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 November 23, 2007

 

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  

 

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 

 

 

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

 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN EACH OF THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-144978) AND THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-81825) OF VODAFONE GROUP PUBLIC LIMITED COMPANY AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 


 

This Report on Form 6-K contains the following items:

 

(a)          Chief Executive’s Statement;

 

(b)          Business Review;

 

(c)          Half-yearly consolidated financial information for Vodafone Group Plc as of and for the six month periods ended 30 September 2007 and 2006, and comparative consolidated financial information for Vodafone as of and for the year ended 31 March 2007.

 

Certain information listed above is taken from the previously published results announcement of Vodafone for the six months ended 30 September 2007 (“half-yearly financial report”). This document does not update or restate any of the financial information set forth in the half-yearly financial report.

 

 

Exhibit 7

               Computation of ratio of earnings to fixed charges

 

 

Vodafone, Vodafone Mobile Connect, Vodafone Mobile Connect USB Modem, Vodafone Mobile Connect Card with 3G broadband, Vodafone Mobile Connect 3G/GPRS data card, Vodacom, ihug, Vodafone at Home, Vodafone Office and Vodafone Passport are trademarks of the Vodafone Group. Other product and company names mentioned herein may be the trademarks of their respective owners.

 

2


 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group’s financial condition, results of operations and businesses and certain of the Group’s plans and objectives.

 

In particular, such forward-looking statements include statements with respect to Vodafone’s expectations as to launch and roll out dates for products, services or technologies offered by Vodafone; intentions regarding the development of products and services introduced by Vodafone or by Vodafone in conjunction with initiatives with third parties; the ability to integrate all operations throughout the Group; the development and impact of new mobile technology; anticipated benefits to the Group from core cost reduction programmes, outsourcing, supply chain management and IT operations initiatives; growth in customers and usage, including improvements in customer mix; the Group’s expectations for revenue, operating profit, depreciation and amortisation charges, capitalised fixed asset additions, free cash flow, cash payments for tax and associated interest and effective tax rate contained within the outlook statement on page 7 of this document , and expectations for the Group’s future performance generally, including average revenue per user, costs, capital expenditures, operating expenditures and margins and the contribution to the Group’s revenue of data services, broadband services, fixed location pricing and mobile advertising; the rate of dividend growth by the Group or its existing investments; expectations regarding the Group’s access to adequate funding for its working capital requirements; expected effective tax rates and expected tax payments; the ability to realise synergies through cost savings, revenue generating services, benchmarking and operational experience; future acquisitions, including increases in ownership in existing investments, the timely completion of pending acquisition transactions and pending offers for investments; future disposals; the management of the Group’s portfolio; mobile penetration and coverage rates; the impact of regulatory and legal proceedings involving Vodafone and of scheduled or potential regulatory changes; expectations with respect to long term shareholder value growth; Vodafone’s ability to be the mobile market leader, overall market trends and other trend projections.

 

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans” or “targets”. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following: changes in economic or political conditions in markets served by operations of the Group that would adversely affect the level of demand for mobile services; greater than anticipated competitive activity, from both existing competitors and new market entrants, including Mobile Virtual Network Operators, which could require changes to the Group’s pricing models, lead to customer churn and make it more difficult to acquire new customers, and reduce profitability; the impact of investment in network capacity and the deployment of new technologies, or the rapid obsolescence of existing technology; slower than expected customer growth and reduced customer retention; changes in the spending patterns of new and existing customers; the possibility that new products and services will not be commercially accepted or perform according to expectations or that vendors’ performance in marketing these technologies will not meet the Group’s requirements; the Group’s ability to win 3G licence allocations; the Group’s ability to realise expected synergies and benefits associated with 3G technologies; a lower than expected impact of new or existing products, services or technologies on the Group’s future revenue, cost structure and capital expenditure outlays; the ability of the Group to harmonise mobile platforms and delays, impediments or other problems associated with the roll out and scope of and other new or existing products, services or technologies in new markets; the ability of the Group to offer new services and secure the timely delivery of high quality, reliable GPRS and 3G handsets, network equipment and other key products from suppliers; the Group’s ability to develop competitive data content and services that will attract new customers and increase average usage; future revenue contributions of both voice and non-voice services; greater than anticipated prices of new mobile handsets; changes in the costs to the Group of or the rates the Group may charge for terminations and roaming minutes; the Group’s ability to achieve meaningful cost savings and revenue improvements as a result of its cost reduction programmes and outsourcing initiatives; the ability to realise benefits from entering into partnerships for developing data and internet services and entering into service franchising and brand licensing; the possibility that the pursuit of new, unexpected strategic opportunities may have a negative impact on the Group’s financial performance; developments in the Group’s financial condition, earnings and distributable funds and other factors that the Board of Directors takes into account in determining the level of dividends; any unfavourable conditions, regulatory or otherwise, imposed in connection with pending or future acquisitions or dispositions and the integration of acquired companies in the Group’s existing operations; the risk that, upon obtaining control of certain investments, the Group discovers additional information relating to the businesses of that investment leading to restructuring charges or write-offs or with other negative implications; changes in the regulatory framework in which the Group operates, including possible action by regulators in markets in which the Group operates or by the EU regulating rates the Group is permitted to charge; the impact of legal or other proceedings against the Group or other companies in the mobile telecommunications industry; the possibility that new marketing or usage stimulation campaigns or efforts and customer retention schemes are not an effective expenditure; the possibility that the Group’s integration efforts do not reduce the time to market for new products or improve the Group’s cost position; loss of suppliers or disruption of supply chains; the Group’s ability to satisfy working capital requirements through borrowing in capital markets, bank facilities and operations; changes in exchange rates, including particularly the exchange rate of pounds sterling to the euro and the US dollar; changes in statutory tax rates and profit mix which would impact the weighted average tax rate; changes in tax legislation in the jurisdictions in which the Group operates; and final resolution of open issues which might impact the effective tax rate; timing of tax payments relating to the resolution of open issues.

 

Furthermore, a review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found under “Risk Factors, Seasonality and Outlook – Risk Factors” in Vodafone Group Plc’s Annual Report on Form 20-F for the year ended 31 March 2007. All subsequent written or oral forward-looking statements attributable to the Company or any member of the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Neither Vodafone nor any of its affiliates intends to update these forward-looking statements.

 

3


 

PRESENTATION OF INFORMATION

 

The Condensed Consolidated Financial Statements for both six month periods and any information derived from the Group’s audited Consolidated Financial Statements for the year ended 31 March 2007:

 

    were prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) and thereby International Financial Reporting Standards (collectively referred to as “IFRS” within this document), both as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union (“EU”);

 

    are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the 2007 Annual Report.

 

The accounting principles underlying IFRS vary in significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). Information relating to the nature and effect of such differences is presented in note 16 to the Condensed Consolidated Financial Statements.

 

DEFINITION OF TERMS

 

In the discussion of the Group’s reported financial position and results for the six month period to 30 September 2007, information in addition to that contained within the Condensed Consolidated Financial Statements is presented on the basis that it provides readers with access to 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 and measures used within this document are shown on page 159 of the Group’s Annual Report on Form 20-F for the year end 31 March 2007 and are unchanged with the exception of “changes at constant exchange rates”, which is defined below.

 

Term

Definition

Change at constant exchange rates

Change calculated by restating the prior period’s results as if they had been generated at the current period’s exchange rates.

 

USE OF NON-GAAP FINANCIAL INFORMATION

 

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, being adjusted operating profit for the Group, organic growth, operating free cash flow, free cash flow and net debt, should not be viewed in isolation to the equivalent GAAP measure. An explanation as to the use of these measures and a reconciliation to the nearest equivalent GAAP measure can be found on pages 22 to 24.

 

4


 

CHIEF EXECUTIVE’S STATEMENT

 

Rigorous execution against our strategic objectives has been key to our performance in the first half of the year. We have improved our outlook expectations for the full year and the Board has increased the interim dividend by 6.0% to 2.49 pence per share, enhancing returns to our shareholders.

 

Group revenue increased by 9.0% to £17.0 billion, or 4.4% on an organic basis. In Europe, where competitive and regulatory pressures remain significant, revenue growth was 1.5%, or 2.0% on an organic basis. Good revenue growth in Spain and the UK was offset by declines in Germany and Italy, where specific competitive and regulatory events have detracted from an otherwise solid business performance. EMAPA delivered another period of continued growth. Revenue grew by 39.9%, or 16.0% on an organic basis, with strong performances across the region. Group adjusted operating profit increased by 1.6% to £5.2 billion, or 6.1% on an organic basis, including an increased contribution from Verizon Wireless which grew by 26.0% on a constant currency basis.

 

Our customer franchise increased by 35 million in the period to 241 million proportionate mobile customers, including 20 million net additions.

 

Capital expenditure in the first half was £2.0 billion, including £0.4 billion in India since its acquisition in May. Free cash flow generation remains strong at £2.7 billion, after £0.2 billion payments in respect of long standing tax issues.

 

Revenue stimulation and cost reduction in Europe

 

In Europe, our focus is to drive additional usage and revenue from core voice and messaging services and to reduce our cost base.

 

Central to stimulating revenue have been our initiatives to drive mobile usage through offering innovative tariffs, larger minute bundles and targeted promotions. There has also been a specific focus on migrating prepaid customers to contract, thereby improving customer lifetime value. Overall growth in outgoing voice usage remained strong at 24.0% for the first half, but continued pricing pressure resulted in stable outgoing voice revenue. Notwithstanding our efforts in revenue stimulation, elasticity remains below one. In the business segment, which represents approximately 28% of European service revenue and delivered 5.9% growth in the first half, we are leveraging our market leading position. Earlier this year, we established Vodafone Global Enterprise which is responsible for ensuring that we deliver enhanced service and our total communications offering to our largest multinational customers.

 

16 million customers now enjoy lower roaming pricing through Vodafone Passport. All of our European customers are now benefiting from our commitment to reduce roaming prices and the recently introduced roaming regulation.

 

Messaging revenue remains robust with 8.0% growth, or 8.6% on an organic basis, including strong performances in Italy and the UK, driven primarily by targeted promotions and tariffs.

 

Cost reduction remains central to our Group and a number of core cost reduction programmes are now well established. They are delivering savings across the Group and have helped to mitigate pressure on margins and reduce our European mobile and common functions capital expenditure to revenue ratio to 8.1% in the first half, below our full year target which remains at 10%. Data centre consolidation and network supply chain management centralisation are delivering savings earlier than originally expected.

 

Innovate and deliver on our customers’ total communications needs

 

Our focus is on four key areas which together are expected to represent around 20% of Group revenue by the 2010 financial year. In the first half, these areas contributed about 12% of revenue, up from around 10% in the prior year.

 

Data revenue increased by 48.8%, or by 45.1% on an organic basis, principally enabled by the rapid growth in 3G devices, which nearly doubled year on year to over 21 million devices. We have also refreshed our consumer mobile internet offering in eight markets, supported by partnerships with leading internet players, and are continuing to develop products and services to integrate the mobile and PC environments.

 

Following completion of the acquisition of Tele2’s fixed broadband businesses in Italy and Spain we will have established our preferred route for delivering fixed broadband services in each of our major European markets through a selective approach of wholesale agreements and owned infrastructure. Including Tele2, fixed broadband services will be provided to 3.1 million customers in 13 markets. Revenue from fixed line services increased by 4.2%, or by 9.9% on an organic basis, primarily due to 9.6% constant currency growth in Arcor.

 

5


 

We continue to drive substitution of fixed line usage for mobile through fixed location pricing plans offering customers fixed prices when they call from within or around their home or office. We now have 3.7 million Vodafone At Home customers and 2.6 million Vodafone Office customers.

 

We believe mobile advertising is a significant future opportunity for the mobile industry. We have commercial agreements for mobile advertising in eight markets and are trialling numerous forms of banner and content based advertising. Vodafone is in a leading position to benefit from future trends in this market.

 

Deliver strong growth in emerging markets

 

Our focus is to build on our track record of creating value in emerging markets. We have delivered further good performances in our existing operations with revenue growth of 33.1% in Egypt, 24.0% in Romania and 19.6% in Vodacom on a constant currency basis. Turkey continues to perform well with year on year revenue growth of around 28% on the same basis.

 

Our Indian business is delivering very strong growth. Average net customer additions are running at 1.6 million per month, with a customer base of over 35 million at the end of September. Year on year revenue growth was around 53% on a constant currency basis. In September, we successfully rebranded the business to Vodafone, an important integration milestone, ahead of plan.

 

As well as driving customer growth, we are differentiating Vodafone in emerging markets through a number of initiatives. Our ultra low cost handset, which retails for as little as $25, enables us to address a wider population in developing economies. In October, our first month of sales, we sold 400,000 units in India. M-PESA, our innovative money transfer solution was launched in February 2007 and is already benefiting over one million people in Kenya. Efficiency is also vital to success in emerging markets, where low market prices require the lowest possible costs.

 

Actively manage our portfolio to maximise returns

 

We completed the acquisition of Vodafone Essar in India in May 2007 for a cash consideration of £5.5 billion. In July, we received £0.7 billion from the sale of a 4.99% stake in Bharti Airtel and have agreed the sale of a further 0.61% by November 2008. The acquisitions of Tele2 Italy and Tele2 Spain for £0.5 billion will strengthen our total communications offerings in those markets.

 

Align capital structure and shareholder returns policy to strategy

 

We continue to target a low single A rating, consistent with our policy.

 

The Board remains committed to its policy of distributing 60% of adjusted earnings per share by way of dividend. However, as a result of the earnings dilution arising from the India acquisition, the payout ratio is expected to rise above 60% in the near term to better reflect the underlying trends of the business.

 

In growing dividends at 6.0%, ahead of its guidance for modest growth issued in May, the Board has taken into account the Group’s current financial performance and its confidence in the prospects for the business.

 

Prospects for the remainder of the year

 

Notwithstanding 39.8% growth in data revenue, or by 40.8% on an organic basis, and our success in stimulating voice usage, we expect market conditions and the pricing environment to remain competitive in Europe. Growth prospects for the EMAPA region remain strong as we actively pursue customer growth in markets where penetration is still increasing.

 

Our success in the first half and continued rigorous execution of our strategy has allowed us to improve our outlook for the current financial year. Group revenue is now expected to be in the increased range of £34.5 billion to £35.1 billion, primarily due to improved operational performance. Adjusted operating profit is also expected to be higher at £9.5 billion to £9.9 billion, reflecting better revenue generation. Capital expenditure on fixed assets is still expected to be in the range of £4.7 billion to £5.1 billion, including in excess of £1.0 billion in India. Free cash flow is now expected to be £4.4 billion to £4.9 billion, better than previously expected due to better business performance and lower payments this year related to long standing tax issues.

 

Summary

 

We are delivering tangible results from our strategy which positions us well to deliver total communications to our customers and to generate attractive returns for our shareholders.

 

 

 

Arun Sarin

 

6


 

OUTLOOK FOR THE 2008 FINANCIAL YEAR

 

Please see page 4 for definition of terms, page 3 for a disclaimer regarding forward-looking statements and page 4 for use of non-GAAP financial information.

 

 

Original
outlook
(1)

 

Foreign exchange(2)

 

Acquisitions(3)

 

Upgrade

 

Updated outlook

 

 

£ billion

 

£ billion

 

£ billion

 

£ billion

 

£ billion

 

Revenue

33.3 to 34.1

 

0.3

 

0.2

 

0.6

 

34.5 to 35.1

 

Adjusted operating profit

9.3 to 9.8

 

 

(0.1)

 

0.2

 

9.5 to 9.9

 

Capitalised fixed asset additions

4.7 to 5.1

 

 

 

 

4.7 to 5.1

 

Free cash flow

4.0 to 4.5

 

0.1

 

 

0.3

 

4.4 to 4.9

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)         As originally stated on 29 May 2007.

(2)         The Group’s outlook update reflects current expectations for average foreign exchange rates for the 2008 financial year of approximately Euro 1.45:£1 (originally 1.47) and US$2.04:£1 (originally 1.98). A substantial majority of the Group’s revenue, adjusted operating profit, capitalised fixed asset additions and free cash flow is denominated in currencies other than sterling, the Group’s reporting currency.

(3)         Assumes the financial results of Tele2 Italy and Tele2 Spain will be included with effect from 1 December 2007.

 

 

 

Operating conditions are expected to continue to be competitive in Europe with ongoing pricing and regulatory pressures but continued positive trends in data revenue and voice usage. Increasing market penetration continues to result in overall strong growth for the EMAPA region.

 

Group revenue is now expected to be in the range of £34.5 billion to £35.1 billion, higher than previously anticipated primarily due to improvements in operational performance but also due to net beneficial movements in foreign exchange rates and revenue for Tele2 Italy and Tele2 Spain from the expected date of acquisition.

 

Adjusted operating profit is now expected to be in the range of £9.5 billion to £9.9 billion, which is greater than previous expectations, driven substantially by better revenue generation. The Group continues to expect mobile operating expenses to be broadly stable for the total of the Europe region and common functions when compared with the 2006 financial year on an organic basis, excluding the potential impact from developing and delivering new services and from any business restructuring costs.

 

Total depreciation and amortisation charges are now anticipated to be slightly higher at around £5.9 billion to £6.0 billion, including the impact from the Tele2 acquisitions.

 

The outlook range for capitalised fixed asset additions remains unchanged at £4.7 billion to £5.1 billion and continues to include in excess of £1.0 billion in India. Capitalised mobile fixed asset additions for the total of the Europe region and common functions are still expected to be 10% of mobile revenue for the year.

 

Free cash flow is expected to be in the range of £4.4 billion to £4.9 billion, higher than originally expected principally due to improvements in operational performance and lower anticipated tax payments and associated interest this year in respect of the potential settlement of a number of long standing tax issues, which are now expected to be £0.3 billion. The outlook for free cash flow is stated including the impact of known spectrum or licence payments only.

 

The Group still expects that further significant cash payments for tax and associated interest may be made in respect of long standing tax issues. Whilst the timing of such payments remains uncertain, the Group now expects resolution of the most significant issues, principally the application of the UK Controlled Foreign Company legislation to the Group, to be later than previously anticipated.

 

7


 

FINANCIAL RESULTS

 

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements for the six month periods ended 30 September 2007 and 30 September 2006 included in this document and the Group’s Annual Report on Form 20-F for the year ended 31 March 2007.

 

GROUP RESULTS

 

The following results are presented for continuing operations. Europe includes the results of the Group’s operations in Western Europe, while EMAPA includes the results of the Group’s operations in Eastern Europe, the Middle East, Africa, Asia and the Pacific area and the Group’s associate in the US, Verizon Wireless. During the six months ended 30 September 2007, the Group changed its organisation structure and the Group’s associated undertaking in France, SFR, is now managed within the Europe region and reported within Other Europe. The results for all periods are presented in accordance with the new structure.

 

 

 

Europe

 

EMAPA

 

Common
Functions
(2)

 

Eliminations

 

2007

 

2006

 

 

% change

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

£

 

Organic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

8,704

 

3,499

 

 

 

(43

)

12,160

 

11,317

 

 

 

 

 

 

Messaging revenue

 

1,575

 

377

 

 

 

(4

)

1,948

 

1,786

 

 

 

 

 

 

Data revenue

 

843

 

127

 

 

 

(3

)

967

 

650

 

 

 

 

 

 

Fixed line revenue(1)

 

780

 

22

 

 

 

 

802

 

770

 

 

 

 

 

 

Other service revenue

 

11

 

 

 

 

(1

)

10

 

 

 

 

 

 

 

Total service revenue

 

11,913

 

4,025

 

 

 

(51

)

15,887

 

14,523

 

 

9.4

 

4.6

 

Acquisition revenue

 

463

 

211

 

 

 

 

674

 

642

 

 

 

 

 

 

Retention revenue

 

165

 

14

 

 

 

 

179

 

182

 

 

 

 

 

 

Other revenue

 

128

 

51

 

80

 

(5

)

254

 

247

 

 

 

 

 

 

Total revenue

 

12,669

 

4,301

 

80

 

(56

)

16,994

 

15,594

 

 

9.0

 

4.4

 

Interconnect costs

 

(1,958

)

(650

)

 

 

51

 

(2,557

)

(2,354

)

 

 

 

 

 

Other direct costs

 

(975

)

(610

)

58

 

 

(1,527

)

(1,247

)

 

 

 

 

 

Acquisition costs

 

(1,314

)

(443

)

 

 

 

(1,757

)

(1,556

)

 

 

 

 

 

Retention costs

 

(824

)

(120

)

 

 

 

(944

)

(854

)

 

 

 

 

 

Operating expenses

 

(2,764

)

(1,050

)

165

 

5

 

(3,644

)

(3,341

)

 

 

 

 

 

Acquired intangibles amortisation

 

(15

)

(312

)

 

 

 

(327

)

(197

)

 

 

 

 

 

Purchased licence amortisation

 

(413

)

(36

)

 

 

 

(449

)

(467

)

 

 

 

 

 

Depreciation and other amortisation

 

(1,398

)

(517

)

(94

)

 

(2,009

)

(1,844

)

 

 

 

 

 

Share of result in associates

 

261

 

1,181

 

1

 

 

1,443

 

1,407

 

 

 

 

 

 

Adjusted operating profit

 

3,269

 

1,744

 

210

 

 

5,223

 

5,141

 

 

1.6

 

6.1

 

Adjustments for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment losses

 

 

 

 

 

 

(8,100

)

 

 

 

 

 

Other

 

 

(15

)

 

 

(15

)

1

 

 

 

 

 

 

Non-operating income of associates

 

 

 

 

 

 

6

 

 

 

 

 

 

Operating profit/(loss)

 

3,269

 

1,729

 

210

 

 

5,208

 

(2,952

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)

 

Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and DSL. All prior periods have been adjusted accordingly.

(2)

 

Common functions represents the results of Partner Markets and the net result of unallocated central Group costs and recharges to the Group’s operations, including royalty fees for use of the Vodafone brand.

 

Revenue

 

Revenue increased by 9.0% to £16,994 million for the six months ended 30 September 2007, comprising organic growth of 4.4% and the impact of acquisitions and disposals of 5.4%, primarily from acquisitions of subsidiaries in India in May 2007 and Turkey in May 2006, partially offset by the impact of unfavourable movements in exchange rates of 0.8%.

 

Both the Europe and EMAPA regions increased total revenue on an organic basis, achieving growth of 2.0% and 16.0%, respectively. On a reported basis, Europe achieved growth of 1.5%, while EMAPA achieved growth of 39.9%, of which 26.5% was contributed by the impact of acquisitions and disposals, including the acquisition of subsidiaries in India and Turkey.

 

The organic growth in revenue was driven by a continued increase in the customer base and successful usage stimulation initiatives, despite persisting price pressures. The organic growth in data revenue of 45.1% was particularly strong and can be attributed in part to increasing penetration of Vodafone Mobile Connect 3G/GPRS data cards and handheld business devices.

 

Operating result

 

Operating profit increased to £5,208 million from a loss of £2,952 million in the prior year, mainly as a result of impairment charges not being incurred in the current year. Adjusted operating profit increased by 1.6% to £5,223 million, or by 6.1% on an organic basis. Foreign exchange rate movements, particularly in relation to Verizon Wireless and Vodacom, the Group’s 50% owned joint venture with principal operations in South Africa, and the net impact of acquisitions and disposals reduced reported growth by 2.6% and 1.9% respectively, with the latter primarily being due to the increase in amortisation of acquired intangible assets. Adjusted operating profit is stated after £327 million of acquired intangible asset amortisation, an increase of £130 million from the same period last year.

 

The EMAPA region’s strong growth was partly offset by a slight decline in profitability in the Europe region resulting from the

 

8


 

continuing challenges of highly penetrated markets, termination rate cuts and a high level of competition.

 

The margin in Europe was lower than in the same period last year, reflecting higher costs, in particular increased interconnect costs, other direct costs and acquisition costs resulting from the competitive environment in the region.

 

In the EMAPA region, the margins declined compared to the same period last year, in part due to higher growth in the region through investment in customer base growth, and in part due to the inclusion for the whole of the current period of Turkey, which has a lower margin than the region’s average. In addition, the margin in Turkey decreased due to investment in the rebranding of the business to Vodafone, improving network quality and growing the customer base.

 

The Group’s share of results from associates grew by 2.6%, or by 18.2% on an organic basis, with the impact of the disposals of the Group’s interests in Belgacom Mobile SA and Swisscom Mobile AG during the prior financial year, and unfavourable foreign exchange movements, reducing reported growth by 9.0% and 6.6% respectively. The organic growth was driven by strong growth in Verizon Wireless.

 

Investment income and financing costs

 

 

 

Six months to
30 September
2007
£m

 

 

Six months to
30 September
2006
£m

 

 

 

 

 

 

 

 

Investment income

 

382

 

 

425

 

Financing costs

 

(1,280

)

 

(813

)

 

 

(898

)

 

(388

)

 

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

 

Net financing costs before dividends from investments

 

(394

)

 

(272

)

Potential interest charges arising on settlement of outstanding tax issues

 

(200

)

 

(202

)

Dividends from investments

 

72

 

 

57

 

 

 

(522

)

 

(417

)

Foreign exchange(1)

 

(90

)

 

8

 

Changes in fair value of equity put rights and similar arrangements(2)

 

(286

)

 

21

 

 

 

(898

)

 

(388

)

 

Notes:

(1)     Comprises foreign exchange differences reflected in the income statement in relation to certain intercompany balances, and the foreign exchange differences on financial instruments received as consideration in the disposal of Vodafone Japan to SoftBank, which completed in April 2006.

(2)     Includes a charge of £333 million representing the initial fair value of the put options granted over the Essar group’s interest in Vodafone Essar, which has been recorded as an expense. Further details of these options are provided on page 22.

 

Net financing costs before dividends from investments increased by 44.9% to £394 million following an increase in average net debt of 28.7%, a change in the currency mix and higher interest rates. At 30 September 2007, the provision for potential interest charges arising on settlement of outstanding tax issues was £1,409 million (30 September 2006: £1,047 million).

 

Taxation

 

The effective tax rate for the six months ended 30 September 2007 was 27.0% compared with (36.6)% for continuing operations in the prior period, with the change due primarily to an impairment loss being incurred in the prior period. The effective tax rate before impairment losses was 25.5% in the prior period.

 

9


 

Earnings/(loss) per share from continuing operations

 

Basic earnings per share from continuing operations of 6.22 pence compared to a basic loss per share from continuing operations of 8.02 pence for the same period last year. Earnings per share for the six months ended 30 September 2007 benefited from the share consolidation which took place in June 2006 reducing the weighted average number of shares outstanding and no impairment charge being incurred in the current period.

 

The earnings/(loss) used to determine per share amounts are stated inclusive of the items in the following table.

 

 

 

2007
£m

 

 

2006
£m

 

 

 

 

 

 

 

 

Impairment losses

 

 

 

(8,100

)

Other income and expense

 

(15

)

 

1

 

Share of associated undertakings’ non-operating income

 

-

 

 

6

 

Non-operating income and expense(1)

 

250

 

 

10

 

Foreign exchange(2)

 

(90

)

 

8

 

Changes in the fair value of equity put rights and similar arrangements(3)

 

(286

)

 

21

 

 

 

 

 

 

 

 

 

 

(141

)

 

(8,054

)

Tax on the above items

 

19

 

 

2

 

Recognition of pre-acquisition deferred tax asset

 

15

 

 

-

 

 

 

 

 

 

 

 

 

 

(107

)

 

(8,052

)

Weighted average number of shares outstanding – basic

 

52,935

 

 

57,515

 

Weighted average number of shares outstanding – diluted(4)

 

53,116

 

 

57,515

 

 

Notes:

(1)           The £250 million credit for the six months ended 30 September 2007 represents the profit on disposal of the Group’s 5.60% stake in Bharti Airtel.

(2)           See note 1 in investment income and financing costs on page 9.

(3)           See note 2 in investment income and financing costs on page 9.

(4)           In the six months ended 30 September 2006, 140 million shares have been excluded from the calculation of diluted loss per share as they are not dilutive.

 

10


 

EUROPE RESULTS

 

 

 

Germany

 

Italy

 

Spain

 

UK

 

Arcor

 

Other

 

Eliminations

 

Europe

 

 

% change

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

£  

 

Organic

 

Six months to 30 September 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

1,888

 

1,570

 

1,867

 

1,855

 

 

1,690

 

(166

)

8,704

 

 

 

 

 

 

Messaging revenue

 

354

 

324

 

205

 

444

 

 

265

 

(17

)

1,575

 

 

 

 

 

 

Data revenue

 

265

 

119

 

170

 

184

 

 

133

 

(28

)

843

 

 

 

 

 

 

Fixed line revenue(1)

 

7

 

10

 

9

 

12

 

758

 

16

 

(32

)

780

 

 

 

 

 

 

Other service revenue

 

1

 

2

 

 

8

 

 

 

 

11

 

 

 

 

 

 

Total service revenue

 

2,515

 

2,025

 

2,251

 

2,503

 

758

 

2,104

 

(243

)

11,913

 

 

1.7

 

2.3

 

Acquisition revenue

 

83

 

58

 

120

 

127

 

10

 

67

 

(2

)

463

 

 

 

 

 

 

Retention revenue

 

21

 

12

 

64

 

21

 

 

47

 

 

165

 

 

 

 

 

 

Other revenue

 

31

 

2

 

4

 

66

 

 

25

 

 

128

 

 

 

 

 

 

Total revenue

 

2,650

 

2,097

 

2,439

 

2,717

 

768

 

2,243

 

(245

)

12,669

 

 

1.5

 

2.0

 

Interconnect costs

 

(319

)

(343

)

(350

)

(579

)

(182

)

(428

)

243

 

(1,958

)

 

 

 

 

 

Other direct costs

 

(145

)

(99

)

(186

)

(243

)

(164

)

(138

)

 

(975

)

 

 

 

 

 

Acquisition costs

 

(290

)

(134

)

(278

)

(368

)

(78

)

(168

)

2

 

(1,314

)

 

 

 

 

 

Retention costs

 

(202

)

(52

)

(238

)

(177

)

 

(155

)

 

(824

)

 

 

 

 

 

Operating expenses

 

(544

)

(433

)

(438

)

(616

)

(206

)

(527

)

 

(2,764

)

 

 

 

 

 

Acquired intangibles amortisation

 

 

 

 

(11

)

 

(4

)

 

(15

)

 

 

 

 

 

Purchased licence amortisation

 

(170

)

(39

)

(3

)

(166

)

 

(35

)

 

(413

)

 

 

 

 

 

Depreciation and other amortisation

 

(336

)

(221

)

(231

)

(314

)

(46

)

(250

)

 

(1,398

)

 

 

 

 

 

Share of result in associates

 

 

 

 

 

 

261

 

 

261

 

 

 

 

 

 

Adjusted operating profit

 

644

 

776

 

715

 

243

 

92

 

799

 

 

3,269

 

 

(2.7

)

(2.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months to 30 September 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

2,106

 

1,721

 

1,729

 

1,838

 

 

1,731

 

(205

)

8,920

 

 

 

 

 

 

Messaging revenue

 

386

 

275

 

190

 

365

 

 

256

 

(14

)

1,458

 

 

 

 

 

 

Data revenue

 

190

 

89

 

122

 

134

 

 

91

 

(23

)

603

 

 

 

 

 

 

Fixed line revenue(1)

 

8

 

11

 

9

 

8

 

697

 

12

 

(14

)

731

 

 

 

 

 

 

Total service revenue

 

2,690

 

2,096

 

2,050

 

2,345

 

697

 

2,090

 

(256

)

11,712

 

 

 

 

 

 

Acquisition revenue

 

71

 

57

 

153

 

120

 

9

 

56

 

 

466

 

 

 

 

 

 

Retention revenue

 

17

 

20

 

62

 

29

 

 

46

 

 

174

 

 

 

 

 

 

Other revenue

 

49

 

1

 

3

 

55

 

 

24

 

 

132

 

 

 

 

 

 

Total revenue

 

2,827

 

2,174

 

2,268

 

2,549

 

706

 

2,216

 

(256

)

12,484

 

 

 

 

 

 

Interconnect costs

 

(363

)

(326

)

(349

)

(489

)

(172

)

(437

)

256

 

(1,880

)

 

 

 

 

 

Other direct costs

 

(167

)

(111

)

(174

)

(209

)

(119

)

(119

)

 

(899

)

 

 

 

 

 

Acquisition costs

 

(274

)

(114

)

(323

)

(292

)

(85

)

(155

)

 

(1,243

)

 

 

 

 

 

Retention costs

 

(182

)

(62

)

(183

)

(186

)

 

(150

)

 

(763

)

 

 

 

 

 

Operating expenses

 

(578

)

(433

)

(426

)

(588

)

(204

)

(536

)

 

(2,765

)

 

 

 

 

 

Acquired intangibles amortisation

 

 

 

 

(4

)

 

(4

)

 

(8

)

 

 

 

 

 

Purchased licence amortisation

 

(172

)

(37

)

(34

)

(166

)

 

(34

)

 

(443

)

 

 

 

 

 

Depreciation and other amortisation

 

(367

)

(252

)

(194

)

(297

)

(43

)

(255

)

 

(1,408

)

 

 

 

 

 

Share of result in associates

 

 

 

 

 

 

286

 

 

286

 

 

 

 

 

 

Adjusted operating profit

 

724

 

839

 

585

 

318

 

83

 

812

 

 

3,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%   

 

%   

 

%   

 

%   

 

%   

 

%   

 

 

 

 

 

 

 

 

 

 

Change at constant exchange rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

(9.8

)

(8.1

)

8.7

 

0.9

 

 

(1.8

)

 

 

 

 

 

 

 

 

 

Messaging revenue

 

(7.7

)

18.4

 

9.0

 

21.6

 

 

4.4

 

 

 

 

 

 

 

 

 

 

Data revenue

 

40.1

 

35.7

 

41.2

 

37.3

 

 

49.2

 

 

 

 

 

 

 

 

 

 

Fixed line revenue(1)

 

(2.6

)

(5.5

)

(2.2

)

50.0

 

9.6

 

34.5

 

 

 

 

 

 

 

 

 

 

Total service revenue

 

(5.9

)

(2.7

)

10.6

 

6.7

 

9.6

 

1.4

 

 

 

 

 

 

 

 

 

 

Acquisition revenue

 

18.3

 

3.3

 

(21.4

)

5.8

 

10.0

 

24.4

 

 

 

 

 

 

 

 

 

 

Retention revenue

 

23.5

 

(42.8

)

4.6

 

(27.6

)

 

1.8

 

 

 

 

 

 

 

 

 

 

Other revenue

 

(36.6

)

171.4

 

25.8

 

20.0

 

 

4.9

 

 

 

 

 

 

 

 

 

 

Total revenue

 

(5.7

)

(2.9

)

8.3

 

6.6

 

9.6

 

2.0

 

 

 

 

 

 

 

 

 

 

Interconnect costs

 

(11.5

)

5.7

 

1.0

 

18.4

 

5.8

 

(1.0

)

 

 

 

 

 

 

 

 

 

Other direct costs

 

(12.8

)

(10.1

)

8.3

 

16.3

 

37.0

 

16.6

 

 

 

 

 

 

 

 

 

 

Acquisition costs

 

6.5

 

18.5

 

(13.1

)

26.0

 

(5.6

)

9.5

 

 

 

 

 

 

 

 

 

 

Retention costs

 

11.6

 

(15.4

)

30.6

 

(4.8

)

 

4.0

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

(5.3

)

0.9

 

3.6

 

4.8

 

1.8

 

(1.3

)

 

 

 

 

 

 

 

 

 

Acquired intangibles amortisation

 

 

 

 

175.0

 

 

100.0

 

 

 

 

 

 

 

 

 

 

Purchased licence amortisation

 

 

5.4

 

(91.2

)

 

 

6.1

 

 

 

 

 

 

 

 

 

 

Depreciation and other amortisation

 

(8.2

)

(11.6

)

19.7

 

5.7

 

9.5

 

(1.6

)

 

 

 

 

 

 

 

 

 

Share of result in associates

 

 

 

 

 

 

(8.4

)

 

 

 

 

 

 

 

 

 

Adjusted operating profit

 

(10.5

)

(6.9

)

23.0

 

(23.6

)

12.1

 

(1.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:

(1)                      Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and DSL. All prior periods have been adjusted accordingly.

 

11


 

 

 

30 September           

Germany

Italy

Spain

UK

Other

Europe

Mobile telecommunications KPIs

 

 

 

 

 

 

 

Closing customers (‘000)

- 2007           

32,541

22,407

15,473

17,959

17,684

106,064

 

- 2006           

29,622

19,337

14,024

16,287

16,267

95,537

 

 

 

 

 

 

 

 

Closing 3G devices (‘000)

- 2007           

4,745

4,700

4,328

3,095

2,873

19,741

 

- 2006           

2,724

2,830

1,739

1,348

1,726

10,367

 

 

 

 

 

 

 

 

Voice usage (millions of minutes)

- 2007           

20,160

17,983

17,416

18,075

15,385

89,019

 

- 2006           

15,593

15,737

14,511

14,786

14,120

74,747

 

 

 

 

 

 

 

 

See page 4 for definition of terms

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Revenue growth of 1.5% in the six months ended 30 September 2007 was achieved despite a 0.5% impact from adverse exchange rate movements.

 

Service revenue growth was 1.7% in the six months ended 30 September 2007, with organic growth more than offsetting the adverse exchange rate movements. This growth was achieved predominantly by strong performance in data revenue, following improved service offerings and a significant increase in the number of 3G devices, and also from growth in the total registered mobile customer base which increased by 11.0% and reached 106.1 million at 30 September 2007. The positive impact of these factors on service revenue growth more than offset the negative effects of termination rate cuts, the cancellation of top up fees in Italy resulting from new regulation and the Group’s ongoing reduction of European roaming rates.

 

Voice revenue declined by 2.4%, or by 1.9% on an organic basis, driven by the effect of the termination rate cuts, roaming regulation and pricing reductions, which were mostly offset by total voice usage growth of 19.1%.

 

             Outgoing voice revenue remained broadly stable, with 0.3% organic growth during the period. Strong growth of 24.0% in outgoing call minutes, driven by the increased customer base and a 12.9% increase in outgoing usage per customer, was broadly matched by a reduction in the effective rate per minute, resulting from the cancellation of top up fees in Italy and price competition.

 

                                      Incoming voice revenue continued to decline, with a 4.4% fall on an organic basis, principally due to the impact of termination rate reductions in Germany, despite a 9.2% increase in incoming mobile voice minutes in the region.

 

             Roaming and international visitor revenue declined 7.4% on an organic basis, as expected, principally from the impact of the Group’s initiatives on retail and wholesale roaming. The overall reduction in revenue was mitigated by an increase of 12.4% in the respective volume of voice minutes used during the period.

 

The region recorded 8.0% growth in messaging revenue, or 8.6% on an organic basis compared with the same period last year, principally as a result of strong growth in messaging usage, particularly in Italy and the UK.

 

Data revenue growth remained strong, increasing by 39.8%, or by 40.8% on an organic basis. Data revenue continues to benefit from growth in connectivity services, demonstrated by the increasing penetration of 3G devices, which have nearly doubled since September 2006 to 19.7 million. Handheld business devices increased by 112.6% since September last year and Vodafone Mobile Connect 3G/GPRS data cards grew by 78.9%.

 

Fixed line revenue increased by 6.7%, or by 7.6% on an organic basis, mainly due to a 9.6% increase in Arcor’s service revenue at constant exchange rates.

 

Germany

 

At constant exchange rates, service revenue declined by 5.9%, mainly resulting from a 9.8% fall in voice revenue. This decline was driven by the impact of termination rate reductions, prior year tariff cuts and wholesale roaming rates. Although the prior year tariff changes resulted in a 30.9% fall in the effective outbound rate per minute, the impact of these changes was partially offset by a strong 38.1% increase in outgoing voice minutes. Messaging revenue also fell 7.7% at constant exchange rates, primarily as a result of higher take up of bundled offers on contract and reductions in messaging per user in the prepaid customer base. Partly offsetting these impacts was strong data revenue growth of 40.1% at constant exchange rates which has been achieved through continued growth in business services and the associated increasing penetration of 3G devices.

 

Italy

 

At constant exchange rates, service revenue declined by 2.7%, including an 8.1% decline in voice revenue primarily resulting from the negative impact of the cancellation of top up fees in March 2007 and termination rate cuts. The decrease in voice revenue was partially mitigated by a 14.3% increase in total voice usage, including a 17.8% increase in outgoing voice usage. Growth was driven by successful commercial initiatives which also resulted in a 23.3% increase in closing contract customers, predominantly within the business customer base. Despite the retail price decline, voice roaming revenue grew by 7.7% at constant exchange rates driven by a 15.7% increase in roaming minutes. Continued momentum from successful messaging propositions launched earlier in the calendar year helped achieve messaging growth of 18.4% at constant exchange rates. Strong growth in Vodafone Mobile Connect

 

12


 

USB Modems, Vodafone Mobile Connect Cards with 3G broadband and an increase in handheld business devices drove data revenue growth of 35.7% at constant exchange rates.

 

Spain

 

Service revenue growth in Spain was 10.6% at constant exchange rates. The rate of service revenue growth slowed during the quarter ended 30 September 2007, compared with the previous quarter, due to a strong summer promotion in the prior year, a more intensified competitive market and a lower growth in the average customer base. An 8.7% increase in voice revenue at constant exchange rates was achieved, predominantly due to a 10.3% increase in the customer base, although this was partially impacted by a termination rate cut in the period. 3G devices grew by 148.9% to 4.3 million devices, helping to drive data revenue growth of 41.2% at constant exchange rates compared with the same period last year.

 

UK

 

Service revenue in the UK increased by 6.7%, benefiting from a 10.3% increase in the customer base, reflecting an increase in contract customer market share, and from a £30 million VAT refund. Voice revenue increased by 0.9% with increases in voice usage, partly prompted by the increase in the customer base following the success of the refreshed voice tariffs launched in the previous year, more than offsetting falls in price per minute and reductions in roaming rates. Messaging and data revenue growth have remained strong at 21.6% and 37.3%, respectively. Messaging revenue growth reflects the continued success of propositions launched last year. Similarly, increasing penetration of Vodafone Mobile Connect 3G/GPRS data cards and handheld business devices combined with enhanced connectivity service offerings helped drive strong data revenue growth.

 

Arcor

 

Arcor generated a 9.6% increase in service revenue at constant exchange rates. In a very competitive market, growth was principally driven by a 39.6% increase in DSL customers to 2.3 million.

 

Other Europe

 

Service revenue in Other Europe remained broadly stable compared with the same period last year, after a 0.7% adverse impact from foreign exchange movements. At constant exchange rates, service revenue increased by 6.4% and 5.8% in Portugal and the Netherlands respectively, although these increases were mostly offset by a 6.1% decline in Greece. The decline in Greece arose from the impact of termination rate cuts in January and June of this year and the cessation in April of a national roaming agreement.

 

Adjusted operating profit

 

Adjusted operating profit fell by 2.7%, or by 2.3% on an organic basis. Growth in interconnect costs, other direct costs and acquisition costs was the largest driver behind this decline.

 

Interconnect costs increased by 4.1% compared with the same period in the prior year, with the increased call volumes in the region partly offset by the benefit obtained from termination rate cuts. The main increases in interconnect costs were recorded in the UK and Italy, partially offset by reductions in Germany.

 

Other direct costs rose by 8.5%, mostly resulting from Arcor and the UK. Within Arcor, an increase in direct access charges resulted from achieving a higher customer base. The increase in other direct costs in the UK was mainly due to investment in content based data services and, in part, to a portion of commissions being recorded in other direct costs to reflect their ongoing nature following changes to the commercial model.

 

Acquisition costs increased by 5.7% compared with the same period last year, primarily reflecting increases in the UK, as well as smaller increases in Germany and Italy, partly offset by lower costs in Spain. Acquisition costs in the UK reflected higher contract customer additions and higher costs per addition in a competitive market.

 

Retention costs increased by 8.0%, predominantly an effect of the increased volume of upgrades in Spain resulting from the recent large customer growth and more proactive churn management. Across the region, costs per upgrade remained similar year on year, except in Italy following increased focus on the retention of high value prepaid customers that began in the summer of the last financial year.

 

Operating expenses were broadly stable as a result of various initiatives implemented to achieve the broadly stable operating expenses target. Specific actions undertaken included restructuring in Germany, Ireland and in common functions, continued migration from leased lines to owned transmission and further renegotiation of contracts relating to various network operating expenses. This has been achieved despite increasing call volumes carried on the Group’s networks and customer care from a growing customer base and an increasingly competitive market place.

 

Germany

 

Adjusted operating profit fell by 10.5% at constant exchange rates as a result of the reduction in voice revenue. Costs within Germany also fell overall, with the largest reductions experienced in interconnect costs, which fell by 11.5% at constant exchange rates, as a result of the termination rate cut. Operating expenses fell by 5.3% at constant exchange rates resulting from targeted cost reduction programmes. Increases in acquisition and retention costs of 6.5% and 11.6% at constant exchange rates arose as a result

 

13


 

of higher gross additions and upgrades. Acquisition costs per customer fell, while retention costs increased 3.2% on a per customer basis. Depreciation and other amortisation charges fell by 8.2% on a constant currency basis due to the centralisation of the service platform operations that was completed in the last financial year and the ongoing progress on centralisation of data centres.

 

Italy

 

Adjusted operating profit fell by 6.9% at constant exchange rates, driven primarily by the reduction in service revenue. The main movements in the cost base in Italy were in relation to interconnect costs, which increased by 5.7% at constant exchange rates due to the increased number of outgoing minutes, particularly to other mobile networks, and acquisition costs which increased by 18.5% at constant exchange rates reflecting an increase in volumes, mainly higher value contract customers. Operating expenses remained flat compared to the prior year due to cost saving initiatives. Reduced depreciation and other amortisation of 11.6% at constant exchange rates resulted from lower capital expenditure, including the centralisation of data centre operations.

 

Spain

 

Adjusted operating profit increased by 23.0% at constant exchange rates as interconnect costs remained stable, due to the reduction in termination rates and an increase in volume of calls made to other Vodafone customers which do not incur interconnect costs, as well as overall cost control producing a reduction in expenses as a percentage of overall revenue. Retention costs increased by 30.6% at constant exchange rates resulting from an increased volume of upgrades compared to the prior year, which was largely offset by a decrease in acquisition costs of 13.1% at constant exchange rates reflecting lower additions in the current period.

 

UK

 

Although service revenue grew by 6.7%, adjusted operating profit decreased by 23.6% mainly due to investment in new customers driving a 26.0% increase in acquisition costs. The higher customer base and new tariffs generated a 27.6% increase in outgoing mobile minutes which in turn increased interconnect costs by 18.4%. Additionally, other direct costs rose by 16.3% due in part to investment in content based data services and an incentive based commission structure for indirect partners, which has led to improved customer retention.

 

Arcor

 

Adjusted operating profit increased by 12.1% at constant exchange rates, as the 9.6% increase in service revenue outpaced the 9.3% growth in the cost base at constant exchange rates. The increase in the cost base was primarily driven by other direct costs, which increased by 37.0% at constant exchange rates, as a result of higher direct access charges incurred due to the larger customer base, while other components of the cost base remained relatively stable.

 

Other Europe

 

Adjusted operating profit decreased by 1.6%. Portugal and the Netherlands contributed adjusted operating profit growth at constant exchange rates of 15.4% and 39.1% respectively, resulting from strong cost control and a fall in costs as a percentage of service revenue. Growth in these countries was offset by a fall in the share of results in associates, which fell 8.5% at constant exchange rates, and by a decrease in adjusted operating profit at constant exchange rates of 22.3% in Greece, where results were affected by a decline in service revenue, increased retention and marketing costs and a regulatory fine.

 

14


 

EMAPA RESULTS

 

 

 

Eastern 

Europe

 

Middle East
Africa
& Asia

 

Pacific

 

Associates
US

 

Associates
Other

 

 

EMAPA

 

 

% change

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

£m

 

 

£

 

Organic

 

Six months to 30 September 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

1,260

 

1,735

 

504

 

 

 

 

 

 

3,499

 

 

 

 

 

 

Messaging revenue

 

156

 

92

 

129

 

 

 

 

 

 

377

 

 

 

 

 

 

Data revenue

 

49

 

50

 

28

 

 

 

 

 

 

127

 

 

 

 

 

 

Fixed line revenue(1)

 

8

 

4

 

10

 

 

 

 

 

 

22

 

 

 

 

 

 

Total service revenue

 

1,473

 

1,881

 

671

 

 

 

 

 

 

4,025

 

 

40.9

 

15.6

 

Acquisition revenue

 

26

 

124

 

61

 

 

 

 

 

 

211

 

 

 

 

 

 

Retention revenue

 

11

 

 

3

 

 

 

 

 

 

14

 

 

 

 

 

 

Other revenue

 

14

 

14

 

23

 

 

 

 

 

 

51

 

 

 

 

 

 

Total revenue

 

1,524

 

2,019

 

758

 

 

 

 

 

 

4,301

 

 

39.9

 

16.0

 

Interconnect costs

 

(252

)

(280

)

(118

)

 

 

 

 

 

(650

)

 

 

 

 

 

Other direct costs

 

(222

)

(255

)

(133

)

 

 

 

 

 

(610

)

 

 

 

 

 

Acquisition costs

 

(152

)

(186

)

(105

)

 

 

 

 

 

(443

)

 

 

 

 

 

Retention costs

 

(41

)

(52

)

(27

)

 

 

 

 

 

(120

)

 

 

 

 

 

Operating expenses

 

(379

)

(470

)

(201

)

 

 

 

 

 

(1,050

)

 

 

 

 

 

Acquired intangibles amortisation

 

(104

)

(208

)

 

 

 

 

 

 

(312

)

 

 

 

 

 

Purchased licence amortisation

 

(12

)

(16

)

(8

)

 

 

 

 

 

(36

)

 

 

 

 

 

Depreciation and other amortisation

 

(191

)

(223

)

(103

)

 

 

 

 

 

(517

)

 

 

 

 

 

Share of result in associates

 

 

1

 

 

1,180

 

 

 

1,181

 

 

 

 

 

 

Adjusted operating profit

 

171

 

330

 

63

 

1,180

 

 

 

1,744

 

 

6.1

 

20.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months to 30 September 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

946

 

1,027

 

458

 

 

 

 

 

 

2,431

 

 

 

 

 

 

Messaging revenue

 

147

 

66

 

118

 

 

 

 

 

 

331

 

 

 

 

 

 

Data revenue

 

25

 

11

 

20

 

 

 

 

 

 

56

 

 

 

 

 

 

Fixed line revenue(1)

 

5

 

34

 

 

 

 

 

 

 

39

 

 

 

 

 

 

Total service revenue

 

1,123

 

1,138

 

596

 

 

 

 

 

 

2,857

 

 

 

 

 

 

Acquisition revenue

 

23

 

105

 

48

 

 

 

 

 

 

176

 

 

 

 

 

 

Retention revenue

 

8

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

Other revenue

 

8

 

4

 

22

 

 

 

 

 

 

34

 

 

 

 

 

 

Total revenue

 

1,162

 

1,247

 

666

 

 

 

 

 

 

3,075

 

 

 

 

 

 

Interconnect costs

 

(217

)

(178

)

(125

)

 

 

 

 

 

(520

)

 

 

 

 

 

Other direct costs

 

(141

)

(112

)

(100

)

 

 

 

 

 

(353

)

 

 

 

 

 

Acquisition costs

 

(91

)

(144

)

(78

)

 

 

 

 

 

(313

)

 

 

 

 

 

Retention costs

 

(31

)

(36

)

(24

)

 

 

 

 

 

(91

)

 

 

 

 

 

Operating expenses

 

(278

)

(246

)

(174

)

 

 

 

 

 

(698

)

 

 

 

 

 

Acquired intangibles amortisation

 

(127

)

(61

)

(1

)

 

 

 

 

 

(189

)

 

 

 

 

 

Purchased licence amortisation

 

(8

)

(9

)

(7

)

 

 

 

 

 

(24

)

 

 

 

 

 

Depreciation and other amortisation

 

(151

)

(122

)

(91

)

 

 

 

 

 

(364

)

 

 

 

 

 

Share of result in associates

 

 

 

 

1,015

 

106

 

 

1,121

 

 

 

 

 

 

Adjusted operating profit

 

118

 

339

 

66

 

1,015

 

106

 

 

1,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

 

Change at constant exchange rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voice revenue(1)

 

31.5

 

84.4

 

4.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Messaging revenue

 

2.0

 

51.0

 

5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Data revenue

 

99.2

 

395.0

 

32.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed line revenue(1)

 

79.1

 

(89.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total service revenue

 

29.2

 

79.7

 

7.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition revenue

 

13.7

 

32.6

 

21.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Retention revenue

 

39.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenue

 

76.5

 

353.3

 

4.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

29.3

 

76.6

 

8.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Interconnect costs

 

13.2

 

70.9

 

(9.7

)

 

 

 

 

 

 

 

 

 

 

 

 

Other direct costs

 

48.9

 

147.1

 

26.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs

 

62.1

 

45.8

 

29.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Retention costs

 

38.0

 

57.5

 

7.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

33.6

 

107.9

 

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangibles amortisation

 

(18.8

)

271.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased licence amortisation

 

50.0

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and other amortisation

 

25.7

 

97.3

 

7.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of result in associates

 

 

 

 

26.0

 

(100.0

)

 

 

 

 

 

 

 

 

Adjusted operating profit

 

53.5

 

5.2

 

(8.5

)

26.0

 

(100.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:

(1)              Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and DSL. All prior periods have been adjusted accordingly.

 

15


 

 

30 September 2007

 

30 September 2006

 

 

Eastern Europe

Middle East Africa &
Asia

Pacific

EMAPA

 

Eastern
Europe

Middle East Africa &
Asia

Pacific

EMAPA

 

 

 

 

 

 

 

 

 

 

 

 

Mobile telecommunications KPIs

 

 

 

 

 

 

 

 

 

 

Closing customers (‘000)

31,699

66,810

5,840

104,349

 

25,879

25,374

5,423

56,676

 

Closing 3G devices (‘000)

517

133

1,022

1,672

 

224

534

758

 

Voice usage (millions of minutes)

24,230

78,865

6,138

109,233

 

17,790

17,204

5,402

40,396

 

 

 

 

 

 

 

 

 

 

 

 

See page 4 for definition of terms

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Service revenue increased by 40.9%, or by 15.6% on an organic basis, with the impact of the acquisition of subsidiaries in Turkey and India and the adverse effect of exchange rate movements, particularly in South Africa, accounting for most of the difference. The impact of acquisitions, disposal and exchange rates on EMAPA’s service revenue growth are shown below.

 

 

 

Organic
growth
%

 

Impact of
exchange rates
Percentage points

 

Impact of acquisitions
and disposal
(1) 
Percentage points

 

Reported
growth
%

 

 

 

 

 

 

 

 

 

 

 

Service revenue

 

 

 

 

 

 

 

 

 

Eastern Europe

 

11.0

 

2.0

 

18.2

 

31.2

 

Middle East, Africa and Asia

 

25.1

 

(14.4

)

54.6

 

65.3

 

Pacific

 

7.4

 

5.2

 

-

 

12.6

 

EMAPA

 

15.6

 

(2.3

)

27.6

 

40.9

 

 

Note:

(1)          Impact of acquisitions and disposal includes the impact of the change in consolidation status of Bharti Airtel from a joint venture to an investment in February 2007.

 

The organic service revenue growth was driven predominantly by an organic increase in total voice minutes of 31.8%, a result of a 28.8% organic increase in the average customer base and usage stimulation strategies, which more than offset the impact of pricing pressures in a number of locations.

 

Eastern Europe

 

In Eastern Europe the growth in service revenue benefited from an 18.2 percentage point increase from the prior year acquisition in Turkey, and favourable exchange rate movements of 2.0 percentage points. Organic growth in service revenue was 11.0%, principally driven by an 18.2% organic increase in the average customer base.

 

Romania continued to be the principal driver of organic growth in Eastern Europe, with service revenue growth of 23.2% at constant exchange rates, mainly as a result of a 19.9% increase in the closing customer base, particularly driven by initiatives focused on business and contract customers which contributed to a 33.9% increase in total voice minutes.

 

Turkey continued to perform well with strong customer growth of 29.0% since 30 September 2006, bringing the closing customer base to 15.7 million. This led to total revenue growth of around 28%, assuming the Group owned the business for the whole of the same period last year.

 

Middle East, Africa and Asia

 

Service revenue in Middle East, Africa and Asia grew strongly with a 25.1% increase on an organic basis, mainly due to strong growth in Egypt and from Vodacom.

 

Service revenue growth at constant exchange rates in Egypt was 33.9%, predominantly a result of a 64.0% increase in voice usage which was stimulated by the increased customer base of 12.2 million.

 

Vodacom reported service revenue growth at constant exchange rates of 19.1%, reflecting the Group’s share of the 22.6% increase in the closing customer base during the twelve month period to 30 September 2007. The growth in the customer base in the six months ended 30 September 2007 was impacted by a change in the prepaid customer disconnection policy, which resulted in the disconnection of an additional 1.45 million prepaid customers in September 2007. Vodacom’s data revenue growth remained very strong, with rapid growth in mobile broadband connectivity devices.

 

The Group’s new business in India reported year on year total revenue growth of around 53%, assuming the Group owned the business for the whole of both periods. Customer net additions between the completion of the acquisition and the end of the period were 8.0 million, bringing the closing customer base to 35.7 million.

 

16


 

Pacific

 

The Group’s operations in the Pacific segment delivered 12.6% service revenue growth, or 7.4% on an organic basis, with the impact of favourable foreign exchange movements being the difference. The organic growth was achieved through a 13.6% increase in total voice minute volumes, a result of the 7.7% growth in the closing customer base in the region, with improved contract mix and a focus on higher value prepaid customers in Australia, though this was partially offset by the impact of termination rate reductions in both Australia and New Zealand in the period.

 

Adjusted operating profit

 

The impact of acquisitions, disposals and exchange rates on EMAPA’s adjusted operating profit is shown below:

 

 

 

Organic
growth
%

 

Impact of
exchange rates
Percentage points

 

Impact of acquisitions
and disposals
(1)
Percentage points

 

Reported
growth
%

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit