordance with the new regional structure.

 

7



 

GERMANY

 

Financial highlights

 

 

Year ended 31 March

 

 

 

 

 

 

 

2005

 

 

2004

 

 

% change

 

 

 

 

 

£m

 

 

£m

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover(1)

 

 

5,684

 

 

5,536

 

3

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading results

Voice services

 

4,358

 

 

4,254

 

2

 

4

 

 

 

Non-voice services

 

962

 

 

895

 

7

 

9

 

 

 

Total service revenue

 

5,320

 

 

5,149

 

3

 

5

 

 

 

Net other revenue(1)

 

122

 

 

155

 

(21

)

(20

)

 

 

Interconnect costs

 

(734

)

 

(725

)

1

 

3

 

 

 

Other direct costs

 

(314

)

 

(334

)

(6

)

(4

)

 

 

Net acquisition costs(1)

 

(348

)

 

(367

)

(5

)

(3

)

 

 

Net retention costs(1)

 

(330

)

 

(321

)

3

 

5

 

 

 

Payroll

 

(409

)

 

(390

)

5

 

7

 

 

 

Other operating expenses

 

(668

)

 

(675

)

(1

)

1

 

 

 

EBITDA

 

2,639

 

 

2,492

 

6

 

8

 

 

 

Depreciation and amortisation(2)

 

(976

)

 

(751

)

30

 

32

 

 

 

Total Group operating profit(2)

 

1,663

 

 

1,741

 

(4

)

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA margin

 

46.4%

 

 

45.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPIs

Closing Customers (‘000)

 

27,223

 

 

25,012

 

 

 

9

 

 

 

Average monthly ARPU

 

€24.9

 

 

€25.9

 

 

 

(4

)

 

 

 

 

(1)

Turnover includes revenue of £242 million (2004: £232 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results

 

(2)

Before goodwill amortisation

 

See page 38 for definition of terms

 

 

Vodafone has built on its strong position in the German mobile market following the successful launch of 3G services.  The EBITDA margin improved compared to the previous year and continues to represent the highest of all mobile network operators.

 

A 9% growth in the average customer base compared to the prior year was the main driver of the 5% increase in service revenue in local currency.  Customer growth was strong as a result of successful and competitively priced, but low subsidy, offerings which had a dilutive effect on ARPU.  The offerings included partner cards, which offer a second SIM card without a handset to contract customers at a low monthly cost to the customer, and SIM only prepaid promotions, which attracted a substantial proportion of prepaid customers in the second half of the financial year.  ARPU, and consequently service revenue growth, in the second half of the financial year was also impacted by a reduction in the mobile call termination rate from 14.3 eurocents to 13.2 eurocents in December 2004.  A further cut to 11.0 eurocents in December 2005 has also been agreed with Deutsche Telekom.

 

Non-voice service revenue increased due to the success of non-messaging data offerings, the revenue from which increased by 85% in local currency to £163 million.  In the consumer segment, the number of Vodafone live! active devices increased by 105% over the financial year to 4,845,000 at 31 March 2005 and, in the business segment, there were strong sales of Vodafone Mobile Connect 3G/GPRS data cards.  Demonstrating Vodafone’s lead in the 3G market in Germany, there were 358,000 registered 3G devices at 31 March 2005.

 

Cost control facilitated the improvement in the EBITDA margin by 1.4 percentage points over the prior year to 46.4%.  A higher proportion of prepaid additions, particularly in the second half of the financial year, and lower contract subsidies led to net acquisition costs decreasing by 3% in local currency in spite of an 8% increase in gross customer additions.  Lower loyalty scheme costs were offset by higher upgrade costs, particularly in the second half of the financial year following increased activity through indirect channels, and consequently net retention costs increased by 5%.  Other operating expenses and direct costs remained relatively stable compared to the prior year.

 

The commencement of depreciation and amortisation on the 3G network and licence, following launch of services in the second half of the previous financial year, reduced operating profit before goodwill amortisation, with licence amortisation contributing to the largest share of this reduction.

 

8



 

ITALY

 

 

Financial highlights

 

 

 

Year ended 31 March

 

 

 

 

 

 

 

 

 

 

2005

 

 

2004

 

 

% change

 

 

 

 

 

 

£m

 

 

£m

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover(1)

 

 

 

5,565

 

 

5,312

 

5

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading results

 

Voice services

 

4,548

 

 

4,380

 

4

 

6

 

 

 

 

Non-voice services

 

780

 

 

669

 

17

 

19

 

 

 

 

Total service revenue

 

5,328

 

 

5,049

 

6

 

7

 

 

 

 

Net other revenue(1)

 

19

 

 

13

 

46

 

38

 

 

 

 

Interconnect costs

 

(913

)

 

(874

)

4

 

6

 

 

 

 

Other direct costs(3)

 

(302

)

 

(306

)

(1

)

 

 

 

 

Net acquisition costs(1)

 

(93

)

 

(76

)

22

 

23

 

 

 

 

Net retention costs(1)

 

(97

)

 

(64

)

52

 

55

 

 

 

 

Payroll

 

(323

)

 

(301

)

7

 

10

 

 

 

 

Other operating expenses

 

(659

)

 

(646

)

2

 

4

 

 

 

 

EBITDA

 

2,960

)

 

2,795

 

6

 

8

 

 

 

 

Depreciation and amortisation(2)

 

(703

)

 

(652

)

8

 

10

 

 

 

 

Total Group operating profit(2)(3)

 

2,257

 

 

2,143

 

5

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA margin

 

53.2%

 

 

52.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPIs

 

Closing Customers (‘000)

 

22,502

 

 

21,137

 

 

 

6

 

 

 

 

Average monthly ARPU

 

€29.9

 

 

€30.1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Turnover includes revenue of £218 million (2004: £250 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results

 

(2)   Before goodwill amortisation

 

(3)   Before exceptional items

 

See page 38 for definition of terms

 

Vodafone continued to perform robustly in Italy despite aggressive competition, through strong market positioning driven by innovative promotions and a focus on high value customers, through targeted retention initiatives.  Notwithstanding market penetration levels of over 100%, driven by the effect of customers having more than one SIM and increased competition, Vodafone had good customer growth, with gross additions higher than in the previous year, and only a slight increase in churn to 17.2%.

 

Total turnover grew by 7%, when measured in local currency, reflecting the rise in service revenue that was driven by an 8% increase in the average customer base.  ARPU remained stable despite a slight reduction in activity levels. Strong promotional campaigns, such as fixed price phone calls for voice users or unlimited text messaging, after paying for the first text message per day, in return for up front subscription fees, significantly stimulated usage, with minutes of use increasing by 12% and the number of text messages sent increasing by 11%.

 

Non-voice service revenue grew by 19%, with revenue from non-messaging data offerings increasing to £87 million, representing an 85% increase in local currency.  Vodafone live! active devices increased by 169% to 2,751,000 at 31 March 2005.  In the business segment, Vodafone continued to increase its market share, with a 10% growth in the customer base and continuing net inflow of customers through mobile number portability.  Strong revenue growth for this segment was supported by a higher proportion of non-voice service revenue, partially driven by sales of Vodafone Mobile Connect data cards.

 

Following the successful launch of consumer 3G services in November 2004, customers had registered 665,000 3G devices on Vodafone’s network by the end of the financial year.

 

The EBITDA margin grew by 0.6 percentage points to 53.2% and remained the highest of the Group’s European operations, despite competitive pressure following new market entrants offering high subsidies.  A lower proportion of direct and other operating costs more than offset increased targeted retention investments. Operating profit, before goodwill amortisation and exceptional items, was impacted by higher depreciation and licence amortisation charges.

 

9



 

UNITED KINGDOM

 

 

Financial highlights

 

 

 

Year ended 31 March

 

 

 

 

 

 

 

 

2005

 

 

2004

% change

 

 

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover(1)

 

 

 

5,065

 

 

4,782

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading results

Voice services

 

 

3,672

 

 

3,522

 

4

 

 

 

Non-voice services

 

 

826

 

 

674

 

23

 

 

 

Total service revenue

 

 

4,498

 

 

4,196

 

7

 

 

 

Net other revenue(1)

 

 

177

 

 

146

 

21

 

 

 

Interconnect costs

 

 

(771

)

 

(752

)

3

 

 

 

Other direct costs

 

 

(367

)

 

(325

)

13

 

 

 

Net acquisition costs(1)

 

 

(388

)

 

(333

)

17

 

 

 

Net retention costs(1)

 

 

(391

)

 

(321

)

22

 

 

 

Payroll(3)

 

 

(389

)

 

(387

)

1

 

 

 

Other operating expenses(3)

 

 

(657

)

 

(616

)

7

 

 

 

EBITDA(3)

 

 

1,712

 

 

1,608

 

6

 

 

 

Depreciation and amortisation(2)

 

 

(737

)

 

(510

)

45

 

 

 

Total Group operating profit(2)(3)

 

 

975

 

 

1,098

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA margin

 

 

33.8%

 

 

33.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPIs

Closing Customers (‘000)

 

 

15,324

 

 

14,095

 

9

 

 

 

Average monthly ARPU

 

 

£25.5

 

 

£25.8

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Turnover includes revenue of £390 million (2004: £440 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results

 

 

(2)   Before goodwill amortisation

 

 

(3)   Before exceptional items

 

 

See page 38 for definition of terms

 

 

In an intensively competitive market, Vodafone achieved growth in the customer base and revenue whilst maintaining EBITDA margin through the execution of a structured plan to drive revenue and tighten control of operating expenses.

 

Turnover increased by 6%, comprising underlying growth of 1% and growth of 5% attributable to the acquisition of a number of service providers in the prior year, including Singlepoint (4U) Limited.  Service revenue rose by 7%, driven by an 8% increase in the average customer base over the prior financial year.  ARPU was broadly stable for the financial year, with increases in non-voice service revenue and the impact of service provider acquisitions being offset by termination rate cuts and reduced activity levels. From 1 September 2004, Vodafone, along with other UK mobile network operators, excluding the third generation operator, reduced termination rates by approximately 30%, impacting service revenue in the second half of the financial year.  The impact of the termination rate cut was to reduce service revenue for the financial year by 3 percentage points.

 

Increased acquisition and retention activity and the success of new tariffs and services, especially those targeted at corporate and business segments, drove customer growth in the financial year.  Contract churn improved from 24.9% for the year ended 31 March 2004 to 22.7% for the year ended 31 March 2005, although blended churn of 29.7% was in line with the previous year.  In addition, total customer activity levels fell from 91% at 31 March 2004 to 89% at 31 March 2005, reflecting higher levels of prepaid customer self upgrades, consistent with market trends. In the first half of the financial year, an agreement was reached to provide wholesale services to BT and at 31 March 2005, 119,000 BT customers, reported as one registered customer, were connected to the Vodafone network under this agreement.

 

Non-voice service revenue grew by 23%, with non-messaging data revenue increasing by 81% to £142 million, mainly due to the success of service offerings such as Vodafone live!, Vodafone Mobile Connect data cards and BlackBerry from Vodafone.  At 31 March 2005, the number of Vodafone live! active devices rose to 3,443,000.  In the business segment, there were strong sales of Vodafone Mobile Connect 3G/GPRS data cards.

 

The EBITDA margin was 33.8% for the year ended 31 March 2005, slightly up on the prior year as increased investment in acquisition and retention activity was offset by a relative reduction in interconnect costs following the cut in termination rates and operational efficiencies from the execution of the structured plan announced in the prior financial year.  The key elements of this plan are to sustainably differentiate and segment the customer base allowing more effective targeted marketing and to drive lower costs whilst positioning the organisation for the future.  Under the drive to lower costs, Vodafone has continued to consolidate call centres, simplify its network and IT platforms and reduce support costs.

 

10



 

Net other revenue and other direct costs both increased as a result of non-Vodafone customers acquired as part of service provider acquisitions in the prior year.  Other direct costs increased further due to higher content costs associated with the increased data revenue.  Operating profit before goodwill amortisation and exceptional items was impacted by the factors above and by an increase in both depreciation and licence amortisation charges, primarily due to the commencement of 3G services towards the end of the previous financial year.

 

Recent independently-audited tests have shown that Vodafone has the best call success rate of all mobile networks in Britain.

 

OTHER EUROPE, MIDDLE EAST AND AFRICA

 

 

Financial highlights

 

 

Year ended 31 March

 

 

 

 

 

 

 

 

 

2005

 

 

2004

 

 

% change

 

 

 

 

 

£m

 

 

£m

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

Spain

 

3,261

 

 

2,686

 

21

 

24

 

 

 

Other EMEA

 

5,402

 

 

4,983

 

8

 

 

 

 

 

Less: intra-segment turnover

 

(49

)

 

(42

)

17

 

 

 

 

 

 

 

8,614

 

 

7,627

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Group

Spain

 

775

 

 

703

 

10

 

12

 

 

operating profit(2)(3)

Other EMEA

 

2,608

 

 

2,439

 

7

 

 

 

 

 

 

 

3,383

 

 

3,142

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading results

Voice services

 

2,558

 

 

2,191

 

17

 

19

 

 

 

Non-voice services

 

405

 

 

282

 

44

 

46

 

 

 

Total service revenue

 

2,963

 

 

2,473

 

20

 

22

 

 

 

Other revenue(1)

 

2

 

 

3

 

(33

)

(22

)

 

 

Interconnect costs

 

(540

)

 

(477

)

13

 

15

 

 

 

Net other direct costs

 

(263

)

 

(201

)

31

 

33

 

 

 

Net acquisition costs(1)

 

(246

)

 

(146

)

68

 

71

 

 

 

Net retention costs(1)

 

(172

)

 

(137

)

26

 

27

 

 

 

Payroll

 

(138

)

 

(146

)

(5

)

(3

)

 

 

Other operating expenses

 

(473

)

 

(393

)

20

 

22

 

 

 

EBITDA

 

1,133

 

 

976

 

16

 

18

 

 

 

Depreciation and amortisation(2)

 

(358

)

 

(273

)

31

 

33

 

 

 

Total Group operating profit(2)

 

775

 

 

703

 

10

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA margin

 

34.7%

 

 

36.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPIs

Closing Customers (‘000)

 

11,472

 

 

9,705

 

 

 

18

 

 

 

Average monthly ARPU

 

€34.5

 

 

€31.4

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Turnover for Spain includes revenue of £296 million (2004: £210 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results

 

 

(2)   Before goodwill amortisation

 

 

(3)   Before exceptional items

 

 

See page 38 for definition of terms

 

 

Spain

 

In Spain, Vodafone continued to deliver strong growth throughout the year.  A focus on acquiring high value customers, targeted promotions encouraging increased usage and improved customer satisfaction contributed to local currency service revenue growth of over 20%, despite a reduction in termination rates of 10.5% on 1 November 2004 required by the regulator.

 

In local currency, turnover increased by 24%, due principally to a 22% increase in service revenue.  A successful customer acquisition strategy, including a focus on customers transferring from other operators, led to an 11% increase in the average customer base.  Loyalty programmes and promotional activity resulted in a reduction in churn levels from 23.6% for the year ended 31 March 2004 to 21.9% for the 2005 financial year.  An ongoing marketing campaign encouraging customers to switch from prepaid to contract contributed to the proportion of contract customers rising from 43% at 31 March 2004 to 47% at 31 March 2005.  This, along with usage stimulation promotions and initiatives, has resulted in a 10% increase in ARPU.

 

Non-voice service revenue for the year increased by 46%, with messaging remaining the principal driver of the increase.  Text messaging volumes increased 27% year on year, primarily due to promotions stimulating increased

 

11



 

messaging per customer.  The success of service offerings such as Vodafone live! and Vodafone Mobile Connect data cards led to non-messaging data revenue increasing by 201% in local currency to £65 million.  The number of Vodafone live! active devices rose to 2,992,000.

 

Strong growth in customer additions, principally in the first half of the year relative to the previous financial year, and the increased proportion of new contract customers, led to increased acquisition costs and contributed to the reduction in the EBITDA margin of 1.6 percentage points to 34.7%.  Interconnect costs increased due to higher usage offset by the impact of the termination rate cut in November and promotions in the second half of the year focusing on calls to other Vodafone and fixed-line numbers which incur relatively lower interconnect costs.  Operating profit before goodwill amortisation was impacted by the increased acquisition costs and the rise in depreciation and amortisation charges mainly due to the commencement of 3G services.

 

Other EMEA subsidiaries

 

Controlled venture customers for the Group’s operations in the Other EMEA region, other than Spain, increased by 12% in the year to 31 March 2005.

 

Turnover increased by 8%, with the primary driver being an 8% increase in service revenue, as a result of the 12% higher average controlled venture customer base, partially offset by cuts in termination rates across the region.  Non-voice service revenue grew strongly over the prior financial year to represent 13.2% of service revenue for the year ended 31 March 2005.  In Greece, local currency service revenue grew by 14% due to a 4% increase in the average customer base, higher voice usage and a strong rise in non-voice service revenue.  Visitor revenue also increased due to a national roaming agreement with Greece’s fourth mobile operator and high usage during the Olympic Games.  Service revenue growth in Portugal was 11% in local currency, driven by a 7% increase in the average customer base and good improvements in non-voice revenue and visitor revenue, due in part to the UEFA Euro 2004 football tournament and a particularly strong start in 3G, partially offset by lower termination rates.  Service revenue in Ireland increased by 10%, in local currency, primarily as a result of additional voice usage.  Intense competition restricted growth in local currency service revenue in the Netherlands to 1% and contributed to a 4% decline in Sweden.

 

Operating profit before goodwill amortisation increased by 7% over the prior financial year, following increased turnover partially offset by higher depreciation charges, primarily due to the launch of 3G services.

 

On 12 January 2005, the Group completed the acquisition of the remaining 7.2% shareholding in Vodafone Hungary from Antenna Hungaria Rt. with the effect that Vodafone Hungary became a wholly-owned subsidiary of the Group.  On 26 January 2005, Telecom Egypt acquired a 16.9% stake in Vodafone Egypt from the Group, reducing the Group’s controlling stake to 50.1%.  The transaction followed the completion of an agreement with the Egyptian Government for the purchase of additional spectrum.

 

EMEA associates

 

Associates in EMEA increased their average customer bases by 20% in the year, with particularly strong growth in markets with relatively low penetration rates such as those in Eastern Europe and Africa.  This customer growth generated an increase in operating profit before goodwill amortisation of 6%.

 

SFR, the Group’s associated undertaking in France, reported strong growth in revenue and operating profit before goodwill amortisation, principally as a result of a 9% increase in average customers compared to the prior year.  Usage of both voice and non-voice services grew in the period and SFR had a total of 2.6 million Vodafone live! customers at 31 March 2005.  SFR launched the Vodafone Mobile Connect 3G/GPRS data card in May 2004 and Vodafone live! with 3G in November 2004 and it also markets BlackBerry from Vodafone products.

 

Vodacom continued to grow both in South Africa and internationally through its interests in the Democratic Republic of the Congo, Lesotho, Mozambique and Tanzania.  Venture customers at 31 March 2005 totalled 15,482,000, an increase of 5,757,000 over the previous year, including 2,645,000 customers in Vodacom’s international interests which were previously excluded from the Group’s reported customer base.  In April 2005, Vodacom launched Vodafone live! with 3G in South Africa, building on the successful launch of the Vodafone Mobile Connect 3G/GPRS data card in December 2004.

 

12



 

AMERICAS

 

 

Financial highlights

 

 

Year ended 31 March

 

 

 

 

 

 

 

 

 

2005

 

 

2004

 

 

% change

 

 

 

 

 

£m

 

 

£m

 

£

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Group operating

Verizon Wireless

 

1,647

 

 

1,406

 

17

 

28

 

 

profit/(loss)(1)

Other Americas

 

 

 

(13

)

 

 

 

 

 

 

 

 

1,647

 

 

1,393

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Verizon Wireless

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proportionate turnover

 

 

6,884

 

 

6,111

 

13

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proportionate EBITDA margin

 

37.3%

 

 

35.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPIs

Closing customers (‘000)

 

45,452

 

 

38,909

 

 

 

17

 

 

 

Average monthly ARPU

 

$52.4

 

 

$50.3

 

 

 

4

 

 

 

Acquisition and retention
costs as a percentage of
service revenue

 

12.9%

 

 

13.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Before goodwill amortisation
See page 38 for definition of terms

 

 

 

 

 

 

 

 

 

 

 

Verizon Wireless

 

In a highly competitive US market, Verizon Wireless continued to outperform its competitors, ranking first in customer net additions for the year ended 31 March 2005.  The total customer base increased by 17% in the financial year to 45,452,000 at 31 March 2005.  At 31 December 2004, US market penetration reached approximately 63%, with Verizon Wireless’ market share at approximately 24%.

 

In local currency, proportionate turnover increased by 23%, driven by the larger customer base and an increase in ARPU.  ARPU growth was generated primarily by customers migrating to higher access price plans as well as growth in data products, with data revenue increasing 131% over last year and representing 5.0% of service revenue in the year.

 

Churn rates are amongst the lowest in the US wireless industry and have continued to improve, falling from 20.5% in the prior financial year to 17.2%.  The low churn rate is attributable in part to the quality and coverage of Verizon Wireless’ network and the success of retention programmes such as the ‘Worry Free Guarantee®’, which includes the ‘New Every Two®’ plan.

 

The EBITDA margin increased from 35.9% last year to 37.3%, which reflects increased ARPU and further cost efficiencies.  Verizon Wireless has achieved sustained cost containment, including the reduction of interconnection and leased line rates as well as other operating expense efficiencies.  In local currency, the Group’s share of Verizon Wireless’ operating profit before goodwill amortisation increased by 28%.

 

Verizon Wireless launched V CASTSM, the first wireless consumer multimedia broadband service in the US, in February 2005 and BroadbandAccess, a data card product providing wide area broadband computer connectivity, in October 2003.  Both of these broadband offerings are delivered over Verizon Wireless’ Evolution-Data Optimized wide-area network which reached a population of 75 million people at 31 December 2004 and has been growing steadily, with the intention to cover 150 million people by the end of 2005.

 

Vodafone and Verizon Wireless are engaged in a number of joint projects to bring global services to their customers. Global Phone, which was launched last year, is the first device to incorporate CDMA and GSM technology and allows Verizon Wireless customers to use their phone in more than 100 countries.  An additional joint project enabled Verizon Wireless customers to send text messages internationally to customers of participating GSM carriers.  Vodafone and Verizon Wireless have also signed joint contracts with key media companies for their content and have several initiatives underway to further improve their service to multinational corporations.

 

Verizon Wireless has recently substantially strengthened its spectrum position with the closing of the purchase of several key spectrum licences, including licences from NextWave and Qwest and its participation in the FCC’s Auction 58, which ended in February 2005.

 

13



 

ASIA PACIFIC

 

 

Financial highlights

 

 

Year ended 31 March

 

 

 

 

 

 

 

 

 

2005

 

 

2004

 

 

%change

 

 

 

 

 

£m

 

 

£m

 

£

 

¥

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

Japan(1)

 

7,396

 

 

7,850

 

(6

)

(2

)

 

 

Other Asia Pacific

 

1,142

 

 

1,052

 

9

 

 

 

 

 

Less: intra-segment turnover

 

(7

)

 

(6

)

17

 

 

 

 

 

 

 

8,531

 

 

8,896

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Group

Japan

 

758

 

 

1,045

 

(27

)

(25

)

 

operating profit(2)

Other Asia Pacific(3)

 

192

 

 

167

 

15

 

 

 

 

 

 

 

950

 

 

1,212

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Japan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading results

Voice services

 

4,404

 

 

4,790

 

(8

)

(4

)

 

 

Non-voice services

 

1,206

 

 

1,350

 

(11

)

(7

)

 

 

Total service revenue

 

5,610

 

 

6,140

 

(9

)

(5

)

 

 

Net other revenue(1)

 

21

 

 

20

 

5

 

9

 

 

 

Interconnect costs

 

(482

)

 

(519

)

(7

)

(4

)

 

 

Other direct costs

 

(251

)

 

(414

)

(39

)

(37

)

 

 

Net acquisition costs(1)

 

(641

)

 

(677

)

(5

)

(2

)

 

 

Net retention costs(1)

 

(716

)

 

(607

)

18

 

23

 

 

 

Payroll

 

(186

)

 

(186

)

 

4

 

 

 

Other operating expenses

 

(1,380

)

 

(1,519

)

(9

)

(5

)

 

 

EBITDA

 

1,975

 

 

2,238

 

(12

)

(8

)

 

 

Depreciation and amortisation(2)

 

(1,217

)

 

(1,193

)

2

 

6

 

 

 

Total Group operating profit(2)

 

758

 

 

1,045

 

(27

)

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA margin

 

26.7

%

 

28.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KPIs

Closing Customers (‘000)

 

15,041

 

 

14,951

 

 

 

1

 

 

 

Monthly average ARPU

 

¥6,148

 

 

¥6,725

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Turnover for Japan includes revenue of £1,765 million (2004: £1,690 million) which has been excluded from other revenue and deducted from acquisition and retention costs in the trading results

 

 

(2)   Before goodwill amortisation

 

 

(3)   Before exceptional items

 

 

See page 38 for definition of terms

 

 

Japan

 

Vodafone continues to encounter difficult market conditions in Japan due to the strength of competitor offerings, specifically in 3G customer propositions.  A recent strengthening of the management team and the ongoing transformation plan are intended to improve Vodafone’s competitive position and financial performance over the mid to long term.

 

Local currency turnover for the year ended 31 March 2005 fell marginally compared to the prior year, with a 5% decrease in service revenue partially offset by an increase in equipment and other revenue.  Service revenue declined following a reduction in ARPU, partially offset by an increase in the average customer base.

 

The ARPU erosion was caused by the loss of higher value customers, through the lack of a competitive 3G offering during the financial year, together with the adverse impact of lower termination charges caused by changes to the regulatory environment from 1 April 2004 and a total ban on using mobile phones whilst driving from 1 November 2004.

 

The average customer base grew 4% over the financial year, although market share declined from 18.4% at 31 March 2004 to 17.3% at 31 March 2005.  Prepaid customers comprised 11% of closing customers, up from 9% at 31 March 2004.  By 31 March 2005, Vodafone had 798,000 devices registered to use 3G data services in Japan.

 

Non-voice service revenue decreased by 7% over the comparative period, primarily due to the loss of higher value customers, who generally use more data services, and the increased proportion of prepaid customers, who can only access basic data services.  A new flat rate data tariff for 3G customers was introduced in the winter and is anticipated to improve the competitiveness of the data proposition.

 

EBITDA margin fell by 1.8 percentage points to 26.7% for the year ended 31 March 2005, principally due to the ARPU dilution, the continued focus on customer retention and the migration of existing customers to 3G service offerings.  The impact of these issues has been partially offset by a decrease in other direct costs due to a lower

 

14



 

provision for slow moving handset stocks in the year ended 31 March 2005, and other operational efficiencies.  The increase in payroll costs was largely due to one-off charges of approximately £25 million associated with a voluntary redundancy programme in the first half of the financial year, which was part of the transformation plan noted below, offset by lower ongoing costs in the second half of the financial year.  Operating profit was impacted by increased depreciation charges following 3G network roll out and the disposal of assets in relation to the integration of regional systems.

 

During the financial year, Japan completed the majority of the consolidation of its regional structure, with the integration of key business systems now complete.  The integration of billing and IT systems is a longer term, and more complex project and is ongoing.  Overall, Japan has improved its cost structure through reductions in general overheads and the effective utilisation of dark fibre.

 

The Group has strengthened its management team in Japan through the appointment of Shiro Tsuda and Bill Morrow during the year.  Formerly Senior Executive Vice President at NTT DoCoMo, Inc., Shiro Tsuda brings considerable experience of the mobile telecommunications industry, together with an extensive knowledge of the Japanese business and consumer markets.  Bill Morrow has gained significant experience through various global leadership positions within the Vodafone Group for the last eight years and was formerly President of Japan Telecom.

 

In the year ending 31 March 2006, management will focus on enhancing customer satisfaction, through an improved handset portfolio, targeted new product offerings, improvements in both network coverage and capacity and a renewed focus on business customers.  In addition, cost reductions are expected through leveraging the Group’s global scale and scope.  With these measures it is hoped that Vodafone will be more agile and commercially driven when facing mobile number portability in the Japanese market in the next financial year.

 

In the first half of the year, 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, resulting in the Group holding a 97.7% stake in the merged company, Vodafone K.K.

 

Other Asia Pacific subsidiaries

 

In the Australian market, value promotions and strategic changes in the tariff structures led to Vodafone increasing market share, turnover and profitability.  ARPU also increased, despite falling prices, due to increased usage.  In August 2004, Vodafone announced an agreement with another Australian telecommunications carrier to share 3G network equipment to reduce the total cost of ownership of the 3G network and increase speed to market.  This is expected to lead to the launch of 3G services in October 2005.

 

In New Zealand, turnover and market share improved over the year as a result of enhanced customer propositions.  The EBITDA margin also increased as reduced equipment costs offset the effect of increased interconnection costs as the proportion of activity to non-Vodafone networks increased.  The launch of a high speed network upgrade by competitors in the second half of the financial year has intensified competition in the market.  Vodafone is expected to launch 3G services in July 2005.

 

Other Asia Pacific

 

China Mobile, in which the Group has a 3.27% stake, and which is accounted for as an investment, grew its customer base by 42% over the year to 213,874,000 at 31 March 2005, including 26,831,000 customers added as a result of acquisitions.  Dividends totalling £18 million were received from China Mobile during the year.

 

Changes to the regional structure

 

From 1 April 2005, Vodafone Japan reports directly to the Chief Executive whilst the Group’s other operations in Asia Pacific form part of an extended Other Europe, Middle East and Africa region, which will in future be referred to as Other Mobile Operations.

 

15



 

OTHER OPERATIONS

 

Financial highlights

 

 

 

Year ended 31 March

 

 

 

 

 

 

 

2005

 

 

2004

 

 

% change

 

 

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

Germany

 

 

1,108

 

 

1,002

 

 

11

 

 

 

Asia Pacific

 

 

 

 

1,126

 

 

 

 

 

 

 

 

 

1,108

 

 

2,128

 

 

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Group operating

Germany

 

 

66

 

 

(58

)

 

 

 

 

profit/(loss)(1)

Other EMEA

 

 

(37

)

 

(1

)

 

 

 

 

 

Asia Pacific

 

 

 

 

79

 

 

 

 

 

 

 

 

 

29

 

 

20

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Before goodwill amortisation

 

 

 

 

 

 

 

 

 

 

 

 

 

The Group’s other operations comprise interests in fixed line telecommunications businesses in Germany (Arcor) and France (Cegetel).

 

Germany

 

In local currency, Arcor’s turnover increased by 14%, primarily due to customer and usage growth, partially offset by tariff decreases in a competitive market.  Arcor strengthened its position as the main competitor to the incumbent fixed line market leader during the year, growing contract ISDN voice (direct access) customers by 83% to 712,000 and contract DSL (broadband internet) customers by 169% to 455,000 in the year ended 31 March 2005.  Market share in the fast growing broadband and direct access markets more than doubled in the year to 7% and 6%, respectively.  Revenue growth and further cost efficiencies generated a significantly improved EBITDA margin and increased cash flow.

 

Other EMEA

 

The Group’s associated undertaking, Cegetel, focused on increasing its share of the fast growing DSL market, growing its DSL customer base by 566,000 to 841,000 in the year, which has led to higher acquisition costs and adversely impacted operating profit.

 

Asia Pacific

 

The Group disposed of its interests in Japan Telecom during the previous financial year and ceased consolidating the results of this business from 1 October 2003.

 

16



 

Global Services

 

One Vodafone

 

The One Vodafone initiatives are targeted at achieving £2.5 billion of annual pre-tax operating free cash flow improvements in the Group’s controlled mobile businesses by the year ending 31 March 2008 (“2008 financial year”).  The Group also expects mobile capital expenditure in the 2008 financial year to be 10% of mobile revenue as a result of the initiatives.  These targets, and the analysis below, have been prepared on the basis of UK GAAP.

 

Cost initiatives are anticipated to generate improvements of £1.4 billion, with a further £1.1 billion from revenue initiatives.  Of the £1.4 billion of cost savings, £1.1 billion relates to savings in operating expenses, being payroll and other operating expenses, and tangible fixed asset additions.  The remaining cost saving, of £0.3 billion, relates to handset procurement activities.  The Group expects that, in the 2008 financial year, the aggregate of mobile operating expenses and tangible fixed asset additions will be broadly similar to those for the year ended 31 March 2004, assuming no significant changes in exchange rates and after adjusting for acquisitions and disposals.

 

Revenue enhancement initiatives are expected to deliver benefits equivalent to at least 1% additional revenue market share for the Group’s controlled mobile businesses in the 2008 financial year compared with the 2005 financial year.  The Group will measure the revenue benefits in its five principal controlled markets compared to its established competitors.  Incremental pre-tax operating free cash flow of £1.1 billion per annum is anticipated from these benefits, with the majority expected to be derived from enhanced handset offerings in addition to improved customer management and roaming.

 

The One Vodafone programme continues to make progress in delivering the benefits of global scale and scope to the Group.  Activity in the 2005 financial year has been to establish the internal structure, organisation and detailed plans for each area to deliver the One Vodafone targets.  The programme has focused on the following six key initiatives:

 

       The Group’s aim for the network and supply chain management initiative is to exploit the benefits of the Group’s scale beyond the current centralised supply chain.  Harmonisation of network design and planning along with standardisation of network equipment specifications across suppliers is expected to reduce maintenance costs and increase purchasing options.  Sharing of best practice across operating companies has already led to cost savings from the replacement of leased lines with owned fixed optical fibre capacity and microwave links.

 

       The service delivery platform initiative is aimed at consolidating European development and operations.  Hosting centres in Germany and Italy are already operational and the Group’s European mobile operating subsidiaries are expected to begin migrating their service delivery platforms over the next 18 months.  Development activities are to be consolidated into Germany, Italy, the UK and the US.

 

       The Group has focused its plans for information technology delivery on the development of a roadmap towards the consolidation of billing and customer relationship management systems.  This is expected to be a longer term project and is expected to deliver benefits over a number of years.  A key theme is the identification of best practice and implementing this across existing systems.

 

       The development of an end-to-end terminals delivery process from initial design to delivery to customer, incorporating benefits from greater volumes of customised handsets, is intended to reduce time to market, through consolidation of platforms and streamlined testing programmes and to generate cost savings.  These savings are expected to arise primarily from standardised handsets and accessories, through better management of volumes across Europe and efficiencies in logistics.  The availability of a common portfolio of 3G handsets following the launch of Vodafone live! with 3G in November 2004 is an early example of success.

 

       The customer management initiative aims to implement consistent segment and value based customer management across the Group to improve customer retention and satisfaction and, therefore, reduce churn.

 

       Finally, providing Vodafone’s customers with better value when they travel abroad, as well as generating the best value inter-operator tariffs for the Group, are the key goals of the roaming initiative.  The Group also expects to centralise certain support activities for roaming.  The launch of the Vodafone Travel Promise in May 2005 is a key step in delivering better value for our customers when travelling abroad.

 

The objective for the 2006 financial year is to begin implementation of these plans and deliver benefits in each area, although some initiatives will be more advanced than others.  Significant benefits are expected in the 2007 financial year, with the full targets expected to be met in the 2008 financial year.

 

17



 

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 six new markets since 31 March 2004, bringing the total number of countries now offering Vodafone live! to 22, comprising 15 controlled networks, 4 of the Group’s associated companies and 3 Partner Networks.  New markets added in the 2005 financial year include Malta, Austria, Belgium, Croatia and Slovenia.  There were 30.9 million Vodafone live! active devices, including 12.8 million in Japan, on controlled networks at 31 March 2005, with an additional 3.2 million devices connected in the Group’s associated companies.

 

The Group has continued to develop its 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 – games, ringtones, news, sports and information – has been enhanced and an improved search function has made it easier for customers to find and purchase content.

 

Over 23 new handsets have been added to the Vodafone live! portfolio, with an increased emphasis on exclusive and customised devices.  The new handsets added have offered improved imaging capability across the range, better connectivity, with a significant proportion of devices now offering ‘Bluetooth’, and increased memory card storage to enable customers to save content on their devices.

 

Vodafone live! with 3G

 

In November 2004, the Group launched Vodafone live! with 3G across 13 markets with an initial portfolio of 10 devices.  At 31 March 2005, there were 2.1 million devices on controlled networks capable of accessing the Vodafone live! with 3G portal.

 

3G has enhanced the mobile experience with up to a ten-fold increase in portal and content download speeds, giving Vodafone live! customers access to a unique 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 a host of other video content at a quality approaching that of digital television.  With the signing of an exclusive deal with Twentieth Century Fox, Vodafone UK customers were also the first to experience a new generation of made-for-mobile TV and film content, so called “mobisodes”.  Several markets have already launched TV broadcast services and these will be developed further in the coming year.  The wide bandwidth of 3G supports access to sophisticated 3D games and Vodafone has introduced a range of branded titles.

 

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 over 500,000 music tracks.  Vodafone has secured music from some of the world’s greatest artists through agreements with Sony BMG Music Entertainment and for music from the catalogues of EMI and Warner Music.  Customers can also download live performance videos and stream clips direct to their mobiles through Vodafone’s agreement with MTV.

 

Business services

 

The Vodafone Mobile Connect data card provides working mobility to customers accessing email and company applications with access speeds up to 384 kilobits per second when connected to a 3G network.  The Vodafone Mobile Connect 3G/GPRS data card has now been rolled out across 17 markets, including the Group’s associated undertakings in France, Belgium and South Africa and the Group’s Partner Network operators in Austria, Bahrain and Finland.  The product portfolio was enhanced in the financial year with the launch of a quad-band data card allowing customers to connect whilst travelling in the US and a data card supporting both GPRS and EDGE technology which provides high speed connectivity in a number of the Group’s Partner Networks.  Vodafone Mobile Connect data cards are available in an increasing number of distribution channels and with a growing range of service and price bundles.  At 31 March 2005, there were 0.5 million registered Vodafone Mobile Connect data cards on the Group’s controlled networks, including 0.3 million 3G/GPRS data cards.

 

The Vodafone Wireless Office service, which offers fixed line functionality and the freedom of mobility in a single handset solution on either a group/team or a company-wide basis, was introduced into a further seven markets in the financial year, bringing the total to 11.

 

On 21 April 2005, the Group announced the roll out of 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.  New email, calendar appointments and contact details are automatically ‘pushed’ to the customer’s selected device and updates made on the device are automatically reflected on the customer’s PC.  During the launch phase, the service will be supported by four devices, with additional devices introduced in the coming months.

 

18



 

Other initiatives

 

In May 2005, the Group announced the launch of Vodafone Simply and the Vodafone Travel Promise.  Vodafone Simply is a new service designed to provide an easy to use mobile solution for customers who want to use voice and text services with minimum complexity to keep in touch with family and friends.  The service includes a new, stylish and easy to use Vodafone Simply mobile phone, which has been developed with the emphasis on only the most commonly used functions.  The handset is aimed at people who do not want the extra features that most new phones offer.  The Vodafone Travel Promise is a new roaming campaign, the first element of which is the Vodafone Passport price plan, an easy to understand voice roaming price plan which provides customers with greater price clarity when using their mobile voice services abroad.   For a one-off connection fee per call, determined by the network operator, Vodafone Passport customers will be able to make voice calls at domestic rates when roaming on Vodafone’s controlled networks (excluding Egypt) and the networks of selected associated undertakings.  In addition, when receiving calls abroad, customers will pay the same connection fee, allowing them to talk for up to a maximum of 60 minutes, for no additional charge.

 

On 14 February 2005, Vodafone commenced field tests of the High Speed Downlink Packet Access (“HSDPA”) technology in Japan.  HSDPA enables transmission speeds of up to two megabits per second (“2 Mbps”), though 14.4 Mbps can theoretically be achieved.

 

At CeBIT, the major trade fair for IT and communication held in March 2005, Vodafone Germany launched Vodafone At Home, an alternative to a fixed line network allowing private householders and home office users to replace their existing fixed line connection.  The Group also demonstrated new mobile TV technology, a first prototype of an HSDPA data card and a number of new handsets, including two Ferrari branded handsets jointly developed with Sharp.

 

19



 

FINANCIAL UPDATE

 

PROFIT AND LOSS ACCOUNT

 

Exceptional items

 

The exceptional operating cost of £315 million in the year ended 31 March 2005 is due to an impairment of the carrying value of goodwill relating to Vodafone Sweden.  The impairment results from recent fierce price competition in the Swedish market combined with onerous 3G licence obligations.  Net exceptional operating income for the previous financial year of £228 million comprised £351 million of expected recoveries and provision releases in relation to a contribution tax levy on Vodafone Italy, net of £123 million of restructuring costs, principally in the UK.

 

The net exceptional non-operating credit for the year ended 31 March 2005 of £13 million (2004: charge of £103 million) principally relates to profits on disposal of fixed asset investments.  The prior year charge principally related to a loss on disposal of the Japan Telecom fixed line operations.

 

Interest

 

 

 

Year ended 31 March

 

 

 

 

 

 

2005

 

 

2004

 

 

 

 

 

 

£m

 

 

£m

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

Group net interest payable before dividends from investments

 

151

 

 

310

 

 

(51

)

 

Dividends from investments

 

(19

)

 

(26

)

 

(27

)

 

Potential interest charges arising on settlement of outstanding tax issues

 

261

 

 

215

 

 

21

 

 

Group net interest payable

 

393

 

 

499

 

 

(21

)

 

Share of associated undertakings

 

211

 

 

215

 

 

(2

)

 

Total Group net interest payable

 

604

 

 

714

 

 

(15

)

 

 

Group net interest payable before dividends from investments has fallen by 51% to £151 million, primarily reflecting a reduction in average net debt.  Group net interest payable was covered 37 times by operating cash flow plus dividends received from associated undertakings.

 

Taxation

 

The effective tax rate on profit on ordinary activities, before goodwill and exceptional items, was 27.5% compared with 30.4% for the year ended 31 March 2004.  The rate has fallen due to the finalisation in the year of the reorganisation of the Group’s German operations, the benefits of which have outweighed the impact of reduced tax incentives in Italy, and the absence of the previous year’s one-off benefit from the restructuring of the Group’s associated undertakings in France.  The Group’s tax charge has also benefited from exceptional current and deferred tax credits totalling £599 million, which relate to tax losses in Vodafone Holdings K.K. becoming eligible for offset against the profits of Vodafone K.K. following the merger of the two entities on 1 October 2004.

 

Earnings and loss per share

 

Earnings per share, before goodwill amortisation and exceptional items, increased by 14% from 9.10 pence to 10.41 pence for the year ended 31 March 2005.

 

Basic loss per share, after goodwill amortisation and exceptional items, improved from a loss per share of 13.24 pence to a loss per share of 11.39 pence for the year ended 31 March 2005.  The loss per share includes a charge of 22.21 pence per share (2004: 22.33 pence per share) in relation to the amortisation of goodwill and a credit of 0.41 pence per share (2004: charge of 0.01 pence per share) in relation to exceptional items.

 

Total shareholder returns

 

The Company provides returns to shareholders through a combination of dividends and share purchases.

 

Dividends

 

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 directors expect that the Company will continue to pay dividends semi-annually.

 

20



 

In considering the level of dividends, the Board takes account of the outlook for earnings growth, operating cash flow generation, capital expenditure requirements, acqu